BILL ANALYSIS Ó
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|Hearing Date:May 2, 2011 |Bill No:SB |
| |542 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: SB 542Author:Price
As Amended:April 14, 2011 Fiscal:Yes
SUBJECT: Professions and vocations: regulatory boards.
SUMMARY: Extends the provisions establishing the California Board of
Accountancy, and its executive officer, and extends the Professional
Fiduciaries Bureau, and makes other changes, as specified.
Existing law:
1) Licenses and regulates some 40,000 certified public accountants
(CPAs) under the Accountancy Act by the California Board of
Accountancy (CBA) within the Department of Consumer Affairs (DCA),
and makes the CBA inoperative and repealed on January 1, 2012.
(Business and Professions Code (BPC) § 5000)
2) Authorizes the CBA to appoint an executive officer, and makes that
authority inoperative and repealed on January 1, 2012. (BPC §
5015.6)
3) Requires, in order to renew its registration, that an accountancy
firm, must have a peer review report of its accounting and auditing
practice accepted by a CBA-recognized peer review program every 3
years, as specified. (BPC § 5076)
a) Defines "peer review" as study, appraisal, or review conducted
in accordance with professional standards of the professional
work of a firm by another licensee unaffiliated with the licensee
or registered firm being reviewed.
b) Sunsets the peer review provisions on January 1, 2014.
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4) Requires the CBA, by January 1, 2013, to provide the Legislature
and the Governor with a report regarding peer review of small firms
or sole practitioners that prepare nondisclosure compiled financial
statements on an other comprehensive basis of accounting. The
report must include the following: the extent to which consumer
protection is enhanced; the impact upon those firms; the impact
on small businesses, nonprofit corporations, and other entities
that utilize these firms' services. (BPC § 5076 (n))
5) Requires the CBA to appoint a peer review oversight committee,
composed of California-licensed CPAs, to make recommendations to
the Board on any matter to ensure the
effectiveness of mandatory peer review, and sunsets this provision on
January 1, 2014.
(BPC § 5076.1)
6) Licenses and regulates some 516 professional fiduciaries under the
Professional Fiduciaries Act (Act) by the Professional Fiduciaries
Bureau (PFB) within the DCA, and makes the PFB inoperative and
repealed on January 1, 2012. (BPC § 6510)
7) Establishes a Professional Fiduciaries Advisory Committee composed
of seven members: three members of which are licensed as
professional fiduciaries, and four are public members. The three
licensees and two public members are appointed by the Governor and
the Senate Rules Committee and the Assembly Speaker each appoint a
public member of the committee. (BPC § 6511)
8) Provides that if the PFB is repealed, the responsibilities and
jurisdiction of the Bureau shall be transferred to the Professional
Fiduciaries Advisory Committee, and that Committee shall be
established as board within DCA. (BPC § 6510 (h))
9) Provides that no person shall act or hold himself or herself out as
a professional fiduciary unless that person is licensed as a
professional fiduciary in accordance with the Act, or are exempt
from the Act. Those exempt from the Act include: attorneys, CPAs
acting within their scope of practice, and enrolled agents acting
within their scope of practice.
(BPC § 6530)
10)Authorizes the Bureau to impose disciplinary action, including:
license denial, suspension, probation, or revocation, and requires
the Bureau to provide on the Internet information regarding any
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enforcement action(s). (BPC § 6580)
11)Requires all proceedings against a licensee for violations of the
Act, including all accusations statements of issues, and stipulated
agreements, to be conducted in accordance with the Administrative
Procedure Act. (BPC § 6582)
This bill:
1) Extends the operation of the CBA and its executive officer, until
January 1, 2016, and specifies that the CBA is subject to review by
the appropriate policy committees of the Legislature.
2) Extends the sunset dates of the peer review program, and the peer
review oversight committee to January 1, 2016.
3) Extends the timeframe for the CBA to submit the report to the
Legislature and the Governor regarding the effect of peer review on
specified small firms or sole practitioners to January 1, 2015.
4) Extends the operation of the PFB, until January 1, 2016, and
specifies that the Bureau is subject to review by the appropriate
policy committees of the Legislature.
5) Revises the exemption from the professional fiduciary licensing
requirement for enrolled agents, to instead apply to an enrolled
agent providing fiduciary services that are ancillary to the
primary services of an enrolled agent, and those services are
provided at the request of a client with which the enrolled agent
has an existing professional relationship. However, an enrolled
agent who is soliciting clients for fiduciary services or holding
himself or herself out as a professional fiduciary is required to
obtain a license in accordance with the Act.
