Last Friday, the SEC charged financial audit firm BF Borgers CPA PC and its owner, Benjamin F. Borgers “with deliberate and systemic failures to comply with Public Company Accounting Oversight Board (PCAOB) standards in its audits and reviews incorporated in more than 1,500 SEC filings from January 2021 through June 2023.” The settlement included “a $12 million civil penalty, and Benjamin Borgers agreed to pay a $2 million civil penalty. Both Respondents also agreed to permanent suspensions from appearing and practicing before the Commission as accountants, effective immediately.”
What were the practices that led to SEC’s action?
“… the Respondents failed to adequately supervise and review the work of the team performing the audits and reviews; did not properly prepare and maintain audit documentation, known as ‘workpapers;’ and failed to obtain engagement quality reviews, without which an audit firm may not issue an audit report…
The SEC’s order further finds that, at Benjamin Borgers’s direction, BF Borgers staff copied workpapers from previous engagements for their clients, changing only the relevant dates, and then passed them off as workpapers for the current audit period. As a result, the order finds, BF Borgers’s workpapers falsely documented work that had not been performed. Among other things, the workpapers regularly documented purported planning meetings – required to discuss a client’s business and consider any potential risk areas – that never occurred and falsely represented that both Benjamin Borgers, as the partner in charge of the engagement, and an engagement quality reviewer had reviewed and approved the work.”
The charges (and Borgers’ practice) apparently didn’t include ESG, sustainability, GHG or conflict minerals audits/assurance engagements. However, since those audits/engagements are less well-defined and less regulated than financial audits, it isn’t inconceivable that some auditors in our space could take advantage of that ambiguity. Shortcuts, evidence manipulation and fraud could occur, particularly since regulatory mandates for oversight and quality assurance are non-existent in the US for these types of audits (with the exception of conflict minerals IPSAs). ESG/sustainability/GHG auditors should take note of these violations. As I wrote last week, social auditors may already be facing new pressures about quality.
Companies engaging these types of auditors would do well to conduct due diligence on auditors before engaging them. Don’t be overly-impressed with certifications like ISO and ISEAL. Here’s a little trick especially if you are evaluating a new/unknown ESG/sustainability audit firm – ask your internal audit department to help you with your due diligence/evaluations. There isn’t much that an auditor likes more than the chance to pick apart another auditor. And in this case, that is an important ESG risk management tool.
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