Irving, Texas is a recipient of the 2012 Malcolm Baldrige National Quality Award, the nation’s highest Presidential honor for performance through innovation, improvement and visionary leadership. Irving is only the second municipality to receive the award in its 25-year history.
City Manager Tommy Gonzalez said Irving has reduced costs by $44 million and improved satisfaction service levels by double digits.
“We reduced our work force by 10 percent without laying anyone off or implementing furloughs and, at the same time, increased benefits,” he says. “We identified numerous efficiencies that resulted in 50,000 labor hours saved. Code enforcement improved by 88 percent, and we dropped the number of days to turn around commercial building permits from 16 to three and a half. These efforts culminated with Irving retaining its AAA bond rating from Standard & Poor’s and Moody’s during a recession, while offering residents and business owners among the lowest tax rates and water fees in North Texas.”
Smart Business spoke with Gonzalez about the way Irving works with businesses and how to apply these lessons.
How should a good relationship between a business owner and the municipality work?
Good communication between the city and business community is important. By having a proactive communication flow, the city gets intelligence on issues business owners are having with city processes. For example, Irving was considering an ordinance that would impact the certification of restaurant servers. Because the city reached out to businesses, it was able to make the ordinance helpful to customer safety but not so onerous to implement. Another example was a state highway project through the middle of Irving where the city and the chamber of commerce coordinated with the state to help businesses relocate and/or work with the department of transportation.
So, both sides need to reach out to each other?
Yes. Irving has 39 different ways to communicate with customers — in this case businesses — like newsletters, our website, Facebook, Twitter, email blasts, etc. If there’s a new project, the city can let others know how it might impact them and keep them in the loop.
What are some of the best ways through government bureaucracy and red tape, including navigating the permit process?
The city made an effort to speed up the permit process because when a business is building a large structure, in order to create several hundred jobs, and in some cases thousands of jobs, you don’t want to hold up the work. Irving’s permitting process now takes three and a half days after eliminating unnecessary steps. Using incentives, Irving built a new culture and a new way of thinking. Another way to minimize the red tape is through surveys. Between random and point of service surveys, done at the departmental level, the city can listen and then change the way it does business. Many times problems or improvements are obvious to business owners, but not to the city.
Aside from letting the municipality know about issues, when business owners show up for permits, bring as much information — plans and documents — as you can. Those that come forward with complete and comprehensive information in hand will get processed quicker.
How can local entities assist employers with state or federal issues?
Cities can work in cooperation with businesses on some developmental opportunities. In some cases Irving has received federal grants that not only help the public sector but also tie in with private development, especially for environmental issues. The local government also can supplement state or federal services. For example, the state picks up litter along state highways twice a year, but Irving stepped in to pick up litter more often, resulting in a cleaner highway that people assume is safer, which in turn increases the community’s value.
Tommy Gonzalez is city manager of Irving, Texas. Reach him at (972) 721-2521 or firstname.lastname@example.org. Visit the Greater Irving-Las Colinas Chamber of Commerce at www.irvingchamber.com.
Click for the National Institute of Standards and Technology’s profile on Irving — Baldrige: Irving is ‘A Lone Star Model of Fiscal Achievement.'
Insights Economic Development is brought to you by the Greater Irving-Las Colinas Chamber of Commerce
As a result of the Patient Protection and Affordable Care Act (PPACA) and its effects, employers are taking steps to manage the cost of care by moving toward self-funded insurance and greater oversight of health benefit plan subcontractors. Others are making a cost trade-off between the tax burden of providing versus not providing coverage.
Selvadas Govind, a senior manager in Assurance Services at Weaver, says it’s too soon to say whether costs will go up or down in our complex health care system.
“The only thing one can do is try to manage the risks that are presented at a particular point in time,” he says. “You’re not going to be able to influence the market or analyze it in any significant way.”
Smart Business spoke with Govind about some of the risks employers face in this new era of health plan benefits.
What is the impact of companies increasingly self-insuring?
Larger businesses are making the shift toward self-insurance, which is more transparent in terms of management. Insurers no longer go to a company and give them a rate; rather, companies can pay medical costs themselves and hire a third-party administrator (TPA) to handle administration. It’s a great business practice, but the downside is employers are on a less-than-level playing field with insurance companies that know how the industry works.
It’s a big risk that needs to be managed, and many organizations are not in a position to mitigate those risks. In fact, one study found employer audits of TPAs had error rates for medical claims of 3 percent to 16.8 percent. Similarly for pharmacy benefit programs, errors ranged between 3 percent and 8 percent. A 3 percent error rate by a plan’s pharmacy benefit manager in a medium-sized entity of 2,000 employees can amount to an overpayment of $155,000. For this reason, it is often worthwhile to bring in external auditors with specialized knowledge to mitigate this risk exposure.
