Insight Magazine - Summer 2013

34 The 21st Century’s Top 10 Frauds

These individuals perfected the art of “ now you see it, now you don’t ” We detail lessons learned the hard way 38

Illinois’ Big Four

Almost since inception, Illinois’ economy has relied on a foundation of manufacturing, construction, finance and agriculture Each was hard hit by the recession, and while the state might not be growing at the same rate as the majority of the nation, it is showing encouraging signs of improvement all the same

42 Are You Fit to Lead?

Whether you ’ re already kicking back in the corner office, holding tightly to the rung below it, or just a few short steps into what promises to be an enduro race up the leadership ladder, that’s a question you need to constantly challenge yourself with if you want to be a good no, scratch that, a great leader Complacency in today’s dynamic business world just isn’t an option; in fact, it’s one of the biggest mistakes you could make

M&A What’s Your Firm Worth?

Digging down to the real value of your CPA practice takes a big, healthy dose of reality

Drafting a social media policy is your greatest line of defense against bad press

With Baby Boomers hanging on to their executive posts and Millennials rising up to grab the brass ring, where does

game?

Pulled

Can

INSIGHT MAGAZINE

Publisher/President & CEO Todd Shapiro

Editor-in-Chief Judy Giannetto

Art Design Judy Giannetto & Rosa Garcia

Production Design Gene Levitan & Rosa Garcia

Assistant Editor Derrick Lilly

National Sales & Advertising Natalie 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 Carl Siska

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

ICPAS OFFICERS

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

Vice Chairperson, Daniel F Rahill, CPA, JD FGMK, LLC

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

Treasurer, Mary Lou Pier Pier & Associates, Ltd

Immediate Past Chairperson, James P Jones, CPA Edward Don & Company

ICPAS BOARD OF DIRECTORS

Linda S Abernethy, CPA, McGladrey LLP

Rosaria Cammarata, CPA, CME Group Inc

Rose G Doherty, CPA, Legacy Professionals LLP

Gary S Hart, CPA , Gary Hart & Associates Ltd

Margaret M Hunn, CPA, CFE, CFF, CITP, Rozovics Group PC

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

David V Kalet, CPA, MBA, BP Products North America

Michael J Maffei, CPA, GATX Corporation

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

Floyd D Perkins, CPA, Ungaretti & Harris

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

Mark F Schultz, CPA, Dugan & Lopatka CPAs PC

Scott D Steffens, CPA, Grant Thornton LLP

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 24,000 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 Illinois CPA Society does not necessarily endorse the non-Society resources, services or products that may appear or be referenced within INSIGHT, and makes no representation or warranties about the products or services they may provide or their accuracy or claims The Illinois CPA Society does not guarantee delivery dates for INSIGHT The Society disclaims all

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SEEN HEARD

53%

percent of C-level executives who believe reputation increases sales/revenue intake.

Source: Reputation Institute

How To:

Be a G(rrr)eat Leader

Is your company surviving and thriving in these challenging times, or is it dangling by a thread? Are you a great leader? Do you have great leaders working for you? ManpowerGroup’s [manpower com] “Three Rs of a Great Leader” details exactly what you need to be:

1 Reliable People want leaders who they can trust and rely on for consistency Practice what you preach, update employees frequently and keep regular lines of communication open

2. Responsible. Take ownership and responsibility for your organization Embrace the leadership role; don’t break commitments, assign blame or make excuses when challenges arise

3 Resourceful Think outside the box Strong leaders must push for innovation and be driven to go beyond the status quo in all aspects of the job

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THE TRUTH ABOUT... What CFOs Want from Accounting Recruits

A recent Accountemps [accountemps com] survey found that CFOs desire and value far more than traditional accounting and finance skills when it comes to evaluating finance department job candidates

In fact, 33 percent of CFOs said they value general business knowledge most, followed by information technology expertise (25 percent) Other leading skill sets most sought by CFOs evaluating potential accounting recruits include communication skills (14 percent), leadership abilities (13 percent) and customer service orientation (13 percent)

3 Social Media Musts

There’s no denying that each social media network has its own pros and cons when it comes to business use These three tips from Socialnomics net can save you from that “Why did I just post that?” moment:

1.Double-check before you send it. Even try reading your post out loud to see if it sounds right

2 Follow rules of etiquette LinkedIn is not the place for baby pictures save those for Facebook or Instagram Simply, think about what you want to share and who it’s appropriate for before posting.

3 S h a r e o n l y w o r t h y c o n t e n t Post content that’s new, exciting, important, funny or engaging If you wouldn’t want to look at it on someone ’ s page, you shouldn’t share it on yours

75%

Percent of US workers who will work beyond retirement age by choice or necessity.

Source: Gallup

TRENDSPOTTER

CFO Confidence Makes a Comeback

It took a while, but CFOs are finally growing more confident in the U S economy, according to Grant Thornton LLP’s CFO Survey conducted earlier this year The survey findings revealed that 45 percent of respondents believe the economy will improve over the next six months, compared to only 31 percent last fall and 25 percent last summer What’s more, CFOs are predicting increased hiring; 40 percent said their company ’ s head count would increase, up 6 percent from fall 2012. These findings reinforce similar data found in the Grant Thornton International Business Report, which revealed that optimism in the performance of the nation’s economy among U S business leaders had risen from -4 percent in the fourth quarter of 2012 to 31 percent in the first quarter of 2013

Where are all the Women Leaders?

With women making up more than half of CPA firm employees, public accounting firms simply can’t grow without them So why is it that only 19 percent of CPA firm partners and principals are women? According to the 2013 Accounting MOVE Project results, it’s because defecting from the talent pipeline to pursue careers in industry or as firm owners still offers better chances of success than persevering in public accounting firms. To keep women moving upwards, the report says, firm leaders need to neutralize work/life conflicts, amplify the authority and efficacy of women role models, evolve firm culture to remove subtle barriers and communicate opportunities and career paths more consistently and clearly To learn more about the study visit www awscpa org/news moveproject2013 php

Employee Wallets Feel the Pinch

That 2-percent Social Security payroll tax hike has many working Americans pulling back on spending, according to a recent Accounting Principals [accountingprincipals com] survey In fact, the tax hike is draining about $130 from monthly take home pay, and as a result, 75 percent of survey takers said they had no choice but to cut back on spending

The survey also found that 28 percent of respondents had to prematurely pull money from their retirement accounts to pay for some of life’s challenges, such as unexpected home or car repairs, and unexpected healthcare bills

Correction: Please note the omitted attribution to Christina S Butcher, CPA, MST, manager at Kessler Orlean Silver & Company, P C in Deerfield, Ill , in the Spring 2013 issue article, The Obamacare Effect

Fact File: fraud

Numbers speak louder than words when it comes to the state of occupational fraud in the United States today, as these survey findings bear out (Turn to our cover story on page 36 for more on corporate fraud )

n When presented with a list of possibly questionable actions that may help the business survive, 47 percent of CFOs participating in Ernst & Young’s Growing Beyond: A Place For Integrity study felt one or more could be justified in an economic downturn

n In the ACFE 2012 Report to the Nation, survey participants estimated that the typical organization loses 5 percent of its revenues to fraud each year. Applied to the estimated 2011 Gross World Product, this figure translates to a potential projected global fraud loss of more than $3 5 trillion.

n According to the same ACFE survey, the median loss caused by occupational fraud cases was $140,000 More than one -fifth of these cases caused losses of at least $1 million The frauds reported to the National Association of Certified Fraud Examiners (NACFE) last an average of 18 months before being detected

n The survey further found that the industries most commonly victimized are the banking and financial services, government and public administration, and manufacturing sectors

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TODD SHAPIRO

By Judy Giannetto

A mini basketball hoop and a photo of an IndyCar. They’re the first things you see when you walk into Todd Shapiro’s office. And they’re the only things you need to see to understand the kind of dynamic, fast- charging leader the Society’s new president and CEO, and former CFO, promises to be Don’t see the connection? You will

Q.Tell us something about yourself we might not know a .I ’ m a n I n d y r a c e c a r d r i v e r O k , I ’ v e only done it once, but I loved it. I’m energized by intense activities that require my undivided attention. For example, when I g o b i k i n g , i t ’ s a t

Q.And how does that play into your leadership style?

, I h a v e t o e n v i s i o n t h e route ahead and how I’ll get to the bottom I h a v e t o f o c u s o n t h a t w h i l e n o t l o s i n g track of my surroundings. I believe in the power of taking controlled risks

o n

a.My business philosophy is don’t wait for things to go bad before you make them better You have to stay ahead of the curve, which plays into the idea of controlled risk Always look for ways to improve I like environments that are constantly changing because it keeps you sharp It’s the same thing with skiing or biking The environment is always changing and you have to be constantly vigilant and make adjustments to compensate for those changes.

To read more about Todd Shapiro,

icpas org/toddshapiro htm

Q.In terms of vision, what’s on your hotlist as the new CEO?

a.My vision is to advance the profession t h r o u g h w h a t I c a l l t h e t h r e e l e g s o f t h e stool Education, Advocacy and Information Connecting with members is key I’ll be out talking with, connecting with and engaging members, firms and companies

I have a strong outreach focus to find out how we can better serve members’ needs I want to talk with firms of all sizes, from sole practitioners up to the Big 4. We also want to engage our young professionals to a m u c h g r e a t e r d e g r e e , b u i l d i n g o n t h e hug e s uc c e s s of our Young Profe s s iona ls L e a d e r s h i p C o n f e r e n c e i n M a y A n d w e want to enhance our connection with and engage our corporate members as well

Another big emphasis is advocacy Our Government Relations Office in Springfield has two purposes: To promote the profession and to make sure things that are bad f o r t h e p r o f e s s i o n d o n ’ t g e t p a s s e d O u r staff monitors over 6,000 bills a year, and reviews proposed departmental administ r a t i v e r u l e s Wo r k i n g t o s t r e a m l i n e t h e renewal of firm licenses is a perfect example of the work our staff is doing We’re trying to make things better and easier to navigate for members by improving the licensing process Who’s looking out for the profession in Illinois? We are. No one else is doing that I mentioned it before, but I’ll s a y i t a g a i n , w e w a t c h m o r e t h a n 6 , 0 0 0 b i l l s a y e a r a n d r e v i e w p r o p o s e d r u l e s ; that’s huge!

Q Going back to education, what do you foresee the Society’s role being?

a.We ’ r e l o o k i n g a t C P E a s s o m e t h i n g more than a way to get your 120 hours of credit In talking with firms and companies of all sizes, I found that developing their people is a priority. They understand that it

will help their staffs do a better job, and it’s a great retention tool as they build the next generation of leaders

This is really the first time we’ve had a vision statement for education, and that vision statement is to be a preeminent provider of learning and education to accounting and finance professionals We want our members to think of us when they need the right content, on the right platform

We’ve developed a training solution, knowledgehub [www icpas org/knowledgehub/htm], that can really help firms and companies build the skills and competencies their staff needs to succeed. OnDemand learning will be a major part of our strategy going forward, although live will always be important OnDemand learning allows you to learn what you need to know when you need to know it I’ll give you an example I spoke to a member recently who was going in to perform a bank-related job He wanted a quick brush up, so he used our platform to find a one-hour class on credit He got the brush up he needed, just when he needed it.

Q.You were key in launching the Society’s Center for Corporate Financial Leadership (CCFL) back in 2000 How do you plan to make the Society evermore relevant to corporate members?

a CCFL continues to be the home for our industry and business members We have a very diverse membership We have almost the same number of corporate members as we do public accounting members, so it’s important that we’re seen as more than a society that focuses on public accounting.

It’s a tough nut to crack, but we’ve been successful with our initiatives so far, and we’re working to do even more Knowledgehub is a good example it was born out of talking with people in their businesses. While they don’t need CPE, they do

need and want to develop their staffs We also launched the Inside Finance eNewsletter, which has become our most successful ePublication to date, and we’re thinking of bringing back our networking breakfast series We have to find ways to get people to talk to and connect with one another

Q.Wha t ’ s t he m os t ins p ir ing exp er ience you ’ ve had as a leader?

a.I’ve always believed in the power of teamwork When I was coaching my daughter’s 8th grade soccer team, I saw a true synergistic team. They truly exceeded my expectations and their own expectations I can’t tell you exactly what made it work We weren’t a great team on the surface; we didn’t have the talent of other teams, or the experience, but we started winning games. If I had to guess, I’d say one of the keys was that I never yelled negative things at them I gave suggestions, and I tried to make it fun I remember calling out, “My mom runs faster than you do!” to one of the girls. It made them laugh. It has to be fun. Being motivational, giving strategic direction and putting people where they need to be that’s what’s key We ended up with a team of players who could virtually read each other’s minds; they were so in synch. It’s always been about teams for me.

Q .Yo u ’ v e m a d e i t t o t h e t o p . W h a t would you say to young professionals who want to do the same?

a.I’m a big sports analogy guy It was Wayne Gretzky who said, “You miss 100 percent of the shots you never take.” I absolutely believe that; you have no chance of success if you don’t take the shot My son is becoming a CPA because his father told him, “This profession will open doors to you.” He’s setting his sights high and isn’t afraid to take the shot.

TAX DECODED S e l l e r s B e w a r e !

A quirk in the Whistleblower Act could throw Internet sellers for a loop

By Keith Staats, JD

Your client is an Internet and mail order seller who files tax returns and pays sales t a x e s t o t h e I l l i n o i s D e p a r t m e n t o f R e venue The Department hasn’t ever audited y o u r c l i e n t , s o e v e r y t h i n g i s f i n e , r i g h t ? Maybe not.

One day, you get a panicked call from your client, explaining that he’s just been served with a lawsuit filed by a private law f i r m H e f r a n t i c a l l y e x p l a i n s t h a t i t h a s something to do with sales taxes But how can that be? Isn’t tax information confidential? Aren’t sales taxes administered by the Illinois Department of Revenue?

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

* keith staats@us gt com

The answer is not so clear Thanks to a quirk in the Illinois False Claims Act (aka t h e “ W h i s t l e b l o w e r A c t ” ) , p r i v a t e p a r t i e s have the legal authority to file suit against a c o m p a n y, c h a l l e n g i n g h o w i t a c c o u n t s for sales taxes To put it simply, private part i e s c a n s u e a p e r s o n o r c o m p a n y f o r allegedly failing to collect and pay all sales and use taxes due on a transaction

T h e I l l i n o i s R e t a i l e r s ’ O c c u p a t i o n Ta x (commonly referred to as the “sales tax”) and the complementary Illinois Use Tax Act are imposed on the selling price of tangible

put

property As a rule, services aren’t subject to Illinois sales and use taxes if a customer b u y s a t a x a b l e i t e m o f t a n g i b l e p e r s o n a l p r o p e r t y, s e p a r a t e l y n e g o t i a t e s w i t h t h e seller for the shipment of that property, and the shipping charge is separately stated on the customer’s invoice, the shipping charge i s n o t s u b j e c t t o I l l i n o i s s a l e s t a x . T h a t s e e m s s i m p l e e n o u g h , b u t a s w i t h j u s t a b o u t e v e r y t h i n g a s s o c i a t e d w i t h I l l i n o i s sales taxes, it gets more complicated

Let’s examine an online sales transaction

A customer goes to a website to buy a new pair of running shoes. The customer finds the shoes she wants, adds them to her cart, a n d p r o c e e d s t o c h e c k o u t H o w e v e r, a t c h e c k o u t , s h e ’ s g i v e n d i f f e r e n t s h i p p i n g options ground, air, overnight, etc and, because the Internet seller doesn’t have a store in her area, or even if the company has a store but doesn’t give her the option to pick up her purchase, her only option is to a g re e to a s hipping me thod to fina liz e h e r p u rc h a s e I n t h i s c a s e , t h e I l l i n o i s Department of Revenue, as upheld by the Illinois Supreme Court, has ruled that the s h i p p i n g c h a rg e i s n o t s e p a r a t e l y n e g o t i -

c o m p a n y f o r a l l e g e d l y f a i l i n g t o c o l l e c t a n d p a y a l l

personal property at retail Exactly what is included in the selling price of an item subject to tax has been the topic of audits and l i t i g a t i o n s i n c e t h e R e t a i l e r s ’ O c c u p a t i o n Tax in the 1930s The taxation of shipping c h a rg e s a s s o c i a t e d w i t h a p u rc h a s e h a s b e e n a n e v e r- e n d i n g s o u rc e o f d i s p u t e between taxpayers and the Illinois Department of Revenue.

