How to get ready for an audit — before the auditor comes

As audit season comes to an end, it’s a good time to reflect on what went well and what you could have done better to ensure a smoother, more efficient audit.

“Audits can be disruptive to your business if you aren’t fully prepared,” says Deborah Sabo, assurance senior director at BDO USA LLP. “Auditors have to come in and ask a lot of questions. And we ask for support from the accounting personnel.

“The key to being ready is to do as much preparation beforehand as possible,” she says. “Keeping organized records, an ongoing general ledger account review and a reconciliation of all balance sheet accounts will help make our job and your job easier — and can result in a more efficient, effective audit.”

Smart Business spoke with Sabo about how companies can prepare for their next audit, to make it as smooth as possible.

What is the most important step a company should take when preparing for an audit?

The most important thing is to actually close your books before the auditor arrives. If you haven’t gone through an analysis of your accounts, it makes the audit a longer and more difficult process for both you and your auditor.

Auditors also send a list of required information, sometimes referred to as a prepared by client (PBC) list, which your organization needs to gather in advance. That information from the PBC list needs to be available on the first day the auditors are at your location.

Ideally, you should be closing your books on a monthly or quarterly basis, so you already know that you have accurate financial information. The CFO and/or CEO needs to review the financial statements on a regular basis to make sure things look right.

Is that part of a long-term strategy a business can employ to keep it prepared?

Yes. You shouldn’t just be concerned about your books and records when the auditors arrive. On a monthly basis, all of your balance sheet accounts should have a schedule that analyzes each of those accounts and is tied to your trial balance.

In addition, you should review your monthly transactions to ensure vendor invoices are properly coded to the correct general ledger account. For example, your accounts payable clerk may get a vendor invoice for advertising and accidentally code it to the printing general ledger account. By reviewing all your transaction activity regularly, you can identify mistakes sooner.

It can be painful to implement a control process at first, but it makes it so much easier going forward. If your internal resources are inadequate, a good accountant can help you set up sound procedures and schedules.

Why is it so important that organizations are ready?

During the busy season, auditors are working with multiple clients trying to meet multiple deadlines — all in a short period of time.

If you aren’t ready for an audit on the date you set, you run the risk of your auditor not being able to reschedule right away because his or her days are already so packed helping other clients. The window of time he or she has available is probably very small, and if you have to delay your audit you could end up missing a deadline.

In that case, there can be financial repercussions.

Your bank may require the audit by March 31 or April 30, and if you don’t make that date you’ve violated your debt agreement. A bank would have the right to call the note or whatever debt there is, but usually the lender will charge a higher interest rate or fee. The auditor cannot issue the audit report until you get a written waiver from the bank — and that waiver could cost $5,000.

How can a required audit be an opportunity to improve the company?
Auditors are looking to understand your business so they can identify any risks associated with your company and where mistakes could happen.

This allows them to provide recommendations, such as better internal controls to make your processes more efficient or ideas for improved processes that control your cost structures.

They also can tell you about additional business resources that are available to you to improve your business. ●

Insights Accounting & Consulting is brought to you by BDO USA LLP

S corporation vs. LLC: Which is the better option?

One of the first tasks a new business owner must address involves the question — What type of entity should I choose to operate my business?

“A common tax consideration is a desire to avoid double tax in which the operating profit of a business is taxed initially at the entity level, followed by an additional tax when after-tax profit is distributed to the owners,” says Michael R. Viens, Director, Tax Strategies, Kreischer Miller.

Smart Business spoke with Viens about considerations that may arise should you decide to operate a business venture as a pass-through entity, either a limited liability company (LLC) or an S corporation.

Does incorporation help protect personal assets from a business?

When a company decides to operate a business using a formal intermediary entity, it’s typically to shield the business owners’ personal assets from the risks of the business’s creditors. Both LLCs and S corporations offer this benefit. But there are formalities that must be addressed to assure such results.