Employers also need greater oversight of health benefit plan subcontractors. For example, after an employee pays his or her pharmacy co-pay, the balance is charged to a pharmacy benefit manager (PBM) which, in turn, pays off the distributor or manufacturer and submits the claim to the self-insured company. However, there is usually a rebate from the distributor or manufacturer to the PBM. By right, that rebate — which can be quite substantial — belongs to the employer, not the PBM.
How does the individual mandate create new risks for employers?
With the individual mandate and the increased dependent eligibility age of 26, there’s a financial incentive for children to remain on their parents’ health care plans. The risk companies should consider is that some may try to retain children on their plans beyond age 26 and/or include dependents who are not necessarily their own. The benefit of this abuse to perpetrators is that they can choose to pay the lower tax penalty for not having individual coverage and still obtain coverage through their parents at employer-subsidized rates. So, the situation leads to an educated decision on whether it is more cost effective to try to stay on the parents’ plan, pay the penalty for not buying coverage, or buy coverage through an employer or a health benefit exchange.
You can audit this risk, but health benefit plan audits tend to be invasive, which could irritate employees. A way to sensitively handle it is to educate employees on the potential issue and what the cost could be if even a small percentage of employees are dishonest. Companies should also review the amount of evidence required to justify a dependent; however, if the requirements are too stringent, employees could resist.
Are many employers deciding to take the penalties and not offer insurance?
It depends on the attitude of the employer and the type of work force. There will always be employers who offer better benefits than others. However, it’s a very industry-specific question, and in an industry with narrow margins, businesses may simply not be able to offer insurance. There could also be a shift away from full-time employees who qualify for health care benefits to the use of more part-time employees who would not qualify for employee-sponsored health benefits.
Selvadas Govind, MPA, CPA, CIA, CICA, CRMA, senior manager, Assurance Services, Weaver. Reach him at (512) 609-1940 or Selvadas.Govind@WeaverLLP.com.
Insights Accounting is brought to you by Weaver
Small business owners are increasingly concerned about obtaining long-term or short-term business loans, according to a survey by the National Federation of Independent Business. However, by showing enthusiasm and understanding for your business, you can get started in a good way with your banking relationship, thereby increasing your changes of securing a loan.
“Build a support group, have good financial understanding and really keep your books in the best possible order that you can,” says Hank Holmes, president, Texas Region, of Cadence Bank.
Smart Business spoke with Holmes about how business owners can use good financial practices and a trusted relationship with their bank as a foundation for future lending needs.
What does a bank look for in a good borrower?
It’s important for borrowers to be prepared and understand their business as much as possible, including the risks. Often you can talk about the upside — what you can do to generate new revenue — but you also need to understand what could cause you to miss your revenue goals, such as increased expenses from health care or a change in the industry’s environment.
Additionally, many times credit decisions are a function of a small or mid-sized business owner’s personal financial performance and credit history. So, as you’re developing your business, it’s important to maintain your personal financial affairs.
How do you find the right bank?
Start developing a relationship with your current bank. The earlier you can develop that trust and understanding with your banker, the better.
You want a bank that meets your needs and understands it’s a relationship-driven business. That way the banker can alert you when your business could be impacted by trends in other industries. If you have a banker that you’ve dealt with — that you’ve developed a relationship with — typically he or she will know that kind of thing is happening at the same time as you do. They can see when there’s an improvement versus a potential bump in the road.
As a business owner, you also can use your contacts in trade organizations or the industry to reach out and find a bank that understands your industry.
What steps can you take to best prepare for meeting with your prospective banker?
• Have your financial statements in order. Understand the revenue/expense side of your business — have a good grasp of the things that are going to positively and negatively impact your company. There are a number of good options, such as QuickBooks, that can be used to maintain your finances at the highest level you possibly can.
• Be able to explain what your business is and what would influence your financial statements. Is it the price of oil and gas? Is it the cost of electricity? Are you going to be able to get the inventory you need in order to meet the revenue needs of your clients?
• Be aware of your personal capacity and credit worthiness. It’s important to not only be able to run and understand your business, but also maintain your personal credit worthiness as positively as you can. In general, if you’re a company that has revenue of a million dollars or less, banks look at the individual who is driving that business, who is there on a day-to-day basis. And, it’s important for that person to show his or her capacity and support for that credit.
When you build and maintain a relationship with your banker, especially one who understands your business, you can take it one step further. If for some reason you get turned down for a loan, then find out why in order to determine what you can do on the next effort.
Hank Holmes is president, Texas Region, at Cadence Bank. Reach him at (713) 871-3913 or email@example.com.
