Wagoner, Edward E. of Hummelstown, PA

As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and the Pennsylvania Institute of CPAs, Mr. Wagoner, formerly with the firm of SF & Company, PC, entered into a settlement agreement under the Joint Ethics Enforcement Program effective March 8, 2017.

Information came to the attention of the Ethics Charging Authority (“ECA”) (comprised of the AICPA Professional Ethics Executive Committee and the Pennsylvania Institute of CPAs’ Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Wagoner’s performance of professional services on the audit of the financial statements of a governmental entity as of and for the year ended December 31. 2012.

The ECA reviewed the auditor’s report and financial statements for the engagement as well as Mr. Wagoner’s responses and other relevant documents he submitted to support his response. Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA and Pennsylvania Institute of CPAs’ codes of professional conduct as follows:

Rule 202 – Compliance with Standards

  1. The auditor’s report failed to identify and report on the “aggregate remaining fund information (fiduciary funds)” opinion unit that would have encompassed the fiduciary funds that were included as part of the basic financial statements. Furthermore, the report was not altered for the fact that the fiduciary financial statements were prepared on the full accrual basis of accounting. (AICPA Audit & Accounting Guide – State and Local Governments (“AAG-SLV”) par. 14.14, 14.18, & 14.22)

  2. The auditor’s report contained no indication of the level of responsibility taken by the auditor with respect to the information included on page 47 of the reporting package. (AAG-SLV par. 14.63-14.79)

  3. The first paragraph of 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 was not modified for the fact that the financial statements were presented on a basis of accounting other than generally accepted accounting principles. (AICPA Audit Guide – Government Auditing Standards and Circular A-133 Audits (“AAG-SLA”) par. 4.54)

Rule 203 – Accounting Principles

  1. The condensed financial information included in the Management’s Discussion and Analysis did not disclose the types of program revenues by major source. (GASB Cod. §2200.109)

  2. The public library fund inappropriately reported positive unassigned fund balance amounts in the Balance Sheet – Modified Cash Basis – Governmental Funds. (GASB Cod. §1800.155-.156)

  3. The principal components of investments were not reported on the Statement of Net Position – Pension Trust Funds. (GASB Cod. §Pe5.112)

  4. The financial statements incorrectly disclose that the measurement focus of the government-wide financial statements is the economic resources measurement focus. (GASB Cod. §2300.106a(4))

  5. The budgetary comparison schedules for the Sewer Capital Reserve Fund and the Capital Improvement Fund are inappropriately included as required supplementary information. (AAG-SLV par. 14.63)

  6. The financial statements failed to include a disclosure of the principal purposes for which interfund transfers are made. (GASB Cod. §2300.121)

  7. The types of taxes received were not separately delineated on the statement of activities. (GASB Cod. §2200.140)

  8. The accounting policy for stating inventories, including the method for determining cost, was not disclosed in the financial statements. (GASB Cod. §2300.107, APB 22, par. 13, ARB 43, Ch. 3A par. 9)

  9. The government’s policy regarding whether committed, assigned, or unassigned amounts are considered to have been spent when an expenditure is incurred for purposes for which amounts in any of those unrestricted fund balance classifications could be used was not disclosed. (GASB Cod. §1800.160)

Agreement:

In consideration of the ECA forgoing further investigation of Mr. Wagoner’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Wagoner agreed as follows:

  1. To waive his rights to further investigation of this matter in accordance with the Joint Ethics Enforcement Program (JEEP) Manual of Procedures.

  2. To waive his rights to a hearing under AICPA bylaws section 7.4 and Pennsylvania Institute of CPAs bylaw Article XIV.

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

  4. To be suspended from membership in the AICPA and the Pennsylvania Institute of CPAs for one year.

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

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

  7. To provide an attestation immediately, and every six months for three years that he is no longer performing attest engagements. If he returns to performing such work, he agrees:

    • To complete 32.5 hours of continuing professional education (CPE) courses (Governmental Accounting and Reporting; Fundamentals of Governmental Accounting and Reporting; Annual Update for Accountants and Auditors; Audit Workpapers: Documenting and Reviewing Field Work) prior to commencing such work and provide evidence of such completion (e.g., attendance sheets, course completion certificates, etc.).

    • To comply with directive f. 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 performed by him for a period of one year from the date the pre-issuance reviewer is approved by the ECA. He must submit the names of the chosen reviewers to the ECA for approval no later than 30 days after returning to performing attest engagements.

      Mr. Wagoner 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 quarterly report is due 120 days after the pre-issuance reviewer has been approved by the ECA with each subsequent quarterly report 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 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 or changes in his role during the period he is subject to the pre-issuance reviews. If his practice changes and he is no longer involved with performing audits, reviews and/or compilations with note disclosures, audits subject to Government Auditing Standards and/or OMB Circular A-133, or no longer act in a supervisory capacity on such engagements, Mr. Wagoner must inform the ECA of this change and the ECA may require that he attests 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.

    • To further comply with directive f. above, if Mr. Wagoner returns to performing attest engagements, he 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 the pre-issuance reviews, and the end of the six-month period following the date of completion of the pre-issuance reviews. The following information should be included regarding the engagements listed: his role and hours spent on each engagement, level of professional services rendered, type of report issued, type of organization, whether it is subject to Government Auditing Standards and/or OMB Circular A-133 and whether it was an initial engagement. The ECA will select one of these engagements for review. Mr. Wagoner 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.

      Mr. Wagoner agrees to inform the ECA of any changes in the composition of his practice or changes in his role until a suitable work product is selected for review. If his practice changes and he is no longer involved with performing audits, reviews and/or compilations with note disclosures, and/or audits subject to Government Auditing Standards and/or OMB Circular A-133 or no longer acts in a supervisory capacity on such engagements, 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 trial board for a hearing or take such other action as it deems appropriate.

  8. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the state CPA societies until he has completed all directives in this agreement. This restriction will be communicated to those responsible for appointments to such committees. In addition, if he applies to join any committee of the AICPA or Pennsylvania Institute 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 he submits to comply with directive g. above, if applicable, substantially complies with professional standards.

  9. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state CPA societies in any area of auditing and accounting until he has completed all of the directives included in this agreement. This restriction will be communicated to those responsible for engaging CPE instructors at the AICPA and the Pennsylvania Institute of CPAs. This requirement shall remain in effect until the ECA determines that the work product he submits to comply with directive g. above, if applicable, substantially complies with professional standards.

  10. To be prohibited from performing peer reviews in any capacity until the directives in this agreement have been completed. This prohibition will remain in effect until the ECA determines that the work product he submits to comply with directive g. above, if applicable, substantially complies with professional standards. This restriction will be communicated to his peer review oversight agency.

  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.