James P Gately - CPA Cites Lost Computer, Burned House; Gets PCAOB Ban
Tuesday, 17 August 2010 14:54
theprogressiveaccountant.com
A case in which a Florida CPA was banned from associating with any PCAOB-registered firm and his firm's registration was revoked is the first litigated case involving a PCAOB decision. While the SEC this month upheld the action, the story really goes back six years when the PCAOB initially questioned the technical competency of work by Gately & Associates and CPA James P. Gately.
An SEC document shows efforts to get information from Gately, whose firm was then located in Altamonte Springs, Fla., were thwarted because the sole proprietor issued a stream of reasons for not complying with PCAOB information requests, including his treatment for alcohol dependency, probation for a traffic-related offense and a house fire that destroyed records. He also said several times he would deregister the firm, but did not. The PCAOB found his conduct constituted a failure to cooperate with an inspection, and therefore a violation of its rules.
Gately, whose office is now in the Miami area, appealed the PCAOB decision on June 26, 2009. He has the right to challenge this month's SEC decision in the Florida appeals courts. However, his attorney, Roddy Lannigan, did not return phone calls asking about his plans. The Florida Board of Accountancy, contacted about the federal regulatory action, responded that, "While decisions by the PCAOB and SEC may not directly impact a licensee's status, information obtained from the entities may result in a department investigation that could result in disciplinary action by the Florida Board of Accountancy." It noted that the board cannot confirm the existence of any investigations.
The PCAOB efforts that led to the recent action started mid 2007. Although the SEC document did not reference it, the PCAOB issued a report concerning fieldwork it conducted on Aug. 23 and 24, 2004, in which it faulted Gately's technical competence. According to that report, "The Firm's system of quality control appears not to do enough to ensure the technical competence and the exercise of due care or professional skepticism." Other flaws were also cited. If a firm corrects findings such as these within a year, they stay private. But Gately didn't and the report became public in 2006.
After the PCAOB began requesting information and trying to schedule an inspection of files of two client companies early in 2007, Gately responded he was receiving treatment for chemical dependency in Miami, which made it difficult for him to access files in his old office. His statements before the Florida Board of Accountancy, early in 2009 just before the board reinstated his CPA license, identified the dependency as involving alcohol.
The PCAOB then scheduled an inspection for Oct. 1, 2007. But on September 12, Gately said he wouldn't be able to access the files. He was mailed an Issuer Information Form and asked to complete it by September 20. Gately also reported he was on two years' probation for a traffic-related offense and needed to give notice to travel outside of the Miami area to retrieve the files. He alternately said he would pick up the files or deregister the firm. On October 17 and 30, he told the PCAOB his computer had been stolen. On November 22, Gately reported some files were destroyed in a house fire in Miami.
After more extensions, Gately reported on Jan. 2, 2008 he had not received correspondence because he was travelling and the information was sent to an address at which he no longer resided. Finally, the ban was imposed and his firm's registration revoked.
The SEC decision does not identify the names of two client companies whose files were requested. However, SEC filings show Gately's typical clients were penny stock and developmental stage companies. He had 25 audit clients at the time of the PCAOB action.
Gately's practice was apparently complicated by a rehab program. In March 18, 2007 he wrote to Transcendent One, that he was resigning as its auditor because he was retiring from his practice. The Florida board's records show he stated that he spent three months in intensive inpatient treatment as part of an alcohol rehab program starting in January 2007, then spent the rest of the year and part of 2008 in intensive outpatient treatment.
His Florida license was placed on delinquent status on Jan. 1, 2007 and was declared null and void on Jan. 1, 2009. On March 10, 2009, the Florida Board of Accountancy unanimously reinstated the license for six months so it could be reinstated under the unusual hardship provision. A licensing Web site shows Gately's license is valid until Dec. 31, 2011. Failure to pay fees or meet educational requirements are typical reasons a license is declared delinquent.
According to a statement from the Florida board, "With a delinquent license, an individual is prohibited from performing audits, reviews and compilations."And it noted that when Gately's license was reinstated, "there were no open investigations; therefore, there was no indication that further assessment was necessary."
But SEC filings show that Gately continued to issue opinions of financial statements of publicly held companies before his license was reinstated. For example, from Sept. 30, 2007 until his dismissal on April 28, 2008, he was auditor for Inovachem, originally known as Expedite 3. On Oct. 15, 2008, he issued opinions on the financial statements of two similarly named companies, Expedite 2 and Expedite 4, which have also since changed their names.
Public records show Gately has had only one formal complaint filed against him. That was for allegedly practicing without a license and that was dismissed in 2006.
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