AZ CPA October 2012 by ASCPA

CPA OCTOber 2012

The Arizona Society of Certified Public Accountants

Are You Protected? Tech Issue • Mobile Devices in the Workplace • Cyber-Security •Billing Practices •Auditing Privacy Risks www.ascpa.com

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OCTOBER 2012 y AZ CPA

CPA OCTOber 2012

Volume 28 Number 8

Auditing Privacy Risk — Tools and Guidance for CPAs Offering Privacy Services

Find out the best practices to collect, protect and dispose of personal information. by Ken Askelson, CPA

Mobile Devices in the Workplace

What are the best ways to protect company data in the information age? by Michael Nyman, CPA

A Healthy Bottom Line

The New Role of Financial Managers in Controlling Employee Health Care Costs by Scott M. Wood

Features A Career Dream Comes True — Accounting Grad Keeps it All in the Family

Protect Your Business with 8 Better Billing and Collection Practices

New accounting graduate talks about her professional role models — her parents! by Jessica Iennarella

Improve the quality of your business or practice with these easy billing and collection steps. by Randy R. Werner

Cyber-Security— Do We See What is Coming?

Health Care Act Opens Up Opportunities for CPAs in Business and Industry

Are cyber attacks on the rise and just what type of threat do they pose to us? by Rick Wardrip, CPA

Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 225-B Phoenix, Arizona 85034-2021 www.ascpa.com

Columns & Departments 6

Chair’s Message by Armando Roman, CPA

Focus on Members

In the Black ... Adventures in Accounting

22 Classifieds

www.ascpa.com

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CPA

VA LU E D B Y T H E C O M PA N I E S W E VA LU E The Arizona Society of Certified Public Accountants

President & CEO

Cindie Hubiak

Editor

Patricia Gannon

Copy & Advertising Deadline The first of the month one month prior to publication date. Board of Directors Chair Chair-Elect Secretary/Treasurer Directors

Armando Roman Karen Abraham Anita Baker Rob Dubberly Debra Johnson Jimmy Lovelace CW Payne George Raysik Phil Reckers Craig Robb Andy Spillum Leslie Stackpole Elva Vivas Corrine Wilson Kevin Yeanoplos

Immediate Past Chair Mark Anderson AICPA Council Members Jim Buhr Rick Goldenson Chapter Presidents Southern Chapter Northern Chapter Southwest Chapter North-Central Chapter

Provided purchase price allocation services in accordance with ASC Topic 805

Provided financial reporting valuation consulting services

Provided purchase price allocation services in accordance with ASC Topic 805

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Provided purchase price allocation services in accordance with ASC Topic 805

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Financial Advisory Group, LLC

Flo Zenblu Jennifer Nordstrom Jayne Wright Richard Joliet

AZ CPA is published by the Arizona Society of Certified Public

Accountants (ASCPA) to provide information, news and trends in the profession of accounting. It is distributed 10 times a year as a regular service to members of the Society. 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 advertisements within this publication. Opinions expressed by correspondents and contributors are not necessarily those of the ASCPA.

Arizona Society of CPAs 4801 E. Washington St., Suite 225-B Phoenix, AZ 85034-2021 Telephone (602) 252-4144 AZ Toll-Free (888) 237-0700 Fax (602) 252-1511

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OCTOBER 2012 y AZ CPA

Chair’s Message

by Armando Roman, CPA

Are you an Early Adopter or a Dinosaur? At a recent AICPA council meeting, a technology guru made an interesting presentation regarding the three types of people who use new technology. He had names for each group, of course, but the names were less important than the categories. The first group he called the early adopters, those who want the new technology as soon as it becomes available. They want to be the first on their block to try it, to evaluate it, to see what it can do. They want to tell their friends about it before their friends try it themselves. They go from one new technology to the next. Sound like any Apple lovers you know? The next wave of people to embrace new technology are the masses. After it has been available awhile and it seems here to stay, they begin to use it. They don’t want to be the first users, the guinea pigs or the lab rats. They want to feel comfortable that the new technology works. They get in after they’ve heard enough about it. The last wave of people to use new technologies are those who wait for everybody else to get in before them. They wait for all the bugs to be worked out. They’ve talked to many people they know about the technologies they want to buy, and they feel comfortable knowing what it will do and what it won’t do. By the time they get in, everybody already has it. This is me… I’m in the last group and proud of it. My laptop still has Windows XP Pro. Dented and scratched as it may be, my Blackberry is five years old, reliable and simple to use. I really don’t see any need to change other than getting a new digital camera that would come along with the package. To emphasize how entrenched I am in this last group, I took a leap into cyberspace several months ago when I bought an HTC One S … the super

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duper do everything cell phone even more advanced than the number-one ranked HTC by Consumer Reports. (By the way, the iPhone 4S was ranked about 7). After two weeks of set-up, learning and needless frustration, I returned it and crawled back into my Blackberry cave. To many, all the cool things one can do on a cell phone are really awesome, fun and exciting. To me, those cool things are noise. They get in the way of me making a telephone call or responding to a text or email. I want to spend less time with my cell phone, not more. In this process, I realized I’m pretty darn fast getting a single-handed message out on my ancient phone. On the new touch screen, I couldn’t quite hit the right keyboard buttons, so I constantly had to stop and correct the typos…it was a two-fisted endeavor meant for a more patient person. According to the Hopi tribe, in the past there existed technology greater and more sophisticated than anything we have on the planet today, yet we seem to see no trace of it. From our 21st century perspective, we would expect to see metals in geometric shapes, bat-

To many, all the cool things one can do on a cell phone are really awesome, fun and exciting. To me, those cool things are noise. teries, or component units. Excavations to date have not yielded such remnants. Other Native American cultures have similar high-tech legends in their past. The Mayans had their share of high tech that defied gravity. No doubt, we have a collective fascination with technology and have had this ailment for some time. Thank goodness there are people who jump in feet first to embrace it, develop it and make it available to the rest of us. And the members in that group at the ASCPA are the members of the IT Section. Please enjoy this Techonology theme issue of the AZ CPA and learn AZ CPA from their expertise. —Armando “Dinosaur” Roman

Focus on Members The ASCPA thanks the following contributors to ASCPA’s political efforts from Aug. 7 – Sept. 5, 2012.

