A Conversation With...Lou Grumet

In the eight years that Lou Grumet has been executive director of the New York State Society of CPAs (NYSSCPA), he and the nation’s largest CPA society have assumed a high profile in an array of accounting profession issues, sometimes in tandem and sometimes at odds with the American Institute of CPAs (AICPA). This year is no exception.

With Grumet as their point person, the 33,000-member NYSSCPA has stepped to the forefront in the nation’s tax reform debate, proposing its own resolution and using its perch in the nation's media capital, New York City, to draw attention to its cause. The society is also on a peer review reform mission, working with the New York State Legislature to revamp that process on its home turf, and serving up a report that Grumet hopes becomes a model that the AICPA uses in modifying peer review across all states.

Long before the current initiatives, the New York society, during Grumet’s watch, assumed a leadership role in profession-wide issues such as: leading a chorus of opposition to the global multi-disciplinary designation that the AICPA proposed and ultimately scrapped in 2002; questioning the ownership set-up of CPA@Biz.com, when the AICPA, in 2001, initially conceived that Web portal/ marketer of institute products and services, and protesting the Uniform Accountancy’s Act (UAA) requirement that students complete 150 hours of undergraduate study to qualify to sit for the CPA exam.

“Americans tend to join organizations to be part of something bigger than they can be without the organization, so at the New York Society we believe we are here to provide the leadership on the bigger things our members care about,” says Grumet, who holds a law degree and a Master in Public Administration. “We also believe there are certain things that CPAs know more about than others and because of that they should be out front leading the debate.”

The NYSSCPA seems most intent in leading the debate on tax reform. Early last year, at about the same time that President George W. Bush’s administration created a panel to study federal tax reform, the New York Society created its own study panel which has come up with a recommendation that’s distinctly different than what the president’s group is recommending. And, under Grumet, New York’s concept has been getting some attention.

The Bush Administration has made tax reform a top priority, citing a need to eliminate current complexities in tax filing, a lack of transparency and unfairness, be it real or perceived, and concerns that federal funding is available to provide entitlements to the massive Baby Boom generation, as it rushes into retirement. Just what shape tax reform will take is uncertain.

The NYSSCPA Panel has proposed a Simple Exact Transparent (SET) tax system that would tax all gross income of individuals and businesses under a single rate, determined by Congress, and include a basic lump-sum exclusion that would eliminate or dramatically reduce taxes for those who can least afford them. Current exclusions, credits, deductions and exemptions would still apply, but there would be a variety of caps and percentage limits.

SET’s underlying principle is that income taxes should be borne by “relatively prosperous” citizens and companies. Its core components include the single tax rate, which reduces the complexity of the current system, while leaving intact government’s ability to collect revenue and to fund pressing social and political priorities -- an ability that would theoretically be eliminated in a typical flat tax scenario.

This is just a very basic description of the plan, which has many more details. For a complete overview go to www.nysscpa.org/tax_reform/set_tax.htm.

Grumet says that SET accomplishes all that President Bush has said he wants to do with tax reform, and is superior to what the federal panel has been considering. “The tax process would be simplified for those who don’t pay a lot of taxes, while the more taxes you pay, the more exclusions you find. We don’t believe that the tax system has to be so complicated for the vast majority of Americans,” he professes. His knack for sounding like a teacher at times may come from his 14 years as executive director of the New York State School Boards Association before he joined the CPA society.

While he doesn’t practice law, Grumet says he earned a law degree from New York University Law School because “I was a child of the 1960s and wanted to change the world. Getting a better understanding is the best way to change it.” His background also includes service as operations director and special assistant to Secretary of State Mario Cuomo.

Bush’s panel has recommended either of two approaches to tax reform, a “Simplified Income Tax Plan,” and a “Growth and Investment Tax Plan,” which each call for multiple piecemeal reductions in the tax system’s complexity, such as shortening tax forms and worksheets, reducing the number of tax rates, changing the credits available and eliminating alternative minimum tax. The panel scrapped its earlier consideration given to a progressive consumption tax, a value added and a national retail tax. For an overview of the federal panel’s work, go to www.taxreformopanel.gov.

In February, Grumet moderated a panel discussion of New York’s SET proposal that attracted reporters from national publications that included “BusinessWeek” and “Forbes” magazines. But beyond that he’s vague on how the society will try to forward its tax proposal.

