Start Creating a Liquidity Policy Now

Numerous changes are coming for nonprofit financial statements with ASU 2016-14 Non-Profit Entities Presentation of Financial Statements of Non-Profit Entities. One of those changes is a required footnote on liquidity, which will be effective for years beginning after December 15, 2017.

There is an unwritten premise within this standard that nonprofits are already managing their liquidity. We believe many nonprofits are managing their liquidity, but may not be doing so in a formal, documented manner or following a formal liquidity policy. That may lead to confusion when creating the liquidity policy footnote. Note that the liquidity policy footnote does not need to be comparative in the first year that it is implemented; in subsequent years it may be comparative.

Reconciling financial assets

As part of the footnote on liquidity, a nonprofit will need to provide information reconciling financial assets at year-end to those financial assets available to meet cash needs for general expenditures within one year. This starts with all financial assets. Those are assets that are cash, evidence of an ownership interest in an entity, or a contract that conveys to one entity the right to do either of the following: a) receive cash or another financial instrument from another entity or b) exchange other financial instruments on potentially favorable terms with the second entity. This means for most nonprofits that financial assets include cash, investments (whether restricted or not), accounts receivable, contributions receivable, and notes receivable. This does not include all current assets (for example inventory and prepaid expenses are not financial assets), nor is it only current assets (for example investments or the beneficial interest in a trust may be long-term, but they are still financial assets).

In coming up with the financial assets available to meet cash needs for general expenditures within one year, back out numerous items.

• Which financial assets are restricted by the donor with a time restriction? For example, contributions receivable in more than one year are part of financial assets but backed out in determining financial assets available to meet cash needs for general expenditures within one year.
• Also backed out are financial assets that are restricted by the donor for purpose restrictions that are narrower than general expenditures. So a contribution receivable due within one year, but restricted for XYZ program only, would be backed out.
• If the nonprofit can’t truly access the financial asset, that would also be backed out. For example, a nonprofit may have a beneficial interest in assets of another which is a long-term financial asset that is not per se restricted; however, it is in a separate legal entity whereby the nonprofit cannot simply request that entire amount and receive it.
• Board designations also must be backed out. For example, if the board has designated certain investments to be a quasi-endowment, those investments must be backed out.
• Also, the board may have set aside amounts for a liquidity reserve. Unless they have taken formal action to appropriate the use of that liquidity reserve in the next fiscal year (i.e., budgeted to use it), it is backed out from financial assets available to meet cash needs for general expenditures within one year.

More about board-designated liquidity reserves

The board-designated liquidity reserve is very confusing, so let’s explain it a little more. The board takes action to designate an amount as a liquidity reserve. Because it is board-designated, it is not to be used (based on the board’s policy) to fund current expenditures; it is to be set aside and hopefully grow so that if something occurs in the future, there is a rainy day fund. It is board-designated, so at any time the board can undo their designation. However, the standards are taking the perspective that unless the board has appropriated the liquidity reserve (so budgeted to use that reserve in the next fiscal year), it is not available to meet needs for general expenditures in the next year. Setting aside a board-designated amount for liquidity reserves will make your quantitative liquidity disclosure look worse!

Provide qualitative information too

However, in addition to the quantitative information on liquidity, a nonprofit shall disclose qualitative information that is useful in assessing the entity’s liquidity and that communicates how the nonprofit manages its liquid resources available to meet cash needs for general expenditures within one year of the date of the statement of financial position.

This is where a nonprofit tells its story about how it ensures it can pay its bills as they come due. This is where the nonprofit can explain that they have a liquidity reserve which to date has not been appropriated, but because it is invested in highly liquid assets, it could be appropriated at any point in time if necessary to pay bills as they become due. This is where the nonprofit can describe that they have access to a line of credit that can be drawn upon as needed to pay bills when they become due. The nonprofit can explain how it invests extra funds and how it determines whether to purchase short-term investments that are easily sold or longer term investments that have more criteria for redemption (such as alternative investments or longer term CDs). This is also where the nonprofit can explain that although some of the assets do not meet the requirements to be included in financial assets available to meet cash needs for general expenditures within one year, they still are expected to help pay the next year’s expenses. For example, explain that contributions receivable are subject to restrictions on use, but the budget calls for expenses related to those restricted resources to be paid during the year.

How does the liquidity disclosure compare with the going concern disclosure?

There is a relationship between this liquidity disclosure and FASB’s new going concern disclosure. The liquidity disclosure is technically how the nonprofit will pay general expenses in the next year (after the balance sheet date), whereas the going concern disclosure is how the nonprofit will pay bills as they become due within one year of the date the financial statements are available to be issued. However, the policies that assist with liquidity necessarily assist in showing that the entity is a going concern.

