AZ CPA Jan 2012

AZ

CPA JANUARY 2012

The Arizona Society of Certified Public Accountants

Innovation Goal Setting

Developing an Attitude for Success Learning from Zappos

www.ascpa.com

Arizona Society of CPA members may be eligible to—

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AZ

CPA JANUARY 2012

Volume 28 Number 1

What We Can Learn from Zappos

15

Can you implement the fun (and a little weird) ideas from this successful company in your own business?

by Jon Hubbard

How to Make Your Partner Goal Setting More Effective

Features

17

Get better results from your goal setting efforts.

by Gary L. Adamson

Innovation—How Great Firms Excel

9

Innovation is a process that combines hindsight, growth and insight. Are you ready to take your firm or business to the next level?

by L. Gary Boomer

Gaining a Competitive Edge–Developing an Attitude for Success

Employer-Owned Life Insurance A Tax Nightmare Waiting to Happen?

18

Many small corporations may fall victim to this overlooked Internal Revenue code change.

by Kurt D. Adams

Five Common Data Security Mistakes 13

19

by Randy R. Werner, J.D., LL.M./Tax, CPA

Attitude can be everything for surviving in a struggling economy.

by Patrick Pruett

Columns & Departments Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 225-B Phoenix, Arizona 85034-2021 www.ascpa.com

6

Chair’s Message by Mark Anderson, CPA

7

Focus on Members

22 Classifieds

www.ascpa.com

4 AZ CPA y JANUARY 2012

AZ

CPA

The Arizona Society of Certified Public Accountants

President & CEO

Cindie Hubiak

Editor

Patricia Gannon

Copy & Advertising Deadline The first of the month one month prior to publication date.

Board of Directors Chair Chair-Elect Secretary/Treasurer Directors

Mark Anderson Armando Roman Karen Abraham Anita Baker Rob Dubberly Megan Faust Barb Muller Julie Norton David Richardson Craig Robb Elva Vivas David Walser Corrine Wilson Neal Young Kevin Yeanoplos

Immediate Past Chair Julie Klewer AICPA Council Members Jim Buhr Rick Goldenson Chapter Presidents Southern Chapter Northern Chapter Southwest Chapter North-Central Chapter

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Bigger is Better

AZ CPA is published by the Arizona Society of Certified Public

Accountants (ASCPA) to provide information, news and trends in the profession of accounting. It is distributed 10 times a year as a regular service to members of the Society. The ASCPA, its members, board of directors and administrative staff assume no responsibility for advertisements herein. The ASCPA and the above people also assume no liability for business decisions made by readers in reference to statements and/or claims in advertisements within this publication.

Opinions expressed by correspondents and contributors are not necessarily those of the ASCPA.

Arizona Society of CPAs 4801 E. Washington St., Suite 225-B Phoenix, AZ 85034-2021 Telephone (602) 252-4144 AZ Toll-Free (888) 237-0700 Fax (602) 252-1511

www.ascpa.com

Call 1.800.584.4595 Ext. 05 www.accountingpracticesales.com

Gary Hankins, CPA Member Arizona Society of CPAs

JANUARY 2012 y AZ CPA

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Chair’s Message

by Mark Anderson, CPA

Focus on What’s Essential with Strategic Planning During the last couple of months I have participated in three different strategic planning sessions for three very different entities that I’m involved with as either a finance executive or a board member. Each had a very unique strategic planning process and ultimately ended up with three very different but relevant strategic plans and operating plans. Each process included a review of the entities’ mission and vision statements. It was fascinating to discuss and in some cases modify each of these important statements—why we exist and the future we seek to create. The opinions on how these two guiding statements should be worded were widely varied, but they ultimately shared a common theme that was condensed down to a concise phrase.

Strategic planning determines where an organization is going over the next one or more years, how it’s going to get there, and how it will know if it got there or not. The way that a strategic plan is developed depends on the culture of the organization, the nature of its leadership, the complexity of its environment, and the sophistication and expertise of the planners.

In all organizations, strategic planning serves a variety of purposes including to: • Clearly define the purpose of the organization; • Establish realistic goals and objectives consistent with the mission in a defined time frame; • Communicate those goals and objectives to the organization’s constituents; • Develop a sense of ownership of the plan; • Ensure the most effective use is made of the organization’s resources by focusing the resources on the key priorities; and, • Provide a base from which progress can be measured.

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But a strategic plan is only effective if it is used to guide a business plan that includes specific, measurable goals and tactics. These are what help the employees of an organization take a guiding principle and turn it into actionable items that can accomplish the mission of the organization.

For the ASCPA, our mission is to “enhance the success of our members and lead our profession.” We fulfill that mission in three key way: 1) education, 2) advocacy, and 3) image. By focusing our efforts on this strategy, we will accomplish our vision of making the ASCPA essential to all CPAs in Arizona. As a board member of the ASCPA, my responsibility is to make sure we (all board members and senior leaders in the organization) are focused on this strategy.

When we constantly relate our dayto-day tasks to the mission of the company, it helps us better sort through our important priorities and our sometimes urgent, but not necessarily important tasks. One CEO I worked for several years ago constantly reminded us that we should “focus on the important and

not the urgent—we were wasting too much time always putting out fires.”

We weren’t hired to be firefighters, but architects of better processes that would prevent fires from starting.

From this experience, I learned that everything we do should be tied to the mission of the organization. If we are doing things that are not moving us closer to that mission, then we need to stop and evaluate if that task is really necessary. I’ve developed a “stop doing” list that helps me re-focus on the important things in my work.

