Selecting a Qualified Auditor for Your Employee Benefit Plan

Does your organization offer health care and retirement benefits for its employees? Benefit plans with 100 or more participants are generally required to have their annual reports audited under the Employee Retirement Income Security Act of 1974 (ERISA). Here’s some guidance to help plan administrators fulfill their fiduciary responsibilities for hiring independent qualified public accountants to perform audits.

Assess risks

Under ERISA, plan administrators are responsible for ensuring that benefit plan financial statements follow U.S. Generally Accepted Accounting Principles (GAAP) and are properly audited. Independent audits of plan financial statements help stakeholders assess whether they provide reliable information about the plan’s ability to pay retirement, health and other promised benefits to participants. They also help management evaluate and improve internal controls over the plan’s financial reporting.

Administrators who hire unqualified plan auditors face substantial penalties from the U.S. Department of Labor (DOL). In addition, plan administrators who don’t follow the basic standards of conduct under ERISA and DOL regulations may be personally liable to restore any losses to the plan.

Auditor qualifications

To demonstrate your commitment to quality and due care, it’s important to carefully review auditor qualifications, rather than simply accept the lowest-bid contract offer. Only after the technical evaluation is complete and the qualified respondents have been identified should the administrator review the audit fees quoted by the qualified respondents.

Evaluating auditor qualifications requires consideration of licensing and independence rules. Independent plan auditors don’t have any financial interests in the plan (or the plan administrator) that would affect their ability to render an objective, unbiased opinion about the plan’s financial statements. The DOL doesn’t consider a plan auditor to be independent if the audit firm or any of its employees also maintain the plan’s financial records.

RFP process

The American Institute of Certified Public Accountants (AICPA) provides recommendations on how to put together a comprehensive request for proposal (RFP) that can be used to evaluate bidders. Comprehensive RFPs provide detailed explanations of the audit engagement, including its objectives, scope, special considerations and expected timeline.

Once plan administrators weed out unqualified respondents to their RFPs, they should invite the finalists to present and discuss their proposal letters. It’s important to interview prospective auditors to assess relevant experience and training. Also consider asking prospective auditors to provide a copy of their firms’ latest peer review report. A clean peer review report can provide additional assurance that a firm is applying best practices when auditing benefit plans.

When evaluating potential auditors, discuss the auditor’s work for other benefit plan clients and obtain references. Also review the audit team’s continuing professional education records over the last three years to determine whether they possess recent benefit-plan-specific training.

For more information

Not every CPA is qualified to audit employee benefit plans. These engagements require specialized training and experience. Contact us to find out more about employee benefit plan audits.

In light of this year’s bank failures, it’s important to understand how to safeguard your funds. At Yeo & Yeo, we prioritize your financial security and want to ensure you have a clear understanding of how you can protect your money under the FDIC or SPIC insurance programs. Here are some essential guidelines and strategies to maximize these coverage limits.

The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the United States government that safeguards bank depositors against losses if an FDIC-insured depository institution fails. Established in 1933 and backed by the full faith and credit of the United States government, the FDIC offers crucial protection. Under this program, your deposits are insured up to $250,000 per depositor, per FDIC-insured bank, and ownership category. Understanding the rules surrounding ownership categories is key to maximizing your coverage.

These ownership categories include single accounts, joint accounts, trust accounts, business accounts, certain retirement and employee benefit accounts, and government accounts. For instance, a married couple can leverage this rule to potentially have FDIC coverage of up to $1 million at one financial institution by maintaining multiple accounts titled correctly. Each spouse can have an account in their name, providing $250,000 coverage for both accounts and totaling $500,000 in coverage. Additionally, the couple can open a joint account at the same bank, granting them an extra $500,000 of insurance coverage, as each owner is entitled to their own $250,000 limit. It’s important to note that if a single owner has a checking account, savings account, and a CD in the same bank, the total coverage would be limited to $250,000 since the depositor, bank, and ownership categories are identical.

The National Credit Union Administration (NCUA) is the independent agency that administers the National Credit Union Share Insurance Fund (NCUSIF), offering protection for deposits in credit unions similar to the FDIC’s coverage for banks. While the $250,000 limit and rules remain largely the same, the NCUA covers a wide range of accounts at credit unions.

Remember that none of the accounts should have named beneficiaries in the scenario provided. Designating beneficiaries would classify the account as a revocable trust for insurance coverage purposes, potentially altering the insurance limits depending on how the account is titled and the number of beneficiaries named.

The FDIC insures various deposit products, including:

Checking accounts
Savings accounts
Money market deposit accounts
Certificates of deposit (CDs)

It’s crucial to note that the following products are not insured by the FDIC, even if they were acquired from an insured bank:

Stock and bond investments
Mutual funds
Crypto assets
Annuities and life insurance products
Municipal Securities
U.S. Treasury bills, notes, or bonds (though the full faith and credit of the U.S. government backs them)
Safe deposit boxes and their contents

To provide further peace of mind, you should know that you don’t need to apply for or purchase FDIC or NCUA insurance. Coverage is automatic when you open a deposit account at an FDIC-insured bank or an NCUA-covered credit union.

In addition to FDIC and NCUA coverage, the Securities Investor Protection Corporation (SIPC) is a non-government entity that replaces missing stock and other securities in customer accounts held by its members, up to $500,000, including up to $250,000 in cash, in case of a member brokerage or bank brokerage subsidiary failure. However, note that SIPC insurance does not protect against the loss in value of a given investment.

To determine your coverage on a per-bank basis and assess the insured amount of your deposits, you can utilize the FDIC’s Electronic Deposit Insurance Estimator (EDIE), available online. By entering your current account information, you can obtain a comprehensive report outlining your coverage amount and how it is calculated.

For more detailed information, we recommend visiting the FDIC website at www.fdic.gov. If you would like to discuss your personal situation further or have any concerns, please reach out to your dedicated Yeo & Yeo advisor.