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Download your 2013 Salary Guide today at RobertHalf.com/SalaryCenter or call 1.800.803.8367.

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# 4+ 2 78 7 42

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get the salary data you need.

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To attract the financial talent you want,

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5 6 2 4 38 4 1 8 7

Well-rounded

Lisa Daniels, CPA, managing partner at KPMG in Tempe, was featured in an article in the Phoenix Business Journal on minerals and the supply chain.

Accounting XBRL Collaboration Adviser

At their last meeting, the ASCPA Board of Directors elected Dr. Phil Reckers, an accounting professor at ASU, to fill an open position.

tegic decision making

Joanne M. Elsen, CPA, was elected as the state director for Arizona for the National Society of Accountants. She also recently completed their Leadership Development Program.

Salvatore Mileti David Miller Daniel O’Connor Zandra O’Keefe Jonathan Pike George Raysik Eric Rudner Doug Scheetz Richard Schultz Bob Shanley Stella Shanovich Jennifer Shields Jeremy Smith Tracy Stone Michael Straneva Michael Suba Laurie Taylor David Toler Candace Tooke Laurie Taylor Carlos Wagner Melinda Xanthos

Charles Goodmiller Anthony Hakes Steve Harris William Heimerdinger Terry Hothem Daniel Hughes Charles Inderieden Craig Isakson Richard Kalenka Colette Kamps Joel Kramer Donna Laubscher Chris Ludwig JJ Marais Thomas Marin Michael Mariani Charles Marx Marilyn Mays Jeffrey McClain Kevin McHolland Charles McLane George McNamara Pamela Michaud

Financial reporting

Jeffrey Anderson Cord Armstrong Alan Augenstein Connie Baker Larry Bello Ron Butler Christine Brueser Debra Callicutt Brian Campbell Diane Costantino Andreas Coumides, Jr David Damron Lisa Daniels Brian Deak Bradley Dimond Scott Donaldson Mark Eberle Dean Fear Kathryn Ferron Michael Finnegan Gary Fleming Michael Fleming Christine Goldberg

Business acumen

Lohman Company, PLLC announced their membership in Local First Arizona. With more than 1,800 members, the focus of Local First Arizona is to encourage business between members and to enlighten Arizona residents about the economic and environmental benefits of “local shopping.”

6 7

A Career Dream Come True — Accounting Grad Keeps it All in the Family by Jessica Iennarella

If you were to ask a typical child what they want to be when they grow up, the answer is usually something heroic (a firefighter), something unlikely (a princess), or the job held by one of the child’s parents. I was no different in that I always answered with a simplified version of my parents’ jobs; accountant. I never changed my mind. My mother, Jan Smith, earned her B.S. in Accountancy and became a senior manager at Touche Ross. She took a break from work when I was born, but by my teenage years she was back in the field as a senior manager, at what is now CliftonLarsonAllen. My dad, Ron Smith, double majored in accounting and mathematics, and began his career at Arthur Anderson. He then went on to hold a series of jobs in internal audit, leading to his current position as the director of Treasury and Risk Management for Best Western International. Some of my earliest memories of sitting at the dinner table with my family include hearing words like assets and cash flow statements. I am sure many outside the profession (and maybe some within it) find these words synonymous with boring, but my parents made them sound powerful and mysterious. As the years passed, I understood more and more

8 AZ CPA y OCTOBER 2012

about their work, and while it was no longer mysterious, it began to hold my interest in another way. The idea of using numbers to tell a story or to track down the history of a company appealed to me. My parents’ hard work, dedication, and success, combined with my natural love of numbers, inspired me to follow in their footsteps. My parents had some reservations at first. They expressed concerns that I was only choosing the field in order to make them happy. They encouraged me to explore other opportunities in order to ensure that I was making the right career choice for me. While appreciated, their concerns have turned out to be unnecessary. I followed my parents into accounting, but I did take their advice by evaluating different options within the field. In the process, I discovered a niche within public accounting that neither of my parents had ever worked in— forensic accounting. Earlier this year, I graduated with my Master’s Degree in Accountancy and went to work at Epps Forensic Consulting. Epps Consulting provides a variety of services ranging from verifying business income losses for insurance claims to providing damages calculations for lawsuits. My job is different than anything my parents have ever done in the field, but I believe I would be hard pressed to find a job that suits me better. I am truly thankful that my parents are who they are and that they chose accounting as a profession. I might have been the only kid in elementary school to dream of being a CPA, but I enjoy myself more at work than I think anyone has a right to. My parents were and continue to be respected individuals in the profession, and their success has led me to a path all my own. Now when I come over to my parents’ house for dinner, I am able to add a few powerful and mysterious words of my own to the conversation. AZ CPA

Cyber-Security Do We See What is Coming? by Rick Wardrip, CPA In December 1941, many of our U.S. ships and armed forces were stationed in Hawaii in preparation for a possible war with Japan. In visiting the Arizona Memorial for the first time only a couple of years ago, little did I realize how “surprised” our armed forces were when Japan had the mobility to come and attack our armed forces out in the middle of the Pacific Ocean at Pearl Harbor. Radar was available and introduced at this time and the Japanese planes were spotted as coming toward Pearl Harbor. The Japanese planes were dismissed as a group of U.S. planes out on a reconnaissance flight. This happened because radar had just been introduced into use by our military forces and we did not totally understand the power of radar. I share this story in drawing a correlation to the new world of “cyber-security” and our awareness and total understanding of “cyber-security.” In the Wall Street Journal this has been referred to as the war of the future. Right now, do we see what is coming? In the fall of 2010, I was at an annual PWC Audit Director Roundtable for Utilities where a former Homeland Security Supervisor/FBI Agent and a PWC partner were beginning their discussion on “cyber-security.” They proceeded to tell all of us that they were working with a utility in the Houston area where the FBI had approached the utility and informed them that someone had been on their network for a year and a half without their knowledge. About six months later, the New York Times shared information from McAfee that there were a number of utilities (oil and gas) that had been hacked into and this was being investigated. Right now, do we see what is coming? Like 9-11 and Pearl Harbor, we did not see what was coming. “Cyber-Security” wars are a concern not just for companies and individuals, but for countries in the future. Right now, it is projected that McAfee and Norton Anti-Virus only stop 30 to 50 percent of known viruses on a given day.

