In either case, the Audit Committee is not independent. R&H is aware of this, and as such, AU 316 allows them to do exactly as their outside legal counsel advises, regarding fraud reporting.
And their legal counsel is well aware of the effect of "US vs Naselli" on the CPA profession. A Peat Marwick partner got 5 years, and more surprisingly, the audit manager got one year. SOX, via the OCAOB, tried to make it easier for the CPA firms to deal with fraud, by requiring INDEPENDENT Audit Committees.
I'm willing to bet Franky resigned months ago.