About half of all companies close within five years of opening, and 70 percent will close within 10 years. An established company that suffers a significant loss due to a disaster faces the same long odds. The failure rate is virtually identical to the failure rate of startups, risk management consultant Bob Bernens said.

“You are starting over,” said Bernens, the founder of CORE Risk Services. “You have to go get your marketshare back. If you fumbled the ball, you’re in for the fight of your life.”

At Barnes Dennig’s most recent Manufacturers Roundtable, Bernens and Jim Hedrick of Gallagher SKS discussed the value of a well-researched, well-documented and well-rehearsed business continuity plan. A business can help fund such a plan by utilizing the Research and Expirementation (R&E) Tax Credit.

Legislative changes in recent years have opened the R&E credit to companies that previously would not have qualified, and more companies are using it for process improvements that previously they might have shrugged off as “just part of the job.”

“In many cases,” Barnes Dennig Tax Director John Michel said, ”the time and resources you commit to developing a business continuity plan would qualify as a process improvement and thus be eligible for the R&E credit. If you are looking for a way to pay for it, this is an option.”

The credit covers up to 20 percent of the cost of R&E activities, including wages. Nearly $8 billion in R&E credits were awarded in tax year 2009, the most recent year that data is available – and $5.5 billion went to manufacturers. If a company is reluctant to commit resources to developing a business continuity plan, the tax credit could help.

“Risk management and business continuity aren’t necessarily cheap,” Hedrick said. “They don’t cost a lot of money, but it’s a lot of time involved.”

Bernens said the first step is to chart the flow of product from the time you acquire the raw materials to the time the finished product reaches your customer. Then, examine every process along the way, looking for ways to make small improvements and considering all of the hazards that could stall the process. Bernens and Gallagher said they regularly participate in “war games,” where key personnel will brainstorm solutions to a very specific problem during a specific stage of the process.

“It’s really about re-learning your business,” Bernens said.

“There are so many benefits that come out of this than just if a tornado hits your building,” Hedrick said. “It ends up being an organizational development session.”

The next step is to implement and document any changes that come out of those sessions. Both panelists stressed the importance of regular communication with employees, customers and suppliers.

“Documentation of these process improvements also serves as contemporaneous supporting documentation for the research tax credit,” Barnes Dennig Tax Manager Cheryl Ganim said.

In the heat of the moment, it’s likely that not all parties will follow the plan to the letter; the natural tendency in such situations is to try to help wherever and whenever possible. But if a company takes business continuity seriously, the most important steps in the recovery process will be well-rehearsed and well-documented – which will allow the company to recoup its losses as quickly as possible after a disaster and claim a tax credit for establishing the plan before a disaster.

“It’s like the famous quote from (Dwight Eisenhower): ‘The plan is nothing; planning is everything,’” Bernens said. “You learn a lot about your business.”

A note from Tax Manager Cheryl Ganim, CPA:

In an effort to speed tax receipts into the next fiscal year, Ohio and Kentucky recently signed tax amnesty measures that would allow those who owe back taxes to pay at a reduced interest rate with little or no penalty.

The Ohio amnesty program began Tuesday and is only available until June 15. Taxpayers who have certain unpaid state taxes from prior to May 2011 can pay those taxes and half of the interest due, and the remaining interest and all penalties will be waived. The program covers individual income tax, commercial activity tax, sales and seller’s use tax, employer withholding tax and corporate franchise tax, and state officials estimate it could bring in $40 million.

The Kentucky amnesty program will be in effect from July 1, 2012, through June 30, 2013, and it applies to tax liabilities incurred between December 1, 2001, and October 1, 2011. Nearly all Kentucky tax liabilities will be eligible for the amnesty program. In order to qualify for amnesty, taxpayers must pay all of the back taxes and half of the interest due, then file all tax returns and make all tax payments on time for the next three years.

Kentucky will allow installment payments, as long as the amnesty amount is paid in full by May 31, 2013. Ohio requires the full amnesty amount to be paid by June 15.

A Kentucky taxpayer who owes back taxes and opts not to participate in the amnesty program will be assessed additional penalties if the state uncovers his or her unpaid taxes in the future.

For more on the tax amnesty programs, or any of your tax needs, contact a member of the Barnes Dennig tax team at (513) 241-8313.

Steve Hube has worked alongside Bill Cloppert throughout his 30 years at Barnes Dennig. For most of that time, Cloppert was the firm’s Managing Director, and Hube watched closely as Cloppert led by putting others first.

Now that he is Managing Director, Hube aspires to lead the same way. He explained the style in an article in the current issue of the Cincinnati Business Courier:

Barnes Dennig Managing Director Steve Hube

He describes his leadership style as a “servant-leader” and cites Cloppert as his role model.

“It’s putting others first. If an employee has an issue, I’ll put down what I’m doing to address those concerns,” Hube said. “I’m trying to make sure I’m enabling for others, to make sure I have the brightest and smartest people around me to make the best decisions for the firm.”

In a question-and-answer exchange with the Courier, Hube also discussed the firm’s strategy for attracting talent and developing leaders, the uncertainty surrounding future tax law, and the impact of government regulation.

When asked whether government regulations are “more trouble” for Barnes Dennig or our clients, Hube said:

Our clients. Regulations are our business, not theirs. They’re making the products and delivering the services that drive our economy, and too much government regulation gets in the way of that. With issues like health care, labor relations and monetary policy, it’s such an uncertain environment right now, and they’re looking for us to provide insight on the best path forward.