OCTOBER 2012 y AZ CPA

As reported in July 2012 at the Black Hat cyber-security conference in Las Vegas, cyber-attacks are accelerating at a pace that suggests the Internet is likely to pose a steadily growing threat to individuals and companies for years to come. The Black Hat security conferences bring together many of the most knowledgeable cyber-security professionals in the world. At the 2012 event, the two biggest draws were the famous Black Hat briefings — presentations and workshops educating attendees on the latest threats and security developments — and detailed training sessions that hone students’ IT skills. Internetgenerated attacks comprise “the most significant threat we face as a civilized world, other than a weapon of mass destruction,” Shawn Henry, former head of the FBI’s cybercrime unit told the 6,500 attendees at the conference. A key website related to this conference is www.blackhat.com. A number of the quotes stated here were reported by USA Today in July. Joe Stewart, Dell SecureWorks’ director of malware research, presented

research detailing the activities of two large cyber-gangs, one based in Shanghai and the other in Beijing, that have cracked into the networks of thousands of companies over the past half-dozen years. The attacks invariably begin by infecting the computer of one employee, then using that machine as a toehold to patiently probe deep into the company’s network. The end game is to steal customer lists, patents, bidding proposals, strategic information and other sensitive documents. “Each gang is made up of dozens of employees playing complementary roles in attacks that are stealthy and persistent,” Stewart said. Even if they do get discovered and get kicked out of a network, they come back, targeting a different employee. Another gang, analyzed by Dell SecureWorks’ researcher Brett StoneGross, has access to 678,000 infected PCs, some of which are used to carry out its lucrative specialty — orchestrating fraudulent wire transfers from online banking accounts. As stated by Eddie Schwartz, chief security officer of

security firm RSA, a division of EMC, “It’s easier and safer for a criminal to steal money from an online bank account, rather than have to walk into a bank—or to steal intellectual property in an online setting, rather than have to send in a human spy.” The key question is what should I do as a CPA in practice or in industry with this evolving cyber-security issue? The key is to stay attuned and abreast of developments and strategies to address the issues that we face going forward and inform our clients or company to challenges we are faced with. Conferences and programs that are discussing and moving forward to help address the issues before us are important through the AICPA, ASCPA, IIA and organizations like Black Hat. AZ CPA Rick Wardrip, CPA, is the chief audit executive at SRP. Prior to working at SRP, he worked in public accounting for Henry and Horne, CPAs. He serves on the ASCPA IT Technology Committee. Wardrip is a CPA, CITP, CISA, CIA and received his MBA from Northern Arizona University.

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Auditing Privacy Risks Tools and Guidance for CPAs Offering Privacy Services by Ken Askelson CPA, CITP, CGMA, CIA As a result of recent announcements by the AICPA about a privacy maturity model, and new guidance on auditing privacy risks issued by the Institute of Internal Auditors (IIA), it is timely to revisit the topic on how CPAs can help their clients or employer address the risks associated with the collection, use, retention, disclosure, protection and disposal of personal information. Privacy Maturity Model The AICPA/CICA Privacy Task Force developed and published the AICPA/CICA Privacy Maturity Model (PMM) based on GAPP and Carnegie Mellon University’s Capability Maturity Model. The PMM uses the 73 criteria from GAPP in a matrix with five maturity levels consisting of: Ad hoc— procedures are generally informal and incomplete Repeatable— procedures exist, however they are not fully documented and implemented Defined — procedures are fully documented and implemented

OCTOBER 2012 y AZ CPA

Managed — reviews are conducted to assess effectiveness of the controls Optimized — regular review and feedback are used to ensure continuous improvement This useful tool provides CPAs with an opportunity to help their clients or employer to assess their privacy initiatives against criteria that reflect the maturity of their privacy program. It can be downloaded at www.aicpa. org/privacy.

ample where this additional capability may be useful is when a CPA is completing privacy risk and maturity scoring on criteria that may be unique to the client or employer that extends beyond GAPP criteria such as in the healthcare industry with HIPAA requirements. This tool is now being offered through cpa2biz. com with various pricing options. If you are currently providing privacy services or considering offering these services, I think you will find this tool very useful.

AICPA Privacy Principles Scorecard The AICPA recently announced a new software tool, AICPA Privacy Principles Scorecard, which can be used to evaluate and address privacy risks and provide an understanding of the entity’s privacy maturity. It also can be a very useful tool when examining and reporting on internal controls over privacy at a service organization according to the AICPA’s Service Organization Control (SOC) Reports. The tool contains four specific capabilities: privacy risk scoring, privacy maturity scoring,documenting privacy-based audit or attestation findings and references, and notes for workpapers, and a variety of reporting summaries for risk and maturity scoring. The tool uses the 10 principles and 73 criteria from GAPP (Generally Accepted Privacy Principles) as the basis for risk scoring and the AICPA/CICA Privacy Maturity Model for maturity level assessment. I had the opportunity to preview the tool and found it to be very userfriendly and intuitive compared to the previous privacy risk assessment tool offered by the AICPA. While the previous tool only had privacy risk scoring, the new tool adds the capability to perform privacy maturity scoring, documenting privacy-based audit or attestation findings and enhanced reporting, which were all welcome additions. A feature I would have liked to see in the tool that is not available in this version, would be the capability for the user to add additional criteria beyond the 73 criteria in GAPP. An ex-

