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Working Capital Blog

Posted on: November 15th, 2017

2017 Year-End Tax Planning Guide

With a new year on the horizon, now is a perfect time to examine your unique circumstances to uncover new opportunities to minimize income taxes. As part of our ongoing effort to help clients achieve a more secure financial position, we’re proud to provide a 2017 year-end tax planning guide.

Inside, you’ll find:

  • An overview of critical tax rates and information
  • Key tax considerations for business owners and individuals
  • Individual tax-minimizing strategies
  • Business tax planning opportunities
  • Tax-savings actions to take before the end of the year

After reviewing this guide, contact your RKL advisor before taking any actions. Our diverse expertise means we’re able to help you navigate the complex tax code, identify opportunities and execute accordingly in the context of your personal financial circumstances.

Posted on: November 14th, 2017

Small Business Owners: Here’s How to Handle a PA Schedule C Desk Review Notice

Small Business Owners: Here’s How to Handle a PA Schedule C Desk Review NoticeMany small business owners use Schedule C to report profit or loss from business or profession on their personal income tax returns. Thanks to closer scrutiny and technological advancements from the Pennsylvania Department of Revenue (PA DOR), 46,000 Schedule C returns for tax year 2016 have been flagged for a desk review. The first wave of notices went out earlier this year following the April tax deadline, and another wave is expected after the October filing extension deadline. Read on to find out why this is happening and how recipients of these notices should handle them.

Why is Pennsylvania stepping up Schedule C scrutiny?

Since piloting the program in 2015, PA DOR continues to conduct desk reviews across a variety of tax return and schedule types to ensure compliance and the proper collection of tax revenues for the Commonwealth. New data analysis software allows PA DOR to compare Schedule C filings to average industry standards. Desk reviews are trigged by detection of reported expenses that are unusual or above average compared to similar business types.

PA DOR has approximately 100 full-time tax examiners to carry out the desk review process, in addition to their other job responsibilities, which accounts for the delayed responses to submissions. Once a return is flagged, a tax examiner determines whether a desk review is necessary. If so, a notice is sent to the taxpayer requesting additional information. Responses to the notices are processed in first in, first out order. Once a desk review is completed, PA DOR will issue a final resolution notice.

The number of returns flagged for Schedule C desk reviews earlier this year has caused a significant backlog for PA DOR reviewers. Initial responses returned to PA DOR for notices received took close to six months to obtain a reply from the Department and recent notices are looking at an approximate lag time of close to three months.

How should a small business respond to a desk review notice?

Desk reviews differ from a full audit in that supporting information is only requested for a handful of specific line items. Despite the smaller scope, the desk review notices nonetheless represent a significant undertaking for small business owners, who must comb through past records and assemble the proof needed to verify items claimed on Schedule C. If PA DOR does not accept the additional support provided, the taxpayer may follow the conventional tax appeals process to challenge the determination.

Small business owners are encouraged to submit responses to PA DOR via the department’s fax number (717.772.4193) or resource email account (ra-bitpitelfcorfaxes@pa.gov) as these methods will expedite the processing of the information provided. Mailing in the requested information will cause longer delays due to processing along with all other correspondence coming into the Department via U.S. mail. Keep in mind that PA DOR does not want actual receipts, unless that is the only form of support available. Acceptable forms of supporting documentation for line items in question include:

  • General ledgers
  • Schedules
  • Summaries
  • Canceled checks
  • Bank statements
  • Credit card statements 

What can small business owners expect moving forward?

Schedule C desk reviews will now be ongoing, with another wave of notices related to 2016 tax year returns expected to be issued by PA DOR now that the October tax extension filing deadline has passed. Business taxpayers of all shapes and sizes should also be prepared for PA DOR to apply desk reviews to other schedules in the future.

Taxpayers subject to a Schedule C desk review that results in no changes or findings are protected from being flagged for the same schedule/line item review for a minimum of two years, as long as the expense items at issue are not significantly larger than the period reviewed. If the notice is ignored, the expense will be denied and the same request for information will be needed for subsequent periods. Keep in mind, however, that this is not a blanket exemption from all desk reviews.

