Insight Magazine - Winter 2013

2 0 1 4

Is this the year to launch something BIG?

•No

•Generous

1 APR=Annual Percentage Rate. Subject to approval. Rates, terms and conditions vary based on creditworthiness and qualifications and are subject to change. Refer to the VISA credit card disclosure at www.alliantcreditunion.org for details. Introductory rate offer is not valid for Alliant members with an Alliant Credit Union VISA credit card account. We may not extend credit to you if you do not meet Alliant criteria. The cash advance fee is 2% of the amount of the advance, but not less than $10. We will begin charging interest on cash advances on the transaction date. The foreign transaction fee is 1% of each transactionwhere the merchant country differs from the country of the card issuer. The minimum payment required is 3%of your balance or $25, whichever is greater, plus the amount of any prior minimum payments that you have not made. 2 Balance transfers must be transferred from any financial institution other than Alliant Credit Union. Balance transfers and cash advances may not be used to pay any Alliant accounts. Amounts transferred are subject to your available credit limit. We are not required to honor a balance transfer request that will cause you to exceed your available credit limit. We will not be responsible for late payment or non-payment to other card issuers. We are not responsible for fees that may be charged for cash advances performed at other financial institutions and ATM owners. It may take up to three weeks to set up the new VISA account and/or to post the balance transfer transaction. You should continue to make all required payments until you confirm that the balance transfer was made. We will not close your other accounts even if you transfer the entire balance. If you wish to close another account, you should contact the issuer directly. 3 VISA’s Zero Liability policy covers U.S.issued cards only and does not apply to ATM transactions, PIN transactions not processed by VISA or certain commercial card transactions. Cardholder must notify issuer promptly of any unauthorized use. For more information, visit http://usa.visa.com/personal/security/ visa_security_program/zero_ liability.html. 4 Cash Back option is redeemable as an

Global Competition

INSIGHT MAGAZINE

Publisher/President & CEO Todd Shapiro

Editor-in-Chief Judy Giannetto

Art Design Judy Giannetto & Rosa Garcia

Production Design 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

Engaging Content

Ready For the Pile On?

TODD SHAPIRO, ICPAS PRESIDENT & CEO

Not only is the holiday season winding down with the welcome of a New Year, but so is the NFL regular season Soon the playoffs will be upon us, and for anyone who loves football as much as I do, it helps to ease the stress of what is otherwise an incredibly pressured time of year

As I was watching a game recently, I was struck by a particular tackle The running back was trying to navigate the field and he didn’t just get tackled, he got piled on by what appeared to be half the defense The referee should have called a 15-yard penalty for unnecessary roughness And I thought to myself, this is a perfect analogy of today’s accounting and business world Throughout my travels in the state over the past year, “complexity” seems to have been something of a recurring theme It’s that idea of being piled on, only in a business rather than sports context

When I graduated college in 1979, we had 30 APBs and 34 FASB statements Four years ago, there were over 160 FASB statements They’ve now been codified into one massive document, with more pronouncements coming Not only that, but entirely new reporting frameworks are being discussed, including IFRS, IFRS for SMEs and the convergence of GAAP and IFRS To hopefully simplify things, the Private Company Council (PCC) is working to develop less complex private company standards, and the AICPA has developed a Financial Reporting Framework (FRF) for SMEs. While the goal is to simplify, sometimes it just feels like more acronyms and more complexity.

On the tax front, we’re coming off what many have said was the worst tax season e v e r F o r 2 0 1 4 , t h e I R S h a s a l r e a d y a n nounced a delay in the beginning of the tax s e a s o n d u e t o t h e g o v e r n m e n t s h u t d o w n l a s t f a l l , a l t h o u g h d u e d a t e s r e m a i n t h e

same. Also, many businesses will be deali n g w i t h t h e i n c r e a s e d c o m p l e x i t y o f t h e Affordable Care Act, and who knows what will happen if tax reform is passed before April 15. Let’s hope this year’s tax season is b e t t e r t h a n t h e l a s t o n e , a l t h o u g h a t t h i s stage we’re all a bit concerned.

If reporting standards and the tax laws a nd timing we re n’t c omple x e noug h, we have to deal with rapidly advancing techn o l o g y a s w e l l W h e n I g r e w u p , c l o u d s w e r e t h o s e f l u f f y t h i n g s t h a t s o m e t i m e s brought rain Today, they’re where software a n d d a t a a r e s t o r e d . Yo u c a n a c c e s s t h e c l o u d v i a a P C , t a b l e t , o r a s m a r t p h o n e , a n d t h e n y o u h a v e t o d e c i d e i f i t ’ s a n A p p l e , A n d r o i d o r M i c r o s o f t d e v i c e t h a t you’re using Do you use Windows 8, Windows 7, Google Docs or some other softw a r e ? L e a r n i n g t h e t e r m i n o l o g y a l o n e i s enough to make your head spin.

We even have to learn how to communicate differently. Long gone are the days of picking up the phone and calling someone We now have email, IM, text, Facebook, LinkedIn and Twitter Yes, even I’m tweeting! (For anyone who’d like to follow me, my handle is Todd ICPAS ) If you told me 5 years ago I’d be tweeting, I would have wondered, “What’s a tweet? Isn’t it a Warner Bros character?”

Interestingly, it’s times like these that the value of a CPA rises exponentially More than ever, a CPA is a trusted business advisor who brings understanding and advice to an increasingly complex world. Helping you navigate and understand this increasing complexity is what drives me and the Illinois CPA Society You’ve heard me say that our mission is to enhance the value of the CPA profession, but it’s much more than that We’re here to help you be nimble and agile, and avoid being “piled on.”

“A CPA is a trusted business advisor who brings understanding and advice to an increasingly complex world.”

FORMERLY JACKSON WABASHFORMERLY GARELLI WONG

SEEN HEARD

Percent of the world’s adult population with total wealth below $10,000. Source: Credit Suisse

TOP TIPS

5 WAYS TO BOOST EMPLOYEE MORALE

1 Create an active grapevine Arm your team with honest information, otherwise gossip will reign.

2 Reward initiative Foster an ownership environment where employees are challenged to take initiative and solve problems

3. Give plenty of rewards. Step up efforts to recognize employees' efforts with praise, low-cost awards and spot bonuses that are personal and timely

4 Check in regularly This helps to gauge morale and stem off problems, negativity, higher rates of absenteeism and faltering cooperation or commitment.

5 Watch for poor performance Signs of poor morale include missed deadlines, an increased number of mistakes or a decline in service levels

Courtesy: Accountemps [accountemps com]

Cyber Crime is Your Greatest Threat

55-64

Senior

The fastest growing demographic on Twitter Source: Fast Company

Execs Support Social Media

Sixty-six percent of senior executives foresee their company ’ s use of social media increasing during the next 12 months, but only 36 percent reported that their company has any social media usage training in place, according to the 2013 Social Media Risks and Rewards report from Grant Thornton LLP and Financial Executives Research Foundation Still, 55 percent of respondents feel social media will be an important component of corporate marketing efforts going forwards, and LinkedIn (32 percent), Facebook (20 percent) and Twitter (18 percent) are the three most widely used social media platforms among respondent companies

The information security function fully meets a company ’ s needs in only 17 percent of organizations, says Ernst & Young’s Global Information Security Survey 2013, based on responses from more than 1,900 senior executives globally These professionals say that it’s no longer a question of if, but when, a company will be the target of a cyber attack. In fact, 31 percent of respondents reported that the number of security incidents within their organizations has increased over the last 12 months, and 93 percent of companies globally are maintaining or increasing their investment in cyber security to combat the increasing threat The biggest setback, however, is that information security departments are still feeling the pinch Sixty-five percent of respondents cite an insufficient budget as their number one challenge in operating at the levels the market expects, and this number climbs to 71 percent among organizations with revenues of $10 million or less

38

percent of HR managers who say communication is the best cure for low morale. Source: Accounting Principals

Development is Employees’ Top Demand

According to Accounting Principals’ Workplace Insights Survey, a meager 14 percent of hiring managers in the accounting and finance fields are willing to negotiate employee development opportunities during the hiring process even though the number one reason employees leave is because of a lack of career development (26 percent) Spots two and three on the list are rounded out by “better work/life balance” (21 percent) and “the need for increased salary/compensation” (21 percent)

Despite being the third- rather than first-ranked reason employees leave their companies, salary is the item hiring managers are most willing to negotiate (39 percent), along with vacation time (11 percent), flextime (11 percent), device benefits (7 percent) and titles (4 p er cent ) Wha t ’ s m or e, t he m inor it y of hir ing m a na g er s s a id e m p l o y e e d e v e l o p m e n t a n d u p w a r d m o b i l i t y k e e p t h e m u p a t night (14 percent and 10 percent, respectively) Rather, their top concerns are divided between recruitment (25 percent) and team effectiveness (24 percent)

3% Average 2014 salary increases expected in the United States.

Source: Buck Consultants

Chicago’s Commercial Buildings Come Green

In September 2013, the Chicago City Council passed the Building Energy Use Benchmarking Ordinance (Municipal Code 18-14) in an effort to encourage energy efficiency improvements. The Code requires the city’s largest buildings to benchmark and publicly disclose their energy use Merchandise Mart, Willis Tower, Chicago Public Schools and residential buildings with 50,000 square feet or more are covered by the ordinance, and reporting requirements begin June 1, 2014 or June 1, 2015 based on building size The City of Chicago estimates the cost of compliance at $1,000 over two years for most buildings

CIC Energy [CICenergyconsulting com] reports that the ordinance is part of a national trend to reduce energy consumption among commercial buildings, which account for 36 percent of all electricity produced in the United States and 17 percent of total U S greenhouse gas emissions According to the U S EPA, commercial buildings spend $107 9 billion on energy annually

how to: Connect with ICPAS!

The Society is connecting members to resources and each other. Here’s where to find us and what to expect.

Twitter: Use @IllinoisCPA to access timely, relevant content impacting the profession; register for programs and events; get info about professional education sessions, conferences and committee meetings; and learn about exclusive offers You can also follow ICPAS President and CEO Todd Shapiro @Todd ICPAS

LinkedIn: Exclusive to ICPAS members, our group page ’ s content is generated exclusively by Society members and staff Share great reads with and post all your questions to fellow ICPAS members

Facebook: Join the Facebook conversation by sharing news about your work, reactions to legislative or regulatory happenings, insights into new professional issues, and so much more “Like” or reply to our posts with comments, suggestions and questions

YouTube: Videos preview upcoming events, introduce new ICPAS products and services, recap educational programs, highlight the Society’s social activities, and showcase President and CEO Todd Shapiro’s addresses to members

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Be up to date, up to speed. And, definitely, up to the challenge.

TAX DECODED Ta x i n g t h e C l o u d , P a r t 1

How to make sense of and tax the ever- evolving world of cloud computing

By Keith Staats, JD

KEITH STAATS is a director in Grant Thornton’s State and Local Tax (SALT) practice in Chicago, and has been involved in tax planning, consulting and dispute resolution in all areas of state and local tax He has served as General Counsel of the Illinois Department of Revenue (IDOR), was involved in the development of Illinois tax policy, reviewed and evaluated all tax-related legislation proposed by the Illinois General Assembly, contributed to the drafting of all tax legislation proposed by the Governor and was a member of the IDOR Informal Conference Board. He has represented taxpayers before both the Informal Conference Board and the Board of Appeals Keith also has worked for a large international law firm and was involved in multistate tax planning, consulting and litigation He is a professional affiliate member of the Illinois CPA Society, and is a member of the American Bar Association, the Illinois State Bar Association, the Chicago Bar Association and the Board of Directors of the Civic Federation of Chicago * keith staats@us gt com

Given the fact that cloud computing is such a hot topic these days, it’s not surprising that the tax treatment of these services at the state and local level is also finding its way into the press Cloud computing refers to remote access of computing applications, platforms and infrastructures from a central service provider Activities that fall within the scope of cloud services include Software as a Service (SaaS), Infrastructure as a Service (IaaS), Platform as a Service (PaaS), Business Process as a Service (BPaaS), Database as a Service (DBaaS), Data Storage as a Service (STaaS), Security as a Service (SECaaS) and Application Programming Interfaces as a Service (APIaaS) Each involves a third party, which provides services that may render a company’s purchase of physical hardware and software unnecessary In the case of SaaS, for example, the service provider hosts software applications that are available to customers over a network or the Internet W

computing functions present a number of tax issues

It’s not that these issues are new; rather, they are traditional tax issues that need to be applied to an everevolving business model. My column discusses some of the sales tax issues related to SaaS, specifically.