Auditing Privacy Risks The IIA recently published “Auditing Privacy Risks” in July 2012. The publication provides audit executives with insight into privacy risks that an entity should address when it collects, uses, retains, discloses and disposes of personal information. A key component of the practice guide includes guidance to auditors on how to audit privacy risks. It also provides an overview of key privacy frameworks to help readers understand basic privacy concepts and a resource for guidance in a variety of environments. Auditing an entity’s privacy program and practices involves familiar activities such as risk assessments, engagement planning and performance, and communication of results. Examples of additional areas the auditor should consider when developing a risk-based privacy audit plan include reviewing the history of privacy breaches, determining that the audit staff has sufficient privacy knowledge, analyzing record retention issues of personal information, and prior privacy assessments performed by others. The guidance covers several areas of interest when auditing privacy risks ranging from legal and organizational issues to infrastructure, applications, business processes and security concerns. When we take a closer look at a couple key functional areas, points of interest emerge regarding audit concerns relating to potential privacy risks as excerpted from the guidance: Legal and organizational risks — include areas such as non-compliance

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with privacy laws and regulations, lack of governance and privacy leadership, and insufficient resources to maintain an effective privacy program. Security risks — a basic principle of information security is to provide confidentiality, integrity and availability of data. An audit of a privacy program will necessarily involve significant review of information security controls. Application risks — Discovering not only who, but what applications handle personal information becomes critically important when identifying privacy risks. Personal information has to enter and leave an application to be useful, often changing media several times during its useful life. Application software can offer speed and accuracy to many error-prone manual functions. Unfortunately, software systems can be complex, with flaws and unintended behaviors. Evaluating software functions is not simple because organizations often mix in-house developed software, customized commercial off-the-shelf software, cloud-based applications and supporting middleware, and operating systems to process, share and distribute their data. It is important for the auditor to identify the automated processes and applications that handle personal information in order to assess the security controls over these applications. The practice guide provides greater detail in addition to covering other areas important for the auditor when assessing privacy risks. It can be obtained from The IIA at www.iia.org. While the review and auditing of an entity’s privacy policies, programs, practices and procedures can become very complex, these additional tools and guidance can help the CPA provide effective privacy services to their AZ CPA clients or employer. Ken Askelson CPA, CITP, CGMA, CIA, is chair of ASCPA IT Steering Committee, vice-chair of the AICPA Privacy Task Force and co-author of Auditing Privacy Risks (an IIA Practice Guide).

Mobile Devices in the Workplace Ways to Protect Company Data by Michael Nyman, CPA, CISA, CISSP, CITP, CRISC As mobile devices, such as mobile phones, smartphones, tablets, pagers, etc., multiply in number and variety, businesses are finding the challenges associated with their use to be increasing as fast as the benefits. Mobile devices are commonly used for keeping in touch with clients and colleagues through voice and text tools, accessing search engines and social media, and checking business and financial news. While mobile devices increase productivity, improve client service, and reduce IT costs â&#x20AC;&#x201D; they also add risks. Mobile devices that connect personal and business data can be a weak link in IT security and should have the same controls as company laptops and PCs. Security risks associated with mobile devices include: Loss and theft: Company data stored on a lost or stolen mobile device may be compromised if access to the device is not restricted. An individualâ&#x20AC;&#x2122;s data like photos, text messages, email, and other applications provide an avenue for a thief to obtain personal information and even oneâ&#x20AC;&#x2122;s identify. Malware: Viruses, trojans, and other malware can cause loss of personal data or even make the device unusable. In addition, malware can create additional service charges by sending text messages or making background phone calls. Spam: Spam wastes a significant amount of bandwidth. Phishing: Emails and text messages designed to trick users into revealing personal informa-

OCTOBER 2012 y AZ CPA

tion slip through mobile devices more easily because the small screen doesn’t allow protection features such as warning lights or pop-up blockers. Bluetooth and Wi-Fi: Mobile devices operating on Bluetooth and wireless services may be compromised by malware. When mobile devices connect to Wi-Fi, they run the risk of hackers intercepting and compromising data sent to or from the connected device.

It is important to remember best practices. Luckily, mobile devices can utilize most of the same security measures as laptops and PCs.

Securing Mobile Devices While not infallible, certain techniques can help increase the security of mobile devices.

of remotely performing a factory reset from an Internet-based connected computer, wiping out the data, and locking it indefinitely — making the device useless. Mobile device data should be encrypted.

addition, anti-malware, along with any anti-virus and anti-spyware, should be maintained. Users should run periodic checks to make sure these applications are up-to-date.

Loss and theft

Malware

Users can set up complex passwords (a combination of letters, numbers and/ or special characters of eight or more characters) or multi-factor authentication to access their devices or remotely lock a device in the event it is lost or stolen. In addition, some mobile devices are installed with tracking devices, such as GPS, which will allow the owner to locate the device on a map. Users can install tools that have the capability

Companies can implement security guidelines and standard security settings for mobile devices, in addition to PC and laptop policies. Mobile devices should have the most up-to-date version of operating systems and applications installed. Employees should be advised to only download and install trusted applications. Anti-malware software can be run on each employee’s device to scan and detect viruses. In

The easiest way to condense the amount of spam received is to turn on the antispam feature found on the device. If an antispam feature is not available, a blacklist can be created to block spam messages.

Spam

Phishing The most effective way to prevent phishing is to invest in a security education and awareness program to assist users with how to recognize fraudulent

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websites and identify when too much information is being asked for. Users should be trained to always verify the address of the link before clicking on it.

Bluetooth and Wi-Fi When using Bluetooth or Wi-Fi, the easiest way to help minimize risks is to set the mobile device’s Bluetooth to an undiscoverable mode and turn off the automatic Wi-Fi connection capability in public areas to avoid connecting to unencrypted public wireless networks. Incoming connection requests from unknown devices can be blocked entirely by installing a local firewall on the device.

