On Solving Problems Before They Become Crises

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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




















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