Insight Magazine - July 2009

The Magazine of the Illinois CPA Society

www.icpas.org/insight.htm | July 2009

In this issue Make your investments recession-proof Nonprofits struggle in a down economy Overseas assignments jet propel careers Twitters, blogs and Facebooks hit the office Supply chain muscle wrestles hard times Women in public accounting hit the glass ceiling Get creative to save on training dollars Find a new definition for recession era success Tax changes impact US small businesses Ira Solomon CPA, PhD takes a bow

investor search Businesses get creative in their hunt for everelusive funding

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features 30

Desperately Seeking Investors

By Sheryl Nance-Nash Businesses are searching high and low for scarce investment dollars.

34

Capital Conscience

By Derrick Lilly Nonprofits are feeling the pinch.

38

Recession-proof Investments

By Carolyn Tang We’ve seen the collapse of glorified investment houses, government takeovers of bereft corporations and a steep downturn in the markets...Given these conditions, the question of where to put your investment dollars is a heady one.

columns

index July 2009 Vol.58 No. 8

6

The Chair

Lee A. Gould, CPA/ABV, JD, CFE, CFF

Incoming Society Chairperson Lee A. Gould shares his hopes and aspirations for the year ahead.

12

Career

Jet Set

By Cecily O’Connor Working abroad can fast-track you to the top.

14

Technology

Twitterblogiverse

By Allison Enright Can you social network your way to business success?

16

Supply Chain

Heavy Lifting

By Selena Chavis Build a strong supply chain to wrestle a weak economy.

20

Diversity

Accounting Women

By ICPAS Women’s Executive Committee Why hasn’t anything significantly changed for women in public accounting leadership roles?

24

Development

Goodbye Training Program?

By Renee Beckman, CPA Don’t bid adieu to your staff development dollars quite yet. Find budget-friendly training alternatives instead.

26

Strategy

Set the Standard

By Dean K. Matt, CPA

www.icpas.org /insight.htm

How do you define success in an uncertain economy?

28

Tax

Small Biz, Big Impact

By Harvey Coustan, CPA Tax act provisions could mean significant changes for the nation’s small businesses.

regulars 4

First Word

8

Seen+Heard

42

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FIRST WORD

T

Publisher ICPAS President & CEO Elaine Weiss, JD

he economy tanked, the stock market crashed,

the unemployment rate soared, the real estate

sector collapsed. Bernard Madoff was caught in

Editor-in-Chief Publications Director Judy Giannetto

the biggest Ponzi scheme in recent history and major banks and investment firms with distinguished names and

Creative Services Director Gene Levitan

records of success disappeared overnight. Other than that, Mrs. Lincoln…it was a quiet year.

Creative Services Manager Rosa Garcia Publications Specialist Derrick Lilly National Sales & Advertising Stephanie Bunsick The YGS Group 1808 Colonial Village Lane Lancaster, PA 17601 Phone: 1.800.501.9571, ext. 137 Fax: 1.717.390.9891 stephanie.bunsick@theygsgroup.com Information Systems Manager Jim Jarocki jarockij@icpas.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 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 advertising 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 representation 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 implied, and assumes no responsibility whatsoever for damages incurred asa result of delays in delivering INSIGHT. INSIGHT (ISSN-1053-8542) is published bimonthly 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, Illinois CPA Society, 550 W. Jackson, Suite 900, Chicago, IL 60661, USA.

INSIGHT AWARDS 2008 2007 2006 2006 2004 2004 2002 2002 2001 2001 2000 2000

4

Apex Award, Magazine & Journal Writing

Despite the historic and tumultuous year, with its economic turbulence and significant impact on savings and investments, I am gratified to report that the Illinois CPA Society ends its own fiscal year on solid ground, bolstered by its strong leadership, active membership and professional commitment to serving the CPA community and the public at large.

Under the impressive leadership of Sheldon Holzman, the ICPAS calmly navigated through the year, serving the needs of our members in a rapidly changing business environment. We developed programs to address the increasing number of members who found themselves facing career transitions in uncertain times. Our Town Hall forums around the state saw increased turnout as members were anxious to stay up-to-speed on professional issues and to maintain contact with professional colleagues.

The media turned to the ICPAS for assistance in unraveling the economic complexity of the world around us. From the President’s economic stimulus plan to the Governor’s budget proposal, the media now seeks ICPAS members to provide the context, quotes and background to make sense of financial developments and the day-to-day world around them.

The emerging issue of International Financial Reporting Standards captured the attention of the CPA profession this year. The ICPAS provided programs and resources to help our members get up-tospeed on the wide range of issues corresponding to IFRS. Our public service efforts increased this year, as CPA members gave their time and expertise to assist people in critical need of financial assistance, from flood victims in Iowa to military personnel and their families around the state. The ICPAS also continued its outreach to students and young professionals, to engage them in service and social networking opportunities that will keep them connected to their professional community and ensure a future pipeline of smart, savvy CPAs in coming years. Our government affairs team worked hard to advocate on behalf of Illinois CPAs and finance professionals, leading our efforts in both Springfield and Washington, D.C. While the economy dominated our thoughts and activities in recent months, I believe the ICPAS ends the fiscal year on a positive note. Membership is up slightly over last year. Our operational budget

Magnum Opus Award, Best All-around Association Publication Apex Award, Magazines & Journals

to give their time and talents to serving the ICPAS even while their day-to-day work lives get tougher

Apex Award, Magazine & Journal Writing

and their own workforce challenges get greater. Make no mistake. The past year has been rough. The

Apex Award, Magazines & Journals Apex Award, Magazine & Journal Writing

stayed the course. The student pipeline into the profession remains robust. Our members continue

year ahead looks to be challenging. But the ICPAS is prepared to meet the challenge.

Apex Award, Magazine & Journal Writing Chicago Women in Publishing Excellence Award, Writing/Editing Apex Award, Feature Writing

Today you can link-in, twitter, friend us or just show up at an old-fashioned seminar. The ICPAS stands ready to serve. In a very tough year, I want to thank the staff and the volunteer leadership for stepping up to the plate and serving the CPA community with energy, expertise and enthusiasm.

Apex Award, Best Redesigns Apex Award, Magazine & Journal Writing Apex Award, Best Rewrites

INSIGHT www.icpas.org/insight.htm

Elaine Weiss, JD, ICPAS President & CEO

Was it simply an

oversight?

Renew your Illinois CPA Society Membership Today.

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THE CHAIR

I

IC PAS OF FIC ERS Chairperson, Lee A. Gould, CPA/ABV, JD, CFE, CFF

t is with great pride and respect for those who have held this position before me that I embark on my year as chair of the Illinois CPA Society.

When I began my professional career as a young auditor (and, might I add, naïve; but, of course, with a dose of healthy skepticism imbedded in me by my auditing professors at the University of Illinois), I had dreams and ambitions of a career in public accounting as an auditor. Although my career path has dramatically changed from my initial years in public accounting (for those whom I have not yet had the privilege to meet, I am now on the consulting side of the profession), I am an auditor at heart and remain a very proud CPA.

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

IC PAS BOAR D OF DIRECTOR S Brent A. Baccus, CPA Washington Pittman & McKeever Therese M. Bobek, CPA PricewaterhouseCoopers LLP William P. Graf, CPA

As a longtime member of the Illinois CPA Society, I value all that I have learned as a volunteer on various Society committees and special interest groups, and during my tenure as a Board member. As a result of these contributions, I have learned how the Illinois CPA Society affects and enriches our profession.

Although the ICPAS strives to proactively meet the needs of our membership, and is one of the most respected contributing state societies to the AICPA, we need to continue to grow and evolve. To accomplish that end, the Board of Directors and the ICPAS undertook a Board Governance initiative that began three years ago. The initiative’s purpose is to align the ICPAS with the best practices in nonprofit governance, and create a strategic mission-focused agenda. Our focus includes, among other goals and objectives, to:

Deloitte & Touche LLP n

Kelly J. Grier, CPA Ernst & Young LLP Cara C. Hoffman, CPA

n

Blackman Kallick LLP n

James P. Jones, CPA

n

Anchor and align the Society with its mission (“Enhancing the Value of the CPA Profession”) and ends policies (which describe the results the Society strives to accomplish in support of its mission).

Strengthen and grow not only our membership but also the involvement of all of our members, especially our young professionals (our future leaders).

Maintain and enhance services to our valued membership.

Embrace and nurture the growth of diversity within the profession and the Society.

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.

As a result of this focus, as well as the many other initiatives undertaken by the ICPAS on our behalf, I am very excited about the direction in which the ICPAS is headed.

The initiatives undertaken by the ICPAS are far too numerous to list in these brief remarks, but needless to say, their impact has been extremely positive. However, I believe we must continue to improve and enhance the value of all CPAs. Part of that goal—the need to increase the diversity of our membership and persuade a wide range of minorities to join our noble ranks—remains a priority. I am proud of the ICPAS’ outreach programs and initiatives currently in place, and am deeply pleased with and excited about the diversity initiatives currently being developed in partnership with the CPA Endowment Fund.

I look forward to beginning my year as chair. Although I believe that the ICPAS will continue to make a positive impact on the profession, I encourage you to provide input and guidance on how we can better serve you.

To the numerous CPAs that I am already acquainted with, I hope to see you in attendance at one of several Society Town Hall Forums, conferences or seminars. I am eager to hear about what your CPA means to you and how we can further its value for you. To those of you whom I have not yet met, I look forward to meeting you to learn your personal story, and what being a CPA means to you.

Lee A. Gould, CPA/ABV, JD, CFE, CFF, ICPAS Chairperson

6

INSIGHT www.icpas.org/insight.htm

SEEN HEARD NEWS BYTES, SOUND ADVICE AND PRACTICAL BUSINESS TIPS

$11.6 billion

Compensation earned by the top 25 hedge fund managers in 2008.

Source: Institutional Investor/Alpha Magazine

Recession Changes Accountant’s Role While the US Bureau of Labor Statistics continues to report month-over-month job losses, accountants still see a strong job market due to International Financial Reporting Standards (IFRS), the Economic Stimulus Package and the overall need for financial analysis, budgeting and forecasting during the recession. Their responsibilities, however, are changing.

Ajilon Finance polled 688 finance and accounting professionals as part of the Institute of Management Accountants' Inside Talk Webinar Series, to gauge how the current economy is impacting jobs, companies and the accounting profession. According to the survey, 75 percent feel that the recession has changed their on-the-job responsibilities, with 59 percent citing more time spent on cost-cutting initiatives. Twenty-seven percent cited more time spent on risk assessment, a further 27 percent cited providing financial advice to their companies, and 9 percent cited a focus on regulatory work.

In the face of these changes, Ajilon offers finance professionals these tips: 1. Stay focused. It’s easy to lose sight of the most important task—fostering and growing business profitability. Finance managers should work closely with all stakeholders and anticipate their needs in the current economy.

2. Follow the stimulus. Company leaders should think about how this capital infusion will affect their company's business, in order to better prepare for market changes.

3. Pay attention to TARP. Companies should review their accounting and legal teams to ensure they have the necessary talent to handle increased government regulation should their business participate in the Troubled Asset Relief Program (TARP).

4. Reduce carbon footprints. An easy way to trim costs is to reduce office energy usage. Significant cost savings can be realized by turning off office equipment at night and switching off unnecessary lighting.

For more information, visit www.ajilon.com.

IFRS Inspires Mixed Feelings Grant Thornton LLP’s national survey of CFOs and senior comptrollers from public and private entities reveals that 49 percent believe US companies should be permitted to use IFRS instead of US GAAP for filing financial statements with the SEC. The remaining 51 percent, however, sits on the other side of the fence. Given the choice, 40 percent would choose to never use IFRS, while the rest are looking to bide time before implementation. Twenty percent said they would start using IFRS in 2011, 19 percent would prefer to start using IFRS some time after 2016, and another 18 percent favor 2014.

Visit www.grantthornton.com for more.

8

INSIGHT www.icpas.org/insight.htm

1.5 million

The number of accountants and auditors who will be employed in the United States by 2016.

Source: Bureau of Labor Statistics, Occupational Outlook Handbook, 2008-09 Edition

90 million

The best and brightest interns are at your fingertips.

The number of tax returns filed electronically this year; a new record, led by a big increase in people using home computers.

Source: Internal Revenue Service

The World’s Top 10 Business Risks Late last year, Aon began surveying business leaders from 40 countries in 31 industries to determine the world’s greatest emerging and escalating business risks. The recently released Definitive Report on Risk – Aon’s 2009 Global Risk Management Survey reveals that the top 10 most pressing risks are: 1. The economic slowdown. 2. Regulatory/legislative changes.

3. Business interruption. 4. Increasing competition. 5. Commodity price risk. 6. Damage to reputation. 7. Cash flow/liquidity risk. 8. Distribution or supply chain failure. 9. Third-party liability. 10. Failure to attract or retain top talent.

For more on the survey, visit www.aon.com.

Question Your Way to Success According to the Gallup Organization, determining why one organization, division, department or any other managerial unit is happier and more profitable than another comes down to the answers to these 12 questions: 1. Does everybody know what is expected of them?

