March/April 2017

M A R C H /A P R I L 2 0 1 7

DATA: HARNESSING A GAMECHANGING ASSET Page 4

THE ART AND SCIENCE OF ACQUIRING AND MANAGING DATA

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SECURING DATA: SIX KEYS TO AN EFFECTIVE CYBERSECURITY PROGRAM

Page 8

ANALYZING DATA: VISUALIZATION AND BUSINESS INTELLIGENCE

Page 10

LEVERAGING DATA — HOW CPAs CAN MAKE BETTER DECISIONS

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contents M A R C H /A P R I L 2 0 1 7

THE MAGAZINE OF THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

4 The Art and Science RALPH ALBERT THOMAS, CGMA Chief Executive Officer & Executive Director rthomas@njcpa.org

ELLEN C. McSHERRY, CGMA Chief Operating Officer emcsherry@njcpa.org DON MEYER Chief Marketing Officer dmeyer@njcpa.org RACHAEL BELL Managing Editor rbell@njcpa.org MARC L. REIN Multimedia Specialist mrein@njcpa.org

of Acquiring and Managing Data

There is an art to acquiring data and integrating it with an accounting system. And there is a science to managing and mining the data to generate useful information. Find out how to bring the art and the science together.

6 Securing Data: Six

Keys to an Effective Cybersecurity Program

READ NEW JERSEY CPA DIGITAL AT NJCPA.ORG/ NEWJERSEYCPA.

DESIGN/ P RODUC T I ON / ADVERTISIN G THE YGS GROUP 3650 WEST MARKET STREET YORK, PA 17404 Advertising Contact: JASON VRANICH, ACCOUNT EXECUTIVE 717-505-2357 jason.vranich@theygsgroup.com

Expanding a Member Class for a Changing World 12 ACCOUNTING, AUDITING & ATTEST

Internal Controls Walkthroughs: An Added-Value Service 13 ADVOCACY & LEGISLATIVE ISSUES

NJCPA Opposes Anti-Arbitration Bill 14 BECOMING A CPA

Earn an MBA to Strategically Meet the 150-Credit-Hour Requirement

Visualization and Business Intelligence

Follow these six steps to establish a system that will enable data-driven decision making and reduce gut-feel impulses.

10 Leveraging Data —

Securing data against cybercrime is not a one-step process. A holistic approach is necessary to identify, classify and secure data.

2 CLOSE UP THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 425 EAGLE ROCK AVENUE SUITE 100, ROSELAND NJ 07068 973-226-4494 | NJCPA.ORG #NJCPAMAG

8 Analyzing Data:

How CPAs Can Make Better Decisions

It’s not enough to just have data. The point is to turn data into intelligence.

CPAs can play a key role in transforming data to effectively analyze results, create insights and make better decisions faster.

15 BUSINESS ADVISORY SERVICES

Saving Your Bacon: Guidance on Record Retention 16 CORPORATE ACCOUNTING

The Immeasurable Value of Key Performance Indicators 17 FIRM & PRACTICE MANAGEMENT

Winning the Staff Recruitment War 18 LAW & ETHICS

Recent Ethics Rulings 20 TAX

Advising Clients on Residency Issues

21 TECHNOLOGY & INFORMATION MANAGEMENT

Mastering Email Encryption 22 NJCPA NEWS 23 CLASSIFIEDS 24 MEMBER STORY

Melissa Soranno, CPA

CLOSE UP

Expanding a Member Class for a Changing World

BY DON MEYER, NJCPA CHIEF MARKETING OFFICER

For more than two decades, the NJCPA has welcomed eligible non-CPAs to become CPA Candidate, Student and Associate members of the Society. In fact, as of December 2016, there were more than 1,800 individuals who could call themselves members of the NJCPA, but who didn’t hold a CPA license.

On December 2, 2016, the NJCPA Board of Trustees approved a proposal designed to open up membership to a broader category of non-CPAs through the expansion of the Associate member class.

“We should all be excited that the Board has approved a path forward that reflects how the world is changing,” said NJCPA President Walter Brasch, CPA. “This is about building on what is great — and addressing an exciting, evolving world.”

In the last six years, there have been changes in the profession, the NJCPA internal landscape, its membership trends and processes. The CPA of the Future study by CPA.com reports that the role of the CPA is changing and will continue to change in order for firms to help their clients keep up with new business models, technologies, globalization and trends.

CPA firms continue to expand their services and hire non-CPAs in tax, audit and advisory functions.

NJCPA membership is experiencing shifts as more CPAs in corporate industry leave or do not join. At the same time baby boomers are beginning their retirements and are not being replaced by new CPAs. These types of conditions, along with rapidly changing consumer behavior, have associations looking at new membership models as more

for-profit companies adopt membership and membership-like products.

“The profession is changing and the Society must continually change with it,” said NJCPA CEO & Executive Director Ralph Albert Thomas, CGMA. “By expanding the Associate member category, our overall membership will be more reflective of what today’s CPA firms look like.”

Forty-one state CPA societies currently offer membership to non-CPA professionals, and a recent change to neighboring NYSSCPA’s bylaws expanded their associate member category to include a broader audience of non-CPA professionals. Additionally, there is increased competition from other financial organizations including the Institute of Management Accountants and Financial Executives International.

These landscape changes, combined with initiatives of the AICPA, including the development of the CGMA designation, create an opportunity for the NJCPA to further expand its membership offerings to more non-CPA professionals — as a way to continue to focus on its core membership of CPAs. The Associate member category was expanded to include anyone who meets all of the following criteria: yy Does not hold a CPA certificate or license and is not currently pursuing the CPA designation. yy Holds a bachelor’s degree. yy Is employed as one of the following: yy An owner or professional staff member of a CPA firm licensed to practice public accountancy in any U.S. jurisdiction

yy A corporate, government or college/university finance professional providing accountancy services or advice to one’s employer or to the clients of one’s employer in any or all matters related to accounting, including but not limited to financial, management, tax or consulting services or recording of financial data or information or the preparation or presentation of financial statements yy A full-time teacher of accounting courses (including tax) at an accredited (Middle States or equivalent) twoor four-year college or university.

Under this new definition, Associate members may be eligible for limited leadership positions including the NJCPA Board of Trustees, chapter board of directors, committee/group chair/leader and appointed committees as dictated by the NJCPA bylaws or other governing policies, but will not be eligible to vote on ballot measures presented to the full Fellow membership.

Associate members must agree to abide and be governed by the NJCPA bylaws and code of professional conduct, including disciplinary procedures.

The changes outlined above, in addition to other updates to the NJCPA bylaws, will be put to a full-membership vote in May. A majority is required for the changes to pass.

READ MORE NJCPA BYLAWS CHANGES

njcpa.org/bylaws

New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068. Issue No. 62 Copyright © 2017 New Jersey Society of Certified Public Accountants. Annual membership dues include $9 for a one-year subscription to New Jersey CPA magazine. Members may not deduct subscription price from dues.

Periodicals postage paid at Roseland, NJ, and at additional mailing office. POSTMASTER: Send address changes to New Jersey CPA, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068-1723.

The materials and information contained within New Jersey CPA are offered as information only and not as practice, financial, accounting, legal or other professional advice. The opinions expressed herein are those of the authors and not necessarily those of the New Jersey Society of CPAs. Publication of an advertisement in New Jersey CPA does not constitute an endorsement of the product or service by the New Jersey Society of CPAs.

2

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THE ART AND SCIENCE OF ACQUIRING AND MANAGING DATA

By MARIO NOWOGRODZKI, CPA

MENDELSON CONSULTING

Analytics is the application of computer technology, operational research and statistics to solve problems and answer questions in business and industry. A key component of that formula is data.

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The acquisition and management of data — for integration into accounting systems and analysis — is both an art and a science.

And the purpose of that formula is to make informed decisions in business and industry (and life!).

THE ART: INTEGRATION WITH ACCOUNTING SYSTEMS Every organization and every situation inside an organization has unique informational needs. And the acquisition and management of data can be a challenge — and sometimes an endless mission. We know that well-organized, meaningful data is important for any organization’s accounting and business management system, and it is key for the survival of operations in an ever-evolving environment.

The process of acquiring data begins with the who, how and why of business workflows and responsibilities. This is a must in order to understand what kind of data you need. Properly structured, organized data directly impacts the way an organization functions — meaning that data needs to be managed properly.