IT Security Systems Companies can also implement a mobile security strategy for the workplace. Several key areas should be considered in the development: what data should be accessible, platform support, management, and best practices. The first step is determining which business data applications will be allowed on mobile devices. Is it only email, contact, and calendar information? Or will other business applications — such as customer relationship management — also be allowed and

how will the information be accessed? The level of security needed will be determined by what business data is accessible on mobile devices. Next, employers need to determine which platforms, or mobile operating systems, will be acceptable in the workplace. The most common platforms used in the business environment are Android, BlackBerry, iOS, Bada, and Windows Phone. Each of these platforms has security options available, and understanding their capabilities will help determine what security controls need to be implemented. Having a uniform platform will make it easier to secure and support. In addition to the uniform platform, employers need to address whether mobile devices will be company owned, employee-owned, or a hybrid of both. Another decision factor is determining who will manage the mobile security — the current IT department or an outside service provider. This can be determined by the number of resources available and how the security solutions are implemented. Finally, it is important to remember best practices. Luckily, mobile devices can utilize most of the same security measures as laptops and PCs.

The most common best practices are: Applying existing security policies to mobile devices (if no security policies, then create strong security policies) • Enforcing security policies • Registering and keeping an inventory of all mobile devices • Educating employees about how to secure devices • Installing and configuring security options on mobile devices • Defining roles and responsibilities in managing the security system • Scheduling automatic updates of security solutions • Defining a plan for lost or stolen devices • Revisiting the mobile device security policies often. As more mobile devices are integrated into the work environment, the development, implementation, and enforcement of security policies, procedures, and systems are becoming a top-level business priority. AZ CPA Mike Nyman, CPA, CISA, CISSP, CITP, CRISC, is an IT security senior manager in the Phoenix office of CliftonLarsonAllen LLP. He can be reached at michael.nyman@cliftonlarsonallen.com.

In the Black ... Adventures in Accounting Arizona State Board of Accountancy

Concept: Heidi Frei Illust.: Jack Gannon

OCTOBER 2012 y AZ CPA

A Healthy Bottom Line The New Role of Financial Managers in Controlling Employee Health Care Costs by Scott M. Wood Healthy employees contribute to a healthy bottom line. This statement has never been more true than today, when employee health costs are the second or third highest expense for most businesses and organizations. Gaining control over this line item can have significant bottom line results. That is why CFOs and HR departments are now working closely together to combine resources to tackle this complex area. CFOs and other financial managers are becoming more involved in the process of developing a long-term strategy to control employee health costs. Many are beginning to approach this expense item with the same methods used for other operations within the business: setting goals, objectives and budgets; planning for both the short term and long term, and analyzing return on investment.

Setting Goals, Objectives and Budgets Determining your organization’s direction on health programs includes taking a look at your current situation: • Is your benefit package achieving your goals? • Does it align management and employees on health care spending and wellness initiatives that will save money for the company, employees and their families, both short- and long-term? • Do you have a strategy that does not put you at the mercy of the insurance carrier at annual renewal? • Does your plan mirror your organization’s needs and utilization? • Are you paying for benefits your employees do not want or use? • Does your plan help employees enhance their health and productivity? • Does your program provide you with measurable results? • Are costs consistent with what you budget year to year?

Set goals that are in line with your organization’s vision and mission. • A manufacturing company may set a goal to be the most efficient or the most competitively priced in its market. Efficiency requires healthy employees who have low absenteeism and high productivity. • A service industry or nonprofit organization may set a goal to have a quality image as a good place to work in order to enhance employee recruiting. Health programs can tie into this by including wellness programs that make the company both a place of employment and a place of self-improvement. From a financial manager’s perspective, employees are one of the components

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to producing products or delivering service to customers. Assuring that employees’ health is being maintained is just as critical to success as managing the regular maintenance of factory or office equipment and machinery.

Establish precise and measurable objectives that are in line with your goals. After taking into account insurance premium rate increases and benefit changes, determine the true economic change in your benefit costs during the past three years. Then, establish an objective for a reduced annual increase amount for the next three years. For example, your objective may be to hold annual increases to half or less compared to increases in previous periods. This can be accomplished by implementing a comprehensive health program that includes a consumer-driven health plan, a pre-funded personal health account, Biometric Screenings and Health Risk Assessments, employee health and wellness education and lifestyle management programs (i.e., smoking cessation, weight loss, stress management). A knowledgeable and progressive employee benefits consultant can design these programs as part of a complete package. In budgeting for employee health and wellness programs, it is important to recognize that a well-planned strategy will not cost your organization more money. Instead, you may re-allocate dollars to achieve better results. For example, you may increase your health insurance deductible, but fund a portion of the deductible in personal health accounts for your employees. This lowers the insurance premium without increasing employee contributions and aligns your employees’ interests with yours in responsibility for spending those health care dollars. Combine that with medical screenings that show employees their health risks, an emphasis on preventive care benefits and health improvement programs, and you can significantly impact your total claims costs.

Planning for the Short Term and Long Term Most employee benefits brokers provide only annual “band-aids” and short-term fixes, rather than utilizing the same type of strategizing that you use for other large budget categories. Your broker may only be providing you with traditional ideas such as increasing deductibles and co-pays, reducing benefits to lower your premium increase or changing carriers. As a financial manager, you can demand more. Employers that are achieving success in this area set up a three- to five-year plan, with the first year focusing on implementing a benefit package that engages and empowers employees to spend health care dollars like their own. One of the first-year steps also can be a health assessment process for each employee to help employees focus on their potential health risks. This also will provide a baseline for measuring results and planning for future needs. After the first year, the emphasis moves to educating and further incentivizing employees to take control of their health care and improve their own health numbers. With annual health assessments, employees can recognize areas for improvement and then see the results of their positive actions. Employee communication on health improvement programs and use of benefit programs can be integrated into the other HR functions to streamline the process and reduce costs. As the employer’s financial manager, you also focus on assuring that employees have access to the cost information they need to make good health care purchasing decisions. This can be through online tools provided by your insurance carrier or other resources that track both cost and effectiveness of various treatments and health care providers in your area.