Courier reporter Jon Newberry expanded on that theme in a sidebar article, “Accountants, lawyers seeing boost in business from changing regulations.” In the article, Barnes Dennig Tax Manager Scott Cress discusses some of the tax incentives that Barnes Dennig has helped clients claim – including a tax credit for international marketing efforts and a 10 percent investment tax credit.

From the Courier article:

Ohio, Kentucky and Indiana are all competing to attract businesses to spur economic development, Cress said, and employing professional advisers is probably the easiest way to maximize the benefits. All of the states’ development departments are very helpful, and a business could do it on its own. But most of the time, “the adviser fees pay for themselves and then some,” he said.

The Recovery Audit Contractor program has evolved and expanded in the two years since it was launched nationwide, and it now covers Medicare parts C and D and Medicaid, in addition to the original focus on Medicare parts A and B. Beginning June 1, healthcare providers in Ohio will be subject to “prepayment reviews” by Medicare RACs.

The “prepayment reviews” will begin as a three-year demonstration program in 11 states, including Ohio. Medicare RACs in those states will review claims before they are paid, to make sure the healthcare provider complied with all Medicare rules. Initially, they will focus on inpatient hospital stays of two days or less – the type of claim that historically results in high rates of overpayment.

It is part of a larger effort by the Centers for Medicare & Medicaid Services (CMS) to eliminate fraud and waste in the Medicare system. According to the CMS’s most recent update, the RAC program has identified $1.45 billion in improper payments since the program went nationwide January 1, 2010 – including $422 million identified in the first quarter of 2012.

Some of those improper payments were actually underpayments, where the healthcare provider was due more money than it originally claimed. But most of the improper payments – about $1.27 billion of the $1.45 billion total – were overpayments, which the Federal government reclaimed through the RACs.

Another subtle change in the program should help providers by issuing demand letters more quickly, since any delay in a RAC issuing the demand could have limited how much time the provider had to file a rebuttal. The demand letters will now be issued by Medicare Administrative Contractors (MACs) rather than RACs.

The Medical Group Management Association has a number of resources available on its website at www.mgma.com/rac. For more information on how Barnes Dennig can help, visit the Healthcare section of our website or contact me at (513) 241-8313.

A recent survey of IT professionals found that more than half would not bet on the security of their systems, and 84 percent believe an expert hacker could access their corporate network. Their concern reflects the prevalence of cyber attacks and underscores the value of having strong controls over information systems.

If you outsource payroll processing, benefits or other cloud-based and networking services to third-party providers, it is important that you have reasonable assurances that the provider also has effective controls over your information and systems. As more businesses outsource those functions, more vendors have access to important systems, and there is a greater risk of a system being compromised.

Barnes Dennig can help in both cases, by offering an IT Controls Checkup and Service Organization Controls services.

We will examine controls over specific processes, as well as the control environment – personnel policies and procedures, management and Board of Director oversight, risk management procedures, and monitoring of controls in place. The IT Controls Checkup will give you peace of mind that your system controls are working properly, and a Service Organization Controls report from your vendor will give you confidence that your vendors also have effective controls in place to protect your systems.

More than 300 IT professionals participated in the survey, which was conducted in February by PhoneFactor, a provider of wireless authentication. The main reason they felt their network might be vulnerable is the prevalence of malware.

A new report by American Express shows that women-owned businesses are growing at a faster rate than other privately held companies and in a wide variety of industries, but the growth in Ohio lags behind the growth in other states.

According to the 2012 State of Women-Owned Businesses Report, which was commissioned by American Express OPEN, the number of women-owned businesses has increased 54 percent in the past 15 years, and revenues are up 58 percent in that time. In particular, women-owned businesses are prominent in the education, health care and social assistance sectors.

Twenty nine percent of all privately held businesses are considered women-owned, and they cut across a growing diversity of industries. For example, women-owned businesses comprise only 8 percent of all construction companies, but those women-owned construction companies have increased employees and revenue at a rate equal to or better than non-women-owned construction companies over the past 10 years – and women-owned construction companies are more likely to generate $500,000 or more in annual revenue.

Considering the federal government’s mandate to make contracts available to women-owned and small businesses, there are opportunities for continued growth. Barnes Dennig can help a woman-owned business attain the proper certification.

Women-owned businesses have long been a staple of the local economy. Among the 50 states and the District of Columbia, Ohio ranks ninth in the total number of women-owned businesses (with more than 255,000) but ranks 50^th in the growth of those businesses over the past decade (based on the percentage of new women-owned businesses, the percentage of new employees and percentage of new revenue).

According to the American Express report, women-owned businesses in Ohio will generate an estimated $42.5 million in revenue in 2012 and employ 289,000 people – nearly 40 percent more revenue than they generated in 1997, but with 2,000 fewer employees. Only Iowa has experienced less growth among its women-owned businesses. Kentucky ranks 44^th and Indiana ranks 32^nd in growth. D.C., Nevada and Wyoming have seen the greatest growth.

Clemson University’s Department of Construction Science and Management recently found that the average construction craft worker was only 40 percent productive – in other words, crew members were performing actual work related to their assigned tasks only 40 percent of the time. The rest of their time was spent on nonproductive activities such as administrative delays (waiting for materials, equipment or instructions), inefficient work methods, work restrictions, or personal time.

