Meredyth M. McKenzie

Saturday, 31 March 2012 23:19

How social media is used in litigation

It’s often said that once something is posted to the Internet, it’s hard to get rid of it — no matter how many times you press the delete button. With the prevalence of social media in today’s society, this is something to consider. Once you post a picture on Facebook or tweet something in Twitter, it will stay there, in some form. And you never know how that personal information you posted online will come back to haunt you — especially in court.

“A great deal of valuable information about individuals and corporations can be determined from what people put on their social media sites such as Twitter, Facebook, LinkedIn and blogs,” says Rebekah Smith, CFFA, CPA, CVA, director of financial advisory services at GBQ Consulting LLC.

Smart Business spoke with Smith about the role social media plays in litigation and what you need to know about social media’s use in litigation.

What role does social media play in litigation, mainly in the financial realm?

People typically think about divorce cases where social media was used to uncover some type of personal behavior. While it is true that social media can be extremely helpful for attorneys in a divorce case as one method for proving certain actions of one party or the other, a forensic accountant can also use social media for financial purposes. For example, Facebook pictures or Tweets may be used as evidence of non-disclosed assets or a certain lifestyle. We have used social media in cases to determine if a debtor was hiding assets from a creditor, to obtain someone’s education, work history and current career direction, and frequently for research on a corporation or individual.

How has this changed over the last 10 years?

Dramatically! Ten years ago the only ‘social media’ was blogs, but unless you knew the name of a person’s blog, or it was easy to find, personal blogs were pretty hard to uncover. LinkedIn and Facebook did not even exist 10 years ago. LinkedIn popped up in 2003 and Facebook did not launch until 2004 and neither really gained major popularity until later. Twitter was the last to start in 2006. So 10 years ago, none of these resources were available to forensic accountants and attorneys when they were conducting their investigations. Now, it is standard protocol to see if the individual has a Facebook, Twitter, LinkedIn, or blog page where one can conduct some research.

How much, and to what extent, can your personal online footprint be used in litigation?

It partially depends on the type of litigation. In general, the more personal the litigation and the more personal information someone puts on their social media site(s), the more valuable it can be. For example, in a case regarding whether an individual was hiding assets from a creditor, social media was used to determine that the individual had a child who had recently purchased a very expensive piece of property in a different state. After running down that lead, it was determined that the property had been purchased with the funds from the individual under investigation, unveiling a common scheme of hiding  assets in relatives’ names.

We have also used Facebook as evidence of someone’s lifestyle when doing a lifestyle analysis in a fraud investigation. This involves looking at the lifestyle someone leads and comparing it to the known available monies (i.e. salary) to see if there is a gap in spending versus earnings, which could be an indicator of fraud.

What about your business’s online footprint?

In a fraud case, social media can be used to track down certain individuals and identify the parties related to the potential fraud. Sometimes, as part of researching a company and trying to understand what the company does, we will search social media sites. Many times in a shareholder dispute or a ‘business divorce’ people have motivation to either pump up the value of the business or depress it depending on whether they are the seller or buyer. Often times while scouring social media, you will find statements the company has issued which confirm or contradict self-serving statements made by the parties during litigation.

What are key things you need to understand about the use of social media in litigation?

It used to be that it was the exception to check social media sites as part of litigation, but it has become more and more routine. A recent article described the ways that social media was used, which even included jury research. If you think about people’s status updates on their Facebook pages, a lot can be gleaned about a potential juror’s political or social affiliations, which might make them more or less attractive jurors.

Jurors are Facebooking and Tweeting about juries they are on and judges are trying to monitor social media to make sure jurors aren’t disobeying their orders to not discuss a case. Recently in Florida, a man was kicked off a jury for ‘friending’ the plaintiff on Facebook. Unfortunately, the judge didn’t take too kindly to the fact that the juror allegedly posted his excitement about getting kicked off the jury and has now called for a hearing to determine if the actions rise to the level of contempt of court, which carries a potential fine and jail time.

