April 16. 2014 | Joshua Moore
It’s April 16th and your tax return has been filed. You breathe a sigh of relief and are grateful that you won’t have to file another tax return for at least one more year. Whether you file your return yourself or hire a CPA to do so, this year’s return is finished and never to be seen again……..or is it?
Well, the IRS thinks otherwise. The IRS has three years to audit your tax return or to assess any additional tax liabilities based on the date your tax return is filed. If you filed your tax return prior to the April 15th deadline, the statute of limitations is measured from April 15th. If you weren’t fortunate enough to file your tax return by the deadline and received an extension, the statute of limitations will be measured from the date your extended return is filed. Note: Most states tend to follow the federal three-year period for auditing tax returns; however, some states may have a longer statute of limitations.
As if three years isn’t long enough, there are exceptions to the three year statute of limitations on audits and assessments:
- The IRS has six years from the date a return is filed to audit a tax return and to assess additional tax if the taxpayer omits income that amounts to more than 25% of income that was reported on the tax return.
- The IRS also has six years to audit a tax return and assess additional tax on income related to undisclosed foreign financial assets if the omitted income is more than $5,000.
- The statute of limitations on audits and assessing additional tax remains open indefinitely if the taxpayer files a false or fraudulent tax return.
Last, but not least, there is also a statute of limitation that spans 10 years allowing the IRS to collect outstanding tax liabilities. Needless to say, if the IRS doesn’t collect the outstanding tax liability in the 10-year period, the remaining balance disappears forever because the statute of limitations has expired. Once again, there are exceptions to this statute.
Should you find yourself being audited, don’t panic. Instead, consult the tax experts at Watkins Meegan. Our tax professionals include former IRS examiners, criminal investigation special agents, tax attorneys and litigators that can help resolve whatever situation in which you find yourself.
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April 8. 2014 | Mary Lou Gervie
Warning! Telephone Scam
The IRS is warning of a persuasive telephone scam that is a sophisticated ploy targeting taxpayers, including recent immigrants, throughout the country.
Apparently, victims are called by a supposed IRS representative and told that they owe money to the IRS, and that they can pay promptly through a pre-loaded debit card or wire transfer. For your information, the IRS never requires payment this way. Also, according to an IRS news alert, if the victims refuse to pay, the caller will threaten them with arrest, deportation, or suspension of their business or driver’s license. The confrontation can be “hostile and insulting” according to the IRS.
The alert provides other characteristics of this scam:
- Scammers use fake names and IRS badge numbers
- Scammers might be able to recite the last four digits of the victim’s Social Security Number
- Scammers might send bogus IRS e-mails (IRS does NOT e-mail taxpayers)
- Victims might hear background noise that mimics an IRS call siteScammers might hang up and then call back claiming to be from the police department
If you do owe taxes to the IRS, call the IRS at 1-800-366-1040 and an IRS representative will help you with a payment issue.
If you do not owe taxes, then call or report the incident to the Treasury Inspector General for Tax Administration at 1-800-366-4484.
Also, contact the Federal Trade Commission and use their FTC Complaint Assistant at FTC.gov.
Please do not fall for this scam, and also, advise parents and grandparents not to fall for this trickery.
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April 2. 2014 | Ryan Olenick
Is There a Future in Bitcoin?
Bitcoin has made a significant amount of news recently, but what exactly is it? In December, it grabbed headlines when it was used to purchase a Lamborghini at a dealership in California. Despite the headlines it has received, many people are still in the dark on what it is or how it actually works.
Bitcoin is a decentralized peer-to-peer digital currency and is used as electronic cash stored in digital wallets. At the most basic level, a Bitcoin transaction occurs when Bitcoin moves from one person’s digital wallet to another. Every time a transaction is made, it is recorded on a public ledger called the Block Chain, which is shared among all Bitcoin users. This policy prevents people from stealing Bitcoins or using the same Bitcoin for multiple transactions. It cannot be created, controlled or regulated by a central body and is virtually anonymous. Bitcoins are “mined” by powerful computers solving progressively demanding computer algorithms. Each time a computer solves an algorithm, it is rewarded with the currency. The concept was brought forth in a 2008 paper by a programmer writing under the pseudonym Satoshi Nakamoto. The next year, Nakamoto created the software that Bitcoin now operates under.
Bitcoin is a very polarizing topic in the media and especially among financial experts who don’t trust its anonymity and volatility. Paul Krugman recently wrote an article in The New York Times titled, “Bitcoin is Evil,” focusing on its unstable value. Many people flying the free-market banner have been excited by this currency because it lacks the need for a central bank and cannot be controlled by the government. Overstock.com is currently the largest online merchant accepting Bitcoin and Bitcoin ATMs are starting to pop up in some places around the world. Just as this is being written, Bitcoin’s largest exchange has just shut down, taking with it approximately $409 million worth of Bitcoins. Is this the future of currency? I don’t know, but it will be interesting to see where this new concept leads.
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March 26. 2014 | Bob Hambrecht
Reinstatement of Tax-Exempt Status
In May 2010, we informed you here on WatkinsWire that if you were a tax-exempt organization and you failed to file a tax return from the 990 series of returns for three consecutive years, your tax exempt status would be automatically revoked. If your organization had its tax-exempt status revoked for not filing a return for three years, potential good news is here. The Internal Revenue Service (IRS) announced in its Revenue Procedure 2014-11 that organizations that had their tax-exempt status revoked may now seek to apply reinstatement by selecting from one of four options. The options are:
- Streamlined Retroactive Reinstatement Process
- Retroactive Reinstatement Process (within 15 Months of Revocation)
- Retroactive Reinstatement Process
- Post-Mark Date Process
All non-profits seeking reinstatement can select from one of the four options above, except option 1 which is restricted to non-profits that had their tax-exempt status revoked for failure to file the Form 990-EZ or 990-N.
In all cases, the non-profit must complete and submit a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3), of the Internal Revenue Code, or Form 1024, Application for Recognition of Exemption Under Section 501(a,) with the appropriate user fee. Options 1 and 2 require Form 1023 or 1024 to be submitted not later than 15 months of the date of the Revocation Letter or the date on which the IRS posted the non-profit’s name on the Revocation list. Option 2 also requires the non-profit to submit with its application a statement establishing that the organization had reasonable cause for its failure to file its required annual return in one of the three consecutive years for which it failed to file a return. Non-profits must also file paper returns for all of the missed years and any following years and submit a statement they have done so before the post-mark date of the application. Option 3 requires the same requirements as option 2, except that the non-profit must also submit a statement establishing reasonable cause for all three years for which it failed to file an annual return. Option 4 is for nonprofits that may apply for reinstatement effective from the post-mark date of their application. Another benefit is that if the nonprofit has its tax-exempt status reinstated, the IRS will not impose the failure to file penalty for the three consecutive years they did not file.
Revenue Procedure 2014-11 is effective for applications submitted after January 2, 2014.
For more information on the reinstatement process, please see IRS Revenue Procedure 2014-11 or contact me at Robert.Hambrecht@WatkinsMeegan.com.
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March 19. 2014 | Ashley Casteel
Like it or not, social media has transformed the way we get our news, do our shopping, share political views, and grow business. Social networking sites have become part of the daily routine of millions of people all over the world. Businesses have started to use social media platforms at a rapidly growing rate, largely because these sites are free and an easy way to reach thousands of potential customers. Websites like Facebook and LinkedIn also provide analytics to companies, who can use this data to see which outreach methods work for their business and which ones do not.
An immense amount of research has gone into figuring out how the social media phenomenon can be used to grow business, influence public opinion and connect people across the world. A large part of this research involves finding out which markets can be captured by social media. In a December 2013 study
, the PEW Internet and American Life Project found that 73% of adults use social networking sites. The study also found that social network users span a spectrum of demographics, and are not just younger adults; more than half of all internet users ages 50-64 use social networking platforms. As social media user numbers continue to increase, companies can utilize these platforms as a quick and cost-effective way to brand themselves and promote their products and services to their target audiences. Showcasing your company events and accomplishments on your personal social media accounts can also be a great way to spread the word about products or services and gain clients or consumers.
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March 14. 2014 | Rich Wilkinson
More Wage Issues for Federal Contractors
According to an article in Wednesday’s edition of The New York Times, President Obama will direct the Department of Labor on Thursday to increase the so-called “salary test” for exemption from the Fair Labor Standards Act. This is hard on the heels of the Executive Order increasing the minimum wage for federal contractors to $10.10 per hour. His authority to change the minimum wage, even limited to federal contract workers, has been widely challenged. His authority for this change, however, arises directly from his power to revise the rules that implement the Fair Labor Standards Act (FLSA).
Originally passed in 1938, the FLSA requires payment of overtime at “time and a half” for all hours worked in excess of 40 in a single week. Workers may be exempt from the overtime requirement if they are (1) paid on a salary basis, (2) perform duties that fall into several categories such as professional, administrative or executive, and (3) are paid a minimum of $455.00 per week. And, that’s where the change is anticipated.
The salary test amount was raised to $455.00 by President Bush in 2004. According to the article in the Times, President Obama may raise the salary test amount to $984.00 per week, or a little more than $51,000 per year.
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March 12. 2014 | Oscar Martinez
IPO - The Very Basics
IPO is a term deeply ingrained in the vernacular of the financial services industry, and second nature to those who page through the financial news. But, what does it really mean, especially for a company considering an IPO?
Well, an Initial Public Offering, or IPO, as defined
by the Securities and Exchange Commission (SEC), is “the first time a company offers its shares of capital stock to the general public.” It is basically a transition from privately held to publicly held company. The process involves different parties. We will cover the more prominent ones. First are the existing shareholders (e.g., founders, initial investors, etc.) who own the shares to be offered to the public. Second are the underwriters who determine the initial price and distribution of shares. Third are the initial investors who will purchase that original batch of shares. There are also regulators and stock exchanges.
Once the company has maneuvered various hurdles, the date and price for the initial sale are determined. Before the initial sale, the underwriter tests the market’s enthusiasm for the company’s shares by talking to potential clients (e.g., large investment funds, etc.) and determines a price range. When the day of the IPO finally comes, the price is set to reasonably reflect market conditions. After that, the public can buy and sell shares from each other at stock exchanges or similar trading venues.
An IPO can be a great source of funds for your company, but the process can also be a daunting task. Do your homework. Read about the risks
. Learn from other companies’ experiences. One source, among the many available, is the Nasdaq archive of IPOs
. Ask questions. Seek advice.
Additionally, becoming a public company means being subject to regulatory requirements. These requirements can include 10-Qs, 10-Ks, Sarbanes-Oxley and external audits. Penalties for non-compliance could be of a wide range. Assess the company’s ability to stay in business and provide you with returns that satisfactorily reflect the investors’ risk appetite.
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March 4. 2014 | Rebecca Kehoe
FedRAMP and Fantasy Island
Remember the TV show “Fantasy Island” and the opening scene with the character Tattoo enthusiastically announcing the approaching clientele by shouting, “ze plane, ze plane!”? That is the image that pops into my head when I encounter the federal government’s use of “cloud services,” with Tattoo enthusiastically shouting, “Ze cloud, ze cloud!” It wasn’t that long ago that cloud services seemed to be just as exciting and mystical as arriving on “Fantasy Island.” But that was so two years ago! As of June 2012, federal agencies must default to cloud-based products and services when spending any new money on IT and must justify to OMB when a cloud provider is NOT selected. But how is an agency to know if a cloud is secure and capable of handling government information?
The answer is FedRAMP, Federal Risk and Authorization Management Program. FedRAMP is a government-wide program that provides a standardized approach to security assessment, authorization and continuous monitoring for cloud products and services. In other words, FedRAMP, housed within the GSA, has developed standards that contractors must meet before the government can use their cloud products and services. FedRAMP has developed templates (70 pages) for its security assessment and awards those who pass the assessment (from a Third-Party Assessment Organization, or 3PAO) with the official stamp of “Compliant Cloud Service Providers” (or Golden Ticket Holders). What does it take to become a Golden Ticket holder? More than the purchase of a chocolate candy bar.
While the assessment form may only be 70 pages long, the contractor-completed form will most likely exceed 800 pages, and that is just the first stage of the assessment. A Golden Ticket Holder must then pass all 300 security item tests (or at least demonstrate that they can pass all 300). The entire process can take up to 14 months. If you are a contractor selling IT services to the federal government, you will need to get to know one of these Golden Ticket Holders; they are listed on GSA’s website on the FedRAMP page, as are all the firms that perform the accreditation process or 3PAOs. “Ze cloud” has arrived, and the fantasy is now real for the federal government.
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February 26. 2014 | Bill Russell
The Debate over Charitable Contribution Limits Continues
A proposed charitable deduction tax code adjustment has once again taken center stage. The proposed adjustment relates to the implementation of a 28 percent cap on charitable deductions for high-income tax payers with income in excess of $200,000 for singles and $250,000 for married individuals. Though the tax code adjustment would generate billions in additional state and federal revenue, certain groups feel that the long-lasting impacts on charitable organzations and social welfare programs would be too detrimental to warrant such an adjustment.
Several not-for-profit organizations believe that the 28 percent cap will cause charitable funding to drastically decline and will impact those social services on which our nation depends. To support this effort, a number of not-for-profit and charitable organizations have appealed the 28 percent cap reduction. It is feared that the cap limit will impact charity giving and, as a result, will cause more harm than good to those adults and children who receive benefits in the areas of education, medical research and other related services.
The focus in the upcoming months will be to reach a common ground where costs savings are achieved at the federal and state level while not altering long-standing charity giving and those support services on which our children and families of this great nation depend.
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February 19. 2014 | Bhavesh Vadhani
Cybersecurity Framework to Improve Critical Infrastructure
Are you convinced that cybersecurity risks are real? Where do you rate them for your organization? What plans do you have to mitigate the risks and the impact in the event that your organization’s IT resources are breached by nefarious elements?
For the longest time, cybersecurity risks were not taken seriously and most organizations did not rate them high enough to warrant much attention, let alone think about robust cybersecurity risk mitigation strategies. Until two decades ago, for most organizations, it was not considered cost-beneficial to pay attention to cybersecurity risks. Nevertheless, over the last 10-15 years, organizations have made immense and innovative use of the internet, IT systems, and applications to gain and maintain customers across the globe. However, today, we are continuously bombarded with news of security breaches, cyber-attacks, identity theft, credit card compromises, theft of private health information, and so on. Many organizations are reactive in dealing with cybersecurity, as leadership of many feels that there is no clear guidance, or framework, that could be leveraged to manage the related risks. But, finally, some of the right people may have taken notice of this disconnect.
On February 12, 2014, the National Institute of Standards and Technology (NIST) released a new Cybersecurity framework – a set of industry standards and best practices to help organizations manage cybersecurity risks. While the framework, which was developed through a collaboration of public and private sectors, is focused towards organizations deemed as Critical Infrastructure. However NIST is encouraging every organization to leverage the framework. The framework, which is a living document, has principles and best practices of cybersecurity risk management that can be applied by organizations, regardless of size, degree of cybersecurity risk, or maturity of the organization in dealing with cybersecurity threats.
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February 12. 2014 | Megan Rudolphi
Advice from a Recent College Graduate
As a recent graduate from the University of Delaware, I have officially entered the “real world” for the first time. I no longer have the comfort of a college campus and I am completely independent. This is what I always dreamed of as a child: independence, living in a great city and having the time of my life. I was blinded by the excitement and seemed to forget one detail, “How am I going to pay for this lifestyle?” I have found some easy tricks and tips that may put you more at ease with the day-to-day expenses that are unfortunately unavoidable.
As a young accountant, Excel is used daily, but even those not familiar with all the “bells and whistles” can take advantage of the system. Create a worksheet that gives you a breakdown of your income and expenses. Once this is created, budget the monthly expenses that you think you will need for rent, groceries, gas, etc. At the end of each month, go back into your worksheet and verify that you are on track with your monthly expenses. It does not stop here; budget a column for the amount you can save each month. At first this may seem unrealistic, but get in the habit of saving a little each month.
Now is the time to build your credit history. Credit card companies promote their cards in a strategic way; beware and don’t fall into their trap. Do not apply for several cards at once as this will hurt your credit score. Choose the card that best fits your needs and apply for it. Once you receive your first credit card, use it wisely. In order to build strong credit, you should only pay for everyday expenses on your card. Also, remember to always pay the bill in full every month. Did you know the payment history of your credit card contributes to 35% of your credit score? It is a simple task to make your payment within 30 days of your statement. It may seem insignificant now, but a 50-point difference could save you thousands of dollars over the life of a home mortgage loan. Be smart – set good habits in motion right out of school and it will pay off in the long run.
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February 5. 2014 | Daniel O'Shea
Investment Policy Statement Review - More Than Just a Compliance Check!
It is the turn of the new year, and not-for-profit CFO’s are busy with year-end reporting and preparing for upcoming board meetings. After 2013’s stock market performance, robust investment returns are sure to be a topic of discussion. Investment portfolios will be reviewed and discussed and, for many not-for-profits, investment policy compliance will be addressed. While many not-for-profits follow this Best Practice, a far fewer number actually evaluate the adequacy of their investment policy.
Not-for-profit investment policies are roadmaps designed to achieve investment objectives. These objectives are often based on a combination of strategic, operational, philosophical and other prudent factors. Each of these should be considered, but the larger point is that each of these changes over time, and, thus, the reason for periodic evaluation of the adequacy of the policy objectives.
Other components of the policy, such as permissible types of investments, should be periodically evaluated as well. Investment vehicles such as exchange-traded funds may need to be incorporated into the policy statement. Some policies prohibit any type of alternative investments. While the intent may have been to prohibit private hedge-fund investing, what about alternative strategy funds that now fit this category? Preferred-stock funds are another example. Make sure permissible investment vehicles reflect current market offerings.
Not-for-profits have moved beyond the days of using cookie-cutter investment policy statements. Investment policy statements should be tailored for each organization, but not cast in stone, nor put away and never revisited. Investment committees should make review of the investment policy statement a periodic “must-do.” While the frequency of this review will vary by organization, the necessity should not.
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January 29. 2014 | Mary Lou Gervie
Tax-Related Identity Theft
We hear “protect yourself from identity theft” all the time in advertisements and the news. There are companies that for a fee will monitor your credit reports and credit card companies that call you when there are unusual charges. These companies do provide fairly good protection against credit card theft. But, what happens if your Social Security Number (SSN) is stolen and a false return is filed with the Internal Revenue Service before you submit your tax return? The answer: Long delays in processing refunds, typically six months or more, while the IRS investigates the correct return. Victims should not expect quick refunds.
How do thieves obtain SSNs? Seniors are most at risk because seniors are thought to have significant amounts of money and are more trusting when it comes to providing financial information to “trusted individuals”. Financial crimes and identity theft often go unreported and are difficult to prosecute. But, the theft of your SSN can be obtained by unscrupulous individuals who have access to your private information.
So, how do thieves obtain your SSN?
- Dumpster diving (shred all financial documents before dumping them in the trash)
- Online fraud (secure your computer with antivirus and spyware security)
- Inside sources that have access to employment and medical records
- Theft of wallets, purses, laptops (don’t carry your SSN)
- Direct personal contact with trusting individuals (don’t give them your SSN)
A report from the Treasury Inspector General for Tax Administration (TIGTA) indicated that during the 2011 filing season, 1.5 million fraudulent returns went undetected and refunds totaling $5.2 billion were issued to the wrong person. TIFTA recommended that the IRS make changes to their procedures. It will be interesting to see if the 2012 TIGTA report shows some improvement in catching these fraudulent returns.
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January 22. 2014 | Neel Padmanabhan
Open Source and Proprietary Software
Often, we hear our clients mulling over what type of software to use. Should they opt for Open Source software (OSS) or proprietary software? And, what are the pros and cons of each? OSS is software where the source code, or program, is licensed to the public for modification or enhancement. Closed source, or proprietary software, belongs to the original authors who are the only ones who can legally copy or modify the software. Some examples of widely used OSS include the Linux Operating System, Google’s Android OS for mobile devices, and the Apache web server. Examples of proprietary software include Microsoft’s Windows OS and Intuit’s TurboTax.
Lots of debate surrounds the subject and there are several reasons why individuals and organizations prefer OSS. These include lower cost, reliability, greater security, flexibility in modifying the software, fewer bugs, access to a large community of users, and not being locked-in to a single vendor. Supporters of proprietary software contend that since OSS is – well – open, it has not been thoroughly reviewed and is vulnerable to security risks from hackers. Advocates of OSS argue that this is hardly supported by evidence and point to the large community of users and their ability to work collaboratively to identify, test and fix security weaknesses and bugs.
According to the “The 2012 Future of Open Source Survey” conducted by Black Duck Software and The 451 Group, more than 50 percent of software acquired through 2017 will be OSS, along with the broad-scale enterprise adoption of OSS. The number dovetails well with survey results released by Zenoss, an OSS developer, which notes that 98 percent of all enterprise companies are using OSS in some capacity. Both types of software are here to stay and management should do a thorough evaluation before making a decision on whether to go with OSS or proprietary software. Management should give consideration to business needs, requirements and other factors including risks with software quality, reliability, licensing, security and vendor lock-in.
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January 15. 2014 | Matthew Bernardo
Why did the auditor cross the road?
Because that’s what he/she did last year.
What you have just read may be my favorite auditing joke (and I have many). It speaks to the nature of certain audit or review engagements and the familiarity you gain with clients and their accounting procedures. In many instances, something that was true for a company one year may not be the case for the next. As an auditor, you begin to rely on these tendencies when preparing workpapers, and furthermore, sometimes fall into a trap of not taking a step back and understanding what it is that you are really trying to prove, and how it affects the engagement as a whole.
Busy season is just around the corner (sorry I had to remind you), and chances are you are starting to plan your audits and reviews for your clients. When you are planning, don’t just look at what you did last year and plan on doing the same exact procedures for this coming year. Be innovative! Perhaps these are some of the questions that may go through your head:
- Is it really necessary to prepare that prepaid insurance workpaper when the account balance is clearly immaterial?
- Why are we testing small fixed asset additions for a client whose assets consist almost entirely of cash and accounts receivable?
- Are there things we could be doing in November and December that will save us time in February and March?
When you take the time during your planning to critically evaluate your engagement approach, you may find that you can scrap a few hours here and there that provide no value. Before you know it, you may have just saved yourself 100 hours in busy season.
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January 13. 2014 | Rich Wilkinson
Chesapeake Regional Tech Council Delivers Some Good Advice for Small GovCon Firms
I attended a meeting of the Chesapeake Regional Tech Council
(CRTC) B2G Forum earlier this week. The speaker was Courtney Banks Spaeth, CEO of NSAWW
, a consultancy in business development and transaction advisory services. Her resume
is impressive and definitely worth a read. She is also a very knowledgeable and entertaining speaker.
Her remarks were focused on “Growth in a Downturn Environment – How to Achieve Results,” but she really covered a broad range of issues associated with small and mid-sized businesses. She particularly directed her advice to GovCon entrepreneurs seeking to grow their businesses.
Some of the issues she addressed were the need for effective business development efforts; tools and people; ways to effectively represent a small firm to customers; the need for small firms to become a prime contractor; and some trends in the government contracting space.
the full post below to learn more about trends in the GovCon space.
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January 8. 2014 | Rebecca Kehoe
Federal Apps at apps.usa.gov
Did you know that the federal government produces apps? Not the bird-tossing kind, but the kind where you can pull up the Constitution of the United States with analysis and interpretation. The “U.S. Constitution: Analysis and Interpretation” app was created by the Library of Congress.
Got a G5 Grant? The Department of Education has an app for you that will allow you to (depending on your security level) create and modify payments, view and modify profiles, view grant award information, access links to related websites, view G5 News and Events, and contact the help desk. Or have you ever wondered about your mobile broadband performance? If you are like me, then the answer is yes! Everyday! Well, the Federal Communications Commission (FCC) has an app for you. It’s the “FCC Speed Test.” This app allows you to access real-time performance data on your device and provides historical results with the touch of a screen. Of course, the FCC would love for you to volunteer to help them measure America’s broadband usage; tests run automatically and the data collected is anonymous. Oh and yes, the app is ad-free.
There are 14 apps for travel. My favorite is GSA’s “Per Diem for Continental U.S. (Federal).” As you may be aware, federal per diem rates are based on counties within states, and I never know what county I am in, but I do know the state and city. This app allows you to input state and city to find your local per diem, no county required. And I love the “Smokey the Bear” app from the Forest Service. Not just because it gives you a step-by-step guide on how to properly build and put out a campfire, but because it comes with Smokey the Bear himself on the app.
Be forewarned, not every federal app will work on every mobile device. Each agency decides which platform they will use for their particular app and not every agency works with the same service providers and platforms. There are 33 medical apps available and, while they don’t toss birds, you can quarantine a village, or talk to the sick, ask for more lab results, and save lives with the “Solve the Outbreak” app from the Centers for Disease Control and Prevention (CDC). And let us not forget the Internal Revenue Service, with their “IRS2Go” app; you can get your refund status or tax record, watch IRS videos from YouTube, get tax updates and the latest IRS news. And it is available in Spanish. All the apps featured are free, but charges from your cell phone carrier may apply.
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December 18. 2013 | Jonathan Babu
Change May Be Coming for U.S. Taxpayers with Interests in Mexico
Earlier this year, the Organization for Economic Cooperation and Development (OECD) released its Action Plan on “base erosion and profit shifting.” The Action Plan addresses tax avoidance strategies used by multinational corporations and recommends certain changes to combat those strategies. It appears that Mexico will attempt to implement some of the OECD’s recommendations starting in 2014.
Proposed legislation in Mexico may be enacted and signed into law this year, with the legislative changes taking effect on January 1, 2014. The goal of the proposed legislation is simplification of Mexico’s tax system, with a single statutory income tax rate of 30 percent with no rate reductions. Other features of Mexico’s current tax system would be repealed, including the cash deposits tax (Impuestos a Depositos en Effetivo) and the business flat tax (Impuesto Empresarial de Tasa Unica).
Repeal of the business flat tax could mean U.S. companies that own Mexican subsidiaries may pay a higher effective tax rate on income of the subsidiary. Also, the business flat tax is a creditable tax for U.S. foreign tax credit purposes, and elimination of the flat tax may mean a U.S. taxpayer’s tax credit position will change.
The legislation would impose a 10 percent tax on Mexican corporations that pay dividends to non-Mexican shareholders. Importantly, this tax is not a withholding tax on the dividend recipient, which means the tax does not generate any foreign tax credit for a U.S. individual who receives the dividend. Accordingly, it may be prudent to pay a dividend before the end of 2013 to avoid application of the new 10 percent tax.
Other changes would attempt to prevent abusive tax practices. For example, the new law would require a U.S. person who receives income from Mexico to produce an affidavit showing the income would be subject to double taxation without application of treaty benefits. Time will tell if these changes will discourage tax abuses or unduly burden taxpayers with costly compliance requirements.
These legislative changes could make a difference to U.S. taxpayers with interests in Mexico. They could also be a harbinger of things to come in other foreign countries.
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December 11. 2013 | Daniel O'Shea
Operating as Designed?
It is not uncommon to read stories today about financial frauds that have come to light in a commercial business or not-for-profit organization. Once you get past the usual comments about the trust that was violated, the projected amount involved, and the detection of the event, you are left wondering how it could have happened. It doesn’t matter whether the entity is a for-profit or a not-for-profit. Inevitably, the root cause is usually poor internal controls.
Internal controls are not static, nor do they exist in a vacuum environment. While many frauds are the result of poor internal control design, very often it is the result of internal controls not operating as designed. No matter how good the design, if the controls do not function as designed, they are weakened or rendered useless. This is one reason auditors gain an understanding of internal controls and perform walkthrough’s of key controls, and sometimes, test internal controls. If design was all that was needed, a schematic would suffice.
Organizations should not wait for the audit to revisit the functioning of their internal controls. Depending on the size of the organization, there are three effective ways to do so. The first is to have an internal audit function, whether staffed internally or contracted outside. A second is to require signoffs (yes, this can be done electronically in a digital environment) when a critical control is performed. The person at the end of the process can review for the proper signoffs and determine if it is functioning as designed. The third is to observe the controls in action and inquire of your staff as to what their role is in the process and how the process can be improved.
None of these will guarantee that fraud will not occur, but they will help reduce the risk of fraud by limiting the opportunity for fraud. It will also demonstrate to the staff the importance that the organization places on the control environment.
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December 4. 2013 | Samantha Zanotti
Crowdsourcing: Collective Wisdom or a Multi-Headed Beast?
Amidst a sea of buzzwords, “crowdsourcing” appears to be the new “cloud.” While leveraging the knowledge of the masses appears to be a great use of varied and valuable expertise, when does the search for knowledge shift from a simple brainstorming exercise to an opportunity for inefficient and risky business practice?
The audit and risk services functions benefit greatly from the ability to bounce ideas off of colleagues to better serve the requirements and opportunities of a client. Being in today’s digital world, seeking advice has never been so easy and widespread; however, opening the flood gates of opinion comes at a price. Not only does one need to sift through the good, the bad, and the ugly of advice sought, the time and resources put forward to obtain that golden solution may far outweigh the value obtained. It is important to factor in the resources/time required to benefit from crowdsourcing when determining if it is the best alternative for your particular situation.
The most crucial, and sometimes overlooked, aspect of crowdsourcing is not in weeding out the good advice from the bad, but rather looking at the very nature of the advice sought. Privacy and confidentiality are sometimes blurred in the hopes of being “transparent.” When dealing with crowdsourcing, this notion is no different and sometimes the line can become almost invisible. While brainstorming with colleagues, SMEs and industry professionals does lend itself to obtaining those out-of-the-box ideas, knowing whether or not to even seek that advice is the difference between professional research and a breach of confidentiality. It is vital to look at the nature of the advice sought and ask yourself “How would I feel if my consultant placed these details out for the world to comment?”
All in all, crowdsourcing is a new and innovative vehicle for harnessing the knowledge of industry professionals and leveraging varied degrees of expertise to fit a particular need; however, it is important to ensure that seeking outside opinion does not deter from developing internal practices, providing efficient services and maintaining an appropriate level of professional discretion.
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November 20. 2013 | Ben Brooks
Happy Halloween or Thanksgiving or Holidays or All of the Above?
The holiday season is upon us and as I still yearn for pumpkin-spiced lattés, I started to wonder when did my inner 10-year-old accept that November 1st was now the start of the holiday season? Was it when Starbucks decided that red-clad cups and gingerbread lattés are now available? Maybe it was the fact that my local grocery store had holiday candy on sale next to the Halloween candy.
The mere mention of holiday music last weekend (the 9th of November) was met with a scowl in my household and I understood why. It was an obvious conflict to play “This Christmas,” while eating leftover Halloween candy on a 73-degree day.
I certainly want to blame somebody for robbing me of my old-school love for the full holiday season. It’s natural to want to blame the commercial machine or a busy life, but my inner 10-year-old would agree I should only blame myself. I was once able to appreciate life and understand the precious value of time far more effectively. Thus, this holiday season the onus is on me to once again appreciate my time on this earth as I once did. Especially since adulthood has taught me making the time is requisite to making the memories.
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November 13. 2013 | Joshua Moore
GOLF: More than a "Good Walk Spoiled!"
As fall nears, many people are scurrying to get in one last round of golf before cooler temperatures invade the metropolitan area. To some, golf is just a boring waste of time; however, to me and many others, golf is as Mark Twain called it, “a good walk spoiled.”
The golf course is also an excellent place to network and build relationships with clients and prospects, albeit this business side of the sport is often underestimated. The following are a few findings from a survey, From The Boardroom to the Back Nine: The Importance of Golf in Business (conducted by Guideline Research & Consulting for Starwood Hotels):
• 97% of executives view golf with a business associate as a way to establish a close relationship;
• 92% use golf as a way to make business contacts;
• 67% of respondents say that a person who cheats at golf would probably cheat in business; and
• 59% believe that the way a person plays golf is the way he or she behaves in business.
Being an avid golfer myself, having played competitively and casually, I find the aforementioned to be true. After all, if you allow yourself to spend 4-5 hours with a person on a course during your “good walk spoiled,” odds are you’ll establish an ongoing relationship that could potentially enable future business opportunities.
Although it may be too late in the year to schedule a golf outing with a client or prospect, it’s never too late to pick up the phone, send an email or schedule a lunch. There’s an old adage golfers can relate to: 100% of all putts that don’t get to the hole won’t have a chance to go in. The same analogy can be applied to networking and building or sustaining client relationships; if your best effort is not made to grow relationships or build new ones, business will be slow to develop, if at all.
So, the next time you find yourself attending a conference or a networking event, ask yourself if you’d be willing to spend your “good walk spoiled” with this person.
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November 6. 2013 | Rebecca Kehoe
When Does Unequal Treatment of A Proposal Require a Re-Evaluation and When Does It Not?
DOES: In the case of Sayres & Assocs. Corp., GAO, B-408253, 8/1/13, decision released 9/13/13, the Government Accountability Office (GAO) held that the Navy misevaluated clearly presented information in the protester’s proposal seeking to provide program management, business management and other services. The GAO recommended that the Navy reevaluate the protester's proposal, perform and document a new cost/technical trade-off analysis with the rationale for any tradeoff made and compare it to the awardee’s proposal. What did the Navy do wrong? In GAO’s opinion, the Navy based its award decision on an unreasonable assignment of a significant weakness and the assignment of another weakness that was inconsistent with the terms of the solicitation. GAO further found that these evaluation errors sufficiently prejudiced the protestor to require a re-evaluation of proposals.
DOES NOT: In the case of Archura LLC v. United States, LinkFed. Cl., No. 13-290C, 9/17/13, the U.S. Court of Federal Claims (COFC) held that although the Department of Homeland Security treated offerors unequally in an “Information Technology” procurement, the protester was not prejudiced by the error. Why? Because the COFC concluded that the protestor lacked a substantial chance of winning a contract because its proposed price was significantly higher than those proposed by the awardees. Specifically, the protestor’s proposal was 29% higher than the highest-price awardee and 73% more than the average awardee’s price. And yes, price does matter.
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October 30. 2013 | Scott Ashley
This Is My Time
We’re in the heart of the NFL season and no matter what team you root for on Sunday, I can assure you this, you’re wasting your time. When analyzing the time lapsed during a 60-minute NFL game with an average broadcast length of 174 minutes, researchers observed only 11 minutes of actual playing time!
While a staggering statistic, it’s not surprising when understanding where the other time goes.
36 minutes: replays and other highlights
60 minutes: commercials
67 minutes: players standing around
A lot can be said for enjoying the tradition and camaraderie of spending an afternoon getting decked out in your authentic team gear, overeating comfort food and cheering on your team with fellow passionate fans. But in a world where we’re constantly trying to find time in our busy schedules, maybe we can live without the announcers’ generic commentary and the over-analysis of challenged plays.
Do we really need to see more pickup truck and beer commercials, or the network advertising some new crime drama you wouldn’t watch anyway and that will most likely get cancelled by the spring? With limited flexible time, recording the game on DVR and skipping the filler might be a worthwhile venture. This can be said for most television programs, but football is especially egregious with wasted content.
Consider these other potential time wasters/savers. Instead of sitting in rush-hour traffic, why not join a gym close to work and miss the peak commuting hours, avoid road rage and get healthier all in one simple adjustment?! Do we really need to know what our favorite celebrity had for lunch via Twitter or if our college roommate “liked” our pictures from last weekend via Facebook? Am I going to actually wake up at 6:30AM or am I going to hit the snooze button for 45 minutes of interrupted sleep and wasted time? When reflecting on our week, how proud are we for achieving level 96 in Candy Crush Saga? Everybody has responsibilities and their constraints and variables will differ. Hopefully, this will jump-start an internal dialogue for evaluating where we can salvage precious time.
“You will never find time for anything. If you want time, you must make it.” – Charles Buxton
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October 23. 2013 | Melissa Guzman
The Shutdown's Continuing and Cascading Effects
With the recent federal government shutdown, it seems as though all eyes were on the effects it was having on federal employees, government contractors and those small businesses whose income stems mainly from the nearby federal attractions. The cost of the government shutdown was estimated to be around $200 million per day and affected over 800,000 jobs. As a firm based in the Washington, DC metro area, we saw firsthand some of the consequences of the government shutdown, whether it was someone we know who was (or remains) furloughed, or the closings of the DC area’s major attractions.
The government shutdown has also affected local nonprofit organizations. Many DC area nonprofit organizations receive funding from the federal government, and while that funding has already been reduced, it now runs the possibility of being delayed. Decreased and/or delayed funding could mean these nonprofits will be forced to reduce spending, all while the demand for services is increasing. The first effects could be seen in staffing, as nonprofits made difficult decisions about whether they would need to furlough, reduce employee pay or lay off employees. The secondary effects could be seen in program services.
Now that the government has reopened, government employees are back to work, at least until January/February 2014. The local economy will slowly ramp back up, but some damage has been done. Businesses will not recover those lost revenues from the shutdown. Some federal workers and those on government assistance had paychecks delayed, which forced them to “strap down” on day-to-day expenses to make ends meet. Many others have had to seek help from the local charities and food banks. Local nonprofits, already affected by a sputtering economy, know that a much more prolonged shutdown would have been overwhelming.
As it now stands, there is a temporary reprieve. Let’s hope a more long-term agreement can be reached, to provide some much-needed stability for nonprofits serving local communities.
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October 16. 2013 | Vilma Dapkute
Tax Credits and Deductions Expiring December 31, 2013
With all that is currently going on; the government shutdown, holidays rapidly approaching and a tough start for the Redskins, it is easy to lose sight of what is really important this time of year – tax planning. Several major federal tax credits and deductions are set to expire by the end of the year and you should take these into consideration when planning your business or personal finances.
Here is a short list of some common federal tax credits and deductions that are set to expire on December 31, 2013:
- Deduction of state and local general sales taxes in lieu of deducting state and local income taxes.
- Tax credit for research and experimentation expenses.
- Enhanced deduction limits for Section 179 of $500,000 and a limit on capital purchases of $2,000,000.
- Additional first-year depreciation for 50 percent of the basis of qualified property.
- The work opportunity tax credit
Here are a couple of tax incentives set to expire that you probably didn’t even know existed:
You can find a full list of 55 expiring federal tax provisions on The Joint Committee on Taxation website at https://www.jct.gov/publications.html?func=startdown&id=4499.
Contact your tax advisor with any questions and plan to take full advantage of the tax credits and deductions that are available to you this year. Who knows – maybe buying an extra backhoe or an Arabian stallion of your dreams could be a very smart decision in 2013!
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October 9. 2013 | Mary Lou Gervie
Do You Need A Forensic Accountant?
“Forensic” is a wonderful word and brings to mind all those television show investigators working on crime scenes to obtain DNA samples and fingerprints. Well, forensic accountants do investigation work, but certainly not at a crime scene obtaining that type of evidence. Forensic accounting is just a specialty field in the area of accounting. The word “forensic” basically means “suitable for use in a court of law” and describes engagements that result in actual or anticipated disputes or litigation.
According to the Federal Bureau of Investigation (FBI), they employ approximately 15% of their task force with special agent accountants. These financial accountants investigate complex cases that typically involve “following the money” – often money laundering cases. The Internal Revenue Service (IRS) also hires accountants to investigate income tax crimes. There are other agencies, such as the Bureau of Fire, Tobacco, Firearms and Explosives (ATF) and local police departments that hire forensic accountants for financial crimes.
Typically, a forensic accountant in public accounting will have a special certification such as Certified in Financial Forensic (CFF-AICPA) or Certified Fraud Examiner (CFE-ACFE). Examples of forensic engagements might be:
Economic damage calculations
Bankruptcy, insolvency, reorganizations
Insurance fraud, construction claims, personal injury claims
Divorce and marital disputes
Computer forensic – discovery
Forensic accounting might not sound as glamorous as those cases you see when watching “CSI,” but financial white collar crime cases can be intriguing when you read about high-profile scandals such as Enron and WorldCom. Remember, Al Capone was convicted by IRS agents who were able to track down his earnings and then nail him for income tax evasion.
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October 3. 2013 | Rebecca Kehoe
Government Shutdown Voice Mail
The federal government shut down at 12:01 AM, Tuesday, October 1st. The memo from the White House came out at 11:45 PM on Monday, September 30th informing agencies to “now execute plans for an orderly shutdown . . .” What was included in an orderly shutdown? Well, federal workers still had to report to work on October 1st, but only to perform the work related to the shutdown, such as creating out of office voice mail and e-mail messages, locking down work stations and securing documents, and completing time cards. This took approximately half a day. Federal employees also received an email explaining whether or not they are “essential” or slated to be furloughed. Once the “non-essential” federal workers went home, they were under strict orders not to do any work related to their jobs.
So what kind of voice mail message did you leave? Here are some suggestions:
“I am out of the office due to a lapse in federal funding. Don’t call, text or email me, as I am legally bound not to respond.”
“I am out of the office, and looking for work due to employer’s inability to fund my paycheck. Call me on my home number if you have an offer of employment.”
(Sung to the tune of “Leaving on a Jet Plane”)”My desk is packed, I’m already gone, I’ll be at home, waiting on, news from Congress on the budget plans. So miss me and smile for me, tell Congress to pay for these, days of shutdown furloughs, please. Oh baby, I hate to go.”
But, seriously, the Defense Department expected to furlough roughly half of its civilian workforce, estimated to be just around 400,000. Add in non-Department of Defense employees and the total goes to somewhere around 800,000. Military personnel and civilians performing “essential” activities will receive back pay after the shutdown ends. Back pay for “non-essential” furloughed civilian employees requires an act of law. The Federal Government cannot sign new contracts or issue new ones during the shutdown unless in direct support of excepted activities.
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September 25. 2013 | Michelle Gao
The Cacophony Around Health Care Reform
Health care reform is approaching and the cacophony from businesses and other quarters is moving alongside it. This generally indiscernible chatter may just be a direct reflection of the collective understating of the law. Businesses appear confused, regulatory details are still in the works and the general public has yet to come across an easy-to-grasp explanation.
A recent survey by Ernst & Young echoes the “up-in-the-air” feeling of the reform. According to the results, members of upper management at various organizations are beginning to instill a sense of urgency toward the development of an implementation strategy. To add a dash of practicality, businesses appear to be willing to embrace the incomplete and fluid nature of the reform. This mentality may be just what companies need to plan on maneuvering through changes in bureaucratic requirements and political leadership.
The survey also found that much remains unanswered in regard to implementation costs for employers and employees. For example, according to Ernst & Young’s survey, 44% of respondents have yet to gauge the financial impact of the law on employee benefits. Additionally, 76% of respondents seem to be leaning toward raising the employee share of health care coverage. While other businesses appear to be considering cutting costs outside of health care as a direct result of the law.
For businesses that have been watching from the sidelines, this may be the time to start making a genuine, albeit stressful, attempt at planning the implementation of the law.
Details are few, and those that exist may appear murky at best. However, deadlines and details may rear their heads with minimal advance notice and leave little time for management to absorb and comprehend. For the time being, “filling in the blanks” might be a more palatable strategy than the “catch up from way behind” approach.
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September 18. 2013 | Marilyn Coover
Basel III Finalized and Ready to Hit the Market
Basel III regulations were finalized this past July marking the biggest overhaul in U.S. banking capital regulations since Basel I was passed in 1988. The three Basel III-related notices of proposed rulemaking (NPRs) on capital rules from 2012 will require greater liquidity to ensure stability during times of financial duress and require higher-quality capital against more conservatively calculated risk-weighted assets.
The banking sector has been bracing for the impact of these regulations since they were proposed in June of last year. Indeed, the Board of Governors of the Federal Reserve System received over 2,600 comment letters on the proposed regulations, according to the memo to the Board dated July 1, 2013. Among the letters were some that were critical of the proposed regulations, some that requested clarification and notably, many that requested exceptions from Basel III requirements for smaller banking institutions. Clarify they did, though they only partially excluded the smaller banks in some critical areas. Below is an overview of the changes and exceptions.
With the new regulations, banks must hold 8% of their risk-weighted assets in Tier 1 investments. The definition of Tier 1 assets has also narrowed, limiting the types of assets that qualify. Risk-weighted asset and liquidity calculations have also been given an overhaul. Notably for smaller banks, Trust-preferred securities issued before May 19, 2010 are grandfathered in and they are able to keep their current residential and commercial real estate risk weightings.
Compliance will be a multi-phase process. Full compliance with the new requirements isn’t expected until 2019, though some banks already meet some of the requirements. To learn more about Basel III, please join us at our next Lunch and Learn for our Financial Services Industry Group on October 30th, 12-2pm, at The City Club of Washington. For more information, please contact Becky McDonald.
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September 11. 2013 | Kristie Moran
Managing a Multigenerational Workforce
I recently attended the MACPA’s Generational Symposium and the top issue that CPAs are currently concerned about is the changing demographics in the workforce. For the first time in modern history, workplace demographics now span four generations, meaning that 21-year-old new hires can find themselves working alongside colleagues who are 50 or more years older than they are.
Members of each generation bring distinct sets of values, attitudes and behaviors to the workplace. The four generations in the workforce today come to work with different expectations, assumptions, priorities, and approaches to work and communication. If these differences are ignored, they can grow into a source of misunderstanding and conflict. However, when appropriately managed, they create opportunities for collaboration and synergy among the different generations of workers, giving the organization a competitive edge.
To ensure long-term employee loyalty, organizations need to learn about each of the generational groups, their needs and motivations. Having an overall understanding of each group’s typical traits reveals a glimpse of what individuals in each group might be looking for from an organization.
