Insight Magazine - Summer 2012

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Bring on the Summer

Backyard barbecues, golf outings, farmers markets and family getaways. Yes, summer is finally here. I hope you’re taking some time to kick back perhaps you’re even reading this issue poolside. This being our Business Solutions Special Issue, the following pages offer up some great tips and tools for just about anything and everything to help you find the right solutions for your business, no matter how large or small A new project we’ve been working on that I hope will be a go-to solution for you is our online learning management system, knowledgehub [www icpas org/knowledgehub aspx] We’re concerned that professional education and training gets lost in the rush of today’s all-too-common 24/7 workweek Knowledgehub Learning Management System utilizes new technology to bring you over 1,500 programs from an array of CPE providers in a variety of formats to best suit your needs, including live programs, webinars, and CPE onDemand. You can even track compliance and create customized learning paths.

This summer, we’re also beginning to take an aggressive look at the needs of our Industry & Business members A newly formed Industry & Business Advisory Task Force will tackle the issues coming straight from you, our members on the front lines We’re excited to have our new Board Chair, industry insider Jim Jones, COO & CFO of Edward Don & Company, involved with this initiative Jim’s message on page 6 offers some insight into what’s in store for this group in the coming months As we emerge from the economic recession, our goal is to understand the challenges you’re facing and learn how we can help you overcome them. Please email us at IandB@icpas.org to share your specific ideas or suggestions for this Advisory Task Force to tackle.

Speaking of sharing, I encourage you to become active on our LinkedIn, Twitter, Facebook and YouTube pages. We’re making a concerted effort to share more informat i o n v i a t h e s e c h a n n e l s a n d a r e e x c i t e d b y t h e i d e a s a n d d i s c u s s i o n s e x c h a n g e d between members It’s clear that social media is no longer just a craze With that in mind, I hope you’ll read the article on page 28, featuring best practices for social media and how to use it effectively to promote your business

Although it seems like there isn’t really a slow season anymore, I do hope that summer offers you an opportunity to escape the ever-increasing pace of the accounting and finance world, if only for a few hours Have a hot dog, stroll an art fair, doze off in the family hammock, and have a great summer.

I N S I G H T M A G A Z I N E

Publisher/ICPAS President & CEO Elaine Weiss

Editor-in-Chief/Director of Publications Judy Giannetto

Creative Services Director Gene Levitan

Creative Services Manager Rosa Garcia

Publications Specialist Derrick Lilly

National Sales & Advertising Natalie Matter DeSoto YGS Group, 3650 West Market Street, York, PA 17404

P: 800 501 9571 x127 F: 717 825 2171

E: natalie desoto@theygsgroup com

Circulation/Member Services Director Carl Siska

Editorial Offices: 550 W Jackson Blvd , Suite 900 Chicago, IL 60661

I C P A S O F F I C E R S

Chairperson, James P. Jones, CPA Edward Don & Company

Vice Chairperson, William P Graf, CPA Deloitte & Touche LLP

Secretary, Edward J Hannon, CPA, JD Freeborn & Peters LLP

Treasurer, Daniel F Rahill, CPA, JD KPMG LLP

Immediate Past Chairperson, Robert E Cameron, CPA Cameron, Smith & Company, PC

I C P A S B O A R D O F D I R E C TO R S

Linda S Abernethy, CPA, McGladrey LLP

Rose G Doherty CPA, Legacy Professionals LLP

John A Hepp, PhD, CPA, Grant Thornton LLP

Margaret M Hunn, CPA, CFE, CFF, CITP, Rozovics & Wojcicki

Geralyn R Hurd, CPA, Crowe Horwath LLP

Paul V Inserra, CPA, McClure, Inserra & Co , Chtd

Leif J Jensen, CPA, Leif Jensen & Associates Ltd

Kathleen M. Kedrowski, CPA, Retired, Navigant Consulting

Michael J Maffei, CPA, GATX Corporation

Marcus D Odom, PhD, CPA (inactive), Southern Illinois University

Floyd D Perkins, CPA, Ungaretti & Harris

J Bradley Sargent, CPA/CFF, CFE, CFS, Cr FA, Sargent Consulting Group LLC

Marcus F Schultz, CPA, Dugan & Lopatka CPAs PC

Thomas L Zeller, PhD, CPA, Loyola University Chicago

INSIGHT is the official magazine of the Illinois CPA Society, 550 W Jackson, Suite 900, Chicago, IL 60661, USA Its purpose is to serve as the primary news and information vehicle for some 23,000 CPA members and professional affiliates Statements or articles of opinion appearing in INSIGHT are not necessarily the views of the Illinois CPA Society The materials and information contained within INSIGHT are offered as information only and not as practice, financial, accounting, legal or other professional advice Readers are strongly encouraged to consult with an appropriate professional advisor before acting on the information contained in this publication It is INSIGHT’s policy not to knowingly accept advertising that discriminates on the basis of race, religion, sex, age or origin The Illinois CPA Society reserves the right to reject paid advertising that does not meet INSIGHT’s qualifications or that may detract from its professional and ethical standards The

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Give us a call today so that we may go to work for you and produce the results you desire.

About James P. Jones, CPA

Executive VP, CFO & COO

Edward Don & Company, North Riverside, Illinois

ICPAS Service

Member since 1979

ICPAS Board Service

Vice Chair (2011-2012)

Treasurer (2010-2011) Director (2006-2010)

Current ICPAS Committees

AICPA/ICPAS Collaboration Task Force (2012-13), Executive Committee (2010-13), Illinois CPAs for Political Action (Ex- Officio 2012-13), Industry & Business Advisory Task Force (2012-13), Lifetime Achievement Award Task Force (2011-13), Nomination Committee (Ex- Officio 2012-13), Regulation & Legislation Committee (Ex- Officio 2012-13)

Former Committee Service

AMS Advisory Task Force (2011-12), Audit (Ex- Officio 2010-11), CCFL Advisory Group (2007-08), Chicago Downtown Forum Group (1997-98), Finance Committee (2008-11, Chair), Finance & Treasury Management (2010-11, Chair 2011-12), Future of the Show Task Force (2008-09), Industry & Business Advisory (2008-10, Chair), Industry & Business Education Events (1989-90), Strategic Issues Task Force (2006-07), Strategic Planning (2007-12), Student Outreach Task Force (2006-09), Young Professionals Conference Advisor

Professional & Community Service

Board of Directors, Edward Don & Company; Member, AICPA; Member, Financial Executive Institute; Treasurer, Adam Don Foundation; Member, DePaul University Alumni Programs

CHAIR’S MESSAGE

Plans for the Year Ahead

I am grateful for having the privilege to serve as the Chair of the Illinois CPA Society for the upcoming year While I’ve worked in public accounting for several years, the majority of my time has been in Industry & Business as a Chief Financial Officer with both public and private companies, large and small, and I hope to use those experiences to enhance your experience as a CPA and a member of the Society.

The CPA credential is something special. Many of us came into this career as the first in our families to attend college or receive a professional designation. Our immigrant parents came from humble beginnings, and the CPA credential was the entry to “a better life.” Times were obviously different as we worked our way through school, crammed life in w h e n p o s s i b l e , a n d f i n a l l y s a t f o r n e a r l y t h r e e d a y s a t M c C o r m i c k P l a c e t a k i n g “ T h e Exam ” Looking back, I wouldn’t change a thing

Flash forward to today and it’s a simple fact that technology continually enables more activity, more communication, more data and more options for doing almost anything from anywhere “I’ll be working remotely today” or “I am off the grid for a couple of hours” are daily phrases we all hear Between our BlackBerry and iPhone, we are always on and always available The pace of change is staggering

What has not changed is the esteem that our credential conveys We are trusted advisors Whether you work from the audit in or the business out, whether you prepare the return or handle the multiple assignments that often come our way, we are the ones that interpret the ever-increasing data, strip out the noise and find the relevant facts that drive the next decision. What our credential implies is that we can make sense of the tornado of data, apply complex rules and concepts, put results into a logical format and, maybe most importantly, convey the message in a straightforward way. This is what we do.

You may ask, “Why

is an Industry & Business person chairing the Illinois CPA Society?”

We have 24,000 members in our Society made up of CPAs looking at the profession from many perspectives I am one of the 6,800 members who work in Industry & Business It is our hope that we can channel the Society leadership’s diverse expertise to reach out and engage all of our member groups with relevant actions Whether it’s the right training, the right introduction or the right answer to a question, we want to be at the top of our CPA members’ short list for information and help

Over the next year, in addition to pushing the Society up on our members’ speed dial, we would like to enhance the value of the ICPAS membership to every member segment, with a special emphasis on our young professionals When harnessed, the energy and enthusiasm of this rising generation could light up a city

As with many of you, the desire to “give back” to a profession that has been so personally rewarding triggered my involvement with the Society and in my community. For me, future CPAs the students, whether high school or college hooked me on sharing what this great profession and credential have to offer.

As with any profession, it takes experience and training to keep your edge. Commitment is key I am all in

SEEN HEARD

39%

HOW TO :

Inspire Your Team to Innovate

According to 35 percent of US CFOs interviewed for a recent Robert Half Finance [www roberthalffinance com] survey, a lack of new ideas is the greatest barrier to gaining a competitive edge

To get your team inspired, Robert Half offers these tips:

1. Engage the entire team. Empower all employees to easily share solutions for improving the business

2. Cut the red tape. It’s frustrating to have to wait for ideas to be approved and implemented

3. Keep it collaborative. Too much competition can inspire fear of idea stealing or ridicule

4. Build a better brainstorm. Rein in the naysayers who always say proposals won’t work

5. Take things easy. Relaxed, positive employees are better able to generate innovative concepts

SOURCE: PwC 2012 US CEO Survey

Percent of US CEOs intending to pursue a cross-border M&A in the next 12 months.

Key Leadership Roles Are Hard to Fill

Despite having a vast pool of candidates for the choosing thanks to continued high unemployment, 90 percent of US employers in a recent Right Management [www right com] survey of more than 600 firms say they’re still finding it difficult to fill key positions Twenty-seven percent of respondents reported often having difficulty filling certain jobs, while 61 percent indicated they occasionally have difficulty What’s more, with workforces running lean, doubts about management succession pipelines are surfacing Of 631 senior executives surveyed, only 4 percent said they have an “ample leadership pipeline that will cover most of our needs ”

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Three Reasons to Love Your iPad

The iPad is an invaluable business tool once you realize it’s not a replacement for your laptop It’s fast and portable, and has plenty of battery life to keep you running overtime Here’s a few ways you can use an iPad as a complement to your existing tools Go Paperless. Need notes? Leave the legal pad at your desk With free iPad apps such as Evernote, you can take, organize and synchronize your notes to the cloud, making them accessible on virtually any Internet-accessible device And, thanks to several other apps, you also can create, edit, review, save and send PDFs from your iPad Remote In Working on the go is increasingly important to today’s accounting pros, making the ability to access files and systems from any location critical Enter the iPad With an Internet connection and one of many remote desktop apps, you can access and run your other home or office systems remotely

See double Wish you had another screen to spread those documents or programs across? With a dual-display app and a wireless network, you can extend or clone your desktop or laptop display right on your iPad.

Source: CPA Practice Advisor [www cpapracticeadvisor com]

$26 billion

Dollars identity thieves could receive through fraudulent tax returns over the next five years

Source: Treasury Inspector General J Russell George

Cybersecurity Tops CAE Concerns

Fifty- six percent of Chief Audit Executives (CAEs) in a recent Grant Thornton LLP survey stated that their organizations had up to 10 cybersecurity incidents in the last year A further 31 percent couldn’t actually identify a precise number of incidents In terms of concerns, 81 percent of CAEs say they are most worried about the privacy of employee and customer data, while 63 percent are concerned about mobile computing, and 55 percent have issues with cloud or Internet-based solutions What’s more, while 42 percent of CAEs see the greatest cybersecurity threats coming from hackers, a surprising 38 percent view employees as the biggest threat

Visit www GrantThornton com/CAESurvey for more

New NFP Audit/Accounting Guide Coming

Set for comment release in late summer 2012, the new Audit & Accounting Guide, Not-for-Profit Entities focuses on uniform reporting practices, and is a joint effort of the Financial Reporting Executive Committee, the Not-forProfit Entities Expert Panel and the Not-for-Profit Guide Task Force of the AICPA Key updates include new sections on reporting and measuring non-cash gifts; a new chapter on program-related investments and microfinance loans; an expanded section on municipal bond debt; new guidance for reporting the expiration of donor-imposed restrictions; and more

Visit www cpa2biz com for information

TRENDWATCH:

Tax Accountants Lagging on Clean Energy Front

A survey conducted by Bloomberg BNA in consultation with Bloomberg New Energy Finance reveals that tax professionals are generally unfamiliar with the various tax incentives available to private investors in clean energy projects This comes at a time when the US clean energy sector is seeking to attract new private investment in the form of tax equity. In fact, 65 percent of respondents said they were mostly or completely unfamiliar with the Production Tax Credit available to US wind project backers

When asked why they or their clients had not made a clean energy tax equity investment, the majority answered that it was either not a strategic fit with the company ’ s business or that they believed there were better returns available elsewhere. Twenty- one percent responded that they did not make the investment because they were unaware of a tax equity option Detailed results are available at www bna com

Established Entrepreneurs

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TAX DECODED I n t h e Z o n e

New legislation will amend and continue the ever popular Illinois Enterprise Zone initiative

By Keith Staats, JD

Keith is a senior manager of Grant Thornton’s State & Local Tax practice, based in Chicago Previously, he held the position of general counsel of the Illinois Department of Revenue, where he developed tax policy, evaluated and reviewed tax-related legislation, and oversaw tax-related litigation.

The Illinois Enterprise Zone program is

o n e o f t h e s t a t e ’ s m o s t w e l l - k n o w n e c onomic development tools. The Illinois Enterp r i s e Z o n e A c t b e c a m e l a w i n 1 9 8 2 , a n d p r o v i d e s f o r t h e e s t a b l i s h m e n t o f g e ographic areas, known as “Enterprise Zones,” administered by counties or municipalities

T h e s e z o n e s a r e d i s t i n c t c o n t i g u o u s g e ographic areas of the state, and must be class i f i e d a s “ d e p r e s s e d ” T h e p u r p o s e o f t h e Act is to stimulate growth at the local level, primarily through tax credits and incentives for businesses that operate within the zones

There are currently 96 Enterprise Zones the maximum number allowable under the Act. The allowable size of these zones is set by law, with a minimum of one-half square mile and a maximum of no more than 12 s q u a r e m i l e s G e n e r a l l y, E n t e r p r i s e Z o n e s m u s t b e e n t i r e l y w i t h i n a m u n i c i p a l i t y o r within the unincorporated areas of a county.