Small business owners should contact their RKL advisor or one of our local offices with any questions about the desk review process generally or for assistance in compiling and transmitting the requested information.

Laura S. Rineer, CPA

Contributed by Laura S. Rineer, CPA, a manager in RKL’s Small Business Services Group. Laura specializes in helping small businesses from a wide variety of industries with financial statements, tax returns and related accounting and business needs. 

 

 

 

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Posted on: November 7th, 2017

Six Questions to Ask for a More Engaged, Effective Board

Six Questions to Ask for a More Engaged, Effective BoardAn effective board of directors is key to an accountable, successful organization. What does an effective, engaged board look like? Beyond the traditional financial, policy, compliance and mission-driven roles, a fully engaged board is also actively and productively invested in the work of the organization. Boosting board engagement is not an exact science and may involve some trial and error, but organizations can take actions to affect how board members feel about the organization and how they interact with each other and with the management team. Below, we outline key questions to consider when evaluating board effectiveness and engagement.

How Empowered is the Governance Committee?

Is your governance committee really just a nominating committee or is it empowered with the ongoing development and engagement of board members? This involves focusing on fundamental issues like execution of the strategic plan, adherence to the organization’s mission, assembly of an experienced, diverse board and securing the necessary education or information to seize opportunities and minimize constraints for the board.

Are You Actively Recruiting Board Members?

With 70 percent of nonprofits reporting difficulty with qualified board member recruitment, the governance committee can make it easier for the right candidates to emerge by creating specific profiles for new board positions and current members. Understanding and identifying the right mixture of skill sets, experiences and mindsets of current and potential members is critical to creating the right board team.

How Strong is Your Board Orientation?

Recruiting a board member is only the first step in what can be a very beneficial relationship. A comprehensive orientation program that introduces new board members to their roles and responsibilities and to the organization’s mission sets the tone of engagement for new board members.

A board mentoring program that assigns new board members to a veteran or past member is an effective way to address questions and pass along important information. A board member who recently rotated off may be an ideal person for this role. This helps a new member gain comfort in the role, while retaining the past member’s engagement.

Are Board Members Engaged in Successful Partnerships?

It is critical for all board members to personally connect and forge a relationship with the organization they serve. To that end, encourage board members to build relationships with one another and with the management team. This starts with the rapport between the organization’s Executive Director and the board chair. Regular and candid communication between these two leaders establishes mutual trust, and sets the stage for a shared governance model.

Are You Committed to Diversity?

In its survey of more than 1,700 nonprofit chief executives and board chairs, BoardSource found that 90 percent of CEOs and board chairs were white, as were 84 percent of all board members. These numbers are largely unchanged from BoardSource’s initial survey in 1994. Studies indicate that board diversity fosters greater engagement by allowing members to share perspectives that come from varied backgrounds and experiences. People tend to interact differently in a diverse group. They tend to probe topics more extensively, engage in fuller conversations and make better decisions.

Do You Assess Board Performance Annually?

An annual board assessment is critical to ensuring and maintaining a high level of engagement. The governance committee should take on the responsibility of leading the annual board self-assessment process. The results will help identify the board’s development opportunities for the following year.

Investing time to cultivate board engagement will pay dividends for any organization. When truly engaged, board members are the organization’s top ambassadors, advocates, strategists and supporters.

Board engagement is an ongoing, fluid process with discrete components and steps. RKL’s team of business consultants and operational improvement experts are available to assist your organization with implementing a board engagement program. Contact Douglas L. Berman, CPA, Not-for-Profit Industry Group Leader, to start the conversation.

 

Gretchen G. Naso, CVA, MBA, Principal in RKL’s Business Consulting Services GroupContributed by Gretchen G. Naso, CVA, MBA, Principal in RKL’s Business Consulting Services Group. As a Certified Valuation Analyst, Gretchen has extensive experience providing business valuations for privately held companies, general partnerships and family limited partnerships. She also conducts operational reviews for closely held businesses, governments and not-for-profit organizations, which allows her to identify and prioritize opportunities for financial and operational improvements.