Rebekah Smith, CFFA, CPA, CVA, is director of financial advisory services at GBQ Consulting LLC. Reach her at (614) 947-5300 or

Insights Accounting & Consulting is brought to you by GBQ Partners LLC

When preparing your company’s financial statement, it may seem all too easy to lie about your numbers to make your company seem more successful — especially in this tough economy. Whether you’re tempted to manipulate your statements to hit a personal performance goal, receive a bonus, keep the bank from calling a loan, or to inflate a purchase price, it’s all considered financial statement fraud.

“Financial statement frauds impact closely held companies as well,” says Rebekah Smith, CFFA, CPA, CVA, director of financial advisory services with GBQ Consulting LLC. “They can be a less obvious fraud, such as deferring revenues or expense in a different time period to give the appearance of consistent earnings or growth. Or it can be a more complex scheme where the business overstates revenues by recording false revenues.”

Smart Business spoke with Smith about the signs that point to financial statement fraud and how to stop it from happening in your company.

How many businesses are impacted by fraud?

The Association of Certified Fraud Examiners reports on fraud trends every other year. In the 2010 report, only 5 percent of fraud cases they studied were financial statement fraud. However, financial statement fraud was responsible for the largest losses, representing 68 percent of the dollars studied. When financial statement fraud does occur, it generally has a significant impact on a business.

What are some signs to look for if you think someone is committing financial statement fraud?

The signs vary and you must consider the motive of the person who is most likely to commit the fraud. For example, in a situation where the person would benefit from the financials appearing to be better than actual performance, key indicators could potentially include:

? Unexplained revenue or sales growth without a corresponding increase in cash flow.

? Increased sales and an unexplained increased days outstanding sales (the measurement for the number of days it takes to convert revenues to cash).

? A sudden, unexplained increase in revenue without a corresponding increase in expected expenses.

On the other hand, consider someone who is trying to buy out a partner or is going through a divorce; his or her motives might be different and thus the indicators would be different as well:

? An unexplained decline in the business while the rest of the industry is still performing.

? A sudden unexplained increase in expenses without a corresponding increase in revenue.

Who typically commits financial statement fraud?

Unfortunately, the profile of a person who commits financial statement fraud tends to be a trusted employee of the company who generally has long tenure and is part of the management team. Perpetrating a fraud requires the ability to circumvent internal controls and trust is an element that helps a fraudster enact his or her scheme. Individuals that commit frauds are generally financially minded and clever individuals. The complexity of the scheme sometimes requires that the individual be well versed in financial and operational matters to understand how to successfully circumvent internal controls.

What steps do you need to take if financial statement fraud has been committed?

It is important to secure any evidence that might be susceptible to being destroyed. Too many times the first instinct is to confront the individual who allegedly perpetrated the fraud and, next thing you know, documents are missing. Once documents and evidence is sure, you should contact your lawyer and, if necessary, ask for assistance from a forensic accountant. Pulling together a qualified, experienced team to help through the process will make prosecution and recovery easier.

What items can you put in place to prevent financial statement fraud from happening in your company?

Reviewing your company’s internal controls and policies and procedures is first and foremost. Sometimes due to the size of the organization or financial constraints, you cannot achieve perfect segregation of duties amongst your management and accounting and financial staff. However, a careful study of your policies can reveal the areas where you are most vulnerable and your internal controls can be designed to minimize the risk of a fraud.

Do you think financial statement fraud is on the rise or decline?

Unfortunately, coming out of tough economic times, the trend will likely be an increase in the number of frauds that are discovered in the next few years. Businesses faced incredible pressure to perform over the last two years and financial statement fraud takes time to uncover. On average, financial statement fraud goes on for 27 months before it’s uncovered. So it may be 2012 or 2013 before some 2009 and 2010 frauds are uncovered.

REBEKAH SMITH, CFFA, CPA, CVA, is the director of financial advisory services at GBQ Consulting LLC. Reach her at (614) 947-5300 or

Over the last several years, companies have continued to file for bankruptcy protection at growing rates as a result of struggling markets and economic conditions. The good news is that bankruptcy can be a viable option for turning a company around if the proper time and planning is invested.

