96.04

OPINION NO. 96-04

A member of the Board of Public Accountancy (CPA Board) has requested advice as to whether she may continue to serve in view of her recent purchase and affiliation with a CPA examination review course franchise. Based on application of previous advice to the information provided and the Member's status as a full-time State employee, we advise that this dual service is not allowable.

The CPA Board is established pursuant to §§2-101 to 2-702 of the Business Occupations and Professions Article of the Annotated Code. Its mandate is to examine and certify public accountants in the State, to judge applicants from other states for reciprocal certification, and to enroll CPA's, corporations and partnerships engaging in certified public accounting services. The Board includes seven members appointed to three-year terms by the Governor with the advice of the Secretary of Labor, Licensing and Regulation. Four must the licensed CPA's and one of these must be a full-time teacher of accounting at an accredited college. There are also two consumer members and one attorney in good standing who is not a CPA.

Licensing requirements under the Law are that an applicant be of good character and reputation, at least 18 years old, meet the law's educational requirements and pass an examination. The educational requirements include a bachelor's degree from an accredited college with a major or substantially equivalent major in accounting. Currently there must be at least 45 credits in the general subject with 30 in accounting and 15 in business and related course work. Despite the statutory requirement of good character and reputation, the CPA Board Chairman indicates that there is no character evaluation. If a person meets the educational criteria and passes the test they are certified. There are no residency requirements. Also, according to the Chairman, the Board currently does not have a significant role in the examination process. The test, given for 2 days twice a year at the same time in 54 jurisdictions around the country, is developed and graded solely by the American Institute of Certified Public Accountants (the Institute), and administered in Maryland by a private company in Pennsylvania called Local Government Research (LGR).

The Member is a professor of accounting at the University of Maryland at College Park (UMCP). She was appointed in September 1992 to the full-time professor position on the Board, and was reappointed in October 1995. The Chairman advises that her role on the Board is to be the education expert, advising on educational issues, and coordinating with the test administrator (LGR) if an application presents an issue as to whether a particular course meets the Maryland academic criteria. Apparently she also reviews transcripts for out-of-state reciprocity to consider whether the other state has equivalent requirements. According to the resume that was available to the appointing authority in her most recent appointment, the Member has been at UMCP since 1990, having taught at other schools since 1972. She indicates that she primarily teaches undergraduate accounting courses, though she occasionally is assigned a graduate course. Currently all of her courses are undergraduate, including Principles of Accounting II, in which she has about 900 students. On October 23, 1995, apparently in connection with her recent reappointment, she filed an appointee exemption disclosure statement identifying a CPA review course company (the Review Course) and indicating that

I have a 1/4 ownership interest in the College Park franchise. I started this in July after my initial appointment expired. Currently the franchise is losing money. I also teach part of this course and earn about $5500 per year from teaching.

We were subsequently advised that this is a New York business with local franchises, and that the Member had had some teaching affiliation with it in the past. She says that in addition to her 25 percent interest the entity is owned 50 percent by the New York company and 25 percent by a person in Virginia. She made no dollar investment in the entity, but teaches 9 of the 35 sessions. The cost of the course for students is $1200 for all four of the major subject units. The Member indicates that though she taught with the Review Course prior to her original appointment to the CPA Board, she has not been affiliated with it in any way since her appointment. Her acquisition of this ownership interest and teaching affiliation came about during July of 1995 after she completed her first term as a member of the Board, while her reappointment was pending.

According to the DLLR staff person who handles appointments to DLLR boards, this appointment recommendation was made by the Secretary in the end of July. Though delayed somewhat by Departmental reorganization, the appointment is one that would likely have been reviewed substantially before the June 30, 1995 expiration date, and was apparently based on the Member's original resume. According to the staff person, the agency had no additional input from the Member relating to her interest in the Review Course. It is not clear what the agency's view would have been if the Member's interest in the Course had been disclosed prior to the appointment recommendation, though apparently discussions with the Deputy Commissioner regarding this appointment suggest that the Member is viewed as a good member and is in an education category that is difficult to recruit. As noted the Member disclosed her affiliation with the Review Course on a Time of Appointment Exemption Disclosure Statement submitted very soon after her reappointment.

