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E&Y has agreed to pay $9.3 million in monetary sanctions in a case in which the two formers audit partners maintained improperly close relationships with individuals at client companies. One had a close friendship with the CFO of a firm he was auditing and another partner on an engagement team for the audit of another company was romantically involved with the business' chief accounting officer.

The accounting firm and the two auditors agreed to the SEC action without admitting or denying guilt. The SEC said these relationships violated independence rules and that E&Y did not do enough to detect or prevent the relationships
Gregory S. Bednar, with the firm for one month short of 33 years, and the CFO of a firm he was New York-based audit client were found to have stayed overnight each other's homes on several occasions. They and family members also travelled together on overnight trips and exchanged hundreds of personal text messages, emails, and voicemails during the auditing periods.

Bednar also became friends with the CFO's son and treated the two to sporting events and other gifts. Although some firm partners became aware of what the SEC termed "Bednar's excessive entertainment spending", no action was taken to ascertain if Bednar was complying with his independence obligations.

The SEC also found that Pamela Hartford violated independence rules from March 2012 through June 2014. She had a romantic relationship with financial executive Robert Brehl while serving on the engagement team auditing Brehl's company. The SEC said E&Y partner Michael Kamienski, who supervised Hartford, became aware of the relationship but did not raise concerns.

The firm required audit engagement teams to assess their independence, including familial, employment, or financial relationships with audit clients. However, the SEC said thes procedures did not inquire about non-familial close relationships.
In the Bednar case, E&Y agreed to pay $4.975 million in monetary sanctions. Bednar must pay $45,000 and was suspended from practice before the SEC. He can apply for reinstatement after three years.

The firm's monetary sanction for Hartford's action is $4.355 million with Hartford and Brehl agreeing to pay penalties of $25,000 each. The two, along with Kamienski, were suspended from practicing before the SEC. Hartford and Kamienski can apply for reinstatement after three years; Brehl after one. Kamienski, Hartford and Bednar no longer work at the firm.

Last modified on Tuesday, 20 September 2016
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