It is important that you measure and analyze productivity regularly and repeatedly, so you can identify trends before a job is completed, while there is still time to make a difference.

Begin by establishing a program to monitor work processes, analyze results and make improvements. Assign this to your most experienced supervisors, and let your crews know the purpose is not simply to look for mistakes or wasted time, but to develop smarter and more efficient ways of doing things. In particular, be alert for opportunities to:

• Reduce administrative delays. Make sure the right type and number of tools, equipment and materials are available when needed. Take time for weekly planning and reassign workers when delays occur.
• Correct inefficient work methods. Focus on standardizing as many processes as possible, prefabricating components whenever practical, and re-evaluating the way work is sequenced and how tools and equipment are used.
• Reassign equipment, crews and supervisors. Determine the effectiveness of project managers and site supervisors by comparing their crews’ actual productivity to estimated productivity, and reassign jobs for maximum performance.
• Limit work restrictions. Devote more resources to weekly job and personnel planning. Preplan as many activities as possible, and provide on-the-job training and jobsite safety programs.
• Cut down on personal time. Make sure supervisors are present at key times during the day, and monitor and assess worker activity on a regular basis.

Open communication is essential. It is critical that the workers themselves are aware of the observation and activity sampling process, and that they understand why it’s being done – this is not just an attempt to catch people “goofing off” or making mistakes. Attempting to conduct observations or activity sampling without employees’ knowledge and input will definitely hurt worker morale and have a negative impact on productivity – which is exactly the opposite of what you are trying to achieve.

Click here for more information, or contact a member of the Barnes Dennig Construction/Real Estate Client Service Team at (513) 241-8313.

In an industry as competitive as construction – and an economy as sluggish as ours – it is important to focus on profit over revenue and efficiency over activity. Bigger and busier is not necessarily better.

“We’re so busy working that we just keep working. You have to be more strategic,” said Monroe Porter, President of PROOF Management. “You have to make the tough decisions.”

Monroe Porter

Porter was the featured speaker at the 13^th Annual Contractor’s Seminar, sponsored by Barnes Dennig, Frost Brown Todd and North Side Bank. He offered a number of strategic tips for contractors to improve their bottom line, including:

• Pay attention to the changing demographics within the country and the region, because it will impact the nature of the jobs that are available and the makeup of the workforce. For instance, as the aging population increases, so will the need for healthcare facilities.
• Your management and cost structure must evolve with the times. In order to make the profit you desire on a job, you not only need staff with the appropriate skills and experience for the job, you need to maintain the appropriate average hourly wage – and your bid must reflect your wages, skills and desired profit.
• Don’t waste time chasing jobs you won’t get or jobs that are not profitable. Instead, focus on the type of work your company does well, and put more time and effort into building relationships with those customers.

“Of the contractors that are busy, we find that 20-30 percent of their work represents 100 percent of their losses, and we find that to be true of $100 million contractors and $1 million contractors,” Porter said. “They’re losing money on those jobs because they’re doing jobs they don’t do well.”

He encouraged attendees to compile a list of all jobs the company performed in the past five years and compare them by margin to determine what type of work is most profitable for their particular company. That information will help determine the type of job the company should pursue in the future. Then, when pursuing new work, pursue only the work that the company has a realistic chance of winning.

“Separate the suspects from the prospects,” Porter said.

For some contractors, that will mean focusing more on restoration and service work than new construction. “The retrofit, maintenance and repair market in the U.S. is way larger than construction,” Porter said, “and it’s generally more profitable.”

This article appears in the March 2012 edition of the Goering Center newsletter:

Business owners and high-net-worth individuals who wish to pass along assets to their children were given a gift last year, but it comes with an expiration date. The lifetime gift tax exemption was temporarily raised from $1 million to $5 million ($10 million for married couples), which creates valuable possibilities for transitioning wealth to the next generation.

If a business owner is beginning to shift responsibility to his or her children, this would be an ideal time to give a large portion of the business to the kids – particularly if the assets are likely to grow in value. The business owner could give up to $5 million in assets without having to pay a gift tax today or an estate tax later, and any appreciation in those assets would accumulate tax-free in a trust.

The lifetime gift tax exemption had been $1 million, meaning an individual could give up to $1 million – beyond the annual limit of $13,000 – without having to pay gift tax. Any gift beyond $1 million was taxed at 35 percent. The exemption was raised to $5 million for gifts made in 2011 and 2012. Unless lawmakers pass an extension, the exemption will revert to $1 million in 2013, and the tax rate on gifts beyond $1 million will rise to 55 percent.

Thus, 2012 represents a short but valuable window of opportunity to pass along significant wealth to the next generation.

Click here to read the remainder of the article and others in the March 2012 newsletter.

Rapid technological advancements are making international business accessible for companies of all sizes, but the opportunity for new sales comes at a cost – not the least of which is introducing your product to a new, foreign audience.

The Ohio Department of Development and the U.S. Small Business Administration can help. They offer a grant that will cover up to half the cost of certain international marketing initiatives – including hiring translators, translating a website or other marketing collateral, and the cost of participating in international trade shows.

The International Market Access Grant for Exporters (IMAGE) will reimburse an eligible exporter for 50 percent of the qualifying marketing expenses, up to a maximum range of $6,000 to $9,000.