But how do you know if your company is headed for bankruptcy? Beth A. Savage, CPA, the director of financial advisory services with GBQ Consulting LLC, says there are several indicators that can put  financial strain on companies and possibly lead to a bankruptcy filing.

“Significant declines in sales, trouble managing cash flow, strained relationships with vendors, and limited or no access to capital can heighten a company’s financial distress and, thus, result in a bankruptcy filing,” says Savage.

Smart Business spoke with Savage about the steps you need to take when considering a bankruptcy filing and how to prepare your company and employees for bankruptcy.

What are some key things you need to be aware of regarding bankruptcy?

First, most companies wait too long to file for Ch. 11 bankruptcy protection. Management often does not want to believe that the financial crisis is as bad as it is. This is common in every industry and in every size company. Management needs to take a true look at the company’s financial position, not what they hope it will be. This involves understanding sales forecasts, financial projections, current cash position of the company, and what access to additional capital the company has, including refinancing options to improve liquidity. The challenge is that the further a company goes down the path of financial decline, typically, the fewer the options.

It would be the equivalent of someone spending all the money in their checking and savings and then liquidating all other assets including 401(k), and then saying, OK, now I need help. The time to do it is when you still have some options and financing opportunities available. In fact, bankruptcy is only one of the options that a company can utilize for a successful turnaround. Today, we see less true Ch. 11 turnarounds than in the past; instead many Ch. 11 filings ultimately involve a sale, potentially a Section 363 transaction selling the company or certain assets of the company. A new surviving entity is created from the sale of assets and then the remaining components of the business are liquidated, often through the creation of a Liquidating Trust. Other business turnaround options include an out-of-court restructuring plan that could involve a refinancing, possibly tied to selling certain subsidiary companies or divesting certain operations to streamline the business.

What is involved with filing for bankruptcy?

Management should contact an attorney who is familiar with corporate bankruptcy proceedings, as well as a financial adviser, as soon as possible. An attorney and a financial adviser can advise the company on its options and what makes sense for the business.

A Ch. 11 filing typically allows the company (referred to as ‘Debtor in Possession’) to do the following to restructure its business operations, which are true advantages to filing:

  • Negotiate and acquire financing/loans on more favorable terms.
  • Reject certain leases and cancel business contracts. Debtors in Possession are protected from other litigation against the business through an automatic stay.
  • Vendors that continue to do business with companies operating in bankruptcy have more assurance that they will be paid for their post-petition goods and services than if they continued to do business with the company without the Ch. 11 filing.

How do you prepare your company and employees for bankruptcy?

There’s a lot of work that has to be done behind the scenes. The communication strategy is absolutely critical to the success of the turnaround. Management should communicate expectations and timelines to employees, business partners, vendors and others with the intent being to clearly explain how the filing is most likely to affect them. In most cases, it’s also helpful to explain the reason why you’re taking this step to file — so you can restructure the company and return the business to financial health. That’s the most important thing to emphasize.

What preparations can you make to get the company out of bankruptcy in the future?

When companies begin to see a significant decline in financial performance, one of the challenges is that this information may not be coming quickly enough for management to react. More erosion of the business can occur before management reacts. Accurate and real-time management reporting and a good business plan are paramount for the financial improvement of the company.

What are the risks and benefits associated with filing for bankruptcy?

Bankruptcy still has a certain stigma to it, but, in reality, when handled professionally and executed with good information, a Ch. 11 bankruptcy filing can be the best thing to enable the company to turn around. It just depends on the factors that are involved with the business. It also depends on the marketplace. Some business models are just not going to succeed no matter what turnaround they attempt.

Beth A. Savage, CPA, is the director of financial advisory services at GBQ Consulting LLC. Reach her at or (614) 947-5297.

Employee compensation has been a hot topic during the recession. Many employees have taken on additional responsibilities due to downsizing within the company but may not have received additional compensation for these new duties. Some of these employees may have even taken a pay cut just to keep their jobs.

