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Magazine of the

New Jersey Society of Certified Public Accountants

When Disaster Strikes Business Continuity for Staff The Tax Implications of Disaster Protecting Data from Man-Made Disasters ERM, Insurance and Mitigating Risk

Jan • Feb 2014


January • February 2014

features

Ralph Albert Thomas, CGMA Chief Executive Officer & Executive Director rthomas@njscpa.org

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Ellen C. McSherry, CGMA Chief Operating Officer emcsherry@njscpa.org

Don Meyer Director, Communications & Marketing dmeyer@njscpa.org

David Plaskow Managing Editor dplaskow@njscpa.org

Jeanette L. Miller Editorial Assistant jmiller@njscpa.org

Janice M. Celeste Multimedia Specialist jceleste@njscpa.org

Editorial Advisory Board Neil B. Becourtney, CPA Timothy A. Burley, CPA Salvatore A. Collemi, CPA Rebecca B. Fitzhugh, CPA Catherine Z. Horn, CPA Bernard M. Kiely, CPA Gregory Levine, CPA Marcella LoCastro, CPA Anthony F. Marone, CPA Marc D. Mintz, CPA Margaret Van Brunt, CPA

Business Continuity for Staff Find out how one firm’s business continuity plan begins and ends with its most import resource – its staff. The Tax Implications of Disaster Learn how helping clients with the tax aspects of casualty losses, deduction limits, insurance and other reimbursements can help ease their recovery.

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14 The New Jersey Society of Certified Public Accountants 425 Eagle Rock Avenue Roseland, NJ 07068-1723 973-226-4494 njscpa.org #njcpamag Read New Jersey CPA digital at njscpa.org/newjerseycpa.

Protecting Data from Man-Made Disasters While storms such as Sandy accounted for significant data loss at companies, most cases of lost data are actually due to human error. ERM, Insurance and Mitigating Risk Discover how risk managers need to be proactive and use insurance as part of an effective enterprise risk management strategy.

2 Close Up CPA Poll Finds Economic Conditions Marginally Improving

23 Small/Sole Practitioner Having a Catastrophe/ Continuity Plan

4 News Briefs 16 A&A Buzz The Nuances of Auditing FEMA Grants

24 Tax Talk A Super Way to Get Tax-Free Rental Income 26 Tech Center On-the-Go Accounting

17 Best Practices Choosing a Facilitator

34 Student Outlook Staying "Stockton Strong"

35 Legislative Views 18 Business & Industry Legislative Activity Buzzes at Insights Year’s End Business Process Mapping for Financial Professionals 36 Member Profile A CPA Who's Paying a Price 20 Financial Planning for Sandy What Financial Professionals Should Know About Crowd Society Pages Funding CPE Offerings and Events, 28 22 Forensic File Member Benefits, 29 Best Practices for Get Involved, 30 Shareholder Agreements NJ State Board of Accountancy Report, 32 Classifieds, 33

Design/Production/Advertising Lionheart Publishing Inc.. 506 Roswell Street, Suite 220 Marietta, GA 30060 President – John Llewellyn 770-431-0867 x209 llewellyn@lionhrtpub.com

New Jersey CPA (ISSN 1534-6692) is published six times per year by the New Jersey Society of Certified Public Accountants, 425 Eagle Rock Avenue-Suite 100, Roseland, NJ 07068. Issue No. 43 Copyright © 2014 New Jersey Society of Certified Public Accountants. Annual membership dues includes $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, 425 Eagle Rock Avenue, Suite 100, Roseland, NJ 07068-1723. 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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CPA Poll Finds Economic Conditions Marginally Improving B y Don Meyer, NJS CPA C omm u nications & M arketing D irector

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he second annual survey of CPAs commissioned by the New Jersey Society of CPAs (NJSCPA), the New York State Society of CPAs (NYSSCPA) and the Pennsylvania Institute of CPAs (PICPA) finds cautious optimism among respondents when it comes to both national and state economic indicators.

A National Picture More CPAs in NY, NJ and PA feel that economic conditions in the U.S. are better now than compared to last year. About half of these CPAs (NY, 46 percent; NJ, 46 percent; PA, 52 percent) believe the economic conditions are about the same as they were one year ago, with similar proportions (NY, 44 percent; NJ, 39 percent; PA, 47 percent) expecting economic conditions will be about the same one year from now.

CPAs in New York and New Jersey blame high unemployment (NY, 49 percent; NJ, 54 percent) and entitlement spending (NY, 38 percent; NJ, 40 percent) for the lack of economic growth in the U.S. CPAs in PA identified the Affordable Care Act (43 percent), high unemployment (42 percent), entitlement spending (42 percent) and federal regulations (42 percent) as having a negative impact on U.S. economic growth.

More than half (54 percent) of New Jersey CPAs believe the economic conditions in NJ are about the same as they were one year ago, and 50 percent expect them to be about the same one year from now. A sense of stability and

to New Jersey’s above-average unemployment rate. New Jersey CPAs are in relative agreement that reducing property tax rates and reforming state government pensions and benefits would improve economic expansion in the state. Also noteworthy with respect to employment, a whopping 64 percent of respondents indicated employees in their companies are postponing retirement. Their main reason: the economy (78 percent).

Health Care’s Impact

Leading Negative Indicators

The Garden State View

improvement reflects the revenue and employment growth that CPAs have seen during the past year – and their expectations for next year. Only 28 percent of New Jersey CPAs believe the business climate in the state is excellent or good, and 58 percent believe the state’s business climate hinders economic growth. However, more than half (56 percent) of the state’s CPAs say there has been noticeable improvement in New Jersey’s business climate since Governor Christie took office. While 39 percent of CPAs believe government red tape is worse than ever in NJ (Figure 1), an approximate equal number (37 percent) believe it is improving.

New Jersey CPAs believe rising health care costs (41 percent) are the top hindrance to economic growth in the state, and 44 percent of New Jersey CPAs say that the Affordable Care Act (ACA) is affecting their companies' business decisions. Nearly half (43 percent) of CPA firms are re-evaluating their current insurance, 30 percent are postponing hiring decisions and 25 percent are increasing their number of part-time employees due to the ACA. One quarter of CPAs name the ACA and regulatory requirements as their greatest concerns for operating their businesses in NJ over the next 12 months.

NJ Taxes and Employment Alarmingly, 81 percent of CPAs in New Jersey report the state’s tax structure is worse than in most other states. Nearly half believe that New Jersey’s tax climate (47 percent) and companies leaving the state (51 percent) are important factors that contribute

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2013/14 Board of Trustees EXECUTIVE COMMITTEE President – Gerard Abbattista, CPA President-Elect – Brad E. Muniz, CPA Secretary – Walter J. Brasch, CPA Treasurer – John M. Szczomak, CPA Immediate Past President – Thomas F. Roche III, CPA CEO & Executive Director – Ralph Albert Thomas, CGMA TRUSTEES Sharon J. Bishop, CPA Leonard N. Brooks, CPA William A. Cadmus, CPA Joseph C. DiFalco, CPA Edward I. Guttenplan, CPA Michael W. Gutwetter, CPA Karl A. Halteman, CPA Robert P. Herman, CPA Edward G. O’Connell, CPA Jody Rorick, CPA Mary E. Zago, CPA Joseph A. Zielinski, CPA


Figure 1

The Franklin and Marshall College's Center for Opinion Research, on behalf of the NJSCPA, NYSSCPA and PICPA, surveyed high-level CPAs in public accounting, business and industry, government, nonprofit and academia in the tri-state area during fall 2013. There were nearly 2,000 total respondents, with 673 based in NJ. To view the full report, visit njscpa.org/newjerseycpa/ janfeb14.

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NEWS

briefs

PCAOB Posts a Pair of Final Rules

Participation in a composite return is elective. If the nonresident individual does not believe that the benefits derived from the composite return outweigh the additional tax paid, they can file an individual nonresident return (Form NJ-1040NR).

The Public Company Accounting Oversight Board (PCAOB) recently posted two final rules to its website: (1) Related to Docket 035: Attestation Standards for Engagements Related to Broker and Dealer Compliance or Exemption Reports Required by the U.S. Securities and Exchange Commission and Related Amendments to PCAOB Standards; and (2) Related to Docket 036: Auditing Standard on Auditing Supplemental Information Accompanying Audited Financial Statements and Related. Learn more at pcaobus.org.

A Firm Commitment

Gross Income Tax Rate for the NJ-1080C, Composite Return The New Jersey Administrative Code at N.J.A.C. 18:35-5.2 requires income taxation on the composite NJ nonresident gross income tax returns (Form NJ-1080C) at the highest rate. However, for tax years beginning on or before December 31, 2012, the division will continue to allow the use of two rates in order to encourage nonresident individuals to elect to participate in a composite return. Entities preparing and filing the NJ-1080C return for participating taxpayers with NJ sourced income from the entity of less than $250,000 will apply the 6.37-percent rate, and participating taxpayers with New Jersey sourced income of $250,000 or more will apply the highest tax rate, which was 10.75 percent in 2009 and 8.97 percent in 2010, 2011 and 2012. The regulation at N.J.A.C. 18:35-5.2 will be enforced for tax years beginning on or after January 1, 2013. Thus, all entity members who elect to participate in the composite return filing will be required to pay tax at the highest rate.

Approximately 30 CPA firm administrators gathered at the New Jersey Society of CPAs Fourth Annual Firm Administrator Breakfast in Iselin in September. Held in conjunction with the NJ Chapter of the Association for Accounting Administration (AAA), the event included guest speakers, an idea exchange and networking. “The AAA is pleased to work closely with the NJSCPA to help streamline administrative functions within the accounting profession and make firm administrators’ jobs more efficient,” said AAA NJ President Michael Mariano, firm administrator for Leaf, Saltzman, Manganelli, Tendler & Miele, LLP.

Report: The IRS Must Do More to Reduce Improper Payments The Internal Revenue Service (IRS) has made no significant improvement in reducing improper earned income tax credit (EITC) payments, according to a report by the Treasury Inspector General for Tax Administration (TIGTA). Executive Order 13520, Reducing Improper Payments and Eliminating Waste in Federal Programs, requires the TIGTA to assess the IRS’ compliance with the order on an annual basis. The IRS estimates that $11.6 billion to $13.6 billion of EITC payments were issued improperly during fiscal year 2012. However, the TIGTA claims the estimate is understated because the

laws extending increases in the EITC were not considered. The TIGTA also found that the IRS has not established annual improper payment reduction targets and is not in compliance with the quarterly reporting requirement for improper EITC payments totaling more than $5,000. IRS management recently met with the Office of Management and Budget and agreed to develop supplemental measures and indicators in lieu of reduction targets. The TIGTA recommended that the IRS develop processes to identify high-dollar improper EITC payments and report the information to the TIGTA and the council as required by Executive Order 13520.

SEC Issues Proposal on Crowd Funding The Securities and Exchange Commission (SEC) voted unanimously to propose rules under the JOBS Act to permit companies to offer and sell securities through crowd funding. Crowd funding describes an evolving method of raising capital that has been used outside of the securities arena to raise funds via the Internet for a variety of projects ranging from innovative product ideas to artistic endeavors like movies or music. Title III of the JOBS Act created an exemption under the securities laws so that this type of funding method can be easily used to offer and sell securities as well. The JOBS Act also established the foundation for a regulatory structure for this funding method.  SEC Chair Mary Jo White noted that the intent of the JOBS Act is to make it easier for startups and small businesses to raise capital from a wide range of potential investors and provide additional investment opportunities for investors. See page 20 for more on crowd funding.