In very general terms, shipping is a servi c e , a n d n o t a s a l e o f t a n g i b l e p e r s o n a l

ated, the shipping charge is part of the selli n g p r i c e o f t h e s h o e s , a n d t h e s h i p p i n g charge is subject to sales tax even though the customer’s invoice may list the shipping charge separately.

Many retailers get it wrong; they assume that shipping charges aren’t subject to tax b e c a u s e t h e y ’ r e s t a t e d o n a s e p a r a t e l i n e from the selling price But stating the charge separately isn’t enough the shipping has to be optional. If shipping is a required compo-

“To

it simply, private parties can sue a person or

sales and use taxes due on a transaction.”

n e n t o f t h e s a l e , i t ’ s n o t c o n t r a c t e d f o r s e p arately, and therefore is subject to tax.

So, back to the lawsuit. The whistleblower figured out that many retailers got it wrong and has filed hundreds of lawsuits knowing that they may be entitled to a portion of the proceeds recovered, along with expenses and attorneys’ fees. Section 3 of the Illinois Act provides that the defendant may be liable to the state for a civil penalty of not less than $5,500 and not more than $11,000, plus three times the amount of damages the state sustains (in the case of sales and use taxes, that would include the amount of the unpaid taxes) How’s that for an incentive?

Legislation was proposed during the spring s e s s i o n t h a t w o u l d m o d i f y t h e I l l i n o i s F a l s e Claims Act to limit the ability of private parties to file suits related to certain tax acts administered by the Illinois Department of Revenue As of this writing, though, the legislation has not moved forward

Wi t h n o t h i n g s t a n d i n g i n t h e w a y o f m o r e cases like this, practitioners with clients making I n t e r n e t s a l e s a n d t r a d i t i o n a l m a i l o r d e r a n d telephone sales need to review their current tax policies and ensure their accounting is correct Otherwise, you could be on the receiving end of the next unhappy, sued client call.

Day of Service

A Good Day for Doing Good

Be part of the Illinois CPA Society’s fourth annual CPA Day of Service. It’s as easy as 1-2-3: Choose a community organization or charity to help.

Register your volunteer activity plans at www.icpas.org/CPADayofService.htm.

Receive a free CPA Day of Service t-shirt (while supplies last, free to Illinois CPA Society members). Volunteer as an individual, or get a group together and volunteer as a team.

Questions? Please contact Taylor Banister at banistert@icpas.org or 800.993.0407, ext. 231.

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CAPITOL REPORT Illinois Triumphs

The new 98th General Assembly passes a slew of ICPAS legislation

By Marty Green, Esq

Despite several false starts during the Veto and Lame Duck Sessions, the new 98th General Assembly finally took on many of the significant issues confronting our state that the previous General Assemblies simply weren’t able to tackle Topics like concealed carry, fracking, gaming expansion, same-sex marriage and comprehensive public pension reform dominated the Spring Legislative Session agenda And, with over 6,000 bills introduced this spring, many other mainstream topics also garnered attention, like medical marijuana, school mandates, proposed tax credits, workers compensation reform and sealing criminal records for certain offenses.

of CPAs in Illinois. More information on the new Act can be found at www icpas org

The ICPAS also was successful in defeati n g a g e n c y r u l e s p r o p o s e d b y t h e I l l i n o i s Department of Revenue (IDOR) to include d e l i v e r y a n d t r a n s p o r t a t i o n c o s t s i n s a l e s tax We joined a coalition of other groups w o r k i n g i n o p p o s i t i o n b e f o r e t h e J o i n t C o m m i t t e e o n A d m i n i s t r a t i v e R u l e s T h e legislative panel ultimately opposed adopt i o n T h e I D O R w i t h d r e w t h e p r o p o s e d rules and agreed to work with stakeholders before proposing any new rules ones

Marty is the ICPAS VP of Government Relations, a practicing lawyer and member of the Illinois Bar and a Lieutenant Colonel in the National Guard

He 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

* greenm@icpas org

@icpasgovt

Even with this packed legislative agenda, the Illinois CPA Society was successful in passing legislation to update the Illinois Public Accounting Act (HB 2726) with a new sunset date of January 1, 2024 A similar attempt was made during the last legislative session well in advance of the Act’s scheduled sunsetting date; however, our proposal, despite no opposition, was not considered before legislative adjournment

By design, professional acts such as the Public Accounting Act sunset every 10 years to force legislative reviews and updates The passage of HB 2726 was the result of a three-year effort by the ICPAS working closely with the Illinois Department of Financial and Professional Regulation in a three-phase process transitioning Illinois to a license-only state. This was our top legislative priority, and although uncontroversial, the ICPAS Government Relations staff used great care in tactically maneuvering the bill through the legislative process

The legislation now moves to the Governor for final action and we anticipate that it will be signed into law with an immediate effective date The Illinois Public Accounting Act dating back to 1904 serves as the centerpiece of the regulation and licensure

Similarly, we closely watched the reintroduction of the Corporate Tax Disclosure Act (HB 3627), which would have required p u b l i c l y t r a d e d c o r p o r a t i o n s t o d i s c l o s e confidential tax information This information would have been posted on a public website within three years A similar measure was introduced during the Lame Duck Session and passed out of the Senate with e x t r a o r d i n a r y p a r l i a m e n t a r y m a n e u v e r s B u t t h e H o u s e f a i l e d t o c a l l t h e m e a s u r e prior to adjournment sine die

Our advocacy efforts also extended to Capitol Hill this spring Working with the AICPA, the ICPAS reached out to members of the Illinois Congressional Delegation in support of Mobile Workforce State Income Tax Simplification Legislation (H R 1129) and the Tax Reform Due Date Simplification Act (H R 901 & S 420) During the Spring Council, Council members met with the staff of Congressman Aaron Shock, who serves on the House Ways and Means Committee, Congressman Bill Foster, who serves on the House Financial Service Committee, and Senator Richard Durbin, who is the Senate’s third-highest ranking majority member These “Hill visits” are an important opportunity to bring the profession’s credibility and expertise before members of Congress

It was a busy spring legislative session, and I’ll be sharing updates in Capitol Dispatch, at chapter legislative events and during Town Hall Forums

FORENSICS INSIDER

Travel to exotic locations might be just the clue you ’ re after in the hunt for telltale offshore accounts

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

As a frequent guest lecturer on campuses around Illinois and the Midwest, I am easily brought back to those halcyon days of attending classes and “discovering” accounting Something about the simple beauty of debits equaling credits, and assets equaling liabilities plus equity resonated within me, and I realized that I had found my academic and professional career niche When an early accounting professor recommended I contemplate a major in accounting because “you get this and most business students don’t,” the deal was sealed

leagues, employers and the general public to take note of red flags when they surface a n d t a k e a p p r o p r i a t e a c t i o n T h e r e a r e numerous areas of fraud that occur around accountants on a daily basis, but one in part i c u l a r h i t s m y r a d a r w i t h i n c r e a s i n g f r equency; the movement of assets offshore in anticipation of fraud or a judgment

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

* bsargent@scgforensics com

Today, when I speak to students about fraud and forensics, I feel the affinity of kindred spirits I feel the same affinity whenever I speak to professional groups. While I derive the greatest pleasure from pointing out landmines to my fellow accountants, I always tell both accounting students and seasoned accounting professionals the same thing: Without you, I’m out of work!

M

s l i d i n g d o w n t h e e t h i c a l c l i f f , i g n o r i n g obvious red flags, failing to follow up on critical questions, lacking the fortitude to confront a client or colleague and simply being incompetent at their job, there would be little to no need for forensic accounta n t s . I n a p a y - i t - f o r w a r d ( a n d t o n g u e - i ncheek) marketing strategy, I urge them all to go forth and be less than mediocre

Prior to the economic downturn, parties w e r e w i l l i n g t o l i t i g a t e ( o r t h r e a t e n l i t i g ation) on a wide variety of disputed matters. A s l o n g a s e a r n i n g s w e r e h i g h a n d c a s h flowed, court filings ran at all-time highs. To d a y ’ s e n v i r o n m e n t i s c o m p l e t e l y d i f f e rent Parties heavily weigh the odds of victory and also consider their ability to collect s h o u l d t h e y g e t a f a v o r a b l e j u d g m e n t Assets and income that appear on financial statements today can be quickly converted to offshore accounts and taken away from the purview of creditors Sadly, some outs t a n d i n g f o r e n s i c a c c o u n t i n g m i g h t w e l l identify wrong-doing and get a favorable litigation outcome, but it might fail to identify whether assets are collectable

S o , w h a t s h o u l d a n a c c o u n t a n t , i n a n y role, look for as a warning sign that assets are headed offshore? The first seems obvious in hindsight but is rarely noticed in foresight: The geographical movements of individuals with access to and control over the assets Travel outside the normal course of

“Ther e a r e num er ous a r ea s of f r a ud t ha t occur a r ound accountants on a daily basis, but one in

So, as much as I may strive to expand the population of potential fraudsters or fraud facilitators, I want to take advantage of this o p p o r t u n i t y t o h e l p y o u f o c u s o n l a n dm i n e s W h e t h e r a n a c c o u n t a n t i n p u b l i c p r a c t i c e , c o n s u l t i n g o r i n i n d u s t r y, y o u have a fiduciary duty to your clients, col-

business is a clear indicator. Do you review expense reports as a part of your job? Credit card statements contain all sorts of information indicating someone’s travel history Airfare purchases and point-of-purchase information provide direct links to an offshore route

particular hits my radar with increasing frequency; the movement of assets offshore ”

However, fraudsters are rarely so obvious. A more subtle sign may be travel to a “jumping off point ” By this I mean a city with direct access to international destinations For example, consider a Midwestbased executive who starts traveling regularly to Miami for no obvious business purpose or personal reason Miami provides direct access by air and by sea to many Caribbean locations frequently used to stash assets offshore A minor purchase such as a cup of coffee from a location of note can be the clue that puts the forensic accountant hot on the trail of offshore assets Again, fraudsters try their best to cover their tracks and may not leave written clues behind. They will imbed a nefarious purpose in what appears, on the surface, to be a great vacation to the Caribbean or Central America Listening to a casual conversation about travel plans and trip details in the break room can lead to the money trail

E u g e n e B e c k e r i s p r i n c i p a l o f B e c k e r Law, a boutique special counsel law firm based in New York, concentrating on mult i j u r i s d i c t i o n a l a s s e t a n d f r a u d r e c o v e r y. B e c k e r s t a t e s t h a t , " d e a l i n g w i t h f o r e i g n m a t t e r s r e q u i r e s a l e a p f o r m a n y A m e r icans, including those who are used to traveling overseas Where a person who is in a position of trust demonstrates an interest i n f o r e i g n i n v e s t m e n t s a n d s h o w s a n extraordinary grasp of such, this fact while it is not reflective of wrongdoing is a factor t h a t b e a r s a t l e a s t c u r s o r y m o n i t o r i n g o f that person's work, his/her work habits and u t t e r a n c e s T h a t p e r s o n m a y h a v e m a d e the 'leap' and underpinning it may be nascent or advanced wrongdoing."

T h e a p p e a r a n c e o f n e w a s s e t s i n t h e form of bank or brokerage accounts is yet a n o t h e r f a i r l y o b v i o u s s i g n S a d l y, t r u e fraudsters are rarely so transparent However, you may review existing bank or brokerage statements that indicate transfers to previously unknown accounts These aren’t the only source of information regarding u n k n o w n a c c o u n t s ; s o u rc e d o c u m e n t s b e h i n d t h e s t a t e m e n t s c a n a l s o p r o v i d e c r i t i c a l i n f o r m a t i o n R e v i e w i n g e n d o r s ement stamps on the backs of checks is an e x c e l l e n t w a y t o i d e n t i f y e i t h e r o f f s h o r e accounts themselves, or accounts that lead to offshore accounts Forensic accountants d e v o t e h o u r s t o r e v i e w i n g r e c o r d s f r o m financial institutions Note that I’m not sug-

gesting you launch into full-fledged forensic accounting procedures; rather, I’m just reminding you to keep your eyes open and e a r s t o t h e g r o u n d f o r i n f o r m a t i o n t h a t doesn’t add up.

I’ve met with many remorseful fiduciari e s i n t h e c o u r s e o f i n v e s t i g a t i n g h i d d e n a s s e t s I n h i n d s i g h t , t h e y r e c o g n i z e d t h e

w a r n i n g s i g n s t h e y m i s s e d a n d t h e y s i nc e r e l y w i s h e d t h e y ’ d j u s t t a k e n n o t e o f them in real time If only it was that easy Hopefully, you’ll never be in that position. Just remember that “exotic” travel and new a c c o u n t s w i t h o u t a c o m p e l l i n g b u s i n e s s p u r p o s e j u s t m i g h t b e p a r t o f a c r i m i n a l scheme

Gain a competitive edge with these industry-leading practice management solutions

By Mark J Gilbert, CPA/PFS

There’s more to financial planning than the commercial side of things, providing clients with products and services CPA financial planners need to ensure they have the support services necessary for their own practice success Thankfully, a vast range of vendors is rapidly developing, and clear leaders are emerging among them

Whether you’ve been providing financial planning services for a quarter-century or a calendar quarter, the solutions I’ve highlighted here could be a great boost to your planning efforts.

How you’ll operate these efforts is the most fundamental decision you’ll have to make as a financial planner. To be more specific, will you be a registered investment advisor (RIA) or investment advisor representative, a registered representative of a brokerdealer, or both? (Hint: I discussed some of the pros and cons of each of these options in my summer 2012 INSIGHT column )

Here’s a quick overview

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.