As with all state tax questions, the main focus is characterization For example, what is SaaS’ proper characterization for tax purposes? Illinois sales tax imposes a tax on the sale of tangible personal property

(TPP), while the Illinois Retailers’ Occupation Tax and Use Tax don’t tax pure services In the early 1980s, the Illinois Supreme Court ruled that a transfer of computer software didn’t constitute a taxable TPP sale. In response, Illinois law was amended to characterize software sales as TPP transactions subject to Illinois sales tax The state adopted rules governing software sales, which included software downloads While these rules have remained in effect and mostly unchanged, they’re silent about SaaS where, arguably, no software is downloaded to the customer’s computer, since the software resides on the provider’s equipment at a remote and often out-of-state location

For a number of years, the Illinois Department of Revenue (IDOR) has wrestled with this After all, Illinois is no different than any other taxing authority; the inclination is to find a way to tax new types of transactions. To date, the IDOR says the issue is being studied; a firm position one way or the other has yet to be taken.

When evaluating potential tax issues affecting a buyer or seller of cloud services, it’s important to ask the right questions For one, proper classification under the laws of the buyer and seller’s respective states is paramount Are they in the same state or separate states? Is this a purchase of tangible personal property, intangible property, a service, or some combination of one or more?

Remember that, as I’ve mentioned, some states tax all services while others tax only specific services,

which means that some states may characterize SaaS as a sale of taxable prewritten software If the buyer and seller are located in separate states, does the seller have nexus with the state in which the buyer is located? Is the buyer located in multiple states and will the services be utilized in multiple states? Does the seller have leased property in the buyer’s state? Will the buyer’s state contend that, in the case of SaaS, the buyer has constructive possession of the software, which makes the transaction a taxable licensing of software even if there is no physical download?

With respect to TPP versus a service, TPP is often defined as something that can be felt, touched, held or possessed. In the context of this review, analysis also has to consider the True Object versus the Incidental to Services Test in bundled transactions In other words, is the buyer purchasing a service with only an incid e n t a l n o n - t a x a b l e ( t o t h e b u y e r ) t r a n s f e r o f T P P, o r i s t h e t r u e object of the purchase the acquisition of TPP? Itemizing services s e p a r a t e l y f r o m T P P m a y b e c r i t i c a l i n m i n i m i z i n g s t a t e t a x e s Some states, in fact, measure whether a transaction is TPP or a service based on the percentage of one or the other to the total.

Once characterized, the states’ methods of sourcing have to be reviewed and applied States may not have specific guidance on h o w t o s o u rc e S a a S , a n d t h e y a r e d e f i n i t e l y i n c a t c h - u p m o d e when it comes to updating or enacting new and current relevant legislation Sourcing SaaS among states can be very complex The question is, should the transaction be sourced based on the seller’s location, where SaaS is used, or some other location? Then, after working through the Sales and Use Tax issues, the cloud services provider has to tackle how the services are taxed under various state income tax laws But that’s a discussion for another column

In the next issue I’ll explain how a number of states are attempting to tax cloud services, and how sourcing plays into this

Advocates Calling

Just how is the CPA profession being represented at the state and federal levels?

By Marty Green, Esq

MARTY GREEN is the Illinois CPA Society’s Vice President of Government Relations, working with the CEO and Board of Directors to oversee and implement the Society’s legislative and regulatory activities He is also a practicing lawyer, member of the Illinois Bar and a Lieutenant Colonel in the National Guard Marty previously served as executive assistant attorney general for Illinois Attorneys General Lisa Madigan and Jim Ryan, and as director of the Governor’s Office of Citizens Assistance and assistant to the Governor for Public Affairs, both under Governor James Edgar He holds a number of professional certifications and is admitted to practice before the state and federal courts Marty is the past president of the Western Illinois University Alumni Council and is an adjunct professor for the Department of Health Sciences * greenm@icpas org @IllinoisCPA

You’ve probably heard Illinois CPA Society president and CEO Todd Shapiro use the “four legs of the stool” analogy to explain the Society’s four main benefits: Information, education, advocacy and connection I typically use this column to bring you up-todate info on the Government Relations Office’s activities in Springfield and Washington, but today I want to elaborate on our advocacy efforts instead

In the Capitol: ICPAS maintains a full-time government relations office located in close proximity to the Capitol complex in Springfield, Ill and, together with the law firm of Fletcher, O’Brien, Kasper & Nottage, it ensures that the CPA voice is heard in the legislative and regulatory process Our objective is to promote the CPA profession, serve as an objective resource on policy matters, and be a guiding voice at the table during legislative and regulatory deliberations.

Bill monitoring is central to our efforts During the Spring Legislative Session, for example, we reviewed over 6,000 bills to identify potential impacts on the CPA credential We also monitor proposed agency rules in the administrative rules process to determine their effect on the profession and other respective practice areas We work with coalition partners such as the Taxpayers’ Federation of Illinois, the Illinois State Chamber of Commerce and the Business and Industry Council for Economic Concern to monitor tax legislation and other business interests

In fulfilling our role as a neutral resource we respond to requests from legislators, legislative leaders and executive branch officers and agencies, provide briefings on tax matters, train on complex financial issues and provide testimony at subject matter committee hearings on the application of accounting standards

R e g u l a t i o n & L e g i s l a t i v e C o m m i t t e e : This standing committee helps to guide the Society’s legislative agenda by making recommendations to the board of directors on proposing, supporting or opposing legislation Throughout the legislative session we work closely with the Regulation & Legislative Committee chair, the Society’s board chair and other respective committee chairs to rapidly respond to legislation that could adversely impact the profession or fundamental tax principles

Illinois

CPAs For Political Action: The CPA PAC is the Society’s state political action committee, which serves as the foundation of our legislative advocacy efforts and keeps the CPA profession a t t h e f o r e f r o n t o f t h e p o l i t i c a l p r o c e s s I n a c c o rdance with state election law, the CPA PAC has its own steering committee and governing documents, a n d i s s u p p o r t e d b y v o l u n t a r y m e m b e r d o n a t i o n s and robust donations from CPA firms

The CPA PAC is not affiliated with any political party and strictly aims to support the election of candidates for state and local offices who assist the legislative goals of the CPA profession The CPA PAC typically

contributes $200,000 a year to members of the General Assembly, legislative leaders and constitutional officers

Grassroots Efforts: It is incredibly important that state and federal legislators hear from their constituents. Our Legislative Contact Program is comprised of ICPAS members who have volunteered to serve as a contact for their respective Illinois General Assembly or Illinois Delegation of Congress legislators Legislative contacts receive alerts from the AICPA Federal Affairs Team and the ICPAS Government Relations Office with a synopsis of the issue at hand and guidance or talking points

The Regulation & Legislative Committee is currently working on involving the Society’s membership as a whole in our grassroots initiatives The idea is that policy-makers will hear from more than just their legislative contacts on issues of interest to the profession, with ICPAS members being informed of pending policy issues in real-time If you have any input or thoughts on this, let me know.

Federal Advocacy: The Society’s Government Relations team works closely with members of the Illinois Congressional Delegation and AICPA Congressional Relations staff on federal legislative and policy issues In close coordination with the AICPA, the ICPAS Government Relations team contacts targeted members of the Illinois Congressional Delegation who serve on committees that may be hearing or voting on an area of interest The team’s goal is to express ICPAS members’ views on these areas, whether supportive or opposing. ICPAS board leaders and ICPAS senior staff make personal visits to Capitol Hill during the AICPA Spring Council.

There are many moving parts to the Society’s government relations and advocacy efforts, and you are central to our strategic focus As I have said in the past, first and foremost, it’s the reputation and respect of the CPA credential that serves us well in our efforts.

FORENSICS INSIDER S o w i n g S e a s o n

At year-

end conditions are prime for growing a bumper crop of financial fraud

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

J BRAD SARGENT 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, as well as serving on the American Bar Association, Section of Litigation, Expert Witness Committee and Criminal Justice Section, White Collar Crime Committee He is also a member of the Association of Certified Fraud Examiners, the Association of Certified Fraud Specialists and the Association of Insolvency and Restructuring Advisors A member of the Illinois CPA Society since 2002, Brad has served on the Society’s Board of Directors since 2010, and is a member of the Committee Structure & Volunteerism Task Force, the Fraud Conference Task Force (which he chaired from 200910 and 2012-13) and the Strategic Planning Committee (which he chaired from 2011-2013) * bsargent@scgforensics com

The end of the year is a unique time for accountants. For those in public practice, it revolves around planning for the upcoming busy season and catching those last few hours of CPE For industry accountants, it’s all about the culmination of a year’s worth of debits and credits making their way into the annual financial statements and subsequent tax returns, as well as preparing for the public accountant “invasion ” The common thread, however, is the need to summarize financial data and prepare the various financial statements for an entity’s stakeholders.

There’s a great deal of discussion these days surrounding the various users and uses of annual financial statements And there are numerous acronyms dealing with these very issues IFRS, Big GAAP/Little GAAP and FRF for SMEs included All of these deal with financial reporting and statements in some c a p a c i t y, i d e n t i f y i n g u n i q u e i n f o r m a t i o n r e q u i r e d based on an entity’s size, industry and location. Simp l y p u t , d i f f e r e n t e n t i t i e s n e e d t o r e p o r t d i f f e r e n t information for different users End-users rely on this information to make financial decisions, and if the information is false or misleading it can result in economic damages.

Enter the forensic accountant

The average forensic accountant will review hundreds of trial balances, financial statements and tax

returns in the course of a career, some of which will be pure fiction Reviewing a general ledger for a small or medium-sized business sometimes means differentiating between egregiously bad accounting and intentionally misleading accounting. This isn’t to imply that bad accounting is limited to small enterprises; I’ve also encountered journal entries at Fortune 100 businesses (often buried beneath the sheer mass of entries), which are unsubstantiated, inaccurate and border on negligent. In fact, it’s not unheard of for an accountant’s hard work to be totally compromised by year-end journal entries

When fraudsters know that interim reporting isn’t required, they‘ll often accurately reflect their criminal activity right up to December 31 and then erase the accounting with a reclassifying entry For example, a financial services firm officer has been “borr o w i n g ” c a s h o v e r t h e c o u r s e o f t h e f i s c a l y e a r, recording debits to “AR-other.” At year-end, he buries this built-up debit by reclassifying it to a liability account (a contra-liability, as it were) In hindsight, one would wonder how any CPA could miss such an entry, but it passed both the audit and the review of a financial institution

Stepping back from this type of example, one can see that year-end is “sowing season” for fraud All of the conditions are perfect for growing a bumper crop:

Pressure to perform the financial analysis within tight time parameters (placing expediency over accuracy), standardized methodologies and procedures being implemented for gathering data (and auditing the results), and management’s override of controls, usually under the guise of “tweaking.”

I immediately review the year-end entries whenever I get hold of a trial balance. Clever fraudsters love December 26-30 as dates for bogus entries, thinking they’re outsmarting their colleagues.

“A common fraud in the financial statements is the recording of revenues based on inadequate documentation or certainty of sale. These are generally recorded in the last quarter of the year, and then will get reversed sometime the following year when the sales don’t materialize But the fraud and misrepresentation have been accomplished,” warns Craig D Tobin, Esq of Tobin & Munoz LLC, a trial lawyer nationally recognized for his precedent-setting civil and criminal trial work “A company’s financial health is generally based on year-end statements Accountants should be aware that the trend in the law is to sue the auditors, claiming they were negligent in their review ”

"In my experience, fraudulent or misleading financial statements, or even allegations calling into question their veracity, can have significant negative consequences on a company, from decreasing the market value of its stock to inflicting long-term reputational damage,” adds Pravin Rao, Esq , firm-wide chair of Perkins Coie's whitecollar practice “Given the SEC's recently increased scrutiny into accounting fraud, companies and their accounting professionals will need to be evermore vigilant to ensure their books are accurate, especially as the year-end close approaches "

So, what can you do to be part of the antifraud movement in 2014? Besides recognizing the factors I’ve described, whether you’re an industry accountant or auditor, be wary when a supervisor insists you suspend reason and any subsequent questioning and perform a task and move on Doing what was done last year might seem like a great guide through the reporting and auditing process, but it’s also an invitation to throw reasoning out of the window and ignore any internal alarms that would trigger further inquiry. Careful review of year-end journal entries can reveal unusual and potentially questionable accounting. Think like a forensic accountant: Gain an understanding of the incentives in place for management and the performance metrics used to measure “success.”

