State Voting Leave Chart: Understand the Laws and Ensure Compliance

As a business owner or HR professional, providing paid voting leave for your employees is more than just a benefit—it’s a legal requirement in many states. With 29 states mandating paid voting leave, including a clear voting leave policy in your employee handbook is crucial to ensure compliance and avoid potential penalties.

While paid voting leave is not mandated in Michigan, employers with remote workers in other states need to be aware of and comply with the voting leave laws in those states. View the voting leave laws for all states here: state-specific regulations.

A voting leave policy shows your company’s commitment to civic responsibility while protecting your business from legal exposure. Voting laws vary from state to state, but if you operate in one of the 29 states that require paid voting leave or have employees who work in one or more of these states, failing to provide it can lead to fines, lawsuits, or even civil penalties. By outlining the policy in your employee handbook, you provide clarity for both employees and management, ensuring that everyone understands the rules surrounding time off for voting.

For example, states like New York, Illinois, and California require employers to offer paid time off to vote, with specific stipulations on how much notice employees must provide and how much time they are entitled to. If your handbook does not specify this leave, employees may not know they are entitled to it, leading to confusion or even disputes on Election Day.

Implementing a Voting Leave Policy

To create a compliant voting leave policy, consult state-specific regulations for each location where your employees work. Common elements to include in your policy are:

Eligibility: Define who is eligible for voting leave based on state laws.
Notification Requirements: Clearly state how much advance notice employees must provide before Election Day.
Duration of Leave: Specify how much time off employees are entitled to and whether it is paid or unpaid.
Proof of Voting: Mention if any proof of voting is required upon return.

Yeo & Yeo Can Help

Navigating the complexities of voting leave requirements—and other employment laws—can be challenging. Yeo & Yeo’s HR Advisory Solutions Group can work with your team to create or refine policies that ensure compliance across all the states where you operate. We also offer policy audits to identify any gaps or inconsistencies in your employee handbook. Additionally, our team can monitor changes in state laws so your policies remain current, safeguarding your business from legal risks. Let us help you build a legally sound and employee-friendly workplace.

The State Voting Leave Chart was provided by Mineral, Inc.

Few estate planning subjects are as misunderstood as probate. Its biggest downside, and the one that grabs the most attention, is the fact that probate is public. Indeed, anyone who’s interested can find out what assets you owned and how they’re being distributed after your death.

And because of its public nature, the probate process can draw unwanted attention from disgruntled family members who may challenge the disposition of your assets, as well as from other unscrupulous parties.

What does the probate process entail?

Probate is predicated on state law, so the exact process varies from state to state. This has led to numerous misconceptions about the length of probate. On average, the process takes no more than six to nine months, but it can run longer for complex situations in certain states. Also, some states exempt small estates or provide a simplified process for surviving spouses.

In basic terms, probate is the process of settling an estate and passing legal title of ownership of assets to heirs. If the deceased person has a valid will, probate begins when the executor named in the will presents the document in the county courthouse. If there’s no will — the deceased has died “intestate” in legal parlance — the court will appoint someone to administer the estate. After that, this person becomes the estate’s legal representative.

With that in mind, here’s how the process generally works, covering four basic steps.

First, a petition is filed with the probate court, providing notice to the beneficiaries of the deceased under the will. Typically, such notice is published in a local newspaper for the general public’s benefit. If someone wants to object to the petition, they can do so in court.

Second, the executor takes an inventory of the deceased’s property, including securities, real estate and business interests. In some states, an appraisal of value may be required. Then the executor must provide notice to all known creditors. Generally, a creditor must stake a claim within a limited time specified under state law.

Third, the executor determines which creditor claims are legitimate and then meets those obligations. He or she also pays any taxes and other debts that are owed by the estate. In some cases, state law may require the executor to sell assets to provide proceeds sufficient to settle the estate.

Fourth, ownership of assets is transferred to beneficiaries named in the will, following the waiting period allowed for creditors to file claims. If the deceased died intestate, state law governs the disposition of those assets. However, before any transfers take place, the executor must petition the court to distribute the assets as provided by will or state intestacy law.

For some estate plans, the will provides for the creation of a testamentary trust to benefit heirs. For instance, a trust may be established to benefit minor children who aren’t yet capable of managing funds. In this case, control over the trust assets is transferred to the named trustee. Finally, the petition should include an accounting of the inventory of assets unless this is properly waived under state law.

Can probate be avoided?

A revocable living trust may be used to avoid probate and protect privacy. The assets are typically transferred to the trust during your lifetime and managed by a trustee that you designate. You may even choose to act as a trustee during your lifetime. Upon your death, the assets will continue to be managed by a trustee or, should you prefer, the assets will be distributed outright to your designated beneficiaries.

Hurricane Helene has affected millions of people in multiple states across the southeastern portion of the country. It’s just one of many weather-related disasters this year. Indeed, natural disasters have led to significant losses for many taxpayers, from hurricanes, tornadoes and other severe storms to the wildfires again raging in the West.

If your family or business has been affected by a natural disaster, you may qualify for a casualty loss deduction and federal tax relief.

Understanding the casualty loss deduction

A casualty loss can result from the damage, destruction or loss of property due to any sudden, unexpected or unusual event. Examples include floods, hurricanes, tornadoes, fires, earthquakes and volcanic eruptions. Normal wear and tear or progressive deterioration of property doesn’t constitute a deductible casualty loss. For example, drought generally doesn’t qualify.

The availability of the tax deduction for casualty losses varies depending on whether the losses relate to personal- or business-use items. Generally, you can deduct casualty losses related to your home, household items and personal vehicles if they’re caused by a federally declared disaster. Under current law, that’s defined as a disaster in an area that the U.S. president declares eligible for federal assistance. Casualty losses related to business or income-producing property (for example, rental property) can be deducted regardless of whether they occur in a federally declared disaster area.

Casualty losses are deductible in the year of the loss, usually the year of the casualty event. If your loss stems from a federally declared disaster, you can opt to treat it as having occurred in the previous year. You may receive your refund more quickly if you amend the previous year’s return than if you wait until you file your return for the casualty year.

Factoring in reimbursements

If your casualty loss is covered by insurance, you must reduce the loss by the amount of any reimbursement or expected reimbursement. (You also must reduce the loss by any salvage value.)

Reimbursement also could lead to capital gains tax liability. When the amount you receive from insurance or other reimbursements (less any expense you incurred to obtain reimbursement, such as the cost of an appraisal) exceeds the cost or adjusted basis of the property, you have a capital gain. You’ll need to include that gain as income unless you’re eligible to postpone reporting the gain.