Analyzing Return on Investment There are many ways to measure return on your “investment” in health for your employees. You can compare year-over-year changes in: • Total health insurance premiums

• Health care costs per employee and per member • Aggregate claims costs • Employees’ out-of-pocket costs • Improvement in health shown in your annual employee health assessments A recent study of health care claims representing 1.1 million customers of a national insurance carrier showed savings of $9,700 per employee on average over a five-year period for American workers who participated in consumer driven health plans and health improvement programs. These savings were achieved without reducing benefits or compromising medical care.

The Tip of the Iceberg… Improving employee health doesn’t just reduce health insurance premiums. A study of health and productivity by the University of Michigan and the Integrated Benefits Institute found that medical and pharmacy expenses make up only 30% of the total cost to employers of poor health of employees. The other 70% is health-related productivity loss such as substandard performance on the job and absences due to illness, injury and other factors. That means healthier employees bring even better news for your bottom line.

The Bottom Line Many CFOs believe that the rising tide of health care costs is due to economic factors beyond their control. That is simply not true. Given the size of health costs on most companies’ income statements, it is becoming increasingly clear that a successful health care strategy is a competitive differentiator—one that can affect profit margins, productivity and product pricing, which can make the difference in winning or losing in AZ CPA your core business. Scott M. Wood is a Principal of Benefit Commerce Group, LLC, a Scottsdale-based employee benefits firm with more than 25 years of experience in developing employer strategies to address employee health care costs.

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Protect Your Business with Better Billing and Collection Practices by Randy R. Werner There are basic steps that can be taken to avoid or manage almost all billing and collection problems. Even better: using those same steps will help improve the quality of your practice, attract a better client base, generate more fees and improve collection and cash flow. Client screening is the first step toward controlling losses and enhancing your clientele, services, and fee structures. The basic process utilizes a checklist to flag problem clients. Some of the questions include: • Is the client the kind of client the firm would like to have? • Does the client demonstrate integrity? • Is the client financially viable? • Why did the client choose our firm over other firms? • What does the client like about our firm that causes them stay with us? • Are the client and engagement still a good fit for our firm? If the client or engagement is not a good fit, do not accept the engagement. Due diligence is also essential to client screening and should include the following steps: 1) Performing background and credit history checks; 2) Obtaining and assessing the quality of references; 3) Obtaining additional references to check, if necessary; and 4) Checking with the predecessor firm after obtaining permission from client. Learn to recognize higher-risk engagements and plan your billing and collections according to the risk before you begin. Buy-sell transactions, public offerings and initial public offerings, limited partnerships, financial services, real estate and construction engagements all tend to be higher risk.

Engagement Letters Engagement letters document the firm’s understanding with the client and serve as the firm’s first line of defense in the event of a dispute. The engagement letter should limit your scope of services by employing words that limit your responsibility and avoiding words that expand it. To reduce “payment resistance,” involve your clients in the design of the engagement letter, and communicate your billing and payment policies during the initial client interview. Services should be priced for their value. Underbidding or discounting rates to win work can stretch resources to their limits, increase the chances of short-cuts being taken in the work, and expand your exposure to malpractice disputes. The engagement letter documents the expectations for the engagement, including billing and payment terms. The letter, and all other documentation, can be used later to rectify selective client memory.

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The following are some additional recommendations: Use standardized letters that may be modified and tailored to fit each of the engagements. State estimates, if applicable, and clarify that they are not fee quotes. Use retainers and retainer replenishment for clients that are slow-paying, financially stressed, or new to the firm (until they have established some credit with you). Remind clients that retainers are not an estimate of the total cost of the engagement, do not earn interest, and must be paid before work begins. Always include a stop-work clause and enforce the clause to prevent unpaid fees from building up to the point where you believe you can no longer walk away from them. When the unpaid fees become so large that the firm wants to sue for them, the client has little to lose by suing the CPA for malpractice. Include the terms for fee collection. Late charges are legal but should be a reasonable amount, such as one percent per month or 10 percent per annum. Do not use the term “interest,” which brings into play the laws and regulations governing interest charges. Consider offering discounts for early payment (e.g., if paid within 10 days). Include mediation and arbitration clauses, which are effective for avoiding lawsuits over fees. Mediation is effective for all disputes, and arbitration is effective for fee disputes only. When the engagement expands beyond the terms of the engagement letter, the CPA’s exposure to liability also expands. Provide a new letter, or an addendum to the existing letter, to include additional specific services with an estimate and a confirmation that the client wants the added services at the fees estimated. Follow-up letters are invaluable for documenting with the client any significant discussions and preventing disputes.

Billing Tips If the bill or its description of services is unclear, clients will be inclined to put it aside and to call about it later,

lengthening the time it takes to pay the bill. Bills that are standardized, clear, concise and descriptive are more likely to be paid sooner. Different services often require different billing practices. Consider alternative fee structures, such as hourly rates, fixed fees, value pricing, refundable advance retainers and replenishment, or a combination of structures. All professionals with the firm should be accountable for their timesheet and billing deadlines, but their billable time should be protected by using administrative staff with appropriate training and support to prepare bills and collect payments. Timely billing leads to better collections. It’s sometimes best to bill more frequently than monthly, as smaller bills are generally paid sooner than larger ones.

