CPA Journal Spring 2013

Pennsylvania

CPA JOURNAL Spring 2013 | Volume 84, Number 1

THE MARCELLUS SHALE

The 116th Annual CPA Convention in Philadelphia Opportunity. Leadership. Growth.

Keynote Speaker Lou Dobbs

More details inside.

Contents Features 20 The Marcellus Shale Shake-Up Timothy J. Gooch, CPA, and Edward A. Kollar, CPA, CSEP, EA, look at the current status of the natural gas industry in Pennsylvania.

24 China: A Huge Country with Vast Opportunity

▲

Cory Ng, CPA, CGMA, and James Chan, PhD, explore the possibilities for Pennsylvania companies looking to export to China.

28 Be Watchful for Unexpected Anti-Corruption Ensnarement Steven G. Blum, CPA, CFE, CFF, and Benjamin A. Cohen, CPA, CFE, CFF, review anti-corruption best practices and risk assessment planning.

32 Your Voice Can Carry to Harrisburg Too Cheri H. Freeh, CPA, CGMA, addresses her experience as an advocate for the profession and how it has shaped her as a CPA and a PICPA member.

34 116th Annual CPA Convention in Philadelphia

Columns 2

A Note from the Chair

10

Rock-Solid Coverage in a Shaky World

3

PICPA TV Listings

4

Federal Tax 14

Education Unique Approaches to 150 Hours

State & Local Tax 16

Personal Financial Planning

Government/Not-for-Profit Become Risk-Savvy to Protect the Mission

Business & Industry Compliance Monitoring Just Makes Good Business Sense

9

Careers & Lifestyles Don’t Be the Generic Brand

The Emerging Dominance of the Sales Factor

8

Determining Your Professional Liability Premium

12

Our Debt Can Be a Taxing Matter

6

Liability Lessons

18

Litigation Support Ask Yourself the Right Questions before Embarking on an Audit

Don’t Pigeon-Hole when Reviewing Hedge Funds

PICPA News 38 Legislative News

44 Image Enhancement

Legal Reform Agenda Taking Shape

39 2013 Nominations Report 40 Volunteers in Action

45 Member Recognitions 51 Classifieds

42 Member Spotlight James R. Hanna, CPA, CVA

43 CPE Highlights

Follow us…

CPAs Share Their Expertise with Legislators

Defining PICPA’s Diverse Continuing Education Options

52 What Do You Think?

Is There No Accounting for Education?

www.picpa.org | Spring 2013 | Pennsylvania CPA Journal

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PUBLISHER Michael D. Colgan, CAE

A Note from the Chair

EDITORIAL STAFF EXECUTIVE EDITOR Maureen A. Renzi MANAGING EDITOR William J. Hayes PUBLICATIONS EDITOR Matthew McCann CONTRIBUTING AUTHORS Jacqueline M. Barnard Peter N. Calcara James V. DeLuccia

Chrystin M. McHugh Kathleen R. Miller

ART STAFF ART DIRECTOR Stephanie N. Wyse GRAPHIC DESIGNER Alison M. Kurowski 2012-2013 EDITORIAL BOARD Peter J. Kaye, chair John Alarcon Jeremy M. Allen Ibolya Balog Steven G. Blum Rose Marie L. Bukics Robert J. Capriotti James T. Clisham IV Robert F. Firely Jr. Timothy J. Gooch Douglas P. Hepburn Edward R. Jenkins Jr. Ryan G. Lafferty J. Stephen McNally

Matthew D. Melinson James J. Newhard Cory Ng Margaret O’Reilly-Allen Jonathan Reiter John D. Rossi III William G. Ruffner Todd A. Sacco Dmitri D. Shiry James A. Stavros Joseph T. Steuer David D. Wagaman Mary J. Welsh Craig D. Winters

Pennsylvania CPA Journal Spring 2013, Vol. 84, No. 1 Copyright 2013 by the Pennsylvania Institute of Certified Public Accountants Subscription Rates: Annual rate is $4 for members and $8 for nonmembers. Periodicals postage paid at Philadelphia, Pa., with additional offices in Hanover, N.H., and Bolingbrook, Ill. Publication of an advertisement in the Pennsylvania CPA Journal does not constitute an endorsement of the product or service by the PICPA. Postmaster send address changes to: Pennsylvania CPA Journal Ten Penn Center | 1801 Market St., Suite 2400 Philadelphia, PA 19103-1604 PICPA E-mails Address changes: info@picpa.org Classified ads: advertising@picpa.org Display ads: gchateauneuf@thewarrengroup.com Editorial: journal@picpa.org The Pennsylvania CPA Journal is published in March, June, September, and December. Past columns and features are archived at www. picpa.org. Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members.

The information contained in this publication, including all features and columns, does not constitute accounting, legal, or professional advice.

For professional advice, please engage or consult a qualified professional.

ISSN: 0746-1062

Belong. Grow. Achieve.

GET PUBLISHED If you are interested in submitting a column or feature to the Pennsylvania CPA Journal, please visit www.picpa.org/getpublished.

2

Rock-Solid Coverage in a Shaky World

S

hake-ups can be good, and shakeups can be bad. Can shake-ups be both? In this issue’s cover story, “The Marcellus Shale Shake-Up,” that seems to be the case. Fracking the Marcellus Shale for natural gas has transformed the lives and economics of many citizens in Pennsylvania. Timothy J. Gooch, CPA, and Edward A. Kollar, CPA, CSEP, EA, look at the current status of Marcellus Shale drilling in the state. They explore the effects of “the Shale” on ancillary businesses, developments that could be coming in the future, and opportunities that have been presented for CPAs and their clients.

The emergence of the Chinese economy has been a shake-up as well for the global and American business communities. Pennsylvania itself has been affected by the growth of the world’s most populous nation. In the feature “China: A Huge Country with Vast Opportunity,” authors Cory Ng, CPA, CGMA, and James Chan, PhD, explore the benefits and challenges Pennsylvania companies will experience should they choose to enter this burgeoning marketplace. The feature presents an update on China’s business economy and discusses opportunities for CPAs to help their clients.

Our third feature focuses on the Foreign Corrupt Practices Act, and advises readers to be aware of its requirements and penalties or risk the possibility of severe sanctions. “Be Watchful for Unexpected Anti-Corruption Ensnarement,” by Steven G. Blum, CPA, CFE, CFF, and Benjamin A. Cohen, CPA, CFE, CFF, includes a run-down of anti-corruption rules, a comparison of how U.S. regulations compare with other countries, and several preventative measures firms can take to help ensure they are in compliance with the act.

Political matters will always shape the way our members go about their jobs.

But is it possible for members to shake up

politics to benefit Pennsylvanians? PICPA past president Cheri H. Freeh, CPA, CGMA, thinks so. She describes how legislative advocacy has helped her develop as a leader in “Your Voice Can Carry to Harrisburg Too.” She describes her journey from a new PICPA committee member to a person making a difference in Harrisburg.

This issue’s columns also offer an abundance of material for members looking to keep up with the industry’s latest developments. The Education column by Rose Marie L. Bukics, CPA, zeroes in on Pennsylvania schools, in particular how they are adjusting to the state’s recent move to require 150 credit hours of education before receiving a CPA license.

Members in industry will certainly want to check out “Compliance Monitoring Just Makes Good Business Sense,” by Dana Trexler Smith, CPA. Her Business & Industry column stresses the importance of keeping up with third-party agreements to make sure a licensee is in full compliance with payment procedures. She features a list of arguments a licensor might have for being lax in monitoring procedures, then gives a counterargument encouraging the business toward increased awareness.

Finally, I don’t know if you noticed, but there is a famous face on the cover. Yes, that’s Lou Dobbs, and he will be speaking at PICPA’s 116th Annual CPA Convention in Philadelphia in June. Take a look at the special section on page 34. We hope that you not only are intrigued by Dobbs’ presence, but also the other great speakers and activities at this year’s event.

As always, we hope that you will share your thoughts on the material you find within these pages, and e-mail us your ideas for upcoming editions.

Peter J. Kaye, CPA, is vice president of finance for Procurian in King of Prussia. He can be reached at pkaye@procurian.com.

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

PICPA TV Listings Insights, Offers, and Volunteering Visit www.picpa.org/tv Support the CPA-PAC Changing the CPA attest experience requirement and resolving the state’s pension crisis are just two of many important issues facing the 2013-2014 members of the Pennsylvania General Assembly. In this video, PICPA members, our Government Relations staff, and state legislators explain why it’s crucial for CPAs to be involved in the legislative process and support the CPA-PAC. PICPA Expands Self-Study Library If you missed some 2012 PICPA conferences and are seeking CPE credit, PICPA’s expanded self-study library has what you need. PICPA TV has CPE programs dealing with the economy, financial planning, professional issues, ethics, and much more in the Professional Education section of the website.

Pennsylvania Legislative Preview The 2013-2014 Pennsylvania legislative session is under way. You can get a preview from Christopher Carusone, Pennsylvania secretary of legislative affairs, as he discusses the progress of pension reform, welfare, taxes, and other key fiscal issues affecting Pennsylvania. This 35-minute discussion, featuring questions from PICPA Council members in the audience, is available in the Professional and Technical section of PICPA TV.

Scan this QR code with your smartphone to go to the PICPA YouTube page.

! New-Look On Topic On Topic, a staple of PICPA TV, recently changed its format. It now features Mike Colgan, PICPA CEO and executive director, with special guests. See Bob Jazwinski, PICPA president, speak with Colgan about what’s new in taxes, and catch PICPA member Susan E. S. Howe’s comments on PICPA’s Fiscal Responsibility Task Force Report. ! Beyond the Copy Timothy J. Gooch, CPA, discusses the latest out of Pennsylvania’s Marcellus Shale region in PICPA’s Beyond the Copy. Going through the feature he wrote with colleague Edward A. Kollar, CPA, CSEP, EA, Gooch explains what the Shale has meant to ancillary businesses, changes that have resulted in the natural gas market, and what lies ahead in the future for this emerging industry. See this segment, and previous episodes, in the Professional and Technical section of PICPA TV. ! Grow with PICPA Why volunteer for the PICPA? Find out in 30 seconds as several members from across the state addressed this question.

See the Grow with PICPA video in the Get Involved section of www.picpa.org.

First Time Hiring? Here’s How ! to Conduct an Interview As emerging CPAs move into management positions with the ability to hire staff, they need to know the proper techniques to find the most qualified person.

Kreischer Miller’s Kristin Seeger, CPA, addresses the finer points of conducting a great interview in PICPA’s latest “How To.” Learn the Do’s and Don’ts in this brief, funny video.

Also, check out the Pennsylvania CPA Journal digital version and mobile app for different ways to view PICPA’s flagship publication. These versions are available through www.picpa.org/journal.

www.picpa.org | Spring 2013 | Pennsylvania CPA Journal

3

Federal Tax

Our Debt Can Be a Taxing Matter

By Edward R. Jenkins Jr., CPA

C

PAs are unbiased, objective financial experts. So what advice would such an expert give a person or entity in, quite possibly, a catastrophic financial condition? If bankruptcy isn’t an option, the CPA would talk to the client about two simple directions: raising income and cutting expenses, and do this not only to balance a current budget, but also to create a surplus to pay down debt.

So, how does this basic CPA approach connect with federal taxes? Simple. The hypothetical I laid out is not a hypothetical at all; it is the federal government, and the national debt is a crisis that has numerous implications for federal taxation and tax policy.

The national debt can be summed up with some pretty basic Accounting 101.

Here is the basic accounting layout for the U.S. government as of Sept. 30, 2012:1

In trillions of dollars Statements at 9/30/12

Assets Liabilities $2.75

Add in social insurance liability Totals

$2.75

federal debt securities and related accrued interest. The nation currently has historically low interest rates, but any significant change in interest rates could have a significant impact on U.S. debt service requirements. Continued federal deficits will require further borrowing as well. At some point the credit rating may be reassessed, which can also change the nation’s debt service requirements.

Returning to the concept of a CPA’s advice to a client in trouble, if the path of raising revenue is accepted as part of the solution, policymakers must determine who should pay additional tax, what form tax increases will take, how the

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Please note, the federal government does not include the liability for social insurance on the face of the balance sheet.

The total present value of future expenditures in excess of future revenue for existing participants of federal social insurance programs as of Sept. 30, 2012, was $51.6 trillion. The AICPA has videos on its website that points out that if you add up all of the wealth of all U.S. citizens, the total is only $58 trillion. The video What’s at Stake? A CPA’s Insight into the Federal Government’s Finance points out that we, as a nation, have deficit equity.

Of the $18.85 trillion in liabilities as of Sept. 30, 2012, about $11.3 trillion are

4

increase will be collected, and so on.

CPAs can constructively guide that discourse. The AICPA has terrific tools at our disposal. The best perennial guiding light is Tax Policy Concept Statement No. 1, Guiding Principles of Good Tax Policy: A Framework for Evaluation of Tax Proposals.2 Here is a short version of that framework: R55 +/#.35 ( 5 #,( --5@5 #'#& ,&35 situated taxpayers should be taxed similarly.

R55 ,. #(.35@5 25,/& -5-")/& 5 & ,&35 specify when a tax is to be paid, how it is to be paid, and how the amount to be paid is determined.

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

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R55 )(0 (# ( 5) 5* 3' (.5@5 5. 25 should be due at a time or in a manner that is most likely to be convenient to the taxpayer.

R55 )()'35) 5 )&& .#)(5@5Äť 5 )-.5.)5 collect a tax should be kept to a minimum for both the government and the taxpayers.

R55 #'*&# #.35@5Äť 5. 25-")/& 5 5-#'*& 5 so taxpayers understand the rules and can comply with them correctly and in a cost-efficient manner.

R55 /., &#.35@5ĝ 5 Ŀ .5) 5 5. 25& 15 on a taxpayer’s decisions as to how to carry out a particular transaction or whether to engage in a transaction should be kept to a minimum.

R55 )()'# 5!,)1."5 ( 5 Ĺƒ # ( 35@5 The tax system should not impede or reduce the productive capacity of the economy.

R55 , (-* , ( 35 ( 50#-# #&#.35@5 27 payers should know that a tax exists and how and when it is imposed.

R55 #(#'/'5. 25! *5@5 5. 25-")/& 5 be structured to minimize noncompliance.

R55 **,)*,# . 5!)0 ,(' (.5, 0 (/ -5 @5 5. 25-3-. '5-")/& 5 ( & 5." 5 government to determine how much tax revenue will likely be collected and when.

Spending cuts, as the CPA’s client advice shows, are an integral step in this process as well. However, covering those details falls outside the scope of this column on tax policy. Similarly, space does not allow a discussion of tax system complexity, as much as that discussion is needed.

CPAs need to get the dialogue going.

The federal government is our client.

It is everyone’s client. We all have equity in the debt. Consider presenting the AICPA What’s at Stake? video and materials to local business groups and nonbusiness groups. If CPAs learned anything about tax policy from the 2012 ^ŀ- &5 &#Ŀ _5-. ( )Ŀ5 ( 5." 53 ,7 ( 5 tax planning cycle, it had to be that business and individual decision making must be based upon a certain and fair system of taxation. When CPAs cannot be certain about what tax structure will

be in place in the near future, we cannot , ( ,5 Äż .#0 5*,) --#)( &5 0# 5.)5 clients to help guide them in their decision making.

I encourage you to visit PICPA’s 1 -#. 5 .51118*# * 8),!Iŀ- & &#Ŀ5.)5 view the What’s at Stake? video and other tax-related resources. The national debt issue may be the defining issue of our time.

The objective, trusted advice of CPAs can go a long way toward solving our client, the nation’s, fiscal concerns.

1

Downloaded Jan. 17, 2013, from www.gao.gov/assets/660/651357.pdf.

2 Downloaded Dec. 31, 2012, from www.aicpa.org/interestareas/tax/ resources/taxlegislationpolicy/pages/taxreform.aspx.

Edward R. Jenkins Jr., CPA, is a director in the tax department of CBIZ MHM LLC in Plymouth Meeting and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at ejenkins@cbiz.com.

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www.picpa.org | Spring 2013 | Pennsylvania CPA Journal

5

State & Local Tax

The Emerging Dominance of the Sales Factor

By Vito A. Cosmo Jr., CPA, CGMA, Jonathan Liss, and Adam J. Caputo

M

any companies do business in more than one state, so they are typically subject to multiple state income taxes. For these multistate businesses, it is essential to understand the rules for distributing net income among the states in which they operate.

Until recently, most states had adopted ." 5 (# ),'5 #0#-#)(5) 5 ( )' 5 ),5 25 /,*)- -5 .5B C5 ),'/& 5 -5." #,5 method of apportioning business income.1 Äť 5 5 ),'/& 5#-5 (5 +/ &&35 weighted ratio composed of property, payroll, and sales factors. In recent years many states have moved away from the 5 ),'/& 5 ( 5.)1 , 5 5 #-*,)portionately weighted sales factor. The sales factor is emerging as the primary method of apportioning income, partly driven by economic development considerations within the states.

Sourcing of Sales For sales of tangible personal property, ')-.5-. . -5/- 5." 5 5. -.5.)5 assign receipts to a particular state.2 The location of the purchaser, or ultimate destination, is what determines where the receipt is apportioned, regardless of the freight-on-board point.

The calculation of the sales apportionment factor is sometimes complicated 35." 5 )( *.5) 5^.",)1 %5- & -8_5 1 (.37.", 5-. . -5" 0 5.",)1 %5,/& -5 that require sales shipped to jurisdictions where a company is not subject to . 25.)5 5#( &/ 5#(5B),5^.",)1(5 %_5 .)C5." 5(/' , .),5) 5#.-5- & -5 .),83 The 5') &5,/& 5, +/#, -5.",)1 %5 when the taxpayer is not taxable in the purchaser’s state. From the states’ perspective, the purpose is to remedy the issue of ^()1" , 5#( )' 8_5 (5)." ,51), -651" (5 the destination rule assigns a sale to a state that does not have the authority to tax the seller, a portion of the company’s

6

income goes untaxed. Accordingly, there would be certain taxpayers who could sell tangible personal property from Pennsylvania into other states in which they do not have nexus to create nowhere income.

Receipts from sales other than sales of tangible personal property require a more complex sourcing analysis.4 Under 5 .#)(5gm65 5, #*.5 ,)'5 a sale other than the sale of tangible personal property is sourced to where the income-producing activity is performed.

For example, an accounting firm located in state X that prepared tax returns for a client who resides in state Y would source the fees it received to state X. The #( )' 7*,) / #(!5 .#0#.35@5*, * ,#(!5." 5 , ./,(-5@5#-5* , ),' 5 .5." 5Ĺ€,']-5)Ĺƒ 5 in state X, not where the client is located.

When the income-producing activity is performed in two or more states, the receipt is sourced to the state where the greatest proportion of income-producing activity is performed.5 This is known as the preponderance cost-of-performance ,/& 85 (5 #.#)(5.)5." 5 5 )-.7 of-performance rule, a number of states use a proportional cost-of-performance approach, whereby sales are sourced proportionately among the states based on the relative proportion of costs incurred in "5. 2#(!5$/,#- # .#)(85 )-.5-. . -5 )&low some variation of the cost-of-performance rule when sourcing these receipts. ((-3&0 (# 5 )&&)1-5 ]-5*, *)(derance cost-of-performance approach.6 The income-producing and cost-ofperformance rules are generalized terms, and most states lack specific guidance on how narrow or broad the definition is for each rule. The Pennsylvania tax code provides virtually no formal guidance on what constitutes an income-producing activity. According to the Pennsylvania Department of Revenue at its annual question and answer session with the

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

5 )''#.. 5)(5 . . 5 2 .#)(5)(5 June 30, 2011, “Sales of intangibles are sourced to the state where the incomeproducing activity is performed. When we look at the receipt of sales of other than tangible personal property, we first must determine the income-producing activity for each individual transaction. Costs of performance are only considered when the income-producing activity occurs in '), 5." (5)( 5-. . 8_ Trends and Issues Sixteen states have already adopted a single-factor formula that places a heavier emphasis on the sales factor and eliminates the property and payroll factors &.)! ." ,85 ((-3&0 (# 5 ( 5 15 ,- 35 are gradually phasing in a single sales factor.m A state that eliminates or reduces the weighting of the property and payroll factors can entice a company to locate its operations there without being “penal#4 _5 ),5" 0#(!5 #&#.# -5 ( 5 '*&)3 -5 located within the state’s taxing jurisdiction. From anticipated job creation and retention, the state would realize an indirect benefit in the form of revenues from personal income, property, and sales and use taxes.

The transition to a single or disproportionately weighted sales factor apportionment formula is not without its shortcomings. Sourcing of service receipts has become an increasingly complex issue in the age of e-commerce. Fourteen states have adopted market-based sourcing rules 1#."5, ! , 5.)5- ,0# 5, #*.-5#(5 (5 Ŀ),.5 to more accurately reflect a taxpayer’s /-.)' ,5 - 85 #'#& ,5.)5." 5 5 destination test for sales of tangible personal property, the market-based approach disregards income-producing and cost-of-performance rules and, in general, sources receipts from the sales of services to the state where the benefit

of the service is realized or where the service is delivered. In Pennsylvania, Gov. Tom Corbett proposed marketbased sourcing of service receipts in the 2013-2014 budget as part of a broad package of corporate tax reform proposals.