* mgilbert@reasonfinancial com

Custodians for RIAs

If you decide to be an RIA or investment advisor representative managing client asse ts , the n s e le c ting a c us todia n brok e ra g e firm to hold your clients’ assets is a business-critical decision

A s I nve s t m e n t N e w s r e p o r t e d b a c k i n July 2012, the custodians RIAs most rely on a r e S c h w a b A d v i s o r S e r v i c e s ( 7 , 0 0 0 R I A clients,) TD Ameritrade Institutional (4,500 c l i e n t s ) a n d F i d e l i t y I n s t i t u t i o n a l We a l t h Services (3,300 clients) Having provided custodial services to independent advisors f o r m o r e t h a n 2 0 y e a r s , S c h w a b ’ s c l e a r strength is its longevity Not only that, but it o f f e r s l a rg e a n d f l e x i b l e p l a t f o r m s f r o m which to do business

Partnering with any well-known brokerage firm, however, adds credibility to a small independent RIA’s profile especially when only just starting out. Be warned, though: The big-name recognition can be a double-

edged sword, since brokerages might solicit business without an advisor’s knowledge. Also, your clients may not understand that advertising, discounts and even branch office operations may apply to the brokerage’s retail customers (since they’re institutional customers of the brokerage firm) rather than to them I know, it gets confusing

Broker-Dealer Options

As a registered representative of a brokerd e a l e r, y o u m a y c h o o s e t o c h a rg e c l i e n t fees and commissions or both, and potentially offer a wider range of investment and insurance products (compared to an RIA or investment advisor representative)

According to Investment News, as of December 31, 2012, the largest broker-dealers as measured by number of registered representatives were LPL Financial LLC (13,336) and Lincoln Financial Network (8,263). Here, LPL Financial stands out by virtue of the fact that it stresses its high payouts on investment and insurance products placed with clients, and offers a low advisor-toemployee ratio that guarantees maximum access to support, cutting-edge software tools and packages, and a broad range of fee-based asset management programs not to mention that it’s also a top RIA custodian

Financial Planning Software

Good financial planning software is invaluable to planners and clients alike Being able to clearly and accurately illustrate a customized financial projection that helps clients understand whether their resources are sufficient to last throughout their lifetimes is key especially when trying to help clients plan for specific retirement ages What’s more, good financial planning software will allow planners to design investment asset allocation, insurance sufficiency, and estate and income tax

United States found that the most widely used financial planning software is MoneyGuidePro (22 percent of respondents).

I n m y e x p e r i e n c e , M o n e y G u i d e P r o i s robust, fairly easy to use and features output that clients can easily understand On a side note, interestingly, 26 percent of the survey respondents said they don’t use any f i n a n c i a l p l a n n i n g s o f t w a r e t h e s i n g l e largest response in this survey

Portfolio Management Software

P o r t f o l i o r e p o r t i n g i s a n o t h e r i m p o r t a n t f u n c t i o n m a n y i n v e s t m e n t a d v i s o r s p r ov ide for the ir c lie nts . Ty pic a lly, portfolio reports show both periodic rates of return for client accounts and individual investment returns Returns, of course, help both advisors and clients assess whether they’re on track to achieve financial goals. Portfolio reporting also makes it much easier to a n a l y z e a n i n v e s t m e n t ’ s p e r f o r m a n c e t o d e t e r m i n e w h e t h e r i t s h o u l d s t a y i n a client’s portfolio

Additionally, when an advisor prepares a quarterly report using portfolio managem e n t s o f t w a r e , t h e c l i e n t c a n v e r i f y t h e advisor’s statement of assets by confirming a c c o u n t b a l a n c e s w i t h t h e c u s t o d i a n ’ s account statements.

In the Financial Planning survey, Morningstar Office was reported as the most widely used portfolio management software (19 percent of respondents) Morningstar has consistently updated features and enhanced functionality over the years The software also integrates with Morningstar’s well-regarded stock and mutual fund research and analysis capabilities to simplify the needs of most financial advisors. Again to my surprise, the single largest survey response regarding portfolio management software use was “None” (25 percent of respondents)

I continue to be amazed and impressed by the number and variety of services and products that have developed to support financial planners and the financial plann i n g i n d u s t r y a n d s o m e t i m e s b y h o w m a n y p l a n n e r s a r e n ’ t u s i n g t h e m N a t urally, as in most business-to-business environments, some providers have risen to the top If you too want to rise to the top, then my advice is to take a serious look at the firms a nd produc ts I’v e me ntione d he re They can give you an edge over your competition both now and into the future

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What’s Your Firm Worth?

Digging down to the real value of your CPA practice takes a big, healthy dose of reality

By Sheryl Nance -Nash

There's no shortage of CPA firm M&As these days Whether it’s a matter of survival, offering new practice areas, gaining a foothold in new regions, adding talent, or any number of other factors, firms are pairing up at an impressive rate.

“CPA firm mergers and acquisitions are taking place at a frenetic p a c e , a t a l l s i z e r a n g e s , ” M a rc Rosenberg, CPA with The Rosenberg Associates, confirms “Each year the number of transactions seems to increase from the previo u s y e a r W h e n m a n a g i n g p a r tners talk to each other, it seems t h a t e v e r y f i r m i s t a l k i n g a b o u t mergers.”

Which means the question on e v e r y o n e ’ s l i p s i s , “ W h a t ’ s m y practice really worth?”

What Counts?

S t a n d a r d v a l u e r a n g e s f o r b u s inesses are somewhat segregated b y b u s i n e s s s i z e T h e s t a r t i n g p o i n t i s e a r n i n g s c a p i t a l i z a t i o n For example, if we say that companies with sales of $3-$10 million typically sell for 4-5 5 times r e v e n u e , w e a l s o k n o w t h a t s m a l l e r c o m p a n i e s w i l l h a v e a lower range, say 3-4 5 times revenue, and larger firms ($10-$25 m i l l i o n ) w i l l s e l l f o r a l a rg e r r a n g e , s a y 4 5 - 6 t i m e s r e v e n u e , e x p l a i n s J o h n M a r t i n k a o f M a rtinka Consulting

However, other factors determine where in the r a n g e o r o u t s i d e o f i t a s p e c i f i c c o m p a n y stands Nonfinancial factors such as customers, employees, vendors and competition are huge, says Martinka Two similar companies with the

same revenue may have a different value if one has three customers that account for 73 percent of sales and the other has 73 customers that account for 73 percent of sales Also, he says, supply and demand, terms and motivations play a big part in determining price.

When it comes to CPA firms/practices, three main factors help to determine value:

1. The market. What will the market pay for the firm based on the seller’s major attributes? Imagine the case of a 65 year-old sole practitioner with a $700,000 practice that is profitable, clean, has an attractive client base, good staff that will come along with the deal and a prime location in one of Chicago’s northern suburbs

“I'm an M&A consultant, I could sell this firm in a heartbeat to any of a dozen eager buyers for 1.3-1.5 times the firm's annual revenues because that’s what the market is currently paying for a d e s i r a b l e , p r o f i t a b l e p r a c t i c e o f t h i s s i z e , ” s a y s Rosenberg

2 Negotiating position Much depends on the negotiating ability of the seller and buyer and the urgency of each to complete the deal, says Rosenberg. For example, say a seller who establishes the desired terms refuses to budge from that position and is prepared to walk away from the deal without losing sleep Then the buyer is obviously in a much weaker negotiating position On the other hand, perhaps a buyer with a small firm exhibiting flat profits has the opportunity to buy a small, clean practice the type of practice that doesn’t come on the market very often Then the buyer is in a weaker negotiating position, and may have to pay a premium to beat out rivals

3 . S e l l e r a t t ra c t ive n e s s . S o m e q u a l i t i e s g a r n e r i m m e d i a t e b u y e r a t t e n t i o n . T h e s e i n c l u d e a weighting towards annuity-type clients, accounting and tax return engagements that repeat every year, fees and billing rates close to those of the buyer and a young partner group In fact, more and more of today’s firms seek to merge with or acquire smaller firms with vibrant young partners who are anything but retirement-minded.

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Other attractive qualities include skilled staff that will make the transition, engagements that are mostly business based rather than 1040-only clients, close cultural/personality fit, and seller specialty skills or expertise in an area of planned expansion Specialization is a particular plus. “Most firms pine for specialties because expertise i s e a s i e r t o m a r k e t a n d m o r e p r o f i t a b l e t h a n g e n e r a l i s t w o r k B u y e r s w i l l p a y a premium for specialties,” says Rosenberg

New Issues, Old Game

How the buy-sell landscape has changed remains a major focus of attention.

“ I t ’ s n o l o n g e r s i m p l y h o w m a n y c u stomers you acquire, but actually how many customers you effectively retain It’s also important to realize that the new social currency is relationship capital,” explains Bill Wa l s h , C E O o f P o w e r t r a i n , a b u s i n e s s coaching and venture capital firm.

There’s also less financing out there today, meaning value greatly depends on the buyer's purchasing ability “This may limit the marketability of larger practices,” explains Ken Sterner, a senior valuation consultant with Adams Capital

Then, too, there’s the question of how the business did during the recession “If it was affected in a negative way, you can be pretty sure it will go down again when the next recession hits,” says Martinka.

The recession put risk on the radar with a new intensity. “Partners want a higher rate of return now because of risk Discount rates are higher because of the uncertainty of future revenue projections Given the

competition in the profession, firms can't 100-percent realize their projections so there is 'performance risk,' so you use a higher discount rate to compensate for risks,” explains Robert Reilly, managing director of business valuation firm Willamette Management Associates

Client and employee retention is critical now. “People want a longer retention period; in many deals they want a minimum

o f o n e t o t h r e e y e a r s a f t e r t h e s e l l . F e w deals are done with no retention requirements,” says Joel Sinkin, president of Transition Advisors

Reality Check

Missteps in this process can be costly, so be realistic

“It's easy to believe your own press. You put your own projections together for management purposes so you want them to be aggressive The numbers are really aspirational you hope to get 10-12 percent growth, and if you get 8 percent it's good But when it comes to the valuation process, you have to evaluate the numbers more realistically,” says Reilly

Here are five tips to help to boost your firm/practice value and get a better grip on what it’s actually worth.

1. Get your house in order. One way for the seller to maximize value is to get things organized before courting buyers. “Sloppy practices include offices that look like a pigsty, client projects that are late, WIP and receivables that are way past due, an office lease that has many more years left on it and debt on the books,” says Rosenberg

2. Study up. It's important to have good market data to help you estimate your value Then the issue is knowing how to use the data

3 Dig deep “Understand where revenue is coming from. Is it recurring (e g from audit and tax clients) or non-recurring (e.g. from consulting work or a forensic investigation). Know who's in the practice, who's generating revenues, and whether they’ll stay on If you don't think they will, you may need to incent them to stay,” says Bernard Pump, partner and head of Deloitte's national gift estate and valuation practice in Chicago.

4. Sell yourself. “Put together a black book comprising partner bios, specialty areas, history of the firm, client testimonials, firm metrics,” says Robert Fligel, a CPA and founder of RF Resources. Hire a professional to put this together. “Accountants are better off doing accounting, not sales and marketing,” says Martinka

5 Shop the practice “Don't just go with one buyer. Create competition, get a bidding war going,” says Martinka.

Although predictions are that the merger market will continue at its current frenetic p a c e , “ M o s t o f t h e m o r e a t t r a c t i v e a n d a g g r e s s i v e b u y e r s a r e g e t t i n g p i c k i e r, ” Rosenberg explains.

“Because there are so many firms looki n g t o m e rg e u p , t h e b u y e r s a r e a b l e , t o some extent, to cherry-pick the best availa b l e f i r m s T h e i r s t a n d a r d s f o r w h o t h e y w i l l a c c e p t a s a m e rg e r c a n d i d a t e h a v e i n c r e a s e d i n r e c e n t y e a r s , a n d w i l l c o nt i n u e t o r i s e a s t h e u n i v e r s e o f s e l l e r s increases ”

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Policy to the Rescue

Drafting a social media policy is your greatest line of defense against bad press

By Selena Chavis

In the age of social media, not all publicity is good publicity Consider the nightmare Applebee’s faced earlier this year when it fired a waitress for posting a customer’s critical receipt on R e d d i t T h e c o m p a n y ’ s F a c e b o o k p a g e w a s assaulted by angry comments from people who sympathized with the waitress even after the company posted its internal policy regarding social media activity.

S o c i a l m e d i a i s e n t r e n c h e d i n t o d a y ’ s c u lture , a nd c ompa nie s ha v e to be proa c tiv e in leveraging it as a tool, while protecting their brand and customers

“Whether you’re a product- or service-based company, consumers have high expectations of y o u r p r e s e n c e o n s o c i a l m e d i a , ” s a y s L i z B a r t e k , s e n i o r I n t e r n e t m a r k e t i n g c o n s u l t a n t , social media with Chicago-based Rise Interactive. “A company always needs to be aware of what’s being communicated by its brand.”

That’s a complicated task for most companies, and it requires a well thought-out social media

policy, as well as internal processes for responding to firestorms such as the one Applebee’s faced While the existence of a social media policy didn’t keep the Applebee’s waitress in question from making a decision that ultimately resulted in her firing, industry experts agree that having written guidelines and processes in place better equips a company to avert disaster and respond swiftly and appropriately when unwelcome publicity surfaces.

“It’s important that companies have a policy because everyone needs to be on the same page,” says Genia Stevens, a social media trainer and marketing strategist. “There are a lot of companies that don’t establish a social media policy until after a disaster happens.”

Kris Cifolelli, director of employee relations with Plante Moran, says that embracing social media and proactively staying at the forefront of the movement has been a positive strategy for the firm “As social media was becoming all the rage, we sat down to consider what would be

appropriate use,” she explains, pointing out that the firm’s policy continues to evolve with the social media movement “We meet on an annual basis to review and revise It’s a constant education process.”

One successful strategy has been for the firm to post positive or informational messages to a company-branded social media s i t e , a n d t h e n w a t c h a s e m p l o y e e s a n d c u s t o m e r s r e p o s t t h e m , c i rc u l a t i n g t h e material with little effort The danger, however, is not having the guidelines in place to educate employees on what should and shouldn’t be posted.

“We want to make sure that there aren’t 2,000 interpretations of an IRS regulation being posted by employees, for example,” e x p l a i n s J e f f A n t a y a , p a r t n e r a n d c h i e f m a r k e t i n g o f f i c e r w i t h P l a n t e M o r a n “Sometimes companies can get into problems by not being at the forefront of social media use in business. If employees start using social media first, that’s where you can run into problems ”

W h i l e e v e r y c o m p a n y ’ s s o c i a l m e d i a policy should reflect its unique needs and c u l t u r e , s o c i a l m e d i a a f i c i o n a d o s o f f e r these six basic elements with which to lay your policy groundwork.

1.Choose Your Gatekeepers

The first step is to name the key players involved in decision-making. Depending on the company, this could be a single social media manager who reports to owners or officers, or it could be a team For smaller firms in particular it’s a good idea to narrow the social media management team to a few key people “Specifically identify who is allowed to speak for the company on social media sites,” Stevens advises.

2. Set Clear Guidelines

To be in synch with company expectations, employees have to understand what constitutes appropriate use of social media. According to Cifolelli, Plante Moran’s policy includes an overall statement on the firm’s social media stance, as well as detailed descriptions of appropriate use, discouraged activity and specific activity that is off limits

“We applied the same rules about behavior in the office,” Cifolelli adds “It’s critical to distinguish between when employees are representing the firm and when they are not Social media really blurs the line between personal life and work life Things people wouldn’t have known before now bleed into the workplace ”

On a hiring note, the company discourages its managers from using social media as a means to research potential new hires “From an employment law perspective, I would not encourage it,” Cifolelli asserts “There is no way to know how much stuff on the Internet is true. We never want peop

affected our choice.”

