Under a stiff new bill passed by Colorado state legislators last week, practitioners could face felony charges, (rather than mere misdemeanor charges), for violating the state's accountancy practice act. This would increase the maximum penalties from 6 months in jail to 12 years in jail.
The proposed law, Colorado House bill 1116, was sponsored by Representative Joe Stengel at the urging of Governor Bill Owens. Gov. Owens asked state lawmakers to reclassify accounting fraud from a class 3 misdemeanor to a class 3 felony. The latter carries a penalty of four to 12 years in prison and a fine of up to $750,000 - the same penalty that is currently in place for securities fraud. He also called for subpoena power for the State Accountancy Board.
The accounting reform bill passed the House Finance Committee unanimously on January 30, 2003, but it could still stall in the House Appropriations Committee. According to the Denver Post, the main sticking point is likely to be the $70,000 cost of implementing the bill. Rep. Stengel tried to push through a last-minute amendment to delay the effective date and budget impact until 2004. But others were afraid this would give practitioners time to cover their malpractice tracks. ("Legislative Status Report," Denver Post Capitol Bureau, January 31, 2003.)
Observers liken the Colorado bill to the Sarbanes-Oxley Act in that the interpretations of the details will determine how effective it is. At this point, the bill is moving forward on principles and public outrage over Enron-type abuses. But legislators do not yet appear to have an agreed-upon definition of accounting fraud.
"'Accounting fraud' is not defined in the proposed legislation," explains Frank Zaveral, senior fellow - professional responsibility at Colorado's Independence Institute, "so it's anybody's guess what a prosecutor could come up with. If it's an overzealous prosecutor looking for a scapegoat in a business failure of some type -- or even a fraud that was not discovered in an audit -- auditors could be in real trouble."
Download a copy of the proposed legislation.