We had another great webinar yesterday presented by Dave Hammarberg (Director of IT and Consulting Senior Manager) and Samuel BowerCraft (Senior Manager) of McKonly & Asbury on Fraud Engagement from A to Z! Thank you to everyone that attended and received CPE credit.

We reviewed some great tips and insight on step-by-step detailed walk through of an actual fraud engagement including the steps of Suspicion, Company Action, CFE Engagement, Discussion/Evaluation, Information Review, Interviews, and Reporting.

Check out our Upcoming Events page for news and updates on our future seminars and webinars.

For more information on this topic or to submit a question for Dave or Sam, use our contact page at http://www.macpas.com/contact.

Watch a recording of the presentation below.

Click here to view the video on YouTube.

Youtube link http://youtu.be/QimHvjmPRhc

Virtually all not-for-profit organizations (NFP) rely on donations in order to fund programs and operations centered at meeting their defined mission. While most donations are made in cash, often these donations include securities.  Securities are defined as “a share, participation, or other interest in property or in an entity of the issuer or an obligation of the issuer” and most commonly take the form of shares of corporate stock, bonds, or other investments. When a NFP sells donated securities in order to utilize the cash for operations, or other purposes, they are left with an accounting decision on how to report these inflows on their statement of cash flows. The Financial Accounting Standards Board (FASB) issued an exposure draft on April 17, 2012 to help clarify these reporting requirements.

The FASB concluded that immediately converting donated securities to cash is economically similar to receiving a cash donation, and accordingly, the cash inflows from this type of transaction should be a component of cash flows from operating activities, rather than cash flows from investing or financing activities. The criteria established by the FASB for operating cash flow treatment are:

• Upon receipt by the NFP, the securities are directed for sale, and
• The NFP has the ability to avoid significant investment risks and rewards through near immediate conversion to cash

This is particularly relevant because many NFPs have accounting or organizational policies in place that require donated securities to be immediately converted to cash. By classifying these transactions as an operating activity, the FASB is attempting to avoid instances where the reader of the financial statements would inappropriately rely upon investing results of the NFP.

As is normally the case with NFP accounting, the donor ultimately dictates proper accounting treatment. If the donor restricts the donated securities, or its proceeds, for long-term purposes, the cash inflows should then be reported in the financing section of the statement of cash flows. Examples of long-term purposes include the purchase or construction of long-lived assets, or the establishment of a permanent endowment.  Cash inflows from the sale of donated securities that do not meet the operating requirements above, or are not restricted by the donor, should be reported in the investing section of the statement of cash flows.

The full exposure draft can be found on the FASB website (www.fasb.org) and is open for public comment until July 16, 2012. Public comments received by the FASB are also available for viewing. The date of adoption has not yet been determined, and it is proposed that the standards in the exposure draft will be applied prospectively to cash receipts from the sale of donated securities, with retroactive application permitted, but not required. The provisions of this exposure draft are limited to “securities” and do not apply to donated items such as works of art, equipment, and other long-lived assets.

Please feel free to contact Jim Shellenberger, Senior Manager at McKonly & Asbury, at jshellenberger@macpas.com to further discuss this exposure draft, or any other questions or comments you may have regarding the not-for-profit industry.

McKonly & Asbury recognizes the critical importance that the nonprofit sector plays in our community. Always striving to be a valued resource to keep you on the forefront of emerging nonprofit accounting and tax matters, we are excited to invite you to join us on Monday, June 4th for a Nonprofit Seminar!

Hosted by McKonly & Asbury, this seminar will provide timely, relevant topics to nonprofit organizations and will be held at the Giant Community Center in the Giant Food Store located at 3301 Trindle Road, Camp Hill, PA.  Registration and breakfast will begin at 8:30am and the seminar will run from 9:00am until 12:00pm. The cost to attend is $25 and CPE credits will be available.

