2018-10-12 SEC Press pdf 388 KB 67,324 chars

In re Richard J. Bertuglia

Exhibit of SEC Suspends Former BDO Accountants for Improperly “Predating” Audit Work Papers

summary

Former BDO USA auditors Richard J. Bertuglia, John W. Green, and Lev Nagdimov were found to have predated audit work‑papers and issued an unqualified 2013 AmTrust Financial Services audit report without completing required procedures, leading the SEC to bar Bertuglia for three years, Green for one year, and Nagdimov for five years.

paragraph

The SEC determined that during BDO’s 2013 integrated audit of AmTrust Financial Services, engagement partner Bertuglia, engagement‑quality review partner Green, and senior manager Nagdimov directed and approved the signing of incomplete work‑papers and the insertion of placeholder documents to make the audit appear complete before the filing deadline. This “predating” concealed the failure to perform essential tests of journal entries, internal controls, premium revenue, receivables, and share‑based compensation, violating multiple PCAOB standards and constituting improper professional conduct under the Exchange Act. As a result, the Commission imposed bans—three years for Bertuglia, one year for Green, and five years for Nagdimov—subject to reinstatement conditions.

narrative

In 2013 BDO USA was engaged to audit AmTrust Financial Services’ consolidated financial statements and internal controls, with Richard J. Bertuglia serving as engagement partner, John W. Green as engagement‑quality review partner, and Lev Nagdimov as senior manager. Shortly before AmTrust filed its Form 10‑K, Nagdimov instructed the audit team to sign off on work‑papers and audit programs that were not yet complete and to load blank or placeholder documents, a practice the SEC describes as “predating.” After the audit report was released, the team performed the missing procedures during a 45‑day post‑release period and overwrote the predated documentation to conceal the deficiencies. Bertuglia and Green authorized the release of the unqualified audit report despite knowing the audit was incomplete, violating several PCAOB auditing standards and the securities laws. The SEC charged the three accountants with improper professional conduct and barred Bertuglia for three years, Green for one year, and Nagdimov for five years, with reinstatement contingent on meeting strict PCAOB and state licensing requirements.

Enriched metadata

Scheme: accounting-fraud (100%)
Outcome: settled

Classified accounting-fraud(confidence 100%). EDGAR detection: forms 10-K/10-Q/8-K/NT 10-K· recall 80% / precision 48%. detection rule →

Extracted insights

Entities 4

company amtrust financial services, inc.
company bdo usa, llp
person lev nagdimov
agency Securities and Exchange Commission

Triples 9

Securities And Exchange Commission instituted public administrative proceedings against Richard J. Bertuglia, John W. Green, and Lev Nagdimov
AmTrust Financial Services, Inc. engaged BDO USA, LLP to conduct an integrated audit of the Company’s 2013 consolidated annual financial statements
BDO USA, LLP staffed Richard J. Bertuglia as the engagement partner
BDO USA, LLP staffed John W. Green as the engagement quality review partner
BDO USA, LLP staffed Lev Nagdimov as a senior manager
Lev Nagdimov instructed BDO’s audit team to sign-off on all their work papers and audit programs regardless of whether their work was finished
Lev Nagdimov directed the audit team to load blank or placeholder documents into BDO’s electronic work paper files
Securities And Exchange Commission accepted Offers of Settlement submitted by Respondents
Securities And Exchange Commission imposed remedial sanctions pursuant to Section 4C of the Securities Exchange Act of 1934

PDF

In re Richard J. Bertuglia · Source

Text layers

Extracted body text (67,324c)

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Release No. 84419 / October 12, 2018

ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 3992 / October 12, 2018

ADMINISTRATIVE PROCEEDING
File No. 3-18868

In the Matter of

Richard J. Bertuglia, CPA,
John W. Green, CPA, and
Lev Nagdimov, CPA,

Respondents.

ORDER INSTITUTING PUBLIC
ADMINISTRATIVE PROCEEDINGS
PURSUANT TO SECTION 4C OF THE
SECURITIES EXCHANGE ACT OF 1934
AND RULE 102(e) OF THE
COMMISSION’S RULES OF PRACTICE,
MAKING FINDINGS AND IMPOSING
REMEDIAL SANCTIONS

The Securities and Exchange Commission (“Commission”) deems it appropriate that public
administrative proceedings be, and hereby are, instituted against Richard J. Bertuglia, CPA
(“Bertuglia”), John W. Green, CPA (“Green”), and Lev Nagdimov, CPA (“Nagdimov”)
(collectively, “Respondents”) pursuant to Section 4C
1
of the Securities Exchange Act of 1934

1
Section 4C provides, in relevant part, that:

The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege of
appearing or practicing before the Commission in any way, if that person is found . . . (1) not to possess the requisite
qualifications to represent others; (2) to be lacking in character or integrity, or to have engaged in unethical or
improper professional conduct; or (3) to have willfully violated, or willfully aided and abetted the violation of, any
provision of the securities laws or the rules and regulations issued thereunder.

(“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.
2

II.

In anticipation of the institution of these proceedings, Respondents have submitted Offers
of Settlement (the “Offers”) which the Commission has determined to accept. Solely for the
purpose of these proceedings and any other proceedings brought by or on behalf of the
Commission, or to which the Commission is a party, and without admitting or denying the findings
herein, except as to the Commission’s jurisdiction over them and the subject matter of these
proceedings, which are admitted, and except as provided herein in Section IV, Respondents
consent to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section
4C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules Of
Practice, Making Findings and Imposing Remedial Sanctions (the “Order”), as set forth below.

III.

On the basis of this Order and Respondents’ Offers, the Commission finds
3
that:

A. SUMMARY

1. This matter concerns improper professional conduct by Bertuglia, Green, and
Nagdimov during an audit performed by BDO USA, LLP (“BDO”) for AmTrust Financial
Services, Inc. (“AmTrust” or the “Company”). In 2013, AmTrust engaged BDO to conduct an
integrated audit of the Company’s 2013 consolidated annual financial statements and internal
control over financial reporting (“ICFR”) in accordance with Public Company Accounting
Oversight Board (“PCAOB”) standards. For the engagement, BDO staffed Bertuglia as the
engagement partner, Green as the engagement quality review partner, and Nagdimov as a senior
manager.

2. Shortly before AmTrust filed its 2013 Form 10-K, Nagdimov instructed BDO’s
audit team to sign-off on all their work papers and audit programs — regardless of whether their
work was finished — so the audit procedures would appear complete before the release date for
BDO’s audit report. Nagdimov also directed the audit team to load blank or placeholder
documents into BDO’s electronic work paper files and sign-off on those documents, if necessary,
to comply with his instructions. The audit team generally obeyed Nagdimov’s orders and created

2
Rule 102(e)(1)(ii) provides, in pertinent part, that:

The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before
it . . . to any person who is found . . . to have engaged in unethical or improper professional conduct.
3
The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding on any other
person or entity in this or any other proceeding.

misleading audit documentation that did not accurately reflect the dates when audit procedures
were actually completed and audit evidence was actually obtained. This practice of creating
misleading audit documentation by signing incomplete work papers or audit programs is generally
characterized as “predating” in this Order.

3. This predating of audit documentation was intended to conceal the failure to
complete necessary procedures and obtain sufficient audit evidence for certain journal entries,
internal controls, premium revenue, premium receivable and share-based compensation before the
release date for BDO’s audit report. After the audit report was released, the audit team performed
these incomplete procedures during the 45-day documentation completion period following the
report release date. To preserve the original, predated sign-offs in BDO’s electronic work paper
files, the audit team documented the additional procedures performed and subsequent evidence
obtained by overwriting or supplementing the existing audit documentation in the predated work
papers.

4. Despite these significant audit deficiencies, Bertuglia, the engagement partner, and
Green, the engagement quality review partner, authorized the release of BDO’s audit report before
AmTrust filed its 2013 Form 10-K on March 3, 2014. The audit report provided unqualified
opinions on AmTrust’s 2013 financial statements and ICFR. At the time, Bertuglia and Green did
not know the audit team had failed to complete necessary audit procedures, and obtain sufficient
audit evidence, to support the report. In fact, Bertuglia and Green did not discover these audit
deficiencies until approximately one week after BDO’s audit report was published in AmTrust’s
2013 Form 10-K. If Bertuglia and Green had properly exercised due professional care, they would
have identified these deficiencies before they released the report.

5. As a result of this conduct, Bertuglia, Green, and Nagdimov violated auditing
standards established by the PCAOB. As the engagement partner, Bertuglia was responsible for
the audit and its performance, but he failed to exercise due professional care and properly supervise
the engagement. Specifically, Bertuglia failed to properly supervise the audit and the work of audit
team members, who (i) violated numerous PCAOB standards, including audit documentation
standards, and (ii) failed to complete necessary audit procedures, and obtain sufficient audit
evidence, to support BDO’s audit report. Green also failed to exercise due professional care and
fulfill his responsibilities as the engagement quality review partner when he provided his
concurring approval to release BDO’s audit report, and when he failed to review and assess the
audit team’s subsequent analysis of omitted procedures after the audit report release date.

6. Nagdimov violated PCAOB audit documentation standards by directing the audit
team to predate their incomplete work papers and audit programs. Further, Nagdimov, who
assisted Bertuglia’s supervision of the audit, failed to exercise due professional care and properly
supervise the engagement in Nagdimov’s assigned areas. Specifically, Nagdimov failed to
properly supervise the audit and the work of audit team members, who (i) violated numerous
PCAOB standards, including audit documentation standards, and (ii) failed to complete necessary
procedures, and obtain sufficient audit evidence, to support BDO’s audit report.

B. RESPONDENTS

7. Richard J. Bertuglia, CPA is a resident of Dix Hills, New York and a former
partner at BDO. Bertuglia is a Certified Public Accountant licensed in the state of New York. His
license is currently in inactive status. Bertuglia was an audit partner in BDO’s New York City
office from July 2000 until he retired from the firm in June 2017. He was the engagement partner
responsible for BDO’s audits of AmTrust in 2011 through 2015, including BDO’s integrated audit
of AmTrust’s financial statements and ICFR in 2013.
8. John W. Green, CPA is a resident of Tucson, Arizona and a former partner at
BDO. Green is a Certified Public Accountant licensed in the state of New York and Arizona.
Green joined BDO in August 2012 as an audit partner in the firm’s New York City office until he
left the firm in August 2016. In 2012 and 2013, Green was the engagement quality review partner
for BDO’s integrated audits of AmTrust’s financial statements and ICFR.
9. Lev Nagdimov, CPA is a resident of Scarsdale, New York and a former senior
manager at BDO. Nagdimov is a Certified Public Accountant licensed in the state of New York.
Nagdimov joined BDO in November 2003 and was staffed on BDO’s audit engagement team for
AmTrust from 2006 until he was terminated by the firm in November 2014. In 2012 and 2013,
Nagdimov was a senior manager for BDO’s integrated audits of AmTrust’s financial statements
and ICFR.
C. RELATED ENTITIES
10. BDO USA, LLP, formerly BDO Seidman LLP, is a Delaware limited liability
partnership headquartered in Chicago, Illinois. BDO is a PCAOB-registered public accounting
firm and is the U.S. member firm of BDO International Limited, a U.K. company limited by
guarantee, and forms part of the international BDO network of independent member firms. BDO
was AmTrust’s independent auditor from 2006 through May 10, 2016.

11. AmTrust Financial Services, Inc. is a Delaware corporation based in New York,
New York that underwrites and provides property and casualty insurance. During the relevant time
period, AmTrust’s common stock was registered with the Commission pursuant to Section 12(b) of
the Exchange Act and traded on the NASDAQ Global Market. AmTrust’s Series A preferred
stock and depository shares of Series B and Series C preferred stock traded on the New York Stock
Exchange. AmTrust filed periodic reports, including Forms 10-K and 10-Q, with the Commission
pursuant to Section 13(a) of the Exchange Act and related rules thereunder. On June 21, 2018,
AmTrust’s public shareholders approved an offer to purchase their common stock and take the
company private.

