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September 26, 2023

Accountants Behaving Badly: Whitley Penn and 3 CPAs Fined, Misappropriation and Mail Fraud, Gambling Away Client Money

PCAOB fined Whitley Penn $200,000, three CPAs for really crappy auditing
Back in March, the PCAOB disciplined top 45 firm Whitley Penn and three of its partners for ignoring the fact that there are PCAOB rules in place for public issuer audits. With all the coronavirus hysteria that has been going on, we failed to talk about this a couple months ago. But we are now.

The punishments are as follows:

  • Whitley Penn: $200,000 fine, must undertake certain remedial actions.
  • Susan Powell: $25,000 fine, barred from being associated with a registered public accounting firm, limited role in any audits for one year following the termination of the bar, and must complete 40 additional hours of CPE.
  • Jeffry Lawlis: $15,000 fine, suspended from being associated with a registered public accounting firm for a period of one year, limited role in any audits for one year following his suspension, and must complete 20 additional hours of CPE.
  • John “Griff” Babb: $10,000 fine, limited role in any audits for two years, and must complete 10 additional hours of CPE.

The reasons for these “stiff” penalties are:

  • Powell and Babb violated PCAOB rules and standards in connection with the audits of the 2012-2014 financial statements of United Development Funding III L.P., and the review of that issuer’s Q3 2015 interim financial statements.
  • Lawlis violated PCAOB rules and standards in connection with the audits of the 2013-2014 financial statements of United Development Funding IV and the review of that issuer’s Q3 2015 interim financial statements.
  • Whitley Penn violated PCAOB rules and standards by failing to design, implement, and maintain appropriate quality control policies and procedures.

Here’s a nice, little synopsis from the PCAOB disciplinary order on how Powell, Babb, and Lawlis screwed things up:

Auto loan company execs accused of stealing from firm [Associated Press]
Accountant Michael Walsh and two executives of a suburban Chicago auto loan company have been charged with misappropriating more than $5 million in company funds.

Walsh, 62, James Collins, 50, CEO of Evanston-based Honor Finance LLC, and Robert DiMeo, 49, the company’s COO were charged with mail fraud on May 15. The men are accused in U.S. District Court with diverting money owed the company between 2011 and 2018 to Skokie-based shell company, LHS Solutions Ltd., which they controlled.

A press release announcing the charges states:

The defendants used the outside entity, Skokie-based LHS Solutions Ltd., to purchase GPS devices and then resell them to Honor Finance at a significant markup, the indictment alleges. Honor Finance required that GPS devices be installed in certain vehicles purchased with loans it financed, so that the vehicles could be located and repossessed if the borrowers defaulted.

The indictment alleges that the defendants fraudulently misappropriated approximately $5.3 million from Honor Finance. The trio transferred some of the misappropriated funds to themselves and their family members, the indictment states. They also used some of the fraud proceeds to pay for a down payment on a lake house in Dowagiac, Michigan, according to the indictment.

Former Auckland accountant Christopher Wright jailed after gambling away $1m from 245 clients [New Zealand Herald]
Christopher Wright, the former Auckland chartered accountant who gambled his clients’ tax refunds away and stole more than $1 million, has been jailed for nearly four years.

Wright, 64, stole some $1.01 million from 245 clients over a six-year period from January 2010 through to April 2016. He pleaded guilty last March to one representative charge of theft by person in special relationship brought by the Serious Fraud Office (SFO).

The SFO said the tax refunds intended for Wright’s clients were deposited in his accounting practice’s trust account. He then spent the refunds on gambling, friends and family, school fees, and loan repayments.

Other accountants behaving badly:

  • Hérold Nicolas, a former FAES chief accountant arrested for theft and extra-billing in Haiti [The Haitian Times]
  • Health department accountant, Patwari held for taking bribe in Chhattisgarh [Times of India]
  • Ex-accountant walked into café with axe and gun and told waitress: ‘I’m going to prison for a long time’ [Wales Online]

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