Are you one of the hundreds of California CPAs who were cited and fined by the California Board of Accountancy for failure to comply with a regulation that added new fingerprinting rules?

Are you one of the thousands of California CPAs who incurred the costs of duplicative, retroactive live scan fingerprinting under the threat of fines and citations by the CBA? Have I got news for you.

I challenged the CBA interpretation and enforcement of the new regulation, §37.5, and the CBA lost. That news was reported in May 12 by Accounting Today (see California CPA prevails over fingerprint requirements).

The CBA lost ignominiously, as you can see in the decisions of Administrative Law Judge Stephen Smith in February 2016 and then Superior Court Judge Shelleyanne Chang in March 2017.

Both decisions are highly illuminating and highly critical of the CBA.

This new regulation was enacted presumably to detect felonious CPAs by requiring additional live scan electronic fingerprinting and duplicative criminal record checks. The CBA has not provided any empirical evidence that criminally convicted CPAs were detected by these new procedures. In fact, the CBA has the lawful authority to obtain updated criminal information on CPAs without procedures envisioned under this new regulation, and without any cost or added burden to licensed CPAs.

Leaving aside the need and effectiveness of the new regulation, by its literal terms, the regulation did not require added fingerprinting for CPAs like me who were fingerprinted and passed criminal background checks as a condition of licensing. CBA staff ignored that provision and forced thousands of CPAs to pay the costs of duplicative fingerprinting.

More important, the records of the CBA were determined to be inadequate to satisfy the basic requirements of the regulation. The CBA must show that a CPA’s fingerprints were not already in the California Department of Justice database. The CBA record system and procedures appear to be so deficient that no CPA was required to obtain additional fingerprints under the regulation.

Here is the simple history of my interesting case:

I was minding my own business when I received a letter in January 2015 from the CBA demanding that I undergo live scan fingerprinting and additional criminal background checks allegedly as required by regulation §37.5.

The day I received the letter, I called the CBA. Their representative confirmed the CBA had received my rolled fingerprints back in 1976 when I was first licensed. Even so, the CBA still insisted that I needed to undertake additional live scan fingerprinting and background screening.

I immediately sent a letter asking for clarification in light of the specific provision of the regulation. My letter included this key passage, underlined in my letter, that addressed evidence needed to show compliance with the regulation: “… for those who did not use an electronic fingerprint system, a receipt evidencing that his or her fingerprints were recorded and submitted to the board.”

What followed was the stubborn refusal of the CBA to admit they had received my fingerprints, contradicting the oral statements of their representative. The CBA repeatedly refused to provide any documents that showed I had submitted my fingerprints back in 1976 or showed they had even searched for my fingerprints. The CBA made misleading and multiple false statements in writing. Not once did they respond with an analysis of the key provisions of the regulation itself. Instead, the CBA cited, fined me and refused to renew my CPA license. The CBA seemed to act with malice against me simply because I asked the most basic question about their interpretation and enforcement of this new regulation.

I appealed the fine and citation to the California Office of Administrative Hearings. In February 2016, Judge Smith ruled for me in a long, detailed decision. That decision contained wide-ranging criticism of the evidentiary and procedural practices of the CBA, and particularly the testimony of the CBA’s Enforcement Chief.

The CBA rejected the perfectly cogent decision of Judge Smith and hence I had to file a petition for a writ of mandate with the Superior Court. My case was heard by Judge Chang.

Remember that key element of the regulation that I cited and underlined: “... for those who did not use an electronic fingerprint system....”

Not once did the CBA or its lawyer, a deputy California Attorney General, address this key passage. Instead the CBA lawyer in his written submissions and in his oral arguments simply claimed the CBA was charged with “protecting the public” and the CBA determined that electronic fingerprints were required from all licensees. Judge Chang interrupted the CBA lawyer during his oral arguments and insisted on an analysis of the key passage of the regulation.

The CBA lawyer said that the provision “for those who did not use an electronic fingerprint system” applied only to those who first used an electronic fingerprint system.

That textual analysis was preposterous. It was an Orwellian torture of the English language.

The CBA lawyer then admitted to the judge that the CBA could not prove that my fingerprints were not already in the database. That was based on the undisputed facts that (1) not one document was presented showing the CBA even searched for my fingerprints, and (2) the testimony of their own witness that my fingerprints could exist in the database.

For the CBA to go forward and fine me given this lack of evidence was as preposterous as the textual analysis offered by the CBA.

After that March 2017 session, Judge Chang wrote twice in her decision questioning if the CBA “were truly interested in protecting the public.” She essentially ordered the CBA to renew my license, which it did. She ordered the CBA to dismiss the citation against me, which it did. She ordered the CBA to pay my costs, which it did.

There are potential significant implications far beyond the narrow scope of the regulation §37.5 controversy.

Most of the testimony and representations of the Enforcement Chief of the CBA were determined to be not credible. Those conclusions were included in the formal findings of fact of Judge Smith, all of which were explicitly accepted by the lawyer for the CBA. Any California CPA who is subject to disciplinary action based on the testimony or representations of the CBA Enforcement Chief and his department may want to review the transcript of his testimony and the findings of fact of Judge Smith.

Lamentably, our beloved California Society of CPAs missed the boat on this issue. CalCPA leadership did not seem to understand and did not object to the bizarre interpretation and enforcement actions of the CBA. Despite my repeated urging, despite articles appearing in accounting and legal news publications, CalCPA seemed more worried about “maintaining friendly relations” with the CBA than representing the interests of CPAs consistent with advancing the quality of professional practice and protection of the public. [Spokespeople for CalCPA and the CBA declined to comment to Accounting Today about the case.]

Duplicative live-scanned fingerprinting and criminal background checks have become ubiquitous in California and perhaps other jurisdictions. In fact, most of these procedures are not needed in order for licensing bodies like the CBA to lawfully receive reports of criminal convictions. It seems that substantial costs and burdens are now imposed on all sorts of licensed professionals without any increase in the “protection of the public,” but with added revenue flowing to the live scan industry and state administrative bodies.

I urge CPAs in California and other jurisdictions to assist our regulatory bodies and professional organizations. As Judge Chang might say, we need to help these bodies truly protect the public.

The CBA needs help with understanding the meaning of simple prose appearing in its regulatory language. Government bodies such as the CBA that claim to be concerned about accounting need to maintain effective recordkeeping and data management systems. Enforcement officials need to be scrupulous in their official actions. Their representations and testimony must be reliable and credible.

Our professional organizations need to act on behalf of their CPA members and advance the theory and practice of accounting. They should not worry so much about maintaining “friendly relationships” with regulatory bodies that may occasionally run amok.

In my case, I was just trying to help these folks, but it seems they took my offer of assistance poorly. Perhaps you and your colleagues would like to lend them a hand.

Oh, yes. Don’t forget to ask the CBA for a refund of the fines and costs you paid to comply with §37.5.

Ned Leiba

Ned Leiba

Ned Leiba is owner of Leiba & Bowers, CPAs, a firm in Stockton, Calif. He has been a CPA since 1976.