Employee Benefit Plan Audits Archives - Page 27 of 32

Fortify your estate plan against undue influence claims

Tax Prep, Planning & Strategy|June 14, 2018

Of course, you expect the declarations in your will to be carried out, as required by law. Usually, that’s exactly what happens with wills. However, it’s possible your will could be contested and your true intentions defeated if someone is found to have exerted “undue influence” over your decisions.

Undue influence defined

Undue influence is an act of persuasion that overcomes the free will and judgment of another person. It may include exhortations, insinuations, flattery, trickery and deception.

Frequently, undue influence happens when an elderly individual, who may or may not have all of his or her bearings, is convinced to change provisions in a will or otherwise suddenly rewards another person, such as a caregiver.

Conversely, not all influence is “undue.” For instance, it’s perfectly reasonable for a child or close friend to advise an elderly person. It’s usually up to a court to decide if the “suggestion” constitutes undue influence.

Elements of undue influence

Generally, an interested party lodges a claim for undue influence when a deceased person’s will is being probated. To be successful, he or she typically must prove the following elements:

The will distributes assets in a way that wouldn’t be reasonably anticipated,
The deceased relied on the person who allegedly exerted undue influence,
The deceased’s physical or mental condition made him or her susceptible to undue influence, and
The accused person benefits from changes in the will or some other suspicious transaction.

Protect against claims

If your will distributes assets in a way your family might not expect, it’s possible that an undue influence claim could be successful — even if your will reflects your true intentions. Circumstances could still give the appearance of undue influence.

There are, however, steps you can take while you’re of sound mind and body to protect your estate against undue influence claims:

Establish competency. The best way to do this is to draft your will while you’re still in reasonably good health. Arrange for a physical examination around the time your will is executed. This is equivalent to a physician “signing off” that you’re competent.

Communicate clearly with family. Claims of undue influence may arise when relatives are blindsided after you’re gone. Let them know your intentions as soon as possible and explain your reasoning.

Taking these two steps may help avoid confrontations and place interested parties on notice that you’ve addressed the situation. The mere fact that you’ve taken action will be recognized in your favor. Contact us if you’re concerned that your will may someday come under an undue influence claim.

Make the most of your fundraising with simple metrics

Tax Prep, Planning & Strategy|June 14, 2018

The amount of money your not-for-profit raises in fundraising campaigns is meaningful, but so is how efficiently you’re able to raise it. Such costs can be measured using two metrics: Cost ratio and return on investment (ROI). Let’s take a look.

Find a formula

These two metrics can be used to evaluate both fundraising activities as a whole and individual fundraising events or campaigns. Concentrating not only on the big picture, but also on specific fundraising activities, allows your organization to identify stronger strategies to use more frequently and weaker ones to consider improving or ending. Ultimately, the goal is to determine which activities generate the highest return.

Cost ratio (also known as cost-per-dollar, which is fundraising expense / fundraising revenue) focuses on the expense of fundraising, while ROI focuses on the returns. The formula for ROI uses the same inputs as cost ratio but flips them; the fundraising expense, of course, is the “investment” ROI is referring to:

ROI = Fundraising revenue / Investment in fundraising
Some nonprofits use gross revenues in the ROI formula. However, many others use net revenues (revenues minus the related expenses). Either option is acceptable, but you must be consistent and measure revenues the same way for every year and campaign. After all, these metrics are meaningful only when you compare fundraising activities or trends from one year to prior years.

Calculate inputs

Fundraising expense data should include the direct costs of the initial effort, as well as later activities. Initial costs might include an investment in online advertising or a phone campaign, while subsequent costs might relate to maintaining that relationship, such as a renewal mailing.

As for indirect and overhead costs, exclude those that you would incur with or without the monitored activity (such as website or donor database costs). And make sure they’re excluded from every campaign metric. For both costs and revenues, use rolling averages that cover three to five years. This will reduce the effect of “one-offs,” whether in the form of a significant donation or an economic downturn. You’ll also avoid penalizing fundraising activities, such as a major gift campaign, that require some time to show results.

Allocate resources

Calculating fundraising metrics will help you make better decisions when it comes to allocating limited resources. But keep in mind that ROI can vary greatly by activity, and a lower ROI doesn’t necessarily mean you should cut the activity. Contact us for more information.