I challenge each of you to analyze your daily tasks and list those that aren’t adding significant value or advancing the mission of your organization. In addition to your “to do” list, create a “stop doing” list and eliminate some of the “noise” that keeps you from really accomplishing the important, strategic goals that you have all set. Let’s work to make our strategic plans something that brings about real change for good in all our AZ CPA organizations.

Focus on Members Andie Sotomayor, CPA, joined Roediger Hoff PLC. Christine P. Engel, CPA, joined Busby Sanford Brady, CPAs, PLC, as a senior tax manager.

Marianne E. DeVries, CPA, has been appointed to the AICPA’s Board of Examiners and will serve as the Chair of the Content Committee.

Tony Astorga, CPA, received the Whitney M. Young, Jr. Service Award from the Grand Canyon Council, Boy Scouts of America.

Gaintner Bandler Reed & Peters PLC has moved their offices to 2355 E. Camelback Road, Suite 500, Phoenix, AZ 85016.

Robert D. Ramirez, CPA, was inducted into the Nogales High School Hall of Fame.

Christopher Coots, CPA, and Robert R. Korljan, CPA, have formed the firm of CK Tax & Financial, PC, located in Phoenix.

Armando Roman, CPA, spoke to students of the Hispanic Business Student Association.

BDO promoted Brent Hagerman, CPA, to tax senior director, Deborah Smith, CPA, as an assurance associate and Kalaya Vanaprasert, CPA, to assurance manager.

Congratulations to Trevor Goss, CPA, of Ernst & Young, LLP, for being the recepient of the AICPA’s Elijah Watt Sells Award based upon his exceptional performance on the Uniform CPA Exam.

Grant Thornton hired Al Yang as a forensic accountant and promoted Chris Raab, CPA, to manager of the audit services department. Audit Partner Stella M. Shanovich, CPA, has been appointed to the firm’s national Not-For-Profit Leadership Team, which is comprised of key partners and senior managers across the country.

Mark Hoover, CPA, CFO of the American Society of Radiologic Technologists, has been elected financial standards chair-elect for the United Way of Central New Mexico’s Community Impact Council.

Ed Dupke, CPA, received the inaugural Sustained Contribution Award from the AICPA. The Mom’s Choice Awards® has named Sharon Lechter’s YOUTHpreneur BIZkit among the best in family

friendly media, products and services with a Gold award, the highest honor from Mom’s Choice. Lechter was also named a finalist in the Lifetime Achievement category in the 8th annual Stevie Awards for Women in Business.

Carolyn Sechler, CPA, accepted a volunteer position on the board of the Arizona Music & Entertainment Hall of Fame.

Cindie Hubiak, CPA, was elected to the board of directors of The Wellness Community—Arizona.

Newsworthy CPAs… Bill Sellner, CPA, was featured in the Phoenix Business Journal’s Spotlight column.

JANUARY 2012 y AZ CPA

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ASCPA Leadership Helping the Profession 2011 AICPA/CPA-SEA Leadership Conference (L to R): AICPA Vice Chair Rich Caturano, ASCPA Chair-elect Armando Roman, ASCPA President & CEO Cindie Hubiak, and AICPA President & CEO Barry Melancon.

Advocacy Breakfast with Rep. Bob Robson: ASCPA leaders recently met with Rep. Bob Robson (L to R) Front Row: Craig Robb, Adela Jimenez, Anita Baker, Cindie Hubiak, Armando Roman, Corrine Wilson. Back row: Mark Anderson, Layne Simmons, Rep. Bob Robson, David Walser, David Richardson and Ron Stearns.

Life and Honorary Award Nominating Committee (L to R): Denny Mitchem, Cindie Hubiak, William Huizingh, Mark Landy, Ken Husband and Mark Anderson.

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Innovation How Great Firms Excel

by L. Gary Boomer Accounting firms generally are not what you think of when you mention “innovation,” yet many firms excel at innovation and there is a pattern to their success. Innovation is directly linked to growth and not an epiphany like many think; but rather a process that combines hindsight, vision and insight. The accounting profession is going through significant changes, and I am often told by firm leaders they just don’t have the next generation of leaders in their firms. In many cases there is validity to their statement, and a better understanding of innovation and how firms get into this situation can help firms take the necessary steps to balance between “discovery” and “delivery” skills. Discovery skills focus on new opportunities, trends and creativity while delivery focuses on execution. You need both in a successful business, but the tendency is to focus on delivery.

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Mature, and typically declining, firms are dominated by people with excellent delivery skills, but often lack the proper balance of discovery skills.

Typically, one or more firm founders were entrepreneurial and tended to hire people for their delivery skills and not their discovery skills. As a result, many partners and managers don’t know how to think about discovery or place enough value on the importance of innovation. Accounting programs teach people delivery skills, while most experiences and on-the-job training focuses on delivery and execution. In fact, many of the discovery skills are viewed as nonproductive (more about that later). I believe the lack of innovation explains some of the frustration about what firms must do in order to develop the next generation of leaders.

Let’s look at two different types of innovation and then how the most successful firms are modernizing their practices to meet the needs and wants of their clients.

Accounting majors are taught the rules and regulations of the profession in school and throughout their careers.

This is not a negative, but rather a fact as their perception is often different than those with different training and aptitudes. Upon graduation, most accountants going into public practice start in audit and/or tax. This has been the traditional approach and is the primary reason most innovation in firms is directional innovation. Directional innovation tends to improve a service in fairly predictable steps with a welldefined dimension or goal. The majority of innovation is directional and is accomplished through increasing levels of expertise and specialization (delivery skills). This is a low risk approach and one with which many CPAs are comfortable. There is nothing wrong with directional innovation, yet it is limiting due to the fact most of the participants are looking at the problem from the same perspective.