To qualify for Enterprise Zone designation, a proposed zone was required to meet one of six tests Specifically, it had to show,

n Unemployment at 120 percent of the state’s annual average

n A poverty rate of at least 20 percent.

n 70 percent of households meeting the low-income definition

n A documented decrease in population of 20 percent or more from 2000-2010

n Evidence of job creation, or

n Evidence of closed military bases.

Applications for Enterprise Zone designation, as well as application approvals, are administered by the Illinois Department of C o m m e rc e a n d E c o n o m i c O p p o r t u n i t y (DCEO) The Act allows existing Enterprise Z o n e s t o b e a m e n d e d ( f o r e x a m p l e t o increase the boundaries of any zone that is below the statutory geographic maximum s i z e ) , w i t h a l l a m e n d m e n t s a d m i n i s t e r e d and approved by the DCEO B u s i n e s s e s l o c a t e d w i t h i n E n t e r p r i s e Zones have been eligible for a number of

tax incentives, each of which has detailed requirements Businesses claiming exemptions are subject to Illinois Department of Revenue (IDOR) audit.

Illinois income tax incentives include an i n v e s t m e n t t a x c r e d i t , a j o b s t a x c r e d i t , a dividend income deduction and an interest income deduction for financial institutions Sales tax exemptions include a limited machinery and equipment exemption, a pollut i o n c o n t r o l f a c i l i t i e s e x e m p t i o n a n d a b u i l d i n g m a t e r i a l s e x e m p t i o n . T h e P u b l i c U t i l i t i e s A c t c o n t a i n s a n E n t e r p r i s e Z o n e utility tax exemption, and the Telecommunications Ex-cise Tax contains an exemption on originating calls

The exemption for sales and use taxes on purchased building materials is the exemption retailers most commonly encounter In my experience, it’s also the exemption most often at issue during an IDOR audit

A qualified exempt sale is defined as a sale of building materials to be used for real estate within an Enterprise Zone. A key element of the exemption is that the sale must involve items that qualify as “building materials ” For example, lumber and nails and built-in dishwashers are building materials, while refrigerators and tools used by contractors are not Another key element is that there must be a valid certificate of eligibility issued by the zone administrator Certificates of eligibility are valid for a set period of time IDOR auditors will verify that a certificate of eligibility was valid at the time of the purchase, and if not, then the sale is taxable.

The Act currently provides that the maximum life of an Enterprise Zone is 30 years As a result, a number of existing Enterprise Zones will reach the end of their statutory life over the next few years Senate Bill 3616 (“SB 3616”) was passed by the House and S e n a t e o n M a y 3 1 , 2 0 1 2 t o a d d r e s s t h e upcoming Enterprise Zone expirations, and to modify the Act in other respects As of the

date of this column, SB 3616 is on its way to the Governor

SB 3616 amends the Act to extend the life o f e x i s t i n g E n t e r p r i s e Z o n e s t h a t a r e c u rrently scheduled to expire by operation of law before July 1, 2016 All such Enterprise Z o n e s a r e e x t e n d e d u n t i l J u l y 1 , 2 0 1 6 I t also eliminates the Enterprise Zone income tax jobs tax credit, the Enterprise Zone divi d e n d d e d u c t i o n a n d t h e E n t e r p r i s e Z o n e i n t e r e s t i n c o m e d e d u c t i o n f o r f i n a n c i a l institutions. In addition, SB 3616 changes the sales tax building materials exemption

Existing Enterprise Zones must reapply for designation in order to keep Enterprise Zone status after the scheduled date of zone expir a t i o n R e p r e s e n t a t i v e s o f p r o p o s e d n e w Enterprise Zones also may apply for designation to replace expiring zones. The proposed new zones don’t have to be located in the same geographic area as those that are expiring

SB 3616 requires the DCEO to develop an Enterprise Zone application process by M a rc h 1 3 , 2 0 1 3 A p p l i c a t i o n s t h e D C E O receives will be submitted to a new Enterprise Zone Board for review The five-person board consists of the DCEO Director, the Director of Revenue, and three members appointed by the Governor.

Newly designated Enterprise Zones will be effective for 15 years, will be reviewed after 13 years, and can be extended for an additional 10 years for a total of 25 years.

SB 3616 sets down detailed eligibility criteria for Enterprise Zone designation Specifically, applicants must meet three or more of these 10 criteria:

n All or part of the local labor market has had an annual average unemployment rate of at least 120 percent of the state’s annual average

n The designation will result in creating or retaining a minimum of 1,000 jobs due to an investment of $100,000,000 or more

n All or part of the local labor market has a poverty rate of at least 20 percent, or 50 percent or more of the children participate in the federal free lunch prog r a m , o r 2 0 p e rc e n t o r m o r e o f t h e households receive food stamps.

n A n a b a n d o n e d c o a l m i n e o r b r o w nfield is in the proposed zone, or all or a portion of the zone was declared a federal disaster area in the 3 years preceding the application

n T h e l o c a l l a b o r m a r k e t a r e a c o n t a i n s large employers that have downsized

over the years, or there have been plant closures, or state or federal facility clos u r e s i n t h e 5 y e a r s p r i o r, a f f e c t i n g more than 50 workers.

n The local labor market contains a highfloor vacancy rate of industrial or commercial properties, or vacant or demolished commercial and industrial structures are prevalent, or industrial structures in the local labor market are not u s e d b e c a u s e o f a g e , d e t e r i o r a t i o n , relocation of former occupants or cessation of operation

n The applicant demonstrates a substant i a l p l a n f o r u s i n g t h e d e s i g n a t i o n t o i m p r o v e t h e s t a t e a n d l o c a l g o v e r nment tax base

n Significant public infrastructure is prese n t i n t h e l o c a l l a b o r m a r k e t a r e a i n a d d i t i o n t o a p l a n f o r i n f r a s t r u c t u r e development and improvement.

n High schools and community colleges located within the proposed zone are e n g a g e d i n c e r t a i n s p e c i f i e d t r a i n i n g that prepares students for careers

n The change in equalized assessed valuation of industrial and/or commercial properties in the 5 years prior is equal to or less than 50 percent of the state average change in law for the same period

SB 3616 will require businesses receiving Enterprise Zone tax incentives to compile detailed reports of the benefits received to be submitted to the IDOR no later than March 30. Employers must report job creation, retention and capital investment numbers within the zone annually to be submitted to the zone administrator. The zone administrator will compile the information into a report to the IDOR, and the IDOR then will compile the data into a report to the DCEO

What’s more, SB 3616 modifies the Enterprise Zone building materials exemption

Effective July 1, 2013, retailers will be required to document the exemption by obtaining a certification from the purchaser The certification must contain the Enterprise Zone building materials exemption certification number issued by the IDOR

SB 3616 passed the House and the Senate late on May 31, 2012, and next will go to the Governor. As of our publication date, I haven’t heard any indication that the Governor will not sign the legislation as passed.

Accounting and Financial Reporting

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FORENSICS INSIDER T h e P u b l i c Tr u s t

What happens when public cash becomes private gain?

By Brad Sargent, CPA/CFF, CFE , CFS, Cr FA , FABFA

On April 30, 1789, George Washingt o n s t e p p e d o n t o t h e b a l c o n y o f F e d e r a l Hall in New York City and took the oath of o f f i c e o f P r e s i d e n t o f t h e U n i t e d S t a t e s Washington solemnly swore that he would faithfully execute the office and would, to the best of his ability, preserve, protect and defend the Constitution of the United States.

You can easily imagine this great man s t a t e l y, d i g n i f i e d a n d b e y o n d r e p r o a c h b e a r i n g t h e m a n t l e o f p u b l i c s e r v a n t a n d leader. It’s possible that he was the single m o s t r e s p e c t e d m a n o n t h e p l a n e t a t t h a t very moment.

Brad is the managing member of The Sargent Consulting Group, LLC, which specializes in forensic accounting and financial investigation. He is a frequent lecturer, and chair emeritus of the American Board of Forensic Accounting A member of the Illinois CPA Society since 2002, Brad also serves on the Society’s Board of Directors

While Washington’s presidency was not without ethical dilemma (all of the Founding Fathers were flawed individuals), could Washington himself ever have imagined the recent spate of alleged fraud, self-dealing, theft and blatant misuse of public funds by public officials?

Fewer and fewer of us participate in the e l e c t i o n p r o c e s s , b u t t h o s e o f u s w h o d o s u b s e q u e n t l y b e s t o w a g r e a t d e a l o f t r u s t u p o n e l e c t e d o f f i c i a l s N o t o n l y d o t h e s e public servants have access to and control o v e r p u b l i c f u n d s , b u t t h e y a l s o a p p o i n t o t h e r p u b l i c s e r v a n t s w h o h a v e a c c e s s t o and control over public funds Clearly, our F o u n d i n g F a t h e r s ’ c o n c e p t o f c h e c k s a n d balances has run amok

Consider this business model: Employees are paid below market salaries (when compared to similar jobs in the private sector) and have control over vast amounts of the business’ spending These employees exercise their control by managing cash disbursements as well as selecting the vendors the business utilizes Now factor in the current economic conditions, which force this business to contain costs and reduce its workforce. The business has fewer employees doing more work with less oversight. This isn’t an uncommon situation these days.

Let’s add a few dollar amounts to highl i g h t t h e p o i n t : A 2 0 - y e a r s e n i o r f i n a n c e

executive makes an $80,000 annual salary T h e s a m e e m p l o y e e h a s f i n a n c i a l c o n t r o l over and access to $8 million to $9 million i n a n n u a l s p e n d i n g D u e t o t h e l e n g t h o f his service with the company and apparent competencies, this employee operates with little or no supervision

This is a recipe for disaster Could this trusted public servant possibly create a series of bogus invoices and transfer over $50 million to personal accounts? It can happen.

Consider another set of numbers a municipality of 100,000 citizens with a police retirement fund worth over $100 million in plan assets. This type of pension fund is typically managed by appointed boards that employ fiduciaries to manage the assets, conduct due diligence and generate income. The process may involve the board as an oversight body, the fiduciary as a trusted advisor and the fund recipients (portfolio companies) themselves At any point in this chain, a link can be broken and corrupted, leading to millions of dollars in bad investments, bogus management fees and the dissipation of retirement dollars

As states and municipalities work to shore up their pension funds because of the possibility of fraud, more cases of kickbacks, theft and abuse now reach the media spotlight What makes high-profile fraud so compelling, particularly in difficult economic times, is the outrageous self-dealing Ill-gotten gains spent on homes, cars, vacations, jewelry and a host of assorted lifestyle items, have a lasting impact on the public psyche and damage the image of all public officials

Hindsight gives the public 20-20 vision, and leads to some hard questions: How does a $50,000 a year official drive a $150,000 car? Or own a $1,000,000 residence? Or a $250,000 vacation home? How is it that no one noticed these obvious discrepancies between income and lifestyle?

The extreme selfishness of these acts fuels public angst even further Taking taxpayer

monies when public services are scaled back or eliminated, or stealing from the retirement funds set aside for police personnel or firefighters (who typically earn less than $50,000 a year and put their lives on the line) shows a total lack of regard for the victims.

The stories of such abuses currently circulating will likely grow over the coming months, and unless public officials are willing to take proactive measures, this trend may continue for a long time. Due diligence and internal controls are viewed as luxuries in most state and local governments, so what can be done to help mitigate this growing crisis?

I m p l e m e n t i n g a n e w s y s t e m o f i n t e r n a l c o n t r o l s d e s i g n e d t o deter fraud or unethical acts is ideal, but not pragmatic when dollars are tight However, senior officials can take a few simple steps that actually do help to deter fraud For one, when examining the theft or diversion of cash, bank statements sent directly to a new address or individual can stop a fraud scheme in its tracks In many cases, the simple act of opening the bank statements, which creates the appearance of actually reviewing them, can dissuade a t r u s t e d e m p l o y e e f r o m a b u s i n g c a s h a c c o u n t s W h a t ’ s m o r e , review vendor and employee lists. Although this takes time and must be done by someone high enough up the ladder to have the necessary insights to identify red flags, it can easily identify sham vendors and ghost employees. Enforced vacation policies, not easy when understaffed, also can uncover fraud

The government sector is no different than the private sector; both rely on trust as the key to a successful business relationship. When that trust is broken, the stakeholders pay the price

A Good Day for Doing Good

RETIREMENT ADVISOR A l l To g e t h e r N o w

A strategic alliance will introduce your clients to a whole new world of personal financial planning

By Mark J Gilbert, CPA/PFS

Ar e you an independent CPA providing audit, review, compilation, tax and/or traditiona l bus ines s cons ulting s ervices ? Then, more likely than not, you are your client’s most trusted advisor.

You can, however, do even more for them by adding personal financial planning (PFP) to your list of services

A principal in the financial planning f i r m o f Re a s o n Fi n a n c i a l A d v i s o r s , Inc , Mark’s 25-plus years of finance a n d a c c o u n t i n g e x p e r i e n c e i n c l u d e s

1 3 yea r s in p er s ona l f ina ncia l p la nning An ICPAS member since 1982, M a r k c u r r e n t l y s e r v e s i n t h e I A / P F P

M e m b e r Fo r u m G r o u p a n d o n t h e Structure & Volunteerism Committee

For some clients, this may not be possible, simply because they are already working with a trusted advisor on PFP and investing matters Other clients, though, will be r e c e p t i v e t o y o u r p r o a c t i v e o f f e r t o h e l p them with their personal finances in addition to their tax and/or business accounting needs And, by providing PFP services, you are adding another revenue stream to your p r a c t i c e o n e t h a t i s n ’ t t i e d t o t a x a n d accounting fees.

I define personal financial planning as the p r o c e s s o f i d e n t i f y i n g a n d p r i o r i t i z i n g a c l i e n t ’ s l i f e s t y l e a n d f i n a n c i a l g o a l s , a n d d e v e l o p i n g a n d i m p l e m e n t i n g a p l a n t o a c c o m p l i s h t h o s e g o a l s I t i n v o l v e s a r e a s such as retirement, cash flow, investments, insurance, tax and estate planning

If you’re interested in working with existing or new clients in some or all of these areas, recognize that there are multiple ways in which to do it Some will involve forming strategic alliances with business partners using one of these three models:

1. Referral-only Model

The most basic PFP service model is to refer a PFP prospect to another financial planner

You will need to decide, however, whether you’ll accept compensation for the referral If you opt for no compensation, then you

don’t need to worry about the legal ramific a t i o n s o f m a k i n g t h e r e f e r r a l . I f y o u d o choose to accept compensation, you may need to become licensed to sell or provide advice on securities Plus, you may need to partner with a broker-dealer or investment a d v i s o r y f i r m t o “ h o l d ” y o u r s e c u r i t i e s license And the firm that pays you must disclose this practice in some of its own regulatory filings

2. Financial Planning Model

This model involves providing advice only in exchange for a fee paid by the client This advice may involve writing a financial plan and/or making recommendations about fina n c i a l p l a n n i n g a r e a s I f t h i s a d v i c e h a s nothing to do with investing, then you may be able to avoid any further regulation It’s a g o o d i d e a f o r p r o f e s s i o n a l l i a b i l i t y p u rposes, however, to offer PFP advisory services through an affiliated entity outside of your CPA practice.