Millenials – born 1980 – 2000, values were shaped by Oklahoma City bombing and World Trade Center attacks, raised with the internet, hopeful outlook, determined work ethic, leadership by pulling together
Generation X – born 1965 – 1979, values were shaped by Challenger explosion and the personal computer, skeptical outlook, balanced work ethic, leadership by competence
Baby Boomers – born 1946 – 1964, values were shaped by the Vietnam War, Woodstock, and the Civil Rights movement, optimistic outlook, driven work ethic, leadership by consensus
Matures – born 1925 – 1945, values were shaped by the Great Depression, the New Deal, and WWII, practical outlook, dedicated work ethic, leadership by hierarchy
With competition for talent on the rise, developing a corporate culture of employee engagement and commitment has become imperative for all organizations. Recent studies show that, across the generations, 85 percent of the workforce wants to be provided the opportunity to continually improve and grow. The rewards for creating and maintaining a high-performing workforce include increasing employee satisfaction, reducing turnover, optimizing productivity and positioning the organization for growth.
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September 4. 2013 | Daniel O'Shea
Private Company Council and Not-For-Profits: Less of a GAAP than You’d Think
Last year, the FASB established the Private Company Council (PCC), which is a council whose purpose is to recommend exceptions from GAAP for privately held companies. The establishment of the PCC was a great idea because it recognized that accounting and financial reporting for private companies was different from that of public companies. Furthermore, it facilitates removal of the burden and cost of complying with GAAP provisions that serve no useful purpose to these companies, or to users of their financial statements.
Many, including yours truly, wondered if the PCC could be effective, because the FASB gave it only the authority to recommend, rather than impose, such changes. The early signs are promising. In 2013, the FASB has already accepted three PCC-proposed changes to GAAP, with a fourth now being considered.
However, PCC exceptions do not include not-for-profits. Although the FASB already has an NFP Advisory Committee, imagine if such a council existed for not-for-profits. While NFPs occasionally receive a carve-out from GAAP (e.g., FIN 46), imagine if they could be tethered to, or covered under, the PCC-recommended GAAP exceptions. It would not only save time and effort associated with compliance with complex GAAP applications, but might also make NFP financial statements more understandable to their readers.
NFP accounting and uses of GAAP are closer to private companies than they are to those of public companies. Let's hope the PCC’s momentum can be capitalized and not-for-profits receive similar treatment when it comes to complex and/or irrelevant applications of GAAP.
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August 28. 2013 | James Fine
CPAs Always Dream Big
You are at a black-tie cocktail party filled with the most powerful people in Washington, DC. Business leaders, politicians, billionaires…you fit right in. Two older gentleman introduce themselves, “And what do you do?” they ask. “I’m a CPA.” They’re so impressed they ask you to spend a week on their yacht in the South Pacific. You’ll have to check your schedule – you have many important meetings to attend. “Well, of course –you are a CPA, after all.”
You open your eyes. You’re laying on your CPA exam textbook and have a man from New Jersey yelling at you about asset depreciation on your computer screen. You must have dozed off. This is only your second week of studying, but it feels like years.
As studying progresses, you begin to neglect certain parts of your life: family, friends, loved ones…laundry. Despite this, you continue to dream of the day you get those three letters.
“The pilot has fallen gravely ill! Can anyone fly this plane?!?” “I believe I can,” you reply. “Are you a pilot?” “No, I’m a CPA."
You have to stop dreaming, your test is in a few hours.
Upon arriving at the testing center, you get patted down, x-rayed, metal-detected, fingerprinted and promise to live a life of piety in order to enter.
Following the test, you check every day for your score.
Months go by – you keep studying, and somehow keep passing.
Finally, the day has come. The last exam scores are released. You passed them all! A feeling of relief sweeps through your body. One of the firm’s partners stops by your desk. You presume he’s about to offer you a prestigious position in the firm – likely high-paying with a corner office. You think it’ll be a decent start.
A huge stack of papers hits your desk. “Our client is a very successful doctor. Here’s information on his yacht and private plane. You can start by going through the depreciation schedules.”
You look at the papers. What you think may be disheartening suddenly fills you with purpose. You’ve never been a doctor, flown a plane, or cruised on a yacht. But if your client needs a CPA, you’ll make sure he knows who to call.
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August 19. 2013 | Jonathan Babu
The Statute of Limitations that Never Expires
Under a relatively new rule, if a taxpayer fails to file Form 926, 3520-A, 5471, 5472, 8858, 8865, 8621, or 8938, the statute of limitations on assessment is suspended for the entire return (not just for items that are to be reported on the form).
Over the past few years, the IRS has increased its scrutiny of U.S. taxpayers with bank accounts or assets in foreign countries. This increased scrutiny resulted in part from the Department of Justice’s prosecution of UBS and other financial institutions, which had actively marketed tax evasion schemes using offshore accounts and entities. In the years following the prosecution, the IRS aggressively pursued those U.S. taxpayers who had failed to file the Report of Foreign Bank Accounts or “FBAR” form within the last decade, offering the carrot of reduced penalties against the stick of threatened prosecution for compliance failures.
In 2010, the Hiring Incentives to Restore Employment (“HIRE”) Act created new reporting requirements for U.S. persons and foreign financial institutions, with the goal of uncovering tax evasion by U.S. taxpayers where international transactions or foreign assets are involved. As part of this effort, the statute of limitations rule (section 6501(c)(8)) was specifically amended to keep an entire tax return open for IRS examination until the taxpayer files the forms listed above.
Failure to file one of these forms due to reasonable cause would not subject a taxpayer to this rule, and instead, the statute of limitations would be suspended only for items to be reported on the missing form. However, the reasonable cause accommodation does not provide much comfort to taxpayers and advisors who may not know when these forms are required. For example, a taxpayer may have to struggle with complex international tax rules just to determine if a Form 926 (for transfers of cash or property to foreign entities) needs to be filed.
In sum, it is critical to ensure that taxpayers take a hard look at more than just their foreign bank accounts. Failure to file one of the forms listed above could mean a taxpayer is subject to IRS scrutiny well beyond the customary three-year limitation period.
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August 14. 2013 | George Magowan
The updated COSO Internal Control – Integrated Framework – how might it affect you?
In May 2013, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued its updated Internal Control – Integrated Framework that will supersede the original version of the framework issued back in 1992. While the changes to the framework may seem relatively minor, the impact on internal control assessments may be significant if you are not prepared.
What stays the same?
The core elements of the framework remain intact. The definition of internal control is unchanged and we still have the familiar “COSO cube” with Operations, Reporting and Compliance objectives and the five required components of an effective system of internal control (Control Environment, Risk Assessment, Control Activities, Information & Communication, and Monitoring Activities). The role of management’s judgment continues to be emphasized in the framework as it relates to both the implementation and assessment of internal control.
The updated framework better addresses business changes, including those related to governance, globalization, and technology, as well as IT, organizational relationships, and monitoring. It provides expanded objectives, especially non-financial, and stresses the importance of anti-fraud controls. Perhaps the most significant change in terms of potential impact is the formalization of internal control concepts from the original framework into 17 principles mapped to the five components. Any assessment of internal controls will need to account for these principles.
- Don’t take our word for it: read the framework to best understand how the changes impact your organization.
- Perform a gap analysis to see how well the existing internal control system aligns with the 17 control principles articulated in the new framework.
- Educate the relevant stakeholders: Audit Committee, C-suite, Business Unit Management, and Line Management buy-in will be required to be successful.
- Coordinate with external auditors to manage expectations and timelines.
- Develop a transition plan: the transition period ends December 15, 2014, by which time the old framework will be superseded.
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August 7. 2013 | Kenneth Burton
American Greed – Scams, Scoundrels and Broken Dreams
If you are a fan of the show American Greed as I am, you watch and think to yourself, “This would never happen to me – duped out of my life savings, some random so-called investment guru offering 50 percent returns in six months. I can see right through this Ponzi scheme.” Then, during an episode that really caught my attention, a gang of cyberhackers with laptops in a minivan were driving the streets of Miami checking for vulnerabilities in wireless networks. I suddenly realized that this could happen to me ‒ is my wireless network secure? Are my tax returns and payment information out there for anyone to see? What about the financial institutions I bank with, or the stores where I shop?
T.J. Maxx, one of the nation’s largest retailers is a prime example of a corporation becoming a victim of a cyberattack. The accused mastermind of the biggest fraud of this kind in history, Albert Gonzalez, resold more than 170 million credit cards and ATM numbers. He is currently serving a 20-year sentence for his crimes.
Cybersecurity and risk management are the greatest threats posed to today’s financial institutions. The average total organizational cost of a data security breach in the U.S. in 2012 was $5.4 million, and the average cost per record breached was $188 according to the “2013 Cost of Data Breach Study: Global Analysis,” conducted by the Ponemon Institute. The study includes other dramatic figures such as lost business cost, which averages over $3 million and average post-data breach costs (after-the-fact) of $1.4 million.
As the old saying goes, the best defense is a good offense. Businesses need to establish a state of readiness, improve overall security posture and prepare to respond effectively. Have a plan, develop a risk management strategy and assemble your legal, marketing and operations team before a breach occurs. Learn more about our risk services team and preventative options you can take.
To learn more, click on this link to a recent presentation we conducted with the Watkins Consulting Group from their Financial Institution Lunch and Learn series, Cybersecurity and Risk Management.
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July 31. 2013 | Ju Lee
Anti-Money Laundering – Is Your Institution in Compliance?
The federal government, under the Bank Secrecy Act and the Money Laundering Control Act, has strict laws and regulations to help prevent money laundering activities. What is your financial institution’s plan to comply? Regulators are honing in on compliance and non-compliance could be costly.
What are considerations for compliance? Check your policies and procedures. Are they current living documents? Outdated policies and procedures are not considered in compliance. How comprehensive are your policies? Broad-based policies and procedures place an institution in the best position to meet regulatory requirements. In addition, your compliance department needs to be adequately staffed. Effective, knowledgeable, and experienced staff are key, and comprehensive training is a must.
What are your next steps? Review your current compliance program to ensure it sufficiently meets requirements. Also, educate your employees and set the tone at the top that compliance must be a high priority for the entire institution. The quality and effectiveness of the policies and procedures depends on your commitment to them. The only opportunity to verify customer information and identify suspicious activity is at the point of sale. This can only be done with a knowledgeable, well-trained staff.
For more information on anti-money laundering and the related rules and regulations, click on our recent presentation from our Financial Institution Lunch & Learn event on Anti-Money Laundering.
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July 24. 2013 | Rachel Lavine
Rates on the Rise
Thinking of going back to school? Think again. College students looking to take out loans for the fall term will see interests rates twice as high as what they were this past spring. Subsidized Stafford loan interest rates will soon increase from 3.4% to 6.8%, unless Congress restores lower rates before the fall term. Unfortunately, efforts to keep interest rates from increasing fell apart before the July 1st deadline due to political party power struggles in Congress.
Both legislative bodies have been attempting to work toward a solution, with no luck. The House of Representatives, mainly dominated by Republicans, passed legislature in May that would link interest rates to the financial markets, but with a cap on how high rates could increase. The House wanted to push the idea of not allowing Congress to set federal lending rates. The Senate, mainly dominated by Democrats, tried to extend making a decision on student interest rates for two more years, but failed to overcome certain procedural hurdles. The Senate will attempt a vote on July 10th to seek to keep low interest rates on Stafford loans as a way to give middle class and poor students help to obtain a college education. President Obama had previously jumped into this controversial issue by putting forth a variation of the House’s market-based approach in the budget he sent to Congress earlier in the year. While many believe the reason that congressional action has not taken place is due to politics, the fact remains that while Congress is duking it out for political wins, college students may be left in the dust.
The only foreseeable upside to this is that very few students take out student loans in July and early August, which gives Congress time to lower the rates. Subsidized Stafford loans, along with federal PLUS, Perkins, or unsubsidized Stafford loans, taken out before July 1, 2013 will not be affected by the interest rate increase.
The effects of this increase are not expected to discourage students from returning to school; but those students will be hurting financially once they begin paying back their loans after graduation. College students everywhere are feeling helpless, as they are at the mercy of Congress’ action, or rather inaction, on this issue.
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July 17. 2013 | Bill Russell
Maryland Health Care Continues to Be the Most Unique in the Nation amidst a Shifting Landscape
Unlike its 49 peers, Maryland is the only state in the nation that possesses an exemption waiver from the Federal Centers for Medicare and Medicaid Services (CMS). The origins of this unique waiver dates back to the 1970s as part of a consumer protection package and the formation of a state-regulated health care commission called the Health Services Cost Review Commission (HSCRC). The HSCRC developed a fundamentally sound cost-containment business model to meet various social responsibilities and to keep overall health care costs for the state of Maryland below the national average. Due to this unique and cost-effective savings model, the HSCRC was awarded the authority to set state hospital rates, as opposed to adhering to federal CMS rate requirements and has controlled health care inflation costs for over 30 years.
Maryland, aka the “All Payer State,” obtained this reference because all payers (insurance companies, employers, etc.) pay the same rate for health care. No discounts are allowed and all payers cover a share of uncompensated health care costs. Hospitals experience significant infrastructure and extensive data collection costs to meet the HSCRC’s broad reporting requirements. However, the need for public hospitals is removed, uncompensated health care coverage is addressed, and Maryland patients are offered the same rates no matter which hospital they visit.
Current hospital trends have now forced Maryland to change the units of cost measurement from a volume to a quality-based approach. Due to medical advances, occupancy volumes and lengthy hospital stays are now a thing of the past. Health care services can now also be performed just as easily and effectively at outpatient health care centers. As a result, the HSCRC is working in connection with the Maryland Hospital Association (MHA) to structure a quality-based measurement approach while developing incentives and other shared-savings programs for hospitals. The primary goal being to mitigate inflation costs while still providing the same level of health care intended over 30 years ago.
Please visit http://www.hscrc.state.md.us/ for additional guidance.
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July 10. 2013 | Ryan Olenick
Identity Theft Can Be Taxing
Identity thieves are going after more than your credit cards. Tax-related identity theft often occurs when a taxpayer’s personal information, such as their social security number, is used to claim a refund on a fraudulently filed tax return. This growing problem has become a significant issue for both taxpayers and the IRS. In recent years, the IRS has greatly expanded its enforcement efforts and is looking for new ways to help strengthen the controls in place for tax return processing.
As a taxpayer, you can take protective measures to help reduce the chances of this happening to you:
• Securely store and then shred all documents that contain your personal and/or financial information.
• If you are looking to use a paid preparer, research their background as much as you can and ask about their procedures for storing and disposing of your personal information.
• When e-filing a return, update all of your software, especially firewalls and anti-spyware software.
• Never use a public computer to e-file your return.
• Remove computer files with personal information from your hard drive by moving them to a USB drive or burning them to a CD that will be securely stored.
• Do not respond to an email request for personal information claiming to be from the IRS. The IRS will not initiate communication with you through email. If you receive an email from someone claiming to be representing the IRS, the e-mail should be forwarded to firstname.lastname@example.org
A victim of this type of identity theft will usually find out when they receive a notice from the IRS, either claiming they have filed more than one return or have income they have not reported. This can be a major burden for the taxpayer, as it can take six months to a year to resolve the issue. Don’t let this happen to you; be cautious with your personal information and follow the steps listed above.
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July 2. 2013 | Bhavesh Vadhani
Attack on Wall Street – Practice makes … practice
A serious cyberattack called Quantum Dawn 2 was slated for June 28—say what? It is a simulated cyberattack, planned to help prepare banks, brokerages, and exchanges with high-risk areas in their operations. This big practice drill will include big Wall Street players along with the Department of Homeland Security, the Treasury Department, the Federal Reserve, Securities and Exchange Commission (SEC), and many more. At least 40 participating entities have paid fees to the organizer SIMFA (Securities Industry and Financial Markets Association).
Using a fake trading and information platform, the cyberattack will produce vague and confusing information such as delays in trading due to clogged bandwidth, network issues and other symptoms of virus and malware invasions.
The problem of cyberattacks has become increasingly important (and costly) for financial services firms as they generally face the more sophisticated and most frequent attacks. The 2013 Verizon Data Breach Investigations Report (DBIR) states that 37% of breaches affected financial organizations (out of the more than 47,000 reported incidents, and of the 621 confirmed data breaches in 2012)*. According to the Ponemon Institute’s 2011 Cost of Data Breach Study, the average organizational cost of a data security breach incident in the US in 2011 was $5.5 million, and the average cost per record breached was $247 for the financial industry.
It is clear that the risk of damage from cyberattacks is high and recovery costs are substantial. The Verizon DBIR 2013 report warns in pop-out lettering: “Some organizations will be a target regardless of what they do, but most become a target because of what they do. If your organization is … a target …, understand as much as you can about what your opponent is likely to do and how far they are willing to go.”
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June 27. 2013 | Sam Kramer
E-filing On the Rise
It goes without saying that the internet has changed life as we know it. With just a smartphone, anybody can deposit a check to their bank, buy and sell stocks, or even apply for a job, all from the comfort of their couch. As time goes on, people are sure to handle more and more matters online – even their taxes.
According to IR-2013-52, self-prepared e-filers were up 4.4% even though as of May 10, 2013 the IRS had processed less tax returns than the same time the previous year. More and more people are doing their own taxes, and tax preparers will have to adapt in order to attract and keep clientele.
Tax preparers – or more appropriately titled – tax advisors must be able to deliver quality, valuable tax services to their clients. This includes remaining one step ahead by staying current with rules and regulations, being proactive about year-round tax planning and, most importantly, maintaining competitive pricing.
Of course, as the frequency of e-filing increases for both self-prepared returns and professionally prepared returns, the looming threat of electronic fraud grows larger and larger. With no envelopes, fingerprints, or signatures and quick payout through direct deposits, e-filing will always be a fraud target. It is important that tax advisors take measures to protect their clients’ information.
If tax advisors can stay current with tax legislation, maintain competitive pricing and show a track record of security and privacy for their clients and their information, they are sure to convey higher quality and value than a tax return performed at home on the couch.
Additional highlights from IR-2013-52 include:
• Almost 80% of refunds issued used direct deposit
• More and more people are consulting IRS.gov to get answers to tax questions. As of May 10, 2013, IRS.gov had been accessed more than 300 million times, which is an increase of almost 25% to the same time in 2012.
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June 18. 2013 | Mary Lou Gervie
Has the IRS Gone Too Far?
The media has gone viral with news that the Internal Revenue Service (IRS) targeted specific groups seeking tax-exempt status, specifically 501(c)(3) and 501(c)(4) organizations. And, yes, the IRS has admitted on its website, IRS.gov that during certain periods (August 2010 to July 2011 and January 2012 to June 2012) that specific terminology such as tea party and patriot were inappropriately used as criteria in determining which cases should be “centralized.” And, applicants whose cases were centralized experienced inappropriate delays and over-expansive information requests in some cases. This is of concern to all Americans because the IRS legal requirements related to the application process are suppose to be administered in a fair and consistent manner.
It is helpful to understand the difference between a 501(c)(3) and 501(c)(4). A 501(c)(3) is a church or a public charity that is prohibited from engaging in any political activity. A 501(c)(4) is an organization that can only engage in limited political activity. The groups seeking either status must seek the approval of the IRS to determine if they meet the legal requirements for tax-exempt status. The application for exemption is submitted to the IRS by the applicant using Form 1023, Application for Recognition of Exemption. The IRS website states the “applications are processed as quickly as possible.” This apparently was not the situation with groups using names such as Tea Party and Patriot.
The TIGDA Report reflects that 300 cases were centralized and approximately 70 of the cases included the name tea party and the remaining cases included organizations of all political views. The May 15th 2013 Questions and Answers on 501(c) Organizations states that the TIGTA report includes no findings of political bias. A more extensive investigation is currently in progress.
It will be interesting to follow this situation once formal investigation results are published, as none of us wants to be unfairly targeted by the IRS for any reason.
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June 5. 2013 | Matthew Bart
With Portability, Do I Still Need an Estate Plan?
On January 2, 2013, the President signed into law the American Taxpayer Relief Act of 2012 (“ATRA”). Among its many provisions, ATRA prevents steep increases in estate, gift, and generation-skipping transfer (GST) taxes. ATRA also makes permanent the concept of portability, which allows a taxpayer dying in 2011 or thereafter to elect any of their unused applicable exclusion amount to be transferred to their surviving spouse to be used at the death of the surviving spouse. In other words, for 2013, ATRA exempts the first $10.5 million ($5.25 million per person) from the federal estate tax. These new estate rules however, do not eliminate the need for advantageous estate planning, and couples with less than $10.5 million in assets should definitely make sure their estate plans are carefully prepared.
Some important components of estate planning include:
- Consideration of the final wishes of the decedent – Without a plan, the decedent’s assets will be distributed based on the laws of his or her state, which may run counter to the decedent’s intentions.
- State estate tax requirements – Portability may have eliminated the tax impact on a couple’s estate at the federal level, but an estate between $1 million and $10 million can be subject to significant taxes at the state level—which can be mitigated through proper planning.
- Asset protection – Proper planning will help protect assets transferred to a surviving spouse to be free from the claims of creditors or predators on the elderly. If the surviving spouse remarries, proper planning can also protect the deceased spouse’s assets from being included in a subsequent divorce.
- Future asset growth – Relying on portability alone can be disadvantageous if assets have appreciated. With increasing life expectancies and the power of compound interest, a transferred estate could later appreciate beyond the $10.5 threshold, subjecting the estate to taxation. Estate planning techniques exist that can help avoid subjecting the appreciated assets to unnecessary tax in the future.
Reliance on the estate tax exemption and portability has many pitfalls and possibly costly downsides, which can be avoided with a well thought out and properly constructed estate plan.
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May 30. 2013 | Devin Crone
New Environment for CPAs
Over the past decade, companies have become increasingly concerned with their carbon footprint, as consumer awareness of environmental issues has grown. Companies are now voluntarily issuing sustainability reports to promote their environmental performance and their efforts to reduce greenhouse gas emissions. This new trend in reporting creates additional opportunities for CPAs as the need for assurance related to these reports grows.
While CPA firms have the necessary experience to succeed in providing environmental assurance, there are several challenges to overcome. Firms would need to develop an understanding of the science behind sustainability and greenhouse gas emission reports, including establishing competencies in various processes and terminologies. Involvement in environmental assurance may also require a firm to recruit technical specialists with engineering or scientific backgrounds.
The governing bodies of accounting have taken notice to the opportunities created by environmental assurance services and have created some guidelines of their own. SOP 13-1 has been issued to provide guidance on how to apply attestation standards for a review engagement specifically reporting on greenhouse gas emissions. The AICPA formed the Sustainability Assurance and Advisory Task Force in 2012 to investigate service opportunities for CPAs in this niche. The task force is responsible for adapting existing standards to the topics of sustainability and greenhouse gas emissions.
Environmental assurance services are growing quickly and are a unique market for CPA firms to enter. These services provide the opportunity to expand clientele as well as offer new services to existing clients.
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May 22. 2013 | Corey Reinke
Contributed Services from Affiliates Clarified
Not-for-profit organizations have long benefited from the skills of volunteers—from seniors delivering meals for shut-ins to church groups caroling over the holidays. Occasionally, NFPs are lucky beneficiaries of pro-bono services from attorneys, nurses, and—dare I say it—accountants. Volunteerism is the life blood of America’s not-for-profit community.
Fortunately, figuring out how to account for these services has been pretty straightforward. Services which require a specialized and necessary skill are recorded as both a revenue and expense on the statement of activities at the fair market value. Other volunteer services don’t need to be recorded at all.
There’s been a lack of clarity, however, when those services come from an affiliate of a not-for-profit entity. A recent amendment, ASU-2013-06, defines the process. Healthcare organizations should report the professional services as an equity transfer, increasing the net assets associated with the services. Other NFPs have some flexibility, as long as they don’t report the services received as a contra-expense or contra-asset.
In both cases, contributed services should be recorded at the cost recognized by the affiliate. But be aware that if the cost significantly overstates or understates the value of the service received, you may elect to recognize the service at either the recognized cost or the fair market value.
If this is news to you, relax. This amendment is effective for fiscal years beginning after June 15, 2014.
The best news of all, however, is that you still don’t have to account for those carolers!
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May 8. 2013 | Oscar Martinez
Ever Wonder What Happens After Your Client Clicks the ‘Buy’ Button?
Have you ever given any thought to what happens after you or your client, trade securities online? It seems pretty straightforward, but there’s a little bit more to the story. To keep the explanation simple, we’ll assume that you are buying IBM shares, the trade is routed to an exchange, and the trade takes place electronically.
After you click on the ‘Buy’ button of the online accounts, the order to buy IBM shares goes from the broker (e.g. E*TRADE, Scottrade, TD Ameritrade) to one of the stock exchanges (e.g. Nasdaq, DirectEdge, BATS). Once there, a set of computers, collectively referred to as the matching engine, matches your clients’ ‘buy’ order with someone else’s ‘sell’ order. Once this transaction takes place, you receive a trade confirmation message on your screen saying that you now own IBM shares. The execution, as referred to in industry parlance, takes a fraction of a second from beginning to end. However, that’s the trigger for a few more steps to come.
Which ones you may ask? Well, you ultimately need to get your IBM shares and the sellers need to get their money and that doesn’t happen at the exchange. This last phase of exchanging stock certificates for money is called ‘clearance and settlement’ and is handled by a subsidiary of the Depository Trust Clearing Corporation (DTCC). Soon after the trade executes, the exchange sends the transaction records (i.e., share symbol (IBM), price per share, and number of shares) to a centralized back-office operation. More likely than not, it will be DTCC. In DTCC systems, shares change ownership and money is transferred to the seller. This process is transparent to most clients and culminates with your brokerage account receiving credit for the IBM shares and the cash balance decreasing accordingly.
That is, in simple terms, what happens after you click on the ‘Buy’ button.
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May 1. 2013 | Emily Weiss
FBAR: Prepare for E-Filing
The next tax form soon to be required electronically is Form TD F 90-22.1, “Report of Foreign Bank and Financial Accounts” (more commonly known as the FBAR). The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) back in 2011 created an electronic filing system for the FBAR, and then announced the mandatory e-filing requirement to begin on June 30, 2012. However, in early 2012, FinCEN announced a postponement until July 1, 2013—giving tax preparers and software companies more time to prepare for this e-filing requirement.
FBAR Form Content
The FBAR form is for reporting financial interest in or signatory authority over foreign financial accounts, for any US persons with foreign accounts totaling $10,000 or more in a given year. The instructions to the Form detail the definitions of US persons, foreign financial accounts and financial interests, and specify certain exceptions to the FBAR filing requirement. FBARs are due on June 30 of each year.
Failure to file an FBAR carries a civil penalty of up to $10,000 per violation, or even $100,000 or more for willful violations. Although this form is small, failure to file it carries heavy implications.
Make note that the 2012 instructions to the Form TD F 90-22.1 do not currently refer to the e-filing option.
Some relevant links:
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April 24. 2013 | Kip Huffman
Business Size Does Matter for Health Care Act
The Patient Protection and Affordable Care Act (PPACA, or “Health Care Reform Act”) has earned a great deal of press coverage since being signed into law on March 23, 2010. The 906 pages of legislative text are too complex for in-depth coverage in this blog, but with the PPACA scheduled to go into full effect in 2014, it is worthwhile discussing some major changes that will impact businesses large and small, depending on the definition of size.
According to the PPACA, a large business is one with over 50 full-time equivalent employees (i.e., those who average 30 or more hours per week). This definition is unique to the PPACA and may be overlooked by many employers. The Small Business Administration—which is often cited by employers when trying to define a “small business”—uses a higher range for the “small” designation: 100 to 500 employees. Comparing these two examples, a business with 100 employees could be designated as small for SBA purposes, but as large under the PPACA.
Large businesses will be required to offer health care coverage to all employees, or risk incurring a penalty (subsequently clarified by the Supreme Court as a “tax”). For each employee (over a 30-person threshold) who is not offered an employer-sponsored health care coverage plan, a $2,000 penalty will be assessed. This penalty has become known as the “No Coverage Penalty.”
If an employer offers a sponsored health coverage plan that is deemed unaffordable relative to the individual’s household income, or does not provide a minimum value, the employer may receive another fine. This fine has become known as the “Unaffordable Coverage Penalty” and will be assessed at $3,000 per individual.
Although we just discussed some “large business” implications, the new law will affect everyone—from large multi-nationals to your local corner market. According to an Urban Institute analysis conducted in 2011, there were approximately 50.3 million uninsured persons in the United States. The PPACA would reduce this number by approximately 24 million through implementation of penalties and tax adjustments on employers. To avoid pitfalls and major setbacks, employers need to be proactive and assess the major impacts the new law will have on their business.
For more information on the PPACA and the impact on individuals and companies alike, visit GovCon360.com
where you can also view presentation slides from a recent Watkins Meegan Lunch & Learn on the Future of the Health Care Reform Law.
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April 17. 2013 | Matthew Bernardo
No More Shoebox Accounting
As the owner of a small business start-up, you’ve probably thought through the important operational decisions. How many employees will you need to hire to conduct business efficiently and effectively? How much should you pay for office space? How will you finance the purchase of computers, office equipment, and machinery required to conduct day-to-day operations? One consideration any business owner needs to pay special attention to in these uncertain economic times is the accounting and financial reporting functions of their business.
The accounting and financial reporting function is critical to a Company’s success; whether it be a Fortune 500 company or a sole proprietorship. By hiring qualified personnel and properly implementing and utilizing an accounting system, owners can better monitor their revenues and costs, while also utilizing projections to see where the Company is headed. Implementing accounting software that meets the needs of the Company’s accounting and financial reporting is a critical step for any small business.
The following are some of the benefits of implementing proper accounting software:
• Accurate and timely financial reporting
• Safeguards on financial information
• Account reconciliations performed more efficiently
• Real-time vendor and customer data
Maintaining accounting records accurately and timely should be an activity in which every business, no matter how small, invests the time and up-front costs. The benefits of doing so will go a long way in helping your business be successful.
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April 10. 2013 | Daniel O'Shea
How Do They Get Away With That?
Imagine a business model where you could charge more for providing fewer goods and less service. For some businesses and most nonprofits, this would be unthinkable. But that is exactly where many businesses are headed. And why not, if customers are fine with it? It’s an easy way to add more profit to the bottom line.
We see this trend more every day. In many municipalities, grocery stores and deli’s can no longer provide plastic bags to carry purchases, although the bags can be purchased by the customer for a small fee. Last time I checked, the sellers had not reduced their prices now that they no longer incurred the cost of the plastic bags. They shifted the burden or cost to the customer. Likewise, some businesses now charge more for transacting business in person than they do for transacting on-line. The on-line cost is not a discounted cost, but rather, the in-person cost has a premium charged to it. Airlines charge more for tickets, yet no longer provide as many complimentary snacks and beverages. Additionally, you are likely to pay for your checked bags. One airline I used to fly, now charges for carry-on bags.
Should nonprofits adopt this business model? In some ways they already have, by implementing automated phone systems and voicemail, as well as putting their storefronts on their websites. To further leverage the model, however, they need to look at their products and services and determine where the value is derived. Does it come from (a) the goods and services, (b) the delivery of the goods and services or (c) both of the above? If the answer is other than (b) or (c), there’s a good chance for further leverage. Just beware, at some point, customers will ask, “How do they get away with that?”
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April 3. 2013 | Joshua Moore
Health Care Reform: A Few Benefits
The Patient Protection and Affordable Care Act (PPACA) will implement sweeping changes to our health care, some parts of which have already taken effect, with the remaining new benefits to take effect January 1, 2014. The new law aims to improve access to affordable health coverage for everyone—young and old, individuals, families and small businesses. We all know that change brings its share of naysayers; instead, let’s focus here on some of the key new benefits.
You may have heard it-- young adults (those under age 26) who lack health coverage through their jobs are now eligible to stay on or be added to their parent’s health insurance plan until they turn 26. This benefit is allowed if they are not living at home, are away attending school, or they get married. As a result, 3.1 million additional adults younger than 26 will now have health care coverage.
Another key benefit is that insurers can no longer deny coverage to individuals due to a pre-existing condition such as asthma or diabetes. In fact, for children under age 19, this benefit is already in effect.
For senior Americans, the PPACA strengthens the Medicare program by adding a range of cost-free preventative services and providing discounts on prescription drugs (and repairing the “donut hole”).
Some employers also benefit from the Affordable Care Act. To help offset health insurance costs, tax credits are available for small businesses and not-for-profits. If your business has fewer than 25 employees and provides health insurance, you may qualify for a tax credit up to 35% (up to 25% for not-for-profit organizations) for these costs. In 2014, the credit is set to increase to 50% (35% for not-for-profits).
As with any overhaul of a pre-existing program, there will be minor setbacks as consumers, employers and insurance companies adjust to life post the PPACA. However, there is comfort in knowing that the intent of the PPACA is to put consumers in control, reduce wasteful spending and all while improving the quality of our health care.
For more information on the PPACA and impact on individuals and companies alike, visit GovCon360.com where you can also view presentation slides from a recent Watkins Meegan Lunch & Learn on the Future of the Health Care Reform Law.
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March 27. 2013 | Neel Padmanabhan
We often receive emails stating there has been a zero-day attack and the vendor is working to find a solution. What exactly is a zero-day attack or vulnerability? A zero-day attack is one that takes advantage of a previously unknown security weakness in application software or operating system and the vendor has not yet found a solution. Security weaknesses in applications or operating system can be found by both good guys (vendors and security professionals) and bad guys (attackers). Often times, once the good guys finds the vulnerabilities, the bad guys like malware programmers find ways to exploit zero-day vulnerabilities. Further, the bad guys are also trying to find security holes that no one else has found and for which there is no patch or fix.
Most common targets are web browsers as these are widely used. Email attachment is another common method to exploit security weaknesses in application or operating system or to steal personally identifiable information like social security numbers and/or credit card information.
Examples of zero day attacks include the one on RSA SecureID product. In this instance, attackers sent an email message with an attachment to a number of employees with the subject line “2011 Recruitment Plan”. The attachment contained an embedded file that installed a backdoor program to get user credentials. The stolen data was then used in further attacks against a number of military contractors. Other notable examples include attacks on Internet Explorer versions 7, 8 and 9 that rely on Java.
So what are some of the protective measures an organization can take to guard against zero-day attacks? Here are some best practices to consider.
• Don't rush to buy the latest software. Wait for initial set of issues to be fixed.
• Follow vendor recommendations on workarounds and mitigations until a patch is available.
• Use heuristic anti-virus software not just signature-based. Heuristic anti-virus products try to understand what the programs are doing by looking at the general behavior of the software and not just specific signatures to keep out threats and zero-day attacks.
• Block malicious traffic that exhibits suspicious behaviors and denial of service type attacks.
• Flag and remove high-risk files, such as .exe and scripting files, viruses, spyware, and Trojans by fully inspecting the entire packet.
• Turn off unneeded services and remove user applications that do not support operational needs.
• Educate users about opening unsolicited file attachments.
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March 20. 2013 | Patrick Whitman
The Oddities of Medical Deductions
On February 13, an ill-timed injury threatened the season of the Watkins Meegan Bethesda C-League Rec. team: I severely sprained my ankle (ouch). One interesting result of my grade 3 sprain was my search for any and all medical deductions that could possibly apply to my situation. Unfortunately, neither a sprain nor a break requires enough extended treatment to merit a deduction, but if I were a chain smoker with severe lung issues such as emphysema or bronchitis, that’d be a different story.
Whereas recovery from a sprained or broken ankle is pretty standard, recovery from emphysema and bronchitis requires years of proper exercise. A widely used practice in recovery for both ankle and lung issues is aquatic exercising (exercising in a pool). So if your doctor prescribes long-term pool rehab and the doctor note says this therapy is for an extended period, consider the possibility that part of those pool expenses are deductible! Operating and maintaining a swimming pool can be deductible as medical expenses under IRC section 213, but the amounts of all deductions are limited to the portion of cost exceeding the amount of added value to the property. Keep in mind, costs include all the upkeep required such as heating, cleaning, cleaning supplies expense, and even the proportion of home insurance for the area the pool occupies (see Cherry v. Commissioner, 46 T.C.M. 1031 (1983), T.C. Memo 1983-470).
On to other odd medical deductions … Having grown up in the San Fernando Valley (Los Angeles) means I didn’t get a whiff of truly fresh air until my family went on vacations; surprisingly, I do not have any respiratory issues. However, if I did have medical issues due to the environment in which I lived, my parents could potentially deduct the travel, and some other expenses associated with sending me to a boarding school in the fresh air of Vermont (Stringham, L. Keever, (1949) 12 TC 580). Meanwhile, for those of you with kids who fear the coming cost of orthodontics—just buy them a clarinet! The costs of the instrument along with lessons were both allowed as medical deductions to help treat an overbite (Rev. Rul. 62-210), based upon an orthodontist’s recommendation.
Remember that in order for any of these to matter you need two things: 1. Have your total qualified medical expenses exceed 7.5% of your AGI (10% in 2013) and 2. Have a doctor’s note stating the medical relevance of your quirky deduction.
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March 13. 2013 | Marilyn Coover
Introducing the Financial Institutions Industry Group
Did you know, for over 20 years now, Watkins Meegan has been providing ongoing services to the financial institution industry? Our team of professionals has handled many complex business, regulation, litigation, and fair value issues. In an industry inundated with regulators, it pays to have an expert at your side to navigate the sea of regulations.
Our practice started in 1990 with our partner, Watkins Consulting Inc., providing support for the Federal Deposit Insurance Corporation and Resolution Trust Corporation. Together, we have provided hundreds of thousands of service hours to these entities. Since the savings and loan crisis, we have assisted on a number of major undertakings involving complex mortgage-related litigation and government-sponsored enterprises’ related financial restatements. Currently, Watkins Meegan along with Watkins Consulting provides ongoing consulting services for the FDIC’s loss share and structured transaction program.
Visit our websites for more information about our continued services to the financial institution industry.
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March 6. 2013 | Kevin Matthews
Capital Gains and Dividend Rates
Long-term capital gains and dividends have been a good story for the past few years. Taxpayers have had the ability to take reduced rates of 0% and 15%, with certain exceptions. Recently, there was some concern because of the uncertainty caused by the “fiscal cliff,” that these rates were going to go back to the ordinary income tax, rates which could be as high as 39.6%.
With the new law that took effect on January 1, 2013, the lower income tax rates for long-term capital gains and qualified dividends will stay in place. However, a 20% rate for high-income taxpayers was added. In addition, a surtax known as the unearned income Medicare contribution tax, will take effect. This surtax is part of the Patient Protection and Affordable Care Act of 2010, which was aimed at decreasing the number of uninsured Americans. This law adds a 3.8% tax on investment income for high-income taxpayers. This could mean a maximum rate of up to 23.8% for capital gains and qualified dividends.
Qualified dividends are dividends received from domestic or qualified foreign corporations. However, the shareholder must hold the stock for at least 61 days during the 121-day period beginning 60 days before the ex-dividend date. Such qualified dividends are taxed at the lower capital gains rates. Dividends that are not qualified dividends are taxed at the regular or ordinary income tax rate and could potentially be taxed a maximum rate of 43.4%.
This might all seem confusing! If you have any questions, feel free to contact your representative at Watkins Meegan LLC to receive more detailed advice and planning, taking your circumstances and needs into account.
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February 27. 2013 | Daniel O'Shea
Not-For-Profits and Storm Readiness
In a previous blog entry, I asserted that those not-for-profits weathering the economic storm (aka the Great Recession) were likely to emerge with improved financial management practices. I still believe this to be true. However, the theory is about to be tested, as a second storm is upon us. Just as hurricanes are named in alphabetical order, it seems logical the next economic storm should begin with an “S,” since the previous storm was an “R” (as in Recession). The next economic storm is named, of course, Sequestration.
Not-for-profits are bracing for the effects of sequestration. Certainly, those that rely on federal funding may be in the eye of the storm. Additionally, those that receive state or local funding are also in the storm’s path, though not in the eye. There are other collateral effects as well. Not-for-profits that receive corporate funding may also be affected. Individual donors whose disposable income is reduced may, in turn, reduce the amount of their charitable contributions. And, should we experience a “perfect storm”—where the economy stalls and investment returns flat-line—then not-for-profits will be further tested as program funding drops just as the demand for program services rises. Local communities will be turning to the not-for-profits to fill voids in services resulting from governmental cutbacks.
How will not-for-profits cope with this new storm? It remains to be seen, but those ramped-up financial management practices should help them navigate the turbulent waters more easily. It is also likely that the private sector will need to step up and increase their support of not-for-profits. Regardless of one’s views on sequestration, one thing we can all agree on is that the needs of our communities will remain.
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February 20. 2013 | Mary Lou Gervie
Charitable Donations—A Tax-Return Primer
Organizing your tax return’s supporting documents can be challenging and time-consuming, especially those related to your charitable donations. Here are some rules of thumb to remember: It is important to maintain all of your tax records, including proof of charitable contributions, for at least three years. Contributions made to an individual political candidate, or to an organization that conducts substantial lobbying activity (and is therefore disqualified), are not deductible as charitable contributions. More details on the charitable-giving rules follow…
To deduct charitable donations of any amount, you must have either a bank record, or, a written communication from the charity—showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date. For payroll deductions, a pay stub or a Form W-2 furnished by your employer is needed, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain a contemporaneous written acknowledgment from a charity for each deductible donation (of either money or property) of $250 or more. However, one statement containing all of the required information (name of charity, date and amount of the
contribution) may meet both requirements.
Contributions are only deductible in the year made. Thus, donations charged to a credit card before the end of 2012 will count for 2012. This is true even if the credit card bill isn’t paid until 2013. Also, any checks you write for a 2012 donation will count only if they are mailed in 2012.
Only donations to qualified organizations are tax-deductible. You can search this online database at IRS.gov: Exempt Organization Select Check
, which lists most organizations that are qualified to receive deductible contributions. However, make note that government agencies, churches, synagogues, temples, and mosques are eligible to receive deductible donations, even if they are not listed in the database.
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February 13. 2013 | Oscar Martinez
BYOD (Bring Your Own Device)
Blurring the Line between Personal and Corporate
The BYOD (bring your own device) revolution is gaining traction. The bait may have been smartphones—the transition from the company-owned to employee-owned—but it has not stopped there. Personal tablets are beginning to enter the universe of personal devices with access to corporate data. Next, it looks like personal laptops may find their way to corporate desks.
A much-reported transition to BYOD occurred in late 2011 at VMWare, a NYSE-listed provider of cloud infrastructure. According to a May 2012 article by CIO Magazine (See link below), VMWare required its 6,000 employees to switch from company-owned to personal smartphones within a 90-day window. Employees became responsible for choosing their own carriers and plans. In return, VMWare reimbursed its employees, depending on their role within the company, somewhere between $70 and $250 per month. This change, the article mentioned, brought VMWare’s phone bill down by about 30 percent. As a result of this apparent success, the article points out, the company was to launch into BYOD tablets and laptops.
This may sound exciting to many. However, many complicated questions abound in this new territory between personal and corporate business gear. For example, should employers be allowed to remotely wipe a device? If so, should they be able to wipe personal data as well? How does corporate IT design and enforce device security? How are employees compensated for bringing their personal tablets or laptops to work?
Over time, new products and approaches to executing a BYOD strategy should increase its appeal as a viable and symbiotic business option. In the meantime, we can learn from watching those companies in the early stages of implementing BYOD to help us determine if this will make sense for our specific business needs.
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February 6. 2013 | Sara Mikulsky
Parental Funding for College Linked to Lowered GPAs
The news recently reported on academic findings of an indirect correlation between the amount parents paid for their children’s college tuition and the children’s grades. While the study found that increased financial support from parents slightly increased the probability of graduation rates (not surprisingly), it also discovered that parental funding was associated with lowered GPAs. (The study was conducted by Laura T. Hamilton, a sociology professor at the University of California, Merced).
If you happen to be thinking about stopping or reducing funding to your 529 Plans—don’t. As your CPA may have informed you, your 529 Plans can hold state- and gift-tax advantages, as well as matching grant and scholarship opportunities.
This study found that students who felt like they were earning their funding (such as by receiving scholarships or grants) did not trend with a negative effect on their GPA. However, due to the limited availability of this kind of funding, it can not be counted on as a means to pay for your student’s education. So what does this conflicting research tell us?
The point is, talk to your children about the importance of the dollar—and your investment in them. Funding a child's education is one of the largest financial goals you'll ever face; right up there with buying a house and funding your retirement. Recall how much research and planning you do—talking to your financial advisors before making a large financial investment, talking to your CPA about your tax planning—so why not talk to your children about your investment in them and your planning for their future? Sit down and tell your kids what their responsibilities in college are and the consequences of not meeting your expectations.
Also, don't just park your money in a fund or two and leave it. Be sure to review its performance at least annually, and make adjustments as necessary for under-performing funds. If you properly manage the human capital you are creating, you just might receive the most rewarding return on investment of a lifetime.
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January 30. 2013 | Devin Crone
CPAs on the Red Carpet
It is easy to get caught up in the annual hype of the entertainment award show season… From now until the end of February we hear about nominees, and then, finally, the winners. All the celebrities involved shine with glitz and glam, but in my opinion, it’s the CPAs behind the scenes who are the real superstars.
CPAs are responsible for keeping some of the biggest secrets in Hollywood--tabulating the votes for so many awards including the Emmy’s, Golden Globes and Academy Awards. Due to their integrity and reliability, accountants have counted the Hollywood votes for over 75 years. In order to ensure award results are kept secret and their own integrity protected, the CPAs responsible take hefty precautions.
The man in the corner of the Emmys with a silver brief case handcuffed to his arm is not an armed guard, but a CPA. Only three people in the entire world know who the Golden Globes winners are before they are announced. Those three insiders are the CPAs who have triple checked all ballots to provide reasonable assurance there are no errors. The CPAs themselves assemble the winning envelopes and keep them until it is time to hand them to the presenter entering the stage.
For the Academy Awards, CPAs mail the ballots to the members of the Academy. Each ballot contains a control number that corresponds to each Academy member to prevent fraudulent duplication or theft. No one will ever know who came in 2nd or 3rd place; the CPAs have to take that information to the grave. Furthermore, no computers are used in the process--everything is handled manually to prevent hacking or data theft.
