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Monday Morning Accounting News Brief: Big 4 Better Be Ready to Get Regulated Hard; A Firm Playing Hot Potato With a Data Breach | 5.6.24

white cat mug, morning coffee

Hiya. I trust everyone had a lovely weekend and you’re all eager to start an exciting new week. Or you had a weekend like Blake’s.

The situation he was ruminating about when he should have been relaxing: The Securities and Exchange Commission charged audit firm BF Borgers CPA PC and its owner, Benjamin F. Borgers with deliberate and systemic failures to comply with Public Company Accounting Oversight Board (PCAOB) standards in its audits and reviews incorporated in more than 1,500 SEC filings from January 2021 through June 2023.

Last weekend’s weekend discussion: It’s Mental Health Awareness Month. We’re aware. WE’RE AWARE.


Bloomberg Tax drops a scary headline:

End of Trump Media’s Auditor Jolts Hundreds of Other Companies

The sudden shutdown of what the SEC dubbed a “sham audit mill” will force hundreds of companies, including Trump Media & Technology Group Corp., to hunt for new auditors, scour old audits for potential problems, and scramble to meet public company regulatory deadlines.

Borgers had clients ranging from American Rebel Holdings Inc., a Nashville-based business that makes apparel and backpacks for concealed carry guns, to Eva Live Inc., an AI-focused digital advertising company in California.

All of them will need to find new auditors—fast—if they want to make their next quarter’s financial reporting deadlines in time. They have to alert the market that they no longer have an auditor by issuing a special 8-K financial form and will brace for scrutiny as new auditors question the work vetted by a firm that federal regulators said violated multiple rules.

“This will likely shut down a lot of companies, or make them go private,” said Shaun Donnelly, CEO of mixed martial arts entertainment company Lingerie Fighting Championship Inc., a BF Borgers client.

Reminder to clients: You might have a hard time finding a new audit firm:


Maine’s BerryDunn (#46 on the IPA Top 500 with $137,885,236 in revenue) is getting sued:

Around 1.1 million people who use BerryDunn’s services were affected by the breach, according to eight lawsuits filed in U.S. District Court in Portland on Tuesday. An “unauthorized actor” took data stored on a vendor’s server, but BerryDunn said there is no evidence personal information was misused, in the letter.

The lawsuits allege, in part, that BerryDunn was negligent, breached its fiduciary duty and was unjustly enriched. BerryDunn “failed to properly implement basic data security practices,” which is prohibited by federal law, according to the lawsuit.

Customers were told about the breach in late April, seven months after it happened. The notification followed an investigation by BerryDunn, according to the letter.

While that’s going on, BerryDunn and their vendor Reliable Networks are playing hot potato with whose fault it is:

BerryDunn, a prominent Portland accounting firm, says one of its vendors, Reliable Networks of Biddeford, got hacked. Reliable Networks says it was hired to manage BerryDunn’s health care data, not secure it, and that it spotted the hack of BerryDunn’s network.

“The investigation found that an unauthorized actor gained limited access to the vendor’s network and took some data,” BerryDunn said on its website.

Reliable fired back on its website: “BerryDunn’s own network and system were breached by a third party, through no fault of Reliable Networks.”

The company blasted BerryDunn for its “baseless allegations” and said it was confident that once forensic analysis was complete, its claims would be found “devoid of any merit whatsoever.”


Quick update to last week’s BDO lawsuit story: We’re told there has been discussion among partners about a class action suit. Fun!


UK regulators have published their strategies for the regulation of artificial intelligence (AI) within financial services. “No new regulations needed.”

KPMG:

Overall, [regulators] have welcomed the government’s sector-led and innovation-friendly approach. No new regulation is proposed, with both the BoE/PRA (Bank of England/Prudential Regulation Authority) and FCA (Financial Conduct Authority) determining that they already have appropriate frameworks in place to support the government’s principles. However, they have acknowledged that this will need to be kept under review given the rapid growth in deployment of AI within financial services. As a result, firms should take action now to ensure that their AI risk management tools are fit-for-purpose and fully incorporate the requirements that have been identified.


The Australian government is still going after Big 4 firms, Financial Review has a list of concerns from the Regulation of Accounting, Auditing and Consulting Firms in Australia report released Friday:

The big four accounting firms could be forced to slash partner numbers and incorporate their consulting businesses under a crackdown on governance standards flagged as a possible response to the PwC tax leaks scandal.

In a consultation paper released late on Friday, Treasury also raised concerns about audit and consulting partners sharing profits, which it said risked auditors being incentivized to prioritize client satisfaction over audit quality, potentially undermining market confidence.


Apparently PwC’s Phillippines affiliate is caught up in some nonsense. First I’m hearing of it.

The Securities and Exchange Commission has accused Isla Lipana & Co., the Philippine unit of the world’s second-largest accounting giant PwC, of colluding with self-styled trading wizard Mica Francesca Tan in luring investors into her multi-billion peso Ponzi-style investment scam.