You may run into problems retaining these employees after the recession ends if you don’t properly compensate them or negotiate a fair salary. Offering pay increases or bonuses may not be an option at this time, so you need to develop nonmonetary compensation options, continue to maintain a positive work environment and address any concerns up front with employees.

“Ignoring salary negotiations only exacerbates an already bad situation,” says Jessica Ford, director of sales and operations with Ashton Staffing. “Employees may feel discontent about their salary and simply not discussing the issue may make them feel that they are not important and their worth is solely based on salary. Try to involve employees when possible and let them understand the company’s current financial situation.”

Smart Business spoke with Ford about key things to include in salary and compensation negotiations and how to develop nonmonetary compensation packages.

What are some key things you should understand about salary negotiations and employee compensation?

Negotiation is not about winning, unless both parties win. If either party feels they have not negotiated, both parties lose. Make every effort to identify the most recent salary and benefits your employee or potential candidate received. Ask an employee candidate to provide a W2 or proof of salary during negotiations instead of simply asking about his or her desired salary. You can also find this out from former employers when conducting reference checks. You may not be able to match the salary, but you will have a good idea of what the candidate will seek during negotiations.

Arm yourself and do your research. Be sure to reference your current internal salary ranges, the salary of current employees in similar positions, the profitability of your company, as well as the job search market in your area and the economic climate.

Even if an employee has positively impacted your company, you need to keep your salary limits in mind. You will save yourself years of headaches and prohibitive costs by doing this, even if you have to start your recruitment process over or tell an employee that salary negotiation is not an option at this time.

What are some common mistakes employers make regarding employee compensation, and how can they mitigate those mistakes?

Some employers have simply blamed the maintenance or reduction in employee compensation on the recession and have not come up with alternative ways to reward employees. Reducing employee discontent due to employee compensation is dependent on the total work environment you offer employees. Think outside of the box. Sometimes the biggest mistake employers make is to think that employees only care about a monetary salary. Offer other incentives that shift the focus away from monetary awards to employee recognition. This can lead to higher productivity.

How can you develop nonmonetary compensation packages for employees?

  • Offer a balance between work and life. Allow flexible starting times, core business hours, work from home options and flexible ending times. Employees will deter from a fixation on salary if they feel like they have a balance and some freedom.
  • Offer an attractive and competitive benefits package, if you are able to, with components such as life and disability insurance and flexible hours. An employee can be content with a low- to mid-range salary if a strong benefits package is offered.
  • Select the right people from the beginning through behavior-based testing and competency screenings. Offer performance feedback and praise good efforts and results.
  • Do your best to create a fun work environment, because people want to enjoy their work. Engage and employ the special talents of each individual, and involve employees in decisions that affect their jobs and the overall direction of the company, such as the discussion of company vision, mission, values and goals.
  • Continue company traditions, such as holiday parties. This gives everyone something to look forward to and adds an element of fun into the workplace.
  • Remember to take an interest in your employees. Respect their ideas and listen to them. This small gesture can make an employee feel needed and that he or she has a purpose in everyday tasks, beyond just receiving a paycheck.
  • Provide opportunities within the company for cross-training and career progression. People like to know that they have room for career movement.

How can you handle employees who are not happy with their salary and the negotiation process?

Remember to always be honest with your employees and never promise them anything that you cannot offer. Tell your employees up front if it’s absolutely impossible for your organization to address salaries at this time. Be sure to balance this with some kind of nonmonetary reward. This is necessary in order to maintain a healthy and happy work environment. But if you are confident that your company will have a good year, set a date as to when your employees can expect a raise or bonus.

Jessica Ford is the director of sales and operations at Ashton Staffing. Reach her at (770) 419-1775 or

Saturday, 30 April 2011 21:01

How to improve your SOX 404 audits

The Sarbanes-Oxley Act of 2002 introduced major changes to the regulation of financial practices and corporate governance. Much debate ensued about whether smaller companies and their external auditors would also have to follow SOX. Thus, a lighter version of SOX was introduced in 2007.