A glimpse of the morning’s speakers and topics are as follows:

Victoria Radabaugh Lindstrom, President of Suasion, LLC
Marketing Isn’t Really An Expense! – Sure, we categorize any costs associated with marketing a nonprofit organization in an expense account of some sort.  However, when done right, marketing should be an investment of resources that yields real results.  So what can you expect to get out of this investment?  And how do you invest for the maximum return?  We’ll discuss the best way to approach marketing, how to get the most out of your marketing dollars, and which tools you should consider, including the latest trend, Social Media.

Gary Dubas, Partner with McKonly & Asbury
Tax Issues Facing Nonprofit Organizations – We will cover a number of areas regarding tax reporting requirements of nonprofit organizations. Topics covered will include changes to the Form 990, emerging issues regarding unrelated business income, and tax matters regarding contributions.

Jim Shellenberger, Senior Manager with McKonly & Asbury
Hot Topics in Nonprofit Accounting and Auditing – This session will include a number of hot topics that impact nonprofit organizations including changes to the nonprofit reporting model, changes to yellow book and A-133 auditing standards, and a lease accounting standard update. We will also present 10 tips for year end closing and audit preparation, performing risk assessments, and segregation of duties in the accounting department.

To register for this event, please contact us at events@macpas.com or by calling (717) 972-5822.

We had another great webinar yesterday presented by Katie Nix (Human Resource Manager) and Suzanne Sentman (Human Resource Coordinator) of McKonly & Asbury on Retaining Your Top Talent! Thank you to everyone that attended and received CPE credit.

We reviewed some great tips and insight on hiring and keep great employees. We reviewed strategies such as; inclusion culture, buddy and mentor programs, special and unique benefits, and stay interviews.

Check out our Upcoming Events page for news and updates on our future seminars and webinars.

For more information on this topic contact Katie or Suzanne at info@macpas.com.

Watch a recording of the presentation below.

Click here to view the video on YouTube.

Link to video http://youtu.be/jnRzokkiDDQ

McKonly & Asbury offices will be closed this Friday, April 20th as we celebrate the end of another successful tax season. M&A thanks all of our wonderful team members for their hard work and dedication this tax season. We know that our people are our greatest asset and that M&A’s success is a direct result of your efforts! We also thank our clients and friends in the community for your continued trust in us as your accountants and business advisors. Thank you!

McKonly & Asbury’s Entrepreneurial Services Group invites you to join us for our 4th Annual Business Seminar for Entrepreneurs on May 31! Sponsored by Pavone and Paytime, this year’s seminar focuses on updates and matters affecting your business and you, as an entrepreneur.

The seminar will be held on Thursday, May 31, 2012 at the Giant Community Center in the Giant Food Store located at 3301 Trindle Rd., Camp Hill, PA. Registration and breakfast will begin at 7:30am and the seminar will run from 8:00am until 12:00pm. There is no charge for this seminar, and CPE credits are available.

Topics and speakers will include:

• Asset Protection: Keeping Your Assets Safe – Kurt Trimarchi, Partner & Dan Matarrese, Tax Manager, McKonly & Asbury
• Will Private Company “GAAP” Become a Reality? – Janice Snyder, Principal, McKonly & Asbury
• IT Fraud/Controls: Is Your Company Protected? – Dave Hammarberg, Director of IT and Consulting Senior Manager & Samuel BowerCraft, Senior Manager, McKonly & Asbury
• Branding, Social and Digital Media – A Primer – Pavone
• Payroll Update and Hot Topics for 2012 – Paytime
• Legal Update in Today’s Economy – Todd Shill, Partner, Rhoads & Sinon LLP

It’s sure to be another great seminar that you won’t want to miss! To register, please contact us at events@macpas.com or by calling (717) 972-5822.

Join us for the first webinar in our summer webinar series entitled “Fraud Engagement from A to Z”. Presenters Dave Hammarberg, Director of IT and Consulting Senior Manager, and Samuel BowerCraft, Senior Manager, of McKonly & Asbury will take you on a step-by-step detailed walk through of an actual fraud engagement.

This free, hour-long webinar will take place on Thursday, May 17th at 2:00 p.m. EST, and CPE credit is available.

Reserve your webinar seat now by clicking here:
https://www1.gotomeeting.com/register/771424880

After registering, you will receive a confirmation email containing information about joining the webinar.

