On Balance May | June by WICPA

May|June 2013 | Vol. 9 No. 3

LEADING from the classroom Robert A. Gruber, Ph.D., CPA, CGMA

Plus:

CPAs review 10-plus years of SOX Get private company financial reporting updates Create your own personal CPE plan

A publication of the Wisconsin Institute of CPAs | www.wicpa.org

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A publication of Wisconsin Institute of CPAs | www.wicpa.org

May/June 2013 Vol. 9 No. 3

6 Features

Columns

6 Leading from the classroom Accounting Professor Robert A. Gruber, Ph.D., CPA, CGMA is WICPA’s new leader. By Cynthia M. Hodnett 12 Happy belated anniversary SOX Local businesses weigh in on 10-plus years of reform. By Daniel N. Davidson 16 Staying the course Breathe life into your career with a continuing professional education plan. By Cynthia M. Hodnett 18 Four steps to advance your diversity and inclusiveness strategy Hiring a diverse workforce can promote innovation and success at your company. By Jennifer H. Monacelli, CPA

Belated Anniversary SOX 12

22 TAX Severance benefits may not be subject to FICA taxes: Consider filing a protective refund claim soon Employers should consider filing protective refund claims with the IRS for FICA taxes on employees’ severance payments. By Michael G. Goller and Amy L. Barnes 24 INDUSTRY FASB Council begins work on private company standard setting Stay tuned for the latest on the council’s efforts to address private company standard setting. By Catherine M. Schweigel, CPA 26 FRAUD Getting a handle on fraud in school districts An auditor is initially responsible for reporting a school district’s fraud to its funding agency. By Natalie P. Rew, CPA

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On Balance

May|June 2013

{ Membership Matters | more involvement }

Belong to something MORE: RESOURCES! By Barb Gamez, vice president of Membership and Marketing, WICPA 2008 Clarion Award Winner

2013-2014 WICPA officers/board members Chair Robert A. Gruber, Ph.D., CPA, CGMA Chair-elect Jean M. Hansen, CPA, CGMA Past-chair Danica E. Olson, CPA, CGMA Secretary-treasurer Joy L. Hertlein, CPA, CGMA Directors Kyle J. Beld, CPA Greta C. Diercks, CPA Katherine J. Hauser, CPA, CGMA Kelly K. Miller, CPA Joan M. Phillips, CPA Matthew I. Raunio, CPA Gregory L. Ryan, CPA Carver Smith, CPA Martin D. Verhelst, CPA AICPA Council David O. Christianson, CPA Karla E. Blair, CPA President & CEO Dennis F. Tomorsky, CPA, J.D., CGMA Vice President of Communications Amy E. Gaeth Vice President of Membership & Marketing Barb Gamez Editor Cynthia M. Hodnett Copy Editor Joan Bahr Design & Layout Kathleen Hess Advertising Manager Ellen Engel Printing Marek Printing Join us online!

On Balance is published six times a year by the Wisconsin Institute of Certified Public Accountants (WICPA). Change of address should be sent to: Membership, 235 N. Executive Drive, Suite 200, Brookfield WI 53005; Phone: 262-785-0445 or 800-772-6939 (WI/MN); Fax: 262-785-0838; email: jessica@wicpa.org. Statements and opinions expressed are those of the authors and not necessarily those of the WICPA. Publication of an advertisement does not constitute an endorsement of the product or service by On Balance or the WICPA. Articles may be reproduced with permission. © Copyright 2013 On Balance.

On Balance

May|June 2013

“Thanks so much for your quick response. This was exactly what I was looking for, and it answered my questions.” — Mark J. Miller, CPA Wouldn’t it be great to have answers to your technical questions just a few quick clicks away? Think about all the valuable time you’d save your company or clients by not having to search on your own for sources and sift through them all to find the one answer you need. Your WICPA membership gives you access to more resources that will help you be more efficient, more knowledgeable and ultimately more valuable. One of those resources is the WICPA website. When you visit www.wicpa.org you’ll find hot news we’ve already combed through that’s impactful and most relevant to CPAs. In the “Members” section, you’ll find a dozen links to more resources including ethics, peer review and tax resources. Do you remember the name of someone you met at a WICPA event who specializes in an area you’d like more information about, but didn’t get their contact information? From the “My Membership” section, you have exclusive access to the online member directory, a valuable tool for quickly finding and connecting with other members. You can find their information and email him or her through the online member directory without leaving the website. “The one thing I value most as a WICPA member is access to a network of peers when I am in need of insight into an industry issue.” — Jessica Gatzke, CPA Another valuable resource that only WICPA members can benefit from is other members! When you attend a WICPA event, whether it’s for CPE or social networking, you are making important contacts you can turn to for insights, ideas and suggestions to

help you with challenges you may be facing. Your fellow members are another timesaving resource that can expand your own expertise. Your network of WICPA members is your best resource for finding a mentor or someone to mentor. Do you have a career path in mind? Find someone who has travelled a similar path and can offer guidance or direction. “I really think (On Balance) is professionally done. The print format is important, as people can get to it when they want to and serves as a reminder versus email which can so easily be deleted/ignored. This grabs your attention.” — Carver Smith, CPA Some of the most tangible resources you and other WICPA members have are the various print and electronic publications you receive, including On Balance, The Bottom Line, Frequency, My CPE Connections, My CPE Alternatives and News for the CPA2B. From tax and technology to human resources and career-building, these publications keep you on top of the latest issues, trends and ways to overcome challenges you face in your day-to-day responsibilities. In a recent communications survey of WICPA members about their membership publications, more than 61 percent rated the WICPA as extremely or very effective in meeting their informational needs. An average of nearly 80 percent rated the publications as valuable. We continuously strive to meet your professional and technical needs, and we welcome your ideas for improving our communication vehicles. These publications are just a few of the many ways you have more resources at your fingertips and add value to your membership.

Your membership to-do list this month:  Visit www.wicpa.org/resources for quick links to WICPA member resources.  Connect with other WICPA members on LinkedIn, Facebook, Twitter and YouTube via links from the www.wicpa.org home page.  Login to My Membership at: www.wicpa.org/membership for exclusive access to all your membership information, links and events. www.wicpa.org

{ Outlook | chair’s letter } “We have a lot to be proud of in Wisconsin. Our accounting students had the third highest passing rate on the Uniform CPA Examination for first-time examinees in 2012.”

