On January 10, 2011, the Securities and Exchange Commission imposed a $200,000 fine against Hudson Highland Group for failing to have adequate internal controls around its sales and use tax collection and remittance procedure. This is the first time I have every heard of the SEC weighing in on any type of sales tax matter.
In its ruling, File No. 3-14182, the SEC stated that Hudson violated Section 13(b)(2)(A) and (B) of the Exchange Act which requires that reporting companies make and keep books, records, and accounts which accurately and fairly reflect their transactions and dispositions of assets and have adequate internal controls. Because Hudson did not put systems or procedures into place which would have prevented a material sales tax liability, it was in violation of these provisions.
This ruling has great significance for any company that makes filings with the SEC. If you are a CPA who has clients that are publicly traded or have any type of SEC filing responsibilities, you should address these issues immediately.
Ned Lenhart
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