Market-based sourcing has its own challenges. For instance, the location of where the benefit is received is sometimes difficult to determine. Is it the headquarters, a plant site, an office, a legal domicile, or a mailing address? In Illinois, for example, if the answers can’t be determined, the sales are thrown out of the numerator and denominator.8 With respect to the cost-of-performance rule, the use of independent contractors by service providers is also an area of uncertainty. Prior to Aug. 2, 2007, the Multistate Tax Commission9 provided in MTC Reg. IV.17(2) that transactions and activities performed on behalf of a taxpayer by an independent contractor were not considered a part of the taxpayer’s income-producing activity. However, on Aug. 2, 2007, the MTC approved an amendment to the regulation that required taxpayers to include the cost for independent contractors in their cost-ofperformance analysis. Not all states follow this requirement.10 Finally, while many states have concrete rules for standard apportionment formulas, many have specific provisions for certain industries such as the financial, transportation, oil and gas, airline, and public utility sectors.

Conclusion The importance of navigating the landscape of sales factor calculation and sourcing rules cannot be overlooked or underestimated. Having a clear understanding of these rules and regulations can significantly reduce a company’s total state tax liability if properly applied to the specific business operations of the taxpayer.

1

UDITPA is a model act that provides a system for dividing the income of multistate businesses. Approved in 1957, UDITPA was conceived as a way to promote uniformity among states and to provide a method for allocating and apportioning the income of multistate businesses. About half the states have adopted UDITPA, and most of the remaining states have substantially similar allocation and appointment statutes.

2

UDITPA, Section 16(a).

Pennsylvania does not have a throwback rule for corporate taxes, but it does for personal income tax.

4 Receipts from sales other than personal property include, but are not limited to, fees for services, rental income, and income from intangibles such as interest, dividends, royalties, and capital gains.

5 The UDITPA cost of performance rule is an all-or-nothing approach, whereby a company that performs 60 percent of its incomeproducing activity in state X and 40 percent in state Y would source all the receipts to state X since that is where the biggest proportion of income-producing activity is performed.

6 72 Pa. Stat. Section 7401(3)(2)(a)(17).

7 Pennsylvania will transition to a single sales factor apportionment formula in 2013.

Effective for the privilege periods beginning on or after Jan. 1, 2012, New Jersey enacted a single sales factor apportionment formula phased in over a three-year period.

For privilege periods beginning on or after Jan. 1, 2012, but before Jan. 1, 2013, the sales fraction will be at 70 percent and the property and payroll fractions will be 15 percent each. For privilege periods beginning on or after Jan. 1, 2013, but before Jan. 1, 3

employers

2014, the sales fraction will be at 90 percent and property and payroll will account for 5 percent each. For privilege periods beginning on or after Jan. 1, 2014, the sales fraction will be at 100 percent.

8 See 35 ILCS 5/304(a)(3)(C-5).

9 The Multistate Tax Commission (MTC) writes regulations and other rules that interpret UDITPA. States that follow UDITPA are typically members of the MTC. When a new MTC rule or regulation is created, the member state may propose its adoption to their respective legislatures. Pennsylvania is an associate, nonvoting member of the MTC. 10 Pennsylvania does not require the inclusion of independent contractors in the cost-of-performance analysis.

Vito A. Cosmo Jr., CPA, CGMA, is a managing director with Grant Thornton LLP in Philadelphia. He can be reached at vito. cosmo@us.gt.com.

Jonathan Liss is a director with Grant Thornton in Philadelphia. He can be reached at jon.liss@us.gt.com.

Adam J. Caputo is a senior associate with Grant Thornton in Philadelphia. He can be reached at adam.caputo@us.gt.com.

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www.picpa.org | Spring 2013 | Pennsylvania CPA Journal

7

Business & Industry Compliance Monitoring Just Makes Good Business Sense

By Dana Trexler Smith, CPA

I

f you ran a store, would you leave the cash register open, ask customers to write down items purchased, place cash in the drawer, and take the product without oversight? Of course you wouldn’t!

Surprisingly, many take a similar approach when monitoring compliance with licensing, supply, manufacturing, and other third-party agreements.

Payments in these agreements may be a percentage of net sales, a formula involving actual manufacturing costs, or even a flat dollar amount per net units shipped.

"5) 5." - 5* 3' (.5-.,/ ./, -5#-5 1#."#(5 5."#, 5* ,.3]-5B&# (- ]-C5 )(.,)&65 rendering the accuracy of the payment dependent on the licensee’s processes, controls, records, and contractual interpre. .#)(85ĝ 5, #0#(!5* ,.35B&# (-),C5 (5 only validate payment accuracy by includ#(!5 5^,#!".5.)5 / #._5#(5." 5 !, ' (.5 ( 5 exercising this right. Audit clauses allow the licensor, or its independent designee, to perform an examination of the licensee’s inputs to test whether payment amounts were computed in accordance with the agreement.

The problem is that many licensors do not exercise their audit rights under these agreements. Below are some common excuses followed by a counterargument.

I don’t want to damage our relationship with the licensee. #(. #(#(!5-.,)(!5 /-#( --5, & .#)(ships and exercising your audit rights are not mutually exclusive. In fact, exercising audit rights provides transparency that strengthens the relationship by identifying and resolving issues before they become material.

By the nature of the regulatory environment, compliance is expected, if not ' ( . 85 ), 5&# (-),-5 , 5 2 , #-#(!5 audit rights in their internal controls procedures, and licensees are becoming more accustomed to receiving audit

8

().#Ĺ€ .#)(-85 )5 0)# 5-#(!&#(!5)/.5 5 licensee, exercise audit rights on a rotational basis across a category of licensees, thus subjecting all licensees to periodic examinations.

The licensee is audited as a publicly traded company, so its books and records must be in order.

Financial statement audits test whether financial statements, as a whole, are prepared in accordance with the relevant generally accepted accounting principles B C5 ( 5 , 5 , 5 ,)'5' . ,# &5 misstatement. The audit scope defines the materiality threshold at which audit testing will be performed; in most cases, that threshold is above that of individual contracts and does not identify adherence to the terms of individual agreements.

The payments made by the licensee are insignificant. Potential audit findings would not justify the time and expense.

While it is not economically responsible to spend dollars chasing pennies, limited analysis should be performed before dismissing a contract for examination solely based on the amount of payments received. You may also have nonmonetary goals that can be achieved through an examination, including brand protection, business intelligence, or a message of compliance. Consulting with knowledgeable individuals may provide insight into whether the inconsequential payments are commensurate with market conditions.

I don’t have the personnel to run my business and exercise my audit rights at the same time.

Agreements usually include language ." .5 &&)1-5." 5&# (-),5^),5#.-5 -#!( _5.)5 conduct the examination. This allows an independent firm to perform the examination on behalf of the licensor. Benefits include the following: R55 #(#'#4 .#)(5) 5." 5&# (-),]-5.#' 5 ( 5 Äż),.5

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

R55 ( * ( ( 5 ,)'5." 5Ĺ€( #(!-5 (assuming no contingent fee -.,/ ./, C R55 ), 5/( .. , 5 --5.)5." 5, &evant records may alleviate concerns about disclosure of confidential information to a competitor Use of a designee to conduct the examination may be worth the added expense to focus on potential exposure areas to identify more robust findings.

(35 !, ' (.-5 &-)5#( &/ 5& (!/ ! 5 that shifts payment responsibility for examination fees to the licensee if the findings exceed a specified amount of the total payments.

If the above arguments don’t convince you, understanding the types of compliance errors typically identified may help with your decision to exercise your audit rights. In most instances, the findings tend not to result from nefarious intent, but rather from common errors: R55 #Ŀ , ( -5#(5 )(., ./ &5#(. ,*, . tions of key clauses and definitions R55 3' (.5 & /& .#)(5 ,,),-5, -/&.ing from a misunderstanding of the contractual language, often arising from turnover, a lack of understanding of the legal terms, system or reporting limitations, control issues, or otherwise R55 /' (5 ,,), Findings from contract compliance examinations tend to far outweigh the costs, and the benefits go beyond recovering underreported revenue. Armed with this knowledge, analyze your audit rights to ensure you do not lose periods subject to audit, set the goals you would like to achieve, and go forth and protect what is rightfully yours.

Dana Trexler Smith, CPA, is partner with EisnerAmper LLP in Philadelphia. She can be reached at dana.smith@eisneramper.com.

Personal Financial Planning Don’t Pigeon-Hole when Reviewing Hedge Funds

By Thomas J. Raymond Jr., CFA

T

he hedge fund industry is characterized by varying investment styles, organizational structures, and talent levels. Yet, despite the fragmented landscape, hedge fund management is often viewed in a binary way: the categorization of fund managers as ^ ' ,!#(!_5),5^ ' ,! 8_5 (5 ' ,!#(!7 manager distinction is usually bestowed upon firms with a track record shorter than three years and with less than $500 million of investor capital. There has been a consistent stream of positive news lately on the historic returns by emerging managers compared with emerged managers, based on results over the past 20 years.1 The findings should not be taken at face value. The seemingly simple classification should not create a level of complacency regarding the daunting task of vetting within the hedge fund /(#0 ,- 5) 5 )/.5m6fff5' ' ,-5 ( 5 $2 trillion in unlevered assets under management. ' ,!#(!5' ( ! ,-5 , 5." 5( 1 -.5 entrants to the hedge fund universe, but ().5 &&5 , 5/(*,)0 (5/*-. ,.-85 (35 -. lished themselves at other hedge funds or financial institutions and have since left to pursue their own fund. With a sizable amount of seed capital being personal assets, emerging managers often have their own financial fortunes tied to the success of the fund. Strong returns also serve as a fundraising magnet that builds business. Blend these elements together, and emerging managers can be highly motivated to generate returns in excess of their emerged brethren. ' ,!#(!5' ( ! ,-5' 35" 0 5-.,/ tural advantages in their favor as well.

Given that they are smaller, their portfolio holdings may go relatively undetected by competitors, helping to avoid the short squeeze or front running of their positions. A smaller size may also provide

greater maneuverability when it comes to less-efficient, less-liquid corners of the investment world. "#& 5-' &&5-#4 5 ) -5)Äż ,5 0 (. ! -65 it is important to understand the risks of start-up enterprises. There is no one right business plan that guarantees success, so many emerging firms do face !,)1#(!5* #(-85 ' ,!#(!5Ĺ€,'-5" 0 5.)5 hire surrounding talent, develop operational policies and procedures, and engage counterparties and custodians, just to name a few tasks. Additionally, increased compliance requirements and industry regulation raise the barriers to entry.

The obstacles to success are daunting, and there is a high failure rate of firms in their first year that goes largely unaccounted, which means the historic volatility for emerging managers could be artificially low.

0 (5# 5' ( ! ,-5-/,0#0 5." 5#( ( 35 stage of the business, they will continue to face threats. Studies show that about two-thirds of all hedge fund impairments are due to operational issues, with the residual attributable to the impact of unexpected adverse market movements.2 A lot of these operational risks can be managed but not mitigated, as many can arise externally. Larger asset bases can support a more robust infrastructure, allowing & ,! ,5 /( -5.)5'), 5 Äż .#0 &35' ( ! 5 external risks.

Some may view the distinction between emerging and emerged hedge fund managers as akin to that of small cap versus large cap for equities. Studies seemingly have shown that more volatile small *5-.) %-5)Äż ,5 5, ./,(5*, '#/'5!, . ,5 than large cap stocks over lengthy time periods.3 Yet, a closer examination has shown that the small cap premium was overstated, as it failed to properly account for delistings from stock exchanges.4 Hedge fund composite returns are simi-

larly susceptible to data integrity issues, as they are based on voluntary participation and subject to selection bias. Funds may cease reporting performance because they are no longer trying to attract investors, or poor-performing funds may withhold return information to avoid bad publicity.

As such, hedge fund composite returns may not be representative of actual investor experience. This doesn’t mean that emerging manager returns are a fallacy, but historic results should be viewed with some skepticism. ' ,!#(!5' ( ! ,-5' 35 5"#!"&35 motivated, but it does not mean emerged managers lack vitality. Gauging whether emerged managers continue to hold a burning desire may be more art than science, but it is a critical component of hedge fund due diligence.

The qualities of entrepreneurial spirit and small, flexible asset bases, which are attractive in the emerging manager segment, can also be present in emerged manager funds. Therefore, don’t oversimplify the hedge fund landscape when considering potential hedge fund investments. ( ! ,5,#-%5'/-.5 50# 1 5.",)/!"5 a multidimensional lens. This objective approach will be the best way to dissect diverse hedge fund opportunities.

1

Alex Dunnin, “Emerging Managers Add Twice the Alpha,� Financial Standard ( June 5, 2012).

2 Alternative Investment Review, EIM. 3 Larry Swedroe, “Can Small Cap Stocks Boost Your Return,� CBS MoneyWatch (April 5, 2012).

4 “The Small-Company Advantage: Fact or Fiction?� TD Ameritrade.

Thomas J. Raymond Jr., CFA, is vice president for Abbot Downing, a Wells Fargo business, in Philadelphia. He can be reached at thomas.raymond@abbotdowning.com.

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

9

Liability Lessons Determining Your Professional Liability Premium

By Michael J. Chovancak Insightful lessons can be learned by reviewing professional liability issues. With this in mind, Bollinger Inc. provides this column for your review. For more information about liability issues, contact Bollinger at robert.connolly@bollingerinsurance.com.

I

t is not uncommon for CPA firms to ask their brokers and underwriters about how liability insurance premiums are determined and what, if anything, they can do to reduce the premium. This article will attempt to answer some of these questions.

First, understand that each insurance carrier has its own peculiarities in rating or underwriting any line of insurance. In basic terms, the premium is computed using a base premium, the increase limit/deductible, and the underwriting of debits/credits.

A base premium calculation normally consists of a firm’s total annual revenues multiplied by a factor for the lowest limit of liability (typically $100,000 or qhkf6fffC5 ( 5." 5&)1 -.5 / .# & 85 ) #ŀ .#)(-5 , 5 **&# 65 * ( #(!5 upon how long a firm has maintained professional liability insurance (the prior .-5 .),C5 -51 &&5 -5")15&)(!5 5ŀ,'5 may have been with the same insurer B." 5&)(! 0#.35 .),C8 Increased limit/deductible factors are then applied to the sum of the above calculation for increased limit options (which 1)/& 5#( , - 5." 5*, '#/'C5),5#( , - 5 deductible options (which would decrease ." 5*, '#/'C8 Underwriting debits/credits specific to a firm are then applied to determine the final premium. These are based upon the following factors as interpreted by the respective underwriter: R55 & #'-5 2* ,# ( 5@5ĝ 5/( ,1,#. ,5 will research the five-year loss history of the firm, both for closed and open claims, including reserves and claims 2* (- -5B (- 5 )-.-C85ĝ 5 , -

10

quency and severity of claims by the firm are analyzed by the underwriter, and appropriate debits are applied to the premium. The underwriter will look at the particulars of each claim to understand how the claim occurred and what definitive corrective or remedial action the firm has implemented to prevent future claims.

R55 , -5) 5*, .# 5@5 5 5ŀ,']-5 (! ! ments consist of areas of practice that are known by underwriters to produce significant claim activity, the premium will reflect the additional risk factor. For example, tax engagements produce the most frequent claims reported to insurers, although they normally have lower damages; conversely, audit claims are less frequently reported but usually have significant damages and are very costly to defend. The audit of public )'* (# -5B.")- 5, +/#,#(!5 5 ŀ&#(!-C5#-5)( 5 , 5) 5*, .# 5." .5#-5 heavily debited by underwriters based upon large, often headline-grabbing, '/&.#'#&&#)(5 )&& ,5-/#.-85B ). 65' (35 insurers will actually decline firms ." .5* , ),'5." - 5 / #.-8C5 ( ,writers will review the areas of practice together with the firm’s experience and expertise in these particular fields, as well as compliance with any continuing education requirements.

R55 &# (.-5@5 ,. #(5 &# (.5- & tions have shown, from an actuarial perspective, to produce either more B , +/ ( 3C5),5& ,! ,5B- 0 ,#.3C5 claim activity. For example, if a firm engages high-profile clients such as movie stars, sports celebrities, and high-net-worth clients, the premium will probably increase accordingly.

Additionally, a firm should strive for a balanced book of business, not relying on any one client, as this can hinder

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

objectivity; avoid representing two sides of a transaction, such as a buy/ sell real estate negotiation or divorce proceeding; question taking on a client that has a history of changing accountants frequently; and implement an appropriate client selection/ retention policy.

R55 (! ! ' (.5& .. ,-5@5 5*, )'#( (.5 trait of most claims is the lack of a well-constructed engagement letter.

The basic premise of the engagement letter is to have the firm and client agree, in writing and signed by both parties, on the exact services to be performed. The engagement letter is one of the first pieces of a well-documented client file, and perhaps the most important. It should include the who, what, when, and why questions of the engagement; be reviewed and updated each year; be specific about the client’s responsibility to provide timely and accurate information; establish a fee basis, collection procedure, and guidelines should a fee dispute arise; note any assumptions made or particular problems encoun. , :5 ( 5 5 & ,5 ( 5 )( #- 85 (35 underwriters will debit firms who do not regularly use engagement letters.

R55 /#.-5 ),5 -5@5 5-/,*,#-#(!5(/' ,5

Event photos, fun reads, and helpful resources on‌ Facebook www.picpa.org/facebook Twitter www.picpa.org/twitter LinkedIn www.picpa.org/linkedin Blog cpanow.picpa.org Belong. Grow. Achieve.

of claims are filed against CPAs who instigate litigation against clients for uncollected fees. A firm should establish a workable fee and payment schedule prior to accepting an engagement. If a firm regularly sues for fees or does not have a written policy to not sue for past-due fees, the underwriter may debit the premium. Some insurers will actually exclude a claim that arises out of a suit for fees.

R55 ) .#)(5@5 5 5Ĺ€,'5#-5#(5 5* ,.# /larly litigious state (or a particularly litigious county within a state), the base rate will be adversely affected.

Conversely, states with particularly good results on CPA liability claims will have a lower base rate, translating into a lower premium for a firm. Pennsylvania has been a good state historically.

R55 (. ,( &5 )(.,)&-5@5 ,#.. (5 ( 5* riodically updated internal controls and procedures will have a positive influence on premiums; conversely, a lack of good written controls will have a negative impact on premiums. Many insurers offer guidance to policyholders for many of these written safeguards.

The underwriter will evaluate all these factors and apply the resultant debits or credits to the premium in accordance with the rates filed with the insurance department in your state to arrive at a final premium. Several insurers encourage policyholders to call their risk management hotlines for any questions regarding internal controls, documentation, or loss-prevention matters.

Hopefully this article has provided you with a better understanding of how professional liability insurance premiums are determined. Be sure to contact your broker or agent whenever you have a question regarding your professional liability protection or any time you have contact with a client with the potential of a claim being made, changes in your firm’s practice areas, merger or acquisition plans, or risk management issues.

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Michael J. Chovancak is an underwriter at Argo Pro in Geneva, Ill. He can be reached at mchovancak@argoprous.com.

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

11

Careers & Lifestyles Don’t Be the Generic Brand

By Joseph M. Dougherty III

S

teve Jobs, Mother Teresa, Frank #( ., 65 &.5 #-( 365 ,.#(5 /." ,5 #(!5 ,865 &5 *)( 85 " .5 )5 &&5) 5 these people have in common? Not that much except for their fame, right? Some have used their “celebrity� for good, some for bad, and some for entertainment and profit. But when you think of each one of these individuals, a clear and visual picture comes to mind of who they are, what they stand for, and what it is that they do. They have brands. They are brands.

Brands are some of the most critical and closely guarded aspects of corporate (. ,*,#- -85 ,! 5!&) &5 , ( -65-/ "5 -5

Coca-Cola and Ford, collectively have spent billions to develop and protect their #' ! 85 ,0# 5 )'* (# -5-/ "5 -5 #-( 35 and Four Seasons have immense stafftraining budgets to ensure that front-line personnel project a high-quality experience to each and every customer.

If successful companies are willing to invest so much time, energy, and capital into their brands, why aren’t we doing the same ),5)/,- &0 -5 ( 5)/,5 , ,->5 5-* ( 5 years honing and developing a skillset that has a real and quantifiable worth in the ' ,% .*& 85 5." (5' ,% .5)/,5- ,0# -5 to our “customers,� whether they be our

clients or the organizations that we work ),85 5 )'* . 5 #&35 ),5( 15 /-.)' ,-5),5 new assignments and promotions.

Personal branding is one of the hottest topics in today’s career management.

Your competitors, coworkers, and industry colleagues are likely beginning to focus on theirs. Here are four steps to get you started in creating your own personal brand.

Observe and acknowledge your existing brand5@5 -%5 .5& -.5.1)5* )*& 5 that you trust to honestly share how they would describe you to another person.

Ask a boss or key coworker for the same, and be sure to clarify that you are look-

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Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

‘‘

ing to make improvements and want to hear more than compliments. Be genuine in your request and thankful to those who give you feedback.

Develop and draft a new brand5@5 If you were listening to a conversation where you were being described to another person, what would you want - # >5 ,#. 5." .5 )1(65 ( 5 5 & ,65 concise, and descriptive. Are you a CPA who specializes in a certain function or #( /-.,3>5 )53)/51 (.5.)5 5%()1(5 -5 the specialist with niche expertise or a well-rounded generalist who understands business and operations. Make it right for you and make it memorable.

Communicate your personal brand5@5 ! , & --5) 51")53)/,5. ,! .5 audience may be (customers, coworkers, colleagues), look for opportunities to tell your story. Add it to your e-mail signature and business card, if appropriate. Join a committee or project where you can interact with new people and build awareness of who it is that you are and what it is that you do. Offer to speak at a local networking event.

These groups are constantly looking for experts to come in and talk about a new .)*# 85 -.&3651,#. 5 5-"),.5 ,.# & 5 ),5 (5 industry publication. It is a great way to showcase your areas of interest and to make interesting contacts in the process. " . 0 ,53)/,5-.),365! .5#.5)/.5." , 5 and tell it to the world.

