November/December 2019

N OV E M B E R / D E C E M B E R 2 0 1 9

KNOWING NONPROFITS: PRESCRIPTIONS FOR GROWTH

contents N OV E M B E R / D E C E M B E R 2 0 1 9

THE MAGAZINE OF THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

4 Navigating the Changing Role of the Nonprofit CFO RALPH ALBERT THOMAS, CPA (DC), CGMA Chief Executive Officer & Executive Director rthomas@njcpa.org ELLEN C. McSHERRY Chief Operating Officer emcsherry@njcpa.org DON MEYER Chief Marketing Officer dmeyer@njcpa.org RACHAEL BELL Managing Editor rbell@njcpa.org KATHLEEN HOFFELDER Content Editor khoffelder@njcpa.org MARC L. REIN Multimedia Specialist mrein@njcpa.org

Nonprofit CFOs face a variety of challenges from declining individual donations and shifts in tax policy to adapting to a more technologically advanced world. But while they are becoming more nimble than ever, they need to be open to finding alternative ways to increase revenue and help grow their organizations.

8 Strategies for Staying Funded in the Tax Cuts and Jobs Act Era By altering the Internal Revenue Code, the Tax Cuts and Jobs Act (TCJA) dealt a particular blow to nonprofit organizations. The increase in the standard deduction for taxpayers and the doubling of the estate and gift tax exemptions may translate into less donation dollars for nonprofits, which could cause a ripple effect on fundraising and staffing. The way exempt organizations account for, and report, unrelated business income, compensation and fringe benefits has also changed. Find out how to surmount these and other challenges to succeed in the TCJA era.

10 What Gift Giving Means for CPAs

Hosting 5K runs, holding food drives, building houses and even growing a beard are all ways CPAs have helped their communities, neighborhoods, local charities and national organizations.

CPAs give back in a myriad of ways — those that come natural like number crunching and those that are fun, engaging and truly sincere. See how your colleagues make a difference and why.

2 CLOSE UP

Making Inclusion a Priority for the Board THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 105 EISENHOWER PARKWAY SUITE 300, ROSELAND NJ 07068 973-226-4494 | NJCPA.ORG #NJCPAMAG READ NEW JERSEY CPA ONLINE AT NJCPA.ORG/ NEWJERSEYCPA DE SIGN / P RODUCT I ON / ADVERTISIN G THE YGS GROUP 3650 WEST MARKET STREET YORK, PA 17404 Advertising Contact: LAURA GAENZLE ACCOUNT EXECUTIVE 717-430-2351 laura.gaenzle@theygsgroup.com

13 ACCOUNTING, AUDITING & ATTEST

Facing Increased Risk: Top Considerations for Audit Committees 14 ADVOCACY & LEGISLATIVE ISSUES

State Board Adopts New Regulations 15 BECOMING A CPA

10 Steps to Prepare for and Complete the CPA Exam 16 BUSINESS ADVISORY SERVICES

5 Best Practices for CPAs Working with Family Offices

17 FINANCIAL PLANNING SERVICES

Protecting Senior Clients from Financial Abuse and Investment Scams 19 FIRM & PRACTICE MANAGEMENT

Small Changes That Have a Big Impact on Employee Satisfaction 20 GOVERNMENTAL & NONPROFIT

23 TAX

Designating a Trust as an IRA Beneficiary 24 TECHNOLOGY & INFORMATION MANAGEMENT

Emerging Issues in Blockchain and Cryptocurrency 25 NJCPA NEWS

Single Audits for State Grants

• NJCPA Publishes Audit Report • Tax Resources Available Ahead of Busy Season

21 LAW & ETHICS

27 CLASSIFIEDS

Understanding the AICPA Ethics Interpretation on Hosting

28 MEMBER STORY

22 PROFESSIONAL DEVELOPMENT

Choosing a Career Path

Marc Feldman, CPA

CLOSE UP

Making Inclusion a Priority for the Board

BY KYLE SELL, CPA, DELOITTE & TOUCHE LLP, AND 2019/20 PRESIDENT, NJCPA

Whether it’s a board of directors or board of trustees, today’s boards are more diverse than they were even five years ago. This group of appointed individuals should not only represent an organization’s members, customers and talent; it should also consider future members, business prospects and new business partners. But when an inclusive culture also exists at an organization, true change is possible. It’s a board’s responsibility to help govern an organization with an awareness of both diversity and inclusion policies. At the NJCPA, I was pleased to have shared this concept with the Board of Trustees in September, and I will be participating in planned meetings on this topic with members throughout the year.

A 2019 Deloitte Insights report, authored

by Mike Fucci, former chairman of the board at Deloitte, and Terri Cooper, U.S. chief inclusion officer for Deloitte, shows why it is important for boards to educate organizations about this issue, how it can impact strategy and how to monitor inclusion performance. This is relevant for all sizes of boards and even small to mid-size CPA firms can apply the concept as well.

Here are some important ways that boards can ingrain inclusion into their organizational strategy: • Align with management on the definition of inclusion, and proactively provide input to shape the inclusion vision, strategies and goals.

• Understand the organization’s diversity and inclusion maturity levels and efforts; request information from management to inform the board’s guidance for addressing the organization’s significant gaps.

• Stay aware of the enablers and barriers to fostering an inclusive culture (which may also impact the organization’s diversity); evaluate and approve major solutions toward promoting enablers and breaking down barriers as recommended by management.

Boards of varying sizes will be able to implement inclusive policies at different paces but in order to foster inclusion at the start, it’s common to first conduct a self-assessment of inclusive governance practices and develop a plan to embed inclusion into all board processes. Boards can then determine whether they want to form an inclusion-specific committee or have a specific person within the board take charge of that.

So how can one tell whether leaders will follow through on this diversity and inclusion endeavor? The Insights report outlined six signature traits of inclusive leadership: • Commitment — dedication to cultivating a diverse, inclusive workforce • Courage — willing to challenge entrenched attitudes and practices, and acknowledge personal limitations • Cognizance of bias — make an effort to identify personal biases and prevent them from influencing talent decisions • Curiosity — demonstrate openmindedness and a desire for an exposure to new ideas • Cultural intelligence — change personal style in response to different cultural norms • Collaboration — create an environment in which all individuals can feel empowered

And employees will reward an organization whose leadership has these traits by staying at the organization and wanting to grow with it. According to the Insights report, “employees see inclusion as one of the most important factors in deciding where to work, and they want inclusion to be fundamental to their daily work experiences.”

It’s not just the board-level executives who should be part of this mix; managers and other staff play a critical part in championing and driving inclusive behaviors and practices at an organization.

To measure diversity, organizations can track the rate at which they hire and employ people in various demographics, the report explains. To measure inclusion, organizations can analyze retention data, promotions and attrition among the various demographics. These practices will become more commonplace as a full diversity and inclusion culture takes hold.

What also helps is to regularly put a placeholder on board agendas for the discussion of this topic and to report how development is coming along. This will help ensure that the board continues to move towards having an inclusive culture and, more importantly, that everyone is involved in that process. The alternative, after all, can hurt profits, reduce membership or number of clients and lead to lower retention rates. As the report notes, this type of culture does not happen overnight; it’s a long process — but one worth pursuing.

READ MORE DELOITTE INSIGHTS deloitte.com/insights

New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 105 Eisenhower Parkway, Suite 300, Roseland, NJ 07068. Issue No. 78 Copyright © 2019 New Jersey Society of Certified Public Accountants. Annual membership dues include $9 for a one-year subscription to New Jersey CPA magazine. Members may not deduct subscription price from dues.

Periodicals postage paid at Roseland, NJ, and at additional mailing office. POSTMASTER: Send address changes to New Jersey CPA, 105 Eisenhower Parkway, Suite 300, Roseland, NJ 07068-1640.

The materials and information contained within New Jersey CPA are offered as information only and not as practice, financial, accounting, legal or other professional advice. The opinions expressed herein are those of the authors and not necessarily those of the New Jersey Society of CPAs. Publication of an advertisement in New Jersey CPA does not constitute an endorsement of the product or service by the New Jersey Society of CPAs.

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NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

8 Stay Ahead of Changes in Nonprofit Regulations and Best Practices This annual event provides essential tax, compliance, auditing and governance updates to best serve your clients.

NONPROFIT CONFERENCE THURSDAY, DECEMBER 5 8 a.m.-4:30 p.m.

PINES MANOR, EDISON

NJCPA.ORG/CATALOG E1912570

Or attend virtually

NEW JERSEY CPA | NOVEMBER/DECEMBER 2019

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NAVIGATING THE CHANGING ROLE OF THE NONPROFIT CFO

By KATHLEEN HOFFELDER

NJCPA CONTENT EDITOR

CFOs have experienced one of the most dramatic transformations of any in recent years — from number crunchers to strategic advisors who help lead the direction of their organizations. Nonprofit CFOs are no different, except they often face even more challenges amid shifts in tax policy and finding alternative ways to obtain revenue.

They are more analytical than ever, but they need to also consider the organization’s growth.

As James P. Ferrone, CPA, CGMA, director at Gramkow, Carnevale, Seifert & Co., LLC, notes, the nonprofit CFO/ controller function has changed such that the CFO is not only the tracker of

expenses and revenue, but a person who is key to fundraising. The controller/ CFO needs to stay current on any changes in reporting, he says, to make sure the nonprofit is in compliance with the Financial Accounting Standards Board (FASB) and other regulations. “They need to be the person with the full skills, knowledge and experience no matter the size of the nonprofit,” he adds.

Dr. Joseph Howe, CPA, CFE, CGFM, the CFO of a government entity in New Jersey, agrees. “Being a nonprofit CFO today is much more than balance sheets and income statements. The job entails a command of communication and risk

CONTRIBUTORS In order of appearance

JAMES P. FERRONE, CPA, CGMA Director Gramkow, Carnevale, Seifert & Co., LLC

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DR. JOSEPH HOWE, CPA, CFE, CGFM

NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

BRIDGET HARTNETT, CPA Partner SobelCo

CAREN C. JESSEMAN, CPA, MBA

JASON CULLARI, CPA, MBA, PSA Managing Member CullariCarrico

MARIA C. PLUCINSKY, CPA Partner SAX LLP

AMY MacFADYEN, CPA Partner EisnerAmper LLP

management skills in order to keep the organization’s mission in focus,” he says.

And that’s not always easy. Since nonprofit CFOs budget for events and programs compared to traditional physical products, it can be challenging to obtain the budget data needed. “CFOs working in the nonprofit community must help their organizations understand that the term ‘nonprofit’ reflects their tax status and not their business plan,” explains Bridget Hartnett, CPA, partner in charge of the nonprofit practice at SobelCo. They need to prepare realistic budgets and cash flow analyses, but all too often the organization does not know the complete cost of a program, making it difficult to determine the true return on investment. “The decision of when to sunset a project is complicated when the costs are not estimated accurately early in the process,” she adds.

