Fall 2009 - RubinBrown

Transcription

A
Publication
by
RubinBrown
Market Advantage:
LLP
A Strategic Approach
GAINING ADVANTAGE IN THE MARKET
INSIDE
FALL 2009
horizons
The RubinBrown Market Advantage Page 5
Leading the Market in Any Economy Page 7
Charitable Giving in a Down Economy Page 11
What Really Creates Market Advantage? Page 23
AND MORE
horizons
CONTENTS
iiWelcome
1
In Loving Memory of Jeanne Doll
2–4
RubinBrown New Hires, Promotions Awards
& Announcements
5–6 Chairman’s Corner: The RubinBrown
Market Advantage
7–9
General Topics: Leading the Market in
Any Economy
11–12 General Topics: Charitable Giving in a
Down Economy
13–16 General Topics: Gaining Market Share through
the Use of a SAS 70
17–18 General Topics: Six Degrees of Separation...
Maximizing Accounting’s Value within Your
Organization
19–20 General Topics: Job Market Outlook:
Take Advantage of Exceptional Talent
21–22 General Topics: Retirement Plan Document
Training Session
23–24 Guest Feature: Jack Smith, Collaborative Strategies
Inc., What Really Creates Market Advantage?
Industry News
25–26 AUTOMOTIVE
27–30CONTRACTORS
31–32 HOME BUILDERS
33–34 HOSPITALITY & GAMING
35–36 MANUFACTURING & DISTRIBUTION
37–40 Media & Entertainment
41–46 NOT-FOR-PROFIT
47–48 PROFESSIONAL SERVICES
49–52 PUBLIC SECTOR
53–55 REAL ESTATE
INFORMATION
Graphic Design: Hughes
Horizons, a publication of RubinBrown LLP, is designed to provide general information regarding
the subject matters covered. Although prepared by professionals, its contents should not
be construed as the rendering of advice regarding specific situations. If accounting, legal or
other expert assistance is needed, consult with your professional business advisor. Please call
RubinBrown with any questions. Located in St. Louis and Kansas City, RubinBrown has become
one of the largest accounting and business consulting firms in the Midwest.
Cert no. XXX-XXX-XXXX
www.rubinbrown.com
John F. Herber Jr., CPA
Managing Partner
Welcome
Market Advantage. These two words are the lifeblood of a
business working to grow in our current economic climate.
Businesses that are in the marketplace daily looking for new
relationships, products and services they can bring to their
customers will achieve greatness once these challenging times
have passed.
Market advantage is a dynamic concept — one that often is hard
to understand and even harder to implement, but with proper
planning and external analysis, organizations can turn the current
economic climate in their favor. Through outside perspectives we
are challenged to continuously improve to provide greater value to
our clients and ensure RubinBrown always performs at the highest
level.
In this issue we will explore many different ways to gain market
advantage in any economy. We are introducing a new regular
feature — Chairman’s Corner — from Jim Castellano, who first
speaks to the RubinBrown market advantage. Guest author Jack
Smith of Collaborative Strategies shares with us the importance of
culture, leadership and relationships. As always, our talented and
knowledgeable partners and managers provide in-depth articles
in specific industries and practice areas. But to start, we honor
the memory of Jeanne Doll, a valued partner who recently lost her
battle with cancer.
St. Louis office
RubinBrown
One North Brentwood
St. Louis, MO 63105
Kansas City office
10975 Grandview Drive
Suite 600
Overland Park, KS 66210
I invite you to read this issue and offer us your feedback. Our
goals as an organization are centered on two driving forces: totally
satisfied team members and totally satisfied clients. I hope to hear
from you — john.herber@rubinbrown.com.
Pleasant reading.
In Loving Memory of
Jeanne Doll
It is with
deep sadness
that we honor
the memory
of our partner,
Jeanne Doll.
Jeanne was a well-respected member of her family, our firm and the community. In addition to her dedication and involvement
as a partner in RubinBrown’s Benefit Plan Audit Services Group, she was a board member and treasurer for Angels’ Arms,
which provides homes for foster children, keeping brothers and sisters together until a permanent home is found. Jeanne
was involved with Angels’ Arms for several years, and her dedication to this group made a tremendous impact. Jeanne also
served on the finance committee for Small Rain, a not-for-profit organization serving distressed children in Africa. Professionally,
she was involved in the Women's Presidents Organization, the Employee Benefit Association and the Executive Women’s
Golf Association.
“Jeanne was the ultimate professional,” said Jim Castellano, chairman. “She built a very successful benefit plan audit practice for
RubinBrown. It is just one legacy she leaves.”
Jeanne’s commitment to her family, professional development and the community are clear indicators of the exemplary life
she lived. If you spent time with Jeanne, you know that even though her voice was quiet, her energy and positive impact were
contagious to those around her. Through her health struggles, she continued to serve her family, profession and the community.
Her dedication, strength and courage were greatly admired by her peers. It is with pride that we remember her as a partner of
RubinBrown.
Memorial contributions may be made to:
1 u fall 2009 issue
Angels' Arms
34 N. Brentwood Blvd.
Suite No. 4, Clayton, MO 63105.
St. Louis University High School
4970 Oakland Ave.
St. Louis, MO 63110.
RubinBrown New Hires & Promotions
Promoted to Partner
NEW MANAGERS
Amy Broadwater, CPA, has been promoted
to partner in the Real Estate Services and
Tax Consulting Services Group. She consults
for real estate clients who develop or invest
in affordable housing tax credits, historical
rehabilitation and new markets tax credit
projects. She also specializes in real estate
partnerships and works with corporate and individual taxation
pertaining to the real estate industry. Broadwater has more
than 11 years experience serving clients in the real estate
industry, previously working as a supervisor for a national
firm. She was a speaker at the Governor’s Conference on
Housing in 2005 and 2007 and serves as an instructor for
RubinBrown’s in-house team member training courses.
Broadwater holds a bachelor’s degree in accounting from
Grove College and a master’s degree in accountancy in tax
concentration from Truman State University.
Shawn Becker has joined RubinBrown as a
manager in its Wealth Management Services
Group. He is responsible for reviewing and
preparing tax returns for trusts, estates and
charitable trusts and consults on tax issues
in the trust area. He specializes in tax trust,
cash flow, estate, income tax and retirement
planning, as well as risk management counseling. Becker
has more than 10 years experience in tax, previously
serving as a tax advisor for AG Edwards (now Wachovia)
and for Conseco Financing Corp. He is a member of the
Missouri Bar and American Bar Associations and holds a
bachelor’s degree in finance from Missouri State University
in Springfield. He also holds a Master of Laws and Juris
Doctor from the University of Missouri-Kansas City School
of Law.
RubinBrown has promoted Thomas Zetlmeisl,
CPA, CFE, CFF, to partner in its Corporate
Finance and Forensic Services Group. He
performs financial analysis, creates damage
calculations, writes reports and assists with
deposition and trial preparation. He also has
extensive financial modeling and data mining
experience and is certified as a financial forensics expert.
Zetlmeisl has 11 years experience in litigation consulting and
working on forensic accounting analysis and investigations.
He serves as a Benefit4Kids committee member of the
St. John’s Mercy Foundation and holds a bachelor’s degree
in business administration, with an emphasis in accounting
and finance, from Washington University in St. Louis, where
he graduated magna cum laude.
RubinBrown has added Christopher
Coleman, CPA, CCIFP, as a manager in
the Tax Consulting Services Group. He
has more than seven years experience
in tax consulting and provides services
to contractors, manufacturers and
distributors, financial institutions and familyowned businesses. Coleman handles audit, succession
planning, risk-based audit planning, tax planning and tax
return preparation. Before joining RubinBrown, he served
as a tax supervisor for Padgett, Stratemann & Co. LLP for
five years. He regularly speaks at financial conferences
about trends in public accounting and law and holds
bachelor and master’s degrees in accounting from
St. Louis University.
Wayne Isaacs, JD, CPA, CEBS, has joined
RubinBrown as the manager in charge of
the Benefits Services Group. He provides
benefit plan consulting, analysis and design
services and prepares prototype retirement
plan documents. He also offers retirement
plan record-keeping services, specializing
in retirement plan administration. Isaacs brings more than
25 years experience to RubinBrown, previously serving as
senior legal counsel and vice president of compliance for
Fidelity Investments. He also was assistant vice president
of employee benefits for Society Bank. Isaacs holds a
bachelor’s degree in accounting from the University of
Kentucky-Lexington and a Juris Doctor from the University
of Louisville School of Law in Louisville, Ky.
2 u fall 2009 issue
Promoted to Manager
Bob Dumstorff, CPA, has been promoted to
manager in the Assurance Services Group.
He is responsible for audit services to real
estate entities, low-income housing and tax
credits, and mortgager cost certifications.
Specializing in new and historic housing
markets and rehabilitation, Dumstorff also
works with the Real Estate Services Group. He holds
an associate degree in general studies from Kaskaskia
College in Centralia and a bachelor’s degree in accounting
from Southern Illinois University at Edwardsville.
RubinBrown has promoted Jason Mannello,
CFA, to manager in its Corporate Finance
and Forensic Services Group. He provides
litigation consulting and support, business
valuation, and economic and specialty finance
consulting to clients in a range of industries.
Mannello focuses on economic and tax
impact analysis, tax incentives and valuation services for
entire businesses and intangible assets. He previously
worked as a research analyst for Bank of America and as
a research assistant at the University of Missouri - St.Louis.
As a valuation expert, he has been a speaker on the topic
at Washington University-St. Louis and the Center for
Emerging Technologies. He holds bachelor and master’s
degrees in economics from the University of MissouriSt. Louis.
Joe Pimmel, CPA, has been promoted to
He also serves clients in the Home Builders
Services Group. He provides assurance
and tax services, as well as business
performance analysis for privately held
companies of varying sizes. With more than
five years at RubinBrown, Pimmel spent three months
at a Baker Tilly International independent member
firm in Glasgow, Scotland, in 2007. He is a member of
the U.S. Green Building Council’s St. Louis Chapter and
the St. Louis chapters of the Construction Financial
Management Association and Home Builders Association.
He holds a bachelor’s degree in accounting and finance
from the University of Indiana in Bloomington.
3 u fall 2009 issue
Karis Schwent has been named a manager
in the Benefits Services Group. She handles
plan design, administration and testing, and
compliance and employee education for
qualified plans. She specializes in employee
benefits and qualified plans and consults
on 401(k)s and other defined contribution
plans. Schwent previously worked as a pension specialist
at Towers Perrin and a plan administrator for Bank of
America. She holds a bachelor’s degree in finance and
economics from Rockhurst University in Kansas City.
RubinBrown has promoted Ken Van
Bree, CPA, to manager in the Assurance
Services Group, where he provides
operational and plan audits. He also works
with clients in the Contractor Services
Group. Previously, he served as a service
associate for Edward Jones. Van Bree
volunteers with the SITE Improvement Association’s
Young Executives committee, the Associated General
Contractors’ Construction Leadership Council and the
RubinBrown Outreach Volunteer Program. He holds a
bachelor’s degree in accounting from Maryville University
in St. Louis.
Rick Vigil, CPA, has been promoted to
He provides audit services to clients in
the manufacturing and distribution
industry and performs operational reviews
and due diligence related to mergers
and acquisitions. Vigil is skilled in the
implementation of lean manufacturing and accounting
and specializes in manufacturing and distribution
companies that have international operations. He is a
member of the Hispanic Chamber of Commerce and
serves on the Young Professionals Committee of the
Nurses for Newborns Foundation. Vigil holds bachelor
and master’s degrees in accounting from Truman State
University in Kirksville.
Other Promotions, Awards
and Announcements
Raise Your Expectations
CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS
ABACUS
Awards
Abacus Recruiting has promoted Eric Hahn
to recruiting manager. Hahn has been with
Abacus Recruiting for five years and has
worked closely with many companies in
the St. Louis area. In his new position, he
focuses on identifying qualified professionals
for organizations in the St. Louis metro area,
specializing in the accounting, marketing, operations,
engineering, human resources, risk management and IT
sectors. Hahn holds a bachelor’s degree from the Culver
Stockton College in Canton and a master’s degree in
business administration from the University of Phoenix.
The St. Louis Business Journal featured
Jim Castellano, CPA, among top area
business leaders and decision makers
in its Most Influential St. Louisans issue.
Castellano and the other honorees were
featured in the February 20, 2009, issue
of the newspaper and were recognized
at a breakfast reception on March 13 at the Saint Louis
University John Cook School of Business. This year’s
list of honorees focused on leaders in industries most
likely to benefit from the recently passed stimulus bill.
Castellano serves as chairman of RubinBrown LLP and
as chairman of Baker Tilly International.
ANNOUNCEMENTS
RubinBrown is the title sponsor for
the Greater St. Louis Top 50 awards
program, presented by the St. Louis
RCGA. As a leader in the regional
accounting scene, RubinBrown
exemplifies a firm that is an asset to
the local business community. Fifty winning companies
are selected by the RCGA based on their significant
contributions to the St. Louis region and how they
have positively affected the future of our business
community. Nominees’ economic impact is measured a
number of ways, including employee growth, community
enhancement, revenue growth, acquisitions and
expansion/development of facilities. Many RubinBrown
partners and team members will be in attendance
at the annual awards dinner, which will be held
at the Hyatt Regency St. Louis Riverfront on Wednesday,
November 18, 2009.
