TOP TEN PRIORITIES FOR AUDIT COMMITTEES

Yes, audit season has officially begun. The time has come to put the final stamp on 2009 numbers. The time has also come, however, to plan for 2010. Now is the time for audit committees to implement new agendas. KPMG recently released a list of the top ten "to-do’s" for audit committees this year. Following is a brief summation:

1. Regain control of the audit committee agenda. Improve the efficiency of committee meetings by insisting on quality pre-meeting materials, spending less time on low-value activities, and engaging in discussions rather than listening to presentations.
2. Understand the risks posed by cost reductions made in response to the economic crisis. Every audit committee should be asking whether a "cost-reduced" business model can be sustained. Now is not the time to cut-back on internal audit’s budget.
3. Focus closely on all financial communications. Reconsider the types of earnings guidance the company issues. Engage early on in reviewing 2010 disclosures, particularly those regarding risk, compensation and governance. Understand the company’s policy on the use of Twitter and other social media networks to reach investors and customers.
4. Continue to monitor fair value issues, impairments, and management’s assumptions underlying critical accounting estimates. There are important new financial reporting developments such as accounting for transfers of financial assets, revenue recognition, and IFRS that may require attention from the audit committee.
5. Rethink the audit committee’s role in risk oversight – with an eye to narrowing the scope. Does the audit committee have the expertise and time to deal with strategic, operational, and other risks? Is the expertise of other board members being leveraged?
6. Make sure internal audit is properly focused and fully utilized. Help refine and focus internal audit’s activities on key areas of risk. Internal audit is not accountable or responsible for risk management, but it should provide some assurance to the audit committee regarding the adequacy of the company’s risk management processes.
7. Prepare for the potential impact of key public policy initiatives on compliance, risk, and governance processes. Major public policy changes will affect many companies and industries, and may impose additional reporting, transparency, and compliance obligations. This will likely lead to new requirements for compliance, risk and governance oversight processes.
8. The economic crisis continues to put pressure on compliance and anti-fraud programs. The economic downturn has placed tremendous pressure on management to achieve operating results while working with cost cuts and workforce reductions. How has the company been treating its employees? How do they think they’ve been treated? It may be time to review the company’s anti-fraud and compliance programs.
9. Help link change and risk – and monitor critical alignments. During times of dramatic change, the risk of misalignment of the company’s strategy, goals, risk, controls, compliance, incentive and people goes up exponentially. Given the audit committee’s role in overseeing risk, the committee may be in a unique position to help reduce the risk of misalignment.
10. Take a fresh look at the audit committee’s composition and leadership. Take a hard look at the committee’s composition, independence and leadership. Is there a need for a "fresh set of eyes?"
    

As you look forward to 2010, keep these tips from KPMG in mind. The audit landscape is always changing. Use these ten "to-do’s" as a roadmap to guide you through the next year.

Are You Using The Right Legal Entity For Your Business

Today’s blog is courtesy of our benefits counsel, Walter Wilson. Mr. Wilson is the managing partner of The Wilson Legal Group, Houston, Texas. Today’s blog is a bit technical, but the crux of the article is that different legal entities provide different levels of protection for the owner. The type of legal entity that you choose is critical when doing financial and business planning.

Effective September 7, 2007, a new law went into effect in Texas that offers business owners a more effective “corporate shield” to protect businesses from having its assets and company interest “seized” by a judgment creditor. Most business owners incorporate their business for two primary reasons: (1) to insulate the owners of the business (and their families) from business liabilities and (2) to help reduce Federal Income Tax liability.

Operating as a corporation, shareholders are not personally liable for corporate obligations. However, until this new law was passed, businesses had no similar protection from liabilities created by the business owner.

If a majority shareholder of a corporation was sued and a judgment taken against that shareholder, the judgment creditor could “seize” the shareholder’s stock, take control of the corporation, liquidate its assets and put the shareholder out of business. The judgment creditor could threaten to do this and the shareholder would be forced to settle for cash which normally comes from the business in the form of a loan or sale of assets. Usually the judgment debtor shareholder will do anything to protect the “cash cow” which is the business. Either way, potentially, under old law in Texas, the business would lose!