PCAOB Issues Staff Audit Practice Alert

Poverty in NJ by the Numbers 2,100,000

NJ residents considered poor

37,060

Poverty line annual income, in dollars, for a family of three

24.7

Percent of the NJ population below the poverty line

3

Rank of NJ as the wealthiest state per median household income

The PCAOB issued a Staff Audit Practice Alert in light of a significant number of audit deficiencies observed in the past three years related to audits of internal control over financial reporting. Staff Audit Practice Alert No. 11, Considerations for Audits of Internal Control Over Financial Reporting, discusses the application of certain requirements of Auditing

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Standard No. 5 and other PCAOB standards to specific aspects of audits of internal control. Specifically, the alert discusses: • Auditors' risk assessment and the audit of internal control. • Selecting controls to test. • Testing management review controls. • Information technology considerations. • Roll-forward of control testing performed at an interim date. • Using the work of others. • Evaluating identified control deficiencies. Audit committees may want to discuss with their auditor the level of auditing deficiencies in this area identified in their auditor's internal inspections and PCAOB inspections, request information from their auditor about potential root causes and inquire how their auditor is responding to these matters.

IRS Increases Various Tax Benefits Due to Inflation For tax year 2014, the IRS has announced annual inflation adjustments for more than

40 tax provisions, including the tax rate schedules and other tax changes. Details on these inflation adjustments can be found in Revenue Procedure 2013-35, which is published in Internal Revenue Bulletin 2013-47.

AICPA Needs More DOMA Guidance from the IRS

A Well-Deserved Honor

Andrew L. DuBoff, CPA, (far right) receives the National Association of State Boards of Accountancy's (NASBA's) Distinguished Service Award for his dedication to enhancing the NASBA's mission. DuBoff is a past president of both the NJSCPA and the NJ State Board of Accountancy.

The American Institute of CPAs identified 17 areas in which the IRS should provide additional guidance to taxpayers and tax practitioners as a result of the U.S. Supreme Court’s decision in United States v. Windsor, which ruled that section 3 of the Defense of Marriage Act (DOMA)

was unconstitutional. The AICPA’s request for additional guidance covered income tax, estate and gift tax and other issues. Learn more at aicpa.org.

njscpa.org Spotlight

Customize Your Emails from the NJSCPA Do you receive emails from the New Jersey Society of CPAs on topics that are not of interest to you? You can customize the emails you receive from us by updating your Areas of Interest. The Areas of Interest are on your member profile form, accessible at njscpa.org/profile. (You will be prompted to login. Your username is your email address and your password is your six-digit NJSCPA ID number, unless you’ve changed it.) First, take a moment to make sure that all of your contact information is current. Then, scroll down to the Areas of Interest section. Check off all of the topics that you want to receive more information about. Then click the Save Changes button. What do we use the Areas of Interest data for? • To notify you of upcoming events you may be interested in. • To highlight content on the NJSCPA website you may be interested in. • To customize the content you receive in your NJSCPA e-newsletters (coming soon). So, take a few minutes to update your Areas of Interest. Your inbox will thank you.

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Business Continuity for Staff Disaster recovery, business continuity and emergency management are all terms that have become increasingly important as a result of disasters – either natural or man-made. Whether it is September 11 or Superstorm Sandy, we have all been made quite aware of the current realities of an unpredictable environment.

By Edward I. Guttenplan, CPA Wilkin & Guttenplan, P.C.

We have all focused on data and system security as the primary need, but recent experience has shown us that central to business continuity is connection with our personnel – a resource far more important to our businesses than our servers and computers. During crises and extraordinary events our physical and financial fears escalate, and that is when our clients need us the most and we need our staff the most.

Choosing a Reliable Primary Communication Vehicle Whether it is on an individual or firmwide basis, staying connected is a powerful tool for business continuity and for supporting our staff. It can be as simple as telephone calls or text messages. Our most reliable tool for communication with staff has been group texting. Our firm uses grouptexting.com,

but there are many cost-effective services available. In addition, even when the Internet providers are down or power is out, group texts can be sent. We have our entire staff, as well as other key people, set up individually and in groups. We can send messages to all individuals or groups, facilitating different messages for different groups. Our staff knows that this is the method we will use to communicate office openings, closings, snow schedules or other emergency communications when our power or servers are down. During Superstorm Sandy, our firm used group texting to alert staff about available gas, community services and even the drop-off schedule of clothing to shelters for firm members. Admittedly, texting is limited as to message length. But, over the years, we have found it the simplest and most reliable means of communication, particularly during widespread power and Internet outages.

Going Over and Above Our firm feels business continuity for staff extends beyond being just an employer to personal security and wellbeing. During and after Superstorm Sandy, we took steps to determine who was with or without power and who might need housing. We compensated staff for the period of time the office was closed. We also provided loans

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for staff who needed emergency home repairs or cash for a car purchase while they awaited insurance proceeds. I would be remiss if I did not mention that one of our continuity polices is that we expect staff to monitor weather conditions to anticipate possible office closings so they can bring work home. The staff understands that this is a mutual challenge economically and, therefore, recognizes the shared responsibility.

Client Contact Setting the tone for business continuity also extends to reaching out to our key clients. While we do not mandate that everyone have a nonwork email address, such as Gmail, the partners and managers should. Using email addresses that are not dependent on our server is a very effective tool for contacting certain clients. And we make an effort to touch base with them when we think it is appropriate or to find out if they are in need of assistance.

Technology Continuity Traditional emergency preparedness and disaster recovery plans should come under careful review. As mentioned, we approached ours with an eye toward a solution that considers both our staff and partners. While we have some applications in the cloud, we will still maintain our own information technology (IT) infrastructure with a cloud-based backup and failover. During Sandy, we could have switched over to cloud-based operations, but

we assessed minimal benefits as our clients were not operational and home access was extremely limited because of statewide power outages. We monitored who was with and without power via text messaging. Today, after careful assessment, we are migrating to a co-location strategy. Essentially, we are moving our servers out of our office and into a local data center. The data center is equipped with redundant power and Internet connectivity, diesel generators and airtight security. This was the most cost-effective solution to ensure uptime, enabling staff to be fully productive at home through use of a VPN and other remote access tools. On-site generators

Wilkin & Guttenplan’s Emergency Plan • Staff asked to monitor weather events to anticipate working at home • Communication protocol - Text messaging (all must supply cell number) - Email - Intranet posting • Cloud-based applications where appropriate • Co-location of critical applications that are not cloud-based (Microsoft exchange and server-based applications) • VPN and remote desktop for remote users • Appropriate business interruption insurance

were not cost effective, nor would they have enabled a suitable work environment in the office. Staff and partners want to be connected and at the same time attend to family needs and concerns. Our approach is to listen and be responsive to changing needs. With the help of our phenomenal IT department, we have provided training for those looking to effectively use their smartphones, tablets or home computers. We have also historically provided staff interest-free loans for the purchase of home computers, although most of them have laptops. Meeting the needs of working parents, singles, those who prefer to work remotely and those who find it difficult to do so ensures not only business continuity for clients, but staff continuity as we seek to support our most valuable and complex resource – our people. Edward I. Guttenplan, CPA, M.B.A., is the managing shareholder at Wilkin & Guttenplan, P.C. He is a trustee on the board of the New Jersey Society of CPAs and a member of the NJSCPA Student Programs & Scholarships Committee. Contact him at eguttenplan@wgcpas.com.

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The Tax Implications of Disaster The dismay that a disaster leaves behind often prevents those affected from thinking about the tax implications that recovery may entail. Disasters, whether a historic storm or an unintentional fire, can bring all sorts of tax situations into play. In some instances, it is too complicated for taxpayers to ultimately decide how to correctly handle the specific circumstances. As such, it is important for CPAs, as trusted advisors, to educate themselves and their clients about the basic tax implications of any disaster.

Casualty Losses

By Christopher R. Cicalese, CPA Alloy, Silverstein, Shapiro, Adams, Mulford, Cicalese, Wilson & Company

A casualty loss occurs when property is damaged, destroyed or lost from any unexpected, unusual or sudden event, not including normal wear and tear. Casualty losses are often associated with headline disasters such as Superstorm Sandy. However, a casualty loss can also result from a simple basement leak from a typical thunderstorm. The tax treatment of these different types of losses is intricate. To deduct a casualty loss, one must be able to support the amount taken as a deduction and show that there was a casualty. Typically, a taxpayer should be able to show the type of casualty and when it occurred, that the loss was a direct result of a casualty, that the

person was the rightful property owner or contractually liable to the owner for damaged lease property, and whether a claim for reimbursement exists that has a recovery expectation. If the property was for personal use or was not completely destroyed, the amount of the loss would be the lesser of the adjusted basis of the property or the decrease in the fair market value (FMV) as a result of the casualty. Real property for personal use should include any improvements as one entire property, such as buildings and landscaping, for determining the FMV decrease and adjusted basis. Business property or income-producing property does not take the FMV decrease into consideration and calculates the loss as adjusted basis in property, less salvage value, less insurance or other reimbursement received or expected to be received. For a business that lost inventory, including items held for customer sale, there are two options to deduct the loss. The first is by reporting the casualty as a cost of goods sold through the opening and closing inventory balances. If this method is used, the casualty loss should not be claimed again on the return, and any type of reimbursement should be included in gross income. An inventory loss can also be deducted separately by adjusting opening inventory or purchases for the effected inventory items. Unlike the previous method, reimbursements would not be included in gross income and instead should reduce the loss. A

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loss cannot be claimed to the extent that there is a reasonable prospect of recovery if a reimbursement is not received by the end of the year.

Deduction Limits The deduction for casualty losses is limited for employee and personaluse property. Business and incomeproducing property are typically not subject to deduction limits, but in some cases the loss will be limited. For employee property, which is property used in performing services as an employee, a loss is subject to the 2-percent rule. This rule reduces the casualty loss, along with job expenses or miscellaneous itemized deductions, by 2 percent of adjusted gross income (AGI). Personal-use property is subject to the $100 and 10-percent rule. Under the $100 rule, the loss is reduced by $100, regardless of how much property is involved; however, if a taxpayer has multiple casualty losses during the year they are considered separate. After reducing each loss by the $100 rule, the losses are then reduced by 10 percent of AGI.

Insurance and Other Reimbursements The most common form of reimbursement for a casualty loss is insurance payments. In order to deduct a casualty loss, a timely insurance claim must be filed for reimbursement if the property is insured. The expected reimbursement must be subtracted when figuring the loss, even if the payment will not be received until a year later. If the actual reimbursement is more or less than what was expected, the amount must be adjusted on the tax return for the tax year in which the payment was received. Employer emergency disaster funds should also be considered when computing the casualty loss deduction in that only the amount used to replace destroyed or damaged property should be considered for reducing any unreimbursed losses. Cash gifts that are excludable from income and carry no restrictions on their use do not reduce the casualty loss amount.