The complaint filed by the SEC with the Department of Justice, a copy of which was obtained by Bilyonaryo.com, highlighted that Isla Lipana’s questionable audit reports for Tan’s MFT Group of Companies from 2018 to 2021 played a pivotal role in supporting Tan’s fraudulent scheme to drain funds from the investing public.

Tan attracted investors with assurances of annual returns between 12 percent and 18 percent, which included monthly payments of 1 percent to 1.5 percent throughout the year, culminating in the final month with the return of the principal amount.

She used the audited financial statements (AFS) certified by Isla Lipana to “perpetrate the unauthorized offer or sale of unregistered securities,” according to the SEC.

BTW that’s their SEC, not ours.


The Times of Israel on what Deloitte’s working on over there. Including the screenshot to ask where can we get that pillow? Also the insert needs to be bigger than the cover for maximum fluff, just saying.

“The past year has been challenging and founders are showing real resilience,” Yair Laron, partner at Deloitte Catalyst, told The Times of Israel in emailed comments.

Deloitte Launchpad is a seven-week hybrid program that provides early-growth startups with hands-on mentorship from the firm’s Israel and global experts. The 10 startups were chosen out of about 100 applicants for the growth accelerator.

The program, which includes online and in-person meetings with investors and experts, both in Israel and at Deloitte’s offices in New York, seeks to help nurture early-stage growth startups that are looking to grow their footprint and expand to the US market.

Amid war, Deloitte kicks off 7th cohort for Israel startup accelerator program,” The Times of Israel May 5, 2024

What kind of calculator is this?

The photo Baseline inexplicably chose for “Accountant’s poor accounting leads to client’s financial loss

ZDNet on an EY cybersecurity survey released today:

Cybersecurity threats have always been a top-of-mind concern for professionals, but a new report suggests recent technological advancements have caused the fears to reach new heights. On Monday, EY revealed the results of its 2024 Human Risk in Cybersecurity Survey, which gathered insights from 1,000 employed Americans across public and private sectors on cybersecurity awareness and practices.

Cybersecurity is constantly evolving, as attackers adopt new techniques and defenders adapt to counter them. Over the past year, artificial intelligence (AI) developments have advanced cybersecurity attacks, accelerating the pace of this cat-and-mouse game.

The study found that working professionals are aware of these changes, with 85% of respondents believing AI has made cybersecurity attacks more sophisticated and 78% saying they’re concerned about the use of AI in cyberattacks.

The study also found that 39% of employees do not feel confident about using AI responsibly. Employees are looking for their companies to take action to help build their confidence in using AI tools.

See more from EY: How AI is igniting cybersecurity fears in workers


Oh lordt, they’re coming for nature.

KPMG Report: Is it Time to Make Biodiversity an Asset Class?

KPMG is making the case for scaling up business investment in nature by making biodiversity officially an asset class.

In a report called The Investment Case for Nature, it says the current annual global spend on biodiversity is US$166bn – one sixth the amount required per year by 2030.

It calls for work to create incentives – including making biodiversity a separate asset class – and to harness data and tech.

The report, led by Sarah Nelson, KPMG Global Coordinator, Nature & Biodiversity, says: “It involves recognizing and valuing biodiversity and ecosystem services in a way that enables them to be traded or invested in, similar to traditional financial assets.

“It can help to mobilize and make biodiversity investments more visible.”

Sure, we trust you.


Meanwhile, in IB:

An associate at a US investment bank is understood to have passed away after allegedly working 120-hour weeks on a deal in the Financial Institutions Group (FIG) sector.

Various social media posts claim that the associate concerned had a wife and child and joined the bank through the Veteran’s program having previously been a green beret. Unsubstantiated social media posts claim that he worked 120 hours a week for four weeks running and drank energy drinks to stay awake. The claims have not been validated and the cause of death is not known. Claims that he died of overwork are speculative.


Daily Beast with a reminder not to keep written records that might incriminate you later:

Emails Reveal Top Trump Accountant Had Secret Campaign Role

As Donald Trump’s first criminal trial moves through its second week of testimony, the prosecution is calling witnesses that can attest to Trump’s personal involvement in the underlying crime that the case is built on—but one witness won’t be at their disposal, and documents obtained by The Daily Beast suggest that he could provide pivotal information about that very crime.

That witness is longtime Trump Organization financial controller Allen Weisselberg, a convicted tax cheat whose perjury plea deal earlier this month reportedly took his testimony off the table. But while Weisselberg’s personal testimony may not be key, he left behind a potentially priceless paper trail.

The prosecution has already highlighted Weisselberg’s central role, saying that they will present the accountant’s handwritten notes documenting the allegedly fraudulent reimbursement scheme that Trump is charged with carrying out. But other documents obtained by The Daily Beast suggest that Weisselberg was in a unique position among the other witnesses—not only was he handling the Trump Org’s books, he was also apparently advising the campaign at the same time.

Federal Election Commission records don’t show any campaign payments to Weisselberg, however, raising the prospect that Trump’s right-hand man may himself have made unreported contributions in the form of services for his 2016 bid.


That’s enough of that. Be good, be kind to yourself, and remember to get your 8-10 glasses of water in. Please let me know if you see anything of note, don’t worry if I’ll find it newsworthy or not.