Tuesday, October 17, 2017

IRS puts Equifax contract on hold

The Internal Revenue Service has temporarily suspended its $7.25 million contract with Equifax after the company admitted to finding a malware link on its website on the heels of a data breach that exposed the personal information of approximately 146 million people in the U.S.
The IRS came under fire from members of Congress this month after the agency admitted it had signed a no-bid contract with the credit bureau to provide identity verification services for taxpayers despite recently suffering one of the biggest data breaches in history (see Lawmakers question IRS’s $7.25M no-bid contract with Equifax). A security researcher also found last week that a hacker had exploited a flaw on the company’s website to direct unsuspecting visitors to a link where they would download malware. Equifax took down the page, but the series of problems prompted the IRS to suspend its controversial contract with Equifax on Thursday.
“On October 12, the IRS notified us that they have issued a Stop-Work Order under our Transaction Support for Identity Management contract,” said a statement forwarded by an Equifax spokesperson. “We remain confident that we are the best party to perform the services required in this contract. We are engaging IRS officials to review the facts and clarify available options.”
The IRS said it was suspending the contract as “a precautionary step” in light of the new information.
“Following new information available, the IRS temporarily suspended its short-term contract with Equifax for identity proofing services,” said the IRS in a statement. “During this suspension, the IRS will continue its review of Equifax systems and security. The IRS emphasized that there is still no indication of any compromise of the limited IRS data shared under the contract. The contract suspension is being taken as a precautionary step as the IRS continues its review. Suspending the identity-proofing work provided under the contract means that the IRS will be temporarily unable to create new accounts for taxpayers using Secure Access, which supports applications including online accounts and transcripts. Although people can’t create new accounts, current Secure Access users aren't affected by this contract change and will continue to have access to their accounts. Other taxpayers still have options available for things such as obtaining transcripts, which can be ordered by mail. The IRS notes most of its services and tools are unaffected by this change.”
The IRS has awarded a new long-term contract to an Equifax competitor, Experian, for protecting taxpayers from identity theft. Equifax protested the IRS's decision to the Government Accountability Office, but the GAO ruled in favor of the IRS’s decision to award the new contract to Experian while continuing to review the suspended short-term contract with Equifax. The IRS praised the GAO’s decision.
“We’re looking forward to the start of the new contract,” the IRS said in a statement Monday. “We will move as quickly as we can, but it will take some time to begin service under the new contract. We are continuing to assess the time frame for the new service. In addition, we continue to review the status of our short-term contract with Equifax, which was temporarily suspended last week.”