3. Be Transparent

she explains, adding that being transparent doesn’t mean loss

control over confidential

4. Educate Everyone Often

Education should be ongoing and at the forefront of company human resource activities

Tr a i n i n g s h o u l d b e g i n a t o r i e n t a t i o n a n d include regular refreshers.

“It’s not a good idea to create a social media policy and shoot it out by email,” says Stevens “At a minimum there should be a signed copy of the policy in every employee file ”

5. Prepare For Crisis

Whether a small mishap or full-blown public relations disaster, companies need to be prepared to respond when something goes wrong Bartek points to the recent Tesco social media blunder The first major retailer to be linked to the recent horsemeat scandal, the company tweeted, “It’s sleepy time, so we’re off to hit the hay! See you at 8 a.m. for more” on its Twitter page soon after the scandal broke. Perceived as a joke and widely criticized by the general public, the company later apologized, adding that the tweet had been scheduled before the company knew about the situation

“Clearly, there wasn’t a strong social media p o l i c y i n t h i s s i t u a t i o n , ” s a y s B a r t e k “ I t ’ s e s s e n t i a l t o h a v e c o n s t a n t c o m m u n i c a t i o n b e t w e e n c o m p a n i e s ’ s o c i a l m e d i a a n d P R t e a m s i n o r d e r t o p r e v e n t s o c i a l m e d i a s l i pups Having a well-coordinated social media action plan establishes consistency with internal communications ”

6 Maximize Opportunities

“Part of our brand is that we are ‘nice people,’” says Antaya. “Social media enforces this brand by allowing us to connect with people on an emotional level Being human is part of that brand ”

Following the merger of Blackman Kallick and Plante Moran, the newly formed company c r e a t e d a l o t o f e x c i t e m e n t i n t e r n a l l y a n d externally through its social media presence by launching the Chicago Community Champions contest online. Designed to showcase the company’s continued commitment to the local community, three rounds of voting were held for 91 nonprofit organizations

T h e w i n n e r G r e a t B o o k s F o u n d a t i o n received a $25,000 check The campaign produced more than 840,000 votes and plenty of exposure and goodwill for the new company

It’s a new day for communication both in t h e b u s i n e s s w o r l d a n d p e r s o n a l l y. “ S o c i a l media is just the next generation of communication tools,” says Cifolelli, adding that successful businesses have to stay on top of the e v o l u t i o n a n d b e r e a d y t o e m b r a c e c h a n g e After all, “Who knows what will come next ”

What’s to Become of Gen X?

With Baby Boomers hanging on to their executive posts and Millennials rising up to grab the brass ring, where does Gen X fit into the leadership game?

By Renee Beckman, CPA

D“ecade of the Child” is a much-touted phrase when it comes to describing Millennials And, truthfully, I’ve found them to be both the most challenging and rewarding group of people to lead

But, if Millennials are our future, where do we Gen Xers fit in?

We were born somewhere between 1961 and 1981 and came of age in the 1970s and 1980s when growing up fast was the thing to do. After the publication of Douglas Coupland’s book, Generation X: Tales for an Accelerated Culture, the media picked up the term Generation X and introduced us as body-pierced, Starbucks-drinking, flannel-wearing, alienated, over-educated, underachieving slackers who didn’t want to work. We were the children of parents with the highest divorce rate in history, and well-versed in households with working moms. The media criticized us for failing to measure up to “adult” expectations, calling us a “nowhere generation.”

I admit I had a few “ah-hah” moments while doing some background research for this artic le W ha t’s c le a r is tha t the pre v ious g e ne rat i o n s a l w a y s s e e m t o b e l i e v e t h e s u c c e e d i n g generations don’t work as hard as they did. But

my main realization is that Gen Xers and Millennials aren’t so far removed from each other after all. Both generations experienced corporate downsizing and are skeptical of corporate p r o m i s e s a n d g r a n d v i s i o n s , a n d n e i t h e r h a s experienced the corporate loyalty that our elders swear by Both generations want rewarding, intellectually stimulating work, and they don’t want someone watching them too closely

S o r e a l l y, l e a d i n g M i l l e n n i a l s s h o u l d n ’ t b e too difficult for us Gen Xers after all Except for that fact that the recession has left many Baby Boomers coveting their executive pay and positions, limiting the opportunities for us to take on C - s u i t e r o l e s , a n d w e ’ r e n o w s t u c k t r y i n g t o shove the Baby Boomers out while the Millennials are nipping at our heels for the few leadership positions available within most organizations today.

How then do we Gen Xers manage up, lead down, and ultimately grow our organizations to see the fruits of our labor?

In his book, Developing the Leader Within You, renowned leadership expert John Maxwell identifies three talking points that I feel are critical to Gen X leaders in this new business world

Vision: Maxwell sites vision as the indispensable quality of leadership What you see is what you can be, and people do what people see. Maxwell believes that vision makes the leader, not vice v e r s a S t a n f o r d R e s e a rc h c o n t e n d s t h a t 8 9 p e rc e n t o f w h a t w e learn is visual, 10 percent of what we learn is auditory, and 1 percent of what we learn is through other senses If leaders lose their vision, they lose their power to lead

Maxwell writes, “People depend on a visual stimulation for growth Couple a vision with a leader willing to implement that dream and a movement begins People do not follow a dream in itself. They follow the leader who has that dream and the ability to communicate it effectively Therefore, vision in the beginning will make a leader, but for that vision to grow and demand a following, the leader must take the responsibility for it ” Connecting your vision with the current needs of your people is critical to the success of your organization Millennials want to make an impact and development NOW; Gen Xers have to be able to show them the way

People: Maxwell says people are your most appreciable asset. Remember that Millennials want to be mentored and they listen to Wii-FM (what’s in it for me). Investing in developing your people i s c r i

people-developers:

1. Make the right assumptions about people.

2 Ask the right questions of people

3 Give the right assistance to people

n make it move In actual studies of leadership in American business, the average executive spends three-fourths on his working time dealing with people The largest, most valuable asset any company has is its people All executive plans are carried out, or fail to be carried out, by people ”

Staff Development: Maxwell associates the concept of staff development with creating a winning team. Specifically, winning teams have these five characteristics:

1 Have great leaders

2. Pick good people.

3 Play to win

4. Make other team members more successful.

5 Keep improving

Per Maxwell, “Everything rises and falls on leadership There are two ways you can get others to do what you want: You can compel them to do it or you can persuade them Compulsion is the method of slavery; persuasion is the method of free men. Persuading requires an understanding of what makes people tick and what motivates them; that is, a knowledge of human nature. Great leaders possess that knowledge ”

Maxwell writes of other very important leadership qualities, including influence, priorities, integrity, creative positive change, problem-solving, attitude and self-discipline All these areas are important in defining leadership and moving organizations forward. None, though, are more important than showing people the vision and developing them individually This is where Gen X fits in Renee is senior partner of Marco & Associates, LLC, a niche accounting and financial recruiting and staffing firm located in Chicago’s West Loop Renee is a former member of the ICPAS Task Force for Student Outreach and the Womens Initiative Task Force, and is the Society’s Hire Knowledge blogger She can be reached at 312 546,9800 or rbeckman@marcofinancial com

Ponzi Payback

Pulled assets in the nick of time? That may not be such a good thing

By Brian J Hunt, CPA, JD

rising-tide method and the net-loss method and approved the use of the former.

Is a Ponzi scheme investor financially worse off if he or she withdraws some assets before the scheme is uncovered? Maybe.

Of course, when schemes are uncovered our legal system tries its best to redress the harm to investors as far as it possibly can The question is, how are recovered funds fairly distributed?

The recent decision of SEC v Huber, 702 F 3d 903 (November 29, 2012) addressed this very issue Huber operated a Ponzi scheme in which more than 100 investors lost $22 6 million Huber told investors that he administered three investment funds using a computer-trading model. He started the funds in 1996 but, by 1998, had converted them into a Ponzi scheme to cover incurred losses The receiver appointed to marshal and distribute the remaining assets was able to recover $7 million Of course, some of the investors had in an unquestionably innocent fashion withdrawn a portion of their investment before the fraud was uncovered The subsequent dispute concerned the treatment of those withdrawals.

The Court considered the two potential methods for allocating resources to creditors the

To illustrate how these methods function, assume the receiver distributes 20 percent of the total loss. Under the net-loss method, the recovered funds are distributed to each investor on a pro-rata basis based on the net amount lost, which means those investors who withdrew funds are better off than those who didn’t Assume Investor A invested $10,000 but withdrew $5,000 before the fraud was uncovered; Investor B invested $10,000 but made no withdrawals Under the net-loss method, Investor A would receive $1,000 (20 percent x $5,000 = $1,000), in addition to the $5,000 withdrawn before the fraud was uncovered, for a total of $6,000 In contrast, Investor B would receive only $2,000 (20 percent x $10,000 = $2,000) U n d e r t h e r i s i n g - t i d e m e t h o d , w i t h d r a w a l s a r e c o n s i d e r e d p a r t o f t h e d i s t r i b u t i o n a n investor receives and therefore are subtracted from the amount of the receivership assets to which the investor would have been entitled if no withdrawals had been made. Those investors who withdrew funds before the fraud was discovered may or may not be better off than those who didn’t

Specifically, Investor A, who invested $10,000 but also withdrew $5,000, would receive nothing under the rising-tide method because he or she is already deemed to have recovered $5,000 (20 percent x $10,000 = $2,000, which is less than the $5,000 previously withdrawn). In contrast, Investor B would receive $2,000 (20 percent x $10,000 = $2,000) Therefore, the rising tide lifts the unwitting investor who made no withdrawals (Investor B) to a level closer to the investor who did (Investor A).

The Court also noted that, when there are no withdrawals, the rising-tide method yields the same receivership asset distribution as the netloss method

Although those investors who made substantial withdrawals before the fraud was uncovered objected to being penalized, the Court noted

that rather than withdrawing their own money they had withdrawn a portion of Huber’s co-mingled, stolen funds. The Court observed that no investor is entitled to money stolen from other people

Reviewing decisions from other state and federal courts, the Court concluded that the rising-tide method is the most commonly used (and judicially approved) for appointing receivership assets. Although the Court noted that the net-loss method may be more attractive when a large number of investors receive nothing, it also noted that only 18 percent of the investors in Huber’s scheme received nothing under the rising-tide method

The Court also emphasized that the choice between the net-loss and rising-tide methods only applies to innocent investors Withdrawals made by investors who knew or should have known of the fraud can be treated as fraudulent conveyances and “clawed back” into the receivership assets.

I n v e s t o r s i n v o l v e d i n a d i s c o v e r e d P o n z i s c h e m e m u s t f e e l t r e m e n d o u s l y v u l n e r a b l e a n d e x t r e m e l y b e t r a y e d . I t ’ s e a s y t o u n d e r s t a n d t h a t t h o s e w h o w i t h d r a w f u n d s b e f o r e t h e f r a u d i s uncovered want even more from the receiver and will likely feel that they are entitled to the benefit of their actions On the other hand, all the receiver and the legal system can do is strive to treat all investors as fairly and evenly as possible.

The best advice remains to choose your investments wisely Brian Hunt is the managing principal of The Hunt Law Group, LLC in Chicago, and is a member of the AICPA and the Illinois CPA Society Brian has been selected as one of “Chicago’s Top Rated Lawyers” by Martindale-Hubbell and American Lawyer Media, the nation’s largest publisher of legal media, including The National Law Journal, Corporate Counsel and The American Lawyer. He can be reached at 312 384 2301 or bhunt@hunt-lawgroup com

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All About Millennials

Three ways to make Gen Y the focus of your culture makeover

By Christine Bockelman

The generation gap is nothing new. World War veterans didn’t understand the hippies, Baby Boomers clashed with Gen Xers and now, well, Millennials are thought of as frustratingly entitled by just about everyone It is the way of things

Commonly defined as individuals born between 1980 and 2000, Millennials have a lot of strikes against them, especially in corporate America. This generation is known for disliking the status quo, not respecting authority, not wanting to work traditional 9 to 5 hours, and needing lots of applause and encouragement In other words, they don’t exactly fit the traditional concept of a model employee.

T h a t , h o w e v e r, i s n ’ t n e c e s sarily a bad thing

Previous generations did what they were supposed to They sho w e d u p t o w o r k w h e n t o l d , k e p t t h e i r n o s e s t o t h e g r i n ds t o n e s a n d w o r k e d l o n g h o u r s s l o w l y a n d d e l i b e r a t e l y c l i m bing the corporate ladder Millennials expect to be CEO five years after college graduation. In other words, they’re bold, driven and ambitious

Not only that, but Millennials know all there is to know about technology and social media, fight for better work/life balance and are dedicated to improving the world around them

U n f o r t u n a t e l y, t h o u g h , s i n c e t h e s e g o o d points don’t usually fit neatly into existing, tra-

ditional workplace cultures, they tend to create a lot of friction

“ M i l l e n n i a l s l o o k a t p r e v i o u s g e n e r a t i o n s and question our choices, believing we’re not e n t i r e l y s a t i s f i e d w i t h t h e o u t c o m e s , ” s a y s Grant Thornton Chief Human Resources Officer Pamela Harless

It’s understandable. When one set of employees is working long hours in the office to get the job done, and another is shoving off early to work from home, there’s bound to be tension Older workers think Millennials are lazy and demanding, and Millennials think older workers are rigid and too serious And that’s just the tip of the culture clash iceberg.

Here are three strategies to help everyone get along and appreciate the value of their differences After all, it takes generational diversity to make the business world go round.

1. Find Teachable Moments

“Boomers and Gen Xers came into the workforce knowing we had to adapt, and we did,” Harless explains. “We made difficult work/life balance choices in order to achieve career goals. We were willing to hold our tongues and make efforts to fit in with the corporate culture ”

Millennials buck this history hard

“I think they bring a level of boldness and courage to the workplace that previous generations didn’t,” says Harless. “They will speak t h e i r m i n d s a n d a r e n ’ t a f r a i d t o s h a r e t h e i r viewpoints.”

S p e a k i n g y o u r m i n d , o f c o u r s e , c a n b e a good thing. It also can lead you across the fine line separating appropriate and inappropriate “Millennials grew up with parents who said thing s lik e , ‘We ’re g oing on v a c a tion; whe re do you want to go?,” says CPA firm management consultant Rita Keller of Keller Advisors, LLC “I grew up with my parents telling me we were going to Michigan for a week and get in t h e c a r T h e y h a v e a l w a y s e x p e c t e d t o h a v e their voices heard.”

Instead of shaking your head and dismissing them for being too bold, harness the power of

that boldness and relate to them in very human terms. Explain how boldness might be misconstrued as petulance Tailoring communication styles to one culture or another means getting a point across diplomatically, without burning bridges.

“ T h e r e n e e d s t o b e s o m e m e n t o r i n g , ” s a y s C y n t h i a S i m s , a s s o c i a t e p r o f e s s o r, Department of Workforce Education and Development and Women, Gender & Sexuality Studies at Southern Illinois University, Carbondale “For all their confidence, there are lots of things for Millennials to learn, like how to communicate effectively ”

Build bridges between generations by having them learn from each other, Sims suggests For instance, Boomers could benefit from Gen Y’s tech expertise and Gen Xers many of whom have young families and aging parents that need care can find ways to work with the younger set to build better corporate work/life balance policies

“Mentoring is a give and take,” Sims explains “Everyone has something to learn from someone else.”