M o s t c o m m o n l y, i n v e s t m e n t a d v i c e i s offered as part of overall PFP advisory servic e s In this c a s e , y ou’ll ne e d to e s ta blis h yourself as a Registered Investment Advisor (RIA). An RIA is subject to the Investment Advisors Act of 1940, among other federal laws, or may be subject to state regulation (which frequently incorporates the 1940 Act and other federal laws in its administration)

RIAs who advise on more than $100 million of investment assets are subject to SEC registration and federal regulation, while others are subject to state registration and regulation. In either case, RIAs must take and pass the Financial Industry Regulatory Authority

“ [ Y ] o u h a v e t h e l u x u r y o f f o c u s i n g s o l e l y o n t h o s e a r e a s that appeal to you most, or play best to your professional s t r e n g t h s , o r r e s u l t i n t h e l a r g e s t r e v e n u e s o u r c e . ”

(FINRA) Series 65 (Investment Adviser Representative) securities license exam in order to accept fees for financial planning advice. In almost all cases, it’s a good idea to establish a legal entity for the RIA that is separate from your CPA practice

3. Financial Planning & Investment Model

The most common PFP service mode involves de liv e ring PF P a dv is ory s e rv ic e s a long with implementing investment advice through investment securities held Again, consider how y o u ’ l l b e c o m p e n s a t e d . I f y o u c h o o s e t o a c c e p t f e e s f o r i n v e s t m e n t i m p l e m e n t a t i o n , you’ll need to establish an RIA entity. If you choose to collect commissions for investment sales, you’ll need to establish or affiliate with a broker-dealer firm

Like an RIA representative, a broker-dealer rep must take and pass relevant FINRA securities licenses exams Series 6 (mutual funds, variable annuities and in-surance premiums) and/or Series 7 (all securities products except commodities and futures).

F r o m a b u s i n e s s p e r s p e c t i v e , i n o r d e r t o profitably accept fees, a client must have an account of $100,000 or more Commissions a re a ppropria te whe n work ing with s ma lle r client accounts Many financial planners are dually registered as both an RIA and a brokerdealer rep, which gives them the flexibility to charge either fees or commissions

Regardless of the business model, it’s possible to outsource or assign just about any and all PFP functions, which means you have the luxury of focusing solely on those areas that appeal to you most, or play best to your professional strengths, or result in the largest revenue source.

For instance, you can partner with a brokerage firm and have it supervise client investm e n t a s s e t s i n b r o k e r a g e a c c o u n t s O r y o u c a n p a r t n e r w i t h a c o m p l i a n c e p r o v i d e r t o review your client communications and regulatory materials What’s more, you can have a n i n v e s t m e n t m a n a g e r m a k e d a i l y i n v e s tm e n t s e l e c t i o n d e c i s i o n s , w o r k w i t h a n account reconciler to develop accurate client i n v e s t m e n t p e r f o r m a n c e r e p o r t s , c o n t r a c t a c o l d c a l l e r t o g e n e r a t e l e a d s a n d s c h e d u l e a p p o i n t m e n t s , a n d p a r t n e r w i t h t e c h n o l o g y and data managers to maintain client records

As with all good things, it takes time and effort to ensure things work seamlessly But the rewards make it all worthwhile.

Food, Networking & Free CPE!

Champaign-Urbana | Sept. 5 | C19943

11:30AM - Networking and Lunch

12:00PM - 1:00PM - Program and Q&A

I Hotel and Conference Center 1900 South First Street, Champaign, IL

Springfield | Sept. 6 | C19944

8:00AM - Networking and Breakfast

8:30AM - 9:30AM - Program and Q&A

President Abraham Lincoln Hotel 701 E. Adams Street, Springfield, IL

Peoria | Sept. 19 | C19945

11:30AM - Networking and Lunch

12:00PM - 1:00PM - Program and Q&A

Embassy Suites East Peoria 100 Conference Center Drive East Peoria, IL 61611

Bloomington-Normal | Sept. 20 | C19946

This a great opportunity to get out of the office and look at the big picture --- all while enjoying a free meal, networking with colleagues and earning 1 hour of CPE!

8:00AM - Networking and Breakfast

8:30AM - 9:30AM - Program and Q&A

Chateau Hotel and Conference Center 1601 Jumer Drive, Bloomington, IL

Rockford | Oct. 16 | C19947

11:30AM - Networking and Lunch

12:00PM - 1:00PM - Program and Q&A

Radisson Hotel and Conference Center Rockford 200 S. Bell School Road, Rockford, IL 61108

Oak Brook | Jan. 22 | C19950

8:00AM - Networking and Breakfast

8:30AM - 9:30AM - Program and Q&A The DoubleTree Hotel 1909 Spring Road, Oak Brook, IL

Glenview | Jan. 23 | C19951

8:00AM - Networking and Breakfast

8:30AM - 9:30AM - Program and Q&A

Wyndham Glenview Suites 1400 N. Milwaukee Ave., Glenview, IL

Chicago | Jan. 28 | C19952

FOR ALL PROGRAMS: CPE: 1 Credit Hour Cost: Free

8:00AM - Networking and Breakfast

8:30AM - 9:30AM - Program and Q&A

The Crowne Plaza Chicago Metro 733 West Madison, Chicago, IL

R e n d e z v o u s w i t h R e a l i t y

A recap of the spring legislative session, and an update on what we ’ ve been doing for Illinois CPAs

By Marty Green, Esq

Medicaid, public pensions and the state operating budget were at the heart of discussions during the Illinois General Assembly’s spring legislative session Reining in Medicaid spending and the state’s public pension debt both directly impact the state operating budget Wi t h t h i s i n m i n d , t h e G e n e r a l A s s e m b l y p a s s e d l e g i s l a t i o n t h a t r e d u c e s p r o v i d e r r e i m b u r s e m e n t r a t e s , n a r r o w i n g coverage and raising the tax on cigarettes

Revenue (IDOR) collected motor fuel tax

This legislation was highlighted in the April 30, 2012 Chicago Tribune editorial on the State’s loss of sales tax

The ICPAS VP of Government Relations, Marty is a practicing lawyer and member of the Illinois Bar Marty previously served as executive assistant attorney general for Illinois Attorneys General Lisa Madigan and Jim Ryan, and as director of the Governor’s Office of Citizens Assistance and assistant to the Governor for Public Affairs, both under Governor James Edgar

Several proposed pension reform measures that would help to control the spiraling cost of public pensions were considered duri n g t h e f i n a l h o u r s o f t h e s p r i n g s e s s i o n . H o w e v e r, S p e a k e r M a d i g a n a n d M i n o r i t y Leader Cross determined that a consensus could not be reached, and legislation was not called for an up or down vote. All have h i g h l i g h t e d t h e e n o r m i t y o f o u r s t a t e ’ s budget problems and the difficult decisions that must be made in order to restore Illinois’ fiscal integrity

Also during the spring session, ICPAS government relations staff was actively involved in a number of areas Here’s a synopsis of just a few of them

Introduced by Senator Linda Holmes and sponsored in the House by Speaker Madigan, Senate Bill 3794 creates a board of five CPAs to work with the comptroller and the various state agencies in improving the timeliness, quality and processing of financial reporting for the state Government relations staff provided Senator Holmes with technical information on auditing and accounting principles, and background on the internal audit function and financial statement preparation The impetus behind this legislation is an audit conducted by the Illinois Auditor General’s Office that was critical of the State of Illinois’ outdated and multiple financial reporting systems.

What’s more, House Bill 5289 introduced by Illinois Attorney General Lisa Madigan enhances criminal penalties for entities t h a t f a i l t o p a y t h e I l l i n o i s D e p a r t m e n t o f

A s pa rt of the ne g otia tions proc e s s , the ICPAS joined the Illinois State Chamber of Commerce and the Illinois Taxpayers’ Federation, as well as the Attorney General’s revenue criminal prosecution attorneys and legislative staff, in narrowing the definition of tax evasion. Collectively, we were able to amend this legislation to mirror portions of federal tax guidelines and case law

Also, House Bill 5192 details the establishment of an Independent Tax Tribunal, which will greatly benefit taxpayers in resolving tax disputes with the IDOR. While not everyone got everything they wanted, we were particularly pleased with the outcome of the creation of this Tax Tribunal and, most importantly for the profession, with enhancements the legislation requires in the informal conference process within the IDOR The ICPAS will provide more information on this legislation if signed into law by the Governor.

Outside of these significant bills, there’s some unfinished business that we hope will be addressed during the November veto session or in the following spring session when the 98th General Assembly is inaugurated

Specifically, as part of Illinois’ transition to a one-tiered license-only state, the ICPAS w o r k e d w i t h R e p r e s e n t a t i v e R o b e r t R i t a , chair of the House Business and Occupat i o n a l L i c e n s e C o m m i t t e e , t o i n t r o d u c e House Bill 5773, which would update the Illinois Public Accounting Act.

O u r l e g i s l a t i o n , a l o n g w i t h m o s t o f t h e o t h e r p r o f e s s i o n a l l i c e n s u r e a c t s t h a t a r e s c h e d u l e d t o s u n s e t o n J a n u a r y 1 , 2 0 1 3 (ours sunsets in 2014), was not assigned to a committee for a substantive hearing, and therefore didn’t meet the House’s hearing deadline. We will continue to work with our Bill’s sponsor and Speaker Madigan to en-

s u r e t h a t t h e A c c o u n t i n g A c t u p d a t e r emains at the forefront of discussion

The Attorney General also has indicated t h a t h e r o f f i c e w o u l d l i k e t o r e v i e w t h e c r i m i n a l p e n a l t y s e c t i o n o f H o u s e B i l l 5 2 8 9 m o r e c o m p r e h e n s i v e l y l a t e r t h i s summer, with a working group in which the ICPAS likely will participate.

We’ve also been working with members of the Illinois Congressional Delegation, the AICPA and other state societies on federal issues of interest to the profession The Mobile Workforce State Income Tax Simplification Act of 2011 (H.R. 1864), for example, would create a uniform national standard, and limits state or local taxation of compensation earned by employees who perform duties in more than one state or locality Taxation would fall to the state or locality of the employee’s residence and the state or locality in which the employee is physically present when performing duties for more than 30 days. Working with our Illinois Delegation, this legislation passed out of the House and is currently pending with the Senate

IRS Registered Tax Return Preparer Program Technical Topics, such as Accounting, Auditing, Tax, Not-for-Profit and Government

Rise of the Free Agent

Why contingent employees might make business sense

By Selena Chavis

While many companies are beginning to see that much anticipated light at the end of the tunnel, are they confident enough to return to business as usual? For many the answer is no And hiring is a case in point

“Some companies are understandably nervo u s a b o u t h i r i n g p e r m a n e n t e m p l o y e e s u n t i l t h e r e i s m o r e c e r t a i n t y a b o u t a r e c o v e r y, s o CFOs are engaging short-term, third-party resources to complete projects that simply must b e c o m p l e t e d d e s p i t e c a p a c i t y c o n s t r a i n t s , ” explains Chris Kearney, a Chicago-based partner and practice leader with Tatum, LLC

For shorter-term projects, companies are able to bring in experts who can hit the ground running and complete the work faster, without the associated costs and benefits packages.

“For example, temporary controller-level resources are in record high demand since CFOs a r e s e e k i n g p e o p l e w h o a r e d e p e n d a b l e a n d w e l l - c r e d e n t i a l e d , ” s a y s K e a r n e y “ T h i s a p p -

roach helps CFOs maintain a desirable variable c o s t s t r u c t u r e i n t h e i r d e p a r t m e n t s , w h i c h i s more prevalent now than ever ”

This strategy also may help to address worries over tighter talent pools once the economy gains momentum “As the economy gets better, it makes sense to draw on skill sets quickly,” notes Tom Moran, CEO of Addison Search in Chicago. “Departments are growing too quickly, and workloads are growing too quickly. Many companies can’t keep up.”

Steve Meyer, who has worked as a contract accountant for the last 12 years, has seen a definite uptick in activity in the last 3 to 5 years He finds that companies are depending more a n d m o r e o n c o n t r a c t p r o f e s s i o n a l s t o m e e t seasonal workflows “Companies have one or t w o b u s y a u d i t t e s t i n g t i m e s e a c h y e a r, ” h e explains “They can bring in an expert for the short-term, and they don’t have to keep a full staff all the time.”

Financial statement audits and audit prepa r a t i o n s f o r y e a r- e n d c l o s e a r e a m o n g t h e m o s t a c t i v e a r e a s f o r c o n t r a c t a c c o u n t i n g professionals “Monthly financial statements s t i l l n e e d t o b e p r e p a r e d i n a t i m e l y a n d a c c u r a t e m a n n e r. L e n d e r s a n d C E O s s t i l l e x p e c t t o s e e b u d g e t s a n d c a s h - f l o w f o r ec a s t s , a n d t h e r e i s a c t u a l l y a t e n d e n c y f o r these parties to want more information prep a r e d b y t h e a c c o u n t i n g f u n c t i o n m o r e immediately,” Kearney explains, adding that i f t h e s e f u n c t i o n s a r e n o t a d e q u a t e l y a d dressed through outsourcing or by hiring internally, many key accounting activities might be overlooked

I n d u s t r y p r o f e s s i o n a l s s u g g e s t t h a t h i g hlevel projects such as mergers and acquisit i o n s a n d c o m p a n y e x p a n s i o n s a l s o a r e p r i m e a r e a s f o r c o n t r a c t e x p e r t i s e M o r a n p o i n t s t o i n s t a n c e s w h e r e a F o r t u n e 5 0 0 company spins off a division or opens a subsidiary. “The accounting work doubles, and most companies are going to want to avoid bringing in that kind of high-level expertise for the long-term,” he notes.

