AZ CPA November 2018 by ASCPA

AZ CPA November 2018

A Call to Action? The ACFEâ&#x20AC;&#x2122;s 2018 Report to the Nations on Occupational Fraud

The CPA as Trustee Reinventing the Finance Role When Can I Retire?

The Arizona Society of Certified Public Accountants y www.ascpa.com

Donate to help children in care and reduce your tax bill dollar for dollar Talk with your tax advisor about a gift to AASK or visit TaxCreditForKids.org

CELE B

RS EA

T RELA

AT 8 TER

“To ensure that every child has someone who cares”

TING 30 Y RA

AZ CPA NOVEMBER 2018

9 0 IO 8 8 - 2 NSH IPS M

An Arizona 501(c)(3) Qualifying Foster Care Organization Tax ID # 86-0611935; United Way ID # 0023

SIMPLE ONLINE PAYMENTS FOR CPA FIRMS

CPACharge is an easy-to-use practice management tool trusted by more than 50,000 successful professionals, developed exclusively for CPAs to help manage payments and grow revenue in their practice.

DESIGNED FOR CPAs RECURRING BILLING AND SCHEDULED PAYMENTS

PCI COMPLIANCE INCLUDED ($150 VALUE)

SECURE, CUSTOMIZABLE PAYMENT PAGES

SIMPLE REPORTING AND RECONCILIATION

ACH AND ECHECK PROCESSING (OPTIONAL SERVICE)

UNLIMITED SUPPORT BY PHONE, LIVE CHAT, AND EMAIL

Payment Detail Submit to Smith Johnson, CPA

$1,000 Invoice Number

1005 Card Number

CPACharge is proud to be a preferred provider of the

CVV

**** **** **** 9998

001

Exp.

NOV

Arizona Society of Certified Public Accountants

2021 POWERED

Pay CPA CPACharge is a registered agent of Wells Fargo Bank N.A., Concord, CA and Citizens Bank, N.A., Providence, RI

Special offer for ASCPA members Call for details

cpacharge.com/ascpa 877-620-3495 NOVEMBER 2018 AZ CPA

AZ CPA The Arizona Society of Certified Public Accountants President & CEO Editor Advertising

Technology for Accounting Conference December 7, 2018 Desert Willow Conference Center 8 a.m. to 4:30 p.m. Also Offered as a Webcast Few things change as quickly as technology. If you don’t remain current, you may quickly find yourself on the outside looking in. This conference explores the latest information and offers useful suggestions on how to embrace and utilize these new and necessary tools. Join us for: • Information Security – European Laws, Criminal Complaints and State Laws • Cybersecurity/SOC and Data Breaches • Learning to Code From an Excel Mindset • Payment Card Industry Compliance, Industry-Focused Audits • Making the Most of Social Media Apps • Apps, Websites and Software Tools for Small Business Accounting • The Future of Blockchain

Learn more at www.ascpa.com/tech18

Cindie Hubiak Patricia Gannon Heidi Frei

Board of Directors Chair Mike Allen Chair-Elect Jared Van Arsdale Secretary/Treasurer Ginny DeSanto Directors Rachael Bertrandt Tom Duensing Paul Evans Kristen French Alan Gold Aaron Grant Tim Hansen Vanessa Makridis Karen McCloskey Alice Pope Sami Raynes-Houseknecht Nikki Vogt Immediate Past Chair Molly Montgomery AICPA Council Members

Chapter Presidents Southern Chapter

Rob Dubberly Greg Nelson Cathy Kinzer

Northern Chapter James Shankland Southwest Chapter Helen Greenwell North-Central Chapter Gidget Schutte

AZ CPA is published by the Arizona Society of Certified Public Accountants (ASCPA) to provide information, news and trends to the accounting profession. It is distributed 10 times a year as a regular service to ASCPA members. The ASCPA, its members, board of directors and administrative staff assume no responsibility for advertisements herein. The ASCPA and the above people also assume no liability for business decisions made by readers in reference to statements and/or claims in articles or advertisements within this publication. Opinions expressed by contributors are not necessarily those of the ASCPA. Arizona Society of CPAs 4801 E. Washington St., Suite 180 Phoenix, AZ 85034-2040 Telephone (602) 252-4144 AZ Toll-Free (888) 237-0700 www.ascpa.com

AZ CPA NOVEMBER 2018

Volume 34 Number 9

AZ CPA

November 2018

Features

A Call to Action? The ACFEâ&#x20AC;&#x2122;s 2018 Report to the Nations on Occupational Fraud Fraud cases are on the rise, while detection strategies remain the same. Are we doing enough to prevent fraud? by Dennis V. Maschke, CPA, MBA

The CPA as Trustee Understand the responsibilities and the risks when your client asks you to serve as their trustee. by J. Philip Glasscock and Fred Schertenlieb

Columns & Departments Chairâ&#x20AC;&#x2122;s Message by Michael T. Allen, CPA

Member News

A Dash of SALT by James G. Busby, Jr., CPA

Quick Quiz

Classifieds 22

When Can I Retire?

Reinventing the Finance Role

When helping people in the preretirement planning process, there are no one-size-fits-all solutions. by Armando G. Roman, CPA

What will the accounting profession look like in 2030? Is it best to be an early adapter of technology, or take a wait and see approach? by John L. Daly

Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 180 Phoenix, Arizona 85034-2040 www.ascpa.com

NOVEMBER 2018 AZ CPA

ASCPA Chair’s Message

Being a Contrarian I recently listened to the podcast, “Productivity Game,” about the book Zero to One by author Peter Thiel, the founder of PayPal. The podcast focuses on building a better future for our businesses. While the podcast includes messages we may have heard before, it is always invigorating to hear them again as we grow our own businesses and support the growth of the organizations we serve. Let me share the major concepts from this podcast. Be a Contrarian

by Michael T. Allen, CPA To stay relevant and competitive, we must continually consider ways to reinvent ourselves, or be forced to do so by others.

