ALJDEC decisions subject to certification as final

13F-2013.064-ACY · State Board of Accountancy · 2013-08-07

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: July 18, 2013 APPEARANCES: Lara C. McGehee appeared telephonically. The Arizona State Board of Accountancy was represented by Assistant Attorney General Seth T. Hargraves. ADMINISTRATIVE LAW JUDGE: Brian Brendan Tully _____________________________________________________________________ FINDINGS OF FACT 1. The Arizona State Board of Accountancy (“Board”) is the state agency authorized to regulate the practice of public accountants by certified public accountants in the State of Arizona. 2. Lara C. McGehee, C.P.A. (“Respondent”), is the holder of Certified Public Accounting Firm Registration No. 4314-S issued by the Board. This certificate enables Respondent to practice as a certified public accounting firm in the State of Arizona. Lara C. McGehee is also the holder of Arizona Certified Public Accountant Certificate No. 10217-E issued by the Board. Ms. McGehee is the sole certified public accountant owner and sole certified public accountant employee of Respondent. 3. Beginning on January 1, 2005, each firm that performs restricted financial services or full disclosure compilation services is required to complete a peer review within the three years immediately preceding the firm’s registration date. If the only services performed by a firm involving financial statements are nondisclosure compilation services, the Board, on a random basis, and as a condition for renewal registration, is allowed to request that the firm provide a peer review report or undergo an Educational Enhancement Review (“EER”). 4. On or about March 31, 2011, Ms. McGehee submitted Respondent’s sole practitioner renewal form to the Board. On the application form, Ms. McGehee indicated that Respondent had not performed any audits, reviews, or compilations with disclosures within the three years prior to Respondent’s renewal, and thus was not subject to peer review. 5. By letter dated July 9, 2012, Board staff notified Ms. McGehee that Respondent had been randomly selected to undergo an EER by the Board’s Peer Review Oversight Advisory Committee (“Committee”). If Respondent had not completed a peer review within the three years immediately preceding the firm’s registration date, then Respondent was requested to submit a completed enclosed preliminary questionnaire and an enclosed sample client list for the two-year period immediately preceding the firm’s last renewal to the Board within 30 days from the date of the letter. 6. On September 26, 2012, the Committee’s assigned two reviewers recommended that Respondent’s case be referred to the Board because Respondent had failed to submit the preliminary questionnaire and sample client list. 7. On October 24, 2012, a follow-up review was performed by the Committee’s two assigned reviewers. The reviewers recommended obtaining copies of compilation reports from Respondent. 8. On November 20, 2012, Respondent submitted the completed preliminary questionnaire and sample client list to the Board. 9. On November 20, 2012, the Board considered Respondent’s case at its Board meeting. The Board assessed an administrative penalty against Respondent. Respondent paid the administrative penalty. 10. The Committee then reviewed the documentation submitted by Respondent. On November 28, 2012, the Committee determined that Respondent had in fact performed services that would classify as full disclosure compilation services, and thus should have completed a peer review prior to the registration renewal. 11. The Board offered Respondent a Decision and Order (By Consent), but Respondent failed to execute it. 12. On May 6, 2013, the Board voted to file a complaint and notice of hearing for Respondent’s non-compliance in this matter. 13. On May 15, 2013, the Board issued a Complaint and Notice of Public Hearing (“Complaint”) charging Respondent with acts of unprofessional conduct. The Complaint advised the parties that an evidentiary hearing would be conducted before the Office of Administrative Hearings (“OAH”), an independent agency. 14. A hearing was held at the OAH on July 18, 2013. The Board submitted six exhibits and presented the testimony of Deputy Director Jim Dubé to establish the facts set forth above. 15. Ms. McGehee testified that she did not think Respondent had performed services for one bank client that would classify as full disclosure compilation services because it did not have a report attached to it.