2. Do they have the materials and equipment they need to do the work correctly?

3. Do team members have the opportunity to do what they do best every day?

4. In the last seven days, have they received recognition or praise for good work?

5. Does their manager, or someone else in the team, care about each individual as a person?

6. Does every person in the team have someone who encourages his or her development?

7. Does everybody's opinion in the team seem to count?

8. Is the company’s mission explained in such a way that the team feels its work is important?

9. Are all the people in the team visibly committed to doing quality work?

10. Does everybody in the team have a best friend at work?

11. In the last six months, has the manager talked to each team member about progress?

12. Does every person have the opportunities to learn and grow at work?

The questions and their ability to analyze managerial performance are documented in First Break all the Rules, by Marcus Buckingham (Simon & Schuster, 1999). [Source: Coaching for Leadership, coachingleadership.blogspot.com].

The Illinois CPA Society has made it easier than ever to identify the up and comers in the accounting profession.

Just visit the Illinois CPA Society’s Career Center and search student resumes to fill your next internship.

All across the state, Illinois CPA Society student members have uploaded their resumes for you to view online. These students represent the future of the profession and your guidance as a seasoned member of the profession can put them on the right track. These students are available for summer, fall or spring internships.

Search by various criteria, including: Geographic Location Timeframe Paid or College Credit Internships

Worries Linger Among Real Estate CFOs A recent Grant Thornton LLP survey of 28 CFOs and senior comptrollers from public and private companies in the real estate industry reveals that 93 percent expect commercial real estate values to continue their decline through the year. What’s worse, 63 percent report that their property tax assessments have continued to increase during the past three years.

Visit www.icpas.org and click on the Career Center.

Adding to the glum outlook is the fact that more than four-out-of-five (82 percent) real estate CFOs believe the US economy will remain in a recession through the end of the year; 75 percent expect it to remain the same or get worse during the next six months; and 39 percent expect layoffs at their companies.

Facing pricing pressures themselves, 71 percent of real estate CFOs are concerned about the cost of employee benefits, while 74 percent are cutting costs by not giving raises this year and refining and streamlining processes.

For more on the survey, visit www.grantthornton.com. www.icpas.org/insight.htm

July 2009

9

51 percent Decline in Q1 2009 IPOs compared to Q1 2008.

Source: Ernst & Young US IPO Pipeline study

Fast Track Back to the Manager’s Seat In a recent Robert Half Management Resources survey, executives polled felt that, on average, a senior manager could be out of work for nine months before his or her career prospects were adversely affected. If nine months seems too long a stretch, however, these five tips may help to speed the process.

1. Be flexible. Explore ways to apply your expertise in new areas and highlight your transferable skills.

2. Ne twork ef fectiv ely. Make sure your network includes people both inside and outside of your industry, and at various experience levels. Networking websites like LinkedIn can extend your reach even further.

3. Know the company. The more you can find out about a business’ strengths, weaknesses and corporate culture, the better you can tailor your resume to fit its needs.

4. Consider relocating. Be open to opportunities in other cities or states, particularly if your skills are highly specialized or few job openings exist locally.

5. Stay positive. Finding a management position can take longer than you expect, simply because there are fewer positions currently available. Try not to be discouraged, however, since you’ll wear away the very confidence you’ll need to win over recruiters.

For more information, visit www.rhi.com.

Cor rect ion: Please note that in the May/June 2009 edition’s Cutting Room article, Crowe Chizek should have appeared as Crowe Horwath.

Also, Mike Hillgameyer was intended to appear as Mike Hillgamyer.

10

INSIGHT www.icpas.org/insight.htm

Obama’s 2010 Budget & Illinois Under President Barack Obama’s 2010 budget, which strives to create jobs and boost the economy, Illinois will see a range of changes in healthcare, education, veteran affairs and infrastructure funding.

Highlights include: n n n n n n n

Tax cuts for 4.8 million families. $17.5 billion in small biz loan guarantees to get credit flowing. $4.5 billion in new funding for Pell Grants to help families pay rising college fees. $1.2 billion for schools, students and teachers.

A 2.9-percent pay raise for the 47,900 men and women in Illinois serving in our Armed Forces.

The establishment of a national Infrastructure Bank to fund Illinois infrastructure projects.

A $76.6 million investment in the federal HOME program.

n

$63.3 million for the Housing Choice Voucher program to help Illinois families find affordable, good quality places to live. n $643.9 million for state and local student achievement initiatives in low-income areas. n $119.1 million for teacher and principal training and recruitment efforts in high-need school districts. n $12.4 million for the state’s School Breakfast program and $55 million for its School Lunch program.

Source: WhiteHouse.gov.

Higher Pay is the Way to Play Overall, an increase in salary is the most popular means of compensation among 2,000 senior executives and managers, according to a worldwide NFI Research survey. The next most popular method is performance-based bonuses (16 percent), closely followed by more vacation time (15 percent). Almost half (49 percent) of respondents at large companies rank salary increases top, compared to 38 percent at small companies.

Visit NFIResearch.com for more survey results.

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CAREER

Jet Set Working abroad can fast-track you to the top.

By Cecily O’Connor

I

n 2003, Alan Jagiello was offered a position at Deloitte’s Brussels office to serve the needs of various large European manufacturing clients. Although on track to make partner back at home, the insights he gained into European markets by accepting the Brussels assignment prov-ed invaluable when it came to his later move up the career ladder.

“My career has definitely been enhanced, and I was able to progress faster as a result of my international assignment,” he explains.

Jagiello is now an audit partner in Deloitte’s Chicago office. He credits his overseas experience with broadening his professional network and providing him with opportunities to work on high-level engagements in the United States.

Working overseas can be one of the richest experiences of an accountant’s career. Relocating is never easy, but the chance to broaden tax and accounting experience on a global scale in places such as India, Mexico, China and Europe is hard to pass up.

In fact, all but three of 400 Deloitte professionals surveyed in 2008 said their overseas experience was so beneficial that they’d consider doing it again.

While it’s not a guarantee of advancement, “It can and often does position you ahead of your peers,” says Marilin Marzan, national human resources manager for Grant Thornton’s global mobility program, Chicago.

The impending adoption of International Financial Reporting Standards (IFRS)

12

INSIGHT www.icpas.org/insight.htm

and ongoing globalization will drive demand for accounting and finance professionals with international business acumen, according to a 2008 Robert Half International survey. About 71 percent of CFOs said overseas experience will be necessary for accounting and finance professionals five years from now—an increase from 56 percent in 2002.

In addition to the convergence of US GAAP and IFRS, the demand for international experience is being driven by factors such as client requests for multinational buy in, the need to maintain foreign relations with suppliers, and the desire to strengthen a corporate brand worldwide.

“As a firm, we have gone as far as to position mobility as one of our 10 global priorities,” explains Warren Smith, director of HR for Ernst & Young’s Midwest area, based in Chicago.

Opportunities for international assignment vary widely depending on the firm, and the current slowing of the global economy is taking its toll. Grant Thornton, for example, has seen a 10-percent drop in outbound long- and short-term assignments from last year, Marzan explains. The number of inbound assignments has decreased by about 40 percent. She expects to see a bit more slowdown before the number of placements turns around.

Nevertheless, executives do expect numbers to grow in the not-too-distant future.

Ray Lombardi, US managing partner of Deloitte’s Office of Global Deployment in Chicago, foresees the number of deployed Deloitte professionals increasing steadily over the next four years, with the number of US inbound and outbound assignments reaching 1,900 by 2012, up from 1,100 today. For all member firms in the Deloitte network, that number was around 1,500 last year, and is likely to grow to 3,000 by 2012.

Given current shifts in the accounting profession, now is the time for younger

professionals to plan for overseas development, says Louise Hraur DeSina, a director in the communications division of the American Institute of Certified Public Accountants (AICPA). “That plan will be your roadmap to get you where you want to be in the world,” she says.

She offers some tips: Ask “What do I want to achieve?” “Where would I like to live?” and “Would I prefer a long- or short-term assignment?” If you have a family, how will they feel about relocating? If you’re not currently employed, target job opportunities that offer multinational opportunities and start networking. Also get up to speed on international accounting issues. And pay attention to global trends. Specialty areas like forensics and corporate compliance are becoming hotter and hotter in the march towards increased financial transparency. The green movement is also noteworthy as more accountants deal with environmental reporting requirements on a global platform.

As you look ahead, however, be prepared for fierce competition amongst assignment candidates, says Smith. Ernst & Young, for one, will likely become even more discriminating in selecting global deployment candidates “to ensure we have the right roles and the right people on assignment.”

Generally speaking, what are firms like Ernst & Young looking for? Strong leadership and organizational skills, technical knowledge and a demonstrated interest in working with other cultures. Professionals who are bilingual and are familiar with another country’s tax, compliance, legal and regulatory issues also are extremely attractive as overseas assignment recruits.

Long-term assignments typically last a year or more, while short-term stints can range anywhere from a couple of weeks to a couple of months. It all depends on client needs and the scope of work involved. Firms such as Ernst & Young also offer volunteer programs abroad, through which professionals can assist an entrepreneur in an emerging country.

Most important in your hunt for international opportunities is communication of your desires to the people at the top. Talk to partners about their overseas experiences, tell them about your international aspirations, offer to work on international projects while you’re still stateside, and learn all you can about the technicalities of the global financial landscape.

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JULY 2009

13

TECHNOLOGY

Twitterblogiverse Can you social network your way to business success?

By Allison Enright

B

Twitter Hits the C-Suite Twitter is being used by almost a third of senior executives for business purposes, according to a new worldwide NFI Research survey. A fourth of senior executives, specifically, say they tweet, while two-thirds of senior executives and managers combined use LinkedIn for business purposes. A further 26 percent use blogs and 22 percent use Facebook. What’s more, the survey reveals that more small companies versus large companies use social networking.

Visit www.nfiresearch.com for more.

14

usiness used to be done with a handshake. Sometimes, it still is.

But for a growing number of potential customers, the majority of research, referrals and recommendations are being done by virtual rather than physical word, via social networks like LinkedIn, Facebook and MySpace.

LinkedIn, a social network for business professionals, attracts nearly 69 million monthly unique visitors, according to web analytics firm Compete Inc. Facebook, one of the largest general-interest social web communities in the world, has more than 200 million active users (as of April 2009).

More than half of that number log on to the network every day, sharing more than a billion pieces of content each week, according to Facebook research findings. Blogs, in which readers can respond to content posted by blog authors, numbered more than 112 million in 2008, states web research firm Technorati. And 33 percent of US Internet users say they read them.

The unbridled growth of these communication outlets has compelled a sea change in the way businesses communicate. From sole practitioners to large corporations, participating on the social web scene has become a near essential.

“People need to wake up to this whole thing,” says Nathan Egan, founder and managing director of social web consultants, the Freesource Agency. “Get involved and take it seriously.”

For those who are tempted to shrug off the idea of social media as something just for teens and twenty-

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somethings, consider this: The fastest-growing user group on Facebook is women over 55, which grew almost 550 percent in just six months. The 25 and under crowd grew by less than 20 percent. LinkedIn users have an average of eight years’ work experience, and 23 percent of MySpace’s 65.1 million active members in the United States are aged 35 years and older. You do the math.

Egan says the benefits of active participation in social media sites like LinkedIn can be huge. Imagine, for instance, that you’re a sole practitioner connected to your clients via a virtual network. If you were to ask a satisfied client to write a recommendation for you, that recommendation would be broadcast to not only your connections, but those of your client as well. That’s invaluable free marketing.

“If a CPA has 30 recommendations and they are all from clients, who is going to get the look or the nod? It’s going to be the person with the most recommendations,” Egan explains.

Business professionals also can participate in LinkedIn Q&A forums, where they answer questions posed by the LinkedIn community. Whenever you answer a question, that answer appears on your profile page. The more questions you answer, the greater your credibility, says Egan.

What’s more, members can join LinkedIn special interest groups, which help to further expand your network and build your reputation. Since LinkedIn is tied to the algorithms Google uses to return search results in general web searches, boosting a profile on the network can increase a CPA’s visibility to non-LinkedIn participants as well.

Individual self-promotion is one thing; however, putting yourself “out there” as an organization can be intimidating.

“It’s already tough for corporate executives to wrap their minds around social media,” says Valorie Luther, founder and CEO of Creative Concepts Consultants, a

PR and social media consultancy. “They are very leery of complete transparency, and are afraid of losing control. What I say to every business afraid of this is, ‘You can only gain control once you lose control.’”

Also consider the fact that, in an ultra-competitive market for talent, having a presence on social networking sites that are favored by young professionals may give your organization the edge it needs in the fierce recruiting game. KPMG and Deloitte, for example, both use Facebook and MySpace as recruiting tools for internships and entry-level positions, in addition to promoting their on-campus events.

Other companies have used social web technologies to enhance their brand and business. Wells Fargo & Company, for instance, is considered a pioneer in bringing the social web to financial services, says Luther. The bank launched its first blog in 2006 and now supports five. It further developed an online virtual world game called Stagecoach Island [blog.wellsfargo.com/StagecoachIsland], which targets teens with a message about fiscal responsibility. It also communicates via MySpace, Facebook and Twitter.

“In every channel you can find your next consumer, an individual who is interested in hearing your brand’s message,” says Luther.

As far as blogs go, though, Wells Fargo may be the exception rather than the rule. In fact, less than 15 percent of Fortune 500 companies maintain a corporate blog, according to PR firm Burson-Marsteller’s blogging index survey.

Nevertheless, blogs represent an easy entrée into the world of social media, and are a great way to build your personal brand and raise your profile to potential employers. “Recruiters are using blogs to help to understand their potential employees. If there is a blog out there written by a candidate, they read it,” Egan explains. “It can really help to make a distinction between you and the guy next to you who doesn’t have a blog. That level of transparency makes it easier to make a judgment call if they are going to hire.”