How vanilla do each of our businesses look to the clientele we serve? Have we challenged ourselves to take an opposing view into how we deliver our products and services? The ASCPA board of directors recently commissioned a consultant to work with Cindie Hubiak and her team to take a fresh look at what the Society’s brand promise should be and how we can position ourselves to better serve our members in the future. I want to recognize and commend our ASCPA team for their significant efforts to secure the future of the Society and prioritize our efforts toward meeting our members’ needs. Our broad base of members in the private, governmental, non-profit and public accounting sectors have all experienced increased competition from new entrants into their markets. Many times these disrupters have gained entrance to our markets by taking a different approach to providing the same basic products and services that we do. To stay relevant and competitive, we must continually consider ways to reinvent ourselves or be forced to do so by others. The best way to tackle competition is to position ourselves as such that our brand promise is so tailored to our clientele’s needs, others can’t compete. Easier said than done, but the rewards can be significant. Think of companies like Apple or Netflix.

Be a Market Dominator Our instinct is to say “yes” to everyone. Knowing when to say “no” is one of our most powerful tools to effectively use our resources. Dominate that which you do well and ignore the rest. One primary focus when establishing the Society’s operating model for the future was to ask, “What is it that we do?” and equally as important, “What don’t we do?” We all need to create our own true north. Once we have committed to focus on these distinctive skills, it is easier to say “no” when we need to.

Build Followership The podcast refers to the idea of building a monopoly in your market. I equate this to being the primary resource for the clientele we serve. The Society has a stated vision of being essential to all CPAs in Arizona. From this vision, the Society is working diligently to create a brand promise to uniquely position ourselves as the primary resource for all Arizona CPAs in the areas of education, advocacy, member services, support and community. I encourage all of us to take a fresh look at how we operate. Everyone else is! For your reference, here is the YouTube link to the eight-minute podcast mentioned in this article — www.ascpa.com/zero2one n

AZ CPA NOVEMBER 2018

Member News Thomas J. Marki, CPA, is a shareholder of AXIOM Financial Advisory Group, LLC. The National Society of Accountants named Christine Z. Freeland, CPA, a principal at Christine Z. Freeland, CPA, PC of Chandler, Arizona as president. Rodolfo C. Paredes, CPA, a shareholder of R&A CPAs, has been named the Global Financial Leader of The Year by the Global Chamber Tucson. Grant Thornton LLP promoted Bradley J. Preber, CPA, to office managing partner in Phoenix and admitted Zachary Scott Snickles, CPA, to partner.

In Memoriam John J. Gorman, CPA, CFF Ret.

Thank you to for their $10,000 contribution to the Arizona CPA Foundation for Education & Innovation. These funds will support accounting students in Arizona on their paths to becoming CPAs. We appreciate your support of the CPA profession! The Arizona CPA Foundation for Education & Innovation supported 14 students with a total of $23,000 in accounting scholarships for the 2018-19 school year. You can support accounting students by making a donation to the Arizona CPA Foundation for Education & Innovation. Make your donation at www.ascpa.com/foundation. Donations of $50 or more received by December 31, 2018 will be listed in our March/ April 2019 AZ CPA magazine.

2019 Arizona Tax Guide Order the only comprehensive guide on Arizona taxes. Authors: Pat Derdenger, Steve Rodis and Ed Zollars New in the 2019 Arizona Tax Guide:

• MRRA changes to the alteration limitations and exclusion of contractors not required to be licensed by the Registrar of Contractors from the prime contracting classification • Option to bypass OAH and appeal directly to the State Board of Tax Appeals or the tax court • Required registration with the DOR for online lodging marketplaces • Information on dealing with the unknown status of Arizona’s conformity with provision of the Tax Cuts and Jobs Act

The Arizona Tax Guide includes the following guides: • The Arizona Income Tax Guide • The Arizona Sales and Use Tax Guide • The Arizona Personal Property Tax Guide • The Arizona Unclaimed Property Guide

Pre-order by December 18, 2018 and save! Guides are available in a spiral-bound, hard copy or an electronic PDF version. Guides will be available for delivery mid-January 2019.

Order online at www.ascpa.com/taxguide

NOVEMBER 2018 AZ CPA

azhope.com azhope.com

Join me in making a difference in the lives ofAsArizona’s a board 19,000 foster member children of Hope & A with theI Future, Arizona Foster encourage youCare and Tax yourCredit. clients to join me and make a difference in the lives of Donations Arizona’sby December 17,500 foster 31st to Hope & A children. Future qualify for the tax credit up to $1,000 (married Donations couples) or by December $500 (singles). 31st to Hope & A Future qualify for an Arizona Tax Credit: Three ways to help today: 1) Donate at Up to $800 azhope.co m couples for married 2) Share the Up to $400 taxfor credit wit h your clients single taxpayers 3) Download and share brochure at azhope.co Take m/taxcred advantag it.pdf e of this opportuni ty and inform your clients how they can give Arizona's REAL HOPE foster children are to Arizona’s counting foster on us! children by December 31st. na D on a te fo r th e A ri zoO P E H d it eC re G iv ,Ta naow te a on D x re C F os te r a fo st er ch il d . to a t a zh op e. co m

Arizona’s 22nd Governor Jan Brewer Arizona’s 22nd Governor Hope & A Future Board Member

Hope & A Future 909 W. McDowell Rd. Phoenix, AZ 85007 602-258-5860

AZ CPA NOVEMBER 2018

A Dash of SALT

Arizona is Not Prepared to Implement the Wayfair Decision In this month’s state and local tax (SALT) column, Busby highlights some of the obstacles that likely will prevent Arizona tax collectors from lawfully collecting tax from remote sellers until the state’s legislature updates and simplifies the state’s tax system to be more like South Dakota’s. Because such changes may enable Arizona’s state and local governments to collect as much as $293 million annually from remote sellers, the legislature probably will address this issue when it reconvenes in January. In South Dakota v. Wayfair, Inc., the U.S. Supreme Court rejected the Quill physical presence requirement and determined that South Dakota’s economic nexus statute, which requires $100,000 in annual sales to in-state customers or 200 annual transactions with South Dakota customers, satisfies the substantial nexus prong of the four-part Complete Auto test used to gauge whether state taxes that apply to transactions in interstate commerce are permissible under the Commerce Clause.

