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Regulating unlicensed accountants by administrative fines.

Regulating Unlicensed Accountants by Administrative Fines

State accountancy boards customarily exercise no direct authority over unlicensed accountants. At the most, accountancy boards may invoke sanctions provided in the accountancy law against individuals who falsely and fraudulently hold themselves out to be licensees of the board. Such deception rightfully deserves the severest penalty that the board is able to impose under state law.

Recently in several states we have witnessed the board's use of a device called the administrative fine. An administrative fine is a monetary penalty that a board imposes by regulation for violation of its regulations or (in some instances) for violation of the accountancy law.

Prior to the board's use of the administrative fine as a regulatory measure, the board's exercise of authority over an accountant (whether licensed or unlicensed) was generally limited to the imposition of cease and desist orders. If the individual against whom a cease and desist order was issued did not obey, then the board could go to the courts for an order to compel obeyance.

Thus, the cease and desist order as an authoritarian regulatory measure lacked teeth, took time and, in many cases, enabled the offending individual to continue his (or her) alleged wrong-doing until the slow and cumbersome judicial machinery was set in motion. By contrast, the administrative fine is sharp, keen, immediate, definite and a no-nonsense administrative monetary penalty. The problem is that its imposition against the unlicensed accountant (if indeed valid in the first place) may be subject to excesses in the hands of a zealous accountancy board or board administrator.

The regulations of the California State Board of Accountancy are a model for the use of administrative fines. The California regulations may be found in Article 12.5, Citations and Fines, which were finalized effective February 4, 1990. Section 95.6 of those regulations purportedly imposes the administrative fine upon unlicensed and unregulated accounting practitioners.

Pursuant to Section 95.6, the executive officer of the board may issue citations against any person "who is acting in the capacity of a licensee under the jurisdiction of the board." Note that the power and authority are in the hands of an employee of the board (the executive officer) and not with the appointed members of the board. The citation the executive officer issues may contain the imposition of an administrative fine, an order of abatement fixing a reasonable period of time for abatement of the alleged violation or both. The executive officer may impose administrative fines in a range from $100 to $2,500 for each investigation, depending on the nature of the alleged violation. Any sanction authorized for activity under Section 95.6 shall be separate from and in addition to any other civil or criminal remedies.

Note that California Regulation Section 95.6 provides for citations against any person "who is acting in the capacity of a licensee" which presumably means a person who is performing an accounting function that a licensee can perform but which is not prohibited under Section 5052 of the accountancy law when performed by an unlicensed individual. Moreover, Section 95.6 has as its heading "Unlicensed, unregulated practice." The query therefore is whether Section 95.6 is applicable to unlicensed practitioners. A reading of Section 95.6 certainly leads the reader to believe that the section is applicable to unlicensed practitioners over whom the board otherwise exercises no direct authority.

When the California board proposed the regulations in Article 12.5, Citations and Fines, NSPA's affiliate, the California Association of Independent Accountants (CAIA), filed a sharp letter with the board expressing the association's concern about the proposed regulations that would give the board's executive director the power to issue citations, fines or abatement orders for alleged violations of the California accountancy law by unlicensed accountants.

During the trial in the litigation initiated by Bonnie Moore and CAIA against the California State Board of Accountancy, the board's executive director testified that according to her understanding of the proposed regulations in Article 12.5 none of those regulations would apply to persons who had never been licensed by the board. When asked specifically about proposed Section 95.6 (cited hereinabove) the executive director testified that only persons who were once licensed by the board and whose licenses had either been revoked, suspended or had lapsed would be subject to the fines, penalties or abatement orders under Section 95.6. In the executive director's judgment proposed Section 95.6 did not provide for citations, fines or penalties to the applied against persons who had never been licensed by the board, even if it were alleged that the unlicensed person had violated a section of the accountancy law.

This optimistic interpretation was shortlived. The board's president, testifying in the same litigation, stated that he did not know whether or not proposed Section 95.6 was intended to apply to individuals never previously licensed by the state board.

The uncertainties created by the testimony of the board's executive director and the board's president, plus the fact that the language of proposed Section 95.6 appeared broad enough to encompass both licensees of the board and persons who had never been licensed, place CAIA's membership in a dilemma. Section 95.6 was finalized as proposed without any authoritative clarification regarding its applicability to unlicensed accountants.

Accordingly, the question in California remains undecided as to whether an accountancy board has the constitutional power to punish unlicensed accountants over whom it has no regulatory authority for alleged improprieties by the imposition of citations, fines or abatement orders.

In those cases where a state board of accountancy attempts to apply administrative fines against practitioners who have never been licensed by the board, unlicensed practitioners should vigorously challenge the validity and exercise of such powers.

William H. Sager Legal Counsel
COPYRIGHT 1990 National Society of Public Accountants
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Author:Sager, William H.
Publication:The National Public Accountant
Date:Nov 1, 1990
Words:967
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