Business Services - Page 5 of 6 - The CJ Group

Posted on Feb 18, 2016

There are many types of fraud committed against businesses — from workers’ compensation scams to complex corporate swindles — but one of the most common types is simply employee theft.

This can occur when employees take money from a cash register, forge names or change amounts on company checks, engage in creative bookkeeping a number of other schemes.

No matter how profitable your company is, you can be vulnerable unless you thwart these attempts. While there’s no single deterrent to internal fraud, you can take some relatively simple steps to help detect and prevent it:

THE FRAUD TRIANGLE

Certain situations drive some people to steal. It’s sometimes called the “Fraud Triangle” and it generally contains three elements:

This is often financial stress with the individual unable to share the problem and seeing no effective, legal way out. It may be combined with job dissatisfaction, drug or alcohol abuse, or failure to meet company requirements.
If employees perceive there is a chance to steal and they are under pressure, they may try it, particularly if they think they can get away with it.
These employees believe stealing isn’t really wrong. Excuses range from: “It’s a loan.” to “I’m not taking anything that will be missed,” or “everybody else does it.”

A FEW WARNING SIGNS

Lifestyle changes. Suddenly, an employee has a new, big home or an expensive car.

Unusual behavior. Nice people may become belligerent and vice versa.

Reluctance to delegate. Employees who are stealing often work extra hours rather than delegate responsibility out of fear of discovery.

10 SMART INTERNAL CONTROLS

Enforce mandatory vacations. If employees don’t take time off that is due to them, a red flag should be raised. Someone may not want to go on vacation because he or she can more easily cover their tracks while on the job.
Consider having payroll checks be signed personally. This can take some time and is impractical for large companies, but it allows management a chance to give payroll a quick review.
Use a dedicated payroll bank account and deposit the correct amount for every pay period. This can help your company immediately recognize any changed amounts. However, this also requires close attention to details like overtime and withholding so that the account doesn’t fall below the bank’s minimum balances due to legitimate changes in payroll.
Use a “for deposit only” stamp on all incoming checks, which can prevent employees from cashing them personally. Don’t rely solely on this, however. A bank teller still might allow the check to be cashed. Consider accepting electronic payments to prevent employees from cashing incoming checks.
Monitor receivables and payables. Investigate discrepancies.
Do not let the same person who handles revenue or opens the mail also handle disbursements.
Reconcile your company’s accounts at least monthly, examine anything that doesn’t balance or otherwise looks wrong.
Compare checks to the company cash disbursements journal. Make certain that payees on checks match payees shown in the journal. Confirm that the names and amounts on checks are consistent and believable with your company’s practice.
Secure your offices whenever you leave. Periodically change the locks on doors and file cabinets. Change computer passwords regularly, especially after someone leaves the company on bad terms.
When feasible, rotate the duties of those who handle money, record sales or disbursements, and otherwise have opportunities to steal from the company. Be cautious of people working in teams that could potentially defraud the business.

The bottom line is to protect your bottom line. These are just some of the steps your company can take to safeguard its assets. Talk to one of our team members today to discover how Go and Grow can help protect your company against employee fraud and theft.

Posted on Feb 18, 2016

The IRS recently launched a pilot program called “Early Interaction Initiative” to try to prevent employers from running into unmanageable payroll tax problems.

When it seems likely that an employer will owe a payroll tax balance at the end of a quarter, IRS revenue officers will contact that employer before the quarterly federal tax return is due, the IRS stated in an e-newsletter sent to payroll professionals. The agency noted that information on federal tax deposits is available in IRS Publication 15, Employers Tax Guide.

Basic Deposit Rules

Employers must deposit quarterly employment taxes they report on Form 941, Employer’s QUARTERLY Federal Tax Return. Employers use Form 944, Employer’s ANNUAL Federal Tax Return only if the IRS notifies them in writing or they’ve asked the agency for permission because they believe their employment taxes for the calendar year will be $1,000 or less.

If you’re starting a new business and have completed Form SS-4, Application for Employer Identification Number, you’ll receive a notice listing the employment tax forms you’re required to file. If you hired employees for the first time and weren’t assigned a specific employment tax return to file, you must file Form 941 unless you contact the IRS to request to file Form 944.

The two forms include federal income tax, as well as employer and employee shares of Social Security and Medicare tax, withheld from your employees. The amount you report determines which deposit schedule you must use, monthly or semiweekly.

Employers make quarterly deposits if their employment tax liability for the preceding quarter or current quarter is less than $2,500. Employers may pay the taxes with their tax returns, provided they don’t incur a $100,000 next-day deposit obligation during the current quarter. If you aren’t sure your total tax liability for the current quarter will be less than $2,500, (and your liability for the preceding quarter was not less than $2,500), make monthly or semiweekly deposits so you won’t be subject to penalties.

