In this issue Olympic bid risk or reward? Technology bang for your buck High points in a low economy Fraud experts bust occupational crime A new stage in hacker evolution Buy American, save the economy? Put a price on company distress Pink slip alternatives True leaders one generation at a time Guidance on tax & partnerships The Magazine of the Illinois C PA Society www icpas org / insight htm | August 2009 POWER HOUSE USA Are we still the world’s business leader? See The Midwest Accounting & Finance Showcase Brochure Inside
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Save Up to 20% – Call Today! Act Now for Maximum Savings on CPEasy OnDemand PLATINUM! Call 800.404.7439 | Visit CPEasy.com/Insight CPE: An Annual Requirement for You. A Confirmation of Expertise for Your Clients. START TODAY WITH YOUR REQUIREMENT! RE W S EQUIREMENT! ETHICS AY ODAY ART T ST nDem y O PEas y C l On One nlim t Un Ge hs ont l m l u 2 f fu s 1 fer fe f ff d o n a e W ric w P o ow P e L o O s t to cces d A ite m i l n y u njoEnj of PEasy h C Wit rogr e P nlin r O Ou h it e w or d m n s a rse ou d c ite n nDema y O u e F Fu n r O o s f fo am iced lue-pr a r v uo d™ t r a ea l Y Ye l le hedu c t s usies e b h t ient nvenonv s. C rse cou e o rs ou
l 8 l Ca ow ow f t N Ac e U v veSa 9 | V 800.404.743 avings av m S aximu r M fo l a % – C 0 o 2 p t y.comPEasy. t C Visi nDeman y O PEas n C s o oday! l T To Insight / ATINUM! AT L d P
30 Powerhouse
By Kristine Blenkhorn Rodriguez
Is the United States still the world’s business leader? Our panel of experts grade Uncle Sam and American business potentates
38 Olympic Risk
By Carolyn Tang
What will the Olympic bid cost Chicago?
42 Cost-Conscious Technology
By Daniel Dern
Check out these high-performance, low - cost software tools
8 Economy The Best & Worst of Times
By Kristine Blenkhorn Rodriguez
Is there anything to cheer about in the midst of the recession?
12 Fraud What Lies Beneath
By Christine Bockelman
Think you ’ re the victim of occupational fraud? Turn to the experts to reveal the murky truth.
14 Strategy Buy American
By Sheryl Nance-Nash
Could this simple strategy turn the economy around?
18 Technology Hacker Evolution
By Selena Chavis
Protect yourself against a new breed of threat.
20 Corporate Sink or Swim
By Meta Levin
A wave of bankruptcies shines a spotlight on distress and the need to put a value on it
22 Recession Lay Off Layoffs
By Cecily O’Connor
Pink slips aren’t the only option
Mind the Gap
By Derrick Lilly
The marks of a true leader bridge the generational divide
By Harvey Coustan, CPA
Guidance in the application of a new taxpayer-friendly rule in partnership situations is crucial
index August 2009 Vo l 5 9 N o 2 Visit eINSIGHT today! www.icpas.org / insight.htm cover story features colu m n s regulars
24 Workforce
28 Tax Partnership in Question
4 First Word 6 Seen+Heard 46 Classifieds 48 Time+Talent
Garelli Wong and Jackson Wabash are Chicagoland’s experts in financial recruiting and staffing.
Our team unites employers with the right accounting and finance talent for direct hire, temporary and consulting assignments. We look and listen beyond the job description to combine the right skills with the desired experience.
To learn more about our dedication to finding the right fit, visit us on the web or call your local office.
Chicago Schaumburg Oakbrook Terrace 312.583.9264 847.397.9700 630.792.1660 WWW.GARELLIWONG.COM WWW.JACKSONWABASH.COM
Finding the perfect fit doesn’t have to be a challenge, it’s what we do.
I C P A S O F F I C E R S
Chairperson, Lee A Gould, CPA/ABV, JD, CFE, CFF Gould & Pakter Associates LLC
Vice Chairperson, Sara J Mikuta, CPA The Leaders Bank
Secretary, Charles F G Kuyk III, CPA Crowe Horwath and Company LLP
Treasurer, Robert E Cameron, CPA Cameron Smith & Company PC
Immediate Past Chairperson, Sheldon P Holzman, CPA, CFE, CFF Baker Tilly Virchow Krause, LLP
I C P A S B O A R D O F D I R E C T O R S
Brent A. Baccus, CPA Washington Pittman & McKeever
Therese M Bobek, CPA PricewaterhouseCoopers LLP
William P. Graf, CPA Deloitte & Touche LLP
Kelly J Grier, CPA Ernst & Young LLP
Cara C Hoffman, CPA Blackman Kallick LLP
James P Jones, CPA Edward Don & Company
Charlotte A Montgomery, CPA Illinois State Museum
Elizabeth A Murphy, PhD DePaul University
Annette M O’Connor, CPA RR Donnelley & Sons Company
Michael J Pierce, CPA RSM McGladrey Inc
Marian Powers, PhD Northwestern University
Daniel F. Rahill, CPA KPMG LLP
Lawrence H Shanker, CPA Shanker Valleau Accountants Inc
Edward H Stassen, CPA Recycled Paper Greetings Inc
Facebook, Twitter, e-zines, blogs and other online discussion forums have certainly upped the ante on our ability to “connect” with others They’re fast-paced, with immediate results Yet despite our fascination with the latest methods of communication, our instincts tell us that, for long-term relationships of any kind, and for making real connections, nothing beats talking face to face
That’s what’s really at the heart of trade shows like ours It’s the people we encounter maybe a presenter we’ve heard before but always enjoy, or people in the Society we don’t get to see as often as we’d like Where else could you gather nearly 3,000 CPAs in one physical place for an exchange of information, tools and ideas?
Especially when our time and resources are a precious commodity, trade shows provide the rare opportunity to come together as a group, interacting with those who share common interests You never know where a connection made may lead you
The trade show industry along with so many others is being hurt by the economy As a result, the industry is enduring the sometimes painful process of adapting to the times As trade shows evolve using tactics such as social media and virtual and online forums, it’s important for those who hold and attend trade shows to keep in mind the strength of this concept: The in-person experience
That’s what we’ve done with the 29th Annual Midwest Accounting & Finance Showcase, which we’ll be holding on August 25 and 26 We’ve kept our members and their experience firmly in mind The show strives to give you time to try out new software packages and other products, share ideas with peers, and get problems solved by the people in the know It’s also a great way to earn 17 hours of high-quality, low-cost CPE when you need it most; namely, in a reporting year
If you haven’t already made plans to attend, visit www.icpas.org to take a look at what our Showcase has to offer Join us in doing what trade shows do best: Setting aside a little time to break from daily routines, being in awe of all the new things we see and learn, really talking to one another face to face, and creating more than a few “you-had-to-be-there” moments
See you at the Showcase
El ai ne W ei ss, JD, ICPAS Presi dent & CEO
4 INSIGHT www icpas org/insight htm
A M E S S A G E F R O M T H E I L L I N O I S C PA S O C I E T Y ’ S P R E S I D E N T & C E O
FIRST WORD
information vehicle for some 23,000 CPA members and professional affiliates Statements or articles of opinion appearing in INSIGHT are not necessarily the views of the Illinois CPA Society The materials and information contained within INSIGHT are offered as information only and not as practice, financial, accounting, legal or other professional advice Readers are strongly encouraged to consult with an appropriate professional advisor before acting on the information contained in this publication It is INSIGHT’s policy not to knowingly accept advertising that discriminates on the basis of race,religion, sex, age or origin The Illinois CPA Society reserves the right to reject paid advertis ng that does not meet INSIGHT’s qualifications or that may detract from its professional and ethical standards The Illinois CPA Society does not necessarily endorse the non-Society resources, services or products that may appear or be referenced within INSIGHT, and makes no representat on or warranties about the products or services they may provide or their accuracy or claims The Illinois CPA Society does not guarantee delivery dates for INSIGHT The Society disclaims all warranties, express or mplied, and assumes no responsibility whatsoever for damages incurred asa result of delays in delivering INSIGHT
I N S I G H T A W A R D S
We value your membership. The Illinois CPA Society... experience the advantage. Was it simply an oversight? Renew Your Illinois CPA Society Membership Today During these tough economic times, it’s more important than ever to stay connected to your profession. Your Illinois CPA Society membership provides you: > Free or low-cost monthly career events > Local, affordable, high-quality CPE > Member Buying Advantage discount programs > Publications such as INSIGHT magazine, CCFL NewsFlash, Practice Advantage and HYPE > Special dues rate and CPE program discount for unemployed members Don’t risk losing these and other valuable member benefits. RENEW ONLINEat www.icpas.org or call 800-993-0393. www icpas org / insight htm AUGUST 2009 5 Publisher ICPAS President & CEO Elaine Weiss Editor-in-Chief Publications Director Judy Giannetto Creative Services Director Gene Levitan Creative Services Manager Rosa Garcia Publications Specialist Derrick Lilly National Sales & Advertising Stephanie Bunsick The YGS Group 3650 West Market Street York, PA 17404 Phone: 1 800 501 9571, ext 137 Fax: 1 717 390 9891 stephanie bunsick@theygsgroup com Information Systems Manager Jim Jarocki j arocki j @ i cpas org Editorial Office 550 W Jackson Blvd , Suite 900, Chicago, IL 60661 INSIGHT is the official magazine of the Illinois CPA Society, 550 W Jackson, Suite 900, Chicago, IL 60661, USA Its purpose is to serve as the primary news and
INSIGHT (ISSN1053-8542) is published b monthly except monthly in July and August by the Illinois CPA Society, 550 W Jackson, Suite 900, Chicago, IL 60661, USA , 312 993 0393 or 800 993 0393, fax 312 993 0307 Subscription price for non-members: $30 U S , $40 Canada and International addresses, $42 Mexico Copyright © 2009 No part of the contents may be reproduced by any means without the written consent of INSIGHT Permission requests may be sent to: Editorial Director, at the address above Periodicals postage paid at Chicago, IL and at additional mailing offices POSTMASTER: Send address changes to: INSIGHT, I l l i n o i s C PA S o c i e t y, 550 W Jackson, Suite 900, Chicago, IL 60661, U S A
2009 Magnum Opus Award Honoree 2008 Apex Award, Magazine & Journal Writing 2007 Magnum Opus Award, Best All-around Association Publication 2006 Apex Award, Magazines & Journals 2006 Apex Award, Magazine & Journal Writing 2004 Apex Award, Magazines & Journals 2004 Apex Award, Magazine & Journal Writing 2002 Apex Award, Magazine & Journal Writing 2002 Chicago Women in Publishing Excellence Award, Writing/Editing 2001 Apex Award, Feature Writing 2001 Apex Award, Best Redesigns 2000 Apex Award, Magazine & Journal Writing 2000 Apex Award, Best Rewrites
SEEN H E A R D
$5.25 bil lion
Federal Reserve Q1 loss on assets acquired from Bear Sterns and AIG bailouts Source: FederalReserve gov
Hurdles in Good Times & Bad
According to a new survey of 700 accountants conducted by Ajilon Finance
change depending on whether the economy is good or bad
In good economic times, accountants say the top three challenges for leaders are recruiting and retaining top talent (47 percent), pursuing growth opportunities (42 percent) and maintaining a competitive edge (42 percent) In contrast, productivity or doing more with less (49 percent), motivating the workforce (44 percent) and pursuing growth opportunities (33 percent) are the top challenges facing leaders in a down economy
What ’ s more, there’s a disconnect between which leadership traits are valued and which are actually rewarded According to the survey, 33 percent of accountants feel an ability to inspire and motivate is the most important quality of leadership, followed by communications skills (15 percent) and people management skills (13 percent) In contrast, accountants say that hard skills such as global knowledge/expertise and keen decision-making are those areas most rewarded
$29.39
Average employer cost for employee compensation per work hour Source: US Department of Labor’s Bureau of Labor Statistics
Leaders’ Confidence Rising
Grant Thornton LLP's Business Optimism Index, a quarterly confidence measure of US business leaders, rose from 37 6 in February 2009 to the pre -recession level of 54 5 in May In addition, 54 percent believe that the economy will come out of recession in the first half of 2010
Specifically, 45 percent of respondents expect conditions to improve over the next six months compared to 17 percent in February 2009 Only 13 percent think the economy will worsen Respondents also are more positive about the outlook for their businesses, with 62 percent feeling optimistic about their companies' growth over the next six months
What ’ s more, the number of respondents planning layoffs in the next six months saw the first drop since the recession started in November, decreasing from 45 percent in February to 30 percent in May
6 INSIGHT www icpas org/insight htm
N E W S B Y T E S , S O U N D A D V I C E A N D P R A C T I C A L B U S I N E S S T I P S
a n d t h e I n s t i t u t e o f M a n a g e m e n t A c c o u n t a n t s ( I M A ) , l e a d e r s h i p p r i o r i t i e s
600,000
Government jobs President Obama hopes to create through accelerated stimulus action. Source: WhiteHouse gov
Pursue Passion, Not Money
As 2009 graduates enter the most challenging job market in decades, Adecco Group North America’s latest American Workplace Insights Survey reveals that 71 percent of college-educated adults feel today ’ s grads should aim for career fulfillment, versus 13 percent who advise choosing a career based only on earning and salary potential Adecco offers recent and future grads this advice:
• M a x i m i z e y o u r s o c i a l n e t w o r k i n g p r e s e n c e Future employers will be searching Facebook, Twitter, LinkedIn and MySpace, etc , so make sure the image you project online is employer friendly
• Ta k e t e m p o r a r y a n d p r o j e c t w o r k These can be great resume, experience and network-building opportunities, and can serve as a paid audition for fulltime work
• L e a r n f r o m m e n t o r s The more you learn, the faster you’ll advance
• T h i n k a b o u t a n c i l l a r y i n d u s t r i e s Cast a wide net, exploring secondary sectors that are looking for diverse, well-rounded employees
• C o n s i d e r r e l o c a t i o n Many cities are poised to hire in professional hot spots. The experience offered and the increased number of jobs available might make a move worthwhile
Conservative Hiring
Employers are expected to remain cautious about adding accounting and finance professionals through the third quarter, according to interviews with more than 1,400 CFOs across the United States for the Robert Half International Financial Hiring Index Only 5 percent of CFOs expect to hire full-time employees during this period, while 8 percent anticipate personnel reductions. The majority of respondents (85 percent) say they plan to maintain their current staff levels
For those considering hiring, be warned that financial executives continue to report difficulty finding highly skilled professionals for certain areas Twenty-six percent of CFOs said senior and staff accountant posts are the most difficult to fill, and 23 percent said they experience the greatest challenges when hiring for audit roles
While the overall outlook remains conservative, the highest degree of optimism was expressed by executives in Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Oklahoma, Tennessee and Texas A net 2 percent of CFOs in those states anticipate adding full-time accounting and finance professionals through the third quarter
Improvements Planned for Tax Preparer Compliance
In early June, IRS Commissioner Doug Shulman announced that he would propose a comprehensive set of recommendations to help the IRS increase taxpayer compliance and ensure uniform and high ethical standards of conduct for tax preparers by the end of 2009 Recommendations may focus on new regulations, service and outreach, education and training, and enforcement related to return preparer misconduct. New regulations may impact tax-preparation companies that employ unlicensed preparers, and could crack down on fly-by-night tax prepar-
ers and other fraudulent and unethical practices
Shulman’s first step will be to gain input from a diverse constituent community that includes state and federal licensed professionals such as enrolled agents, lawyers and accountants, as well as unlicensed tax preparers and software vendors The effort also will seek input from and dialog with consumer groups and taxpayers
More information, including schedules and agendas for public meetings, will be posted on the “Tax Professionals” page on www irs gov
www icpas org / insight htm AUGUST 2009 7
The Best & Worst of Times
I s t h e re a n y t h i n g t o c h e e r a b o u t i n t h e m i d s t o f t h e re c e ss i o n ?
