Teed, James, L. of Charleston, WV

As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA, the Tennessee Society of CPAs and the West Virginia Society of CPAs, Mr. Teed, with the firm of Teed & Associates 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, the Tennessee Society of CPAs’ Professional Ethics Committee and the West Virginia Society of CPAs’ Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Teed’s performance of professional services on the audit of the financial statements of a government entity as of and for the fiscal year ended June 30, 2012 and separately on the audit of a government entity as of and for the fiscal year ended June 30, 2013.

The ECA reviewed the private complaint, the findings of the Department of Health & Human Services, Office of Inspector General and Mr. Teed’s responses to such findings as well as other relevant documents Mr. Teed submitted to support his responses. Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA, Tennessee Society of CPAs and the West Virginia Society of CPAs’ codes of professional conduct as follows:

Rule 202 – Compliance with Standards

With respect to the June 30, 2012 Audit:

1.   The auditor’s report did not include a statement that the auditor's opinion on the basic financial statements was not affected by the omission of management’s discussion and analysis. (AU §558.07-.08; AICPA Audit Guide – State and Local Governments (AAG-SLV)14.68)

2.   The restriction included in the Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards did not comply with the language required by professional standards. (AU Sec. 532.04, .13)

3.   The introductory paragraph of the Independent Auditors’ Report fails to identify the entity as a component unit of the Roane County Commission. (AAG-SLV 14.45)

4.   The Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards fails to include a statement that the auditor did not audit the auditee’s response to the finding and, accordingly, expresses no opinion on it. (AICPA Audit Guide – Government Auditing Standards and Circular A-133 Audits (AAG-SLA) 4.54)

5.   The auditor failed to obtain sufficient appropriate audit evidence in the following areas:

  • Planning, risk assessment and internal control;
  • The procedures performed and the conclusions reached;
  • The audit sampling methodology employed;
  • The tests of compliance with provisions of laws, regulations, contracts or grant agreements;
  • Communication with those charged with governance;
  • The failure to utilize audit programs;
  • Support for the prior period adjustment and the accrued interest;
  • The existence and valuation of equipment held for sale; and
  • The completeness of liabilities other than long-term debt.

(AU §326, 339, and GAGAS 4.15)

6.   The auditor failed to comply with the continuing professional education requirements of Government Auditing Standards. (GAGAS 3.76)

7.   The auditor failed to adequately evaluate whether there was substantial doubt about the entity’s ability to continue as a going concern. (AU §341)

With respect to the June 30, 2013 Audit:

1.   The original and revised auditor's report failed to comply with clarified standards. (AU-C 700)

2.   The introductory and opinion paragraphs of the original and revised auditor's report inappropriately identified opinion units that were not included in the financial statements. (AU-C 700)

3.   The original and revised auditor's report inappropriately reports on the introductory section, combining and individual nonmajor fund financial statements and statistical section supplementary information that is not included in the reporting package. (AU-C 725)

4.   The auditor’s report did not include an opinion modification while the fiduciary statements were labeled as unaudited in the original and revised financial statements. (AU-C 700, AU-C 705)

5.   The introductory paragraph of the original and revised Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards inappropriately identified opinion units that were not included in the financial statements. (AU-C 700)

6.   The original and revised Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards failed to (AU-C 265):

  • Include a statement that material weaknesses or significant deficiencies may exist that were not identified; and
  • Include a section and appropriate language regarding the entity's response to findings.

7.   The original and revised Independent Auditor's Report on Compliance for Each Major Program and on Internal Control over Compliance Required by OMB Circular A-133 inappropriately includes a reference to a material weakness that is identified as a financial statement finding on the Schedule of Findings and Questioned Costs. The report also failed to include a statement that material weaknesses may exist that may not have been identified. (AU-C 265)

8.   The auditor initially failed to identify and audit all major programs. (AAG-SLA 8.18; OMB Circular A-133 §_.520)

9.   The Schedule of Findings and Questioned Costs failed to include a corrective action plan for the material weakness identified.  (GAGAS 5.32)

10. The auditor failed to comply with the continuing professional education requirements of Government Auditing Standards. (GAGAS 3.76)

11. The auditor failed to dual date the revised Independent Auditor’s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by OMB Circular A-133. (AU-C 560)

Rule 203 – Accounting Principles

With respect to the June 30, 2012 Audit:

1.   The financial statements failed to disclose the effect of the prior period adjustment on the change in net position of the immediately preceding period. (GASB Cod. Sec. 2250.125 & .152)