When it comes to estate planning, your ultimate goal likely is to provide for your family after your death. To achieve this goal, consider placing assets in an irrevocable trust to protect against creditors and drafting a will to clearly state who gets what.

But estate planning isn’t just about what happens to your assets after you die. It’s also about protecting yourself and your loved ones during your life. In this regard, it’s important to have a plan in place for making critical medical decisions in the event you’re unable to make them yourself. And, as with other aspects of your estate plan, the time to act is now, while you’re healthy. If an illness or injury renders you unconscious or otherwise incapacitated, it’ll be too late.

2 documents, 2 purposes

To ensure that your health care wishes are carried out, and that your family is spared the burden of guessing — or arguing over — what you would decide, put those wishes in writing. Generally, that means executing two documents: a living will and a health care power of attorney (HCPA).

Unfortunately, these documents are known by many different names, which can lead to confusion. Living wills are sometimes called “advance directives,” “health care directives” or “directives to physicians.” And HCPAs may also be known as “durable medical powers of attorney,” “durable powers of attorney for health care” or “health care proxies.” In some states, “advance directive” refers to a single document that contains both a living will and an HCPA.

For the sake of convenience, we’ll use the terms “living will” and “HCPA.” Regardless of terminology, these documents serve two important purposes: 1) to guide health care providers in the event you become terminally ill or permanently unconscious, and 2) to appoint someone you trust to make medical decisions on your behalf.

Living will

A living will expresses your preferences for the use of life-sustaining medical procedures, such as artificial feeding and breathing, surgery, invasive diagnostic tests, and pain medication. It also specifies the situations in which these procedures should be used or withheld.

Living wills often contain a do not resuscitate order, which instructs medical personnel to not perform CPR in the event of cardiac arrest.

HCPA

An HCPA authorizes a surrogate — your spouse, child or another trusted representative — to make medical decisions or consent to medical treatment on your behalf when you’re unable to do so. It’s broader than a living will, which generally is limited to end-of-life situations, although there may be some overlap.

An HCPA might authorize your surrogate to make medical decisions that don’t conflict with your living will, including consenting to medical treatment, placing you in a nursing home or other facility, or even implementing or discontinuing life-prolonging measures.

Put your plan into action

No matter how carefully you plan, living wills and HCPAs are effective only if your documents are readily accessible and health care providers honor them. Store your documents in a safe place that’s always accessible and be sure your loved ones know where they are. Also, keep in mind that health care providers may be reluctant to honor documents that are several years old, so it’s a good idea to sign new ones periodically. Contact us with questions.

“It’s in the pipeline!” Business owners often hear this rather vague phrase, which may be good news in some cases or code for “don’t hold your breath” in others.

Your sales pipeline, however, is a very real thing. Simply defined, it identifies and quantifies the prospective deals in progress at various stages of the sales process. Properly managing your pipeline can help your business avoid losses and meet or even exceed its revenue goals.

6 commonly held stages

Many people confuse the sales pipeline with a sales funnel, but these are two separate concepts. A sales funnel is a visual representation of the sales process from the buyer’s perspective. It typically begins with someone becoming aware of a product or service and then moving on to interest, decision and finally action.

The sales pipeline also has several commonly held stages, but they’re a bit different. Most models identify them as:

Lead generation,
Lead qualification,
Engagement with the lead,
Relationship building,
Deal negotiation, and
Closing.

As you might suspect, volumes could be written and discussed about each stage of the pipeline. Suffice to say that effective sales pipeline management entails knowing precisely where each prospective deal lies among these six stages. Then you must push those deals, with appropriate pressure, through closing to become sales wins.

From data to done deal

Like so many other things, sales pipeline management in today’s business environment is data driven. Succeeding at this task generally begins with identifying, calculating and tracking the metrics that provide the best insights into how to efficiently and effectively run your pipeline. These may differ somewhat depending on your mission and customer base, but common ones include:

Average deal size (the sum of total revenue achieved in a given period divided by the number of sales wins for the same period),
Sales win rates (the total number of sales opportunities created in a given period divided by the number of sales wins in the same period),
Number of deals in the pipeline (simply the number of vetted, bona fide leads in the pipeline), and
Sales pipeline value (the total estimated value of all active, viable opportunities currently in the pipeline).

The purpose of these and the many other pipeline-related metrics isn’t to create data in a vacuum. Your objective is to channel this raw data into accurate sales forecasts that enable you to discern which customers and prospects offer the highest likelihood of success. From there, your sales team can devise broad strategies and specific tactics to move deals through the pipeline as quickly as possible.

And while your salespeople are out on the front lines doing their thing, management and company leadership need to be able to keep a close eye on progress. For this purpose, many businesses invest in software that provides real-time info and “dashboard” visuals. Dedicated sales pipeline management software is available. However, if you already have a customer relationship management system, it may offer suitable functionality.

Optimize, optimize, optimize

Your ultimate objective in sales pipeline management is optimization. By mindfully building, vigilantly monitoring and constantly improving your pipeline, you’ll improve the odds that your sales team will meet its goals and, in turn, your company will achieve its profitability objectives. Contact us for help reviewing your sales numbers, choosing the right pipeline-related metrics and analyzing the data involved.

Zoey Provenzano, CPA, was recently promoted to Manager. Let’s learn about Zoey and her perspective on her career, giving back to the community, and what it takes to be successful.

What are your roles in the firm?

As a member of the Consulting Service Line, I have many different roles in the firm, working with businesses, conducting compilations and reviews, and helping with tax returns. I work with a lot of nonprofit and construction clients and also do specialized work with ESOPs and payroll tax returns. I am also a QuickBooks Online and Desktop ProAdvisor, and I train clients and staff as needed on those programs.

Describe your career path.