Get online to strengthen and protect your brand5@5 )5 5 ))!& 5- , "5 on yourself regularly. If you have a common name, add a professional key1), 5.)5, ŀ5( 53)/,5, -/&.-85 ))%5 ),5 (35 potentially disparaging or misguiding information. If found, contact the site to see if you can get it removed. The easiest way to begin to build an online brand is .)5-#!(5/*5 ),5 5 #(% (5 )/(.85ĝ 5 #-5 free online gathering place of professionals has revolutionized the world of recruiting and talent acquisition.

Build, communicate, and protect your brand just as the blue chip companies do. You will quickly find yourself confidently projecting the image that keeps your customers buying what it is that you are selling.

‘‘

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Flex Account Flex account hours are fully transferable, making it a savvy choice to educate your entire team and save. Load your flex account with 40, 96, 144, 192, or 288 hours.

Go to www.picpa.org/classpass for more information.

Joseph M. Dougherty III is a principal with Career Concepts Inc. in Blue Bell. He can be reached at jmdougherty@cciconsulting.com. www.picpa.org | Spring 2013 | Pennsylvania CPA Journal

13

Education

Unique Approaches to 150 Hours

By Rose Marie L. Bukics, CPA

P

ennsylvania, having joined the majority of other states in the country, now requires 150 credit hours of education before receiving a CPA license.

The new requirement began on Jan. 1, 2012. One year later, a review of accounting program requirements at various colleges and universities across the state illustrates that Pennsylvania schools have not chosen a single path to facilitate this transition. Schools offer a variety of options, some that help students pursuing a CPA career fulfill the new requirement and others that serve students seeking a traditional four-year undergraduate degree in accounting.

According to Braintrack.com, 72 schools in Pennsylvania offer accounting degrees at the bachelor level or above. This article reports on the results of a review of accounting programs at 22 of those schools (30 percent), using each institution’s website. Schools were divided into two categories: state schools and private institutions, of which Pennsylvania has a significant number. The review sought to determine whether certain types of schools fulfilled this new requirement in a particular way. The review further subdivided state schools into the largest three state institutions and smaller state institutions (four schools). Private institutions were likewise subdivided into larger private institutions, those with more than 3,000 total students enrolled (five schools selected), and smaller private institutions, those with fewer than 3,000 total students (10 schools). More private institutions were selected to reflect the relative volume of private schools to state schools in Pennsylvania. All of the 22 schools under review continue to offer the four-year undergraduate degree in accounting.

The first step in the review determined whether the institution clearly identified the new 150 credit-hour requirement on

14

the school accounting program website.

Of the 22 schools, 13 clearly highlighted this requirement while nine schools did not mention it. Those that identified the requirement and those that didn’t were represented in the four categories identified above. Thus, the size and type of institution did not appear to dictate whether or not the 150-hour requirement received prominence on the website.

The most common opportunity presented to students for fulfilling the new education requirement was a oneyear master’s in accounting or MBA at the same institution after completing the

traditional four-year undergraduate accounting requirements. Of the 22 schools surveyed, 16 presented this opportunity as the way to fulfill the requirement, and this included schools in all categories, large and small, state and private. There were, however, some variations on the theme.

Most of the schools linked their undergraduate program with the master’s-level program by allowing students to apply for entry into the master’s program while still pursuing their undergraduate degree. In one case, an overlap of up to four courses was allowed to count toward both degrees; in another, the design of this traditional

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Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

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five-year program was reduced to four-and-a-half years and noted as an “accelerated� accounting program option (students take three MBA courses during their senior year as an undergraduate). One school offered a five-and-ahalf year dual-degree program totaling 161 credit hours. Three schools noted the need to pursue a graduate degree, but did not offer a direct link to the same institutional program even though master’s-level programs existed. "#& 5." 5')-.5 )'')(5 &. ,( 7 tive was the master’s path, one option pursued by three schools was to offer the 150 credit hours within the undergraduate degree structure. These schools recommended that students take summer and January session course offerings to obtain the needed credits. Two of the three schools allowed students to add a sixth course to their regular term schedule as an undergraduate for no additional tuition.

Another note of interest was that five schools offered multiple options for completing the new credit-hour requirement, providing more flexibility to tailor the program options to different needs. These typically included either the five-year, dual-degree programs described above, the accelerated four-year undergraduate option also described, or, in one case, an online CPA eligibility option with any fouryear degree program.

This review indicates that the majority of students will most likely pursue a master’s degree in accounting or an MBA to fulfill the 150-credithour requirement to become a CPA. An important question that cannot be answered at this time is how the more prevalent five-year option will affect those considering accounting as a career choice. Only a brief time has passed, but one professor has indicated that his school has noticed a decline in accounting majors, while another is actually expecting an increase in enrollment.

Only time will tell if five years is too long a journey.

Rose Marie L. Bukics, CPA, is the Thomas Roy and Lura Forrest Jones professor of economics and business at Lafayette College in Easton and a member of the Pennsylvania CPA Journal Editorial Board. She can be reached at bukicsr@lafayette.edu.

You never know who you’ll meet at the PICPA. May 2009

May 2009 Ralph joins Greater Philadelphia Chapter’s Community Involvement Committee

Sara joins Greater Philadelphia Chapter’s Emerging CPAs Committee

January 2012 Ralph and Sara meet at the chapter’s planning meeting happy hour

December 2012 PICPA celebrates Ralph and Sara’s engagement

Sara Fritz, Greater Philadelphia Chapter

Ralph Diodata, Greater Philadelphia Chapter

Visit www.picpa.org/grow to get involved today.

Grow in Countless Ways

Belong. Grow. Achieve.

www.picpa.org | Spring 2013 | Pennsylvania CPA Journal

15

Government/Not-for-Profit

Become Risk-Savvy to Protect the Mission

By Bob Scullin, ARM

S

ome of society’s most important work is performed by nonprofit organizations. Most cannot afford a surprise occurrence that could put the organization’s ability to fulfill its mission in jeopardy. Nonprofits must take proactive steps to reduce the likelihood or, at the very least, severity of risks that can threaten their mission.

Successful nonprofit leaders know that addressing risks is a key step in /&Ĺ€&&#(!5." #,5'#--#)(85 */. .#)(5#-5 everything in the not-for-profit world, so it makes sense that a nonprofit leader should focus on the dangers that could

"/,.5." 5),! (#4 .#)(]-5, */. .#)(85 " (5 good risk-management practices are executed, a nonprofit is seen as credible and stable in the eyes of stakeholders. This in turn can make the effort of raising capital simpler. " (5 5()(*,)Ĺ€.5" -5#.-5,#-%5' (agement processes in order, it looks very much like a well-run, for-profit business.

A hiring manager at a senior living facility screens potential new employees, performs background checks, and trains new employees. A zoo puts a weather insurance program in place to protect revenue in the event of certain weather conditions.

Earn your MBA and become a CPA in one year Philadelphia University’s iMBA-CPA program is currently accepting applications for Fall 2013 ěŊŊ 7/+.1#ĹŠ3'(2ĹŠ.-#ĹŠ8# 1ĔŊ1(%.1.42ĹŠ/1.%1 ,ĹŠ $.!42#"ĹŠ.-ĹŠ24!!#22ĹŠ -"ĹŠ(--.5 3(.ěŊŊ 1#/ 1#ĹŠ$.1ĹŠ3'#ĹŠ ĹŠ#7 ,ĹŠ6(3'ĹŠ3'#ĹŠ #!*#1ĹŠ #5(#6ĹŠ3#23ĹŠ/1#/ĹŠ!.412#ĹŠ(-!+4"#"ĹŠ 2ĹŠ/ 13ĹŠ.$ĹŠ 3'#ĹŠ/1.%1 , ěŊŊ 4+ă++ĹŠ3'#ĹŠÄˆÄŽÄ‡ĹŠ!1#"(3ĹŠ1#04(1#,#-3ĹŠ -"ĹŠ2(3ĹŠ$.1ĹŠ 3'#ĹŠ ĹŠ#7 ,ĹŠ #$.1#ĹŠ%1 "4 3(-% ěŊŊ *#ĹŠ "5 -3 %#ĹŠ.$ĹŠ.//.134-(3(#2ĹŠ3.ĹŠ234"8ĹŠ 1. "ĹŠ(-ĹŠ -ĹŠ(-3#1- 3(.- +ĹŠ2'.13ĹŠ!.412# Scholarships available for exceptional candidates

For more information call the Office of Graduate Admissions at 215-951-2943 or email gradadm@philau.edu.

16

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

A homeless shelter requires all volunteers to sign a waiver and release form.

For nonprofit businesses, it’s too easy to focus on the mission and let the day-today work of risk management fall to the wayside. Here are four steps you can take to navigate risks and eliminate hazards.

Identify loss exposures @5Äť , 5 , 5 hundreds of exposures in any business, including, but not limited to, property, business interruption, auto, personal injury, and cyber losses. Some of them can be transferred through a well-thought-out insurance program. Others can be addressed through operational changes.

Areas for potential losses include volunteers, outside contractors, hiring practices, and claims management, among others. Nonprofits should also determine which exposures have been transferred to the insurance company and which exposures are self-insured or uninsured.

Design a program @ After identifying potential areas for loss, the nonprofit should work with a broker or advisor to design insurance coverages and implement programs that reduce risks. This can include things such as a safety and wellness program, a crisis or contingency plan, tight contractual requirements, and 1 &&7.")/!".7)/.5"#,#(!5*, .# -85 signing and purchasing general liability, workers’ compensation, and other types of insurance should be considered during this step. A strong advisor can help the nonprofit strike the right balance between how much insurance the organization can afford and how much risk the nonprofit can assume on its own.

Implement the program @ )) 5 intentions and plans are not enough. It all must be put into effect. Organizations need to review responsibilities and priorities and consider the impact new processes have at the highest and lowest levels of the organization. Know the specific steps that need to get done, by whom, and what measurements will show if the plan is working. Senior management should make sure someone in the organization owns this process and that its importance is understood.

Review, evaluate, and update @ Unfortunately, many nonprofits attempt to manage exposures without measurements and reviews. A nonprofit should evaluate its risk management program on a regular basis and adjust it as appropriate. "#& 5' .,# -51#&&50 ,35 35)* , .#)(-65 5 routine quarterly review of claim activity and key performance data is critical to a risk management program’s success.

Before any measurement occurs, however, senior management and the affected managers should settle on goals and specific steps that are clear, understood, and attainable. Just like fulfilling the nonprofit’s mission, it won’t be easy, but it is worth it.

Bob Scullin, ARM, is vice president of sales at The Graham Company, insurance and employee benefits brokers in Philadelphia.

He can be reached at bscullin@grahamco.com.

Encourage Students to Compete Student Writing Competition 2013 Topic: Mandatory Audit Rotation – Would It Improve Audit Quality?

Prizes 1st place - $3,000 and an excerpt in the Pennsylvania CPA Journal 2nd place - $1,800 3rd place - $1,200

Eligible Participants Graduate and undergraduate accounting or business majors who attend Pennsylvania colleges and universities are eligible, as are those who maintain a permanent residence in Pennsylvania but attend an out-of-state college.

Check out www.picpa.org/swc for complete entry details.

The deadline for submissions is April 12, 2013.

Belong. Grow. Achieve.

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

17

Litigation Support Ask Yourself the Right Questions before Embarking on an Audit

By Douglas M. Boyle, CPA, CMA, DBA, James F. Boyle, CPA, and Daniel Mahoney, PhD

F

raudulent financial reporting is devastating to a company’s fortunes.

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) supported study, Fraudulent Financial Reporting: 1998-2007, found that companies linked to accounting frauds experienced much higher occurrences of bankruptcy, involuntary delisting, and material asset sales than those companies not tainted by fraud. Additionally, accounting fraud often results in significant reputational damage and potential liability for the external audit firm. Given the existential risk to external auditors, this article offers tips to consider during audit brainstorming activities to better detect accounting fraud.

The responsibility of external auditors with respect to detection of financial statement fraud is clear in AU Section 110, Responsibilities and Functions of the Independent Auditor: “The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.� But accounting fraud is rarely discovered by external auditors. The Association of Certified Fraud Examiners’ 2012 Report to the Nations notes that accounting fraud is most likely detected by a tip from an internal employee. Only 5.7 percent of fraud was detected by external auditors.

The application of due professional skepticism is an important factor in detecting accounting fraud. As stated in AU Section 316, Consideration of Fraud in a Financial Statement Audit, “Professional skepticism requires an ongoing questioning of whether the information and evidence obtained suggests that a material misstatement due to fraud has occurred.�

PCAOB Release No. 2010-004, AS No. 12, Identifying and Assessing Risks of Mate-

18

rial Misstatement, states “Key engagement team members should set aside any prior beliefs they might have that management is honest and has integrity.� Indeed, professional skepticism must be engaged during audit planning brainstorming.

The COSO study found that a CEO or CFO was involved in 89 percent of accounting fraud cases. This suggests that C-suite roles should be a focus during brainstorming sessions. Also, a CEO’s involvement in accounting fraud is often motivated by equity compensation and facilitated by the degree of power he or she has within the firm.1 The study also finds that the CEO is often the prime perpetrator who pressures a CFO to participate.

A CPA may find it prudent to consider the following questions during audit planning brainstorming sessions.

Incentives/pressures: R55 , 5 )'* (- .#)(5* % ! -5 ),5 C-suite executives overly focused on stock-based compensation tied to earnings, or is it balanced between fixed and variable compensation and based on both financial and nonfinancial objectives?

R55 )5 7-/#. 5 2 /.#0 -5&#0 5 3)( 5 their means, thus creating financial pressures within their personal lives?

R55 , 5 2. ,( &5 2* . .#)(-5 ),5 ,(ings or revenue realistic, or are they creating additional pressure to distort financial reports to meet targets?

Opportunity: R55 )5." 5 ) , 5) 5 #, .),-5 ( 5 / #.5 committee operate in a truly objective monitoring role over the C suite, wherein board members question and challenge key decisions, or do they serve in more of a ceremonial role?

R55 ) -5." 5 5" 0 5 (5/(/-/ &&35 high degree of power, or is the power balanced between the executive team and the board?

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

R55 ) -5." 5#(. ,( &5 / #.5 * ,.' (.5 objectively evaluate fraud risks involving executive management (such as the risk of an override of internal controls)? Also, does internal audit report to an audit committee or is there an inappropriate link to the C suite?

Rationalization: R55 ) -5." 5 5" 0 5 5* ,-)( &#.35 that may enable him or her to rationalize bad behavior, or is the CEO’s self-view that of a servant leader?

R55 " .5#-5." 5.)( 7 .7." 7.)*5) 5." 5 C suite as seen by the employees and other key stakeholders?

R55 ) -5." 5 5" 0 5." 5 #&#.35.)5 stand up to the CEO if a disagreement arises concerning an accounting treatment/estimate, or is the CFO more likely to succumb to pressure?

Evaluating these and similar questions will help an audit team appropriately assess fraud risk factors so audit procedure modifications can be made. In addition, the audit firm must be certain to assign staff with appropriate levels of experience, training, and professional skepticism.

1

“Why Do CFOs Become Involved in Material Accounting Manipulations?� Journal of Accounting and Economics (2011).

Douglas M. Boyle, CPA, CMA, DBA, is accounting department chair and assistant professor at the University of Scranton in Scranton. He can be reached at douglas.boyle@scranton.edu.

James F. Boyle, CPA, is a faculty specialist at the University of Scranton. He can be reached at james.boyle@scranton.edu.

Daniel Mahoney, PhD, is a professor at the University of Scranton. He can be reached at daniel.mahoney@scranton.edu.

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THE MARCELLUS

20

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

T

he natural gas industry roared into Pennsylvania a few years ago to

SHALE

tap the reserves in the Marcellus Shale.

The sudden onslaught often startled landowners, taking them by surprise with the promise of instant wealth and prosperity that would last for generations. Recently, activity in northern and central Pennsylvania has slowed almost as quickly as it started, so now we have an opportunity to look back to see what happened and to look forward to see what may lie ahead.

By Timothy J. Gooch, CPA, and Edward A. Kollar, CPA, CSEP, EA

Natural Gas in Pennsylvania Ever since Edwin L. Drake struck oil and natural gas near Titusville in 1859, Pennsylvania has been a leader in oil and gas production. Drake constructed a two-inch diameter iron pipeline to prove that natural gas could be used for commercial purposes. Natural gas has been collected from formations throughout Pennsylvania for decades using conventional vertical drilling techniques. The costs associated with vertical drilling, combined with modest or sporadic yields, affected the profits realized by drilling and production companies. Even so, the natural gas industry has enjoyed a long and prosperous history in Pennsylvania.

For years, the exploration process would begin with a lease between the developer and the mineral rights owner. The lease provided the developer a fixed amount of time to explore for natural gas on a property in exchange for an upfront “bonus” payment. If gas was discovered on the leased property and production were to begin, royalty payments were paid on gas extracted over the life of the well pursuant to the terms of the original lease. Landowners, even in areas outside customary production areas, routinely signed gas leases on their properties. Bonus payments on such leases were often $2 to $5 per acre, which landowners viewed as “found money” that they often put toward their real estate taxes. This practice continued for generations, and new exploration rarely took place.

Horizontal Hydraulic Fracking: The Game Changer

▲

For decades, the industry has implemented variations of fracturing, or “fracking,” techniques to stimulate shallow gas or oil wells. The fracking process consists of using pressurized fluids to fracture hard rock formations and facilitate the extraction process. Technological advances eventually enabled production of natural gas and www.picpa.org | Spring 2013 | Pennsylvania CPA Journal

21

oil from rock formations 5,000 to 10,000 feet below the earth’s activity provided an opportunity for new entrepreneurs and those surface. However, further advances in the early 2000s resulted in businesses that happened to be in the right place at the right drilling unconventional horizontal wellbores, which are a combi- time. Quarries found a demand for crushed stone for use in well nation of the vertical drilling methods into the shale formation pad and road construction. Triaxle trucks were brought in by and then a horizontal redirection of the drilling once the gas-rich the hundreds to haul the rock to and from the sites. Water and shale is reached. The technique imsand providers and haulers were in proved the efficiency and economics great demand as well, and many loof gas exploration exponentially. Not cal companies found lucrative opMany businesses only could more area be accessed and portunities by adding to their fleets. fracked, but multiple wells could be Railroads found overnight demand have stretched their initiated from a single wellpad. By to haul sand and materials from long the mid-2000s, the improved yields Hotels and motels found accounting systems and distances. of horizontal fracking allowed comyear-round occupancy, in many cases panies to begin exploration in the the first time, and restaurants and personnel, creating many for Marcellus Shale region located from convenience stores enjoyed increased northeastern to southwestern PennIn addition, many specialconsulting opportunities. demand. sylvania and into Ohio and West ized services grew, such as well tendVirginia. Demand and competition ing, communications, grading, exfor mineral rights leases exploded, recavation, erosion control, surveying, sulting in bonus payments for unleased acreage routinely exceed- title abstracting, engineering, geology, land clearing, and profesing $3,000 per acre, and in some areas exceeding $7,000 per acre. sional services, including accounting.

Not every landowner benefited from the rise in lease bonus Changes in the Gas Market payments, though. Many still had the $2 to $5 leases in effect, and they saw gas operators rush onto their acreage in an attempt to As companies rushed to place leases into production, the rapid inplace existing leases into production. Once a lease is in produc- crease in the supply of natural gas as well as other factors resulted tion, the terms of the lease were locked, with no expiration date in a weakening of the market. Wellhead prices for natural gas deor opportunity for the landowner to renegotiate. Operators soon clined from over $10 per thousand cubic feet (MCF) in 2008 to inundated the region in an effort to begin production, not only under $3 in 2012. As revenues dropped, many smaller operators on the low-cost leased properties, but also on the properties upon found it more difficult to recoup their investments, resulting in which they had invested millions of dollars of bonus payments. consolidation within the industry. Large global producers – such Many small operators needed to commence production to gener- as Shell, Talisman, and Exxon – entered the market and bought ate revenue to fund their existing investments and to continue out smaller companies or their lease holdings. In many cases, these exploration. Expanded exploration and drilling resulted in a need large companies have existing relationships with other service for pipelines to transport the gas, roads to access the well pads, providers, thus ending the work provided by local companies that huge amounts of water and sand to facilitate the fracking process, had recently expanded to service the market. and a work force to make it all happen.

As prices have declined, many companies are redeploying reThere was not a large population of experienced gas industry sources to the currently more lucrative pursuit of “wet gas.” Wet workers in Pennsylvania, so drilling crews, pipeline crews, and su- gas, found in southwestern Pennsylvania and into eastern Ohio pervisors were transplanted to the region from all over the coun- and West Virginia, contains high volumes of liquid by-products try. Out-of-town gas workers were easily identified by their white such as ethane, propane, butane, and pentane – liquid natural gas pickup trucks with out-of-state license plates. Many sleepy com- – that can be separated and sold. The market prices for these prodmunities in northern and central Pennsylvania saw their popula- ucts has remained firm. This redeployment gives areas in northern tions mushroom, creating an unprecedented demand for services, and central Pennsylvania a chance to create infrastructural imhousing, and other infrastructural improvements. Rental property provements such as roads and pipelines to prepare for an ineviowners, for example, soon found demand for properties that had table return when market demand and prices rise. been empty for years. As a result, some monthly rents skyrocketed What Lies Ahead from under $1,000 per month to over $2,000 per month. Municipalities faced challenges in maintaining roads and social services. Just a few years ago, natural gas, due to its presumed scarcity, was Residents, too, faced new challenges, such as increased commut- being pushed aside for other alternative energy sources. With the ing times and longer lines in grocery and convenience stores. cost of natural gas hovering around $3 per MCF, that has changed dramatically. Output from the Marcellus region has jumped nearThe Ancillary Business Boom ly tenfold since 2009, causing the drop in price. The abundance Once a well site is identified, up to 10 acres need to be cleared. of natural gas, however, is generating a whole new set of changes.

