New Jersey CPA - Spring 2022

SPRING 2022

BUILDING THE SKILLS TO

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contents SPRING 2022

THE MAGAZINE OF THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

4 Let’s Get Rid of the Term ‘Soft Skills’

Having great soft skills means so much more than the term suggests. Accounting professionals would benefit by the term simply going away and being replaced with enhanced people skills (EPS). It’s never too early to work on one’s EPS as it can yield career dividends.

RALPH ALBERT THOMAS, CPA (DC), CGMA Chief Executive Officer & Executive Director rthomas@njcpa.org THERESA HINTON Chief Operating Officer thinton@njcpa.org DON MEYER, CAE Chief Marketing Officer dmeyer@njcpa.org RACHAEL BELL Managing Editor rbell@njcpa.org KATHLEEN HOFFELDER Senior Content Editor khoffelder@njcpa.org DIANE ESPIRITU Senior Graphic Designer despiritu@njcpa.org THE NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 105 EISENHOWER PARKWAY SUITE 300, ROSELAND NJ 07068 973-226-4494 | NJCPA.ORG #NJCPAMAG READ NEW JERSEY CPA ONLINE AT NJCPA.ORG/ NEWJERSEYCPA

TO ADVERTISE OR P R OV I D E S PONSORED CON T EN T IN NEW J E R S E Y C PA Visit njcpa.org/advertising or contact Eileen Proven at eproven@njcpa.org or 862-702-5640

6 Up the Ladder — A Narrative of the First 10 Years as an Accountant

It’s uncommon for someone to choose accounting because they’re great with sales or enjoy teaching. Yet, both selling and teaching are integral job responsibilities of many successful senior-level accountants. Along the journey up the ladder, today’s accounting professionals will incorporate learning, teaching and selling.

8 Uncovering the Fraud Triangle and Other Misconduct

Fraud can affect every stage of an audit, from planning to performance to completion.

It’s also prevalent in bankruptcy when there’s a transfer of funds. What are the motivators for fraud? Pressure, opportunity and rationalization — in short, the fraud triangle.

10 Growing Through Acquisition: Using SPACs and PE to Raise Funds

Deciding to raise funds by taking on a private equity (PE) investor or being acquired by a special purpose acquisition company (SPAC) is a tough decision. A private company seeking a PE investment should understand any operational challenges, while a SPAC is likely to undergo additional regulation which requires planning.

2 CLOSE UP

17 FIRM MANAGEMENT

23 TAX

The Changing CPE Landscape

Transitioning Firm Ownership: Big Issue, Baby Steps

New Jersey Sales and Use Tax Audits: A Basic Guide for CPAs

18 INDUSTRIES

24 NJCPA NEWS

12 ACCOUNTING, AUDITING & ATTEST

How Auditors Can Detect Fraud 14 BUSINESS MANAGEMENT

Managing a Hybrid Workforce What Every Business Needs to Know About Wage and Hour and Pay Equity in New Jersey

The Pandemic’s Impact on Commercial Real Estate 19 PROFESSIONAL DEVELOPMENT

Continuing Education: A Vital Component of an Accountant’s Professional Development Toolkit 20 RISK & COMPLIANCE

16 FINANCIAL PLANNING SERVICES

The Last Mile in Cybersecurity: Buying Cyber Insurance

How Charitable Giving Affects the Comprehensive Financial Plan

Crypto Fraud is Real — How Practitioners Can Help Prevent It

y 2022 NJCPA Convention & Expo: Moving the Profession Forward y Ovation Awards Open for Nominations y Accountants Head Back to High School y Student Loan Debt Lottery Winners Selected y Bridging the Gap in the CPA Pipeline 27 CLASSIFIEDS 28 MEMBER PROFILE

James C. Bourke, CPA, CITP, CFF, CGMA

CLOSE UP

The Changing CPE Landscape

BY JAMES HARDENBERG, CPA, CGMA, CAE, NJCPA CHIEF LEARNING OFFICER

As we look back on where we’ve been — and how accounting professionals not only survived but succeeded in the tumultuous COVID-19 cyclone that made landfall and never left — it’s a good time to stop and think about what the changing face of continuing professional education (CPE) is and what it could be going forward.

Throughout the pandemic, CPAs were called upon to advise everyone from mother/ daughter bakery owners to biopharmaceutical firms that collect revenue in five different currencies. And while those discussions centered on tax savings, budgeting and year-end reporting challenges, almost overnight CPAs were called upon to help with loan applications, recovery relief funding, improving cloud services, and enhancing distribution channels, business strategies and operational efficiencies.

WHERE WE’VE BEEN As a membership organization, we sought how to address those changing job functions as well as remain relevant for traditional CPE learning. By cancelling all in-person events and moving to 100percent virtual CPE courses and seminars, we provided CPAs with the necessary freedom to learn when they wanted and where they wanted. At the start of the pandemic, the NJCPA created the Virtual CPE Pass to provide CPAs with a convenient and affordable way to meet their annual CPE requirement and stay abreast of timely topics.

Throughout 2021, we continued to combine flexibility with a wide depth of CPE offerings. We launched robust application programming interfaces (APIs) with our CPE alliance partners, such as Surgent, ACPEN, the American Institute of CPAs and CPA Crossings. We also held a successful all-virtual Annual Convention in 2021, which had a record number of firsttime attendees. CPAs were able to attend as much of the Convention as they wanted from the safety of their own homes as well as network and interact via Zoom amid fun entertainment and games with colleagues, informative speakers and NJCPA staff.

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We created Membership+, which provided those who joined our organization with 20 free CPE credits that exceeded the cost of NJCPA membership. Those who were already members were able to access a slate of free programs. As a result, we saw record patronage and margins, offered lower retail prices and unequaled convenience, and had high member satisfaction ratings.

WHERE WE ARE NOW Today, in recognizing how the delivery of CPE has changed forever, we continually re-evaluate member needs and our pandemic response — rebalancing all CPE offerings as the market dictates. At the time of this writing, we are hopeful that the many benefits of in-person learning will be reestablished on a permanent basis — eventually in-person chapter meetings as well as our 2022 NJCPA Convention & Expo, which is slated to be held June 14-17 at the Borgata in Atlantic City, will return. But, until that time, we stand ready with a virtual-first mentality to everything we offer. We are incorporating a phase-in approach to select in-person events as the market dictates.

WHERE WE GO FROM HERE With nano learning, or the ability to learn about a subject in a 10-minute timeframe, gaining ground in the accounting profession, we launched our first CPE credits for this kind of learning, and more courses

are on the horizon along with on-demand offerings. CPE in smaller segments will only grow going forward, and the NJCPA stands ready to assist members who want to participate in these valuable offerings.

We are excited about the future of learning and are enhancing our alliances with other training entities and CPA societies to expand virtual training opportunities for our members. In these pandemic times, we learned it certainly takes a village. New CPE course offerings will focus on personal health and wellness, staffing retention issues, succession planning, cryptocurrencies, effective networking and how to stand out from the competition. Of course, the usual tax, auditing and accounting courses will be there, too!

CPE LINKS AND RESOURCES y Search all upcoming NJCPA events: njcpa.org y Membership+ events: njcpa.org/plus y Event bundles and passes: njcpa.org/eventbundles y New nano CPE opportunities: njcpa.org/nano y Track your CPE: njcpa.org/cpetracker

New Jersey CPA (ISSN 1534-6692) is published quarterly by the New Jersey Society of Certified Public Accountants, 105 Eisenhower Parkway, Suite 300, Roseland, NJ 07068. Issue No. 90 Copyright © 2022 New Jersey Society of Certified Public Accountants. Annual membership dues include $9 for a one-year subscription to New Jersey CPA magazine.

Members may not deduct the subscription price from dues.

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

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

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NEW JERSEY CPA | SPRING 2022

3

LET’S GET RID OF THE TERM ‘SOFT SKILLS’

By THOMAS METELSKI, CPA JUMP COACHING & CONSULTING, LLC

It’s unfortunate that some of the most important characteristics needed for success in business are stuck with the label “soft skills.”

If “soft” means unimportant or trivial to you, then you need to think again.

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According to indeed.com, soft skills are “…abilities that relate to how you work and how you interact with other people.

Popular soft skills include communication, teamwork and other interpersonal skills.

Employers look for soft skills in candidates because these skills are hard to teach and are important for long-term success…”

Personally, I think the term “soft skills” is as useless and outdated as my Price Waterhouse ID badge. Although the term is used to refer to non-technical (translation: less important) skills, successful companies have realized that soft skills are critically important these days. Actually, I prefer the term “enhanced people skills” or EPS for short (my fellow CPAs will appreciate that acronym!), because it’s a better description of what these skills involve.

EPS can include a variety of emotional intelligence skills relevant to an organization.

And although you may think that EPS is non-scientific, touchy-feely stuff, it can actually be defined, improved and measured.

In fact, there has been significant research that shows EPS is not only important, but critical to career success. One such study highlighted by world-renowned researcher Dr. Travis Bradberry showed that for supervisors up to and including the CEO, 60 percent of job performance is related to emotional intelligence elements that can be included in EPS, and 90 percent of top performers were high in EPS (source: youtu.be/auXNnTmhHsk - at the 10:55 mark). Just Google “empathy and leadership” and you will find lots of articles on that one specific element of EPS. The importance of EPS has actually increased after the global changes brought on by the pandemic.

BUILDING YOUR EPS How can you tell when it’s time to start building your EPS? It’s never too early to work on those skills. Colleges and universities are certainly responding to the needs of the business community in this area.

One example is Rice University, which has been a pioneer in this field and developed a leadership institute in 2015 to address the EPS need (the Ann and John Doerr Institute for New Leaders). The meticulously crafted programs at Rice are documented in the book Leadership Reckoning by Thomas Kolditz, Ph.D., Libby Gill and Ryan P. Brown, Ph.D. The book proposes that college-level students are not being prepared for the leadership responsibilities they will face in the business world. The anecdotal evidence is overwhelming, and more academic research is being done every year on this subject. In fact, the learning and leadership training industry has exploded in the last several years to fill the need for better EPS training.

Like all good CPAs, I’m a sucker for formulas, and I’ve found a quick analytical measure to determine if you should place a focus on EPS at the current stage of your career. For a typical work week, simply take the number of hours in a week that you work directly with others divided by 40 hours. For example, if you work with others (e.g., meetings, teams, one-on-one) about 20 hours a week, then you have a .5 EPS (20/40). I think it’s never too early to start building your EPS, but once you hit the .5 EPS ratio, you should clearly be conscious of developing strong EPS behaviors. By the way, if your ratio is over 1.0 that’s a big red flag! At that point it’s time to reassess how you are spending your time. The EPS ratio is a quick, back-of-theenvelope calculation you can do to document where you are on your EPS journey.

Here are the five “As” that will help you to build your EPS and manage your career: y Awareness. Know your EPS ratio or another metric that will give you insight into where you are on the EPS scale.

You can also use past performance appraisals for further insights. It’s only when you are fully conscious of where you are that you can move forward. y Assessment. Ask for feedback from your stakeholders (e.g., immediate supervisor, peers, subordinates, clients).

