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West Bend. Insurance you buy when you can’t afford anything less. To find out more, contact the official supplier of the Silver Lining®.
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A publication of Wisconsin Institute of CPAs | wicpa.org
July/August 2015 Vol. 11 No. 4
6 Features
Columns
6 On par Barbara G. Ecklond, CPA masters a career as a principal at SVA Certified Public Accountants, S.C. By Cynthia M. Hodnett
24 INDUSTRY 7 key human capital trends you should know Gain insight into these new HR trends and how they are shaping today’s workforce. By Stephanie A. Barganz, CPA, SPHR, SHRM-SCP, CVA, CFF, CGMA
10 Developing a compensation plan A sound compensation plan reflects the marketplace and helps your firm retain its star employees. By Bill Ford 14 Refining the traits of today’s successful controller and CFO Listening, foresight and innovation are some of the traits of a winning controller and CFO. By James T. Lindell, CPA, CGMA, MBA 16 110 and counting Discover how WICPA’s rich history shaped the organization and the CPA profession. By Marcia Tillett-Zinzow
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28 SOFT SKILLS 10 powerful courageous leadership questions you want to ask These tips can help you communicate more effectively, transform your workplace and achieve sustainable results. By Sandra Ford Walston 30 TAX Audits of 401(k) plans: Pitfalls abound for the unwary Consider these steps to audit 401(k) plans and prepare financial statements that meet ERISA and SEC requirements. By Joann Noe Cross, Ph.D., CPA, CMA, CGFM, CGMA
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24 Departments 2
Odds & Ends | news briefs
3 Outlook | chair’s letter 5
Membership Matters | member benefits
13 In Touch | president & CEO’s message 22 Kudos | members in the news 22 Memorials | departed members
On Balance
July | August 2015
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Odds & Ends 2013 Apex Award for Publication Excellence
2015–2016 WICPA OFFICERS/BOARD MEMBERS Chair Jean M. Hansen, CPA, MBA, CGMA Chair-elect Steven G. Handrick, CPA, CGMA Past-chair Robert A. Gruber, Ph.D., CPA, CGMA Secretary-treasurer Joy L. Hertlein, CPA, CGMA Directors Lucien Beaudry, CPA, J.D. Kyle J. Beld, CPA Ryan Hanson, CPA, CGMA Katherine L. Hauser, CPA, MBA, CGMA William L. Komisar, CPA, J.D. Matthew A. Los, CPA Scott Miller, CPA, ABV, PFS, CVA Gregory L. Ryan, CPA Wendi M. Unger, CPA AICPA Council Karla E. Blair, CPA Nicholas S. Lascari, CPA, CEA, CGMA President & CEO Dennis F. Tomorsky, CPA, J.D., CGMA Chief Financial & Operating Officer Tammy Hofstede Vice President of Communications Amy E. Gaeth Editor Cynthia M. Hodnett Copy Editor Joan Bahr Design & Layout Rachel Moore
Vrakas/Blum changes its name to Vrakas CPAs + Advisors Vrakas/Blum in Brookfield changed its name to Vrakas CPAs + Advisors as of May 4, 2015. “This change better identifies who we are and what we do,” said President James A. Holmes, CPA. “Many of our clients, employees and business partners were already calling us ‘Vrakas,’ so this update aligns with that identity.” The firm has created a new logo and adopted the tagline: Service. Solutions. Success.
What it takes to be a top CFO? Do you know what it takes to be a successful chief financial officer? Today’s CFOs have to be strategic to be successful in the modern business environment instead of focusing only on finance and compliance, according to an article, “True value: 5 new skills required of every CFO,” by Christian Campagna at Workforce Online (tinyurl.com/5tipsforcfos). A strategic player, strong communicator, forward thinker, technology evangelist and great connector are five roles that every successful CFO fills, according to the article. Learn more about this topic on page 14.
Q&A highlights ALTA best practices framework The American Institute of CPAs is offering a Q&A section for nonauthoriative guidance to practitioners related to American Land Title Association (ALTA) Best Practices Framework (tinyurl.com/altaqanda). The Q&A addresses various engagements a practitioner can perform, the applicability to an attest engagement, the suitability of criteria, the nature of examination or review procedures, and the form and content of the report.
WANT YOUR BUSINESS MENTIONED IN ODDS & ENDS?
Email your announcement to cynthia@wicpa.org.
Advertising Manager Ellen Engel Printing The Printery, An RR Donnelley Company 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, W233N2080 Ridgeview Pkwy, Suite 201, Waukesha WI 53188; 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 2015 On Balance.
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On Balance
July | August 2015
CPA FIRMS ARE INVITED TO SUBMIT PROPOSALS FOR WICPA’s ANNUAL AUDIT The WICPA invites licensed CPA firms to submit a proposal for its annual audit of the WICPA and the WICPA Educational Foundation for a five year period, beginning with the fiscal year ending April 30, 2016. All interested parties must send a written letter of interest to Tammy Hofstede, CFOO, WICPA, W233N2080 Ridgeview Parkway, Waukesha, WI 53188. Written letters of interest must be received by Sept. 11, 2015. Firms that send a written letter of interest will receive a request for proposal along with additional information by Sept. 25, 2015.
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{ Outlook | chair’s letter } “To be an integral part of any organization, CPAs will need to understand how the operation works and provide financial assistance on key decisions.”
A fundamental shift
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rganizations are transforming to keep up with constant dynamic change. Along with that, a fundamental shift is occurring in the accounting profession. Today’s CPA is expected to bring a value proposition in everything they do. That is where the opportunity exists. There are more career opportunities in accounting today than ever before.
Business advisor
The accounting arena has changed from being the scorekeeper or bean counter to being a trusted business advisor that sells ideas. Times are changing rapidly, and this rapid pace creates greater expectations and rewards. Often, the CPA is expected to analyze an issue, prepare realistic recommendations and work with the business stakeholders to implement the option successfully. It’s more of a project management approach.
Leverage technology
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The accounting industry has continued to utilize big data analytics and technology to stay ahead of the curve and create powerful change. Many companies have better control of key performance indicators, including revenue and margins to respond in real time. Another game changing evolution is using mobile accounting solutions to allow businesses to achieve financial insights anytime and anywhere. Ultimately, all industries still expect the CPA to provide credible options and ideas for increased organizational profitability. No matter where you work, leveraging technology for process improvements is critical.
Language of business
that understand the “language of business.” This allows the accountant to actually become more valuable across all disciplines in the organization. Today it is not uncommon to see a CPA morphing into all areas of the company, for example, logistics, sales and marketing, production, even the corner office suite as CEO. However, it is not all easy. The CPA needs to remain on top by staying abreast of the constant economic and business challenges. Based on how accounting continues to reinvent itself, CPAs will need to acquire a range of skills to meet demand. To be an integral part of any organization, CPAs will need to understand how the operation works and provide financial assistance on key decisions. As the numbers are crunched automatically, having vast business knowledge and insight will set you apart in the future!