If you file Form 941, your deposit schedule for a calendar year is determined from the total taxes in a four-quarter look-back period beginning July 1 and ending June 30. If you reported $50,000 or less of taxes for the look-back period, you are a monthly schedule depositor. If you reported more than $50,000, you are a semiweekly schedule depositor. Monthly schedule depositors shouldn’t file Form 941 or Form 944 on a monthly basis.

The Penalties

Penalties may apply if you don’t make deposits on time or if they’re less than the required amount, unless there’s a justifiable reason and there’s no indication of willful neglect. The IRS also may waive penalties in some circumstances if an employer has filled its employment tax return in a timely manner.

Otherwise, the penalties for late deposits are a percentage of the amount underpaid based on how late the deposit is:

No. of Days Late	Penalty Rate	Penalty on $3,000
One to five days	2%	$60
Six to 15 days	5%	$150
Sixteen or more days	10%	$300
More than 10 days after first IRS bill	15%	$450

Late deposit penalty amounts are determined using calendar days starting from the due date of the liability.

Special rule for former Form 944 filers: If you’re filing Form 941 for the current year but filed Form 944 the previous year, the penalty won’t apply for January if the taxes are deposited in full by March 15.

Finally, the “trust fund penalty” may be imposed on any person responsible for withholding payroll taxes. That person can be an officer of the company, partner, sole proprietor, employee or a trustee or agent. The individual may be personally liable for 100% of the unpaid taxes, plus interest. Be careful, this penalty is triggered more times that you might think.

The potential penalties provide a strong incentive to comply with the rules. Consult with your tax adviser and coordinate payroll activities with the responsible parties both inside and outside your organization.

Posted on Jan 18, 2016

Workers’ compensation coverage is required by most states as a way to ensure that employees get the medical care and wage replacement they need when injuries occur in the workplace. Traditional workers’ compensation providers generally require you to make a down payment of at least 25% of your annual premium, based on your estimated annual payroll. You’re also expected to periodically fill out time-consuming audit forms that can lead to expensive unexpected premium adjustments.

An alternative in some states is a Pay-as-You-Go workers’ compensation service. This eliminates the need to tie up a large amount of cash in a down payment. Instead, premiums are automatically calculated with each payroll, so you only pay the exact premium due. This also eliminates the need to fill out monthly and quarterly reports, saving you time and a potentially expensive surprise if your payroll was underestimated.

How Does Pay-as-You-Go Work?

After running payroll, your payroll information is securely sent to your insurance provider. Premiums are calculated based on each individual employee’s wages and pay types. An email is sent to you with your premium amounts, and a few days later the premiums are electronically debited to your account.

Benefits from Using Pay-As-You-Go

Better cash management.Because a Pay-as-You-Go program eliminates the need to make the large down payment, less cash is tied up, allowing for better cash flow to meet current expenses.
Greater accuracy.Pay-as-You-Go workers’ compensation bypasses the traditional and often faulty estimated payment method. With this service, your payments are determined by on actual data, your payroll amounts and information from the insurance company. This is especially helpful for companies where the payroll varies throughout the year due to seasonality, making it difficult to estimate.
Time saved. For many employers, one of the most welcome benefits of the Pay-as-You-Go service is the reduced time commitment. By automatically calculating premiums based on actual payroll, there’s no longer a need to fill out periodic reports or undergo a potentially stressful year-end audit. You can use the time to keep your company moving forward rather than combing through the details of the previous year’s payroll.
Lower costs. You can save money by not having to undergo year-end audits. That, plus better cash management, greater accuracy, and time saved all add up to an overall cost reduction.

Posted on Dec 1, 2015

Recordkeeping

The year will be wrapping up soon and your business needs to submit the information we require to complete your documents.

With that in mind, we’re providing you with a list of important information. Some or all of the following items may apply to your business.

Company Level Changes

Company address. Make sure your company address is correct. We prepare all W-2s and annual filings with your legally registered address. Any changes must be registered with all government agencies. Please visit irs.gov and any applicable state agencies to obtain instructions.

When you initially registered with the IRS, you may have used your home address. If that address hasn’t been updated, it will appear on W–2s and tax returns.

Contact information. Review payroll and ownership contact information to make sure they’re up to date in our system. Also, we may have received authorization from you to allow CPA and/or bookkeeping access to obtain online reporting on your behalf. Please notify us of any changes regarding these authorizations.

Policy changes. Alterations to company policies that will affect 2016 payrolls should be submitted as soon as possible. This will give our team time to set up and test the changes. Submissions may include but aren’t limited to:

Pay frequencies,
Insurance rate changes,
Time off policies, and
401k plan changes.

Employee Level Changes

W-2s Forms. Verify employee names, addresses and Social Security Numbers (SSN). Correct addresses allow accurate delivery of W-2 statements.