Some advisers argue that the formalities and related paperwork are more of a burden for an S corporation. For example, there are annual meetings and corporate minutes requirements. An LLC avoids such requirements. Such activities need not be a material burden, however, and offsetting this issue is the greater clarity an S corporation offers with its formal ownership structure.

S corporations do have greater restrictions on ownership than LLCs. Permitted S corporation shareholders are both limited in number (no more than 100) and type (generally, U.S. citizens or permanent residents and certain trusts).

What are the tax implications between the two types of entities?

An owner in an LLC is treated as a partner in a partnership for tax purposes and partners do not qualify as common-law employees with regard to the partnership. LLC owners cannot receive W-2 wages in which tax is withheld, and thus owners are required to make quarterly estimated tax filings, a consideration that could weigh against using an LLC.

Wages paid to an S corporation owner for services performed are subject to Social Security and Medicare taxes but allocations of S corporation profits will not be.
Allocations of LLC profits to a member who performs services in the LLC generally will be subject to Social Security and Medicare taxes. For a service-oriented business venture, this can favor an S corporation. It is important to note, however, that tax reform provisions now being considered would potentially eliminate the favorable benefit currently realized by S corporation shareholders.

Where the activities of the business venture do not involve personal services but rather some form of investment activity, passive income limitations may prevent the use of an S corporation. Using an LLC for ownership of real estate involved in rental activities is usually preferred.

If a business venture will own property likely to appreciate in value and a reasonable prospect exists that new owners will acquire a future interest, an LLC provides for favorable tax considerations to such owners. They may acquire a stepped-up basis to be used to determine both deductions flowing to them as well as their share of any gain or loss upon disposition of such assets by the LLC. No such basis step-up is allowed to S corporation shareholders.

Where losses may be anticipated from business operations, an LLC may provide a better outcome to the owners since loss limitations referencing owners’ basis will typically include mortgage and other debt inside the entity. S corporation shareholders are limited to their stock basis and any personal loans they have made to the entity.

Which type is better?

It is not uncommon for there to be some level of uncertainty about which form represents the best solution when a new business venture is launched. In such circumstances, consider going with an LLC approach at least initially while reserving the option to change to an S corporation in the future. Such a change can generally be carried out with little or no immediate tax implications, while a move in the opposite direction can present significant tax costs.

Insights Accounting & Consulting is brought to you by Kreischer Miller

Outsourced accounting service can help smooth your operations

Many businesses fail to realize that when they reach $150,000 in revenue from taxable sales or services, they are subject to a commercial activity tax. And that’s not all they may miss, says Dawn M. Gainer, Managing Director of Small Business Services at Skoda Minotti.

“For instance, taxable sales for sales tax purposes and taxable sales for commercial activity purposes are different,” she says.

Smart Business spoke with Gainer about leveraging outsourced accounting services to stay focused on core competencies.

What is the top concern of small to midsize businesses regarding finances? Businesses are spending too much time on their financials; not just on bookkeeping, but analyzing the numbers when that really is not their area of expertise. Many business owners either don’t have the time to work on financials or don’t have the expertise to handle the responsibility correctly.

Business owners should spend their time doing what they do best and let consultants help them with functions that lie outside their wheelhouse.

How might accounting services help? Those who own a business, regardless of its size, have multiple business taxes to consider. If you have employees, there are payroll taxes and workers compensation. If you sell a product or service, it may be subject to sales tax, and once a certain level of sales within Ohio is reached, you are responsible for the Commercial Activity Tax. An accounting firm can serve as a client adviser and help with compliance while also filing and paying any requisite taxes owed by the company.

If a company has fixed assets, the firm can maintain the fixed asset listing, calculating depreciation and other items such as gains or losses on disposal of assets. The firm also can help if the company disposes of or purchases assets frequently — guiding it through the financial/tax reporting system.

What other financial management services can firms provide? Accounting services firms can handle payroll responsibilities for a business or interact with a company’s outsourced payroll service. The responsibility for payroll could be split between the two outsourced partners, with the payroll service being responsible for paying employees and the accounting firm responsible for preparing the payroll tax returns. An accounting firm can also work closely with payroll companies to make sure the information that comes from the payroll service is incorporated into the financials of the business correctly, accurately and timely.