Setting goals and policies for liquidity

How should the nonprofit be managing liquidity? What should be in the liquidity policy? Whether or not the board officially designates a reserve for liquidity, in managing liquidity, it is a good idea to have a goal for a certain number of month’s expenditures to have available on hand in cash, cash equivalents, or highly liquid investments. The number of months varies greatly based on the nonprofit. How consistent are the revenues both from year to year and from month to month? The more consistent monthly and yearly the revenues are, the more likely this goal is to be two to three months’ of expenses. The more variable the revenues are from year to year, or even month to month, the longer the period for the goal.

All nonprofits should create a budget. However, liquidity management is more than just budgeting. It is looking on a month-by-month basis to budget for cash inflows and outflows and seeing which months have negative cash flows, and therefore need to rely on some cash reserves, and which months have extra cash that could be invested. In calculating this cash flow projection, management needs to address how to survive those times with negative cash flows, whether line of credit, utilizing liquidity reserves, reducing expenditures, etc. Management also needs to address what to do with excess cash; should it go into a CD, short-term investments, long-term investments, etc.?

Get a head start now

Having policies on how many months of expenses to have on hand in liquid reserves, policies on how to create cash flow budgets and the frequency of creating them, how to weather negative cash flows, and how to invest extra cash will strengthen the nonprofit’s financial position and also their disclosure related to liquidity. Nonprofits who have these policies will have a good head start on writing their liquidity disclosure and explaining any unfavorable numbers that may appear in the quantitative liquidity disclosure.

Effective March 29, 2017, Public Act 319 amended Section 1212 of the School Code (MCL § 380.1212) to allow additional uses for sinking fund proceeds. This amendment applies only to sinking fund millage authorized after this effective date.

The new amendment expanded the definition of permissible expenditures that previously did not allow for the purchase of equipment and furnishings. Under the new authorization, such items may be purchased with sinking fund resources, if they are for the following purposes:

• School security improvements – According toMCL §380.1212(6)(a), “School security improvement” means any capital improvement or purchase that is designed to act as a deterrent to unauthorized entry of persons or items onto school premises or to otherwise promote security, including, but not limited to, metal detectors, locks, doors, lighting, cameras, and enhancements to entryways.

School security improvement also includes a mobile telephone application that provides the ability to communicate with personnel on site while also connecting an emergency telephone call to a 9-1-1 center. School security improvement does not include personnel costs or operation costs related to a capital improvement or purchase or related to a mobile telephone application. 

• Acquisition and upgrading of technology – According to MCL §380.1351a(5), “technology” means any of the following:
  • (a)Hardware and communication devices that transmit, receive, or compute information for pupil instructional purposes.
  • (b)The initial purchase of operating system software or customized application software, or both, accompanying the purchase of hardware and communication devices under subdivision (a).
    • §The “operating system software” is usually already loaded on laptops, tablets and other devices.
    • §The only application software that is allowed to be purchased with sinking fund proceeds is “customized application software.” However, no formal definition has been released as to what this covers.
• (c)The costs of design and installation of the hardware, communication devices, and initial operating system software or customized application software authorized under this subsection.
• MCL §380.1351a(3) also identifies certain expenditures that are not allowable:
  • (a)Upgrades to the operating system or application software.
  • (b)Media, including diskettes, compact discs, videotapes, and disks, unless used for the storage of initial operating system software or customized application software included in the definition of technology under this section.
  • (c)Training, consulting, maintenance, service contracts, software upgrades, troubleshooting, or software support.

As with all changes, individual determinations will continue to be made. The Michigan School Business Officials website contains a database of the sinking fund determination letters previously issued by the Department of Treasury. These letters can be found at http://www.msbo.org/sinking-fund. We also encourage school districts to reach out to their legal counsel for additional guidance. Members of Yeo & Yeo’s Education Services Group would also be happy to help with any questions.

 

The new FASB Accounting Standards Update (ASU) 2016-14 is bringing on several changes for nonprofit financial reporting and disclosures that will go into effect for fiscal years beginning after December 15, 2017. One of those changes involves the reporting of expenses.

ASU 2016-14 will require that functional expenses be reported as part of the basic financial statements or footnotes for all nonprofits. Operating expenses must be shown by both their nature and function. “Functional” classification refers to identifiers such as program, management and general, and fundraising. Expenses must then be further segregated into their “natural” classification, which is referring to groupings such as salaries, rent, depreciation and supplies. Nonoperating expenses are not required to be shown by function if the nonprofit is distinguishing between operating and nonoperating activity. The new ASU has also given better guidance about which expenses are management and general.

In addition to reporting the functional expenses, nonprofits will be required to disclose the allocation methodology behind those expenses. If allocations are being done based on a time study or square footage, for example, that will now need to be documented in a footnote describing the basis used for each natural expense line.