Access roads also must be built to accommodate equipment In 2012, Plains Township in Luzerne County unveiled a new and worker traffic. The fracking process requires 1,000 or more recycling truck that runs completely on natural gas. UGI, the lotruckloads of sand and water hauled to the well site. Then, upon cal gas service utility, helped install a natural gas refilling station completion, sites need to be landscaped, leveled, and reseeded. at the township garage. A grant that was secured in 2010 by the From 2008 through 2011, more than 14,000 conventional and township helped pave the way. unconventional wells were drilled in Pennsylvania. The increased In late November 2012, the Pennsylvania Department of En-

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Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

vironmental Protection announced it will begin accepting applications for its Natural Gas Vehicle Grant program. The programs will provide up to $20 million over the next three years to help pay for the incremental purchase and conversion costs of heavy-duty (14,000 pounds or more) natural gas fleet trucks.

Chesapeake Energy is in the process of converting its entire fleet of 5,600 vehicles by 2014, which will save the company an estimated $12 million per year. It will be aided by the fact that along Route 6 in northern Pennsylvania, service stations are being renovated to be able to dispense natural gas to vehicles. Ford, General Motors, and Dodge are currently, or will be, offering compressed natural gas/liquefied petroleum gas packages in their heavy-duty pickup trucks. The infrastructure is being built, and the vehicles are not far behind waiting to fill up.

Three major drilling companies, Schlumberger Ltd., Halliburton Co., and Baker Hughes Inc., had previously used diesel fuel for drilling equipment. All three are in the process of converting their pumps and drilling-rig engines to run on natural gas, benefitting from the low-cost energy that they help produce.

In June 2011, Shell announced plans to assess the building of a world-scale petrochemical complex, commonly known as a “cracker plant,� in the Marcellus Shale region that would upgrade locally produced ethane from shale production. On March 15, 2012, Shell signed a land option agreement to evaluate a site located in Beaver County in western Pennsylvania. The cracker plant would be used to turn ethane into ethylene, a key component used to make petrochemicals. Estimates are that the plant could cost as much as $1 billion to construct and would employ at least 200 workers.

When it comes to exporting natural gas, the U.S. Department of Energy says natural gas exports could boost the economy by $47 billion by the year 2020. There is concern, however, that exporting natural gas could increase domestic prices and affect manufacturing companies. In a Dec. 7, 2012, interview on Fox Business, Andrew Liveris, chair and CEO of Dow Chemical, stated his concern that over-exporting would increase domestic costs too much. On the other side of the issue are those who see the export of natural gas as a benefit to U.S. allies in Europe.

The northeastern United States is flooded with natural gas, with the only limitation being the capacity of the pipelines to move it. Drilling companies have hundreds of wells stacked up waiting to be hooked up to pipelines. Whether these wells come on line will depend on the producers and their desire to sell at current market rates.

Opportunities for CPAs As the gas industry has grown in Pennsylvania, so have the opportunities and challenges for CPAs. For many CPAs in the Marcellus region, there has been a learning curve when it comes to dealing with the tax laws specific to the natural gas industry. On the whole, though, the breadth of service opportunities have been pervasive, providing a multitude of possible touch points.

CPAs in the shale region have been involved with tax planning for the upfront bonus payments. Many clients have never had to file estimated tax payments or do any kind of planning. For others, royalty payments have followed or will soon follow, so advisors will need to determine allowable deductions, such as cost or percentage depletion and the related limitations. Many clients may own working interests. In such situations, the challenges and planning

opportunities deal with the complexities of prepaid drilling costs, intangible drilling costs, depreciation, and depletion.

Individuals who are concerned about estate tax implications of their newfound wealth have worked with attorneys to create entities such as family limited partnerships, LLCs, and trusts to transfer assets to future generations. Often the complexities of a new entity structure will require coordination among a CPA, attorney, and wealth management advisor, and may create a need for family office services. Such planning creates an abundance of compliance work, not only annuity reporting for the new entities, but also gift tax reporting. It is important to have a good valuation of such assets that can withstand the scrutiny of examination.

Among the factors a valuation should consider are the terms and conditions of a lease, local pooling and unitization, the likelihood and timing of gas production, the proximity of drilling, the market price of gas, economic factors, pipeline development and capacity, and the wet and dry gas content.

As discussed, the growth of the natural gas industry affected ancillary businesses of virtually every size. Many businesses have stretched their internal accounting systems and personnel. Income tax planning is always a concern for business owners, but additional consulting opportunities are available, including entity structure analysis, operational consulting, human resource issues, financing, accounting and payroll systems and compliance, financial reporting, retirement and succession planning, and so on.

Many of these businesses are family-owned, each with their own unique circumstances.

Pennsylvania has quite a few hunting clubs and other such entities that operate as social clubs under IRC Section 501(c)(7).

These clubs, which often own large tracts of land, have found it hard to turn away offers from the gas companies. This has presented challenges when addressing the effects on income taxes, reporting, and their nonprofit status, especially for those CPAs who found out after the fact that the clubs had signed a lease and already received bonus payments.

CPAs need to keep abreast of bulletins issued by the Pennsylvania Department of Revenue (DOR). The DOR is responsive to gas industry issues, and has issued bulletins related to sales taxes, inheritance taxes, and depletion. More tax changes and clarifications will follow, and CPAs will need to assist their clients with compliance issues or provide representation for audits conducted by the DOR. In this changing industry, it is incumbent upon CPAs to be prepared for the booms, lulls, and all the changes in between.

Timothy J. Gooch, CPA, is a partner with ParenteBeard LLC in Wellsboro and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at tim.gooch@parentebeard.com.

Timothy J. Gooch, CPA

Edward A. Kollar, CPA, CSEP, EA, is a senior manager in the tax department of ParenteBeard in Wilkes-Barre. He can be reached at ed.kollar@parentebeard.com.

Scan this QR Code with your smartphone for a video interview with Gooch

Edward A. Kollar, CPA, CSEP, EA

www.picpa.org | Spring 2013 | Pennsylvania CPA Journal

23

China: A

Huge Country with Vast Opportunity

By Cory Ng, CPA, CGMA, and James Chan, PhD

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Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

N

inety-six percent of the world’s population lives outside of the United States, so if you work with business owners or professional service pro-

viders who are looking to reach new customers, you may want to think outside Pennsylvania’s borders … way outside Pennsylvania’s borders.

One of the hottest markets right now is China. It is the world’s most populous nation with one-fifth of the world’s population (1.3 billion people) and is the world’s second largest economy.1 Many companies, however, never consider expanding into foreign markets, despite the widely accepted benefits of exporting, including increased sales, diversification of market risks, and extended shelf life of existing products.2 This article will explore the benefits and challenges of Pennsylvania-based businesses entering the China market.

China Primer

▲

The People’s Republic of China has experienced unprecedented economic growth over the past three decades. As measured by gross domestic product (GDP), China’s economy grew 9.2 percent in 2011 and was expected to grow 8.25 percent in 2012.3 China is a vast country with a complex market that requires careful consideration of its governmental structure, legal system, regulatory environment, taxes, and cultural differences. Because China is a single-party, state-controlled communist country, there are unique challenges compared with those faced by businesses in the United States. For example, there is no private ownership of land by individuals or corporations in China – all land is owned by the state or local government. As such, businesses that need to use land in China must be granted land-use rights by land management authorities. In addition, China’s legal and regulatory systems have been described as “opaque, inconsistent, and often arbitrary.”4 The appropriate business structure for conducting business in China is critical. Foreign enterprises have several options: representative office, joint venture, wholly foreign-owned enterprise, and foreign-invested commercial enterprise. A representative office would be established to carry out limited activities in China, such as market research and liaison activities. This structure is prohibited from engaging in any revenue-generating activities, and it is not a legal entity. In addition, the U.S. parent entity must have been in existence for two years prior to establishing a representative office. A joint venture is a legal entity formed by a foreign investor that requires a Chinese company serving as a partner. Under a joint venture arrangement, the foreign and Chinese partners distribute profits and losses in proportion to equity interests or in accordance with contractual provisions. The most popular choice by foreign investors is the wholly foreignowned enterprise, a legal entity that allows 100 percent foreign ownership and control. Wholly foreign-owned enterprises must be established with funds paid only by the foreign investor and are subject to strict currency controls. Finally, a foreign-invested commercial enterprise is a wholly foreign-owned enterprise or a

joint venture established to carry out import-export activities as well as domestic wholesale within China.

Pennsylvania companies exported $3.5 billion worth of products to China in 2011.5 Looking ahead, there are five areas in which Pennsylvania companies could enjoy export advantages.

Precision-engineered industrial parts and components – When China opened to trading with the United States in 1979, it imported complete machine sets to feed its hungry, nascent heavy and light manufacturing industries. By the 1990s, Chinese industrial corporations learned how to make their own complete sets of equipment so that they could reduce their reliance on imports.

Many industrial enterprises, however, are still behind in making high-quality, precision-engineered parts and components such as valves, seals, and specialized bearings.6 In fact, four of the top 10 American-made exports to China are made up of precision-engineered parts and components in power generation (10 percent of total U.S. exports to China by value), heavy electrical machinery (7 percent), vehicles (6 percent), aircraft and aerospace (6 percent), and medical equipment and optical devices (5 percent).7 Scientific products and information services – The United States still enjoys its edge in scientific and technological products, including software systems, scientific publications, and web-based information databases. The quality of Chinese science, while improving, has yet to rival that of the United States, and this is where opportunities for Pennsylvania companies lie.

Professional services – As China progresses economically, its service sector will become more important. China no longer wants to be the world’s factory for low-value, low-margin consumer products based on low-wage labor. It wants to elevate its industrial stature and become a nation of innovators, inventors, and original designers. For this reason, China is awakening to the critical importance of professional services. Over the past five years, more Chinese companies have engaged American companies for services in industrial design, engineering, architecture, accounting, finance, tourism, hospitality, mergers and acquisitions, corporate management, franchising, licensing, art, and others. The United States exports nearly $25 billion of private commercial services to China, and maintains a trade surplus that will likely continue for years to come.8 Agricultural and natural resources and packaged food products – China imports a large amount of agricultural and grain products from the United States, as well as industrial resources.

It is no wonder that pulp and paperboard, copper, and organic chemicals are among the leading U.S. exports to China. Pennsylvania maintains an advantage in this regard. Chinese consumers also want and need safe and quality packaged-food products, including milk products, baby food, and canned goods. www.picpa.org | Spring 2013 | Pennsylvania CPA Journal

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Pennsylvania businesses that decide to pursue exporting to China will need a variety of professional services, including those provided by CPAs. Investment and joint ventures – China is becoming an investor in the United States. Chinese corporations have begun to set up factories in the United States, and those Pennsylvania companies that have leverage in what they make will be winners in forming partnerships with Chinese firms. Direct investment within the United States is in its infancy, but it will grow over time. Currently, Chinese investment in Pennsylvania amounts to about $40 million over the last two years: industrial machinery ($29 million), electronics and IT ($8 million), fossil fuels and chemicals ($1 million), and metals and minerals ($1 million).

Nationwide, Chinese investment totaled nearly $21 billion distributed through 591 deals from 2000 to the end of the second quarter of 2012.9

Development has more trade offices than any other U.S. state, and it offers Pennsylvania businesses an opportunity to take an online Export Assessment Quiz.13 After completing the questionnaire, assessment results can range from “You are on the right track but have a long way to go” to “You are ready to export.”

In addition, there are Regional Export Network Partners (RENPs) that serve businesses in different regions throughout Pennsylvania.14 These organizations provide membership opportunities with the goal of supporting international trade.

Pennsylvania firms thinking about exports should also consider joining trade organizations such as the American Association of Exporters and Importers, the Federation of International Trade Associations, and the International Chamber of Commerce.

Opportunities for CPAs

Success in China: A Case Study

Pennsylvania businesses that decide to pursue exporting to China will need a variety of professional services, including those provided by CPAs. CPAs who provide consulting services can assist clients with market evaluations and business planning strategies.

Also, firms seeking export financing from the Small Business Association will need to provide financial statements and tax returns that a CPA can prepare.

Once operating in China, Chinese tax authorities require entities with foreign ownership to submit annual audited financial statements. Local Chinese auditors have been criticized for not providing the same level of due diligence during audits as required in the United States. Recently, China has lessened restrictions on the accounting and auditing market by allowing overseas accounting firms to set up offices to carry out audits in China.10

Success in marketing Pennsylvania products and services to China depends not only on taking the right steps from the outset, but also on having long-term commitment from the business owner.

In the spring of 1984, the vice president of sales and general manager of an industrial component manufacturer contacted Asia Marketing and Management (AMM) to discuss how his company could market its high-ticket, custom-designed industrial equipment to China. The vice president said, “We know that it takes time to succeed in marketing to China. We give ourselves 15 years, and we don’t expect immediate results.” It did not take the company 15 years to make a lot of money in the market, but it did take about seven years before it received its first big order from China’s leading original equipment manufacturer.

Since 1991, the manufacturer has received orders on a regular basis from both existing customers and new customers. One customer alone bought so much of the client’s components it entered the client’s list of top 10 customers, a significant achievement considering the company’s long history. China has been a very profitable market for this company because the owner of the business was willing to be patient and to persevere in the beginning years, when results seemed almost impossible.

Despite having AMM and an agent on the ground in China, the company’s executives and top technical and sales managers travel to China each year. There is no shortcut to seeing customers in China. It is important to customers to see that their trading partner is real. By showing up, the executives prove that they are not phantom personnel conjured up by an agent. The more often you see the same people in China, the more they

Services for Trade Opportunities The United States Department of Commerce, International Trade Administration, is a federal resource that promotes U.S. exports, particularly by small- and medium-sized enterprises, and provides commercial diplomacy support for U.S. business interests around the world.11 The U.S. Commercial Service is the trade promotion arm of the International Trade Administration. Commercial Service trade professionals in more than 100 U.S. cities and more than 75 countries help U.S. companies get started in exporting or increasing sales to new global markets. The Commercial Service has international offices in Beijing, Chengdu, Guangzhou, Shanghai and Shenyang.12 The Pennsylvania Department of Community and Economic

26

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

trust you. Any company that wants to sell to China but is unwilling to commit the right personnel to visit Chinese customers is destined to fail.

Pitfalls Despite the enormous export potential of China, there are risks too. The Chinese government recently imposed a 50 percent social benefits tax on all foreigners working in China, requiring them to participate in the country’s social insurance programs.15 In addition, obtaining the proper visa can be an onerous process, and police may deport expatriates that do not carry passports, visas, and resident permits at all times.16 Intellectual property rights (IPR) is another major area of concern for businesses operating in China. As the law firm of Pinsent Masons notes, “China has a well-deserved reputation as a hotbed of intellectual property rights infringement.”17 Businesses operating in China should take steps to protect IPR, including trade names, copyrights, patentable inventions, and trade secrets. An IPR strategy should be considered early, then it should be implemented and monitored on a continuing basis.

According to one federal government report, mainland China was the origin of 79 percent of all the goods seized in the United States. “For years, companies active in China have been protecting their IPR by using a reactive, raid-based approach that involves engaging third parties to seek out counterfeiters and coerce action from often less-than-enthusiastic or corrupt law enforcement agencies.”18 However, “the raids-based approach doesn’t strike at the root of the problem: the initial leak of IP.”19 One recommended solution is obtaining the services of an IPR protection company that uses an intelligence-based approach to focus not only on seizing counterfeit items through raids but also identifying the owners of counterfeit operations and the distribution channels used. China has well-developed IPR laws on the books; the main issue is the lack of government enforcement of the existing laws.

Pennsylvania firms also need to carefully consider the location of establishing operations in China during the planning phase.

China has vastly different geographic areas that have developed economically at dramatically different rates. Less-developed areas may offer lower costs for wages, but they also tend to have lessadvanced infrastructure and access to markets.

Finally, cultural and linguistic differences add complexity to doing business in China. Mandarin, the official language of China, takes years of practice to become fluent.

Conclusion China represents a tremendous opportunity for Pennsylvania businesses to reach millions of new consumers. Entering the China market, however, requires a long-term commitment of resources, time, and a deep understanding of the differences in culture, business practices, government regulations, and intellectual property concerns. Business owners are encouraged to visit China to gain a firsthand understanding and perspective of its unique business environment and people prior to committing to doing business there. After making the decision to enter the China market, careful planning and consultation with the various organizations discussed here, combined with CPAs, attorneys, and others, can help you navigate a successful operation.

1

V. Arora and A. Vamvakidis, “Gauging China’s Influence,” Fi-

nance and Development, International Monetary Fund (December 2010).

2 M. Kogon, “Exporting Basics,” 3rd Edition, (April 2006). World Trade PA. 3 “China Economic Outlook,” International Monetary Fund (Feb. 6, 2012). http://www.imf.org/external/country/CHN/ rr/2012/020612.pdf.

4 “China Business Handbook,” U.S. Department of Commerce, U.S. Commercial Service (2011).

5 U.S. Department of Commerce, The U.S.-China Business Council (2012). https://www.uschina.org/public/exports/2000_2011/ pennsylvania_2011.pdf.

6 I. Leybovich, “Q&A: Exporting Pro on Selling U.S. Industrial Goods to China,” Industry Market Trends, ThomasNet.com News (Nov. 13, 2012).

7 The US-China Business Council (2012). https://www.uschina. org/statistics/tradetable.html.

8 Office of the United States Trade Representative. http://www. ustr.gov/countries-regions/china.

9 “China Investment Monitor: Tracking Chinese Direct Investment in the U.S.,” Rhodium Group (2012).

10 E. Kliegman, “CPAs in China: Fascinating Similarities and Differences,” The CPA Journal, New York State Society of CPAs (August 2005).

11 International Trade Association, November 2012. http://trade. gov/about.asp.

12 “Powering Export Growth, 2011 Annual Report,” U.S. Commercial Service (2012). http://trade.gov/cs/cs_annualreport12.pdf.

13 Pennsylvania Department of Community & Economic Development, November 2012. http://www.newpa.com/business/ exporting.

14 A list of RENPs in Pennsylvania is available at http://exportingpa.org/Resources.aspx.

15 R. Flannery, “China Hits Foreigners and Their Employers with New Social Benefits Tax,” Forbes (Sept. 10, 2011).

16 C. Beam, “China Does Not Want You,” Bloomberg Businessweek ( June 11-17, 2012).

17 “Doing Business in China,” Pinsent Masons (December 2011). http://www.pinsentmasons.com/PDF/businessinchina.pdf.

18 T. Lowe and B. Simar “Countering Corruption in Intellectual Property Cases: CFEs Equipped to Deal with IPR Infringement in China,” Fraud Magazine, Vol. 26, No. 1 ( January/February 2011).

19 Ibid.

Cory Ng, CPA, CGMA, is an assistant professor of accounting and business programs supervisor at the Community College of Philadelphia and a member of the Pennsylvania CPA Cory Ng, CPA, Journal Editorial Board. He can be reached CGMA at cng@ccp.edu.

James Chan, PhD, is president of Asia Marketing and Management, a Philadelphiabased consultancy firm. He can be reached at jameschan@asiamarketingmanagement.com.

The authors gratefully acknowledge Douglas P. Hepburn, CPA, PFS, CFP, for his assistance in coordinating this article.

James Chan, PhD

www.picpa.org | Spring 2013 | Pennsylvania CPA Journal

27

Be Watchful for Unexpected Anti-Corruption Ensnarement

By Steven G. Blum, CPA, CFE, CFF, and Benjamin A. Cohen, CPA, CFE, CFF

T

he cost of complying with anti-corruption

laws is growing. Millions of dollars are being spent to avoid investigations, and

indictments,

multimillion-dollar

fines, not to mention the accompanying reputational

costs.

Com-

pliance committees on corporate boards as well as dedicated corporate compliance and ethics departments are springing up to help ensure that companies are in line with anti-corruption laws. Compliance is indeed expensive, but it is nowhere near as high as the cost of running afoul of the rules.

28

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

The Foreign Corrupt Practices Act (FCPA), it seems, has only recently become a source of great anxiety for many large public companies, but the law actually was enacted in 1977. The story is that Stanley Sporkin, the Securities and Exchange Commission’s (SEC) enforcement director from 1974 to 1981, had watched the Watergate hearings on television and was curious about how companies characterized illegal contributions in their books and records. The resulting FCPA led to more than 400 companies admitting to making questionable payments of more than $300 million dollars to foreign government officials and politicians for the purposes of trying to land foreign contracts.

SEC officials believed a law banning the payment of overseas bribes would be difficult to enforce, so it added provisions requiring companies to maintain internal controls and to keep accurate books and records to the anti-bribery provision. A quarter century later, Congress passed the Sarbanes-Oxley Act in response to large corporate accounting scandals. The act requires companies to create internal controls to ensure the accuracy of their financial reporting. Like the initial FCPA passage, the new rules brought companies forward about potential violations of the FCPA that were uncovered internally as companies began to comply with Sarbanes-Oxley implementation.

FCPA Rules There are two general efforts contained within the FCPA: antibribery provisions! and accounting and internal controls provisions." Although distinct, companies in violation of the antibribery provision are often in violation of the books and records provisions too.