New beginnings

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t is truly an honor to serve as your 2013–2014 WICPA chair. I am humbled to have this opportunity to directly represent nearly 8,000 members of the WICPA and indirectly serve the hundreds of nonmembers who are CPAs in Wisconsin. However, to me, the word “humbled” seems too weak to describe this honor. Other words that might come closer to what I am thinking include “awed,” “overwhelmed” and “excited.” I am awed because, as an educator, I am usually more involved with providing the inputs to the accounting profession, e.g., students, instead of the processes that make our profession great. I have never prepared a tax return for a client, yet I understand the importance of the strong advocacy programs initiated and maintained by the WICPA. I have never been on an audit, yet I fully understand the critical and important role audits — internal and external — play in the proper functioning of the capital markets. I am also overwhelmed because I have had the pleasure of serving on various WICPA committees and task forces with some of the best CPAs in Wisconsin. For example, former WICPA Chairs Nicholas S. Lascari, CPA, CEA, CGMA (2011–2012) and Danica E. Olson, CPA, CGMA (2012–2013) and I have worked together during each of their terms to ensure continuity between our respective terms. Never before have successive chairs worked so closely together to assure that the organization’s longterm goals, as articulated in the WICPA 2009 strategic plan, remain in the forefront of the organization’s operating initiatives. As chair I plan to continue: • Focusing on membership growth and retention. • Emphasizing adding value to membership in the WICPA. • Concentrating on attracting the best and brightest individuals to the accounting profession. But most of all, I am excited to be WICPA chair. According to the “7 Measures of (Association) Success,” published by the Center for Association

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Leadership, “Associations are the hidden glue of our society and economy. Like mortar that holds the bricks of a building in place, associations go largely unnoticed, yet they do much to hold the entire structure together.” During my tenure, I look forward to meeting all of you at upcoming WICPA events, conferences and seminars. We have a lot to be proud of in Wisconsin. Our accounting students had the third highest passing rate on the Uniform CPA Examination for first-time examinees in 2012. We have a lot to proud of as accountants because we are members of a profession who do important work. I often tell my students that what they do matters. Again, I’m looking forward to serving as chair and working with all of you to continue to promote the WICPA and the accounting profession! Robert A. Gruber, Ph.D., CPA, CGMA is an accounting professor at the University of Wisconsin–Whitewater. Contact him at 262-472-5463 or gruberr@uww.edu.

On Balance

May|June 2013

www.wicpa.org

{ Spotlight | letter from the editor } “This issue of On Balance highlights several local firms that promote CPE to their employees and what to consider when creating your CPE plan.”

CPE creates a lifelong learning curve

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ontinuing professional education (CPE) goes to the heart of the CPA profession. As a leading CPA, you appreciate how continuously gaining current knowledge benefits you, your employers and your clients. You also understand how earning CPE credits can expand your communication skills and make you a better leader. To you, earning those credits goes beyond fulfilling a requirement. They are the tools you use to become a better CPA. Now it’s time to build your CPE plan. This issue of On Balance highlights several local firms that promote CPE to their employees and what to consider when creating your CPE plan. Then, visit www.wicpa.org to learn more about WICPA’s various online, in-person and self-study CPE offerings. “The advice (employees) get is choosing the core learning that makes the most sense for them and matches the work they are doing,” said Gayle Noakes, chief learning officer at CliftonLarsonAllen. “We encourage them to engage in development opportunities and decide if there are skills they want to develop and what type of work they want to do in the future.” Speaking of accounting education, this issue also features new WICPA Chair Robert A. Gruber, Ph.D., CPA, CGMA. Gruber is a professor and Master of Professional Accountancy program coordinator at the University of Wisconsin–Whitewater. Read about Gruber’s 30-year teaching career, his goals as the organization’s newest leader and his love for all-things Disney. “Our last few WICPA (chairs) have been from industry or public accounting,” he said. “I think

www.wicpa.org

educators bring a different perspective because we’re teaching the new generation of accountants.” Plus, read about the benefits and costs to U.S. companies since the Sarbanes-Oxley Act was passed more than a decade ago. In addition, get updates regarding private company financial reporting and its effect on the CPA profession. Next, discover why employers should file protective refund claims with the Internal Revenue Service for Federal Insurance Contributions Act taxes on severance payments for employees involuntarily terminated due to a workforce reduction or company closing. Lastly, consider how hiring a diverse workforce can create innovation and success throughout your company.

Cynthia M. Hodnett is editor of On Balance magazine. Contact her at 262-785-0445 ext. 3004 or cynthia@wicpa.org.

Photography by John Nienhuis

On Balance

May|June 2013

www.wicpa.org

Leading from the classroom Accounting Professor Robert A. Gruber, Ph.D., CPA, CGMA is WICPAâ&#x20AC;&#x2122;s new leader By Cynthia M. Hodnett

www.wicpa.org

On Balance

May|June 2013

“Not every CPA in Wisconsin is a member, so they don’t know how valuable this organization is. I want to help the WICPA in any way that I can with its goals and initiatives to increase and retain members.”

Robert A. Gruber, Ph.D., CPA, CGMA, professor and Master of Professional Accountancy program coordinator at the University of Wisconsin–Whitewater, has had a unique view of the accounting profession over his 30-year teaching career. During that time, Gruber has prepared hundreds of budding CPAs for accounting careers. He has seen several changes, including how today’s accounting students are more technological savvy compared with students in the past. He’s also seen how accounting curriculum has shifted to reflect most employers’ preference to hire accounting graduates who have technical skills, the ability to think critically, solve problems, demonstrate high ethical standards and communicate effectively. These types of classroom experiences, Gruber said, gives him a different perspective as the new chair of the WICPA. “Our last few WICPA (chairs) have been from industry or public accounting,” he said. “I think educators bring a different perspective because we’re teaching the new generation of accountants who will eventually work at companies and CPA firms.” Attracting the best and brightest to the accounting profession and emphasizing the value of WICPA membership are among Gruber’s goals as chair. “Not every CPA in Wisconsin is a member, so they don’t know how valuable this organization is,” he said. “I want to help the WICPA in any way that I can with its goals and initiatives to increase and retain members. I’m willing to do it, even if I’ve got to be a salesperson or if I’ve got to become a marketing expert.” 8

On Balance

May|June 2013

An easy-going demeanor, plus a passion for the accounting profession and teaching, makes Gruber a good choice for WICPA chair, said Christine Clements, dean of the College of Business and Economics at UW–Whitewater. The two met 23 years ago when Clements began teaching at the university. “Bob has always been a great and supportive colleague, someone you can go to in a pinch, and he’ll step up and find solutions,” she said. “I know when I go to him with any kind of problem, he’ll roll up his sleeves and start finding solutions.”