For all of their efforts, the CPAs receive little recognition. At most shows, the CPAs are briefly thanked from the podium and then forgotten. However, at last year’s Emmy awards in September, the accounting profession finally got some lime light: The show featured a clip from the Big Bang Theory, with characters admiring the profession and chanting, “CPA! CPA!” We accountants should be proud to know that Sheldon thinks CPAs are “the intellectual heirs of Pythagoras, Euclid, and the Count from Sesame Street!”
Video link: http://www.youtube.com/watch?v=yXaVOkv_tyA
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January 23. 2013 | Bob Hambrecht
“The Need” Remains
Many of us, by the close of 2012, have made year-end donations—financial, or clothing—to a favorite charity. While historical trends indicate that “the giving” drops off with the new year, unfortunately, “the need” in the community does not. This is especially true now in the Northeast where areas of New York, New Jersey, and Connecticut remain devastated by Hurricane Sandy and many people and businesses continue to struggle with having lost everything.
We all have seen the footage on TV and the Internet. As someone who called New York home for 18 years and still has family and friends up on Long Island, I am continually reminded that the devastation stubbornly remains and the rebuilding process will take a long, long time. And now, of course, winter weather is posing even greater challenges to those affected by Sandy.
As time passes, many in the region are concerned that their pleas for assistance will be forgotten. With or without more government assistance, these hard hit areas can still benefit from our continued donations. I found the following websites to be useful for those of us who want to help:
• Charity Navigator (www.charitynavigator.org) has a link to Hurricane Sandy that includes tips for giving in times of crisis. The website also lists charities that are helping post Hurricane Sandy.
• American Red Cross (www.redcross.org) is still on the ground providing support to those in need.
• Global Impact (www.charity.org/feature/hurricane-sandy-relief): Click the link to see how you can help provide relief to individuals and communities in need.
These are just a few of the charities that are out there —undoubtedly there are more. Before you donate to a charity, be sure to check that the organization is going to use your funds in the manner you want them used.
Let’s not forget that “the need” remains. A few dollars could make a difference for someone who may have lost everything.
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January 16. 2013 | Mary Lou Gervie
There is so much focus on identity theft and e-mail solicitations but there is still a barrage of mail or telephone solicitations from unscrupulous individuals or businesses that don’t mind taking advantage of unwary customers. A favorite target is the elderly. Some common examples are:
Sweepstakes and “Free” Prizes
Thousands of people are notified daily that they have won a free prize. Typically the news arrives by postcard that says your prize will be one of four “valuable” items, such as a car, TV set or cash. Typically a “processing fee” is required with payment using a credit card. Don’t do it!
“Congratulations” – you have just won a free vacation to an exotic island! To be eligible, you will be required to pay a service charge or to purchase a membership in a travel club. Don’t do it!
A brochure in the mailbox informs you of a jackpot that has been raised to $10 million. The brochure urges you to participate in a foreign country’s lottery. Don’t fall for it!
Give to charities that you know. Most mail solicitations for charitable contributions are legitimate but there are some that are phony.
Phony Inheritance Schemes
If you receive a notification in the mail from an “estate locator” saying there is an unclaimed inheritance waiting for you. Beware!
As the saying goes, “if it looks too good,”… don’t become a victim! And, review your consumer credit report annually.
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January 9. 2013 | Marilyn Coover
Life isn’t about waiting for the storm to pass; it’s about learning to dance in the rain.
Ok, everyone – Congress has spoken. They have decided to kick the can down the road. 2012 ended with Congress still stalemating decisions in key areas that will, as the news reports, be the determining factors in our economy and (very dramatically) the fate of our nation as we know it. This ‘fiscal cliff’ we were approaching was a combination of Bush era tax cuts expiring, $110 billion in automatic federal spending cuts approaching, and a national debt barreling towards its ceiling. In an already weary economy, Congress was playing chicken with a perfect storm.
But then…in a suspense ridden vote, they finally passed a bill that maintains tax breaks for nearly 99% of Americans (however, it does get rid of the social security tax break we were all enjoying). And they managed to put off spending cuts until late February! Excellent, that gives us two more months to stew over what they’re going to do about the federal spending cuts and the debt ceiling. They are very good at suspense.
With so much negativity and ambiguity, it’s no wonder that many have reached a state of paralysis when it comes to planning what to do this year. I liken this to being a wallflower……at your own wedding. First of all, you cannot be a wallflower at your own wedding; that’s unacceptable. It’s arguably the most important day of your life, if you’re not enjoying it, who is? Secondly, if you can’t dance alone, get a partner! And make it a good one.
In the dance of life, CPAs are excellent partners (if you didn’t see that one coming, you weren’t paying attention to the blog you were reading!). They will help you navigate the floor, whether it’s the U.S. Tax Code or U.S. GAAP. Your CPA will keep you nimble on your toes so you have the flexibility to change your tax position should the laws change in the New Year. An audit partner informs you of new standards and regulations you’ll need to apply to keep you from getting your toes stepped on – or elbowed in the back. CPAs are called upon to be knowledgeable in their practice areas; those at Watkins Meegan are experts. You can count on them to know all the steps and to teach you some new tricks, maybe in one of our GovCon lunch and learns at the Tower Club. Great dance partners won’t keep twirling you around if you’re already dizzy, just like your Watkins Meegan partner won’t force you to interpret the legal language of complex tax laws you’ve already read...four times over. And if you’ve lost your rhythm (Accounting team quit? Need to add a new business partner? Did you have a baby (congrats!) and want to know about college saving plans?), count on us to get you right back in step.
Bottom line? We’ll make you look goooooooood. When your partner looks good, you look good – so we love making you look good. Take our hand, let’s jump off the cliff together and we’ll dance away the New Year. We’ve got our dancing shoes on.
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January 2. 2013 | Cortney Barry
Winning the Lottery, Losing in Taxes
Two lucky winners in Arizona and Missouri have claimed their share of the record-shattering $580 million Powerball jackpot after the recent drawing. Sounds like a pretty good payday to me. But even though they are lucky enough to beat the statistics of “things that are more likely than winning the Powerball jackpot,” such as birthing identical quadruplets or becoming president, they will not be so lucky when it comes to their tax bills.
With so much left undecided and little progress made on the so-called “fiscal cliff,” these lottery winners hopefully checked with professionals, like us, before claiming their winnings and deciding how to receive their payout. These two people will undoubtedly have hefty tax obligations, but the key is determining the best strategy to minimize their liability. Depending on the resolution that U.S. lawmakers eventually reach, tax liabilities could potentially increase for 88 percent of U.S. taxpayers.
If our nation is to “fall” off the fiscal cliff, prompting higher income tax rates, these winners may want to cash in their winnings in 2012 to avoid these potential increases in 2013. While it’s generally advisable to postpone any taxes to later years when feasible, that is not typically the case for lottery winnings, and especially not this year. The highest tax bracket of 35 percent is set to increase to 39.6 percent in 2013. If Congress does not act, this tax year might be a more beneficial time to claim, because lottery winnings are typically taxed in the year in which they are received.
Other considerations include state and local taxes, estate taxes, and capital gains rates. If the shock of winning causes a heart attack (God forbid), the winner’s family members would be faced with a gift tax rate of 35 percent and $5.12 million exemption for 2012, with a potential increase to 55 percent and decrease to $1 million in 2013. State and local taxes will slash the payout even further, and investing will get significantly more costly after this fiscal cliff. So much for investing and growing this extremely rare occurring income! Winners will likely pay increased capital gains rates as well on their investments in the coming years.
With the help of well-educated professionals, these lucky winners can consider all of their options and better understand the tax implications of different decisions. There’s nothing like someone reaping wealth by the virtue of pure luck and then blowing it all away!
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December 19. 2012 | Patrick Judge
What’s in Your Company’s Overhead?
In today’s economy, maximizing profitability is more important than ever. In the construction industry, there are fewer construction projects available and competition has increased significantly. Contractors are bidding jobs at lower margins than ever before, resulting in decreasing profitability and additional lay-offs and contraction in the industry. Contractors need to be able to bid jobs with an accurate picture of their costs or they will be stuck performing a job that only hurts the bottom line. Without the proper information, contractors will continue to win jobs and then wonder why they aren’t making any money after the year-end financials have been completed.
Overhead costs are those costs that indirectly support the job. Examples of overhead costs include vehicle leases, employee mileage reimbursements, repairs and maintenance, project manager costs not directly chargeable to a job, depreciation of equipment, project accountant wages, idle field labor, small tools, cell phone charges, business and general liability insurance, fuel costs, estimator’s wages, etc. These costs should be captured in an “Overhead” or “Indirect Cost Allocation Pool” and allocated to the jobs based on a reasonable methodology (e.g., allocated based on direct labor hours or direct labor costs incurred on the jobs). Management should periodically analyze the cost pools to verify the appropriate overhead rates are being applied to the jobs when estimating and bidding and when the job is being performed.
Many contractors run into trouble if the cost pools are not accurate or are not factored into the job cost reports. The profitability of a job is assessed based on just costs that can be directly attributed to a job, but the Company is actually losing money when overhead costs are properly allocated.
Common pitfalls when determining cost allocation pools include:
- Charging the purchase of equipment directly to a job, but then recording the associated costs such as insurance, repairs and maintenance, and fuel as general and administrative (G&A) costs. Each time the equipment is used, a percentage of these costs can be allocated to a job. The more a job is using up the Company’s equipment, the greater the repairs and maintenance costs, the more fuel used, etc., which should be allocated to the jobs.
- An officer or owner spends a significant portion of his or her time working on jobs, but all of the costs are charged as G&A costs. The costs associated with time spent on jobs should be allocated to the jobs based upon timesheets or other reasonable methodology.
Reviewing your overhead costs periodically and assessing whether you are covering the true costs of performing work is an important step for contractors. With the competition that is out there, a contractor should know its cost structure and look for every advantage it can get in order to be profitable.
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December 12. 2012 | James Kanuch
Just a Thought...
As the holiday season quickly approaches, and the gathering of families and good cheer pervades, I’m sure the one thought on everyone’s mind is…fraud. This is the time of year when those in charge of ensuring the internal controls are functioning as designed need to be especially wary. Although we all have very trustworthy employees, sometimes these employees are put into situations, whether it is the pressure of the season or an opportunity created through lax controls, when a situation arises and fraud is committed. It is also much easier for individuals placed into these situations to rationalize the fraudulent actions during the holiday season. Some potential areas to be wary, to name only a few: unauthorized personal use of business credit cards, misuse of company phone privileges through unauthorized personal long distance calls, skimming of cash receipts at overcrowded registers manned by temporary staff, and the submission of unapproved expense reimbursements. While I sincerely hope everyone has a wonderful holiday season, I just wanted to put this thought in the back of the minds of those responsible for ensuring the internal controls are functioning as designed, so that we all can enjoy the holidays.
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December 6. 2012 | Lindsay Dattilio
Coping with a Calamity
If the recent Superstorm Sandy and last year’s Hurricane Irene have taught us anything, it is that we can never be too prepared for a disaster. In October, we watched the entire East Coast stock up on batteries, sandbags, and bottled water in preparation for Sandy. Most people believed their homes and families were prepared to brace the threat of a hurricane. Many businesses, however, found themselves ill-equipped to handle the interruptions a hurricane and other disasters can cause.
When a disaster strikes, many business owners have not adequately planned for a temporary stop in cash flow, the inability to communicate with their workforce, or the failure to retrieve electronically-stored documents. For example, backing up your company’s data on an external hard drive is great, but do you know how to actually retrieve the stored data? Your employees might find it convenient to occasionally use the remote access system, but are your servers sophisticated enough to handle the entire staff logging into the remote system? Is there enough cash on hand if you were to not have a revenue stream for several weeks? Have you taken a second look at your insurance policies to review what your business is and is not covered for? These are just a few questions business owners should consider asking themselves in the wake of the recent storms.
Like a homeowner keeping well stocked in flashlights and candles, the Small Business Administration suggests businesses maintain an emergency supply kit for when normal business practice is interrupted. Its list includes such items as copies of up-to-date insurance policies, contracts, and computer passwords; office supplies and first-aid kits; even cash, as other vendors may be in a similar boat and are unable to process normal credit card requests. With the possibility of another Snowmageddon this winter, consider November a great time to begin your emergency planning.
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November 28. 2012 | Rebecca McDonald
Health Care Coverage Reporting Requirements
As 2012 winds down, a new reporting requirement on the Form W-2 emerges. Reporting gets a little more complicated for the year ended 2012 Form W-2 filing. If you filed more than 250 Forms W-2 on behalf of your employees for the 2011 calendar year, heads up! Your company is subject to new Form W-2 reporting requirements.
The Affordable Care Act requires employers to report the cost of coverage of an employer sponsored group health plan on the Form W-2. This is strictly a reporting vehicle for the IRS and employees will not be taxed on it.
What’s required? Reporting both the portion paid by the employer and the employee for group health care benefits in Box 12 with code DD on the 2012 Form W-2. This includes major medical coverage, Heath FSA value in excess of the employee’s cafeteria plan salary reduction for all qualified benefits, and hospital indemnity paid through salary reduction or by the employer.
Be sure to check how many Forms W-2 your company filed last year. If you are under 250, I can hear that big sigh of relief! If you are over the 250 threshold, start coordinating how you are going to capture the data to prepare the Forms W-2 with this additional information requirement. Now is the time to plan before your payroll department is up against another reporting deadline in January.
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November 14. 2012 | Rebecca Kehoe
Buzz Words for Gov FY 2013
We have all have heard the buzz words “sequestration” and “fiscal cliff,” but what about “strategic sourcing,” “cyber reserve,” and “SAM?” Just what exactly are these and where do they come from?
According to GSA’s website, “Strategic sourcing is the structured and collaborative process of critically analyzing an organization’s spending patterns to better leverage its purchasing power, reduce cost and improve overall performance.” And, in plain English, that means going to a more centralized purchasing as opposed to the decentralized purchasing that is currently in place. But, wait a minute, I distinctly remember that “centralized purchasing” was demonized in the early 1990s as it put too much control in one agency and individual agencies were unable to fulfill their individual mission statements because they were unable to purchase what they needed in a timely manner. So, in the mid 1990s, “centralized purchasing” was abolished and each executive agency was allowed to create its own purchasing department if they wanted it or they could continue to use the existing purchasing agency, namely GSA. I guess it is true that everything old is new again, even in the federal government. Of course, it comes with a different name, “strategic sourcing” instead of “centralized purchasing.” It will be interesting to see if it will work this time around. OMB seems to believe “strategic sourcing” will save $2.5 billion in IT spending alone over the next 3 years under its PortfolioStat initiative. PortfolioStat is a new tool launched last spring by OMB that is supposed to allow agencies to remove or consolidate duplication of IT purchases across agencies.
“Cyber reserve” is a DHS initiative where a number of computer security experts would be available on a moment’s notice to assist the Federal Government in the event of a crippling cyber-attack. DHS is currently looking at retired government employees now working for private companies.
Remember “SAM?” GSA’s “System for Award Management,” which was to integrate eight disparate procurements systems, has now been moved to GSA’s Chief Information Officer and Federal Acquisition Service. This move was due to SAM’s struggles while it was under GSA’s Office of Governmentwide Policy, which did not have the technical capabilities needed to address SAM’s issues.
I am sure there will be more buzz words to come for FY 2013. Stay tuned…
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November 7. 2012 | Joe Entwistle
Superman Quits His Day Job
Prior to yesterday’s election results, news headlines all around had been run rampant on such topics as federal spending, national security, and of course, the status of the overall economy. None was as shocking to me as the headline, “Superman Quits His Day Job.” After seventy plus years, or five years if you’re following the recently revamped comic book series, Superman has decided to quit his job as a journalist for the Daily Planet. Does Superman, I mean Clark Kent, know something about the economy that we don’t? Based on the headlines I have been reading, it is evident that the status of the U.S. economy is still a major concern. It certainly doesn’t seem like an appropriate time to quit your job without a backup plan. And I am fairly confident that Clark’s blue tights, red cape and crime fighting attributes will not create an additional source of income for him to report on his annual 1040.
Fortunately for the accounting industry, whether the economy is good or bad, job availability seems to remain abundant. At least in the foreseeable future, there will always be a demand for our services, whether they are tax, advisory, risk, financial statement or forensic related. Last month, Watkins Meegan welcomed the addition of several new staff accountants, all of whom have been training rigorously in preparation for the upcoming busy season. And just last week, human resources ended their recruiting season by inviting thirty prospective young professionals to our firm for a morning filled with office tours, presentations and interviews.
Maybe Clark should ditch his journalism dreams all together and enlist in a more economically friendly career, like accounting. I wonder if Jason Fleetwood (member, Watkins Meegan) would consider making some room for him over in the PCS Group. That X-Ray vision of his may prove to be valuable to us during audit season. On the other hand, it may put him at odds with Colin Yhlen (advanced staff, Watkins Meegan) as the battles over who dresses more dapperly would be endless.
So, what’s next? Will 007 call it quits and hang up his dashing tuxedo? Or will Mario and Luigi abandon the plumbing business? You’ll just have to wait for my next puff piece.
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October 31. 2012 | Sean Smetana
Tricks, Treats and Taxes
Soon after the last tax day of the year (for calendar-year filers) comes Halloween. On that night, children dress up in costumes, knock on the doors of their neighbors, and say, “Trick or treat!” I find it hard to believe that any child going door-to-door ever considers that the person at the door might play a trick on them; rather, they are fully expecting that they will be getting a tasty treat.
Several months after Halloween, the adults in this country go through a similar ritual, but, rather than saying, “Trick or treat,” they ask, “Tax refund or tax payment?” Just like children dressed up in costumes on Halloween night, the taxpayer should have no surprise as to what will occur on April 15th…as long as they had year-end tax planning performed.
Keep us updated. Let us know about new things that occurred during the year. Some of the obvious items include whether you got married, divorced, or if you had children. But there are other things to consider, like whether your children started college, you purchased a new home, or switched jobs. These things will change the amount of tax owed. We can give you the facts to help with some important decisions, such as how much to take as a year-end bonus, the effects of selling stock now versus in January of the following year, and even when to pay in your state estimates.
Let’s have a discussion. There are things we need to know. When we have all the facts beforehand, we can give you an idea of what the future will hold, so you don’t end up with a trick that you are not prepared for come April 15th!
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October 31. 2012 | Rebecca McDonald
Insuring the King
Fiscal cliff? Sequestration? With so much uncertainty in the air, there is one more deadline looming that we need to keep our eye on and it affects the King – cash that is…
Set to expire December 31, 2012, is the Dodd-Frank Deposit Insurance Provision. This provision gave full deposit insurance coverage for all noninterest-bearing accounts at your financial institution. While we have enjoyed this unlimited coverage for the last two years, all good things must come to an end. With the sun setting on this provision, your bank accounts – both business and personal – will revert back to the $250,000 limit on insurance coverage per account owner. In a nutshell, you and your company’s cash in a checking, savings, and certificates of deposit account at the same financial institutions will only be federally insured up to $250,000.
With this in mind, it is a good time to assess your cash management plan and ensure that you or your company have no unwanted exposure. How about that investment policy? Have you dusted that off and updated it lately? With the ever-changing financial landscape, it is crucial that you stay on top of your hard earned cash and investments.
Don’t leave your company or personal assets exposed to any unnecessary risk. After all, in these changing times, we can all use something that we are certain about – our insurance coverage.
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October 24. 2012 | Daniel O'Shea
Why a CPA Will Never Be President
As I’ve been watching the political debates on television, it dawned on me that a CPA is unlikely to ever win the Presidency of the United States. Why do I say that? The obvious answer is that we don’t like deficits, but more importantly, I’m thinking we wouldn’t perform well in a Presidential debate. CPA’s are trained to think analytically and be accurate in everything that we do. We think before we speak or write. It’s interesting after the debates to see what the so-called “fact-checkers” find as credible and accurate, and what they find that isn’t either of those. This is not a political piece. This piece is about CPA’s and what makes us our clients’ most trusted advisor.
CPA’s are respected not only for our depth of knowledge, but also for our character. We have high integrity, and a desire to be accurate and truthful in all that we do. Are we advocates for our clients? Of course, that’s what professional service providers do. However, we are governed by ethics and standards, which guide all that we do. We are candid with clients, even when the news is not good. Here at Watkins Meegan, we live our core values every day.
We demonstrate this on a regular basis with our not-for-profit clients. Now more than ever, not-for-profits want to be transparent, and expect the same from their accountants. Management, audit committees, and boards are more engaged in the audit process, as well as in the review and presentation of Form 990. Operationally, they want feedback, they want to know of industry best practices, and they want to engage in more strategic discussion. This type of interaction is a great thing.
So, while there may not be any CPA’s who have been President, there have been many CPA’s known for their candor. I do believe it may have been a CPA in his or her youth, who correctly and unreservedly pointed out that “The Emperor wears no clothes!”
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October 19. 2012 | Rebecca Kehoe
Whistleblower Protection Enhancement Act
Why would the U.S. Government want to improve upon the rights of whistleblowers? The most significant aspects of this bill (S. 743) are 1) the expansion of protection for disclosure of Government wrongdoing, 2) the expansion in coverage and fair processes, and 3) the establishment of administrative authorities’ rights and responsibilities. You may have heard about the recent IRS award of $104 million (yes, million) dollars to a former employee of UBS AG for helping expose the widespread tax evasion scheme by the Swiss Banking giant. UBS was fined $780 million and agreed to give the U.S. Government the names of 4,700 Americans who held secret overseas accounts. The disclosure under the Act created a recovery of $5 billion (yes billion) in back taxes and penalties by the IRS. So, now do you understand why the Government wants to enhance whistleblower protections?
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October 17. 2012 | Rebecca Kehoe
4 “Take Aways” from OMB’s Report and Memo on Sequestration
1st Take Away (Report): How much and where? The OMB Report shows Defense discretionary spending cut by approximately 9.4% and Civilian agency spending cut by 8.2%, for a total of $109 billion in cuts. However, the report lacks the detail required to determine which programs and contracts will actually be cut and by how much.
2nd Take Away (Report): Will sequestration really happen? The report states, “The specter of harmful across-the-board cuts to defense and nondefense programs was intended to drive both sides to compromise. The sequestration itself was never intended to be implemented. The Administration strongly believes that sequestration is bad policy, and that Congress can and should take action to avoid it by passing a comprehensive and balanced deficit.” Bottom line: It will be up to the newly elected Congress and President.
3rd Take Away (Report): What should federal contractors do now? Contractors should be talking now with their government CO’s and their government Program Managers to try to get an understanding of the importance of their current contracts and where they would stand should budget cuts become mandatory. However, DoD Contracting Officers have been told to “continue normal spending and operations.” And that no programs, personnel, or activities are to “suffer the harmful effects of sequestration while there is still a chance it can be avoided.”
4th Take Away (Memo): Contractors MAY be able to get any costs associated with WARN Act liability reimbursed under their termination claims if sequestration happens. This is a big MAYBE as Congress is not so keen on OMB’s Memo. Still, document, document, document all termination costs, including costs associated with any WARN Act actions.
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October 4. 2012 | Patrick Whitman
Football and Accounting: Not as Different as You Might Think!
When you start off your career as an accountant and jump straight into busy season, such as I did, you don’t have much time to get your bearings or draw clever analogies (as I’m about to do) because there’s much work and learning to be done. Once those grueling twelve weeks are over, though, you finally get a chance to reflect and draw ridiculous similarities to things you like discussing with your buddies at the bar or your significant other (who likely won’t be paying attention anyway). It’s come to my attention that being an accountant and, more specifically, working at Watkins Meegan, is a lot like being a part of an NFL football team.
First off, football is a team sport, and the most successful teams in NFL history have always been the ones that operate as a team, not just a collection of individuals. In the same way, accountants are not islands unto themselves. We require collaboration, and not just with other accountants, but with clients and other outside services to make sure that everything functions the way it should: that workflows are routed like a finely thrown pass and information is passed around like graceful hand-offs. Secondly, we both have diehard fans. Just like I wear silver and black each Sunday to support my team (go Raiders!), our clients wear green and brown all year and root for us to get them into the best position each taxable year. Finally, we all have roles to play. Just like a football team has offense, defense, and special teams we as a firm consist of several divisions, whether it be it Admin, PCS, Construction, NFP, or GovCon, that must all function as one seamless unit – each part as important as the next – for us to achieve our goals as a firm. Being strong in only one area leaves the rest of your team weak, but strength and unity in all areas brings unparalleled success. So the next time you Redskins fans see RGIII throw a beautiful touchdown pass or you Ravens fans see Ray Lewis crush an opposing running back, remember this: you’re just like them!
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September 26. 2012 | Anne Robinson
Prepare for Preparation: 2012 Taxes
A consensus has been reached for the 2012 year-end tax preparation season – prepare yourself. With Congress’ summer session closing with little decided in regard to new and expiring tax provisions, the question of which provisions will be effective for the 2012 tax year, which provisions will be retroactively applied, and which provisions will be repealed remains unclear. Those that have not been resolved, among several others, include the (Alternative Minimum Tax) AMT exemption amounts, payroll tax cuts, and almost 70 annual extenders.
Possibility of Amended Returns for AMT: Set to expire at the close of 2011, the annual AMT exemption amounts have not yet been extended into 2012. Congress must reach a resolution regarding AMT by April 15, 2013; however, the timing of its pronouncement could create issues for those who file for 2012 prior to a final decision – such filers would be required to file amended returns, depending on the ultimate resolution.
Retroactive Applications – Extenders: These provisions apply to both businesses and individuals and will expire at year-end. Extenders set to expire at the end of 2012 include the 2% payroll tax cut and several Bush tax cuts, such as the marriage penalty relief, lower rates on ordinary income, capital gains and qualified dividends, and increases to tax benefits such as the child tax credit. While, historically, these extenders have seen support from both Democrats and Republicans, the growing number and related costs have increased the difficulty and complexity of extension. Additional conflicts have emerged concerning whether the preference that these provisions show to certain industries is in line with tax reform goals and if they should be allowed to permanently expire. Historically, as in 2009, Congress has waited until the end of the following taxable year to renew the extenders. In such a case, the provisions would be applied retroactively.
The effects of these expiring provisions may impact everything from paying dividends in 2012 to avoid the potential tax hike from 15 percent to 44 percent (should the Bush tax cuts be allowed to expire), to the timing of income and deductions. While little has been decided in the way of these provisions for 2012, everyone can agree on the complication and convolution that may face taxpayers and preparers alike for the next tax year.
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September 19. 2012 | Daniel O'Shea
Pennant Chases, Ryder Cup, Fantasy Football and…Business Intelligence?
It’s not a misprint. If you’re a sports fan, you have no doubt noticed the number crunching and data mining going on in sports this time of year. From the baseball pennant chase (as well as the Stephen Strasburg inning count and projected shutdown date), to golf’s FedEx points chase and Ryder Cup selection and, last but not least, to fantasy football, data is being mined and statistics are being analyzed and talked about, thanks to the help of technology. Those 4-hour fantasy football drafts are now a thing of the past. You can complete drafts in 90 minutes and, if you’d like, you don’t even need to participate – just let the software pick for you. As I completed my draft the other night, I thought about how much easier player data is to collect and analyze these days, and I thought of parallels to our June Lunch and Learn on Business Intelligence (BI) for Associations.*
As I mentioned in the Lunch and Learn, the time is right for Not-For-Profits to make use of BI. The recession changed the way NFP leaders (boards and management) must think when it comes to financial management and financial reporting. Additionally, good governance practices and competition in the marketplace also shape the way of thinking. NFP’s must be forward thinking and identify financial and operational trends as they occur. BI allows them to do so. Internal controls are also improved through BI, as errors or irregularities can be indentified within hours, rather than waiting for month-end financial analysis.
I define business intelligence as “the timely accumulation and analysis of financial and other data to achieve strategic and operational objectives.” It starts with identifying the right metrics and, once established, setting appropriate benchmarks. Secondly, the data should be analyzed timely. Stale data loses its value. Finally, effective analysis should be a collaborative effort among senior management. BI helps eliminate “Silo” management and reporting, while promoting accountability.
Whether you are Mike Rizzo, Davis Love III, or the CFO of a not-for-profit, data and statistics can help you make informed management decisions, and the tools needed to do so are a lot more accessible these days. Contact me at Daniel.Oshea@WatkinsMeegan for more information and/or a BI demo.
* Associations are just one type of NFP that we serve. Stay tuned for a Lunch and Learn on Business Intelligence for charities and other NFP’s.
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September 12. 2012 | Lindsay Dattilio
Taxing the Olympians
Along with millions of other Americans this summer, I enjoyed watching the 2012 Summer Olympics and learned several new facts during those few weeks. I learned Michael Phelps has more Olympic medals than most small countries. I also learned that the trampoline is an actual Olympic event. But, most surprisingly, I learned U.S. Olympic medalists receive prize money for earning a medal.
U.S. athletes who win medals during the games are awarded honorariums from the United States Olympic Committee. Athletes earn $25,000 for a gold medal, $15,000 for silver, and $10,000 for bronze. And just like any other type of honorarium, this amount is fully taxable. Add to this amount the value of the medal itself, which should also be included in the Olympian’s taxable income. The U.S. isn’t the only country to reward their Olympic athletes; in fact, the U.S. prize money is quite small compared to several other countries. Russia pays out $135,000 for each gold medal earned by their athletes.
There are many people who believe the Olympians should not be taxed on such winnings, including Senator Marco Rubio of Florida. Senator Rubio introduced a bill in August that would exclude the honorarium and the value of the Olympic medal from federal tax. The Olympic Tax Elimination Act would apply to medals won after December 31, 2011. We will have to wait and see if Michael Phelps will have to pay tax on all six of his 2012 Olympic medals.
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September 5. 2012 | Andrea Contres
Watkins Academy – A New Service Offering from the GovCon Team at Watkins Meegan
The Government Contracting & High Tech team at Watkins Meegan is comprised of top-notch CPAs who are also out-of-the-box thinkers. While, yes, they are accountants, they also know the importance of business and people development and client relationships - which I appreciate! I am never surprised when I’m called into a meeting to learn about a new idea or project they would like to launch. Several months ago, I was part of a meeting to discuss the creation of Watkins Academy, another pioneering idea to add-value to clients.
With the tagline, “We take the complexity out of government contracting,” Watkins Academy was developed with our clients in mind. The goal was to provide a broad range of government contracting training services to our clients. Each class can be customized to fit your needs and the classes can be taught at your location. This is a convenient, cost effective way for our clients to provide valuable training to their employees. Watkins Academy provides training in four major areas: the basics of government contracting, accounting, business systems, and advanced topics. The topics include FAR, CAS, indirect rates, contract types, policies and procedures, labor, revenue, cost principles, audit readiness, internal controls, DCAA/DCMA, ethics, and conflicts of interest, just to name a few.
If you are interested in learning more about Watkins Academy, email email@example.com. Also, to find out which of our CPAs are instructors for this exciting new service, check out their bios on www.watkinsmeegan.com. All instructors will have the Watkins Academy logo beside their name.
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August 29. 2012 | Rebecca McDonald
Employee Benefit Plans: Full Disclosure
August 30th – time to get ready for the long holiday weekend and, more importantly, make certain your 401(k) fee disclosures are distributed to Plan participants and beneficiaries. Simply put, calendar year 401(k) Plans are required to disclose 401(k) fees to Plan participants and beneficiaries by August 30, 2012. What does this entail? This is the inaugural annual disclosure of Plan level and investment level fees and expenses incurred by the Plan. If your Plan year begins after July 1st, the initial disclosure is due 60 days later. And finally, if your Plan year begins after October 1st, the disclosure is due no later than November 30th.
On the horizon, no later than November 14, 2012, the first Plan quarterly statements will be required to reflect the fees and expenses actually deducted from the Plan and participant accounts.
These disclosures will most likely generate a lot of questions from Plan participants. Trustees, HR, and accounting departments should be ready to field these questions. The best defense is a good offense. Make sure you and your HR and accounting staff understand your Plan’s fee structure and are able to field the questions from your employees. Schedule an information session with your Third Party Administrator to assist your employees with the new information. Any questions about your fee structure? Give us a call, we’ll be glad to assist.
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August 22. 2012 | Elizabeth Dunseith
Things to Consider When Taking Your Company Public
Taking a company public is a huge step for any organization and not a decision that is taken lightly. Consider the recent activity by Facebook. The online website known for connecting millions of friends and redefining the word ‘Like’ became an overnight sensation in the mid-2000’s. As a result of the rapid success, many thought it was only a matter of time until the company went public. In 2012, it finally did, but with much less punch than expected. There have been reports that Mark Zuckerberg was initially hesitant to take Facebook public. Regardless of the founder’s feelings toward the IPO, there were several factors that went into play prior to the opening trade. If your company is considering an IPO in the future, consider the many advantages and disadvantages before making the final decision.
Shareholders benefit when the company does well, so there is a common goal to see the company profit. Shared risk is also something to think about. Another important consideration is the increased market awareness that can ultimately lead to better branding and marketing opportunities as well as potential opportunities for mergers and acquisitions.
Although there are several benefits to taking a company public, there are also several disadvantages. While the increased transparency is a huge benefit to investors, the extensive reporting requirements required of public companies are often seen as a tedious and time-consuming task. Perhaps the loss of control may be the biggest disadvantage to owners considering taking their company public. Now, reporting to multiple stakeholders and many stockholders, you do not necessarily have the same authority you once had, and this is often seen as a limitation.
There are several factors to take into account when considering taking your company public. Sometimes the benefits outweigh the negatives, and sometimes keeping the company privately held is the best option for the organization. It is important to look at all the facts and have the right team in place to ensure your company can survive, and thrive, whichever decision is made.
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August 15. 2012 | Lauryn Blair
Occupational Fraud Around the World
It generally takes at least 18 months for occupational fraud to be uncovered, and many cases are never discovered. Employees committing fraud are, in most cases, burying it deep within the corporate system. Certified Fraud Examiners from 94 countries around the world compiled data from 1,388 occupational fraud cases occurring in 2010 and 2011. The data was analyzed by the Association of Certified Fraud Examiners (ACFE) and presented in the 2012 Report to the Nations on Occupational Fraud and Abuse.
Based on the results of the ACFE report, the average organization is losing at least 5% of revenue annually, with a median loss of $140,000. Asset misappropriation, including theft of cash receipts, disbursements, and inventory, is the most frequent type of fraud, with 87% of the cases. Corruption is the second at 33%. Corruption cases include conflicts of interest, bribery, and economic extortion. Finally, 7% of the cases are financial statement fraud resulting from intentional misstatement. Financial statement fraud, the most damaging to an organization, had a median loss of $1 million in 2012.
Certain countries and types of organizations are more likely to
become victims of occupational fraud. Of the 96 countries studied, the United States had over half of the cases, followed by China, India, and South Africa. Private companies are the most prevalent type of organization; they also suffer the greatest losses, followed by public companies. Organizations with fewer than 100 employees are also at the top of the list, most likely due to the lack of internal controls.
Other interesting statistics from the ACFE 2012 Report to the Nations:
• Industries most commonly victimized were banking and financial services, government and public administration, and manufacturing.
• The presence of anti-fraud controls is correlated with significant decreases in the cost and duration of occupational fraud schemes.
• The majority (77%) of fraud was committed in one of six departments: accounting, operations, sales, executive/upper management, customer service, and purchasing.
• Nearly half of victim organizations do not recover losses they suffer due to fraud.
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August 8. 2012 | Rachel Lavine
In with the Interns
Interns – we’ve long been referred to as the bottom of the totem pole in any business hierarchy, or at least, that is what I initially expected when I started my internship in late May at Watkins Meegan. I never anticipated that I would learn half as much about the accounting world as I have in these past 10 weeks.
Interning for the Private Company Services Group at the Bethesda office has shown me what to expect when it comes to “real” accounting work. A student can sit with a book and study for days about how to correctly balance debits and credits, but the best way to learn is by actually doing the work. Sitting down to work through my first Forms 1040, 1065, and 5500 was a powerful learning experience. I’m not too proud to admit that in doing so I stumbled, but there was always a staff member willing and able to answer my questions. Staff members were also extremely encouraging, which drove me to want to excel at those tasks.
Tax work was a large chunk of my work effort, but I was also fortunate enough to be asked to join a team out on an audit in the first few weeks of my internship. Seeing how the accountants on the audit interacted with the clients debunked one of the most common and most flawed views of accountants – that they are “shut-ins” who do not like to be around people. Because accounting is inherently providing a service to the client, interaction is a necessity. I would even be so daring to say that accountants are required to be sociable and amicable.
There are two other common misconceptions about serving as an intern I would like to point out. One of the pieces of advice I received before starting my internship was to never make eye contact with the “higher-ups.” In reality, the partners whom I have had the pleasure to meet or just see around the office have been nothing short of kind and welcoming (Mr. Fleetwood, here is your shining moment!). The second piece of advice I received was that the only work I will ever get to do will consist of filing paperwork and memorizing everyone’s coffee order. In fact, that could not be farther from the truth! The only coffee I ever fetched was my own, and while I did complete my fair share of scanning documents (out of sheer necessity due to the Bethesda office move), all of the PCS staff almost desperately tried to give me real accounting work whenever they could.
The most important lesson that I am taking away from this experience is how it solidified my decision to pursue a career in accounting. Through the program, I was able to observe staff accountants doing the most basic tasks all the way up to meeting with the members of each division within the firm. The one constant I found through interacting with each staff level was their passion not only for their work, but for the growth of the firm as well. It is inspirational to see how each employee is dedicated to perfecting their individual tasks while working together as a unit to better the future of the firm.
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August 1. 2012 | Drew Dunn
Auf Geht’s Deutschland!
At the end of June, I took a break from my role as a staff accountant on Watkins Meegan’s Not-For-Profit Team and suited up with another team. I was honored to have had the privilege of representing Germany in the European Lacrosse Championships held in Amsterdam. The tournament, which is held every four years, was a great success, not only for Germany, but also for the game of lacrosse. It was great to see such a high level of competition displayed by Europe countries, and this is a testament to how rapidly the game of lacrosse, and the lacrosse community, is growing overseas.
You might wonder how a guy with the last name of “Dunn” got to play for the German team. I met the “Ancestor Rule” because of my German grandmother, but I also participated in a tryout and separate practice session in the country.
Germany, along with 5 other teams, competed in the Blue Group—the top group in the Men’s Division. We finished with a strong 6-2 record overall, defeating three of the top four ranked European teams while fielding a team of almost all home-grown German players.
The highlights for me were participating in the Opening Ceremony and playing in the first game of the tournament. The opening game was played in the Olympic Stadium which hosted the 1928 Summer Games (during which lacrosse was a demonstration sport). We played against the host country—Netherlands, winning by a close margin of 9-8.
The next major tournament will be the World Games, which is played every 4 years and will be held in the summer of 2014 in Denver, Colorado. Germany will again play in the Blue Group against lacrosse superpowers USA, Canada, Australia, and the Iroquois Nation.
This was an amazing experience for me personally, and I could not have pursued this opportunity without the tremendous support from family, friends, coworkers, and my German teammates. Thanks to all of you for your support, and “auf geht’s Deutschland!”
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July 18. 2012 | Rebecca Kehoe
How to Team with a Small Business Prime
Did you know that Small Businesses represent 99.7% of all U.S. employer firms? So now you can understand why Congress wants to increase the Government’s contracting goals to Small Businesses from 23% to 25% and also increase fraud penalties for those who abuse the Small Business Set-Aside Programs.
This means that more Federal work will be set-aside for Small Businesses and that you will have to find a way to team with a small business without violating the “Affiliation Rule.” Under the Affiliation Rule (13 C.F.R. 121.103(a)(6)), entities are affiliates of each other when one controls or has the power to control the other. It does not matter whether control is exercised, so long as the power to control exists. SBA considers factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships in determining whether affiliation exists to make sure the subcontractor is not the “Ostensible Contractor.” An “Ostensible Contractor” is a subcontractor that performs primary and vital requirements of the contract or a subcontractor that the prime is unusually reliant upon.
So how do large and small businesses team with a Small Business Prime and avoid being the “Ostensible Contractor”? Here are a few tips: 1) In your Teaming Arrangement, make sure you are following FAR 9.6 Contractor Team Arrangement requirements and make reference to this FAR provision; 2) In your teaming document, describe the “primary and vital” requirements of the work and make sure that the Small Business Prime is performing/managing those requirements; 3) Make sure the Small Business Prime has sufficient skill sets and past performance to qualify for the primary and vital requirements of the work; 4) Use the Small Business Prime teaming agreement template and not the large business’ template; and 5) Wherever possible, include the description of the work and not to exceed percentages of work to be performed by each proposed subcontractor to ensure that the Small Business Prime is performing the required percentage of work (which is typically more than 50%, except for certain contract types, e.g. construction).
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July 11. 2012 | Beth Dodson
Are You in Control?
We’ve been hearing reports from various sources for years now about how the economic crisis in the U.S. has reached the recovery phase after a prolonged recession period, but a strong majority of private business owners remain skeptical. The despondent economy has hit small business especially hard, claiming many casualties along the way. In uncertain times such as these, the most successful organizations actively seek ways to improve what they do and how they do it. There is no better time than right now to give your small business a preventative checkup – and there’s no better place to start than with the internal controls supporting your accounting function.
Accounting is the core of your small business. You rely on the financial data from your accounting department to make daily business decisions; to obtain bonding and financing to support your operations; to avoid and counter fraud; and to plan for the future. The accounting function of your business is only as reliable as the internal controls that you have in place to support it. Internal controls protect your business resources. If controls are lacking, you will have little assurance that your data is reliable and that management directives are being carried out.
As a small business owner, you already know that it’s difficult to remain profitable in any economy. Knowing that, ask yourself if you trust your financial data to help you plan and make decisions in this economy. If your response to that question isn’t an adamant “Yes,” then now is the time to make some changes.
Watkins Meegan LLC has significant experience in testing and assessing the adequacy of internal controls against multiple risk factors. We have experience working with clients to strengthen their internal control policies and procedures. If you want help assessing your controls, give us a call. If you want to assess your controls on your own with our guidance, let us know and we’ll help you get started. Now is the time to improve what you do and how you do it.
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July 3. 2012 | Elizabeth Dunseith
Things to Consider When Taking Your Company Public
Taking a company public is a huge step for any organization and not a decision that is taken lightly. Consider the recent activity by Facebook. The online website known for connecting millions of friends and redefining the word “Like” became an overnight sensation in the mid-2000’s. As a result of that rapid success, many thought it was only a matter of time until the company went public. It finally did in 2012, but with much less punch than expected. There have been reports that Mark Zuckerberg was initially hesitant to take Facebook public. Regardless of the co-founder’s feelings toward the IPO, there were several factors that came into play prior to the opening trade. If your company is considering an IPO in the future, consider the many advantages and disadvantages before making the final decision.
Shareholders benefit when the company does well, so there is a common goal to see the company profit. Shared risk is also something to think about. Another important consideration is the increased market awareness that can ultimately lead to better branding and marketing options as well as potential opportunities for mergers and acquisitions.
Although there are several benefits to taking a company public, there are also some disadvantages. While the increased transparency is a huge benefit to investors, the extensive reporting requirements required of public companies are often seen as a tedious and time-consuming task. The loss of control may be the biggest disadvantage to owners considering taking their company public. When reporting to multiple stakeholders and stockholders, you do not necessarily have the same authority you once had, and this is often viewed as a limitation.
There are numerous factors to take into account when considering taking your company public. Sometimes the benefits outweigh the negatives and sometimes keeping the company privately held is the best option for the organization. It is important to look at all the facts and have the right team in place to ensure your company can survive, and thrive, whichever decision is made.
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June 29. 2012 | Rebecca McDonald
New Employee Benefit Plan Deadlines Are Looming!
Deadlines are looming if your company offers any type of ERISA covered employee benefit plan. There are three key dates that you must adhere to on the horizon.
July 1st, mark your calendars! All covered service providers must provide fee disclosures to the Plan fiduciary in order to determine what is reasonable compensation paid to these providers and whether you have potential conflicts of interest with them. What’s a covered service provider? Anyone who charges the Plan more than $1,000 a Plan year and provides recordkeeping, brokerage services, or determines the available investment options for the Plan. It also includes anyone who receives indirect compensation for the following services: accounting, auditing, actuarial, appraisals, valuations, banking, and third party administration services.
If you don’t receive this information from your service providers, the service arrangement will not be considered “reasonable” by the DOL and will be deemed a prohibited transaction. This responsibility is squarely on the shoulders of the Plan fiduciary. If your Plan’s service providers don’t provide this information to the Plan in writing, the service provider can be deemed a disqualified person and subject to excise tax.
Sound harsh? It is, so contact your Plan’s service providers and make sure they will provide this information to you in writing by July 1st. As a Plan fiduciary, you don’t want to expose the Plan to these penalties and disclosures on the Form 5500.
I mentioned there were 3 important dates; what about the other two? Stay tuned for my next blog, as there is another key deadline on August 30th.
Does this leave you confused about what to do and who to contact? Give us a call at Watkins Meegan. We’ll be glad to help you navigate these new requirements.
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June 20. 2012 | Patricia Suchter
The average cost of theft in the United States is 5% of a company’s total revenue per year. Not only does theft cause a direct financial loss to a company, but also the erosion of customer trust, a decrease in employee morale, and an increase in costs due to the need to investigate the theft. Strong internal controls are one of the greatest attributes for decreasing theft within an organization.
Internal controls are accounting procedures or systems that are designed to promote efficiency, assure the implementation of a policy, safeguard assets, and avoid fraud and errors. There are several key components that are necessary in order to have strong internal controls. They include segregation of duties, authorization of transactions, retention of records, supervision and monitoring, and physical safeguards.