By Kristine Blenkhorn Rodriguez
Ev e r y w h e r e t h e r e ’s a l o s e r, t h e r e ’s a l s o a w i n n e r, s a y s R e b e l C o l e , professor of finance and real estate
a t D e P a u l U n i v e r s i t y, C h i c a g o “ I n t i m e s like these, there’s a lot of opportunity for various players to benefit from our woes. N o t i n a n y b a d s e n s e , i t ’s j u s t t h e w a y they’re positioned ”
“Of course there’s economic opportunity to be had,” states Chris Thornberg, founding principal of Beacon Economics. “What t h e e c o n o m y i s g o i n g t h r o u g h r i g h t n o w gets a bad rap, and it’s not pleasant, but it’s a l s o c l e a n s i n g We a r e g e t t i n g r i d o f t h e imbalances. In the end, we will come out stronger and the economy will move forward at a better speed ”
“This recession is real,” says Dean Baker, co-director of the Center for Economic and Policy Research. “The media is not overplaying it If anything, the public is under-
playing it But, there will be some sectors that do well.”
“You can see both sides and really empathize with those folks who are caught in t h i s c r u n c h , ” s a y s B o b To o t h a k e r, C P M (Certified Property Manager), chair of the N a t i o n a l R e a l t o r s A s s o c i a t i o n ’s C o m m e rc i a l A l l i a n c e “ A n d y e t , i n m y i n d u s t r y, there’s still an awful lot of private capital sitting on the sideline People will buy low and profit as things improve ”
Real Estate
Real residential fixed investment decreased 3 8 p e rc e n t i n t h e f i r s t q u a r t e r o f 2 0 0 9 , while real nonresidential fixed investment decreased 37.9 percent (US Bureau of Economic Analysis) In March alone, the construction industry lost 126,000 jobs
T h e v o l u m e o f l o a n s s o l d o f f i n t o t h e c o m m e rc i a l m o r t g a g e - b a c k e d s e c u r i t i e s ( C M B S ) m a r k e t a n d t h e w a y t h e y w e r e
8 INSIGHT www icpas org/insight htm E C O N O M Y
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packaged contributed to a huge downtick in real estate, according to Toothaker
“Now these loans are coming due and funding just isn’t available. Washington keeps trying to fix things but we need some realworld fixes. The three-year guarantees on CMBS AAA-rated new mortgages fell short Recently it was announced that the government would now offer five-year guarantees, which is a good start Most investors would not put their equity on the line for a threeyear note in a market that might not pick up until 2011 Savvy real estate investors look for a minimum of five years, and more likely seven to 10 years on the call portion of a note like that.”
Toothaker says the CMBS mess is wreaking havoc for a lot of honest people “In ordinary times, folks would have a loan that would be a conforming, performing loan Right now, that same loan, even though it is performing, may be considered a non-conforming loan due to arbitrary devaluation of their piece of real estate And of course, then banks don’t want this loan on their books ”
So where’s the silver lining? “People who liquidated their portfolios and were in an all-cash position, either by intelligent design or luck of the draw, are in a great position to buy real estate at a considerable discount from values a year ago,” says Toothaker “The industry says the bottom of this real estate market won’t shake out until the fall, or possibly even not until spring of next year, but who knows? There are tremendous bargains to be had right now ”
These bargains are particularly attractive if you’re buying up your competitors’ assets, says Thornberg. “If you’re buying assets on the cheap from a company that you used to compete with, there’s your silver lining ”
Manufacturing
The manufacturing industry led the economic slowdown in 2008 a n d i t h a s c o n t i n u e d t h a t d o w n w a r d t r e n d L a s t y e a r, d u r a b l egoods manufacturing fell for the first time since 2001, decreasing 1.3 percent. Factory employment has declined by 1 million jobs over the past six months. “It’s been a very bad cycle for manufacturing,” says Thornberg. “But we will have an export boom in the next couple of years ”
Baker is of like mind “If a company is prepared to wait this out, when we recover the dollar will fall and the United States will become more competitive ”
Cole is even more optimistic. “There’s been a huge windfall on commodity prices, which have plummeted. As a result, input costs have fallen and that’s a good thing. Corn used to be $8 per bushel and now it’s $4 We’ve been in a downward spiral for decades as we’ve become a service economy This is a sorely needed rebalancing of the scales ”
Hank Cox, spokesman for the National Association of Manufacturers, sees more good news. “New orders for non-defense capital goods are up. A lot of businesses have worked through their existing inventories so they will have to crank up production soon. And even though the recession will continue, the rate of decline will slow ”
Financial Sector
Finance and insurance industries’ value added (a measure of an industry’s contribution to Gross Domestic Product) dropped 3 percent in 2008, its first decline since 1992 Despite the struggle, finance is one of the few areas with a definite reason for optimism
“ B a n k s a r e m a k i n g s o l i d m o n e y r i g h t n o w, ” s a y s T h o r n b e rg . “They borrow cheap and lend dear. That’s very profitable.”
The caveat, Thornberg says, is legacy costs in the form of bad debt from previous credit decisions. “It’s a good time to be a lending institution if you don’t hold a lot of legacy costs. If you do, you’re eventually going to pay dearly for these past mistakes ”
Cole agrees “This is the best time in the world to be a banker i f y o u ’ v e b e e n p r u d e n t , ” h e s a y s . “ We k e e p h e a r i n g a b o u t t h e woes of the 19 largest banks But banks of all sizes that have lent responsibly are doing quite well ”
“We went from the ‘90s banking model originate and hold in portfolio to the more recent model originate and securitize,” Cole explains “Now there’s nothing wrong with the new model if it’s done correctly, but we all know it wasn’t. The residential mortgage market was the first to go, and the commercial real estate market is in bad shape The next to go will be the auto and credit card loan markets.”
The greatest cause of concern, according to Cole, is the virtual halt to any development “I recently flew over Miami and saw miles worth of empty development lots Pipe, etc was laid but nothing was being built. You’re going to see a lot of community banks that are stuck with huge portfolios of development and construction loans Those loans are current now but will not be current by the end of the year. Expect a lot of small bank failures because of this ”
Consumer Products & Services
In March of this year, the Bureau of Labor Statistics released numb e r s s h o w i n g r e t a i l t r a d e e m p l o y m e n t h a d d r o p p e d b y 4 8 , 0 0 0 over the month: 13,000 employees in building material and garden supply stores, 12,000 in auto dealerships and 10,000 in electronics and appliance stores. No surprises in the areas hardest hit; and no surprises in those service sectors that are doing well
Cole surmises that the services sector is saved by companies like AutoZone, which has had record profits this year. “People are trying to keep and maintain what they have instead of buying new Consumer services companies that help them accomplish this task should do well,” he says.
As for the product side of things, there seems to be no silver lining “We went from a negative savings rate in the United States to a 5-percent rate we’ve never had before,” says Cole “That’s great for consumers, but bad for the product sector.”
Baker thinks the savings rate will go even higher, to 8 percent “If you manage to hold on to your job during this economy, there will be an increase in real wages due to prices falling.”
Government
“The trillion is the new billion, in government terms,” says Cole Talk about a silver lining “This is the Golden Age for government It is awash in stimulus money. The downside is for taxpayers. We’ll have to pay more in taxes to pay for all of this ”
Baker feels the new transparency pushed by President Obama is a good thing. “The President is calling for an unprecedented degree of transparency because of the stimulus package They’re throwing everything up on the web At the national level, this means there likely will be less chance of people giving contracts to their brothers or cousins State and local governments will likely follow suit ”
Nonprofits
The experts feel that there’s really no upside for nonprofits According to The Center on Philanthropy at Indiana University, the Philanthropic Giving Index (PGI similar to a Consumer Confidence Index
10 INSIGHT www icpas org/insight htm
on charitable giving) was at 64.8 percent last December, a 21.7-percent drop from just six months before
“The collapse in asset values during this downturn has been d e v a s t a t i n g f o r n o n p r o f i t s , ” s a y s T h o r n b e rg . “ A l l e n d o w m e n t s have shrunk tremendously and now these organizations have hard years ahead trying to rebalance that side of their accounts ”
C o l e s e e s w o r s e t i m e s a h e a d f o r t h e n o n p r o f i t s e c t o r. “ T h e Obama Administration’s plan to cut the tax deductibility of charitable contributions will hurt nonprofits even more at a time when they’re down anyway ”
Employees & Employers
“It’s a bleak time for employees,” says Cole “Even if they still have a job, they’re running scared ”
Jobfox conducted a survey late last year that showed 76 percent of in-house corporate recruiters feel the recession offers an opportunity to hire higher quality talent However, 53 percent of i n - h o u s e r e c r u i t e r s e x p e c t e d t h e i r o rg a n i z a t i o n s t o h i r e f e w e r new employees.
While shorter work weeks mean less pay, some workers might appreciate the temporary respite, says Baker “Many workers’ weeks have been shortened. Even if it hurts your wallet, the leisure and family time can be a great thing if you take advantage of them ”
Consumers
“If you’ve been smart and you’ve got cash in the bank, it’s a great time to be a consumer,” says Thornberg. And smart consumers must be out there spending, even if in small amounts, because real personal consumption expenditures increased 2 2 percent in the first quarter of 2009, compared to a decrease of 4 3 percent in Q4 of 2008.
And if you haven’t been a smart consumer?
“ C o n s u m e r s h a v e b e e n o v e r- c o n s u m i n g r e l a t i v e t o i n c o m e , ” says Cole. “They have been maxing out the credit card and then taking out equity in their homes to get even more credit, which worked fine as long as housing prices were rising It doesn’t anymore. If you’ve been smart, you can get a bedroom set for 80-percent off, like my wife and I just did The auto industry is basically giving cars away And renters who have saved up are in a perfect position to buy low.”
T h o r n b e rg s e e s a “ d e a d t i m e ” a h e a d , w h e r e n o t h i n g r e a l l y i m p r o v e s i n t h e e c o n o m y, i n t o 2 0 1 0 “ B u s i n e s s e s h a d b e t t e r buckle down,” he says
Overseas Expansion
Many companies take a cautious route through the murky waters of a recession, opting to tread water rather than risk drowning in debt For a well-positioned company, though, this calculated risk can pay off in spades down the road.
“Overseas expansion is a great move right now,” says Thornberg “Our trade deficit will necessarily continue to shrink In the future, we’ll be exporting more and the dollar will be weaker. Take advantage of the strong dollar and buy those overseas assets now before our currency falls ”
Baker also advises action based on the strength of the dollar. “If you were going to expand anyway and can afford to do it now, the timing is right ”
Toothaker adds a cautionary note: “Unless you’re very big and very international already, you’d better do a whole lot of homework and be intelligent in your decision ”
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What Lies Beneath
Think you ’ re the victim of occupational fraud? Turn to the experts to reveal the murky truth
By Christine Bockelman
Not everyone in the business world
i s h o n e s t . O c c u p a t i o n a l f r a u d t h e u m b r e l l a t e r m t h a t c o v e r s everything from embezzlement and writing bad checks to pilfering paper clips from the office stash remains widespread
A c c o r d i n g t o t h e 2 0 0 8 R e po r t to th e N a ti o n o n O c c u pa ti o n a l F r a u d & A bu s e issued by the Association of Certified Fraud Examiners (ACFE), companies lose about 7 percent of their annual revenues to fraud When compared to t h e p r o j e c t e d 2 0 0 8 U S
G r o s s D o m e s t i c P r o d u c t , that 7 percent adds up to a v e r y c o s t l y $ 9 9 4 b i l l i o n
I n d i v i d u a l l y, f r a u d c o s t s
c o m p a n i e s a m e d i a n o f $175,000, and over onequarter of the crimes in the s u r v e y i n v o l v e d l o s s e s o f at least $1 million
Given those numbers, odds are good that you’ll encounter some kind of financial fraud in your organization at some point in your career. If it happens, what should you do?
Well, what you shouldn’t do is run into the office a n d p o i n t y o u r f i n g e r a t t h e m o s t l i k e l y c u l p r i t . The crime might be bigger t h a n y o u t h i n k ( i n t h e A C F E s t u d y, t h e t y p i c a l f r a u d w e n t o n f o r t w o t o f i v e y e a r s b e f o r e b e i n g detected); it might involve m o r e t h a n o n e p e r s o n ; a n d , w o r s e o f a l l , y o u might be pointing the finger at the wrong person I n s t e a d , w h e n y o u i n itially suspect fraud, “You
want to very quickly put a box around it,” s a y s G r a h a m M u r p h y, t h e M i d w e s t a r e a forensic practice leader at KPMG LLP “You want to preserve the information and evidence surrounding the fraud, and do an initial assessment of what you know ”
C a n y o u h a n d l e a f r a u d i n v e s t i g a t i o n internally? Maybe Lots of larger companies h a v e i n - h o u s e l e g a l a n d a u d i t i n g t e a m s , and the protocols already in place to do a fine job of fleshing out and containing the issue For most, though, the best and only option is to venture outside company walls.
“You want to stop the bleeding,” Murphy s t r e s s e s . “ We h a v e s e e n i n s t a n c e s w h e r e local management has tried to carry out its own investigation and as a result has cost the company more time and effort. When it b e c o m e s k n o w n t h a t p e o p l e a r e u n d e r investigation, it can affect morale or cause the suspects to go back to their desks and wipe their computers clean ”
Yo u r f i r s t s t e p s h o u l d b e t o b r i n g l e g a l counsel on board. A lawyer will help you take the necessary steps to build a strong, careful case that will hold up in court
“If you suspect fraud, the ultimate goal c o u l d b e o n e o f m a n y t h i n g s , b u t m o s t often it’s to recover the funds, if possible, s t o p t h e f r a u d , o r p r o s e c u t e t h e i n d i v i dual(s), all of which means you’re going to have to be completely involved in the legal process from start to finish,” says Kenneth R Neumann, CPA/CFF, CFE, director of litigation, valuation and technology services at the international forensic accounting and consulting firm of RGL Forensics
A n a t t o r n e y a l s o c a n b e h e l p f u l i f t h e fraud has risk implications for the company.
“If the fraud was done by an officer and is something like a misrepresentation of the value of the stock, the company could be s u e d , ” e x p l a i n s D a n a B a s n e y, d i r e c t o r o f due diligence and forensic accounting services at CBIZ MHM, LLC “In cases where
12 INSIGHT www icpas org/insight htm F R A U D
the company might be liable, such as c-suite or tax frauds, an attorney is also useful because of confidentiality privileges,” he adds.
What’s more, “It’s a good idea to have your attorney not your corporation hire the forensic accountant for the fraud investigation That way, anything discovered goes through the attorney first, making it privileged and non-discoverable,” says Basney
Attorneys who have experience in white-collar crime investigations should be able to provide a list of highly qualified financial forensic specialists. But there are still important questions to ask before taking a recommendation at face value
Fraud specialists have different credentials available to them, but the most common are the CFF Certified in Financial Forensics and the CFE Certified Fraud Examiner While you need a CPA to become a CFF, you do not need one to become a CFE. According to the ACFE website, a CFE must instead pass a series of tests in criminology and ethics, fraudulent financial transactions, fraud investigation and legal elements of fraud
Bear in mind that the CFF and CFE are not the same; you have to weigh their differences objectively and then decide who’s right to lead your investigation
“Some accountants have auditing backgrounds and understand exactly how money flows through accounts, but are not great at sitting down and sizing up situations and asking tough questions,” explains Bob McSorley, practice leader in the forensic accounting group of Plante & Moran “Others may have an FBI-type background and may have conducted numerous interviews of a contentious nature, which is somewhat of a unique skill ”
If a case goes to trial, it’s also crucial to have a fraud specialist who is good on the witness stand “It can be a pretty brutal process with lawyers going at you from every angle,” Basney explains “You need someone who is good under pressure, but who also understands the rules of evidence and how the lawyers are going to try to exclude your testimony. Not everyone can do it well.”
Other than remaining cool while under attack, a good witness has to communicate clearly, often in layman’s terms rather than technical jargon, says McSorley. “Thirty percent of the work we do is determining the right answer, finding out what the facts are,” he explains. “The other 70 percent is proving that the findings are a c c u r a t e , h a v i n g w o r k p a p e r s a s s e m b l e d p r o p e r l y w i t h s o u rc e documents and interview notes to use as defenses to opposing counsel’s attack ”
Uncovering the numerical data is “not an audit process,” adds Neumann. ”Financial forensic investigation requires a different mindset with a high level of skepticism It’s about looking behind the numbers for what should be there and what’s not there, and then determining where the money went
Finding one person who excels in all these areas isn’t easy, so working with a team of people is often the best way to go. Most forensic accountants work with at least one other person, usually a tech specialist. “You have to have the technological capability to understand the company’s systems,” says Murphy
“I would really recommend hiring a computer forensic expert upfront,” Neumann adds “The first thing I want to do in any of these cases is to lockdown the financial data and keep it from being destroyed or mismanaged. It’s very difficult to pursue frauds these days without the computerized data ”
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Buy American
Could this simple strategy turn the economy around?
