The Securities and Exchange Commission (SEC) on Friday charged three Ernst & Young employees for violations of the agency’s auditor independence rules regarding services carried out at Cintas Corp.
A former accountant at Cintas was also charged.
From 2009-18, EY tax professionals billed Cintas for contingent fees for non-audit tax services while also performing audits of Cintas, according to the SEC. The fees paid by Cintas were approximately—and in some cases, exactly—the 10 percent benefit the company received for federal tax credits and 15 percent of the benefit it received for state and local tax credits.
“As a result, the SEC’s orders find that EY was not independent of Cintas during that time period, and, therefore, Cintas filed annual and quarterly reports with the Commission that were not audited or reviewed by an independent public accountant,” the SEC stated in an administrative proceeding.
Philip Hurak, an attorney and former EY engagement manager, approved EY’s invoices sent to Cintas containing contingent fees for non-audit services for several years, the SEC said. Without admitting or denying the agency’s charges, Hurak agreed to pay a $20,000 fine and to cease and desist from future violations of auditor independence rules. He is also suspended from appearing or practicing before the SEC as an attorney for two years.
Alan Greenwell, a licensed certified public accountant and former EY partner, “engaged in improper professional conduct within the SEC’s rules of practice by failing to investigate red flags regarding the contingent fee arrangement,” according to the agency. Without admitting or denying the SEC’s charges, Greenwell will pay a $15,000 fine, agreed to cease and desist from future violations, and is barred from appearing or practicing before the SEC as an accountant for two years.
Adam Bering, an attorney and the EY engagement partner for the non-audit services, failed to perform a reasonable inquiry in response to information staff under his supervision were billing Cintas for non-audit services on a contingent fee basis, the SEC said, adding that he did not stop the practice. Without admitting or denying the SEC’s charges, Bering will pay a $10,000 fine, agreed to cease and desist from future violations, and is suspended from appearing or practicing before the agency as an attorney for one year.
Bering remains with EY as a principal. Hurak resigned in February 2019, while Greenwell departed involuntarily in March 2019, according to the SEC.
Former Cintas Vice President of Corporation Taxation Scott Clark was found to have negotiated and approved payment of EY’s contingent fee invoices on Cintas’s behalf that were in violation of the SEC’s auditor independence rules. Without admitting or denying the agency’s charges, Clark will pay a fine of $30,000 and agreed to cease and desist from future violations. He is suspended from appearing or practicing before the SEC as an accountant for one year.
All four defendants will be allowed to apply for reinstatement after their suspensions are completed, the SEC said.
Cintas is an Ohio-based provider of uniforms and other business services products.
Neither EY nor Cintas returned a request for comment.