2.   The financial statements failed to reclassify certain long-term liabilities as current when they were either immediately callable by the creditor or subject to foreclosure on the underlying asset. (GASB Cod. Sec. 1500.106)

With respect to June 30, 2013 Audit:

1.   The notes to the original and revised financial statements failed to:

  • Include information about the valuation of investments (GASB Cod. §I50.129);
  • Indicate which governmental funds typically have been used to liquidate the long-term liabilities in prior years (GASB Cod §2300.120);
  • Disclose significant components of other receivables (GASB Cod. §2300.125);
  • Disclose the funding policy for the cost-sharing, multiple-employer defined benefit plan, including the required contributions for the entity, the percentage of that amount contributed for the current year and each of the two preceding years, and how the required contribution rate is determined (GASB Cod. §P20.117); and
  • Failed to disclose whether the OPEB (other postemployment benefits) plan issues a stand-alone financial report or is included in the report of another entity (GASB Cod. §P20.117).

2.   The notes to the original and revised financial statement should include the principal and interest requirements to maturity for subsequent fiscal years and should not include current year principal and interest requirements. (GASB Cod. §1500.129)

3.   The auditor’s report incorrectly referenced the budgetary comparison schedules for funds other than the general fund as required supplementary information required by GASB rather than as supplementary information. (GASB Cod. §2400.120)

4.   The amount of deferred revenue that is considered to be unavailable revenues for fund reporting and, therefore, removed from the government-wide statement inappropriately includes earmarked funds. (GASB 54)

Rule 501, Interpretation 501-5 – Failure to follow requirements of governmental bodies, commissions, or other regulatory agencies

1.   The revised Schedule of Expenditures of Federal Awards does not list all federal programs by federal agency. (OMB Circular A-133 §_.310 (b)(1))

2.   The notes to the original and revised Schedule of Expenditures of Federal Awards do not clearly describe the significant accounting policies used in preparing the schedule. (OMB Circular A-133 §_.310 (b)(4))

Agreement:

In consideration of the ECA forgoing further investigation of Mr. Teed’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Teed 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, the Tennessee Society of CPAs bylaw Article 6, and the West Virginia Society of CPAs Article 12.

c.   To neither admit nor deny the above specified charges.

d.   To his suspension from membership in the AICPA, the Tennessee Society of CPAs, and the West Virginia Society of CPAs for a period of two years from the effective date of this agreement. During the period of suspension, he is prohibited from representing himself as a member of the AICPA, the Tennessee Society of CPAs, and the West Virginia Society of CPAs and from using any AICPA credentials.

e.   To comply immediately with professional standards applicable to the professional services he performs and to submit evidence of such compliance.

f.    To complete 91 hours of continuing professional education (CPE) courses (Applying the Risk Assessment Standards to Ensure a Quality Audit; Audit Workpapers: Documenting Fieldwork; Audit Workpapers: Reviewing Field Work Documentation; Internal Control and Risk Assessment: Key Factors in a Successful Audit; Yellow Book: Government Auditing Standards; Governmental Accounting and Reporting; Audits of State and Local Governments: What You Need to Know; Governmental and Not-for-Profit Annual Update; Governmental Accounting and Auditing Update; Upcoming Peer Review; Is Your Firm Ready?; Professional Ethics: The AICPA’s Comprehensive Course; GASB Statement No. 68 – In-Depth Pension Accounting & Auditing Seminar) within eighteen 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 all audits subject to Government Auditing Standards performed by him for one year from the date the reviewer has been approved by the ECA, or until the completion of the CPE in f. above, whichever is later. He must submit the name of the chosen reviewer to the ECA for approval no later than 30 days after the effective date of this agreement.

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 report should provide the reviewer’s comments in detail for each engagement and should include a description of the nature of the entity reviewed, the entity’s year end and the date of the review. The first report is due 120 days after the reviewer has been approved by the ECA with subsequent reports due every 90 days thereafter. He agrees to have this pre-issuance review performed at his expense. The ECA has the right to extend the period of time, the number and composition 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 during the period he is subject to the pre-issuance reviews or if he has not performed any audits subject to Government Auditing Standards during the period he is subject to the pre-issuance reviews. If his practice changes and he is no longer involved with audits subject to Government Auditing Standards, no longer acts in a supervisory capacity on such engagements or has not performed such engagements during the above specified period, he must inform the ECA of this, 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 and undergo the required pre-issuance reviews.