This is an example of 360 feedback where you ask everyone you work with for constructive comments. Tell everyone your intention and what you hope to accomplish. Most people are more than happy to assist. There are many tools to capture data, and your firm or company may already have such tools readily available. An example of one tool is the 360 Emotional Quotient Inventory 2.0 (EQ-i 2.0). It is a widely used, statistically validated tool. You can also create your own 360 with a few targeted questions. y Analysis. What are the two or three EPS skills that you can immediately work on based on the data? Share the results with your stakeholders to let them know you will be working in these areas. From the data gathered, what is the best course of action?

y Action. What goals have you defined for yourself based on the data?

Determine what course of action you will take to reach those goals. Is there an internal course you can take, an external course you can register for or a relationship with a mentor you can establish? The purpose is to move forward and enhance your EPS skills.

For example, if you need to present in front of others, will something like Toastmasters International help you increase your skill in that area? Is there a person who inspires you who has the skills you want to enhance? Can that person be a mentor? y Accountability. How will you hold yourself accountable for the changes you’re making? Will you have an internal/external coach keeping you on track? Are your HR partners aware of your plan and helping you to stay the course? Will you have periodic meetings with your supervisor to discuss progress? Did you include any EPS topics in your formal appraisal process? Can family or friends be a sounding board?

It’s never too early (or too late) to start building the skills to advance your career.

Unfortunately, enhancing EPS skills has not always been part of proper career planning in the business world. Times have changed, however, and now actively managing

and monitoring your EPS will yield dividends on your career investment.

Thomas Metelski, CPA, is an International Coaching Federation (ICF) accredited coach and founder of Jump Coaching & Consulting, LLC. He can be reached at thomas@jumpcc.com.

LEARN MORE March 14 or April 11, Live Webcast UPSKILLING FOR ACCOUNTANTS

March 18 or April 22, Live Webcast LEADERSHIP SKILLS FOR PEAK PERFORMANCE IN THE 21ST CENTURY

March 28 or April 14, Live Webcast COACHING SKILLS FOR MANAGERS AND SUPERVISORS

March 30, Live Webcast SUCCESSFUL COMMUNICATION

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READ MORE CAREER DEVELOPMENT KNOWLEDGE HUB

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NEW JERSEY CPA | SPRING 2022

5

UP THE LADDER — A NARRATIVE OF THE FIRST 10 YEARS AS AN ACCOUNTANT

By RACHEL ANEVSKI, MAOB, PHR, SHRM-CP MATTERS OF MANAGEMENT, LLC

Many people choose to go into accounting because they’re “good with numbers” or have a passion for finding answers. It’s rare for someone to choose accounting because they envision a life of teaching.

And it’s rarer yet for someone to choose accounting because they’re a great networker with a knack for sales. Yet both teaching and selling are integral job responsibilities of many successful senior-level accountants.

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Teaching and selling are often omitted from accounting classroom conversations.

Professors are generally known to advise students to start in public accounting, as it’s known to be the fastest path to earning a CPA credential. But it could be said that a faster path upward, at least in public accounting, could be to have a side hustle as a bartender. Learning how to handle multiple personalities, have conversations with different types of people and complete multiple tasks simultaneously all while keeping customers happy can prepare a new accountant for a faster accounting career trajectory. Instead, new professionals are often challenged with acquiring these critical skill sets later in their careers.

ENTRY LEVEL In some ways, it’s true that starting out in public accounting gives one the broadest outlook on the expansive world of accounting opportunities, whether it be in a sole practitioner’s office, a small, midsize or large size firm, or a boutique firm that specializes in specific areas of accounting. Still, the most important aspect of a new accountant’s first few years is to learn. At this stage, performance is predicated on how well one can retain knowledge, absorb concepts and apply those concepts repetitively to projects. The less assistance one needs, the more likely they are to move ahead.

Entry-level professionals can accelerate this timeframe by doing the following: • Listen with intent • Write down notes to refer to • Repeat what they’ve heard back to the delegator for clarity • Practice, practice, practice

MOVING UP: SENIOR-LEVEL ACCOUNTANTS Whether a professional remains in public accounting or makes a switch to business and industry, in years three to seven, one’s role is to teach. These professionals are expected to be knowledgeable in basic accounting principles. They likely work with little supervision on core tasks, and entry-level accountants look to them to learn from. However, making the transition from learning to teaching doesn’t always come naturally. The pressure to take on more sophisticated work in private or more clients in public, coupled with training others and meeting deadlines, often makes or breaks the wavering accountant. Also, mathematically speaking, a senior-level accountant could be in a transitional life stage simultaneously (i.e., purchasing a first house, getting married, having children).

This adds even more pressure to the role.

Some accountants use this as an excuse to exit public accounting due to required overtime, however, the perception that work-life balance is better elsewhere may not always prove true. Nonetheless, accountants with three to seven years of experience are highly sought after and undoubtedly will land in a role where they are required to teach no matter the lateral they choose. A key to getting ahead during this time is having the ability to teach others what they have mastered and having capacity to take on additional work.

The most successful accountants at this career stage are the ones with expert-level time management skills and patience while multitasking.

THE BIG TRANSITION: MANAGEMENT Management is a great place to be, especially for those who have the personality to hang with it. Roles in management in either public or private accounting require one to be a savvy salesperson, which can come as a surprise to some in the profession.

Strength at this level requires you to be knowledgeable in what is happening in the business one supports or in the industries in which their clients own businesses.

who are averse to selling may choose a specialty tax career in private. It’s important to note that not all people process new skills at the same rate and therefore the path traveled varies. Some accountants mature their careers at 10 years while others take 15. There isn’t a deadline on learning the concepts, just an acknowledgement that they are necessary. Those who find that there is an area in which they are lagging behind their peers should speak up, ask for help or take on the challenge themselves.

Rachel Anevski, MAOB, PHR, SHRM-CP, is CEO and founder of Matters of Management, LLC and can be reached at rachel@mattersofmanagement.com.

In public accounting, firms no longer sell tax returns, audits or bookkeeping services; instead they sell the relationship of the person completing the work. In business and corporate settings, accountants sell their service to the other departments of the organization, justifying need-to-know information and making important decisions. In either scenario, accountants are selling themselves.

Along an accountant’s journey up the ladder, they may have been a great learner and even a wonderful teacher; but then realize that selling isn’t in their repertoire.

This happens a lot, and it’s okay. Those who find themselves stuck at any of these transitional areas should take their time, leverage a mentor or a more senior accountant and ask for support in order to gain the confidence they need to move forward.

The way in which one grasps and incorporates learning, teaching and selling in the first 10 or so years of their careers will likely define the accounting role they’ll find themselves settling in for the next 30 or more years of their career. Those who are great teachers and salespeople may aspire to be a partner in a firm while those

READ MORE RESOURCES FOR EARLY CAREER PROFESSIONALS

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LEARN MORE March 9 or April 8, Live Webcast WANT THAT PROMOTION? WE’LL SHOW YOU HOW!

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NEW JERSEY CPA | SPRING 2022

7

UNCOVERING THE FRAUD TRIANGLE AND OTHER MISCONDUCT

By PAUL REYES, CPA BEDERSON LLP

MATTHEW SCHWARTZ, CPA/ CFF, CFE, CIRA

TIMOTHY KING, CPA/CFF, CFE

BEDERSON LLP

BEDERSON LLP

Accountants are relied upon to uncover fraud across a number of disciplines, including, audit, attorney trust accounting and bankruptcy.

Here are some of the warning signs as well as tips for preventing fraud.

AUDIT From an auditor’s point of view, fraud risk is a major factor. It affects every stage of the audit, from planning to performance and, finally, completion. Three factors, commonly referred to as the “fraud triangle,” can lead to fraudulent acts within an organization: Pressure, opportunity and rationalization. y Pressure is represented by a financial or emotional force that pushes one toward fraud. This may be difficult for the organization to foresee, as an employee’s personal finances and motivations cannot easily be ascertained. Knowing about employees can help reduce this vulnerability to fraud. For example, background checks can be run on new employees. It is also important to make sure vacation time is taken annually.

When an employee does not take time off, it is possible they are doing so to enable the concealment of fraud. y Opportunity is an ability to execute a plan to commit fraud without getting caught. Maintaining good internal

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controls can mitigate this factor.

Segregation of duties, (e.g., not having the same employee handle the processing of receipts from customers and the authority to approve write-offs or managing petty cash and recording the transactions in the accounting system) is imperative. Additionally, restricting access to certain financial data and closely watching bank account activity for suspicious transactions is paramount to limiting opportunities to commit fraud.

y Rationalization is a personal justification for the dishonest actions.

An employee who feels underappreciated or undercompensated can be motivated to commit fraud. Combined with opportunity, this factor can be one of the most compelling. Like pressure, rationalization can be difficult to see coming. But fraud committed by long-term employees who do not receive the desired acknowledgement, advancement or monetary compensation happens more frequently than an employer might expect.

Understanding how fraud can occur is important. The fraud triangle can be a valuable tool in detecting it if it does exist and preventing it in the future.

ATTORNEY TRUST ACCOUNTS Accountants are rarely asked to be involved in their attorney clients’ trust accounts until there is a problem — and that problem is often an ethics complaint, either from a client or the New Jersey Office of Attorney Ethics. Either way, an ethics complaint is a claim that an attorney has misappropriated client funds and thus violated both the New Jersey Rules of Professional Conduct

and Court Rules. In other words, it’s a claim that the attorney has committed fraud.

Any attorney who faces such a complaint should immediately seek competent representation. However, having good accounting practices will go a long way in successfully responding to any such claim.

Both attorneys and accountants who do any work for attorneys should be familiar with Court Rule 1:21-6, which is available at njcourts.gov/notices/ioltarules.pdf.

This rule requires any attorney licensed in New Jersey to keep track of all client funds separately. This does not mean that all client funds must be in separate bank accounts, only that they be tracked individually, like an accounts payable sub-ledger. In addition, no client funds can be overdrawn. For example, if an attorney deposits $10,000 on behalf of Client A, disbursements on behalf of Client A cannot be more than $10,000, even if the attorney’s trust account has additional funds. Further, the $10,000 disbursed can only be from cleared funds.

Therefore, checks cannot go out the same day the deposit is made. The one exception is if the deposited funds are bank checks.

In addition, the account must be reconciled at least monthly.

Although there are more rules, following the above will go a long way to demonstrating proper record keeping.

Practice tip for attorneys: ask your accountant to periodically analyze your trust account to make sure you are following proper procedures.

Practice tip for accountants: if your attorney-client does not ask, suggest it would be in their best interest for you to provide such a periodic analysis.

BANKRUPTCY There are many types of bankruptcy fraud. One of the most common types is fraudulent conveyance. To overly simplify, a fraudulent conveyance is a transfer of the debtor’s assets made to a third party in order to place them beyond the creditors’ reach.

Under Section 548 of the Bankruptcy Code, a trustee may recover any transfer of funds or property that took place within two years of the filing of the petition while the company was insolvent, which was not made for reasonably equivalent value that was made to an insider.

