by Paul B.W. Miller and Paul R. Bahnson
Recently, our e-mail brought a letter with such a poignant message that we decided to share it with our readers.
Specifically, we heard from J. Newton Rumble, CPA, from Vancouver, Wash., just across the river from Portland, Ore. His letter was written in frustration - and even despair - at how the process for regulating accounting has been totally politicized by cozy relationships between regulators and some regulatees. As you will see, political contributions are also the weapon of choice at the state level, emulating what routinely takes place in our nation’s capitol.
"I want to congratulate you both. I read your articles regularly and tell you now, that in the midst of my depression over the degradation of this industry, your refreshing honesty and analysis of the professional and political scene is like sunlight in the winter’s dark of the North Pole.
"You have it right about political contributions and the influence of the large firms and the American Institute of CPAs on regulation and legislation affecting the accounting profession. What is so interesting is how clearly money flows to both political parties at the federal and state levels to craft legislation that these powers want.
"The big firms (except possibly Moss Adams) have been absent for years from active and regular participation in the Washington State Society of CPAs, with the possible exceptions of membership on political and legislative action committees, and selected leader-ship roles within the society’s central office and chapters.
"In the political arena, the accounting profession and the big firms seldom show significant involvement or candidate support until some self-serving legislative need arises. Then, seemingly out of the blue, they pump thousands of dollars into campaign accounts, garnering the attention of the candidates/legislators of choice to get the vote they want.
"When the effort to pass the Uniform Accountancy Act came to Washington a few years ago, the legislation development process received relatively little attention in either the press or communications from the state society and the board of accountancy (which is effectively controlled by the governor in this state).
"Little was known, except by selected committee members and other insiders, until the proposal had been drafted and the lobbyists’ pockets had been emptied. It remains amazing that an item of such importance to the profession, in this state or any other, received so little commentary and discussion among the rank-and-file members before the bills became law.
"For the Washington State Senate and House, it must have been like Christmas in August. Public records indicate that the WSCPA political action committee spent roughly one-and-a-half to two times as much during the UAA bill election cycle (2000-2001) as they had in previous cycles; and Big Five contributions increased by 462 percent over the previous cycle.
"The WSCPA PAC’s public disclosure document indicates that about 75 percent of the total contributions came from 10 large firms and their partners and employees. Many of the same contributors also appeared on the governor’s public disclosure document. In addition, the WSCPA PAC’s report listed donors for whom the board of accountancy showed no license or registration for active practice in the state, as well as other donors with out-of-state addresses.
"The WSCPA PAC was the largest contributor to the campaign of the bill’s legislative sponsor in her unsuccessful race for commissioner of Washington State public lands. How one gets nexus between that race and accounting issues can only be conjured up from the tea leaves of political influence.
"An informal group of 40 to 70 of us from around the state lobbied hard to keep the bill from passing, but to no avail. We simply did not have the financial support and organization to stop its passage. As a consequence, in this state, as with others, we now have contingent fee and commission billing practices, both of which challenge the very soul of CPA integrity, objectivity and independence issues.
"We also have non-licensee firm ownership with its attendant risk of ethics violations. Although no ethics violations have yet been traced to these factors, time will tell. Nonetheless, I consider the risk of non-licensee ownership to professional integrity as akin to the risk of smoking to lung disease. Even before smoking’s danger was conclusively documented, a prudent person had good reason to suspect that it wasn’t a good idea.
"In any case, our group surveyed practitioners by region regarding their support for non-licensee ownership and contingent fee practices. An overwhelming majority, 75 percent or more, responded negatively to questions involving non-licensee ownership, contingent fees and referral fees. Their comments drew no distinctions among accounting, auditing, tax or consultation services.
"Clearly, the survey had some limits because of our inability to access complete e-mail lists for the large firms. Nonetheless, some validity was established because we did have individual e-mail addresses of some large firm employees in several regions, and their alignment with the majority of the respondents is noteworthy.
"In other words, the survey was not skewed to obtain negative or only small firm responses. Admittedly, by a 3:1 ratio, small firm employees were more likely to be among the respondents than large firm personnel because more of them were included in the sample by virtue of our ready access to their e-mail addresses. However, more than two-thirds of the CPAs in Washington are employed by small local firms, a fact born out by an earlier Board of Accountancy poll of over 14,000 CPAs, who responded two to one against the concepts of contingent fee structures and non licensee ownership.
"The WSCPA and its lobby group overlooked these results in making a case for the bill. It is also significant that the WSCPA did not poll its members about the final bill’s provisions. Some four years earlier, the society had financed a survey on the contingent fee issue that produced a solid 'no support’ result, another fact that the organization’s representatives failed to tell the legislature in their zeal to pass the bill.
"To return to my main point, it is clear to me that greed and the drive for power know no political boundaries or ideologies among those seated at the top of the policy-making groups in accounting. Independence, integrity, objectivity and the relationship of these attributes to client service are lost concepts to the political 'leaders’ in our industry (the AICPA, the National Association of State Boards of Accountancy, the state societies, and the large firms to whom these groups cater).
"All decisions are about money and power: who has it and who wields it. Thousands of good, ethical practitioners in large and small firms were sold down the river by the leaders of the large firms, the AICPA and many state societies, who have neither the ability nor the inclination to police themselves. Yes, now they are paying the price - but their cost pales in comparison to the cost paid by the rest of us.
"In closing, I can’t avoid noticing the sounds of silence in response to actions by some malpractice carriers who are inserting clauses in practice liability policies excluding coverage for damages incurred in engagements involving contingent fee, commission and referral fee relationships.
"No one should be surprised that leading risk managers are beginning to perceive alternative fee arrangements as self-serving and risky. Would anyone be surprised to find the next exclusion covering firms who have admitted non-licensees to ownership?"
With these words, Newt sends the profession a message with two main points. First, unsavory political methods are not restricted to only the national arenas; rather, they are certainly present at the state and local level, as well.
By reprinting this letter, we again plead for the rank and file to stand up for what you believe is right and good. Although Newt didn’t get to speak from behind a polished wood podium at the Yale Club in New York, his words are far more convincing of the need for deep reform.
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