One simple and common example of integration is the import of expense transactions into the accounting system by an end user via download and automatic coding and posting of online banking transactions. This not only automates data entry for increased efficiency, but also improves accuracy by eliminating (or reducing) the human factor. Another application of integration is synchronization of online transactions into the order processing and accounting systems. This provides for the

scalability of processing a high volume of orders without the limiting factor of human data entry. And a byproduct of this integration is the automated update of stock levels in the inventory system.

Often, data has existing problems, but these issues are not found until integration. You should often check data for integrity, completeness and accuracy — all controls we learn as CPAs. Also, computer systems are sensitive when it comes to data. Extra characters, spaces, leading zeros, or worse, duplication of records, can wreak havoc on integration.

Often, data normalization is part of any successful integration project. Normalization is the process of organizing attributes and relations of data to reduce redundancy and improve data integrity.

So any data management and integration project must begin by making data “good” — good enough so that the computer system behaves as designed. Most people understand the old adage of “garbage in, garbage out” — meaning that incorrect or poor-quality input will always result in faulty output. And such incorrect or incomplete information often results in failures in human decision-making.

THE SCIENCE: DATA MINING Preparation of data prior to analysis is a key factor in any successful data mining effort.

Data mining is the practice of examining what could be large amounts of data in order to generate meaningful information.

Generally, data mining involves analyzing data from different perspectives and summarizing it into useful information — informa-

tion that can be interpreted, by example, to help increase revenues, cut costs, and make other financial and management decisions.

On a deeper, more-advanced level, data mining can also involve sorting through data to identify patterns and establish relationships.

It is often very desirable to have a system and method for acquiring and managing data that provides real-time access to a centralized database including previously acquired as well as incoming data. However, typically the most interesting data originates and resides inside the computer applications that support the core business processes of an organization, such as the accounting program itself or an inventory management system. This data takes a variety of forms, including transaction records, master lists, and application and database logs. Because of their critical role in the business, these systems are often off-limits to computer processing and space-hungry data-mining activities.

The best option is to transfer the data to a computing environment that is more data-mining friendly and less taxing on the systems that house and run an entity’s operations. This means a separate, highly-optimized database that can serve the purpose of simply just serving the data.

Because it is a separate database from the core business operations, a benefit is that you can have additional data pieces in the data extraction process from the operating system, including additional fields calculated from existing data for use in further analytics.

Very often, the majority of efforts in data mining projects are spent in the acquisition, preparation and management of data, and comparatively little time is spent on analysis. That is why much of the research on data mining focuses on providing increasingly sophisticated analysis and discovery algorithms.

Stay in the Know with the Accountant Knowledge Center (AKC)

THE STORY: ANALYTICS FOR INFORMED DECISIONS The purpose of acquiring and managing data is to make informed decisions in business and life. This can range from integrating external data into an accounting and business management system to the eventual production of reports for such decision making. But reports alone do not make the cut. It is the data gathering and interpreting that makes the story valid and meaningful.

Data is the lyrics that make up the narrative that tells a story. And the story is what we use to make informed decisions.

Mario Nowogrodzki, CPA, CITP, is founder and principal of Mendelson Consulting, an accounting technology firm that assists entities with planning, selecting and implementing business management systems. He can be reached at mario@ mendelsonconsulting.com or at 954-447-0250.

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SECURING DATA: SIX KEYS TO AN EFFECTIVE CYBERSECURITY PROGRAM

By LENA LICATA EISNERAMPER

In order to develop an effective, comprehensive cybersecurity program, it is imperative to understand the six principles below to help identify, classify and secure data.

Data is at the core of many companies’ business operations. However, securing the tremendous amount of data collected on a day-to-day (even second-to-second) basis poses a monumental challenge to companies.

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1. OWNERSHIP After identifying the key data a company maintains, the next step is to determine who owns the data and who has the ultimate responsibility over the security of said data. While the data belongs to the business, its security is typically the purview of the chief information officer (CIO), chief technology officer (CTO) or some comparable professional. Establishing data ownership from the onset can help prevent confusion going forward.

The CIO, or someone else in the information technology (IT) department with the requisite skills and experience, should be charged with establishing governance along with the related cybersecurity roles and responsibilities. While this governance is created through IT — and is often its own sub-unit bridging the gap between the company and IT — both senior management and the CIO should have a hand in evaluating the success metrics going forward.

Part of the governance is developing clear procedures for granting data access.

The IT personnel responsible for granting this access should obtain authorization from leadership to ensure “least privilege access” to the data. Least privilege means limiting data access to only what the user needs. Many data breaches occur when

users have more access than necessary or when user roles change but access rights stay the same.

2. POLICIES AND PROCEDURES Once data ownership is established, the CIO (or designated representative) should document clear policies and procedures that answer the following questions: yy What are key data elements for the company? Does it store personally identifiable information (PII), payment card information (PCI) or protected health information (PHI) data? Does it have intellectual property? yy How does the organization store data? yy What are the backup and recovery plans? How regularly should the company test the reliability of these plans? yy What are the obligations of employees to keep this data secure? yy What proactive mechanisms does the company use to secure this data?

Creating this documentation is an often-overlooked or underutilized step simply performed in a vacuum and then stored away. Why? It takes time to create, approve and implement the policies. It may simply be viewed as a regulatory exercise.

However, it is time well spent to establish standards and consistency baselines. Think of the cost of not taking the time.

3. TRAINING Another key to an effective cybersecurity policy is training and socialization. It should go without saying that companies should review policies often to make sure

they reflect current business practices. This periodic training creates a consistent topdown message to ensure policies become part of the corporate culture. Data owners should receive training on procedures, but all employees should receive annual training on how to secure data and acceptable use policies.

4. AUDIT PROCESS Develop an effective audit process to monitor that policies and procedure are being followed. Periodic audits will help maintain that the least privilege access principles are in effect and only those with a business need have data access.

If you use identity management and group policy objects in the network environment, then policy should match granted rights to employees in the system to maintain proper access control.

Audits are often performed by either the internal audit department or during the annual financial statement audit. However, if the company relies on a financial statement audit, it should be noted that the scope will only include those applications material to the financial statements and may not include all applications with business-critical data.

5. DATA RETENTION Data retention is a critical component of a cybersecurity program. Too often, data retention policies apply to a company’s physical data or paper files and not necessarily their electronic data. A company might be very good at destroying paper data based on a retention schedule but maintain 30 or more years of key data within their systems and on file shares.

The inherent risk in this is tremendous.

Network file shares are often jokingly referred to as the “Wild West” of data, but it is no laughing matter. Before the legal, IT and risk management teams take the all-important step of developing a comprehensive data retention policy, they must first classify data.

6. RISK ASSESSMENT Businesses should perform an annual examination of the company’s data vulnerabilities, threats, potential impact or losses,

and effectiveness of security measures against the assessed risks. The assessment should encompass the key systems, processes and data flows within the organization. An effective risk assessment can be a key data security tool to identify weaknesses and facilitate planning to address those concerns. Management can then use the risk assessment to plan key IT and data initiatives for the coming year in its annual strategic plan and budgets.

CONCLUSION Securing data against cybercrime is not a one-step process. It is a holistic program that affects everyone throughout the organization, whether they perform security, own data, use data or ultimately destroy data. Leadership must make it a priority to establish the program; properly define the program; provide training for those charged with implementing, overseeing and auditing the program; and mandate an

annual review via a risk assessment in order to maintain adherence to the program and keep it current and effective. While no cybersecurity program is 100-percent effective, not having one (or just going through the motions) is a 100-percent invitation to disaster.

Lena Licata, CISA, CISSP, is a senior manager in EisnerAmper’s Consulting Services Group. She can be reached at lena.licata@eisneramper.com or 732243-7160.

READ MORE CYBERSECURITY ARTICLES AND RESOURCES

njcpa.org/topics/cybersecurity

NEW JERSEY CPA | MARCH/APRIL 2017

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ANALYZING DATA: VISUALIZATION AND BUSINESS INTELLIGENCE

By MARC D. MINTZ, CPA

MARC MINTZ & ASSOCIATES, LLC

A picture is worth 1,000 words — cliché but so true. How do we, as financial professionals, turn mountains of raw data into easily absorbed intelligence: Information that can be used by key stakeholders to make actionable decisions to achieve the goals within an organization or business?

Opportunities abound for CPAs to leverage their expertise in traditional, after-the-fact historical reporting in order to transition to a world where contemporaneous monitoring of both financial and non-financial activities paves the way for discerning insights which can foster calculated business decisions in near real-time.