Some companies are going so far as to establish unique web spaces apart from their main portals to help to promote their brand. In February 2009, for example, Boston-based insurer Liberty Mutual launched the Responsibility Project [ResponsibilityProject.com], which combines blogs, videos and forums designed to stimulate conversations about personal financial responsibility. The site is a hybrid of consumer-generated content and content sourced by Liberty Mutual.

“Consumers today want to engage in conversation with companies and other consumers, not be spoken at through corporate press releases and glossy ads,” says Luther. “Social media works because it is all about relationships.”

Zecco, a low-cost stock brokerage, launched ZeccoShare, a social community for investors, late in 2007, making it a key part of their customer acquisition and marketing plan. It now boasts more than 230,000 members that use the community think-tank to develop and manage their portfolios. ZeccoShare allows investors to show off their profiles and trade wins. Members also can join specific groups to participate in discussions on topics like socially responsible investing or diversity in investing.

No matter how deeply you decide to wade into social networking waters, be aware that the systems only work if you are actively engaged in them. “People say, ‘I joined LinkedIn but it didn’t do anything for me,’” says Egan. “Well, it’s not going to do anything for you unless you make it work for you.”

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by September 30, 2009. *Must include 4 hours of Ethics CPE

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JULY 2009

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15

SUPPLY CHAIN

Heavy Lifting Build a strong supply chain to wrestle a weak economy.

By Selena Chavis

I

n a global economy that is uncertain at best and plunging into a deeper chasm at worst, the concept of a strong and costeffective supply chain should be at the heart of every company’s agenda. At least, that’s what a recent DSC Logistics survey says.

“We’ve seen that trend evolving for many years. Companies by and large certainly realize now that there is a lot of money and saving at stake in the supply chain. The recent challenges have been focused around the drastic changes that have occurred in a short period of time,” says DSC Logistics VP of Customer Care Scott Morgan, adding that every year, the financial professional’s role becomes more prominent in this process.

We are in the midst of an era marked by extreme changes in fuel and material costs, lower consumer spending, tightening capital, growing pessimism and fluctuating exchange rates. The challenges of building a strong supply chain are piling up, says Dave Pittman, US lead for PricewaterhouseCoopers’ Operations practice. “There is an absolute change in cost culture since the first of the year, and it increases daily. It’s really en vogue to reduce costs,” he says.

The dynamic nature of the economy, where fuel prices may reach more than $4 a gallon one summer and drop to nearly half that the next, make flexibility and the

16

INSIGHT www.icpas.org/insight.htm

ability to adapt quickly critical components of effective supply chain strategies today.

“Changes have been abrupt, forcing companies to be more adaptable,” Morgan explains. “Companies need to avoid getting locked into long-term contracts and leases.

Many companies are putting out transportation RFPs to go back and rebid contracts based on lower fuel costs, for example. It’s the right thing to do. You can find deals you didn’t dream about a year ago. If fuel costs are high, you want to be close to the customer. When fuel costs are low, you can afford to be further from the customer.

Being in a position to continually re-evaluate that is important.”

Pittman agrees, pointing to price drops in commodities such as steel, copper and cement in recent months. “There are a lot of companies going back to vendors to reduce costs,” he explains. “And there are mounting concerns over fluctuating exchange rates and the volatility of prices overseas as well.

People are looking at alternative suppliers that are closer to home.”

It’s not just about lowering costs, though; it’s also about keeping suppliers in play.

“When I talk to financial people, one of the concerns they have is supplier viability,” says Pittman. The current “here today, gone tomorrow” culture of startups and even mainstay businesses has many companies fearing that they’ll be caught off-guard if their main supplier closes its doors. “How do they keep their fingers on the pulse of the supplier?” asks Pittman.

It’s vital that companies use all the disparate pieces of information available to them to understand how economic conditions are affecting suppliers. “Look at all the different people touching suppliers in your company. How do you accumulate that information? Also important to this process is an understanding of who the company’s critical vendors are. A lot of companies haven’t gone through that exercise.”

While flexibility to make changes and renegotiate contracts is one means of strategic improvement, savvy companies are

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going a step further by identifying ways to shorten the distance between points along the distribution channel and maximize less expensive modes of transport.

“We’re seeing more attention being paid to shortening supply chains from overseas markets to more domestic locations,” says Pittman. “For example, many continue to produce in Asian markets, but with more emphasis on Asian customers.”

“I have seen a lot of customers looking at rail as a viable option.

People are considering rail from a greener or more sustainable point of view as well,” Morgan adds.

What’s more, supply chain efficiencies often are achieved by consolidating vendors or using a transportation partner. Pittman sees companies trying to use a greater number of common components in multiple products or models to consolidate vendor activity. Others eliminate the extra miles associated with moving products back and forth to and from a co-packer by handling value-added services where products are warehoused. Movement within the warehouse is also being scrutinized, since an enormous amount of time can be wasted by moving, storing and replenishing products.

“There are two things driving this movement,” Morgan explains.

“First, it costs more to send something to a co-packer. Second, the lead time for these types of requests is shrinking dramatically.”

Transportation partners may contribute to that lean, mean supply chain strategy, since they can “see where freight is moving between a number of different companies and come to the table with creative and collaborative solutions for working together.”

Looking further down the supply chain, ineffective inventory control can wreak havoc on profit margins, says Pittman. One

way to combat this is to simplify operations by reducing the number of SKUs or product offerings. “Fewer SKUs can lead to lower costs and improved customer service, and less slow-moving inventory,” he says.

Ever a balancing act, Morgan notes that it comes down to having the “right product in the right place at the right time” and pairing that effort against excess inventory. “Customers are trying hard to focus on obsolete inventory, trying not to hold on to it any longer than necessary. That’s always a challenge,” he acknowledges, adding that too much material means that valuable space is needed to hold unnecessary stock.

On the other hand, a scarcity of items may lead to lost orders.

What do you do then? Put pressure on suppliers to be more responsive when needs arise, says Pittman. When the demand is there, you need to be able to get stock quickly.

“Less demand lowers the amount of safety stock,” he says. “Free cash flow and lower inventories have become a focal point for highly leveraged companies. Lowering inventories while maintaining customer service often requires improved demand planning, more focus on sourcing, and increased communications with vendors. Consequently, many companies are currently looking more closely at their demand planning and sourcing capabilities.”

While complexities may be high and challenges may be mounting, Morgan encourages companies to take advantage of the opportunity to purge. With a nod to the business concept that “good companies get better in bad times,” he concludes that, “This is a great time to take a step back and revisit processes.

Make sure you are eliminating the waste.”

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DIVERSITY

Accounting Women Why hasn’t anything significantly changed for women in public accounting leadership roles?

Provided by the ICPAS Women’s Executive Committee

F

or seven years now, the Illinois CPA Society (ICPAS), through its Women’s Executive Committee, has explored the role of women CPAs in Illinois public accounting firms. And perhaps frustratingly, its recently released seventh survey finds that little has changed over the years.

The survey was distributed to 90 Illinois firms with 15 or more professionals. Its goal is to track the percentage of women at three levels of leadership—partner/principal; senior manager/manager; and senior/staff—as well as the percentage of women holding firm-wide leadership positions. The survey also gauges the effectiveness of initiatives and programs specifically targeted to women, with findings based on responses from both individual women CPAs (all are ICPAS members) and their respective firms.

Assessing the success of these initiatives and programs provides an evaluation of best practices for retaining and promoting women CPAs.

The Numbers While the percentage of women entering public accounting firms has decreased from 54 percent in 2003 to 49 percent in 2009, the number of women being retained at the senior manager/manager and partner/principal levels has slowly climbed from 40 percent to 43 percent and 15 percent to 18 percent, respectively, over this same time period. (See Figure 1 opposite for 2009-2006 data.) Admittedly, this is a slow climb, but a climb nonetheless.

That said, although the number of men and women in the most senior positions both increased in this year’s survey, the number of men continues to far outweigh that 20

INSIGHT www.icpas.org/insight.htm

of women in the partner/principal positions.

(See Figure 2 opposite.)

Leadership Positions There is a bright spot, however. The percentage of women in managing partner and executive management positions is a strong indicator of the growing acceptance of women CPAs in leadership roles among today’s firms. In this year’s survey, women represented 12 percent of firm/office managing partner positions, an increase of 2 percent from the previous year, which had been the high point of a steady 1-percent annual increase since the first survey was conducted in 2002.

The number of women in the most senior firm-wide leadership positions (namely, firm or office managing partners and executive management) rose to 19 percent, compared to 18 percent last year and a 10 to 13 percent range during the prior 5 years.

For the second year in a row, this leadership percentage is actually higher than the percentage of Illinois women currently in partner/principal roles. The increase over last year is due in large part to the rising number of women in the firm/office managing partner category. (See Figure 3 opposite.)

Although changes in management structure may cause some data inconsistencies from year to year, the increase in women holding executive management roles is a step in the right direction.

Women’s Initiatives Firms were asked to indicate which of nine workplace initiatives are currently in place at their firms, and to rate their effectiveness.

Separately, women ICPAS members at the same firms were asked to respond to identical questions and to identify which programs they would like to see implemented at their firms.

Eighty-two women and 52 of the 90 surveyed firms responded to these questions.

Both groups rated the following four initiatives as the most effective in retaining and promoting women: FIGURE 4

% of Firms - Rating

% of Women - Rating

Flexible Work Arrangements

57% - Highly Effective

45% - Moderately Effective

Mentoring Programs

57% - Moderately Effective

49% - Moderately Effective

Family Leave Policies

40% - Highly Effective 30% - Moderately Effective

28% - Highly Effective 49% - Moderately Effective

Paid Time Off

43% - Highly Effective

46% - Highly Effective

Of these four programs, flexible work arrangements and mentoring programs continue to be the most in demand among women working at firms that currently do not offer these initiatives. The discrepancy between the firms’ ratings of flexible work arrangements and the women CPAs’ ratings of the same initiative is particularly interesting, since it reveals a significant gap in perception between the two groups.

The following initiatives were in place at only 26-38 percent of the firms that took part in the survey: childcare assistance, womenspecific mentoring programs, and programs to develop women as partners on high-profile client assignments. Forty-three percent of the firms taking part in the survey had “part-time partner track” in place; this initiative continues to be the most sought-after among the women surveyed.

The retention and promotion of women within public accounting firms continues to have a huge impact on the industry, and it’s disappointing to see so little movement after seven years of surveys. The Women’s Executive Committee will focus its future efforts on identifying and spotlighting firms that are making real progress in retaining and promoting their women professionals.

Perhaps their success can be a roadmap for other firms in Illinois.

FIGURE 1

Percentage of Women in Illinois by Position

60% 50% 30% 20% 10%

2009 2008 2007 2006 % 49% 48% 49% 50

2009 2008 2007 2006 43% 42% 42% 41%

40%

2009 2008 2007 2006 18% 17% 18% 17% Senior Manager/Manager

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2009

2008

2007

2006

346 (17.6%)

330 (17.2%)

353 (17.9%)

306 (16.7%)

1,616 (82.4%)

1,584 (82.8%)

1,614 (82.1%)

1,530 (83.3%)

Women Men

FIGURE 3

Firm/Office MP

Executive Management Total Executive Positions

# Women

% of Total

# Women

% of Total

# Women

% of Total

2009

62

12.4%

177

22.6%

239

18.7%

2008

49

10.0%

186

23.1%

235

18.2%

2007

46

9.7%

104

15.2%

150

13.0%

2006

40

8.8%

77

11.8%

117

10.6%

Turn the page for more statistics from the 2009 Role of Women in CPA Firms survey.

We sincerely thank the firms and women that responded to our survey and willingly shared their information with us. This cooperation is appreciated and necessary as we strive to advance the role of women in public accounting firms.

