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Mark H. Crocker, CPA, CGMA Executive Director, Tennessee State Board of Accountancy Don Mills, CPA, CFE, CFF TNSBA Investigator Ray Butler, Jr., CPA TNSBA.

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Presentation on theme: "Mark H. Crocker, CPA, CGMA Executive Director, Tennessee State Board of Accountancy Don Mills, CPA, CFE, CFF TNSBA Investigator Ray Butler, Jr., CPA TNSBA."— Presentation transcript:


2 Mark H. Crocker, CPA, CGMA Executive Director, Tennessee State Board of Accountancy Don Mills, CPA, CFE, CFF TNSBA Investigator Ray Butler, Jr., CPA TNSBA Investigator

3 In the TNSBA complaint system, there are two separate yet distinct entities: Those individuals who are licensed by the State, and those who are not. These are their stories…


5 Between 2006 and 2012, 40.1% of the complaints received by the TNSBA involved “unlicensed activity”.

6 For example….

7 Non-Licensee Activity  1997- paid a $500 civil penalty for issuing a review report on financial statements.  2004- Two complaints for advertising his firm under “Accountants- Certified Public”.  2008- paid a $5,000 civil penalty with regard to two complaints for holding out as a CPA and use of the word “Accounting” in his firm name  2010-Fined $7,500 for signing a Federal tax return as a CPA.

8  2012- During the investigation of two new complaints against the individual, special agents from the Tennessee Department of Revenue asked that the complaints be suspended while they conducted an investigation.

9 In October of 2012, The Board dismissed both complaints against the individual in favor of criminal charges brought by the State, consisting of over 3 dozen felony counts.

10 Quiz Question Which of the following activities are prohibited unless the individual is a licensed CPA in the state of Tennessee? a.Using the designation “CPA” b.Using the word “accountant” or “accounting” c.Issuance of a report on financial statements of any person, organization or governmental unit. d.Use of any language in any statement relating to the financial affairs of a person or entity that is conventionally used by licensees. e.All of the above.

11 “The Big 3” I.Communication II.Competence III.Credibility


13 I. Communication: With clients - With the Board -

14 Historically, poor communication with clients is the #1 reason complaints are filed against a licensee.

15 Complaints filed against licensees for any reason in which a lack of communication is a factor have the highest rate of dismissal by the Board. BUT…

16 Even a Complaint subsequently dismissed has a cost. Embarrassment Time spent in response and investigation Cost of Attorney Loss of sleep

17 THE COMPLAINT  Alleged that the licensee failed to file an estate return on time which resulted in a penalty of $50,692.39.  The licensee did not communicate with the Complainant in a timely manner.

18 THE STORY Investigation revealed that the CPA emailed an extension for the estate to the executor with specific instructions as to the deadline for filing and the amount owed. The executor filed the return 10 days after the deadline.

19 THE RESOLUTION Finding that the CPA had not violated any of the professional standards, the Board dismissed the complaint.

20 Can you think of any actions the Licensee might have taken to prevent the complaint from being filed?

21 Quiz Question New Members of the Accountancy Board are selected by: a.The Governor b.The TNSBA c.Current members of the Board d.A secret committee that meets in Nashville e.A random drawing that includes all active Licensees

22 Communication with the Board: 1.License renewal 2.Firm permit renewal 3.Continuing Professional Education 4.Peer Review 5.Professional Privilege Tax

23 1. License renewal - Good Standing StatusPay License Renewal Fee Complete CPEPay Professional Privilege Tax ActiveYes InactiveYesNo Retired (55 yrs+) YesNo Retired Over 70 No ClosedNo – But Must Return Wall Certificate No

24 1. License Renewal – Not so Good Delinquent Expired Probation Suspended Revoked

25 2. Firm Permit Renewal – Annually Update and Confirm: – Physical Information – Where is your office. – Ownership- Must be 51% owned by CPAs – Experience of Resident Manager – Peer Review Selection or Exempt Request – Sign up with TSCPA upon application for firm permit – CPA owners and CPA employees

26 Quiz Question A Licensee is not required to obtain a firm permit in which of the following circumstances? a.Licensee is a sole proprietor and does not perform attest services. b.Practice is limited to preparation of tax returns. c.Practice is limited to personal financial planning. d.Licensee advertises practice as limited to “consulting”. e.All of the above are exceptions to the firm permit requirement.

27 3. Continuing Professional Education All Licensees Holding Active License – 80 Approved Hours every two years – add 8 penalty hours if you don’t – 40 Technical Hours (A&A, Taxes, Ethics & Management Advisory) – 2 Hours State Specific Ethics – Such as this course! – Minimum of 20 Hours Each Year – add 8 penalty hours if you don’t – Special Areas: Attest Services – 20 Hours A&A Expert Witness Services – 20 Hours in Area

28 Quiz Question The Board must meet at least 4 times a year. If members of the Board wish to vote on matters such as revocation of a license in private, they must still give notice of the meeting and it must not be one of the four required meetings: A.True B.False

29 II. Competence: Taking on jobs you can’t finish in a timely manner. Engagements beyond your expertise. Lack of knowledge of the standards.