Monday, October 16, 2017

Keeping up with technology in accounting

Both in specific practice areas and for firms as a whole, technology is automating and streamlining accountants’ work, even as the tools themselves grow more integrated and more useful, according to industry experts from the CPA Consultants’ Alliance.
In “CPA Firm Technology Trends,” one of the CPACA’s “Issues and Answers” video series, members of the alliance examine how new developments are impacting every aspect of the modern accounting firm.
Starting in tax, the panelists pointed up the importance of technologies that organize the work, rather than those that prepare or file returns.
“What it really comes down to is having an integrated workflow tool,” said Roman Kepczyk, director of consulting at Xcentric. “When we consult with firms, we find that there are long-time processes for tracking all aspects of the process, but these all seem to be in different applications. We need a way to have everything centralized in one place, so anyone who’s authorized to see it in the firm has easy access to that. Workflow tools are the solution. In smaller firms, that may be practice management projects, which are modules that allow them to track all those steps pretty cohesively. The problem is that, as you get much larger, the sheer volume of returns, makes those somewhat kludgy, so we see firms implement dedicated workflow solutions.”
“Having a workflow solution is a no-brainer in tomorrow’s CPA firm,” added Dustin Hostetler, chief innovation officer at Boomer Consulting. “You can’t properly manage a tax practice without having that integrated workflow solution to automate the movement of the tax work through the office. We’re finally there where we can have that paperless tax process from engagement acceptance all the way through to e-filing of the return, which not only benefits us but gives our clients a much friendlier client experience.”
For the other major components of the traditional accounting practice – accounting and auditing – the impact of technology is often felt more at the level of the grunt work that bookkeepers and auditors slog through.
“Automation is the big word here,” Hostetler said. “More and more, the A&A side of firms is becoming more and more automated. You’re seeing some of the artificial intelligence software coming into the market. Some of the Big Four have their own homegrown solutions to automate more of the workpapers and work you traditionally do during fieldwork.”
Citing the growing availability of such tools for auditors and accountants at firms of all sizes, he added, “That’s going to change the mindset of the audit practice from compliance to consultative. As automation and efficiency get driven into the audit practice, there’s going to be downward pressure on fees” – and firms will need to counter that by moving to more value-added advisory services.
Kepczyk noted two technology trends that are streamlining access to audit and accounting data: “One trend would be the centralization of data so that it’s run on servers, and rather than checking out binders and working out in the field, all the work is done on the servers. Not only can the field auditor access it, but maybe a manager in a different location or the manager in the office can look at those workpapers. The other benefit of having everything centralized on the services is that, from a security perspective, there’s no more data residing on the local workstation, so if a laptop happens to be lost or stolen, the risks of a security breach are significantly reduced.”
“The other thing we want firms to take a look at is that we’re seeing a trend towards going to a single audit suite for not only the engagement binder, but also for the workpaper programs,” he added. “Can we put all of our information in one place? … We’re seeing vendors put everything in one bucket to eliminate the lack of integration between products.”
Sarah Johnson Dobek, president of Inovautus Consulting, took up the theme of integration as one that’s being felt all across tech-savvy firms.
“One of the challenges that many firms have had over the years is that all of the software you use on the tax and audit side tends not to talk to each other,” she said. “That’s gotten much better over the years, but a lot of the information still resides in these disparate programs and there hasn’t always been a way to get that.”
Now, she explained, more and more software vendors are developing special tools that allow information to flow out of their applications more freely. “We’re seeing firms really focus on integration of software so the data is being provided to the marketing and business development professionals that are charged with growing the firm, so it’s getting into CRM systems, and they’re building special integrations to allow all the information to come together.”
All of this is actually being felt beyond firms themselves.
“The other impact we’re seeing of combined technology is that it’s helping enhance the client experience,” Dobek continued. “This is a huge focus for CPA firms right now, to really look at what is their client experience. Because of the move toward building a much more consultative practice, client experience has really risen to the top in this move away from compliance-only services. A lot of firms are starting to focus on how they can do this better, and technology is going to be a huge aid in being able to figure out some of those touchpoints – everything from notifying clients where something is in process, to how they use the portal, to how your staff engages with it.”
The video covers a number of other critical technology trends, including cloud adoption, remote work, and more; it and the other three videos in the CPA CA “Issues and Answers” series are available on the alliance’s YouTube page.

Friday, October 13, 2017

Bill.com attracts investment from JPMorgan Chase

Bill.com has secured $100 million in funding from JPMorgan Chase and Temasek, among other lead investors from previous rounds. With funding from America’s largest bank, and a holding company owned by the government of Singapore, this latest round of financing demonstrates the burgeoning investor interest in financial technology companies.

This latest round of funding brings Bill.com’s total to $200 million, and the company now has an estimated private market valuation of $742.8 million, according to PitchBook, a private market research provider. This makes the paperless billings and payments software company among the top valued startups in Silicon Valley.
Bill.com reports that has more than 2.5 million members processing $50 billion in payments annually. Its self-reported customer tally is at approximately 100,000, and it partners with four major U.S. banks, more than 50 major accounting firms, and integrates with commonly used accounting software including Xero and QuickBooks. Bill.com is also the preferred digital payments provider for CPA.com, the technology arm of the American Institute of CPAs.
“The last chasm to cross in digital payments is business payments. Eighty percent of all payments made by U.S. businesses today involve paper checks, and it’s about time we change that,” said RenĂ© Lacerte, CEO and founder of Bill.com. “Businesses deserve the same digital payment experience we have come to expect as consumers. With this capital, we will double down on our efforts to shift digital payments from early adoption to major, widespread market acceptance.”

Thursday, October 12, 2017

Intuit is hiring tax experts

Intuit is hiring thousands of credentialed tax experts to prepare for the expansion of its TurboTax product for the upcoming tax season.
The software company will be expanding the do-it-yourself functionality for its tax preparation software. Part of this expansion is the availability of live tax experts to answer question from filers at any time of day.
CPAs, enrolled agents and even practicing attorneys are on the wanted list to create a virtual team of tax experts to connect directly with TurboTax users who would like their taxes reviewed or some guidance on completing their tax filings.
Those hired will be able to choose the times and hours they want to work, similar to how contract workers on the cab-hailing app Lyft or the hand-for-hire app TaskRabbit operate.
The Turbotax software routes the tax payer’s question to an expert. Then, using one-way video and screen sharing, the expert will show and explain answers.
To learn more or apply, click here.