Many times, fraudulent year-end accounting gets reversed in the first quarter of the New Year. I once observed a series of inventory shipments from a distribution center to a new warehouse (all for the same entity). The clever CFO colluded with the executive vice president (EVP) of sales to book these inventory transfers as actual revenue The poor revenue recognition accountant was unaware of the new warehouse and was informed that the shipping documents were for a new customer Several weeks into the New Year no invoices were produced to support the revenue and the accountant was directed to reverse the sales as an error This all made sense to the accountant For the EVP of sales, the annual metric was achieved and triggered a six-figure bonus (shared with the CFO)

The lesson in this is to be vigilant when “correcting” entries in the new fiscal year These accounting actions all seem so obvious in the harsh glare of hindsight, but are actually very, very difficult to detect in real time People simply do as instructed and fail to follow up and follow through on questions, often in fear of reprisal

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H o w t o C o v e r Yo u r B a s e s

New trends in accounting and financial planning are impacting how you protect yourself

By Mark J Gilbert, CPA/PFS

management firm of Reason Financial Advisors, Inc , with offices in Northbrook

Professional liability insurance (sometimes called errors and omissions or E&O insurance) plays a significant role in managing the business risks every firm faces today Designed to provide coverage against t h e n e g l i g e n t a c t s a n d s l i p - u p s p r o f e s s i o n a l s m a y commit when delivering services to clients, it’s recommended that CPAs and financial planners obtain at least minimal coverage in this area. But there are some trends accounting and financial planning practices should be aware of, such as:

Pricing and Coverage: If you feel like you’ve been paying more premiums and getting less coverage, you’re not alone. Thanks to several natural disasters in recent years, and a lingering low interest rate environment, insurers have seen a significant jump in claims while reserves and investment income have plummeted Naturally, they’ve resorted to increased premiums in all areas of property and casualty insurance including professional liability coverage to offset their lost income. Of course, the insurers who have exited the business altogether haven’t helped us either; less competition heralds higher prices In any event, this marketplace is facing contracted rather than expanded resources, and it’s driving some CPA and financial planning firms to reduce coverage limits in an attempt to maintain more reasonable pricing

Claims

and Litigation:

Across the industry, audit-related claims have been larger in scope and value, but fewer in number, while tax-related claims h a v e b e e n s m a l l e r i n v a l u e a n d l a rg e r i n v o l u m e W h i l e t h i s t r a d i t i o n s t i l l r i n g s t r u e , b o t h t y p e s o f c l a i m s h a v e r i s e n s i n c e t h e e c o n o m i c s l o w d o w n began, and will likely continue to for several years

To give you some perspective, the AICPA reports that in 2011 51 percent of liability suits filed against CPA firms stemmed from individual or corporate tax compliance work, 38 percent were related to audit, tax planning, financial planning, advisory and “other” services, and 11 percent arose from compilation and bookkeeping.

Cyber Security: This is an emerging trend in liability coverage “It has become the fastest growing c o v e r a g e o n t h e m a r k e t , ” s a y s P a t r i c k F l a n n e r y, a Chicago insurance broker with A. J. Wayne & Associates “Events in recent years have shown that a data breach can affect small and large companies, and the reality is that if your practice stores personally identifiable information, you’re at risk.”

That said, CPA and financial planning firms need to assess the potential costs of a breach Expenses can pile up quickly from a forensic investigation into the breach’s magnitude, legal expenses, client notifica-

tions, client credit-monitoring services, public relations expenses and more

Cyber security policies are designed to cover some or all of these expenses, including litigation and defense costs and, more importantly, the firm may be covered whether it’s directly responsible for the breach or merely a third party to liability

Risk Mitigation: Of course, both CPA and financial planning firms can take additional steps to reduce the risk of a professional liability incident Documenting all-important understandings in the firm/client relationship with an engagement letter that spells out exactly what will and won’t be done by the firm is a good first step Financial planning firms should also draft an Investment Policy Statement defining the parameters of the investing relationship. Using checklists of important tasks also can help to ensure nothing is omitted during engagements Mandatory peer review for CPA firms that provide attest services presents another opportunity to identify areas of risk that need to be improved upon Finally, a generally good rule of thumb for both CPA and financial planning firms is to never sue for fees

In spite of rising premiums and the still-sensitive revenue environment, professional liability insurance is a necessary and manageable business expense

1.22.14 | Code: C21828

4 Steps To a Custom Website

All websites are not created equal, which is why CPAs are turning to custom website designers

By Derrick Lilly

Your firm has a unique culture, menu of services and mission You’re anything but cookie cutter Shouldn’t your website be just as unique?

“People judge books by their covers,” says Chris Davis, owner of GetNetSet, specialists in CPA and accounting firm website design “Whether it’s on a desktop computer or a mobile device, your website needs to look like a million bucks so visitors don’t think you’re some fly-by-night firm or question your integrity.”

“Everything you do should be done with credibility-building in mind,” adds Don Jackson, chief revenue officer at CPA Site Solutions. “Businesses and consumers are looking for expertise and trust from their accountants. Consistency is part of building trust For instance, when you hand out a business card, its aesthetic should align with your website and everything it says.”

So what does your site need to hit the mark?

1 All “About Us”

“The number one thing firms need to work on is expressing themselves through their own unique content,” says Davis “We find a lot of firms using generic copy from third-party writers because they’re reluctant to write about themselves and their services The problem is, there are certain things a writing service or freelance copywriter just isn’t

going to know or understand about your firm, its people or its unique selling proposition ”

For instance, says Jackson, “If you’re a member of a professional association, that’s an important piece of information to include on your website Authentic testimonials can be very powerful, as well as sharing stories of your firm’s charitable or community involvement. These things are meaningful to clients as they look to build personal relationships with their accountants ”

T h e m o s t i m p o r t a n t t h i n g t o r e m e m b e r i s t o emphasize your strengths Jackson jokes that it’s sort of like online dating. “Things like pictures of the people in your firm, their background information, some personal details, credentials, even pict u r e s o f y o u r b u i l d i n g ( i f i t ’ s g o o d l o o k i n g , o f course) can really help differentiate your firm and help people connect to it; people like what they can relate to,” he explains.

2. Do You “Like” Us?

Designing websites with social media integration in mind is now a must However, says Davis, don’t m a k e t h e m i s t a k e o f t h i n k i n g a l l y o u n e e d i s a Facebook page “You need to offer advanced functionality, services and resources,” he explains And even more to the point, every social media page needs constant attention

“A lot of CPAs and accounting firms are interested in social media because it’s still a buzzword, but there aren’t very many that are using it really well,” Jackson cautions “It takes a lot of time and effort to build a good social media campaign ”

The bare minimum is to feature “shari n g ” b u t t o n s t h r o u g h o u t y o u r w e b s i t e , enabling visitors to easily share and post i n f o r m a t i o n , a s w e l l a s e m a i l c o n t e n t t o t h e i r c o n t a c t s O f c o u r s e , i f y o u r f i r m i s using sites like Facebook, Google+, LinkedIn, Twitter and others, you’ll want those badges displayed prominently on your site to make it even easier for clients and visitors to connect with you

And if you’re going to launch an all-out social media campaign to complement your website, using a sharing tool like HootSuite will help to streamline the process. HootSuite is a social media management dashboard that allows you to coordinate and track your posts across all your social media accounts from one location Similar tools include Buffer and Sprout Social 3.

The Mobile Masses

“ M a n a g i n g o v e r 6 , 5 0 0 a c c o u n t i n g w e bs i t e s , w e ’ r e i n a u n i q u e p o s i t i o n t o s e e industry trends,” Jackson explains We see

the number of people accessing accounting websites over smartphones and tablets

i n c r e a s e e v e r y m o n t h ” W h e t h e r i t ’ s t o access services or research a firm’s reputation, consumer traffic to accounting web-

to nearly 50 percent

next few years, he says

o n that works for every browsing experience,” Jackson explains “Your website needs to keep up with all of the technological changes that are important to people and driving business to your website: Social media, search engine optimization (SEO), location services (like Google Maps), mobile friendliness, etc ”

4. Custom Functions

Most accountants have a secure portal to e x c

n t s w i t h clients,” says Jackson “Accountants have a legal obligation to protect clients' private financial information Although I do still meet accountants who exchange financial documents with clients by email, it’s not secure. A portal designed for accountants a n d f i n a n c i a l a d v i s o

“There are so many functionalities that y o u c a n i n t e g r a t e i n t o a w e b s i t e , ” s a y s Davis, “like make a payment, newsletters, downloadable forms, calculators, appointment requests…it really depends on what your firm’s goals are ”

Davis explains that one of his clients uses his website as a tool to drive efficiency instead of sales “His website has a ton of different documents, common forms, engagement letters and other information available for clients to download 24/7 without having to contact the firm; this is especially helpful during busy season,” he says

“If your goal is to collect new leads and f i n d n e w c l i e n t s , h o w e v e r, y o u w a n t t o h a v e m u l t i p l e c o n v e r s i o n p o i n t s , ” s a y s Jackson “Webinar sign-ups, newsletters or whitepaper subscriptions, a clear way to c a l l o r e m a i l y o u Wi t h a c u s t o m s i t e , your goals can always drive the design ”

What it comes down to is this: A website is about bettering your business, attracting and retaining clients, and boosting the usability of your services “You can only start benefitting once you have one,” says Davis “If you don’t already have one, your next step is to get one ”

Protection Incorporated

Will you be held personally liable for not respecting the “corporate form”?

By Brian Hunt, JD

The corporate veil forms the bedrock of our capitalist society, allowing an entity’s investors to limit their liability and encourage investment risk-taking that otherwise might be avoided

owners and shareholders aren’t held personally

shows that, if the corporate form “is used as a cloak or cover for fraud or illegality, to work an injustice, to defend crime, or to defeat an overriding public policy, or where necessary to achieve equity,” then piercing the corporate veil isn’t beyond the realm of possibility

Jahelka (President, 30 percent) and Nichols (Treasurer, 20 percent). Through a family trust, Greenblatt also controlled Banco Pan Americano as the sole officer, director and employee. On January 2000, Banco extended Lupe a $10-million line of credit in exchange for a blanket lien over all its assets, which were estimated to exceed $32 million

In late 2000, Lupe opened an account with Wachovia to purchase shares in HRMI, a NASDAQ-traded entity that later saw its trading halted and share values plunge This forced Wachovia to issue a margin call on Lupe’s account, which, upon liquidation, reflected a $1.9million debt

And yet, that debt didn’t stop Lupe from accepting another $8million advance from Banco, moving its real-estate holdings into a n o t h e r v e h i c l e ( o w n e d b y t h e s a m e s h a r e h o l d e r s ) , i n v e s t i n g $500,000 in another venture, repaying $400,000 to Banco among other disbursements, and paying over $200,000 to Nichols and Jahelka as “compensation ”

In 2005, pursuant to the terms of the Wachovia brokerage agreement, Wachovia obtained an arbitration award against Lupe that was reduced to a $2 5-million legal judgment, inclusive of interest and costs. Wachovia then pursued claims in federal court, seeking to “pierce the corporate veil” and hold Greenblatt, Jahelka and Nichols personally liable on the judgment.