During my time at the University of Michigan, I did two internships with PwC in Grand Rapids. After graduating with a bachelor’s and master’s, I spent the summer during the pandemic studying and taking the CPA exams. Shortly after, I joined PwC full-time as an auditor, but I wanted to expand my impact to multiple clients and businesses. That’s when I found Yeo & Yeo. In September 2021, I joined the firm’s Consulting Service Line, and I have enjoyed the variety of projects and working with different clients every day.

Are there any causes or charitable organizations you are passionate about and actively support? Why are they important to you?

I enjoy being involved in the Midland community. My mom is the conductor of the Midland Community Orchestra, which provides free concerts, and I regularly volunteer and give back to the group. I also serve on the board of Midland Recyclers because I value sustainability and creating a healthier planet for future generations.

What’s the biggest factor that has helped you be successful?

There are a few mottos I live by – be authentically yourself, stay organized, take lots of notes (and reference them later), continuously challenge yourself and keep learning, and stay positive even when there is a lot to do. I am a triplet with two awesome sisters, so I’ve always had some friendly competition my whole life. My siblings have been my biggest supporters and have pushed me to achieve my goals.

What makes being an accountant fun?

You can help your clients be successful in their businesses, which helps our local communities thrive and grow. In addition, you get to meet a lot of great people!

What are your hobbies or interests outside of accounting?

Singing: I have been in choirs throughout middle school, high school, and college. I currently sing in the Chorale at the Midland Center for the Arts. I’ve been able to perform with the Midland Symphony Orchestra for Mozart’s Requiem and with Broadway stars. It is great to be able to sing in my community!
Attending Broadway and Broadway National Tour shows: At this point, I’ve seen 15 different shows and will be adding four more in the upcoming year! My favorites so far are Jersey Boys, Beetlejuice, and Wicked.

What are some of the ways you like to continually learn and grow?

I read a lot of books, typically nonfiction or biographies. I also do plenty of CPE and stay up on the trends in business by being active on LinkedIn and doing free LinkedIn Learning courses.

Asset misappropriation schemes make up more than half of all occupational fraud schemes, according to the Association of Certified Fraud Examiners. It’s a broad category that includes everything from skimming cash to stealing inventory to paying “ghost” employees. One hotspot for asset misappropriation is the accounts receivables department, where dishonest staffers could potentially divert customer payments for their own use. If you don’t have strong internal controls for receivables, what are you waiting for?

Lapping leads

The most common form of receivables fraud is lapping, where perpetrators apply receipts from one account to cover misappropriations from another. For example, rather than credit Customer A’s account for its payment, a thief may pocket the funds and later post a payment from Customer B to A’s account, Customer C’s payment to B’s account, and so on.

Unethical write-offs and discounts are also popular. Instead of crediting a payment to a customer’s account, fraudsters might pocket the funds and then record a bad debt write-off or discount to the customer. Even though incoming payments are diverted, the customer’s account would reflect the expected current balance.

Investigation and prevention

If receivables fraud is suspected, a forensic expert usually can trace a sample of cash receipts to the sales ledger and deposit slips to find discrepancies in dates, payee names and amounts. An expert also may compare deposit slips against the books and send requests for confirmations to a sample of customers to verify current balances and payment histories. Bad debt write-offs, accounts with unexplained credits, increased customer credit limits and random adjustments to the accounts receivable ledger could also come under scrutiny during a fraud investigation.

But to help prevent receivables fraud from occurring in the first place, businesses should segregate duties. This means that an employee who handles incoming payments from customers should be different from the person who handles invoicing. Also consider assigning a different employee to manage customer complaints because complaints tend to increase if someone is misappropriating receivables. Other helpful controls include mandating vacation time and job rotation for all accounting staffers.

Consider audits

You may also want to consider conducting regular (and surprise) audits of receivables. Not only might audits help catch schemes in progress, but they enable you to test your controls and ensure employees are following them to the letter. Contact us for help.

If you play a major role in a closely held corporation, you may sometimes spend money on corporate expenses personally. These costs may end up being nondeductible both by an officer and the corporation unless the correct steps are taken. This issue is more likely to happen with a financially troubled corporation.

What can’t you deduct?

In general, you can’t deduct an expense you incur on behalf of your corporation, even if it’s a legitimate “trade or business” expense and even if the corporation is financially troubled. This is because a taxpayer can only deduct expenses that are his own. And since your corporation’s legal existence as a separate entity must be respected, the corporation’s costs aren’t yours and thus can’t be deducted even if you pay them.

To make matters worse, the corporation won’t generally be able to deduct them either because it didn’t pay them itself. Accordingly, be advised that it shouldn’t be a practice of your corporation’s officers or major shareholders to cover corporate costs.

What expenses may be deductible?

On the other hand, if a corporate executive incurs costs that relate to an essential part of his or her duties as an executive, they may be deductible as ordinary and necessary expenses related to his or her “trade or business” of being an executive. If you wish to set up an arrangement providing payments to you and safeguarding their deductibility, a provision should be included in your employment contract with the corporation stating the types of expenses which are part of your duties and authorizing you to incur them. For example, you may be authorized to attend out-of-town business conferences on the corporation’s behalf at your personal expense.

What’s the best alternative?

Alternatively, to avoid the complete loss of any deductions by both yourself and the corporation, an arrangement should be in place under which the corporation reimburses you for the expenses you incur. Turn the receipts over to the corporation and use an expense reimbursement claim form or system. This will at least allow the corporation to deduct the amount of the reimbursement.

For many companies, a significant line item on the balance sheet is accounts receivable. But can you take the amount reported at face value, or could there be more to the story? It’s important to dig deeper to understand the quality of accounts receivable. Balances might include stale invoices, bad debts — and even fictitious entries.