The CPA profession will always equate to credibility, something that the public expects and will not change. CPAs are the most driven, passionate professionals wicpa.org
Jean M. Hansen, CPA, MBA, CGMA is CFO/ vice president-finance at Manitowoc Tool & On Balance July | August 2015 Machining LLC. Contact her at 920-682-8825 ext. 114 or jhansen@mantool.com.
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DO YOU KNOW WHAT’S GOING ON WITH YOUR OTHER 93%? Negligence of your nonverbal communication can and does sabotage your success.
During this fun and highly interactive program, you will: Improve important skills that impact how your overall communication is judged by others. Investigate what your personal mannerisms and behaviors say about who you are so loudly. Acquire practical tips to improve your voice in order to project more power and authority. Examine how you can communicate effectively to advance your career, organization, profession and the needs of your clients.
M. Alice O’Connor, Principal, Constituency Services
LOCATIONS & DATES
Eau Claire, Thursday, Sept. 10, 11:30 a.m. – 3 p.m. Green Bay, Thursday, Oct. 1, 11:30 a.m. – 3 p.m. Madison, Thursday, Oct. 8, 7:30 – 11 a.m. Pewaukee, Friday, Oct. 30, 7:30 – 11 a.m.
EDUCATIONAL CREDITS: 3 CPE credit hours REGISTRATION: $55 member | $65 nonmember WAYS TO REGISTER wicpa.org/FallFocus P: 262-785-0445
PLUS, Madison and Pewaukee attendees will have the opportunity to meet and network with current WICPA
Board Chair Jean Hansen, CPA, MBA, CGMA, and Eau Claire and Green Bay attendees will have the opportunity to meet and network with WICPAJuly Chair-Elect Steve Handrick, CPA, CGMA. Additionally, WICPA President and On Balance | August 2015 4 CEO Dennis F. Tomorsky, CPA, J.D., CGMA will give a brief professional issues update.
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{ Membership Matters | Professional Insurance Programs } “Members have access to significant cost-saving services that others pay thousands of dollars each year to receive.”
Maximize your membership
W
ICPA membership comes with substantive benefits. Members have access to significant cost-saving services that others pay thousands of dollars each year to receive. A number of these benefits come from affinity partners, supporters who are selected for the resources and value they can provide. One of our committed affinity partners is Professional Insurance Programs (PIP). A WICPA partner since 1997, PIP is a full-service insurance agency with a long list of resources for members and their families. Are you in need of CPA professional liability? PIP’s CPA Protector Plan offers small and mid-sized firms professional liability insurance and services that include a variety of coverage options, deductible reductions and an automatic extended reporting period. Member discounts are available for home, auto and business insurance. Group and individual health plans can be customized with PIP agents to provide your professional office the health benefits you’re looking for.
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Seventy-one percent of data breaches target small businesses — those least equipped to protect themselves against attack, according to the 2013 Cost of Data Breach Study: Global Analysis by Ponemon Institute. PIP’s Online Data Back Up can securely and automatically backup your data in two separate centers with unlimited file versions available. Technical support is available 24/7 to restore data through the Internet or by shipping an external hard drive overnight at no additional charge. With a large library of technical information and white papers, keep the experts at Professional Insurance Programs in mind if you are planning a staff in-service or lunch meeting. Or consider subscribing to their blog, tinyurl.com/PIPriskmanager.
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In addition to the many insurance benefits PIP provides members, the agency has been a long-time sponsor of WICPA publications and events. For more than a decade, PIP has supported everything from our annual banquet to conferences. Look for PIP representatives at our next outing, and visit www.insuranceformembers.com to learn more about Professional Insurance Programs’ resources. You can find a complete list of member benefits on the Member Benefit Marketplace page at wicpa.org/marketplace. Take full advantage of your membership, saving you time and money, by becoming familiar with these benefit providers.
Ellen Engel is the advertising manager at the WICPA. Contact her at 262-785-0445 On Balance July | August 2015 ext. 4513 or ellen@wicpa.org.
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ON PAR BARBARA G. ECKLOND, CPA MASTERS A CAREER AS A PRINCIPAL AT SVA CERTIFIED PUBLIC ACCOUNTANTS, S.C. BY CYNTHIA M. HODNETT
CPA Barbara G. Ecklond’s introduction to an accounting career started in her childhood by developing a strong bond with her family’s accountant, Mel. Ecklond recalls stories from her father about Mel, the accountant for their family’s New York ladder company.
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“My father would talk so fondly about Mel. Mel would come to his company once a month and do various tax filings and prepare financial statements for the business. Mel’s opinions and insights were valued by the family; he was their trusted advisor. In addition, Mel would tell jokes and bring us the best New York bagels, which my father would bring home on the nights of Mel’s visits. I thought to myself how cool it was that someone could make a career out of visiting companies like this.”
Milwaukee. She is also one of the leaders of SVA’s Business Advisory Services (BAS) in Milwaukee where she provides businesses and individuals with accounting, tax and advisory services.
Those childhood experiences would shape Ecklond’s career path, leading to her current position as principal of SVA Certified Public Accountants, S.C. in
“They were the classes that I could get an A-plus in without a lot of effort,” she said. “It came as natural as brushing my teeth. I knew I had an interest in it, and I
On Balance
July | August 2015
‘I KNEW ACCOUNTING WOULD BE MY MAJOR’ Ecklond quickly learned she had a knack for business and accounting. During the summers in high school, she did bookkeeping for her family’s business while learning basic accounting skills from Mel. She also began taking accounting classes in high school.
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Photography by Adam Ryan Morris
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On Balance
July | August 2015
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ON PAR could breeze through those classes as opposed to other classes that I had to put more effort in. By the time I got to college, I knew accounting would be my major.” Ecklond earned an accounting degree from Miami University of Ohio in 1998. After college, she worked in a nine month training program at the former Marshall Field’s in Chicago. In the program, Ecklond worked for three months each in corporate accounting, internal audit and tax. She earned her certified public accounting license in 1999. “I enjoyed working at Marshall Field’s, but after those nine months, I realized that’s not why I went into accounting,” she said. “I didn’t want to work for big corporate America. I wanted to work for a public accounting firm that could help companies like my dad’s and be that trusted advisor and do more financial statements and tax returns.” After leaving Marshall Field’s in 1989, Ecklond worked at a CPA firm in the northern suburbs of Chicago until 1991. She later worked at CPA firm in downtown Milwaukee until 1997. She began working at SVA that same year.
