The roller coaster ride continues at Berkshire Bancorp (BERK) in New York.

The $820 million-asset company disclosed on Tuesday that it is dealing with a major accounting issue. The disclosure comes just weeks after the resignation of Berkshire's chief executive, who pulled double duty as its chief financial officer.

Berkshire quickly replaced Steven Rosenberg with Joseph Fink, a part-time periodontist. Fink, a private investor who has been on the board for the last decade, is also the son-in-law of Moses Marx, a New York real estate developer — and Berkshire's chairman.

Fink takes the helm of a company that is struggling to reconcile its financial statements. In its annual report, which was filed late, Berkshire said it had unearthed a material weakness in its internal controls tied to income tax computations and its loan-loss allowance. It blamed the issue on work performed by a third-party tax specialist.

"It sounds like most everything that could go wrong did go wrong in the normal closing of the books," says Dennis Beresford, an accounting professor at the University of Georgia.

Berkshire's issue with the unidentified tax specialist highlights concerns by regulators that banks are susceptible to shoddy work by vendors. Regulators are urging banks to conduct thorough research before outsourcing work.

The specialist "did not perform the necessary levels of due diligence required during the preparation process," Berkshire disclosed in its annual report. "Management relied on the tax specialist recommendations without recognizing errors in the tax computations."

Berkshire said it is fixing its internal controls. Its auditor, Grant Thornton, signed off on the annual report, stating that the consolidated financial statements "present fairly, in all material respects, the financial position" of the company.

Grant Thornton cautioned that it would not offer an opinion on Berkshire's internal control over financial reporting.

"The company has a real mess on their hands," Beresford says. "But they took steps to fix everything and now they are in the process of remediating their internal control weaknesses."

Though Berkshire found problems with its loan-loss allowance, the company said in its filing that it believes its $11 million allowance, which is largely dedicated to backing commercial real estate and equals 3.7% of total loans, has been presented accurately.

"Management relied on the third-party specialist's recommendation with respect to its methodology to calculate its allowance," the filing said. "Management's process did not adequately challenge the third party's model assumptions and inputs. Additionally, management did not adequately document the rationale for using the allowance assumptions and inputs."

Marx, who owns 69% of Berkshire's common stock, and Rosenberg did not return calls seeking comment. A spokeswoman for Grant Thornton declined to comment.

Berkshire's financial performance has been highly volatile in recent years. It lost $79 million in 2008 after absorbing a massive hit tied to Fannie Mae and Freddie Mac securities. Two years later, the company posted another loss after writing off nearly $19 million of goodwill tied to past acquisitions.

In 2011, Berkshire earned $52 million after settling a dispute with an unnamed firm that had sold it auction-rate securities. Berkshire's $42 million settlement involved arbitration with the Financial Industry Regulatory Authority.

Berkshire has also been shrinking its balance sheet and trying to hoard capital. Its loan book at Dec. 31 was 37% smaller than it was at the end of 2008. Its Tier 1 leverage ratio ended last year at 14.6%; it was 8.9% four years earlier.

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