RubinBrown served as the host
of Baker Tilly International’s
North American Regional
Conference May 2-5. The three-day event featured
distinguished guest speakers, including Jim Turley,
chairman and chief executive officer, Ernst & Young
LLP, and Patrick Stokes, former chief executive officer,
Anheuser-Busch. The conference was held at the RitzCarlton in Clayton and highlighted topics such as tax
(international, U.S., and state and local), the future of
auditing, effective international engagements, innovation
and leadership.
Steve Brown, CPA, was named one of
the Top 40 Tax Advisors to Know During
a Recession by CPA Magazine. The list
invited every state society and national
association of CPAs and accountants to
nominate candidates, selecting the 40 elite
based upon their experience, knowledge
and tax planning advice. Brown advised companies to
stick with long-term business goals and not get distracted
by the current economic climate, instead taking time to
train and upgrade employees’ job performance. He was
listed along with the other honorees in the magazine’s
April 15 issue.
The National Association of Black
Accountants named Steven Harris, CPA,
its 2009 Rising Star. The award recognizes
a current or lifetime member of NABA
who has accomplished a significant
professional or community project and
holds a prominent position within the
organization. Harris currently serves as president of the
St. Louis chapter of NABA, recently attended NABA’s
Central Region Student Conference in Detroit, Mich.,
as a panelist, and served as chair of the conference’s
publications committee. More recently, Harris also was
named to CPA Technology Advisor’s 40 Under 40 list,
which recognizes the nation’s top 40 tax and accounting
professionals under the age of 40. The publication also
featured Harris in a practitioner profile.
4 u fall 2009 issue
Chairman’s Corner
The
RubinBrown
Market
Advantage
By James G. Castellano, CPA
“Chance favors the prepared mind.” Louis Pasteur
The creation of sustainable competitive advantage is a
common overarching strategy for successful enterprises.
Yet achievement of such advantage often proves
elusive. Those who have successfully achieved a market
advantage often did so because of their unwavering
commitment to the process of strategic planning.
David Aaker, author of “Developing Business Strategies,”
says that a sustainable competitive advantage has three
characteristics —
• The advantage involves a key success factor,
•T
he advantage is substantial enough to really make a
difference, and
• It is sustainable in the face of environmental changes
and competitor actions.
At RubinBrown, we have been following this simple
discipline for many years in our quest to secure a
sustainable competitive advantage. Our clients have
defined our key success factors for us. They include
superior quality and service of course. But going beyond
the surface to truly understand the client’s perspective of
quality and service is critical. We have learned that superior
quality and service mean thorough understanding of the
industries in which our clients operate, deep technical
expertise, close personal attention and continuity of the
teams serving our clients, among other things.
5 u fall 2009 issue
Understanding these key success factors from our
clients’ perspectives led us many years ago to organize
our firm into strategic business units designed to build
our capabilities in specific industries and to develop
deep expertise in selected service lines. Today, we have
10 major industry group business units and a number of
deeply specialized service line business units providing
services of value to our clients.
These industry groups and service lines work continuously
to strengthen our capabilities. Clients should expect to be
served by highly qualified professionals who understand
the industry and provide value-added expertise and
personal service at levels unmatched by our competitors.
The total satisfaction of our clients is the standard we
strive to achieve.
The investment we have made to develop specialized
expertise has proven substantial enough to make a
difference. RubinBrown team members often are invited
to present their qualifications to clients and prospective
clients, and the industry and deep technical expertise
of our team is noticeably unique. Their deep expertise
enables us to add value and differentiate ourselves.
To date the RubinBrown market advantage has proven
sustainable, enabling us to grow to become one of the
leading accounting and professional services firms in
the nation. Rest assured, we will not rest on laurels but
continuously strive for improvement. The process we
employ for planning at RubinBrown and our burning
desire to be the best will endure.
In summary, the knowledge we bring to our client
relationships, coupled with our commitment to the total
satisfaction of our clients, enables RubinBrown to deliver
unique value.
Please continue to challenge us to improve, to
continuously understand and meet your expectations.
In fact, we encourage you to “Raise Your Expectations”
of us. We invite you to explore our qualifications and
experience our commitment to the total satisfaction of
our clients. Thank you for your confidence in us.
Industry Group Business Units
Automotive
Contractors
Home Builders
Hospitality and Gaming
Manufacturing and Distribution
Media and Entertainment
Not-for-Profit
Professional Services
Public Sector
Real Estate
Service Line Business Units
Assurance Services
Corporate Finance and Forensic
Internal Audit
Tax Consulting
Questions? Contact:
James G. Castellano, CPA
Chairman
RubinBrown
314.290.3300
james.castellano@rubinbrown.com
6 u fall 2009 issue
GENERAL TOPICS
Leading the
Market in Any
Economy
By Dan Raskas
What is a market leader? According
to the dictionary, a market leader
is “the company or brand with the
largest share of a market niche for a
particular product.”
That definition could be expanded to include the
company or brand with the highest customer loyalty,
perceived value and image in its defined market space.
When a company becomes a true market leader, it has
a competitive advantage over its competitors that will
positively impact bottom-line profits. The challenge
is becoming a market leader and maintaining the
position as the market leader. This article will focus on
both obtaining market leadership and sustaining that
position, as many of the strategies are the same.
So what is the secret formula to obtain market
leadership? What are the things a company should be
doing when the economy is strong to gain a market
leadership position? What should a company do
when the economy is weak? The basic elements of
obtaining and sustaining market leadership remain
constant regardless of economic conditions. What
will change is how a company executes on those
elements that will determine the market leader.
There are three key elements to obtaining and
sustaining a market leadership position — customer
focus, innovation, and sound strategy and execution.
Each of these elements must be in sync and directly
impacts and feeds the others.
Customer Focus
Innovation
market
leadership
Strategy & Execution
7 u fall 2009 issue
Customer Focus
In order to both obtain and sustain market leadership,
everything about the product or service that is being
sold must be anchored around the customer. What
is perceived as value to the customer must be
understood by the company and then communicated
back to the customer in a way that fully demonstrates
the value provided by the product or service. While
this process may sound simple, it can be very
complicated. In order to accomplish total customer
focus, a company must fully understand who its
customers are and constantly monitor the conditions
of the market, which will impact customer needs. As
those needs change, the company must adapt either
the message to the customer or the actual product
or service being provided. In addition, the level of
customer service provided to the customers must be
perceived as superior to any competitor.
As the market conditions change, different actions
may be required to either change or sustain the
market position. A company that produces compact
fluorescent light bulbs initially communicated
the customer value as being the environmentally
friendly product or “green” bulb. It enjoyed a market
leader position as the market was becoming very
environmentally conscious. When the economy
declined and the consumer was faced with paying $6
for a green bulb versus $1 for a regular bulb, it was
hard to see the value. In order to maintain a strong
market position, the value message was modified to
more prominently highlight the fact that green bulbs
save money, as much as $36 over the life of a 60-watt
bulb, due to the reduced energy usage, which is what
makes them environmentally friendly.
Innovation
Innovation is another important component in obtaining
and sustaining market leadership. Innovation feeds
off of customer focus. One of the customer focus
concepts is to understand the needs of the customer.
This concept is critical in delivering innovative
products and services to the market. Most of the
time, the market and the customers do not know
that they have a need until they see it and are
made aware of the product or service. The product
or service must be developed knowing that the
market will respond positively, therefore creating high
demand. If a company can become an innovator and
consistently deliver products that customers want to
market, obtaining and sustaining market leadership
will be very achievable. Apple is a great example of a
company that has been able to obtain and sustain a
market leader position as a result of its ability to have
a high level of customer focus and innovation.
Innovation also can be a key to unlocking economic
hurdles. When the economy is strong, consumers
tend to seek out new and innovative products. When
the economy is down, consumers may not seek out
new products, but they are more likely to spend
on new and innovative products than on products
that have been around. If you study the cell phone
industry, you can see there is a constant amount
of product innovation that generates a continual
consumer demand. Even in the current state of the
economy, many next-generation phones are sold out
before they arrive in stores.
Sound Strategy and Execution
Customer focus and innovation alone cannot get a
company into the market leader position or keep it in
that spot. Those elements only help determine what it
takes to get there. Once the customer is understood
and innovative products are created, a company must
organize itself strategically to deliver the products
or services efficiently and effectively to market, and
it must execute on that strategy. This area includes
knowing which market to be in, where the customers
are and how to deliver the products and services to
them, how to produce the product or service in the
most efficient and effective manner with the highest
quality, and many other aspects.
From a market condition perspective, there are many
strategic decisions that occur in this area. If a company
has a strong product or service and is looking to gain
8 u fall 2009 issue
market share, it has many choices. The company can
look at its competitors and target an acquisition. It
can build capacity. It can grow internationally through
acquisition or joint venture relationships. The market
conditions will help determine the right alternative as
well as if expansion is even the right decision.
be required as a result of the changes in market
conditions, and altered its strategy from an organic
growth to an acquisition strategy. The company was
able to expand both domestically and internationally,
achieving its growth goals and becoming a
market leader.
Here is an example of how market conditions impact
all three components — customer focus, innovation,
and strategy and execution. This service provider was
not a market leader but was gaining market share and
had developed an organic growth strategy to more
than double the size of the organization and grow to
$1 billion over a five-year period. During the first year the
market conditions changed, causing the organization
to evaluate all three components. From a customer
perspective, the company had a good reputation and
was held in high regard by its customers. It was not
known on a national or international basis but only in
select markets for select services. It had a good track
record of offering innovative services to its customer
base and also was in a strong financial position. It
evaluated its customers, anticipated what was going
to take place with competitors in the market — some
of which had market leadership positions, determined
what existing and new innovative services would
By focusing on the three elements — customer
focus, innovation, and sound strategy and execution
— a company can obtain and sustain a market
leader position. As discussed, these three elements
cannot be viewed independently from one another but
must be viewed collectively. Based on the examples
above, if a company remains focused on these three
elements, it will enjoy a market leadership position
regardless of economic conditions.
9 u fall 2009 issue
Questions? Contact:
Dan Raskas
Partner
Corporate Finance and Forensic
Services Group
314.678.3530
dan.raskas@rubinbrown.com
CPAs.
Business Partners.
Navigators.
You don’t need us to tell you how it is out there.
We’re all just trying to keep an even keel. But,
maybe that’s why honest, objective advice is more
valuable than ever. From maintaining a favorable
credit position to minimizing risk, we can help you
address the issues of the day that matter most so
you can be in a position to build a stronger bottom
line. Expect the kind of counsel you trust so much,
you won’t want to make a move without looking
to us first.
www.rubinbrown.com
GENERAL TOPICS
Charitable
Giving in a
Down Economy
By Maggie Glenney, CPA
Charitable giving during a down economy? It’s tough.
Cash donations that have been consistent in the past
may not be possible this year. However, there are
other ways to contribute to charitable organizations
without using cash:
1.Volunteering time to a charity. Many non-profits
may need help with registration at a 5k run/
walk or can use assistance with office duties.
In addition to the positive feelings that result
from giving, there also may be an opportunity
to qualify for tax-deductible expenses. The
Internal Revenue Service will allow volunteers
at nonprofits to deduct expenses related to car
and transportation, travel, uniforms and other outof-pocket expenses from their taxable incomes
(these are subject to limitations, so a tax advisor
should be consulted).
2.Services also can be donated to a charitable
organization. These services can range from
writing calligraphy on invitations for a formal ball
that supports a non-profit or using knowledge or
background to assist at a silent auction or trivia
night. While the value of the services cannot be
taken as a tax deduction, volunteers may qualify
for the expenses listed above.
3.Those who have lost money in stocks can sell the
stocks, give the proceeds to a preferred charity
and get two tax benefits in return — netting the
capital loss against other capital gains for the
current tax year and including the donation as a
11 u fall 2009 issue
cash contribution on an individual tax return.
4.Although the tax deductions vary, vehicles can
be donated to a non-profit. There are different tax
forms that need to be completed and rules to be
followed if a vehicle is donated, so, again, a tax
advisor should be consulted.
5.Individuals actually can create a fixed income
stream for themselves by establishing and
transferring funds to a charitable gift annuity or
charitable remainder trust. The annuity or trust
provides an income stream for a period of time.
After this period or upon death, the non-profit
receives the assets that produced the income.
6.Another option is to give a bequest to a charity
and even direct its specific purpose.
For those who would still like to make cash contributions
this year, but on a tighter budget, there are additional
options:
8.Individuals at least 70 ½ years in age can make a
direct contribution from their IRA to a non-profit up
to $100,000 if filing single, $200,000 if filing jointly.
This contribution is called a qualified charitable
distribution. The amount of the QCD is limited to
the amount of the distribution that would otherwise
be included in income. Currently, this opportunity is
only available for the 2009 tax year.
Questions? Contact:
Bob Jordan, CPA
Partner-in-Charge
Family Office Services Group
314.290.3221
bob.jordan@rubinbrown.com
Maggie Glenney, CPA
Manager
Family Office Services Group
314.290.3283
maggie.glenney@rubinbrown.com
7.During the holidays, donations to the gift recipient’s
favorite charity can be given in the name of the
recipient instead of a gift.
GENERAL TOPICS
Gaining Market
Share through
the Use of a
SAS 70
By Audrey Katcher, CPA, CISA
Completing a control assurance report
(SAS 70) can differentiate you from
your peers and provide a competitive
advantage in the marketplace.
What is a SAS 70?
