September/October 2018

S E P T E M B E R /O C TO B E R 2 01 8

MANAGING YOUR CAREER AT EVERY LEVEL Page 4 ENTRY-LEVEL ADJUSTMENT Page 6 MANAGER MASTERS Page 8 DIRECTING THE DIRECTORS Page 8 EXECUTIVE EXCELLENCE

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contents S E P T E M B E R /O C TO B E R 2 01 8

THE MAGAZINE OF THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

Managing Your Career at Every Level RALPH RALPH ALBERT ALBERT THOMAS, THOMAS, CGMA ChiefCPA Executive (DC), Officer CGMA &Chief Executive Executive Director Officer rthomas@njcpa.org & Executive Director rthomas@njcpa.org ELLEN C. McSHERRY, CGMA Chief ELLEN Operating C. McSHERRY Officer emcsherry@njcpa.org Chief Operating Officer emcsherry@njcpa.org DON MEYER Chief Marketing DON MEYER Officer dmeyer@njcpa.org Chief Marketing Officer dmeyer@njcpa.org RACHAEL BELL Managing RACHAEL Editor BELL rbell@njcpa.org Managing Editor rbell@njcpa.org KATHLEEN HOFFELDER KATHLEEN Content Editor HOFFELDER khoffelder@njcpa.org Content Editor khoffelder@njcpa.org MARC L. REIN Multimedia MARCSpecialist L. REIN mrein@njcpa.org Multimedia Specialist mrein@njcpa.org

THE THE NEW NEW JERSEY JERSEY SOCIETY SOCIETY OFOF CERTIFIED CERTIFIED PUBLIC PUBLIC ACCOUNTANTS ACCOUNTANTS 425 425 EAGLE EAGLE ROCK ROCK AVENUE AVENUE SUITE SUITE 100, 100, ROSELAND ROSELAND NJNJ 07068 07068 973-226-4494 973-226-4494 | NJCPA.ORG | NJCPA.ORG #NJCPAMAG #NJCPAMAG READ READ NEW NEW JERSEY JERSEY CPA CPA ONLINE ONLINE ATAT NJCPA.ORG/ NJCPA.ORG/ NEWJERSEYCPA NEWJERSEYCPA DEDE S IGN/ SIGNP/RODUCTI P RODUCT ON I ON / / A DVERTISING ADVERTISIN G THE THE YGS YGS GROUP GROUP 3650 3650 WEST WEST MARKET MARKET STREET STREET YORK, YORK, PAPA 17404 17404 Advertising Advertising Contact: Contact: LAURA LAURA GAENZLE GAENZLE ACCOUNT ACCOUNT EXECUTIVE EXECUTIVE 717-430-2351 717-430-2351 laura.gaenzle@theygsgroup.com laura.gaenzle@theygsgroup.com

4 Entry-Level Adjustment

The first tasks given to an entry-level accounting professional tend to be more tedious in nature than they are strategic, but the right mindset regarding the tasks can help. The more you put into an entry-level position, the more you and your employer will get out of it.

Employees need to learn as much as they can in these positions.

6 Manager Masters

8 Directing the Directors

Directors, more than any other group, are known as thought leaders and industry experts in their field. Most of this comes from their title, years in their profession, firm name or community activities. But what’s the best way to become a thought leader if you are not already one?

9 Executive Excellence

Managers have acquired ways to survive a grueling tax season while mastering tips to enhance client relations. In short, they have figured out how to retain clients and keep their department staff happy at the same time. Find out how you can do this balancing act too.

2 CLOSE UP

NJ Budget to Hurt Economy Over Long Term, Say NJCPA Members

Executives, typically managing partners in CPA firms or a member of the C-suite in corporations, are constantly thinking about the company’s next move, new clients or what advisory service, perhaps, is gaining more ground. But too often succession planning or even retirement plans fall on deaf ears.

13 BUSINESS ADVISORY SERVICES

17 GOVERNMENTAL & NONPROFIT

Deal or No Deal? M&A Due Diligence Could Make All the Difference

High-Impact Financial Reporting

10 ACCOUNTING, AUDITING & ATTEST

14 CORPORATE ACCOUNTING

Audit? Review?

Compilation? Explaining the Difference to Clients

Blockchain Technology and Its Impact on Corporate Entities

11 ADVOCACY & LEGISLATIVE ISSUES

15 FIRM & PRACTICE MANAGEMENT

U.S. Supreme Court Overrules Longstanding Sales Tax Nexus Requirements 12 BECOMING A CPA

Get to Work! Tips to Fulfill the CPA Experience Requirement

Compete on Value, Not Fees 16 FORENSIC ACCOUNTING, LITIGATION SERVICES & BUSINESS VALUATION

Detecting and Preventing Fraud in Small Businesses

18 TAX

Tax Incentives and Credits for New Jersey C Corps 19 TECHNOLOGY & INFORMATION MANAGEMENT

Ransomware Awareness and Prevention 20 NJCPA NEWS

yy NJCPA Volunteer Award Recipients yy 2018 Kickball Tournament a Success 31 CLASSIFIEDS

32 MEMBER STORY

Kelvin Smith, CPA, MBA

CLOSE UP

NJ Budget to Hurt Economy Over Long Term, Say NJCPA Members

BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR

More than 75 percent of New Jersey Society of CPAs members who were surveyed in July said that New Jersey’s 2019 budget will have a negative impact on the state’s economy. Thirty-nine percent felt the economy will get “marginally worse,” and 37 percent said it will get “significantly worse.” Fourteen percent said it will have no impact, and only 10 percent felt the economy will see some degree of improvement under the new budget.

The budget consists of $37.4 billion in spending, to be funded in part by instituting a tax increase from 8.97 percent to 10.75 percent on taxpayer income of more than $5 million. The budget also altered the corporate business tax by including a surcharge of 2.5 percent for the next two years and 1.5 percent for the subsequent two years for corporations with income of $1 million or more. No change was made to the sales tax rate though a tax will be levied on e-cigarettes and shortterm lodging, such as Airbnb.

NJCPA survey respondents cited several reasons why the budget plan will not help the state’s economy over the long term.

Taxing millionaires could lead to more residents in high-income brackets leaving the state, said respondents. As one noted, “the outward migration of wealth will continue, and the long-term effect will be disastrous.”

Survey participants also said the tax increases on corporations will not help the hiring process or provide incentives to remain in the state. It will likely make the state less friendly to investors and businesses.

Those in favor of the budget plan supported Governor Murphy’s decisions

to leave the sales tax unchanged, provide more support for transportation in the state and increase the state property tax deduction cap from $10,000 to $15,000. The budget also calls for additional money to aid public schools, more property tax relief and more cash to NJ Transit, in addition to instituting a 90-day tax amnesty program that is expected to raise $200 million.

POLLING IMPORTANCE An NJCPA poll in April regarding tax amnesty was used as an information source for state legislators in amending that bill to include more tax years in the amnesty program.

As an organization committed to engaging our members, NJCPA welcomes participation in its surveys/polls. As Ralph Albert Thomas, CEO and executive director of NJCPA, explains: “our polls lead to action in more ways than one. We use them as important sources of information to present to New Jersey legislators and to our own board. The more members who participate in the polls, the more their voices are heard.”

READ MORE NEW JERSEY BUDGET NEWS AND RESOURCES njcpa.org/njbudget

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. 71 Copyright © 2018 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.

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SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

NJCPA CAREER RESOURCES

Find the Tools You Need to Succeed on Your Career Path We’ll help you reach your full potential.

NJCPA.ORG/CAREER-RESOURCES

EXECUTIVE

DIRECTOR

MANAGER EARLY CAREER

STUDENTS

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MANAGING YOUR CAREER AT EVERY LEVEL — GETTING THERE, STAYING THERE AND ADVANCING ONWARD

By KATHLEEN HOFFELDER

NJCPA CONTENT EDITOR

Accountants, particularly certified public accountants (CPAs), readily give all kinds of advice to clients, whether they are just starting out in their businesses or close to retirement. But they don’t always follow that advice for themselves, make sure they are on the best career path or even know how to obtain the skill set necessary to get there. Their employers may try to help their professional development along, but too often they do not know how to effectively train their employees or have the time to do it. As the Harvard Business Review article “6 Ways to Take Control of Your Professional

Development if Your Company Doesn’t Care About It”1 explains, companies would do more to foster career development and provide resources and incentives for managers to make employee development a priority, but the reality is that the bigger burden is on employees. It states that “workers at all levels must learn to identify their weaknesses, uncover their blind spots and strengthen their skills.”

So how can accounting professionals do just that? By managing their career at every level. Here are some considerations at each stage.

ENTRY-LEVEL ADJUSTMENT

Entry-level employees can either be the happiest or the ones who complain all the time. The first tasks given to an entry-level accounting professional tend to be more tedious in nature than they are strategic, but having the right mindset regarding the tasks can help. Managers and supervisors can present the daily tasks in a positive manner, reward project fulfillment and expand the function to engage employees. In short, the more one puts into an entry-level

CONTRIBUTORS In order of appearance

DR. SEAN STEIN SMITH, DBA, CPA, CMA, CGMA, CFE Assistant Professor Lehman College 4

DIANE OPUDA, CPA Manager RotenbergMeril

SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

EILEEN MONESSON, CPC Owner PRCounts

JANICE WARNER, PH.D. Acting Provost Georgian Court University

RACHEL ANEVSKI, M.A.O.B, PHR, SHRM-CP Owner Matters of Management

position, the more the company and the employee will get out of it.

Employees need to learn as much as they can in these positions, ask questions and start thinking about where it could lead. It’s a good time to investigate what different areas of an accounting firm or corporate department have to offer and what sort of time and energy commitment is necessary to get there. And it’s never too early to start thinking about the CPA Exam — how long it will take to pass, why it’s necessary and how to make plans to study.

“If I had to give one piece of advice to

BENJAMIN ASPIR, CPA Manager EisnerAmper LLP

ANDREA DIAZ, CPA, ABV, MST Manager SKC & Co. CPAs, LLC

anyone who is just starting out in their accounting career, I would say two words: time management,” explains Dr. Sean Stein Smith, DBA, CPA, CMA, CGMA, CFE, assistant professor at Lehman College.

“Balancing everything that CPAs have to do, including but not limited to work responsibilities and prepping for the CPA Exam, can be a challenge even for the most well-prepared and organized person.”

At this stage in life, young professionals are typically trying to adjust to new work hours, a commute, a busy tax season or simply the work culture at a new office.

SHARON BLEIBTREU Director of Human Resources Sax LLP

“Your time is your most valuable asset, and making sure that you plan out your schedule, including some time just for yourself, is essential,” says Stein Smith.

“Everything takes time, and making sure that you are focusing your efforts on the areas that provide you the biggest bang for your proverbial buck is essential.”

Diane Opuda, CPA, manager at RotenbergMeril, sees entry-level positions as a good place to start thinking about your career, not just your first job. “In the early stages of your career, it is especially important to develop opportunities for yourself.

AMY DELMAN Owner Amy Delman Public Relations, LLC

SARAH KROM, CPA Managing Partner SKC & Co. CPAs, LLC

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2018

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The supervisors in your company may not be actively considering your personal and career development, so it would be wise to take it upon yourself to take charge of it.”

What’s the best way to begin? “One way to do this is to get involved in as many projects as possible and work with as many people as possible because every project affords an opportunity to learn something new, and every person you work with has the ability to teach you something. Do not be afraid to request to be cross-trained or get involved with a project that interests you,” she says.