Here are some of the best practices for implementing the key components of internal controls:
Zero tolerance policy
Policies and procedures manual
Document imaging to verify backup
Use of financial reports to analyze variances
Each system user should have his/her own username and access
If these best practices are followed and the key components of internal control are implemented, a company can greatly reduce its exposure to theft.
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June 13. 2012 | Jim Wagenmann
Wage and Tax Payments for Interns
In 2010, the Department of Labor Wage and Hour Division issued a fact sheet covering internship programs under the Fair Labor Standards Act. The fact sheet provides information to help employers decide if they must pay interns the minimum wage and overtime. In 2010, only 18% of interns were paid the minimum wage and overtime; the rest were either paid less than minimum wage or no wage whatsoever.
If a person is permitted to work for an employer, they must be compensated for the services under the Federal Law. However, there are circumstances under which an individual participates in “for-profit” private sector internships or training programs where they do so without compensation. The Supreme Court has ruled that the term work for cannot be interpreted to make a person whose work serves only his or her own interest be considered an employee of another who provides aid and instruction. Each situation has to be looked at individually. To be considered an educational program, there are six criteria that must be met. These scenarios are as follows:
1.The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment.
2.The internship experience is for the benefit of the intern.
3.The intern does not displace regular employees, but works under the supervision of the existing staff.
4.The employer providing the training derives no immediate advantage from the activities of the intern and, on occasion, its operations may actually be impeded.
5.The intern is not necessarily entitled to a job at the conclusion of the internship.
6.The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
#1 above is enhanced if the internship is structured more as a classroom type experience or the intern is overseen by an educational institution.
#2 above is not met if the employer is using interns as substitutes for regular workers or to augment the existing work force during specific time periods. If interns meet these criteria, they must be paid at least minimum wage and overtime for hours worked in excess of 40 hours per week.
#5 above requires that the internship be for a fixed duration which is established prior to the outset of the internship.
If all six of the above criteria are met, an employment relationship does not exist and the minimum wages and overtime rules do not apply.
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June 6. 2012 | Daniel O'Shea
The Greatest Outsourcing Ever???
Last week, America entered a new phase in space travel and exploration. For the first time, a private company contracted by NASA successfully launched a rocket and delivered a cargo payload to the International Space Station. The rocket then successfully returned to Earth, splashing down in the Pacific Ocean. This is arguably one of the greatest examples of outsourcing in modern times. Fascinating? Yes. Surprising? No.
We see it every day in the outsourcing services we provide to clients. When done right, outsourcing provides significant measurable and immeasurable benefits. First, NASA, like any outsourcing client, frees up its human and capital resources to concentrate on other pressing endeavors. Second, the quality of the product or service is not only maintained, but enhanced. Third, it can be more cost effective. Lastly, the delivery time is shortened.
What makes outsourcing a project or function successful? On the client side, it takes a point of contact responsible for serving as the liaison to the outsourced provider. On the provider side, it takes a provider who knows your business, who specializes in the services being provided, who understands the scope of the project, and who is committed for the duration of the project.
It works for NASA and it works for our clients. Whether not-for-profit, government contractor, construction, real estate, hospitality, or middle market public and private companies, and regardless of size – let us help you successfully launch your accounting or tax projects. Prepare for Lift-Off in 3-2-1….
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May 30. 2012 | Anne Robinson
Face-Off: The Bush Tax Cuts
Uncertainty is the word of the day as the November elections loom ever closer - but not just in reference to who will be sitting in the Oval Office this winter. As the Bush Tax Cuts near their expiration, Republican senators have started pushing for Democrats in Congress to approve the rate extension this summer rather than delaying the decision until the lame-duck session after the election, as was the case in 2010. GOP senators are voicing their concerns about how the prolonged uncertain status of these tax cuts continues to negatively affect the economy.
The potential effects of not extending the rates, in conjunction with the spending cuts which are scheduled to take effect in January 2013, are being likened to a “fiscal cliff” that could be disastrous for the already fragile economy. While John Boehner recently pledged that the House will vote to extend all of the Bush Tax Cuts, Washington Democrats have already expressed their unwillingness to extend the rates for the wealthiest taxpayers - only voicing support for those given to the middle class. Timothy Geithner has maintained that the United States can’t renew the tax cuts for the top 2% without the possibility of defaulting on the nation’s credit, as well as necessitating cuts to education and other public programs – a scenario to which Democrats won’t consent. President Obama has promised to veto any bill that attempts to extend the tax cuts for those earning more than $250,000 per year.
In one of the most polarizing issues facing Congress today, neither side of the aisle has conceded yet. Is there a compromise to be found somewhere between the warnings of “Taxmageddon” and plans to get deficits under control through increased revenue contributions from wealthier taxpayers? We will have to wait six uncertain months to find out!
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May 24. 2012 | Rebecca Kehoe
What’s A Government Contractor Worth?
Are you worth $340 an hour? Or more like $192 hourly? Makes $96 an hour almost seem low, doesn’t it? There is currently a lot of debate over how much the Government should reimburse its federal contractors for their executive’s compensation.
According to the Office of Federal Procurement Policy (OFPP) in its memo dated April 23, 2012, the upper limit on the amount of executive compensation that will be reimbursed to federal contractors as allowable costs for Fiscal Year 2011 (Jan. 1, 2011 to Dec. 31, 2011) is $763,029, which is approximately $340 per hour. This amount is up from $693,951 for FY 2010 per the requirements of the formula in section 39 of the OFPP Act. The FY 2012 Defense Authorization Act extends the reimbursement cap to any federal contractor employee performing under a “covered contract” and not just the top five executives.
However, there has been much posturing on just how high the compensation ceiling should be. The Obama administration has called for a cap tied to the level of the salaries of Cabinet officials, which is around $200,000 or $96 per hour; the Senate has introduced legislation S.2198 limiting it to $400,000 or $192 per hour and apply it to all prime contractor employees; on the other hand, the House seems to agree with the President and would set a $200,000 limit under H.R. 2980 and apply it not just to all federal prime contractor employees, but to their subcontractor employees too. And it is not just the federal government that is imposing compensation caps, State governments are doing likewise. New York Governor Andrew Cuomo signed an executive order in January of this year limiting the maximum contractors can charge New York state agencies for their executive’s compensation to Level I of the federal government’s executive pay schedule, or about $200,000. It appears that federal and state contractors are going to be worth less in years to come.
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May 16. 2012 | Kristin Drozdowski
101 Uses for SharePoint
Okay, I’m not going to list 101 ways to use SharePoint, but I’ll bet I could.
It’s hard to find a company these days that isn’t using SharePoint, but I’ve been surprised by the number of users who seem to view it only as a document repository. After all, isn’t being a document repository what a network shared drive can do for you? SharePoint not only allows you to store documents centrally, but also to collaborate with co-workers, maintain version history, add columns of information to be associated with documents, add lists of information that can be quickly and easily transformed into an Excel spreadsheet, and more. These are just the basics. With a little creative thinking, the possibilities are endless.
Remember the days of the network shared drive with folder, inside folder, inside folder, and naming conventions mutating with every user? My personal favorite was using some combination of “v1,” “v2,” or a date after the filename to manage version history, only to find that an earlier version had a more current date stamp. It’s a miracle we could find anything. Our Risk Services team has created a SharePoint portal with multiple SharePoint sites to manage almost everything our group needs. We have areas for blogs and newsletter articles, proposal and seminar development, upcoming training and networking opportunities, policies and procedures, links to frequently used websites, and more. We’ve even created a Customer Relationship Management (CRM) Database for our firm using SharePoint. If our team is working on it, there’s a site for it.
No matter what your business, SharePoint can help you get organized and share information efficiently and effectively across your team or department. For example, Accounting Departments can manage account reconciliations, including the use of a simple approval workflow to track preparation and approval. Internal Audit Departments can manage audit work paper preparation and approval. Once you envision the layout, creating sites is simple.
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May 10. 2012 | Patricia Suchter
Value Pricing vs. Hourly Billing
CPA professionals typically use an hourly rate to bill customers for the services provided. However, some CPA professionals believe we should start moving away from hourly billing and start moving towards value pricing.
Value pricing is the practice of setting the price based on the value of the services provided to the customer. Some will argue that most accounting firms do just that by examining hours spent providing services and marking them up or down according to the value given to the customer for those services. Value pricing is a little bit different, as it allows you to provide a fixed price up front to the customer and/or bundle services into a package deal.
Advantages of value pricing:
- Provides the opportunity to cross-sell additional services
- Improves communication
- Projects confidence as opposed to being unable to inform the client up front of a price as with hourly billing
- Allows the firm to gain back price leverage
- Easier to increase fixed-price agreement (FPA) prices than to increase your hourly rate
- Provides a competitive differentiation for your firm
- Provides less risk for the client when it comes to the certainty of the price
- Allows the client to focus on the firm’s total value proposition rather than prices for each service rendered.
Approximately one quarter of accounts in small and sole practitioner firms have implemented value pricing and some professionals believe this will become the way of the future. One of those professionals is Jody Padar, an up and coming CPA who has transformed her father’s CPA firm. Check out this interview she did in which she talks about value pricing: http://www.freshbooks.com/blog/2012/03/21/cpa-jody-padar-and-the-new-world-of-digital-accounting/.
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April 27. 2012 | Vanessa Teitelbaum
Here’s what the email said:
“From: Transit, DoNotReply – Good morning Ms. Teitelbaum, I do apologize for your bus not showing up but the bus in question did not come because of an unscheduled service interruption. Again, I do apologize for your bus not showing up."
Really? Is that it? Here’s the back story. Recently, I’ve been taking the bus to work. It has actually been pretty nice. I don’t live far from the office, it’s nearly door to door, it’s not a long ride…all in all – it’s quite pleasant. Except when the bus doesn’t show up, and this has happened twice. Because the bus only comes every 30 minutes, I waited for 35 minutes for the next one. Later, I fired off a complaint. And you can see the helpful response received.
This got me thinking about client service. Are my clients satisfied? Are the prospects I am targeting satisfied? As tax season winds down, it’s a good time to find out. A little discussion can go a long way. Just asking can smooth ruffled feathers (if there are any). It doesn’t have to be a formal survey, just an email or a phone call or lunch – “How are we doing?” Companies that didn’t have a positive audit or tax experience and are contemplating a switch may be receptive to a meeting. You don’t want that company to be your client.
We all make mistakes, and we can always do better. Are you receptive to your clients’ feedback? Are you making suggestions to your clients on how they can help the process? Hopefully your clients don’t want to switch accountants. They like you. They want to stay in their current situation, but would (maybe) like something (fill in the blank) to change. Having this discussion can improve your service and your client’s satisfaction.
As for my new commuting situation, I have signed up to receive “real-time notifications” via text of when the bus will arrive at my stop. This is a welcome service that provides me with information I need and makes my commute more efficient. For now, I will continue to take the bus as long as it proves reliable, convenient, and economical.
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April 25. 2012 | Daniel O'Shea
What’s on your 990?
You may have heard about the recent report by an identity security company that reviewed approximately 2.9 million 990’s for years 2001-2006 and found that approximately 100,000 nonprofits had disclosed almost 500,000 social security numbers (SSN’s) on their Form 990 returns. The bad news: Because Forms 990 are available for public inspection, there is a risk that a person’s identity could be stolen from information reported on the 990. The good news: The risk is very manageable when a few simple steps are followed:
First, organizations need to be mindful of the sensitive data being included on their Form 990. SSN’s should not be on the return, except when required (such as when Form 5471 must be attached to the 990). Board member home addresses should only be used when the Board member requests it. Instead, use the filing organization’s address.
Secondly, the filing organization should ask its preparer to provide a draft of the 990 before it is filed. The CFO should review not only the accuracy of the data and narrative disclosures, but also the nature of the disclosures.
Third, when providing a copy of your 990 or putting your 990 on your website, make sure it does not include donor information on Schedule B, and, in some cases, Schedules A and O. The easiest way to accomplish this is to have your tax preparer provide you with a “Public Inspection Copy” of the return, which should have donor information redacted. This copy should be different from the “Taxpayer Copy” of the return.
It should be noted that the returns reviewed were for tax years prior to 2008, when filing organizations often attached numerous schedules to the returns, containing all kinds of data. With the revision of Form 990 in 2008, filing organizations can no longer attach such schedules, so that has reduced the likelihood of sensitive data being disclosed. Although the incidence rate is lower, organizations must continue to be vigilant in their attempts to protect personal information.
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April 23. 2012 | Jim Wagenmann
Individual Retirement Accounts
Any taxpayer with earned income, wages, or self-employment income can contribute to an Individual Retirement Account (IRA). The contribution limit for 2011 is the lesser of earned income or $5,000. If you were age 50 or older by December 31, 2011, you may also contribute an additional $1,000 as a catch-up contribution for a total of $6,000. Contributions to an IRA could have been made at any time during 2011 or they can also be made before April 17, 2012, and earmarked as 2011 contributions.
The tax deduction rules are somewhat complex and depend upon coverage by an employer plan and your income level. If you and/or your spouse are not covered by an employer plan, you may contribute to a tax-deductible IRA no matter what your income level is. If you and your spouse are covered by an employer plan, the deductibility of the IRA depends upon your adjusted gross income (AGI) shown on your tax return. If you are single and your adjusted gross income is less than $56,000, the IRA would be fully deductible. If your AGI is between $56,000 and $66,000, the deductible portion of the IRA contribution is reduced while the nondeductible portion is increased. If your AGI is above $66,000, the entire IRA contribution becomes nondeductible even though it can still be retained by the IRA account. If you are married filing jointly, the income limits for computing the amount of tax-deductible IRA contributions are AGI between $90,000 and $110,000. If you are married filing a separate return, the tax deductible income limits are at AGI of $0.00 to $10,000.
One point to consider is that if you are married filing separate and you are under a separate maintenance agreement and you have lived apart for the entire year, the single taxpayer rules will apply rather than the married filing separate rules. Another scenario to keep in mind is where you are married filing jointly and only one spouse is covered by an employer plan. The income limits for calculating the deductible portion of an IRA contribution are $169,000 to $179,000 of combined AGI. The covered spouse will still have to follow the married filing jointly rules above.
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April 18. 2012 | Rebecca McDonald
Accounting Department Tune-Up
After frequenting the car repair shop recently to keep my aging car on the road, it dawned on me that accounting departments – like our cars – need tune-ups. Whether it’s a simple rotation of responsibilities or swapping out software, you want to make sure your department is running like a well oiled machine and you have a reliable accounting advisor in case of a blowout.
With that said, my career as an auditor and consultant has afforded me the pleasure of observing some very effective accounting teams and others that are in much need of a tune-up.
Often, accounting departments just need a fresh vantage point on how the department is approaching its daily workload. There may be hidden talents and gems in your group and the restructuring of responsibilities can make all the difference. Shuffling the workload or streamlining a process can add efficiency and increase productivity. Sometimes replacing a part or two is in order. While this can be a daunting task, like new oil it improves the functionality of the team and can breathe new life into the group. We can provide the guidance and support in navigating these difficult tasks.
In other cases, it is a matter of technology. Software tools like QlickView and SharePoint help accounting departments and management stay connected with real time reporting and data management. How much time does your team spend recreating reports for management in Excel? Think of the margin for error. With QlickView, management has financial reports at their fingertips. With on demand access to reporting data that management needs to make decisions, they no longer have to task accounting to run that report again. SharePoint, for example, can automate the accounts payable approval process. It not only saves a few trees, but also eliminates the headaches of tracking down invoices. Gone are the days of invoices sitting on a project manager’s desk waiting for approval. Automating transforms it into a transparent process. These tools are cost effective ways to streamline key processes in the accounting department.
We are the trusty – with a strong emphasis on trusty – mechanic who will let you know what is really going on under your accounting department’s hood. Or think of Watkins Meegan as your rental car when you have an open accounting position; we’ll keep you on the road until you get the position filled. Watkins Meegan specializes in accounting department tune-ups, from consultations on your current procedures and restructuring support to technology improvements that incrementally increase efficiency and provide cost savings. We can help. Give us a call, and let’s rev up your accounting team’s engine.
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April 11. 2012 | Jim Wagenmann
Head of Household Filing Status
Many taxpayers do not understand the rules for which tax tables they can use when they are married and living apart from their spouse. Just because you are married does not mean that your only choices are married filing jointly or married filing separately. If you meet the tests spelled out in the tax code and regulations, you may also file as single or as head of household. Both of these choices are less taxing than married filing separately. The tests to qualify as single are as follows:
- You must file a separate return from your spouse;
- You must maintain for more than half of the tax year the principal place of abode of a child for whom you are entitled to a dependency exemption or would have been entitled except for having released the exemption to the non-custodial parent;
- You have to have furnished over half the cost of maintaining the household; and
- During the last six months of the year, the spouse was not a member of the household.
Satisfying the above allows you to use the single tax rates rather than having to use the married filing separate rates.
By satisfying the following rules, you may qualify to use the less taxing head of household tax rates. These provisions are as follows:
- For more than six months of the year (does not have to be consecutive), provides the place of abode of a qualifying child or a child for whom you may claim a dependency exemption; or
- Provides a place of abode for either your mother or father for whom you do claim a dependency exemption.
In addition, you must be treated as unmarried at the end of the year, not be a surviving spouse, not be a nonresident alien at any time during the year, and you must maintain a household.
If you are domestic partners living in a community property state and you provide more than half of the cost of maintaining the household from your own funds, you can qualify for using the head of household tax rates.
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April 4. 2012 | Rebecca Kehoe
Independent Auditor Rotation: Which Side of Fence Are You On?
Sunny Side: On August 16, 2011, the Public Company Accounting Oversight Board (PCAOB) issued its Concept Release on Auditor Independence and Audit Firm Rotation, stating that the Board’s inspections have found audit deficiencies attributable to a failure of the audit firm to “exercise the required professional skepticism and objectivity.” As a possible solution to this problem, the PCAOB’s Investor Advisory Group urged its members to consider mandatory rotation stating that their “key” concern was the level of “coziness” independent audit firms develop with the management of the company being audited based on their “long running audit relationships.”
Grass is Greener Side: On December 14, 2011, GAO issued its comments to the PCAOB Concept Release stating that it is not convinced that audit quality issues identified by the PCAOB are caused by lack of auditor independence or professional objectivity. GAO says that mandatory auditor rotation IS NOT (emphasis added) the way to go, as mandatory rotation “could actually place strain on audit quality in the initial years of an auditor’s tenure due to new auditor’s lack of specific knowledge of the client’s operations, systems and controls.” GAO feels that more extensive documentation and management review is what it will take to drive improvements in the audit process.
So where do you side?
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March 28. 2012 | Lindsay Riebel
First Busy Season Survival Guide
As a first year accountant, I dreaded my first busy season. All through college, my professors warned me of this time that would come each year where I would be cut off from the rest of the world and forget what daylight was and what my friends and family looked like. Now that I am over halfway through my first busy season, I can say that they were partly right. Daylight savings time has given me the opportunity to get out of the office some days before the sun goes down and other than my coworkers, who have become my friends, I really have forgotten what some people look like.
Although the above situation seems bleak and very depressing, I have to say busy season has not been as bad as my professors had described. For those who maybe do not see it that way, I have developed some survival tips to make it through busy season.
- Break up the week with a planned day in which you will go out to lunch with colleagues or friends who work nearby. Although as a first year accountant, you have probably 90 hours of backlog, a one day a week lunch helps you keep your sanity while staring at what seems to be the same 1040 that you have been examining at all week long.
- Update your music list on your Ipod or computer with upbeat music that perhaps helped your productivity in college or with the CPA exam.
- Keep a snack cabinet. Although we have all heard of the busy season 15, a healthy snack when you are feeling drained will prevent your mind going and keep your stomach from distracting you from work at 5 pm.
- Make plans for after busy season. An exciting trip or even just a fun event to look forward to will sustain you when you realize you still have 5 Saturdays left.
- Plan ahead for your days off. During busy season, free time is sparse and although a fun night with friends seems like a better option than laundry, having clean clothes is important and so is having food to eat for dinner.
- Keep in contact with the outside world. Because laundry and food might have to be a priority some days, plan your nights out with friends ahead of time. This way you have something to look forward to and you won’t become stressed about your other responsibilities.
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March 21. 2012 | David Greaves
So now what? That is a question many small businesses are asking these days. Everyone knows the economy has regressed and is struggling. We all see the glimmers of hope with mini stock market rebounds or job gains, but the reality is that times are still extremely challenging even for business leaders who had the foresight to plan for the downturn. Business owners want to know what they can do now, how to survive, and the best ways to learn to plan for the future.
Watkins Meegan is here to provide some of those solutions. There is no magic ball or special powers we possess over the economy of the nation, or even our metro area. What we do have is a group of professionals with specialized knowledge in tools your business could use to help mitigate the hardships everyone is facing.
We have expertise in learning how to work with the Federal Government, from acquiring the work to performing the work to FAR regulations, ethics rulings, Davis-Bacon requirements, and other areas of compliance.
Tax credits are out there and available to be claimed by businesses regardless of the entity’s legal structure. New hire retention, business energy, work opportunity, empowerment zone, research and development expenditures, and fuel tax are some of the savings opportunities of which our clients are taking advantage.
All levels of our organization have experience on long- and short-term consulting engagements to bolster, evaluate, and improve accounting and IT systems.
To answer the initial question, it is time to find solutions. Our team has the expertise and ability to help guide your business towards those solutions. We have all heard the bad news about the economy; now it’s time to figure a way out. Watkins can help.
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March 13. 2012 | Bill Russell
A “Win-Win”: Tax Incentives Now Available to Not-For-Profits Hiring Unemployed Heroes and Wounded Warriors
According to a United States Department of Labor unemployment report, there were nearly 900,000 unemployed veterans in the United States as of October 2011, and the average overall unemployment rate was 12.1% for veterans returning home from Iraq and Afghanistan. In order to restore confidence and pride to Veterans transitioning back home, tax incentives were introduced in 2011 to offer employers larger tax benefits for hiring unemployed veterans. The new benefits offered are part of the Veterans Opportunity to Work (VOW) to Hire Heroes Act of 2011 in conjunction with the Work Opportunity Tax Credit (WOTC). In January 2012, the IRS announced that tax-exempt organizations are now allowed to benefit from the WOTC (IRS Notice 2012-13).
As with any governmental program, there is some paperwork involved, albeit minor compared to the benefits derived for the employer and for the veteran being hired. A brief recap follows:
Before any tax credits can be determined, employers are required to submit a certification request by filing Form 8850 with the state employment security agency or Designated Local Agency (DLA) by June 19, 2012, for veterans hired between November 22, 2011 and May 22, 2012, and, for veterans hired thereafter, within 28 days after the veteran’s date of hire. The DLA will then certify and authorize a qualified veteran to be included in the WOTC calculation.
Tax credits ranging from 16% to 26% are available for hiring unemployed veterans, depending on the length of unemployment prior to being hired, hours worked during the year, and any related service disabilities. As with most tax credits, certain limitations apply. For-profit entities have a maximum allowable credit limitation of $9,600 per qualified veteran and tax-exempt entities have a limitation of $6,240. There is also a distinction on how the tax credits are applied. For-profit entities apply the credit as a general business credit on Form 3800, while tax-exempt entities apply the credit against the employer’s portion of the social security tax liability as determined on their respective 941 employment tax returns.
Not-For-Profits have a history of serving the community, and now have an additional incentive for hiring those who have served not just their community, but also their country. Please contact us for more information on the Act.
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March 7. 2012 | Mary Lou Gervie
Don’t File Your Tax Return at a Local IRS Office
The Internal Revenue Service (IRS) is always anxious for tax returns to be filed, but don’t bother hand carrying your tax return to an IRS office for filing anymore. The IRS wants to stop the practice of taxpayers dropping off their return(s) at a local office solely for processing and mailing when the returns can be mailed directly to an IRS Processing Center or electronically filed. You might be turned away at the door if your motive for filing at a local office is to get your Form 1040 date stamped.
There are exceptions to this new IRS proclamation. If a taxpayer is facing financial harm or undue hardship, such as to file delinquent tax returns or establish an Installment Agreement, then the local office should receive and process the return(s).
The friendlier IRS is now becoming short of staff and is encouraging all taxpayers to e-file their returns. Just remember not to bother walking into a local IRS office to file your return.
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March 2. 2012 | Lindsay Dattilio
A New Tax Form for 2011
Previously I mentioned the IRS has come out with a new form for the 2011 tax year, Form 8938, to report the fair market value of a taxpayer’s foreign financial assets if the value exceeded a certain limit. The minimum total value requirement for Form 8938 is $50,000 at the end of the year or $75,000 at any point during the year for single or married filing separate filers, and $100,000 at the end of the year and $150,000 at any point during the year for married filing joint filers. There are other provisions (and exceptions) for trusts, partnerships, and corporations.
What is considered to be a specified foreign financial asset by the IRS includes several common assets, such as: interest in a foreign trust, estate, pension plan, or deferred compensation plan, interest in a foreign entity (even foreign disregarded entities), and, of course, a financial account maintained by a foreign financial institution. Most taxpayers will have a reporting requirement simply due to their foreign bank account if the total value exceeds the appropriate threshold. Taxpayers are still required to file an FBAR even if they have a Form 8938. However, taxpayers do not have to report their foreign financial asset if it is already reported on Forms 3520, 5471, 8621, 8865, or 8891.
In addition to the fair market value of the specific asset needing to be reported, the foreign income earned by that specific asset is to be detailed on the form. It’s also worth noting that foreign real estate, including foreign rental properties, is not required to be reported on this form, even if the taxpayer recognizes foreign income from their rental property.
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February 29. 2012 | Lindsay Dattilio
Here We Go Again!
The IRS has reopened the Offshore Voluntary Disclosure Program, a measure designed to encourage taxpayers to report their previous unreported worldwide income, following the collection of over $4.4 billion from the original programs initiated in 2009 and 2011. The IRS says there is no deadline this time, as the program will remain open indefinitely. With that said, the IRS could abruptly change the provisions of the program, if not end it altogether, at any time. The only other key difference announced is an increase in the maximum penalty applied to the highest aggregate value of all undisclosed foreign accounts and/or the highest asset balance of all undisclosed foreign entities, which was previously 25 percent. The IRS has boosted the maximum penalty up to 27.5 percent.
Speaking of disclosure, the IRS has announced a new form for the 2011 tax year, Form 8938, Statement of Specified Foreign Financial Assets. This new form requires taxpayers to report the fair market value of all foreign financial assets, if over a certain threshold, to be attached to their income tax return; but more on that later.
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February 22. 2012 | Rebecca Kehoe
January 2012: Small Business Month
January 2012 appears to be Small Business Month. On January 13, 2012 President Obama elevated the Small Business Administration (SBA) back to a cabinet level position and proposed combining six agencies and offices with the SBA into a single agency overseeing trade and business. The six agencies and offices are: Small Business Administration, Office of the U.S. Trade Representative, Export-Import Bank, Overseas Private Investment Corporation, and the Trade and Development Agency. Take note that only SBA is cabinet level. In addition, on January 31, 2012 two bills were introduced into Congress: HR 3850 that provides disincentives for agencies that do not make their small business subcontracting goals by taking bonuses away from agencies officials and increases the government-wide small business contracting goal from 23 percent to 25 percent; and HR 3851 which elevates the position of the agencies’ Director of Small and Disadvantaged Business Utilization Office (SADBU) to Senior Executive Service (SES). On February 2, 2012, HR 3893 was introduced which would require stricter limitations on subcontracting by small businesses to large businesses under set aside programs and require executive agencies to solicit public comments on procedures with respect to decisions to covert a function being performed by a small business concern to performance by a Federal employee. January 2012 was a very good month for Small Business.
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February 15. 2012 | Bhavna Negandhi
What Clients Want
Having spent over seven years in consulting, I understand some of the basic reasons why clients bring in consultants. It’s usually to access specialized skills which their organization does not possess. They appreciate consultants who want them to succeed and have faith in their future. Though some consultants strive to surpass expectations, most clients are thrilled when a project simply goes according to plan. They are grateful and pleasantly surprised with over-the-top results. But most don't hold their breath on any advisor's promise to go beyond what's expected.
Be aware that clients know their business best and are hardier than they look. So don’t wait to break the bad news to them. They want to be able to trust you and look for your enthusiasm, attention, commitment, professionalism, and sensitivity in their matters of business. It may seem like a tall order, but remember - “Clients want to choose the right firm for the right project to get the work done the right way.” So, while ‘wowing’ the client is an important aspect, the first requirement is delivering what was promised, on time.
Clients value consultants because of their deep expertise and their ability to knock out short-term projects by leveraging that expertise. They tend to gravitate towards advisors who use their experience to solve problems rather than just apply what worked last time. Value-add? Yes. Flexibility? Yes. Chaos? No.
Your primary interest as a consultant is in achieving the client’s goals – not in your business development. Stay focused on the plan with a clear intention of an exit. A good consultant would make arrangements for continuous progression after the project ends. You will be surprised to learn that such intent leads to more additional work than any efforts to prolong a project or sell follow-on projects.
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February 8. 2012 | Rebecca McDonald
How Much Juice Can You Squeeze Out of That Orange?
As we make New Year’s resolutions and hit the gym to sweat off a few pounds, I hear the voice of my trainer asking me: “How much more juice can you squeeze out of that orange?” That orange is me and my New Year’s fitness goals and are they really attainable without the right support and approach?
This resonates on many fronts, especially when you are running an accounting department. With year-end close, SEC filings, audit preparedness, and a list of projects ranging from internal control documentation to those account reconciliations that haven’t been tackled all year, how much more juice can you squeeze out of your accounting team?
I know this feeling all too well; my days as a Controller of a publically traded company were spent juggling the demands of our accounting team on a lean budget and it was taxing. This was the case until I took a hard look at our priorities and deadlines and realized that with additional interim support we could make it happen. With the clock ticking, I picked up the phone and called in assistance. This was a welcome reprieve to our strapped accounting team. The extra help from accounting consultants gave our team the wherewithal to tackle the priority projects and meet our deadlines. It also improved team morale and gave us the added boost we needed. That was an “aha” moment and one smart decision.
Do you have a list of accounting projects that have been put on the back burner over the year? Are your auditors ready to start and you haven’t touched that prepared by client list? How about that position that is going to be open for 3 months while your accounting staff is on leave? There’s a solution without overburdening your accounting team. Watkins Meegan’s customizable approach to project accounting lets you decide how much assistance you need.
With all that said, personal training is very much like an accounting department. How do you best allocate your resources and realize that you might not be able to squeeze any more juice out of that orange? Give us a call and we’ll give you and your accounting team the extra strength needed to get your projects across the finish line.
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February 1. 2012 | Sara Woods
With my own wedding just months away, I have become quite familiar with the wedding section at Barnes & Noble. However, it wasn’t until I found out that the average spent for a NJ wedding is between $27,521 and $45,868(!!) (http://www.costofwedding.com/ to find your hometown average) that I started looking for ways to decrease the cost of my big day.
When I was younger, I remember hearing people talk about inviting business associates to big events and deducting part of it as a business expense because they were “networking.” Okay, do people really talk about corporate strategy while dancing the Electric Slide? While that is a little questionable, there are legitimate ways of deducting a wedding. As a good little accountant and a shopper of deals, I discovered that Turbo Tax even has a “wedding write-off” section to help turn that big day into a big deduction.
Just one example of a tax-deductible venue in Virginia: Oatlands Plantation, a National Trust Historic Site and a National Historic Landmark.
Donate the flowers to Hospice or a Children’s Hospital (just remember what types of flowers you picked because some contain A LOT of pollen, which is an allergen). Leftover food can be donated to a homeless shelter.
Donate the wedding dress to a non-profit organization, such as Brides Against Breast Cancer, Making Memories, or the I Do Foundation. These organizations take tuxes, bridesmaids’ gowns, etc.
Give your guests the gift that keeps on giving – make a donation in their name to you and your fiancé’s favorite charity.
If you set up your registry through IDoFoundation.org, you can create a charity registry or a wedding gift registry with its partner stores and up to 10% of gift purchases will be donated to your favorite charity.
Yes, you can even donate your honeymoon – well, your time, that is. Take a ‘Volunteer Honeymoon’! Hands Up Holidays' website can help you plan a “meaningful” honeymoon. Whether it be ‘Naigani for a relaxing week, then working on the school in Suva’ or a ‘Luxury river cruise in Wat Kai, then work on a volunteer project in Phang Nga,’ this site helps you tailor your honeymoon experience to combine a luxury adventure with a rewarding volunteer experience.
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January 25. 2012 | Beth Dodson
It’s That Time of Year Again!
It’s that time of year again! For those of you who are new to Watkins Meegan, welcome to the madness that we call “busy season.” This busy season will be my seventh at Watkins Meegan, and while I’m still learning and growing professionally, there two things that I know for sure will help you get through the next few months:
- Make plans! Identify something that you can look forward to after April 15th and put it on your calendar. Noting it on your calendar is important because it’s a visible reminder to you on those particularly tough days at the office that in just X-number of weeks you’ll be doing something you love (and that whatever it is will most likely will have nothing to do with using your 10-key).
- Make friends! Find a colleague who can relate to the challenges you’re facing. While maintaining friends outside of work is important, having someone just a few cubicles away to vent to when you’re at your breaking point is priceless. It will make you feel 300 times better in a matter of seconds. Think of it as free therapy. But don’t forget to return the favor!
You will undoubtedly encounter a whole series of highs and lows between now and April 15th, but think of this and every busy season as an opportunity for professional growth. You CAN do this and you will. And when all is said and done, you will know more on April 16th than you do today – no matter what your level of experience is. Good luck!
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January 17. 2012 | Bill Russell
The Benefits of Volunteering
In the spirit of looking for ways to contribute to my local community, I joined a volunteer organization this year. The organization is structured around several fundraisers held during the year with all proceeds going to those in need. One fundraiser, among many, consisted of an annual Christmas tree sale. The plan was to sell Christmas trees from 6:00pm-9:00pm Monday through Friday and 9:00am-9:00pm on Saturday and Sunday. To be honest, I was a little overwhelmed by the potential commitment and effort required to coordinate such a large fundraising effort.
After a few cold evenings of selling trees, I began to realize that I was benefiting more from the volunteer experience than originally anticipated. My expectations began to change and I was pleasantly surprised to learn that my fellow volunteers, dressed in old sweats and jackets, soon became identified as highly polished individuals. The people around me consisted of former major airline operation managers, decorated Army majors, and Naval Aviation pilots. One gentleman, originally mistaken as an older man of small stature, was later identified as a block of steel with years of Vietnam Black Ops experience. Another younger gentleman, originally perceived as a college freshman, soon was appropriately identified as an airborne infantry soldier who was awarded the Purple Heart for injuries sustained during his tours in Iraq. As I was exposed to the experiences of those around me, the once chilly evenings soon became a classroom for military and local community history lessons.
Although our lives may seem chaotic with all the pressures of work, relationships, and time restraints, the benefit of helping others in such a noble cause provides us with new outlooks. Had I not been in a position to listen and take in what was going on around me, I may have missed the boat. I have learned that the strongest communicators are normally the best listeners and the best lesson learned is to not judge a book by its cover.
Happy New Year!
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January 11. 2012 | Jim Wagenmann
Checking the Retirement Plan Box on the W-2 Form
An employee’s W-2 form requires that you check the box if they are benefiting from a retirement plan. The term benefiting has different meanings depending on the type of plan that you offer. Just because you have a plan does not mean that the box should always be checked if an employee is eligible to participate in the plan. In some situations, an account balance will require that the box be checked; in other cases, an account balance does not matter.
If you offer a plan that would require a contribution, such as a defined benefit plan or a money purchase plan, the box will always be checked for those participants with an account balance in the plan. This is the case even if the plan is frozen and you are not making a current contribution.
If you offer a profit sharing plan, such as a Simple plan, a SEP-IRA, or a discretionary profit sharing plan, you will always check the box for those participants who receive a contribution for the year – not in that calendar year. If you don’t make a contribution, you have to determine if there are forfeitures in the plan that are being allocated to the participants; if so, check the box. If you do not make a contribution and no forfeitures are allocated, then you leave the box blank even if the participant has an account balance.
Checking the box matters because you are informing the IRS as to the employee’s participation in a retirement plan. The rules for contributing to an IRA and determining if such contribution is deductible on the employee’s tax return is dependent on their participation in an employer plan. Checking the box incorrectly may negate the employee making a deductible IRA contribution.
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January 4. 2012 | Jeffrey Walsh
Do You Own Hidden Treasure?
Recently I came across a website where you can see if someone owes you money. The website, MissingMoney.com, is a national database established in 1999 for unclaimed property. Searches can be performed for yourself as well as for family members, friends, and businesses.
By law, if a company owes you money but is unable to find you, they must turn it over to the state. The website currently allows you to run a comprehensive search for unclaimed assets in 39 states and provinces, and is working on adding more.
How does money get lost? There are many ways. People move, change their name, or get married. Sometimes a company simply doesn’t have the right address on file, or a check is lost and doesn’t get cashed. It’s also not unusual for someone to pass away without leaving a record of their owned assets.
Common types of unclaimed property include:
- Bank accounts and safe deposit box contents
- Stocks, mutual funds, bonds, dividends
- Uncashed checks and wages
- Insurance policies, CD’s, trust funds
- Utility deposits, escrow accounts
When browsing through search results, you’ll see that unclaimed assets have been reported by a diverse group of companies and governments. Among them, I saw PEPCO, Citibank, Toyota Motor Credit, and MetLife, as well as Prince George’s County and State of North Carolina.
The website also has links to other websites where you can find more unclaimed assets that are being held by the government. Examples include savings bonds, tax refunds, retirement accounts, mortgage insurance refunds, and more.
MissingMoney.com is owned by ACS Unclaimed Property Clearinghouse, which is owned by Xerox. The website is endorsed by the National Association of Unclaimed Property Administrators.
So next time you have a spare moment and feel lucky, go to MissingMoney.com. There may be some unclaimed property waiting for you. Happy Treasure Hunting!
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December 29. 2011 | Andrea Contres
Merry Marketing in 2012
As we near 2012, I have begun thinking about my 2011 New Year’s resolutions and about resolutions for next year.
My first resolution, which I have decided to start before 2012, is to read more purpose-driven content. I want to read the WBJ, Accounting Today, Marketing News, and SmartCEO. Let’s be honest; I will be skimming these publications, but that is better than nothing. I also want to tackle great books that will benefit me personally and professionally such as Good to Great, It Starts with Why, and Delivering Happiness! (If you have not read Delivering Happiness, pick up a copy today!) Throw in Regis Philbin’s new book to that list as well!
After thinking about resolutions for myself, I thought about some (from a marketing manager’s point of view) I would challenge my colleagues to make for 2012.
- Become a LinkedIn Mover and Shaker.
- Use our CRM.
- Pick two networking events to attend each month.
- Commit to one coffee or lunch meeting per month with a referral source or prospect.
- Go out to lunch with a director or member once a quarter.
- Find out if your top 10 clients are on facebook or twitter.
- Write a blog post for the WatkinsWire!
- Say hello to colleagues in the hallway.
- Join an industry specific association or a charity of your choice! I am extremely proud of everyone at Watkins Meegan for raising over $12,000 for the 2011 Leukemia & Lymphoma Society’s Light the Night Walk! Let’s beat $12k in 2012!
- Pass your CPA, CIA, or get your MBA.
- Help out with recruiting!
- (12 for 2012) Attend the annual Watkins Meegan Holiday Party and/or summer picnic!
Happy Holidays everyone! Here’s to you and me achieving our resolutions for 2012!
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December 21. 2011 | Rebecca Kehoe
End of the Year Review, and Not Just for Taxes!
It’s that time again – time to gather all your accounting and timekeeping information for your taxes. But let’s not forget to clean up and account for a few more items that could be hanging out there, like Teaming Agreements and Non-Disclosure Agreements (NDA). These types of agreements tend to live on beyond the proposal submission date, especially if you do not win the contract. It is important to understand just how long these agreements are going to last.
If you don’t think they are important, ask the Army. In 2005, a company applied for a patent for a new type of lead free, environmentally friendly bullet, and then entered into 3 separate NDAs with the Army concerning its bullet research and development. In 2010, the Army announced the development of a very similar bullet with a different contractor. The first contractor sued the government stating that the bullet design copied its 2005 patent and violated the terms of the NDAs. The government requested dismissal of the case, but the U.S. Court of Federal Claims found the contractor had merit and allowed the contractor to bring its claims, including violations of the NDAs. The case is still pending.
The bottom line: It does not matter who issues the TA or NDA; so long as they are fully executed, they will need to be monitored to ensure compliance for the duration of the agreement.
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December 15. 2011 | Joshua Moore
Accountants Gone Wild?
As the end of the year approaches and the masses are scurrying around finishing their last-minute holiday shopping, we accountants are primarily busy preparing for year-end tax planning. While the latter is true, many accounting firms are also hosting their holiday party.
Even though accountants are perceived by the general public as mild-mannered and straight-laced, we too, like to “let loose” with a year-end celebration. Such was the case as Watkins Meegan hosted its annual holiday party on December 3rd. Not only does the holiday party serve as a reflection of the firm’s yearly achievements, I believe it primarily serves as a “Thank You!” to the employees.
After Mike Micholas, Managing Member, delivered his “Thank You!” speech, the attendees were treated to a dinner and dessert that would rival my Grandma’s holiday baking. As the night unfolded and the band played on, the quiet and normally reserved accountants began to dance. To no surprise, the noise level in the room grew louder and louder. What was about to take place could be considered one of the greatest YouTube videos.
Accountants Gone Wild? Yes!! As I stood near the back of the room, a circle had formed on the dance floor as if a big schoolyard fight had just broken out. Curious person that I am, I inched closer to see firsthand what all the commotion was about. Much to my surprise and delight, a break dancing party had commenced. As I watched in awe as two of my colleagues were having a dance-off, I turned to another coworker and said, “Accountants Gone Wild!”
As you and your family celebrate the holidays, be sure to take time to reflect and commemorate the year’s events. And if you’re feeling a little wild, celebrate like us accountants with a dance party.
From Watkins Meegan’s family to yours - Happy Holidays!!
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December 7. 2011 | Robert Payne
Black Friday, Small Business Saturday, and Cyber Monday….What Happens on Sunday?
Who dared to shop on Black Friday to fight – literally – for bargains? Well, I can tell you I didn’t. I don’t really want to venture out to stores with all those crowds and the behavior that these “bargains” bring with them. You can pick up the purchases straight away. You probably pay by credit or debit card.
Then we had Small Business Saturday. That seemed so much more interesting and we did not have the extreme events of Black Friday, but were there the same type of bargains to be had? Probably not, but it was a much nicer event. Probably pay by cash, debit or credit card.
Then came Cyber Monday. Sit back in the comfort of your own home, click a few buttons and the purchase is yours. But is that as much fun? You have to wait for days for the items to arrive. If purchasing online, make sure that you use a secure site (i.e., one that is prefixed is https). Buying online you pay by debit card or credit card (or maybe via PayPal, as this does not expose your bank details), but you definitely can’t use cash.
Each event has its pluses and minuses. Black Friday gives you bargains, but a lot of hassle. Small Business Saturday offers you a better experience, but probably not the bargains for which you are looking. Cyber Monday gives you convenience, but are your personal details safe when buying online and you can’t see what you are actually buying? If a bargain appears too good to be true, it probably is.
For me, the best day was Sunday. No shopping, no crowds, no hassle. I think I will call it Sensible Sunday. You can forget Black Friday, Small Business Saturday, and Cyber Monday. Give me Sensible Sunday instead.
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December 1. 2011 | David Greaves
Quieting the Noise
It’s difficult this time of year to find the occasion to just sit down and relax, to reflect on what we are thankful for in our lives. For Watkins Meegan, this season means tax and audit planning. Outside of our walls, there are more than enough distractions. The approaching holidays seem to make our lives more hectic. Shoppers glut the parking lots of every store in sight. Roads become even more congested than normal with travelers in and out of town.
Trying to listen to the radio or watch television is no help as politicians, pundits, and protesters are noisily tackling big issues from the economy, to the presidency, to Occupy Wall Street movements.
Amidst all of this calamity, we need to take a moment and concentrate our energy on the people closest to us who matter the most in our lives. It’s like the Apollo 13 astronauts who needed to overcome a mechanical failure in a high pressure situation, and use their collective training to focus on a sliver of hope for re-entry and a safe landing. Let the noise take over, and go skipping off the atmosphere.
For me, I find my focused sliver of hope every time I get home after a long day and a difficult commute. My two-year-old daughter drops what she is doing, runs to me, and jumps up into my arms. My boys and my wife make their way over, too, and I’ve found my peace.
It’s the time of year to find those people we are most thankful for, whoever they may be. Although the noise around us won’t go away, it becomes a lot quieter when we take a moment to put it in perspective.
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November 23. 2011 | Lindsay Dattilio
Say “Thank You” – And Not Just at Thanksgiving
Watkins Meegan, and countless other CPA firms, recently wrapped up the college recruiting season. As always, our firm looks to bring on board only the best and brightest candidates the surrounding colleges and universities have to offer. During this process, the current staff spoke openly and honestly about what made them choose Watkins Meegan, and offered up advice to the applicants about how to go about choosing a firm that’s right for them. However, it was during this recruiting process that I realized the reasons firms attract recruits are not the same reasons firms maintain a quality staff.
For example, most new recruits aren’t interested in how managers motivate their staff, but you’ll find motivation to be one of the top concerns among current employees, and this goes for all industries. How often do you hear interviewees ask you how they will be valued by your firm? In my opinion, most employees appreciate a “thank you” or a personal e-mail to tell them what a great job they did on a certain project. For many staff, recognition by their superiors demonstrates they are valued and respected by their employer. So, the next time you see someone going above and beyond, make sure their manager or superior hears about it.
