As a result of an investigation of alleged violations of the Codes of Professional Conduct of the AICPA and the Rhode Island Society of CPA’s (RISCPA), Mr. Allegretti entered into a settlement agreement under the Joint Ethics Enforcement Program, effective September 27, 2011.
Information came to the attention of the Ethics Charging Authority (“ECA”)(comprised of the AICPA Professional Ethics Executive Committee and the RISCPA Professional Ethics Committee) from the U.S. Department of Labor’s Employee Benefits Security Administration alleging a potential disciplinary matter with respect to Mr. Allegretti’s performance of professional services on the audit of financial statements of an employee benefit plan (“Plan”) as of and for the year ended March 31, 2007.
After an investigation, Mr. Allegretti (the “Auditor”), with the firm Allegretti, Major & Company was charged with violating the following rules of the AICPA and RISCPA’s Codes of Professional Conduct:
Rule 201 - General Standards, A. Professional Competence
As evidenced by the severity of errors identified, the auditor did not have the professional competence to perform his role as engagement partner.
Rule 202 - Compliance with Standards
1. The auditor inappropriately issued a limited scope opinion incorrectly indicating it was permitted by the Department of Labor’s Rules and Regulations 29 CFR 2520.103-8 in lieu of obtaining sufficient audit evidence to issue a full scope audit opinion as he was engaged to conduct. In addition, the financial institution holding the Plan’s investments did not qualify for limited scope treatment pursuant to Department of Labor’s Rules and Regulations 29 CFR 2520.103-8. (SAS 108 and 114, AU §311.14; AICPA Audit and Accounting Guide-Employee Benefit Plans (AAG-EBP) 5.20)
2. The auditor failed to dual date or re-date the revised auditors report. (SAS 1, as amended by SAS 29, AU §530 and §561)
3. Both the original and revised Independent Auditor’s Reports were dated January 10, 2008 which is earlier than the date the auditor obtained sufficient appropriate audit evidence to support the opinions. (SAS No.1, Section 530: SAS No. 29; SAS No. 98: SAS No. 103; AU §530.01)
4. Neither the original or revised Independent Auditor’s Reports were modified for the omission of the Schedule of Assets Held at Year End. (AU §551.05; AAG-EBP 13.15)
5. The workpapers reviewed did not contain the date the work was completed. (SAS 103, AU §339.18)
6. The auditor failed to prepare working papers to provide support for the original limited scope auditor’s opinion in the following areas: (SAS 41, AU §339.10 to .12)
Investments and Participant Loans
Contributions Received and Receivable
Individual Participant Accounts
Parties in Interest/Prohibited Transactions
7. The introductory and opinion paragraphs included in the full scope audit report refer to the Statement of Changes in Net Assets Available for Benefits for the Year Ended March 31, 2007. However, the statement presents comparative information for the years ended March 31, 2007 and 2006. (AU §508.08 and .65)
8. Both the original and revised financial statements do not disclose a reconciliation of the differences between the amounts reported in the financial statements and the amounts reported on the Form 5500. (AAG-EBP, A.51c)
Rule 501-5—Failure to follow requirements of governmental bodies, commissions, or other regulatory agencies
The audit reports did not include the Schedule of Assets Held for Investment at Year End as required by DOL. (AAG-EBP 13.15)
1. To waive his rights to a hearing under AICPA bylaws Section 7.4 and Rhode Island Society of CPAs bylaws Article V, Section 2.b.
2. To neither admit nor deny the above-specified charges.
3. To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance as set forth below.
4. To be suspended from the AICPA and the Rhode Island Society of CPAs for a period of two years.
5. That the ECA shall publish his name, his firm’s name, the charges and terms of this agreement.
6. To complete the following forty-nine hours of specified continuing professional education (CPE) courses within one year of the effective date of the agreement:
|Employee Benefit Plans: Audit and Accounting Essentials
|Professional Ethics: The AICPA’s Comprehensive Course with a grade of 90% or higher)*
|| 8 hours
|Partner’s Audit Engagement Documentation and Review
|| 9 hours
|Documenting and Reviewing Field Work
|| 8 hours
|Auditor’s Risk Assessment Process: Tackling the New Risk Assessment Standards
*Mr. Allegretti agrees to indicate his state of licensure when registering for this course.
7. To comply with directive 3 above, Mr. Allegretti agrees to hire an outside party, acceptable to the ECA, to perform a pre-issuance review of the reports, financial statements, and working papers on all audit engagements until the later of one year from the effective date of this agreement or completion of the CPE in 6 above. The name of the reviewer must be submitted to the ECA for approval within 30 days of the effective date of this agreement. Mr. Allegretti agrees to permit the outside party to report quarterly to the ECA on his progress in complying with this agreement as stated herein to comply with professional standards. He agrees to have this pre-issuance review performed at his expense. The first such report is due 120 days after the effective date of the agreement and then every 90 days thereafter. A peer review being performed on his firm will not satisfy this requirement.
8. To further comply with directive 3 above, to submit six months after completion of the pre-issuance reviews, a list to the ECA of the audit engagements that he has performed in the period between the date of completion of the pre-issuance reviews and the end of the six-month period following completion of the pre-issuance reviews. The period may be extended for selection of an appropriate engagement. The following information should be included regarding the engagements listed: number of hours spent on each engagement by him and in total, his role on each engagement, level of professional services rendered, type of organization, type of report issued, and if it was an initial engagement. The ECA will select one of these engagements for review. He will be informed of this selection and will be asked to submit a copy of his report, the financial statements and working papers related to that engagement for review by the ECA. A peer review undergone by his firm will not satisfy this requirement.
After an initial review of such report, financial statements and working papers, the ECA may decide he has substantially complied with professional standards and close this matter. Or the ECA may decide that an ethics investigation of the engagement submitted is warranted. If at the conclusion of the investigation, the ECA finds professional standards have in fact been violated, the ECA may refer the matter to the trial board or take such action as it deems appropriate.
9. That he is prohibited from performing peer reviews in any capacity until he completes the directives stated above. This prohibition will be communicated to his peer review administering entity.
10. To submit evidence of satisfactory completion of the CPE specified in item 6 above (e.g. attendance sheets, course completion certificates) and other material requested in this agreement within the time specified.
11. That the ECA shall monitor his compliance with the terms of this settlement agreement and initiate an investigation where the ECA finds there has been noncompliance.