A midyear review should go beyond financials

Tax Prep, Planning & Strategy|June 14, 2018

Every year is a journey for a business. You begin with a set of objectives for the months ahead, probably encounter a few bumps along the way and, hopefully, reach your destination with some success and a few lessons learned.

The middle of the year is the perfect time to stop for a breather. A midyear review can help you and your management team determine which objectives are still “meetable” and which one’s may need tweaking or perhaps even elimination.

Naturally, this will involve looking at your financials. There are various metrics that can tell you whether your cash flow is strong and debt load manageable, and if your profitability goals are within reach. But don’t stop there.

3 key areas

Here are three other key areas of your business to review at midyear:

1. HR. Your people are your most valuable asset. So, how is your employee turnover rate trending compared with last year or previous years? High employee turnover could be a sign of underlying problems, such as poor training, lax management or low employee morale.

2. Sales and marketing. Are you meeting your monthly goals for new sales, in terms of both sales volume and number of new customers? Are you generating an adequate return on investment (ROI) for your marketing dollars? If you can’t answer this last question, enhance your tracking of existing marketing efforts so you can gauge marketing ROI going forward.

3. Production. If you manufacture products, what’s your unit reject rate so far this year? Or if yours is a service business, how satisfied are your customers with the level of service being provided? Again, you may need to tighten up your methods of tracking product quality or measuring customer satisfaction to meet this year’s strategic goals.

Necessary adjustments

Don’t wait to the end of the year to assess the progress of your 2018 strategic plan. Conduct a midyear review and get the information you need to make any adjustments necessary to help ensure success. Let us know how we can help.

3 steps to a more ethical organization

Tax Prep, Planning & Strategy|June 6, 2018

Whether it’s in the business, government or not-for-profit sector, ethics seem to be on everyone’s minds these days. To ensure your supporters and community understand your nonprofit organization’s values and the policies that uphold them, a formal code of ethics is essential. Here’s how to create one.

1. Identify rules of conduct

You probably already have a mission statement that explains your values and goals. So why would you also need a code of ethics? Think of it as a statement about how you practice ideals. A code of ethics not only guides your organization’s day-to-day operations but also your employees’ and board members’ conduct.

The first step in creating a code of ethics is determining your values. To that end, review your strategic plan and mission statement to identify the ideals specific to your organization. Then look at peer nonprofits to see which values you share, such as fairness, justice and commitment to the community. Also consider ethical and successful behaviors in your industry. For example, if your staff must be licensed, you may want to incorporate those requirements into your written code.

2. Formalize policies

Now you’re ready to document your expectations and the related policies for your staff and board members. Most nonprofits should address such general areas as mission, governance, legal compliance and conflicts of interest.

But depending on the type and size of your organization, also consider addressing:

• The responsible stewardship of funds,
• Openness and disclosure,
• Inclusiveness and diversity,
• Program evaluation, and
• Professional integrity.

For each topic, discuss how your nonprofit will abide by the law, be accountable to the public and responsibly handle resources. When the code of ethics is final, your board must formally approve it.

3. Communicate and train

Finally, implement the code and communicate it to staffers. Present hypothetical examples of situations that they might encounter. For example, what should an employee do if a board member exerts pressure to use his or her company as a vendor? Also address real-life scenarios and how your organization handled them. And if your nonprofit doesn’t already have one, put in place a mechanism, such as a confidential tipline, that stakeholders can use to raise ethical concerns.

Use the proper tools to fix a broken trust

Tax Prep, Planning & Strategy|May 24, 2018

An irrevocable trust has long been a key component of many estate plans. But what if it no longer serves your purposes? Is it too late to change it? Depending on applicable state law, you may have options to fix a “broken” trust.

How trusts break

There are several reasons a trust can break, including:

Changing circumstances. A trust that works just fine when it’s established may no longer achieve its original goals if your family circumstances change.

New tax laws. Many trusts were created when gift, estate and generation-skipping transfer (GST) tax exemption amounts were relatively low. Today, however, the exemptions have risen to $11.18 million, so trusts designed to minimize gift, estate and GST taxes may no longer be necessary. And with transfer taxes out of the picture, the higher income taxes often associated with these trusts — previously overshadowed by transfer tax concerns — become a more important factor.

