PICPA - Know What State Board Prosecutions Are All About

Know What State Board Prosecutions Are All About

Winter 2012

By Jeffrey T. McGuire, JD

Unless you’ve heard from a Pennsylvania State Board of Accountancy (Board) investigator or received an Order to Show Cause filed by a prosecutor, you probably have not given any thought to the disciplinary process of the Board. No licensee believes he or she will be subject to any investigation, much less a fine or prosecution. Many excellent CPAs, however, have found that they had made a minor mistake and had to answer to the Board.

Most investigations of licensees involve errors in the license-renewal process or failure to obtain required CPE hours. Whatever the basis or seriousness of the alleged violation, the process is the same, thus the advice given here will be helpful.

The process begins with an investigation. In the case of an alleged shortfall of CPE hours, the Board will audit your courses and ask you to send proof of your credits. Send proof of all the courses you have taken, even if they total more than the required credits because they may replace any courses that are disallowed. Many prosecutions arise because a CPE course provider was not approved in Pennsylvania or by the National Association of State Boards of Accountancy, so it is very important to make certain that the course provider is an accepted source. If the Board’s course audit determines that the CPE hours are not met for any reason, the matter is referred to a prosecutor.

Some CPAs inadvertently fail to renew their individual or firm licenses properly or, when growing from an individual CPA to a firm or when forming a corporate entity as a sole proprietor, forget to get the new firm licensed. The Board takes the position that it is a CPA’s responsibility to obtain all required licenses, so the Board does not send notices to CPAs if they fail to renew or if the paperwork is deficient in any way. Many licensees have fallen into the trap of completing the online or paper renewal application, filing the forms, and paying the fee only to have the Board hold their paperwork, resulting in the license expiring or never being issued, without notice to the CPA or firm. If the CPA or firm looks up their license status on the Department of State website, they would see that their license is in expired status. Practicing without a license can result in a civil penalty up to $10,000 and a possible suspension, revocation or other restriction of the license for each instance of unlicensed practice. Typically the fines are not severe, but the threat of large fines underscores the seriousness of the situation.

The next step in the process is a meeting between the investigator and the CPA or firm administrator to determine whether the firm or CPA practiced without a license. The investigator will want to determine how many audits, compilations, and reviews were done during any unlicensed period. The severity of the penalty will depend upon the length of time practicing without a license and how many audits, compilations, and reviews were done by the firm. The investigator will ask the CPA to put this information in a letter, which will almost certainly end up being Exhibit A of any Order to Show Cause. Be careful with what you put in this letter. You must be truthful, but do not offer information not requested because it may be used against you. The investigator, regardless of how friendly he is or how lenient he promises to be, does not determine whether to prosecute any given case. The investigator will likely tell you that the case “probably” or “most likely” will not go any further. Do not believe this. The investigator, as well-meaning as he or she may be, does not make this decision. Relieving your anxiety, however, makes the process easier for the investigator.

The prosecutors who handle the cases that are advanced for disposition are independent of the Board. The prosecutors, all attorneys, make the decision whether to prosecute the cases that have been investigated, and start the process by filing an Order to Show Cause (complaint). You will receive both the Order to Show Cause and a Consent Agreement (akin to a guilty plea) that asks the licensee to agree to a violation and pay a fine. Any fine and violation will be published on the Department of State website.

The licensee can either sign the Consent Agreement or file an Answer to the Order to Show Cause contesting the allegations filed by the prosecutor. If you agree to the Consent Agreement, the prosecutor will present it to the Board, which will vote on whether to approve the agreement. If you file an Answer, a hearing will be scheduled in about 30 days.

A hearing will most likely be conducted before a single member of the Board in Harrisburg. The Board’s legal counsel will also be present to run the hearing and advise the Board member present. A court reporter will create a transcript of the hearing for the board as well. At the hearing, the prosecutor will present the testimony and evidence to prove the allegations. In the case of a CPE violation, the testimony presented will generally be only that of the Board’s administrator, who will testify as to the results of the Board’s audit. You or your counsel (if you are represented) will be given the opportunity to cross-examine any witnesses called by the prosecutor. After the prosecutor presents his case, you will have an opportunity to present your own case, if desired. You will have the opportunity to present testimony from witnesses, including yourself and your documents. The Board member who hears the case will report back to the full Board with a recommendation.

Often, the Board will require briefs from the parties after the hearing to help it determine the facts and the law. The Board will make its decision at the Board meeting following the submission of the hearing transcript and briefs. In the event the licensee disagrees with the Board’s decision, an appeal must be taken to Pennsylvania Commonwealth Court.

The following additional material was added after the winter 2012 Pennsylvania CPA Journal went to press:
There have been several changes to the State Board of Accountancy and its discipline process since I authored “Know What State Board Prosecutions Are All About,” which ran in the winter 2012 issue of the Pennsylvania CPA Journal.  A majority of the board members are new at this time, there is a new attorney for the board, the hearing process has changed slightly, and there is pending legislation and proposed changes to the regulations that may have a positive effect on the disciplinary process.

I’ve had several conversations with the new board counsel. He seems capable of having a positive influence on the board, which would help improve the reasonableness and consistency of disciplinary decisions. PICPA has been offering to provide training to the board’s investigators and prosecutors. Maybe now this will happen in the relatively near future.

As for the disciplinary process, the board has begun using single hearing officers rather than board members to hear disciplinary cases. At this point, a hearing officer is being used in failure to obtain CPE and license renewal cases. What the board will do in cases with more difficult issues of accounting practice is unknown at present. The downside of not having a board member serve as the hearing officer is that no one who has been trained, educated, and worked as an accountant will review the case and directly question the accountant being charged with the licensing violation. This is because the investigators, prosecutors, and hearing officers are not accountants and do not have accounting degrees. 

On the legislative front, there is a bill pending, which PICPA has strongly supported, that allows for the expungement of certain licensing violations. House Bill 646 would allow licensees who have committed minor licensing violations (i.e., CPE hours) to have the violation expunged after a set amount of time. Under the current draft, the violation would have to be the licensee’s only discipline and he or she would have to remain violation-free for a period of at least four years afterward. PICPA will continue to push for this legislation and hopefully get it made into law.

There are also proposed changes to the existing regulations that, if adopted, would standardize the penalties for the minor licensing infractions. This certainly would make the process more consistent.

Jeffrey T. McGuire, JD, is a partner with Cipriani & Werner PC in Lemoyne and serves as legal counsel to the PICPA. He can be reached at jmcguire@c-wlaw.com.

LAST UPDATED 12/7/2011