To best assure a positive outcome when attempting to establish a decision support system, develop a detailed plan which builds in procedures for both monitoring and refining your initial assumptions. Your plan should include the following steps: yy Establish high-level strategic goals. yy Develop tactical measures to support the selected strategic goals. yy Identify key metrics to align with your goals and tactics. yy Research and select the appropriate tools to provide actionable advice. yy Draft a written implementation plan. yy Monitor and challenge the system’s results. yy Streamline, refine and simplify the established metrics and visual cues.

ESTABLISH HIGH-LEVEL STRATEGIC GOALS A goal without a plan is nothing more than a wish. Synthesize into short and

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simple sentences the major objectives you are attempting to achieve. For example, “We want to increase our gross margins, reduce our incidents of merchandise returns, expand our sales into new geographic territories and decrease our dependence on key customers.” If this is your first attempt at implementing a decision support system, keep the list of goals very short, narrowly focused and consistent with one another. It will be much easier to master the entire process by building upon small successes. Too often projects fail when people become overwhelmed by unrealistic initial goals.

DEVELOP TACTICAL MEASURES Once you define the high-level strategic goals, establish the detailed activities that will provide the resources and direction you need to accomplish those goals. For example, if you are attempting to expand the types of products being offered to existing customers, it will be necessary to decide exactly what those items are, how they will be priced and who will be responsible for both procurement and sales.

If your goal is to increase gross margins, define what line items should be included in cost of goods sold and simultaneously establish a work flow that properly records

all customer sales and vendor invoices in a consistent manor. Measuring key metrics will be of scant consequence if the underlying assumptions of activities are not being properly monitored or recorded.

IDENTIFY KEY PERFORMANCE INDICATORS (KPI) In order to manage, you must be able to measure. Selecting and developing the appropriate KPIs is the art in the science of data analytics. As CPAs, we focus on historical indicators, which by definition are lagging in nature. Try instead to identify predictive indicators when developing decision support systems. After all, wouldn’t you rather purchase stocks for your portfolio based on indicators which predict their future price rather than merely reviewing where the price has been?

Be aware that many important indicators must be gleaned from outside of traditional accounting and transaction processing systems. For a good resource for identifying KPIs, create a free account at KPI Library (kpilibrary.com). Here you will find hundreds of KPIs categorized by industry, process, function and framework. Also be sure to benchmark KPIs to industry-available resources such as Bizstats, Sageworks and the IRS. IDENTIFY AND SELECT REPORTING TOOLS As a result of the enormous amount of data involved, in conjunction with the

necessity for accuracy and timeliness, it is not feasible to establish a decision support system that does not fully integrate with the original source of data accumulation.

Identifying which programs integrate seamlessly with your current system is the first step in selecting the appropriate reporting tools, dashboards and dynamic visual indicators which form the backbone of today’s decision support systems.

If you are using Microsoft accounting programs such as Dynamics AX, NAV or GP, look at Jet Reports (jetreports.com). It offers a complete line of dashboards, analytics and reporting solutions consistent across all of these programs. If you are using Sage 50, 100, 300 or X3, then Sage Intelligence Reporting (sageintelligence.com) is the tool of choice. It integrates these programs into highly customizable decision support systems which can retrieve data from sources beyond traditional accounting systems.

If you are working with the Intuit line of accounting products, add-on programs like Qlik (qlik.com), Fathom (fathomhq.com), Finagraph (finagraph.com) and Corelytics (corelytics.com) may be your weapon of choice. Most of these programs use the ubiquitous Excel spreadsheet as an interface to provide ease of use and flexibility. It is also worth noting that Microsoft itself has developed Power BI (powerbi.microsoft. com), which is quickly becoming a staple for transforming data into analytical business systems that provide rich visuals for management and decision making.

IMPLEMENT, MONITOR, REFINE AND SIMPLIFY In the end, it all comes down to people — and their judgement — when evaluating the true success and recurring benefits of any decision support system. Not even the best tool will provide value if the appropriate personnel are not consulted with and empowered to further the strategic goals of an organization. Continually review actions and decisions. Reconsider and question assumptions. When necessary, adjust plans to changing business conditions, competitor’s responses and the availability of human and capital resources.

As the world transitions to an Internetbased economy where resources are allocated in near real-time, long gone will be the days where decision making is supported by gut-feel managers relying on stale historical data. Data analytics represents a brave new world for CPAs to retain their role as trusted advisors bringing value to their clients, employers and society in general.

View sample KPI dashboards at njcpa.org/newjerseycpa/marapr17

Marc D. Mintz, CPA, CITP, CGMA, is the managing member of Marc Mintz & Associates, LLC, a technology consulting firm that assists businesses with strategic planning and the selection and implementation of information technology systems. He is a former NJCPA Trustee and a past president of the Passaic County Chapter. Contact him at marc@marcmintz.com or 973-808-9040.

NEW JERSEY CPA | MARCH/APRIL 2017

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LEVERAGING DATA — HOW CPAs CAN MAKE BETTER DECISIONS

By SEAN STEIN SMITH, CPA

RUTGERS SCHOOL OF BUSINESS

In the current business landscape, it is virtually impossible to watch a business program, pick up a magazine or paper, or even just speak with your colleagues without hearing about data analytics. Big data, analytics procedures performed on this data, and the implications for business can almost sound overwhelming.

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Some of the most high-profile corporations — Amazon, Google, Facebook, Twitter, Uber — rely on analytics to drive operations. It is clear these trends are having a dramatic effect. Structured data, in the form of quantitative reports on internal operations, customer satisfaction and other competitive data is, arguably, easier to access and analyze than it ever has been before. In addition to the explosion of quantitative — or structured — information, the growth of unstructured data has also been rapid and dynamic. The sheer speed with which data is created and disseminated creates an increasingly dynamic, and almost frenetic, business environment.

Despite the increases in both information and tools with which to analyze and report this information, several structural issues continue to plague businesses. Failed testing procedures, inefficient uses of internal resources and personnel, and an apparent inability to get out in front of consumer trends are common management headaches. These internal problems, issues and misallocations of resources can, and often do, result in lackluster performance.

Such a situation creates both challenges and opportunities for businesses at large, and specifically the accounting profession.

The reality is that if accountants can more effectively leverage data there is a much higher likelihood that those accountants will gain increased opportunities for leadership and strategic planning.

overwhelmed by the allure of technology and the latest gadget. The underlying role of accountancy and accounting professionals is to analyze and distribute information throughout the organization. From point of sales reporting, to inventory replenishment, to the implications this data has on working capital, it is apparent that accounting-related information drives business decision making. Expanding this existing reality provides an opportunity for accountants to leverage competencies related to data analytics, reporting and communicating this information to stakeholders. While focusing on how closely analytics, even of unstructured data, is related to present accounting roles and responsibilities, it is important to remember the broader goal. Better use of analytics and analytical information will lead to a more proactive approach, which is critically important as the management decision-making process continues to accelerate. That said, it is not enough to simply know what the end goal is; accounting professionals must also be able to lay out a practical and logical roadmap to get to that final point. Fortunately, accounting professionals can draw on existing skills to help facilitate this transition. To make the most out of analytics, the data and analytics reported must be linked directly to the challenges facing the organization. In other words, the data gathered and analyzed cannot simply be analyzed for the sake of analysis — it must have a clear and strong link to core business operations.

DATA AND ACCOUNTING When thinking about data analytics and accounting, it is important to not become

IMPLEMENTATION To make the best use of data and analytical tools, there are several factors CPAs and

other accounting professionals should take into account. First, what are the primary pain points of the organization? While standardization and process improvement have been enthusiastically embraced for manufacturing and service organizations, these mindsets are not usually implemented in back-office processes. In order to leverage the results of analytic procedures, the underlying accounting and other back-office processes have to be standardized, consistent and able to generate meaningful information.

Second, you need to select the best method to communicate the insights of business analytics by determining how internal and external stakeholders like to receive their information. This might seem like a qualitative approach and not truly related to business analytics, but it is an important piece. If the information is not formatted and presented in a method that is useful to the recipients, the validity of said information will immediately be called into question.

Last, and especially important when proposing new analytical and data-driven decision making, is to focus on early wins.

Generating early wins that build the confidence of the accounting team and the faith of management in the accounting team is essential to successfully leverage data the organization produces.