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November 21. 2011 | Anthony Bocchini
An Accountant’s Holiday Wish List
The fall tax deadlines have come and gone, signaling that winter is officially here. The last of the Halloween candy is now gone; spooky decorations and carved pumpkins have given way to falling leaves and Christmas lights sprinkled throughout local neighborhoods.
It’s an exciting time, but preparing for all that comes with holiday traditions can also be quite hectic. An especially frustrating aspect of the holidays for me is the shopping. No matter how far in advance I plan it out, I always end up running out to pick up last minute gifts. So, as I prepare myself for the upcoming holidays, I thought it would be helpful to put together a list of gifts that accountants might appreciate:
Accountant’s Wish List:
- The Wall Street Journal Subscription – Reading the WSJ is one of the best ways to keep up with all the latest happenings in the business world. The online access is especially helpful during business trips.
- Business Card Holder – A great way to keep your business cards organized and in mint condition before passing them out at a marketing or networking event.
- Stress Ball – With deadlines seemingly always on the horizon, stress is unavoidable. A soft, handheld ball to squeeze in an effort to relieve the tension is great to help you relax and get back on track.
- iPad – They still aren’t exactly cheap, but iPads have gone from being a cool personal toy to an exciting new way to do business, capable of running all sorts of business-related software and specialized applications.
- Dry Cleaner Gift Certificates – In a client driven industry, appearance can be crucial in maintaining good business relationships. Freshly laundered business suits aren’t cheap; these gift cards can definitely come in handy.
If you’ve got a family full of accountants like I do, you might be able to use a few of these suggestions in your holiday shopping. Feel free to drop any other gift ideas in the comments section!
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November 9. 2011 | Rebecca Kehoe
Have Congress and the White House Heard the "Occupy" Protestors?
The Occupy Wall Street protestors have been objecting to social and economic inequality, corporate greed, and corporate influence over the Government. It appears that Congress and the White House are listening. Both the U.S. House of Representatives (H.R. 1540) and the U.S. Senate (S. 1253) have created versions of the National Defense Authorization Act (NDAA) for 2012 that contain provisions that would extend the coverage of the current Executive Compensation Cap to ALL CONTRACTOR EMPLOYEES. Actually, the House version refers to “any individual performing under the covered contract” and the Senate version to “all company executives and managers,” but it’s a difference without a distinction. Either one would likely be interpreted to cover both direct and allocated labor costs. You’re probably thinking that it still won’t affect most of the Federal Contractors and, at the current cap of $693,951, it almost certainly wouldn’t. The problem is President Obama’s economic proposal of September 19, 2011, would tie the compensation cap to the salary of a Cabinet Secretary (Executive Schedule Level I), which is currently $200,000. That will affect a lot of people and companies.
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November 3. 2011 | Lauryn Blair
Mint.com – An Accountant’s Dream
There’s no way around the fact many accountants love spreadsheets, charts, and graphs to organize financial information. The easier it is to visually see income and expense trends, the easier our jobs – well, in some cases. The same goes for our personal finances. Making a living sorting and analyzing numbers, as much as we may not want to admit it, follows us home.
For a while, I maintained a personal spreadsheet with income and expense figures calculated, including ratios suggested by financial planning websites. When I created the spreadsheet, I was determined to update it on a regular basis. Fast forward a few months, I would come across that same file on my computer and be excited to get myself back on track. It was a daunting process and generally a frustrating outcome. I never seemed to save as much as I hoped and always spent more than I thought.
Then, I found Mint.com
. Voted one of Time Magazine’s top 50 websites in 2008, 2009, and 2010, Mint.com has completely changed my personal budgeting world. After a simple one-time setup, all transactions for your financial accounts, including bank, credit card, retirement, and investment, are automatically imported and categorized. Average spending among the categories is calculated, thus providing useful information to create monthly budgets. With over 20 types of electronic alerts, you are notified of nearing your monthly budget, bill due dates, low account balances, high credit balances, and more.
I was a bit skeptical of the site at first. I did not want all my financial information located in one convenient place to become the next victim of identity theft. That would really throw off my budgets! Rest assured, Mint.com is as secure as your online banking site and funds cannot be transferred through the website. There are also alerts to notify of unusual spending, so you would know if there are large fluctuations in account balances.
The best part of all – the site is free! ATM fees are also much more of a reality because the yearly ATM fee total greets you in bold red numbers. The many types of graphs that visually display all sorts of information is also a great way to see what money is coming in, what is going out, and where it all comes and goes. Ever wonder what your net worth is? Mint.com can tell you.
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October 26. 2011 | Scott Spencer
Business versus Pleasure: Deadlines & Sights
The pressure of finishing all of your work on the road can be very stressful. No, it’s not as hectic as the infamous April 15th deadline, but our engagements must be completed while on the road. Many times you find yourself in a hotel conference room at 1:30am or working all day Saturday and Sunday to get the job done. It is safe to say you learn extremely intimate details about your coworkers when you spend almost every hour of the day in a small room together.
While the most important aspect of a business trip is to complete your assignment within the time constraints, you cannot forget that you are in a foreign city that is yours for the taking. Many people imagine being lonely and isolated while on the road, but that couldn’t be further from the truth. You may be lucky enough to meet up with old friends or long lost relatives that you usually wouldn’t get the opportunity to see except for the fact that your company paid for your flight. And then there are the random encounters that you could never imagine, like running into an ex-girlfriend at a happy hour in downtown Chicago (true story). The following is a list of a few things my travel colleagues and I have had the opportunity to experience while on the road: Chicago’s worst blizzard in 40 years, Architectural Boat Tour on the Chicago river, Monday Night Football in the Dallas Cowboys new stadium, the famous Pumpkin Festival in Peoria, Illinois, the JFK Memorial Tour in Dallas, enjoying the beaches of Charleston in March, and box seats at a Cubs game. Dull moments are few and far between when you embrace the cities you visit and make the most of every excursion.
In conclusion, it isn’t easy leaving your family and friends behind for weeks on end, but you have to look at moving around as a glass half full. The hotel rewards points and airline miles are perfect for saying “I’m sorry,” to your significant other with a free 5-night vacation to Key West! Traveling has its ups and downs, but each trip is an adventure definitely worth experiencing.
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October 20. 2011 | Scott Spencer
Business versus Pleasure: Creating Relationships
How was your trip? What state did you visit? What do you do while away? Do you still work here? Those are a few questions you may hear after coming back from a two-week trip or, in some cases, seven weeks. Most people associate business travel with hours trapped in an airport or a sleazy hotel room; however, after your first trip you realize traveling is about the business relationships you create, the crazy hours you work, and the amazing landmarks you see in cities all over the country.
New destinations are always the most exciting. You are immediately introduced to at least 10 fresh contacts in the industry. Or in business development terms: 10 more business cards, 10 more LinkedIn invitations to accept, and 10 more client prospects. Accounting firms live and die by signing new clients and you never know when someone will stumble upon your Watkins Meegan card and inquire about services. (Bringing new business to the firm always looks good!) Increasing your personal network and leaving a lasting impression on potential clients are two of the most important aspects of traveling around the country. Read part II of Business versus Pleasure to hear about some of the grueling hours we work and to find out which city holds the famous Pumpkin Festival.
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October 12. 2011 | Jason Fleetwood
And who will you be for Halloween?
I sat down with my 5-year old daughter to look through a few magazines and help her decide on a Halloween costume. After a few minutes, I asked “Why don’t you dress up as an accountant – then you could be like Dad?” She thought about it for a second and replied, “No, Dad – girls don’t wear shirts with a tie.” I laughed, but it got me thinking maybe that’s all we are perceived to be - suit, tie, glasses, calculator…yep, you’re an accountant.
Well, what if I stretched that perception? What if I challenged you to think outside the box for your next Halloween party? What if I posed the question, “If you were to dress up as your favorite Watkins Meegan employee for Halloween, who would you be?”
For instance, maybe you could dress up as a professional golfer and go to the party as John Seek. Or perhaps you could suit up as a Webster’s dictionary and go as Tim Pollins. To help you with your Halloween costumes, I came up with several more suggestions:
- What, golf isn’t your game? That’s o.k. – go dressed in your L.A. Lakers purple and gold, and tell everyone you are Landy Thompson.
- The dictionary isn’t your “go to” reference as an accountant? No problem – go as the 2011 Master Tax Guide and tell your friends you are Anne Elliott or Lita Castro.
- You’re just not that into tax? Don’t sweat it – be the hit of the party when you show up as Jerry Hahne or Rob Wilkins wearing a GAAP Guide.
- Some of you may want to head to a party with your friends. Perfect, dress up as the Three Stooges and tell everyone you are Joe Post, Gary Robinson, and Randy Taylor.
- Superheroes – we all love our superheroes. So go as Tom Greenawalt and Eric Rafail and dress up as Batman and Robin (although you may have to fight over who is Batman).
- So you think you can dance? Then put on your best dancewear, go dancing with the stars, and tell everyone you are Patrick “Kip” Huffman.
- Want to dress up as a military officer in support of our troops? No problem – put on your best service dress uniform and tell ‘em you are Lieutenant Colonel Cheryll Justo.
So there you have it – at Watkins Meegan, we’re not just a shirt and a tie. In fact, with a little imagination, we have all of your Halloween party costumes covered.
Wait, what is that you are asking – “But Jason, what if we wanted to go as you?” I am sure you all have a thought on this, but in case you don’t…just throw a red cape around your neck and put a big “S” on your chest.
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October 6. 2011 | Katie Madden Lee
Arthur Andersen Wins Nobel Prize
Well, not exactly. While preparing for my blog, I stumbled across the Ig Nobel Prize, the “Razzie” version of the Nobel Prize that you and I are familiar with. It is given out annually around this time for ten achievements that “celebrate the unusual, honor the imaginative – and spur people’s interest in science, medicine and technology.” In most instances, the Ig Nobel Prize is awarded to scientists, researchers, and economists who have made extraordinary, yet hilarious, contributions in their respective fields.
I originally planned to blog about accounting fiascos, as we have, remarkably, reached the tenth anniversary of the infamous Enron scandal, first revealed in October 2001. I remember that time very well. I had just declared my major to be accounting, began wondering what I had just gotten myself into, and was unsure of the future of the profession itself and the reputation that accounting professionals strive to uphold. Did I really want to spend my final college years struggling through the demanding accounting curriculum in preparation to enter an industry that was being ridiculed in the media?
The 2011 Ig Nobel Prizes were awarded last week. Honorees included a Stanford University professor for his work on “How to Procrastinate and Still Get Things Done” (story of my life), and my personal favorite, the professors at Keele University (UK) for “confirming the widely held belief that swearing relieves pain” (I definitely could have been the subject for their award-winning research).
What struck me the most about the history these awards was the 2002 “winner” of the Ig Nobel Prize in Economics: “The executives, corporate directors, and auditors of Enron, Lernaut & Hauspie [Belgium], Adelphia, Bank of Commerce and Credit International [Pakistan], Cendant, CMS Energy, Duke Energy, Dynegy, Gazprom [Russia], Global Crossing, HIH Insurance [Australia], Informix, Kmart, Maxwell Communications [UK], McKessonHBOC, Merrill Lynch, Merck, Peregrine Systems, Qwest Communications, Reliant Resources, Rent-Way, Rite Aid, Sunbeam, Tyco, Waste Management, WorldCom, Xerox, and Arthur Andersen, for adapting the mathematical concept of imaginary numbers for use in the business world.”
A little harsh, but that gentle satire aimed at the accounting industry was nothing compared to jokes on the late night talk show circuit a decade ago. Looking back on my junior year in college, I am thankful that I continued my path in accounting. The industry has not only rebounded from Enron, but remains one of the best careers in 2011 and continues to uphold a strong ethical reputation. I am proud to have spent my eight years in the accounting profession with Watkins Meegan, where I’m surrounded by upstanding professionals and where integrity remains engrained in our foundation.
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September 30. 2011 | Rich Wilkinson
Federal Budget Season
It’s that time of year again. And, there’s nothing wonderful about it.
After a week of wrangling and the very real threat of a Government shutdown, we finally have agreement on a Continuing Resolution (CR) to fund the Government until November 18th - six whole weeks!
The problem is, this budget brinksmanship has become the new normal. There was once an expectation that Congress would pass all twelve or thirteen (depending on the year) annual appropriation bills by September 30th and the President would sign them.
With experience, the expectation became that most of them would be passed and signed and there would be a CR for the late bills. Then it was some of them. Then it was none of them. A CR would be necessary to prevent a Government wide shutdown, but the required bills would soon be passed superseding the CR.
Last year, there were six successive “temporary” CRs culminating in a seventh CR for the full year. There were no actual appropriations bills passed for FY 2011. There never will be. We operated for the entire year under the admonition “Just spend what you did last year.”
We’re on track for the same kind of experience this year. Except this year we’re faced with across the board percentage cuts as a result of the Debt Ceiling deal or the actions of the Supercommittee (or both). Worse, if the Supercommittee fails to act by Thanksgiving, the cuts may not be across the board – half or more of them may be in DOD.
And, some GovCon experts put the probability of a shutdown sometime this year at 75% or more. If it happens, we’ll be looking at stop work orders, lockouts, delay of work claims and probably a dozen other expensive consequences. Depending on when and where the cuts fall, some of those stop work orders could turn into terminations.
This is just no way to run a __________. (household, business, railroad, country – pick one).
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September 23. 2011 | Daniel O'Shea
The Role of the CFO: Much More Than a Financial Historian
In these economic times, many Not-For-Profit Boards and CEO’s underutilize a great resource right in their midst: the CFO. Although board members and CEO’s will often remind you that their CFO is a member of senior management, they view the primary role of the CFO as one of a financial reporter. Yes, the CFO also performs budgeting and, in some cases, projections and forecasts, but mostly they are relied upon as financial historians.
In a book about the collapse of financial firms such as Bear Stearns and Lehman Brothers, there is a discussion about one company’s deteriorating stock and the effect CDO’s are having on the balance sheet. The CEO tells his board that accounting rules are to blame for write-downs that are occurring. Fortunately, an astute board member points out that accounting is not the problem – the market is. If only there were more voices of reason.
Accounting rules can, and do, determine how a transaction affects an organization’s financial position and the results of operations. Unless a merger or acquisition is involved, CFO’s are often kept in the dark at the origination of significant transactions, and then are left to sort out the details and report the effects as part of monthly reporting. In many cases, the effects are not favorable and may be different than expected. Often, it is not just the effect of a transaction, but rather the surprise of the effect that causes consternation among CEO’s and boards. Organizations cannot control the effect, but they can control the surprise. The key is to involve CFO’s in the discussions taking place before a significant transaction or venture is undertaken. They can provide valuable insight and help establish expectations. They also know when to call in outside advisors such as external accountants. They are not emotionally involved in the transaction and can provide objective viewpoints. Most importantly, CFO’s can help manage expectations.
Is your organization involving its CFO in the early stages of the deal?
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September 14. 2011 | Rick Westerman
Moneyball: Measure What’s Important
I love to read, but as a general rule I don’t care for most business books. An exception is Michael Lewis’ Moneyball, which has been made into a movie opening this month. The book (and I’m guessing the movie) is about the Oakland A’s “success” in exploring statistical measurements that were not regularly used by other teams to select players. Suiting the A’s limited financial resources, these ballplayers had much lower salary demands than other players sought by wealthy teams like the Yankees.
Before I continue, I should say that I know little or nothing about baseball. I do know something about business measurements. As a former CFO, I utilized dozens of measurements such as budget variances, standard cost vs. actual cost, earnings per share, labor turnover, backlog volume, order markup, inventory efficiency, cash sufficiency, and on and on and on.
In short, we were measuring almost everything, but were we measuring the right thing?
So what about Moneyball? The book was introduced to me by Dr. Michael Hammer (author of Reengineering the Corporation), who showed me that in many companies, measurements (financial and non financial) were often misaligned with corporate strategies, and actually became an impediment to success. After all, metrics drive behavior.
Here’s a simple example. We had five hundred different ways to measure factory labor variances (expected vs. actual). One quarter we started experiencing unfavorable material variances while unfavorable labor variances lessened. Out on the factory floor, an employee told me that material could be saved, but it would take more labor to fabricate. Because we hyper focused on labor, material took a back seat.
With our enlightenment, we decided to review the alignment of our measurements with our strategies. First, we had to determine what was most important, i.e., answer the question “what was our economic engine?” (see Jim Collin’s hedgehog concept in the book Good to Great). Next, we cleaned up our measurements to make sure they were balanced (see Kaplan and Norton’s book Balanced Scorecard). Most importantly, we created a process of continually assessing our metrics to ensure they were driving the right behavior.
The A’s success or lack of success is not important. Factors other than metrics, such as strategy, have profound impacts on business prosperity. It wasn’t perfect, but in the end we dropped bad metrics while saving some administrative costs. More importantly, we came away with a better set of measurements.
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September 7. 2011 | Rebecca Kehoe
Do You Know the “Two and Two” Standard in Pay Equity?
The Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) is making pay equity its top enforcement priority. Federal Contractors need to be prepared to defend their employee compensation systems and results. During 2010, OFCCP changed its compliance review trigger for requesting more detailed compensation data from the Bush administrative “prima facie case” of discrimination to a “two and two” standard. The “two and two” standard means that if a particular employee pay grouping submitted by the contractor shows disparities of $2,000 or 2% in pay between the highest and lowest-paid members of the group, OFCCP will send that contractor a letter seeking data regarding 12 or more factors related to pay that could explain the disparity. It has been observed that virtually none of the contractors that have been subject to the OFCCP compensation reviews have been able to pass the “two and two” standard and have had to provide more detailed data to demonstrate that the disparities within a specific pay group are not the result of unlawful sex or race bias. Contractors can protect themselves by collecting and storing more detailed data on pay, such as prior related job experience and individual salary history prior to joining the contractor. Pay groupings should also be clear and meaningful.
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September 1. 2011 | Louise Peabody
Auditor Rotation – Up for Discussion
The Public Company Accounting Oversight Board (PCAOB) has reopened the discussion about requiring public companies to change audit firms after multiple years on an engagement. On August 16, 2011, PCAOB issued a concept paper, Concept Release on Auditor Independence and Audit Firm Rotation, and has scheduled a roundtable for March 2012 where different views on the issue will be heard.
The concept of audit rotation is debated periodically, typically after a large audit failure or financial scandal. The PCAOB release presents historical background and context as well as the views of a variety of past supporters and detractors. PCAOB quotes from recent large and small firm inspection reports citing an increase in the number of findings, including lack of professional skepticism by the audit team and acceptance of management views and responses without sufficient corroborating evidence or critical analysis.
Will required rotation make auditors more skeptical and willing to challenge management? If auditors know another audit firm will be reviewing their workpapers and assumptions in the future, will they perform better audits? PCAOB acknowledges that the concept of audit rotation does not address all audit findings and notes it is difficult to assess the costs vs. benefits of changing auditors. The increased risks and costs in the first year or two of auditing a new company are also noted. PCAOB is asking for public input about how to enhance auditor independence, objectivity, and professional skepticism either through auditor rotation or other means.
PCAOB will certainly be hearing from public companies, their auditors, and other stakeholders as well. The concept paper is available at http://pcaobus.org/Rules/Rulemaking/Pages/Docket037.aspx
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August 24. 2011 | Matthew Bart
Uncertainty in the Estate Tax: President Obama’s Recent Comments
In 2013, if the Senate and House fail to act, estate taxes will revert back to their 2001 levels, with a total exemption of $1,000,000. Currently, the estate tax exemption, as passed in the 2010 Tax Act, is $5,000,000, and with portability (the carryover of any unused exemption from the first spouse), the exemption can total up to $10,000,000. What is reasonable to expect after December 31, 2012? As we have seen recently with the debate over raising the nation’s debt ceiling, as trillion-dollar annual federal budget deficits mount and federal spending continues to grow, lengthy debate over whether or not to extend the current levels of estate tax exemptions is almost a certainty.
President Obama, on the last stop of his recent Midwest bus tour, when asked about the estate tax, responded “…there’s no reason why we have to go all the way back to the 2001 level. There is a compromise that has been discussed where you’d essentially have a $7,000,000 exemption per family.” A reduction in the estate tax exemption from $10,000,000 down to $7,000,000 would have significant consequences, given that at the current estate tax rate of 35%, a loss of $3,000,000 of exemption could mean up to $1,050,000 of additional estate tax liability. While the 2012 election cycle could change the balance of power in Washington across all branches of government, President Obama is clearly indicating that if he is re-elected in 2012, a reduction in the estate tax exemption is likely after December 31, 2012.
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August 17. 2011 | Kip Huffman
Things I've Seen
Before I begin, I would like to list nine fun facts about this blog: 1) These facts are not relevant to my blog, 2) You’re probably wondering what my facts are about, if not the blog, 3) This fact is very important to my blog, 5) This fact is not nearly as important, 6) You didn’t notice that I skipped number four, 8) You’re smiling and thinking “How could I have missed that?”, 9) Did it again, we skipped seven, 10) There are truly only eight facts in my blog, but this is part of my segue.
As many of you may have noticed or, better yet, have been unable to notice because of our lack of presence, I and many of my colleagues have been scattered across the United States working on government contracts. We have been called the “traveling crew,” the “Accounting Solutions Group (ASG),” and even “those people with that funny room by the front door”; I much prefer “Road Warriors.” I’m still waiting to see if there is some way we can incorporate that into our group’s Mission Statement.
In my travels I have seen many things: greyhound dog races in Alabama, the largest crucifix I’ve ever encountered (nearly 7 stories tall) in Illinois, relentless rain in Washington (and, subsequently, the greenest landscape imaginable), a Cirque Du Soleil-style show in Florida (I danced with a team of people on stilts that night), and co-workers line dancing to rap music in Mississippi. I have spent St. Patrick’s Day in South Carolina, a birthday in California, an anniversary in Kansas, and Easter in California. But one common theme that prevails no matter where we go is that a good accountant is an invaluable asset (had to tie all this into accounting somehow)!
P.S. For those of you in Watkins Meegan, please check the ASG portal. We will be updating it regularly with pictures from our travels. Who knows – there might be some action photos from the Cirque Du Soleil night!
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August 10. 2011 | Jason Fleetwood
CPA’s and Deadlines: The Art of Chaos
One would think that in a profession built around deadlines, CPA’s would have figured out how to master them. Every year we know when they are – March 15th, April 15th, June 15th, September 15th, October 15th – and those are just a few of them!! Yet, somehow, these deadlines always seem to get the better of us.
Some of my colleagues will contend that they get everything done ahead of time and I need to be better organized. I would argue that they aren’t busy enough and need to get out to meet more new clients. Still others will insist that I need to do a better job of planning in advance. My response to that is every time we formulate a plan, something unforeseen comes up the next day and the plan is thrown out the window. We end up spending more time talking about the work that needs to be done than it actually takes to get the work done.
The truth is, I’m not sure the most organized CPA or the CPA with the best plan is able to meet each deadline without some level of headache or stress. We tell ourselves this year is going to be different (I’ve been saying it for 13 years now), but it never really does change. Thus, you have to embrace the chaos. Know that each big deadline will bring surprises, and work together to get things done. You have to communicate – with both your clients and your fellow workers. And you have to perform – don’t let your work product suffer as the deadline draws closer and the pressure mounts.
Until someone comes up with a better solution, I continue to tackle each deadline the best way I know how: by mastering the art of chaos. CPA or not, I’m sure everyone battles the same problem – too much to do in too little time!
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August 4. 2011 | David Greaves
Economic Fantasy and Reality Part II
Without further adieu, here is part II of my post.
The recent deal that was struck failed to address many key issues, and leaves the nation open to a default in the future. Spending cuts were included in the agreement, but many are weighed in the back end, with bigger reductions coming in future years. Social Security, Medicare, and Medicaid programs are running out of money fast, and big decisions affecting these programs were not made. International and domestic investors have seen U.S. Treasuries as the definition of risk-free investments. If risk increases on these investments due to a still-present threat of default on current debts, investors could start looking elsewhere to park their funds. S&P has even put the nation’s AAA rating on credit watch with negative implications. U.S. Treasuries are used as collateral for loans in the “repo” market, and are also where many investments of money market funds lie.
The government should pay attention to the deal the NFL owners and players just signed. Both used inflammatory rhetoric against one another in the seemingly endless process. Both sides initially dug in their heels, refusing to give in to the other’s demands. In doing so, millions of fans grew impatient, distrustful, and even resentful of everyone involved. The same feelings abound throughout the country for the politicians in Washington. They’ve been brewing for a long time and are becoming crystal clear during the debt debate. In the end of the NFL dispute, neither side got exactly what it wanted. Agreements were made, key issues important to both sides were addressed, rhetoric was softened, and, most importantly, I can get back to my draft strategy for my 5 leagues. Well, maybe I’ll go back to 6. If I win, I’ll spend the money to contribute to our economic recovery.
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August 3. 2011 | David Greaves
Economic Fantasy and Reality Part I
Over the summer, I’ve watched the news on the NFL lockout. At first, I watched intently, then became ambivalent after reports were issued almost daily on the impasse between the players and the owners. The squabble was set against a backdrop of double-digit unemployment, failing businesses, bailout banks that won’t lend, a real estate market in a 5-year slump, and a general sense of dread about the economy. The public’s sentiments regarding the NFL disagreements went from reasonable understanding to disgust for a battle between the rich and the super-rich. Terrible timing for arguments about massive minimum salaries and revenue-sharing in the millions. This weekend, NFL fans, especially participants in fantasy football leagues, breathed a sigh of relief when the two sides finally arrived at an agreeable middle point. Now it’s back to business.
Unfortunately, “agreement” wasn’t a word being thrown around by our political leaders when it came to addressing the debt ceiling (currently in the $14 trillion range), and the nation potentially defaulting on its loans. Plenty of rhetoric was exchanged in the debate, and the recent agreement is a watered-down version of what both parties wanted. The plan distinctly shies away from addressing big government spending programs like social security and veterans’ benefits, as well as the ominous specter of raising taxes for needed revenues. The effects of politicians digging in their heels and refusing to address key issues could be felt deeply by the rest of us. And we’re not talking about the millions being split between the NFL players and owners; we’re looking at billions and trillions of dollars. The effects of that will change more than just my draft strategy in my fantasy football leagues (all 6 of them – maybe I’ll cut back to 5 in a show of support). To continue reading my thoughts on the "recent deal" stay tuned for the next post to the WatkinsWire.
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July 27. 2011 | Chau Phan
The CPA Exam and Me
In the maddening period of preparing for the CPA Exam, there were many times I went crazy running around the house kicking and screaming or, even worse, dancing and singing, to Spice Girls and Backstreet Boys, of course. Here are things that I have learned:
- Taking the CPA Exam in the summer is very challenging. There is more time for everything BUT studying. It’s hot; and you find all sorts of excuses for doing other things.
- Taking the CPA Exam when you are on vacation is actually better. At home, there are plenty of distractions. Vacations leave you feeling guilty when you know you should be studying. So you end up studying wherever you go – on the airplane, in the car, at the hotel, etc.
- Taking the CPA Exam after a holiday is a great excuse for not attending a crowded family holiday event.
- Taking the CPA Exam during tax season is okay. Bosses will be more lenient when you request to take time off in February (but not in April).
- It is okay to take the CPA Exam while studying for your master’s degree. If you are lucky, some of the material will be similar; and if not, you’re studying anyway.
- Having people ignore you is the best tactic for chatterers. Those feelings of desperation for chitchatting will pass.
- People who push you to study and take the tests (while you may want to kill them at the time) are incredibly helpful. In the end, those are the ones I have to thank. They have made my life miserable, but I wouldn’t have made it without their encouragement.
So for all of you who still need to take the tests and are studying for them now, congratulations for making the effort! Now go study.
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July 20. 2011 | Drew Dunn
How Social Is Your Brand?
Social media—how its benefits span beyond the social realm—came up as an unexpected topic in a Not-For-Profit group status meeting last week. We joked that Google + allows you to create circles (or groups) of friends and colleagues instantly by clicking and dragging “much like grouping a trial balance.” Accounting humor aside, it does pose an interesting question—can social media be a value-added tool for businesses and non-profits alike?
There is no denying that social media has evolved into an essential tool for businesses to connect with potential customers. For example, Twitter is used by entities of all types and sizes to post micro blogs and share value-added links with their current and potential consumer base, with the ultimate goal of generating brand awareness and directing valuable traffic to company websites and blogs.
The success of social media platforms relies on the number of people using them, which is why Facebook, LinkedIn, and Twitter have become such valuable tools for businesses and Non-Profit entities to get people talking about their products and services. Sparking the conversation brings people together around your brand, your services, and your products. An example is the hashtag feature of Twitter. Companies with a new service or product, or a non-profit hosting a fundraiser, can get people talking by putting a unique hashtag about the product or event in tweets, and others who comment on it can use that same hashtag. This hashtag logs all tweets, using it in a searchable database within Twitter, and your hashtag can trend among twitter users, and, ergo, so will your brand, product, or event.
Social media can work for entities who take serious action to incorporate it into their business strategy. This requires both a knowledge of how to use the tools and a willingness to fund social media strategy. It is important to not only understand the tools you are using, but to also be authentic--show some personality in your posts because social media is about interacting with people to get them talking about your brand. So, how social is your brand?
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July 13. 2011 | Mary Lou Gervie
Workers’ Compensation Fraud
Fraud schemes involving workers’ compensation typically are tied to the employer’s premium, agent, claimant, and/or an organized fraud scheme. Workers’ compensation laws require employers, or their insurance companies, to reimburse employees for injuries sustained on the job, so it is important to be aware of the various frauds that can be perpetrated.
Many schemes are initiated by a claimant who fabricates an injury or misrepresents the circumstances of an actual injury. The false reports that are submitted to the insurance carrier are often accompanied by a doctor’s report. The doctor provides these reports for a fee and, at times, a false diagnosis and/or false medical records are used. If there are any concerns about the extent of an injury or a questionable diagnosis, a second physician’s diagnosis might be in order.
Premium fraud usually happens when an employer provides false information to the insurer to keep rates as low as possible. Agent fraud occurs when the agent issues certificates of coverage, but fails to submit the premiums to the insurance carrier. Both of these types of fraud can have serious ramifications for the employer.
Organized fraud schemes typically comprise groups of specialists, such as lawyers, doctors, and claimants. These schemes are difficult to detect and are often only caught by the authorities or the insurance carrier.
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July 1. 2011 | Kristen Soles
There are some things in life that are necessary evils. Some necessary evils, if approached correctly, can even be beneficial. Mowing the lawn? Definitely a necessary evil, along with cleaning the bathroom, sitting in traffic, and watching the Bachelorette (what is with Ashley anyway?). How about the dentist? I could argue that if you have a good dentist who fixes a tooth, on which you’ve had cavities filled four different times, with some new age dental material so you can now eat beef jerky in peace, you might have necessary benefits. (Shout out to Mark Jeffries, D.D.S.!) Lastly, what about audits? That’s a tough one. Many people view audits similarly to dental visits. However, I’d argue that if they are done right, the results can be extremely beneficial, though perhaps not as tasty as beef jerky.
In this context, I’m specifically referring to the government contracting community. Most government contractors are required to have an audit by their bank, board of directors, or for RFP purposes. So begins the necessary evil. What if you had a CPA firm performing your audit that knows your industry inside and out? That same CPA firm performs DCAA mock audits, consults on cost and pricing data, rate buildups, etc. Now you’ve got some necessary benefits built into that audit. Auditors are required to perform certain procedures during the course of an audit in accordance with Generally Accepted Accounting Principles (GAAP). Many things in GovCon fall outside of those requirements. Certainly it would be a “value add” and great for your client/firm relationship if your CPA firm went the extra mile and looked at some of those GovCon compliance issues during the course of the audit.
Those of you who have had audits know about the management letters issued at the conclusion of the process. Often they contain a laundry list of all the transactions found that a company did incorrectly during the course of the prior year. They may also call attention to deficiencies in internal control that should be corrected. At Watkins Meegan, we specialize in government contracting and feel it necessary to both comply with GAAP and look at those GovCon areas of compliance inherent to government contractors. As a result, some of our management letters this year had the following additional comments.
- The Company is not in compliance with the new FAR lowest cost travel principle; as a result, travel costs could be disallowed by the DCAA.
- The Company did not take into account unreasonable executive compensation and reclassify portions over the threshold to unallowable costs.
- The Company is not allocating service center costs to its final cost objectives in a causal beneficial manner.
We believe our clients are better served if they receive such advice as part of their annual audit rather than hearing it from the DCAA and risk penalties or a cost disallowance. These are the services that turn the necessary evil of an audit into a necessary benefit to a government contractor. There’s not a lot you can do about yard work and traffic, but you can minimize the pain and suffering of going to the dentist and facing DCAA with preventative maintenance. As for the Bachelorette, we can only hope Ashley finds love with someone as crazy as she is to ensure a happy ending.
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June 29. 2011 | Bhavesh Vadhani
Small and mid-size businesses - Are you concerned about keeping your information secured? If yes, what are you doing about it? Just being concerned is not enough.
You may have heard about the various data breaches and cyber attacks that have occurred recently. A majority of the organizations that were on the front page of the newspapers due to data and security breaches are large corporations, such as SONY, CITI, ADP, Lockheed Martin, and RSA. But that doesn’t mean small to mid-size businesses are not targeted. If you are a small to mid-size business owner, have you asked yourself the question “what if my organization is targeted, deliberately or accidentally?” Are you concerned about data and information security within your firm? If yes, that’s a good sign and a step in the right direction, and in line with 96 percent of small to mid-size business owners who responded to a recent survey by the security and document destruction company, Shred-it. But is just being concerned enough or did you take the next step? The survey results showed:
- Only one-third of the respondents had done a security review,
- Only one-fifth of the respondents had completed a security audit in the last 6 months,
- 25 percent had never done a security review,
- 35 percent have no protocol in place for dealing with secure data, and
- 31 percent have never trained their staff on information security awareness and company policy and procedures regarding information security.
According to Ponemon Institute, a privacy and information management research firm, the average cost related to data breaches was $214 per compromised record, or $7.2 million in 2010. Admitting this number may be more skewed towards large organizations; even if you take one percent of the average cost ($72,000) that your organization may have to incur for a data breach, are you ready for that?
Information and data security is vital to organizations of any size. Companies need to safeguard their customers’ and employees’ sensitive information and take the actions necessary to minimize the risk of exposure that could lead to a data or security breach. Companies need to make sure that they have formal information security policies in place and train their employees to thoroughly know the policies and follow them consistently. Companies should conduct periodic information security audits and take diligent steps to mitigate the risks associated with the gaps identified as part of the audit. If need be, hire a third party that is well-informed and keeps you compliant with pertinent legislation, training requirements, etc. Remember, securing data and information is a cost of doing business today and one data or information security breach could put you out of business.
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June 22. 2011 | Jim Wagenmann
Keogh and Other Owner-Only Plans Need to Be Dealt With
The Internal Revenue Service is looking for such plans that have been in existence for years but have not been contributed to, for whatever reason. The IRS is looking to disqualify the plan and tax the assets that are in the plan trust account.
Under the law, all plans are to be amended periodically to conform to changes in the law. There are many such plans that have not been looked at for many years and either continue to file or have stopped filing forms 5500-EZ. If you have such a plan, it would benefit you to roll over the assets into a new owner-only plan which would be treated as conforming to all of the plan amendments you may have missed. After doing this, you should then either roll over the assets directly to another qualified plan or an Individual Retirement Account. Doing so will keep the IRS from being able to disqualify the plan and tax the assets.
If you have any questions or would like to discuss your situation, please let us know.
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June 16. 2011 | Bryan Allen
Flexibility. (Introducing Accounting Solutions.)
Flexibility. You might first think of athletics when you read that word. Perhaps you think of the “Sit and Reach Test” from gym class. I think of Watkins Meegan’s Accounting Solutions Group.
The Accounting Solutions Group provides the flexibility businesses need to meet the constantly changing accounting demands in today’s business environment. Whether there is a need to outsource the complete accounting function, assist with staff augmentation from CFO to staff level, or provide technical accounting support, the Accounting Solutions Group is uniquely flexible to provide the appropriate experience and know-how to meet your company’s accounting needs.
The Accounting Solutions Group’s bench strength is comprised of experienced professionals assembled to meet the project specific needs of our clients’ accounting goals. We also draw from Watkins Meegan’s vast pool of experienced professionals across Industry Groups to be the “go to” resource for any accounting challenge. From large public companies to organizations building their back office infrastructure, we deliver top-notch financial reporting expertise.
As your business environment changes and you discover the need for a flexible partner to meet your company’s specific accounting challenges, think of Watkins Meegan’s Accounting Solutions Group.
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June 13. 2011 | Anne Sesso
Are You Protecting Your Client’s Credit Card Data?
Our society is benefitting greatly from the ease of electronic processing to secure payment for services or goods, but are you doing enough to protect your client’s data? The recent security breach at Sony makes us realize every business is at risk.
Ask yourself these simple questions.
- Do you accept payment information by fax, email, or traditional mail?
- Do you store paper records containing credit card data?
- If you answered yes to question one or two, is the information kept in an unsecured location?
- Does your computer network have a firewall?
- Do you run virus scans at least weekly on all of your computers?
- Is your virus scanning software up-to-date?
- Do you restrict access to data to a need-to-know basis?
- Does each person with computer access have a unique ID?
- Do you maintain a policy that addresses information security?
Taking the time to make sure your business has the proper controls in place can protect your reputation, avoid financial penalties and litigation, and protect your customer’s information.
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June 6. 2011 | Pete Ragone
Seven? Yes – Seven (7)
Time has moved quickly since I joined Watkins Meegan as a senior manager in the Construction Industry Group over four months ago. When I was first asked to create a Construction Industry Group (CIG) blog, I went through a laundry list of topics I could possibly write about – “Status of IFRS” or “What Convergence Means to You” (I came to my senses), “Summer Tax Planning Dos and Don’ts“ (not really my forte), “Potential Impact of FASB’s Recent Proposal to Overhaul Revenue Recognition for Long-Term Contracts” (not the right forum, but would help you get to sleep at night), or “How to Make the Most of Your CPE Trainings” (again, not the right forum or time).
So now you’re wondering, what’s the title “Seven” all about? And no, this isn’t a reference to that movie with Brad Pitt and Morgan Freeman (if you haven’t seen it, rent it, but be warned, it is not for the faint of heart or squeamish).
For those of you I have not had the pleasure of meeting, I’m using today’s blog to let you know that I am the father of seven wonderful children (four girls, three boys - ranging in ages from 2 to 18). As incredulous as it seems, it is possible to have a large family and still work in public accounting. I decided to list the top 10 questions or comments I hear when a person finds out I have 7 children.
10) “Wow, are they all yours?” Yes, they are all mine. Are you looking for some? I’d be happy to lend a few to you. They make great conversation pieces.
9) “Are you Catholic?” Yes. I do know plenty of Baptists, Mormons, and other non-Catholic couples with lots of kids, but I guess Catholics get all the press.
8) “How many times have you been married?” In fact, I’ve only been married once (and still am). We’re not the Brady Bunch + 1, and there are no multiple births.
7) “How on earth will you pay for college for all of them?” The world needs ditch diggers (I am in the CIG).
6) “How will you pay for all of those weddings?” I’m really hoping at least two will become nuns. Otherwise, I have no idea. Maybe a couple will do me a favor and elope.
5) “You do know what causes that, don’t you?” Why, no – please enlighten me.
4) “What do you drive, a bus?” Not quite, but we do have a Ford E250 Econoline 12-passenger Van. Though it would be pretty cool to have that Partridge Family bus (all of you under 30 – Google it).
3) “You need to get cable, or don’t you have television?” Why do you think I have so many kids?
2) “Wow – how do you stay sane?” Whoever said I was sane?
1) “Are you done?” With the blog – almost; with the children, I’d say yes, but then I’d be tempting the fates.
And for those of you who haven’t done the math yet on the tax impact of having all those children:
- 2010 Personal Exemptions $3,650 x 7 = $25,550.
- 2010 Child Tax Credits $1,000 x 6 = $6,000 (oldest is 18, so not applicable).
- Total Tax Impact - $31,550.
Trust me, that is a drop in the bucket compared to what it takes to feed, house, clothe, educate, raise, and provide recreational activities for seven children in one year.
So now you know the significance of the number 7 (at least as it relates to me). Have a great summer!
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June 1. 2011 | Andrea Contres
Go Ahead, Play on Your Smartphone
Seeing someone typing away on their Smartphone or hearing somebody’s cell phone ring is annoying and disrespectful in any meeting, especially if you are the person sitting next to that “can’t leave their phone at their desk for 2 minutes” person or if you are the one leading the meeting. However with Smartphones becoming “smarter,” this may have all changed.
A few months ago I discovered QR (Quick Response) codes, and instantly a wave of “marketer’s” excitement flew through the office! These Japanese-developed codes look similar to barcodes and scan the same way. However, they open up a whole new world to anyone with a Smartphone. QR codes have the ability to link your phone directly to any site on the Internet, any phone number, any image or coupon, text messages, and much more. After grasping this new marketing technology, I realized the sky was the limit with QR codes. You could put a code on everything (not that I recommend this), but why not add a code to your business card that links to your online bio or your LinkedIn page? Moreover, they could be placed on all marketing materials, brochures, one-pagers, event postcards, the homepage, and advertisements. Lastly, the real beauty of the QRs is they are free and easy to create. QR Codes could revolutionize the way we do business. Soon we may all be carrying around our Smartphones and speaking in code!
Check out my bio by scanning the above QR code!
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May 26. 2011 | Carla Robinson
Spring Has Sprung!
The warmer weather has finally arrived and that leads many of us to tackle spring cleaning. Here are a few reminders while you are busy clearing out those garages, attics, and closets.
Don’t forget to ask for and keep your receipts for charitable noncash donations. Donated items are valued by the taxpayer – not the charitable organization. If the estimated fair market value of the donated items in total is greater than $250, the taxpayer must have written acknowledgement from the charitable organization. If the estimated fair market value of all noncash donations exceeds $500, IRS Form 8283 must be completed, which includes the name/address of the charity, fair market value of the items donated, date of donation, date of acquisition, and original cost of the items donated. In cases where the noncash items total more than $5,000, a qualified appraisal must be obtained. This includes noncash donations of household items and clothing (both of which must be in good or better condition). This typically happens during the year of a residential move. Please note that donations of automobiles have their own special rules for tax deductions.
Clients retain their individual tax returns and backup documentation for many years. We are often asked how long is long enough. A general rule to follow is keeping your tax records for at least 3 years. The IRS can audit a tax return for up to 3 years from the original due date of the return or the filing date of the return, whichever is later. The record retention rules for states might be considered as well; however, most states follow federal guidelines. There are some tax records that should be kept for as long as you own an asset. Settlements sheets, legal ownership documents, and invoices, which can substantiate the cost basis for real estate, investments and other fixed assets, should be retained for use in the year the property is sold. Finally, there are other records that should be kept permanently. These include employment records, lease agreements, and insurance policies. Document disposal is also very important and we recommend shredding. There are many free community shred days available in the area.
I hope these ideas have given you a little more incentive to dust off some new-found tax savings and not increase your honey-do list too much this spring!
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May 18. 2011 | Corey Reinke
Enterprise Risk Management on a Budget
Decreasing donations and shrinking government grants mean that more and more pressure is being placed on non-profit leaders. Boards of directors and management must identify and manage risks at an earlier stage, long before they impact the organization’s mission. While some non-profits already have measures in place for risk identification and management, they often fail to identify how potential shortfalls in one operational area may affect other areas as well.
One of the ways an organization can effectively identify and manage risk is by implementing an enterprise risk management (ERM) plan. ERM is a process that helps management ensure their organization’s objectives are being met while risks, both internal and external, are identified and managed. While most boards immediately think of expensive software and consultants, there is actually an easy and inexpensive way to begin the implementation of ERM using a very low-tech approach.
Because risks need to be identified and managed across the enterprise, a simple way to begin the implementation of ERM is through a serious and ongoing conversation among board members and management. Commitment at the top level of the organization is a key success indicator for any ERM program.
This discussion should be focused on the top 10-15 risks likely to threaten the organization’s mission critical objectives. Management can then link each of the related risks to the organization’s key initiatives and consider ways to mitigate impact. While a full-blown ERM plan is more extensive and more time consuming, this simple approach can get an organization started in the right direction. For more ideas on simple approaches to enterprise risk management, contact us at firstname.lastname@example.org. Additional resources can be found at http://www.aicpa.org/ERM.
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May 11. 2011 | Dave Welch
The Fraud Triangle and Your Company
The Fraud Triangle contains the three elements that are typically present when a fraud occurs. The three elements of The Fraud Triangle are Motive, Opportunity, and Rationalization.
Motive (also sometimes referred to as pressure) is the reason that an employee will commit fraud. Possible motives might include significant personal financial strain, a potential drug or alcohol addiction, or pressure to maintain a lifestyle out of the employee’s reach. Or there could be stress to reach sales goals or other internal benchmarks. Sometimes the motive is simply greed or revenge.
Opportunity is the situation that exists that gives the employee the ability to commit the fraud. This is often because of poor or nonexistent internal controls, abuse of power or authority by the employee, or lack of management oversight. Opportunity is the one leg of the fraud triangle that the company can largely control.
Rationalization is the employee’s justification for their actions. Examples for rationalizing include situations where an employee feels that they are not fairly compensated or are not treated fairly, or believe that something more is owed to them by the company.
It is important for business owners and management to understand the fraud triangle and how to take the proper steps to break it. Please contact our office for more information on the fraud triangle and how to protect your company from fraud.
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May 4. 2011 | Rebecca Kehoe
Winners and Losers in the Fiscal Year 2011 Budget Agreement
Who got more than they would have with a Continuing Resolution? Who got less? And did anyone get what they asked for in their FY 2011 Budget? With an overall package cut of $40 billion in funding over FY 2010 levels, there were not many “Winners.” Here is the breakdown by the numbers:
Defense: $513 B, 10% above FY 2010 levels and only 0.4% below FY 2011 request.