House Bill 1737 offered a solution to “plug” this hole in the corporate shield by giving entities organized as a limited liability company or a limited partnership greater protection than ever before. Texas has now limited the remedies available to a judgment creditor of an individual member of a Limited Liability Company or LLC (for Professionals a PLLC) or limited partner of a limited partnership (LP) to one remedy, that being a “charging order” remedy.

Now, a judgment creditor cannot “seize” the equity of an individual member or limited partner, cannot take the company away from the shareholder/partner or even threaten to interfere with its business in order to make a party settle. The creditor is left only with a “charging order remedy” which means that the creditor can only seize income the judgment debtor is entitled to receive from the company, and not have access to an interest or potential control over the company, itself.

For physicians as an example, the change offers greater flexibility in structuring buy-sell provisions among multiple parties (owners) of the practice since they no longer have to buy-out the member who is subject to a judgment creditor to collect on a personal debt. So often, entities focus on tort liability claims and exposure associated with their core business of practicing medicine. They often fail to consider the effects of having one of their members subject to a judgment creditor for matters of a “non-professional” or “non practice” nature.

Always consult with your CPAs and legal counsel to consider whether you should consider either forming a PLLC (which can include one person) or restructuring their existing professional association (a corporate entity) or limited liability partnership into a PLLC. This is a simple process that is done by filing documents with the Secretary of the State of Texas. If you are in the health care profession, it does not affect the tax identification or your Medicare provider numbers as it is a “statutory conversion.”

….. This article is not intended as legal advice, but is intended to make physicians aware of these changes in Texas corporate law so they can evaluate with their business advisors whether they should take advantage of this additional protection now available.

Steve Cook is the managing shareholder of Cook and Associates, PLLC, Certified Public Accountants, with offices in San Antonio and San Marc

Important Tax Dates for 2010

As 2010 gets into full swing, Taxpayers everywhere start to look forward to getting their W-2s and other tax information forms for their tax returns. As a tax preparer, I frequently get questions about when certain forms are due. Below is a list of important due dates for various types of tax returns in 2010:

· January 15 – Final 2009 estimated tax payments due

· February 1 – W-2 forms and 1099 forms must be distributed to the recipients

· February 1 – Fourth quarter 2009 payroll tax reports due; Form 940 due

· March 1 –Government copies of W-2 and 1099 forms due with SSA and IRS

· March 15 – Form 1120 and 1120S (corporate tax returns) due

· April 15 – Form 1040, Form 1065 (partnership returns) due; Form 1041 (estate/trust returns) due; First quarter 2010 estimated tax payments due

· April 30 – First quarter 2010 payroll tax reports due

· May 17 – Texas Franchise Tax Reports due; Form 990 (non-profit returns) due

· June 15 – Second quarter 2010 estimated tax payments due

· August 2 – Second quarter 2010 payroll tax reports due

· September 15 – Final due date for corporate and partnership returns that were extended; Third quarter 2010 estimated tax payments due

· October 15 – Final due date for individual returns that were extended

· November 1 – Third quarter 2010 payroll tax reports due

· November 15 – Final due date for Franchise Tax returns that were extended

· Also for Texas businesses, sales tax reports are due on the 20th of each month (or quarter, depending on your filing requirement). If the 20th is on a weekend or holiday, the due date is the next business day
All deadlines listed assume that the individual or business files using a calendar year. Fiscal year filing deadlines will differ.

--Dan Musick is the Tax Services partner with Cook & Associates, a full service public accounting firm serving clients from offices in San Marcos and San Antonio, TX

Changes In The Way We Work

Yes, the recession has been tough. Yes, many people lost their jobs. Did anything positive come from this difficult time? I guess that depends on your point of view.

According to a survey done by the Department of Labor, Americans are spending more of their time engaged in simple, inexpensive activities with family and friends and less time shopping. Think of activities such as gardening, cooking, hiking, or visiting museums.

