Details About the Case

How This Ruling Was Defective

Introduction

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My name is Thomas Kalajian.  I am a California resident.  I was a California Certified Public Accountant for over 25 years, beginning in 1975.   My license number was E22037.  

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If you search my name online, you may find information stating that my Certified Public Accountant (CPA) license was revoked in 2001 by the California Board of Accountancy, reportedly because I committed embezzlement and fraud.

I strongly disagree with that ruling.  It is incorrect, incomplete and misleading.  

I maintain that it is based on a legally defective administrative court ruling.  

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I did not commit embezzlement or fraud, and neither did anyone else in my firm.  

There have been no prior or subsequent incidents regarding misbehavior in professional practice, or otherwise, of any kind.  ​

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I created this website to correct the public record and explain what actually occurred, which differs significantly from what has been reported online.

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No Criminal Charges or Conviction Involved

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It is also important to note that there has been no criminal conviction of embezzlement or fraud.  Although the client attempted to file a criminal complaint, the DA rejected it based on insufficient evidence.  

Therefore, this case was strictly limited to an administrative matter, prosecuted by the State Attorney General, involving only the California Board of Accountancy as the licensing agent for Certified Public Accountants. 

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Strongly Disagree with the Ruling as Defective

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We believe the ruling was defective because the administrative law judge both decided matters not presented in evidence, then disregarded our entire defense case based on a self-serving justification.  

None of the evidence or testimony we presented was deemed credible, so the ruling was not supported by the facts presented.

Instead, by default, the judge accepted all the allegations against us at face value, regardless of their merit or probative value.

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Three of Multiple Examples

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For example, no cancelled checks or bank records of our fee payments were presented to the court, yet the court concluded that all our retainer replenishment checks were paid to me personally, which is not true.  All our retainer replenishment payments were made payable to our CPA firm, and all were deposited into our corporate CPA firm's bank account, intact.  No exceptions.  

Moreover, none of this was relevant to the claims of embezzlement because the matter of where the checks were deposited didn't bear on whether the replenishment checks were legitimate or embezzled.  The deposit destination of those checks would be a matter of our own CPA firm's corporate bookkeeping, not whether we rendered the work and received compensation for its acceptance.   

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Example 2

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In another example, the court ruled that several payments were misclassified in our bookkeeping work, implying that these transactions were coverups to the embezzlement.  Not true.  These misclassified entries were in the original Quickbooks files we presented voluntarily, caused by blank check stock being fed into the single sheet slot on the top of a LaserJet II printer's paper tray we were using the time, instead of loading the blank check stock into the lower pull-out section of the paper tray.  The HP Laserjet II printers were the latest version at the time. 

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That jammed in the printer and caused the checks to be misprinted.  We corrected these errors in the bookkeeping before finalizing the financial statements and tax returns, but the court ruled this was relevant anyway.  In any case, bookkeeping misclassifications are normal, irrelevant to the allegations of embezzlement, thus have no probative value in the ruling. 

​Example 3

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In a third example, the court mistakenly concluded that one of our retainer checks was "45,600" (NO dollar sign) instead of $5,600 (WITH a dollar sign).  Again, no cancelled checks or facsimiles were presented in evidence.  

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Instead of the correct amount of $5,600, the judge typed the amount with a number 4 in front of the number 5, instead of the dollar sign, which is on the same key as the number 4 on the keyboard.  That  error shows up on the ruling as "45,600," a typographical error overstated the amount by exactly $40,000. This was not corrected and still appears today online as fact.

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We will shortly annotate the entire ruling in detail and present every instance which the court ruled in error.  

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Background of the Dispute

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The case originated with a disgruntled client who attempted to extort a refund of properly earned fees, disguising the matter as a fee embezzlement.  The truth is that client, themselves (actually the husband), wrote and signed all but one of the replenishment checks that they claimed we embezzled.  With no cancelled checks submitted in evidence, the judge ruled that the clients prevailed in this claim.  

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The client was a large physical therapy clinic owned by a wife and managed by her husband. Because the clinic had a history of fee payment and cooperation problems with the prior CPA firm, we required advance payment through a retainer arrangement as a precautionary condition of our engagement.  The client agreed and started with a deposit of $1,000 per our contract terms. 

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At the time we were retained, in June, 1995, the clinic was experiencing financial difficulties due to the husband’s financial and administrative mismanagement.