Statement on Auditing Standards No. 70, Service
Organizations, prescribes the guidance for an
independent auditor to examine and report on a
service organization’s internal controls. The SAS 70
report was designed to enable user auditors to obtain
an understanding of the controls over activities,
processes and functions performed at a service
organization that are part of a user organization's
overall internal control environment.
This examination results in a report with limited
distribution to the organizations using the service
organization’s services and their financial statement
auditors. The report provides the following
information:
• Auditor’s opinion
•Comprehensive description of systems,
processes, and the controls and control
environment at the service organization
•Auditor’s tests of the controls and the results of
those tests
•Definition of the controls for the client to perform
in support of the overall achievement of control
objectives (user control considerations)
•Other information provided by the service
organization (such as information about disaster
recovery processes and other definitions/terms)
Who typically has a SAS 70?
Organizations that process information for others,
host applications/technology for others or perform
other types of outsourcing may need a SAS 70. Such
entities often include:
•Application/Internet Service Providers,
IT hosting entities
• Fund administrators
• Insurance claims third-party administrators
• Trust departments of banks
SAS 70 Terminology
Key definitions per the AICPA Audit Guide for Service
Organizations include:
User organization: The entity that has engaged a
service organization and whose financial statements
are being audited.
User auditor: The auditor who reports on the
financial statements of the user organization.
Service organization: The entity (or segment
of an entity) that provides services to a user
organization that are part of the user organization's
information system.
Service auditor: The auditor who reports on controls
of a service organization that may be relevant to a
user organization's internal control as it relates to an
audit of financial statements.
This article speaks to a company
having a SAS 70; what about using
a SAS 70?
• Payroll service providers
For the user organization, the benefits include:
• Call centers/collection agencies
• Cost and Time — With a SAS 70 report, user
organizations may be able to eliminate the costs
and time associated with sending their internal
auditors or other compliance representatives to the
service organization to perform audit procedures.
• External Audit Fees — With sound internal controls
at the service organization, external auditors may be
able to rely on the controls and reduce the amount
of testing in support of the financial statement audit.
• Controls Assurance — User organizations that
obtain a SAS 70 report from their service provider
receive valuable information on the design and
operating effectiveness of internal controls.
RubinBrown would be happy to provide further
insights related to SAS 70 coverage and usage.
For example, ensure that the SAS 70:
• Covers your actual data, servers and processes.
• Is for the appropriate time period. • Includes testing and is not limited to
inquiry procedures.
•Outsourced document processors or
report processors
•Reward card processers
•Cost recovery providers (telecom, payment,
other billing)
Benefits of a SAS 70
The SAS 70 provides many benefits, which may
include:
•Competitive Differentiation — An unqualified
SAS 70 opinion, vissued by a PCAOB-registered
accounting firm, differentiates the organization
from its peers by demonstrating effective controls
while also building trust with clients.
•Process Improvements — Having a SAS 70 auditor
from a PCAOB-registered accounting firm with
SAS 70 experience across many organizations
leads to identification of opportunities to
improve and streamline operational processes
and internal controls.
•Time Savings — With a SAS 70 report, service
organizations may be able to eliminate the multiple
audit requests from clients and their auditors,
reducing time with auditors.
•Enhanced Company Reputation — The SAS 70
report helps ensure the organization’s clients and
their auditors are provided a clear overview of the
environment upon which they rely.
Questions? Contact:
Audrey Katcher, CPA, CISA
Partner
Internal Audit Services Group
314.290.3420
audrey.katcher@rubinbrown.com
How do I prepare for a SAS 70?
1Meet with an experienced, PCAOB-registered
accounting firm.
2 Understand my client’s needs and timeline.
3 Have a “gap analysis” performed.
4 Allow time for remediation.
5 Schedule the SAS 70.
Competitive Advantage
A SAS 70 report, issued by an independent accounting
firm, will differentiate a service organization from its
competitors by identifying and evaluating the design
and operating effectiveness of internal controls. A
report, with an unqualified opinion, will build trust
with the service organization’s customers. Completely
satisfied customers will tell other businesses about
their satisfaction with the service organization.
RubinBrown Guidance
Is there an option other than SAS 70?
Clients often request a SAS 70 as part of their vendor
due diligence. Depending on the requirements the
client needs to meet, other options may be viable in
lieu of a SAS 70. Those options are:
• An Agreed Upon Procedures engagement. This
engagement will provide client(s) tailored controls
feedback related to, for example, specified service
level agreement/contract compliance areas.
• A SysTrust engagement. A SysTrust engagement is
based on these pre-defined principles and criteria:
security, online privacy, availability, confidentiality
and processing integrity.
The SAS 70 guidance is not based on a checklist of
pre-determined controls to test but rather is based
on the AICPA’s standards of fieldwork, quality control
and reporting. Therefore, the choice of an auditor for
your SAS 70 is critical.
As a PCAOB-registered accounting firm, RubinBrown
has an experienced team that has led and performed
many SAS 70 examinations. RubinBrown’s SAS 70
team will ensure wise and timely use of resources
and will provide accurate guidance on the subject of
financial and information technology controls.
GENERAL TOPICS
Six Degrees
of Separation...
Maximizing
Accounting’s
Value
within Your
Organization
By Kristin Parshay
becomes how to capture that information to provide
timely, relevant and accurate reporting to support
business decisions and create maximum stakeholder
value. Our answer to this challenge is to think lean.
In summary, lean can be defined as the relentless
pursuit of maximum value through the elimination
of waste. Lean theory classifies waste into eight
categories:
1.Waiting: delays in creation or delivery of a product
or service
2.Over-production: processing too soon or more
than required
3.Rework: correction of errors or mistakes
4.Motion: movement of people without adding value
5.Processing: processing more than required when
a simpler approach would have met customer
requirements
6.Intellect: employees not leveraged to their potential
7.Inventory: having excess inventory
“Theory of Six Degrees of Separation
— If a person is one step away from
each person they know and two steps
away from each person who is known
by one of the people they know, then
everyone is at most six steps away
from any other person on earth.” —
Wikipedia
This concept can apply to accounting functions in any
organization. All actions create transactions captured
by accounting — a new product idea, an unhappy
customer and even a sick employee. So, if accounting
is one step away from a transaction and two steps away
from an action, then accounting is at most six steps
away from any action within an organization. What
an incredible wealth of information! The challenge
8.Transportation: moving items more than required
Accounting’s role in the elimination of waste is twofold; first, within the operations of the accounting
function and, second, through the behaviors created
from the use of financial information. Opportunities for
eliminating waste from accounting operations include
(1) re-balancing closing practices so corporate
accounting is not waiting to finalize closing until
accounts payable closes or (2) mistake-proofing
transaction posting to eliminate the re-class of
expenses because they were not posted to the correct
account the first time. Wasteful behaviors caused by
financial reporting can be changed by providing profit
and loss statements that consider inventory as a waste
if customer demand did not warrant its production
or analyzing organizational spending based on the
justification for the value it created instead of whether
the spending was budgeted.
Addressing waste in both accounting operations and
reporting marks an accounting function’s transition to
a lean accounting environment. Summarized below
is a practical approach to this transition and some of
the benefits created as an accounting function steps
through the process. While the most value is derived
through the implementation of all steps, this evolution
does not occur overnight and can be applied in
differing degrees, depending on the organization’s
culture for change and the industry in which
it operates.
•Application of lean to accounting operations:
eliminating waste within accounting operations
such as the financial closing, accounts payable,
accounts receivable and payroll. A few of the
benefits realized include reduced operational
expenses, increased cash flow and increased
capacity within the accounting function.
•Identification of organizational value streams:
analyzing the flow of materials and information
to bring a product or service to customers
(internal and external). A cross-functional
exercise that breaks down an organization’s silos
to understand business processes from cradle
to grave, ultimately highlighting value-added and
non-value added activities.
Organizations operate through a series of decisions.
The accounting function in any organization is at most
six steps away from any action that takes place within
it. By eliminating waste within accounting operations,
no function is better positioned to provide accurate,
relevant and timely information to decision-makers to
create and sustain maximum stakeholder value.
Questions? Contact:
Cathy Behnen, CPA, CIA
Partner
314.290.3204
cathy.behnen@rubinbrown.com
Kristin Parshay
Manager
314.363.9039
kristin.parshay@rubinbrown.com
•Implementation of value stream accounting:
identification and application of revenue and
expenses by value stream. Allows the organization
to directly connect value-added and non-value
added activities to financial performance.
•Plain English management reporting: designed
from value stream exercises to align reporting
with lean theories of waste. Reporting is easily
understood by internal stakeholders outside of
accounting, providing information that drives the
right organizational behavior.
•Lean external reporting: combines external
reporting practices with internal management
reporting based on value streams. Lean
external reporting removes the need to maintain
dual
reporting
and
provides
external
stakeholders with the benefits of plain English
management reporting.
GENERAL TOPICS
Job Market
Outlook: Take
Advantage of
Exceptional
Talent
By Tamara Vazquez and Eric Hahn
Is your company in “hold back”
mode? Are you watching expenses
and making due with the staff that you
have? This theme is common among
companies riding out our current
economic condition.
Are you trying to survive today or are you planning to
be one of the dominant companies in your industry
tomorrow? In this particular recession, companies can
compare the hiring market to the real estate market.
The real estate market is a “buyers market,” especially
considering the recent increase in foreclosures. There
is an abundance of quality homes on the market
with tremendous upside or return on investment. The
same thing could be said about the hiring market.
With the recent restructurings and downsizings, there
is an abundance of quality talent in the job market;
some that offer tremendous upside or a high level of
ROI. So, as with the real estate market, the current
economic environment may just be a “buyers market”
or “hiring market" for employers.
In any economy, an organization’s most valuable asset
is its PEOPLE. This asset is even more important in
uncertain times, when survival may depend on strong
leadership and maintaining high levels of customer
service. With outstanding performers now in the job
market, companies have access to professionals who
would not have been available one year ago. Even
though managers are closely watching budgets,
it makes sense to hire professionals who can help
enhance a company’s depth of skills and expertise
now and in the future.
5.Hire people with potential. Look for candidates
who show a progression in their career. Hire the
people who should be running the company in
the next three years.
Hiring the best people can protect a company from
the competition by enhancing the following:
Consider hiring contract employees. Hiring business
professionals on a temporary basis is a great way
to complete a project that could not be completed
otherwise. Contract employees can work for a month
or for several years depending on the company’s
needs, without incurring employment costs such as
payroll tax, insurance and benefits.
•Leadership: Strong company leadership leads to
satisfied customers and employees.
•Customer Service: Now is the time to focus on
customer service. This differentiates companies
from the competition.
•Technology: Keeping technology up-to-date will
provide quick and accurate response time
to customers and attract quality professionals to
the company.
Hiring right is a key skill in finding the best talent.
1.Define desired results for a role before recruiting for
it. Having a well-written job description with clear
expectations of results is critical to success.
6.Hire A players instead of B players (especially if
the company is in a high growth mode). B players
focus on getting activities done; A players focus
on achieving results. (A players’ salaries are
usually 10-20 percent higher, but they deliver
300-500 percent greater results.)
Now is the time to take advantage of hiring
exceptional talent, both temporary and permanent.
Abacus Recruiting is a division of RubinBrown LLP,
St. Louis’ largest accounting firm. Abacus Recruiting
specializes in accounting, financial, marketing, human
resources and business management recruiting.
Abacus is a trusted advisor with its clients in finding
exceptional talent.
Questions? Contact:
2.Identify skills and knowledge needed to produce
the result. If the candidate is missing any of the
mandatory requirements in this list, he/she would
not be a candidate for the position. Aim for this
standard to produce exceptional hires.
Tamara Vazquez
President
ABACUS Executive Recruiting
314.878.5522
tamara@abacusrecruiting.com
3.Do not hire the best candidate; hire the candidate
who is 100 percent qualified. A candidate is
either 100 percent qualified or not. There is no
middle ground.
Eric Hahn
Recruiting Manager
ABACUS Executive Recruiting
314.878.5522
eric@abacusrecruiting.com
4.Look for specific proof of skills needed to deliver
the desired outcome. Use a “proof-based”
approach. Look for examples of how the candidate
has demonstrated each specific skill. After all,
Missouri is the “Show Me State.”
GENERAL TOPICS
Retirement
Plan Document
Training
Session
By Wayne A. Isaacs, JD, CPA, CEBS
Background
An employer sponsoring a qualified retirement plan
must ensure that the plan continues to maintain its
tax-qualified status by keeping the plan document
current and in compliance with required laws and
regulations. There are three types of plan documents
that an employer may use to comply:
1.Individually designed — This customized
document is normally drafted by an attorney based
on the employer’s plan design specifications. The
executed document and related amendments
should be filed by the employer with the Internal
Revenue Service based on a five-year cycle to
obtain a determination letter that the form and
content meet all the requirements.
2.Prototype — This document is submitted by a
prototype plan sponsor to the IRS for its review
and approval; the IRS will issue an opinion letter
indicating that it meets all the requirements. There
are two components: a basic plan document,
which includes the substantive provisions, and
a corresponding adoption agreement that an
employer uses to elect the relevant plan design
provisions for its plan. The adoption agreement
enables the employer to check a box and choose
the applicable feature it wants for its plan from
a variety of available options. A prototype plan
sponsor can maintain one basic plan document
and have multiple adoption agreements (i.e.,
401(k) plan, profit sharing plan, money purchase
pension plan, etc.).