said. “I still work with them. They are one of the success stories that you start out with when it’s really young working every single day of the week, working through every detail. Now, we’re helping them more with compliance-related projects. They now have their own CFO, who we work with on their end year audit and tax work.” SEEING HER FIRM AS A CLIENT Besides her clients outside SVA, Ecklond sees her firm as a client. She’s involved in various administrative roles at the firm, including recruiting and hiring its college interns. Many of them are hired into fulltime positions at the firm, she said. She admires what she sees in today’s future CPAs, many of whom have superb technology and communication skills. “When I interview, it’s about their ability to sit and have a conversation with me,” she said. “If they can make it through school, we can teach them anything. But it’s that ability to build those relationships, con-
CARVING OUT A CORE NICHE A core of Ecklond’s work is with the BAS Group where she helps her clients establish internal financial reporting procedures and provides year-end financial reporting services. She reviews and recommends software that ensures management is provided with timely and accurate financial reports to run a profitable business. She keeps her business and individual clients informed on tax law changes, opportunities and potential tax liabilities. She assists clients with corporate and individual income tax compliance and advises on sales and payroll tax strategies. She also advises them on hiring and other human resources issues. One client she’s worked with since its inception is Stella & Chewy’s pet food company in Oak Creek. The company has experienced annual year-over-year growth in excess of 50 percent, according to an April 17, 2015, article in the Milwaukee Business Journal. “They are an example of the start-up company that’s grown so much that it’s now off the charts,” Ecklond 8
On Balance
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Ecklond plays the course at Westmoor Country Club in Brookfield. wicpa.org
nect, interact and communicate that we can’t teach. Ecklond encourages accounting professionals, especially those starting their careers, to find a mentor, learn to communicate effectively and embrace technology. “It’s an ability of being outwardly interactive and being a sponge and absorbing everything,” she said. “Be the listener, don’t be the talker. Admit when you don’t know something. Some of our clients say, you’re not the normal accountant, because when everyone thinks of an accountant, they think we sit behind a desk, with a visor on and not talk to anyone. I think that image of a CPA has changed and is continuing to change.” One way that Ecklond is fostering that change can be illustrated in her community service efforts, said Carl E. Schultz, CPA, CEO of SVA. “Barb recently established a community program for the office,” Schultz said. “SVA gave away one jar of peanut butter for every tax return we prepared for 2014. The recipient of the peanut butter was the
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Hunger Task Force. I thought this was a great way to involve our employees with a way to give back to the community.” A COMPETITOR’S EDGE When she’s not working, Ecklond enjoys spending time with her family and relaxing on Pewaukee Lake. Her main hobby is golfing, which she has enjoyed for several years. Sometimes, it’s a gateway to networking with colleagues and clients. Although she finds the game fun and relaxing, she plays each game like her career: strategically. “When I play golf, even with family and friends, we are competitive,” she said. “We’re not just out there to have a relaxing day on the golf course. Sometimes that means spending time getting lessons or getting out on the driving range. Effort has to be put into it to be at the top of your game.”
Cynthia M. Hodnett is editor of On Balance magazine. Contact her at 262-785-0445 ext. 4516 or cynthia@wicpa.org.
On Balance
July | August 2015
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developing a compensation plan By Bill Ford
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s employers, it is easy to ignore compensation during tough economic times, especially when profit margins are ever tightening or when in the red. However, it is critical
that you develop a compensation plan and actively discuss and manage compensation, even when most companies have frozen and/or are providing a small across-the-board increase to all employees. It is critical because your key, best performing employees are your highest turnover risk — those who are truly ensuring success during tough economic times. An organization can ill afford to have key employees who are at the heart of their success leave the organization, thus potentially crippling the organization. 10
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Keys to successful compensation programs include: Retain critical employees: Retention is critical more than ever. Don’t overpay a dime: Organizations do not have profits to burn. Pay everyone fairly so they can focus fully on their jobs and work and not on internal inequities and perceived favoritism. In developing a compensation plan, key employee retention seems to be frequently ignored. Consider the following steps for developing a sound compensation program:
Step 1 Get buy-in from company leadership at all levels. Ensure job descriptions are up to date, accurate and all employees have a job description and title.
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“Once you have developed a formal compensation plan, consistent compliance to your documented pay practices and policies is critical to defend against charges of pay inequity from employees and outside agencies, such as the U.S. Equal Employment Opportunity Commission.”
Develop a compensation philosophy. Decide how competitive the organization wants to be, i.e., leading the marketplace, meeting the marketplace or lagging the marketplace with recognition to affordability and benefit offerings.
Step 2 Perform salary benchmarking. Select sources of salary market data including:
For example, if your minimum is 25,000 and your width is 40 percent, multiply 25,000 by 1.40. This equal 35,000. Thirty-five thousand (35,000) is your maximum for your salary range.
Step 4
Published/traditional surveys: Not recommended.
Complete compensation analytics.
Internet surveys: Recommended with caution.
Analyze employee pay. Once you have created formal salary ranges, compare your employees’ or incumbents’ pay against the typical range. Determine if you have employees who fall below the minimum or over the maximum (red-circled). If you have these situations, you will want to include an implementation plan for how to deal with employees who fall outside your typical salary range.
Custom surveys: Recommended and are specifically designed for your industry and region.
Step 3 Establish pay grades and salary ranges. Create pay grades that reflect internal pay equity, but also provide flexibility in which to negotiate offerings to key managers and performers within the organization. Calculate the midpoint of each and every salary range, which is the median value of the aged, weighted market data for the positions. Determine salary range widths by position. For example, a recommended, general rule for salary spreads includes: Nonexempt/hourly positions: 40 percent spread. Exempt positions: 50 percent spread. Executive level positions: 60 percent spread. Calculate the minimum and maximum of each salary range. The final step to creating the salary range is determining a minimum and maximum for each range. To calculate the minimum, follow these steps: Divide your range spread percentage in half. Then, take your midpoint and divide it by 1.XX (XX = half of your range spread). For example, if your midpoint is 30,000 and you want a width of 40 percent, divide 30,000 by 1.20. This equals 25,000. Twenty-five thousand (25,000) is your minimum for the range.
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To calculate the maximum, take your minimum and multiply it by 1.XX (XX equals your range spread).
Choose to green-or red-circle. It may be necessary and advisable to bring any employee below the minimum of the salary range up to the range minimum or even higher. Or, you may want to consider implementing a red-circle policy for freezing salaries of those who are above the top of the range.
Step 5 Be consistent and schedule regular updates. Once you have developed a formal compensation plan, consistent compliance to your documented pay practices and policies is critical to defend against charges of pay inequity from employees and outside agencies, such as the U.S. Equal Employment Opportunity Commission. Also, by formalizing your compensation strategy, you levitate your company to what is working to the best in its industry in every way. This is a great message to send to current employees, potential employees, as well as competitors. Contact SESCO Management Consultants to discuss a review, update or a new compensation plan for your organization. SESCO, a national HR consulting firm, is a WICPA members-only benefit that offers discounts on its products and services. Learn more at wicpa. org/marketplace.