In addition, employees must have correct SSNs listed on their W-2s and reported to state agencies for unemployment purposes. Missing or invalid numbers are subject to penalties.

Deferred comp/retirement plan. Do you have employees who contribute to a deferred compensation plan by payroll deduction? They will have the “Retirement Plan” box marked on their W-2s automatically.

If your business has a qualified pension plan that doesn’t run through payroll, the “Retirement Plan” box should be marked for any individual for whom you’ve made contributions. This isn’t automated.

Let us know what applies in these circumstances.

Manual checks. Submit all relevant payments that were issued to employees that haven’t been included with previous payrolls.

Miscellaneous. Other changes to submit to us may include new earnings codes, voided checks and new deductions.

Insurance

S Corporation 2% shareholders health insurance. The cost of premiums provided to 2% shareholders must be reported as income on the W-2s. This amount isn’t subject to Social Security or Medicare taxes.

Group term life. If you provide this insurance to employees, all premium amounts exceeding $50,000 are subject to withholding tax.

Third Party Sick Pay

Third party sick pay benefits must be included on W-2s, as well as be reported to the IRS and Social Security Administration (SSA) during the same year that the employee received the disbursement.

Your disability vendor will send you year-to-date notices of disbursements as they occur, as well as an annual reconciliation of benefits after the year-end. It’s important that you provide us with records of these payments as they are made, rather than relying on the annual reconciliation. This allows us to record the payments with payroll, and fulfill the reporting requirements to the IRS and SSA.

Fringe Benefit Adjustments

Personal use of company car. If you provide employees with company vehicles, the personal use of that vehicle is taxable.

Dependent care. As much as $5,000 contributed by an employee to a flexible spending account for child and dependent care expenses is excluded from taxable income, provided both spouses work.

Gifts. The value of gifts to employees in the form of such tangible good or services as real estate rentals, gift cards, televisions or electronic tablets is taxable and subject to withholding taxes.

Bonus Payrolls

If you’re planning to run an extra bonus payroll, please advise us ASAP. We need the date you will run this payroll in order to update your 2015 payroll calendar. Payroll processing for the year must be completed before December 31.

Did You Know?

If you issue 250 or more W-2s, you must report the aggregate cost of employer-sponsored health coverage. (This amount is for medical insurance only. Supplemental health, dental and vision don‘t have to be included.)

Reporting the cost of health care coverage on W-2s doesn’t mean it is taxable. The reporting is only designed to provide employees with information on the cost of their coverage. In order to process W-2s for you, we need these amounts.

Posted on Nov 18, 2015

The federal government is always on the lookout for businesses that improperly classify workers as independent contractors rather than employees. But the heat was recently turned up even more.

The issue of worker classification has many tax and benefit implications. And it continues to be problematic for employers.

Your Responsibilities

If a worker is an employee, you generally must withhold federal income tax and the employee’s share of Social Security and Medicare taxes from his or her wages. Your business must then pay the employer’s share of Social Security and Medicare taxes, pay federal unemployment tax, file federal payroll tax returns and follow lots of other burdensome IRS and DOL rules.

You may also have to pay state and local unemployment and worker compensation taxes and comply with more rules and regulations.

In addition, employees may be eligible for fringe benefits such as health insurance, retirement plans and paid vacations.

If a worker is an independent contractor and you pay him or her $600 or more during the year, you must issue a Form 1099-MISC to the individual and the IRS to report what you paid.

If you incorrectly treat a worker who is actually an employee as an independent contractor, your company could be assessed unpaid payroll taxes plus interest and penalties. It also could be liable for employee benefits that should have been provided but weren’t, including significant penalties under federal laws. In addition, businesses with misclassified workers also generally owe taxes and penalties to their states.

During 2015, both the IRS and the U.S. Department of Labor’s Wage and Hour Division (WHD) issued communications to employers about employee classification.

The IRS issued a Fact Sheet reminding employers “to correctly determine whether workers are employees or independent contractors.” The tax agency and courts generally take the stand that workers are independent contractors if they meet specific criteria focusing on the amount of control they have over their jobs.

The WHD, on the other hand, issued an “Administrator’s Interpretation” stating that worker classification isn’t just about control. Rather, the focus is “whether the worker is economically dependent on the employer or in business for him or herself.”

The WHD added that “most workers are employees” under the broad definitions of the Fair Labor Standards Act (FLSA).

The two federal agencies are working together and with states to tackle misclassification.

Many businesses prefer to classify workers as independent contractors to lower costs, even if it means having less control over workers’ day-to-day activities. Federal and state government agencies have always cracked down on businesses that classify workers as independent contractors to evade taxes or sidestep providing benefits. Now there’s another reason to focus on worker classifications: Employers may treat individuals as independent contractors to avoid health insurance obligations that involve employee headcounts under the Affordable Care Act.