Benchmarking receivables

A logical starting point for evaluating the quality of receivables is the days sales outstanding (DSO) ratio. This represents the average number of days you take to collect money after booking sales. It can be computed by dividing the average accounts receivable balance by annual sales and then multiplying the result by 365 days.

Companies that are diligent about managing receivables typically have lower DSO ratios than those that are lax about collections. Companies with relatively high DSO ratios may have accounts of the books that may be overdue by 31 to 90 days — or longer. If more than 20% of receivables are stale, it may indicate lax collection habits, a poor-quality customer base or other serious issues.

The percentage of delinquent accounts is another critical number. You may decide to outsource these accounts to third-party collectors to eliminate the hassles of making collections calls and threatening legal actions to collect what you’re owed.

Diagnosing fraud symptoms

Accounts receivable also may be a convenient place to hide fraud because of the high volume of transactions involved. Warning signs that receivables are being targeted in a fraud scheme include:

An increase in stale receivables,
A higher percentage of write-offs compared to previous periods, and
An increase in receivables as a percentage of sales or total assets.

In addition to creating phony invoices or customers, a dishonest worker may engage in lapping scams. This happens when a receivables clerk assigns payments to incorrect accounts to conceal systematic embezzlement.

Alternatively, a fraudster may send the customer an inflated invoice and then “skim” the difference after applying the legitimate amount to the customer’s account. Using separate employees for invoicing and recording payments helps reduce the likelihood that skimming will occur, unless two or more employees work together to steal from their employer.

Seeking outside help

Like any valuable asset, accounts receivable needs to be managed and safeguarded. Auditors evaluate receivables as part of their standard auditing procedures, including performing ratio analysis, sending confirmation letters and reconciling bank deposits with customer receipts.

Contact us if you have concerns about your company’s receivables trends. In addition to conducting surprise audits, we can customize agreed-upon-procedures engagements or forensic accounting investigations that dig deeper.

Kelly Brown, CPA, MST, was recently promoted to Tax SALT Supervisor. Let’s learn about Kelly and her perspective on her career, work-life balance, and helping clients.

What are your roles in the firm?

I am the co-leader of the firm’s State and Local Tax (SALT) team, where I oversee monthly meetings to provide opportunities for growth for our SALT professionals. I also oversee our growing sales tax compliance service and provide SALT consulting and nexus analysis. I enjoy working with individuals and businesses with multi-state tax obligations for compliance and tax planning.

Describe your career path.

I joined Yeo & Yeo’s tax team after four years of experience in tax and external and internal audits. I was finishing my Master of Science in Taxation degree at Walsh College and knew I wanted to focus solely on tax, so it was a great opportunity. My journey into the SALT world started with a general interest in sales tax. I had family members involved in e-commerce during the infamous Wayfair case decided in 2018, which piqued my interest. Today, as our clients at Yeo & Yeo continue to grow their businesses and cross state lines, I enjoy the challenge of addressing their questions and finding solutions to navigate the complexities of operating in multiple states.

Are there any causes or charitable organizations you are passionate about and actively support? Why are they important to you?

As a mom, I believe in advocating for the sanctity of life and supporting policies that protect the rights of all children. I believe in fostering a society that values and upholds the dignity and potential of every child, so they each have a chance to live and thrive.

What do you enjoy most about your career?

Every day is different. In my career, it doesn’t get boring because our clients are continually pulling us in to help navigate whatever is new in their world.

How do you balance your career, personal life, and passions?

A while back, I heard it isn’t “work-life balance” but “work-life harmony.” There are some times at work when we’re putting in more hours to meet regulatory deadlines and then times at home when we’re dealing with family demands – so there isn’t a set balance. It ebbs and flows with the needs of each. I’m blessed that my husband and children can roll with it all, with my husband stepping up to do whatever needs to be done during my busiest times. As a mother of seven, I enjoy the flexibility in my schedule that allows me to be there for both work and my family.

What do you enjoy most about working with clients?

I love helping our clients. It’s rewarding when you’re working with a client, and they share that they’re not worried about something because they know you have it covered. Business owners don’t go into business because they think dabbling in accounting is fun. They go into business to harness their passion and offer their customers their products, skills, and specialties. Having us focus on the accounting angle frees our clients to focus on whatever drives them and their business.

What are your hobbies or interests outside of accounting?

Spending time with my family motivates and recharges me. Last year, we fell in love with a wonderful home on Crooked Lake in Curran, Michigan. Our youngest is nearly two now, and he loves to go up and down all 57 steps from the lake to the garage over and over again – so lately, I’m taking turns chasing him! Sooner or later, he’ll play in the sand long enough for me to crack open a book, but we’re just taking it one day at a time.

When looking at broad groups of employment candidates, many organizations tend to focus on young people just entering the workforce and established workers who are looking to change jobs.

But don’t forget that there are other groups as well. One of them comprises people who wish to return to work after being out of the traditional workforce for a long time (generally more than a year). To help attract these individuals and ease their transitions back into employment, some employers have established “returnship” programs.

A bridge back

As the name implies, returnships are much like internships. Except, instead of helping someone enter the workforce, returnships enable workers to relaunch their careers without having to start all over. Another difference is that returnships are usually paid arrangements that more often, though not always, result in a bona fide job offer.

For workers, returnships are a bridge back to employment rather than a ladder. Most people who once worked in a midlevel or higher position would no doubt feel uncomfortable, if not downright miserable, starting at the bottom of the organizational chart again. Returnships offer them the opportunity to resharpen both their professional expertise and interpersonal skills in the workplace.

In addition, returnships offer those with notable employment gaps on their resumes to counter those lengthy periods of un- or underemployment with a clearly marked accomplishment leading them back into the workforce.

Benefits for employers

There are also benefits for employers offering a returnship program, including:

Access to an often-overlooked portion of the labor pool. As mentioned, many organizations may do little to nothing to reach out to those who want to come back to work but are hesitant to do so. In fact, it’s often noted that unemployment statistics generally account for only those actively seeking jobs, not those who’ve given up looking for the time being.