While some of these behaviors can be attributed to having less money to spend, the trend in the savings rate suggests that it goes beyond that. The savings rate has risen from 1 percent of income in 2007 to 4 percent in 2009. Will these behavioral shifts affect the workplace? Quite possibly.

As it stands now, many companies depend on professionals and middle managers to put in long hours and sacrifice family and personal time for work pursuits. In addition, the vast majority of managers in U.S. based organizations are accustomed to taking either less vacation time or less consecutive time off than managers in European based firms and elsewhere.

This may be changing, however. Due to cutbacks and less available cash, many firms were forced to let members of management go. An optimistic view of the situation is that this presented said management with more personal time. According to a Boston Consulting Group experiment, spending more time away from work may prove beneficial for both managers AND the organization.

In the study, BCG required its most overworked team members to take one day off each week. No phone calls or emails were allowed during that day. Team members not only enjoyed the time off, but also improved internal communications and handled projects more efficiently. A similar project sponsored by a non-profit called the Bold Initiative found that giving team members the flexibility to adjust their work schedules around their personal lives increased employee satisfaction and improved productivity.

While there is certainly no definitive answer as to whether the shifts triggered by the recession will be permanent, companies may benefit by implementing policies that allow for more flexibility and time off. You never know, less time at work could equal more productivity.

　
--LeAnn Carlson, CPA is the Audit Manager for Cook & Associates, a full-service public accounting firm with offices in San Marcos and San Antonio, TX.

WHERE HAS ALL THE MONEY GONE?

As the country and western song by Junior Brown asks, "Where has all the money gone?" The Board of Directors of one of San Antonio’s leading charter schools is also asking that question today. It seems that their Director deemed himself to be underpaid. He resolved the issue by helping himself to the checking account. The article in Tuesdays SAEN indicated that the amount exceed $100,000. But, as the article pointed out, the real amount will not be known for some time.

The directors and those associated with the institution were shocked and dismayed. No kidding!

I have been in the CPA business since 1984. This disclosure comes as no surprise to me. If you are on the board of a non-profit organization, your chances of experiencing fraudulent behavior by a trusted official in your beloved organization are real. In fact, they are real big!

Non-profit organizations typically have very poor internal controls. Board members are often individuals that support the cause. These are well meaning individuals but more often than not, they really aren’t that concerned about the business side of running the organization. Board members simply trust that the director, bookkeeper, etc. are honest folks.

Many non-profits are required to get an annual financial audit by an independent Certified Public Accountant (CPA). The board members assume that a financial audit will undercover any wrongdoing. Well hear me on this point, "The audit probably will not detect the fraudulent activity until the numbers become significantly large!" Financial audits are focused on "significant" issues, not small issues. If your trusted employee keeps it small, the fraud can go on for quite some time.

The real issue here is "How do we, as a board of directors, do our absolute, dead-level best to assure the integrity of our key staff?" Here are some recommended steps:

STEP ONE
The first step must always be to call your insurance person. Most non-profits have a small E&O policy on the board members and nothing else. If your favorite non-profit does this, then you and your buddies are complete fools! The Board members never are the thieves. The staff almost always perpetrates any fraud. Insure those scoundrels.

STEP TWO
If you want your beloved activity to survive, treat it as a business. Don’t drink the director’s Kool-Aid!
Get with your CPA and set up a reasonable set of internal controls.

FINAL STEP
When you decided to be a "good guy", you also assumed a legal liability. Make sure that each board member is properly insured. Make sure that each board member understands that there are legal implications. Make sure that the director understands that he/she works for the board. Do not let that person overwhelm the board.

Fraud is alive and well in America today. The fraud is almost always perpetrated by the most trusted individual. I am not suggesting that you become a cynic; but, I am suggesting that become aware of your surroundings.

Increased regulation of tax preparers is on the way.....