h.   To further comply with directive e. above, he agrees to submit six months after completion of the pre-issuance reviews above, a list of the highest level (audits, reviews, and compilations with note disclosures) of engagements that he 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 following information should be included regarding the engagements listed: total hours spent on each engagement, his role and total hours on each engagement, level of professional services rendered, type of report issued, type of organization, whether the organization was subject to Government Auditing Standards and/or OMB Circular A-133/Uniform Guidance, and whether 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 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, or no longer acts in a supervisory capacity on such engagements or has not performed such engagements during the above specified period, he must inform the ECA of this, 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 provide an attestation immediately, then every six months for a period of three years that he is no longer performing audits subject to OMB Circular A-133/Uniform Guidance. If he returns to performing such work, he agrees:

  • To complete 18 hours of continuing professional education (CPE) courses (Fundamentals for Performing a Single Audit Under the Uniform Guidance for Federal Awards; Applying the Uniform Guidance for Federal Awards in Your Single Audit) within six months of returning to such work and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).

  • 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 all audits subject to OMB Circular A-133/Uniform Guidance performed by him for one year from the date the reviewer has been approved by the ECA. He must submit the name of the chosen reviewer to the ECA for approval no later than 30 days after he returns to performing such work.

    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 report should provide the reviewer’s comments in detail for each engagement and should include a description of the nature of the entity reviewed, the entity’s year end and the date of the review. The first report is due 120 days after the reviewer has been approved by the ECA with subsequent reports due every 90 days thereafter. He agrees to have this pre-issuance review performed at his expense. The ECA has the right to extend the period of time and the number and composition 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 during the period he is subject to the pre-issuance reviews or if he has not performed any audits subject to OMB Circular A-133/Uniform Guidance during the period he is subject to the pre-issuance reviews. If his practice changes and he is no longer involved with audits subject to OMB Circular A-133/Uniform Guidance, no longer acts in a supervisory capacity on such engagements or has not performed such engagements during the above specified period, he must inform the ECA of this, 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 and undergo the required pre-issuance reviews.
  • To further comply with directive e. above, he agrees to submit six months after the completion of the pre-issuance reviews in i. above, a list of the highest level (audits, reviews, and compilations with note disclosures) of engagements that he performed in the period between the date of completion of those pre-issuance reviews and the end of the six-month period following completion of the pre-issuance reviews. The following information should be included regarding the engagements listed: number of hours spent on the engagement, his role and total hours on each engagement, level of professional services rendered, type of report issued, type of organization, whether the organization was subject to Government Auditing Standards and/or OMB Circular A-133/Uniform Guidance, and whether 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 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 has not performed such engagements during the above specified period, he must inform the ECA of this, 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 trial board for a hearing or take such other action as it deems appropriate.

j.    To schedule a system peer review of his firm. The review should be scheduled through his firm’s administering entity within 60 days of the effective date of this agreement, and he must submit evidence of the scheduled system review by submitting a copy of the review team approval letter issued by his firm’s administering entity. The period covered should be mutually agreed upon by his firm and the peer reviewer. His firm’s accepted peer review documents will be due to the ECA within 10 months of the effective date of this agreement.

k.   To be prohibited from serving as a member of any ethics or peer review committee of the AICPA, the Tennessee Society of CPAs, or the West Virginia Society of CPAs until he has completed all directives in this letter. This restriction will be communicated to those responsible for appointments to such committees.   In addition, if he applies to join any other committee of the AICPA, the Tennessee Society of CPAs, or the West Virginia Society of CPAs, he must inform those responsible for such appointments of the results of this ethics investigation. This requirement shall remain in effect until the ECA determines that the work products submitted to comply with directives h. and i. above substantially comply with professional standards.

l.    To be prohibited from teaching continuing professional education courses approved by the AICPA or the state societies in accounting, auditing, ethics, Government Auditing Standards and/or OMB Circular A-133/Uniform Guidance until he has completed all of the directives included in this letter. This restriction will be communicated to those responsible for engaging CPE instructors at the AICPA, the Tennessee Society of CPAs, and the West Virginia Society of CPAs.  This requirement shall remain in effect until the ECA determines that the work products submitted to comply with directives h. and i. above substantially comply with professional standards.

m.  To be prohibited from performing peer reviews in any capacity until the directives in this letter have been completed. This prohibition will remain in effect until the ECA determines that the work products he submitted to comply with directives h. and i. above substantially comply with professional standards. This restriction will be communicated to his peer review oversight agency.

n.   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.

o.   That the ECA shall publish his name, the name of his firm, the charges, and the terms of this settlement agreement.

p.   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.