Darwin John, former CIO at the FBI, once said: “if two of you have the same opinion, then we don’t need one of you.” This may be a bit extreme, but

the point is that for real innovation (discovery) to occur it requires multiple perspectives. This is often called intersectional innovation where multiple disciplines meet in the attempt to solve a problem or improve a solution. From my experience in the CPA profession, the two areas within firms that have been responsible for innovation over the past 20 years are firm administration and technology. Leaders in these areas have been attempting to bring the silos together and improve performance through improved communications, efficiency and effectiveness.

One step in entrepreneurial innovation, and the one leading firms are focusing on, is intersectional innovation or client centric innovation. It not only involves the client, but his multi-discipline advisors. This can be difficult due to egos and personalities, but the CPA is the most trusted business advisor and should take his or her role seriously by acting as the quarterback when it comes to innovation and improved client services. While many CPAs were trained to be rugged individualists (focus on delivery) and solve the clients’ problems on their own or with a small team, that approach no longer meets the needs of a majority of clients.

Today, clients are looking for faster, better, cheaper and easier solutions, forcing firms to be innovative and sensitive to clients’ wants and needs. The capturing of transactions is becoming a commodity with new technology and the ability to aggregate and integrate information via cloud-based solutions.

In the past, tax return preparation has involved a significant amount of time (fee) in aggregating data while technology has automated the calculation and processing of the return. In other words, the CPA is now caught in a situation where the services they are offering are diminishing in value (commoditization). Part of this is due to technological innovation and part is due to the pricing strategies used by the majority of firms (hours times dollarslabor theory of value).

We are living in a connected world and someone is making those connec-

tions—as the trusted business advisor, it should be you, the CPA, and your firm.

The people making these connections tend to be professionals who excelled in one field, but learned from others. This describes many CPAs and why they are the most trusted business advisor. Formal education increases the probability of attaining creative success to a point and then actually reduces the odds. A key to prolonged success throughout ones career is lifelong learning and multiple experiences. It makes sense to spend time on a variety of projects if you wish to develop fresh and groundbreaking ideas. The value comes from being able to spot trends and then integrate what you already know. This requires curiosity and an interest in a variety of things. Innovators don’t produce because they are successful, but they are successful because they produce.

Diversity promotes innovation while too much expertise can create barriers to innovation. Innovation requires a balance. More good ideas come when working in a group than when working independently. The big question

Diversity promotes innovation while too much expertise can create barriers to innovation.

becomes: what can and should firms do to promote innovation at the intersection? As I said earlier in the article, innovation occurs with vision, hindsight and insight. By looking at the current generation of great firm leaders, we see several characteristics that allowed them to be innovative. Let’s looks at a list of the most important discovery characteristics.

1. The ability to connect and associate different perspectives (clients, multiple advisors, trends, technology and etc.)

2. The ability to question the status quo.

3. The ability to hold self and others accountable.

4. The willingness to participate in “safe haven” meetings with peer leaders.

5. The ability to manage, not avoid risk. The quantity of new ideas improves the quality. Create the environment to promote, not stifle innovation.

This list may not seem important to those who focus only on the delivery side. Firms must be cautious not to swing the pendulum too far toward the delivery or discovery skills. Both skills are required, important and cannot be ignored. Success today requires a team. The team should involve younger

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—firms can provide transactional as well as value added services such as bill payment, payroll, controller, HR, IT and CFO related services on a monthly basis. Private labeled software that can be centrally updated and supported will allow firms to take back control of accounting. It will also allow your firm to become hardware agnostic. It works the same on Mac as Does your firm reward and promote discovery skills? If the on a Windows based PC via a browser. answer is no, you have your answer as to why you don’t have 4. Use portals to aggregate client data for auditing and accounting as the innovative leaders you need for the future. well as tax return preparation. Avoid false starts and wasted time. Portals members who are capable and expected but most firms will find three or more provide security, are inexpensive and to challenge the status quo or strategy of these innovative ideas profitable. clients like them. Most of the resis1. Billing and collection poli- tance I see is within the firm. which has often been developed and cies—use technology to improve implemented by senior leadership.

5. Conduct client focus groups The fact is most large organizations cash flow (ACH payments & Credit with marketing, tax and technology generally fail at disruptive innova- Cards). This requires different think- expertise present. This will provide tion, because top management has ing and change management. Too innovation at the intersection from been selected for their delivery skills. many firms are allowing clients to treat multiple perspectives. Listen to the While it is the managing partner or them as interest free or “cheap” banks. client and provide the services he/ CEO’s role to lead the innovation it You can turn this around with im- she wants. Utilize firm leaders with is an extremely difficult assignment. proved engagement letters that specify discovery skills.

Delivery executives do not like having payment terms leveraging monthly Innovation is part of a firm’s culture the strategy constantly challenged nor bank drafts. and DNA. It requires leadership and 2. Tax return preparations pro- the willingness to manage risk. Not do they appreciate change. Does your firm reward and promote discovery cesses—avoid loops and focus on every idea is a great idea, but the skills? If the answer is no, you have one-way workflow. There are better quantity of ideas determines quality. your answer as to why you don’t have ways to train than sending work back Successful firms balance discovery and the innovative leaders you need for to the preparer. You can use technol- delivery skills. the future. Now is the time to identify ogy to grade performance and report Does your firm have the discovery and develop leaders with the skills and errors. Current workflow software has skills necessary to meet your clients’ willingness to focus on intersectional its roots with outsourcing companies. demands in a rapidly changing world? innovation. The future success of your If Federal Express can track packages Provide your people with the time and firm depends upon innovation. electronically, firms should be able resources to innovate. Based upon reHere are five areas where innova- to track work in an efficient manner cent studies, most firms are less than tion will produce significant results. reducing cycle time.