Many people in this population are already educated, possess professional skills and experience, and know how to problem-solve. They may need much less training to get up and running — particularly if you implement a robust, well-designed program.

An enhancement to your “employer brand.” Your employer brand is essentially your reputation in the job market as a hiring entity. It’s largely based on word of mouth — that is, how job candidates, as well as current and former employees, rate and describe their experiences with your organization. From this perspective, a returnship program can serve as an additional positive feature about you that enhances fundamentals such as competitive compensation and benefits.

Potentially a boost to diversity. One interesting aspect of returnship programs is that they may increase diversity. For example, app-based food delivery service Grubhub launched a returnship program in 2021. The company has disclosed that the program has improved gender and age diversity. Another even larger employer — PepsiCo Beverages — expanded its returnship program this year, in part because of how successful it’s been in attracting women who have taken time off as caregivers.

An idea to consider

To be clear, a returnship program may not be a good fit for every employer. An initiative of this sort will call for a considerable investment of resources in design, implementation and administration. But if you’re having a hard time finding job candidates with specific skill sets, or if you want to cast as wide a net as possible, a returnship program may be worth considering. We can help you identify and develop projections for the costs involved.

Once a business is up and running, one fundamental aspect of operations that’s easy to take for granted is billing. Often, a system of various processes is put in place and leadership might consider occasional billing mistakes to be part of the “cost of doing business.”

However, to keep your company financially fit, it’s imperative to regularly check in on your billing processes to ensure they’re as efficient, effective and accurate as possible.

Resolve mistakes quickly

Many billing problems originate from a gradual deterioration in the quality of products or services. You may be giving customers an excuse not to pay their bills if products are showing up late or damaged — or not at all. The same goes for services that aren’t provided in a timely, satisfactory or professional manner.

When it comes to billing processes, common mistakes include invoicing a customer for an incorrect amount or failing to apply promised discounts or special offers. Be sure to listen to customer complaints and track errors so you can identify trends and implement effective solutions.

In addition, regularly verify account information to make sure invoices and statements are accurate and going to the right people. Set clear standards and expectations with customers — both verbally and in writing — about your policies regarding pricing, payment terms, credit and delivery times.

On the flip side, work closely with your managers and supervisors to ensure employees are well-trained to enforce billing policies. Staff members should prioritize quick resolutions to billing mistakes and disputes. They should also ask customers to pay any portion of a bill not in question. Once the matter is resolved, the customer should be politely asked to pay off the remainder immediately.

Tighten up timeliness

For invoice-based businesses, regularly sending out bills late can negatively impact collections. Familiarize yourself with current industry norms before setting payment schedules.

Traditionally, such schedules tend to be based on 30-, 45- or 60-day cycles. But times may have changed — particularly now that so much billing is done electronically. What’s more, many companies permit their most important or largest customers to set their own customized payment schedules. If this is the case for you, be sure to adjust your cash flow expectations and projections to recognize these variances.

As mentioned, today’s technology is driving how most businesses handle billing. An automated system can generate invoices when work is complete, flag problem accounts and generate useful financial reports.

If you haven’t already, consider sending invoices electronically and enabling customers to pay online. Doing so can greatly speed up payment. Like any software, however, you’ll need to reassess it from time to time to determine whether you need an upgrade.

Control what you can

There are so many aspects to doing business that are unpredictable — the global, national and local economies; customer tastes and demands; and disruptive competitors. That’s why it’s so important for business owners to be proactive about the things they can control. Our firm can help you assess the efficacy of your billing processes and identify ways to improve cash flow.

If you’re a small employer looking to sponsor a retirement plan for yourself and your employees, your first thought might be, “Let’s do a 401(k)!” And that’s certainly an option worth considering, even if you’re self-employed.

However, don’t limit yourself to only that one popular plan type. There are other choices that may better suit your situation, be easier to administer and still provide some nice tax breaks. Here are a couple to consider.

Simplified Employee Pension IRA

This plan type is relatively inexpensive to launch and easy to maintain. A Simplified Employee Pension IRA (SEP IRA) doesn’t require annual employer contributions. That means you can choose to contribute only when cash flow allows.

Typically, there are no setup fees for a SEP IRA, though participants generally must pay trading commissions and fund expense ratios (a fee typically set as a percentage of the fund’s average net assets). In 2023, the contribution limit is $66,000 or up to 25% of a participant’s compensation. That amount is much higher than the $22,500 limit for 401(k)s.

Employer contributions are tax-deductible. Meanwhile, your employees won’t pay taxes on their SEP IRA funds until they’re withdrawn. Participants are always 100% vested in the account.

There are some disadvantages to consider. This is an employer-owned plan, so employees don’t make their contributions — you have to make them. Also, unlike many other qualified retirement plans, participants age 50 and over can’t make additional “catch-up” contributions.

Savings Incentive Match Plan for Employees IRA

The IRS describes the Savings Incentive Match Plan for Employees IRA (SIMPLE IRA) as “ideally suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.” It essentially lets employees contribute to traditional IRAs created by the employer.

True to its name, a SIMPLE IRA doesn’t require the employer to file IRS Form 5500, “Annual Return/Report of Employee Benefit Plan.” Nor must you submit the plan to nondiscrimination testing, which is generally required for 401(k)s.

Meanwhile, employees face no setup fees and enjoy tax-deferred growth on their account funds. Best of all, participants can contribute more to a SIMPLE IRA than they can to a self-owned traditional or Roth IRA. The 2023 contribution limit for this plan type is $15,500, and catch-up contributions for participants age 50 and over are allowed to the tune of $3,500 this year.

