ALJDEC decisions subject to certification as final

10F-2010.076-ACY · State Board of Accountancy · 2010-04-08

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 6, 2010 at 8:00 a.m. APPEARANCES: Applicant Dennis M. Hare appeared on his own behalf; the Arizona State Board of Accountancy appeared through Marc H. Harris, Esq., Assistant Attorney General. ADMINISTRATIVE LAW JUDGE: Diane Mihalsky _____________________________________________________________________

FINDINGS OF FACT Background and Procedure Under A.R.S. § 32-702(A) the Arizona State Board of Accountancy (“the Board”) administers and enforces statutes relating to Certified Public Accountants (“CPAs”) and under A.R.S. § 32-703(B)(6) has been authorized to “[i]ssue to qualified applicants certificates . . . .” On May 25, 1996, Applicant Dennis M. Hare was awarded a Bachelor of Science degree in Business Administration with a major in Accounting by Bucknell University in Lewisburg, Pennsylvania (“Bucknell”). From September 1996 to April 2007, Mr. Hare was employed by a tax firm in New Jersey. On June 1, 2007, Mr. Hare was hired by the Lohman Company, PLLC (“Lohman”) in Mesa, Arizona as a Senior Tax Analyst. Lohman prepares tax returns and renders tax advice for high net worth individuals and businesses. Lohman intended to promote Mr. Hare to the position of Tax Manager, which position would pay him a higher salary. Lohman’s internal policies require a Tax Manager to have Certification as a CPA. Mr. Hare studied for and passed the CPA exam on January 30, 2009. Mr. Hare passed the AICPA Ethics exam on April 18, 2009. On May 4, 2009, Board staff received Mr. Hare’s application for Certification as a CPA by examination. Mr. Hare attached to the application a copy of his Bucknell transcript. Board staff reviewed the application for completeness and, on May 6, 2009, sent a letter to Mr. Hare to inform him that, because his application was incomplete, it would be closed, in relevant part as follows: A review of your educational background indicates you received a BS from Bucknell University with a combined total of 128 hours of education, 32 semester hours of accounting courses and 56 semester hours of related courses.

§ 32-721 Certified public accountant; qualifications B. In addition to the requirements prescribed by subsection A of this section, from and after June 30, 2004, the applicant must meet both the following requirements: 2. Present satisfactory evidence from an accredited institution or a college or university maintaining standards comparable to those of an accredited institution that the applicant has completed at least one hundred fifty semester hours of education of which: (a) At least thirty-six semester hours are accounting courses of which at least thirty semester hours are upper level courses. (b) At least thirty semester hours are related courses.

Because of the shortage, your file is being closed. Closed files will be kept for five years, then destroyed. If a new application packet is received within five years, the following items on file may be used:

• Verification of Employment and/or a Certificate of Experience • Official Transcript(s) • Ethics Examination (Completed on April 18, 2009) (the ethics expires two years from the AICPA completion date; it must be current until the Board’s final review)

To reapply, you must submit a new certification packet, fulfill the requirements of A.R.S. § 32-721(B) and the required fee.

[Emphases in original.] On December 17, 2009, Mr. Hare submitted a second Application for Arizona CPA Certificate by Exam to the Board. Mr. Hare attached to the application the following documents: (1) The Bucknell transcript, with relevant course descriptions from Bucknell’s course catalogues for each academic year that he attended; (2) A transcript from DeVry University, which showed that between July 6, 2009 and October 25, 2009, Mr. Hare had obtained an additional four credit hours for the class Federal Tax Accounting II; (3) A transcript from Chandler-Gilbert Community College, which showed that, in the 2009 summer and fall semesters, Mr. Hare had earned nine credit hours, including three credit hours for Excel Spreadsheet and six credit hours for subjects that were unrelated to accounting or business (“filler subjects”); and (4) A transcript from Mesa Community College, which showed that, in the 2009 summer and fall semesters, Mr. Hare had earned nine credit hours in filler subjects. Board staff determined that Mr. Hare’s December 2009 application was administratively complete and forwarded the application to the Board’s Certification Advisory Committee (“the Committee”). On or about January 21, 2010, the Committee reviewed Mr. Hare’s December 2009 application and determined that the transcripts that Mr. Hare submitted established that he had received only 28 credit hours in upper level accounting courses, rather than the 30 that A.R.S. § 32-721(B) required. The Committee therefore recommended that the Board deny Mr. Hare’s December 2009 application. On February 1, 2010, the Board met to consider and determined to accept the Committee’s recommendation. On February 8, 2010, the Board issued an order denying Mr. Hare’s December application, explaining that the Committee had “voted to recommend that the Board deny certification on the grounds that Applicant had failed to meet the education requirements, as the college and university transcripts only documented 28 semester hours of upper level accounting courses.” Mr. Hare timely appealed the Board’s denial, in relevant part as follows: With 128 credits hours from my undergraduate degree at Bucknell, the CPA exam and the Ethic exam under my belt, I knew I needed additional classes to meet the 150 credit hour requirement, but was unsure in what areas. I submitted a CPA application package, including the $100 fee to the Arizona State Board of Accountancy in May 2009 so that someone with authority could tell me exactly what was required to become certified. My application never made it to the Committee because I was clearly short of the 150 credit hours; however, I did not get specific guidance on what classes were required.