D. FACTS

Background

12. AmTrust engaged BDO to conduct an integrated audit of the Company’s 2013
consolidated annual financial statements and ICFR in accordance with PCAOB standards (the
“Consolidated Audit”).
4
AmTrust also engaged BDO to audit many of its individual subsidiaries’
financial statements in accordance with generally accepted auditing standards established by the
American Institute of Certified Public Accountants (the “Subsidiary Audits”).

13. Bertuglia was BDO’s engagement partner for the Consolidated Audit and the
Subsidiary Audits. He supervised the work of audit team members and supervised the audit’s
compliance with PCAOB standards. During the Consolidated Audit, Bertuglia delegated his
general day-to-day supervision of the engagement to his managers, and was primarily assisted by
Nagdimov and a second manager (the “Second Manager”).

14. Green was the engagement quality review partner for the Consolidated Audit. The
objective of the engagement quality reviewer is to perform an evaluation of the significant
judgments made by the engagement team and the related conclusions reached in forming
the overall conclusion on the engagement and in preparing the engagement report in order to
determine whether to provide concurring approval of issuance.
5

15. BDO maintained all of its audit documentation for the Consolidated Audit and the
Subsidiary Audits in a single set of electronic work paper files retained in BDO’s audit process tool
(“APT”). The audit team planned to conduct the Consolidated Audit simultaneously with the
individual Subsidiary Audits. The team’s audit plan for these simultaneous audits relied on audit
procedures performed at the subsidiary level, including subsidiary-level materiality thresholds that
supported both the Consolidated Audit and the Subsidiary Audits.
The Audit Team Falls Behind Schedule

16. The audit team fell behind schedule during the fourth quarter of 2013. On
December 18, 2013, the Second Manager emailed a status report to Bertuglia and Nagdimov. The
report estimated that the audit team was 870 total hours behind schedule as a group, or roughly 14
weeks behind, based on current staffing and 60-hour work weeks. To cure this deficit, Bertuglia
staffed four more auditors to the engagement, including two managers.

17. On January 7, 2014, SEC staff issued a subpoena to BDO requesting copies of the
firm’s documents, including prior work papers and audit files related to AmTrust.

4
Auditing standards referenced in this Order relate to PCAOB standards in effect when the audit was performed.
5
PCAOB Auditing Standard No. 7, Engagement Quality Review, par. 7.2.

18. Bertuglia wanted the audit team to substantially complete their work on all major
financial statement audit areas before AmTrust issued its earnings release on February 13, 2014.
When AmTrust published the earnings release, however, the audit team had not completed their
work on these major audit areas. As time passed, Bertuglia concluded the audit team would not be
able to complete all their audit work for the Consolidated Audit and Subsidiary Audits as planned
by February 28, 2014, which was the expected filing date for AmTrust’s 2013 Form 10-K.
Bertuglia directed the audit team to focus their efforts on completing audit work for the
Consolidated Audit, and delay any audit work that related solely to the Subsidiary Audits, because
the subsidiaries’ statutory financial statements were not required to be filed until after AmTrust’s
expected filing date for the 2013 Form 10-K.

19. To accomplish this goal, Nagdimov and the Second Manager manually reviewed
AmTrust’s financial statement accounts, by subsidiary and lead account schedule, to identify
accounts that exceeded the Consolidated Audit’s tolerable misstatement (“consolidated
materiality”) and ensure that any untested balances did not exceed consolidated materiality. By
applying this approach, the audit team departed from their original audit plan, which relied on
subsidiary-level materiality thresholds and related audit procedures to support both the
Consolidated Audit and Subsidiary Audits. The audit team failed to document this change to the
audit plan in the work papers.

20. Following the managers’ review, Bertuglia told the audit team they had to complete
their work in three audit areas before AmTrust filed its 2013 Form 10-K: (i) journal entry testing;
(ii) internal controls testing; and (iii) testing of material account balances for the Consolidated
Audit. A few days later, on February 18, the audit team emailed a status update to Bertuglia,
Nagdimov, and the Second Manager. The update, which detailed the team’s incomplete work,
showed that several significant audit areas were still incomplete, including internal controls testing.

Nagdimov Instructs the Audit Team to Sign Incomplete Work
21. On February 21, Bertuglia met with the audit team again and told them they had to
finish their incomplete audit work for journal entry testing, internal controls testing, and material
account balances for the Consolidated Audit before AmTrust filed its Form 10-K. After this
meeting, Nagdimov instructed the audit team to ensure all their work papers and audit programs
were loaded and signed in APT — regardless of whether the work was complete. Several days
later, Nagdimov issued a more direct instruction to the audit team: sign everything in APT,
including work papers and audit programs. He also told the audit team to load and sign blank or
placeholder work papers, if necessary, to comply with his instructions.
6

6
BDO’s APT software required users to load work papers into the program before they can sign those work papers
in APT. Upon sign-off, APT automatically registered an electronic timestamp for the signature. The software
allowed users to update their time-stamped sign-offs as needed, and the software also retained a log of all prior sign-
offs for each work paper. But users could still revise the content of work papers after they were signed, and these
revisions did not automatically update or delete the original time-stamped sign-offs.

22. The audit team generally followed Nagdimov’s orders and signed all their work
papers and audit programs, even if their work was incomplete. They also loaded placeholder
documents into APT, such as blank templates, preliminary schedules, and prior-period work
papers, and signed-off on these placeholder documents.
Bertuglia and Green Release BDO’s Audit Report Despite Missing Audit Work
23. The audit team expected AmTrust to file its Form 10-K on Friday, February 28,
2014. That morning, Bertuglia and Green were reviewing work papers in APT when they noticed
that several work papers were still incomplete, so they called Nagdimov. Bertuglia claims that
during this call, Nagdimov told Bertuglia and Green the audit team had completed their work but
technical problems were preventing them from loading their updated work papers into APT.
According to Bertuglia and Green, Nagdimov assured Bertuglia and Green that all necessary audit
work for the Consolidated Audit was complete, including the three audit areas that Bertuglia
instructed the audit team to finish before AmTrust’s Form 10-K filing.
24. Based on these verbal assurances, Bertuglia authorized the release of BDO’s audit
report and Green provided his concurring approval of issuance later that afternoon on February 28,
2014 (the “First Report Release Date”). The audit report contained unqualified opinions on
AmTrust’s 2013 consolidated annual financial statements and ICFR. When Bertuglia and Green
released the report, they had not yet reviewed the missing work papers outside of APT or discussed
the missing work with team members who were responsible for the procedures.
25. Bertuglia and Green subsequently learned that AmTrust had decided to delay its
Form 10-K filing until Monday, March 3, 2014, which was the actual filing deadline. Bertuglia
and Green continued to review and sign work papers over the weekend and on Monday, March 3.
From Friday, February 28 through Monday, March 3, Bertuglia and Green collectively signed over
2,000 work papers, including work papers they did not actually review, but they did not revisit the
incomplete work papers to confirm that necessary procedures were complete and sufficient audit
evidence had been obtained. On Monday, Bertuglia redated BDO’s audit report to March 3, 2014
(the “Second Report Release Date”), and AmTrust filed its 2013 Form 10-K later that day.
The Audit Team Performs Necessary Procedures After the Report Release Dates
26. On March 7, 2014, the audit staff members emailed a status report to Bertuglia,
Nagdimov and the Second Manager. The report showed that necessary work for the Consolidated
Audit remained incomplete and the audit team needed more time to finish their audit procedures.
The incomplete work included certain testing of journal entries, internal controls, and material
accounts for the Consolidated Audit — the same audit areas that Bertuglia repeatedly told the audit
team to complete before AmTrust filed its Form 10-K.

27. Several days later, Bertuglia reviewed the status report and was surprised by the list
of incomplete work for the Consolidated Audit. He promptly instructed the audit team to prepare

an updated summary of incomplete audit work and provide projected timelines for completing the
remaining items. This updated summary, which was emailed to Bertuglia on March 14, 2014,
identified all of the incomplete audit work that had to be finished by the audit team, including work
for the Consolidated Audit and the individual Subsidiary Audits.

28. Bertuglia also notified Green of the incomplete work for the Consolidated Audit.
They concluded that the audit team needed to complete the omitted procedures and assess their
potential impact on BDO’s audit report, as required by AU Section 390, Consideration of Omitted
Procedures After the Report Date (AU § 390). Neither Bertuglia nor Green discussed the omitted
procedures or their approach under AU § 390 with anyone else at BDO.

29. The audit team completed their work over the next month. For the incomplete,
predated work papers — particularly placeholder documents — the audit team generally overwrote
and thus replaced the prior audit documentation with new documentation reflecting the procedures
performed and evidence obtained. This new documentation did not indicate that such audit work
occurred after the report release dates, and it did not affect the original, predated sign-offs in APT.
Moreover, the audit team did not update their sign-offs in APT when the predated work papers
were completed. As a result of this conduct, the audit team created misleading documentation of
the timing of procedures that were performed after the report release dates because (i) the new
documentation did not identify the procedures performed and audit evidence obtained after the
report release dates, and (ii) the original, predated sign-offs did not accurately reflect the dates
when procedures were performed or audit evidence was obtained. The audit team’s predated
placeholder work papers included, among others, certain testing of journal entries, entity-level
internal controls, and certain premium revenues.

30. Bertuglia reviewed the completed audit work and concluded that the omitted
procedures did not affect BDO’s previously issued audit report. Green also reviewed this work
and reached the same conclusion, but he never reviewed the team’s list of incomplete audit work
nor the team’s assessment of omitted procedures, and he never discussed any assessment of the
omitted procedures with Bertuglia or anyone else on the audit team. In fact, there is no
documentation of any assessment of omitted procedures under AU § 390, and neither Bertuglia nor
Green documented their own assessment or review.

Summary of Significant Audit Deficiencies

31. The audit team did not have sufficient audit evidence to support BDO’s audit report
when it was included in AmTrust’s Form 10-K on March 3, 2014. The following summary
describes the significant audit deficiencies and documentation failures existing on that date: the
Second Report Release date.
7

7
On February 28, 2014, SEC staff requested an electronic copy (i.e., a “snapshot”) of BDO’s audit work papers at
the moment when BDO released its audit report for AmTrust’s 2013 consolidated annual financial statements and
ICFR. SEC staff identified the predated work papers and audit deficiencies by comparing these “snapshot” work
papers on the Second Report Release date to BDO’s final, archived work papers.

a. Incomplete Journal Entry Testing

32. BDO’s audit plan identified improper journal entries as a fraud risk factor related to
management’s potential override of internal controls. To address this risk, the audit team planned
to perform journal entry testing for evidence of possible material misstatement due to fraud, as
required under AU Section 316, Consideration of Fraud in a Financial Statement Audit (“AU §
316”). See AU § 316.58-62. During the Consolidated Audit, the audit team failed to perform any
journal entry testing for the second half of the year (July 2013 through December 2013) before the
Second Report Release Date. But the audit team loaded two placeholder work papers, signed them
on February 27, 2014, and signed several incomplete audit steps for journal entry testing in the
audit program. Specifically, the audit team loaded and signed a BDO template for performing and
documenting journal entry testing. The audit team also loaded and signed a journal entry testing
spreadsheet from the prior year’s work papers. Bertuglia also signed the BDO template
placeholder work paper on February 28, 2014, even though it did not document any work
performed, evidence obtained or conclusions reached. After the Second Report Release Date, the
audit team performed the incomplete procedures and documented them by overwriting existing
documentation in the placeholder work papers, thus preserving the original, predated sign-off dates
in APT.
b. Incomplete Internal Controls Testing
33. BDO’s audit plan included testing of internal control processes for premium
underwriting, treasury and investments, entity-level controls and share-based compensation.
During the Consolidated Audit, the audit team failed to complete certain testing for these internal
control areas before the Second Report Release Date. But the audit team signed-off on an
incomplete control testing work paper and loaded and signed a placeholder work paper. The audit
team also signed incomplete audit program steps for internal controls testing. Nagdimov signed
incomplete control testing work papers on February 27 and 28, 2014, and Bertuglia signed the
predated placeholder work paper on March 3, 2014. After the Second Report Release Date, the
audit team performed the incomplete procedures and documented them by overwriting existing
documentation in these work papers, thus preserving the original, predated sign-off dates in APT.