3.Volume submitter — This specimen or sample
plan document is submitted by a volume submitter
plan sponsor to the IRS for its review and
approval. The IRS will issue an advisory letter
indicating that it meets all the requirements. This
document normally includes additional provisions
that the IRS does not allow to be included
in a prototype plan document (i.e., enhanced
employer contribution formulas, allowing multiple
unrelated employers to participate in the plan,
etc.). The volume submitter plan sponsor may
then draft and customize the plan document for
an employer to look like an individually designed
plan document or may include a sample
plan (basic plan document) and an adoption
agreement for an employer to identify the plan
design provisions it wants to select. The adoption
agreement enables the employer to check a box
and choose the applicable feature it wants for its
plan from a variety of available options.
A prototype sponsor is required to amend and update
its plan document to incorporate required legislative
and regulatory changes. In 2006, the IRS issued
guidance identifying the procedures for revising
prototype plan documents to comply with changes to
the retirement plan provisions based on The Economic
Growth and Tax Relief Reconciliation Act of 2001
(EGTRRA) and related IRS regulations. A basic plan
document and applicable adoption agreement was
revised to reflect required changes, and the IRS also
allowed the inclusion of additional plan design features
to offer more flexibility for adopting employers. The
new basic plan document and adoption agreements
are referred to as EGTRRA documents.
Clients currently using one of the prior prototype plan
defined contribution plan documents sponsored by
RubinBrown must complete and execute the new
EGTRRA adoption agreement by April 30, 2010, to
keep their tax-qualified plan status and comply with
the requirements. In addition, the same rules apply to
volume submitter plan documents, and RubinBrown
also is the volume submitter plan sponsor of an
IRS-approved EGTRRA plan document that has a
basic plan document, adoption agreement and IRS
advisory letter.
The Benefits Group is sponsoring a series of prototype
and volume submitter plan document restatement
sessions this year for its clients to review and discuss
the new basic plan document, related adoption
agreements and relevant changes. Existing clients will
be contacted in the fourth quarter and invited to one of
the training sessions that will be held at RubinBrown’s
office. In addition, clients using another firm’s
prototype plan document or individually designed
plan document also may use one of the EGTRRA
adoption agreements. Please contact Wayne Isaacs if
you would like to use the EGTRRA document or obtain
further information about the training sessions.
Questions? Contact:
Wayne A. Isaacs, JD, CPA, CEBS
Manager
Benefits Group
314.290.3493
wayne.isaacs@rubinbrown.com
Client Action
RubinBrown is the prototype plan sponsor of several
IRS-approved EGTRRA plan documents that use
the same basic plan document but have their own
adoption agreement and IRS opinion letter:
• Nonstandardized Profit Sharing Plan
• Standardized Profit Sharing Plan
• Nonstandardized Money Purchase Pension Plan
•Nonstandardized Profit Sharing Plan with Cash or
Deferred Arrangement (401(k) plan)
GUEST FEATURE
Jack Smith, Collaborative Strategies Inc.
What Really
Creates Market
Advantage?
By Jack Smith, Collaborative Strategies Inc.
How many books have you read on this subject
starting back in 1982 with “In Search of Excellence”
by Tom Peters and Robert H. Waterman Jr.?
Having read just about every one of those books,
I believe they get very close (most notably “Good
to Great” by Jim Collins and “The Breakthrough
Company” by Keith McFarland). However, after having
the privilege of working in more than 250 organizations
and learning from both the successes and failures of
some of the very best, I’d like to share a real world
answer to: What Really Creates Market Advantage?
One thing I learned early on is that no firm is as great
or mediocre as they may appear. Just like in our own
lives, we’re not as sensational as people think when
they see us on a roll, and we’re not as incapable as
they perceive us when we’re down. (Pro athletes can
certainly relate to this truism.)
What I’ve also learned is that every company thinks
they have great people. In almost every SWOT
analysis we conduct in strategic planning, firms cite
their people as a strength. Never have I heard … “our
weakness is our people.”
So where the above is the same with most every
company with which I have had the privilege to
work, let me share with you what is most different in
companies who really create market advantage.
It comes down, time and time again, to three things:
Culture, Leadership and Relationships.
Culture — The best definition I’ve heard for
organizational culture is: “How people come together
to get things done.” Recent research* suggests that
seven aggregate characteristics capture the essence
of an organization’s culture:
1.Innovation and Risk Taking
2.Attention to Detail
3.Results Orientation
4.People Orientation
5.Team Orientation
6.Aggressiveness
7.Stability
Evaluating each characteristic on a continuum from
low to high will give you a good composite picture of
any organization’s culture.
Once again, I believe this research gets it very close,
but I believe it does not adequately illuminate the two
most critical elements of an effective culture: Trust
and Responsibility. Trust is defined as “the ability to
say anything to one another respectfully without fear
of reprisal; while I reference responsibility in terms of
“taking responsibility for the success of others, e.g.,
customers, coworkers, owners, suppliers, etc.”
In fact, in an 11-year study, John Kolter (author of
“Corporate Culture and Economic Performance”)
showed income growth to be six times higher in
strong and effective cultures, with effective defined
as “performance oriented and balanced (customer,
employee, owner).”
Leadership — I can sense it on the first day of an
engagement, especially at the top of the organization.
Great leaders expect and get the best from their
people … no exceptions. And, great leaders make
the tough “trade off” decisions that cause a company
to remain truly distinctive. They say no to things that
divert precious resources from what they do best.
My own bias on leadership leans toward servant
leadership in which one genuinely cares about people
to the point where one serves and enables them.
This caring comes out in the forms of respectfulness,
selflessness, kindness and being genuine. How much
a leader cares also shows itself in the ability to
demonstrate tough love when necessary. Skilled
servant leaders have ample ability to both “hug and
spank” in a caring way.
This kind of caring takes time and too many people in
leadership positions today are not investing this time.
Servant leadership cannot be done over e-mail.
Relationships — Market advantage ultimately
comes from the number of quality customer, supplier
and influencer relationships you build based on the
value given and received. Your business and career
advantage is in direct proportion to growth in the
number of these quality relationships.
A favorite question of mine to young business people
is: How many quality relationships do you have in
your life (outside of family, coworkers, suppliers and
long-time friends), with quality defined as “someone
who will go out of his or her way to do you a favor?”
The answer 95 percent of the time is less than five
and usually is one or two. Again, your business and
career advantage is in direct proportion to growth in
the number of these quality relationships. Look at the
people who have grown/earned 50 or more, and you’ll
see a very successful person.
A major shift is obviously occurring with the increased
reliance on electronic communications, including
business and social networking, e.g., LinkedIn,
Facebook, etc. While these tools are outstanding for
maintaining existing relationships and keeping others
informed on your life, they are woefully inadequate
when it comes to creating new relationships and
deepening existing relationships. Gaining advantage
today requires a combination of both face-to-face and
electronic communications. Too little of one or the
other will inhibit your success.
Find a company with these three components
(leadership, relationships and culture), and you’ll be
certain to see a company with market advantage.
Jack Smith,
Co-owner, Principal,
Collaborative Strategies Inc.
Jack Smith is co-owner and
principal of Collaborative
Strategies Inc., the
leading strategic planning
consulting firm serving
for-profit and not-forprofit organizations in St.
Louis, with an expanding
presence in Kansas City.
Striving to serve as a
valued partner to its
entrepreneurial and not-for-profit clients, the team of
highly skilled consultants (including Gina Hoagland,
the firm’s president and co-owner) and strong support
team are focused on bringing out the best thinking,
decisions and action plans that allow clients to take
better control of their destiny and achieve valuable
competitive advantages.
Smith attained the position of corporate president
before age 40 after establishing a successful track
record working in both large and small companies
within four different industries. His business
experience spans marketing, operations, sales
management, finance, information systems and
human resources. He moved to St. Louis in 1987 and
served for nearly 10 years as an executive at two of
St. Louis’ premier fast-growth companies – CyberTel
Corp. and Bock Pharmacal Company/Highland
Packaging Co.
Since joining Collaborative Strategies as principal
in 1996, Jack has helped clients grow the market
value of their firms, develop outstanding management
teams, achieve profitable revenue growth, and
successfully expand the number and depth of
customer relationships. His long-term focus on
personal effectiveness equips him to be an effective
coach to corporate leaders. Jack has established
productive consulting relationships with more than
250 organizations engaged in more than 40 different
industries spanning manufacturing, financial services,
direct marketing, construction, etc. Jack credits most
of his ongoing success to all that he learns from his
clients and colleagues.
*People and Organizational Culture C.A. O’Reilly Academy of Management Journal
INDUSTRY u AUTOMOTIVE
changes have presented many opportunities for
dealers to capture market share and gain competitive
advantages. Dealerships that are able to seize these
opportunities in the short term are the dealerships that
will be successful in the long term.
Dealerships
Seize
Opportunities
for Long-Term
Success
By John Butler, CPA
There are few sectors of our economy that have
been as dramatically impacted by the recession as
the automotive industry. Not only have the changes
been enormous in their scope and size, but they
have happened at an unbelievable pace. It is not an
overstatement to say that the fortunes of the industry
have been changing daily.
As turbulent as these times have been for the
automotive industry, underneath the turmoil these
The whole industry is dramatically different than it was
just 12 to 18 months ago. Who could have predicted
the collapse in the financial services industry that would
ripple through the entire economy, causing vehicle
sales to plummet and resulting in the bankruptcy of
Chrysler and General Motors? While vehicle sales
have been recovering, the changes touched off by
these events are by no means done. Vehicle sales will
not return to the levels of recent years for some time.
Until then, dealerships will have to make the most of
what they have.
The immediate and obvious lesson of all this turmoil
is that businesses, in general, will need much more
equity to operate, and financing will be more costly.
But in the longer term, success will depend on
the ability of dealerships to move quickly to take
advantage of changes in the marketplace.
The cash for clunkers program is an example of an
opportunity to seize market share. The pace with
which this program was designed and implemented
is unprecedented. An entirely new set of internal
processes and procedures had to be designed
from scratch and implemented to comply with the
requirements of the program and get reimbursed from
the government. To make matters worse, dealerships
had to balance the competing demands of satisfying
customer demand and getting paid by the government
as the funds allotted to the program quickly dried up.
The response from dealers has been impressive. They
have shown to be remarkably adept at moving quickly
to create marketing programs to get customers in the
door to take advantage of the program.
Another good example of adapting to change has
been in fixed operations. The difference between
the dealers who make it through the recession and
the ones who do not will be in fixed operations.
Dealerships with a strong base of customer pay
service work were able to survive the unprecedented
drop in new vehicle sales because of the profitability
of their service departments.
While dealerships have been adapting to lower levels
of warranty work over the years, the latest opportunity
has arisen overnight. After the bankruptcy of Chrysler
and General Motors, the surviving dealerships that
have found ways to attract orphaned customers
have been able to increase their sales and service
revenues. Dealerships successful in attracting these
orphaned customers have had to find creative ways
to get them in the door and earn their trust.
The ability of dealerships to retain customers who
transfer from closed dealerships is directly related to
their ability to provide top-quality customer service.
Even more challenging is that customers’ perception
of what constitutes “top-quality customer service” has
been a moving target. The competition for customer
pay service work has been intense and will continue
to intensify. Dealerships must continue to evolve and
adapt their service business to retain and grow their
customer base. This adaptability will require creativity
and flexibility.
What will be the next big change to rock the retail
automotive industry? It is not a question of if but when
it will hit. What do dealerships need to do to be ready
to meet these challenges? There are three things
that impact the success of a particular dealership —
product, location and management. In the short term,
there is not much that can be done about product or
location. However, management is the one area on
which dealerships can have an impact. Dealerships
with well-trained, competent, motivated, engaged
management teams are more likely to be successful
than their competition.
quickly, but lasting improvements can only be
achieved through sustained effort and improvement
in the leadership of every department.
Each department will need to spend more time
developing the strategy and objectives needed to
improve their customer service and profitability.
Most dealerships have an unwritten set of strategies
and objectives. However, as these strategies and
objectives get more complicated, there will be more
to do than a department head can accomplish. As
a necessity, the strategy and objectives must be
documented in order to communicate them to others.
Furthermore, each department's strategy and
objectives should be coordinated into an overall
strategy. The overall strategy and objectives also must
address the way the dealership attracts, develops,
retains and rewards high-performing managers.
Marketing is another facet of a dealership’s operations
that will be impacted. The best marketing campaign
in the world will be ineffective if customers are
disappointed with their experience when they show
up at the dealership. The more complex and detailed
these plans become, the more they will need to
be coordinated and communicated if they are
to be successful.
Change has always been a way of life, but it is
now occurring at an even faster rate. Dealerships
and businesses that can adapt to change and take
advantage of the opportunities they present will
continue to grow and be successful.
Questions? Contact:
John Butler, CPA
Partner-in-Charge
Automotive Services Group
314.290.3333
john.butler@rubinbrown.com
Unlike product and location changes, which are
usually big, changes in the strength and capabilities
of a dealership’s management happen more slowly.
Yes, hiring and firing managers can effect changes
INDUSTRY u CONTRACTORS
Current Tax
and Financial
Reporting
Developments
for the
Construction
Industry
By Frank Hogg, CPA
3 Percent Withholding
Beginning on January 1, 2012, federal, state and
local governments are required to withhold 3 percent
from all payments for goods and services as a
guard against possible business tax evasion. The law
mandates that federal, state and local governments
with total annual expenditures of $100 million or more
withhold 3 percent on all government payments for
products and services.
The Associated General Contractors of America and
numerous other trade associations across the United
States are supporting the total repeal of the 3 percent
withholding requirements. The AGC’s comments
supporting the repeal include:
• Withholding applies to the total contract, not
to the net revenue generated from a project.