Collection Tips Communicate frequently with the client and gently remind the client of future services needed. Speak to the person in charge of authorizing the bill payment when it’s due. If it’s a large balance due, call 10 days before the due date to be sure the invoice has been received. Collection calls are relatively effective, inexpensive, immediate, personal and informative. Staff should be trained on the rules under the “Fair Debt Collection Practices Act” (FDCPA), which prohibits unintentional harassment of debtors. Anger management and mediation training will also help staff deal with difficult people. Once you have sent 30-, 60-, and 90-day letters, turn the account over to a professional collection agency to avoid spending valuable time and resources on deadbeats. If a client offers a reasonable partial payment, take it and consider disengaging. This will free up more of your valuable time to pursue better clients who pay their bills on time AZ CPA and in full.

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Randy Werner, J.D., LL.M./Tax, is a California CPA and a loss prevention specialist with CAMICO (www.camico.com).

OCTOBER 2012 y AZ CPA

Although the degree of the PPACA’s impact depends largely on the size of the employer, there are a number of key responsibilities that are uniquely suited to the expertise of CPAs, CGMAs and are in strong demand by managers at organizations across the country. These responsibilities include the following:

Identify and Respond to Additional Costs

Health Care Act Opens Up Opportunities for CPAs in Business and Industry When President Obama signed the Patient Protection and Affordable Care Act (PPACA), he ushered in one of the most dramatic and controversial health care reform initiatives since the passage of Medicare more than 45 years ago. In pursuit of its goal to address rising health care costs and provider access, the PPACA has raised the demand for specialized professional skills and knowledge as well as new internal business processes. Organizations need expert insights for understanding legislative provisions and explaining them to employees as well as policies and procedures for ensuring compliance with current and future requirements. CPAs performing management accounting duties on behalf of business and industry have an opportunity to take on a leadership role within their organizations, guiding management as it navigates the way through the intricacies of PPACA legislation, and helping maintain smooth, continuous and successful operations. Recognized by the new Chartered Global Management Accountant (CGMA) designation, created by the AICPA and the Chartered Institute of Management Accountants (CIMA), CPAs in business and industry, can distinguish themselves as PPACA authorities through their extensive education, training and experience in finance, management and regulatory affairs.

Expanded Role and Heightened Profile The far-reaching scope of the PPACA extends beyond health care providers and insurers to include organizations representing virtually every industry, size and geographic area. PPACA’s broad application presents vast opportunities for CPA, CGMAs to further improve operational efficiency and performance, and showcase the full extent of their capabilities, value and contributions. “Employee morale, productivity, recruitment and retention are only a few of the issues that are heavily impacted by an organization’s ability to successfully implement the new health care reform legislation,” said Paul L. Shillam, controller, Pacific Medical Centers. “CPAs, CGMAs’ combined financial and non-financial expertise, and insights into workplace dynamics, are guiding organizations to legislative compliance, a well-informed management team and an engaged workforce.”

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PPACA implementation has a number of penalty provisions that need to be identified and addressed. Management will need help fully understanding the complete range of possible penalties, explain the consequences of penaltyrelated decisions, and create strategies for avoiding and mitigating penalties whenever and wherever possible. Included among PPACA provisions is the $2,000 per-person penalty that applies to large employers that fail to offer health care coverage to employees. Employers may make this decision for financial reasons – it may be less costly to pay the penalty than offer health care benefits, which according to the Kaiser Family Foundation average $4,508 for employee-only coverage and $10,044 for employee and family coverage. Other penalties include $3,000 that is incurred when an employee enrolls in a qualified health plan that allows a premium tax credit or cost-sharing reduction to the employee.

Evaluate the Full Impact of Coverage Decisions CPAs in business and industry counsel their organizations on the bottomline ramifications of failing to provide employees with health insurance coverage, and help reach decisions that best serve the organization and its employees. Ramifications may include increases in employee compensation to offset the expense employees will incur for private insurance as well as additional payroll taxes. Other consequences can include employee recruitment challenges, declines in employee retention and overall satisfaction, and damage to the organization’s brand and reputation.

Assist with Process and Procedural Changes The PPACA includes a number of provisions that result in changes to existing systems and procedures that can be more successfully accomplished with CPA, CGMA guidance. For example, Section 9002 of PPACA expands reporting requirements for employersponsored health care benefits on employees’ IRS Form W-2 at year-end. Human resource and payroll systems will need to be updated to capture the cost of employer-sponsored insurance benefits effective for calendar year 2011, and extended to 2012 by the IRS.

Contribute to Hiring, Compensation and Benefits Decisions As implementation of PPACA moves forward, organizations need professional expertise in fully understanding the legislation’s impact on hiring decisions and compensation and benefits packages. Among the human resource responsibilities that are undergoing drastic changes, and require close CPA, CGMA involvement, are evaluating employer-sponsored insurance benefits; attracting employees; weighing the advantages and disadvantages of full-time, part-time, temporary and per-diem team members; and addressing potential changes to compensation structures.

vestment income, e.g., interest and annuity payouts, that is taxed at individual income rates.”

Keep Leadership Updated on Legislative Changes PPACA, similar to other legislation of its magnitude, must be viewed as a process rather than an event. In the years ahead, laws that have been passed may be modified and new laws will take effect, and the key to complete compliance is being prepared and proactive. Upcoming laws may address issues ranging from clarifying the PPACA’s intent to being more specific with respect to compliance provisions, particularly

those pertaining to enforcement and penalty provisions. CGMAs play a dominant role in keeping the organization abreast of the latest legislative developments and explaining their impact on its members. From holding face-to-face meetings with the management team to preparing briefing reports for board members, CPA, CGMAs are senior leaders’ valued resource for the news and information that help keep operations PPACA compliant and AZ CPA successful. To learn more about the CGMA designation, visit cgma.org.