“Coach employees to take a step back and listen,” adds Harless “How do I appreciate what you’re saying even though we’re coming from very different perspectives?”

Think of all these generational differences as a diversity training challenge. “Diversity isn’t just about gender or sexual preference or skin color,” says Sims “We all have traits based on the generation we were born into.”

2 Foster Loyalty

Millennials’ primary career motivators aren’t money or status Instead, they want to k n o w t h e i r l i v e s h a v e b r o a d e r p u r p o s e , and they seek out companies where their place is clear and they see their impact on the greater good.

In their quest for these things, Millennials are prone to job hop It used to be that human resources would toss aside resumes if applicants had moved from job to job too often, but it’s an unavoidable part of a Millennial’s work history

Another reason for these short stints is t h a t M i l l e n n i a l s d o n ’ t n e c e s s a r y f e e l t h e same sense of corporate loyalty that was f u n d a m e n t a l t o Tr a d i t i o n a l i s t s a n d B a b y B o o m e r s “ I f t h e y d o n ’ t f e e l i n c l u d e d o r there isn’t an opportunity for them to be r e w a r d e d , t h e y w i l l l e a v e t o l o o k f o r a p l a c e w h e r e t h e y t h i n k t h e i r s k i l l s a n d i d e a s w i l l b e b e t t e r r e w a r d e d , ” K e l l e r explains It’s a grass-is-greener search that is disruptive and costly for employers

O n e w a y t o t e m p e r t h e t e n d e n c y t o j u m p s h i p i s t o h o l d i n f o r m a l m e e t i n g s b e t w e e n m a n a g e m e n t a n d e m p l o y e e s , where everyone can voice opinions, brainstorm innovations and broach concerns

“It might take some time, but employe e s w i l l w a r m u p t o t h e i d e a o f t h e s e f o r u m s , ” s a y s K e l l e r “ Yo u ’ l l g e t s o m e good ideas, and this generation will feel like you are listening ”

Success, of course, means you actually have to listen “There’s nothing worse than asking someone where they think you can improve and then not improving,” Keller cautions.

Another tip don’t treat them like kids “ If y ou don’t ta k e the m s e rious ly, the y ’ll k n o w i t a n d t h e y ’ l l m o v e o n t o t h e n e x t job,” Sims warns.

3. Embrace the Future

The truth is, Millennials are necessary to o u r f u t u r e “ T h e r e ’ s a s e c e s s i o n i s s u e i n this country, and particularly in accounting,” says Keller “Boomers are a huge generation and they are retiring in big numbers ” Gen X will replace them, leaving a huge gap in management that Millennials have to fill This means firms had better sit up and listen

“The world has changed,” Keller states emphatically “Even families are different I t ’ s n o l o n g e r j u s t m o m a t h o m e r a i s i n g children; it’s a team effort and employees n e e d f l e x i b i l i t y t o m e e t t h e s e p e r s o n a l demands Millennials are helping to lead this charge for change.”

No one is suggesting organizations flip overnight. Successfully meshing Millennials into corporate culture is an involved, sensitive process.

“Organizations need to adapt to reflect the values of everyone on its workforce,” s a y s S i m s “ T h a t d o e s n ’ t m e a n l e t t i n g everyone work from home on laptops all the time by the end of the week if that’s a radical idea for your company or firm.”

I n s t e a d , t a k e t h e t i m e n o w t o t h i n k through what’s being suggested, and consider that a different approach might be a good thing. Make every effort to bridge the values of all the generations represented at your firm

“

H a v e d i s c u s s i o n s a n d t r a i n i n g b e f o r e you start having problems,” Sims advises “Have policies and programs in place that s h o w y o u v a l u e e a c h g e n e r a t i o n a n d i t s ideas Teach the Millennials on your staff about your expectations, but consider that they might have ideas that are just as good, or better ”

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The Threat Within

Can you really trust anyone with your company secrets? Not really Which is why CPAs are playing an ever-greater role in a company ’ s first line of security defense

By Sheryl Nance -Nash

With the increasing number of data breaches, and the increasingly complex reporting requirements and hefty fines that accompany them, organizations are taking data security with ever-greater seriousness And CPAs are playing an ever-greater role.

“Business intelligence is a company asset, no different than cash or a fixed asset,” says Jonathan Bobb, CPA and partner with forensic accountants McGovern & Greene “The role of the CPA in protecting business intelligence has dramatically changed in recent times,” he stresses What types of data are likely to be on the target list? “Trade secrets rank highest,” says Kelly Pope, associate p r o f e s s o r o f a c c o u n t i n g a t D e P a u l University, Chicago and an expert in forensic accounting Proprietary financial information, such as earnings p r o j e c t i o n s a n d s a l e s f o r e c a s t s , i s also high on the list, as well as product launch information, vendor information, employee records, customer data, company contracts and patent information, to name a few The list is, in fact, intimidatingly long.

T h e f i n a n c e d e p a r t m e n t i s t h e information center of any business

As more companies centralize opera t i o n s , c o m b i n i n g t h e f u n c t i o n s o f f i n a n c i a l , sales and production analysis under one umbrella, the CPA’s role will continue to evolve i n t o t h a t o f a s t r a t e g i c a d v i s o r w h o a n a l y z e s broad-range business trends system wide

Although hackers, cybercriminals and script kids are on a notorious mission to gain unauthor i z e d a c c e s s t o y o u r c o m p a n y i n f o r m a t i o n , t h r e a t s a r e n ’ t l i m i t e d t o e x t e r n a l a t t a c k e r s Occupational fraud is high on the list of concerns nationwide

“Companies need to ensure that agreements are in place with all independent contractors

a n d e m p l o y e e s t h a t c l e a r l y s t a t e t h a t t h e y h a v e b e e n p a i d f o r t h e i r w o r k a n d t h a t t h e company retains full and legal title/rights of those efforts and that contractors/employees commit to not disclosing any trade secrets or to utilize any items for their own gain/use,” Bobb warns

It’s not necessarily that your employees are planning to defraud you Rather, says Donny Shimamoto, founder of CPA consultancy IntrapriseTechKnowlogies and chair of the American Institute of Certified Public Accountants’ Information Management & Technology

A s s u r a n c e E x e c u t i v e C o m m i t t e e , i t ’ s t h e i r lack of awareness of the risks that tops the list of threats

“ E m p l o y e e s m u s t h a v e a n a w a r e n e s s o f what data is subject to privacy and confidentiality requirements. They need to be trained o n w h a t a c t i v i t i e s a r e a l l o w e d a n d w h i c h aren't, and to know what to do if they think t h e r e h a s b e e n a c o m p r o m i s e I n c i d e n c e s must be easy to report and there must be no fear of retribution,” he says

Email and social media continue to be big issues “The amount of information that’s exc h a n g e d v i a s o c i a l m e d i a c a n b e a m a j o r threat to an organization. The increased use of cloud computing also increases the risk of b u s i n e s s i n t e l l i g e n c e b r e a c h e s . H o w t o s e c u r e i n f o r m a t i o n t h a t r e m a i n s i n a c l o u d s e e m s t o b e a n a r e a w e a r e s t i l l l e a r n i n g about,” says Pope

I n t h i s e r a o f B Y O D ( o r b r i n g - y o u r- o w ndevice) CPAs also need in-depth knowledge of how employees use their smartphones and t a b l e t s f o r w o r k p u r p o s e s ; i n o t h e r w o r d s , what devices are supported by the company and how do they access company data?

“A CPA can assist in reviewing the internal c o n t r o l s r e g a r d i n g t h e p r o p e r a u t h o r i z a t i o n and access of company information,” Bobb stresses.

“At a minimum, CPAs should see to it that all server and computer equipment is protected,

that proprietary software data and information is encrypted, and that firewalls, digital certificates and other control measures are in place,” says Jim Taylor, principal of consulting firm Greater Yield “Access to sensitive and proprietary data should be restricted, and all personnel should be identified through unique passwords to track the activity of anyone logging into the business information system. There should be a daily security review of business intelligence access reports and monitoring of cash-flow data Data should be classified ”

Industrial espionage has been around for eons, and likely isn’t g o i n g a n y w h e r e s o o n . “ Te c h n o l o g y h a s j u s t m a d e i t e a s i e r f o r thieves to steal company secrets,” Bobb explains “What used to require an individual to gain access to a company's files by physical means, like breaking into a company's offices and accessing locked file cabinets, can now be done behind a computer from almost anywhere in the world with an Internet connection ”

Developing accounting professionals trained in both accounting and information technology is a major issue, says Pope “We are d e v e l o p i n g p r o f e s s i o n a l s t h a t c a n h a n d l e t h e d e m a n d s o f t h e changing times,” she states

“Accountants, MIS and IT professionals must work together,” Taylor adds soberly. “Each discipline needs the knowledge, skills and abilities to recognize and thwart the ongoing threats being levied at today's business intelligence networks. Any decentralized approach to accounting makes compatibility errors more common and increases the chances of securities risks due to varying datahandling policies and procedures ” It’s no coincidence that finance and IT are increasingly falling under the CFO’s purview

“ A g o o d w o r k i n g r e l a t i o n s h i p b e t w e e n I T a n d a c c o u n t i n g i s essential,” Shimamoto concludes

Same

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The 21st century’s

TOP 10 FRAUDs

The theory is there are no small frauds only frauds that haven’t yet reached their full potential. So says Jim Ratley, president and CEO of the Association of Certified Fraud Examiners (ACFE)

According to the ACFE’s 2012 Report to the Nation, m o s t o c c u p a t i o n a l f r a u d s t e r s a r e f i r s t - t i m e o f f e n d e r s w i t h c l e a n e m p l o y m e n t h i s t o r i e s . A p p r o x i m a t e l y 8 7 p e rc e n t h a v e n e v e r b e e n c h a rg e d o r c o n v i c t e d o f a

#1. Wor ldcom

The telecommunications company now known as MCI inflated assets by as much as $11 billion, leading to 30,000 lost jobs and $180 billion in losses for investors. The company’s internal audit department uncovered $3 8 billion in fraud. CEO Bernie Ebbers was identified as the main perpetrator, underreporting line costs by capitalizing rather than expensing, and inflating revenues with fake accounting entries He was sentenced to 25 years for fraud, conspiracy and filing false documents. The CFO was fired, the controller resigned and the company filed for bankruptcy.

Ratley says that, in a less severe case of fraud, when an internal auditor finds red flags the offending numbers are generally just changed or written off “With a case this big, they were bound to get caught, but in many more run-ofthe-mill fraud cases, it’s still swept under the rug.”

What have we learned? “Not a lot,” says Ratley

“It comes down to leadership,” explains Al Gini, chairman of the management department, Quinlan School of Business at Loyola University, Chicago. “No one should be sustained without scrutiny So even if someone seems fine and has worked his or her way up the ranks, scrutiny is deserved before you become a member of the C-suite. The board of directors should be doing this It’s not a symbolic role.”

fraud-related offense, and 84 percent have never been p u n i s h e d o r t e r m i n a t e d b y a n e m p l o y e r f o r f r a u drelated conduct

From the mass of fraud cases that have erupted onto f r o n t p a g e s t h i s c e n t u r y, w e h a v e c h o s e n o u r t o p 1 0 . Many are familiar names, committed to the annals of hist o r y f o r t h e i r i l l - g o t t e n g a i n s . A r e t h e r e l e s s o n s t o b e learned? We certainly hope so.

John R Boatright, director at Loyola’s Baumhart Center for Social Enterprise and Responsibility, agrees. “When I teach this case in my classes, I show my students that Ebbers was out of his league If you look at his former experience he was not qualified to hold his role. His experience did not add up to CEO material His business strategy was basically a rising stock price based on continual expansion. That’s flawed in so many ways, and a qualified CEO would never allow it ”

Brad Sargent, CPA/CFF, CFE, CFS, Cr.FA, FABFA, managing member of The Sargent Consulting Group, LLC, and INSIGHT Forensics Insider columnist, has a different take. “In hindsight,” he says, “these individuals sitting at the top of these organizations, orchestrating these frauds, appear as nothing more than greedy crooks. However, they ascended to these positions of wealth, power and influence by hard work, diligence, tenacity and earning trust. None of them ever set out to commit fraud. They made a series of disastrous ethical decisions that led them, their organizations and stakeholders down the slippery slope to criminal behavior A billion-dollar fraud isn’t perpetrated overnight by one individual using one set of accounting entries It takes years of buy-in and trust to co-opt the entire leadership structure within an organization ”

T hese individuals perfected the ar t of “now you see it, now you don’t.” Her e, we detail lessons lear ned the har d way.

By Kristine Blenkhor n Rodriguez

#2. Waste Management

This Houston-based, publicly traded company allegedly reported a whopping $1 7 billion in false earnings, falsely increasing the depreciation length for their property, plant and equipment on the balance sheets. Charged in 2002 by the Securities Exchange Commission (SEC), the fraud allegedly had been going on for more than 5 years Resolving the issue by settling a shareholder class-action suit for $457 million, the company’s new CEO (whose team had caught the discrepancy) instituted an anonymous hotline where employees could report dishonest behavior. According to the SEC, chief executives were the ones perpetrating this fraud

Philip Rooney, president, ensured that required write-offs were not recorded and, in some instances, overruled accounting decisions that would have a negative impact on operations. He reaped m o r e t h a n $ 9 . 2 m i l l i o n i n i l l - g o t t e n g a i n s f r o m , a m o n g o t h e r things, performance-based bonuses, retirement benefits and selling company stock while the fraud was ongoing

James Koenig, CFO, was primarily responsible for executing the scheme He also ordered the destruction of damaging evidence, misled the company’s audit committee and internal accountants, and withheld information from outside auditors He profited by more than $900,000 from his fraudulent acts

Thomas Hau, corporate controller and chief accounting officer, devised many “one-off” accounting manipulations to deliver the targeted earnings and carefully crafted the deceptive disclosures. He profited by more than $600,000

D e f e n d a n t s a l l e g e d l y c o n c e a l e d t h e i r s c h e m e i n a v a r i e t y o f ways, including making false and misleading statements about the company’s accounting practices, financial condition and future prospects in filings with the SEC, reports to shareholders and press releases. They also were charged with using accounting manipul a t i o n s k n o w n a s “ n e t t i n g ” a n d “ g e o g r a p h y ” t o m a k e r e p o r t e d results appear better than they actually were and therefore avoid public s c rutiny De fe nda nts a lle g e dly us e d ne tting to e limina te approximately $490 million in current period operating expenses and accumulated prior period accounting misstatements by offsetting them against unrelated one-time gains on the sale or exchange of assets They were charged with using geography entries to move tens of millions of dollars between various line items on the company’s income statement to, in Koenig's words, “make the financials look the way we want to show them.”

Auditor Arthur Andersen was fined $7 million for its participation in the false reporting

“It’s not unusual,” says Craig Greene, a certified fraud examiner and founder of McGovern & Greene CPAs & Forensic Accountants, “for high-level executives to be caught as a team. But more common, before Sarbanes-Oxley (SOX), was that the CFO would be the one to fall on his sword, with the CEO coming out as innocent of wrongdoing This, of course, was not usually true, but it’s just the way things were done.”