What other advantages can a firm offer? Working with financial experts allows a business owner to focus on what the owner does best — running his or her business. If you are a business owner, sometimes you feel have to be a jack-of-all-trades, and something is going to suffer.

If payroll taxes, sales taxes and commercial activity taxes are not filed properly and timely, there could be significant penalties and interest that accumulate. An accounting services firm can help lessen a business’s income tax burden by ensuring that the company takes advantage of all the business deductions to which it is entitled. A firm will classify things appropriately throughout the year and advise a business on best practices.

An accounting firm can help a company manage its business by providing the right tools: financial statements that are accurate and timely that can be used to analyze the business and offer revenue enhancement, and/or cost reduction strategies. A firm can also offer guidance on reading those financial statements so a business knows — and understands — its financial health at any point in time.

Also, if a company needs to look for bank, other debt or equity financing, the lender is going to ask for a proper set of financials. Often, the lender is going to ask if your accountant has reviewed them, thereby adding credibility to the numbers.

Another advantage is an accounting firm is able to offer different service levels. You may not need a firm to handle day-to-day bookkeeping, but you would like a monthly or quarterly review of your financial data; that can be arranged. Many firms also offer on-demand support — whenever you need help or have a question, call your firm; together, you’ll assess whether it’s a routine or complex issue and the firm can offer suggestions or solutions to resolve the issue.

Insights Accounting & Consulting is brought to you by Skoda Minotti 

How to stay compliant with out-of-state taxes and minimize penalties

States are hungry for revenue, which means nexus questionnaires that determine the connection required for a state to be able to levy a tax on a person or company are on the rise.

States send out these questionnaires after identifying potential non-filers. One of the ways they do this is by auditing in-state companies that do business with out-of-state vendors. In this environment, to be compliant and minimize your potential penalties, it’s important to stay proactive.

“It’s a matter of understanding your exposure,” says Deborah R. Kovachick, CPA, MT, director of tax at SS&G. “It really depends on the facts and circumstances of your unique company.”

Smart Business spoke with Kovachick about why nexus has become a hot topic and what to do about it.

How has the definition of nexus evolved?

Nexus used to require a physical presence in a state, such as owning or renting tangible property or having employees who performed services in the state. Today, not only are more companies conducting business on a multi-state basis, but taxes also may capture a broader range of activities.

In 1959, Congress enacted Public Law 86-272 to provide protection from state income tax for out-of-state sellers of tangible personal property whose activities in a state didn’t go beyond solicitation of sales. This law doesn’t apply to state gross receipts taxes, sales and use taxes or franchise taxes, so the nexus threshold is lower for these taxes.

What do Internet sales mean for nexus?

Internet sales have caused states to lose tax revenue from people who previously purchased products from in-state retailers and paid sales tax. At some point, federal legislation on Internet sales will even out the playing field, but it’s still stalled in Congress.

Today’s situation puts a spotlight on nexus and filing responsibility. It has caused some states to change tax statutes or how they interpret statutes to recapture lost revenue. For example, a company may have no other contact with a state, but if sales go over $500,000 or apportionment factors in that state are greater than 25 percent of total apportionment, nexus could be established.

Will states ever have uniform rules?

No, the country is just too vast, both geographically and culturally. The states and their constituents need and want to control how they generate tax revenue.

How can businesses stay in compliance?

When initiating business in a state or starting a new business line, a company must consider the ramifications on its state tax filing requirements.

As for old activities, there may be no statute of limitations. If no returns have been filed, states can go back to when a company started doing business there and assess tax, interest and penalties. The penalties can be severe — 25 percent or more in some states on top of the tax assessed — and interest can really add up.

