Wednesday, August 6, 2014

SEC Charges Company CEO and Former CFO With Hiding Internal Controls Deficiencies and Violating Sarbanes-Oxley Requirements

The SEC is charging the CEO and former CFO of a Florida-based computer equipment company with misrepresenting to external auditors and the investing public the state of its internal controls over financial reporting.
The Sarbanes-Oxley Act of 2002 requires a management’s report on internal controls over financial reporting to be included in a company’s annual report.  The CEO and CFO must sign certifications confirming they’ve disclosed all significant deficiencies to the outside auditors, reviewed the annual report, and attest to its accuracy.
The SEC’s Enforcement Division alleges that the CEO and the former CFO represented in a management’s report accompanying the fiscal year 2008 annual report for QSGI Inc. that the CEO participated in management’s assessment of the internal controls.  However, he did not actually participate.  The Enforcement Division further alleges that the two individuals each certified that they had disclosed all significant deficiencies in internal controls to the outside auditors.  On the contrary, they misled the auditors – chiefly by withholding that inadequate inventory controls existed within the company’s Minnesota operations.  They also withheld from auditors and investors that the CEO was directing and the former CFO participating in a series of maneuvers to accelerate the recognition of certain inventory and accounts receivables in QSGI’s books and records by up to a week at a time.  The improper accounting maneuvers, which rendered QSGI’s books and records inaccurate, were performed in order to maximize the amount of money that QSGI could borrow from its chief creditor.

The former CFO agreed to settle the charges, and the SEC’s Enforcement Division will litigate its case against the CEO in a separate administrative proceeding.
Post a Comment