What’s more, when a company is acquire d o r m e rg e s , a c c o u n t i n g p e r s o n n e l o f t e n choose to leave or are terminated as part of the agreement This results in holes in accounting departments at a time when more resources are needed, making the free agent a very appealing proposition

“With M&As, companies need expertise i n t e g r a t i n g t h e a c c o u n t i n g f u n c t i o n s a n d s t a t e m e n t s o f b o t h c o m p a n i e s , ” K e a r n e y stresses What’s more, “When the accounti n g d e p a r t m e n t g e t s t o o l e a n , t h e c o n s equences of losing a top performer are significant. The loss of continuity and know-how has a major impact on senior financial leadership in this era, magnified more than in the past when measured in cost and quality.”

IT initiatives also are ripe for project outsourcing, especially since companies may not have the luxury of accounting executives with expertise specific to software implementation

“If a company’s IT department hasn’t been t h r o u g h t h e p r o c e s s o f i m p l e m e n t i n g a n e n t e r p r i s e r e s o u rc e p l a n n i n g s o l u t i o n , f o r e x a m p l e , i t ’ s g o i n g t o b e n e f i t t h e m t o g e t some outside help,” Kearney explains. “By leveraging the expertise of professionals with the know-how of large-scale software impleme nta tions , c ompa nie s will a lmos t a lwa y s realize a return on investment for the effort They need help knowing how to accept proposals from vendors and negotiate appropriate contracts They need to know how softw a r e c o m p a n i e s o p e r a t e w h a t t h e y w i l l include and what they won’t do ”

Kearney advises companies to be actively involved in these projects in order to build internal expertise and ease the transition after the interim resource leaves

Even this, however, may not be enough “Some companies simply don’t have enough capacity to effectively handle the added project workload,” Kearney explains

As an endnote, our experts do warn that contract employees may not always be the

best option “If it’s a case where the company may need to bring in the knowledge over and over again, then it may not make sense for the long-term,” says Meyer.

“If a company is going to be doing somet h i n g r e p e a t e d l y, ” K e a r n e y c o n f i r m s , “ i t may be much more affordable to hire an expert full-time or near full-time ”

Still, the “free agent” is definitely a trend to watch

Worst-Case Sur vival Guide

Imagine the worst to plan for the best merger or acquisition

By Sheryl Nance -Nash

The concept is simple: Combine two good organizations and you’ll create one great one That’s the theory anyway

In practice, though, what can seem like a match made in heaven can prove to be hell on Earth In fact, recent PwC research reveals that few dealmakers succeed in meeting their most important financial and operating goals

In terms of global M&As, activity fell sharply in the first quarter of 2012. According to the M&A Trends & Insight for Lawyers report from Thomson Reuters Westlaw Business Advisor, activity dropped 20 percent and deal value dropped 33 percent compared to the fourth quarter of 2011 There were significant declines in deals in US and UK markets, as well as in Hong Kong and Singapore.

Don’t feel too discouraged, however. The report states that deal flow could rebound later in 2012 if economic indicators continue in a positive direction With large corporations holding megacash about $1 5 trillion in addition to an estimated $500 billion in untapped capital held with private equity sponsors, acquirers might well find ways to put their cash to work

How do you guarantee a smooth merger or a c q u i s i t i o n ? B y p r e p a r i n g f o r t h e w o r s t t h a t could happen. Here are just five scenarios.

1. Protracted Integrations

A detailed written merger integration and transition plan is essential, says Carl George, a CPA a n d s e n i o r e x e c u t i v e p a r t n e r w i t h C l i f t o n L a rsonAllen in Peoria, Ill , adding that, “It should include personnel and orientation, client transition communications, internal systems, policies and procedures, financial and budgeting, long-term strategy and vision for the combined unit, and much more.”

Most importantly, start developing that plan during the due diligence period, and include financial impact and key actions, advises Leanne Sardiga, national retail & consumer leader for PwC’s Transaction Services practice “Accelerate

the integration Prolonged transactions tend to slow growth and destroy morale Focus on the 20 percent of actions that drive 80 percent of value Identify specific actions, timing, costs/ benefits, and create accountability for results,” she says “Manage the integration as a business process, quickly and systematically.”

“Windows of opportunity to achieve synergies close as time passes. High persistent employee turnover and missed financial goals are associated with protracted integrations,” adds Joe Aberger, president of Pritchett, an M&A integration advisory firm that has consulted on mergers such as Pfizer/Wyeth and Mobil/Exxon

2. Culture Clashes

Bringing together two separate cultures creates a potential minefield. “Even when everybody is on board, there can still be an us-versus-them mentality,” says B r i a n Wo d a r, d i r e c t o r o f We a l t h

M a n a g e m e n t R e s e a rc h w i t h w e a l t h m a n a g ement firm AllianceBernstein in New York “It’s sort of like growing a beard The first day you kind of like it, then it starts to itch like crazy You either shave it off because you can’t stand it, or you tough it out ”

David Gebler, author of The 3 Power Values: How Commitment, Integrity and Transparency Clear the Roadblocks to Performance, offers a f e w r u l e s t o s a f e g u a r d a g a i n s t c o s t l y c u l t u r a l faux-pas

n D o n ’t a c t l i k e a c o n q u e r o r. T h e a c q u i r e d company’s employees will appreciate that t h e n e w l e a d e r s h i p c a r e s e n o u g h t o l e a r n about what made them successful

n Discover what makes them tick An acquiring firm’s leadership needs to invest the time and effort to learn the new team’s history, as w e l l a s i n d i v i d u a l a n d g r o u p m o t i v a t i o n s and dynamics.

n Handle one function at a time. Corporate culture is not monolithic, says Gebler Every company has many sub-cultures, each with different styles and motivations New leaders h i p s h o u l d a s s e s s w h i c h o f t h e a c q u i r e d company’s cultures are compatible with the new direction of the merged organization,

and what to do to bring the cultures in line with a new, well-oiled model

“If they don’t reach agreement on these key culture indic a t o r s , t h e d a y - t o - d a y a c t i v i t i e s w o n ’ t s u p p o r t t h e o v e r a l l direction the company needs to take,” stresses Linda Henman, Ph D, author of Landing in the Executive Chair

3. Poor HR Decision-Making

There are tough choices to be made. And if handled insensitively, look out

“When we worked on the Tyson acquisition of IBP, we analyzed the needs of the new company, assessed each person currently holding key positions, set criteria for the position, and made recommendations about who the person should be,” says Henman

S o u n d s s i m p l e e n o u g h B u t e g o s a n d t e n s i o n s c a n f l a r e when equally qualified people are vying for, say, the same CFO spot However fair you’d like to play it, be aware that compromises like co-CFOs are particularly risky, says George B r a d t , m a n a g i n g d i r e c t o r o f P r i m e G e n e s i s , a n e x e c u t i v e onboarding consulting firm in New York “Compromises are often substitutes for difficult choices,” he says.

4. Unpleasant Tax Surprises

Because tax considerations are a major component of M&A transactions, tax volatility can be a game changer

“Large M&A deals structured around tax incentives, such as asset write-ups and unused operating losses, for example, could see these incentives change or evaporate, ultimately altering the nature and value of the deal,” warns Charles Beauchamp, assistant professor of finance at Middle Tennessee State University Similarly, post-merger or acquisition regulations can change the dynamics of the newly formed company.

5. Careless Customer Care

Missteps made with customers or clients during the M&A transition can be fundamentally destructive The acquirer should talk to customers as part of the due diligence process, says Leslie Weiss, an M&A attorney with law firm Barnes & Thornburg in Chicago At that point, they should get a sense of how c u s t o m e r s m i g h t r e a c t t o t h e t r a n s i t i o n S p e c i f i c a l l y, t h e y should surmise what’s important to these customers and what their primary concerns are about a change in ownership

“ A s s u r e t h e m t h a t s e r v i c e w i l l c o n t i n u e u n i n t e r r u p t e d , ” Weiss advises And assign a special team to deal with the targ e t c o m p a n y ’ s c u s t o m e r s p o s t - s i g n i n g . “ T h i s t e a m s h o u l d i n c l u d e r e p r e s e n t a t i v e s f r o m t h e a c q u i r e r a n d t h e t a rg e t acquisition,” she says.

Customers can become irritated with both the acquired and acquiring company as products or service offerings are deleted, fused or reinvented, cautions Flip Filipowski, CEO of SilkRoad Technology, and an M&A veteran who’s been involved in more than 100 acquisitions “Revenue can tank when everyone becomes confused, concerned, agitated or discombobulated in the period leading up to and following an M&A ”

While there’s no shortage of M&A failures, there are plenty of success stories By planning for the worst, you might just end up with the very best of outcomes.

Cogs in the Machine

What the America Invents Act means to the tax and accounting world

By Carolyn Kmet

The Leahy-Smith America Invents Act (AIA) w a s s i g n e d i n t o l a w b y P r e s i d e n t O b a m a o n September 16, 2011, and is widely considered to be the most significant revision to the patent statute since the 1800s Given the proclivity of n e w i n v e n t i o n s s p u r r e d b y n e w t e c h n o l o g i e s and their applications, as well as the increased e m p h a s i s o n a c c u r a t e p a t e n t v a l u a t i o n a s i t relates to business transactions, such defining legislation is certainly warranted.

What’s more, the Act has far-reaching impact l o c a l l y f o r b u s i n e s s e s o f a l l s i z e s A s C ra i n ’s reported in June, “Although major Chicago-area corporations were, not surprisingly, granted the lion's share of patents local companies received l a s t y e a r, ( o u r ) a n a l y s i s f o u n d l o c a l p a t e n t re c ipie nts prov ide a s urpris ing ly broa d c ros ssection of big and small enterprises ”

From a tax and accounting perspective, the AIA has considerable significance. For one, taxpayers may need to establish the value of intellectual property (IP) if it is being attained through the acquisition of another entity or sold or transferred to another entity, or if royalty rates need to be determined in relation to its use

However, it’s unlikely that the AIA will have a direct impact on IP valuation, since there is no language that specifies valuation methodology or approaches. That said, earlier versions of the Act did include a “valuation calculation” that would have required the court to “conduct an analysis to ensure that a reasonable royalty is applied only to the portion of economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art ” This valuation calculation ultimately was excluded, however

should reduce uncertainty for patent applicants and for patent owners The AIA should reduce t h e a m o u n t o f l i t i g a t i o n a r i s i n g o v e r p a t e n t applications, ownership, patent claims and patent use,“ explains Robert F Reilly, CPA, managing director of Chicago-based Willamette Management Associates

Reilly adds that, over time, “This reduced risk and value/royalty rate increase should lead to more patent sales, licenses, transfers, financings a nd othe r tra ns a c tions a ll of whic h be c ome accounting and taxation events ”

The legislation also introduces a first-to-file rule, versus the previous first-to-invent rule To clarify, historically the United States applied a first-to-invent system to determine patent ownership, which meant that the patent would be awarded to whomever could prove the earlier c o n c e p t a s w e l l a s d i l i g e n c e i n b r i n g i n g t h e invention into being In this scenario, “another i n v e s t o r c o u l d c o m e f o r w a r d a n d c l a i m t h a t he/she was the first-to-invent,” Reilly explains “Such claims resulted in expensive and timeconsuming ‘interference proceedings ’ The risk of such litigation claims often constrained pate n t e d p r o d u c t e x p l o i t a t i o n ” B e c a u s e o f t h i s r i s k , a b u y e r, l i c e n s e e , c r e d i t o r o r t r a n s f e r e e would be reluctant to pay as much for a patent application or for a patent

Wi t h t h e s h i f t t o a f i r s t - t o - f i l e s y s t e m , t h e d e t e r m i n i n g f a c t o r b e c o m e s t h e d a t e u p o n which the patent application is filed with the p a t e n t o f f i c e A n d t h i s s u b t l e b u t s i g n i f i c a n t change increases patent value “Once an inventor proves an uncontested first-to-file status, a buyer, licensee, etc will feel comfortable paying full value for the patent rights,” says Reilly.

“Prior art” or “prior disclosure” was yet another risk associated with patent applications pre-AIA Specifically, “If another inventor could p r o v e t h a t t h e i n v e n t i o n , d e s i g n , e t c . w a s k n o w n i n t h e m a r k e t p l a c e , t h e n t h e a c t u a l inventor may not have been able to receive a patent,” Reilly explains

Basically, this encouraged inventors to disclose nothing about the invention until after the U n i t e d S t a t e s P a t e n t a n d Tr a d e m a r k O f f i c e (US PTO) ha d g ra nte d the pa te nt This in turn

m e a n t t h a t i n v e n t o r s w e r e r e l u c t a n t t o p i t c h their pre-patented inventions to investors, bankers, commercial corporations, etc , opting instead to hold their cards close “Without this self-promotional publicity, patent values often r e m a i n e d l o w, a t l e a s t u n t i l t h e p a t e n t w a s safely granted,” says Reilly

“ U n d e r t h e A I A , i n v e n t o r s c a n b r a g a b o u t their inventions all they want the year before the patent filing Such self-disclosure and selfpromotion will not count as patent-disqualifyi n g p r i o r a r t A n d t h i s i n v e n t o r- c r e a t e d b u z z about the new invention should increase values, royalty rates, financing potential etc related to new patents,”he adds.

The AIA also stipulates that “any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of the invention or application for patent, shall be deemed insufficient to differentiate a claimed invention from prior art ” Essentially, this means that patent applicants will not be granted a patent if they are relying on a tax strategy to differentiate their invention from prior inventions.

A c c o r d i n g t o P a t r i c k A D o o d y, a p a r t n e r with Pillsbury Winthrop Shaw Pittman LLP, form e r C o n g r e s s m a n R i c k B o u c h e r ( D - Vi rg i n i a ) a nd C ong re s s ma n Bob Goodla tte (R-Virg inia ) added the tax-strategy patents provision during t h e J u d i c i a r y C o m m i t t e e m a r k u p t o p r e v e n t indiv idua ls a nd c ompa nie s from filing pa te nt applications to protect tax strategies

“The legislative history suggests that if one individual or business is given the exclusive right to a particular method of complying with the Tax Code, it increases the cost and complexity for every other citizen or tax preparer to comply with the Tax Code,” he explains

Eldora Ellison, Ph D, director at Washington, D C -based law firm Sterne Kessler Goldstein & Fox, adds that, “Section 14 of the AIA strives to ensure that the ability to interpret the tax laws and implement one’s interpretation of the tax laws remains part of the public domain, and thus is available to all taxpayers and their advisors ” She explains that even if an applicant devises a new tax strategy, this new strategy cannot be relied upon to impart patentability to an invention that encompasses the tax strategy

However, the provision distinguishes between tax strategy and certain tax-related inventions. To break it down, there are essentially two exclusions to Section 14 of the AIA. An invention that’s directed to filing taxes may be patentable, but the tax strategies underlying that invention are not

Jeffrey Mann, special counsel in the intellect u a l p r o p e r t y d e p a r t m e n t a t N e w Yo r k - b a s e d Stroock & Stroock & Lavan, explains that, “This e x c e p t i o n i s i m p o r t a n t b e c a u s e i t l i m i t s t h e AIA’s provision to only the tax strategies them-

s e l v e s , a n d n o t t o a n y t a x - p r e p a r a t i o n product. So, for example, a new feature of a tax-preparation computer program may still be used to distinguish over prior art, although the general tax strategies carried out by such a program may not This conforms with the purpose of the provision in t h e A I A , w h i c h i s t o m a k e t a x s t r a t e g i e s available to everyone.”

