SEC to Charge Four Public Companies for Longstanding Internal Control Failures

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On January 29, 2019, the Securities and Exchange Commission (SEC) announced settlement charges against four publicly-traded companies for failing to maintain internal control over financial reporting (ICFR). Each of the four companies had repeatedly disclosed material weaknesses in ICFR over a period of seven to ten consecutive years.

Since the adoption of the SOX 404 framework in 2003, the SEC has long taken the approach that Company disclosures over weaknesses in control frameworks were sufficient for a passing grade. The fines imposed over these four companies signal a significant shift in the approach of the SEC regarding company accountability concerning internal control failures, an approach which has been scrutinized in the past. The importance and evidence of actual and material changes to control frameworks are now becoming the only concrete way to avoid penalties and will help to provide and promote mature and reliable control environments across all companies who are under the scope of the SEC.

To read more about the SEC Enforcement for Internal Control Failures please click HERE.

Why is this significant for our insureds to know?

This validates the importance of ongoing monitoring and remediation of an internal control framework. Simply implementing a control framework on day 1 and just signing off on its shortcomings year after year will now subject the company to penalties by the SEC. Fraudsters are constantly monitoring control framework trends and are uncovering new ways to infiltrate companies who do not adapt to the current environment. The evaluation and monitoring of your company’s control framework as new threats emerge is vital, not only for deterring fraudsters and preventing losses but also in avoiding penalties imposed by the SEC.

Make Sure Your Clients Take a Proactive Approach To Protecting Their Business Should a Loss Occur

Make sure your clients have crime insurance. Take the steps to ensure that your clients are covered by calling one of the Berkley Crime team members listed below.

Michael Beranek
Berkley Crime

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National Practice Leader
Michael Beranek
(501) 707-6548
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Mid-West Regional Manager
Thomas Trieloff
(312) 705-1132
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East Regional Manager
Matt McNamara 
(212) 497-3707
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Amanda VanCauwenberge 
(312) 730-1101
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Patricia Logan 
(212) 497-3708
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Cheryl Yorio 
(860) 466-7379
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West Regional Manager
Jennifer Maggi 
(213) 417-5467
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Alexander Doerflein 
(212) 497-3724
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Catherine Vilandre
(860) 466-7375
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Adam Pardi
(212) 497-3704
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