50 percent chargeable. What better 3. Client accounting in the Cloud use of the non-chargeable time than Granted they may not fit every firm, innovation, training and new business AZ CPA development?

L. Gary Boomer is CEO of Boomer Consulting, Inc., an organization that provides planning and consulting services to leading accounting firms. For more than a decade, he has been named

by Accounting Today as one of the 100 most influential people in accounting.

He can be reached at lgboomer@boomer. com or visit www. boomer.com.

12 AZ CPA y JANUARY 2012

Gaining A Competitive Edge Developing an Attitude for Success

By Patrick Pruett Years ago, I was working for a franchise company in New Zealand and as part of my role I would travel around the country talking with the individual franchise owners, their clients and potential clients about their business. On one particular trip I had one of those “aha” moments when I realized that something else is at work besides pure economics when it comes to a company’s success. In a small, rural community I decided to go into town to visit several of the franchisee’s clients (primarily retailers) to get a sense for how they were getting along in their local market. On the first couple of stops I received terrible feedback about the economy, how it was affecting them, and that they weren’t sure about surviving.

Feeling a little low by now (their moods were impacting me) I went across the street and visited with a few more. I walked into a store and after introductions and the question “how’s business?” the owner looked up and he said, “You know, my business is just great.

I am up on last year and feel good about growing.” When I related what I had heard from others who were having such a hard time, he shrugged and couldn’t explain why they were in such a state. After that, I found several more retailers who were having a good year and it hit me then that attitude and personal perspective has tremendous strength and can truly impact your success or lack of it.

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Talking with many accounting firms recently I am getting uncustomary feedback that having a flat year or possibly just above that point this year will be acceptable to the firm. The reasons given are good and valid (mainly it’s the economy) however setting such low sights is not what you need to drive your business, especially when the year is just beginning and no one knows what will happen.

There remains good opportunity in the marketplace for businesses that are actively seeking it out. In fact, this recession is an opportunity itself waiting to happen. A report from the Bay Street Group titled, Emerging Opportunities for Accounting Firms, explains that “leading edge accounting firms are already taking advantage of the changing economic and regulatory terrain to gain a competitive edge.”

I am here to suggest, rather implore, that you capitalize on what is available in your market or possibly what isn’t available from your competitors. Then, focus on providing services that meet the changing needs of business owners. Just imagine, if you are concerned about your business how do you think someone who doesn’t understand the numbers and all their implications feels right now…it’s a scary reality that you can help them understand and cope with.

Don’t let past failed attempts prevent you from future success…

I speak with firms constantly that want to start a niche. The problem is that in many cases I have been talking with them for years about the same thing. They may have half-heartedly tried a few things over the years to get a niche moving, yet they have never drawn up a plan and worked to go after it aggressively. Gene Garrelts, Managing Partner of Orizon Group once said about his highly successful financial services niche, “It doesn’t help if you just dabble in it.” Really, this goes for anything your firm does. Trying to operate on the edge without making a full commitment will not bring you the type of success you are after.

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If you see an opportunity in your market, now is the perfect time to attack it with gusto and make something happen.

If you see an opportunity in your market, now is the perfect time to attack it with gusto and make something happen. Believe me, there will be enough people talking and not doing in the coming year. Don’t be one of them.

Another big conversation with firms is the constant struggle with pricing pressure. Some are trying to upgrade their clientele to larger businesses who they believe will value the firm, its high level of service, its range, and its depth. They need clients who are willing to pay what their accounting services are worth and appreciate the relationship with their accounting firm.

The problem for some in accomplishing this objective is that the marketplace struggles with understanding and valuing their services. One firm I visited recently explained that their clients and the marketplace in general have a low level of expectation in terms of what their firm can actually deliver. The firm has grown over the years and now provides many services that were previously not available, yet no one has told clients (and prospects) about the new capacity and so the perception remains.

The greatest brands in the world (e.g.

Disney, GE, and IBM) never stop relating to their customers about the value they receive from their brand. Incredibly, many accounting firms have trouble talking with their clients in this or any other way. Some are not even willing to get regular feedback from clients for fear that they may bring up a problem the client is having with their firm.

Question: Is it better to have one of your competitors uncover one of the issues or would you like to discuss and understand the problem so that maybe you could recover as opposed to losing the business without even a phone call?

It is important to remember that ex-

isting clients are your greatest source of new revenue, referrals, references, and yes, feedback that will sometimes challenge you to improve how you approach and deliver to the marketplace. Talking to clients is not optional; it is something you need to do regularly as part of building and sustaining your firm’s culture and profitability.

Fresh Start…

To me the most wonderful aspect of each New Year is that with it comes the opportunity to begin fresh, setting new expectations for what you want to achieve in the next 12 months. This is an exciting time that can motivate people to overcome past failures, set ambitious goals, and focus on the hope and promise of a better tomorrow. Beware that it is also a time when people will spend 3-4 weeks at the gym in January and are never seen again ... until next January.

Regardless of what side of the street you are on, or how many times you have tried unsuccessfully to implement a firm initiative, today’s economic situation does not mean that flat (growth) is where it’s at… it’s not. At the same time, the road to growing and moving your firm beyond where it is today will be a long and at times difficult path. It always is whether in good times or bad. Yet, this same trail will also be rewarding and exciting for those firms that proactively search for and explore opportunities, focus like a laser, and stay committed throughout the year to doing things that enable success to happen and will help deliver solutions to clients that offer real, AZ CPA tangible value.

