When Bernie Madoff was uncovered and found to have “made off” with all of that money, in late 2008, it effectively ended the ability to carry an inactive status for practicing NYS CPA’s. This is because the NYS Education Department (NYSED) used Madoff’s landmark “Ponzi scheme” as incentive to finally pass long awaited regulation in the industry.
In 1897, New York was the first state to establish laws recognizing accounting as a profession. In 1947 they changed the laws for licensing to recognize an individual who serves in Public Audit and issues an opinion on Financial Statements. Tax preparation, advisory, consulting and private industry CEO/CFO’s were all services and roles of accountants, but not necessarily CPA’s. In 2009, then NY Governor Patterson signed into law accountancy reform which expanded the scope of the definition to include everything listed above plus any use of the long list of CPA “professional skills or competencies.”
At this point, you may be asking yourself “What does Bernie Madoff have to do with any of this?” – don’t worry I am getting to that. NYS has issued approximately 100,000 CPA licenses over the previous 116 years. Of these 100,000 CPA’s, I, Arthur DaPonte, can include myself as one of the 30,000 that are currently registered with NYS (my number is 095730 – check me out http://www.op.nysed.gov/opsearches). They estimate 35,000 CPA’s are no longer walking around this earth. That leaves approximately 35,000 unregistered, alive, CPA’s who don’t pay an annual registration fee or take CPE credits. Bernie’s accountant, David Friehling, during his scheming years was one of these living, but unregistered NY CPA’s. Since David wasn’t performing audits anymore, he wasn’t breaking any laws being unregistered. Since he wasn’t registered, the long ethical arms of the NYSED couldn’t be held responsible even though authorities were looking for a scapegoat. So just like that, a little more than 6 months later, law reform was signed into effect July 26, 2009. From this ground breaking $65 billion dollar fraud, they were able to change the law and broaden the scope and increase their revenue fees in the process.
The SED explained that once you pass the CPA exam and have the required education and/or experience, that you hold yourself out to the public as a CPA for life: Meaning, that you must remain registered and up-to-date with your and you must remain registered with NYS and keep current with your CPE requirements. The only way to not be an inactive CPA, by law, is to submit and obtain written permission from NYS that you no longer are practicing public accountancy (which includes use of any professional skills or competencies as aforementioned). So if you are transitioning your career to a professional boxer, airline pilot or pastry chef then you can write the State Board and ask to be inactive. But be careful Mr. Ex-CPA, if you so much as balance and reconcile a check book in your new job description, that’s a competency and you must be registered and take CPE.
One very positive thing that came from this was that since the definition of public accountancy was expanded, the scope for which you can obtain your experience was broadening also to include all of the skills and competencies. No longer are you required to obtain sign off just from a public CPA firm. Banks, fund administration, private equity shops can also sign off for the relevant experience. Furthermore, even though this was nearly 4 years ago, the method for regulation of this accountancy reform has not been determined. They could simply show up one day and ask for a listing of all employees who are CPA’s working at your company and search to see if they are active and registered with the state. Penalties could range anywhere from possible suspensions or monetary penalties but most importantly, irreversible damages to your firms reputation.
If you are an accountant and need to register with the state and take some CPE credits, the partners and staff at WithumSmith+Brown, PC host many CPE seminars and are experienced in these types of learning and education sessions. For more information, please don’t hesitate to contact us.