If insurance payments were received to specifically cover living expenses and there was a temporary increase in living expenses, the excess is reported as income unless the casualty occurs in a federally declared disaster area. In such an area, the qualified disaster relief payment would not be included in income to the extent that any expenses compensated by these payments are not otherwise compensated for by any other insurance or reimbursement. The payment would be tax free as long as it is for reasonable and necessary personal or family expenses, repairs or rehabilitation of a personal residence, or repair or replacement of contents of a personal residence. If part of the payment is to be included in income, it would be included in the year the person regains use of his or her main home or, if later, the year he or she receives the taxable portion of the

insurance payment. A grant that a business receives under a state program for losses incurred is not excludable from income. However, a business can postpone the gain if the owner buys qualifying replacement property within a certain time period. The road to recovery after a disaster can be overwhelming. By helping clients understand the tax implications, a CPA not only eases the client’s mind, but also makes the trusted advisor relationship stronger. Christopher R. Cicalese, CPA, MSTFP, is a staff accountant at Alloy, Silverstein, Shapiro, Adams, Mulford, Cicalese, Wilson & Co. He is a member of the New Jersey Society of CPAs. Contact him at ccicalese@ alloysilverstein.com or follow him on Twitter at @AthleteCPA.

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Protecting Data from Man-Made Disasters Most people are completely wrong about computer backups. The technology experts will mention a dozen reasons why you should backup your computer: server failure, hard drive crash, software bugs and so on. I’m not saying these things don’t happen and that backups aren’t a good way to protect your data from these situations – they are.

By James Carroll Carroll-Net, Inc.

The truth is, as computers become more reliable, people become dismissive of the need to backup. Why perform backups when trouble rarely happens? You shouldn’t do backups to protect against computer problems; you should do backups to protect from human error. While many of the headlines regarding data loss reflect the wrath of Mother Nature, study after study has shown that the leading cause of lost data is human actions (either accidental or malicious).

Hazards How easy would it be to browse your documents folder and accidentally hit delete? Thousands of files, years of work, all lost by one inadvertent keystroke. While there are pop-ups asking for confirmation, most people barely read them. Maybe you’re the type of person who’s careful and always reads pop-ups. Fair enough. Maybe you always work from carefully scripted procedures, instructions that clearly lay out each step: step 1, close the QuickBooks open company file; step 2, close the open window; step 3; and so on. But what happens if you’re interrupted and you perform the steps incorrectly or out of order? Would a keyed sequence entered into the wrong window result in disaster? Let’s assume you backup to an external drive. But what if you got the command wrong? What if instead of backing up the C: drive to the E: drive, you backup from E: to C: Suddenly, instead of backing up, you’ve erased all of your work and reverted your

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documents to how they previously looked. What if you are not the only one with access to your hard drive? Do you store your files on a file server shared with other staff? If your office is in your home, do any family members ever sneak in and play games or surf the Internet? If there are others who access your computer at the office, you’re exposed not only to your own mistakes, but to theirs as well. People often value speed over caution. For instance, someone might be in a rush to leave early for the weekend and commit a tragic mistake. And if data loss happens on the company server, the loss could be devastating. What about intentional subterfuge such as theft? Most people will take

copies of their data offsite, via an external or thumb drive. What if your car is stolen or broken into, or what if you just forgot to pick up the thumb drive after emptying your pockets at the airport? Suddenly, your client’s private data is in the hands of someone else, which makes for an uncomfortable explanation to a soon-to-be former client. What about the unhappy employee who commits wanton acts of sabotage?

Protection So, just what are the best options to protect you from human errors? There are many simple ways you can protect critical files. If you’re trying to protect business documents, one basic technique is to print hard copies

and save them somewhere safe. You may think this is a lot of work, but you’d probably be surprised at how few documents are actually critical to your business. It’s entirely possible that a couple of hours at the printer could be enough to protect your key documents. Another thing to consider is enabling data protection abilities already embedded in your computer. For example, if you use Microsoft Windows, there is a little known technology called Volume Shadow Copy. This free software will take regular snapshots of your hard drive and keep these versions using the empty space of your hard drive. It’s simple to enable and can easily gain you four or five days of file revisions. Learn

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more at https://en.wikipedia.org/wiki/ shadow_copy. Of course, the best backup is one that’s stored away from your computer system. With the explosion of Internet bandwidth, a specialized industry for doing backups over the Internet has sprung up called “cloud backups.” With these, your data is encrypted and transmitted to a remote data center for archiving. This approach has the benefit of eliminating tape drives and external hard drives, both of which wear out and need replacement. Whichever approach you choose, the most important thing to do is to automate it. Anything that relies on repetitive actions – even carefully scripted ones – is subject to human error.

Testing A word about backups that gets too little coverage: testing. While this may seem like common sense, too few people take the time to actually test their backups. Testing backups is critical to ensuring your files can be restored when you need them. The last thing you want to find out is your backups have been failing for months – just when you need to do a restore. The only way to avoid this disaster is to test your backups regularly. So, when should you test your backups? There are several good times. The first is anytime you make a change to your backups; for example, when you add something new. Another is when you find yourself looking for an old file or folder and you’re not sure where it might

be on your hard drive. Why not go to your backups and restore them? The best practice is to test your backups monthly. But if you find that too burdensome, consider testing quarterly at a minimum. While the “once-in-lifetime” storm can wreak havoc with data, it is humans who are incredibly resourceful at finding new ways to destroy data. A solid backup plan will protect you from both types of threats and give you the opportunity to quickly recover. James Carroll is the president of Carroll-Net, Inc., a cloud backup provider that services businesses of all sizes. Contact him at jim@carroll.net or 888-432-1638.

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ERM, Insurance and Mitigating Risk Risk management has assumed an elevated status in most companies over the past decade. Why? Reasons include increased regulatory oversight, high-profile business failures and scandals, an increasingly complex business environment, and unstable political and environmental conditions.

strategy. In the last dozen years, many organizations and consultants have developed comprehensive frameworks for managing what is now commonly known as enterprise risk management (ERM). In these various frameworks, the typical responses to risk involve avoiding the risk completely, accepting the risk, reducing the risk via mitigation and sharing the risk (e.g., via insurance).

Risk Manager Introspection Larger companies often have dedicated risk managers, while this responsibility usually falls to the top financial person at most smaller companies. The tasks of risk management are closely aligned with those of internal controls. As such, the importance of financial managers in today’s economic climate cannot be minimized.

By Stephen F. McCarthy, CPA The Presidents Forum

Risk Management’s Goal All businesses face uncertainty, and uncertainty leads to both risks and opportunities. An accurate assessment of risks and opportunities plays a huge role in developing business forecasts for sales, profits and whatever metrics are used to assess the organization’s goals. The key is getting the forecast right. A comprehensive forecast takes all risk into consideration and incorporates the anticipated effects of risk management in the forecast. Not long ago, we thought about risk as either insurable or uninsurable. We could have bought insurance at reasonable prices for our property or our employees, and we managed the uninsurable portion. Today, it is important to view insurance as part of an overall risk management

Risk managers need to ask themselves, “How does my company decide whether or not to buy insurance?” The answer is basically the same way you decide whether to hire new employees. A company hires employees when the return on hiring a new employee is greater than the cost of hiring. Insurance essentially involves the same premise: Will the return on reducing the risk by purchasing insurance be greater than the cost of not doing so?

An Effective Insurance Plan First, examine traditional, insurable risks: natural disasters or acts of God, employee health and wellness, and criminal activity. A natural disaster, like Superstorm Sandy, or the death of a key employee could substantially affect your company’s bottom line. These risks can easily be transferred to a third party by insurance or contract and should be planned for prior to the event. The second task involves analyzing internal risks. These are often preventable risks where there is no strategic benefit for simply accepting the risk or where mitigation may be complex; for example, the protection of sensitive information or compliance

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risks. The latter can become complicated if there is compliance uncertainty, intensified regulator assertiveness or if regulatory change is possible. The best way to mitigate these operational risks is by improving internal processes, especially those risks caused by negligence. If unacceptable levels of risk remain after mitigation, then it is appropriate to purchase costeffective insurance. The third and most difficult task is to analyze strategic risk. The risk here may be desirable if there is opportunity involved, such as situations where the entity is considering aggressive corporate strategies. It is often very difficult and costly to purchase insurance for this type of risk, as it would cover any poor management decisions. “The three main ways to manage risk are through insurance, improved processes and outsourcing risk to a third party,” says William Hagaman, CPA, CGMA, managing partner of WithumSmith+Brown. “One of the benefits of insurance is that you know what the cost is upfront so there are no unpleasant surprises to your financials if a negative event occurs. In this way, we improve forecast accuracy.” Insurance has always been a risk/ reward, cost/benefit proposition. You don’t need insurance when cash, time, patience and good luck are unlimited. But if insurance is needed as part of an overall risk management strategy, then costs and benefits must be carefully weighed for each policy.

Other Policies of Note Hagaman notes his firm, and those in the professional services industry in general,

Sandy'' s Impact on NJ $30 billion Economic losses 2 million Homes that lost power 346,000 Homes damaged or destroyed 37 Fatalities

spends the biggest dollars on health insurance, followed by professional malpractice insurance. Professional liability insurance covers a firm for negligent or wrongful acts or omissions for which the firm is legally liable. Hagaman believes that cyber insurance is often needed today and will continue to increase in order to protect against misuse of client data and subsequent regulatory fines. He also mentions the importance of considering the purchase of an employment practice liability insurance policy that protects against employee lawsuits, also a growing trend. And he suggests using derivatives as insurance against unpleasant economic events. Derivatives can be useful in some circumstances and are commonly used to hedge interest rates for more efficient use of capital. Of course, derivatives carry their own risk factors, especially if you do not fully understand the contract.

People Skills There are tools in any comprehensive ERM system that can help manage risk. But any system is only as good as the people behind it. Here are some

noteworthy skills of effective risk managers: • Be a great communicator. • Identify all factors that influence risk. • Create an information-sharing network that involves all interested parties. • Share the mitigating factors. • Assign ownership to each risk. • Take the appropriate corrective action when necessary. If you can afford the insurance premium(s), lock in an affordable cost and prevent a downside risk, you should seriously consider purchasing a policy. The essence of sound strategic thinking is making decisions. Using insurance effectively as part of a robust risk management strategy requires serious decision making, but can add tremendous organizational value. Stephen F. McCarthy, CPA, is a lecturer in the Accounting and Finance Department at Kean University and is the principal at The Presidents Forum. He is a member of the New Jersey Society of CPAs. Contact him at stepmcca@kean.edu or 732-977-7233.

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A&A

buzz

The Nuances of Auditing FEMA Grants By Robert A. Fodera, CPA, and Allison H. Ligori, ParenteBeard, LLC

T

he Federal Emergency Management Agency (FEMA) is responsible for distributing emergency disaster relief funds – such as to Superstorm Sandy victims – on behalf of the federal government. These funds, which may pass through other agencies before reaching the actual recipients, have to be accounted for and reported in accordance with the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the U.S., and OMB Circular A-133, Audits of States, Local Governments and Nonprofit Organizations. Most of these funds are governed under the provisions of the Stafford Act and, as such, recipients should understand the compliance requirements they must adhere to when such funds are received. Your clients may need help in determining which additional compliance rules and reporting requirements they may be subject to once these funds are received.