6) Authorizes the PFB to enter into a stipulated settlement agreement
with a licensee or applicant prior to the PFB's issuance of an
accusation or statement of issues against the licensee. Requires
the settlement to include language identifying the factual basis
for the action taken, and a list of the statutes or regulations
violated. Authorizes a licensee to file a petition to modify the
terms of the settlement or petition for early termination of
probation if probation is part of the settlement.
FISCAL EFFECT: Unknown. This bill has been keyed "fiscal" by
Legislative Counsel.
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COMMENTS:
1. Purpose. The Author is the Sponsor of this measure. According to
the Author, this bill is necessary to extend the sunset date of the
CBA and continue the regulation of CPAs in California.
Additionally, the Author points out that there is a need to extend
the sunset date of the CBA's peer review program.
The Author additionally states that this bill is necessary to extend
the sunset date of the PFB, in order to appropriately license and
regulate professional fiduciaries in California, and to make other
changes to the Professional Fiduciaries Act.
2. Background. Earlier this year, this Committee conducted oversight
hearings to review
9 boards: the Board of Registered Nursing, the Board of Vocational
Nursing and Psychiatric Technicians, the Dental Board of
California, the State Athletic Commission, the Board of
Accountancy, Professional Fiduciaries Bureau, the Contractors State
License Board, the Board for Professional Engineers, Land Surveyors
and Geologists, the California Architects Board, and the Landscape
Architects Technical Committee. The Committee also conducted
oversight hearings of the Department of Real Estate and the Office
of Real Estate Appraisers. The Committee began its review of these
licensing agencies in March with three days of hearings. This
bill, and the accompanying sunset bills, is intended to implement
legislative changes as recommended in the Committee's Background
Papers for several licensing boards reviewed by the Committee this
year.
3. California Board of Accountancy (CBA). The CBA enforces the
Accountancy Act which defines the practice of public accountancy as
the process of recording classifying, reporting and interpreting
the financial data of an individual or an organization. In
California, the accounting profession's licensed practitioners are
the CPAs and the Public Accountants (PA). The last PA license was
issued in 1968 and, as these particular licenses expire, California
eventually will no longer have licensees with this designation. A
CPA is a person who has met the requirements of California state
law, including education, examination, and experience requirements,
and has been issued a license to practice public accountancy by the
CBA. Only persons who are licensed can legally be called a CPA or
a PA. Additionally, the CBA exercises regulatory authority over
accountancy firms. As accounting practitioners, CPAs and PAs are
proprietors, partners, shareholders and staff employees of public
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accounting firms. They provide professional services to
individuals, private and public companies, financial institutions,
nonprofit organizations, and local, state and federal government
entities. CBA's regulatory authority over CPAs, PAs, and
accounting firms is guided by CBA's statutory mandate to protect
the public.
CBA is a public majority board and is composed of 15 members: seven
CPAs and eight public members who shall not be licensees of the
CBA, or registered by the CBA. The Governor appoints four of the
public members and the seven CPAs, while the Senate Rules Committee
and the Assembly Speaker each appoint two public members. The
seven CPAs on the CBA include two members who represent small
public accounting firms.
CBA currently has eight committees to deal with licensing,
enforcement, legislative and education issues. The Enforcement
Advisory Committee provides assistance and expertise in licensee
investigations. The Qualifications Committee reviews the
experience of applicants for licensure and makes recommendations to
the CBA. The Accounting Education Committee is a temporary
committee established to advise the CBA on accounting study to
enhance the competence of students as practitioners and promote
consumer protection. The Ethics Curriculum Committee is also a
temporary committee which recommends to the CBA ethics study
guidelines. The Peer Review Oversight Committee provides oversight
to the Peer Review Program. The Committee on Professional Conduct
considers issues relating to professional conduct. The Enforcement
Program Oversight Committee reviews policy issues related to the
Enforcement Program and oversees program compliance. Lastly, the
Legislative Committee reviews, recommends and advances legislation.
The CBA is a special fund agency, and its funding comes from licensing
fees, and also receives revenue through its citation and fine
program. The total revenues anticipated by CBA for fiscal year
(FY) 2010/2011 are $13,249,000, and CBA's anticipated expenditures
for FY 2010/2011 is $12,210,000. CBA spends approximately 40-45 %
of CBA's total budgeted expenditure authority on its Enforcement
Program.
