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The only state or federal public agencies with authority to terminate accounting licenses are overwhelmingly controlled by the accountants they regulate. In Colorado, 86 percent of all seats are held by accountants, according to a report released today by CoPIRG. The report also found that the Colorado State Accountancy Board does not post disciplinary information about accountants on its website.

"Accountants are supposed to be the public's watchdogs, but who's watching the watchdogs? They're watching themselves," said Robin Hubbard, field director for CoPIRG. "That's a recipe that makes it too easy for more companies to cook the books, just like Enron."

"In the wake of the collapse of Enron, a company built largely on sham accounting gimmicks approved by its auditors at Arthur Andersen, state governments should take action to guarantee that their supervision of accountants is controlled by independent officials, not by other accountants," said Hubbard.

State Accountancy Boards are state agencies with the power to certify public accountants and take disciplinary action against them. While the federal Securities and Exchange Commission (SEC) can ban an accountant from auditing SEC-registered, publicly traded companies, only a State Board of Accountancy can grant or remove an accountant's license.

Among the key findings of Who's Watching the Watchdogs were the following:

• In Colorado, 86 percent of board members were known to have accounting ties and only 14 percent were public members without accounting ties. Nationally, 80 percent of board members were accountants and only 20 percent were public members.
• Nationally, of the 51 state boards, 46 (90 percent) have boards in which at least half of the members are known to be affiliated with accounting firms. There are 15 states where 75 percent or more of the board are members of the accounting industry and nine states where there is not a single public or consumer member on the board.
• Four states (Louisiana, Mississippi, Nevada, and North Dakota) have no statutory positions for public members on their boards. Only three states (California, Connecticut and New Mexico) provide that a significant minority (greater than 40 percent) of their boards be public non-accountant members. All states provide for a majority of accountant members.
• Only 10 of 51 (19 percent) state board Web sites disclosed any accountant disciplinary information, making it difficult for consumers and investors to determine whether a firm or accountant had been disciplined. In Colorado, researchers were not able to access disciplinary information.

The report also highlighted several failures of state accountancy boards to remove the licenses of accountants involved in major financial scandals, including the Lincoln Savings and Loan debacle.

"The state accounting boards don't represent investors, taxpayers or consumers, they represent the accountants," added Hubbard. "Unfortunately, while Congress is just wringing its hands about Enron, it's up to the states to protect their citizens' life savings."

CoPIRG called on the state legislature to adopt the following reforms:

• Require that a majority of accountancy board members be non-accountants and fully independent from the accounting industry, selected to represent consumers and investors.
  
• Fund the accountancy board adequately to ensure that its professional staff can conduct investigations of misconduct by accountants.
  
• Require the board to inform the public on its website of all disciplinary actions taken against accountants and accounting firms.

"Accountants should be the public's watchdogs, not industry's lapdogs," concluded CoPIRG's Robin Hubbard. "Real reform must happen at both the state and federal levels, or we can count on more Enrons."

The next appointment for a CPA seat on Colorado's Accountancy Board is set for August 1, 2002.

CoPIRG is a non-profit advocacy group that works to stop consumer rip-offs, protect the environment, and strengthen our democracy. CoPIRG's website is www.copirg.org.