Audit Plan and Procedures Most funds will come under the Catalog of Federal Disaster Assistance (CFDA) 97.036. Determining the correct CFDA number is a critical step in developing your audit plan and designing your audit and compliance procedures. Audit steps and rules vary greatly by program, so obtaining the proper CFDA number and making sure you are working with the right compliance rules and compliance supplement are critical. In March 2013, FEMA became part of the U.S. Department of Homeland Security (DHS), which had its own legacy CFDA number with respect to emergency disaster relief. If a recipient has awards from both CFDA 97.036 (FEMA) and CFDA 83.544 (DHS), these two awards should be combined when determining

Type A programs under OMB A-133. On the Schedule of Expenditures of Federal Awards (SEFA), both the DHS CFDA number and the legacy agency’s corresponding CFDA number should be presented separately.

FEMA $10.9 Annual budget in billions of dollars 7,474 Employees 1974 Year founded

Federal Versus State State compliance requirements may differ from federal ones. In the aftermath of Sandy, the NJ Legislature proposed a requirement that a prevailing wage be paid for any contracts in New Jersey that received FEMA or federal disaster relief funding, even though the federal guidelines exempt these funds from the prevailing wage rules. This measure did not pass, but it highlights the need to review your state requirements in conjunction with the CFDA compliance supplement requirements.

Timing When federal funds are expended also posed some client and auditor confusion. Mainly, what period should expenditures be recorded on the SEFA? Accordingly, FEMA established that the recording of expenditures on the SEFA should be based on when the funds are approved, as evidenced by FEMA approval of the award worksheet, since that is the point at which FEMA actually obligates recipient funds. When actual costs are incurred in a fiscal year prior to the fiscal year in which the award worksheet is approved and included on the SEFA in a subsequent year, SEFA requires appropriate footnote disclosures.

Employee Status Another area that auditors should focus on is the efforts of an entity’s fulltime employees during an emergency. Straight- or regular-time salaries and benefits of permanently employed personnel are not eligible in calculating the cost of eligible work for emergency

protective services or debris removal. However, efforts of the permanently employed personnel are eligible if those costs are for permanent restorations.

Expense Segregation Because an entity may have to file a SEFA for the first time, by virtue of it having $500,000 or more in cumulative federal expenditures in its reporting year, the entity is required to have an audit in accordance with OMB A-133. Keep disaster expenditures separate from general expenses so that the costs can be traced back to an approved project worksheet. Expense segregation assists the audit or when testing the amount of allowable costs.

Audit Deadline

It is important to know your A-133 audit deadline, which is nine months after the entity’s year end. Audits under OMB A-133 can be challenging, and in an emergency situation your client may not be focused on additional compliance obligations. Coordination between the auditor and client is key to a successful audit. Robert A. Fodera, CPA, is a partner and Allison H. Ligori, is a manager at ParenteBeard, LLC. Both are members of the New Jersey Society of CPAs. Contact them at 800-267-9405.

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To read the expanded article, visit njscpa.org/ newjerseycpa/janfeb14.


BEST

practices

Choosing a Facilitator By Joseph A. Tarasco, CPA, Accountants Advisory Group, LLC

F

acilitation is a multifaceted approach in which a qualified person presides over a group in a problem resolution meeting, organizational retreat, strategic planning summit or other group setting.

Facilitator Roles A facilitator moderates and assists the group to fulfill the goals and objectives of their meeting, encourages creative and innovative thinking, and keeps the group within an agenda and timeframe. Facilitators can play roles as coaches, trainers, team builders and consultants, and it should be determined which criteria are most important to the group. An experienced facilitator can guide discussions by knowing how and when to let ideas surface and be examined versus when to move on. Facilitated meetings should include structured discussions designed to engage the group in sharing information, perspectives, frustrations and insights. The group should be confident and comfortable with the facilitator and trust his or her ability to serve in a neutral manner with regard to significant and sensitive issues. The right facilitator can keep the group focused on important issues, move the meeting forward, assist with making difficult decisions, and provide expertise and knowledge where required. Ultimately, he or she shepherds discussions into decisions and helps the group define concrete action steps.

Facilitator Questions

Selecting a facilitator is one the most important decisions regarding the event. Facilitators operate in different ways and have different styles and experiences. It is important to identify someone who will most closely

match the needs of the meeting and the culture of the group. There are several facilitator selection criteria. The simplest is to talk with two or three possible facilitators, describe your organization and articulate what you are looking for to see if there is a fit. When performing facilitator due diligence, ask these questions: • How might you work with our organization? • What other experiences have you had that might help? • Can you both prepare for and facilitate the retreat? • What are your fees? Ask about fees for preparation time, facilitating the retreat, and preparing summary action items or follow-up reports. Facilitators have different ways of billing, such as hourly or fixed fees. • Where are you based? Nearby facilitators can save on transportation costs, while facilitators from outside your geographic area provide greater anonymity and may have broader experience. • Do you have any special skills or background? Some facilitators might have more skills in certain sectors and interest in the typical issues that arise in organizations in those sectors. • Have you worked with other similar organizations? Such a person can often suggest options or solutions that have been successfully implemented by similar types of organizations. • Based on our discussion, would you be interested in working with our company?

Facilitator “Audition” Prior to facilitator confirmation, certain members of the group should also meet with potential facilitators prior to the meeting to determine if there is enough synergy for the group to be engaged

by a facilitator in the meeting process. The finalist should have a background in the group’s sector and the ability to grasp concepts, theories and strategies particular to the group’s business. He or she should not be intimidated by attendees who try to take control of the meeting or who wish to turn it into a complaining and griping session.

Pre-Event Meeting Once a facilitator is chosen, he or she can help the planning team by conducting pre-retreat interviews. The facilitator can determine where core agreement and nuances deserve to be explored and where disagreements need to be examined and resolved. He or she can recommend discussions and structured activities for the retreat agenda, making sure the meeting remains focused and defined outcomes are achieved. Having the right facilitator will significantly increase the chances of a successful meeting by fully engaging the participants and defining future commitments so that execution is the logical and agreed-upon next step. Joseph A. Tarasco, CPA, consultant to the CPA profession, is president of the Accountants Advisory Group, LLC. He is a member of the New Jersey Society of CPAs. Contact him at joe@accountatsadvisory.com.

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BUSINESS & INDUSTRY

insights

Business Process Mapping for Financial Professionals B y Joy Taylor and B ryant Lemieux , Tay gan Point C ons u lting G rou p

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n the absence of standard operating procedures or process documentation, one thing is certain: Employees will invent procedures that work best for them and use them repeatedly, generating unique events and anomalies in data sets. As such, productivity will never reach optimum performance. However, business process mapping is a solution that can drive performance, improve morale and control spending. It starts with a simple question: What is our process?

Stop the Madness In a highly transactional environment, having repeatable processes is essential. Employees want to do the right thing, to follow the rules. However, companies don’t take the time to generate the playbook and rules of engagement for their teams. Instead, organizations spend too much of their employees’ time pushing work through inefficient processes. Stop the madness, and create a process map.

Having an end-to-end process map of the tasks, decisions, inputs and outputs will provide clarity to everyone concerned. It will also identify where gaps and fail points exist, enabling stakeholders to take ownership of their actions. Generating a process map is not easy. It takes time and requires the full attention of senior leaders, managers and subjectmatter experts. Most importantly, creating a process map requires input from those who actually do the work. As Figure 1 illustrates, senior leaders often think they know what’s happening in a process, but they really don’t. Generating a process map is only the first essential element of a highly productive work environment. It is also important to analyze and improve the process, thereby creating a “should be” version. Once everyone is aligned on this process, generate business policies and standard operating procedures that reflect the new process. When finalized and effectively

Figure 1

communicated, the policies and procedures can then be implemented, ensuring that a common process is followed by all.

Where Process Mapping Begins First, find a strong mapping facilitator who can drive the conversation, document the “as is” condition without judgment and engage all stakeholders in the conversation. It takes special talent to interview an individual and get that person to share pains, express wants and tell you exactly what he or she does every day. This facilitator will also be essential in developing the “should be” process when the time comes to create the new best practice for the organization. Second, understand your scope and identify the subject matter experts. Determine specific start and end events. These are critical for all processes. For example, most processes start by receiving something or when something occurs, and they usually end when something is produced. Generating the detailed steps and decisions for each portion of your end-toend process will require distinct discussions with different people. Identify the correct experts in each area who are intimately familiar with the process. Third, ask the difficult questions. During a process mapping discussion you will need to discover more than just what people are doing daily. Ask:

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• What causes process exceptions, and how are they handled? • What variations of the process exist between employees or groups? • How are regulatory controls or business rules reflected in the process? • Where do you spend most of your time and why? • Where in the process do you repeat work, how often and why? Finally, consider the following: Select a map collection method – Process mapping can be performed using Post-it notes, Microsoft Excel, Microsoft Visio or paper and pen. Select the method that works best for you and your corporate culture. Limit interviewees during the mapping session – Do not attempt to create process maps with large groups. Interview one or two people at a time to reduce social conversation and the desire to correct the process during the mapping session. Eliminate or reduce waste – Focus improvement efforts on process steps that have high cycle times, waiting periods or bottlenecks, multiple approvals, data re-entry and manual tasks. Process mapping is an important capability financial professionals can use to streamline and improve processes. Establishing a common framework and approach for process mapping is a great step in the continuous journey of organizational improvement. Joy Taylor is the CEO and co-founder and Bryant Lemieux is a senior consultant at TayganPoint Consulting Group. Contact the authors at 609-460-4211. N E W J E R S E Y C P A • J a n u a ry • F e b r u a ry 2 0 1 4

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FINANCIAL

planning

What Financial Professionals Should Know About Crowd Funding B y DO N MING ES , DL M C Ons u lting

The JOBS Act

C

rowd funding is the process of asking the public for money, typically over the Internet. Organizations generally raise financing by bootstrapping, donations, debt or equity. Crowd funding can accommodate each of these financing methods. There are several types of crowd funding, including pre-selling (advance orders for goods or services), donations, debt and equity. Organizations can bypass stores, banks and investors entirely and instead pitch ideas directly to Internet users who provide financial backing. More than 500 crowd funding websites exist with differences in focus, rules and costs. While there is no dominant player, Kickstarter.com, IndieGoGo. com and RocketHub.com are the most widely known. For example, IndieGoGo.com raised more than $700,000 for the New York school bus matron who was bullied by students. Donations and pre-selling have been available crowd funding methods for years. Debt crowd funding has a shorter history and an uncomfortable

relationship with federal regulators. In April 2012, President Obama signed the JOBS Act into law, making certain crowd funding equity investments legal in the U.S.

The Importance of Understanding Crowd Funding While crowd funding is not right for every organization, there are numerous variables to determine if it is an appropriate fundraising method. Financial professionals should familiarize themselves with crowd funding for the following reasons: • The JOBS Act requires audits or reviews for certain companies using crowd funding to raise equity. • CEOs and board members expect their CFOs to provide advice on strategic financial matters, including “What are my options to raise financing?” • The Securities and Exchange Commission (SEC) may require organizations utilizing crowd funding to submit reports.