S o , w h i l e t h e f i r s t e x c l u s i o n s a y s t a x strategies are not patentable, the second exclusion further protects the patentability o f f i n a n c i a l m a n a g e m e n t p r o g r a m s t h a t use tax strategies.

“This second exclusion prevents a financial management program that has distinctive features, other than the use of the tax strategy, from being unpatentable purely because it implements a tax strategy This exclusion, therefore, does not prohibit the p a t e n t i n g o f f i n a n c i a l m a n a g e m e n t p r ograms and permits inventions to be generally patented in this area,” Mann explains.

According to Doody, another purpose of the “no-tax-strategy-patents” provision is to avoid any public reliance on the legality

o r g o v e r n m e n t e n d o r s e m e n t o f t h e t a x strategy recited in the patent claims. This

o u l d o t h e r w i s e c o n s t i t u t e a n u n l a w f u l tax-sheltering scheme

“The provision is not meant to make it more difficult for companies to differentiate a claimed invention, nor does it bar the p a t e n t i n g o f t a x s o f t w a r e o r i m p l y t h a t other business methods are unpatentable or invalid,” Doody stresses

The impact of the AIA on the frequency a n d n u m b e r o f p a t e n t f i l i n g s i s a s y e t u n k n o w n H o w e v e r, E l l i s o n b e l i e v e s w e may see more patent applications filed earlier on in the process.

“Given the first-to-file provision, clients that can afford it will be more likely to file their patent applications earlier than they previously would have And they’re likely to file more applications in a series of related applications directed to a particular invention,” she says Pursuing many patent claims may be a strategy used to make it more expensive, and therefore less desirable, for others to challenge them later on

Doody agrees that the AIA will indeed impact how businesses pursue intellectual property protection, but suspects that it may cause more businesses to forego patent protection and instead maintain the invention as a trade secret.

“Both the public disclosure requirements of invalidating prior acts and the new prior u s e r ’ s r i g h t s d e f e n s e o f t h e A I A m a y e ncourage the retention of certain methods as trade secrets instead of disclosing them to the public,” he explains “These provisions run counter to the constitutional mandate of promoting the progress of science and the useful arts by, in some instances, discouraging public disclosure of inventions and discoveries ”

The other factor that may dissuade companies from pursuing patents is the potent i a l l y h i g h e r c o s t s a s s o c i a t e d w i t h f i l i n g , particularly when factoring in the defense of numerous post-grant review challenges.

“The high cost of post-grant review may discourage smaller companies from pursuing patent protection if their issued patents a r e s y s t e m a t i c a l l y c h a l l e n g e d b y m u c h larger corporations,” Doody warns. “Businesses and individuals likely will still value their intellectual property as they do today, but the AIA may greatly impact their strategy for protecting their intellectual property by placing more value on trade secret protection than patent protection.”

A majority of people admit to not being financially prepared if a disability were to occur. According to the 2011 Consumer Disability Awareness Survey, 65% of working Americans say they could not cover normal living expenses even for a year if their employment income was lost.1

In reality, the odds are one in four that an employee entering the workforce will experience a long-term disability prior to retirement. What’s more, the average length of a long-term disability claim is over 2.5 years 1

Think about your financial situation. If you su ered a disability that prevented you from working for several months (or several years), how would you pay your bills?

The time to help protect yourself from this risk is now. The Group Disability Income Insurance Plan—exclusively for ICPAS members—can help, with:

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Like Me!

Social media has put a whole new spin on how you market your business

By Caitlin Petersmark

s o c i a l m e d i a c i rc l e s , a n d w a s n a m e d o n e o f Accounting Today’s “Top 100 Most Influential People in Accounting ”

For some firms, though, client needs and limited resources mean putting social media on the back burner

“It’s all too much work,” Debra Lessin, CPA says of the sheer volume of social media tools and websites available to businesses. Lessin, a life balance coach, an author and also owner of Balancing Act Productions, Inc , is slowly inching into the social media arena. Her company currently uses its website presence and a blog for marketing and client engagement purposes, while Lessin uses a personal Twitter profile to humanize her personal brand. She also uses the online web tool SocialOomph to monitor her Twitter messages and followers, helping to rein in the amount of time she spends on maintaining her online presence.

Thanks to Facebook Fan Pages and Yelp customer reviews, to name just a few venues, social m e d i a i s n o w o n e o f t h e m o s t p r o a c t i v e a n d cost-effective ways to get your business or practice in front of an ever-expanding audience.

Jody Padar, CPA, a principal with family owne d N e w Vi s i o n C PA G r o u p , s t a r t e d h e r f i r m ’ s Twitter stream three years ago When a reporter r e a c h e d o u t t o h e r a f t e r r e a d i n g o n e o f h e r tweets, Padar immediately recognized the value of marketing via social media Beyond Twitter, the firm sends out promotional emails to clients and maintains a YouTube channel

“It’s not like I got on and right away figured it o u t , ” P a d a r a d m i t s . W h e n s h e f i r s t s t a r t e d o n Twitter she depended greatly on the help of her f o l l o w e r s a n d d e v o t e d t i m e t o b u i l d i n g h e r online reputation Today, she is well known in

M a r k G i l b e r t , C PA , p r i n c i p a l w i t h R e a s o n Financial Advisors, Inc and Retirement Advisor columnist for INSIGHT Magazine, is somewhat dubious about social media given its unknown v a l u e p r o p o s i t i o n . C u r r e n t l y, t h e t w o - a d v i s o r financial planning firm uses email marketing to s e n d o u t a r e g u l a r e N e w s l e t t e r t o c l i e n t s a n d p r o f e s s i o n a l c o n t a c t s , f o c u s e s o n i m p r o v i n g search engine optimization (SEO) by developing G o o g l e k e y w o r d s , a n d r e g u l a r l y u p l o a d s f i r m marketing materials, including press releases, to ensure information is on topic

Gilbert feels you see more immediate results f r o m t r a d i t i o n a l m a r k e t i n g t h a n y o u d o f r o m social media “I will test the waters, though,” he says, “and see if my peers in the profession are having success.”

If you’ve already developed a social media campaign, you now may be wondering how to involve and monitor your staff First and forem o s t , “ U s e y o u r b e s t j u d g m e n t , ” s a y s P a d a r, who chooses to connect with each staff member o n l i n e s o t h e y k n o w s h e ’ s f o l l o w i n g p o s t s , tweets and status updates That in itself deters any negative or inappropriate commentary. She e n c o u r a g e s h e r s t a f f m e m b e r s t o b e a c t i v e

online, even asking them to “check in” using FourSquare when they arrive at the office

Short of blocking social media sites in the workplace, it’s hard to keep your staff from visiting Facebook, Twitter and LinkedIn, so it m a y b e y o u r b e s t b e t t o f o l l o w P a d a r ’ s example. According to Kaye Publicity, companies do have the right to monitor social media usage However, it’s up to you and your organization to determine what kind of enforcement, if any, there will be

Whatever the extent of your policy-making, it’s good practice to remind employees to be mindful of what they broadcast. The mentality that posts will be seen solely by a close, personal circle of family and friends isn’t realistic given the public nature of social media

It’s also difficult to retract a statement, so staff members should think before they post

To get you started, here’s a social media m a r k e t i n g “ w h a t ’ s w h a t , ” c o u r t e s y o f t h e Fox Business Small Business Center [smallbusiness.foxbusiness.com].

F a c e b o o k : T h i s i s t h e p l a c e t o “ g r o w your brand ” Photo albums and wall posts, etc allow you to interact with clients while also creating a personality and tone for your company or firm

Twitter: Twitter allows you to hold a conversation with your audience As Fox Business explains, “Twitter offers a global, interactive, 24-7 sounding platform.” Gone are the days of limited customer service.

LinkedIn: This is the place to “grow and m o n i t o r y o u r n e t w o r k . ” F r o m p r o m o t i n g your services to hiring new staff, LinkedIn offers a versatile professional platform

Foursquare: Here, you can use incentives such as badges and rewards for checki n s t o e n c o u r a g e p e o p l e t o c h o o s e y o u r business and/or services

Tumblr: This is where it all comes together An integration tool of sorts, Tumblr “is a g re a t wa y of inc orpora ting a nd e nha nc ing other social-media campaigns ”

I t ’ s y o u r c h o i c e h o w m u c h t i m e a n d energy you invest in each social media site I n v o l v i n g s t a f f c a n b e a w a y t o s h a r e t h e w o r k l o a d a n d i n c r e a s e c o n s u m e r e n g a g em e n t , s i n c e e a c h i n d i v i d u a l h a s a u n i q u e personal network and therefore will reach different segments of the population Those who have already entered into social media w a t e r s s h o u l d t r u s t t h e i r i n s t i n c t s a n d d o what feels best for their organizations Ultimately, don’t over think it.

August 28-29 | Rosemont

Midwest Accounting & Finance Showcase

September 20 | Chicago

Fraud

September 24 | Oakbrook Terrace

Financial Institutions

September 28 | Rosemont

Midwest Financial Repor ting Sym posium

October 17 | Rosemont

IRS Tax Sym posium

October 30 | Oakbrook Terrace

Construction Industries

November 1 | Oakbrook Terrace

Tax

November 14 | Rosemont

Healthcare Compliance and Fraud Half-Day

November 28 | Rosemont

Not-for-Profit Half-Day

November 29 | Rosemont

Not-for-Profit

December 4 | Rosemont

Em ployee Benefits Half-Day

December 7 | Springfield

Not-for-Profit

December 12 | Springfield December 13 | Rosemont

Accounting & Auditing

Smart Funding

Lean times call for creative ways to find your startup money

By Christine Bockelman

Twitter and Pinterest, capital often comes from “ S u p e r A n g e l s , ” w h o t y p i c a l l y i n v e s t i n t h e region of $500,000 or more

“Super Angels get involved from the very, very beginning,” says David Diamond, a CPA and managing director at CBIZ. “They will do things like rent out or take over a couple of floors in a building and make them an incubator for startups. They’ll bring in a few, help fund them, help them with their business plans, and if that goes well, bring in more money for the startup ”

Super Angels carefully evaluate sound busin e s s m o d e l s a n d d o n ’ t l i k e t o t a k e b i g r i s k s They want to nurture and mentor a company, not aggressively push it towards growth in order to get a return on their investment Typically, Super Angels aren’t “flipping” their investment, to borrow a term from the real estate world.

It’s a tough time to be a startup. Although traditional sources of funding do remain, it’s not like the heady days of 2000 and 2001, when t h e r e w a s m o n e y f o r t h e t a k i n g B a n k s , f o r example, are still coming out of the mortgage crisis and facing new capital reserve and other regulations And family and friends, once a first s t o p f o r a n y o n e l o o k i n g t o r a i s e m o n e y, a r e reeling from post-recession economic issues of their own.

Of course, there are some high-profile startups like Facebook and LinkedIn that raised a lot of money just fine But don’t be fooled these are the exceptions

W h i c h b r i n g s u s t o t h e q u e s t i o n , h o w c a n startups raise capital these days? The answer is anything but straightforward

At the top of the list there are angels wealthy individuals who invest their personal funds (typically in the $10,000 to $15,000 range) into a startup company, and effectively fill the gap between the family/friend investment and the big money that comes from venture capital firms.

If that’s not enough private capital, in the sexy world of tech companies, home to Foursquare,

Another way to raise capital, of course, is to jump into the venture capital pool It’s a triedand-true way of injecting big chunks of money i n t o a g r o w i n g c o m p a n y. H o w e v e r, t h e r e a r e some indications that venture capital firms are being evermore cautious about where they put their money

“It’s a lot harder to get money from venture capitalists today,” says Diamond. “The public markets have crashed, and venture capital has been putting money into companies that aren’t being sold. They’re called the ‘living dead.’ In other words, some venture capitalists can’t get money out of companies they’ve invested in, and therefore have less money to invest ”

If you’re too small for angel investors or venture capital firms, read up on the Jumpstart Our Business Startups (JOBS) Act

Signed into law by President Obama in April 2012, the Act is designed to give new funding options to small businesses, especially those outside Silicon Valley and other established angel investor and venture capital hotspots

In essence, the Act loosens up some securities requirements and increases the number of shareholders a company is allowed to have before going public Through the Act, companies can raise capital by selling unregistered securities worth up to $1 million in a 12-month period. This is known as “crowdfunding.”

Crowdfunding basically allows the general public to invest money, often a small amount like $25, in a business It’s not an entirely new concept. Internet companies like Kickstarter com, which helps to fund projects like a Masala Food Cart based in Missoula, Mont , have been using it for a long time But the JOBS Act marks the first time these investors will get actual equity in exchange for their money, as opposed to getting a free curry dinner for two people after giving $25 to a project, for example

Not every business can take advantage of crowdfunding, though Only emerging growth companies are eligible to participate in the JOBS Act These are defined as c ompa nie s ha v ing a n a nnua l re v e nue of l e s s t h a n $ 1 b i l l i o n d u r i n g t h e i r m o s t recently completed fiscal year They also must have an IPO after December 8, 2011

Evanston, Ill -based ImpactTrader com, c o-founde d by John Jorda n, ha s a s oc ia l enterprise bent and a business plan based entirely on crowdfunding. It plans to sell investors small ownership shares in social and environmental improvement projects around the world

“We will basically be doing IPOs on a very small scale over and over and over, which would rack up millions of dollars in S E C f e e s i n t h e c u r r e n t s y s t e m , ” J o r d a n explains “The JOBS Act allows us to provide affordable financing for projects that don’t offer profits that would appeal to traditional investors.”

It sounds great, but there are some pretty big concerns surrounding crowdfunding. First, it’s never been done, so there are lots of regulatory, accounting and other issues to work out Second, there are limits on how much can be invested by any one person

“ D o i t c a u t i o u s l y, ” D i a m o n d a d v i s e s “Hire an attorney who knows a lot about this, because chances are it’s going to get complicated ”

Taking a more creative approach to the search for funding, “I’ve had a lot of clients get money from the government,” says Diamond Specifically, the Small Business Innovation Research (SBIR) program, which has been around since 1982, awards funds to small, domestic research and research and development businesses

A n o t h e r o p t i o n i s t o t a k e a c o m p a n y public through a reverse merger This involves finding a clean, public shell company and merging into it. “This is happening a lot now,” Diamond explains “It gets a bad rap because of unethical people, but we’ve done this three times in San Diego in the last year.”