You may be able to postpone the reporting obligation if you purchase property that’s similar in service or use to the destroyed property within the specified replacement period. You can also postpone if you buy a controlling interest (at least 80%) in a corporation owning similar property or if you spend the reimbursement to restore the property.

Alternatively, you can offset casualty gains with casualty losses not attributable to a federally declared disaster. This is the only way you can deduct personal-use property casualty losses incurred in locations not declared disaster areas.

Calculating casualty loss

For personal-use property, or business-use or income-producing property that isn’t completely destroyed, your casualty loss is the lesser of:

The adjusted basis of the property immediately before the loss (generally, your original cost, plus improvements and less depreciation), or
The drop in fair market value (FMV) of the property as a result of the casualty (that is, the difference between the FMV immediately before and immediately after the casualty).

For business-use or income-producing property that’s completely destroyed, the amount of the loss is the adjusted basis less any salvage value and reimbursements.

If a single casualty involves more than one piece of property, you must figure each loss separately. You then combine these losses to determine the casualty loss.

An exception applies to personal-use real property, such as a home. The entire property (including improvements such as landscaping) is treated as one item. The loss is the smaller of the decline in FMV of the whole property and the entire property’s adjusted basis.

Other limits may apply to the amount of the loss you can deduct, too. For personal-use property, you must reduce each casualty loss by $100 (after you’ve subtracted any salvage value and reimbursement).

If you suffer more than one casualty loss during the tax year, you must reduce each loss by $100 and report each on a separate IRS form. If two or more taxpayers have losses from the same casualty, the $100 rule applies separately to each taxpayer.

But that’s not all. For personal-use property, you also must reduce your total casualty losses by 10% of your adjusted gross income after you’ve applied the $100 rule. As a result, smaller personal-use casualty losses often provide little or no tax benefit.

Keeping necessary records

Documentation is critical to claim a casualty loss deduction. You’ll need to show:

That you were the owner of the property or, if you leased it, that you were contractually liable to the owner for the damage,
The type of casualty and when it occurred,
That the loss was a direct result of the casualty, and
Whether a claim for reimbursement with a reasonable expectation of recovery exists.

You also must be able to establish your adjusted basis, reimbursements and, for personal-use property, pre- and post-casualty FMVs.

Qualifying for IRS relief

This year, the IRS has granted tax relief to taxpayers affected by numerous natural disasters. For example, Hurricane Helene relief was recently granted to the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia. The relief typically extends filing and other deadlines. (For detailed information about your state, visit: https://bit.ly/3nzF2ui.)

Be aware that you can be an affected taxpayer even if you don’t live in a federally declared disaster area. You’re considered affected if records you need to meet a filing or payment deadline postponed during the applicable relief period are located in a covered disaster area. For example, if you don’t live in a disaster area but your tax preparer does and is unable to pay or file on your behalf, you likely qualify for filing and payment relief.

Turning to us for help

If you’ve had the misfortune of incurring casualty losses due to a natural disaster, contact us. We’d be pleased to help you take advantage of all available tax benefits and relief.

Does your business require real estate for its operations? Or do you hold property titled under your business’s name? It might be worth reconsidering this strategy. With long-term tax, liability and estate planning advantages, separating real estate ownership from the business may be a wise choice.

How taxes affect a sale

Businesses that are formed as C corporations treat real estate assets as they do equipment, inventory and other business assets. Any expenses related to owning the assets appear as ordinary expenses on their income statements and are generally tax deductible in the year they’re incurred.

However, when the business sells the real estate, the profits are taxed twice — at the corporate level and at the owner’s individual level when a distribution is made. Double taxation is avoidable, though. If ownership of the real estate is transferred to a pass-through entity instead, the profit upon sale will be taxed only at the individual level.

Safeguarding assets

Separating your business ownership from its real estate also provides an effective way to protect the real estate from creditors and other claimants. For example, if your business is sued and found liable, a plaintiff may go after all of its assets, including real estate held in its name. But plaintiffs can’t touch property owned by another entity.

The strategy also can pay off if your business is forced to file for bankruptcy. Creditors generally can’t recover real estate owned separately unless it’s been pledged as collateral for credit taken out by the business.

Estate planning implications

Separating real estate from a business may give you some estate planning options, too. For example, if the company is a family business but all members of the next generation aren’t interested in actively participating, separating property gives you an extra asset to distribute. You could bequest the business to one member and the real estate to another.

Handling the transaction

If you’re interested in this strategy, the business can transfer ownership of the real estate and then the transferee can lease it back to the company. Who should own the real estate? One option: The business owner can purchase the real estate from the business and hold title in his or her name. One concern though, is that it’s not only the property that’ll transfer to the owner but also any liabilities related to it.

In addition, any liability related to the property itself may inadvertently put the business at risk. If, for example, a client suffers an injury on the property and a lawsuit ensues, the property owner’s other assets (including the interest in the business) could be in jeopardy.

An alternative is to transfer the property to a separate legal entity formed to hold the title, typically a limited liability company (LLC) or limited liability partnership (LLP). With a pass-through structure, any expenses related to the real estate will flow through to your individual tax return and offset the rental income.

An LLC is more commonly used to transfer real estate. It’s simple to set up and requires only one member. LLPs require at least two partners and aren’t permitted in every state. Some states restrict them to certain types of businesses and impose other restrictions.

Tread carefully

It isn’t always advisable to separate the ownership of a business from its real estate. If it’s a valuable move, the right approach will depend on your individual circumstances. Contact us to help determine the best way to minimize your transfer costs and capital gains taxes while maximizing other potential benefits.

You may trust your executive management team implicitly. But the research is clear: In organizations where executives turn to fraud, the results are very costly. According to the Association of Certified Fraud Examiners’ (ACFE’s) Occupational Fraud 2024: A Report to the Nations, owner/executive fraud makes up only 19% of all cases but has a median loss of $459,000 per incident. That compares with $60,000 per incident for nonmanagerial employees.

Part of the reason behind such great financial losses is the fact that it generally takes longer to detect fraud perpetrated by executives (24 months vs. eight months for rank-and-file worker schemes). So the more proactive you are about preventing and detecting occupational fraud at the highest levels, the better.

3 factors

You might start by considering how the “fraud triangle” paradigm (which forensic accountants use to understand the incidence of occupational fraud) applies to executives.

The triangle’s first element is pressure. Executives can face lifestyle pressures — for example, to live in an exclusive neighborhood and drive an expensive car, even if they can’t afford them. They may also feel pressure to pump up sales numbers or falsify financial statements to make their companies (and their own performance) look better.