If there is an aspect of the company you want to learn more about, Opuda says it’s better to be proactive rather than assume you will get the same opportunity if you wait for someone else to assign or suggest it. “In most instances, your company will want to utilize you to the greatest extent possible and encourage your desire to learn and grow, so your ambition will be appreciated.” In this way, an employee will gain visibility, Opuda adds, and a company can get to know and recognize an employee’s abilities. “Gaining experience helps build confidence, and, with that, you can earn the respect and trust of your colleagues.

Remember, your employment should be a mutually beneficial relationship.”

NETWORKING 101

To the new working professional, networking can be overwhelming, depending upon what sort of introduction the employee has to it. Networking can be as simple as joining a company’s sports team, an association’s committee or a local charity. It can be fun or a means to land a job, depending on what the individual makes of it. All new employees should start to network even if they don’t see the need for such a thing at first; many individuals are often surprised at how it can lead to a new job, a new friend or a life-long colleague. As Eileen Monesson, CPC, of PRCounts says, “entry-level accountants should start attending networking events at least once a week as soon as possible and join various young professional groups, as well as local business, trade and industry associations.”

And networking is never a one-time event. “The true value of focusing on cultivating a professional network is that you will have the opportunity to develop

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solid relationships with individuals who will advance through their careers with you,” explains Monesson. “As you both are promoted to higher positions in your respective firms, you can refer more business to one another. In addition, you can learn valuable information from each other to further advance your careers.”

Timing is also important. Just realizing that networking is important is not enough. “If you wait until you are a manager or partner to start building your network, you will lose out. It is important to start early and continuously meet new people,” says Monesson.

GETTING YOUR CREDENTIALS

Although many entry-level accountants may decide to take a break from studying for the CPA Exam to focus on their job and personal lives, this is not always the wisest option, says Janice Warner, Ph.D, acting provost at Georgian Court University.

“Life might get in the way of having the time and resources to become a CPA or earn a master’s degree. It is important for accountants to have the CPA designation whether you are working in public or private accounting. You will earn more money and position yourself for growth.”

Indeed, data from Robert Half ’s latest Salary Guide for Accounting and Finance2 shows that compensation for CPAs was anticipated to increase 3.4 percent or more in 2017. As Warner points out, data shows that CPA and non-CPA salaries are not alike, with a lifetime earning premium (LEP) for a 22-year-old CPA working for a large company being nearly $1 million more than a non-CPA associate if they both work until age 65. She adds that management is impressed by employees who take the initiative to become a CPA early in their career. “These individuals are often ‘fast tracked’ and given more opportunities,” she says.

MANAGER MASTERS Managers, new and old alike, have acquired ways to not only survive public accounting or a grueling tax season, for example, but they have mastered a way to make it all work while enhancing client relations. In short, they have figured

SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

out how to retain clients and keep their department staff happy at the same time, which is never an easy task. This balancing act can make or break even the most talented managers, but those who do well typically are rewarded nicely with promotions, more clients, larger staff or simply more compensation.

“The road to becoming a manager in a CPA firm infers that you have mastered several key attributes along the way,” according to Rachel Anevski, M.A.O.B, PHR, SHRM-CP, owner of Matters of Management. “First is the ability to learn and really grasp the concepts your organization is teaching. Many effective managers are those who are great listeners and who can learn concepts quickly because the next step in their career is to become a teacher and hone in on delegation skills.”

“Now that you are a manager, you are likely five to eight years out of school. By this time, you may have had between one and three job changes as well. This is normal,” explains Anevski. First-time managers are often juggling these roles all at once, she says, which is why they must be “exquisite task managers, people managers and client managers.” And, often times, these skills are not taught, she explains, “but a skilled learner will get on board with the understanding that this triad of skills is the exact reason they have been promoted.”

As Benjamin Aspir, CPA, manager at EisnerAmper LLP notes, good managers understand rather quickly that the team matters. “In order to be an effective manager, you must come to the realization that you are no longer a ‘doer’ but are managing people. It is no longer about your individual performance but the team’s performance.” And this type of understanding is important because “as a manager you are judged by the growth of the people working with you,” he explains.

COMMUNICATION HELPS

Communication can be one of the hardest challenges for young and mature accountants alike, but for those new to the manager role, it can be even more difficult.

As Stein Smith notes, “dealing with people can be either the most enjoyable and enriching part of your job or it can be the aspect of your job that you dread the most.” Some key points he suggests are the following: 1) always be clear and objective about what you are trying to communi-

cate, 2) focus on the key takeaways and action items versus technical jargon that can be tuned out, and 3) provide a plan and roadmap of why you are doing something.”

The bottom line, he says, is if you treat people with respect, are clear and concise on your objectives, and make sure everyone on your team understands the plan, you might be surprised how well your management skills appear to improve.

Aspir agrees. To him, the best managers have the best communication skills. “Communication is critical to both the people you are managing and your superiors.”

Staff need to understand what is expected of them. Knowing how to communicate well with superiors is also important so the progress of a report can be relayed and any challenges discussed.

And the more you communicate, the better it is for everyone. “Communication is contagious. The more you communicate with your staff, the more they will communicate with you,” says Andrea Diaz, CPA, ABV, MST, manager at SKC & Co. CPAs, LLC, adding that it’s vital in order to help staff work towards their goals.

One responsibility that is essential to managing is providing meaningful and honest feedback on performance, adds Opuda.

“In delivering feedback, you should always be respectful, diplomatic and professional,” she says. In addition to contributing to company performance, she reminds that managers need to be aware that they are primarily responsible for the level of fulfillment and personal development of their team.

Though some of the feedback can be harsh, it’s often necessary. Sharon Bleibtreu, director of human resources at Sax LLP, says “it is extremely difficult to have hard conversations and provide criticism to subordinates — but it is truly necessary for the growth of the individual and productivity of the team. It is important to be respectful and thoughtful with your approach, but giving constructive feedback is vital for long-term growth.”

Opuda likens the role to that of a teacher.

“I believe that to be a successful manager, you should try to emulate a teacher because the two roles have many similarities. Like teachers, managers are tasked with sharing

their knowledge, becoming invested in other people’s success, recognizing a job well done and providing assistance when necessary,” she says. Some of the essential qualities required for effectiveness in either profession consist of patience, good communication skills and adaptability. She explains, “even though you might not have all the answers, you can use your experience to guide employees on how to go about solving problems. Above all, it is your job as a manager to be a resource for others.”

BUILDING YOUR NETWORK

What goes hand in hand with communicating to internal staff and superiors is communicating with your peers in both formal and informal settings — in other words not just networking but building your network. Most CPAs at the manager level know how to network, but they could use some advice in how to hone in on what sets them apart from all the other managers out there. “Many new managers struggle with this area for a variety of reasons,” says Aspir. “CPAs tend to be more introverted and likely uncomfortable with networking.

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But to grow as a person and a professional, you must be willing to step out of your comfort zone. I once heard at a great line at a seminar, ‘Life starts at the end of your comfort zone,’” he said.

What’s the best way to build a network?

Public speaking engagements are a good place to start, according to Aspir. These will help establish one’s brand and further help the company’s brand and develop business, he says. Getting involved with local charities and joining their board can also help.

MAINTAINING BALANCE

For managers, balance becomes a priority especially when you add in additional extra-career/curricular activities into the mix. “It is because of this that client relationship building and expansion of your network is critical. Having a great team as well as support and/or a strategic referral source makes networking, communicating and client development feel less like work/ sales and more like a hobby and a joy to be around people who get you,” says Anevski.

And for those millennial managers, balancing work and life activities is often one of the most important skills to have.

Millennials may often have to ask for more flex time on the job, for example, but if granted, they consider it a major perk.

According to the 2018 Deloitte Millennial Survey3, “among those who intend to stay with their current employers for at least five years, 55 percent say there is now more flexibility in where and when they work compared to three years ago. Among those looking to leave within the next 24 months, the figure is only 35 percent.” Employers that offer more flexibility than they did three years ago are achieving greater profitability and providing work environments that are more stimulating, healthy and satisfying for this age group, the report says.

Millennials, more so than other groups, tend to judge this perk as a condition to stay in a job or they may consider going elsewhere. As the Deloitte survey explains, “those less than satisfied with their pay and work flexibility are increasingly attracted to the gig economy.” Indeed, part-time or non-traditional employment is attractive to millennials based on the flexibility. However, the gig economy can both help and hurt this group of workers. As the 2018 Forbes article, “Why the Gig Economy is the Best

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and Worst Development for Workers Under 304,” explains, “for the unemployed, the gig economy represents both opportunity and challenge. Because lots of small, part-time jobs are available, even non-full-time employed workers can find gigs to help make ends meet.” However, since these jobs are typically more affordable for employers, it can be harder, it explains, for millennials to find the full-time jobs they crave.

LOOKING FOR MORE

As Aspir notes, even at the beginning or middle of your career, it’s important to start thinking about where you aspire to be, even if your daily projects do not lend themselves to that kind of thinking. “If you want to be the boss one day, you must act like a boss. This means being fully invested in your company’s success. You must take complete ownership of a project from beginning to end. Understanding project profitably is key to the company’s success.”

Monesson adds that a good approach that managers can take is to ask, “Who can I help today?” instead of, “Who can I sell to today?” She adds that employees, in general, will be more comfortable and successful if they focus on contributing to the success of the people they meet, not just themselves.

DIRECTING THE DIRECTORS Directors, more than any other group, are known as thought leaders and industry experts in their field. Most of this comes from their title, years in their profession, company name or community activities. But a question that often remains unaddressed is how does a director or equivalent accounting professional become a thought leader if they are not already one? As Stein Smith explains, “simply calling yourself one is not good enough — you need to work hard at establishing your expertise, but that can be easier said than done given the numerous other pressures facing you and your organization.”

TRICKS OF THE TRADE

One tactic that can, and should, be used to become a thought leader is to research and read one article (it doesn’t matter how long) on the topic in question on a regular basis.

“Even if you take some time off during the

SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

year, you will end up reading hundreds of articles on whatever topic you are seeking to learn more about,” says Stein Smith. “This will put you in a qualified position to write or discuss the information you researched.”

Amy Delman, owner of Amy Delman Public Relations, LLC, explains how imperative it is for directors to differentiate themselves and become thought leaders in particular areas. For the director looking to advance his or her career, Delman offers the following tips to maximize efforts: yy Write articles on your area of expertise. If you don’t have the resources to get published, write it as a blog on LinkedIn or your company website. Be consistent. Public relations, like all marketing practices, produces the best results when done on a regular basis. yy Speak in public. Look for opportunities at industry events, tradeshows, your local places of worship, libraries, etc. The goal is to position yourself as a thought leader in your area of expertise. yy Offer to serve as a mentor for less-experienced accountants. Mentoring is an excellent way to develop strong bonds both with your mentee and your organization. Sharing your knowledge so others can benefit will reflect favorably upon the type of professional you are. In most mentoring experiences, both the mentor and mentee benefit from this shared relationship. yy Strategically network. Look to industry associations, chambers of commerce and networking groups your clients would be members of. For instance, if your practice area is matrimonial, look for networking events held at bar associations and large law firms.