34. In December 2013, an audit team member also loaded and signed blank BDO
templates for share-based compensation and another internal control process as placeholder work
papers. After the Second Report Release Date, the team member documented his work in the
templates, thus preserving the original, predated preparer sign-off dates in APT.

c. Incomplete Substantive Testing for Material Accounts
35. BDO’s audit plan included substantive audit procedures for material accounts,
including various procedures concerning premium revenue, premium receivable, and share-based
compensation. The planned audit procedures for premium revenue also included substantive

procedures for certain insurance programs. During the Consolidated Audit, the audit team failed to
complete certain substantive audit procedures for these material accounts.
36. For certain premium revenue testing, an audit team member loaded and signed a
placeholder work paper on February 25, 2014, and signed the incomplete audit step in BDO’s audit
program. Green signed the placeholder work paper as the engagement quality review partner on
March 3, 2014. After the Second Report Release Date, the team member performed the
incomplete procedures and documented them by overwriting existing documentation in the
placeholder work papers, thus preserving the original, predated sign-off dates in APT.
37. BDO’s audit plan included substantive audit procedures for workers’ compensation
premium receivable, one of the Company’s most significant lines of business. The audit team
member responsible for this work for three of the Company’s largest insurance subsidiaries signed
interim work papers in January 2014 but failed to complete all of the year-end procedures before
the Second Report Release Date. Shortly before the Second Report Release Date, Bertuglia signed
one of these incomplete work papers and Green signed two of these incomplete work papers,
despite the failure to document work performed, evidence obtained or conclusions reached for the
year-end procedures. After the Second Report Release Date, the team member performed the
incomplete year-end procedures and documented them by overwriting existing documentation in
these interim work papers, thus preserving the original preparer and reviewer sign-off dates in
APT.
38. BDO’s audit plan also included substantive audit procedures for share-based
compensation. The audit team failed to complete some of these audit procedures before the
Second Report Release Date. These work papers were not improperly predated but the audit
procedures were performed and documented after the Second Report Release Date.
d. Other Incomplete Audit Procedures for Risk of Fraud
39. BDO’s audit plan included several audit procedures to address the risk of fraud, as
required under AU § 316, including vendor fraud testing. During the Consolidated Audit, the audit
team failed to complete audit procedures for vendor fraud testing before the Second Report
Release Date. An audit team member loaded and signed a placeholder work paper for this testing
on February 27, 2014. After the Second Report Release Date, the team member performed the
audit procedures and documented them by overwriting existing documentation in the work paper,
thus preserving the original, predated sign-off date in APT.
Bertuglia’s and Nagdimov’s Violations of PCAOB Standards

a. Failure to Supervise and Exercise Due Professional Care
(AS 10 and AU § 230)

40. Under PCAOB Auditing Standard No. 10, Supervision of the Audit Engagement
(“AS 10”), “the engagement partner is responsible for the engagement and its performance.

Accordingly, the engagement partner is responsible for proper supervision of the work of
engagement team members and for compliance with PCAOB standards . . . .” AS 10.3.
Additionally, “[e]ngagement team members who assist the engagement partner with supervision of
the work of other engagement team members also should comply with the requirements in this
standard with respect to the supervisory responsibilities assigned to them.” AS 10.4. The
engagement partner and, as applicable, other engagement team members performing supervisory
activities, should, among other things, “review the work of engagement team members to
evaluate whether: (1) [t]he work was performed and documented; (2) [t]he objectives of the
procedures were achieved; and (3) [t]he results of the work support the conclusions reached.”
AS 10.5.
41. PCAOB Auditing Standard AU 230, Due Professional Care in the Performance of
Work (“AU § 230”), requires auditors to exercise due professional care in the planning and
performance of an audit and the preparation of an audit report. AU § 230.01. Due professional
care requires the auditor to exercise professional skepticism, which is an attitude that includes a
questioning mind and a critical assessment of audit evidence. AU § 230.07. Due professional care
also requires the auditor to consider the competency and sufficiency of evidence, and since
evidence is gathered and evaluated throughout the audit, professional skepticism should be
exercised throughout the audit process. AU § 230.08. The exercise of due professional care
allows the auditor to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether caused by error or fraud, or whether any material weaknesses exist
on the date of management’s assessment of ICFR. AU § 230.10. The auditor’s objective is to
obtain sufficient appropriate evidential matter to provide a reasonable basis for forming an opinion.
AU § 230.11.
42. As a result of the conduct described above, Bertuglia and Nagdimov failed to
properly supervise the audit team and exercise due professional care during the Consolidated
Audit. In particular, Bertuglia and Nagdimov failed to properly evaluate whether: (i) the audit
complied with PCAOB standards, including audit documentation standards; (ii) necessary audit
procedures were completed before the audit report was released; and (iii) the audit team obtained
sufficient audit evidence to support BDO’s audit report.
43. Bertuglia authorized the release of BDO’s audit report even though necessary audit
procedures were not completed and the audit evidence obtained did not comply with PCAOB
standards. Bertuglia also signed work papers that lacked sufficient evidence to support the audit
team’s conclusions. Bertuglia also failed to properly supervise the audit team’s compliance with
audit documentation standards for additional audit work that was performed after the audit report
was released. As a result, Bertuglia violated AS 10 and AU § 230.
44. Additionally, Nagdimov violated AS 10 and AU § 230 when he instructed the audit
team to predate their incomplete work papers and audit programs. He also violated these standards
when he failed to report the true status of the Consolidated Audit work to Bertuglia and Green
before they released BDO’s audit report.

b. Failure to Properly Examine Journal Entries For Evidence of Possible
Material Misstatement Due to Fraud (AU § 316, AU § 230 and AS 15)
45. Under AU § 316, “the auditor has a responsibility to plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether caused by error or fraud.” AU § 316.01.
8
Additionally, AU § 316
prescribes certain audit procedures to specifically address the risk of management override of
controls, including examining journal entries and other adjustments for evidence of possible
material misstatement due to fraud. See AU § 316.57-62. Material misstatements of financial
statements due to fraud often involve, among other things, the manipulation of financial reporting
through recording journal entries and other adjustments at the end of a reporting period. The
auditor should “design procedures to test the appropriateness of journal entries recorded in the
general ledger and other adjustments . . . made in the preparation of the financial statements.” AU
§ 316.58. For example, the auditor should identify and select journal entries and other adjustments
for testing and examine supporting documentation. AU § 316.61-62. AU § 316 requirements
concerning fraud risks also emphasize the need for auditors to exercise due professional care and
professional skepticism. AU § 316.13; see also AU § 230.01, .07-.08, and .10-.11.
46. Under PCAOB Auditing Standard No. 15, Audit Evidence (“AS 15”), an “auditor
must plan and perform audit procedures to obtain sufficient appropriate audit evidence to provide a
reasonable basis for his or her opinion.” AS 15.4.
47. As a result of the conduct described above, Bertuglia failed to comply with AU §
316 because the audit team did not complete journal entry testing before the audit report was
released.
9
Consequently, Bertuglia also failed to exercise due professional care and professional
skepticism, failed to obtain reasonable assurance that AmTrust’s 2013 consolidated annual
financial statements were free of material misstatement, and failed to obtain sufficient appropriate
audit evidence to provide a reasonable basis for the opinions in BDO’s audit report, as required by
AU § 230 and AS 15.
c. Failure to Perform Sufficient Tests of Internal Controls and Substantive
Audit Procedures to Obtain Sufficient Evidence to Support the Audit
Opinions (AS 5, AS 13, AS 14 and AS 15)
48. PCAOB Auditing Standard No. 5, An Audit of Internal Control Over Financial
Reporting That Is Integrated with An Audit of Financial Statements (“AS 5”), establishes
requirements to test and evaluate internal control over financial reporting. When auditing internal
control over financial reporting in an integrated audit, AS 5 requires, among other things, the
auditor to obtain sufficient evidence to support the auditor’s opinion on internal control over

8
See also AU Section 110, Responsibilities and Functions of the Independent Auditor, at para. 2.
9
During the Consolidated Audit, Nagdimov was not responsible for supervising or reviewing year-end audit
procedures for journal entry testing.

financial reporting as of year-end. AS 5.7. The auditor should also properly plan the audit of
internal control over financial reporting and properly supervise the engagement team members.
AS 5.9. The auditor should test those controls that are important to the auditor’s conclusion about
whether the company’s controls sufficiently address the assessed risk of misstatement to each
relevant assertion. AS 5.39. The auditor must also test those entity-level controls that are
important to the auditor’s conclusion about whether the company has effective internal control
over financial reporting. AS 5.22.
10

49. PCAOB Auditing Standard No. 13, The Auditor’s Responses to the Risks of
Material Misstatement (“AS 13”), establishes requirements regarding designing and implementing
appropriate responses to the risks of material misstatement. AS 13.1. The audit procedures
performed in response to the assessed risks of material misstatement can be classified into two
categories: (i) tests of controls; and (ii) substantive procedures. AS 13.1-3, .8, and .10. If the
auditor plans to assess control risk at less than the maximum . . . , the auditor must obtain evidence
that the controls selected for testing were designed and operating effectively during the entire
period for which the auditor plans to rely on controls to modify the substantive procedures in the
financial statement audit. AS 13.16. When substantive procedures are performed at an interim
date, the auditor should cover the remaining period by performing substantive procedures, or
substantive procedures combined with tests of controls, that provide a reasonable basis for
extending the audit conclusions from the interim date to the period end. AS 13.45.
50. AS 14 establishes requirements regarding the auditor’s evaluation of audit results
and determination of whether he or she has obtained sufficient appropriate audit evidence. AS
14.1. When evaluating audit results, the auditor must conclude whether sufficient appropriate audit
evidence has been obtained to support his or her opinion on the financial statements. AS 14.33.
51. AS 15 states than an “auditor must plan and perform audit procedures to obtain
sufficient appropriate audit evidence to provide a reasonable basis for his or her opinion.” AS 15.4.
52. As a result of the conduct described above, Bertuglia failed to comply with these
standards because the audit team did not complete their testing of internal controls for the
Consolidated Audit before the audit report was released. Similarly, Nagdimov also failed to
comply with these standards to the extent that he was responsible for supervising the internal
controls testing that was incomplete when the audit report was released.
53. Bertuglia and Nagdimov also failed to appropriately respond to the risks of material
misstatement because the audit team did not complete substantive audit procedures that were
designed to address the assessed risks of material misstatement, as required by AS 13.
Consequently, Bertuglia and Nagdimov also failed to adequately evaluate audit evidence and
obtain sufficient evidence as required by AS 14 and AS 15.

