Friel, Daniel F. of Waltham, MA

June 3, 2019

As a result of an investigation of alleged violations of the codes of professional conduct of the AICPA and Massachusetts Society of CPAs, Mr. Friel, with the firm of Daniel F. Friel, CPA, P.C., entered into a settlement agreement under the Joint Ethics Enforcement Program, effective April 3, 2019. 

Information came to the attention of the ethics charging authority (ECA — comprising the AICPA Professional Ethics Executive Committee and the Massachusetts Society of CPAs Professional Ethics Committee) alleging a potential disciplinary matter with respect to Mr. Friel’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 December 31, 2011.

The ECA reviewed the findings of the Department of Health & Human Services, Office of Inspector General and Mr. Friel’s responses to such findings as well as other relevant documents Mr. Friel submitted to support his responses, including certain work papers, financial statements, and other correspondence. Based on this information, there appears to be prima facie evidence of violations of the rules of the AICPA and Massachusetts Society of CPAs’ codes of professional conduct as follows:  

Rule 201 – General Standards A. Professional Competence

The auditor undertook an engagement he could not complete in accordance with professional standards.

Rule 202 – Compliance With Standards

1. The opinion on supplementary information in the original and revised auditor’s reports did not conform to the language required in SAS 119. (AU §551.09, SAS 119)

2. The originally issued reporting package did not include a Schedule of Findings and Questioned Costs as required. (AICPA Audit Guide – Government Auditing Standards and Circular A-133 Audits. (AAG-SLA par. 13.03)

3. The following errors and/or omissions were noted in the originally issued Report on Compliance with Requirements Applicable to Each Major Program on Internal Control Over Compliance in Accordance with OMB Circular A-133 (AAG-SLA par. 13.31):

a. The first paragraph of the report inappropriately referred the reader to the Schedule of Expenditures of Federal Awards for an identification of major federal programs audited.

b. The report was missing verbiage indicating that the auditor’s review of internal controls was not for the purpose of expressing an opinion on the effectiveness of internal control and accordingly, no opinion was expressed on the effectiveness of the entity’s internal controls over compliance.

c. The report did not include the definition of a deficiency or an updated definition of a material weakness in accordance with SAS 115.

d. The report contained additional verbiage that was not updated for SAS 115.

4. The original and revised financial reporting packages contained no notes to the Schedule of Expenditures of Federal Awards that described the significant accounting policies used in preparing the schedule.  (OMB Circular A-133 §.310 (b)(4), AAG-SLA par. 7.20)

5. The auditor failed to obtain competent sufficient evidential matter to support the opinion rendered over the audit in substantially all areas. (SAS 106, AU §326)

Rule 203 – Accounting Principles

1. The current portion of debt is not reported on the balance sheet though, in Note 9, the majority of promissory notes mature in 2012. Additionally, the combined aggregate amount of maturities for all long-term borrowings for each of the five years following the date of the balance sheet are not properly disclosed. (FASB ASC 470-10-50)

2. The original and revised financial statements failed to make all required disclosures related to convertible debt and improperly reported it as long-term debt. (FASB ASC 470-20-50, FASB ASC 505-10-50)

AGREEMENT

In consideration of the ECA forgoing further investigation of Mr. Friel’s conduct as described above and in consideration of the ECA forgoing any further proceedings in the matter, Mr. Friel 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 Massachusetts Society of CPAs bylaws Article VII, Section 2 (b)[2].

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

d. To his suspension from membership in the AICPA and the Massachusetts 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 and the Massachusetts Society of CPAs and from using any AICPA certificates or 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 the following continuing professional education (CPE) courses within 12 months of the effective date of this agreement and provide evidence of such completion (for example, attendance sheets, course completion certificates, and so on):

Audit Workpapers: Documenting and Reviewing Field Work — 8.5 hours
Annual Accounting and Auditing Workshop — 15. 0 hours
Internal Control and Risk Assessment: Key Factors in a Successful Audit — 8.0 hours
Total — 31.5 hours

g. To comply with directive e. above, Mr. Friel agreed 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 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 highest level of engagements (audits, reviews and compilations with note disclosures) 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 agreed 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 agreed to inform the ECA of such.  He agreed 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 agreed 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 subject to the pre-issuance reviews during the period.  If his practice changes and he is no longer involved with such audits, no longer act 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, Mr. Friel agreed to submit six months after completion of the CPE courses and pre-issuance reviews, a list of the highest level (audit, review, compilation with note disclosures) of engagements that he performed in the six-month period following the date he completed the CPE and 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 agreed 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, and/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, 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 provide an attestation immediately, then every six months for a period of three years that he is no longer performing audits subject to Government Auditing Standards. If he returns to performing such work, he agreed:

i. To complete the following CPE courses prior to commencing such work and provide evidence of such completion (for example, attendance sheets, course completion certificates, and so on).

Fundamentals for Performing a Single Audit Under the Uniform Guidance for Federal Awards — 8.5 hours
Yellow Book Financial Audits — 4.0 hours
Studies on Single Audit and Yellow Book Deficiencies — 6.5 hours
Advanced Topics in a Single Audit — 6.5 hours   
Total — 25.5 hours

ii. To comply with directive e. above, Mr. Friel agreed 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 and/or OMB Circular A-133 and/or 2 CFR 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”) performed by him for one year from 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 after returning to such work.  

He agreed 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 agreed to inform the ECA of such.   He agreed to have these pre-issuance reviews 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 agreed 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 subject to the pre-issuance reviews during the period.  If his practice changes and he is no longer involved with such audits, no longer act 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.  

iii. To further comply with directive e. above, Mr. Friel agreed to submit six months after completion of the pre-issuance reviews, a list of the highest level (audit, review, compilation 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 agreed 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, and/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, 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.

iv. To submit within 30-days after returning to such work, evidence that his firm has submitted an application to join the Governmental Audit Quality Center. Upon membership in that Center, he agreed that his firm will comply with the directives of that Center.

j. To be prohibited from serving as a member of any ethics or peer review committee of the AICPA or the Massachusetts Society of CPAs 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 other committee of the AICPA or the Massachusetts 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 product submitted to comply with directive h. and i.iii. above substantially complies with professional standards.  

k. To be prohibited from teaching continuing professional education courses approved by the AICPA or the state societies in auditing and accounting and 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 and the Massachusetts Society of CPAs.  This requirement shall remain in effect until the ECA determines that the work product submitted to comply with directive h. and i.iii. above substantially complies with professional standards.  

l. 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. and i.iii. above substantially complies with professional standards. This restriction will be communicated to his peer review oversight agency.

m. 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.

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

o. 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.