 

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Working Capital blog disclaimer

Posted on: October 23rd, 2017

PA Supreme Court NOL Ruling Changes Deduction Moving Forward, Creates Uncertainty for Past Filings

RKL’s State and Local Tax experts recap the PA Supreme Court’s ruling on the net operating losses deduction and assess the impact on corporate taxpayers. Two years ago, the Commonwealth Court sided with corporate taxpayers in Nextel Communications of the Mid-Atlantic, Inc. v. Commonwealth of Pennsylvania, declaring unconstitutional the state’s cap on deductible net operating losses (NOL). Last week, Pennsylvania’s Supreme Court unanimously upheld the lower court’s ruling.

Tax treatment of net operating losses in Pennsylvania

The Nextel case stems from Pennsylvania’s limitation of the use of NOL by corporations. Pennsylvania’s Tax Code allows corporate taxpayers to deduct losses from one year from their state corporate net taxable income over subsequent years.

As one of several states that limits the amount of NOL that businesses are allowed to carry over, Pennsylvania caps NOL at the greater of either $5 million or 30 percent of taxable income. Other examples of state NOL treatment include New Hampshire’s $10 million cap, Utah’s $1 million cap, West Virginia’s $300,000 cap, Idaho’s $100,000 cap and Delaware’s $30,000.

Ruling’s impact and potential legislative fix

Although all nine of the Supreme Court Justices agreed that the limitation or cap on NOL deductions violated the uniformity clause of the Pennsylvania Constitution, the court’s proposed remedy is the cessation of the flat dollar amount cap and the continuation of the percentage cap (which stands at 30 percent since the last update in 2015).

Ultimately, any change to the state tax code must move through the standard legislative process. With 2017-18 Fiscal Year budget negotiations still underway in the Capitol, this could be an opportune time to address the NOL issue and provide some clarity and consistency for business taxpayers.

Around the same time of the Supreme Court Nextel ruling, Pennsylvania’s House of Representatives passed HB 542, its latest version of a revenue plan for the 2017-18 state budget. The bill would remove the NOL cap on dollar amount and would increase the percentage cap to 35 percent for taxable years after December 31, 2017, rising to 40 percent one year later.

HB 542 does not, however, bar the Pennsylvania Department of Revenue (PA DOR) from issuing assessments for open years on C corporations, which benefit from the dollar cap and represent the vast majority of business entities that took advantage of the NOL deduction.

Implications of NOL ruling remain unclear

In the absence of explicit legislative or judicial prohibition on the practice and given its recent uptick in enforcement programs, concerns remain that DOR will revisit C corporations that deducted NOL under the dollar cap amount and begin to assess tax for open years using the percentage of income limitation. This type of action could result in a reduction of the NOL and an increase in the corporate net income tax for any taxpayers who availed themselves of the dollar cap.

The full impact of the Supreme Court’s ruling and the fate of HB 542 at this time is unknown, but RKL’s state and local tax team is closely monitoring this situation as it develops. Readers who have questions or wish to discuss the potential ramifications of the Nextel ruling should contact me at 717.394.5666 or ftobias@rklcpa.com.

 

Frank J. Tobias, CGFM, Principal in RKL’s Tax Services Group. State and local taxes, Pennsylvania taxes, multi-state taxationContributed by Frank J. Tobias, CGFM, Principal in RKL’s Tax Services Group. He specializes in the area of multi-state planning and compliance, with extensive experience in all areas of Pennsylvania taxation.

 

Working Capital blog disclaimer

Posted on: October 17th, 2017

FASB Changes to Bring More Context Around Nonprofit Liquidity and Cash Flow

FASB Changes to Bring More Context Around Nonprofit Liquidity and Cash Flow The financial statements of not-for-profit organizations will soon undergo a significant transformation, courtesy of the Financial Accounting Standards Board (FASB). As part of its response to stakeholder feedback to improve usefulness and clarity for the not-for-profit reporting model, FASB published Accounting Standards Update (ASU) No. 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, in August 2016. The ASU adjusts financial reporting requirements across a variety of categories to improve consistency and comprehension of the entities that rely on this data, such as grantors, donors and creditors.

