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Contracting, confidentiality, and anti-competitiveness problems affect accountancy board, sunset panel finds

The Texas Sunset Advisory Commission issued a report on the state of the State Board of Public Accountancy in November, ultimately recommending that the state continue the board for at least the next 12 years, but offering several recommendations intended to correct deficiencies of varying seriousness that the Commission detected in the Board’s operating procedures.

First, the Commission found that the board’s processes for contracting with outside professionals—accountants to review disciplinary, inspection, and continuing education documents, as well as attorneys to handle board disciplinary cases—do not meet either state requirements or best practices.

The Commission found several problems with the board’s contract development and solicitation process. For example, the board lacks a formal process for analyzing its outside accountant needs, and is thus unable to determine what services it could actually provide in house before seeking outside help. The board too infrequently makes public solicitation for its outside help, instead relying on informal word-of-mouth recommendations; not only is this against best practices, Commission staff wrote, but it violates state procurement laws which require a public solicitation for any contract worth over $25,000.

The board departs from required evaluation standards when choosing accountant contractors, the Commission also stated. Although the board is required to consider primarily the quality of services, as long as they will be performed at “a fair and reasonable price,” the board was overly concerned about their contractors’ rates, which the Commission believed could cause higher-quality providers not to contract with the board.

To fix these problems, the Sunset Commission recommended that the board be directed to develop both a formal process for contract development and solicitation, and to implement periodic review of that process.

On the subject of attorney contracts, the report noted that the board had never sought approval from the state’s attorney general office for its contracts with outside counsel, meaning that little oversight existed for the use of such attorneys. The Commission recommended that statutory law be changed to require the board to seek such approval, which it believed would prompt the board to ensure that its attorney contracting follows best practices and would bring it in line with other agencies.

Second, the Commission found that the board’s licensing and enforcement processes failed in some cases to conform to statute or common regulatory standards. The board lacks required accommodation procedures for military members or their spouses, a problem that the Commission suggested be addressed by statute. Another concern was the board’s lack of authority to require fingerprint background checks of its current licensees, a problem which the Commission recommended be solved by a new statute requiring the board to conduct such background checks of all of its licensees and applicants within two years.

Other notable recommendations the Commission made to the board:

  • Stop requiring applicants to provide documentation of mental health problems.
  • Remove the “good moral character” requirement for licensees—which the Commission found to be “a standard that is unclear, subjective, and difficult to enforce”—in order to make the applicant evaluation process more objective; and
  • Create an online application process.

The Commission also found that the board’s peer-review program created a “one-size-fits-all” approach to evaluation. This approach creates unnecessary obstacles to accountants who provide only lower-risk services, which the Commission recommended be subject to lesser inspections requirements than licensee who provide high-risk services.

On another procedural issue, the board failed to protect its complainants’ confidentiality, sending un-redacted copies of complaints to its licensees. This discourages complaints, the Commission found, and should be changed. And it found a large variation in the administrative costs assessed to licensees in disciplinary proceedings, and recommended a formal system for their assessment.

Third, the Commission found cause for concern that the majority of the board’s members were themselves licensed accountants, potentially make the board vulnerable to lawsuits claiming that the board engages in anti-competitive behavior. The report recommended that the board adjust its membership, making board licensees a minority. The report also found that the board unnecessarily restricted public comments on its meetings, requiring members of the public to request permission to comment at least 20 days prior to a meeting.

“Overall, the board does its job ensuring accountants practicing in the state have the knowledge and impetus to perform their work well,” the report stated, but “the board has not always scrutinized its own performance in meeting the standards and expectations of a well-functioning regulatory agency with the same effort as it oversees its licensees.”