Making better decisions and leveraging available information to make these decisions more efficiently is a key differentiating factor that will only increase in importance moving forward. By focusing on internal processes and procedures that are widely known to be pain points, and leveraging technology to streamline these tasks, management, colleagues and fellow accounting professionals are more likely to adopt analytical procedures. Arguably the most important part, however, is to acknowledge that as quickly as analytics and big data have changed the business landscape, the rapidity of these changes will continue to accelerate. Learning new skills, reinforcing current ones and looking for new opportunities to assume higher-level decision-making responsibilities represent ways for accounting professionals to remain relevant. Analyzing the broader business environment, current accounting roles and duties, and focusing on

action-oriented steps toward implementation will allow accountants to make better decisions with data.

Sean Stein Smith, CPA, DBA, M.S., M.B.A., CMA, CGMA, is an assistant professor at Rutgers

School of Business, Camden. He is a member of the NJCPA Content Advisory Board, Student Programs & Scholarship Committee, Emerging Leaders Council, Nonprofit Interest Group and Accounting & Auditing Standards Interest Group. He can be reached at drseansteinsmith@gmail.com.

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ACCOUNTING, AUDITING & ATTEST

Internal Controls Walkthroughs: An Added-Value Service

BY COLLEEN CULLARI, CULLARI CARRICO LLC

In the world of accounting and auditing, the term “internal control” has been a buzz word for so long that it appears professionals have lost sight of what internal control actually means. It is imperative that auditors take a back-to-basics look at internal controls in order to make audit processes more effective and efficient. Utilizing pre-defined walkthrough documentation checklists and practice aids as a guideline only and relying on the client’s narrative to create an individualized walkthrough document not only provides efficiencies on the audit but can add value to the audit service to clients.

BACK TO BASICS The Committee on Sponsoring Organizations defines internal control as “a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and efficiency of operations; reliability of financial reporting; compliance with applicable laws and regulations; and safeguarding of assets.” Auditors can become so involved with workpaper documentation that it’s easy to lose sight of this definition, and the relationship with the client can suffer.

Having conversations with clients early in the audit process adds value and prepares clients for subsequent management letters and other recommendations.

STARTING THE CONVERSATION Many auditors provide pre-made questionnaires to clients that they are expected to complete with little to no guidance. This provides no added value and seems like a school homework assignment to upper management. Instead, start by reviewing the trial balance with the client and asking how certain balances found their way into the accounting system. This will reduce the time needed to review the client-prepared walkthrough and will foster a relationship

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with the entity’s key personnel. Documenting internal controls processes as a part of a client’s narrative over work performed on a daily basis will help the auditor achieve an understanding of the client’s internal controls processes.

ASSURING THE EFFECTIVENESS OF INTERNAL CONTROLS Once we understand the client’s internal controls and make recommendations if necessary, it is up to the auditor to assure that the process is operating effectively, the business is achieving its objectives, the financials are reliable, and the entity is in compliance with applicable laws and regulations. Although subjective by their nature, many auditors overlook documenting effectiveness of internal controls through financial statement assertions. But this can be an integral way of documenting professional judgment as an auditor. Understanding financial statement assertions within each step of a controls process and documenting them accordingly is all it takes to have appropriate documentation of the effectiveness of internal controls at an entity. Essentially, if you’re able to hit all relevant financial statement assertions while documenting the walkthrough with the client, then the controls process is operating effectively, and you can move onto substantive testing. If you cannot conclude that all relevant financial statement assertions have been met by the process, then issue further controls recommendations, significant deficiencies or material weakness.

The ultimate goal of any audit is to not only provide feedback to the client, but to assure financial statement readers that the information presented is reasonable and reliable. Get back to the fundamentals of auditing by utilizing client narratives and financial statement assertions as part of understanding and evaluating the effectiveness of internal controls.

This can mitigate risk and allow the

auditor to truly understand the client, their financial needs and provide added value through building strong relationships and providing recommendations applicable to the actual processes carried on at the entity.

Colleen Cullari is the audit services supervisor at Cullari Carrico LLC. She is a member of the NJCPA Accounting & Auditing and Nonprofit interest groups and can be reached at ccullari@ cullaricarrico.com.

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ADVOCACY & LEGISLATIVE ISSUES

NJCPA Opposes Anti-Arbitration Bill

BY JEFFREY KASZERMAN, NJCPA GOVERNMENT RELATIONS DIRECTOR

The NJCPA has joined with other major business groups and the New Jersey Civil Justice Institute to oppose legislation (S2450) barring companies that have arbitration provisions in their contracts from getting state contracts.

The bill, which prohibits the state from conducting business with any company that requires binding arbitration in lieu of jury trial, will only add to the overly litigious climate in New Jersey, hurt economic development and lead to higher prices for consumers.

Arbitration is faster and cheaper than litigation and is an especially efficient means of resolving relatively low-dollar consumer disputes. As a matter of federal law, arbitration is generally favored and enforceable through the 1925 Federal Arbitration Act (FAA).

The U.S. Supreme Court has held that the FAA precludes states from disfavoring arbitration. It is doubtful that S2450 would meet the standards of existing Supreme Court precedent, and there is no question it would be bad public policy.

Preserving individualized treatment of disputes over class actions works to the benefit of consumers. Arbitration is a more efficient means of addressing consumer disputes. Consumers receive equal or greater recoveries in arbitration at lower cost.

The incentive structure of class actions, on the other hand, encourages self-dealing to the benefit of the attorneys bringing claims at the expense of the class.

PROTECTING PROFESSIONAL BOARD MEMBERS FROM UNFAIR LIABILITY EXPOSURE Members of professional and occupational boards across the country find themselves open to greater liability exposure in light of the 2015 U.S. Supreme Court ruling in North Carolina State Board of Dental Examiners v. F.T.C. The ruling effectively limits the conditions under which members of a state professional regulatory board (such as the New Jersey State Board of Accountancy) may claim immunity from antitrust laws.

The ruling leaves members of professional boards at risk of being personally sued for the actions they take as board members. This presents a problem not only for individual board members, but for the professions as a whole. Left unaddressed, this court decision could lead many knowledgeable volunteer board members who provide invaluable expertise to the state to resign. It could also lead to many potential board members refusing to consider sitting on a board.

The NJCPA is working with Assembly Majority Leader Louis Greenwald to shape legislation that would protect board members from unfair liability exposure and increase their awareness of what might constitute antitrust actions.

MINIMUM WAGE BALLOT QUESTION STALLS An effort by leading Democratic lawmakers to pass legislation that would have put a minimum wage hike ballot question up for a vote in November 2017 has stalled. The soonest it could come to a public vote is now November 2018.

The issue stalled because Democratic leaders in the Assembly and Senate had different views on what the constitutional amendment should do. Assembly Speaker Vincent Prieto wanted to phase in a $15-per-hour wage for all minimum wage workers by 2022. Senate President Stephen Sweeney, who represents a rural part of the

state, supported a gradual $15-per-hour wage for everyone except farm workers and minors, who would earn $10 per hour.

The NJCPA and other business groups in New Jersey have come out against the proposal to amend the constitution to hike the minimum wage. They believe that amending the constitution is an inappropriate way to pass legislation of this nature and that it would hit small businesses very hard and lead them to cut jobs.

“While we appreciate the Legislature’s efforts to help working families, we believe increasing the minimum wage and imposing another mandate on businesses will have a particularly negative impact on Main Street and small businesses throughout the state,” said NJCPA CEO and Executive Director Ralph Albert Thomas, CGMA. “Members of the NJCPA work with thousands of small businesses across the state, and those CPAs tell us that their clients will only have two choices in order to afford a $15 minimum wage: reduce their workforce or pass on the increasing cost of their goods, services and products to consumers,” he added.

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NEW JERSEY CPA | MARCH/APRIL 2017

13

BECOMING A CPA

Earn an MBA to Strategically Meet the 150-Credit-Hour Requirement

BY ASHLEY ELMORE, PH.D., GEORGIAN COURT UNIVERSITY

Everyone knows that it’s not easy to earn the CPA designation — which is why it’s so highly regarded. The requirements are stringent, and the four parts of the CPA exam are difficult to pass. It typically takes 400 hours to prepare to take the exam, not to mention the time and investment needed to meet the 150-credit-hour requirement. One might wonder if it’s worth it.