One way to identify such a transaction is to review the company’s records for large payments and investigate the backup documents and other information to determine if a possible action exists.

Finding that company payments were made to a personal credit card is a sure red flag. It is not uncommon for a review of statements to reveal that items such as

luxury cars and expensive jewelry were paid by the company. In most of these situations, the threat of a lawsuit will result in settlement.

When frauds take place that do not involve a diversion of funds, they are usually difficult to uncover and even more difficult to prove. Here’s a real-life example: A company’s principals take enormous funds which are not reflected as compensation. To hide the problem, they overstate the company’s inventory by several million dollars. At one point, the bank demands audited financial statements. The principals devise a scheme where they count all the inventory in their large warehouse under the supervision of a CPA firm in late December and then move all the inventory to their stores and count it a second time. The scheme worked for a couple of years until the CFO, a co-conspirator, died suddenly.

When the principals were questioned, they claimed that they went into their warehouse on Dec. 30 and discovered that all the inventory had been stolen. Then the company filed bankruptcy.

Paul Reyes, CPA, is a supervisor of accounting and auditing at Bederson LLP. He is a member of the NJCPA and can be reached at preyes@bederson.com.

Matthew Schwartz, CPA/CFF, CFE, CIRA, and Timothy King, CPA/CFF, CFE, are the co-managing partners of the insolvency and litigation services department at Bederson LLP. They are both members of the NJCPA and can be reached at matthew.schwartz@bederson.com and tking@ bederson.com, respectively.

LEARN MORE March 21 or April 7, Live Webcast INTRODUCTION TO FORENSIC ACCOUNTING

March 30 or April 28, Live Webcast REPORTING THE RESULTS OF A FRAUD INVESTIGATION

On Demand FRAUD BASICS: PROTECTING THE COMPANY TILL

njcpa.org/events

NEW JERSEY CPA | SPRING 2022

9

GROWTH THROUGH ACQUISITION: USING SPACs AND PE TO RAISE FUNDS

By LAURA M.

CROWLEY, CPA, MBA

CITRIN COOPERMAN

ERIC M. DIEFENDERFER, CPA

CITRIN COOPERMAN

Private companies have various options to raise capital when compared to public companies.

These options are quite different from one another, so it is important to determine which option suits a particular business best and will allow it to grow successfully.

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There are various avenues a private company can take to acquire the capital it needs to grow its business. Some popular options include taking on a private equity (PE) investor or being acquired by a special purpose acquisition company (SPAC).

These options have different requirements the acquiree must meet in order to have a successful transaction, and they carry different risks to the private entity seeking an investment.

SPAC ACQUISITION CONSIDERATIONS In anticipation of a merger with a SPAC, a private operating company needs a plan for the additional regulations that it will be required to adhere to after becoming a public company through the business combination, which includes complying with public company disclosure requirements on an accelerated basis when compared to the typical timeframe for private companies. This would include disclosures regarding the company’s merger with the SPAC, which is made known prior to the deal close.

One of the regulatory requirements that the operating company will need to have

in place prior to the transaction closing is to have an audit under Public Company Accounting Oversight Board (PCAOB) standards to comply with Securities and Exchange Commission (SEC) requirements for financial reporting. The SEC has indicated they will not review a registration statement for a private company and SPAC merger if the registration statement does not have an opinion signed by an auditor registered with the PCAOB. In addition, the operating company may need to engage a new auditor, as the existing auditor may not satisfy auditor independence under SEC rules or may not be registered with the PCAOB. After the acquisition transaction, the operating company will be subject to the exchange listing requirements that apply to the SPAC it transacted with. These requirements will include corporate governance oversight, which may include requirements such as an independent board of directors and audit committee with specialized experience regarding financial reporting matters.

Another consideration the operating company must address is that, as a public company, management has to set up and maintain sufficient internal controls over financial reporting and adhere to the public company financial reporting requirements.

Additionally, certain members of management will be required to provide a quarterly certification to its financial reporting and the related internal controls.

If the operating company does not have proper planning to address these items, it may experience ongoing delays or possibly not be in compliance with public financial reporting requirements.

PRIVATE EQUITY ACQUISITION CONSIDERATIONS With the PE alternative, the private operating company does not have to face the complexities associated with becoming a public company, however, there are other considerations to be mindful of. A PE investment generally involves taking on an owner in the form of a fund that has an ownership stake in the private company.

The fund, in turn, has investors comprised of institutional investors and high-net-worth individuals who are seeking an abovemarket return on their investment (ROI).

A typical PE investment is expected to last around five years before the PE firm will seek to exit the investment and monetize their ROI. A private company hoping to attract an investment from the PE sector should first do a thorough self-assessment. This would include assessing the capacity and capabilities of its operations, analyzing its financial results and assessing the skills and longevity of its management team.

In assessing its current operating environment, a private company seeking a PE investment should understand its competitive place in its industry and identify any operational challenges. These might include excess capacity, gross margin pressure or other factors. The company should also identify strategic objectives so it can begin discussions with the PE investor around where the experienced management team sees opportunity for the business. The goal of the PE investor is ROI, which is typically achieved by reducing expenses and increasing profits of the acquired company or by implementing a growth strategy to increase top-line revenues. Some PE shops might look to develop an industry niche to take advantage of economies of scale by bringing together smaller independent businesses under one common umbrella. Before getting into talks with a PE firm, management should have a good understanding of their business and where it fits so they can focus on the partner that can best help them execute the desired strategy.

PE investments are typically priced at a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA).

As the target operating company, management’s goal is to support a higher EBITDA because that will lead to a larger cash infusion. Commonly, EBITDA is adjusted for expenses that are not expected to recur once the investment transaction is completed. These can include items such as above-market compensation or expenses incurred with parties related to the current owners. Management should evaluate their financial records to consider these potential add-backs and begin to develop the support for these items before getting into negotiations to take on a PE investment.

Finally, the private operating company should evaluate its current management team to understand the skills each individual brings, as well as whether or not a person would be likely to stay with the company long-term. A PE investor who invests in a diversified portfolio of private companies may want some or all of the current management team to remain with the company, while another PE firm may bring in their own management team to oversee the investment. In either case, the PE investor will want accountability from management so they can monitor the progress of their investment, and there will be more demands on the management team as they seek to execute the strategic vision and achieve the desired ROI over the time horizon of the investment.

CHOOSE CAREFULLY Whether a private company opts for the SPAC route or a PE investment to fund its growth opportunities, careful consideration should be given to the choice of strategy and which is the best fit for the company and its future plans.

Laura M. Crowley, CPA, MBA, is a director at Citrin Cooperman. She is the leader of the NJCPA Accounting & Auditing Standards Interest Group and can be reached at lcrowley@citrincooperman. Eric M. Diefenderfer, CPA, is a director at Citrin Cooperman.

He is a member of the NJCPA and can be reached at ediefenderfer@citincooperman.com.

READ MORE RAISING CAPITAL KNOWLEDGE HUB

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LEARN MORE March 11 or April 6, Live Webcast DEBT OR EQUITY: WHICH WILL YOUR ORGANIZATION NEED NEXT?

April 6, Live Webcast KEY CURRENT FINANCIAL AND ECONOMIC ISSUES FACING THE FINANCIAL EXECUTIVE

njcpa.org/events

NEW JERSEY CPA | SPRING 2022

11

ACCOUNTING, AUDITING & ATTEST

How Auditors Can Detect Fraud

BY DESIREE MARTINEZ, MS, TRAPHAGEN CPAs & WEALTH ADVISORS

Everyone is familiar with the word “fraud,” whether it is because they or someone they know has been a victim of it or because of the many stories of business scams such as the Enron scandal. Every year, around 5 percent of entities’ revenue is lost to insider fraud. That represents a potential total loss of $4 trillion annually in the U.S. alone.

The reality is that fraud is everywhere, and the threat of fraud keeps increasing.

Due to COVID-19 and current economic conditions, there is an increased risk of fraud for both individuals and businesses.

Auditors conduct their engagements in accordance with Generally Accepted Auditing Standards (GAAS). The American Institute of CPAs’ (AICPA) Code of Professional Conduct requires members to comply with the Statements on Auditing Standards (SASs). SAS No. 99 requires auditors to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements, whether due to fraud or error.

According to SAS 99, there are three conditions typically present when fraud is committed: y Incentives/pressures — employees’ mindset towards committing fraud.

Example: Bonuses that are based on financial metrics. y Opportunities — circumstances that allow fraud to occur. Example: Lack of supervision of internal controls and a poor tone at the top. y Attitudes/rationalizations — individuals’ justification for committing fraud. Example: An individual wanting to get back at their employer because he/she was treated wrongly or an employee is feeling entitled.

Keep in mind that most fraud occurs with trusted personnel.

HOW AUDITORS CAN DETECT FRAUD The standard defines fraud as an intentional act resulting in a material misstatement in

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the financial statements. Fraud on financial statements consists of the following two types: y Misstatements resulting from fraudulent financial reporting y Misstatements resulting from the misappropriation of assets The AICPA recommends that auditors assess where a company may be vulnerable to fraud and assess risk of material misrepresentation and fraud by management.

It is important to keep in mind that per AU-C Section 240, Consideration of Fraud in a Financial Statement Audit, both those charged with governance and management are primarily responsible for the prevention and detection of fraud. Management, with the oversight of those charged with governance, needs to establish strong prevention guidelines which should include creating a culture of honesty and ethical behavior. While auditors are not responsible to detect fraud (but to identify fraud through planning and risk assessments), there are guidelines that auditors need to follow to comply with GAAS, including the following: y Discussion among the engagement team. It is crucial that everyone on the engagement team — from interns to partners — discuss that the financials might be susceptible to material misstatements due to fraud. Everyone needs to be aware of external and internal factors that may create an incentive or pressure to commit fraud. y Discussion with management and others within the entity. When interviewing employees to determine if they have any knowledge of fraud, the auditor should not only focus on asking these questions to management but also to other employees such as warehouse staff who handle the day-byday operations.

y Assessment of the risk of material misstatement. The auditor needs to identify and assess the risk of material misstatement at the financial statement level and at the assertion level for classes of transactions and account balances.

The auditor needs to review the financials, and, based on industry and entity knowledge, identify the risk of material misstatements. y Professional skepticism. Auditors should maintain professional skepticism throughout the audit. It doesn’t matter whether they have been working with the entity for several years or they have developed a relationship with management, auditors should always recognize the possibility that a material misstatement due to fraud may exist.

Auditors need to be aware that business disruption coupled with employees working remotely could result in internal controls not functioning as designed, thus allowing greater potential for fraud. Auditors must be diligent, remain skeptical and follow their instincts. If something doesn’t seem right, ask more questions, perform more testing and investigate further.

Desiree Martinez, MS, is a senior auditor at Traphagen CPAs & Wealth Advisors. She is a member of the NJCPA Accounting & Auditing Standards Interest Group and can be reached at desiree@tfgllc.com.