Today’s nonprofit CFO must be more entrepreneurial with his or her thought processes than in the past, adds Caren C. Jesseman, CPA, MBA, a provider of CFO advisory services. “That’s a thought that may be foreign to some in the nonprofit world and previously belonged only in the halls of corporate America. However, the days of reliance on grant funds or donations have gone by the wayside. As a result of budget deficits at many government levels, grant funding has dried up, or at best, remained at constant levels.”

As Jesseman explains, it may be necessary for nonprofits to “become creative with revenue sources.” For example, one charity that had a mission to vocationally train individuals with developmental disabilities in preparation for gainful employment decided to expand their vocational training to include janitorial and shredding services as grant funding dried up. “The result was an increased revenue base which allowed for expansion of the programs to train additional consumers in a more comprehensive way,” she says.

“There is no doubt that in this changing economy, nonprofit CFOs have to be in the know more than ever before,” adds Jason Cullari, CPA, MBA, PSA, managing member of CullariCarrico. “Pinpointing what is important to donors, knowing how to ask for gifts and how to showcase the

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nonprofit’s mission and metrics are all important factors when trying to grow a sustainable nonprofit into the future.”

And selling goods and services in ways that provide revenue to the organization, while benefiting and maximizing their social impact, is becoming an essential move for nonprofits, he adds. For example, a New Jersey-based nonprofit providing supportive employment services to adults with autism needs donations to support the deficiency of funding provided by Medicaid. But, as Cullari says, this isn’t a sustainable model. “Adding a profitable social enterprise, such as a farm, warehousing/distribution or even eateries, can provide jobs for the adults with autism while driving profit to the nonprofit.”

TCJA AFTERMATH With the implementation of the Tax Cuts and Jobs Act (TCJA) of 2017, the job of a nonprofit CFO and controller became a bit more complicated. As charitable donations slow down due to the inability for many households to claim an itemized deduction for their charitable gifts, CFOs have had to be much more open to new ways to receive revenue. According to Urban-Brookings Tax Policy Center estimates1, the TCJA reduced the marginal tax benefit of giving to charity by more than 30 percent in 2018, raising the after-tax cost of donating by about 7 percent. The TCJA increased the

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standard deduction to $12,000 for single tax filers and $24,000 for married couple tax filers, while limiting the state and local tax deduction to $10,000. “Unless taxpayers increase their net sacrifice — that is, charitable gifts less tax subsidies — charities and those who benefit from their charitable works, not the taxpayers, will bear the brunt of these changes,” according to the Tax Policy Center.

With the changes in tax law, nonprofits may see a change in how their donors donate, explains Ferrone. “Some taxpayers may no longer see a benefit from making donations on their 1040s. Charities may need to inform their donors, along with the assistance of tax advisors, on how to instruct donations to receive benefits.” He has seen donors double up in one year to receive a benefit on their 1040 filing, which means the charity will need to make adjustments to their cash flow as these larger donations in year one will be much smaller in year two.

Maria C. Plucinsky, CPA, partner at SAX LLP, adds that “by increasing donations in one year to a level where they would qualify to itemize their deductions, and in turn, save on taxes, it may provide enough incentive for some to continue donating to an organization.” Nonprofits, she says, may need to adjust budgets by reducing expenses to deal with any significant reductions in

NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

donations, in addition to having verbal conversations with their donors about the options at hand.

The TCJA has also made nonprofit CFOs think strategically about how organizations can participate in alternative fundraising options. While giving by corporations has increased by an estimated 5.4 percent in 2018 to $20.05 billion (an increase of 2.9 percent, adjusted for inflation), according to Giving USA2, giving by individuals declined 1.1 percent (a decrease of 3.4 percent, adjusted for inflation) in 2018 to an estimated $292.09 billion. CFOs, in turn, have had to become more aware of revenue-making opportunities. According to Hartnett, savvy CFOs are helping their organizations by suggesting alternative fundraising options. “Many put time and effort into new, bolder #GivingTuesday campaigns (where nonprofits have come to launch giving campaigns after the Thanksgiving holiday for all kinds of donations), while also leveraging live auctions as well as silent auctions at events, identifying passionate supporters whose donations are not predicated on a tax deduction,” she says. Nonprofit organizations have also expanded their fundraising efforts to reach more diverse audiences to ensure sustainability.

The TCJA is also likely to require nonprofits to pay more taxes on qualified transportation fringes, such as on any parking or mass transit benefits it offers to employees, adds Hartnett. If an organization provides these benefits, it may be required to complete Form 990-T (Exempt Organization Business Income Tax Return) and incur a 21-percent tax on those amounts. “The overall impact can be very significant. For example, if an organization pays $10,000 to a third-party provider for its employees to park during the workday, they would be subject to approximately $2,000 in tax after allowable deductions.”

Similarly, she says nonprofits may also have to pay unrelated business income tax (UBIT) since under the TCJA, starting in 2018, each unrelated business must determine its net income without regard to losses from other unrelated businesses.

MORE DATA ANALYSIS The increased use of new data and analytics tools has helped free nonprofit CFOs from pure number crunching. “Thanks to the advanced technologies of today, nonprofit CFOs can utilize data to predict, and in as much alter, financial outcomes of tomorrow,” explains Jesseman. “Today’s nonprofit CFO can make decisions based on data in a way that can positively impact the bottom line which correlates to advancement of the organization’s mission.”

Since donors today have more knowledge of the proper questions to ask nonprofits than ever before, CFOs and their development team need to work hand in hand to understand the proper metrics and numbers that they need to convey to potential donors, once the donor has expressed an interest to give, explains Cullari.

Therefore, “CFOs and their development team need to ensure that their organizational story is consistent, relatable, qualitative and quantitative,” he adds.

Amy MacFadyen, CPA, partner at EisnerAmper LLP, sees CFOs benefitting immensely from technological advancements. “As technology evolves, so does the role of the CFO/controller. Technology offers options to gain process efficiencies, but it can also remove some of the key controls that can be performed with

manual/paper processes. Implementing new technology can greatly save a company time and money, however, it still needs to consider which controls are needed to maintain best practices,” she says.

And as Hartnett adds, while technology is minimizing the need for nonprofit CFOs to generate the financial data and reports, they are expected to share insights, offer suggestions and assume a consultative role. This way, “they provide resources for the organizations assisting with board selection; fundraising, including planned giving; governance guidelines and other tactics.”

REPUTATIONAL RISK Managing reputational risk is another task that a CFO must deal with today, and perhaps no CFO is more impacted by reputational risk than the nonprofit CFO. As Howe explains, “all nonprofits are inherently businesses that rely on public trust, so reputational risk can be particularly pronounced. Malfeasance by directors, employees and even donors/funders can ill effect the viability of the organization.”

When this happens, he adds, nonprofits that rely on outside funding can be especially hurt by donations and grants being pulled.

Keeping the lines of communication open between nonprofit CFOs and the

organization’s board can lessen the impact from such risks. Together the board and the CFO can discuss which reports, budget considerations, new policies, procedures and risks — whether financial or reputational — they want to discuss, says MacFadyen.

1. taxpolicycenter.org/briefing-book/how-didtcja-affect-incentives-charitable-giving 2. givingusa.org/giving-usa-2019-americansgave-427-71-billion-to-charity-in-2018amid-complex-year-for-charitable-giving/

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STRATEGIES FOR STAYING FUNDED IN THE TAX CUTS AND JOBS ACT ERA

By CHRISTOPHER D. PETERMANN, CPA

PKF O’CONNOR DAVIES, LLP

The Tax Cuts and Jobs Act (TCJA) introduced major changes to the Internal Revenue Code, many specifically directed at exempt organizations.

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Delivering particular punch are the TCJA’s provisions altering the way exempt organizations account for and report unrelated business income, compensation and fringe benefits, as well as a tax on net investment income for certain colleges and universities.

It’s the change to individual taxes that may have the most significant impact as it relates to funding — and it’s far from positive. The substantial increase in the standard deduction may translate into decreases in charitable contributions, possibly between $13 billion1 and $24 billion annually2. This staggering drop in financial resources threatens to curtail operations, activities, events, third-party funding and salaries; it could also result in the elimination of as many as 264,000 jobs3.

In addition to nearly doubling the standard deduction, the TCJA fully doubles the estate and gift tax exemptions, a momentous change estimated to cost nonprofits as much as another $4 billion in donations annually3.

With the higher exemption, fewer estates will be subject to taxation, and even those that are will be taxed at a lower rate, reducing the likelihood that wealthy taxpayers will donate as a strategy to reduce their tax burdens.

Other changes reduce or eliminate deductions, such as state and local taxes and home mortgage interest, resulting, for some taxpayers, in a limited ability and desire to donate. Paying more in taxes means having less “disposable” income, a category that often includes charitable giving.

events raise significant amounts of money in remarkably short time spans. Amazon Smile equips its massive global following to direct donations to the charity of their choice with each purchase. The internet has also fostered online fundraising through social media, angel investors and groups, such as GoFundMe and Fundly. New companies offer entire messaging and online fundraising platforms. CharityNavigator.org provides information and ratings on charities around the world, and visitors can donate through its website. The merger of Foundation Center and GuideStar created Candid.org, offering comprehensive data on nonprofits, foundations and grants.

At the same time, organizations that have traditionally relied on government funding can no longer count on that support as federal, state and local resources shrink. Innovations — such as donor-advised funds and online platforms — are appearing, competition is mounting, dollars are diminishing and new nonprofit entitles are being created.

THE NEW WORLD OF PHILANTHROPY The internet makes giving easier than ever.

Flash fundraisers and social media sharing

STRATEGIES FOR FUTURE GROWTH Though economic expansion has produced greater wealth, people are devoting more

NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

THE GOOD NEWS Despite these enormous challenges, what remains positive is the human spirit. People are still compassionate. They still want to change the world, right wrongs, feed the hungry, champion the oppressed, house those in need, hear stirring music, save helpless animals, preserve natural wonders, support talented artists, enable children to thrive and so much more.

energy to research, cause selection and financial evaluation. As donors become more selective in giving, exempt organizations must become more selective in cultivation. Nonprofits should focus their resources on three key tactics: research, creativity and message.

Tactic 1: Research

It is harder to land a new benefactor than upsell an existing one, so organizations should continue to court their current donor base.

Now, however, groups may need to reach beyond this base, doubling or even tripling their efforts to recruit people, businesses and corporations they haven’t reached out to before. Fortunately, the internet makes it easy and effective to identify, focus on and connect with potential new funding sources.

Also promising are those who are committed to impact investing. Younger generations, particularly those who create or inherit wealth, are attracted to causes for which they can make a measurable difference. Equally appealing are initiatives to expand sustainability. Searching for those likely to share these interests may add previously untapped prospects to expand a donor base.

Tactic 2: Creativity

Once the target market has been pinpointed, the next step is to develop enticing ways to grab attention, touch hearts and open wallets. Letter-writing campaigns, telethons and textathons hold promise for causes that already possess a strong and emotional base. Typically, these are special interest groups advocating for a personal cause, such as an individual within the community suffering a hardship.

