PCAOB Sanctions Three Auditors

The Public Company Accounting Oversight Board has taken disciplinary action against three accountants for alleged violations of its standards, including manipulating documents during an audit and conflicts of interest.

The sanctioned accountants are Ann Marie Fitzpatrick and Stephen Nardi, of BDO Seidman, and Stephen Kantor and Thomas Sewell of Kantor, Geisler & Oppenheimer (KGO). Fitzpatrick and Nardi were sanctioned for allegedly changing documentation relating to an audit, while Kantor and Sewell are accused of violating PCAOB rules relating to two audits between 2003 and 2005.

Fitzpatrick, an audit manager at BDO Seidman, a public accounting firm, worked under Nardi, who was the engagement manager for the audit of Hemispherx Biopharma in 2004. According to the PCAOB, Nardi redirected Fitzpatrick to another assignment before the audit of Hemispherx was completed. In March of 2005 Nardi authorized the report to be filed with the Securities and Exchange Commission as part of the company's 10-K filing.

But the PCAOB says the work was never really completed. Later that year when BDO Seidman was undergoing an inspection of its own practices, it came to Nardi's attention that the Hemispherx audit would be reviewed. When he realized that the report lacked the appropriate signatures, he instructed Fitzpatrick to backdate the necessary initials and signatures. Despite her initial protests, the PCAOB said, she eventually obliged despite not having done the work.

In a settlement, the PCAOB ordered Nardi to refrain from working with a public accounting firm for a least a year, at which point he can petition for reinstatement. For her alleged violations, Fitzpatrick will be censured by the PCAOB.

The KGO violations involve infractions of auditor independence and manipulating documents. In the first instance, Sewell, a partner in the firm, issued an audit report in 2004 for IWT Tesoro Corporation (IWT). But the PCAOB says Sewell's mother owned stock in the company; stock the PCAOB says he helped his mother purchase them before the audit began in 2003. The audit had its own problems. In its report, the company failed to recognize more than $4 million in display boards to market its products. The company also did not recognize compensation expenses when certain stock options vested.

The PCAOB also sanctioned KGO for its 2004 audit of the Florida-based GeneThera. It said that KGO failed to demonstrate professional care and skepticism in the audit, especially concerning the valuation and existence of certain fixed assets and forgiveness of a liability. The PCAOB also said that KGO was overly involved in GeneThera's books and records and made accounting decisions for the company.

Based on the terms of settlement, KGO's license is revoked, and Sewell and Kantor are barred from working in public accounting.