Who ought to audit?

News Hits is pleased as paupers that the U.S. Securities and Exchange Commission is suing seven former officers of MCA Financial Corporation in U.S. District Court for allegedly lying to investors, who lost $68 million when the company folded three years ago.

Executives of the Southfield-based mortgage company began in 1994 to misrepresent the risk, rate of return and past performance of investments, according to the feds. The SEC also accuses MCA officers of filing false reports regarding company assets — which included thousands of Detroit rental properties that were abandoned when the company closed its doors without notice.

SEC spokesperson Charles J. Kerstetter said that if the lawsuit is successful, former MCA executive Patrick Quinlan of Grosse Pointe Farms and his cronies will be barred from heading any public company in the future. The U.S. Department of Justice has already charged Quinlan and other MCA execs for allegedly defrauding thousands of investors and lenders.

One particularly troubling aspect of this debacle is the fact that MCA was audited by two reputable accounting firms, Doeren Mayhew and Grant Thornton. Neither firm noted any problems with MCA’s financial statements and annual reports, according to the lawsuit.

News Hits asked Kerstetter if the accounting firms may have sensed trouble, but did not report it. Kerstetter said he could only comment on the lawsuit, which does not accuse the accountants of any wrongdoing.

Grant Thorton’s marketing coordinator, Lindsay Birkett, said the company won’t comment on the lawsuit or MCA. Doeren Mayhew did not return our calls. However, last month we spoke to Doeren Mayhew managing director Mark Crawford about the issue. “All we can say is the last audit was January 1998, and they filed bankruptcy more than a year later,” said Crawford. “My understanding is the audits of MCA done by the accountants suggested that everything at MCA was in good shape.”

But, if what the SEC alleges is true, and MCA began cooking its books as early as 1994, shouldn’t a sharp-eyed CPA have caught a whiff of wrongdoing? Maybe someone should call in Arthur Andersen to investigate. We hear that, having lost the Enron account and a few other customers, it’s looking for some extra work these days.