For those without such a reliable base, greater creativity is in order. Although fundraising events — longtime staples for nonprofits — are still viable, they now require more strategic planning. Many groups are now fine-tuning their planning to ensure donors are simultaneously “feeling good” and “doing good.” Some add an educational component so the pleasure of attending a performance by a regional ballet company, for instance, is complemented by the satisfaction of knowing funds are directed to support school dance programs. The key is understanding the factors likely to move and motivate those the organization is targeting.

Tactic 3: Message

Once the ideal donor base and optimal methods for reaching it have been identified, it’s time to hone the message that will be delivered. Concise, accurate, impactful, relevant — these are the watchwords to keep in mind as the message is evaluated and refined.

For groups that have represented the same cause for many years, this may present a challenge. If donor fatigue has set in, a message may be reformulated to resonate with past contributors whose priorities have changed and with potential new contributors who have different priorities altogether.

Consider highlighting new ways the organization’s cause affects people, communities or the world. Expand the mission to reflect issues new donors take to heart. Differentiate the way the organization works to solve a problem. Paint a touching portrait of those the group serves, and demonstrate the impact made by the program. Organizations that can make a realistic case for being the best at what they do need search no further for a convincing message.

CHECKING THE LAST BOX: FORM 990 As people make more rigorous selection assessments for their charitable dollars, it’s critical that the organization appear fiscally responsible. Many prefer to see that their contributions are going to an organization with the financial stability to help ensure that the program being funded will receive the intended money, rather than diverting contributions to cover other expenses. Informed donors know to check an organization’s Form 990 for this information.

To this end, it’s worth consulting with professionals to ensure an accurate Form 990. Experienced specialists understand

the importance of, and nuances entailed in, accounting for exempt organizations. They can help make certain that the organization is telling its “story” in the best way possible.

The TCJA certainly presents challenges to today’s exempt organizations. Savvy leaders recognize the opportunities available and seize them to promote financial health and future success.

1. philanthropy.iupui.edu/news-events/news-item/ tax-policy-proposals-would-reduce-charitablegiving,-new-study-finds.html?id=227 2. nonprofitlawblog.com/tax-cuts-and-jobs-act-newtax-law-impact-on-nonprofits-fundraising/ 3. councilofnonprofits.org/sites/default/files/ documents/tax-bill-summary-chart.pdf

Christopher D. Petermann, CPA, is a partner with PKF O’Connor Davies, LLP, and serves as co-partner-in-charge of the private foundation practice. He is a member of the NJCPA Nonprofit Interest Group and can be reached at cpetermann@pkfod.com.

READ MORE NONPROFIT ACCOUNTING ARTICLES AND RESOURCES njcpa.org/topics/nonprofit

DO MORE JOIN THE NONPROFIT INTEREST GROUP njcpa.org/groups

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NEW JERSEY CPA | NOVEMBER/DECEMBER 2019

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WHAT GIFT GIVING MEANS FOR CPAs

By KATHLEEN HOFFELDER

NJCPA CONTENT EDITOR

CPAs by nature like to help people — whether it’s saving money, finding a more efficient way to organize billing or simply offering some business advice. For most accounting professionals, donating one’s time to helping a worthy cause, participating in a kickball or softball game, or spending a few hours packing some food items is just another part of their day — and it provides a welcome break from their daily routine.

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Getting professionals of all ages to participate in charity events has become a lot easier. Firm or corporate charity events are increasingly more fun and engaging for staff of all ages. And it’s a great way to get to know even one’s own coworkers on another level as well as meet other accounting professionals who have the same interests as them. Indeed, philanthropy not only helps supply food or other external relief to those in need, it helps professionals build their network and enhance their company’s image while doing a good deed for the community — a win-win for all.

FIRMS GIVING BACK How CPA firms give back is as unique as their culture. Some prefer large philanthropic donations and promotion, while others favor the personal touch, such as giving to a local sports club or town shelter.

Some consider their gift giving to be more of a team project to fulfill certain objectives and others include whole groups of staff, if not the entire office.

Withum, for one, has an innovative approach to selecting charities. Its class of incoming staff accountants, dubbed its Empower Group, go through six weeks of onboarding and choose a charity for the year. After researching nonprofit organizations and presenting their favorites, it was decided that in 2019 all firm-wide fundrais-

NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

ing efforts would go towards the Juvenile Diabetes Research Foundation ( JDRF). According to Matt Bilio, interactive marketing manager at Withum, “they far exceeded our expectations, and in a tight race ultimately selected JDRF after one of our new team members shared his personal history and struggles with diabetes.” As he explains, “the intent is for our Empower Group to become the ‘face’ of this program — we want them to help come up with some inventive fundraising ideas that will shift away from the ‘jeans day’ concept, and to continue to keep our team members engaged and motivated to donate throughout the year.” Their goal is to raise $30,000 for JDRF before the end of 2019.

Others also work to get a lot of employees on board. In August, Mazars USA LLP completed its fifth annual Days of Service campaign, where employees devoted a full day to assist local service organizations.

More than 500 employees and partners spent the day at more than 30 community and nonprofit programs in New York City, Long Island, New Jersey, Maryland, Philadelphia, Sacramento, Los Angeles and Chicago. This ranged from partnering with the Ronald McDonald House of Long Island and preparing a meal for the families staying at the House to helping animals at the National Greyhound Adoption Program in Pennsylvania.

Withum’s Empower Group volunteers at a local food bank for Withum Week of Caring.

To Michael H. Karu, CPA, CFF, CGMA, partner and member of the firm at Levine, Jacobs & Company, L.L.C., the personal touch works for their office. “We know that we cannot help everyone or every organization, but if every person spent one or two hours per month volunteering or added $10 per week in charitable giving, incredible

differences can be made in the lives of those in need of help,” he says. Little League teams, youth soccer tournaments and charitable organizations in the Livingston area benefit from their charitable efforts.

For example, each year one of Levine’s partners takes his Harley on an annual toy run for children in local hospitals.

Levine Jacobs & Company LLC collects donations for Movers for Moms.

For Robert Traphagen, CPA, CGMA, managing partner at Traphagen Financial Group, the more interesting the charitable event, the more engaging it is for staff and everyone involved. “All our associates find it exciting and rewarding to volunteer their time for worthy causes.

In conjunction with our annual beard shaving tradition, we partnered with the Cystic Fibrosis Foundation to raise over $2,000 to find a cure,” he says. Staff grow beards specifically for the event and vary the charities to which the proceeds are distributed. This year, they also built safe and affordable homes for senior veterans in partnership with Habitat for Humanity on a day when wind gusts reached 40 mph. According to Traphagen, they were surprised when 15 accountants showed up to work on a day like that.

WHAT’S IN IT FOR THEM? CPAs can gain on a personal level just as much as those who may be receiving their generosity. Helping out an organization’s board, for example, provides a great opportunity to expand someone’s interests, learn a different business and network. And for those who may have joined something only because it relates to their favorite sport, they may discover new clients or business partners.

Susan Firriolo, CPA, CITP, CGMA, CISA, president of Tax Correspondence Service, notes that CPAs routinely distinguish themselves by taking their service commitment to the next level. “CPAs share their knowledge by volunteering, mentoring and in other unique and fulfilling ways,” she says. But whether volunteering as a treasurer or in some other capacity on a board, she cautions that “the best intentions do not come without risk.

Make sure charitable organizations have insurance to cover volunteers and trustees in the event of donor and other claims of mismanagement.”

Nonprofit organizations certainly benefit from the extra help a CPA can provide. “Organizations can strengthen their financial reports by tracking and reporting volunteer hours,” says Firriolo. “Often times volunteer input is not factored in correctly when applying for grants or

NEW JERSEY CPA | NOVEMBER/DECEMBER 2019

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Traphagen staff at their annual beard shaving for Cystic Fibrosis Foundation.

when showing donors. Whether they use a time and billing or fee for service system, CPAs are the premier time trackers and can train others how to benefit from their approach,” she explains.

“CPA firms that are good neighbors, caring about their communities and engaging in philanthropic initiatives gain several advantages,” explains Ronald G. Matan, CPA, CGMA, PSA, member of the firm at SobelCo. “First of all, they are able to attract employees who want to be a part of a giving culture and who remain loyal for longer because they are at a firm that exhibits high standards. Secondly, the community supports and promotes those firms that help them succeed.” And he adds, “besides making clients, employees and community leaders proud to be a ssociated with the firm, it actually feels good to do good.”

Many accounting professionals already serve on their town boards and community initiatives so getting a firm-wide commitment to a cause is not too hard a stretch. As Christopher D. Petermann, CPA, partner with PKF O’Connor Davies, LLP, and partner in charge of the private foundation practice, says, “social awareness is flourishing around the world, and today’s accountants are eager participants.” Carpenters, musicians, youth sports coaches along with a symphony orchestra treasurer and a Seeing Eye dog trainer are among the ranks at PKF. “Our specialists are more than just accountants and consultants.

They are multi-faceted individuals who have diverse backgrounds that they draw on as they devote their energies to a range of activities,” he says.

Robert Traphagen, CPA, managing partner, Traphagen Financial Group gets a shave for a good cause.

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NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

DO MORE PARTICIPATE IN THE NJCPA FOOD DRIVE njcpa.org/fooddrive PARTICIPATE IN OTHER NJCPA VOLUNTEER OPPORTUNITIES njcpa.org/volunteer

ACCOUNTING, AUDITING & ATTEST

Facing Increased Risk: Top Considerations for Audit Committees

BY COREY TEMPLE, CPA, KPMG

Boards and audit committees are facing growing pressures as technology continues to evolve at an unprecedented speed and transform the increasingly global, data-driven corporate world. Historically, the audit committee of a company’s board of directors has focused its oversight on financial reporting and audit quality. Today, more than ever, boards and their directors must keep up with the regulatory developments and the associated risks of new technologies.

Advanced technologies, such as data analytics, artificial intelligence, automation and blockchain, are putting new demands on the finance function.

Technology will continue to transform business operations, presenting new opportunities for finance teams to adapt and add greater value in this technology and data-driven environment.

KPMG’s 2019 Audit Committee Pulse Survey, which surveyed 200 audit committee members, found that business complexity, digital disruption and technological innovation are putting pressure on audit committees as never before and requiring them to intensify their focus on risk management and monitoring of the internal control environment.

Many audit committees report that they still are carrying heavy risk agendas: information technology, legal/regulatory compliance, financial risk, third-party and especially cyber security risk. Some audit committee members say that these new considerations can feel overwhelming at times — but there is consensus as to their importance.

The KPMG survey identified five key takeaways that may prove useful as CPAs prepare for upcoming meetings with audit committees facing these increased challenges: • Prepare for disruptive risks. Audit committee members’ perspectives vary considerably as to whether the enterprise risk management programs at the companies they oversee are truly prepared for “disruptive risks.” In fact,

•

•

•

•

one quarter of respondents reported that their company’s ERM processes are in the developmental stages or require significant work.