Preparing tomorrow’s CPAs today Gruber said he became an accounting educator to help shape future accounting professionals. Although he has never practiced as a CPA, he values the CPA designation and continuously promotes its importance to his students. “If I was going to teach them and have any kind of creditability, I needed to earn those initials, I needed to pass the CPA exam, and I needed to keep current with my continuing education,” said Gruber, who earned his CPA license in 1983. “The recognition and the reputation one gets from getting a CPA is very important. I wanted to model the behavior that I would expect my students to have when they work in the profession.” Many of Gruber’s students sense his genuine commitment to their academic success, Clements said. “He’s the kind of person and teacher who will reach out to the ones who want the opportunity, but aren’t sure if the world of accounting will accept them — our students of opportunity, diverse students, students who are economically disadvantaged, students who are willing to work hard but also need someone to extend a hand to them,” she said. www.wicpa.org

Gruber earned a degree in business education in 1977 and an MBA degree in 1978 from the University of Wisconsin–Eau Claire. He later earned both a master’s degree in accounting in 1986 and doctorate degree in accounting in 1990 from UW–Madison. While earning his advanced degrees, he taught accounting for one year at UW–Eau Claire. He later began teaching in 1983 at UW–Whitewater. A WICPA and AICPA member since 1983, Gruber has lent his expertise to the accounting profession in many ways, including writing questions for the Uniform CPA Examination and serving as WICPA Educational Foundation president. He was also a school board member for the Mukwonago Area School District from 1998–2004, and served on the Disney Internships and Programs National Advisory Board from 2009–2012. He continues to advise UW–Whitewater freshmen and sophomores in the Walt Disney College Program. The students, mostly undecided majors, spend a semester working in various jobs at the theme parks and resorts, taking several academic courses for credit.

Leaving it all behind As the program’s adviser, Gruber travels to Walt Disney World in Orlando, Florida, several times each year to meet with his students. The trip also provides him an opportunity to enjoy his immense interest in Disney, which developed in

his late 30s. He also travels there with his family several times a year. An enormous Disney memorabilia collection, including more than 30 snow globes, fills his office. He purchased many of the items while many others are gifts. “The first thing people say when they see my office is ‘wow,’” he said. “I like Disney because it’s a place where you can escape reality. The other thing I like is Disney’s incredible attention to detail. Everything is precisely planned. To me, it’s very close to what I teach my students about what accountants should be.” Gruber also enjoys everything associated with Ireland. That interest led to an opportunity to teach at the University of Dublin in Ireland for five months in 2009. “I collect Irish music, and I love Irish dancing,” he said. “I also started reading about the history of Ireland, and I became really interested in it. My interest in all things Irish really makes no sense because my family actually came from Germany and Denmark.” When he’s not in the classroom or enjoying his hobbies, Gruber enjoys cycling and spending time with his wife, Cindy, an accounting instructor at Marquette University. They have two children, Alyssa, a freshman at Marquette University, and Rob, a junior at Mukwonago High School. Cynthia M. Hodnett is editor of On Balance magazine. Contact her at 262-785-0445 ext. 3004 or cynthia@wicpa.org.

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On Balance

May|June 2013

Welcome:

new board members

The WICPA Board of Directors represents the membership, exercises leadership, participates in strategic planning, and approves the annual WICPA budget, bylaw amendments, selection of auditors, and other actions relating to organizational governance. The board consists of 15 members. New members began serving after they were elected May 9, 2013 at the Member Recognition Banquet and Annual Business Meeting.

New Board Members Chair-elect

Jean M. Hansen, CPA, CGMA, vice president of finance, Manitowoc Tool & Machining, LLC, Manitowoc

Returning Board Members Chair

Robert A. Gruber, Ph.D., CPA, CGMA, professor and MPA program coordinator, University of Wisconsinâ&#x20AC;&#x201C;Whitewater, Whitewater

Past-chair Directors

Kyle J. Beld, CPA, senior accountant, Wipfli, Madison

Danica E. Olson, CPA, CGMA, accounting manager, Milwaukee Bucks, Inc., Milwaukee

Directors

Greta C. Diercks, CPA, Brettingen, Smits, Novak & Bastle S.C., Antigo Katherine L. Hauser, CPA, CGMA, accounting supervisor, Price Engineering Co., Hartland

Kelly K. Miller, CPA, shareholder, Scribner Cohen and Company, S.C., Milwaukee Joan M. Phillips, CPA, CGMA, partner, Deloitte & Touche LLP, Milwaukee

Secretary-treasurer

Joy L. Hertlein, CPA, CGMA, CFO, New Berlin Plastics, New Berlin

Matthew I. Raunio, CPA, assistant professor of business, University of Wisconsinâ&#x20AC;&#x201C;Sheboygan, Sheboygan Gregory L. Ryan, CPA, office managing partner, KPMG, Milwaukee

AICPA Council

Nicholas S. Lascari, CPA, CGMA, CEA, partner, Balistreri, Jezo & Lascari, LLP, Brookfield (effective October 2013)

Carver Smith, CPA, search practice leader, Baker Tilly Virchow Krause, LLP, Milwaukee Martin D. Verhelst, CPA, owner, Martin D. Verhelst, CPA, Oregon

AICPA Council

Karla E. Blair, CPA, retired shareholder, Schenck SC, Appleton David O. Christianson, CPA, partner, Wipfli, Milwaukee (until October 2013)

On Balance

March|April 2013

www.wicpa.org

{ In Touch | president & CEO’s message } “As you continually refine your technical skills through experience, evolving responsibilities and WICPA continuing professional education courses, remember to enhance and refine your leadership skills to navigate new situations that emerge during your career.”

Education and leadership: Keys to success

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ducation and technical skills play the most significant role in your early career advancement. The continuing enhancement of your technical and other competencies, including leadership, will keep your career moving forward and upward. Because recent college graduates seldom supervise others, they don’t often think about developing their leadership skills. The significant time demands of early-career CPAs require strong focus on getting each assigned task completed correctly and on time. At this hectic pace, however, time passes quickly, and supervisory responsibility is soon assigned without advance notice and often with relatively little or no leadership training. Fortunately, there are many opportunities for CPAs to develop leadership skills before they are assigned their first direct report. Participating in any group activity or team sport develops leadership skills. Volunteering for community service and joining school clubs in pre-college years also develops leadership, as does joining and becoming active in professional organizations like the WICPA once you enter the full-time workforce. Mid-career and executive CPAs continue their education and leadership development by taking formal leadership classes, engaging personal executive coaches, and serving on WICPA committees, task forces and boards. As you continually refine your technical skills through experience, evolving responsibilities and WICPA continuing professional education courses, remember to enhance and refine your leadership skills to navigate new situations that emerge during your career. While your initial supervisory role may involve simply showing someone how to perform tasks, you will soon share feedback to help direct reports develop their own technical and leadership skills. Your direct reports will then supervise others, and you will become a mentor to, role model for and leader of several individuals at various stages of their careers.