Answer Tax Questions The PPACA contains numerous tax provisions that will impact individuals and businesses of all sizes. One impact that higher-income taxpayers are likely to notice is the 3.8 percent increased tax on investment income, which translates to an overall 18.8 percent tax on capital gains for 2013, versus 15 percent in 2012. AICPA Tax Manager Kristin Esposito suggests taxpayers consult with their CPA to determine whether they should sell assets or take other steps to minimize their liability. “If income rates revert to pre-2001 levels in 2013,” Esposito cautioned, “there will be an even higher tax on any portion of in-

OCTOBER 2012 y AZ CPA

Classifieds Business Opportunities/ Practices for Sale WE BUY CLIENTS— Our CPA firm would like to offer a smooth transition in the purchase of your clients. We will purchase anywhere from one client, up to an entire practice in the Phoenix/Scottsdale metro area. If you are thinking of retiring or downsizing your practice and need to transition your clients to a professional CPA firm, please give us a call. Our staff has been practicing in the valley for over 30 years with an emphasis in business taxes and accounting. Our office is located near Thunderbird and Scottsdale Rd. Please contact us today for more information and ask for Craig (480)990-2727 orcraig@awcpas.com. CPA—SHERYL K. SACRY, CPA, PC MERGER OPPORTUNITY. We are a small, casual CPA firm in Tempe seeking four-year transition of ownership with CPA experienced in tax and QuickBooks. Sharing of office, equipment, staff, and per-diem work is available during transition. Please email sherylsacry@thetaxlady.biz.

Employment Opportunities AUDIT MANAGER — Keegan, Linscott & Kenon, PC —Our Audit Managers serve a key role in our firm working in a very autonomous manner on challenging projects with staff and clients. The successful candidate will be responsible for all phases of the project and client relationship. Enjoy a professional career, flexible hours, and a great work environment. Make a move, achieve your dreams and apply in strict confidence today! Apply through our website at: http://www.klkcpa.com/ careers/career-job1.html. O U T S TA N D I N G A U D I T A N D CONSULTING OPPORTUNITIES! Heinfeld, Meech & Co., P.C., recognized leaders in governmental and non-profit auditing and consulting, seeks CPAs for Associate and Management positions

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for our growing Audit & Consulting Divisions in our Phoenix and Tucson offices. Nationally recognized on the “25 Best Small Companies to Work for in America” list by the Great Place to Work Institute for the past five years, H&M offers a dynamic culture with outstanding career growth opportunities. A BS in Accounting and at least two years of accounting, auditing or consulting experience specializing in governments/non-profits along with CPA designation is required. http://www.heinfeldmeech.com.

Office Space OFFICE SHARING IN TEMPE/ CHANDLER —Looking to office share in Tempe/Chandler. I have an extra office for rent in my current suite, fully furnished & equipped, no move-in cost. Or I am willing to move to share a new space. Email caryn@chstax.com. SHARE OFFICES WITH FELLOW CPAs — In central Phoenix-near 51FWY. Large executive offices plus staff cubicles. Shared conference room, reception, breakroom, high speed data lines/telephones, tax research services, ect. Immediately available. Contact Jason Feldman (602) 850-5110 or Jason@acre.biz.

Services BUSINESS PROPERTY TAXES TOO HIGH? I’ve been doing property tax appeals for almost 15 years. Business (personal property) taxes are the least

understood, but have the potential for the largest refunds. Prior years’ refunds include interest. Arizona CPA. Contingency fee only. I’m on Linked In, Facebook and Twitter. Website: www. asmrconsulting.com. Call John at ASMR Consulting LLC, (480) 204-1289.

Miscellaneous ESTATE/GIFT/GST TAX RETURNS AND PLANNING ISSUES POSE A CHALLANGE FOR YOU? I can work with you or your client. Estate planning & compliance is not a science; it’s an art. Let’s make a better plan! Ira Feldman, CPA/CVA/CEP (602) 850-5101 or ira@ felco.biz or www.felco.biz. RESUME SERVICES—IT MAKES A DIFFERENCE WHO WRITES YOUR RESUME. Chandler-based Certified Professional Resume Writer Bryan Newman, has been writing resumes for Business Professionals on four continents for 17 years. Clients include all Business Professionals including CPAs pursuing positions as CEO, CFO, COO, VP Finance, Controller, Treasurer, Accounting Manager, Business Intelligence Manager, Financial Analyst, Audit Manager, and Senior Accountant. Credentials include roles as Chairman, CEO, President of US Operations for a NASDAQ-listed technology firm. Member, ASU College of Business Hall of Fame. Email resumes to bnewman19@ cox.net for complimentary critique or call (480) 802-0441. Ask about our ASCPA member discount.

To place a classified ad, go to www.ascpa.com and go to marketplace; for employment opportunities go to the Career Center.

Introducing ... the ASCPA’s new online community ...

connect

Communicate • Collaborate • Contribute

The Arizona Society of CPAs’ new interactive online community — Connect— puts you in the driver seat!

• Network with your peers and even make connections that could improve your existing job, or help you find a new one. Or, maybe it can help you find that Want to network with your peers? Need perfect addition to your team. to find out the answer to that tricky tax • Find other ASCPA members— with our question? Do you have expertise and exclusive online directory—a private cominformation to share? Want to learn more munity where your information is always about what YOU are interested in? Then protected. come get involved with Connect. • See the great information normally contained in our listserves but in an easier to read, search and respond to format. Through Connect you can: • Talk about what is most important to • Use LinkedIn to easily update your pro- you and find out what is on the minds of file and find your existing contacts. other ASCPA members! • Access lots of member-only resources So get ready to Learn, Share, Discover, and discussion groups. Network, Communicate, Collaborate and • Create and participate in discussions to Contibute with Connect. get your questions answered.

Watch for our new, interactive online community coming to a computer or mobile device near you soon! OCTOBER 2012 y AZ CPA

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“Working closely with my clients’ CPAs and other trusted advisors ensures that all bases are covered, whether I am helping to form a new business, buy or sell an existing one, plan for succession of a business or create an estate plan. In every case, the clients’ interests are best served through collaboration. Having previously practiced as a CPA with a Big Eight accounting firm, and also making sure that all of the accounting, tax and legal needs are coordinated to attain the best possible result for the client, I understand and appreciate the important role of CPAs.”