THE ROI OF THE CPA LICENSE An article published in the Journal of Accountancy in 2016 entitled “CPA Credential Delivers High Value” discussed the significant return on investment (ROI) of obtaining the CPA designation. Based on data Robert Half publicly makes available on CPA and non-CPA salaries, the consumer price index and other indicators, the authors found that the lifetime earning premium (LEP) for a 22-yearold CPA working for a large company is $981,720 more than a non-CPA associate if they both work until age 65. When the time and cost associated with passing the CPA exam and maintaining the certification throughout one’s career was taken into consideration to calculate the net present value (NPV) of the designation, the 22-year-old CPA would still realize an ROI of $861,888. CPAs working for small or medium-sized companies will generally realize a lower NPV since these businesses generally pay less money, especially at an entry level.

WHY AN MBA? The AICPA increased the number of credit hours to qualify for certification because CPAs are more than accountants today.

CPAs are trusted advisors upon whom clients rely to guide them in many areas of their business. This demands that CPAs are knowledgeable in a wide variety of business disciplines including management, economics, operations, finance, information technology, human resources, business law and marketing.

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Individuals with a Master of Business Administration (MBA) degree are better prepared to meet the ever-increasing demands of today’s global economy. “MBA programs focus on timely and relevant business issues,” says Janice Warner, Ph.D., dean of the School of Business and Digital Media at Georgian Court University. “Students work with businesses on real concerns so that they learn how to approach a problem from a multi-disciplined perspective. MBAs are trained to look beyond the obvious to determine the underlying cause of a situation and deliver viable solutions.

A CPA who is also an MBA will therefore provide more value to clients.”

“Professionals who hold both the CPA and MBA designations can increase their LEP even more,” adds Warner. Each designation that a professional holds will typically increase his or her salary by at least 10 percent. This is just one reason why you should consider a graduate degree to meet the 150-credit requirement. Many MBA programs require 36 to 48 credits to earn a degree.

One of the major issues accounting firms face is the lack of available talent to transition current leadership to the next generation. With so many partners approaching retirement in the near future, firms are taking several approaches to solve this problem. While many firms are

merging, others are investing in training in the areas of leadership, teamwork, business development, communication and presentation skills, and business writing.

In addition to subject matter expertise, MBAs work in teams and learn leadership as well as soft skills. This makes MBAs more valuable to their employer.

CPA candidates have many options to meet the 150-credit requirement. These include taking general interest classes at a community college, continuing to study at an undergraduate level, or electing to take a CLEP exam to qualify for credits.

Although these alternatives may be easier and cost less money, they may not be as strategic as earning an MBA. Ashley Elmore, Ph.D., is the MBA director and an assistant professor of marketing and management at Georgian Court University. She can be contacted at 732-987-2165 or aelmore@georgian.edu.

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BUSINESS ADVISORY SERVICES

Saving Your Bacon: Guidance on Record Retention

BY PAULA VUKSIC, CPA, CITRIN COOPERMAN

The safety of company records and data is paramount to the survival of any business.

Disasters happen. Minimizing the loss of data can mean the difference between staying in business and losing the business.

As professional advisors, you cannot overstress to your clients that having access to back-up data can really save their bacon.

There are, of course, other less portentous reasons to advise your clients to keep and retain their company records.

These include something as simple as access to bank statements or cancelled checks, without having to pay retrieval fees, or having the ability to respond to record requests during an audit or other business transaction.

Having a record retention policy can really help a business owner stay on top of what paperwork they ought to keep, how long specific records should be kept, and how to store and retrieve their business data. Electronic document imaging is the preferred method of data storage, replacing paper file cabinets and large storage areas.

There are myriad software options that not only scan, organize and store records, but automatically convert tax returns, bookkeeping data, work papers and other documents to PDFs and save them in a virtual filing cabinet.

WHICH RECORDS TO KEEP Some records should never be thrown out and will instead become part of the business permanent file. These include tax returns, legal documents, trust documents, mortgage satisfaction letters, vital records and pension records. Other records have a certain shelf-life. Advise your clients to gather all records and sort them by year and then type; this will help when they want to start shredding.

A business owner should keep all records that relate to running their business — especially financial records such as original gross receipts, purchase invoices, cancelled checks and expense statements.

A business should have all the expenses sorted by vendor or category and separated

TABLE 1 RETENTION PERIOD

TYPES OF DOCUMENTS

3-4 Years

Bank deposit slips and reconciliations, interim financial statements, sales and vendor invoices, depreciation schedules, employee personnel records1, and travel, entertainment and gift expenses — subject to extra scrutiny (see IRS Publication 463)

7 Years

Accounts payable and accounts receivable ledgers, canceled checks (except as shown in permanent records), bank loans (after payoff ), bank statements, expired contracts, employee payroll and time records, insurance records, inventory records (except LIFO), expired leases, payroll tax records, mortgage payoff

Permanent

Annual audited financial statements, canceled checks (for tax payments, fixed asset purchases, etc.), chart of accounts, company minutes, corporate stock records, general ledgers, IRS audit reports, IRS elections, legal correspondence, LIFO inventory records, real estate records (appraisals, purchase and sell records), retirement plan reports, tax returns and work papers, trademark registrations

into years. Travel, entertainment and gift expenses are subject to extra scrutiny — see IRS Publication 463, Travel, Entertainment, Gift and Car Expenses.

Other sources to consider protecting include voicemail messages, faxes, emails, instant messages, document images, electronic working papers and paper documents. If a company’s policy does not cover all of these areas, the policy should be reviewed and updated.

Now how long should a client keep these records? Well, it depends.

located at finance.duke.edu/accounting/ gap/m200-240.php. IRS Publication 583, Starting a Business and Keeping Records, is a good resource as well for more details on recordkeeping.

HOW LONG RECORDS SHOULD BE KEPT A company’s record retention policy must address how long records need to be maintained. This depends on the types of documents and any laws or regulations that define the holding period. Since some rules differ from state to state, CPAs should consult with their legal counsel on these items. Table 1 provides recommended retention periods for various document types. A more comprehensive list is

Paula Vuksic, CPA, MST, is a tax partner at Citrin Cooperman specializing in high net worth individuals, closely held businesses across a range of industries, and estates and trusts. She can be reached at pvuksic@citrincooperman.com.

1 Employment tax records should be kept for four years after filing the fourth quarter for the year. This includes employee information (names, addresses, social security numbers and dates of employment) as well as tax deposits and returns.

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NEW JERSEY CPA | MARCH/APRIL 2017

15

CORPORATE ACCOUNTING

The Immeasurable Value of Key Performance Indicators

BY DEBORAH A. NAPPI, CPA, SAX LLP

As you progress through the year, do you know if your organization is on track to meet the strategic goals put in place at the beginning of the year? The purpose of annual goal setting is not only to establish objectives but also to achieve them. A key measurement of goal accomplishment is performance, and that’s where key performance indicators (KPIs) come in.

KPIs are predictive tools designed to track a company’s performance over time and determine if the company has made progress towards its declared goals. The reporting of these measurements is critical to both understanding an organization’s business performance and making decisions on how to improve or modify the current systems.

COMMON STRUGGLES Most managers and executives would agree that KPIs are beneficial measurement tools.

However, several universal struggles often impede their effectiveness: yy KPIs only measure efforts, not actual results. yy Many goals are too intangible or visionary, making it difficult to tie them to measurements. yy Many managers encounter resistance and pushback from the staff responsible for tracking the measurements. yy Even when performance improvement efforts are successfully rolled out, they often fizzle throughout the organization over time. yy It can be particularly frustrating when the implementation process is costly and the reporting yields no significant insights.

Although these obstacles may make the KPI process appear daunting, the benefits of tracking them far outweigh the challenges. The key is to identify the right measures and align them with the organization’s overall strategy.

BEST PRACTICES The first step is to develop KPIs specific to your organization. Spend time with your team to determine which performance

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areas are worth tracking, and then select the appropriate metric for each goal and objective. Get “in the weeds,” but keep the desired outcomes in sight. And always make sure the goals are clear and specific enough to be measured.

The choice of which KPIs to utilize is unique to the industry in which you operate as well as the strategic plan of your company. In some situations, it may be appropriate to report separate KPIs for each segment of a business rather than the business as a whole.

Assess measurements of performance over a period of time in order to provide management with useful information.

Being deliberate about what is measured, and measuring it well, will help you achieve goals much more quickly.

REAL-WORLD EXAMPLES As a CPA focused on the healthcare industry, I spend time reviewing monthly KPIs with physician practices. New value-based payment models result in additional compliance measures, as well as the need to submit performance metrics to insurance payors in order to obtain greater reimbursements.

Declining reimbursements from these payors are resulting in diminished cash flow for physician practices. At the same time, higher deductible plans have resulted in greater patient responsibility and increased responsiveness by practice managers to manage additional patient account receivables.