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As a partner, shareholder or other executive, your leadership skills play an increasingly important role as a visionary who must inspire all those in your organization, including a variety of stakeholders. Being accountable to your fellow partners, outside owners, customers, vendors, media, government regulators, lawmakers and your fellow employees requires a variety of leadership skills. At this advanced level in your career, the ability to memorize rules or complete multiple narrowly focused technical projects by their deadlines becomes far less important. What becomes important are your leadership skills in developing, effectively communicating, and inspiring others to implement strategies for success in a challenging and rapidly changing environment.

Dennis F. Tomorsky, CPA, J.D., CGMA is president & CEO of the Wisconsin Institute of CPAs. Contact him at 262-785-0445 ext. 3014 or dennis@wicpa.org.

Belated

Local businesses weigh in on 10-plus years of reform

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By Daniel N. Davidson

On Balance

May|June 2013

www.wicpa.org

X O S y r a s Anniver

The initial costs of implementing the Sarbanes-

“Overall, there has been a significant improvement

Oxley Act (SOX) may have been high for American

over the past 10 years, especially the act’s impact on

companies. Enacted in 2002 — shortly after

preparers, auditors and audit committees,” Wrobbel

monumental corporate collapses at Enron, Arthur

said. “Public companies have more active audit

Andersen, World Com and Tyco — Sarbanes-Oxley

committees in place and there is better dialogue

established new and higher standards of financial

between everyone concerned and a heightened

reporting for public company boards, management

sense of the importance of financial reporting.”

and public accounting firms.

Benefits and costs of SOX

Now, more than a decade after the landmark reforms became law, officials at some major accounting firms and businesses believe the benefits are obvious. “The act came at a time when we needed to focus on financial reporting and controls, and it resulted in a great deal of good,” said Scott A. Wrobbel, CPA, Milwaukee office managing partner at Deloitte & Touche LLP. www.wicpa.org

Among other things, the legislation resulted in the creation of the Public Company Accounting Oversight Board and prohibited audit firms from providing certain expert consulting services to their clients. Instead, clients must now engage separate firms for different functions. Following the failures of Enron and other companies, the prevailing view was that improvements were needed in corporate governance, registrant’s internal controls over financial reporting and the auditing On Balance

May|June 2013

profession, said Tim Donnelly, partner in charge of PwC’s Milwaukee office. “Ultimately, the objective was to restore the investing community’s confidence in financial reporting,” Donnelly said. “The reduction in the number of restatements of financial statements, improvements in registrant’s controls and enhanced quality of audits have all helped in this regard.” The cost for companies to adhere to the provisions of Sarbanes-Oxley was, at least in many cases, significant. “Anytime you implement a new system there is an onerous expense,” said Douglas A. Neis, CPA, chief financial officer and treasurer of The Marcus Corp. in Milwaukee. “We hired a consultant, as did most other companies, but we still required a significant amount of additional internal time as well. We didn’t have to hire more folks, but our internal audit function has changed as a result of SOX and a significant part of what internal audit does is focused on SOX compliance.” Rockwell Automation also found the implementation of SOX requirements challenging. “It definitely required a higher level of effort and expense for the company,” said the company’s financial planning manager, Gary R. Stapelman, CPA. “It was pretty cumbersome to implement, as there were a lot of additional processes to put in place to meet the documentation requirements. We hired more people for the task and now have an internal control group that is bigger than it was before. The expense now is ongoing. We have some employees who dedicate half their time or a quarter of their time to SOX.” However, there have been benefits as well, even for exceptionally well-managed companies like 14

On Balance

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Marcus Corp., Rockwell Automation and Johnson Controls Inc. “SOX was definitely a good thing for my company,” said Jane Wilson, finance director of the Milwaukee Business Center at Johnson Controls. “It was cumbersome at first, but now the testing of controls by PwC and by our internal auditors is streamlined. We have minimized the costs of testing, as we now have much of our North American accounting and transaction processing centralized in our shared service center. In addition, the SOX process has increased awareness and accountability not only with finance but also outside of finance. “The internal controls themselves existed before SOX, but SOX forced us to document them, making it more structured and formalized,” Wilson said. “An added benefit is that we now have a software application (Risk Navigator) that has facilitated having the key controls, testing results, quarterly representation letters and various other items at our fingertips.”

SOX creates system of checks and balances

When the requirements imposed by SOX were first unveiled, no company would likely have said a single good thing about them, Neis said. “But it has provided a very useful discipline,” he said. “It’s not that we didn’t already have a system of controls and procedures in place and were reconciling accounts and so forth. But SOX provided a framework for making sure that everything happens as it should. It took time for both us and the accounting firm to figure it out, and it probably took several years for both sides to settle in and identify www.wicpa.org

what’s important and what’s not. That was the key. At the beginning our perspective was that everything is important. Over time we identified the true risks and made sure the focus is on that.” SOX has also meant changes in the way the accounting profession does its job. “Just as companies have had to increase the size of their staffs to implement Sarbanes-Oxley, we have had to increase ours,” Wrobbel said. “Generally, accounting firms have increased the number of hours that it takes to perform an audit on a public company. And because it takes more hours, we have had to hire more people. There has been an increase of perhaps 25 percent in terms of the hours for a public company audit, and we hired a commensurate number of employees to do that.” Wrobbel doubted there will be any future implications of SOX. “The provisions of the law are now generally understood, firms have moved to meet the additional requirements, and the (accounting) schools had

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already been on a path for a fifth-year requirement or a master’s degree in order to sit for the CPA exam. So all this has already come together nicely,” he said. “The regulatory bodies have pushed the need for quality and from here on there will be continuous refinement of what has taken place in the past 10 years.” “SOX has led to continuous improvements in companies’ internal controls over financial reporting and the audit process,” Donnelly said. “Now that internal controls over financial reporting are required to be audited for larger registrants, our audit procedures test the design and operating effectiveness of the key controls. If the controls are determined to be effective, this ordinarily allows us to reduce the amount of audit work that would otherwise have been necessary for the financial statement audit.” Daniel N. Davidson is a freelance writer in Milwaukee. Contact him at davidsondn@aol.com.