10
See also AS 12, Identifying and Assessing Risks of Material Misstatement (“AS 12”), at para. 40.

d. Failure to Prepare and Retain Required Audit Documentation
(AS 3 and AU § 230)

54. PCAOB Auditing Standard No. 3, Audit Documentation (“AS 3”), requires an
auditor to prepare and retain documentation that provides a written record of the basis for the
auditor’s conclusions. Audit documentation also facilitates the planning, performance, and
supervision of the engagement, and is the basis for reviewing the quality of the work because it
provides the reviewer with written documentation of the evidence supporting the auditor’s
significant conclusions. AS 3.1-.2 and .5.
55. Audit documentation must clearly demonstrate that the work was in fact
performed. AS 3.6. Audit documentation must also contain sufficient information to enable an
experienced auditor, having no previous connection with the engagement: (a) to understand the
nature, timing, extent, and results of the procedures performed, evidence obtained, and
conclusions reached, and (b) to determine who performed the work and the date such work was
completed, as well as the person who reviewed the work and the date of such review. AS 3.6. If
the auditor cannot determine or demonstrate that sufficient procedures were performed, sufficient
evidence was obtained, or appropriate conclusions were reached, the auditor should comply with
the provisions of AU §390, Consideration of Omitted Procedures After the Report Date. AS 3.9.
56. Before the report release date,
11
the auditor must have completed all necessary
auditing procedures and obtained sufficient evidence to support the representations in the auditor’s
report. AS 3.15. After the report release date, a complete and final set of audit documentation
should be assembled for retention no more than 45 days later (the documentation completion date).
AS 3.15. Circumstances may require additions to audit documentation after the report release
date. AS 3.16. Audit documentation must not be deleted or discarded after the documentation
completion date; however, information may be added. Any documentation added must indicate
the date the information was added, the name of the person who prepared the additional
documentation, and the reason for adding it. AS 3.16. Furthermore, auditors should not discard
any previously existing documentation in connection with obtaining and documenting evidence
after the report release date. AS 3.A56. If the auditor obtains and documents evidence after the
report release date, the auditor should refer to AU § 390, Consideration of Omitted Procedures
After the Report Date, and AU § 561, Subsequent Discovery of Facts Existing at the Date of the
Auditor’s Report. AS 3.A56.
57. AU § 230 requires auditors to exercise due professional care in the planning and
performance of an audit and the preparation of an audit report. AU § 230.01.
58. As a result of the conduct described above, Bertuglia and Nagdimov violated AS 3
and AU § 230 because: (i) the audit team improperly predated incomplete work papers and audit

11
The report release date is the date the auditor grants permission to use the auditor’s report for the company’s
financial statements. AS 3.A41.

programs, which intentionally preceded the report release dates and did not accurately reflect the
dates when audit procedures were actually completed or reviewed; (ii) the audit team failed to
properly document the audit procedures they performed, and the evidence they obtained, after the
report release dates; (iii) the audit team improperly discarded audit documentation that existed on
the report release dates by overwriting such documentation in connection with obtaining and
documenting evidence after the report release dates; (iv) the audit team failed to sign the predated
work papers again when the audit work was actually completed; (v) the audit team failed to
document their change in audit approach using the higher, consolidated materiality threshold; and
(vi) the audit team failed to document their assessment of omitted procedures under AU § 390.
59. Nagdimov violated AS 3 and AU § 230 because he instructed the audit team to
predate their incomplete work papers and audit programs before the First Report Release Date.
His improper instructions also extend to the audit documentation failures that occurred after the
report release dates, which served to continue and further the misleading nature of the audit team’s
predated documentation in the work papers and audit programs.
60. Bertuglia violated AS 3 and AU § 230 because he failed to remediate the audit
team’s predated documentation. Bertuglia further violated these standards because he also signed
some of the predated work papers, and because he signed work papers that he never actually
reviewed. In fact, Bertuglia signed numerous work papers in the file, including work papers he
never actually reviewed, because he used his review signatures as a “management tracking tool” in
APT to identify new work papers when they were added to the file. His practice of signing work
papers that he never reviewed violated AS 3 and AU § 230.
61. Bertuglia also violated AS 3 and AU § 230 because he failed to remediate the audit
team’s documentation failures that occurred after the report release dates, and because he failed to
document his assessment of omitted audit procedures under AU § 390. Bertuglia’s failure to
document this analysis also violated BDO’s audit policies in effect during the Consolidated Audit.
Green’s Violations of PCAOB Standards

a. Failure to Perform Appropriate Engagement Quality Review
(AS 7 and AU § 230)

62. PCAOB Auditing Standard No. 7, Engagement Quality Review (“AS 7”),
establishes requirements for an engagement quality review and concurring approval of issuance for
each audit engagement. The objective of the engagement quality reviewer is to perform an
evaluation of the significant judgments made by the engagement team and the related conclusions
reached in forming the overall conclusion on the engagement, and in preparing the engagement
report, in order to determine whether to provide concurring approval of issuance. AS 7.2. To
evaluate such judgments and conclusions, the engagement quality reviewer should, to the extent
necessary: (1) hold discussions with the engagement partner and other members of the engagement
team, and (2) review documentation. AS 7.9. Additionally, in an audit, the engagement quality

reviewer should evaluate, among other things, the engagement team’s assessment of, and audit
responses to, (1) significant risks identified by the engagement team, including fraud risks, and (2)
other significant risks identified by the engagement quality reviewer through performing the
procedures required by this standard. AS 7.10.
63. The engagement quality reviewer should also evaluate whether the engagement
documentation that he or she reviewed when performing the review (1) indicates that the
engagement team responded appropriately to significant risks, and (2) supports the conclusions
reached by the engagement team with respect to the matters reviewed. AS 7.11. In an audit, the
engagement quality reviewer may provide concurring approval of issuance only if, after
performing with due professional care the review required by this standard, he or she is not aware
of a significant engagement deficiency. AS 7.12.
64. Documentation of the engagement quality review should contain sufficient
information to enable an experienced auditor, having no previous connection with the engagement,
to understand the procedures performed by the engagement quality reviewer and include
information that identifies: (1) the engagement quality reviewer; (2) the documents reviewed by
the engagement quality reviewer; and (3) the date the engagement quality reviewer provided
concurring approval of issuance. AS 7.19. Documentation of the engagement quality review
should also be included in the audit engagement documentation. AS 7.20.
65. AU § 230 requires auditors to exercise due professional care in the planning and
performance of an audit and the preparation of an audit report. Due professional care requires
auditors to exercise professional skepticism and consider the competency and sufficiency of audit
evidence to provide a reasonable basis for forming an opinion. See AU § 230.01, .07-.08, and .10-
.11.
66. As a result of the conduct described above, Green violated AS 7 and failed to
exercise due professional care under AU § 230 because he provided his concurring approval of
issuance to release BDO’s audit report even though work papers in significant risk areas did not
have sufficient documentation of the performed procedures, appropriate audit evidence obtained,
or conclusions reached by the audit team. Green also failed to follow BDO’s audit policies in
effect during the Consolidated Audit, which required him to review the audit team’s journal entry
testing.
67. Green further violated AS 7 and AU § 230 when he provided his concurring
approval of issuance despite the omitted audit procedures, which constituted a significant
engagement deficiency, because the audit team had failed to obtain sufficient evidence in
accordance with PCAOB standards.
12
Green also violated these standards when he failed to

12
Under AS 7, a significant engagement deficiency exists in an audit when (1) the engagement team failed to obtain
sufficient appropriate evidence in accordance with PCAOB standards, (2) the engagement team reached an
inappropriate overall conclusion on the subject matter of the engagement, (3) the engagement report is not appropriate
in the circumstances, or (4) the firm is not independent of its client. AS 7.12.

review and evaluate the audit team’s assessment of these omitted procedures under AU § 390, and
when he failed to alert the audit team to the absence of necessary documentation that would allow
Green to perform his review and evaluation of the audit team’s AU § 390 assessment. Finally,
Green violated these standards when he signed work papers that he did not actually review.
E. VIOLATIONS

68. As a result of the conduct described above, Respondents Bertuglia, Green, and
Nagdimov engaged in improper professional conduct within the meaning of Section 4C(a)(2) of
the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. In relevant part,
Section 4C(b) of the Exchange Act and Rule 102(e)(1)(iv) of the Commission’s Rules of Practice
define “improper professional conduct” as one of three classes of conduct: (1) intentional or
knowing conduct, including reckless conduct, that results in a violation of applicable
professional standards; (2) a single instance of highly unreasonable conduct in circumstances for
which heightened scrutiny is warranted; or (3) repeated instances of unreasonable conduct that
indicate a lack of competence to practice before the Commission.
F. FINDINGS

69. Based on the foregoing, the Commission finds that Respondents Bertuglia and
Green engaged in improper professional conduct pursuant to Sections 4C(a)(2) and 4C(b)(2) of the
Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice based upon repeated
instances of unreasonable conduct.
70. Based on the foregoing, the Commission finds that Respondent Nagdimov engaged
in improper professional conduct pursuant to Sections 4C(a)(2), 4C(b)(1) and 4C(b)(2) of the
Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice based upon intentional
or knowing conduct, including reckless conduct, and repeated instances of unreasonable conduct.
IV.

In view of the foregoing, the Commission deems it appropriate to impose the agreed
sanctions in Respondents’ Offers.

Accordingly, it is hereby ORDERED, effective immediately, that:

A. Pursuant to Section 4C of the Exchange Act and Rule 102(e)(1)(ii) of the
Commission’s Rules of Practice, Respondent Bertuglia is denied the privilege of appearing or
practicing before the Commission as an accountant.

1. After three years from the date of this Order, Respondent Bertuglia

may request that the Commission consider his reinstatement by submitting an
application (attention: Office of the Chief Accountant) to resume appearing or
practicing before the Commission as:

a. a preparer or reviewer, or a person responsible for the preparation
or review, of any public company’s financial statements that are
filed with the Commission (other than as a member of an audit
committee, as that term is defined in Section 3(a)(58) of the
Securities Exchange Act of 1934). Such an application must
satisfy the Commission that Bertuglia’s work in his practice
before the Commission as an accountant will be reviewed either
by the independent audit committee of the public company for
which he works or in some other acceptable manner, as long as he
practices before the Commission in this capacity; and/or

b. a preparer or reviewer, or a person responsible for the preparation
or review, of any public company’s financial statements that are
filed with the Commission as a member of an audit committee, as
that term is defined in Section 3(a)(58) of the Securities Exchange
Act of 1934. Such an application will be considered on a facts
and circumstances basis with respect to such membership, and the
applicant’s burden of demonstrating good cause for reinstatement
will be particularly high given the role of the audit committee in
financial and accounting matters; and/or

c. an independent accountant.

Such an application must satisfy the Commission that:

i. Bertuglia, or the public accounting firm with which he is
associated, is registered with the PCAOB in accordance with
the Sarbanes-Oxley Act of 2002, and such registration
continues to be effective;

ii. Bertuglia, or the registered public accounting firm with
which he is associated, has been inspected by the PCAOB
and that inspection did not identify any criticisms of or
potential defects in the respondent’s or the firm’s quality
control system that would indicate Bertuglia will not receive
appropriate supervision;

iii. Bertuglia has resolved all disciplinary issues with the
PCAOB, and has complied with all terms and conditions of

any sanctions imposed by the PCAOB (other than
reinstatement by the Commission); and

iv. Bertuglia acknowledges his responsibility, as long as he
appears or practices before the Commission as an
independent accountant, to comply with all requirements of
the Commission and the PCAOB, including, but not limited
to, all requirements relating to registration, inspections,
concurring partner reviews and quality control standards.

2. The Commission will consider an application by Bertuglia to resume
appearing or practicing before the Commission provided that his state CPA license is
current and he has resolved all other disciplinary issues with the applicable state boards
of accountancy. However, if state licensure is dependent on reinstatement by the
Commission, the Commission will consider an application on its other merits. The
Commission’s review may include consideration of, in addition to the matters referenced
above, any other matters relating to Bertuglia’s character, integrity, professional conduct,
or qualifications to appear or practice before the Commission as an accountant. Whether
an application demonstrates good cause will be considered on a facts and circumstances
basis with due regard for protecting the integrity of the Commission’s processes.

B. Pursuant to Section 4C of the Exchange Act and Rule 102(e)(1)(ii) of the
Commission’s Rules of Practice, Respondent Green is denied the privilege of appearing or
practicing before the Commission as an accountant.

1. After one year from the date of this Order, Respondent Green may
request that the Commission consider his reinstatement by submitting an application
(attention: Office of the Chief Accountant) to resume appearing or practicing before
the Commission as:

a. a preparer or reviewer, or a person responsible for the preparation
or review, of any public company’s financial statements that are
filed with the Commission (other than as a member of an audit
committee, as that term is defined in Section 3(a)(58) of the
Securities Exchange Act of 1934). Such an application must
satisfy the Commission that Green’s work in his practice before
the Commission as an accountant will be reviewed either by the
independent audit committee of the public company for which he
works or in some other acceptable manner, as long as he practices
before the Commission in this capacity; and/or

b. a preparer or reviewer, or a person responsible for the preparation
or review, of any public company’s financial statements that are

filed with the Commission as a member of an audit committee, as
that term is defined in Section 3(a)(58) of the Securities Exchange
Act of 1934. Such an application will be considered on a facts
and circumstances basis with respect to such membership, and the
applicant’s burden of demonstrating good cause for reinstatement
will be particularly high given the role of the audit committee in
financial and accounting matters; and/or

c. an independent accountant.