By Sheryl Nance -Nash
With the economy still sputtering, g r e a t m i n d s c o n t i n u e t o s e a rc h f o r s o l u t i o n s t o o u r f i n a n c i a l woes and worries Among them is the concept of “Buy American” a strategy for economic buoyancy that’s been around since the founding fathers
George Washington was one of the first to advocate a Buy American policy, and his personal decisions and actions strengthened America’s economy, says Roger Simmermaker, author of How Ameri cans Can Buy Ameri can Next up were Thomas Jefferson and Abraham Lincoln. The first Buy American provision was enacted at the height of the Depression Some say it choked the economy for several years thereafter.
Fast forward to today What sparked the conversation again? The American Recov-
ery and Investment Act of 2009 contained a provision that restricts the use of federal funds to the purchase and use of US-origin materials None of the funds appropriated o r o t h e r w i s e m a d e a v a i l a b l e b y t h e A c t may be used for a project that involves the c o n s t r u c t i o n , a l t e r a t i o n , m a i n t e n a n c e , o r repair of a public building or public work unless all of the iron, steel and manufacturing goods used in the project are produced in the United States The European Commission quickly voiced its opposition; the p r o v i s i o n w a s v i e w e d b y s o m e a s b e i n g contrary to the G-20 agreement to not raise any new trade barriers in 2009
Nevertheless, Simmermaker believes the Buy American concept has the potential to turn the economy around “It can help us get out of the economic crisis today and keep us from getting into another one tomorrow The answer to our economic problems is in our own backyard,” he contends.
Similarly, Christine Siler, developer of the website www IwantmadeintheUSA com, a comprehensive list of American-made products and their companies, says that Buy A m e r i c a n w i l l b o o s t t h e c o u n t r y ’s e c onomic engine. “If everyone would buy Ame r i c a n w h e n e v e r p o s s i b l e , t h e e c o n o m y would turn in a matter of months The average quality of our products is much superior to cheap foreign products,” she says Siler argues that Buy American will put more Americans to work, increase tax reve n u e , i n c r e a s e c o n s u m e r s p e n d i n g a n d lower the trade deficit
Then too, there’s another reason to keep manufacturing close to home: Safety, says S i m m e r m a k e r “ T h i n k a b o u t C h i n a T h e headlines have been filled with one tale of blatant disregard for safety after another toothpaste, pet food, toys.”
But the opposition is loud. “This appeals to our most jingoistic instincts It will not t u r n t h e e c o n o m y a r o u n d , a s i t d o e s n o t address the main issue of improving liquidi t y a n d b e i n g a n a t t r a c t i v e e c o n o m y i n which companies want to invest their cap-
14 INSIGHT www icpas org/insight htm S T R AT E G Y
ital, create jobs and hire educated and relevant workers,” says Blythe McGarvie, author of Shaki ng The Gl obe: Courageous Decisi on- Maki ng i n a Changi ng W orl d.
She adds that, “Waving the flag, whether it be American, Canadian, Mexican, or any other nationality, does not build trust between two parties that are seeking economic stability and gain In my experience, a populist phrase like ‘Buy American’ creates damage because it is a belligerent approach to relationships rather than a rational approach with good intentions to help both parties ”
coincidentally do make things in the United States will emphasize that,” says Fenton “At the end of the day, the job of a corporation is to maximize shareholder value, so very few, especially the large ones, will make a decision based on anything other than profit. So far, it’s profitable to send their work elsewhere ”
For companies that offer only 100-percent, made-in-the-USA products, this could be a boom. Simmermaker cites the example of Glass City Café in Toledo, Ohio In January when licenses were up for renewal, the switch was made to All-American beers since
David McClough, Ph D, visiting assistant professor of economics at Ohio Northern University in Ada, is an even harsher critic. “It may be good politics, but it’s horrendous economics It’s bad in the short run and the long run It is a classic example of the ignorance that pervades society and politics.”
Why doesn’t the theory add up in practice? “We depend on foreign trade We need to sell to other countries to have a trade surplus Cutting out buying does not solve that We need products that are competitive in the global marketplace. Isolationism and protectionism are just bad business Just look at North Korea, the ultimate in patriotic ‘buy local ’ It has destroyed their economy and furthered their isolation from the world,” says Bruce Fenton, managing director of Atlantic Financial in Norwell, Mass
Furthermore, “The freedom to trade is a key ingredient in the r e c i p e f o r e c o n o m i c p r o s p e r i t y U n f o r t u n a t e l y t h i s f r e e d o m i s under attack by protectionist forces that would stifle economic exchange,” says Kristina Rasmussen, executive VP of the Illinois Policy Institute in Springfield The Illinois Policy Institute joined the Freedom to Trade campaign (F2T), which launched in April 2009 in London, UK The coalition is made up of 67 think tanks and civil society organizations from around the world
“We ’re c o mmitte d to mo n ito rin g th e a c tio n s of g o v e rn me n ts and challenging attempts to institute protectionist policies,” says Rasmussen “If anything, Buy American will likely hurt our longterm growth In this increasingly global and mobile world, the king-makers should be quality and price, not geography.”
S h o p p e r s w i n w h e n b u s i n e s s e s b o t h d o m e s t i c a n d i n t e r n ational compete for consumer dollars Rasmussen says competition helps individuals and families save for things they wouldn’t otherwise be able to afford. “Keep in mind that many domestic c o m p a n i e s r e l y o n l o w e r- p r i c e d f o r e i g n g o o d s t o m a n u f a c t u r e p r o d u c t s f o r A m e r i c a W h e n B u y A m e r i c a n p r o v i s i o n s f o rc e h i g h e r- p r i c e d d o m e s t i c r a w g o o d s o n d o m e s t i c m a n u f a c t u r e r s , consumers lose,” she explains
T h e p r o v i s i o n s a l s o m a y i n v i t e r e t a l i a t i o n f r o m f o r e i g n p u rchasers of US goods. For example, she says, “If South Africa stops buying our goods because we disadvantage their goods with Buy American provisions, American businesses and workers that rely on exports to South Africa would suffer ”
The experts are having their say. But what about consumers and corporate America?
“In the interest of good public relations, companies are working on emphasizing their American connections, and those few who
America’s last major American-owned brewery, Anheuser-Busch, was bought by Belgium-based InBev.
“The owner told me he was pleasantly surprised when most customers are told that beers like Bud Light are no longer served there that they are just as happy to try Samuel Adams or other American-owned, American-made beer,” says Simmermaker.
Then too, Siler explains, companies that are really listening to the American people are keeping their companies here, and others are starting to bring their companies back so they can have greater control over their products
What does the average Joe and Jane think about all the fuss? “Just like the ‘support our troops’ bumper stickers, people pay this lip service, but do they actually do anything about it? Do you see many Wal-Marts (whose many products are made in China) hurting? Do you see anybody giving up DVDs or even giving up televisions or computers? People talk, but vote with their checkbooks. So far, the checkbook says no,” says Fenton
Scott Testa, a marketing professor at St Joseph’s University in Philadelphia, agrees. “People want the idea, but it’s hard to pull off Try finding American-made toys If you decided to buy only American-made toys for Christmas you would have a very limited selection ”
Testa personally made a decision to buy American-made cars. He owns three, and one that is a GM product made in Canada “The theory is nice, but some products are just not available in the United States,” he says.
Some consumers, however, are responding favorably and fervently Simmermaker points to a Harris Interactive poll on behalf of the Alliance for American Manufacturing conducted earlier this year. The national poll found that 84 percent favor Buy American requirements and only 4 percent strongly oppose and 7 percent somewhat oppose it Simmermaker notes that support was consistent regardless of gender, age, income level, education or region.
“More taxes collected means more benefits reaped, like better p u b l i c s c h o o l s , l i b r a r i e s a n d p a r k s P e o p l e a r e g r o w i n g m o r e aware of what Buy American can ‘buy’ them. Consumers are starting to connect the dots I see an increase in my business,” he says
What’s more, some state legislatures are advocating Buy American policies and, based on the United Steelworker ’s campaign, it seems that more than 4,000 local governments have adopted their Buy American resolutions, says Susan Kohn Ross, international trade counsel at Mitchell Silberberg & Knupp in Los Angeles
Just as all eyes remain on the economy, the debate continues.
16 INSIGHT www icpas org/insight htm
“We need to sell to other countries to have a trade surplus....We need products that are competitive in the global marketplace. Isolationism and protectionist are just bad business.”
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Hacker Evolution
Protect yourself against a new breed of threat
By Selena Chavis
In May of this year, the Federal Aviation Administration (FAA) acknowledged that i t h a d b e c o m e v u l n e r a b l e t o h a c k e r attacks on numerous occasions, including an attack that partially shut down air-traffic data systems in Alaska.
Also in May of this year, Monster com’s subsidiary in the UK reported that the information of 4 5 million job seekers had been stolen the largest data theft in UK history.
It’s not the first of these kinds of headlines Trends in data theft and sabotage sugg e s t t h a t h a c k e r t h r e a t s a r e b e c o m i n g increasingly sophisticated and their financial ramifications increasingly far-reaching
“Financial institutions have lots of critical and confidential data housed on their systems,” explains Steven Gordon, president of Internet, Communications and Business Solutions, an Illinois-based IT consultant to small and mid-sized businesses “They could have hundreds of thousands of Social Security numbers housed on their networks ”
“Most hacker attacks are very specific in t h e i r i n t e n t F o r e x a m p l e , a v i r u s m a y b e written to sabotage a company’s website for ransom,” says Bob Gaines, technology marketing manager at All Covered, nationwide IT support specialists for small businesses
In the case of financial institutions, “They are trying to directly steal financial information or personal information to turn around and sell it,” he explains
Technology vendors are warning companies that hacker threats will increase in frequency and complexity “If you look back
1 0 y e a r s , m o s t v i r u s e s w e r e c r e a t e d f o r i n t e l l e c t u a l g a i n , ” s a y s G a i n e s . Ty p i c a l virus threats were in the form of forwarded email attacks that were easily countered by p e r i m e t e r a n t i v i r u s s o f t w a r e B u t t h e s e days, that’s not the case.
“ T h r e a t s a r e m u c h m o r e c h a l l e n g i n g , ” s a y s D a n Wa g g o n e r, a m a n a g e r a t G r a n t Thornton who specializes in IT security and vulnerability threats. “We’re always going
to be playing catch-up We come up with a firewall, and they learn how to bypass it ”
Consider the Conficker worm, the looming implications of which are still unclear “They’ve actually planted the seed, but no one is sure what they are going to do with it,” says Gordon.
A c c o r d i n g t o G a i n e s , C o n f i c k e r r e p r esents a new approach to attack as a hybrid w o r m t h a t c h a n g e s o n a r e g u l a r b a s i s Once a machine is infected, the worm can download and install additional malware from attacker-controlled websites
“Every time it calls home to its base website, it will change what it does,” Gaines explains, adding that the worm turns the infected PC into a spam distributor or a distributed attack machine of sorts. “It’s constantly looking for more instructions...it’s new in that respect ”
A virus-infected PC is essentially under the complete control of the attackers “Your machine has become a ‘robot’ that’s controlled by somebody else,” says Gordon
More threats like Conficker are expected to follow as the copycats gear up to take advantage of the new concept. “My guess is that there is going to be a lot more coming,” says Gordon. “The worldwide notoriety of Conficker is going to bring out the mimics ”
Gaines compares the Conficker threat to that of an R&D lab “The success and failures of this worm will determine how the next one is created,” he explains
Much of the challenge associated with counteracting these types of threats is born of the fact that they are created in unregulated environments. Gaines points out that o f t e n t h e s e t h r e a t s a r e d e v e l o p e d u s i n g open source systems. What’s more, there’s the global nature of the Internet to consider “You are having to protect against anybody in the world who may be interested,” says Waggoner Many of the threats originate in regions in the Middle East, Eastern Europe and Africa, says Gordon, where there are no regulations over this kind of activity
18 INSIGHT www icpas org/insight htm T E C H N O LO G Y
“Most of these countries have no legal right to stop this from happening,” he says “I don’t know that vendors can get ahead of this ”
“We’ll always be one step behind,” Gaines agrees, as hackers d e v e l o p m e t h o d s t o b y p a s s t h e l a t e s t a n d g r e a t e s t i n f i r e w a l l , antivirus and intrusion technology “The key to all of this is education. Most security issues can be avoided with a little education. IT departments need to make it a priority to educate staff on a regular basis about new security threats and how to avoid them. Security needs to be fundamentally part of the business ”
According to the Internet Storm Center, an analysis and warning service to thousands of Internet users and organizations, the Conficker threat can spread in a number of ways One method is by looking for vulnerability in the Microsoft server service As Waggoner explains, the virus took advantage of systems that had not updated the Microsoft patch in a timely manner “Sometimes there are good reasons not to patch. There may be a critical system that you don’t want to patch because legacy applications don’t interact well with it,” he notes, adding that companies should still make every effort to have the most up-to-date antivirus counter attacks installed “It makes sense to patch your system There’s no reason to give viruses the low-hanging fruit ”
Another method is to attempt to guess or “brute force” administrator passwords used by local networks, and then spread through network shares The worm also infects removable devices and network shares with an autorun file that executes as soon as a USB drive or other infected device is connected to a victim PC.
Layered security is a key defense in the battle, says Gaines, who stresses the need for the latest in antivirus and firewall protection,
as well as intrusion prevention, network sniffing and the use of managed security firms
W
server applications simple “Some people would like to take one server and use it to do many functions,” he says Instead, “Take one server and dedicate it as a mail server. Take another server and dedicate it to another function.” By approaching security in this way, organizations can more easily identify problems and keep one virus from attacking all functions
Organizations also should be prepared to look at their networks
Once infected, a host system sends out messages to attack another user or system as a form of “social” attack from a familiar entity In the case of Conflicker, organizations can protect themselves by following industry tests for infection and then making sure they have the latest Microsoft security patches
Outside threats aren’t the only security issues, however. Many security experts believe that insider attacks threats from those who are or were part of an organization will also increase. In fact, Microsoft executives recently warned that insider threats will continue to increase as a result of the recession and subsequent layoffs, since the number of disgruntled employees is growing
Dealing with security issues is one of the biggest technological expenses, says Gordon, and the worldwide impact is currently in the billions “Some experts suggest that 80 percent of email worldwide is garbage,” he explains “The most important thing is to be p
enough, look to a professional. The cost of fixing a problem after it occurs can mean a lot of money and inconvenience.”
www icpas org / insight htm AUGUST 2009 19
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Sink or Swim
A wave of bankruptcies shines a spotlight on distress and the need to put a price on it
By Meta Levin
The numbers are sobering By the end of 2008, the American Bankruptcy Institute reported that 43,546 US businesses had filed for bankruptcy during the preceding 12 months 12,901 of them in the fourth quarter alone. During that same period, the US Small Business Administration stated that the economy suffered its worst decline since 1982 I f t h a t w e r e n ’t enough, in December 2008 the Fi nanci al Ti mes reported that German-based Allianz, o n e o f t h e w o r l d ’s l a rg e s t c r e d i t i n s u r e r s , predicted that 62,000 US companies would fail during 2009.
Regardless of whether a business actually f a i l s , l o s s e s h a v e t o b e q u a n t i f i e d , a t t h e v e r y l e a s t t o d e t e r m i n e w h e t h e r t h e r e i s anything worth saving.
Tr u t h f u l l y, o n c e y o u ’ v e i d e n t i f i e d t h a t your business is in trouble, it’s difficult to p r e v e n t t h e d o w n w a r d s l i d e , s a y s S c o t Campbell, director of valuation for BIK & Co., LLP, a CPA firm with offices in Libertyville and Palatine, Ill “People generally w a n t t o s t a y a w a y ; t h e y d o n ’t w a n t t o extend credit and it has a spiraling effect, making it harder to succeed,” he explains.