Patrick Pruett is president of Five Star and the executive director of Enterprise.

He can be reached at Patrick@enterpriseworldwide.org.

What We Can Learn from Zappos

By Jon Hubbard Zappos.com is an online store and apparel shop. It was started in 1999, and in 2009 was acquired by Amazon in a deal valued at more than $1.2 billion. Zappos has set itself apart from other online retailers by having a passionate focus for customer service. Most online retailers go after having the lowest price or the largest selection, but Zappos chose to focus on customer service because they felt it was the biggest value they could offer their customers.

Through Zappos’ insane (or not so insane) focus on customer service, they have created a company culture that is known around the world. Courses have been developed, books have been written and companies have been started with the goal of communicating and replicating the unique and profitable culture Zappos has created.

Here are three key aspects of the Zappos culture presented with the purpose of getting us to think about how we can apply similar aspects to our firm or business.

Your Culture is Your Brand Building a brand today is much different than building a brand 60 years ago. In the past, the executives of a company would meet and decide how they wanted to brand and position the company and they would then spend a lot of money on advertising to communicate the message. While marketing and advertising are still important, they do have limitations.

Zappos believes the best way to build your brand for the long term is to develop a strong culture. Once the culture is established, other areas of the business such as customer service, building a great reputation and attracting passionate employees will happen as a direct result.

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Zappos celebrates and embraces diversity and each person’s individuality. They want their people to express their personality in their work. They feel strongly about this, because they feel their employees will perform best when they can be themselves.

Zappos has 10 core values that shape their company culture: 1. Deliver WOW Through Service 2. Embrace and Drive Change 3. Create Fun and A Little Weirdness 4. Be Adventurous, Creative and Open-Minded 5. Pursue Growth and Learning 6. Build Open and Honest

Relationships With

Communication 7. Build a Positive Team and

Family Spirit 8. Do More With Less 9. Be Passionate and Determined 10. Be Humble To learn more about each of Zappos’ core values and how they shape their culture, go to www.zappos.com. I don’t think every organiation need should have these core values. Your business should be unique and should have a unique set of core values that everyone is passionate about. You should think about what steps your company can take to make your core values truly influence company culture.

Creating a Passionate Team Zappos goes to great strides to have employees that are passionate about their 10 core values. Without passionate employees, the company culture will sputter and will not have a competitive advantage. Zappos starts with the hiring process. They hold two sets of interviews, one interview focused on technical ability and experience.

The second interview focuses on the culture and the 10 core values. Once an applicant becomes a new-hire, they

16 AZ CPA y JANUARY 2012

go through a four-week training process at Zappos’ call center, no matter what their job title is. During the first two weeks, the new-hire is educated on company history, importance of customer service, and company culture philosophy. During the last two weeks, the new-hire will take calls from customers. At the end of the training, Zappos makes an offer to the entire training class. They offer everyone $2,000 to quit (plus what they’ve already earned during the training).

Not surprisingly, less than one percent take the offer. Although this process is a little unconventional, it helps ensure the company is being strengthened with each hire.

Also, Zappos regularly measures the strength of their culture through regular employee surveys that ask employees whether they agree or disagree with the below statements: • I believe that the company has a higher purpose beyond just profits.

• My role at Zappos has a real purpose – it is more than just a job.

• I feel that I am in control of my career path and that I am progressing in my personal and professional development at Zappos .

• I consider my co-workers to be like my family and friends.

• I am very happy with my job.

What steps can your organization take to ensure the hiring and retention of passionate employees?

Create Fun and a Little Weirdness How good would a company culture be if it wasn’t fun and a little weird?

Not super weird, just a little unconventional to add some humor to everyone’s day. Zappos celebrates and embraces diversity and each person’s individuality. They want their people to express their personality in their work. They feel strongly about this, because they feel their employees will perform best when they can be themselves.

A great example of Zappos’ employees creating fun and a little weirdness is their finance department has a weekly parade called “Random Acts of Kindness.” They march down the hallway to three employees’ desks and present them with a gift, put a hat on them and take their picture.

A great side effect of encouraging fun and a little weirdness is that it encourages creativity and innovation. When employees are more engaged with their work the company as a whole becomes more innovative.

What Steps Can You Take to Create Fun and a Little Weirdness?

Although Zappos is in an entirely different industry than accounting, we can still learn from what they have built and implemented at their company. It is important that we consider what our organization’s purpose is and take steps to building a culture that supports it. No two companies are exactly the same nor should their cultures be the same, but without fun and a little weirdness, we won’t get too far. AZ CPA Jon Hubbard is a staff member at Boomer Consulting. He can be reached at jon.hubbard@boomer.com.

Firm-Wide Goals/Objectives and Comp Plan There are two important connectors that each partner’s goals should have.

First is the link to overall firm goals for the year. How is each partner supporting either specific or overall firm initiatives and the goals of other partners? That’s how you raise the bar. And second, how does the achievement of goals link to the compensation system?

If it doesn’t, or if the compensation plan is too complex, you’re not going to get the results that you want.

Don’t Hide Them!

How to Make Your Partner Goal Setting More Effective

by Gary L. Adamson

Hopefully you are already engaged in partner goal setting in your firm. If done well, goal setting will raise the bar for each partner, which in turn will raise the bar for the firm. We all know the basic rules of goal setting, including having a limited number of measurable stretch goals. Here are a few ideas to really step up your process for better results.