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As time passed, the wife told us that she was increasingly worried that her husband’s mismanagement and financial irregularities were going to bankrupt her clinic, as he had done previously with his own men's’ clothing store prior to their marriage.  

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For the first couple of years, there were no complaints or disputes about the retainer arrangements or retainer replenishment payments.  

The bookkeeping challenges were complex.  We needed a comprehensive software program to process payables, receivables, billing, collections, payments, payroll and to produce financial statements for management and tax return preparation.  

At the time, in 1996, QuickBooks was on version 5, and could not handle all those tasks, so we employed an old, non-Windows program, called Axcent, to process the main books.  (Axcent no longer exists.)  We then used QuickBooks for processing the transactions, such as payables, billing, collections and payroll, then transferred those summaries to Axcent. 

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Both software programs generated general ledgers.  Again, we used Axcent for the final bookkeeping and QuickBooks for processing the daily transactions.

During the time we used both software programs, there were corrections in classifications, which had been caused by errors in information provided by the husband.  There were several instances where these errors were corrected after transaction listings were provided, as some reports were later corrected with updated classifications.  

Our regular services continued for some time, with the client’s appreciation, stated in both a personal thank you note from the owner and a thankful service survey questionnaire from the husband.  

Despite these commendations, as with the prior CPA firm, it remained a continuing struggle for our bookkeeper to process payroll and bill paying, because the husband disregarded filing deadlines and delayed documentation requests.  

Approximately two years later, both the owner and husband decided to take a month-long European vacation.  

In planning for their absence, with our consent, they authorized both our bookkeeper and me, in writing with their bank, to pay bills, and write and sign vendor and payroll checks.  Our firm’s bookkeeper temporarily assumed the husband’s duties.  The clinic’s financial condition improved significantly.

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Discovery of Client Cash Defalcations

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While in that role, while the client was absent, our bookkeeper learned that the husband had been diverting the cash copayments by patients.  This was a daily occurrence.  His assistant informed us that, when questioned about this, the husband claimed to her that he reimbursed the clinic with personal checks each month.  We found no such reimbursements. As a result, we believe the clinic’s taxable income had been under-reported to the IRS.

We believe that the husband had been diverting cash from the clinic, undetected, for years.  The husband’s clerical assistant never mentioned this until we discovered it ourselves.  The prior CPA did not inform us either.  We don’t know if the owner knew about this or condoned this irregularity.  However, once we discovered the diversion, we immediately stopped the practice and properly deposited all cash receipts in the bank promptly.  
 

One Retainer Replenishment Check Signed by Our Bookkeeper

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Again, both our firm's bookkeeper and I were granted authorization in writing to the client's bank accounts to prepare and sign both vendor and employee checks during the client's vacation absence. 

In that role, during the client’s absence, our CPA firm's bookkeeper prepared and signed one retainer replenishment check to our firm.  That was the only retainer replenishment check she prepared and signed, deposited intact into our CPA firm's corporate checking account.  This payment was not made payable to me personally nor deposited into my personal checking account, as the ruling concluded. 

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Upon their return, the owner did not mention or dispute the retainer replenishment check prepared and signed by our bookkeeper during her vacation absence.

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Also, upon return, the owner expressed her appreciation with the improved financial outcome.  She asked our bookkeeper to continue with her management duties. We agreed and, thereafter, that role was expended to include weekly meetings, with both husband and owner present.  That check-signing authority continued throughout the recovery completion, until our termination.

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The meetings covered the financial activities of the week, including requests for retainer replenishment checks.  When requested, the husband promptly prepared, signed and submitted the retainer replenishment checks to our bookkeeper before the meeting adjourned. During this period, the husband was reassigned to other non-critical tasks.

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The Engagement and Termination

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Restoring the clinic’s financial condition required approximately fifteen months of intensive daily work at the client’s premises by our bookkeeper. During that period, the intensity of the work required frequent retainer replenishment checks to restore the balance.  

Again, all, but one, of these checks were prepared and signed by the husband.  All were fully deposited into our firm’s corporate bank account, not into any personal bank account as the court ruling concluded.  I was not involved in client deposits into our corporate checking account.  Our bookkeeper handled our firm’s bookkeeping  work.  Our personal checking account was funded by payroll checks we earned from our accounting firm.

Although I was an authorized signer on the client’s bank accounts, along with our bookkeeper, I did not write or sign any retainer checks.  However, in our bookkeeper’s temporary absence, in one instance, I did sign the client’s employee payroll checks and payroll tax deposits for one weekly pay period during the client’s vacation absence.