In order to qualify for the grant, a company must:

• Be in business for at least one year.
• Operate a licensed business in Ohio, and be in good standing with all State of Ohio agencies.
• Be a small business, as defined by the Small Business Administration. The standards vary by industry sector; click here for more information. In general, a manufacturer must have fewer than 500 employees and a wholesale distributor must have fewer than 100 employees.

Your application must be approved before you begin the marketing activities. Application information is available on the Ohio Department of Development’s website. The state received nearly $1 million to distribute via IMAGE grants, and as of today it has received requests for less than half that amount, so there is still plenty of opportunity for a qualified business to cash in on the offer.

For more information, contact a member of the Barnes Dennig tax team at (513) 241-8313.

Ohio Governor John Kasich unveiled a mid-budget review Wednesday that calls for a significant cut in Ohio income taxes, which will be tied to an increase in taxes on oil and natural gas.

The plan is to take advantage of the “fracking” boom in eastern Ohio, where energy companies are drilling the Utica and Marcellus shale formations for crude oil and natural gas liquids. According to Kasich’s proposal, the more tax revenue the state is able to raise from energy companies, the more it will cut income taxes – up to a 5 percent cut in 2017.

Ohio Gov. John Kasich

In all, the proposal would save Ohioans almost $1 billion in income taxes over the next five years.

“If Ohioans aren’t benefiting, then some shareholder in Texas will benefit,” Kasich told reporters. “There’s gold in them thar hills. How much gold, we’re not sure. But I’d rather be sharing the wealth with Ohioans than investors living elsewhere.”

The oil and gas industries immediately argued that the plan was harmful to a growing industry, and The Columbus Dispatch reported that Kasich will have a difficult time getting the proposal passed, because even fellow Republicans are concerned about funding a tax cut with a corresponding tax increase.

The tax proposal was only one part of a massive plan that Kasich said would dramatically change how the state operates.

“Almost every time I turn around, I find another piece of broken Ohio,” Kasich told reporters Wednesday. “I think the people of the state ought to feel good that we’re working day and night and burning the candle at both ends to live up to our responsibility.”

Executives across the country are increasingly encouraged about the economic recovery, and executives in Greater Cincinnati have extra reason to be optimistic.

According to the most recent AICPA Economic Outlook Survey, business executives expressed much more optimism about the U.S. economy during the first quarter of 2012 than in the third and fourth quarters of 2011. Sixty one percent of respondents said they expect their business to grow in the next 12 months, and 14 percent said they expect to hire additional staff immediately.

“Optimists now outnumber pessimists on the U.S. economy by an almost 2-to-1 margin, which is a striking change from six months ago,” said Carol Scott, AICPA vice president for business, industry and government. “While a substantial number of respondents remain neutral, we’re seeing a clear shift toward a more positive outlook for the coming year.”

Business executives also foresee better things for their own companies. Some 55 percent said they were optimistic or very optimistic about the outlook for their organizations over the next 12 months, compared to 45 percent last quarter.

Meanwhile, a recent report by the Tax Foundation listed Ohio and Kentucky among the best states for business taxes, particularly for new companies. Ohio was judged to have the third-lowest overall tax cost for new operations and the fifth-lowest for mature operations (the study included only corporate entities, not S-Corporations, LLCs or partnerships).

Kentucky ranked seventh for new operations and 18^th for mature operations, thanks to relatively low sales tax, unemployment insurance taxes and property taxes. Indiana ranked 15^th for new operations (including second for new retail and fifth for new R&D) and 43^rd for mature operations.

The Tax Foundation report on business taxes by state is available at taxfoundation.org. A full copy of the Economic Outlook report is available at aicpa.org.

A message from Robert C. Wallace, Client Technology Specialist at Barnes Dennig and a member of the Business Emergency Planning Association:

“Tornado Season” is upon us, and we need to be prepared at work just as we do at home.

A tornado ripped through Moscow, Ohio, and other local towns last week. Photo from cincinnati.com.

The spring months are historically when we see most tornado activity, but they can and do happen year-round. Most tornadoes – including those that hit the region last week - occur between 3 and 7 p.m., a time when most of our employees are in the office or commuting home. In 2011, there were 1,625 confirmed tornadoes which resulted in 551 fatalities and more than 28 billion dollars in damages; 92 deaths were in businesses, 33 in vehicles and 7 outside.

There are things businesses should do to prepare for tornadoes: 

Before a tornado strikes

• Conduct emergency drills to familiarize employees with the layout of the building. Select the safest place for you and your employees to hide and make sure everyone knows this location in advance of a tornado.
• Keep supplies of blankets, batteries and flashlights handy. Have cell phones fully charged.
• Use a battery-powered weather radio with a tone-alert feature to keep you informed of watches and warnings in your area. A tornado watch means conditions in a given area make a tornado likely, and a tornado warning means a tornado has actually been spotted.
• Keep trees and shrubbery trimmed. You can make trees more wind-resistant by removing diseased or damaged limbs.

During a tornado

• Go to the safest places to wait out the storm — usually the basement or a tornado shelter. If you have no basement, take shelter in a small room in the center of your business on the lowest floor, such as a restroom, closet or maintenance room. If your business is located in a high-rise building and you can’t get to a basement, go to interior hallway areas and stay away from glass walls and windows, no matter how small.
• Do not use elevators for shelter. If the building loses power, you may be trapped in the elevator for a long time.
• Protect yourself from flying debris. Wrap yourself in overcoats or blankets, if possible.
• Structures with wide-span roofs, such as auditoriums, theaters and warehouses, are particularly vulnerable and should be avoided.

