Charges were also brought against Gentex Chief Financial Officer Kevin Nash for related violations. He agreed to a cease-and-desist order and $75,000 penalty. Neither Gentex nor Nash admitted or denied the SEC’s findings.
Fraud Analytics
The actions arose from the Division of Enforcement’s Earnings Per Share (EPS) Initiative, which utilizes risk-based data analytics to uncover potential accounting and disclosure violations caused by, among other things, earnings management practices.
The deficiencies at issue “were caused by an ineffective system of internal accounting controls, which made it possible for the company’s then-Chief Accounting Officer, Nash, and others in the accounting group, to make certain adjustments to the bonus compensation accruals without the required accounting analysis or without adequate supporting documentation,” according to the SEC order.
“Nash departed from Gentex’s procedure for estimating the bonus compensation accruals,” the SEC order stated. “He also failed to sufficiently document the basis for his accounting judgments related to certain accrual estimates.”
The SEC also found that Nash directed a reduction of an accrual for a performance-based bonus program, resulting in Gentex reporting EPS that met consensus research analyst estimates. “Nash directed the reduction without performing an analysis of relevant criteria under U.S. GAAP and without documenting the basis for his decision,” the SEC said.
Consequently, Nash violated Section 13(b)(5) of the Exchange Act, as well as Rule 13b2-1, the SEC said. Additionally, the order stated, “Gentex failed to devise and maintain a sufficient system of internal accounting controls related to its closing process, including its accounting for bonus compensation, and failed to maintain internal control over financial reporting.” 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.