The responsibility fell on me. I knew that I needed 22 credit hours to meet the 150 credit hour requirement. Based on my Bucknell transcript, the course descriptions and the Arizona Revised Statutes describing what was required to meet the 150 credit hour requirement, I felt that I was only 4 upper level accounting credits short of the 30 required and that I could fill in the other 18 credit hours with any other classes from an accredited school.

It took quite some time to find upper level accounting courses that were not part of a degree program. The cheapest I found was DeVry University online at a cost of $600 per credit. I was able to fill my other 18 credit hours at the local community college for $71 per credit. The time and expense it took me to work through these classes in the span of 7 months was exhausting, while also working full time. In December 2009, when I finally finished and submit[ted] my application to the Board I thought I was finally finished. To find out that one of my classes from Bucknell is not considered upper level accounting, that I am a mere 2 credit hours short and that I was denied certification is extremely disheartening.

If I were given some guidance as to exactly what was required, I would have taken a different class during the last 7 months. I think it is completely unfair that a candidate cannot be told specifically what is required and is left to their own judgment as to what classes meet the education requirements. Being told exactly where I fell short would have saved the aggravation of the current situation.

I also don’t have another $1,200 to take a 2 credit hour upper level accounting class. The current economic times have taken a toll on everyone. Everyone in our firm took a 10% pay cut in April 2009. In addition to that our normal pay increase in July did not occur. This was effectively a cumulative 15% - 20% pay cut. Furthermore, my wife has several health issues and is not currently working. Making ends meet day to day is a struggle.

Pursuant to A.R.S. §§ 41-1092(7)(a) and 41-1092.01(E), the Board referred Mr. Hare’s appeal to the Office of Administrative Hearings, an independent state agency, to schedule and to conduct a fair hearing. On March 3, 2010, the Board issued a Notice of Public Hearing. A hearing was held on April 6, 2010. The Board presented the testimony of its Deputy Director Jim Dubé and Barbara J. Muller, CPA, the Chairperson of the Committee and a Senior Lecturer of Accountancy at Arizona State University. The Board also submitted seven exhibits. Mr. Hare testified on his own behalf and submitted two exhibits. Hearing Evidence As noted above, the Board had accepted the Committee’s recommendation that Mr. Hare had submitted evidence of having only completed 28 hours of upper-level courses, two hours short of the 30 hours required by A.R.S. § 32-721(B)(2)(a). Mr. Hare testified that he reasonably believed that one of the courses included on his transcript from Bucknell was an upper level course and should have counted toward the required 30 hours. The Board’s May 6, 2009 letter informing him that it had closed his initial application had informed him that he was 4 credit hours short of the required 36 hours in accounting and that he was 22 hours short of the required hours in “filler subjects.” Mr. Hare testified that he reasonably concluded that he needed to take 4 hours in upper-level accounting and 18 hours in filler subjects. Mr. Hare testified that he asked the Board’s staff for guidance. He was told that providing such guidance was not staff’s job. Mr. Dubé testified that staff can only determine whether an application is administratively complete. A.A.C. R4-1-341(C) requires Board staff to notify applicants within 30 days whether or not the application is complete. If information appears to have been omitted, for example, if the application lists educational institutions or course credits that are not reflected on the transcripts that the applicant submits, Board staff may contact the applicant to see whether he inadvertently omitted documents from the application packet. Mr. Dubé testified that A.A.C. R4-1-341(C)(1) permits Board staff to close incomplete applications. Mr. Dubé testified that 99% of applications submitted to the Board are administratively complete. Board staff forwards applications that are administratively complete to the Committee for evaluation. Mr. Dubé testified that staff cannot advise applicants whether their applications meet substantive regulatory and statutory requirements. Board staff is not qualified to tell applicants whether a course is an upper- level course or not. Board staff may advise applicants to contact the educational institution where the course was taken. Mr. Hare testified that he sent two e-mails to Bucknell’s Alumni Division and to Bucknell’s Admissions Division. He finally obtained course catalogues from Bucknell for the courses he had taken. Mr. Hare pointed out that he had taken MG 260, Managerial Cost Accounting, during the spring semester of academic year 1993-1994. According to Bucknell, prior to fall 1997, courses numbered 200-299 were considered “advanced.” According to the Bucknell course catalogue, MG 260 included the following topics: Cost accounting principles and techniques. Interpretation and use of accounting by administrators, investors, credit managers, bank officials, small-business owners, and corporate executives. Prerequisite: MG 150 or permission of the instructor.