Although not a strategy suitable for every company, many countries have economic development agencies that will give you money to set up in their local towns and cities “This is what [bio-tech] Invitrogen did,” says Diamond. “They kept their headquarters in the United States, but set up a sales office in Holland. They hired a bunch o f p e o p l e , u s e d t h e e c o n o m i c d e v e l o pm e n t m o n e y v e r y j u d i c i o u s l y a n d a r e a huge company now ”

And there are licensing options as well “ T h i s d o e s n ’ t h a p p e n a l o

happy with whatever they can sell in the United States and just want the licensing money to grow and develop the product.”

It’s a reality of today’s marketplace that funding is hard to find Whether the triedand-true traditional route, or a new, more c r

Healthcare Rising

What’s a small business to do about escalating healthcare costs?

By Derrick Lilly

Small businesses form the backbone of the US workforce, and a growing emphasis is being placed on how their expansion is essential to a sustainable national economy The trouble is, many are still hurting, and confidence remains unsurprisingly cautioned

E a r l i e r t h i s y e a r, G a l l u p ’ s s u r v e y o f 600 small-business owners found that a vast 85 percent are choosing not to hire new workers Why so bearish? While, t h e n a t i o n ’ s o v e r a l l e c o n o m i c h e a l t h topped the list of reasons (66 percent), a w h o p p i n g 4 8 p e rc e n t o f s m a l l b u s inesses said their lack of hiring was due to concerns over rising healthcare costs

Those concerns are certainly justifiable; the PwC Health Research Institute’s report, Behind the Numbers, cautions employers to expect an 8 5 percent increase in costs in 2012 alone.

“Employee benefits plans come in second only to payroll as an expense for a lot of employers, and it has only gotten more expensive and complicated especially when accounting for all of the regulatory changes,” stresses Adam Jensen, JD, CEBS, GBA, FLMI, VP of compliance and HR consulting at Cottingham & Butler.

“There are many hard decisions that have to be made as a small-business owner especially in cases where their livelihoods are sunk into a business that puts a roof over their heads and food on their tables,” says Jensen When healthcare premiums jump 10, 20 or 30 percent in a year, employers may be quick to pull their plans, pass costs on to employees or go to shop the market. But each of those actions requires due diligence It’s important not to lose sight of why you offer employee benefits in the first place

“The reality is that the cost of health insur-

in a very major way at some point in our lives, our out-of-pocket premium payments will look like just a drop in the bucket,” says

Marcus Newman, RHU, CBC, VP of small-business sales at GCG Financial

What’s more, in a highly competitive industry like accounting and finance, employee benefits is one of the few ways employers can differentiate themselves. Simply put, “You can’t have cutrate insurance as an employee benefit and still expect to attract and retain the highest-quality employees,” says Newman

Deciding on a health insurance plan comes down to a three-layer process: “Layer one attacks plan provisions; co-pays, deductibles, maximum out-of-pocket risk,” Newman explains “Layer two is cost-sharing; small businesses will then look at the way they share the plan costs with employees. The third layer is going to market to find a carrier with an attractive cost ”

Approaching each layer strategically is vital

Layer One: Plan Provisions

Look carefully at deductibles, co-pays and maximum out-of-pocket risk Generally speaking, plans with higher figures in these key areas will be more affordable to implement. Jensen notes that, “Employers trying to hold the lines against increasing premiums are increasingly selecting plans with higher deductibles ”

Finding a balance between costs and out-ofpocket liabilities is the trick. “Small businesses have been slow to embrace qualified highdeductible health plans plans with high up front deductibles to meet before costs are covered because they’re afraid employees won’t be able to afford the initial deductible,” Newman explains. “However, these plans are typically 15 to 20 percent less expensive for the employer ”

Layer Two: Cost-Sharing

“Most employers don’t want to burden their employees with high-deductible plans so they’ll put in place some type of a self-funded reimbursement arrangement to help to cover the higher deductible amounts incurred through their cost-cutting measures,” says Jensen.

Health Savings Accounts (HSA), Health Reimb u r s e m e n t A r r a n g e m e n t s ( H R A ) a n d M e d i c a l Expense Reimbursement Programs (MERP) are

the primary options that allow employers to e s t a b l i s h t h e c o s t - s p l i t t i n g s t r u c t u r e o r t h e a m o u n t e m p l o y e e s m a y b e r e i m b u r s e d f o r claims

Looking purely at reducing costs, MERPs are most advantageous because they grant employers the flexibility to fund employee liabilities on an as-incurred basis.

“Essentially, it says to the employee, ‘There is $500 for you if and only if you need it You have to have experienced a claim, paid the bill and then we will reimburse you,’” Newman explains. “For example, instead of creating a fixed expense by giving 10 employees $500 each in the case of an HRA or HSA, if only two employees have claims in a year, only $1,000 has to be paid out instead of $5,000 annually So while a MERP protects the employee from the same out-of-pocket liability, it’s definitely advantageous for the employer in terms of cost-cutting and control ”

Layer Three: Carriers

The third layer looks at one of the more precarious cost-cutting measures going to market to find a lower-cost carrier

“Unfortunately,” says Newman, “this isn’t always an opportunity because you have to go through medical underwriting and may not be able to achieve lower costs by simply switching companies ”

In any given market, there are generally only a handful of carriers that offer fully insured plans to small businesses, and each offers rates within a competitive range in an effort to grow their market share This is where a broker comes into play

“You can’t practically access the small business health insurance market without a broker. When it comes to comparing new rates or negotiating renewals, a broker is an important part of the process,” says Newman “There are some companies that have gone directly to the insurance provider to buy a policy, but...come renewal time, that provider isn’t going to show you quotes from others in your market or negotiate for your benefit ”

If you already have a health plan that you’re happy with but costs keep rising, Jensen suggests giving wellness programs a shot.

“Meaningful wellness programs are becoming a big thing healthy people use less healthcare Programs can entail anything from learning sessions or fitness challenges to annual biometric testing and other preventative measures,” he explains. “As a small-business owner, you’re talking about your dollars on the line If you’re able to create a wellness pro-

gram that helps employees stay healthy then fewer dollars are spent ”

What’s more, “If you’re getting high renewals, it’s very important to ask what the increases are based on,” says Jensen. “Emp l o y e r s n e e d t

ational illnesses as best they can We call this disease management,” he explains

“For example, maybe an employee was undergoing a specific treatment, but now

they’re done and there won’t be future costs On the other hand, maybe an employee will have ongoing catastrophic claims; it’s important to work with your broker and insurance carrier so they can adjust for treatments that may or may not need ongoing coverage In some cases, they may have additional resources...[T]he point is to make them justify their increase ”

THE BIG

Five trends impacting the business landscape—and why they matter to you.

Information overload is a blight affecting just about every executive today. Deciding what’s important to know is a drain on time and productivity. Missing what’s important to know is costly, even devastating. Outlined here are five trends some national, some global that will impact the accounting and financial landscape in the future.

By Kristine Blenkhorn Rodriguez

PICTURE

ONE: The ‘Greying’ of America

I n c r e a s e d l o n g e v i t y a n d d e c l i n e s i n f e r t i l i t y r a t e s a r e c r e a t i n g a global shift towards aging societies According to the Global Coalition on Aging, the 65 and older population in the G-20 countries is projected to increase by 124 percent between 2000 and 2030 By 2025 researchers project that more than 20 percent of the US population will be over 65

“What most people don’t realize,” says Joshua Wiener, distinguished fellow at the nonprofit research institute RTI International, “is even after the Baby Boomers are gone, we’re not looking at a steep decline in the elderly population ”

Foreboding tales prevail of a Medicare-subsidized population deteriorating slowly into nursing homes, while a dearth of younger workers brings our economy to a virtual halt In a 2011 survey for the American Association of Retired Persons (AARP), Baby Boomers showed their pessimism in no uncertain terms For one, they are less confident about financing their retirement through their own savings or pensions, and are more likely to rely on Social Security

The y a ls o ha v e lowe r e x pe c ta tions of a c omforta ble re tire me nt, anticipating working longer, at least on a part-time basis, for the additional income they need

Wiener isn’t surprised “Look at the situation the 65-and-older set is in now,” he says “Their assets, stocks and bonds have had a slow rate of return or no return for some time now. The housing collapse has robbed them of substantial home equity In addition, a significant portion has been laid off, partly due to age discrimination, which the Supreme Court has made more difficult to contest ”

And then there’s the matter of benefits. “The number of people requiring long-term care will double between 2000 and 2030,” says Wiener “Many middle-aged workers have aging parents and children Right now, we’re not experiencing a shortage of workers But if that occurs companies will have to take more of an interest in providing flexible work schedules and leave for their employees to accommodate care-giving if they want the good ones to stay S o m e l a rg e c o m p a n i e s o f f e r l o n g - t e r m c a r e i n s u r a n c e t o t h e i r employees, but don’t help to pay for it Without an employer subsidy, most employees aren’t going to buy it.”

TWO: The Rise of the Mobile Mavens

Your younger clients, customers and employees have never known a world without cloud computing, mobility and social platforms.

“These kids are the next generation and they don’t want their father’s financial advisor or brands unless they’re updated for the D i g i t a l A g e , ” s a y s A m y M c I l w e i n , p r e s i d e n t , F i n a n c i a l S o c i a l Media. “They want digital communication now. Twenty-four-hour turnaround for anything is an eternity to them ”

Gen Z is the fledgling generation, born after 1995 According to Ann Mack, director of trendspotting for marketing firm JWT, members of this generation are the first true mobile mavens

“They will take for granted a world of smartphones, tablets and high-speed wireless Internet, untethered by the constraints of a landline or a traditional Internet connection,” she says. “They won’t distinguish between online and offline, since their mobile devices will keep them connected most of the time. This will create a unique mindset, especially when it comes to accessing information ”

The days of Yellow Pages are over, says McIlwein. “Trust is gone with this generation They rely heavily on friends and family for opinions on purchases or professional services. Posts about tiring of poor service from mobile phone communication providers and the

like abound on Facebook And usually they’re asking for an opinion on who everyone else is using and how good they are.”

With phone saturation reaching 83 percent of American youths by the time they get to middle school (says 2011 research from Bridgewater University), the mobile device is an omnipresent and indispensable tool As this generation grows up, mobile devices will become deeply integrated into daily lives an “Everything Hub,” of sorts, that enables socializing, shopping and web searches, with geolocation services supplying information on nearby friends, deals and amenities

In response, companies will need to create tailored mobile strateg ie s , with we bs ite s optimiz e d for mobile brows ing Bra nds a ls o need to master SoLoMo (social, local, mobile), ensuring they pop up on Gen Z’s mobile-roaming radar by, for example, linking in to services like Foursquare and Yelp

Soren Gordhamer, author of Wisdom 2.0, says social media is helping to forge a new era in business transparency and engagement, creating both new challenges and opportunities “Gone are the days when companies could rely on carefully crafted press releases or flashy ad campaigns to communicate with their customers, often in an attempt to convince people that their products are the best in the field,” he says “In the age of social media, the rules have changed radically, and people today demand a more honest and direct relationship with the companies with which they do business ”

Companies now face a clear choice: Wall themselves in or use social media and other means to reveal their human side, welcome transparency, and forge new relationships with their customers

It’s not just a new generation of clients ushering in the mobility and social media era; it’s employees as well

“The reality is that mobile collaboration will increase for all categories of workers, and organizations can either take the lead or be led by their users,” says Monica Basso, research vice president for analyst firm Gartner. “The most progressive organizations won’t be afraid to explore the innovative communications and collaboration models enabled by new devices and social services.”

Whether marketing goods or services, financial or otherwise, the implications of dealing with this generation are clear: It’s all digital, all the time. And it’s served up on their terms.

THREE: The Exodus to the Cloud

Gartner analysts assert that all Forbes Global 2000 companies will be using cloud computing by 2016

“ Te c h n o l o g y h a s b e c o m e a c o m m o d i t y, ” s a y s M a t t C o a t e s , Accenture’s global lead for cloud-computing strategy “It’s now a pay-by-use service, thanks to the cloud.” The option to ramp it up or down, switch it on or off, is the crux of the cloud’s oft-touted cost savings, he explains “You’re moving from capex to opex, and that’s good for many balance sheets But many executives miss the real promise of cloud ”

That promise, says Coates, is flexibility. “Rapidly changing consumer and client demands are much easier to meet and exceed w i t h a f l e x i b l e I T a rc h i t e c t u r e t h a t i n c o r p o r a t e s t h e c l o u d . Yo u r speed to market improves immensely because you’re more agile as a company,” he says

Coates sees middle-market companies gaining a lion’s share of the cloud’s benefits “Technology is a larger percentage of their cost base, and with cloud they’re greatly reducing those costs, in some cases by as much as 40 percent,” he explains “But they have the rigor to use the best-of-breed technology that cloud makes readily available to its full advantage ”

A s for Ga rtne r’s a s s e rtion, C oa te s a g re e s it’s v a lid but a dds a caveat “Large multinationals will be in the cloud by 2016 but some will use it just for a piece of the business. We’re not talking an en masse exodus.”

FOUR: The Energy Demand Surge

Primary energy demand is expected to grow 36 percent worldwide by 2025 In the United States, the American Petroleum Institute projects that the energy industry supports more than 9 million jobs directly and indirectly, which is more than 5 percent of the nation’s total employment In 2009, the energy industry supported a total v a l u e a d d e d t o t h e n a t i o n a l e c o n o m y o f m o r e t h a n $ 1 t r i l l i o n , which represents 7 7 percent of US GDP

While growth in energy demand is good for the economy on many levels, it also has the potential to strain resources and the marketplace in other ways

Steady and reliable energy supplies are crucial to growth in developing and emerging economies According to a recent World Economic Forum report, Energy Vision Update 2012, South Korea, China and India are fostering entrepreneurship and technological innovation in non-traditional energy sectors as another avenue to promote the development of their rapidly growing economies Specifically, they are providing incentives for wind and solar production, and encouraging joint ventures and technology transfers. Many developed economies also are seeking to expand their renewable energy capacity to be at the forefront of this growing sector

According to the 2011 McKinsey Global Institute report, Resource Revolution, the flip side to the positive growth is an increase in resource price volatility as new supplies become more expensive to extract Environmental spillover then could impact crop yields and the availability of water, ultimately leading to fuel protectionism and political unrest.