“ We ’ r e s e e i n g a n i n c r e a s e d a m o u n t o f valuations,” says Paul Melville, a certified i n s o l v e n c y a n d r e s t r u c t u r i n g a d v i s o r a n d p r i n c i p a l i n G r a n t T h o r n t o n ’s C o r p o r a t e Advisory and Restructuring services pract i c e M e l v i l l e i s a n a u t o m o t i v e c o r p o r a t e recovery and restructuring expert T h e r e a s o n s a c o m p a n y f l o u n d e r s a r e m a n y W h i l e t h e v a s t m a j o r i t y o f e n t i t i e s are experiencing some kind of decline in business these days, some “are in distress because of a combination of the economic d e c l i n e a n d a n i n a b i l i t y t o a b s o r b t h e downside risk because of limited resources, especially financing and financial resources,” says Dr. Mark L. Frigo, director of The Center for Strategy, Execution and Valuation at DePaul University’s Kellstadt Grad-
uate School of Business Frigo is also coauthor (with Joel Litman) of Dri ven: Business Strategy, Human Acti ons and the Creati on of W eal th, and regularly contributes to the Center for Corporate Financial Leade r s h i p ( C C F L ) E x e c u t i v e E d u c a t i o n S e r i e s [www ccflinfo org]
Frigo’s Return-Driven Strategy describes what he and Litman learned from studying successful companies “Every high-performance company we studied in our research faces a risk of fading, and in every case the reasons for the fade can be charted to how the tenets (of the Return-Driven Strategy) began to be neglected or couldn’t be executed,” he explains.
For Avi Deitcher, principal of operations consulting firm Atomic, Inc , the prime objective in scrutinizing a failing company is to find a way to fix it. He places a value on it as it stands, and then determines what it could be worth if its failings were remedied He also very objectively considers what it would take to save it.
Emotions run high when you’re talking about value, problems and improvements, however. “The biggest challenge for owners o r m a n a g e m e n t i s t o r e c o g n i z e t h a t t h e y have a problem and that they need to get help,” says Deitcher “It’s often difficult for an entrepreneur or even top management to come to terms with the fact that business revenues have dropped below the point at which the company is generating a reasonable profit. You have to get past the emotional and go back to the rational ”
Reno Lovison, of Reno Lovison Marketing, provides auction values for failed or folding concerns “ T h e s e a p p r a i s a l s a r e u s u a l l y used to negotiate debt, set a purchase price o r o c c a s i o n a l l y a r e u s e d b y s t a k e h o l d e r s w h o w a n t t o u n d e r s t a n d t h e i r d o w n s i d e exposure,” he says
Lovison first compares the assets in question to similar ones recently sold at auction
20 INSIGHT www icpas org/insight htm C O R P O R AT E
or under quick or forced conditions. This comparison is part objective, part subjective, since Lovison considers information such as the state of the economy and industry, where assets are stored and what’s likely to affect potential value
“This portion can be construed as subjective, but it is important for interested parties to consider for themselves whether the assets being evaluated might be selling at a time when the market for the property is strong or perhaps not as strong,” he explains “We are in a weak market right now, so businesses forced to liquidate will not find as many willing buyers Since the ability to borrow also is tight, those who might want to buy may not have access to the financing they need. This all has an impact on the value.”
Jim Schultz, director of business valuation services for FR&R Business Valuation Consulting LLC in Deerfield, Ill , recently worked on a case involving a construction company that did grading and roadwork. He looked at what might be on the horizon for this type of business, and in doing so considered the impact of potential federal and state government-funded infrastructure projects, as well as the types of operational controls and management changes that would be necessary to turn the business around
In many cases, he says, the business might be in distress because of the loss of a key person, whether through retirement, death or departure for greener pastures Without that key person, the business is worth less and, in extreme cases, nothing at all You evaluate a distressed business using the same factors you would for a v i a b l e b u s i n e s s a s s e t s , m a r k e t m u l t i p l e s a n d e a r n i n g s Depending on the specific situation, one or more of these may be deteriorating and fast
Ultimately, though, valuing a distressed business comes down to answering one question: How much cash flow will it generate in the future? “I look at the company’s strengths, weaknesses, opportunities and threats, and I ask: ‘Is the industry going up or down?’ and ‘Does the company have a weakness that it can turnaround?’” says Schultz “You have to become an expert in the industry, which entails reading trade publications and talking to experts and business brokers You also may need to establish whether or not there is a chance of renegotiating any loans or finding new lenders.” After all the analysis, you may determine that there is indeed the possibility for future business opportunities
When there is hope, ask, “At what rate is the business going to return to profitability?” “Somewhere you have to forecast what i s d o a b l e , ” s a y s C a m p b e l l . “ O f c o u r s e , a n y v a l u a t i o n r e q u i r e s some educated guesses,” he cautions. T h a t m a y i n c l u d e g o o dw i l l , i n t e l l e c t u a l p r o p e r t y, p a t e n t s , c u s t o m e r r e l a t i o n s o r a s t r o n g b r a n d n a m e a s s e t s t h a t m a y h a v e b e e n d a m a g e d a s t h e c o m p a n y f l o u n d e r e d
“Activity in goodwill impairment can be a test,” says Massimo Messina, a partner in Grant Thornton’s Economic Advisory Services practice and leader of the Midwest Advisory Services Group, based in the Chicago metropolitan area The business may take significant goodwill write-offs and, in fact, revalue all its assets And while Messina reports that M&A is still down, the activity he’s seen is amongst healthy businesses. “I haven’t seen any bargain purchases,” he comments
N e v e r t h e l e s s , i f t h e A l l i a n z p r e d i c t i o n i s c o r r e c t , t h e r e m a y b e m a n y m o r e o p p o r t u n i t i e s t o p u t a p r i c e o n d i s t r e s s i n t h e c o m i n g m o n t h s .
to this issue’s advertisers who also are exhibiting at our 2009 Midwest Accounting & Finance Showcase on August 25-26, 2009: A Special THANK YOU www icpas org / insight htm AUGUST 2009 21
Lay Off Layoffs
Pink slips aren’t the only option
By Cecily O’Connor
The national unemployment rate hit 9.5 percent in June, and is expected to climb even further before we see any improvement “This is the toughest time since the Great Depression,” says Barry Chiswick, distinguished professor at the University of Illinois at Chicago “Employers are now compelled to give more serious thought to rationalizing the way they produce goods and services.”
E v e n a s t h e U S u n e m p l o y m e n t r a t e climbs to historic levels, accounting firms have several options open to them to dodge that most dreaded of words: “Layoff ”
U n p a i d l e a v e , e q u i p m e n t u p g r a d e d el a y s a n d w o r k - f r o m - h o m e a r r a n g e m e n t s are among the steps being taken to trim the f a t f r o m t h e i r b u d g e t s A n d w h i l e t h e s e measures aren’t exactly revolutionary, they are effective. They’re also long- rather than short-sighted. You don’t want to forfeit the i n v e s t m e n t y o u ’ v e m a d e i n d e v e l o p i n g your staff over the years, especially since you’re going to need those talented professionals when the economy turns around, s a y s P a u l G l a d e n , p r e s i d e n t o f m a r k e t r e s e a rc h f i r m M u z e v i e w, a n d a f o r m e r Arthur Andersen partner.
An employer ’s “decision is complicated b y u n c e r t a i n t y o v e r h o w l o n g a n d h o w deep the recession will be,” says Gladen. “If the recession is going to be long, they n e e d t o a c t n o w ; i f t h e m a r k e t b e g i n s t o t u r n s o o n , t h e y d o n ' t w a n t t o g e t c a u g h t short of resources ”
While there is no one-size-fits-all solution, employers across all industries are clinging to the cost-conscious zone in a bid to maximize profits in recessionary times.
“HR folks tend to stick with what they k n o w, a n d t h e w i l l i n g n e s s t o c o n s i d e r options other than staff reductions is notew o r t h y, ” s a y s D a v i d Va n D e Vo o r t , c o ns u l t i n g p r i n c i p a l i n h u m a n c a p i t a l a t Mercer, Chicago
Here are five strategies that could save your employees from the chopping block
1. Cut the Fun Stuff
Business travel is frequently the first cost to be cut, according to a January Challenger, Gray & Christmas survey of HR executives representing various industries. Hiring freezes and reductions, which are being used by 58 percent of employers, follow in popu l a r i t y I n c o m p a r i s o n , p e r m a n e n t w o r kforce reductions are being made by 56 percent of companies
Other cost-cutting measures include holiday party cancellations, bonus reductions and cutbacks in employee perks. Not surprisingly, entertainment-related expenses also are being heavily scrutinized
“We are getting the message out about being more mindful of spending, and expecting that if our employees take a prospective client out to lunch that there’s an outcome,” says Suzanne Dodge, VP of HR at Perry-Smith LLP in Sacramento, Calif
2. Take a Break
While once totally alien in concept, today it’s not unheard of to ask employees to take u n p a i d l e a v e s o r v a c a t i o n s d u r i n g s l o w periods in the business cycle For workers w h o c a n a f f o r d i t , a n e x t e n d e d v a c a t i o n m i g h t b e e s p e c i a l l y e n t i c i n g d u r i n g t h e s u m m e r o r h o l i d a y s e a s o n T h i s t i m e o f f also may provide an opportunity to pursue p e r s o n a l i n t e r e s t s o r h i g h e r e d u c a t i o n while continuing to work
“ T h i n g s l i k e s a b b a t i c a l s a n d s e c o n dments, or opportunities to work in a not-forprofit where the firm pays you at 80 percent of your salary, are good because they are g r e a t d e v e l o p m e n t o p p o r t u n i t i e s , ” s a y s
Francine McKenna, author of the blog re:
T h e A u di to r s ? [ r e t h e a u d i t o r s c o m ] , a n d f o u n d e r a n d p r e s i d e n t o f M c K e n n a P a r tners, a Chicago consulting firm.
“Furloughs are effective in discouraging workers from looking elsewhere for a job,”
C h i s w i c k a d d s “ I n b a d e c o n o m i c t i m e s , it’s hard to find a job, but if you’re laid off a n d c o l l e c t i n g u n e m p l o y m e n t , y o u d o have an incentive ”
22 INSIGHT www icpas org/insight htm R E C E S S I O N
3 Rethink “Work”
Restructure the work day to help manage talent in an environment where you’re forced to do more with less. Some BDO Siedman professionals will work more hours between January and April, and then reduce their work time between May and December, for example. Others may spend most of their time at client sites and then work from home when necessary, which essentially reduces the company’s overhead Telemeeting and telecommuting tools are gaining in popularity as part of this trend
4 Save Upgrades for Later
Delaying computer equipment upgrades is another cost-cutting approach. Some firms may choose to replace equipment every four years instead of every three. Policies concerning personal digital assistants and cell phones also are shifting, with firms making staff responsible for those purchases, Van De Voort explains
5 Watch Benefits Costs
Employee benefits is an area in which firms have to tread carefully. That said, these days many workers would rather forego some benefits or contribute to them themselves rather than having to give up their jobs altogether. About 10 percent of HR professionals surveyed by the Society for Human Resource Management in October 2008 said they were cutting back on benefits to reduce staffing costs
A d d i t i o n a l l y, s o m e e m p l o y e r s c a n c h o o s e t o m a k e 4 0 1 ( k ) matches dependent upon company performance, or to cut the match altogether, says Van De Voort
Layoffs in Accounting
The downturn has had a mixed effect in the accounting industry, says Geremy Cepin, director of PDI Global Executive Search in Chicago Larger firms, especially those involved in the financial services industry, have scaled back operations, laying off staff at all levels, including professionals with lower, chargeable hours and smaller books of business
Some smaller firms, on the other hand, are in the fortunate position of making strategic hires right now “Many have been able to build their businesses by providing service on par with larger firms, but for less money This means that smaller firms are getting more challenging engagements and need people with large firm experience more than ever,” says Cepin “As a result, many accountants laid off by big firms are being absorbed right away by smaller firms, which are gaining talent that was previously difficult to attract ”
Perry-Smith LLP is among the firms hiring opportunistically right now, with sights on filling several senior positions in its San Francisco office While not under the same financial constraints as other firms, Perry-Smith LLP's emphasis on staffing smartly offers an important reminder about not going overboard
“We are regional and can’t afford the luxury of hiring outside our needs,” says Dodge. “We make it clear that when we hire we keep each team member fully utilized. Where there is a downturn, we see it as an opportunity to strengthen our team.”
“Laying off that excess can result in some short-term cost benefits, but it also can stir up long-term harm,” Gladen warns. “In some instances, the pressure to sustain partner earnings in the short term has outweighed...longer-term perspectives. Some firms may be damaging their long-term prospects, and badly handled situations may become magnified in the age of blogs, Facebook and Twitter ”
16th Annual Midwest FINANCIAL REPORTING Symposium Accounting and Financial Reporting Updates from the SEC, FASB, IASB, AcSEC and PCAOB Friday, September 25, 2009 Donald E. Stephens Convention Center, Rosemont, IL 8 CPE Credits | $325 members/$395 non-members Don’t miss this unique opportunity to interact with an all-star lineup of financial reporting policy-setters. To register, or for more information visit www.CCFLinfo.org or call 800.993.0393. www icpas org / insight htm AUGUST 2009 23
Mind the Gap
The marks of a true leader bridge the generational divide
By Derrick Lilly
Ge n e r a t i o n Y, M i l l e n n i a l s , t h e N e t G e n e r a t i o n c a l l t h e m w h a t y o u will, they’re the CEOs, CFOs, presidents and vice presidents of the future.
Born roughly between 1978 and the late 1990s, these emerging professionals grew up during a time of high expectations and rapid economic and technological growth Millennials are determined to get everything i n l i f e f a s t e r a n d e a s i e r. S i m p l y p u t , t h e y want what they want, and they want it now
“ O n e o f t h e t h i n g s I ’ v e n o t i c e d a m o n g s o m e o f m y y o u n g e r e m p l o y e e s i s t h a t they’re less patient with the pace at which t h e i r c a r e e r m o v e s f o r w a r d , ” s a y s S t a n Slabas, 61, senior VP and CFO of Chicagob a s e d S & C E l e c t r i c C o m p a n y “ I a l w a y s took it as it came and had a lot of confidence and trust in the people ahead of me that things would work out I find that the
younger folks who work for me want things l a i d o u t f o r t h e m ; t h e y w a n t t o s e e w h a t their next promotion is going to be ”
Wi t h t h e e c o n o m y i n i t s c u r r e n t s t a t e , h o w e v e r, j o b o p p o r t u n i t i e s a r e t h i n , a n d patience is a virtue best mastered.
“Young professionals know that they defi n i t e l y n e e d t o w o r k h a r d e r, ” s a y s M a t t K r o p , 2 3 , a g r a d u a t e s t u d e n t a t N o r t h e r n I l l i n o i s U n i v e r s i t y ( N I U ) , f i n i s h i n g u p h i s M a s t e r s o f A c c o u n t i n g S c i e n c e s d e g r e e , with concentrations in auditing and financial reporting “It’s not like it was after Sarbanes-Oxley when companies were hiring anyone to put data into a computer. We’re not just going to have ‘jobs’ anymore ”
To d a y ’s m a r k e t p l a c e i s g o i n g t o c h a llenge young professionals to be more comp e t i t i v e a n d t o p r o v e t h e i r w o r t h t o a n organization. “You have to be willing to go
24 INSIGHT www icpas org/insight htm W O R K F O R C E
the extra mile You will never get ahead in life if you just do the bare minimum,” says Krop “You have to have something to set yourself apart I understand that I have to work to get where I want to be, and that I’ll have to make some sacrifices along the way It’s a trade-off, but I can’t have everything at once ”
Krop also realizes that the profession will push him to continua l l y d e v e l o p h i s s o f t a n d t e c h n i c a l s k i l l s “ I f y o u w a n t t o b e a leader you have to be able to communicate with people. You have to be multi-faceted. You have to be a caring, hard-working, intell i g e n t , w e l l - r o u n d e d b u s i n e s s p e r s o n . Yo u c a n ’t j u s t b e a n accountant; you have to be everything.”
Don’t expect this new generation of professionals simply to conform, however. Like Generation X before them, they’ll continue a gradual move to a more laid-back business culture. “With business you will always need to be professional, but I think things will get a little more casual in the future,” says Krop “And if older professionals look down on young professionals it’s to their disadvantage Change is just a part of life; things change and people are going to be different ”
M e m b e r s o f G e n e r a t i o n X ( b o r n r o u g h l y b e t w e e n 1 9 6 5 a n d 1980) came of age during the rise of the PC, Internet, video gaming, Grunge and Hip-Hop Often referred to as the Me Generation or the Slacker Generation, members of Generation X are stereot y p e d a s d i s a f f e c t e d , a u t h o r i t y b a u l k i n g , c o n s e r v a t i s m - s c o f f i n g cynics, trying to find their place in life (hence the enigmatic “X”) Everything that the Baby Boomer generation came to symbolize unquestioning diligence, over-achievement, conformity Generation X seeks to counter
But then again, generalizations never really work, do they?
