SEC Charges CEO and Former CFO with Hiding Internal Control Deficiencies and Violating Sarbanes-Oxley
The SEC announced charges against both the CEO and the former CFO of QSGI Inc., a computer equipment company, for misrepresenting the state of the company's internal controls over financial reporting.
The Sarbanes-Oxley Act requires a management report on internal controls over financial reporting to be included in a company's annual report, and also requires both the CEO and CFO of a company to sign certifications confirming they have disclosed all significant deficiencies to outside auditors and reviewed the annual report.
The SEC Order alleges that both the CEO and the former CFO of the computer equipment company had presented, in a management report accompanying the fiscal year 2008 annual report, that the CEO participated in management's assessment of the internal controls; however, the CEO did not actually participate. Additionally, the SEC Order alleges that the CEO and the former CFO claimed that they had disclosed all significant deficiencies in internal controls to outside auditors, when in reality, they had misled the auditors by withholding, among other things, information as to inadequate inventory controls.