Illinois CPA Society Takes Stand on CPA2Biz

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The Illinois CPA Society has expressed concerns about its involvement in the AICPA's new for-profit Web site, CPA2Biz. Participating societies are expected to sign an agreement that is causing some controversy among the various CPA groups.

Currently, state societies are being asked to sign an interim agreement, referred to as the Phase 1 Agreement, which will run for the period July 1, 2001 through December 31, 2001. At that point, societies that wish to participate in CPA2Biz will be expected to sign a Phase 2 Agreement, which will run for 10 years, with automatic 10-year renewals thereafter.

Specific concerns that have been voiced by the Illinois CPA Society include:

  • Independent representation should be obtained for the State Societies Network, Inc. (SSNI).
  • Information requested by the Illinois CPA Society regarding the Phase 2 Agreement has not yet been supplied.
  • Antitrust and discriminatory pricing issues regarding state society agreements with existing affinity programs, portal providers, and potential competitors of CPA2Biz need to be addressed.
  • The Society is concerned that the AICPA's turning over marketing control to a for profit entity will send a message to state society members that they have been sold out.
  • The computation of royalty income is in question.
  • The 10-year membership term and its automatically renewable 10-year periods without any opportunity for review and re-negotiation do not take into account potential changes in the world and business environment that might occur in the future.
  • Ownership and control of CPA2Biz and its potential ability to make independent decisions cause discomfort for the Illinois CPA Society Board. Under the current arrangement, senior staff of the AICPA, a not-for-profit entity, stand to profit from stock options in the for profit entity.
  • Exit strategies are cause for concern due to the length of the agreement.

In related news, the New York State Society of CPAs has refused to sign the Phase 1 agreement. Read the reasons behind this decision.

The President of the Illinois CPA Society, Marty Rosenberg, expressed concerns about the arrangement with CPA2Biz in a letter to the Secretary/Treasurer of the State Societies Network, Inc., and that letter is reproduced below.

In addition, a memorandum to State Society Executive Directors sets out additional concerns and questions that the Society wishes to have addressed before agreeing to signing the Phase 2 Agreement.

Letter from Marty Rosenberg, President of the Illinois CPA Society, to the Secretary/Treasurer of the State Societies Network, Inc.

June 18, 2001

Albert E. Trexler, CAE
State Societies Network, Inc
1650 Arch Street – 17th Floor
Philadelphia, PA 19103-2099

Dear Bert:
The Board of Directors of the Illinois CPA Society has voted to sign the Interim Agreement for the period of July 1, 2001 through December 31, 2001, however it has done so with significant concern and reservation. If the Illinois CPA Society is to move forward with the signing of the Phase 2 Agreement, the Board requires that several issues and concerns, as noted below, be satisfactorily addressed in a timely manner. It is the Board's expectation that a Phase 2 Agreement and specific information and/or answers relating to the following items be provided no later than September 1, 2001 in order to provide adequate time for review and consideration by outside legal counsel, staff and the Board. While there may be other requirements or requests, the following list needs immediate attention.

Independent representation for SSNI - Lawrence J. Beaser or the firm Blank Rome Comisky & McCauley LLP is representing both SSNI and SSLLC in negotiation of the Phase 2 Agreement. SSLLC is 50% owned by the AICPA, which also owns a majority and controlling interest in CPA2Biz (a division of the AICPA), the party with which SSNI is negotiating. Additionally, AICPA staff sits on the SSLLC and CPA2Biz boards. There is no intent to state that SSNI has not been well represented, however, concern has been expressed about the ability of counsel to independently represent the interests of SSNI.

Information that has already been requested by the Illinois CPA Society – The Illinois CPA Society has, previously, expressed questions and concerns, primarily around the preliminary draft of the Phase 2 Agreement. We understand the negotiations are ongoing, however, it is critical that these questions be addressed prior to proceeding with the Phase 2 Agreement (see attached previous questions.)

Antitrust and discriminatory pricing issues – As has been expressed by other State Societies, we too have antitrust concerns with regard to the effect the Phase 2 Agreement will have on State Society agreements with existing affinity programs, portal providers, and potential competitors of CPA2Biz on the b2b-side of the site. Further, the issue of discriminatory pricing has arisen in regards to the Robinson Patman Act. We assume that the AICPA has received substantial legal advice concerning these aspects of the agreements and the Illinois CPA Society requests copies of any opinion letters, which may have been rendered in this respect. Additionally, the ICPAS strongly supports some indemnification, defense, or hold harmless provision back to the State Societies, be negotiated and included in the Phase 2 Agreement.

Unrelated business income – Has SSNI received confirmation of its tax-exempt status under IRC section 501(c)(6)? If so, the ICPAS requests a copy of the Form 1024 and the responsive determination letter. Further, given the contractual versus membership relationship between the parties (the ICPAS, SSNI, and SSLLC), there is concern that income from the agreements will be classified as unrelated business income.

Giving away marketing control to a “for profit” entity – Significant concern has been raised regarding giving away marketing control to a “for profit” entity and the reaction that membership will have, potentially feeling that we, the ICPAS, has sold them out. We understand that a concept of an Advisory Board, made up of 3 to 5 State Society Executive Directors or senior staff, has been proposed that would serve to advise CPA2Biz on marketing tactics and programs. The ICPAS strongly supports that proposal. Additionally, concern was expressed about the potential to lose further control, over time, as ownership of CPA2Biz may change. We have been told that the AICPA's ownership interest will not be diluted to less than 20%, however, we have not seen this commitment in writing.

