The Securities and Exchange Commission has charged Deloitte & Touche with violating auditor independence rules after it failed to notice a consulting affiliate had a business relationship with an audit client. Deloitte agreed to settle the charges for $1.1 million.

The SEC order says Deloitte Consulting struck up a relationship in 2006 with Andrew Boynton, a trustee serving on the boards and audit committees of three funds that Deloitte audited through 2011. The SEC also charged Boynton and ALPS Fund Services, the administrator of the three funds Deloitte audited, for their failures to flag the relationship as well.

According to the SEC, Deloitte failed to follow its own policies meant to identify potential conflicts before entering into a business relationship to market a proprietary business brainstorming methodology with Boynton, nor did the firm follow up later with subsequent checks to confirm independence. The policies would have called for an independence consultation at the outset, but that didn’t happen until nearly five years later, the SEC says. Deloitte Consulting paid fees to Boynton of more than $300,000, the SEC says.

Deloitte says it discovered the independence violation and reported it the SEC after the firm put in place enhanced independence measures. The SEC order acknowledges this and says Deloitte ended its audit relationship with the three funds when it discovered and investigated the conflict. “We self-reported this matter to the SEC in March 2012,” the firm said in a statement. “As an organization, committed to safeguarding the capital markets, we strive for continuous improvement. We are pleased to resolve this matter and are confident that our enhanced policies, training, and monitoring will maintain ongoing compliance.”

Deloitte also charged Boynton and ALPS Fund Services for their part in failing to flag the conflict. Boynton was required to complete an annual questionnaire for trustees and officers intended to identify conflicts of interest, but failed to identify his business relationship with Deloitte Consulting. The SEC says he viewed Deloitte the audit firm and Deloitte Consulting as separate legal entities, so did not identify it when asked if he had any “direct or material indirect business relationship with Deloitte.” The SEC says ALPS agreed as administrator of the funds to assist in discharging responsibilities but failed to adopt adequate written policies and procedures to prevent auditor independence violations.

Auditors are required under independence rules to remain independent of their audit clients to assure not even an appearance of compromised objectivity when auditing financial statements. The SEC and the Public Company Accounting Oversight Board have warned companies and auditors alike to pay closer attention to where they might have conflicts.

PCAOB Chairman James Doty has targeted the buildup in consulting services as a concern for audit regulators, who worry the firms are not adequately assuring their focus on audit as an independent business. A recent report says the Big 4 have led the U.S. market in gaining share of the growth of consulting services.

Topics