Wednesday, October 11, 2017

Anti-Fraud Collaboration issues case study

The Anti-Fraud Collaboration between the Center for Audit Quality, Financial Executives International, the Institute of Internal Auditors and the National Association of Corporate Directors has released the fourth in a series of case studies highlighting ways to deter financial fraud.
The new case study focuses on LDC Cloud Systems, a fictitious global technology company whose board is dealing with bribery accusations and accounting shenanigans. The case study offers a timeline of management and board decisions after potential problems are uncovered. It demonstrates how complex accounting practices typical in a fast-changing business environment can make a company prone to fraud. The hypothetical scenario shows how fraud situations can develop and be addressed, such as through strong board oversight. For classroom use, the Anti-Fraud Collaboration has developed a video series to bring scenes from the case study to life. The videos are available at the Anti-Fraud Collaboration website.
“The Anti-Fraud Collaboration is pleased to present the latest case study in our series designed to raise awareness of financial reporting fraud,” said Center for Audit Quality executive director Cindy Fornelli in a statement. “These case studies have proven to be valuable educational tools for all members of the financial reporting supply chain, as well as students.”
The Anti-Fraud Collaboration’s case studies take participants through a hypothetical scenario about a fictional company dealing with fraud. Guided by an instructor, participants can then discuss what could have been done to address or avoid the situation. Each case study offers a companion discussion guide for instructors, available on request.
LDC Cloud Systems is the Collaboration’s fourth case study. Others include:
Hollate Manufacturing focuses on the conditions that can lead to fraud and misrepresentation in financial reporting.
Carolina Wilderness Outfitters aims to facilitate a discussion about how to perform an internal investigation when fraud is suspected in a company.
Kendallville Bank focuses on the need for professional skepticism in the financial reporting process.
“New technologies can make for a disruptive business environment, and can create new challenges on existing business practices,” said FEI president and CEO Andrej Suskavcevic in a statement. “Resources like this case study provide a practical tool to help financial executives explore and deter financial reporting fraud.” 

Tuesday, October 10, 2017

A prime challenge in M&A: Retaining the clients

Acquiring another practice can seem like a sure and quick (if expensive) way to grow a book of business. Practitioners warn, however, that such a move can come with problems. For one: How many of those new clients will stick around?
“If you pay too much up front and don’t retain the clients, you’ve wasted money,” said Scott Kadrlik, a CPA at Meuwissen, Flygare, Kadrlik and Associates in Eden Prairie, Minn.
Clients and individual tax pros also cement bonds over many filing seasons. “If the acquiring firm doesn’t consider these personal ties and provide a comparable culture for client interaction, there’s a real danger that the clients won’t be happy and will go elsewhere,” said New York-based Enrolled Agent Phyllis Jo Kubey.
“You have to really look at the client base. Also, what are the plans of the owner? Do they want to retire or just not want to run a business any longer?” said Jeffrey Schneider, an EA in Port St. Lucie, Fla. “Having the owner in place, especially if there are no other long-time staff that’s staying on or if it’s close to tax season, is invaluable.”
Slow diminishing?
The demographics of the acquired firm’s clients are of first concern. “If you buy a practice from older, retiring practitioners, their clients are probably similar in age,” Kadrlik said. “There may be some estate tax work, but the client work may slowly diminish as their income declines and their need for your services decline.”
“The biggest danger or risk is the quality of the clients being acquired, which also includes the service that they’re accustomed to receiving,” said Ed Guttenplan, managing partner at Wilkin & Guttenplan in East Brunswick, N.J. His firm asks such questions as:
  • What are the standards of client data and related compliance that were required by the seller?
  • What degree of documentation was necessary in connection with the work provided?
  • What kind of vetting is performed in regards to the integrity of the prospective clients, as part of the client acceptance process?
  • Was the adequacy of internal controls at the client considered?
  • Are there fee disputes, large overdue balances or unusual billing arrangements?
“If all of the above answers are acceptable,” Guttenplan adds, “we examine one final question of great significance: how easily the client relationship will be transitioned to the new firm. This can be dealt with by paying for clients based upon retention, but even under a purchase arrangement with those terms, the purchasing firm doesn’t want to pay for clients that will leave shortly after the retention period.”

