North Carolina Prohibits Contingency Fee Audit …...PROS AND CONS Contingency fee arrangements have...
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[email protected] www.mfpoer.com © 2012 Marvin F. Poer and Company North Carolina Prohibits Contingency Fee Audit Contracts By Malinda Gillilan, Atlanta Local governments in North Carolina will no longer be allowed to hire third-party auditors on a contingency fee basis. The prohibition begins on July 1, 2013 and for now, extends only until July 1, 2015. PROS AND CONS Contingency fee arrangements have good points and bad points. It’s good for municipalities because it allows them to potentially realize additional tax revenue without incurring any up-front costs. However, it can be bad for taxpayers when private auditors arbitrarily inflate the numbers just to collect a higher contingency fee. NEW LAWS The North Carolina General Assembly and Governor Bev Purdue approved two new laws to address the potential conflict of interest involved with local governments hiring outside auditors with contingency fee contracts. Senate Bill 462 details the contingency fee prohibitions and makes them effective July 1, 2012. Lawmakers later realized that there could be negative revenue implications to local governments, so they revised the timetable in Senate Bill 847 and made it effective for only two years. Specifically, SB 847 says: “From July 1, 2013, until July 1, 2015, cities and counties shall not renew any contingency fee-based contracts for these services. From July 1, 2013, until July 1, 2015, cities and counties shall not assign further audits on a contingency fee basis to an auditing firm under a contract that meets all the following conditions: (i) the contract would have been prohibited under this act had the contract been entered into after July 1, 2013, and (ii) the contract allows the assignment of audits on a discretionary basis.” During the temporary prohibition on contingency fee contracts for tax audits, the General Assembly has agreed to further study the situation and determine whether a permanent ban should be imposed.
Transcript of North Carolina Prohibits Contingency Fee Audit …...PROS AND CONS Contingency fee arrangements have...
www.mfpoer.com
© 2012 Marvin F. Poer and Company
North Carolina Prohibits Contingency Fee Audit Contracts By Malinda Gillilan, Atlanta
Local governments in North Carolina will no longer be allowed to hire third-party auditors on a contingency fee basis. The prohibition begins on July 1, 2013 and for now, extends only until July 1, 2015.
PROS AND CONSContingency fee arrangements have good points and bad points. It’s good for
municipalities because it allows them to potentially realize additional tax revenue without incurring any up-front costs.
However, it can be bad for taxpayers when private auditors arbitrarily inflate the numbers just to collect a higher contingency fee.
NEW LAWSThe North Carolina General Assembly and Governor Bev Purdue approved two new
laws to address the potential conflict of interest involved with local governments hiring outside auditors with contingency fee contracts.
Senate Bill 462 details the contingency fee prohibitions and makes them effective July 1, 2012. Lawmakers later realized that there could be negative revenue implications to local governments, so they revised the timetable in Senate Bill 847 and made it effective for only two years. Specifically, SB 847 says:
“From July 1, 2013, until July 1, 2015, cities and counties shall not renew any contingency fee-based contracts for these services. From July 1, 2013, until July 1, 2015, cities and counties shall not assign further audits on a contingency fee basis to an auditing firm under a contract that meets all the following conditions: (i) the contract would have been prohibited under this act had the contract been entered into after July 1, 2013, and (ii) the contract allows the assignment of audits on a discretionary basis.”
During the temporary prohibition on contingency fee contracts for tax audits, the General Assembly has agreed to further study the situation and determine whether a permanent ban should be imposed.
