The charity sceneAt this time of the year, we are deluged with charitable requests for every conceivable cause. The request envelope contains a letter describing the organization's need for funds and a return envelope for a gift to the charity. The letter never specifies precise financial information about the gross receipts, cost of solicitations including printing and postage, or top executive salaries.
Some years ago, I approached a member of the New York State Assembly on this subject, and together we fashioned legislation requiring charitable solicitations to contain a) gross receipts for the prior fiscal year, b) the cost of solicitation including printing and postage, and c) the salaries received by the top three executives of the organization. The legislation was introduced in the New York State Assembly, which resulted in a related hearing being scheduled.
On the day of the hearing, the room was crowded with individuals apparently interested in the subject. My assemblyman friend, who was chairman of the committee with jurisdiction on the topic, spoke briefly and then introduced me as the first speaker. I described the purpose and need for the legislation. The next speaker, a fiery orator, attacked, criticized and belittled the legislation, with much applause from the attendees at the end of each sentence.
My assemblyman friend who had introduced the legislation passed me a note, "This guy is the executive director of the Association of Executive Directors for Charitable Organizations." The speaker concluded that to insert the receipts, fundraising costs and executive salaries would be so costly that it could bankrupt many of the charitable groups; he received standing applause from his fellow executive directors. Members of the legislature received dozens of letters opposing the act - it never left committee.
As a determined individual, I continue to look for the financial information each time I receive a charitable request - without success. On occasion, I use the return envelope to request a copy of the charitable organization's Form 990 filed with the Internal Revenue Service. The gross receipts, fundraising costs and executive salaries set forth in the 990 sometimes gave me cause to ignore certain of the charitable requests. I still believe that requests for charitable contributions should advise the recipient about the financial operations of the charity.
Many worthy charities recently responded to Hurricanes Katrina and Wilma with urgency and generosity to provide basic needs and sympathy. Hopefully, one day all charities will furnish the financial data to enlighten donors and convince them of the worthiness of the cause.
KPMG - truth and consequences
Events of the past several years lead one to question whether Big Four firm KPMG was dedicated to the practice of public accountancy at a high standard of professional performance. Recent indictments of KPMG executives and the almost inconceivable fines and civil settlements were the consequence of a psyche driven by greed.
In Senate hearings in November 2003, Sen. Carl Levin, D. Mich., asked Jeffrey Stein, KPMG's deputy chairman for tax, "What is your annual salary?" Stein replied, "$2 million." Mr. Stein was one of the many chefs in the KPMG tax shelter pressure cooker.
The practice of public accountancy is providing many six- and seven-figure packages; why not be satisfied with $500,000, $700,000 or even $1 million? Andersen's 44-year-old Enron engagement partner, David Duncan, received an annual stipend of $700,000. Some high accounting executives envied the astronomical salaries, stock options, golden parachutes and other perks delivered by America's compliant and back-slapping boards of directors.
It is time for executives of accounting firms to learn to survive on paychecks ranging from $500,000 to $1 million. The Securities and Exchange Commission and the Department of Justice decided that to give KPMG the Arthur Andersen treatment would cause far more damage and suffering to thousands of innocent employees - that was a proper decision.
Andersen lives
For many years, Andersen's consulting partners complained to Andersen audit and tax partners, "We buy you guys a new Mercedes each year." The basis for the remark was that the consulting partners contributed more profit to the firm's net income per consulting partner compared to other partners of the firm. The financial friction reached a climax when the consulting partners withdrew from the firm and formed "Andersen Consulting."
On July 31, 2001, the partners of Andersen Consulting sponsored an initial public offering at an offering price of $15 per share on the New York Stock Exchange under the catchy name of Accenture Ltd. After the original issue, Accenture stock hit a high of $30.15, and currently Accenture's shares are traded at the $26 level. The Andersen consulting partners who formed Accenture and were the major movers, directors and officers can be pleased with their high executive salaries, stockholdings and stock options.
At about the same time, the partners of KPMG conceived of and executed an IPO under the name BearingPoint Inc. on Feb. 28, 2001. The initial offering price was $20 per share, which soon rose to a high of $24.25. Currently, BearingPoint (who would buy shares in a company starting with the word "Bear"?) is traded on the New York Stock Exchange at a range of $7 to $8.
Whoever said that Andersen folks were not smart?
An open letter to NASBA's chair
To: Ms. Diane M. Rubin, Chair
National Association of State Boards of Accountancy
150 Fourth Ave. No.
Nashville, Tenn. 37219-2417
Dear Ms. Rubin:
I served as a member of the New York State Board for Public Accountancy for 10 years, the last two as chairman. I have attended many NASBA meetings, where I made good friends, including Princy Harrison, of the Mississippi State Board; Nina Kavich, of the Nebraska State Board; Patrick McCarthy, of the Louisiana State Board; Beryl Stover, of the Montana State Board; Frank Messina, of Rhode Island; and others.