The Appellate Court began its analysis by noting that Illinois law permits veil piercing when two requirements are met: (1). There must be such a unity of interest and ownership that separate personalities of the corporation and the individual no longer exist, and (2) Circumstances must be such that adherence to the fiction of a separate corporate existence would sanction fraud or promote injustice

As to the first of these requirements, the Court noted that the trial judge had focused on the essential 11 factors that Illinois courts rely upon, namely, inadequate capitalization, failing to issue stock, failing to observe corporate formalities, failing to pay dividends, cor-

porate insolvency, nonfunctioning corpor a t e o f f i c e r s , m i s s i n g c o r p o r a t e r e c o r d s , co-mingling funds, diverting assets to an o w n e r o r o t h e r e n t i t y t o t h e c r e d i t o r ’ s d e t r i m e n t , f a i l i n g t o m a i n t a i n a n a r m slength relationship among related entities, and having the corporation act as a mere f a ç a d e f o r a d o m i n a n t o w n e r N o s i n g l e factor is determinative, and the trial judge is uniquely situated to assess the evidence and evaluate the creditability of witnesses.

A n a l y z i n g t h e p e r t i n e n t f a c t o r s , t h e Court noted that Lupe had only $1,000 of paid-in capital On the related issue of solv e n c y, t h e C o u r t n o t e d t h e t r i a l j u d g e ’ s assessment that Lupe’s owners were incap a b l e o f c o m p e t e n t l y t e s t i f y i n g a b o u t i t s i n s o l v e n c y F u r t h e r m o r e , t h e t r i a l j u d g e found that Lupe diverted $1 2 million to insiders and related entities following the H R M I s t o c k c o l l a p s e , w h i l e G r e e n b l a t tcontrolled Banco held an unenforced lien on all Lupe assets The Court also found t h a t t h e a s s e s s m e n t o f G r e e n b l a t t ’ s d em e a n o r s u p p o r t e d t h e t r i a l j u d g e ’ s d e c ision insofar as “[h]is flippant, condescending air in response to legitimate fact-finding questions convinced the trial court that he was intentionally evading the truth ”

The Court further noted that Lupe’s lack of corporate minutes and accounting records, failure to file or timely file tax returns, and failure to comply with Lupe’s bylaws were all uncontested The Court ultimately concluded that the failure to conform to its own bylaws allowed Greenblatt to dominate Lupe’s decision-making and encourage its failure to keep an arms-length relationship with related entities

As for the second requirement, the Court agreed with the trial judge’s conclusion that adhering to Lupe’s separate corporate existence would allow its shareholders to leave Wachovia holding the bag for the failed HRMI investment Therefore, the judgment against Greenblatt, Jahelka and Nichols was affirmed

Lupe’s principals certainly represent an extreme example of a failure to honor the corporate form The basis for legal action rests on whether the actors acted in good faith While the failure to maintain corporate records and observe corporate formalities might be dismissed as mere sloppiness, the failure to honor the Wachovia debt while making significant disbursements for other ventures and distributions to insiders is difficult to construe as good faith

As we know, the vast majority of corporate owners do behave responsibly By the s a m e t o k e n , w e c a n ’ t i g n o r e t h e o

sional bad apple The best advice any atto r n e y

Frequent INSIGHT contributor Brian J. Hunt is the managing principal of The Hunt Law Group, LLC, Chicago, and a member of the Defense Research Institute’s Professional Liability Committee. His practice focuses on the counseling and representa-

tion of CPAs and other business professionals and on the resolution of business disputes He has received an “AV” rating from Martindale-Hubbell, which is granted for preeminent ethical standards and legal ability, and he was selected again as an Illinois Super Lawyer. Brian can be reached at bhunt@hunt-lawgroup com or by calling 312 384 2301

always play fair

Have Gun, Will Carr y

Kinks in the new concealed carry law make a highly debated issue even more complex

By Christine Bockelman

400,000 Illinoisans are expected to apply for a concealed- carry license (source: Illinois State Police)

In an era of workplace and school shootings, g u n c o n t r o l i s a h o t - b u t t o n i s s u e , b u t t h i s i s e s p e c i a l l y t r u e i n I l l i n o i s I n J u l y, t h e s t a t e be c a me the la s t in the c ountry to a llow g un owners to carry concealed weapons In Janua r y 2 0 1 4 , a f t e r m o n t h s o f d e b a t e , t h e s t a t e police will begin accepting applications from t h o s e w h o w i s h t o c o n c e a l a n d c a r r y. T h e y have up to 90 days to approve a permit While gun control laws can be contentious f o r m o s t , t h e y ’ r e d o w n r i g h t p r o b l e m a t i c f o r businesses and firms. The new law, like similar ones in other states, very clearly prohibits guns in places like schools, parks and government buildings Small-business owners, though, can d e c i d e f o r t h e m s e l v e s w h e t h e r t h e y ’ l l a l l o w concealed weapons on their premises. If they don’t, they’ll need to prominently display the Illinois State Police’s “gun ban” sign, which is

a v a i l a b l e f o r d o w n l o a d o n t h e S t a t e P o l i c e website [www isp state il us]

“My advice to business owners of any size is to use this time to sit down and really plan out your response to concealed carry,” says Richard Russo, a labor and employment attorney at David & Campbell LLC, with offices in Peoria, Chicago and Washington D C

While it might seem an easy feat to determ i n e w h e t h e r y o u r b u s i n e s s s u p p o r t s c o ncealed carry, it’s actually anything but There’s one big catch for business owners: The Illinois law has no blanket immunity clause

“This means, as a business owner, you might be damned if you do and damned if you don’t,” says Jeffrey Risch, chair of the labor and employment practice at Chicago-based law firm SmithAmundsen LLC. “You are inviting risks no matter what your decision ”

Let’s say, for instance, that you allow concealed weapons into your business and a disgruntled employee comes in and starts shooting “It’s possible, if you allow concealed carry o n t h e p r o p e r t y a n d h a v e a d i s g r u n t l e d e mployee situation, that you could face a negligence claim,” Russo explains “There could be an argument that you allowed the weapons in your office and you knew about the problems with the employee, and could have prevented the shooting ”

Now let’s say you prohibit concealed weapons in your office and a gunman comes in and starts shooting You’re no longer liable, right? Wrong “The business owner still might be open to a negligence lawsuit,” Russo explains “Someone could argue that injuries or deaths could have been avoided if concealed weapons were allowed in the office and employees could protect themselves from the gunman ”

T h e l a w i s v a g u e i n o t h e r a r e a s , t o o . F o r example, while it specifically states that a business owner can prohibit guns, it says nothing about guns in other company-owned property, l i k e c a r s T h e l a w i n o t h e r s t a t e s , i n c l u d i n g Wisconsin, clearly states that an employer can

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a big fish in a small

or...

prohibit weapons while the employee is engaged in company business.

“The statute is unclear on this point,” Russo asserts. “We tell employers that they are on pretty solid ground if they tell employees they can’t carry a weapon on company time.”

Think of it this way: Anyone over 21 is l e g a l l y a l l o w e d t o d r i n k a l c o h o l , s a y s Russo, but employers can also legally proh i b i t e m p l o y e e s f r o m d r i n k i n g w h i l e o n the job It’s the same thing with concealed carry, or at least that’s the theory

Another kink in the system: What happ e n s i f y o u r o f f i c e b a n s w e a p o n s , b u t a client’s office allows them?

“Again, the statue isn’t clear, so there is a l w a y s s o m e r i s k i f e m p l o y e r s p r o h i b i t e m p l o y e e s f r o m c a r r y i n g i n t h a t s c enario,” says Russo “It’s a risk that some companies I’ve spoken with are willing to take, though ”

At some point, the courts are going to have to weigh in and definitively balance the employee’s right to carry a firearm with t h e e m p l o y e r ’ s r i g h t t o b a n t h a t f i r e a r m when engaged in company business Until the n, bus ine s s e s s houldn’t a ba ndon oldfashioned common sense. If you don’t supp o r t c o n c e a l e d c a r r y i n t h e w o r k p l a c e , make that clear to all employees. Go beyond simply hanging the official no guns a l l o w e d s i g n a n d u p d a t e t h e e m p l o y e e handbook as well, communicating policies openly and clearly with staff.

“You should already have strong workp l a c e v i o l e n c e a n d w o r k p l a c e w e a p o n p o l i c i e s i n p l a c e , ” R i s c h a d d s . “ Yo u a r e not going to allow people to make threats, bully or threaten the use of a weapon no

m a t t e r i f i t ’ s c o n c e a l e d o r n o t I t w o u l d h a v e b e e n g r o u n d s f o r i m m e d i a t e d i smissal before concealed carry, and it is still grounds for immediate dismissal ”

T h e w h a t i f s d o n ’ t e n d t h e r e H e r e ’ s another: What if you lease office space?

“There might be one blanket policy for the whole building,” Russo explains, which overrides the policy of individual businesses and firms within that building

T h a t s a i d , i f y o u d o n ’ t w a n t t o a l l o w concealed carry and your landlord does, you might be able to work out an arrangement where your offices are weapon free However, the building lobby, elevators and o t h e r c o m m o n s p a c e s w o u l d s t i l l a l l o w concealed carry.

The other side of this is trickier. If your building owner doesn’t allow firearms and you want to allow them in your office, it’s a r o c k a n d a h a r d p l a c e . A s s u m i n g t h e b u i l d i n g p o s t e d t h e g u n b a n s i g n a g e , employees wouldn’t be able to bring their weapons into the lobby. So they’d have no way to get them into your office

Speaking practically, if you prohibit concealed carry in the workplace, how do you systematically enforce that prohibition? Do you install a metal detector? Do you hire a third-party security firm to do searches?

“My advice to my clients is to police it as they would any other policy, such as drugs or drug paraphernalia,” says Risch “You are not going to do it with metal detectors or a pat down You have to do it with common sense If someone is acting suspiciously, has a bulge in his coat pocket, and its 85 degrees outside and he’s still wearing that coat, then common sense tells you to investigate further ”

Put another way, says Risch, “If someo

they’ve overhead something to imply Ron has a firearm, at that point you can quietly and carefully confront Ron with, ‘Are you carrying a concealed firearm?’ If he admits he is in violation of your policy, that’s one thing If he denies it, yet you have reasonable grounds to think he’s not telling the truth, you can take action

“You should communicate to your workforce that they do not have an expectation of privacy with regard to their activity on the premises You reserve the right, based on reasonable suspicion, to be able to confront and perhaps reasonably search people if necessary while they are on the premises. And if you are apprehensive about confronting a person, then inform local law enforcement to help diffuse the situation.”

If the ins and outs of concealed carry are still keeping you up at night, it should be some comfort that anyone applying for a permit will undergo a rigorous screening. This is not an easy or quick process Each applicant will have to pass a mental health a n d c r i m i n a l b a c k g r o u n d c h e c k , h a v e taken 16 hours of gun-safety training and pay $150

“ T h e l a w r e q u i r e s m o r e t r a i n i n g , a n d has one of the highest fees and more stringent background checks in criminal and mental health than any other state in the country,” says Valinda Rowe, spokesperson for IllinoisCarry com, a volunteer-run online action and discussion forum dedic a te d to a dv oc a ting the rig ht to c a rry in Illinois “It is not going to be easy for these folks to get their license They are going to be scrutinized very, very closely ”

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7 Skills for CRO Greatness

Must-have qualities for today’s corporate risk guru

By Selena Chavis

The initial shock of the economic crisis may have faded, but the aftereffects likely will continue well into the future. In fact, a 2012 survey by Deloitte and Forbes Insights, Aftershock: Adjusting to the new world of risk management, reveals that 91 percent of companies are reorganizing to make risk management strategies a higher priority The study is based on insights from 192 U S executives within industries covering everything from consumer and industrial products to healthcare, technology and telecommunications.