Note: Be aware that a worker or a business can file a form with the IRS to ask for a determination about classification. Disgruntled former workers may file the form to show that a business improperly denied employee benefits by classifying them as independent contractors. Businesses should consult with their tax advisers before filing this form because it may alert the IRS to worker classification issues — and inadvertently trigger an employment tax audit.

Here’s the rub for your business: If you incorrectly classify an employee as an independent contractor, your company could be assessed unpaid payroll taxes plus interest and penalties. You also could be liable for employee benefits that should have been provided but weren’t, including significant penalties under federal laws.

That doesn’t mean that you shouldn’t use independent contractors. You just have to be careful to handle the relationships properly. A written contract can help support a worker’s independent contractor status. But that’s no guarantee.

The determination traditionally boils down to this: A worker is an independent contractor if you have little or no control over the way he or she gets the job done. For example, do you set the hours, provide equipment and require the worker to come to your facilities? These are only some of the questions that need to be asked. The bottom line is that if you provide substantial day-to-day supervision, the worker is probably an employee.

Worker classification is a complex issue. Contact us if you have questions about the status of an individual or the filing of 1099 forms. We can help.

Posted on Aug 18, 2015

‘Internal controls’ – accountants love to throw the phrase around and tell you just how important it is to have them. They’ll tell you that without them your financial information will be inaccurate, your accounting practices inefficient, and in all likelihood your employees will steal from you. Hearing this may worry you, and in all honesty, it should. Accountants don’t just say these things to scare you. In our experience, it is absolutely the truth.

Accordingly, the accounting profession will gladly help you create procedures to reduce your risk. One of the most basic of these procedures is to make sure that you have one person create invoices for customers, another collects payments and creates deposits, another person take them to the bank, and a third person reconcile the accounts. By using this structure, each person’s work is verified by another person, which drastically reduces the likelihood of errors or theft. The same process works for vendor payments: you can have one person enter invoices, another person processes the payments, and yet another approves the payments.

Easy, right? Actually, the methods are quite simple. However, if you own or manage a business with less than five or six people in just your accounting department, this setup is all but useless. Many, if not most of you reading this have one or less dedicated accounting staff, much less an entire dedicated team. Fortunately, a very large segment of the accounting profession is dedicated to small and medium sized business that have been developing processes that can be tailored to your needs.

Let’s take the first example, which involves invoicing clients, collecting payments, and getting their payments into the bank. The reason the profession tries to separate these duties is that, in theory, an unscrupulous employee could create an invoice, receive the payment, then route the funds to his or her accounts rather than the business. Then, the invoice is deleted from the system, and no one ever notices.

For a small business, the combination of technology and management and owner oversight can effectively combat this scenario. Most modern accounting software packages can create warnings when an invoice number is missing or out of sequence. There are also several solutions available for making deposits. First, you can request your customers pay you electronically using a credit card or an online service provider. Additionally, you can use an electronic check reader from your bank to electronically deposit all checks immediately upon receipt, rather than taking any of them to the bank. For those in cash heavy industries, many banks will provide you with on-site lockboxes in which the cash can be immediately inserted and deposited. The bank then makes this cash available to you and will periodically come by to pick up the funds from your location.

The final step involves oversight from either the owner, a supervisor, a third party, or a combination of those parties. Any one of those individuals must be able to check the system warnings for invoice numbers that are out of sequence. They can then review the accounts receivable aging reports to confirm customer balances. Finally, the bank account should be reconciled by one of these individuals. By utilizing this streamlined process, a small business or medium size business can protect itself with the same policies and procedures as a large accounting department.

One very important idea should be sticking out to you while reading this; the internal control system described above still requires the people (or person) in your organization to do their job honestly and effectively. That is why the last step – oversight – is crucial to the power of the control system. Without it, people can simply skip steps or worse, work together to circumvent the controls.

That means the supervisor must be someone that understands what the end result should be. In this example, he or she should be able to quickly scan an invoice listing noting anything out of sequence. This person should also be able to trace a customer’s transaction from the invoice to collecting payment and depositing it into the bank. It should also be someone that does not have an incentive to circumvent the system.

The owner is a somewhat obvious choice for the supervisor role. The trade-off for the owner performing this duty is the loss of time and energy available to grow the business. If, however, it is not in the business’ best interest for the owner to supervise this duty, another person must be chosen. This could be a separate executive level employee within the organization. An outside party such as your external CPA could step in to perform this function at the end of each month as he or she works with you and your accounting staff to close the books.

There is a definite need for strong internal controls for businesses of all sizes. We have only explored an accounts receivable and deposits scenario today, but we will continue to explore different examples in the future. All businesses – big and small – need effective internal controls. Continue checking in with us, as we’ll continue providing real life solutions custom tailored for small and medium businesses.

