Audit regulators have extracted a $1.5 million settlement from Grant Thornton over allegations of audit failures and quality control failures surrounding engagement partner performance.

The PCAOB’s action is connected to the 2013 audit of The Bancorp, Inc. and another unnamed entity. The PCAOB says Grant Thornton assigned the two engagements to two different partners in its Philadelphia financial services group who had known performance problems. One of the partners was already on a performance improvement plan, yet the firm failed to properly monitor the engagements or provide adequate support, the regulator says.

The PCAOB also sanctioned David Burns, one of the engagement partners, fining him $15,000 and barring him from being associated with any PCAOB-registered firm. Burns left the firm in July 2016.

According to the PCAOB’s enforcement orders, Burns led the 2013 audit of Bancorp, along with reviews of it first and second quarter financial statements in 2014. The PCAOB says Burns failed to properly supervise the engagement team, failed to exercise due professional care, including with respect to professional skepticism, and failed to obtain appropriate audit evidence before issuing an unqualified opinion.

The audit failures related to the reported value of the bank’s net loans and the effectiveness of internal controls around the allowances for loan and lease losses, the PCAOB said. Ultimately, Bancorp restated nearly three years of financial statements to correct loan loss provisions, reducing net loans by $141 million and increasing the provision for losses by nearly $120 million. The PCAOB says the firm and Burns “failed to sufficiently consider red flags or contrary evidence indicating that certain commercial loans were impaired and relied on management representations without obtaining relevant and reliable evidence to corroborate those representations.”

The PCAOB concluded both Grant Thornton and Burns personally failed in numerous ways to comply with auditing and quality control standards. PCAOB Chairman James Doty, who is leaving his post at the end of the year to make way for his appointed replacement, said the action should serve as a “case study” for how not to perform audit work or supervise auditors.

“When quality controls concerning personnel assignment and oversight fail, serious violations of auditing standards can result, as they did here, to the detriment of investors," said Doty in a statement. "Effectively designed and operated quality control systems are crucial to conducting audits in compliance with PCAOB standards."

Grant Thornton spokesman Jon Rucket said the firm has made efforts since the 2013 audits to address the issues connected to the settlement. “We appreciate the work done by the PCAOB and are pleased to have this matter resolved.” he said. “We are committed to delivering the highest standards of quality.”

In a kind of year-end house cleaning, presumably before the entire board turns over in 2018 after the SEC replaced the entire panel, the PCAOB has published more than a half dozen enforcement orders and nearly 50 new or expanded inspection reports.

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