Revenue Recognition

Accountant Suspended Over Failure to Spot Fraud

Among other things, the accountant and his firm failed to detect fraudulent sales and identify related-party transactions, says the SEC.
Vincent RyanJuly 26, 2016
Accountant Suspended Over Failure to Spot Fraud

The Securities and Exchange Commission last week suspended an accountant for conducting a faulty audit of the financial statements of a public company that was committing fraud. The firm where he was a partner at the time, EFP Rotenberg LLP, has been prohibited from accepting new public company clients for one year.

According to the SEC’s order instituting a settled administrative proceeding, the failed audit pertained to Illinois-based ContinuityX Solutions. The publicly traded company claimed to sell internet services to businesses. Its executives were charged by the SEC in September 2015 for allegedly engineering a scheme to grossly overstate the company’s revenue through fraudulent sales.

The SEC’s order found that during the audits of ContinuityX, EFP Rotenberg and the accountant, Nicholas Bottini failed to perform sufficient procedures to detect the fraudulent sales in the company’s financial statements.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

EFP Rotenberg and Bottini also failed to obtain sufficient audit evidence over revenue recognition and accounts receivable, to identify related-party transactions, to investigate management representations that contradicted other audit evidence, to perform procedures to resolve and properly document inconsistencies, and to exercise due professional care.

“Auditors are supposed to act as gatekeepers to protect the integrity of our markets, but EFP Rotenberg and Bottini failed to live up to their professional obligations,” said David Glockner, director of the SEC’s Chicago regional office.

New York-based EFP Rotenberg agreed to pay a $100,000 penalty to settle the SEC’s charges, and it can only begin accepting new public company clients again next year after an independent consultant certifies that the firm has corrected the causes of its audit failures.

Bottini agreed to pay a $25,000 penalty in addition to being permanently suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies.