Independent Assurance Inspires Confidence in Sustainability Reports

Sustainability reports explain the impact of an organization’s activities on the economy, environment and society. During the novel coronavirus (COVID-19) pandemic, stakeholders continue to expect robust, transparent sustainability reports, with a stronger emphasis on the social and economic impacts of the company’s current operations than on environmental matters.

Investors, lenders and even the public at large may pressure companies to issue these supplemental reports. But the information they provide isn’t based on U.S. Generally Accepted Accounting Principles (GAAP). So, is it worth the time and effort? One way to make your company’s report more meaningful and reliable is to obtain an external audit of it.

What is a sustainability report?

In general, a sustainability report focuses on a company’s values and commitment to operating in a sustainable way. It provides a mechanism for communicating sustainability goals and how the company plans to meet them. The report also guides management when evaluating corporate actions and their impact on the economy, environment and society.

During the COVID-19 crisis, stakeholders want to know how your company is handling such issues as public health and safety, supply chain disruptions, strategic resilience and human resources. For example:

• How is the company treating employees during the crisis?
• Are workers being laid off or furloughed — or is management implementing executive pay cuts to retain its workforce?
• What is the company doing to ensure its facilities are safe for workers and customers?
• Is the company donating to charities and encouraging employees to participate in philanthropic activities during the crisis, such as volunteering at food pantries and donating blood?

Stakeholders want assurance that companies are engaged in responsible corporate governance in their COVID-19 responses. Sustainability reports can showcase good corporate citizenship during these challenging times.

Why do you need an external audit?

There aren’t currently any mandatory attestation requirements for sustainability reporting. That means companies can produce reports without engaging an external auditor to review the document for its accuracy and integrity. However, without independent, external oversight, stakeholders may view sustainability reports with a significant degree of skepticism. That’s where audits come into play.

Many organizations have developed standardized sustainability frameworks, including the:

• Carbon Disclosure Project (CDP),
• Dow Jones Sustainability Index (DJSI),
• Global Initiative for Sustainability Ratings (GISR),
• Global Reporting Initiative (GRI),
• International Integrated Reporting Council (IIRC),
• Sustainability Accounting Standards Board (SASB), and
• United Nations’ Sustainable Development Goals (SDG).

External auditors can verify whether sustainability reports meet the appropriate standards, and, if not, adjust them accordingly. In addition, numerous attestation standards govern the audit of a sustainability report, including those from the American Institute of Certified Public Accountants, the International Standard on Assurance Engagements and the International Organization for Standardization.

Need help?

Many companies agree that a sustainability report is an important part of their communications with stakeholders. But there’s little consensus on the approach, topics or non-GAAP metrics that should appear in sustainability reports. We understand the standards that apply to these supplemental reports and can help you report sustainability matters in a reliable, transparent manner.

© 2020

Until recently, the number one concern for many employers was finding and retaining top talent. Today, to fight the novel coronavirus (COVID-19), many of those same companies are being forced to shed workers en masse. If you haven’t yet pared down your workforce or need to do some more trimming, what are your options? How you carry out a workforce reduction — and how you maintain contact after the cutbacks — can either engender loyalty and keep employees wanting to come back, or it can send them away feeling disgruntled.  

As employers trim their employee rosters, they have several options, including:  

• Reduce employee benefits — for example, 401(k) matching contributions,
• Furlough workers,
• Lay off some or all of staff, or
• Cut nonexempt employees’ hours.

(Note: Reducing the hours of salaried exempt employees doesn’t allow you to cut their pay proportionately under the Fair Labor Standards Act.)

The less drastic the measures, the easier it will be to keep valued workers available to rejoin the company when you need them. In part, it depends on how much time has elapsed since they were let go. Don’t underestimate the importance of the way you say goodbye. It will have an impact not only on your ability to bring those employees back on board, but could affect your “brand” as an employer. Former employees who feel mistreated are only too happy to write about it on social media.

Cutting Hours

Cutting nonexempt workers’ hours lets you hang on to more employees, of course. While nobody wants to see their hours cut, they dislike being laid off even more, especially when unemployment rates are spiking. Not only do they retain some income, but they’re less likely to feel singled out for punishment, since more of their coworkers are in the same boat.

Note: Federal assistance (under the CARES Act) to employees harmed economically by the COVID-19 outbreak isn’t limited to employees who lost their jobs entirely. The law’s “Pandemic Unemployment Assistance” program can provide funds to workers who aren’t eligible for regular unemployment compensation because they still have some employment income.

A special provision of the CARES Act focuses on supporting employees whose hours were reduced in a work-sharing arrangement. The benefits vary according to whether states — which administer unemployment programs — already provide some support for employees forced to take reduced hours. Twenty-seven states have such programs.

Employees permitted to work with reduced hours are generally able to hang on to some of their employee benefits, which often represent a significant part of their total compensation. The picture gets more complicated, however, when employees are furloughed.

Employee Benefit Implications

With a furlough arrangement, the employee’s job is essentially put on hold. But in some respects, the employee is still under your economic umbrella. Plus, there’s an expectation that he or she will eventually return to full-time employment.

The legal impact of a furlough, as it pertains to employee benefits, can vary according to its duration. For example, a health insurance company might not agree to maintain coverage for furloughed employees just because you continue to pay your customary share of the cost of their health benefits.

Your contract with your carrier might become void if you’re covering people who aren’t working for you now and might not be employed by you in the foreseeable future. It’s critical to read the fine print on insurance contracts before making any promises to furloughed employees.

There’s generally more leniency with 401(k) plans. While you can’t deduct any payroll-based employee payments to a 401(k) plan if an employee isn’t receiving a paycheck, employees can deal directly with the 401(k) provider for some transactions. For example, if the furloughed employees want to take advantage of the CARES Act’s liberalization of plan loan rules, they can do so but need to make payments on a loan by means other than payroll deductions.

When Termination Is Your Only Option

Using a furlough strategy can improve your chances of keeping valuable employees available to return to full-time status when you’re able to reopen your doors. But sometimes, a simpler straight layoff (which is similar to a termination) is your only option, depending on your industry and the economy. Even then, you can still do your best to avoid losing those valued employees forever.

One key to maximizing the chances of being able to rehire laid off employees later is to be as generous and sensitive as you can when you pull the trigger. That can include helping terminated employees, either directly or through an outplacement service, to take advantage of available state and federal unemployment benefits.

If you can afford to pay a severance benefit, that can instill loyalty as well. However, be aware that such a policy needs to be administered consistently. Also, if you structure a severance payment plan as a series of periodic payments instead of as a lump sum, that could delay a laid-off employee’s eligibility for unemployment benefits. Why? Your state might treat it as the equivalent of ongoing employment income.

Keep Talking

If you want to hold onto your workforce, don’t neglect contacting your staff in general, especially those you’re most interested in hiring back when the time comes. It’s best to avoid making an actual commitment to rehire them, but you can still keep communication friendly. The longer workers go without hearing news directly from you, the more likely they are to assume the worst and start looking elsewhere.

Communication doesn’t have to be formal, but it should be regular. If there’s news you can share, your laid-off workers are probably eager to hear it. Whatever you do — group emails, texts, letters, Facebook posting on your company’s page or occasional phone calls to your most valued workers — don’t neglect staying in touch so that, when times get better and you prepare to turn the “closed” sign to “open” your loyal staff is right there beside you.

Chances are, employers don’t need the force of law to make them care about the health of their employees, especially during the novel coronavirus (COVID-19) pandemic. But it’s still important to know what the federal workplace safety agency — the Occupational Safety and Health Administration (OSHA) — has to say about employees returning to their jobs with a measure of confidence in their own safety.

OSHA’s recent “Guidance on Preparing Workplaces for COVID-19” report offers a helpful blueprint. However, the agency stresses it’s “only advisory in nature” and doesn’t set any new standards. Also, it falls under the underlying law’s overall requirement that employers “provide their employees with a workplace free from recognized hazards likely to cause death or serious physical harm.”

Below are some points from the OSHA blueprint to help you consider workplace safety through a new lens.

Assess Your Risk Profile

Step one in working toward a hazard-free workplace is to make an “infectious disease preparedness and response plan,” OSHA states. (You might need to recycle your plan at some future time when another aggressive virus makes the rounds.)

Consider the sources of COVID-19 that workers might be exposed to. Those include both sources at work — namely coworkers and other people who regularly come to your workplace — and workers’ potential exposure outside work.

For example, employees who commute to work via public transportation might face a higher risk of being exposed than those who drive their own cars. Similarly, employees with spouses or family members who work on the front lines, such as in a hospital clinical setting, could pose a greater risk than others.

While you can’t discriminate against employees who might be at greater risk than others, having a complete risk exposure picture can guide your overall preparedness strategy. You might have considered that the chances of a viral outbreak at your workplace were minimal before thinking about potential indirect sources of exposure, and thus decide to take greater precautions than you otherwise would. 

Workplace Control Categories

“Workplace controls” for infection prevention, as OSHA calls them, fall into four buckets:

• Engineering controls.Physical measures include using high-efficiency filters, increasing ventilation, and installing physical barriers such as clear plastic sneeze guards.
• Administrative controls.This involves HR policies, safety equipment and procedure training.
• Safe work practices.Examples include “no-touch” trash cans, alcohol-based hand rubs and required handwashing.
• Personal protective equipment (PPE).This includes gloves, goggles, face shields, etc. Note: While there’s no COVID-19-specific OSHA PPE standard, some regulations may apply here. One is general industry PPE standards laid out in 29 CFR 1910 subpart I, governing when the use of gloves, eye, face and respiratory protection is required.

As the above categories indicate, infection prevention measures highlighted by OSHA aren’t limited to frequent handwashing and disinfecting of workplaces. They cover work policies you might not already have in place, for example, when employees should work from home or call in sick.

And while this isn’t suggested by OSHA, you might review your paid sick leave policy to ensure that it doesn’t discourage sick employees (potentially with COVID-19) to report for duty to avoid forfeiting pay.

Other possible policy responses to consider include staggered work shifts to lower the density of employees at work at any given time, and other ways to allow workers to spread out more (“social distance”).

Employees’ Obligations

Employees should be informed of the right person or department to contact if any symptoms consistent with COVID-19 arise, and what will happen next. Ideally, you’ll have multiple options ranging from sending the employee home immediately to moving the employee’s workstation to a more remote site. “Although most worksites do not have specific isolation rooms, designated areas with doors may serve as isolation rooms until potentially sick people can be removed from the worksite,” OSHA suggests.

Not every respiratory infection is COVID-19 related, of course. But OSHA discourages employers from requiring every sick employee to obtain documentation from a healthcare professional before deciding how to handle the situation. Erring on the side of caution is the practical solution because swamped medical offices might not be able to generate such documentation.

“Risk Pyramid”

OSHA’s guidance also features a “risk pyramid” that classifies hazard levels for different kinds of jobs and workplaces. It’s encouraging to note that OSHA believes most workers “will likely fall into the lower or medium exposure risk levels.”

Jobs with “medium” exposure risk include those “that require frequent and/or close contact with people who may be infected but are not known or suspected” to be infected. The least risky (“lower exposure risk”) jobs “are those that do not require contact with people known to be, or suspected of being” infected, nor frequent contact with the general public.”

In contrast, jobs with “very high” exposure risk include healthcare workers and those who perform autopsies working with known or suspected COVID-19 patients. The next level down in the risk spectrum are jobs with just “high” exposure risk. This includes healthcare delivery personnel (for example, ambulance drivers) and medical support staff working around known or suspected COVID-19 patients.

Your infection minimization strategy and policies can be suited to the risk classification of the jobs your employees have. For example, for jobs in the “lower exposure risk” class, special engineering controls are “not recommended,” beyond any that may already be in place for risks not specifically associated with COVID-19. In contrast, some engineering controls are recommended for medium exposure risk jobs. Those include “physical barriers, such as clear plastic sneeze guards, where feasible.”

Final Thoughts

As noted, OSHA’s suggestions are merely that — suggestions and not strict requirements. It’s helpful to read the OSHA guidance to ensure you’re aware of how contagions spread. But for your company, you and your trusted managers and advisors are in the best position to evaluate the risks that exist in your workplace, and how to minimize them.

The novel coronavirus (COVID-19) pandemic has caused difficulties for millions of businesses — from family-owned restaurants and niche manufacturers to multinational airlines and oil companies. As the economy slowly reopens across the country, old ways of doing things clearly won’t work for most business operations.

But there’s a potential upside: Major economic disruptions may provide opportunities for managers and owners who can reject the status quo and “think outside the box.” Over the short run, businesses that “pivot” in a timely manner may be able to stay afloat until things decisively turn around for the better. There also may be long-term opportunities to add value and update your existing business model.

Old Concept, New Twist

Pivoting isn’t a new concept. Some of the most profitable and recognizable businesses in the country changed paths midstream before they truly became successful. 

A classic example is Starbucks. The company didn’t start out as a franchiser of coffee shops. Initially, it sold coffee makers, bulk coffee beans and other items before shifting to its current model of coffee houses with a sense of community, like those in Italy and other European countries. Now it seems as if Starbucks has a coffee shop at every busy intersection in the country — and a loyal following of coffee aficionados.

What makes the current situation different is the sense of urgency and uncertainty. With some states in various phases of slowly reopening, local businesses may have to modify their operations and adapt to the “new normal.” What’s more, astute business people are seizing on pandemic-inspired opportunities for creating goodwill. (See “Successful COVID-19 Pivots,” at right.)

8 Tips to a Successful Pivot Strategy

Pivoting requires a transition period, especially if you’re shifting to a new product line or paradigm. It’s not as easy as snapping your fingers and announcing a change of plans. Here are eight practical suggestions to smooth out the rough edges.

1. Communicate. Let your customers know that you’re still there to serve them and that safety is your main concern. Explain the extra precautions you’re taking — including use of employee face masks, contactless payment methods, and cleaning procedures — to ensure that doing business is a safe experience.

Also, tout new products and services — such as free delivery or curbside pickup — on your website. If customers don’t know what you’re selling, they won’t be buying. Expand the reach of your social media accounts.

2. Modify your business hours. Whether you’re an essential business that’s been open throughout the lockdown or you plan to reopen soon, shorter business hours may be necessary. You’ll need more time for cleaning, and you might need to scale back nonpeak business operations to control labor costs. Many businesses are also carving out special senior-only shopping times, say, between 8 a.m. and 10 a.m. Post changes in your business hours at the physical location, as well as on your website and social media.

3. Adapt to meet new demands and needs.Be creative about serving customers who are staying at home. Can you offer pick-up and/or delivery services? If a car dealership can drive a new vehicle to a buyer’s residence, can you do the same for your products? Or can you use teleconferencing to walk a client through the steps of a purchase?

4. Think ahead.If people can’t buy your services or goods right now, you may be able to encourage them to purchase later. For example, if you own a retail outlet that’s had to close its doors, you might offer gift cards for future purchases at discounted rates. When restrictions in your area have been lifted, customers can cash in. In the meantime, you’ve boosted current cash flow.

5. Update your website.Now may be a good time for a complete overhaul of your website. Test your online order system from the perspective of a customer and consider ways it can be updated to facilitate customer orders.

At the very least, freshen up your site and make it more visually appealing. Include all the latest information, ditch outdated or inaccurate information and fix any broken links. When it makes sense, hire a professional to handle the changes. In addition, if you don’t already have an app, now might be a good time to create one to allow customers to order from your business using their smartphones.

6. Learn a new skill.Faced with necessity, managers and owners may delve into areas they previously hadn’t touched. For instance, if you aren’t proficient in social media, navigate new platforms. Or you could become adept at scheduling pick-ups through software. Or maybe you can do some administrative work that had previously been delegated to others.

7. Protect your employees.Remember that safety concerns should extend to both customersand employees. Let your staff know about the measures you’re taking to keep them clean and safe in the workplace. In times of crisis, owners and managers should practice what they preach, because employees look to leaders to set the example.

Workers also appreciate honesty. So, inform them as soon as possible if layoffs are coming, benefits are being scaled back or bonuses won’t be paid this year. When the economy starts turning around, companies will likely continue to face the long-term talent shortages they’ve experienced in recent years. These challenging times present an opportunity to build long-term loyalty among your workers.  

8. Monitor your pivot strategy regularly.Don’t rely on gut instinct or quarterly financial statements to monitor your company’s performance. Timely, accurate financial reporting is key during volatile market conditions. Consider producing daily or weekly “flash” reports that highlight what’s working and what’s not — and then take corrective measures. For example, you might need to adjust your pricing, staffing or hours of operation to improve profitability.

Which metrics should be included in your company’s flash report? Keep a close watch on revenue, payroll costs, and sources (and uses) of cash. Your CPA can help determine what other metrics would be most beneficial in your situation.

For example, a restaurant’s flash report might break down revenue by day of the week and compare those numbers to the previous week, the same week in the previous year and the budget. Other important metrics for a restaurant might include average order size, food costs, gross margin and spoilage.

A Brave New World

During the COVID-19 crisis, there’s no universal pivot strategy that will work for every business. Contact your financial, tax and HR advisors to help identify, monitor and seize potential opportunities in your industry.

Many states are beginning to reopen in phases and employees are being called back to work. In general, most states have provisions that require workers receiving unemployment benefits to be actively seeking work, but many states relaxed that requirement due to the coronavirus (COVID-19) pandemic. Some states are now warning unemployment benefit recipients that if their employers are reopening but they refuse to go back to work, they’ll be deemed to have refused work and will be ineligible for unemployment benefits as a result.

Disqualification

State unemployment laws generally disqualify an individual from claiming unemployment benefits if they refuse suitable work. Being called back to work and refusing may fall under this disqualification category. 

Here’s some information about how eight states have addressed this issue.

1. Iowa. The Iowa Workforce Development (IWD) announced that businesses should report employees who refuse to go back to work “without good reason,” or who quit their jobs on a IWD website form. Previously, the IWD issued a notice that employees, who were laid off as a result of COVID-19 but who refuse to go back to work when recalled by their employers, will lose unemployment insurance (UI) benefits.

An exception to this loss-of-UI benefit rule applies in some specified cases, such as if an employee or a member of an employee’s household has tested positive for COVID-19 or has childcare or transportation issues related to COVID-19. “Refusing to return to work when recalled for any other reason, or in an attempt to continue to draw unemployment benefits will be considered a ‘voluntary quit’ which would disqualify a claimant from receiving benefits, including the Federal Pandemic Unemployment Compensation benefit of $600/weekly,” the announcement stated.For more information, visit: https://www.iowaworkforcedevelopment.gov/iwd-announces-guidance-unemployment%C2%A0benefits-iowans-who-refuse-return-work-without-good-reason-when

2. Minnesota. In a question on its website, the Minnesota Department of Employment and Economic Development states that if an employer reopens and an employee is able to return to work, the employee must do so. “Refusing to return to work may affect your continued eligibility for unemployment benefits,” the department states. 

3. Missouri. Generally, unemployment benefit recipients will be deemed ineligible for benefits if they refuse suitable work. However, the Missouri Department of Labor issued a series of questions and answers explaining when an employee recalled by their employer still qualifies for benefits due to COVID-19. These exceptions include: 1) the worker has tested positive for COVID-19 and is still experiencing symptoms; 2) the worker has recovered but it resulted in medical complications rendering the employee to be unable to perform essential job duties; 3) a member of the worker’s household has been diagnosed with COVID-19; 4) the worker provides care of a member of the household who was diagnosed with COVID-19; 5) the worker doesn’t have childcare due to COVID-19; or 6) the worker doesn’t have transportation due to COVID-19.

However, U.S. Department of Labor’s guidance states that general fear of COVID-19 won’t support continuation of unemployment benefits under regular unemployment or any of the federally funded programs available under the CARES Act. If an employer provides an employee with suitable work, and the employee chooses not to return to work, then unemployment benefits will cease. Employers should report quits or work refusals as soon as possible. For more information, visit: https://labor.mo.gov/coronavirus

4. Oklahoma. During a series of video meetings with businesses, Oklahoma Secretary of Commerce and Workforce Development Sean Kouplen said that workers who are receiving unemployment benefits can lose those funds if they refuse job offers from their former employers as the state reopens. He added that it’s likely a person would have to return to work or lose their unemployment benefits if: 1) the person isn’t considered part of a vulnerable population to COVID-19; 2) the job offered has the same or greater pay; and 3) the business is taking steps to mitigate the spread of the disease at the workplace.

However, Kouplen acknowledged that clarity is needed to adjudicate these decisions and the Oklahoma Employment Security Commission is seeking guidance from the U.S. Department of Labor.

5. South Carolina. The South Carolina Department of Employment and Workforce (SCDEW) posted a notice on its website advising employers that individuals who turn down offers of suitable work aren’t eligible for UI benefits during that week. If an employer has offered an individual a job and he or she refuses it, the employer is advised to report the incident to SCDEW through an on-line portal.

The SCDEW offers a link to an Employer Refusal of Job Offer Guide. 

6. Tennessee. Governor Bill Lee issued Executive Order No. 30 that permits some Tennesseans to return to work under certain guidelines. The Tennessee Department of Labor and Workforce Development states on its website that if unemployment benefit recipients fail to return to work when called, or fail to accept suitable work when offered, they’re no longer eligible for unemployment benefits. “Any benefit you collect after refusing work will result in an overpayment and must be paid back,” it adds.

For more information: https://lwdsupport.tn.gov/hc/en-us/articles/360045580014-What-happens-if-I-do-not-return-to-my-job-when-called-or-do-not-accept-suitable-work-when-offered-

7. Texas. The Texas Workforce Commission issued guidance for unemployment claimants. While generally unemployment benefits are denied to recipients who refuse suitable work, as a result of COVID-19, a worker will remain eligible for benefits after refusing to return to work if the worker is: 1) at high risk (such as people 65 years or older); 2) caring for a household member who is at high risk; 3) diagnosed with COVID-19 and hasn’t recovered; 4) caring for a family member with COVID-19 who hasn’t recovered and 14 days haven’t yet passed; 5) is under a 14-day quarantine due to close contact exposure to COVID-19; and 6) caring for a child whose school or daycare is closed and no alternatives are available.

To read the Texas guidance, visit: https://www.twc.texas.gov/jobseekers/unemployment-benefits-services

8. Vermont. On its website, the Vermont Department of Labor reminded unemployment claimants that they’re no longer eligible for UI benefits if their employer recalls them to work and they refuse to return after a temporary furlough related to COVID-19. Here is a question from a benefit recipient, along with the department’s answer:

Q. My employer asked me to come back to work but I do not feel safe going back. Can I not go back to work and keep filing for unemployment?

A. Failure to accept work when you are able and available will disqualify you for unemployment benefits.

This includes employees who refuse to continue employment provided by the Paycheck Protection Program. If an employer has offered work to a temporarily furloughed employee, and the employee has refused to return to work, the employer can file a Fraud Report online at: https://labor.vermont.gov/form/refusal-work-fraud-report

A Changing Environment

The unique circumstances that COVID-19 has brought on have caused guidance from state agencies to change. Check with your payroll and tax advisors for the latest information in your situation.

Businesses across America that have been shut down due to the novel coronavirus (COVID-19) pandemic may now (or soon) have the option to reopen. Since no two businesses are alike — even those in the same industry and location — what makes sense for one company could be a disaster for another. But many questions that business owners are asking could be applicable to all organizations. Here are 10 questions to keep in mind as you decide whether and how to open up.

1. How will customers respond if you open your doors now? You can only make an educated guess, but this is perhaps the most crucial question of all. Let’s say you go to a lot of trouble and expense opening up, while assuming financial and health-related risks. If nobody seems to notice, that’s a big problem.
2. Can you modify your business model to improve your chances of success when you reopen? As we all know, many restaurants have been able to reopen (or remain open) by going into the carryout business. How might you change your business to accommodate customers whose needs or behaviors are different today? For example, would adding a delivery service be productive? Could you bolster your web presence to increase merchandise sales?
3. Should you offer new products and services? The pandemic is sure to change certain customer preferences and increase demand for products or services you could offer. What might they be?
4. Will your supply chain be ready to accommodate your needs? If you’re in a retail or manufacturing industry, there’s little point in reopening if you won’t have enough inventory to meet demand.
5. Will you need to do special promotions to lure customers back? Holding a “going back into business sale” might work for some enterprises. It may take an ambitious marketing effort to let former and prospective customers know you’re ready to serve them. How can you get through to your former customers?
6. What physical changes will you need to make in your business to keep employees and customers safe? Clear Plexiglas barriers are sprouting up in businesses everywhere to impede the spread of COVID-19. So, too, are measures to enforce social distancing, as well as enhanced cleaning services. Are you able to make such workplace adaptations?
7. Will your employees feel safe returning to your workplace? Already, some employees who have been asked to return to their former jobsites are balking due to fears of becoming infected. Some, including older workers and those with health conditions that put them at extra risk, may have legitimate concerns. Some of those employees may be forfeiting their jobs in taking that stance if they’re collecting unemployment benefits. And some employees may have legally protected rights to keep their jobs if you can make a “reasonable accommodation” (under the Americans with Disabilities Act) that makes them comfortable to return to work. If you are facing these issues, consult with your employment attorney.
8. Are you prepared to accept the risk that employees may contract COVID-19 at work? In terms of legal liability, you might be protected by heeding the advice of the Centers for Disease Control and Prevention and implementing their recommended safety measures, plus your own common sense. Be sure to document your efforts. If after returning to work, someone becomes seriously ill and it appears to be due to an exposure at your workplace, you may need to provide this documentation. Of course, even if you don’t face legal challenges, the predominant concern is the health and safety of your employees.
9. What are other businesses, including competitors, doing in your area? If you’re on the fence about whether to reopen, but your competitors are doing just that, you need to consider the risk of a long-term or permanent loss of market share. This assumes that customers are ready to return to the marketplace for your products or services.
10. What’s the cost of delay? If you have a lot of ongoing fixed expenses, such as rent, insurance, taxes and borrowing costs, every day you take in zero revenue puts you deeper in the hole. If instead your fixed costs are minimal, the current prospects of a rapid return to your pre-pandemic pace of business are slim, and competitors aren’t nipping at your heels, the cost of holding off on reopening may be small.

Final Thoughts

In the end, the choice you face may not be an all-or-nothing proposition. That is, you can begin to open the doors to your business a crack and wait to see what happens, before ramping up to your pre-pandemic operating capacity. That would certainly be a more prudent approach than staying closed or fully reopening.

The questions from employers continue, as more and more standard employee benefit tasks come due. In a time when the novel coronavirus (COVID-19) has changed so much, employers are unsure what’s due and when. Here’s one question asked by an employer recently.

Q. Our company sponsors several ERISA employee benefit plans (including retirement, health, and other welfare plans) that are required to file Form 5500, “Annual Return/Report of Employee Benefit Plan.” We’ve heard that, due to COVID-19, an extension has been granted for Form 5500 filings — but we’ve also heard that many plans won’t benefit from the extension. Can you help us sort out whether our plans can take advantage of this extension?

A. A limited extension for filing Form 5500 has been granted in connection with the COVID-19 emergency, but it doesn’t extend the deadline for 2019 calendar year plans. Under guidance issued in April 2020, Form 5500 filings that would otherwise be due on or after April 1 and before July 15, 2020, are now due July 15, 2020. The relief, which applies under tax law and ERISA, is automatic — no extension form, letter, or other request needs to be filed. The extension’s application to each of your plans depends on the plan year.

The extension automatically applies to Form 5500 filings for plan years that ended in September, October, or November 2019 because the regular due dates for these filings would be, respectively, April 30, June 1 (because May 31 is a Sunday), and June 30, 2020. These filings are now due July 15, 2020.

An extension beyond July 15, 2020, is still available, using Form 5558, but the 2 1/2 month extension period will be measured from the regular due date rather than July 15. For example, for plan years ending October 31, 2019, Form 5558 could be used to extend the due date to August 17, 2020 (August 15 falls on a Saturday), which is 2 1/2 months after the regular June 1 due date. Ordinarily, Form 5558 must be filed by the regular due date. Due to the automatic extension, filing Form 5558 by July 15, 2020, would appear to be acceptable.

The COVID-19 automatic extension also applies to Form 5500 deadlines that fall within the relief window due to a previously filed extension request. For example, for a plan year that ended June 30, 2019, the regular Form 5500 due date was January 30, 2020, and the extended due date obtained by timely filing Form 5558 was April 15, 2020. That due date is automatically extended to July 15, 2020. No further extension is available by filing another Form 5558.

The due date for 2019 Form 5500 filings for calendar year plans is July 31, 2020 — outside the relief window. Accordingly, the automatic extension doesn’t apply to calendar-year plan filings. Those plans may, of course, obtain a regular extension by timely filing Form 5558.

Contact your employee benefits advisor if you have questions about your situation.

The information contained in this post may not reflect the most current developments, as the subject matter is extremely fluid and constantly changing. Please continue to monitor Yeo & Yeo’s COVID-19 Resource Center for ongoing developments. Readers are also cautioned against taking any action based on information contained herein without first seeking professional advice.

It may seem unfair or inequitable to owe a substantial tax bill on an inheritance that proves to be worthless shortly after it’s received. To correct supposed injustices resulting from extreme fluctuations in market valuation, Congress added the alternative valuation date provision. This intervention was made after the stock market crash of 1929, to provide relief for post-death decreases in the value of estate property.

Congress initially provided for an alternative valuation date one year after the decedent’s death. However, in 1970, Congress amended the alternative valuation date to six months after the decedent’s death, because it changed the deadline for filing estate tax returns from 15 months to nine months.

Recently, a bill, known as the Fair Tax Act of 2019, was introduced in the U.S. House to repeal the estate tax altogether. However, in the midst of the novel coronavirus (COVID-19) crisis, it’s unlikely that proposed legislation has enough support to be enacted any time soon.

Are you seeking a valuation for your business? There’s no one-size-fits-all approach to estimating the short- and long-term financial impacts of the pandemic. Many variables remain unclear in the midst of the crisis. Contact Yeo & Yeo’s valuation professionals to determine what’s appropriate in your situation.

As Carter (see, From Fraud to Pandemic: How Valuators Handle Subsequent Events) demonstrates, the valuation date is a critical decision when valuing a business. It typically coincides with the subject company’s quarterly or annual financial statement date. For that reason, December 31 is a common cutoff for data that’s used to value calendar-year businesses, especially for smaller entities that don’t issue interim statements.

Professionals consider external market conditions on the valuation date when valuing a business. Today, the novel coronavirus (COVID-19) outbreak is a developing crisis that’s having an ongoing effect on many types of businesses. What exactly was “known or knowable” about COVID-19 as of December 31, 2019 (or March 31, 2020)? To answer this question, consider how hypothetical investors would have perceived the situation on the valuation date.