LEARN MORE March 24 or April 25, Live Webcast RISK ASSESSMENT — THE FOUNDATION OF AN AUDIT

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READ MORE AUDITING KNOWLEDGE HUG

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PROFESSIONAL ISSUES UPDATES IMPACTING CPAs AND FINANCIAL PROFESSIONALS Hear a panel of public policy experts discuss New Jersey’s proposed budget for 2022/23 and its potential impact and political viability.

FRIDAY, MARCH 18, 12-1:15 P.M. | TUESDAY, MARCH 22, 12-1:15 P.M. (REPLAY)

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SUBSCRIBE NOW

Hear the latest legislative developments impacting CPAs and the business community. Go to njcpa.org/podcast to learn more.

NEW! Certain IssuesWatch Podcast episodes now qualify for nano CPE credit.

Learn more at njcpa.org/nano

NEW JERSEY CPA | SPRING 2022

13

BUSINESS MANAGEMENT

Managing a Hybrid Workforce

BY JIM FRAWLEY, BELLWETHER

To say it’s been an interesting 24 months would be an understatement. The changes that have come as fallout from the pandemic will certainly alter many of the ways we work forever. But with a new way to work, as well as new expectations of employees, many organizations are realizing that they need a significantly better solution to manage a hybrid or virtual workforce to ensure they are getting the value they should out of their employees.

To be fair, this is not an easy adjustment, but it’s one that will be vital for success in the new economy. It all boils down to one question: How can a business prepare for change when it doesn’t know what change is coming?

While many companies have the technology available, most don’t have the people systems in place to appropriately manage change. A new solution is needed — beyond technology — and it starts with people.

THIS IS ABOUT PEOPLE MANAGEMENT One of the challenges companies have with managing large, macro change is that they lose perspective. Over the past two years, organizations have had to quickly adjust to remain productive. Zoom, Teams, Google Meet and other platform have enabled staff to continue working amid the limitations imposed by the pandemic.

And that’s great. But the conversation (and, thus, perspective) has not yet shifted to where it should be: people.

Whether you want to call it the Great Resignation, Reshuffle or some other term, there is a massive market shift driven by employees who are more vocal and opting for organizations that provide a foundation for them to feel valued, influential and included. This is a tall order for many companies to accomplish virtually. However, those that figure it out will be light years ahead of their competition.

Utilizing a hybrid/virtual workforce has forced organizations to ask new questions about their people, such as:

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y Do we have the right people? y Have we created an environment in which they can be successful? y How do we measure success and productivity when our people aren’t right in front of us?

Each question is addressed below, with the intention of sparking a dialogue to find the items that can be controlled and the systems that can be put in place to ensure a company gets what’s needed from its staff.

To be fair, there may be significant work involved in adjusting an organization’s people management strategy, but it’s not hyperbole to say that those who ignore this adjustment will quickly be left behind.

Here are the three questions to begin a hybrid and virtual workforce remodel: y Does the company have the right talent? Today, many companies are doing a complete re-evaluation of what good talent is and what it costs. They are identifying new skill sets to value (like communication and believability) and writing completely new job descriptions to bring the company into the future. y Does the company have the right culture in place for its people to be successful? The best people and talent across every industry are changing jobs in search of a better culture; they are looking for companies where they feel valued and have open communication channels. With geographical limitations removed, employees can now find the manager and company that they want to work for. This requires a new level of development for a company — teaching managers to have the capability to drive people to be successful remotely.

The company’s leaders need to learn an authentic leadership style that engages a team beyond just a weekly workgroup call. Employees also need the agency to make decisions on their own.

Micromanaging a virtual workforce won’t work. y How is the company measuring productivity? Most companies weren’t good at measuring productivity before the pandemic, and now it’s a whole new game. Seeing people in seats provided some comfort that work was getting done, but the focus now shifts away from the individual. How do employees provide value? Is productivity being measured on time spent or output created? While the work may not have changed, how the work gets done has, and companies need to accommodate for new measurement.

While the challenges may be significant, answering the three questions above should be a fun and exciting exercise. Yes, it’s a lot of work. Yes, it will require changing the way things are done. But at the same time, the organization’s vision will be recreated, and it will pay dividends in the coming years.

Jim Frawley is the CEO and founder of Bellwether, a change management firm, and host of the Bellwether Hub podcast. He can be reached at jim@bellwetherhub.com.

LEARN MORE April 15, Live Webcast THE SCIENCE OF ORGANIZATIONAL CULTURE AND DECISION-MAKING

On Demand THE TEAM, THE TEAM, THE TEAM: GETTING THE RIGHT PEOPLE ON THE BUS

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READ MORE BUSINESS MANAGEMENT KNOWLEDGE HUB

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BUSINESS MANAGEMENT

What Every Business Needs to Know About Wage and Hour and Pay Equity in New Jersey

BY KATHLEEN McLEOD CAMINITI, ESQ. AND SARAH WIESELTHIER, ESQ., FISHER PHILLIPS LLP

Over the last few years, New Jersey has enacted robust wage theft and pay equity laws designed to ensure that New Jersey employees are paid all wages due and compensated in a fair and equitable manner.

CPAs are often consulted for guidance on navigating these complex laws to ensure that companies’ pay practices are legally compliant and to minimize the potential for costly litigation. It’s important to be aware of the core legal issues impacting New Jersey employers in order to navigate these complex compensation issues.

NEW JERSEY WAGE THEFT ACT New Jersey’s Wage Theft Act (WTA) is one of the toughest in the country and was amended nearly three years ago to criminalize certain wage and hour violations and significantly increase exposure to damages, penalties and fines. Liability can be assessed not only against an employer but successor entities or successor firms of the employer.

If an employee files an action for unpaid wages, the WTA provides for liquidated damages of 200 percent in addition to the payment of wages owed to an employee.

There is an affirmative defense available to employers to avoid these treble damages if they promptly correct wage errors. To take advantage of the affirmative defense, the employer must: 1) demonstrate that it acted in good faith with reasonable grounds for believing that the action was not a violation; 2) admit the violation; and 3) pay the amount owed within 30 days’ notice of the employee’s claim. Absent a good faith defense, a wage and hour violation exposes an employer to unpaid wages, liquidated damages, attorney’s fees and costs.

Given the potential exposure, it is critical to ensure that companies pay their employees full wages when due. Consult with an attorney if there are any questions about whether an employee is properly classified as exempt; independent contractor issues

likewise require detailed analysis under the wage and hour laws, and misclassification errors are very costly. Keep up to date with the increases to minimum wage, which is currently $13 per hour for most New Jersey employers and will continue to increase to $15 over the next couple of years. Accurate recordkeeping is critical to ensure that non-exempt employees are paid for all time worked and to defend against any potential litigation and avoid significant potential damages and penalties.

PAY EQUITY CONSIDERATIONS Pay equity is another area where New Jersey leads the country in having one of the most progressive laws favorable to employees.

Under the Diane B. Allen Equal Pay Act, it is an unlawful employment practice for an employer to pay any member of a protected class at a rate of compensation less than the rate paid to employees who are not members of the protected class for substantially similar work. Whereas the federal Equal Pay Act requires equal pay for equal work regardless of gender, New Jersey expands this protection to all 17 protected categories recognized under the state’s Law Against Discrimination.

New Jersey employees who perform substantially similar work must be paid the same compensation. The exceptions are limited to pay disparities based on a seniority system, merit system or a bona fide factor (e.g., training, education, experience or the quantity or quality of production) so long as the bona fide factor does not perpetuate a differential in compensation based upon a characteristic of a protected class. An employee who succeeds on an equal pay claim in New Jersey may be awarded compensatory damages, attorney’s fees and costs, as well as punitive damages if the conduct is deemed willful.

CPAs may be asked for assistance in conducting a pay audit. It is a best practice to partner with an attorney when conducting a pay audit so that the results are cloaked

by the attorney-client privilege and protected from public consumption. Accountants and attorneys make a great team when it comes to a pay-equity analysis. Attorneys provide advice regarding legal compliance and may make recommendations about where to make changes to close apparent pay gaps; CPAs are best positioned to crunch the numbers and advise clients on how to budget and plan for the financial impact of pay equity issues.

Kathleen McLeod Caminiti, Esq., is partner and co-chair of the Wage and Hour and Pay Equity practice groups at Fisher Phillips LLP. She can be reached at kcaminiti@fisherphillips.com.

Sarah Wieselthier, Esq., is an associate at Fisher Phillips LLP, and can be reached at swieselthier@ fisherphillips.com.

LEARN MORE April 5 or 7, Webcast WHAT EVERY BUSINESS NEEDS TO KNOW ABOUT PAY EQUITY IN NEW JERSEY

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NEW JERSEY CPA | SPRING 2022

15

FINANCIAL PLANNING SERVICES

How Charitable Giving Affects the Comprehensive Financial Plan

BY JAY MOTA, CFP®, CDFA®, CHFC®, PRUDENTIAL

Clients who are charitably inclined may have different ideas on giving. Depending on where the funds are coming from, it may impact one or more of the six main areas of a comprehensive financial plan.

RETIREMENT PLANNING y Budget for charitable funds: The size of the client retirement funds, as well as how near they are to retirement, will likely play a role in the amount and the ways they are able to give. y Gift retirement accounts: Rather than clients naming a relative or friend as the beneficiary of their retirement account, another option is to name a charity, as long as their plan allows it.

Since charities can avoid income taxes on retirement accounts while family members cannot, it often makes sense to leave an IRA or 401(k) to charity and non-retirement assets to family. y Provide retirement income: Charitable gift annuities and charitable remainder trusts allow clients to give a sizeable amount to charity while still providing for retirement income through annuity payments or annual distributions.

INVESTMENTS y Change investment objectives: Managing a philanthropic portfolio may be vastly different from a personal portfolio when it comes to asset allocation and risk tolerance. Studies have shown that donors are often less risky with a philanthropic portfolio than with their personal portfolio. y Fund private foundations: Funding a private foundation as a mode of charitable giving means taking on the responsibility of managing and investing the foundation’s principal fund. This will likely require clients to hire an investment advisor and up their investment knowledge. y Donate appreciated securities: Donating part of a portfolio can both

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give an asset to charity and reduce portfolio risk by diversifying without having to sell stocks and incur capital gains tax.

RISK MANAGEMENT y Avoid overspending: While a charitable giving strategy can help maximize donations to charity, it also forces clients to set a charitable budget and avoid donating more than they can give or using improper charitable vehicles. y Avoid charity fraud: Research is a huge part of any charitable giving strategy.

Recommend that clients get to know the charities they wish to donate to.

Developing a strategy also makes it less likely to give impulsive donations to phone or email solicitations, which many scammers use to steal funds from unsuspecting donors. y Donate life insurance: Naming a charity as the beneficiary for life insurance is a relatively inexpensive way to donate, as it can leave a large amount to charity while only costing a small amount in premiums.

ESTATE PLANNING y Give after death: Donating postmortem offers many options, whether leaving an outright bequest in a will or donating life insurance, retirement assets or assets through trusts. This can reduce a taxable estate and help the family avoid income tax on some of the inherited assets. y Minimize estate taxes: Charitable giving offers many options for reducing estate taxes for the decedent and family.