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Retribution for Our Denial of Endorsement of Husband's Reinstatement

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About fifteen months months of work by our bookkeeper, once the clinic’s finances were restored, the husband sought reinstatement to his prior role. His wife, the owner, asked my opinion.  

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Although I could have endorsed his return, my personal integrity and honesty prevailed over political expediency.  My professional commitment was to the client, their best interests, not my own personal gain.  

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It was not a difficult decision.  I declined to endorse his reinstatement.  

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The husband showed no change or reform in his behavior, policies or practices, which jeopardized the financial solvency originally, so I expected the same outcome would recur upon restoring his prior role.  

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At that point, the clinic was profitable, bills were current, cash reserves had been restored, and all tax filings and payments were timely.  The financial restoration was complete, successful and sustainable.  

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Retribution Followed

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Within days of my refusal to reinstate the husband’s job, on Friday, May 8, 1998, the husband suddenly terminated our firm, immediately reinstated himself, and accused us of embezzling our own fee retainer payments.

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He then obtained an emergency court order requiring that we immediately turnover of all client files by the following Monday morning on the grounds that we refused to provide them.   There were two file cabinets of documents.  We requested more time to copy them.   We did not refuse.  The husband lied to the judge to force us to provide these records by the following Monday morning or face contempt charges. The husband's lie to the court about our document refusal was misinterpreted by the judge in the case as indication of a coverup.  

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We worked through the weekend to copy approximately two file cabinets of records and delivered approximately 18 file boxes of documents to our attorney’s office on time. The client’s attorney delayed two weeks before retrieving them.  The client did not threader refer to these documents again.  The client's husband falsified the urgency of this request.  

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Courtesy to the Court May Have Backfired

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As a convenience to the court, on advice of temporary counsel, we provided a stipulation listing the retainer replenishment amounts we received during the period of financial restoration.  The total was approximately $118,000.  A temporary attorney friend drafted the stipulation, which I did not read or review before submission to the court.  

We also prepared a detailed spreadsheet which showed the financial benefits we produced for those fees generated more than $351,000.  After our fees, the client benefitted by over $230,000. 

We believe the judge misinterpreted our courtesy stipulation as a confirmation that I deposited retainer replenishment checks into my personal account, rather than properly deposited into our firm’s account.  Our temporary counsel drafted the stipulation, which I signed without reviewing the language.

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Questionable Probative Value

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However, where we deposited our retainer checks is irrelevant as to whether we committed embezzlement, because we provided the work, which the client accepted, without protest or comment during the restoration phase. 

The issue of where we deposited our replenishment checks is not probative in determining if an embezzlement or fraud occurred.  It's irrelevant.  It’s a bookkeeping matter of our firm’s corporate books and reporting for income tax purposes, not a matter pertaining to the client's records.  We did not divert our replenishment checks to evade income taxes or disguise payments to cover embezzlement.​

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Bookkeeping Records Misinterpreted

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Upon request, we immediately presented both the Axcent and QuickBooks bookkeeping records to the client.  We believe that this submission later confused the judge, who misinterpreted this practice as deceptive, with two sets of books that didn’t match.  

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That mismatching was not a mistake.  Only the Axcent program was the main set of books, whereas QuickBooks was used only for processing limited transactions.  The books did not match by design, not by incompetence or irregularities. 

Client's Attempts to Enforce Their Claim 
 

When we refused the client’s demand to refund all fees, further actions followed: a failed arbitration lasting several months, a rejected criminal complaint, and ultimately, a complaint to the California Board of Accountancy.

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We never wavered, compromised or capitulated with the extortion attempt.  Rather, we retained our personal integrity and held steadfast to the notion that no attempt would result in an expedient settlement which unjustly enriched the client through unwarranted refunds.

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The Administrative Hearing

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In preparation for trial, our attorney advised us to respond to questions by saying “I don’t recall” rather than risk at guessing at an answer. At trial, the judge interpreted our defense instructions as a lack of credibility, and used this as his justification for disqualifying our entire defense case.  

During the administrative hearing, our attorney failed to introduce critical evidence in our defense, including written bank authorizations, canceled checks, bank statements, service records on spreadsheets, graphs. and written thankful testimonials from the client. Only our engagement agreement and billing records were presented, which the client later disavowed and which the judge rejected as not credible.

With no defense case, the recommendation to revoke my CPA license automatically followed. 

