On March 13, 2023, the SEC announced the latest in a string of accounting fraud enforcement actions.  The frequency of these announcements is not surprising in the current economic environment.  If you have not read the Chief Accountant’s remarks about fraud risk, you might want to check out this blog post.

This latest case focuses on an all-time favorite accounting fraud area, revenue recognition.  According to the SEC’s Litigation Release and Complaint, a division-level finance director at Evoqua Water used bill and hold tricks to recognize revenue earlier than appropriate.  This flavor of accounting fraud is not new.

What makes this case different is a formal undertaking to improve internal controls.  According to the SEC’s Complaint, one of the causes of the company’s misstatements and resulting violations of the securities laws was “negligent conduct at Evoqua’s corporate level in managing the financial reporting and accounting controls processes.”  According to the Litigation Release the SEC’s order will require Evoqua to:

“…comply with certain undertakings, including an agreement to implement recommended improvements to its system of internal accounting controls.”

The company will also pay an $8.5 million fine.

There are many more details about the cases against the company and the now former division-level finance director in the Litigation Release and Complaint.

As always, your thoughts and comments are welcome!