The use of charitable trusts can even offer income tax benefits and help provide the client or family with a source of income while still donating a large portion of the trust’s assets to charity. y Leave a charitable legacy: Having some of the estate’s assets pass to charity can help solidify a charitable legacy and ensure that charitable acts will live on even after death.

TAX PLANNING y Minimize taxes: The use of various charitable giving vehicles can help reduce income taxes (through deductions), estate taxes (by reducing the amount that remains in the taxable estate) and capital gains taxes (by donating appreciated securities or capital gain property).

NET WORTH AND CASH FLOW y Budget for planned giving: Planned giving and the budget it requires will be largely determined by net worth and cash flow. Many people choose to give as a percentage of their income, so, in some cases, a charitable giving budget may be directly proportional to cash flow. y Determine the best method to give: Net worth and cash flow will be a determining factor in both what and how to give. For example, someone with a low or even average net worth will likely not choose to set up a private foundation.

Likewise, someone with a high net worth will likely have avoiding estate taxes as a large factor in their charitable giving strategy and therefore will want to use vehicles such as charitable trusts and annuities that allow them to do that.

Jay Mota, CFP®, CDFA®, ChFC®, is a financial planner at Prudential and the owner of SMART Financial Services, offering comprehensive financial planning and investment advisory services through Pruco Securities LLC. He can be reached at 201-596-4005.

READ MORE FINANCIAL PLANNING KNOWLEDGE HUB

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FIRM MANAGEMENT

Transitioning Firm Ownership: Big Issue, Baby Steps

BY DANIEL J. McMAHON, CPA, INTEGRATED GROWTH ADVISORS

Not long ago — and as recently as 2019 — the American Institute of CPAs' biennial Private Company Practice Section (PCPS) survey on top issues affecting CPA firms routinely identified CPA firm succession as one of the top issues facing the profession.

In the 2021 edition of the survey, respondents identified keeping up with current developments in tax law and COVID relief as well as finding and retaining qualified staff as top priorities. Developing the next generation of leaders is also listed, but there is no mention of firm succession planning as a higher-priority issue. The fallout from a worldwide pandemic and industry staffing shortages seem to have relegated succession planning to the back burner.

There is no doubt the world continues to change and evolve at a rapid pace.

Meanwhile, each evolutionary development seems to push firm succession planning further down the priority list. For many, succession planning can seem like an overwhelming task that would be fraught with legal agreement structuring, internal maneuvering or planning to make the right type and level of investment in the next generation of future owners. Furthermore, many CPAs find it difficult to let go of a firm that they grew and has been the primary source of their livelihood.

initiative should be viewed as a process and not a one-time event. A commitment of even a couple of hours a month can make an impact.

The first thing to do is define success and envision what the team is seeking to accomplish. A clear understanding of the overall objective will serve to guide the transition journey. Consider the following questions: y Will the firm transition internally to a lateral partner or to the next generation? y Will the firm sell to a third party? y Will the firm seek to recruit a successor?

START SMALL AND FIND YOUR GROOVE Here are some tips to help the team get started: y View the initiative as a process and not an event. y Define success and set the objective. y Establish a realistic timeline. y Adopt a mindset of “chipping away.” y Assess the firm and develop a plan. y Align strategy, people and business processes.

ASSESS, PLAN AND EXECUTE Once you have a sense of direction and timing, envision the firm’s definition of success. Assess the current state of the firm against that objective, then remediate and optimize where necessary. Why would a buyer be interested in the firm? Do you have a sense of the current valuation?

It’s important to set the objective at building a sustainable and transferable firm. A valuable firm is characterized as having sustainable revenues, relationships and processes that are transferable to a different owner. This concept will resonate with the next ownership group, whether it’s an internal team, a third-party buyer or a recruited future successor.

Establishing a timeline with milestones and chipping away over a period of time is the best path to gaining traction. Tailor the intensity of the effort to the firm’s available time. Start small and be realistic. Seek to achieve a sense of momentum and then accelerate when the time is right.

Use the expected buying motivations of the next owner to identify and establish strategic objectives for the initiative. Align tactics with those objectives and plot their expected completion dates along the firm’s desired timeline. Examine how the firm’s people and organization chart fit the plan.

Leading a CPA firm is no small task.

Likewise, transitioning the firm should not be taken lightly. It can be helpful to seek out a skilled advisor who will expedite the process.

Do not hesitate to get started. It’s never too soon to start building a firm that is attractive to the next ownership group.

Daniel J. McMahon, CPA, is the founder and managing partner of Integrated Growth Advisors. He can be reached at dmcmahon@ integratedgrowthadvisors.com.

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Many owners have been conditioned to believe they will always be able to sell their firm for a market valuation. This is a “swing for the fences” mentality and places all of one’s eggs in one basket. Instead, the

NEW JERSEY CPA | SPRING 2022

17

INDUSTRIES

The Pandemic’s Impact on Commercial Real Estate

BY DAVID GIBBS, CPA, CCIFP, CRE, MBA, McCARTHY & COMPANY

along with expected rising interest rate and the recovery of manufacturing and supply chains, could help lower the prices of materials like steel, copper and aluminum,” said Basu. This is good news for commercial real estate.

The commercial real estate industry was bouncing back when this article was written on Dec. 16, 2021. Restaurants, stores, fitness centers and malls were open and busy. Although inflation was high, consumers were spending money, which was good news for the commercial real estate industry. Tenants could finally pay their rent. Everyone was hopeful that the end of the pandemic was near. But the reality was that the wrath of this pandemic was beginning again.

Commercial real estate was hit hard in the beginning of the pandemic. Government mandates, shutdowns, nonpayment of rent, layoffs and then labor shortages all had a negative impact.

March Construction Consulting reported in its “2022 Commercial Real Estate Market Forecast” that throughout 2021 investors seized lucrative opportunities due to re-openings and lower interest rates. As people began to emerge from isolation, they treated themselves to dinners, concerts, movies, other forms of entertainment and, of course, shopping.

The problem was that labor and material shortages made it difficult for businesses to meet consumer demand.

CONSTRUCTION INDUSTRY FORECAST Overall, Dodge Data & Analytics anticipates modest growth of 6 percent in the

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construction industry for the next year, despite challenges with labor, supply chains and productivity. Anirban Basu, chief economist for Associated Builders and Contractors and CEO of consulting firm Sage Policy Group agrees that “the construction outlook for 2022 is looking positive.”

Meanwhile, Moody’s Analytics predicts that the vacancy rate for retail space will climb to 11 or 12 percent as businesses reexamine their need for space. The vacancy rate was 10.6 percent in the first three months of 2021, up from 10.2 percent the prior year. The average effective rent (what’s left after taking out concessions to entice tenants) dropped 1.5 percent.

INFLATION AND OTHER VARIABLES The inflation rate in the U.S. increased to 6.8 percent in November 2021, the highest since June 1982. It marked the ninth consecutive month inflation was above the Federal Reserve’s 2-percent target. Basu expects inflation will remain high in the beginning of 2022 but will decrease later in the year.

The price of construction materials has risen rapidly over the past year. As of October 2021, the 12-month producer price index for steel mill products was up 141.6 percent, according to the U.S. Bureau of Labor Statistics. “A lowering inflation rate,

LOOKING AHEAD While economists agree that the commercial real estate industry will expand somewhat in 2022, it is difficult to pinpoint which sector will experience the greatest growth.

The National Association of Realtor’s Commercial Real Estate Outlook 2022 suggests that there will be a steady demand in industrial and retail space, but that is dependent upon the Federal Reserve controlling inflation.

Coldwell Banker Richard Ellis Group Inc. (CBRE) points out in its market outlook that specific commercial real estate sectors grew during the pandemic. These included cold storage facilities, data centers and life sciences. Logistics real estate was also in high demand, as well as warehouses due to the increase in online shopping.

The expectation is that these sectors will continue to expand throughout 2022 if inflation is under control.

Multifamily construction, which led the industry out of the Great Recession, contracted in the past couple of years.

People moved from urban to rural areas in the beginning of the pandemic. This trend is finally turning around, and it is expected that the build-to-rent market will increase.

Occupancy levels may not return to pre-pandemic levels before 2023. Furthermore, CBRE suggests that Revenue per Available Room (RevPAR) may not return to its pre-pandemic highs until 2024. Even so, it appears that, overall, the commercial real estate industry will slowly recover over the next several years, although it might not reach the same pre-pandemic high.

David E. Gibbs, CPA, CCIFP, CRE, MBA, is a tax partner with McCarthy & Company, as well as the leader of the firm’s real estate niche. He can be reached at David.Gibbs@McCarthy.CPA.

PROFESSIONAL DEVELOPMENT

Continuing Education: A Vital Component of an Accountant’s Professional Development Toolkit

BY JESSICA E. McCLAIN, CPA, CISA, PMP, CITP, CGFM, GIRL SCOUTS OF NATION’S CAPITAL

There has been a seismic shift in the role of accountants; they now need to have broader knowledge and expertise beyond the traditional financial competencies. Gone are the days of accountants only reporting on historical financial information. Now they must navigate the complexity of today’s business landscape of regulatory changes, client needs, technological advancements, employee expectations, investor interests and customer demands. Today’s accountants need to continuously adapt, evolve and improve to keep up with business’ accelerated pace of change. Continuing education is a tool accounting professionals can equip themselves with to build a future-ready career. CPAs should not view continuing education as a check-the-box compliance requirement but as a critical component of their professional development toolkit to make them more informed, engaged, strategic and value-driven professionals.

EVOLUTION OF THE ACCOUNTANT’S ROLE Today’s clients view accountants as business partners who provide strategic guidance in navigating complex business problems.

Clients are experiencing a broad spectrum of challenges and risks, including increased scrutiny from regulators and investors; the pandemic’s impact on the supply chain; environmental, social and governance (ESG) issues; and cybersecurity. Additionally, revenue recognition, leases and goodwill impairment are just some of the recent accounting standard updates organizations have implemented. Accountants must remain abreast of these challenges, risks and changes and understand the resulting impact on their organizations and clients. The Financial Accounting Standards Board, the Association of International Certified Professional Accountants, accounting firms and state accounting societies offer free and low-cost training that provides timely guidance and resources to navigate these ever-evolving changes organizations and clients face.

DIGITAL DISRUPTION Another vital topic for CPAs to remain informed about is cybersecurity, especially in today’s hybrid work environment.

Furthermore, digital disruption exploded because of the pandemic. This disruption has completely changed how many accounting firms and their clients and accounting functions operate. Thus, the need to improve one’s digital competency is crucial. CPAs can now immerse themselves in a wide range of technologyrelated topics to increase future-ready competencies. Learning higher-level skills such as robotics process automation, data analytics and business intelligence can help accountants perform better professionally, enhance client service and help their accounting function operate efficiently and effectively.

