Terrell, Gregory of Detroit, MI

As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the Michigan Association of CPAs, Mr. Terrell, with the firm of Gregory Terrell & Company, entered into a settlement agreement under the Joint Ethics Enforcement Program, effective July 31, 2017.

Information came to the attention of the Ethics Charging Authority (ECA) (comprised of the AICPA Professional Ethics Executive Committee and the Michigan Association of CPAs’ Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Terrell’s performance of professional services on the audit of the financial statements of a not for profit entity as of and for the fiscal year ended June 20, 2011. 

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

Rule 202 – Compliance with Standards

1. The restrictions placed on the originally issued and revised 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 and the Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 did not conform to the requirements of SAS 87. (AU §532.04 & .13, SAS 87, AICPA Audit Guide – Government Auditing Standards and Circular A-133 Reports (“AAG-SLA”) par. 4.28 & 3.23)

2. The date of the originally issued 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 agree with the auditor’s report date on the financial statements. (AAG-SLA par. 4.28)

3. The reported financial statement internal control finding in the originally issued and revised Schedule of Findings and Questioned Costs did not present the elements of criteria, condition, cause and effect and information to place the finding in the proper prospective by describing the nature and extent of the issues reported and the work performed that resulted in the finding. (Government Auditing Standards pars. 4.14-4.18 and 5.22, AAG-SLA par. 4.32-4.33)

4. The originally issued and revised auditor’s opinions over the Schedule of Expenditures of Federal Awards do not carry the same date as the report on the financial statements. (AAG-SLA par. 13.28)

5. The revised Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 did not include a statement that the auditee’s response to the finding identified in the audit is described in the accompanying schedule of findings and questioned costs, and that the auditor did not audit the auditee’s response and, accordingly, expresses no opinion on it. (AAG-SLA par. 13.23)

6. CFDA 84.268 - Federal Direct Student Loans was identified as having been audited as a major federal program in the Summary of Audit Results though it did not appear on the Schedule of Expenditures of Federal Awards and was not delineated as such in the notes to the originally issued and revised Schedule of Expenditures of Federal Awards. (AAG-SLA par. 7.10)

7. The auditor initially failed to identify and test all major programs due to a failure to correctly calculate the threshold for distinguishing Type A programs when they did not deduct large loan programs from the total federal expenditures. (OMB Circular A-133 §__.505 (d)(1)(vii), AAG-SLA Chapter 8)

8. The auditor incorrectly determined and reported that the entity qualified as a low risk auditee in the originally issued and revised Summary of Auditors’ Results, though material noncompliance with major federal programs was noted and reported in the 2010 single audit, precluding such a determination. (OMB Circular A-133 §__.530, AAG-SLA par. 8.26)

9. The originally issued and revised Schedule of Prior Audit Findings was not complete as it did not include the status of finding 2010-5, which was cited in the prior year.  (AAG-SLA par. 13.43)

Rule 203 – Accounting Principles

The financial statements did not separately present each major fund and the required aggregate non-major enterprise funds as required. (GASB Cod. §Co5.106, §2200.165)

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

1. The auditor failed to meet the 80 hour audit and accounting Government Auditing Standards requirement for continuing professional education. (Government Auditing Standards 2007 Revision par. 3.46)

2. As the firm’s partner responsible for peer review, Mr. Terrell did not ensure that the firm complied with the Government Auditing Standards requirement to have a peer review every three years.  The peer review was significantly overdue. (Government Auditing Standards 2007 Revision par. 3.50b)

Agreement:

In consideration of the ECA forgoing further investigation of Mr. Terrell’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Terrell 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 Michigan Association of CPAs’ bylaws ARTICLE XI, Section 2.

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

d. To his admonishment by the AICPA and the Michigan 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 46 hours of continuing professional education (CPE) courses (Governmental Accounting and Auditing Update; Yellow Book: Government Auditing Standards; Governmental Accounting and Reporting; Applying the Uniform Guidance for Federal Awards in Your Single Audit; Studies on Single Audit and Yellow Book Deficiencies) within 12 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, Mr. Terrell agrees to hire an outside party, acceptable to the ECA, to perform pre-issuance reviews of the reports, financial statements, and working papers on three single audits performed by him to be selected by the ECA.  He must submit the names of the chosen reviewers to the ECA for approval no later than 30 days after the effective date of this agreement.  Also, no later than 30 days after the effective date of this agreement, he must submit a list to the ECA of the single audits for which he expects to issue reports in the upcoming 12 months.  The following information should be included regarding the engagements listed: anticipated number of hours to be spent on the engagement, level of professional services to be rendered, his role and anticipated hours on each engagement, type of organization, and whether it will be an initial engagement. The ECA will select three engagements for pre-issuance review and communicate them to him. 

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 single audits. If his practice changes and he is no longer involved with single audits, 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 pre-issuance reviews.

h. To further comply with directive e. above, Mr. Terrell agrees to submit six months after the 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 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, and whether it was an initial engagement. The ECA will select one of these engagements for review. Mr. Terrell 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 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.

i. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the Michigan Association 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 or the Michigan Association 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 product submitted to comply with directive h. above substantially complies with professional standards.  

j. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state societies in auditing and accounting, Government Auditing Standards and/or OMB Circular A-133 and/or 2 CFR 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“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 and the Michigan Association of CPAs.  This requirement shall remain in effect until the ECA determines that the work product submitted to comply with directive h. above substantially complies with professional standards.  

k. 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 product he submitted to comply with directive h. above substantially complies with professional standards. This restriction will be communicated to his peer review oversight agency.

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.