Military Construction/Veterans Affairs: $76.6 B, a mere 0.8% above FY 2010 levels, but 4.4% above FY 2011 request.
Agriculture: $20 B, 15% below FY 2010 and 16% below FY 2011.
Commerce, Justice, Science: $53.4 B, 17% below FY 2010 and 12% below FY 2011.
Energy and Water: $31.8 B, 5% below FY 2010 and 10% below FY 2011.
Financial Services: $22B, 10% below FY 2010 and 14% below FY 2011.
HSA: $41.8 B, 2% below FY 2010 and 14% below FY 2011.
Interior: $29.6 B, 8% below 2010 and 8.5% below FY 2011.
Labor, HHS, Education, and related agencies: $157.7 B, 3.4% below FY 2010 and 7.6% below FY 2011.
Legislative Branch: Down $103 M from FY 2010 levels.
State and Foreign Ops: $48.3 B, 1% below FY 2010 and 17% below FY 2011.
DOT & HUD: $55.5 B, 18% below FY 2010 and 20% below FY 2011.
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April 27. 2011 | Elizabeth Dunseith
The SEC Continues to Respond to Dodd-Frank Act
This past summer, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act which responded to calls for further regulations around the financial sector. As mentioned in my last post, one of the changes that resulted from the legislation was the permanent exemption of non-accelerated files to be SOX compliant. In addition, the SEC has released several new proposed guidelines in response to the Act.
One of the proposals relates to incentive based compensation for Officers and other key personnel. In light of recent scandals, the SEC is calling for stricter regulations and more transparency regarding the compensation plans Officers receive. Losses incurred by the Company as a result of aggressive risk-taking or inappropriate management may reduce the amount of compensation received by the Officers and other key individuals.
Another proposed rule worth highlighting is the revision to the reliance on credit risk rating. The over-reliance on credit ratings by financial institutions played an important role in the financial crisis we are experiencing. Investors began depending on the rating and overlooking other, more telling information about a company's current financial status. The proposal includes removing all references or requirements to rely on National Recognized Statistical Rating Organization (NRSRO) credit risk ratings and allows the fund's board or its designee to determine the risk based on several subjective factors. Concerns have been raised that this may lead to additional areas of risk as a result of the subjectivity and lack of defined guidelines. What are your thoughts?
These are just two of the new proposed rules the SEC has released in recent months. For more releases, refer to the SEC official website http://www.sec.gov/spotlight/dodd-frank.shtml
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April 13. 2011 | Jason Fleetwood
Ode to the Big Day
It’s 1:26 a.m. on April 7, 2011, and I was supposed to submit a blog yesterday. I missed the deadline. Speaking of deadlines, April 15th is a big one. Here is my ode to the big day . . .
Every year you arrive
And people cringe with fear
Will I get a refund?
Or owe again this year?
CPA’s are working diligently
Fighting hard to stay awake
Looking for more deductions
That their clients hope to take
Why am I in public accounting?
Is what you make me ask
You bring me nothing but stress
As I try to finish each task
The IRS is your best friend
All these rules we have to remember
I wish they would do us a favor
And not make our taxes due ‘til December
Calls from screaming clients
“Have you finished my taxes yet?”
But in the end, you are just a deadlline
The best of me you’ll never get
So best wishes to everyone
As they saddle up to face the big day
Soon you will be gone, but not forgotten
And April will turn into May
Here’s hoping that everyone gets a refund!!
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April 6. 2011 | Katie Madden Lee
April 16th - The first day of the rest of your…Year…
Ahhh, April 15th (or April 18th this year, thanks to Emancipation Day falling on April 15, 2011) – these words are music to an accountant’s ears. For most of us, April is considered the end of “busy season,” and although the rest of the year is certainly challenging for us, these first 3½ months are the extreme. Busy season technically kicks off in December, with year-end tax planning for all of our clients, both corporate and individual. Tax planning can be as stressful as tax preparation (some might say more stressful) because there isn’t much room for error.
Enter January, when the temperatures outside are decreasing as the hours in the office begin increasing. January typically means the start of longer days, dinners in the office, and working on weekends. With less time to take care of personal tasks, we tend to put certain things off until after the deadline. On a daily basis in the office, I make a list of work-related items that are required to be finished that day or by the end of the week. I also keep a running checklist of personal items that need to be addressed. The difference is that I actually accomplish and cross off items on my work-related list, while my personal list just keeps getting longer.
Here are the top ten items on my agenda after 3½ months of procrastinating:
- File my own tax return (assuming I get the extension filed on time).
- Introduce myself to the person I keep passing by around the house. Oh, wait – isn’t he the man I just married in October?
- Locate and dust off my running shoes. Time to get back into my fitness routine.
- Finally watch and mail back the Netflix movie we’ve had in the DVD player since January.
- Officially book the dream vacation I’ve been envisioning over the last 4 months.
- Take those golf lessons that were part of my New Year’s resolutions - for 2008!
- Shred those huge piles that have accumulated on my desk. Didn’t we go paperless a few years ago?
- Get an oil change. If the recommended miles between changes didn’t increase to 10,000, I’m in big trouble.
- Sleep in on Saturdays and . . .
- . . . sleep in on Sundays!
As we wind down this annual ritual, I would like to thank my Watkins Meegan co-workers for their hard work and the extra effort they have put forth to take care of our clients’ needs and to get the job done. Hang in there; it’s almost over!
April 16th/19th is right around the corner. What is on your list?
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March 30. 2011 | Andrew Clahane
Google Alerts: A Remedy for TSO (Tax Season Overload)
If you’re an accountant, you understand what I mean by “Tax Season Overload” or “TSO.” If not, please understand why we accountants seem a little groggy from February through April 15th.
During tax season, the only thing going through most accountants’ minds is “Summary Tax Memos” and “Accrual to Cash Reconciliations.” So when friends ask, “How are you?” or “What have you been up to?” – it takes us a little time to answer. Don’t worry, we all know that “tax lingo” is not what our friendly nine-to-five, 40-hours-per-week, well-rested conversation partners want to hear. Personally, when responding, I quickly ponder something to add that is remotely normal, interesting, and coherent. What’s happening in the world of sports? Politics? My life? – all things I actually used to follow quite closely. But 9 out of 10 times, I have nothing of interest to contribute.
Needless to say, most accountants feel out of the loop during tax season. During this time, we tend to fall behind on current events, firm updates, client updates or advances, and, yes, even sleep. For those who want a quick catch-up on almost any topic, I might have the solution for you!
A co-worker introduced me to a content monitoring service called Google Alerts (http://www.google.com/alerts). The email alert system, which is powered by Google, allows you to enter any topic(s) of interest and select the frequency and quality of alerts you would like to receive via email on the topic(s) entered.
At first I was not overly excited by the idea of having my inbox swamped with tons of notices from all over the web. However, after trying it out, I found that these alerts can be used as a powerful business tool. For example, I entered “Watkins Meegan” as a relevant alert topic and selected my preferred criteria. Within several hours, I received a Watkins Meegan alert. Not only can this service be used to keep you up-to-date with your own employer, but also informed about your clients and what is going on outside of your cubicle. I also suggest setting a Google Alert for yourself. You should always know what is being said about you on the Internet – good or bad. Good luck to all accountants and friends of accountants; only 20 or so more days to go!
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March 23. 2011 | Daniel O'Shea
Unlimited FDIC Coverage Now Available
What’s the price to pay for peace of mind when it comes to banking? It might only be a small amount of interest. In response to provisions of the Dodd-Frank Act, in November 2010 the FDIC adopted a final rule that will provide unlimited insurance for noninterest-bearing transaction accounts through December 31, 2012. This rule is different than the well-known Transaction Account Guarantee program that was previously in place, because it does not require a bank to participate in the program (Opt-In provision). The new rule provides coverage at all FDIC-insured institutions. Another difference is that NOW accounts are not covered. Additionally under the rule, the noninterest-bearing accounts do not count against the standard $250,000 per depositor per institution coverage limit.
In today’s low interest rate environment, many checking accounts are currently earning less than .3 percent (Note that is “Point 3” percent, not 3 percent.), and money market funds are also below 1 percent. Thus, from a risk management standpoint, the decision to convert accounts to noninterest-bearing accounts and receive unlimited coverage may be a no-brainer for companies maintaining high bank account balances throughout the year. For example, an organization carrying an average balance of $1.0 million and earning .2 percent would be foregoing $2,000 in exchange for preservation of an additional $750,000 of principal ($1,000,000 - $250,000 standard coverage).
All organizations should ask themselves whether it makes sense to forego a small amount of earnings in exchange for a fully-insured account. The answer is not the same for all companies, and largely depends on an organization’s tolerance for risk. There are other factors to consider, such as current interest rates and expectation for future rates, bank rating, and the balances being carried. Nonetheless, it’s a question that should be asked, and revisited periodically over the next 18 months. The unlimited coverage is currently set to expire on December 31, 2012.
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March 16. 2011 | Mary Lou Gervie
Check Tampering Schemes
Dishonest employees often obtain checks, place false information on them, and divert them for personal gain. This can be done through forgery by signing the check on the face or forging an endorsement on the back of the check. A paycheck or a business check can be altered for a different amount or payee. There are concealed check schemes where the fraudster prepares the check and includes it in a stack of checks to be signed, typically during a very busy part of the day, and the signer fails to recognize the false check.
However, another scheme, prevalent in the Washington, DC, area and perpetrated by an organized ring of criminals, is where a signed check which has not cleared the bank is stolen by a bank or vendor employee. The check is taken to a copy machine business where it is duplicated, redacted for payee, check number and amount, and then reissued to a “mule” who cashes the check for a small fee. The primary target has been mid-to-large size construction companies, but it can happen to anyone.
Effective internal controls help catch these check tampering schemes early. Daily monitoring of cleared checks or using a “positive pay” service provided by your bank are two recommendations. Clearly, timely bank reconciliations are a must.
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March 9. 2011 | Rebecca Kehoe
Federal Corporate Compliance Monitors
What are they? They are companies (or individuals) that review and monitor a Federal Government Contractor’s compliance with laws, rules, regulations, and other contract requirements. A Monitor is generally selected and paid by the Contractor it monitors, but must be approved by the Government in accordance with the Agreement between the Contractor and the Government.
Do you want one? Usually yes, because the alternative is to be placed on the Excluded Parties Listing (EPLS) and not be able to receive any future federal contract awards (including modifications). The Federal Government has determined that it does not want to be the cause of a company’s demise over a federal compliance violation if the company is willing to make changes in its operations to remove the cause and furtherance of the violation.
Do you want to be one? A Compliance Monitor must perform within the parameters of the Agreement between the Government and the Contractor, but the actual work is determined by the Monitor. This gives the Monitor a great deal of leeway in performing their responsibilities. The Monitor typically has access to everyone and everything within the company it is monitoring. This gives the Monitor contact with the “C” level personnel as well as the administrative personnel. For those companies looking to expand their market, this would be great. However, Monitors must remain independent of the company they monitor. Click here
to read the full article on www.watkinsmeegan.com
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March 7. 2011 | Andrea Contres
Supporting the GWSCPA and Mobility in DC
As the Marketing Communications Manager of Watkins Meegan, I do not always understand every “accounting term” I hear. Over the last 10 months, I have, however, learned a few, one of which is “accounting mobility”. After getting involved with the Greater Washington Society of Certified Public Accountants (GWSCPA) and its Young Emerging Accountants (YEA), I became interested in the association’s big push for 2011, “Introducing the Mobility Bill to DC.” What really piqued my interest was how much power and passion the group had and how much the organization cared about the well-being of its members. I am assuming that because you are reading an accounting firm’s blog, you know what mobility means to an accountant, but I will explain just in case. Accounting Mobility is the ability of an accountant to receive practicing rights outside of their home jurisdiction, where they have met the requirements to become a CPA and have passed the exam. Being that the DC Metro Area is comprised of three jurisdictions, the District of Columbia, Virginia, and Maryland, I imagine mobility would be a quite a value add to a one jurisdiction CPA who is practicing in all three jurisdictions.
As of right now there are only three states, DC, NY, and HI, that do not have accounting mobility, all of which have legislation in progress. PA, GA, and MA have mobility, but it is only enacted with other states that have mobility. This could present a great competitive disadvantage to DC if other states follow in these reciprocal relationships. (See the map for 2011 mobility coverage for more information.) The GWSCPA has been working with Capitol Hill and DC Council Members Yvette Alexander and Mary Cheh to pass mobility in DC for the last two years. On February 1st, the Council Members introduced the Accounting Mobility Act of 2011 (B1900080). This is the first step, and the GWSCPA hopes legislation victories will follow. If you are interested in learning more about what you can do to assist in gaining mobility in DC, visit the GWSCPA website. To learn more about why mobility is good for DC, click here.
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March 2. 2011 | Kristin Drozdowski
Is Your Board Asking About Risk Management?
If not, they should be. Over the last two months, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) released two thought papers on the topic of Enterprise Risk Management (ERM) in the wake of two surveys performed on the current state of enterprise risk oversight. One of the key findings of the surveys concluded: “There appears to be a notable level of dissatisfaction with how organizations are currently overseeing enterprise-wide risks. Almost half (42.4 percent) described their organization’s level of functioning ERM processes as ‘very immature’ or ’somewhat mature.’ About a third (35 percent) admit that they are ‘Not at All Satisfied’ or are ‘Minimally’ satisfied with the nature and extent of reporting to senior executives of key risk indicators.”
Implementing and sustaining a successful ERM program is not an easy task. It takes time and dedication, which we all know translates into dollars. Not only can ERM be time consuming to implement, but the level of monitoring and updating required to create a sustainable program can feel overwhelming.
Reading the COSO thought papers, combined with experience performing financial statement risk assessments and assisting in ERM development, made me think of what companies should pay particular attention to while implementing and improving upon an ERM program:
1. Obtain Support from Senior Management. If management doesn’t treat ERM as important, neither will employees.
2. Break Down the Process into Smaller Steps. Determine how to break down the organization into manageable areas and then focus on one area at a time.
3. Incorporate throughout the Entire Organization. While support from senior leadership is key, it is also important to involve employees across all levels of the organization. This will only strengthen the process by empowering employees to focus on the more important issues facing the organization.
The two risk oversight surveys and both COSO ERM thought papers can be found at www.coso.org.
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February 16. 2011 | Jason Fleetwood
Busy Season – From A to Z
Contributions from Joe Post, CPA
For certified public accountants, it is that time of year again. Time to saddle up and earn your paycheck, put your family and friends on hold as you do what it takes to get the job done, including late night number crunching, last-minute extensions, and the following items that figure to highlight my (and maybe your) 2011 busy season.
A – April 15th . . . no need to elaborate.
B – BTL . . . bagels, team meeting, lunch. It is quite the protocol for Saturdays during busy season.
C – Charitable Contributions . . . hang onto those donation receipts!
D – Depreciation . . . once again the rules have changed. Take 100 percent bonus depreciation for certain capital investments placed in service after September 8, 2010 and through December 31, 2011.
E – E-file . . . save some trees and file your return electronically.
F – Forms . . . there are far too many to count. 1040, 990, 1120, 4562, 5500, 7004 - just to name a few.
G – GTL . . . gym, tan, laundry. Is there anyone else out there who can’t miss an episode of Jersey Shore?
H – Hoyas . . . it’s all about the Big East this year. One of the nation’s toughest schedules should have Georgetown ready for the big dance.
I – IRS Hotline . . . good luck trying to reach someone.
J – Jason and Joe . . . enough said.
K – Katy Perry . . . not sure what she has to do with busy season, but talk about “Firework”s!
L – Lease Accounting . . . quite the stir FASB is causing. Call Rob Wilkins at 301-664-6887 and he’ll fill you in.
M – March Madness . . . it allows us to take a break from the daily grind as we follow our favorite college basketball team (and try and win the office pool)!
N – NOL . . . carry forward or carry back?
O – October 15th . . . if you can’t get it filed by April, it’s time to extend.
P – Plug-in Electric Vehicle Credit . . . I wonder how many taxpayers actually own a plug-in electric vehicle. All of the luxury SUV’s I see on the road definitely require gasoline.
Q – Qualified Revocable Trust . . . wondering what this is? Don’t ask me. Call Jim Wagenmann at 301-664-8203.
R – Refund . . . if you come up with something other than this, your client will surely let you know how they feel.
S – Super Bowl . . . Congratulations to all the Packers fans. Will I ever be able to congratulate all of us Redskins fans?
T – Taxes . . . it’s all about reducing your taxes.
U – Underpayment Penalties . . . don’t let this happen to you.
V – Valentine’s Day . . . this is a reminder for all of the guys. Hopefully this will get posted before the big day!
W – Watkins Meegan LLC . . . if you need a reputable accounting firm, then call us (and ask for me – maybe I can prove that writing a blog is effective at bringing in business).
X – Xbox . . . it helps provide a much needed break from reading state filing instructions.
Y – Yemen . . . don’t forget about the foreign tax credit.
Z – Zzzzzzzzz’s . . . commonly referred to as sleep. Unfortunately, it becomes scarce as the April deadline approaches.
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February 9. 2011 | Beth Dodson
February is Here!
February is here! It’s time to celebrate Black History Month, observe Presidents’ Day, overspend on Valentine’s Day, and likely give up altogether on the resolutions we made at the beginning of the year. If you’re anything like the majority of the people I know, your resolutions for 2011 looked something like a mathematical equation (less drinking + more working out + less negativity = a happier new you!). I hear you when you say “math was never really my thing anyway” – trust me, I do! I’m an accountant; I have a college degree and a certification that says that I know a little something about pluses and minuses, but the truth is that sometimes even accountants have trouble managing the credits and debits when it comes to our own finances. I’ve compiled a list of tips that can help you improve your financial health and save money in 2011. None of these will make you rich, but every little bit helps!
- Prepare a budget: Track what you bring in and what you spend for a month, including those trips to Starbucks. Really look at your expenses. Those lattes add up!
- Commit to cutting back: Use the budget you prepared as a tool to identify opportunities to save. If you go out to lunch three times a week, scale it back to twice (this may serve dual benefits). Set up an automatic bank transfer to move saved money from your checking to your savings each month and stick with it.
- Be less generous: While we love to treat our friends, this can be a costly habit. Stop picking up the dinner checks and especially the bar tabs. If you struggle with this one, prepare before you go out; take cash and leave the plastic at home.
- Cash is king: Cut back on your credit card spending and pay down your balances. If you’re an impulsive buyer, leave your cards at home. Carrying a balance? Pay the cards with the highest rates first. Consider transferring your balances to an interest free card (but pay attention to the fees and to how long you have to repay the balance before interest kicks in).
- Pay your taxes: Yes, but don’t float the government a loan! The IRS says that the average income tax refund is $3,000; that’s $3,000 you could have used to pay down debt or to increase your retirement savings. If your refund is too large, adjust your withholdings so you can get more of your money in each paycheck. No idea what your tax liability will be in 2011? Talk to a tax advisor about doing tax planning for the year and find out. Don’t have a tax advisor?? Funny – as it turns out, I have the answer for that problem too.
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February 2. 2011 | Yocheved Baumer
A Great Website to Add to Your Favorites
is a website where you can search a national database of unclaimed property records that have been turned over to the state. Unclaimed property includes bank accounts, stocks, mutual funds, bonds, CD’s, insurance policies, and more, if there has been no activity or contact with the owner for one year or longer. Most states currently participate and their records have been included in this database.
To perform a search on the website, enter your last name and the state in which you currently live. Your first name is optional. Obviously, the less common your name, the easier it will be to identify any unclaimed property found under your name.
To tell you the truth, when I first heard about it, I was a bit skeptical. I couldn’t imagine ever putting money in a bank account and forgetting about it. I started searching everyone in my immediate and extended families and actually discovered unclaimed property that belonged to my brother-in-law’s relative!
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January 27. 2011 | Eric Pearson
The Stereotypical Accountant
I played basketball throughout high school and college; yet every time I crumpled up a piece of paper and threw it off the back iron of a trash can someone would chime in, “I thought you were a basketball player?” I always laughed because I guess people thought when I was in the gym working on my three-point shot, it consisted of my history paper and a garbage can.
Fast forward three years. I am finishing dinner with a group of friends and we have just received the check. One friend makes the comment, “Eric, you’re an accountant. Don’t you love this stuff? How much does everyone owe, and how much should we tip?” How’d they know? Throughout the entire ride to the restaurant, I couldn’t wait for the bill to come so I could bust out the calculator I keep in my back pocket! I often feel as though people truly believe accountants go to bed and dream of numbers, and that is simply not the case. Our office is full of different personalities. Read below to learn a little about several of them.
Lora Zuk – I’ve been told she sleeps in her Peyton Manning jersey. A huge Colts fan, Lora has recently decided to try golf. With Tiger Woods struggling, she might be the PGA’s next #1 player.
Anthony Bocchini – You’ve heard of Jerome “The Bus” Bettis, but probably not Anthony “A-Train” Bocchini. This guy lives and dies for Pittsburgh sports’ teams and the only thing this guy dreams about is waving his “Terrible Towel” at Heinz Field.
Jer’Rita Weldon – If you think American Idol found a star in Jennifer Hudson, Watkins Meegan struck GOLD with Jer’Rita. She sings in three different church choirs and loves reality television.
Dan O’Shea – Not only is he the leader of our Not-For-Profit Team, but he is also the coach of several youth basketball and soccer teams in the Northern Virginia area. He is often referred to as the John Wooden of youth sports. Or should I say Geno Auriemma?
William Russell – Kevin Costner was pretty impressive in Waterworld, but he is no Bill Russell. He makes scuba diving, boating, swimming, or basically any water sport you can imagine look easy. Word on the street is that he’s not afraid to play his guitar on “open mic” nights.
Caitlin Regan – Accountants can play sports too? A Division I soccer player at Mount Saint Mary’s, Caitlin is not afraid to make most guys look bad when it comes to sports - football included. To top it off, she loves to cook.
I could go on and on about the secret lives of accountants, the Not-For-Profit Team, and the rest of Watkins Meegan. While it is always our number one goal to provide the best financial support and service possible, we know it is our personalities that open doors to new clients and our character that keeps them open.
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January 24. 2011 | Lindsay Dattilio
Benefits to Rule 26 Amendments
As previously discussed, Rule 26 of the Federal Rules of Civil Procedures was amended December 1, 2010. Under Rule 26, attorney work product and communications between attorney and expert witnesses were discoverable to other parties. The amendment restricts, and nearly eliminates, discoverability of all work papers and communications.
Attorneys would go to great lengths to protect their draft reports and would attempt to only communicate verbally to avoid creating any drafts. Law firms over the years have become more creative in their ways to get around this rule. It was even common to hire two experts – one to prepare the work and develop opinions and another to give the actual testimony. They would conduct their practices in a manner that would avoid creating any types of draft reports, which would be susceptible for viewing the other party. Law firms are seeing this change as an excellent way to cut costs, as they can eliminate these wasteful and burdensome practices. Rule 26 now protects these reports and communications from discoverability. Fortunately, Rule 26 has been extended to not only the expert themselves, but any employees or assistants involved with the case.
Of course, it is recommended that attorneys and experts still use good judgment when using communications, and to remember that Rule 26 does not afford one hundred percent confidentiality with respect to work product. Also, exactly which engagements the new rule will apply to is still up in the air. It has yet to be decided if discoverability of all communications and drafts are protected as of December 1 or for specific engagements beginning on that date, or if it only applies to charges filed after that date. We only know for certain the amendments are not applied retroactively.
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January 19. 2011 | Lindsay Dattilio
Changes to Rule 26
CPAs and other industry professionals who perform duties as expert witnesses are subject to Rule 26 of the Federal Rules of Civil Procedures, and as of December 1, 2010, major revisions to the rule have taken place. Rule 26, established in 1993, dictates the discoverability of attorney work product and communications between experts and attorneys. Supported by the American Bar Association and the U.S. Department of Justice, changes to Rule 26 aim to encourage better communication between attorneys and their experts by prohibiting the discoverability of draft expert testimony, with a few exceptions of course.
Prior to the amendments to Rule 26, nearly all draft expert reports and work papers were discoverable to other parties, regardless of form. Attorneys would spend just as much time seeking to discover the other party’s work product as they would spend on their own depositions and testimony. All drafts shared with counsel as well as any written communication, including e-mails, meeting notes, and discussions, were subject to discoverability under Rule 26.
However, experts will still be required to disclose information pertaining to their compensation, and facts or data used to support their issued opinion. It is important to note that this rule only extends to expert witnesses engaged to perform expert testimony and who submit a written report. Rule 26 does not apply to experts such as treating physicians and government accident investigators. Overall, lawyers and experts across the board are in favor of the provisions and agree that they are long overdue.
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January 12. 2011 | Kristen Soles
What motivates you at work?
Probably a lot of different things. But often there is that one thing that motivates you from your core - that keeps you moving forward when life gets a little crazy.
What motivates me stems from my childhood. I grew up in a military family and was your typical “Air Force brat.” When I was learning to drive, my father left for a year to serve in Desert Storm. (In retrospect, I wonder which one of my parents truly deserved the hazard pay for the deployment.) In addition to my father, both grandfathers and a cousin were in the armed forces. Sadly, my cousin recently lost his life fighting in our current war.
I myself am a CPA in our firm’s government contracting group. I like to think my latent motives for working with the Federal Government are due to growing up the way I did. In my profession, I am frequently called upon by my government contractors for advice on matters essential to doing business with the Federal Government. In and around the offices in which I do business, I am consistently reminded of the pride we have for those who served by the sheer number of American flags displayed. I also often see crests from various armed forces branches, pictures of the Pentagon, Navy ships, planes, or other contraptions that my clients have helped build or improve (many of which I’ll admit I don’t fully understand). Some of the owners of the companies I service are actually former military themselves. It is a fortunate thing I grew up knowing military personnel time (subtract 12 and you’re golden); if not, I’d be late for quite a few meetings. I also frequent government contracting events and award ceremonies, all of which begin with the national anthem and the presentation of colors. (Nine hundred people in a room and you can hear a pin drop between the cadences being called.)
I tend to miss these sorts of touches in civilian life and am grateful that I have clients who bring that feeling back; they remind me of where I came from. It’s comforting to have a continual reminder of what we stand for and how hard we’ve fought to get here. Those are the times when I am most aware of my strongest motivation. My clients are patriots, many of them continuing to serve our country in a contracting capacity. So pride is my motivator - not only the pride I feel for the work that my clients do and have done to keep my family safe, but also the pride in the quality of work and service our firm provides in support of their efforts. It’s worthwhile to reflect on your motivators. Doing so keeps you focused, and giving it a name makes it easier to pull out when you need it. What motivates you at work?
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January 10. 2011 | Bhavesh Vadhani
Is Your Data Secure on Your Organization’s Digital Photocopiers?
I have always been a strong proponent of ensuring that data on digital photocopiers, scanners, and fax machines be given the same amount of attention, if not more, than data on any other critical system or resource of an organization. Seldom does a firm consider the risks associated with data being on copiers, faxes, and printers. They think that because these resources are on their premises and they have physical access controls in place for the premises nothing else needs to be done. There are plenty of incidents that suggest otherwise and lately, following a push from the U.S. Congress, The Federal Trade Commission (FTC) agreed and released guidance with advice on how to secure data on copiers.
“Make sure your information security plan covers the digital copiers your company uses” states the FTC. The agency released, “Copier Data Security: A Guide for Businesses.” Included are tips for safeguarding sensitive data such as personally identifiable information, medical records, social security numbers, account numbers, etc. that may be stored on the hard drives of digital copiers in order to prevent the risk of fraud and identity theft. The guidance comes on the heels of a congressional inquiry following an incident in 2010 that resulted in a health plan provider notifying more than 400,000 people that their personal or medical data may have been compromised. The FTC recommends that organizations evaluate options for securing the data on the copier’s hard drive including any encryption or overwriting features, and should consider how data that accumulates on the copier over time will be destroyed, degaussed, or disposed. The entire guidance can be found at the FTC website or at the following link.
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January 5. 2011 | Robert Payne
Risk Management in 2010
When I started my career in information security in the financial services industry over 30 years ago, risk assessments were performed but we didn’t realize we were performing risk management functions. The risk assessments were conducted solely for our own internal departmental use. Other areas of the business were unaware of any risk activities and had no input in the process. Fast forward 20 years to 2000, when I started in internal audit. Risk management was no longer an isolated function. Every division of the business had a team of risk managers, and the business had a corporate risk management function to coordinate the decentralized risk management functions. Come 2010 the risk management function had been decimated. Management had decided that risk management was a costly overhead in a struggling market. The number of risk managers was reduced significantly and the function centralized. Risk management, at least operational risk management, was taking a back seat in a depressed market.
Today ‘Risk Management’ seems to be a common theme within many professional organizations (e.g.., IIA, ACFE, and ISACA) , as well as the topic of many articles posted on various websites. At meetings, individual risk managers disclose many of the lessons they’ve learned during their time implementing and operating risk management frameworks. For example, it is important not to look at risks in isolation but to understand how risks interact with each other. In addition, a change to the business strategy will almost certainly impact existing risks (i.e. remove a risk, reduce a risk, or increase a risk), or introduce a new risk. The failure to review risks on a regular basis may cause them to become outdated and irrelevant.
Risk management, as with all business processes, has its challenges. It can be complex and costly to implement and maintain no matter the size of the business. It is evident there are many ways to implement and operate a risk management function, but a business should remember that risk management is simply another business process. It is important to ensure that any risk management process that is implemented meets business requirements, is integrated within the business, complements existing processes, and is appropriate for any regulatory environment in which the business operates. In conclusion, Risk Management is an overhead and does not add to the top-line of a company’s balance sheet and financial statement, if done consistently and correctly it can sure improve the bottom-line.
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December 30. 2010 | Jim Wagenmann
Family Wealth Planning Provisions of the 2010 Tax Act
The White House signed the 2010 tax act on Friday, December 17, 2010. This act contains provisions extending the tax provisions of the 2001 and 2003 tax acts with some modifications. The estate and gift tax has been re-instituted and expanded for 2011 and 2012. The 2001 tax act had increased the exemption in steps so that by 2009 the amount that could be passed tax free was $3,500,000 at a maximum tax rate of 45%. The gift tax was separated from the estate tax and had an exemption from tax of $1,000,000, and a tax rate of 45%. For 2010, there was no estate tax and the gift tax that had an exemption of $1,000,000 with a 35% tax rate.
The new law combines the estate and gift tax, once again. The exemption amount is increased to $5,000,000 per taxpayer with a maximum tax rate of 35%. These amounts and rates will be in effect for estates of individuals passing in 2011 and 2012 and for gifts made after December 31, 2010.
Under the new law, executors of estates of individuals passing in 2010 will have an option of filing an estate return under the new provision or remaining subject to the no estate tax regime. If an election is made to file under the new law, all assets of the estate will have a step-up in income basis, thereby saving beneficiaries future income taxes. If the election is made to remain under the no estate tax regime, there will be a limited step-up in income tax basis depending upon who the beneficiaries are.
Returns of decedents passing in 2010 will be due nine months after the date of enactment of the new law.
Let us know if you have any questions about this important legislation.
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December 22. 2010 | Jason Fleetwood
Two simple yet often overlooked words
As I was out Christmas shopping this past weekend (with by the looks of it, everyone else in the DC metropolitan area), I couldn’t help but notice how hurried people were to get from one place to the next. Whether it was impatient drivers honking their horns, the overblown sighs and disgusted looks from shoppers in long check-out lines, or folks moving a mile a minute through the mall running over anyone in their path, I wondered to myself, “Where is the holiday spirit?” Are we too busy to hold the door open for someone? Too rushed to wait patiently for a parking spot? Are we all so focused on our own agenda that we can’t stop and be thankful for living in this great country of ours?
With the New Year rapidly approaching, I have a lot in which I am thankful (and I am hoping that everyone who reads this does as well). In the spirit of the holidays, I want to say “thank you” (two simple words that we often overlook) to the following:
To everyone at Watkins Meegan for making our Firm such a great place to be employed.
To all of the clients I work with for their continued support of the services our Firm provides.
To all of my business associates and contacts for the relationships that we have developed.
To our armed forces for protecting our country and fighting for freedom throughout the world
To London Fletcher, LaRon Landry, Brandon Banks, and Ryan Torain for giving all of us diehard Redskins fanatics something to cheer for.
For the miracle of modern medicine for helping those with cancer and other illnesses live longer and providing hope in finding cures.
To my family and friends for providing memories that will last a lifetime.
And to my loving wife and two adorable daughters who give me the best reason of all to get out of bed each day.
Merry Christmas have a happy and healthy 2011!!!
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December 15. 2010 | Michelle Godwin
Kids These Days...
There are currently four generations working together at Watkins Meegan. Though the lines between the groups blur and mix occasionally, often times it may seem like the generation names of “X” and “Y” signifies different species rather than different birth years. These differences often cause a breakdown in communication as one generation misinterprets or misunderstands another generation’s actions and behaviors. As a Millennial myself (also known as Generation Y – born between the mid 1980’s and 2000), I decided to look up some facts and get a general idea of what our more seasoned co-workers thought of us.
Generation Y makes up approximately 20 – 30 percent of the workforce, around 74 million people. We grew up with Mr. Rogers, Cory Matthews, and Dawson’s Creek in a time of school shootings, 9/11, and Iraq wars. It was an era of technology with emphases placed on efficiency and instant gratification. Our parents didn’t want to make the same mistake as their parents, so we were nurtured and pampered, in turn leading to confidence, ambition, and high expectations. In a world where information is just two clicks of the mouse away, we crave feedback and appreciate being kept in the loop at the work place. Many GenY’s are willing to trade higher pay for fewer billable hours, flexible schedules, and better work/life balance. These desires often lead our elders to think we believe everybody should get to make their own hours and be promoted after 2 months of employment. They can’t understand why, although we are the most technologically savvy, the thought of answering a work related email over Christmas break annoys us more than it would annoy them.
If the older generations are frustrated with us – I can see why. They worked hard to get where they are today, sacrificing family time, and working long hours to earn respect and please their bosses. They had to pay their dues in the professional world by working their way up a strict office hierarchal structure. Now to defend my own – our upbringing and surroundings have led us to want to live now rather than when we retire. We value free time, mental and physical health, and insist that work be part of life, not life itself. Along with this mentality, we also tend to be hardworking, entrepreneurial, shockingly authentic, and upbeat.
Many positive things can come from working in an office with such a wide range of ages. Y should look to X as mentors and for guidance in an industry full of demands, stress, and pressure. We (Generation Y) can only hope that X views us not as billable hours, but as the young practitioners that we are, the ones who can take their hard work and build on it so their success continues long after they retire. If we all take the time to learn our differences, although we may never fully understand them, we can become a better firm and, in the end, better serve our forever changing client base .
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December 9. 2010 | Daniel O'Shea
The Wayback Machine
Have you seen it? It makes me think of the movie Groundhog Day, or a time machine capable only of going backward, not forward. Like Yogi Berra once said, “It’s like Déjà Vu all over again.” No, I’m not talking about old high school or college yearbooks, but rather, the Wayback Machine.
The Wayback Machine can be found on a San Francisco-based not-for-profit Internet site called Internet Archive (www.archive.org
). According to its website, the Internet Archive was established in 1996 and its purpose is to build an internet library in digital form. Its system crawls the Internet every few months and records an image, capturing websites on an archive it calls the Wayback Machine...
Viewers are able to pull up web pages dating back to the late 1990’s through the website. Much of what you can see is nostalgic. Just for fun, go back and visit your company’s website from 10 years ago, or see corporate websites for Enron, Lehman Brothers, or a Google “Beta” site. You can also see our own Watkins Meegan website archived on it, and read newsletter articles dating back to 1998.
This virtual library or virtual museum provides many benefits to interested viewers. It has also been said that these archived images have been used by parties involved in litigation, the IRS, and other regulators. With that in mind, make sure your site does not contain information that could later be used against you, or simply install a robots text file on your web server to make sure your site is not part of the images collected.
I think I will look up some old dotcoms, or perhaps a little start-up company called eBay…
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December 1. 2010 | Rick Westerman
COSO Modernization: Improving the Wheel or Adding Different Treads?
On November 18, 2010, COSO announced a project to update the Committee of Sponsoring Organizations (COSO) “Internal Controls - Integrated Framework” (the COSO Report). As some readers may recall, the COSO Report, released in 1992, included an Executive Summary, Framework, Reporting to External Parties, and Evaluation Tools. Now eighteen years old, the original COSO Report’s reference tools are thought to be outdated. Updates will not change basic principles, but will provide “comprehensive and relevant conceptual guidance and practical examples.”
With respect to financial reporting, the COSO Report has been a foundation of compliance with the Sarbanes-Oxley Act. However, many critical controls related to current financial reporting challenges are not illustrated in the Report’s Evaluation Tools. For example, a quick word search of the text finds no mention of derivatives, stock options, or fair value. COSO’s news release indicates that enhancements will concentrate on operating and regulatory compliance environments. It’s likely the operating environment may be more focused on service oriented businesses, while compliance enhancements could address stepped up enforcement in regulatory areas, such as Foreign Corrupt Practices, Federal Income Tax, and False Claims.
It will be interesting to see if the COSO Report is affected by convergence between GAAP and IFRS or new SEC rules related to board of directors’ governance, including voting, compensation, and risk management.
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November 24. 2010 | Rebecca Kehoe
“Qui Tam” Lawsuits Must Exactly Follow the Rules Set Forth in the False Claims Act
Do you know what “Qui Tam” means? Qui Tam is a provision of the Federal Civil False Claims Act that allows private citizens to file a lawsuit in the name of the U.S. Government charging fraud by government contractors and others who receive or use government funds, and share in any money recovered. It allows private citizens to act as "private attorneys general" and prosecute government procurement and program fraud. Provisions of the False Claims Act (FCA) require the “Qui Tam” suit to be filed under seal (also known as “in camera”) and remain under seal for 60 days. Within those 60 days, the Government may elect to proceed with the action on its own.
The U.S. Court of Appeals for the Sixth Circuit in United States ex. rel. Summers v. LHC Group Inc., 6th Cir., No. 09-5883, 10/3/10, determined that the “Qui Tam” lawsuit filed by Summers’ attorney was not filed under seal and the court found that the “lack of strict adherence to the statutory requirements” was enough to dismiss the case with prejudice.
The U.S. Supreme Court declined to review the decision of the U.S. Court of Appeals for the Ninth Circuit on the appeal of a “Qui Tam” action. The False Claims Act (FCA) requires an appeal to be filed within 30 days after the trial court has ruled. In the case of United States ex. rel. Haight v. Catholic Healthcare West, U.S. No. 10-267, review denied 10/4/10, the appeal was filed 51 days after the trial court ruling. The Ninth Circuit found that the appeal was untimely and dismissed the case.
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November 17. 2010 | Louise Peabody
Unintended Consequences – SEC Proposal to Establish Whistleblower Program
On November 3, 2010, the SEC voted unanimously to establish a whistleblower program that requires the Commission to pay a reward to eligible whistleblowers. The whistleblower must provide original information on securities violations that leads to successful enforcement actions where the SEC obtains monetary sanctions in excess of $1 million. The proposed rule is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010 (“Dodd-Frank”). In her announcement, SEC Chairperson Mary Shapiro said “the proposal maps out a simple, straightforward procedure for would-be whistleblowers to provide (the agency) critical information.”
The announcement was anticipated by the business community. The issue has raised serious concerns that employees tempted by the reward will bypass internal lines of communications and company hot lines and go straight to government reporting mechanisms. Others have predicted a jump in reporting Foreign Corrupt Practices Act violations where recent fines and penalties have reached hundreds of millions of dollars. Company executives also worry they will be forced to spend money defending false or misleading claims.
There is obvious tension between wanting to catch the “bad guys” and creating a “bounty hunting” environment resulting in increased litigation and expense. In its announcement, the SEC recognized the possibility of unintended consequences. Comments on the proposed regulation must be submitted by December 17, 2010 (email: email@example.com). Final rules must be issued by April 17, 2011.
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November 11. 2010 | Andrea Contres
Customer Relationship Management, Better Known as CRM
Customer Relationship Management (CRM) are words you probably hear often, if not every day, in your profession. CRM's have become a valuable resource to most professionals. Whether you're in sales, law, accounting, merchandising, marketing or retail, a CRM system is very important to your business and your potential future business.
CRM systems can be implemented for many different purposes. Some are employed like Outlook or that rolodex, which sat on your father’s desk (the least efficient way to use your CRM) and others are applied to track leads from first meeting until sale, otherwise known as the entire pipeline. The latter is the best way to utilize a CRM and takes full advantage of everything your CRM has to offer. If your only purpose for a CRM system is organizing your address book, you might as well purchase the much cheaper version, Outlook, instead.
You have probably heard of the 80/20 rule, often expressed in sales or professional services. (Interpretation: 80% of your business comes from current/existing clients.) CRM systems are designed to help you maintain the relationships you have with these clients. It organizes and keeps track of all of the information you could possibly want. It also records meetings, sets alerts, keeps note of referrals and cross-selling opportunities, in addition to tracking all contact information, birthdays, children's names, anniversary dates, and more. If you are naturally this organized you might not need a CRM, however most people do not fall into that category. And a good CRM will foster communication, track information, and provide reporting, so as to make everyone more effective and efficient.
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October 20. 2010 | Justin Reid
Do You Understand All of the Acronyms in the Government Contracting Industry?
Have you come across acronyms in the government contracting world and found yourself confused as to what they stand for? You are not alone. This blog entry originated after attempts to determine what ACO actually stood for. If you want to be a player in the GovCon (not an acronym, but an abbreviation) industry, you need to stay on top of these acronyms.
There are literally thousands of acronyms in the federal government industry. The acronyms begin at the agency level and trickle all the way down. These acronyms describe programs, objectives, and individual titles within each federal agency. As accountants, we are familiar with the DCAA, or the Defense Contract Audit Agency, and FAR, Federal Acquisition Regulation. My personal favorites are GWACS and MOBIS. They sound more like far-off lands you are likely to encounter in a science fiction novel than in Government Wide Acquisition Contracts and Mission Oriented Business Integrated Services programs you will find through GSA. See, there’s another acronym. GSA, or the General Services Administration, is the government agency responsible for the GSA Schedule which provides other agencies a means to purchase goods and services. As for ACO mentioned above – that is the acronym for Administrative Contracting Officer.
You can search the World Wide Web (or www) for definitions of acronyms you encounter during the course of working in the government marketplace. Or you can contact us, Watkins Meegan, your resourceful CPAs, who have the KSA’s (knowledge, skills, and abilities) to decipher the code.
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October 13. 2010 | Vanessa Teitelbaum
It’s Time to Prepare for the 2010 Audit
Admittedly, I’m biased. I’m an auditor. I think about audits all year long. My goal for an audit is to complete the audit work as efficiently and painlessly as possible with no surprises, no issues, or budget overruns. I expect to issue an unqualified opinion and a high quality set of financial statements that are meaningful to the reader on time. As a result of the audit, I want to also provide my client with some helpful observations and recommendations. No doubt this is what my client wants too! Does this always happen? As with any project, whether it’s planning a wedding, taking a trip, renovating your bathroom or painting your living room, the better the planning and preparation, the better the result. As the auditor, it’s my responsibility to ensure the planning is done in advance, the specs are clearly communicated, my scope is well-defined for my team and my team is well trained. But, it does require a good working relationship with my client. A great audit process is a two-way street with good communication and commitment from both sides.
How was your last audit? Did it go well? Did it meet or exceed your expectations? Were you satisfied with the timeliness, the cost, and the final product? Whether the answers are yes or no, have a discussion with your auditor now during the planning process. Let them know what they did well and what they need to improve. Dig to the root cause of issues to ensure they do not repeat. For example, go through the “Prepared By Client” or “PBC” list in advance with your auditor. Do the due dates make sense based on your internal processes and other priorities? For me, the key to a successful audit is being realistic so that I can have my team in the field when it makes the most sense.
For some clients, the 2010 audit may be well underway with auditors in the field for interim testing. For others, the year-end audit may seem far away if auditors don’t typically get started until February or March (or later). If that’s the case, it’s a great time to reach out to your auditors (or expect a call from them) to prepare now. The key is to have a discussion about what has happened year-to-date, because the year is more than three-fourths over! What changes have occurred in the business? Discuss with your auditor new business strategies, new contracts, struggling or discontinued businesses, liquidity issues, collectability issues, changes in information technology systems, or other key internal controls. What new contracts have been entered into during 2010? Discuss any new lease agreements, significant sale or purchase agreements, debt agreements, joint venture agreements, mergers or acquisitions, new or amended employee benefit plans or stock option agreements, etc. All of these agreements and other corporate governance materials (Board minutes, audit committee minutes, internal audit reports, etc.) can be reviewed in advance to evaluate the accounting and auditing implications and minimize last-minute surprises when the financial statement filing deadline is looming.
In the end, the up-front preparation is usually well worth the time and, when done correctly, pays off at year-end.
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October 6. 2010 | Bob Hambrecht
1099’s and more 1099’s…
If accountants weren’t already busy enough in the first quarter of each calendar year, they will soon have even more paper to push. In an effort to make up for lost revenue and help fund recent health care changes under the Patient Protection and Affordable Care Act, small businesses, including non-profits, may have to file even more Form 1099 information reports with the Internal Revenue Service (IRS) beginning in 2012. Whenever a firm buys more than $600 a year in goods or services from a vendor, either an individual or a corporation, a Form 1099 will be required. Currently, a Form 1099 is only needed for every contractor paid at least $600 for services during a calendar year.