“People have this view that Baby Boomers are very driven and p u t w o r k e t h i c f i r s t ; t h e n G e n - X e r s a r e c o u n t e r- c u l t u r e p e o p l e always asking ‘why’; then members of Generation Y seem to want more balance in their lives. But to me there are exceptions to all of those rules; I think professionalism is more about how people were raised than what generation they’re a part of,” says Jeramy Kaiman, 35, managing director of Chicago-based financial executive recruiting firm Garelli Wong & Associates
Generation X professionals, in fact, tend to be highly educated, o p e n - m i n d e d a n d d r i v e n , w i t h a d e v e l o p e d c o n c e p t o f e t h i c a l b e h a v i o r T h e y q u e s t i o n e v e r y t h i n g , a r e a l w a y s l o o k i n g t o d o things better, and move freely between companies and positions in order to achieve their personal and professional goals As the g e n e r a t i o n t h a t w i l l s u c c e e d r e t i r i n g B a b y B o o m e r s , t h e y ’ v e matured into an extremely adaptive and influential group
“I measure personal and professional success by continuing to achieve the things that I set out to,” says Kaiman “I care about the quality of the people that I’m surrounded by at work and home, the quality of time I can spend with those people, and the financial
f r e e d o m I h a v e t o d o t h e t h i n g s I w a n t t o d o When I’m not working I want the ability to go on vacations and enjoy life. I don’t want to be 75 years old looking back at my life wondering if I ever did anything fun ”
Kaiman sums up the Generation X attitude to work it’s results that matter, not the 9-5. “We work 50-plus hours per week However, I firmly believe if you can come to work for fewer hours but produce the same results, then I don’t care how many hours you’re in the office as long as it’s done right and ethically,” he says At the same time, though, “Do I let them listen to their iPods at work? No Are they on the Internet all day? No Will I ever be okay with that? No,” he says “There has to be a balance between loosening the reigns enough so that people can really perform and be individuals and providing a structure within which they can work and achieve results ”
If you go along with the iPod-wearing Millennial, and Starbucks sipping “I’m leaving early” Gen X image, then it follows that a navy blue suit and tie pretty much define the Baby Boomer employee
Growing up during a period of vast cultural, economic, political and social change, Baby Boomers (individuals born roughly between 1946 and 1964) were exposed to many of the events that h
technological change, recessions, globalization, etc And due to their sheer numbers (more than 75 million in the United States t
e c o n o m i c s a n d workplace behavior
As business people, Baby Boomers don’t shy away from challenges or sacrifices to them, climbing the corporate ladder rung by rung is a due process; and they’re highly ethical and respectful of values and traditions.
As Stan Slabas explains, “I’ve always worked 60 or 70 hours a week; there’s always a little bit of your personal life that must be sacrificed. I’ve noticed over the years that the younger folks value their personal time and aren’t as likely to give up as much of it for their career as I was at that age ”
With Baby Boomers nearing retirement, finding successors to fill their leadership roles has revealed a new challenge Like most B a b y B o o m e r s , S l a b a s ’ c o n v i c t i o n s l i e i n h a r d w o r k , i n t e g r i t y, transparency and open lines of communication Nearing retirement himself, Slabas spends a lot of time instilling those traits in his potential successors. To him, a successful leader will always focus on mentoring and developing those around him a reflection of the Baby Boomer generation’s desire to make an exit only when they’ve changed things for the better.
“One thing I try to teach my people is that you’re primarily a risk manager when you’re running a business and have people counting on you for jobs. You need to be a good risk manager, and I think this recession is crystallizing that need in the younger people,” says Slabas “I don’t know about a change in their behavior, but going through a recession like this will probably make them better managers and leaders in the long-term
26 INSIGHT www icpas org/insight htm
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www icpas org / insight htm AUGUST 2009 27
Partnership in Question
Guidance in the application of a new taxpayer-friendly rule in partnership situations is crucial
By Harvey Coustan, CPA
Last month I described the provision in the American Recovery and Reinv e s t m e n t A c t o f 2 0 0 9 ( A R R A ) t h a t a l l o w s t a x p a y e r s t o d e f e r r e c o g n i t i o n o f cancellation of debt income (CODI) realized in 2009 or 2010 This deferral is for a p e r i o d o f f o u r o r f i v e y e a r s , w i t h t h e deferred amount being amortized over an additional five-year period.
I briefly explained the perplexing issue that might arise in a situation where a partnership is the debtor. The general partner (or managing member of an LLC taxed as a partnership) may find that this election w h i c h i s m a d e a t t h e p a r t n e r s h i p l e v e l according to the new law is opposed by one or more of the partners Other partners might want to elect other methods of avoiding recognition of taxable income on the C O D I . T h e s e o t h e r m e t h o d s , s u c h a s t h e insolvency exception or the Title 11 exception, may produce a more favorable result for some
B e c a u s e t h e e l e c t i o n m u s t b e m a d e a t the partnership level, and therefore binds
all partners with respect to the CODI i n q u e s t i o n , t h e g e n e r a l p a r t n e r s h o u l d m a k e s u r e t h a t a l l p a r t n e r s support the elective deferral
A number of practitioners, including the American Bar Association (ABA) Section of Taxation, have asked the IRS for guidance regarding the right of an individual partner to waive the partnership election in order to apply other provisions to their share of the CODI I believe that a partner waiver will require some additional legislation
But this issue is only one of a number that arise when the partnership is the debtor.
T h e d e f e r r a l e l e c t i o n a p p l i e s o n l y to CODI with respect to a debt issued by a C-corporation or any other taxpayer in connection with the conduct of a business. A partnership may be conducting a business and may also b e e n g a g e d i n a c t i v i t i e s t h a t d o n ’t constitute a business at the time the d e b t i s i s s u e d . I R S g u i d a n c e s h o u l d provide a method for determining the amount of CODI eligible for deferral in that situation.
Certain events can trigger recognition of the unamortized deferred inc o m e b e f o r e t h e c o m p l e t i o n o f t h e amortization period. The law requires acceleration in the case of death, liquidation or sale of substantially all the taxpayer ’s assets, the taxpayer ’s cessat i o n o f b u s i n e s s , o r s i m i l a r c i rc u ms t a n c e s . W h e n a p a r t n e r s h i p i s t h e debtor, a number of issues unique to t h a t t y p e o f e n t i t y n e e d t o b e a d dressed in IRS guidance:
n D o e s t h e s a l e o f a p o r t i o n o f a p a r t n e r ’s i n t e r e s t t r i g g e r i m m e d i -
a t e r e c o g n i t i o n o f a l l C O D I a l l o -
TA X
28 INSIGHT www icpas org/insight htm
should be accelerated
n What’s the impact of the admission of a new partner after the CODI is triggered? The new law requires an allocation of CODI to the partners who are partners “immediately before the discharge in the manner such amounts would have been included under Internal Revenue Code section 704 if such income were recognized at such time ” Should the dilution of those partners’ interests caused by the admission of the new partner result in an acceleration of at least the part of the deferred amount attributable to the diluted portions of the other partners’ interests?
n Will a technical termination of the partnership under Section 708(b)(1)(B) (sale of 50 percent or more of partners’ interest in capital or profits during a 12-month period) accelerate recognition of the total deferred amount, or only the amount attributable to the interests sold? Again, logic would dictate that only the portion of the deferral attributable to the sold interests should be accelerated, and that position was affirmed informally by two government officials at the May 2009 ABA Section of Taxation meeting in Washington, DC
n H o w w i l l t h e c o n t r i b u t i o n t o a s e c o n d partnership of an interest in a partnership that elected deferral be treated? Will this contribution trigger deferred CODI?
There are also issues unrelated to acceleration that need resolution, including:
n How and when should the deferral election affect the partners’ capital accounts?
S h o u l d t h e i n c r e a s e b e r e f l e c t e d a t t h e same time as the debt is reduced, therefore making the “debits and credits” work?
The ABA Section of Taxation offered two alternatives to this: Either carry the total CODI deferral as a liability on the balance sheet until the CODI is taxed, or treat the d e f e r r e d a m o u n t a s u n a l l o c a t e d c a p i t a l until the deferred amount is taxable
n When are the bases of the partners’ intere s t s i n c r e a s e d b y t h e d e f e r r e d a m o u n t allocated to them? At the time of deferral? As the amount is amortized into income?
I believe the latter should be the case.
n How will the “parent” partnership and its p a r t n e r s b e a f f e c t e d b y a d e f e r r a l e l e ction by a partnership in which the parent has an interest?
The new law requires that amortization of any original issue discount (OID) that arises with respect to the “reacquisition” of business debt be deferred and amortized over the fiveyear period in which the deferred CODI is
recognized OID could arise if new debt is issued or deemed issued in exchange for the old debt A number of the same issues described above also apply to the deferred deduction of OID
It’s clear that more guidance is needed so that taxpayers and their advisors can make the election with some degree of certainty about the ultimate result.
Harvey Coustan i s an Ernst & Y oung reti red partner He i s presentl y consul ti ng on substanti ve techni cal and professi onal standards i ssues and has been an ex pert wi tness i n a number of cases.
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a t e d t o t h a t p a r t n e r ? L o g i c a l l y, o n l y a p r o p o r t i o n a t e s h a r e
www icpas org / insight htm AUGUST 2009 29
POWERHOUSE
I s t h e U n i t e d S t a t e s s t i l l t h e w o r l d ’ s b u s i n e s s l e a d e r ? O u r p a n e l o f e x p e r t s g r a d e U n c l e S a m a n d A m e r i c a n b u s i n e s s p o t e n t a t e s .
B y K r i s t i n e B l e n k h o r n R o d r i g u e z
With an economic engine worth $14 trillion, $233 billion in foreign investments on American soil, and worldwide investors buying up US Treasury bills despite the recession, you’d think that the United States’ position as the world’s business leader was pretty clear. But there’s a caveat: We could easily slip from our position of preeminence at any given moment
T h e O rg a n i s a t i o n f o r E c o n o m i c C o - O p e r a t i o n a n d D e v e l o pment (OECD), a 30-country partnership, uses its wealth of information in a broad range of economic, financial, governance and innovation centers to help governments achieve and retain econ o m i c g r o w t h a n d f i n a n c i a l s t a b i l i t y W h i l e i t p r e d i c t s t h a t t h e
United States will come out of the recession stronger for having gone through it, its interim report for 2009 is full of cautionary notes about how carefully the nation will need to tread with its stimulus package, debt, fiscal responsibility and trade.
To d r i v e t h e p o i n t h o m e , w e a s k e d f i v e l e a d i n g b u s i n e s s experts to grade the United States on various “hard” economic indicators, as well as a few “softer” areas such as innovation and e x e c u t i v e l e a d e r s h i p We w e n t o l d s c h o o l o n t h i s o n e : A + f o r excellent performance, F for failing performance, and everything that falls between
But first, here are a few facts about our pros
www icpas org / insight htm AUGUST 2009 31
William (Bill) A. Brandt, Jr. Brandt, who has been in the business of turnaround and insolvency consulting for more than 30 years, is president and CEO of Development Specialists, Inc , one of the nation’s oldest restructuring firms He has advised Congress on matters of insolvency and bankruptcy policy, and was the principal author of the amendment to the bankruptcy code which permits the election of trustees in Chapter 11 cases More recently, he’s been working with public policy, law and banking leaders in the People’s Republic of China on approaches to the reorganization and restructuring of some of the country ’ s state - owned industries He is also
Global Markets, a monthly newsletter providing insight into trends, issues and the forecast for the global economy He previously served as associate economist at LaSalle Bank/ABN AMRO, where he tracked economic trends in the banking sector
University ’ s Kellogg School of Management, where he has served as chair of the Finance Department Prior to joining Kellogg, Rebelo taught at the University of Rochester and the Portuguese Catholic University He researches macroeconomics and international finance, and has served as a consultant to the World Bank, the International Monetary Fund, the Board of Governors of the Federal Reserve System, the European Central Bank, the McKinsey Global Institute and other organizations
Dr. Raghuram Rajan. Rajan is the Eric J. Gleacher Distinguished Service Professor of Finance at the University of Chicago’s Graduate School of Business Rajan is currently an economic advisor to the Prime Minister of India
Prior to resuming teaching, he was the economic counselor and director of research (in plain English, the chief economist) at the International Monetary Fund (between 2003 and 2006) Since then, Rajan has also chaired the Indian government ’ s Committee on Financial Sector Reforms, which submitted its report in September 2008
John (Jack) Crooks. Crooks is president of Black Swan Capital, an independent advisory firm, specializing in foreign exchange and currency market investing for retail and institutional clients Prior to entering the investment arena, Crooks held various corporate finance positions He has written extensively on the subject of global currencies and international economics, and has been published in Asian Times, Futures Magazine, Barron’s, Bloomberg, Dow Jones Newswire, and across many financial websites He has appeared on Bloomberg TV, CNBC and Fox Business News
R E A D O U R R E P O R T C A R D
F o r e i g n I n v e s t m e n t i n t h e U n i t e d S t a t e s
Brandt: Grade A
“I think as long as foreign investors want to put their money here it’s a good thing. Back in the 1980s, there were hand-wringing moments over how much land Japan was buying in Hawaii….I was told we’d all be working for the Japanese Last time I looked, we’re now wondering what happened to Japan Now the same worry starts over India and China buying in the United States Rumors of our demise are always greatly exaggerated, as Mark Twain might say ”
Laurenti: Grade A
“This is the place people around the world want to come to invest in in our companies, our technologies, etc. A few months ago,
at the height of the financial crisis, the dollar rallied and so did US treasuries We are a safe place to be On the other hand, we might be a little too complacent We need to keep in mind that investors around the world should not be expected to buy a treasury just because it is US issued. In a few years, with the new reality of increased debt, we’ll see that it will be tougher to sell our debt.”
Rebelo: Grade A
“The World Bank ‘Doing Business’ database ranks the US economy as third in the world in terms of how easy it is to do business Singapore and New Zealand rank first and second, respectively Inward foreign direct investment accounted for roughly 10 percent of total US investment in 2007 ”
Rajan: Grade B+
“I think we could be a little more open to foreign investment The
32 INSIGHT www icpas org/insight htm
c h a i r o f t h e I l l i n o i s Fi n a n c e A u t h o r i t y, a n d r e g u l a r l y a p p e a r s o n C N N, C N B C , B l o o m b e r g, C B S Ra d i o a n d National Public Radio A d o l f o L a u r e n t i . La u r e n t i i s a s e n i o r e c o n o m i s t a t M e s i r o w Fi n a n c i a l a n d a u t h o r s Themes on
S e r g i o Re b e l o . Re b e l o i s t h e To k a i B a n k D i s t i n g u i s h e d Pr o f e s s o r o f I n t e r n a t i o n a l Fi n a n c e a t N o r t h w e s t e r n
M E E T T H E E X P E R T S
U n i t e d S t a t e s i s s t i l l a g r e a t p l a c e t o d o b u s i n e s s , b u t f o r e i g n
investors are getting a little worried about impediments discussion regarding executive compensation, limiting property rights and increasing taxation will make people more wary.”
Crooks: Grade C
“ I n g e n e r a l , o u r p o l i t i c i a n s a r e n o w p u n i s h i n g U S c o r p o r a t e leaders If international investors can stay away from that mess, t h e y w i l l Yo u ’ r e s e e i n g r i s i n g c o n c e r n s a b o u t t h e r e g u l a t o r y e n v i r o n m e n t b e i n g h e i g h t e n e d A n d c o r p o r a t e t a x e s a r e s t u nningly high when you consider this should be the land of free capital and enterprise.”
P r o d u c t i v i t y
Brandt: Grade A
“The growth in this nation’s industrial and information-related productivity has been astounding since the ‘80s There are specific niches where we lag but productivity is, overall, a measure of the creation of wealth ”
Laurenti: Grade A+
“We are still a hotbed of entrepreneurship, ingenuity and work ethics all of which make us very productive China has productivity but lacks the innovation and technology we have. Europe has the technology but lacks our flexibility, so productivity there suffers. In the United States, we have created an economic system in which it’s very easy to operate, very easy to open a business, very easy to hire people It’s easy to get credit from our financial system It’s extremely easy to lay off people We may not like it, but the ease in layoffs is a huge incentive for companies to hire people because they can get rid of them when times are bad. All of this ease contributes to a very productive business climate ”
Rebelo: Grade A
“Productivity is difficult to measure and compare across countries But the rough measures that we have suggest that the United States is one of the most productive economies in the world.”
