Disclosures: September/October 2019

THE OFFICIAL MAGAZINE OF THE VIRGINIA SOCIETY OF CPAs

SEPTEMBER/OCTOBER 2019

VSCPA.COM/DISCLOSURES

WHAT’S AMERICA

really worth?

+

Tech innovations | Data management

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CONTENTS

Features 14

What's America really worth?

The U.S. balance sheet tells a sobering story.

22 26

Tech innovation bright ideas Own your data, don’t let it own you

Columns

FIND US...

12 Young Professionals

7 tips to ace your next interview

CONNECT connect.vscpa.com

Departments 4

From the CEO

6

Line Items

8

Tech Talk

10

Advocacy

32

VSCPA News

38

Classifieds

TWITTER @VSCPANews LINKEDIN tinyurl.com/ LinkedInVSCPA FACEBOOK facebook.com/VSCPA INSTAGRAM instagram.com/VSCPA SNAPCHAT @VSCPA

DISCLOSURES

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SEPTEMBER/OCTOBER 2019

3

FROM THE CEO

4309 Cox Road Glen Allen, VA 23060 (800) 733-8272 vscpa.com

disclosures vscpa.com/disclosures disclosures@vscpa.com

SEPTEMBER/OCTOBER 2019 Volume 32, No. 5 Managing Editor Jill Edmonds disclosures@vscpa.com Contributing Editor Chip Knighton cknighton@vscpa.com Editorial Task Force Olaf Barthelmai, CPA Cheri David, CPA Mike DellaRipa, CPA Melisa Galasso, CPA Genevieve Hancock, CPA Karen Helderman, CPA Alesia Lewis, CPA Gabriele Lingenfelter, CPA Harold Martin Jr., CPA David Peters, CPA Mark Plostock, CPA Barbara Sukramani, CPA Disclosures is published six times a year by the Virginia Society of Certified Public Accountants (VSCPA). The magazine’s mission is to communicate information of value to VSCPA members, including professional issues and VSCPA initiatives. The materials and information in Disclosures are offered as material only and not as practice, financial, accounting, legal or other professional advice. Statements of fact and opinion are made by the authors alone and do not imply an opinion on the part of VSCPA officers, members or editorial staff. Publication of an advertisement in Disclosures does not constitute a VSCPA endorsement of the product or service. Copyright © 2019 Virginia Society of CPAs.

VSCPA Preferred Providers

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DISCLOSURES

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The evolution of VSCPA online learning The VSCPA launched a new set

of strategies for the 2019–2020 membership year, including one devoted to digital learning. It’s an offshoot of our VSCPA2025 bold strategy, “Create a culture of learning,” which includes the line: “From reimagining current programming and launching new delivery modes to evolving the physical learning environment, the VSCPA will carve a path for futureforward professional education for our members.” To us, a major part of fulfilling that strategy is to be the premier provider of online learning for CPAs. We’ve been offering online learning opportunities since the late 1990s, when we first dipped a toe into online learning with what we called Satellite CPE. Since then, we’ve worked hard to stay on the cutting edge, both in terms of technology and content. The industry is evolving constantly, and we want to remain at the forefront. We have a Board of Directors task force focused on keeping us there and driving us forward.

As we move into the future, more of our members will expect high quality, online learning similar to what they experienced in high school and college. In fact, we have many members, especially in larger firms, who currently take a significant amount of their training online. We know online is rapidly evolving and the VSCPA intends to keep up with the changes in order to provide high quality online training to all members. As in other areas of the profession, the VSCPA aims to offer products and opportunities that allow smaller firms to punch at that weight. Our online learning is a key example.

SEPTEMBER/OCTOBER 2019

We’re not trying to eliminate face-to-face learning. We still offer our conferences and seminars, and VSCPA chapters (see page 32) are a great point of local engagement that can complement our digital offerings.

But any gap in quality has closed. Our online learning is more interactive and engaging than ever before because our best practices have evolved along with learning technology. The best news is online training continues to become more effective as learning, and it’s becoming easier and easier to interact virtually in a meaningful way.

We constantly strive to maintain our position of strength in online learning.

We never want to play catchup. It’s a natural evolution of our focus on being a high-quality education provider for our members. See our offerings at vscpa.com/ OnlineLearning. n

Stephanie Peters, CAE, has served as VSCPA president and CEO since 2007. speters@vscpa.com

@StephPeters

connect.vscpa.com/StephaniePeters

One Year After Tax Reform: Dealing with the Hangover 65th Annual

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Tracking corporate

Virginia’s spot on CNBC’s 2019 ranking of top states for business, helped in no small part by the Amazon headquarters announcement.

innovation

9 Virginia’s spot on 24/7 Wall St.’s 2019 ranking of state economies.

Colorado topped the list.

As corporations struggle with disruptive challenges, leaders are implementing innovative strategies across the board to cope. The EY Innovation Survey, from Ernst & Young, interviewed 500 C-suite executives to determine challenges and successes regarding innovation. The survey found:

pCompanies struggle with “trapped assets.” That means that 50 percent spend more than 5 percent of their budgets on innovation, but 42 percent say budget is the biggest barrier to progress.

23 The percentage of Americans who don’t plan on retiring at all, despite the realities aging will bring.

pWorkforce is key, with 44 percent stating a future-focused workforce is

$200,000

necessary to implement innovative strategies.

The approximate average amount in the 401(k) accounts of Americans approaching retirement.

pSeventy-nine percent said their organizations are risk-tolerant, showing that failure is part of the process to becoming more innovative.

pInnovative companies are focused on new technologies, with the vast majority $94,229

(84 percent) using cloud computing.

Check out an informative sheet on the survey’s findings, as well as takeaways for your organization, at tinyurl.com/EYInnovationSurvey.

The average household income of Virginians. Washington, D.C., residents have the highest national household income at $116,090.

THE CPA OF THE FUTURE: 5 PRINCIPLES As the profession evolves, the CPA designation must change too. That’s why, through the CPA Evolution initiative, the American Institute of CPAs (AICPA) and National Association of State Boards of Accountancy (NASBA) are investigating whether the licensure requirements for CPAs should better address technology and analytics.

The initiative has released five principles to guide a new licensure model. The principles focus on quickly adapting to technological disruptions and acknowledging the importance of technological and analytical expertise to accounting and auditing. Additionally, the profession is demonstrating it understands the need to rethink the licensing structure in order to both sustain the CPA designation and continue to protect the public. You can weigh in! Read the five principles and provide your own feedback at

EvolutionOfCPA.org.

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SEPTEMBER/OCTOBER 2019

6 The percentage increase in health care costs employers can expect to see in 2020.

correction

The July/August Disclosures cover feature on Dr. Ruth Coles Harris listed her as a CPA. Dr. Harris’s Virginia CPA license expired in 2000. We regret the error.

LINE ITEMS

Hey, CPAs: Sept. 15–21 is Virginia CPA Week!

Teach financial fitness, government says

VSCPA annual report now online

Saddled with a staggering $1.5 trillion in student debt,

Americans could have used some help in how to manage finances. Now, the federal government recommends that U.S. colleges and universities provide mandatory financial literacy courses — as well as an itemized list of college costs in financial aid letters. A report from the Financial Literacy and Education Commission, which includes the U.S. Treasury Department and Department of Education, says that students have limited understanding of their education loans, and debt can hinder them as they embark on careers. Plus, only 28 percent of students could answer three questions on inflation, interest and risk — demonstrating the dire need for money management classes.

The VSCPA’s revamped State of the VSCPA annual report is now available. The report, now in an online format, goes in-depth on the VSCPA’s activities during fiscal 2019, highlighting innovation, learning, advocacy and the VSCPA’s efforts to protect the CPA pipeline. Visit vscpa.com/StateoftheVSCPA to view

The VSCPA has long championed financial literacy education, and Virginia high schoolers must take a one-credit course in personal finance before graduation.

But continuing financial literacy courses in college could provide even more fiscal awareness. Check out the government’s report, “Best Practices for Financial Literacy and Education at Institutes of Higher Education,” at tinyurl.com/yxpoqdan.

the report and the VSCPA’s audited financial statements for 2018–2019.

SUPERSIZE YOUR CAREER You worked hard for your CPA, and now you want to take your career to the next level. The American Institute of CPAs (AICPA) has a variety of credentials and designations that add value to your CPA and show your unique expertise: Accredited in Business Valuation (ABV) Certified in Entity and Intangible Valuations (CEIV) Certified in Financial Forensics (CFF) Certified Information Technology Professional (CITP) Certified in the Valuation of Financial Instruments (CVFI) Chartered Global Management Accountant (CGMA) Personal Financial Specialist (PFS) Each program above has its own requirements; see aicpa.org/membership/ join/credentials for more information. But what if you aren’t ready to complete the requirements for a credential, but you want more education on a topic than just a CPE course? Obtaining a certificate may be right for you. The AICPA offers more than a dozen different certificates in accounting and auditing, forensic and valuation services, risk management and internal control, tax and life planning and technology. Check out certificates.aicpastore.com for info.