Those at risk should consider investing in a nexus study to determine their exposures. This includes:

  • Businesses with a heavy concentration of sales in a state where they are not filing.
  • Companies providing services to clients and conducting activities in a state that go beyond the solicitation of sales of tangible personal property.
  • Owners who are considering selling, to see if eliminating or reducing exposure can provide a clean bill of health to potential buyers and prevent reductions in the business selling price. State tax exposures are a hot topic during due diligence.

How does a nexus study work?

Nexus studies start with fact gathering to understand where and how a company is conducting its business and the volume of business in various jurisdictions.

After tax experts determine where there are filing requirements, they can help calculate potential exposure — tax, interest and penalty — in each jurisdiction. Then, you can make an informed decision about whether or not to take action. If you decide to reduce or eliminate that exposure, a third-party can approach the state to minimize the look back period and generally get any penalty abated by negotiating a voluntary disclosure agreement with the state.

Only by being proactive and determining where you have nexus can you understand any tax exposure.

Insights Accounting & Consulting is brought to you by SS&G

How to review your mid-year financials to boost your paycheck, reduce taxes

Most taxpayers, when you get down to it, have similar tax returns year after year.

But some years, your situation may have changed and as a result, your tax position will be affected. For example, did you get married? Have you had a baby or adopted a child? Is a son or daughter now in college or perhaps you returned to college yourself?

If you have become accustomed to the idea of a big refund equating “bonus,” it may be time to understand what that means. “In short, you are loaning the government your money interest-free throughout the year, instead of having that money in each paycheck. Mid- year is a great time to look at how your withholding is shaping up,” says Jenna Staton, EA, Tax Manager at Skoda Minotti.

Smart Business spoke with Staton for some tips as to why it’s a good time to check your tax situation now to help position you favorably for the rest of the year.

What is the first step I should take when I review my mid-year tax situation?

Make sure you’re claiming the correct number of exemptions. Remember, the more exemptions you claim on your W-4, the less that is deducted from your paycheck. This is especially important for taxpayers who have been married or plan to get married in 2014. Even if you get married on Dec. 31, you’re deemed to be married all year.

The same is true for divorce situations. You might have had your withholding as ‘married;’ if you change to ‘single,’ your tax rate and bracket could change significantly.

If I have medical expenses, what should I keep in mind?

There is a medical expense threshold of 10 percent of your adjusted gross income. Meaning, if you make $100,000, you’d have to spend $10,000 in medical expenses out of pocket before you’d receive $1 of deductions. Most taxpayers do not qualify for a medical expense deduction.

However, at this point, you can look at the first half of the year medical expenses and group those together then look ahead at the remaining months; perhaps you need glasses or dental work — you want to get it all done within the calendar year because that’s when you may have a combined amount that provides the medical expense deduction.

Remember, you can’t deduct contributions to your Health Savings Account or your Flexible Spending Account.

What is important to remember about charitable donations?

People often donate their clothing and household items but don’t know what they should list as the value. I always send them to the Goodwill website. It’s a very good website that lists how much their items are worth.

What about contributions to a 401(k) account?

Generally, you make a pre-tax contribution through your company payroll of up to $17,500. Those age 50 and over may be able to contribute a catch-up contribution by adding $5,500 to their deposits this year, for a total limit of $23,000. This money will grow tax-free for retirement.

Can you give some advice about preparing for storm damage?

It’s always good to have pictures or videos of your personal belongings before a situation arises; you can use them to substantiate the value of the item. The more detail and documentation you have, the better.

Back up records electronically via CD, DVD, flash drive or external hard drive and store it and other pertinent paperwork at an alternate location such as a safety deposit box or the cloud. As far as important papers, IRS. gov stores prior tax returns if they become lost or damaged in a weather- related situation. 

Insights Accounting & Consulting is brought to you by Skoda Minotti

How to achieve a lean finance department in your company

As successful companies grow over time, certain systems — particularly within the finance function — are often overlooked. As a result, multiple software applications are typically pieced together in order to extract and maintain data. Processes become redundant in order to get information into these various systems and precious time is wasted along the way.