Small businesses will now have to begin tracking how much in goods and services were purchased from all its vendors. This will not be an issue for large purchases, but rather for smaller ones. For example, if you were to buy on average $50 a month from an office supply vendor, you will now need to monitor those small purchases to determine if the aggregate meets the $600 reporting threshold at year-end. The result will be more time spent tracking these payments. Additionally, if a vendor does not supply you with a tax ID number, you will be responsible for withholding 28% of the payment and sending it directly to the IRS.
Both Congress and the IRS see this as a way to help make up for the billions in taxes evaded each year. They understand this might be a cumbersome task for many. One loophole noted so far is that under the proposed regulation, “business purchases made with debit or credit cards would be exempt from the new reporting requirement because they are already reported by banks and other payment processors.” On September 14, 2010, the U.S. Senate rejected two proposals that would have repealed or modified the reporting requirements. Stay tuned to WatkinsWire for more developments.
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September 30. 2010 | Andrea Contres
Networking: Is it Really Beneficial?
Networking today is no longer just going to happy hours after work. It has evolved into coffees, lunches, metro rides, hockey games, and so much more. I recently started a conversation with people I was squished against on the metro train – the possibilities to establish a promising contact or win the opportunity to submit a proposal are endless. However, networking is pointless unless you follow up with your contacts after meeting them. This is the key in marketing, sales, and networking!
An article that I recently read in the Washington Business Journal
, offers a number of useful tips regarding networking meetings. Why network? I cannot come up with a valid excuse not to be networking. The main reasons you network are to market yourself, your product, your business, or your brand. If you’re new to an area and are looking for friends and a job – start networking. Do you run your own company? What better way to promote your business than elevating your business profile and becoming an established, regular networking member, thereby gaining exposure for your face, brand, and business? Do you want to grow your brand or firm name? If so, you should be networking. If people like you, they will associate you to your brand, firm, or business. A professional appearance and a good first impression
are important because if someone does not like you, this “one time” networking event could have an adverse effect on your business. If you’re in sales, networking is a great way to expand your markets and generate new leads or partnerships.
I encourage everyone to get involved. You will not only establish yourself within your industry. You will create a network of support and easily available information. Remember, next time you’re on the metro standing practically on top of someone else, look at it as a business opportunity!
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September 22. 2010 | Rebecca Kehoe
DoD Contractor Business System Reviews vs. DCAA Audits
The US Senate Armed Services Committee’s version of the Defense Authorization Act for Fiscal Year 2011 requires under Section 841 for the Secretary of Defense to develop a program (within 180 days after enactment) to review contractor business systems to ensure that such systems provide timely, reliable information for the management of DoD programs by the contractor and by the DoD. The term “contractor business systems” is defined as accounting systems, estimating systems, purchasing systems, earned value management systems, material management and accounting systems, and property management systems.
The DoD is also to provide guidance and training to appropriate government officials (not yet named) on the data that is produced by contractor business systems and the manner in which such data should be used to effectively manage DoD programs.
Perhaps they should consult the DCAA. Listed directly on the DCAA website (http://www.dcaa.mil ) under “DCAA Products and Services,” the DCAA provides “Contractor Internal Control System Audits” for the following systems; accounting, estimating, EDP (Electronic Data Processing), compensation, billing, material management, labor, purchasing, and indirect and other direct cost.
For Earned Value Management Systems, they can consult the DCMA which is currently responsible for setting the standards and surveillance for such systems. http://www.acq.osd.mil/pm/
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September 9. 2010 | Kevin Jones
Year-End Tax Planning Even More Important in 2010
Every year about this time, we start to sound the horn for year-end tax planning. Although many of you still have not filed your 2009 tax returns (business returns are due on September 15th, individual returns are due on October 15th) the end of the 2009 filing season is rapidly approaching, and it is time to start thinking about minimizing your taxes for 2010 and beyond. This year, more than others, the “and beyond” part is particularly important. As a result of the recently enacted Health Care legislation, as well as the scheduled end of the Bush tax cuts, actions taken now can significantly impact your tax bill not only in 2010, but for years to come. Because of these changes, not only is tax planning more important than in the past, it is also more complex than ever before.
In the past, with relatively constant tax rules and rates from one year to the next, the general strategy each year (of course, depending on individual circumstances) was to defer income and accelerate expenses. Now, with both ordinary income rates and capital gain rates expected to increase as soon as 2011, and with the additional .9-percent Medicare tax on wages and the 3.8-percent Medicare tax on investment income set to begin in 2013, strategies may be reversed in many situations. It may not only be desirable to accelerate income or defer deductions, but it also may be prudent to review your investment portfolio and pension strategies in an effort to reduce income that will be subject to these additional taxes. Other moving parts in the planning process include such factors as whether you are nearing retirement or plan to work for many more years, whether or not you are, or will be, subject to the alternative minimum tax, and other considerations. As a result, it is important to consult with your tax advisor, investment advisor and estate planning advisor to be sure you are making the most of the opportunities available.
A television commercial once said: “you can pay me now or you can pay me later.” In terms of taxes, that is frequently the issue. Sometimes you can avoid tax altogether, but more often than not, it is merely a question of when. Now, it is not only a question of when, but the “when” can also determine how much. Be sure you make the most of these next few months.
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September 2. 2010 | Katie Madden
Back to School Already? Top 10 Reasons to Major in Accounting…
It is hard to believe that the dog days of summer are coming to an end. No more summer vacations, long walks on the beach or afternoons spent at the pool. Personally, I look forward to the fall weather, leaves changing and college football. But one thing that drives me (and many other area residents) crazy around this time of year is the back to school traffic.
Yup, it is back to school time, like it or not. For those students getting ready to pack up and move into the dorms for the first year of college, listen up. You are going to receive numerous suggestions from parents, grandparents, siblings, teachers, friends and counselors as you prepare for your freshman year of college. Here is one last piece of advice from your friends at Watkins Meegan: major in accounting.
Top 10 Reasons to Major in Accounting:
10) If you are the type of person who loves working with numbers and does not mind helping classmates grasp concepts in calculus or statistics class, number-crunching (AKA accounting) is right for you. Plus, you will finally learn the difference between debits and credits.
9) Career opportunities are virtually limitless for an accounting student entering the job market. These days, accounting majors can work for a public accounting firm, the government, private industry, the FBI, and even in forensic accounting or litigation support. Within public accounting alone, one can focus on attestation and assurance, tax, IT systems and controls, advisory services or industry specific accounting.
8) You only have to worry about scheduling 8 months of your life each year because the first four months are already planned for you.
7) Passing the CPA exam is no small feat – according to www.aicpa.org
, the cumulative passing rate for each section of the CPA exam was just under 50% for 2009, and remains near that rate through the first two quarters of 2010. Once you do pass, however, you will not only feel an overwhelming sense of relief and accomplishment, but you can also put letters after your name without going to school for 15 years.
6) Accounting truly is the language of business. No matter what long-term career path you end up taking, you will have a strong business background with an accounting degree, and you might even know what your accountant is talking about when he or she tells you that your business investments are classified as available-for-sale, and therefore the unrealized gain or loss should be recorded as accumulated other comprehensive income in the equity section of your balance sheet.
5) $$$$... Excellent compensation. Starting salaries for students coming out of college are very competitive.
4) It is fun to see the look on people’s faces when you tell them what you do for a living and they are shocked that you aren’t wearing a green-brimmed visor and a pocket protector (as sometimes parodied on TV).
3) One word – GOLF! If you love the sport, working in public accounting is the place for you. There are countless opportunities to play with fellow employees, clients, business contacts and prospective clients. There are tournaments (with great food and drinks) all through the summer that allow you to get out of the office and network. And even if you aren’t that good, it doesn’t matter…remember – great food and drinks!
2) Individuals and businesses will ALWAYS need accountants (in both booming and recessionary economies). Job security, especially in the current job market, is priceless.
1) And the number one reason to major in accounting is….you can work for Watkins Meegan! As mentioned above, a degree in accounting leads to endless career opportunities. Watkins Meegan is proud to offer several areas of accounting specialization, including construction and real estate, not-for-profit, government contracting and technology, tax services, risk services, advisory services and forensic accounting. Visit our website at www.watkinsmeegan.com
to learn more!
Whatever you do, enjoy the next four (or more) years, as these will be some of the best times of your life. Good luck!
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August 31. 2010 | Jim Wagenmann
Correcting Plan Failures Using Forfeitures
It is common practice for employers who have a plan subject to discrimination testing using the Average Deferral Percentage Test (ADP) to utilize forfeiture amounts to allocate to accounts to correct a failed test. Forfeitures are also applied to fix a coverage test when the employer fails to include an eligible employee in the deferral plan.
The use of forfeitures being treated as Qualified Non-elective Employer Contributions (QNEC) has become common practice and has been allowed by the Service in its Employee Plans Compliance Resolution System (EPCRS). QNEC’s are defined in Treasury regulations as “contributions that satisfy the vesting and distribution requirements of the 401(k) at the time the contributions are made to the plan.”
Because forfeitures are a result of contributions that are not fully vested when made, the Service will no longer allow them to be used to satisfy the QNEC procedures under the Code. This change is effective immediately and the EPCRS regulations will be amended in the near future to reflect it.
In the same release, the Service stated that the use of forfeitures to correct qualification errors will still be allowed. An example of this would be where a plan excluded employees from participation in error and therefore failed the coverage test. The Service, by regulation, will approve the use of forfeitures to fix a “missed deferral opportunity.”
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August 26. 2010 | Sean Roddy
Paying for Free Speech
Over the past twelve months, I have written many blogs regarding the use of Social Media and the benefits that can be derived from it. I have written for Watkins Wire and the Financial Minute on the power of this new technology. Chris Hughes, co-founder of Facebook, summed it best when I met him last year. He said the printing press, radio and television were major leaps forward in communication, but they all had severe limitations based on the fact that relatively few people controlled or generated what was communicated.
Everyone with access to the Internet can now be a generator and user of information, and because it is free the potential is limited only by our needs. Watkins Meegan adopted these technologies almost one year ago and has been employing them very successfully ever since. Our blog, Watkins Wire, has been published at least once per week for nearly a year. We send out 6,000 electronic newsletters every two weeks and we post multiple micro-blogs each week on Facebook, LinkedIn and Twitter from our various offices. We believe we have a duty to educate ourselves, our clients and our prospects in the most efficient and effective manner possible and this technology is one more arrow in our quiver enabling us to hit our target.
These are tough economic times and governments are looking for new ways to raise revenues. So I shouldn’t have been surprised when I read in Web CPA about the “blog tax”. Philadelphia, the City of Brotherly Love, has instituted this concept. Local bloggers in and outside of the city that transact business within the city need to get a $300 “business privilege license”, pay wage tax, and net profits tax for the privilege of blogging. The Philadelphia Department of Revenue insists the city is entitled to these fees. It would appear that paying for free speech has already begun.
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August 19. 2010 | Andrea Contres
Is Addressing Someone by Their First Name "ok" in Today's Society?
Generation X & the Millennials, also known as generation Y, have become accustomed to addressing everyone by their first names, but is this proper? Both the baby boomer and mature generations would never address someone they do not know, especially a superior on a personal level. They would always start off as Mr. or Ms. (perhaps the "matures" would use Mrs.). Are we witnessing a shift towards the familiar? What is appropriate professional language?
Approximately, 80% of all firms use Mr. or Ms. when addressing themselves in their bios, especially accounting & law firms. However you will find firms using first names on their websites. One might think in today’s society and our new age technology, first names would be acceptable. I ask, are there rules or is it strictly based on your personality? If there are rules, should this be something discussed during your orientation to the firm?
After searching the internet, I found that you can use the first name only in informal and friendly situations with your friends, co-workers, acquaintances, or fellow students. You should use the title and last name in formal situations such as meetings, public speaking, or when speaking to superiors at work or school. If you are not sure whether your work place is formal or informal then you should use the title and or the last name of the person you’re speaking to, just to be safe.
After reading a brief article in the New York Times, I will think twice about addressing someone using their first name. One man is quoted by saying, “As a businessman, I resist people I don't know (and on the phone have never met) who address me by my given name. It makes me uncomfortable and robs me of the right of choosing to call someone a valued friend”. As a professional we are all trying to create a great first impression and possibly a sale or contract. If something as simple as how we address someone can alter that chance I would think twice before opening my mouth.
So, is one better than the other? I am not sure, but I would recommend that when working with the baby boomer and mature generations that you play it safe and use the title.
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August 12. 2010 | Bob Hersh
IRS, Audits & Detecting Unreported Income
It’s good news when a lottery operator increases our odds for a winning ticket. But not when it is ran by the IRS and its game is the “Audit Drawing.” That’s a lottery which is painful to win.
Last year, 1.4 million individual income tax returns were audited. The most in the past decade. The IRS is spending part of its $12.2 billion budget in 2010 to hire 4,500 new agents and auditors, which is a recipe for even more audits this year.
The IRS loves to detect unreported income. It gains not only additional tax revenue, but also a “PR-splash” with a criminal prosecution. The IRS detects unreported income using both “direct” and “indirect” methods.
Adding up all the Forms 1099 from payers and comparing it to the amounts reported on a taxpayer’s individual return is a direct method. When I worked for the IRS, we detected a fencing operation’s unreported income by contacting gold and precious metals dealers who gave us the amounts they paid the fence for his jewelry and other valuables – another direct method.
Bank deposits analysis is one of the most popular indirect methods of detecting unreported income. The IRS adds up the deposits that you make to your bank accounts and compares the total to the income reported on your tax return. By “bank accounts,” I mean all of your business and personal checking accounts, money market accounts, savings accounts, brokerage accounts, CD’s, retirement accounts, and any other accounts where you have money. They will subtract nontaxable sources such as transfers, loans, gifts, and inheritances from the deposit total. Cash expenditures are also considered and added, when they come from sources other than the bank accounts. If the amount of taxable bank deposits and cash expenditures exceeds the income reported on the tax return, the result will be additional tax liability (plus penalties and interest) and possibly criminal prosecution. That’s an “Audit Lottery” that nobody wants to hold.
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August 10. 2010 | Phil Aldridge
Part II: A Lack of Effective Internal Controls Over Grant Funds Can be Costly
Non-profit organizations that expend more than $500,000 in federal funds are required to have an audit performed in accordance with OMB Circular A-133, and are required to report any internal control or compliance deficiencies indentified during the audit, including questioned costs. In addition, the organization may be subject to additional monitoring activities by the awarding agency in the form of site visits or grant-specific audits. Grant recipients are required to prepare a Corrective Action Plan to address any findings or questioned costs identified. Organizations that fail to address these findings on a timely basis or have a significant amount of questioned costs run the risk of being designated as high-risk and may be subject to additional administrative actions by the granting agency, including: increased grant monitoring and reporting; additional special conditions; withholding of federal grant funds; non-certification of future grant applications; collection of questioned costs through the U.S. Department of Treasury, Treasury Offset Program; or referral to the U.S. Government-Wide Suspension and Debarment List.
With the current state of our economy and the passage of the American Recovery and Reinvestment Act, federal agencies are now required to provide increased oversight over their grants, and the effort needed to address any issues that may be identified can be very costly. With this in mind, if you currently have federal or state funding, it is essential that you evaluate your organization’s current control environment, and develop and implement policies and procedures to ensure that these funds are adequately accounted for and controlled.
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August 4. 2010 | Phil Aldridge
A Lack of Effective Internal Controls Over Grant Funds Can be Costly
You’ve spent a great deal of time, effort, and money to prepare and submit that grant application, and your hard work has paid off. You’ve won the federal award. But your work has actually just begun. Now it’s time to ensure that the project is completed on time and within budget, and report the results to the awarding agency. However, there is more to it than that. It is essential to have effective internal control procedures in place, as well as staff members who have a thorough understanding of the rules and regulations overseeing the use of government grant funds. A control deficiency regarding the accounting and reporting of grant expenditures has the potential to cost your organization even more time and money.
Federal and state governments have a long list of rules and regulations that must be adhered to when receiving grant funds. Under OMB Circular A-122, the Federal Government has established specific cost principles to be used in determining the cost of grants, contracts, and other agreements. In addition, OMB Circular A-110 defines the Uniform Administrative Requirements in which non-profit organizations must adhere. A continuation from this post on non-profit organizations will follow.
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July 29. 2010 | Rebecca Kehoe
Government Contractors, Do You Want to Continue to Be Paid on Your Federal Contract?
As of June 18, 2010, President Obama issued a Presidential Memorandum to the heads of executive departments and agencies directing them to review current pre-payment and pre-award procedures and ensure that a thorough review of available databases with relevant information on eligibility occurs before the release of any Federal funds, to the extent permitted by law. Agencies will now have to start checking existing databases before payment and/or reward to verify eligibility.
What does this mean for you? Make sure you are not in any of the databases as a party or person who is ineligible for payment from the Federal Government or you may not get paid on your current Federal contract. The Government will soon consolidate its databases to create a “do not pay list” I believe will cause Prime Contractors to ensure that their 1st Tier Subcontractors are not on the list as well.
Within 90 days, each agency is to submit a plan to its OMB including information on its current pre-payment and pre-award procedures as well as a list of databases that the agency checks pursuant to those procedures. Within 180 days, the Director of the OMB is to issue guidance, to be developed in consultation with affected agencies and taking into account current agency pre-payment and pre-award practices. The guidance will clarify that the head of each agency is responsible for ensuring an efficient and accurate process to determine whether the information provided by the “do not pay list” is sufficient to stop payment, consistent with applicable laws and regulations, and, if so, whether a payment should be stopped under the circumstances. Best practices will also be implemented. If I were a Government Contractor, I would be doing my best to stay off the “do not pay list.”
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July 26. 2010 | Elizabeth Dunseith
Capitol Hill Makes Changes to SOX
As stated in my last blog, the Sarbanes-Oxley Act has received a lot of attention during the month of June.
Another important vote occurred within the Legislative Branch. When the Sarbanes-Oxley Act was enacted in 2002, it included several new reporting requirements under Section 404(b), requiring independent auditor attestation of the organization’s internal control over financial reporting (ICFR). Accelerated filers (public float greater than $75M) have been required to comply since 2004, but the Smaller Reporting Companies have yet to file their first 10-Ks with the auditor attestations. In early October 2009, the SEC issued its last and final extension for Smaller Reporting Companies; 10-Ks filed after June 15, 2010, would be required to fully comply with 404(b).
However, Congress has changed that. The Financial Reform Bill passed on June 30, 2010, includes the 404(b) exemption for smaller publicly traded companies, superseding the SEC’s final rule regarding the auditor’s attestation of ICFR. It is interesting that in a time when there is an increased demand for transparency, regulations are being relaxed. The external auditors may no longer be required to attest; however, Chief Financial Officers of all public companies, regardless of size, must still certify to the effectiveness of the ICFR as part of the 10-K filing.
Companies that are close to going over the current $75M cap should monitor their compliance requirements in the event they reach the Accelerated filer status and need to obtain the auditor’s attestation. For purposes of this law,public float is measured as of the last day of the second quarter of a company’s fiscal year. If your company may be close to the threshold, it is recommended to work with your external auditors early to avoid potential issues.
The Executive Branch was also included in the recent SOX changes as President Obama signed the bill into law on Wednesday, July 21, 2010.
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July 21. 2010 | Elizabeth Dunseith
Supreme Court Makes Changes to SOX
Never a dull moment when it comes to the world of oversight, and the end of June was no exception with some big decisions from two of the three branches of government.
Let’s start with the Judicial Branch. As a result of several accounting issues creating a lack of credibility within the profession, the Sarbanes-Oxley Act of 2002 was passed to help improve accountability and oversight regarding financial reporting. Among several other things, the Public Company Accounting Oversight Board (PCAOB) was created. The PCAOB was established as a private nonprofit organization intended to monitor external auditors of publicly held companies in the interest of protecting investors from fraudulent financial statements. It gets a little complicated in that, while the PCAOB is a private organization, it is controlled by the Securities Exchange Commission (SEC or Commission), a government agency. The Commission is responsible for appointment of PCAOB Officers and oversight of the Board; however, the Commission may only remove those appointed officers with good cause. Last fall, the PCAOB was sued by the Free Enterprise Fund, a nonprofit organization, who argued the structure around the removal of officers in the PCAOB was unconstitutional. The issue raised in the case of Free Enterprise Fund v. PCAOB is that the President’s removal power is twice removed. The President has the authority to appoint SEC Commissioners; however, again, good cause is required in order to remove an appointed Commissioner. Bottom line, if the President feels an Officer in the PCAOB is not doing his/her job adequately, he does not have the authority to remove that individual; rather, he is restricted by two levels of ‘good cause’ red tape.
The Free Enterprise Fund argued the constitutionality of this formation to the Supreme Court, and in a 5-4 decision on June 28, 2010, the Court affirmed the structure of the PCAOB to be unconstitutional. However, the ruling doesn’t mean the PCAOB will be dissolved. The decision now allows the SEC to remove members of the PCAOB at will rather than requiring good cause. The PCAOB will continue to monitor the audit profession, and although the formation of the PCAOB may have been deemed unconstitutional, its purpose was not. The Sarbanes-Oxley Act was not only reviewed in the Judicial Branch; I will review the vote that occurred within the Legislative Branch next.
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July 15. 2010 | Anne Sesso
Combine Efforts for a Winning Team
Over the last month, World Cup Mania has taken the Nation (and most others) by storm! Even if you are not a soccer fan it is hard to ignore the excitement surrounding this event. Fans enjoy watching players work together to achieve success. Everyone wants to be part of a winning organization. At Watkins Meegan we have a talented team that is continually trying to find ways to assist our clients achieve their goals.
The key to achieving your goals is assembling the right combination of players/talent. Each player offers a different skill set. These complimentary skills are critical for achieving winning results. Our staff accountants bring enhanced technical skills to our team, and our seasoned veterans provide valuable insight to the young staff. Together Watkins Meegan has been assisting our clients achieve winning results for over 35 years. Just like a soccer team, every company needs key elements, which are critical to achieving corporate success. If success is a corporate goal, mediocrity should not be rewarded or encouraged. Management should strive to assemble a cohesive team that is focused on finding, building and exploiting the key elements of its industry, while avoiding employees whose tendency is to think “me” instead of “team”. Players participating in the World Cup focus on the larger team objectives and work together for a common goal; companies should strive to do the same. Watkins Meegan has and will continue to play a key role for our clients in assisting, finding, developing and exploiting winning strategies.
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July 8. 2010 | Andrea Contres
Get on the Social Media Train - It's Time!
A little over six months ago, Watkins Meegan published its second blog, Accounting in the World of Web 2.0 World. Although some people were reluctant or apprehensive about embracing this technology, we have clearly seen the importance of social media and are now venturing into other avenues, such as youTube and multiple Twitter pages.
Watkins Meegan uses social media (Twitter, Facebook, blogging--WatkinsWire, youTube, LinkedIn) as an additional resource: to educate, enhance our brand as a thought leader and to expand our presence on the Web. We are not alone; 81% of all firms use social media for marketing activities. Like us, these firms are not stopping at just marketing; social media extends way beyond the realm of marketing. It is a great tool for recruiting, following your competition, business development, education and more.
When creating a social media strategy/plan you must be patient; it is not something that will develop or change your firm’s Web presence over night. However, you will see a change if you use the resources correctly. There are many details companies must think about beforehand, such as: policies, guidelines, maintaining the voice of your brand, and education. Watkins Meegan began its planning 10 months prior to actually launching the Web 2.0 campaign, and we continue to evaluate our strategy, learn new tools and embrace new ideas. Educating your firm on social media and continued education for both the firm and yourself are something I highly encourage! You cannot attend a conference or event today without social media being discussed. This means you should jump aboard and continue learning because social media is constantly changing. Also be creative – the options are endless!
As a marketing manager working in the professional services industry (CPA Firm), I found this great article published in the VA Society of CPA’s (VSCPA) magazine. It is targeted specifically to accountants. Share it! http://www.vscpa.com/content/Resources/Career_Development/career01011002.aspx
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June 30. 2010 | Sean Roddy
Secret accounts are no longer secret.
The New York Times reported that the Swiss Parliament and the IRS have reached an understanding whereby the Swiss will reveal the names of more than 4,400 Americans who have accounts at the Swiss Bank, UBS. Places like Switzerland, Singapore and Luxembourg are now entering into bi-lateral agreements that will provide information that will assist in the enforcement of tax laws.
These treaties have assisted the U.S. in getting 15,000 Americans to take advantage of a temporary amnesty last year. Starting in 2013, foreign banks, trusts, passive foreign investment companies and corporations will have to start reporting to the U.S. on accounts and ownership interests held by Americans. In March 2010, Congress passed the Foreign Account Tax Compliance Act (FATCA), which is part of the Hiring Incentives to Restore Employment (HIRE) Act. The FATCA enables a withholding agent to deduct or withhold a 30% tax on interest, dividends, rents, salaries, wages, other fixed or determinable periodic gains, profits, etc., that are made to a foreign financial institution or to a non-financial foreign entity unless specific reporting requirements are met.
The withholding agent is indemnified against any claims and demands from anyone for the amounts withheld. Penalties for those who don’t report foreign accounts/assets start at $10,000 and go up to $50,000 for each tax period in question. For trusts, they can go as high as 35% of the amount that should have been reported. Also, a 40% accuracy penalty can also be imposed for underpayment of tax that is related to a foreign financial asset. All of this comes with a six-year statute of limitations. This is effective for all returns required to be filed after December 31, 2009. So, it would appear that the Swiss account has lost its luster.
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June 23. 2010 | Bob Hambrecht
Are You Looking for a New Way to Fundraise?
Are you a non-profit organization looking for a new, easy, relatively inexpensive way to fundraise? Are you tired of sending out direct mail solicitations, dealing with fundraising clearing houses, or making phone calls to ask for donations? Perhaps there is a non-profit organization that you wish you could help, but just aren’t sure how to go about it?
As many of you are aware, social media such as Facebook, MySpace and Twitter, are a few of the ways non-profits are spreading the word about their organizations and important news related to their mission. Well, why not connect with the other non-profit organizations that have joined the social media movement and fundraise online? There are various websites online including www.firstgiving.org, www.justgive.org, and www.giveforward.org, to name a few. On these sites you can create your own fundraising page just as you would create an event on Facebook or MySpace.
If you are a non-profit organization, using an online website to raise funds will help you focus on what matters the most; the mission of the organization. Before committing to a particular website, be sure to review the terms and conditions of the website. The sites normally charge a nominal fee based on the amount of donations received and some sites only accept certain methods of payment (i.e. Paypal or credit cards). By creating a page on an online website, you can easily spread the word via your website, email, Facebook, Twitter, etc., to potential donors, colleagues, family, and friends all over the world.
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June 16. 2010 | Rebecca Kehoe
Another FAR Update: Case 2009-031, Termination for Convenience
The Federal Government is proposing to modify the FAR to clarify when contracting officers are to use FAR Clause 52.249-1 for Fixed Price Contracts that do not exceed the simplified acquisition threshold (short form).
What does this mean for the Prime Contractors?
FAR Clauses 52.212-4 Contract Terms and Conditions – Commercial Items, and 52.213-4 Terms and Conditions – Simplified Acquisitions (Other than Commercial Items) will still be used for the majority of simplified acquisitions. These clauses allow the Contractor to be paid a percentage of the contract price based on the percentage of work completed prior to the notice of termination for convenience. In addition, reasonable charges resulting from the termination (which the Contractor must demonstrate using its standard record keeping system) must be paid.
However, if the contracting officer does not feel that 52.212-4 or 52.213-4 applies, they may use 52.249-1 Termination for Convenience of the Government (Fixed-Price) (Short Form). This will require the Contractor to follow FAR Part 49, which requires the Contractor to use the Inventory Basis or Total Cost Basis for its settlement proposal.
Restrictions - Use of 52-249-1 is not to be used if use of 52.249-4 is appropriate, the contract is for research and development work, educational or nonprofit (on a no profit basis), the Contract is for architect-engineer services, one of the clauses prescribed or cited at 49.505(a) or (c) is appropriate; or when 52.212-4 or 52.213-4 is used.
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June 10. 2010 | Rebecca Kehoe
FAR Update: Case 2009-027, Personal Identity Verification of Contractor Personnel
The Federal Government is proposing to modify the FAR to ensure that all agencies have procedures requiring Government contractors to account for all forms of Government provided identification issued to Government Contractors (and their subcontractors) under a Government Contract.
What does this mean for the Prime Contractor?
You must now track how Personal Identity Verification (PIV) cards have been issued to you and your subcontractors. You must also retrieve these PIVs when they are no longer needed for Contract performance, upon completion of the contractor’s (employee) employment (including subcontractor employee employment), or upon contract completion/termination.
Additionally, you must pass through the substance of the clause to all subcontractors and require them to pass it through when the subcontractor is required to have routine physical access to a Federally-controlled facility or routine access to a Federally-controlled information system.
What if the Prime Contractor or Subcontract fails to comply with the clause? The Contracting Officer (or Prime Contractor to the subcontractor) may delay final payment under a contract.
Submit your comments by July 23rd electronically at www.regulations.gov
, search for FAR Case 2009-027, by fax 202.501.4067, or by mail to General Services Administration, Regulatory Secretariat (MVCB), 1800 F Street, N.W., Room 4041, Washington, DC 20405.
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June 8. 2010 | Rebecca Kehoe
FAR Update: Unallowable Costs - Labor Relations
The Federal Government is proposing to make the costs of any activities undertaken by a Federal Contractor (including recipients of federal disbursements) to persuade employees to exercise or not to exercise the right to organize and bargain collectively through representatives of the employees’ own choosing unallowable.
All activity costs related to collective bargaining will be unallowable, such as: preparing and distributing material, hiring or consulting legal counsel or consultants, meetings (including paying the salaries of the attendees at meetings held for this purpose), and planning or conducting activities by managers, supervisors, or union representatives during work hours.
What activity costs will remain allowable? Costs incurred in maintaining satisfactory relations between the Federal Contractor and its employees, such as: costs of shop stewards, labor management committees, and employee publications.
What can you do? Submit your comments on the proposed rule by June 14, 2010 by searching for FAR Case 2009-006 at www.regulations.gov, fax your comments to (202) 501-4067 or mail them to General Services Administration, Regulatory Secretariat (MVCB), 1800 F Street, NW, Room 4041, Washington, DC 20405.
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June 4. 2010 | Rick Westerman
The Perfect Storm Part II
New Federal Acquisition Regulations on Ethics
As stated in my previous posting, “The economy has created a fraud-rich environment and the government is poised to punish government contractors who violate the rules.” Read on to learn about the rules.
FAR Code 52.203-13, Contractor Code of Business Ethics and Conduct, should be familiar to all government contractors. In December 2007, FAR rules went into effect regarding the establishment of a Code of Ethics, Internal Control System, and Hotline Posters. The rules were closely scrutinized by contractors, government officials, and professionals to obtain clarification regarding what is required. On December 12, 2008, the FAR published the final Contractor Code of Business Ethics and Conduct.
As expected, the original rules were altered and expanded with certain exceptions related to size of the contract, small business representation, and commercial item exclusion. These rules may require establishment of internal control systems, criminal conduct monitoring, and performance evaluations of ethics programs and internal control systems. The responsibility for internal control systems, business ethics, and compliance programs must be assigned at a sufficiently high level in the organization. Where does responsibility for these programs lie in your organization?
Further, contractors are required to utilize reasonable efforts to ensure that principals (i.e., officers, directors, owners, partners, or any person with primary management responsibility) have not engaged in conduct which violates the contractor’s code of ethics. To avoid concerns of possible debarment or suspension, contractor’s principals are required to disclose to the agency Office of Inspector General and Contracting Officer any instance of fraud, conflict of interest, bribery, or other criminal acts under USC Title 18 or the False Claims Act.
Expanded Federal False Claims Act
The Fraud Enforcement and Recovery Act added more teeth to the growing regulatory jaws. Signed into law in May 2009, the act altered a number of false claim statutes. More specifically, the act broadens the definition of what represents a fraudulent false claim by adding: 1) “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim,” and 2) “Knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.”
Effectively, a claim no longer has to be paid or approved; it just has to be submitted. In addition, liabilities or amounts owed to the government, such as overpayments, are now included as false claims.
Awareness of possible risks (increased fraud) and compliance with new laws and regulations should be of paramount concern to contractors. In order to meet the challenge of new regulations, contractors can ready themselves by becoming more aware of the new rules and, if necessary, performing a fraud risk assessment.
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June 1. 2010 | Rick Westerman
The Perfect Storm…Increased Economic Concerns
The economy has created a fraud-rich environment and the government is poised to punish government contractors who violate the rules.
History has proven that fraudulent acts increase in a depressed economy for three main reasons. One, the combination of reduced income and rising bills increases pressure to commit fraud. Two, layoffs and cutbacks in staff reduce internal controls, creating opportunities to commit fraud. And three, the overwhelming publicity of greed promotes rationalization, or the “me too” attitude.
In order to curtail fraudulent activity and foster public confidence, the Federal Government recently modified several laws and regulations applicable to government contractors. First, the Federal Acquisition Regulations have been expanded to require that certain contractors have a minimum set of business practices focused specifically on prevention and detection of criminal conduct or fraud. Second, the Fraud Enforcement and Recovery Act of 2009 significantly expanded the coverage of the False Claims Act.
Awareness of possible risks (increased fraud) and compliance with new laws and regulations should be of paramount concern to contractors.
In order to meet the challenge of new regulations, contractors can ready themselves by becoming more aware of the new rules and, if necessary, performing a fraud risk assessment. Such a review is designed to ensure that particular components of the FAR rules are addressed. Furthermore, certain fraud prevention techniques should be incorporated into the contractor’s business policies and procedures. These and other proven mechanisms can prepare contractors for closer scrutiny by the Defense Contract Audit Agency (DCAA) and other auditors. Stay tuned for my next blog to read about the requirements.
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May 26. 2010 | Jim Wagenmann
Is Your Return Preparer Able to Serve Your Needs?
In today’s increasingly complex world of taxes, financial planning, insurance and estate and trust matters you need to determine if your tax advisors can adequately serve your needs.
In many cases, people view a tax return as a commodity that anyone can prepare. They look to pay the least possible amount to complete this task. For the simplest returns (those that show only wages, interest, and a standard deduction) most accountants can prepare them, and it makes sense that you should be seeking the lowest cost to accomplish this task.
However, once you add a business interest such as a schedule C, partnership or an S-corporation you start to add complexity. At this point, you need a tax return preparer that has experience dealing with these matters. There are many planning opportunities and elections that need to be considered in order to prepare a return that is not only accurate but arrives at the lowest supportable liability. At this level of complexity, cost is still a concern but since you are moving out of the realm of a commodity and into a world of opportunity, the expertise of your tax preparer becomes more important.
When you are at the point where you are adding different investment vehicles, more numerous business interests, rental properties, retirement concerns, trusts and estate planning, you have reached a level where the landscape is populated by fewer qualified tax advisors. Your needs can only be served by individuals who have a working knowledge of the many types of tax returns that will be involved in order to keep you straight with the various taxing authorities to whom you are reporting.
At this level just knowing how to prepare a 1040, a 1041, a 1065 or an 1120 is just not good enough. It is imperative that the advisor not only knows how to prepare the various returns, but also how all of the various pieces fit together. You should be able to expect an advisor to counsel you on the inter-relationship of all of your financial transactions and related matters. It is possible that you can do one thing in one area of your financial life and have it be totally wrong in another area.
Whether you are looking to engage an advisor or are considering making a change you need to determine during your evaluation process, if the person or firm you are considering have the breadth of knowledge and experience you will need to meet the complexities of the financial, tax, and business world of today.
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May 21. 2010 | Daniel O'Shea
990-N Update: IRS Will Work with Small NFP’s Facing Revocation of Exempt Status
We’ve all heard the punch line “I’m from the IRS and I’m here to help you.” It now appears that may actually be true. IRS Commissioner Doug Shulman released a statement May 18, 2010 saying the IRS will work with small nonprofits that missed the 990-N filing deadline of May 17, to help them avoid having their exempt status revoked. The Commissioner also urged organizations to still proceed with filing the 990-N.
It has been estimated that 300,000 small nonprofits were approaching the May 17 deadline and facing potential loss of exemption if they did not file the 990-N. It is too early to tell how many nonprofits filed the 990-N and preserved their exempt status, but the number of non-filers must still be a substantial number. This statement by the IRS shows not only their willingness to work with these organizations, but also their recognition of the importance of these organizations to our communities and society.
The IRS indicates it will provide more guidance on this issue in the future. For more information on the announcement, go to www.irs.gov/newsroom
. For more information on the significance of the 990-N filing requirement, see my April 28, 2010 blog. Stay tuned to Watkins Wire for more developments.
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May 19. 2010 | Jill Winnacott
Watkins Meegan Young Professional's Initiative
Watkins Meegan has organized a Young Professional's Initiative, with the purpose of establishing a support network that caters directly to the wants and needs of the individuals within the firm who are still in the early stages of building their professional careers. Please do not be offended if you have not been included on the email distribution list. This does not mean that you are not "young" — it means that you have already made great strides in building your professional career!
The Young Professionals Committee is developing ideas that will help foster professional growth through networking, CPE, and WatkinsNet. The Committee is developing a site on the WatkinsNet Initiatives portal that will provide access to a conversational forum. This forum will be a place where members can voice their ideas and opinions on just about anything, such as CPE suggestions, tips on passing the CPA exam, and positive recommendations of changes the firm can make to foster the growth of young professionals. This site will also provide access to a calendar of networking and social events that pertain directly to young professionals in this area. The Committee plans to use this calendar to announce informal monthly events to bring together the young professionals from other offices. We are hoping that these informal gatherings will help us to learn more about each other's roles within the firm, so that we can make better use of our resources and knowledge base. In time, we would like to expand these monthly gatherings to include young professionals from outside firms and companies as a way to expand our networking skills.
Although the ideas mentioned above are still in the planning stages, we hope to have the site up and running by the end of May, after which we look forward to hearing more ideas from members about what they would like to see from this initiative. I think we can all look forward to many exciting things to come from the Young Professional's Initiative!
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May 13. 2010 | Seth Cohen
What Are You Paying in Managment Fees for your Company's 401(k) Plan?
The Employee Retirement Income Security Act of 1974 (ERISA) requires employee benefit plan fiduciaries to act solely in the interests of, and for the exclusive benefit of, plan participants and beneficiaries. As part of that obligation plan, fiduciaries should consider the costs associated with the benefit plan, among other things, when choosing investment options for their plan and selecting service providers. Recently, plan providers have found new ways to hide fees from fiduciaries that are ultimately charged to the plan and its participants. These fees generally fall into several categories: (1) plan administration fees for day-to-day operations of the plan such as recordkeeping and trustee fees, (2) investment fees for managing the plan’s investments, (3) individual service fees such as loan or distribution fees, (4) annuity fees charged by insurance carriers and (5) sales fees paid by some funds to the plan providers.
Investment fees are the most difficult to ascertain and can be analyzed by reviewing the prospectus of each fund the plan invests in (and that’s assuming a simple investor can decipher a prospectus). These fees are often charged through an expense ratio which is deducted from the income or losses of the overall fund before allocating fund returns to the participant, and can range from zero to one and a half percent per year. Therefore, if a plan has $20 million in assets, fees could be as high as $300,000 on an annual basis. The worst part is that because these fees aren’t directly shown as being deducted from a participant’s account, participants and fiduciaries most often don’t even know they exist!
It’s important to know that these fees are “in the hands” of the plan fiduciary and the greater the assets and number of participants a plan has, the more control the plan’s fiduciary has to renegotiate these fees. It’s vital (and required) that your plan’s fiduciary sit down with a professional who understands your plan (say, your accountant!) and analyze what fees are being charged to the plan to determine whether or not they can be reduced. Options include renegotiating with your current plan providers or shopping plan assets to different providers to get the best deal for the plan and its participants, to name a couple. Keep in mind that if you as fiduciary can reduce fees being charged to participants, you are not only performing your fiduciary duties, but you’re putting cash back into the pockets of participants who have confidence in you!
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May 10. 2010 | John Seek
Watkins Meegan Compares its Talent to the "American Idol" Selection Process
American Idol is nearing its 2010 conclusion. The remaining contestants are vying for the top spot. The judges are providing constructive criticism, which hopefully will have an impact on the remaining performances. The last four competitors all have bright futures and have probably succeeded beyond expectation, regardless of who wins. The show has enjoyed huge ratings, but it is declining in popularity in the face of increased competition (Dancing with the Stars, etc.). The producers are trying to adjust with the addition of judges, the replacement of judges, and the introduction of viewer-friendly contestant mentors.
Watkins Meegan and the businesses we serve are not much different from American Idol in many respects. We recruit, interview, and select the best talent available. We teach, mentor, and promote those who excel. Not all of our contestants agree with the judges and some contestants work harder and are better than others, which is life. We are constantly replacing retired judges, bringing in new judges along with experienced mentors to allow the firm to thrive and continue its growth and popularity. In this highly competitive and challenging economic environment, successful businesses need to adapt and change. Focus and determination are the keys to a winning performance, no matter what the arena as stage. Anything we can do to help those we serve understand this is a great service in itself. When we “get to Hollywood” and do well, we will all succeed. Hopefully, America has voted for us. Stay tuned-in for the results.
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May 6. 2010 | Sean Roddy
The SBA’s “ARC”…
During the past two years, a lot of small businesses have become stressed and pushed towards the brink of failure due to the “great recession.” For many of them, a little relief from fixed expenses, such as interest on debt, would be very helpful. As firms began to feel the pressure from their backlog drying up and their fixed expenses remaining constant, the Small Business Administration (SBA) took action and created the America’s Recovery Capital (ARC) loan. This loan program has some limitations (like all loans), but its intended purpose is to assist small businesses that are facing immediate financial hardship.
The loans are interest free, they are for amounts up to $35,000 per approved applicant, they are 100% guaranteed by the SBA to the lender, and they have no required fees to the SBA. The funds are dispersed over a six-month period to the borrower. The principal repayments are deferred for 12 months after the last installment is received from the lender. Repayment can be extended for up to five years. In order to be classified as “viable,” a small business must be a for-profit enterprise that is experiencing immediate financial hardship. The business must have financial statements that show it was profitable in one of the past two years and projections that depict sufficient cash flow to meet current and future loan payments over the subsequent two years.
The real purpose behind the loans was for the proceeds to be used to pay principal and interest payments on qualifying small business loans. This would free up some operating capital to reinvest in the operations and future growth of the business. Qualifying loans include, secured and unsecured loans (revolving lines of credit and term loans), capital leases, and notes payable to vendors/suppliers/utilities. Also, ARC loans can be used to pay mortgages, home equity lines of credit, and credit card debt obligations if the debt was incurred for business purposes. If you are looking for more information on ARC loans, contact your local banker or go to www.sba.gov
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April 28. 2010 | Daniel O'Shea
May 15 and the Form 990-N Filing Requirement-Don’t Risk Losing your Exemption
For taxpayers and CPA’s, April 15 has come and gone. It’s hard to tell whether that collective sigh was relief, frustration, or a combination of the two. However, for many not-for-profits and those serving the industry, May 15 is the big tax day. Many not-for-profits are performing one last review of their 990 before filing on May 15, or perhaps they are filing a three-month extension if it is available. However, my guess is a certain segment of the not-for-profit industry is approaching May 15 without any knowledge of the significance of this looming deadline and its ramifications. Specifically, I am referring to small tax-exempt organizations whose gross receipts average less than $25,000 per year, and that, prior to 2007, did not have a filing requirement.
You may recall that the Pension Protection Act of 2006 had a few provisions that pertained to not-for-profits. One of these was the requirement that beginning in 2007, organizations that do not have a 990 or 990-EZ filing requirement must file a 990-N (e-Postcard) with the IRS by the 15th day of the 5th month after year-end. Any organization that fails to file a 990-N for three consecutive years will have its exemption revoked. Thus, May 15, 2010 will be the first time this “third year” exemption revocation can be triggered. An organization that loses its exemption will have to file an application for exemption as if it was a new organization, and pay the filing fee.
The 990-N filing requirement is relatively easy. It is filed online at http://epostcard.form990.org
. The following items must be reported on the 990-N:
-Employer ID number
-Organization legal name and address
-Other names used
-Name and Address of Principal Officer
-Confirmation that gross receipts are usually $25,000 or less
While the IRS continues its efforts to better track all tax-exempt organizations and to push for transparency in reporting, one must wonder whether automatic revocation of exempt status is an effective way of accomplishing the IRS’s goal. Most small nonprofits have a mission of serving the local community, and rely on local support and contributions. It is important that these organizations be registered and monitored. The 990-N is an effective tool for doing so, and can prove exceptionally helpful to donors and the community at large when dealing with small nonprofits, but the penalty for noncompliance is severe.
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April 21. 2010 | Sean Roddy
IFRS and GAAP Convergence
and the IASB
published a Memorandum of Understanding
on March 31, 2010. The memo states that the two bodies have reached substantially all of the milestone targets they established for the first quarter of 2010. Later this summer the two boards are set to publish exposure drafts for five major projects that would approve and achieve substantial convergence of U.S. GAAP
Last November the two boards had committed to a redoubling of efforts to come to agreements on the major differences between the two sets of standards in order to establish one set by June 2011. So, as opposed to joint meetings every four months, they have met for over 100 hours at 10 separate meetings
since November 2009. The SEC
has once again affirmed support of a single international standard, but has not re-approved the IFRS roadmap issued by former SEC Chairman Christopher Cox
. The SEC will decide in 2011 if it will incorporate the IFRS into financial reporting in the United States; however, it wouldn’t be mandatory until approximately 2015.
There are two major issues relating to financial instruments and insurance contracts where the two boards have reached different conclusions. These issues could affect the June 2011 timetable. However, considering the efforts expended between November 2009 and March 2010, these two boards could still meet their deadline if they keep up their current pace. In the second quarter of 2010, look for joint publications from the IASB
and the FASB
on Financial Statement Presentation, Financial Instruments with Characteristics of Equity, Revenue Recognition, Leases, and Insurance Contracts.