For construction contractors, this means the
government is withholding funds necessary to
complete a project, such as those necessary to
pay for materials and suppliers.
•Withholding is more than profit on most
construction contracts. Most general contractors, especially those working as construction
managers, do not make a 3 percent profit on
a contract. For example, a small business
contractor may hold one government contract that
is estimated to be completed in one year for $10
million. This law requires withholding $300,000 on
that contract. Meanwhile, the contractor expects
to net approximately 2.5 percent, or $250,000,
after paying for supplies, services, subcontractors
and other ordinary business expenses. The tax on
the revenue generated is at most 35 percent of
the revenue, which means the maximum tax owed
on the $10 million project is $87,500 (35 percent
of $250,000). Ultimately, the government has
withheld $300,000 for an $87,500 tax liability.
• Tightened cash flow would lead to less
economic investment. With companies facing
narrower profit margins during rough economic
times, the prospect of additional tax withholding
diverts available resources away from business
expansion activities, including workforce
investment and equipment purchases.
•Tightened cash flow would restrict bonding
capacity. The federal law requires construction
contractors to carry several types of bonds.
Surety companies that provide these bonds look
at cash flow when deciding whether to cover a
contract. This withholding law will restrict cash
flow, leading to higher costs for bonds or the
denial of coverage, both of which drive up the
cost of the construction. In addition, the increased
costs and difficulty in bonding will drive small
businesses out of the market.
• Undue burden on S Corps and joint ventures.
Withholding creates additional reporting burdens
on S Corps and other pass-through entities, as
those withholdings will need to be accounted
for and reported to each stockholder in the
corporation, thereby impacting their tax returns
and tax liability. The law could drive joint ventures
out of the market, leaving large federal construction
jobs with very few, if any, bidders.
Look-Back Interest Provisions
The AGC also is supporting several changes regarding
look-back interest. These changes include:
•Allowing closely held pass-through entities (i.e.,
S Corps) to apply the look-back interest provisions
at the entity level. This change would eliminate the
current provision of requiring each stockholder
to report the look-back interest on his or her
personal return.
•Currently, there is an exemption from the lookback rules for contracts that are completed within
two years and for which the contract price does
not exceed the lesser of $1,000,000 or 1 percent
of the average gross receipts of the taxpayer for
the three preceding years. The AGC is supporting
a legislative change to remove the $1,000,000 or
1 percent threshold. This proposed change would
exempt a significant percentage of the contracts
currently subject to the look-back provisions.
•Establish more clear guidance when the statute
of limitations begins for look-back interest claims.
Part of the complexity to look-back interest is
caused by the fact that the limitations period for
taxpayer claims for look-back interest is separate
from the taxpayer’s normal statute of limitations
and that such limitations period is based on the
completion date of the contract giving rise to lookback interest.
Revenue Recognition Project
The U. S. Financial Accounting Standards Board and
the International Accounting Standards Board have a
long-standing joint project on revenue recognition with
the intended purpose of clarifying the principles for
recognizing revenue. In December 2008, a discussion
paper was issued by the boards inviting comments on
their preliminary view of establishing a single, contract-
based revenue recognition model. The boards expect
that entities will recognize revenue under this model
more consistently, regardless of the industry in which
an entity operates. Written comments on the discussion
paper were to be submitted to the boards by June 19,
2009. The AGC responded to the discussion paper
and included the following comments:
•Concerns were expressed that a single revenue
recognition principle is not necessarily a
meaningful enhancement of generally accepted
accounting principles. Emphasis was placed on
the fact that every contract is unique. A contractor
has never built the exact project under the same
terms and conditions before and will never build
it again.
We will continue to keep you updated on these new
tax and financial reporting developments within the
construction industry.
Questions? Contact:
Frank Hogg, CPA
Partner-in-Charge
Contractors Services Group
314.290.3413
frank.hogg@rubinbrown.com
Mark Jansen, CPA
Partner
Contractors Services Group
314.290.3208
mark.jansen@rubinbrown.com
•After 28 years of applying the principles and
guidance of SOP 81-1, the construction industry
contractors, auditors and users of their financial
statements have substantial understanding of
the SOP 81-1 standards. The practices are both
accepted and applied in the industry and the
principles produce faithful representations of the
financial condition and results of operations of
construction entities. Concerns were expressed
that the proposed method, when taken as
a whole, will result in substantial changes in
the timing of revenue recognition in the
construction industry.
•The AGC requested that long-term construction
contracts be exempt for the proposed principle
and requested the boards’ consideration of a
separate revenue recognition standard that is
aligned with SOP 81-1.
•The AGC believes that a valid test of any new
principle that is intended to replace the guidance
of SOP 81-1 should be tested against the outcome
of SOP 81-1. If the revenue recognized in a given
period significantly differs from that which would
be recognized under SOP 81-1, it is likely that the
principle is flawed.
INDUSTRY u HOME BUILDERS
from as low as 5.5 percent to prime plus some
factor. Collateral and credit terms have certainly
become more restrictive.
•Pent-Up Demand — Buyers have been on the
sidelines for several years now. There is no doubt
that pent-up demand exists and eventually needs
to be satisfied. The creation of new households,
being generated by the booming college-age
generation and aging demographics, will provide
much opportunity.
Business After
the Crisis
By Steven W. Hays Sr., CPA
THE MARKET
Home building is on the verge of “turning the corner”
on what experts have noted has been the worst
economic times in its industry’s history. Since July
2005, the market has been in a steep decline,
operating recently as low as 25 percent of its peak
capacity. Despite a struggling overall economy, there
appear to be some reasons and signs of optimism:
•Home Buyer Interest Rates — Long-term mortgage
rates continue to be low by all standards and
are projected to remain constant through the
end of the year. While credit standards remain
most challenging, there are still several options
available in the mortgage market.
•Home Builder Interest Rates — While most loans
have added floors, the borrowing rate still ranges
•Improvement in the Resale Market — The $8,000
first-time home buyer tax credit has generated
more than 200,000 sales nationally through July
per NAHB estimates. Although many of these
homes were resale, it provided some much
needed relief for people who could not sell their
homes to move up to new homes. NAHB is
pushing for an extension of the credit beyond its
December 1 expiration date.
•Competition — Only the best and strongest
home builders have survived. Bad competitors,
who often had little understanding of their
financial operations, have been eliminated. As a
result, expect margins to improve as the market
recovers.
However, many struggles still remain.
•Lenders will continue to be cautious. Credit
terms, often driven by regulators, will remain a
concern for the intermediate term. Banks also
will be challenged as other industries, especially
commercial real estate, will now become victims
of the troubled economy. The lack of pre-sale
construction financing continues to be puzzling
and must be corrected soon.
•Jobs, jobs and jobs … The rising unemployment
rate is a concern to all. The uncertainty of
employment is a major deterrent to the biggest
purchase a home buyer will make. The personal
distress and psychological wear and tear cannot
be overlooked.
•Even the strongest companies were damaged
by the crisis. The amount of company and
personal net worth that have been lost will take
considerable time to recover.
•The appraisal part of the industry will need to
stabilize. The sometimes unpredictable means
used to determine appraisals will have to provide
some relief from foreclosure activities.
WHAT DOES THIS MEAN FOR THE SURVIVORS?
There is little doubt that home builders will operate
in a much different manner after the crisis. Potential
changes include:
•Business Operations — Builders have learned
to operate with less people. In addition, with
the advances in technology, more systems and
processes are no longer completed manually.
Expect this trend to continue. Customers, suppliers
and contacts will expect real-time access to
information. Systems and processes will need
to be at their highest level as only the “best”
have survived.
•Financing — Lending compliance and covenants
will continue to be at a heightened stage. New
projects will require substantial real equity,
personal guarantees and restrictive covenants.
The quality, quantity and timeliness of required
information will greatly increase, likely including
an enhanced level of service from your outside
CPA firm. In addition, the home buyer will be
asked more frequently to carry the construction
loan personally.
•Less Land — The number of lots a builder will
be able to “carry” or own likely will be limited
by lending constraints. Investors and other third
parties will be the holders of raw land and
developed lots. Although specs have been a
huge percentage of the market, expect pre-sales
to make a healthy return.
smaller square footage. Energy-efficient space
will be in demand and green building trends
will be a strong consideration. Lower costs per
square foot will be an emphasis.
•Sales and Marketing — As many forms of print
media continue to struggle, communicating with
potential home buyers will be a major issue.
With the recent boom in social networking –
Facebook, Twitter, LinkedIn – home builders will
be challenged to keep up with rapidly changing
customer preferences. Also, builders will need to
have state-of-the-art interactive Web sites, which
will drive a lot of traffic. The number of display
models will be greatly reduced to 1-2 per project.
Untrained sales staff and assistants will not
be tolerated.
•Increased Gross Profit Margin — No business
can operate long-term with the margins this
industry has experienced in recent years. Gross
profits have declined as much as 8 percent
from all-time highs. Expect margins to increase
with the revaluing of lot prices, the slowdown in
discounting and an increase in the number of
to-be-builts versus specs.
When the market does begin to recover, there will
be much opportunity. Builders who have planned
accordingly will be in a position to take advantage of
a renewed market.
STAY TUNED AND BE POSITIVE!
Questions? Contact:
Steve Hays, CPA
Partner-in-Charge
Home Builders Services Group
314.290.3336
steve.hays@rubinbrown.com
•Design Trends — It appears the market is shifting
somewhat. As the demographics age, potential
home buyers want nice features but likely in
INDUSTRY u HOSPITALITY & GAMING
Recruiting
and Retaining
Club Members
in a Tough
Economy
By Jim Mather, CPA
The economy’s slide last fall had
a substantial impact on the private
club industry, which caused many of
the clubs’ executives and boards to
revisit their budgets and strategies for
the upcoming fiscal years ending in
2009 and 2010.
The unprecedented economic conditions (at least
to many of us) caused membership levels to take
a nose dive. Fortunately for some clubs, they had
completed successful recruitment initiatives that
helped to minimize the loss in net membership levels
over the previous fiscal year. Many clubs experienced
the loss of senior members who no longer utilized all
the services of the club and did not experience the full
value of the monthly dues… so they resigned. Clubs
also lost many of the “marginal members” who joined
when perfect economic conditions allowed their entry
but the downturn forced them to resign or reduce their
membership status.
Below is a summary of an informal survey of
St. Louis area clubs’ experiences from September
2008 through June 2009:
•Regular membership levels decreased by an
average of 4 percent.
•Junior and intermediate levels decreased by an
average of 6.3 percent.
•Senior levels decreased by an average of almost
7 percent.
•Total membership (all categories) decreased an
average of almost 4.5 percent.
What do these changes mean to the basic revenue
stream of a typical club? Assume a club has
approximately 525 club members and loses 4.5
percent of them during any given year, amounting
to approximately 23 members. If we assume the 23
members’ dues and other recurring charges average
at least $500 each per month ($6,000 per year),
then a typical club lost revenues and cash flow of
approximately $138,000. This conservative example
does not factor in the lost food and beverage, golf and
other revenues provided by these former members. If
we also assume that these members actually used the
club’s facilities like a typical or average member, then
we could very conservatively double the estimated
lost revenue number!
This situation has required many clubs to evaluate
cost-cutting measures throughout the club by
reducing headcount, eliminating certain nonessential
services and challenging some long-time business
practices. Boards and general managers continue
to monitor costs and expenses very closely and wait
optimistically for some signs of economic recovery to
allow them to loosen their belts.
In addition to reducing costs, while trying to maintain
membership services at an acceptable level, many
clubs continued efforts to aggressively recruit new
members. According to potential new members,
some of the reservations that have dampened their
willingness to join a club include:
•Uncertainty concerning their own business or
their employer.
•Costs of club membership are no longer supported
or subsidized by their employer.
•Declining personal discretionary funds and
retirement savings.
•The increasing monthly and annual costs
associated with becoming a member.
•Limited leisure time and conflicting family/
recreational activities.
•Increased commitments with employer and
related travel.
•An abundance of quality public golf course
facilities competing for their dollars.
Clubs must overcome these challenges in recruiting
members and hopefully will be aided by an improvement
in the economy in the near term. Unfortunately, many
of the economic issues noted above are out of the
control of club management. Management, however,
can make a difference in the quality of service and
the attention given to members to enhance the
members’ overall experience each time they visit the
club, which can be the deciding factor to stay or go.
Monitoring the per member utilization of the facilities
and services may be one indicator of the membership
satisfaction level, but it should never replace the faceto-face interaction with the members by management
and the board to solicit feedback and direction.
Clubs that are able to endure the financial squeeze
and maximize the value members receive for their
dues will be successful in attracting and retaining a
strong membership.
Questions? Contact:
Jim Mather, CPA
Partner-in-Charge
Hospitality and Gaming Services Group
314.290.3470
jim.mather@rubinbrown.com
INDUSTRY u MANUFACTURING & DISTRIBUTION
Continuous
Improvement
in Troubled
Economic
Times
By Mike Lewis, CPA
Are you looking for ways to spend your excess cash?
For most manufacturing and distribution companies,
cost-cutting strategies are front and center, and
there is little if any excess cash. The worst economic
conditions since the great depression have led to
significant declines in revenue. This economic crisis,
coupled with the inability to obtain working capital,
has forced many companies to make difficult costcutting decisions, including employee layoffs. It is
a particularly challenging time for those companies
that have made a commitment to lean principles and
continuous improvement.
