| On
Solving Problems Before They Become Crises
FEBRUARY
2006 - Over the last few decades, budget cutbacks have resulted
in understaffing at many government agencies. Consequently,
some agencies, trying to ensure accountability, require
CPAs to provide opinions on cost reports that could extend
beyond their traditional audit work in connection with the
entity’s financial statements. A related consequence
of these broader cost-reporting requirements is that many
nonprofits and government agencies increasingly require
audit-related services but don’t want to pay for them.
This has been a particular problem with school districts
and local governments, as well as many nonprofits. Agencies
should not, however, choose unrealistically low bids if
a CPA’s work is to meet public expectations. CPAs
are sometimes put in the difficult position of walking away
from engagements that may require them to underperform and
in the process to potentially violate professional ethical
standards or to provide services without pay. CPAs who accept
a low rate need to be willing to perform the work at a high
level of professionalism and to absorb the costs.
My
understanding is that even with the tremendous publicity
concerning the Long Island school district problems that
resulted in new state legislation and a significantly increased
number of New York State auditors, school districts are
not significantly upgrading the services they contract for.
I suspect the same is true among many other units of local
government.
Unintended
Consequences for New York State CPAs
Under
new state legislation enacted last year, many CPA firms
are having to significantly expand the services they provide
to school districts. Even before that, the New York State
Department of Health (DOH) and some related agencies had
been requiring CPAs’ attestations in health-related
cost reports that made many CPAs feel caught between a rock
and a hard place: For a CPA to not sign the certification
could lead to financial or other penalties from the agency
for the clients or themselves, but signing it might violate
a CPA’s ethical standards involving attesting to work
he didn’t perform.
When
the NYSSCPA learned of these long-standing issues and contacted
the agencies involved, particularly the DOH, we helped reach
an interim resolution specifically affecting the CPA attestation
of capital schedules in the relevant cost report. We’re
continuing to work with the DOH to bring about a permanent
solution that will affect other cost-reporting systems in
several healthcare-related agencies. In addition, we’re
working with the Office of Mental Health and Developmental
Disabilities (OMHDD) on the accountant’s attestation
in the Consolidated Financial Report (CFR) used by OMHDD
and other state agencies.
Permanent
Solutions
NYSSCPA
members are expected to uphold the highest professional
standards, and they should be careful to perform their professional
responsibilities before signing any attestation in cost
reports. The NYSSCPA has developed a platform for negotiating
with New York State on a permanent solution for these attestations.
These negotiations have provided us with a model for working
with government agencies at the federal, state, and local
levels, so that we can participate in effecting solutions
before problems become crises. In the meantime, CPA firms
that bid on government projects should submit realistic
bids based on the nature of the engagement. In addition,
governments, government agencies, and nonprofits should
be willing to pay fair compensation for the services they
need.
Louis
Grumet
Publisher, The CPA Journal
Executive Director, NYSSCPA
lgrumet@nysscpa.org
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