EXECUTIVE EXCELLENCE Executives, typically partners in CPA firms or a member of the C-suite in corporations, are constantly thinking about the company’s next move, new clients or what advisory service, perhaps, is gaining more ground. But too often succession planning for the firm falls on deaf ears. Partners nearing retirement are not inclined to start sharing their client base. Similarly, the next generation is not prepared for what responsibilities are involved in running a compa-

ny or taking over the leadership reins from its owners, who may be a parent or other relative, in some cases.

According to the article, “7 Must-Haves for Accounting Firm Succession Plans,” in the May 20, 2018, CPA Practice Advisor5, the hardest part for executives is to think about succession planning. The article asks the question, “With the staff you have and will recruit, are the partners truly committed to mentoring the staff and developing them as leaders? Are the partners willing to be accountable for this? Are the partners willing to make the development of staff into leaders an important factor in allocating partner income?” Succession planning, it says, is virtually impossible without effective leadership development.

USING YOUR NETWORK

Networking takes on a whole new meaning at the executive level. Gone are the days of simply getting one’s name out there.

Chances are your name is already out there by the time you reach the C-suite or partner level, but more work could be done getting it out in the right manner. Being associated with some of the key industry groups where you or your clients work can provide a boost to your career and social circles. In terms of charities, personal preference matters but some have wider scopes than others. Larger charities may prove more valuable to one’s career at this stage than simply having an interest in a local youth program, for example. Executives at smaller companies, however, are likely to still need some name recognition for themselves or their company — and extracurricular activities like volunteering or networking can help.

Being selective in networking at the later stages of one’s career is helpful since it can establish oneself in an area of expertise.

As Monesson explains, the goal at the executive level is to become the “go to” person. “Participating on, or even chairing, committees will give you the chance to showcase what you know.”

MENTORING

Perhaps more than at any other career stage, executives will benefit the most from becoming either a mentor or a coach to the next generation. It is a great way to give back to the accounting profession. Countless leaders today cite how mentors were

behind them giving support every step of the way. As executives in the later part of their careers, these professionals have a lot to give. Aside from the many external benefits of mentoring young professionals, mentoring has practical applications for inside an organization as well with more engaged and enlightened employees.

As the 2018 Inc article, “10 Easy Ways Time Crunched Executives Can Mentor Future Leaders6” discusses, “mentoring is the ultimate win-win-win for the mentee, mentor and organization.” According to the article, the organization gets a boost in employee retention and engagement.

Mentored employees, in turn, have greater intentions to stay with the organization, more commitment to their job and higher job satisfaction.

To Sarah Krom, CPA, managing partner, SKC & Co. CPAs, LLC and 2018/19 president of NJCPA, being an effective partner today means taking that role one step further. “At the partner level, one of the most important parts of that role is to be more of a coach than a mentor. To summarize what the distinct difference is between mentor and coach is that a mentor provides advice to you based on their experience; where a coach guides you along your own journey to get a resolution. The best way to do this is through asking questions and providing the curiosity and care to lead your team member to their own answers and conclusion.”

2 roberthalf.com/salary-guide/accounting-andfinance 3 deloitte.com/content/dam/Deloitte/global/ Documents/About-Deloitte/gx-2018-millennialsurvey-report.pdf 4 forbes.com/sites/larryalton/2018/01/24/whythe-gig-economy-is-the-best-and-worst-developmentfor-workers-under-30 5 cpapracticeadvisor.com/article/12413169/7must-haves-for-accounting-firm-succession-plans 6 inc.com/ben-fanning/how-to-make-mentoringfuture-leaders-a-normal-part.html

LEARN MORE OCT. 22, WEBINAR THANKS FOR THE FEEDBACK LESSONS IN GIVING AND RECEIVING FEEDBACK NOV. 13, ROSELAND CFO SERIES: HONING YOUR MANAGEMENT STYLE Register at njcpa.org/events

READ MORE EARLY CAREER PROFESSIONALS njcpa.org/career/early-career

MANAGERS

njcpa.org/career/manager DIRECTORS

njcpa.org/career/director EXECUTIVES

njcpa.org/career/executive

RETIREMENT

When retirement gets discussed in a practice or organization, it can mean different things to different employees. As the CPA Practice Advisor article notes, it’s important to balance the needs of older partners with younger partners. It explains that firms need to adopt an up-to-date partner retirement plan that pays partners a fair buyout that they deserve and earned, not an “entitlement” that alienates younger owners. Often younger professionals aspiring to be partners can view these plans as a challenge, particularly in a small firm. The article also reminds owners that they need to have an up-to-date partner agreement that new partners, including those from mergers, will be willing to sign.

1 hbr.org/2018/01/6-ways-to-take-control-of-yourcareer-development-if-your-company-doesnt-careabout-it

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2018

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ACCOUNTING, AUDITING & ATTEST

Audit? Review? Compilation?

Explaining the Difference to Clients

BY DAVID A. LOPEZ, CPA, DAVID A. LOPEZ AND COMPANY, LLC

Audit, review, compilation…three words that have clear, distinct definitions to an independent auditor. But, to the general public, these words have a myriad of meanings.

Most commonly, audit means something is verified and deemed absolutely correct.

Review means they “looked at” or proofread something for errors. Compile means they gathered and organized some type of information. So, how do CPAs explain the differences between audited, reviewed and compiled financial statements?

When explaining the differences between the three service levels, providing the client with an accelerated course in audit terminology can be effective.

Clearly point out the key characteristics of each service and clarify the tasks, purpose and end result. Identify the potential users of each type of financial report, the amount of time needed to complete each specific service and the price of each type of engagement. And, most importantly, explain the level of assurance provided by each service in layman’s terms. Because, at the end of the day, the client is purchasing assurance.

AUDIT When defining an audit to a client, begin by explaining the overall purpose of the engagement. CPAs are trained to recite the fact that an audit provides an opinion on the fair presentation of the financial statements. But this definition is too technical for many clients. In order to provide guidance, an auditor needs to understand how the client defines an audit.

When it comes to audits, many people have four primary beliefs: (1) the CPA will provide absolute assurance; (2) the CPA will find any and all errors; (3) the CPA is there to uncover fraud; and (4) a “clean audit” is a reflection of the client’s performance. These client misconceptions make it essential to define and explain the concept of reasonable assurance. Manage client expectations by explaining that

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absolute assurance only comes with an auditor examining every general ledger transaction. Discuss that auditors provide reasonable assurance because they only examine a calculated sample of transactions, and, therefore, absolute assurance is not attainable. Explain that because of the amount of procedures performed, the audit report provides a high-level — but not 100-percent — assurance that the financial statements do not have significant mistakes and a reader can place reasonable reliance on them.

REVIEW Explaining reviewed financial statements to a new client is a bit easier. Share with clients that, in order to issue a reviewed financial statement, CPAs perform some procedures, but the steps are not as indepth as an audit because a lower level of assurance is being provided. Clients understand the word comparable, so explain that CPAs will compare financial information from various periods and analyze them. If the analysis highlights an item that requires additional discussion, the CPA will apply review procedures such as inquiry to learn more. Clients tend to understand the idea that if something “jumps out” at the CPA, more work will be done. Tell clients that a review report provides comfort to the user that the CPA is not aware of any material modifications that need to be made to the financial statements.

SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

COMPILATION The client discussion about compilations is quite simple. Simply explain that, for this engagement, the CPA team will gather financial information they have created and assemble it in an acceptable financial statement format. It is the lowest level of service, and the CPA will not apply any procedures or provide assurance on the accuracy of the balances.

Just like the services themselves, explaining the differences between an audit, a review and a compilation takes more time as you move up the service ladder.

If you provide clarity to the client using terminology they understand, the client not only learns the characteristics of each engagement but their appreciation of you as a service provider can also grow.

David A. Lopez, CPA, is managing director of David A. Lopez and Company LLC. He is a member of the NJCPA Content Advisory Board and can be reached at dlopez@davidlopezcpa.com.

READ MORE ACCOUNTING & AUDITING ARTICLES AND RESOURCES njcpa.org/topics/accounting

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ADVOCACY & LEGISLATIVE ISSUES

U.S. Supreme Court Overrules Longstanding Sales Tax Nexus Requirements

BY EDWARD P. RIGBY, CPA, THE CURCHIN GROUP, LLC

On June 21, 2018, a highly anticipated U.S. Supreme Court decision overturned longstanding multi-state nexus rules requiring that a “physical presence” test be met in a state before that state could require an out-of-state business to collect and remit sales tax.

Two key Supreme Court cases, Quill Corp. v. North Dakota and National Bellas Hess, Inc. v. Department of Revenue of Illinois, have provided the fundamental judicial doctrine for decades having required an out-of-state business to have a physical presence (e.g., a place of business, employees or other business property in a state) before such state could impose its sales and use tax requirements on the outof-state business. In the modern economy, internet sales are frequently and typically made in states where the company does not have any physical presence while enjoying significant sales volume. State tax administrators and legislators view the e-commerce or “click through” economy as costing millions of dollars in lost sales tax revenue.

As states work to increase their tax revenues to meet higher spending budgets, they have become more aggressive in challenging the old physical presence standards. California and other states have imposed taxes based on sales volume in their state even if no physical presence is established. Some states have attempted to impose sales tax collection requirements on out-of-state businesses through “affiliate nexus” or “Amazon rules” for e-commerce companies. For example, a New Jersey business with an affiliate company located in California could be subject to California sales tax due to certain sales solicitation activities on behalf of the New Jersey business by its California affiliate. South Dakota imposed a sales tax requirement based on a minimum sales volume — $100,000 of goods or services delivered into the state or engaging in 200 or more sales transactions. Thus, an out-

of-state business would be responsible for sales tax collection even though it has no employees or property in the state if the sales volume requirements are met.

The South Dakota sales tax statute was the focus of the Supreme Court case. The Court upheld the South Dakota sales tax statute in its recent decision, effectively overruling the longstanding prior court doctrine requiring physical presence.

Thus, taxpayers who sell tangible property over the internet or who otherwise have no physical presence in the state need to carefully consider their multi-state tax requirements and discuss these multi-state issues with their tax advisors.

In New Jersey, both houses of the state legislature have introduced sales tax bills that are similar to the South Dakota statutes. Numerous states are likely to introduce similar sales tax law changes. The impact of the Supreme Court decision in overruling the longstanding prior case law will create increased complexity in administering a company’s state tax responsibilities as well as the necessity of avoiding

unexpected adverse tax consequences resulting from sales into other states. In addition, financial reporting responsibilities also include the necessity to accurately report state-level tax liabilities.

Edward Rigby, CPA, is a tax strategist with The Curchin Group, LLC. He is a member of the NJCPA and can be reached at erigby@curchin.com.

LEARN MORE SEP. 17, ROSELAND NEXUS UPDATE: LATEST DEVELOPMENTS IN STATE INCOME, FRANCHISE AND SALES TAXES Register at njcpa.org/events READ MORE STATE TAX NEWS AND ARTICLES njcpa.org/topics/statetax

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NEW JERSEY CPA | SEPTEMBER/OCTOBER 2018

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BECOMING A CPA

Get to Work! Tips to Fulfill the CPA Experience Requirement

BY MICHELLE ROBB, CPA, KLATZKIN & COMPANY LLP

CPA candidates spend an enormous amount of time and energy focused on obtaining their education credits and passing the CPA exam. In addition to these two requirements, candidates must also obtain work experience before a license will be granted in New Jersey.