For more information, please contact us at info@macpas.com.

Risk – the possibility of losing money – is one of the most feared words in investing. Despite most people’s aversion to risk, the history of market manias shows that most people – even some of the most risk-averse – have the ability to abandon their fear of losses when asset prices soar for a long time and everybody else seems to have made a lot of money.

So what gives some people the ability to control their emotions and make cool and calm decisions? Two main reasons are that they know how to measure risk and how to manage it. And, to the extent that individual investors learn both, they increase their chances for making smart decisions that keep their portfolios on track toward meeting their goals.

Two Ways of Measuring Risk

Beta – Professionals have two common ways to measure risk. The first is beta, which is how closely a portfolio’s performance matches or varies from that of a benchmark index. The benchmark for large-company U.S.-traded stocks is the S&P 500 stock index, while a generational benchmark for bonds of medium-range maturity is the Barclays Aggregate Bond index. The performance of indexes is normally expressed as a percentage and reflects their total return, which is a combination of any interest or dividend payments and their change in price.

Beta is expressed as a number on an open-ended scale, and it can be a positive number, a negative number, or zero. A beta of 1.0 means that a stock or portfolio’s returns are identical in both size and direction to the benchmark, while a beta of -2.0 means that the portfolio’s returns are twice as large in the opposite direction of the index. For example, when the S&P 500 index return is 12%, a portfolio with a beta of 1.0 should also return 12%, while a stock with a beta of -2.0 should lose 24%. A beta of 0.0 means there is no patterned relationship between the two returns.

Standard deviation – A second way professionals measure investment risk is with standard deviation. Expressed as a percentage, it reflects a range of returns above and below an annual average rate of return for the stock or portfolio itself, without reference to a benchmark. It’s standard deviation that measures the way many define risk: volatility.

In statistics, when applied to investment returns, one standard deviation covers about two-thirds of all returns. So a portfolio that has an average rate of return of 9% and a standard deviation of 12% means that in six to seven years out of 10, the portfolio’s returns range between -3% and 21%. In general, a lower standard deviation is better, because it reflects less change of a negative return.

Techniques to Manage Risk

Individual investors can use several methods to help reduce the risk and volatility in their portfolios. These include:

• Diversification. The fewer the number of securities you own in your portfolio, the greater the risk that one or more will produce losses that reduce your ability to generate positive compound returns. In a stock portfolio, that means owning stocks of at least 10 different companies from at least five different sectors (such as, but not limited to, technology, consumer staples, finance, energy, and basic materials).
• Asset allocation. This refers to spreading your investments over the three classic asset classes (stocks, bonds, and cash) according to a formula that potentially matches the rate of return you need to meet your goals. The formula determines what percentage of your holdings should be from each asset class (e.g., 70% stocks, 25% bonds, and 5% cash). Because bonds and cash generate more steady (if smaller) average returns than stocks, the more of each included in your portfolio, the less volatile your overall returns should be.
• Dollar cost averaging. This is a technique that puts price declines to your advantage. It involves making periodic purchases in the same dollar amount of the same securities, in good markets and bad. When you continue to buy shares when their prices fall, you buy more shares than when the prices are higher. This gives you more shares, which increases your dollar gains when prices start going back up. However, it neither guarantees a profit nor protects against loss in a prolonged declining market. Because dollar cost averaging involves continuous investment regardless of fluctuating price levels, investors should carefully consider their financial ability to continue investment through periods of low prices.
• Portfolio rebalancing. This is a two-step process by which you restore your holdings to the proportions defined by your asset allocation strategy. The first step is to sell a portion of the investments in those asset classes where your holdings have grown to be larger than their prescribed percentage. The second step is to use the sale proceeds to buy more of the securities from those asset classes whose proportions have become too small.

If you need help aligning your investment strategy with your goals while adapting to changing market trends, or have any questions regarding this article, contact Donald Yost or Michael Howard, Partners with Anchor Financial Group, at anchor@anchorfinancialgroup.com.