Insights Banking & Finance is brought to you by Cadence Bank
An effective screening process tailored to each job opening can help eliminate candidates who are unsuitable for a position early in the hiring process and minimize hiring mistakes. And in today’s sluggish economic environment, the process of pre-screening applicants is more critical than ever.
Lisa Deramo, branch manager at The Daniel Group, says taking the time to create individualized assessments is worth the effort.
“You need to be thorough with your interview questions and your screening process,” she says. “Make sure you’re setting somebody up for an assessment or pre-employment test based on the kind of job for which the person is applying.”
Smart Business spoke with Deramo about the importance of assessing a job applicant’s skills, knowledge and personality through testing.
Why should employers use pre-employment assessments?
Tests and other selection procedures screen applicants by gauging skill levels, which helps determine the most qualified candidate for a particular job. A number of assessment tools can be used, including cognitive and personality tests, medical exams, and credit and criminal background checks.
Pre-employment assessments are important for high-skill jobs such as machinists or welders in the manufacturing and oil and gas industries. A welder applicant, for example, might be required to take a welding test and demonstrate his or her ability to read a blueprint. For other jobs, such as receptionist, the applicant should take a software test to prove they can utilize common programs like Excel.
How should the interviewer approach the interview?
As an interviewer, you should tailor your interview questions to each candidate and ask probing questions. It’s important to investigate any gaps in the resume and discover the applicant’s exact experience. For example, if the job opening is for a machinist, it’s important to determine what kinds of products or materials the applicant has worked on.
In addition, look at the candidate’s social skills, personal presentation and other contextual factors while the interview is being conducted. How are they presenting their self? Are they twitching or not making eye contact? Are they outgoing or just sitting back as if they don’t care?
If an inexperienced employee is doing the hiring, it is a good idea have an experienced mentor help throughout the process and possibly sit in on the interview.
How essential are testing or screening measures?
They are important and are commonly used to screen out unsuitable applicants and minimize hiring mistakes. You might do drug and personality testing as well as aptitude and integrity tests. It’s worth taking the time to create the best tests for the job opening.
With aptitude tests, it’s a good idea to have job applicants take both written and performance exams. For example, if the job requires driving a forklift, applicants should be qualified by a skills test, where they’re asked to successfully perform certain commonly used maneuvers, and a written forklift safety test. It’s surprising how many applicants aren’t as strong on the forklift as they claim to be, which can be shown by how they do with the safety questions.
Personality testing is used a lot. Does it make much of a difference?
Personality testing can make a difference. Maybe you’ve got a number of quiet people working in an office and then someone with a strong, dominant personality comes in, making a big impact.
The personality tests are customized, based on what you’re looking for, and give an indication of how people will likely work with each other. Outside sales is a good position for employers to apply that type of test because it can offer clues as to how successful a candidate is going to be.
The outlook for traditional bonds and bond funds doesn’t look great with historically low yields today, and perhaps even lower yields and values on the horizon.
“Our concern today is that people are putting a lot of money into traditional bond funds, seeing the income that these bond funds produce,” says Jim Bernard, CFA, senior vice president and director of fixed income portfolio management, as well as an investment advisor representative at Ancora Advisors LLC.
However, that income is already falling and Bernard says it is going to continue to drop significantly.
“On top of that, the net asset values of these funds will be falling as the bonds they hold move closer to maturity because values today, in many cases, are significantly higher than the face value at which the bonds will pay off,” he says.
Smart Business spoke with Bernard about how the bond market works and what that means for investors’ portfolios.
How does the traditional bond market work?
Bonds are continuously traded based on two things: the risk of the investment and the current interest rate environment. Currently, the likelihood of credit defaults is low for both corporate and government bonds. However, if a company has a history of losing money, you will want to pay a lower price for that bond or demand a higher interest rate in order to offset the risk of not getting your money back at maturity.
Interest rates and bond prices have an inverse relationship — as interest rates go down, bond prices go up. If you own a bond that pays a stated interest rate of 5 percent, due in three years, it would currently be worth more than face value to an investor because bonds maturing in three years are currently only paying 2 percent.
What do low interest rates and falling bond yields mean for investors?
Interest rates are low and have been for almost five years. They will likely stay this way for another two to five years. So the challenge is deciding whether investors should buy bonds that pay low rates of interest or put money in other places — the stock market, commodities, gold, real estate, etc.
If you bought a 15-year bond 10 years ago when interest rates were 5 percent or more, you might be happy. Unfortunately, most people tend to invest in bonds maturing within five years or sooner, and that means their bond holdings are at historically low yields.
What is the difference between owning an individual bond and a bond fund?
With individual bonds, you get the face value of your bonds back at the maturity date or call date, barring a default. In a bond fund, because it is perpetual, you never know what the future value will be.