On Balance

May|June 2013

Staying the Course Breathe life into your career with continuing professional education

By Cynthia M. Hodnett

education (CPE) plan can enhance your

comply with CPE requirements and meet the interests

professional skills while making you

and needs of the employee and their employer,

more valuable to your employer and

according to leaders at several area CPA firms. Although

your clients.

the number of CPE hours most firms require employees

As tax laws and regulations constantly change, it’s es-

to earn varies, most typically earn about 40 hours

sential to keep up. Now that busy season is over, there’s

every year.

no better time to develop a CPE plan that suits you.

However, the most effective programs are tailored to

“We try to let our people choose their career path,”

The availability of various courses and technologies

said Steven R. Volz, CPA, partner at Reilly, Penner &

may make it seem easy to create a CPE plan. Plus, there

Benton LLP in Milwaukee. “If someone wants to be a

are many ways to obtain CPE, including conferences,

tax person and they want to take a lot of tax courses,

on-site and off-site training, self-study and webinars.

that’s fine. The same thing if they are an audit person.”

On Balance

May|June 2013

www.wicpa.org

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customized continuing professional

“It’s aid Carrie A. Gin dt, input,” s impo e v a h rtant for (employees) to CPA ’ n t h o a d v e any they , part ton. “If n e B n & e r r at Reilly, Penne inte hey are sitting through a t rest i r o g n n the course they are taki sem ,that defeats the purpose.” t i inar a m o r nd not taking anything f

Buy-in plus CPE plan equals ROI Regardless of an employee’s skill and experience level, there must be buy-in between him or her and his or her employer. In addition, guidance and oversight from the employer is necessary. Many of the leaders agreed that these types of CPE plans result in the best return on investment. “It’s important for (employees) to have input,” said Carrie A. Gindt, CPA, partner at Reilly, Penner & Benton. “If they don’t have any interest in the course they are taking or they are sitting through a seminar and not taking anything from it, that defeats the purpose.” Most firms and companies designate higher-level employees to help their staff establish goals and expectations for professional development. They also help employees select courses that meet the needs of their employers and align with their career level, areas of expertise and interests. CliftonLarsonAllen appoints individuals called “learning guides” to help employees decide which CPE to take, said Gayle Noakes, chief learning officer at the firm. “The advice employees get is choosing the core learning that makes the most sense for them and matches the work they are doing,” Noakes said. “We encourage them to engage in development opportunities and decide if there are skills they want to develop and what type of work they want to do in the future.”

Getting on the same page The leaders also agree that the next step in developing a plan is determining the balance of CPE, achieved by taking technical and soft skills training. “We’re offering more soft skills training today, which was less of a focus in the past,” said Joy J. Duce, SPHR, director of human resources at Kolb+Co. in Brookfield. “Before, people concentrated heavily on technical training. Now, we provide soft skills training to individuals at all stages of their careers.” “It’s necessary to have the technical skills, and it’s so important to have the soft skills and people skills in public www.wicpa.org

accounting,” said Tricia A. Knight, CPA, managing partner at RitzHolman CPAs in Milwaukee. “As your career progresses, it’s the relationships you build with people. You’re dealing with a wide range of people with different personalities, and if you don’t have people skills, public accounting isn’t for you.” Along with technical and soft skills, a good CPE plan should be cost effective. “When the economic downturn took place, firms looked for opportunities to reduce costs,” Duce said. “At Kolb+Co., we decided to continue to invest in our people and their career growth. That said, we are committed to making smart decisions regarding training. We evaluate each training opportunity to assess how it aligns with the employee’s individual career path and firm’s strategic goals.” Technology makes it convenient and cost-effective to take CPE. Instead of spending several days at a conference, one can take CPE online in a few hours. However, virtual CPE doesn’t afford the opportunity for networking, which is vital for professional development, Knight said. “We do in-house and we use outside courses,” she said. “We place less emphasis on self-study. We feel that a big benefit of going outside for CPE is the networking because people are able to meet other people from different firms and learn from each other.” As a top CPA, you perhaps realize how a personalized CPE can bring you success with your clients and firm while providing professional development and personal growth. Explore WICPA’s vast CPE offerings and learn about requirements at www.wicpa.org. There, you will find information about our self-study, online, in-person seminars and conferences, and breakfast meeting offerings. Cynthia M. Hodnett is editor of On Balance magazine. Contact her at 262-785-0445 ext. 3004 or cynthia@wicpa.org.

On Balance

May|June 2013

Four steps to advance your diversity and inclusiveness strategy By Jennifer H. Monacelli, CPA

At Ernst & Young LLP, our retention of women has risen, and the number of executive women has more than doubled since our focused efforts on gender equity began. Our Milwaukee office follows this same trend. In 2012, 48 percent of all hires in our Milwaukee practice were women, and women comprised 42 percent of our client-serving professionals in our Milwaukee practice — consistent with our national average. made in advancing our diversity and inclusiveness (D&I) efforts. The following are examples of what we’ve done and what other businesses can do to bolster their D&I programs, advancing women and many others. 18

On Balance

May|June 2013

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We are proud of the significant strides we’ve

1. View inclusive leadership as everyone’s responsibility. All 203 people in our Milwaukee practice are held accountable for leading inclusively. This means thinking, learning and acting differently so everyone feels valued. What’s more, our professionals at or above the manager level are required to establish an inclusiveness-related goal as part of our annual performance management process. Success against this goal is tracked annually.

2. Support a professional network focused on women. Our Professional Women’s Network (PWN) gives women at all levels regular opportunities to meet, develop skills specific to their career, expand their networks and discuss current workplace issues. The Milwaukee PWN — comprising women and men — hosts learning events, networking dinners, guest speakers, skillbuilding sessions, golf outings and community engagement activities. Whether the PWN is encouraging

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women to join boards, sponsoring local business and civic events that facilitate networking, or inviting women into each other’s professional network, creating these touch points is critical to success.

3. Embed flexibility into your culture. Our flexible culture empowers all of our people to help each other navigate how, when and where work gets done, and our investment in technology helps enable this. Gwen Jorgensen, CPA, a former tax professional in our Milwaukee office, shined the spotlight on our commitment to working flexibly. We helped her integrate her work at the firm with a rigorous training regimen, as she prepared to compete in the 2012 London Olympic Games.

4. Encourage equitable sponsorship.

our women receive the internal sponsorship they need to advance within the firm. A sponsor uses relationship capital to advocate for the advancement of their protégé. This is particularly critical for working mothers, many of whom face significant life decisions as they navigate professional and personal transitions. More than ever, women — as employees, clients and other stakeholders — represent tremendous untapped business potential. If businesses and professional services organizations aren’t focused on creating an inclusive and flexible culture where everyone, including women, has an equal opportunity to succeed, these companies also won’t realize their full potential. Jennifer H. Monacelli, CPA is a Milwaukeebased advisory partner at Ernst & Young LLP. Monacelli leads the Milwaukee office’s Professional Women’s Network. Contact her at jennifer.monacelli@ey.com. The views expressed herein are those of the author and do not necessarily reflect the views of Ernst & Young LLP.

