Title of Regulation: 18VAC5-22. Board of Accountancy Regulations (amending 18VAC5-22-20).

Statutory Authority: § 54.1-4403 of the Code of Virginia.

Public Hearing Information:

April 10, 2012 - 10 a.m. - 9960 Mayland Drive, Perimeter Center, 2nd Floor Conference Center, Training Room #2, Henrico, VA

Public Comment Deadline: April 27, 2012.

Agency Contact: Wade A. Jewell, Executive Director, Board of Accountancy, 9960 Mayland Drive, Suite 402, Henrico, VA 23233, telephone (804) 367-8540, FAX (804) 527-4409, or email wade.jewell@boa.virginia.gov.

Basis: Section 54.1-4403 of the Code of Virginia authorizes the board to levy and collect fees for the issuance, renewal, or reinstatement of Virginia licenses that are sufficient to cover all expenses of the administration and operation of the board.

Purpose: As an independent, nongeneral fund agency, the board relies upon the fees charged for services as its only source of revenue. Penalties assessed by the board for violations of the accountancy statutes and regulations do not provide revenues for the board. Instead, they are deposited into the Commonwealth's Literary Fund.

The accountancy statutes require the board to maintain two cash accounts:

1. The Board of Accountancy Fund. This account is designed to have sufficient cash to fund the operating expenses of the board. Although the accountancy statutes refer to this account as the Fund, the board refers to it as the Operating Account to clearly distinguish between the purpose of this account and the purpose of the other cash account required by the accountancy statutes.

2. The Board of Accountancy Trust Account (Trust Account). This account is designed to have sufficient cash to fund expenses incurred in the study, research, investigation, or adjudication of matters involving possible violations of the accountancy statutes or regulations. However, the accountancy statutes also permit using cash in the account to fund other expenses that are germane to the board's statutory purposes and cannot otherwise be funded through the Operating Account.

During each of the first five fiscal years after the board was reestablished as an independent board (fiscal years that ended June 30 in 2002, 2003, 2004, 2005, and 2006), its revenues exceeded operating expenses and the excess was transferred to the Trust Account. However, over the past few years, the board's operating expenses have increased significantly. Some examples follow:

1. The board added staff to administer the certified public account (CPA) examination when it was determined that using a third-party administrator was not in the best interests of persons applying for and taking the CPA examination.

2. Significant expenses were incurred in purchasing and implementing a new licensing software system.

3. As with other state agencies, the board has incurred significant increases in expenses to keep pace with changes in information technology.

4. The board incurred significant expenses in moving to new operating facilities as part of the Commonwealth's efforts to consolidate locations.

Although operating expenses have increased significantly, fees have remained the same. Increases in operating expenses caused the operating expenses to exceed revenues during the fiscal years that ended June 30 in 2007, 2008, and 2009. Those deficiencies in revenues were funded through transfers of cash from the Trust Account. During the fiscal year that ended June 30, 2010, the board was able to keep operating expenses approximately equal to revenues. However, that was only because of temporary reductions in operating expenses. Operating expenses once again exceeded revenues during the fiscal year that ended June 30, 2011. The board forecasts that by early in 2013, it will have virtually no cash, either in the Operating Account or the Trust Account.

The board believes its operating activities are efficient and services cannot be eliminated. In addition, it is critical that the Trust Account be built up to comply with its primary statutory requirement. The need for the Trust Account has been demonstrated in other states by the highly publicized fraudulent financial reporting by Enron, WorldCom, and other well-known entities and by the highly publicized misappropriation of assets by Bernie Madoff and other prominent figures. In each of these cases, licensees were implicated. Studying, researching, investigating, or adjudicating whether circumstances that led to the perpetration of such fraud constitute violations of the accounting statutes or regulations requires complex considerations. However, fraud is not the only matter for which studying, researching, investigating, or adjudicating possible violations of the accountancy statutes or regulations requires complex considerations. These complex considerations require the use of experts with specialized skills, and the expenses incurred by boards of accountancy are typically significant.

The board's sole mission is to protect the citizens of the Commonwealth, and it views licensing as a broad concept that offers the public significant protection by prescribing requirements for formal and continuing professional education, examination, and experience; by prescribing standards of conduct and practice; and by imposing penalties for not complying with the accountancy statutes and regulations. The purpose of this action is to propose increases in the prescribed fees that will ensure that the board is able to fund its operating expenses and, based on the experience of boards of accountancy in other states, the Trust Account will be sufficient to fund expenses the board incurs in studying, researching, investigating, or adjudicating matters involving possible violations of the accountancy statutes or regulations.

As a gauge of the reasonableness of the fee increases proposed:

1. The current fees are considerably less than the fees adopted October 23, 1991, but the proposed fees are not significantly higher than the fees adopted October 23, 1991.

