PCAOB Sanctions Audit Firm and Three Partners for Violating PCAOB Standards Related to Audits and Examinations of a Broker-Dealer Over Multiple Years
PCAOB fines Citrin Cooperman ($200,000) and three partners (totaling $55,000) in addition to other relief
The Public Company Accounting Oversight Board (PCAOB) today announced that it has sanctioned Citrin Cooperman & Company, LLP ("Citrin Cooperman") and three of its partners (Joseph Puglisi, Mark Schniebolk, and John Cavallone) for violations of PCAOB rules and standards in connection with the December 31, 2016 and December 31, 2017 audits and examinations of a broker-dealer that holds customer assets.
The PCAOB found that Citrin's engagement and quality review partners failed to adhere to PCAOB standards over multiple years. The PCAOB found that Puglisi, as engagement partner on both the 2016 and 2017 engagements, failed to sufficiently evaluate whether the broker-dealer (1) maintained effective internal controls over compliance with the Securities and Exchange Commission's Customer Protection Rule and (2) complied with the reserve requirements of the Customer Protection Rule.
The Board also found that Puglisi failed to perform sufficient audit procedures to test the related supplemental information accompanying the broker-dealer's financial statements. The Board determined that Schniebolk and Cavallone, as the 2016 and 2017 engagement quality reviewers, respectively, failed to appropriately evaluate the conclusions reached by Puglisi and the engagement team and to perform their reviews with due professional care.
The PCAOB also sanctioned Citrin Cooperman for failing to establish and implement appropriate quality control policies and procedures to provide it with reasonable assurance that work performed by its engagement personnel would comply with PCAOB standards and regulatory requirements. The Board further found that Citrin Cooperman did not take the necessary steps, after learning of deficiencies identified through the Board's inspection of the firm's 2016 audit and examination of the broker-dealer, to ensure that work was assigned to personnel having the degree of technical training and proficiency required in the circumstances.
"Firms must take into consideration the results of the Board's inspection process and ensure that their systems of quality control prevent deficiencies from reoccurring," said PCAOB Chair Erica Y. Williams.
The Board censured Citrin Cooperman, imposed a $200,000 civil money penalty on the firm, and required the firm to undertake and certify improvements to its system of quality control. The Board also imposed a one-year suspension on Puglisi, followed by a one-year limitation from serving as an engagement partner or engagement quality reviewer on a similar engagement and a $25,000 civil money penalty. Schniebolk and Cavallone, each received a censure, a one-year limitation from serving as an engagement quality reviewer, and a $15,000 civil money penalty. The Board also required that Puglisi, Schniebolk, and Cavallone complete an additional 20 hours of continuing professional education related to the audits and examinations of broker-dealers under PCAOB standards.
"As gatekeepers in our capital markets, auditors must verify that the broker-dealers they examine have effective internal controls and comply with customer protection rules designed to safeguard investors' funds," said Patrick Bryan, Director of the PCAOB’s Division of Enforcement and Investigations. "Today's order demonstrates our division's commitment to bringing actions against auditors who fail to fulfill their role in protecting investors."
PCAOB enforcement staff members Michael C. Occhuizzo, Arnold C. Ramos, and Tiffany C. Johnson conducted the investigation, supervised by Kyra C. Armstrong and Raymond J. Hamm. The PCAOB thanks the Financial Industry Regulatory Authority for its assistance in this matter.
The PCAOB oversees auditors' compliance with the Sarbanes-Oxley Act, provisions of the securities laws relating to auditing, professional standards, and PCAOB and SEC rules. Further information about the PCAOB Division of Enforcement and Investigations is available on the PCAOB website.
Firms or individuals wishing to report suspected misconduct by auditors, or to self-report possible misconduct, may visit the PCAOB Tips and Referrals page.
About the PCAOB
The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers, including compliance reports filed pursuant to federal securities laws.
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