16. Ms. McGehee further testified that at the time in question she was under a lot of stress due to a family member’s illness. 17. The evidence of record established that Respondent has not had the required peer review completed and submitted to the Board. CONCLUSIONS OF LAW 1. The Board has personal and subject matter jurisdiction over Respondent pursuant to A.R.S. § 32-701 et seq. and A.A.C. R4-1-101 et seq. 2. Pursuant to A.R.S. § 32-742(B),[1] after notice and opportunity for hearing, the Board may revoke or suspend Respondent’s registration to practice public accounting and may additionally take disciplinary action concerning the registrant for any of the causes enumerated in A.R.S. § 32-741(A). 3. Pursuant to A.R.S. § 41-1092.07(G)(2) and A.A.C. R4-9-119(B), the Board has the burden of proof in this matter. The standard of proof is by a preponderance of the evidence. See A.A.C. R2-19-119(A). 4. Respondent’s failure to submit a completed peer review to the Board constitutes violations of A.R.S. § 32-741(A)(15)[2] and A.R.S. § 32- 741(9),[3] specifically the peer review requirements of A.A.C. R4-1- 454.[4] 5. The evidence of record supports the Board’s imposition of discipline against Respondent in this matter. RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Order entered in this matter that Respondent’s Certified Public Accounting Firm Registration No. 4314-S be suspended for one year or until the date that the Board approves the required peer review report submitted by Respondent, whichever is the later deadline date It is further recommended, pursuant to A.R.S. § 32-701(6)(f), that Respondent be required to reimburse the Board its costs of investigation and of proceeding to hearing in this matter. It is further recommended that Respondent’s Certified Public Accounting Firm Registration No. 4314-S remain suspended, subject to the later expiration date stated above, until Respondent has reimbursed to the Board its costs pursuant to A.R.S. § 32-701(6)(f).

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order shall be five days from the date of the certification.

Done this day, August 7, 2013.

/s/ Brian Brendan Tully Administrative Law Judge

Transmitted electronically to:

Monica L. Petersen, Executive Director Arizona State Board of Accountancy ----------------------- [1] A.R.S. §32-742(B) provides as follows:

After notice and an opportunity for a hearing, the board may revoke or suspend a firm's registration to practice public accounting and may additionally take disciplinary action concerning the registrant for any of the causes enumerated in section 32-741, subsection A or for any of the following additional causes: 1. The revocation or suspension of any certificate issued by the board of any partner, shareholder, member, manager, officer, director, agent or employee of the firm. 2. The cancellation, revocation, suspension or refusal to renew the authority of the firm or any Arizona partner, shareholder, member, manager, officer, director, agent or employee to practice public accounting in any other state for any cause other than failure to pay an annual registration fee in the other state.

[2] A.R.S. § 32-741(A)(15) provides as follows: “Failing to respond or furnish information in a timely manner to the board or its designated agent, if the information is legally requested by the board and is in the registrant's possession or control.” [3] A.R.S. § 32-741(A)(9) provides as follows: “Knowing violation of any decision, order or rule issued or adopted by the board.” [4] A.A.C. R4-1-454 provides as follows:

