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September 20, 2016 at 06:00 AM
A romantic relationship and a close friendship between Ernst & Young auditors and executives with the companies they audited has cost the firm $9.3 million.
The Securities and Exchange Commission on Monday settled what it said were the first cases of personal relationships violating the commission’s rules on auditor independence and impartiality.
Former Ernst & Young auditor Pamela Hartford maintained a romantic relationship with Robert Brehl, the former chief accounting officer at Ventas Inc., a real estate investment trust, while Hartford worked on the engagement team that was auditing the trust, according to the SEC.
In a separate case, the SEC said former Ernst & Young auditor Gregory Bednar went too far when he was asked in 2012 to help improve the firm’s relationship with an unnamed New York company. Bednar, who was the senior partner on an engagement team for the client, became close friends with its chief financial officer and his family. The two socialized and stayed at each other’s homes and Bednar befriended the CFO’s son, ringing up some $100,000 in travel and entertainment expenses between 2012 and 2015, including paying for trips to see the Green Bay Packers play and the Masters golf tournament in Georgia. Ernst & Young partners knew about the spending but took no action, the SEC said.
Bednar and the CFO exchanged hundreds of personal text messages, emails and voicemails during the auditing periods.
Andrew Ceresney, director of the SEC’s Division of Enforcement, said at a news conference that auditors are “critically important gatekeepers” who play “a public watchdog function that demands total independence from the client at all times.”
Ceresney said the crackdown on personal relationships was a first, as independence rule enforcement has “usually turned on impermissible financial arrangements or transactions.”