Anti-Bribery Provisions – The anti-bribery rules generally prohibit payments to any foreign officials or any foreign political parties for the purpose of obtaining or retaining business. Those prohibited from making payments include any issuer under the SEC Act of 1934, including any officer, director, employee, or agent of such issuer or any stockholder acting on behalf of the issuer. Foreign officials could include any officer or employee of – or any person acting in an official capacity or on behalf of – a foreign government or any department or agency thereof, or of a public international organization.

What constitutes a payment is not absolutely clear. The drafters of the law understood payments could take many forms, and defined it as money, offers, gifts, promises to give, or authorization of the giving of anything of value. In theory, this could include: R5 -"5* 3' (.-5 R5 ")& ,-"#*R5 , 0 &5 ( 5 (. ,. #(' (.

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Our Rules, Their Rules Anti-corruption laws are not unique to the United States.

Many countries have some form of anti-corruption laws and regulations. The Organization for Economic Co-operation and Development (OECD) Anti-Bribery Convention came into effect about 14 years ago. It requires the nearly 40 member countries to institute laws that prevent and punish bribery of foreign public officials. Only recently, though, have many of these countries started to catch up to the United States in terms of enforcing those laws. The U.K. Bribery Act, which took effect in July 2011, is similar, yet may be even more encompassing than the FCPA. It imposes stricter guidelines for companies, and it has broad jurisdiction. The U.K. Bribery Act covers four main areas: giving a bribe, receiving a bribe, bribing a foreign public official, and failing to prevent bribery. Unlike the FCPA, which only covers the “briber,� the U.K. law also imposes liability on the recipient.

The Bribery Act also introduces a new offense: failure of commercial organizations to prevent bribery. The U.K. law does not exempt “grease� payments, but it does have an “adequate procedures defense,� in that the accused can make a defense by showing necessary steps were taken to prevent bribery, such as having adequate controls in place. This may give companies an additional reason to ensure that their controls are adequate to test and detect these violations.

Add Anti-Corruption to Risk Assessment Planning Running afoul of the FCPA, or other anti-corruption regulations, can be costly. Obvious costs include fines, penalties, and criminal liabilities, as well as the distractions to management from running the business and reputational costs. Corporate penalties have been known to exceed a billion dollars. Siemens Corp. was fined $1.6 billion for its violations, and that doesn’t include the added costs of investigating potential violations, costs to correct the violations, and the costs of ongoing monitoring imposed by the government to assure the violations do not reoccur. Siemens, for example, was forced to appoint a monitor for 48 months to ensure that the company corrected its violations and implemented controls to avoid repeating them.

A misstep and unforeseen ensnarement is too easy. Don’t be tempted into believing that anti-corruption violations can be easily avoided by your organization. Perhaps all top-level executives are familiar with the anti-corruption provisions, management has been trained, and you are confident that violations could never happen within your organization. Even if you are 100 percent correct in your assumption, and you probably are not, your organization is still at risk. Violations happen ever more frequently. ▲

To add to the complexity, there are exceptions. To avoid putting American corporations at a competitive disadvantage, this provision permits modest payments to low-ranking foreign officials, political parties, or party officials that are made to facilitate routine government actions. Referred to as “grease� or facilitation payments, they are generally permitted if they affect the “timing� of official action rather than influencing the “outcome.�

Accounting and Internal Controls Provisions – Often referred to as the Books and Records Provision, this section of the FCPA says that a company must keep complete and accurate books and records, maintain a proper system of internal controls, and not knowingly falsify records or circumvent controls, or else face criminal consequences for the company and employees. The SEC has been prosecuting offenders on the books and records provisions since the FCPA law was enacted. Often the government brings an action against a company under the anti-bribery provisions, and in those instances where a company may have tried to hide the payment in the company’s books and records, the SEC will allege a books and records violation as well.

www.picpa.org | Spring 2013 | Pennsylvania CPA Journal

29

Businesses are becoming more global, and operations are occurring in more obscure locations where corruption may be embedded. Your own organization could remain free of violations, but there is a chance you acquired a company that has violated the provisions. Now it’s your problem. Also, your company may work through distributors or third-party agents in foreign countries.

These third parties may, unbeknownst to your company, violate various anti-corruption provisions. If these third parties act as your company’s agent, then your company is responsible for their violations.

This hypothetical example illustrates the point: Assume your organization is doing business in a foreign jurisdiction. A decision is made to exit that jurisdiction. As a result, the foreign jurisdiction provides a final tax bill payable upon exiting. Your organization believes this tax liability is excessive, and it engages a local tax accountant to negotiate with the taxing authorities of this foreign jurisdiction. The local tax accountant reports back that a settlement has been reached and that the tax liability is significantly reduced. You are billed for the accountant’s services. Your local employees within the foreign jurisdiction understand the tax accountant’s invoice includes an embedded charge to reimburse the accountant for payments he made to individuals within the foreign jurisdiction’s taxing authority as part of the settlement, but they do not understand the legal ramifications. The home office staff unknowingly records the entire charge as professional services expense in the organization’s books and records.

The above company is now in potential violation of both antibribery and books and records provisions of the FCPA. The local tax accountant essentially “bribed” a foreign government official to render a favorable decision. Further, the company has hidden, though unintentionally, the nature of the expense by classifying it as a professional service expense.

This second hypothetical involves something that occurs more commonly: Your organization sells electronic components. Some sales are made to foreign governments through foreign distributors. You do not have actual sales offices located in the foreign jurisdictions, and you pay the distributors commissions for the sales. Unbeknownst to your organization, part of the commissions you are paying to these foreign distributors is forwarded to certain employees of the government entity procuring the electronic components. Your local organization simply charges all paid commissions as sales commission expense.

The second example also contains potential violations of both the anti-bribery and books and records provisions of the FCPA. Many organizations with global operations have third-party agents such as sales professionals, distributors, and so on, doing business on the companies’ behalf. The SEC and the Department of Justice (DOJ) aggressively pursue these cases, so violations are a serious matter that can lead to criminal and civil prosecution.

Newly Issued Guidance On Nov. 14, 2012, the Criminal Division of the DOJ and the Enforcement Division of the SEC jointly issued A Resource Guide to the U.S. Foreign Corrupt Practices Act. According to Lanny Breuer, assistant attorney general, the guidance is meant to be a “substantial step forward in transparency” as to the enforcement agencies’ approach. Robert Khuzami, director of the SEC Enforcement Division, notes that the guidance should “clear up some myths about the types of conduct that get prosecuted.”

Critics of the guidance say it is merely a collection of previously available information and that it does not effect changes in policy. Breuer and Khuzami have said it does not represent policy changes, but both maintain that the value in the guidance is in its transparency and having previously dispersed information from case law and enforcement actions all in one document.

Preventive Measures

What follows are several preventive meaDon’t sures that companies can take to help avoid getting unexpectedly ensnared be tempted into in an FCPA action.

Risk profiling – Perhaps the believing that antimost critical component to an anticorruption compliance program is corruption violations the initial risk assessment. An adequate risk assessment methodology can be easily is particularly important to companies avoided. with large-scale global operations. Every

30

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

company is subject to different risks, so it is vital that each company develops its own risk profile prior to employing measures to mitigate that risk. Not only does a proper risk assessment methodology manage exposure, but it is also a factor considered by the DOJ and SEC during their evaluation of the effectiveness of a company’s compliance program.

Evaluation of a company’s risk profile includes, among other factors, consideration of the industry, level of sales to government customers, use of third-party partners to generate sales, and the jurisdictions in which the company operates. Transparency International’s Corruption Perceptions Index provides the perceived levels of public sector corruption of nearly 180 countries. The 2012 index ranks countries on a 100-point scale, with the lowest scores perceived as the most corrupt. For example, Denmark, Finland, and New Zealand all boast a score of 90, while Somalia, North Korea, and Afghanistan come in last at 8. The index can be found at www.transparency.org/cpi2012/results.

Operations with higher percentages of sales to government customers and a larger reliance on third-party partners to generate revenue are considered at greater risk. Regulated industries tend to have a higher incidence of government involvement and have been the focus of U.S. enforcement activity the past several years. Risk industries include oil and gas, pharmaceuticals, medical devices, telecommunications, and defense contracting.

Companies should also consider other government touch points and the need to interact with government officials for product registration, licensing, or customs services.

After consideration of all the risk factors, a company will be able to prioritize the global operations most in need of precautionary measures such as anti-corruption risk assessments and increased training.

Training – Education and training are vital and proactive measures that help ensure that a company’s anti-corruption compliance policies are followed. It is another gauge used by the DOJ and SEC in evaluating the strength of a compliance program.

Regular training of employees through both web-based and in-person methods and certifications of completion are recommended. Third-party partners (especially those interacting with government customers or officials on the company’s behalf ) also should be trained on compliance issues and the company’s anticorruption policies. On top of the training requirements, periodic communication from top management on the importance of compliance and adherence to policies will help establish the company’s compliance culture. Any method to increase awareness throughout the company, and among those representing the company in the field, can help to avoid problems down the line.

Due Diligence – An often overlooked, yet necessary, piece of a compliance program is third-party due diligence. The most common avenue of providing improper benefits to government officials is through third-party intermediaries. It is surprising how many employees believe their company is not at fault if a third party who is selling on the company’s behalf engages in bribery.

DOJ and SEC enforcement actions contradict this notion.

A risk-based due diligence approach should be standard practice, and it is suggested by enforcement regulators. Companies should perform varied levels of due diligence on its third-party partners, depending on factors such as type of services provided, location, industry, volume of business, interaction with government officials, and payment terms or arrangements. A preliminary screening may involve a review of public records, while more in-depth due diligence could include site visits, interviews, and discreet local source inquiries. Due diligence efforts should be tracked, documented, and reassessed on a regular basis. Additional third-party risk management procedures include obtaining anti-corruption certifications, adding compliance language to contracts, and increasing training and communication.

Risk Assessment Procedures and Testing – Another measure to help prevent an unwanted government investigation is to supplement your company’s compliance and audit program by integrating anti-corruption procedures. The internal audit function may already review general ledger revenue and expense transactions as part of its standard workplan. To gain efficiencies, a more corruption-focused review of those transactions can go a long way to identifying potential red flags. A judgmental selection of expense transactions for testing is necessary to determine the nature of payments to distributors, sales agents, and consultants and to ensure the company’s books and records accurately reflect the substance of a transaction. Revenue testing is meant to uncover preferential pricing arrangements through methods such as unusual commissions, higher-than-standard discounts, and provision of free goods.

In combination with transactional testing, anti-corruption interviews of select sales, marketing, finance, and top-level management provide more details on company operations that can be used to identify corruption risk areas.

Several other measures can be undertaken at the corporate level that will assist in the development of a fully operational compliance program: R55 , .#)(5) 5 )'*&# ( 5 )''#.. -5)(5 ),*), . 5 ) , -5 ( 5 compliance and ethics departments within corporations

R55 ( .' (.5 ( 5 ( ), ' (.5 ) 5 ),*), . 5 (.#7 ),,/*.#)(5 policies, including disciplinary measures for violations such as improper or extravagant travel, entertainment, or gifts R55 1 , -5 ),51"#-.& &)1 ,-5." .5 2. ( 5 3)( 5 ()(3')/-5 tip lines R55 " (#-'-5 .)5 , *),.5 %5 )(5 ." 5 , -)&/.#)(5 ) 5 #(0 -.#! tions related to whistleblower concerns These measures will help create the appropriate corporate tone that violations are not tolerated and provide the company opportunities to investigate and comply with laws prior to regulators getting involved. If the government’s enforcement arms do come calling, it is imperative to respond quickly and with full cooperation.

Benefits of Preventive Measures Operating in a global marketplace opens up organizations to new risks. As with anything else, the decision to implement anticorruption measures, as well as the extent of these measures, must be subjected to a cost/benefit analysis, but don’t let scarce resources create short-sightedness. There is potential liability for anyone who fails to pay attention to these issues, and the costs to investigate and fix problems that come to light are significant.

Implementing the appropriate measures may also give your organization a competitive advantage. Think about the benefits to your specific organization if you are able to achieve more control over your foreign operations and third-party agents. You will create more efficiency and you could potentially identify areas where your organization’s resources have been wasted or misused.

You may also benefit by gaining an international reputation as a good corporate citizen. A clean reputation may help steer more business your way because customers want to personally ride the coattails of your good reputation. Finally, you are ensuring that if you are unexpectedly ensnared in an anti-corruption trap you will have a legitimate defense.

Anti-corruption laws cannot be ignored. There will be a cost to ensuring compliance, but look at it as an opportunity to ensure that your organization benefits from the implementation of appropriate oversight.

1

See Section 30A of the Securities Exchange Act of 1934, “Prohibited Foreign Trade Practices by Issuers.�

2 See Section 13(b) of the Securities Exchange Act of 1934, “Form of Report; Books, Records, and Internal Accounting; Directives.�

Steven G. Blum, CPA, CFE, CFF, is the managing director of SGB Consulting in Plymouth Meeting and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at sblumcpa@verizon.net.

Steven G. Blum, CPA, CFE, CFF

Benjamin A. Cohen, CPA, CFE, CFF, is a senior director in the forensic and litigation consulting practice of FTI Consulting in Wayne. He can be reached at ben.cohen@fticonsulting.com.

Benjamin A. Cohen, CPA, CFE, CFF www.picpa.org | Spring 2013 | Pennsylvania CPA Journal

31

35 ŀ5,-.5 ), 35 #(.)5 0) 35 ' 5 about when I was sitting in a meeting listening to concerns about the local tax structure in Pennsylvania. I agreed with everything that was said, and I started thinking of solutions. I was still of the mindset that I didn’t have a voice, Freeh, CPA, CGMA but that was to change quickly. I shared my thoughts, and that simple act started me on a path that I am still on, leading to more and more open doors. I was given an opportunity to help draft legislation that was a small step in improving the local tax situation. I worked with PICPA staff to lobby for the legislation, and after two long years we saw it become law as Act 166. Through the course of this endeavor I was able to make some really great connections. In the upcoming session, I look forward to working with members of the state legislature, including our CPA legislators, (85 .5 ,)1( 5 ( 5 *-85 )"(5 7 her, Gordon Denlinger, George Dunbar, #% 5 # ,65 ( 5 #."5 , #( ,85 With the passage of Act 166, I found that I truly did have a voice. I soon became involved in the conversation regarding local taxation with the Department of Community and Economic Development’s Governor’s Center for Local Government. This led to participation in the stakeholders group that assisted in the creation of Act 32 and being asked to provide input on various forms, tax collector audit provisions, the financial statement template for tax collector audits, and other aspects of the law.

Through it all, I learned a great deal about the political process. It is not simple or fast. There are a multitude of factors that must be considered, and maintaining good relationships with legislators and various state departments is critical to being able to accomplish anything. Upsetting just one individual of influence can ruin your ability to be involved. Diplomacy is extremely important. The PICPA Government Relations Team, along with the help of the CPA-PAC fund, works very hard to build and maintain the relationships that provide our members with opportunities.

351),%51#."5 0) 35!) -5)(65 ( 5 5 )(.#(/ 5.)5Ĺ€5( 51 3-5 .)5*,)0# 5 %5)(5-. . 5#--/ -85 350)# 51#&&5 )(.#(/ 5.)5 5 heard as long as I stay involved and continue to work on developing solutions.

Don’t sit around. Come up with solutions, get involved with the PICPA, and make sure your voice is heard.

Your Voice Can Carry to Harrisburg Too

By Cheri H.

I

firmly believe that you lose your right to complain if you’re not willing to help find a solution to a problem. It’s this basic belief that compels me to get involved. This can present quite a challenge, particularly if you feel you don’t have the power to effect change. Growing up in a small community and coming from a small accounting firm, I never dreamed I could have a voice when it came to taxation. I was wrong.

A former employer and friend convinced me of the benefits of joining the PICPA, so I became a member shortly after becoming a licensed CPA. I saw how he was involved in a state committee and how it provided opportunities to give feedback on accounting pronouncements. This level of influence impressed me, so I decided to volunteer for a PICPA state committee, State Taxation.

I have to admit, I was a bit intimidated at first. Here was the “girl from little old Quakertown� with a seat at the same table as partners from the big firms. I don’t think I said more than two words my first few meetings, but I listened and I learned.

32

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

Cheri H. Freeh, CPA, CGMA, is a partner with Hutchison, Gillahan & Freeh PC in Quakertown and a past president of the PICPA. She can be reached at cfreeh@aol.com.

2012 CPA-PAC Firm Contributors* Platinum ($10,000 and Above) Deloitte LLP

Ernst & Young LLP

Grant Thornton LLP

KPMG LLP

Gold ($5,000 - $9,999) ParenteBeard LLC

Silver ($1,000 - $4,999) Alpern Rosenthal Barbacane, Thornton & Company LLP Boyer & Ritter CPAs & Consultants Campbell, Rappold & Yurasits LLP

Elko & Associates Ltd. Kreischer Miller Kronick Kalada Berdy & Co. PC Reinsel Kuntz Lesher LLP

Stambaugh Ness PC Walz, Deihm, Geisenberger, Bucklen & Tennis PC

Buckno Lisicky & Company

Waggoner, Frutiger & Daub LLP

Bronze ($500 - $999) Boles Metzger Brosius & Emrick PC

*State law prohibits the acceptance of corporate checks. All such contributions are deposited into the PEC-CPA for educational purposes. LLP checks are acceptable. All contributions are voluntary.

2012 CPA-PAC Individual Contributors Keystone Club ($500 & Up)

President’s Club ($250 - $499) Pamela W. Baker Peter R. Barsz Kathy Bell Steven S. Bucklen

Robert M. Barbacane Robert J. Ciaruffoli Jr. David P. Duessel Bernard A. Fagnani Cheri H. Freeh William R. Lazor Kenneth L. Urish

Gene M. Buckno Thomas J. Corcoran Steven N. Kutsuflakis John W. Schilthuis

Thomas J. Taricani Jay L. Weinstein

Century Club ($100 - $249) Jeffrey S. Berdahl Paul Berdy Jolleen E. Biesecker William B. Boles Gayle L. Bolinger Larry E. Bream Ryan S. Brosius Theodore D. Brosius David A. Caplan Anthony R. Caravaggio John M. Dagnon Robert J. DePasquale Reuel R. Deppen Anthony R. Deutsch

Randal R. Dietz James A. Dinsmore Deborah A. Eastwood Eli T. Elias Jr. Lewis E. Elicker III Mario J. Ercolani William G. Finnecy Robert F. Firely Jr. Paul D. Fisher Lynn A. Fitzsimons Kevin R. Foley James R. Foutz William Fromel Steven J. Geisenberger

Thomas A. Geisler Jr. Barry D. Groebel Linda K. Haines Steven L. Hake James E. Hall James R. Heasley David J. Hess Timothy C. Hilbert Nikki M. Hoffman William R. Hoffmann Richard C. Hogentogler M. Scott Hursh Shawn A. Kaciubij Joseph J. Kalada

Stephen H. Klunk Donald M. Kronick Martin C. Levin Craig A. Longyear John A. Maher Jeffrey W. McCabe Brian J. Metzger Kevin M. Mitchell Thomas J. Moul James J. Newhard Eric C. Peterson David E. Priest Jodi L. Pringle Aaron R. Risden

William M. Sadecky Jr. Robert M. Saunders Robert A. Shebelsky Kim B. Staudt Robert Stevenson Brett H. Tennis Larry J. Thompson Ronald H. Ulitchney Jr. Jeffrey C. Webb Sr. J. Andrew Weidman Darren W. Welker Evelyn A. Williams Robert G. Wolfe Michael W. Zelko

The PICPA also thanks the more than 780 individuals in the profession who made contributions up to $99. Your collective help was invaluable in reaching our total contributions of $138,700. To view the names of all these contributors, go to www.picpa.org/cpa_pac and click on 2012 Contributors. Thank you for your generosity and support of CPA-PAC. If you would like to make a contribution for 2013, go to www.picpa.org/cpa_pac.

www.picpa.org | Spring 2013 | Pennsylvania CPA Journal

33

th

The 116 Annual Inspirational Speakers Business Expo

Photo by R. Kennedy for GPTMC Photo by K. Ciappa for GPTMC

Professional Networking

Client Entertainment Photo by J. Fusco for Eastern State Penitentiary

Photo by B. Krist for GPTMC

Philly Culture, History, and Fun Photo by B. Krist for GPTMC

Highlights of the 116th Annual CPA Convention June 26-28, 2013 | The Westin Philadelphia At this year’s Annual CPA Convention, you’ll hear from inspirational speakers, connect with peers from a variety of disciplines and backgrounds, expand your knowledge of the accounting profession, and access new business opportunities and services in the historically and culturally rich city of Philadelphia.

Earn Up to 8 Hours of CPE R55 )/,5) 5 -. ,(5 . . 5 (#. (.# ,35;5 , / 5 , - (. .#)( R5 , % -.51#."5 ' -5 85 0 &R5 /( "51#."5 (85 ' -5 85 )(1 3 R5 ) %. #&5 *.#)(5;5 #(( ,51#."5 )/5 ) -

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Optional Afternoon Activities R5Wicked5@5ĝ 5 /-# & R5Philadelphia Sightseeing Double-Decker Bus Tour R5Craft Beer & Cheese Tasting at Smokin’ Betty’s

34 For the full agenda, registration, and accommodations, visit www.picpa.org/cpaconvention.

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

CPA Convention Opportunity. Leadership. Growth.

Keynote Speaker

Lou Dobbs

The PICPA is proud to present Lou Dobbs, host of Fox Business News’s Lou Dobbs Tonight, as this year’s Annual CPA Convention keynote speaker. For more than three decades, Dobbs has built a reputation as an independent-minded broadcaster, best-selling author, and high-profile voice on issues as diverse as politics, society, and business. Dobbs has never shied away from weighing in on the topics that have defined our world, whether it be national security, economic growth, global business, or the state of education.