Bill Ford is president & CEO of SESCO Management Consultants in Bristol, Tenn. Contact him at 423-764-4127 or bill@sescomgt.com.
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July | August 2015
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{ In Touch | president & CEO’s message } “We look forward to refining our strategic plan with the goal of initiating and leading positive and perhaps disruptive changes in order to most effectively serve you as you serve your employer, colleagues, customers and communities.�
Strategic planning and strategic thinking
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n July 28, more than 20 WICPA members and staff will participate in the fifth WICPA strategic planning meeting since our first formal strategic planning meeting in 1994. Strategic plan facilitator, Bill St. John, will lead a diverse group of members and staff in our first strategic plan review since 2009. Strategic planning participants have been receiving information and documents every few weeks for the past few months in order to provide them with context for the environmental scanning discussion that will kick off our July meeting. Associations commonly have formal strategic planning meetings every few years. Since associations are most successful when their boards and staff continuously think and act strategically between formal strategic planning events, our WICPA board and staff have developed a strategic approach in our respective separate governance and operational roles. We accomplished this by reviewing strategic plan progress and activities, and developing strategic action items for each year. Our 2009 strategic plan, and its annually refined action steps, have formed the basis for every annual budget since 2009.
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Our continuous strategic thinking has enabled the WICPA to effectively respond to unforeseen disruptions during recent years. These disruptions required navigating the worst economic crisis in 80 years, with job losses and employer belt tightening on expenses, including membership dues and CPA education. We also experienced an exponential increase in the proliferation of high-quality and low-cost (often free) CPE, as well as neuroscience research establishing the effectiveness of short non-lecture-based learning activities. Each of our prior multiyear strategic plans has had a permanent impact on WICPA processes and
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practices. For example, the 2009 strategic plan action step to review WICPA activities and staffing resources has become a permanent ongoing operational process that has increased interdepartmental collaboration and resulted in wellinformed decisions to refine, start, or discontinue individual programs and activities. Similarly, the primary objectives of our 1994 strategic plan, emphasizing advocacy, education and communicating the value of WICPA membership, remain core components of our WICPA mission and ongoing operational activities. We look forward to refining our strategic plan with the goal of initiating and leading positive and perhaps disruptive changes in order to most effectively serve you as you serve your employer, colleagues, customers and communities. Please send me any thoughts or suggestions you would like our strategic planning task force to consider as we update the WICPA strategic plan this summer.
Dennis F. Tomorsky, CPA, J.D., CGMA is president & CEO of the WICPA. Contact him at 262-785-0445 ext. 4519 or| August 2015 On Balance July dennis@wicpa.org.
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REFINING THE TRAITS OF TODAY’S SUCCESSFUL CONTROLLER AND CFO
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he jobs of controller and chief financial officer (CFO) were fairly static for many decades. The advent of the personal computer in the 1970s and 1980s launched a revolution in regards to the necessary skill sets to be a successful controller or CFO. The continued rapid advance in technology has flattened the organization, increased the complexity of the job and transformed the controller and CFO position. For a controller or CFO to be successful in today’s business world, he or she must be: • More than a traditional controller or CFO who focused on financial statements, internal controls, transaction analysis and systems. • A business partner for the organization; however, a successful business partner only achieves this recognition by fulfilling the next point. • A servant leader and a servant of operations. • Well-versed in business strategy, industry strategy, and an avid follower of trends, e.g., trends which impact the business in the political arena, the economic environment, the social environment, the technological environment, the legal environment and finally the traditional natural environment. Today’s controller and CFO must be innovative in adapting new technologies that impact traditional roles and responsibilities. In addition, this individual must be able to apply innovation and creativity to the operations of the organization.
By James T. Lindell, CPA, CGMA, MBA 14
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A key ingredient to the success of a controller and CFO is understanding servant leadership and application to his
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or her departments and interaction with other employees in the organization. Servant leadership is a term ascribed to Robert Greenleaf, founder of the modern servant leadership movement. Servant-leaders seek to serve first. They meet the needs of others as opposed to wanting to lead out of the need for a position of power.
“A key ingredient to the success of a controller and CFO is understanding servant leadership and application to his or her departments and interaction with other employees in the organization.”
The 10 key characteristics that servant leaders display are: 1) Listening 2) Empathy 3) Healing 4) Awareness 5) Persuasion 6) Conceptualization 7) Foresight 8) Stewardship 9) Commitment to the growth of people 10) Building community Additional skills that successful controllers and CFOs should possess are: The understanding and application of lean management techniques. Lean management techniques have two major premises. They are: 1) only produce products or services that the customer values and 2) a relentless identification and elimination of waste. The accounting department for many years has followed accounting practices that are ingrained into the day-to-day operating procedures. Unfortunately, many traditional accounting procedures are opposed to lean management techniques. The accounting department can be a resource to help the organization by adopting lean practices. Many manufacturing companies adopted lean techniques a couple of decades ago. The biggest deterrence to having lean implemented throughout the organization has been the accounting departments. It is essential that the controller and CFO understand the different paradigms that lean and traditional accounting both have and be able to determine the implementation for their company. One of the interesting exercises in lean is the identification of wasteful practices within the organization. Since lean comes from the Toyota Production System (TPS) concept, many terms associated with lean are identified by their original Japanese term. Therefore, waste is known as “muda.”
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The eight major categories of waste that an accountant should be aware of are: 1) Overproduction 2) Inventory 3) Defects 4) Extra processing 5) Waiting time 6) Underutilized people 7) Motion 8) Transportation Controllers and CFOs should master becoming a student of people, their emotions and behaviors. I believe it is essential for an organization to incorporate personal profiling as part of its attracting, hiring, developing and retaining employee process. Across the country, I ask attendees in my seminars, “Which is more important, people skills or technical skills?” In almost all cases, their answer is “people skills.” A controller or CFO should participate in “people skills” or “soft skills” training when the opportunity arises. This will result in higher emotional intelligence of the controller or CFO and should improve their department’s productivity and harmony. If his or her organization is not using any personality profiling, the individual can visit www.humanmetrics.com and take the Jung Typology Test for free. This test will give them the equivalent of their Myers-Briggs profile. The successful controller or CFO will move away from traditional practices that are a commodity in nature and become a servant leader, a strategist, a lean expert and a student of employee behavior.
James T. Lindell, CPA, CGMA, MBA is president of Thorsten Consulting Group, Inc. in Dousman. Contact him at 262-392-3166 or jim@thorstenconsulting.com.