To register, or for more information visit www.CCFLinfo.org or call 800.993.0393.

www.icpas.org/insight.htm

JULY 2009

21

Illinois CPA Society's 2009 Survey on the Role of Women in CPA Firms - Professional Personnel Who Office In Illinois - Percentage of Women by Position Total # of Professionals Illinois' Largest Accounting Firms* 2,748 Deloitte & Touche LLP 1,573 PricewaterhouseCoopers LLP 1,363 Ernst & Young LLP 1,317 KPMG LLP 1,308 RSM McGladrey Inc. 634 Crowe Horwarth LLP 344 Grant Thornton LLP 281 Clifton Gunderson LLP 265 Blackman Kallick LLP 237 Sikich LLP BDO Seidman 183 Miller Cooper & Co., Ltd. 166 Virchow, Krause & Co., LLP 146 Plante & Moran PLLC 134 Wolf & Co. LLP 101 Frost Ruttenberg & Rothblatt P.C. 97 Legacy Professionals 89 Kerber, Eck & Braeckel LLP 85 Ostrow Reisin Berk & Abrams, Ltd. 85 Lindgren, Callihan, Van Osdol & Co., Ltd. 84 Bansley & Kiener LLP 73 Mueller & Co. LLP 72 Mayer Hoffman McCann P.C. 67 64 Reznick Group, P.C. 63 Warady & Davis LLP Smart Business Advisory and Consulting LLC 57 E.C. Ortiz & Co., LLP (b) 53 Ganim, Meder, Childers & Hoering, P.C. 53 Gray Hunter Stenn LLP 48 45 Michael Silver & Co. 45 West & Company LLC DiGiovine, Hnilo, Jordan & Johnson, Ltd. 44 Porte Brown LLC 44 Heinold-Banwart, Ltd. 43 Topel Forman LLC 43 Selden Fox, Ltd. 42 Shepard, Schwartz & Harris LLP 42 Corbett, Duncan & Hubly, P.C. 39 Coleman Joseph Blitstein & Stuart LLC 36 Kessler, Orlean, Silver & Co., P.C. 35 Eric J. Fernandez & Co. 34 Martin, Hood, Friese & Associates, LLC 34 Silver Lerner Schwartz & Fertel (c) 34 Weiss & Company LLP 32 Lauterbach & Amen, LLP (b) 31 Dugan & Lopatka, CPAs, P.C. 30 Steinberg Advisors (c) 30 Washington, Pittman & McKeever 30 Cray, Kaiser Ltd., CPAs 26 Russell Novak & Company 26 Krehbiel & Associates LLC 23 May, Cocagne & King, P.C. (a) 22 Striegel, Knobloch & Co. LLC 21 Doehring, Winders & Co. LLP 20 Borhart, Spellmeyer & Co. 19 Dunbar, Breitweiser & Co. LLP 19 Eck, Schafer & Punke LLP (b) 18 J.W. Boyle & Co., Ltd. 17 Pritchard Osborne LLC 16 Graff, Ballauer, Blanski & Friedman, P.C. 14 Capin Crouse LLP 13 Rome Associates LLP 4 Coleman, Epstein, Berlin & Company LLP DBH & Associates, LLC Hill, Taylor LLC Kemper CPA Group LLC Knutte & Associates, P. C. Larsson, Woodyard & Henson LLP Totals/Percentages

12,761

2009 21% 20% 16% 14% 13% 23% 19% 10% 22% 16% 43% 14% 12% 4% 23% 16% 28% 27% 15% 5% 10% 23% 29% 0% 20% 9% 83% 8% 14% 11% 25% 31% 0% 20% 10% 0% 31% 0% 0% 0% 0% 17% 17% 9% 50% 25% 0% 50% 20% 0% 14% 25% 13% 0% 20% 0% 0% 0% 0% 0% 33% 50% *** *** *** *** *** *** 17.6%

Partner/Principal 2008 2007 21% 20% 20% 24% 19% 19% 14% 13% 12% 13% 20% 17% 16% 14% 10% 7% 18% 22% 17% 17% 26% *** 13% 15% 8% 8% 0% 0% 25% 19% 12% 11% 28% 33% 25% 29% 11% 12% 4% 4% 17% 17% 15% 25% 29% 32% 0% 0% 20% *** 7% *** 83% *** 8% *** 21% 20% 12% 12% 25% 33% 29% 27% 0% *** 20% 20% 11% 0% 11% 10% 31% 31% 0% 0% 0% 0% 0% 0% 0% 0% 30% 20% 17% *** 11% 11% *** *** 25% 25% 0% 0% 50% 50% 20% 20% *** *** *** *** *** *** 11% 11% 0% 0% 20% 20% 0% 0% 0% *** 0% *** 0% 0% 0% 0% 50% 0% 0% 0% 0% *** 17% *** 0% 0% 46% *** 0% *** 40% *** 17.3%

17.9%

* All information was provided by the firms. Surveys were sent to 90 Illinois firms that had 15 or more professionals as listed in the Illinois CPA Society's Peer Review or Membership Database and the 2008 Crain's Chicago Business list of Chicago's largest accounting firms. Surveys were mailed in January 2009 and firms were asked to provide the most recent available data, but to not use data earlier than December 31, 2008. *** Firm did not provide information for this year.

NA = Information Not Applicable

2006 18% 22% 19% 14% 10% 19% 12% 9% 23% 13% *** 20% 9% 0% 19% 14% 25% 29% 13% 5% 17% 8% 24% *** *** 21% *** 0% 27% 6% 29% 29% 0% 13% *** 14% 31% 0% 0% 0% 0% 20% *** 10% *** 13% 0% 50% 17% *** 0% *** 13% 0% 20% 0% *** 0% 0% 0% 0% 0% 0% 17% 0% 42% *** 40% 16.7%

Senior Manager/Manager 2009 2008 2007 2006 38% 37% 39% 36% 43% 43% 49% 48% 42% 40% 36% 42% 38% 38% 37% 33% 44% 45% 46% 43% 52% 52% 49% 47% 41% 37% 40% 38% 42% 42% 43% 47% 39% 41% 46% 41% 65% 64% 58% 54% 37% 39% *** *** 45% 38% 30% 33% 23% 23% 31% 31% 58% 51% 49% 46% 45% 52% 50% 52% 56% 65% 67% 58% 37% 50% 39% 15% 59% 47% 53% 67% 0% NA NA NA 25% 21% 33% 21% 100% 80% 80% 80% 60% 54% 50% 69% 50% 30% 27% 46% 18% 33% 36% *** 43% 52% *** *** 18% 17% 35% *** 67% 70% *** *** 85% 90% 92% *** NA NA NA NA 80% 70% 80% 90% 33% 25% 27% 22% 62% 75% 73% 78% 67% 40% 40% *** 57% 75% 67% 60% 67% 40% 33% *** 44% 44% 44% 36% 0% 0% 29% 25% 80% 60% 50% 57% 33% 29% 40% 40% 25% 33% 33% 33% 33% 33% 20% 20% 50% 78% 40% 43% 60% 60% *** *** 63% 40% 44% 29% 69% *** *** *** 78% 67% 50% 57% 40% 50% 50% 67% 40% 40% 50% 50% 60% 50% 50% 50% 50% *** *** *** 25% 50% *** *** 67% *** *** *** 0% 0% 25% 25% 0% 0% 50% 50% 71% 80% 40% 40% 33% 50% 33% 50% 17% 0% *** *** 75% 50% 50% *** 17% 0% 0% 0% 0% 0% 33% 33% 100% 50% 50% 50% 0% 100% 100% 75% 67% 0% *** *** *** *** *** *** 33% 25% 33% *** 86% 62% *** *** 57% *** *** *** 50% 67% *** *** 42.6%

41.6%

42.4%

41.2%

2009 45% 47% 44% 44% 55% 47% 50% 55% 46% 53% 48% 47% 47% 54% 65% 50% 33% 67% 59% 67% 39% 86% 50% 35% 53% 59% 74% 67% 68% 63% 71% 47% 47% 85% 48% 24% 62% 50% 59% 72% 71% 58% 67% 69% 69% 54% 83% 52% 50% 50% 92% 88% 73% 62% 29% 73% 57% 86% 33% 43% 44% 50% *** *** *** *** *** *** 49.2%

Senior/Staff 2008 2007 45% 46% 46% 46% 44% 45% 43% 41% 56% 55% 45% 48% 51% 56% 58% 62% 49% 49% 66% 66% 52% *** 48% 51% 44% 41% 48% 56% 58% 55% 57% 53% 29% 33% 48% 62% 44% 57% 62% 70% 33% 34% 84% 85% 51% 57% 36% 38% 36% *** 56% *** 75% *** 70% *** 63% 66% 46% 42% 71% 84% 53% 53% 36% *** 69% 75% 48% 56% 29% 21% 59% 60% 64% 77% 35% 57% 67% 62% 71% 86% 50% 68% 75% *** 69% 62% *** *** 76% 77% 91% 82% 57% 54% 40% 46% *** *** *** *** *** *** 63% 63% 60% 80% 40% 50% 73% 71% 83% *** 88% *** 25% 25% 38% 25% 33% 71% 50% 20% 56% *** *** *** 56% 52% 59% *** 45% *** 100% ***

2006 46% 48% 46% 42% 53% 51% 53% 61% 48% 47% *** 53% 45% 57% 61% 67% 32% 62% 53% 67% 33% 88% 53% *** *** 65% *** 86% 63% 45% 87% 50% 40% 76% *** 20% 67% 72% 47% 55% 87% 70% *** 60% *** 68% 92% 54% 50% *** 78% *** 64% 70% 56% 54% *** 71% 0% 29% 60% 67% 64% *** 57% 81% *** 100%

48.2%

49.8%

49.0%

The following firms declined to participate in the survey for 2009, 2008, 2007, 2006 and 2005: Chunowitz, Teitelbaum & Baerson, Ltd.; Morrison & Morrison, Ltd.; Pasquesi Sheppard LLC The following firms declined to participate in the survey for 2009, 2008, 2007 and 2006: Brook Weiner LLC; Medical Business Consultants - Midwest, Ltd., CPAs; Professional Business Consultants.

The following firms declined to participate in the survey for 2009, 2008 and 2007: Friedman & Huey Associates, LLP; L. J. Soldinger Associates; UHY LLP

(a) First included in survey population in 2009. (b) First included in survey population in 2008. (c) First included in survey population in 2006.

The following firms declined to participate in the survey for 2009 and 2008: Ahlbeck & Company; Mulcahy Pauritsch Salvador & Co, Ltd.; Wermer Rogers Doran & Ruzon, LLC.

The following firms declined to participate in the survey for all years: FGMK LLC; Gimbal Abrams & Singer; Scheffel & Co.; Sleeper Disbrow Morrison Tarro & Lively.

The following firms declined to participate in the survey for 2009: BIK & Co.; Kutchins, Robbins & Diamond Ltd.; Michael James Liccar & Co.; Mowery & Shoenfeld LLC; Smith, Koelling, Dystra & Ohm, P.C. CHART 1 - 04.16.09

Illinois CPA Society's 2009 Survey on the Role of Women in CPA Firms - Percentage of Firm-wide Leadership Positions Held by Women Illinois' Largest Accounting Firms* Deloitte & Touche USA LLP PricewaterhouseCoopers LLP Ernst & Young LLP KPMG LLP RSM McGladrey Inc. Crowe Horwath LLP Grant Thornton LLP Clifton Gunderson LLP Blackman Kallick LLP Sikich LLP BDO Seidman Miller Cooper & Co., Ltd. Virchow, Krause & Co., LLP Plante & Moran PLLC Wolf & Co. LLP Frost Ruttenberg & Rothblatt P.C. Legacy Professionals Kerber, Eck & Braeckel LLP Ostrow Reisin Berk & Abrams, Ltd. Lindgren, Callihan, Van Osdol & Co., Ltd. Bansley & Kiener LLP Mueller & Co. LLP Mayer Hoffman McCann P.C. Reznick Group, P.C. Warady & Davis LLP Smart Business Advisory and Consulting LLC E.C. Ortiz & Co., LLP (b) Ganim, Meder, Childers & Hoering, P.C. Gray Hunter Stenn LLP Michael Silver & Co. West & Company LLC DiGiovine, Hnilo, Jordan & Johnson, Ltd. Porte Brown LLC Heinold-Banwart, Ltd. Topel Forman LLC Selden Fox, Ltd. Shepard, Schwartz & Harris LLP Corbett, Duncan & Hubly LLC Coleman Joseph Blitstein & Stuart LLC Kessler, Orlean, Silver & Co., P.C. Eric J. Fernandez & Co. Martin, Hood, Friese & Associates, LLC Silver Lerner Schwartz & Fertel, CPAs (c) Weiss & Company LLP Lauterbach & Amen, LLP (b) Dugan & Lopatka, CPAs, P.C. Steinberg Advisors (c) Washington, Pittman & McKeever Cray, Kaiser Ltd., CPAs Russell Novak & Company Krehbiel & Associates LLC May, Cocagne & King, P.C. (a) Striegel, Knobloch & Co. LLC Doehring, Winders & Co. LLP Borhart, Spellmeyer & Co. Dunbar, Breitweiser & Co. LLP Eck, Schafer & Punke LLP (b) J.W. Boyle & Co., Ltd. Pritchard Osborne LLC Graff, Ballauer, Blanski & Friedman, P.C. Capin Crouse LLP Rome Associates LLP Coleman, Epstein, Berlin & Company LLP DBH & Associates LLC Hill, Taylor LLC Kemper CPA Group LLC Knutte & Associates, P. C. Larsson, Woodyard & Henson LLP

Firm/Office Managing Partners 2008 2007 2006 2009 21% 33% 26% 25% NP NP NP NP 18% 14% 13% 14% 11% 8% 8% 8% 9% 9% 5% 0% 0% 0% 0% 0% 8% 4% 6% 3% 14% 14% 11% 15% 0% 0% 0% 0% NP NP NP 0% 11% 0% NP NP 0% 0% 0% 0% 0% 0% 0% 0% 13% 13% 13% 13% 0% 0% 0% 0% NP NP NP NP 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% NP NP NP NP 0% 0% NP NP 0% 17% NP 11% 0% 0% NP NP 0% 0% NP 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% NP 0% 0% 0% 0% 0% 0% 0% NP NP 23% 23% 10% 14% 50% 50% 50% 50% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% NP NP NP NP 0% 0% NP NP 0% 0% 0% 0% 50% NP NP NP 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% NP NP NP 0% NP NP 0% 0% NP NP NP 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% NP NP NP 0% NP 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% NP NP 0% 0% NP 0% NP 0% NP 0% 0% 0% NP NP 12% 8% NP NP 0% NP NP NP 40% 25%

Executive Management 2009 2008 2007 2006 26% 28% 17% 16% NP NP NP NP 25% 17% 18% 17% 9% 22% 22% 21% 19% 21% 23% NP 12% 5% 0% 6% 66% 60% 13% 12% 17% 13% 9% 15% 0% 0% 0% 0% 13% 13% NP 0% 0% 0% NP NP 20% 20% 20% 20% 7% 7% 0% 3% 14% 22% 22% 11% 0% 0% 15% 15% 0% 12% 11% 10% 40% 40% 20% 20% 0% 11% 33% 11% 8% 8% 8% 9% 18% 14% 14% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% NP 0% NP NP NP NP 11% 11% NP NP 7% 0% NP 7% 75% 100% NP NP 7% 7% NP NP NP NP NP NP 0% 0% 0% 0% NP NP NP NP 42% 36% 36% 40% 0% 0% NP 0% 0% 0% 0% 0% NP NP NP NP NP NP 50% 40% 30% 0% 30% 30% 0% 0% 21% 33% 0% 0% 0% 0% 0% 100% 0% 0% 15% 15% 8% 7% NP NP NP NP 0% 0% NP NP 0% 0% 0% 0% NP NP NP NP 0% 0% 25% 13% 0% 0% 0% 0% NP NP NP NP 0% 0% 0% 0% NP NP NP NP 0% NP NP NP NP NP NP NP NP NP NP NP NP NP NP NP NP NP NP NP 0% 14% 13% 14% NP NP NP NP NP NP 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% NP NP NP 33% NP NP NP NP 0% 0% NP 20% NP NP NP 20% 17% 17% NP NP 8% 9% NP NP NP NP NP NP NP NP Total

* All information was provided by the firms. Surveys were sent to 90 Illinois firms that had 15 or more professionals as listed in the Illinois CPA Society's Peer Review or Membership Database and the 2008 Crain's Chicago Business list of Chicago's largest accounting firms. Surveys were mailed in January 2009 and firms were asked to provide the most recent available data, but to not use data earlier than December 31, 2008. *** Firm did not provide information for this year.