The last ASU 2016-14 change related to expenses addressing the treatment of investment expense. Currently, nonprofits have the option of netting investment expenses with related investment income, and disclosure of the fee amount is required. The new ASU will require that direct investment fees be netted with related investment income. Therefore, investment fees will no longer be included in the functional expense reporting. These investment fees should only include expenses that relate directly to generating investment return. The amount of netted expense and components of investment return will no longer need to be disclosed.

Overall, the expense changes discussed are meant to make information more useful to those using the financial statements, such as donors, grantors, and others. The changes help make users aware of what expenses are fixed and which are being allocated. The changes also ensure investment fees are more comparable between nonprofits by including internal and/or external investment fees within the investment income.

The best way to prepare for the upcoming expense-related changes is to ensure the nonprofit has a functional expense allocation methodology that is rational and can be adequately supported. Determining direct internal and/or external investment expenses is another proactive step in preparing for the new ASU.

The Auditing Standards Board has issued a new standard on the auditor’s consideration of an entity’s ability to continue as a going concern. The impetus for this standard was the new FASB accounting standard on going concern. As an auditing standard, it will impact all audit clients with year-ends December 15, 2017, and later.

What hasn’t changed? The overall broad-based concept that the auditor needs to make certain that the going concern basis of accounting is an appropriate basis of accounting and that the required disclosures have been made.

What are the major changes?

The first major change is the time period evaluated by the auditor. It is still a “reasonable period of time,” but the definition is different. The definition first points back to the basis of accounting and then, if the basis of accounting is silent, it says one year from the issuance date (which is what FASB’s new standard uses). That means if you have a 12/31/17 year end, but the audit is not issued until 4/15/18, the reasonable period of time goes through 4/15/19.

The second major change is that auditors will inquire of all clients about the client’s evaluation of the entity’s ability to continue as a going concern. In the past, many times the evaluation was more of a joint effort between the auditor and the client, if the client’s financials were weak enough to warrant it. Now all clients, no matter how strong their financial statements are, will be asked about their evaluation. Those clients with weaker financial statement positions will be expected to have done this evaluation and have it documented before the auditors ask.

As a best practice, this evaluation should be documented in some manner as it may need to be audited. This means analyzing and documenting the analysis of whether or not the entity is likely to be able to pay their bills as they become due. If your current assets are larger than the entire year’s expenses, the documentation is probably just showing that even without any additional revenue, current assets could cover it. However, if current assets and current liabilities are significantly closer together, a cash flows forecast may be necessary to evaluate whether the entity will be able to pay bills as they become due or evaluate what line of credit options are available, etc. That would be a more complex situation and necessitate more documentation that the auditor will need to audit. Support for key assumptions may need to be audited.

What if that evaluation isn’t done? At a minimum, if no evaluation is done, there is an internal control deficiency. That deficiency may be a significant deficiency or material weakness, and therefore reported in the internal control letter. The audit standards also say that refusal by a client to perform the evaluation could result in a qualified or adverse audit opinion.

Financial support by third parties

The next change relates to auditing financial support by third parties or the entity owner-manager. In the past, we may have simply accepted an additional written representation in the management representation letter that the owner-manager is willing to put money into the entity if needed. That will no longer suffice. Auditors need sufficient appropriate audit evidence of:

1) written intent of the parties to support the entity, and

2) ability of the parties to provide the support.

For intent, the suggested audit procedures are either obtaining a support letter, which has a specific example wording in the standards, or sending a confirmation directly to the supporting party. Both of those are more formal processes that what may have been done in the past.

Several suggestions are also made for auditing the party’s ability to provide support and those include:

1) auditing evidence of past support,

2) evidence of the supporting party’s solvency (i.e., performing procedures on information of that supporting party, even though it is not consolidated into the audited financials),

3) verifying the ability to provide the support timely, and

4) if in different countries, verifying the ability to transfer the funds.

This may be more extensive than it has been in the past, especially if there is not a history of past support.

Adequacy of disclosures

Auditors continue to need to audit the adequacy of disclosures. However, the new FASB standard has made the requirements for disclosures in FASB financial statements more extensive and more explicit. If the disclosures are inadequate, a qualified or adverse opinion could be warranted.

Expect changes in the audit process

As you can see, this new audit standard will incorporate changes into the audit process. The client will need more documentation and more formal evaluation than may have been done in the past. Auditing management’s plans may also involve more formal processes than in the past, and additional communications with governance. Clients can expect additional time spent by management in evaluating the longevity of the company.