The second factor is opportunity. As high-ranking employees, executives generally have the power and authority to steal or cheat. This is particularly true if their company doesn’t enforce adequate internal controls.

The last leg of the triangle is rationalization. Executives who steal may think “everybody does it” or that they “deserve” more than they legitimately earn. Substance abuse or gambling issues may also interfere with their judgment.

Controls that cover everyone

Internal controls are critical to preventing all occupational fraud. But you may need to take extra steps to help ensure executives don’t override internal controls. Clearly communicate when overrides are permissible and when they’re not. If an executive believes an override is necessary, that person should be required to get a second executive’s opinion or document the incident.

Also mandate fraud training for all employees — no exceptions. And empower workers to anonymously report suspicions about executives and other managers by providing a third-party fraud hotline (or online portal). You can help ensure the integrity of your hotline and protect whistleblowers by limiting access to any tips.

Other controls include:

Giving auditors access. Whether your company has an internal audit team, outside auditors — or a combination of both — give them full access to your company’s records. If the audit team encounters a roadblock or is denied access to information, they should know how to proceed.

Treating every allegation seriously. Sometimes tips involving executives are ignored or result in less rigorous investigations. To ensure an unbiased investigation, engage an external fraud expert to look into every legitimate-seeming allegation.

Taking legal action. The ACFE has reported that executives generally receive less punishment for fraud offenses than other employees. Organizations may avoid civil litigation or criminal prosecution for fear of bad publicity. However, if you allow executives to steal or falsify information without ramifications, it could embolden other would-be perpetrators.

Demographic data

Not surprisingly, schemes perpetrated by individuals with 10 or more years tenure are much more expensive than those perpetrated by individuals with even six to 10 years tenure (median losses of $250,000 vs. $137,000, respectively). Also, although every case is unique, occupational fraudsters are more likely to be men with at least a college degree and between 31 and 50 years old. Such characteristics are common among executives.

Although members of your leadership team are almost certainly trustworthy and dedicated to your business’s success, you need to foil potential rogue actors with strong controls. We can help.

When reviewing their income statements, business owners tend to focus on profits (or losses). But focusing solely on the bottom line can lead to mismanagement and missed opportunities. Instead, you should analyze this financial report from top to bottom for deeper insights.

Think like an auditor

Review your company’s income statement with an auditor’s mindset. External auditors are trained to have professional skepticism, ask questions continually and evaluate evidence without bias. They pay close attention to details and rely on data to identify risks and formulate evidence-based conclusions.

This approach can improve your knowledge of your company’s financial health and help you make more strategic decisions based on the key drivers of profitability — revenue and expenses. It can also help expose fraud and waste before they spiral out of control.

Start with revenue

Revenue (or sales) is the money generated from selling goods or services before any expenses are deducted. It’s the top line of your income statement.

Compare revenue for the current accounting period to the previous period and your budget. Has revenue grown, declined or held steady? Did your company meet the sales goals you set at the beginning of the year? If not, investigate what happened. Perhaps management’s goals were unrealistic. Alternatively, the cause might relate to internal issues (such as the loss of a key salesperson or production delays) or external issues (such as the emergence of a new competitor or weak customer demand). Pinpointing the reasons behind lackluster sales is critical. View internal mistakes as opportunities to learn and improve performance in the future.

Evaluating revenue can be particularly challenging for cyclical or seasonal businesses. These businesses should compare results for one time period to those from the same period the previous year. Or they may need to look back more than just one year to evaluate revenue trends over an entire business cycle.

It also may be helpful to look at industry trends to gauge your business’s performance. If your industry is growing but your company is faltering, the cause is likely internal.

If your business offers more than one type of product or service, break down the composition of revenue to see what’s selling — and what’s not. Variances in sales composition over time may reveal changes in customer demand. This analysis can lead to modifications in marketing, sales, production and purchasing strategies.

Move on to cost of sales

The next line item on your company’s income statement is the cost of sales (or cost of goods sold). It includes direct labor, direct materials and overhead. These are costs incurred to make products and provide services. The difference between revenue and cost of sales is your gross profit.

Look at how the components of cost of sales have changed as a percentage of revenue over time. The relationship between revenue and direct costs generally should be stable. Changes may relate to the cost of inputs or your company’s operations. For example, hourly wages might have increased over time due to inflation or regulatory changes. You might decide to counter increasing labor costs by purchasing automation equipment that makes your company less reliant on human capital or adding a shift to reduce overtime wages.

Changes in your revenue base can also affect cost of sales. For instance, if your company is doing more custom work than before, the components of direct costs as a percentage of revenue will likely differ from past results. Evaluating gross profit on a product or job basis can help you understand what’s most profitable so you can pivot to sell more high-margin items.

It’s also helpful to compare the components of your company’s cost of sales against industry benchmarks. This can help evaluate whether you’re operating as efficiently as possible. For instance, compute your company’s direct materials as a percentage of total revenue. If your ratio is significantly higher than the industry average, you might need to negotiate lower prices with suppliers or take steps to minimize waste and rework.

Monitor operating expenses

Operating expenses are ongoing costs related to running your business’s day-to-day operations. They’re necessary for a company to generate revenue but aren’t directly tied to producing goods or services. Examples of operating expenses include:

Compensation for managers, salespeople and administrative staff,
Rent,
Insurance,
Office supplies,
Facilities maintenance and utilities,
Advertising and marketing,
Professional fees,
Travel and entertainment, and
Depreciation and amortization.

Many operating expenses are fixed over the short run. That is, they aren’t affected by changes in revenue. For instance, rent and the marketing director’s salary usually don’t vary based on revenue. Compare the total amount spent on fixed costs in the current accounting period to the amount spent in the previous period. Auditors review individual operating expenses line by line and inquire about any change that’s, say, greater than $10,000 or 10% of the cost from the prior period. This approach can help you ask targeted questions to find the root causes of significant cost increases and make improvements.

To illustrate, let’s say your company’s maintenance costs increased by 20% this year. After further investigation, you might discover that you incurred significant, nonrecurring charges to clean up and repair damages from a major storm — or maybe you discover that your payables clerk is colluding with a friend who works at the landscaping company to bilk your company for excessive fees. You won’t know the reason for a cost increase without digging into the details like an auditor would.

Use the income statement as a management tool

Your company’s income statement contains valuable information if you take the time to review it thoroughly. Adopting an auditor’s mindset can help business owners identify trends quickly, detect problems and anomalies early, and make better-informed decisions. Contact us for help interpreting your company’s historical results and using them to improve its future performance.

Historically, retirement has been a bit like jumping off a cliff. Employees pick a date, maybe enjoy a going-away party and then off they go into the great golden years beyond.