Have you filed your report? April 15 is the deadline to file your annual PA Unclaimed Property Report under the Pennsylvania Abandoned and Unclaimed Property Act. Businesses, organizations, and government entities (“holders”) in possession of any financial asset with no activity or contact with the owner for a period of approximately 5 years are required to file annually and transfer abandoned property to the Treasury Department.  Any holder who does not file by April 15 may be subject to interest and penalties. Filing is not required if there is no unclaimed property to report; however a negative report may be filed to help maintain an “active” reporting status.

Examples of unclaimed property include:

• Wages/Payroll
• Uncashed checks
• Accounts receivable (credit balances)
• Commissions
• Refunds/Rebates
• Gift Certificates/Gift Cards

A more comprehensive listing by industry can be found on Pennsylvania Treasury website:  Property Types by Industry

The dormancy periods vary depending on the type of property, but most types of property have a dormancy period of 5 years.  Wages and commissions are one of the exceptions with a dormancy period of only 2 years.  The property dormancy matrix can be found on the Pennsylvania Treasury’s website.

The Treasury offers a Voluntary Disclosure Program for holders of unclaimed property that have never filed a report or may have overlooked certain property types in the past.  Through this program, holders will become compliant while receiving a waiver of penalties and interest. Holders may be considered for the program if they meet the following criteria:

• Voluntarily coming forward due to non-reporting or underreporting of unclaimed property.
• Not under audit by the Pennsylvania Treasury related to unclaimed property reporting.
• Not been granted voluntary compliance or participated in the Pennsylvania self-audit program in the past 10 years.

Additional information, including a FAQ about unclaimed property, is available at www.patreasury.gov.

Determining whether and when a business must capitalize costs incurred in acquiring, maintaining, or improving tangible property has always been open to some level of judgment, based largely on the interpretation of past case law.  This is an area that has been exposed to significant controversy due to inconsistent application of the law.  However, on December 23, 2011, temporary regulations (T.D. 9564) were released by the IRS that are meant to simplify compliance with the Internal Revenue Code and the tax treatment of expenditures related to tangible property.

The new temporary regulations apply to expenditures made on or after January 1, 2012, and will affect virtually all taxpayers that purchase, lease, produce, or improve tangible property, such as buildings, machinery, vehicles, furniture, and equipment.  They will have an impact on businesses of all sizes, large and small.  Although the regulations are “temporary” they have the same binding effect as final regulations.

The regulations provide a general framework for assessing whether a capital expenditure is currently deductible as a repair and maintenance expense, or whether it is required to be capitalized and depreciated over the useful life of the asset.  The following paragraphs summarize some of the most pertinent parts of the new regulations.

Tangible Property Improvements

One of the most applicable areas of the regulations are the provisions that relate to improvements of property, and the definition of unit of property for building property and non-building property.  For a building, the unit of property consists of the building and its structural components.  The unit of property for real and personal property, other than buildings, is defined to include all functionally interdependent components.

Once the unit of property is determined for a specific expenditure, a taxpayer must apply the standards set forth in the regulations to determine if the expenditure results in an improvement that needs to be capitalized.  An amount paid for an improvement to a unit of property must be capitalized if the amount results in betterment, restoration, or adapts the unit of property to a new or different use.  The regulations go on to further define what is meant by betterments, restoration, and adaptation to a new or different use.

• Betterments ameliorate a material condition or defect at the time of acquisition or production; result in a material addition; or result in a material increase in the quality, capacity, efficiency, or strength of the unit of property.
• Restoration results if any of the following conditions are met: repair of a unit of property to ordinarily efficient operating condition from a state of non-functional disrepair; rebuilding a unit of property to a “like new” condition after the end of its class life, or; replacement of a major component or substantial structural part of the unit of property.
• Adaptation to a new or different use results in the property being converted from one functional use to another functional use.

There is a safe harbor rule in the regulations that states that amounts for certain routine maintenance costs for tangible property, other than buildings, can be deducted rather than capitalized.  In order to be currently deductible, the routine maintenance costs must be for recurring activities that a taxpayer expects to perform more than once over the life of the asset, as a result of the use of the property, to keep the property in its ordinary efficient operating condition.