The State of Michigan has developed several programs that aim to protect and control the use of farmland and forest property. They seek to safeguard open area lands from being turned into commercial or industrial property. This article will outline three programs: The Farmland and Open Space Preservation Program (formerly PA-116), the Conservation Easement Donation Program, and the Qualified Forest Program.

Farmland and Open Space Preservation Program

The Farmland and Open Space Preservation Program is designed to preserve farmland and open areas from becoming developed into space for commercial or industrial use. To enter into an agreement, the landowner must agree to keep the selected parcel(s) as agricultural land for a minimum of ten years. After the initial agreement expires, the landowner can extend the agreement for a minimum of seven years for as long as the agreement is intended, for agricultural use. Land must be at least 51% devoted to agricultural use to qualify for the credit, and the State of Michigan just passed a bill in March that allows landowners to carve out sections of a parcel that are not used for agricultural purposes (i.e., a house on a parcel that includes farmland). The largest benefit for a landowner is the credit they are eligible for on their Michigan income tax return. All property taxes (less special assessments) paid over 3.5% of household income are deemed a dollar-for-dollar reduction of tax owed, with all excess refunded to the taxpayer.

Conservation Easement Program

The Conservation Easement Program is a tool used by the State of Michigan and a private landowner to prohibit the development of farmland. These agreements are enforced to protect the agricultural value of the property. A conservation easement donation is an approach to keep land permanently protected, while the landowner still controls the parcel. The largest benefit of this program to a landowner who enters into an agreement is the possibility that the land donation could qualify as a charitable donation that could be deducted on a federal income tax return. Property taxes could also be lowered based on the new assessed value of the land.

Qualified Forest Program

Michigan is home to more than 20 million acres of forestland, and the State has developed a program that makes it beneficial for landowners to keep their forest undeveloped. To qualify for the benefit, parcels of land between 20 and 39 acres must be more than 80% populated with forest capable of being produced into wood products, and parcels larger than 40 acres need to be at least 50% capable of producing wood product. The largest tax benefit from entering into an agreement would be the reduction of the school operating fund taxes on non-homestead property tax statements. The reduction is a maximum of 18 mills; the school operating fund accounts for the largest single item on a property tax bill.

Using these programs can prove to be advantageous for many taxpayers, and can be a very useful tax planning tool. If you believe that you may have a parcel of land that qualifies for any of the above programs, please contact Yeo & Yeo for more information or help to get the process started.

Often clients ask me, “How can I move income into next year?” I tell them that if they correctly calculate their work in process, it will reduce the amount of income recognized for the year.

When materials are purchased for jobs, construction companies often include all the inventory purchased in the percentage completed immediately, rather than when it is installed on the job. Ultimately this increases the amount of income recognized on these jobs at the end of the first year and decreases income when the job is completed. Start by asking yourself, are the materials located at a job site contributing toward the completion of a specific job? Or, are the materials purchased simply general materials and supplies that are usable for any number of jobs?

If the materials have not been installed and are not unique to a specific job, then they should be classified as inventory. Why inventory? If you have a spool of uninstalled wiring located at a job site that you could take and use on another job, it is not contributing to the completion of that job even though it is located at the job site. Construction companies can, and often do, have inventory located at multiple job sites that is not specific to any one job, which should not be assigned to a job until it is installed.

A simple indicator of projects that may be in need of an adjustment are jobs with a high material to labor ratio. If a company has a job with high material costs and low labor costs, material costs could be contributing a higher percentage completed than is actually completed. Of course, there are always exceptions such as custom-built items for a specific project that cannot be used at another job site.

By properly tracking which materials should be inventory and which materials have been used on the job, you can accurately recognize the profit and pay taxes on the work that is completed instead of work that has not been performed. After all, most of us would rather pay taxes later rather than today.

At the recent Michigan School Business Officials conference, Jennifer Watkins of Yeo & Yeo CPAs and Gloria Suggitt, Michigan Department of Education Single Audit Grant Coordinator, presented, “I Love a Good Audit.” The presentation focused on updates to the Audit Manual and other common issues that the Michigan Department of Education (MDE) will notice and ask districts to correct, change and explain. The presentation also looked at common issues from the auditors’ side, revealing what auditors look for and how to ensure districts do not receive a finding or a letter from the MDE. 

The presentation covered timing and responsibility for audit submission, issues with recording commodities, requirements of a corrective action plan, requirements for subrecipient schedules per the MDE and how that format differs from Uniform Guidance, and Uniform Budget and Accounting Act tolerance levels for the MDE versus auditors.

At the end of the presentation, Jennifer spoke on new guidance issued by the state for GASB 68 and provided a list of what the district should have ready for GASB 68 during the audit. The audience enjoyed the presentation and getting an “insider’s” look into the audit. Now they have the edge over others and should have a clean, smooth audit season.