The following timeline provides insight into what public knew on various dates through April:

Timeline of COVID-19-Related Milestones

December 31, 2019 – April 16, 2020

There is universal date for determining when COVID-19 was known or knowable. COVID-19 probably wasn’t on the radar for most U.S. businesses or investors at year end. Notable events for businesses operating in the United States might include January 30 (when the WHO declared COVID-19 a public health emergency, February 24 (when the stock markets first experienced a major decline), March 16 (when Trump issued social distancing guidance), and March 27 (when the federal government passed a massive financial relief package).

It’s important for valuators to evaluate economic conditions within the subject company’s industry and region, too. The pandemic has devastated many industries, such as airlines, hotels, restaurants and specialty retail. But some companies — such as distilleries, delivery services and grocers — are struggling to keep up with surging demand. In addition, some parts of the country have suffered more financial distress from COVID-19 than others — and the timing of the outbreak may vary regionally.

There’s no one-size-fits-all approach to estimating the short- and long-term financial impacts of the pandemic. Many variables remain unclear in the midst of the crisis. Contact Yeo & Yeo’s valuation professionals to determine what’s appropriate in your situation.

Fraud can paralyze a business, large or small. In some cases, a business that falls victim to employee theft can never fully recover. Fraud scams often take years to detect, so they may not have an immediate impact on stock price.

When valuing a business, professionals must put themselves in the shoes of hypothetical buyers and sellers and consider only what was “known or knowable” on the valuation date. In a recent U.S. District Court case, the estate filed a tax return based on the exchange price of bank stock before the company disclosed a devastating fraud scam. After the public disclosure of the incident, the stock became worthless. Here’s why the estate filed a refund claim — and the court denied its claim.

Background

For estate and gift tax purposes, fair market value is defined in IRS Revenue Ruling 59-60 as: “The amount at which the property would change hands between a willing buyer and willing seller, when the former is not under any compulsion to buy, and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.”

The fair market value of a decedent’s property may be calculated on either:

• The date of death, or
• An “alternative valuation date,” occurring six months from the decedent’s death.

In general, the most reliable evidence of fair market value of corporate stock is the price paid on an active exchange, such as the New York Stock Exchange. The price reflects what public investors knew on that specific date.

Refund Claim

In Carter, the estate chose the alternative valuation date (March 21, 2008) to value its interest in Colonial BancGroup. The estate argued that the stock was worthless on the valuation date due to a multimillion-dollar “sham mortgage” scheme perpetrated by one of its customers.

In 2013 and 2016, a representative for the estate filed an amended return and sought a refund of allegedly overpaid estate tax. The court denied her claim for various reasons.

Timeline of Events

The following three relevant dates in this case:

1. September 21, 2007, the date of death.
2. March 21, 2008, the six-month alternative valuation date.
3. August 3, 2009, the date that Colonial BancGroup publicly disclosed the fraud incident, causing the stock value to plummet.

The market for Colonial BancGroup didn’t collapse until more than a year after the six-month alternative valuation date. Until the fraud announcement affected the exchange price, the shareholders were unaware of the scam, and it exhibited no effect upon the stock’s fair market value.

Court Decision

When valuing a business, it’s important to differentiate between events that affect value and those that provide an indication of the company’s value.

A third-party buyout that happens a year after the valuation date is an example of an event that provides an indication of what the business is worth. These types of subsequent events might be used to provide evidence of fair market value, assuming that market conditions remain consistent with conditions on the valuation date and the transaction occurs at arm’s length.

However, in general, when a subsequent event affects the stock price, a valuation expert can factor it into his or her analysis only if it was “known or knowable” as of the valuation date. In Carter, the fraud scam adversely affected Colonial BancGroup’s stock price — but not until more than a year after the valuation date. The company’s shareholders were unaware of the fraud and, therefore, didn’t factor it into their investment decisions.

The U.S. District Court for the Northern District of Alabama reasoned that, if the estate had sold the stock on the valuation date, it would have received the market rate for the stock as of that date. Therefore, the stock’s value was correctly reported on the original estate tax return, and the estate wasn’t entitled to a refund. 

In Carter, the court concluded that “the fair market valuation method does not include an exception for fraudulent or criminal actions not known to the public, even if those actions lower or destroy the stock’s value.” The court also noted that, while it was “sympathetic” to the estate’s circumstances, it was unwilling invoke its equitable powers to provide relief.

We Can Help

It’s important to disclose to your business valuation expert any subsequent event that may affect value or provide an indication of value. They can determine whether it’s appropriate to factor the event into the valuation analysis. Contact your Yeo & Yeo business valuation advisor for more information.

Carter v. United States, No. 18-cv-01380-HNJ, N.D. Ala. Aug. 9, 2019

When you find yourself in the middle of a crisis, the last thing you are thinking about is your tax situation. However, if you have been impacted by a sudden, unexpected disaster, tax consequences should be on your radar. When you suffer damage or a total loss of your home or personal property from an event that is attributable to a federally declared disaster, you may be able to reduce your taxes in the year the event occurred.

The tax deduction due to a casualty loss, attributable to a federally declared disaster, is claimed as an itemized deduction on Schedule A of your tax return. The loss is calculated based on the lesser of your adjusted basis in the property or the decrease in the fair market value of the property as a result of the casualty. You must reduce the amount of the loss by any insurance or other reimbursement received for the loss. Once the total loss is calculated, there is a $100 reduction to the loss and a second reduction equal to 10 percent of your adjusted gross income in the year of the loss. Contact your Yeo & Yeo tax professional for help with tax planning and assessing if there is a potential for tax savings due to the loss.

If you believe you have incurred a substantial loss and plan to claim the loss on your tax return, you will need to support your claim with documentation. That information will be easier to gather as you assess damages and document the loss in the present-day rather than next year as you pull together all your tax documents. The documentation required to substantiate your loss is similar to the items needed to make an insurance claim. Some examples are photos with a time and date stamp, an itemized list of the items lost along with their purchase price and current value, and paid invoices from contractors or restoration companies.

Being aware of the tax impact and thinking proactively could save you tax dollars and reduce the amount of loss incurred. Planning now could prevent another disaster during tax time.

The USDA’s Coronavirus Food Assistance Program (CFAP) will provide $19 billion in direct relief for agricultural producers, using funding from the Coronavirus Aid, Relief, and Economic Security Act, the Families First Coronavirus Response Act, and other USDA authorities.

Local Farm Service Agency offices will begin accepting CFAP applications on May 26. Details about completing the application are available on the USDA website.

