Companies looking to hire certified public accountants (CPAs) should conduct thorough background investigations to ensure the candidates they hire are trustworthy, experienced, and fully qualified.
Did you know that an audit of a cabinet-making company found that its CPA embezzled $2.4 million over seven years?
CPA background checks confirm if candidates are qualified and can be trusted to manage a company’s accounting functions while following generally accepted accounting principles (GAAP) established by the Financial Accounting Standards Board (FASB).
This article outlines important information about CPA background checks and what employers should know when they are planning to hire accountants.
Key Takeaways
- CPA background checks are thorough investigations of the backgrounds of prospective certified public accountants.
- Because of the important functions CPAs perform for organizations, CPA background investigations are critical for protecting companies and their clients.
- Employers must comply with laws and regulations covering accounting standards and CPA background checks to avoid potential penalties and liability.
What is a CPA Background Check?
A background check for a CPA involves a thorough investigation into a candidate’s criminal record, license, education, employment history, and financial background to determine whether any red flags exist that might lead an employer to avoid hiring them.
Private companies, public corporations, non-profits, and government agencies rely on CPAs to ensure their accounting practices are effectively managed so that they can comply with relevant laws and regulations.
Thorough background checks on prospective CPAs ensure the individuals who are hired have the necessary qualifications, credentials, and experience needed to perform their jobs and can be trusted to wield significant power over a company’s accounting practices and finances.
What Does a CPA Do?
CPAs perform numerous roles for employers.
They are tasked with performing regular internal audits, preparing tax returns, and providing financial and tax advice to employers to help them understand their financial standing, areas that should be cut, and what should be included in the organization’s budget to facilitate growth.
As trusted financial advisers, CPAs provide financial advice to their clients and employers to help them meet their financial goals.
They also help uncover areas of loss within the company that might need further investigation and can help to catch problems such as internal thefts and embezzlement early before they can blossom into substantial losses.
Why Do Employers Conduct Background Checks on CPAs?
While companies hire CPAs to serve as fiduciaries in positions of trust, not all CPAs are honest.
Employers conduct background checks on CPAs for the following reasons:
1. Protect Against Occupational Fraud
According to the 2022 Report to the Nations from the Association of Certified Fraud Examiners (ACFE), 12% of all occupational fraud cases discovered by fraud examiners in 2021 involved accounting fraud, and 9% involved fraudulent financial statements for a median loss of $593,000.
Conducting CPA background checks can show if a candidate has signs of financial stress or convictions involving dishonesty that could indicate a propensity for engaging in fraud.
2. Ensure Regulatory Compliance
Non-profits, grant recipients, local and state government agencies, and publicly traded corporations must all comply with regulations and standards for their accounting practices and audits.
CPA background checks can show if an applicant has the required credentials, education, and experience to apply those standards and ensure the organization remains compliant.
Failing to maintain regulatory compliance could result in a loss of grants and funding sources and could lead to significant financial penalties.
3. Reduce Liability Risks
Checking the background of a CPA before hiring them can reduce potential liability risks caused by bad actors mishandling client or corporate funds, providing bad financial advice, or engaging in other types of misconduct.
Failing to investigate an incompetent CPA’s background before hiring them could expose the organization to significant negligent hiring liability.
4. Maintain Tax Compliance and Minimize Audit Risks
Investigating the background of a prospective CPA can reveal whether they have engaged in misconduct in the past that could threaten the company’s tax filings and standing with the Internal Revenue Service (IRS).
What Shows up on a CPA Background Check?
The information appearing on a CPA background check varies based on the types of searches conducted.
Most organizations request the following searches:
- Federal, state, and county criminal records checks
- Identity verification/Social Security number (SSN) trace
- Professional license verification
- Employment verification
- Education verification
- Credit history
- Government watchlist checks
- State sanctions boards
Here’s an overview of what you might see on these searches:
Criminal History
Criminal background checks for employment reveal if an applicant has pending criminal cases or convictions.