Critical Aspects of South Dakota’s Tax System After killing Quill, the Court remanded the Wayfair case to the South Dakota Supreme Court to ensure that the state’s law does not otherwise discriminate against or impose undue burdens on interstate commerce — like by violating another prong of the Complete Auto test, for example. When doing so, the Court highlighted three key features of South Dakota’s tax system that it said, “appear designed to prevent discrimination against or undue burdens upon interstate commerce.” First, it has a safe harbor for those who only conduct limited business in the state. Second, affected businesses have no retroactive obligation to remit taxes. Third, South Dakota adapted the Streamlined Sales and Use Tax Agreement (SSUTA). These critical features of South Dakota’s tax system are conspicuously absent from Arizona’s.

by James G. Busby, Jr., CPA

James G. Busby, Jr., CPA, is a state and local tax attorney at The Cavanagh Law Firm. Busby previously worked in the SALT departments at Arthur Andersen and Deloitte & Touche. Before entering private practice, Busby was in charge of all transaction privilege (sales) tax audits at the Arizona Department of Revenue. If you have any questions, please contact the author. He can be reached at (602) 322-4146 or JBusby@CavanaghLaw.com.

Arizona Does Not Have an Economic Nexus Statute Arizona does not have a statute like South Dakota’s that imposes a tax collection obligation on remote vendors that have at least $100,000 in sales to customers in the state or engage in at least 200 transactions with customers in the state annually. If Arizona wants to begin collecting tax from remote vendors, its legislature should first enact an economic nexus standard that, like the South Dakota law upheld in Wayfair, is not retroactive.

Arizona’s Taxing Statutes are Anything But Streamlined The Wayfair Court emphasized some SSUTA features that South Dakota adopted to reduce administrative burdens and compliance costs for taxpayers, including state-level tax administration, uniform definitions of products and services, simplified tax rate structures, uniform rules, and tax administration software provided by

NOVEMBER 2018 AZ CPA

the state, the use of which immunizes sellers from audit liability. Arizona has not adopted the SSUTA or any of its features that were designed to reduce administrative and compliance costs for taxpayers. Worse yet, Arizona permits its municipalities to select from over 50 tax base options, which results in numerous tax base differences between the 91 Arizona municipalities that impose sales taxes in addition to differences between each municipality and the state. Perhaps the Council on State Taxation’s April 2018 Scorecard on State Sales and Use Tax Administration best

summarized the difference between South Dakota’s sales tax system and Arizona’s sales tax system when it awarded South Dakota an “A” and assigned Arizona a “D” on simplicity and transparency grounds.

Arizona Municipalities Have Their Own Tax Codes In addition to Arizona not having adopted the SSUTA and allowing its municipalities to select from over 50 tax base options, the state permits each of its municipalities to levy taxes under their own separate tax code. This alone makes Arizona’s tax system one of the most

Free Breakfast Seminar/Webcast Dec. 5 7:30 a.m. – Breakfast, networking 8 – 9 a.m. – Program ASCPA Learning Center or Webcast

3 Regulatory Challenges for 2019 … and How Bankers Can Help Learn how to leverage your banker amidst the unknowns Tax reform, tariffs and new financial standards for revenue recognition are impacting businesses in many ways – and there is no end in sight. Regardless of your role, you’re probably trying to figure out how these regulations will impact you and/or your business next year. Your banker can be a strategic resource to help you evaluate individual situations and tailor an approach to maximize benefits or offset costs. In this presentation you’ll walk away with: • An overview of the role a banker plays in tax, tariffs and financial standards. • Questions a banker should be asking – or ones you can ask your banker – regarding implications for you/your business. • Learn how people like you are leveraging their bank relationship to plan ahead and minimize the risk of unknowns.

Speaker: Jack Barry, Chairman & CEO Enterprise Bank & Trust Arizona Region Register at www.ascpa.com/bankers

AZ CPA NOVEMBER 2018

Sponsored by:

burdensome, difficult and expensive for taxpayers to comply with.

A Tax-Neutral Solution If Arizona wants to collect its share of taxes from remote sellers — recently estimated at $190 million to $293 million annually — its Legislature will have to implement significant tax code changes. However, Arizona’s Republican-dominated legislature and Gov. Doug Ducey are unlikely to enact legislation to raise taxes. If they want to level the playing field between local and remote vendors without raising taxes, they may want to follow the lead of Wisconsin’s Republican Gov. Scott Walker. Walker suggested that his state should begin collecting sales taxes on internet purchases but offset the tax increase with tax cuts of the same amount. “It shouldn’t be a tax increase. It should be leveling the playing field for retailers and other operations in the state,” Walker told reporters. If Arizona chooses to level the playing field between local and remote vendors, that would be the perfect time to enact other important tax code changes that opponents argued would cost the state too much money. For instance, the Legislature could specify which digital goods and services it wants to tax going forward, but at the same time acknowledge that digital goods and services were not subject to tax in the past. Likewise, the state could dramatically simplify the way it taxes construction contractors by collecting taxes on building materials, like most other states do. After implementing all of these important changes, if the state still is collecting more money on a net basis, one or more automatic triggers could kick in to reduce tax rates for all taxpayers. n

Paychex Promise There are too many “what if” moments that can disrupt your clients’ business. The Paychex Promise guarantees covering payroll won’t be one of those moments. • Protects against cash-flow interruptions. • Extends collection of payroll funds from your clients’ bank account up to seven days without interruption of services or insufficient funds • Enables your clients to pay employees and remit taxes … on time

For More Information 877-534-4198 payx.me/ascpa_promise Paychex is proud to be a preferred provider of payroll, retirement, and HR solutions for the ASCPA

NOVEMBER 2018 AZ CPA

A Call to Action?