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July | August 2015
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110 AND COUNTING CELEBRATE WICPA’S RICH HISTORY AND HOW IT HELPED DEVELOP CPAS IN WISCONSIN
By Marcia Tillett-Zinzow
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On Balance
July | August 2015
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I
t started July 2, 1905, when 10 accountants gathered in a small downtown Milwaukee office. Henry Schneider, CPA had invited them “for the purpose of considering the formation of an accounting society.” The men agreed an association should be formed and that Schneider should lead it. Rules and regulations were drafted, and six weeks later the Wisconsin Association of Public Accountants (WAPA) was chartered. Dues were set at $2 per year with a one-time $25 entrance fee. The early years were spent trying to regulate the profession. It took four tries over eight years before the final, successful CPA bill Schneider authored was signed into law in 1913. The new law created the Wisconsin State Board of Accountancy and the Uniform CPA Exam, given for the first time in 1914.
FAST FORWARD TO NOW Since then, your association has gone through many changes. The WAPA became the Wisconsin Society of Certified Public Accountants (WSCPA) in 1914, and the WSCPA became the Wisconsin Institute of CPAs (WICPA) in 1970. The office moved from downtown to Brookfield in 1981; to new quarters across the street in 1995 and to the current Waukesha location last summer. Membership has fluctuated over the years and stands level at 7,700 today. Since 1905, dozens of regulatory laws have been passed with the help of WICPA members, and thousands have taken and passed the CPA Exam. New technologies have enhanced efficiencies and opened new doors for CPAs in all walks of the profession. Tax laws, economic ups and downs, social change and shifting demographics have helped shape the profession and the WICPA over the last 110 years. But the last 10 have perhaps been the most transformative.
DEMOGRAPHICS FOSTER CHANGE WICPA President and CEO Dennis F. Tomorsky, CPA, J.D., CGMA entered the scene as executive director in 2006, replacing Leroy C. Schmidt, CPA who had held the position since 1990. Tomorsky was an experienced CPA and attorney with skills the WICPA Board of Directors thought could take the association where it needed to go. Demographic changes were afoot as the baby boomers began to retire. Merely by their lower population, the younger generation of CPAs didn’t carry the glut of talent the boomers had supplied. A CPA shortage was imminent. This single fact has been the catalyst for many changes over the last decade. Strong attention was needed to create greater awareness and interest in the profession among high school and college students. And a potent injection of new life was required for the WICPA to attract and retain the profession’s younger members. To help high school students and high school educators learn more about the profession, new membership categories were created. Currently, 44 high school students and 52 high school educators are WICPA members, and among the 263 college student members, 50 entered the association during high school.
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ENTER THE YOUNG GUNS In 2006, Tomorsky and staff developed a plan to engage young professionals by giving them a voice. A Young Professionals Forum occurred, and 55 young CPAs from 17 CPA firms enthusiastically participated. “We gave each table a large, blank piece of poster board and some magic markers, and we asked them to draw the type of membership organization they’d be most excited to belong to,” Tomorsky said. “Several groups drew a picture of a keg.” The take-away was clear. The young guns wanted a social aspect to their association. Since then, the Young Professionals (YP) Committee has developed new events that bring CPAs of all generations to events like the annual Tailgate Party, an annual golf outing and Milwaukee and Madison networking events. Recognizing a never-before-met need to celebrate newly licensed CPAs, the YP Committee also instigated the New CPA Welcome Dinner. “I have great confidence in the future of the association and the profession when I see these young professionals,” Tomorsky said.
ONGOING ADVOCACY In 2009, the WICPA implemented Advocacy Day, a biennial event that attracts about 30 members, including some young professionals. They visit the offices of more than 50 state legislators to share WICPA policy positions. In 2013 and 2015 the group shared WICPA support for requiring Generally Accepted Accounting Principles in developing the state budget. A bill was introduced and passed the Assembly but not the Senate. Tomorsky believes the bill will be introduced again, and the WICPA will continue its support. In 2014, WICPA legislative advocates helped reinstate the CPA Exam’s education eligibility requirement. Over the WICPA’s objections, a bill was enacted in late 2013 that eliminated all education requirements for all Wisconsin license examinations. The new law would have resulted in the CPA Exam no longer being offered in Wisconsin. WICPA members sprang into action and got the requirement reinstated, albeit slightly different. Previously, 150 college credit hours were required for eligibility to take the CPA Exam; the new law requires 120 hours to take the exam and retains the 150-hour requirement for licensure.
CPE GETS A MAKEOVER A younger membership and the fast pace of today’s world also impact continuing professional education. In December 2013, the WICPA board established a Competency Enhancement Task Force, chaired by Robert A. Gruber, CPA, Ph.D., CGMA, CMA, to review and recommend updates to the current CPE requirements for membership. Wisconsin is the only one of 55 jurisdictions that does not require CPE for license renewal. Tomorsky and Gruber took a deep dive into neuroscience and education research studying how the brain learns. Their findings matched
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those of the AICPA which coincidentally had been conducting a similar study. All the research showed that the most effective learning involves multiple types of activities, and far shorter time increments than the standard 50 minutes. The AICPA’s Future of Learning Task Force — on which WICPA member and accounting educator Robert A. Gruber, Ph.D., CPA, CGMA served — concluded a consistent CPE model should be developed for the entire country, and that state societies should pilot programs to serve as models. Maryland and Ohio have already enacted legislation mandating the acceptance of 10-minute increments, and the WICPA board has approved shorter “micro learning” five-minute increments. Effective in 2016, WICPA members will be able to earn 50 percent of their required CPE credits through informal, selfdirected learning -- such as reading an article that might teach one a new skill or watching a short video that explains a line item on a complex tax form.
CORE VALUES WILL ALWAYS GUIDE US Since the association’s founding in 1905, names and faces have come and gone. Tax laws have been created, amended
TECHNOLOGY, CPA SHORTAGE CHANGE THE ACCOUNTING PROFESSION Twenty-first century technologies and the CPA shortage have changed CPA firms. Technology has made everyone more efficient. The compatibility of software programs enables the easy flow of data, and secure Internet portals make it easier to work with clients and each other remotely. As a result, it’s easier for staff to work from home or elsewhere, or even move out of the area and remain employed. Accounting software programs like QuickBooks have made it easy for business owners to do their accounting internally instead of paying to have an accountant do it for them. Firms are compensating for the loss of some bookkeeping services by offering more consulting services to help clients get the most out of their software. As competition for talent increases, firms are stepping
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and amended again. Demographics have shifted. Services have evolved and new opportunities have opened up to meet public needs. But one thing hasn’t changed: The mission to protect the public through the core values of integrity, competence and objectivity has guided, and will always guide, the CPA profession and the WICPA. Marcia Tillett-Zinzow is a Milwaukee writer and former WICPA Director of Communications. Contact her at mtzinzow@gmail.com.