Eligible producers of specified agricultural commodities who have suffered a five percent-or-greater price decline as a result of the COVID-19 pandemic (from mid-January to mid-April), and who face substantial marketing costs for inventories, are eligible for CFAP payments. The marketing costs are associated with lower prices given significant declines in demand, surplus production, or disruptions to shipping patterns and the orderly marketing of commodities.

To be eligible for payments, a person or legal entity must have an average adjusted gross income of less than $900,000 for tax years 2016, 2017, and 2018. However, if 75 percent of their adjusted gross income comes from farming, ranching, or forestry, the AGI limit of $900,000 does not apply.

CFAP is not a loan program, and there is no cost to apply. The application deadline is August 28, 2020. Visit the USDA website for details about eligible commodities, payment calculations, how to apply, payment limits, resources and more. Also, refer to the CFAP Frequently Asked Questions.

Please contact Yeo & Yeo’s Agribusiness Services Group if you need assistance with answering questions on the application.

The information contained in this post may not reflect the most current developments, as the subject matter is extremely fluid and constantly changing. Please continue to monitor Yeo & Yeo’s COVID-19 Resource Center for ongoing developments. Readers are also cautioned against taking any action based on information contained herein without first seeking professional advice.

As the novel coronavirus (COVID-19) spread throughout the country this March and April, many states restricted the movement of residents while allowing those in “essential” businesses to continue working. Generally, construction companies have been deemed essential for this purpose — leaving contractors to grapple with the logistics.

Although nothing is certain at this point, some standard COVID-19 operating procedures have been established by American General Contractors (AGC), one of the construction industry’s leading associations. Here’s an overview of what you can do to keep workers and others safe in the current hazardous environment.

General Policies and Practices

First and foremost, if someone on your job site or in your office — whether a manager, worker or visitor — shows COVID-19 symptoms, that person should be sent home immediately. But hopefully, you won’t have to deal with that situation.

To keep employees safe from infection, they should work at least six feet apart and meetings should be limited to a maximum of ten people. Limit or eliminate many face-to-face meetings by using electronic devices or phones and allow only necessary employees to enter trailers. Also, stagger breaks and lunches to avoid close contact among crew members. 

You might also want to consider dividing crews into two groups so that even if one team is required to quarantine, the other team can continue the work. These teams should work separately during the job’s duration. Be sure to use discretion when substituting workers or allowing workers to change teams.

If access to running water onsite is impracticable, provide your crews with alcohol-based hand sanitizers or disinfectant wipes. Workers should use these cleaning products on tools they share. Follow the tool manufacturers’ recommendations for proper cleaning techniques. Finally, encourage workers to wear facial masks. Because N95 respirators are in short supply, try to limit practices that produce heavy dust.

Field Specifics

Those are general outlines for construction work safety during the COVID-19 pandemic. Now let’s dig deeper into specific AGC-recommended practices.

Transportation. Discourage ridesharing to job sites, but if workers must share a vehicle, ensure adequate ventilation. And, if possible, assign crew members to drive the same truck or piece of equipment. Clean the interior thoroughly before switching operators.

Occupied buildings. Homes and other occupied structures present unique challenges. You should discuss and evaluate the risks with the building’s owner before starting the job. Have workers sanitize work areas upon arrival, throughout the day and immediately before they leave for the day. They should also wash or sanitize hands immediately before and after work.

Job site visitors. Allow visitors to the job site only when necessary. Before they enter a work area, ask a series of screening questions: 

• Have you tested positive for COVID-19?
• Are you currently experiencing any respiratory illness symptoms such as cough, shortness of breath or fever?
• Have you been in close contact with anyone who has tested positive for COVID-19?
• Have you recently traveled abroad?
• Have you been in close contact with anyone who has recently traveled abroad and is also exhibiting respiratory illness symptoms?

If a visitor answers “yes” to any of these questions, deny him or her access to your site.

Site deliveries. It’s OK to permit deliveries but arrange them so there’s minimal physical contact. For example, have delivery personnel remain in their vehicles while your workers unload the trucks.

Personal protective equipment. Besides providing workers with standard construction safety equipment such as hard hats and goggles, make sure they have personal protection equipment (PPE) to help guard against COVID-19. For example, even if the job doesn’t normally require gloves, distribute latex or other suitable gloves and require workers to wear them at all times on site.

N95 respirators. At this writing, the Centers for Disease Control and Prevention (CDC) hasn’t recommended that healthy people wear N95 respirators to prevent the spread of COVID-19. The CDC has said that employees should wear N95 respirators if a specific job requires it. But because N95 respirators are in high demand by health care workers and may not be easy to source, crews should: 

• Wear nonmedical grade masks while working,
• Reduce dust with engineering and work practice controls — specifically, water delivery and dust collection systems.
• Limit exposure time, if possible.
• Protect nonessential workers and bystanders by isolating workers in dusty operations with a containment structure.
• Institute a rigorous maintenance program to reduce general dust levels onsite.

Adaption Is Critical

As the situation evolves, construction firms must adapt, instituting safety measures that protect workers and visitors while sustaining operations. Take the long-term approach to this ongoing pandemic.

The information contained in this post may not reflect the most current developments, as the subject matter is extremely fluid and constantly changing. Please continue to monitor Yeo & Yeo’s COVID-19 Resource Center for ongoing developments. Readers are also cautioned against taking any action based on information contained herein without first seeking professional advice.

Accounting Today’s annual ranking of the top CPA firms in the country recognized Yeo & Yeo CPAs & Business Consultants as a 2020 regional leader. Based on annual net revenue from 2019, Yeo & Yeo was ranked 16th in the Great Lakes region – which includes Illinois, Indiana, Michigan, Ohio and Wisconsin – and 108th nationally. The publication also recognized Yeo & Yeo among Firms to Watch beyond the top 100.

“We are honored to be continuously recognized as a top-performing firm by one of the industry’s most influential publications,” said Thomas E. Hollerback, President & CEO. “Being recognized by Accounting Today speaks to the commitment our teams make to perform to our highest abilities and provide the highest quality services to our clients.”

The firm has nine offices throughout Michigan and more than 200 employees. Yeo & Yeo’s companies include Yeo & Yeo Technology, Yeo & Yeo Medical Billing & Consulting, and Yeo & Yeo Wealth Management.

Many news outlets reported on Wimbledon’s pandemic insurance policy that is to pay out $141 million on an annual $2 million policy!