Committed Leadership Coaching and mentoring the firm’s partners is one of the most important, if not the most important, responsibility of the managing partner. Depending on the size of your firm, the managing partner may personally do it or get others involved.

The goal setting process is a team sport. The MP and his/her management team sits down with the partners and together they come up with the goals. Equally important is the involvement of the MP in follow-up meetings to discuss progress.

A good rule of thumb is that you need to have a dialogue every 60 days or so. The biggest reason why goal setting programs fail is lack of follow up by firm leadership.

Hygiene vs. Goals I see too often what I call hygiene items listed as goals. There are some things that are like brushing your teeth in the morning – you just need to do it and you really shouldn’t be rewarded for it. Your firm should have minimum expectations for partners that include things like putting your time in, doing your billings, collecting your receivables, etc. They are not goals. Partners should be impact players and their goals should have a high impact on the firm’s success.

A frequent mistake in firms are that once the goals are set, they don’t see much daylight until it’s time for some follow up. Why do most of us do that?

Why wouldn’t all partners like to see the goals of their peers? Wouldn’t staff like to know what the partners are working on? Maybe they could help!

If your goals are on the firm’s intranet for all eyes to see, you will have more incentive to make them. It’s called peer pressure. Of course, there may be some particular issues for some partners that are not suitable for sharing, but for the most part, sharing them is healthy.

Outside Assistance The managing partner’s participation in the process is key. In addition to the managing partner, some firm’s may benefit from outside assistance. This can range from working just with the managing partner, to practice or office leaders, or to the entire partner group. I know of one firm where the outside coach works with all partners on a quarterly schedule.

There is something about being held accountable by someone from the outside that can raise the level of success in many firms.

Remember, the goal is to help enhance the individuals’ performance to improve your firm. It’s a lot of work AZ CPA but worth it.

Gary L. Adamson, CPA, is president of Adamson Advisory. He can be reached at (765) 488-0691; www.adamsonadvisory.com.

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Employer-Owned Life Insurance – A Tax Nightmare Waiting to Happen?

by Kurt D. Adams

How familiar are you with Internal Revenue Code (IRC) § 101(j)? If you were in a room full of CPAs, you would be in the majority if you answered, “not very familiar.” IRC § 101(j) was introduced in 2006 and addresses the tax-free nature of death benefits from employer-owned life insurance policies.

An employer-owned life insurance contract is a life insurance contract that is: owned by an employer, under which the employer is the beneficiary, and insures the life of an employee of the employer on the policy issue date.

Here are examples of arrangements that fit the description: Key-person policies; Stock redemption buy-sell agreements; Endorsement split dollar arrangements; Family limited partnerships and LLCs; Deferred compensation funded with life insurance; SERPs funded with life insurance; and, 457 Plans funded with life insurance.

IRC § 101(j) was enacted to stem a perceived abuse practiced by several multinational corporations. The corporations would take out insurance on the lives of tens of thousands of employees, without their knowledge or consent.

These policies were often referred to as “janitors insurance,” which reflects the fact that the policies were taken out on rank and file employees. Employers took out the coverage because the policies provide tax-free investment buildup for the companies and provide tax-free death benefits when the workers, former employees and retirees, die.

The Wall Street Journal ran a series of articles chronicling this practice and telling the stories of impoverished families who were outraged to find that Dad’s former employer was collecting $250,000 of life insurance on his death, under a policy that Dad and the family never knew anything about. The negative publicity prompted Congress to act by passing IRC § 101(j).

IRC § 101(j) virtually eliminates insuring rank and file employees by imposing ordinary taxes on the death benefits on their lives. Additionally, it imposes certain requirements that must be met to avoid taxes on key employees. Those requirements generally state that, before the issuance of the policy, (i) the key employee must be notified in writing that the employer intends to insure the employee’s life and of the maximum face amount for which the employee could be insured at the time the contract was issued; (ii) that the key employee must provide written consent to being insured under the contract and that such coverage may continue after the insured terminates employment; and (iii) that the writing must state that the employer will be a beneficiary of any proceeds payable upon the death of the key employee.

Failure to satisfy all three prongs of IRC § 101(j) will cause the death benefit (in excess of the premium paid) to be subject to ordinary income tax rates.

Furthermore, Congress promulgated certain information reporting requirements related to employer-owned life insurance contracts that require that every employer owning employer-owned life insurance contracts issued after August 17, 2006, provide the following information showing for each year the contracts are owned: (1) the number of employees of the employer at the end of the year; (2) the number of such employees insured; (3) the total amount of insurance in force at the end of the year; (4) the name, address, and tax identifying number of the employer and the

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type of business in which the employer is engaged; and (5) that the employer has a valid consent for each insured employee (or, all such consents are not obtained, the number of employees for whom such consent was not obtained).

The above is to be reported on IRS Form 8925, which is due on the date the tax return is due. For example, a policy issued in 2011 to a corporation that is a calendar year taxpayer would be due March 15, 2012. A policy issued in 2011 to a partnership that is a calendar year taxpayer would be due April 15, 2012.

Linda Boyd, the IRS attorney who authored Notice 2009-48, the guidance on IRC § 101(j), confirmed that the IRS was interpreting the “notice and consent” requirements of the statute as strictly as the guidance outlines. The statutory language specifically mandates the documentation required and the IRS is not inclined to override this mandate by carving out exceptions. Boyd sympathized with the plight of the small corporation that was unaware of the consent requirement when it took out a policy, but said that she felt the Service’s hands were tied. Simply put, there is no way to “cure” non-compliant policies.