After a tornado

• Account for all employees and attend to any victims’ injuries.
• Use extreme caution if re-entering a building, as moving through debris presents further hazards. Watch for loose plaster, drywall and ceilings that could fall.
• Take pictures of the damage, both of the building and its contents, for insurance claims.

Prepare your Business for Disasters Big and Small

Business Continuity Planning is a formal process that organizations should go through prior to experiencing a disaster or business interruption.  The process helps to identify areas of vulnerability and aids companies in mitigating losses.  Planning and testing the plan also teaches management and employees what to do in the event of an emergency much like we teach our children what to do in the event of a fire or tornado.

There are plenty of resources available to help you get started, including a local non-profit organization. Business Emergency Planners Association (BEPA) offers quarterly workshops free of charge to help small businesses learn more about preparedness. To learn more about BEPA, go to www.mybepa.org and plan to attend their Tornado Preparedness workshop May 9^th at the Greater Cincinnati Red Cross chapter.

A recap of our non-profit roundtable, by Audit Manager Patrick Frambes, CPA:

With the anticipated retirement of the baby-boomer generation and the emergence of young professionals, many organizations are faced with the overwhelming task of selecting their future leaders and actively transitioning them into key roles.   As many will attest, a smooth transition cannot occur without proper planning and guidance from all stakeholders.  Developing a succession plan is a necessary and crucial step in sustaining your organization and fulfilling your mission. 

At Barnes Dennig’s most recent non-profit roundtable, a panel of local executives offered suggestions for identifying and selecting your organization’s future leaders:

1. Identify the core competencies that are most important to your organization
2. Build bench strength and ensure a ready supply of successors are available to you and your organization
3. Look both inside and outside of the organization for potential leaders
4. Enlist the help of a professional service firm to facilitate the search and identify top prospects
5. Document your decisions, competencies and qualifications
6. Review your plan on an annual basis and refine, if necessary

With these key points in mind, your organization will be able to identify and select the talent. However, keep in mind that succession planning does not stop once an individual is identified.  Proper mentoring and education are necessary to ensure that individual has the tools and resources to continue your mission into the future.

If you make the investment now, it will pay huge dividends in the end.

For more information on our roundtables and other value-added services for non-profits, click here or contact a member of the Barnes Dennig non-profit client service team at (513) 241-8313.

A week after releasing a budget request that calls for significantly higher income taxes for wealthy individuals, President Obama today unveiled a proposal to revamp the corporate tax code, lowering the top rate but eliminating numerous credits and incentives.

As with the proposed tax changes in the President’s budget, this proposal is unlikely to be passed by a divided Congress in an election year, but it sets the stage for what will be a key issue in the November election.

Republican presidential hopeful Mitt Romney is expected to release details of his own proposed tax overhaul in the near future. He recently said he would push for a “flatter, fairer and simpler” tax code while also addressing “our entitlements and obligations.” Bloomberg BNA published a comparison of the candidates’ tax plans, budget proposals and general policy views, which you can read here (requires registration).

Obama’s proposal calls for the top corporate tax rate to be reduced from 35 percent to 28 percent – and 25 percent for manufacturers – and will eliminate “dozens” of tax breaks. There are so many tax credits and incentives currently available that many corporate taxpayers pay significantly less than 35 percent. Obama’s proposal also includes a minimum tax on the foreign profits of U.S. multinational companies.

“We want to restore a system in which American businesses succeed or fail based on the products they make and the services they provide, not on the creativity of their tax engineers or the lobbyists they hire,” Treasury Secretary Tim Geithner said in unveiling the proposal. “Some will say these proposals are too tough on business, and others will say that they’re not tough enough.”

Attrition is “the true silent killer” for modern companies, experienced human resources director Bill Bagley said. It strikes in tangible and intangible ways: Increasing costs for recruiting and training, a loss of efficiencies, and lowering workplace morale.

At Barnes Dennig’s most recent Distribution & Manufacturing Roundtable, Bagley discussed “Transformational HR,” a process companies can utilize to attract, develop and retain the best and brightest talent.

Among the action steps he suggested are:

• Compare organizational and departmental retention rates with industry averages
• Make a candid assessment of the quality of your staff
• Assess utilization, productivity and sales numbers to see how they have been impacted by turnover
• Create and implement a succession plan for the organization

Becoming an “Employer of Choice” involves creating an environment where talented employees can thrive. This is achieved not only by challenging employees but by providing them with the highest level of training, support, recognition and rewards. Motivating employees from different generations requires a nuanced understanding of the values and perspectives shared by each group.

Several attendees shared insight about how they had implemented flexible scheduling and job-sharing programs, accommodating the needs of their employees while simultaneously improving efficiency.

Twenty-six people from 22 companies attended the event. All respondents rated the content “very good” or “excellent.”

“Bill gave me some good ideas that I can apply at my organization and reinforced/affirmed some points I’ve been coaching my management team about,” one survey respondent wrote. Another wrote, “The content brought forth some topics that were perhaps new and different to some of the attendees. Certainly some things that were thought-provoking.”

For a copy of the slides from this presentation, contact your Barnes Dennig representative at (513) 241-8313.

Both houses of Congress passed a bill last Friday that will extend the 2 percent payroll tax cut through 2012, ending months of debate and saving hundreds of dollars for employees.