What have we learned? That SOX was necessary, says Greene. “A CEO must be responsible for what is transpiring on his watch and by making him sign off on financials, it makes it so ”

#3. Enron

The Houston-based commodities, energy and service corporation kept huge debts off the balance sheets Shareholders lost $74 billion, thousands of employees lost their retirement accounts, many employees lost their jobs and the firm filed Chapter 11 bankruptcy

Sherron Watkins, a senior executive, blew the whistle when high stock prices fueled suspicion of wrongdoing Auditing firm Arthur Andersen was found to be involved CEO Jeff Skilling was sentenced to 24 years in prison. Former CEO Kenneth Lay passed away before serving time Former CFO Andrew Fastow, who pleaded guilty to two counts of conspiracy, served jail time and forfeited $24 million, was quoted in a Denver Post article as saying, “There are people who look at the rules and find ways to structure around them. The more complex the rules, the more opportunity The question I should have asked is not what is the rule, but what is the principle ”

What has Enron taught us? “For one, that boards of directors should not resemble social clubs more than business boards,” says Ratley. “Boards got tougher after Enron.” The rub, he says, is that fraud courses are now back down to pre-Enron levels, which were quite low “Executives worried for a while and now their guard is back down Not a good thing when you’re talking about fraud ”

#4. T yco

This New Jersey-based, blue-chip Swiss security systems company was targeted by the SEC in 2002 for questionable accounting practices that inflated company income by $500 million and netted the CEO and CFO $150 million The money was siphoned through unapproved loans and fraudulent stock sales, disguised as executive bonuses and benefits. C

tenced to 8 to 25 years in prison The company had to pay $2 92 billion to investors as the result of a class-action suit At the height o f

d e t a i l e d h i s u s e o f c o m p a n y funds for $14 million in renovations and redecorating for his Fifth Avenue apartment in New York. Among the most ridiculous items were a $6,000 shower curtain and a $2,200 wastebasket.

A tip or a complaint to the SEC is not de rigueur, according to Ratley “There’s really no method set up to report to the SEC,” he says. “For the average company, an anonymous tip line is the best option, run by an external party. If it’s run internally, it tends to fail, either due to lack of reporting or lack of response because of a conflict of interest ” Smart companies have learned to provide a mechanism to self-police in the wake of Tyco

#5. Healthsouth

This healthcare company allegedly inflated its earnings by $1.4 billion to meet stockholder expectations CEO Richard Scrushy was accused of asking staff to make up numbers and transactions from 1996 through 2003 Cash and asset accounts were falsified a n d p r e - t a x i n c o m e w a s i n f l a t e d . T h e S E C b e c a m e s u s p i c i o u s when Scrushy sold $75 million worth of stock the day before the company posted a huge loss

Despite the fact that five senior executives pleaded guilty to federal fraud (including the CIO), Scrushy was acquitted of all 36 counts of accounting fraud. He was, however, accused of bribing the governor of Alabama, which led to a 7-year prison sentence Scrushy still maintains his innocence and works as a motivational speaker

“What belies the differential between average wage earners and CEOs is our naïve belief that these people are going to save us,” says Gini, referring to the exorbitant compensation Scrushy was p a i d T h e s h a r e h o l d e r s ’ a t t o r n e y a l l e g e d t h a t S c r u s h y r e c e i v e d $226 million in compensation over 7 years while HealthSouth was losing $1 8 billion, but Scrushy disputed the numbers

“It spans industries,” says Gini “And it’s ridiculous If you look at the wages of the JCPenney CEO last year, for example, he was paid thousands of times more than the average worker And oh, by the way, JCPenney is in trouble We have to stop thinking any of them has a magic bullet. No one is worth that much. We don’t seem to be learning our lessons, though, as we keep hiring executives with a less-than-stellar moral compass, who will maintain innocence in the face of overwhelming evidence to the contrary. We’ve learned very little from this scandal ”

#6. Freddie Mac

This federally backed mortgage giant misstated $5 billion in earnings, according to a SEC report issued in 2003 The organization paid $125 million in fines and fired its CEO, CFO and COO Under the terms of the settlement, Freddie Mac’s board was required to review and revise its bylaws and the frequency of its meetings, along with the company’s codes of conduct The board also was required to determine whether to impose limits on the terms of its members. Freddie Mac, in turn, was required to report on its internal controls and on plans for strengthening its internal audit function Also, it was required to separate the jobs of chief executive and chairman.

“I’m not saying Freddie Mac was blameless,” says Gini, “but the intent here was not to amass personal wealth at the expense of others. Their worst crime was throwing good money after bad and trying to cover their mess Chalk it up to Scandal #4,788 We take a deep breath and hope it won’t happen again But it will ”

“If you’re receiving federal funds, you’re regulated even more heavily,” says Greene “The lesson is simple: pay attention and do the right thing ”

#7. American Insurance Group ( AIG)

This multinational company allegedly perpetrated an accounting fraud totaling $3.9 billion, along with bid rigging and stock price manipulation It settled with the SEC (twice) for a combined $1 74 billion, along with several pension funds CEO Hank Greenberg w a s f i r e d b u t f a c e d n o c r i m i n a l c h a rg e s . G r e e n b e rg a l l e g e d l y booked loans as revenue, steered clients to insurers with whom AIG had payoff agreements and told traders to inflate stock prices

“Bid rigging is one of the more sophisticated but also one of the most common frauds,” says Greene. “The red flags are there and have been for years This is a fraud that’s easy to spot for an auditor using due diligence If you think you’re getting away with it, odds are not in your favor.”

Auditors, however, don’t seem to have learned this lesson, if a recent study is any indicator Funded by the Center for Audit Quality, An Analysis of Alleged Auditor Deficiencies in SEC Fraud Invest i g a t i o n s : 1 9 9 8 – 2 0 1 0 , l o o k s a t 8 7 s a n c t i o n s a g a i n s t a u d i t o r s brought by the SEC in fraud cases involving public companies The long-term analysis found that auditors sometimes didn’t question documents that appeared to be fabricated or overlooked discrepancies between real inventory and amounts on the books Most of the cases involved multiple alleged deficiencies.

#8. Lehman Brothers

Forced into bankruptcy by poor practices, this financial services firm hid more than $50 billion in loans, disguising them as sales Lehman allegedly sold toxic assets to Cayman Island banks, with the understanding they would be bought back in time. The SEC didn’t prosecute due to lack of evidence

“Frauds are committed so they increase exponentially,” says Greene. “Lehman was a classic case of ‘I need to report an extra $20 million ’ The analysts are not expecting results to be $20 million less

than they should be so to make it ok, I’m just stealing from the future temporarily I’ll make it up next quarter And so on and so on ”

The lesson learned here, says Greene, is that we needed stricter guidance on revenue recognition “And we still don’t have it to the extent we need it,” he says

#9. Bernie Madoff

Madoff’s Wall Street investment securities firm bilked investors out of $64 8 billion in the largest Ponzi scheme ever Instead of paying returns to investors out of profits, they were paid with their own money or that of other investors. Facing $7 billion in redemptions, Madoff confessed to his sons, who turned him into the SEC the next day. The vault that held the fraudulent information was, ironically, an IBM AS/400 server dating back to the 1980s that Madoff refused to replace Now we know why

“When things are going too well, something is wrong,” says Gini

“This wasn’t just hurting wealthy investors who could stomach the hit,” says Greene “This was bilking Granny out of her life savings ”

L e s s o n s t o b e l e a r n e d h e r e a r e h a r d , s i n c e M a d o f f i s a v e r y extreme case Many liken him to a sociopath or psychopath, a la Snakes in Suits by Paul Babiak “You can’t extrapolate from that situation because it’s so unusual,” says Gini

#10. sat yam

This global IT firm, based in India, falsely boosted earnings by $1 5 billion by falsifying revenue, margins and cash balances Founder and Chairman Ramalinga Raju admitted the fraud in a letter to the company’s board of directors. He and his brother were charged w i t h b r e a c h o f t r u s t , c o n s p i r a c y, c h e a t i n g a n d f a l s i f i c a t i o n o f records. Both were released when the Central Bureau of Investigation failed to file charges on time

In his letter to his board, Raju states: “What started as a marginal gap between actual operating profits and ones reflected in the books of accounts continued to grow over the years It has attained unmanageable proportions ” Later, he describes the process as “like riding a tiger, not knowing how to get off without being eaten ”

Gini considers Raju just another example of the CEO as celebrity cult gone wrong “Many of them are narcissists of the highest order This is all about them. Not just about the money. It’s about playing the game. At a certain point, you’ve stolen so much that there is no way to spend it without being caught. You could never spend that much in a lifetime. It is a thrill to some of these people.”

The ultimate lesson? “Get back to basics and look at the character of those we put in authority,” says Gini “By what rubric could you ever justify the actions of the Enron C-suite? And how did we get to the point where we let people like that run the show?”

ILLIN OIS’ BIG FOUR

By Carolyn Kmet

Almost since inception, Illinois’ economy has relied on a foundation of manufacturing, construction, finance and agriculture. Each was hard hit by the recession, and while the state might not be growing at the same rate as the majority of the nation, it is showing encouraging signs of improvement all the same.

Here, then, we look at the challenges still facing Illinois as it edges towards a brighter future.

I. Manufactur ing

Here’s the good news: Manufacturing employment rose in Illinois in 2012, the second consecutive year of an uptick after years of decline Illinois manufacturers added 6,833 jobs between November 2011 and November 2012, a gain of about 1 percent, according to the 2013 Illinois Manufacturers Directory, an industrial guide published annually by Manufacturers’ News Inc Producers of industrial machinery and equipment account for the largest share of the state’s manufacturing employment, up 1 5 percent to 130,959 jobs in the past 12 months. Second-ranked fabricated metals accounts for 93,873 jobs, up 2 4 percent, and food products manufacturing accounts for 92,927 jobs in Illinois, up 1 percent.

“ I l l i n o i s o b v i o u s l y h a s s o m e m a j o r b u d g e t a n d c r e d i t r a t i n g issues, which may keep some businesses away,” says Tom Dubin, p r e s i d e n t o f M a n u f a c t u r e r s ’ N e w s , I n c “ B u t t h e s t a t e ’ s c e n t r a l location, easy access to shipping and transportation, and large, highly skilled workforce continue to make it a major player in the manufacturing sector ”

And here’s more good news: Manufacturing payrolls in Illinois have increased 5 1 percent since January 2010, compared to 4 6 percent nationally, according to State of Illinois employment data. One factor behind the increase is a rise in state exports thanks to Governor Pat Quinn’s goal of doubling exports by 2015, explains Adam Pollet, acting director of the Illinois Department of Commerce and Economic Opportunity Manufactured goods exports support 24 percent of Illinois’ manufacturing jobs, above the U S average of 22 percent, according to the National Association of Manufacturers

“Illinois is attracting the manufacturing of the future,” says Pollet “We are working closely with manufacturing companies to

help to train Illinois workers for those 21st century jobs That’s why we partnered with the University of Illinois earlier this year to create the Illinois Manufacturing Laboratory, essentially planting a flag in the state to announce that Illinois is committed to staying on the cutting edge of advanced manufacturing ”

Bruce Braker, director of the Chicago Manufacturing Renaissance Council and treasurer of the National Institute for Metalworking Skills, agrees that increased demand for Illinois exports has contributed to growth. “The gradually improving U.S. and world economies are the most significant drivers for both American and Illinois manufacturers,” he says. “Increased domestic and global demand generates increased production, more jobs and more profitability And Illinois manufacturers are strong goods exporters ”

Growth in the manufacturing sector is also the result of expansion projects throughout the state, says Pollet, citing passenger railc a r m a n u f a c t u r e r N i p p o n S h a r y o e x p a n d i n g i t s f a c t o r y i n Rochelle; automotive industry lighting supplier North American Lighting Inc. growing its Paris manufacturing plant; and aerospace energy firm Woodward Inc announcing plans to build a manufacturing plant in Loves Park.

However, the sector’s growth in Illinois isn’t solely driven by internal expansion. Another driving force is the increased interest in reshoring manufacturing operations back from overseas operations where challenges include increased labor costs, supply disruptions, intellectual property issues and dealing with non-U S government requirements

dered by geographic restrictions “Manufacturers ship their prod-

ucts all over the country, if not the world As long as they have a c c e s s t o a s k i l l e d l a b o r p o o l a n d a h i g h w a y, t h e y w i l l l o c a t e where the costs of doing business are the lowest,” Dubin explains

However, this doesn’t guarantee that Illinois manufacturers will reshore their operations Dubin points out that neighboring Michigan has slashed business taxes and become a right-to-work state, essentially rolling out a welcome mat to manufacturers and other employers Indiana and Wisconsin have adopted similar strategies

“You’ve already seen other states with lower costs, such as Wisconsin and Texas, trying to poach Illinois businesses,” says Dubin “Because of its high costs, Illinois has been forced to offer major tax breaks to select large employers to keep them from leaving ”

Sandra Jones, communications director at the Illinois Departm e n t o f 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, d o e s n ’ t a g r e e

“There is a common misconception that taxes on businesses are high in Illinois But the fact is that Illinois has one of the lowest tax burdens in the country,” she argues.

According to a 2011 study by Ernst & Young, when all state and local taxes are considered, Illinois has the fifth-lowest effective tax r a t e o n n e w i n v e s t m e n t i n t h e c o u n t r y a t 4 6 p e rc e n t , J o n e s explains Texas isn’t even in the top 10, she points out As for the total tax burden, business taxes in Illinois rank below the national average at 9 2 percent, she says, quoting a report from the Anderson Economic Group released in May.

Whichever viewpoint you take, the state’s manufacturing sector seems headed for good things. Braker points to the formation of North Dakota’s Bakken Shale formation as an example “Fracking for shale oil is not a new technology, but it’s a growing technology,” he explains “Some Illinois manufacturers make the equipment used in fracking, and manufacturers will also benefit from lower-cost energy due to increased supplies of domestic gas and oil ”

W h a t ’ s m o r e , B r a k e r e x p e c t s t h a t I l l i n o i s m a n u f a c t u r e r s w i l l b e n e f i t f r o m g r o w i n g d o m e s t i c d e m a n d f o r a u t o m o b i l e s . H e explains that as the economy improves, more consumers will look to replace their current cars with newer models. “Some of this is p e n t - u p d e m a n d b e c a u s e p e o p l e w e r e h a n g i n g o n t o t h e i r o l d beaters, and some is due to the improved quality and value of new models,” he says “Illinois hosts several auto assembly plants along with numerous auto supply chain companies ”

In the long run, Braker foresees Illinois continuing as a leader in the domestic manufacturing arena He says that while other states will try to poach manufacturers, Illinois offers significant a d v a n t a g e s a n d r e s o u rc e s t h a t s i g n i f i c a n t l y o f f s e t s o m e o f t h e state’s financial woes. As Pollet mentioned, among these are Illin o i s ’ c e n t r a l l o c a t i o n , w e l l - d e v e l o p e d t r a n s p o r t a t i o n s y s t e m , trained and skilled workforce, excellent manufacturing technology education and research programs, a diverse economy and a large manufacturing base of 19,000 companies employing over 550,000 Illinois residents

II. Constr uction

In the first quarter of 2013, construction activity in Illinois’ major m e t r o p o l i t a n r e g i o n s g r e w 2 9 . 4 p e rc e n t c o m p a r e d w i t h 2 0 1 2 , according to a survey by BidClerk, an online marketplace that connects construction resources However, data compiled by Associated General Contractors of America indicates that construction employment actually declined 4 4 percent in March 2013

In other words, “The construction industry recovery in Illinois is spotty and uneven,” says Howard J Swibel, a partner at Arnstein & Lehr LLP, a Chicago-based practice that includes specialties in real estate finance and development Swibel explains that govern-

ment-funded stimulus projects such as road building and repair, as well as an upswing in apartment building construction due to a hot rental market, are driving the beginnings of recovery He does add, t h o u g h , t h a t a d e c r e a s e i n h o m e b u i l d i n g i s s l o w i n g r e c o v e r y, despite record low residential mortgage rates

Joanna Horsnail, a partner in Mayer Brown LLP’s construction and infrastructure practice, sees the same trend She says construction has picked up in the last 18-24 months in some but not all sectors and regions. “I’ve noticed an uptick in my own practice in t h e d e v e l o p m e n t o f m u l t i - f a m i l y h o u s i n g , e n e rg y p r o j e c t s a n d infrastructure,” she observes, noting that most of this growth is driven by regions and deals with strong sources of private and/or public financing, such as certain large, complex infrastructure and e n e rg y p r o j e c t s t h a t a t t r a c t f o r e i g n i n v e s t m e n t o r c o n s o r t i a o f investors She says that while there is some uptick in Illinois, “it is more modest” than growth in other states and municipalities with stronger finances.

