The U.S. Securities and Exchange Commission has sanctioned Indianapolis-based accounting firm Katz, Sapper & Miller LLP and one of its partners, Scott Price, for what the SEC describes as “improper professional conduct” in the audits of a Fort Wayne-based financial fund.
In a filing posted earlier this week, the SEC said that it has accepted settlement offers from both KSM—the Indy area's largest locally based accounting firm—and Price, 46, who lives in Carmel.
As part of the deal, Price paid the SEC a civil penalty of $15,000. Katz, Sapper & Miller paid nearly $102,000—a civil penalty of $63,104, disgorgement of $32,473, and prejudgment interest of $6,257.
The firm says it ran afoul of SEC rules unintentionally and has taken a proactive approach to addressing the matter.
“We reached out to the SEC when we realized that we had made an error,” KSM spokeswoman Kaylene Riemen told IBJ. “We have tightened our internal controls to help ensure that these errors don’t happen again.”
The SEC matter involves work that Katz, Sapper & Miller did for Mohlman Asset Management Fund LLC, which formed in 2010.
Mohlman hired KSM in 2013 to audit the financial statements of two of its investment funds, and the accounting firm audited the funds for the fiscal years 2012-2015.
But KSM had also prepared the funds’ 2012 and 2013 year-end financial statements, which meant that the accounting firm was not an independent auditor as required by SEC standards, the SEC said in its filing.
The SEC also said that Price and Katz, Sapper & Miller engaged in “improper professional conduct” because it did not have proper training on the SEC’s independence standards when conducting the funds’ 2012 and 2013 audits; and because it did not issue a modified opinion on one of the fund’s 2013 and 2014 financial statements “even though they should have been aware of a related party transaction and a loan that had not been properly disclosed in the financial statements,” according to the filing.
The SEC acknowledged that Price and Katz, Sapper & Miller have already taken remedial actions.
According to the SEC document, Price became aware in the fall of 2014 that the SEC’s independence standards applied to the funds’ audits. As a result, the accounting firm applied those standards to the audits it performed for the funds in 2015 and 2016.
The accounting firm has also agreed to hire an independent consultant to review its policies, procedures, controls and training and recommend improvements.
“Price played a significant role in KSM’s remediation efforts,” the SEC noted.
Established in 1942, KSM is one of the two largest accounting firms in the Indianapolis area, with 170 certified public accountants on staff as of September, according to IBJ data. (A competing firm, Ernst & Young LLP, also has 170 CPAs on its staff.) KSM has its headquarters on East 96th Street, and offices in Fort Wayne; Oklahoma City; and New York City.