In February of 2013, NASDAQ proposed a rule that would require all listed companies to establish and maintain an internal audit function.  After receiving comments filled with concern surrounding the impact of the new rule, NASDAQ has decided to revisit the initial proposal.  In an effort to consider the feedback received, NASDAQ will review the comments, revise the rule, and resubmit it.  Although the initial proposed rule would align NASDAQ with the NYSE requirement, concerns are rooted in the heavy burden placed upon companies, particularly smaller issuers.

Read more about details surrounding the original proposed rule:

http://delapcpa.com/blog/nasdaq-proposed-rule-requiring-internal-audit-function/

Are you exempt from this law?

• Employers with more than six employees who already provide a minimum of 40 hours of paid time off are exempt.
• Employers with less than six employees who already provide 40 hours of unpaid time off are also exempt from the sick leave law.

Therefore, if your company’s current policies meet the minimum standard then you do not need to change anything to comply with the new law.  Additionally, employers that are not Portland based are not exempt from the sick leave law if they have employees travelling into Portland for work at least 240 hours.

What does this mean for employers who are not exempt?

Take a look at your existing policies.  If your company does not meet the current minimum standards, consider a strategy to implement the change in 2014.  You will need to determine how to track their hours worked in the City for the accrual of leave.  Employees can use sick time for seeking their own care or for the care of a family member on either scheduled visits or in emergencies.  Employees are required to notify the employer before the start of their shift or as soon as practicable and are not required to find a replacement or work an alternative shift to make up time.  You will need to develop policies and procedures for employees to notify you if they are sick and determine how their work will be covered, which will probably vary by position within the company.  The city will be developing outreach resources in the coming months to educate employers and employees regarding the law, but now is the time to start thinking about its potential impact on your current company operations.

What are my next steps?

• Determine whether your current paid time off policies meet the current requirements
• Develop communication process for potential leave time with employees
• Review your budget to strategize ways to make room for the cost of paid sick leave

After a business has funded certain capital requirements, acquiring comfortable financing terms is integral to establishing a growth strategy. After the financing proposal has been assembled and a potential lender identified, a business owner should prepare to negotiate with a lender.

Some points of negotiation can include:

• loan amount
• interest rate
• repayment schedule
• collateral
• guarantees

Business owners are often required to be the guarantor of a loan to satisfy the bank’s strict lending guidelines. Be aware of the risks of guaranteeing a loan: your personal assets may be compromised and/or this could impede obtaining other credit. If you have sufficient collateral as a secondary repayment source, consider requesting the bank to eliminate or adjust the personal guarantee requirement.

Be bold and ask for a limited guarantee. Even if your lender is reluctant to accept a limited guarantee, have fortitude and persistence to negotiate a workable covenant for your business.

Here are covenants to be aware of that are potentially worth negotiating:

1.  Minimum cash balance

2.  Minimum working capital ratio

3.  Acquisition of additional debt

4.  Dividend payout limitations

5.  Subordination of notes or advances

Another point of negotiation is reporting requirements. When it’s time to demonstrate to your lender a strong balance sheet, a trusted CPA can be your advocate in this area. A full-blown audit is the maximum level of assurance a CPA firm provides. Audits are highly regarded by banks and have a price tag to match. If your company would like to save money on an annual audit, consider asking your lender if a review would suffice. Through inquiry and analysis, a competent CPA firm can generate a review for the bank, which may satisfy their needs and save you substantial money. Another option is to downgrade to compilation, which keeps even more money in your bank account. Simply ask your lender what you could do to abate to the next level.

Remember, the destiny of your business’s success will be determined by your vision and strength. Take the initiative to negotiate better financing terms and you may witness growth beyond your imagination.

Delap LLP is one of Portland’s largest local accounting firms, located in Lake Oswego, Oregon.

Ultimately, competitive advantage is lost when a business becomes distracted by “me too” responses.  Saying no, when the marketplace is saying yes, is different and difficult to do.  Tackling a challenge others think is not possible is different.

*Youngme Moon of Harvard refers to these companies as “reverse brands.”  They take away something consumer expects, but in return gives them something more.  If you have not read her book, Different, it is a must read. The following companies some after of which have recognized and embraced their authenticity, which truly differentiates them from their peers:

• JetBlue: Though they stripped away free meal service, round trip discounts, and first class seating, they also provided plush leather seats, personal entertainment units on each seat back, and a promise to never bump a passenger.
• Google: In the midst of cluttered landing pages that were bigger, busier, & better… Google stunned people with what it didn’t do.  Google’s home page was stripped down & naked relative to the leader Yahoo with cutting edge search analytics technology.
• IKEA: When IKEA launched in the USA it had minimal variety of styles, virtually no shopping assistance, no shipping, & no delivery.  While giving us less, IKEA also gives its customer something more: design, style, and value.
• In-N-Out Burger: 6 items on the menu, no children’s menu, no salads, no desserts… HOWEVER, every item is made from scratch with fresh ingredients.