For a detailed history of the FIRST 100 YEARS of the WICPA and the profession in Wisconsin, visit the History page on the WICPA website.
wicpa.org/history
up recruiting efforts, networking with high school guidance counselors and college accounting professors to find the best and brightest before someone else does. An incentive some firms offer is helping CPA-eligible staff become CPAs by paying for review courses and the Uniform CPA Exam sitting fees, even providing a bonus when they pass the CPA Exam. To help retain the talent they have, CPA firms are implementing new programs that focus on work-life balance. Among the perks are flexible work schedules and half-days off on Fridays during non-busy season. Staff are also being promoted more quickly into management and partner positions. With the goal of becoming an employer of choice, more firms are participating in “best place to work” surveys that provide helpful employee feedback. Knowing their strengths and needs for improvement only helps firms get better. Information courtesy of Steven G. Handrick, CPA, CGMA, managing partner, Hawkins Ash CPAs.
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2015
A
NIGHT
AT THE
MUSEUM More than 250 members celebrated a profession rich with history at the 2015 Membership Recognition Banquet & Annual Business Meeting on May 6 at the Milwaukee Public Museum.
The evening’s activities included a networking reception in the museum’s Streets of Old Milwaukee and European Village exhibits. After the program, guests enjoyed dessert in the Streets of Old Milwaukee, watched the WICPA 110th anniversary video in the museum’s Pastime Theatre, used their complimentary candy vouchers at the Haymarket Square Candy Store and explored the European Village, Costa Rican Rain Forest and The Third Planet: Earth exhibits. Members participated in the Annual Business Meeting, during which the incoming WICPA board of directors was elected. WICPA members were recognized for 10, 25 and 40 years of membership and several members were honored with WICPA Excellence Awards. Watch the acceptance speeches of the award recipients at wicpa.org/awards. View photos from the event at wicpa.org/banquet2015.
SAVE THE DATE! 2016 Member Recognition Banquet & Annual Business Meeting May 5, 2016 | Germantown
Event & Excellence Awards sponsor: 20
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Thank you to our sponsors: Event sponsors:
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WICPA member seminar special:
$110 OFF June 1 – June 30 $50 OFF July 1 – July 31 Register starting June 1 at wicpa.org/register. Not a WICPA member? Join when registering and save! *Discount applies to 8-16 hour seminars. Does not include conferences or Tax Advisors Update by Andy Biebl. There is no limit to the amount you can save.
What’s new with you? Update your membership profile and stay connected > Help us and your fellow members get to know you better for greater networking opportunities and greater control of the communications you want to receive from us. Update your member profile today by logging in to wicpa.org/memberprofile with your WICPA username and password.
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kudos
Bonnie J. Baerwald, CPA
Richard W. Spencer, CPA
Bonnie J. Baerwald, CPA was recently named interim president at the Moraine Park Technical College, according the Dodge County Pionier.
Richard W. Spencer, CPA recently retired as director of administration and chief financial officer at Hawkins Ash CPAs in La Crosse.
Patti A. Denton, CPA has been hired as chief financial officer for the Girl Scouts of Northwestern Great Lakes, according to Florence Mining News.
Daniel R. Thome, CPA was recently named first vice-president-commercial banking at AnchorBank in Appleton, according to Wisconsin State Journal.
Richard A. Dieffenbach, CPA recently received the Greater Cedarburg Foundation 2015 Civic Award, according to the News Graphic.
Kristen L. Voster, CPA was recently named partner at Fox Valley CPAs LLP in Appleton, according to the Appleton Post-Crescent.
Mark C. Oldenberg, CPA was recently named executive vice president at Citizens Community Federal Bank in Altoona, according to the Eau Claire Leader-Telegram. Michael A. Peer, CPA, CFE, CHC has been hired as principal to the health care practice at CliftonLarsonAllen in Milwaukee. Diane Rieder, CPA was recently named vice president and chief financial officer at Premier Financial Credit Union, according to the Tri-County News.
Kristen L. Voster, CPA
Want your
promotion or
award mentioned in Kudos?
Paul D. Schoessow, CVA, a valuations expert at Vrakas Business Valuations, Inc. in Brookfield, recently earned his certified valuation analyst credential.
Email your announcement and photo in JPG format to cynthia@wicpa.org.
Memorials Mark T. Heffernan, CPA (1978–2015) Mark T. Heffernan died April 27, 2015, according to Green Bay Press-Gazette. He was 37. Heffernan graduated with a Bachelor of Business Administration from St. Norbert College in 2000. He earned his certified public accounting license a year later. He worked as an auditor at Wipfli LLP for four years. He then joined VerHalen, Inc. as an accounting manager and later became its chief financial officer. The De Pere resident joined the WICPA in 2001.
Richard W. Jensen, CPA (1943–2015)
Richard W. Jensen, CPA died March 9, according to the Waushara Argus. He was 70. Jensen graduated with an accounting degree from the University of Wisconsin-Whitewater in 1967. He served in the United States Army from 1969–1974. He began working at Alexander Grant CPA in Milwaukee in 1974. He earned his certified public accounting license a year later. He later worked as the chief financial officer for the Schlossmann Auto Group for 25 years until his retirement in 2010. The Waupaca resident joined the WICPA in 1975.
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www.wicpa.org wicpa.org
T O G E T H E R, we can make a difference.
WICPA members participate in Advocacy Day 2015
Your contribution to the WICPA CPAC/LIF campaign for Political Awareness allows the WICPA to: Strengthen the voice and visibility of the WICPA. Educate lawmakers about the issues impacting Wisconsin CPAs.
Support the election campaigns of candidates who support our issues. Ensure a healthy business climate for CPAs and the clients you serve.
Visit wicpa.org/cpaclif to learn more and make a contribution today.23 On Balance July | August 2015
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{ Industry | Human capital }
7
KEY HUMAN CAPITAL TRENDS YOU SHOULD KNOW
BY STEPHANIE A. BARGANZ, CPA, SPHR, SHRM-SCP, CVA, CFF, CGMA
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In this new world of work, the barriers between work, life and geography have been all but eliminated. Employees are hyper-connected to their jobs through mobile technology. Information on your next employer is readily available on Glassdoor. My recruiting colleagues are shameless users of LinkedIn and Facebook for marketing opportunities. Each one of these developments create new trends in managing today’s human capital. I have identified the following seven key trends to know for 2015 and beyond:
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{ Industry | Human capital }
WORKFORCE ANALYTICS
People data exists everywhere we look. It will be critical for companies to learn to harness, analyze, manage and take advantage of this data for innovative strategies on recruiting, hiring, retention and talent management. Big data and metrics analytics will continue to recognize human capital as a basis for most, if not all financially driven decisions. Embrace new ways to profile your workforce into meaningful lead indicators that identify trends. Do you have data on how many employees leave within their first 18 months? New onboarding (orientation process) findings reveal that most employees make up their mind whether they are staying or not just prior to this point.
EMPLOYEE PROFILING
Every company, in almost every country, is facing significant demographic shifts. Most companies are managing five generations in the workforce for the first time in our history. This undeniable trend, accompanied with unstoppable acceleration in technology, provide HR with several unique opportunities. Opportunities include ability to redesign our thinking with real time data relevant to a variety of audiences. Have you completed a generation analysis for your company? Millennials, projected for 2018, will eventually make up nearly half of the working population. What will this mean for your organization? What will you need to change to appeal to this group of employees?
