Another one feels the sting in the long-running fraud case involving the national senior living provider formerly known as Assisted Living Concepts (ALC). This time, a national audit firm that conducted deficient audits of ALC has settled charges with the Securities and Exchange Commission (SEC) and will pay a $3 million penalty and forfeit $1.5 million in audit fees with interest.
In the agreement, Grant Thornton LLP admitted wrongdoing on charges that they ignored red flags and fraud risks while conducting audits of ALC and alternative energy company Broadwind Energy (NASDAQ: BWEN), both publicly traded companies.
Without admitting or denying the SEC’s findings, Grant Thornton partner Melissa Koeppel agreed to pay a $10,000 penalty and be suspended from practicing before the SEC as an accountant for at least five years. The second partner named in the case, Jeffrey Robinson, agreed to pay a $2,500 penalty and be suspended from practicing before the SEC as an accountant for at least two years.
Both ALC and Broadwind were found to make “numerous false and misleading public filings” after Grant Thornton failed to take action after repeatedly violating professional standards in audits of the companies, according to the SEC.
“Audit firms must be held responsible when systematic failures such as inadequate engagement procedures, staffing or supervision cause the firms’ work to fall significantly short of expected standards, particularly when multiple audits and engagements are involved,” Andrew Ceresney, director of the SEC’s Division of Enforcement, said in a statement. “Grant Thornton was aware of red flags suggesting audit quality issues in the audits conducted by one of its engagement partners and its audit quality more generally, but failed to remedy the situation.”
The SEC charged two ALC executives, former CEO Laurie Bebo and former CFO John Buono, last year for manipulating internal records by calculating non-residents and ALC staff as occupants in order to meet lease covenant requirements with its lessor, real estate investment trust Ventas Inc. (NYSE: VTR). Under lease agreements, ALC was required to meet certain occupancy percentages and coverage ratios.
Earlier this fall, Bebo was ordered to pay $4.2 million in civil penalties after violating the Securities and Exchange Act for falsifying occupancy records. Buono settled with the SEC in January 2015 in the case against him for $100,000.
The SEC maintains that Grant Thornton was aware of repeated “red flags” surrounding lease agreements and failed to determine the validity of such an agreement to calculate non-residents.
“Grant Thornton auditors recognized that representations by ALC and Broadwand management were questionable,” Director of the SEC’s Chicago Regional Office David Glockner said in a statement. “Yet in the end, Grant Thornton accepted faulty expectations as the truth and failed to demonstrate adequate professional skepticism or obtain corroborating evidence.”
The agency also charged Broadwind and its senior officers earlier this year with accounting and disclosure violations that kept investors in the dark about the long-term financial prospects from reduced business.
Grant Thornton, responding to inquiries from Senior Housing News, said, “We are pleased to have these several years-old matters resolved and we maintain a strong commitment to continually improving the quality of our work.”
*Editor’s Note: This article has been updated to reflect comments from Grant Thornton.
Written by Amy Baxter