Dobbs pointedly challenges the status quo at home and abroad. He is a passionate advocate for rejuvenating the U.S. manufacturing sector, invigorating education and innovation, securing our nation’s borders and ports, and humanely resolving the country’s immigration issues.

Dobbs is the author of several books that have explored the American political stage and the issues that challenge our nation today. These books include Independents Day: Awakening the American Spirit (2007), War on the Middle Class: How the Government, Big Business, and Special Interest Groups Are Waging War on the American Dream and How to Fight Back (2006), and Exporting America: Why Corporate Greed Is Shipping American Jobs Overseas (2004).

Through his various media platforms, Dobbs calls upon audiences to join in the national dialogue that will shape the future of our country. For his Annual CPA Convention discussion, Dobbs promises to both entertain and inform those assembled with illuminating anecdotes, humor and history, and his passionate commitment to the founding ideals of independence, personal freedom, and equality.

www.picpa.org | Spring 2013 | Pennsylvania CPA Journal

35

Other Featured Speakers Gen. James T. Conway 8 85 ,#( 5 ),*-5 (85 James T. Conway has had a distinguished military career for more than four decades. He has been a com' ( (.5 ) 5 ,#( -5 -5 well as a teacher of tactics at The Basic School, where all newly commis-#)( 5 ,#( 5 ),*-5 )Ĺƒ ,-5 & ,(5 ." 5 ,#.# &5 details of being an officer.

Conway’s duties have included deputy director of operations, J-34, combating terrorism, Joint Staff, Washington, D.C.; and president of ,#( 5 ),*-5 (#0 ,-#.35 .5 / (.# )65 85 *)(5 his ascension to major general, he commanded ." 5g-.5 ,#( 5 #0#-#)(65 ( 5 -5&# /. ( (.5! ( , &5 " 5 & 5 ." 5 5 ,#( 5 2* #.#)( ,35 ), 85 He was assigned director of operations for the Joint Chiefs of Staff in 2004.

During his career, Conway has received several personal commendations, including the (- 5 #-.#(!/#-" 5 ,0# 5 &65." 5 035 #-.#(!/#-" 5 ,0# 5 &65 ." 5 !#)(5 ) 5 ,#.65." 5 (- 5 ,#.),#)/-5 ,0# 5 &65 and the Combat Action Ribbon.

Philly Fun: PICPA Staff Picks As the fifth largest U.S. city, Philadelphia offers something for everyone, whether you’re a history buff, foodie, art connoisseur, or sports fan. Here are some PICPA staff picks for fun things to see and do in the City of Brotherly Love when you’re in town for the 116th Annual CPA Convention.

Miniature golf at Franklin Square has replicas of all the Philly sites in one spot. Walking along Boathouse Row is a true Philly experience.

Jenna Batchelor, Digital Communications Administrator ____________________________________________________ Photo by R. Kennedy for GPTMC

The Reading Terminal Market is a fun place to eat and shop.

They do food tours there!

Kelli Comegys, Member Relations Coordinator ____________________________________________________

Photo by K. Ciappa for GPTMC

Photo by M. Kennedy for GPTMC

Photo by R. Kennedy for GPTMC

Photo by B. Krist for GPTMC

Photo by G. Widman for GPTMC Photo by B. Krist for GPTMC

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

The Ritz movie theaters, Northern Liberties neighborhood for a good beverage, or the Please Touch Museum for kids.

Bill Hayes, Managing Editor, Pennsylvania CPA Journal ____________________________________________________ Shopping: 13th Street. Eating: Varga Bar, Las Bugambilias, Tria, Buddakan, and City Tavern.

Meg Killian, Vice President, Member Relations ____________________________________________________ Running up the Philadelphia Art Museum steps Rocky-style, the Liberty Bell, touring the Betsy Ross House, bread and cheese from DiBruno Brothers, and La Colombe for good, robust coffee.

Francesca Zampaglione, Vice President, Professional Education ____________________________________________________ Penn’s Landing has lots of cool stuff going on in the summer, and the Moshulu is an awesome spot for food or drinks.

Amy Savastano, Professional and Technical Standards Administrator ____________________________________________________ Shopping on Walnut Street/Rittenhouse, and drinks at Franklin Mortgage and Investment Co. Allison Langdon, Member Relations Manager

Photo by R. Kennedy for GPTMC

36

Ale & Arts Walking Adventure from the Mural Arts program.

Patti McFadden, Professional Education Senior Administrator ____________________________________________________ Favorite restaurant: Osteria. Favorite museum: Rodin.

Lori Braden, Vice President, Strategic Marketing ____________________________________________________

James E. Nevels James E. Nevels is deputy chair of the Federal Reserve Bank of Philadelphia, serving as Class C director of the organization’s board since 2010. He also serves as chair of The Swarthmore Group, an investment advisory firm that he founded in 1991, and is nonexecutive chairman of the board of the Hershey Trust Company.

Nevels, a graduate of Bucknell University and the University of Pennsylvania’s Wharton School of Business and Penn Law, has more than 25 years of experience in the securities and investment industry. After being appointed to the Advisory Committee of the Pension Benefit Guaranty Corporation by President George W. Bush in 2004, he served as the group’s chair from 2005 to 2007.

Mutter Museum, Constitution Center, a Phillies game, Jim’s Steaks, and the Continental rooftop bar.

Steve Kerr, Database Administrator ____________________________________________________

Find more Philly fun at www.picpa.org/cpaconvention

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Legislative News

PICPA NEWS

Legal Reform Agenda Taking Shape ing with litigation – even with a strong conversations and to be clinical when With the 2013-2014 session of the they meet with patients and families case warranting further review – is General Assembly now under way, for fear that any statement, even unattainable for many defendants. the PICPA is working with state lawone of benevolence or empathy, will This curtails opportunities to review makers on reintroducing our legislabe used as an admission of guilt or claims and causes solid Pennsylvania tive agenda. The major components negligence. The Pennsylvania Legal businesses irreparable harm to their of our agenda have been written Reform Coalition supports legislareputation and economic viability. about before: amending the CPA tion that would prevent plaintiffs’ Law’s experience requirement, restor- Pennsylvania’s current law regarding attorneys from introducing into court appeal bonds does not reflect the ing balance to the business privilege consequences of contemporary litiga- evidence statements or gestures tax, reforming the state’s pension that convey a sense of apology, system, and finding a dedicated fund- tion, thus the PICPA supports a cap condolence, explanation, or coming source for the state transportation of $25 million for appeal bond or the infrastructure system. Another priority total value of the monetary judgment, passion regarding discomfort, pain, suffering, injury, or death, regardless whichever is less. area that has not been highlighted as of the cause. much is the need for Lastly, the Pennadditional reforms to sylvania Legal our legal system.

Reform Coalition The PICPA is a supports legislation member of the Pennthat would prevent sylvania Legal Reform the double dipping Coalition, which is a of asbestos bankgroup of businesses, ruptcy trust claims. hospitals, doctors, Numerous companot-for-profit organizanies have been left tions, and local governbankrupt as a result ments seeking reform of asbestos claims. measures that restore Trusts have been set balance and fairness up to compensate to Pennsylvania’s William R. Lazor, CPA, helps explain PICPA’s legislative agenda in a CPA-PAC video. asbestos victims. Too legal system. Priorioften, however, plaintiffs’ lawyers are Pennsylvania is plagued by “venue ties include capping appeal bonds, filing claims against a trust and then shopping,” in which a plaintiff finds limiting venue shopping, preventing going after solvent companies. The some obscure reason to sue someapologies from being construed as Pennsylvania Legal Reform Coalione in a friendly jurisdiction with admissions of liability, and reforming tion supports legislation that would permissive courtrooms and juries asbestos trusts. correct this deficiency in the law by disposed to big awards. The PICPA A key protection against an unfair requiring plaintiffs to disclose all and the Pennsylvania Legal Reform civil verdict is the ability to seek asbestos exposure information and to Coalition is working to get legislation recourse through an appeal. To acindicate whether they have submitted cess an appeal, however, a defendant reintroduced that would ensure that a claim based on asbestos exposure civil liability cases are filed in court in Pennsylvania is required by law to a trust or are eligible to do so. jurisdictions with stronger ties to the to post an appeal bond in the entire As these proposals begin to take actual case. amount awarded. Judges can also shape with bill numbers and comWhen a medical procedure goes require additional bond money to be mittee assignments, the PICPA will wrong, patients and their loved ones posted to secure attorney and court actively monitor developments and fees. It can be difficult for many small are understandably angry. Often keep members informed through the a candid conversation with mediand mid-sized businesses, such weekly subscription-based Legislacal caregivers will dispel some of as accounting firms, to obtain the tive Update e-mail newsletter and our the anger and pave a way toward a financing they need to secure large Twitter account, @PICPA_GR. appeal bond requirements. Even large resolution. Doctors, hospitals, and medical professionals, however, are businesses have difficulty doing so.

The result is that the cost of proceed- strongly cautioned to avoid such

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Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

PICPA NEWS

2013 Nominations Report

Dear PICPA Members, The Nominations Committee met on Nov. 6, 2012, Jan. 8, 2013, and Jan. 17, 2013, and, in accordance with Article VI, Section 4, of the PICPA Bylaws, is pleased to nominate the candidates below for election to the offices shown.

Elections will be held June 27, 2013, in accordance with Article IX of the PICPA Bylaws, at PICPA’s 116th Annual CPA Convention at The Westin Philadelphia in Philadelphia, Pa. The 2012-2013 Nominations Committee Members Joseph E. Seibert, Chair Cheri H. Freeh William G. Koch Jr. Rudolph J. Bilich Jr. Nicholas J. Crocetti Jennifer C. Nadzadi Michael S. Neubauer Joseph P. Fedeli

Nicholas F. Paolini Anna J. Sachs Barry H. Williams

Officers

Council Members

President Robert F. Firely Jr.* Herbein + Company Inc. Reading

(Two-year term expiring in 2015)

President-Elect Jerry J. Maginnis KPMG LLP Philadelphia Vice President Julius C. Green ParenteBeard LLC Philadelphia Vice President Martin A. Fritz EQT Corp.

Pittsburgh Treasurer Lisa J. Myers Boyer & Ritter CPAs Camp Hill

Marysue Bulcavage Campbell Rappold & Yurasits LLP Allentown Marilyn A. Derolf Hall Mihalos Straub & Company LLP Wilkes-Barre Karen Facer-Mee Facer, Mee & Associates PC Ivyland Frank J. Nagy Black Bashor & Porsch LLP Sharon Jason C. Skrinak McKonly & Asbury CPAs Camp Hill

Trustee of Scholarship Fund

(Three-year term expiring in 2016) Joseph M. Alu Joseph M. Alu and Associates Scranton Immanuel John Grant Thornton LLP Philadelphia Craig A. Mengel ParenteBeard LLC Reading Paul K. Rudoy Horovitz, Rudoy & Roteman LLC Pittsburgh David D. Wagaman Kutztown University Kutztown

(Five-year term expiring in 2018)

AICPA Council Members

Robert M. Saunders Cunningham & Saunders PC Blakely

(Three-year term expiring in 2016)**

New Members of the Nominations Committee Article V of the PICPA Bylaws states that the Nominations Committee shall consist of 11 active members, with three members being elected each year for a threeyear term. Two members shall be the two most recent immediate past presidents, who are Robert C. Jazwinski and Cheri H. Freeh. Members of the committee are recommended by the Executive Committee, nominated by Council, and elected by the members in accordance with Article IX of the PICPA Bylaws. Nicholas J. Crocetti was designated to be chair by the current president, Robert C. Jazwinski.

Committee on Professional Ethics Members

(Three-year term expiring in 2016) Michael De Stefano Petroleum Products Corp.

Harrisburg

Robert F. Firely Jr. Herbein + Company Inc. Reading David L. Pianta Appletree & Kern PC Erie

Betsy E. Krisher Maher Duessel CPAs Pittsburgh

* Robert F. Firely Jr. was elected presidentelect in 2012 to serve as 2013-2014 PICPA president; Robert C. Jazwinski, 2012-2013 PICPA president, will serve as immediate past president.

William M. Sadecky Jr. ANH Refractories Co. Moon Township

** Selected by the PICPA Nominations Committee, subject to election by AICPA Council in October 2013.

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

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Volunteers in Action

PICPA NEWS

PICPA Members “Save Wisely” for the AICPA The following are excerpts of passages written by PICPA members for the book Save Wisely, Spend Happily: Real Stories about Money & How to Thrive from Trusted Advisors by Sharon L. Lechter, CPA, and produced by the AICPA in an effort to educate the public about financial literacy.

Jacquelyn M. Basso, CPA Owner, J.M. Basso & Associates The Team Approach When two individuals decide they want a divorce, the first thing many think of is finding the right attorney. A team of professionals might be a better approach – a team that includes a CPA, an attorney, and a family counselor or psychologist. … [When] I work with divorcing clients, we start the process exploring the same issues happily married couples discuss, things such as the household budget, … how the child care duties are split if there are children, who pays the bills, … and who is responsible for the annual tax return. You might ask, “Why should we discuss these issues? We are getting divorced!”

Divorce is not only a legal separation, but it is also a financial split. …

Post-divorce, the biggest issue from my perspective is budgeting. …

Budget issues are extremely important as one household becomes two. Careful planning is required to prevent financial disaster due to the doubling of certain expenses. It includes balancing the cost of basic necessities such as food, clothing, and shelter. ...

Post-divorce, understanding and using a budget can help individuals plan and achieve separate successful financial lives.

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Susan E. S. Howe, CPA Principal, Howe Advisory Lack of Insurance: An Accident Waiting to Happen Imagine getting a phone call at 4:00 a.m. with news that your hot water heater has failed catastrophically.

Now consider that the hot water heater is on the top floor of a threestory condominium building, and that hot water is cascading through your home, your neighbor’s condo under yours, and into the adjoining units.

Imagine that you don’t have any insurance on your condominium unit. I don’t have to imagine, because it happened to me.

How can a responsible CPA let this happen? Call it a combination of procrastination, conflicting information ..., and a failure to think through the possible consequences. ...

Here’s what could have happened.

I could have been personally responsible for all the damage to the contents of my condo, my neighbor’s condo, and any other condo affected.

My neighbor could have sued me for personal liability, since it was my hot water heater that failed. If the condo were my primary residence, I could have been stuck paying for a place to live while the damage was fixed. …

Here’s what actually did happen.

Maryland, which is where the condo is located, enacted a law that says a condo association must have insurance for any event that causes damage to more than one living unit, and the insurance may have a maximum deductible of $10,000. In my case, my condo management company picked up half the deductible, so I ended up being out $5,000. ... It was an expensive lesson, but it could have been so much worse.

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

The moral of this story is twofold.

First, make an honest assessment of the worst case scenario if an accident would happen involving your property, anyone else’s property, or anyone else’s health and welfare in a situation where you could be deemed at fault. … Second, consider protection for all of your risks: life, vehicle, health, personal liability, and umbrella liability insurances. That’s the purpose of insurance – protection against financial catastrophe.

Howe also wrote the section “In the Dark” for the book.

Theodore L. Landis, CPA, CFP Shareholder, Pritchard, Bieler, Gruver & Willison PC How Is Your Financial Health?

Have you ever considered the benefits of a financial checkup?

Just as a physical checkup can let you know how you are currently and possibly prevent future problems, so can a financial checkup.

A financial checkup can be targeted toward a specific issue, like planning for the cost of a child’s college education, or it can be a very broad overview of your financial condition. …

A review of your various loan, mortgage, and credit cards should include the balances, terms, and interest rates of each. With this information, it is possible to determine if any are carrying excessive interest rates and should be targeted for early payoff….

A review of retirement plan goals and account balances is very important. … If you do not have a plan or a goal, it will be impossible to properly judge how much you will need for retirement and how you are doing.

Once you have a goal it is important to annually review how well you are advancing toward your goal. A review

Volunteers in Action

PICPA NEWS of general nonretirement allocations should be done every year [to make sure] you have enough available cash to meet living expenses if you or your spouse were to be out of work for a couple of months. …

Tax and estate laws are constantly changing. It is important to annually review your specific situation to be sure you are taking advantage of all the tax deductions and credits available to you. Also, you want to be sure your will and estate plans are up to date to meet your goals based on the current gift and estate tax laws.

Jesse R. Ligo Jr., CPA Professor of Accounting, Westminster College Overprotective Our friend John unexpectedly passed away. The … support of family and friends helped his wife, Kathy, and their children grasp their new situation. However, Kathy could not help feeling overwhelmed. … John managed the household finances and bill paying, and Kathy focused on the children and their activities. ... When Kathy came to me she had no idea where to begin.

The first thing we did was take inventory of her assets, liabilities, and insurance policies. Second, by sorting through the family checkbook registry, we were able to ascertain to whom the bills were paid and when, so we prepared a monthly budget.

Third, with John’s life insurance policy she was able to pay off liabilities … and we allocated the remaining proceeds between investment and long-term spending plans....

To better prepare families for a crisis, I suggest compiling a “Big Book.” ... Many families divide financial responsibilities…. The Big Book will present an overall picture of house-

hold finances and contain important documents, all in one place….

Suggestions for inclusion: UÊÊ ÌÌ À iÞÊV Ì>VÌÃ]Ê V>Ì Ê vÊÜ Ã]Ê health care directives, birth certificates, passports, auto titles, and property deeds UÊÊ* VÞÊ> `Ê>VV Õ ÌÊ Õ LiÀÃ]Ê addresses, phone numbers, and contact persons for all insurance policies UÊÊ VV Õ ÌÊ Õ LiÀÃÊ> `Ê> ÊV Ì>VÌÊ formation for bank accounts, investments, credit cards, and loans UÊÊ Ê`iÌ> i`Ê Ì ÞÊLÕ`}iÌ]Ê V Õ`ing contact information for each obligation UÊÊ V>Ì Ê vÊ«>ÃÌÊÌ>ÝÊÀiÌÕÀ ÃÊ> `Ê>Vcountant contact information

Gregory J. Petyak, CPA Assistant Professor of Accounting, University of Pittsburgh at Johnstown Shopping with Mom My brother and I learned quickly that there would always be things that cost more than what we had to spend. Mom would explain that if we really wanted that item we could save our money, … and eventually we would accumulate enough to make the purchase. I was willing to make the sacrifice and wait; my brother wasn’t. ...

We also came to realize that if we spent our money on the first thing we liked, we would be out of money and have to spend the rest of the shopping trip just looking.

Often, we would see something later that was a lot more appealing than the item we bought…. We became more careful about spending our money so quickly and spent more time evaluating which item we wanted most.

Mom was tough, but she always had enough money for ice cream!

Bruce C. Rhoads, CPA Finance Director, Herbein + Company Inc. Are We There Yet? Back in 1991, we decided to do a cross-country road trip, from Reading to San Francisco, with our children, ages 6 and 12, in the family van.

One of the things we dreaded was keeping the kids contented during the many hours in the van. A friend had suggested that we give each child a $10 roll of quarters for the trip out, and another for the trip back, with the stipulation that whenever one of them either complained about the drive or asked “Are we there yet?” he or she would have to surrender one of their quarters. We also told our kids that this was the only money they would have for souvenirs that they wished to purchase during the trip. Except for some special mementos which we bought them, we stood our ground.

Based on our experiences with several previous, but shorter, car trips, my wife and I had figured that we should be able to accumulate a number of quarters. As our route back to Pennsylvania was to be through Las Vegas, we could enjoy the quarters we earned.

Our children quickly figured out our scheme. After surrendering just three quarters combined, they learned to discuss their complaints among themselves. ... When we eventually drove back through the Las Vegas strip, we didn’t even stop.

Our children learned the value of money, and we had a peaceful and enjoyable road trip together.

Excerpts included with permission from the AICPA.

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

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Member Spotlight

PICPA NEWS

James R. Hanna, CPA, CVA

Managing Partner Hanna McGlone & Company PICPA member since 1973 “It’s a real jewel for Philadelphia,” says James R. Hanna, CPA, CVA, Greater Philadelphia Chapter, of the Aberdeen Dad Vail Regatta. Hanna is president of the Dad Vail Regatta Organizing Committee, the nonprofit responsible for coordinating the largest and most prestigious collegiate regatta in the country. More than 100 colleges and universities participate, with thousands of student athletes competing and hundreds of volunteers and organizers working to make it all possible.

The regatta, which was started in 1934, was hosted at various schools in the early years, but since 1953 the regatta has been held near Boathouse Row in Philadelphia. The group of 15 historic boathouses, some of which were built before the Civil War, sits along the Schuylkill River and acts as headquarters for area rowing groups.

Hanna has been involved in the sport of rowing for most of his life.

Captain of the crew team at Georgetown University, where he earned a bachelor’s degree in accounting, Hanna became involved with the Aberdeen Dad Vail Regatta (at that time it was just the Dad Vail Regatta)

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become a CPA and retain a license in 1975 when he volunteered on the do not necessarily teach leadership starting line. Hanna worked to align skills. “A CPA must work to develop boats before the races started to enand master leadership skills. These sure no false starts occurred. Hanna skills are not naturally acquired by virsteadily became more involved with the regatta, joining the board of direc- tue of academic exposure to accounting course curriculum or assimilated tors before serving as president for from interaction serving clientele the last two decades. in public accounting, or acquired “Being a CPA helps me ensure the through osmosis by virtue of longevfinancial information [for the regatta] ity in a certain setting,” he notes. “In is accurate,” Hanna notes. It has also my case, I was blessed with and benhelped him make some changes to efited from leadership experiences in the way the finances are handled for scouting, high school positions, colthe nonprofit race. The financial ins lege positions, and officer positions in and outs of a nonprofit like the Aberthe military, all prior to entering public deen Dad Vail Regatta can become accounting.” quite complicated, but Hanna has a Years of rowing helped shape simple piece of advice to keep the Hanna in ways he didn’t even realize race running smoothly: “Budget for at the time. “Rowing is a metaphor a surprise.” Fortunately, the organizafor life,” Hanna says, because of tion had built up substantial reserves, the necessary dedication and teamwhich was used to meet a recent work that athletes must put into the surge in expenses. sport if they hope to be successful.

