As a result of an investigation of alleged violations of the AICPA and South Carolina Association of CPAs’ codes of professional conduct, Mr. Heise with the firm of Burkett, Burkett & Burkett, CPAs, P.A., entered into a settlement agreement under the Joint Ethics Enforcement Program effective September 11, 2017.
Information came to the attention of the Ethics Charging Authority (“ECA”) (comprised of the AICPA Professional Ethics Executive Committee and the South Carolina Association of CPAs’ Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Heise’s performance of professional services on the audit of the financial statements of a not-for-profit entity as of and for the year ended June 30, 2014.
The ECA reviewed the financial statements and certain workpapers for the engagement as well as relevant correspondence Mr. Heise submitted. Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA and South Carolina Association of CPAs’ codes of professional conduct as follows:
Rule 202 – Compliance with Standards
1. The required supplementary information section of the audit report fails to state that the lack of Management’s Discussion and Analysis does not impact the auditor’s opinion on the basic financial statements. (AU-C 730)
2. The opinion paragraph of the auditors’ report fails to include appropriate references to budgetary comparison information included as part of the basic financial statements. (AU-C 700)
3. The auditors’ report on required supplementary information indicates that all budgetary comparisons are required by GASB although only the general fund and each major special revenue fund are required to be reported. (AU-C 730)
4. The auditors’ report on supplementary information failed to describe the character of the examination and level of assurance with respect to the DAODAS reconciliation. Furthermore, the opinion referenced combining and individual fund statements that were not included in the reporting package. (AU-C 700, 725)
Rule 203 – Accounting Principles
1. The financial statements are inconsistent as to the number and types of governmental funds. Note C and the Balance Sheet – Governmental Funds discloses the existence of a single special revenue fund, but the Statement of Revenues, Expenditures and Changes in Fund Balance – Government Fund Types presents multiple major special revenue funds and aggregated funds presented as non-major. (GASB Cod. 2200.158)
2. The budgetary comparison information included with the basic financial statements and as part of required supplementary information do not meet the form and content requirements of GASB as it fails to report both the original and final budgeted amounts. Additionally, the budgetary comparison included with the basic financial statements fails to present each major special revenue fund. (GASB Cod. 2400.10)
3. Expenditures are not classified by function in the Statement of Revenues, Expenditures and Change in Fund Balance. (GASB Cod. 2200.166)
4. The entity’s deposit policy related to custodial credit risk, or the fact that the entity has no such policy, is not disclosed. (GASB Cod. C20.109)
In consideration of the ECA forgoing further investigation of Mr. Heise’s conduct as described above, and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Heise agreed as follows:
a. To waive his rights to further investigation of this matter in accordance with the Joint Ethics Enforcement Program (JEEP) Manual of Procedures.
b. To waive his rights to a hearing under AICPA bylaws section 7.4 and the South Carolina Association of CPAs section 15.2.
c. To neither admit nor deny the above specified charges.
d. To his admonishment by the AICPA and the South Carolina Association of CPAs.
e. To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.
f. To complete the following continuing professional education (CPE) courses (Governmental A&A Update; Fundamentals of Government Accounting and Reporting) within three months of the effective date of this agreement and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).
g. To comply with directive e., above, he 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 two audits performed by him during the one-year period following the date the reviewer has been approved by the ECA. He must submit the names of the chosen reviewers to the ECA for approval no later than 30 days of the date he signs this letter. Also, no later than 30 days after the effective date of this agreement, he must submit a list to the ECA of the audits on which he expects to issue reports in the upcoming 12 months from which the audits subject to pre-issuance review will be selected. He 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.
The first report is due 120 days after the reviewer has been approved by the ECA with subsequent reports due every 90 days thereafter. If none of the engagements selected for pre-issuance review were performed during a reporting period, he agrees to inform the ECA of such. He agrees to have this pre-issuance review performed at his expense. The ECA has the right to extend the period of time and number of engagements subject to pre-issuance review if there are deficiencies.
He agrees to inform the ECA of any changes in the composition of his practice, changes in his role or if he has not performed any audits during the period he is subject to the pre-issuance reviews. If his practice changes and he is no longer involved with audits, no longer acts in a supervisory capacity on such engagements or he has not performed such engagements during the above specified period, he must inform the ECA of this change and the ECA may require that he attest every six months for three years as to the nature of his practice. If, during the three-year attestation period, he returns to performing such engagements, he must inform the ECA of this change and undergo the required pre-issuance reviews.
h. To further comply with directive e. above, submit, six months after completion of the pre-issuance reviews, a list of the highest level (audits, reviews, and compilations with note disclosures) of engagements that he performed in the six month period following the date he completed the pre-issuance reviews.
The ECA will select one of these engagements for review. He will be informed of this selection and will be asked to submit information to include a copy of his report, the financial statements, and working papers related to that engagement for review by the ECA. The ECA may extend the period to select an engagement to ensure a suitable selection is available. A peer review undergone by his firm would not exempt him from this requirement.
He agrees to inform the ECA of any changes in the composition of his practice, changes in his role or if he has not performed any audits, reviews or compilations with note disclosures until a suitable work product is selected for review. If his practice changes and he is no longer involved with audits, reviews or compilations with note disclosures, no longer acts in a supervisory capacity on such engagements or he has not performed such engagements during the above specified period, he must inform the ECA of this change and the ECA may require that he attest every six months for three years as to the nature of his practice. If, during the three-year attestation period, he returns to performing such engagements, he must inform the ECA of this change and the ECA will select a suitable work product for review.
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 he submitted is warranted. If, at the conclusion of the investigation, the ECA finds that professional standards have in fact been violated, the ECA may refer the matter to the AICPA joint trial board for a hearing or take such other action as it deems appropriate.
i. To be prohibited from performing peer reviews in any capacity until the above directives in this letter have been completed. This prohibition will remain in effect until the ECA determines that the work product he submitted to comply with directive h. above, substantially complies with professional standards. This prohibition will be communicated to his peer review oversight agency.
j. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA and the South Carolina Association of CPAs until he has completed all directives in this letter. This prohibition will be communicated to those responsible for appointments to such committees. In addition, if he applies to join any other committee of the AICPA and the South Carolina Association of CPAs, he must inform those responsible for such appointments of the results of this ethics investigation. This prohibition shall remain in effect until the ECA determines that the work product he submitted to comply with directive h. above, substantially complies with professional standards.
k. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state CPA societies in audits subject to Government Auditing Standards and accounting and auditing until he has completed all directives in this letter. This prohibition will be communicated to those responsible for engaging CPE instructors at the AICPA and the South Carolina Association of CPAs. This prohibition shall remain in effect until the ECA determines that the work product he submitted to comply with directive h. above substantially complies with professional standards.
l. That the ECA shall provide a copy of this settlement agreement to the AICPA’s Peer Review Division staff, his peer review administering entities and his firm’s peer reviewer.
m. That the ECA shall publish his name, the name of his current firm, the charges, and the terms of this settlement agreement.
n. 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.