Some years ago, NASBA had scheduled an annual meeting in Hawaii and I had been requested to speak on the topic of the Uniform Accountancy Act. There were to be four speakers - two "pro" and two "con." I was to be one of the "con" speakers, and when I told my friend, NASBA's full-time president, David Costello, that there could be individuals who might object to my participation, he said, "I'll overrule them." I made airplane and hotel reservations and about one week before the meeting President Costello phoned me and stated that I could not speak at the meeting.
For years, I have called attention to defects in the UAA, especially the provision permitting 49 percent of partners and/or owners of a firm of CPAs to be non-CPAs. My obvious objection was that the provision continues to dilute the status, prestige and integrity of the CPA title.
Recently, NASBA once again distributed to state boards of accountancy a newly revised UAA which continues to contain, "A simple majority of the ownership of the firm, in terms of financial interests and voting rights of all partners, officers, shareholders, members or managers, belongs to holders of a certificate." This innocuous-sounding phrase is a callous clause, which in subtle fashion permits and legalizes the authority to permit 49 percent of the partners/owners of a firm of CPAs to be lawyers, architects, engineers, morticians - you name it. I find it incomprehensible to understand or to conceive any justifiable reason for this provision in the UAA.
As a life member of NASBA and the recipient of the American Accounting Association's Exemplar Award for "Notable Contributions to Professionalism and Ethics in Accounting Practice," I would appreciate a response from you as to the justification and need to permit 49 percent of the partners or owners of a firm of certified public accountants to be non-CPAs.
I look forward to your response. Thank you.
Cordially,
Eli Mason, CPA
Ping pong
My friend Louis Grumet and I have been playing ping pong on what he prefers to call "peer review" and I refer to as "quality review."
The Accounting Today issue of Sept. 26-Oct. 9, 2005, contained Grumet's commentary "Rethinking the 'peer' in peer review." The Oct. 24-Nov. 6, 2005, issue included my commentary, "Quality review and its future vs peer review and its failure." The Nov. 7-27, 2005, issue carried Mr. Grumet's "Perception and reality."
I believe I have a better case than Mr. Grumet, because after 25 years, the peer review process is a failure. Interestingly, the U.S. Congress also viewed the existing peer review program for public companies as null and void when it enacted Sarbanes-Oxley and turned over the quality review of such companies to the Public Company Accounting Oversight Board inspectors. At this early date, PCAOB inspectors reported missteps in audits performed by all Big Four firms.
In Grumet's first commentary, he agreed with me as to the failure of the current so-called peer review process, writing, "One of the peer review's most basic components - the choice, training and background of the 'peers' who actually perform the reviews - is also one of its most fundamental flaws." Mr. Grumet's case for reform includes, "Currently, firms choose their peer reviewers subject to a general suitability matching ... leaving open the possibility for firms to select friendly reviewers, potentially undermining a core purpose of the program in the public's mind."
After a rather comprehensive critique of what had been considered the cornerstone of monitoring high standards of performance, Grumet then lists a series of requirements to invigorate his peer review bubble. But who will enforce his agenda? He doesn't say.
Obviously, Grumet, who is the full-time, salaried executive director of the New York State Society of CPAs (but not a CPA himself), would like his society to be the enforcer, but Grumet knows that in New York State the only body that can impose meaningful discipline is the State Board for Public Accountancy appointed by the Board of Regents. The board issues the CPA certificate, and its members are appointed to serve on disciplinary panels with the power to censure and reprimand, to suspend a CPA's license, and finally to revoke a CPA's license. The only discipline that the New York State Society of CPAs can impose is to publish the name of the adjudged CPA in the society's monthly newsletter, and the subject of the citation can continue to practice the next day.
In Grumet's Nov. 7-27, 2005, article he wrote, "A quality review program without an effective disciplinary component would not be acceptable to the public or to public officials," but once again Grumet neglected to describe the discipline to be imposed and the body with statutory authority to impose it. Mr. Grumet seems to forget that the New York State Legislature created a State Board for Public Accountancy under the supervision of the State Education Department, which is under the mantle of the New York State Board of Regents, which has authority over 47 professions, including public accountancy.
I recently received a complaint from a CPA who said, "Stop already with this New York State quality/peer review nonsense. How about the other 50 state accountancy boards and state societies?"
To end this fracas, I hereby challenge Louis Grumet to a duel to be held at New York's famous Stage Delicatessen, which features humungous corned beef sandwiches. Whoever finishes his sandwich first will be declared the winner, and the loser pays the check.
Eli Mason is a past president of the New York State Society of CPAs, a past chairman of the New York State Board for Public Accountancy, and a past vice president of the American Institute of CPAs. He recently wrote Conscience of the Profession - A Personal Journey.