Posted on Aug 18, 2015

Need a Loan for Your Business? As a company grows, inevitably it will need to partner with a bank to provide long-term financing and additional working capital. Over the years, I have been involved with many clients that struggle to get traditional financing. The response that my clients usually get upon applying for credit is “we like the business model, but it is just ‘not’ the right fit for the bank.” After applying to five different banks, it is quite possible to receive five different reasons for not being a good fit. Maybe it was a ratio, type of industry, or the type of collateral that triggered the rejection. Whatever it may be, the bank says to come back in six months and we can look at it again; the only problem is that many small businesses might not have six months to wait and reapply.

There is a solution for companies that are operating at a profit but don’t have a significant amount of equity built up. Recently, I have worked with a client that is being forced out of bank. While they are current on the payment terms for loans outstanding at his bank, the business incurred some significant losses in 2013 due to a change in the business model that would allow the company to make more money in the future. The company funded the losses by a loan provided by a minority investor. Despite the fact that the minority investor with deep pockets guaranteed the loan, the bank downgraded the loan internally, froze the line of credit, and required the owners to pay down the line of credit by 40%. From that point, the bank was unsure of its next step, since the client’s company started making money in 2014 and is doing fantastic in 2015. So my client and I kept meeting with his banker on a quarterly basis for a quarterly renewal/extension of the loan. Each meeting they just nicely asked for us to pay down the line of credit more and more to squeeze as much cash out of the company as possible. The main problem with that was he was growing and his inventory and receivables were going up which required more cash.

No problem, right? Just go down the street to a new bank and get the better treatment that your company deserves. The only problem with my client was he did not fit in the “traditional lending” platform primarily for not having two full years of net income. For most banks, if you’re not in the black for two years it is difficult to pass the loan committee review.

So who did we turn to for help? Believe it or not- our very own government. Most people don’t know that the Small Business Administration was established to assist small business owners by providing resources and programs to benefit the community. They have a loan program called the SBA 7(a) loan that, in certain cases, makes securing a loan a lot easier for qualifying businesses. Qualifying businesses vary by industry and may be defined as a small business based on either revenue size or the number of employees.

The SBA 7(a) loan program is not a loan directly from the SBA. Instead, the SBA guarantees loans underwritten by traditional lenders. Lenders have to qualify with the SBA to provide these loans and there a several types of certified lending programs they fall under depending on the circumstances of the applicant. These programs vary slightly, however, under the standard 7(a) process lenders submit a full application package to the SBA when they request an SBA guaranty. The SBA confirms the originating lender’s credit decision with its own analysis of the application, which typically takes five to ten business days.

There are some advantages for banks to lend under the 7(a) loan program:

It helps banks serve customers that don’t meet the standards of a conventional loan, which allows them to generate new revenues they wouldn’t otherwise be able to generate.
It reduces the bank’s portfolio risks due to the SBA guaranty
Due to the SBA guaranty, it lowers a lender’s risk weighting for meeting capital requirements.

The SBA 7(a) loan program provides an 85% guaranty for loans of $150,000 or less and a 7% guarantee for larger loans. The amount of the guaranty is reduced to 75% as the size of the loans decreases. The maximum SBA 7(a) loan amount is $5 million.

In addition to the revenue and/or employee headcount guidelines, there are additional eligibility requirements for businesses applying for loans under these programs such as:

Operate for profit
Be engaged in, or propose to do business in, the United States or its possessions
Have reasonably invested equity
Use alternative financial resources, including personal assets, before seeking financial assistance
Use the funds for a sound business purpose
Not be delinquent on any existing debt obligations to the U.S. government

There are certain business types that are ineligible because of the activities they conduct such as:

Lenders such as banks and finance companies
Real estate development
Life insurance companies
Multi-level marketing companies
Government owned entities
Churches
Promotion of sexually oriented products or services
Oil and gas exploration

The SBA 7(a) program was established to encourage longer term financing. There are various factors to the actual term assigned to a loan, however, maximum loan maturities have been established: 25 years for real estate, up to 10 years for equipment, and generally 7 years for working capital. Applicants can request interest-only payments during the start-up and expansion phases to allow the business time to generate income before it starts making full loan payments.

The SBA expects every 7(a) loan to be fully secured, but may not decline a request to guarantee a loan if the only unfavorable factor is insufficient collateral, provided all available collateral is offered.

There are two types of costs related to 7(a) loans. These are loan origination fees and interest charges. The loan origination fees vary based on the size of the loan and range from 0.25% of the guaranteed portion of the loan to 3.5% on loans of more than $700,000. There is also an additional fee of 0.25% on any guaranteed portion of more than $1 million.

All interest rates vary depending on the negotiations between the bank and the applicant, however, the rates are subject to the SBA maximums. The rates can also be either fixed or variable. The maximum rate is composed of a base rate and an allowable spread which will be no more than 2.25% for loans with a maturity less than 7 years. For loans longer than 7 years, the maximum rate will be 2.75%.