All of these elements of today’s healthcare landscape make it even more essential to track performance in this industry.

Quarterly meetings with my clients are focused on using KPIs to manage cash flow more efficiently, benchmark their practices against their peers and analyze account receivables.

Combining the analysis of aging accounts receivable with the reimbursements from payors enables us to determine if there are internal issues that would impact cash flow, such as claim denials, reimbursement problems with specific payors and issues with the management of patient

responsibility. Once these determinations have been made, recommended corrective measures and KPIs can be utilized to shed light on the underlying factors.

CONCLUSION It is important for individuals involved in the measurement process to understand that the purpose of tracking KPIs is to improve the processes of the organization and not to judge the performance of the individuals involved. Continually evaluate and modify KPIs to ensure that they are relevant to the organization’s overall strategic and operational plan.

Deborah A. Nappi, CPA, M.S.T., is senior manager for the health care industry at Sax LLP. She is a member of the NJCPA Federal Taxation Interest Group and can be reached at dnappi@saxllp.com.

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FIRM & PRACTICE MANAGEMENT

Winning the Staff Recruitment War

BY RACHEL ANEVSKI, MATTERS OF MANAGEMENT

Recruiting has become more challenging over the last few years. Organizations have dedicated more and more resources to build a pipeline of quality resumes and develop an internal and external approach on how to gain the market share of talent.

It’s a war, some say, attracting the best of the best to your doorstep. Only a select few have figured out the secrets to unlocking the mystery of recruiting.

BRING HR AND MARKETING TOGETHER The first attack on recruiting happens in-house. Determining who is responsible for recruiting is a key ingredient in figuring out your firm’s recipe for recruiting success.

When an organization has a lock-step marketing and human resources recruitment program, results are often faster and more congruent. Many organizations do not see value in having their marketing leaders and human resources leaders work together in this approach. This is a huge miss. Building a program that markets and attracts talent in addition to one that attracts prospects is a sure way to get more candidates interested in your opportunities. Start by collaborating on a job advertisement.

INVOLVE ALL EMPLOYEES Another way your organization can win out over competitors is to have multiple people on the lookout for talent. Many organizations believe it to be the sole responsibility of the human resources department to attract and recruit new hires.

Everyone in the firm should be involved in the recruiting process especially if you aim to be a high-performing team united in combatting your competition. Having a recruiting incentive program is just one of the ways to involve your employees in pursuing talented people like themselves to come and join the team. Another way is to train and involve your staff in the recruiting process; perhaps sending them out to local colleges or leveraging personal social media venues to further pursue candidates. The more people participate and communicate

openings, the more times your company name gets heard, and the more likely your ideal candidate will take future steps closer to you.

CONSIDER OUTSOURCING Another savvy way to be the first to learn of a candidate who fits your placement is to use recruiting partners. Historically, recruiters have earned a poor reputation. It is true that there are some leech-like recruiters, but there are also expert recruiters.

Some companies engage multiple recruiters so as to create a swarm of bees searching for their honey candidate. Others take a more precise approach and partner with a few select talent experts that bring them higher-quality candidates who have better retention rates. The success of a recruiter is not dependent upon how many candidates that they can provide you, rather the quality and stay rate of those candidates.

ONBOARDING IS CRUCIAL While there are several other recruitment hacks, there is one last strategy to ponder: the success of your new-hire onboarding.

Both active and passive candidates have serious reservations about starting a new role with a company that has a lackluster approach to onboarding. You have approx-

imately 12 weeks before a new employee loses the “new” and becomes culturally affected by your organizational ways. The programming for these first 12 weeks is imperative as it determines the success and stay rate of your new candidate. Often times a new recruit will speak to many people about their new role and new company. Consider all the conversations that the new recruit could have: the recruiter who placed them, friends, family, peers in the profession, former clients and business owners. Consider evaluating your onboarding programs every four to six months, and get feedback from your new recruits during the process. Continued improvements in this area will undoubtedly strengthen your ability to hire the best performers.

Rachel Anevski, MAOB, PHR, SHRM-CP, is the founder and CEO of Matters of Management, LLC, a consulting and talent acquisition firm specializing in professional services. She can be reached at rachel@mattersofmanagement.com.

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NEW JERSEY CPA | MARCH/APRIL 2017

17

LAW & ETHICS

Recent Ethics Rulings

BY KENN HEASLIP, CPA, LOSCALZO ASSOCIATES, LTD.

Since the codification of the AICPA Code of Conduct (aicpa.org/codeofconduct) was issued in early 2014, the AICPA has released several updates, some of which are significant.

CONFLICTS OF INTEREST The codification was a clarity project with no new rules introduced at the time.

Almost immediately, the Professional Ethics Executive Committee (PEEC) issued revisions to the conflicts of interest rules which also became effective in 2014. Under the revised rules, the threestep process of resolving conflicts was not changed: the member (CPA) must identify the conflict, evaluate it, and then disclose it and obtain consent. The new standard defines a conflict and offers options on obtaining consent.

Conflicts are defined as events where 1) the interests of the CPA with respect to a particular matter and the interests of the client related to that matter are in conflict, or 2) the CPA provides a professional service related to a particular matter involving two or more clients whose interests with respect to that matter are in conflict. The second item is considered by many to be troublesome because they believe it pro-

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hibits CPAs from serving multiple clients in the same industry. While it is correct that having more than one client in an industry can create a conflict of interest, the issue can be resolved through disclosure and consent. The ruling offers two disclosure alternatives: specific or general.

Most CPAs are familiar with specific disclosure, and insurance companies have templates that can be used. Under this method, the CPA provides the client with circumstances of a particular conflict, including an explanation of the situation and any planned safeguards. The disclosure should be sufficient to enable the client to make an informed decision that allows them to provide specific consent. The problem with specific consent is that it often requires the CPA to disclose confidential information which is prohibited under ET 0.400.

New to this ruling is the general consent option. General consent is defined as “disclosure to clients of circumstances in which the CPA, in keeping with common commercial practice, does not provide services exclusively for any one client (e.g., in a particular market sector).” Under this method, the CPA only needs to inform the client that conflicts may arise as a result

of the CPA’s position in advising various clients. It is suggested that this type of disclosure be put in an engagement letter.

On a recent check, insurance companies are not yet offering suggested wording for such disclosures.

MERGERS AND ACQUISITIONS When firms merge, independence must be reassessed for all clients. Due to the complex issues that can arise, the PEEC issued revised interpretation 1.220.040 which became effective in 2016. Under the expanded guidance, firms must assess the employment status of firm members with clients, nonattest services rendered, communication with clients, and confidentiality issues.

DISCLOSING CLIENT INFORMATION IN CONNECTION WITH A REVIEW OR ACQUISITION OF THE CPA’S PRACTICE In a related ruling, the PEEC issued interpretation 1.700.050 regarding the need for CPAs to maintain confidentiality in the process leading to an acquisition.

The ruling addresses the need to obtain confidentiality agreements with prospective buyers, prohibitions on disclosure of

LAW & ETHICS

confidential information in reviewed files, and that such review of files cannot be used to the advantage of a prospective buyer.

In addition, after the acquisition, new ET 1.400.205, Transfer of Files and Return of Client Records in Sale, Transfer, Discontinuance or Acquisition of a Practice, includes new rules on notifying clients as to the acquisition in writing and gives them 90 days’ notice before records are transferred.

This ruling will be effective June 30, 2017.

BREACH OF INDEPENDENCE New procedures related to late discovery of breach of independence became effective in March 2016. ET 1.298 offers extensive guidance on procedures that should be followed if a breach is discovered subsequent to the start of the engagement. Breaches that result in significant threats are broken out

into two categories: 1) situations in which a partner or professional employee of the firm breaches an independence interpretation, and 2) situations in which the lead attest engagement partner or an individual in the position to influence the attest engagement either committed the breach or knows of a breach and fails to ensure the breach is properly communicated. The ruling emphasizes the severe nature of such breaches, addresses the evaluation of the breach process and the need to communicate it to the client, and recognizes that often the best solution may be to withdraw from the engagement.

ruling, verbal disclosures were acceptable.

This ruling should have no impact on New Jersey CPAs since New Jersey law already requires written disclosure.

COMMISSIONS AND REFERRAL FEES Effective January 31, 2017, CPAs must disclose in writing any commissions and referral fees that they receive. Prior to this

CAPSTAN our strength. your tax savings.