Focus on cybersecurity. Outside of traditional financial reporting issues, cybersecurity continues to be a top concern for audit committees for a range of reasons. Keeping systems up to date, vulnerabilities due to third-party and supply chain risks and the increasing difficulty of identifying top cyber talent all are critical business issues keeping leaders up at night.

Be flexible. Internal audit teams must remain flexible and willing to adjust the audit plan as needed. The survey found that focusing the audit plan on key areas of risk beyond financial reporting such as information technology, cybersecurity and other operational risks — and maintaining flexibility to adjust the audit plan in response to changing business and risk conditions — ranked as the most important ways to maximize internal audit’s value. Culture has increasingly become an important consideration for internal auditors as well.

Change how earning guidance is provided. The majority of audit committee members surveyed do not think companies should continue to provide quarterly earnings guidance. Specifically, 34 percent of respondents said the practice of providing earnings guidance should be phased out, and 20 percent said guidance should be provided only annually.

Evolve skills and adopt technologies.

Audit committees report that talent

management and ensuring that finance leaders have the right skills remain top concerns. Almost three-quarters of respondents report that their committees are evaluating how finance organization leadership, talent and skills must evolve to maintain quality financial reporting.

Transformative technologies such as artificial intelligence and data analytics are also top of mind for audit committee members as companies look for ways to garner more accurate predictive insights.

In conclusion, audit committees continue to play a critical role in effective board governance, even as their purview continues to evolve.

Corey R. Temple, CPA, is KPMG’s Short Hills office managing partner and the New York Metro Life Sciences audit leader. He is a member of the NJCPA and can be reached at crtemple@kpmg.com.

READ MORE AUDITING ARTICLES AND RESOURCES njcpa.org/topics/auditing

DO MORE JOIN THE ACCOUNTING & AUDITING STANDARDS INTEREST GROUP njcpa.org/groups

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NEW JERSEY CPA | NOVEMBER/DECEMBER 2019

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ADVOCACY & LEGISLATIVE ISSUES

State Board Adopts New Regulations

BY JOHN F. DAILEY JR., CPA

In my previous article, “6 Things to Know About Recent Accountancy Act Changes” from the May/June 2019 issue of New Jersey CPA, I highlighted the most important things to know about changes to New Jersey’s Accountancy Act that were effective at the end of January. Those changes represented the first act of a two-act play.

On Sept. 3, 2019, act two — the revised regulations of the New Jersey State Board of Accountancy — was published in the New Jersey Register and became effective immediately. The following summarizes six of the most significant changes to the regulations that you need to know.

ADVERTISING The use of testimonial or laudatory statements in advertising was previously prohibited by NJAC 13:29-3.10, but that provision has now been deleted. Also, new regulations regarding advertising include the prohibition of the use of coercion or harassing conduct, and advertising that implies the licensee’s ability to influence regulatory bodies.

APPLYING FOR EXEMPTIONS TO PEER REVIEW There is a significant change in NJAC 13:295.4(b) for those firms that seek exemptions to submitting to peer review. Firms that do not perform services that would require peer review are no longer required to file a request for an annual exemption. Instead, the new regulations require firms that qualify for exemption to submit a request no later than June 30 of the first year the exemption is sought and then for each subsequent triennial firm registration renewal period.

An explanation of the services provided by the firm must be included. It is believed that the Board will attempt to allow exemption requests for subsequent renewal periods to be made at the time of the firm registration renewal process.

CPE CREDIT REQUIREMENTS The revised regulations, NJAC 13:29-6.2, include changes to the number of required CPE credits for technical subjects and

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other subjects. Credit requirements have changed from the previous 72 credits to 60 credits for technical subjects and up to 56 credits, previously up to 44 credits, for other subjects. These changes are consistent with 2016 changes to the American Institute of CPAs (AICPA) and National Association of State Boards of Accountancy (NASBA) CPE standards. Note that there is no change to the 24-credit Accounting & Auditing requirement for licensees engaged in public practice.

CPE CREDIT FOR COLLEGE/ UNIVERSITY COURSES Previously, a licensee who took college/ university courses that satisfied the CPE subject matter requirements could earn CPE credits. NJAC 13:29-6.5(a)2ii has been amended to clarify that CPE credit will no longer be granted for licensees who attend such courses to the extent that a similar course was previously used to satisfy the licensee’s 120- or 150-credit educational requirement for initial licensure.

Also, no credit will be awarded for CPA Exam preparation or review courses.

NANO LEARNING AND BLENDED LEARNING CPE NJAC 29-6.5(a)6 recognizes nano learning and NJAC 29-6.5(a)4 recognizes blended learning programs as acceptable credits.

Nano learning offers CPE in 10-minute increments via electronic media. A blended learning program offers multiple formats or delivery methods, including lectures, discussion, case studies, simulations and more. These types of CPE programs were included in the 2016 changes to the AICPA and NASBA CPE Standards.

CPE CREDIT FOR INSTRUCTING COLLEGE/UNIVERSITY COURSES NJAC 13:29-6.5(c)2 includes amended language that changes the regulations for licensees who instruct college/university courses. This change is similar to the change at 13:29-6.5(a)2ii in that CPE credit will not be awarded for instructing

NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

college/university courses to the extent that a similar course was previously used to satisfy the instructor’s (licensee’s) 120or 150-credit educational requirement for initial licensure. Also, no credit will be awarded for instruction of CPA Exam preparation or review courses.

Thus, it appears that these changes and the changes to the Accountancy Act that became effective last January conclude the current changes to the laws and regulations that govern our licenses. However, it is always wise to check the NJCPA website (njcpa.org) to keep an eye on any future proposed changes to the Accountancy Act and Board regulations. NJCPA Law and Ethics programs have also been updated to include these changes.

John F. Dailey Jr., CPA, is a member of the New Jersey State Board of Accountancy. He is a co-author and presenter of the NJCPA’s New Jersey Law and Ethics course and a past president of the NJCPA. Jack can be reached at jdaileyjr2@comcast.net.

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NEW JERSEY STATE BOARD OF

ACCOUNTANCY REGULATIONS

njconsumeraffairs.gov/Adoptions/ accado_09032019.pdf

AICPA/NASBA STANDARDS nasbaregistry.org/the-standards

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NEW JERSEY LAW & ETHICS PROGRAMS

njcpa.org/ethics

BECOMING A CPA

10 Steps to Prepare for and Complete the CPA Exam

BY CHRISTINA M. WHITE, CPA, TRAPHAGEN FINANCIAL GROUP

With passing rates generally between 45 and 55 percent, the CPA Exam is considered to be one of the most difficult professional exams. The minimum passing score is a 75 and candidates must pass all four sections within 18 months. This can be an enormous challenge, especially when juggling life, work and other responsibilities while studying. Here are some best practices for preparing for and completing the CPA exam within the 18-month window: 1. Don’t make excuses. The best time to start studying for the CPA Exam is now. Don’t wait any longer! It’s never going to get easier. You’re never going to be less busy. If passing the CPA Exam is your goal, make it your priority and make it happen!

2. Make a plan (and stick to it!). It’s vital to schedule your study plan before getting started on each section. Determine how much time you can dedicate each day to studying and map out your expected progress on a calendar. For example, plan to study two chapters per week then allow one to two weeks of review time before your targeted exam date. Hold yourself accountable and stick as closely as you can to your plan.

3. Schedule sections early. Scheduling a section of the exam gives you a deadline and will help to ensure that you to stick to your study plan. This is especially important if you want to take a section at the end of a testing window. Testing can book up quickly, so reserving the date early on will ensure that you are able register for the date that you want.

4. Study every day. Flash cards are a great tool. You can make your own as you study with important items to remember from each chapter, like acronyms and formulas. Many of the study materials now also have an option to purchase flash cards. By reviewing flash cards

every day, the information stays fresh in your mind even if you aren’t able to commit a lot of time on a particular day.

5. Don’t skip any chapters. All of the information in your study materials is fair game for the CPA Exam. Don’t skip sections or chapters because you feel they may be weighted less than other chapters. Make sure you get through all of the chapters and all of the information that is provided to you. It’s okay to spend extra time on areas you feel you may be weaker in, however allocate time from your one to two weeks of review time in order to do this rather than skipping something else.

6. Set a realistic timeline for completing all four sections. Keep the big picture in mind. Each section passed is a step towards achieving your goal. If you are working full time while studying or studying full time before starting work this may look different, but figure out what timeline best suits your situation.

7. Don’t let a failing score become a major setback. Getting a failing score can be a serious hit to your motivation and your confidence, especially when you are allocating so much time to study. You may need to adjust your plan to sit for that section of the exam again, but keep your focus on the end goal and don’t let it stop you from moving forward.

8. Reward yourself. You are working so hard! So much time and energy goes into studying for each section. Once you sit for a section, give yourself a break or treat yourself to something special before moving on to the next section. Maybe it’s a weekend getaway or a special purchase you have been thinking about. Don’t wait too long to get back into it, but you deserve to take some time off to recharge.

9. Seek out a mentor. Rely on your fellow professionals to help you get through this. Talk to your friends and coworkers about their CPA Exam experiences and what advice they can give you. Share your experiences with others currently facing the same struggles as you.

10. Get in the right mindset. Come up with a good test-day routine that works for you. This isn’t the time to learn new information, but you can roll through some sets of multiple choice questions or browse through your flashcards.

Keep focused, stick to your plan, and nothing can stop you from reaching your goal!

You can do this!

Christina M. White, CPA, MS, is a senior tax accountant at Traphagen Financial Group. She is a member of the NJCPA and can be reached at christina@tfgllc.com.

NEW JERSEY CPA | NOVEMBER/DECEMBER 2019

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BUSINESS ADVISORY SERVICES

5 Best Practices for CPAs Working with Family Offices

BY CHERYL MUCHA, CPA, CFO YOUR WAY

Family offices have a different set of operational parameters and considerations than publicly traded companies. These closely held entities can range from startups to enterprises, in any industry. While financial management and tax planning are core responsibilities for anyone working with family offices, there are issues beyond the balance sheet that any financial or business advisor should be aware of before starting an engagement.

1. UNDERSTAND FAMILY RELATIONSHIPS The advisor must be a people person and be able to navigate family dynamics. Family members may not always get along or agree on everything; they require a neutral advisor who can guide them on what is in the company’s best interests — not what best serves individual members.

2. FACILITATE CONFLICT RESOLUTION Decision-making and planning can be stalled by familial discord or disagreements over who should be doing what. The CPA is often the linchpin in the creation of the standard operating procedures (SOP), the office textbook for how every facet of the business operates.

Since the SOP also defines the roles and responsibilities for each position within the company, it can help streamline decision-making or reduce friction over members’ roles by outlining the hierarchy.

The CPA can also help reduce interpersonal conflict by providing insights into the company balance sheet, showing members what is in the organization’s best interests from a more global business perspective.