Mistakes. Potential errors include naming the wrong beneficiary, omitting a critical clause from the trust document, including a clause that’s inconsistent with your intent, and failing to allocate your GST tax exemption properly.

How to fix them

If you have one or more trusts in need of repair, you may have several tools at your disposal, depending on applicable law in the state where you live and, if different, in the state where the trust is located. Potential tools include:

Reformation. The Uniform Trust Code (UTC), adopted in more than half the states, provides several tools for fixing broken trusts. Non-UTC states may provide similar options. Reformation allows you to ask a court to rewrite a trust’s terms to conform with the grantor’s intent. This tool is available if the trust’s original terms were based on a legal or factual mistake.

Modification. This tool may be available, also through court proceedings, if unanticipated circumstances require changes in order to achieve the trust’s purposes. Some states permit modification — even if it’s inconsistent with the trust’s purposes — with the consent of the grantor and all the beneficiaries.

Relocation. In some cases, it may be possible to fix a broken trust by changing its situs — that is, by moving it to a jurisdiction whose laws are more favorable. The UTC may allow a trustee to relocate a trust to an appropriate jurisdiction if doing so would be in the beneficiaries’ best interests.

The rules regarding modification of irrevocable trusts are complex and vary dramatically from state to state. And there are risks associated with revising or moving a trust, including uncertainty over how the IRS will view the changes. Before you make any changes, consult with us to discuss the potential benefits and risks.

Financial sustainability and your nonprofit

Accounting & Assurance|May 23, 2018

If your not-for-profit relies heavily on a few funding sources — for example, an annual government or foundation grant — what happens if you suddenly lose that support? The risk may be compounded if you generally spend every penny that comes in the door and fail to build adequate reserves. Bottom line: If your nonprofit hopes to serve its community many years into the future, you need to think about financial sustainability now.

Information, please

No organization can accurately evaluate its sustainability without timely, comprehensive and accurate financial reporting. In addition to providing a current picture of your standing, financial reports should compare actual figures with historical and projected numbers. Some nonprofits use “dashboards” that give real-time financial data, ratios and trends in easily understood graphic form.

It’s not enough for the board to review financial statements. Board members must provide true fiscal oversight and not leave major financial decisions to staff, no matter how trusted and loyal. The finance committee should report regularly to the full board and engage in dialogue about their reports and the organization’s financial health. Most importantly, your board shouldn’t merely take a backward-looking view but should also consider the future — for example, how current trends and developments might affect future plans for funding your nonprofit’s mission.

Lower costs, more revenue

Holding expenses down and continually searching for new revenue sources are critical to long-term financial sustainability. Many nonprofits forge formal partnerships with other organizations to share costs. Look into partnering with organizations that share your missions and serve similar populations. Such collaboration may enable you to make better use of limited resources while reducing competition for funding. By joining forces, you can more quickly scale up high-demand programs or services.

If you’re seeking new revenue ideas, consider expanding fee-based service offerings to new locations or populations. For example, an organization that provides services to children with disabilities in schools also could offer the services to children with disabilities in foster homes.

Funds in reserve

Finally, maintaining adequate reserves is a key component of financial sustainability. If you don’t have a reserve fund — or have one but no formal policy for determining the appropriate amount, maintaining it and allocating funds when necessary — make developing such a policy a priority. Contact us for help.

Ask the right questions about your IT strategy

Tax Prep, Planning & Strategy|May 23, 2018

Most businesses approach technology as an evolving challenge. You don’t want to overspend on bells and whistles you’ll never fully use, but you also don’t want to get left behind as competitors use the latest tech tools to operate more nimbly.

To refine your IT strategy over time, you’ve got to regularly reassess your operations and ask the right questions. Here are a few to consider:

Are we bogged down by outdated tech? More advanced analytical software can eliminate many time-consuming, repeatable tasks. Systems based on paper files and handwritten notes are obviously ripe for an upgrade, but even traditional digital spreadsheets aren’t as powerful as they used to be.

