SEC Settles Charges With Texas Company for Faulty Evaluations of Internal Controls

Investing

Published: March 14, 2016 1:35 pm

Last Updated: January 13, 2020 11:58 am

The U.S. Securities and Exchange Commission (SEC) recently settled charges against Texas-based oil company Magnum Hunter Resources (MHR) and several individuals for deficient evaluation of the company’s internal controls over financial reporting and failures to maintain internal control over financial reporting between Dec. 31, 2011, and Sept. 30, 2013.

The internal control over financial reporting (ICFR) refers to a company’s process for providing reasonable assurance to the public regarding the reliability of its financial reporting. According to the SEC’s rules, the company’s management is required to evaluate and annually report on the effectiveness of ICFR, including disclosing any identified material weaknesses that creates a reasonable possibility that the company will not timely prevent or detect a material misstatement of its financial statements.

It is important to note that management may not conclude ICFR is effective if a material weakness exists.

The agency alleged that MHR and two senior officers — former Chief Financial Officer Ronald Ormand and former Chief Accounting Officer David Krueger — failed to properly evaluate and apply applicable ICFR standards and improperly concluded that MHR had no material weaknesses.

The SEC also charged former MHR consultant Joseph Allred and former MHR audit engagement partner Wayne Gray with improperly evaluating the severity of MHR’s internal control deficiencies and misapplying relevant standards for assessing deficiencies and material weaknesses. Accordingly, the public was not told that MHR had a material weakness in its ICFR.

Shamoil T. Shipchandler, director for the SEC’s Fort Worth Regional Office, commented:

Effective internal controls are a critical safeguard against false and inaccurate information that may harm shareholders. This action emphasizes that all those involved in ICFR assessments – companies, management, external auditors and consultants – must take their responsibilities seriously and rigorously assess controls, including those over financial reporting.

ALERT: Take This Retirement Quiz Now (Sponsored)

Take the quiz below to get matched with a financial advisor today.

Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests.

Here’s how it works:
1. Answer SmartAsset advisor match quiz
2. Review your pre-screened matches at your leisure. Check out the advisors’ profiles.
3. Speak with advisors at no cost to you. Have an introductory call on the phone or introduction in person and choose whom to work with in the future

Take the retirement quiz right here.