Underfunding Public Protection

Article excerpt

Last year, I had the privilege of being one of 24 people asked to testify before the U.S. Treasury Department's Advisory Committee on the Auditing Profession. The committee, led by cochairs Arthur Levitt, Jr., and Donald T. Nicolaisen, recently issued its final report containing more than 30 recommendations to improve the sustainability of the public company auditing profession.

The committee urged that states create greater financial and operational independence for their boards of accountancy, as many are underfunded and lack the resources to cover the cost of investigations that would lead to greater enforcement.

Unfortunately, this is not going to be possible in New York State. New York's State Board for Public Accountancy has no financial independence from the New York State Education Department's Office of the Professions, which also regulates 47 other professions. The recent budget cuts in New York State have stripped resources from the Office of the Professions, thereby doing the exact opposite of what the advisory committee recommended.

To say that the New York State Board for Public Accountancy and the Office of the Professions are too understaffed and underfunded to regulate the accounting pro- fession in New York is an understatement There's only one CPA currently on the entire staff. The recent budget cuts only exacerbate a lack of public protection.

Due to the state budget cuts, enforcement of CPA disciplinary cases through hearings will be radically reduced, forcing the Office of the Professions to compromise public protection by settling a greater number of cases. Case summaries published for the period from May 2006 to May 2008 show an alarming settlement rate in CPA cases of 83%. Rigorous enforcement of accountancy laws, rules, and regulations through fact-finding hearings will be further compromised by even more settlements as a result of the budget cuts. New York State is now asking the already-shorthanded New York State Board for Public Accountancy and the Office of the Professions to do more with much less. How can the state maintain public trust if the means to do so are crippled?

The committee also recommended mandating regular formal roundtables of the Public Company Accounting Oversight Board (PCAOB), the SEC, the Department of Justice, state boards of accountancy, and state attorneys general. …