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SEPTEMBER/OCTOBER 2019

7

TECH TALK

EXCELLENT EXCEL

Editing multiple sheets simultaneously Within a workbook, have you ever had to hide certain

sheets, change the color of all of the tabs or enter the same information, in the same location, but within different sheets? If so, you can use three different ways to select multiple sheets before you start your simultaneous editing.

To select sheets adjacent to each other, hold down the ‘Shift’ key and then use the mouse to select tab the furthest to the left or right of the tab you are currently on. All the sheets between, including the end sheets, will be selected for editing.

To select only certain sheets regardless of their location, hold down the ‘Ctrl’ key and then use the mouse to select only those tabs of the sheets you want to edit. No worries if on your 10th click you accidently select a tab you don’t want to edit. If this happens, just click on the tab again while holding the ‘Ctrl” key and it will be unselected.

To select all sheets, right-click on any tab and choose ‘Select All Sheets’ from the pop-up menu.

Warning: While this is an efficient way of editing multiple sheets, it could have unintended consequences if the location of items are not consistent across all selected sheets. For example, you could think that all sign-offs are in cell B4; however, in one sheet, cell B4 contains a critical formula. If you select the sheet with the formula in B4 and you sign off in another sheet, you will overwrite the critical formula with your John Hancock, thus letting everyone know who messed up the workbook.

George D. Strudgeon, CPA, CGFM, is an audit director at the Virginia Auditor of Public Accounts in Richmond. Email him if you have Excel topics you want him to cover. george.strudgeon@gmail.com connect.vscpa.com/GeorgeStrudgeon

The workplace of the

future

We all know the landscape of work is changing, but exciting trends are on the horizon. Here’s what experts foresee: No more email. Organizations are moving away from time-consuming emails and toward more collaborative digital platforms for communication.

Hello, chatbots. Artificial intelligence will allow employees to more easily take care of administrative tasks.

Data is king. Companies will better use data to their advantage to make more meaningful decisions.

That’s not all! Check out seven more predictions from HRTechnologist.com at tinyurl.com/10WorkPredictions.

And while you’re at it, you can find workplace resources in the VSCPA’s Center for Innovation at www.vscpa.com/ Innovation.

Tech help for tax businesses Need help navigating technology necessary for your tax and/or financial planning business? Check out the Technology for a Planning & Tax Advisory Business Guide from the American Institute of CPAs (AICPA).

The resource can help you decide which technology you should consider, with checklists, examples and more on how to approach and implement various types of software. Find it at tinyurl.com/ AICPATechHelpGuide.

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SEPTEMBER/OCTOBER 2019

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ADVOCACY

What’s next?

Pay equity, anti-arbitration measures The VSCPA continues to monitor national trends in state legislation to foresee issues that could crop up for Virginians.

The next big issue to face the accounting industry,

and your firm or organization, could be pay equity.

According to Payscale.com, when plotting the median earnings of all women versus those of all men, women make 79 cents for every dollar men make. Even when controlling for factors like job title, experience, industry and location, women only make 98 cents on the male dollar. It’s slightly worse in the finance and insurance industry — there, women make 74 cents on the dollar uncontrolled and 97 cents on the dollar controlled.

While the decrease in occupational segregation over the last half-century has helped narrow the gap, it has stagnated since the 1990s. At the current rate, white women won’t reach pay equity with men until 2059, and it will take longer for women of color.

Why are you reading this in the Advocacy section?

Because state legislatures are starting to attempt to

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SEPTEMBER/OCTOBER 2019

address it. Federal protections haven’t made headway because, while pay discrimination is illegal on a gender basis, the “any other factor” standard means it can occur for essentially any other reason. Among the tactics state legislatures have tried are: • Broadening the scope of which actions can be brought forth as grounds for pay discrimination filings • Narrowing the acceptable defenses for pay discrimination, adding specific affirmative defenses rather than vague standards • Stronger protections for retaliation for inquiring about pay or bringing a suit • Increasing available remediation • Prohibiting companies from asking for previous salary information

ADVOCACY

Several of these elements were included in SB 1636, the Virginia Equal Pay Act, introduced in the 2019 General Assembly session and passed by indefinitely in the Senate Commerce and Labor Committee. However, many companies are moving toward pay equity and transparency of their own accord. The latter, in particular, has several benefits — it can promote competitiveness, reduce misconceptions about salaries and aid in recruitment. In fact, some states have passed legislation preventing companies from prohibiting employees from talking about their salaries.

While the VSCPA doesn’t have a position on pay equity or transparency, we’re keeping an eye on the issue moving forward.

Accounting firms should consider reputation issues not only among the talent pool, but in other industries — some companies are choosing not to do business with other companies that aren’t adequately addressing gender-based pay inequities.

Among the steps firms can take are:

• Institute and practice pay transparency • Implement a standardized interview kit linked to specific competencies • Stop asking for previous salary information • Offer further, formalized training for interviewers • Perform adjusted (including mitigating factors such as tenure) and unadjusted wage gap analysis for each position The Society for Human Resource Management (SHRM) offers pay equity resources on its website at tinyurl.com/PayEquityResources.

ANTI-ARBITRATION Anti-arbitration measures are being dealt with at both the state and federal level, the latter of which will trump any state-based statutes. These measures essentially prohibit arbitration in certain situations, including employment contracts. However, a key point that tends to get left out of the conversation is that arbitration is generally more successful for employees because it offers more efficient, better outcomes at a lower cost to both employees and employers in a timelier fashion. For that reason, CPA firms and other employers need to follow this issue, which could also affect the cost of professional liability insurance resulting from the potential increase in litigation.

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The issue is cropping up in seemingly unrelated legislation, such as data privacy bills, and even affects issues like unmanned vehicles. Recent legislation in New Jersey prohibits pre-dispute arbitration in certain contexts, including employment. However, anti-arbitration measures at the state level have not yet been determined to be constitutional.

Both of these issues are an example of the way the VSCPA monitors national trends in state legislation so that we can understand them and protect our members. We’re in constant conversation with our colleagues from other state societies for that reason — we can more effectively protect you by understanding what might be coming down the pike. n

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SEPTEMBER/OCTOBER 2019

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YOUNG PROS

7 TIPS to ace your next interview Get the job of your dreams by following simple steps in the interview process.

In January

2018, the U.S. Bureau of Labor Statistics reported that the median length of time employees are with a company is 4.2 years. On average, this period has decreased over the last few decades. So, chances are, you will or have recently endured the (sometimes challenging) friction of changing companies and going through interviews.

The seven tips below should improve your chances of finding your next great career opportunity and hopefully, as a welcome side effect, take away some of the stress.

John Reynolds

1

RESEARCH THE COMPANY.

Nothing says “I don’t care” to the interviewer quite like knowing zilch about the company. It is perfectly fine not to be an expert in the company, or even the industry as a whole, when you first apply. Once you

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SEPTEMBER/OCTOBER 2019

are in an interview, however, knowing about the company, industry and generally available information demonstrates your commitment and ability to learn quickly. Here are some quick points to look at in the accounting and finance world: What is the business structure? Private, public, government, etc.?

What is the vision and mission of the company (if available)?

Is the position corporate or divisional?

What are the company’s main segments and divisions? How do they generate revenue?

What was their last reported annual revenue amount, and/or earnings (if private)?

YOUNG PROS

Are there are any key takeaways from the responsibilities or job posting you could hone in on, such as their total balance sheet amounts if looking at a capital reporting or fixed asset position?

2

ARRIVE EARLY.

Planning to arrive 10–15 minutes early is usually a good rule of thumb. This puts the recruiter expecting you at ease knowing you aren’t ditching the interview, allows you time to settle yourself in new surroundings and work out any pre-interview jitters and, most importantly, gives you a buffer if life or traffic throws your travel time into question. And if you do run into delays, make sure you call to let them know, ask how to proceed and document the delay as well as possible if it was entirely out of your control.

3

FOCUS ON YOUR STRENGTHS.

Many people have a constant doubt about being good enough or the right fit for the job. Modesty is a great trait and something we should all aspire toward, but not in an interview. Set that aside.

You are good enough, and your one job is to convey that to the interviewer. Self-doubt does nothing but leave the interviewer with the exact impression you are so worried about. Speak with confidence about what you know or have done and tell them every little thing that makes you a strong candidate. Make sure to make eye contact, and keep in mind that if they called you for an interview, they are interested in hearing how your experiences can benefit this position.

4

CONNECT THE DOTS.

Often, at least one of the interviewers had a hand in crafting the job description or posting. Speak to those key requirements.

Make sure you connect the dots for them by indicating how you check all their boxes for an ideal candidate. This is especially important if your resume doesn’t immediately do that for the company. I have heard many times that a “flyer interview” was given just because something caught someone’s eye. A candidate wasn’t a perfect match simply by looking at their resume, but that candidate can win the job by connecting all the dots during the interview. This can also be extremely helpful with the dreaded “weakness” question: “What would you say is your biggest weakness?” Concentrate on those areas in which you may have less experience, such as the industry you are applying for, or focus on a key area where you take time to ensure you can perform at the optimal level. Come prepared to discuss things you are already doing or can quickly implement in order to mitigate your weaknesses.