Kenneth A. Heaslip, CPA, M.B.A., M.S., CGMA, is the director of operations for Loscalzo Associates, Ltd. He is a member of the NJCPA Professional Conduct Committee, Accounting & Auditing Standards Interest Group and several other committees and interest groups. He can be reached at kennh@njcpafirm.com.

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19

TAX

Advising Clients on Residency Issues

BY DIANE CAPOBIANCO, CPA, MURPHY, MILLER & BAGLIERI, LLP

Many CPAs encounter this common scenario: A client spends their working years in New Jersey, and, upon retirement, they relocate to another state. It may be the lure of warmer weather or the desire for a change in lifestyle as a retiree. Often, a move is at least partly motivated by a desire to lower taxes, particularly income taxes.

CPAs must carefully advise clients of the potential risks of relocating, or they may be surprised to find that they did not achieve the tax savings they anticipated.

DETERMINING THE CLIENT’S “TAX HOME” For purposes of determining a person’s “tax home” for state income tax purposes, it is important to understand the concept of domicile. A person’s domicile is the place that they consider their permanent home.

You can only have one domicile, while you may have more than one place to live. A person’s domicile does not change if their move is only considered temporary. This is true even if the person leaves the state for an extended period of time. A person’s current domicile continues until a new one is established.

A person’s state of domicile is important, because this is the state where they must report all of their income, regardless of where the income was earned. If a person has income that was earned in another state, they may be required to file and pay income tax in the non-resident state. To avoid double taxation, the home state generally allows a credit for income taxes paid to other states. With state tax rates varying from zero to 10 percent or more, where someone is domiciled can have a significant impact on their income tax bill.

There are many factors to consider when changing domicile. It is recommended that a person take sufficient steps to show they are establishing roots in the new state, such as registering motor vehicles and changing drivers’ licenses, registering to vote and opening bank accounts in the new state, for example. Other signs that could indicate intent to change domicile

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include purchasing property, establishing business and social connections, and choosing local doctors.

THE 183-DAY RULE In many instances, a person does not completely cut ties with New Jersey when they relocate to another state. We commonly see people keep their New Jersey residence as a second home in order to have a place to come back to when visiting family members. This is where CPAs need to be careful when advising clients. If a person maintains a permanent home in New Jersey, they are considered to be a New Jersey resident if they spend more than half their time in New Jersey (i.e. 183 days in a calendar year.) Even if proper steps are taken to establish domicile elsewhere, a person is still considered to be a New Jersey resident under this rule. This is referred to as being a “statutory resident.” The 183-day rule only applies if a person maintains a permanent home in New Jersey — whether owned or rented. A home is not considered permanent if it is only maintained for a temporary period of time.

State taxing authorities frequently conduct residency audits as a means of generating additional revenue. For a

taxpayer who is the subject of a residency audit, the burden of proof is on the taxpayer to show that they have taken sufficient steps to establish domicile in the new state.

Taxpayers should keep a detailed travel log to track their days in and out of New Jersey. A portion of a day in New Jersey is considered a full day in New Jersey for the 183-day test. An agent may request support to substantiate the day count, such as cell phone records, credit card statements, E-ZPass invoices and travel receipts.

It is important to discuss the implications of leaving the state with your clients to make sure there are no unexpected surprises if they are selected for audit.

Diane Capobianco, CPA, is a senior tax manager with Murphy, Miller & Baglieri, LLP. She is a member of the NJCPA Federal Taxation and State Taxation interest groups. Diane can be reached at dcapobianco@mmbllp.biz.

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TECHNOLOGY & INFORMATION MANAGEMENT

Mastering Email Encryption

BY ANTHONY MONGELUZO, PCS

Do you want to see your name in WikiLeaks? Of course, you don’t. And while it is almost impossible to guard against someone hacking into your system, your email is particularly vulnerable simply because of its frequent use.

The idea of email communication is basic: You send a message to someone and expect that the only person who will read it is the recipient. For accountants, email penetration could pose even graver consequences because their clients’ information could be compromised. Some organizations require encryption when dealing with HIPPA data, for example. Hackers who access an email can also steal attachments or even an entire email account.

It’s vital to assess your risk level and then take a few steps to avoid any infiltration.

Follow these basic rules: EMAIL ENCRYPTION Email encryption works by using a Public Key Infrastructure. You are in sole possession of a private key, while recipients that you deem authorized have a public key, allowing them to unscramble the emails.

Let’s take a look at two of the most popular email services: Microsoft Outlook and Google Mail. There is some built-in encryption with Outlook, but you have to tinker with the settings to improve it. Office 365 offers a service that encrypts emails. Google made a claim several years ago that the default settings for all Gmail accounts included an encryption component.

But the rub with both approaches is that encryption falls short if the recipient’s email doesn’t share the encryption setting.

If you’re using Gmail but the recipient doesn’t have the Google app, then the encryption is only partially effective. The recipient’s email, which is not encrypted, allows the message to be vulnerable.

There is a simple answer that requires minor effort and cost: Send all of your mail through a third-party server that encrypts all of your emails. Something to keep in mind is that encrpyting only some emails

may raise a red flag. This might suggest the encrypted emails have valuable information. The best insurance is to encrypt all your emails. Hackers are less likely to hang around to try and crack hundreds of individual emails.

THIRD-PARTY OPTIONS These three third-party servers offer free accounts if you are willing to accept limitations on email and storage size: yy Tutanota (tutanota.com) yy GhostMail (ghostmail.com) yy ProtonMail (protonmail.com) All three offer solid encryption that is essentially unbreakable and provides peace of mind that no one can access your messages.

Another third-party service worth a look is Barracuda (barracuda.com). It has an intuitive component that is surprisingly good. A client of mine accidentally sent payroll information, including Social Security numbers, in an email. Barracuda “saw” the information and inquired whether the sender meant to send this particular email. Thanks to that feature, my client was saved from major embarrassment. There is a button at the top of Outlook, and all you do is click on it before sending.

Another option is a temporary service like Snapmail (snapmail.co) if you’re a

Google user. Think of it as an email version of Snapchat. When an email is sent via Snapmail, the message self-destructs 60 seconds after the recipient reads it. (Even Mr. Phelps of Mission Impossible can’t retrieve it!) A minor issue is that you must hit the Snapmail button each time you send email. You might use this only for sensitive material or for clients that you feel need added privacy. Another slight issue is there is no warning of the impending self-destruction. A phone call might be necessary to warn the recipient that the email implodes.

BE PROACTIVE The greatest weakness accountants have when it comes to email security issues is procrastination. Start encrypting your emails. You’ll feel better about it, and so will your clients.

Anthony Mongeluzo is the CEO and president of Moorestown, NJ-based PCS. Contact him at Anthony@helpmepcs.com or follow him on Twitter @PCS_AnthonyM.

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NEW JERSEY CPA | MARCH/APRIL 2017

21

NJCPA NEWS

Make a Difference: Be a Mentor Mentor an NJCPA scholarship recipient throughout his or her college career, and encourage them to become a licensed CPA. As a mentor, you will be asked to: yy Connect with your student two or three times per semester via email, phone, Skype, Facetime or in person over a tall latte with caramel drizzle. We’ll provide some ideal discussion topics. yy Let us know how it’s going when we check in with you.

Jodi D. Kleuskens, CPA, of WithumSmith+Brown LLP is currently a mentor to NJCPA scholarship recipient Siena Chang from Annandale, a sophomore at University of Illinois at Urbana-Champaign.

They connect via email once a month. “We discuss anything from college classes, roommates, living situations between dorms/ apartments, studying abroad, scheduling packing, participating in other events on campus, college clubs,” says Jodi. They also meet for lunch once a year.

“Jodi is always there to listen. I send her emails about classes and my college experience overall,” Siena says. “She has given me good advice about career fairs and helped set up job shadows. Having a mentor is very valuable. Her experiences and advice will help me develop my own career and give me an idea of what my career might look like in the future.”

While Jodi had guidance from a high school teacher and her family as she prepared for college, she wishes she had someone to counsel her as she searched for college internships and prepared for the CPA exam. “My dad always told me, ‘Just keep learning and you can get there.’ I want to help Siena and other future CPAs keep learning,” shares Jodi.

To sign up as a mentor, add “Mentor college accounting students” to your volunteer profile at njcpa.org/volunteer by June 1, and application information will be sent to you. Students are matched with mentors

by June 30.