But it doesn’t have to be that way. Under the concept of phased retirement, prospective retirees transition out of the workforce gradually by working reduced schedules or other types of alternate work arrangements. Think of it as carefully rappelling down the cliff rather than jumping off.

At least one recent survey indicates that many of today’s older workers may hold the concept in high regard. In August, global professional advisory firm Willis Towers Watson released its 2024 Global Benefits Attitudes Survey. It found that, of 10,000 U.S. employees working for midsize to large private employers, 15% of those age 50 or older are already engaging in phased retirement while another 19% wish to do so.

Various arrangements, varied benefits

Employers can set up various phased retirement arrangements. Prospective retirees may, for example:

Shift to four-day work weeks,
Move into job-sharing agreements,
Convert to part-time status,
Work remotely all or most of the time, or
Retire, but stay on as contract-based consultants.

Some valid reasons exist for employers to spend time and resources establishing phased retirement arrangements. Many employees head into their golden years possessing vast amounts of “intellectual capital” — that is, knowledge of their industries, organizations and jobs that no one else has. A transitional employment arrangement gives you more time to preserve this know-how, perhaps in part by asking prospective retirees to mentor younger employees.

Phased retirement can also help preserve external relationships. If a long-time employee fully retires, key customers may take their business elsewhere. Your organization might also struggle to maintain strong relationships with vendors, regulatory officials or other important contacts. “Phased retirees” can serve as bridges between themselves and their successors to retain high-value accounts or help manage other critical matters.

Plus, phased retirement tends to ease hiring pressure and lower training costs. Finding an ideal candidate, winning over that person with a job offer, and teaching the new employee the “ins and outs” of the position could take months or even years — and many, many dollars. You can create more time to hire by keeping the soon-to-be retiree on staff and involved in the selection and training processes. At the same time, the older employee may be working fewer hours and, therefore, drawing less in compensation.

Risk management

Naturally, there are risks to consider. Employees nearing retirement who have “checked out” or are disgruntled may not pass along their knowledge completely or accurately.

Some employers might be concerned about older workers driving up the costs of their health insurance plans because of increased claims. Bear in mind, however, that advances in medical care and greater awareness of wellness have resulted in many people remaining healthy later in life. In other words, a spike in benefits costs isn’t a certainty. Consult an employment attorney regarding how selective you can be when offering phased retirement.

Brain-drain stopper

If your organization is concerned about “brain drain” as employees retire, working in good faith with older employees to set up phased retirement arrangements could help mitigate the problem. It may not suit every situation, and some workers might still want to dive into retirement in one fell swoop. But as is so often the case with employment policies these days, flexibility is key.

For many people, two common estate planning goals are contributing to a favorite charity and leaving significant assets to your family under favorable tax terms. A charitable remainder trust (CRT) can help you achieve both goals.

ABCs of CRTs

Typically, you set up one of two CRT types (described below) and fund it with assets such as cash and securities. The trust then pays out income to the designated beneficiary or beneficiaries — perhaps yourself or your spouse — for life or a term of 20 years or less. The CRT then distributes the remaining assets to one or more charities.

When using a CRT, you may be eligible for a current tax deduction based on several factors. They include the value of the assets at the time of the transfer, the ages of the income beneficiaries and the government’s Section 7520 rate. Generally, the greater the payout to you (and consequently, the lower the amount that ultimately goes to charity), the lower the deduction.

2 flavors of CRTs

There are two types of CRTs, each with its own pros and cons:

A charitable remainder annuity trust (CRAT) pays out a fixed percentage (ranging from 5% to 50%) of the trust’s initial value and doesn’t allow additional contributions once it’s funded.
A charitable remainder unitrust (CRUT) pays out a fixed percentage (ranging from 5% to 50%) of the trust’s value, recalculated annually, and allows additional contributions.

CRATs offer the advantage of uniform payouts, regardless of fluctuations in the trust’s value. CRUTs, on the other hand, allow payouts to keep pace with inflation because they increase as the trust’s value increases. And, as noted, CRUTs allow you to make additional contributions. One potential disadvantage of a CRUT is that payouts shrink if the trust’s value declines.

Who to choose as a trustee?

When setting up a CRT, appoint a trustee to manage the trust’s assets. The trustee should be someone with the requisite financial knowledge and a familiarity with your personal situation. Thus, it could be a professional or an entity, a family member, or a close friend.

Because of the potentially significant dollars at stake, many trust creators opt for a professional who specializes in managing trust assets. If you’re leaning in this direction, interview several candidates and choose the best one for your situation, considering factors such as experience, investment performance and the level of services provided.

Know that a trustee must adhere to the terms of the trust and follow your instructions. Thus, you still maintain some control if someone else handles these duties. For instance, you may retain the right to change the trustee if you become dissatisfied or designate a different charity to receive the remainder assets.

Finally, be aware that a CRT is irrevocable. In other words, you can’t undo it once it’s executed. So, you must be fully committed to this approach before taking the plunge. Contact us to learn whether a CRT might be a good fit to achieve your estate planning goals.

The U.S. job market has largely stabilized since the historic disruption of the pandemic and the unusual fluctuations that followed. But the fact remains that employee retention is mission-critical for businesses. Retaining employees is still generally less expensive than finding and hiring new ones. And strong retention is one of the hallmarks of a healthy employer brand.

One role that’s been historically challenging to retain is salesperson. In many industries, sales departments have higher turnover rates than other departments. If this has been the case at your company, don’t give up hope. There are ways to address the challenge.

Lay out the welcome mat

For starters, don’t focus retention efforts only on current salespeople. Begin during hiring and ramp up with onboarding. A rushed, confusing or cold approach to hiring can get things off on the wrong foot. In such cases, new hires tend to enter the workplace cautiously or skeptically, with their eyes on the exit sign rather than the “upper floors” of a company.

Onboarding is also immensely important. Many salespeople tell horror stories of being shown to a cubicle with nothing but a telephone on the desk and told to “Get to it.” With so many people still working remotely, a new sales hire might not even get that much attention. Welcome new employees warmly, provide ample training, and perhaps give them a mentor to help them get comfortable with your business and its culture.

Incentivize your team

Even when hiring and onboarding go well, most employees will still consider a competitor’s job offer if the pay is right. So, to improve your chances of retaining top sales producers and their customers, consider financial incentives.

Offering retention bonuses and rewards for maintaining or increasing sales — in addition to existing compensation plans — can help. Make such incentives easy to understand and clearly achievable. Although interim bonus programs might be expensive in the near term, they can stabilize sales and prevent sharp declines.