For as long as rowing has been Hanna notes that rowers usually have a passion in Hanna’s life, a sense GPAs in excess of a 3.0. “They’re of honor and an obligation toward service has been a driving force for even longer. Eagle scout, former Army captain and helicopter pilot, and former Kiwanis Club president are just a few entries on a long list of ways Hanna has given back to his family, community, profession, Hanna with his daughter Patricia Winton, on the banks of the and country over his Schuylkill River. lifetime. That’s part of the reason Hanna high achievers,” he says of rowers, became a CPA and later earned his but they are not limelight seekers. certified valuation analyst credential.

There’s not much glory in rowing, “[Being a] CPA is a service profesand people do it “out of love for the sion,” Hanna says. “And service is sport,” Hanna explains. more than general job responsibiliHanna is a longtime volunteer with ties – it’s giving back to the public.” the PICPA as well. He has served for Hanna believes that all CPAs should aspire to lead organizations that make almost 40 years on numerous committees, including Federal Tax, Local a positive impact. He recognizes, Government, and PICPA Council. however, that the requirements to

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

CPE Highlights

PICPA NEWS

Defining PICPA’s Diverse Continuing Education Options There is no such thing as a “typical” taker of continuing professional education (CPE). At the PICPA, we recognize that no one’s job, style of learning, schedule, or learning objectives are all the same. In the professional education arena, availability, timeliness, and diversity are key. We are in a time of unprecedented speed, which creates both opportunities and challenges. It is because of these factors that the PICPA has diversified and expanded its CPE options.

The PICPA has four categories of CPE: face-to-face learning, online learning, on-site training, and selfstudy.

Face-to-Face Learning There are two types of face-to-face – or in-person – learning offered by the PICPA: conferences and seminars.

Face-to-face learning is the traditional group-study style of training. The greatest advantage of face-to-face learning is the networking opportunities. You can have a one-on-one discussion with the instructor, mingle with your colleagues, and enjoy being out of the office for the day.

Conferences – PICPA’s conferences offer multiple speakers and topics.

Conferences focus on niche areas of accounting, such as business valuation, financial planning, health care, and insurance. Conferences provide opportunities to get updates on current issues, learn new business strategies, and network with your peers.

Go to www.picpa.org/conferences to see the 2013 conference planner.

Seminars – Seminars take an indepth look into one topic or area of interest. Seminars can provide everything from mandatory ethics credits to sweeping updates in accounting or tax. The PICPA offers more than 400 seminars across Pennsylvania each year. Search the online course catalog at www.picpa.org/coursesearch for a full list of upcoming courses.

Online Learning

Self-Study

PICPA’s online learning options come Think of self-study as on-demand in two forms – webinars and webeducation or CPE at your fingercasts. Online learning is the perfect tips. Simply choose and purchase a fit for a busy schedule, last-minute course, view it at your leisure, and credits, or coverage of a late-breaking take the test online. There’s no wait topic. What’s the best part of choosto see your test score; it’s graded ing online learning? You can take instantly. As soon as you finish the course from the convenience and pass the test, a certificate of of your office or the comfort of your completion is added to your PICPA home. account for review. The Pennsylvania Webinars – State Board Webinars range of Accounfrom one to eight tancy accepts hours in length a maximum and can cover just of 40 hours of about any accountself-study per ing topic you can biennial reportimagine. Listen to ing period. the instructor and View PICPA’s follow the presenself-study Scott C. Albert of the Department of Labor tation using the offerings at presented at the 2012 Employee Benefit Plans on-screen slides www.picpa.org/ Conference. provided. You can selfstudy. even ask the instructor questions and Pennsylvania CPAs are required get answers. The PICPA offers more to obtain 80 hours of CPE per reportthan 600 webinars each year. Visit ing period. Of the 80 hours, 16 must www.picpa.org/webinars for more be in A&A, eight must be in tax, and information. four must be in ethics. In addition, Webcasts – A webcast is an ideal there’s a minimum requirement of alternative if you cannot attend a 20 credits per year. This is a reportcourse in person. It is, essentially, ing year, so all CPE requirements a simulcast of a live event. You will must be completed by Dec. 31, see the speakers and presentations 2013. just as you would if you were at the The PICPA has courses scheduled live event. The PICPA offers select throughout the year to help you webcasts for our most popular facemeet the requirement. Search the to-face events in specialized areas course catalog at www.picpa.org/ of accounting. Take a look at the coursesearch to see all offerings. You webcasts planned for this year at can search by keyword, instructor, www.picpa.org/webcast. location, credit type, or date.

Interested in saving money on On-Site Training your education costs this year?

There are two ways to save with Any course you see in the PICPA the ClassPass program. A ClassPass catalog can be delivered directly to card is ideal for individuals, while you, customized to fit your organizaa flex account is better suited for tion’s needs and level of knowledge. organizations looking to educate It’s a budget-friendly, private way to supply your team with the knowledge multiple people. For details, go to www.picpa.org/classpass or see to better serve your clients. For more page 13. details, go to www.picpa.org/onsite.

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

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Image Enhancement

PICPA NEWS

CPAs Share Their Expertise with Legislators From Harrisburg to every corner of the Keystone State, PICPA members work hard to make sure the CPA voice is heard by legislators. The expertise and experience of CPAs help lawmakers see different sides of important issues that affect both the CPA profession and the state’s business climate.

One prominent effort is being led by PICPA’s Fiscal Responsibility Task Force. The task force recently released its second report on how to remedy some of the state’s fiscal issues. The report provides legislators with policy options as they debate Pennsylvania’s fiscal course, and PICPA members can use it as a tool to build relationships with their local representatives.

The State as a Client The Fiscal Responsibility Task Force was created by PICPA Council in 2010 to provide policymakers with objective, third-party CPA expertise and perspective to help them address the Commonwealth’s fiscal challenges. In essence, the task force members would look at the state’s financial situation and approach it as they would a client.

The task force’s first report, released in 2011, tackled three distinct issues: efficiency and streamlining government, pensions, and infrastructure. Following the report release, task force members monitored the legislature’s actions regarding the report’s suggestions. Of note, the Governor’s Council on Privatization and Innovation was created and Peter Calcara, PICPA’s vice president of government relations, was named to the body.

House Bill 726, House Bill 3, Senate Bill 793, Administrative Circular 11-12, and the Governor’s Transportation Funding Advisory Commission were all introduced following the report’s release and complemented

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the suggestions made in the first report.

New Challenges

intellectual horsepower this organization brings to the table.”

The media are also impressed.

Newspapers and TV news broadcasts

The task force’s 2013 report updates the progress on the first set of recommendations and includes new sections on financially distressed municipalities (Act 47), prevailing wage, and taxation. These were added because the task force believes these are the next level of critical issues affecting the state’s fiscal stability and Rep. Gordon Denlinger (third from right) and members of the financial well-being. SuPICPA Fiscal Responsibility Task Force in Harrisburg. san E. S. Howe, chair of the Fiscal Responsibility Task Force, have covered both reports and have says, “This year, there is an advaninterviewed task force members to tage with the release of our second get details on the recommendations. report. Because the first report was Member Activity well-received, legislators are looking for our insight. It helps strengthen our PICPA members should know that credibility with this key audience and the Fiscal Responsibility Task Force enhances our advocacy efforts. It is report is not simply a list of recomalso a concrete example of our commendations. The report can serve mitment to helping improve Pennsylas the start, or the continuation, of a vania’s economic climate.” conversation between you and your The PICPA hosted a press conferlegislators. Many elected officials ence on Feb. 13, 2013, in the Capitol depend on, and often base their decito announce the report. Two CPA sions on, what they learn from their legislators, Reps. Gordon Denlinger constituents. Read over the report and George Dunbar, were there to and make yourself familiar with its express their support. recommendations. When you speak with your representative, make these Audiences Take Notice issues relevant to his or her district.

“We hope members will use this In the 2013-2014 legislative session, report to educate state lawmakers there are a total of six CPAs in the about these important issues,” CalGeneral Assembly. Denlinger (R-Lancara explains. “It serves as a catalyst caster), who is also a PICPA member, has spoken out in support of the work for discussing these important public policy issues.” the task force has done. “The small You can find more information contingency of CPAs who are elected about the Fiscal Responsibility Task officials value the PICPA very deeply,” Force by visiting www.picpa.org/fisDenlinger said. “As a long-time memcal. This web page features reports, ber of the PICPA, and knowing many press releases, videos, event photos, of the excellent professionals who and other supporting materials. are in it, I see the knowledge and

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

PICPA NEWS

Member Recognitions

CPAs Offer Hand to Public Dangling Over Cliff As 2012 came to a close, dread over the “fiscal cliff” reached its peak among an anxious public. Many media outlets approached financial experts to get their opinions on the looming fiscal uncertainty being faced by the federal government. Our member CPAs were among the leaders providing input in Pennsylvania.

Robert C. Jazwinski, Northwestern Chapter, was quoted in a CCH Federal Tax Weekly article, “White House, GOP Launch Negotiations on Looming Fiscal Cliff.”

Jeffrey S. Berdahl and Susan D. Jarvis, both from Lehigh Valley Chapter, were quoted in the Lehigh Valley Business article “Uncertainty Has Accountants Perched on the ‘Fiscal Cliff.’” Also, Berdahl, Ken W. Seidel, Reading Chapter, and Mark B. Zinman, Greater Philadelphia Chapter, were quoted in “Deal Avoids Fiscal Cliff, But What’s Around the Bend for Business?” In the Morning Call, Mary

Experts in the Field

Central Chapter, provided input into succession planning in the farming and agricultural industry.

On CitizensVoice.com: Michael F. McHale, Northeastern Chapter, was quoted in the article “Scranton’s Pension Funds Woefully Underfunded.”

In the Courier Times: Terry A. Cantor, Greater Philadelphia Chapter, was quoted in the article “Cawley Touts Opportunities of Natural Gas Drilling.”

Maria T. Mecleary and Zalig H. Stein, both of Greater Philadelphia Chapter, were quoted in “Money Money.”

In the Erie Times-News: Gilbert A. Jacobs, Erie Chapter, authored the article “We Need ‘Followership,’ Not Just Leadership.”

In Forbes: Thomas J. Menk, Pittsburgh Chapter, was quoted in “Protecting a Business Against Partners’ Credit Woes.”

On Fox 34: David A. Welber, South Central Chapter, provided insight into

Ken W. Seidel, Reading Chapter, who discussed the topic.

On WeAreCentralPa.com, Patrick J. Fiore, Central Chapter, was quoted in “Local Impact of Fiscal Cliff Deal.”

Craig C. Moffatt, Erie Chapter, contributed to the WICU-12 story “Fiscal Cliff Frustration.” On WICU-TV, Michael S. Neubauer, Erie Chapter, also provided insight on the matter.

On KYW Radio and CBS Local online, James J. Newhard, Greater Philadelphia Chapter, was quoted in “Fiscal Cliff Compromise Means Less Money in Your Paycheck.”

Erik V. Scully, Pittsburgh Chapter, provided insight to KDKA-TV on cliff issues.

The media were not the only places CPAs shared their expertise on this matter. They also went straight to the public. For example, Sheila A. Handy, Northeastern Chapter, presented Money & Life: The Fiscal Cliff to the staff of Monroe Public Library.

climbing out of holiday debt.

In the Hatboro-Horsham Patch: Vincent M. LaSorsa, Greater Philadelphia Chapter, was quoted in the article “Hatboro Council: No Tax Hike in 2013.”

In the Herald Standard: Clayton E. Gregg, Pittsburgh Chapter, was quoted in “Tenant Airs Lease Concerns to Airport Authority.”

On KYW Newsradio: Jacquelyn M. Basso, Greater Philadelphia Chapter, provided insight into getting finances in order for 2013. Gerald F. Glynn, Greater Philadelphia Chapter, spoke about Cyber Monday tax implications.

Russell T. Hauer, Greater Philadelphia Chapter, spoke about what happens if you don’t file your taxes for years.

Matthew D. Melinson, Greater Philadelphia Chapter, spoke about lowering tax penalties for delinquent taxpayers.

Glen Shinners, Greater Philadelphia Chapter, provided insight into when ▲

In the Altoona Mirror: John E. Ramsey, Central Chapter, provided insight into year-end tax planning.

For the Associated Press: Jeffrey S. Berdahl, Lehigh Valley Chapter, was quoted in the article “Q&A: How Taxes Might Affect Small Businesses in 2013.”

In the Business Journal Daily: John C. Stillwaggon, Northwestern Chapter, was referenced in the article “Penn-Northwest CEO Reports Progress, Potential.”

In the CCH Federal Tax Weekly: William R. Lazor, Northeastern Chapter, was quoted in “2013 Filing Season to Begin January 30; Longer Wait for Some Filers.”

In the Central Penn Business Journal: Pamela J. Bazella, South Central Chapter, provided insight for the article “Early Dividends Endeavor to Evade Tax Bite.” Thomas J. Taricani,

Lew Kehm, Lehigh Valley Chapter, was quoted in the article “Fiscal Cliff Breeds Paycheck Uncertainty.”

In the Northeast Pennsylvania Business Journal, Barry H. Williams, Northeastern Chapter, provided insight on the looming cliff issues.

John R. Steffee, South Central Chapter, aided the Patriot-News by providing details on the crisis.

The Pittsburgh Business Times had several articles on the topic. Gilbert E. Davis and Earl H. Kaiserman, both of Pittsburgh Chapter, were quoted in “Accountants, Tax Advisors Prepare Clients for Fiscal Cliff.” Pittsburgh Chapter members Victor D. Dozzi Jr., Joan Ellenbogen, and Darin G. Schindler provided insight for the article “Cliff Deal Leaves Much Work Undone for Business Community.”

In The Reading Eagle, Sarah L. Tracy, Reading Chapter, provided insight into the fiscal cliff, and in The Reading Eagle Business Week it was

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

45

Member Recognitions the IRS would start accepting tax returns.

In the Lebanon Daily News: Francis X. Ryan, South Central Chapter, authored the article “America Approaching Fall and Rebirth.”

In Lehigh Valley Business: David D. Bilger and Jonathan S. Levin, both of Lehigh Valley Chapter, were quoted in the article “Face-to-Face Accounting vs. Online Services.” Andrea L. Caladie, Northeastern Chapter, was quoted in the article “Pennsylvania’s Pension Crisis to Dominate 2013 Headlines.” Randal R. Dietz, Lehigh Valley Chapter, was profiled in the “Behind the List” feature. Robert E. Duquette, Reading Chapter, authored the article “We Must Demand a Responsible Path to Fiscal Reform.”

Cheri H. Freeh, Lehigh Valley Chapter, was the feature of the article “Quaker-

town CPA named among ‘Most Powerful’ in U.S.” Freeh, Denise J. Hozza, Maureen H. Thomson, and Loretta M. Tubiello-Harr, all of Lehigh Valley Chapter, were quoted in the article “Figuring Out How to Retain Women in the Accounting Field.” Casey H. Hoch, Lehigh Valley Chapter, was quoted in “Estate Tax Planning Needs Attention Now, Experts Advise.”

Louis J. LeMaster, Lehigh Valley Chapter, was quoted in “By All Accountings, Companies Need Leadership Succession Plans.” Robert E. Miller Jr., Reading Chapter, provided insight in the article “Three Tax Breaks That Businesses Often Overlook.”

In the Managed Healthcare Executive: Mark A. Master, Greater Philadelphia Chapter, was quoted in “Healthcare Is on Washington’s Fiscal Cliff.”

PICPA NEWS In Milestones, a Philadelphia Corporation for Aging newsletter: Rosalind W. Sutch, Greater Philadelphia Chapter, provided insight into how to choose a tax preparer.

In the Morning Call: Patrick J. Brennen, Lehigh Valley Chapter, authored the article “Romney Merely Takes Advantage of Tax Laws.”

In the Northeast Pennsylvania Business Journal: Eric J. Bleiler, Northeastern Chapter, authored the articles “Your Money: Time to Organize” and “Your Financial Future: Sorting the Pieces of the Puzzle.”

In the Patriot-News: Jeremy M. Allen, South Central Chapter, provided insight into year-end tax planning.

In the Philadelphia Business Journal: Joseph W. Beach III was quoted, and David H. Glusman and Saul V. Reibstein were referenced, in the

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46

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

Member Recognitions

PICPA NEWS

in City, May Move All Operations.”

In the Philadelphia Inquirer: Joseph W. Beach III, Greater Philadelphia Chapter, was quoted in “Philly Deals: Two Center City Accounting Firms Will Now Be One.” James M. Brower Jr., Greater Philadelphia Chapter, provided insight into the fiscal cliff and if the Pennsylvania Turnpike Commission’s free cars could be considered part of a salary.

Jerry J. Maginnis, Greater Philadelphia Chapter, wrote a letter to the

editor, “CPAs in General Assembly.”

In Philadelphia Smart CEO: Mark S. Carrow, Greater Philadelphia Chapter, authored the article “Wax On, Wax Off: Be a Better Teacher, Grow a Better Reputation.” Frederick E. Schea, Lehigh Valley Chapter, and Brian C. Zwaan, Greater Philadelphia Chapter, were roundtable experts in “Loan Rangers: Philadelphia’s Finest in Finance Share the Secrets to Business Banking.”

On Philly.com: Harry S. Gross,

▲

article “Both Parties Optimistic over the Marriage of BDO, Asher.”

All three are Greater Philadelphia Chapter members. Frank A. Farnesi, Greater Philadelphia Chapter, was referenced in “Cuddy Change at Beneficial a Best Practice.” Edward R. Jenkins Jr., South Central Chapter, provided insight on Congress’s handling of the fiscal cliff and debt ceiling. Jay L. Weinstein, Greater Philadelphia Chapter, was quoted in the article “EisnerAmper to Open

PICPA Members Serving on AICPA Committees The PICPA recognizes its members who contribute their time to represent Pennsylvania’s CPAs on a national level.

PICPA Member

AICPA Committee(s)

PICPA Member

AICPA Committee(s)

Christopher M. Allegretti

AICPA Major Firms Group

Robert C. Jazwinski

AICPA Council

Karen L. Benson

AICPA Council

Edward R. Jenkins Jr.

Robert C. Bezgin

Peer Review Board Oversight Task Force

International Taxation Technical Resource Panel

Rudolph J. Bilich Jr.

AICPA Council

Kara S. Kessinger

Personal Financial Planning Executive Committee

Matthew E. Bogusch

Information Management and Technology Assurance Executive Committee

Robert H. Krebs Jr.

Joint Trial Board

Betsy E. Krisher

Not-for-Profit Organizations Expert Panel Guide Task Force

Robert A. Lavenberg

Employee Benefits Plans Audit Quality Center Executive Committee

John J. Malahoski

Professional Ethics Executive Committee

Kevin M. Mitchell

Uniform Accountancy Act Committee

Glenn S. Newman

CFF Exam Development; Journal of Accountancy Editorial Advisers

James T. O’Brien III

Forensic and Litigation Services Litigation Process Task Force

Robert J. Orzechowski Jr.

Financial Reporting Executive Committee; Forensic and Valuation Services Executive Committee; Impairment Task Force

Raymond W. Buehler Jr.

AICPA Major Firms Group; Nominations Committee

Thomas Bunting III

International Federation of Accountants Convergence/Monitoring Task Force – Standing Task Force of the Professional Ethics Executive Committee

Stephen W. Christian

Professional and Personal Liability Insurance Plan

Robert J. Ciarruffoli Jr.

AICPA Major Firms Group

Stacy P. Collins

AICPA Family Law Task Force; Forensic and Litigation Services Family Law Task Force

Charles R. Curran

Trust Service Principles and Criteria Revision Working Group

David M. Duffus

Damages Task Force

Barry M. Pelagatti

Depository Institutions Expert Panel

Robert F. Firely Jr.

AICPA Council

Keith C. Peterka

Cheri H. Freeh

AICPA Council

Private Company Practice Section Technical Issues Committee

Michael J. Gallagher

Professional Practice Executive Committee

Heather Reimann

Peer Review Board – Standards Task Force

Steven J. Geisenberger

AICPA Council; Uniform Accountancy Act Committee

Mark J. Ross

Health Care Expert Panel

Philip J. Santarelli

Professional Practice Executive Committee

Mary C. Green

IRS Practice & Procedures Committee

Glenn R. Spinello

Stephen H. Heilman

Financial Accounting & Reporting Subcommittee

Forensic and Valuation Services Consulting Digest Technical Advisory Board

James E. Traut

Timothy C. Hilbert

AICPA Council

COSO Internal Control Integrated Framework Exposure Draft Task Force

Richard A. Hilliard

Forensic and Valuation Services Consulting Digest Technical Advisory Board

Eric P. Wallace

Financial Reporting Framework for Smalland Medium-Sized Entities Task Force

Philip G. Hirsch

Business and Industry Executive Committee

J. Andrew Weidman

AICPA Major Firms Group

Kenneth N. Hugendubler

Insurance (Life and P&L) Expert Panel

Albert J. Isacks

Tax Practice Management Committee

Stephanie A. Westington

Confirmations Task Force

Richard E. Wortmann

National Peer Review Committee

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

47

Member Recognitions Greater Philadelphia Chapter, authored the articles “An Investment Idea to Die For” and “Confused on How Annuity Tax Works?”