This update, which is effective for fiscal years starting after December 15, 2017, contains a broad spectrum of changes. To give nonprofit leaders a better sense of what’s ahead and how they should prepare, we have been breaking out the changes by category in separate blog posts for detailed examination. Previously, we looked at the impact on investment returns and expense reporting, followed by a deep dive into the efforts to simplify net asset classification and reporting. Today, we conclude this blog series by examining how this ASU affects disclosure of liquidity and cash flows.

New disclosures on liquidity and availability of resources

ASU 2016-14 expands the quantity and quality of required information related to a nonprofit’s liquid financial resources. This additional information can help readers of the financial statements understand the limits on how, and during what time frame, the organization’s resources can be used.

In the footnotes of the financial statements, nonprofits must provide qualitative information that communicates how the organization manages its liquid resources available to meet cash needs for general expenditures within one year of the statement of financial position date. Nonprofits can choose to include the quantitative information required by this ASU either on the face of the financials or in the footnotes. Either way, this quantitative data must communicate the availability of financial assets at the statement of financial position date to meet cash needs for general expenditure within one year of the statement of financial position date.

This disclosure must also explain how net asset restrictions affect the availability of financial assets at the date of the statement of financial position to meet short-term financial obligations. Availability may be affected by the nature of the assets, internal limits imposed by the governing board or external limits imposed by donors, grantors, laws and contracts with others.

For example, an organization could comply with this new requirement by explaining in the footnotes that it maintains liquidity by managing its working capital and having available a line of credit with a bank. To support this statement, the organization could include a table (also in the footnotes or as a reference to the face of the financials) that reflects its financial assets as of the statement of financial position dates, reduced by amounts not available for general use due to contractual or donor-imposed restrictions within one year of the statement of financial position date.

Options for statement of cash flows

Nonprofits may continue to choose either the direct or indirect method to report the net amount for operating cash flows on the face of the financial statements. For nonprofits using the direct method, this ASU frees them from the requirement to disclose indirect method reconciliation for operating cash flows. This change in reporting requirement is a small but valuable simplification of data presentation.

Even though this ASU improves and streamlines nonprofit reporting, it still represents a considerable shift from current practice. Ahead of the effective date, nonprofits should invest the time to review and familiarize themselves with this update and how it will impact their current procedures.

RKL’s dedicated team of professionals serving the nonprofit sector are here to help organizations prepare for adoption. Contact Douglas L. Berman, CPA, Not-for-Profit Industry Group Leader, with any questions or for more information.

Sally E. Stewart, CPAContributed by Sally E. Stewart, CPA, Principal in RKL’s Audit Services Group. Sally provides audit services for not-for-profit organizations and government entities.

 

 

 

 

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Posted on: October 10th, 2017

Three Intangible Assets That Drive Your Company’s Value

Due to its heavy reliance on assumptions, fair value reporting has often been dismissed as an art, not a science. Thanks to expanded regulatory requirements, improved technical training and certifications for practitioners and increasingly sophisticated methodology, today’s fair value reporting is more reliable and sound than ever. What does this all mean for business owners and their management teams? Increased scrutiny and standards will only serve to improve the quality of the information provided by fair value reporting. 

Fair value reporting as long-term investment

Business owners and financial executives who are required to obtain a valuation for financial reporting purposes (fair value) should not dread this additional cost, but instead consider the information provided a useful management tool that provides insight on what drives the value of their companies. Intangible assets are often the primary contributors to a company’s earning power, allowing it to create value through revenue growth, innovation and profitability, so they should also inform business strategy and decision-making.

Customer relationships

Retaining a loyal customer base is critical to a company’s profitability. Long-standing business axioms related to customer satisfaction and retention are now backed up with data. Market research firm Forrester puts the cost of acquiring new customers five times higher than the cost to keep current ones.