When successful, a bonus program will help you generate more long-term revenue to offset the immediate costs. That said, financial incentives need to be carefully designed so they don’t adversely affect cash flow or leave your business vulnerable to fraud.

Give them a voice

Salespeople interact with customers and prospects in ways many other employees don’t. As a result, they may have some great ideas for capitalizing on your company’s strengths and shoring up its weaknesses.

Look into forming a sales leadership team to help evaluate the potential benefits and risks of goals proposed during strategic planning. The team should include two to four top sellers who are given some relief from their regular responsibilities so they can offer feedback and contribute ideas from their distinctive perspectives. The sales leadership team can also:

Serve as a clearinghouse for customer concerns and competitor strategies,
Collaborate with the marketing department to improve messaging about current or upcoming product or service offerings, and
Participate in developing new products or services based on customer feedback and demand.

Above all, giving your salespeople a voice in the strategic direction of the company can help them feel more invested in the success of the business and motivated to stay put.

Assume nothing

Business owners and their leadership teams should never assume they can’t solve the dilemma of high turnover in the sales department. The answer often lies in proactively investigating the problem and then taking appropriate steps to help salespeople feel more welcomed and appreciated. We can help your company calculate turnover rate, identify and track its hiring and employment costs, and assess the feasibility of financial incentives.

Yeo & Yeo is proud to have been ranked 16th out of nearly 1,500 accounting firm brands in the 2024 Remarkabrand Index, a testament to our distinctive brand presence.

Resound’s Remarkabrand Index captures more than 40 essential data points, including elements such as logos, taglines, firm size, website content, social media activity, and search engine rankings. It is a rigorous evaluation of not just visual identity but how well a brand differentiates itself in a competitive landscape. Mike Jones, CEO and Managing Partner of Resound, shared, “A brand ranking of 16th is fantastic, putting Yeo & Yeo in the top 1% of the Index in 2024. This accomplishment is a clear testament to their dedication to creating a distinctive brand.”

This ranking reflects the intentional journey we embarked on in 2023, a pivotal year for Yeo & Yeo as we celebrated our 100th anniversary. As part of this celebration, we undertook a brand refresh—not as a mere visual change but as a reflection of our longstanding values and our future vision.

Yeo & Yeo partnered with Phire Group, whose exceptional team members worked alongside us each step of the way. Together, we explored the essence of our brand and expanded on our story. The process involved intensive collaboration, detailed market research, and meaningful conversations with our team, clients, and community members. What we discovered during these discussions is that while our services set us apart, it’s our relationships—with our clients, teams, and communities—that truly define who we are.

Every element of our brand, from our mission to our visual identity, defines how we approach every relationship, every challenge, and every opportunity.

“Our brand journey has been a thoughtful, deliberate process, and this recognition from the Remarkabrand Index affirms the care we’ve put into creating a brand that reflects the uniqueness of the people, clients, and communities we serve,” said Kimberlee Dahl, Yeo & Yeo’s Director of Marketing. “I’m eager to continue sharing Yeo & Yeo’s story and recognizing the talented people who contribute to our mission.”

Discover more about Yeo & Yeo’s brand and explore the impact we’re creating. Watch our brand video.

Yeo & Yeo, a leading Michigan-based accounting and advisory firm, has been named one of Michigan’s Best and Brightest in Wellness for the eleventh consecutive year. The program highlights companies and organizations that promote a culture of wellness, as well as those that plan, implement, and evaluate efforts in employee well-being to make their business and the community a healthier place to live and work.

“Our goal at Yeo & Yeo has always been to create an environment where our employees can thrive—not only professionally but personally,” said Dave Youngstrom, President & CEO of Yeo & Yeo. “This recognition is a testament to the hard work and dedication of our HR team and leaders across the firm who are committed to supporting our people.”

Yeo & Yeo’s growing HR team has been instrumental in implementing a forward-looking benefits strategy that addresses both the current and future needs of employees. Yeo & Yeo offers free health screenings and flu shots for healthcare plan participants at no cost. An Employee Assistance Program provides confidential guidance and resources to support work‐life harmony. The firm also provides a flexible work environment that includes hybrid and remote work capabilities and initiatives like half-day summer Fridays. This year, the firm also began participating in the Boon Health program to provide employees with one-on-one coaching for personal growth, professional development, and overall well-being.

“By continually analyzing our benefits and making improvements based on employee feedback, we are able to offer comprehensive support that covers health, financial well-being, and professional growth,” said Stephanie Vogel, Yeo & Yeo’s Director of Human Resources.

Winners of the Best and Brightest in Wellness award are selected through a rigorous evaluation process. Criteria include the effectiveness of wellness initiatives, employee engagement, and a company’s commitment to fostering physical, mental, and emotional health. Only companies that demonstrate excellence in creating a supportive and healthy workplace culture are recognized.

Yeo & Yeo and the other winning companies will be honored at the Michigan’s Best and Brightest in Wellness awards celebration on November 7.

Yeo & Yeo, a leading Michigan advisory firm, is pleased to announce that Jordan Bohlinger and Shelby Garcia were recently recognized in the 2024 Flint & Genesee Group’s 40 Under 40. The program highlights individuals under age 40 who demonstrate a commitment to excellence and a passion for making a difference in the community.

Jordan Bohlinger started his journey with Yeo & Yeo in 2017 when he joined as a staff accountant in the Assurance Service Line. His dedication and expertise led him to the Education Services Group, and he became a member of the Michigan School Business Officials. Over the years, he has advanced to Senior Accountant and now serves as a Manager. Bohlinger specializes in audits for school districts and nonprofits, always striving to ensure his clients experience a smooth and efficient audit process. His commitment to his team is evident; he is not only an exceptional trainer but also a trusted leader who actively engages in firm activities, including videos and social media outreach. Bohlinger is passionate about nurturing the next generation of accountants through Yeo & Yeo’s Summer Leadership Program and contributes to the community as the treasurer of the Bay Valley Academy Gymnastics Booster Club. He holds a Bachelor of Business Administration in accounting from Northwood University and is based in the firm’s Flint office.

“Jordan is a go-to leader in the firm’s audit department,” said Jennifer Watkins, CPA, principal. “He has exceptional client management skills and has built great trust and loyalty with both his clients and colleagues. He is a driving force for excellence, both within Yeo & Yeo and in the community.”