30 For example….

31 THE COMPLAINT Respondent was engaged to perform an audit of a school system that had been previously audited by Legislative auditors. Respondent failed to contact predecessor auditors before or after accepting the engagement.

32 THE STORY An initial review of the Licensee’s working papers raised questions as to whether or not they met auditing standards. An Investigator from another Board was engaged to perform a working paper review and report the results to the Board.

33 THE REVIEW The Investigator’s report concluded that the Licensee had failed to meet Generally Accepted Governmental Auditing Standards in at least eleven areas. The Licensee’s failure to obtain representation from management, as well as his failure to contact the predecessor auditors were indicative of his failure to meet the standards.

34 THE RESOLUTION In a formal hearing, the Board ordered the following: A Civil Penalty of $13,500 plus court and investigative costs. An immediate peer review. A pre-release review of all audits performed by the Licensee.

35 III. Credibility: Clients. Staff.

36 For example….

37 THE COMPLAINT A Licensee self-reported the assessment of $5,000 in preparer penalties. The penalties were related to the returns of one company and its four owners.

38 THE STORY The Investigation revealed that the IRS audit found mistakes that were primarily the result of incorrect or missing information supplied by the client; e.g. ending inventory, missing settlement statements.

39 THE RESOLUTION Noting that the CPA had no prior history of complaints, the Board closed the complaint with a letter of warning.

40 Quiz Question The only difference between a retired license and an expired license is that no fees are required to maintain an expired license. a.True b.False.

41 How about a case study that illustrates all of the “big 3”

42 THE COMPLAINT The complaint alleges that the Respondent firm breached its fiduciary duty with regard to services provided.

43 I.Communication – the firm failed to communicate with the client with regard to their concerns about cash flows and bank deposits. II.Competence- the firm failed to upgrade internal controls that would have prevented the preparation of fraudulent 941’s and substitute financial statements. III.Credibility- the partners failed to oversee a staff member who had control over clients’ cash and banking services.

44 THE STORY The Investigation revealed the following: Failure to detect an embezzlement of over $13,000 of a client’s funds by an employee. Failure to remit federal payroll tax deposits collected on behalf of a client. Failure to adequately supervise the preparation of a client’s federal payroll tax forms that included material misstatements. Failure to provide timely bank reconciliations to the client.

45 THE RESOLUTION In order to avoid a formal hearing, a named partner in the firm signed a Consent Order, admitting to the violations in the complaint. In addition, the partner paid a civil penalty of $12,000; agreed to 40 penalty hours of CPE; and accepted a public reprimand from the Board based on his conduct.

46 Quiz Question After a Formal Hearing, the Board may revoke, suspend, reprimand, censure or limit the scope of practice of a licensee for which of the following reasons: a.Fraud in obtaining a license b.Disciplinary action taken by another state c.Revocation of the right to practice before any state or federal agency d.Dishonesty, fraud or gross negligence in the performance of services e.Violation of the rules of professional conduct f.All of the above

47 The Tennessee Board of Accountancy has issued 23,414 licenses in its history. 50 of those licenses have been revoked by the Board. This is the story of one of those revocations.


49 THE COMPLAINT Broker operated alleged Ponzi scheme using funds obtained from his clients, as well as clients of the CPA. CPA opened “escrow” bank account for deposits brought in from broker, but did not keep records.

50 THE STORY Broker committed suicide, leaving CPA to answer charges. CPA admitted he commingled funds in the account with personal funds. CPA persuaded client to remove $268,167 from his company’s pension fund and deposit the funds into the “escrow” bank account. CPA used his power of attorney to divert 1.2 million dollars from a 98 year old client into the “escrow” bank account.

51 THE RESOLUTION In a formal hearing, the Board unanimously ordered the following: Revocation of the Respondent’s CPA license. Assessment of a $110,000 civil penalty, as well as court costs and the costs of the investigation.

52 Questions? Contact Information – Phone: 888-453-6150 or 615-741-2550 – Fax: 615-532-8800 – Web: – E-Mail: TNSBA web page has direct contact information for all Board Members and Staff Members

53 This presentation has been brought to you on behalf of the members of the Tennessee State Board of Accountancy…

54 Trey Watkins, CPA, Chairman – Memphis Casey Stuart, CPA, Vice Chair – Chattanooga William Blaufuss, CPA, Sec. – Nashville Henry Hoss, CPA – Chattanooga Stephen Eldridge, CPA – Jackson Vic Alexander, CPA - Nashville Troy Brewer, CPA – Nashville Charlene Spiceland, CPA – Memphis Don Royston, CPA – Kingsport Jennifer Brundige, JD – Nashville, Public Member John Roberts, Attorney-at- Law – Nashville, Attorney Member

55 Final Quiz Question On December 31 st, you realize that you do not have enough CPE. Which is your best option regarding your renewal? a.Continue to practice on a delinquent license and pray that no one notices. b.Go ahead and renew. Answer “no” to the CPE question, then finish your hours. c.Close your license and get a job with H & R Block. d.Request an extension of time because your in-laws came to visit at Thanksgiving and are still in your house. e.Move to another state.

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