Most investment advisers would prefer people invest in individual bonds if they have enough money to adequately diversify simply because of the added comfort of knowing what your bonds will be worth at maturity.
If you do not have enough capital to adequately diversify, or are in an instrument such as a 401(k), where individual bonds are unavailable, you may have to invest in bond funds if you want fixed-income exposure. You then must decide whether you are more concerned about the value of your fund or the income it produces.
What can we expect from bond funds in the future, and what should investors in bond funds do now?
Most individuals invest in bond funds in order to receive income, but that income has dropped dramatically as interest rates have fallen. For instance, one intermediate-term corporate bond fund has paid an average dividend yield of 5.4 percent over the past 12 months, but the current yield has already dropped to 3.3 percent. With five-year government bonds currently yielding 0.63 percent, is it not likely that the current 3.3 percent yield will be maintained.
The second reason an investor would buy a bond fund is for the net asset value of the fund. The net asset value of a bond fund typically only goes up when interest rates go down, but can interest rates go much lower, and therefore can bond prices go much higher? And even if interest rates stay flat, the net asset value will decrease as bonds within the bond fund get closer to maturity since the majority of bond prices are currently above face value.
So in general, concerning traditional bonds and bond funds, this is not a great time to be in either. If you have owned bonds or a bond fund for many years, you may be comfortable. However, for new money or money from maturing or called bonds, there are other, more attractive sectors with bond-like returns that are not as tied to interest rates. These include:
• Master limited partnerships, which pay a rate of interest through the infrastructure of the U.S. energy system, pipelines, etc.
• Certain real estate investment trusts, where income is derived from real estate projects.
• Certain sovereign bonds, which are non-U.S. government bonds and offer a way to diversify from the U.S. dollar.
• Merger arbitrage funds, which have bond return characteristics but are invested in equities.
If your bonds are still paying a good rate of interest, there is no need to be too concerned about selling as long as you are confident you are going to get your money back at maturity. However, right now may not be a good time to allocate new investments to the bond market.
Jim Bernard, CFA, is senior vice president and director of fixed income portfolio management as well as an investment advisor representative at Ancora Advisors LLC, an SEC-registered investment adviser. He is also a registered representative and a registered principal at Ancora Securities, Inc., member FINRA/SIPC. Reach him at (216) 593-5063 or firstname.lastname@example.org.
Wellness programs and initiatives are evolving as employers realize healthier employees give them a competitive edge.
“It’s an issue of creating a high-performing, competitive work force,” says Nancy Pokorny, managing consultant with Findley Davies. “Currently, many companies hang their hat on being world-class safety organizations. They know that maintaining a safe work environment is good for business. As we move forward, companies will be known as ‘healthy organizations,’ too.”
Smart Business spoke with Pokorny about the evolution of wellness programs.
How have wellness programs evolved in recent years?
In the recent past, company HR leaders or benefits staffs initiated wellness programs, but now executive teams are driving strategic wellness initiatives. We prefer ‘wellness initiatives’ because programs tend to have a beginning and an end. Initiatives are much more strategic and imply that wellness is one component of the overall business strategy.
For example, a Fortune 500 Cleveland manufacturer underwent a global HR system implementation that required a year-long, intense work schedule for members of HR, IT and project management teams. Prior to launch, project team members gathered for wellness training. They were given free access to health management tools so that they could manage their health throughout the rigorous project. The focus was not on benefits cost reduction; it was on achieving peak performance.
Additionally, employers are integrating multiple initiatives, such as wellness, benefit plan design, health and safety, and onsite clinics to improve employee health. And research supports the interconnectivity of these various initiatives.
A National Council on Compensation Insurance Inc. study shows a link between obesity and higher workers’ compensation costs, finding that obese injured workers received an average of 75 treatments for an injury versus an average of four treatments for those deemed to be nonobese.
What are the most important components of a wellness initiative?
There are three: leadership, permanent commitment to change and accountability. Let’s look at each one, starting with leadership. Too often, leaders provide verbal support, and maybe even financial support through the allocation of a wellness budget, but they have no real role in the initiative. The organization’s leaders and key influencers must have clearly stated roles, just as they would with a new sales, marketing or reorganization initiative.
Second, in order for wellness to become a permanent part of an organization’s culture, wellness should not be something you ‘do,’ it should become a part of who you are as an organization.
Research from Cornell University’s Food and Brand Lab indicates we make approximately 200 decisions daily related to food alone. For the eight to 12 hours a day an employee is at work, it provides a great opportunity to enable good decision-making. This includes food and beverage choices and areas for movement, such as open stairwells.
Finally, as with any change management process, there needs to be accountability for change. We are seeing the use of incentives for health management activities and outcomes. We recommend that these incentives apply not only to those who are enrolled in the corporate benefit plans but to all employees.