Shelby Garcia joined Yeo & Yeo as an intern in 2016 and has since grown in her role from Staff Accountant to Senior Accountant. She found her passion in auditing and has honed her knowledge to focus on audits of nonprofit organizations, governmental entities, and school districts. As a member of the firm’s Nonprofit Services Group, she helps her clients identify opportunities and focus on their missions. She enjoys building relationships, getting to know her clients, and helping them improve their processes. She is a University of Michigan-Flint grad and holds a Bachelor of Science in Business and Administration. She participates in numerous community events, including the Food Bank of Eastern Michigan’s Empty Bowls fundraiser, Flint & Genesee Chamber events, Flushing Athletic Boosters and Genesee County Habitat for Humanity golf outings, and most recently volunteered for Genesee County Habitat for Humanity. She is based in the firm’s Flint office.

“Shelby consistently demonstrates her willingness to share expertise and support colleagues,” Watkins said. “She plays an essential role in serving both internal and external clients, setting a stellar example for young professionals, especially women new to the firm, through her mentorship and guidance.”

Read the Flint & Genesee Group’s AND Magazine featuring all the 40 Under 40 honorees.

Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2024. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

Note: Certain tax-filing and tax-payment deadlines may be postponed for taxpayers who reside in or have a business in a federally declared disaster area.

Tuesday, October 1

The last day you can initially set up a SIMPLE IRA plan, provided you (or any predecessor employer) didn’t previously maintain a SIMPLE IRA plan. If you’re a new employer that comes into existence after October 1 of the year, you can establish a SIMPLE IRA plan as soon as administratively feasible after your business comes into existence.

Tuesday, October 15

If a calendar-year C corporation that filed an automatic six-month extension:
- File a 2023 income tax return (Form 1120) and pay any tax, interest and penalties due.
- Make contributions for 2023 to certain employer-sponsored retirement plans.

Thursday, October 31

Report income tax withholding and FICA taxes for third quarter 2024 (Form 941) and pay any tax due. (See exception below under “November 12.”)

Tuesday, November 12

Report income tax withholding and FICA taxes for third quarter 2024 (Form 941), if you deposited on time (and in full) all the associated taxes due.

Monday, December 16

If a calendar-year C corporation, pay the fourth installment of 2024 estimated income taxes.

Contact us if you’d like more information about the filing requirements and to ensure you’re meeting all applicable deadlines.

Timing is critical in financial reporting. Under accrual-basis accounting, the end of the accounting period serves as a “cutoff” for when companies recognize revenue and expenses. However, some companies may be tempted to play timing games, especially at year end, to boost financial results or lower taxes.

Observing the end-of-period cutoffs

Under U.S. Generally Accepted Accounting Principles (GAAP), revenue should be recognized in the accounting period it’s earned, even if the cash is received in a subsequent period. Likewise, expenses should be recognized in the period they’re incurred, not necessarily when they’re paid. And expenses should be matched with the revenue they generate, so businesses should record expenses in the period they were incurred to earn the corresponding revenue.

However, some companies may interpret the cutoff rules loosely to present their financial results more favorably. For example, suppose a calendar-year car dealer allows a customer to take home a vehicle on December 28, 2024, to test drive for a few days. The sales manager has verbally negotiated a deal with the customer, but the customer still needs to discuss the purchase with his spouse. He plans to return on January 2 to close the deal or return the vehicle and walk away. Under accrual-basis accounting, should the sale be reported in 2024 or 2025?

Alternatively, consider a calendar-year, accrual-basis retailer that pays January’s rent on December 31, 2024. Rent is due on the first day of the month. Under accrual-basis accounting, can the store deduct an extra month’s rent from this year’s taxable income?

As tempting as it might be to inflate revenue to impress stakeholders or defer taxable income to lower the current year’s tax bill, the cutoff for a calendar-year, accrual-basis business is December 31. So in both examples, the transaction should be reported in 2025.

Auditing cutoffs

Auditors use several procedures to test for compliance with cutoff rules. For example, to ensure revenue is recorded in the correct accounting period, auditors may review:

Shipping documents and customer invoices,
Sales transactions near the cutoff date, and
Returns and allowances near the cutoff date.

Similarly, to ensure expenses are recorded in the correct accounting period, auditors may inspect contracts and invoices near the cutoff date. They also check that expenses are matched with the revenue they help generate, in accordance with the matching principle. An accrual (a liability) is recorded for expenses incurred in the current period that still need to be paid later. Conversely, prepaid assets represent expenses paid in the current period that will be reported later when they’re used to generate future revenue. Auditors also may perform analytical procedures that compare expenses as a percentage of sales from period to period to identify timing errors and other anomalies.

It’s important to note that updated guidance for reporting revenue went into effect for calendar-year public companies in 2018 and for calendar-year private businesses starting in 2019. Under Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, revenue should be recognized “to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services.”

Although this guidance has been in effect for several years, implementation questions linger, especially among smaller private entities. The guidance requires management to make judgment calls each reporting period about identifying performance obligations (promises) in contracts, allocating transaction prices to these promises and estimating variable consideration. The risk of misstatement and the need for expanded disclosures have caused auditors to focus greater attention on companies’ recognition practices for revenue from long-term contracts. During audit fieldwork, expect detailed questions about your company’s cutoff policies and extensive testing procedures to confirm compliance with the accounting rules.

Now or later?

As year end approaches, you may have questions about the cutoff rules for reporting revenue and expenses. Contact us for answers. We can help you comply with the rules and minimize audit adjustments.

Many employers have used noncompete agreements to prevent departing employees from taking valuable information and key customers with them to competitors after they walk out the door. Earlier this year, the U.S. Federal Trade Commission (FTC) appeared to have set the stage for the demise of noncompetes when it announced a final rule that would largely ban their use.

When issued, the rule had an expected effective date of September 4, 2024. However, as of this writing, a recent ruling in a U.S. District Court in Texas has put the final rule in legal limbo.

Agency’s rationale

The final rule would require employers to notify affected employees that existing noncompetes would no longer be enforced as of the rule’s effective date. Also at that time, employers would be prohibited from entering into new noncompetes. The rule includes an exception for existing noncompetes applicable to “senior executives.” It defines these as employees who earn more than $151,164 a year and are in “policy-making positions.”

The FTC’s rationale for creating the rule is that too many U.S. workers have become subject to noncompetes. In fact, the agency contends that the agreements violate Section 5 of the FTC Act, an almost 110-year-old law that regulates unfair competitive methods. In the agency’s view, their predominance is unfairly suppressing wages, hindering innovation and making it more difficult for people to earn a living.

Upon announcing the rule in April, the FTC stated that its research showed 18% of U.S. workers are currently covered by noncompetes. That amounts to nearly one in five workers — or 30 million people. The agency believes that prohibiting the agreements would cause workers’ earnings to rise and more start-up companies to launch. It also asserts there would be a substantial rise in patents issued over the next decade.