Such an application must satisfy the Commission that:

i. Green, or the public accounting firm with which he is
associated, is registered with the PCAOB in accordance with
the Sarbanes-Oxley Act of 2002, and such registration
continues to be effective;

ii. Green, or the registered public accounting firm with which he
is associated, has been inspected by the PCAOB and that
inspection did not identify any criticisms of or potential
defects in the respondent’s or the firm’s quality control
system that would indicate Green will not receive appropriate
supervision;

iii. Green has resolved all disciplinary issues with the PCAOB,
and has complied with all terms and conditions of any
sanctions imposed by the PCAOB (other than reinstatement
by the Commission); and

iv. Green acknowledges his responsibility, as long as he appears
or practices before the Commission as an independent
accountant, to comply with all requirements of the
Commission and the PCAOB, including, but not limited to,
all requirements relating to registration, inspections,
concurring partner reviews and quality control standards.

2. The Commission will consider an application by Green to resume
appearing or practicing before the Commission provided that his state CPA license is
current and he has resolved all other disciplinary issues with the applicable state boards
of accountancy. However, if state licensure is dependent on reinstatement by the
Commission, the Commission will consider an application on its other merits. The
Commission’s review may include consideration of, in addition to the matters referenced
above, any other matters relating to Green’s character, integrity, professional conduct, or

qualifications to appear or practice before the Commission as an accountant. Whether an
application demonstrates good cause will be considered on a facts and circumstances
basis with due regard for protecting the integrity of the Commission’s processes.

C. Pursuant to Section 4C of the Exchange Act and Rule 102(e)(1)(ii) of the
Commission’s Rules of Practice, Respondent Nagdimov is denied the privilege of appearing or
practicing before the Commission as an accountant.

1. After five years from the date of this Order, Respondent Nagdimov
may request that the Commission consider his reinstatement by submitting an
application (attention: Office of the Chief Accountant) to resume appearing or
practicing before the Commission as:

a. a preparer or reviewer, or a person responsible for the preparation
or review, of any public company’s financial statements that are
filed with the Commission (other than as a member of an audit
committee, as that term is defined in Section 3(a)(58) of the
Securities Exchange Act of 1934). Such an application must
satisfy the Commission that Nagdimov’s work in his practice
before the Commission as an accountant will be reviewed either
by the independent audit committee of the public company for
which he works or in some other acceptable manner, as long as he
practices before the Commission in this capacity; and/or

c. an independent accountant.

Such an application must satisfy the Commission that:

i. Nagdimov, or the public accounting firm with which he is
associated, is registered with the PCAOB in accordance with
the Sarbanes-Oxley Act of 2002, and such registration
continues to be effective;

ii. Nagdimov, or the registered public accounting firm with
which he is associated, has been inspected by the PCAOB
and that inspection did not identify any criticisms of or
potential defects in the respondent’s or the firm’s quality
control system that would indicate Nagdimov will not
receive appropriate supervision;

iii. Nagdimov has resolved all disciplinary issues with the
PCAOB, and has complied with all terms and conditions of
any sanctions imposed by the PCAOB (other than
reinstatement by the Commission); and

iv. Nagdimov acknowledges his responsibility, as long as he
appears or practices before the Commission as an
independent accountant, to comply with all requirements of
the Commission and the PCAOB, including, but not limited
to, all requirements relating to registration, inspections,
concurring partner reviews and quality control standards.

2. The Commission will consider an application by Nagdimov to resume
appearing or practicing before the Commission provided that his state CPA license is
current and he has resolved all other disciplinary issues with the applicable state boards
of accountancy. However, if state licensure is dependent on reinstatement by the
Commission, the Commission will consider an application on its other merits. The
Commission’s review may include consideration of, in addition to the matters referenced
above, any other matters relating to Nagdimov’s character, integrity, professional
conduct, or qualifications to appear or practice before the Commission as an accountant.
Whether an application demonstrates good cause will be considered on a facts and
circumstances basis with due regard for protecting the integrity of the Commission’s
processes.

By the Commission.

Brent J. Fields
Secretary

OCR text (64,635c · tika · 95% conf)

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934

Release No. 84419 / October 12, 2018

ACCOUNTING AND AUDITING ENFORCEMENT

Release No. 3992 / October 12, 2018

ADMINISTRATIVE PROCEEDING

File No. 3-18868

In the Matter of

Richard J. Bertuglia, CPA,

John W. Green, CPA, and

Lev Nagdimov, CPA,

Respondents.

ORDER INSTITUTING PUBLIC

ADMINISTRATIVE PROCEEDINGS

PURSUANT TO SECTION 4C OF THE

SECURITIES EXCHANGE ACT OF 1934

AND RULE 102(e) OF THE

COMMISSION’S RULES OF PRACTICE,

MAKING FINDINGS AND IMPOSING

REMEDIAL SANCTIONS

The Securities and Exchange Commission (“Commission”) deems it appropriate that public

administrative proceedings be, and hereby are, instituted against Richard J. Bertuglia, CPA

(“Bertuglia”), John W. Green, CPA (“Green”), and Lev Nagdimov, CPA (“Nagdimov”)

(collectively, “Respondents”) pursuant to Section 4C
1
of the Securities Exchange Act of 1934

1 Section 4C provides, in relevant part, that:

The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege of

appearing or practicing before the Commission in any way, if that person is found . . . (1) not to possess the requisite

qualifications to represent others; (2) to be lacking in character or integrity, or to have engaged in unethical or

improper professional conduct; or (3) to have willfully violated, or willfully aided and abetted the violation of, any

provision of the securities laws or the rules and regulations issued thereunder.

(“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.
2

II.

In anticipation of the institution of these proceedings, Respondents have submitted Offers

of Settlement (the “Offers”) which the Commission has determined to accept. Solely for the

purpose of these proceedings and any other proceedings brought by or on behalf of the

Commission, or to which the Commission is a party, and without admitting or denying the findings

herein, except as to the Commission’s jurisdiction over them and the subject matter of these

proceedings, which are admitted, and except as provided herein in Section IV, Respondents

consent to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section

4C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules Of

Practice, Making Findings and Imposing Remedial Sanctions (the “Order”), as set forth below.

III.

On the basis of this Order and Respondents’ Offers, the Commission finds
3
that:

A. SUMMARY

1. This matter concerns improper professional conduct by Bertuglia, Green, and

Nagdimov during an audit performed by BDO USA, LLP (“BDO”) for AmTrust Financial

Services, Inc. (“AmTrust” or the “Company”). In 2013, AmTrust engaged BDO to conduct an

integrated audit of the Company’s 2013 consolidated annual financial statements and internal

control over financial reporting (“ICFR”) in accordance with Public Company Accounting

Oversight Board (“PCAOB”) standards. For the engagement, BDO staffed Bertuglia as the

engagement partner, Green as the engagement quality review partner, and Nagdimov as a senior

manager.

2. Shortly before AmTrust filed its 2013 Form 10-K, Nagdimov instructed BDO’s

audit team to sign-off on all their work papers and audit programs — regardless of whether their

work was finished — so the audit procedures would appear complete before the release date for

BDO’s audit report. Nagdimov also directed the audit team to load blank or placeholder

documents into BDO’s electronic work paper files and sign-off on those documents, if necessary,

to comply with his instructions. The audit team generally obeyed Nagdimov’s orders and created

2 Rule 102(e)(1)(ii) provides, in pertinent part, that:

The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before

it . . . to any person who is found . . . to have engaged in unethical or improper professional conduct.

3
The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding on any other

person or entity in this or any other proceeding.

misleading audit documentation that did not accurately reflect the dates when audit procedures

were actually completed and audit evidence was actually obtained. This practice of creating

misleading audit documentation by signing incomplete work papers or audit programs is generally

characterized as “predating” in this Order.

3. This predating of audit documentation was intended to conceal the failure to

complete necessary procedures and obtain sufficient audit evidence for certain journal entries,

internal controls, premium revenue, premium receivable and share-based compensation before the

release date for BDO’s audit report. After the audit report was released, the audit team performed

these incomplete procedures during the 45-day documentation completion period following the

report release date. To preserve the original, predated sign-offs in BDO’s electronic work paper

files, the audit team documented the additional procedures performed and subsequent evidence

obtained by overwriting or supplementing the existing audit documentation in the predated work

papers.

4. Despite these significant audit deficiencies, Bertuglia, the engagement partner, and

Green, the engagement quality review partner, authorized the release of BDO’s audit report before

AmTrust filed its 2013 Form 10-K on March 3, 2014. The audit report provided unqualified

opinions on AmTrust’s 2013 financial statements and ICFR. At the time, Bertuglia and Green did

not know the audit team had failed to complete necessary audit procedures, and obtain sufficient

audit evidence, to support the report. In fact, Bertuglia and Green did not discover these audit

deficiencies until approximately one week after BDO’s audit report was published in AmTrust’s

2013 Form 10-K. If Bertuglia and Green had properly exercised due professional care, they would

have identified these deficiencies before they released the report.

5. As a result of this conduct, Bertuglia, Green, and Nagdimov violated auditing

standards established by the PCAOB. As the engagement partner, Bertuglia was responsible for

the audit and its performance, but he failed to exercise due professional care and properly supervise

the engagement. Specifically, Bertuglia failed to properly supervise the audit and the work of audit

team members, who (i) violated numerous PCAOB standards, including audit documentation

standards, and (ii) failed to complete necessary audit procedures, and obtain sufficient audit

evidence, to support BDO’s audit report. Green also failed to exercise due professional care and

fulfill his responsibilities as the engagement quality review partner when he provided his

concurring approval to release BDO’s audit report, and when he failed to review and assess the

audit team’s subsequent analysis of omitted procedures after the audit report release date.

6. Nagdimov violated PCAOB audit documentation standards by directing the audit

team to predate their incomplete work papers and audit programs. Further, Nagdimov, who

assisted Bertuglia’s supervision of the audit, failed to exercise due professional care and properly

supervise the engagement in Nagdimov’s assigned areas. Specifically, Nagdimov failed to

properly supervise the audit and the work of audit team members, who (i) violated numerous

PCAOB standards, including audit documentation standards, and (ii) failed to complete necessary

procedures, and obtain sufficient audit evidence, to support BDO’s audit report.

B. RESPONDENTS

7. Richard J. Bertuglia, CPA is a resident of Dix Hills, New York and a former

partner at BDO. Bertuglia is a Certified Public Accountant licensed in the state of New York. His

license is currently in inactive status. Bertuglia was an audit partner in BDO’s New York City

office from July 2000 until he retired from the firm in June 2017. He was the engagement partner

responsible for BDO’s audits of AmTrust in 2011 through 2015, including BDO’s integrated audit

of AmTrust’s financial statements and ICFR in 2013.

8. John W. Green, CPA is a resident of Tucson, Arizona and a former partner at

BDO. Green is a Certified Public Accountant licensed in the state of New York and Arizona.

Green joined BDO in August 2012 as an audit partner in the firm’s New York City office until he

left the firm in August 2016. In 2012 and 2013, Green was the engagement quality review partner

for BDO’s integrated audits of AmTrust’s financial statements and ICFR.

9. Lev Nagdimov, CPA is a resident of Scarsdale, New York and a former senior

manager at BDO. Nagdimov is a Certified Public Accountant licensed in the state of New York.

Nagdimov joined BDO in November 2003 and was staffed on BDO’s audit engagement team for

AmTrust from 2006 until he was terminated by the firm in November 2014. In 2012 and 2013,

Nagdimov was a senior manager for BDO’s integrated audits of AmTrust’s financial statements

and ICFR.

C. RELATED ENTITIES

10. BDO USA, LLP, formerly BDO Seidman LLP, is a Delaware limited liability

partnership headquartered in Chicago, Illinois. BDO is a PCAOB-registered public accounting

firm and is the U.S. member firm of BDO International Limited, a U.K. company limited by

guarantee, and forms part of the international BDO network of independent member firms. BDO

was AmTrust’s independent auditor from 2006 through May 10, 2016.