The ACFE’s 2018 Report to the Nations on Occupational Fraud by Dennis V. Maschke, CPA, MBA The Association of Certified Fraud Examiners (ACFE) has released its biannual Report to the Nations on occupational fraud. The results were unsurprising and perhaps a bit discouraging. Fraud cases are on the rise, while perpetrators, red flags, median loss statistics and detection methods have remained consistent over the last decade. The glaring question is: Are we really doing enough? The 2018 report analyzes 2,690 fraud cases from 125 countries, amounting to over $7 billion in losses. Since the initial report published in 1996, the ACFE continues to see the same trends in occupational fraud: • It is indiscriminant, as it occurs in all industry groups and organizations of all sizes. • Men continue to be the predominant perpetrators of fraud, especially at the executive levels. • Approximately one-third of cases are never reported to the police. • It is still identified by the same detection methods.

Some Improvement — But Not Quite Enough Over the past 10 years, occupation fraud has most frequently been detected

AZ CPA NOVEMBER 2018

by a tip. The next most common detection methods are management review or internal audits. One of the least likely methods of detection is an external audit, which happens to be one of the most commonly utilized anti-fraud controls. Even the good news is slightly tainted. Organizations are doing more to add anti-fraud controls to prevent and detect occupational fraud. Hotlines have grown 12 percent over the past 10 years. External audits, fraud training, anti-fraud polices, fraud risk assessments and surprise audits have all risen as well. And yet, only half of the organizations analyzed have anti-fraud policies or fraud prevention training in place, even fewer have a formal fraud risk assessment process, and only 63 percent have a hotline.

Integrity and ethical behavior, or “tone at the top,” are integral parts of a strong control environment and drive the design, implementation and monitoring of the various controls within an organization. The 2018 Report to the Nations makes it apparent the increased controls and policies lead to a reduction in fraud risk. Almost 80 percent of organizations have a code of conduct. Of the fraud cases studied, those with a code of conduct had around a 56 percent reduction in losses when fraud was identified. This clearly shows that organizations are hitting the mark in regards to a code of conduct. However, anti-fraud policies and fraud training often show a similar reduction in losses when implemented (47 percent and 39 percent, respectively).

Opportunities for Stronger Control Environments To strengthen the control environment, organizations should consider adding those two elements to their already existing code of conduct to mitigate fraud risk. Every organization should be able to definitively answer these questions in the affirmative:

•

Do employees within the organization know who they can report suspicious behavior to? • Has there been training on the most significant red flags and where to report concerns? • Does the organization have a policy for those undergoing financial difficulties? • How does the organization promote and reward integrity and ethical behavior? With a strong control environment in place, the next step an organization can turn to is its fraud risk assessment. The ACFE’s report details fraud trends along industry lines. For instance, in the banking and financial services sector, fraud is frequently perpetrated by corruption and cash-on-hand schemes, while service organizations are likelier to report expense reimbursement and billing frauds. Every organization should assess the highest fraud risk based on their operations and undertake a fraud risk assessment process, starting with a brainstorming session that includes employees from all departments and levels to identify and create effective control activities.

Some questions that might be asked during the brainstorming session are: • How might a fraud perpetrator exploit weaknesses in the system of internal controls? • How could a perpetrator override or circumvent controls? • What could a perpetrator do to conceal fraud? Control mechanisms such as a hotline can reduce an organization’s fraud risk. The ACFE has reported that only 63 percent of organizations utilize a hotline system, and organizations without hotlines were more than twice as likely to detect fraud by accident or through an external audit. Some organizations imagine fraud hotlines to be complex systems that involve monitoring hundreds of calls, but that isn’t necessarily the case. Each organization needs to evaluate what is the most effective and cost-efficient method for its operations. Tips can be received through telephone hotlines, email, online forms, mailed letters, messaging platforms or even faxes. Instead of implementing a large hotline campaign, organizations could try setting up an email-based system with web-based forms that go to an

NOVEMBER 2018 AZ CPA

independent individual for review. The key element is always the whistleblower remains anonymous. If an organization isn’t large enough to have an in-house monitoring system, it could negotiate a combined agreement where two organizations split the costs of monitoring a hotline system. Hotlines, or other tip-generating control activities, also serve as an effective preventative control. When employees, vendors and management know they are being monitored by peers and others in and outside the organization, potential perpetrators may be less inclined

to commit a crime. Regardless of the techniques utilized, tips continue to be the best way to detect occupational fraud and should be rewarded in some fashion.

Heightened Responsibilities for External Auditors In the eyes of the public, external auditors are often seen as experts that are expected to catch fraud. Although standards dictate external auditors aren’t required to design procedures to detect fraud, there is probably more that could be done, especially in the eyes of stakeholders.