Price points
Jeff Gentner, an EA in Amherst, N.Y., has purchased several small tax prep practices – and each time negotiated a share-responsibility purchase agreement.
“The seller agreed to write a letter to their clients, explaining the situation and highly recommending me as their new tax professional,” he says. “This letter included my experience and credentials. I have always felt that getting them to come to me the first time was the responsibility of the seller. Keeping them beyond that first meeting was my responsibility.”
“In all practices, the purchase priced agreed upon was based on the first year’s gross income,” he adds. “This way the seller had an incentive to get the clients to me. This method has proved very successful; each time 5 percent to 85 percent of the clients accepted the change. If you use any other method, you’re simply purchasing a list of potential clients.” All purchase agreements should include a covenant not to compete, he added.
“Did the current owner undercharge based on your rates? If so, you may not keep as many clients as you think when they find out your rates,” added Laurie Ziegler at Sass Accounting, in Saukville, Wis. “And what’s the age of the clients? If there are many seniors, this will play a large role in the retention rate.”
“Do you have the staff to service the new client base? Most firms have enough work [and] are buying other firms for the employees and then culling out the clients from the old firm by raising rates,” Kadrlik said.
Many factors can affect retention and other important aspects of a deal – some of which a preparer can help, and some a preparer can’t. “With all the talk of tax reform and knowing that tax reform is most likely imminent, I’m reluctant to enter into any agreement,” Gentner added.

Monday, October 9, 2017

Treasury lays out plan for loosening dozens of Wall Street rules

The Trump administration on Friday urged the overhaul of key rules underpinning trading in U.S. stock, bond and derivatives markets, calling on regulators to loosen dozens of restrictions imposed on Wall Street after the financial crisis.
The 220-page report written by the Treasury Department lays out a series of recommendations for the Securities and Exchange Commission and the Commodity Futures Trading Commission. Rather than making specific demands, the document is intended to be a road map for the agencies to streamline regulations affecting the largest banks, hedge funds and exchanges.
While some of the changes would require congressional action, most could be accomplished by re-writing regulations. The markets review was spurred by President Donald Trump’s February executive order calling for a broad rethink of financial regulations. Treasury issued a separate report on bank oversight reforms in June, and another on asset managers is set to be released in the coming days.
“The review has identified a wide range of measures that could promote economic growth and vibrant financial markets,” the report said.
Opposition Anticipated
A number of the suggestions in the markets study have long been backed by industry, and groups like the U.S. Chamber of Commerce were quick to praise them. Meanwhile, Democratic lawmakers and investor advocates are expected to oppose many of the recommendations. They’ve been critical of the Republican administration’s attempts to cut Wall Street regulations, especially those enacted in response to the financial crisis.
The administration’s wish list isn’t likely to be granted any time soon. The regulatory process is notoriously slow and neither the SEC nor the CFTC have a full compliment of commissioners.
Treasury’s recommendations included proposed adjustments to rules stemming from two laws that tightened capital markets oversight, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010. Two Trump appointees, SEC Chairman Jay Clayton and CFTC Chairman Chris Giancarlo, will be charged with carrying out many of the proposals.
Both agencies saw their oversight roles expanded by Dodd-Frank, with the CFTC being given responsibility for policing the massive over-the-counter derivatives market. The two chairmen appointed by Trump are aligned with the administration’s goal of dialing back some of those rules.
Clayton told lawmakers in March that he thought Dodd-Frank regulations should be reviewed to determine “whether they are achieving their objectives effectively.” And he has repeatedly said that he wants to stem a two-decade decline in the number of publicly traded U.S. companies -- a subject the Treasury report will address. Giancarlo reached out to the derivatives industry earlier this year for suggestions on how the CFTC could simplify and modernize agency rules that he said can be “unnecessarily complex.”
In particular, the Treasury recommended that the CFTC and SEC work better together, especially in monitoring derivatives markets. The report echoed calls by Giancarlo for a loosening of restrictions around the execution of swaps trades. It also backed an effort by Giancarlo to harmonize swaps data reporting.
“We are pleased to see our perspective incorporated in the final product,” Giancarlo said in a statement.
Craig Phillips, a former BlackRock Inc. executive who was major fundraiser for Hillary Clinton’s presidential campaign, has been leading the Treasury’s regulatory review. He is now a senior adviser to Secretary Steven Mnuchin.