One caution about incentives — they are good tools for jumpstarting initiatives but they do not change behavior in the long term. That’s where leadership and permanent culture change come in.
How can you tell if a wellness initiative is working?
With expert help and use of a third party to protect employee privacy, there are several steps you can take to measure the impact of your wellness initiative.
- Categorize your employee population by health risk group through a health screening and measure the movement between risk categories.
- Determine the number of employees with one or more chronic conditions such as high blood pressure, high cholesterol, diabetes, etc. How many are actively managing chronic conditions through medications and lifestyle changes? Are they reversing their conditions by working with a health coach, an onsite health center or personal physician?
- Look at change in attitude toward health from year to year, via employee engagement surveys, culture surveys or wellness surveys.
- Measure the advancement of the physical work environment. Is the cafeteria or vending area seeing an increase in the sale of healthy products versus nonhealthy products?
- Analyze aggregate information from benefit programs to find changes in utilization and other patterns, such as if the percentage of employees receiving preventive care exams increases or the percentage of employees visiting the ER decreases.
By using this type of ‘wellness dashboard,’ you can determine which efforts are working and allocate resources to those making the greatest impact.
Are wellness initiatives relevant only to those companies that offer health care benefits?
No. If you focus only on the employees in your benefit plan, wellness initiatives appear to be more about saving money for the company than creating and maintaining a healthy, productive work force. Similar to the efforts in establishing a safe work environment, efforts to create a healthy work environment are here to stay. A healthy work force will outperform an unhealthy one because there is a greater energy and capacity for work.
Nancy Pokorny is a managing consultant at Findley Davies. Reach her at (216) 875-1939 or email@example.com.
Insights Human Capital is brought to you by Findley Davies Inc.
The average company spends a lot of money on printing, and often it doesn’t realize where those resources are going. By some estimates, approximately 17 percent of all documents printed out are left sitting on printers. The average employee spends about $1,000 per year on document output. And many organizations spend 1 to 3 percent of their annual revenue on imaging technology but don’t even know how many printers they actually own.
By failing to manage print output, companies are unable to identify what they are spending and where they could be saving on costs. Additionally, if IT departments are spending too much time on tasks such as replacing cartridges or fixing printers, it is not an efficient use of their time.
A managed print service (MPS) program can help businesses save money they don’t even know they are spending, while increasing flexibility and reducing stress, says Bill Nelson, vice president of Cleveland Sales at Blue Technologies.
“Everyone talks about the cost of an MPS program,” Nelson says. “However, the biggest concern for a company that manages its own printers internally should be the time it takes and the resources required to have all printers running at 100 percent efficiency. That’s time that could be used to run the daily business and focus on company initiatives.”
Smart Business spoke with Nelson about managed print service programs and how they could benefit your company.
What is a managed print service program?
A managed print service program is an end-to-end solution that provides everything a company needs to control output costs. That includes an initial volume and usage assessment, hardware redeployment and/or acquisition, paper use output that includes supplies and service through an ongoing assessment of the contract, and, as needed, optimization. Basically, it manages all of the printing done by your company. With numerous printers, employers may have no idea how many printouts they are printing each month and who has which printer.
What advantages does such a program bring?
If purchasing or the IT department is responsible for monitoring printers, that is time spent away from focusing on core competencies. A managed print service program can reduce IT support requirements by taking over the management of supplying toner and servicing printers.
A managed print service program identifies all costs so expense management is possible and allows for ongoing proactive management to ensure proper utilization of printing devices. For example, if one employee has a top-notch printer but only makes 100 prints per month, it may be worth swapping printers with someone who prints 100 pages per day. A managed print service program also alerts the program provider when supplies are low. When the toner cartridge gets to 10 percent, the print management company is automatically notified and can ship a new one.
What can companies do to prevent employees from printing so much?
With certain software, you can control how employees print. When employees press ‘print,’ the computer will let them know that a document sent to that printer will cost the company X amount, or it could automatically send the document to a lower-cost printer. Just thinking twice might keep an employee from wasteful printing, which helps your company be greener. Some companies automatically default to two-sided copies when possible.
How can businesses evaluate whether a managed print service program is right for them?
A managed print provider will conduct an initial meeting to determine if such a program would be beneficial. It will look at, for example, quantity of the printer fleet, whether your IT staff is getting calls to service printers all the time and if your inventory has toner cartridges for printers the company no longer owns.
A managed print provider will conduct an assessment where data is collected for a trial period. This assessment provides vital information about how your business is currently managing printer output and what is not being managed efficiently, similar to a managed service program for computers. The program provider manages how the ink gets on the paper in terms of cost, service and flexibility.
