| Guest Columnist The Impact of CPA2BIZ on the Profession's Credibility Dwight
Owsen William E.
Shafer As most readers are undoubtedly aware, the AICPA recently consummated a for-profit spin-off in which Barry Melancon and other members of Institute management were either given or allowed to make bargain purchases of equity stakes in the new company. The AICPA president was also awarded the position of chairperson of this new entity, and various services and resources of the AICPA were given, licensed, or sold to this for profit corporation, CPA2BIZ. This web-based portal allows CPAs to market products and services to their clients and earn commissions from these sales. Outside observers, including former SEC chairman Arthur Levitt, saw a potential conflict of interest in this transaction. The conflict centered on two systemic incentives that arise when not-for-profit organizations are converted to for-profit status. The first is that, if the leadership of the nonprofit acquires an ownership interest in the newly formed for-profit entity, they have an incentive to transfer assets at less than fair value, effectively diverting a portion of the assets for their personal enrichment. Second, if the nonprofit leadership has a continuing relationship with the newly formed for-profit entity, they may have an incentive to take actions that do not benefit the members of the nonprofit, but have the potential to increase the value of their for-profit equity. An example might be the support of easier CPA testing requirements or a new credential such as "XYZ" in order to increase the "captive" customer base for CPA2BIZ. Such conflicts among the profession's leadership might make it difficult for outsiders to believe that the AICPA can be a leader of accounting reforms that truly serve the public interest. Indeed, many questions were raised in the business press (including an article in the New York Times) regarding Melancon's moral credibility when he was placed in the spotlight after the Enron/Andersen debacle. As a result of such scrutiny, he announced that he would donate his equity interest in CPA2BIZ to charity. However, the motivation behind this action was also questioned in light of the fact that CPA2BIZ has reported large losses to date, and Melancon will be able to take a substantial tax deduction if he donates the stock before it becomes worthless. Need for More Transparency at the AICPA The appearance of corruption among AICPA management demonstrates the need for more transparency at the Institute. For example, initial reports indicated that Melancon had been given the CPA2BIZ stock. After criticisms of this transaction began surfacing, the AICPA then announced that he had paid for the stock, but outsiders could not find out how much. Rumor currently has it that he paid $35 per share, and that the large outside investors paid perhaps 4 or 5 times that amount. Moreover, other AICPA insiders were also allowed to buy shares at this low price and received lucrative CPA2BIZ consulting contracts. Did these individuals also donate their shares to charity? Moreover, the original plan included giving Melancon (or allowing him to purchase) 1 percent of the CPA2BIZ stock, with another 16 percent going to "consultants." The question is: Who are these consultants and is this not yet another payoff of the political supporters of the AICPA president? To say that the AICPA has been less than forthcoming with the details of insider deals relating to CPA2BIZ would be an understatement. Some observers feel that the obvious conflicts of interest arising from CPA2BIZ embarrassed the large and reputable companies associated with CPA2BIZ. These observers have also suggested that Melancon was privately convinced by these outside investors to publicly announce that he was donating his stock to charity as a means of "damage control" to save the venture's and the AICPA's reputation, but that he will get his money one way or another. These suppositions are based on cynical business logic rather than empirical evidence, but this type of talk further demonstrates the perceived level of integrity of the current AICPA leadership. If the AICPA is ever going to regain the trust of its membership, it will have to start by increasing the level of disclosure and transparency of all Institute transactions. Melancon's Legacy Barry Melancon has promised AICPA members a new vision and new directions for their profession. Undoubtedly this has been the goal of many of the Institute's initiatives during his term, e.g., the development of new assurance services and the CPA "vision process." However, leaving the organization's treasury vault door unprotected is not a good idea. Giving the president of a nonprofit professional association stock in a for-profit spin-off opens up nearly endless perceptions of corruption. This is because unlike public for-profit corporations where stock price provides a contrary force against managerial abuse, a not-for-profit organization has no countervailing force. Thus while packing the board with compliant trustees is not unknown in the corporate world, it is that much easier in the world of non-profits. BDO Seidman
has sued the AICPA over CPA2BIZ, charging that it is an unlawful attempt to
monopolize services that are currently provided by the Institute's own members.
The lawsuit also charges AICPA management with a breach of their fiduciary duty
due to the insider stock deals of Melancon and members of his management team.
When this information became available to the press, they openly questioned the
integrity of Melancon and the entire CPA profession. This clearly demonstrates
that the ultimate risk of having leaders that lack integrity is the loss of
public confidence in the integrity of the CPA profession as a whole. How long
will the majority of AICPA members remain complacent when the actions of their
leaders are contributing to the demise of their profession? |