STRATEGY IS A HUMAN CAPITAL CORE COMPETENCY
Human capital is driving the transformation of HR today from transaction based roles to valued consultants. Human capital will be charged with aligning people to its innovative business solutions while integrating all levels of leadership. HR contributions can be the difference between acceptable business practices to exceptional performance. Agile strategy requires in house expertise.
HYPER ENGAGEMENT
Organizations that create a culture defined by meaningful work, employee engagement, job and organizational fit, and strong leadership are outperforming their peers and will likely beat their competition in attracting top talent. Once-private issues are now posted online for every employee — and every potential employee — to read. Every corporate decision is immediately publicly exposed and debated. wicpa.org
Employees’ motivations have changed. Today’s developing workforce has a new focus on purpose, mission and work-life integration. Although culture and engagement play a critical role in business performance, most organizations do a poor job of measuring their achievements or shortcomings in this area. Have you structured your delivery methods to your desired results? To your audience?
LEADERSHIP: TALENT MANAGEMENT, OPTIMIZATION
Leadership and professional development have dramatically increased in importance, but the capability gap is widening. Eighty-six percent of HR and business leaders cite leadership as one of their most important challenges, according to the recent Deloitte survey, Global Human Capital Trends 2015. Many of these same leaders referenced lack of consistent investment as a primary reason. Begin with answering the
People data exists everywhere we look. It will be critical for companies to learn to harness, analyze, manage and take advantage of this data for innovative strategies on recruiting, hiring, retention and talent management. question: Leadership for what? Then you can build a capability framework to further assist in defining for who and by when. Competitive businesses must develop leaders who are ready to engage both employees and customers along with technical aptitude expertise. Aspiring leaders may need to broaden their idea of what leadership entails as they gain increased responsibilities. Did you know that several different research studies confirm that new employees decide within their first three months how much discretionary effort they will expend at their new role and company? This is fascinating when you see discretionary effort can be as much as 40 percent of an employee’s ability and effort. Translate this optional effort into billable hours and how much are we talking about for your company?
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LEARNING AND DEVELOPMENT
The last three years have witnessed an explosion of new learning offerings. Reimagine measurement. The old measurement models no longer provide enough information. Look at measuring all types of activity, and capture data about learning like you do from outside customers. This area is critical to improving the leadership pipeline and enhancing employee engagement.
HR DRIVEN TECHNOLOGY
HR technology, known as Human Resource Information Systems (HRIS) for larger companies, historically has been cost prohibitive for most medium sized business and all small businesses. Today, a variety of HRIS platforms are available and cost effective for small businesses. If your payroll system is not talking to your onboarding system, benefit carriers, and off boarding systems you are already behind. Do your employees have a portal home site where they can readily access a variety of company related resources? Is it user friendly and can you navigate intuitively? From one platform?
What HR professionals are hearing is that employees are overwhelmed with onboarding and with ongoing procedures. As initiators of policy driven practices, we have to challenge our own approaches on delivery and compliance. This is just the beginning of a major move to rethink the internal model with innovation and 21st century workplace tools. In the United States, the Society for Human Resource Management (SHRM), predicts double digit growth for human resource managers this decade. With trends mentioned earlier in this article, you can see why. Regardless of your role within your company, these human capital trends provide new insight into today’s workforce. How you translate these insights into execution in your organization is your challenge. Keep your mind open. It’s going to be a wild ride! Stephanie A. Barganz, CPA, SPHR, SHRM-SCP, CVA, CFF, CGMA is chief human capital officer at Ryan Evolution LLC in Madison. Contact her at 608-516-4565 SBarganz@ryanbros.net.
Five Generations in the Workplace
Are you ready for the Millennials? 2020
2018
2012
2015
12%
24% 2010
48%
55%
33%
28% 2005
0%
Boomers
Gen X
Millennials
20% Gen 2020
Millennials
40% Gen X
Baby Boomers
60% Traditionalists
Bureau of Labor Statistics Employment Projections
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{ Soft Skills | Leadership }
10
POWERFUL COURAGEOUS LEADERSHIP Q U EST I O N S YO U WA N T TO A S K BY S A N D R A F O R D WA L S TO N
“Sticks and stones may break my bones, but words can never hurt me.” This time-worn saying is false. For example, “a stone is thrown” when someone says, “I don’t care how you do it, just get it done!” With the phrase, “I don’t care,” the receiver, a co-worker, employee or colleague is thwarted into a world of negativity that affects productivity and collaboration. 28
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We all want to feel appreciated and valued for our contribution. Would any of the following apply to you or a manager you know? You’re too intimidated to have that overdue conversation so you utilize a form of ambiguity? You’re a manager whose style of managing is hands-off. This way you don’t have to suggest ideas that might offend, be misunderstood or be accountable. Whether you’re a manager, human resource director or CEO, you are often required to engage in the awkward, elusive or tightrope conversations that require an element of courage. These types of “challenging” conversations test us in an uncomfortable way. Why? Because the exchange is more than just applying candor (a cousin to courage) or being brutally blunt. If you can communicate more effectively with co-workers, you can reshape your work environment and produce the sustainable results you’re seeking. Muster the courage to try these 10 simple courageous conversation questions and see if they recalibrate your approach to leadership: wicpa.org
“Whether you’re a manager, human resource director or CEO, you are often required to engage in the awkward, elusive or tightrope conversations that require an element of courage.”
1
“How do you imagine this project progressing?” This question not only engages but also decreases stress because the word “imagine” generates creativity and curiosity. People are more motivated to speak up and share their ideas, a known productivity booster.
2
“Is there anything else I can offer you?” and “Do you have any other requests?” Requests and offers allow people to open up and reveal the chatter in their head and share what they really want. This provides transparency and removes any awkwardness, especially for those reluctant to speak up.
3
“What was your assessment about the big project we just finished for that client?” Be cautious with your tone. This means you take responsibility for how your language affects others. Your words are a part of your daily legacy — people remember them more than the action. Will you be remembered the way you want to be remembered?
4
“How do you envision accomplishing the task/results?” This question keeps passion alive and perpetuates retentive innovation.
5
Be direct and say, “I have expectations that you will do X, Y, Z.” Or, conversely, “What expectations do you have of me?” This avoids the outcome of unclear expectations: wasted time that can’t be reclaimed from false assumptions and unnecessary tension in the workplace. The founder of my Newfield Network coaching organization always opened our international conferences or local gatherings with “ W h a t ’ s c o o k i n g ? ” This question kicks off an understanding that it’s safe to share. This creates a “mood” for receptivity. How do you kick off a meeting?