Rajan: Grade B+
“Our productivity is high because we’re one of the more flexible economies We could be even more flexible if we extended the universality of our safety net; lots of people are not covered by h e a l t h i n s u r a n c e a n d u n e m p l o y m e n t i n s u r a n c e i s l i m i t e d T h i s makes it difficult for workers to move, or for politicians to allow firms to fail.“
Crooks: Grade C
“We’re not as productive as we could be if people could move f r o m p l a c e t o p l a c e a s t h e y l o s t j o b s I t ’s h a r d n o w t o m o v e because the housing market is so bad; you’re locked into your house, basically ”
G r o s s D o m e s t i c P r o d u c t ( G D P )
Brandt: Grade B
“I think all the industrialized nations are doing well in this respect We have a greater risk tolerance in the Unites States than the European community. The impact of recessions such as the one we are in is cushioned in Western Europe because of the social safety net employment benefits, layoff protections, etc. On the other hand, it’s our potential for steeper decline that also allows capital to be recycled faster We have deeper valleys but greater reward You have to look at the percentage of public spending and debt when you look
at the GDP I favored the stimulus package but if you look right now at the expenditures the government is committed to until 2020, the amount of debt we’ll carry will come up to an intolerable amount of our GDP. This will cause inflation both here at home and possibly in the rest of the world We could be looking at Jimmy Carterera inflation kicking in over the next decade.”
Laurenti: Grade B+
“We have a very efficient market but we have imbalances built into our GDP, the major of which is excessive reliance on consumption domestically. We consume too much compared to how much we save, and it got worse during the years of credit frenzy
I have a friend who proved this by his dog getting preapproved for credit Easy access to credit has kept our consumption on steroids
Now I’d like to see a little more saving and investing for the long term and a little less consumption.”
Rebelo: Grade A
“The United States has one of the highest levels of per capita in the world There are only a few small countries such as Luxemb o u rg , a n d a f e w o i l - p r o d u c i n g e c o n o m i e s s u c h a s Q a t a r, t h a t have higher levels of per capita income In terms of its overall size, th e Un ite d S ta te s is th e la rg e s t e c o n o my in th e wo rld , with a n annual income of $14 trillion But if China continues to expand at a rapid pace it will replace the US economy as the largest economy in the world by 2050 ”
Rajan: Grade A
“The US GDP speaks for itself All is well here ”
Crooks: Grade D
“In terms of GDP growth going forward, we’ll underperform for many years because of the way it’s calculated; consumption is a big part of it. The American consumer has lost a big part of his wealth recently and is going into savings mode Not a bad thing; the savings will rebuild the pool of US capital. On a global scale, economists want to see a rebalancing; Eastern countries balancing with Western countries. The Asians will have to stop focusing on exporting so much because we’re not buying in mass quantity ”
T r a d e
Brandt: Grade B
“We’ll always have a trade deficit. We export ideas, not cars anymore We suck at trade so the rest of the world can live The Chinese economy will be in the toilet if Americans decide they want to stop maxing out their credit cards We endemically run a trade d e f i c i t b e c a u s e w e s u p p o r t t h e r e s t o f t h e w o r l d ’s e c o n om i e s w h e n t h e U n i t e d S t a t e s s n e e z e s , t h e r e s t o f t h e w o r l d catches a cold ”
Laurenti: Grade B
“We have been running too large a trade deficit for too long a time For too long, we’ve relied on consumption, on foreign countries financing our trade deficit We are in the process of correcting this imbalance. In terms of trade policy, though, we’re at a C and fast sliding to an F President Obama needs to be able to rein in Congress ”
Rebelo: Grade A-
“The United States has dramatically lowered tariffs and other barriers to trade since 1945. This openness has brought significant benefits, reducing substantially the prices that US consumers pay for many goods These low prices are often taken for granted, but
www icpas org / insight htm AUGUST 2009 33
they depend critically on free trade There continues to be room to improve US trade policies, namely in the agricultural sector where government subsidies and barriers to trade continue to play a significant role ”
Rajan: Grade B
“I’m more worried about this than any other issue. The United States has a role to play in the world here We want to pick and choose be open in good times but force others to be open while we close down in bad times President Obama made the right noises at the G20 summit, but he needs to exercise more control over Congress.”
tutions of higher learning are the envy of the world; our colleges and universities are importers of students because of that status. But our high schools and elementary schools are another story That does not bode well for lower-income Americans who are not college bound. Of necessity, the private sector is now taking over and educating people on what they missed in school ”
Laurenti: Grade F
Crooks: Grade B
“The United States is still an extremely open market That may change, depending on what China decides to do during this rebalancing period China will need to take the majority of the readjustment pain If it doesn’t take that pain domestically, if it pushes its currency lower and forces its pain on trading partners, the United States will close some of its markets ”
E m p l o y m e n t
Brandt: Grade D
“We have a much more fluid labor force than most countries We can turn on a dime and redevote our energies Our labor is productive precisely because it can move so quickly Sadly, there is a human cost involved in that this fluidity often requires layoffs and change. In urban areas and among minority groups, we’re doing a horrible job The unemployment rate among African-American men is so high that we might as well be in Kenya American insti-
“This is a very tough environment We knew that American businesses were lean going into the recession, and despite that they’re cutting positions very quickly. My hope is that we are cutting so much up front in this recession that when the market stabilizes, many companies will realize they cannot really operate successfully at this lean level. Hopefully, the turnaround will be a little faster than we think, but it’s a Hail Mary pass; I stress the word ‘hopefully.’ The length of unemployment is growing, and we’re at our worst number in 25 years ”
Rebelo: Grade A-
“The current recession notwithstanding, the US labor market has performed well in terms of creating new jobs and maintaining high levels of employment. As a society, we can choose to protect existing jobs, giving workers a high level of job security Alternatively, we can create a more flexible labor market in which it is easier for firms to shed workers when they need to restructure The United States has chosen flexibility
“This flexibility comes at the cost of making jobs less secure, but it has some advantages It generates an environment in which f i r
s
e n t a n d t a k e r i s k s , c r
34 INSIGHT www icpas org/insight htm
a n e x p e r i m
e a t i n g a m o r e d y n a m i c e c o n o m y I t a l s o m a k e s i t e a s i e r t o r e a l l o c a t e t h e l a b o r f o rc e
m
c
across sectors, so that workers are not trapped in underperforming sectors Europe has chosen to emphasize job security This policy has obvious benefits in terms of social stability. But when you protect the jobs of today, it becomes more difficult to create the jobs of tomorrow.”
Rajan: Grade C+
“It’s just a stage of the cycle; we’re in a bad recession ” Crooks: Grade D
“Unemployment will continue to get worse The Obama Administration is tight with labor so you will see more labor rules putting more pressure on businesses. The giant ones can handle it but it can stymie growth for small business The US entrepreneur creates jobs as well ”
D e b t
Brandt: Grade D
“ I ’ m i n t h e r e s t r u c t u r i n g a n d b a n k r u p t c y b u s i n e s s ; I a b h o r debt….At the end of the Clinton era, we were doing well and public debt was essentially paid off Now we have to overcome a debt load disproportionate to our ability to carry it and easily pay it off That’s never smart.”
Laurenti: Grade F
“Most Americans were living beyond their means in terms of housing, credit cards, cars not just how many, but how frequent the purchases You don’t need to change your car every two years just because credit is easily available. People failed to realize how exposed they were to short-term debt As for public debt, we went from an A- to a full F over the past six months We’re spending too m u c h i n a n u n p r o d u c t i v e w a y. We ’ r e n o t g e t t i n g b a n g f o r t h e buck Congress and the Administration are spending $1 trillion; I’ve never seen a problem where you can throw $1 trillion at it and not get anything done. I’m hoping something will stick but there’s no real plan, no thinking through
“Overall, I think we could jump-start the economy for one-third o f t h e m o n e y w e ’ r e s p e n d i n g . I f w e h a d a p l a n , w e w o u l d g o through the list selecting spending based on its impact on job crea t i o n a n d e n h a n c i n g p r o d u c t i v i t y m a y b e a f a s t t r a i n f r o m Chicago to St Louis, an improved electric grid, better air-control systems for O’Hare, better broadband systems But without a plan, we will not get the productivity bang. Just the debt.”
Rebelo: Grade B-
“The debt of the central and local governments represents roughly 70 percent of US GDP. This debt level is not unusual, but the government will surely add to its debt as it continues to restructure the financial system In addition, the United States has some important fiscal challenges on the horizon associated with Social Security, Medicare and Medicaid These challenges are likely to rise to the top of the political agenda once the United States gets its financial system in order and recovers from the current recession.”
Rajan: Grade C+
“Clearly, the public debt numbers are not terrible right now, but we are going towards much worse Medicare, Social Security these are things we need to figure out how to take care of; this recession and our response to it will imply they are much more serious than we thought We will have to make hard choices ”
Crooks: Grade D
“From a relative standpoint, there’s still flexibility in the United States to issue more debt; that’s not available to Europe. That’s why Europe has pooh-poohed our stimulus package. European tax rates are already at 50 percent; ours is only 18 to 20 percent of our total economy The private sector is writing down debt We shouldn’t create more with public debt ”
W o r k e r B e n e f i t s
Brandt: Grade B
“I worry we’re beginning down a slippery slope based on the European model If we do that, we’ll jeopardize our ability to lay off, to restructure, to lean a company Europeans don’t hire and grow like we do because they know they’ll be handcuffed to these people.”
Laurenti: Grade B
“Nothing exceptional here We have a very flexible system in that I think we do a relatively good job of matching productivity and outcomes to pay I think the system here is better than practices I’m familiar with in Europe. We failed in one crucial system healthcare That’s an F It doesn’t make sense How many people are stuck in a job they do not like and do not move for fear of losing their health benefits? It’s a big inhibitor to flexibility ”
Rebelo: Grade B-
“While the quality of US healthcare is generally high, healthcare policy and access to healthcare leaves much to be desired It makes no sense to tie healthcare benefits to jobs And many US health insurance systems are cumbersome, bureaucratic and opaque.”
Rajan: Grade B-
“We are not great Again, this is where the economy divides Whitecollar service workers who are in high-level jobs probably enjoy a higher level of satisfaction than their counterparts in other parts of the world. Blue-collar, lower-quality service jobs tend to have a much worse time because benefits are not all-encompassing ”
Crooks: Grade B
“I’ve had several of my own businesses and know how hard I’ve worked. It’s a piece of cake when you’re working for somebody else. I think many US employees don’t realize that. Look at Fortune’s ‘100 Best Companies to Work For ’ list we’re doing just fine, and it’s reflected in productivity ”
E x e c u t i v e L e a d e r s h i p
Brandt: Grade B
“Frankly, I see a lot of global leaders that outstrip American leade r s Ta l e n t i s f a r m o r e d i f f u s e d g l o b a l l y t h a n p e o p l e t h i n k ; b u t much of that talent was educated here in this country Lack of the long view and the constant drive for quarterly earnings disturbs me. We’re not head and shoulders above the rest of the world.”
Laurenti: Grade A+ (small/mid-sized biz), C- (large corporations)
“Despite SOX and regulatory efforts, corporate boards are still not up to the job There is too much complacency among CEOs with n o c l e a r i d e a h o w t o c o n t r o l b o n u s e s a n d p e r k s t o o m u c h emphasis on short-term results rather than long-term outcomes.”
Rebelo: Grade B
“The United States has some of the most successful executives and entrepreneurs in the world But there has been clear mismanage-
www icpas org / insight htm AUGUST 2009 35
ment in the financial sector, which accounted for roughly onethird of total corporate profits between 2000 and 2006.”
Rajan: Grade B
“In general I would have given executives high marks, but now I’m actually appalled at their lack of leadership in this crisis. Executives have been hiding in their bunkers ”
Crooks: Grade B
“The government is demonizing executives...leadership is good in sectors that actually produce something ”
I n n o v a t i o n
Brandt: Grade A
“There is no country on the planet, except for singular exceptions in certain niches, that leads the world in innovation like America
It’s because of risk. In America, we love the person who’s failed twice and finally succeeded; we get that innovation means occasional failure In Europe, failure often carries vast social consequences in addition to economic ones.”
Laurenti: Grade A
“We are still a hotbed of technological innovation if you look at what’s cutting edge right now: nanotechnologies, green technologies, medical technologies, communication technologies all of these are coming from the United States Some countries come i n t o t h e p i c t u r e b e c a u s e y o u c a n p r o d u c e t h e g o o d s a b r o a d c h e a p e r l i k e y o u r i P o d A m a z i n g t e c h n o l o g y i s d e s i g n e d i n America but it’s produced in Asia because it’s cheaper The technology is the higher value added.”
Rajan: Grade A
“All these things come together the flexibility, the quality of the u n i v e r s i t i e s , t h e o p e n n e s s t o d i v e r s i t y a n d m a k e t h e U n i t e d States the most exciting and innovative place still Again, we have to be careful to keep these advantages ”
Rebelo: Grade A
“The US universities are the envy of the world. US-based researchers account for half of the citations in scientific papers Innovation also thrives outside of academia In fact, roughly 70 percent of R&D expenditures are financed by the private sector. One encouraging sign about the future is that investment in R&D remains strong even in the midst of the current recession But there are also signs that the United States is losing its edge in some research disciplines. Complacency in this area will cost dearly in terms of the ability of the American economy to compete in global markets ”
Crooks: Grade B-
“We have the entrepreneurial core and great technology leadership Those combined equal great innovation But the small-business sector is taking a hit, so the innovation that would normally funnel upwards is slipping ”
H O L D T H E T O P S P O T
What’s the single-most important thing the United States can do o v e r t h e n e x t d e c a d e t o e n s u r e i t m a i n t a i n s i t s p o s i t i o n a s t h e world’s business leader?
I n v e s t i n g i n e d u c a t i o n i s c r u c i a l , s a y s R e b e l o “ T h e U n i t e d States needs to maintain and increase its capacity to innovate,” he explains “Everybody has heard the story of how Sir Isaac Newton discovered the laws of gravity after seeing an apple fall from a tree This story can suggest that innovation is the fruit of happenstance, but nothing is farther from the truth Only someone as highly edu-
cated (and immensely talented) as Newton could use an event so simple as the linchpin to a fundamental discovery. The quality of the education system is essential to modern innovation To continue to lead, the United States must produce high-quality education at all levels ”
Brandt agrees, recommending that the nation “commit significant expenditures and substantial attention to improving our primary and secondary schools, as well as reinvigorating our institutions of higher education ”
For Crooks, leadership is inextricably linked to dynamic entrepreneurship “Unleash the entrepreneur and he will create the jobs and the products of the future,” he says. “Reduce the regulatory constraints at the same time ”
“The free trade of goods, services and people is really the key,” L a u r e n t c o n t e n d s “ I t ’s w h a t r e a l l y h e l p s u s t o c o n c e n t r a t e o n what we can do better and where we can get more value added. It forces us to get rid of what’s not really working for us, to move on from the things that really don’t need to be produced in the United States ”
Trade is vital, Rajan agrees: “Keep our borders open to trade, investments and people The United States has benefited tremendously from that. This is the wrong time to close borders.”
Despite their words of caution, our experts are bullish on America’s continued preeminence “I’ve been through more than a few of these economic down times,” says Brandt “There’s one thing that Congress and the President can’t do: Repeal the laws of economics For every boom, there’s a bust People thought the good times would never end; now they think the bad times will never end Our economy is resilient We will come back again ”
“The entrepreneur can still succeed here,” Crooks adds ”The United States is still better off, from a capital markets perspective, because risk capital is still available here That is in jeopardy because of what’s happened in the global capital markets, but as long as reasonable risk is allowed and encouraged, we’ll come out on top.”