CBA was last reviewed by the former Joint Legislative Sunset Review
Committee (JLSRC) in 2004.
4. This Bill Includes the Following Statutory Changes Related to the
CBA Identified by This Committee During the March 2011 Oversight
Hearings:
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a. Extends the sunset date of the CBA and its executive
officer. The health, safety and welfare of consumers are
protected by a well-regulated certified public accounting
profession. The CBA has shown over the years a strong
commitment to improve the Board's overall efficiency and
effectiveness and has worked cooperatively with DCA, the
Legislature and this Committee to bring about necessary changes.
The CBA should be continued with a four-year extension of its
sunset date so that the Committee may review once again if the
issues and recommendations in this Paper and others of the
Committee have been addressed. This bill extends the sunset
dates for the CBA and its executive officer to January 1, 2016 .
b. Extends the sunset date of the Peer Review Program and the
Peer Review Oversight Committee. As the result of extensive
consideration of peer review, the CBA sponsored AB 138 (Chapter
312, Statutes of 2009) which established a mandatory peer review
program for California, effective January 1, 2010. AB 138
required firms providing audit, attest, or compilation
(accounting and auditing) services to undergo a systematic
review (peer review) to ensure that work performed conforms to
professional standards. Peer review is required for these firms
every three years as a condition for license renewal.
The CBA believes that a mandatory peer review program will have
significant benefits to the California accounting profession.
First, by improving the services provided by California-licensed
Firms. Second, mandatory peer review will help to increase
consumer confidence, which is paramount to a healthy economy,
both on a state and national level. Finally, and most
importantly as indicated by the CBA, peer review will provide
increased consumer protection. Firms meeting minimum
professional standards, but that could benefit from increased
education and training, will be required to complete specified
remedial or corrective actions, such as continuing education.
To ensure the effectiveness of mandatory peer review, AB 138
required the CBA to establish a Peer Review Oversight Committee
(PROC), the purpose of which is to engender confidence in the
peer review program from consumers and the profession. The PROC
is authorized to request any information and materials deemed
necessary to ensure that peer reviews are administered in
accordance with the standards established by the CBA in
regulation. The PROC will use these materials when performing
peer review program provider site visits and participating in
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peer review program provider's peer review report acceptance
meetings.
Both the peer review program and the PROC will sunset on January
1, 2014. The Committee recommendation was to extend the sunset
date of the peer review program and the PROC to correspond with
the sunset date for the CBA. Accordingly, this bill extends the
sunset of the peer review program and the PROC to January 1,
2016.
c. Extends the timeframe for the CBA to submit the report to
the Legislature and the Governor regarding the effect of peer
review on specified small firms or sole practitioners. In order
to effectively evaluate the impact of the peer review program on
small firms or sole practitioners that prepare nondisclosure
compiled financial statements on an other comprehensive basis of
accounting, AB 138 required the CBA, by January 1, 2013, to
provide the Legislature and the Governor with a report which
includes the extent to which consumer protection is enhanced;
the impact upon those firms; and the impact of peer review on
small businesses, nonprofit corporations, and other entities
that utilize these firms' services. In order to enable the
Board to gather a broader range of data, and for the Committee
to consider the report during the CBA's next sunset review, the
deadline for the report should be extended to 2015. This bill
extends the deadline for the report to January 1, 2015 .
5. Professional Fiduciaries Bureau (PFB). The PFB is responsible for
licensing and regulating non-family member professional
fiduciaries, including conservators, guardians, trustees, and
agents under durable power of attorney as defined by the
Professional Fiduciaries Act (Act). The Act was established in
2006 by SB 1550 (Figueroa, Chapter 491, Statutes of 2006). The PFB
currently licenses 516 professional fiduciaries.
Professional fiduciaries provide critical services to seniors,
disabled persons, and children. They manage matters for clients
including, but not limited to, daily care, housing and medical
needs, and also offer financial management services ranging from
basic bill paying to estate and investment management.
Requirements for licensure include completing thirty (30) hours of
approved education courses, passing an examination and earning
fifteen (15) hours of continuing education credit each year for
renewal. Licensees must comply with reporting requirements and
must abide by the Professional Fiduciaries Code of Ethics so that
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client matters are handled responsibly and without conflict.