The Institute’s executives, Richard Dobbs, Jeremy Oppenheim, Fraser Thompson, Marcel Brinkman and Marc Zornes, suggest that this new era presents both opportunities and risks for businesses Specifically, they say that, “Companies in most sectors were able to benefit from declining resource prices over the past century. This allowed management to focus attention primarily on capital and labor productivity But resource-related trends will shape the competitive dynamics of a range of sectors in the two decades ahead Many companies need to pay greater attention to resource-related i s s u e s i n t h e i r b u s i n e s s s t r a t e g i e s a n d a d o p t a m o r e j o i n e d - u p approach toward understanding how resources might shape their profits, produce new growth and disruptive innovation opportunities, create new risks to the supply of resources, generate competitive asymmetries, and change the regulatory context.”

FIVE: The Social Network Revolution

As far back as 2010 (and in the digital world, two years is an etern i t y ) , a n a l y s t f i r m G a r t n e r p r e d i c t e d t h a t g r e a t e r a v a i l a b i l i t y o f social-networking services, coupled with changing demographics and work styles, would lead 20 percent of employees to use social n e t w o r k s a s t h e i r b u s i n e s s c o m m u n i c a t i o n s h u b b y 2 0 1 4 N o w some analysts claim an even higher percentage

I n t h e p a s t , o rg a n i z a t i o n s s u p p o r t e d c o l l a b o r a t i o n t h r o u g h email and highly structured applications only,” says Basso. “Today, social paradigms are converging with email, instant messaging and presence, creating new collaboration styles However, a truly coll a b o r a t i v e , e f f e c t i v e a n d e f f i c i e n t w o r k p l a c e w i l l n o t a r i s e u n t i l

organizations make these capabilities widely available and users b e c o m e m o r e c o m f o r t a b l e w i t h t h e m Te c h n o l o g y i s o n l y a n enabler; culture is a must for success.”

Newer employees will enter the workforce with a predisposition to communicate via a social network, but they will use email in parallel, optimizing the business need with the communication modality “The rigid distinction between email and social networks will erode,” says Basso “Email will take on many social attributes, such a s c o n t a c t b r o k e r i n g , w h i l e s o c i a l n e t w o r k s w i l l d e v e l o p r i c h e r email capabilities ”

Gordhamer lists four actions companies have taken to better their chances of success in this new socially networked era:

1. Make a connection rather than a sale. Companies need to use various means, including sites such as Facebook and Twitter, to socially interact with people The most popular brands tend to post less about their products or services and more about things that help their customers get to know the people behind, and personality of, a company Their goal is less about selling and more about engaging

2 Opt for small campaigns rather than large ones With sites like Facebook and Twitter, we all essentially have our own broadcasting network. And businesses are beginning to see that rather than spending millions of dollars on traditional ad campaigns, small acts can be more valuable because people will inevitably share such experiences through social media

3. Recognize your customers’/clients’ broadcast power. In the past, if we had a very bad or very good experience with a company, it could take days or weeks to tell all our friends and relatives about it Today, in a matter of minutes, we can spread the word among our friends on Facebook or followers on Twitter When every customer experience can be easily and widely broadcast, small issues become highly significant. One of the most important jobs for the corporate suite today is to hear what people are saying about the company’s products or services across social media channels, and to respond to them directly.

4. Become available everywhere. It’s no longer enough to have an email address and customer service number on your website to engage with customers Today, people want to interact with and engage businesses via their chosen means of communication, whether it’s Twitter, Facebook, discussion forums, or a feedback site like Get Satisfaction

“Knowing that I can communicate with a company on the networks upon which I am already most active makes me feel more comfortable doing business with them, because I know that if I have an issue there is someone at the company I can communicate with through those means,” Gordhamer explains Companies like Dell, for example, have fully embraced multiple channels of support Dell’s community site lists all the ways customers can connect with the company through Twitter, Facebook, Flickr, YouTube, forums, blogs, email, and more

“Businesses that choose not to adapt to the new culture will be at an increasing disadvantage, as their customers slowly build personal relationships with their competitors,” says Gordhamer. “We are now in the age of open communication, engaged dialogue and transparency, and business success may now have less to do with the size of ad budgets, depending more on the quality of interactions with customers ”

RAPID RE Protect your data, save your business.

By Derrick Lilly

Mother Nature, human error, hackers, viruses, mice chewing electrical wires they’re all potential threats to your business. Even a simple power surge can disrupt many of the technologies upon which we so greatly rely.

A f r i g h t e n i n g 9 3 p e rc e n t o f c o m p a n i e s that lose their data center for 10 or more days following a disaster f i l e f o r b a n k r u p t c y w i t h i n o n e y e a r, a c c o r d i n g t o t h e N a t i o n a l Archives and Records Administration Today, you’re expected to be accessible 24/7, and the slightest hiccup or period of downtime can quickly lead to distraught customers and clients, damaged confidence, missed deadlines and, ultimately, lost revenue

Unfortunately, the amount of paper and digital data accounting and finance professionals rely on leaves them especially vulnerable. That’s why savvy business leaders are recognizing that implementing the right solutions to protect, backup and restore systems rapidly is more critical than ever.

ECOVERY

Data Backup

The mentality of, “This hasn’t,” “This won’t” or “This can’t happen to me” simply won’t cut it.

“Data backup is absolutely essential,” says Tony Miscavige, CPA, IT audit manager at Trout, Ebersole & Groff LLP and a Certified Business Continuity Professional “Client trust is key, and it would be a grievous breach of trust not to even be doing basic data backups.”

At the absolute ground level, “Business leaders need to take a critical look at what data, devices and systems would cause them to be unable to function if damaged or lost Anything that is business critical you need to ensure is backed up often to a secure offsite location,” advises Shane Arnold, vice president of Marketing & Product Management at VaultLogix [www VaultLogix], an offsite data backup and storage services provider

With many of today’s organizations running lean, migrating to a cloud-based backup platform administered by a third party is one me thod g a ining mome ntum A s A rnold points out, “ Ba c k ing up sensitive data in high volumes requires oversight Paying someone to handle it so you don’t have to allows you more time to focus on the actual business ”

There are a number of things accounting and finance professiona l s n e e d t o p a y p a r t i c u l a r a t t e n t i o n t o w h e n s e l e c t i n g a s e r v i c e p r o v i d e r, i n c l u d i n g d a t a e n c r y p t i o n a n d s e c u r i t y, d a t a r e c o v e r y times and guarantees, backup and recovery methods, and data center location and security Above all, however, “The biggest issue a c c o u n t i n g a n d f i n a n c e p r o f e s s i o n a l s n e e d t o u n d e r s t a n d a n d ensure is that they’re compliant with whatever regulations their business is subject to with regards to the handling and storage of customer data,” Arnold explains

Does your organization need to follow SSAE 16 standards? Solutions such as Mozy’s [www mozy com] SSAE 16 audited and ISO 27001 certified MozyPro and MozyEnterprise use the strictest security policies, military-grade encryption and leading data centers backed by storage leader EMC Corporation [www.emc.com]. Or maybe you need to meet SOX, SEC/NASD, HIPAA, Gramm-LeachBliley (GLB), IRS or Payment Card Industry (PCI) regulatory compliance? Third-party service providers like VaultLogix [www dataprot e c t i o n . c o m ] a n d E v a u l t [ w w w. e v a u l t . c o m ] o f f e r s c a l a b l e d a t a backup and recovery solutions that meet the requirements of many highly regulated environments.

But data backups are really only one piece of the overall business protection puzzle. As Miscavige points out, “You can have great data backups, but if you don’t have equipment it’s not going to do you much good ”

Hardware Protection

“There are many ways data and devices can get corrupted or compromised and it’s important for every business to ensure they have the appropriate safeguards in place to keep that from happening,” says Arnold. “Those are critical pieces of the overall data-protection picture ”

It’s no secret that computers lacking sufficient protection are the most vulnerable to malicious invasion and corruption, which can easily spread throughout your entire network “A data breach in a CPA firm, for example, would certainly cause a hit to your reputation and possibly your bottom line,” Miscavige stresses

Instead of setting yourself up to be a victim, take every step necessary to ensure your systems are secure right from the start. Symantec [www symantec com], for example, offers solutions specifically f o r s m a l l a n d m i d - s i z e d b u s i n e s s e s , e n t e r p r i s e s a n d i n d u s t r y -

specific customers that will ensure you have the most comprehensive anti-virus, anti-spyware, firewall, encryption and host-intrusion prevention protection available to defend you against hackers, malware and other digital threats

Don’t s top the re , howe v e r Prote c ting y our da ta , s y s te ms a nd bus ine s s from the ir phy s ic a l e nv ironme nt is jus t a s c ritic a l. The office sprinklers go off unexpectedly, there’s a building fire, a lightning strike kills the power there are plenty of situations that can s i d e l i n e y o u r b u s i n e s s . T h a t ’ s w h e n d i s a s t e r- d e f y i n g h a r d w a r e champions the day

“The consequences of not investing in this kind of protection can be very costly. I bet that most people would place a higher value on the information stored on their computer than on the hardware itself,” says Patrick Donovan, product manager at APC “All of that can be lost literally in the blink of an eye.”

Take a brownout or blackout, for example An uninterruptable power supply (UPS) can keep your computer, networking systems and even your whole office fully juiced so you can continue working on those last-minute financial statements

“Imagine being in the middle of an online stock trade, a bank transaction, and suddenly the power goes out; what a pain, what a h

pens to the power ”

That faulty sprinkler head that drenches your desktop doesn’t have to be your worst nightmare, either Lost data means lost business, but specialized storage hardware from companies such as ioSafe [www.iosafe.com] can dramatically decrease the risks of losing your business-critical data and software solutions in the event of a disaster. ioSafe says its line of specialized external hard drives for personal, business and enterprise use is comparable to an aircraft black box, offering protection from fire, water, shock and crushing.

“If you’re not using rugged hardware, your data is at serious risk,” says Robb Moore, ioSafe CEO “For example, if the internal glass disk [in your hard drive] is broken in 20 pieces or the drive has suffered serious fire damage or liquid corrosion, recovery will be impossible ”

Specialized Data Recovery

No matter what steps you take to protect your data and devices, the truth is that wear and tear and unforeseen events are inevitable. At some point your devices will simply fail you Your IT department didn’t replace that aging server soon enough, the laptop the intern dropped won’t boot up, your frazzled hard drive has files stuck on it that weren’t included in your automated cloud backups, a disgruntled employee corrupted client data Having a reliable data-recovery service to turn to in these situations can be your best backup back-up plan

ADR Data Recovery [www adrdatarecovery com], for example, specializes in advanced data recovery and computer forensics, and has more than 300 locations across the nation that can recover data and deleted files from failed, unreadable, corrupted or damaged hard drives on desktops and laptops, flash drives, mobile phones and PDAs, servers and other devices Considering ADR says 80 percent of all corporate and business data is stored electronically much of it in the form of emails, PDFs, Word documents and digital files the need for its services and those of companies such as Midwest Data Recovery Inc. [www.midwestdatarecovery.com] and Datarecovery com Inc [www datarecovery com] is pretty obvious

Browse before you buy

With so many backup solutions out there, finding the best one for your business is an overwhelming proposition especially if you don’t have any IT support staff or consultants to guide you Shane Arnold, VP of Marketing & Product Management at VaultLogix, offers these pointers

CoM PA TIBIL ITy: N a r r o w y o u r o p t i o n s to include only what’s compatible with your existing operating systems

SuPP orT: C l e a r l y k n o w i n g w h o y o u need to contact for service and supp o r t a n d w h e n t h e y ’ r e a v a i l a b l e i s critical A lot of providers only offer support during limited hours

ENCryPTIoN: This is particularly important to professionals in accounting and finance Data shouldn’t be transmitted or taken off-premises in an unencrypted format

CoMPLIANCE: If you’re in a highly regulated industry, ensure your backup solutions are compliant with all the regulations you’re subject to

The ultimate safeguard for business continuity, however, comes in the form of a strategic plan

All-Out Business Continuity

Data and disaster recovery precautions often fall short because they focus on the steps to protect or restore your data and devices, but overlook the overarching objective of ensuring your entire organization can recover from a catastrophic event within a set timeframe.

“If your business can’t afford to be down for four or five days, then you seriously need to be looking at a business continuity plan (BCP) to ensure that, no matter what happens, you’ll be there to service your clients,” says Miscavige “Whether you’re a mom-andpop shop, or a regional, national or large enterprise, a lot of the BCP principles are the same ”

What are our main threats and risks? What are our critical assets and processes? What’s time critical? What’s our strategy for maintaining the business, people, premises, operations, technology and suppliers? What evidence do we have that our plans will work? These are just a few of the many questions that have to be answered when developing an all-encompassing BCP.

Knowing the task can be overwhelming, the US Small Business Association and Agility Recovery Solutions teamed up to create PrepareMyBusiness org, a website dedicated to providing BCP planning, education and testing resources and disaster assistance for do-it-

BACkuP: replication is critical to ensuring data safety Choose a solution that replicates the data to multiple

SErVICE-LEVEL AgrEEMENT: What is the company’s service-level agreement and how do they stand behind it? Is there financial reimbursement if data cannot be recovered within a set period? Choose a solution supported by strong guarantees

PrICE: Everyone has budgetary concerns, but the cost of not getting data back as expected is crippling online backup is very cost competitive, and many providers take shortcuts that may put you at risk Don’t sacrifice your data for cheap service.

yourselfers Turning to a third party for guidance, however, often offers the greatest value and insight, since they can look at your general risks and vulnerabilities and uncover situations you simply may overlook or not assign priority to Miscavige’s firm, for example, takes a four-phase approach to BCP development Phase one is the vulnerability analysis, which is a general risk assessment. Phase two is the business-impact analysis, which analyzes each operational area to look at what it does, who it interacts with and how sensitive it is to outages. Phase three consists of drafting the plan based on all findings And finally, phase four dives into testing and implementing the plan

Agility Recovery Solutions [www agilityrecovery com], known f o r i t s B C P c o n s u l t i n g a n d t e s t i n g s e r v i c e s , a l s o o f f e r s c l i e n t s a unique way to beat the odds In the wake of any emergency or disa s te r, A g ility Re c ov e ry imme dia te ly mobiliz e s the powe r, works p a c e , c o n n e c t i v i t y a n d t e c h n o l o g y r e s o u rc e s n e e d e d t o g e t i t s clients’ businesses up and running again And in the most dire of circumstances, it can deliver its ReadySuites, which provide all-inone mobile offices with the critical space, data centers, satellite connectivity and power generation for your specific needs

Regardless of what steps you take to secure your business, the important thing is to find out where your plan fails. A faulty plan is as good as no plan at all.