It’s important to remember that although the program reduces costs over time, for many business owners, it’s more about the convenience of someone else managing the printers. Companies pay their IT staff to improve their ability to meet their core business objectives. A managed print service program frees them up to do just that.
Once you’ve decided to go with a managed print service program, how does the relationship work?
After the contract is implemented, the provider conducts a walkthrough. All devices are labeled, inventory of current supplies is completed, main users are identified and the account is closely monitored. Then quarterly business reviews are conducted to continually monitor and adjust the contract as needed. Companies must be flexible to change, just as their clients’ business needs change.
By considering a managed print service program, you might find a better way to allocate resources that will help increase efficiency and decrease cost.
Bill Nelson is vice president of Cleveland Sales at Blue Technologies. Reach him at (216) 271-4800, ext. 2242 or firstname.lastname@example.org.
Insights Technology is brought to you by Blue Technologies
This past tax season, you could have filed your tax return, but then found out your return had been flagged and someone already collected a refund under your name.
“A lot of CPAs at the end of the filing season found out that a number of their clients fell victim to tax identity fraud, which significantly lengthens the time it takes for them to get legitimate refunds or fix the error,” says Michelle Mahle, CPA, director of tax at SS&G.
Smart Business spoke with Mahle about this growing fraud problem and how taxpayers can try to protect themselves.
What is happening with this type of identity fraud?
Thieves steal someone’s name and Social Security number and use it to e-file a false tax return with a refund, taking money from the IRS. The thieves use e-file because of the quick refund turnaround and often have the refund deposited to a debit card. Then, when the taxpayer e-files a legitimate tax return, there’s immediate notification that a tax return has already been filed for this Social Security number.
An employer has to issue W-2s to employees by Jan. 30, but those forms are not due to the IRS until the end of February. Most fraudulent tax returns requesting refunds are filed in January or February as soon as the e-filing season opens. At that time, the government doesn’t have the information on file to verify what the taxpayer reports. Yet the IRS continues to fall under extreme scrutiny to turn around refunds as quickly as possible.
How does tax identity fraud affect individual taxpayers?
It causes unnecessary delays to refunds, but you won’t know until you file your return and it’s rejected. If there’s a problem with your electronically filed tax return, you’ll get an immediate notification. Then the CPA or tax adviser you are working with would likely step in and deal with the IRS on your behalf. A paper return works the same way; it just takes longer for it to be processed and for the notification letter to get back to you.
It can take four to six months — probably closer to the six-month range — to resolve the issue and get a refund issued to the legitimate taxpayer. The burden of proof falls on the legitimate taxpayers to go through the trouble of proving who they are and why they are entitled to the refund. For example, one taxpayer filed in June and the IRS flagged the return as suspicious. The return consisted primarily of a large salary with a lot of withholdings, resulting in a significant tax refund. The taxpayer didn’t get the refund until around Sept. 15. Normally, with e-file, the refund cycle can be as short as 11 days.
How is tax identity fraud growing?
It’s becoming more prevalent, and the statistics every year are astounding. The IRS has issued billions of dollars in fraudulent refunds. Like credit fraud, the money is usually already spent by the time the government finds and convicts someone of the crime. Many taxpayers are caught off guard and immediately want to know their risk or exposure. CPAs and tax advisers should be warning their clients that this could happen to them.
What can taxpayers do to protect their identity from being used for tax fraud?
Even the most cautious, careful person can fall victim to this type of fraud, based on the way records are kept and maintained. Taxpayers may be doing well with protecting their credit card information, but they also have to be aware of tax identity theft and protect their Social Security number. It really is a matter of matching a name and a Social Security number, and that’s it — the address seems to be irrelevant for purposes of claiming that refund. In one instance, multiple fraudulent returns were filed with the same mailing address.
The government does require that Social Security numbers not appear on documents being sent through the mail, but that may or may not be happening. In many cases, thieves actually steal mail from mailboxes. It’s been so severe that postal workers have been mugged for information around retirement villages or communities, which is particularly prevalent in Tampa Bay and Miami, Fla. If you’re living in a retirement community, it may make sense to use a post office box. Also be conscientious of paper documentation at stores requesting credit applications or completing forms at medical facilities and how they file, share or dispose of your Social Security number. If someone needs your Social Security number for a specific purpose, perhaps write it down in a manner that can be immediately discarded.
If you can legitimately speed up the timing of your filing, you also should do so, as the fraudulent returns are generally filed early on. However, that’s not an option for a lot of taxpayers.
How is the IRS reacting?
There’s been nothing specific announced yet for this upcoming tax season, although the IRS is definitely aware of the increasing fraud and working to control it. If they come out with any provisions or changes, it will be on its website, www.irs.gov.