As mentioned, the JOBS Act changes how organizations can raise equity financing. Most of the impact is on early-stage companies and entrepreneurs. Some changes were effective immediately, while many await publication of final SEC regulations. The act eliminates the prohibition on general solicitation to accredited investors under Rule 506 of Regulation D. The offering organization must take reasonable steps to verify that an accredited investor truly is accredited. Generally, an accredited investor has an individual income of more than $200,000 per year, a joint income of $300,000 in each of the last two years, or a net worth exceeding $1 million, either individually or jointly with his or her spouse. The act allows anyone to become an investor through the crowd funding exemption. The limits on the mini public offering have been raised to $50 million. There are specific requirements that organizations must meet in order to raise equity via crowd funding, and organizations raising equity via crowd funding can only raise a limited amount each year and must file reports with the SEC. The law revises thresholds triggering SEC reporting.

Pros and Cons There are different pros, cons, risks and costs for each crowd funding type. Crowd funding may reduce the costs to attract capital for smaller organizations. Businesses may not have to give up any ownership to raise financing and are in control of everything, including costs, timing, execution and marketing.

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Conversely, crowd funding demands a different kind of preparation than traditional financing. There is regulatory risk and the process is stressful – once started, it is out of the fundraiser’s hands. A business’ information may be publically available over the Internet. Finally, it doesn’t always work.

Potential Impact Skeptics argue that crowd funding will open up the wild west of investing, further enabling scam artists. Advocates argue that crowd funding will revolutionize investing in smaller enterprises, especially startups, and help energize the economy. Crowd funding is an additional financing

Crowd Funding Examples The Pebble Smartwatch kickstarter.com/projects/597507018/pebble-e-paper-watch-for-iphone-and-android Bear Love Good. Cancer Bad. indiegogo.com/bearlovegood Extra Credits Video Game rockethub.com/projects/2165-extra-credits

technique; it does not necessarily replace any existing financing methods. There are limits, costs and regulatory hurdles. Regardless of your perspective, the rules for raising capital have changed and these changes will impact organizations and their financial and legal advisors. Don Minges, M.B.A., is a fractional CFO with DLM Consulting who is also an instructor with Executive Education, Inc. Contact him at don@ executiveeducationinc.com. All information contained herein is exclusively for general illustrative purposes only and is not intended to be construed as advice, including without limitation: legal, accounting or tax advice. IRS Circular 230 Notice.

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Forensic

file

Best Practices for Shareholder Agreements B y Edward C . Horton, C PA, C itrin C ooperman & C O M PA N Y, L L P

A

well-constructed shareholder agreement is one of the most important documents a business can create, yet it is one that is often overlooked. A recent survey of small businesses revealed that more than 70 percent did not have a shareholder agreement. A shareholder agreement should memorialize the parties’ intent, establish a common understanding among shareholders and address important financial and tax considerations. The acid test is whether the agreement adequately addresses the most critical scenarios a business and its shareholders can face in a business’ life cycle: the departure of a key shareholder or the sale of corporate stock. There are four key areas to cover when drafting a shareholder agreement: (1) shareholder rights and privileges; (2) buyout provisions; (3) valuation; and (4) tax aspects.

Shareholder Rights and Privileges You should clearly address issues related to shareholder rights, including whether there are going to be different stock classes and if shareholders may have different redemption privileges or voting rights. The agreement should also restrict ownership transfer. Small businesses should be able to choose who their co-shareholders are, just as they did at the corporation’s inception. Placing restrictions on ownership can prevent a shareholder from unilaterally selling shares to an outside party. In the event of a shareholder's death, it can also avoid a decedent's spouse becoming an unintended business partner.

Buyout Provisions There are numerous considerations to address regarding the company’s buyout

provisions. Review the different types of events that would trigger a shareholder buyout, such as retirement, death or disability, voluntary withdrawal or termination for cause. Should the buyout terms be identical under these different circumstances? They probably shouldn’t. While the provisions may be the same for retirement or death/disability, the shareholder agreement should provide for different terms in the event of voluntary withdrawal or termination for cause. A shareholder who withdraws from the company to establish a competing business should not receive the same payout. Likewise, a shareholder who has been dismissed for cause has typically failed to perform or committed an act that has hurt the company. Will the buyout provisions be funded, partially or completely, by life insurance? Having insurance can reduce the buyout burden on the business and remaining shareholders, provide liquidity, cushion the loss of a key individual and provide more immediate payment for the family of the deceased.

Valuation Establishing the value of the company can be one of the trickiest aspects of the shareholder agreement because it can be so subjective. Some agreements specify a formula to determine value or require the shareholders to agree on a value annually, while others leave the value up to an independent valuation expert when needed. Values determined or formulas established by the shareholders are not reviewed and updated periodically enough. This can lead to significant under- or over-valuation of the company’s stock at the time of a buyout. Disagreement or litigation may result. Valuation and buyout terms should consider the effect a

departing shareholder would have on the business. The loss of a major shareholder may not significantly affect the value of a widget manufacturing company that has established a significant market share. However, the loss of a key individual in a professional services company may significantly reduce the value of the enterprise.

Tax Aspects The equity structure may affect the tax aspects of the corporation, as S corporations cannot have more than one stock class. However, a corporation that has voting and nonvoting shares, with otherwise identical rights and privileges, is generally considered by the Internal Revenue Service to have only a single stock class. In practice, you must be careful to ensure that dividend distributions are proportionate to shareholder ownership percentages, since disproportionate distributions could void a company’s S corporation status. Reviewing a client’s shareholder agreement is a value-added service with many potential benefits. You can identify potential pitfalls before they occur and avoid significant financial problems. The process can enhance your value in the eyes of your client, leading to a closer, more valued relationship. And the process often leads to additional consulting engagements, including business valuation as well as estate, retirement and financial planning. Edward C. Horton, CPA, is the co-managing partner for the New Jersey office of Citrin Cooperman & Company, LLP. He is a member of the New Jersey Society of CPAs. Contact him at ehorton@citrincooperman.com.

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Small/Sole

practitioner

Having a Catastrophe/Continuity Plan B y A nthony M. Mezzasalma , C PA, and J ohn D. Mezzasalma , C PA , M ezzasalma A dvisors

S

mall firms and sole practitioners face many challenges. One that is commonly neglected is continued client service in the case of an owner’s disability or death. For small firms, a comprehensive partnership agreement usually addresses succession but does not always address continuity. For a sole practitioner, it can be even more challenging due to limited resources and no other professionals to “take over the reins.” Although disability or death may be the last thing one worries about, it is important to have both continuity and succession documents in place detailing an action plan. In fact, it is just as important for the practitioner as it is for the clients and staff members.

A Continuity Action Plan A good plan should cover responsibilities in the event of death, disability or extended leave, whether expected or unexpected. If clients need a copy of their tax returns as soon as possible and the partner is on vacation for two weeks, who takes over? The longer a client waits, the more likely he or she becomes a lost client. Isn’t it better to provide the client with the peace of mind of having someone there to help? This makes for better service, not to mention client referrals. There are some important items to address in any written death or disability action plan: • Are clients assigned to specific employees? • What work can be done remotely? • Is there a written job description so everyone knows his or her responsibilities? • When and how will clients be notified of a partner’s incapacitation? • Who makes decisions in his or her absence? • Is there business overhead insurance

to defray costs during temporary disability? Keep it simple. There is no need for a 40-page continuity document. A simple, streamlined document helps employees quickly understand how the firm will run and what their responsibilities are.

A Succession Plan for Small Firms Most small firms already have a comprehensive partnership agreement. That agreement should address not only buy/sell issues, but also terms and whether the agreement is funded with life insurance. Logistical issues, such as informing clients and which staff/ professionals are to deal with those clients, should also be addressed.

A Succession Plan for Sole Practitioners A good succession plan can be even more valuable for sole practitioners, especially those with no professional staff. Even if the owner intends to never retire, it is important to have a disaster plan in place to ensure clients are quickly and efficiently transitioned to another firm or practitioner. This will also increase the value to heirs. Having a succession agreement in place before something happens is paramount. While this may seem obvious, it cannot be overemphasized. Think of the chaos that would ensue if there was no plan in place. Imagine spouses or relatives trying to deal with client requests for information or guidance. Think of your practice as part of your retirement plan. It is probably worth more than your home. The succession document should address some key issues: • The successor practitioner or firm • Payment terms • Provision for documents such as

work papers, tax returns and other records • Work in progress • Accounts receivable • Employees Ideally, the successor practitioner or firm should be exposed to the client base of the sole practitioner while the practitioner is still working. This would improve the odds of success. This also improves client service post-transition, as the successor practitioner or firm would already be up to speed on any special services provided to clients. One possible solution would be to partner with the successor practitioner or firm for services either not provided by the practitioner or that he or she wouldn’t mind phasing out. This can provide the successor firm exposure to clients as well as be an additional revenue stream for both the practitioner – assuming there are no licensing issues – and the successor firm. Anthony M. Mezzasalma, CPA, and John D. Mezzasalma, CPA, CFP, are the principals of Mezzasalma Advisors. Both are members of the New Jersey Society of CPAs. Contact them at info@mezzcpa.com.

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TAX

talk

A Super Way to Get Tax-Free Rental Income B y Gerard Bobal, CPA, W eiserM azars LLP

W

hat could be better than the Super Bowl being played at New Jersey’s Met Life Stadium in February? For me, I’d say having the Jets play in the game. However, if your favorite team isn't in it, how about scoring a victory by renting out your home for the weekend? Craigslist shows a Short Hills rental that weekend costing $20,000, while a Hoboken rental costs $10,000. Wouldn’t it be nice to get five figures for a couple of day’s use of your residence – especially if it was tax-free for federal income tax purposes! This is possible under Section 280A of the Internal Revenue Code (IRC). This falls under the so called “vacation home” rules. This section of the code governs the rental of a dwelling that is used by the taxpayer as a residence. Dwelling unit includes a house, apartment, condominium, mobile home, boat or similar property (IRC Section 280A(f) (1)). Whether the dwelling qualifies as a residence depends upon the personal usage of the taxpayer pursuant to Section 280A(d)(1). A taxpayer uses a dwelling unit as a residence if he or she uses it for personal purposes for a number of days that exceeds the greater of 14 days or 10 percent of the number of days the property was rented at fair value. For

example, suppose a couple owns a condo in Atlantic City and personally uses it for three weeks during the summer and rents it for the rest of the year (344 days). Because they used the condo for less than 34 days (the greater of 14 days or 10 percent of the rental days), the condo does not qualify as a residence. Why is this important? Because IRC Section 280A(g)(2) provides that if a taxpayer uses a dwelling unit as a residence, and that dwelling is rented for less than 15 days during the year, the income derived from the rental is not included in the taxpayer's gross income for the year. No deductions attributable to that rental are allowed. But who cares? If I own a house in Short Hills and get $20,000 for renting it out for Super Bowl weekend, that $20,000 is tax-free for federal income tax purposes. Unfortunately, the state of New Jersey does not follow this rule. In a recent State Tax News (Volume 42, Number 2), the NJ Division of Taxation reported that for New Jersey gross income tax purposes, net gains or net income derived in the form of rents must be included in gross income. There is no 15-day rule. Notwithstanding the state's position, this 15-day rule is a real bonus for

someone who lives near a venue at which a big event is held, such as the Super Bowl or Kentucky Derby. What if I rent out my vacation home at the shore more than 14 days, but use it personally more than 10 percent of the rental days? Is the rental income still income-tax free? Unfortunately, it is not, but I can offset the rental income with rental expenses subject to a set of ordering rules pursuant to Prop. Regs. 1.280A-3(d)(2) and (3): • Expenses incurred to obtain tenants, such as realtors' commissions and advertising, and qualified mortgage interest and real estate taxes • Operating expenses not including depreciation • Depreciation The above expenses can offset any rental income, but cannot create a loss. The expenses must be prorated between personal and rental use. For example, if I rent my vacation home for 90 days and use it personally for 30 days, 75 percent of the expenses other than commissions and advertising would offset the rental income. Any excess expenses can be carried forward to the next year. So, renting out your residence for Super Bowl weekend is the best deal, but if you have a vacation home you can still shelter any rental income you may collect. Gerard Bobal, CPA, is a partner at WeiserMazars LLP. He is a member of the New Jersey Society of CPAs State Taxation and Federal Taxation interest groups. Contact him at jerry.bobal@ weisermazars.com.