Legal decision

Suffice to say, virtually no one expected the FTC’s final rule on noncompetes to breeze through to widespread compliance after issuance.

Sure enough, on the very day the final rule was announced, a Texas-based tax services and software firm, Ryan LLC, filed suit challenging the rule in the U.S. District Court for the Northern District of Texas. The U.S. Chamber of Commerce and other industry groups then joined the suit on the firm’s side as “plaintiff-intervenors.” Judge Ada Brown first issued a decision in the case, Ryan LLC v. Federal Trade Commission, on July 3, 2024, preliminarily enjoining (striking down) the noncompete ban but only with respect to the case’s plaintiff and plaintiff-intervenors.

However, in a final judgment issued on August 20, 2024, the same judge ruled that, in issuing the final rule, the FTC had exceeded its statutory authority to ban practices related to unfair methods of competition. In her decision, she wrote that the agency “lacks the authority to create substantive rules” and the final rule itself is “unreasonably overbroad without a reasonable explanation.”

Ultimately, the judge’s ruling means the FTC can’t enforce the ban unless it files an appeal and prevails. To that end, FTC spokesperson Victoria Graham said in a statement, “We are seriously considering a potential appeal.” If the agency does opt to file one, it would be decided by the U.S. Court of Appeals for the Fifth Circuit. From there, the case could wind up before the U.S. Supreme Court, which many professionals believe would likely benefit opponents of the rule.

Protect your valuables

If your organization uses noncompetes, you’re no doubt aware that the final rule’s original September 4 effective date has come and gone — and the rule’s fate remains uncertain.

Work with your attorney to monitor the Ryan case as well as other ongoing legal challenges. Also, explore how to best protect your intellectual property, customer lists and other valuable information. Although the final rule is in limbo, noncompetes can still be challenged in court by private parties, and even the FTC itself, on a case-by-case basis. Contact us for help measuring, tracking and analyzing all your employment costs.

Legendary singer Aretha Franklin died more than six years ago. However, it wasn’t until last year that a Michigan judge ruled a handwritten document discovered under her couch cushions was a valid will. This case illustrates the dangers of a so-called “holographic” will. It’s one where the entire document is handwritten and signed without the presence of a lawyer or witnesses.

Facts of the case

Initially, Franklin’s family thought she had no will. In that situation, her estate would have been divided equally among her four sons under the laws of intestate succession. A few months after she died, however, the family discovered two handwritten “wills” in her home.

The first, dated 2010 and found in a locked cabinet, was signed on each page and notarized. The second, dated 2014, was found in a spiral notebook under her couch cushions and was signed only on the last page. The two documents had conflicting provisions regarding the distribution of her homes, cars, bank accounts, music royalties and other assets, leading to a fight in court among her heirs. Ultimately, a jury found that the 2014 handwritten document should serve as her will.

Holographic wills can cause unexpected outcomes

Michigan, like many states, permits holographic wills. These wills, which don’t need to be witnessed like formal wills, must be signed and dated by the testator and the material portions must be in the testator’s handwriting. In addition, there must be evidence (from the language of the document itself or from elsewhere) that the testator intended the document to be his or her last will and testament.

Holographic wills can be quick, cheap and easy, but they can come at a cost. Absent the advice of counsel and the formalities of traditional wills, handwritten wills tend to invite challenges and interfamily conflict. In addition, because an attorney doesn’t prepare them, holographic wills tend to be less thorough and often contain ambiguous language.

If you need a will, contact your estate planning attorney for help. Having your will drafted by a professional can give you peace of mind knowing that your assets will be divided as you intended.

Yeo & Yeo, a leading Michigan advisory firm, is pleased to announce that Kellen Riker, CPA, has received the Rising Star Award from the Michigan Association of Certified Public Accountants (MICPA). The Rising Star Award honors the accomplishments and contributions of up-and-coming CPAs who add value to their firm or company through strategic and innovative initiatives, leadership competencies, and commitment to the profession.

Kellen Riker joined Yeo & Yeo in 2018 as a staff accountant in the Assurance Service Line. He earned his CPA license, and his dedication propelled him to become a manager and a member of the firm’s Government Services Group. Riker is passionate about getting to know his clients on a personal level and helping them succeed. Reflecting on his approach to client relationships, he said, “I really enjoy helping clients achieve their goals above and beyond simply delivering a completed audit. Sometimes, that includes providing consulting services, implementing a new standard, or offering training. Helping clients develop their skills and improve their expertise is fun and rewarding.”

Riker was recognized in 2021 with the firm’s Spirit of Yeo award for his resiliency and positive impact during the pandemic. In 2022, he was named a Flint and Genesee Group 40 Under 40 honoree, underscoring his significant community contributions and specialized expertise in governmental audits, which significantly enhances the firm’s capabilities and greatly benefits its public sector clients.

“Kellen embodies the highest standards of the profession,” said Jamie Rivette, CPA, CGFM, principal and Assurance Service Line leader. “He is committed to learning and professional development, and is always looking for innovative solutions to challenges. His clients truly value the knowledge and insight he brings to every engagement.”

Jennifer Watkins, CPA, principal, commended Riker’s exceptional growth and commitment to community service, emphasizing his impact within the firm and beyond. She remarked, “Kellen has shown tremendous leadership throughout his career at Yeo & Yeo. He is dedicated to the community, serving as the Young Professionals Service Chair for the Yeo & Yeo Foundation and volunteering at events for the American Cancer Society and Special Olympics. He is a great role model for his colleagues and the next generation of CPAs.”

Honorees will be recognized at the MICPA Celebrate Awards on November 13, 2024, at the Gem Theatre in Detroit.

Yeo & Yeo, a leading Michigan-based accounting and advisory firm, has been recognized by INSIDE Public Accounting (IPA) as a Best of the Best CPA Firm. This prestigious honor reflects Yeo & Yeo’s excellence within the industry.

Each year, IPA names 75 of the Best of the Best firms, applying a proprietary scoring formula of over 35 metrics to the 600+ firms that participate in the IPA Practice Management Survey. The report provides a clear picture of the best-managed firms based on performance in key areas of management, growth, and strategic vision.

“Being named among the ‘Best of the Best’ firms in the nation is a powerful affirmation of our core values. It proves that by prioritizing our people’s growth and well-being, we’ve created a firm that not only attracts top talent but also delivers outstanding results for our clients,” said Yeo & Yeo President & CEO Dave Youngstrom.

Yeo & Yeo’s success is rooted in the dedication of its talented professionals, who prioritize a client-centric approach by actively listening, responding genuinely, and addressing clients’ needs with expertise, experience, and empathy. “I am especially proud of the dedication of our people whose contributions made this possible,” said Youngstrom.