Running a lean finance department requires stepping back and taking a fresh look every once in awhile.

“I often see software accounting packages being used to track the basic activities of the business,” says Steven E. Staugaitis, CPA, Director, Audit & Accounting at Kreischer Miller. “These packages are often accompanied by an excessive amount of spreadsheets to track various aspects of the business — from budgets and sales data to creating the monthly internal financial statements.”

Smart Business spoke with Staugaitis on the advantages of operating a lean finance department and how to accomplish it.

What do you look for in a lean finance department?

I want to observe six key elements: 1) The accuracy of the information being generated, 2) the timeliness of the information being prepared, 3) the effectiveness of the internal controls, 4) the overall quality of the reports themselves, 5) the efficiency of the technology that’s being used and 6) the overall sufficiency of the personnel within the department.

Can you provide some more detail?

The accuracy of the information has to do with the completeness of the information or, said another way, the number of adjustments that are being posted in any given period.

Timeliness involves the speed at which the department generates a set of internal financial statements. Well-run organizations will be able to close their books at the end of each month within five business days. But anywhere under two weeks is a pretty healthy indicator.

The internal control structure has a lot to do with how personnel are allocated within a department. In a smaller organization, some level of owner oversight or involvement is a good way to mitigate risk.

The quality of the reports really has to do with the type of information being provided on a monthly basis. Look for key performance indicators or other types of dashboard reporting in addition to a simple balance sheet and income statement.

The efficiency of the technology involves how well the business is using its systems and if it is making sufficient use of them.

The personnel aspect has to do with not only staffing levels, but also the overall quality of your people.

Where would you begin to improve this?

I usually suggest starting with the end users or the information recipients and understand what they need. It’s senseless to create reports no one ever uses just because that’s the way it has always been done.

Secondly, take a hard look at your existing technology to see if there are features or software modules that are not being used or are being used improperly. There may be some real opportunities to improve functionality without having to make major investments in a new system.

Lastly, take a close look at your personnel. Evaluate whether you have enough resources or need to make some changes.

What are some of the obvious places to find waste?

The area I tend to see the most waste in is often redundancy or duplication of efforts. So many businesses don’t really make effective use of their technology; specifically, I often see excessive use of spreadsheets in addition to accounting software to manage the finance side of the business.

At what point would you consider a finance department to be running lean?

I think you simply see it in the results of the business. Well-run departments are able to improve turnaround time of financial information and drive improvements throughout other aspects of the business. The only way to track improvements is to make them definable and measurable. Then you can compare your performance to yourself, your peers or other well-run companies. So where do you stand?

Insights Accounting & Consulting is brought to you by Kreischer Miller.

Benchmark your employee benefit plan by comparing survey trends

Employee benefit plan sponsors are going in the right direction. Employees are saving more, fiduciaries are trying to step up and everyone is working together to make the golden years really golden.

“That’s a good thing to see, and hopefully — barring another economic meltdown — we’ll all get there,” says Bertha Minnihan, an assurance partner and national practice leader of Employee Benefit Plan Services at Moss Adams LLP.

“Plan sponsors have realized administering benefit plans in today’s complex environment isn’t easy and there are consequences,” she says. “The employees are demanding more information, a solid plan and strong retirement vehicles, and I think employers are stepping up.”

Moss Adams recently conducted its 2013 Employee Benefit Plan Benchmarking Survey, covering Washington, Oregon, California, Arizona, New Mexico and Kansas, which features an in-depth look at 401(k) plans and other benefit plan trends. Areas covered included plan participation and performance, employee matching, investment options, loans, plan fiduciary, fee disclosure requirements and plan audits.

Smart Business spoke with Minnihan about the survey’s results.

What were the key findings from the survey?

There were several positive findings based on this survey, when compared to prior results. Participation in plans continues to grow with the economic recovery. About 36 percent of respondents said that their participation is between 80 to 100 percent.

