By Ibolya Balog, CPA, and Thomas R. Clay, CPA
One of the duties of the PICPA Committee on Professional Ethics is implementation of the Joint Ethics Enforcement Program (JEEP) between the AICPA and PICPA. This process, established in 1978, permits joint enforcement of the Codes of Conduct of the AICPA and state CPA societies with respect to joint members via a single investigation and, if warranted, a single settlement agreement or joint trial board hearing.
One part of the JEEP agreement specifies that AICPA will perform all investigations of matters coming from U.S. government departments, agencies, regulatory commissions, or other units. Upon concluding an investigation, AICPA will request concurrence from PICPA’s Committee on Professional Ethics with regard to the joint member. Concurrence is sought for both the supposed violation and proposed sanction. Significance of the violation, mitigating factors, and patterns of noncompliance affect the potential conclusions, including a finding of no violation or an enforcement mechanism, such as required corrective action letter or settlement agreement. Required corrective action letters are confidential. They require no signature, and become effective 30 days from issuance, unless rejected. If rejected, the matter may go to the Joint Trial Board for a hearing.
PICPA’s Committee of Professional Ethics received numerous concurrence requests over the past year from AICPA investigations conducted under JEEP. Prior referrals had often originated with the Department of Labor, and pertained to deficiencies in employee benefit audits. More recently, the referrals have come from the Department of Health and Human Services and pertain to major program issues and various reporting matters.
The Report on National Single Audit Sampling Project was issued on June 22, 2007. Based on 208 randomly selected audits out of a population of approximately 38,000 submitted in the April 1, 2003, to March 31, 2004, time frame, 49 percent of the single audits were acceptable. Of the remaining audits, 16 percent had significant deficiencies resulting in limited reliability and 35 percent indicated no reliability. The report concluded that most problems were related to the documentation of understanding of internal controls over compliance requirements, testing of internal controls of at least some compliance requirements, and testing of at least some of the compliance requirements. The most consequential deficiencies, though less frequent, related to misreporting of major programs. One or more major programs were incorrectly identified as having been audited as a major program by 9.4 percent of the large single audit group and 6.3 percent of the smaller single audit group. The National Single Audit Sampling Project authors felt that, "though inadvertent, this is a very consequential error because report users may erroneously rely on opinions that major programs have been audited as major."
The audits reviewed in the National Single Audit Sampling Project were from a period prior to the establishment of AICPA’s Governmental Audit Quality Center, and prior to the issuance of new AICPA and GAO audit standards. Presumably these efforts have improved the results of more recent single audits. The deficiencies, however, resulted in referrals from governmental agencies such as Health and Human Services, to AICPA for ethics investigations.
Practitioners can take steps to preclude themselves from becoming a subject of referral from a federal agency for ethics investigations. Have a current and updated system of quality control, and follow it in practice, paying particular attention to the risk assessment criteria. Attend relevant CPE courses to ensure the competency of personnel assigned to single audit engagements. Respond promptly and completely, and cooperate to the fullest, to any communication received from a regulatory agency reviewing an audit. In the course of responding to an inquiry, if the member determines an error may have occurred, offer to expand the work performed and reissue the report, if necessary. Most importantly, ensure that compliance with professional standards is documented clearly and concisely in the workpapers. Unsatisfactory conclusions from these inquiries can result in sanctions against the clients as well as the auditors.
Ibolya Balog, CPA, is an assistant professor in the Department of Business, Management, and Economics of Cedar Crest College in Allentown, and a member of the Pennsylvania CPA Journal Editorial Board. She can be reached at ibalog@verizon.net.
Thomas R. Clay, CPA, is a partner with Clay & Gascoine LLC in Indiana, Pa. He can be reached at tclay@claygascoine.com.
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