That long-term view is admittedly hard when things in the short t e r m a r e s o t o u g h . A n d , i n f a c t , L a u r e n t i s e e s “ a b i g d i v i d e between two classes of people One says, ‘This period of recession is not pleasant and I need to make adjustments, but I’ll come out with the upper hand ’ This same pool of talent thinks this way: ‘I may have gotten metaphorically punched in the stomach by losing my job, but I’ve got talent and I’ll make new connections, learn something new and it will all come out even better than before ’ The second class of people is scared by this recessionary process. It only wants to deny reality and go back to the way it was in the jolly good old days But we cannot go back The price to go back means putting a lid on the whole economy and underperforming for years to come
“You cannot prevent history from going forward,” he adds. “You cannot insulate from the reality of the rest of the world I’m not being demeaning of this latter class; I know these are real feelings they have But they have the wrong reaction They’re giving into fear ”
“The US economy is going through a very tough recession,” says Rebelo “In the midst of this difficult period, it is easy to forget that t h e U S e c o n o m y h a s g o o d l o n g - r u n e c o n o m i c f u n d a m e n t a l s . These strong fundamentals have delivered steady growth and prosperity for the past 60 years ”
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Olympic Risk
What will the Olympic bid cost Chicago?
By Carolyn Tang
Ato Chicago 2016, the committee heading go’s bid to host the 2016 Olympic and ParGames, the city would benefit from “enoribility on the global stage” if it were to be u e f o r t h e s e p r e s t i g i o u s e v e n t s S u c h a n ted to enhance Chicago’s global reputation by highlighting the city’s cultural and educational institutions, strong business community and overall diversity. Tourism dollars would flow, the unemployment rate would shrink and the l o c a l p o p u l a t i o n i n c l u d i n g t h e c i t y ’s y o u t h w o u l d b e n e f i t f r o m t h e l o n g - t e r m u s e o f s t r u c t u r e s b u i l t t o h o u s e t h e O l y m p i c s “ T h r o u g h o u r l e g a c y o rg a n i z a t i o n , Wo r l d S p o r t Chicago, Chicago 2016 is already making an impact on the city, introducing thousands of kids to Olympic and Paralympic sport b y i n c r e a s i n g t h e s h e e r n u m b e r o f p r o g r a m s a v a i l a b l e a n d e n h a n c i n g t h o s e t h a t a l r e a d y e x i s t , ” s a y s P a t r i c k S a n d u s k y, spokesperson for Chicago 2016.
But at what cost?
“The cost of this bid, as near as we can add it up, is $5 billion,” s
Chicago, a coalition of activists that believes hosting the Games would not be the best use of funds, especially given the budgetary health of both the city and the state. “It’s a lot of money to spend to get some visitors here ”
Tresser ’s estimate may not be far off The Chi cago 2016 Economi c Impact Anal ysi s, a report commissioned by Chicago 2016 and issued in February 2009, lists the following costs: For temporary venue construction and operation, $994 million; Games planning and delivery, $2 4 billion; and Olympic Village construction, $1 2 billion Of this $1 2 billion, $100 million would be allocated to constructing the permanent portion of competition venues.
Despite the price tag, Chicago 2016 continues to project economic and financial benefits, with no risk to the taxpayer “Chicago 2016’s Games plan would be entirely privately financed, and no taxpayer dollars will be used,” says Sandusky. “Projections that have been the result of careful research put the cost of operating the Games, from building venues to hiring employees, at $3 3 billion, and estimated revenue from ticket sales to sponsorships at $3 8 billion ”
In fact, Chicago 2016’s report explains that the total incremental economic impact of hosting the Games is expected to be $22 5 billion Of that, $13 7 billion would be realized by the City of Chicago. This number includes total incremental revenues from all sources of income, as well as indirect business taxes and labor income This report, however, was based on preliminary estimates developed in late 2006 and early 2007 And indeed, with the Olympic/Paralympic Games seven years away, forecasting costs and benefits this far in advance is certainly a risky exercise, especially since the City of Chicago is not best known for accurate forecasting
“We’re talking about construction costs five years from now,” says Tresser. “This from the city that brought you Millennium Park overruns, the Monroe Street Parking Lot overrun, the Soldier Field overrun, and the overruns on O’Hare Airport going up to $10-15 million ” He believes that the potential overrun associated with Chicago hosting the Olympic Games would make those prior estimates look like “chump change.”
In response, Chicago 2016 officials point to the strong publicprivate partnerships in Chicago as proof that the city has what it
takes to host the Games Some criticize Millennium Park as being over budget Chicago 2016, however, says the scope of the project changed an issue that is not a concern for bid planners “Our Candidate File clearly outlines the costs associated with hosting the Games and the scope of this endeavor is very clearly defined,” says Sandusky
Olympic Games history, though, lends support to Tresser ’s concerns Dr Will Jennings is a research fellow at the University of Manchester, UK. His studies focus on governments’ and organizers’ management of risk in bidding for, planning and staging the Olympic Games He points out that there was a deficit of around $1 billion linked to the 1976 Montreal Olympics “The financial risks associated with hosting the Games can be significant. Over the past 30 years, staging costs have varied, but typically the final figures have far outreached initial estimates,” he says T
Olympics, due to be held in February of next year, is a case study that hits close to home. Fortress Investment Group, a New Yorkbased hedge fund, dropped financing of the Olympic Village after the city of Vancouver ’s credit rating was downgraded by Moody’s Investors Services in January Subsequently, Vancouver covered construction costs with a $100 million bailout loan. “And Vancouver must complete the Village They have to do it They have to go into debt and they have to do whatever needs to be done to satisfy the Olympic contract,” says Tresser
In addition to this obligation, the Canadian federal government indicates that the estimated $175 million cost associated with providing security for the 2010 Games has now soared to $900 million, more than five times the original projection Experts suggest that this increase is related to political issues, increased gang violence and potential protests.
Tresser also points out that the London Olympics, to be held in 2012, is over budget by $9 billion And, in fact, in May 2009, Tom Russell, the man who oversaw the development of London 2012’s Olympic legacy plan, left his post after less than 18 months on the job No reasons were given for his departure
Given prior history, Tresser is understandably worried when the Games’ track record is extrapolated to include Chicago 2016 “Our federal government is broke today. The State of Illinois is $12 billion in the hole. The City is $290 million in the hole,” he says. “Yet we can somehow find $86 million to buy Michael Reese Hospital, and they’re going to tear it down when we need more health clinics, we need more doctors, we need more places for people to go ”
“The apparent ubiquity of Olympic risk is an inevitable symptom of the increasing complexity of the physical and organizational structure of modern Olympic Games,” says Jennings “Risk casts its shadow through the potential contingency of public support and political and reputational risks attached for government and organizers ”
Chicago 2016 bid officials counter that their proposed Games plan is economically responsible and sustainable, even in today’s turbulent economic climate. “Chicago is fortunate enough to have t h e l a rg e s t c o n v e n t i o n c e n t e r i n N o r t h A m e r i c a a v e n u e t h a t would be utilized to its fullest potential if Chicago is chosen as h o s t c i t y, ” s a y s S a n d u s k y I n f a c t , M c C o r m i c k P l a c e w o u l d b e
home to 11 Olympic and 8 Paralympic sport competitions, and would be home to the Main Press Center and the International Broadcast Center “London is essentially building a facility that already exists today in Chicago,” says Sandusky
40 INSIGHT www icpas org/insight htm
a y s To m Tr e s s e r, c o m m u n i c a t i o n s c o o r d i n a t o r o f N o G a m e s
h e u n c e r t a i n t y a s s o c i a t e d w i t h t h e Va n c o u v e r 2 0 1 0 Wi n t e r
“There is no reason why this Games should not be ‘the best games ever ’ in keeping with the post-Olympic proclamation of the International Olympic Committee (IOC) in recent times. However, with continued growth in the scale and complexity of organizing the Games, this most recent installment may also be the riskiest yet,” says Jennings
J e f f O w e n i s a n a s s i s t a n t p r o f e s s o r w i t h t h e e c o n o m i c s a n d m a n a g e m e n t d e p a r t m e n t o f G u s t a v u s A d o l p h u s C o l l e g e i n S t . P e t e r, M i n n H e s p e c i a l i z e s i n s p o r t s e c o n o m y a n d p r e v i o u s l y studied the cost and benefits associated with the 2008 Olympic Games in Beijing
“Even if the Olympics could be part of a fiscal stimulus, the time delay between when you bid for the Games and when they are held is so long that you could never plan the Olympic building program for when the economy is slow,” he explains “The winning city is announced seven years in advance No one can forecast how the economy will be doing that far into the future.”
Owen states that there are several misconceptions associated w i t h f o r e c a s t i n g t h e e c o n o m i c b e n e f i t s o f b e i n g a n O l y m p i c Games host city Of these, one of the biggest is treating costs as benefits when trying to determine economic impact. “The expense of the stadium, which does include local labor and materials, is a cost It is resources devoted to one purpose that can no longer be used for something else,” he says
Owen also explains that, in many cases, the cost of constructing stadiums is largely comprised of hiring construction workers a n d p u rc h a s i n g m a t e r i a l s f r o m l o c a l s u p p l i e r s T h e s e c o s t s a r e o f t e n c o n s i d e r e d a b e n e f i t t o t h e l o c a l e c o n o m y A c c o r d i n g t o Owen’s study of the Beijing Olympics, which was published in The Industri al Geographer, “This is arguably the most egregious error in economic impact studies It is backward-looking in that it looks at the production aspect of the project and ignores the effect of the actual consumption of the product ”
Another example of cost being portrayed as benefit is the claim that winning the Olympic bid and hosting the Games would result in a decrease in unemployment Chicago 2016’s commissioned report states that 315,000 job-years would be created between 2011 and 2021.
O w e n s a y s t h a t a p e r i o d o f u n e m p l o y m e n t c a n r e d u c e t h e o p p o r t u n i t y c o s t o f t h e s t a d i u m b y u t i l i z i n g l a b o r a n d o t h e r resources that would not otherwise be employed, but, he adds, this is not a justification for the Olympics
“The Keynesian economic theory on which this is based is a macroeconomic theory The benefit of public spending exists no matter what it is spent on and should not be credited to a particular project,” he explains “Those resources could be spent on other infrastructure projects such as roads, etc.”
Tresser agrees, and says that funds from Chicago’s philanthropic community would be of better service to the local community if applied to other projects “In times that are so hard, when people are so stressed out, the economy is collapsing and the social safety network is completely frayed,” he says. “For Chicago’s philanthropic community to put their money into the Games is reprehensible
“The way you get economic growth is by building roads and infrastructure Build another El line Build a school These are the things that bring long-lasting benefits to a local economy,” Tresser adds.
He is also concerned that civic resources are being diverted toward bid preparation He suggests that the staff of Chicago 2016 is comprised of former City Hall employees who were reassigned
from Mayor Daley’s administration to run the Games Of note is Lori Healey, who was the Mayor ’s chief of staff, and is currently president of the Chicago 2016 committee. Earlier this year, Arnold Randall left his post as commissioner of the Department of Planning and Development to become director of neighborhood legacies for Chicago 2016 “So, essentially, the 2016 committee is an adjunct of the fifth floor of City Hall, just privatized,” Tresser contends
Chicago 2016 responds that having former city staffers on the team ensures that the bid’s proposed Game plan meets the needs of the city and its residents “Lori and others bring a tremendous amount of insight and expertise to the table that helps us put a beneficial legacy plan in place so that residents, and particularly youth, realize the long-term benefits of hosting the Games,” says Sandusky.
Tresser also argues that the city is redirecting resources from other offices to support the bid, without public approval “The Chicago Park District has signed a master contract with the committee basically turning over park land to be used for the Games should we get them, with no oversight, no discussion Washington Park, Douglas Park, Lincoln Park, Jackson Park and the harbors will all be turned over to the Olympic Committee for construction, more construction and complete disruption,” says Tresser.
According to the Chicago 2016 Committee, though, any disruption is worth it The committee points to its publicly available reports, in which one of the main benefits it touts is an increase in tourism dollars before, during and after the Games. In its February 2009 report, specifically, the committee references Games in Atlanta, Athens and Barcelona, and cites relevant financial gains:
n Atlanta: “[C]urrently has almost 280 more international businesses in the region than it did prior to the 1996 Games ”
tourists visiting Greece increased by 5 6 percent and 8 4 percent in 2005 and 2006, respectively ”
n Barcelona: “[F]rom 1990 to 2002, the number of hotels nearly doubled to 215 from 118, and the number of overnight stays grew to 8.7 million.”
As both Tresser and Owen point out, however, this may not be the case for Chicago “Chicago’s economy, and its place in the world economy, is already well established. The Olympics are not n e c e s s a r y t o s p u r a n y i n f r a s t r u c t u r e i n v e s t m e n t , ” s a y s O w e n . “Instead they are more likely to divert resources away from more practical needs ”
Additionally, Tresser believes that the Olympics may dissuade companies from doing business in Chicago. “Research indicates that when the Games come to town, the convention business stays away Chicago is already a major destination for tourism, for both business and pleasure, but when it’s known that the Games are coming, all your convention business will avoid that time period,” he says.
While the fiscal viability of hosting the Games is still in question, Owen feels that the Olympics don’t have to be economically beneficial for people to support hosting them “Personally, I would find being in an Olympic city a fascinating and memorable experience, and would be willing to see some of my tax dollars go toward making that happen,” he says “As an economist, my point is not that a city should never want to host the Olympics, but that we should be more honest to local residents by saying, ‘If you want to be an Olympic city, you are going to have to pay for it ”
As the debate wears on, both supporters and naysayers anxiously await the looming IOC decision on October 2, 2009
www icpas org / insight htm AUGUST 2009 41
n A t h e n s : “ S i n c e t h e 2 0 0 4 G a m e s i n A t h e n s , t h e n u m b e r o f
technology
By Daniel Dern
Small businesses, whether they're CPA firms providing accounting services to clients or companies managing their own books, have to be cost-conscious and that extends to their choice of accounting and business software. S
that provides not only accounting, but also ERP, CRM and financial reporting. And you can’t get much cheaper than free.
Microsoft's free, downloadable Accounting Express [office.microsoft.com/en-us/accountingexpress]. "Our accounting needs were basic no employees," explains JAVA’s owner Jamie L Knoll "Recently, we upgraded to their professional system with f u l l - i n t e g r a t i o n c a p a b i l i t i e s p a y r o l l , i n v e n t o r y, e t c I t i s u s e rfriendly with great customer service, and has the basic software accounting components we utilize."
You can certainly purchase basic accounting functions affordably For $100 and under for a single-user, you can enjoy options like Microsoft Excel, or starter programs from Intuit or Peachtree While you can spend up to $13,000 for a 40-user license with, say, Peachtree Quantum, the company’s Product Marketing Manager Chris Claude points out that you can save dramatically on license and update costs by signing up for the Sage Accountants
u can get the latest version of Peachtree Quantum Accountants Edition, which otherwise would cost about 10 times that amount And you get support and training thrown in
www icpas org / insight htm AUGUST 2009 43
out these high-performance, low-cost software options.
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Who’s the Leader?
There are dozens, even hundreds, of accounting packages for small, medium and large businesses, including add-ons and industry specific products and versions. SAP, for example, has around 20 different manufacturing versions (Lists, links and reviews of many of these accounting/ financial management packages can be found at Accounting Software
World [www accountingsoftwareworld com/aswreviewtable htm] )
The biggest player by far, according to Ray Wang, VP of Forrester Research, Inc., is Intuit, with approximately 80 to 85 percent of the market, followed by Peachtree by Sage, with 5 to 8 percent of the market. Major names within the remainder include, in no particular order, Everest Software, IntAcct Corporation, Microsoft and NetSuite Inc Forrester is in the process of compiling a survey that will provide a big picture view of the most in-demand software packages.
In the meantime, an IDC survey that asked 1,000 small and mids
found that the most popular was "overwhelmingly Intuit in general and I
n p a r t i c u l a r, f o l l o w e d b y P e a c h t r e e a n d Microsoft Money," explains Ray Boggs, VP of SMB research at IDC. Interestingly, he notes, "Six percent still use Microsoft Excel "
"The reason that Intuit is overwhelmingly widely used is because it pioneered the idea of small-business accounting as a larger product, having all these other functions that a small business needs to better manage itself," says Isaac M O'Bannon, technology editor for The CPA
T e c h n o l o g y A dv i s o r [www cpatechnologyadvisor com] "Both Intuit and Sage have developed very tailored versions for specific industries, such as for retail, wholesale, nonprofits and construction "
For mid-sized companies, says Boggs, "The market is much more competitive, but Intuit is still number one And instead of Peachtree and Microsoft Money, it's Sage MAS90 and Microsoft Dynamics GP "
"As the company grows, small to mid-sized businesses should consider solutions like Sage Software MAS 90 and the Microsoft Dynamics product line," confirms Mickey Scheffki, CPA, partner, director of technology consulting at Clifton Gunderson LLP "These solutions offer more flexibility and cover all areas of business management They allow for solutions tailored to your specific business type
"Companies with extensive industry specific needs normally move to a variety of industry specific software products, like Deltek Vision, Sage MasterBuilder, Sage MIP and Sage Medware," she adds
In the enterprise space, based on worldwide revenues, the main players are SAP, Oracle, Sage, Intuit and Microsoft, with no one company having more than 20 percent of the market, Boggs comments
The Intuit Family
Taking a closer look at the top of the list, Intuit's family of products for a c c o u n t a n t s i n c l u d e s Q u i c k B o o k s P r e m i e r A c c o u n t a n t , w h i c h p r ovides all-in-one bookkeeping, write-up and financial reporting tools, starting at $399.95.
