September 25, 2000

Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20459


Dear Mr. Katz:


I write in opposition to that part of the proposed rules prohibiting certain non-audit services for audit clients.

This firm is a medium sized regional CPA and consulting firm, currently the 16th largest in the country. I currently lead this firm's practice that provides management consulting services to our state government and municipal government clients. From an organizational location standpoint, this practice is separate and distinct from the audit location in the firm. I am not a CPA or accountant, but hold a master of public administration degree from the University of Michigan.

There are four main reasons I oppose the proposed rules.

1. The proposed rules represent a solution in search of a problem. As someone who has been involved in the development of progressive public policy for 33 years as a state government cabinet secretary, a civil servant in charge of public finance issues, an elected city council president, and a consultant to municipalities and state agencies, I am perplexed about what problems the rules are designed to solve. The transcript of the first of the Commission's hearings (July 26, 2000) and the narrative description of the proposed rules do little to shed light on the need for the rules. I see little if any evidence of problems, abuses, or examples of independence being impaired. I believe the rules as proposed merely reflect fears that something improper could happen if they are not enacted. Let SEC registered companies preclude their audit firms from providing consulting services. July 26th testimony indicated that many publicly traded companies do not allow it. That's their choice. However, if they wish to use their audit firm, they should have that choice as well.

2. The proposed rules strongly imply that CPAs can be influenced to be less than independent with clients where the firms they work for have growing consulting practices and do consulting work for audit clients. My experience with the CPAs in this firm is that independence, being their stock in trade, is paramount. They will give up clients that "lean on" them to look the other way or avoid calling a spade a spade in an attest situation. One of the witnesses at the July 26th hearing, Mr. Bazerman, stated that CPAs are human and therefore biased. My experience with CPAs is that they are fiercely independent.

3. While the proposed rules do not apply to non-audit services provided to our privately-held and state and municipal government clients, their adoption by the SEC would provide the rationale and precedent for state boards of accountancy to extend similar rules to privately-held and state and municipal government clients. I think pressure to extend the spirit of SEC rules to privately-held and governmental clients would come from the state boards, from consulting firms who do not provide audit services, and other sources as well. They will argue: what is good for one is good for all.

4. Adoption of the proposed rules will also provide the rationale and precedent to preclude us from providing GASB 34 assistance to our municipal government clients, for which we provide audit services. Unless specifically allowed by future state board action, this may be an unintended consequence of the proposed rules. Our municipal government clients are looking to us - their trusted and valued advisor - for assistance in complying with the newly-enacted GASB 34.

In conclusion, I am concerned with the apparent rush by the Commission to adopt these rules. Please separate the scope of services part of the rules, promulgate the other part of the rules, and continue to work on whether certain non-audit service for audit clients should be proscribed.

Thank you for the opportunity to comment.


W. Michael Ley, Principal
Public Sector Consulting Group