Accounting & Assurance Conference January 9, 2019 Black Canyon Conference Center — 8 a.m. to 4:30 p.m. Also offered as a webcast Gain insights on practice management, accounting updates and the latest innovations impacting your workplace. The Accounting & Assurance Conference will delve into cutting edge topics like Blockchain, cybersecurity, AI and more. • • • • • • •

Accounting and Assurance Innovation: Blockchain and Robotic Process Automation Lease Updates With In-depth Case Studies Impact of Accounting for Changes in U.S. Tax Reform Working Better Together: The Dynamics of Diversity New Cyber Threats in 2018: How to Protect Yourself, Your Money and Your Family AZ State Board of Accountancy: Peer Review Report to the Nation: CFE Fraud Study

Learn more at www.ascpa.com/aac19

AZ CPA NOVEMBER 2018

Through a risk-based audit approach, audit firms can evaluate risks to the auditee based on their understanding of internal controls, inherent risk and complexity of account balance information. However, fraud risk is often glazed over during this process. Within an external audit plan, revenue recognition, inventory or cash are often designed as high-risk areas due to their susceptibility to fraud. But are procedures specifically designed to detect fraud? The report has increasingly emphasized proactive data monitoring and analysis as an anti-fraud control. Computer software and systems have become more advanced and accessible as a means to evaluate large sets of data. The ACFE has found that billing and check tampering are significant risks within the accounting departments of those organizations reporting fraud. During the external auditors’ risk assessment, if weak billing controls have been identified, what additional procedures are designed to test the affected account balances? Taking that one step further, what procedures have been designed and discussed with management to review for fraud related activity? Fraud risk assessment is only implemented at 41 percent of organizations analyzed in the report. If organizations aren’t performing this type of analysis, wouldn’t it look good to governance, the public and stakeholders if some fraud risk procedures were designed and tested during the audit process? There is no way to catch all fraud, but it’s not acceptable for current trends to continue unchecked. The public and stakeholders look to the accounting profession to take steps to improve systems and their design to mitigate fraud risk. Instead of doing what has always been done, each of us should take a moment to think of how we can change those unsurprising results into significant progress. n Dennis V. Maschke, CPA, MBA, is an ASCPA member and principal with CliftonLarsonAllen LLP. He will be speaking at the Accounting & Assurance Conference on January 9.

The CPA as Trustee Understanding the Responsibilities and Risks by J. Phillip Glasscock and Fred Schertenlieb The CPA can be an excellent choice to serve as a trustee for a client. Whether serving as a trustee is an excellent choice for the CPA is another question. A common occurrence for many professionals, especially attorneys and CPAs who have represented a client for many years, is being asked to serve as the client’s trustee. That should come as no surprise: The CPA’s strong tax and financial background, long-standing role as trusted advisor and knowledge of the client’s family and financial situation often make the CPA the client’s first choice among candidates to administer their trust.

Are there known conflicts among the beneficiaries? The last item is especially important in mixed families with children from previous relationships. Even in a traditional family structure, if beneficiaries don’t get along with each other or with the grantor, the trustee can be caught in the crossfire, amid accusations of favoritism, unfounded allegations of fiduciary breaches, etc.

Accepting the role of trustee can be viewed as an honor, as well as a source of professional fees. However, assuming the role of trustee can be fraught with risks, particularly for a professional. Any trustee has a responsibility to act in compliance with the terms of the trust agreement and has a fiduciary duty to act solely in the interests of all beneficiaries. Also, any trustee can be held liable for breach of fiduciary duties, and mistakes can be costly to the trustee. CPA trustees can be held to a higher standard of expertise due to their professional status, and beneficiaries and courts will likely expect a CPA to exercise their tax and financial expertise in dealing with trust property and other issues. On the other hand, CPAs can be expected to charge trustee fees commensurate with their expertise. This means that a CPA may charge more for matters requiring special knowledge or expertise. (Be prepared to defend your fees by justifying your hourly rate, and keep detailed records showing the nature of the work done and time expended.)

Due Diligence

Food for Thought Some of the other factors that a CPA should consider when deciding whether to serve as trustee of a client’s trust include: • What are the size and makeup of the trust estate? • Are there estate or income tax issues? • Will you be serving as sole trustee or co-trustee? If the latter, with whom will you be serving? • What decision-making powers will be granted to you under the trust? • Is your client involved in litigation? • Does your client have any problems or other issues with family members?

•

Before agreeing to serve as trustee for a client, it is very important to take the following steps: • Obtain a copy of the trust document and all amendments, and make certain that you understand it and consult with the client and/or their estate planning attorney to clarify any questions or ambiguities. • Obtain copies of all financial documents that are necessary to identify and evaluate all trust assets. • Confirm the services you will be providing as trustee, and detail those duties in an engagement letter. • Make certain that a financial advisor is providing investment management services on behalf of the trust. • Determine how trust accountings will be prepared and provided to the beneficiaries.

NOVEMBER 2018 AZ CPA

We Take the Credit for Jewish Education

A CPA can be an excellent choice to serve as a trustee for a client. Whether serving as a trustee is an excellent choice for the CPA deserves further investigation. Before accepting the appointment as trustee, it is imperative that the CPA gain a complete understanding of their duties and responsibilities and, to the greatest extent practicable, assess the professional and relational challenges that are likely to accompany the engagement. n J. Phillip Glasscock, Esq. is senior counsel at the law firm of Smith Saks PLC. He can be reached at jpg@smithsaks.com. Fred Schertenlieb is a retired personal trust officer. He recently joined Estate Management Services (EMS). EMS is a Licensed Private Fiduciary firm that specializes in providing personal property and real property administration for fiduciaries serving in their capacities as Personal Representative, Trustee or court-appointed Conservator. Schertenlieb can be contacted at fred@ems-az.com.

So You Want to Buy or Sell an Accounting Practice? Here are the Keys! If your 2018-19 goals include selling your practice to begin to enjoy your well-deserved retirement plans or youâ&#x20AC;&#x2122;re confident that now is the time for you to grow and prosper by acquisition. Now is the time to talk!

Recently Sold Arizona Practices Through Able Tax and Accounting Practice Sales

Location Phoenix Flagstaff Tucson Flagstaff

License Gross Revenue CPA $ 400,000 CPA 415,000 CPA 890,000 CPA 260,000 (â&#x20AC;Ś and more are currently in negotiations)

Visit our web site at www.ableta.com Gary W. Hankins, CPA* hankins@ableta.com (817) 738-3287 *Licensed in Texas

Visit our web site at www.ableta.com for further discussion of the process of buying and selling accounting and tax practices plus review our success story, principles of operation and how our customers appreciate our services. THIS IS ONE OF THE MOST IMPORTANT DECISIONS OF YOUR CAREER! We can answer all your questions.