The employee portion of the payroll tax was reduced from 6.2 percent to 4.2 percent in 2011, then extended through February 2012. The new bill, which President Obama is expected to sign into law, will extend the 4.2 percent rate through December 31.

Employees will pay 4.2 percent on the first $110,100 of wages. Employers will continue to pay 6.2 percent on the first $110,100 of each employee’s wages, and the self-employed will be responsible for both the employee and employer portions (a total of 10.4 percent of the first $110,100).

The bill, called the Middle Class Tax Relief and Job Creation Act of 2012, also extends certain unemployment benefits and blocks a cut in Medicare payments to doctors. The payroll tax cut is expected to save the average American worker around $1,000 in 2012. The Congressional Budget Office estimates that it will cost the government $93 billion in lost tax revenue.

President Obama released a budget request Monday that calls for a significant increase in tax revenue, mainly at the expense of individuals making at least $200,000 per year in adjusted gross income or families making $250,000 per year. The budget has little chance of passing a divided Congress in an election year, but it gives some insight into how the administration will approach future budgets should Obama get re-elected.

The $3.8 trillion budget proposal would end the Bush-era tax cuts, raising income tax rates to pre-2001 levels and limiting non-charitable deductions. It also broadens the definition of “taxable income” to include certain municipal bond income, retirement plan contributions, and health insurance payments. Thus, more taxpayers will fall into the top tax bracket, and folks in that bracket will pay a higher rate of taxes.

According to U.S. Treasury estimates, the proposed tax changes would generate an additional $1.5 trillion in tax revenue over the next 10 years, most of it from the wealthiest 2 percent of taxpayers.

The budget calls for roughly $1 trillion in spending cuts, but it gave little detail about how those cuts would be enacted. It projects a federal deficit of $901 billion by the end of 2013.

Pinterest is the new online craze.  It began in December 2009, and last fall Time magazine declared it one of the “50 Best Websites of 2011.” By the end of December 2011, there were 11 million visits, primarily by women between the ages of 25 – 44 – a prime demographic to reach.

So what does this mean to nonprofits?  If you can visualize a story or interest for your organization, if your cause is considered hip or trendy, if you’re engaged on other social media platforms or if you’re looking to reap the benefits of local Search Engine Optimization (SEO), Pinterest is worth investigating.  According to the website, “Pinterest is a virtual pinboard. Pinterest allows you to organize and share all the beautiful things you find on the web. You can browse pinboards created by other people to discover new things and get inspiration from people who share your interests.”

Pinterest is currently invitation-only and it takes between 24 hours and two weeks to receive an invite once you’ve requested one.  Once you receive an invite, you can register via Facebook or Twitter.  And then you’re ready to start pinning.

But don’t just pin, repin.  Be useful, as users are looking for ideas and inspiration: create boards (set of pins) with specific purposes, follow users with similar interests with quality pins, follow back users who follow you and “like” pins or repin items that appeal to you.  Most importantly, let your supporters pin for you by adding the “Pin It” button to your blog or website so your users can create their own pin boards highlighting your cause.

Pinterest is not a place to blatantly promote your organization but rather capture the spirit of your organization while connecting to a community of potential donors or volunteers who share your mission.  So if you’re a museum, pin items for sale in your gift shop; a veterans organization, pin pictures of returning vets or military awards; or a daycare, pin projects completed or show-and-tell items.

The Internal Revenue Service created a new tool on its website that will make it easier to find and research certain information about tax-exempt organizations. The tool, called the Exempt Organizations Self Check, consolidates information that previously was housed in three separate databases.

The new tool offers expanded search capabilities and provides a more efficient way to research organizations that:

• are eligible to receive tax-deductible charitable contributions (Publication 78 data);
• have had their tax-exempt status automatically revoked because they have not filed Form 990 series returns or notices annually as required for three consecutive years (Auto-Revocation List); or
• have filed a Form 990-N annual electronic notice (e-Postcard).

Click here for more information.

Many non-profit organizations have found that PayPal offers a safe, convenient and unobtrusive way to solicit donations. It can be a great complement to traditional fundraising efforts, particularly at a time when staffs and budgets are stretched thin.

Your donors can reach PayPal from your website, make a contribution on a secure site, then return to your site. You and the donor receive a receipt, and in most cases you will have instant access to the money. There are no setup or maintenance fees, and PayPal offers a suite of services specifically for non-profits.

While PayPal is an inexpensive and easy-to-use service, it is also a loosely controlled method of moving money. For that reason, we recommend especially intentional and well-documented approaches to ensuring effective controls. We recommend you consider the following:

• Document the intended uses of PayPal and a related controls policy, including the importance of effective passwords
• Enforce a notification system that cannot be overridden by the person with the PayPal login ID and password. For example, create an email forwarding account that automatically notifies multiple employees (i.e., someone in accounting and someone in development) whenever a donation is received.
• Request that PayPal automatically sweep the balance in the account nightly.  This is a free service.
• Use a zero-balance bank account for receiving the money from PayPal.  Otherwise, money can be moved from the bank account into PayPal and then emailed anywhere.
• Request a remote identification device from PayPal that provides a unique number that is constantly changing, and store the device in a secure place.

For more information on our Internal Controls services, click here. For more information on our non-profit accounting services, click here or contact a member of the Barnes Dennig non-profit client service team at (513) 241-8313.