3. ASSIST WITH SUCCESSION PLANNING Determine if there is a transition plan for the next generation to take over the operation and who those successors will be. The CPA can ensure a smooth

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transition by laying the groundwork with solid forecasting. Do the younger members fully understand how the prior generation has operated and why? The SOP is crucial here because it outlines every aspect of the operation. Make sure the successors know it.

The CPA should remind leadership of the importance of younger family members working their way up through the ranks.

Through this experience they will learn the business from the bottom up gaining firsthand understanding of the organization as they prepare to take the reins one day.

Understanding the operation and planning for its future are different matters. Are the presumed successors up to the task of introducing new technology and implementing new ideas/services/products that will help the company grow and prosper?

The CPA must provide accurate, reliable financial forecasts to help the new generation understand the business’s current operation, see the opportunities for profitability in the near future, and make the case for new technology or new methods to drive sustainability and maintain a path to profitability.

With a 360-degree view of the operation and its financials, the CPA also plays a crucial role in helping leadership plan for the financial commitment needed for succession. For example, will there be a payout to the current generation that will affect cash flow? Will there be new employees or independent contractors working with the succeeding generation whose compensation must be incorporated into the operating budget?

4. POSITION THE BUSINESS FOR NON-SUCCESSION If the current family members will be the last ones to run the company, the CPA can advise leadership and help prepare for the next steps. This might be positioning the company financially for sale or for going public. Is there debt to retire or restructure? Is there anything on the books that may be a barrier to a merger or acquisition?

NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

The CPA’s guidance and expertise will be instrumental in these situations from an advisory or remediation perspective.

5. MAINTAIN FINANCIAL CONTROLS Keeping close tabs on the company bank account keeps everyone honest. The CPA must have full access to all banking and credit card statements, invoices and other financial transaction documents in order to monitor all accounting operations. This enables the CPA to monitor cash flow and provide valuable checks against any suspicious activity through periodic audits and monthly reconciliations.

With full access to accounting records, the CPA is able to generate the reports that provide the financial road map to future growth. After all, the family office members won’t know where they’re going down the road if they don’t know where they are today. This access also enables the CPA to provide visibility for all members into the family office’s financial affairs, with timely, accurate financial reports to project cash flow and monitor performance.

Cheryl Mucha, CPA, is the owner of CFO Your Way LLC. The firm creates pathways to profitability for growing local businesses with outsourced accounting services. She can be reached at cheryl@cfoyourway.com or 973-897-0650.

READ MORE BUSINESS ADVISORY SERVICES ARTICLE AND RESOURCES njcpa.org/topics/advisory

FINANCIAL PLANNING SERVICES

Protecting Senior Clients from Financial Abuse and Investment Scams

BY SHARIF A. MUHAMMAD, MBA, CPA, MST, CFP®, UNLIMITED FINANCIAL SERVICES LLC

As trusted professionals, CPAs can expect to find themselves involved — either as an advisor or service provider — in a case involving some form of elder financial abuse or an investment scam that targets senior citizens. CPAs need to not only be aware of the warning signs that indicate the possibility of abuse or fraud, but also partner with other trusted advisors to educate clients and constituents about these issues and how to protect themselves from becoming victims.

Elder financial abuse often involves the deprivation or manipulation of the victim’s resources. The methods involved can include deceit, theft, fraud, a misappropriation of the victim’s assets or access to assets (i.e., credit), or conversion by way of duress. These offenses are very difficult to detect primarily because nearly 90 percent are committed by an elder’s own family member, friend, acquaintance or a person in a position of trust.

Elderly victims generally own a home, have sizeable retirement assets, have relatively strong credit scores, are less tech savvy and were raised in a generation where people were taught to be more trusting of strangers.

To exacerbate the problem, many cases of elder financial abuse and fraud go underreported due to the shame of the victims, the relatively weaker mental acuity of victim and the victim’s potential isolation from others due to family circumstance. This profile makes seniors an attractive target for abuse and financial fraud schemes; they lose nearly $37 billion a year, based on estimates produced by the financial services industry.

10 SCHEMES THAT TARGET ELDERS Per the United States Senate Special Committee on Aging (aging.senate.gov), the top 10 most-reported scams are as follows: 1. IRS impersonation scam. A scammer falsely represents themselves as an IRS agent and claims that the victim owes money to the IRS. The fake agent

threatens to issue a warrant for the victim’s arrest unless an immediate payment is made.

and plead for financial assistance and discretion.

2. Robocalls/unsolicited phone calls.

These are “cold-calling” scams.

3. Sweepstakes/lottery scam. The victim is told they have just won the lottery.

The catch? They must pay a “tax upfront or other type of fee” before the funds can be sent to them.

4. Computer tech support scams. Fraudsters contact victims with a fake notice of the victim’s account being frozen or of some technical issue impacting the victim’s PC or other item. They ask for account information or credit card information to pay for repairs or “maintenance protection.”

5. Elder financial abuse. As discussed above, this is the exploitation of a senior by loved ones or trusted acquaintances.

6. Grandparent scams. Scammers pose as grandchildren in financial distress

7. Romance/companionship scams. Scammers act as romantic interests and request monetary help and assistance in exchange for companionship and affection.

8. Social Security impersonation scams.

Under the guise of a Social Security Administration employee, scammers seek to trick victims into providing their Social Security number, date of birth and other personal information needed to steal their identity.

9. Impending lawsuit scams. Similar to the IRS scam, victims are contacted with the threat of some legal action unless a payment is made to resolve the matter.

10. Identity theft. A perpetrator illicitly obtains the Social Security number, date of birth and other minimum information required to file a fraudulent income tax return. When the actual client files their return, they are shocked to learn that their return has already been filed.

NEW JERSEY CPA | NOVEMBER/DECEMBER 2019

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FINANCIAL PLANNING SERVICES

5 TIPS FOR CPAs AND THEIR CLIENTS Here are some tips that CPAs should consider in assisting clients to better protect themselves from fraud: 1. Develop a fraud prevention checklist. Provide clients with an itemized, detailed checklist of fraud prevention actions/tools such as: yy Register all phone numbers on the National Do-Not-Call Registry (donotcall.gov). yy Consider purchasing a credit monitoring service. yy Sign up for email/text fraud alerts from banks and credit card companies. yy Rent a P.O. Box for sensitive financial mail. yy Buy a shredder and make a normal practice of destroying unneeded documents with sensitive information.

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yy Acquire antivirus software for your computer(s).

2. Schedule check-ins throughout the year. A five- to 10-minute phone call once a quarter can go a long way in helping your senior clients.

3. Coordinate with financial advisors and attorneys. With the client’s permission, team up with their financial advisor, insurance agent, banker and/or attorney to monitor their affairs. Be vigilant about any suspicious activity and make inquiries.

4. Identify “interested parties” and/or “trusted contacts” for financial accounts. This allows the CPA to provide notification to trusted third parties of abnormal activity in an account and to contact such parties to discuss the account

NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

in the event the owner becomes unreachable or there is suspected elder abuse.

5. Encourage education and vigilance.

Take the time to educate your clients about new scams and any technology, services or other protective tools.

As well-regarded “problem solvers,” the professionalism, thoroughness and heightened vigilance of CPAs will further enhance their reputation as the public’s most trusted advisor.

Sharif Muhammad, CPA, MBA, MST, CFP, is the managing member of Unlimited Financial Services LLC. He is a member of the NJCPA and can be reached at smuhammad@unlimited-financial.com.

READ MORE FINANCIAL PLANNING ARTICLES AND RESOURCES njcpa.org/topics/financialplanning

FIRM & PRACTICE MANAGEMENT

Small Changes That Have a Big Impact on Employee Satisfaction

BY DIANE OPUDA, CPA, ROTENBERGMERIL

As the way in which we work continues to evolve, employers that stay ahead of the curve and keep up with the changing demands of employees are more likely to attract and retain talent. Professionals today consider many more factors than just salary and potential career growth when they decide who to work for and whether it’s time to make a move. Talented professionals are demanding more from their employers, but many of these new demands can be easily met, even for smaller employers. That’s because it’s often just a matter of changing an attitude or policy, rather than making a costly new investment. So, what is the most important intangible factor of employee satisfaction? Flexibility! In its many forms, flexibility is what will help today’s employers reduce turnover, improve morale and attract skilled individuals.

IMPLEMENT FLEXIBLE SCHEDULING One of the easiest changes an employer can make is implementing a flexible schedule. In the context of a professional office, allowing employees to complete their required hours on a flexible basis is a necessity in today’s competitive environment. The idea of work-life balance is a concept most people in today’s employment market consider very important, and there are many simple ways an employer can significantly improve the feeling of work-life balance in their employees. For example, employees who have difficult commutes could save hours of travel time per week if they had the option to come in an hour earlier or later. Similarly, some employees have difficulty getting kids to or from school or daycare while still meeting their employer’s traditional workday start and end times. For them, being able to vary their work hours is of significant value.

If an employee wants to attend a child’s event at school or take care of a personal errand during the day, let them do so with the understanding they will make up the

time that week and still get their work done. If your company is using laptops, allow employees to work from home occasionally if they need to wait for a repairperson or look after a sick child. A big mistake employers make that leads to dissatisfaction by their employees is to demand too much control over the employee’s time or schedule. Requiring them, for example, to clock in and out and enforcing strict arrival and break times is counterproductive.

DON’T MICROMANAGE Flexibility of the employee’s agenda is also important. An employee who understands their tasks and deadlines and what is necessary to complete them will often dislike a manager telling them how to do their job when they aren’t asking for help.

Being respectful of different work styles and an employee’s ability to manage their own agenda allows self-motivated people to build confidence and perform at a higher level. Micromanaging an employee sends a message that you do not trust the employee’s own judgement or skills, and this will certainly lead to resentment and dissatisfaction.

IMPROVE THE WORK ENVIRONMENT Allowing flexibility of the employee’s physical environment is another way an employer can vastly improve how an employee feels and performs without making a huge change or investing a great deal of money. Creating a comfortable environment is important because people are more productive when

they feel comfortable. This can be achieved in many ways. For example, allow employees to control the air temperature of their workspace whenever possible. For employees who are not client-facing or do not see clients or customers on a daily basis, allow dress that is casual but neat, including jeans. Demonstrate that you are concerned for your employees’ well-being by using modern office equipment such as standing desks and ergonomic keyboards. Making an effort to improve the employee’s perception of their value to the company through simple changes to the physical environment can go a long way toward improving employee satisfaction.

An old-fashioned attitude toward managing employees is to treat them like children, requiring strict rules and oversight under the assumption that, without them, employees will take advantage of their freedom and underperform. The modern employer understands that when people are given trust through flexibility, they will act responsibly and not only work harder, but feel happier in their employment. In turn, the employer will benefit from improved recruitment and retention rates.

Diane Opuda, CPA, is a manager at RotenbergMeril. She is a member of the NJCPA and can be reached at dopuda@rmsbg.com.