See Jennifer and Gloria’s presentation, I Love a Good Audit.

 

At the recent Michigan School Business Officials conference, Jennifer Watkins presented, “The ABCs of Your Single Audit.” She spoke about how to prepare the Schedule of Expenditures of Federal Awards (SEFA), SEFA reconciliation and notes, and other necessary schedules. She also shared information on hot topics such as Uniform Grant Guidance and final guidance from the Michigan Department of Education including the current Audit Manual and common issues to watch for in audits and monitoring. 

Specifically, Jennifer focused on issues related to time and effort, lack of federal procedures, unallowable costs, improper budgeting, equipment reporting, and policies and requirements that are mandatory for the School Food Authority (nutrition/lunch program).

See her presentation, The ABCs of Your Single Audit.

Operating a business provides a tax benefit if you have an unprofitable year: You can use the loss to offset other income. But you can lose that tax benefit if the IRS views your business as a hobby. Private companies with more than one owner should have a buy-sell agreement to spell out how ownership shares will change hands should an owner depart. For businesses structured as C corporations, the agreements also have significant tax implications that are important to understand.

Buy-sell basics

A buy-sell agreement sets up parameters for the transfer of ownership interests following stated “triggering events,” such as an owner’s death or long-term disability, loss of license or other legal incapacitation, retirement, bankruptcy, or divorce. The agreement typically will also specify how the purchase price for the departing owner’s shares will be determined, such as by stating the valuation method to be used.

Another key issue a buy-sell agreement addresses is funding. In many cases, business owners don’t have the cash readily available to buy out a departing owner. So insurance is commonly used to fund these agreements. And this is where different types of agreements — which can lead to tax issues for C corporations — come into play.

Under a cross-purchase agreement, each owner buys life or disability insurance (or both) that covers the other owners, and the owners use the proceeds to purchase the departing owner’s shares. Under a redemption agreement, the company buys the insurance and, when an owner exits the business, buys his or her shares.

Sometimes a hybrid agreement is used that combines aspects of both approaches. It may stipulate that the company gets the first opportunity to redeem ownership shares and that, if the company is unable to buy the shares, the remaining owners are then responsible for doing so. Alternatively, the owners may have the first opportunity to buy the shares.

C corp. tax consequences

A C corp. with a redemption agreement funded by life insurance can face adverse tax consequences. First, receipt of insurance proceeds could trigger corporate alternative minimum tax.

Second, the value of the remaining owners’ shares will probably rise without increasing their basis. This, in turn, could drive up their tax liability if they later sell their shares.

Heightened liability for the corporate alternative minimum tax is generally unavoidable under these circumstances. But you may be able to manage the second problem by revising your buy-sell as a cross-purchase agreement. Under this approach, owners will buy additional shares themselves — increasing their basis.

Naturally, there are downsides. If owners are required to buy a departing owner’s shares, but the company redeems the shares instead, the IRS may characterize the purchase as a taxable dividend. Your business may be able to mitigate this risk by crafting a hybrid agreement that names the corporation as a party to the transaction and allows the remaining owners to buy back the shares without requiring them to do so.

For more information on the tax ramifications of buy-sell agreements, contact us. And if your business doesn’t have a buy-sell in place yet, we can help you figure out which type of funding method will best meet your needs while minimizing any negative tax consequences.

© 2017

GASB 74 and 75 will have a significant impact on the governmental sector’s financial statements as amounts related to other post-employment benefits are recorded. Make sure you are prepared for a successful implementation by understanding how the financial statements will be altered and what conversations you should have as you prepare for and implement these standards.

See, OPEB Reporting: Embracing GASB 74 and 75 for detailed information.

The White House released the “core principles” of President Trump’s tax plan on Wednesday, April 26, led in a press briefing by Treasury Secretary Steven Mnuchin and National Economic Council director Gary Cohn.

Secretary Mnuchin stated the “core principles” would be worked on with Congress to produce a bill that can be passed. In answer to questions, he said the plan “would pay for itself through economic growth, and by reducing tax deductions and closing loopholes.”

Director Cohn and Secretary Mnuchin stated throughout the briefing that many details were still to be negotiated. Trump’s new tax plan could vastly reduce the amount paid by corporations and individuals across the U.S.; however, crucial details of the new plan remain unknown. Here is what we do know:

Tax reform goals:

• Grow the economy and create millions of jobs
• Simplify our burdensome tax code
• Provide tax relief to American families—especially middle-income families
• Lower the business tax rate from one of the highest in the world to one of the lowest

For business taxpayers:

• The business tax rate would decrease from 35% to 15% for corporations, and the top tax rate for pass-through businesses (e.g., partnerships, sole proprietorships) would be reduced from 39.6% to 15%.
• There would be a one-time repatriation tax on offshore earnings. The exact percentage of the tax rate is still being negotiated; previous reports indicated 10% was being considered.
• There would be a shift from a worldwide system of taxation (under which a U.S. taxpayer is taxed on its worldwide income regardless of where it was earned) to a territorial system (under which income would be taxed in the country where it is earned).

