A federal banking regulator has fined Grant Thornton LLP $300,000 for “reckless conduct” in performing a 1998 audit of the failed First National Bank of Keystone.
Fining an accounting firm is a rarity for the Office of the Comptroller of the Currency, an agency within the Treasury Department that regulates chartered banks. In August 2005, an administrative law judge within the office had recommended that the case be dismissed entirely.
Grant Thornton said in a statement that it disagrees with the office’s findings and that it will challenge the civil penalty in federal appeals court.
Based in West Virginia, Keystone collapsed in 1999, costing the federal bank insurance fund more than $560 million. Several former executives were later convicted on charges of obstructing a federal bank examination, mail fraud and conspiracy.
In the order, Comptroller John Dugan wrote that the accounting firm, “participated in an unsafe or unsound practice by recklessly failing to comply with generally accepted auditing standards in planning and conducting an audit of Keystone’s 1998 financial statements in the context of a maximum risk audit.” He also said that the firm ignored “unequivocal, written evidence” that nearly one-quarter of the bank’s assets could not be accounted for.
Along with the fine, the order also requires Grant Thornton to meet several conditions in future audit work for federally insured banks.
In 1997, after citing Keystone on a number of issues over the course of years, the OCC required the bank to file amended call reports in 1997 and took formal enforcement action in 1998, requiring Keystone to hire a nationally-recognized accounting firm to audit the bank.
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