Massachusetts' CPA crunch

Enron. Tyco. Worldcom. The corporate mega-scandals of the last five years have made work-life hard for the nation’s CPAs, who struggle with a drastically increased workload in the wake of the Sarbanes-Oxley Act - the expanded set of financial reporting requirements adopted in the wake of those scandals.

It's taken its toll on the current crop of CPAs. Longer hours, greater scrutiny, and higher education and regulatory requirements are driving people from the profession in higher numbers than any time in recent memory.

It’s not all bleak, say some local firms. Scandals have ignited renewed interested in the profession, much like the fresh crop of would-be journalists who entered the field in the mid-1970s on the heels of two young Washington Post reporters who broke the Watergate scandal. Aspiring young CPAs see it as a chance to make a difference. Or, at the very least, a good living.

CPA burnout is a national issue. Average turnover among CPAs at the "big four" grew to nearly 20 percent in 2004, up from 17 percent the previous year. One out of every four junior auditors at PriceWaterhouseCoopers quits each year, according to The American Institute of Certified Public Accountants.

Turnover is far less of an issue at the region’s smaller CPA firms. They target small businesses and individuals rather than large companies, largely avoiding Sarbanes-Oxley work. But they feel its effect, as the big four gobble up more and more new candidates to counter the higher turnover.

Unlike many of the larger firms, many of the small-firm CPAs we spoke with report high job satisfaction - particularly among those with enough experience to pick the business segments they prefer. Although acknowledging the high stress and tough workload at bigger firms, many local CPAs say it’s the best training one can get.

His average workweek was nearly 90 hours while an accountant with one of the ∀ˆœbig four∀ˆ firms, says Ed Bambauer, COO of Carlin, Charron & Rosen LLP in Westboro.

Deluge of work results in trickle-down effect

SarbOx has increased reporting requirements for smaller companies and nonprofits, too, driving up costs for both large and small clients, says Paul Gerry, a partner Patterson & Gerry CPAs, an 18-person firm in Framingham. The firm doesn’t do SarbOx work. Gerry says if a firm does SarbOx, then CPAs often feel overworked. As the "big four" firms take on a greater amount of SarbOx compliance, much of the work they used to do has fallen to regional firms. Overflow from those regional firms flows to smaller firms like Gerry’s.

Westboro-based Carlin, Charron & Rosen LLP does Sarbanes Oxley work. With about 80 partners, CCR is the largest regional firm in the area.

COO Edward Bambauer - a former CPA with Arther Anderson and PriceWaterhouseCoopers - joined CCR a year ago. The workload at his former employers was high, and one year Bambauer averaged an 87-hour workweek, far more than his current schedule. He says a large regional firm such as CCR provides many more growth opportunities for young CPAs than a smaller firm. "You can go to a [Form] 1040 mill and grind ‘em out," he says. "But that’s a different world than we are."

Robert Angell of Accounting Management Solutions in Westboro says his company has benefited from a rapid increase in reporting workloads. AMS provides outsourced accounting and other financial help, including SarbOx work. "We’re fortunate that we’re providing a service in a marketplace that has a real need for it," he says. AMS made Worcester Business Journal’s Top Growth Companies list this year (see October 30 issue), after experiencing 368 percent revenue growth over its three most recent fiscal years. It does not perform audits or compliance work, but it does help its clients prepare for audits and acts as an independent auditor for the client’s CPA work, required under current law.

John Graham says his Worcester CPA firm, Graham, Love, Huckins & Shepherd, is bucking the turnover trend. He plans to add three more CPAs to his staff of 17 next month. But many like-sized firms are looking for help, he says. Big companies are hiring many of the new graduates, drawing them in with the aura of gaining big-company experience and offering to help pay for some of their education. That leaves fewer candidates for smaller firms, he says.

Worcester-based Stolberg, Ebbeling & Blanchette started two years ago with two people and now has six full-timers. It focuses on entrepreneurial companies with between $5 million and $50 million in revenue, and performs a lot of outsourced CFO work. The young firm was profitable in its first year, says Partner Joe Stolberg, and it charges a flat fee for work rather than billing by the hour - or by the person. When he visits a client, he’ll sometimes bring a junior member along to help that person gain experience. Other more-established firms, no matter what their size, may have a shorter time horizon that leads them to seek more billable hours, he says.