“This was the go-ahead to take a top-down approach and focus on the larger risks,” says Tom Powers, CPA, director, assurance and business advisory services, GBQ Partners LLC.

Smart Business spoke with Powers about some of the lessons learned from SOX and how to increase efficiency during SOX audits.

What are some lessons that companies have learned from SOX?

Before diving into the control risk matrix for purchase-to-pay or order-to-cash cycles with 10, 15 or 20 controls, visit with the controller, CFO and other upper management and ask the simple question: ‘How do you know when there is a material error in your monthly, quarterly or annual financial statements?’

It may have been a while since you’ve heard what happens, because Jane approves the general ledger account distribution or Joe makes sure all invoices were prepared for all shipments sent out. Yes, these are important process level controls to help run your business, but may not be what management is ‘banking on’ to catch the material mistake that prevents the material weakness. Typically, management has a number of analysis, comparisons, trend reports or other dashboards that send up the red flags. Think about putting more effort into understanding and testing those more powerful controls and less time and effort into the nitty-gritty process level controls.

How can you increase SOX efficiency?

It’s time to think about internal audit getting back to performing operational reviews and special projects on targeted areas to identify value. You need to turn over SOX to process level owners. One tool that is helpful to increase operating effectiveness is to create a dashboard — a spreadsheet that lists your company’s key controls, along with the individual responsible for performing or reviewing the control procedure, with check-off boxes for each month or quarter.

Sort the overall dashboard by individual and create a one- or two-page dashboard for each individual. Have them post it at their cubicle or desk to constantly serve as a reminder of the responsibilities required to be completed each month or quarter. Have the individuals complete the periodic dashboard initialing each periodic performance box and submit those to designated corporate accounting personnel who reviews and takes actions when the boxes are not checked off.

A number of deficiencies occur simply because people forget. The individual dashboard serves as a friendly reminder of to-do’s, increases accountability and provides a place for people to positively indicate that they have performed the control procedure, especially if there is not a paper trail.

What are some risks to be aware of with SOX?

The first is evaluating the design of internal controls. The second is promoting the idea that, in general, the implementation of effective internal controls and/or processes could provide the company with increased processing efficiencies and potential cost savings. Never mind SOX, how much time and money could a company save if management knew they could take proactive steps to implement key controls around significant processes?

In 2004, how many companies had to test the same key controls multiple times before the operation of control appeared effective? How much more time and how many more resources did it take for the company to perform this undertaking?

What effect can SOX have on your existing procedures?

Existing policies and procedures serve as building blocks for SOX process documentation and define employees’ roles and responsibilities. Once you have identified significant SOX processes, documentation begins with evaluating those policies and procedures. The SOX documentation process is the most practical time to recommend ways to update any outdated or inadequate policies and procedures to avoid future pitfalls.

How do the SAS 70 User Control Considerations affect SOX?

User-access reviews, segregation of duties, checklists, policies and procedures, and entity-level controls remain internal to an organization. What happens when a company outsources functions or relies on an outside vendor to provide core and/or support services that management relies on to support the assertion that the financial statements are fairly presented in accordance with GAAP?

Management should consider the activities of any service organization it uses when assessing its own internal controls over financial reporting. These rules are covered in SAS 70, which spells out how an external auditor should assess the internal controls of the service provider used by the company it is auditing. Obtaining a SAS 70 Type II report from the service provider constitutes acceptable documentation and will allow a company to properly evaluate the operating effectiveness of controls at the service organization.

A Type II report includes the external auditor’s opinion on the fairness of the presentation of the service provider’s description of its controls and how well suited the controls are to achieve the specified control objectives. It also includes the auditor’s opinion on whether the controls were operating effectively during the period under review.

The hard part of management’s assessment is an evaluation of recommended user control considerations, which are recommended by the service provider for companies to have in place to support the achievement of the service provider’s control objectives.