For individual taxpayers:

Tax relief to American families—especially middle-income families:

• The current seven income tax brackets would be reduced to three: 10%, 25% and 35%. The levels at which these brackets would apply have not yet been determined.
• The standard deduction would be doubled, with the intended result being that fewer taxpayers would itemize.

Simplification:

• Eliminate tax deductions that “mainly benefit the wealthiest taxpayers” other than the mortgage interest and charitable contribution deductions. Interestingly, state and local taxes would no longer be deductible.
• Repeal the alternative minimum tax.
• Repeal the estate tax.
• Repeal the 3.8% net investment income tax (which was enacted as part of the Affordable Care Act).

It is stated that during the month of May, the Trump Administration will hold listening sessions with stakeholders to receive their input. The Administration will also continue to work with the House and Senate to develop the details of a plan that provides massive tax relief, creates jobs, and makes America more competitive—and can pass both chambers. No firm deadline was placed on the proceedings.

With many details to iron out, we will need to wait and see what emerges during the legislative process. Yeo & Yeo will keep you informed as new details unfold.

Each year, millions of taxpayers claim an income tax refund. To be sure, receiving a payment from the IRS for a few thousand dollars can be a pleasant influx of cash. But it means you were essentially giving the government an interest-free loan for close to a year, which isn’t the best use of your money.

Fortunately, there is a way to begin collecting your 2017 refund now: You can review the amounts you’re having withheld and/or what estimated tax payments you’re making, and adjust them to keep more money in your pocket during the year.

Reasons to modify amounts

It’s particularly important to check your withholding and/or estimated tax payments if:

• You received an especially large 2016 refund,
• You’ve gotten married or divorced or added a dependent,
• You’ve purchased a home,
• You’ve started or lost a job, or
• Your investment income has changed significantly.

Even if you haven’t encountered any major life changes during the past year, changes in the tax law may affect withholding levels, making it worthwhile to double-check your withholding or estimated tax payments.

Making a change

You can modify your withholding at any time during the year, or even several times within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted. For estimated tax payments, you can make adjustments each time quarterly payments are due.

While reducing withholdings or estimated tax payments will, indeed, put more money in your pocket now, you also need to be careful that you don’t reduce them too much. If you don’t pay enough tax during the year, you could end up owing interest and penalties when you file your return, even if you pay your outstanding tax liability by the April 2018 deadline.

If you’d like help determining what your withholding or estimated tax payments should be for the rest of the year, please contact us.

© 2017

Are you considering hiring someone to regularly help out around the house, either with the kids, caring for another family member or performing chores or errands? Or have you already made some informal arrangements that you’ve been handling on your own, but you’re not quite sure you’re taking care of all the details?

Just because your nanny or other household help is paid in cash or feels like part of the family doesn’t mean that the rules don’t apply.

If you think you may not be in compliance for state or federal tax purposes with your household helpers, stop worrying and let us help manage your filing requirements!

 

The Michigan School Business Officials Annual Conference will be held at the DeVos Place in Grand Rapids, May 2-4. Members of Yeo & Yeo’s Education Services Group will present four of the sessions. We welcome you to join us to gain new insights into managing your Michigan school.

• Ethics Dilemmas and Fraud & Forensics Prevention – Molly Fish, CPA

Learn about the common ethical dilemmas that arise in school districts and examine examples of actual Fraud & Forensics that has occurred at local school districts. Find out what you can do to prevent it from happening at your district.

• The ABCs of Your District’s Single Audit – Jennifer Watkins, CPA

Learn how to prepare for your single audit, including the Schedule of Expenditures of Federal Awards (SEFA) preparation and common findings. Learn the changing requirements of a single audit.

• Ask the Auditor – David Youngstrom, CPA, and Brian Dixon, CPA

Have an off-the-record discussion with experienced school auditors in a “penalty free” zone. Whether you have been doing this for years or are just starting out, bring your questions or your scenarios to get instant feedback!

• cybersecurity – Kristi Krafft-Bellsky, CPA

Find out how to verify that your information is protected and what you should be asking as a technology director.

We encourage you to attend. Register and learn more about the MSBO Annual Conference.

 

MAS 90 is a brand that has stood the test of time and has become a standard within the manufacturing industry. Manufacturers have relied on the robust, feature-rich application to manage their business processes, from receiving quotes to producing orders and shipping their products on time.

