State Badly Needs Accounting Reform

State Badly Needs Accounting Reform

By Lou Grumet

The Times Union reported on several proposed plans in the works to address school financing and greater accountability for the way schools spend taxpayer dollars (“Plans urge closer look at school’s fiscal books,” July 28). The governor, Assembly and Senate each are offering their own ideas for distribution of taxpayer dollars.

Equally vital to the process is accountability that the dollars, however proportioned, connect the will of the people to the education of the children. Taxpayers deserve that assurance.

Financial scandals at two Long Island school districts highlight the need for more oversight of school districts in New York. A review of state regulations and financial controls and an effective annual audit by independent certified public accountants could help assure taxpayers that their dollars are accounted for appropriately. The New York State Society of Certified Public Accountants is part of Comptroller Alan Hevesi’s initiative to review the safeguards in place to protect the taxpayers’ investment.

But any reform of school board audits is only one piece of a broader issue facing New York.

An accounting reform bill that has twice been passed by the state Senate would improve the effectiveness of school board audits and audits of a range of other organizations and businesses in New York.

Why is this so important? The laws that govern accountancy in this state have not substantially changed since 1947. The Senate legislation addresses needed reforms to support the role of the state in protecting the public interest by ensuring appropriate accountability. The Assembly has taken no action on this Senate bill or an identical Assembly bill, both of which remain in the Assembly Higher Education Committee.

The legislation calls for safeguards such as peer review, in which one firm assesses the work of another. This process, now voluntary in New York, should be mandatory.

The legislation also would subject all CPAs to state regulation and discipline. Currently, New York does not regulate CPAs who are treasurers of school districts or chief financial officers, financial statement preparers and internal auditors (like the ones who worked for WorldCom or Enron).

The state Education Department does not have the authority to discipline CPAs who are not in public practice for breaches of professional conduct. In addition, it’s not required that these CPAs take continuing professional education. The pending legislation changes that and holds all CPAs accountable for keeping up-to-date on standards, regulation and ethics.

Comptroller Hevesi rightfully comments that we cannot allow for a loss of public confidence in school board audits. More broadly than that, the New York State Society of CPAs believes that we owe the same level of assurance to 401(k) holders, pensioners, and everyone who contributes to a charity or buys a stock.

We have asked the New York State Legislature to raise the bar to ensure that the quality of CPA practice in New York is pegged at the highest level, with checks and balances that ensure that CPAs have updated technical and ethical education and with practice monitoring to put an extra seal of approval on their work. These safeguards will help to weed out and correct any deficiencies early in the process. The Times Union article points out the need for accountability with school financing issues. More importantly, it draws attention to how much further the process needs to go. From the CPA profession’s perspective, incidents such as the school board scandals serve as a catalyst to push for raising the bar for all audits conducted in New York state. We hope the Senate bill can become law soon.

Editor’s Note: The Albany Times Union originally published this op-ed piece by the Society’s executive director on Sunday, Aug. 1, 2004. Versions of this piece also appeared in the Democrat & Chronicle in Rochester, The Journal News in White Plains, The Observer Dispatch in Utica and as a letter to the editor in Newsday in Long Island.