Grant Thornton’s National Construction Practice Leader Todd Taggart aptly describes the Illinois construction sector’s recovery as “a bit herky-jerky,” adding that recovery in the Midwest is steadier and more consistent than it is in the rest of the country

“In the Midwest residential market, people tend to be a little more conservative, and so we see what appears to be a stronger recovery in the Midwest, whereas in other parts of the country it’s s

t m o r e s p e c u l a t i v e . ” H e n o t e s t h a t b i g p u b l i c l y t r a d e d home builders are in the market, purchasing land again and applying for building permits, both of which are recovery indicators

According to Taggert, the construction industry can be divided into four major sectors: residential, horizontal (roads and bridges), vertical (hotels, shopping centers, warehouses) and industrial. “Interestingly enough, residential tends to drive other areas of construction, because if you have residential, you need all the infrastructure that gets you there. You need shopping centers, restaurants and so forth,” he says, adding that recovery in the manufacturing sector is a contributing factor to the construction industry’s recovery

“One of the trends we’re seeing is that America is now viewed as a source of cheap energy due to the shale oil deposits found in North Dakota We’re also seeing attention focused on inbound manufacturing instead of outsourcing to China and other parts of t h e w o r l d T h i s i n c r e a s e d i n t e r e s t i n m a n u f a c t u r i n g c o m p a n i e s bringing their operations to the states should have a positive effect on the industrial construction sector,” Taggert explains

As for vertical construction, this sector is expected to recover more modestly as a result of restrained consumer spending. “The new store openings involving new construction from the ground up in the Midwest are largely confined to Dollar General, Family Dollar and similar discount chains,” says Swibel “Walgreens and CVS continue to build new stores here, but not enough to sustain the entire construction industry.”

Swibel believes that, due to the construction industry’s uneven recovery, construction employment is likely to remain flat for at least the next two years. But Taggert isn’t so optimistic, citing the many skilled workers who left the industry for other jobs during the recession “A lot of the people who are electricians, mechanics, mechanical contractors, they’re now driving trucks, they’re w o r k i n g f o r t h e i r b r o t h e r- i n - l a w a n d w h a t n o t A n d t h e y ’ r e n o t coming back into the industry. That hurts recovery,” he says.

Not surprisingly, he feels that one of the most significant trends we’ll see over the next 5 years is competition for talent, particularly in the skilled labor category “My clients right now are defi-

III. Finance

Along with much of the country, Illinois is seeing an uptick in consumer spending; those companies that achieved profitability by tightening their belts are now expected to invest their earnings in technology and innovation. And while, according to the Illinois Department of Employment Security, the state’s unemployment rate in April was 9.3 percent compared to a nationwide average of 7 5 percent, Illinois shed only 2,000 jobs in April 2013 compared to a loss of 17,800 jobs one month earlier, and added 40,300 jobs in April 2013 compared to the same time a year ago

The report goes on to forecast increased recovery rates specifically for the finance sector By February 2014, economist Geoffrey Hewings, director for the Regional Economics Applications Laboratory at the University of Illinois at Urbana-Champaign, expects to see 7,700 new jobs within the financial sector, or a 2 08 percent growth rate. This is a very healthy number, considering that the average non-farm employment growth rate averages 1 1-1 3 percent

Besides job recovery, other factors are expected to impact the finance and banking industry in Illinois some more positive than others Jeffrey Brown, the Karnes Professor of Finance with the University of Illinois, feels that a weak government is to blame for Illinois’ fiscal woes “Over the past several decades, our political leadership has, quite simply, failed us,” he states adamantly “We have the worst pension underfunding problem in the nation, and even if we manage to fix it, there likely will remain a large structural deficit ”

Brown contends that Illinois’ weak fiscal condition will negatively impact the state’s attractiveness as a place to do business and therefore depress the financial sector. “And even with globalized financial markets, the Illinois financial sector still depends on a healthy Illinois economy,” he explains

Elizabeth Kroger Davis, managing director in the Chicago office of Finance Scholars Group, agrees “Banks reflect the economies in which they operate; a strong economy generally means strong banks; a weak economy often creates performance and capital issues,” she says.

Davis has her concerns “When I think about our state’s economic outlook…it of course leads to concerns about our ability to sustain a healthy pro-business climate, and further, a healthy financial services and banking sector for our state.” She says time will tell whether Illinois’ regional and local banks will be able to compete effectively with the branches of larger banks headquartered in other major metropolitan cities such as New York and Charlotte

Jones, however, is quick to reiterate the statistics “The April unemployment report shows a gain of 6,400 finance jobs in April from a year ago and a gain of 200 jobs in April from March Fifth Third Bank just announced that it is expanding in Illinois, adding 189 bank branches, and says its commercial loans in the Chicago area have grown by $1 billion to $5.6 billion in the last 2½ years,” she states

Talent is another factor that likely will impact the Illinois finance sector’s future health According to Brown, “The intellectual capital required to be successful in finance today is even greater than in the past ” He says that Illinois is fortunate to have two of the world’s top private business schools, the University of Chicago’s Booth School of Business and Northwestern University’s Kellogg School of Business, and one of the world’s very best public business schools at the

University of Illinois The schools attract top talent, which hopefully will begin its post-graduation job search in Illinois.

“The challenge will be to keep that talent in-state, which again goes back to the need to restore fiscal health to the state,” Brown explains

Despite the challenges, Davis believes that the financial sector will remain one of Illinois’ top five industries in the long run “In GDP output, Illinois remains one of the largest states in the nation, and our economy drives demand for banking and financial services,” she says “This combined with the desire of many business leaders for a local banking presence and the strength of both the exchanges and the managed funds sectors, will continue to make the financial services industry one of the top five in Illinois ”

The key question, says Davis, is whether banking and financial services will be delivered by organizations headquartered in Illinois or in other large cities. “I think the answer to that question will largely depend on our political environment and how badly our elected leadership will fight for this premier industry and its jobs,” she says.

IV. Ag r iculture

Agriculture in Illinois has faced many challenges According to the Federal Reserve’s quarterly Beige Book, shifting weather patterns that have delayed plantings, depressed corn and soybean prices due to expectations of a larger crop this year, and uncertain supplies of both crops are the factors to blame Specifically, soybean acres are expected to be higher, while corn acres may be lower Milk prices also decreased, but are still higher than they were this time last year. Cattle prices are level compared to the fourth quarter of last year, but are lower than they were in the first quarter of last year

What’s more, foreign competition is a major challenge facing the sector Mike Doherty, senior economist for the Illinois Farm Bureau, explains that, “In 2012, the top three or four foreign production areas (combined) met or exceeded U.S. farmers’ exports in the grain and oilseed markets ”

To help Illinois farmers compete, Doherty says the government n e e d s t o g e t i n v o l v e d “ Wi t h i n c r e a s i n g l y v o l a t i l e m a r k e t s a n d increasingly burdensome regulations on crop, meat and dairy agriculture, having an adequate safety net focused on crop insurance would go a long way towards helping the U S farmer continue to compete,” he explains. He adds that revising the U.S. immigration policy would also help to boost long-term competitiveness “The longer we put this off, the bigger price we will end up paying later, and the worse our competitiveness.”

H o w e v e r, t h e a g r i c u l t u r e i n d u s t r y i n I l l i n o i s h a s a h i s t o r y o f resilience, and there are many characteristics that enable the sector to adapt to changes in demand and environment Continued funding of agricultural research in universities, improvement in the education and management skills of Illinois farmers, and continued funding of the U S Department of Agriculture and the Illinois Department of Agriculture will all help to provide the infrastructure needed for the industry to remain competitive

Doherty also feels that the industry will continue to grow as m a n a g e m e n t s t r u c t u r e a n d t e c h n o l o g y e v o l v e . “ T h e t r e n d i s toward the ‘farm manager’ and greater dependence on hired labor and/or assistant farm managers, who are still part of the family, but who are increasingly operating in professional positions as part of the family farm enterprise as a whole,” he explains.

While all four sectors are expected to recover, it’s the rate of that recovery that remains in question

icpas org/insight htm | SUMMER 2013 41

Are you fit to

Whether you’re already kicking back in the corner office, holding tightly to the rung just below it, or a few short steps into what promises to be an enduro race up the leadership ladder, that’s a question you need to constantly challenge yourself with if you want to be a good no, scratch that, a great leader Complacency in today’s dynamic business world just isn’t an option; in fact, it’s one of the biggest mistakes you could make

By Derrick Lilly

“Hey, I got this far, I’m fine!”

It’s a common, easy, entirely baseless statement that begs for deeper reflection even when the finish line seems so near.

“Comfort kills,” says Jody Michael, founder and CEO of career coaching firm Jody Michael Associates. “There’s such rapid change in this day and age that it’s imperative that leaders have the ability to shift perspectives, take in multiple points of reference, and make changes with nimbleness, agility and fluidity You have to keep growing and developing, and shaping and crafting your lens and your capacity to lead; you never stop looking in the mirror.”

“But, here’s the punch line; you don’t view yourself as others view you, and most people absolutely hate looking in the mirror,” says Dr Todd Dewett, a leadership and management coach, author and president of TVA, Inc “We’re not good at going, ‘Let me strive to understand my imperfections and try to become better ’”

Unfortunately for most of us the OK, the mediocre and, let’s be honest, the bad that’s exactly what we have to do if we truly want a chance of leading with the best of them “Feedback is hilarious because it’s one of the most useful things there is, and it’s also one of the most passionately avoided things there is in a professional life,” says Dr. Dewett. “The bottom line is that you’ve got to find one or two interesting people who are not afraid of you, who know you as a person and as a professional, and are willing to give you unfiltered, real feedback ”

Of course, feedback alone won’t whip you into great leadership shape; you have to be willing to put your ego

aside and actually act on it especially the inevitable constructive criticisms (i.e. the feedback you didn’t really want to hear, but know you really need to hear).

That’s not to say you can’t or shouldn’t have pride in your skills, and even a little bit of an ego In fact, as someone who has worked her way up from trader to executive and ultimately to coach and consultant to Fortune 10 leaders, Michael knows that a healthy dose of narcissism can be just the energy shot your career needs.

But be forewarned, “Overly narcissistic and abrasive leaders tend to cause the most damage on multiple levels,” she says “They take great pride in demonstrating their brilliance, but when challenges arise their common defenses are denial, projecting (they blame others, the environment or culture for problems), or they just rationalize and justify their behavior,” Michael explains. “They are prone to command and control They aren’t curious; they just issue orders, and they tend to be complete micromanagers If it’s a good idea, it’s their idea They lack tact, they yell and belittle people publicly, and they kill morale There are threats and condescension. They roll their eyes. They’re impatient and make snap decisions. They care about profits more than people and they forget that people are what drive profits Systemically they are actually sabotaging their chances of long-term success, and they’re inspiring fear instead of inspiring people ”

It sounds like we’re really beating down bad leaders here, but if you’re going to scale the leadership ladder s u c c e s s f u l l y, y o u n e e d t o k n o w w h a t m i s s t e p s c a n send you stumbling back down to the bottom

leAd?

So, how do you get into leadership shape? Do the opposite o f e v e r y t h i n g t h a t b a d l e a d e r s d o . S o u n d s s i m p l e , r i g h t ? A l a s , there’s so much more to it than that. Here are four get-fit-quick steps you’ll need to take.

1 Get a healthy dose of objectivity

“If you’re a CPA who wants to get ahead you have to look at your whole package and refocus your self-improvement efforts on a broader spectrum,” says Rita Keller, president and founder of CPA firm management and consulting firm Keller Advisors LLC. This means you have to focus on training beyond the technical skill set your current role demands. For example, Keller says CPAs who advance to controller or CFO often oversee HR; they end up having such a broad range of responsibilities that it’s no longer good enough to know only the financial and technical sides of things

“We typically promote people because they are good at their work, but the people skills often get overlooked,” Keller explains “ A s y o u m o v e u p t h e l a d d e r, n o t o n l y a r e y o u e x p e c t e d t o b e highly technical, but you’re also asked to manage people and to lead, and that requires new strengths and passions ”

“People are always into being smart, but it tends to be overrated the further you get up the ladder It’s not always the thing that differentiates great performers or leaders; what usually does is a strong work ethic and communication skills that will serve you very well no matter what type of industry you’re in,” says Dr Dewett

2. Boost Your E.I. Factor

In Michael’s view, leadership potential streams directly from one’s level of emotional intelligence “Hands down, I think high emot i o n a l i n t e l l i g e n c e i s t h e m o s t i m p o r t a n t l e a d e r s h i p t r a i t Yo u r c a p a c i t y f o r e m p a t h y a n d y o u r a b i l i t y t o s e l f - r e g u l a t e , b e s e l faware, dance well with others and navigate organizational landscapes is absolutely critical in the C-suite,” she stresses “We can talk about how it’s nice to get a polished pro at the top, but there’s more to it than that; the great leaders are extraordinarily driven to achieve on all levels ”

Michael points to research conducted by Daniel Goleman and David McClelland, which suggests emotional intelligence is more important than any other leadership trait, even when it comes to bottom-line performance Further research shows that senior managers with high emotional intelligence lead divisions that outperform annual earnings goals by 20 percent, whereas those lacking in emotional intelligence underperform by nearly the same percentage.

3. Stretch Your World View

Of course, as important as it is to take charge of your own training and professional development, as a leader it’s equally important to take on the challenge of developing your people and organization

“What’s the culture like in your organization? What culture have you developed? If you’re not working on your culture, you have one anyway and it may not be the one that you want,” says Keller. “Leadership is about setting a good example.”

Keller uses Herb Kelleher, the co-founder and former CEO of Southwest Airlines, to illustrate her point. “I always joke that Herb started all of this be nice to your people stuff. He said, ‘If my people are happy, my customers are happy.’ He built a company that listens to its people and takes care of its people, and that applies to every type of organization.”

