The Securities and Exchange Commission has fined Grant Thornton $1.5 million as part of a settlement with accounting firm Doeren Mayhew & Co. P.C. and three members of the firms. The action stemmed from the audit of MCA Financial Corp.
The companies and the individuals agreed to the findings and sanctions without admitting or denying the commission’s findings. Under the settlement, Grant Thornton may not engage in joint audits with other auditing firms for five years.
Further, it must require its entire professional staff to undergo fraud-detection training and provide at least $1 million to fund such training. Grant Thornton was censured and required to pay disgorgement and prejudgment interest of $59,749.41.
For its part, Doeren Mayhew, which voluntarily discontinued conducting public audits as of March 19, 2003, agreed not to accept new public company auditing engagements for six months. In addition, if it engages in audits of public companies after six months expire, Doeren Mayhew agreed that it would set up put in place policies and procedures aimed at improving the quality of its public company audit practice for three years, according to the SEC.
Doeren Mayhew also was censured, and the firm was required to pay disgorgement and prejudgment interest of $115,126.86.
The three individuals–Marvin Morris, Peter Behrens, and Benedict Rybicki–are not permitted to practice before the commission for periods of five years, three years, and one year, respectively. Behrens is a partner in the Detroit office of Grant Thornton, while Morris and Rybicki are directors of Doeren Mayhew.
The case involved the audit of MCA Financial for the fiscal year ended January 31, 1998. At the time, MCA was a Southfield, Mich.-based mortgage banking company.
MCA filed materially false and misleading 1998 annual financial statements because it used related-party transactions to inflate and mischaracterize its income, assets, and equity, according to the SEC. The commission charged that MCA used those financial statements in connection with a public offering of debentures.
The regulatory agency asserted that Behrens and Morris, the engagement partners for the 1998 MCA audit, and Rybicki, the engagement manager for the audit, knew that MCA failed to disclose several million dollars of material, related-party transactions in its 1998 annual financial statements.
The SEC initially took enforcement action last January, accusing the two audit firms, as well as the three individuals, of helping MCA commit accounting fraud.