THENImBlENoNPRofIT

By Clare Fitzgerald

Nonprofits have been hunkering down over the past few years, and for good reason. They’ve been forced to weather the perfect storm decreases in donor contributions, slow government funding, tricky conditions for endowments and a stricter regulatory environment, all while demand for their services is soaring

According to the 2012 State of the Nonprofit Sector survey conducted by the Nonprofit Finance Fund, 85 percent of nonprofits experienced an increase in the demand for their services in 2011, and 88 percent expect an increase in demand this year. However, 57 percent have only three months or less of cash on hand

In addition to the age-oldchallenges nonprofits face on a daily

basis, today’s organizations have to show agility in navigating

the twists andturns ofa rapidly evolving business landscape.

Regulator y Rank & file

The nonprofit regulatory environment gained a new layer of complexity in 2007 when the Internal Revenue Service (IRS) substantially revised reporting rules and redesigned Form 990 for tax-exempt organizations, creating more transparency and visibility into nonprofit financial information, tax-exempt p u r p o s e , a n d c o r p o r a t e g o v e r n a n c e a n d policymaking

“The IRS has used the revisions to touch m o r e o rg a n i z a t i o n s , ” s a y s D a n R o m a n o , partner-in-charge of Grant Thornton’s nati o n a l n o t - f o r- p r o f i t p r a c t i c e . “ W h i l e n o np r o f i t s m a y n o t h a v e l i k e d t h e c h a n g e s , they’re adapting the best they can.”

“Organizations used to be able to gather their tax information at the last minute, but that’s no longer the case,” says Scott Steffens, partner in Grant Thornton LLP’s not-for-profit practice in Chicago “We advise them to get the ball rolling much earlier now ”

T h e o v e r a l l h e i g h t e n e d l e v e l o f t r a n sparency, especially when it comes to donor and board interest in their operations, is still taking some getting used to

“We’re seeing a lot more donor accountability In the past, people might have just given to a cause because their parents supported it,” Steffens explains “Now, people are much more interested in understanding the impact of their gift.”

With the books now open to the public, n o n p r o f i t s n e e d t o p r o v i d e m e a s u r a b l e r e s u l t s t o e a r n a n d m a i n t a i n t h e p u b l i c ’ s t r u s t . “ I f d o n o r s d o n ’ t l i k e w h a t t h e y s e e , contributions will go down and the organization will suffer,” says Romano.

Board members are more actively involved as well Prior to the IRS revisions, Romano estimates that only about 5 percent of his clients’ boards reviewed Form 990 Now his firm is seeing some sort of board-level review in about 90 percent of the nonprofits they serve

“Board members are no longer just sitting on boards with the idea of helping a charity They’re rolling up their sleeves and getting involved in the strategy and financials,” he says

Nonprofit regulations aren’t getting any l e s s c o m p l e x B o t h R o m a n o a n d S t e f f e n s e x p e c t t o s e e s t r i c t e r c o m m u n i t y b e n e f i t s r e q u i r e m e n t s f o r a l l n o n p r o f i t s i n c o m i n g

years For example, tax-exempt hospitals are now being required to prove their exempt i o n b y c o m p l e t i n g a c o m m u n i t y n e e d s assessment every three years, and Romano p r e d i c t s t h e I R S m a y i n s t i t u t e a s i m i l a r requirement for all 501(c)(3) organizations

Organizations such as churches, some small nonprofits and government entities currently are not required to file Form 990, but may be required to provide information in some capacity in the future. Requirements for colleges, universities and foundations also may be tightened, while executive compensation and board oversight also may face more scrutiny.

Talent Search & find

Nonprofits are keeping a close eye on their staffs especially their fundraising talent as the economy recovers and competition for fundraising dollars heats up

“Fundraisers help to keep the doors open, and there’s a huge demand for them,” says Marian DeBerry, director of executive search for Campbell & Company, a national nonprofit consulting and executive search firm

A c c o r d i n g t o D e B e r r y, o v e r a m i l l i o n nonprofits are operating across the country t o d a y, a n d t h e f u n d r a i s i n g p r o f e s s i o n a l s they need to serve them run only into the hundreds of thousands That translates into some strong competition

There’s no question that as the economy improves, more Baby Boomers retire and turnover creeps back up, nonprofits will need to find new talent and groom existing staff to fill those voids. Forty-three percent of nonprofits expect to create new positions this year, according to Nonprofit HR Solutions’ 2012 Nonprofit Employment Trends Survey. And they’ll be recruiting beyond the fundraising department.

DeBerry says her firm is seeing rampedup demand for senior-level executives and e x e c u t i v e d i r e c t o r s a s w e l l “ A f e w y e a r s a g o , p e o p l e j u s t w e r e n ’ t h i r i n g I n m a n y cases they had to lay people off, and those they retained were doing the work of two people That scenario is starting to ease,” she says “Organizations have to hire ”

And they’re looking for very specific skill sets when they do. With greater accountability expected across organizations, nonprofits are establishing higher standards for performance and expecting more from staff

they raise money, manage staff, focus on metrics and more.”

Dennis Sawyers, senior HR consultant for Nonprofit HR Solutions in Washington, D.C., agrees. “Development people need to be creative in their fundraising approaches and have robust rolodexes and a knack for really identifying strong prospective donors,” he contends. “Across the board, nonprofits are looking for more business-savvy people who can advance these critical missions.”

Once nonprofits secure top talent, they have to hold on to it. But many still struggle with staff retention. In fact, three-quarters of the nonprofits that participated in the Nonprofit Employment Trends Survey said they d o n ’ t h a v e a f o r m a l s t r a t e g y i n p l a c e f o r r e t a i n i n g s t a f f . W h e n a s k e d a b o u t c h a llenges, 34 percent cited an inability to offer competitive pay and 22 percent cited the inability to promote top talent

Sawyers says there are creative ways to overcome those obstacles, however “If you can’t do X, do Y,” he advises “Staff retention challenges so often come back to funding and what is or isn’t affordable Sometimes the dollars just aren’t there to ensure your staff has all the professional development opportunities or the latest and greatest technology, or the salaries to support their personal economics You have to find what you can do If you can’t send your staff to the next conference, then find ways internally where you can help them stretch and b o o s t t h e i r g r o w t h D e m o n s t r a t e i n o t h e r ways that their growth and development is important and that they’re valued ”

Sawyers also suggests looking at opportunities for flexibility, especially when recruiting Gen Y workers, who often are servicem i n d e d a n d l o o k i n g f o r f l e x i b l e w o r k arrangements Being open to flextime initiatives and work-life balance incentives is key in the ongoing battle for talent

Tech Game Changers

No longer considered just back-end infrastructure, nonprofit executives are looking f o r I T s o l u t i o n s t h a t w i l l d i r e c t l y i m p a c t their organizations’ processes, operations, donor relationships and ultimate mission They’re carefully planning their technology spending and finding powerful, robust tools for their investment

According to Jeff Sobers, product marketi n g m a n a g e r a t C h a r l e s t o n , S C - b a s e d Blackbaud, a nonprofit software provider, o n e a r e a w h e r e t e c h n o l o g y h a s h a d a n e n o r m o u s i m p a c t o n n o n p r o f i t s i s i n t h e a u t o m a t i o n o f a c c o u n t i n g p r o c e s s e s f o r more detailed financial reporting

S o p h i s t i c a t e d a c c o u n t i n g s o f t w a r e s y stems allow nonprofits to more easily produce financial reports and spending ratios, w h i l e r e d u c i n g t h e t i m e i n v o l v e d a n d human error associated with manual data entry “These tools allow nonprofit professionals to know and produce information about the exact location of the money they collected and whether it’s being used as the donor intended,” Sobers explains

Nonprofits can not only produce data quickly, but also analyze it that much better. For example, user-friendly dashboards allow finance professionals to create graphs and financial snapshots that penetrate the meaning behind the numbers.

“These tools are extremely helpful to see your outcomes Nonprofits can show donors and board members exactly where and how they’re outperforming their peers, and they can use that data to obtain more funding,” says Sobers.

Krista Endsley, senior vice president and general manager for nonprofit solutions for Sage North America, adds that automation tools allow organizations to build processes a r o u n d d a t a f o r t h e e n t i r e w o r k f o rc e , i ncluding those who may not be as spreadsheet savvy

“Technology helps turn data into knowle d g e , ” s h e s a y s , n o t i n g t h a t a u t o m a t i o n tools also are critical for securing governm e n t f u n d s “ F e d e r a l d o l l a r s a r e c o m i n g with even more restrictions today, creating an extra layer of burden on small nonprofits. Automation tools can handle that very d e t a i l e d s e g m e n t a t i o n o f i n f o r m a t i o n a n d d a t a T h e t e c h n o l o g y i s v e r y r e s o u rc edriven and allows nonprofits to stay ahead of demands.”

Another area where technology is improving data flow for nonprofits is in the shift to the mobile realm, says Sobers “Data is much more accessible now All of the platforms and information that used to be desktop-based can now be in the hands of your fundraisers when they’re out on the road and

in donor meetings And you’re keeping that data on encrypted, password-protected apps instead of on a sheet of paper ”

The Social media link

As nonprofits seek out more ways to divers i f y a n d b o o s t f u n d r a i s i n g e f f o r t s , t h e y ’ r e also establishing a greater online presence

In fact, 59 percent of US nonprofit organiz a t i o n s r e p o r t e d a n i n c r e a s e i n o n l i n e fundraising last year, according to the Nonp r o f i t R e s e a rc h C o l l a b o r a t i v e ’ s N o n p r o f i t Fundraising Survey released in April 2011

Nonprofits are ramping up their websites with overall user experience in mind making it easier and more secure for donors and supporters to give, register for events and sign up to volunteer And, most significantly, they’re increasing contributions and building relationships by connecting more effectively with supporters through social media

P e e r- t o - p e e r f u n d r a i s i n g e f f o r t s , w h e r e f r i e n d s s u p p o r t i n g a c a u s e a s k f r i e n d s f o r additional support through social networks, are gaining popularity and momentum, says Sobers “You’re promoting your organization through those who already believe in your mission and have their own network of s u p p o r t e r s I t ’ s a v e r y l o w c o s t - p e r- d o l l a r f u n d r a i s i n g e f f o r t t h a t c a n g o v i r a l v e r y quickly and make a big difference, whether it’s raising money for an event or boosting responses to grassroots advocacy alerts ”

D e s p i t e s u c h o p p o r t u n i t i e s , o n l y a b o u t 50 percent of Sage’s mid-market nonprofit c l i e n t s a r e a c t i v e l y e n g a g i n g o n l i n e , s a y s Endsley “Nonprofits still need more unders ta nding a bout how to re a lly ta k e a dv a ntage of many of the tools,” she says Effectively using social media requires a time and learning commitment, explains Geri Stengel, president of Ventureneer, a New York-based research company that publishes a variety of social media studies tailored to nonprofits In fact, according to a recent Ventureneer report, Ditch Digital Dabbling: How Small Businesses and Nonprofits Can Master Online Marketing, nonprofits need to spend at least 25 hours per week on social media to see worthwhile results

B u t f e w n o n p r o f i t s h a v e a c h i e v e d t h a t l e v e l o f c o m m i t m e n t “ We ’ v e f o u n d t h a t nonprofits actually start using social media sooner than many small businesses do, but t h e y o f t e n g e t f r u s t r a t e d b y t h e l e a r n i n g

curve and give up,” Stengel explains “But if they stick with it and put in the effort to learn how to use social media, they start to see it doing what it’s supposed to do, and it quickly becomes part of their routine.”

Because many nonprofits are scared off by the thought of devoting 25 hours a week t o s o c i a l m e d i a , S t e n g e l s u g g e s t s s t a r t i n g small, adding one social medium at a time. F a c e b o o k , Tw i t t e r, Yo u Tu b e a n d L i n k e d I n o f t e n a r e c o n s i d e r e d t h e t o p - t i e r s o c i a l m e d i a c h a n n e l s , b u t S t e n g e l n o t e s t h a t LinkedIn is an especially underused social media resource among nonprofits.

“Nonprofits don’t realize how valuable L i n k e d I n c a n b e i n t e r m s o f f u n d r a i s i n g , s o u rc i n g s t r a t e g i c a l l i a n c e s a n d g e t t i n g introduced to potential donors,” she says “They’re not using it as a research database But LinkedIn can help you find people you w a n t t o k n o w a n d t h e n f i n d w a y s t o g e t introduced to those people It’s a great starting point for building relationships and it’s p a r t i c u l a r l y i m p o r t a n t f o r c o n n e c t i n g t o people. You can search by geography, title, function and even passion, so you can connect to those people who share a belief in whatever your mission is ”

“The biggest advantage of social media for nonprofits is in building relationships,” says Stengel. “But it’s also another way to communicate the messages you need to get out there, whether it’s announcing events, results or whatever is important ”

For the vast majority of nonprofits, progress is slow but sure. According to Blackbaud’s 2012 Nonprofit Social Networking Benchmark Report, nonprofits feel that taking the time to develop a vision and strategy for their social media program, having executive management that makes it a priority, and hiring dedicated social media staff are the top three factors for implementing social media efforts successfully Most nonprofits are starting to make inroads in these and other areas as they persevere in their m i s s i o n s . I n f a c t , n o n p r o f i t p r o f e s s i o n a l s s u r v e y e d a l r e a d y r e p o r t e d i n c r e a s e s i n members joining their social communities in 2012

As Sobers explains, “It’s all about interact i v e e n g a g e m e n t . O rg a n i z a t i o n s c a n u s e t h e s e t o o l s t o s h o w w h a t g o o d t h i n g s they’re doing, and the money follows ”

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VOLUNTEERNEWS

Be a JA Volunteer use your financial expertise to help those in need

This spring, 25 Illinois CPA Society members volunteered to present money management skills to elementary school children in schools in Chicago and Wheeling Junior Achievement (JA) volunteers were energized with the experience, expressing comments like, “I truly enjoyed working with the students Thank you for coordinating such a wonderful partnership program,” and “I really enjoyed the experience The students and the teachers were great ” You too can catch this enthusiasm and head back to school this fall Dates and locations, as well as FAQs about the program, are listed on our website at www icpas org/volunteer

Volunteer Value Rises

The NonProfit Times reports the value of an hour of a volunteer’s time increased to $21 79 during 2011, up from $21 36 in 2010, and nearly tripling in value since 1980 What’s more, according to the most recent Corporation for National and Community Service figures, in 2010 approximately 62 8 million US adults volunteered 8 1 billion hours, worth $173 billion Nonprofits often use the value of a volunteer hour to help volunteer recognition and communications, and to show an organization’s community and economic impact

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