In a settlement with the Securities and Exchange Commission, a California-based accounting firm and two of its partners admitted to "repeated failures" in carrying out custody examinations for two SEC-registered investment advisers.
According to the SEC's order issued on Wednesday, Farber Hass Hurley (FHH) and its partners Michel Abedian and Michael Hurley did not follow proper attestation and compliance requirements when conducting surprise client examinations.
Two unnamed investment advising firms hired FHH to perform custody examinations from 2017 through 2020, and Adviser A required FHH to perform a retroactive exam for 2017 when it was unable to do so.
The order noted that the accountant's goals while conducting such examinations are to "obtain reasonable assurance about whether the entity complied with the specified requirements in all material respects and to express an opinion thereon. To comply with the requirements … accountants should obtain sufficient appropriate evidence to reduce attestation risk to an acceptably low level and thereby enable the accountant to draw reasonable conclusions on which to base the accountant’s opinion."
Abedian is accused of failing to reconcile brokerage confirmations to adviser books and records, as well as to confirm balances and transactions with custodial clients. The order states that he "did not obtain sufficient appropriate evidence to support FHH's opinion." The SEC claims that despite knowing that Adviser A had a number of internal control and books and records flaws in 2017 and 2018, Abedian failed to take these flaws into account when creating the attestation procedures for subsequent client exams.
The SEC claimed Hurley failed to conduct an unbiased assessment of the flawed decisions made by Abedian's team and should have recognized Abedian had not carried out the necessary procedures for confirmation and reconciliation.
Hurley was also involved in developing FHH's quality control policies and was in charge of ensuring that the rules were followed, according to the SEC.
FHH consented to a censure without expressing any misconduct or admitting any. Hurley and Abedian consented to a one-year and two-year suspension from acting as accountants before the SEC, respectively. Both partners must go through separate reviews after being reinstated.
A request for comment from FHH was not immediately responded to.
By fLEXI tEAM