Per SEC release, from 2012 through 2014 then EY partner Pamela Hartford violated Independence Rules by having an affair with a client. Reports state she engaged in a personal relationship with Robert Brehl, the chief accounting officer of a public company that she serviced as a member of the audit engagement team. Another EY partner Michael Kamienski (the supervising partner on this engagement) became aware of facts suggesting an improper relationship between Hartford and Brehl. However, he failed to follow up on his suspicions. While Hartford and Brehl tried to keep their relationship a secret, they did attend client and EY social events. This suggests that others at both EY and the client could have been aware of the affair.
As part of the first SEC enforcement action of its kind, the SEC made charges of a breach of Independence against EY, Hartford, and Kaminski as well as Brehl. All parties agreed to settle the matter with the SEC without admitting guilt. EY agreed to pay $4.366 million, and both Hartford and Brehl each agreed to pay the SEC $25,000. While Kamienski did not have to pay a fine, Hartford, Brehl, and himself were suspended from appearing and practicing before the SEC as accountants, including not participating in either the financial reporting or auditing of publicly traded companies. The suspension allowed Brehl to apply for reinstatement after one year and both Hartford and Kamienski after 3 years.
The SEC release states that EY did not have specific policies in place to inquire about personal relations with clients and client personnel. EY subsequently added specific language to engagement team members’ certifications on the firm’s audit work asking about their own possible relationships with client personnel and whether they are aware of any personal relationships that any other member of the engagement team might have with client personnel.
The EY engagement team member certification added the following language subsequent to the settlement of this and another SEC investigation:
1)What role does ‘Auditor Independence’ play in a CPA’s responsibility to protect the public interest?
2) Explain the type of threat(s) to independence this case represents and explain why it is a threat to independence.
3) Do you think the questions added by EY are a sufficient safeguard to mitigate any such threats? Why or why not?
4) Explain how and why a sexual harassment situation might occur if the conflict of interests’ matter is not properly addressed.
5) Do you think Pamela Hartford, Robert Brehl, and/or Michael Kamienski committed an act discreditable to the profession?
For more information on Sexual Harassment read this: https://en.wikipedia.org/wiki/Sexual_harassment
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