It takes courage to stray from the herd.  It takes risk to break away from the pack.  Only when a business is courageous enough to shrug market norms and truly be different can true competitive advantage be earned.

*Moon, Y. (2010). Different. New York, NW: Crown Publishing group.

Delap LLP is one of Portland’s largest local accounting firms, located in Lake Oswego, Oregon.

On February 20, 2013, NASDAQ released information on its proposed rule to require listed companies to establish and maintain an internal audit function.  Under the proposed rule, companies would have the option to outsource this function to a third party service provider other than its independent external auditor.  The audit committee would be required to meet regularly with the internal auditor and assist the Board of Directors in overseeing the performance of the internal audit function.  The audit committee should also discuss the responsibilities with the external auditor, budget, and staffing of the internal audit function.

The U.S. Securities and Exchange Commission is currently reviewing comments on the proposed rule, and a final decision is expected before the end of the second quarter.

If passed, companies listed on NASDAQ on or before June 30, 2013 will be required to establish an internal audit function by no later than December 31, 2013.  Companies listed after June 30, 2013 must establish this function prior to listing.

We can help:

Reach out to a Delap professional to start a conversation on the proposed rule, and stay tuned for more resources on this topic.

Delap LLP is one of Portland’s largest local accounting firms specializing in tax, audit, and financial consulting, located in Lake Oswego, Oregon.

Read the full SEC release at http://www.sec.gov/rules/sro/nasdaq/2013/34-69030.pdf

My strength coach on the Oregon football team, Jim Radcliffe, practiced the simple mantra, “no excuses.”  As an eighteen year old, I did not fully appreciate the implications of embracing this principle would have on my life.  When a car accident created an unexpected traffic delay one day during my freshman year, I showed up a few minutes late for a weight lifting session.  The first words out of my mouth were, “I’m sorry I’m late coach, there was traffic.”  Coach Radcliffe without a second thought rejected the excuse.  “You’re not a victim.  You decided when to leave for practice.”  I ended up running Autzen stadium the following morning at 5:45 AM with my coach.

Great businesses often do not possess better strategy, rather they possess cultures of accountability and simply execute better than their peers.  Though business failures often involve extenuating circumstances and shared fault, the great businesses have leaders who take responsibility for the results.  Energy is not wasted pointing fingers.  By not entertaining excuses, these business leaders empower people to take ownership of their behaviors and their results.  It is subtle, but a culture of excuses position people as powerless victims of circumstance.  It robs people of the knowledge that they influence their own life in radical ways every day.

We don’t get to choose all the opportunities that come our way, but we do get to choose the way we respond to them.  Life is not always fair.  Winston Churchill once said, “The price of greatness is responsibility.”  Great business leaders take responsibility for their execution.  Accepting responsibility for personal failure in business is incredibly difficult, yet is often a sign of a powerful leader.

What’s the last business failure you took responsibility for and how did it ultimately help your team or organization?

Who is it available to?
Contrary to the history of its predecessor tax provisions, the DPAD is available to taxpayers who do not export.  This includes individuals, both C and S corporations, cooperatives, estates, and trusts.  Additionally, beneficiaries of an estate or trust and patrons of farming cooperatives can be allocated a share of the DPAD for each entity.

What does it mean for you?
Most simply put – the DPAD allows a deduction of 9% of the total net income from eligible activities (phased in from 3% – 9% over the first five years it was in place).  This is the economic equivalent to a 3% reduction in tax rate on eligible activities.  For example a tax rate of 22% on a business for eligible activities in a given year would effectively become 19%. But keep in mind that the deduction for any year cannot exceed the taxpayer’s taxable income (or for individuals, cannot exceed adjusted gross income).  Further, the DPAD is limited to 50% of the Form W-2 wages paid out to employees in the eligible activities.

What activities qualify as eligible for the DPAD?

• Manufacturing based in the U.S.
• Selling, leasing, or licensing U.S. based manufactured items
• Selling, leasing, or licensing U.S. produced motion pictures
• U.S. construction services (this includes building and renovation of residential as well as commercial real estate)
• Professional services including engineering and architectural which relate to U.S.-based construction projects
• US based software development (including video games)
• Wholesale processing and preparation of food products (not eligible at the retail level)

Delap LLP is one of Portland’s largest local accounting firms, specializing in tax, audit, and consulting, located in Lake Oswego, Oregon.