No Restitution of Our Fees Was Ordered

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Importantly, the judge did not order restitution of any of our retainer payments. This confirmed that our fees were legitimately earned, and that no actual embezzlement of fees or retainer checks occurred.  This contradicts the embezzlement and fraud findings.  Apparently, the ruling centered on the retainer payment method, perhaps insufficient notice, not any financial or fraudulent misconduct.  Yet, the ruling stands as embezzlement and fraud. 

Judge's Limited Experience

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Later, we discovered that the judge had no prior judicial experience in accounting cases.  All his prior cases involved only revocation of cosmetology licenses, all of which he ruled against the defendants.  We regarded this lack of experience as a disqualifying factor in the judge’s competency to rule on a complex accounting case.  

The Attorney General did not object to this judge’s assignment.  We believe the the she and judge were familiar with each other by both working on prior cases together, by their conduct in session and by their their private conversations during recesses in the hearing. 

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Devastating Outcome

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We were clearly dismayed by the ruling.  But, based on further faulty legal advice, we did not appeal the decision. We were told instead to apply for reinstatement so as not to antagonize the Board.  We later discovered that the Board had no history of reinstatement but for one case in over 100 years of Board history.  

As in that case, I would first have to admit guilt and then undergo psychiatric treatment and be declared as rehabilitated by the psychiatrist.  Then, I could apply for reinstatement. I could not comply with the prerequisites and admit guilt because I was not guilty.  By the time I realized this recourse was unlikely and unacceptable, the appeal deadline had expired.  Thereafter, no appeal was possible.

Aftermath and Professional Practice

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As a result of these legal mishaps, I relinquished my CPA license.  

I was also limited by IRS sanctions to providing only tax preparation services, not tax representation services.  This is described and misnamed online by the IRS notice as “Disbarred Before the IRS.”  This is misleading because it does not bar me from preparing tax returns by reason of a “grandfathered” clause in the then applicable Circular 230 of the IRS rulings for tax practitioners.  My legal authorization for tax preparation has remained in effect continuously since 1975, the year of my original license issuance.  

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Board Follow-up Investigation

Some time after the revocation went into effect, I received several calls from someone requesting services only a CPA would be licensed to provide.  Each time, I replied that I was no longer a CPA.  I was not qualified to perform certified audits.  

Several attempts followed, with the same reply.  Finally, after several failed attempts, the caller identified himself as a Board of Accountancy inspector, hired to entice revoked licensees into violating their sanctions.  

He admitted that I had passed his tests commendably, and would report that finding back to Board, congratulating me on my honesty.  I had no idea that inspectors would be involved.

No Interruption of Authorized Tax Preparation Services

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For the past twenty-five years, I have continued practicing legally as a bonded California Registered Tax Preparer and am legally authorized by the IRS to prepare tax returns through the issuance of my Preparer Tax Identification Number as proof of my eligibility to prepare tax returns.

My accounting practice continues to include income tax preparation.  Nothing has changed. 

None of my clients have been audited in over thirty-five years due to the thoroughness of my work and honesty of our disclosures to the taxing agencies.  It is our practice to anticipate questions and explain possible issues in advance, by attaching supplemental information to the tax returns.  We believe this practice has deterred unwarranted audits for our clients who have adopted this protective measure. 

Since we have always had a long acceptance history with the IRS, my practice never did require, and we did not offer, audit representation services.  Now, in the rare event that a client would request audit representation, we would refer the client to an audit specialist who is more qualified by virtue of current experience and practices to provide this service. 

Continuing Professional Education and Additional Credentials

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In addition to my income tax qualifications, since 2001, I have been certified as an award-winning business valuation expert with two national accreditations, hold a California life insurance license, and have three certifications in business management advisory services. 

Unrelated to my financial career, I also provide professional videography services, based on completion of film school courses at Saddleback College, followed by twelve years of online and live courses, training, education and experience.  

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Finality of the Outcome

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I cannot change the past, restore my CPA license or reverse an injustice.  However, I can correct the public record so others are no longer misled by incomplete and inaccurate information online.  

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Lessons Learned

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Upon reflection, to be sure, we are not without some responsibility at these turn of events.  

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We made mistakes.  We could have been more cautious with more preventable measures.  We could have been more aware of warning signals which we ignored, especially the decision to accept this client in the first place, and later ignoring other signals during the engagement which we also ignored.  

• I could have reviewed the stipulation before I approved its submission to the court.