One of the keys to maintaining a continuous improvement culture is a commitment to the organization’s
team members. This commitment is in conflict with
the need to cut costs for many companies that are
experiencing significant declines in market demand
and top-line revenue. Here are some things to think
about before implementing layoffs at your business:
1.Look for ways to reduce employee costs without
eliminating full-time employees.
• Eliminate all temporary workers
• Eliminate profit-sharing contributions or
company matches
• Eliminate overtime
• C
onsider shorter work shifts or reduced
work weeks
2.Show that everyone is making sacrifices during
the economic downturn.
• Consider requiring all employees, including
administrative and management positions, to
take unpaid leave or furloughs.
• Look closely at discretionary spending —
particularly at the management level.
3.Carry on with your continuous improvement
projects.
• As the pace of work slows — now is the
perfect time for team members to improve
efficiency in your operations.
• Introduce the continuous improvement culture
to other areas of your business outside of
operations, such as finance, marketing and
human resources.
• Improvements to processes now will provide
your company with a competitive advantage
once the economy recovers.
4.Communicate! Communicate! Communicate!
• Be thoughtful about how you implement your
cost reduction program.
• Explain the cost reduction program carefully
and more than one time to team members.
• Communicate the cost reduction plan
personally and from the top!
During an economic downturn, it is important to
balance financial responsibility with the commitment
to your team members. All the years spent creating
an environment of continuous improvement can be
washed away with a poorly communicated mass
layoff. It is important to find creative ways to maintain
financial viability without disrupting your most valuable
asset — your people!
Questions? Contact:
Mike Lewis, CPA
Partner-in-Charge
Services Group
314.290.3391
mike.lewis@rubinbrown.com
Three Great
Reasons to
Claim the R&D
Tax Credit
By Linda Paradis, CPA
For manufacturing and distribution businesses,
R&D activities often are critical to maintaining and
expanding market share. The federal research and
development tax credit is a cash benefit available
for "increasing research activities,” where research
expenditures are "undertaken for the purpose of
discovering information ... which is technological
in nature ..."
Some clients wait for the right time to undergo an
R&D tax credit study. There is no better time than now
to investigate the benefits your business can realize
through an R&D tax credit study. Here are three great
reasons to claim R&D credits this year:
1.Recent Favorable Tax Case — Early in June, the
Fifth Circuit Court of Appeals vacated the ruling on
U.S. v. McFerrin. In McFerrin, a Texas District Court
ruled that research and development activities
had to apply an old regulatory standard, generally
referred to as the "discovery test." In vacating the
decision, the court noted that taxpayers are able
to estimate expenses if they can show that they
performed qualified R&D activities. Evidence may
include testimony and institutional knowledge of
employees. This decision re-opens the door for
businesses to look back at prior years for R&D
activities.
2Legislative Proposal for R&D — One of the key
.proposals in President Obama's package of
business tax incentives is to make the research
credit permanent. Previously, the R&D credit has
been given only one and two-year extensions,
making it difficult to plan for future benefits.
We believe there will be broad support for this
proposal in Congress.
3.Higher Credit Percentage — Since 2007,
businesses have been able to elect the research
credit's Alternative Simplified Credit. For 2009,
the ASC R&D credit percentage increases from
12 percent to 14 percent, making it closer to the
traditional R&D credit, which has a rate of 20
percent. The primary advantages of the ASC are
two-fold. First, the ASC looks at the increase in
research expenditures only. The traditional credit
compares the percentage increase in research
expenditures to the increase in revenues. When
a business' top-line growth is greater than its
increases in R&D, the traditional credit may be
zero, but the ASC often will provide a benefit.
Second, the ASC looks at a maximum of three
years of R&D expenditure history. In computing
the traditional credit, businesses often were
required to look at historical periods and tax
returns extending back into the 1980s. With the
ASC, businesses can take advantage of the
R&D credit without the inconvenience of finding
ancient records.
There are other great reasons to claim the R&D credit
as well, including the positive impact on the workforce
when cash benefits are documented and realized. If
you would like to investigate the potential benefits for
your company, contact Linda Paradis, tax partner, or
your RubinBrown advisor.
Questions? Contact:
Linda Paradis, CPA
Partner
Services Group
314.290.3382
linda.paradis@rubinbrown.com
INDUSTRY u MEDIA & ENTERTAINMENT
New
Technologies
Bring New
Challenges and
Opportunities
By Jessica Sackman, CPA
Not unlike many companies in the
current economy, the broadcasting
industry has faced numerous
challenges as its customers —
businesses across multiple industries
— are forced to streamline processes
and make reductions in expenditures.
Whether due to a decreased advertising budget or a location closing
in the local market, companies running
fewer ads cuts into the revenue
streams of radio and television broadcasting companies.
In addition to economic and other traditional
challenges, broadcasters have increased competition
due to more and more destination media, such
as the Internet and satellite, competing for their
audiences and advertisers. Traditional advertising
dollars such as a new product, a car dealership
or mortgage broker are not the only customers
broadcasters compete for; political campaigns, with
historically large volumes of radio advertising dollars,
also are affected by new technologies. Gone are
the days in which Roosevelt came into millions of
American homes giving fireside chats through radio
sets. Following the disputed presidential election
in Iran, the opposition candidate Moussavi was
said to be maintaining contact with supporters, at
least in part, via Facebook and Twitter. And while
television in the United States has been intertwined
with the political process since its beginnings in the
1950s, the cyclical nature of the political process
means television and radio broadcasters alike have
to entice successful advertising campaigns outside
of the political spectrum this year if they want to see
advertising dollars grow.
With new technologies competing with the more
traditional radio and television, the cyclical demand
on advertising, and customers facing economic
hardship, the challenge of increasing market share to
grow revenue becomes prevalent. Many broadcasters
turn to acquisitions of additional stations or other
media outlets in order to increase the value of their
advertisers’ dollars by capturing a larger audience.
However, challenges through expansion are seen
due to the regulation of Federal Communications
Commission licenses and the related restrictions on
media ownership.
FCC Restrictions
To broadcast radio or TV signals in the United States,
an owner or operator must obtain a license from the
FCC. The FCC licenses radio transmitters according
to geography and certain other common ownership
rules that are intended to help prevent radio stations
from interfering with the signals of other stations. The
spectrum of available radio and television frequencies
is limited, so the FCC can only issue a certain number
of licenses. The FCC also limits individuals or corporate
entities from acquiring more than a certain number of
stations in order to promote diverse viewpoints over
the airwaves.
Common ownership of two television stations is
permitted if the stations are in separate Nielson
Designated Market Areas or if eight independently
owned, operational television stations remain postmerger, and one of the stations is not among the top
four-ranked stations in the market (based on audience
share as measured by Nielson or a comparable rating
service). This second condition assumes that neither
station in the merger is considered a failing station,
in which case the duopoly rule can be waived by
the commission. However, to prove that the station
is in fact failing, applicants must first satisfy the
requirement demonstrating that there is no out-ofmarket buyer willing to pay more than an artificially
depressed price. Applicants must first make a serious
effort to sell the station. The FCC also allows common
ownership in the same DMA if the overlap is de
minimis, meaning the area of overlap encompasses
less than 1 percent of the area and population.
Mixing and matching? The FCC permits ownership
of a television station (or two if the restrictions noted
above are met) and radio station in the same market.
Multiple radio stations, along with the television station,
may be owned if a certain number of independent
voices remain post-merger; the more voices, the more
radio stations that can be a part of the merger. Voice
count tests may include other independently owned
radio stations, daily newspapers and cable systems.
Generally, an independent source of information and
entertainment programming for the relevant market
is considered a voice. Needless to say, a merger
or acquisition takes more research than finding a
broadcaster interested in selling; and once a target
is identified, the seller will often remain the licensee
holder for a substantial amount of time until the FCC
has approved the sale.
New Technologies — Innovative Market
Growth
Looking to expand market share without going
through a traditional acquisition, some broadcasters
are considering innovative ways of expanding their
viewing and listening audience. Take into consideration
a major change in 2009 — the switch from analog to
digital. The digital switch is the end of one TV era,
but broadcasters and device companies hope it’s
opening up another.
When the Telecommunications Act of 1996 granted
broadcasters an additional six megahertz of spectrum
to start making the transition from analog to digital TV,
acquisitions became prominent in the marketplace
as broadcast companies saw the opportunities for
additional media distribution channels. The switch in
2009 opens up even more opportunities. Changing
over to a digital format reduces the amount of signal
spectrum used by the TV broadcasting systems,
thereby freeing up extra capacity. This change
enables first-responders such as local police and
fire departments to enhance the way they react to
emergencies, but both government and broadcast
companies recognize additional opportunities for
new and innovative services for consumers. With
the switch to digital, 700 MHz of analog broadcast
spectrum became available for sale, which was
auctioned off by the FCC. While cellular giants
purchased a significant portion of the spectrum,
hundreds of licenses were sold to television providers
as well. TV stations cannot only send clearer signals
through the air but they can introduce new channels.
The freed-up broadcast spectrum triggered by the
switch also allows television to transmit live to cell
phones and other portable devices. Having a new
pathway through which to reach consumers is a major
step toward increasing market share. Qualcomm
Inc., a carrier with a proprietary advanced wireless
broadband technology for mobile TV, reportedly looks
to expand into 39 markets immediately and 100 by the
end of 2009.
Broadcast companies also have been pursuing market
advantages by streaming radio on the internet. Others
are using emerging technologies to further develop
the reach, coverage and quality of radio and television
wireless signals to gain market share.
Expansion into new markets in a highly regulated
industry is difficult, encouraging broadcast companies
to look into what technological investments they can
make as well as traditional means to gain market
share. The challenges of a recessive economy can
be a compelling reason to use innovative ideas and
explore the utilization of — rather than competition
against — new technologies. Broadcast companies
must consider creating value for customers by
expanding their audience in unconventional ways.
Questions? Contact:
Larry Rubin, CPA
Partner-in-Charge
Media and Entertainment Services Group
314.290.3338
larry.rubin@rubinbrown.com
Jessica Sackman, CPA
Manager
Media and Entertainment Services Group
314.290.3308
jessica.sackman@rubinbrown.com
INDUSTRY u Not-for-Profit
M&A
Operational
Advantages
and SFAS
164 Reporting
Requirements
By Brent Stevens, CPA
In addition to considering the operational benefits and
costs of merging or acquiring another organization, an
NPO also must consider the impact the transaction
will have on its financial statements. The Financial
Accounting Standards Board recently released
additional guidance for NPOs that could drastically
alter the way a merger or acquisition is reported.
Previously, NPOs have been allowed to utilize the
“pooling of interests” method to account for mergers
and acquisitions. Prior to the newly issued SFAS 164
— Not-for-Profit Entities: Mergers and Acquisitions
(note all references to authoritative guidance are prior
to the issuance of the recent FASB codification), the
majority of transactions involving change of control
(without an exchange of consideration) were allowed
to use the pooling of interests method. Under SFAS
164, the majority of such transactions will be classified
as acquisitions, with the acquired assets and liabilities
re-measured at fair value.
In light of financial challenges due to the recent
sharp decline in the overall economy, some not-forprofit organizations (NPOs) are currently evaluating
the potential for operational synergies and costreductions by merging with or acquiring other exempt
organizations. Common synergies and cost-reductions
that NPOs could experience in a combination
include:
SFAS 164 establishes principles and requirements for
how an NPO:
1.Overall reduction of expenditures for management,
overhead and fundraising.
3.Applies the acquisition method in accounting
for a combination that meets the criteria of an
acquisition, including the determination of which
of the combining entities is the acquirer.
2.Decreased health care and benefit costs
for employees.
3.Increased outcome measurement and numbers
of clients served.
4.Elimination of perceived competition by consolidation
of similar charities.
5.Increased credibility and visibility of the larger
consolidated entity.
6.Larger endowment funds for long-term health of
the new entity.
7.Expansion of donor-base.
1.Determines whether a combination is a merger or
an acquisition.
2.Can elect to apply the “pooling of interests
method” for a merger (renamed as “carryover
accounting treatment”).
4.Determines what information to disclose related to
the combination to users of the financial statements.
The process for determining if a combination of two
or more NPOs is accounted for as a merger requires
that the governing bodies of the NPOs (prior to the
combination) cede control of the organizations in
order to create the new NPO. Further, the governing
bodies cannot retain any shared control of the newly
formed NPO. The guidance released by the FASB
provides numerous examples to assist the NPOs
in determining if they have ceded control to form
the new entity. Specific examples in which both
organizations did not cede control (and therefore
the combination is accounted for as an acquisition)
include the following:
1.The governing board and/or officers of the new
entity consist of substantially more former board
members of one of the combined entities than
the other.
2.The operating policies and bylaws of the new
entity are carried over from one of the combined
entities without substantial change.
3.One of the combined entity’s financial positions
is relatively strong, whereas the other entity’s
financial position is significantly weak.
Generally speaking, accounting for a combination of
two or more NPOs as a merger is relatively simplistic,
as the pooling of interests method would most likely
be utilized under the guidance. In a combination
accounted for as a merger, the assets and liabilities
of the entities are simply combined at the date of
the combination. For example, if NPO A (assets of
$1,000,000 and liabilities of $200,000) combines
with NPO B (assets of $1,200,000 and liabilities of
$250,000) on June 30, 2010, the newly formed entity
(NPO C) would consist of assets of $2,200,000 and
liabilities of $450,000.