HOW MUCH EXPERIENCE IS NEEDED? According to New Jersey State Board of Accountancy regulations, a CPA applicant must have one year of “intensive and diversified” experience in the practice of public accounting or its equivalent. Experience must be obtained after completion of a bachelor’s degree. This means that internships held during college do not count if the experience was obtained prior to graduation.

At least 1,750 hours of experience must be obtained in full-time employment during one year. Part-time employment is permitted if a total of 1,750 hours is obtained within two consecutive years. An applicant cannot obtain a license sooner if they work more than 1,750 hours in a year.

WHO MUST SUPERVISE THE CANDIDATE? Experience must be obtained under the direction of a CPA licensed to practice in New Jersey, or an individual entitled to practice as a CPA in New Jersey as provided in N.J.A.C. 13:29-4. Note that even if a candidate is performing the specific tasks that qualify as intensive and diversified, the experience does not count if he or she is not supervised by the appropriate person.

IS PUBLIC ACCOUNTING EXPERIENCE REQUIRED? The regulations do not specify that experience needs to be obtained at a public accounting firm. There are activities which are performed in private industry and the government sector which qualify. It is the

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type of activities performed, rather than the industry, that is important.

WHAT IS “INTENSIVE AND DIVERSIFIED?” In order to qualify as intensive and diversified, at least 25 percent of a candidate’s time must be spent in auditing and accounting tasks. The types of tasks performed will vary based on the industry of the candidate’s employment.

Public Accounting Experience

yy Auditing and accounting tasks include but are not limited to: review and testing of internal controls; verification and testing of specific accounts such as cash, accounts receivable, inventory and fixed assets; search for unrecorded liabilities; testing of revenue and purchases cut-off; review of subsequent events; and compilation, review and drafting of financial statements. yy Tax service tasks include: preparation of tax returns; review of financial statement tax provisions and tax accruals; research in tax law; and tax planning for clients. yy Other services include: bookkeeping services such as maintaining the books of original entry; and posting to the general ledger.

Private Industry Experience

yy Auditing and accounting tasks similar to those performed as a public accountant may be performed as part of the internal audit department. Other auditing and accounting tasks include: preparation of financial plans, budgets and projections in accordance with GAAP; preparation of trial balances, adjusting journal entries and analyses of accounts; and taking physical inventories. yy Other services include: maintaining books of original entry; preparation of payroll tax returns; and preparation of income tax returns.

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Government Experience

yy General accounting tasks include: preparation of trial balances; analyses of accounts; and preparation of financial statements. yy Tasks performed at a government auditor’s office or internal audit unit include: preparation of audit workpapers; experience in developing audit programs and procedures; and performance of duties as a field auditor for federal and state tax returns.

HOW IS THE EXPERIENCE DOCUMENTED? The application for a CPA license includes a statement of experience, which must be completed by the candidate’s employer.

The applicant must obtain a statement of experience for all employment held after obtaining his or her bachelor’s degree.

The statement must include the dates of employment and a checklist of the tasks performed. The employer must also include the approximate percentage of time spent in each task.

CONCLUSION In order to fulfill the experience requirement to obtain a CPA license in New Jersey, a candidate must have intensive and diversified experience under the supervision of a CPA for at least one year or equivalent. Obtaining experience should be the most enjoyable aspect of fulfilling the CPA requirements, as it allows the candidate to put into practice the concepts learned throughout his or her education.

Michelle Robb, CPA, is a manager with Klatzkin & Company LLP, a New Jersey-based accounting and advisory firm. She is a member of the NJCPA State Taxation Interest Group and can be reached at 609890-9189 or mrobb@klatzkin.com.

BUSINESS ADVISORY SERVICES

Deal or No Deal? M&A Due Diligence Could Make All the Difference

BY DEBORAH NAPPI, CPA, MST, SAX LLP

In recent years, mergers and acquisitions (M&As) have continued to be prevalent in New Jersey as business owners look to monetize their companies, and private equity has been an option in lieu of succession planning. New Jersey’s M&A activity in the first quarter of 2018 showed a slight decrease, however the value of the transactions has increased.

Clients may be enticed by the anticipated multiples and the volume of recent transactions, but they must consider whether their organization is ready to undertake the in-depth due diligence process that will bring the transaction to closing.

Due diligence is the most critical component to a successful M&A transaction, and CPAs can provide tremendous value by providing a roadmap for this process.

WHY DO DUE DILIGENCE? The purpose of the due diligence process is to evaluate all aspects of the business prior to the acquisition. Financial records are reviewed in great length providing the business purchaser with a level of comfort as to the financial viability of the entity and the predictive future of the organization’s EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) and cash flow.

There are various important aspects of the due diligence process, including legal, operational, intellectual property, commercial, information technology and human resources.

Clients need to be appropriately counseled prior to contemplating a sale to identify any issues which might impede or devalue the sale of their business. A purchaser is going to look back several years to identify key trends and performance indicators. Incomplete data and poor-quality data can lead to a breakdown in the due diligence process. The seller needs to provide consistent monthly financial data with detailed reconciliations for significant accounts such as accounts receivable, inventory, accounts payable, accrued expenses payroll and other significant

account balances. Explanations need to be provided for all discrepancies noted.

As a client’s trusted advisor, how can a CPA assist them to be better prepared for this intricate process? If the plan is to sell to private equity, processes should be put in place long before a transaction is considered to ensure that the financial information will be accessible and that the records provided are complete and accurate. Much consideration should also be given to accounts with lingering differences in need of adjustment.

These proactive measures will require the client to assess the various processes within their organization, and this assessment will undoubtedly uncover weaknesses which can be remedied prior to the sale. The CPA’s expertise and assistance here will be essential.

Accounts worthy of consideration for review are: accounts receivable; inventory; fixed assets; accounts payable; accrued expenses; revenue and various expense categories; and leasing arrangements.

TIPS FOR A SUCCESSFUL DUE DILIGENCE PROCESS yy Review the accounts receivable aging with the client to gain a better understanding of their collection process and the cause of growing receivables. yy Inquire regarding credit limitation for new customers and sales cut-offs. It is an opportunity to reveal any underlying processes which need correction. yy Review the accounts payable aging schedule. Are there proper monthly cut-offs and are the months’ invoices recorded? Are vendors’ statements compared to the aging schedule and are noted discrepancies followed up with the vendor? yy Review all leasing arrangements in detail. yy Review inventory values and respective reporting. yy Review fixed asset schedules to ensure accuracy and completeness of fixed assets presented on the detailed schedule.

yy Prepare detailed analysis of prepaid accounts and accrued expense accounts on a monthly basis. yy Prepare analysis and substantiation of high-volume expense accounts.

Tax planning is another element of the transaction that must be weighed heavily.

Consideration must be given not only to the corporate taxes but also to the buyers’ and sellers’ personal and estate tax planning.

This might sound simplistic, but for companies that do not have controllers overseeing their accounting process, inconsistencies will become visible when reviewing comparative monthly financial information. In addition, it is important to understand the compliance issues of the industry that the client specializes in. Healthcare, for example, is fraught with many regulatory compliance matters. A client’s financial presentation might be stellar, but the assessment may uncover some internal practices that are not compliant with industry standards.

Monetizing a business can be successful for many clients, but taking advantage of an M&A opportunity requires a great deal of detail and strategy to ensure it is a success.

Providing a roadmap for a well-executed due diligence process will be rewarded in the long run and ensure the outcome aligns with the intended goals.

Deborah A. Nappi, CPA, MST, is a director at Sax LLP and a member of the firm’s healthcare practice. She is a member of the NJCPA Federal Taxation Interest Group and can be reached at dnappi@saxllp.com.

LEARN MORE NOV. 1, JAMESBURG MERGER AND ACQUISITION PLANNING AND BEST PRACTICES Register at njcpa.org/events READ MORE BUSINESS ADVISORY SERVICES ARTICLES AND RESOURCES njcpa.org/topics/businessadvisory

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2018

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CORPORATE ACCOUNTING

Blockchain Technology and Its Impact on Corporate Entities

BY SIGGY SEIBOLD, KPMG LLP

It is hard to find a day in the last few years where there hasn’t been news or publications on blockchain, bitcoin and other ledger technology topics. Corporate entities have come a long way in the last two to three years on their journeys to adopt blockchain technology. As the technology has matured, it has left the sandbox stage and moved into the adoption stage for large corporations.

In the summer of 2017, a study from Juniper research found that two thirds of the large corporations (those with more than 20,000 employees) surveyed said that they expected the technology to be integrated into their systems by the end of 2018.

WHAT IS BLOCKCHAIN? Blockchain is a type of distributed ledger database that maintains a continuously growing list of transaction records ordered into blocks with various protections against tampering and revision. The digital record of ownership differs from traditional database technology since there is no central administrator or central data storage; instead the ledger is replicated among many different nodes in a peer-to-peer network, and each transaction is uniquely encrypted and signed with a private and public key.

Blockchain as an architecture concept can be applied to a variety of applications, such as payments, identity, smart contracts and many others. The ledger can also be programmed with “smart contracts,” a set of conditions recorded on the blockchain, so that transactions automatically trigger when the defined conditions are met. For example, smart contracts could be used to automate corporate actions-related transactions or insurance-claim payouts.

In a supply chain context, transactions would be recorded in a sequential block, which allows all involved parties to share the data in real time. Banks can eliminate the risk of fraud by cross referencing the

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payment of the invoices against a blockchain-based inventory. This prompted bank-led consortia to experiment with ledger-based payment solutions.

HOW IS BLOCKCHAIN BEING USED? In early 2018, one of the world’s largest container shipping companies and a major technology company developed a blockchain-based venture to digitize an end-to-end supply chain solution.

In April 2018, the first smart contract transactions were completed on a blockchain-based international trading system for seven of the world’s biggest banks. It signaled one of the first cases of blockchain entering the mainstream for big financial institutions. The corporate enterprise use cases are beginning to happen on private blockchains, between known and trusted parties.

As the potential of the technology is being better understood, there is a lot of investment going into securing intellectual property. This can be seen in the massive influx of blockchain-related patents

SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

that are being filed. Just within the United States, 1,045 patents have been published related to digital currency standards, digital currency exchanges, blockchain algorithms and infrastructure, blockchain front- and back-end applications, and blockchain-related enterprise technology. Financial firms are among the top blockchain patent owners, but retailers are catching up.

One of the core applications for blockchain is with cryptocurrencies such as Bitcoin. Large corporations are now opening their eyes to the capabilities that cryptocurrency developments can have in people’s daily lives. With each development, virtual currencies are gaining acceptance as a legitimate payment option.

Siggy Seibold is a financial services advisory partner with KPMG LLP. She can be reached at 917-971-5880 or sigridseibold@kpmg.com.

READ MORE BLOCKCHAIN ARTICLES AND RESOURCES njcpa.org/topics/blockchain

FIRM & PRACTICE MANAGEMENT

Compete on Value, Not Fees

BY EILEEN MONESSON, CPC, PRCOUNTS, LLC

If you think it’s a good idea to lower your fee to win business, think again. Competing on fees is never a good idea. This is especially true if you are a new firm trying to win business opportunities. Being the firm with the lowest billable hour rates in your market can hurt you for many years to come.

BILLING AND REVENUE TRENDS According to Inside Public Accounting’s (IPA) 2017 National Benchmarking Report, personnel costs are outpacing billable rate increases. Personnel costs, excluding partners, accounted for 49.3 cents of every dollar of revenue earned. The average billing rate increase was 4 to 4.5 percent compared to salary increases of 6 to 7 percent.