Auto-enrollment is increasing; about 40 percent were offering auto-enrollment. Automatically enrolling employees at a certain percentage, usually 3 or 4 percent, which they can either opt out of or increase was utilized only by a few employers a couple of years ago. It’s a good way to show employees they can save for retirement.

The employer match is on the rise with 80 percent of plans offering it. During the recession, the matching contribution was one of the first things to go. The survey found 23 percent of those who eliminated the match reinstated it in 2013. Matching is a strong employee attraction tool in certain parts of the country like Silicon Valley.

In addition, plan fiduciaries are being more proactive, and fiduciary and governance awareness is increasing. This correlates to how often governance committees are dissecting investment fees, for example.

How else did the survey depict employees?

Employee education is evolving, and employees are becoming savvier. This is something industry experts have been telling employees for years. Use your education. Understand your investments. Maximize the match the company is offering, and participate — because you can’t build a nest egg if you don’t have a nest.

Why do you think companies have gotten better at fiduciary responsibilities?

Plan sponsors realize the retirement world has become complex. It’s becoming paperless with more investment options. In addition, there are more regulatory requirements from the Department of Labor (DOL) and IRS. Form 5500 is asking for more information, and the DOL has even started auditing the auditors. More oversight always funnels down to the plan sponsors as a result of the regulators and auditors who knock on their door with questions.

New fee disclosure requirements began in 2012, but the survey found only 54 percent of plan sponsors are fully prepared to comply with these disclosures. Why the lag?

The DOL wanted transparency so plan participants could see what they pay. Historically these fees were netted against the rate of return, the earnings the employee accrues, and they were never grossed up. The fee disclosures are becoming a part of business, it’s just rolling out slower than anticipated.

Many employers have competing priorities. There is a lot of reporting that goes on for the other kinds of plans a sponsor maintains, such as health and welfare plans. Others are still trying to get their arms around the requirements.

So far the fee disclosures haven’t created much change in investment behavior. Sponsors might start to drag their feet because after talking to their peers, they ask, ‘What does this really affect?’ But the DOL and IRS are asking about it when they audit plans. They want to know how sponsors are educating employees, and if they are providing the required fee disclosures in a timely matter. Plan sponsors will get there eventually.

Remember, your employee benefit plan is an important part of how you compensate your employees for their service — and it’s one you need to monitor carefully if you want to stay in compliance, avoid penalties and provide real value to your employees.

Insights Accounting & Consulting is brought to you by Moss Adams LLP

How to spot red flags of possible fraud in your finance department

Fraud in the finance function may take a variety of forms — financial statement fraud, misappropriation of assets, illegal acts, bribes, or violation of laws or regulations. There are many warning signs or red flags that indicate a pattern of fraud, and often these items are most visible to the finance department.

There are three elements that are needed when a fraud is committed: Motivation, rationalization and opportunity, says Richard Snyder, a director in Audit & Accounting at Kreischer Miller.

“Motivation and rationalization are driven by an individual or individuals, but opportunity is often created by the company. In many instances, stakeholders and executive management teams place a high deal of trust with individuals based on past experience, long-time working relationships and reputation,” Snyder says.

“An overreliance on certain key financial people, with reduced internal controls and oversight in place, may create the opportunity for fraud.”

Smart Business spoke with Snyder about signs that may indicate fraud is occurring.

What are the costs of fraud in an organization?

There are very real costs which impact organizations when fraud occurs, including:

  • Financial loss, hardship or bankruptcy.
  • Misstatement of financial statements.
  • Distrust of the organization by employees, customers and vendors.
  • Lost or reduced future sales.
  • Damage to an organization’s reputation and/or brand.
  • Damage to key relationships with service providers — bankers, insurance brokers and accountants.

There also are many indirect costs such as legal fees, audit costs, fines or penalties, and the lost time of executives and employees created by dealing with a crisis brought about by the fraud.

What are some of the red flags or warning signs that fraud is occurring?