Computation of the 1.75% royalty on gross profit – The Board expressed concern and interest in the computation of royalty income, and would like to review the specific process, as well as receive ongoing reporting. There was strong concern raised with regard to the independence of the parties computing the royalty income and suggestion that the computation be audited by an independent third party.

Length of agreement – The Illinois CPA Society is extremely concerned with regard to entering a ten year contract that, at a relatively minimal cost to CPA2Biz and its current investors, is renewable for 10 ten-year periods, effectively a 110 year agreement. It is unreasonable to assume that the world around us, the business environment, and the product will not dramatically change over this timeframe, thereby increasing the risk of entering into a contract without any opportunity for review and re-negotiation.

Ownership and control – Concern continues to arise with regard to ownership in CPA2Biz, its impact on the independent decision making and perception by the membership. The Illinois CPA Society Board is uncomfortable with staff of the AICPA; a membership based organization, standing to profit from CPA2Biz through stock options. While this is common in the “for profit” world, it is viewed as highly unusual for the senior staff of non profit membership organization, especially where the senior staff, in this case, significantly impact and effectively control CPA2Biz.

Exit strategies – Given the length of the agreement, the Board expressed significant interest and concern in the exit strategies and options. Previously, the only exit strategies were financially based, with no member satisfaction performance criteria.

The Illinois CPA Society continues to be supportive of the original concept of shared services, begun over two years ago. However, for us to proceed, it is critical that the above issues be addressed and that the ICPAS be provided with all requested information and/or answers no later than September 1, 2001. If not, the Illinois CPA Society will be hard pressed to move ahead with execution of the Phase 2 Agreement.


Marty Rosenberg
President and CEO
CC: Illinois CPA Society Board of Directors
Clarke Price, Chairman, State Societies Network Incorporated
State Society Executive Directors

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Memorandum from Tood Shapiro and Marty Rosenberg of the Illinois CPA Society to State Society Executive Directors

Date: April 10, 2001
To: State Society Executive Directors
From: Todd Shapiro and Marty Rosenberg
Subject: Questions regarding Phase 2 Agreement

The meeting in Dallas regarding the Portal Phase 2 agreement proved to be a fruitful and informative discussion. We continue to support the concept of shared services as a tool to provide better and greater service to our members at a lower cost. Additionally, we realize that the portal represents a potential source of income for state societies, though at what appears to be a very low cost for Portal funding partners.

There are many positives related to the Phase 2 agreement, especially in regard to the sharing of resources. However, the strong tie to the Portal and loss of control of the member database raises some significant questions that, we believe, may have a significant impact on state societies, especially the larger state societies. Prior to the Dallas meeting, we circulated a list of questions that we, in Illinois, felt were important to answer before we could bring an agreement to our Board, let alone sign it. While we had some good and lively interchange, last week, few questions we answered.

We would like to share, what we believe, are a few key questions to answer before proceeding with the Phase 2 agreement. You may be impacted by these issues or share these concerns. Our working together will strengthen our position to ensure the maximum protection for our respective states and memberships.

  • What is considered a portal-type entity?
    The Phase 2 agreement prohibits states from having any business relationship with or carrying advertising of a portal-type entity. Would a state society website be considered a portal, as we pass customers through to other websites? We assume the answer to this is no. However, would a wholly owned subsidiary website, such as the Illinois CPA Society's Center for Corporate Financial Leadership, qualify as a portal?
  • What would be the impact of signing the Phase 2 agreement on state society trade shows, such as the Illinois Society's Business & Technology Solutions Show?
    Many trade show exhibitors may be considered competition to Portal partners, and possibly, portals themselves. Shows such as these generate significant revenue for the states and we are concerned that the Phase 2 agreement may significantly reduce, if not eliminate, these shows.
  • What would be the impact of the Phase 2 agreement on state society publication's ad revenues?
    Ad revenues may by impacted by businesses that are defined as portal-type entities, affinity vendors, and trade show exhibitors. In Illinois, Business & Technology Solutions Show exhibitors and our affinity vendors generate a significant portion of ad revenue. Therefore, broadly defining a portal-type entity and eliminating affinity programs may have ramifications that reach far beyond the first glance or just affinity revenues.
  • What performance assurances and safeguards do the state societies have against poor customer service and product performance?
    Quality and delivery of services and products are of critical concern to the state societies. Equally important are the marketing tactics used in approaching our members. With the phase 2 agreement, the state societies will lose significant influence and control over quality, delivery methods and marketing tactics. The Phase 2 agreement has no performance metrics regarding product quality or guidelines for delivery methods and marketing tactics. The states have enjoyed a close relationship with their respective members. Under the portal, which will be co-branded with the states, the state's reputation will be on the line.
  • What will be the impact on transaction processing, such as credit card receipts for products such as dues, education, and other products and services?
    This issue, clearly, effects the larger states, which have larger volumes and where timeliness is critical. What criteria will be established to ensure that performance, at minimum, is equal to current? Transaction processing is especially critical to large states, which typically achieve lower costs, as more is processed through credit cards thereby increasing the dollar exposure and risk.

These are, by no means, inclusive of all questions but hopefully capture the key issues that may impact large states. We want to assure anyone reading this document that our questions should not be viewed as our not supporting shared services or the portal. We are, merely, performing our due diligence responsibilities to ensure the protection of our state society and membership. If you would like to discuss further, please give me a call.

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