NP = Information Not Provided

Total # of Total Women Professionals in Illinois Illinois Prof.

2008 2007 2006 2009

2,748 1,573 1,363 1,317 1,308 634 344 281 265 237 183 166 146 134 101 97 89 85 85 84 73 72 67 64 63 57 53 53 48 45 45 44 44 43 43 42 42 39 36 35 34 34 34 32 31 30 30 30 26 26 23 22 21 20 19 19 18 17 16 14 13 4 -

40% 43% 39% 39% 46% 44% 42% 43% 40% 49% 44% 40% 33% 46% 50% 42% 33% 60% 48% 43% 40% 69% 43% 30% 40% 37% 74% 60% 52% 44% 56% 45% 36% 65% 42% 24% 48% 46% 33% 40% 50% 50% 47% 47% 68% 53% 40% 50% 46% 38% 57% 59% 43% 40% 42% 47% 28% 53% 19% 21% 46% 50% *** *** *** *** *** ***

39% 42% 39% 39% 48% 42% 41% 44% 41% 52% 43% 39% 33% 41% 48% 48% 34% 44% 36% 41% 33% 67% 41% 28% 30% 36% 75% 64% 50% 38% 55% 51% 28% 58% 39% 28% 45% 53% 22% 35% 50% 52% 47% 44% *** 62% 54% 52% 38% *** *** *** 30% 35% 45% 50% 33% *** 13% 20% 40% 33% *** 17% 50% *** *** ***

41% 42% 38% 37% 46% 42% 44% 46% 43% 51% NP 41% 32% 43% 45% 40% 35% 52% 46% 44% 34% 67% 43% 31% *** *** *** *** 50% 38% 65% 49% *** 59% 41% 24% 43% 58% 38% 31% 59% 55% *** 42% *** 61% 48% 53% 41% *** *** *** 33% 53% 40% 50% *** 64% 14% 24% 60% 22% 44% *** 45% 31% 39% 62%

40% 42% 41% 36% 42% 45% 42% 47% 41% 37% NP 44% 29% 45% 48% 48% 27% 56% 43% 41% 34% 70% 42% *** *** 48% *** 74% 51% 39% 65% 49% 28% 59% *** 24% 49% 55% 31% 26% 60% 56% *** 33% *** 53% 57% 53% 42% *** 50% *** 39% 47% 42% 40% *** 40% 0% 27% 50% 50% 47% 17% 50% 60% *** 67%

12,761

The following firms declined to participate in the survey for 2009, 2008, 2007, 2006 and 2005: Chunowitz, Teitelbaum & Baerson, Ltd.; Morrison & Morrison, Ltd.; Pasquesi Sheppard LLC The following firms declined to participate in the survey for 2009, 2008, 2007 and 2006: Brook Weiner LLC; Medical Business Consultants - Midwest, Ltd., CPAs; Professional Business Consultants.

The following firms declined to participate in the survey for 2009, 2008 and 2007: Friedman & Huey Associates, LLP; L. J. Soldinger Associates; UHY LLP

(a) First included in survey population in 2009. (b) First included in survey population in 2008. (c) First included in survey population in 2006.

The following firms declined to participate in the survey for 2009 and 2008: Ahlbeck & Company; Mulcahy Pauritsch Salvador & Co, Ltd.; Wermer Rogers Doran & Ruzon, LLC.

The following firms declined to participate in the survey for all years: FGMK LLC; Gimbal Abrams & Singer; Scheffel & Co.; Sleeper Disbrow Morrison Tarro & Lively.

The following firms declined to participate in the survey for 2009: BIK & Co.; Kutchins, Robbins & Diamond Ltd.; Michael James Liccar & Co.; Mowery & Shoenfeld LLC; Smith, Koelling, Dystra & Ohm, P.C. CHART 2 - 04.16.09

DEVELOPMENT

Goodbye Training Program?

Don’t bid adieu to your staff development dollars quite yet. Find budget-friendly training alternatives instead.

By Renee Beckman, CPA

I

n an economic downturn, companies move into survival mode. Priorities are shifted. Cost cuts are implemented. Personnel is let go. And those that are left behind are forced to manage with fewer resources, perks and rewards. Growth becomes a priority for the future, just as long as the company can survive the present.

A slew of surveys over the past year highlight the fact that training programs, in particular, are among the first incentives to walk the cost-cutting plank. “Why? Because training is expensive and difficult to measure,” says Colleen Coursey, a Chicago corporate trainer.

Eighteen percent of CFOs interviewed for an Accountemps survey said they don’t expect to offer employee training in the next two years. Among companies that do have training programs planned, 30 percent will invest in IT skills development and another 26 percent foresee offering courses in accounting and finance. Average training expenditures per employee has fallen 11 percent in the past year, from $1,202 per learner in 2007 to $1,075 in 2008, according to a Bersin & Associates report issued in January. And the US corporate training market shrank from $58.5 billion in 2007 to $56.2 billion in 2008, the greatest decline in more than 10 years, Bersin & Associates states.

While employers may be tempted to eliminate training budgets during lean times, investing in staff education is a vital tool for retention and business growth. “Human capital is an organization’s single most important resource. Ensuring they perform well shouldn’t even be a question,” says Coursey.

As the economy gets stronger, corporations need to stay ahead of their 24

INSIGHT www.icpas.org/insight.htm

competitors and position themselves for higher productivity and profitability. While doing more with less may work in the short term, in the long term organizations will suffer. Companies will start to feel the financial effects of the layoffs—lower productivity, reduced performance, unnecessary overtime, low morale and increased turnover (including the loss of intellectual capital and company knowledge). The cost of employee turnover to for-profit organizations, in fact, is estimated to be up to 150 percent of the employees' remuneration package.

Rather than cutting training loose entirely, wouldn’t it make more sense to find an alternative, less costly way to invest in your people? After all, if you found training valuable during the fat years, doesn’t it stand to reason that it’s important in lean times as well?

Isn’t it all about maintaining a competitive edge? Isn’t that the key to survival?

As they watch their budgets shrink, business and finance professionals are indeed looking for low-cost training options that can still get the job done without an expensive price tag. The following four strategies offer companies the chance to do just that.

1. eLearning The advantages of eLearning are many. For starters, it’s easy to deliver and available 24/7, fitting into pretty much any schedule.

Because there are no travel expenses involved or trainer salaries to pay, the costs are comparatively low as well. According to Training Magazine, corporations save between 50 and 70 percent of costs when replacing instructor-led training with electronic content delivery.

Opting for eLearning also means that courses can be pared into shorter sessions and spread out over several days or weeks so that companies don’t lose access to their human capital for entire days at a time.

2. Mentoring A dynamic relationship between a mentor and a protégé can be valuable not only for the participants involved, but also for the company. Think increased production, greater job satisfaction, higher employee retention and lower costs—again due to the fact that companies are not paying for an instructor or reimbursing for travel.

That said, the actual cost of a mentoring program does vary, particularly in terms of the time invested by both mentors and their protégés. Although this cost is not as obvious as an outright purchase, it can be substantial. In terms of maintenance, however, mentoring programs are usually extremely cost-effective—just as long as you structure them effectively from launch.

If budget is an issue, take a look at one of the several books and articles written on this topic. Also visit the web, where you’ll find sites, newsletters and discussion groups devoted to mentoring.

3. Professional Associations One of the many benefits of joining a professional association is the continuing professional education (CPE) it offers, often at discounted prices. Particularly for professionals such as CPAs, who are required to meet minimum CPE requirements to hold a license, company or individual membership in an association can be a costeffective way to ensure fingers are kept firmly on the industry pulse.

There are other benefits too. Because associations are either regional or have local chapters, travel costs are kept to a minimum. And because CPE is targeted in terms of profession or industry, classes offer indispensable networking opportunities as well— another potential source of business growth for companies.

It’s a good idea, too, to have your staff share what they’ve learned with their colleagues once back at the office. Knowledge sharing is yet another way to maximize limited training dollars.

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4. Internal Talent Your staff consists of individuals with expertise in specific areas of business. As such, these individuals may be interested in lending their expertise in a more formal setting—as in-house instructors.

For instance, if you have an IT specialist on staff, and you want to develop your finance department’s IT knowledge, then why not ask that specialist to devise and lead a training session.

An added advantage is that these training sessions can be highly customized, rather than following a “one-size-fits-all” format.

Considering how important skills development is to overall job satisfaction, and how rewarding it is to be recognized as an expert in your field, utilizing internal talent in this way is pretty much a win-win—and it comes at no direct cost to the company.

Whether a webinar, a brown-bag lunch, or anything in between, these sessions build a strong tradition of learning, and create a culture that will motivate current employees and attract future talent.

Staff members understand the reasons behind cost cuts. The recession, after all, impacts us all. They need to see, however, that their company is making an effort to maximize its limited resources for their benefit. If they do, then their loyalty may be that much more easily won.

ICPAS member Renee Beckman, CPA, is a principal at Pareto, Inc., a finance, accounting and IT permanent and temporary staffing firm.

She can be reached at 312.214.6144 or rbeckman@paretoinc.com.

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JULY 2009

25

STRATEGY

Set the Standard How do you define success in an uncertain economy?

By Dean K. Matt, CPA

“H

ow am I doing?” In the 1980s New York’s Mayor Koch could be heard asking this question all over the five boroughs as he greeted his constituency. His connection with New Yorkers was his transparency and accountability—a far cry from his predecessors and, more recently, the scandalplagued government leaders in Illinois.

“How are we doing?” is also a question asked today at businesses all over America.

It’s asked by shareholders and owners wondering if they are getting an adequate rate of return, managers inquiring if the budget bar is appropriately set, employees wondering if their company is financially viable, creditors wondering if their loans will be repaid, and companies wondering if their customers and clients are indeed loyal.

Our current economic woes have their roots in the highflying 1990s. Consumption—of just about everything—was highly fashionable. Savings rates became negative. Then credit became easy (remember the volume of credit card offers you’d get in

26

INSIGHT www.icpas.org/insight.htm

the mail?). Credit cards were maxed-out.

Home values rose at a frenzied pace and this allowed for new credit products. Exotic mortgages and home equity lines of credit, in fact, enabled homes to be used as ATMs. Consumption outpaced any conceivable logic. Ever-rising home values fueled the bubble potential, while everyone defied the logic that this was the very essence of irrational exuberance that Greenspan warned us of. People erroneously assumed that a supercharged economy and housing market were sustainable. Now, with the bubble burst and house foreclosings de rigeur, many Americans are seeing home values that no longer support the home equity loans on which they rely. It will be a long, slow process before meaningful consumption resumes.

In more stable times, budgets were set and success was measured based on yearover-year growth of the top or bottom line.

Rates of growth were compared to the company’s historical track records and those of its peers. In other words, in a company with historic 15-percent growth, a budget that showed 20-percent growth would be viewed as a stretch goal, but not unrealistic. The annual budget process should also reflect the impact of general economic trends, acquisitions, capital investments, new products and even new personnel.

But how do companies set the bar when they’re being confronted with unprecedented economic negativity? We’re in the midst of an economic tsunami which, arguably, is second in impact only to the Great Depression. And it’s not over yet.

Should companies take their best shot at a full-year budget and re-budget after the first half? After all, there are bonuses, careers, cash flow, strategic plans, and debt covenants on the line, all depending more than ever on ownership and managers to correctly read the tea leaves and deliver a realistic budget.

There’s a balancing act going on in boardrooms and companies across the country. Is it a sign of weakness to allow the economy to dictate negative or even neutral growth or is it just prudent in light of the facts? What about small companies that are used to 30or 40-percent growth? How should success be defined during a tidal wave of negative economic conditions?

Are all bets off? Is it even meaningful to bonus on performance not knowing what’s realistic? Where should the bar be set for 2009? Unless you have a crystal ball, is it just a crap-shoot or can goals be methodically deduced? Will employees win at the owner’s expense or vice-versa?