5

ASK GOOD QUESTIONS.

Interviews should always be a two-way street, and asking questions as well as answering them makes the interview more conversational and puts you in a good position. Ask questions about the company culture, the nuances of the industry or other questions that show you are informed but want to know more.

The sooner you can turn the interviewer from an interrogator into someone selling you the job, the more likely you are to have it.

6

ABC (ALWAYS BE CLOSING).

When the interview is winding to a close, be sure to sum up by indicating your true desire for the job and how you think you would fit into their plan, and ask them how they prefer to be contacted in the future for follow-up. In sales, this is called “asking for the sale.” You don’t need to be pushy, but you don’t want them to leave the interview wondering if you still want the job.

7

DON’T FORGET YOUR MANNERS.

This should go without saying, but manners are something you should carry with you wherever you go. Thank the interviewer and immediately (that day or the next) send a thank-you note to the interviewers and/or the recruiter with whom you worked with. This is not a requirement, and many people have been hired without performing this simple step, but you want to show commitment and that you care.

Keep in mind that every interview is different, and make sure you are authentic about your own interest in the position. With these tips outlined above, you can hone your interview skills and achieve all the lofty interview goals you may have! n

John Reynolds, CPA, is a senior accountant and financial planning & analysis analyst at Block.One in Blacksburg. He serves on the VSCPA Young Professionals Advisory Council (YPAC) and was the 2018–2019 Roanoke Chapter president. john.reynolds@block.one connect.vscpa.com/JohnReynolds

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GOVERNMENT

WHAT’S AMERICA

really worth?

The United States is generally considered the richest country in the world. But our financial statements reveal a more sobering fiscal reality.

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SEPTEMBER/OCTOBER 2019

GOVERNMENT

The U.S. Federal Reserve estimated that Americans

by 3.1 percent in calendar year 2018, the highest Q4 over Q4 growth that we have realized in thirteen years. Unemployment declined to a 49-year low, and American workers continued to take home more in their paychecks.”

had a net worth of $108 trillion (T) as of Sept. 30, 2018 ($124T in assets, offset by $16T in liabilities).

How does this compare to our federal government’s net worth? The answer is sobering.

Unfortunately, even with those stellar economic conditions, the government had another large 2018 Net Operating Loss (NOL) that was flat with the prior year. Even worse, the off-balance-sheet accrued liabilities for Social Security and Medicare soared.

Let’s look at the government’s bottom line in this strong economy.

HISTORY OF U.S. GOVERNMENT DEBT

Tom Visotsky, CPA

Wartime spending caused our debt-to-GDP ratio to spike to an all-time high of 106 percent in 1946, which then decreased rapidly to a low of just 23 percent in 1974. The ratio then grew rapidly from the mid-1970s to 48 percent in 1993–1995.

THE STATEMENTS

According to Management’s Discussion & Analysis (MD&A) in the 2018 Financial Report of the United States Government, “strong economic growth and fundamental fiscal decisions, including measures to reduce the federal deficit and implementation of binding Pay As You Go (PAYGO) policies (which required that new tax or spending laws not add to the deficit), generated a significant decline in the debt-toGDP ratio to 31 percent in 2001.”

The U.S. Treasury Department’s 2018 annual report is 255 pages long and includes an MD&A section highlighting the primary issues facing the country.

The report is publicly available at fiscal.treasury. gov/reports-statements/. There is also a wealth of information available at usaspending.gov.

Our Nation By the Numbers

“PAYGO rules were allowed to lapse, significant tax cuts were implemented in 2001, entitlements were expanded and spending related to defense and homeland security increased after the 9/11 attacks.

By September 2008, the debt-to-GDP ratio was 39 percent of GDP.” Easy money policies, low interest rates and lax lending standards were major factors leading to the financial crisis in 2008, met by historic spending increases by the federal government, pushing the debt-to-GDP ratio up to 74 percent in 2014. It stood at 78 percent of GDP at the end of FY 2018.

In short, debt has exploded higher since 2001, having doubled in just the last 10 years from 39 percent of GDP to 78 percent.

TREASURY SECRETARY’S MESSAGE U.S. Treasury Secretary Steven Mnuchin’s cover letter to the government’s financials, A Message from the Secretary, proclaims that “driven by the Tax Cuts and Jobs Act and regulatory relief, United States GDP grew

The government reported a budget deficit of $779B on a cash basis, and $1.159T on an accrual basis.

Over the last five years, the cash basis budget deficits totaled $2.95T. The accrual basis Net Operating Cost was $4.67T, $1.72T (58 percent) greater than the cash basis numbers typically focused on by the media and the public. Table 1 (page 16) shows this for 2018, and that we now spend $1.34 for every $1 we take in as revenue, a very difficult problem to fix.

Balance Sheet Gross debt of the U.S. government (shown in Tables 2 and 3 on the following pages) as of the close of the last fiscal year ending Sept. 30, 2018, was $105T, composed of $25T on the balance sheet and footnotes showing additional amounts of $74T of unfunded liabilities for Social Security and Medicare, and $6T owed to trust funds.

If you haven’t done the math, it would take 97 percent of all assets in America to fund the government’s liabilities on a present value accrual basis! In other words, we’re broke, but most people don’t know it yet.

And it gets even worse. u

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GOVERNMENT

TABLE 1: U.S. GOVERNMENT FINANCIALS (2018 INCOME STATEMENT) AMOUNT IN BILLIONS Taxes & Other Revenues

LOSS PER $1 OF REVENUE

$3,382

PERCENT OF REVENUE 100%

Less: Net Costs (Accrual Basis) Health & Human Services — Medicare Social Security Administration

$1,143

34

1,038

31

Department of Defense

698

21

Interest on Treasury Securities Held By the Public

357

10

Department of Veterans Affairs

347

10

Other

958

28

Total Net Costs (Expenditures)

4,541

Net Operating Cost (Loss)

4,541

134

(1,159)

Budget Deficit (As Reported on a Cash Basis) Less: Additional Accrued Expenses

Net Operating Cost (Loss)

(779)

(-$0.23)

380

(0.11)

(1,159)

(0.34)

The other expense category encompasses numerous departments of the government including Energy, Agriculture, Treasury, Personnel Management, Transportation, Homeland Security, Education, Housing & Urban Development, Labor, Justice, State, NASA, Interior, Federal Communication Commission, Commerce, Environmental Protection Agency, the Postal Service and many others.

By its own estimates, the government is projected to run deficits of more than $1T annually, forever, and that is assuming we never have another recession. As we continue to run these $1T+ annual deficits, the balance sheet will get even worse. Of course, a number of multi-billionaires like Bill Gates and Warren Buffett have publicly announced that they will be giving away much of their fortune to various charitable causes, so little of that money will ever

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accrue to the government, making the government’s balance sheet substantially worse.

Table 2 summarizes the most significant portions of the government’s balance sheet.

Assets of $3.8T, offset by liabilities of $25.4T, leaves a negative net position of $21.5T. Table 3 highlights how the balance sheet would look from a corporate perspective.

SEPTEMBER/OCTOBER 2019

It shows the recorded liabilities of $25.4T (as shown in Table 2); additional debt to trust funds (TF) of $5.8T; and unfunded liabilities (UL) for future trust fund payouts of $73.5T, for a total of $104.7T. These relate to various stakeholder amounts similar to loss per share or debt per share.

Basically, in order to pay for the government’s debts and promises in today’s dollars, each man, woman and child would have to write a check for $320,000. Since not many children have savings, a tax on every full-time worker would require $824,000. It has been reported that 50 percent of the population has less than 1 percent of the net assets of Americans and would have to borrow money to pay for a minor car repair.

Excluding those means that the top 50 percent of wage earners would each owe $1,636,000 to pay their share of the government’s debts!

Statement of Social Insurance (SOSI) The SOSI provides perspective on the government’s long-term actuarial present value exposure for social insurance programs, namely Social Security, Medicare, Railroad Retirement and Black Lung. Surprisingly, the MD&A states, “under federal accounting rules, social insurance amounts as reported in both the SLTFP (Statement of Long Term Fiscal Projections) and the SOSI are not considered liabilities” on the government’s financial statements, but are detailed in a footnote. “In the federal budget the term ‘trust fund’ means only that the law requires a particular fund be accounted for separately, used only for a specified purpose, and designated as a trust fund…” In essence, “funds from dedicated collections are government

GOVERNMENT

owned.” This is completely different than anyone’s pension, 401(k) or IRA plan, in which you own the assets in the plan.

The MD&A shows an “Open Group” total liability of $53.8T, but that number distracts from the fact that the “Closed Group” liability of $73.5T is the one we should be focusing on.

The Open Group includes proceeds from future retirees. Showing the Open Group total would be akin to someone paying themselves out of your 401(k) account. In effect, they would be spending your retirement, and telling you to take yours from a future retiree.

The Closed Group only reflects current participants. Think of it from a corporate perspective with a defined benefit pension plan.

The $73.5T liability is the estimated amount required to be put aside today to cover the costs of a Closed Group, which reflects only current participants, over a 75- year projection period. As no action appears on the horizon, these liabilities are virtually certain to grow significantly every year until Congress decides to address the problem.