Tom Powers, CPA, is the director of assurance and business advisory services at GBQ Partners LLC. Reach him at or (614) 947-5215.

When you purchase an item, you may not think twice about handing over your credit card. But with credit card fraud and identity theft happening to more than 10 million Americans each year, you need to make sure your information is secure.

The Payment Card Industry Data Security Standards (PCI-DSS), put into place in 2008, are a group of 12 broad rules, 61 processes and 148 sub-processes that define what companies accepting credit card transactions need to do in order to protect the security of cardholders’ information.

“Businesses are required to demonstrate their compliance, depending upon the quantity of credit card transactions they process, and the nature of the technology they use to process those transactions,” says Michael R. Dickson, CPA, CISA, CISM, director, Business Technology Group, GBQ Partners LLC.

If you’re a large merchant (Level 1), you’ll be required to submit to a third-party assessment of your PCI compliance. Smaller organizations (Levels 2-4) may engage a third party to assist them in completing the annual self-assessments and quarterly security scans.

Smart Business spoke with Dickson about the PCI-DSS and how to make sure your company is compliant with these standards.

How does PCI-DSS affect businesses?

The major credit card issuers developed the standards. Their vested interest in securing cardholder data and the merchants who use their cards is to reduce fraud and prevent financial losses. Initially, each of these institutions developed their own standards. They were all similar and aimed at protecting the privacy of user information, but they had their own specific way of communicating and enforcing these rules. PCI-DSS was designed to be adaptable to all brand institutions, so a business can be confident that, if they’re following these particular standards, they are in compliance with all bank rules.

The qualified assessments or self-assessments required for compliance give information about your organization and how you conduct business with your customers. The requirements are based on your size, the nature of your technology, and how you actually process cards.


What are some key things you need to understand about being PCI-DSS compliant?

Non-compliance has consequences. Many businesses, especially smaller ones, take a rather casual approach to compliance. Oftentimes, someone in the IT department will print off a form, check a bunch of boxes to say they are in compliance with the requirements, but don’t go into detail of how they do it. The business owner then signs the form without really understanding what the requirements are, and how well their organization is doing to meet the requirements. There’s a big risk for companies that take shortcuts. Consequences include potentially huge fines and the costs of notification, not to mention the damage to a company’s reputation and revenue stream that can result from a breach in customer credit card security.

More than 38 states have laws protecting consumers from data and privacy breaches and PCI compliance is the de facto standard for best practice in credit card protections.

There are no proactive enforcement mechanisms, unless a brand merchant chooses to react to a filing that has been submitted because they think it’s substandard.

If your merchant is not satisfied with the quality of your filings, and generally deems you to be a higher risk than its other customers, it may require a third -party assessment, or may even re-negotiate your fee structure or revoke your right to process credit card transactions through its institution. The biggest risk of non-compliance is if you have a breach and someone gains access to your information, or someone inside your organization sells or publishes it. The cost of dealing with lawsuits, insurance claims, canceled accounts and a damaged reputation can and will be significant.

How do you become compliant?

The first thing you have to do is determine what level of merchant you are. If you process less than 20,000 e-commerce transactions a year, you would be considered a Level 4 merchant, and can report annually on a self-assessment questionnaire. The criteria get tougher as you go up. A Level 1 merchant processes over six million transactions a year, and is required to engage a third party to complete the compliance assessment workpapers.

The second step is to perform an assessment of your technology environment to see how it measures up with a list of PCI specifications. Again, there are 12 high-level requirements, 61 different key processes, and 148 specific inquiries relating to those processes. For each of the requirements, it is advisable to have documentation of how your organization complies with each requirement. This documentation should be detailed enough to clearly explain the technologies that are in use, but it also should be clear and concise so executive management who must sign an attestation of compliance can understand what the requirements are, and what specific solutions your company has implemented to address the inquiry/risk. For each requirement for which you don’t have a procedure or technology in place to mitigate the risk, you are required to demonstrates knowledge of the specification you’re not performing, and explain why the other things (i.e. compensating controls) you’re doing meet the same objective. Ultimately your bank will determine if you’re in compliance or not. It wants to see if you’ve designed new processes and procedures, or that you’ve implemented the procedure that didn’t exist.