AZ CPA NOVEMBER 2018

money out. Making the decision to retire and approaching that decision may cause high anxiety and stress. It is, after all, one of the last really big decisions of your life. I’ve had many conversations with transitioning retirees about shifting the mindset from putting money away to taking money out. It’s not so much the value of the assets that matters, it’s the monthly cash income those assets can produce to support lifestyle.

A Lifetime of Habits

When Can I Retire? by Armando G. Roman, CPA When can I retire? Will I have enough money in retirement? What should I be doing now? In retirement planning, these very common questions would lead you to believe there are very common answers. Nope, not so fast. I recently spoke about personal financial planning to a live audience of 400 CPAs – educated, intelligent and analytical people. The three questions above were on the top of everyone’s mind, as one-third in the room were over age 50. The CPAs were FBI special agents and forensic accountants. In their world, many are required to retire at age 57. Yes, they receive a pension; yes, they receive Social Security; and yes, they have the same questions as everybody else. There are no one-size-fits-all answers. When I’m helping people in the pre-retirement planning process, one of the big questions is income. How will they generate enough income in retirement for the rest of their lives? So we go through an exercise to understand ... What (assets) do they have? What does that lifestyle cost each month? What do they want their lifestyle to be when they retire? Given their investments and assets, what is a realistic retirement monthly income? What can be done now to help get the income they’re looking for later? The unknown of course is, how long will they live? Add to that, will they need long-term care? What about their parents? Do the parents have their own assets and will those provide for their long-term care needs? Or will parents become dependents requiring some assets to be redirected to pay for the parents’ care? The conversation often expands to the generation below. What about the kids? Are the kids done with college? Are the kids financially self-sufficient? How do you address all these variables and unknowns? Start by taking an inventory. Create a personal net worth statement listing assets and their approximate value, along with liabilities. What assets do you have now? A personal residence worth x, x in your Fidelity account, x in the 401k, x in savings, rental property worth x, business worth x, annuity cash value of x, cash in bank, pension cash value x, etc. What will be the approximate value of assets when you retire? There’s a mindset people have to make when retiring. We are conditioned early in life to put money away. We hear this message over and over. When you retire, it’s time to start taking

For those who watch their pennies closely, the mindset shift can be overwhelming, so much so that they don’t want to spend a dime. When one spouse wants to travel, conflict may arise. One way to address this is to set up an account specifically to be spent each year on vacations, travel, etc. Spend every dime in the account; replenish it annually.

Evaluate, Assess Look at the asset inventory, the value today and the assumed future value. What can you do to enhance that picture? Reduce monthly living costs by downsizing to a smaller home? Get a more fuel efficient car? Can you start implementing a business succession plan now? Or can you professionalize your business to make it easier to sell later? Anytime you make money, taxes take their bite. Proper planning can minimize that pain and sometimes eliminate/defer it indefinitely. I remember a couple who had purchased an acre lot in picturesque Vail, Colorado years earlier, intending to build their summer retirement home there. Unfortunately as retirement neared, I helped them realize they couldn’t afford to build and maintain that dream home. I redeemed myself by navigating them through a 1031 exchange, turning that empty lot into a $7,000 a month income stream. Using structured investment vehicles for 1031 replacement property, they now receive monthly income without landlord responsibilities. This same tax-free exchange concept applies to cash value in annuities and life insurance policies. Take a deep dive into your existing insurance products.

NOVEMBER 2018 AZ CPA

2018-19 Emerging Leaders Series Nov. 8 Leadership Summit Jan. 26, 2019 “In It for the Outcome, Not the Income” Community Service Event With Free Arts Apr. 24 Networking in Collaboration With GET Phoenix Young Professionals Register today at www.ascpa.com/lead

AZ CPA NOVEMBER 2018

You aren’t stuck with that annuity nor that life insurance. Your needs may be different now than when you started those years ago. A 1035 exchange allows you to roll cash value tax-free into a newer product, one better suited to your current situation if it makes sense. Perhaps that variable annuity at 3.5 percent annual cost could be replaced with a fixed indexed annuity at one percent annual cost. Perhaps rolling life insurance cash value into an annuity equipped with long-term care benefits makes sense. Find the gaps in your personal situation and fill them.

Guidelines to Consider First, you can take four percent out of your portfolio every year, a widely accepted yet debatable guideline. For planning purposes, assume four percent to get ballpark income numbers. $1,000,000 portfolio x 4% = $40,000 annual income. You want $100k annual income? You’ll need $2.5 million. Second, assume you will live a long time. The average man lives to age 83;

the average woman, 86. For a man, average means that half of his male friends will be gone by the time he turns 83; for a woman, half her friends will be gone at 86. There are three characteristics associated with a longerthan-average life: higher education (that’s you, CPA), higher income (that’s you, CPA) and married (is this you?). Remember, no one is average. And third, taxes will always be there. Manage them and plan for them. Consider maximizing qualified plans, consider ROTH conversions, consider 1031 and 1035 exchanges, etc. Get professional advice and seek several opinions. Remember that everyone’s situation is different. n Armando G. Roman, CPA, is a financial advisor at AXIOM Financial Advisory Group, LLC. He is a past chair of the ASCPA, past Governing Council member of the AICPA and past member of the AICPA’s Financial Literacy Commission. He can be reached at (480) 367-9000 or a.roman@ axiomcorp.com.

using today’s accepted best practices will put most finance departments way ahead of anyone else in their industry.

