Recent SEC Enforcement Action on Internal Control Despite Not One Other Alleged Violations
A current SEC-settled administrative action is yet another indication from the SEC’s concentrate on internal control of financial confirming (ICFR). Although prior SEC ICFR charges happen to be supported with allegations of false financial claims or violations from the Foreign Corrupt Practices Act, this SEC action only charges an old financial confirming executive with knowingly making false representations about his participation within the design, maintenance, and operation of ICFR his participation within the assessment of ICFR’s effectiveness and also the nonexistence of great too little ICFR.
These misrepresentations were created in reviews on Form 10-K and Form 10-Q filed by QSGI Corporation., certifications filed as exhibits to individuals reviews, and claims designed to auditors orally as well as in management representation letters, that’s, letters supplied by management to QSGI’s auditors. The SEC’s order necessitates the former executive to cease and desist from carrying out or causing any violations of Exchange Act Sections 10(b), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 promulgated thereunder. Additionally, an order denies the previous executive the privilege of showing up or practicing prior to the SEC being an accountant and orders the previous executive to pay for a civil money penalty in the quantity of $23,000. The SEC is ongoing its situation from the Chief executive officer of the organization associated with exactly the same matters.
The SEC’s action took it’s origin from the next:
- The previous executive’s understanding of too little the look and operation of ICFR that facilitated the shipment of inventory that was not recorded in QSGI’s books and records, removing inventory without recognition within the books and records that it absolutely was removed, and also the acceleration, by which he participated, from the recognition of inventory and a / r for reasons of maximizing QSGI’s borrowings under its turning credit agreement
- The false representation in management’s set of ICFR, that was incorporated in QSGI’s annual set of Form 10-K because of its 2008 fiscal year, the former executive and also the Chief executive officer had evaluated QSGI’s ICFR in compliance using the Committee of Sponsoring Organizations from the Treadway Commission’s (COSO’s) framework once the Chief executive officer hadn’t took part in this kind of evaluation and it was not really acquainted with the COSO framework
- The false certifications, filed as exhibits towards the Exchange Act reviews, where the former executive stated that he’d reported all significant too little ICFR towards the auditors, once the former executive hadn’t reported such deficiencies, such as the circumvention of ICFR for reasons of maximizing QSGI’s borrowings
- The misrepresentations and misleading claims the previous executive designed to the auditors as he must have revealed the functional too little ICFR, including individuals that the organization was unsuccessfully attempting to correct
- The previous executive’s getting caused, for reasons from the Exchange Act, QSGI’s violations from the books and records and internal control provisions from the Exchange Act by neglecting to design effective ICFR, circumventing controls that been around, and withholding information in the auditors
Other recent SEC enforcement actions including ICFR charges when financial claims aren’t also misstated include cases asserting violations from the Foreign Corrupt Practices Act and also the failure to determine appropriate controls relevant to compliance with export control and economic sanctions laws and regulations.