1. Greater employee participation: Frequent and effective communication with participants empowers them to take ownership of their own retirement.  Do you wish your plan had greater participation rates? The best plans often include plan features involving automatic enrollment with opt-out as well as stepped up contributions. Additionally, plans with active investment advisers who are committed to educating your workforce will often have much higher participation rates.
2. Hire an expert: Company executives and administrators are busy and pulled in many directions.  The Department of Labor (DOL) recognizes the need for plans to hire experts if they do not possess the needed expertise.  Great plans know that financial incentives influence behavior and ultimately the advice rendered, so understand how your adviser is paid (fee vs. commission).
3. Improved performance through reduced fees: The historical lack of fee transparency has enabled many financial institutions to monetarily capitalize on the 401(k) market.  Every basis point of fee reduction is redirected into the employees’ accounts and is compounded year after year.  With recent changes in rules requiring more transparency, plan sponsors are able to more easily compare their plans’ fees to potential other providers. Furthermore, nearly every fee is negotiable and most businesses can obtain the exact same plan with reduced fees.
4. Decreased staff time: Administrative expenses are a hidden cost some companies overlook when evaluating their 401(k) plan.  Great plans reduce the time administrators spend keeping up with compliance and plan management by the use of a third-party administrator (TPA). While a TPA has a cost, it may be less than the hidden costs of utilization of internal resources. And because they are experts, oftentimes, they will be able to identify compliance issues and provide you with solutions to such challenges.
5. Reduce plan sponsor liability: Obtain in writing a third party investment fiduciary.  A written third party investment fiduciary can significantly reduce the plan sponsor’s liability.  The fiduciary will monitor the plan, provide employee education, and evaluate overall performance among the funds.  Staying abreast of the rules and regulations that govern employee benefit plans is difficult in an ever-changing environment. Outsourcing this aspect to an expert will inevitably lower risk and liability that would otherwise be present.  Additionally, if your plan has more than 120 participants and requires an audit, select a firm with a deep level of employee benefit plan audit expertise.  1/3 of all employee benefit plans are audited by accounting firms that audit 2 or fewer plans per year.  Even if you have your plan audited by an accounting firm, if the DOL takes issue with the work that your auditor does or if they find issues with the operation of your plan, they can assesses fines to the plan sponsor, NOT the accounting firm.
6. Reduce plan overhead: Many of the 401(k) services are based upon number of eligible or participating plan participants.  As the number of participants and plan assets grow, companies can negotiate a reduced fee per employee.  Furthermore, great plans have a process to aid terminated employees with rolling over 401(k) funds into their new plan or an IRA.
7. Periodic course corrections: Great plans are constantly being evaluated, occasionally there will be opportunities to improve fund performance and administration.  The top employer 401(k) plans are willing to make the needed changes to ensure their employees are best served despite the status quo being the easiest option.
8. Lower your 401(k) fees: Being aware of aspects of your 401(k) plan that are subject to lower fees could save you money.  Funds that are passively managed, investments offered through a bundled program and funds with greater total assets are all associated with lower fees.  How does this relate to your 401(k)?  Find smart investments that do not require in depth research or maintenance, offer bundled investment programs to employees, and if you have greater assets, utilize them by using special funds or classes of stock in funds.
9. Avoid unnecessary fees: What if you could avoid potential fees associated with your 401(k) plan?  Without compromising the value of your 401(k) plan, consider the following ways to avoid higher fees.  Choose funds that do not require active management by an investment adviser, steer away from offering optional features such as participant loan programs or insurance benefits under variable annuity contracts.  These aspects create additional fees that could otherwise be avoided.
10. Get an audit: Why should you audit your employee benefit plan? Beyond simply compliance, the process is a smart way to “cleanse” your plan to improve its quality, and relevance.  As a good rule of thumb, look for a firm that is registered with the AICPA’s audit quality center, and has a dedicated team of professionals focused on benefit plan audits.

The US Department of Labor provides ten questions to ask yourself about your 401(k) plan:

1. What investment options are offered under your company’s 401(k) plan?
2. Do you have all available documentation about the investment choices under your plan and the fees charged to your plan?
3. What types of investment education are available under your plan?
4. What arrangement is used to provide services under your plan (i.e., are any or all of the services or investment alternatives provided by a single provider)?
5. Do you and other participants use most or all of the optional services offered under your 401(k) plan, such as a participant loan program and insurance coverage?
6. If administrative services are paid separately from investment management fees, are they paid for by the plan, your employer or are they shared?
7. Are the investment options tracking an established market index or is there a higher level of investment management services being provided?
8. Do any of the investment options under your plan include sales charges (such as loads or commissions)?
9. Do any of the investment options under your plan include any fees related to specific investments, such as 12b-1 fees, insurance charges, or surrender fees, and what do they cover?
10. Does your plan offer any special funds or special classes of stock (generally sold to larger group investors)?

*”A Look at 401(k) Plan Fees”.  October 2010. United States Deparment of Labor. Retrieved from http://www.dol.gov/ebsa/publications/401k_employee.html#salescharges

Still have more questions? Reach out to your CPA to learn more.

Delap LLP is one of Portland’s largest local tax, audit, and consulting accounting firms, located in Lake Oswego, Oregon.

Click HERE for more details