Business owners who understand the relationship between customer loyalty and fair value can leverage that information into strategies to reduce attrition, drive repeat business and increase future revenue. Companies that measure and manage customer retention are making an investment that will reduce operating costs, generate referral activity and increase long-term profitability.   

Trademarks

Whether it is a company logo (McDonald’s golden arches) or a slogan (Nike’s “Just do it”), trademarks are important legal and social defenders of a brand identity. As a company’s brand reputation strengthens, so does the value of the trademarks that protect its design and text elements. The goodwill created by trademarked brand identifiers can be an asset in the war for talent. It can also influence buying decisions and increase the loyalty of the customer base. Respected and easily identifiable trademarks can help companies expand more easily into new products or services, and enhance marketability in the event of a sale of the business. 

Workforce in place

Many businesses boast that “our people are our best asset” for marketing and recruiting purposes, but what if it could be proven true? Valuations of the workforce in place often reveal it as one of a company’s most valuable assets. Regardless of the size of the business, the expense related to recruiting, hiring and training a replacement workforce could be significant. Having a well-trained, highly skilled employee complement in place not only drives the inherent value of a company; it is also attractive to potential buyers who would be spared the considerable expense of investing in an entirely new team.

Viewing employees collectively as an asset that drives value instead of simply another operating expense may be a change in perspective, but this mind shift could inform decisions and policies related to workforce development, training and learning opportunities, recruitment efforts, employee engagement and even compensation.

Beyond the compliance reasons, the fair value process can help business owners and their management teams gain a more comprehensive understanding of how intangible assets drive their company’s value. In a competitive economic landscape, this useful business intelligence can be deployed strategically by decision makers to support growth, expansion and competitiveness in the marketplace.

Gretchen G. Naso, CVA, MBA, Principal in RKL’s Business Consulting Services GroupContributed by Gretchen G. Naso, CVA, MBA, Principal in RKL’s Business Consulting Services Group. As a Certified Valuation Analyst, Gretchen specializes in valuations required for GAAP-based financial statement reporting including purchase price allocation and employee stock options issued as compensation. Gretchen’s valuation work often focuses on the intangible assets of a company, such as trademarks, customer relationships and intellectual property.

 

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Posted on: September 26th, 2017

Nonprofits: Don’t Overlook This Tax-Advantaged Way to Raise Funds

Nonprofits: Don’t Overlook This Tax-Advantaged Way to Raise FundsEducation-related Pennsylvania nonprofits may be eligible to apply to the PA Department of Community and Economic Development (DCED) to receive contributions from the state’s Educational Improvement Tax Credit (EITC) program. Many organizations currently reap the benefits of this tax-advantaged funding mechanism, but recent changes to the EITC program increase the availability of these credits to businesses and their owners in ways that expand potential donor pools.

What is the EITC program?

The EITC program has long promoted expanded educational opportunities for Pennsylvania students by providing tax credits to eligible businesses that contribute to approved scholarship (including pre-kindergarten) and educational improvement organizations.

Once a nonprofit is approved by DCED to accept qualified contributions, businesses can support it with charitable donations and receive tax credits to offset certain Pennsylvania business and individual tax balances.

The EITC program encompasses two types of tax credits – Education Tax Credits and Opportunity Scholarship Tax Credits. Both of these tax credits can equal 75% of the value of the contributed amount up to a maximum of $750,000 per taxable year. The credit can be increased to 90% of the contribution if the contributor agrees to a two-year commitment. The threshold is different for using the EITC program for contributions to registered pre-kindergarten scholarship organizations. In this case, the tax credit is 100% of the first $10,000 contributed and 90% on any additional amount, up to a maximum contribution of $200,000 annually.

What types of organizations qualify to participate in the EITC program?

There are three categories of organizations registered for the EITC program: Scholarship, Educational Improvement and Pre-Kindergarten Scholarship. All three categories require an organization to be a nonprofit entity that is exempt from payment of federal income tax under IRC 501(C)(3). Beyond these criteria, each category has additional requirements, as outlined below. 