What are the benefits of compliance?

Your systems and data will be safe and secure, you’ll have a low risk of any adverse consequences occurring, and the customers’ trust you’ve built up over the years won’t be shattered in an instant by a careless lack of attention to detail when securing your card-holder data computing environment.

Michael R. Dickson, CPA, CISA, CISM, is the director of the Business Technology Group at GBQ Partners LLC. Reach him at (614) 947-5259 or

With all of the debate surrounding the new health care law and its impact on business, another major issue promises to rear its head in the next few years — taxation of capital gains. Although Congress extended the Bush era cuts for another two years in December, the issue of capital gains promises to be at the forefront of political deliberation for months to come.

Tax is currently charged on capital gains, or the profits realized on the sale of a non-inventory asset that was purchased at a lower price. Almost anything owned for investment purposes or personal use are considered capital assets for income tax purposes.

“The most common capital gains are realized from the sale of stocks, bonds, precious metals and real property,” says Dennis R. Mowrey, the director of tax and business advisory services at GBQ Partners LLC.

Smart Business spoke with Mowrey about capital gains tax and some of the tax changes expected in the future.

What are some new updates with capital gains tax?

The special tax rates on long-term gains and qualified dividends expire on December 31, 2012. Starting in 2013, the tax rate on long-term gains will be 20 percent, or 10 percent for those in the 15 percent tax bracket.

Also starting in 2013, the distinction between ordinary and qualified dividends will disappear, and all dividends will be subject to the ordinary tax rates. Capital gains income will also be subject to an additional 3.8 percent Medicare tax in 2013.

What are some key things you need to understand about capital gains?

Tax rates that apply to net capital gains are generally lower than the tax rates that apply to other income. For 2010 through 2012, the maximum capital gains rate for most people is 15 percent. There are some special factors that apply to lower-income individuals, which can reduce their capital gains rates.

If your total capital losses exceed your capital gains, the excess can be deducted on your tax return and be used to reduce other income, but you are limited to an annual amount of $3,000, or $1,500 if you are married filing separately.

How are capital gains taxed, and how does this impact business?

Capital gains and losses are classified as long term and short term, depending on how long you hold the property before you sell it. Your capital gain or loss is long term if you hold the property for more than one year. Your capital gain or loss is short term if you hold it one year or less.

Long-term gains are subject to a more favorable tax rate than short-term gains. Rates for long-term gains in 2010 started at 0 percent for those in the lowest income tax bracket and topped out at 15 percent. Rates for short-term gains started at 10 percent and topped out at 35 percent. There are special rates for collectibles and the sale of certain small business stock.

A lot of times, businesses will provide dividends to their shareholders. Dividends are classified as ordinary or qualified. Qualified dividends are taxed at a 15 percent rate.

To be eligible as a qualified dividend, the dividend must meet the following two criteria:

• The dividend has to be from a domestic corporation or a qualifying foreign corporation.

• The stock must be held for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.

What special rules apply to capital gains inherited or received as gifts?

People often end up owning real estate and other property when the original owner has given that property to them. Transfers of property given before the original owner dies are gifts. The recipient of a gift does not pay any taxes or report any income when the gifted property is received. Capital gains or losses on property received as a gift are calculated with respect to the original owner’s basis in the property. When property is given, the recipient receives both the property and the property’s basis. The recipient also receives the donor’s holding period in the property for determining whether a gain is long term or short term.

Why is it important to keep good records of your capital gains and losses?

Your records help determine your capital gains and losses. Keeping good records is mandatory to be able to document and calculate the correct rates for your tax returns.

This includes making sure all items are dated, as this matters for calculating what type of gain you have — either short term or long term.

Dennis R. Mowrey is the director of tax and business advisory services at GBQ Partners LLC. Reach him at (614) 947-5273 or

Tuesday, 09 March 2010 06:24

Quality improvements

Managed care organizations have done a lot of work over the last several years to speed up processes in the workers’ compensation system.

