Nevada Firm Fined $25,000 by State Board of Accountancy

Reno, Nev.-based Kafoury Armstrong (FY13 net revenue of $10 million) has been fined $25,000 and placed on probation for two years by the State Board of Accountancy, the Las Vegas Review-Journal reported.

The fine resulted from the firm’s relationship to its subsidiary business called Lakeside Mortgage Co. Some of the loans the company brokered were not paid back after the recession of 2008 hit. Lakeside relied in part on Kafoury Armstrong clients to back the loans, the newspaper reported.

The board determined that a conflict of interest existed between the firm and the subsidiary. Although the relationship between the two was revealed to clients, more transparency was needed to conform with board regulations, the board ruled.

Kafoury Armstrong claims 40 Nevada local governments and the state as clients, but state Controller Kim Wallin said residents should not be concerned. The disciplinary action had nothing to do with accounting or Kafoury’s performance on audits, she told the newspaper.

“They have always been very responsive,” says Wallin, a CPA. “They do good work.” The firm has produced the single audit report for the Legislature for 20 years.

Kafoury’s treasurer, Kirk Gardner, told the newspaper that company officials believed that the relationship between Kafoury and Lakeside was properly disclosed to clients, but the accountancy board decided its very specific rules were not followed completely. “It was a very narrow issue that had nothing to do with our auditing business,” he said. The mortgage company has not brokered new loans since 2008.

The disciplinary action was taken after a complaint was filed by a firm client relating to a loan brokered by Lakeside that was not repaid by the borrower. The client was a lender in the transaction. He also filed a second complaint concerning other loans brokered by Lakeside that he was involved in as a lender.

The disciplinary action, imposed on May 15, was agreed to by the firm.