The following information will appear if an applicant has a criminal record:
- Case number
- Charge or charges
- Date of offense
- Severity of the offense(s) (felony/misdemeanor)
- Disposition of the charge(s)
- Disposition date
- Sentence (if available)
Identity Verification/SSN Trace
An SSN trace reports the following information about the SSN the applicant provided:
- Year the Social Security Administration (SSA) issued the number
- The number’s validity
- Every address associated with the SSN
- All names associated with the SSN
- Date of birth associated with the SSN
- State in which the SSN was issued
Consumer reporting agencies (CRAs) can use this information to identify other areas to search for more information about a candidate.
Professional License Verification
Professional license verification discloses the following information about an applicant’s credentials:
- License/certification number
- License/certification type
- Issuance date
- Expiration date
- License/certification validity
- Sanctions against the license
Employment Verification
Employment verification shows the following information about each of an applicant’s previous jobs:
- Employer’s name and address
- Employment dates
- Positions and titles held
Education Verification
Education verification reveals the following data about the educational institutions the applicant attended:
- School’s name and address
- Attendance dates
- If degrees or diplomas were awarded
Credit Check
Where they are allowed, credit history checks for employment show the following information:
- Payment history
- Debt to income ratio
- Liens
- Bankruptcies
- Collections
- Civil judgments
- Available credit
- Current and former employers
- Other credit inquiries
- Other indicators of financial distress
Government Watchlist Search
Government watchlist checks reveal whether an individual might pose a threat to national security and involve searching multiple federal databases.
This type of check might reveal if an applicant has been debarred or excluded from engaging in federal contracts or working for publicly-traded companies. It also reveals those who are suspected to have engaged in the following activities:
- Drug trafficking
- Domestic terrorism
- International terrorism
- International money laundering
- Working for a target nation
State Sanctions Lists
A state sanctions list search will show if an applicant has been sanctioned by any state licensing board, the type of sanction, and when it was issued.
Know Before You Hire
How to Conduct a Background Check on a CPA
Employers can choose to conduct background checks on prospective CPAs themselves or work with a reliable background services provider like iprospectcheck.
Here’s a comparison of both approaches:
1. Do-it-Yourself CPA Background Check
Employers might attempt DIY background checks by requesting information from several agencies, former employers, and educational institutions and completing online searches for information.
Pros
- Inexpensive in terms of fees
Cons
- Costly in terms of expended time and labor
- Process could take several weeks
- Risk of uncovering inaccurate, outdated, or non-compliant information
- Might miss critical background information
2. Partnering With iprospectcheck
Most companies recognize the risks involved with making bad CPA hiring decisions and partner with reliable background check providers like iprospectcheck to complete employment screenings.
Pros
- Fast turnaround times
- Comprehensive, accurate, and current background information
- Frees up HR staff to attend to other tasks
- Reduces liability risks
Cons
- Fees, but they are affordable
Important Laws to Consider
Federal Laws
GAAP to Be Followed for Federal Awards
The federal government requires grant recipients and contractors to employ GAAP when accounting for expenditures of awards and federal funds under the Uniform Requirements found in 2 CFR Part 200.
This means that any accounting professional your organization hires must know and implement the generally recognized accounting principles as established by the Financial Accounting Standards Board (FASB) to ensure compliance if your company receives federal grants or contracts.
Securities and Exchange Act of 1934
The Securities Exchange Act of 1934 requires publicly-traded companies, registered investment advisers, and broker-dealers to retain comprehensive records, including employment background checks.
This law also includes provisions requiring publicly traded firms to adhere to certain internal controls and accounting standards when preparing financial statements on which the public might rely when making investment decisions.
FINRA Rule 3110(e)
Financial organizations that are members of the Financial Industry Regulatory Authority (FINRA) must comply with FINRA Rule 3110(e) by conducting thorough investigations of their applicants and establishing background check policies and procedures.
Member firms can’t apply to register an applicant with FINRA until they have investigated their character, reputation, qualifications, and experience and have verified all information reported by the candidate on Form U4.
Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) protects consumer privacy in the data CRAs gather and report to employers and creditors and applies to both background check providers and the employers who receive and use the information.
The FCRA mandates employers to disclose their intention to conduct background checks to their applicants in writing on a standalone form and obtain a signed authorization from them before conducting background screens.
If an employer finds red flags on an applicant’s background check, the employer must go through the adverse action steps before making a final decision not to hire the applicant.