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u

View sessions from the NJSCPA December federal tax meeting at njscpa.org/ newjerseycpa/janfeb14.


TECH

center

On-the-Go Accounting B y A nthony Mongeluzo, Pro C ompu ter Service

Y

ou just finished a client’s quarterly tax estimates. You’re leaving his office and your next appointment is two hours later, but the drive is only 30 minutes. Getting there will leave you with a lot of downtime, and you’d hate to waste 90 minutes of billable time. On-the-go accountants now have a variety of choices that make connecting to the office easy and cost-effective and contribute to productivity. A mobile connection to the Internet is the key.

Wi-Fi Unsurprisingly, Wi-Fi hot spots are ubiquitous and the most common solution. They’re everywhere, and they’re usually free. It seems that every retail establishment that offers a beverage has one. (Surprisingly, because many of these locations are connected to a landline cable, the connection can be very fast.) Nevertheless, as we know, free doesn’t necessarily mean the best. The downside is that you won’t know how good the connection is until you get there. Also, the weak spot in free Wi-Fi is the security. You have no way of knowing how secure the connection is. Indeed, sometimes as you log on a dialog box pops up warning that others could view your work. These connections are not that difficult to hack into. I even hacked into one as the information technology expert for an ABC television news show in Baltimore. We did it as a news segment demonstrating how easy it can be. Since accountants take security seriously because they are dealing with sensitive client information, this merits serious attention. The other problem is that when you arrive the hot spot could be down, which means packing up your computer and looking for the next location. This is particularly troublesome if you arranged for a meeting with a client, usually for

logistics reasons. Also, don’t forget the time of day when going to one of these locations. Can you get a seat and a connection during busy times?

Portable Wi-Fi Another option is portable Wi-Fi, though this is becoming dated technology. You plug a portable Wi-Fi connection into your computer via the USB port and, voilà, you’re connected to the Internet. The advantage is that you only have to carry around one additional small device. However, limitations include access only in a specific area and to one user. Also, these tend to have slower speeds than a Mi-Fi, which is the most recent technology. Finally, some carriers charge a monthly fee and require a contract, though it appears that others are beginning to offer the service with no contract.

Mi-Fi Mi-Fi is a wireless router that is usually the size of a deck of cards. It allows you to connect to the Internet via your cell phone, virtually no matter where you are, often with a 4G connection. As a traveling hot spot, you could hold a meeting in a park and connect with another person’s laptop, iPad and netbook, all by using your Mi-Fi. Some models allow a connection to upwards of 10 different devices. You can

count on a distance from the Mi-Fi to your computer of about 30 feet.

Phone Tethering There is also phone tethering, which is a service you can buy from your phone carrier. You simply connect your notebook to your cell phone using a basic on/off switch and a bit of software, and you hook up through your regular browser. There is no charge other than the data fee you might incur. This is great because you only have one device and one regular phone bill. The negatives? Speed is inconsistent, which means it’s very difficult to know how fast your connection will be. The biggest caveat, however, can be a costly data charge. If you go over the data limit, you will pay handsomely. I had a client who forgot this rule, and he had an overcharge of more than $1,000. How do you decide? Most of the aforementioned devices cost less than $100. Talk to colleagues and search for the approach that provides the easiest, least-complicated access. Then take a 30-day test run to see which one provides you with that perfect mobile office. Anthony Mongeluzo is CEO and president of Pro Computer Service. Contact him at 856-596-4446 or anthony@helpmepcs.com, or visit procomputerservice.com.

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SOCIETY

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CPE Offerings and Events Upcoming Education Foundation Events Date

Event/Code

Location

CPE Credit

1/16

Governmental A&A Update (E1401337)

Robbinsville

2/AA

1/17

Professional Standards Update (E1401347)

Edison

1.5/AA

1/20

Effectively and Efficiently Reviewing Audit Workpapers: The First Line of Defense Against Deficient Audits (E1401051)

Roseland

8/AA

1/21

Getting Ready for Busy Season: A Guide to New Forms, Filing Issues and Other Critical Developments (E1401061)

Roseland

8/AA

1/22

Tax Updates, News and Pronouncements (E1401317)

Roseland

2/TX

1/23

Twitter for Business Webinar (E1401414)

N/A

1.5/CS

1/28

Connect: Leveraging NJSCPA’s Online Community for Business Webinar (E1401424)

N/A

1.5/CS

1/28

Tax Updates (E1401297)

Roseland

1/TX

1/29

New Jersey Law and Ethics Webinar (E1401374)

N/A

4/PE

1/30

Business Valuation Roundtable: How to Be an Effective Expert Witness (E1401450)

Roseland

2/CS

2/26

New Jersey Law and Ethics Webinar (E1402044)

N/A

4/PE

3/13

Governmental A&A Update (E1403057)

Robbinsville

2/AA

4/24

Professional Standards Update (E1404127)

Edison

1.5/AA

4/24

Scholarship Awards Ceremony (E1404085)

Iselin

N/A

4/30

New Jersey Law and Ethics Webinar (E1404154)

N/A

4/PE

Upcoming Chapter Events Date

Chapter

Event/Code

Location

CPE Credit

1/21

Union County

Lease Accounting (E1401269)

Kenilworth

2.5/AA

1/21

Mercer

Tech Talk 2014 and Beyond/Securing the Cloud/Social Networking (E1401239)

West Windsor

4/CS

1/27

Southwest Jersey

Working with the State of New Jersey (E1401199)

Voorhees

2/TX

2/5

Bergen

Tax Season Hot Issues (E1402029)

Paramus

4/TX

2/7

Bergen

Practitioners' Forum (E1402019)

Hackensack

N/A

2/11

Union County

Fraud and Forensics (E1402039)

Kenilworth

2.5/AA

3/7

Bergen

Practitioners' Forum (E1403019)

Hackensack

N/A

4/22

Hudson

Yellow Book/Accounting and Auditing Update (E1404099)

TBA

4/AA

4/23

Middlesex/Somerset

CPA Succession Planning/Presentation Skills (E1404119)

Somerset

4/TX

4/24

Mercer

Controllership Update (E1404079)

West Windsor

4/CS

4/24

Passaic County

Elder Law (E1404069)

Paterson

2/TX

4/25

Southwest Jersey

Business Valuations/Mergers and Acquisitions (E1404059)

Berlin

4/CS

4/25

Essex

Estate Tax Update (E1404039)

East Hanover

4/TX

4/29

Union County

Malpractice (E1404109)

Kenilworth

2.5/AA

4/30

Atlantic/Cape May

Accounting and Auditing Update (E1404049)

Northfield

4/AA

KEY AA – Accounting & Auditing MT – Management

CS – Consulting Services PD – Personal Development SK – Specialized Knowledge

EC – Economics PE – Professional Ethics TX – Taxation

MC – Multiple Categories PM – Practice Management

Please note: Events are subject to change. For a full listing of all NJSCPA events, visit njscpa.org/catalog. N E W J E R S E Y C P A • J a n u a ry • F e b r u a ry 2 0 1 4

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It’s a New Year – Are You Covered? implementation and national distribution of long-term care insurance. Carriers include John Hancock, Prudential, Mutual of Omaha, Great American, Allianz and others. All carriers are rated superior or excellent by A.M. Best, and most will offer a 5-percent discount for Society members.

The beginning of a new year is a good time to re-evaluate your insurance coverage to make sure it’s still a good fit for your home and business. New Jersey Society of CPAs members have access to various money-saving insurance products including:

Auto Insurance Malpractice Insurance

Plymouth Rock Assurance (formerly High Point Auto Insurance) offers members a 15-percent discount on auto insurance.

Camico Mutual Insurance Company and Bollinger Professional Liability are the NJSCPA’s preferred carrier and agent for accountants malpractice insurance. The program offers members the most competitive rates available, the broadest coverage in the market and the opportunity to receive dividends.

Disability Income Protection, Life Insurance, Accidental Death and Dismemberment, Hospital Indemnity and Business Overhead Expense Coverage Askin, Weber & Reed has been providing NJSCPA members with approved insurance protection for more than 60 years. You’ll receive members-only rates and professional advice on selecting the best coverage for you, your family and your business.

Introducing Our Newest Member Benefit: UPS. The UPS Savings Program offers the most competitive rates available on shipping services.

Long-Term Care For more information about these insurance products and the new UPS discount, visit njscpa.org/marketplace.

Askin, Weber & Reed partners with Long-Term Care Resources, a specialized marketing firm dedicated to the management,

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SOCIETY

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Get Involved New Trends in Health Care Valuations The October Business Valuation Roundtable focused on what is happening in the health care industry and how it affects valuation of health care entities. In the NJBIZ article, “Reform Brings Rush to Determine Value,” roundtable speaker Monica Kaden, a principal at Fischer Barr & Wissinger LLC, said that new practice models, in addition to accountable-care organizations and other inter-provider agreements, are making practice valuation more complex. Megan Cicchetti, CPA, a member of the New Jersey Society of CPAs Business Valuation Forensic Litigation Services Interest Group, attended the roundtable and shared these insights: Physicians tend to be paid based on value, not volume – Physician payments will be modified so that those who provide higher-value care will receive higher payments than those who provide lower-quality care. This is important for valuation analysts when determining future income streams. Hospitals are also being hit with greater readmission penalties due to the focus on patient safety. More physicians are merging their practices with hospitals – Physicians are receiving higher compensation than they would achieve maintaining their own practices, while also receiving a minimal amount of the value for them. However, these compensation packages are usually re-evaluated in a few years based on performance. In most cases, the

compensation decreases and physicians begin receiving less compensation than they would have if they maintained their own practices. Merging with hospitals allows physicians to address increased competition, while reducing costs and increasing flexibility. According to a 2013 Deloitte report, almost half of the physicians surveyed would prefer to be employed by a hospital. If a physician does decide to merge with a hospital, he or she should have an exit strategy just in case. Medicare is the dominant factor for most physicians – Proposed 2014 rules: For hospital outpatient, average payment rates would increase by 1.8 percent; for ambulatory surgery centers, payments are proposed to increase 3.5 percent over 2013 rates; and the physician fee schedules proposed payments reflect a decline between 0 and 3.5 percent compared 2013 rates. When valuing a medical practice, consider these – Relative value units, coding, reimbursement trends, professional and technical review components, ancillary services and relevant legal statutes. Medical group management associations offer physician compensation by medical specialty and other significant factors – Compensation must reflect fair market value and not be based on volume or value of referrals. Each of the three valuation methodologies works for practices of various sizes – The income approach is best for valuing a small medical practice. The asset approach provides a floor value and is useful in

Get Involved Now NJSCPA volunteer opportunities are available throughout the year. Let us know how you’d like to be involved at njscpa.org/getinvolved. Here is an activity that needs your support now: Help improve njscpa.org – The Society is undergoing a website redesign, and members are needed for focus groups, online navigation testing and beta testing. These short-term projects will occur at various times during the winter and spring, and most can be completed from your office. Contact Rachael Bell at rbell@njscpa.org or 973-226-4494 x220.

assisting with the structure of a deal. The market approach is most applicable for large practices; it typically is not used for small practices. Valuation analysts need to be familiar with the Stark Law and Anti-Kickback Statute – You must also understand the future expected changes in the overall health care sector. Visit njscpa.org/getinvolved to join the Business Valuation Forensic Litigation Services Interest Group.