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EMPLOYEE MANAGEMENT

ARTICLES AND RESOURCES

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NEW JERSEY CPA | NOVEMBER/DECEMBER 2019

19

GOVERNMENTAL & NONPROFIT

Single Audits for State Grants

BY COLLEEN CULLARI, CULLARI CARRICO LLC

Many CPAs are now are approaching their fourth year under the State Single Audit Requirements of New Jersey 15-08-OMB (which, for the most part, followed the changes of the Federal “Uniform Guidance”). Also by now, many CPAs have received a slew of correspondence from various state departments requiring information in addition to their reports or even at times contradicting the statute.

For example, two years ago, our firm had a client that took a step down in service from a State Single Audit to a Yellow Book Audit (under $750,000 but greater than $100,000 in state expenditures), due to a transition of their clients from contract basis funded by the Department of Health to fee for service basis funded by Medicaid. Accordingly, under the Yellow Book standards, our firm did not issue a Schedule of Expenditures of State Financial Assistance. Later, we were sent a letter attached to a memo whereby the Department of Health stated that all auditors are required to still provide a Supplemental Schedule of Expenditures of State Financial Assistance. Consequently, and about $500 later, we amended our report and audit workpapers.

It was difficult at times for our firm to stay up to date on all of the changes, interpretations and varying information that each individual state department newly instituted or still required to be included in the financial reports we were issuing.

We thought that the change in statute and increase in threshold would be less work, but, ultimately, we were faced with a different level of burden and uncertainty.

Luckily some of the state departments have recognized the challenges CPAs are facing and have enhanced communication and guidance. The following information is what our firm has tuned into at the state level that we find most advantageous and useful during our audit process.

GN-06 REPORT Our firm relies on the New Jersey Department of Treasury GN-06 Report to assist in the preparation of the Schedule of

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Expenditures of Federal Awards (SEFA) and Schedule of Expenditures of State Financial Assistance (SESFA). This report is provided as a courtesy to clients as part of the annual audit process. It provides a detail of cash payments made to the auditee by state agency name and program description. It helps our firm ensure that the SEFA/SESFA is complete and accurate. It does have its downfalls in that it isn’t a perfect match to the audit process; it is prepared on a cash basis and does not contain federal grants that are directly given to the organization (i.e., it only contains pass-through funding). Nonetheless, it does serve as a state confirmation and helps us perform an analysis of revenue by funding source.

AUDIT-TARGETED GUIDEBOOKS Various state departments have recently released specific guidance for grants given by their agencies to help address many of the inconsistencies in state statute versus state agency reporting requests. In the past, guidance was passed down via memo or letter format which was hard to keep track of. Now the state agencies are issuing comprehensive audit-targeted guidebooks, which are concise and easy to understand.

For example, this year the Department of Health (DHS) issued “Terms and Conditions for Administration of Grants” for project periods beginning on or after July 1, 2019. The publication is intended to provide a common understanding of the framework for the administration of DHS grants. It’s a 54-page document outlined by each of the 12 compliance requirements contained in the matrix, so it speaks to auditors in our language. Among other things, it clarifies that the DHS, even for Yellow Book audits, requires supplemental SEFA and SESFA schedules. Further it details exactly how each of those schedules should look (since various state departments have made their own tweaks to the overall guidance over the years).

With so many things to keep track of these days, it is nice to see that the state is working with auditors and taking effective

NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

approaches to manage the type of reporting we can all benefit from. By reviewing the verbiage in contracts and performing quick Google searches or New Jersey OMB site visits, the state is offering easy-to-access information in a concise format.

Colleen Cullari, MBA, is an audit manager at Cullari Carrico LLC. She is a member of the NJCPA Accounting & Auditing Standards and Nonprofit interest groups. Colleen can be reached at ccullari@cullaricarrico.com.

READ MORE GOVERNMENTAL ACCOUNTING ARTICLES AND RESOURCES njcpa.org/topics/governmental

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LEARN MORE NOV. 5, ROSELAND AND ONLINE THE ESSENTIAL COURSE FOR PERFORMING SINGLE AUDITS UNDER THE NEW UNIFORM GUIDANCE FOR FEDERAL AWARDS DEC. 2, ROSELAND AND ONLINE ADVANCED TOPICS IN A SINGLE AUDIT njcpa.org/events

LAW & ETHICS

Understanding the AICPA Ethics Interpretation on Hosting

BY KENNETH A. HEASLIP, CPA, CULLARI CARRICO LLP

Many practitioners are still not aware of how problematic the new independence interpretation for CPAs who provide hosting services can be. The American Institute of CPAs (AICPA) Professional Ethics Executive Committee’s (PEEC) ruling, which became effective July 1, 2019, and amends its Code of Professional Conduct, applies when the CPA needs or desires to be independent.

If independence is not a concern, the rule would not apply. At first, many professionals saw the ruling, which was extended from 2017, as benign and not applying to them, but further analysis proves that the ruling can be anything but that.

CONTROL OF CLIENT ASSETS Under the new ruling, an independent CPA cannot take control of client assets. In today’s age, the issue of who has control of electronic information needs to be defined.

Management should own the place where data is stored or contract with a third party.

A CPA who does this is taking on a management responsibility. The ruling states that this will apply to housing a client website, storage of data or records, such as general ledger information or supporting schedules, and serving as the client’s disaster recovery provider. Most CPAs do not provide the first or third services, but many provide data storage and general ledger services.

ONLINE RECORDS CPAs still perform traditional write-up services where they would summarize the client’s transactions, propose journal entries and reconcile the bank accounts. Under previous independence rules, this would be allowed as long as the client approved the chart of accounts, coded the checks and approved the journal entries. Today, this is often done on QuickBooks which is housed on the CPA’s server. Under the new ruling, since the client’s accounting software is housed on a server controlled by the CPA, independence would be impaired. Fortunately, the solution can be relatively simple.

If the CPA were to provide the client with a copy of the general ledger to be restored on client servers, then the client will have control of the accounting system and independence would not be impaired. Alternatively, if the accounting software were in the cloud, such as Xero or QuickBooks online, independence would not be impaired as long as 1) the client has access to the files through passwords and 2) the client has contracted with the third party to host the data. The second point is important. The client — not the CPA — must license the software.

USE OF PORTALS Storage of client data is also a concern.

Often, the CPA gives the client access to tax returns, supporting documents and financial information such as depreciation schedules and bank reconciliations through a portal.

Again, it is the client’s responsibility to keep these records. If they are relying on the CPA portal to store the documents and they do not independently keep their own records, then the CPA has control of the records and independence would be impaired. The ruling states that it is acceptable for the CPA to use portals to exchange data and records with the client or to deliver work product to the client or third parties. The caveat is that the portal is only used for temporary data transfer and cannot be used as a substitute for other forms of data storage. In order to assure it is not used for this purpose, the ruling states that “the [CPA] should terminate the attest client’s access to the data or records in the portal within a reasonable period of time after the conclusion of the engagement.” In February 2019, the PEEC issued an FAQ document which states that the CPA should use professional judgement when determining what a reasonable period of time would be. It continues to say that “no undue hardship would occur within a relatively brief period of time, such as 60 days, therefore this would be a reasonable period of time for the client to retrieve data or records.” It continues to state that “in other circumstances, a reasonable period of

time may be closer to a year.” In subsequent discussions, it seems unlikely that a period of over one year would be acceptable. There has been mounting pressure on the PEEC to better define the reasonable period of time threshold, but it does not appear that this guidance is forthcoming.

This ruling has made it imperative that CPAs evaluate their responsibility in keeping client records. Although the ruling was written to apply to electronic data, it is clear that it would also apply to paper records held by CPAs. Implementation of this standard could change how services are offered to clients.

Kenneth A. Heaslip, CPA, CGMA, MBA, MS, is a director at Cullari Carrico LLC and a professor of accounting at Mercy College. He is a former NJCPA vice president and is currently a member of the NJCPA State Taxation, Federal Taxation, Nonprofit, Governmental Accounting & Auditing and Accounting & Auditing Standards interest groups.

Kenn can be reached at kheaslip@cullaricarrico.com.

READ MORE LAW & ETHICS ARTICLES AND RESOURCES njcpa.org/topics/ethics WATCH MORE KENN HEASLIP ON THE AICPA ETHICS INTERPRETATION ON HOSTING SERVICES youtu.be/NhSKtUD-XgE

NEW JERSEY CPA | NOVEMBER/DECEMBER 2019

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PROFESSIONAL DEVELOPMENT

Choosing a Career Path

BY MARK W. ECKERLE, CPA, WITHUM

One of the many benefits of being a CPA is the wide array of career paths. CPAs can focus on providing professional services to a specific industry or they can choose a particular route they would like to go, such as advisory, audit or tax. The accounting profession is full of many different specializations, which can also include forensics, valuation, personal financial planning and business management consulting, to name a few. CPAs can take control of their careers and choose the path they want to take.

And the best part about having this choice is that it is never too late to change course and decide to go a different route at any point in your career. Once a CPA chooses which service line he or she would like to work in, there are many other ways to sharpen one’s skill set by deciding which specializations and industries.

TAX There are plenty of opportunities within tax for CPAs to deepen their expertise, such as working on 1040 returns or partnership returns. As one grows as a tax professional, he or she can rise to senior tax accountant, tax manager, and eventually tax partner, where they are ultimately considered an expert in the tax field.

AUDIT Many individuals start their accounting careers as an auditor and then decide if it is the right career path for them or if they want to try another specialization. Auditors travel to various clients and experience first-hand the inner workings of a business.

It is a great opportunity to get to know one’s clients by having the chance to meet them in person and begin building one’s network. As one advances as an auditor, he or she will become a senior auditor, audit manager or audit partner.

ADVISORY Advisory professionals work hands-on with client management to help them strategize and recognize opportunities that exist in the marketplace. These services

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range from consulting to risk management to outsourced accounting and chief financial officer (CFO) services. Becoming an advisory professional is typically for more experienced professionals though opportunities do exist at every level.

BENEFITS OF INDUSTRY SPECIALIZATION Rather than knowing a small amount about a wide variety of industries or services, a CPA with a deep knowledge of one or two areas is often better able to serve clients as a trusted advisor.

The following are three key benefits of choosing to specialize in an industry or service: 1. Stand out. Choosing an industry or service specialization will help a CPA stand out amongst his or her peers and be recognized as a leader in that space and the go-to point of contact when issues or challenges arise.

2. Identify the ideal client. By specializing in an industry, a CPA has an ideal client or client base that can be targeted, and he or she will know all the challenges and hurdles that a company or client in that space may face. Not only can the CPA identify those challenges, but he or she will be better equipped to assist and advise clients on how to get to the next level in their business or personal goals.

NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

3. Achieve happiness. When CPAs choose industries or services that are not only interesting to them, but challenge them to be better professionals, it paves the way to success in business and in life.