MG 260 was a prerequisite for MG 365, Cost Accounting, which included the following topics: Basic consideration of cost principles, procedure, control, and analysis. Emphasizes use of costs for analytical and decision- making purposes.

Ms. Muller testified that statutory requirements for CPA certification have changed over the years. At one time, only a degree in accounting was required. The current statute requires a bachelor’s degree, 150 hours of coursework, including 36 hours of accounting and 30 hours of upper-level accounting. Ms. Muller testified that two accounting courses are considered lower- level or introductory at virtually all educational institutions: (1) A course on how a company should report financial information externally, for example, to shareholders and to the government; and (2) A course on how a company should report financial information internally, for example, to managers. These two courses are required for all business majors, as well as for accounting and finance majors. Ms. Muller testified that, in contrast, upper-level courses move forward to cover similar topics in more depth. Upper-level courses are for students who plan a career in accounting or finance, as opposed to marketing or business. A.A.C. R4-1-343 defines “upper level course.”[1] Ms. Muller testified that the Committee has no discretion in determining whether or not an applicant meets statutory requirements. If the Committee finds a special case exception for a particular applicant, it would be unfair to past and future applicants, for whom no exception was or will be made. Ms. Muller testified that she and Committee member Jeannette Apostel had reviewed Mr. Hare’s application. Both had concluded that MG 150 and MG 260, which Mr. Hare had completed at Bucknell, were lower-level accounting courses. Both had concluded that Mr. Hare therefore had only 28 hours of upper-level accounting courses, two hours short of the statutory requirement. Ms. Muller testified that she does not pay special attention to an institution’s sequence or course numbers. Some private institutions, and even some public institutions, have introductory courses in the 300 sequence. Some institutions represent that all their courses are upper- level. Ms. Muller testified that MG 260 is a sophomore level course that was required for all business majors. The course description of “cost accounting principles” and “techniques” reinforced her opinion. Ms. Muller testified that applicants are responsible for knowing and ensuring that they meet statutory and regulatory requirements. As CPAs, they will be responsible for interpreting and applying statutes, regulations, policy, and procedures. If they make a mistake, they are expected to correct the mistake and move forward. The vast majority of applicants understand what is and what is not an upper-level accounting course. Ms. Muller sympathized with Mr. Hare’s frustration. She testified that on-line upper division accounting courses could be taken for as little as $300 and that the courses had flexible attendance requirements and could be completed expeditiously. Ms. Muller noted that, if Mr. Hare obtained CPA certification, his increased earning capacity over the years of his career would substantially offset the cost of an additional upper-level accounting course. Mr. Hare testified that he had found an on-line upper-level accounting course for $300 from LSU. However, the cost for books was $200. In addition, he would have to take exams in the presence of a proctor. CONCLUSIONS OF LAW This matter lies within the Board’s jurisdiction to resolve.[2] Mr. Hare bears the burden of proof and must establish that he meets statutory and regulatory requirements for certification as a CPA by a preponderance of the evidence.[3] “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[4] A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”[5] An agency’s interpretation of a statute that it is authorized to enforce and application of a regulation that it has promulgated pursuant to statutory authority are normally entitled to great deference.[6] The Board’s conclusion that Bucknell MG 260 is not an upper-level accounting course as defined by A.A.C. R4-1-343 was supported by the evidence at hearing. Mr. Hare argued that the Board should be estopped[7] from denying his application because Board staff did not tell him the specific deficiencies in his initial application. As noted by the Board’s attorney at hearing, Board staff’s May 6, 2009 letter did not purport to tell Mr. Hare anything about deficiencies in his application, other than that he did not have the 150 hours of coursework or the 36 hours of accounting required. No statute or regulation makes staff responsible for apprising applicants of anything more than numerical deficiencies. Everyone is presumed to know the law.[8] “As a matter of public policy, all persons are charged with knowledge of law pertaining to their transactions . . . .”[9] Because everyone is presumed to know the law’s requirements, a mistake as to such requirements does not excuse failure to meet them.[10] “[E]stoppel may apply against the state only when the public interest will not be unduly damaged and when its application will not substantially and adversely affect the exercise of government powers.”[11] Estoppel should not apply if its application “would frustrate the purpose of . . . licensing requirements, which is to promote uniform standards of quality.”[12] As Ms. Muller and Mr. Dubé testified, making a special exception for Mr. Hare would result in treating other applicants unfairly by holding them to a higher standard. The Board is not estopped from denying Mr. Hare’s application. As noted above, Mr. Hare bears the burden of proof in this matter. On this record, Mr. Hare has not established that he meets statutory and regulatory requirements for certification as a CPA or that the Board erred in denying his application for certification. RECOMMENDED ORDER Based on the foregoing, it is recommended that the Board affirm its denial of Mr. Hare’s application for certification as a CPA and dismiss this appeal. Done this day, April 8, 2010.