During these unfamiliar times, this serves as good reminder that nonprofit organizations should continually evaluate their insurance needs to protect against the unexpected.

A best practice is to review insurance policies and coverages annually with your insurance advisor and pay attention to the nuances of the policies and how they pay out in the event of a claim.

Common policies nonprofits should be evaluating annually include, but are not limited to:

• Cybersecurity – now even more important with increased work-from-home initiatives
• Directors and Officers coverage
• Workers’ compensation
• Employment practices liability
• Property and casualty
• Special event insurance
• Accident insurance for volunteers
• Auto insurance
• Umbrella policy

If you have questions or need assistance, contact your local Yeo & Yeo professional.

As we head into uncharted waters and hope for a semblance of normalcy and routine to come back to our lives, I thought it would be a good idea to revisit some accounting rules and situations you might be dealing with for the first time or in a long time. Some of these are just reminders of what you are currently doing, and others are things you might have placed on a back burner or just plain forgot about. When I think about this section, I think of that song from The Breakfast Club by Simple Minds, “Don’t You Forget About Me.”

Now that you are singing along, let’s get started.

• Extraordinary/Special items – These items are unusual in nature and infrequent, so they could be necessary in some cases where there is a direct impact on the organization.
• Fair Value – With the dramatic changes in the market, many organizations will have significant fluctuations in the market value of investments, retirement plans, Other Post-Employment Benefit Trusts and so on. Especially when the valuation period coincides with an upcoming fiscal year, there will be some impact. Those that are lucky enough to have a year-end that includes part of 2019 should have a little less impact, but it will still be significant.
• Going Concern – The financial health of your organization will need to be evaluated. It is better to do it before your auditors start asking you about it. Many of you have already done this in preparation for communications with your boards, employees, and communities. If your organization was struggling before the pandemic, it isn’t likely going to be better anytime soon. Your auditors will evaluate this in both the planning and completion stages of the audit.
• Expense/Expenditure Recognition – If part of your plan for cash flow is to delay payments or skip payments, remember there are rules in place for those payments on the full accrual method of accounting and the modified accrual basis of accounting.
• Uncollectable Accounts – Many of our citizens and customers will be facing cash flow challenges and, sadly, many businesses will not ever reopen. Also, Executive Orders have forced governmental entities to turn on water that was shut off for nonpayment, creating more concerns for local providers of water to the public.
• Violations of Debt/Payment Covenants – When these situations arise, make sure you review all your information to verify that you have everything you need before making this decision. Failing to make a payment will not impact your financial statements but will require additional disclosures and potential penalties from the lending institutions.
• Sale or Pledging Current or Future Receivables – Some may have done this for cash flow reasons, and I am thinking people are looking under every stone when they are struggling. If you are considering this, please make sure to research it in advance.
• Capital Asset Impairment – Vacant facilities, partial construction or renovation, and new closures will need to be evaluated for fair value and reviewed for impairment.
• Debt Restructuring – Interest rates are low and, if opportunities arise, this might be a time to review this and the rules related to scheduling out your payments. This is an area that could be challenging in the coming years.
• Subsequent Events – Almost every set of financial statements being issued right now will likely have some sort of subsequent event note for the pandemic. This will be more detailed as we fully understand the long-term impact this will have on our state and local governments as well as our school districts.
• Management’s Discussion and Analysis – Make sure that you are not just updating information and rolling this forward as there will likely be drastic changes in comparable information. This is your opportunity to speak on the issue through the financial statements as it relates to the current year and future budgets.

Certainly, other things can be considered, and every community has their own situations and challenges. Rest assured, we are here to help you any way we can. Please reach out to any of your Yeo & Yeo professionals – we would love to talk with you about anything, not just the items on this list. Thank you and we look forward to seeing you again soon!

Imagine this scenario: A company’s controller is hospitalized for the novel coronavirus (COVID-19), and she’s the only person inside the company who knows how its accounting and payroll software works. She also is the only person with check signing authority, besides the owner, who is in lockdown at his second home out of state. Meanwhile, payroll needs to be processed soon and unpaid bills are piling up.

Of course the health of the controller is what’s most important, but this situation also highlights the importance of cross-training your staff to handle critical tasks. Doing so offers numerous benefits that generally outweigh the investment in the time it takes to get employees up to speed.

Why cross-train?

Whether due to illness, resignation, vacation or family leave, accounting personnel may sometimes be unavailable to perform their job duties. The most obvious benefit to cross-training is having a knowledgeable, flexible staff who can rise to the occasion when a staff member is out.

Another benefit is that cross-training nurtures a team-oriented environment. If a staff member has a vested interest in the jobs of others, he or she likely will better understand the department’s overall business processes — and this, ultimately, both improves productivity and encourages collaboration.

Cross-training also facilitates internal promotions because employees will already know the challenges of, and skills needed for, an open position. In addition, cross-trained employees are generally better-rounded and feel more useful.

Additionally, the accounting department is at high risk for fraud, especially payment tampering and billing scams, according to the 2020 Report to the Nations by the Association of Certified Fraud Examiners (ACFE). If employees are familiar with each other’s duties and take over when a co-worker calls in sick or takes vacation, it creates a system of checks and balances that may help deter dishonest behaviors. Cross-training, plus mandatory vacation policies and regular job rotation, equals strong internal controls in the accounting department.

How to cross-train?

The best way to cross-train is usually to have employees take turns at each other’s jobs. The learning itself need not be overly in-depth. Just knowing the basic, everyday duties of a co-worker’s position can help tremendously in the event of a lengthy or unexpected absence.

Whether personnel switch duties for one day or one week, they’ll be better prepared to take over important responsibilities when the time arises. Also, encourage your CFO and controller to informally “reverse-train” within the department. This will prepare them to fill in or train others in the event of an unexpected employee loss or absence.

When to start?

Regardless of when your accounting team returns to the office, get started with cross-training now — much training can be done virtually if necessary. Then make it an ongoing process. We can help you cross-train your accounting personnel to minimize business interruptions and deter fraud, along with implementing other internal control procedures.

The information contained in this post may not reflect the most current developments, as the subject matter is extremely fluid and constantly changing. Please continue to monitor Yeo & Yeo’s COVID-19 Resource Center for ongoing developments. Readers are also cautioned against taking any action based on information contained herein without first seeking professional advice.

© 2020