11. AmTrust Financial Services, Inc. is a Delaware corporation based in New York,

New York that underwrites and provides property and casualty insurance. During the relevant time

period, AmTrust’s common stock was registered with the Commission pursuant to Section 12(b) of

the Exchange Act and traded on the NASDAQ Global Market. AmTrust’s Series A preferred

stock and depository shares of Series B and Series C preferred stock traded on the New York Stock

Exchange. AmTrust filed periodic reports, including Forms 10-K and 10-Q, with the Commission

pursuant to Section 13(a) of the Exchange Act and related rules thereunder. On June 21, 2018,

AmTrust’s public shareholders approved an offer to purchase their common stock and take the

company private.

D. FACTS

Background

12. AmTrust engaged BDO to conduct an integrated audit of the Company’s 2013

consolidated annual financial statements and ICFR in accordance with PCAOB standards (the

“Consolidated Audit”).
4
AmTrust also engaged BDO to audit many of its individual subsidiaries’

financial statements in accordance with generally accepted auditing standards established by the

American Institute of Certified Public Accountants (the “Subsidiary Audits”).

13. Bertuglia was BDO’s engagement partner for the Consolidated Audit and the

Subsidiary Audits. He supervised the work of audit team members and supervised the audit’s

compliance with PCAOB standards. During the Consolidated Audit, Bertuglia delegated his

general day-to-day supervision of the engagement to his managers, and was primarily assisted by

Nagdimov and a second manager (the “Second Manager”).

14. Green was the engagement quality review partner for the Consolidated Audit. The

objective of the engagement quality reviewer is to perform an evaluation of the significant

judgments made by the engagement team and the related conclusions reached in forming

the overall conclusion on the engagement and in preparing the engagement report in order to

determine whether to provide concurring approval of issuance.5

15. BDO maintained all of its audit documentation for the Consolidated Audit and the

Subsidiary Audits in a single set of electronic work paper files retained in BDO’s audit process tool

(“APT”). The audit team planned to conduct the Consolidated Audit simultaneously with the

individual Subsidiary Audits. The team’s audit plan for these simultaneous audits relied on audit

procedures performed at the subsidiary level, including subsidiary-level materiality thresholds that

supported both the Consolidated Audit and the Subsidiary Audits.

The Audit Team Falls Behind Schedule

16. The audit team fell behind schedule during the fourth quarter of 2013. On

December 18, 2013, the Second Manager emailed a status report to Bertuglia and Nagdimov. The

report estimated that the audit team was 870 total hours behind schedule as a group, or roughly 14

weeks behind, based on current staffing and 60-hour work weeks. To cure this deficit, Bertuglia

staffed four more auditors to the engagement, including two managers.

17. On January 7, 2014, SEC staff issued a subpoena to BDO requesting copies of the

firm’s documents, including prior work papers and audit files related to AmTrust.

4 Auditing standards referenced in this Order relate to PCAOB standards in effect when the audit was performed.

5 PCAOB Auditing Standard No. 7, Engagement Quality Review, par. 7.2.

18. Bertuglia wanted the audit team to substantially complete their work on all major

financial statement audit areas before AmTrust issued its earnings release on February 13, 2014.

When AmTrust published the earnings release, however, the audit team had not completed their

work on these major audit areas. As time passed, Bertuglia concluded the audit team would not be

able to complete all their audit work for the Consolidated Audit and Subsidiary Audits as planned

by February 28, 2014, which was the expected filing date for AmTrust’s 2013 Form 10-K.

Bertuglia directed the audit team to focus their efforts on completing audit work for the

Consolidated Audit, and delay any audit work that related solely to the Subsidiary Audits, because

the subsidiaries’ statutory financial statements were not required to be filed until after AmTrust’s

expected filing date for the 2013 Form 10-K.

19. To accomplish this goal, Nagdimov and the Second Manager manually reviewed

AmTrust’s financial statement accounts, by subsidiary and lead account schedule, to identify

accounts that exceeded the Consolidated Audit’s tolerable misstatement (“consolidated

materiality”) and ensure that any untested balances did not exceed consolidated materiality. By

applying this approach, the audit team departed from their original audit plan, which relied on

subsidiary-level materiality thresholds and related audit procedures to support both the

Consolidated Audit and Subsidiary Audits. The audit team failed to document this change to the

audit plan in the work papers.

20. Following the managers’ review, Bertuglia told the audit team they had to complete

their work in three audit areas before AmTrust filed its 2013 Form 10-K: (i) journal entry testing;

(ii) internal controls testing; and (iii) testing of material account balances for the Consolidated

Audit. A few days later, on February 18, the audit team emailed a status update to Bertuglia,

Nagdimov, and the Second Manager. The update, which detailed the team’s incomplete work,

showed that several significant audit areas were still incomplete, including internal controls testing.

Nagdimov Instructs the Audit Team to Sign Incomplete Work

21. On February 21, Bertuglia met with the audit team again and told them they had to

finish their incomplete audit work for journal entry testing, internal controls testing, and material

account balances for the Consolidated Audit before AmTrust filed its Form 10-K. After this

meeting, Nagdimov instructed the audit team to ensure all their work papers and audit programs

were loaded and signed in APT — regardless of whether the work was complete. Several days

later, Nagdimov issued a more direct instruction to the audit team: sign everything in APT,

including work papers and audit programs. He also told the audit team to load and sign blank or

placeholder work papers, if necessary, to comply with his instructions.
6

6 BDO’s APT software required users to load work papers into the program before they can sign those work papers

in APT. Upon sign-off, APT automatically registered an electronic timestamp for the signature. The software

allowed users to update their time-stamped sign-offs as needed, and the software also retained a log of all prior sign-

offs for each work paper. But users could still revise the content of work papers after they were signed, and these

revisions did not automatically update or delete the original time-stamped sign-offs.

22. The audit team generally followed Nagdimov’s orders and signed all their work

papers and audit programs, even if their work was incomplete. They also loaded placeholder

documents into APT, such as blank templates, preliminary schedules, and prior-period work

papers, and signed-off on these placeholder documents.

Bertuglia and Green Release BDO’s Audit Report Despite Missing Audit Work

23. The audit team expected AmTrust to file its Form 10-K on Friday, February 28,

2014. That morning, Bertuglia and Green were reviewing work papers in APT when they noticed

that several work papers were still incomplete, so they called Nagdimov. Bertuglia claims that

during this call, Nagdimov told Bertuglia and Green the audit team had completed their work but

technical problems were preventing them from loading their updated work papers into APT.

According to Bertuglia and Green, Nagdimov assured Bertuglia and Green that all necessary audit

work for the Consolidated Audit was complete, including the three audit areas that Bertuglia

instructed the audit team to finish before AmTrust’s Form 10-K filing.

24. Based on these verbal assurances, Bertuglia authorized the release of BDO’s audit

report and Green provided his concurring approval of issuance later that afternoon on February 28,

2014 (the “First Report Release Date”). The audit report contained unqualified opinions on

AmTrust’s 2013 consolidated annual financial statements and ICFR. When Bertuglia and Green

released the report, they had not yet reviewed the missing work papers outside of APT or discussed

the missing work with team members who were responsible for the procedures.

25. Bertuglia and Green subsequently learned that AmTrust had decided to delay its

Form 10-K filing until Monday, March 3, 2014, which was the actual filing deadline. Bertuglia

and Green continued to review and sign work papers over the weekend and on Monday, March 3.

From Friday, February 28 through Monday, March 3, Bertuglia and Green collectively signed over

2,000 work papers, including work papers they did not actually review, but they did not revisit the

incomplete work papers to confirm that necessary procedures were complete and sufficient audit

evidence had been obtained. On Monday, Bertuglia redated BDO’s audit report to March 3, 2014

(the “Second Report Release Date”), and AmTrust filed its 2013 Form 10-K later that day.

The Audit Team Performs Necessary Procedures After the Report Release Dates

26. On March 7, 2014, the audit staff members emailed a status report to Bertuglia,

Nagdimov and the Second Manager. The report showed that necessary work for the Consolidated

Audit remained incomplete and the audit team needed more time to finish their audit procedures.

The incomplete work included certain testing of journal entries, internal controls, and material

accounts for the Consolidated Audit — the same audit areas that Bertuglia repeatedly told the audit

team to complete before AmTrust filed its Form 10-K.

27. Several days later, Bertuglia reviewed the status report and was surprised by the list

of incomplete work for the Consolidated Audit. He promptly instructed the audit team to prepare

an updated summary of incomplete audit work and provide projected timelines for completing the

remaining items. This updated summary, which was emailed to Bertuglia on March 14, 2014,

identified all of the incomplete audit work that had to be finished by the audit team, including work

for the Consolidated Audit and the individual Subsidiary Audits.

28. Bertuglia also notified Green of the incomplete work for the Consolidated Audit.

They concluded that the audit team needed to complete the omitted procedures and assess their

potential impact on BDO’s audit report, as required by AU Section 390, Consideration of Omitted

Procedures After the Report Date (AU § 390). Neither Bertuglia nor Green discussed the omitted

procedures or their approach under AU § 390 with anyone else at BDO.

29. The audit team completed their work over the next month. For the incomplete,

predated work papers — particularly placeholder documents — the audit team generally overwrote

and thus replaced the prior audit documentation with new documentation reflecting the procedures

performed and evidence obtained. This new documentation did not indicate that such audit work

occurred after the report release dates, and it did not affect the original, predated sign-offs in APT.

Moreover, the audit team did not update their sign-offs in APT when the predated work papers

were completed. As a result of this conduct, the audit team created misleading documentation of

the timing of procedures that were performed after the report release dates because (i) the new

documentation did not identify the procedures performed and audit evidence obtained after the

report release dates, and (ii) the original, predated sign-offs did not accurately reflect the dates

when procedures were performed or audit evidence was obtained. The audit team’s predated

placeholder work papers included, among others, certain testing of journal entries, entity-level

internal controls, and certain premium revenues.

30. Bertuglia reviewed the completed audit work and concluded that the omitted

procedures did not affect BDO’s previously issued audit report. Green also reviewed this work

and reached the same conclusion, but he never reviewed the team’s list of incomplete audit work

nor the team’s assessment of omitted procedures, and he never discussed any assessment of the

omitted procedures with Bertuglia or anyone else on the audit team. In fact, there is no

documentation of any assessment of omitted procedures under AU § 390, and neither Bertuglia nor

Green documented their own assessment or review.

Summary of Significant Audit Deficiencies

31. The audit team did not have sufficient audit evidence to support BDO’s audit report

when it was included in AmTrust’s Form 10-K on March 3, 2014. The following summary

describes the significant audit deficiencies and documentation failures existing on that date: the

Second Report Release date.
7

7
On February 28, 2014, SEC staff requested an electronic copy (i.e., a “snapshot”) of BDO’s audit work papers at

the moment when BDO released its audit report for AmTrust’s 2013 consolidated annual financial statements and

ICFR. SEC staff identified the predated work papers and audit deficiencies by comparing these “snapshot” work

papers on the Second Report Release date to BDO’s final, archived work papers.

a. Incomplete Journal Entry Testing

32. BDO’s audit plan identified improper journal entries as a fraud risk factor related to

management’s potential override of internal controls. To address this risk, the audit team planned

to perform journal entry testing for evidence of possible material misstatement due to fraud, as

required under AU Section 316, Consideration of Fraud in a Financial Statement Audit (“AU §

316”). See AU § 316.58-62. During the Consolidated Audit, the audit team failed to perform any

journal entry testing for the second half of the year (July 2013 through December 2013) before the

Second Report Release Date. But the audit team loaded two placeholder work papers, signed them

on February 27, 2014, and signed several incomplete audit steps for journal entry testing in the

audit program. Specifically, the audit team loaded and signed a BDO template for performing and

documenting journal entry testing. The audit team also loaded and signed a journal entry testing

spreadsheet from the prior year’s work papers. Bertuglia also signed the BDO template

placeholder work paper on February 28, 2014, even though it did not document any work

performed, evidence obtained or conclusions reached. After the Second Report Release Date, the

audit team performed the incomplete procedures and documented them by overwriting existing

documentation in the placeholder work papers, thus preserving the original, predated sign-off dates

in APT.

b. Incomplete Internal Controls Testing

33. BDO’s audit plan included testing of internal control processes for premium

underwriting, treasury and investments, entity-level controls and share-based compensation.