The goal-setting process should continue with the same methodology as in past years. All available data must continue to be tapped and evaluated. However, unlike budgeting in previous years, the margin of error in budget assumptions, naturally, will be larger. Companies and employees must be conscious of this in setting bonus-based compensation and in discussing projections with their lenders. Despite best efforts in setting these goals, some budgets will end up being lay-ups for managers, and some will prove to be unattainable, meaning no bonuses at all.

Entrepreneurs and companies must acknowledge to their employees that the recent negative economic headwinds will pose new and additional challenges in developing and then attaining their business goals. Companies shouldn’t confuse this tacit acknowledgement with a softened attitude towards where the bar is set. The very act of acknowledging tough economic conditions will at least signal to employees that senior management doesn’t have its head in the sand. Simply put, not acknowledging the tough economic environment is a mistake.

Also, now more than ever, owners and senior-level executives need to get input into the budget/goal-setting process at all levels of the organization. It’s important that the mid-manager tier, in particular, is not unilaterally shut out from the process. And don’t assume that your company is immune to this unprecedented economic environment. Very few companies are entirely unaffected.

Unfortunately, there isn’t a “one-size-fits-all” formula for companies deciding where to set their goals. You have to look at your industry’s and company’s particular opportunities and challenges, as well as your previous track record. And you need to assess the most likely impact of new strategies designed to counteract current economic trends.

On one hand, companies are in the advantageous position of having a captive employee base. It’s an employer’s market, and people are realizing they are lucky to have jobs. That said, owners shouldn’t confuse an advantageous labor market with license to take advantage of their employees. They may be able to get away with it in the short run, but history tells us that employees have long memories and that times will get better.

It’s understandable that owners and executives will demand more of their people simply to keep the company going. To achieve past historical growth rates, however, will require an even more Herculean effort. Employee loyalty is essential. Wherever goals are set, it’s crucial to communicate, communicate, communicate, how the goals will be reached. The troops need to be rallied.

One more thing—now isn’t the time to complain about paying out the same level of bonuses for essentially flat results. Remember that managers will be working as hard if not harder just to get back to neutral. Their efforts need to be acknowledged.

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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 25, 2009 - Rosemont, Illinois Midwest Financial Reporting Symposium

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www.icpas.org/insight.htm

JULY 2009

27

TAX

Small Biz, Big Impact Tax act provisions could mean significant changes for the nation’s small businesses.

By Harvey Coustan, CPA

A

number of provisions in the 2009 American Recovery and Reinvestment Tax Act could impact small business tax planning in a number of ways.

Among these provisions is an extension of the years available for carrying back net operating losses and deferral of income recognition for cancelled debt (COD income). Both deserve some explanation, particularly in light of the current economic downturn.

Carryback Relief Until the Act was passed, a net operating loss generally could be carried back only to the second year that preceded the year in which the loss was incurred. After the taxes for that year were recouped, any remaining loss could be carried to the year immediately prior to the year in which the loss was incurred. Unused loses after that application could be used to offset income in the 20 years subsequent to the loss year.

The Act allows an “eligible small business” to elect to carry its 2008 net operating loss back 3, 4, or 5 years. For fiscal year

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small businesses, the 2008 loss will be either a year ending or beginning in 2008.

An eligible small business is a corporation, partnership, or proprietorship whose average annual gross receipts for the three-year period ending with the year of loss are $15 million or less.

The owner of an eligible business entity (partnership or S corporation) can make the election with respect to his or her share of the allocated amounts. In determining average annual gross receipts, eligible businesses will be aggregated if certain common controls are present. In March, the IRS published Revenue Procedure 2009-19 with guidance for making the election in certain situations.

For those taxpayers who have not filed a return for the loss year, a statement of the election must be included with the return, which itself must be filed in a timely manner (including extensions). The statement must clearly state that the taxpayer is electing to apply Internal Revenue Code section 172(b)(1)(H), the carryback period chosen (3, 4, or 5 years) and, if applicable, must state that the election is made for the year beginning in 2008.

The method for making the election is different if the taxpayer has already filed a return for the 2008 loss year. In this situation, a refund claim or tentative carryback application for the earliest year to which the loss is carried must be filed within 6 months of the return’s un-extended due date. July 15, 2009, therefore, would be the last day for a corporation filing such a form if the loss year ended October 31, 2008.

The form must contain a statement with the typed or printed heading “2008 NOL Carryback Election Pursuant to Rev. Proc.

2009-19.” If a refund claim or tentative carryback application has already been filed without the extended carryback election, the statement must be headed with the word “Amended.” The form should contain a statement that the taxpayer is electing to

apply the rules contained in §172(b)(1)(H) to a year beginning in 2008 if that is the case.

Although no rules are provided for the losses a partnership incurs, the process of filing individual refund claims and tentative carryback applications also should be applied at the partner level. How to determine due dates isn’t indicated in cases where a partner has a different yearend or due date than the partnership.

COD Income In another taxpayer friendly gesture, the Act contains a provision that allows taxpayers to defer recognition of certain COD income realized on the “reacquisition” of an “applicable debt instrument.” The income can be deferred for 4 or 5 years and then reported over a 5-year period, so that an electing taxpayer can report the COD income that results from an acquisition of its debt in 2009 ratably over years 2014-18.

An applicable debt instrument is one that is issued by a C corporation or any other “person” (i.e. an individual, trust, estate, or partnership) in connection with the conduct of a business. “Debt instrument” refers to a bond, debenture, note, certificate, or contractual arrangement that constitutes indebtedness under the original issue discount rules. A reacquisition occurs when an issuing debtor or other obligor or person related to the debtor makes a debt instrument acquisition.

This acquisition can take the form of a cash purchase, exchange of another debt instrument (which can include modifications to a single debt instrument), exchange of debt for stock or a partnership interest, and the contribution of the debt instrument to capital. The holder’s complete forgiveness of the debt will also constitute an acquisition.

As of the day I am writing this column, the IRS has not issued any guidance in this area, but the law indicates that the election is irrevocable and is made with the taxpayer’s return for the year of the reacquisition. It asks for a clear identification of the debt instrument and the amount of income covered by the election, along with any other information required by the IRS. For partnership debt, the partnership makes the election. This can put the general partner or managing member of an entity treated as a partnership in a difficult position, since different partners may have different tax needs. Some may want the deferral, others may not.

As a matter of fact, certain exclusions with respect to COD income cannot apply if the debtor elects the deferral treatment.

The exclusions provided in Title 11 or insolvency situations do not apply, and exclusions provided if the discharged debt is “qualified farm indebtedness” or “qualified real property business indebtedness” are also unavailable.

Certain events will trigger immediate recognition of the deferred amounts—the taxpayer’s death, asset liquidation or sale, or the business’ cessation, for example. The sale, or exchange or redemption of an owner’s interest in a passthrough will also result in a triggering of the deferral—hopefully only that portion of the deferral that has been allocated to the owner, although this isn’t clear.

The rules apply to discharges in years ending after 2008. IRS guidance is needed.

Harvey Coustan is an Ernst & Young retired partner. He is presently consulting on substantive technical and professional standards issues and has been an expert witness in a number of cases.

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desperately seeking

investors Businesses are searching high and low for scarce investment dollars.

By sheryl nance nash

F

inding money during a recession is a bit like walking into an empty field with a pair of binoculars and hoping to spot a pot of gold. And even if you haven’t seen that telltale sparkle in the midst of all that dirt, the truth is, there’s still money out there—if you look hard enough and long enough, and if you’re prepared to be creative.

“Before, in bad times good companies could always get financing. Now, it’s really difficult, but not impossible, for good companies to find money,” says Van Conway, president and senior managing director of turnaround consulting firm Conway MacKenzie Inc.

Impress a Venture Capitalist Risk-loving venture capitalists are more cautious today than they were just a few years ago. “The steady drum beat of bad news has made some VCs think twice,” says Bill Venema, a corporate lawyer with Epstein Becker Green Wickliff & Hall. “Consequently, they are taking moves to protect themselves when they enter what is a riskier environment and, in some respects, uncharted water as the economy resembles little that is familiar.

They are putting in provisions that if certain milestones are not met as planned, then they will be eligible to take a larger percentage of the company,” Venema adds as an example.

But not everyone is running for cover. Google recently announced the creation of a venture capital arm, Google Ventures, which is expected to invest up to $100 million over the next year. Google is reportedly targeting areas such as the Internet, clean technology and life sciences.

homework, and discover what venture capitalists find of interest these days,” he says.

Remember that you only get one chance to make a good impression. “If you screw up, the meeting is over. Have your ducks in a row, clearly state the value proposition, don’t overstate revenue projections or you’ll lose credibility,” says Venema. In fact, it’s best to be conservative. Then anything over your stated projections makes you look absolutely fabulous.

It’s a good idea, too, to have a strong advisory board or board of directors in your corner. And “It’s always best to meet prospective venture capitalists through an introduction, say your accountant, lawyer, friend, or through business conferences,” says Sokolow.

“VCs on both coasts are active as always, but they are more stringent than before. If you have proprietary software or patents, you’ll get their attention. If you have a business model that’s little more than a new way to do French fries, you might not get very far,” he warns.

Venema isn’t as optimistic about the potential to capture VC interest, however. “VCs are most assuredly not as active as always,” he says, quoting an April 2009 FierceCIO article: “Venture Capital firms are facing tough times these days,” the article explains. “They logged just 549 deals during the first quarter of 2009 with $3 billion in investment. That’s almost 50-percent less than the $5.7 billion investment and 866 deals in the last quarter of 2008.”

If you do get VC investment, it won’t come cheap. “A lot of equity funds can get a senior position at 50 cents on the dollar, effectively owning the company.

VCs are about return on capital, so they are expensive capital,” says Conway.

Tap Heavenly Sources How do you impress a VC? For starters, “They’ll want to see that you have some money in the bank, a revenue stream, customers and a stellar management team,” says Steve Lundin, head of Chicago’s Big Frontier Communications Group. “Venture capitalists are very attuned to who’s in the spotlight,” he adds.

Lundin’s recent survey of US-based technology startup and early stage companies found that companies engaging in public relations campaigns were 30 percent more successful in attaining funding within one to three months than companies without a campaign. Beyond your public persona, though, one of the keys to attracting VCs right now is to have a scrupulously crafted business plan that pays attention to what’s happening in the marketplace, explains Lenny Sokolow, president and vice chairman of National Holdings Corporation, an independent broker-dealer.

“Some popular VC sectors include clean technology, life sciences, certain consumer products, and online services that create exchanges. As in all things, it’s important to do your 32

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While they still have their wings, today’s angel investors are flying with a little less cash in their pockets. “Even wealthy, accredited investors have seen their net worth dissipate by 30-60 percent, and so we’ve seen a corresponding diminishing in angel investing,” says Sokolow.

Not surprisingly, angels are benchmarking their expectations.

“They know they won’t get immediate returns on their money, so they are looking for companies promising greater returns than in the past from those who are considered less risky. Angels can seek 30 times their return over five years,” says Lundin.

“The key to targeting angel investors is to understand their investment focus. Venema explains: “The Post-Investment Period of Business Angels: Impact and Involvement (Macht, July 2007) states that, ‘[B]usiness angels tend to invest in businesses within their own locality. This may be because active involvement may only be feasible if the business is within easy reach. Unsurprisingly, business angels also tend to invest in business sectors in which they have personal experience. One study...revealed that around a third of business angels invest solely in business sectors in which they have had prior work

experience. Around two-thirds of business angels, however, have made at least one investment in a business sector with which they were unfamiliar.’”

Whatever their focus, one thing is true of all angels: You’ll need to show them that you have business in the pipeline. “If you have a great idea, but no money, you’ll likely have no deal. It will be harder to find money,” says Conway.

What’s more, in this down economy, your presentation has to be flawless. “If they don’t get it, forget it,” says Lundin.

Knock on Your Banker’s Door Despite all the bailouts and stimulus activity, it’s still tough to get money from a bank. “A lot depends on which bank you approach, what industry your company is in, and how you plan to use the proceeds,” explains Scott George, managing director of Plante and Moran Corporate Finance in Chicago.

“Banks are still gun shy,” says Lundin. “If you do get a loan, it may cost you more in time, effort and interest. Loan limits are lower and loan committees are getting more stringent. If you’re a good customer with a bulletproof plan and have collateral, then you can get a loan. If you don’t have stellar credit, you’re unlikely to get a loan. The banks can’t afford any more screw ups like the housing defaults. Be prepared to jump through the hoops to get the money,” he says.

“I have a deal that I’m working on where a 9-year-old, established company wants to purchase land and a building for a medical facility,” says Venema. “The bank wants 30-percent down, guarantees from key investors and more. The company had existing credit with the bank and now it’s trying to renegotiate. But the bank is asking for a much higher interest rate and still may not give the loan. Credit is the life bread, the air of the economy; the lending situation is distressing,” he says.

Though banks aren’t lending much on the commercial business side, since early 2009 there has been a loosening of leasing credit, says Sokolow. “Interest rates for leasing credit might be high, but there’s some blue sky visible there, and it promises to open up in just a matter of time.”

The government is playing in as well. It currently guarantees up to 85 percent of loans in the SBA’s 7a program on amounts below $150,000, and up to 75 percent on larger loans. The government will temporarily increase the guarantee to 90 percent to entice banks to open the lending gates.

The SBA’s 504 program guarantees up to $4 million worth of economic development projects for small businesses. And the Obama Administration will temporarily eliminate fees for lenders and borrowers participating in the program. What’s more, the government will temporarily eliminate upfront fees for 7a loans that banks charge borrowers—typically as high as 4 percent for larger loans.