Bergen Chapter Celebrates 60 Years “I’m involved with the Bergen Chapter because it’s a great network of colleagues within the profession that provides networking, professional benefits and lifetime friendships,” says Kristina Lota, CPA. “There are few organizations that can form both personal and professional bonds. The Bergen Chapter excels at doing both.” This unique bond brought more than 200 members, family, friends and sponsors together for the chapter’s 60th anniversary gala in Washington Township in September. Chapter president John M. Lisa, CPA, and the chapter’s board of directors are proud of all the chapter’s accomplishments and felt a celebration was in order. “Life should always be celebrated,” he says. “And the Bergen Chapter has given so much life to our profession.” Chapter committee chair Sarah Krom, CPA, who is also the NJSCPA Young CPAs Council leader, appreciates that the chapter has increased its focus on engaging young professionals. Both Lota and Krom have only recently become involved and already feel a strong connection to the chapter. Krom finds being involved a great way to give back and meet new people. Lota was a Bergen Chapter scholarship recipient and is now on its scholarship committee selecting new recipients. Lota may have been destined to become a chapter member. Her father, Charles A. Lota, CPA, is a long-time chapter member and

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served as its president in 2012/13. “I saw the connections and friendships my dad created through his association with the chapter and witnessed its many benefits,” she explains. “His experiences reinforced my desire to become involved.” At this stage of his career, the elder Lota’s involvement is motivated by his love of the profession. However, he wasn’t involved early in his career like his daughter. “I was building my practice and spent so much time making it work.” He didn’t realize how beneficial chapter involvement could be in those early years. “Kris has been involved since the beginning of her career, which will be so helpful in an ever-changing business landscape.” Krom would like to see more young CPAs get involved with NJSCPA chapters – to gain both personal fulfillment and professional success. “Whether attending events, writing an article or mentoring the next generation of CPAs, young CPAs get the chance to use their creativity and leadership skills to make a difference.” Lisa mentions another chapter perk: “I love the chapter season pass. Previously, I traveled far, spent hundreds of dollars and took whole days out of the office to attend CPE. The Bergen Chapter courses are local, inexpensive and informative. And I’m able to get back to the office.” Lisa attributes his involvement to past Bergen Chapter President Joseph L. DeLorenzo, CPA, who asked him to get involved. “When I first started, I had a few mentors who believed in me,” says DeLorenzo. “Today, I get great satisfaction mentoring and encouraging others. I can reach out to more than 200 CPAs, friends from every size firm, to get help with accounting issues.” “We bring positive things into our lives by what we give to others,” Lisa adds. “And that’s what the Bergen Chapter celebrated.” The chapter board also presented a Lifetime Achievement Award to past president Howard J. Bookbinder, CPA, for his tireless efforts and selfless dedication. To see photos, visit njscpa.org/bergen.

The Bergen's Chapter's 60th anniversary gala in action.

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SOCIETY

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NJ State Board of Accountancy Report CPE Bombshell: Board Votes to Eliminate Cap on Self-Study Credits Miscellaneous

Newark (October 17) President's Remarks Board President John F. Dailey Jr., CPA, is optimistic that the proposed changes to the education rules and regulations – making them more uniform and understandable – will be finalized in the coming weeks.

Committees Monitoring Profession – Thus far, $579,000 in fines have been assessed against licensees as a result of the CPE audit, and 78 uniform penalty letters have been sent. CPE – The board received a letter inquiring (1) Would the state board accept a self-study course of one-half a credit? Unless it is part of at least a one-hour course, then no. It can’t be a stand-alone half-credit course; and (2) Will the state board accept a CPE credit amount equal to a live group Internet program converted to a self-study course? The board follows self-study rules and reviews continuing education calculations on a case-by-case basis.

Magazine of the

The board’s regulatory analyst discussed an executive order from Governor Christie that all professional boards create a continuing education framework for those with military service. In effect, those with “substantially equivalent” military training and experience can apply that training and experience to the requirements to sit for the CPA Exam. The board now needs to create a mechanism to implement and verify.

Public New Jersey Society of CPAs CEO and Executive Director Ralph Albert Thomas indicated that the Society’s annual Career Night in October was a success, with more than 300 students and 35 firms participating. Regarding CPE, Thomas mentioned to the board the changing landscape of CPE delivery, which, in the near future, may include (1) micro CPE, with education that lasts for minutes rather than hours; (2) on-demand CPE that can be taken at an individual’s convenience; and (3) group learning in the tens of thousands of practitioners. Thomas indicated that all interested parties need to be aware of and plan for the coming CPE platform changes.

New Jersey Society of Certified Public Accountants

Mar • Apr 2014

March/April – Coming Attractions

Diversity n n n n

Newark (November 21) President's Remarks Board President John F. Dailey Jr., CPA, attended a recent National Association of State Boards of Accountancy meeting. He indicated the Uniform Accountancy Act comment period has ended and the NJ State Board should keep an eye out for potential conflicts with New Jersey’s regulations. Dailey also reported that thus far, 10 states have adopted firm mobility. He feels New Jersey should take a wait-and-see approach on firm mobility.

Committees

RMA – The Registered Municipal Accountants Exam is scheduled for December 26. There are 23 people registered so far. Peer Review Oversight – Due to a mailing campaign, the number of firms that are noncompliant with their peer review requirements has dropped from 700 to 230. The committee will meet to address next steps regarding those 230 noncompliant firms.

Miscellaneous In a stunning development, the board narrowly voted to abolish the cap on the number of self-study CPE credits practitioners can take per triennial. Increased affordability and flexibility were cited as the main reasons. This change was included with all of the other regulatory changes the board voted to move forward with. Because of the many layers of approval at the state, it will take many months for the self-study cap to be abolished. There is also a question as to what will happen if the regulations abolishing the cap receive final approval during the middle of a triennial.

Public New Jersey Society of CPAs Government Relations Director Jeffrey T. Kaszerman told the board that reciprocity legislation (S2216) passed the full Senate and now goes before the Assembly prior to reaching the governor. Appeal bond cap legislation is out of the Senate committee but still has a long way to go.

David Lopez’s Story Marcy LoCastro’s Story John Traier’s Story Ralph Thomas’ Story

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CLASSIFIEDS Marketing Support Save 20 percent on PR, marketing, branding and coaching services with PRCounts, an NJSCPA Member Benefit Provider. Contact Eileen Monesson at 609-570-2150 or emonesson@prcounts.com; prcounts.com.

Mergers/Acquisitions Well-established Essex County firm seeks small to medium-sized firms contemplating client services succession and/or expansion. We put our clients above all else. Office space accommodates 30-plus. Contact us to align with a growing brand of CPAs like you. File 12213 Woodbridge CPA looking toward retirement. Gross $300K. Looking for CPA to take over practice in near future as retiring partner works part-time. Must multitask and have small existing clients. Fax contact information to 732-283-3329. Northern NJ, medium-sized, full-service and peer-reviewed CPA firm is interested in acquisition or merger of smaller firm or affiliation with retirement-minded practitioner. If interested, please send your confidential information to northernnjcpafirm@gmail.com. File 92613 Traphagen Financial Group, a well-established 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 $300,000 to $700,000. This is an opportunity to align with a quality firm while continuing to provide your clients with exceptional service. To confidentially discuss this opportunity, please email us at iaishia@tfgllc.com. Bergen County, small peer-reviewed CPA firm seeking to acquire or merge with retirement-minded practitioners. We have acquired previously and promise to make the transition seamless! If interested, please reply in confidence to bergencountycpa@gmail.com. The Curchin Group, LLC, a central NJ, Monmouth County firm is seeking to merge-in near-retirement sole practitioners and small firms needing succession planning. Other individuals seeking growth and expansion are welcome to inquire. Initial practice continuation also an option. Reply in confidence to Peter Pfister, CPA, at 732-747-0500 or ppfister@curchin.com.

New Jersey – CPA firm wishes to acquire or merge with progressive, small to mid-sized firms. File 0701 Want to sell or merge your accounting practice? Accounting Practice Sales has qualified buyers waiting and financing available to sell your practice quickly and get you the best deal possible. For information regarding our risk-free and confidential services, call Bradley Holmes at 800-397-0249. Buyers see listings and register for free email notifications at accountingpracticesales.com. Seize a merger/acquisition opportunity with benefits for you. Tired of dealing with issues of running a firm? 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 glcpas.com; email me, Phillip Goldstein, CPA, managing partner, philg@glcpas.com; or call me at 800-839-5767 to have a confidential conversation.

Pro Bono The Nova Initio Foundation, a nonprofit organization supporting the arts and emerging artists within New Jersey, seeks a CPA to serve as treasurer on its executive committee and to assist with routine accounting activities one to two days per month. Contact Dr. Donna Vining at drdonnabvining@yahoo.com.

Professional Services Atlantic IT Solutions is a leading provider in IT managed solutions, cloud technologies, data backup, disaster recovery and system failure analysis. You should be focused on running your businesses, not the technology. Contact bob@ atlanticits.com; 609-306-6978.

Classified Advertising Replies to ads with file numbers should be sent to: File______________________ New Jersey CPA Classifieds 425 Eagle Rock Avenue, Suite 100 Roseland, NJ 07068-1723 To see additional classified listings or to place an ad, visit njscpa.org/classifieds.

ADVERTISERS INDEX New Jersey CPA is the only way to reach each of the 15,500 members of the New Jersey Society of CPAs, and 55 percent of readers take action after seeing an advertisement in the magazine – by either purchasing the product, contacting the advertiser, visiting a website or recommending the product or service to a client. For advertising opportunities, contact: Companies A-L Aileen Kronke 770-431-0867 x212/aileen@lionhrtpub.com Companies M-Z John Davis 770-431-0867 x226/jdavis@lionhrtpub.com

Accounting Practice Sales accountingpracticesales.com Citibank citi.com Gallagher Bollinger Insurance Solutions camico.com/momentum Intuit intuit.com

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C4

C2, 11

MagnaCare C3 magnacare.com

Real Estate Real estate appraising/consulting. Commercial/industrial/residential; expert witness; business valuations. Contact Charles A. McCullough, CPA, M.B.A., State Certified General Real Estate Appraiser, American Society of Appraisers member: cmccullough@camcpavalue.com, 609-923-5879; renwickandassociates.com, 856-779-7050.