Providing effective coaching and mentoring is critically important for women’s success and can help strengthen retention and develop talent. Research shows, however, that women who are over-mentored and under-sponsored don’t always advance at the same rate as their male counterparts. Therefore, we invest heavily in making sure

On Balance

May|June 2013

kudos Odd & Ends Kevin Behnke, CPA was promoted to senior manager at Hawkins, Ash, Baptie & Co. LLP in De Pere. James C. Burkhardt, CPA, a shareholder and chief financial officer of Schenck SC, celebrated his 35th anniversary at the firm.

James C. Burkhardt, CPA

Nathan R. Byers, CPA was hired as tax senior at Johnson Block & Co. Inc. in Madison. David J. Donze, CPA was named senior tax accountant at Hjortness & Associates SC in Menasha, according to the Appleton-Post Crescent. Gregory G. Feucht, CPA, CVA was named one of the new owners of Huberty & Associates, S.C. in Fond du Lac.

Gregory G. Feucht, CPA, CVA

Courtney J. Kahl, CPA, supervisor at Schenck SC in Appleton, recently celebrated her fifth anniversary at the firm. Carrie A. Leonard, CPA was promoted to partner at Johnson Block & Co. Inc. in Madison. Rep. Howard L. Marklein, CPA (R-Spring Green) was selected to serve as chair of the Wisconsin State Assembly Ways and Means Committee and vice chair of the Joint Audit Committee.

Courtney J. Kahl, CPA

Ellen Kay McGuire, CPA was hired as tax manager at Johnson Block & Co. Inc. in Madison. Sabrina S. Mertins, CPA was hired as an associate at RitzHolman CPAs in Milwaukee. Kelly K. Nolan, CPA was hired at Krause, Howard & Co. S.C. in Wausau, according to the Wausau Daily Hearld.

Jodi M. Sommer, CPA

Jodi M. Sommer, CPA, a manager at Schenck SC in Sheboygan, recently celebrated her 10th anniversary at the firm. Terry T. Strittmater, CPA was recently named managing shareholder of Schenck SC in Milwaukee.

Terry T. Strittmater, CPA

WICPA receives financial literacy honor The Governor’s Council on Financial Literacy selected the WICPA to receive the 2012 Wisconsin Financial Literacy Award. The institute was among nine organizations recognized for their efforts to educate individuals about financial literacy. Twelve individuals also received the award.

Name change for Kerber, Rose & Associates Kerber, Rose & Associates, S.C. changed its name to KerberRose SC. KerberRose has seven offices in Shawano, Green Bay, Appleton, Clintonville, Sturgeon Bay, Sister Bay and Rhinelander. KerberRose has also launched a new website at www.kerberrose.com.

Schenck acquires local CPA practice Schenck SC acquired a majority of Bonfield & Co. S.C., a CPA firm in Milwaukee. Steve E. O’Brien, CPA, a former Bonfield partner, will work with Schenck personnel to serve clients from Schenck’s Milwaukee office. Michael E. Whittle, CPA, the other former Bonfield partner, will continue to serve a small group of select clients independently.

Report: Most Americans worry about retirement Fifty-five percent of Americans are “very concerned” that the economy is reducing their chances for retirement, according to a report by the National Institute on Retirement Security. Read the survey results at http://tinyurl.com/bf3y8u3.

Daniel J. Walsh, CPA, an attorney at Walsh & Walsh, S.C. in DePere, was selected for inclusion in The Best Lawyers in America 2013 in elder law. He was also named 2013 Lawyer of the Year in elder law by Best Lawyers. Jonathon R. Wendorf, CPA was hired at Krause, Howard & Co. S.C. in Wausau, according to the Wausau Daily Hearld.

Correction Norman Koshakow, CPA was recently identified as a resident of Hot Springs, Ark., in the January/February 2013 issue. He was a resident of Milwaukee. We apologize for the error.

Daniel J. Walsh, CPA

On Balance

May|June 2013

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memorials WILLIAM “BILL” D. DONAIS, CPA

NIKKI K. REED-ZIEHR, CPA

(1950–2013)

(1967–2013)

William “Bill” D. Donais, CPA died Feb. 16, according to the River

Nikki K. Reed-Ziehr, CPA died Feb. 14. She was 46. Reed-Ziehr’s

Falls Journal. He was 62. Donais earned his accounting degree from

accounting career included positions at Grant Thornton LLP, the

the University of Wisconsin–Eau Claire. His accounting career

former McGladrey & Pullen LLP, the former Arthur Andersen LLP,

includes a position as tax manager at Bauman Associates Ltd. in River

and Deloitte. Her most recent position was global mobility talent

Falls. He retired in 2012 after 39 years of working at the firm. He earned his certified public accountant license in 1977. The River

2013

Falls resident joined the WICPA in 1978.

leader at Deloitte in Minneapolis, Minn. She earned her certified public accounting license in 1992. During that same year, she joined the WICPA and later served on the institute’s Accounting Careers Committee. She was a resident of Lakeville, Minn.

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your dues keep your vital member benefits coming If you have not yet renewed your 2013–2014 membership, visit http://www.wicpa.org/Content/ home/Members.aspx for quick and easy online payment to keep your valuable member benefits coming, including On Balance magazine. Pay your dues in the “Renew My Membership” section on the Members page. For information regarding your membership or username and password, contact Jessica Barillari at 800-772-6939 ext. 3025 or Jessica@wicpa.org.

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On Balance

May|June 2013

{ Tax | protective refund claim }

Severance benefits may not be subject to FICA taxes:

By Michael G. Goller and Amy L. Barnes

On Balance

May|June 2013

In United States v. Quality Stores, 693 F.3d 605 (6th Cir. 2012), the U.S. Court of Appeals for the Sixth Circuit held that certain severance amounts paid to employees upon involuntary termination of employment in connection with a reduction in workforce or plant closing were not subject to Federal Insurance Contributions Act (FICA) taxes. The Sixth Circuitâ&#x20AC;&#x2122;s decision creates a conflict among the circuits, as it directly conflicts with a decision of the Court of Appeals for the Federal Circuit. The United States is expected to file a petition for certiorari with the U.S. Supreme Court. If granted, the Supreme Court may ultimately determine whether certain severance payments are subject to FICA taxes, which could result in significant refunds of FICA taxes. As a result, many employers should consider filing protective refund claims with the Internal Revenue Service (IRS) for FICA taxes on certain types of severance payments. The statute of limitations on requesting a refund of severance payments made in 2009 expired April 15, 2013. The year 2010 statute remains open until April 2014.