It’s with little surprise, then, that industry professionals believe the role of the Corporate Risk Officer (CRO) will become increasingly important in the coming years as companies respond to the growing need for compliance and readiness strategies

“It’s evolving into more of a C-suite role, and these professionals are getting a more proactive role at the table,” says Brian Schwartz, partner and lead for PricewaterhouseCoopers (PwC) risk and compliance across all sectors “It’s become an elevated strategic element ”

Mike Assaad, regional vice president for Robert Half International in Chicago, says his recruiting firm has seen an uptick in requests for CRO professionals “It’s still not a typical career trajectory, but it is becoming more prevalent,” he explains

Risk as an area of focus and expertise, however, is a tricky thing For one, the Deloitte/ Forbes Insights survey notes that 28 percent of respondents the largest percentage over any other factor feel that “people are unaware of what they need to do concerning risk.” Added to that, says Schwartz, risk management is in constant flux across industries. “It’s a relatively ever-

On the CRO Track

Professionals agree that early exposure to the internal auditing function through a public accounting position or work in a government agency like the FDIC is prime training ground for CRO hopefuls From there, Assaad suggests identifying indust r i e s t h a t a r e h i g h l y r e g u l a t e d a n d p u r s u i n g p o s i t i o n s w i t h companies that are representative of those industries

He cautions, however, that the position is fairly niche and may limit a CPA’s next move “Once you go into a CRO role, it might be difficult to make the jump back out,” he says “It’s a very different skill set you will be developing.”

W h i l e t h e p l a y i n g f i e l d i s g r o w i n g f o r t h o s e w a n t i n g t o become a CRO, Schwartz emphasizes that professionals will have to remain flexible and open to learn “This is still an evolving role,” he says “You have to continually learn and adjust You have to stay on your toes ”

changing role in terms of definition,” he notes. “A lot of companies go through a lot of CROs looking for the perfect fit.”

As companies continue to assess potential candidates, we weigh the must-have characteristics of effective CROs in today’s risk climate.

1. A CPA Skill Set

Peggy Hardek, PwC team leader in charge of risk assurance for the Chicago market, notes that 10 years ago it wasn’t uncommon for the CRO function to be given to general counsel for a company As the risk management function has evolved, however, the pendulum has swung towards the CPA camp

“A CPA background has become critical to this role,” she says, pointing to the need for experience in internal auditing, financial planning and analysis, and data analytics

Schwartz agrees, adding that, “Financial risk is at the base of all business processes That makes the CPA skill set a natural fit ”

2 Strategic Vision

“You have to have someone with a big pict u r e p e r s p e c t i v e , ” s a y s S c h w a r t z . “ C R O c a n d i d a t e s a r e w i s e t o g e t e d u c a t e d o n broad operational processes and where they are headed from a strategic, operational and financial perspective These professionals need to understand where a company has been, where it is going and how it will achieve its goals with minimal risk ”

A further Deloitte report, The Risk Intelligent Chief Compliance Officer, suggests that CROs need to align oversight efforts with both risk management and business g o a l s T h e r e p o r t n o t e s t h a t “ a s a s e n i o r e x e c u t i v e w i t h b o a r d - l e v e l v i s i b i l i t y, t h e [ C R O ] c a n h e l p t h e e n t e r p r i s e u s e i t s strengths in compliance to seek competitive advantage ”

3. Grace Under Pressure

A daunting regulatory landscape that only gets more complex each year alongside increased scrutiny from boards and stakeholders equates to high-pressure environments for corporate risk officers.

“The pressure is evolving daily from a regulatory standpoint,” says Schwartz. “Boards want more formal assurance from corporate risk officers. These professionals can find themselves bombarded with requests.”

And often what the corporate risk officer has to say isn’t what others want to hear These professionals have to come into their

roles expecting to be unpopular. It’s the CRO’s job to provide critical analysis of data regardless of whether it aligns with the course management has planned for

4. Agent for Change

Because CROs often play the role of unwelcome messenger, the ability to advance and influence change is critical to their skill set. This requires creativity, says Assaad, who points out that not all analytical, numbersoriented accounting professionals have the leadership skills needed to deliver in this area It may require a certain charm and charisma to draw people in

“The ability to build collaboration between groups is critical,” says Hardek, “as is the need for tact and diplomacy. You have to think around the whole circle of an organization If there is a risk officer who is too black and white in their thinking, the potential exists for them to be ineffective ”

5. Deep Industry Knowledge

No two industries are alike when it comes to risk This reality can make moving from industry to industry difficult for CROs. “They have to really understand what the risks are coming into the role,” Assaad explains “Having that familiarity with the industry is very advantageous in this role ”

Assad also notes that the CRO needs a clear understanding of the organization’s structure, the key players involved in decision-making, and what opportunities and potential pitfalls may lie ahead. The best equipped CROs keep themselves engaged in the frontlines of a business or surround themselves with experts to fill in the gaps

6. Excellent Communications

Excellent written, interpersonal and verbal communications are obvious needs for CROs who will have to interact with a wide range of stakeholders as well as be prepared to answer a flood of questions on a moment’s notice. From reports and presentations for board members to educating the frontlines about risk, CROs have to be able to relay information clearly, concisely and intelligently to all levels of an organization

7.

An Ethics Focus

High ethical standards are key to this position, since CROs often have to act as a company’s moral compass. In fact, the title used for this position in some companies is Chief Ethics Officer Keeping a company’s reputation and integrity in tact should be at the forefront of responsibilities

January 16 | Chicago

State & Local Tax

February 5 | Chicago

Not-for-Profit Corporate Governance Half-Day

March 19 | Rosemont Controllers

April 28 | Oakbrook Terrace

April 29 | Springfield

Government

May 20 | Chicago

Estate & Gift Tax

May 22 | Chicago

Business Valuation Symposium

May 29 | Chicago Employee Benefits

June 4 | Chicago

How to Have it All

Four women CPAs make the world their oyster

By Judy Giannetto

It was cold and early 7:30 a.m. to be exact. But an energetic buzz coursed through the crowd as members of the Illinois accounting community gathered at Chicago’s Standard Club last November The event: The Women’s Executive Committee of the Illinois CPA Society’s Women’s Leadership Breakfast, recognizing the recipients of the 2013 Women to Watch Awards.

A joint partnership with the AICPA’s Women’s Initiatives Executive Committee, these awards recognize women leaders who actively promote the integration of work and life, and demonstrate a commitment to advancing women into leadership positions.

In an hour-long Q&A session, award winners fielded questions on work-life balance, getting involved in the community, and the role of mentors and mentees. But before launching into who said what, here are a few bio highlights to introduce you to 2013’s “Women to Watch ”

Dawn Eber, CPA: A managing director in PricewaterhouseCoopers’ Risk Assurance practice, Dawn is also head of the firm’s Chief Audit Executives Roundtable series. She is a committed supporter of Feed My Staving Children, a highly regarded national nonprofit that answers the need for nutritional meals in third-world and disaster-struck countries such as Haiti and most recently the Philippines

Melissa Bennis, CPA: Melissa is a principal at Davis & Hosfield Consulting LLC, prov i d i n g d a m a g e s - r e l a t e d e x p e r t t e s t i m o n y a n d c o n s u l t i n g s e r v i c e s t o c o r p o r a t e c l i e n t s a n d their counsel, primarily in intellectual property d i s p u t e s A n 8 - y e a r m e m b e r i n t h e J u n i o r League of Chicago, an organization for women promoting voluntarism through effective action and leadership, Melissa also fund raises for the Angel Baby Foundation, which assists families affected by Spinal Muscular Atrophy

Meredith Vogel, CPA: Meredith is a managing director at Grant Thornton LLP a role that was new for the firm Meredith, in fact, was the first to reach this level in the Chicago practice A board member and treasurer for the Domestic Violence Legal Clinic and board treasurer of the Treetown Cooperative School, Meredith is also

an active recruiter at her alma mater, the University of Illinois at Champaign-Urbana, and with the Grow with GT program

C ha rlotte M ontg ome ry, C PA : The director of resource allocation for the Illinois State Museum, Charlotte is actively involved in several organizations, including the ICPAS, the AICPA, the Illinois Association of Museums and the American Alliance of Museums She is a published author in both fiscal and HR topics, and a strong advocate of mentoring, particularly for women, conducting seminars on the subject Q : W h a t i s t h e m o s t c h a l l e n g i n g i s s u e facing women in accounting today?

D a w n : We’re facing a world of increasing expectations and demands We’re asked to do it all It’s like the Enjoli perfume ad from the ‘ 8 0 s “ T h e 8 - h o u r p e r f u m e f o r t h e 2 4 - h o u r woman ” The jingle went, “I can bring home the bacon, fry it up in a pan, and never let you forget you’re a man.” A friend of mine used to say, “I don’t know how much perfume that ad sold, but it definitely sold a lot of anti-depressants ” Although challenging, with those expectations comes a lot of opportunities. It’s a double-edged sword

Melissa: The doors of opportunity have been blown wide open I agree with Dawn, it’s figuring out what your priorities and passions are. The world’s your oyster, but how do you do it all? Prioritize.

M e r e d i t h : A n d i t ’ s n o t j u s t a b o u t h a v i n g kids. It’s about what’s important to you persona l l y I t ’ s p o s s i b l e t o d o i t ; y o u j u s t h a v e t o understand where you need to be and when. Don’t give up on your goals

Charlotte: In the accounting industry, I feel t h e s e a r e w o r k - l i f e b a l a n c e i s s u e s t h a t w i l l always impact women. This is an industry still dominated by men, some of whom don’t provide environments that foster the ability to have that balance I also feel there’s still a glass ceiling that, while cracking, still exists There will a l w a y s b e p e o p l e w h o h o l d y o u b a c k f r o m b r e a k i n g t h r o u g h , a n d y o u h a v e t o k n o w i t ’ s okay to distance yourself from that negativity

Dawn Eber, CPA

Melissa Bennis, CPA

Meredith Vogel, CPA

Charlotte Montgomery, CPA

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and only surround yourself with positive people who will support you in your goals

Q : You’re all career women and moms How do you integrate the two?

Dawn: The analogy I like to use is, you have balls you’re jugging; ask yourself which balls absolutely cannot hit the floor Everyday you prioritize what’s most important for that day Another thing is to shut the door on guilt. When you’re at work, focus on work; don’t worry about what’s going on at home And when you’re at home, don’t obsess about work It’ll get you nowhere

Meredith: It’s all about prioritizing I pick a day in the week when I know I will work late and focus on work only. Then I can take the next day to come home early and be with the kids or go out to dinner with friends I used to be a yes man, but after my first child I learned to say no at my job and at home You have to learn to say, “I can’t get that done, but it’s a great opportunity so let’s give it to someone else ” Or, “I can get that done, but it won’t be until the end of the week ”

Melissa: It’s really all a lesson in efficiency become more effic i e n t a t w o r k s o y o u c a n l e a v e a n d f o c u s o n w h a t m a k e s y o u happy in your personal life Honestly, I do a lot less socializing at work than I used to so that when I’m not at work I can focus on my kids. It’s a case of making the most of your hours.

Charlotte: It’s all about time management. When I was working and going to school, I was the director of my youngest son’s preschool I was a leader in both the boy scouts and girl scouts for my other two children I can remember calling stay-at-home moms to ask for help with a bake sale. Most were “too busy.” I wondered, doing what? If it’s important to you, you find a way to make the time

Q : Where does your community involvement fit in?

Dawn: Giving back is a big part of who I am You wonder, how am I going to add another thing to my plate? But as I became more involved, I found it’s first and foremost about following what really drives your passions It’s not a case of checking a box on a list just so you can say you volunteered, but choosing to volunteer based on what’s important to you.

Meredith: I sit on the board of the Domestic Violence Legal Clinic I joined the board after an attorney I met was looking for a non-attorney to get involved and asked me if I’d like to do it I sat in on court hearings, and from the first time I stepped into the c ourthous e a nd he a rd thos e c a s e s , I wa s s o dra wn to it. You’ll always find time for the things you’re most passionate about

Melissa: I absolutely agree, you have to spend your time doing what moves you For instance, I help a foundation, the Angel Baby F o u n d a t i o n , b e c a u s e i t p e r s o n a l l y t o u c h e d t h e l i v e s o f c l o s e friends of mine It became a very personal issue for me

Charlotte: My father instilled a sense of responsibility to give back to the community Nonprofits pull people of like passions together to accomplish so much good; they are my passion and how I give back I have gained a reputation for stepping into nonprofits and helping them in their times of need, whether it’s on the board of directors or providing pro-bono services. Not a year goes by where I’m not active on a nonprofit board and giving advice to another I get so much joy from that

Q : You’re all very involved with staff development. What makes a successful mentor/mentee relationship?

