One of the country’s largest accounting and audit firms has been hit with lawsuit brought by Philadelphia Indemnity Insurance, which claims the audit firm should be on the hook after allegedly failing to catch $5 million in theft carried out by the controller at Insureon, one of Philadelphia Indemnity’s customers.
Philadelphia Indemnity filed suit in Cook County Circuit Court on Feb. 3, accusing accounting firm RSM US LLP of accounting malpractice.
The lawsuit centered on a criminal case filed last year by federal prosecutors in Chicago, against Kevin J. Mix, the former controller for Chicago-based online insurance broker, Insureon.
According to a statement released by the U.S. Department of Justice, Mix was charged with a count of wire fraud on Aug. 7, 2020.
According to prosecutors, Mix, then 41, allegedly used about three dozen wire transfers to move money from Insureon’s accounts to his personal accounts and to shell companies he had created. Prosecutors said Mix allegedly used the money to purchase luxury cars and real estate in Chicago and Columbus, Ohio.
Prosecutors alleged Mix concealed the transfers by “making false entries” in Insureon’s records, “creating fake emails, and making false statements” to Insureon and its bank.
The case against Mix remains pending in the U.S. District Court for the Northern District of Illinois in Chicago.
According to the complaint filed by Philadelphia Indemnity, Insureon accountants became concerned in 2019 over invoices submitted by MXX Tech Solutions LLC, a shell company created by Mix.
Insureon then hired RSM, also based in Chicago, to audit its fiscal year 2018 financial statements. The complaint said RSM “worked directly with Mix to conduct this audit.”
RSM is ranked the fifth largest accounting firm in the U.S., with locations across the country and in Canada.
In September 2019, RSM allegedly certified “that Insureon’s FY 2018 financial statements fairly presented the results of Insureon’s operations and cash-flow despite the significant fraud ongoing by Mix that was not discovered in the course of their audit.”
According to the complaint, Mix allegedly continued to transfer funds until June 2020.
Philadelphia Indemnity said it was later forced to pay out $3 million “to cover a portion of the company funds embezzled by Mix.”
“RSM’s failure to identify and uncover these material misstatements, and its failure to conduct any meaningful inquiry or investigation into potential management-level fraud at Insureon during the FY2018 audit, ensured that Mix continued to have access to … both initiate and approve millions of dollars in fraudulent account transfers from Insureon during FY 2019 and FY 2020,” Philadelphia Indemnity’s complaint said.
Philadelphia Indemnity is seeking unspecified damages of more than $50,000, according to the complaint.
Philadelphia Indemnity is represented in the action by attorneys with the firm of Cozen O’Connor, of Chicago.