Did you know that the name of the software is no longer MAS 90? Although many users still refer to the software as MAS 90, it has been upgraded and is now called sage 100cloud. Dashboards can be connected through Business Intelligence, financials through Sage 100cloud Intelligence, and exception monitoring and alerting through sage 100c Alerts & Workflow, to name a few. The emphasis with Sage 100cloud is to give you more information so you can make better decisions and be that trusted name for your customers.

 

What is ERP solution?

ERP solution software unifies the systems your organization uses every day – everything from product development and supply chain management, to distribution management and more. ERP solution software utilizes a suite of business applications designed to improve business management and help you focus on core business. Organizations use ERP solution software to manage and organize the data that makes their business run. When you bring on the right ERP solution system, you will have access to better collaboration, reporting data, productivity, and maximized production.

ERP solution technology offers substantial benefits. Contact Yeo & Yeo Technology to learn more about Sage 100cloud erp solution software.

A slew of different construction-focused accounting systems are available, but not all of them may be a good option for your company. For the small- and medium-size company, some of the dedicated systems can be too robust or too pricey to be a viable option. For this reason, many companies have turned to QuickBooks for their accounting needs. Construction owners and managers can successfully utilize this platform with the help of various add-on applications.

Intuit’s website describes the many different Intuit-approved applications that will integrate seamlessly with the various QuickBooks platforms. These add-ons give users functionality that is not built into the basic QuickBooks system. Below are a few examples of popular construction-related add-ons and what they can do for users.

• Corecon

Corecon is an overall project management software. With Corecon, contractors can easily monitor their job costs, build accurate estimates and bids, and schedule jobs. Corecon also gives staff working on job sites the ability to enter their logs and timecards through a mobile app.

• RedTeam

RedTeam assists contractors with the internal management of jobs. With this app, contractors can do paperless posting and approval of vendor and subcontractor invoices, easily track subcontractor insurance and other credentials, and track revenue based on each job’s percentage of completion.

• Knowify for Contractors

Knowify is made specifically for residential contractors. It gives these companies the ability to build bids for both general contractor jobs as well as smaller jobs with property owners. It helps contractors estimate jobs and track job costs once it has begun, support both standard and AIA-style invoicing, maintain online schedules, and create and automatically send purchase orders to vendors.

The above are just a few examples of the different add-ons that are available; many more are offered that can help construction contractors manage documents, generate advanced reporting, simplify payroll and optimize productivity.

Call on the members of Yeo & Yeo’s Computer Accounting Software Solutions Team who hold QuickBooks accreditations and can help you choose software that will provide the most substantial benefits for your construction business.

Auto-enrolling 401(k) plan participants without also incorporating an auto-escalation feature might be a counterproductive exercise. J.P. Morgan Asset Management survey data suggests that average 401(k) plan deferral rates have been trending downward even though more employers are adopting auto-enrollment. The apparent culprit: low auto-deferral rates.

Stats tell the story

From 2012 to 2014, the average annual contribution rate was 7.2%. This is down slightly from the 7.4% average in the prior two-year period, and well below the 8% average during 2007 to 2008.

Even though 45% of surveyed employers auto-enroll new participants, just 31% have auto-escalation features built in. One interesting note from the study: For plans with at least $200 million in assets, the numbers are considerably higher — 62% of these high-asset plans have automatic enrollment and 48% use auto-escalation clauses.

The most common auto-enrollment default deferral rate is only 3%, according to the most recent Defined Contribution Institutional Investment Association (DCIIA) survey. Participants who defaulted into such a low deferral rate generally do not increase it significantly. With typical annual auto-increase increments of only 1%, it will take new employees several years to begin deferring at reasonable levels, and many more to reach the 15% that DCIIA sees as ideal.

The DCIIA survey reveals impressive deferral rates for plans that both auto-enroll and auto-escalate participants. “Plan sponsors who offer both automatic enrollment and automatic contribution escalation have over twice as many participants with retirement savings rates over 15% (14% of respondents) as those that do not offer both (6% of respondents),” according to the survey.

Change is in the air

So why don’t plan sponsors implement these features? According to the survey, plan sponsors with less than $50 million in plan assets were concerned about complaints from participants (28%) and feared it would be seen as paternalistic (18%). And a whopping 31% have never considered using it.

But the DCIIA study concluded that, when properly implemented, automatic features can make a positive difference. Contact your benefits specialist to learn how to use both auto-enrollment and auto-escalation clauses to help benefit your employees.

© 2016

Manufacturers across the country have become a main target for cybercriminals. The news, trade journals, and professional organizations such as the Michigan Manufacturers Association all have stressed the importance of manufacturers becoming aware of this growing threat.