Prior to the issuance of SFAS 164, the combined entity
that resulted from the “pooling” reported combined
operations retroactively (as if the combining entities
had always been one organization).
If the combination does not meet the criteria of a
merger, then the combination is accounted for as an
acquisition. Upon determination of the acquiring entity
(generally the one in the combination that retains
control or is financially “superior”), the assets and
liabilities of the acquired NPO are adjusted to fair value
on the acquisition date. Additionally, certain intangible
assets that may have not been previously recorded
by the acquired NPO (i.e., patents, trademarks)
also would need to be recorded at fair value by
the acquirer. The FASB guidance has specifically
excluded the following items common to not-for-profit
organizations, and thus they are not required to be
measured at fair value at the acquisition date:
1.Donor relationships of the acquired NPO.
initial reported period for the new entity beginning
on or after December 15, 2009.
2.Combinations classified as an acquisition for
which the acquisition date is on or after the
beginning of the first annual reporting period
beginning on or after December 15, 2009.
2.Conditional promises to give.
Early adoption of this guidance is not allowed.
In addition to the fair value determinations of assets
received in a combination accounted for as an
acquisition, the acquirer must account for the difference
between the consideration given to the acquired NPO
and the net fair value of the assets and liabilities
received. If the fair value of liabilities assumed and
consideration transferred exceeds the fair value of
identifiable assets acquired, the accounting differs
depending on whether the acquired NPO’s operations
are expected to be predominantly supported by
contributions and investment return or, alternatively,
by revenue earned in exchange transactions.
Questions? Contact:
•If the acquired NPO will be predominantly
supported by contributions and investment return,
the excess is reported as an expense on the
statement of activities.
•If the acquired NPO’s operations are expected to
be predominantly supported by revenue earned
in exchange transactions (i.e., billings for services
provided by the NPO), the excess is reported as
goodwill on the statement of financial position.
The issuance of SFAS 164 now requires an NPO to
begin applying the provisions of SFAS 142 to goodwill
and other intangible assets. Under the provisions
of SFAS 142, goodwill and certain intangible assets
with indefinite useful lives will no longer be amortized,
but rather will be evaluated for impairment on an
annual basis.
This guidance is effective for:
1.Combinations classified as mergers for which the
merger date is on or after the beginning of an
Judy Murphy, CPA
Partner-in-Charge
Not-for-Profit Services Group
314.290.3496
judy.murphy@rubinbrown.com
Brent Stevens, CPA
Manager
314.290.3428
brent.stevens@rubinbrown.com
Tips for Filing
2008 Form 990
By James R. Ritts, CPA
2008 is the initial year for the redesigned Form 990,
Return of Organization Exempt from Tax. The IRS
has performed the first major overhaul of this form in
almost 30 years, so the changes are significant. The
goals of the redesign were to promote tax compliance
by NFPs, enhance transparency and minimize the
burden on the filing organizations. Many organizations
have begun the process of completing the 2008
Form 990 (or gathering the information requested
by their accountants to prepare the form), and some
have completed the process. While the experience
is still limited at this point, there are a few trends that
RubinBrown, the IRS and others have noticed:
1.It is taking longer to gather the information and
prepare the return. To begin with, the IRS’ estimate
of the time required to prepare the 2007 Form 990
and its related schedules was approximately 260
hours. For 2008, this estimate is approximately
650 hours. With all of the additional information
required, the IRS may have minimized the burden;
it simply did not reduce the burden.
2.Before spending many hours gathering the data
needed for the new Form 990, do not forget
about Form 990-EZ. For 2008, the number of
organizations that are allowed to fulfill their filing
requirement using this simplified form are greatly
increased since the maximum gross receipts
level was raised to $1 million and the total asset
limit was raised to $2.5 million (from $100,000 and
$250,000, respectively, in 2007). While these limits
will decrease in 2009 and 2010, taking advantage
of the higher limits for a year or two can reduce
the filing burden on the organization and give
management of smaller organizations additional
time to prepare for the longer form. Form 990-EZ
is much shorter and should take much less time
to complete in many cases. As early as May this
year, the IRS noted that a significant number of
organizations that were eligible to file Form 990EZ were instead filing Form 990.
3.The IRS also has noticed that a significant number
of the 2008 Forms 990 that have been filed are
incomplete. Most notably, many organizations are
not disclosing the name of the principal officer on
page 1 of the return. In addition, many returns are
being filed with unanswered questions, especially
in Part IV (Checklist of Required Schedules),
Part V (Statements Regarding Other IRS Filings
and Tax Compliance) and Part VI (Governance).
Finally, many organizations are not providing
explanations of transactions, policies, procedures,
etc., on Schedule O as required by many questions
listed throughout the form. The IRS can treat an
incomplete return as a late filed return, assessing
penalties on both the organization and the officer
responsible for filing the return, so care should be
taken to be sure the return that is filed is complete
in all respects.
Questions? Contact:
Judy Murphy, CPA
Partner-in-Charge
314.290.3496
James R. Ritts, CPA
Partner
314.290.3268
jim.ritts@rubinbrown.com
INDUSTRY u not-for-profit
NFP GAAP
Codification
By Judy Murphy, CPA
On July 1, 2009, the FASB Accounting
Standards Codification became
effective. The codification represents
a major restructuring of accounting
and reporting standards and becomes
a single source of authoritative GAAP.
All authoritative literature, including
FASB standards, interpretations,
EITIs and FSPs or AICPA opinions,
interpretations,
statements
of
position, is now documented in one
source. Non-authoritative sources are
excluded from the codification.
Objectives of the codification include:
•Reducing the amount of time spent researching
accounting issues by simplifying user access to all
authoritative U.S. GAAP.
•Improving the usability of the literature to mitigate
the risk of noncompliance.
•Providing real-time updates as new standards are
released.
•Becoming the authoritative source of literature and
clarifying that guidance not contained in FASB ASC
is not considered authoritative.
The FASB ASC utilizes a topical structure; guidance
is organized into areas, topics, subtopics, sections
and subsections. The topic 958 is “Not-For-Profit
Entities.” Beneath it are a variety of subtopics,
subsets of the topic that generally are identified by
type or scope. Sections provide the nature of the
content — for example, recognition, measurement or
disclosure. Subsections allow further segmentation of
the content.
included in FASB ASC. For example, the recognition
principles for contributions are discussed in FASB
ASC 958-605. Paragraphs 15-17 of FASB ASC 958605-55 provide guidance for distinguishing between
a donor-stipulated condition and a donor-imposed
restriction. FASB ASC 958-205, 958-210, 958-225
and 958-230 contain the standards relating to NFPs’
general-purpose external financial statements.
Subtopics under 958 are as follows:
It also means that effective for financial statements
for periods ending after September 15, 2009
(September 30, 2009, year-ends and thereafter), these
SFASs will no longer be cited within the footnotes.
10 Overall
60 Relationships
20 Financially Interrelated Entities
30 Split Interest Agreements
205Presentation of Financial Statements
210Balance Sheet
225Income Statement
230Statement of Cash Flows
310Receivables
320Investments — Debt and Equity Securities
It will certainly take some time for all of us to adjust
to these new references, but hopefully over time, we
should realize the benefits of the codification.
Questions? Contact:
Judy Murphy, CPA
Partner-in-Charge
314.290.3496
325Investments — Other
360Property, Plant & Equipment
405Liabilities
450Contingencies
605Revenue Recognition
715Compensation — Retirement Benefits
720Other Expenses
810Consolidation
What does this mean to not-for-profit organizations?
It means that SFAS Nos. 116 (Accounting for
Contributions Received and Contributions Made), 117
(Financial Statements of Not-For-Profit Organizations)
and 124 (Accounting For Certain Investments Held by
Not-For-Profit Organizations), as well as other SFASs,
SOPs, etc., are no longer authoritative. GAAP has not
changed, but the content of these materials is now
INDUSTRY u PROFESSIONAL SERVICEs
questionable. Reductions in elective surgeries, loss
of health insurance, and/or higher deductibles by
patients are the obvious factors that are leading to
less revenue for physicians and other related types
of business arrangements that are physician owned.
Over the past five to 10 years, physicians could count
on a steady stream of income from their physician
owned centers that would supplement their practice
income. Currently that is not always the case. So what
is a physician practice to do?
Professional
Services
Providers —
Recession
Proof?
By Ken Rubin, CPA
As head of our Professional Services Group, I hear all
the time that the professional services providers are
less impacted by the economy than other industries.
The answer is “not really.” The major two subgroups
included within our Professional Services Group are
physicians and related services and law firms. Let’s
discuss each one separately, the impact of the
economy and what can be done to “stay ahead” of
the competition.
Physicians and Related Services
Most physicians have seen a decline in revenue,
primarily from performing fewer procedures, although
the future for rate increases also appears to be
The obvious answer is to reduce costs. Freezing staff
salaries, deferring the hiring of another physician or
replacing the position with a physician assistant and
turning accounts over for collection more quickly are
just a few of the measures physician practices have
implemented in 2009. But that can only go so far.
What should physicians do to give them a competitive
advantage in the future? Physicians need to think out
of the box and differentiate themselves from others.
The following suggestions are food for thought:
1.Begin or expand the practice’s marketing effort.
Although the upfront cost may seem significant,
the long-term results may be rewarding. Consider
sponsoring events in the community, holding
free seminars, and sending out health tips to
patients via e-mail. Anything that makes patients
remember the practice will drive them back when
the economy turns around.
2.Consider expanding the practice into rural
areas by providing services in a hospital or
surgery center or opening up a small satellite
office. Statistics show that the rural areas will
have extreme physician shortages, particularly
surgeons, over the next five to 10 years. By getting
into a particular area first, the practice can benefit
into the future.
3.Start exploring or expanding options with
hospitals, either for the practice or the related
surgery center. Hospital/physician joint ventures
tend to go in cycles, so being positioned for the
next generation of business arrangements will
put the practice at a competitive advantage. The
relationships formed now may lead to an ultimate
buyout when values increase or increase cash
flow as the economy slowly works its way back to
prosperity.
4.Physicians need to begin monitoring and
reporting quality outcomes. Currently, the Center
for Medicare Services has started the Physician
Quality Reporting Initiative program, whereby
physicians voluntarily report clinical outcome data
to CMS. As an incentive, participating physicians
get an extra 1 percent reimbursement based
on charges submitted. In the future, given that
most of the health care reform proposals include
provisions to reimburse health care providers on
a “pay for performance” methodology, providers
will be required to submit quality data to CMS in
order to determine reimbursement. In addition,
in an effort to promote “consumerism” in health
care, the quality data will be made available to the
public. As a result, providers with higher quality
data (i.e., better clinical outcomes) will have a
competitive advantage.
Law Firms
Law firms also have seen a decrease in revenue.
Like physician practices, it is mostly from decreased
workloads as opposed to a reduction in rates. The
reasons for the decline are also, in concept, similar
to physicians. They include consumers spending less
discretionary dollars, seeking to do more themselves
or putting off what they feel can wait until economic
conditions improve. In addition, most law firms
are transactional based. With less overall activity,
transactions are down whether they are mergers
and acquisitions, patent applications or estate
planning updates.
So what are law firms doing? As expected, cost
controls are front and center. Reductions in salaries,
deferrals of job offers and reductions in staff have
been well publicized, particularly with the large firms.
All law firms are watching their costs, cutting back on
out-of-town CLE and expensive partner meetings.
What should law firms be doing now to build that
competitive advantage into the future? Here are a few
suggestions to consider:
1.Be looking at mergers or joint ventures with other
law firms. The time seems right to inquire about a
complementary firm that, when combined with your
firm, may have the ability to better compete either
geographically or by specialty or industry.
2.Increase recruiting efforts now. Although that seems
counterintuitive, the supply of good lawyers available
has never been stronger, particularly if the firm is
willing to subsidize relocation. Even smaller firms
that may seldom consider someone from out of
town may want to think twice about an attorney with
special expertise to help grow the practice down the
road. Maintain a vibrant internship program — they
may be the best hires next year.
3.As was discussed with physicians, expanding
marketing efforts while times are tough should pay
off later. Being active in the community, meeting
with other professionals, sponsoring activities, and
offering to speak on current topics of interest are just
a few examples. Visibility is the key. Making the best
use of everyone’s non-billable time now will reap
benefits into the future.
No matter what your professional services business is,
physicians and lawyers as discussed, other professionals
such as architects and engineers, investment advisors,
insurance and advertising professionals, or the various
types of consultants, the economy has clearly impacted
business in 2009. But do not lose sight of what will lead
to a competitive advantage in the future. A little planning
and some spending now will go a long way toward
prosperity when the economy recovers.
Questions? Contact:
Ken L. Rubin, CPA
Partner-in-Charge
Professional Services Group
314.290.3417
ken.rubin@rubinbrown.com
INDUSTRY u Public sector
The American
Recovery and
Reinvestment
Act of 2009 and
Its Impact
By Katherine Arnold
Background
In February 2009, the American Recovery and
Reinvestment Act of 2009 was passed by Congress
and signed into law by President Obama. The aim of
the Recovery Act is to create more than 3.5 million
jobs, computerize America’s health system, increase
the affordability of college, increase construction and
improvements on roads, bridges and mass transit,
and provide tax credits to millions of families. In order
to carry out these initiatives, Federal funds are being
distributed to departments of the federal government,
state and local governments, and universities
throughout the country.