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April 14. 2010 | Christine Williamson
Watkins Meegan to present at the Deltek Insight 2010 Conference
Are you ready for the biggest skill training and networking event of the year? Deltek Insight 2010 will be held May 17-20 in Washington, D.C., and with Watkins Meegan
returning as an alumni sponsor and presenter, the event is sure to be a huge success.
Our affiliate W J Technologies
, a Deltek Reseller and partner, is also participating with knowledge sessions and the “Celebrate Insight” event on May 19 that you can’t afford to miss!
This year, our staff will be presenting over 10 breakout sessions
throughout the conference. Our experts will be covering best practices and some great tips and tricks for maximizing the potential of Costpoint and GCS Premier, as well as other Deltek solutions. For instance, if you’re interested in learning how to maintain and track leave, be sure to check out “Don’t Stop BeLEAVEin!” with Kristen Soles and Jason LeMaire. And don’t miss other cross-track knowledge sessions such as “Do You Know Your FAR and CAS Standards?” with Christine Williamson
and Stephanie Widzinski. This session will cover details on individual standards, clauses, and regulations that are sure to help attendees better understand their impact.
Be sure to stop by our kiosk (# 29b) in the Expo hall and meet our presenters. If you would like further information, please contact Christine Williamson at 703-761-4848.
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April 7. 2010 | Kristin Drozdowski
Policies and Procedures - A Necessary Evil or Just Good Business Sense?
Are you constantly being pestered by auditors about policies and procedures? When asked to see them, do you have to go to the top shelf of the bookcase, pull down stacks of documentation almost too heavy to carry, and brush off dust an inch thick? If so, you are not alone. Many companies have volumes of policies and procedures that are outdated and almost never used. Other companies have none at all and try to whip up a few brief paragraphs each year to provide auditors. So why are policies and procedures always at the top of the auditor’s list? Believe it or not, it’s because policies and procedures actually do have a purpose. Unfortunately, many companies today don't seem to understand or appreciate the value of policies and procedures.
Rather than documenting policies and procedures to satisfy a regulatory or audit requirement, companies should be documenting policies and procedures for the good of the company. After all, this is the main reason why these requirements exist. Policies and procedures are important to maintaining consistency within the organization, particularly as companies grow. They also allow companies to see potential areas for improvement and enhanced efficiency. And what company wouldn’t benefit from increased efficiency, especially these days?
The first thing to consider is how these documents are going to be used and who are the end users. Make sure you understand how your company will benefit from these documents. Many companies pay big bucks for consultants to draft policy documents that are so long and cumbersome that it takes a full-time job just to read through once, let alone be able to reference a specific topic when needed. I generally take the ‘less is more’ approach when documenting policies. While it’s good to consider all standard policy topics, smaller companies aren’t going to need the same depth and length of policy that larger companies may require.
Once companies go through the effort of documenting policies and procedures, something I see all too often is letting all that effort go to waste by not keeping the documentation current. When employees take responsibility for updating procedures as they change, there isn’t the need for an expensive and time consuming overhaul and it will even help reinforce the procedures with employees. In addition to holding employees responsible for real-time updates, I generally suggest a semiannual or annual review to catch updates that may have been overlooked.
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March 31. 2010 | Kevin Jones
Marginal Tax Rates and Phaseouts – Enough Already!
Most people understand the meaning of the term “marginal tax rate.” It is the rate of tax paid on the last dollar of income. The impact of the marginal rate cannot be overstated because it determines how much a taxpayer gets to keep when making decisions about whether to work more and harder. For example, in deciding to work overtime, accept a freelance job, or to accept a higher-paying job, the financial impact is directly determined by the marginal tax rate. Obviously, higher rates reduce the after-tax rewards of earning more so that it is less worthwhile to do so. Marginal rates also impact other choices we make such as whether to save and invest, how much to give to charity, whether to receive taxable wages or fringe benefits, and how much to borrow in purchasing a home. Lots of research exists indicating that marginal tax rates impact all of these decisions.
So…what is your marginal tax rate? If you are in the highest tax bracket, you might think you can simply look at the tax tables and find it is the highest rate of 35 percent. Unfortunately, that is only half the story. The other half is “phaseouts.” Phaseouts are those pesky reductions in certain tax deductions and other benefits that occur as income rises. Phaseouts take numerous forms but most commonly include such things as the reductions in personal exemptions, itemized deductions, dependent care credits, and other limits. A complete listing is too voluminous. Many taxpayers have multiple phaseouts working at the same time. Some phaseouts act not only to increase marginal rates, but can have more impact for 2-earner married taxpayers. For example, the phaseout of personal exemptions begins for married taxpayers at 1.5 times (not twice) the income level for single taxpayers.
The reality is that phaseouts accomplish two things…they increase the marginal tax rates and they complicate the tax. Regarding complexity, due in large part to the interaction of the many phaseouts, it is virtually impossible for a reasonably intelligent person to accurately complete a tax return by hand without the aid of a tax preparation software program. More importantly, regarding marginal tax rates, studies show (depending on which ones you read) that phaseouts can increase marginal tax rates from the 35 percent maximum marginal rate in the tax tables to over 50 percent. Additionally, current proposals such as limiting the benefit of charitable contributions to 28 percent for taxpayers in the 35 percent bracket will only increase marginal rates further.
Where it will end is anyone’s guess, but if marginal rates continue to increase, people will, at some point, simply decide not to work harder. That cannot be a good result. So, to higher marginal tax rates and phaseouts, I say…ENOUGH ALREADY!
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March 24. 2010 | Jason Fleetwood, and Katie Madden
Tax Season Madness
Jason: Each January I am asked by family and friends if I am ready for the madness that is tax season. And each time my answer is the same – about as ready as one can be. Only if you are (or were) a CPA who is (or was) in public accounting can you understand the extreme highs and lows that January 15th through April 15th of each year brings. There are the highs of meeting deadlines and earning praise from your clients, from coming up with a tax strategy that saves your client a lot of money, or impressing your boss by working 80-plus hours in a given week to get a job done. Then there are the lows of not meeting a deadline and having your client remind you of the fact in not so pleasant terms, of calling a client in early April and making them aware that they owe the IRS a lot of money, or working 80-plus hours in a given week to get a job done (yep, the 80-hour workweek is a high and a low all wrapped in one!).
There is another madness that occurs this time of year - March Madness - and it, too, is full of extreme highs and lows. The highs of buzzer beating three-pointers and remarkable comebacks, combined with the lows of calling a timeout when you don’t have one (sorry, Michigan fans) or being left out on the bubble (sorry, Katie and all you Hokie fans out there). Anyway, I could not escape this month’s blog without talking about what is on everyone’s mind - the NCAA men’s college basketball tournament. So here is the way I see: Ohio State, Kentucky, Kansas State, and the Duke Blue Devils will make it to the Final Four, with Kentucky beating Ohio State to win the National Championship. Now Katie can share her thoughts with you (but I wouldn’t rely on her pick).
Katie: For me, a high of tax season is when a Member of the firm asks you to help write a blog because he believes in your writing ability; yet a low is when I work hard all day and have to stay up all night trying to think of what to blog about instead of getting some much needed rest! Another low of tax season (March) madness is when your team is the first ACC team with 10 regular season conference wins to be left out of the field of 64 (plus one) in 25 years (Jason, thanks for pointing that out above). Ohio State, Syracuse, Duke, and West Virginia are my final four. I see a Big East matchup in the final game, with the Orangemen bringing home the title in a close battle against the mighty Mountaineers (sorry, Heather – WVU’s run of winning every game by three points or less at the buzzer is bound to end in the championship game). But Jason is right - you should probably put more faith in his picks because we know he hasn’t been watching too much Fighting Blue Hen basketball (a team that should be congratulated on the three wins they have earned in 2010, for a total record of 7-24 overall). I’m sure he has had more prep time than most of us to analyze the brackets.
So if you are brave enough to get your picks on record or even share a tax season memory, please respond and let us know…and let the madness begin!!
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March 18. 2010 | Gary Robinson
Why Millions of Americans Now Fall Subject to the Alternative Minimum Tax
Congress created the Alternative Minimum Tax (AMT) in 1969, targeting high-income taxpayers who could claim so many deductions they owed little or no tax. The AMT was originally designed to ensure that wealthy taxpayers could not use popular deductions and credits to completely eliminate their tax liability. Today millions of middle-income taxpayers who were not target of the tax when it was enacted now fall subject to the tax each year.
The number of individual tax returns subject to AMT has increased from approximately 132 thousand in 1990 to over 4 million in 2007. Over the same period, the amount of AMT has increased from approximately $830 million in 1990 to over $24 billion in 2007. These are staggering increases.
Despite the fact that millions of taxpayers are subject to the tax, the AMT represents one of the more difficult and complex tax calculations to understand. As a result, most taxpayers who owe AMT do not have an actual understanding as to why they are subject to the tax – much less how to calculate it.
Individual taxpayers are required to calculate their federal income tax using both the conventional method of determining their income tax liability as well as their tax under AMT. When the alternative minimum tax exceeds the tax liability calculated using conventional methods, you pay the higher AMT amount.
The most common difference between regular and AMT taxable income involves the add-back of the deduction for taxes paid. That’s right. The itemized deduction normally allowed on Schedule A of Form 1040 for state income taxes and real estate taxes paid during the year are not deductible in arriving at your alternative minimum taxable income. In addition, the combination of states increasing their income tax rates to meet budget shortfalls and the huge run-up in real estate values over the years (even with the recent downturn) has resulted in these items representing two of the larger itemized tax deductions for most taxpayers. Unfortunately, neither is deductible in the calculation of alternative minimum taxable income.
While a specified amount of AMT income is exempt from tax, too much has been made of the so-called “AMT Patch” which increases the allowable exemption under AMT for changes in the consumer price index. Unfortunately, this exemption is phased-out for taxpayers whose alternative minimum taxable income exceeds certain limits. Guess what? Those phase-out limitations have not been indexed for inflation and, as a result, many taxpayers find themselves partially or fully phased-out of the exemption. Therefore, an ever increasing number of middle class Americans will fall subject to the tax in the future unless legislative changes are made.
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March 16. 2010 | James Kanuch
Recently, not-for-profits with endowments have been feeling the pressure from governmental and accounting oversight agencies, including both the Internal Revenue Service (IRS) and the Financial Accounting Standards Board (FASB). The IRS completely overhauled the informational returns filed by non-profits, Form 990, and last October began surveying 400 colleges and universities concerning, among a host of items, how the organizations invest and use their endowment funds. Also, recently adopted endowment guidance by the FASB created additional accounting and disclosure requirements for non-profits with endowments; and new guidance issued by the National Conference of Commissioners on Uniform State Laws approved the Uniform Prudent Management of Institutional Funds Act (UPMIFA), which placed added responsibilities on Boards and investment committees with endowment funds regarding the “prudent” spending of such funds.
So how should non-profits respond to all these new rules and regulations? Perhaps by taking advantage of the opportunities that result from the additional oversight. Yes, there will be increased administration costs to comply with the requirements; yes, Boards and non-profits will be required to report information that previously was not made public; and yes, there will be other costs associated with the new requirements; but for those organizations already in compliance with the additional requirements, the benefits can greatly outweigh the costs.
The biggest benefit will be a change in the perception of the public and potential third party donors. Now is the time for not-for-profits to demonstrate how, with the oversight of their Boards and investment committees, the monitoring and spending of their endowments is being conducted prudently. Further public disclosure can also be demonstrated through their audited financial statements, annual reports, website, and the publicly available Form 990. As a means to another potential benefit, not-for-profits should be communicating with past donors to restructure ambiguous gift instruments to be more advantageous to both the donor and their organization and revising promises to give agreements for future donors to clear up potential ambiguities and make them more beneficial to both parties.
With all the increased oversight and new guidance, I would recommend an approach that results in few complaints and has a proactive stance designed to take advantage of this increased oversight to demonstrate to the public, including potential donors, that your organization should be the one donors can trust with their contributions.
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March 3. 2010 | Stephanie Kelly
Infidelity...sometimes it's financial
With the economy still feeling the effects of the recession, the number of divorces and shareholder disputes has soared. Unlike what you read in the Hollywood gossip magazines, typical cases do not involve physical infidelity. Oftentimes it is one spouse or shareholder stealing money from the other. In some cases, the disgruntled person has been quietly pocketing money in an undisclosed bank or investment account. Other hiding places are safety deposit boxes where cash or hard commodities (e.g., gold bars) can be placed. Account balances can easily grow to over $1 million. A strategy used to deceive a business partner is to create separate company records to hide receivables so the other partner won’t discover the assets.
In domestic disputes, there are instances of distribution checks coming in from a prior employer that get endorsed over to a third party. In any situation, the assets can go undetected unless you hire a forensic accountant or just get lucky. Your problems may become even worse once you discover the hidden assets and realize you filed a joint tax return with the other person and failed to record the income on your tax return – whether as an individual, a partner, or a corporation. And then what seemed like a simple, uncomplicated dispute has turned into a money laundering, tax fraud, white collar crime nightmare.
We often think we have seen and heard it all. However, just the opposite is true. Each one of our cases in the Forensic Accounting and Dispute Services (FADS) group is different, yet the motive remains the same: greed. Fortunately for our clients, our team consists of a diverse group of former IRS agents, corporate controllers, and fraud specialists. We assist clients in asset discovery, IRS workouts, and innocent spouse defenses. So as we celebrate the month of love, February, and are reminded to eat well and get regular cardiac checkups, it is also a reminder to follow your heart (and gut). If someone you love and/or trust is being deceptive, it might be a good time to hire an investigator.
Happy Belated Valentine’s Day!
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February 24. 2010 | David Wright
More SBA and SDB Proposed Changes from the Obama Administration
Last month we covered
a few new proposed changes in the Small Business Administration (SBA) and Small Disadvantaged Business (SDB) programs. Since then, the Obama Administration has announced two more lending plans. These temporary initiatives aim to create new jobs and improve access to loans for small businesses.
The first initiative is a commercial real-estate program which will allow small businesses to refinance existing, qualified, owner-occupied, small business commercial mortgages into SBA’s 504 program. The SBA announcement fact sheet
specifies that borrowers can finance up to 90% of existing property values through this program.
Temporary expansion of working capital loans is the second initiative. The SBA has received feedback from borrowers and lenders and decided to increase the limit on SBA 7(a) working capital loans from $350,000 to $1 million. These increases will help address liquidity needs.
Will we see even more new SBA initiatives this year? Keep your mouse pointed here for the latest!
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February 17. 2010 | Elizabeth Dunseith
XBRL - Are You Ready?
By now, you’ve probably heard the term XBRL in at least one conversation with your external or internal auditors, CFO, Controllers, or other financial personnel. XBRL, eXtensible Business Reporting Language, is the new wave in financial reporting. In short, XBRL uses taxonomies to tag information in the financials to enhance the reporting and communication of information. It is important to note that XBRL filing does not affect the US GAAP or SEC financial reporting requirements, but is an additional format for submitting financial information. When companies hear the term “XBRL,” they generally have 3 questions: 1) Does this affect me? 2) When does it affect me? and 3) How much will it cost?
Hopefully Watkins Meegan can answer some of those questions. It affects you if your company is publicly traded. Also, mutual fund companies will be required to report their risk and return summary information using XBRL. There are some additional requirements as to the specific reports that must be filed using XBRL, but these are the general guidelines. When is the next concern for most companies. Certain large accelerated filers have already begun reporting in XBRL. Over the next two years, the remaining filers and mutual fund companies will be required to use XBRL. So if XBRL does affect you, it should be something you are thinking about it now. Just as the deadlines for compliance can vary, so can the cost depending on the software and resources used for implementing.
There are many software applications designed to help with the implementation. They vary in cost and capabilities. Depending on your company needs, one application may be a better fit over another. I recommend you take the time now to review the XBRL software options and get your questions answered earlier rather than later. This can save time and resources down the road. If you need help in your analysis, Watkins Meegan has explored different applications and is available to answer any questions you may have.
XBRL facilitates the comparability of financial information and will probably be used by government agencies (IRS, Treasury), lenders, investors, and others in the future. So non-public companies should stay tuned.
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February 10. 2010 | Kevin Jones
How Well Do You Know Your Return Preparer
Currently, anyone may prepare a federal tax return for anyone else and charge a fee. While some preparers are currently licensed by their states or are enrolled to practice before the IRS, many do not have to meet any government or professionally mandated competency requirements before preparing a federal tax return for a fee.
As a result, a few weeks ago the IRS issued proposed new registration, testing, and continuing education requirements for tax return preparers. The proposal recommends a number of steps that the IRS plans to implement for future filing seasons, including:
• Requiring all paid tax return preparers who must sign a federal tax return to register with the IRS and obtain a preparer tax identification number (PTIN).
• Requiring competency tests and continuing education for all paid tax return preparers except attorneys, CPAs, and enrolled agents who are active and in good standing with their respective licensing agencies and subject to mandatory continuing education.
• Extending the ethical rules found in Treasury Department Circular 230 to all paid preparers- not just attorneys, CPAs, and enrolled agents.
The initiative will take several years to fully implement and will not be in effect for the current 2010 tax season. Nevertheless, the IRS also announced a new outreach effort to help make sure taxpayers choose a reputable preparer this filing season. That’s particularly important because taxpayers are legally responsible for what is on their tax returns -- even if those returns are prepared by someone else. In order to help taxpayers, the IRS offers the following points for taxpayers to keep in mind when selecting a tax return preparer:
• Be wary of tax preparers who claim they can obtain larger refunds than others.
• Avoid tax preparers who base their fees on a percentage of the refund.
• Use a reputable tax professional who signs the tax return and provides a copy.
Consider whether the individual or firm will be around months or years after the return has been filed to answer questions about the preparation of the tax return.
• Check the person’s credentials. Only attorneys, CPAs, and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection, and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
• Find out if the return preparer is affiliated with a professional organization that provides its members with continuing education and other resources and holds them to a code of ethics.
At Watkins Meegan, we fully support efforts to increase the competency and integrity of professional tax return preparers. More information about choosing a tax return preparer and avoiding fraud can be found at the IRS website in IRS Fact Sheet 2010-03, How to Choose a Tax Preparer and Avoid Tax Fraud.
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February 4. 2010 | Jason Fleetwood, and Katie Madden
Accountant's New Year's Resolutions
Each year we all make at least one New Year’s resolution. Whether it is one resolution, five, or even ten, we make a list and promise ourselves that we will stick to it. This year we thought we would share our New Year’s resolutions with you while incorporating some helpful tax advice. Posting them on WaktinsWire will be added incentive for us to follow through on them.
1. Eat Healthier – The next time you are eating a meal, choose a salad instead of the burger and fries, drink water instead of soda, and go organic when possible. (And for you business owners, don’t forget that the amount allowable as a deduction for meal and entertainment expenses is generally limited to 50 percent of such expenses. However, there are exceptions to the 50-Percent limitation rule.)
2. Be More Charitable –Encourage yourself to give a when possible. Whether it is clothing, household items, food, or cash, there are several organizations that can take your donations and help out those in need. (And for you individual taxpayers, don’t forget that you report your charitable contributions on Form 1040, Schedule A when filing your tax return. Don’t forget to keep records of donations and contributions.)
3. Get Out of Debt – It won’t happen overnight, but it is possible to climb out of the $683 billion in revolving credit card debt. Make a list of what you owe and try to pay more than the minimum monthly payment. Create a realistic monthly budget for your expenses and make it a rule that if you can’t pay for it today, you can’t afford it. It is also a good idea to review a copy of your credit report and credit score. (And for you accountants, remember that under current GAAP, the principal amount of long-term debt scheduled to be repaid within the next year should be classified as a current liability on a classified balance sheet. Consequently, the principal balance not scheduled to be repaid within the next year should be classified as a non-current liability. Remember also to disclose the future principal maturities over the next five years.)
4. Learn Something New – Ever wanted to learn how to play the harmonica? Yeah, neither have we. But if we did, we can learn how to, along with just about anything else, visiting utube
. The website isn’t just for funny videos of stupid pet tricks or creative wedding dances…it also includes thousands of instructional videos, ranging from cooking lessons to saying hello in Mandarin and some from the IRS. (And for you accountants, don’t forget to read up on how the new International Financial Reporting Standards (IFRS) are going to affect your client’s financial statements in the near future. Because implementation of the standards is expected to be a challenging transition, firms should start preparing now for these “new” standards.)
5. Spend More Time with Family – Chances are that we have all had bad days at the office or in the classroom. Sometimes the best cure for a day like that is an afternoon at the park with your family. Resolve to be home in time for dinner when possible, or schedule a “family night” once a week for group activities such as board games or a movie. (And for you employees out there, remember that, under the Family and Medical Leave Act (FMLA), you may be entitled to up to 12 weeks of unpaid, job-protected leave per year for certain family and medical reasons, including the birth and care of a newborn child, care for an immediate family member with a serious health condition, and when the employee is unable to work because of a serious health condition.)
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January 29. 2010 | John Seek
Our communications meeting was by far the best ever. The day was a showcase for the Watkins Meegan talent. The theme “Come Grow With Us” was well conceived and is a motif that is important to our future. Hopefully, we all learned a lot about what the Watkins Meegan Group has to offer. Personally, I learned I am not going to Hollywood (for those of you who watch or know about American Idol), but all is not lost. Before the meeting, I happened to read an Alexander Graham Bell quote, which I will share with you. “When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us.” Yesterday, the Watkins Meegan door opened for all of us. Embrace the opportunity and don’t focus on any closed doors. We work in a great industry at a great firm with great people. Understanding our strengths, creating new strengths, and hard work will allow all of us to achieve our goals. The Watkins Meegan business development initiative starts with everyone at the firm through a commitment to work quality, development of expertise, and the demonstration of that expertise. Years ago, Watkins Meegan started with a handful of people and yesterday we filled a ballroom. I am certain next year we will be looking for a larger space for the meeting.
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January 26. 2010 | Lorraine Sexton
Cash Management- Survive and Thrive
Over the course of this past year, nearly all companies have scrutinized their expenditures and implemented cost cutting measures, in an effort to survive during the downturn in the economy. Having enough cash available for operations has been a challenge, as it has become increasingly difficult to qualify for loans. While most businesses have been in the survival mode, companies that properly position themselves and capitalize on shifting circumstances, including cash management opportunities, can emerge as growth companies and thrive despite the adverse economic conditions.
A traditional cash management strategy is to collect early (reduce the order to cash cycle), and minimize aging accounts receivable. However, many companies are not aware of bank services available to help with this process. Some banks offer a setup where a company can post its invoices to a secured site, with its customers being sent an automatic notification of the posting. The customers can then access the site and make payments electronically. The cost for the service is affordable, and may be less expensive than the postage, labor time, etc., the business has been paying internally for generating and mailing the invoices.
Another traditional cash management strategy has been paying late (increasing the procure to pay cycle), and keeping cash on hand as long as possible. However, some companies are finding it more beneficial to do the opposite and pay accounts payable balances timelier, minimizing late payment fees and lost discounts.
There are steps that can be taken to improve a company’s balance sheet and increase the chances of obtaining bank loans. For example, lines of credit are generally meant to be used for short-term cash needs. Many companies remain unaware that having a line of credit balance sitting on their balance sheet for an extended period of time without being paid down can prevent them from qualifying for a loan.
With the current credit crisis, cash management continues to be an issue of primary importance to companies, and these are just a few among numerous strategies worth considering. Watkins Meegan has experienced employees who can assist you with planning for your cash management needs.
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January 20. 2010 | Jennifer Mavrikes
What’s New with the Not So New TAG Program?
In October 2008, the FDIC announced a new program - the Transaction Account Guarantee (TAG) Program - and it became quite the talk. The reason this program became so popular? It provided full insurance coverage for non-interest bearing accounts, regardless of the dollar amount, as long as the bank participated in the program.
Over the past year, many of our not-for-profit clients have either considered switching, or have switched, to a fully insured account under this program. With the downturn in the economy, our clients wanted peace of mind that their money was safe and secure and decided the assurance of fully insured accounts takes precedence over higher rates of return.
Now for the new news … effective January 1, 2010, some of the major national banks, as well as other regional banks have announced that they will no longer participate in the TAG program. What this means is that if you have a non-interest bearing account with one of these banks, your account will now be subject to FDIC coverage of $250,000 per depositor, rather than being fully insured.
If you, like many others, decided to participate in the TAG program this past year, the first thing you should do is contact your bank to find out if is still participating in the TAG program. If it is not, talk with your bank and within your organization about your options, and always be aware of the financial condition of your bank. By doing so, you can maintain your peace of mind throughout the years to come.
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January 13. 2010 | Mary Lou Gervie
Employee misclassification is a practice that is sometimes used intentionally by employers to reduce their tax burden. Both the Internal Revenue Service and many states are ramping up their investigations to insure that individuals who should be classified as employees are not being hired as independent contractors. This issue has been determined to be a serious threat to workers and also creates an unlevel playing field for businesses.
Statistics published by the Maryland Unemployment Insurance Division, which conducts random audits every year of about 2% of the state’s employers, found that approximately 20% of employers misclassify employees as independent contractors.
The misclassification of employees has significant lost revenue ramifications not only for the federal and state governments, but also to the workers themselves who lose out on potential benefits that are typically granted to employees, such as, minimum hourly wages, overtime pay, safety and health standards, medical leave, antidiscrimination laws and access to unemployment insurance and workers’ compensation. It puts honest employers at a competitive disadvantage due to the higher cost of doing business.
Starting in February 2010, the Internal Revenue Service will start its first Employment Tax National Research Project in 25 years. Examinations from this project will be used to collect data for future audits where it is determined that compliance issues exist. The IRS will randomly select 2,000 taxpayers for the next three years for this National Research Project. There is an underlying understanding that one of the primary issues will be the classification of employees.
Watkins Meegan has ex-IRS employees who are familiar with state and federal audits to assist with any business that is a target of these types of investigations.
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January 6. 2010 | Justin Reid
New proposals to the SBA and SDB Programs
If you’re a small business interested in obtaining a small business certification, you may find it worthwhile to hear of proposed changes affecting Small Business Administration (SBA) and Small Disadvantaged Business (SDB) programs. Changes have also been proposed to small business lending through the SBA and other entities.
Current regulations of joint ventures state that each of these entities may not submit more than three proposals over a two-year period. In some cases, this regulation has resulted in the creation of a second joint venture by small businesses, which is a costly undertaking. New proposed changes to the SBA adjust the limit to three contract awards, rather than proposal submissions over the two-year period. A proposed change for five awards is also pending.
Changes to financial statement reporting requirements have also been proposed. Under these revisions, financial statement reviews must be completed when receipts between $2 million and $10 million are collected. Current regulations require reviews when the concern has between $1 million and $5 million of receipts. Financial statement audits must also be completed when receipts of more than $10 million are received. Current regulations require audits when there are $5 million of receipts.
These are just two of the proposed changes and more are in store. Keep your eyes open for the new developments!
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December 29. 2009 | Bhavesh Vadhani
Increasing Need for Assurance - Why?
What do organizations that provide services like IT hosting, payroll, benefits processing, credit/debit card processing, automated clearing house, XBRL tagging, accounting, and financial support have in common? The need to provide assurance.
Along with an innovative business model and strong industry expertise, one of the key enablers of a company’s growth is the TRUST that is built with its customers, business partners, employees, and other stakeholders. Trust is an essential element of all successful business models, whether the business processes are online or traditional.
The new economy is changing the nature of the relationships we have with our customers, business partners, suppliers, and competitors. In person meetings are infrequent and new technologies can be both powerful and scary. The business world is not about risk avoidance anymore; it’s about risk exploitation and the opportunity that risk generates. With risk a central concept in the market, an organization’s need to provide assurances to its stakeholders is escalating every day. Companies need to demonstrate that they have good internal controls over processes and supporting systems and they are designed and operating effectively and consistently.
So how can you provide this kind of assurance? Start by making sure that you have the right controls in place to support the services you provide. Then you can seek an independent assessment performed by a third party. Some of the widely accepted and used attestation services are: AICPA’s Statement of Auditing Standards No. 70 (SAS 70), Trust Services (SysTrust and WebTrust), and Payment Card Industry (PCI) compliance. Depending on the services an organization offers to its clients, it should explore one of the above certifications and see which one is right for the company and its partners.
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December 22. 2009 | Kevin Jones
Using the Tax Code to Implement Social Policy
Oliver Wendell Holmes, the great Supreme Court Justice, once stated that, one way or another, “taxes are what we pay for a civilized society.” While we all recognize that taxes provide the government with the means to accomplish its mission, we see that, more and more, our system of taxation is used as an instrument to implement social policy.
Currently, the federal tax code provides billions of dollars each year in incentives to encourage socially valued activities. These include incentives to home ownership, charitable contributions, health insurance, education, going green, and countless others. These incentives take one of two forms. First, an incentive may take the form of a deduction from income. This type of incentive links the size of the tax break to the taxpayer’s marginal tax bracket. Second, an incentive may take the form of a tax credit, which may be either refundable or non-refundable. Refundable credits are much more appealing to those with little or no tax liability because they are available regardless of whether the taxpayer actually is required to pay any tax. The benefits of deductions compared with credits will not be resolved anytime soon, but in either case, the tax code is the vehicle used to implement social policy.
In case one wonders why the tax code is used for social policy initiatives, the answer is quite simple…politics. Incentives of this type are nothing more than another form of government spending program. This is not to indicate any agreement or disagreement with this method of financing government operations. That is for you to decide. Nevertheless, this type of program is often preferred by Congress to typical spending programs because spending programs are much more visible and, thus, more subject to public scrutiny. Tax preferences, on the other hand, can more easily be concealed within the complexity of the federal tax code.
In this sense, it is much more efficient for legislators and more palatable for the public to create a new incentive program rather than a new spending program. This is particularly true in these times of increased federal deficits. Is this smoke and mirrors? Maybe it is, but countering the benefits legislators enjoy by using the tax code in this manner is the clear fact that by using the tax code to achieve social goals beyond raising revenue for necessary government programs, it may be impossible to achieve true tax simplification.
My personal views notwithstanding, as a tax professional, I certainly don’t mind all the complexity. It may be true that the only things certain are death and taxes, but running closely behind are: (a) the ingenuity of governments in taxing their citizens, and (b) the creativity of the people in avoiding them. Because of that, there will always be a need for those that can find creative solutions to taxing problems.
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December 16. 2009 | Jason Fleetwood
Impaired or Not Impaired…That is the Question
You cannot open a newspaper, read online, or watch the evening news without hearing about the current recession and the troubles our economy is facing. This recent economic downturn has had a huge impact on the residential and commercial real estate markets. Businesses involved in these markets continue to post lackluster performances, as they have had to deal with impairment charges related to a variety of issues – the decline in home and land values, abandoned projects and developments, deals that have fallen through, etc.
Impairment is defined as “the condition that exists when the carrying amount of a long-lived asset (asset group) exceeds its fair value.” Events or changes can occur to a particular asset’s circumstances that raise doubt about the asset’s carrying amount being fully recoverable. Such events or changes may include significant adverse changes in business climate, decreases in an asset’s market value, use, or condition, and/or adverse legal factors. An asset is considered impaired when a company determines that the carrying amount of the asset is not fully recoverable. When this occurs, the asset should be written down to its fair value. To complicate matters, the accounting for asset impairment further depends on whether a company intends to hold and use the asset or dispose of it. (OK…you may be thinking -”How do you apply all this technical jargon to a real-life example?”…bear with me, I’ll get there.)
U.S. Generally Accepted Accounting Principles (GAAP) use a two-step test in determining impairment. The first step is to determine the undiscounted cash flows expected from the use and disposition of the asset. If the sum of these cash flows is less than the carrying amount of the asset, it is considered impaired. If there is impairment, the second step is to determine the impairment loss by taking the carrying amount of the asset and subtracting the fair value. Once an impairment loss is recognized, it may not be reversed in a following year. (So let’s get to the example…if you have lived in the DC area long enough, you don’t have to be a rabid sports fan to understand how impairment would be applied to the area’s sports franchises…the Washington Redskins = Impaired – losses continue to mount and fan frustration continues to grow; the Washington Capitals = Not Impaired – with the world’s best player surrounded by young talent, this team is on the cusp of great things; the Washington Wizards = Get out your cash flow models and run some scenarios because this team could go either way; the Washington Nationals = Fully written off in previous years...)
My example may not have been what you were looking for, but with another calendar year end approaching, it is prudent for businesses to assess asset impairment and ensure they are accurately reporting asset values on their financial statements. As a final note, I hope everyone has a wonderful holiday season and a happy and healthy 2010!
(Now you are thinking- “I thought this guy was done”…but I just wanted to point out that in an earlier blog written by Brian Linville on November 11, 2009, he talked about the convergence project with GAAP and IFRS (International Financial Reporting Standards). Asset Impairment is an issue where GAAP and IFRS differ, with a significant difference being how impairment losses are handled – IFRS allows for the reversal of an impairment loss if certain criteria are met.)
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December 9. 2009 | Bruce Hall
The Burden of Tax Compliance
It’s that time of year again. The holidays are looming, a chill is in the air… and your government is working hard to pass legislation before year end.
At the recent AICPA National Tax Conference, the Commissioner of the IRS and the IRS Taxpayer Advocate both admitted that the IRS is overwhelmed by routine activities. One of the metrics used to measure success is whether the phone is answered more than 70 percent of the time. We can only hope this is coupled with metrics measuring the resolution of taxpayer issues. The feeling that many taxpayers get is that stacks of correspondence go unanswered, while erroneous underpayment notices, often in duplicate and triplicate, get mailed.
In the midst of the most dramatic economic downturn in generations, the IRS is allocating significant resources to enforcement issues. Perhaps similar resources should be distributed to ensure that refunds are made timely and unnecessary underpayment notices, which can frighten taxpayers, are sent less frequently, thereby saving both time and money. It appears that the government is attacking on all fronts.
State tax departments are operating in a similar fashion to the IRS. Notice after notice is generated, responses by taxpayers or their representatives are sent multiple times by multiple modes of communication, and phone call after phone call results in mounting frustration. One common error I have encountered with some states involves the withholding tax that pass-through entities are required to pay on behalf of nonresident owners. When the owner later files their tax return properly claiming the withholding as a credit against their tax, the state is ignoring the withholding even when documentation is attached to the returns. Not only did the states hold the refunds, they actually issue bills even though the taxpayer is owed money. I wonder how many taxpayers are incorrectly paying these bills.
These problems have not stopped the wheels of our government from grinding along. There are at least four bills winding their way through Congress, all of which potentially have significant tax provisions, and some of which will affect the current year. Perhaps a little more attention to relieving the burdens of tax compliance should be the focus. Most Americans don’t mind paying their taxes as much as having to deal with the taxing authority.
No one is sure where we will end up, but the certainties of death and taxes are likely to be joined by increased regulation and more government oversight.
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December 2. 2009 | Ed Rodriguez
Budgets Are Increasing at the IRS - What Does That Mean For You?
The Obama administration has approved an increase of $400 million in the Internal Revenue Service
budget for 2010 and the IRS plans to use that increased budget
to hire about 4,500 additional employees for its enforcement division and to enhance its tax compliance/collections efforts. While this means job opportunities for some, what does it mean for the American public?
Allow me to break it down for you. The new IRS employees are likely to be more tech savvy and collections improvements will mean better technology and an increased number of audits. Already the IRS is looking at obtaining a database that collects public information on an international scale to combat the rise of offshore tax evasion
. Taxpayers should be more cautious and guard themselves against a potential IRS adjustment, which can trigger penalties that exceed 75 percent of the tax due.
Now let’s take a look inside the Department of Justice’s Tax Division
, which includes the attorneys who prosecute criminal tax activity. During FY 2009, criminal tax investigations and prosecutions ranged from 1,300 to 1,800. Improving voluntary compliance and maintaining fair and uniform enforcement of tax law are primary objectives of the DOJ Tax Division, as well as the IRS’s Criminal Investigations
As such, both the IRS CI and the DOJ have been focused on stopping the spread of tax shelters and tracking down owners of unreported offshore bank accounts, as shown by cases like that against Swiss bank UBS. While you may think the IRS CI is only focusing on larger financial taxpayers, I’ve heard from inside sources that mom-and-pop foreign bank accounts are also being targeted. DOJ is negotiating a new income tax treaty with Malta and a new Tax Information Exchange Agreement (TIEA) with Liechtenstein.
One thing for sure is that taxpayers’ rights should not be violated. But taxpayers facing an IRS audit must make sure that the books and records they submit to the IRS auditor are in an organized fashion. These records can build credibility between the taxpayer and the auditor. Credibility can go a long way in the relationship and may limit the audit from expanding into other years. However, if there is a serious issue with the tax return, such as unsubstantiated expenses or unreported income, it might be time to hire an accountant to navigate through the audit and to help ensure a referral is not made to the IRS CI.
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November 24. 2009 | Daniel O'Shea
Thanks-Giving is Upon Us
Notice the hyphen above? No, it is not a typo, but rather a theme. In a couple days, turkey, football, and family will be here. It is truly a time for giving thanks. It should also be a time for giving.
As I write this, we are halfway through the fourth quarter of the calendar year - typically the strongest time of the year for charities to receive contributions. To almost no one’s surprise, the economy, while it has stopped declining, has not yet turned upward. As a result, many charities are simply trying to hold on through this fourth quarter in the hopes that 2010 will again see contribution patterns return to some degree of normalcy.
Several national surveys have shown contributions are down 10 percent for the year. Based on my observations and inquiries of clients and other charity leaders here in the Washington area, the decline locally appears to be closer to 15 percent. I have the privilege of working with many of the best charities in the Washington area, and one thing is clear - it doesn’t seem to matter what the charity’s mission is, funding is down.
As funding from federal, state, and local government has declined, charities have been left with some difficult decisions as they scramble to maintain their programs. Charities shouldn’t be looking for government funding to increase any time soon. Tax revenues, which provide the basis for government funding, are way down. Thus, it is up to the public to make a difference.
Give what you can to your favorite charities this holiday season. Giving does not have to be financial. Giving includes volunteering or donating clothing and food. Every bit can make a difference. Encourage your children to participate. My daughter recently attended a birthday party where guests were encouraged to make a contribution to the birthday girl’s favorite charity rather than bring a gift. What a great idea and life lesson!
It is my hope that contribution activity increases throughout the rest of the year. As you know, it’s not just the charity that suffers, but those served by the charity. Every bit can, and does, make a difference.
Happy Thanks-Giving to all!
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November 18. 2009 | Christine Williamson
Prepare Yourself for Limitations of Pass-Through Charges and Rising Indirect Rates
As a government contractor you’re in line for a number of regulatory and economic changes in the near future. The Obama administration has been focusing on revamping the government contracting industry, as well as the ongoing reviews at DCAA
and other federal agencies. Some specific changes to note are as follows:
Last month, the Federal Acquisition Regulation
councils delivered an interim rule that limits the pass-through charges allowed by prime contractors and subcontractors. This rule was issued to “minimize excessive pass-through charges by contractors from subcontractors, or from tiers of subcontractors, that add no or negligible value," according to the Federal Register
. While the rule was considered effective October 14, you have until December 14 to submit comments before a final rule is established.
In addition, increasing unemployment taxes in Maryland
could impact your indirect rate costs for 2010. Rising unemployment rates decreased the two states' unemployment trust funds, resulting in the increase. According to an article in the Washington Business Journal
, Maryland's unemployment insurance taxes are set to rise from an annual minimum of $51 per employee to $187 per employee, while Virginia will increase from $95 to $171.
We believe more changes are on the horizon….so stay tuned!
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November 11. 2009 | Brian Linville
The IFRS (International Financial Reporting Standards) Struggle
Once companies understand what IFRS is, they need to stay in the loop of what will happen next and how it affects them.
Our Director of Quality Control, Brian Linville, just attended a two-day conference held jointly by the International Accounting Standards Board (IASB) Foundation and the American Institute of Certified Public Accountants in which a few of the topics and presenters tried to help attendees determine what steps to take next. Presenters included standard setters from the Financial Accounting Standards Board (FASB) and the IASB, the U.S. Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB), and several companies who had already gone through the switch.
The most anticipated section was the presentation by SEC Chief Accountant James Kroeker. Everyone was hoping to hear a decision on whether the SEC would stick to its current roadmap to require public companies to transition to IFRS in 2014. While we did not get an answer to that question, Mr. Kroeker indicated that we should not wait for the SEC to make a decision; rather, we should continue with our (FASB and IASB) conversion project. Mr. Kroeker did indicate we would hear more on the roadmap this fall from the SEC.
On the previous day, FASB and IASB had just announced that they would hold monthly meetings to meet their 2011 convergence goal. They realized that the meetings had a dramatic impact in coming to agreements faster. After all that, the questions still remain. Should you start training people? Should you analyze the potential effects of switching to IFRS? Everyone is struggling with what to do and when to do it. Academia and CPA firms are also feeling the pains and trying to decide what to do.
Whatever you determine your answer to be, keep up with the current standards (GAAP). There are several significant standards that may change as a result of the convergence project, but keeping up with GAAP should minimize the effects of switching to IFRS as the convergence project moves forward.
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November 4. 2009 | Kevin Jones
'Tis the Season for Tax Planning
As the year begins to wind down, many of us begin to focus our attention on the activities of the new seasons that are upon us. Most of those are rather obvious…starting with the Fall season with its cooler weather and beautiful colors, leading into Thanksgiving, Christmas, and finally, the New Year. This time of year also brings us full swing into the baseball playoffs, college and NFL football seasons and the fun of tailgating and cheering for our favorite teams. However, not to be lost in all the hoopla of this time of year is another season…one that we don’t often think about and, in fact, probably don’t want to think about…tax planning season.
That’s right, tax planning season. Yes, I know, some of you just finished filing your 2008 tax returns at the October 15 final deadline. You were thinking that once your return was filed that you would have a break from the unpleasant thought of taxes for at least six months. But with all the federal tax law changes enacted over the past year and all the tax proposals pending, including tax provisions of health care reform and the Obama Administration’s other tax proposals, it is hard to keep up with which provisions are in and which are out. One thing is sure though, year-end tax planning is more important than ever in 2009.
Tax planning is completed near the end of the year for strategic reasons. First, it’s relatively easy to know where you stand currently and where you will end up in terms of your income and allowable deductions. With this information in hand, the impact of different alternatives and strategies can be quantified and the best course chosen. Second, almost all strategies for minimizing your 2009 tax bill must be implemented prior to the end of the year.
Just to give one simple example, for many taxpayers, it is advantageous to pay the 4th quarter state estimated tax payment prior to December 31, 2009, even though it is not due until January 15 of next year. The reason is that, if paid before the end of the year, it is deductible as an itemized deduction on the 2009 tax return. On the other hand, for taxpayers subject to the alternative minimum tax (AMT), there is no tax benefit to making the payment prior to the end of the year because state income taxes are not deductible in determining the AMT. The point is, without proper planning prior to the end of the year, there is no way to know what strategy makes sense in your particular situation and the ability to take advantage of most opportunities will be lost. This is just as true for your business as it is for you individually.
For clients of Watkins Meegan, a booklet will be sent shortly providing the tools needed to get organized to properly conduct year-end planning. The booklet also discusses some of the more relevant planning techniques and opportunities. For others, I urge you to contact your tax advisor to explore ways to minimize your taxes in 2009. When done properly, the unpleasant task of focusing on taxes now can reap substantial benefits next year when you file your 2009 tax return.
So yes…’tis the season…
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October 29. 2009 | Sean Roddy
Accounting in the Web 2.0 World
We began this process the same way we begin any new engagement - by educating ourselves. This began when we invited the Maryland Association of Certified Public Accountants’ Executive Director Tom Hood to speak to us about his experience with Web 2.0 technologies. After hearing Tom speak, we did additional research, which helped us develop our objectives and establish a plan for maximizing the firm’s use of these technologies.
Our goals were to enhance our name recognition, bring our experience and knowledge to the web and improve our communications, both internally and externally. We have worked very hard over the past 10 months on these efforts and like most large projects there were a lot of talented people participating in the process. It is with a degree of pride that we can say we have successfully changed our name, our logo, our website and our collateral materials. We have also instituted our blog, Watkins Wire, and we have developed and begun to deploy our CRM system, allowing us to better manage and keep in contact with our clients and prospects. Additionally we’re in the process of launching an e-mail newsletter, which will provide valuable and timely news and information about the accounting industry.
We have also established a presence on LinkedIn, Facebook and Twitter. We hope these platforms will help strengthen our brand and showcase the knowledge of our staff. The enhanced communication will also provide value to our clients, employees, and the communities in which we live and work. We encourage you to follow us on these sites and provide us with your feedback on Watkins Meegan’s presence in the Web 2.0 world.
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October 22. 2009 | Mike Micholas
Welcome to Watkins Wire
I’d like to welcome you to Watkins Wire, the newly launched, official blog of Watkins Meegan. For more than 30 years, the professionals at Watkins Meegan have provided our clients and the business community with insight, expertise and ideas about accounting, tax and business issues.
We’ve built upon our reputation by hiring and training talented people, assisting our clients in achieving their objectives, and educating the business community via our newsletters, white papers, seminars and webinars, among other outlets. As industry thought leaders, we see the Watkins Wire blog as an extension of our commitment to continue to educate and bring timely and valuable information to every interested party.
Whether you are interested in the International Financial Reporting Standards (IFRS), Federal Acquisition Regulations (FAR), new tax legislation or the Recovery Act, you’ll find the topic covered at Watkins Wire. Our team of CPAs, financial specialists, forensic accountants and risk management consultants will blog about these topics and their thoughts on the latest industry news.
I hope that you’ll come to find Watkins Wire as one of your go-to sites for industry commentary and news. While doing so, we will remain mindful that effective communication is a two-way street and we encourage you to send us your comments and suggestions.
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