Materials and Supplies

The temporary regulations modify and expand the definition of materials and supplies.  Materials and supplies are defined as tangible property, not inventory used or consumed in the taxpayer’s operations that is:

• A component acquired to maintain, repair, or improve a unit of tangible property;
• Fuel, lubricants, water, or similar items that are reasonably expected to be consumed in 12 months or less;
• A unit of property that has an economic useful life of 12 months or less;
• A unit of property with an acquisition or production cost less than $100.

Non-incidental materials and supplies are deductible when used or consumed, while incidental materials and supplies are deductible when purchased if no consumption records are maintained and no physical inventories are performed, so long as taxable income is clearly reflected.

De Minimus Rule

The regulations contain an exception to capitalization for certain acquisitions, up to a threshold, that meet specific guidelines.  In order to be able to deduct the amount for tax purposes, the taxpayer must expense the purchase price for financial reporting purposes, have an applicable financial statement, and have a formal written capitalization policy.  The deduction must be less than or equal to the greater of 0.1% of the gross receipts for the tax year for income tax purposes or 2% of the total depreciation expense for the tax year.

What’s Next?

On March 7, 2012, the IRS released two revenue procedures which explain the procedures for securing automatic consent to change to the accounting methods provided in the regulations discussed above.  Taxpayers should review their capitalizations policies to determine their compliance with the regulations and assess whether an accounting method change is necessary.

McKonly & Asbury is proud to announce the kick off of our summer webinar series! If you’ve joined us for past webinars, thank you! If you haven’t, these free webinars cover topics important to you and your business!

Here is a glance at our upcoming summer webinars:

May 17 at 2 PM – Fraud Engagement from A to Z. Taking a step by step detailed walk though of an actual fraud engagement.

June 21 at 2 PM – Buy-Sell Agreements: Will Yours Work…or Add Fuel to the Fire? Learn the essential valuation criteria that should be in every buy-sell agreement.

July 19 at 2 PM – Federal Tax Webinar. Discussion of the new tangible property regulations; depreciation of fixed assets; how to apply the correct methods and lives, and avoid errors; and cost segregation.

August 23 at 2 PM – Financial Reporting Changes on the Horizon. Learn about the recent trends in financial reporting.

More details and registration information for the May webinar will be announced shortly, and keep watch in this blog for upcoming details for the other webinars as well! As always, we appreciate any feedback. If you have topics you’d like to see covered in future webinars, please feel free to email us at info@macpas.com.

Risk: the word of the day, month, year, and probably century.  Everything we do in life has something to do with avoiding risk, preparing for risk, or having someone else handle it for us.  But in the course of our busy lives, it is easy to “take care of” a risk and forget to check on it later.  In business, the risk you addressed yesterday can be back next year, or sooner, or somewhere else.  Where has risk migrated in your organization that you aren’t aware of?  And what will you do to prepare for it?

The financial crisis of 2008 has brought risk management to light in many new (and shocking) ways.  The crisis showed how failure to manage risk by companies put their future in jeopardy (or ended it). Additionally, the impact on the rest of the country from their failure was substantial, and we are now paying for their risk management failure… in one way or another.

These impacts are varied and the source of a great deal of discussion, planning, and heartache.  But while the outcomes from the crisis are ongoing, I think that for those who wish to avoid the same trap, it is vital we learn from the mistakes that were made.  Otherwise, we are destined to repeat them.

What was the main cause of the fallout?  What was not done that should have been done? How can we act to better (1) avoid the same trap or failure and (2) prepare to weather any consequences if a similar situation occurs?

A great deal of inquiry and evaluation has gone into the crisis, its beginnings, results, and impact.  I recently had the fortune to hear Thomas Stanton speak on this matter.  Mr. Stanton has a background in government and regulatory oversight that is formidable, and his discussion delved into the crisis and its many facets.  One comment in particular that spoke to the nature of the crisis was what he called Stanton’s Law:

“Risk will migrate to the place where government is least equipped to deal with it.”

