October 3, 2022

Even a State Board of CPAs Isn’t Immune From Weak Internal Controls

Anyone hoping for a heavy dose of irony to start their week is going to enjoy this next story.

Earlier this month, a tipster pointed us to a press release from the Louisiana Legislative Auditor who found issues with the internal controls at the Louisiana State Board of CPAs, "the entity responsible for licensing and regulating CPAs in Louisiana."

Most people, I think, would expect a regulator of CPAs to have airtight internal controls. But in the case of Louisiana: Nope!

Auditors found that in fiscal year 2014, the employee payroll was processed before time sheets were due, which did not allow enough time for management to review time entry and leave balances. In one case, an employee was paid for 24 hours of leave without pay, which was not recouped until three months later.

Employee records also showed negative leave balances, including one employee who had a negative balance for four consecutive pay periods but who was allowed to take leave. In addition, employee leave records did not match time sheet postings for two employees over multiple pay periods.

Maybe this puts too fine a point on it, but payroll is pretty hard to screw up. You can call up any number of providers out there who will take it completely off your hands for a fair price and they rarely make a mistake. Even if the Louisiana State Board didn't want to give their money to ADP or Paychex or whomever, they could always farm out the work to say, one of the firms they regulate.

But as bad as that is, this looks much worse:

The 2015 audit also found that between January and March 2015, the Board did not have adequate segregation of duties over its financial operations. Specifically, the Executive Director prepared checks, approved disbursements without a formal process requiring purchase orders and/or requisitions, signed checks under $2,500, input disbursements into the general ledger, and maintained control over bank statements.

Okay, so the same person is approving, preparing, issuing and recording disbursements. First of all, that's a lot of work! Second of all, are A/P clerks that hard to find? And third, learning that a regulator of CPAs has no segregation of duties is kinda like discovering that the head of the Environmental Protection Agency loves rolling coal. It's pretty surprising and does not give you much hope about, well, anything! And on top of it all, they "did not submit its annual comprehensive budget to the appropriate entities until notified by auditors."

Anyway, the Board's response was similar to any organization that's been told to shape up their controls:

In its response, the Board’s management said it was looking at ways to help ensure adequate controls are in place to maintain error-free payroll and leave records. Management officials also said the failure to submit the Board’s budget in a timely manner was an oversight and should not happen again.

I love it: "looking at ways" and "should not happen again." It's sorta like they're saying, "Hey, we regulate CPAs. There's only reasonable assurance when it comes to these things."

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