Even including all the funds the government borrowed from the trusts, as well as future receipts from those who haven’t qualified for coverage, the 2018 Medicare Trustees Report indicates that the Medicare trust fund is projected to be depleted by 2026, and the Social Security trust fund in 2034. The U.S. Government Accountability Office (GAO) points out that “as previously discussed and as noted in the Trustees’ Reports, it is apparent that these programs are on a fiscally unsustainable path.” In addition, the GAO was prevented from expressing an opinion on the SOSI as cost reductions based on planned efficiencies are unlikely to be achieved.

“Trust” Fund “Investments” The government’s financials reveal that it “has about $5.8T in intragovernmental debt outstanding, which arises when one part of the government borrows from another. It represents debt issued by the Treasury and held by government accounts, including Social Security ($2.9T), Civil Service Retirement ($923B), Military Retirement ($743B) and Medicare ($302B) trust funds.” These amounts are “eliminated as part of the consolidation process.”

Virtually all of these “trust fund” assets have already been used to pay government operating expenses. When it comes time to repay this borrowing, “the government will need to obtain the resources necessary to reimburse the trust funds” (i.e., the government will need to borrow 100 percent of the amount owed to replenish the trust funds assets it has already spent on annual operating expenses). In spite of that, the amounts are NOT shown on the balance sheet since “these amounts are both liabilities of the Treasury and assets of the government trust funds (so) they are

TABLE 2: U.S. GOVERNMENT FINANCIALS (2018 BALANCE SHEET)* ASSETS Loans Receivable (principally student loans)

$1.4

Property, Plant & Equipment

1.1

Cash & Other Monetary Assets

0.5

Other

0.8

Total Assets

3.8

LIABILITIES Federal Debt Held By the Public

15.8

Federal Employee & Veterans Benefits Payable

8.0

Environmental Disposal Liabilities

0.6

Other

0.9

Total Liabilities

25.3

NET POSITION

($21.5)

NET POSITION Funds From Dedicated Collections (These are principally the non-negotiable Treasury securities issued to the Social Security and Medicare Trust Funds.)

3.5

Funds Other Than Those From Dedicated Collections (This is the cumulative retained deficit of the government.)

($25.0)

TOTAL NET POSITION

($21.5)

*Amount shown in trillions.

eliminated as part of the consolidation process” the MD&A states.

To be clear, our government’s policy is to take our individual and corporate withholdings for Social Security and Medicare, briefly put them in a Trust Fund, take all of that money and replace it with a non-negotiable IOU and then spend all that money to cover annual operating expenses and NOLs. Any corporation doing this would have to at least record a liability to the fund on their financial statements and the trustees and corporate officers would likely face indictment and jail time. u

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GOVERNMENT

TABLE 3: U.S. GOVERNMENT FINANCIALS, VIEWED FROM A CORPORATE PERSPECTIVE Total Amount

FY 2018 NET OPERATING LOSS

$1.159T

Per Person

Per FT Worker

Per FT Worker (Excl.

Bottom 50%)

327M

127M

64M

$3.5K

$9.1K

$18.1K

LIABILITIES Federal Debt

15.8T

Fed Employee & Vets payable

8.0T

Other

1.6T

Subtotal

25.4T

OFF-BALANCE SHEET LIABILITIES Debt to Trust Funds (TF)(2)

5.8T

TF Unfunded Liabilities (UL)(3) TOTAL DEBT

73.5T 104.7T

320K

824K

1,636K

of the Comptroller General of the United States says it could not render an opinion due to “serious financial management problems at DoD that have prevented its financial statements from being auditable.”

While progress has been made, this has been a problem “since the government began preparing consolidated financial statements over 20 years ago.”

Loans Receivable and Loan Guarantee Liabilities According to the government’s financials, “direct loans and loan guarantee programs are used to promote the nation’s welfare by making financing available to segments of the population not served adequately by non-federal institutions.” There are $1.4T in loans receivable, predominately student loans, as well as $2.6T in loan guarantee liabilities, predominantly FHA and veterans housing benefit programs. There have been questions on the collectability of some of the student loans, as the average balance and the total receivable grows each year.

LIQUIDITY RISKS This scheme, in which the government spends all retirement funds and replaces them with an IOU (like it does with nonnegotiable Treasury bonds), is a relic.

Many nations have graduated to actual investment funds for their current and future retirees.

A leading example is Australia. The population of Australia is only 25 million, but retirement funds (called superannuation funds) have $2.7T in investments in the retirement system.

Accounts, similar to IRAs in the U.S., are set up with mandatory corporate contributions of 9.5 percent of employee earnings as well as voluntary employee contributions. The Australian government initiated compulsory employer contributions in 1992. These funds now equal 131 percent of GDP in 2018, with nearly all of the assets in private pension

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DISCLOSURES

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funds, invested in stocks, bonds and mutual funds.

Department of Defense The U.S. Department of Defense (DoD) operated at a net cost of $698B. According to the Stockholm International Peace Research Institute, the United States spends as much on defense as the next nine largest spenders combined (China, Saudi Arabia, Russia, India, United Kingdom, France, Japan, Germany, South Korea and Brazil). What amount should be spent on defense is hard to say, but the fact is that DoD is the largest expense item after the mandated programs for Medicare and Social Security.

DoD costs are equal to about 21 percent of the government’s total receipts (15 percent of total expenses), but the GAO Statement

SEPTEMBER/OCTOBER 2019

The government closed FY 2018 with a $1.2T Net Operating Loss (NOL), $15.8T of publicly held debt and $8T of liabilities for federal employee and veterans benefits.

As the government takes advantage of historically low interest rates on the short end, more and more debt gets rolled over each year. To finance the $1.2T NOL, the government borrowed $10.1T and paid off $9T. The $10.1T borrowed last year represents 64 percent of the $15.8T of federal debt outstanding. The Federal Reserve owns $1.78T of longer dated securities with an average maturity of 8.1 years, implying that the average maturity of the rest of the debt in the hands of the public is quite short. This means the United States is exposed to both interest rate and liquidity risks that are much greater than if the outstanding debt was concentrated in 10-, 20- or 30-year bonds.

GOVERNMENT

A normalization of monetary policy could lead to interest rates at or above historical levels. Treasury yields of 5 to 6 percent were normal before the last financial crisis a decade ago. With U.S. debt at $15.8T, we recorded $357B in interest expense last year, for an average interest rate of 2.2 percent. With debt growing $1.2T a year, an increase in rates could be devastating.

Even a normalization of rates to 5.2 percent adds an additional $500B annually to our interest cost at current debt levels.

THE FED & QUANTITATIVE EASING The U.S. Federal Reserve Bank (Fed) has taken extraordinary measures to stimulate the economy by facilitating the

government’s borrowing with low interest rates. However, it should be noted that none of the Fed’s activities are included in the federal budget. It is considered an independent central bank, and its decisions are not ratified by the executive branch of the federal government.

Also excluded from the statements are all fiduciary funds and Government Sponsored Enterprises (GSE), such as the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Banks, Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal Farm Credit Bank.

The Fed held $4.1T of System Open Market Account (SOMA) securities as of

Sept. 30, 2018. This is up substantially from the pre-crisis levels in 2006 of $900B, but down from peak levels of $4.5T in 2014. Current holdings include $1.78T of Treasury securities (excluding those used in overnight reverse purchase transactions) with an average maturity of 8.1 years, and $1.7T of mortgage-backed securities with an average maturity of seven years. The Fed still holds 14 percent of all Treasury securities and 25 percent of all fixed-rate agency mortgage-backed securities.

The Fed’s balance sheet is $3T larger than pre-crisis levels, but it has announced plans to stop shrinking its balance sheet by the end of September 2019. Reserve banks around the world have u

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GOVERNMENT

How did we manage to lose $1.2T during a strong economy, record low unemployment and historically low interest rates?

Clearly, we have a structural problem with expenses far outstripping receipts. participated in Quantitative Easing (QE) as a reflex to counteract the last recession.

It should be kept in mind that when the Fed purchases Treasury and mortgage securities, it does so, in effect, by printing money. That is transferring spendable cash to the Treasury in exchange for booking a receivable on the books of the Federal Reserve. While it has been successful to this point, history has shown that countries that print too much money end up with currency stability problems. Unfortunately, no one knows exactly what that level is until after the fact.

UNCERTAINTIES FROM THE GAO In its Independent Auditor’s Report, the GAO states that “material weaknesses in internal control over financial reporting … continued to prevent us from expressing an opinion on the … accrual-based consolidated financial statements.” The GAO also says “significant uncertainties … primarily related to the achievement of projected reductions in Medicare cost growth, prevented us from expressing an opinion on the sustainability financial statements, which consist of the …

Statement of Long-Term Fiscal Projections … Statements of Social Insurance … and Statement of Changes in Social Insurance Amounts.”