– Thomas Stanton

In essence Mr. Stanton is pointing out that risk (the exposure to danger) will flow to areas that are weakest in control or oversight.  He also pointed out in his comments that the failure in oversight is usually the result of moving towards profitable ventures that are usually not as well supervised financial activities.

I think he is right.  I have seen many companies doing many things: some good, some bad.  But in all cases where I have seen frauds, problems with financial reporting, or operational issues, it has been the result of either:

(1) A failure to identify and evaluate the risk ahead of time (“We did not know that could happen!”) or

(2) A lack of diligence by those responsible for oversight (“We don’t think that is important.”).

These two issues are the same issues present in the 2008 crisis (in a much larger scale), or Enron.

For me, Stanton’s Law is a summation of key concepts:

• The first: Risk is changing in your organization all the time, and it is moving toward places where the organization is less prepared.
• The second: In order to mitigate changing risks, we must have a changing and vigilant approach to addressing risk; otherwise we may fail to move to address the changes in risk.

Regardless of what your organization makes, grows, produces, services or manages, the world is changing around it.  That external change alters circumstances and changes risk inside the company.  As an organization, being aware of these changes (actual and possible) that could occur can help you to prepare for risks now, before something happens that you are not prepared to deal with.

I leave you with a question:

What is your organization doing to prioritize risks inside and outside the organization?

Next Time: I will discuss “Governance: The Purpose” and we will dive into what governance means and why defining its purpose and direction helps the success of the organization.

To read more about Thomas Stanton and his work, visit these links:

• http://www.thomas-stanton.com/
• 2007 Presentation: “The Privatization of Sallie Mae and its Consequences”
• Presentation to Senate Committee on Oversight and Government Reform

Over the past decade, financial accounting and reporting standards have become more complex and detailed in response to the needs of the public marketplace.  During that time, nonpublic entities have become subject to a variety of new rules and disclosure requirements which have resulted in greater cost and effort being required to prepare financial statements that are in accordance with US Generally Accepted Accounting Principles (GAAP).  Many preparers and users of nonpublic financial statements have expressed concern relative to the need for, and usefulness of, such information.  In response to this concern, there has been a growing momentum towards creating a set of standards focused on the needs of private companies, and eliminating the need to comply with certain requirements that are necessary for public companies.

There is still uncertainty as to the ultimate outcome of the recommendations of the Blue-Ribbon Panel on Standard Setting for Private Companies, which were released in its Report to the Board of Trustees of the Financial Accounting Foundation (FAF) in January of 2011.  However, despite the ongoing uncertainty, there has been further movement and discussion in recent weeks on this important topic.

In FASB Chairman Leslie Seidman’s “2012 Chairman’s Outlook on the FASB” webcast on March 12, 2012, the chairman discussed the initiatives of the FASB and FAF in this area and indicated further discussion would take place at a FAF trustees meeting in May, and a plan of action might come out of this discussion.  At issue is FAF’s proposal to create a Private Company Standards Improvement Council that would recommend exceptions for private companies to existing GAAP, and those recommendations would be subject to FASB approval.  The AICPA has been very vocal in its opinion that the ultimate decisions on private company GAAP should lie with an independent board, and not be merely recommendations that would be subject to FASB approval.

In conjunction with the continued discussions on who would ultimately be responsible for private company standard setting, the FASB also announced a new project whereby it will reexamine the  definition of a “nonpublic entity”.  The goal of the project is to define what constitutes a private company in order to distinguish between different types of entities for standard-setting purposes, and to give clarity on determining which companies are to be included in the scope of the Private Company Decision-Making Framework.  The FASB expects to begin deliberations on this topic in the second quarter of this year.

Preparers and users of financial statements of nonpublic companies should have more clarity in late May as to the direction private company standard setting may take.  In the meantime, if you have any questions, please reach out to Michael Hoffner, Partner at McKonly & Asbury by emailing ­mhoffner@macpas.com.

We had another great webinar yesterday presented by Greg Lowe with McKonly & Asbury on Lean Operations/Overhead for Small to Mid-Sized Companies! Thank you to everyone that attended and received CPE credit.