“We have been rolling this out to the media and will continue to do that. We are trying to get people (in Congress) lined up and show them that SET makes sense,” he says. He adds that his office presented the concept to New York’s Congressional delegation last year, but has not gotten anyone there interested in promoting it.

"We’re not concerned (about the timing) because you just don’t change tax policy quickly. It could take years to build support for this kind of concept.” Grumet says.

The society hopes to move more quickly in its peer review effort. It has, again through a specially created committee, established a set of recommendations for changing the review process, which Grumet hopes the AICPA uses parts of in revamping the peer review system, nationwide. Grumet and the society are also trying to get the state legislature to make peer review a mandatory part of the CPA licensing process in New York State, one of the few states without such a requirement.

“The AICPA proposal (to reform peer review) certainly fits with what we want to do, but they don’t go far enough,” says Grumet. The society’s peer review study panel issued a report citing major problems with the process at about the same time that the AICPA also issued a report finding major problems with how peer reviews are done.

To be sure, the AICPA study committee recommends some major changes including, improving the training and recruitment of peer reviewers, making peer review results known to the public, as well as making it a mandatory part of licensing in all states.

Transparnecy is one of the key AICPA panel recommendations. The panel recommends that the results of firms' peer reviews be made public through annual or biannual, reports issued by the AICPA and state CPA societies.

Grumt says the he main difference between the different groups’ findings is that the NYSSCPA report recomends the establishment of strict disciplinary procedures against firms who get poor ratings in their peer reviews, while the AICPA has made no such recommendation. Under the existing AICPA program, those getting poor review ratings are required only to take additional training and other “remedial” steps.

“The AICPA’s discipline is more training, while we say that in some cases there should be serious disciplinary sanctions, including the loss of license,” Grumet said.
While both groups are calling for increased recruitment and training of people who conduct the peer reviews, the NYSSCPA also recommends that reviewers from different firms be pooled into teams of reviewers. This would alter the current “firm-on-firm” process in which one firm’s reviewers all hail from the same firm

The AICPA’s governing council, at its regional meetings later this month, will discuss the task force’s report and proposal that the institute urge all states’ boards of accountancy to require peer review as part of the CPA licensing process. While all states societies manage a peer review program administered nationally by the AICPA, only 39 states now tie the reviews to getting licensed; New York is among those that do not require it.

The New York Society is taking a decided high road in peer review debate. “A more robust peer review system is needed by the profession and the public because the system now is not working as it should across the board,” Grumet says. That comes out when it’s put under a microscope.”

Its been put under the media’s microscope in New York State over the past year since a public practice accountant in Long Island, N,.Y., whose firm had done well in its peer review, was convicted for his role in the theft of millions of dollars from a school district that was his firm’s audit client. Several other school district audit scandals have since surfaced in the state.

Although New York’s recommendation goes further, Grumet, the NYSSCPA and the AICPA are definitely on the same page in their desire to improve peer review.

But the two sides were definitely not on the same page in 2001 when the New York contingent at an AICPA Council meeting questioned the financing structure of CPA2Biz, when its creation was first announced. The New Yorkers were upset that AICPA President Barry Melancon was to own a big chunk of CPA2Biz stock, and their request for further discussion of the ownership issue was rejected by a full Council vote.

Subsequently Grumet and the society publicly criticized Council’s refusal to have the further discussion and questioned the ownership structure in public comments, letters to newspapers and in an editorial in the society’s “CPA Journal” magazine, where he is publisher. Its repeated commentary helped fuel a debate that included harsh criticism of the AICPA in a report in the national “Journal of Public Ethics.”

The controversy subsided after Melancon, who had invested his own money in CPA2Biz, donated his shares to the AICPA’s charitable and educational foundation. Indeed, there were never any findings of wrongdoing, and CPA2Biz, which operates as a separate company with the AICPA as its majority shareholder, seems now to be gaining market acceptance after a shaky start.

Asked to reflect on the CPA2Biz ownership matter now, Grumet says, “I think the passage of time made that issue go away.”

At a subsequent AICPA Council meeting years later, the New York Society asked the institute to establish a task force to monitor and gauge the effectiveness of the council. Its proposal was tabled at that meeting, but the AICPA did establish such a task force the next year.

“The way it goes is that we raise an issue, it gets put aside, but then gets revisited again,” Grumet says. It would appear that he and the society will continue to raise issues.

Written by John Covaleski, AccountingWEB Contributor

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