Like most other traditional loans, there is a loan application checklist that is very thorough which tends to be one of the slightly negative elements of an SBA 7(a) loan. One of the most common challenges an applicant may face is the ability to provide financial statements that are current within 90 days of the application ‘and’ 3 years of historical financial statements. In addition, an applicant is required to provide a 2 year cash flow projection with an attached written explanation as to how you expect to achieve this projection. From my experience and from conversions with SBA lenders, this is one of the most common pitfalls an applicant may face when trying to get SBA loans. The most likely cause of the lack of reliable financial information is due to the owner being more focused on growing the business than on the quality of the financial statement preparation. They typically rely on a back office that is spread too thin with administrative duties and getting their billings out on time.

That is where can help. Not only can we help you produce timely and accurate financial information, we can help increase the value of your company by helping you improve your core administrative process. The first step is to begin automating your processes. You also need to develop processes to make your business smarter and more efficient to reduce costs and increase productivity. Here are some examples:

Eliminate cumbersome and time consuming manual tasks such as: data entry, envelope stuffing, filing and check runs
Pay bills online at a fraction of the time it takes to process and sign checks
Automate customer collections
Stop opening mail by having the vendor emails sent directly into the accounting software
Reduce human error and increase accuracy with automated software
Improve internal controls to reduce the risk of fraud
Improve timely reporting of financial results
Improve collaboration of your limited resources

Free up your resources to focus on your team and customers which will ultimately help you grow the company and have the peace of mind that your company is operating in a smarter and more profitable way. Go and Grow can help you put the processes in place and become your back office at a much lower cost with better controls.

Blog post written by: Scott Bates, Audit and Business Services Partner

Posted on Jun 18, 2015

disney

Last month, I packed the family up and we jetted to Orlando for a fully deductible summer family vacation. Now, of course, it was technically a fully deductible continuing education conference as far as IRS rules go. It was the perfect setting for my 8 and 11-year-old kids. The plan was for my wife and mother-in-law to go to all the Disney parks while I was in class learning about new accounting rules and trends in the accounting industry. In fact, that is exactly what happened, and luckily I was able to stay over a couple of extra days to be with them at the Disneyworld parks.

I found the classes very interesting as a significant portion of the content covered the powerful impact of technology changes that are having a dramatic impact to our firm and our clients by increasing efficiencies that increase the bottom line. The opportunity for our clients is to reduce their back office overhead cost by outsourcing these processes. I left the conference motivated by the fact that our firm can truly help our clients more than ever before and that we are becoming the accounting and business services firm of the future.

Before heading home, it was off to Disneyworld to take on all the fun Orlando has to offer. We arrived at the park as it opened for the day. It was already hot and humid in the morning. So, I was not sure how much fun it would be. We hit the ground running and made the most of our day despite the heat. By halfway through the day I began to become increasingly impressed with the park operations. Everything we experienced was very intentional, meaning there was going to be NO accidental fun. Every detail of our experience we extremely well thought-out from the beginning until the end of every ride, theme, and experience. I realized Disney was one of the most efficient engines I had ever seen in a business operation. I may have learned some great things at the conference, but it was not until I took in Disney that I got the most eye-opening lesson on intentional profitable operations.

Its culture is built around the term ‘plus it’ which was used by Walt Disney to continuously further improve projects whether it be a film, TV show, or park. I kept thinking to myself, what if our firm and our clients could actually create such an efficient economic engine and how awesome it would be to witness the results on a daily basis. As business owners, we strive to reap the rewards of our hard work. For example, we tend to buy the most highly engineered vehicles on the market. But when it comes to our business operations we cut corners on engineering of our operations and then use prayer and hope that our employees will get-‘er-done using some sort of R&I (resourcefulness and intuition) to provide our services to our customers.

From the time you step off the plane in Orlando, you enter the kingdom so to speak. You will notice how clean the airport and shuttles are at the influence of Disney. You can begin your experience with the Disney Magic Band to express check-in, and unlock your hotel room as you arrive without having to wait in line for check-in. The Magic Band allows you to charge and purchase food and items and connects you to the Disney photo pass and fast pass. You fast pass to the front of the line and when your attraction ride is over you just wave it on over a reader for your picture that was taken during the attraction ride and it can be purchased anytime later so you don’t have to spend time cutting into your family fun.

I can only image the planning and strategy that goes into the delivery of an attraction on a Disney property. Each attraction is developed to have a purpose and their customers are entertained from the end of the line all the way through the end of the ride. The characters are controlled through an extensive network of digital animation that provides a consistent repeatable experience for its customers. As you walk from one attraction to another it is apparent that the park is very clean and there is plenty of space to walk around. It utilizes a system of utilidors that allows personnel, retail goods, and supplies to be moved through underground tunnels. There is another underground system that uses compressed air to collect and transfer trash off the property.