Billing rates for equity partners increased by 1.4 percent to an average of $345 for all firms. Even so, across all firms, revenue per hour dropped by 16 cents to $158.95, and revenue per full-time employee (FTE) was $140 per hour. Traditional profit margins dropped to an average of 26.2 percent for the IPA 100 firms — the lowest rate in 26 years.

Furthermore, organic growth was harder to achieve for the firms that participated in the survey. Net revenue per charge hour was up a mere $1.62 or less than 1-percent growth compared to 2016. IPA claims this is partially due to firms undercutting the competition with below-market fees in many markets.

STRATEGIC BILLING PRACTICES Firms often use billing rates to increase market share. It is not uncommon for firms to undercut first-year fees to break into new industry niches or to become the market leader. Even so, this strategy can backfire if the firm develops a reputation of increasing fees considerably after the first year of the engagement. It could explain why many companies and nonprofit organizations require a three-year fee commitment or guarantee.

Other firms do the exact opposite. They charge much higher fees to create demand.

The thought behind this strategy is similar to Apple charging a higher price for its laptops than most PC manufacturers or “elite” schools charging excessive tuition rates. The perception is that the product or service must be superior because the price is higher.

COMPETE ON VALUE INSTEAD The bottom line is that your firm will always compete on price if you do not create enough perceived value in your products and services. Otherwise, prospective clients have nothing else to base a buying decision on other than price. Prospects have to believe that your firm clearly provides more value than the competition. Savvy business owners are typically more than happy to pay a higher price if they believe that they will gain something valuable from developing a relationship with a firm that will have their best interests in mind.

You might think that every firm strives to focus on the needs of their clients and deliver superior value. But let’s face it: tax returns and financial statement audits are considered commodity services by most people today. Both are services that a company must, or should, invest in, but only because they have little or no choice. With this in mind, how can a firm provide true value from the perspective of the client?

The answer lies in uncovering a problem that the client has and matching it to

the service that you provide that solves or minimizes the problem. If it is a big enough problem and you can provide the solution, most clients will pay any price.

A FINAL THOUGHT According to Investopedia, value-based pricing is a price-setting strategy where prices are based mostly on consumers’ perceived value of the product or service. The notion is that you can make higher profits with value-based pricing. While this may be true, in this case, value is used to differentiate a firm from the competition. Value is not the basis of the pricing strategy, it is what makes the firm unique.

Eileen Monesson, CPC, principal with PRCounts, is a strategic marketer and coach. PRCounts creates market dominating brands and thought leaders.

Eileen can be reached at 848-459-3130 or emonesson@PRCounts.com.

LEARN MORE SEPT. 17, ROSELAND BEST PRACTICES IN BUILDING A CPA FIRM Register at njcpa.org/events READ MORE CLIENT ACQUISITION & RETENTION ARTICLES AND RESOURCES njcpa.org/topics/clients

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2018

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FORENSIC ACCOUNTING, LITIGATION SERVICES & BUSINESS VALUATION

Detecting and Preventing Fraud in Small Businesses

BY PATRICIA B. CIARDULLO, CPA, CFF, PKF O’CONNOR DAVIES, LLP

Fraud can be as devastating to small businesses as it is for larger organizations. In fact, the findings of the 2016 Global Fraud Study by the Association of Certified Fraud Examiners (ACFE) are staggering: small businesses (those with fewer than 100 employees) suffer a median fraud loss of $150,000, and 60 percent do not recover any of these losses.

TOP FRAUD RISKS The ACFE study reveals the top fraud risks for small businesses: yy Corruption — bribery, embezzlement or other illegal behavior by those in positions of authority yy Billing schemes — submission of invoices that appear authentic but are accompanied by fabricated supporting documentation that connects a vendor to the perpetrator yy Check tampering — forged signatures, falsification of payee or amount yy Skimming — taking cash from daily receipts before sales are recorded in the accounting system yy Non-cash misappropriation — theft of inventory or assets other than cash FRAUD DETECTION According to the ACFE study, fraud is uncovered in a variety of ways. Employee tip-offs are the leading method of detection, followed by a review of accounting records by management or internal or external auditors. Often, fraud is uncovered through account reconciliation and, sometimes, completely by accident. As a result, owners of small businesses should consider implementing detection methods such as anonymous hotlines, which not only empower employees to report suspicious activity but also equip management to uncover problems sooner, take action more quickly, and improve employee retention and workplace satisfaction. Equally valuable are regular weekly or monthly reviews of financial data and records, account reconciliations and analyses, physical counts and inspections.

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CASE STUDY In his role as an administrative assistant at a small business, Doug had access to the firm’s accounting program and checkbook.

Plotting to embezzle funds, Doug set up a fake company and chose a name for it that was similar to that of an actual vendor his firm used. He then wrote firm checks payable to his fake company, cashed them and kept the funds himself. To authorize the checks, Doug had a stamp made bearing the signature of a top executive. He recorded the amounts in the firm’s accounting program as payable to other vendors. Every few months, an outside bookkeeper would perform bank reconciliations in the accounting program using bank statements that it was Doug’s responsibility to provide. However, in advance of her arrival, Doug would download, save and edit the statements so that images of the checks written to his fake company would match those of actual vendors. It was this edited version of the statement that he gave the bookkeeper. Doug’s deceit crumbled with the hiring of a new director who compared the firm’s budget to actual expenses and noticed something unusual. To investigate, she contacted a vendor about a specific payment and discovered that it had not been made to that vendor. She followed up with the bank to inquire about the check, and the scheme unraveled. Doug had embezzled $125,000 over three years.

FRAUD PREVENTION The first step is to develop a formal anti-fraud policy and procedures for reporting suspicious activities. These should be detailed clearly in an Employee Code of Conduct Manual, which also serves to demonstrate management’s commitment to fraud prevention. In addition, all employees, managers and executives should be required to participate in fraud avoidance and detection training, including how to integrate prevention techniques into their operations. Furthermore, performing a system-wide risk assessment can identify areas in greatest jeopardy, facilitating the reinforcement of internal controls and

SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

the introduction of targeted monitoring programs to surveil high-risk areas.

Instituting these proven measures is vital for organizations of every size. Owners of small businesses, which stand to suffer proportionally greater loss, should tap the knowledge and experience of experts in this area to implement appropriate programs and protocols. As technology expands to deliver more opportunities for abuse, the appetite for it seems insatiable, making protection more important than ever. Fortunately, fraud management can be easily implemented and is highly effective.

Patricia B. Ciardullo, CPA, CFF, is a partner at PKF O’Connor Davies, LLP. She is a member of the NJCPA and can be reached at pciardullo@pkfod.com.

LEARN MORE NOV. 12, ROSELAND UNDERSTANDING THE COMPLEXITIES OF FRAUD IN ORDER TO DEVELOP WAYS TO MITIGATE RISK NOV. 14, VOORHEES FRAUD UPDATE: DETECTING AND PREVENTING THE TOP TEN FRAUD SCHEMES Register at njcpa.org/events

READ MORE FORENSIC ACCOUNTING ARTICLES AND RESOURCES njcpa.org/topics/forensic

GOVERNMENTAL & NONPROFIT

High-Impact Financial Reporting

BY JAIME CAMPBELL, CPA, TIER ONE SERVICES

Those in financial leadership at nonprofit organizations have a marvelous opportunity to not only provide clarity about overall financial health and compliance but also impact the equity strength, cash flow health and security of the organizations they serve — no matter their size.

COMPENSATION EQUITY Of all the organizations with finance leaders, only some run an analysis correlating salaries with protected classes such as race and gender. Of those that do, including those that proudly share that there is no correlation, a scant number analyze intersectional patterns. Organizations committed to equitable compensation may be surprised to learn that although men and women may show up as having comparable salary levels, when both race and gender are taken into account, there is actually inequity present.

Finance leadership can then take these findings to the executive director and discuss them: Where do we go from here?

What are we committed to? To what extent is institutional racism, institutional sexism and other institutional basis for harm being propagated here, and to what extent are individual prejudices and biases coming into play? What can we do about this to create an equitable compensation environment? Do we need an outside resource such as a professional equity consultant to help us here?

CASH FLOW FORECASTING Forward-looking planning does not have to stop at the annual budget. A rolling cash flow forecast looking three to six months ahead affords the organization enough time to avert a cash crisis or create a plan to make the most of excess resources.

A useful cash flow forecast requires regular, frequent input of the entire management team, not just the executive director and CFO. To that end, also institute “forecast v. actual” (FvA) reporting in order to see objectively how useful the forecast is. In one example, the FvA was used to

quantify exactly how much including other members of management in the weekly cash flow forecasting sessions reduced the spread between the forecasted and actual ending cash balances: by about 80 percent!

In those inclusive sessions, though, it’s important to take human psychology into account. The director of development is likely setting bold targets and going after them. Unless there is a proven history of attaining 100 percent of target, these targets should not be included in the cash flow forecast. But without a discussion bridging fundraising-thinking and accounting-thinking, a chasm can be created between these two functions: The CFO thinks the director of development is living in the clouds, and the director thinks the CFO is a perpetual downer, and at worst, that the CFO doesn’t have faith in him/her.

Effective bridging language here is “And of that target, we’ll include x percent in the forecast. When we come in above that, we’ll celebrate!”

Make sure key figures in the cash flow forecast tie to the financials, such as cash, A/R and A/P. Also consider a forecasting horizon that is near-term enough to be credible but long-term enough to give the organization time to create and execute plans to avoid a cash crisis. If there is a natural seasonality (e.g., urban gardening nonprofit) or an artificial seasonality (e.g., gala season), make sure the forecasting horizon is long enough to take that into account.

INTERNAL CONTROL DASHBOARD Thanks to CPAs’ financial leadership, many organizations have strong internal controls, even the smaller organizations. Too many of them, however, still have internal controls that don’t actually protect cash. Banks still honor dual signature checks bearing only one signature. Policies stating that employees have to use their personal funds to pay off organizational credit cards and then get reimbursed contribute to low morale

and increased risk. An organization with a director of finance — as the ENTIRE accounting department — likely only maintains as many internal controls as that professional can muster.

Create an internal control dashboard with a metric, a measurement and a visual.

That which can be measured can be managed. Consider the following: yy Days expense receipts outstanding (line graph) yy Days to complete supervisory close (line graph) yy Sufficient personnel for segregation of duties (red-yellow-green meter) yy Organizational chart up-to-date (red-yellow-green meter) And don’t forget my definition of internal controls: “We have to require four board members, two staff and our mascot to sign every check, but the bank will cash a fraudulent check anyway.”

Jaime Campbell, CPA, M.B.A. is the chief financial officer of Tier One Services, a firm serving as outsourced CFOs and accounting departments for nonprofits and mission-driven for-profits. She is a member of the NJCPA Content Advisory Board and several interest groups. Jaime can be reached at jcampbellcpa@tieroneservices.net.