Scholarship Organization:

  • Must contribute at least 80% of its annual EITC receipts to a scholarship program, qualified under the requirements of Article XVII-F of the Tax Reform Code.

Educational Improvement Organization:

  • Must contribute at least 80% of its annual EITC receipts as grants to a public school, charter school or private school for innovative educational programs. The grants can include costs incurred by these organizations to carryout innovative educational programs in conjunction with public schools.

Pre-Kindergarten Scholarship Organization:

  • Must contribute at least 80% of its annual EITC receipts to aqualified Pre-K Scholarship Program.
  • If the nonprofit serves as both a Scholarship Organization and a Pre-K Scholarship Organization, it must maintain separate funds for contributions to each category.

What’s changed with the EITC program?

In 2014, Pennsylvania amended its tax code to expand portions of the EITC in several key ways, including broadened definitions of entity types that can apply for the credit and the addition of more tax types to be offset by the credit.

The most significant adjustment is the expanded definition of a “business firm” to include a “Special Purpose Entity” (SPE). An SPE must be formed as a pass-through entity. The sole purpose of the SPE can be to receive capital from its members, apply for the tax credits and disburse funds to approved organizations. The members of the SPE can then receive EITC credits to offset their individual tax liabilities, based upon ownership percentages, which can be varied from the formal business entity.

How can my nonprofit leverage these changes for financial benefit?

Organizations can encourage SPEs to increase the funding received through the EITC program. If any potential donors are partners, shareholders, members or employees of another business firm and wish to maximize the amount of tax credits they may earn, they can pool their contributions into an SPE, which can serve as the vehicle to financially support a nonprofit and earn tax credits. Since Pennsylvania tax law does not allow individuals to use charitable contributions to offset taxable income, funding an SPE that contributes to an EITC-eligible organization allows individuals to receive a state tax credit to offset their individual PA income tax liabilities.

Nonprofits can take advantage of the boom in the craft brewing sector to find new corporate donors by incentivizing local small brewers that pay the malt beverage tax to contribute financial support via the EITC program.  

 

RKL’s Not-for-Profit Industry Group can help currently registered organizations maximize the EITC expansion among potential or existing donors, and help interested organizations determine EITC eligibility and register for the program. Contact Ruthann Woll, RKL Tax Principal, at 610.376.1595 for more information or assistance.

Stephanie E. Kane, CPAContributed by Stephanie E. Kane, CPA, Manager in RKL’s Tax Services Group. Her client responsibilities include serving clients in a wide variety of industries with a focus on not-for-profit entities.

 

 

 

 

 Working Capital blog disclaimer

Posted on: September 19th, 2017

The Equifax Hack: How to Protect Your Data

The Equifax Hack: How to Protect Your DataEquifax recently announced that its systems were breached this summer by an unauthorized third party, which gained access to personal information including full names, Social Security numbers, birth dates and addresses.

The breach, which Equifax discovered in late July, has the potential to impact approximately 143 million consumers. With nearly one in three American’s personal data potentially exposed, consumers are left wondering what they can do to protect themselves or their companies.

Determine Equifax exposure

Equifax says it will be contacting all consumers whose personal information was breached. In the meantime, the credit reporting bureau has set up a dedicated website to provide information and help consumers find out if they’ve been impacted. Visit equifaxsecurity2017.com and click the “Potential Impact” tab or call the Equifax hotline at 866.447.7559.

ID theft protection from Equifax

Whether or not they are directly affected, Equifax is offering one year of free identity theft protection and credit monitoring to all U.S. consumers. To get the free year of TrustedID Premier Credit Monitoring, visit equifaxsecurity2017.com and click the “Enroll” tab. Please note that after the one-year period expires, standard charges will apply.

Credit monitoring best practices

The significant impact of this and other recent hacks is an important reminder to all consumers, businesses and organizations to remain vigilant about identity theft. Below is an overview of steps to take now and into the future to monitor the security of personal and financial data.