According to a survey by the Association of Certified Fraud Examiners, the average length of time a fraud occurs is 18 months. Misappropriation of assets accounted for a majority of the frauds that occurred but were the least costly, while financial statement frauds were less common but caused the greatest amount of loss to an organization. There are many warning signs/red flags, including:

  • Significant and subjective judgment in estimates.
  • Earnings pressures related to banking covenants, bonuses or profit levels.
  • Unexpected areas of profitability.
  • Recurring negative cash flows during periods of earnings growth.
  • Revenue reported after period cutoffs.
  • Abnormal selection of accounting policies by management.
  • Omissions or inaccuracies in financial data.

Many times, the finance function will observe these warning signs before other individuals/departments within an organization due to their access to financial information. If the individual committing the fraud is a member of the finance team, however, the fraud may be more difficult to uncover.

How can organizations do a better job of preventing fraud?

Fraud prevention begins with a ‘tone from the top,’ starting with owners and stakeholders, the board of directors and the executive team. Their actions speak volumes to an organization’s employees that fraud will not be tolerated.

Continued oversight of financial results and follow-up on unexpected variances is vital. Establishing conflict of interest, code of conduct and whistleblower policies should be a priority if not currently in place and should be distributed to all employees.

Organizations should complete a periodic fraud risk assessment to identify areas of susceptibility and look at potential red flags and fraud indicators. Many organizations do not discuss fraud, but an open dialogue between management and employees is an excellent way to reinforce individual responsibilities, identify areas of fraud risk and brainstorm ways to improve the organization’s internal control.

A proactive approach to addressing fraud prevention may ultimately help an organization save time, money and embarrassment in the future.

Insights Accounting & Consulting is brought to you by Kreischer Miller

For business success, blend technical, specialized and development training

Some professions require technical education because of state and certification governing board rules. Others require training for niche specialties, like having in-house accountants learn about specific tax updates that affect your manufacturing operations.

Beyond those requirements, in order to attract and retain the best people and improve their skills, you should consider providing regular professional development for your workforce.

By looking at the full person and what he or she needs to succeed, you can create customized training that addresses areas like leadership, business writing or public speaking, says Barbara McDowell, M.Ed., learning manager at SS&G.

“I think anybody — if they’re in the business world — needs to stay abreast of education opportunities for their role,” McDowell says. “If a company is relying on its people to drive it forward, to innovate, to bring change, to not just keep the status quo but to be able to be flexible and move with the times, you need education.”

Smart Business spoke with McDowell about best practices for creating the right mix of professional development for your employees — and yourself.

Why should companies pay for and support continuing education?

Recently someone who has been in the same role for nearly 20 years asked how they would benefit from outside education. If you spend your entire career doing the same thing the same way, how do you even know what’s new and available to make your work more efficient?

It’s important for any company to identify the basics of what their people need to grow and then commit to providing it. Otherwise, you’re going to have people who are ‘stuck’ — they come in, check the boxes and do the work, but outside of their walls they don’t know what’s new and innovative.

How can you start finding the right mix of employee training?

Get an assessment of what skills need to be developed. A good time for this is during an annual review. You can develop a pre-questionnaire, and then use that for a discussion during the progress review itself.

Also, keep in mind that there may be more room for improvement than you think. For example, if you’re already a good presenter that doesn’t mean you shouldn’t hone and craft that skill.

What you do with this information will depend on the company’s size. Larger companies may have a training manager or HR department that can use resources like emails from industry associations to create individual learning plans. In other cases, CEOs might directly contact groups they belong to or service professionals for ideas.

It’s always a good idea for executives to reach out to their peers to ask what they do for their staff. You don’t have to reinvent the wheel, but it’s important to have some customization. In some cases, booking a class and then putting everybody into it based only on their title, not strengths and weaknesses, is a mistake.

What about using online versus in-person training?

In terms of training and development, e-learning is the future with its inherent flexibility. If you have offices in multiple states, you can’t follow the old model of bringing people in for physical classes. Even broadcasting training to remote offices can be tough to fit into people’s schedules.

However, it is hard to take an all-day class by watching your computer screen for eight hours. When possible, effective e-learning should be in shorter blocks.