In The Philly Post: Gene J. Marks, Greater Philadelphia Chapter, authored “In Philadelphia, Small Businesses Get Plenty of Support.”

In the Pittsburgh Business Times: David G. Bluemling, Daniel P. Holthaus, Joel W. Katz, and John P. McCann, all of Pittsburgh Chapter, were quoted in the article “Tax Planning Should Be Done with Expectation of Higher Rates.” Bluemling, Katz, McCann, William G. Finnecy, Erie Chapter, Earl H. Kaiserman, Pittsburgh Chapter, Marc A. Levine, Pittsburgh Chapter, Paul K. Rudoy, Pittsburgh Chapter, and Lawrence J. Sipos, Pittsburgh Chapter, provided answers for the article “From the Experts: What to Watch for in

PICPA NEWS Awards & Designations

Cynthia Ann Dotzel, South Central Chapter, received a Professional Advisor Recognition Society Award from York County Community Foundation.

Stephanie M. Hollick, North Central Chapter, was named one of the 2012 Women of Excellence by YWCA of Northcentral PA. Martin C. Levin, Lehigh Valley Chapter, and James M. Spencer, Reading Chapter, received their certi2013.” Finnecy, Rudoy, Donna J. DeFilippi, Pittsburgh Chapter, Dennis J. Loughran, Pittsburgh Chapter, and Joseph P. Nicola Jr., Pittsburgh Chapter, were quoted in the article “Obamacare, Loss of Tax Breaks Give Headaches to Accountants.”

Finnecy, Katz, Nicola, Sipos, John R. McMurtry, Pittsburgh Chapter,

fied valuation analyst designations from the National Association of Certified Valuators and Analysts.

Nicholas J. Olson, Greater Philadelphia Chapter, received his certified internal auditor designation from the Institute of Internal Auditors.

David P. Reinsel, Reading Chapter, received the Spirit of Scouting Award from the Hawk Mountain Council of the Boy Scouts of America.

and Mark A. Ulishney, Southwestern Chapter, were quoted in “‘Taxmageddon’ Approaches.” Thomas R. Hileman Sr., Pittsburgh Chapter, provided insight on nonprofits in debt.

Charles H. Leyh, Pittsburgh Chapter, was quoted in “Small Bankers Push Back against Basel III Legislation” and “Credit Unions Want Higher Lending

Young Leaders Award: PICPA Members to Watch* Honoring exceptional young professionals

New, expanded criteria!

Nominees must be: 1. 40 years old or younger (born on or after Jan. 1, 1974) 2. Active volunteers in PICPA- or community-related activities Examples: VË Ë+ + Ë j MjÁËÝ ËÜ Ö ÍjjÁÄËÝ Í Ë ~Ë Á Í jÁÄË ~Ë. ÄÍjÁÄ VË Ë+ + Ë j MjÁËÝ ËW ? ÁÄË?Ë+ + ËW ÍÍjj VË Ë+ + Ë j MjÁËÝ ËÄjÁÜjÄË ËÍ jËM ?ÁaË wË?Ë W? Ë2 ÍjaË8?ß

Nominate a deserving friend, colleague, or employee

by April 30, 2013. Visit www.picpa.org/youngleaders.

J Á jÁ ßË|åË2 ajÁË|å]Ë+ + Ë j MjÁÄËÍ Ë8?ÍW

48

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

Member Recognitions

PICPA NEWS

the Upcoming Tax Year.” Ruthann J. Woll, Reading Chapter, was quoted in the article “To Avoid Clutter, Choose Which Gifts to Keep and Which to Give Away.”

In The Reading Eagle Business Week: Frank J. Tobias, South Central Chapter, provided insight into business corporation law.

In The Saturday Evening Post: Kevin Brosious, Lehigh Valley Chapter, was quoted in the article “New Year, New Investments.”

In the Times Leader: Albert Kishel, Northeastern Chapter, was quoted in the article “Many Wonder if Earned Income Tax Letter Means They Will Pay More.”

In the Times News: Paul E. Buber, Reading Chapter, was referenced in the article “Retirees Denied Cost of Living Increase for Another Year.”

In The Times-Tribune: Robert C. Jazwinski, Northwestern Chapter, wrote a letter to the editor about the number of CPAs in Pennsylvania General Assembly. Michael F. McHale, Northeastern Chapter, was quoted in “Dunmore Passes Tentative 2013 Budget with No Tax Increase Expected.”

John P. Nealon, Northeastern Chap-

ter, authored the article “Exploring Regional Opportunities for Northern Pennsylvania Businesses.”

On TradingCharts.com: Robert J. DePasquale, Southwestern Chapter, provided insight in the article “City Fashions Budget with No Increase in Property Tax.” In The Tribune Democrat: Barry R. Gilchrist, Central Chapter, authored “Ex-Dividend Dates Can Bring Tax Surprise to the Unwary,” “Watch for Tax Angles in Divorce Agreement,” and “Pros and Cons of Dividend Reinvestments.” Patti A. Hudson, Central Chapter, authored the article “Buy-Sell Agreement Allows Contingencies.”

Thomas R. Seitz, Central Chapter, wrote “Ten Year-End Tax Moves That Investors Can Consider,” “Consider Harvesting Capital Gains before Year Ends,” and “Mark These Tax Dates on Your 2013 Calendar.”

On WDIY radio: Cheri H. Freeh, Lehigh Valley Chapter, provided insight into how the PICPA helps consumers and CPAs. On WFMZ-TV: David A. Caplan, Greater Philadelphia Chapter, was interviewed for a piece about tax filing tips.

On WITF-FM: John R. Steffee, ▲

Cap.” Kevin P. McQuillan, Pittsburgh Chapter, wrote “The Ten: Tax Planning Strategies for Businesses.” Joseph W. Nocito and Robert H. Young, both of Pittsburgh Chapter, provided insight for “Third Quarter Sees Increased M&A Activity Over Previous Year.” Alexander Paul, Pittsburgh Chapter, was quoted in “M&A Activity Up as Companies Rush to Complete Deals,” and “Tax Uncertainty Leads to 4Q Boom in M&A Activity.”

In the Pittsburgh Post-Gazette: Susan M. Harry, Pittsburgh Chapter, provided insight into year-end tax planning. Paul K. Rudoy, Pittsburgh Chapter, provided information on tax filing delays.

In the Pittsburgh Tribune Review: Mary G. Bachorski, Pittsburgh Chapter, provided insight on nonprofit 1099s. Jeffrey J. Petrell, Pittsburgh Chapter, provided insight into nursing home 990 forms.

In The Reading Eagle: Joseph A. Pancerella, Reading Chapter, was quoted in the articles “Hanging On, For Now: Families in Berks County Now Must Learn to Manage a Tax Hike” and “Uncertainty about Tax Cuts Makes It Difficult to Plan for

Obituaries Nathan Cooperstein, Greater Philadelphia Chapter, died July 1. He joined the PICPA in 1954 and was a life member.

John J. Hannigan, Greater Philadelphia Chapter, died May 9.

Hannigan was the founder of John J. Hannigan CPA. Previously, he served as president of Springfield Federal Savings and Loan. Hannigan joined the PICPA in 1983.

Terence K. Heaney, Greater Philadelphia Chapter, died Dec. 2. He was a partner with the law firm of Heaney Kilcoyne Bleczinski & Kelm. A popular lecturer at PICPA’s state and chapter tax conferences, Heaney joined the PICPA in 1974.

Francis A. Linsalata, Greater Phil-

adelphia Chapter, died June 24. He most recently was the sole proprietor of Francis A. Linsalata CPA. Linsalata joined the PICPA in 1990.

Raymond P. Logan, Stone Harbor, N.J., died June 16. Prior to retiring, he worked for H&R Block Executive Tax Service. Logan joined the PICPA in 1950 and was a life member.

Joseph J. Mallace, Greater Philadelphia Chapter, died Oct. 18. He was the sole proprietor of Joseph J. Mallace CPA. Mallace joined the PICPA in 1963 and was a life member.

Alfred F. Matarazzo, Greater Philadelphia Chapter, died Sept. 29.

He joined the PICPA in 1970 and was a life member.

Jerome F. Mauze, Greater Phila-

delphia Chapter, died Nov. 15. He joined the PICPA in 1961 and was a life member.

Robert F. Nation, South Central Chapter, died Aug. 26. Nation joined the PICPA in 1955 and was a life member.

Wilbur J. Siebert, Northwestern Chapter, died July 2. Prior to retiring, he was a partner with George H. Daggett & Co. Siebert was a life member.

Edward G. Sutula, Greater Philadelphia Chapter, died Nov. 27. Prior to retiring, he taught accounting at St. Joseph’s University and at Villanova University. Sutula joined the PICPA in 1958 and was a life member.

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

49

Member Recognitions

PICPA NEWS

Promotions Timothy L. Adams, Northwestern Chapter, and Teah M. Donegan, Pittsburgh Chapter, were promoted to managers with Carbis Walker LLP. Joshua K. Donai, Pittsburgh Chapter, was named supervisor.

Todd R. Boslau, Pittsburgh Chapter, was elevated to partner with ParenteBeard LLC. David C. Capitano, Northeastern Chapter, was promoted to firmwide director of accounting and auditing, and Terry L. Lehman, South Central Chapter, was promoted to Pennsylvania and Maryland regional managing partner. John P. Nealon, Northeastern Chapter, was promoted to Northeastern Pennsylvania regional managing partner. Jill A. Martin, Northeastern Chapter, was named a partner with the tax services practice. John J. Reynolds, Northeastern Chapter, is now a principal with the firm’s audit and accounting practice.

Melissa A. Boyce, Greater Philadelphia Chapter, rose to managing associate with Drucker & Scaccetti PC. Ryan B. Brown, Jessica L. Lacklin, and Alys B. Snoke, all of South Central Chapter, were promoted to senior managers with Brown Schultz Sheridan & Fritz. Jeffrey N. Clippinger, South Central Chapter, is now a supervisor, and Erin Dinsmore and Tamara L. Bechtel, both of South Central Chapter, were named senior staff accountants.

Karen A. Burns, Erie Chapter, was elevated to manager with Malin Bergquist & Co. Leah K. Kistler and Lindsey R. Richards, both of Erie Chapter, were promoted to supervisors. Allison N. Jones, Erie Chapter, John M. Kuhn, Erie Chapter, Gina M. Pelino, Pittsburgh Chapter, and Douglas B. Woolslare, Erie Chapter, were named senior accountants.

Michael A. Caffrey, Greater Philadelphia Chapter, is now a senior accountant with Isdaner and Company LLC. James V. Capone, Greater Philadelphia Chapter, was promoted to

50

vice president of finance and administration with SES Advisors Inc. Christopher M. Chipman, Greater Philadelphia Chapter, has risen to CFO and COO with Garfield Refining Company.

James H. Cox, Reading Chapter, was promoted to CFO with Weidenhammer Systems Corp.

Lori C. Ehleben, Greater Philadelphia Chapter, was named a partner with Douglas L. BBD LLP’s investment Berman management group.

Cory Eisenhofer and Megan N. Neff, Reading Chapter, are now senior accountants in the accounting and auditing Lori C. Ehleben department with Herbein & Company Inc. Sarah A. Fox and Joseph C. Jarosh, both of Northeastern Chapter, were named directors with McGrail Merkel Quinn & Associates. Stephanie Laurie E. Harvey M. Tulaney, Northeastern Chapter, was promoted to manager.

Clayton E. Gregg, Pittsburgh Chapter, was promoted to partner with McClure & Wolf LLP. Kara S. Laurie E. Harvey, Kessinger Greater Philadelphia Chapter, was promoted to partner with Maillie Falconiero & Company LLP. William Breslawski Jr., Greater Philadelphia Chapter, and Shawn M. Cahill, Reading Chapter, were named principals.

Kara S. Kessinger, Greater Philadelphia Chapter, was promoted to partner with CliftonLarsonAllen LLP. Wendy M. Lakatosh, Reading Chapter, was elevated to partner with Reinsel Kuntz Lesher LLP. Douglas L. Berman, South Central Chapter, was named managing partner of the York office. Tracy Montag, South Central

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

Chapter, was promoted to manager with the senior living services consulting group, Deborah S. Rock, Northeastern Chapter, was promoted to manager with the tax services group, and Bethany L. Slaymaker, Reading Chapter, was promoted to manager with the audit services group in Reading.

Bradley P. Lusk, Pittsburgh Chapter, was named managing partner with Sisterson & Co. Wendy M. LLP. Daria D. Palaschak, Lakatosh Pittsburgh Chapter, was promoted to partner.

Andrew J. Michal was named a partner with KPMG LLP’s Pennsylvania real estate and private Bradley P. Lusk equity audit practices.

Brian J. McCann is now advisory managing director with KPMG. Both are Greater Philadelphia Chapter members.

Bryan M. Reasons, Greater Philadelphia Frederick A. Tabor Chapter, is now senior vice president and CFO with Impax Laboratories Inc. Frederick E. Schea, Lehigh Valley Chapter, was elevated to president and CEO with First Savings Bank of Perkasie.

Adam D. Smith, Pittsburgh Chapter, was promoted to senior associate, assurance and advisory services, with Grossman Yanak & Ford LLP. Erika F. Deiseroth, Pittsburgh Chapter, was named manager with the department.

Michael T. Stefanski, Greater Philadelphia Chapter, has risen to senior vice president of investor relations with Verizon Communications Inc. Frederick A. Tabor, South Central Chapter, was promoted to director of credit union services with Padden Guerrini & Associates PC. Nathan J. Babinsack, South Central Chapter, is now manager of senior living services.

Member Recognitions

PICPA NEWS South Central Chapter, answered questions about year-end tax planning and what to expect in 2013.

Public Speakers Richard J. Anderson, Greater Philadelphia Chapter, presented “Money & Life: Budgeting” to staff members of the Pennsylvania Convention and Visitors Bureau.

Dennis K. Barnes, Williamstown, N.J., presented “Money & Life: Credit Repair” to patrons of the David Cohen Ogontz branch of the Free Library of Philadelphia.

Gary A. Frey, Lehigh Valley Chapter, presented “What Will I Have to Pay?” to members of the Greater Lower Nazareth and Greater Northern Lehigh Chambers of Commerce.

Karen M. Hazleton, Northeastern Chapter, spoke about taxes at the Northeastern Pennsylvania Coast Guard Veterans Association.

James W. Kaiser, Greater Philadelphia Chapter, spoke at the Knowledge Congress’s webcast “New FASB Fair

Value Disclosure Requirements.”

Lisa A. Myers, South Central Chapter, spoke to a Penn State Harrisburg auditing class about auditing.

She also spoke to the Pennsylvania Society of Association Executives on internal controls and fraud.

Catherine A. Ponist, Greater Philadelphia Chapter, spoke about choosing the right business structure at a Women’s Business Forum meeting.

William L. Stunkel, Pittsburgh Chapter, presented “Money & Life: Learning to Save” to patrons of the Monroe Public Library.

Brian R. Walker, Pittsburgh Chapter, spoke to accounting classes at Indiana University of Pennsylvania.

The following Reading Chapter members (unless otherwise noted) participated in a career day at Muhlenberg Middle School: Frances A. Aitken Christopher M. Barto Christopher M. Farah David E. Goss Steven G. Rhoads, Lehigh Valley Chapter

The following PICPA members presented the “Take It to the Bank” financial literacy program to Girl Scouts throughout the state. All are Greater Philadelphia Chapter members unless otherwise noted: Stephen J. Campellone Avri Dub Lynda R. Guinan Cynthia B. Hanscom Susan E. Neumann Samuel J. Siracuse, Northeastern Chapter Carrie R. Yanez, Pittsburgh Chapter The following Greater Philadelphia Chapter members presented financial literacy basics to students at the Philadelphia School District’s Philadelphia Youth Conference: Robert J. Capriotti Julius C. Green Vincent D. Malazita Glenn S. Newman Matthew L. Robbins More on Members For appointments, new hires, and more, go to www.picpa.org/journal.

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Position Wanted Careers/Position Wanted. Retired quality control reviewer (Southeastern Pa.) available for quality control reviews and internal annual inspection for compliance for peer review. E-mail davidlgittescpa@hotmail.com.

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Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

51

What Do You Think?

Is There No Accounting for Education?

A

s I watched the Super Bowl this year, I was surprised to see two commercials from Gwynedd-Mercy College. While they were shown only in the local Philadelphia market, I could not recall many college or university advertisements during prime-time TV, especially an event as high-profile as the Super Bowl.

The cost for advertising during the Super Bowl is expensive, even if it’s just in the local market. I applaud Gwynedd-Mercy for doing something different. The ad, however, made me think about what colleges and universities are doing to attract the next generation of students. It is unusual to pass an institution of higher education today and not notice some level of construction taking place. New educational buildings, athletic facilities, and dormitories are always being constructed. This construction is going up while federal and state funding to colleges is going down, and tuition costs continue to outpace inflation.

While tuition and operating costs are increasing, technology continues to drive down the cost of delivering education and less-expensive community colleges are seeing increased enrollments. Both are providing value alternatives for students compared with traditional fouror five-year programs.

In the last issue, I discussed changing demographics and opportunities for the accounting profession. One of those demographic trends centered on filling our pipeline with new accounting graduates to replace retiring professionals. The AICPA and state CPA societies have invested a lot over the past decade, in both money and volunteer hours, to drive up enrollments in accounting programs at the same time that 150 hours of education became a reality in many states. The number of students earning accounting degrees has enjoyed a resurgence in recent years, but our challenge will be to continue attracting the best and the brightest students into a profession that has strong projections for growth over the next 10 years. The Education column by Rose Marie L. Bukics, CPA, which can be found on page 14, discusses the various approaches colleges and universities have developed to fulfill this need.

How will the profession continue to remain relevant to future generations who have to make serious economic decisions on how to best accomplish their goals? In July 2012, the American Accounting Association and the AICPA released the result of a two-year study, The Pathways Commission: Charting a National Strategy for the Next Generation of Accountants. The report provides seven

recommendations to engage and retain the strongest possible community of students, academics, practitioners, and knowledge leaders in the practice and study of accounting.

The recommendations are directed at both the accounting education and practice communities. One recommendation encourages better integration of accounting research, education, and practice for students, accounting practitioners, and educators. Its objectives include integrating more professionally credentialed faculty into accounting education, programs, and research; focusing more accounting research on relevant practice issues; enhancing the value of practitioner-educator exchanges; and integrating accounting research into courses and programs.

The other six can be summed up as follows: UÊ Develop mechanisms to meet the future demand for faculty and explore alternative pathways to degrees that align with institutional missions, accounting education, and research goals.

UÊ Reform accounting education so that teaching is rewarded as a critical component in achieving the mission.

UÊ Develop curriculum models and resources for easy sharing and to enhance faculty development opportunities.

UÊ Improve efforts to attract high-potential, diverse entrants into the profession.

UÊ Collect, analyze, and disseminate information about the current and future markets for accounting professionals and accounting faculty.

UÊ Establish an implementation process that addresses recommendations by creating mechanisms that make the accounting change process more continuous and sustainable.

The entire report and detailed recommendations are available by searching for “Pathways Commission” at www.commons.aaahq.org.

The challenges ahead for the profession and educational institutions are great. This report is a good starting point for serious discussions. The profession’s aging population and subsequent retirements will impact educators just as they will affect practitioners. Changing approaches, like Gwynedd-Mercy College’s advertising during the Super Bowl, will continue to happen, and CPAs need to participate to be a part of the solution.

What do you think about the state of accounting education in Pennsylvania?

Share your thoughts with Michael D. Colgan, CAE, CEO and executive director of the PICPA, at mcolgan@picpa.org.

52

Pennsylvania CPA Journal | Spring 2013 | www.picpa.org

ARE YOU A RECENT COLLEGE GRADUATE SEEKING TO BECOME A CPA? AN ACCOUNTING STUDENT PREPARING TO MEET THE 150-HOUR CPA REQUIREMENT?

La Salle School of Business Offers: t 5IF NPTU DPNQSFIFOTJWF TPMVUJPO UP UIF DSFEJU IPVS SFRVJSFNFOU OP NBUUFS XIBU ZPVS CBDLHSPVOE t 0OF ZFBS .#" QSPHSBN TQFDJGJDBMMZ EFTJHOFE GPS SFDFOU HSBEVBUFT t $PVSTFXPSL UBSHFUFE UP UIF DSFEJU SFRVJSFNFOU UP TJU GPS UIF $1" &YBN t 'PVS :FBS #4 .#" 1SPHSBN JO "DDPVOUJOH t "DDSFEJUFE CZ UIF "TTPDJBUJPO UP "EWBODF $PMMFHJBUF 4DIPPMT PG #VTJOFTT SFQSFTFOUJOH UIF UPQ PG CVTJOFTT TDIPPMT XPSMEXJEF t 0WFSTFBT USBWFM TUVEZ DPVSTF t 4UBUF PG UIF BSU DVSSJDVMVN t -JNJUFE DMBTT TJ[FT MFE CZ FYQFSU GBDVMUZ t "O FOWJSPONFOU UIBU IFMQT ZPV CVJME MFBEFSTIJQ TLJMMT t 4USPOH UJFT UP OBUJPOBM BOE SFHJPOBM $1" GJSNT UISPVHI 1IJMBEFMQIJB MPDBUJPO BOE JOUFSOBUJPOBM SFQVUBUJPO t (PME $IBQUFS PG #FUB (BNNB 4JHNB UIF )POPS 4PDJFUZ PG ""$4#

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