Use two-step authentication

Most companies and financial institutions offer two-step authentication. This adds a second layer of protection to account log-ins, by requiring an additional credential beyond username and password. Examples include a bank sending a one-time passcode via text or email to access accounts, or a ZIP code required to confirm a credit card payment. Consumers should explore all online accounts and enable two-step authentication when available.

Regularly review credit report

Consumers have the right to request a free copy of their credit report once a year from each of the three credit reporting bureaus. A best practice is to stagger these requests so an updated report can be reviewed every four months. Unrecognizable accounts or activity could indicate identify theft. Free reports can be requested from www.annualcreditreport.com.

Beyond the free credit reports, consumers may consider engaging a service provider to closely monitor existing credit cards and bank accounts closely. Constant fraud monitoring services are available for a fee, but there are also free services available, such as CreditKarma.

Place fraud alert on credit report

By placing a fraud alert on their credit report, consumers require lenders and creditors to take extra precautions in verifying their identities before extending credit. Initial fraud alerts are free and last for 90 days. Placing a fraud alert can be done online through any one of the three major credit reporting bureaus (Experian, Equifax or TransUnion), and the agency of choice will notify the other two bureaus.

Freeze credit report

Placing a security freeze on a credit report takes a consumer’s information out of circulation and makes it harder for a third party to open a fraudulent credit card or new account. No current or potential lender can access credit history when frozen, so consumers that need to apply for credit would need to lift the freeze before doing so.

Unlike a fraud alert, there is a cost to activate and deactivate a credit freeze. Freezes also differ from fraud alerts in that they must be placed individually with the three credit reporting bureaus via phone.

Today’s digital world requires constant vigilance against cyber threats. At RKL, ensuring the security and privacy of our clients is a top priority, and our team of fraud investigators help businesses and organizations prevent, detect or mitigate fraudulent activity. Contact your RKL advisor or one of our local offices with any questions or concerns.

 

Bethany A. Novis, CPA/ABV, CVA, CFE, partner and leader of RKL’s Business Consulting Services Group

Contributed by Bethany A. Novis, CPA/ABV, CVA, CFE, a partner in RKL’s Business Consulting Services Group. Bethany specializes in fraud investigation, business valuation and litigation services. In addition to being a licensed CPA accredited in business valuation, she holds designations as a Certified Valuation Analyst (CVA) and a Certified Fraud Examiner (CFE).

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Posted on: September 12th, 2017

Upcoming Changes to Improve ERISA Audit Report Quality

employee benefit plan auditAdministrators of employee benefit plans (EBP) rely on routine and rigorous third-party audits to help them maintain compliance with applicable federal regulations, so it is critical to ensure that the audit reports themselves meet high quality standards and offer relevant, actionable information. Recent reviews by the U.S. Department of Labor (DOL) and the Accounting Standards Board (ASB) produced several changes and recommended action items to strengthen the EBP auditor’s report.

Given the integral role played by the auditor’s report, the DOL set out to assess its quality by reviewing financial statement audits of employee benefit plans for the 2011 plan year. In its May 2015 report, Assessing the Quality of Employee Benefit Plan Audits, DOL found that 17 percent of the auditor’s reports from 2011 failed to comply with one or more of the reporting and disclosure requirements of the Employee Retirement Income Security Act (ERISA). These deficiencies led the DOL to suggest ways to rethink the auditor’s report and improve the final product relied upon by plan administrators.

Clarified auditor responsibilities and greater transparency

In response to the DOL’s detected shortcomings and suggested improvements, the ASB issued the April 2017 proposed Statement on Auditing Standards (SAS), Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA. This proposed SAS addresses the reporting for audits of financial statements in ERISA plans, including when management imposes a limitation on the scope of the audit as permitted by 29 CFR 2520.103-5 (ERISA-permitted audit scope limitation). In this situation, the proposed SAS would require a new form of report to include, among other things:

  • Expanded management and auditor responsibilities sections;
  • A special form of opinion stating that, based on use of the certification of investment information, the financial statements are fairly stated in all material respects in accordance with the applicable financial reporting framework;
  • Expanded communications on the ERISA supplemental schedules; and
  • A by-product report, entitled Report on Specific Plan Provisions Relating to the Financial Statements, that includes findings from procedures performed on specific plan provisions relating to the financial statements. This new by-product report should be provided either in a separate section in the auditor’s report or in a separate report entirely. If provided in a separate report, it must be included with the auditor’s report that is attached to the Form 5500 filing.