• IBM released a study in 2016 titled, X-Force Research 2016 cybersecurity Intelligence Index, which found that the manufacturing sector was second only to healthcare as the most attacked industry in the country.
• The most recent Carbon Black Threat Report places the manufacturing industry at the top of the target lists for ransomware and malware.
• According to the Ponemom Institute, the average price for a small business to clean up after they have been hacked stands at $690,000; for mid-market companies, it is more than $1 million.

The Carbon Black Threat Report states that when considering the total amount of ransomware seen in 2016, manufacturing companies (16% of total ransomware instances), utility/energy companies (15.4% of all ransomware instances) and technology companies (12.6% of all ransomware instances) led the way.

 

The Carbon Black Threat Report also states that overall, malware continues to target every industry with manufacturing companies (21.8% of total malware), non-profit organizations (16.4% of total malware), and utility/energy companies (15.6% of total malware) leading the way in 2016.

Percentage of Total Malware Seen by Industry in 2016

 

What should manufacturers do?

What can manufacturers do to protect their organizations? It starts with understanding the threats and risks that exist and how to defend against them. Cybersecurity protection has become a requirement for manufacturers who do business with several agencies and they must be compliant as soon as December 2017. If you are unsure of your organization’s cybersecurity needs or risks, it is important to partner with a technology firm that has expertise in this area.

Next Generation firewall, anti-virus and spam protection services – together with proactively monitoring and managing your network hardware, software, and data traffic – can effectively reduce the risk of a disastrous attack. But firewalls and the best security systems in the world cannot stop everything. Manufacturers should also consider implementing a security awareness training program, which has proven to improve many security flaws. By making employees the first line of defense, manufacturers have a cost-effective way to strengthen the security of their organization.

Call on the members of Yeo & Yeo’s Manufacturing Services Group, who can help you understand and protect your business with industry best practices and technology solutions.

There is a common scene in popular literature, television shows and movies. The family of a wealthy individual gathers in an attorney’s well-appointed office to hear the reading of a recently deceased’s will. Each member usually represents a given stereotype — the spendthrift, the frugal one, the outsider — and, together, they wait impatiently for the attorney to reveal what they are getting.

In real life, this is not how an estate plan should work. To keep the mystery to a minimum, it is a good idea to hold occasional, if not regular, family meetings about your estate plan. Let’s look at some key points to consider when setting up these critical and informative gatherings.

Guest list

Whom should you invite? Start with your spouse, children and other family members who will be affected by your plan (either by their inclusion or exclusion). You should also invite any nonfamily members you will ask to serve as executors, trustees, agents, or guardians of minor children.

Also, request the presence of key advisors such as your attorney and accountant. They can be of service for two important reasons:

1. Questions and answers. Advisors can help answer questions about how your plan works. The legal machinations of an estate plan are complex, and the tax laws involved are not simple either. Your family will better understand the details of your plan if an expert explains them.

2. Team building. The meetings create an opportunity for your family, representatives and advisors to get to know one another. Getting acquainted now will help them build trust and, thereby, improve the chances that your plan will operate smoothly when the time comes for it to do so.

Agenda items

The meetings will need to include a number of agenda items. For starters, you should review the key documents that make up your plan and let everyone know where they are located. In addition, provide an overview of the estate planning decisions you have made so far and — most important — the reasoning behind them.

Many people simply divide their assets equally among their heirs. But in estate planning, equal is not necessarily fair. For example, let’s suppose Tara has adult children from a previous marriage and younger children from her current marriage. She put her older children through college years ago, and now they are gainfully employed and financially independent.

Fairness would dictate that Tara’s estate plan favor her younger children, who will need the money for tuition and living expenses. But her older children may not see it that way unless she explains it to them. A family meeting provides an opportunity for that discussion.

Other issues to discuss include charitable giving, the treatment of assets with special significance — such as vacation homes or family heirlooms — and decisions about which family members are chosen to be guardians, executors and so on.

Business matters

Family meetings are particularly valuable when a family business is involved. It may seem fair to provide a greater share to family members who work in the business.

But what if most of your wealth is tied up in the business? How do you provide for those who do not work in the business while still rewarding the “sweat equity” of those who do?

One option is to divide ownership equally but to use voting and nonvoting stock to give management control to family members who work in the business. Another option is to leave the business to those who work in it and use life insurance to create an inheritance for those who do not. Whatever the solution, the best way to avoid conflict and resentment is to discuss the issue with all interested parties and get their input.

Comforting experience

The thought of sitting down with family members and discussing what eventually is to become of your estate may seem awkward. But, often, the most uncomfortable meeting is the very first one. Once the topic is broached and the details are being discussed, many families find the experience comforting and informative. Again, involve your advisors in the planning and carrying out of the meetings and the process is likely to go much more smoothly.

© 2015