Stakeholders from several groups, including the Bureau of Workers’ Compensation, The Kilbourne Co. and the MCO League of Ohio studied 10 years of data from previous health organizations to develop areas of improvement. Twelve major objectives were developed from this, but five were seen as the most important for MCOs to focus on.

These objectives include providing injured workers with more timely and efficient access to quality care, reducing disability days, returning injured employees to work more efficiently and effectively, reducing overall claims costs, speeding up the payment process for providers, and increasing the satisfaction of services for employers and injured workers.

“These items all focus on timing, efficiency and quality care for injured workers,” says Karen Conger, CEO of Ohio Employee Health Partnership. “This will result in reduced missed days and indemnity payments, because that’s where your costs lie. You’re not only treating the injury, but also managing the time away from work, or time an injured worker is on modified duty. This all adds to your premium cost.”

Smart Business spoke with Conger about how MCOs have made improvements under these objectives.

How have MCOs provided injured workers with timely access to quality care?

MCOs have reduced the filing time between when an injury happens and when it’s reported. This was an average of 62.1 days before the study and was down to an average of 19.3 days in 2006. This means injuries are being reported and adjudicated sooner. Treatment is then authorized sooner, so injured workers have more timely access to medical services.

One of the most important goals is to have fewer disability days for injured workers. It’s all about looking at those lost time days and reducing that number so injured workers are back to work. Injured workers have returned to employment in 8.9 days, as opposed to 19 days before 1998. Ninety-two percent of injured workers have gone back to work safely within 60 days of filing a claim.

How have MCOs reduced overall claim costs and the number of claims being filed?

MCOs have been able to reduce claim costs by 73 percent through effective return-to-work strategies and requesting appropriate treatment options. An average claim was $8,188 in 1995 and down to $2,183 in 2003.

The number of claims has gone down over the years in the U.S., but it’s hard to say if the managed care process has helped weed out any questionable claims. This reduction could come from a variety of areas, including less manufacturing or healthier workers. But one of the ways MCOs can help keep claims down is by promoting a safe workplace and working with employers on safety to make sure injuries never happen.

How have MCOs helped speed up the payment process for providers?

This happened in two ways. The first was by reducing the lag time, or time between the date of injury and reported date. This gives you more time to pay the bill because you know you have an allowed claim. If you didn’t know about a claim for 60 days, that’s lost time when you could have paid it and sped up the process.

Strict benchmarks were also set to speed up this process. The lag time has been reduced by 51 percent, and 98 percent of bills today are now paid by MCOs within 30 days of receipt. Knowing about the injury quicker, getting the treatment approved quicker and getting the claim allowed quicker can allow a company to pay the bill quicker. It all wraps together.

How have MCOs increased overall satisfaction, and how can this success be measured?

A 2007 report card showed satisfaction levels at 4.28 for employers and 3.93 for injured workers on a scale of 1 to 5. By using an MCO, employers have someone to talk to and employees have medical experts to work with. MCOs also give employers another partner in return-to-work programs and a liaison between providers. Satisfaction increases as you see claim costs and premiums decrease.

Injured workers are getting treatment sooner because claims are being reported and filed sooner. So they’re not sitting around for days or weeks, waiting for treatments to be approved. This can lead to a better quality of life for them, reduce their lost time wages and get them back on the job safely, so they can continue taking care of their families.

These improvements have offered a net savings in excess of $1.78 billion from 1997 to 2006. This lowers reserves for employers, which is a big calculation of the premium.

Do you foresee any future improvements to the system?

We are constantly looking for ways to improve. Future improvements may deal with decreasing provider payment time as the health care industry moves from paper to electronic systems. These electronic systems may help improve filing times and other issues in the workers’ comp area. It also may help in the cost savings. But as things become more and more electronic, and more health care providers are using electronic systems, these will lead to more improvements for MCOs.

Karen Conger is the CEO of Ohio Employee Health Partnership.