In addition to being named an IPA Best of the Best firm, Yeo & Yeo was recently ranked among IPA’s Top 200 accounting firms in the nation, demonstrating the firm’s ability to thrive in a dynamic industry. These honors are a testament to the firm’s commitment to its strategic initiatives, which include enhancing professional development and training, expanding benefits, streamlining operations, investing in new technologies, and broadening services to include HR advisory solutions. Most recently, Yeo & Yeo merged in Berger, Ghersi & LaDuke PLC, continuing its growth and expanding presence in Southeast Michigan.

“Adapting to the changing landscape of the accounting profession and succeeding at it takes passion, persistence, and patience,” added Youngstrom. “Through our strategic plan initiatives and the work of our internal development teams, we are continuously evolving in ways that best support our people and meet our client’s growing needs, without sacrificing our dedication to excellence.”

Youngstrom concluded, “This accolade not only affirms our current strategies but also inspires us to keep growing and advancing. We are honored and deeply thankful to our dedicated team, valued clients, and supportive partners for their shared commitment to our collective success.”

When drafting partnership and LLC operating agreements, various tax issues must be addressed. This is also true of multi-member LLCs that are treated as partnerships for tax purposes. Here are some critical issues to include in your agreement so your business remains in compliance with federal tax law.

Identify and describe guaranteed payments to partners

For income tax purposes, a guaranteed payment is one made by a partnership that’s: 1) to the partner acting in the capacity of a partner, 2) in exchange for services performed for the partnership or for the use of capital by the partnership, and 3) not dependent on partnership income.

Because special income tax rules apply to guaranteed payments, they should be identified and described in a partnership agreement. For instance:

The partnership generally deducts guaranteed payments under its accounting method at the time they’re paid or accrued.
If an individual partner receives a guaranteed payment, it’s treated as ordinary income — currently subject to a maximum income tax rate of 37%. The recipient partner must recognize a guaranteed payment as income in the partner’s tax year that includes the end of the partnership tax year in which the partnership deducted the payment. This is true even if the partner doesn’t receive the payment until after the end of his or her tax year.

Account for the tax basis from partnership liabilities

Under the partnership income taxation regime, a partner receives additional tax basis in his or her partnership interest from that partner’s share of the entity’s liabilities. This is a significant tax advantage because it allows a partner to deduct passed-through losses in excess of the partner’s actual investment in the partnership interest (subject to various income tax limitations such as the passive loss rules).

Different rules apply to recourse and nonrecourse liabilities to determine a partner’s share of the entity’s liabilities. Provisions in the partnership agreement can affect the classification of partnership liabilities as recourse or nonrecourse. It’s important to take this fact into account when drafting a partnership agreement.

Clarify how payments to retired partners are classified

Special income tax rules also apply to payments made in liquidation of a retired partner’s interest in a partnership. This includes any partner who exited the partnership for any reason.

In general, payments made in exchange for the retired partner’s share of partnership property are treated as ordinary partnership distributions. To the extent these payments exceed the partner’s tax basis in the partnership interest, the excess triggers taxable gain for the recipient partner.

All other payments made in liquidating a retired partner’s interest are either: 1) guaranteed payments if the amounts don’t depend on partnership income, or 2) ordinary distributive shares of partnership income if the amounts do depend on partnership income. These payments are generally subject to self-employment tax.

The partnership agreement should clarify how payments to retired partners are classified so the proper tax rules can be applied by both the partnership and recipient retired partners.

Consider other partnership agreement provisions

Since your partnership may have multiple partners, various issues can come into play. You’ll need a carefully drafted partnership agreement to handle potential issues even if you don’t expect them to arise. For instance, you may want to include:

A partnership interest buy-sell agreement to cover partner exits.
A noncompete agreement.
How the partnership will handle the divorce, bankruptcy, or death of a partner. For instance, will the partnership buy out an interest that’s acquired by a partner’s ex-spouse in a divorce proceeding or inherited after a partner’s death? If so, how will the buyout payments be calculated and when will they be paid?

Minimize potential liabilities

Tax issues must be addressed when putting together a partnership deal. Contact us to be involved in the process.

Public companies are required to evaluate and report on internal controls over financial reporting using a recognized control framework under rules set forth by the Securities and Exchange Commission (SEC). However, private companies also need checks and balances to help ensure their financial statements are correct and reduce the risk of fraud. Additionally, transparent reporting about the control system can give lenders, investors and other stakeholders greater confidence in a business’s financial results.

Develop an auditor’s mindset

The American Institute of Certified Public Accountants (AICPA) defines control activities as “steps put in place by the entity to ensure that the financial transactions are correctly recorded and reported.” AICPA auditing standards also require external auditors to evaluate their client’s internal controls as part of their audit risk assessment procedures. They routinely monitor the following three control features:

1. Physical restrictions. Employees should have access to only those assets necessary to perform their jobs. Locks and alarms are examples of ways to protect valuable tangible assets, including petty cash, inventory and equipment. But intangible assets — such as customer lists, lease agreements, patents and financial data — also require protection using passwords, access logs and appropriate legal paperwork.

2. Account reconciliation. Management should regularly analyze and confirm account balances. For example, bank statements should be reconciled monthly and inventory should be counted regularly.

Interim financial reports, such as weekly operating scorecards and quarterly financial statements, also keep management informed. However, reports are useful only if management finds time to review them and investigate anomalies. Supervisory oversight takes on many forms, including observation, test counts, inquiry and task replication.

3. Job descriptions. Another essential control is to have detailed job descriptions. Company policies should also call for job segregation, job duplication and mandatory vacations. For example, the person who receives customer payments should not also approve write-offs (job segregation). And two signatures should be required for checks above a prescribed dollar amount (job duplication).

Private company auditors tailor audit programs for potential risks of material misstatement. Still, they aren’t required to specifically perform procedures to identify control deficiencies unless they’re hired to perform a separate internal control study.

Disclosures about the control system

Audited financial statements may include footnote disclosures that describe the control environment, including policies and procedures for risk management, compliance and governance. These disclosures help build trust with stakeholders by providing insights into the company’s control environment and its effectiveness in ensuring accurate financial reporting.

Reporting on internal controls is an ongoing process, not a one-time assessment. Even if you’re not required to follow the SEC’s rules on evaluating internal controls, a thorough system of checks and balances will help your company achieve its goals.

We can help

Company insiders sometimes need more experience or objectivity to assess internal controls. Our auditors have seen the best — and worst — control systems and can help evaluate whether your controls are effective. Contact us for more information.