The Public Ethics Law at §15-502(b) (State Government Article, §15-502(b), Annotated Code of Maryland) prohibits officials and employees (including appointees to boards and commissions) from being employed by or having a financial interest in an entity that contracts with or is subject to the authority of their agency (subsection (b)(1)), or from having any other employment relationship that would impair their impartiality or independence of judgment (subsection (b)(2)). The Member is a regular State employee by virtue of her full-time teaching at the University and is a public official by virtue of her service on the CPA Board. It is not clear that the Review Course is an entity that has direct relationships with the Board, DLLR, or the University of Maryland that would bring the strict prohibition of §15-502(b)(1) into operation. We have, however, in several prior opinions addressed the application of the §15-502(b)(2) impairment provision in a variety of situations similar to this, particularly as it relates to teaching of licensing examination courses by members of licensing boards.

We have, for example, prohibited members of the Real Estate Commission from teaching the real estate course required for licensing (No. 83-40), and have prohibited a member of the Board of Registration for Professional Land Surveyors from teaching a land surveyor's exam review course sponsored by the Maryland Society of Surveyors (No. 87-24). We have also provided informal advice to a former education member of the CPA Board that he could teach a continuing education course subject to Board approval only if the course was with his regular college employer and existed at the time of his appointment to the Board.

Consistent with these prior opinions, we believe that the Member's affiliation with an entity that provides review courses to persons seeking to be certified, and therefore under the direct authority of her Board, would be prohibited by the impairment provision in §15-502(b)(2) of the Law. Moreover, we do not believe that the Time of Appointment exemption process set forth in §15-502(c)(4) is available to her as a regular State employee. Both the instructions to the Time of Appointment Disclosure Statement and in the Commission's standard acknowledgment of the Statement to filers reflect our consistent past advice that the exemption allowed by time of appointment disclosure does not apply to individuals who, in addition to their proposed board service, are regular employees of the State. This is consistent with the purpose of this provision of the Law (which was enacted in the early 1980's) to allow the State to attract private citizens to State boards that were part-time often unpaid affiliations. It was viewed as unreasonable in this situation to expect a private citizen to give up their main interest or employment to be a member, especially where the private expertise was desired. Also, regular employees of the State have pre-existing fiduciary and management obligations to the State that run counter to the notion of special exemptions allowable by disclosure alone, as is the case with the time of appointment process.

It is thus our conclusion that the Member's affiliation with a CPA review course whose students are applicants for certification by her Board would be a conflict of interest that cannot be exempted by disclosure on a Time of Appointment Exemption Disclosure Statement. Nor do we believe that exception would be allowable pursuant to the regulatory exception authority of this Commission (see §15-502(c)(1) and our regulations at COMAR 19A.02.01 and .02). The purposes of the Law as set forth in §15-101(a)(2) and the regulatory exception criteria both address the appearance of conflict as well as actual conflicts of interest. Though we recognize that the CPA Board does not currently directly administer the CPA examination, we note that the Board and this Member in particular have a regular role in evaluating applicants' qualifications and performing other examination related functions that relate to the private company and to persons taking and retaking the examination. In our view for a person in this situation to have substantial economic relationships with a Review Course serving these applicants presents the kind of concerns intended to be addressed in the Law and considered in exception situations. Consistent with this approach we have found that licensing board members should not be involved in private activities specifically aimed at preparing persons to take and retake licensing examinations.

Taking all of this information and considerations into account, we therefore advise the Member, the agency and the appointing authority that her affiliation with the Review Course is barred by the Ethics Law and that this bar cannot be overcome by application the exemption or exception provisions of the Law. Her dual service on the Board and contemporaneous affiliation with the examination Review Course therefore must be discontinued.

Mark C. Medairy, Jr., Chairman,
    Michael L. May,
    Charles O. Monk, II,
    April E. Sepulveda

Date: March 29, 1996