Title VII of the Civil Rights Act of 1964
Title VII of the Civil Rights Act of 1964 prohibits employment discrimination based on the protected characteristics of applicants or employees.
The Equal Employment Opportunity Commission (EEOC) enforces regulations under Title VII and has published guidance to employers about how to handle arrest and conviction information revealed on background checks.
Employers should individually assess criminal conviction information based on the tasks of the job for which the applicant is being considered before deciding against hiring them.
Fair Chance to Compete for Jobs Act
The Fair Chance to Compete for Jobs Act applies to federal agencies and companies that contract with the federal government.
Under this law, companies that want to secure federal contracts must wait to ask about criminal record information or conduct criminal background checks on their applicants until after they have extended contingent employment offers.
Federal agencies are not to award contracts to companies that fail to comply with this law.
State Laws
State laws vary broadly, so it’s important for you to understand the background check laws that apply to you.
A few types of state laws that might be relevant include ban-the-box laws, expungement laws, and credit check laws for employment background checks.
An increasing number of state and local governments have enacted ban-the-box laws, which restrict when in the hiring process employers can inquire about criminal history information.
Many states have expungement laws that either allow individuals with certain types of convictions to petition for expungement or automatically grant expungement after a certain time has passed. Expunged records can’t be reported on background checks or considered by employers.
Many states have laws prohibiting employers from performing credit checks on applicants. However, most of these laws provide exceptions for employers hiring for jobs in the financial industry.
To ensure your company remains compliant with the local and state laws where you operate, make sure to talk to your legal counsel.
Turn to iprospectcheck for Thorough, Compliant CPA Background Checks
Companies trust CPAs to manage their accounting practices and ensure they comply with relevant financial regulatory requirements and laws.
Hiring an untrustworthy individual to serve as a CPA can place an organization and its clients at substantial risk of financial loss, liability, and fines.
At iprospectcheck, we conduct thousands of CPA background checks for companies in all 50 states and every U.S. territory.
To get more information about CPA background checks and obtain a free quote, contact us today: (888) 509-1979
DISCLAIMER: The resources provided here are for educational purposes only and do not constitute legal advice. Consult your counsel if you have legal questions related to your specific practices and compliance with applicable laws.
FAQs
How long does a CPA background check take
CPA background checks can take several weeks if you try to complete all of the searches involved yourself.
When a background check process takes too long, qualified candidates might become frustrated and choose to turn elsewhere for employment opportunities.
This is another good reason to work with iprospectcheck to complete CPA background checks.
Due to our cutting-edge methods and extensive resources, we often provide turnaround times for background checks of a few hours.
How far back does a CPA background check go?
How far back a CPA background check might go will depend on the FCRA and state laws.
The FCRA restricts the reporting of the following types of background information older than seven years for positions with annual salaries of less than $75,000:
- Paid liens
- Chapter 13 bankruptcies (10 years for Chapter 7 bankruptcies)
- Civil judgments
- Civil lawsuits
- Arrests that didn’t result in convictions
These limitations do not apply to positions with annual salaries of at least $75,000.
The FCRA’s restrictions also don’t apply to criminal convictions, employment history, educational history, professional license information, and other important background data.
Some states might have laws that place limits on how far back convictions can be reported, however.
What might disqualify an applicant on a CPA background check?
Employers might decide to turn down an applicant on a CPA background check when the following red flags appear on background checks:
1. Lies About Employment
Some applicants leave out past employers, fudge employment dates, or falsely claim to have held jobs they never did.
These types of misrepresentations can easily be identified when employers complete employment verification and will likely result in an applicant being denied a job as a CPA.
2. Lies About Education
In some cases, applicants will claim to have degrees they didn’t earn, present fake diplomas obtained through diploma mills, or claim to have graduated from prestigious institutions they never attended.
Education verification reveals these types of falsities, and dishonest applicants will likely be turned down for CPA jobs.
3. Professional License Issues
If an applicant’s CPA license is invalid or expired, the employer will likely deny employment.
Professional license verification and sanctions checks can reveal if an applicant has been sanctioned or debarred from practicing as a CPA.
4. Crimes of Dishonesty
Applicants who have convictions or pending criminal cases involving crimes of dishonesty will likely be turned down for jobs working as certified public accountants (CPAs) because of the potential risk to the organization and its clients.