Do we have information silos? Most companies today use multiple applications. But if these solutions can’t “talk” to each other, you may suffer from information silos. This is when different people and teams keep important data to themselves, slowing communication. Determine whether this is occurring and, if so, how to integrate your key systems.

Do we have a digital asset-sharing policy? Businesses tend to generate tremendous amounts of paperwork, but hard copies can get misfiled or lost. Sharing documents electronically can speed distribution and enable real-time collaboration. A digital asset-sharing policy could help define how to grant system access, share documents and track communications.

Do we have a training program? Mandatory training and ongoing refresher sessions ensure that all users are taking full advantage of available technology and following proper protocols. If you don’t feel like you can provide this in-house, you could shop for vendors that provide training and resources matching your needs.

Do we have a security policy? A security policy is the first line of defense against hackers, viruses and other threats. It also helps protect customers’ sensitive data. Every business needs to establish a policy for regularly changing passwords, removing inactive users and providing ongoing security training.

Do we evaluate user feedback? A successful IT strategy is built on user feedback. Talk to your employees who use your technology and find out what works, what doesn’t and why.
Answering questions such as these is a good first step toward crafting a total IT strategy. Doing so can also help you better control expenses by eliminating redundancies and lowering the risk of costly mistakes and data losses. Let us know how we can help.

The TCJA changes some rules for deducting pass-through business losses

Tax Prep, Planning & Strategy|May 21, 2018

It’s not uncommon for businesses to sometimes generate tax losses. But the losses that can be deducted are limited by tax law in some situations. The Tax Cuts and Jobs Act (TCJA) further restricts the amount of losses that sole proprietors, partners, S corporation shareholders and, typically, limited liability company (LLC) members can currently deduct — beginning in 2018. This could negatively impact owners of start-ups and businesses facing adverse conditions.

Before the TCJA

Under pre-TCJA law, an individual taxpayer’s business losses could usually be fully deducted in the tax year when they arose unless:

The passive activity loss (PAL) rules or some other provision of tax law limited that favorable outcome, or
The business loss was so large that it exceeded taxable income from other sources, creating a net operating loss (NOL).

After the TCJA

The TCJA temporarily changes the rules for deducting an individual taxpayer’s business losses. If your pass-through business generates a tax loss for a tax year beginning in 2018 through 2025, you can’t deduct an “excess business loss” in the current year. An excess business loss is the excess of your aggregate business deductions for the tax year over the sum of:

Your aggregate business income and gains for the tax year, and
$250,000 ($500,000 if you’re a married taxpayer filing jointly).

The excess business loss is carried over to the following tax year and can be deducted under the rules for NOLs.

For business losses passed through to individuals from S corporations, partnerships and LLCs treated as partnerships for tax purposes, the new excess business loss limitation rules apply at the owner level. In other words, each owner’s allocable share of business income, gain, deduction or loss is passed through to the owner and reported on the owner’s personal federal income tax return for the owner’s tax year that includes the end of the entity’s tax year.

Keep in mind that the new loss limitation rules apply after applying the PAL rules. So, if the PAL rules disallow your business or rental activity loss, you don’t get to the new loss limitation rules.

Expecting a business loss?

The rationale underlying the new loss limitation rules is to restrict the ability of individual taxpayers to use current-year business losses to offset income from other sources, such as salary, self-employment income, interest, dividends and capital gains.

The practical impact is that your allowable current-year business losses can’t offset more than $250,000 of income from such other sources (or more than $500,000 for joint filers). The requirement that excess business losses be carried forward as an NOL forces you to wait at least one year to get any tax benefit from those excess losses.

If you’re expecting your business to generate a tax loss in 2018, contact us to determine whether you’ll be affected by the new loss limitation rules. We can also provide more information about the PAL and NOL rules.

If charitable giving is part of your estate plan, consider a donor-advised fund

Tax Prep, Planning & Strategy|May 17, 2018

Do you make sizable gifts to charitable causes? If you’re fortunate enough to afford it, you can realize personal gratification from your generosity and may be able to claim a deduction on your tax return. But once you turn over the money or assets, you generally have no further say on how they’re used. You can exercise greater control over your charitable endeavors using a donor-advised fund (DAF).

