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CALIFORNIA CONTROLLER CITES TWO ACCOUNTING FIRMS FOR 'SHODDY' SCHOOL AUDITS

 SACRAMENTO, Calif., March 26 /PRNewswire/ -- Citing the poor quality of their school district audits, State Controller Gray Davis today referred two accounting (CPA) firms to the State Board of Accountancy for professional review. The controller took the unusual action after quality control reviews by Controller's Office auditors found the two CPA firms seriously violated professional accounting standards when performing audits of school districts.
 In addition to referring Huffman & Co. of Corona, Riverside County, and Leland L. Williams & Co. of Oakland to the Board of Accountancy for possible disciplinary action, the controller also advised California school districts not to hire the two CPA firms for state-required audits until the accountancy board completes its review. In recent years, the two firms have performed dozens of school district audits.
 "These two firms are preying on innocent school districts, promising them rock-bottom prices and delivering a bottom-of-the-barrel product," said Controller Davis. "School districts might save money in the short run, but in the long run, the districts could pay dearly for unreliable financial information.
 "During these tight financial times, school districts need accurate, reliable information to help balance their budgets," the controller continued. "These two CPA firms are not providing that information."
 According to Controller's Office auditors, both Huffman and Williams charged below-market fees and failed to meet professional auditing standards.
 "It is the professional judgment of my auditors that neither firm can realistically perform high-quality, professional audits for the low fees they charge," Davis stated. "Low prices did not result in bargains for school districts -- they got shoddy auditing services."
 California school districts are required under state law to file a financial audit each year with the State Controller's Office and the State Department of Education. The Controller's Office is responsible for establishing audit guidelines and reviewing audit quality.
 Huffman performed 98 school district audits over the past two years but only had a three-person staff. Controller's Office auditors determined a staff of at least twice that size is needed to perform satisfactory quality audits for all the school districts with which Huffman had contracts.
 Huffman's clients included the Coachella Valley Unified School District in Riverside County and Montebello Unified School District in Los Angeles County. Both school districts have had serious financial problems in recent years yet Huffman's audits did not disclose any of those problems. A review of Huffman school district audit files revealed little evidence of properly conducted professional audits.
 The Williams firm performed 33 school district audits over the past two years with a two-person staff. In at least three cases, Controller's auditors found Williams did not make on-site visits to school districts to conduct interviews with administrators and key fiscal staff to gain an understanding of district operations, an essential audit procedure.
 Auditors also found that Williams often cited the work of prior-year auditors as justification for not performing certain required auditing procedures. The practice is acceptable only if the current auditor reviews the prior audit work with the previous auditor, which Williams did not do.
 Despite today's action, Controller Davis said the vast majority of CPA firms doing school district audits are meeting professional auditing standards.
 -0- 3/26/93
 /CONTACT: Edd Fong of the Office of the State Controller, 916-445-1895/


CO: Office of the State Controller: Huffman & Co.; Leland
 L. Williams & Co. ST: California IN: SU:


TM-GT -- SF004 -- 0095 03/26/93 13:47 EST
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Date:Mar 26, 1993
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