Sarbanes-Oxley mandates turn Jefferson Wells into powerhouse.

Dave Gennrich, managing director of the Los Angeles office of Jefferson Wells International, is first to admit that luck was a big part of the accounting firm's rapid local expansion.

In 1995, the firm adopted the same audit methodology that was later mandated by the Sarbanes-Oxley Act, in the wake of financial scandals at a number of large publicly held companies.

"When Sarbanes came along in 2002 and said you need to use this as your framework, we didn't have to get up to speed, with training or anything," Gennrich said. "We already knew it."

Milwaukee-based Jefferson Wells opened its first local offices in Irvine in 2000, and in Century City in 2001. Business at the two offices, specializing in Sarbanes-Oxley compliance services, ballooned to $33 million in 2004--up 500 percent from 2003--with local accounts that include 99 Cent Only Stores, Guitar Center Inc. and City National Corp.

The local offices, with 200 accounting professionals, have grown to become the largest accounting firm in L.A. County outside of the Big Four. (The firm plans to split the Irvine operation off this year and move its L.A. office downtown.)

Nationally, Jefferson Wells' revenues rose to 149.6 percent in 2004, to $340.6 million.

Sarbanes-Oxley legislation requires public companies to have external accountants audit their internal financial procedures, essentially doubling the amount of accounting work and expense. For large public companies, the requirements kicked in at the end of 2003; smaller companies had an original deadline at the end of 2004, spurting much of the added work. The deadline has since been extended to the end of this year.

Gennrich said that Jefferson Wells has "a love-hate relationship" with the Big Four, KMPG LLP, PriceWaterhouseCoopers LLP, Ernst & Young LLP and Deloitte & Touche LLP.

That's because of a provision of Sarbanes-Oxley precluding a company's internal audit from being done by the same accounting firm that conducts its public accounting. The Big Four suddenly had clients needing work that they could not perform, but they were reluctant to pass it on to their direct competitors. That is where Gennrich said much of his business comes from.

"The large firms tend to turn over (Sarbanes-Oxley) work to the next tier below them in giving them recommendations," said Larry Russell, a former president of the California Society of CPAs and chair of the society's Sarbanes-Oxley roundtable group.

"With the huge amount of Sarbanes work, companies are dumping their marginal clients in favor of the more profitable ones," said Russell, who owns Valencia-based Accountec, which provides technology evaluation and Sarbanes-Oxley consulting.

Russell said he's working with one company that was dropped by PriceWaterhouseCoopers to BDO Seidman, then to a mid-sized firm in Phoenix.

Jefferson markets itself as a low-cost provider of Sarbanes-Oxley compliance service, but that could have a downside as well. "Jefferson Wells is the McDonald's of CPA firms--they're nationwide and low priced," Russell said.

Gennrich plans to increase his staff by about 30 percent by this summer.