CHANGE YOUR CAREER TRAJECTORY Continuing education can help with exploring new career opportunities and career transitions. For example, the explosion of ESG has created new career opportunities for accounting professionals, including ESG reporting, investing and assurance services. In recent years, another specialty area that has grown is nonprofit accounting. There is a plethora of conferences and webinars that provide up-to-date information on trends, challenges and legislation focused on specific industries.

HUMAN SKILLS IN THE POST-COVID-19 WORKPLACE The pandemic has reshaped the definition of leadership. It showed that employees could be resilient, agile and thrive in the face of uncertainty. Additionally, the pandemic created the need for even certified and experienced accounting professionals to strengthen these skills to navigate the emotional and personal impact of the pandemic on employees. To succeed in this new world of work and build high-

performing teams, skills such as critical thinking, collaboration and creativity will be needed. Training and webinars on managing hybrid teams, communication, leadership, and diversity, equity and inclusion can help accounting professionals improve their human skills in this new era of work.

It is essential for accountants to be continuous learners and intentionally devote time to learning as part of their professional development journey. Continuing education is critical to professional success, and with the many flexible options available, accountants can easily make continuing education a part of their professional development toolkit.

Jessica McClain, CPA, CISA, PMP, CITP, CGFM, is the chief financial officer at Girl Scouts of Nation’s Capital and can be reached at jessica.e.mcclain@outlook.com.

LEARN MORE `

NJCPA continuing education options: Search all events —

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Nano on-demand learning —

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Event bundles and season passes —

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NEW JERSEY CPA | SPRING 2022

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RISK & COMPLIANCE

The Last Mile in Cybersecurity: Buying Cyber Insurance

BY ANTHONY W. MONGELUZO, PCS, LLC

For several years, I’ve been urging accountants and their staff to have cyber insurance.

Unfortunately, your standard business policy doesn’t cover it. (Please tell me that you’ve been reading New Jersey CPA magazine and have followed my advice.)

With the new year in full swing, now is the time to implement two vitally important initiatives for protecting your data: One is DYI, and the other requires broader protection.

When IT experts caution users about the increase in threats, we sense the warnings are unheeded. If you doubt the importance of growing cybersecurity threats, mull over my experience. A few years ago, the application for cyber insurance was about two pages. Now it’s more like seven pages, and the specificity of the questions is far more pointed. “Do you have a backup?” was a simple question years ago. Now insurance companies want to know the precise nature of your backup and whether you have a plan if your backup fizzles.

What has happened should be apparent.

Insurance companies have hired some very smart IT firms to navigate the terrain and ensure that the best safeguards are in place so they are less likely to pay out on a policy.

And please, don’t even consider not getting the best cybersecurity insurance.

With the exception of IT companies, no one holds the keys to the data vault of their clients more than accountants. You are directly in the firing line of accountability if hacked. You have access to bank accounts, financial statements, Social Security numbers, even passwords. It’s a hefty responsibility.

The potential nightmare if you’re a multistate accounting operation gets worse.

If a hacker breaches you and a lawsuit emerges and you have clients in 10 states, your legal team must be familiar with each state’s law. Think of this potential cost.

If all of this sounds like an IT scare tactic, it is. Because if a savvy hacker hacks you, it gets ugly trying to fix the damage.

Now that I’ve scared you, here is what you can do almost immediately.

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IT’S ON YOU Two-step verification is the starting point.

I repeat this constantly because it is literally the easiest, most effective way to protect you. Is it irritating? Yes. But the potential protection is more than worth the 20 seconds of annoyance.

Next is virus control. Built-in virus protection programs are not enough for accountants. You need front-line virus protection. We recommend Barracuda (barracuda.com) and Sentinel One (sentinelone.com). (We have no financial stake in either company.)

Another important step is to ensure that your staff understands phishing attacks and how to both recognize and halt them.

IT’S ON THEM After you’ve incorporated these three DIY approaches to cybersecurity, it’s time to find a cyber insurance provider. Remember that basic business policies, like general liability, don’t hack it (forgive the pun).

Here are tips on securing cyber insurance. y Shop around and get a least three price quotes. It’s a new frontier for insurance companies, and now everyone is an expert.

Small Business Statistics

y The average cost of a data breach for small organizations (less than 500 employees) fell to $2.35 million in 2020, compared with $2.74 million in 2019. y One in every five small businesses has no endpoint security in place, while one in three relies only on free cybersecurity solutions. y 28 percent of all data breaches involve small businesses. y 30 percent of small businesses consider phishing attacks to be their top cybersecurity concern. y Electronic Data Liability Insurance average premiums range from $619 to $3,297, with the highest premiums going up to $55,500.

Source: Parachute Technology

RISK & COMPLIANCE

y Ask for a customized policy. That’s what everyone promises. Make them prove it. y Find out how long they’ve been a cyber insurance provider. y Request referrals. y Do a minimum background check on the insurance company. Then, see what others say about them. y Ask specific questions that address these areas: • Network security issues that affect hardware and software • Business interruption because of a cyber breach • Public relations and crisis management expertise if a hacker hits your company • Legal expenses that might arise out of a cyber attack, including your liability vis-à-vis the need to inform state and federal authorities • Who pays for the forensic investigation that will determine how the invasion occurred and how to safeguard your data in the future

The one truism in your business is that, sooner or later, someone will try to breach your IT security. Pay the price now with common-sense security rules and a comprehensive cyber insurance policy or pay more dearly later.

Anthony W. Mongeluzo is the CEO of PCS, an IT managed services and support firm that provides technology solutions. He can be reached at Anthony@helpmepcs.com, on Twitter at @PCS_AnthonyM or online at helpmepcs.com.

Attend Anthony’s session at the NJCPA Convention & Expo, njcpa.org/convention.

READ MORE RISK & COMPLIANCE KNOWLEDGE HUB

njcpa.org/hub/risk

LEARN MORE March 9 or April 14, Live Webcast KEY CYBERSECURITY CONTROLS FOR CPAs

March 28 or April 25, Live Webcast WHY CYBERSECURITY MATTERS TO CPAs

DO MORE SAVE ON CYBER INSURANCE WITH NJCPA MEMBER BENEFIT PROVIDER GALLAGHER AFFINITY

njcpa.org/marketplace

March 30 or April 18, Live Webcast CYBERSECURITY 101 FOR CPAs

njcpa.org/events

NEW JERSEY CPA | SPRING 2022

21

RISK & COMPLIANCE

Crypto Fraud Is Real — How Practitioners Can Help Prevent It

BY DR. SEAN STEIN SMITH, CPA, DBA, CMA, CGMA, CFE, CITY UNIVERSITY OF NEW YORK — LEHMAN COLLEGE

Blockchain and cryptoassets are increasingly part of mainstream financial markets and accounting conversations. Decentralized finance (DeFi), non-fungible tokens (NFTs), the rapid proliferation of stablecoins and the continued research around central bank digital currencies (CBDCs) are just a handful of the major topics that have burst into mainstream conversation in the past year.

Alongside this innovation and creativity, however, has been an uptick in fraud risks for investors and clients. There have been several recent high-profile examples of fraud that should catch the attention of practitioners. It is also worth noting that the crypto sector has incurred nearly $2.5 billion in fines since inception. Consider the following: y Fraud and theft related to DeFi activities (a red hot area) totaled $10.5 billion during 2021. y Social media platforms, including YouTube and Twitter, have been used to spread dozens, if not hundreds, of crypto-related scams. y Hit shows like Squid Game on Netflix can be leveraged to defraud investors out of millions. y Investors are investing millions into NFTs and the metaverse (virtual/augmented reality) without truly understanding the implications of doing so.

As individuals and institutions further integrate blockchain and crypto into operations, the factors that practitioners and advisors should keep in mind will only increase.

REVIEW THE DETAILS AND FINE PRINT Blockchain and crypto might be relatively new topics and technologies, but that does not mean that the fundamentals for investing and due diligence are any different.

Many of the fraud, scams and unethical activities that have occurred in this space are

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a result of investors and customers thinking that, because blockchain and crypto are new, the regular rules of risk and return do not apply.

Promises of overly consistent or outsized returns, free money or promises that are too good to be true are red flags that would usually be caught but can easily attract non-crypto experts. Practitioners should always encourage clients to perform their own research and due diligence, as well as assisting by performing independent research as their own.

HAVE A CRYPTO PAYMENT STRATEGY As increasing numbers of firms integrate blockchain and crypto into core operations or seek to attract and advise clients who are doing so, the need for a defined crypto payment strategy will only become more necessary. The following questions should be asked: y What type of crypto will be accepted for payment? This makes sense from an operational perspective, and it highlights (yet again) the importance of conducting due diligence on specific cryptoassets. y Will the firm hold onto cryptoassets used for payment purposes or immediately convert them back to fiat? Both aspects have exposure to scams, which are discussed in more detail below. y How well does the crypto technology stack interoperate with other technology tools? While most third-party service providers are ethical actors, some are not. This can expose the organization to scams and other crypto risk.

SAFEGUARD CRYPTO Managing the risk around crypto scams and other ethical activities is not simply a matter of understanding the specific crypto in question but also understanding what happens when crypto has been purchased or received. Much has been written about

hot wallets (applications that enable real-time and web-based access to crypto holdings) and cold wallets (specialized hardware that is not as easy to access or hack since it is offline), but that misses the wider point.

Third-party service providers can have all the appearances of being legitimate but may, in fact, simply be a funnel to direct investors and clients to unethical actors or scam artists. Granting access to crypto should be treated with exactly the same seriousness as allowing access to bank accounts, brokerage accounts or other financial assets. No matter which option is selected or pivoted to over time, the evaluation and research performed on any third-party provider should be the same.

Blockchain and cryptoassets have grown incredibly fast, continue to attract billions in investments, and garner the attention of policymakers, regulators and potential clients. As quickly as this has occurred, however, the risks of fraud and other unethical activities has increased nearly as quickly. Fortunately, there are several common-sense steps that can be implemented today to minimize firm and client exposure to crypto scams and fraud. The marketplace will, as it always does, reward proactive market actors willing to embrace new opportunities.

Dr. Sean Stein Smith, CPA, DBA, CMA, CGMA, CFE, is a professor at the City University of New York – Lehman College. He is a member of the NJCPA and participates on several interest groups.

He can be reached at drseansteinsmith@gmail.com.

TAX

New Jersey Sales and Use Tax Audits: A Basic Guide for CPAs

BY VICTOR P. TREGLIA, CPA, NJ SALES TAX AUDIT & REFUND SPECIALISTS

It is more important than ever that companies ensure they are in compliance with New Jersey sales and use taxes (S&UT). An S&UT compliance review is a great place to start. The review should be performed by someone qualified, as this is specialized area of taxation. Weaknesses may be revealed in the business’s current S&UT policies and procedures, which can then be timely corrected. Additionally, S&UT overpayments may be detected for which a tax refund may be claimed. Also, if the business is not registered for S&UT, consider filing a voluntary disclosure agreement as the lookback period may be reduced from 28 quarters to 16 quarters if audited.