LEARN MORE

OCT. 15, ROSELAND

ACCOUNTING AND REPORTING

FOR NOT-FOR-PROFIT ORGANIZATIONS

OCT. 18, VOORHEES NOT-FOR-PROFIT FINANCIAL REPORTING: MASTERING THE UNIQUE REQUIREMENTS Register at njcpa.org/events

READ MORE NONPROFIT ARTICLES AND RESOURCES njcpa.org/topics/nonprofit

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2018

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TAX

Tax Incentives and Credits for New Jersey C Corps

BY RALPH LOGGIA, CPA, MST, GOLDSTEIN & LOGGIA CPA’S, LLC

The Tax Cuts and Jobs Act (TCJA) has been a significant boon for manufacturing companies, primarily due to the reduction of the federal corporate income tax rate to 21 percent paired with the retention of the research and development credit. Manufacturing C corporations doing business in New Jersey are benefiting the most because the corporate income tax paid to New Jersey, or any other state where the company conducts business, is deductible on its federal tax return. This may or may not be the case for flow-through entities, based on the recent legislation that is being passed by New Jersey and how the IRS responds to it.

Among New Jersey tax credits, two common ones can reduce the New Jersey tax liability of certain C corporations to the minimum tax ranging from $500 to $2,000 per entity. These are the Research and Development (R&D) credit and the Manufacturing Equipment and Employment Investment Tax (ME) Credit.

The R&D credit is governed by IRC section 41 and is based on qualifying wages, supplies, rental or lease costs of computers, and contract research expenses.

The purpose of the ME credit is to encourage investment in certain manufacturing equipment in New Jersey and to provide the company with incentive to increase employment at New Jersey locations employing New Jersey residents.

In both cases, if the calculated credit is not fully utilized in the current year, it carries forward for seven years.

While flow-through entities have the IRC Section 199A 20-percent deduction to reduce the top individual tax rate of 37 percent and help level the playing field of the 21-percent tax rate that a C corporation pays, there is a stark contrast at the state level. While an S corporation permits the R&D and ME credits at the corporate level, the credit does not flow through to the individual level. Neither credit applies to partnerships.

In addition to the credits mentioned above, if the New Jersey manufacturing

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business expands by purchasing equipment and creating new jobs, the New Jobs Investment Tax (NJIT) Credit could apply.

This credit is only available for New Jersey C and S corporations, and while there is no unused credit carry forward, a portion of the credit can be refunded.

Property and expenditures included in the calculation of the R&D credit are not permitted to be included in the calculation of the ME credit or the NJIT Credit.

The following is an example comparing a C corporation and a flow-through entity: C&V Manufacturing Corp (C&V), a C corporation doing business in New Jersey, has revenue of $20M and taxable income for both federal and state purposes of $600,000. The New Jersey tax liability is $54,000. C&V also has an R&D credit of $40,000 and an ME credit of $25,000. The credits reduce C&V’s tax liability to the $2,000 minimum.

Now, assume that instead of operating as a C corporation, C&V operates as a passthrough entity. Using the example above, on the Form K-1 for either a partnership or S corporation, the K-1 will report the $600,000 of taxable income, but will report neither the R&D nor the ME tax credit.

For simplicity, assume C&V is an S corporation owned by one person who has other income that places the C&V income into the highest individual tax bracket. The tax on the $600,000 would

SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

be approximately $53,820 — $51,820 higher than if this was a C corporation for New Jersey purposes. In addition, it is possible that only $10,000 of this tax would be deductible on the individual’s federal income tax return.

There are many things to consider before simply converting a flow-through entity to a C corporation which are beyond the scope of this article. Hopefully, this demonstrates one possible reason to consider making a change.

One thing is clear: if a new company in the manufacturing arena is starting a business in New Jersey today, between the state tax credits and the potential IRC Section 1202 benefit to exclude gain on the sale of the C corporation, strong consideration should be given to setting the business up as a C corporation.

Ralph Loggia, CPA, MST, is a member of Goldstein & Loggia CPA’s LLC. He is a member of the NJCPA State Taxation interest group and can be reached at Ralph@agcpa.net.

READ MORE STATE TAX ARTICLES AND RESOURCES njcpa.org/topics/statetax

DO MORE JOIN THE STATE TAX INTEREST GROUP njcpa.org/groups

TECHNOLOGY & INFORMATION MANAGEMENT

Ransomware Awareness and Prevention

BY CHRIS CHUDYK, CPA, CITP, TRAPHAGEN FINANCIAL GROUP

To understand what ransomware is, we must first be aware of a few definitions. yy Malware is a malicious software, program or file designed to infiltrate and damage computers. yy Crimeware is defined as instances involving malware that are opportunistic in nature and are financially motivated. yy Ransomware is a type of malware that threatens to publish data or block access until a ransom is paid.

Ransomware has continued to increase over the past few years and is now the number-one malware within this pattern. Ninety-nine percent of malware is sent via email or the webserver. The impact to a company that is a victim of ransomware includes financial loss (especially if they pay the ransom), data loss and reputation loss (clients, vendors, public image). The number-one area of weakness that leads to a successful ransomware attack are us, humans! Almost all phishing attacks (e.g., fake emails that have a link that allows malware to infiltrate your systems) are caused by human error or lack of judgement.

The question becomes, how do we stay ahead of the cyber criminals and stay safe from ransomware? First, we need to adopt a security mindset in which we know the fundamentals of our enemy, acknowledge that attacks will occur and examine the world from an attacker’s perspective.

yy Physical security. Install security systems at your office, make sure all files are off your desk at night in a locked drawer, and lock your office door. Breaches don’t always come from the web; sometimes they come right through the front door of your office. yy Remote access policy. Remote access to corporate systems should only be allowed through a company-provided means of remote access or through a secure remote web portal. Further, in order to access your network, dual authentication should be required. yy Mobile devices. Laptops, tablets and smart phones should not be left in cars.

They should have a remote wipe/delete feature in case a mobile device is lost or stolen. yy Wi-Fi. Staff should not be able to connect to the office or to any sensitive data when they are on open Wi-Fi or on Wi-Fi that is secured but the password can be seen by multiple people (e.g., at a seminar). yy Termination policy. When an employee is terminated, all their keys, usernames and rights to software should be deleted.

There are many other policies that can be written, and you should review your policies with your IT specialist or a cyber-security specialist.

DEVELOP A TECHNOLOGY POLICY Developing a technology policy and procedure manual for your business would be a great place to start. The manual should cover the following: yy Password policy. All systems, software and applications should have passwords that are at least 12 characters long and are comprised of letters, numbers and special characters. Passwords should be changed every two months, and no password should be the same for multiple programs. yy Data encryption. All data with sensitive information included must be transmitted through encryption.

TRAIN STAFF Train all staff on what phishing is and how to suspect when an email is sent with the intent to attack. Many times you can take your cursor and slide it over the link in the email, and you will see the true URL is not what it states in the email.

Another area that can be used to enhance staff knowledge is pen-testing.

This is where professionals attack your staff and systems to find weaknesses. After getting attacked, the professionals develop a list of who failed and where your weaknesses are, and then they train staff and develop systems in order to better protect the company.

OTHER PROTECTIONS Make sure your firewall and operating system security patches are updated and installed on all systems. This can be done automatically along with an automatic restart of your computers.

Cyber insurance should also be considered. Cyber insurance policies mitigate losses from cyber incidents by transferring risk to the insurance provider in exchange for a premium. Costs that are covered through cyber insurance are legal advice, notification costs, credit monitoring costs for victims, business interruption, regulatory fines and public relations. Costs not covered are reputational harm, loss of future revenue, improving internal technology and lost value of intellectual property.

Chris Chudyk, CPA, CITP, is a partner at Traphagen Financial Group. He is a member of the NJCPA Student Programs & Scholarships Committee, the Volunteer Relations Committee and is a past president of the Bergen Chapter. He can be reached at chris@tfgllc.com.

LEARN MORE

SEPT. 26, ROSELAND

CYBERSECURITY RISK

MANAGEMENT PROGRAM ESSENTIALS

Register at njcpa.org/events READ MORE

CYBERSECURITY ARTICLES

AND RESOURCE njcpa.org/topics/cybersecurity

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2018

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NJCPA NEWS

NJCPA Volunteer Award Recipients Join us in congratulating the following recipients of the NJCPA VOLUNTEER AWARD, which recognizes outstanding CPAs whose unselfish and dedicated service to the NJCPA and their community has made a significant difference.

Read more about the recipients at njcpa.org/awards.

JEAN I. ABBOTT, CPA

ASSISTANT PROFESSOR OF BUSINESS STUDIES, ACCOUNTING AT STOCKTON UNIVERSITY

In addition to being a former NJCPA Trustee and Atlantic/ Cape May Chapter president, Jean actively works with Stockton University students to teach career readiness. She brought the Junior Achievement Career Success program to Stockton and set up the Volunteer Income Tax Assistance (VITA) program.

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LYNN ALBALA, CPA, CMA, CGMA

CHIEF FINANCIAL OFFICER AT INFOSIGHT PARTNERS LLC

Lynn has consistently shown commitment to the NJCPA, having been a former Treasurer and a group leader for the Technology Interest Group.

She is a frequent lecturer for the Society on nonprofit topics.

SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

D. DEAN BEDDOW, CPA

HOWARD J. BOOKBINDER, CPA

Dean has given more than 10 years of exemplary service to the NJCPA Peer Review Executive Committee, with the past three years as chair. He was invaluable in editing, reviewing and responding to many exposure drafts issued by the AICPA Peer Review program.

Howard has long served the NJCPA community — celebrating 50 years of membership in 2019. Among his many roles with the NJCPA, he chaired the Cooperation with the IRS Committee (now the Federal Taxation Interest Group) and served on the Bergen Chapter board. He was appointed by the NJCPA to partner with the IRS on four committees.

MANAGING DIRECTOR, RISK MANAGEMENT AT GRANT THORNTON LLP

OWNER, HOWARD J. BOOKBINDER, CPA

AMY Y. BOTH, CPA MANAGER AT NERAL & COMPANY, P.A.

Amy has devoted more than 10 years of service to the NJCPA, with three of those as a Trustee.

She has also been a leader of the Nonprofit Interest Group, assisted with the Society’s tax call-in program in conjunction with the Asbury Park Press, and serves on the Audit Committee and Volunteer Relations Committee.

WALTER J. BRASCH, CPA, CGMA

JEFFREY CHRISTAKOS, CPA, CFP, CLU, AIF

REYNOLD P. CICALESE, CPA, PFS, CGMA

Walter joined the NJCPA in 1977 and has committed his time and energy ever since.

He is a past president of the NJCPA, serves as chair of the Nominating Committee and is a member of several interest groups and task forces.

Jeff has become a recognized leader for all types of volunteering across New Jersey. He leads Monmouth University’s Financial Literacy Group, serves as Treasurer of the NJCPA Union County Chapter and received the Lee M. Hale Downtown Volunteer Award for his service to Westfield.

A supporter of the American Heart Association’s Go Red for Women campaign, Ren led his firm in raising more than $5,000 per year since 2009. He also started his firm’s career day, where 40 students visit the office annually.

MANAGING DIRECTOR AT WHITMAN BUSINESS ADVISORS, LLC

CHAIR, ACCOUNTING DEPARTMENT AT MONMOUTH UNIVERSITY

A CCOUNTANTS

MANAGING PARTNER AT ALLOY SILVERSTEIN ACCOUNTANTS AND ADVISORS

AND

A DVISORS

A P R O F E S S I O N A L C O R P O R AT I O N

Alloy Silverstein congratulates MANAGING SHAREHOLDER

REN CICALESE , A S S O C I AT E PA R T N E R

REN CICALESE III , and all of the professionals honored NJC with the NJCPA Volunteer Award.