It is possible that, because procedures to be performed on specific plan provisions would be required irrespective of the risk of material misstatement, additional audit work will be necessary. The proposed SAS is effective for audits of financial statements for periods ending on or after December 15, 2018.

EBP administrators with questions regarding how these changes to the auditor’s report will improve the quality of their annual audits and ongoing compliance efforts can contact me at fdonnelly@rklcpa.com or 610.376.1595.

Francis J. Donnelly, CPA, Partner in RKL’s Audit Services GroupContributed by Francis J. Donnelly, CPA, Partner in RKL’s Audit Services Group. Frank specializes in accounting and consulting services for employee benefit plans and the credit union industry.

 

 

 

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Posted on: August 24th, 2017

More Changes in Store for Federal Employment Form I-9

More Changes in Store for Federal Employment Form I-9Less than one year after a new version was introduced, Form I-9 is undergoing more changes. Employers based in the United States must ensure that all new hires properly complete a Form I-9 in order to verify an individual’s employment eligibility status.

In January 2017, a new version of Form I-9 was introduced that could be completed electronically. Last month, the U.S. Citizen and Immigration Services (USCIS) issued yet another revised version of Form I-9 that will take effect on September 18, 2017. Employers can confirm they are using the correct form by looking at the version and expiration dates. This new version is dated July 17, 2017, which can be found in the lower left corner, with an expiration date of August 31, 2019, which is printed in the upper right corner.

Here employers can find a guide to completing Form I-9, but below we take a look at the changes contained in this latest version.

Complete I-9 on, not during, first day of work

One of the distinctions in the new version of Form I-9 is a minor tweak in language related to when it needs to be completed. USCIS removed the language that employees complete the Form I-9 before the end of their first day, instead requiring it to be complete before employees begin working.

This language change may be intended to prevent employees from conducting any work for the employer before the Form I-9 is reviewed and supporting documentation is verified to establish employment eligibility.

Additions and reorganizations to acceptable documents

As in previous versions, the fourth page of Form I-9 provides a list of acceptable documents to use for proof of identity. While Form I-9 can be filled out electronically, hard copies of unexpired documents must be presented in person to the employer. An employee may present any document from List A or one document each from List B and List C.

The new version of Form I-9 effective September 18, 2017, adds Birth Certificate to List C as an option for documentation. Employers or hiring managers familiar with previous versions of Form I-9 may also notice that document types were aggregated or renumbered within List C.

What employers should do now

While the latest revisions are not significant, it is important that employers are aware that this new version exists and that they begin using it as soon as possible. Employers should discard any older, printed versions of Form I-9 they have on hand, and start using the most recent electronic version for convenience and compliance.

A best practice for employers is to craft the onboarding process so that employees report to orientation with Form I-9 already completed. The electronic form is designed to not allow an employee to finalize the document until all appropriate areas within Section 1 are completed properly, helping to ensure compliance. Ask employees to sign their Form I-9s right away and have the document review and form verification process take place immediately on their first day of employment. This allows time for any issues to be addressed and prevents potentially ineligible workers from completing any job duties, which could expose employers to federal fines.

Companies with questions about Form I-9 or any aspect of new employee onboarding can contact me at dhoffer@rklcpa.com or 717.394.5666.

Danielle J. Hoffer, SPHR, leader of RKL's Human Resources Consulting PracticeContributed by Danielle J. Hoffer, leader of RKL’s Human Resources Consulting Practice. Danielle advises clients across a wide range of industries on HR projects and issues, including recruitment, employee development and relations, compensation and benefits administration, employment compliance and more. She also manages RKL’s internal human resources function.

 

 

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