2. The proposed fees are lower than the fees charged by the boards of accountancy in many of the other states, and in some cases are significantly lower.

Substance: The board proposes to increase or add the following fees:

1. A fee of $20 is added for processing additional applications to take one or more sections of the CPA examination.

2. A fee of $25 is added for a preliminary evaluation of whether a person has met the requirements to take the CPA examination.

3. The fee for processing an application for issuance of a Virginia license to a person is increased from $24 to $75.

4. The fee for processing an application for issuance of a Virginia license to a firm is increased from $24 to $100.

5. The fee for processing an application for the timely renewal of a person's Virginia license is increased from $24 to $60.

6. The fee for processing an application for the timely renewal of a firm's Virginia license is increased from $24 to $75.

7. The additional fee for processing an application for the renewal of a person's Virginia license that is not timely is increased from $25 to $100.

8. The additional fee for processing an application for the renewal of a firm's Virginia license that is not timely is increased from $25 to $100.

9. The fee for processing an application for reinstatement of a person's Virginia license is increased from $250 to $350.

10. The fee for processing an application for reinstatement of a firm's Virginia license is increased from $250 to $500.

11. The fee for processing an application for lifting the suspension of a person's privilege of using the CPA title in Virginia is increased from $250 to $350.

12. The fee for processing an application for lifting the suspension of a firm's privilege of providing attest services or compilation services for persons or entities located in Virginia is increased from $250 to $500.

13. A fee of $25 is added for providing or obtaining information about a person's grades on sections of the CPA examination.

14. A fee of $25 is added for processing an online request for verification that a person or firm holds a Virginia license.

15. A fee of $50 is added for processing a manual request for verification that a person or firm holds a Virginia license.

16. A fee of $100 is added for not responding within 30 calendar days to any request for information by the board under subsection A of 18VAC5-22-170.

17. The additional fee for not using the online payment option for any service provided by the board is increased from $5 to $25.

Issues: The Code of Virginia establishes the board as the state agency that oversees licensing of CPAs providing services in Virginia. The board's sole mission is to protect the citizens of the Commonwealth, and it views licensing as a broad concept that offers the public significant protection by prescribing requirements for formal and continuing professional education, examination, and experience; by prescribing standards of conduct and practice; and by imposing penalties for not complying with the accountancy statutes and regulations.

The proposed fee increases will ensure that the board has sufficient revenues to fund its operating expenses and to ensure that the Trust Account is sufficient to comply with statutory requirements.

There are no disadvantages to the public or the Commonwealth in raising the board's fees as proposed.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The Board of Accountancy (Board) proposes to create several new categories of fees and increase most fees paid by licensees that are subject to the Board's authority.

Result of Analysis. There is insufficient information to accurately gauge whether benefits are likely to outweigh costs for these proposed changes.

Estimated Economic Impact. Under current regulations, individuals who seek to take the Certified Public Accountant (CPA) exam pay a fee of $120 and can take the exam numerous times without any further fee costs. Both accountancy firms and individual accountants currently pay $24 for the processing of both their initial licensure applications and for subsequent applications for renewal of licensure; individuals and firms that renew their licenses late are currently subject to a late filing fee of $25. There is currently a $250 fee for individuals and firms who must have their licenses reinstated, for individuals who are seeking to regain the use of the CPA title in Virginia and firms that seek to regain the right to provide attest and compilation services. There is currently a $25 fee to obtain additional wall certificates and there is a $5 fee for not using the online payment system (although this fee is waived for individuals who cannot access that system from their computers).

With these proposed regulations, the Board intends to 1) separate licensure fees paid by individuals accountants from those that are paid by accounting firms (because firms are able to offer attestation and compilation services that individual accountants cannot), 2) raise most current fees, and 3) institute several new categories of fees including a fee for retaking all or portions of the CPA exam. Below is a comparison table for current and proposed fees:

FEE TYPE	CURRENT FEE	PROPOSED FEE	% INCREASE
Processing an (Initial) Application to Take the CPA Exam	$120	$120	No Change
Processing Additional Applications to Take All or Part of the CPA Exam	No Fee	$20	N/A
Preliminary Evaluation of Whether a Person Meets Requirements to Sit for the CPA Exam	No Fee	$25	N/A
Initial Licensure Application Processing for Individuals	$24	$75	213%
Initial Licensure Application Processing for Firms	$24	$100	317%
License Renewal Application Processing for Individuals	$24	$60	150%
License Renewal Application Processing for Firms	$24	$75	213%
Additional Fee for Late Renewal of an Individuals License	$25	$100	300%
Additional Fee for Late Renewal of a Firms License	$25	$100	300%
Individual Reinstatement of Licensure Fee	$250	$350	40%
Firm Reinstatement of Licensure Fee	$250	$500	100%
Fee for Lifting a Suspension of Privilege to Use the CPA Title in Virginia	$250	$350	40%
Fee for Lifting Suspension of Privilege to Provide Attest and Compilation Services	$250	$500	100%
Fee for Providing Information CPA Examination Grades	No Fee	$25	N/A
Online Processing of Verification Of Individual or Firm Licensure	No Fee	$25	N/A
Manual Processing of Verification Of Individual or Firm Licensure	No Fee	$50	N/A
Providing an Additional Wall Certificate	$25	$25	No Change
Fee for Not Responding to the Boards Request for Information Within 30 Days	No Fee	$100	N/A
Additional Fee for Manual Processing of Payments to the Board	$5	$25	400%

Board staff reports that from FY2002 through FY2006, revenues to the Board exceeded expenditures and the Board was able to save money for future Board needs. From FY2007 through FY2009, the Board's expenditures exceeded its revenues and the Board's trust account was drained to bridge the gap. For FY2010, Board revenues and expenditures were roughly equal but Board staff expects that the Board will run a deficit again in FY2011 and, by early FY2013, both the Board's operating account and its trust account will be completely depleted. Board staff reports that expenses have greatly increased over the last several years for several reasons:

• Board staff now administers the CPA exam rather than it being administered by a third party vender,

• The Board purchased a new licensing software system,

• Information technology expenses have risen significantly, and

• The Board incurring significant additional expense for moving and higher rent.

Increasing fees will likely increase the cost of being licensed as an accountant and, so, will likely slightly decrease the number of people who choose to be accountants. To the extent that the public benefits from the Board regulating this professional population, they will also likely benefit from the Board's proposed action that will increase fees to support Board activities. There is insufficient information to ascertain whether benefits will outweigh costs.

Businesses and Entities Affected. Board staff reports that the Board currently regulates 23,500 licensed accountants and 1,200 accountancy firms. All of these entities, as well as any individuals or entities who may wish to become licensed in the future, will be affected by these proposed regulations.

Localities Particularly Affected. No locality will be particularly affected by this proposed regulatory action.

Projected Impact on Employment. Fee increases in this regulatory action will likely marginally decrease the number of individuals who choose to work in professional fields that are regulated by the Board. Individuals who work part time or whose earnings are only slightly higher in these licensed fields than they would be in other jobs that do not require licensure will be more likely to be affected.

Effects on the Use and Value of Private Property. To the extent that affected licensees are in private practice, fee increases will likely slightly decrease business profits and make their businesses slightly less valuable.

Small Businesses: Costs and Other Effects. Board staff reports that most of the firms regulated by the Board likely qualify as small businesses. Affected small businesses will bear the costs of proposed increased fees.

Small Businesses: Alternative Method that Minimizes Adverse Impact. There are several actions that the Board could take that might mitigate the necessity of raising fees overall. The Board could slightly lengthen the time that it takes to process both license applications and complaints so that staff costs could be cut. This option would benefit current licensees but would slightly delay licensure, and the ability to legally work, for new applicants. Affected small businesses would also likely benefit from increased scrutiny of the IT costs that are driving increases in Board expenditures.

Real Estate Development Costs. This regulatory action will likely have no effect on real estate development costs in the Commonwealth.

Legal Mandate. The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Administrative Process Act and Executive Order Number 14 (10). Section 2.2-4007.04 requires that such economic impact analyses include, but need not be limited to, the projected number of businesses or other entities to whom the regulation would apply, the identity of any localities and types of businesses or other entities particularly affected, the projected number of persons and employment positions to be affected, the projected costs to affected businesses or entities to implement or comply with the regulation, and the impact on the use and value of private property. Further, if the proposed regulation has adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include (i) an identification and estimate of the number of small businesses subject to the regulation; (ii) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the regulation, including the type of professional skills necessary for preparing required reports and other documents; (iii) a statement of the probable effect of the regulation on affected small businesses; and (iv) a description of any less intrusive or less costly alternative methods of achieving the purpose of the regulation. The analysis presented above represents DPB's best estimate of these economic impacts.

Agency's Response to Economic Impact Analysis:

In its Economic Impact Analysis (EIA) of the fee changes the Virginia Board of Accountancy (Board) is proposing:

1. DPB concludes, "Increasing fees will likely increase the cost of being licensed as an accountant and, so, will likely decrease the number of people who choose to be accountants." VBOA response: The VBOA is responsible for licensing and regulating "Certified Public Accountants (CPA)," not accountants. The choice to become a CPA is generally based upon the individual's chosen professional objectives that require the CPA designation, recognizes that the CPA designation will likely assist in increased employment/income opportunities, and/or recognizes that the CPA designation is trusted and respected by the public in general and requires a certain level of expertise. The VBOA does not believe that slightly increasing fees for the first time in over 20 years (i.e., an annual renewal fee increase for individuals from $24 to $60, or only $36/year) will impact an individual's decision on whether to become a CPA. Virginia has over 24,000 active, licensed CPAs and continues to see growth in the number of new individuals choosing to become CPAs.