Dawn: It’s important to be honest and transparent You can’t be afraid to deliver tough messages. All of us have had failures, so being able to deliver that in an open and trusting environment is critical And it goes both ways Don’t be afraid to tell mentors what you need I get just as much out of the relationship as my mentees do

Meredith: Don’t force it Have it develop organically I didn’t knock on a door and say, “Hey, do you want to be my mentor?” It just evolved, and my mentors ultimately helped me get to the next level. I remember my mentors would often ask me for feedback, and I’d think, “Shouldn’t you be giving me the advice?” But it’s really a two-way street

Melissa: As a mentee, don’t shoot the messenger, and don’t immediately put your defenses up Your mentors are trying to help you, so be willing to ask for help and listen to advice Open the door and be willing to hear constructive criticism.

Charlotte: The most important thing to remember about mentoring can be summed up in one word: Listening Some mentees want your career advice, but others, if you’re listening, just want advice on how to juggle it all. Whether it’s career or work-life balance, I personally love being able to help someone Some of my mentors in my past didn’t know they were mentoring, but I was logging it all in. Not all mentors are right 100 percent of the time. You need to trust your gut on whether you’re getting good advice or bad advice There were many times when I had to think, “OK, I now know how not to do it ”

Q: How do you handle today’s multigenerational staff?

Melissa: As a Gen Xer, I find that there are definite differences be twe e n Boome rs , M ille nnia ls , e tc . E v e ry one ne e ds to be c ognizant of those differences For instance, Millennials had a lot of p a r e n t a l i n v o l v e m e n t a n d e n c o u r a g e m e n t , a n d t h e r e ’ s n o t h i n g wrong with that As employers, we need to do a better job of giving credit where credit is due and encouraging the Millennials on our staffs They’re more likely to stay if they feel they’re appreciated Dawn: It’s also about understanding what truly drives people Then you’re better able to encourage them and coach them.

Meredith: Each generation is a little different It’s important to u n d e r s t a n d i n d i v i d u a l w e a k n e s s e s a n d s t r e n g t h s , a n d d r i v e towards the strengths. Different people have different work styles. You have to learn how people work and what conditions make them most successful

Charlotte: This is the first time that there are five distinct generations in the workforce Each group needs to understand the other to foster positive work environments For example, we have new graduates who are most comfortable using technology to interact and are unable to communicate effectively in face-to-face situations. So there’s a skill set we recognize needs to be addressed right away Management needs to change to accept that these new graduates look at their phones as an extension of themselves and need to constantly be connected. If work product doesn’t suffer, what’s the harm in letting them feel that sense of connectedness? I don’t care how often they check Facebook if their work product doesn’t suffer It calls for no action on my part unless it impacts my expectations of their work The employee will actually work harder for you if you allow them this simple act of autonomy over their work day

CPA Endowment Fund of Illinois make success possible

Dear Donors:

The joy of receiving the CPA Endowment Fund of Illinois Accounting Tuition Scholarship is simply indescribable. Your investment in my future means a lot to me and my family. This award will not only help me financially, but also mentally. Knowing that I have your support, I am confident that I will become an influential leader in the CPA profession.

Jasmine Villagomez

I commend this organization for helping students like myself achieve our goals and inspiring us to continue the hard work we have completed thus far. I thank you for believing in me and I hope to make you and many others proud. I will lead by example, inspire through my humbleness, learn through my failure, and succeed by never settling for less.

Thank you for seeing the value in my education. I hope that one day I will be able to help students achieve their goals just as you have helped me.

Sincerely,

Jasmine Villagomez

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201 count down to launch

Is this year the right year to launch that business, expansion project or entrepreneurial venture you’ve been dawdling over? Here’s an insider tip: There is no “ideal” time. End of story. Stop reading. Just go and make it happen. Just kidding...well, kind of.

By Derrick Lilly

The Economy Needs You

“During a weak local economy the cost of entry is much lower for s t a r t u p s a n d e x p a n s i o n p r o j e c t s . G e n e r a l l y s p e a k i n g , l a b o r i s cheaper, excellent talent abounds, property is affordable, service providers are available, and most things are reasonably priced,” says Mark Glennon, managing director of Chicago-based Ninth Street Advisors and a board member of the Illinois Venture Capital A s s o c i a t i o n . “ P r o v i d i n g y o u g e t p r o o f o f m a r k e t a c c e p t a n c e o f y o u r p r o d u c t o r s e r v i c e d u r i n g a d o w n e c o n o m y, y o u c a n b e pretty secure in thinking that things are going to work out as the economy rebounds ”

To that end, it’s no surprise that the startup world is alive and well not only in Chicago, but nationally and abroad as well

“People have seen the success of entrepreneurs before them, the big IPOs and corporate sales, and now those bitten by the entrepreneurial bug are looking to create success for themselves And in a weak economy, where traditional jobs are tougher to get, more and more entrepreneurs are coming out of the woodwork,” says George Deeb, former investment banker turned Internet entrepren e u r a n d v e n t u r e c a p i t a l i s t , a n d m a n a g i n g p a r t n e r a t C h i c a g obased Red Rocket Ventures.

“Only 10 years ago Chicago was referred to as the ‘flyover city’ by venture capitalists pursuing coastal deals. That has materially changed,” he adds “Thanks to the successes of Groupon, GrubHub and other startups that have built millions and billions of dollars in revenue, Chicago has reached the pinnacle of the startup ecosystem, and I see nothing slowing it down; if anything, it’s accelerating ”

The promise of an economic windfall by way of startup success also has captured the attention of Chicago Mayor Rahm Emanuel and Illinois Governor Pat Quinn, who are both eager to see continued growth across the state

“They know startups and early stage companies aren’t going to entirely solve Illinois’ economic problems, but they’ll be an important part of any recovery,” says Glennon. “Mayor Emanuel recently

said he wants to double the number of tech jobs in Chicago to 80,000; these are very valuable jobs that can play a large role in improving our economy ”

“The City of Chicago and State of Illinois are doing as much as they can to promote startup activity and host industry events in an effort to incentivize folks to found and keep their companies in Illinois,” says Josh Harris, CPA, co-founder of Chicago-based accounting and tax firm NDH Group and lead of its startup services practice “For example, the city has really stood behind the Techweek Summit, which has grown substantially from its earliest years to gain national coverage And the Illinois Angel Investment Tax Credit is quite lucrative; I’ve seen a number of Illinois startups increase the amount of capital raised because those credits exist ”

The Community Wants You

Beyond government, Illinois’ educators, entrepreneurs, innovators and investors are coming together in support of a vibrant entrepreneurial ecosystem What’s emerged from their efforts is a variety of collaboratives and partnerships, incubators, and member communities and organizations like Built in Chicago, 1871, Startup Illinois, the Illinois Innovation Council, the Chicagoland Entrepreneurial Center and the Illinois Science and Technology Coalition, intended to connect entrepreneurs with the people, business networks and other resources they need to successfully plan, launch, grow and sustain their ventures.

“There are a number of groups out there, and the community is very welcoming,” says Harris “Whether it’s a cocktail networking e

e a v y h i t t e r s i n

e i n d u s t r y

o

i n g

o

o

o speak, there are a number of ways to get out there and network and become acclimated in the early stage scene.”

“Every good startup ecosystem needs a base of entrepreneurs that have done it all before to mentor the next generation Chicago is finally at that tipping point,” adds Deeb. “We’re finally seeing proven startup entrepreneurs, and willing and able angel investors and venture capitalists giving back in several forms of supportive education, mentorship, consulting and networking ”

Regulators Aren’t Stopping You

Outside of industry specific regulations, not much is going to stand in your way when it comes to launching and marketing your ventures. In fact, the regulatory environment looks pretty good.

“Two things come to my mind that are beneficial for the early stage community,” says Kenneth Obel, founder and principal of the law firm goodcounsel. “First, Illinois has a program called the Angel Investment Credit Program administered by the Department of Commerce & Economic Opportunity. The program extends $10 million annually in state tax credits to investors in qualified new business ventures that are ‘principally engaged in innovation’ and have the potential to attract new jobs and investments in the state. The good news is that this program will be renewed for 2014 ”

The second development that might come to pass in 2014 is further implementation of the JOBS Act In September 2013, the SEC implemented Title I, creating special rules for “emerging growth companies” that want to go public and Title II, overturning prior r u l e s p r o h i b i

rounds Obel suggests that this alone might help some startups and young companies raise funds in 2014, but crowdfunding is top of mind for many in the startup space

“The startup world is eagerly awaiting the SEC’s final rules implementing Title III the so-called ‘crowdfunding regulations,’” says Obel “These regulations hold the promise of relaxing the regulatory burden on companies seeking to raise funds through investment

rounds of $1 million or less Most significantly, the accredited investor requirements of $1 million net worth/$200,000 annual income will be loosened for crowdfunding rounds, potentially allowing investors with less than $100,000 in income/net worth to invest small amounts in early stage companies ”

There are some important caveats, however. Obel points out that the SEC’s proposed rules require crowdfunding rounds to be conducted only through qualified online “funding portals,” and companies will have to generate financial statements and other disclosure documents Plus, the commenting period remains open until February 3, meaning final regulations aren’t likely to come before the middle of 2014. How much easier the new rules will ultimately make things remains to be seen, but a decision that permits investments from small-scale investors will be a boon for the startup and early stage communities where the competition for funding is fierce

You Can Secure Capital

The good news, according to Deeb, is that you don’t need millions of dollars to launch a startup or grow your early stage business today, because leveraging existing infrastructures, technologies and other solutions has dramatically reduced the amount of capital needed The bad news, though, is that the lower cost of entry has everybody feeling like they can be entrepreneurs, which has only created more competition in the marketplace and in the investor space.

On the one hand, raising capital is easier. Websites like Gust, AngelList, EarlyShares, and the growing number of crowdfunding platforms have created marketplaces for startups and early stage businesses to attract angel investors and equity partners simply by putting up a web page talking about their products and services. On the other hand, the high-net-worth investors and organized angel investor networks that are aggressively investing money are simply overwhelmed with the options

“There’s an immense amount of competition out there for those investment dollars,” says Harris “The best and brightest are getting funding, but it’s taking quite a bit of effort on their part, because the sheer number of businesses seeking capital is allowing investors to be very selective about whom they bet their dollars on ”

“The funding ecosystem is also dramatically changing; the focus is shifting to early and later-stage investments, because today’s marketplace dictates very quickly which businesses are going to g a i n t r a c t i o n o r l i g h t a f i r e i n t h e m a r k e t , ” D e e b e x p l a i n s . “ C h i c a g o ’ s h i g h - n e t - w o r t h a n d a n g e l i n v e s t o r s a r e r e a l l y p r a gmatic; they’re not looking to experiment They’re looking for wellthought-out business plans, solid management teams, and wellresearched market and competitive analyses They want the product to be built, the sales and marketing to be tested, and market acceptance to be proved so that when they cut the check, they’re cutting the check to a proven initiative that will guarantee that customers will come to the table ”

A n o t h e r f u n d i n g c h a l l e n g e i s t h e “ S e r i e s - A C r u n c h , ” w a r n s G l e n n o n . “ T h e r e ’ s a r e a l s h o r t a g e o f i n s t i t u t i o n a l i n v e s t o r s f o r early growth companies needing $1 million to $3 million to continue scaling up,” he explains

There are alternative avenues, however “In recent months, commercial banks have become somewhat more aggressive with local entrepreneurs and are bidding on deals they historically wouldn’t have touched,” says Glennon, who sees this trend developing partially in response to the Small Business Association’s move to loosen up loan programs available to startups and small businesses

You Just Need a Plan

“Get out there and gain an understanding of whether the market needs your product or service,” encourages Harris “What is the target market? What does the competitive landscape look like? Map out the business in its different stages of operation What is the timeline and what are the capital requirements for each stage? D o y o u h a v e t h e s u s t a i n i n g c a p i t a l t o s u r v i v e t h e p r e - r e v e n u e stage? Once you get to market, what’s the capital requirement to really push the product or service? Those are the areas you need to have your hands wrapped around before you go to launch your startup or expand your business.”

