Wendy McNeeley, CPA, Exchange Act Rel. 68431, December 13, 2012
McNeeley was charged with improper conduct while an audit manager for an investment adviser and a mutual fund. The ALJ found that she violated GAAS and suspended her from practicing before the Commission for one year.
This is a red flag case. At heart the Commission alleged that the auditors failed to follow-up sufficiently based on information about certain potentially irregular transactions. Ultimately it turned out that the insufficiently investigated transactions were part of a scheme whereby $10 million of investor funds were misappropriated by a fund manager who was criminally convicted.
The opinion in this case highlights the need for auditors to exercise appropriate skepticism and presents a good summary of the investigative standards in GAAS. Here, the decision was founded on the Commission's conclusion that McNeeley relied too heavily on assurances from the client without attempting to verify them. The primary evidence was the lack of any documentation in the work papers of investigation.
Despite finding that McNeeley's conduct was "highly unreasonable" and indicated "a risk that she will commit future violations", the Commission lowered the suspension from the one year imposed by the ALJ to six months. The Commission explained that it was doing so because McNeeley was relatively inexperienced and had relied on a supervisor who had failed to comply with his own auditing duties.