ADDITIONAL RISK FACTORS Many risk factors that could impact the government’s finances lurk in the background. A few are: Unrealistic Assumptions: According to the Committee For A Responsible Budget, “the Bipartisan Budget Act

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(BBA) of 2018 increased spending by 16 percent between 2017 and 2019, but allows for a 10 percent spending drop in 2020. Avoiding this cliff by continuing current spending levels in real terms would add about $2 trillion in debt over the decade.” If past is prologue, those cuts won’t happen, and we’ll end up with larger deficits.

The Economy: This summer, the American economy reached its longest economic expansion in U.S. history.

While this is great news on the surface, unless we have escaped all historical precedents and repealed cyclical downturns, we’re likely to have another recession at some point. Many major economies have already slowed down.

Whether this is the pause that refreshes, or the first signs of a downturn, no one knows for sure. Any downturn would surely create even larger deficits due to unemployment, as well as increased government spending to try to pump up the economy and get it moving forward.

Automation: CNN reported in June 2019 that Oxford Economics expects robots to displace 20 million manufacturing jobs worldwide over the next decade. While there are many positives to automation, their “research shows that the negative effects of robotization are disproportionately felt in the lower income regions of the same country.” This could potentially exacerbate the wealth gap in America.

INTERGOVERNMENTAL FINANCIAL DEPENDENCY

SEPTEMBER/OCTOBER 2019

While the focus of this article is the financial condition of the federal government, one must keep in mind the very significant financial dependency that state and local governments have on dollars flowing from the federal government. In the lead article in the spring 2016 issue of the AGA Journal of Government Financial Management, “Last Call for Common Sense — In Addressing the Fiscal Sustainability of the Federal Government,” VSCPA member Edward J. Mazur, CPA, a former Virginia state comptroller and controller who headed the U.S. Office of Management and Budget’s Office of Federal Financial Management, makes a compelling case that state governments rely heavily on the federal government: “… state governments received, on average, 32.6 percent of their 2013 revenues in the form of grants and other direct payments from the federal government. This included $2,532B of payments to individuals for ‘wages, pensions, Social Security (and) Medicare; $391B (for) federal purchases from State businesses; (and) $67B (for) Direct federal grants to Local governments’ … The total of direct federal flows to state governments when combined with indirect federal flows equated on average to 26.7 percent of state GDP.” Mazur’s article summarizes this dependency, while noting the opportunity for state level leadership to help address the problem of federal sustainability as follows: “No one can be shielded from the

GOVERNMENT

impact of a fiscally unsustainable federal government — We are all lashed to the same mast, and the ship is slowly sinking. Individual citizens, business enterprises, nonprofit organizations, and state and local governments are all adversely impacted by the federal government’s fiscal unsustainability today. This will worsen if the root causes are not addressed and reversed … We can restore federal fiscal sustainability — The federal government can be returned to a position of long-term fiscal sustainability. It will take an extraordinary partnership of all levels of government and all components of the American society. It will clearly take a new way of communicating difficult choices to the American public and in securing its understanding and support.”

CONCLUSION We posed the question that as the richest country in the world, how are we doing financially and how much are we worth?

The stunning answer is that on an accrual basis, we expect to lose $1T+ annually and the government’s negative net worth is essentially equal to all of the individual net worth in America. Unfortunately, it’s on a path to get worse virtually every year, and little is being done to try to fix it.

The GAO states in the government’s financial report executive summary that “during fiscal year 2018, economic growth and the pace of job creation each accelerated, and the unemployment rate declined to a 49-year low.” Which begs the question: How did we manage to lose $1.2T during a strong economy, record low unemployment and historically low interest rates? Clearly, we have a structural problem with expenses far outstripping receipts.

Certainly, you could not eliminate all (if any) of the many critical departments listed under “other” above. To illustrate how bad a shape we’re in, even if you did eliminate their entire $958B in annual cost, you’re still left with a $250B hole in the budget.

Of course, cuts of that size would almost surely cause a recession, which would then make other expenses rise.

> Should we continue to spend more on our military than the combined spending of the next nine countries? > Politicians justified the last two major tax cuts (2001 and 2017) by proclaiming that they would pay for themselves with tax revenues on increased business. The reality shows that contrary to those promises, deficits rose dramatically.

Would you support reversing those tax cuts to help balance the budget?

The GAO projects that debt-to-GDP ratios will soar from 78 percent currently to 530 percent over their 75-year projection period. These debt ratios are likely understated, as interest rates could be expected to rise substantially as the amount of government debt grows exponentially. Also, the GAO’s calculation doesn’t include its off-balance sheet debt for retirement and health care.

> Would you support reductions in Social Security and Medicare payments to beneficiaries, and/or increase the 7.65 percent tax rate on employers and employees, or increase the level of income that tax was applied to?

The government’s deficits, outstanding debt and unfunded liabilities are mindnumbingly large. Hopefully, converting these huge numbers into stakeholder amounts makes it is easier to appreciate the gravity of the U.S. financial condition and to encourage your congressional representatives to take corrective action, before it’s too late.

> Would you support placing Social Security and Medicare taxes in actual investment accounts like Australia and many other countries have done, or do you want to continue to let Congress use all of those withholdings on annual operating expenses each year, and continue replacing them with IOUs (Treasury bonds)?

No matter your political leanings, ask yourself these questions: > With presidential and congressional elections coming up next year, would you vote for someone who refuses to address the country’s financial problems, or worse yet, promised even greater deficit spending?

There are no easy answers. Hopefully elected officials from both parties come together soon to address the daunting task of getting America’s fiscal house in order — before it’s too late. n

> Significant funds need to be spent on infrastructure. Would you vote for someone who proposed to pay for this with tax increases (such as the gas tax), or do you want the government to borrow even more money to fund infrastructure?

Tom Visotsky, CPA, is a VSCPA past president and recently retired.

DISCLOSURES

tvisotsky@comcast.net connect.vscpa.com/TomVisotsky

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TECHNOLOGY

TECH INNOVATION

bright ideas

We will need to take our firms through a technology transition in the next five years that is unlike anything that has come before. Prevent disruption to your firm by being proactive on artificial intelligence, machine learning and robotic process automation.

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SEPTEMBER/OCTOBER 2019

TECHNOLOGY

While you may believe that the transition from

DOS to Windows, the arrival of the Internet or the use of cloud technology were big things, artificial intelligence (AI), machine learning (ML) and other emerging technologies such as robotic process automation (RPA) will deeply change the practice of accounting. How can you help keep your firm on the right track? It certainly won’t be done by doing the same old thing, but the risk won’t be mitigated by jumping to new technology too early, either.

Randy Johnston

The VSCPA has been proactively scheduling CPE courses to help you investigate emerging technology options. However, we each use different technologies, we have different client needs and we have different strategies for our firms. Remember that you are still well served having a strategic plan and tactical objectives for your firm, which are then incorporated into a technology strategic and tactical plan. We still must get day-to-day work done in accounting, payables, tax, audit and other core services. Each business area and application has development in progress that will apply AI, ML and RPA. The key question you should ask is: When does my area of responsibility need to apply an emerging technology?

TODAY’S TOP AI AND AUTOMATION OPPORTUNITIES Wherever there are a lot of transactions or data, there is an opportunity to automate. You have already seen the opportunity to reduce the amount of effort needed to use bank or credit card feeds to capture all transactional data if you use online accounting software. Some of you are using expense management software to capture transactions and reduce the effort to manage expense reporting. These simple examples leverage the benefits of centralized cloud computing.

Over time, computing power has gone from centralized to distributed back to centralized and is preparing to shift back to more distributed capabilities.

The new wave of distributed computing is a result of widespread use of mobile computing power and from the reduced cost of graphics processors, which can accelerate machine learning and artificial intelligence.

Recognition capabilities, commonly referred to as Optical Character Recognition (OCR) have continued to improve, but adding AI, ML and other techniques improve accuracy. Having a local graphics processor can speed up AI and ML. If a document is presented

in paper form, the accuracy of translating the image’s numbers and words continues to improve, approaching 100 percent. Of course, it is better to capture the data in the original format, which means we will download the transactions from a bank or from an accounting software system. Another rule to apply is that if an accountant is keying data, there is a broken process somewhere. Your team should not be keying data at any level.

We have seen and experienced the first wave of computer automation with document management, expense management and accounts payable management with tools like eFileCabinet, Concur and Altec doc-link. While some of these products are approaching 10 years old, their capabilities were largely built with manual forms and compute power, not with AI and other advanced techniques.

New generation tools like Receipt Bank Extract, Zoho Expense and Bill.com are leveraging emerging technology to improve their capabilities and recognition rates.

Consider what happens if we can ingest a large amount of data for a tax return or an audit, perhaps even all transactions, to look for irregularities? What happens if all, or at least most, business transactions can be accurately captured and classified? Both functions are happening now with first-generation products such as Inflo and VSCPA partner MindBridge Ai. The algorithms in use are improving in accuracy as more data is processed, and the rules in the algorithms are improved. Mainstream and start-up vendors are beginning to sell these capabilities. Imagine what can happen if we can apply blockchain techniques to ensure that all recorded transactions can’t be changed (=immutable). We are seeing this type of product with tools like AuditChain, which is also leveraging XBRL reporting.