Employee theft was a prominent – and expensive – problem in 2011, but there are some noteworthy trends that can help you prevent similar loss within your organization.

Marquet International Ltd. has studied white-collar crime in the United States for the past four years, and its most recent report – The 2011 Marquet Report on Embezzlement – indicates that fraud remained a significant issue in 2011. The company examined 473 cases of white-collar fraud with more than $100,000 in reported losses, and its findings include:

• There was a slight 2% decrease in the number of cases from 2010.
• Non-profits, including religious organizations, experienced one-sixth of all major embezzlement cases.
• The average loss was nearly $750,000.
• Employees who held finance/bookkeeping and accounting positions committed about three-quarters of the incidents in 2011 and two-thirds of all cases from 2008-2011.
• The most common scheme involved issuing forged and unauthorized company checks. The second-most common scheme involved the theft and/or conversion of cash receipts.
• Nearly two-thirds of the cases involved female perpetrators. However, on average, male perpetrators embezzled nearly 25% more than females.
• Nearly 90% of the cases involved individual perpetrators, and most major embezzlers appear to have been motivated by a desire to live a relatively more lavish lifestyle, rather than driven by financial woes.

A majority of the organizations involved in these schemes had weak business and cash controls.  In economic uncertainty, preventing fraud with strong internal controls is cheaper and more effective than detecting a crime.

Beginning this year, corporations must report on their corporate tax return if they are required to file Form 1099 and whether they have filed all that are necessary. The IRS added the following question to the 2011 return in order to better track the 1099s that are not being filed:

a. Did the corporation make any payments in 2011 that would require it to file Form(s) 1099?

b. If Yes, did or will the corporation file all required Forms 1099?

You are required to file a 1099 for any service for which you paid more than $600 in the calendar year – including independent contractors, freelancers, lawyers and accountants.

If you have any questions or would like additional information, contact your Barnes Dennig representative at (513) 241-8313.

The Ohio charities and non-profits registration process has changed with the launch of the Online Charitable Registration System. The new system, which launched December 1, 2011, aims to eliminate the paper-based process of filing with the Ohio Attorney General. Moreover, the Online Charitable Registration System will increase transparency and accountability throughout the sector.  You probably have received correspondence from the Ohio Attorney General’s office regarding registration of your charitable organization online.

 This is a mandatory online registration.  All exempt organizations that were previously required to file will now have to annually file online and submit payments electronically.  Any organizations with year-ends ending after November 30, 2011, must register and file electronically.  Organizations that have not filed their forms but have year-ends prior to November 30, 2011, are encouraged to register and file using the new system.

Barnes Dennig has always prepared the Ohio filing for its clients during the Form 990 preparation process, and we will continue to do this on an annual basis. However, you must complete the initial registration for your organization.

Click here to register through the Ohio Attorney General’s office. For more information on the registration process and the new system, you can click here to download a user’s guide from the Ohio Attorney General.

For more information on this or any non-profit tax matters, contact your Barnes Dennig representative at (513) 241-8313.

A new accounting standard will require employers to disclose more information about their contributions to multi-employer pension plans. It will be a significant change for employers and plan sponsors in heavily unionized industries such as construction.

The new disclosures include:

• The amount of employer contributions made to each significant multi-employer plan and the total made to all plans.
• An indication of whether the employer’s contributions represent more than 5 percent of the total contributions to the plan.
• An indication of which plans are subject to a funding improvement plan.
• The expiration dates of any collective bargaining agreements and minimum funding arrangements.
• The most recent certified funded status of the plan, as determined by the plan’s “zone status.” If the “zone status” is not available, the employer must disclose whether the plan is less than 65 percent funded, between 65 and 80 percent funded, or at least 80 percent funded.
• A description of the nature and effect of any changes that affect the comparability for each period in which a statement of income is presented.

Previously, employers were required to disclose only their total contributions to all of the multi-employer plans in which they participated. The new standard, which was released by the Financial Accounting Standards Board last fall, will provide more information about the total commitment and risk associated with each multi-employer plan.

For private companies, the disclosures will be required for years ending after Dec. 15, 2012. For public companies, they will be required for years ending after Dec. 15, 2011.

Barnes Dennig Director Chad Martin, who has earned the designation of Certified Fraud Examiner, was recently quoted by the Cincinnati Business Courier as an authority on fraud.

The newspaper article details a lawsuit by a local car dealership against a former payroll clerk who is alleged to have embezzled more than $6 million over a period of nine years. Martin pointed out that the case is unusual in that the clerk allegedly worked in concert with other employees to steal the money. Most fraud cases involve only one person and significantly less money.

“They find a hole in the internal control system and they know their supervisor is not looking,” Martin told the newspaper.

According to the Courier article, the former employee allegedly issued extra paychecks to employees who then cashed the checks and split the money with her. She hid her activity from management by generating fraudulent spreadsheets for them to review.

The case is a reminder of the importance of strong internal controls, as Martin indicated to the Courier:

Normally the type of scheme alleged at [the dealership] should not be possible if one person handles payroll, a supervisor reconciles payroll reports with the cash flowing out of the bank account, and a controller or CFO reviews their reports and monthly financials, Martin said.

Supervisors often get lax with such routine functions, because they can be boring, Martin said, “but it’s an important control.”

If you receive an e-mail that claims to be from the IRS and asks you to provide personal and financial information, do not reply to the message, open any attachments or click any links. It is most likely a scam.