There has been an outcry from the taxpaying American public over the quality of work being done by some tax preparers. As a result, the IRS has become concerned that too many returns are being prepared incorrectly by paid professionals. The IRS is taking steps to strengthen regulation of the tax preparation industry. Here are some of the proposed steps IRS is planning to implement over the next two to three years:

· Registration with IRS:

Each paid tax preparer will be required to obtain a Preparer Taxpayer ID Number (PTIN) from the IRS. Preparers will also be required to register electronically and pay a user fee with the IRS. The registration and fee would need to be renewed every three years.

· Competency testing:

Any paid preparer who is not already a licensed professional will be required to take a competency test to be allowed to prepare returns. CPAs and attorneys, because of their state licenses, would not be subject to these requirements. Current rules do not establish any sort of standard for who may be a paid preparer.

There are three levels of certification planned: one for individuals without businesses, one for individuals with businesses (self employed) and a third for corporate and partnership returns. Preparers would not be ‘grandfathered in’ under this rule – every non-licensed preparer who wishes to continue preparing returns would be required to register and take the competency exam.

· Continuing Education:

IRS will require all preparers to complete 15 hours of continuing education each year. This will include a mandatory 2 hours on preparer ethics and another 3 hours on tax law updates. The other 10 hours can be any topic of choice. CPAs and attorneys already complete far more hours than this as part of their state licensing requirements, so they are also exempt from this rule.

· Tax Compliance:

All preparers will be subject to annual verification by the IRS of their personal and business tax filings. While details are not yet available, preparers will presumably be expected to be current on their personal filings and not be delinquent in their personal or business taxes.

· While it hasn’t been specifically addressed by the IRS, there have also been rumblings from Capitol Hill about the legality of “refund anticipation loans” (RALs). For those who don’t know, a RAL is when the paid preparer advances the taxpayer a loan for his eventual tax refund – less a hefty fee. The taxpayer signs an agreement giving the preparer the right to collect the eventual refund. The end result is a seven to ten day loan from the preparer that ends up costing the taxpayer as much as 400% in annualized interest. These types of loans are the “bread and butter” of many large tax preparation franchises, but there are those who feel that the practice is predatory and want to see it banned.

The bottom line is that tax preparers are about to find themselves under a lot more scrutiny by the IRS – not to mention the increased cost of registration and education. As a result, you may see fewer of the “chain” tax preparation sites (Block, Jackson Hewitt, Liberty), and certainly fewer of the local places, since they rely so heavily on less-educated staff and lower overhead than CPAs do. You will, however, also probably see higher preparation fees as firms pass these additional expenses along to the consumer.

In the end, we believe these new regulations are a good thing. Income taxes are too complicated and too important to be trusted to just anyone who calls themselves a “tax preparer”. It’s time some standards were put in place.

--Dan Musick is the Tax Services partner with Cook & Associates, a public accounting firm offering a full range of accounting, assurance, and tax services to clients from offices in San Marcos and San Antonio, TX

IT’S A NEW YEAR……….thank you, thank you, thank you

I don’t know about you guys (yall), but getting back into the swing of things after nearly two weeks of holidays is tough. My body thinks party time at 5:30 each day. My liver is still in denial.

At our firm we always spend the first week back from the holidays completing any straggling projects and doing computer maintenance. Every piece of software that we use had an update waiting for us when we got back. That means the computer system is up and down more that Manu in a close game.

Like most of our customers, 2009 was a trying year. Everyone had to work harder and manage more aggressively to get through the year. Most, if not all of clients, are very optimistic about 2010. The general consensus among our clientele is that 2010 will be better that 2009. No one, however, is expecting the New Year to be the “good ole days”.

As for the Blog, we will continue to provide timely information on business, tax and wealth building issues. We will also provide some business “Best Practices”. And, of course, we will rail at the lunacy of the federal government from time to time.
Finally, LeAnn who is our newest partner is getting married in May while Casie, our quality control and customer service gal is getting married in March. Both are out of town! I thought SA was a destination city? One wedding will be in Las Vegas and the other in Cancun. Personally, I always thought that Alamo Heights Methodist Church’s chapel was the perfect spot, but obviously I was incorrect. Getting to Vegas is relatively easy, but getting to Cancun on the cheap isn’t so easy. If you have any travel suggestions, let me know.