Securities offered through 1st Global Capital Corp., Member FINRA, SIPC. Investment advisory services offered through 1st Global Advisors, Inc.

TAX | ACCOUNTING | AUDITING | ADVISORY Cherry Hill

Hammonton

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AlloySilverstein.com

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2018

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NJCPA NEWS

REYNOLD P. CICALESE III, CPA, MST

ASSOCIATE PARTNER AT ALLOY SILVERSTEIN ACCOUNTANTS AND ADVISORS

Ren has been recognized for his volunteerism and leadership by several organizations, including SNJ Business People, the Burlington County Times and the Nonprofit Development Center of Southern New Jersey.

LAURA M. CROWLEY, CPA, MBA

PETER C. DESARNO, CPA

CAROL DONATIELLO IOCCA, CPA

Laura is known for her leadership and dedication, particularly to the Girl Scouts of New Jersey. She is a national winner of the Girl Scouts Heart of New Jersey – Dedicated Leader Award, the Volunteer Excellence Award, the Appreciation pin and the President’s Award.

As a young adult, Peter received two cornea transplants with the assistance of the NJ Sharing Network. After a 20plus year career in public and corporate accounting, Peter is now the controller for the NJ Sharing Network, spreading the word about organ and tissue donations.

Carol is known for her exemplary commitment to the NJCPA. For more than 20 years, she has been a member of the Accounting & Auditing Standards Interest Group, as well as a vice-chair and subcommittee chair. In addition, she has been on the Board of Trustees for the past three years.

MANAGER AT CITRIN COOPERMAN & COMPANY, LLP

CONTROLLER AT NJ SHARING NETWORK

PARTNER AT WILKIN & GUTTENPLAN, P.C.

Get involved with the NJCPA community.

Boost your leadership experience Build your resume Increase your company’s exposure Give back to the profession Explore the numerous opportunities to participate and make an impact.

njcpa.org/volunteer

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SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

HENRIETTA FUCHS, CPA

PARTNER AT COHNREZNICK LLP

Since receiving an NJCPA scholarship in 2003, Henrietta has been committed to helping the younger generation. She is the chair of the Student Programs & Scholarships Committee and is also a trustee of the NJCPA Scholarship Fund.

ELIZABETH B. HARPER, CPA

JESSE M. HERSCHBEIN, CPA

Liz is passionate about helping women succeed in business. She launched and has been the cochair of the Mentoring Committee of the New Jersey Chapter of the Financial Women’s Association for the past three years.

Jesse has been on the NJCPA Essex Chapter board for 12 years, twice serving as president.

He is active in all facets of the NJCPA — from the Young CPAs Council to the Cooperation with Bankers Interest Group to the Content Advisory Board.

MEMBER OF THE FIRM, SOBEL & CO. LLC

MEGAN T. KELLY, CPA

SUPERVISOR AT SOBEL & CO. LLC

ACCOUNTANT AT LFL VERITAS, LLC

Megan is an active participant in NJCPA youth initiatives, including the Student Programs & Scholarships Committee, where she volunteers to review essays and interview high school students. She also participates in the NJCPA Mentor Program.

We are Proud to Support NJCPA Volunteer Awards Congratulations to all recipients and congratulations to our friends and colleagues

Elizabeth Harper, CPA

Megan Kelly, CPA, CFE

Livingston, NJ • 973-994-9494 • SobelCoLLC.com

Audit & Accounting | Tax | Litigation Support Services A Heritage of Excellence | A Focus on Results | A Partner for Success

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2018

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NJCPA NEWS

JODI D. KLEUSKENS, CPA, MACC

SENIOR TAX ANALYST AT JOHNSON & JOHNSON

Since becoming a member of the NJCPA’s State Tax Interest Group in 2012, Jodi has dedicated her time and energy to the tax needs of the Society. From writing the detailed minutes of the meetings to becoming the leader of the State Tax Interest Group from 2016 to 2018, Jodi has shown a high commitment to educating members.

KAREN J. LEE, CPA

AUDIT MANAGER AT DELOITTE

Karen has been a member of the NJCPA Emerging Leaders Council (formerly the Young CPAs Council) since 2014, where she promotes participation in various CPA events and volunteer opportunities.

She helped lead the NJCPA Food Drive for Deloitte’s Parsippany, Princeton and Jersey City offices.

Celebrating excellence Deloitte would like to congratulate Karen Lee and Joseph McGrath and all of this year’s NJCPA Volunteer Award winners. Your unselfish and dedicated service to the NJCPA and worthy causes in your communities, coupled with your passion for our profession, have made a significant difference. We celebrate your accomplishments.

www.deloitte.com Copyright © 2018 Deloitte Development LLC. All rights reserved.

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SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

JOSEPH A. LIZZA, CPA SOLE PRACTITIONER AT LIZZA & ASSOCIATES

In 2010, while an adjunct professor at Felician University, Joseph saw a way to advance the Felician Franciscan mission of service to the local community of Bergen County while providing a hands-on accounting experience for his students. He started the Volunteer Income Tax Assistance (VITA) program, offering free tax assistance to area residents.

JOSEPH A. MCGRATH, CPA

AUDIT SENIOR MANAGER AT DELOITTE

A keen motivator, Joe is the primary liaison between Deloitte and NJCPA, encouraging colleagues to participate and get involved in various volunteer events. From NJCPA’s Food Drive to mentoring students, Joe is front and center when it comes to donating his time.

TARA MELICK, CPA

SENIOR ACCOUNTANT AT WILKIN & GUTTENPLAN, P.C.

Tara assisted in the creation of the We Give initiative at her firm, where she coordinates the volunteering of more than 100 employees and local communities. In this capacity, she organizes school supply and holiday gift drives as well as volunteer days.

JENNIFER R. PEOPLES, CPA

OWNER, JENNIFER PEOPLES, CPA

A member of the NJCPA for more than 20 years, Jennifer has donated her time in a variety of ways. She is a trustee of the NJCPA Scholarship Fund, a vice chair of the Volunteer Relations Committee and a past president of the Hudson Chapter.

MICHELLE C. SHAPIRO, CPA

CARL SPECHT, CPA, CGMA

Michelle has been an officer of the NJCPA Morris/Sussex chapter since 2012. Outside of the NJCPA, she has been a finance committee board member for the Mayo Performing Arts Center/ Morristown Community Theater for more than 10 years.

A CPA since 1976, Carl has served the NJCPA in a variety of capacities. He is currently a director of the Hudson Chapter, having served as president, treasurer and secretary. He has also been a member of the Federal Taxation, State Taxation and Nonprofit interest groups.

TAX MANAGER AT UNTRACHT EARLY LLC

PARTNER AT CONSTANTINO, SPECHT, TEMPLETON & CO., LLC

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2018

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NJCPA NEWS

CATHERINE SYSLO, CPA

DIRECTOR, QUALITY CONTROL AT COHNREZNICK LLP

Catherine is a dedicated member and former leader of the NJCPA Nonprofit Interest Group. She has also been actively involved in the planning and coordination of the NJCPA Nonprofit Conference for the past three years.

JUNE M. TOTH, CPA, CFF, CITP, CGMA

MANAGING MEMBER AT ZBT CERTIFIED PUBLIC ACCOUNTING & CONSULTING, LLC

June has served as vice president and president of Roots and Wings, a nonprofit organization that provides education, vocational counseling and residential support to aged-out foster youth in New Jersey. She is also a member of the NJCPA Board of Trustees.

MICHAEL VANDERGOOT, CPA, CGMA

MANAGER, AT BDO USA LLP

Currently a member of four NJCPA committees and interest groups, Michael has shown significant dedication to the NJCPA. He is a former secretary of the Board of Trustees and a former Trustee of the NJCPA Education Foundation.

PAULA M. YOUNG, CPA PARTNER AT EISNERAMPER LLP

Paula is member and a past leader of the NJCPA Accounting & Auditing Standards Interest Group, as well as the chair of the Professional Conduct Committee. Outside of the NJCPA, Paula has made significant contributions to the Chittick School Parent Teacher Association in East Brunswick.

EisnerAmper LLP congratulates Paula Young on being named a 2018 Volunteer of the Year by the NJCPA. Congratulations to all of the winners.

EisnerAmper.com

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SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

Posthumously Awarded: RONALD GRAY, CPA

FORMER MANAGING MEMBER AT LEMBO & GRAY, LLC

Ron, who passed away in June 2018, was posthumously awarded the NJCPA Volunteer Award. He was a past president of the NJCPA Passaic County Chapter and served on numerous Society tax, auditing, student membership and technology committees. He was also a Board of Trustees liaison for the Bergen Chapter Board of Directors, the Committee Operations Committee and the Student Programs & Scholarship Committee.

Honorable Mentions:

KATHLEEN BERNARD, CPA

PARTNER, LOTA & BERNARD, LLC

SALVATORE M. GRASSO, CPA

PRINCIPAL/OWNER, GRASSO & COMPANY, LLC CPAs

CHRISTINE M. DARCY, CPA

FAUSTO B. DIAZ, CPA

SANDRA S. EMMERT, CPA

PARTNER, DARCY & CONNOLLY, CPAs, LLC

SENIOR ACCOUNTANT, MAZARS USA LLP

FINANCIAL CONTROLLER, SAMUELS INC

MICHAEL LEVY

GARY S. MANNUZZA, CPA

RUSSELL A. SCHWARTZ, CPA

DIRECTOR OF INTERNAL AUDIT, STUDENT TRANSPORTATION OF AMERICA

MANAGING MEMBER MANNUZZA & COMPANY, LLC

MARTIN M. SHENKMAN, CPA

LUCY TURNAGE, CPA, CGMA

ATTORNEY AT LAW, MARTIN M. SHENKMAN, P.C. ATTORNEYS AT LAW

SENIOR MANAGER, HBK CPAs & CONSULTANTS

VICE PRESIDENT, CIT GROUP

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2018

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NJCPA NEWS

Editor’s Note In the July/August issue of New Jersey CPA, we recognized the members who have been presented with a Distinguished Service Medallion by an NJCPA president. We regret that the following four members were omitted from the list and congratulate them on their achievement:

2017/18 – Presented by Edward Guttenplan, CPA

2015/16 – Presented by Frank Boutillette, CPA

yy Alan D. Sobel, CPA, CGMA – Sobel & Co. LLC

yy Charles A. Lota, CPA – Lota & Bernard, LLC

2014/15 – Presented by Brad Muniz, CPA

2009/10 – Presented by Robert Traphagen, CPA

yy Benjamin Graber, CPA – Center for Individualized Learning

J U LY/A U G

ANALYZING AUDITS: EFFICIENCIES AND DEFICIENCIES

Page 4 BEST PRACTI CES FOR PERFORMING A QUALITY AUD IT Page 6 HOW TO AVO ID PEER REVIEW COMMON DEFICIENCIES Page 8 OUTSOURCING THE AUDIT: IS IT RIGHT FOR YOUR FIRM? Page 10 YOUR COMPAN Y’S AUDIT: GET A GAME PLAN READY

yy Robert A. Seifert, CPA – Gramkow, Carnevale, Seifert & Co., LLC

To view a list of all medallion recipients, visit njcpa.org/about.