Setting up a DAF

As the name implies, your recommendations are integral to a DAF. First, you contribute to a fund typically managed by an independent sponsoring organization or an arm of a reputable financial institution. The minimum contribution generally is $5,000. In exchange for handling the management of the fund, the financial institution or organization usually charges an administrative fee based on a percentage of the deposit.

Next, you make recommendations as to how the DAF should distribute the assets to your favorite charities. Though technically you no longer have control of the money that has been contributed, the fund administrator will generally follow your advice. While you’re deciding which charities to support, your contribution is invested and grows tax-free. Then, your charitable choices are vetted by the organization to ensure that the recipients are qualified charitable organizations. Finally, the administrator cuts the checks and the funds are distributed to the charities.

DAF pros and cons

The advantages of using a DAF include an immediate tax deduction. Your contribution to the DAF is deductible in the tax year in which the initial contribution is made. You don’t have to wait until the fund makes distributions to the designated recipient. In addition, if you contribute appreciated property such as securities, there’s no capital gains tax on the appreciation in value. It remains untaxed forever. Moreover, contributions to a DAF aren’t subject to estate tax or the probate process, and the amounts contributed to the fund are invested and can grow without any tax erosion.

Conversely, despite some misconceptions, contributors to DAFs have effectively no control over how the money is spent once it’s disbursed to charities. Donors can’t benefit personally. For instance, you can’t direct that the money be used to buy tickets to a local fundraiser. In addition, detractors have complained about high administrative fees.

If you believe a DAF is the right charitable funding vehicle for you, be sure to shop around. Fund requirements — such as minimum contributions, minimum grant amounts and investment options — vary from fund to fund, as do the fees they charge. Contact us to help you find a fund that meets your needs.

4 ways to encourage innovation in customer service

Tax Prep, Planning & Strategy|May 17, 2018

When business people speak of innovation, the focus is usually on a pioneering product or state-of-the-art service that will “revolutionize the industry.” But innovation can apply to any aspect of your company — including customer service.

Many business owners perceive customer service as a fairly cut-and-dried affair. Customers call, you answer their questions or solve their problems ― and life goes on. Yet there are ways to transform this function and, when companies do, word gets around. People want to do business with organizations that are easy to interact with.

Here are four ways to encourage innovation in your customer service department:

1. Welcome failure. Providing world-class customer service involves risk, and inevitably you’ll sometimes fail. For example, many businesses have jumped at the chance to use “big data” to develop automated systems to direct customers to answers and solutions. But the impersonality of these systems can frustrate the buying public until you establish the right balance of machine and human interaction. Remember, every failure opens the door to better strategies for serving your customers.

2. Link compensation to employees’ contributions. Companies that fail to reward innovation aren’t likely to retain their best customers or establish a good reputation. Because customer service employees tend to be paid hourly or relatively nominal salaries, consider a cash bonus program for the “most innovative idea of the year.” Or you could hold semiannual or even quarterly innovation challenges with prizes such as gift cards or additional time off.

3. Praise the groundbreakers. Employees who challenge customer-service tradition may find themselves at odds with management. But don’t be too quick to reprimand those with new ideas or methods. Fresh language and modes of communication enter the public consciousness regularly. Give companywide recognition to those who find ways to adapt — even if their initial efforts bend the rules a bit.

4. Be the customer. Among the most simple and practical ways to innovate your customer service is to simply pretend you’re a customer to get a firsthand view on how your employees treat those who contact your business. Business owners can make these calls themselves or, if your voice is too recognizable, find someone who’s less familiar but capable of taking detailed notes of the interaction.

Finding new ways to improve your company’s customer service isn’t easy. But innovations are always just one bright idea away. If you’d like more information and ideas about building your bottom line, contact our firm.

Fortify your estate plan against undue influence claims

Make the most of your fundraising with simple metrics

A midyear review should go beyond financials

3 steps to a more ethical organization

Use the proper tools to fix a broken trust

Financial sustainability and your nonprofit

Ask the right questions about your IT strategy

The TCJA changes some rules for deducting pass-through business losses

If charitable giving is part of your estate plan, consider a donor-advised fund

4 ways to encourage innovation in customer service

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