On the downside, that contribution limit is lower than that for 401(k)s. Also, because contributions are made pretax, participants can’t deduct them, nor can they take out plan loans. What’s more, employer contributions are mandatory — so you can’t skip them if cash flow gets tight. An employer can, however, generally deduct contributions to a SIMPLE IRA.

Stay in the game

A retirement plan is a central component of most midsize to large employers’ benefits packages. The good news is smaller organizations need not feel left out of the game. You’ve got options, too. Contact us for help assessing the costs and tax impact of any retirement plan or other employer-sponsored benefit that you’re considering.

Timely financial information is critical to a successful business or nonprofit organization. In today’s dynamic marketplace, you may need to act fast to ward off potential threats and risks — and jump on new opportunities. But if you wait until your financial statements are released to react, you’ll likely miss out. Flash reports can provide real-time data that can help management respond to changing conditions.

Potential benefits

U.S. Generally Accepted Accounting Principles (GAAP) are considered by many people to be the gold standard in financial reporting. However, the process is complicated, so accounting departments usually take two to six weeks to send out GAAP financials. It takes even longer if an outside accountant reviews or audits the financial statements. Plus, most organizations only publish financial statements monthly or quarterly.

By comparison, weekly flash reports typically provide a snapshot of key financial figures, such as cash balances, receivables aging, collections and payroll. Some metrics might even be tracked daily — including sales, shipments and deposits. This is especially critical during seasonal peaks or among distressed borrowers.

Effective flash reports are simple and comparative. Those that take longer than an hour to prepare or use more than one sheet of paper are too complex. Comparative flash reports identify patterns from week to week — or deviations from the budget that may need corrective action. Graphs and tables can help nonfinancial people who receive flash reports interpret them quickly.

Critical limitations

Flash reports can help management proactively identify and respond to problems and weaknesses. But they have limitations that management should recognize to avoid misuse.

Most important, flash reports provide a rough measure of performance and are seldom completely accurate. It’s also common for items such as cash balances and collections to ebb and flow throughout the month, depending on billing cycles.

Companies generally use flash reports internally. They’re rarely shared with creditors and franchisors, unless required in bankruptcy or by the franchise agreement. A lender also may ask for flash reports if a borrower fails to meet liquidity, profitability and leverage covenants.

If shared flash reports deviate from what’s subsequently reported on GAAP financial statements, stakeholders may wonder if management exaggerated results on flash reports or is simply untrained in financial reporting matters. If you need to share flash reports, consider adding a disclaimer that the results are preliminary, may contain errors or omissions, and haven’t been prepared in accordance with GAAP.

Tailoring the report

What information should be included on your organization’s flash report? This is a common question, but there isn’t a universal template that works for everyone. For instance, a consulting firm might focus on billable hours, a hospital might analyze the number of beds occupied and a manufacturer might want to know about machine utilization rates. We can help you figure out what items matter most in your industry and how to create effective flash reports for your needs.

Yeo & Yeo is pleased to announce the promotions of Kelly Brown, CPA, MST, and Zoey Provenzano, CPA.

Kelly Brown has been promoted to Tax SALT Supervisor. Brown specializes in State and Local Tax (SALT) income tax returns and related filings for C-corporations, S-corporations, partnerships, and individuals. As co-leader of Yeo & Yeo’s State and Local Tax Services Group, she leads projects involving nexus determinations, taxability analyses, identifying and quantifying state modifications and determining proper state apportionment. She holds a Master of Science in Taxation from Walsh College and, with her advanced education in complex tax topics, assists the firm’s individual and business clients as they face a challenging tax environment. She is a member of the Michigan Association of Certified Public Accountants and the American Institute of Certified Public Accountants and has served on the Michigan Tax Conferences’ Planning Tax Force. In 2019, Brown was among five finalists nationwide for the Sales Tax Institute’s Sales Tax Nerd Award, which recognizes professionals who demonstrate a dedicated passion and commitment to learning about indirect tax. She joined Yeo & Yeo in 2016 and is based in the firm’s Saginaw office. In our community, Brown serves on the allocation committee for the United Way of Bay County and reviews Saginaw office grant requests for the Yeo & Yeo Foundation.

Zoey Provenzano has been promoted to Manager. Provenzano joined Yeo & Yeo in 2021. Her areas of expertise include business consulting, compilation and reviews, payroll tax returns, and ESOPs, with specialization in nonprofit and construction entities. As a QuickBooks Online and Desktop ProAdvisor, Provenzano assists clients and trains staff on QuickBooks. She holds a Master of Accounting from the University of Michigan and is a graduate of Leadership Midland. She is a member of the American Institute of Certified Public Accountants and the Michigan Association of Certified Public Accountants. In the community, Provenzano serves as a board member for Midland Recyclers and is a choir member at Midland Center for the Arts. She also assists in reviewing Yeo & Yeo Foundation grant requests in the Midland office, where she is based.

Government officials saw a large increase in the number of new businesses launched during the COVID-19 pandemic. And the U.S. Census Bureau reports that business applications are still increasing slightly (up 0.4% from April 2023 to May 2023). The Bureau measures this by tracking the number of businesses applying for Employer Identification Numbers.

If you’re one of the entrepreneurs, you may not know that many of the expenses incurred by start-ups can’t be currently deducted on your tax return. You should be aware that the way you handle some of your initial expenses can make a large difference in your federal tax bill.

Handling expenses

If you’re starting or planning to launch a new business, here are three rules to keep in mind:

Start-up costs include those incurred or paid while creating an active trade or business — or investigating the creation or acquisition of one.
Under the tax code, taxpayers can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs in the year the business begins. As you know, $5,000 doesn’t go very far these days! And the $5,000 deduction is reduced dollar-for-dollar by the amount by which your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized over 180 months on a straight-line basis.
No deductions or amortization deductions are allowed until the year when “active conduct” of your new business begins. Generally, that means the year when the business has all the pieces in place to start earning revenue. To determine if a taxpayer meets this test, the IRS and courts generally ask questions such as: Did the taxpayer undertake the activity intending to earn a profit? Was the taxpayer regularly and actively involved? Did the activity actually begin?