While there are numerous educational resources and research services available, an excellent and free place to perform research is the New Jersey Division of Taxation’s website. In particular, the New Jersey Manual of Audit Procedures (nj.gov/treasury/taxation/njmap.shtml) and the Publications & Guidance page (state.nj.us/treasury/taxation/pubs.shtml) provide an abundance of helpful audit information and industry/business-specific S&UT information and guidance.

Refer to the New Jersey Manual of Audit Procedures for information regarding these forms. At the conclusion of the meeting, the auditor will provide an Information Document Request (IDR) which lists a rather substantial number of records to assemble in continuing the audit engagement. In addition to the business’s primary records requested (e.g., tax returns, sales and purchases books and associated invoices, payroll records), the following records and information requested may present extraordinary audit issues as discussed later: y Bank statements — four years y Credit card statements — one year y Exemption certificates — a sample period y Categories and total amounts of gross receipts: Tax returns versus bank deposits versus books — four years

TYPICAL AUDIT PROCEDURES Upon receipt of an audit letter from the New Jersey Division of Taxation, all appropriate personnel should be notified.

Also, a qualified individual (internal accountant or external CPA) should be selected as the point person to represent and defend the business through all aspects of the audit engagement.

Initially, a pre-audit meeting is conducted with the auditor during which a tour of the business’s premises is conducted and the following forms are completed: y Pre-Audit Questionnaire y Consent Form y Sampling Agreement y Acknowledgement of Responsibility

HELPFUL TIPS FOR CPAs y Obtain in advance and be familiar with the information required to complete the initial forms to be able to provide answers to the auditor’s questions at the initial pre-audit meeting. y Scrutinize the auditor’s work papers intensely! This is the best opportunity to remove potentially taxable sales and taxable purchases (errors) from the auditor’s work papers. Ask questions and request explanations, especially concerning the tax ramifications and extrapolation of the item(s) in question.

Support and document contentions.

Remember: the remaining errors will each contribute to the overall tax/ audit assessment.

Next, the auditor reviews the business’s records over the next several appointments and may request additional records along the way. Finally, the auditor provides the representative with a set of S&UT audit work papers which list all of the questionable and potentially taxable nontaxed sales, nontaxed purchases and other audit issues for the selected sample/audit periods.

y Negotiate an item or issue and the associated tax liability should uncertainty exist. y Reconcile all differences in reported gross receipts to within $1,000 if possible. y If providing the Acknowledgement of Responsibility form, consider seeking legal advice. y Consider having the auditor’s work papers reviewed by a subject-matter expert. y Provide the auditor with a timely/ written request for an abatement of penalty and interest. y Consider requesting a meeting with the auditor’s supervisor if not satisfied with the audit. y Consider challenging the audit assessment with the Division’s Conferences section. y Contact the Tax Practitioner’s Hotline or the Taxpayer Advocate when warranted. y Best practice: Reconcile the business’s various categories of gross receipts on a monthly or quarterly basis to avoid differences from prior periods that are now difficult to reconcile. y Best practice: Review all credit card statements on a monthly or quarterly basis to be sure the associated purchase invoices are retained and list S&UT when required. y Best practice: Review all nontaxed sales along with their associated exemption certificates for their completeness and accuracy on an annual basis, or immediately if a new customer.

Victor P. Treglia, CPA, is the founder of NJ Sales Tax Audit & Refund Specialists. He can be reached at vtreglia@njstars.com.

DO MORE JOIN THE STATE TAXATION INTEREST GROUP

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NEW JERSEY CPA | SPRING 2022

23

NJCPA NEWS

2022 NJCPA Convention & Expo: Moving the Profession Forward The NJCPA is bringing together expert speakers, industry mavens and academia under one roof for its 2022 NJCPA Convention & Expo at the Borgata in Atlantic City, June 14-17. The Convention, themed “The Way Forward: Transform.

Innovate. Grow,” will provide a look into the skills, niche practices and operational efficiencies that are necessary to grow the profession. Attendees can fulfill 20 CPE credits, meet colleagues and engage in in-depth discussions about where the profession is headed and what forces are necessary to take it there. They can peruse the many ways to enhance their business processes with vendors of all kinds on the Expo floor.

Convention keynote speaker Donny Shimamoto, CPA, CITP, CGMA, the founder and a senior member of IntrapriseTechKnowlogies LLC’s consulting and management team, acknowledges innovation in the accounting profession can start anywhere — even in a small way.

“Many people think that innovation has to be transformative, so they’re just looking for really big, out-of-the-box things. But we need to remember that innovation can be incremental as well. The key is to ensure that the incremental innovation is helping

to increase the effectiveness of the overall process and isn’t just a band-aid fix for a problem or silo efficiency gain,” he said.

“Part of the solution to have more time is to identify opportunities to automate simpler and repetitive processes. Even implementing incremental innovations in this way can help to free time for more transformative changes.”

Gene Marks, CPA, owner of Marks Group PC, and author, columnist and keynote speaker at the Convention, agrees that technology advancements not only help accounting professionals perform daily tasks better, but they can enhance accounting careers. According to Marks, what’s needed to innovate is to leverage artificial intelligence, augmented reality and other technologies to increase automation and to elevate employees to a more value-added role. In his presentation at the Convention, he will share advice, lessons and actions being taken by his audience of more than half a million business owners and managers and how they positioned themselves for success.

Dr. Kecia Williams Smith, Ph.D., CPA, assistant professor and director of the Master of Accountancy (MAcc) Program at North Carolina A&T State University

and a keynote at the Convention noted that emerging issues such as sustainability reporting, cryptocurrencies and data analytics are all areas of growth for today’s accounting professional. “It is imperative that the profession resets the narrative on the importance of accounting to society.

Once we tell the story of the relevance of accounting, the issues of image and perceptions will hopefully be minimized.”

Smith will present on the non-technical skills, such as emotional intelligence, growth mindset and communication, that are necessary for the “new normal” in the accounting profession.

Two additional keynote speakers — Susan O’Malley, the first female president of a professional sports franchise, and Convention favorite James C. Bourke, CPA, partner at Withum — and a host of session speakers will also entice the audience with lively presentations. Along with specialized technology breakouts, entertainment, dinners, interest group meetings, the Annual Business Meeting and IssuesWatch Live, the Convention promises to enlighten and inform.

View the Convention agenda and register at njcpa.org/convention.

Ovation Awards Open for Nominations The NJCPA is looking to celebrate accounting superstars — from the multitasking millennial manager to the lifetime leader to the outstanding college professor.

Nominations for the 2022 Ovation Awards are open until April 29.

The Ovation Awards acknowledge the valuable role that accounting professionals play in society, their community and in their offices. Is there an unsung hero at work? How about a professor that goes out of their way to ensure students learn?

Do you know a tech guru that drives new change at their organization? How about a diverse professional that leads by example

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or impacts their community? The NJCPA wants to hear. Select from the following seven categories to submit an award: y y y y y y y

Emerging Leaders Diversity, Equity & Inclusion Innovation Exceptional Educators Women to Watch Impact Lifetime Leader

“The awards truly represent the best in our profession. So many accounting professionals have made an impact on their jobs

and in their communities. We are pleased to honor those who are helping to drive the accounting profession forward,” said Theresa Hinton, chief operating officer at the NJCPA. Self-nominations are welcomed, along with nominations from NJCPA members as well as nonmembers. Award recipients are recognized at the NJCPA Convention & Expo in June and are featured in a special section of the fall issue of New Jersey CPA magazine.

For more information or to nominate a candidate, visit njcpa.org/awards.

NJCPA NEWS

Accountants Head Back to High School More than 80 NJCPA members visited New Jersey high schools last fall to highlight to students the benefits of being an accountant. Nearly 75 high schools participated in the CPA Career Awareness Program, which was an increase of 19 percent over the previous year.

The presentations, which were virtual as well as in-person, featured Q&A sessions on becoming a CPA, explanations about the importance of accounting and discussions on educational requirements.

According to David A. Katz, CPA, a principal at Withum and a Career Awareness presenter, “it’s always rewarding to inform students about the many benefits of being an accountant and to assist them in trying to decide on a career.” Educating students about becoming a CPA at the high school level helps to generate an interest in the profession that can carry them through their college years, he added.

Tanya Dunbar, CPA, director at EisnerAmper and a Career Awareness presenter, added, “I truly enjoyed it as I

really am very passionate about accounting as a career choice — in case you couldn't tell (smile). And I'm happy to be a resource while supporting the goals of the NJCPA and its programs.”

More urban schools were targeted this year for the presentations to encourage a wider population of students to go into accounting. The presentations are also used to promote the NJCPA scholarship offerings that are available to high school and college students. The NJCPA Scholarship Fund provides $1,500 scholarships to college-bound New Jersey high school seniors intending to major in accounting or obtain a concentration in accounting.

It also provides scholarships ranging from $2,000 to $6,500 scholarships for accounting students at New Jersey colleges or universities who are currently in their sophomore or junior year or in their senior year and entering an accounting-related graduate program.

As part of a pilot program this year, a new Minority Scholarship, funded by

David A. Katz, CPA, Withum, at West Orange High School

Deloitte, was created to open the doors to the accounting profession for New Jersey high school seniors who are racially or ethnically diverse and considering accounting as their college major. Multiple scholarships of $1,500 each will be awarded to qualifying applicants from the following four New Jersey high schools as part of the pilot program: Rahway High School, West Orange High School, New Brunswick High School and East Side High School (Newark).

The schools were chosen based on student demographics and outreach from the NJCPA Career Awareness Program.

To participate in the Career Awareness Program, go to njcpa.org/volunteer.

Student Loan Debt Lottery Winners Selected Ten NJCPA members were randomly selected out of 174 applicants in December as winners of the 2021 NJCPA Student Loan Debt Lottery. Each winner will receive $1,200 towards their student loan debt. The Lottery was conceived by the Student Loan Debt Task Force in conjunction with the NJCPA Scholarship Fund to assist NJCPA members who have accumulated a large amount of debt in becoming a CPA. The 10 winners had student loan debt ranging from $11,000 to $231,314.16, averaging $69,000. The 10 winners are: y Seth Boadi, ACCA, MS y Bennie Eneh, CPA, partner, Bece Consultants, LLC y Regina M. Ficarra, staff accountant, WilkinGuttenplan

y Rushil Jain, staff, EisnerAmper LLP y Courtney A. McLaughlin, senior tax analyst, Johnson & Johnson y Matthew J. Mojica, CPA, Staff 1, WithumSmith+Brown y Larissa Ng, audit assistant, Deloitte y Shuoyi Portelli, CPA, owner, Portelli Consulting, LLC y Benjamin W. Prill y Kevin E. Roenian, associate, WilkinGuttenplan “It’s truly a pleasure to be able to give back to CPAs amid hefty student loan debt.

It is an issue affecting many in the United

States, especially those studying accounting,” said Melissa A. Dardani, CPA, MAcc, managing member of MD Advisory Services and a member of the Student Loan Debt Task Force. “We created the lottery to lighten the debt load of accounting professionals and give them an incentive to stay in the profession.”