6
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7
“What do you see our next step to be?” Using the word “our” in your question leads the client or customer to think of you as a partner when making a decision. “In retrospect, were there any red flags during our project/interaction that we were blind to?” First red flag warnings are everywhere. If you don’t stop and acknowledge the first one, you’ve probably slid blindly into denial. Denial is saying no to courage. Stop and reflect when asked this critical question.
8
9
“What single task was your most significant contribution in completing this project?” This reveals the individual’s passion and what gives him or her self-fulfillment.
10
Why were we successful? Set a tone of celebration to acknowledge courageous leadership actions. Benchmarking your success allows you to confirm how you were not stuck in status quo. Frequently questioning your status quo moves you from the dominant “mind-will” that produces StuckThinking™ (a reflective process of self-assessment that reveals which of the 12 obstacles to courage, such as intimidation, manipulation or ambiguity, keep you stuck rather than embracing the matching courage action, such as tackle the tough project, reveal vulnerability or confront uncomfortable truths) to the heartfelt will of everyday courage. Without clear intentions, leadership often succumbs to fear and seeks only to maintain the status quo. Comedian Lily Tomlin said: “If you can’t be direct, why be?” Think about what type of language you experience in your work environment and what you display. The words we choose can submerge us into negativity or elevate us to a different level of courage consciousness, and take our co-workers with us. That is the power of courageous questions! Sandra Ford Walston, The Courage Expert, is a human potential consultant, speaker, author and corporate trainer. Contact her at www.sandrawalston.com.
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{ Tax | 401(k) audits }
“The primary objective of a plan’s financial statements is to provide information that is useful in assessing the plan’s present and future ability to pay benefits,” according to Employee Benefit Plan Audit Quality Center, Plan Advisory, American Institute of CPAs, 2014.
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Beginning in1974, the Employee Retirement Income Security Act (ERISA) recognized the critical role played by the audit in attaining the fourfold goals of employee benefit plan management to: • Help protect the plan’s financial integrity. • Help participants determine whether funds will be available to pay benefits. • Improve plan operations. • Help plan sponsors carry out their obligations under the law. Audits of employee benefit plans are, thus, fraught with enhanced legal exposure and risk for the auditing firm. This article briefly considers several major areas of exposure for the auditor in performing audits of 401(k) plans.
wicpa.org
Audits of 401(k) plans:
Pitfalls abound for the unwary By Joann Noe Cross, Ph.D., CPA, CMA, CGFM, CGMA
COMPLIANCE WITH DOL, ERISA AND IRS REGULATIONS Although the audit is not designed to assure that the plan is in compliance with all requirements of ERISA, U.S. Department of Labor (DOL) and Internal Revenue Service regulations, it is one of the tools administrators and regulators can use to ensure compliance. In general, it is possible, with just a little stretch of one’s imagination, to view the 401(k) plan audit as a three-pronged compliance audit. It is clear that a plan’s lack of compliance can cause penalties to be assessed to the plan and/or its administrators. Thus, the financial statements would not be considered complete without disclosures of those areas of non-compliance.
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WHICH PLANS TO AUDIT? The original ERISA language required an audit only of plans with more than 100 participants (defined for 401(k) purposes as individuals eligible to participate whether or not they are contributing). Now, any plan must consider whether an audit is required. Even a small plan may need an audit unless its assets are held and managed by an institution that itself is regulated and supervised, such as a bank, a credit union, or (unlike the rules for limited scope audits, see page 32) a broker-dealer in securities. Any individual with access to assets must be bonded in an amount equivalent to the assets they can access. Even participants in small plans might be vulnerable to fraud. Note that most small (fewer than 100 participants) 401(k) plans typically meet the requirements and can avoid an audit. On Balance
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{ Tax | 401(k) audits }
“AUDITS OF EMPLOYEE BENEFIT LATE REMITTANCE OF EMPLOYEE CONTRIBUTIONS Recently, the main issue for employee benefit plans has been the late remittance of employee contributions. Although ERISA notes “an employer is required to segregate employee contributions from its general assets as soon as practicable, but in no case more than 15 business days beyond the end of the month in which the amounts are contributed by employees or withheld from their wages.” Remember, the 15 days is not a safe harbor. If other amounts withheld (like federal income tax withholdings) are segregated in three days, then the 401(k) withholdings should be as well. Note, however, there is a “safe harbor” for small plans (that is, those with fewer than 100 participants). The DOL considers contributions deposited no later than the seventh business day following the date they are deducted from the employee’s pay to have been made “on the earliest date they can be reasonably segregated.”
LIMITED SCOPE ENGAGEMENTS ERISA permits a plan administrator to instruct the auditor not to perform any procedures with respect to investment information. There are three criteria related to this option: • Only investment information including fair value and investment income or loss information can be eligible for this election. • The information must be prepared and certified by a bank, insurance carrier or similar institution that acts as trustee or custodian for the plan’s assets and that is regulated and supervised by a federal or state agency. Broker-dealers are not considered eligible custodians under this criteria. • The election is available only if the trustee or custodian specifically certifies both accuracy and reasonableness. All other investments not meeting these criteria must still be subject to audit tests. Of particular concern is the variation in the language of the certification. Some institutions are using language such as, “To my knowledge...,” which is usually not acceptable. In the extreme, other institutions are issuing a disclaimer that their certification should not be viewed as a certification (“Nothing in 32
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PLANS ARE, THUS, FRAUGHT WITH ENHANCED LEGAL EXPOSURE AND RISK FOR THE AUDITING FIRM.”
this statement should be construed to be a certificate under ERISA”). The use of this alternative language precludes the performance of a limited scope engagement and requires the auditor to consult with the plan administrator about the appropriateness of their limited scope election.
PAYROLL TESTING The most contentious area of the employee benefit plan audit is payroll testing. Auditors have always believed that significant efficiencies can be gained by coordinating the payroll testing for the employee benefit plan audit with the payroll testing of the plan sponsor. This has led practitioners to believe that the two payroll tests are the same. They are not. The goals of payroll testing in the audit of the plan sponsor are primarily related to the completeness and existence assertions while those of the plan audit are related to compliance questions. Since the goals are different, the tests should be different. Much of the difference revolves around the definition of compensation in the plan document and the calculation of permitted or required contributions.
CONCLUSION This article has considered several areas of concern to the 401(k) plan auditor. Other areas such as the difference between the business concept of related party and the employee benefit plan concept of party-in-interest are worthy of attention but will be discussed at another time. As the population ages, the protection of retirement resources becomes more important. Don’t let your reputation or conscience be hurt by not avoiding these types of mistakes in your employee benefit plan audits.
Joann Noe Cross, Ph.D., CPA, CMA, CGFM, CGMA is a professor and co-chair of the University of WisconsinOshkosh Accounting Department. Contact her at 920-424-1311 or crossj@uwosh.edu. wicpa.org
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