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Auditing firm used by city faces state probe

Forest Grove officials say they have no complaints about the Tigard-based firm that is owned by a county commissioner

The auditing firm used by the City of Forest Grove is being investigated by its state oversight agency on complaints of professional misconduct.

Neither of the complaints against Pauly Rogers and Co. is related to its work in Forest Grove, and the city's finance director said he has been pleased with the service given by the Tigard-based firm.

Pauly Rogers' primary trouble stems from its contract with the City of West Linn, where it gave clean audits as an employee embezzled $1.4 million over a five-year period.

The firm, which has dozens of contracts with public agencies and non-profit organizations throughout the Portland metro area, is under scrutiny by the state Board of Accountancy for both its work in West Linn and for a recent audit the firm completed for the Portland Public School District.

The school district filed a complaint detailing concerns about the methods of a Pauly Rogers auditor, noting missing paperwork and violations of generally accepted accounting principles.

The City of Lake Oswego terminated its contract with Pauly Rogers in May, shortly after the theft in West Linn was discovered.

Earlier this month Forest Grove decided to re-bid its auditing contract, but city officials said it had nothing to do with the trouble in West Linn or Portland.

'They've been our auditors since 1997 and they've done a good job,' said Paul Downey, the City of Forest Grove's finance director.

'It's not that we're dissatisfied with their service,' Downey said at the Feb. 12 city council meeting. 'But many cities rotate auditors every few years and it may be time for the city to do that.'

He said the firm would be encouraged to submit a bid for the new auditing contract.

Pauly Rogers' president Roy Rogers, who is a Washington County Commissioner, said last month that the complaints involve audits supervised by his former partner, L. Parry Ankersen, and that he was not informed about the complaints until recently.

'I was not involved with the preparation, supervision or the review of anything regarding the City of West Linn, and I have no knowledge of any of the activities,' Rogers said.

He said he also did not participate in the Portland Public Schools audit.

'That complaint, if you read it, is focused on Mr. Ankersen,' Rogers said.

Ankersen denied any wrongdoing. He said he recently left the Pauly Rogers firm and moved to a new office in Lake Oswego. Ankersen declined to discuss the topic further, saying it was a private matter.

'These matters will be investigated,' he said in a written statement.

'I intend to cooperate fully with the board. I expect that there will be no adverse findings with respect to my work on these audits.'

Investigations complex

The two investigations by the Board of Accountancy are still in the beginning stages, said the board's administrator, Carol Reeves.

She said that although both complaints are high priorities - the board itself initiated the West Linn complaint - lack of staff and resources often delay investigations for a year or more. In the case of the Pauly Rogers complaints, she estimated that they would not go before the board for a decision until next fall.

'Both of these (complaints) are very complex. They require expertise, and the board has not yet determined how we will conduct the investigation,' Reeves said.

The board, a group of seven accountants appointed by the governor, is charged with regulating the performance of all services provided by the more than 8,500 accountants registered to practice in Oregon.

Once an investigation is complete, complaints typically go to a complaints committee that reviews the research and then makes a recommendation to the board on how to respond.

If wrongdoing occurred, the board has significant discretion to discipline, Reeves said. Fines could be levied, licenses can be revoked - or the board may require an auditor to get additional training.

But wrongdoing, she said, is not easy to determine.

Audit quality difficult to judge

'I wouldn't be able to recognize if an audit was good or bad,' Reeves said.

Although the industry has standards and principles guiding auditors through its work, much of what an auditor does and how he does it is guided by a number of variables, making each audit unique and difficult for someone outside the accounting industry to second-guess.

Fraud, such as was discovered in West Linn, does not mean an auditor did poor work, the experts say. Indeed, they argue that one of the biggest misperceptions of their industry is that they are supposed to discover fraud if it is occurring in the agency they are reviewing.

Phil Hopkins, audit manager for the state Audits Division which is managed under the Secretary of State, said that most auditors are hired to review financial statements prepared by the staff of the agency they are reviewing and determine, using tests, whether it is likely that the statements fairly represent an agency's financial position. Fraud, if done well, can be hard to find because auditors are not looking at every transaction.

'They're not responsible for detecting it,' Hopkins said, 'But they are supposed to go through scenarios to come up with a risk assessment of whether there may or not be fraud.'

Downey, the Forest Grove finance director, has monitored the situation in West Linn and told councilors that officials in that south suburban city shoulder some of the blame.

'Part of the responsibility sits on West Linn because they didn't make their books available to the auditor,' he said.

Cathy Brucker, the finance manager for the Tualatin Parks and Recreation District, said her agency also has been happy with Pauly Rogers.

'We had no concerns with the job they were doing while they were here,' said Brucker.

The park district employed Pauly Rogers from 2000 through 2004 before recently selecting a new auditor.

Brucker said the move was not related to job performance.

And the City of Gresham, which is in the end of its third year of a three-year contract with the auditing firm, is putting the contract up for new bids this year.

The city has no complaints with the work that has been done, said Terry McCall, Gresham's finance and management services director.

'It's a reputable firm that has been in business for years,' McCall said. But, 'I don't think we can ignore the West Linn situation.'

John Schrag, Jim Hart and Mara Stine all contributed to this story. More details about the West Linn and Portland School District complaints can be found in an earlier version of this story at www.localnewsdaily.com.