The Bureau began operation on July 1, 2007, and is charged with
carrying out the following functions:
Educating consumers about their rights and quality of
service.
Promoting legal and ethical standards of professional
conduct.
Investigating the background of applicants.
Administering licensing examinations.
Licensing Professional Fiduciaries.
Investigating complaints from consumers.
Taking disciplinary action and issuing citations against
licensees whenever appropriate.
The Act establishes a Professional Fiduciaries Advisory Committee
composed of seven members. It has a public majority with three
licensees actively engaged as professional fiduciaries in this
state. The four public members include: one member of a nonprofit
organization advocating on behalf of the elderly, and one probate
court investigator. The Senate Rules Committee and the Assembly
Speaker each appoint a public member of the Committee. The function
of the Advisory Committee is to increase the level of communication
between the Bureau, the public, and fiduciaries.
Among all regulatory agencies within DCA, the Professional
Fiduciaries Bureau is unique in that it has what might be termed a
"reverse sunset." While the sunset process for regulatory boards
was originally set up to provide that when the statutory authority
for the board is made inoperative and repealed by operation of law
(sunsets), the board would be abolished and the regulatory
operations would be carried out as a bureau under DCA. In contrast,
B&P Code Section 6511 provides that if the Professional Fiduciaries
Bureau sunsets and is abolished, the Advisory Committee shall
succeed to and be vested with all the duties, powers, purposes,
responsibilities, and jurisdiction of the Bureau. The law further
provides that the Advisory Committee would further be established as
the Professional Fiduciaries Committee in DCA with the authority and
function of a Board of the Department.
For violations of the Act, the Bureau may impose administrative
citations and fines, license suspension, probation, or revocation,
and is required to provide on the Internet information regarding any
sanctions imposed on licensees, including, citations, fines,
suspensions, revocations, and formal accusations, and other related
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enforcement action.
6. This Bill Includes the Following Statutory Changes Related to the
PFB Identified by This Committee During the March 2011 Oversight
Hearings:
a. Extension of the PFB. In its Sunset Report, the Bureau
recommended that the sunset of the Bureau be extended for three
years. The Bureau believes a three year extension should
provide sufficient time to demonstrate the continued increase in
the number of licensees, the sustainability of the Bureau's
budget and the value of the consumer protection that is
provided. The Committee recommended that the profession should
continue to be regulated by the current Professional Fiduciaries
Bureau in order to protect the interests of the public and be
reviewed once again in three years. This bill extends the
sunset date on the PFB to January 1, 2015.
b. Enrolled Agents Exemption. When the Legislature enacted SB
1550 in 2006, the law created a limited exemption for a person
who is enrolled as an agent to practice before the Internal
Revenue Service acting within the scope of practice as an
enrolled agent, as specified.
In 2009, the PFB issued a licensing advisory that any activities of
an enrolled agent that are not within the scope of practice
pursuant to the federal regulations would fall outside the
exemption. The California Society of Enrolled Agents (CSEA) has
expressed great concern with the Bureau's interpretation of the
exemption. Furthermore, in 2010 CSEA sponsored AB 276 (Hyashi)
to amend B&P Code Section 6530 to clarify the exemption. That
bill was held in the Assembly Appropriations Committee on the
Suspense File.
The CSEA subsequently requested that clarification of the exemption
in Section 6530(d) be considered by the Committee in its
oversight recommendations, believing, "The current language and
narrow interpretation of the Professional Fiduciaries Act has
created a burdensome regulatory scheme for EAs, who are already
licensed by the U.S. Department of the Treasury, undergoing a
background check and fingerprinting for that license." CSEA
indicates that most EAs offer fiduciary services only rarely,
when they have been asked by long-term clients to act as
trustees. Relationships have been built and private and
confidential materials have already been shared.