TOOLS AVAILABLE TODAY Multiple publishers are marketing products claiming that they have solved these problems. While their techniques are beginning to work, don’t expect 100 percent solutions. Examples of products that are working for audit include Wolters Kluwer Audit Accelerator and TeamMate Analytics. MindBridge is making progress on ingesting and classifying a large amount of data, while new audit tools are being promoted by the competitors of AuditFile, u

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SEPTEMBER/OCTOBER 2019

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TECHNOLOGY

TECH RESOURCES AT YOUR FINGERTIPS Ready to implement new tech solutions to keep your firm at the forefront? Check out the VSCPA’s Center for Innovation partners at vscpa.com/CFIpartners for special member offers.

MyWorkPapers and the American Institute of CPAs’ OnPoint PCR.

volume and any places where you can achieve FTE savings from automation.

workload of your team or allocate the time to other worthwhile projects in your firm.

We can bring back feeds and expense documentation together with a wide variety of expense reporting tools from Zoho Expense to Tallie to Expensify to Nexonia. We can automate payables with over a dozen different products from CloudX to Anybill to Aviid Exchange.

There are three levels of complexity with RPA: low (recorder, power users), medium (some simple scripting) and high (developers). To get started on a project, you’ll need to engage the stakeholders (tax/finance), have solid process mapping/ prioritization, look at the return on investment, find and develop a tech/proof of concept (use case before, vendor build) and repeat to improve. We suggest that you target work with least realization or areas that you believe will gain benefit from optimization, standardization, quality or innovation.

Expect some of the applications to not work out as you expect, and act quickly to set these options aside. You may want to hold your work for deployment at a later time once the quality of the products improves and/or become more affordable.

Remember to package service offerings as a product and have a marketing documentation and procedures to support the offering. Revise the procedures and offering frequently until you have it finely honed to fit your client base.

Note that if a process can be handled by a human, there are tools that can automate these processes as well. Reports from large organizations demonstrate that RPA is paying off very well financially. RPA is an emerging form of business process automation technology based on the notion of software robots or AI workers.

RPA can be attended or unattended (similar to machine learning). When RPA 2.0 arrives, we will have more integration to AI. Today the tools are more like programming and scripting. The benefits of RPA include productivity, cost savings, risk management, innovation and employee engagement. The use cases (and more) include QA, patch deployment, load testing and data entry.

Possible tools to consider include (pay particular attention to the platform across the tool chosen): UiPath, Automation Anywhere, Auto IT (scripts, local workstations) and Blue Prism. What is done well with RPA? Any manual processes that can be automated, repetitive tasks, rule-based activities, changeable tasks that are parameter-driven, electronically readable format content, mature/stable processes, processes with low exception rates, areas that have high

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WE ARE NOT DONE YET! What can you do now? Recognize that if you keep your technology current, vendors will make new offerings available to plug into your technology infrastructure.

Consider services offered by your firm today or ones you’d like to offer in the future. Create an innovation lab, or sandbox, that can be used for testing of new applications and techniques. Listen to your clients or customers’ needs carefully while you are trying to assemble an offering. Test the offering with a few trusted clients and expand the offering into more of your base. Remember that you don’t want to give away the efficiencies gained by reducing fees or prices. Over time, poor competitors are likely to compete on price, but initially you should compete on value. Use the extra time made available by the efficiencies of the application(s) to provide a higher level of service, perform more business development, reduce the

SEPTEMBER/OCTOBER 2019

There is broad FOMO (fear of missing out) and vendors are selling many partially baked offerings that aren’t really what is advertised. The keys to the offerings are: Do they work sufficiently well today to be useful? Are they affordable? Do clients and/or your firm have a better experience while using them? If so, you can implement innovative products today and be ready for the emerging technologies of tomorrow. n

Randy Johnston is a shareholder in K2 Enterprises, LLC, a leading provider of CPE to state CPA societies. He also owns Network Management Group, Inc., a managed services provider that provides around-the-clock support from Boston to Honolulu. Concepts for this article were extracted from the Emerging Technology session produced as part of the 2018 K2 Technology Conferences and from Johnston’s own experience working with technology at various firms in the United States.

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TECHNOLOGY

OWN YOUR

data,

DON’T LET IT OWN YOU Don’t impede your organization’s progress by ignoring the data problem. Develop accurate, complete understanding of how your data is collected and used to set your business up for success.

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SEPTEMBER/OCTOBER 2019

TECHNOLOGY

In today’s world, individuals and businesses are

creating data faster than ever before. According to Forbes magazine, 2.5 quintillion bytes of data were created each day in 2018, with the pace accelerating with the proliferation of the Internet of Things (IoT).1 How much data is that? Consider that 2.5 quintillion pennies laid flat would cover the Earth five times!

Organizations are collecting and using data in unique ways to carry out their missions, reach new customers and enhance relationships with existing customers.

Kristy M. Scott, CPA, CISA, CIA

With organizations obtaining and storing more data, the importance of sound data and information technology governance becomes increasingly significant to maintain a positive reputation and achieve success. By collecting and using data, organizations are accepting additional risks and broadening their risk universe. An organization that does not completely understand its data is impeding its progress toward implementing appropriate policies, processes and disclosures to manage the associated risks. Developing a complete, accurate understanding of the data being collected and used is critical not only to protect an organization, but also for maximizing the returns realized through data analytics and insights that can enrich business strategy and decisions.

with a new website to make a purchase or completing an application for a customer loyalty card > Indirect tracking: Website cookies, website beacons and location-sharing information through smartphones4 > Company records: Transaction histories, recorded customer service phone calls and submitted feedback > Social media: Text mining of posts and comments and log-in records (for example, the use of a Facebook account to log in to a thirdparty application, such as Spotify) > Obtaining data through other companies: Purchasing data from big data companies, such as Acxiom or Oracle Each of these collection methodologies has inherent risks and responsibilities, but common focus points among them are transparency and privacy. In looking across various privacy statements and disclosures from organizations in different industries, at a minimum, they typically include: > Providing information on what data is being collected

DATA COLLECTION AND USE Data collection methods have evolved at a pace similar to that of data creation, and differ depending on an organization’s industry. Organizations in private industry may collect data on existing and potential customers with overall goals to increase sales revenue and market share. Conversely, government and nonprofit organizations may obtain and share data to better carry out missions and serve stakeholders.

Technological change has required organizations within the private and public sectors to revisit and redesign how they are collecting and using data as part of their daily operations.

In general, the most prevalent collection methods for an individual’s data are by: (1) asking for the data, (2) indirect tracking, (3) company records, (4) social media, and (5) obtaining the data through other companies.2,3 Below are examples of each of these collection methods: > Asking for data: Subscribing to a new service, completing a customer survey, registering

> Details on how the data will be used > Whether or not the data will be disclosed to any other parties > How an individual can access his or her collected data > How an individual can contact the organization collecting the data Individuals are demanding this level of transparency relative to the data collected on them and how it is being used. The ways in which organizations opt to communicate their privacy statements and disclosures may include verbal communications, pop-ups on websites and within smartphone applications, printed materials presented to individuals when doing business, etc. Without fully understanding its data, an organization is unable to prepare and make adequate privacy statements and disclosures to impacted individuals. u

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SEPTEMBER/OCTOBER 2019

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TECHNOLOGY

Numerous well-known companies have experienced public backlash from not adequately communicating what data they are collecting. During 2018, MoviePass and Uber were subjected to scrutiny for their data collection practices and their implication on privacy rights.5 Additionally, outside of data collected on individuals, organizations may collect data from other external and internal sources. Depending on an organization’s financial and technological resources, the types of additional data collected can be seemingly limitless. An organization may collect data on transactions, internal processes, industry metrics, current events, market statistics, supplier service levels, etc. These types of data may not have the same level of sensitivity that an individual’s data has; however, an understanding of the information that is being collected across the organization is a powerful tool that cannot be fully realized without a commitment to do so.

Recent examples of how companies have used data to their advantage include:6,7 > Shell: Captured data from its facilities and machines around the world for use in predictive analytics to anticipate machine downtime and maintenance issues > Dr Pepper/Snapple Group: Used a platform equipped with machine learning and other analytics tools that references customer transactions and sales goals in order to make recommendations to salespeople and to track sales performance and other metrics > General Electric: Took more than 50 information silos related to direct material purchases and analyzed them to identify efficiency savings in procurement > AT&T: Collected and analyzed data

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on customer service experiences to create simplified, actionable plans for customer care agents

DATA INVENTORY Obstacles to effectively use or protect organizational data are always present if an organization lacks a complete understanding of what data it is collecting, using and storing. Dedicating the time to documenting a comprehensive data inventory is a recommended first step.