One way it could possibly crack down is to only allow one refund per account. The IRS also will be looking more closely at mailing addresses in the upcoming filing season and appears to have implemented an internal grading system that makes a return ‘suspicious.’ The IRS can implement things that would restrict a lot of the occurrences, but in the end, it also restricts the flexibility we have as taxpayers. So, do we want to be inconvenienced and have our affairs secure, or have the convenience of a quick, timely refund at the cost of having our affairs exposed to tax identity fraud?
Michelle Mahle, CPA, is a director of tax at SS&G’s Cleveland office. Reach her at (440) 248-8787 or MMahle@SSandG.com.
Learning how to deal with disaster during a crisis is probably not the right way to go. In the aftermath of Hurricane Sandy, employers are reminded of the importance of insurance, disaster planning and claim preparation.
“Always at a time like this, organizations who were not affected need to take a step back and ask themselves, ‘What if?’” says Neil Harrison, group managing director, Risk Control, Claims & Engineering, at Aon Risk Solutions. “We are spending a lot of time talking to organizations and helping them to say, ‘OK, what if it was us? Would we have been ready? Were we prepared?’”
Smart Business spoke with Harrison and Roland Laury, CFPS, senior risk consultant at Aon Risk Solutions, about some best practices business owners can use to help them ride out any disaster.
How did Hurricane Sandy affect the overall insurance industry?
An event like Sandy gives the insurance industry an opportunity to demonstrate why it exists. Too often, businesses look at insurance purely as a cost, but the industry is playing a role in business specific and general economic recovery. From the perspective of brokers and insurance companies, they expect to be judged in terms of their performance and how they respond to clients. There is a lot of resource pressure, as the number of claims is significant, so already busy staff is suddenly taking on increased workloads. Resource scale and leverage become key, and operational efficiency is a prerequisite for success.
It’s too early for anyone to comment on the longer-term impacts of insurance pricing or coverage availability for individual businesses or industry segments. When these events happen, almost everybody has an opinion of the cost, and those opinions vary widely. The reality is nobody knows at this early stage. Property damage, business interruption and contingent business interruption all come together to create the overall cost. In addition, just because an organization is based in St. Louis or somewhere not in Sandy’s way doesn’t mean businesses didn’t have customers, suppliers or vendors who were affected. This may indirectly affect them in terms of business interruption or contingent business interruption.
What should business owners know about their insurance policy for an event like Sandy?
There are some key things that organizations should look at. The first step is making sure you’ve got the right insurance coverage — the terms, the conditions in place, definitions of perils — for this kind of event and that you understand it. Business owners need to understand limits and exclusions. They should aim to have claims preparation coverage on the property cover, meaning there’s the opportunity to engage an expert for some of the accounting work critical to quantifying and making the claim. With this coverage in place, and with a relevant expert engaged, generally speaking, a claim is better prepared and the process runs more smoothly.
Linked to that is the need to make sure that the values at risk — asset values and business interruption values — are well understood and accurate. Too often, an organization has a claim and then is found to be underinsured or overinsured. A best practice is having an external expert work with you on assessing those values during your policy renewal process. The business interruption is particularly important because it’s far more complicated to work out in post-loss panic mode. If you think about the economy since 2008, everybody has different values at risk now than they did then. Organizations may have just continued to index link their values or sums insured.
Looking beyond insurance, what can businesses do to respond well to disasters?
The organizations that have responded well are those with business continuity plans which are well defined, kept up to date, frequently tested and broad. The plans cover not just the direct issues of building damage but also employee safety and welfare issues, supplier issues, customer issues, etc. There’s no alternative to investing the time, and probably some money, in a far-reaching business continuity plan because it gives the balance sheet the best protection possible.
Insurance is an outcome in many ways of business continuity. Take a broad look at the business, plan for every eventuality, make sure everyone knows what to do when an incident happens, have restoration firms on contract so you’re first in queue when an incident happens, and have access to generators or additional alternative power.
How can a business best submit claims if it does suffer damage?
When a significant incident hits, the company has some responsibility to mitigate the damage and the cost of the loss. Much of it is common sense, but common sense is easier to apply when it’s written down and people know what they are responsible for. Make sure that:
- Everyone knows to report the loss to a broker or insurer immediately and there are clear lines of communication.
- Immediate action is taken to minimize loss.
- You keep the documents, invoices or receipts for any vendors brought in for restoration or to provide alternative power, etc. Later, this will become a part of the insurance claim.
- You take photographs of the damage. It’s surprising how many people get everything repaired and then try to make the insurance claim without proof.
- You engage an external expert, if needed. Sometimes when a business is in trouble mode, it’s all about recovery. Outside expertise allows the business leader to talk to customers and suppliers and deal with staff, while the expert handles the more tactical, and somewhat more mundane, issues.
