Ohio Government Audit Work Paper Public Record Issue
FACT SHEET
Ohio Government Audit Work Paper Public Record Issue
ISSUE: Three separate bills of great concern to the accounting profession were introduced in 2006 by members of the Ohio General Assembly. All three contain a provision seeking to make public records of work papers, memorandum and other documents created by independent public accounting firms (IPAs) in the course of audits of state and local government entities. The bill of most concern last session was HB 9.
BACKGROUND: In response to concerns expressed by The Ohio Society of CPAs, the Ohio General Assembly enacted provisions in Ohio law in 1991 and 1998 to ensure work papers, memorandum and other related documents created by an IPA as part of a government audit are not considered public records. This was done to maintain open and frank discussions between the client and auditor and to help contain litigation costs, among other reasons. The law ensured that the Auditor of State retains the ability to review the CPA's work papers for quality assurance, that the audit report and related management letters are public records, and that the documents can be subpoenaed when part of a court investigation.
The proposed bills were introduced in spring 2006, not coincidentally an election year, in response to the ongoing Ohio Bureau of Workers’ Compensation “Coingate” investigation. Though the press and general public have access to the audit reports and related management letters, which contain all material findings, they were unhappy that they could also not view the supporting confidential work products owned by the accounting firms.
In response, an amendment was successfully inserted by Rep. Todd Book without any consultation, discussion or debate, into HB 9, a comprehensive open records bill that within minutes was voted out of committee and immediately approved on the House floor. That bill was swiftly followed by two bills addressing just the work paper issue. The Ohio Society of CPAs opposed those two bills, as well as the relevant provision in HB 9.
STATUS: Of the three bills, HB 9 was the only viable vehicle. Both died at the end of the 2005-2006 session, and the Society was successful in convincing Senate members to remove the harmful amendment from HB 9. The Society is watching closely for any efforts to revive this issue in the 2007-2008 session.
The Ohio Society of CPAs Concerns
Government Audit Work Paper Public Records Issue
- Frank and open discussions between auditor and client would be severely hampered: the ability of auditors to get employees of public entities to share key verbal information important to audit quality—concerns, thoughts on problems, leads on possible wrongdoing, etc. —would be unlikely because that intelligence would no longer be confidential.
- Liability for independent public accounting firms would be a big problem as the private sector does not enjoy sovereign immunity.
- Strong likelihood that a significant percentage of highly qualified firms and their experts will seriously consider no longer taking on audits of public entities due to increased liability costs, exposure of their proprietary audit methodology software, and increased time commitments and aggravation associated with public record requests. If they do accept the audit work, rates likely will be much higher to reflect those factors.
- The state auditor’s office uses outside firms for approximately 35% of government audits, typically the larger or more complex state or local government entities. These government entities may have an extremely difficult time meeting mandates for these audits should this provision become law. At a minimum, government entities—and therefore taxpayers—would face increased costs from two fronts: higher rates from public accounting firms willing to still do the work, and increased personnel costs on the part of the State Auditor’s office as they would need to hire significantly more audit staff, including many who will need highly specialized training in areas such as higher education, pension funds, etc.
- Many questions remain regarding implementation. At what point would the records be public, and in what format? Due to the extremely technical nature of the information, would the firm be required to explain what is contained in the work papers? How would the firm be compensated for the time needed to meet the public records requests? If so, who would pay for it? The legislation does not discuss these and related key factors.
- CPAs are mandated by HIPAA, Gramm-Leach-Bliley and other federal laws to protect personal information from public disclosure, in addition to meeting professional accounting standards CPAs must follow to remain licensed. Much of that restricted information would be contained in the work papers, requiring significant time to redact that and other “non-public” information in response to a public records request.
Ongoing success
2007
2006
2005
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2003
LAST UPDATED 2/4/2008