The CPA firm under fire for its audit of a Long Island school district that is mired in an accounting fraud is reportedly shutting its doors.

East Setauket, N.Y.-based Miller, Lilly & Pearce, which also audits 54 other school districts on Long Island and in the lower Hudson Valley, has reportedly told several local officials that it is going out of business, The New York Times reported.

The report comes shortly after the scandal-plagued Roslyn school district filed a $12 million lawsuit against the CPA firm. That lawsuit, filed Jan. 14, followed the release earlier this month of a scathing report by New York State Comptroller Alan G. Hevesi that blasted the accounting firm for failing to identify a multi-million-dollar fraud, failing to meet professional standards and violating auditor independence standards in its audit of the school district.

The firm's senior partner, Andrew Miller, did not return calls for comment. His lawyer, William S. Petrillo of Rockville Centre, would not comment on the Times report. However, in response to the lawsuit, Petrillo told WebCPA, "Hopefully, the board will see that they were simply duped by corrupt school officials who deceptively covered their bases."

The Roslyn Union Free School District filed a complaint in the Nassau County Supreme Court against the firm, the individual partners and Finance Manager, the software firm controlled and operated by Miller and another partner of the CPA firm, for damages in excess of $12 million for failure to provide adequate safeguards to protect the district's finance system.

The report by the comptroller's office said that Miller, Lilly & Pearce performed work "so flawed and so far below professional standards" that it failed to identify millions of dollars apparently stolen by school district personnel even after the firm was aware that fraud had occurred. The report found that the firm failed to meet nine mandatory professional standards for its Roslyn audit.

According to the comptroller's report, when a whistleblower first exposed the fraud in 2002, the CPA firm investigated and found only $223,136 in inappropriate payments, while state auditors using the same methodology found $1.6 million in questionable payments. The CPA partners also sold financial and other software to the district, violating auditor independence rules.

The state auditors also said that the CPA firm neglected to look at cancelled checks in its testing of district spending, and that its workpapers, supposedly created in 2002 and 2003, contained payment information that was put in the district's records by district officials in 2004 to cover up fraud.

Former assistant superintendent for business and finance Pamela Gluckin and former Superintendent Frank Tassone have both been charged with first-degree grand larceny for allegedly embezzling more than $1 million each from the district, and former accounting clerk Debra Rigano was charged with second-degree larceny for allegedly stealing more than $300,000.

The state comptroller's office referred its audit findings to the State Board for Public Accountancy, the Nassau County District Attorney's Office, the other school districts audited by Miller, Lilly & Pearce, and to all school districts statewide.

In releasing the report, Hevesi called the firm's work "appallingly inadequate," and said that the state auditors found fraud "so pervasive that it would have taken significant effort not to uncover it."

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