The SEC Order also contends Crowe Horwath LLP had an ongoing direct business relationship with Corporate Resource Services, which compromised the audit firm’s independence. Though the engagement team of the Crowe Horwath LLP obtained some third-party bank statements, it did not obtain sufficient underlying source documents to address the fraud risks related to CRS’s journal entries and revenues. The Journal Entries were completely manual & lacked any audit trail, documentary support, or other controls.
SEC Order charge the audit firm for failure to assess the going concern of the company in addition to the failure to properly conduct the Engagement Quality Review.
Crowe’s audit team identified “pervasive fraud risks” in its 2013 audit of Corporate Resource Services but failed to respond appropriately. The company declared bankruptcy in 2015 after the discovery of roughly $100 million in unpaid federal payroll tax liabilities.
Joseph C. Macina and Kevin V. Wydra were fined by the SEC for the failure to address theses issues in the Audits. Crowe Horwath paid the fine of $1.5 Million.