2. DPB concludes, "To the extent that the public benefits from the Board regulating this professional population, they will also likely benefit from the Board's proposed action that will increase fees to support Board activities." VBOA response: The VBOA agrees that the Board's proposed action will be of benefit to the public and to the profession in general.

3. DPB concludes, "Fee increases in this regulatory action will likely marginally decrease the number of individuals who choose to work in professional fields that are regulated by the Board. Individuals who work part time or whose earnings are only slightly higher in these licensed fields than they would be in other jobs that do not require licensure will be more likely to be affected." VBOA response: See response to "1." above. The board recognizes that there may be an extremely small number of working CPAs who do not need the CPA designation or whose job does not require licensure as a CPA who may choose not to renew his license and therefore not be able to use the CPA title.

4. DPB concludes, "To the extent that affected licensees are in private practice, fee increases will likely slightly decrease business profits and make their businesses slightly less valuable." VBOA response: The board does not believe that an increase of $36/year for an individual renewal or $51/year for a firm renewal will make their business "less valuable."

5. DPB concludes, "There are several actions that the Board could take that might mitigate the necessity of raising fees overall. The Board could slightly lengthen the time that it takes to process both license applications and complaints so that staff costs could be cut. This option would benefit current licensees but would slightly delay licensure, and the ability to legally work, for new applicants." VBOA response: The VBOA has a small staff of only 8 full-time positions. Of these individuals, only one staff member is dedicated to approving a CPA license (over 1,200/year), and only one staff member is dedicated to investigating and adjudicating complaints (over 100/year). Staff costs could not be cut without eliminating these positions, and therefore eliminating these functions. The VBOA does not believe that even DPB could justify the elimination of these functions. Without these positions, the VBOA could not process and issue a CPA license, nor could it investigate complaints. Considering that the VBOA's mission is to "protect the citizens of the Commonwealth through a regulatory program of licensure and compliance of CPAs and CPA firms," the VBOA could not exist without these critical functions.

6. DPB concludes, "Affected small businesses would also likely benefit from increased scrutiny of the IT costs that are driving increases in Board expenditures." VBOA response: The DPB conclusion assumes that the VBOA has not scrutinized its increasing IT costs. To the contrary, the VBOA has and continues to scrutinize and has taken numerous steps within its control to streamline IT-related costs. The Commonwealth of Virginia, through the Virginia Information Technologies Agency and through a contract with Northrop Grumman, has full control of IT-related telecommunications and computer equipment costs, and not the VBOA.

Summary:

The proposed amendments create several new categories of fees and increase most fees paid by licensees that are subject to the board's authority.

18VAC5-22-20. Fees.

A. The board shall charge the following fees for services it provides:

Processing an initial application to take one or more sections of the CPA examination		$120
Processing additional applications to take one or more sections of the CPA examination		$20
Preliminary evaluation of whether a person has met the requirements to take the CPA examination		$25
Processing an application for issuance of a Virginia license to a person		$24 $75
Processing an application for issuance of a Virginia license to a firm		$100
Processing an application for the timely renewal of a person's Virginia license		$24 $60
Processing an application for the timely renewal of a firm's Virginia license		$75
Additional fee for processing an application for a the renewal of a person's Virginia license renewal that is not timely		$25 $100
Additional fee for processing an application for the renewal of a firm's Virginia license that is not timely		$100
Processing an application for reinstatement of a person's Virginia license		$250 $350
Processing an application for reinstatement of a firm's Virginia license		$500
Processing an application for lifting the suspension of the privilege of using the CPA title in Virginia or for lifting the suspension of the privilege of providing attest services or compilation services for persons or entities located in Virginia		$250 $350
Processing an application for lifting the suspension of the privilege of providing attest services or compilation services for persons or entities located in Virginia		$500
Providing or obtaining information about a person's grades on sections of the CPA examination		$25
Processing requests for verification that a person or firm holds a Virginia license:
	1. Online request	$25
	2. Manual request	$50
Providing an additional wall certificate		$25
Additional fee for not responding within 30 calendar days to any request for information by the board under subsection A of 18VAC5-22-170		$100
Additional fee for not using the online payment option for any service provided by the board		$5 $25

B. All fees for services the board provides are due when the service is requested and are nonrefundable.