Zachary Cohen, CPA, manager at CFGI, and a member of the Student Loan Debt Task Force, added, “College costs have skyrocketed in recent years. This lottery is a step in the right direction towards acknowledging that and assisting where we can. Today’s accounting professionals are especially in need of financial savings as they fulfill the requirements to become a CPA or just recently completed their CPA and have considerable debt.”

NEW JERSEY CPA | SPRING 2022

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NJCPA NEWS

Bridging the Gap in the CPA Pipeline

BY DON MEYER, CAE, NJCPA CHIEF MARKETING OFFICER

As part of its 2021 “Top 100 Most Influential People” survey, Accounting Today asked, “What is the most important issue currently facing the accounting profession?” NJCPA CEO and Executive Director Ralph Albert Thomas, who was selected to the most influential people list for the ninth time, responded, “The decline in the number of new CPAs and in the number of accounting program enrollments at colleges.”

You may have seen by now the most recent AICPA Trends Report from 2019 — a comprehensive biennial report tracking the supply and demand of U.S. accounting graduates. It showed projected bachelor’s, master’s and Ph.D. accounting enrollments were down 4 percent, 6 percent and 23 percent in 2018, respectively, and the number of new CPA Exam candidates hit a 10-year low. Why the decline in CPA Exam candidates? The AICPA suggests the continued declines are being driven by “both economic conditions and an expansion of the alternatives available” to potential accounting students who are “opting to enter or remain in the workforce in lieu of pursuing an advanced accounting degree or to pursue other avenues for advanced education.”

According to a study conducted by the Illinois CPA Society (ICPAS), “A CPA Pipeline Report — Decoding the Decline,” among young professionals who do not

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plan on becoming CPAs, ICPAS identified that they are not pursuing the CPA credential because “they feel they can be successful in their anticipated or chosen careers without it and ultimately believe any value the CPA credential holds is outweighed by its lack of relevance to their personal endeavors and the time commitment necessary to obtain it.” The report also noted that they do not see their employers or prospective employers supporting or requiring it.

As the profession addresses challenges on the front end of the pipeline, we’re also coming face to face with a growing reality on the back end: retirements. Statistics from the AICPA suggest that 75 percent of current CPAs will retire in the next 10 to 15 years, leaving a huge vacuum in the profession.

NJCPA RESPONSE These trends are also impacting NJCPA membership. Currently, the Society is comprised of 42.9 percent Baby Boomers or older, 42.1 percent Generation X and Millennials, and 4.6 percent Generation Z, with the remaining 10.4 percent having not provided birthdays (as of November 2021). Baby Boomers make up 25 percent of the national workforce but 38 percent of NJCPA members. Millennials make up roughly 40 percent of the national workforce but only 20 percent of members.

In fact, our retired member segment is the Society’s fastest growing segment. As a result of the exodus of CPAs from the profession, the NJCPA has experienced significant membership losses in recent years, particularly among members in corporate finance or private industry.

Between 2016 and 2021, the Society lost more than 1,000 CPA members.

The NJCPA Board of Trustees recognizes the impacts that these trends will have and is taking steps to address the situation.

The Board is focused on the front end of the pipeline, specifically the NJCPA’s CPA Candidate membership category, recognizing that the greatest opportunity for bringing new candidates into the profession is to

focus on supporting graduates and young professionals who are still unsure about becoming a CPA. While the CPA Candidate category was created to put graduates on the path to taking the CPA Exam, it may also be forcing them to choose a direction — and a membership category — that they may not be ready for. According to the National Association of State Boards of Accountancy (NASBA), the average age of successful CPA Exam candidates is 29, with the median age being 25 years.

Our membership structure for graduates shouldn’t be based on what we want them to do immediately upon graduation, but what those new young professionals want out of their careers. Instead of trying to convince them of what they should do or why the CPA credential may be important to an employer, over time we stand a better chance of naturally showcasing the relevance and benefits of the CPA credential. But the only way to accomplish this is to hold onto them as members of the NJCPA. Revamping the CPA Candidate category, even providing one year of free membership for graduating Student members, will enable young professionals to take advantage of the benefits of membership (e.g., discounts, training) while the NJCPA demonstrates the relevance and benefits of the CPA credential to them.

The AICPA’s CPA Evolution initiative will attract a new breed of professionals, including graduates who specialize in data science and analytics, who are most likely unfamiliar with state CPA societies. A new, more-responsive and flexible membership category will attract graduates who are considering a career in accounting and/or finance but who are still unsure about becoming a CPA. The NJCPA Board will share more information about changes to the CPA Candidate category, as well as other proposed adjustments to the Society’s membership structure, this spring and summer.

CLASSIFIEDS

Traphagen CPAs & Wealth Advisors, 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 $300K to $700K. This is an opportunity to align with a quality peer- reviewed firm, while continuing to provide your clients with exceptional service. To confidentially discuss this opportunity, please email us at carolynn@tfgllc.com.

PROFESSIONAL SERVICES

MERGERS/ACQUISITIONS

Seize a merger/acquisition opportunity with benefits for you.

We are looking for firms ranging from $300,000 to $5,000,000 eager to combine forces as we continue to grow across northern NJ, Westchester and the Hudson Valley region. Goldstein Lieberman & Company is ideally situated to service all types of industries.

Visit www.glcpas.com; email me, Phillip Goldstein, CPA, Managing Partner, philg@glcpas.com; or call me at 800-839-5767 to have a confidential conversation.

Monmouth County CPA firm is looking for experienced CPAs to join and acquire a well-established practice.

Collections exceed $1,000,000 a year with concentration on tax, write up, and consulting. Senior partner will be retiring/reducing work load in the next few years. Reply in confidence at njcpa.org/classifieds.

Whitman Business Advisors www.whitmanbiz.com has been helping CPA firms with their M&A needs since 2008. We are working with several non-NJ headquartered firms that are looking for a foundational firm to expand their foot-print into NJ. If your revenues exceed $2.5MM annually then we should talk today!

To confidentially discuss this opportunity, please email us at pw@whitmanbiz.com.

Quality Review for CPA firms: audit, review, compilation, employee benefit plans, Yellow Book, revenue recognition.

Contact James M. Sausmer, CPA at 732-261-7710 or james.sausmer@ gmail.com.

TO SEE ADDITIONAL CLASSIFIED LISTINGS OR TO PLACE AN AD, VISIT NJCPA.ORG/CLASSIFIEDS.

ADVERTISERS INDEX Matthews, Panariello P.C., a well established full service Bergen County firm located in Paramus, is looking to acquire firms, sole practitioners, or accounts (audits, reviews, and tax preparation) ranging in size from $100,000 to $950,000. We are a peer reviewed firm with a strong track record of client satisfaction and retention.

We have been successful in prior acquisitions; let's talk. Please visit our website at www.mpcpas.com. To confidentially discuss this opportunity, email Peter at pmanetta@mpcpas.com.

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NEW JERSEY CPA | SPRING 2022

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MEMBER STORY

One CPA’s Passion to Drive Change

BY KATHLEEN HOFFELDER, NJCPA SENIOR CONTENT EDITOR

James ( Jim) C. Bourke, CPA, CITP, CFF, CGMA, managing director of advisory services and partner at Withum as well as a past president of the NJCPA, has collected every regular season Topps baseball card ever issued, except for one — card number 311, a 1952 Mickey Mantle Rookie card, which he still has his eyes on. That steadfast determination comes natural to him whether it’s in collecting baseball cards or transforming the accounting profession.

The son of Irish immigrants from Jersey City, Jim was driven to be the first in his family to attend college. High school helped shape his interest in accounting.

One accounting professor at Sayreville War Memorial High School, Mr. Caliendo, who has since retired, was a CPA who brought practical stories into the classroom. “I think I learned more about real-world accounting in that class than in my whole college career. When I was a senior in high school, I knew I wanted to be an accountant; there wasn’t a doubt in my mind,” he says.

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SPRING 2022 | NEW JERSEY CPA

Jim went on to be one of the first CPAs in the nation to receive the designation of Certified Information Technology Professional (CITP®) from the American Institute of CPAs (AICPA). He also was elected chair of numerous AICPA committees and conferences connected with technology, including the AICPA’s first ENGAGE conference. He was one of the first CPAs in the country to receive the AICPA’s system and organization controls (SOC) for cybersecurity certificate.

With that number of “firsts” behind him, it’s no surprise that Jim is credited with using technology to advance the accounting profession. An early embracer of working remotely, data analytics and optimization, automation, artificial intelligence and cyber and information security, Jim routinely speaks to a national and global audience about how technology is helping to propel accountants into becoming the business strategists and trusted advisors that clients and companies need. “Our profession is

now able to attract all of those next-generation professionals who embrace technology,” he says.

The COVID-19 pandemic accelerated the technological change that was already occurring in the profession, he says, as clients needed immediate assistance with everything from loans to budgeting — and they needed help remotely and with their technology. “We are seeing a shift in the way firms derive revenue,” he notes. “CPA firms that find ways to transform their practices and offer advisory services will continue to see accelerated growth.”

Jim is also the global technology and advisory leader at HLB International, a global accounting network of which Withum is an independent member. “I have engineers. I have data scientists. You don’t have to be a CPA to be involved in many of the services offered today in our advisory group,” he says.

EARLY INFLUENCES So, how did a determined CPA first embrace such technological advancements? Jim’s love for all things tech dates back to his obsession with technology and computer games. “I knew I was either going to be a CPA or a programmer and write video games because I had a passion for both,” he explains. “In college, I would write and design my own computer games.” Years later, when Jim first entered accounting, he noted there was a lack of technology in all of the day-to-day functions. “I started setting everything up on Lotus 1-2-3,” he recalls of the early days.

Today, he still loves a good video game and continues to drive himself and those around him — both on the job and with CrossFit every morning. Sometimes, he’s even joined by his three grown children — Emily, who works for a real estate company; Kate, a junior at Auburn University; and Brandon, the only accountant/technologist in the bunch, who works in the SOC group at Withum — or his wife, Jody, also a degreed accountant, who is now a real estate agent and restores furniture.

Submit Your Nomination Today!

Help us honor the people who have made significant efforts to advance New Jersey’s accounting profession.

AWARD CATEGORIES:

DIVERSITY, EQUITY & INCLUSION

INNOVATION

EMERGING LEADER

LIFETIME LEADER

EXCEPTIONAL EDUCATOR

WOMAN TO WATCH

IMPACT Nomination deadline is April 29.

NJCPA.ORG/AWARDS

JUNE 14-17 | BORGATA, ATLANTIC CITY

Reunite with NJCPA Members for an Impactful Experience LEARN WHAT IT TAKES TO MEET THE SHIFTING NEEDS OF YOUR ORGANIZATION, CLIENTS AND STAFF. All-Important Topics: Accounting, financial reporting and regulatory developments Evolving tax changes and strategies

38

20

Actionable Sessions

CPE Credits

13

80+

Networking Events

Expo Exhibitors

Accounting innovation and best technologies Business profitability in the wake of a changing business landscape Economic issues facing businesses and investors Stepping up business intelligence with data and predictive analytics Leadership principals for a productive organizational culture

Early-bird pricing ends April 22.

Join us.

NJCPA.ORG/CONVENTION