The Best Companies are Not Early Adopters

Reinventing the Finance Role by John L. Daly, Executive Education, Inc. “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10.” — Microsoft Founder Bill Gates

What Will Accounting in 2030 Look Like? If asked to prophesize about the future of accounting/finance departments, most people would have difficulty envisioning a future much different from today’s most state-of-the-art departments. Yet, if we look back at the careers of those professionals who are about to retire, the profession looks far different today than it did 40 years ago. In 1978, most companies still kept their accounting records in paper ledger books. The only personal computer you could buy was an Apple 1 sold as an assemble-yourself kit. Visicalc, the first personal computer spreadsheet, did not yet exist. Those companies that had computers entered their data using 80-column Hollerith punch cards. At the time, business school graduates were still about 75 percent male and supervised overwhelmingly female clerical staffs. Finance professionals wore suits and ties, might have a beer (or two) at lunch and likely carried a paper appointment calendar in their breast pocket. What will finance teams look like in the year 2030? I will make this prediction: Some companies and some industries will have made radical changes to how they perform business processes and others will look very similar to today. I base this prediction on the experiences of my own 40-year career. When I first saw Electronic Data Interchange (EDI) being used in the late 1970s, I thought this was the wave of the future and everyone would be transmitting data electronically within a few years. It happened in automotive supply, retailing and the securities industry, but in most industries, companies are at best exchanging pdf images of paper documents, rather than exchanging uploadable data.

Most Organizations are Decades Behind In 1986, the management accounting experts recognized that using Activitybased Costing (ABC) could provide a significant competitive advantage. Today we know that using it in pricing can actually double a company’s profitability. Yet perhaps only 50 percent of all companies use ABC. In 1992, the Balanced Scorecard became the recognized method to develop performance metrics to tie budgets to corporate strategy. Today, only about 20 percent of all companies use this method. Organizations have had the ability to pay vendors via Automated Clearing House (ACH) transactions for years, but many accounting software developers have no feature that will let this happen through their accounts payable software. The point of these stories, is that in order to be at the forefront of our profession you do not have to invent new technology no one has ever used before. Merely

Research led by Jim Collins and reported in the books Good to Great and Great by Choice revealed that the great companies identified by these two very different studies were not early adopters of new technologies. The Good to Great companies avoided technology fads or adopting any new ideas too soon. They might become a pioneer user of a carefully selected new technology, but not before carefully examining the change’s impact and the technology’s reliability. None of the Good to Great companies relied on pioneering technology to begin their transformation from good to great, but many used new technology to accelerate their transformation. The Great by Choice companies used a similar process, which Collins called “firing bullets before cannon balls.” They experimented with new technologies, but adopted them only when they proved reliable. While the CEOs of these companies sometimes seemed to be bold innovators to the outside world, in reality, Collins’ team viewed them as “paranoid neurotic freaks” whose bold gambles were, in fact, carefully calculated moves based on experimentation and analysis of cold, hard empirical data. This research clearly shows us that great companies adopt technologies not because they are new, but because they have proven to be better. We do not want to adopt new ideas too early, but we also do not want to adopt them too late. Being familiar with what is going on around us will allow us to adopt new technologies at the right time.

Seeing the Possibilities How do we see the possibilities? Most financial professionals have at least a superficial exposure to the internal workings of multiple companies due to their former role as external auditors. How many of us, though, have a deep understanding of multiple companies? I have often posed this question in

NOVEMBER 2018 AZ CPA

seminars involving senior level financial professionals. When I define a “deep understanding” as requiring at least six months working inside the organization, I only get a few people who will say their experience is with more than 10 companies and I have rarely had anyone whose number is as large as 15. Thus, none of us has seen more than a very small sample of the possible ways finance departments might work. Whether you think about your job this way or not, every business activity has products and customers. Our product is financial information and the CEO, board, bank and others who use that information are our customers. To see the opportunity for improvement, take a moment to understand your product from their viewpoint. If the CEO was to walk into your office at 8:30 a.m. on the 15th of the month, what would she want? Some CEOs would want sales data; others cash balances or cash flow. However, if you put yourself in her shoes, the first thing

you realize is that you do not want to go groveling to the controller to get financial information. You want to walk into your own office, turn on your own computer and see your information (whatever that may be) displayed there. I would want to see our current cash balances, net working capital, yearto-date sales and profit. Your CEO’s numbers might be completely different. Each of us may focus on different numbers, but we would all want to see our numbers, when we want them, which is now, not on some schedule predetermined by accounting. I do not expect the numbers to be up to the minute. I understand people go home at night. At 8:30 a.m., it is perfectly acceptable for the numbers to be current as of five the previous afternoon. However, seeing the state of the company as of one, two, three or four weeks ago is not acceptable. Your CEO wants what every customer for every product wants. They want their information now! The information that your CEO sees is

Share the Benefits of the ASCPA With Others When you speak … people listen. When you share … people pay attention. When you participate … people join you.

You are an influencer.

Use your influence to share with others what you value about your membership and Society programs by becoming an ASCPA Champion.

Learn more at www.ascpa.com/champion2019

AZ CPA NOVEMBER 2018

going to satisfy her for a while. She will go to some meetings and make some phone calls. At noon, she has lunch with the vice president of sales and learns that the company invoiced a major contract this morning. Thus, when she goes back to her office, she wants to click on the “refresh” icon on her desktop and see how her numbers change. This look at the state of the company’s finances may be enough for today or for a whole week. Is the CEO seeing good GAAP financial information? No; every company has some transactions that they post only once a month such as rent, depreciation and utilities. However, most information, such as sales, cost of sales and the liability for goods received should be current within a few hours. Today only about five percent of all accounting departments can make information of this quality available. This process might initially sound like more work, but because being fast also requires you to drive the errors out of accounting processes, once you embark on this journey, you’ll learn that faster also means better and cheaper.

