CPAs Blew It, Firm Says in $3 Million Lawsuit

     JOHNSTOWN, N.Y. (CN) – Accountants found that two executives awarded one another a total of $3 million in unauthorized bonuses, but reported it to the men who did it, not to the board the money came from, a county economic development group claims in court.
     As a result, the executive bonuses continued for at least another year, Crossroads Incubator Corp. claims in Fulton County Supreme Court.
     Crossroads sued Dorfman-Robbie Certified Public Accountants P.C. and its partner John Olsen.
     Crossroads claims the defendants discovered the bonuses during an audit, but rather than alerting its board of directors, “defendants instead advised … the very officers who had looted the funds that they should inform CIC’s board of their own improper conduct.”
     “Not surprisingly, neither officer followed the defendants’ ‘advice’ and continued their fraudulent concealment of their activities,” the complaint states.
     Crossroad accuses Dorfman-Robbie and Olsen of breach of contract and aiding and abetting the officers’ breach of fiduciary duties.
     Crossroads is the real estate arm of the Fulton County Economic Development Corp. Both were established in the late 1980s as a public-private effort to attract jobs to the mostly rural county west of Schenectady. Unemployment there is chronically high.
     In the 1990s, the groups created three industrial/business parks that today boast a giant Wal-Mart distribution center and a growing Fage Dairy USA manufacturing plant that produces a popular Greek yogurt.
     Jeff Bray was hired as executive vice president of the Economic Development Corp. in May 1999; in September 1999, Peter Sciocchetti became executive vice president of Crossroads.
     The lawsuit claims that the two men, as officers of Crossroads, “systematically between 1999-2009 looted the company funds through a surreptitious scheme of issuing themselves ‘performance bonuses'” totaling close to $3.1 million.
     Each man signed the other’s bonus check, according to the complaint, and neither sought the approval of the Crossroads board for the money.
     According to their employment contracts, both men could be eligible for a performance bonus, once such a program was put in place. But, the lawsuit says, “There is no record in the minutes of any EDC board meeting verifying that an incentive program was approved by the EDC Board of Directors.”
     Dorfman-Robbie began providing accounting, auditing and tax-preparation services for Crossroads in 1999. Then an independent CPA firm in Albany, it now is part of The Bonadio Group of suburban Rochester.
     During a 2007 audit, Dorfman-Robbie and Olsen, the partner in charge of the Crossroads account, uncovered the bonuses and raised a concern about their potential tax implications, according to the complaint. Sciocchetti then hired the firm for a “special tax project” to determine how to disclose the bonuses on Crossroads’ Form 990 nonprofit report to the Internal Revenue Service, the complaint states.
     The payments “may have been considered an excess and illegal benefit per IRS regulations,” according to the complaint.
     When Dorfman-Robbie realized the bonuses were “improper and unapproved,” it should have taken the issue to the Crossroads board “as they were contractually and ethically required to do,” the complaint states.
     Instead, the CPA firm recommended that Sciocchetti explain the payments to the board. When he did not, “rather than communicate this recommendation directly to CIC’s Board of Directors, defendants simply withdrew from their representation of CIC by letter dated Sept. 10, 2008,” according to the complaint.
     The letter was sent to Sciocchetti and copied to Bray, according to the lawsuit, and neither man passed it on to the board. Because the defendants did not send the board a copy, “CIC’s board did not learn of the improper bonuses until 2010,” which allowed the scheme to continue, according to the complaint.
     “Had plaintiff been properly and accurately informed by the defendants of the unauthorized, improper conduct of Bray and Sciocchetti, including their misappropriation of assets, and had the 2007 audit as well as the May 2008 special project been properly conducted and completed, plaintiff would have had the opportunity to recover and/or mitigate its losses, in at least the amount of $3,090,143.28 (i.e., the bonuses), plus interest, costs, disbursements, accounting fees paid to the defendants and attorneys’ fees, as well as in such further amounts as may be proven at trial,” the complaint states. (Parentheses in complaint.)
     Crossroads claims the CPA firm’s behavior after uncovering the bonuses “specifically permitted the officers’ wrongful conduct to go undetected and to persist well into 2009 and 2010. The defendants aided and abetted Bray and Sciocchetti breaches of fiduciary duties to CIC.”
     Crossroads seeks recovery of the bonuses and other costs.
     It is represented by Daniel Cahill of Cahill Gambino in Saratoga Springs.
     Neither Sciocchetti nor Bray are named as parties to the complaint.

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