Being an accountant, I thought I would put their financial statements to the test. I downloaded their last Annual Report filed with the SEC to get to their bottom line. Is all this worth it I was wondering. Well, Disney’s year over year growth ‘and’ net profit was in the billions. Their profit was 15% of gross revenue. Now that is a well-oiled machine!

So my conference was a success in a way that I did not expect. I arrived to learn from all the experts in our industry. There were numerous vendors, subject matter experts, and consultants that wanted to share their knowledge with all the CPA’s and accountants from across the country. They covered areas of technical rule changes, operations, marketing, and management. Outside of the technical rule changes, there existed a collaborative effort through over 100 courses with varying topics to cover and talk about concepts that can have a positive impact on efficiencies for our clients. Better said there was a tremendous amount of talking. But in the end I witnessed actual efficiencies live in action at Disneyworld that turned into the best lesson I got at the conference.

As a business owner can you imagine having a highly engineered engine running your business? What if you had a process that ran itself and provided you information in real time to make course corrections? You take your stress home from work. Work can be more stressful if it relies heavily on employees who do it the best way they can which is their way and not THE way. THE way is your strategic way that allows you to work less and make much more money. Then you can enjoy the financial freedom on your terms and be a happier leader at home and at work.

Now not everyone can throw off a billion dollar bottom line but why not try to get the most out of your business. Take the first step and create a Disney culture of ‘plus-it’ to move the needle on your business. The first step is to begin automating your processes. You also need to develop processes to make your business smarter and more efficient to reduce costs and increase productivity. Here are some examples:

Eliminate cumbersome and time consuming manual tasks such as: data entry, envelope stuffing, filing and check runs
Pay bills online at a fraction of the time it takes to process and sign checks
Automate customer collections
Stop opening mail by having the vendor emails sent directly into the accounting software
Reduce human error and increase accuracy with automated software
Improve internal controls to reduce the risk of fraud
Improve timely reporting of financial results
Improve collaboration of your limited resources

Let ‘your’ team use their business experience which is not as much dependent on technology to help your employees and customers which will ultimately help you grow the company and have the peace of mind that your company is operating in a smarter and more profitable way. Go and Grow can help you put the processes in place and become your back office at a much lower cost with better controls.

Posted on Jun 5, 2015

Historically, companies that wanted their employees to be protected with health coverage, but didn’t want the hassle of having a company health plan, could simply give employees an amount of money sufficient to reimburse them for the cost of buying the coverage (or some portion of it). As long as the individuals provided evidence that they used those funds for health coverage, the dollars were excludable from taxable income for the employees.

Alternatively, companies could just pay the premiums directly to the insurance carrier.

However, back in November 2014, the Department of Labor (DOL) declared that companies reimbursing employees for medical care instead of offering a health care plan is the equivalent of having a health plan and is subject to the Affordable Care Act (ACA). And since those reimbursement arrangements failed to meet ACA requirements in two ways — that is, the condition that group health plans have no annual limits on benefits, and that no co-pay for certain preventive health services must be paid — they were ruled to be noncompliant with the law.

Per Employee Penalty

This DOL ruling reiterated 2013 guidance from the IRS. The kicker: Beginning in 2014, companies with such reimbursement arrangements in place would be subject to a $36,500 penalty per employee.

The only remedy offered by the DOL was for companies to gross up those contributions (that is, add to them enough money to cover the tax liability employees would incur as a result of receiving the payments), plus make it clear to employees that they could do whatever they wanted with all of the money they received. In other words, they would not be required to use it to pay for health coverage.

The IRS’s latest ruling, Notice 2015-17, which the tax agency says is in sync with the most recent DOL policy on the matter, gives everyone time to catch their breath.

Specifically, small businesses with reimbursement plans in place will not be penalized unless they maintain them beyond June 30 of this year. Small businesses are also off the hook for having to file Form 8928, which is the form that covers failures to satisfy group health plan requirements. Originally, that form would have been required with companies’ 2014 tax returns.

The reprieve also applies to plans that help retirees pick up the tab for Medicare Part B and D premiums.

Employees with S Corp Stock

Employees who own at least 2 percent of their employers’ stock (if the company is an S corp) are treated differently. Such employees were required to report the premium reimbursement payments as income on their 1040s, even though the payments were not subject to payroll tax. But those same employees could also take a deduction equal to the amount of that income, leaving them tax neutral.

In IRS Notice 2015-17, the tax agency warns that it and the DOL “are contemplating publication of additional guidance on the application of the market reforms to a 2 percent shareholder-employee healthcare arrangement.” Until then, however, the companies are off the hook. So, too, are the employees who will continue to be allowed to deduct that income as self-employed health insurance premiums.