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• Most importantly, we should have never accepted the authorization to write and sign checks in the client’s absence.  

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• We mistakenly trusted a client who had a previous history of misconduct, kindly warned by the prior CPA firm, which we ignored.  We were too naive and no match for their malevolent and vindictive nature. 

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• I did not realize until this event that discharging a client was an acceptable practice.  I did mention to our bookkeeper that I wanted to disengage, but she convinced me to let her handle this client.  I agreed after reading a then popular management book by Tom Peters, who  mentioned that he delegated a project to his secretary, which turned out to be successful.  I was wrong about this.  

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• We also selected the wrong lawyer to defend us based on a single referral.  We later erred by ignoring the warning sign that his emergency heart surgery interrupted the hearing.  That should have prompted us to seek alternative counsel.  

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• Our lawyer’s representation and advice was not only useless, but sealed our doom by infuriating the judge, who was not familiar with accounting cases and only too eager to rule vindictively.

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• Also, I should have been more vigilant in ensuring my license renewal was done properly and those renewal fees were paid timely.  This was my fault for not carefully overseeing our firm's administrator who claimed to handle these matters, but actually failed to do so.   There was no intention on my part to evade renewals or payment of licensing fees.

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There was no harm or breach of duty caused by these temporary lapses of renewals, and these matters would not otherwise merit an administrative action, but for the judge's imperative to create a false impression of a non-compliant renegade demeanor, conducive to a misbehavioral inclination.

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• Throughout this experience, we conducted ourselves with the upmost integrity.  But, my behavior in the hearing could have been more respectful.  I may have came across as somewhat arrogant or indignant.  I was mistaken about my attitude.  

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Personal History of Compliance and Personal Integrity

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I have a history of personal integrity and adherence to traditional values of honesty and virtue in everything I have done, including the risk of life itself.  

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Military Duty

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For example, I did not evade the U.S. Army draft process during the Vietnam era.  I was drafted in 1967.  

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I was eligible by my Army test scores to qualify for radio repair training in the Signal Corps Stateside, graduating with a promotion to Specialist 4 in 1968.  I was deployed to Vietnam in a non-combat role, beginning in Cam Ranh Bay, then earned a promotion for a short period as a Colonel’s Driver in Nha Trang. Then, promoted in my final position as the Transportation Coordinator of I Corps, in Section S-4, where I served with staff officers until my honorable discharge.  

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I had a perfect Army record with no blemishes or disciplinary actions.  I was promoted four times.

I was not involved in combat and experienced no combat-related issues.

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I still apply many of my military duty experiences in conducting my life and relationships with others, even though, at the time of my duty, I was then skeptical of the value of my deployment. I've learned to better understand the military mindset and am now proud to have served my country in that capacity.

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My Army GT test score qualified me later to join the American Mensa Society.  

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Personal Values

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• I have not cheated on my taxes. 

• I have been faithful to my wife. 

• I do not lie and try to gain favor from others by deception, intimidation or clever trickery. 

• I long ago decided to live a simple life without the burden of guilt or regrets. 

• I always to my best in whatever I do,

• I apply professional standards to everything I do.

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Hard Lessons

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This experience taught me hard but valuable lessons, many of which are now common knowledge in the profession, so I won’t repeat them here.

But one lesson is worth mentioning to my peers:  Protect your integrity. You may not receive support or validation from colleagues at the time, but doing what is right will preserve your self-respect—and that matters most.

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Epilogue

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In the end, the client failed.  They never received any financial settlement or judgement.  No restitution.  We learned that two years later, they sold the clinic and their Laguna Beach home, moved to Los Angeles to join the staff of the Church of Scientology's Sea Organization.  

We Were Tested and Succeeded in Prevailing with Our Values

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This case attests that we have survived the challenge to our values, courage and honesty.  We prevailed instead of propitiating to convenience and financial gain.  I believe that there is virtue in choosing that path. 

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Attestation

I attest that everything I presented here is true and correct.​

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Conclusion for Clients

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Thomas Kalajian brings a wealth of diverse experience and expertise in business management consulting. With a strong focus on effective communication, problem-solving, and strategic planning, Thomas is dedicated to providing valuable insights and solutions to clients. Seeking to restore his reputation and demonstrate unwavering commitment to ethical practices, Thomas is committed to making a positive impact in the business community.

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In closing, I hope that this has been helpful in correcting the record.  

Many thanks for your attention, time and consideration of the facts in this case. 

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