Last week, WebCPA ran a news item that a CPA firm under fire for its audit of a Long Island, N.Y. school district is reportedly shutting its doors. This came right after the scandal-plagued school district filed a $12 million lawsuit against the firm and the release of a scathing report by New York State Comptroller Alan Hevesi in which he blasted the accounting firm for failing to identify a multi-million-dollar fraud, not meeting professional standards, and violating auditor independence standards in its audit.

Specifically, a press release from his office indicated:

  • The CPA firm did not meet nine mandatory professional standards for conducting audits.
  • When a whistleblower first exposed the fraud in 2002, the CPA firm investigated and found only $223,136 in inappropriate payments. Using the same methodology, State auditors found $1.6 million in questionable payments.
  • In its testing of school district spending, the CPA firm didn't look at cancelled checks and a cursory review would have revealed instances where the actual payee on the check was different from the payee listed in the firm's workpapers.
  • The firm's workpapers, supposedly created in 2002 and 2003, allegedly contained payment information that was put in the district's records by district officials in 2004 to cover up fraud.
  • The CPA partners sold financial and other software to the district creating a conflict of interest and violating professional standards requiring auditors to be independent.

Hevesi opined the work of the firm was "so appallingly inadequate that it would shock anyone associated with the auditing profession and certainly the taxpayers who depend on the firm to safeguard their money. Our auditors found fraud so pervasive that it would have taken significant effort not to uncover it. Even a rudimentary review of disbursements and cancelled checks would have revealed many instances of wrongdoing," He concluded that he was "extremely troubled by our findings, and I urge the State Board for Public Accountancy and the Nassau County District Attorney's Office to pursue this matter aggressively."What strikes me as so interesting is the tone and references in the release. Here we are two and one-half years after Sarbanes-Oxley and the focus is back on the auditor. The terminology being used refers to conflict of interest and failure to maintain independence. We also see claims of other revenue than for auditing services. In this case, it concerns software.
Does this remind you of Andersen, but on a smaller scale? And it appears to have exactly the same result.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access