Rules to qualify

In general, start-up expenses are those you incur to:

Investigate the creation or acquisition of a business,
Create a business, or
Engage in a for-profit activity in anticipation of that activity becoming an active business.

To qualify for the election, an expense also must be one that would be deductible if it were incurred after a business began. One example is money you spend analyzing potential markets for a new product or service.

To be eligible as an “organization expense,” an expense must be related to establishing a corporation or partnership. Some examples of organization expenses are legal and accounting fees for services related to organizing a new business and filing fees paid to the state of incorporation.

Decision to be made

If you have start-up expenses that you’d like to deduct this year, you need to decide whether to take the election described above. Recordkeeping is critical. Contact us about your start-up plans. We can help with the tax and other aspects of your new business.

If you own a successful small business with no employees, you might be ready to set up a retirement plan. Now a 401(k) might seem way out of your reach — only bigger companies can manage one of those, right? Not necessarily.

Two ways to contribute

With a solo 401(k), the self-employed can make large annual deductible contributions to a qualified (that is, tax-advantaged) retirement account. However, this prime nest-egg-building opportunity comes with some administrative complexity.

How much can you contribute? For the 2023 tax year, you can make an “elective deferral contribution” of up to $22,500 of your net self-employment (SE) income to a solo 401(k). If you’ll be 50 or older as of December 31, 2023, you can make additional catch-up contributions up to $7,500 for a grand total of $30,000.

On top of your elective deferral contribution, an additional contribution of up to 25% (depending on your business structure) of net SE income is also permitted. This additional pay-in is called an “employer contribution,” though of course there’s no employer other than you when you’re self-employed.

For purposes of calculating the employer contribution, your net SE income isn’t reduced by your elective deferral contribution. So, for the 2023 tax year, the combined elective deferral and employer contributions can’t exceed:

$66,000 ($73,500 with the max catch-up contribution if you qualify), or
100% of your net SE income.

Along with the ability to make such a large annual deductible contribution, another advantage of solo 401(k)s is that contributions are completely discretionary. When cash is tight, you can contribute a small amount or nothing. In years when cash flow is strong, you can contribute the maximum allowable amount.

In addition, you can borrow from your solo 401(k) account, assuming the plan document permits it — which you should insist on when working with a provider (usually a financial services firm). The maximum loan amount is 50% of the account balance or $50,000, whichever is less. Some other types of retirement plans don’t allow loans.

Downsides to consider

The biggest downside to a solo 401(k) is, as mentioned, administrative complexity. You’ll encounter some substantial upfront paperwork when applying for a plan with a provider.

From there, ongoing administrative efforts will be required, including adopting a written plan document and arranging for how and when elective deferral contributions will be collected and paid into the account. Also, once your solo 401(k) account balance exceeds $250,000, you must file Form 5500-EZ with the IRS each year.

Bottom line

For a one-person business, a solo 401(k) may be a smart, tax-favored retirement plan choice as long as you have the desire and cash flow to make large contributions. This is particularly true if you’re 50 or older. Of course, there are other options to consider. We can help you shop for the right retirement plan, set one up and administer it going forward.

Yeo & Yeo is pleased to announce the promotion of Jim Bellor, CPA, to Senior Manager.

“Jim has consistently demonstrated a high level of professionalism, expertise, and dedication throughout his career with our firm,” said Tax Service Line Leader David Jewell, CPA. “His promotion to Senior Manager is well-deserved and a testament to his leadership abilities and commitment to delivering outstanding client service.”

Bellor’s areas of expertise include tax planning and preparation, financial statement preparation, and estate, trust and nonprofit tax return preparation. He is a member of the firm’s Estate & Trust Services Group and the Tax Services Group. He has more than eight years of public accounting experience.

Bellor holds a Bachelor of Business Administration in accounting from Northwood University. He is a member of the American Institute of Certified Public Accountants and the Michigan Association of Certified Public Accountants. He is also an active member of the Midland Area Chamber of Commerce and Midland Young Professionals.

“I am excited to take on this new role as a Senior Manager,” Bellor said. “I look forward to continuing to serve our clients with excellence, managing client engagements, and playing a bigger part in driving the firm’s growth.”

If you’ve been asked to serve as executor of the estate of a friend or family member, be sure you understand the responsibilities and potential risks before you agree. Keep in mind that you’re not required to accept the appointment, but once you do it’s more difficult to extricate yourself should you change your mind.

Here are some questions to consider before accepting the offer:

What’s your relationship to the individual? If he or she is a close family member, consider not accepting the appointment if you think your grief after his or her death will make it difficult to function effectively in the executor role.

Are you willing and able to take on the duties of an executor? Generally, an executor is responsible for arranging probate, identifying and taking custody of the deceased’s assets, making investment decisions, filing tax returns, handling creditors’ claims, paying the estate’s expenses, and distributing assets according to the will. Although you can seek help from professionals — such as attorneys, accountants and investment managers — it’s still a lot of work, sometimes for little or no compensation. Ask if there’s an executor’s fee and whether the estate has set aside funds to pay for professional advisors.

What’s your location? If you live far away from the place where the assets and beneficiaries are located, the job will be more difficult, time consuming and expensive.
Do you have a good relationship with the beneficiaries? If not, accepting the appointment may put you in a difficult position, especially if you’re also a beneficiary and the other beneficiaries view that as a conflict of interest.

Will the estate pay your expenses? Even if you receive no fee or commission for serving as executor, be sure the estate will pay, or reimburse you, for any out-of-pocket costs.

Finally, some individuals appoint co-executors. For example, they may select one person who knows the family and understands its dynamics and an independent executor with the requisite expertise. So, be sure you know if you’ll be serving as executor solo or with a partner. Having a co-executor may come as a relief or it may add more complications. Contact us for additional information.