During the Consolidated Audit, the audit team failed to complete certain testing for these internal

control areas before the Second Report Release Date. But the audit team signed-off on an

incomplete control testing work paper and loaded and signed a placeholder work paper. The audit

team also signed incomplete audit program steps for internal controls testing. Nagdimov signed

incomplete control testing work papers on February 27 and 28, 2014, and Bertuglia signed the

predated placeholder work paper on March 3, 2014. After the Second Report Release Date, the

audit team performed the incomplete procedures and documented them by overwriting existing

documentation in these work papers, thus preserving the original, predated sign-off dates in APT.

34. In December 2013, an audit team member also loaded and signed blank BDO

templates for share-based compensation and another internal control process as placeholder work

papers. After the Second Report Release Date, the team member documented his work in the

templates, thus preserving the original, predated preparer sign-off dates in APT.

c. Incomplete Substantive Testing for Material Accounts

35. BDO’s audit plan included substantive audit procedures for material accounts,

including various procedures concerning premium revenue, premium receivable, and share-based

compensation. The planned audit procedures for premium revenue also included substantive

procedures for certain insurance programs. During the Consolidated Audit, the audit team failed to

complete certain substantive audit procedures for these material accounts.

36. For certain premium revenue testing, an audit team member loaded and signed a

placeholder work paper on February 25, 2014, and signed the incomplete audit step in BDO’s audit

program. Green signed the placeholder work paper as the engagement quality review partner on

March 3, 2014. After the Second Report Release Date, the team member performed the

incomplete procedures and documented them by overwriting existing documentation in the

placeholder work papers, thus preserving the original, predated sign-off dates in APT.

37. BDO’s audit plan included substantive audit procedures for workers’ compensation

premium receivable, one of the Company’s most significant lines of business. The audit team

member responsible for this work for three of the Company’s largest insurance subsidiaries signed

interim work papers in January 2014 but failed to complete all of the year-end procedures before

the Second Report Release Date. Shortly before the Second Report Release Date, Bertuglia signed

one of these incomplete work papers and Green signed two of these incomplete work papers,

despite the failure to document work performed, evidence obtained or conclusions reached for the

year-end procedures. After the Second Report Release Date, the team member performed the

incomplete year-end procedures and documented them by overwriting existing documentation in

these interim work papers, thus preserving the original preparer and reviewer sign-off dates in

APT.

38. BDO’s audit plan also included substantive audit procedures for share-based

compensation. The audit team failed to complete some of these audit procedures before the

Second Report Release Date. These work papers were not improperly predated but the audit

procedures were performed and documented after the Second Report Release Date.

d. Other Incomplete Audit Procedures for Risk of Fraud

39. BDO’s audit plan included several audit procedures to address the risk of fraud, as

required under AU § 316, including vendor fraud testing. During the Consolidated Audit, the audit

team failed to complete audit procedures for vendor fraud testing before the Second Report

Release Date. An audit team member loaded and signed a placeholder work paper for this testing

on February 27, 2014. After the Second Report Release Date, the team member performed the

audit procedures and documented them by overwriting existing documentation in the work paper,

thus preserving the original, predated sign-off date in APT.

Bertuglia’s and Nagdimov’s Violations of PCAOB Standards

a. Failure to Supervise and Exercise Due Professional Care

(AS 10 and AU § 230)

40. Under PCAOB Auditing Standard No. 10, Supervision of the Audit Engagement

(“AS 10”), “the engagement partner is responsible for the engagement and its performance.

Accordingly, the engagement partner is responsible for proper supervision of the work of

engagement team members and for compliance with PCAOB standards . . . .” AS 10.3.

Additionally, “[e]ngagement team members who assist the engagement partner with supervision of

the work of other engagement team members also should comply with the requirements in this

standard with respect to the supervisory responsibilities assigned to them.” AS 10.4. The

engagement partner and, as applicable, other engagement team members performing supervisory

activities, should, among other things, “review the work of engagement team members to

evaluate whether: (1) [t]he work was performed and documented; (2) [t]he objectives of the

procedures were achieved; and (3) [t]he results of the work support the conclusions reached.”

AS 10.5.

41. PCAOB Auditing Standard AU 230, Due Professional Care in the Performance of

Work (“AU § 230”), requires auditors to exercise due professional care in the planning and

performance of an audit and the preparation of an audit report. AU § 230.01. Due professional

care requires the auditor to exercise professional skepticism, which is an attitude that includes a

questioning mind and a critical assessment of audit evidence. AU § 230.07. Due professional care

also requires the auditor to consider the competency and sufficiency of evidence, and since

evidence is gathered and evaluated throughout the audit, professional skepticism should be

exercised throughout the audit process. AU § 230.08. The exercise of due professional care

allows the auditor to obtain reasonable assurance about whether the financial statements are free of

material misstatement, whether caused by error or fraud, or whether any material weaknesses exist

on the date of management’s assessment of ICFR. AU § 230.10. The auditor’s objective is to

obtain sufficient appropriate evidential matter to provide a reasonable basis for forming an opinion.

AU § 230.11.

42. As a result of the conduct described above, Bertuglia and Nagdimov failed to

properly supervise the audit team and exercise due professional care during the Consolidated

Audit. In particular, Bertuglia and Nagdimov failed to properly evaluate whether: (i) the audit

complied with PCAOB standards, including audit documentation standards; (ii) necessary audit

procedures were completed before the audit report was released; and (iii) the audit team obtained

sufficient audit evidence to support BDO’s audit report.

43. Bertuglia authorized the release of BDO’s audit report even though necessary audit

procedures were not completed and the audit evidence obtained did not comply with PCAOB

standards. Bertuglia also signed work papers that lacked sufficient evidence to support the audit

team’s conclusions. Bertuglia also failed to properly supervise the audit team’s compliance with

audit documentation standards for additional audit work that was performed after the audit report

was released. As a result, Bertuglia violated AS 10 and AU § 230.

44. Additionally, Nagdimov violated AS 10 and AU § 230 when he instructed the audit

team to predate their incomplete work papers and audit programs. He also violated these standards

when he failed to report the true status of the Consolidated Audit work to Bertuglia and Green

before they released BDO’s audit report.

b. Failure to Properly Examine Journal Entries For Evidence of Possible

Material Misstatement Due to Fraud (AU § 316, AU § 230 and AS 15)

45. Under AU § 316, “the auditor has a responsibility to plan and perform the audit to

obtain reasonable assurance about whether the financial statements are free of material

misstatement, whether caused by error or fraud.” AU § 316.01.
8
Additionally, AU § 316

prescribes certain audit procedures to specifically address the risk of management override of

controls, including examining journal entries and other adjustments for evidence of possible

material misstatement due to fraud. See AU § 316.57-62. Material misstatements of financial

statements due to fraud often involve, among other things, the manipulation of financial reporting

through recording journal entries and other adjustments at the end of a reporting period. The

auditor should “design procedures to test the appropriateness of journal entries recorded in the

general ledger and other adjustments . . . made in the preparation of the financial statements.” AU

§ 316.58. For example, the auditor should identify and select journal entries and other adjustments

for testing and examine supporting documentation. AU § 316.61-62. AU § 316 requirements

concerning fraud risks also emphasize the need for auditors to exercise due professional care and

professional skepticism. AU § 316.13; see also AU § 230.01, .07-.08, and .10-.11.

46. Under PCAOB Auditing Standard No. 15, Audit Evidence (“AS 15”), an “auditor

must plan and perform audit procedures to obtain sufficient appropriate audit evidence to provide a

reasonable basis for his or her opinion.” AS 15.4.

47. As a result of the conduct described above, Bertuglia failed to comply with AU §

316 because the audit team did not complete journal entry testing before the audit report was

released.9 Consequently, Bertuglia also failed to exercise due professional care and professional

skepticism, failed to obtain reasonable assurance that AmTrust’s 2013 consolidated annual

financial statements were free of material misstatement, and failed to obtain sufficient appropriate

audit evidence to provide a reasonable basis for the opinions in BDO’s audit report, as required by

AU § 230 and AS 15.

c. Failure to Perform Sufficient Tests of Internal Controls and Substantive

Audit Procedures to Obtain Sufficient Evidence to Support the Audit

Opinions (AS 5, AS 13, AS 14 and AS 15)

48. PCAOB Auditing Standard No. 5, An Audit of Internal Control Over Financial

Reporting That Is Integrated with An Audit of Financial Statements (“AS 5”), establishes

requirements to test and evaluate internal control over financial reporting. When auditing internal

control over financial reporting in an integrated audit, AS 5 requires, among other things, the

auditor to obtain sufficient evidence to support the auditor’s opinion on internal control over

8
See also AU Section 110, Responsibilities and Functions of the Independent Auditor, at para. 2.

9
During the Consolidated Audit, Nagdimov was not responsible for supervising or reviewing year-end audit

procedures for journal entry testing.

financial reporting as of year-end. AS 5.7. The auditor should also properly plan the audit of

internal control over financial reporting and properly supervise the engagement team members.

AS 5.9. The auditor should test those controls that are important to the auditor’s conclusion about

whether the company’s controls sufficiently address the assessed risk of misstatement to each

relevant assertion. AS 5.39. The auditor must also test those entity-level controls that are

important to the auditor’s conclusion about whether the company has effective internal control

over financial reporting. AS 5.22.
10

49. PCAOB Auditing Standard No. 13, The Auditor’s Responses to the Risks of

Material Misstatement (“AS 13”), establishes requirements regarding designing and implementing

appropriate responses to the risks of material misstatement. AS 13.1. The audit procedures

performed in response to the assessed risks of material misstatement can be classified into two

categories: (i) tests of controls; and (ii) substantive procedures. AS 13.1-3, .8, and .10. If the

auditor plans to assess control risk at less than the maximum . . . , the auditor must obtain evidence

that the controls selected for testing were designed and operating effectively during the entire

period for which the auditor plans to rely on controls to modify the substantive procedures in the

financial statement audit. AS 13.16. When substantive procedures are performed at an interim

date, the auditor should cover the remaining period by performing substantive procedures, or

substantive procedures combined with tests of controls, that provide a reasonable basis for

extending the audit conclusions from the interim date to the period end. AS 13.45.

50. AS 14 establishes requirements regarding the auditor’s evaluation of audit results

and determination of whether he or she has obtained sufficient appropriate audit evidence. AS

14.1. When evaluating audit results, the auditor must conclude whether sufficient appropriate audit

evidence has been obtained to support his or her opinion on the financial statements. AS 14.33.

51. AS 15 states than an “auditor must plan and perform audit procedures to obtain

sufficient appropriate audit evidence to provide a reasonable basis for his or her opinion.” AS 15.4.

52. As a result of the conduct described above, Bertuglia failed to comply with these

standards because the audit team did not complete their testing of internal controls for the

Consolidated Audit before the audit report was released. Similarly, Nagdimov also failed to

comply with these standards to the extent that he was responsible for supervising the internal

controls testing that was incomplete when the audit report was released.

53. Bertuglia and Nagdimov also failed to appropriately respond to the risks of material

misstatement because the audit team did not complete substantive audit procedures that were

designed to address the assessed risks of material misstatement, as required by AS 13.

Consequently, Bertuglia and Nagdimov also failed to adequately evaluate audit evidence and

obtain sufficient evidence as required by AS 14 and AS 15.

See also AS 12, Identifying and Assessing Risks of Material Misstatement (“AS 12”), at para. 40.

d. Failure to Prepare and Retain Required Audit Documentation

(AS 3 and AU § 230)

54. PCAOB Auditing Standard No. 3, Audit Documentation (“AS 3”), requires an

auditor to prepare and retain documentation that provides a written record of the basis for the

auditor’s conclusions. Audit documentation also facilitates the planning, performance, and

supervision of the engagement, and is the basis for reviewing the quality of the work because it

provides the reviewer with written documentation of the evidence supporting the auditor’s

significant conclusions. AS 3.1-.2 and .5.