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As indicated in the Committee's recommendations, this bill reflects
a narrowly-crafted clarification to the existing exemption in
B&P Code Section 6530(d) of the Professional Fiduciaries Act
relating to enrolled agents, who is providing fiduciary services
that are ancillary to the primary services of an enrolled agent,
and those services are provided at the request of a client with
which the enrolled agent has an existing professional
relationship. However, an enrolled agent who is soliciting
clients for fiduciary services or holding himself or herself out
as a professional fiduciary must be licensed as a professional
fiduciary.
c. Stipulated settlements without filing an accusation. The
Administrative Procedures Act (APA) requires an agency to file
an accusation or statement of issues against a licensee before
the regulatory agency can reach a stipulated settlement with the
licensee. While many licensees will not agree to a stipulated
settlement without the pressure of a formal accusation having
been filed, it is the experience of a number of regulatory
boards that there are instances in which a licensee is willing
to agree to a stipulated settlement earlier on in the
investigation stage of the enforcement process in order to
minimize the cost of an administrative hearing, or in order to
expedite the resolution of a disciplinary matter. This bill
authorizes the PFB to enter into a stipulated settlement
agreement with a licensee or applicant prior to the PFB's
issuance of an accusation or statement of issues against the
licensee.
1. Related Legislation. This bill is one of 7 "sunset bills" authored
by the Chair of the Business Professions and Economic Development
Committee. They are intended to implement legislative changes as
recommended in the Committee's Background Papers for several
licensing boards reviewed by the Committee in 2011.
Other sunset bills to be presented before the Senate Business and
Professions Committee include: SB 538 which deals with the Board
of Registered Nursing, SB 539 which deals with the Board of
Vocational Nursing and Psychiatric Technicians, SB 540 which deals
with the Dental Board of California, SB 541 which deals with Expert
Consultants, SB 542 which deals with the Board of Accountancy and
the Professional Fiduciaries Bureau, SB 543 which deals with the
Contractors State License Board, the Board for Professional
Engineers, Land Surveyors and Geologists, the California Architects
Board, and Landscape Architects Technical Committee, and the State
Athletic Commission, SB 706 which deals with the Department of Real
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Estate and the Office of Real Estate Appraisers.
2. Arguments: "Support if Amended." The Professional Fiduciary
Association of California (PFAC) supports the extension of the
sunset for the Professional Fiduciaries Bureau, stating: "As the
sponsors of the legislation that created the Professional
Fiduciaries Act and the resulting Bureau, we know the importance of
this Bureau to the protection of the public." However, PFAC
vigorously opposes the amendment revising the exemption for
enrolled agents, arguing that enrolled agents are not licensed in
the State of California (their license is issued at the Federal
level) therefore, there is no state oversight for the profession.
PFAC argues that EAs have an extremely narrow scope of practice,
limited to "practice before the IRS." PFAC contends that the
typical responsibilities of a licensed professional fiduciary are
far reaching and require specific training and licensure, and the
responsibilities far exceed those of an EA.
PFAC suggests that even if an EA's fiduciary service is limited to
acting as a trustee it is NOT in the best interest of the client,
and further submits that the acknowledged offering of such services
is already in clear violation of the law and there is scant, if
any, difference between the offering of such services and "holding
themselves out as fiduciaries." The exemption gives what amounts
to carte blanche to act on behalf of clients in a fiduciary
capacity far beyond their training, expertise or licensure, argues
PFAC and suggests that there is a clear and inherent danger in
allowing for such an exemption for a profession without any state
oversight.
PFAC has taken a "support with amendment" position on the bill,
strongly asking that the amendment revising the exemption for
enrolled agents be removed from the bill.
3. Clarifying Amendments. This bill would revise the existing
exemption in Professional Fiduciaries Act for enrolled agents
acting within their scope of practice as an enrolled agent. In
order to clarify that a must first hold professional fiduciary
license in order to solicit services or hold out as a professional
fiduciary, the following amendment is recommended:
On page 8, revise lines 19-22 as follows:
"However, an enrolled agent who is soliciting clients for
fiduciary services or holding himself or herself out as a
professional fiduciary is required to obtain a license in
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accordance with this chapter. However, an enrolled agent who
solicits clients for fiduciary services or holds himself or
herself out as a professional fiduciary must hold a license in
accordance with this chapter.
4. Technical amendments. Both the Committee and the Bureau
recommended the extension of the Bureau's sunset date for three
years, from January 1, 2012 to January 1, 2015. However, as
drafted, this bill would extend the sunset date four years, until
January 1, 2016. Therefore, Staff recommends the following
technical amendments:
On page 7, line 28, and on page 7 line 30 strike out "2016" and
insert: "2015"
SUPPORT AND OPPOSITION:
Support: California Society of Enrolled Agents
Support if Amended: Professional Fiduciary Association of
California
Opposition: None received as of April 27, 2011
Consultant:G. V. Ayers