Notice 2015-17 reconciles the IRS with a position the DOL had taken earlier — that is, declaring reimbursement plans as merely taxable payments to employees doesn’t prevent them from being deemed health plans. That means the only way to help employees secure health coverage without having a bona fide health plan is to just give each employee a raise and hope they will use it to buy their own health coverage. (Keep in mind, small businesses with fewer than 50 employees and full-time equivalents are not required to provide health plans under the ACA.)

The guidance also made it clear that the ACA’s market reforms, as they pertain to this issue, don’t extend to arrangements covering only a single employee (regardless of whether that employee is a 2 percent-or-more shareholder). That means if you own your company and aren’t an employee, but you have one employee and want to reimburse that person for the cost of buying individual coverage, you won’t be subject to any penalties.

Monthly Health Allowances

Meanwhile, the entrepreneurial spirit of America is at work to help small businesses that just want to help employees pay for individual coverage, but don’t want to run afoul of the IRS and DOL. One benefits company offers a web-based defined contribution arrangement it calls “Individual Health Reimbursement for Small Business.” It gives employees access to a “monthly health allowance.” However, companies considering such arrangements should consult legal counsel for an opinion as to whether the plan would pass muster with the IRS and DOL.

Posted on May 22, 2015

A Day in the Life of a CPA

I anxiously arrived at Deloitte for my first day of employment and met with my assigned mentor. He showed me the supply room and introduced me to some of the team members. I was so excited. The firm administrator, who everyone seemed to fear, delivered my business cards and gave me my first assignment. Throughout the interview process I knew I would be working on one of the largest engagements in the Tulsa office, however, it would not be starting for a couple of weeks so I got assigned to a special project working in the consulting group. I met with the consultant, Robert, to get started, and he outlined the project goals and indicated we would be working with a client located in Muskogee, Oklahoma.

The next morning we met at his house and drove to the client location. It was in January and very cold. During the 30 minute drive, Robert explained that the owner of the privately owned company, which manufactured and distributed toilet paper, was trying to understand why the manufacturing waste variance was at 27% when the industry standard was only 4%. Since we provided audit and tax services to the client, they decided to engage us to review the production records to determine the cause of the variance. Robert was certain it had to do with irregularities within upper management. Robert explained as we arrived that we were going to be disguised as the audit team starting the annual audit.

As we pulled up to the client, Robert explained things may get intense but not to worry if things get out of control. As he slid his Glock from under the seat, he reassured me that he would keep us safe if the situation became confrontational. I tried to recall from my college and CPA classes if this was something a CPA would normally encounter. I was very worried -but I was in Muskogee, Oklahoma with no car to run back to the office, so I decided to trust that it was going to be ok.

The receptionist led us to the conference room with the President and all the other officers of the client. They introduced us to our key contacts and we got started immediately. Our objective was simple: recreate ending inventory from production records. The process was tedious and the working conditions were difficult. It was 1992 and everyone that worked for the client smoked heavily so it felt like we were working in an ashtray.

As time progressed, the President and other officers became aware of our focus on inventory, so we told him that we rotated our testing and this was the year for us to focus on inventory. It was getting tense, but at the same time- we were making progress. The production manager fed us everything we needed to calculate what ending inventory should be based on production and shipments. Finally, we had the results.

We met with the owner and controller of the client to discuss our conclusions. It was obvious that inventory was being fraudulently removed from the warehouse. The owner wanted us to provide an opinion in writing that someone was stealing the inventory. We told him that under our CPA guidelines this was not possible. We could only give him the data we accumulated and he would have to handle it from there. He was furious and said he was not going to pay us and that he planned to contact his attorney to review his options of suing our firm for malpractice.

The next day we arrived at the client to gather our work papers and clear the field. It had been an exhausting 3 weeks and our efforts seemed to only make matters worse. As we were gathering our things, Robert asked me to fax his expense report to the office. The main fax machine was not working, so I asked the receptionist if there was another fax. She offered me the President’s fax machine and unlocked his office to allow me in to use it. I picked up a sheet that had been left on the President’s fax machine. It was a purchase order for toilet paper from a convenience store addressed to another company. I quickly realized the issues we had uncovered in ending inventory were directly connected to the President. He had been selling the inventory made by our client in the name of another company. I took it to Robert and by the next day they arrested the President. Robert and I went from goats to heroes, and the client was satisfied.

CPAs are called upon every day to help solve complex problems business owners face. We take both conventional and unconventional approaches to help business owners navigate seen and unforeseen challenges. We add value because our involvement provides our clients credibility in the financial markets.

I am now a partner at Cornwell Jackson with 23 years of experience. As CPAs and advisors, we work relentlessly to help our clients by going above and beyond to exceed our client’s expectations. Please contact us if you need a CPA that will provide solutions that help your business grow and prosper.

Blog post written by: Scott Bates, Audit Partner

10 Tips to Prevent Employee Theft

Category: Business Services

THE FRAUD TRIANGLE

A FEW WARNING SIGNS