Several elements of a comprehensive data inventory and related documentation include: > Life cycle of data from collection to use to disposal > Timeliness and volatility of the data relative to its intended use > Consistency of data definitions among data providers, collectors and ultimate users > Departments and business contacts most familiar with the data and its use > Sensitivity and privacy classifications > Priorities of data recovery during a disaster > Retention and disposition timelines If an organization is unable to attest to what data it has, it is opening itself up to a myriad of consequences, which can include: decisions based on bad data, audit findings, legal liability and reputational damage. A lack of understanding around the data being collected and its use undermines the efforts made to initially collect it, which is also wasteful, as it affects organizational efficiency and effectiveness. Examples of ways organizations are wasteful with their data include: > Excessive cleansing of the data

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because proper planning did not take place prior to collecting it > Collecting the same data multiple times due to lack of awareness of the data needs and collection efforts across the organization > Storing more back-up data than necessary and the associated costs, due to lack of alignment with the business continuity and disaster recovery plans > Inefficiencies in assigned tasks and projects due to an inability to locate needed data The Control Objectives for Information and Related Technology (also known as COBIT) is a framework created by Information Systems Audit and Control Association (ISACA) that addresses many of the challenges discussed above and provides a pathway for addressing them relative to data governance. COBIT depicts the life cycle of data and emphasizes understanding how different members of the organization will use the data, with a focus on data quality. ISACA highlights how data evolves into information, followed by knowledge and finally into organizational wisdom.8 ISACA provides a variety of resources that can be helpful in working to formalize an organization’s understanding of its data. A comprehensive data inventory is one of the most impactful but time-consuming initial steps in gaining this understanding. An organization’s data is one of its assets and deserves a comparable level of care and scrutiny. An organization’s understanding of its data is foundational for being able to adequately protect it, recognize where quality improvements are necessary and take advantage of its benefits.

Creating and maintaining a data inventory is a long-term investment. As with any investment, to realize a return, an organization must outlay initial u

Wealth Management

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TECHNOLOGY

resources and needs to undergo thorough research and consideration. Examples of initial outlays may include time and monetary commitments related to: > Bringing on new employees and/or cross-training existing employees that will be the leads in documenting and then maintaining the data inventory.

> Recognition of new reporting opportunities to communicate progress, performance and other significant information to assist in decision-making

> Needed modifications to existing information technology resources or the purchase of new resources to support the data inventory and need for any new, associated controls.

> Cost savings relative to eliminating redundant or unnecessary data, including storage costs

> Engagement of information technology, legal counsel, public relations, marketing/advertising, internal/external auditors, and other specialists relative to your organization’s industry. They will assist in interpreting any takeaways from the data inventory that may carry legal, reputational, financial, or other business-related implications. > Establishing the linkage between data inventory and disaster recovery. > Establishing organizational awareness and data quality controls.

An organization with an up-to-date understanding of its data and how it is used will be a step ahead of others when developing and maintaining a comprehensive data privacy policy. With the General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA), data privacy has been receiving increased attention with a high likelihood of similar legislation forthcoming throughout the United States.

An organization with a comprehensive data inventory will be able to quickly

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establish an action plan for achieving compliance with such data privacy legislation.9 Additional benefits of a comprehensive data inventory include:

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> Formalized data ownership and maintenance > Improved coordination and execution of data-driven projects > Opportunities to connect data to organizational strategy, goals and core competencies With all of the risks present from data collection and use, it can feel overwhelming for an organization to commit to improving its understanding of its data and to take the steps toward completing a data inventory. An important consideration when embarking on this is to acknowledge it will be an ongoing effort, not a one-time project with a finite start and end date. This is also a chance to collaborate across the organization to gain a more holistic view of the data available and how different business areas currently use it.

With the pace of technological and organizational changes and volume of data, reaffirming and updating an understanding of the organization’s data and its use presents ongoing benefits. In the age of negative publicity focusing on data compromises and breaches, as well as positive news stories highlighting competitive advantages and the ways companies are better able to serve their stakeholders through the use of data, do

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not allow your organization to be caught in the negative category or excluded from the positive category. As an organization, recognize your data for the asset that it is and the value it brings, and own your data through your understanding and use of it — do not let it own you! n

1. Marr, Bernard. “How much data do we create every day? The mind-blowing stats everyone should read.” Forbes.com.

May 21, 2018.

2. Uzialko, Adam C. “How businesses are collecting data (and what they’re doing with it.” Businessnewsdaily.com. Aug. 3, 2018.

3. Goddard, William. “How do big companies collect customer data?” ITchronicles.com.

Dec. 2018.

4. “How stores follow every step you take.”

Theatlantic.com.

5. "’We know all about you’: MoviePass faces backlash over data collection.”

CBSnews.com. March 8, 2018.

6. Boulton, Clint. “10 data analytics success stories: An inside look.” CIO.com.

Nov. 14, 2018.

7. “How companies are using big data and analytics.” McKinsey.com. April 2016.

8. “Getting started with data governance using COBIT — Design and delivery of data governance.” ISACA.org.

9. Couture, Nancy. “How data governance can support data privacy compliance.” CIO. com. Feb. 7, 2019.

Kristy M. Scott, CPA, CISA, CIA, is a senior auditor at the Virginia Retirement System in Richmond. kscott@varetire.org connect.vscpa.com/KristyScott

CAMICO – Sponsored Provider of VSCPA “CAMICO’s expertise, stability, and commitment to CPAs provide strong reasons for the VSCPA to choose CAMICO as its sponsorship program, year after year. The company assists policyholders with a wide variety of practice and risk management issues specific to CPAs, and the society’s partnership with CAMICO supports our efforts to provide strong benefits to our members.”

Stephanie Peters, CAE VSCPA, President & CEO

Why CAMICO? • For more than 33 years, CAMICO has been protecting CPAs with insurance solutions tailored to the professional services and concerns faced by CPA firms every day.

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

• CAMICO policyholders have unlimited access to proactive loss prevention and potential claims assistance.

• Policyholders can call CAMICO as often as needed and consult with in-house experts on loss prevention, tax, and accounting and auditing issues — all at no additional cost.

These are just some of the reasons why VSCPA selected CAMICO as the Society’s sponsored provider of Professional Liability Insurance.

Rachel Painter, AINS Senior Account Executive T: 800.652.1772 ext. 6773 E: rpainter@camico.com W: www.camico.com

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

VSCPA

VSCPA CHAPTERS:

YOUR bridge TO MEETING MEMBERS “Chapters are a great opportunity to grow your local community and sharpen your professional skills. Low pressure, high reward.” — Max Billmyer, CPA

AROUND VIRGINIA Arlington Memorial Bridge

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VSCPA

Debbie Acors, CPA, Max Billmyer, CPA, Evan Ross, CPA, Chuck Snead, CPA

Chapters

of the VSCPA are a key part of the Society’s local outreach across the state. Chapters range from large organizations in huge metro areas — some with employees of their own — to small groups of members in other parts of the Commonwealth. A few aren’t active right now and are waiting for the right CPA to take control and get them going again (hint, hint).

What our active chapters have in common is member leaders with a devotion to the growth of the profession at the local level.

We talked to four VSCPA chapter leaders about why they chose to get involved at the chapter level, what it’s done for them and what their chapters need to flourish.

Evan Ross, CPA, is a senior tax associate at Brown, Edwards & Co. in Roanoke.

Before that, he worked in tax at Dixon Hughes Goodman, among numerous other jobs since earning his master’s degree from Virginia Tech in 2013.

He served as an officer in the Roanoke Chapter in 2018–2019 before taking over as president in May. He’s most excited about the chapter’s upcoming student night in September, where students from Roanoke-area colleges — Virginia Tech, Radford University, Roanoke College (his undergraduate alma mater) and Ferrum College — have a chance to interact with local CPAs and learn more about the

profession.

The chapter also gives out three scholarships at the event, but the heart of it is helping open connections between students and professionals.

“We invite students from all of the local colleges and allow them to interact with local CPAs and hear about experiences and what employers are looking for in accountants today,” Ross said. “This is a great way to advocate for the CPA profession and hopefully get a younger generation involved in the Roanoke Chapter and around the community.”

Student relations are a focus for several of the VSCPA’s chapters, some of which give out scholarships of their own. Young professionals can also find a lot to gain through chapter work, either through attending events or volunteering for the chapter itself. That’s how Max Billmyer, CPA, has approached it.

Billmyer is a senior accountant in tax at W.D. Sanders & Co. in Charlottesville.

He’s also the president of the VSCPA’s Thomas Jefferson Chapter (which covers Charlottesville and the surrounding environs), which offers a heavy dose of networking events for a professional base that’s heavily influenced by the region’s dominant employer, the University of Virginia.

“In a digital world, I still think that it is so important to have that face-to-face time,” Billmyer said.

Time is a resource that every CPA has to some degree, and that’s how Billmyer chooses to view his chapter involvement.

It’s important to him to invest the spare time he has into the profession and his community. He says his volunteer efforts have helped him grow in areas like leadership, communication and decisionmaking.

“It’s a great opportunity to grow your local community and sharpen your professional skills,” he said. “Low pressure, high reward.”

There’s value in that even for more seasoned professionals. Chuck Snead, CPA, has 30 years of professional experience under his belt, but he’s still improved through his work as the president of the VSCPA’s Piedmont Chapter, first in the early 1990s and again now. He’s a partner at Snead, Williams & Mayhew in Danville, and his professional affiliations go beyond the VSCPA. Snead’s firm started doing international work around 2000 and decided to continue in that niche. To fulfill those goals, the firm joined an international group known as H&L Group International (later known as MGI) to aid in business development. Snead credits the work u

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VSCPA

he did with the Piedmont Chapter and the VSCPA as a whole with preparing him for his work with that organization.