As a result of the Recovery Act, many governments
have received substantially more federal funding
than in the past, both through supplementation
of existing government programs and creation of
new governmental programs. The intended use of
this federal funding has remained consistent — for
example: highway construction, airport construction
and community development. However, the difference
is how the Recovery Act funds must be spent and
tracked and the resulting impact the funds have on
the governmental sector. Many of the funds that are
received due to the Recovery Act will be included
with older projects already being received and will
require the governments to take special steps to track
Recovery Act funds separately. Other Recovery Act
funds will be received as entirely separate projects
and thus will be easily identified.
As a result of these changes, the Office of Management
and Budget has made significant revisions to the A-133
Compliance Supplement for 2009. The Recovery Act
updates are included in Appendix VII of the Compliance
Supplement March 2009 and focus on the importance
of the Single Audit for the achievement of the goals of
the Recovery Act. The Compliance Supplement can
be obtained at www.whitehouse.gov/omb/ciruculars_
a133_compliance_09toc/. OMB also has established
the recovery.gov Web site to provide information on
Recovery Act requirements.
Among the more significant requirements associated
with the Recovery Act are the following:
Transparency Certification and
Reporting
Under the Recovery Act Title XV, Subtitle A, each
organization that uses funds for an infrastructure project
must certify that the project has been subject to the full
review and vetting procedures required by law and
that it is an appropriate use of taxpayer money. This
certification must be a legal document that includes a
description of the project, total cost and the amount of
Recovery funds used. The certification must be posted
for public knowledge on the organization’s Web site
and also must link to the recovery.gov Web site. If the
certification is not completed, the organization may
not use or receive Recovery Act funds.
In addition, each recipient of Recovery Act funding
is responsible for multiple reporting and tracking
requirements. Quarterly reports must include the
amount of recovery funds received, the amount of funds
expended, a detailed list of projects for which the funds
are being used, and a detailed list of subcontractors
or subgrants awarded in accordance with the Federal
Funding Accountability and Transparency Act of 2006.
The detailed list of projects should include the name
of the project, description of the project, evaluation
of the project completion, number of jobs created or
retained, and, for infrastructure projects, the purpose,
cost, rationale and contact for the project. These
quarterly reports must be submitted within 10 days
after the end of the calendar quarters. Additionally, all
recipients and subrecipients of Recovery Act funds
are required to register with the Central Contractor
Registration Database (www.ccr.gov).
In order to comply with these transparency and
reporting requirements, recipients are required to
track Recovery Act funds separately from other
funds received even if the Recovery Act funds are
received under the same grant or project. This
separate tracking permits Recovery Act funds to be
easily identified later when preparing the Schedule of
Expenditures of Federal Awards. Even if the Recovery
Act funds are received under a project with the same
Catalog of Federal Domestic Assistance number as
existing federal funds, the Recovery Act funds are to
be reported separately.
Permitted Uses of Recovery Act Funds
In addition to the transparency and reporting
requirements discussed above, the Recovery Act
specifies how the funds may be spent. It also regulates
what Recovery Act funds can and cannot be spent
on. The Recovery Act specifically establishes that
funds may not be spent on gambling establishments,
aquariums, zoos, golf courses or swimming pools.
Additionally, according to the Recovery Act, Title XVI,
funds should be allocated to projects that can be
started and completed quickly. Title XVI states that at
least 50 percent of the Recovery Act funds should be
used on projects that can be initiated no later than 120
days from the date of enactment and on projects that
maximize job creation.
The Recovery Act funds are intended to stimulate the
American economy and as such should be used to
purchase American products. Construction projects
must utilize American iron, steel and manufactured
goods, unless the federal department or agency
granting the funds waives this requirement because
it would be inconsistent with the public interest, the
product is not produced in America in sufficient
quantities, or using American-made products would
increase the cost significantly. If such a waiver is
obtained, it must be published and include detail of
why the requirement is being waived. Otherwise, if the
project does not use American goods, then Recovery
Act funds may not be used for construction, alteration,
maintenance or repair.
Finally, the Recovery Act funds will be available for use
until September 30, 2010. There are some exceptions
to this period of availability; those exceptions are
provided in the Recovery Act fund agreements for
each recipient and will be specifically communicated
to the recipient.
Impact on the Single Audit
The Recovery Act also impacts the way the Single Audit
is conducted for organizations receiving these funds.
OMB views the Single Audit process as being the means
of testing whether the transparency requirements of
the Recovery Act are being achieved.
Additionally, when an organization receives Recovery
Act funds, OMB places a heightened focus on internal
control of the organization. Under Single Audits,
auditees already have a requirement to test and
report on internal controls, but with the Recovery Act
this emphasis will be greater. For many recipients,
controls in place before the Recovery Act funds were
received will not be adequate for the large amounts
of funding received under the act. Thus, actions will
have to be taken before the Single Audit is conducted
to ensure proper controls are in place for the Recovery
Act funds.
Also as discussed above, each of the Recovery Act
funds will have to be tracked and identified separately
in the Single Audit report, even if they are added on to
an existing program. Some Recovery Act funds will be
designated as high-risk funds and thus will have to be
audited more frequently as part of the Single Audit.
Recovery Act funds will be identified in the agreement
between the organization and the federal agency,
including Recovery Act funds that are passed through
to subrecipients. For all Recovery Act funds passed
to subrecipients, the organization must identify the
subrecipient, the federal award number, CFDA number
and the amount of the Recovery Act funds passed
through. This information also must be included on the
final report submitted.
Conclusion
While the Recovery and Reinvestment Act of
2009 is a source of substantial funding for many
governments, it also is a source of substantial new
compliance, reporting and auditing requirements.
Recipients should understand these requirements
and implement controls to ensure these requirements
are followed. Governments wishing to further research
the requirements of the act should visit recovery.gov
or the 2009 A-133 compliance supplements located
on the OMB Web site.
Questions? Contact:
Jeff Winter, CPA, CGFM
Partner-in-Charge
Public Sector Services Group
314.290.3408
jeff.winter@rubinbrown.com
INDUSTRY u REAL ESTATE
Additional
Guidance
Provided on
2009 Stimulus
Tax Credit
Programs
as States
Begin to Take
Advantage of
Incentives
By Bryan C. Keller, CPA, and Maureen M. Pardo, CPA
Declining economic conditions continue to impact
affordable housing as the credit market has undergone
a significant drop in both new equity investments and
the equity pricing on credits that accompany these
investments. Pricing for affordable housing credits
has been severely deflated over the last year, leaving
virtually no market for deals to be made or closed.
Many developers have been forced to turn to private
individuals and smaller regional banks for equity
support. Likewise, the uncertainty in the banking
community, coupled with foreclosures, has not only
brought about a substantial decrease in lending
activity, but has ultimately resulted in failed funding
within the apartment industry.
Despite the lack of liquidity in multifamily housing,
Congress’ $787 billion American Recovery and
Revitalization Act passed in February 2009 looked to
restore access to capital within the industry. Through
both its Tax Credit Assistance Program and Section
1602 exchange program, ARRA is expected to have
notable impact on the housing market as it is aimed
at closing the gap in current deal financing via state
housing agencies. More recently, many of these
agencies, having finalized their requirements under
these two programs, have begun to fund various
projects. Currently, 16 states have full access to
disburse their awarded TCAP funds to selected
projects, while the Treasury also has approved an
additional $754 million in credit exchange funds to
be issued to16 states, thereby increasing the total
assistance to nearly $1 billion.
Production Tax Credit and the Investment Tax Credit
— but benefits provided by the ITC are no longer
reduced by project costs funded with grants or taxexempt bond proceeds.
Also, the green initiative has gained a stronger
foothold within the industry with the approval of the
National Green Building Standard earlier this year.
As the only green rating system specifically drafted
to be compatible with existing building codes and
regulations, the NGBS provides guidelines on green
building practices that are applicable for a variety
of apartment types. A Credential for Green Property
Management also has been launched in conjunction
with the NGBS. This credential is designed for property
managers, supervisors and maintenance personnel
and can be viewed as competitive advantage within
the marketplace as energy initiatives continue to
grow.
INDUSTRY/MARKET TRENDS
Provisions under the TCAP and exchange programs
have become clearer as well. Both HUD and the
Treasury have issued detailed guidance on the
programs, directly pointed at answering questions
the two departments have been fielding since ARRA
was passed. Topics addressed include issues
surrounding the Davis-Bacon labor requirements and
eligible costs under the exchange program, among
other things. Moreover, the guidance defines what
activities are considered recapture events under the
Section 1602 program. Further support also has come
from the National Council of State Housing Agencies.
In July, NCSHA adopted eight principles for state
housing agencies to follow when administering and
monitoring the TCAP and exchange programs.
On another note, the green movement has continued
to take shape within the industry as support from the
federal government has increased with additional
provisions and significant changes made to previous
regulations. Under the ARRA, greater incentives
now exist to entice developers to consider going
green. These incentives not only include a greater
flexibility overall in the use of two energy credits — the
The RubinBrown Real Estate Services Group recently
released its 2009 Apartment Statistics. Below is
some commentary related to the industry and market
trends of 2008, as well as a few statistical trends and
highlights that our group would like to share.
As initially noted in 2007, the multifamily housing
market began to slow, and this trend has continued
through 2008 and into 2009. With unemployment rates
climbing to levels not seen in years and declining
economic conditions overall, the apartment industry
has experienced a number of struggles. Nationally,
vacancies are on the rise and can be attributed
to overall attrition in the workplace and growing
unemployment. Apartment owners and managers
found a rise in evictions as well as a growing number
of renters returning home or obtaining roommates to
reduce living costs.
With this decreased occupancy and a challenging job
market, apartment owners and managers are faced
with difficulties in obtaining rent increases, as noted
in the enclosed charts. In 2008, the growth in rental
TITLE
rates slowed significantly, with rental rates falling in
approximately 68 percent of 79 major metropolitan
areas within the United States in late 2008. The
trend of deflated rental rates has carried to 2009.
Challenged by occupancy levels and downward
pressures on rental rates, the industry has seen
operational advantages in cost-cutting measures
and increasing resident satisfaction to maximize
returns and cash flow. Also, with defaults and workout
deals more prevalent, many apartment owners and
managers have attempted to capitalize on these
misfortunes as they seek opportunities to take on
these depressed projects through receiverships.
Without a doubt, current economic conditions have
brought about challenging times for the multifamily
housing industry. Yet, with the increase of legislation
focused on industry concerns and the additional
guidance provided as more states work through
the challenges and uncertainties of TCAP and
the exchange program, it is anticipated that the
multifamily housing market will rebound favorably in the
upcoming years.
AVERAGE MONTHLY RENT PER UNIT —
MARKET RATE
900
Dollars
800
700
600
500
769 662
715 790
660 762
639 737
647 867
400
300
Inside St. Louis Metro Area
200
100
0
Outside St. Louis Metro Area
2008
2007
2006
2005
2004
AVERAGE MONTHLY RENT PER UNIT —
GOVernmenT-ASSISTED
700
Dollars
600
500
400
638
584
572
544
476
300
Questions? Contact:
Bryan C. Keller, CPA
Partner-in-Charge
Real Estate Services Group
314.290.3341
bryan.keller@rubinbrown.com
Maureen M. Pardo, CPA
Manager
Real Estate Services Group
314.290.3468
maureen.pardo@rubinbrown.com
200
100
0
Missouri
2008
2007
2006
2005
2004
CPAs.
Business Partners.
Beacons.
You don’t need us to tell you how things are
going. Everyone just wants to get through it as
best they can. But, maybe that’s why honest,
objective advice is more valuable than ever. From
navigating corporate finances to minimizing tax
liability, we can help you address the issues of the
day that matter the most so you can keep your
business moving forward. Expect the kind of
counsel you trust so much, you won’t want to make
a move without looking to us first.
www.rubinbrown.com
Raise Your Expectations.
One North Brentwood
St. Louis, Missouri 63105
Cert no. XXX-XXX-XXXX
Timely Reminders
December 15, 2009
CORPORATIONS: Deposit the fourth installment of estimated income tax for 2009. A worksheet, Form 1120-W, is available
to help you estimate your tax for the year.
December 31, 2009
Individuals and cash basis corporations must pay amounts they intend to deduct on their 2009 tax returns. Examples
include the fourth quarter state estimated tax payments, which would otherwise be due January 15, 2010.
January 15, 2010
INDIVIDUALS: Use Form 1040-ES to make a payment of your fourth quarter estimated tax for 2009 if you did not pay your
income tax for the year through withholding.
February 1, 2010
INDIVIDUALS: If you did not pay your last installment of estimated tax by January 15, you may choose (but are not
required) to file your income tax return (Form 1040) for 2009 by February 1.
ALL BUSINESSES: Provide annual information statements to recipients of certain payments you made during 2009 on
Form 1099 or other information returns.
ALL EMPLOYERS: Provide your employees their copies of Form W-2 for 2009. Social Security, Medicare and withheld
income tax are included on Form 941 for the fourth quarter of 2009. Remit any undeposited tax.
FEDERAL UNEMPLOYMENT TAX: File Form 940 for 2009.
February 15, 2010
INDIVIDUALS: If you claimed exemption from income tax withholding last year on the Form W-4 you gave to your employer,
you must file a new Form W-4 by this date to continue your exemption for another year.
March 1, 2010
ALL BUSINESSES: File 2009 Form W-3, “Transmittal of Wage and Tax Statements,” with Copy A of Forms W-2 you issued
in 2009. File information returns (Forms 1099) for certain payments made in 2009.
“Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication
is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be
imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another
party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any
recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.”

Fall 2009 - RubinBrown

Transcription

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