Once that’s all in place, the only things that should hold you back are personal circumstances: Can you come to terms with the time commitment, the risks of leaving a steady job or upsetting your existing business? Are you financially secure enough to survive a failed attempt? “The basic proposition should be that if you win, you win big; but if you lose, you’ll still keep the mortgage paid and the kids in school,” says Glennon. “If you’re ready, follow the advice of every successful entrepreneur before you, which is to just start doing it ”

embrace it,” says Deeb. “Make sure you know what you’re signing yourself up for; startups, expansions and early stage businesses as a rule are torture Many simply aren’t thinking big enough; you need a really compelling story and game-changing ideas to break through today’s clutter ”

What it Means to CPAs

“There’s a new startup launching every day and all of them need accounting and finance solutions,” says Harris. “However, very rarely does it make fiscal sense for early stage companies to go out and hire a full-time, in-house accounting staff from the get go ”

And yet, “Quite frankly, when we go into board meetings or prospective investor meetings, those people like to see companies that have had accountants involved from the beginning,” he adds “It’s a sign of appropriate financial control; they can expect to glean good reporting on where the money is being spent, how the margins are performing, and what the realistic revenue projections are ”

What’s more, “Taxation is an ever-increasing challenge for startups, even before they’re subject to income taxes,” warns Glennon “

across the country is getting more challenging to navigate particularly for internet and tech companies that sell into many markets as states become more aggressive in trying to find ways to tax transactions and collect revenue ”

There’s a clear void that needs to be filled. Startups need help budgeting and forecasting, preparing taxes, closing their books, and providing financial reports CPAs are in a particularly good position to provide niche interim, part-time or shared CFO and controller, financial consulting, and accounting and tax services to b

t

accounting and banking systems takes a matter of minutes instead of the hours it took in the past, leaving accounting and finance pros the time and flexibility to service several different startups simultaneously.

Whether you’re a CPA with a business plan you can’t wait to set into motion, or you’re a CPA whose clients are chomping at the bit to launch onto the entrepreneurial scene, 2014 shows the promise to become “the year of the startup ”

FOOL ME ONCE...

The American public and corporate America navigate the minefield of trust.

By Kristine Blenkhorn Rodriguez

“I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country...corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed.”

You might guess, as you read that quote, that it’s pulled from an Occupy Wall Street campaign poster or an activist’s impassioned plea during recent economic protests in major U.S. cities. But no Abraham Lincoln wrote this concern in a letter to Colonel William F Elkins in late 1864

Yes, corporate America’s public relations woes were around even then, a perspective that might prove useful as we look at how the public perceives America’s financial ethics.

Gone But Not Forgotten

Corporate America seems to have lost its pariah status, earned painfully via Enron, WorldCom, Tyco, Bear Stearns and other similar debacles. According to polls released last June by the Pew Research Center for People & the Press, 56 percent of Americans n o w h o l d a f a v o r a b l e v i e w o f b u s i n e s s c o r p o r a t i o n s J u s t t w o years prior, 52 percent held an unfavorable view of the same.

But is it truly a case of forgive and forget? Of course not

If you delve deeper, as Harris Interactive did in results released for its Reputation Quotient® report in February 2013, you’ll see that if you give Americans more shades of gray (rather than just

“favorable” and “unfavorable”), the Pollyanna effect starts to fade. Only 28 percent of Americans rank corporate America’s reputation as excellent, very good or good A solid 23 percent rank it as fair, and 44 percent rank it as poor or very poor A muddling few are undecided A whopping 65 percent said corporate America’s reputation is “not good but there’s still hope for it to improve.”

H a r r i s m e a s u r e d c o r p o r a t i o n s o n s i x r e p u t a t i o n d i m e n s i o n s : S o c i a l r e s p o n s i b i l i t y, e m o t i o n a l a p p e a l , p r o d u c t s a n d s e r v i c e s , vision and leadership, financial performance and workplace envir o n m e n t I n t e r e s t i n g l y, t h e d r i v e r s f o r “ g r e a t ” c o m p a n i e s h a v e shifted over the past two years. Outperforming the competition, being a company one can admire and respect, and being a company that fosters trust all remain stable indicators. But, while in 2011 high ethical standards and good value for the money were k e y n e c e s s i t i e s f o r g r e a t c o m p a n i e s , n o w t h o s e q u a l i t i e s h a v e been replaced by the ability to play a valuable social role, being good to work for and being an organization that the public can feel good about. It seems that high ethical standards aren’t quite enough anymore

Strange Bedfellows

Te c h n o l o g y c o m p a n i e s e n j o y a w i d e m a rg i n o f f a v o r, w i t h tobacco, government, banking, finance and airlines clocking in at the bottom This hierarchy isn’t surprising to Glenn Selig, founder and principal of The Publicity Agency, who says financial institut i o n s i n p a r t i c u l a r h a v e o n e s t r i k e a g a i n s t t h e m b y t h e i r v e r y nature money usually means privacy and secrecy

“Typically companies focus on their reputation and what they should be doing when things have already gone awry, rather than trying to be transparent all along,” says Selig “Part of corporate America’s public relations problem is that the public wants a general sense of what a company is about. And the C-suite instead listens to its legal department telling it not to comment, not to share information. That doesn’t really fly in today’s all-information economy.”

John Boatright, professor of business ethics and management in the Graduate School of Business at Loyola University and author of several books on business ethics, agrees. “There always has been a great distrust of large financial institutions,” he says “And yet, these cases hit the headlines JPMorgan Chase, Bear Stearns, so on and people cluck their tongues, but the reality is much more complicated When most people think of ethics, they think of personal conduct But I think when you get into most of these cases, the problem is not so much individual failure, but failure of the processes themselves A good risk management system should h a v e c a u g h t w h a t w a s g o i n g o n a t C h a s e I p l a c e m u c h m o r e emphasis on the systems than the people themselves.”

Jim Balassone, who directs the business ethics programs of the Markkula Center for Applied Ethics at Santa Clara University, calls it the “bad barrel syndrome ” “We always want to point fingers at the bad apples But bad apples tend to thrive in bad barrels, in an environment where performance is rated above all else and performance means numbers, numbers, numbers It means making money at all costs How many companies want to stake their reputations on making a culture like that transparent?”

The “Cheating Premium”

The key to corporate reputation, then, is being who you say you are, says Selig “It sounds trite But it’s the key to everything If you’re profits-driven, don’t try to pretend you’re not. Stake your reputation on being sharp and competitive But don’t try to be Starbucks or Whole Foods in terms of reputation.”

He uses BP as a prime example of a company that didn’t get it right “They were so interested in public perception they weren’t paying attention to the problem, which was the oil leak, producing slick videos with the message ‘we care about people’ while the problem is still not fixed Public perception was ‘you can’t even stop the thing from leaking so how are you going to make it right?’ If they cared, they would have diverted all resources to the leak and not spent time making videos A better message would have been, ‘we’re plugging the leak and everything else is secondary.’ BP was overly concerned about image at a time when fixing the problem would have been the best thing for their image ”

Jonathan Karpoff, professor of finance at the Foster School of Business, University of Washington, has conducted research in the a re a of re puta tiona l c a pita l “ If y ou pe rform the wa y y ou ha v e promised to on your end of your implicit and explicit contracts, you will find all parties receptive in the future,” he says “This is

just common sense, but for some reason, executive teams don’t always follow it As if it would be different for a corporation than for a high-profile individual ”

Karpoff found that firms losing reputational capital pay most heavily when they’ve cooked the books “We look at the impact to the delta of their operations to measure damage The cost to their bottom line is seven times higher when they’ve had a financial scandal seven times higher than all other costs combined, including legal, regulatory penalties and any other direct costs.”

History shows that the American public is less pejorative for ethics violations that involve the environment or American companies convicted of bribery on foreign soil “The difference seems to be what we call a ‘cheating premium,’” says Karpoff “If the average citizen knows a company has cheated financially, they won’t deal with that entity at least for a period of time Money seems to be more sensitive to citizens than other issues ”

Culture and Contrition

There’s no prescription for fixing public perception “There is no 10-step plan,” says Selig “You need to hire competent reputation management professionals Let them do their jobs And have a p

e z z l e s , c h e a t s investors or exposes the company to undue risk ”

Ulrich Boser, senior fellow at the Center for American Progress and author of the upcoming book, The Leap: The Science of Trust and Why It Matters, suggests emphasizing a culture of trustworthiness as a start. “It sounds so simple because it is. Trust is an emotional connection And people aren’t stupid When we see major oil companies talk about how much they care for the environment, there is a lack of authenticity there It’s an emotional gut reaction from a cynical public ”

A cynical public made so not only by company actions, but also by the reactions of those same companies to their wrongdoing “The non-apology apology goes like this: ‘We regret that anyone may have been adversely affected by our actions.’ Versus: ‘We are deeply sorry and troubled by the pain we have caused.’”

Research by Peter Kim, an associate professor of management and organization at the University of Southern California’s Marshall School of Business, corroborates Boser’s opinion Participants in the United States and Singapore took part in four experiments, two of which had them make a series of trust-related decisions in a game with a virtual partner who would, at a designated point in the match, violate their trust by keeping all the money earned cooperatively in previous rounds. The two other studies, meanwhile, assessed participants' opinions of a fictional CEO who asked his employees to take a pay cut and failed to follow suit, breaking a promise to refuse dividends from his preferred stock holdings W

For this reason, potentially costly trust repair initiatives can some-

cluded, depends on the audience's perception of the response; it

to the study, to communicate repentance violators must

show they regret their actions, are committed to reform and have the resolve to act differently in the future

Preventative measures, calls for regulation and even promises of financial remediation did less in some cases than a simple, convincing apology When coupled with a believable apology, however, substantive methods like regulation were effective, more so depending on whether the violation was due to incompetence, which participants found easier to forgive than a lack of integrity.

In today’s information environment, most secrets surrounding wrongdoing will be found out, says Selig. “So tear off the bandage. Put out there, proactively, what you know will get out there anyway. Don’t just throw a lot of documents at the press and wait for t h e m t o d i s c o v e r w h a t y o u a l r e a d y k n o w T h e p u b l i c d o e s n ’ t expect perfection But they do expect you to own up, fess up and take responsibility The companies that get hammered are the ones that don’t do all three of these things ”

Governance Gets Sophisticated

In an era where investor relations officers tend to come from accounting/finance backgrounds, and communications are primarily via social media and other technologies, C-suite executives have to make sure their teams are more integrated than ever before

“Companies would do well to find well-educated professionals who can match wits with the smartest minds on Wall Street, yet still make sense of their companies’ complex financials for momand-pop investors,” says Jeff Morgan, president and CEO of the National Investor Relations Institute

Governance communications have become a key piece in helping to maintain a company’s reputation for transparency and trustworthiness “Many companies are now viewing governance communications with shareholders as something they will do yearround rather than just during proxy season,” says Morgan “In fact, in our recent study on the subject, we found that board members speak with shareholders in 40 percent of member companies That may not sound impressive, but remember that these communications have traditionally been reserved for corporate management ”

While corporate governance is anything but sexy, it’s experiencing a renewed emphasis in the post-scandal world “A well-run company has systems in place which would prevent almost any employee from engaging in misconduct, personal ethics aside,” says Boatright “Even the best controls won’t prevent misconduct in every case, but shareholders want to know you’ve put some thought to this topic and addressed it ”

The issue becomes whether just having a program is enough. Since the federal sentencing guidelines of 1999 provide strong legal reason to have a code of ethics, ethics training, an ethics offic e r, e t c , m o s t l a rg e c o r p o r a t i o n s h a v e a c o m p e l l i n g r e a s o n t o m a i n t a i n t h e s e a r e a s . “ I f a c o m p a n y i s c o n v i c t e d o f c r i m i n a l charges, having these in place can greatly reduce the penalty they pa y,” s a y s Boa trig ht “ Pros e c ution g uide line s prov ide the s a me impetus A company that has an ethics program will stand in better stead with the Justice Department even if wrongdoing does occur ”

But just the existence of a program isn’t enough, says Chris MacDonald, senior nonresident fellow of the Kenan Institute for Ethics, Duke University. “Ethical leadership isn’t rocket science. It means putting ethics on the table, developing a basic competency at talki n g a b o u t i s s u e s o f r i g h t a n d w r o n g , a n d e m p o w e r i n g y o u r employees to frame issues that way ”

“It is easy to dodge our responsibilities, but we cannot dodge the consequences of dodging our responsibilities.”