Where You Need to Go Once you can see where you need to go, the route to get there will be much clearer. Investigate ways to exchange actual data with your vendors and customers rather than pdf images. Look for software that will allow you to put payments directly into the banking system from accounts payable rather than requiring duplicate entry. Discover how metrics used by both Activity-Based Costing and the Balanced Scorecard can give everyone in your organization a much better view of your organization’s business. It is going to take a while, but I am looking forward to seeing what you have achieved by 2030. n John L. Daly, MBA, CPA (in MI), CMA, CPIM, is a Michigan-based management consultant specializing in costing, pricing strategy and pricing model development. He has presented seminars for the ASCPA through Executive Education, Inc. He is the author of Pricing for Profitability, published by Wiley & Sons.

AZ CPA Quick Quiz You’ve Read It, Now Get Credit Take this quiz on AZ CPA content online or submit this hard copy. Receive a score of 70 percent or more and earn one hour of CPE credit in specialized knowledge. It’s that easy! Fees: Members: $25 Nonmembers: $40 Online Access Go to www.ascpa.com/quickquiz to access links to all active quizzes. Once a quiz is purchased, a link and password will be emailed to you. Your results will be sent immediately after completion, and certificates are emailed within two business days. Hard Copy Please select one answer for each question. Fill out registration/payment information below and mail or fax to the Society office. Quiz results and certificates will be emailed to the address provided on the registration form. *This quiz will be available until November 2019. Please note that users have three attempts to pass the quiz with at least a 70 percent score.

November 2018 Issue of AZ CPA* 1. What podcast did ASCPA Chair Mike Allen mention in his column? m Apples to Oranges m Productivity Game m This American Life 2. H o w m u c h m o n e y c o u l d implementing the Wayfair Decision enable Arizona’s state and local governments to collect from remote sellers? m $50 million m $293 million m $780 million 3. The Council on State Taxation’s April 2018 Scorecard on State Sales and Use Tax Administration assigned what score to Arizona’s sales tax system on simplicity and transparency grounds? m A m C m D 4. According to the Association of Certified Fraud Examiners (ACFE) biannual Report to the Nations on occupational fraud, who perpetrates more fraud? m Men m Women

5. What is the most common detection method of fraud? m External Audit m A Tip m Management Review/Internal Audit 6. The ACFE recommends using what control mechanism to reduce an organization’s fraud risk? m Tips Hotline m Security Cameras

m Management Training 7. CPA trustees can be held to a higher standard of expertise due to their professional status, and beneficiaries and courts will likely expect a CPA to exercise their tax and financial expertise in dealing with trust property and other issues. m True m False 8. What was not listed as a factor to consider when deciding whether to serve as trustee of a client’s trust: m The size of the estate m If the client was involved in litigation m Whether you have previously served as a trustee 9. According to Armando Roman, what should you do when first planning for retirement? m Notify your family m Close your IRA accounts m Take an Inventory 10. The key to becoming great, according to Great by Choice author Collins, is: m Become an early adopter of technology m Experiment with new technology, and adopt when reliable m Be a late adopter of technology

Quick Quiz Registration Name: ____________________________________________________ Email:_____________________________________________________ Telephone: _________________________________________________

Payment

m Member: $25 m Nonmember: $40 Checks: Please make payable to: The Arizona Society of CPAs Credit Card:

m Visa m MasterCard m American Express

Credit Card #: _______________________________________________ Expiration Date: _____________________________________________ Name on Card. _____________________________________________ Mail to: ASCPA, 4801 E. Washington St. Suite 180, Phoenix, AZ 85034-2040; fax to (602) 252-1511 scan and send to ASCPACPE@ascpa.com.

NOVEMBER 2018 AZ CPA

Classifieds Employment SEASONAL TAX PREPARER FOR PRESCOTT VALLEY CPA FIRM — Siegler & Ferry CPAs, PLLC — Seasonal tax preparer needed for Prescott Valley, AZ CPA firm. FT or PT from JanuaryApril. Flexible hours. Must have individual tax preparation experience. Experience with Lacerte tax software is a plus. Send resume to info@ferrycpa.com. Please include “Seasonal Tax Preparer” in the email subject line. CPA/EA NEEDED — Seeking a seasoned professional with 5-7 years of experience to prepare and be responsible for all tax returns for an accounting office. Knowledge of individual and business returns is required. The ability to interact with clients and existing personnel is also a requirement. A good client base exists with potential for

growth and earnings. This could be a performance base (productivity and collections) position. This established accounting office has been in Mohave county for over 20 years. Please send resume to mikeresume@yahoo.com.

Office Space TUCSON-BASED CPA LOOKING FOR OFFICE SHARE, ADMIN STAFF — Tucson-based CPA looking for office with admin. staff available. Not considering employment arrangements but would consider per diem work, time permitting. Open to your retirement succession plans over time. However, no immediate need. Prefer north-central, north-east. Please email CPATucsonASCPA@gmail.com. OFFICE BUILDING FOR SALE — DOWNTOWN PHOENIX — 550 W. Portland St. — Historic Roosevelt

District. Historic bungalow beautifully restored and converted to 5 offices, spacious conference room, reception with fireplace, kitchen and bath. Covered parking for 6. Wood floors, exposed brick, built in oak bookshelves and window seat. Approx. 1700 sq.ft. Presently owner occupied law office. Not a typical redo! Shown by appointment only. Sherry Rampy (602) 571-5032. 16TH STREET & GLENDALE/ PROFESSIONAL OFFICE SPACE — Ideal location near SR51! 160 sq. ft. in shared professional office. Perfect for CPA, Attorney, or Financial/Estate services. Parking, conference room, break areas, copy room, and office services. Great rate on short term lease! Contact ira@felco.biz or (602) 8505110. Website: http://www.felco.biz. For information about classifieds go to www.ascpa.com.

CPEvening

Eat, Drink and Be Educated Sponsored by Enterprise Bank & Trust November 14 5:30 – 8 p.m.

Blanco’s Tacos

2502 E Camelback Rd., Ste. 122 Phoenix, AZ 85016

Influencing the Future of the CPA Profession