55. Audit documentation must clearly demonstrate that the work was in fact

performed. AS 3.6. Audit documentation must also contain sufficient information to enable an

experienced auditor, having no previous connection with the engagement: (a) to understand the

nature, timing, extent, and results of the procedures performed, evidence obtained, and

conclusions reached, and (b) to determine who performed the work and the date such work was

completed, as well as the person who reviewed the work and the date of such review. AS 3.6. If

the auditor cannot determine or demonstrate that sufficient procedures were performed, sufficient

evidence was obtained, or appropriate conclusions were reached, the auditor should comply with

the provisions of AU §390, Consideration of Omitted Procedures After the Report Date. AS 3.9.

56. Before the report release date,
11

the auditor must have completed all necessary

auditing procedures and obtained sufficient evidence to support the representations in the auditor’s

report. AS 3.15. After the report release date, a complete and final set of audit documentation

should be assembled for retention no more than 45 days later (the documentation completion date).

AS 3.15. Circumstances may require additions to audit documentation after the report release

date. AS 3.16. Audit documentation must not be deleted or discarded after the documentation

completion date; however, information may be added. Any documentation added must indicate

the date the information was added, the name of the person who prepared the additional

documentation, and the reason for adding it. AS 3.16. Furthermore, auditors should not discard

any previously existing documentation in connection with obtaining and documenting evidence

after the report release date. AS 3.A56. If the auditor obtains and documents evidence after the

report release date, the auditor should refer to AU § 390, Consideration of Omitted Procedures

After the Report Date, and AU § 561, Subsequent Discovery of Facts Existing at the Date of the

Auditor’s Report. AS 3.A56.

57. AU § 230 requires auditors to exercise due professional care in the planning and

performance of an audit and the preparation of an audit report. AU § 230.01.

58. As a result of the conduct described above, Bertuglia and Nagdimov violated AS 3

and AU § 230 because: (i) the audit team improperly predated incomplete work papers and audit

The report release date is the date the auditor grants permission to use the auditor’s report for the company’s

financial statements. AS 3.A41.

programs, which intentionally preceded the report release dates and did not accurately reflect the

dates when audit procedures were actually completed or reviewed; (ii) the audit team failed to

properly document the audit procedures they performed, and the evidence they obtained, after the

report release dates; (iii) the audit team improperly discarded audit documentation that existed on

the report release dates by overwriting such documentation in connection with obtaining and

documenting evidence after the report release dates; (iv) the audit team failed to sign the predated

work papers again when the audit work was actually completed; (v) the audit team failed to

document their change in audit approach using the higher, consolidated materiality threshold; and

(vi) the audit team failed to document their assessment of omitted procedures under AU § 390.

59. Nagdimov violated AS 3 and AU § 230 because he instructed the audit team to

predate their incomplete work papers and audit programs before the First Report Release Date.

His improper instructions also extend to the audit documentation failures that occurred after the

report release dates, which served to continue and further the misleading nature of the audit team’s

predated documentation in the work papers and audit programs.

60. Bertuglia violated AS 3 and AU § 230 because he failed to remediate the audit

team’s predated documentation. Bertuglia further violated these standards because he also signed

some of the predated work papers, and because he signed work papers that he never actually

reviewed. In fact, Bertuglia signed numerous work papers in the file, including work papers he

never actually reviewed, because he used his review signatures as a “management tracking tool” in

APT to identify new work papers when they were added to the file. His practice of signing work

papers that he never reviewed violated AS 3 and AU § 230.

61. Bertuglia also violated AS 3 and AU § 230 because he failed to remediate the audit

team’s documentation failures that occurred after the report release dates, and because he failed to

document his assessment of omitted audit procedures under AU § 390. Bertuglia’s failure to

document this analysis also violated BDO’s audit policies in effect during the Consolidated Audit.

Green’s Violations of PCAOB Standards

a. Failure to Perform Appropriate Engagement Quality Review

(AS 7 and AU § 230)

62. PCAOB Auditing Standard No. 7, Engagement Quality Review (“AS 7”),

establishes requirements for an engagement quality review and concurring approval of issuance for

each audit engagement. The objective of the engagement quality reviewer is to perform an

evaluation of the significant judgments made by the engagement team and the related conclusions

reached in forming the overall conclusion on the engagement, and in preparing the engagement

report, in order to determine whether to provide concurring approval of issuance. AS 7.2. To

evaluate such judgments and conclusions, the engagement quality reviewer should, to the extent

necessary: (1) hold discussions with the engagement partner and other members of the engagement

team, and (2) review documentation. AS 7.9. Additionally, in an audit, the engagement quality

reviewer should evaluate, among other things, the engagement team’s assessment of, and audit

responses to, (1) significant risks identified by the engagement team, including fraud risks, and (2)

other significant risks identified by the engagement quality reviewer through performing the

procedures required by this standard. AS 7.10.

63. The engagement quality reviewer should also evaluate whether the engagement

documentation that he or she reviewed when performing the review (1) indicates that the

engagement team responded appropriately to significant risks, and (2) supports the conclusions

reached by the engagement team with respect to the matters reviewed. AS 7.11. In an audit, the

engagement quality reviewer may provide concurring approval of issuance only if, after

performing with due professional care the review required by this standard, he or she is not aware

of a significant engagement deficiency. AS 7.12.

64. Documentation of the engagement quality review should contain sufficient

information to enable an experienced auditor, having no previous connection with the engagement,

to understand the procedures performed by the engagement quality reviewer and include

information that identifies: (1) the engagement quality reviewer; (2) the documents reviewed by

the engagement quality reviewer; and (3) the date the engagement quality reviewer provided

concurring approval of issuance. AS 7.19. Documentation of the engagement quality review

should also be included in the audit engagement documentation. AS 7.20.

65. AU § 230 requires auditors to exercise due professional care in the planning and

performance of an audit and the preparation of an audit report. Due professional care requires

auditors to exercise professional skepticism and consider the competency and sufficiency of audit

evidence to provide a reasonable basis for forming an opinion. See AU § 230.01, .07-.08, and .10-

.11.

66. As a result of the conduct described above, Green violated AS 7 and failed to

exercise due professional care under AU § 230 because he provided his concurring approval of

issuance to release BDO’s audit report even though work papers in significant risk areas did not

have sufficient documentation of the performed procedures, appropriate audit evidence obtained,

or conclusions reached by the audit team. Green also failed to follow BDO’s audit policies in

effect during the Consolidated Audit, which required him to review the audit team’s journal entry

testing.

67. Green further violated AS 7 and AU § 230 when he provided his concurring

approval of issuance despite the omitted audit procedures, which constituted a significant

engagement deficiency, because the audit team had failed to obtain sufficient evidence in

accordance with PCAOB standards.
12

Green also violated these standards when he failed to

Under AS 7, a significant engagement deficiency exists in an audit when (1) the engagement team failed to obtain

sufficient appropriate evidence in accordance with PCAOB standards, (2) the engagement team reached an

inappropriate overall conclusion on the subject matter of the engagement, (3) the engagement report is not appropriate

in the circumstances, or (4) the firm is not independent of its client. AS 7.12.

review and evaluate the audit team’s assessment of these omitted procedures under AU § 390, and

when he failed to alert the audit team to the absence of necessary documentation that would allow

Green to perform his review and evaluation of the audit team’s AU § 390 assessment. Finally,

Green violated these standards when he signed work papers that he did not actually review.

E. VIOLATIONS

68. As a result of the conduct described above, Respondents Bertuglia, Green, and

Nagdimov engaged in improper professional conduct within the meaning of Section 4C(a)(2) of

the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. In relevant part,

Section 4C(b) of the Exchange Act and Rule 102(e)(1)(iv) of the Commission’s Rules of Practice

define “improper professional conduct” as one of three classes of conduct: (1) intentional or

knowing conduct, including reckless conduct, that results in a violation of applicable

professional standards; (2) a single instance of highly unreasonable conduct in circumstances for

which heightened scrutiny is warranted; or (3) repeated instances of unreasonable conduct that

indicate a lack of competence to practice before the Commission.

F. FINDINGS

69. Based on the foregoing, the Commission finds that Respondents Bertuglia and

Green engaged in improper professional conduct pursuant to Sections 4C(a)(2) and 4C(b)(2) of the

Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice based upon repeated

instances of unreasonable conduct.

70. Based on the foregoing, the Commission finds that Respondent Nagdimov engaged

in improper professional conduct pursuant to Sections 4C(a)(2), 4C(b)(1) and 4C(b)(2) of the

Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice based upon intentional

or knowing conduct, including reckless conduct, and repeated instances of unreasonable conduct.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the agreed

sanctions in Respondents’ Offers.

Accordingly, it is hereby ORDERED, effective immediately, that:

A. Pursuant to Section 4C of the Exchange Act and Rule 102(e)(1)(ii) of the

Commission’s Rules of Practice, Respondent Bertuglia is denied the privilege of appearing or

practicing before the Commission as an accountant.

1. After three years from the date of this Order, Respondent Bertuglia

may request that the Commission consider his reinstatement by submitting an

application (attention: Office of the Chief Accountant) to resume appearing or

practicing before the Commission as:

a. a preparer or reviewer, or a person responsible for the preparation

or review, of any public company’s financial statements that are

filed with the Commission (other than as a member of an audit

committee, as that term is defined in Section 3(a)(58) of the

Securities Exchange Act of 1934). Such an application must

satisfy the Commission that Bertuglia’s work in his practice

before the Commission as an accountant will be reviewed either

by the independent audit committee of the public company for

which he works or in some other acceptable manner, as long as he

practices before the Commission in this capacity; and/or

b. a preparer or reviewer, or a person responsible for the preparation

or review, of any public company’s financial statements that are

filed with the Commission as a member of an audit committee, as

that term is defined in Section 3(a)(58) of the Securities Exchange

Act of 1934. Such an application will be considered on a facts

and circumstances basis with respect to such membership, and the

applicant’s burden of demonstrating good cause for reinstatement

will be particularly high given the role of the audit committee in

financial and accounting matters; and/or

c. an independent accountant.

Such an application must satisfy the Commission that:

i. Bertuglia, or the public accounting firm with which he is

associated, is registered with the PCAOB in accordance with

the Sarbanes-Oxley Act of 2002, and such registration

continues to be effective;

ii. Bertuglia, or the registered public accounting firm with

which he is associated, has been inspected by the PCAOB

and that inspection did not identify any criticisms of or

potential defects in the respondent’s or the firm’s quality

control system that would indicate Bertuglia will not receive

appropriate supervision;

iii. Bertuglia has resolved all disciplinary issues with the

PCAOB, and has complied with all terms and conditions of

any sanctions imposed by the PCAOB (other than

reinstatement by the Commission); and

iv. Bertuglia acknowledges his responsibility, as long as he

appears or practices before the Commission as an

independent accountant, to comply with all requirements of

the Commission and the PCAOB, including, but not limited

to, all requirements relating to registration, inspections,

concurring partner reviews and quality control standards.

2. The Commission will consider an application by Bertuglia to resume

appearing or practicing before the Commission provided that his state CPA license is

current and he has resolved all other disciplinary issues with the applicable state boards

of accountancy. However, if state licensure is dependent on reinstatement by the

Commission, the Commission will consider an application on its other merits. The

Commission’s review may include consideration of, in addition to the matters referenced

above, any other matters relating to Bertuglia’s character, integrity, professional conduct,

or qualifications to appear or practice before the Commission as an accountant. Whether

an application demonstrates good cause will be considered on a facts and circumstances

basis with due regard for protecting the integrity of the Commission’s processes.

B. Pursuant to Section 4C of the Exchange Act and Rule 102(e)(1)(ii) of the

Commission’s Rules of Practice, Respondent Green is denied the privilege of appearing or

practicing before the Commission as an accountant.

1. After one year from the date of this Order, Respondent Green may

request that the Commission consider his reinstatement by submitting an application

(attention: Office of the Chief Accountant) to resume appearing or practicing before

the Commission as:

a. a preparer or reviewer, or a person responsible for the preparation

or review, of any public company’s financial statements that are

filed with the Commission (other than as a member of an audit

committee, as that term is defined in Section 3(a)(58) of the

Securities Exchange Act of 1934). Such an application must

satisfy the Commission that Green’s work in his practice before

the Commission as an accountant will be reviewed either by the

independent audit committee of the public company for which he

works or in some other acceptable manner, as long as he practices

before the Commission in this capacity; and/or