The bottom line is that failure to comply with IRC § 101(j)’s notice and consent requirements will make those life insurance proceeds taxable. A $1 million Key-person policy could be worth $600K to $700K at death.

So what do you do if you are one of those small corporations who failed to obtain notice and consent? In order to preserve the tax-free nature of the policy on an employee, it must be replaced or materially changed, and the notice and consent requirements satisfied on the new policy. (In usual fashion, the IRS has not provided clarification as to what constitutes a “material change.”)

There is no easy fix except replacing the life insurance coverage. For more information on IRC § 101(j) contact a life insurance professional who specialAZ CPA izes in this area.

Kurt D. Adams is a Certified Financial Planner with more than 20 year experience as a Life Planning Specialist. He can be reached at (480) 226-4118.

Five Common Data Security Mistakes

by Randy R. Werner, J.D., LL.M./Tax, CPA

Protecting your company’s data, including confidential client information, is a critical part of doing business today. Among the many data security problems causing major losses for firms and businesses are five common security mistakes that can be prevented by reasonable data security policies and protective measures. Note the following five mistakes and be sure your company takes the recommended steps to prevent them: Failing to Report a Lost Portable Data-Bearing Device Immediately A 2007 study by the Ponemon Institute found that 39 percent of employees across a variety of professions lost or “misplaced” an unencrypted data-bearing device (e.g., USB drive, smart phone, laptop computer). The more unfortunate part is that 74 percent of those employees did not report the loss immediately, either because they were embarrassed about the loss, worried about losing their job, or thought they just misplaced the device and would find it soon. However, every firm should persuade its leadership and all other employees to adopt a strict policy that requires them to report losses immediately. Not only will your business want to begin the retrieval process right away, but an increasing number of states have enacted laws requiring that clients be notified within a short period of time following the detection of a data loss.

Sending Unencrypted Email Attachments of Confidential Data The Ponemon study also revealed that 38 percent of employees send confidential data by unencrypted email attachments, and 48 percent of those are not sure about whether that practice violates company policy. The Internal Revenue Service now requires encryption of email attachments with a WinZip utility—an indication that

JANUARY 2012 y AZ CPA

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Upcoming ASCPA Conferences

Accounting & Reporting Standards Conference Jan. 13

Black Canyon Conference Center, Phoenix Recommended CPE Credit: 8 hours

ASCPA Member $255 – Nonmember $355 Course Code: AAC Don’t let accounting and reporting issues keep you up at night.

Stay up-to-date with the following sessions: • Health Care Reform: Past, Present and Future • A & A Update/Private Company Financial Reporting • IFRS Update • What’s New with the State Board of Accountancy • Transitioning from SAS 70 to SSAE 16 • Preventing and Identifying Fraud

Governmental Accounting Conference Feb. 3

Arizona Biltmore Resort, Phoenix Recommended CPE Credit: 8 hours

ASCPA Member: $225 – Nonmember $325 Course Code: GAC Hear from your favorites and get new perspectives in governmental accounting. David Bean returns with an update on new standards that affect governmental accounting, David Cotton will lead a fun and interactive activity where participants will solve a fraud case, Dan Anderson will give you an economic update specific to government agencies, and John Arnold will deliver a state of the state at this year’s conference. You can also choose from a variety of break-out sessions throughout the afternoon: • Dig Deep into GASB • Maximize a Successful Retirement Plan • Are all Recessions the Same?

• Clarity Standards • Enterprise Risk Management in a Down Economy • How Can You Use LinkedIn to Help Your Government Agency?

Special thanks to luncheon sponsor: Heinfeld, Meech & Co., P.C.

Register online at www.ascpa.com

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encryption is now standard practice.

Currently, 46 states have data breach laws that require notices to be sent to all affected persons if confidential data is not encrypted and is then compromised. Your firm should develop a policy that requires encryption of all confidential files and attachments. Encryption of hard-drives and individual data elements such as Social Security numbers is also excellent protection.

Copying Confidential Data onto a Portable Drive The vast majority (87 percent) of employees knew about their company policy against copying confidential data onto USB or other removable drives, but most of them did it anyway, according to the study. CPA firms often have to copy such data because they have employees who need to work outside of the office. A sound approach is to create a policy of checking the USB drive: have the employee put the drive into a computer and remove completed or non-current materials by moving them back to the appropriate files on the network. Doing so will limit a potential loss to the data that exists on the drive at the time it is lost or stolen.

Downloading Personal Software onto a Company Computer The danger of downloading personal software is that it may contain viruses or worms that allow hackers to access a computer. Your firm should have a policy prohibiting employees from downloading free movies, music or other software unless the vendor and product are reputable (e.g., Adobe Acrobat).

Many websites are not well maintained and can be breeding grounds for computer viruses and spyware. The policy should limit internet usage to legitimate websites only. Many illegitimate websites, foreign and domestic, exploit software weaknesses to install spyware on computers. Employees who play online games on work computers also run the risk of downloading viruses to the computers.

Sharing Passwords with Co-workers Most firms have policies forbidding the sharing of passwords, but the study indicated that almost 50 percent of employees do it anyway. Apparently employees trust their “best friend” co-workers more than they should.

When an employee causes a data security problem, all the co-workers who shared their password with that person may be blamed for the problem as well. A simple means of protecting the firm’s data is to require employees to change their passwords often. Automated systems that require password changes at least every 90 days can help in this regard. Changing passwords frequently will help minimize the potential damage from a problem employee having someone else’s password.

Also, employees should use strong or complex passwords—a combination of both lowercase and capital letters, numbers and special characters such as @, & or #.

