CHARLOTTE, N.C. (WBTV) – A North Carolina accounting firm has come under fire from the state board that licenses certified public accountants for its practice of providing financial consulting and auditing services to the same clients.
The N.C. State Board of Certified Public Accountants entered into a partial consent order with Rives & Associates—which is based in Lexington but has a large presence in Charlotte—in June over the conflict of interest.
Rives & Associates provides audit and accounting services to school systems and other government agencies across North Carolina.
According to the consent order, the firm also operated a subsidiary called School Efficiency Consultants, which went by SEC.
Public records show SEC provided financial consulting services to at least a half-dozen school systems for which it also provided annual audits.
The consent order focused on just one district, the Yadkin County Board of Education, that hired both Rives & Associates and SEC.
According to the consent order, SEC charged the school district a percent of revenue increases and/or operating cost decreases recognized as a result of the consulting agreement.
That arrangement can pose problems for a company that is also charged with making sure accounting records are also properly maintained, according to Michael Shaub, a professor who specializes in accounting ethics at Texas A&M University.
“We want people to be objective when they’re making a comment about the financial reports of some organization,” Shaub explained. “If on the side you have a consulting arrangement, that can be problematic.”
In addition to Yadkin County, SEC and Rives & Associates also held contracts with Rowan-Salisbury Schools and the Stanly County school system, among others.
A spokeswoman for Rowan-Salisbury Schools said the district hired a new accounting firm this year.
“After we learned about accusations involving the accounting firm, we chose to retain a new firm to conduct the district’s accounts. The Rowan-Salisbury Board of Education approved Anderson, Smith & Wike PLLC as our new auditors on March 30, 2020,” spokeswoman Rita Foil said in a statement.
“Rowan-Salisbury is committed to fiscal responsibility and openness in our finances.”
The statement did not address why or how the school district came to hire both SEC and Rives & Associates at the same time in the first place.
A spokeswoman for Stanly County Schools said she had forwarded an email requesting an interview for this story to the superintendent but the district did not otherwise respond.
The June consent order between the firm and the CPA board came months after the board suspended the CPA license of its managing partner, Leon L. Rives II.
Rives’ license was suspended in an emergency order issued in March after a separate court case against Rives, the firm and others alleging fraud and other offenses at a company in which Rives had invested.
Document: Read the emergency suspension order
“As a result, the Respondent was held individually liable for a total of $1,675,846. The judge has upheld the verdict and has rendered a judgement for that amount,” the emergency suspension order said.
Rives, through a spokesman, declined a request to answer questions for this story on camera but issued a statement.
“Mr. Rives CPA designation was suspended without a hearing or due process, and we are confident the suspension will be overturned,” the spokesman, Monty Hagler, said.
Hagler also said the disciplinary action against Rives & Associates stemming from the conflict of interest with SEC was the result of a rules change. Hagler issued the following statement regarding SEC:
“SEC sought clarification from both the North Carolina State Board of Certified Public Accountant Examiners and the American Institute of Certified Public Accountants (AICPA) to ensure their work did not violate independence rules related to other work that was being conducted for clients. At that time, the NC State Board of CPAs confirmed in writing and the AICPA confirmed in a recorded voicemail there was not a violation of independence standards. However, in 2020, the NC State Board of CPAs reversed this counsel and issued a fine of $1,000. SEC is proud of the work that has been done to increase available funds for classrooms across the state and save many school systems millions of dollars in taxpayer funds.”
There is no evidence showing SEC received an opinion from the CPA board in 2010. The consent order does acknowledge SEC consulted with the American Institute of Certified Public Accountants, an organization that sets national accounting standards but is not the licensing or enforcement agency for CPA’s in North Carolina.
“The AICPA provides advice to its members regarding its rules,” Frank Trainor, an attorney for the CPA board said in an email. “The Board gives that advice probative value but it is not dispositive.”