Choosing to work in a particular subsegment of an industry or service line that is truly “niche” will allow a CPA to be hyper-focused on the specific solutions which address clients’ unique issues.

Being an expert in a particular field will create the pathway for a long and prosperous career, help you stand out amongst your peers and offer the opportunity to work with ideal clients (and hopefully achieve happiness!).

Mark Eckerle, CPA, is an audit manager at Withum. He is the vice leader of the NJCPA Emerging Technologies Interest Group and a member of the Emerging Leaders, Cannabis and Accounting & Auditing Standards interest groups.

He can be reached at meckerle@withum.com.

READ MORE CAREER RESOURCES FOR ACCOUNTING STUDENTS njcpa.org/career/student CAREER RESOURCES FOR EARLY CAREER PROFESSIONALS njcpa.org/career/early-career

TAX

Designating a Trust as an IRA Beneficiary

BY MATTHEW S. RHEINGOLD, ESQ., EINHORN BARBARITO, FROST & BOTWINICK, PC

Since an individual retirement account (IRA) can often represent a large percentage of an individual’s assets, an essential question that many clients face is who to name as the beneficiary of their IRA accounts. There are a number of reasons why a client may wish to consider naming a trust as the beneficiary, rather than an outright distribution to an individual. This ensures that the assets in the account remain available and the account’s investment earnings continue to accumulate tax free while they are in the account. Nonetheless, careful attention must be taken to ensure that these assets receive the appropriate tax treatment and are protected from creditors, including future ex-spouses.

Married couples typically name the surviving spouse as the primary beneficiary of their IRA, which allows the surviving spouse to treat the IRA as his or her own (known as a spousal rollover). The same favorable tax treatment is not afforded when an IRA is left to a child, grandchild or other beneficiary under IRC §408(d)(3) since those beneficiaries must begin withdrawing the required minimum distribution (RMD) in the year following death based upon their own life expectancy. Any beneficiary who fails to withdraw the RMD may have to pay a penalty equal to 50 percent of the amount that should have been withdrawn.

However, practitioners should make clients aware that naming a trust as the beneficiary, rather than an individual person, may be a better option. There are two common reasons to do this. First, the intended beneficiary may be a minor, disabled, a spendthrift or need assistance managing the IRA. Second, the client may want to ensure that the assets are passed to specific beneficiaries.

While an IRA cannot be owned by a trust directly during an owner’s lifetime without subjecting the account to immediate taxation, the owner may name a trust as a beneficiary provided that certain requirements are met. The failure to closely follow specific IRS rules could result in an accelerated distribution of the IRA and a significant tax burden to the beneficiary. In order for a

trust to be viable as a beneficiary, the trust must meet a four-part test: 1. It must be a valid trust under state law; 2. It must be irrevocable or become irrevocable upon the death of the owner; 3. The beneficiaries of the trust must be identifiable from the trust instrument; and 4. The IRA custodian must receive a copy of the trust by Oct. 31 of the year following the owner’s death.

TYPES OF TRUSTS If naming a trust fits into the client’s overall objective, there are generally two principal types of trusts that qualify as a beneficiary: conduit trusts and accumulation trusts.

• A conduit trust pays the designated trust beneficiary their annual RMD each year using the designated beneficiary’s life expectancy, and the beneficiary pays tax on such RMD at their own personal tax rates. The balance of the retirement account is safeguarded from the claims of the beneficiary’s creditors and remains in trust for the original account owner’s intended successor beneficiaries.

• An accumulation trust permits the trustee of the trust to determine whether to pay out the RMD to the trust beneficiaries or retain those funds in trust in order to protect/preserve the funds. The annual RMD is based upon the life expectancy of the oldest beneficiary of the trust. If the funds are ultimately retained in the trust, they will be taxable at trust tax rates (except for Roth IRAs where no tax is due on distributions). If, however, the trustee makes a distribution of income from the trust, then the beneficiary will pay tax on such income at their own personal tax rates.

CHANGES ON THE HORIZON? In late May, the House of Representatives overwhelmingly passed the Setting

Every Community Up for Retirement Enhancement Act of 2019, which, if passed by the Senate and signed into law in its current form, would provide sweeping changes to retirement accounts. The SECURE Act contains many new provisions, including the complete elimination of the stretch IRA. Under the Act, all non-spousal beneficiaries, including trusts, would be required to withdraw any inherited IRA within a 10-year period. Although there would be exceptions to this general rule, including if the beneficiary is a minor, disabled or chronically ill, this fundamental change to distributions would have far-reaching effects to retirement accounts.

Matthew S. Rheingold, Esq., is counsel at Einhorn Barbarito, Frost & Botwinick, PC, specializing in estate and trust administration, charitable planning and business succession planning, as well as estate litigation and tax disputes. He can be reached at mrheingold@einhornlawyers.com.

LEARN MORE NOV. 14, JAMESBURG THE COMPLETE TRUST WORKSHOP

NOV. 19, PATERSON GIFT AND ESTATE TAX RETURNS

DEC. 12, PATERSON BASIC AND ADVANCED WEALTH TRANSFER STRATEGIES njcpa.org/events

NEW JERSEY CPA | NOVEMBER/DECEMBER 2019

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TECHNOLOGY & INFORMATION MANAGEMENT

Emerging Issues in Blockchain and Cryptocurrency

BY DR. SEAN STEIN SMITH, CPA, LEHMAN COLLEGE

Blockchain and cryptocurrencies continue to dominate the headlines with the launch of blockchain and crypto products at mainstream organizations such as JP Morgan and Facebook. From a currency perspective, there also seems to be a shift toward greater acceptance of various cryptocurrencies and cryptoassets as a medium of exchange.

That said, and even as more institutional forces adopt and integrate both blockchain and cryptoasset into core operations, there remains ambiguity as to the accounting treatment of these assets. Accounting standards aside, which are substantial enough to fill an entire article, the following are several other emerging issues that CPAs need to be aware of.

GOVERNANCE OF BLOCKCHAINS AND CRYPTOASSETS The concept of corporate governance may seem like an unusual topic to bring up in a CPA article, but by peeling back the layers it begins to make a little more sense. The bitcoin blockchain was developed as a completely decentralized model of conducting financial transactions outside of the traditional financial system, but that is changing.

As more newcomers enter the marketplace — Gemini Dollar, Paxos Standard and Libra, to name a few — these cryptoassets are governed by either the issuing firm or a consortium of organizations. There are several questions that need to be asked, especially if CPAs have clients that are investing funds or even doing business with other firms that are investing funds into these more centralized cryptoassets, including the following: • Are there any restrictions connected to who, or what kind of entities, can invest in these assets?

• What are the reporting implications if there is a fork (more on that later) that occurs connected to the cryptoasset?

• Who is deciding whether or not the first two items even occur?

CRYPTO CYBERSECURITY Blockchain is often referred to as an immutable record, and while tamper resistant

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is more accurate, the perception remains that implementing a blockchain-based solution guarantees that the information is secure from hackers and other unethical actors. This simply is not the case; every single blockchain is different and needs to be analyzed as a unique combination of software, hardware and people. There is always the potential for errors, unethical behavior or cybercriminals to take advantage of both individuals and firms that are not prepared to correctly integrate these emerging technologies into existing infrastructure. Compounding this risk, and potential opportunity for forward-thinking practitioners, is the reality that in many cases there is no recourse or specific insurance coverage offered to protect against blockchain or crypto-related hacks.

The best course of action for CPAs to take is to 1) understand the specific blockchain and cryptoassets that are being implemented, and 2) document the steps that have been taken to securely integrate these new tools into the existing infrastructure.

ACCELERATING CHANGE It is clearly a positive that the accounting profession’s awareness and knowledge level of blockchain and cryptocurrencies continues to increase; blockchain and cryptoassets seem to be increasingly entrenched in the financial system. However, it can be a negative for almost the same reason. As more and more practitioners feel they understand and are comfortable with this technology, a sense of complacency can begin to seep into the marketplace. As recent developments have shown, this still relatively young ecosystem (only since 2008) continues to evolve and develop at an accelerating rate.

New components and iterations seem to make headlines every day, including: • Different types of blockchains • An array of different cryptocurrencies built for different purposes • New types of controls for legacy and succession planning around blockchain • The continuing implementation of multi-sig wallets to grant access to blockchain information

NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

• Increasing regulatory attention on every aspect of the space It is impossible to summarize all of the emerging trends in such a broad and fast-moving space such as blockchain, but the key takeaway is that CPAs need to remain aware of just how quickly this space continues to change and what this may mean for practitioners going forward.

Dr. Sean Stein Smith, CPA, CFE, CGMA, CMA, is a professor at the City University of New York – Lehman College. He is the leader of the NJCPA Emerging Technologies Interest Group and serves on the Advisory Board of the Wall Street Blockchain Alliance, where he co-chairs the Accounting Work Group. Sean can be reached at drseansteinsmith@gmail.com or on Twitter at @seansteinsmith.

READ MORE BLOCKCHAIN ARTICLES AND RESOURCES njcpa.org/topics/blockchain

DO MORE JOIN THE EMERGING TECHNOLOGIES INTEREST GROUP njcpa.org/groups

LEARN MORE NOV. 7, ROSELAND AND ONLINE ANALYTICAL PROCEDURES AND BLOCKCHAIN ESSENTIALS — IMPACT ON MODERN ACCOUNTING njcpa.org/events

NJCPA NEWS

NJCPA Publishes Audit Report

BY GORDON SMITH, CPA, NJCPA CHIEF FINANCIAL OFFICER

The combined financial statements for the NJCPA and affiliates (NJCPA Education Foundation and NJCPA Scholarship Fund) for the year ended May 31, 2019, have been published.

Fiscal 2019 brought new non-profit reporting requirements for the NJCPA and affiliates, including enhanced disclosures on liquidity and availability of financial assets, and the presentation of functional and natural expense details in one place.

Additionally, net assets are no longer reflected as unrestricted and/or temporarily restricted; they are now referred to as net assets without donor restrictions and net assets with donor restrictions.

Unrestricted consolidated revenues decreased when compared to the previous fiscal year with roughly two-thirds of the change coming in educational program fees.

This decrease is typical as we move from the last year of a triennial reporting cycle, when many CPAs are catching up on credits, into the first year of the next cycle, when attendance drops at programs until we get further into the cycle. The remainder of the change stems mainly from losses in our investment portfolios, as equity markets experienced significant drops in the latter part of May 2019 as trade wars between the U.S. and China continued, resulting in a negative return of roughly 2.5 percent for fiscal 2019 as compared to a positive 7.5 percent return in the prior fiscal year.

NEW JERSEY SOCIETY OF CPAs Membership dues were $3.59 million, a reduction of approximately 2 percent versus the $3.69 million in the prior year, as there was a slight shortfall in the generation of new Fellow members and an increase in

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the number of Fellows removed from our rolls for non-payment of dues. Overall membership was relatively stable, ending May 2019 at 14,900 members versus 15,000 total members at May 31, 2018. The rate of retention of Fellow members was relatively flat at 93.2 percent for fiscal 2019 versus 93.8 percent for fiscal 2018, while overall member retention dropped from 90.6 percent to 88.9 percent, the result of removing a number of non-paying student members after their graduation, where, in prior years, they were automatically moved into a different membership category.