The data is coming fast and furious. When it comes to compensation in today’s workplace, many people are talking about pay transparency.

Simply defined, pay transparency is the concept of an employer openly sharing its compensation policies and practices with job candidates, employees and even the public. This includes disclosing pay ranges/rates for specific positions, as well as clearly explaining how raises, bonuses and commissions are determined. Here are some reasons why pay transparency has become so important … as well as that data we mentioned.

Expectations are rising

In February, compensation software and data company Payscale published its 2023 Compensation Best Practices Report. The findings are based on the responses of 5,000 professionals surveyed in the fourth quarter of 2022. According to the report, 45% of organizations now include pay ranges in their job postings — a rising trend from previous surveys. What’s more, 48% of employers said that transparency-related legislation is driving them to change their compensation policies. This could indicate that pay transparency might soon become a matter of compliance rather than self-motivated policy.

A different survey from the job-posting site Indeed delivered a similar message. Company data released in March 2023 showed that, over three years, the prevalence of employer-provided salary information had risen from 18.4% of organizations disclosing pay ranges to 43.7%. That’s right, it more than doubled. Indeed researchers noted that growth of pay transparency was the highest in fields focused on science, technology, engineering and mathematics — commonly referred to as “STEM.” This includes industries such as software development, banking and finance.

It may help reduce turnover

Payscale released a different study in June 2023. Its Retention Report, which contains data from an online salary survey, found that compensation transparency “decreases intent to quit by 30% when analyzed in isolation.”

The report also states that, when employees believe their pay is unfair, they’re much more likely to quit. This indicates that simply divulging pay ranges isn’t enough. Employers need to provide sound rationalizations for each position’s compensation. Organizations also need to clearly explain how pay is determined, why their compensation is competitive within their respective industries or markets, and how employees can elevate their pay levels.

Younger workers care about it

You’ve probably heard the phrase “Gen Z.” It’s used to broadly represent people born between roughly the late 1990s and the early part of the 2000s. Although generalizing the attitudes and behaviors of any generation is fraught with risks, one thing is clear: Gen Z represents the next large demographic to enter the workforce — or continue to enter, as the case may be, because many members of Gen Z are already working.

Data indicates that pay transparency is important to them. The enterprise technology and information-management solution provider Symplicity released a report in May entitled 2023 State of Early Talent Recruiting: Gen Z and the Job Search Process. The report culled data from a survey of 3,700 U.S. college students. Of those respondents, 87% said that pay transparency (and equity) was “important” or “very important.” More specifically, 53% said they’d be discouraged from applying for a position without a stated salary range.

Find your comfort level

History has shown that hiring, compensation and retention practices evolve over time. What was widely accepted years ago may not go over so well now or in the years ahead. That said, every employer needs to find its own comfort level regarding pay transparency based on factors such as its industry, labor pool and culture. We can help you analyze the financial data that goes into setting reasonable pay ranges and handling other aspects of compensation.

Your business may be able to claim big first-year depreciation tax deductions for eligible real estate expenditures rather than depreciate them over several years. But should you? It’s not as simple as it may seem.

Qualified improvement property

For qualifying assets placed in service in tax years beginning in 2023, the maximum allowable first-year Section 179 depreciation deduction is $1.16 million. Importantly, the Sec. 179 deduction can be claimed for real estate qualified improvement property (QIP), up to the maximum annual allowance.

QIP includes any improvement to an interior portion of a nonresidential building that’s placed in service after the date the building is placed in service. For Sec. 179 deduction purposes, QIP also includes HVAC systems, nonresidential building roofs, fire protection and alarm systems and security systems that are placed in service after the building is first placed in service.

However, expenditures attributable to the enlargement of the building, any elevator or escalator, or the building’s internal structural framework don’t count as QIP and must be depreciated over several years.

Mind the limitations

A taxpayer’s Sec. 179 deduction can’t cause an overall business tax loss, and the maximum deduction is phased out if too much qualifying property is placed in service in the tax year. The Sec. 179 deduction limitation rules can get tricky if you own an interest in a pass-through business entity (partnership, LLC treated as a partnership for tax purposes, or S corporation). Finally, trusts and estates can’t claim Sec. 179 deductions, and noncorporate lessors face additional restrictions. We can give you full details.

First-year bonus depreciation for QIP

Beyond the Sec. 179 deduction, 80% first-year bonus depreciation is also available for QIP that’s placed in service in calendar year 2023. If your objective is to maximize first-year write-offs, you’d claim the Sec. 179 deduction first. If you max out on that, then you’d claim 80% first-year bonus depreciation.

Note that for first-year bonus depreciation purposes, QIP doesn’t include nonresidential building roofs, HVAC systems, fire protection and alarm systems, or security systems.

Consider depreciating QIP over time

Here are two reasons why you should think twice before claiming big first-year depreciation deductions for QIP.

1. Lower-taxed gain when property is sold

First-year Sec. 179 deductions and bonus depreciation claimed for QIP can create depreciation recapture that’s taxed at higher ordinary income rates when the QIP is sold. Under current rules, the maximum individual rate on ordinary income is 37%, but you may also owe the 3.8% net investment income tax (NIIT).

On the other hand, for QIP held for more than one year, gain attributable to straight-line depreciation is taxed at an individual federal rate of only 25%, plus the 3.8% NIIT if applicable.

2. Write-offs may be worth more in the future

When you claim big first-year depreciation deductions for QIP, your depreciation deductions for future years are reduced accordingly. If federal income tax rates go up in future years, you’ll have effectively traded potentially more valuable future-year depreciation write-offs for less-valuable first-year write-offs.

As you can see, the decision to claim first-year depreciation deductions for QIP, or not claim them, can be complicated. Consult with us before making depreciation choices.