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Consider filing a protective refund claim soon

Background The Internal Revenue Code imposes FICA taxes on both employers and employees to fund the Social Security and Medicare programs. FICA taxes are due on all “wages” paid to an employee. “Wages” are defined as “all remuneration for employment.” The IRS has long taken the position that severance payments constitute “wages” and are subject to FICA taxes. However, the IRS recognizes a narrow exception for severance payments paid under a supplemental unemployment benefit (SUB) plan. To qualify for this exception, the IRS requires the payments to be linked to the receipt of state unemployment compensation. See Rev. Rul. 56 249, 1956 1 C.B. 488 as modified by Rev. Rul. 90 72, 1990 2 C.B. 211. In 2008, the U.S. Court of Appeals for the Federal Circuit affirmed the IRS’ position and held that severance payments paid to employees in connection with an employer’s reduction in work force were subject to FICA taxes because the benefits were not paid under a plan that met the IRS definition of a SUB plan. CSX Corp. v. U.S., 518 F.3d 1328 (Fed. Cir. 2008). Quality Stores involved severance payments paid by a retailer that filed bankruptcy. The retailer closed its stores and distribution centers and terminated its employees. Many of the terminated employees received severance payments that were not linked to the receipt of state unemployment compensation. The Sixth Circuit held that such severance payments qualified as SUB payments, and thus did not constitute wages subject to FICA taxes. The court stated that to qualify as a SUB payment, the payment must be: 1. Paid to an employee. 2. Pursuant to an employer’s plan. 3. Because of an employee’s involuntary separation from employment, whether temporary or permanent. 4. Resulting directly from a reduction in workforce, the discontinuance of a plant or operation, or other similar conditions. 5. Included in the employee’s gross income. The SUB payments need not be tied to an employee’s receipt of state unemployment compensation benefits. Thus, the court expressly declined to follow past IRS rulings and the CSX Corp. decision.

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Steps you should take to preserve refund claims

{ Tax | protective refund claim }

“The United States is expected to file a petition for certiorari with the U.S. Supreme Court. If granted, the Supreme Court may ultimately determine whether certain severance payments are subject to FICA taxes, which could result in significant refunds of FICA taxes.”

With the recent downturn in the economy, many businesses turned to employee layoffs, which resulted in substantial severance payments. In light of the decision in Quality Stores, businesses and individuals should consider taking the steps necessary to protect their rights. Employers should file a protective refund claim (a specific procedure exists for doing this, which is beyond the scope of this article) for FICA payments that fall under Quality Stores. The general statute of limitations on filing a refund claim for quarterly employment tax returns is three years starting from April 15 of the succeeding year. As such, businesses should have filed a protective refund claim relating to calendar year 2009 by April 15, 2013. The IRS will hold the refund claims in abeyance until the litigation is ultimately resolved. However, these claims protect the employer and, if the litigation is ultimately resolved in a taxpayer favorable manner, such employer (and applicable employees) could receive a significant FICA refund.

Steps you should take if considering a reduction in work force or plant closing If you are considering a future reduction in workforce or a plant closing, it may be advisable to create a severance plan that meets the requirements described in Quality Stores. Alternatively, employers might consider creating a SUB plan that meets current IRS requirements for exclusion from FICA taxes regardless of the outcome of the Quality Stores case. SUB plans approved under current IRS guidance are subject to detailed written and administrative requirements, but in certain cases, it may be worth the cost of operating a SUB plan in such a manner. The treatment of severance pay and FICA taxes is expected to continue to play out in the courts. In the meantime, if you have questions or desire assistance with filing a protective refund claim in a manner that preserves the FICA refund, please contact your tax adviser. Michael G. Goller is chair of the Tax Department at Reinhart Boerner Van Deuren s.c. in Milwaukee. Contact him at 414-298-8336 or mgoller@reinhartlaw.com. Amy L. Barnes works in the Tax Department at Reinhart Boerner Van Deuren s.c. in Milwaukee. Contact her at 414-298-8164 or abarnes@reinhartlaw.com.

On Balance

May|June 2013

{ Industry | private company standards setting }

FASB Council begins work on

private company standard setting

By Catherine M. Schweigel, CPA

On Balance

May|June 2013

In its first two meetings, the PCC identified three current issues as worthy of consideration for modification: 1. Recognizing and measuring intangible assets acquired in business combinations. 2. Accounting for variable-interest entities. 3. Accounting for plain vanilla interest rate swaps. The PCC has determined that these issues are, at present, the most significant for private companies and those who prepare and use private company financial statements. It will begin extensive, formal reviews of these issues first. The council tabled the issue of uncertain tax positions and plans to address accounting for development-stage enterprises and stock compensation accounting at its May meeting. The first topic focuses on the fact that the valuations required for recognizing and measuring intangible assets in business combinations are overly complex and often disregarded. The PCC plans to research recognition and amortization issues involving this topic. Governing standards now include Accounting Standards Codification (ASC) Topic 805, Business Combinations and Topic 350, Intangibles â&#x20AC;&#x201D; Goodwill and Other. The second topic stems from standards created to thwart efforts to camouflage liabilities on fake company balance sheets, a practice that brought down Enron. Private companies state that it is costly to prepare and audit the complex, consolidated financial statements required under this standard, especially for companies that own and lease buildings to their own entities. The governing standard is ASC Topic 810, Consolidation. The third topic involves the costly accounting needed for plain vanilla interest rate swaps used to convert variable interest rate loans to fixed rates. So far, the PCC is considering situations when one counterparty is included. It also requested that FASB staff provide information about situations in which more than one counterparty or lending arrangement is involved. ASC Topic 815, Derivatives and Hedging, covers this topic. The Financial Accounting Foundation (FAF) established the PCC in 2012 to work with FASB to determine modifications of U.S. Generally Accepted Accounting Principles (GAAP) for private companies. The FAF established the council to address widespread concerns about the differences between private company and public company reporting. Many accounting leaders, however, had sought to create a separate private company standard-setting board with independent authority. In October 2011, the AICPA-led Blue Ribbon Panel on Standard Setting for Private Companies strongly recommended that FAF launch

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The new Private Company Council (PCC) is taking root despite ongoing concerns about Financial Accounting Standards Board (FASB) oversight limiting its independence. In early 2013, the council took its first steps toward addressing the accounting standard setting process for private companies and establishing a decision-making framework for the long term.