We reviewed some great tips and insight on some core concepts of making your business LEAN, how to increase Net Income, and how to reduce Direct, Labor, and Overhead costs. Some specific areas that we looked into reducing costs were:

• Rent
• Insurance
• Marketing
• Utilities
• Data/Telecommunications
• Research and Development
• Sales and Use Tax
• Interest/Fees

Check out our Upcoming Events page for news and updates on our future seminars and webinars.

For more information on this topic contact Greg Lowe at glowe@macpas.com.

Join us for our April webinar entitled “Retaining Your Top Talent” with presenters Katie Nix, Human Resource Manager and Suzanne Sentman, Human Resource Coordinator of McKonly & Asbury.

Hiring top talent continues to be a challenge for many companies. What is even more challenging is retaining the talent you recruited. In this webinar, we will cover ways to keep your talent from walking out the door.

This free, hour-long webinar will take place on Thursday, April 19th at 2:00 p.m. EST, and CPE credit is available.

Reserve your webinar seat now by clicking here:
https://www1.gotomeeting.com/register/305104713

After registering, you will receive a confirmation email containing information about joining the webinar.

For more information, please contact us at info@macpas.com.

Join us on Wednesday, May 16, 2012 for our Fifth Annual TRENDS Symposium! Sponsored by McKonly & Asbury, this symposium will take place at the Radisson Penn Harris Hotel & Convention Center at 1150 Camp Hill Bypass in Camp Hill, PA. Registration and breakfast starts at 8:00am. The program will run from 8:30am until 3:30pm. The cost to attend is $60, which includes a continental breakfast, lunch, and 6 CPE credits.

Focusing on accounting and audit issues for the insurance industry, we have an exciting array of topics and speakers planned! The following provides the agenda for the day.

Session Agenda

To register, please email us at events@macpas.com or call (717) 972-5822.

On February 28, 2012, the Office of Management and Budget (OMB) issued a document that includes proposed changes to the way nonprofit organizations receiving federal funding would be tested. Currently, any nonprofit organization expending over $500,000 in federal funds is required to have a compliance audit, referred to as a single audit. The proposed changes would increase this threshold to $1 million.  In addition, any nonprofit expending between $1-3 million in federal funds would only be required to have a reduced version of a single audit. For nonprofits expending greater than $3 million, a full single audit will be required. However, the OMB is working on streamlining the current compliance requirements for greater efficiency and focus. The changes proposed are designed to target improper payments, fraud, abuse and waste.

As well as changing the single audit process for the recipients of federal funds, this would also require stricter follow up on audit findings by the federal agency that provides the funding. To assist with this, all single audit reports would be digitized and entered into a searchable database.

To see the full document of proposed changes issued by the OMB, click here.

The OMB is looking for comments on the proposed changes by March 29, 2012. All types of organizations are encouraged to provide feedback. Comments can be submitted electronically by clicking here. It is anticipated that a revised proposal will be issued in late spring based on comments received. Pending any further changes, an issuance date of late fall would be expected.

McKonly & Asbury is committed to keeping you informed of any updates regarding these proposed changes. If you would like further information or clarification, please contact Jennifer Keller, Supervisor, at JKeller@macpas.com or Jim Shellenberger, Senior Manager, at JShellenberger@macpas.com.

Pennsylvania taxes have received very little attention in terms of legislative activity the past couple of years.  Governor Corbett has stuck by his campaign pledge of “no new taxes” in order to strengthen the Commonwealth’s appeal as a “business-friendly” state.

In Governor Corbett’s proposed 2012-2013 fiscal budget, he addressed several key business tax issues.  He confirmed his promise to continue the phase-out of the Pennsylvania Capital Stock/Foreign Franchise Tax already in place. The rate for 2012 has been reduced to 1.89 mills and is scheduled to be completely eliminated by 2014.

The budget also proposes capping the retail vendor’s sales tax discount. Currently, the discount is 1% of sales tax collected by the vendor. The 1% discount will continue to remain in place. However, the maximum discount a vendor will be allowed to receive is $250 a month ($3,000 a year). Therefore, retailers with taxable sales under $5 million will continue to receive the full discount as is currently in place.  By capping the discount for large Pennsylvania retailers, the Commonwealth is expected to save upwards of $40 million annually.