"Productivity improvement and practice growth are accountants' highest priorities today," says Sanjiv Waghmare, VP of customer user experience at Intuit
New features added in QuickBooks Premier Accountant 2009 to meet this demand include Client Data Review, which serves as a “detective tool” to find and fix errors in clients' books, saving accounting professionals many hours of tedious and time-consuming work. Also, Intuit Statement Writer enables accounting professionals to easily create and
44 INSIGHT www icpas org/insight htm
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update professional-looking financial statements, saving them hours of time in each engagement
Premier Accountant includes all related Intuit 2009 accounting programs intended for use in concert with clients For example, Simple Start, Pro, Premier and the Premier industry specific editions allow an accountant to access the same screens and features as his or her clients.
The Peachtree Advantage
"We offer 10 'flavors' of Peachtree, ranging in cost from $99 to around $13,000," explains Claude "Peachtree First Accounting, MSRP $99, is suitable for small businesses with basic accounting needs, or someone currently using paper or Excel Peachtree P r o i n c l u d e s i n v e n t o r y a n d p a y r o l l s u p p o r t a n d a d d i t i o n a l reporting tools, and is good if you deal with employees or 1099 c o n t r a c t o r s . P e a c h t r e e Q u a n t u m s u p p o r t s u p t o 4 0 u s e r s , c a n handle larger transaction volumes and perform faster, and provides additional security "
Peachtree offers two products specifically for use by accountants: Peachtree Premium Accountants Edition and Peachtree Quantum Accountants Edition "The Accountants Editions will allow an accountant to access any other Peachtree product in that same release, so whatever version an accountant's clients are on, the accountant can work with them, look at their data, open and edit, etc.," says Claude.
Given the disparity in market share, it's worth asking what in particular Peachtree offers that Intuit doesn't. Differentiators from Intuit products, according to Claude, include security features like peruser audit tracking and lock-down after two years "We are known for our inventory management solutions," he says "For customers looking for strong accounting and/or business management, but who also carry heavy inventory, we have a niche for them "
Microsoft Flexibility
Not surprisingly, Microsoft has a number of accounting products, including Microsoft Office Accounting Professional and Microsoft Office Accounting Express 2009 (which integrates with Office), plus other small-business through mid-market offerings like the Microsoft Dynamics products
"Some companies are technically small but have more complex processes and need something like this, or other mid-level programs like QuickBooks Enterprise," says O'Bannon "These offer greater inventory controls, more user capabilities, more pricing structures and geographical support for multiple locations."
Software as a Service
A c c o u n t i n g p o w e r i s n o w a v a i l a b l e n o t o n l y a s s o f t w a r e y o u install or websites you browse, but also as SaaS (Software-as-aService) solutions, accessed through your network connection
Business SaaS offerings from NetSuite (www netsuite com), for example, are aimed at businesses rather than accountants, specifically, and include accounting, CRM (Customer Relationship Mana g e m e n t ) , e C o m m e rc e , i n v e n t o r y m a n a g e m e n t a n d E R P. T h e s e offerings support a variety of languages and currencies.
IntAcct’s [us.intacct.com] IntAcct Accountant Edition, a cloudbased accounting system "designed specifically for CPA firms and t h e i r s m a l l - b u s i n e s s c l i e n t s , " i n c l u d e s g e n e r a l l e d g e r, a c c o u n t s payable and receivable, cash management, financial reporting,
order entry, purchase order, analytics and dashboards The only financial management solution endorsed by the American Institute of Certified Public Accountants (AICPA), IntAcct Accountant Edition starts at $60 a month.
What’s Best for You?
T
o p accounting software products," says J Carlton Collins' Eval uati ng Accounti ng Software. Collins offers seven steps for basic evaluation of your accounting software options:
1 Print a financial statement to the screen
2 Customize a data input screen
3. Enter an inventory item.
4. Process a sales order.
5 Evaluate the account number structure
6 Drill down and around
7 Integrate to popular add-on report writers and tools
“If the product passes my initial review, then a more detailed evaluation is warranted However, if the product fails this test, I usually conclude that the product is not worthy of further consideration,” Collins explains
" M a k e s u r e t h a t t h e p r o d u c t y o u n e e d m e e t s y o u r b u s i n e s s requirements," stresses Wang. "The best ways to tell a good choice i s t o s e e w h a t y o u r c o m p e t i t o r s a r e u s i n g , a n d s e e w h a t t h e resellers for your industry are offering "
"In evaluating a set of tools, the cleaner, crisper and more focused your definition of the functions you need, the better solution you'll be able to identify," states Bill Hurley, managing partner in the Downers Grove, Ill office of national CPA firm Barsema, Tuzik & Hurley, Ltd "Buy according to that specification, recognizing that you won't get a 100-percent solution."
Also look beyond accounting to what else the tools can do for your business, says Scheffki "Companies are looking to their data and the programs that create and access it to (also) provide CRM, inventory and other functions that really help them run their business. The accounting aspect is essential, but businesses want to do more with their data; they want this system to be business management rather than just accounting "
For example, says Scheffki, "Deltek Vision, which is for projectbased consulting organizations like architects and engineers, managing people and resources, doesn’t just do accounting, but also does project management, cost allocation, milestone tracking and other tasks This is where the real value to the business is "
I n s o m e c a s e s , s p e c i f i c f e a t u r e s w i l l d r i v e t h e d e c i s i o n F o r i n s t a n c e , " I f y o u ' r e d o i n g h i s t o r i c a l f o r e n s i c a c c o u n t i n g , u s i n g QuickBooks allows you to extract all transactions beginning with the first entry," says John Tyler, president of Cambridge, Massbased Tyler Lynch PC "You can then export the data to Excel and engage in data-mining techniques. This way you can easily reach back to prior years' details."
And when evaluating price, remember that, as with any acquisition, it's not the price but the TCO (Total Cost of Ownership) that matters, as well as the value delivered A low price can easily be overshadowed by the length of time it takes to install, and the need f o r e x p e n s i v e s u p p o r t o r p r i c e y a d d - o n s A h i g h e r p r i c e c a n quickly pay for itself if it makes tasks go quicker, increases productivity, or gives you access to higher-value features
www icpas org / insight htm AUGUST 2009 45
h e r e a r e " o v e r 4 , 4 0 0 c o m m o n f e a t u r e s f o u n d i n t o d a y ’s t
Lookatour DNA
WeareKUTCHINS,ROBBINS &DIAMOND,LTD.,agrowing
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Different, Newand Attractive–our DNA
Di fferent Handsonresponsibility/Consistent firmgrowth/No“killerhours”
New Entrepreneurialspirit/ Highlycomputerized/internetbased software (state-of-the-artequipment) / Charitableinvolvementatbothfirm andindividuallevels
A ttractive Friendlyworkenvironmentwithgood workspace/Fullystockedkitchen yeararound/Greatbenefitsand compensationpackage
Wehaveopeningsinouraudit andtaxdepartmentsforthe rightprofessionalswithtwo ormoreyearsofexperience.
Contact: AlKutchins,CPA 847-240-1040x135 akutchins@krdcpas.com
VALUATION OF YOUR CLIENT’S BUSINESS OR PRACTICE
By: Crandall & Brackett, Ltd. (630) 653.7922
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Our only service is performed on your behalf in a mutual engagement setting From basic research to a full valuation, we tailor our services to your needs We author, teach and participate on policy setting committees and boards within the valuation profession
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We a re co nsu lta nts no t b ro k e rs Realizing full practice value may depend on knowing the difference Our experience of 900+ successful closings help you know your options Valuations, Transaction Assistance, Transition Strategies, Documentation, Consulting, Introductions FREE REPORT on strategies for your succession plan and additional information available at www.transitionadvisors.com. We also assist in growing through merger/acquisition confidential reference Joel Sinkin or lon goforth: 312 251 1775, e-mail: info@transitionadvisors com
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46 INSIGHT www icpas org/insight htm A D V E RT I S E R I N D E X PA G E ADVERTISER ONLINE Visit these websites for more information on the services and products provided by advertisers featured in this issue of INSIGHT 15 1st Global Inc 1stglobal com 11 Accounting Practice Sales accountingpracticesales.com 37 AICPA Insurance Trust cpai com/lifeil 13 Alliant Credit Union my alliantcreditunion org/ilcpa 7 Audimation Services Inc audimation com 1 Bisk Education CPEasy CPEasy com/Insight Back Cover CCH cch.com 3 Garelli Wong garelliwong com 25 Institute of Management Accountants imanet org 17 Marsh Affinity Group Services cpainsure com 9 National City nationalcity com/cashflow 27 Professional Advisors Alliance professionaladvisorsalliance com Inside Front Cover Robert Half International rhi com 19 Sure Payroll surepayroll com 29 Warehouse Direct warehousedirect com BUSINESS SERVICES
MERGER/SALES
2009 is a CPE Reporting Year
Licensed CPAs need 120 hours of CPE* by September 30, 2009. *Must include 4 hours of Ethics
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CPE
Volunteer Consultants at the 2009 Creative Chicago Expo
On April 5, 2009, more than 5,000 members of the Chicago creative arts community participated in the 6th Annual Creative Chicago Expo hosted by the Chicago Cultural Center This was the first year that the Expo included a “consultathon” for artists and arts -based nonprofit organizations, and the Illinois CPA Society was invited to participate
t a n t s S u s a n B u d a k , To n i
i p r i z i o , C l i f f S h a p i r o a n d N a n c y Wa l l a c e w h o m e t i n d i v i d u a l l y with artists and nonprofit organizations with questions about financial management, taxes, financial reports and accounting standards for nonprofits
Pl ease note: W e have done our best to compi l e the ful l l i st of vol unteer names However, i f we mi ssed anyone, we deepl y regret the omi ssi on For more i nformati on about these or other vol unteer opportuni ti es, pl ease contact Ji l l W i l es, communi ty servi ce manager, at 312.993.0407 ex t. 277 or wi l esj @ i cpas.org.
Tax Help For Low-Income Families
More than 150 Society members contributed over 4,200 hours of tax preparation service at tax preparation sites hosted by the Center for Economic Progress throughout the state. Volunteers prepared income tax returns for low -income individuals and families, giving a helping hand during difficult financial times A thank you to our many volunteers, including:
Danielle Aeschbacher
Monica Aguirre
Bruce Aiello
Richard Bail
Craig Ball
Stephanie Bass
Kevin Beatty
Vanessa Bechtel
Mary Berndt
Katerina Bolbas
Antonino Bondi
Jeff Brashares
Diego Bullon
Jennifer Bunjes
Alva Butenaite
Gina Chang
Veronica Chavez
Shelly Christensen
Clint Costa
Jason Crider
Rita Crim
Michael Cross
Marilynn Crossman
Thomas Dammrich
Martha Davidson
Benjamin Davidson
Pedro Diaz de Leon
Jerry Dillenburg
Kathleen Donahue
Donald Duszynski
Bill Eaga
William Erdmann
Shawn Erickson
Gregg Ferlin
Arcelia Flores
Ann Fox
Sheila Frisk
Mary Geoghegan
oseph Gerharz
Olga Gesell
Jason Gill
Margaret Glynn
Larry Goldstein
Sheila Grabowski
Chad Grosam
Myrna Guadarrama
Catherine Haener
Pauline Halgas
Kenneth Harris
Pam Hays
Curtis Helwig
Alan Hemminger
John Hodge
Andrew Hoffman
Russell Holmgren
Larsenia Horton
Shiann Hotopp
Justin Howard
Nenif Ibrahim
Gerard Inguagiato
Hiromi Ishii
Donald Jacobsen
Faris Jafar
Ramdev Jagarlamudi
Kimberly James
Larry Johnson
Anthony Jones
Jennifer Wolf Keen
Susan Keith
Sylvia Kellogg
Carol Kelly
Gerald Kerns
Jerry Kibe
John Kintner
Drew Kipfer
Cynthia E Kirk
Brenda Kirkpatrick
Nathaniel Klose
Tom Kotlarczyk
Elizabeth Krah
Judith Kranjc
Matthew Kroll
Robert Kuehnau
Gary LaBedz
Hoang Lam
Jane Liang
David Lilek
Elda Lopez
Marnell Love
Phil Lovell
Amanda Lowry
Winnie Luk
Ming Mac
Rose Marie Mack
Dan Malone
Anderson Manuel
Ghadir McCauley
Rebecca Mesplay
Gerlanda Miller
Sandra Minard
Somya Munjal
Robert Murphy
Tiffani Muse
Gary Neumayer
JoAnne Nudelman
John O' Hara
Larry Owens
Anna Panagos
Maria Daisy Paule
Jaime Peters
Carla Peterson
John Petrone
Elizabeth Phelps
James Plucinsky
Constance Pocock
Elizabeth Pritchard
Lisa Racioppi
Roger Randolph
Jessica Reed
Jeanine Reiss
Chris Remitz
Roxanne Reyes
Susan Riordan
Joe Rose
Judith Ruhlig
Mark Rusiewski
Warner Russell
Ponni Shanmuganathan Nainar
Karen Sider
Edward Skoczylas
Frank Smoczynski
Linda Stawicki
George Sterling
Randi Stewart
Muthuswamy Sunder
Marites Sy
Brandon Thompson
Yi-Shan Tian
Annette Tomal
Carol Tuck
Graziella Umlauf
Sean Wallinger
Ralph Weiland
Theodore Weitzel
Emily Wells
Leslie Williams
Dorthy Willis
Ann Withey
John Wright
Anne Yates
Annie Yeh
Martin Zeidman
48 INSIGHT www icpas org/insight htm
TIME TA
A S H O U T O U T F O R T H E E F F O R T S + E X P E R T I S E O F I L L I N O I S C PA S O C I E T Y M E M B E R S
L E N T
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September 8, 2009 - Chicago, Illinois
Executive Roundtable Series: The Transformation of Finance from Watchdog to Strategic Business Partner
Mike Muldoon - President, Muldoon Consulting, Inc and Professor, Lake Forest Graduate School of Management
September 9, 2009 - Chicago, Illinois
Astute Cash Flow Management: Im p ro ving Co m p a ny Va lu e
Marian Powers, PhD - Adjunct Associate Professor, Kellogg School of Management, Northwestern University
September 14, 2009 - Northbrook, Illinois
September 16, 2009 - Chicago, Illinois
September 21, 2009 - Oak Brook, Illinois
BREAKFAST SERIES : All Cu sto m ers a re N OT Crea ted Eq u a l
Thomas L Zeller, PhD, MBA, CPA - Professor of Accountancy and University Scholar in the School of Business Administration at Loyola University Chicago
September 25, 2009 - Rosemont, Illinois Midwest Financial Reporting Symposium
October 16, 2009 - Chicago, Illinois
Implementing FIN 48 for Privately-Held Companies
Mark A. Sellner, CPA, JD, LLM (taxation) - Graduate Tax Professor in the Master of Business Taxation Degree Program at the University of Minnesota’s Carlson School of Management
December 15, 2009 - Chicago, Illinois
Strategic Cost Analysis: Tools for Lowering Your Com pany ’s Costs
John W Hill, PhD, MBA, JD - Arthur M. Werner Chair in Business, Kelley School of Business, Indiana University
February 5, 2010 - Chicago, Illinois
Strategic Risk Management: Aligning S trategy and Perform ance Measures with ERM
Mark Frigo, PhD, CPA, CMA - Director, The Center for Strategy, Execution and Valuation, Kellstadt Graduate School of Business, DePaul University
The Center for Corporate Financial Leadership is a service of the Illinois CPA Society making your life easier www CCFLinfo org
upcoming events
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