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The consultant as internal auditor.


What does a company do when it can't offer its internal auditor a career path? One company called in a CPA to perform operational audits as an independent contractor. For Joseph Puleo, CPA, of Puleo & Thompson, Hamden, Connecticut, the engagement was another step in an unusual--and highly successful--consulting career. In 1986, Marshall Chiaraluce, chief operating officer of the South Central Connecticut Regional Water Authority, needed to find an experienced internal auditor to fill a dead-end position. The authority, a government agency that serves 16 towns in and around New Haven and has annual revenues of $50 million, had one internal auditor who performed operational audits of the authority's diverse activities, but the auditor had no staff and no opportunities for promotion. "The auditors would usually stay one or two years and then move on," Chiaraluce says.

So he decided to try retaining a consultant to perform 10 to 15 operational audits annually. Neither the company's outside auditors nor its board of directors had heard of a similar arrangement but accepted the plan based on Chiaraluce's cost-benefit analysis.

One of the people the authority interviewed was Joseph Puleo, a partner of the CPA firm of Puleo & Thompson in Hamden and then president of the Connecticut Society of CPAs. The authority's finance director was familiar with him through Puleo's involvement in the society and because he wrote and spoke frequently on operational auditing, based on his experience doing subcontracted consulting work for a number of local CPA firms.

Puleo was known for offering more than the usual services. "I have a reputation for doing weird stuff," he says. "Most people say I'm not part of the profession--which drives me up a wall."

Chiaraluce interviewed representatives of half a dozen accounting firms, but most offered strictly traditional services. "We weren't looking so much for a prestige firm that happened to have a systems division but, rather, for an individual with nontypical accounting experience" in areas such as operations, work and procedural flow and data processing, Chiaraluce explains. "Joe brought a unique perspective from the many firms he had worked for and we believed he could transfer his experience to our operations and procedures."


Puleo has since devoted about 1,000 hours annually to the company, reporting to Chiaraluce and meeting quarterly with the board of directors to discuss the results of completed operational audits and plans for upcoming ones. Areas Puleo has reviewed recently or plans to review this year include

* Bad-debt reserves.

* Real estate records.

* Information systems.

* Workforce management, budgetary accounting and payroll distribution.

* Safety procedures.

* Community recreation programs.

* Revenue estimating systems.

* Equipment charges.

* Garage operations.

* Affirmative action programs.

* Purchasing.

* Payroll controls.

Chiaraluce says Puleo's objective examinations have produced substantial benefits. He cites as an example Puleo's work in streamlining the authority's cumbersome water main extension program. Contractors who had been required to submit requests for water service to a number of departments and wait four to six weeks for a reply now receive an answer in less than a week because of Puleo's suggestions. He also got involved in the recreation program, which opens the authority's extensive land holdings to the public for fishing, boating and hiking. "The system wasn't really keeping up with demand," Chiaraluce says. "Joe made over a dozen recommendations for more controls and better monitoring. Before, we had never really been sure of revenues and expenses for the recreation program."

Puleo explains that in many audits, "I'm not as concerned with where they're going as with the process they use to reach that conclusion." Since he is not an expert in all the areas he reviews, as part of his research Puleo contacts CPAs, attorneys and other professionals, as well as companies with similar operations. "I'm going into most areas with nothing more than an inquisitive mind. I didn't understand the recreation program until I got into it, but I can certainly contact other utilities around the country to see what they're doing."

Chiaraluce says Puleo's rapport with people allows him to get along with all levels of management without being perceived as a threat. Both men consider Puleo's independence to be a key factor. "Just by approaching the work without biases, without political interference from my boss because I am independent, I can generate a valuable, objective report," Puleo says. Chiaraluce and the departments Puleo reviews value the fact that the reports aren't written in financial jargon but instead are conversational and contain specific suggestions for improvement.


Puleo's work for the water authority is just one aspect of an unusual career. He was manager in charge of consulting in a large national accounting firm's New Haven office when, in 1979, he received an unattractive transfer offer. After 16 years as a consultant, he decided it was time to start his own firm.

Puleo called the managing partners of 40 local CPA firms, offering to do computer consulting work for their clients as a subcontractor. He reasoned that firms with 5 to 40 professionals couldn't justify employing a full-time consultant but would benefit by offering his services to their clients. Twenty of the managing partners met with him and 10 became clients.

Puleo opened the firm with $20,000 to cover personal and business expenses. He rented an office and hired a part-time secretary, who mostly mailed invoices. He began to earn a profit after using only half his start-up capital.


Puleo--who is a member of the American Institute of CPAs council--is fiercely proud of his CPA designation but has never performed traditional accounting services. In his new practice, he found he was turning down a great deal of accounting work from contacts in community and professional organizations and local businesses.

"After two years of turning them down, it dawned on me that I was kind of foolish to do that," he says. Puleo hired a CPA and a CPA candidate to perform traditional services under his supervision, increasing his gross revenues by more than 50%. He later doubled his practice by merging with a sole practitioner, who eventually retired and sold Puleo his share of the practice. Elaine Thompson, a CPA and member of the firm's accounting staff, became Puleo's partner and took on responsibility for accounting services.


The investment in traditional services proved to be a good one when Puleo's consulting practice virtually evaporated in 1985. Computer studies had always made up a large part of his work, but he found that once micros became a consumer disposable, clients were no longer willing to pay $5,000 to $7,000 to install them.

"I tried desperately to find other alternatives," Puleo says. To market litigation support services, for example, "I called up 20 attorneys, had lunch with 10, came away with 5 as clients." He says services CPAs could market this way include appraisals, forecasting and human resource consulting for other firms or for companies. For potential industry clients, Puleo would contact the CFO "because I want him on my side."

Puleo's work for the water authority came just as his computer consulting practice was ending. He now works there and on training and practice management consulting engagements for CPA firms, as well as forecasting and litigation support services for their clients. He and Thompson employ two CPAs and two paraprofessionals who work mostly on traditional services.

The partners' quite different practices appear to co-exist easily. "Joe works very independently but he is a great visibility factor and a fantastic marketing factor," Thompson says. Puleo frequently generates accounting work through his consulting services and other professional activities.

"We are one firm with separate interests, so the revenue is common revenue to the partners," Puleo explains. "I think I can get the clients in the door, but I cannot retain them as well as Elaine because, based on the services they want, I'm not as qualified."


Marshall Chiaraluce has offered to recommend Puleo and his services to other water authorities and Puleo stresses there are ample chances for CPAs to obtain similar engagements.

"What I'm doing may be unique, but I certainly think there's great potential for other people to do it. There are companies that are large enough to want an internal, operational audit function, yet not large enough to offer a career path to that auditor. I think they face unpleasant choices unless they go to an outside independent contractor."
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Article Details
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Author:Dennis, Anita
Publication:Journal of Accountancy
Date:Mar 1, 1990
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