/s/ Diane Mihalsky Administrative Law Judge

Transmitted electronically to:

Monica L. Petersen, Executive Director Arizona State Board of Accountancy ----------------------- [1] Under the authority of A.R.S. § 32-703(B)(13), the Board has promulgated A.A.C. R4-1-343(A)(5) relating to “Education and Accounting Experience,” which provides in relevant part:

A. Definitions. For the purpose of demonstrating the education and experience requirements of A.R.S. § 32-721, the following definitions apply: . . . .

5. “Upper level course” means course taken beyond the basic level, after any required prerequisite or introductory accounting course and does not include principles of accounting or similar accounting courses.

[Emphasis added.] [2] See A.R.S. § 32-702(A); A.R.S. § 32-703(B)(6). [3] See A.R.S. § 41-1092.07(G)(1); A.A.C. R4-1-344(4); A.A.C. R2-19-119; see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). [4] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [5] Black’s Law Dictionary at page 1220 (8th ed. 1999). [6] See Eastern Vanguard Forex, Ltd. v. Arizona Corporation Commission, 206 Ariz. 399, 410, ¶ 35, 79 P.3d 86, 97 (App. 2003) (citing Better Homes Constr., Inc. v. Goldwater, 203 Ariz. 295, 399, ¶ 15, 53 P.3d 1139, 1143 (App. 2002); Berenter v. Gallinger, 173 Ariz. 75, 77, 839 P.2d 1120, 1122 (App. 1992)). [7] “Estop” means “[t]o stop, bar, or impede; to prevent; to preclude.” Black’s Law Dictionary, supra, at 551. “‘Estoppel’ means that a party is prevented by his own acts from claiming a right to detriment of other party who was entitled to rely on such conduct and has acted accordingly. Id. (citing Graham v. Asbury, 112 Ariz. 184, 186, 540 P.2d 656, 658 (1975)). [8] See Conway v. State Consolidated Publishing Co., 57 Ariz. 162, 171, 112 P.2d 218 (1941). [9] Turner v. State Employees Retirement System, 485 So. 2d 765 (Ala. App. 1986). [10] See Newman v. Fidelity Savings and Loan Ass’n, 14 Ariz. 354, 359, 128 P. 53 (1912). [11] Valencia Energy Co. v. Arizona Dept. of Revenue, 191 Ariz. 565, 578, 959 P.2d 1256, 1269 (1998). [12] Hansson v. State Board of Dental Examiners, 195 Ariz. 66, 70, 985 P.2d 551, 555 (App. 1999).

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