Fish in Other Waters It’s time to venture beyond traditional avenues if you want to up the odds of filling your coffers. “We’re starting to see smaller, intermediate peer-to-peer lending becoming increasingly popular,” says Sokolow. “These channels, such as TheLendingClub.com, use something similar to the micro-lending models to allow investors to circumvent the banks and make personal business loans of up to $25,000, with an average of

$10,000,” he explains. “It’s a very sophisticated, elegant solution that’s gaining a lot of traction.”

Utilize free resources such as www.vfinance.com, Sokolow advises. This is a primary online connection point between serious-minded entrepreneurs and the capital industry.

Borrowers are also exploring specialty financing sources such as GE Credit and Goldman Sachs Specialty Lending Group. Shop around to find the one best suited to your needs and industry, says George.

Mezzanine financing is also getting a second look. This hybrid of debt and equity financing is typically used to either finance the expansion of existing companies or fund acquisitions. It is essentially debt capital which usually provides the lender with the right to convert a portion of its investment into an ownership or equity interest in the company.

What’s the attraction with mezzanine financing? It’s treated like equity on a company’s balance sheet and may make it easier to obtain standard bank financing. “Borrowers can use this money to bridge the gap between available senior debt and the total funding requirement of the borrower. But mezzanine capital can be expensive, with all interest costs currently in the 17 to 23 percent range,” says George.

Also consider a private equity fund. “While most PE investors primarily seek to make control investments, many are becoming much more open to purchasing minority stakes in businesses, while allowing current management to retain control of the company,” George explains.

For mature companies, a private placement might be a good choice. In this scenario, a group of people or institutions provide equity or debt capital to a company. Private placements are privately offered and are restricted to qualified individuals, usually defined as someone with a net worth of at least $1 million.

What’s the key benefit? The securities being sold do not have to be registered (which is very expensive). Confidentiality, however, has been reduced by recent changes in Regulation D, says Venema, which now require Form Ds to be filed electronically, making them readily accessible to the public.

“There are federal and state rules that have to be followed closely, and potential investors would have to have significant cash to spare. But there are entities that have cash on hand like pension funds,” he says.

Be Realistic Grasp the realities of the current economic climate. Don’t look back at prices and terms that you could have gotten a couple of years ago. That’s history. Expect to get less than you planned. Don’t wait until you are desperate to seek money.

“Anticipate your financing needs as far out as possible, since the more time you have to explore your alternatives, the better your options will be,” says George.

Lastly, says Sokolow, “Beware of people making easy promises, and be wary of upfront payments. Be diligent, be patient, be persistent.”

If realistically there is no chance for you to raise money today, “The best thing to do is wait until the lenders crawl out of their caves,” says Conway. “You don’t want to go down the path of seeking capital where you have zero percent chance of being successful and take your eyes off your business.

Focus on your business and wait. Things will turn. ” www.icpas.org/insight.htm

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C

capital conscience

By Derrick Lilly

Nonprofits are feeling the pinch.

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t’s easy to overlook what’s happening in the nonprofit sector when corporate losses and layoffs are dominating the headlines. But they too are facing significant headwinds due to current economic conditions. What’s most troubling is how severely Illinois’ economy and society could be affected if its nonprofits are unable to withstand the recession.

Illinois Nonprofits in Perspective In 2007, registered Illinois nonprofits employed 427,653 people or 7.3 percent of the entire state’s workforce as reported by the Illinois Department of Employment Security. That’s more than Walgreens and Boeing combined.

Over the years the growth of nonprofits in Illinois has trended up with the state’s population. Recent data from the National Center for Charitable Statistics and the Internal Revenue Service reveals that 66,459 nonprofit organizations were registered in the state in 2008, most likely meaning that current nonprofit employment is much larger than it was in 2007.

What’s more staggering is the amount of money nonprofits circulate through our economy. Looking back to 2006 (the most recent statistics available), Illinois nonprofits brought in roughly $55.5 billion in revenues, then redistributed more than $55.2 billion of it back into the economy through wages, procurements and other operating expenditures.

Research gathered for the Donors Forum Illinois Nonprofit Economy Report, 2008, estimates that nonprofits pay their workers more than $16.5 billion annually. The same report reveals that nonprofits create 9 percent of Illinois’ state product, which is about the same as the finance and insurance industries together.

You may have questioned how significant the nonprofit presence is in Illinois, but there is no doubt that it is critical to the state’s social and economic wellbeing. In fact, every county in the state has a nonprofit presence.

But conditions have changed drastically over the last couple of years. Today, our vast nonprofit sector is under significant strain due to the withering economy. www.icpas.org/insight.htm

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“Between 2005 and 2007, 2.7 million volunteers dedicated 302.9 million hours of service. Estimated economic contribution: $5.9 billion annually.”

[Source: www.volunteeringinamerica.gov]

Think Before You Give 1. Know the Organiz ation . Never give to an organization you know nothing about.

2. Know Where Your Mone y Goe s. Ask how much of your donation is designated for general administration and fundraising expenses and how much supports actual programs.

3. Don’t Cave Unde r Press ure. No legitimate organization will pressure you to give immediately.

The Recession’s Impact “It’s very likely that some nonprofits will not be able to continue operations,” says Claudette G. Baker, VP of library and nonprofit services at Donors Forum in Chicago, a nonprofit membership association that promotes philanthropy and a strong nonprofit sector throughout Illinois.

“It’s estimated that 10 percent of not-for-profits may have to close or merge with another group, and many more will be cutting back,” says Daniel Borochoff, president and founder of the nationally acclaimed charity watchdog, the American Institute of Philanthropy. “We’ve already had major groups close down that have been around for many decades.”

Like many for-profits, nonprofits are shuttering their doors or tightening their purse strings in this challenging economy—but not by choice. Demand for nonprofit services is increasing, while their operating revenues and assets are declining. “Many people that gave last year are now asking for services from these nonprofits,” says Borochoff.

Sadly, widespread declines in corporate, foundation and individual giving are leaving many stressed organizations questioning

Want to Volunteer? The Illinois CPA Society (ICPAS) connects its members and staff with the community through a variety of volunteer-based service programs, including:

Military Service Tax Preparation Project (MSTPP) The MSTPP is a free, volunteer-based, year-round program created as an effort to ease one of the many burdens of overseas deployment and combat duty. Developed in partnership with the Internal Revenue Service (IRS) and their Volunteer Income Tax Assistance program, the MSTPP provides members of the US Armed Forces who have recently returned from or are still deployed in a combat zone or qualified hazardous duty area with personal income tax filing assistance.

With the program in its sixth year, the ICPAS works diligently to connect volunteer CPAs with qualifying military personnel and their families to help them meet IRS guidelines and take full advantage of the combat zone tax benefits, exclusions and exceptions available to them.

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4. Record Your Donation. Obtain a receipt or printed copy of your donation for tax purposes.

5. Know You r Deduction. If the charity doesn’t have a tax exempt letter indicating its status with the IRS, you can’t legitimately claim your contribution as a tax deduction.

6. Don’t B e Misle d by a Name . Some organizations use names that closely resemble respected organizations. Check out the organization thoroughly before making a contribution.

7. Don’t Fall for a Sob S tory. Pulling on emotional strings is a favorite of some organizations.

8. As k if the Organ ization is Registered with Fede ral, State and Local Au th oritie s. Registration does not, however, mean government endorsement.

9. Beware of Gifts . Don’t feel that you have to make a contribution to keep “gifts” included in direct mail solicitations. It is against the law for a charity to demand payment for any unordered merchandise.

Source: www.charitywatch.org

“A lot of times these families don’t know the tax code and some of the benefits they are entitled to with active duty and the earned income credit. Hopefully we are able to bring that to light for them and maximize their deductions for the year,” says Matt Barton, a former sergeant in the US Marine Corps, who is now a CPA with Frederick A. Weinberg & Company in Vernon Hills, Ill. This year alone more than 70 volunteer CPAs have been matched with military personnel and families. Volunteers are provided with IRS military tax resources to aid in the process, and the only volunteer requirement is the CPA certification.

CPA Board Connection Is recruiting board members a challenge for nonprofits? “Yes, yes, yes!” proclaims Kathy Matthews, executive director of the Elgin Youth Symphony Orchestra. “There are a lot of nonprofits now that need good board members and there are never enough to go around.”

The web-based CPA Board Connection is a volunteer initiative established by the ICPAS in conjunction with its community service arm, CPAs for the Public Interest (CPAsPI). It is designed to build

their abilities to meet their objectives. “There’s a challenge of, ‘How do we fulfill our missions in this tough economy with limited resources?’ Those resources are human as well as financial,” says Baker.

According to a recent Donors Forum survey, 45 percent of its nonprofit and grant-maker respondents said they are operating without reserves or that their reserves have declined. Between rising costs and funding cuts, their ability to meet the demand for services continues to decline, and future outlooks are bleak. The overall consensus amongst nonprofits and grant-makers is that the sector has not yet witnessed the full impact of the recession.

“It’s a real challenge,” says Baker. And adding to the struggles of many organizations are government cuts or delays in payments and funding. “The not-for-profits that do have government projects are dependent on the state paying their bills in a timely manner. If they don’t get paid while they’re providing much needed services to individuals, that shortfall will have to be made up someplace else.”

Making up that shortfall will be even more challenging now that the 2008 Bank of America Study of High Net Worth Philanthropy reveals that even the affluent are reining in charitable giving.

Donations from these individuals declined an average of 9.7 percent in 2007 from 2005. Considering that the affluent often balance their charitable giving and volunteerism against their financial portfolios, all estimates suggest that giving in 2008 may have decreased even more than it did in 2007, and may continue to decline while economic and market woes persist.

What’s worrisome is the fact that high net worth households (households with incomes greater than $200,000 and/or net worths of at least $1 million excluding the value of their residences) are accountable for 65 to 70 percent of all individual giving and 49 to 53 percent of giving from all sources, including corporations, foundations, and living and deceased individuals.

“Giving is closely tied to GDP and personal discretionary income, so it will follow the economy,” Borochoff explains.

“Loyal, long-term, wealthier donors, or anyone in a position to give more, are being asked to do more, but they have their limits.

Once that avenue has been exhausted it’s going to be tough.”

What this means is that nonprofits will continue to face mounting challenges as they try to provide quality services on tighter

bridges between the accounting community and Illinois’ many nonprofits. Whether it’s due to size or budgeting, many nonprofits don’t have the luxury of staffing a CPA or finance professional.

The beauty of the CPA Board Connection is that nonprofits of all types use it, and previous nonprofit board experience isn’t always a requirement. Whether you are interested in supporting the arts or combating life-threatening illnesses, there is an opportunity out there for you amongst the CPA Board Connection’s current 150-plus listings. What’s more, the ICPAS offers workshops for potential board members and professionals who want to get a grasp on the legal and financial responsibilities nonprofits shoulder.

“If a nonprofit wants to be sustainable it has to have a board of directors. Eventually the founders are going to leave, and there needs to be a strong infrastructure to keep that nonprofit going. That’s done through the board; they are the people that are going to sustain an organization,” says Matthews.

Making the Grade In February and March of this year, the ICPAS partnered with Ladder Up, a Chicago-based organization that pro-

budgets. Ultimately, their inability to operate will hurt our society and economy as a whole: Unemployment will rise; state product will decline; purchasing power will evaporate; homelessness, hunger and substance abuse will spread; and the masses will be without essential services.

Why Get Involved?

The true fallout of mass shutdowns or layoffs at Illinois’ nonprofits will be far-reaching, but statistics and finances aside, the services nonprofits provide to our society are invaluable. “Not-for-profits exist to solve or meet urgent community needs, because government and for-profits can’t do it all. Not-for-profits help define a healthy community and the vitality of a community,” says Baker.

From cancer research and suicide prevention, to promoting the arts and wildlife conservation, there is a nonprofit in Illinois for nearly every cause imaginable. “The field is so diverse. Everybody, no matter what their views or opinions, can find groups that will match their values and convictions,” says Borochoff.

Donors Forum estimates that more than 700 million hours of volunteer work is completed by Illinois nonprofits annually, but as Baker notes, increased demand for services means nonprofit needs are stretching further than ever before. “There are a number of ways for people to get involved in addition to their money. A volunteer’s time is valuable,” she says.

As a professional, try volunteering your time, providing pro bono professional services or serving as a board member. Between new filing requirements, Form 990 amendments and the many financial issues surrounding nonprofits, Borochoff explains that, “There is a very strong need for financial professionals to participate in not-forprofit organizations. A lot of groups would be quite interested if a CPA was willing to participate in their organization.”

Nonprofits are an essential component of our economy and society. Through charitable giving and volunteerism you can better yourself and your society on a daily basis. So make a difference in your community; get involved professionally and socially, and while you’re at it, encourage your family and peers to become active philanthropists as well.

Additional resources and the Donors Forum reports referenced in this article can be downloaded at www.donorsforum.org.

vides tax and financial aid assistance to low-income families. The goal of the partnership is to connect volunteers from the ICPAS’ Young Professionals Group with Chicago Public School students and their parents in need of assistance to complete the Free Application for Federal Student Aid (FAFSA) form.

The FAFSA form is imperative to low-income college-bound students because it determines their eligibility for federal, state and college-sponsored financial aid, including grants, loans and work-study programs. Correctly filing the form can offer a life preserver for many, but a simple mistake can quickly leave applicants in dire straits.

Because of the form’s complexity, volunteers with a grasp of financial terminology and tax forms is invaluable.