How else can you ensure you provide the right education?

It’s a good idea to keep a log of quality classes or instructors. If you send someone to an outside conference or training, get feedback. How was the speaker and content? You might decide it makes sense to bring in a certain instructor.

Before you set up a class or book a speaker, look beyond survey or evaluation results. It’s beneficial to ask for the names of people who have taken a class with a specific instructor or companies who used them. Then, call them directly to ask: ‘If there was anything that you would want them to do differently, what would it have been?’ ●

Insights Accounting & Consulting is brought to you by SS&G

How to choose a firm to handle IRS Form 5500 filings

Danielle B. Gisondo, CPA, partner, Skoda Minotti

Danielle B. Gisondo, CPA, partner, Skoda Minotti

The Internal Revenue Service (IRS) requires companies to file a Form 5500 to provide information about their benefit plans. If the company has 100 or more eligible participants that also means the benefit plan has to be audited.

“The 5500 form is an informational return filed with the Department of Labor (DOL) on an annual basis. It includes not only plan-specific information but financial information, which is where the benefit audit comes in,” says Danielle B. Gisondo, CPA, a partner at Skoda Minotti.

Companies are required to have an independent accounting firm conduct the benefit plan audit. Smart Business spoke with Gisondo about the audit process and how to choose a firm for the work.

What should you look for in selecting an accounting firm?

Find a firm that has benefit plan experience. There are accounting firms that audit only one or two plans throughout the year, but you want someone with a wide variety of experience auditing plans. Some firms don’t have a specific department for these audits, doing them as part of the overall accounting and auditing practices. Firms that specialize in this arena have a separate department and dedicated professionals.

Ask how many plans the firm audits, and the size of those plans. Check for membership in the American Institute of Certified Public Accountants Employee Benefit Plan Audit Quality Center. This ensures they have the required education and access to benchmarking and industry data that can be helpful for the audit work and throughout the audit process.

There are specific continuing professional education requirements from a benefit plan industry perspective, and the accounting is unique and definitely different than for a regular audit of a financial statement.

What do accountants look for in the audit?

They’re testing for contributions coming into the plan, making sure participants have proper amounts withheld from paychecks and money is deposited in a timely manner into the plan. Investment elections are reviewed; if contributions are to be deposited into five different mutual funds, accountants ensure money goes into the right funds.

Distributions also are tested, whether it’s money rolled over into a new plan or making sure a loan is repaid over the proper time period.

It’s really about testing samples of transactions into and out of the plan. Then financial statements are prepared for filing along with Form 5500.

Where do problems usually arise?

Many times it’s on the contributions side — a participant wanted 3 percent withheld but the plan sponsor or third-party administrator (TPA) withheld 5 percent. Some employers do not deposit employee withholdings on a timely basis with the trustee or custodian that handles the funds.

On the distribution side, there are situations where participants took out more money than they had vested in the plan and it didn’t get approved by the proper party at the TPA or plan sponsor.

What manpower commitment is required for the audit?

Depending on the company’s size, the firm will work with the human resources director or accounting department. If the accounting firm has a specific audit process, it should only require a few hours of pulling information together on the company’s part, while having someone available for questions when the audit work is being performed. Depending on the size of the plan, field work runs from one day to a week.

The entire process, starting with the request for information and ending with a completed financial statement, takes about four to six weeks.

Does the firm you use make a difference?

Both the IRS and DOL conduct independent plan checks, and could randomly look at completed 5500 filings and audits. If an accounting firm missed something — maybe the plan wasn’t compliant or didn’t have the proper amendments — those plans could be disqualified. Then all contributions going to the plan could be taxable, even though the plan is tax-exempt.

You definitely want a reputable accounting firm with experience doing benefit plan audit work; any mistakes could be costly.

Danielle B. Gisondo, CPA, is a partner at Skoda Minotti. Reach her at (440) 605-7132 or [email protected]

For more information or to have a confidential conversation with Dani, please call (440) 605-7132.

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