0718_NJCPA.in

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Connect with the NJCPA President NJCPA President Sarah Krom wants to hear from you. Join Sarah for a casual meal and discussion of issues important to you as a CPA and NJCPA member — the proverbial “what keeps you up at night?” or whatever else is on your mind. How does the NJCPA help you? What can it do differently or better?

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Space at each event is limited to the first 15 registrants. yy Sept. 13 in Wayne yy Oct. 4 (location TBD) yy Oct. 5 in West Caldwell yy Nov. 7 in Eatontown yy Nov. 12 in Marlton Sign up at njcpa.org/president.

SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

UST 2018

6/14/18 9:38 AM

Target your search with the NJCPA Job Bank.

If you’re looking for new talent or exploring a new career, look no further. Use the Job Bank to be matched with the right opportunities.

EMPLOYERS

JOB SEEKERS

y

Access to highly-qualified, professional candidates

y

Search financial niche job postings

y

Easy-to-use job posting and resume search

y

Elect to remain anonymous to employers

y

Only pay for resumes of interested candidates

y

No cost to post a resume

Learn more at njcpa.org/jobs.

NEW JERSEY CPA | SEPTEMBER/OCTOBER 2018

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NJCPA NEWS

2018 Kickball Tournament a Success

NJCPA kicked off its eighth annual Kickball Tournament on July 19 featuring 16 teams competing for the coveted firstplace title and supporting a good cause.

Hosted by the NJCPA Emerging Leaders Council, the Kickball Tournament brings together members from across the state who field a team of 10 players — with at least two females on the field at all times.

Proceeds from the friendly competition support The Valerie Fund, which was created in 1977 in honor of 9-year-old Valerie Goldstein to provide support for families with children who have serious illnesses. The Valerie Fund Children’s Centers comprise the largest network of healthcare facilities for children with cancer and blood disorders in New Jersey.

“Since 2012, The Valerie Fund has been receiving toy and gift card donations from the numerous businesses that

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participate in the NJCPA kickball tournament. For younger children treated at The Valerie Fund Children’s Centers, toys are a special treat that help divert their attention during a treatment or procedure through the many hours at a time they may spend there,” explains Jennie Leto, assistant director of development and program officer at The Valerie Fund.

“For older kids and teens, gift cards give them the latitude to purchase something of their choice.”

CohnReznick was the winning team for the second year in a row. Winners get the chance to hold the Tournament Cup for one year. Previous winners include EisnerAmper, KPMG and Deloitte.

A good time was had by all. As Danielle Dvorak, CPA, MS, tax manager at Friedman LLP, explains, “the games are a great time with some nail biters and, unfortunately,

SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

some blowouts, but every team wants to come away with the trophy at the end.

No matter the outcome, it’s a rewarding experience for all.”

And the comradery can’t be beat. “The kickball tournament is a ton of fun and a great team-bonding experience after a long busy season. It allows colleagues to bond outside the office while raising money for a great cause,” she adds.

The Emerging Leaders Council hosts a variety of events throughout the year for accounting professionals with up to 10 years of experience, including networking opportunities, a food drive that benefits the Community FoodBank of New Jersey, volunteer activities and more. For additional information on the Emerging Leaders Council and the Emerging Leaders Interest Group, visit njcpa.org/groups.

CLASSIFIEDS

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.

An established Central NJ CPA firm is acquiring some suitable accounting/ tax customers for its business expansion.

Please contact Jane at 908-342-7953 or email jane.cpa.2011@gmail.com.

Bilingual.

Bergen County CPA firm in search of succession. Quality staff, own building, long time clients and relationships, four million gross, very profitable. Owner will stay as needed. No brokers, please. Reply in confidence at njcpa.org/classifieds.

Local Morris County firm is seeking to acquire practices ranging from $200K to $500K from retirement-minded practitioners and/or seeking compatible merger of candidates who have a book of business exceeding $200K. We have partner, manager and staff offices available. Contact Carl Gutt at 973-451-0800 ext. 22 or cgutt@ dglcpa.com.

Central New Jersey sole practitioner wanting to expand via merger. 500 square feet of room to expand in owned office condo. abdcpa@gmail.com 908-581-7956

Essex County retirement-minded CPA seeks CPA to assume his partnership interest and continue with remaining partner at our office location. Retiring partner will remain during transition period. Interested candidates should reply with resume to essexcpa@gmail.com.

Matthews, Panariello, P.C., an established CPA firm with offices in Bergen County, NJ and NYC, is seeking merger and acquisition opportunities in New Jersey. We have successfully completed acquisitions in the past and look forward to discussing possibilities. Contact Peter Manetta, CPA at pmanetta@mpcpas.com or 201-543-2025 .

New Jersey practices for sale: gross revenue shown: Mercer County CPA $498K; Philadelphia metro area CPA $1.178M; southern Bergen County CPA $550K; eastern Hudson County CPA $445K; Morris County CPA $450K; Warren County CPA $245K. For more information, call 800-397-0249 or visit www.aps.net.

Morris County CPA with full-time associate interested in exploring the acquisition of smaller 1040-focused practices in the Morris County area. We would be open to offering highly flexible acquisition terms for practices that fit our 1040 and 1041 practice profile. Interested parties can contact us at kbyrne@ mkbyrne.com.

Local northern Bergen County accounting firm is looking to acquire a small accounting practice from a retiring CPA in our area with a book of business of $100-$150K with predominately business accounts. We have a solid Bergen County reputation and partner/ staffing available. Contact sstraubinger@ ramsey-cpa.com.

To see additional classified listings or to place an ad, visit njcpa.org/classifieds.

PROFESSIONAL SERVICES

Peer Reviewer — do you need pre and post-issuance reviews, internal monitoring, QC Director? Reviewer seeking peer reviews for firms with nonprofits or compilations. Contact Brian Bertscha, CPA at 973-747-9526.

REAL ESTATE

Office condo for sale, Voorhees, NJ, Camden County. Office suite in Class A, one-story medical office building. 720 sq ft suite with direct access to gorgeous foyer for great visibility in a very busy office building. Solid cherry furniture included in sale: desk, tables, lamps, conference table, chairs, etc. Suite in perfect, move-in condition. Previous management company. $85,000. Excellent price for low overhead. Contact Carol at 856-7458082 or email loracmgt@yahoo.com.

Fairfield, NJ office space for rent in CPA office suite at 165 Passaic Avenue.

Furnished, 15’ x 15’ window office with great views. Includes use of copier, fax, high speed internet (FIOS), conference room, phone, file cabinets. Reception desk and staff office also available.

Reserved parking. Call or email Michael 973-227-0086 or mkap@kapmack.com.

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NEW JERSEY CPA | SEPTEMBER/OCTOBER 2018

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MEMBER STORY

Solving Problems from Pre-K to College

BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR

In 2005, when Kelvin Smith, CPA, MBA, announced his resignation from being the controller at Mercer County Community College for another opportunity, they didn’t exactly let him leave. Instead of giving the usual two weeks’ notice, he ended up extending his stay to help them complete their annual audit. And since he was so helpful, they offered him a teaching position even after leaving the school earlier than originally planned.

Twelve years later, Kelvin is still teaching as an adjunct professor at Mercer and he also has been teaching at Thomas Edison State University for their online course division for 11 years. Due to the high demand for online courses, he is busier than most adjunct professors in the

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summer — these courses are shorter and require more condensing of accounting subject matter than regular courses during the school year. He teaches financial and managerial accounting and other courses from entry level to intermediate accounting, auditing, fundraising management and graduate accounting courses.

Loving every minute of teaching, Kelvin says, “there’s something special about providing a service that’s going to help students. I like the interaction with students and giving back.” Kelvin’s wife, Delores, calls him “God’s helper” since he is a mentor to many students and provides guidance on how to get on the right track with their career and lifestyle. Delores helps keep him organized and grounded.

SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA

And that’s no easy task. For his day job, Kelvin is the School Board Administrator for the Willingboro School District in Burlington. He manages the day-to-day operations of running the pre-k to 12th grade school district as well as the food service component of the schools, which consists of about 100 employees. A typical day might involve consulting with the school board attorney; overseeing staff who manage payroll; transportation, such as school busing and special needs’ access; and facilities, including the school grounds.

“When I’m in the classroom, I talk about my job at the school district,” he said. And when he’s at his job at the school district, he draws on all his experience from working with students and helping with programs such as Read Across America. “Based on my work experiences, I’m able to do these varied areas of my job.

When I go to work, I really enjoy what I do. It’s part of who I am,” he said.

Kelvin is truly an example of how accounting, in his words, can lead to “a great, diversified experience.” Previously, he was the director of finance for Trenton Housing Authority and worked at Stockton University as payroll manager. In addition, Kelvin operates his own CPA practice with his wife. Their small firm has 15 diverse clients ranging from nonprofit organizations to defense, real estate and health care industries.

“I just love what I do. I thank God that He somehow allows me to manage all this stuff,” said Kelvin. It also comes down to good staff and qualified people in his departments. “I have a great staff at my full-time job. We sit down and we talk.”

NO TIME TO RETIRE When retirement finally comes, Kelvin doesn’t plan on slowing down much.

He wants to continue teaching, for one.

“When I retire, it will give me time to do more,” he readily admits. Kelvin also says he will consider offering additional services to clients; he doesn’t currently do attest engagements, for example.

And he plans on continuing to assist students and aspiring CPAs. His main message to pass on: “Once I obtained my CPA license, I realized I could accomplish anything. If I can do it, you certainly can.

PROFESSIONAL ISSUES UPDATES IMPACTING CPAs AND FINANCIAL PROFESSIONALS WITH THE NJCPA CEO AND PRESIDENT.

FRIDAY, SEPTEMBER 28 | 9-10 a.m.

WEDNESDAY, OCTOBER 3 | 2-3 p.m. (Replay) FRIDAY, OCTOBER 5 | 12-1 p.m. (Replay)

Register for this free event at njcpa.org/events

CAMICO – A Preferred Provider of the NJCPA since 2007 “CAMICO’s exclusive commitment to CPAs, combined with extensive risk management knowledge and expertise, led the NJCPA to partner with CAMICO for the benefit of our members more than 11 years ago. Today, CAMICO continues to help New Jersey CPAs grow their practices by delivering outstanding support, services and resources.”

Ralph Albert Thomas, CPA (DC), CGMA NJCPA CEO & Executive Director

Why CAMICO? • For 32 years, CAMICO has been protecting CPAs with insurance solutions tailored to the professional services and concerns faced by CPA firms every day.

• CAMICO’s depth of services for CPA firms is unmatched by other insurance programs.

• CAMICO policyholders have free unlimited access to proactive loss prevention and claims handling.

• Policyholders can call CAMICO as often as needed – free of charge – and consult with in-house experts on loss prevention, tax, and accounting and auditing issues.

These are just some of the reasons why the NJCPA selected CAMICO as a preferred provider of Professional Liability Insurance.

CAMICO Representative

Irene M. Walton Area VP, Affinity Manager T: 215.351.4765 E: irene_walton@ajg.com

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Accountants Professional Liability Insurance may be underwritten by CAMICO Mutual Insurance Company or through CAMICO Insurance Services by one or more insurance company subsidiaries of W. R. Berkley Corporation. Not all products and services are available in every SEPTEMBER/OCTOBER 2018 | NEW JERSEY CPA jurisdiction, and the precise coverage afforded by any insurer is subject to the actual terms and conditions of the policies as issued. © CAMICO Services, Inc., dba CAMICO Insurance Services. All Rights Reserved.