Peer review fees from administration of that program were lower than the prior year as more firms removed themselves from the program as they no longer perform certain services. As previously noted, the investment portfolios decreased as a result of market activity, and the Society recorded an unrealized loss of $168,000 for the year. This result, when combined with a flat expense level and the noted changes in revenue, resulted in a decrease to NJCPA net assts for fiscal 2019 of $168,000, compared to a budgeted decrease of $200,000 and an increase in net assets for the prior year of approximately $248,000 (including unrealized gains of $137,000).

NJCPA EDUCATION FOUNDATION The NJCPA Education Foundation completed fiscal 2019 with a negative change in net assets of approximately $457,000 versus a positive change in net assets for fiscal 2018 of $319,000. As previously noted, fiscal 2019 contains the first year of a reporting triennial cycle, which customarily brings lower attendance, and therefore revenues, at our educational programs.

NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

Attendance trends typically increase as we move through a cycle, and operating results are analyzed, in total, over the three years of each cycle. Total costs decreased for the year, though employee-related costs increased as more staff time was dedicated to the analysis, refinement and execution of program marketing campaigns. Educational programming served almost 19,500 registrants and delivered over 90,000 credit hours of CPE. Investments, as with the Society, decreased and resulted in an unrealized loss of approximately $63,000.

NJCPA SCHOLARSHIP FUND Chapter contributions to the NJCPA Scholarship Fund for the fiscal year ended May 31, 2019 were approximately 20 percent above budget due to better-than-expected financial results in those programs. While the Fund saw a small decrease in general and dues renewal fundraising, it did receive a special contribution of approximately $30,000 from the NJSCPA Insurance Trust dissolution. The Fund awarded approximately $399,500 in state and local scholarships to 75 applicants and made payments on prior-year awards for another 55 students; overall award expense was $14,500 below budget. As with the other entities, the Fund’s investment portfolio had negative performance, which included an unrealized loss for the year of $135,000, driving the overall decrease in net assets for the year of $209,000 versus a budgeted decrease of $166,000.

READ MORE NJCPA COMBINED FINANCIAL STATEMENTS njcpa.org/about

NJCPA NEWS

Tax Resources Available Ahead of Busy Season With tax season quickly approaching, the NJCPA offers a myriad of resources to assist.

From staffing services to new tax updates, njcpa.org is a good place to turn for information. Whether it’s obtaining new clients, staying up-to-date on the latest tax developments or hiring staff to keep the workflow moving smoothly, the following resources can help.

ENROLL IN FIND-A-CPA NJCPA’s Find-A-CPA Online Referral Service helps locate New Jersey-based CPA firms, which can be searched for by location, services provided and industries served. A basic listing is free for any firm with at least one NJCPA member. Listing enhancements can be purchased for as little as $15. Enroll at findacpa.org.

LEVERAGE THE JOB BANK Check out the NJCPA’s Job Bank to hire professionals in all facets of accounting

from those just starting in the industry to those reaching partner level. Whether you need temporary help during tax season or year-round employees, post your jobs and search the resumes at njcpa.org/jobs.

JOIN TAX INTEREST GROUPS While there are many interest groups at the NJCPA to choose from, members with an interest in federal tax issues should join the Federal Taxation Interest Group. The group, which meets six to eight times a year, educates and informs members about pending regulations regarding both domestic and international federal tax issues.

The State Taxation Interest Group provides an outlet for members to share information and the latest administrative and policy taxation developments at the state level. The group meets monthly, except during

Whether you are just getting started or are already established, we have business banking solutions that will help move your business forward.

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NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

tax season. All backgrounds are welcome for both groups. Sign up at njcpa.org/groups.

STAY INFORMED Visit the NJCPA website to register for tax events and follow the latest tax news. Go to njcpa.org/topics/fedtax for federal and international tax news and events. State and local tax news and events can be accessed at njcpa.org/topics/statetax.

SAVE ON TAX PUBLICATIONS NJCPA member benefit provider Wolters Kluwer is offering a 25-percent discount to members on all CCH tax publications, including the U.S. Master Tax Guide®, which offers comprehensive federal tax question assistance. Learn more at njcpa.org/marketplace.

CLASSIFIEDS

MERGERS/ACQUISITIONS

Monmouth County tax and wealth advisory firm seeking partnership with CPA practice(s): looking for an additional source of recurring revenue to compliment your tax practice? Looking to enter the wealth advisory business without the costs and complexities?

Do you have a succession plan for incapacity or retirement? Contact Gregg at gshaw@hstaxwealth.com, 732-268-8813; www.hstaxwealth.com.

Retirement-minded Middlesex County CPA, looking for CPA to take over my firm. Gross $450K. Must have strong background. Small existing client base a plus. Reply in confidence at njcpa.org/classifieds.

The Marchese Group, a father-son CPA firm in Northern NJ is looking for retirement-minded practitioners for buy-out of entire practice or compilation, review or audit clients. Please contact brian@tmgcpa.net.

Seize a merger/acquisition opportunity with benefits for you. We are looking for firms ranging from $300,000 to $5,000,000 eager to combine forces as we continue to grow across northern NJ, Westchester and the Hudson Valley region. Goldstein Lieberman & Company is ideally situated to service all types of industries. Visit www.glcpas. com; email me, Phillip Goldstein, CPA, Managing Partner, philg@glcpas.com; or call me at 800-839-5767 to have a confidential conversation.

Traphagen & Traphagen CPAs, a wellestablished firm in Bergen County with diverse client base and credentialed support staff is seeking small firms and sole practitioners for acquisition or merger. We are looking for firms ranging in size from $300K to $700K. This is an opportunity to align with a quality peer- reviewed firm, while continuing to provide your clients with exceptional service. To confidentially discuss this opportunity please email us at carolynn@tfgllc.com.

Union County Accounting and Tax practice seeks growth through retirement-minded practitioners looking to transition toward retirement. Ideal annual billing should range from $250K to $750K, but would welcome all discussions. Please reply in strict confidence to gary@mlcpanj.com. To learn more about us, please visit www.mlcpanj.com.

Monmouth County (Spring Lake area) CPA firm seeks motivated CPA to share and assume responsibilities of semi-retiring partner. Qualified candidate will have option to rent office suite with shared services during transition period. Gross over $300K; 80% tax related. Reply in confidence at njcpa.org/classifieds.

To see additional classified listings or to place an ad, visit njcpa.org/classifieds.

Two-partner Monmouth County CPA firm seeks CPA to eventually assume a partnership interest. One of the existing partners will be semi-retiring within the next few years. Very large tax practice including 1040 clients, small businesses and many nonprofits. Interested candidates should reply with resume or letter to monmouthcpa25@gmail.com.

New Jersey practices for sale: gross revenue shown: Hunterdon County CPA $650K; Union County tax clients (virtual office) $100K; Gloucester County CPA $345K; Ocean County CPA $85K. For more information, call 800-397-0249 or visit www.aps.net.

Red Bank CPA looking to acquire tax/ accounting practice from Monmouth County practitioner. Substantial cash available. Respond to PO Box 8217, Red Bank NJ 07701.

ADVERTISERS INDEX 7 ACCOUNTING PRACTICE SALES aps.net 18 ADP adp.com/NJCPA 26 INVESTORS BANK investorsbank.com C2 RUTGERS BUSINESS SCHOOL business.rutgers.edu/finmaccy

NEW JERSEY CPA | NOVEMBER/DECEMBER 2019

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MEMBER STORY

One CPA’s Balancing Act

BY KATHLEEN HOFFELDER, NJCPA CONTENT EDITOR

Simply put, Marc Feldman, CPA, is a problem solver. That kind of skill comes in handy as he performs a daily analysis of upcoming cash inflows and outflows and works to resolve any issues related to contracts or other topics as the chief financial officer of Helen Keller Services (HKS) in Brooklyn.

Feldman, who has been CFO of the organization since 2010, explains that “complexity is a constant” on the job, especially if “mission execution seems to be in conflict with the sustainability of funding for operations.” Helen Keller Services offers services to blind children and adults in New York City and Long Island and runs a preschool. It also works closely with its Helen Keller National Center for Deaf-Blind Youths and Adults division on Long Island. As he explains, “the unusual has been the usual in my work at HKS, particularly with a small group of senior staff covering everything that comes up.”

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Feldman makes sure employees understand that budgets are not to just be thought of in “budget season” alone.

“There is truth in the adage often used in the not-for-profit world of ‘no margin, no mission.’ My role is to bring a consistent business perspective to the everyday and strategic management process, simultaneously encouraging program managers to think along those lines in the same way as I learn to support and prioritize mission initiatives.”

A key example of this balancing act is when he and other senior executives at Helen Keller had to convince the board to sell the downtown Brooklyn headquarters building it had owned for 65 years.

It involved selecting a broker, finding a buyer willing to lease the building back for a short but flexible period while HKS pursued leasing and building a new similarly well-located facility. “This was as complex an endeavor as anything I had

NOVEMBER/DECEMBER 2019 | NEW JERSEY CPA

been involved with in the private sector,” he adds.

Due to Feldman’s previous working experience as CFO at the DysonKissner-Moran Corporation (DKM) in New York, and more specifically as treasurer of the Dyson Foundation, a private, family-directed grant-making foundation in Millbrook, New York, Feldman was comfortable working at Helen Keller and on real estate projects, in particular. “I could produce the due diligence information, negotiate a lease for the new space and take into account the complexities of consumers who need to be close to the many public transportation options in downtown Brooklyn,” he explained. “Beyond the fantastic new space our team designed, I had the opportunity to improve the finances of the organization by selling that building for well over $50 million in 2016 when it was on the books for $1 million.”

While it can be busy, it’s not all work for the CFO. “I love the mission. I enjoy the work and seeing clients every day.

The preschool used to be on a different floor, and now I see those kids coming and going every day,” he says.

FROM AUDITOR TO CFO A CPA since age 24, Feldman realized early on he wanted to not only look at numbers but go into the “deal-making” side of business as well, which is why he was so eager about revitalizing Helen Keller Services.

After graduating from the University of Michigan, he went to graduate school at Columbia and obtained his MBA in finance. “I found so many finance people did not understand accounting, and those trained in accounting did not understand finance,” he says. “It’s all about building up your skillset and being flexible,” admits Feldman, who rose to CFO at DKM from treasurer and vice president of planning and analysis, where he sold many of its real estate investments.

Raised in Belleville, New Jersey, Feldman previously served as CFO at Biopharmaceutics, Inc., and as assistant vice president of finance at Del Laboratories. He began his career as a supervising audit senior at EY in Newark.

Looking for new talent or opportunities?

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