The Securities and Exchange Commission has charged PKF O’Connor Davies and one of its senior partners with issuing fraudulent audit reports on the municipal bond offerings of the town of Ramapo, N.Y.
According to the SEC, the firm and its partner, Domenick F. Consolo, permitted the town to record a $3.08 million receivable in its general fund for a property sale that didn’t actually happen. The auditor allegedly ignored red flags and relied upon what turned out to be false representations by Ramapo officials about other receivables, interfund transfers and liabilities. The SEC contends that PKF O’Connor Davies failed to take the appropriate steps to mitigate the risk of material misstatements even after senior management at the firm found out that Ramapo’s financial statements were the subject of multiple law enforcement investigations and Consolo received complaints about possible fraud.
PKF O’Connor Davies defended its audits. “We stand by the integrity of our work with the Town of Ramapo,” said a statement forwarded by outside spokesperson Shelly Orlacchio. “We feel strongly that a continued back and forth with regulators would only expend valuable firm resources and divert focus from our ongoing business and growth goals. We’re confident what we learned through this process will provide valuable insights that will benefit our municipal clients moving forward.”
The SEC announced fraud charges in April against Ramapo, along with the town’s local development corporation, and four town officials, accusing them of hiding a deteriorating financial situation from municipal bond investors.
Consolo and the firm consented to the SEC’s order without admitting or denying the findings. PKF O’Connor Davies agreed to forfeit approximately $380,000 in audit fees and interest and pay a $100,000 penalty. The firm also needs to engage an independent consultant as part of the settlement. Consolo agreed to pay a $75,000 penalty and be suspended from practicing public company accounting. He is also prohibited from acting as the engagement partner or engagement quality control reviewer on any municipal audit for five years.
“When audit reports are used to sell municipal bonds, investors expect those reports to be accurate,” said Andrew M. Calamari, director of the SEC’s New York Regional Office, in a statement. “Consolo failed to exercise professional skepticism and PKF O’Connor Davies issued false unmodified audit reports, and they left investors without an accurate picture of the town’s finances and its ability to repay bondholders.”
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