Josiah Charles Stamp, English Economist and President of the Bank of England

Truths About Why Clients Pick You

CUSTOMERS TODAY ARE SPOILT FOR CHOICE. LET’S FACE IT, competition is probably as fierce as it’s ever been Which begs the question, “What can a firm do to win clients?”

To find the answer, we’ve delved into some of today’s most touted trends and asked the experts to separate hype from reality.

Here’s a look at the six biggies

By Sheryl Nance-Nash

1 Green is the gold ticket

There's so much talk about sustainability and being green, but does it play a role in a potential client deciding to choose your firm?

“No, they don't care. They don't think of accounting firms like they might a manufacturing business. The importance of being green depends more on the nature of your company,” says Jim Metzler, vice president, small firm interests, with the AICPA

“Unless a client is particularly green-conscious themselves and making an all-out effort to use green suppliers, it's a non-issue Too many companies focus on differentiating themselves by, for instance, being green In professional services, like accounting, clients are not looking for different, they're looking for competence,” adds David Fields, author of The Executive's Guide to Consultants

But is it really that black and white? “Having environmentally friendly policies in place could be a defensive move and may keep you ‘even’ with others Your policies are probably not going to win you the business, but not having them could put you at a disadvantage,” warns Art Kuesel, president of Kuesel Consulting in Chicago

“Disadvantage” is at the heart of the green-as-gold-ticket argument Does it matter whether you buy into the concept of greening? No Does it matter whether your clients buy into the concept of greening? Absolutely For younger clients in particular, not supporting green practices won’t necessarily undermine your image o f c o m p e t e n c e , b u t i t m a y e a r m a r k y o u r f i r m a s b e i n g o u t o f w h a c k w i t h c o n t e m p o r a r y v a l u e s a n d c u l t u r a l s y s t e m s T h a t indeed is a disadvantage

The Verdict: The jury’s still out

2. Specialization is the Sweet Spot

C a n n i c h e p r o d u c t s a n d s e r v i c e s b r i n g i n n e w b u s i n e s s ? “ T h e answer depends on your definition of niche,” says Fields. ”If you mean services that are outside the mainstream of what most clients want, then focusing on those is generally a poor strategy to pursue If you mean focusing your offering on just a few specific issues that many clients face, then you're talking about a key to success I tell my professional services clients, be narrow in your marketing, be broad in your capabilities ”

“You'd never hire an Audi mechanic to fix your Nissan,” adds Kuesel Business clients in particular want to work with firms that have experience serving organizations similar to theirs, whether in terms of size, industry sector or issues faced and problems solved Specialization can be a strong selling point, since, “It helps the client think you get them, that you understand their business, that you have an idea what keeps them up at night,” Metzler confirms

every sector they've ever touched, hoping not to miss out on any and all new business, it's “the IP guy” or “the woman who deals with pharmaceutical companies” who attracts clients, says Jay Jessup, co-author of Fame 101 and a former KPMG director.

However, while niche is nice, it's not the magic bullet “It's not what you sell, but how you deliver it,” says Jaynie Smith, president and CEO of Smart Advantage, a marketing and management consultancy. “Maybe your expertise in healthcare gives you a leg up, but it's about 'the how' do you respond to clients in a timely fashion, do you have a high accuracy rate, and so on People are looking for 'how' not ‘what ’”

Added to that, “You have to effectively communicate your value propositions as to how they benefit the potential client,” says Kuesel. It comes down to effective communication.

“The challenge for CPAs is that they have almost, by that designation, branded themselves into commodity status all are qualified and therefore they are interchangeable, rather then recognizing the CPA designation as a base level of expertise beyond which comes an individual's or a firm's brand,” says Jessup. “To overcome that challenge, the elite 1 percent those authors, rainmakers, speakers and specialists who really drive the billings and, in fact, earn geometrically more than the norm understand two things: Branding (how to package their expertise) and promotion (including publicity and marketing).”

The Verdict: Specialization is sweet indeed

3. (Fir m) Size Matters

It’s really not as much about size as it is about strengths, since, truthfully, both large and small firms have their advantages

“You need to be perceived as capable to meet the business' specific needs. If the prospective client you’re pursuing is currently with a smaller firm than yours, play up your more significant breadth and depth to give them options and capabilities as they grow and their needs change,” says Kuesel “Or, if they are currently with a larger firm, communicate your capabilities and ability to give them oneon-one service, team continuity, more partner contact and a more consultative approach.

“It's critical to find out why they want to change firms in order to effectively position yourself as the ideal choice,” he adds “If they want a more intimate experience, more breadth and capabilities, or a firm of similar size that is more responsive, play to their acute needs to put yourself in the position to win the work.”

On a very basic level, large firms have three main advantages, says Fields. “They are well known, they have built-in credibility and

they often can deliver commodity services very efficiently If you're a small firm, that's not to say you can't win against large firms; but you do need to be aware of their advantages and overcome them ”

As for small firms, it’s obvious that a key positive is the personal attention clients often enjoy. “Although maybe the large accounting firm had more resources, I went back to a small firm because I am able to get more attention,” says Smith

Often, it’s a case of like attracting like, however As Metzler puts it, “A large accounting firm isn't going to care about the business of a small roofing contractor, and it's likely that a small company will want to work with a small accounting firm ”

The Verdict: It’s an even win

4 Digital is a Must

In this world of all things social media Twitter, Facebook, YouTube, Pinterest, Tumblr having a digital presence really isn’t optional

“The first step in getting selected is being known A digital presence is an increasingly powerful way to get known When today's college students are in senior management positions, you'll be asking 'how critical is it to have a non-digital presence?'” says Fields

The reality is, “If your firm doesn't have a decent website, decent blogs, good SEO, potential clients might view you with suspicion A strong digital presence is very important for establishing credibility when someone is looking up your firm,” says Smith.

Again, though, things are relative If you're pursuing a technology company and your website is embarrassingly rudimentary, the odds of winning that client aren't in your favor, says Kuesel Or, if you're trying to impress a younger business owner who thirsts for your thought leadership on their mobile device and your competition has a mobile marketing program, you’re at an immediate disadvantage

At the same time, if you're pursuing an old-line industry whose web presence is “adequate” much like your own, then you're probably still in the game. The days of old-line, adequate web presences, however, are definitely numbered.

“At the end of the day,” says Kuesel, “the Internet is often a research and resource tool for those shopping firms Without an adequate presence, you may not even get the chance at the work and you'll never even realize it.”

While it’s easy to jump on the digital train and say full steam ahead, what's important, says Metzler, is to balance the digital with the personal “When serious issues arise, you need to spend the time to sit down face-to-face; that's critical ”

“Unless you look a person in the eyes, there is no way to build a relationship with them Social media doesn't give you the opportu-

nity to pick up on the energy of the individual you are speaking to if you want to be a solution provider This only happens on a face-toface basis, not on a casual online social basis,” says Bruce Libman, founder and president of the business development organization

Total Network & Consulting

The Verdict: Go digital, but don’t forget the personal.

5. Price is King

Actually, not necessarily. Nowhere in business is the adage “you get what you pay for” more acutely understood And nowhere is the concept of value more greatly, well, valued

“Business executives continuously rate the perceived value received as a top item where total price paid comes in near the bottom,” says Kuesel “Value is defined as what you receive for what you pay. For example, if you can demonstrate that you have a highvalue compliance and consulting services package that helps to enhance profitability and reduce the risk of fraud and your total price is only 10-15 percent higher than someone who has simply proposed on the basics, you still have a strong chance of getting the work The key is to conduct an effective discovery meeting to determine the acute needs and wants of the prospect and then build a package of services that can meet those needs ”

The Verdict: Value beats out price any day.

6. Trust is Number One

This one’s easy When prospective clients are inundated with more and more options, selection comes down to one word: Trust.

“Value, rapport and pricing all play a role when clients are choosing among consultants, but in the end, the decision is based on trust,” Fields asserts “After all the dog and pony shows, detailed proposals and intense negotiations, what clients really want is a firm that is watching out for their best interests, that will make them look good by delivering on their promises, and won't make them look bad by messing up in some way The firm that wins on those three elements has won in the trust department and will get the gig.”

It’s one thing to be top of the list when it comes to trust; it’s another to actually become known for that trustiness Which brings us right back to #4 on the list your digital presence. Testimonials and referrals speak volumes, and nowhere is it easier to gather these and share them for all the world to see than via social media If you’ve resisted signing up for LinkedIn, Twitter et al so far, this is the number one reason to jump on the bandwagon Toot your own horn and give others a venue to do the same

The Verdict: Trust is the tops.

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VALUATION OF YOUR CLIENT’S BUSINESS OR PRACTICE

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John M. Fedus

Mueller & Company LLP

NOT-FOR-PROFIT SPRINGFIELD

Phil G. Capps

Kerber, Eck & Braeckel LLP

NOT-FOR-PROFIT CORPORATE GOVERNANCE HALF-DAY

Jody A. Gauthier Wolf & Company LLP

STATE & LOCAL TAX

Christopher F. Beaulieu CliftonLarsonAllen LLP

TAX

JoAnna F. Simek

Wolf & Company LLP

TAXATION ON REAL ESTATE

Douglas Hart DAD Associates LLC

The Illinois CPA Society applauds its outstanding volunteer leaders. Their tireless dedication and contributions help elevate the Society as the premier organization for CPAs and finance professionals.

*Vice Chair

Sarah Haight ICPAS Member Outreach Manager & Hype it editor haights@icpas org

hype.it

BIG ThInGs ARE hAppEnInG foR ICpAs YounG pRofEssIonAls

Why are you a member of the Illinois CPA Society? Why is the Society valuable to young professionals? Have you maximized the opportunities the Illinois CPA Society has for you?

If you ’ re unsure about your answers to those questions, you ’ re not alone That’s why the Society formed the Young Leaders Advisory Council (YLAC) a year and a half ago This team of 10 long-time members of the Young Professionals Group started by looking at AICPA and ICPAS research and then hit the road for five young professional roundtables across the state, digging deeper into the issues

Perhaps you participated in one of these roundtables and were curious about the outcomes. Here are some of YLAC’s key insights:

n Young Professionals’ needs and interests change as they advance in their careers

n Employer support is essential for young professionals to become ICPAS members and remain involved.

n Many are looking for a mentor to provide guidance

n ICPAS membership is important for credibility

n Young professionals are very career-minded

n Making connections with peers, others more advanced in the profession and people in other professions is important

YLAC has been using your input to make some big changes over the last year Here are some examples: The Firm Ambassador Program is the brainchild of YLAC and has been implemented at 19 firms; the r e s u r g e n c e o f t h e a n n u a l Le a d e r s h i p C o n f e r e n c e was guided by YLAC’s input; and YLAC has been the s t r a t e g i c a d v i s o r b e h i n d n e w y o u n g p r o f e s s i o n a l member happy hours, the new Young Professional Leadership Award, the revised landing page on the website and updates to marketing collateral And

that’s not all Expect even more new programs and opportunities in 2014!

Young Leaders Advisory Council members aren’t the only ones with the ability to influence the direction of all the resources and programming you have access to If you have any feedback or ideas, I’d love to hear from you And if you’d like to take on a leadership role by volunteering for a planning committee, just give me a call or drop me an email.

After all, this is YOUR Society!

Lastly, a shout out for the members of the Young Leaders Advisory Council: Jared Bourgeois, Chair, Mesirow Financial Consulting; Jonathan Hauser, Vice Chair, KPMG; Megan Angle, Porte Brown; Terry Bishop, Sikich; Chris Manderfield, CliftonLarsonAllen; Damien Martin, Wolf & Company; Betsy Matthews, American Center for Spine and Neurosurgery; Jason Parish, Plante Moran; Amanda Rzepka, Jet Support Services; and Mark Wolfgram, Bel Brands USA.

Join the Young Professionals Group

The YPG provides opportunities for young professionals to develop leadership skills that will enable them to stand out in their careers, gain credibility and make those all-important connections To be added to the YPG, email me at haights@icpas org

affinity program

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For more information visit www.icpas.org/affinity.htm.