Other CPAs say the pressure is on for more billable hours as a result of rising costs. Software alone costs $16,000 a year, says John Graham of Graham, Love, Huckins & Shepherd in Worcester. Benefit packages - including a 401(k) plan with employer match – are another necessary expense to remain competitive. But a third cost burden is the expense of helping younger members pay to complete their education. That runs about $15,000 per person. The company is paying for coursework upfront, with the expectation that, in return, the employees it’s supporting will stay on.

Bambauer says Carlin Charron & Rosen has a similar scenario, expecting graduates to stay two to three years after graduation. "They’re not indentured servants; we don’t do golden handcuffs," he says. "But we do look for a return."

C.P.O.

High-profile corporate scandals have renewed interest in the CPA profession among young people, says John Graham, a partner at Graham, Love, Huckins & Shepherd in Worcester.

Law change should increase candidates

"There’s no question that we were losing the numbers of new CPAs in Massachusetts," says Patricia Jones of CPA firm P.L. Jones & Associates PLC in Worcester, and a board member of the Massachusetts Society of CPAs.

The roots of the CPA crunch can be traced beyond SarbOx to the dot-com era, when exorbitant pay and a competition for talent siphoned off many bright young people from the profession.

Another major cause of the crunch stems from a rule change made by the state in 2002, which bumped up the required education hours for a CPA license from 120 to 150. The number of first-time CPA license candidates dropped from more than 800 in 2001 to 150 in 2003.

A rule change set to go into effect next month should ease a part of that crunch. After prodding by the Massachusetts Society of CPAs, the state Board of Public Accountancy will now allow CPA candidates to sit for the exam after they have completed 120 hours of course work. Candidates must earn the remaining 30 credits within three years of passing all four parts of the exam.

Jones says the profession has welcomed the law change, but its success has yet to be evaluated.

The care and feeding of CPAs

But a law change will only go so far, Jones says, and the key to retaining and attracting talent is an improved focus on the work and life balance of the CPA profession.

"If you treat them fairly, they will stay," says Jones, whose 15-person firm has four CPAs. One technique she has found successful is the use of flexible scheduling, which three employees of her firm have. It has boosted their commitment to her firm, she says.

It’s a technique that others have found successful. Michael Sacco of Worcester-based Sacco & Associates says he heads to the office at 6 a.m., but takes a break in the afternoon to spend time with his kids. He drives them to after-school activities and catches up with what’s going on in their lives. But other colleagues "just don’t find the time to pull away and get that mental break," he says.

Sacco spent nearly nine years at the former Touche Ross (now Deloitte & Touche) to gain experience. Although it was challenging, he says he recommends it to others entering the profession. Sacco watched each year as the big firms hired rafts of new associates, only to let many go after tax season in a ritual dubbed "the Easter parade." Even without the seasonal layoffs, turnover "has always been high in this industry," he says. "People get in, and it’s either not for them or not what they expected."

Joe Stolberg, partner at the recently formed Stolberg, Ebbeling & Blanchette, says staffing and personnel has been the number one issue in the CPA profession since he graduated from college in 1993. Although SarbOx has made more work for CPAs, the big problem is the lack of mentoring for junior staff. "People will always say there’s more work and not as many people getting into it," he says. "I find that firms don’t take care of the people that they have."

Another big problem is succession, says Gerry. Principals of smaller firms that develop good client bases often leave no succession plan and end up in a sale or merger at retirement. Even worse for younger employees, clients disperse to other firms if a principal becomes incapacitated or dies. "We’ve seen it on several occasions," he says. Clients "need to get their work done, so they just go looking elsewhere and the [founder’s] widow ends up with nothing."

Stolberg, 35, concurs. Principals of firms should start mentoring their younger successors as early as possible – not waiting until they near retirement age.

Still, the combination of renewed interest in the field and easing requirements to enter the profession has started to bring new people back to the profession in Massachusetts. "There is a bright future out there," says Gerry. "People are entering the field through universities. It just takes four or five years to get those people."