NJCPA Products and Services to Help Your Company NJCPA members can reduce the cost of doing business by taking advantage of these business products and services: CREDIT CARD PROCESSING yy Merchant Advocate — Get lower rates on credit card processing and eliminate hidden fees without switching credit card processors.

IT yy IV Desk — IT solution offering hosting of applications, desktops and servers, mobility, backup, and disaster recovery.

MARKETING AND COMMUNICATIONS yy PRCounts — Members receive a 20-percent discount on public relations,

marketing, branding, communications, print and website design, and engagement coaching.

PAYROLL yy ADP — Free standard payroll processing for your firm and discounts on payroll processing services for your firm’s small business clients. yy Paychex — Receive unique benefits for your firm as well as discounts on integrated payroll, retirement or HR Services for your firm’s small business clients.

SHIPPING yy UPS — Save up to 36 percent on UPS shipping services including air, international and ground services.

TAX AND ACCOUNTING PUBLICATIONS yy Wolters Kluwer — More than 175 CCH publications, including tax and accounting books, are available at a 25-percent discount.

UTILITIES yy Energy Plus —Receive 3 to 5 percent cash back on electricity and natural gas supply charges each year.

Visit njcpa.org/marketplace to learn more about these money-saving products and services.

Nominations Being Accepted for the Diversity and Inclusion Impact Award The NJCPA is seeking to recognize individuals who demonstrate and champion diversity in the hiring, retention and promotion of CPAs and in the elevation of accountants to leadership positions. Nominees for

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MARCH/APRIL 2017 | NEW JERSEY CPA

the Diversity and Inclusion Impact Award can be NJCPA members as well as nonCPAs who meet the award criteria.

For more information and to submit a nomination, visit njcpa.org/awards.

Nominations are due by May 19, and winners will be announced on June 15 at the NJCPA Convention & Expo and on the NJCPA website.

CLASSIFIEDS

CLASSIFIED ADVERTISING

MERGERS/ACQUISITIONS

Seize a merger acquisition opportunity with benefits for you. We are looking for firms ranging from $300,000 to $5,000,000 eager to combine forces as we continue to grow across Northern NJ, Westchester and the Hudson Valley region. Goldstein Lieberman & Company is ideally situated to service all types of industries. Visit www.glcpas.com; email me, Phillip Goldstein, CPA, managing partner, philg@glcpas.com; or call me at 800-839-5767 to have a confidential conversation.

Retirement-minded Bergen County CPA, looking for a CPA to take over my firm.

Gross $750K+. Must have strong tax background. Small existing client base is a plus. Excellent opportunity. Reply to File No. 1270.

Traphagen & Traphagen CPAs, a wellestablished firm in Bergen County with diverse client base and credentialed support staff is seeking small firms and sole practitioners for acquisition or merger. We are looking for firms ranging in size from $300K to $700K. This is an opportunity to align with a quality peer- reviewed firm, while continuing to provide your clients with exceptional service. To confidentially discuss this opportunity please email us at carolynn@tfgllc.com.

Morris County peer-reviewed firm seeking sole practitioner able to take on per diem work from us and office sublet.

Affiliation or partnership will be considered. Great opportunity for motivated

person. Email contact info to rvoorman@ gorvcpa.com to discuss.

New Jersey practices for sale: gross revenues shown: S. NJ/DE valley area CPA $1.3M; Mercer Co. CPA $485K; Monmouth Co. shoreline CPA $100K. For more information, call 800-397-0249 or visit www.accountingpracticesales.com.

Morris Merker and Company, LLC, a peer reviewed CPA firm in Passaic County, is seeking to acquire/merge with retirement-minded CPA practitioners. Reply in confidence to jpetrella@mmccpanj.com.

New Jersey Practices for Sale: Mercer Co. CPA, 485K gross, 80 percent revenues derived from businesses, strong fee structure, cash flow about 50 percent. For more information, call 800-397-0249 or visit www. accountingpracticesales.com.

Retirement-minded Middlesex County CPA, looking for CPA to take over my firm. Gross $450K+. Must have strong tax background. Small existing clientbase a plus. Reply to File No. 1290.

CPA/ABV looking for association with Monmouth/Ocean County firm with future merger/acquisition. 400k+ non-tax practice, in business since 1981. Reply to File No. 1291.

Replies to ads with files numbers should be sent to: File_____, New Jersey CPA Classifieds, 425 Eagle Rock, Suite 100, Roseland, NJ 07068. To see additional classified listings or to place an ad, visit njcpa.org/classifieds.

ADVERTISERS INDEX 11 ACCOUNTING PRACTICE SALES accountingpracticesales.com 19 CAPSTAN TAX capstantax.com 5 PAYCHEX payx.me/njcpa-akc C2 RUTGERS UNIVERSITY business.rutgers.edu/finmaccy C4 RUTGERS UNIVERSITY-CAMDEN pmst.camden.rutgers.edu

CORRECTIONS

Please note the following corrections to information in the January/February 2017 issue of New Jersey CPA: yy “The Changing CPE Landscape” (pages 4-5) inadvertently omitted a portion of the current New Jersey CPE requirements. On page 5, the first sentence of the second bullet point should read: “The 120 credits of CPE must consist of at least 72 credits in technical subjects, including 24 credits in accounting and auditing for those in public practice.” yy “Governor and Legislature Agree to TTF Funding and Tax Reform Compromise” (page 11) incorrectly states that the new personal exemption for veterans goes into effect beginning in tax year 2016. The exemption is effective beginning in tax year 2017; it does not apply to 2016 income.

NEW JERSEY CPA | MARCH/APRIL 2017

23

MEMBER STORY

pants follow her improvisational lead by participating in scrimmages, drills and exercises that keep them active, engaged and having fun. Plus, she says the parents enjoy watching their kids let loose and enjoy themselves. But that doesn’t mean the role she plays doesn’t have its occasional difficulties: “The challenge is to get the kids focused. Sometimes they want to sit with their parents and it’s hard to keep them engaged. It’s about trying something else. You can’t do the same thing for too long because they get bored. The hardest thing is just keeping them going for an hour.”

A CPA’s Love for Basketball Benefits Kids With Special Needs

BY ELIZABETH QUIÑONES, NJCPA CONTENT SPECIALIST

For the past 13 years, Melissa Soranno, CPA, has volunteered for the Challenger Division of the Toms River Basketball Association (TRBA), facilitating basketball activities for children with special needs.

Melissa’s love for basketball started at age six. She went on to serve as team captain of her eighth grade team, play center and forward in high school, and referee her town’s third grade girls’ basketball team.

When Melissa was in high school, her father and another TRBA board member spearheaded the Challenger program.

They wanted to provide a much-needed basketball program for kids in the community and for those with special needs.

“They needed people to help, volunteer and coach. At the time, I was on the girls’ varsity basketball team at Toms River High School North. My dad was able to get

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MARCH/APRIL 2017 | NEW JERSEY CPA

permission from my coach to let the team volunteer for the program,” says Melissa.

“To this day, the team still volunteers.”

Melissa even continued to volunteer while attending Rowan University. “I would come home every weekend to help out. I liked doing it. It was a lot of fun. And when I graduated college, I stuck with it,” says Melissa.

Today, Melissa works with students at TRBA who have developmental challenges, ranging in age from four to 18.

She shares that one of her favorite things to do is select Christmas gifts for the kids and have Santa Claus surprise them with the presents.

AN ADAPTABLE APPROACH Melissa has developed an adaptable system to engage the kids. The partici-

THE LINK BETWEEN BASKETBALL AND ACCOUNTING Melissa’s approach allows her to thrive in the world of accounting. The adaptability skills she has honed while working with children who have special needs helps her manage the sometimes unpredictable world of accounting.

But Melissa didn’t always know she wanted to be an accountant. During high school and college, she did administrative work for a real estate development company. When management discovered that the bookkeeper was embezzling money, Melissa took over bookkeeping responsibilities.

“I kind of stepped in as the accountant and helped uncover the money the previous bookkeeper took,” she says. This incident, along with taking business classes, sparked in Melissa an early fascination with forensic accounting.

She worked alongside the company’s public accounting firm to uncover the embezzlement scheme. At the end of the engagement, Melissa recalls, “The accounting firm offered me an internship. I laughed at them saying ‘I don’t want to be an accountant!’” But she ended up accepting the internship, and she worked at the firm for seven years.

Now, Melissa’s accounting journey has taken her to Bessemer Trust Company where she serves as associate vice president and senior accountant. She continues to incorporate the ability to change things up with the kids in the basketball program and in her new role overseeing staff and advising clients.

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