It’s important for businesses to have continuity planning, follow best practices for insurance, consider a claim preparation clause and ensure common sense is applied when a loss occurs. Recognize that disaster response, claim response and claim preparation are specialist technical disciplines, and many organizations find that their investments in those areas have a positive return.
Neil Harrison is the group managing director, Risk Control, Claims & Engineering, at Aon Risk Solutions. Reach him at (312) 381-5660 or email@example.com.
Roland Laury, CFPS, is a senior risk consultant with Aon Risk Solutions. Reach him at (314) 719-5120 or firstname.lastname@example.org.
Insights Risk Management is brought to you by Aon Risk Solutions
There are a number of reasons why you might want to sell or transfer your business. Some serial entrepreneurs find they like to start businesses but don’t really like to run them. Others have been around for a long time and are just getting tired or too old to stay in their role.
Some owners may have maximized the value of their company. Perhaps your personal balance sheet needs more diversification because 95 percent of your value comes from the business, so you bring in partners or sell a portion to employees, giving yourself more options and downside protection.
Whatever the reason, Norman M. Boone, founder and president of Mosaic Financial Partners Inc., says there are a number of questions to answer if you’re a business owner moving through the transition process.
“It’s really important to focus on your personal needs, both financially and emotionally,” he says.
Smart Business spoke with Boone about asking the right questions prior to a sale and how to deal with the financial and emotional issues.
What are some key factors business owners need to understand about selling or transitioning from a business?
There are six key things that they have to be thinking about and understand:
• What’s the business worth?
• Do you have a plan of who is going to come in and operate the business successfully when you are gone?
• Have you been too busy running the company to consider personal issues like your own estate plan, will and insurance?
• What do you want in terms of lifestyle? Do you want to keep running this business until you drop dead, or do you want to sell it and go onto the next business? What are your criteria and where do those triggers happen? Do you want to be working full time or part time? Do you need control of the business or not?
• If your personal finances are completely reliant on the business, what’s your extra exposure of not having diversification? If something were to happen to the business, would you and your family be OK going forward?
• What are some tax issues you could face with a sale or transition?
Why is it so important to ‘know your number’?
One of the key issues when it comes to selling a business is that people don’t know how much money they need to be able to live their life comfortably and successfully for as long as they and their spouse might live, factoring things in like medical care and Social Security. For example, if somebody spends $100,000 a year, maybe they need $2.5 million in assets to support that. If your lifestyle is more expensive, then you need more dollars, and knowing what that number is, whether it’s $2.5 million, $5 million or $15 million, is pretty important before you start to negotiate a sale.
If you sold your business for $6 million and after taxes you’re left with $4 million, you’re going to be frustrated if that’s not enough to support your lifestyle for as long as you might live. You may not be able to continue living as comfortably as you were before.
Is there a disconnect between what people need to live on and what their company will actually sell for?
As a general rule, people overestimate what a company could sell for, particularly on an after-tax basis, and underestimate how much capital they need to support their current expenses. That combination means that often people are really frustrated. They might get right to the edge of the deal, and suddenly realize, ‘Oh gee, I can’t do it on this. I need 2 million extra dollars to sell the business.’ You see deals fall through reasonably frequently because of that.
Once you know your number, you can do things to make the company more valuable. Get your accounting in good order. Minimize expenses in order to raise profitability. Grow the business in terms of sales. Have a brand that is as well known as possible. In addition, the less dependent the business is on you as an individual, the more it’s worth to somebody else, because if you’re critical and are replaced, then it’s very possible that operation could fall apart. Therefore, build in systems, processes and procedures to bring along key employees so they can continue to manage the business without skipping a heartbeat.
Why is it important to focus on what comes before selling?
If you’ve been running a business for 25 years and you’re being asked to let go, it’s not easy. You get emotionally attached to it and, as important, your identity is tied up in being the owner of that business. If you sell the business, what is your identity? What are you getting up for in the morning? This issue comes up all of the time. It’s one of the reasons why people don’t have a succession plan and why they don’t sell when they need to.
Owners need to try to think about what other things they want their life to involve, and then prepare and practice doing that before the sale. It could be getting involved in nonprofit organizations or sitting on the board of a couple of your friends’ companies. Business owners should retire to something, rather than from something. In the ideal world, the person who is selling the business is inevitably sad, but ideally, they are excited about what it is that they are going to do once they have more free time.
Norman M. Boone is founder and president of Mosaic Financial Partners Inc., which is celebrating, this year, its 25th anniversary. Reach him at (415) 788-1952 or email@example.com.
Insights Wealth Management & Family Business Consulting is brought to you by Mosaic Financial Partners