Fiduciary Breach Costs CPA $5,000

A California CPA firm will have to pay $5,000 in restitution to an employee stock ownership plan (ESOP), to resolve a lawsuit alleging that the CPA firm knowingly participated in fiduciary breaches under the Employee Retirement Income Security Act (ERISA).

In addition to a restitution payment, the CPA firm must pay a $1,000 civil monetary penalty to the Department of Labor (DoL), and must establish a program that ensures that personnel must have completed a minimum of eight hours of professional education related to employee benefit plan audits within three years prior to signing a plan audit opinion or managing a plan audit engagement.

Ahlstrom & Baker CPAs in Los Alamos, California was alleged to have knowingly participated in breaches by the committee members for the ESOP of Rehab Consultants of Florida Inc. (RCI) and others when the firm failed to disclose in its audit report that the plan was not receiving employer contributions needed to make loan payments on RCI stock purchased by the plan, according to a press release from the DoL.

“The law requires audit of employee benefit plans with 100 or more participants,” said Howard Marsh, director of the Atlanta regional office of the Labor Department’s Employee Benefits Security Administration (EBSA), in the press release. “These audits provide important information for plan fiduciaries and the government about the financial soundness of a plan.”

In February 2006, the DoL sued three plan committee members for allowing the plan to engage in a prohibited transaction that included $170, 000 in loan payments from the plan to RCI, which was later dissolved and the plan committee members resigned without providing for continued management of the plan. The value of the stock purchased by the ESOP, which the Labor Department alleges the defendants abandoned, declined from $19.74 per share in 1996 to $.79 per share in 1998 and is currently worthless, according to a DoL press release.

The suit was Chao v. Gentzel, Civil Action No. 06-CV-0448.