Due to lower than expected revenue collection for the current year, the Governor has been forced to cut funding for certain departments, including the Department of Revenue. However, the state’s primary revenue source (tax collection and enforcement) is administrated by the Department. Thus, Corbett is proposing an enhanced enforcement package that will allow the Department to more aggressively pursue tax delinquencies without increasing its operating budget. Some of these initiatives will include administrative bank attachments for trust fund taxes and required personal income tax withholding on oil and gas royalty payments as well as nonresident independent contractor payments. The administrative bank attachments will allow the Department to freeze and access bank accounts of delinquent taxpayers, similar to wage garnishments. Some of these initiatives are very aggressive and will most likely meet resistance from the business community.

The Pennsylvania Legislature is also in the process of debating House Bill No. 2150. If passed, this bill will bring about several significant changes to Pennsylvania Corporate Net Income (CNI) Tax, including:

• The CNI tax rate will be reduced from 9.99% to 6.99% over a 6 year period beginning with the 2013 tax year. Currently, Pennsylvania’s corporate income rate is one of the highest in the nation.
• The Net Operating Loss (NOL) cap will be completely phased-out by 2022 beginning with the 2014 tax year. Currently, the NOL deduction is capped at the greater of 20% of taxable income or $3 million. The trend of states capping NOL’s has all but disappeared, and Pennsylvania is one of two remaining states to enforce such a cap.
• Pennsylvania will move to a 100% weighted (single) sales factor in 2013. This will not be a significant change from the current 90% sales, 5% payroll, and 5% property apportionment structure. However, this continues to be the trend in a number of states in an effort to encourage payroll and property investment within the state. Pennsylvania manufacturers and retailers that employ a majority of their workforce within Pennsylvania while having sales outside the state will see a reduction in their apportioned Pennsylvania income for CNI tax purposes.
• Certain inter-company transactions, such as royalty payments, between related entities will be added back to taxable income in computing CNI tax. The add back of royalty expenses paid to out of state holding companies is expected to curb some of the decreased tax revenue attributable to the combination of lowering the corporate income tax rate, phasing out Capital Stock/Foreign Franchise tax, and reducing the restrictions on corporate net operating loss deductions.

Based on what we have been seeing, Governor Corbett is standing behind his campaign promise of “no new taxes” while also managing to balance the state budget. A “business-friendly” approach will be positive for all Pennsylvania residents as the goal is to attract new businesses to invest in the state as well as maintain current businesses, which in turn will lead to job growth in Pennsylvania.

As a member of the State and Local Tax Committee and Legislative Committee of the Pennsylvania Institute of Certified Public Accountants (PICPA), we continue to evaluate proposed tax legislation and work with the legislators in determining the best course to take. We greatly welcome your thoughts, suggestions, or concerns that you might have with any future proposed Pennsylvania tax legislation. Please contact McKonly & Asbury’s Tax Principle, Jason Skrinak, at jskrinak@macpas.com.

Recently the state of PA began issuing 2012 Unemployment Compensation Contribution Rate Notices.  Many of these contain 3% delinquency rate assessments (refer to the line titled Increase for UC Delinquency). Due to problems in the state UC offices system, this delinquency rate is likely being charged in error.

If this delinquency rate is being assessed, you should immediately file an appeal in writing, as the employer self-service portal mentioned on page 2 of your Rate Notice will not be available until May 2012. The appeal letter should indicate that all payments and returns were filed timely, and therefore the delinquent rate should not apply. This letter should be mailed to: Department of Labor and Industry, Office of UC Tax Services, 651 Boas Street, Harrisburg, PA 17121-0750. In addition, you can call the UC office at 717-787-7679, Option 2, to inquire as to why the delinquency was assessed. Please be aware that the appeal process is your responsibility.

If you have any questions, please contact Lindsay Young, Supervisor with McKonly & Asbury at lyoung@macpas.com.