New York State regulators’ new crackdown on the accounting profession addresses an issue that has been roiling in the Empire State ever since the Enron accounting scandal surfaced several years ago.
The New York State Board of Regents has revised the definition of "unprofessional conduct" for CPA's licensed by the state to include disciplinary actions taken by the Securities and Exchange Commission (SEC) and its Public Company Accounting Oversight Board (PCAOB), meaning that accountants or accounting firms disciplined by either of those bodies now can be subject to censure, reprimand and the revocation of their licenses.
The board also expanded the “unprofessional conduct” definition to include any settlement with those agencies where a CPA admits no wrongdoing but is still stripped of the right to practice the profession at a public company. “We wanted to be in position where if someone is licensed in this state is disciplined at the federal level that they're held accountable at the state level too," said Johanna Duncan-Poitier, deputy commissioner of the state Education Department's Office of Professions.
The new provision apparently resolves a disciplinary anomaly. Without the added state level regulatory teeth, accountants punished by the SEC for public company wrongdoing have been free to provide services to private companies and other organizations.
The need for the state to more tightly oversee CPAs and punish them for wrongdoing came to light in the Enron heyday of 2002 when “Crain’s New York Business” reported that out of New York State’s approximately 50,000 licensed accountants, only 16 were disciplined by the state in 2001, and only one was reprimanded on professional grounds.
The report sparked a call for tighter oversight that included cries from the profession itself. "Something is broken, and we need to fix it," New York State Society of CPAs Executive Director Lou Grumet was quoted as saying at the time. "I hope the low number of disciplinary actions shows that our members are perfect, but I believe the reality is that there are not enough resources to look at them.”
More recently, an Associated Press investigation found that the SEC had taken disciplinary action against more than 50 accountants in 2005 and 2006 for misconduct, “but that nearly half of them continue to hold valid state licenses to offer their services as certified public accountants.” Reportedly, none of the New York licensees disciplined by the SEC in 2005 and 2006 had been disciplined as of early June, though two disciplined by the PCAOB have been.
Some of the individuals disciplined by the SEC are now being investigated by New York regulators, Duncan-Poitier has confirmed. But she would not disclose any of the cases underway.
The public in New York may well welcome the additional regulatory muscle for another reason. The accounting profession has been under the media’s microscope in New York over the past year because of a spate of alleged accounting fraud by CPAs serving the public school district, which have included the theft of millions of dollars from a district in Long Island, N.Y.