Seeing success in the pilot program, the ICPAS’ CPAsPI arm plans to continue participation and to open the program to all who are interested in volunteering at the various Chicago Public Schools.

For more information about ICPAS volunteer opportunities contact Jill Wiles, community service manager, at wilesj@icpas.org, or visit the “volunteer” tab at www.icpas.org.

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Recession-Proof

Investments

By Carolyn Tang

e’ve seen the collapse of glorified investment houses, government takeovers of bereft corporations and a steep downturn in the markets that some say is even harsher than that of the Great Depression. Given these conditions, the question of where to put your investment dollars is a heady one.

Should the money be invested, or should it be stashed deep under a mattress to ride out the storm?

W

Jeff Nabers is the founder of the IRA Association of America and CEO of Nabers Group, which specializes in self-directed retirement accounts. Perhaps surprising to some, he suggests that, in a depressed economy, investors turn to investment strategies such as real estate, commodities and even private companies. “Alternative investments are a way for individuals to distance themselves from the lies and greed of Wall Street in the interest of their own financial security,” he contends. Dan Deighan, founder and principal of Deighan Financial Advisors, agrees. “It’s important right now to focus on hard assets like real estate and energy as opposed to paper assets,” he says. “The volatility that everyone is experiencing these days, and the significant drops in their paper assets such as stocks and bonds and so on, is due to the fact that they are liquid. They sell every nano-second.”

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Real Estate Real estate is a prime example of a tangible good. “It has intrinsic value, which means it has worth in and of itself,” Nabers explains.

“Unlike a piece of paper, which represents something of value, real property actually is something of value.”

The real estate market may be an area of particular opportunity right now, due to the fact that existing home sales continue to be soft and prices remain depressed. According to the National Association of Realtors® (NAR), in February 2009, existing home sales in the United States were 4.6 percent down year-over-year. Commercial real estate follows a similar trend as losses in the job market continue to reduce demand for office space. The NAR’s Commercial Leading Indicator for Brokerage Activity, which tracks market behavior in major commercial real estate sectors, fell 6 percent to an index of 109.2 in the fourth quarter, from a downwardly revised reading of 116.1 in the third quarter. The slowing index means commercial real estate activity, as measured by net absorption and the completion of new commercial buildings, is likely to weaken further over the next six to nine months.

What’s more, “The supply-and-demand curve favors investmentgrade real estate because, right now, construction projects are all on hold or have been shut down. It’s going to take awhile for that supply to recycle after we get back on top of the economy,” Nabers explains.

However, he cautions that many people invest in real estate for the wrong reasons. Many will purchase property expecting it to appreciate, eventually being sold for a gain. “This was temporarily rewarding during the real estate bubble, but the timeless concept of investing is based primarily on cash flow—on buying assets for income,” he says. “Investors can rent out a property for 10 years and make 310 percent returns. But they can’t count on appreciation. We’re all seeing what happened to those fix and flippers who are hurting now.”

Gold and Other Commodities It has long been said that when economic uncertainty hits, invest in gold. Like real estate, gold is a tangible asset. Unlike real estate, gold’s value has thousands of years of human history behind it.

Investors generally turn to gold as a hedge against wavering markets and unpredictable politics. “Gold is like insurance,” states Peter Miralles, president of Atlanta Wealth Consultants. “Throughout the 1990s and this decade, the Federal Reserve has practiced a low interest rate policy, and gold is basically a type of insurance against the unintended consequences of government intervention, and if a currency crisis occurs with the dollar.”

Elizabeth Versace, a California-based commodities trading advisor, agrees that there is profit to be had due to the rise and fall of commodity prices. “With stocks, unless you short sell, you can only profit from up moves. Short selling is out of favor in the stock market, but perfectly legal and ethical in the commodity markets. Commodities are the last bastion of supply and demand,” she says.

According to experts, gold may reach a record high this year, as demand for the metal as a hedge against inflation outpaces an expanding scrap supply and weakened usage in jewelry. An April 2009 report issued by GFMS, a precious metals research and consulting firm, states that the price of gold could easily reattain its $1,000 mark, and perhaps push past the $1,100 barrier.

The demand driving this pricing is clearly visible. In 2008, official coin minting hit a two-decade high due to increased demand in North America and Europe, while bar hoarding increased by 62 percent, driven mainly by demand in East Asia and the Middle East.

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Miralles contends that there is also investment potential in commodities other than gold. He says that the weak economy has depressed prices for alternative commodities, resulting in some attractive valuations. “Commodities will benefit from the rebound in the economy. Companies may have defective balance sheets, but commodities do not, and are fundamentally sound,” he says.

Versace agrees, pointing to copper as today’s most promising upward-trending commodity. “Recent news suggests that China is stockpiling copper because the price is cheap relative to the highs of last year. China uses a lot of copper in manufacturing and infrastructure, and the country is spending a lot on a stimulus package that will most likely create the need for copper,” she explains.

“There is still copper in the ground, but getting it out is becoming more expensive and harder to do. This means that creating new copper supplies will likely be expensive, and there will be less new copper going forward.” This decrease in supply has the potential to drive copper prices up in the short term.

Versace does warn, however, that researching the right commodities to trade in is difficult, mainly because the information available for free or to the general public is often either wrong or out-of-date. “Since it is possible to lose a great deal of money trading commodities, you should research the best expert from which to take advice,” she says.

Technology Although the sector has been out of favor for several years now, it still holds strong fundamentals, says Miralles. “Technology valuations are at some of their lowest points in the last 15 years. Corporations will always invest in new technologies to become more efficient. It’s not a question of if, just when,” he explains.

Bill Hayes, director of asset management for Chicago Investment Group, says that the continuous, evolutionary nature of the sector is one reason why investing in technology is a smart move.

“The other day I was watching the movie Uncle Buck. The amazing thing is that the movie was made in 1989, and there were no cell phones, no ATMs, no Internet,” he says. What’s more, he adds, the top 10 jobs in demand for 2010 didn’t even exist in 2004.

“This is because of the incredibly fast advances in technology,” Hayes explains. “Products we use today will be different in just 18 months. Technology will always advance, change and present new and exciting opportunities.”

The key, he says, is finding the right technologies, companies and opportunities to invest in. He recommends that the average investor consider a tech mutual fund, since it often takes a professional advisor to stay on top of developments in the industry.

Energy Ori Pagovich, managing partner of Gotham Financial Services, projects that the second half of the year will see increased consumption of energy-related goods and services. “There will always be cyclical, seasonal trends in energy consumption, but speaking much more broadly, traditional energy companies such as oil and gas will continue a general upward trend,” he says.

Pagovich also predicts that prices will remain relatively low, but will show modest increases partly due to OPEC’s determination to create a more profitable floor for oil prices. “As we begin to come out of this deep recession, I see oil prices rallying more aggressively and trending upwards. Other components of the energy sector, alternative/green, nuclear, etc., will trade within a narrow range for the balance of the year,” he says.

art & antiques The world of fine art and antiques might seem a lot like fluff in comparison to other investment options. But people such as artist Pablo Solomon could convince you that collecting is more than a hobby; it is, in fact, a viable and potentially profitable investment strategy—particularly during a recession.

“Art is a good barometer for the economy in general,” says Solomon. “When times are booming, everyone from main street to Wall Street buys art. They buy it on their vacations, they buy it from the local gallery, they buy it at art fairs. However, when times are economically tough, art is often sold off. In the top financial circles, great art is always in demand, and even in the worst of times, it is being bought and sold. The bargains are there.”

Price, however, isn’t the only lure of this investment. Fine art and antiques also serve as hedges against inflation, since their tangible nature holds universal value. “From conquering armies to escaping refugees, art remains one of the things that is considered of timeless value,” says Solomon.

Gallery owners and directors like Waltford Gonzalez, director of Valerio Antiques in Florida, are seeing “a great resurgence of consumer spending on antiques.” “Clearly,” he says, “consumers are looking for safe investments; they want to invest in something tangible instead of the stock markets that have failed them.”

Bill Rau, owner of New Orleans-based M.S. Rau Antiques, agrees. He says that he’s seen investors turn to art and antiques as a way to diversify their portfolios during volatile economic times.

Rau refers to the annual Antiques Furniture Price Index (AFPI), which shows that antique furniture has outperformed both the stock market and home values for most years since it began tracking figures in 1968. “Fast forward to 2007 when, according to an Art & Antiques article, the overall art market saw an impressive gain of 20 percent compared to a much more modest 5.5-percent increase of the S&P 500,” says Rau. To further his point, he explains that more than 1,000 new auction records were set globally in 2008. “The art and antiques market is fueled by a host of investors anxious to diversify into less volatile arenas, and by the influx of new money hailing from emerging economies such as China, Russia and India,” he says.

Diversify Hayes emphasizes that while investors might want to focus on tangible assets now, they should not neglect the importance of diversification in their portfolios. “Think of your portfolio like a seesaw. If you have just two investments, one on each side, the movement of one causes greater overall swings. The more diversified assets you have, or the more seats on the seesaw, the greater stability you have when one swings. Having real estate and fine art are both good investments for any portfolio; the key is keeping these investments in the right percentage of your overall invested assets,” he explains.

Surely though, there are signs of a recovering economy. “Every week we are getting a mixed bag of economic data,” says Pagovich. “While unemployment is still high and growing, many leading economic indicators are showing positive signs like interest rate spreads, manufacturers’ new orders for consumer goods and materials, and building permits.

“The seeds for greater economic activity are being sown now,” he says. www.icpas.org/insight.htm

JULY 2009

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Paving the Way for Tomorrow’s CPAs

Standing Ovation

Take a Bow Ira Solomon, CPA, PhD receives the AICPA’s 2009 Distinguished Achievement in Accounting Education award.

By Judi Kulm

E

ducation: It’s the key to a continuing pipeline of accomplished young accounting professionals.

And it’s people like Illinois CPA Society member Ira Solomon, CPA, PhD, who help to ensure that the professional pipeline is filled.

In recognition of his efforts, Solomon, head of the Department of Accountancy and R.C. Evans Endowed Chair in Business at the University of Illinois at UrbanaChampaign, has been named the recipient of the American Institute of Certified Public Accountants’ (AICPA) 2009 Distinguished Achievement in Accounting Education award. This annual award, which was presented at the spring meeting of the Institute’s Governing Council, is presented to a full-time college accounting educator in acknowledgement of excellence in teaching, as well as national prominence in the accounting profession.

Solomon represents the third recipient from Illinois in the award’s 24-year history.

Specifically, Solomon has made significant contributions to the development of the accountancy program at the Uni-

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versity of Illinois and elsewhere through his directorship of Project Discovery, an innovative undergraduate accountancy curriculum that requires students to apply accounting principles to real-world problems through discovery learning, role-playing, case studies and other activities. The 16 cases Solomon developed with KPMG and other colleagues have been downloaded more than 300,000 times, and widely used by professors of accountancy nationwide.

An Illinois member of the AICPA Council and a longtime member of the Illinois CPA Society (ICPAS), Solomon has served as director and a vice chair of the ICPAS Board of Directors, chaired the ICPAS Education Summit Task Force and served on numerous ICPAS committees, in addition to being called upon as a media expert for the Society. He is also a prolific author, with more than 75 published articles and nearly 100 papers presented at conferences and seminars around the world. He has received numerous awards, including a Special Award of Merit from the Society at the New CPA Banquet in May 2009.

Lifetime Achievement Awards Cameron T. Clark, CPA Retired Partner, KPMG LLP

Duane D. Suits, CPA Retired Partner, Sikich LLP

Public Service Award Kenneth J. Hull, CPA Retired, Follett Corporation

Outstanding Leadership in Advancing Diversity Award Scott D. Steffens, CPA Partner, Deloitte through June 27, Effective August 1, Partner, Grant Thornton

Outstanding Educator Awards

The Illinois CPA Society is proud to recognize the following award winners and congratulate them on their accomplishments.

Diana McCabe, CPA Assistant Professor, Black Hawk College

Sandra S. Lang, PhD, CPA, CFE Chair, School of Business, McKendree University

Deborah L. Lindberg, DBA, MBA, CPA Professor, Department of Accounting, Illinois State University

Distinguished Service Awards Robert E. Cameron, CPA

Alan R. King, CPA

Cameron, Smith & Company, PC Peer Review Report Acceptance Committee

May, Cocagne & King PC Peer Review Report Acceptance Committee

Andrew Dumich, CPA

Jason Parish, CPA

Young Professionals Group

Blackman Kallick LLP Young Professionals Group

Neil F. Finn, CPA Deloitte & Touche LLP Audit & Assurance Services Committee

James L. Fuehrmeyer, CPA University of Notre Dame Accounting Principles Committee

John A. Hepp, CPA Grant Thornton, LLP Accounting Principles Committee

James G. Quaid, CPA Ostrow Reisin Berk & Abrams Ltd. Not-For-Profit Organizations Committee

Leonard C. Soffer, CPA University of Chicago Accounting Principles Committee

Reva B. Steinberg, CPA BDO Seidman, LLP Accounting Principles Committee

Jon R. Hoffmeister, CPA

Jeffrey P. Watson, CPA

Clifton Gunderson LLP Audit & Assurance Services Committee

Blackman Kallick LLP, Accounting Principles Committee

Paul V. Inserra, CPA

Kevin V. Wydra, CPA

McClure, Inserra & Co., Chtd.

Audit & Assurance Services Committee

Crowe Horwath LLP, Audit & Assurance Services Committee

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