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Plymouth Rock njscpaquote.com

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Residential Home Funding rhfbloomingdale.com

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Rutgers 19 business.rutgers.edu/accounting


STUDENT

outlook

Staying “Stockton Strong” B y Joseph Diano, Michael K ramer and J ames Pandolfo, R ichard S tockton C ollege of N ew J erse y

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ometimes it takes a disaster to strengthen the bonds of a community. And because of Superstorm Sandy, our sense of what it means to be a community has expanded tremendously, as evidenced by New Jersey’s uplifting motto, “Jersey Strong.” In the days leading up to the “storm of the century,” New Jerseyans were glued to weather reports. Many thought that a Hurricane Katrina could not possibly happen in New Jersey, especially since we had dodged many other catastrophic storms. But as Sandy drew near, we realized that Mother Nature was not going to spare us this time. In the small town of Galloway, Richard Stockton College rose to the occasion and became a model of disaster preparedness and recovery for other educational institutions. The school’s response to Sandy was exemplary before, during and after the storm.

Storm Clouds Gather Stockton communicated with all students who were going to be potentially impacted by the storm. Keep in mind, the school’s hand was forced because it had to send home 2,800 students in an orderly manner, while

also maintaining shelter and power for students whose only option was to hunker down during the storm. The day after Sandy, prior to Stockton’s reopening, Dean of Students Pedro Santana and Associate Dean of Students Craig Stambaugh went straight to work as they tirelessly responded to students in need by answering hundreds of emails and phone calls – all of which revolved around coming up with creative solutions to help students who lost power, water and even entire homes. It should be noted that the Stockton community maintained its composure throughout the storm. In the aftermath, everything that was done to help those impacted was done calmly and methodically.

The School Opens Its Doors Stockton utilized its Seaview Resort property as a means of sheltering faculty and staff who needed emergency accommodations during power outages, as well as for students who needed a place to stay for the remainder of the semester. The Seaview Resort even accommodated 160 utility workers. Stockton’s Ocean County Instructional Site in Manahawkin also stepped up. It offered the local community free computer use and power for charging electrical devices. Since so many Stockton commuting students are from Ocean County, specifically from Manahawkin, Stockton was in a unique position to lend some technical assistance to Manahawkin residents.

A Helping Hand

Stockton students pitch in to help the community post-Sandy.

more – were collected for victims. Closer to home, the college established funds to aid those Stockton students and employees in need. Together, the Employee Relief Fund and the Student Relief Emergency Fund raised a total of $15,000 within just the first month. As these funds grew, they were allocated to several causes, such as purchasing textbooks and giving emergency loans. James Pandolfo, an accounting student at Stockton, typified a young person’s aftermath due to the storm. His place of work on Long Beach Island sustained substantial flood damage and was forced to close for a few months. Through its Student Relief Emergency Fund, Stockton provided Pandolfo a generous grant to help him while he was out of work.

One Year Later

On October 26, 2013, Stockton College held a Superstorm Sandy Recovery Commemoration to reflect on and mark the first anniversary of Sandy recovery. Efforts continue in earnest as Atlantic County’s Long-Term Recovery Group gathered to identify unmet needs and provide necessary resources for continuing recovery. While all New Jersey citizens stayed Jersey Strong before, during and after the storm, we’re proud to stay that our campus also stayed Stockton strong. Joseph Diano, Michael Kramer and James Pandolfo are all New Jersey Society of CPAs student members who attend Richard Stockton College of New Jersey.

When the college reopened, the student body took initiative to assist those in need in the community through various campus clubs and organizations. As a result of these efforts, more than 5,000 essential items – food, clothing and N E W J E R S E Y C P A • J a n u a ry • F e b r u a ry 2 0 1 4

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To see our new NJSCPA Scholarship Fund video, which captures several compelling donor stories, visit njscpa.org/ newjerseycpa/janfeb14.


LEGISLATIVE

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Legislative Activity Buzzes at Year’s End B y Jeffrey T. Kaszerman , NJ SC PA Government R elations D irector

Mandatory Audit Firm Rotation Bill Introduced In September, Assemblywoman Nancy Munoz introduced A4378, legislation that would require mandatory audit firm rotation for auditors of county and municipal governments. After meeting with representatives from the New Jersey Society of CPAs, Assemblywoman Munoz then agreed to work with the Society to draft alternative legislation that will strengthen the governmental audit process without including a mandatory firm rotation provision. The NJSCPA is strongly opposed to mandatory audit firm rotation for a number of reasons While mandatory rotation may seem appealing at first blush, in reality it puts an entity at a greater risk of fraud going undetected, can easily lead to lower audit quality and is very costly. Requiring mandatory rotation leaves the new audit firm with significant startup costs and a steep learning curve, the cost of which will be passed on to consumers. It also leaves the door open to more fraud and waste, as the new auditors are less likely to spot suspicious transactions due to the knowledge gap they must overcome in the beginning years of taking on a new client. Audit firm rotation was not included in the Sarbanes-Oxley Act, and a 2003 United States Government Accountability Office (GAO) report on the issue stated that the “GAO believes mandatory audit firm rotation may not be the most efficient way to strengthen auditor independence and improve audit quality considering the additional financial costs and the loss of institutional knowledge of the public company’s previous auditor of record…” The Society believes that mandatory rotation is counterproductive and

will harm efforts to reform the governmental audit process in NJ. In 2010, the NJSCPA released a white paper outlining this position and put forth a number of proposals that would improve the governmental audit process in New Jersey. To see a copy of this paper, contact jkaszerman@ njscpa.org.

Economic Opportunity Act Signed into Law Governor Chris Christie recently signed the bipartisan Economic Opportunity Act of 2013 (A3680). The act streamlines New Jersey's economic development incentive programs into two categories: GrowNJ, which will become the state's main job creation incentive program, and the Economic Redevelopment and Growth Program, now New Jersey's sole developer incentive program. Both programs have been extended until July 1, 2019. The bill also places extra emphasis on spurring development and job growth in Garden State Growth Zones, the four lowest median family income cities in the state: Camden, Trenton, Passaic and Paterson. Projects in these cities will have significantly lower eligibility thresholds and higher incentive levels. They will also be eligible for property tax abatements for new development.

Paid Sick Leave Mandates Moving Business groups in New Jersey are opposing recent government initiatives mandating that businesses provide paid sick leave for their employees. In October, Jersey City enacted an ordinance requiring most employers operating in the city to provide paid leave and allow it to carry over to the following year. Newark is considering a similar ordinance.

On the state level, legislation has been introduced that would impose a similar mandate on all NJ businesses, regardless of size. The legislation, A4125/S2866, would require all businesses to provide between five and nine days of paid sick leave each year. The bill would also allow employees to carry over unused leave from one year to the next – up to 40 hours for small companies (fewer than 10 employees) and up to 72 hours for larger companies. According to the NJ Business & Industry Association, which is leading a coalition opposed to the bill, employers who already offer paid time off would still be affected by such measures since they would supersede existing company policies for paid time off eligibility, carryover time and policies to control excessive absenteeism. Moreover, legally mandating paid time off would create a uniform benefit plan for all businesses, rather than allowing employers to tailor benefits to fit in with their individual workplaces. Additionally, the legislation would require employers to keep confidential records of any leave used by every employee for five years or risk being charged with failing to provide leave.

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A CPA Who's Paying a Price for Sandy By David Plaskow, NJSCPA Communications Manager

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magine being the director of revenue and finance for a metropolitan area that just took a massive hit from the “storm of the century,” seeing nothing but devastation all around, and then having to figure a way to pay for both the cleanup and safeguards should another disaster strike. That’s exactly where Michael P. Stinson, CPA, found himself in November 2012 after Superstorm Sandy ravaged the Northeast. A lifelong resident of Brigantine, Stinson grew up one of six kids to a father who worked as an electrical engineer for the Federal Aviation Administration and a mother who worked in the school system. “I took some accounting courses in high school,” says Stinson. “At the same time, I worked part-time for a marine supply company doing its payroll and bookkeeping.” Because accounting “came easy” to Stinson, he majored in it at Drexel University. “I was in Drexel’s co-op program,” recalls Stinson. “I did sixmonth increments of school, work, school and work.” The Drexel co-op program placed Stinson at the Atlantic City Medical Center where he did journal entries, reconciliations and internal audit. After graduating in 1984 with a B.S. in accounting from Drexel, Stinson worked for more than two decades in health care, at Shore Memorial Hospital and later Continuum Health Alliance. But when Atlantic City was looking for a director of revenue and finance, he couldn’t resist making the jump to governmental accounting. “I like this niche because it’s something new every day,” comments Stinson.

“It’s one of the largest municipalities in New Jersey with an annual budget of $250 million, and it’s dominated by one industry, gaming, which represents $130 million in property taxes to Atlantic City.” Shortly after he graduated from Drexel, Stinson pursued his CPA designation. “More than one colleague had indicated that it wouldn’t hurt to have it,” says Stinson. “And I’ve definitely found that to be the case.” As for his New Jersey Society of CPAs membership, “It keeps me up on the profession, and it’s a great vehicle to obtain CPE.” Stinson is also pursuing a Certified Municipal Finance Officer credential through Rutgers. In his downtime, Stinson helps out in his Catholic parish in Brigantine and coaches youth sports. He’s a big fan of Philadelphia’s sports teams and has even gone to see the Eagles play in opposing stadiums all across the country. “But if you really need to find me, I’ll most likely be at the beach,” says Stinson. “It’s just so peaceful there.” But the Jersey Shore was not the place to be the last week of October 2012 as Superstorm Sandy walloped the tri-state area. “I remember in the immediate aftermath how quiet it was and all of the debris around,” recalls Stinson. “We’ve been through storms and floods in South Jersey before, but nothing like this.” Stinson rode out the storm at his mom’s house and had to walk through waist-high water to get home. “I only had to replace my roof, so I was one of the lucky ones,” says Stinson.

“Many of my friends and neighbors weren’t so lucky.” Stinson, though, didn’t have the luxury of just having to worry about himself. He had to figure out a way to pay for both municipal damages from the storm as well as projects to help mitigate damages from future storms. “These costs came to more than $100 million – just for Atlantic City,” exclaims Stinson. “This includes elevating roadways, replenishing beaches, updating flood pumps and much more.” So, what’s Stinson’s role in helping AC get up and running? “Because of the magnitude of this disaster, we really need to create a plan for longterm financing. Some of it will be through borrowing, insurance and the government,” he comments. Stinson credits his CPA background with being able to make contacts, articulate needs and obtain resources. “My background really comes in handy when I’m working with FEMA or the Army Corps of Engineers on a needs assessment,” notes Stinson. Just what is the state of the city? “Some projects are moving forward quickly; others have a long way to go,” says Stinson. “But I’ll echo what Governor Christie says: ‘We’re Jersey Strong.’”

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New Jersey CPA - January/February 2014  

When Disaster Strikes: * Business Continuity for Staff * The Tax Implications of Disaster * Protecting Data from Man-Made Disasters * ERM, I...