“I have been extremely blessed with the support of the local community in my career in public accounting,” he said, “and have and will continue to give back to the local community in meeting the challenges it faces.”

Other chapter officers appreciate the networking aspects more. Debbie Acors, CPA, is the president of the VSCPA’s Tidewater Chapter. As a sole proprietor, she found a sense of community in her chapter that was missing from her solitary day-to-

day professional life.

“I went from someone just coming to the CPE classes and leaving and hardly talking to anyone outside of those CPAs I already knew to getting involved,” she said. “Now almost everyone knows who I am and I know so many more wonderful people who share with me what is most important to them for their individual needs. I realized that I can make a difference by just putting in an extra couple of hours a month to ensure everything runs smooth for our members.”

Some of the VSCPA’s chapters offer more events than others, from networking to CPE

to, in the case of the Northern Chapter, deep dives for specialized interest groups.

Those events are entirely planned by VSCPA member volunteers who are taking on the work on top of their day jobs.

Chapter leaders say that they’ve gained as much from planning chapter activities as from attending them as non-leaders.

“It is a great way to network and get involved in something that really does make a difference in the CPA profession,” Acors said. “It’s not hard work, but it is dedication. You can have fun while doing something good for your fellow CPAs and your community.” n

ALL new WOMEN’S LEADERSHIP FORUM Dec. 11, 2019

Join the VSCPA to champion change on behalf of women with the new Women’s Leadership Forum. This one-day, interactive forum will help you strengthen your skills as a leader, build a sense of empowerment and expand your network of other influential females. Receive the early bird rate by registering by Nov. 27 at vscpa.com/WomensForum.

Nationally recognized presenters including Kimberly Ellison-Taylor, CPA 8 CPE Credits | In-person & Live Stream Options Available

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VSCPA members win Virginia CFO Awards Members Cynthia Joyce, CPA,

and Dwight Shelton, CPA, were among the honorees at the 14th annual Virginia CFO Awards, presented by Virginia Business magazine in June. Joyce, of Richmond-based financial services firm Agili, was honored in the Small Companies category. Shelton, of Virginia Tech in Blacksburg, was honored in the Large Nonprofits/ Government Agencies category.

THE VSCPA’S NEW PEER LEARNING PROGRAMS This fall we’re launching two new quarterly, specialized small group opportunities.

Show how your #CPAsGiveBack

The VSCPA has revamped its regional learning events to focus on the local knowledge of our members across the Commonwealth. We’re starting off with reimagined roundtables for our Managing of an Accounting Practice (MAP) and Corporate Finance series.

The events will start with a one-hour presentation and an hour of facilitated

We’re

now coming up on one year of the VSCPA’s #CPAsGiveBack initiative, aimed at highlighting the good work VSCPA members do in their communities.

Here are a few ways you can help us publicize your service projects.

discussion, good for 2 hours of CPE credit. We’ll cover hot topics affecting the industries dictated by the event.

pEmail pictures and videos to vscpa@vscpa.com. pPost pictures, videos and information on the VSCPA Facebook page

These events will be held four times a year in four locations across Virginia — Northern Virginia, Richmond, Roanoke and the Tidewater area. You can attend the full series or drop in for one or more events. Give it a shot — we think you’ll find it useful to discuss your area’s unique issues with the CPAs who understand them best!

(facebook.com/VSCPA) using the #CPAsGiveBack hashtag.

pTag the VSCPA in photos and videos on Twitter (@VSCPANews) and Instagram (@VSCPA) using the #CPAsGiveBack hashtag.

We’ll amplify your posts on social media and share photos in Disclosures (image quality and space permitting). Thanks for helping us showcase your commitment to service!

Visit www.vscpa.com/ PeerLearning today!

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Congratulations to the following members NEW HIRES Caroline Marscheider has joined Malvin, Riggins & Co. as a tax and accounting associate. She will split time between the firm’s Newport News and Virginia Beach offices.

Jill Mitchell, associate professor of accounting at Northern Virginia Community College in Annandale, received the American Accounting Association’s (AAA) J. Michael and Mary Anne Cook/Deloitte Foundation TwoYear College Prize.

PROMOTIONS

FIRM NEWS

Brown Edwards & Co. has promoted Megan Meador, CPA, to director in its Bristol office and Clarence Rhudy, CPA, to director in its Roanoke office.

Brown Edwards in Roanoke was ranked No. 35 in Construction Executive magazine’s “Top 50 Construction Accounting Firms” for 2019.

Dixon Hughes Goodman has promoted Brian Burns, CPA, to partner in the firm’s Richmond office.

Thompson Greenspon in Fairfax was named one of The Washington Post’s 2019 Top Workplaces. The firm has made the list every year since 2014.

KWC in Alexandria has named Joanna Friedman, CPA, principal and Samantha Doe, CPA, manager.

APPOINTMENTS & AWARDS Wayne Berson, CPA, CEO of BDO USA in McLean, was appointed to a two-year term as vice chair of the Center for Audit Quality Governing Board.

Kendall Coleman, CPA, partner at CST Group CPAs in Reston, was elected treasurer of the Greater Reston Chamber of Commerce.

Marty Einhorn, CPA, managing shareholder at Wall, Einhorn & Chernitzer in Norfolk, received the 2019 Trailblazer Award from Men for Hope.

First column: Wayne Berson, CPA, Brian Burns, CPA, Kendall Coleman, CPA, Samantha Doe, CPA Second column: Marty Einhorn, CPA, Joanna Friedman, CPA, Caroline Marscheider, Clarence Rhudy, CPA

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Three VSCPA members graduated from the American Institute of CPAs (AICPA) Accounting Scholars Leadership Workshop: Lueth Akuak of Marymount University, Deborah Nganga of the University of Mary Washington and Hadassah Smith of Hampton University.

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MERGERS & ACQUISITIONS Prager Metis CPAs in New York has acquired McLean firm Frank & Co., effective July 1.

PHILANTHROPY Hantzmon Wiebel in Charlottesville held a multi-week drive for the Charlottesville Albemarle Society for the Prevention of Cruelty to Animals.

Employees donated 1,606 cans of wet cat food, 1,607 cans of wet dog food, 24 large special treat toys, 30 slow feeder/puzzle feeder bowls and 45 long leashes, along with a donation to the organization in the winning team’s honor.

Brag, please!

Send your member news to disclosures@ vscpa.com.

VSCPA

VSCPA members Carson, Rogers appointed to VBOA Gov. Ralph Northam re-appointed VSCPA member

Brian Carson, CPA, to the Virginia Board of Accountancy (VBOA) and appointed Nadia Rogers, CPA, to her first term.

Carson is chief financial officer at Gold Key | PHR in Virginia Beach. He was initially appointed to the VBOA by then-Gov. Terry McAuliffe in 2015. Rogers is associate professor of practice and director of the Master of Accounting and Information Systems program at Virginia Tech in Blacksburg.

Staff news THE VSCPA’S NEWEST VIRGINIA CPA LICENSEES Breann Brown, CPA, Virginia Beach Anna Fraley, CPA, Virginia Beach Andrew Hare, CPA, Leesburg Kenneth Jakubec, CPA, Virginia Beach

Pictured clockwise: ANNIVERSARIES (Pictured clockwise) Sept. 22: Peer Review Coordinator Jane Hayes, 16 years, and Online Learning Specialist Kathy Suddarth, 5 years Oct. 11: Finance Assistant & Facilities Coordinator Ben Munford, 3 years Oct 29: Membership & Marketing Director Julia Henderson, 6 years

Michael Jones, CPA, Tysons Iris Laws, CPA, Richmond

DEPARTURES

Amy Nunn-Flippen, CPA, Danville

Public Affairs Director David Bass and Student & Member Engagement Specialist Lauren Simonetti have left the VSCPA. Thanks for everything you’ve done for the Society!

Albarou Sabi, CPA, Centreville Alexander Scott, CPA, Fairfax Mengyao Stamnes, CPA, Yorktown Julia Taylor, CPA, Glen Allen

IN MEMORIAM

Adrianne Wegner, CPA, Alexandria Zachary Wolfe, CPA, Powhatan List from June and July. Compiled July 23, 2019.

Thomas Smith, CPA, a VSCPA Life member from Virginia Beach. A U.S. Navy veteran, he graduated from Hines Junior College, Rice University, Mississippi State University and the U.S. Naval Postgraduate School. He served in numerous volunteer capacities at Wycliffe Presbyterian Church.

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CLASSIFIEDS

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SEPTEMBER/OCTOBER 2019

Buyers: see more listings than anyone at www.APS.net.

YOUR AD COULD BE

here!

Classified ads are a great way to reach VSCPA members — 94 percent rate the information in Disclosures as excellent or good. What are you waiting for? Contact us at classifieds@vscpa. com or visit vscpa.com/ Classifieds for rate information. Members receive a discount.

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