A. Effective for registrations on or after January 1, 2005, each firm, as defined in A.R.S. § 32-701(8), that performs restricted financial services or full disclosure compilation services shall complete a peer review within the three years immediately preceding the firm's registration date. 1. A firm shall submit to the Peer Review Oversight Advisory Committee a peer review report and any additional, related documentation requested by the Peer Review Oversight Advisory Committee. PROAC shall not require the submission of working papers related to the peer review process. 2. A firm with a registration date that falls on January 1, 2005, or any date up to and including June 30, 2006, shall submit the initial peer review report by June 30, 2006. 3. A firm with a registration date after June 30, 2006, shall submit the peer review report on the registration date with other renewal documents. 4. The Board shall grant, upon a written request and demonstration of good cause, an extension of time for completing the peer review or submitting the peer review report to the Board. Good cause may include illness, disability, military service, natural disaster, or any other circumstance beyond the control of the firm that prevents the firm from timely completing a peer review. B. Beginning January 1, 2005, if the only services performed by a firm involving financial statements are nondisclosure compilation services, the Board shall request, on a random basis, as a condition for initial or renewal registration, that the firm provide a peer review report and any additional, related documentation, completed within the three years immediately preceding the firm's registration date. 1. If a firm did not complete a peer review within the three years immediately preceding the firm's registration date, PROAC shall request that the firm provide reports and financial statements from two separate nondisclosure compilation engagements, performed within the two years immediately preceding the firm's registration date, for an Educational Enhancement Review by PROAC; 2. If the results of the Educational Enhancement Review indicate deficient work by a firm, the Board may do any of the following: a. Educate the firm by informing it of or referencing it to the current and appropriate reporting requirements; b. Educate the firm by informing it how to enhance its reporting and financial presentation; or c. Require the firm to undergo peer review before its next renewal registration. 3. If the results of the Educational Enhancement Review do not indicate deficient work, the PROAC shall recommend to the Board that it accepts the firm's Educational Enhancement Review and that the firm be notified of its compliance with this Section. C. Only a peer reviewer or a review team approved by the Board or its authorized agent may conduct a peer review. In approving a peer reviewer or a review team, the Board or its authorized agent shall ensure that each peer reviewer or member of a review team holds a certificate or license in good standing to practice public accounting, and is not affiliated with the firm under review. D. A firm may obtain a peer review and the corresponding report from a national organization approved by the Board or its authorized agent. In approving a national organization, the Board shall determine whether the organization performs peer reviews that comply with this Section. E. PROAC shall review the peer review report submitted by a firm to determine whether the firm is complying with the standards in subsection (J). If the results of peer review indicate that a firm is complying with the standards in subsection (J), the PROAC shall recommend to the Board that it accept the firm's peer review and that the firm be notified of its compliance with this Section. F. If the results of peer review indicate that a firm is not complying with the standards in subsection (J): 1. The Board shall direct the Peer Review Oversight Advisory Committee to obtain relevant reports and letters of comment, and perform any follow-up action required as a consequence of the identified deficiencies. PROAC shall retain all documents obtained until the firm completes and the Board accepts the firm's next peer review. 2. If additional information is needed to determine whether a firm is correcting identified deficiencies, the Board shall make a written request that the firm provide the needed information. If PROAC determines that the firm has not corrected the identified deficiencies, it shall refer the matter to the Board. 3. Based upon review of the Committee's recommendation, the Board may take disciplinary action as defined in A.R.S. § 32- 701(6). G. Information discovered solely as a result of a peer review is not grounds for suspension or revocation of a certificate. H. Failure of a firm to complete a peer review under this Section constitutes grounds for revocation or suspension of a certificate, after notice and opportunity for a hearing, unless the Board determines that there is good cause for the failure. I. Exemptions: A firm is exempt from the requirements of this Section if the firm submits to the Board a written statement that it meets at least one of the following grounds for exemption: 1. The firm has not previously practiced public accounting in this state, any other state, or a foreign country and the firm will undergo a peer review within 18 months of initial registration. 2. The firm submits to the Board an affidavit, on a form prescribed by the Board, that states that all of the following apply: a. Within the previous three years, the firm did not undertake any engagement that resulted in the firm issuing a restricted financial services, full-disclosure, or non-disclosure compilation; b. The firm agrees to notify the Board within 90 days after accepting a restricted financial services or full-disclosure compilation services engagement and will undergo a peer review within 18 months from the year-end of the engagement accepted; and c. The firm agrees to notify the Board within 90 days after accepting a nondisclosure compilation engagement. J. Each firm, review team, and member of a review team shall comply with the Standards for Performing and Reporting on Peer Reviews, published June 1, 2005 by the American Institute of Certified Public Accountants, New York, New York 10036-8775 (www.aicpa.org), which is incorporated by reference. This incorporation by reference does not include any later amendments or editions. The incorporated material is available for inspection and copying at the Board's office. K. Peer review record retention. A firm shall maintain for five years, and provide the Board upon request, the following documents for the peer reviews required by this Section: peer review report, final acceptance letter, letter of comment, corrective action, and letter of response.

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