Staying Vigilant Having robust and updated data security systems in place is always a good idea. Many software companies issue software security updates to help ensure that software is secure from common threats that are identified, and most updates are applied automatically online. If your firm’s software does not have an automatic update feature, develop a business practice to check for the latest updates. Also, provide training on data security risks, policies and best practices for all firm members on a regular basis, and be diligent about enforcing the firm’s policies. AZ CPA

Randy Werner, J.D., LL.M./Tax, CPA, is a loss prevention specialist with CAMICO (www.camico.com). She responds to CAMICO loss prevention hotline inquiries and speaks to CPA groups on various topics.

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The Arizona Tax GuideTM includes: Arizona Income Tax, Sales and Use Tax, Arizona Property Tax, and Unclaimed Property in a printed book or a pdf document.

Spiral-Bound Book: Members of ASCPA, Phoenix Tax Workshop, State Bar of Arizona or Enrolled Agents: $89 Nonmembers: $109 Electronic PDF: Members of ASCPA, Phoenix Tax Workshop, State Bar of Arizona or Enrolled Agents: $79 Nonmembers: $99

Go to www.ascpa.com/taxguide to order *Call 602-324-4743 for special pricing on orders of five or more.

JANUARY 2012 y AZ CPA

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Classifieds Business Opportunities/ Practices for Sale

Employment Opportunities

Wanted: CPA Practice—No brokers/commissions. Cash purchase.

CPA with 10+ years experience. Very high client retention. Interested in buying Phoenix practice. Email Brandy at ashlee.shoulders@gmail.com.

Merger Opportunity— We are a small, casual CPA firm in Tempe seeking five-year transition of ownership with CPA experienced in tax and QuickBooks. Sharing of office, equipment and staff, as well as per diem work during transition. Please email sherylsacry@ thetaxlady.biz.

WANT TO SELL OR BUY AN ACCOUNTING PRACTICE? Make it easy on yourself. Call Gary Hankins, CPA (800) 584-4595, ext. 05. hankins@ apsleader.com. www.accountingpracticesales.com.

Outstanding Audit & Consulting Opportunities!—Heinfeld, Meech & Co., P.C., established leaders in governmental and non-profit accounting, auditing and consulting, seeks motivated individuals with at least 4 years of experience specializing in governmental accounting and/or auditing for our growing offices in Phoenix, Tucson & Flagstaff. Recognized on the “25 Best Small Companies to Work for in America” list for the past five years, our firm is committed to providing a superior work environment and career opportunities for our staff. B.S. in Accounting required. CPA or CPA candidate preferred. Travel within the state of Arizona required. Email resume to: recruit@heinfeldmeech.com.

Miscellaneous Entrepreneurial CPA Network (eCPAn)— Wednesday, January 11th, Piercing “The Cloud” (Can it lift your business?) Why Cloud Computing? Speaker Bruce Newman, CMIT Solutions. Regular luncheon meetings are 11:30 to 1:30; all meetings located at DoubleTree Suites, 320 N 44th St. For information email us at info@ecpan.org or visit www.ecpan.org.

After 25+ years serving non-profits, closely held businesses and the individuals who run them, Brenda Blunt is pleased to announce the establishment of her own firm

Brenda A. Blunt, CPA, PLLC

Call José Herrera at (602)324-4741 or e-mail: advertise@ascpa.com

Manager, Accounting & Reporting—Arizona American is looking for an Accounting/Reporting Manager to manage processing of financial information in compliance with US GAAP, Canadian IFRS, Sarbanes-Oxley and other regulatory and legal requirements. Requires degree in Accounting; 8-10 years full cycle and 2-4 years supervisory experience. CPA required; MBA desirable and advanced knowledge of US GAAP, Canadian IFRS and regulatory practices. Requires highly technical expertise regulatory/ accounting/finance; knowledge of Microsoft Office products, spreadsheet software, JD Edwards, Oracle, Orcom, Hyperion or other ERP systems. For more information and to apply on line visit www. amwater.com, Job# 6284. EO/AA

Brenda offers a wide variety of tax, accounting and business consulting services including tax planning and compliance, strategic planning, multi-entity structures, and planned giving.

Brenda has especially deep experience in the not-for-profit area working with hundreds of local and national not-for-profit organizations, consulting with attorneys and other CPA’s regarding their NFP clients and recently having served on the steering committee for the NFP practice group of a top-10 national accounting firm. As a result, she is recognized for her expertise addressing exempt status, UBIT, public charity status, private foundation, compensation reporting, related entities and other issues unique to not-for-profit entities.

Brenda is a member, and the initial chair, of the ASCPA NFP Section Steering Committee and a frequent national and local speaker on topics of interest to not-for-profit organizations.

Brenda A. Blunt, CPA, PLLC One East Camelback Road, Suite 860,Phoenix, AZ 85012 602-692-6856 – BrendaBluntCPA@cox.net

SEPTEMBER 2011 y AZ CPA

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Is your firm moving? Did you get a promotion? Do you have a new hire in your firm?

Announce it here with discounted ads in the AZ CPA for our members only.

We will even create the ad for you at no additional charge.

“Thank you to the ASCPA for the beautiful ad. I have already received a number of comments on it and have even been contacted (within days of it hitting the street!) by a potential new client.” —Brenda Blunt, CPA

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Check Out Our Career Center The ASCPA Career Center is a one-stop shop for employers and job seekers alike. Whether you are looking for the perfect job or searching for the perfect candidate, we make it easy for you.

Members can post their resume and look for jobs. Employers can post a job or look at member’s resumes.

Go to Career Center at www.ascpa.com

Tell Your Clients About Scholarship Tax Credits.

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