However, “This is an area where leaders can easily get into trouble if they think that one-size-fits-all,” says Dr Dewett “It’s a fundamental error; the truth is, everyone hears and learns and gets motivated differently Take the extra time to get to know your people as individuals and not just as human resources ”

This also will help you handle the inevitable and inescapable conflicts that are bound to come up from time to time Dr Dewett points out that poor and mediocre leaders try to avoid dealing with conflicts, let them fester, and then, when finally forced to deal with them, do so poorly Instead, come to terms early on with the fact that conflicts are going to happen, and when they do, you’re going to confront them and turn them into positive learning experiences for your team. There’s no doubt that it’s a tough thing to do, but it’s what the best leaders figure out how to do

This is understandably challenging for those just transitioning into leadership roles “A lot of them mistakenly believe that they need to be good friends with everyone in the organization when the true goal is to have very positive and productive professional relationships that maximize what your team is capable of,” says Dr. Dewett. “When you’re transitioning into a leadership role, this becomes an elephant in the room. But one of the hallmarks of a great leader is that you have candid conversations and you figure out how to make the transition seamlessly. You tell everyone, ‘I’m not going to be Attila the Hun, don’t worry about that, but some of our conversations will be different because I’m now responsible for trying to give you feedback and make things as productive as possible ’”

Realistically, though, some attitudes towards you will change, and to some extent you likely will become more isolated as you move up the leadership ladder. It’s lonely at the top after all.

“Things change, and there are conversations now that you can’t have with others, and to some degree you will always be out of the loop,” says Michael The greatest challenge is finding the balance between peer and leader You can’t hide away in your office; you have to ensure that you’re visible and accessible to employe e s , c le a rly in touc h with the m a nd the org a niz a tion’s c ulture , working towards building true trust, and always on top of internal and external issues challenging the success of your people and the organization

4 Train as a Generational Guru

O n e o f t h o s e c h a l l e n g e s i s t h e g e n e r a t i o n a l r o t a t i o n r e s h a p i n g today’s workforce. Trends in diversity, the rise of women in the workplace, greater work/life balance, and the demands for less h i e r a rc h y a n d m o r e o p e n c o m m u n i c a t i o n b e t w e e n l e a d e r a n d s u b o r d i n a t e a r e c h a l l e n g i n g l e a d e r s a n d t h e i r o rg a n i z a t i o n s t o adapt and change rapidly.

“Retention is going to be a real challenge for companies that don’t shift their leadership styles,” says Michael “If they don’t, they’re not going to attract or retain talent, and at the end of the day, you need to bring in fresh, new blood; organizations will have to adapt or die ”

“It used to be that leadership was about command and control, but today there’s a clear evolution into partnerships, collaboration a n d t w o - w a y d i a l o g u e a s t h e m e a n s t o l e a d e r s h i p , ” s a y s D r D e w e t t “ N o b o d y l i k e s t h e f e a r c r e a t e d b y t h e c o m m a n d - a n dcontrol approach, and everyone wants to be valued as an individual contributor and as a teammate What we all need to care about to succeed from the top down is working together, positive relationships, and active dialogues.”

Dr. Todd Dewett talks young leadership

dr dewett is a speaker, coach, writer, self-proclaimed Harley davidson nut, author of the popular guide, The little Black Book of leadership, and a resident leadership expert at lynda com (he recently released a new manager course, so check it out) His unique brand of energetic leadership guidance has attracted Fortune 500 clients and hundreds of others around the country

We sat down with dr dewett last May, following his keynote presentation at the ICPAS’ sold out Young Professionals leadership Conference. In this Q&A, he talks about what it takes to lead and how to be great at it

Q. First off, do you think great leaders are simply born or made?

A As a social scientist, I know the answer is both We are born with advantages or disadvantages in terms of IQ and personality traits However, this is only the foundation and the more practical p e r s p e c t i v e , t h e " m a d e " p e r s p e c t i v e , f o c u s e s o n t h e f a c t t h a t leadership requires a set of skills that can be learned with the right focus and hard work.

Q What sets a great leader apart?

A What makes the difference is a tireless work ethic, an ability to fashion failure into learning and superior interpersonal skills My father used to say there will always be people smarter than you, b u t y o u c a n a l w a y s o u t w o r k t h e m T o d a y g r e a t l e a d e r s a r e defined by an ability to embrace flexibility and change instead of absolutes when dealing with people, processes and technologies

Q. Where do most leaders go wrong?

A They get lost in hubris Success makes them increasingly riskaverse and blind to their own imperfections and the shortcomings of their organizations The great ones know this and work hard to find raw, unfiltered feedback, and structure their teams and companies to value candor over civility and questioning over acquiescence.

Q How will generational changes impact leadership’s future?

A Baby Boomer retirements will yield a massive number of leadership openings for 20- and 30-somethings Couple this with the m a s s i v e c h a n g e s i n d i v e r s i t y t a k i n g p l a c e w h e r e w o m e n a n d minority leaders are becoming the rule instead of the exception, and the continued evolution of leadership thought, and it’s not hard to see that the workforce and leadership practices will look radically different

Q What are your leadership tips for young professionals?

A Become a world-class communicator, find great mentors, be true to yourself and find "fit " don't merely tolerate your current job because of great pay or prestige Chase what you love and what matters to you and work won't feel like work, and the more effortlessly you'll find success as a leader.

Q How important are mentors to developing leaders?

A Very important I wish I would have realized this earlier in my career (the downside of being smart is that you think you know too much) The greatest thing anyone can know is how little they truly know Find people smarter than you, shut up and start listening

Q. How do you manage the transition to a leadership role?

A Realize that you ’ re entering a new world The world of leadership is less about technical skills and more about people skills

You will now be responsible for maintaining standards and pushing people to improve. Your goal is not to be popular and beloved; it’s to be effective and respected

Q What about work/life balance?

A The more successful you are in terms of status and pay, the more hours you will work You can suffer the hours if you don't l o v e w h a t y o u d o , o r y o u c a n c h e r i s h m o s t o f t h e m i f y o u ' v e achieved the right fit. Spend the first third of your career seriously chasing fit, and you'll feel more balanced and fulfilled during the latter two thirds

Q You have your motorcycle, Sir Richard Branson has his spaceship how important is it to have an escape vehicle?

A Very important It might be a motorcycle, a favorite show, a book, or a destination, but non-work fun time is absolutely essential Working very hard is awesome Feeling serious burnout is dreadful

Q. Any parting words for our readers?

A Remember your career is a marathon, not a sprint Stop thinking in terms of particular achievements as ends they are only means At the end of the game, looking at the awards you won won't make you feel great, but knowing that you reached your potential and helped many others along the way that's living a life of purpose

WHAT MAKES THE GREAT ONES GREAT?

Find out at the Accounting & Finance Midwest Showcase Keynote, Tuesday, August 27, 2013, Donald E. Stephens Convention Center, Rosemont, Illinois

As a sports writer and author, Don Yaeger has had a front-row seat with some of the greatest athletes of our time, including Walter Payton, Jimmy Connors and Michael Jordan Using rich personal accounts, Don has distilled 16 “Consistent Characteristics of Greatness,” which he will now share with you

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awardwinners

Lifetime Achievement Award

Debra R. Hopkins, CPA, CIA

Retired Director NIU CPA Review

Adjunct Faculty: U of I Chicago President, Hopkins CPA Knowledge, LLP

Outstanding Leadership in Advancing Diversity Award

Joseph A. Kosinski Director, Corporate Manufacturing Accounting and Customs and Trade Compliance, Abbott

Emerging Leader in Advancing Diversity Award

Martrice Caldwell, CPA Senior Accountant,YMCA of Metropolitan Chicago

Outstanding Educator Awards

Alli Purcell Hayes, MAS, CPA Assistant Professor of Accounting, North Central College

Timothy D.West, PhD, CPA

Grant Thornton Professor of Accountancy, NIU

Time and Talent Public Service Volunteerism Awards

David J. Hensley, CPA, EA

David J. Hensley, CPA, Inc.

Krista M. Piwonka, CPA Piwonka, CPA, Inc.

Media Expert Distinguished Service Awards

Scot A. Dobbs, CPA Wipfli LLP

Geoffrey J. Harlow, CPA, MST, MBA Kessler Orlean Silver & Co., P.C.

Special Achievement in Volunteerism Awards

Young Leaders Advisory Council

Jared J. Bourgeois, CPA Mesirow Financial Inc.

Mary T.Washington Wylie Internship Preparation Program

Anthony Fuller Grant Thornton LLP

Elizabeth A. Murphy, CPA DePaul University

Scott D. Steffens, CPA Grant Thornton LLP

Tax Committee - Fiscal Cliff Work

Joseph F. Bigane III, CPA Wolf & Company LLP

Gregory M. Ciokajlo, CPA Ciokajlo, Hein & Associates Inc

Michael A. Deering, CPA Mowery & Schoenfeld LLC

Bradley H. Greenberg, CPA SS&G, Inc.

Norris C. Harstad, CPA Benchmark Aspen & Associates, Ltd.

David V. Kalet, CPA BP Products North America

Thomas B. Murtagh, CPA Wolf & Company LLP

Mary Lou Pier, CPA Pier & Associates, Ltd.

Jeffrey A. Rozovics, CPA Rozovics Group, P.C.

Andrea K. Urban, CPA Optiver US LLC

Distinguished Service Awards

Michael Abrams, CPA CBRE, Inc.

North Shore Chapter

Catherine L. Allen, CPA

Guthoff Mehall Allen & Company PC

Peer Review Report Acceptance Committee

Christopher F. Beaulieu, CPA CliftonLarsonAllen LLP

Taxation State & Local Committee

Howard I. Blumstein, CPA BDO USA, LLP

Not-for-Profit Organizations Committee

Barbara A. Brown, CPA

Taxation Individual Committee

Kymberly A. Buchanan, CPA Ragland & Associates, LLC

Chicago South Chapter

Daniel W. Cadigan, CPA

Kerber, Eck & Braeckel LLP

Illinois CPAs for Political Action Committee

Susan E. Coats, CPA

Heinold - Banwart Ltd

Taxation Business Committee

Jeffrey T. Conrad, CPA

Wolf & Company LLP

Taxation Estate, Gift and Trusts Committee

Timothy C. Custis, CPA

Gorenz & Associates, Ltd.

Government Report Review Committee

John L. Dentzer, CPA

John Dentzer CPA

North Shore Chapter

Rick Franklin, CPA

Warady & Davis LLP

Ethics Committee

Paula A. Galbraith, CPA

Hubbard Galbraith

Women's Executive Committee

Paige B. Goepfert, CPA

McGladrey LLP

Taxation Estate, Gift and Trusts Committee

Lisa A. Hartkopf, CPA

Ernst &Young LLP

Women's Executive Committee

Eleonora R. Holmes, CPA

FoxValley Chapter

Harriet Jacobs, CPA

Jacobs Tax & Consulting LLC

Taxation Practice & Procedures Committee

Deborah L. Kurtzke, CPA

Grieco Kurtzke & Adelman LLC

Taxation Practice & Procedures Committee

Ellen L. Landgraf, PhD, CPA, CFE

Loyola University Chicago, Quinlan School of Business

Ethics Committee

Jerome Mauer, CPA

CliftonLarsonAllen

Taxation Flow-Through Entities Committee

Bert S. Nuehring, CPA

Crowe Horwath LLP

Government Executive Committee

Linda C. Rapacz, CPA

Linda C. Rapacz CPA, PC

Peer Review Report Acceptance Committee

Kurt L. Schneider, CPA

Exemplar Accounting and Tax Advisors

Fox River Trail Chapter

Keith W. Staats, JD

Grant Thornton LLP

Taxation State & Local Committee

Ryan J.Vaughan, CPA

KPMG LLP

Taxation Business Committee

The Illinois CPA Society is proud to recognize the following award winners and congratulate them on their accomplishments.

Sarah Haight ICPAS Member Outreach Manager haights@icpas org

hype.it

KnOW THIs:

In the past year, Illinois citizens volunteered 359.4 million hours; which equals more than $8 1 billion in impact Illinois is ranked #1 in volunteer service rate among the top 10 largest states in America.

Source: Serve Illinois 2012 Annual Report

Why Volunteering is Not Just a Selfless Act

Lear ning the skills you need to advance in your career can be a real struggle Yes, we all say we’re going to work on them at just about ever y per for mance review But who really has the time when the daily grind keeps getting in the way? That’s where volunteering comes in It’s hands down the best way to challenge yourself in an environment that satisfies your ever y professional, social and altruistic want and need

When deciding whether to take on a volunteer role, consider these top four reasons to go ahead and sign up:

1. You’ll gain exposure to a new industry: Select a community service project that corresponds with a potential career interest This will help you find out more about the industr y (you may end up loving it or find out it’s really not your thing) and make the connections you need to get the scoop on job openings

VOLUNTEER NOW!

Looking for a community service activity? The Young Professionals Group has you covered.

Raise Your Glass Fundraiser - July 25

All proceeds from this happy hour benefit the CPA Endowment Fund of Illinois It’s a great way to get involved with the fantastic programs supported by the Endowment Fund

Campus Presentations - Fall and Spring

Sharpen your presentation skills by sharing advice with accounting students throughout the state

CPA Day of Service - September 20

Whether you volunteer with your office or sign up to assist the Young Professionals Group, this is a great day to get out in the community and give back.

Visit www.icpas.org/YP.htm for more info and to register.

2 You’ll expand your network: It goes without saying that new experiences expose you to new people Volunteering is a great way to make new connections, whether you’re looking for a professional mentor or some new happy hour buddies Look for community service projects that would attract the kind of person you want to meet

3. You’ll enhance your credibility: Leaders are in demand at volunteer organizations Step up to the plate and take on some responsibility Raise your hand for a special project; your effor ts will be rewarded quickly and you’ll be recognized for your effor ts Make sure to spread the word of your success (in a humble way) to your supervisor and include it on your resume and LinkedIn page Demonstrating leadership skills and civic responsibility will get you noticed Bonus points for anyone who makes it to a junior board-level position

4 You’ll improve your soft skills: Simply put, take risks Decide how a volunteer position can challenge you to make self-improvements that will help you advance in your career Remember that this is a safe environment and your financial stability is not on the line Use your volunteer role as a training ground for the real thing and really challenge yourself to go beyond your comfor t zone The more you do this outside of the office, the better you’ll perform on the job Some examples of skills to fine tune include public speaking, mentoring and strategic planning

Signing up for a volunteer oppor tunity no matter what type will help you to make a commitment to bettering yourself while also serving others Find something that fits your needs and comfor t level, and star t to reap the benefits

Accountants Proliability Program

You prepare a tax return for a client. It results in severe penalties and interest charges...

You fail to file an amendment to a client’s tax return that would have enabled him to receive a $100,000 tax refund...

Every time a client faces financial harm, you could find yourself in court. The costs to defend yourself could cost more than the lawsuit itself.

If someone in your firm makes an error, do you have the right coverage?

Since you can’t predict which way the scales of justice will tip, your best protection is the ICPAS-endorsed Professional Liability Insurance Plan.

You want to make your client’s vision a reality. So we make that our goal as well. Whether we provide treasury management or financing, or simply act as a sounding board, we’ll help you be part of a success story. Because when your client succeeds, you succeed.

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