{ Industry | private company standards setting } “While there has been speculation that International Financial Reporting Standards (IFRS) could gain traction in the United States — thereby addressing some of the concerns about private company standards and reporting — IFRS standards have a long way to go before they are formalized here.” an independent board. Instead, FAF established the PCC, which reports to FASB. It may take several months for the council to reach conclusions on each topic. Although the PCC has dedicated staff, its all-volunteer leadership model indicates that decision-making will proceed gradually, with the first rules likely to be formalized after a year or more of discussion, comment and revisions. Despite commencement of the PCC, the AICPA continues to advocate for an approach that would bridge the gap between the PCC’s initiatives and what it considers the best interests of private companies. In late 2012, the AICPA issued Proposed Financial Reporting Framework for Small- and Medium-Sized Entities (FRF-SMEs), outlining a new special-purpose framework for more cost-effective, simplified private company accounting. The comment period ended Jan. 30, 2013. For the AICPA’s FRF-SMEs approach to succeed, it needs to be widely accepted by the accounting profession. Despite numerous positive comment letters, however, a major roadblock stands in its way. The National Association of State Boards of Accountancy

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(NASBA) has recommended that AICPA table or withdraw its proposal. NASBA cited the authority of the U.S. Constitution governing states’ rights, Sarbanes-Oxley, and a desire to allow the PCC to move forward in its letter parting ways with the AICPA on this issue. Considering that the PCC has broken ground and NASBA has enriched the soil, it appears unlikely that the AICPA will succeed in its attempts to branch off in a different direction. While there has been speculation that International Financial Reporting Standards (IFRS) could gain traction in the United States — thereby addressing some of the concerns about private company standards and reporting — IFRS standards have a long way to go before they are formalized here. Regardless of the PCC’s progress and the AICPA’s next step, the process is going to take time. The best advice is to stay tuned. Catherine M. Schweigel, CPA is managing partner in charge of the Audit and Professional Practice at CliftonLarsonAllen LLP in Milwaukee. Contact her at catherine.schweigel@cliftonlarsonallen.com.

On Balance

May|June 2013

{ Fraud | school district auditing }

Getting a handle on

fraud in school districts

Incentives

Rationalizations

Lesson#1:FraudT A quick search on the Internet produces pages of news articles about fraud in schools in 2012. Fraud cases include a teacher who stole field trip money, a school district that bribed parents to complete free and reduced lunch applications, a school district that paid $70 million in duplicate payments, and fictitious vendors and contracts that were unbidden for a school that was never built. While I was

hackers who stole $150,000 from a school district by rerouting the direct deposit payroll to a hackerâ&#x20AC;&#x2122;s account.

By Natalie P. Rew, CPA

On Balance

May|June 2013

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writing this article, a colleague reminded me of the

{ Fraud | school district auditing }

outside the revenue limits or fund much-needed construction. As auditors, we know about the fraud triangle: incentives, opportunities and rationalizations. However, when was the last time you talked to a school board of education about the fraud triangle as it relates to its district?

Incentives or pressures

Opportunities

Triangle Fraud in the private industry makes great headline news. Fraud in school districts strikes a different chord. School districts are part of our community. Tax levies, state equalization aid and federal programs fund them. Our children are educated with our tax dollars. Moreover, school districts are accountable for public resources. Fraud in school districts has long-term implications. The process of rebuilding trust takes time. School districts will find it harder to raise taxes, even within the state-imposed revenue limits. It will be harder to convince taxpayers to vote a referendum to fund school operations

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Revenue limits and placement in the equalization aid formula motivate school district management. The threat of a declining tax base or anticipated losses in state equalization aid creates an incentive to misstate financial reports. State and federal award formulas force school districts into a use-it-or-lose-it basis of spending to ensure future state and federal funding, creating incentives to engage in fictitious or unauthorized expenditures. A declining student enrollment results in further decreases in revenue limits, equalization aid and state and federal funding. Four Ohio school districts were caught “scrubbing” student data in an effort to maintain school funding. Competition for federal funding has resulted in nationwide falsification of free and reduced lunch applications. New regulatory requirements, including other post-employment benefits and heath care reforms, create more incentives for management to misstate financial statements intentionally.

Opportunities Limited resources plague school districts when it comes to implementing

internal controls. An individual without effective oversight by the board of education often dominates business offices. The board of education fails to investigate questionable actions or recommendations. Districts have difficulty monitoring internal controls at decentralized and geographically dispersed buildings. A New York school district found that receipts and a reasonable business purpose did not support 57 percent of charges on the district’s credit cards. Thousands of dollars spent on electronics were later found in an employee’s home. Business manager responsibilities range from financing and budgeting to human resources and transportation. Sometimes, basic accounting functions, such as bank reconciliations, aren’t finished.

Rationalizations and attitudes Conditions may exist at a school district that indicates rationalization by district employees to justify fraud. In recent years, school district employees have seen cuts in classroom budgets and employee benefits, and perceived threats to their employment. Employees become dissatisfied, and an incentive is created to disregard internal controls designed to prevent misappropriation. Third parties compensated employees of a California school district for bookkeeping services rendered while on the school district clock. The Wisconsin State Statute 946 Crimes against Government and its Administration covers bribery of public officials and employees, misconduct of

On Balance

May|June 2013

{ Fraud | school district auditing }

“The threat of a declining tax base or anticipated losses in state equalization aid creates an incentive to misstate financial reports.”

in public office and by employees, and other crimes affecting the administration of government. For auditors, the Government Auditing Standards provide guidance for addressing fraud. Wisconsin State Single Audit Guidelines require auditors to report evidence that fraud may exist to the appropriate level of the auditee’s management and those charged with governance. The auditee and the auditor are responsible for reporting fraud to the funding agency. In Wisconsin, school districts receive most funding from the Wisconsin Department of Public Instruction (DPI). Auditors are responsible for reporting fraud to the funding agency if the auditee has not reported the fraud, and if the auditee has not taken timely and appropriate steps to remedy the fraud.

DPI has developed an online fraud reporting application. The link is available in the various fiscal Web portals including the School Financial Services Reporting Portal. Districts and auditors should not report fraud or abuse until after the investigatory phase is completed and fraud has been determined to exist. DPI will follow up with the school district to determine how the fraud was uncovered, the exact dollar amount, whether federal or state funding is involved and what corrective action has occurred. DPI will notify the proper funding agencies to determine if a payback of federal or state funds is required. So, about that board meeting, I know — you only get 15 minutes. Tell them you want to talk about fraud. They will give you the whole night.

Natalie P. Rew, CPA is a senior manager at Wegner CPAs in Madison. Contact her at 608-442-1963 or natalie.rew@wegnercpas.com.

On Balance

May|June 2013

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