The IRS receives thousands of reports each year from taxpayers who receive suspicious e-mails, phone calls or faxes claiming to be from the IRS and asking for information such as a Social Security number, bank account number or credit card number. The IRS stresses that it does not initiate taxpayer communications through e-mail, and it never asks for detailed personal or financial information.

Also, please note that the official IRS website is www.irs.gov. If you receive a notification that claims to be from the IRS but directs you to a site that ends in .com, net or .org, do not click the link. 
 
For more information on these phishing schemes, or to report suspicious activity to the IRS, click here.

With a contentious summer of debate in the rear-view mirror and a presidential election on the horizon, we could see a number of tax changes in 2012, including the retroactive extension of a handful of incentives that expired at the end of 2011: state and local sales tax deduction, higher education tuition deduction, charitable distributions from IRAs, a deduction for teachers’ classroom expenses, the research tax credit, and multiple energy credits.

While Congress reconvenes with a full plate of tax issues to debate, it is a good time to recall the tax changes that were enacted in 2011. Among them are:

Temporary extension of the payroll tax cut. The employee portion of the Social Security tax was lowered from 6.2 percent in 2010 to 4.2 percent in 2011, and it will remain at 4.2 percent through at least February 2012. Click here for more information.

Repeal of certain 1099 reporting requirements. The healthcare reform of 2010 included expanded reporting requirements that threatened to overwhelm small businesses, so in April 2011 President Obama agreed to repeal two provisions related to IRS Form 1099. Click here for more information.

Expanded tax credit for hiring unemployed veterans. A portion of the Work Opportunity Tax Credit was expanded to allow a greater credit for employers who hire unemployed veterans. Click here for more information.

New tax credit for investing in Ohio small businesses. The InvestOhio credit is a dollar-for-dollar reduction in state income tax and can be carried forward for up to seven years. Click here for more information.

Expiration of a federal unemployment surtax. The 0.2 percent surtax, which had been tacked onto the 6 percent federal unemployment tax (FUTA) since 1975, expired July 1. Unfortunately for employers in Ohio and Kentucky, any savings were negated by a reduction in FUTA credit that took effect January 1, 2012. Click here for more information.

Increased tracking of offshore accounts. In an attempt to generate more tax revenue from American taxpayers with foreign accounts, the federal government stepped up enforcement of Foreign Bank Account Reporting and created separate reporting requirements through the Foreign Account Tax Compliance Act. Click here for more information.

Compliance program for misclassified workers. The federal government has increased its efforts to catch and penalize employers that improperly classify workers as “independent contractors” rather than “employees.” The IRS announced a voluntary compliance program that would allow such employers to properly classify their employees and avoid significant penalties. Click here for more information.

As always, the Barnes Dennig tax team will monitor legislative changes and keep you abreast of any that impact you and your organization. If you have any additional questions, please contact your Barnes Dennig tax representative at (513) 241-8313.

The economic environment today is characterized by significant uncertainty – demand questions, pricing unease, regulatory uncertainty, monetary expansion, and concern about European debt defaults.  There is a record $4 trillion U.S. in circulation, and savings rates are historically high. Businesses are holding over $1 trillion in cash reserves and short term investments.  Individual savings total nearly $600 billion. Across the board, we are storing our nuts in case there’s a hard winter.

Thomas J. Groskopf, CPA, CVA

The Federal Reserve has reacted to that anxiety by pumping more money into the economy. Whenever aggregate demand starts to increase, the money supply has to contract at the same rate. If it does not, inflation is inevitable. There are steps you can take today to manage the pain, including borrowing at a low, fixed rate; locking in rates for labor and goods; and negotiating favorable price indices with your customers to blunt the impact of potential inflation.

Economic downturns also increase the risk of fraud within your organization. Perhaps an employee is struggling to pay his bills because his wife is unemployed, or maybe an employee has become disenchanted with the company because she is working more hours for the same pay. You must remain vigilant about monitoring your assets and income.

Unlike portions of the European Union, the United States continues to be able to finance its deficits at record low rates of interest.  This appears unlikely to change in the foreseeable future. The market for U.S. bonds remains strong throughout the world.  As a result, the federal government has been able to subsidize the recovery with expansionist monetary policies. Our greatest export is the U.S. dollar. 

Eventually, though, even the United States must address its rising deficit, or it risks the same sovereign debt crises as certain European Union countries. In 2009, 13 percent of total federal spending went toward interest on the national debt; at the current rate, debt service will eat up more than 34 percent of spending by 2015, which will lead to significant spending cuts or increased taxes.

As always, we will monitor economic trends and legislative debates, and we will keep you abreast of any changes that might impact your organization. For more information, contact your Barnes Dennig representative at (513) 241-8313.

After considerable debate, Congress agreed late last week to extend a payroll tax cut that will save employees hundreds of dollars over the next two months.

The Social Security tax rate for employees was lowered from 6.2 percent to 4.2 percent in 2011, and the Temporary Payroll Tax Cut Continuation Act will keep it at 4.2 percent for the first two months of 2012 – meaning employees will pay 4.2 percent tax on the first $110,100 in wages.

The employer portion of the Social Security tax remains 6.2 percent, and self-employed individuals will continue to pay both the employee and employer share (for a total of 10.4 percent). There is no change to the Medicare tax; it remains 1.45 percent for employees and employers.

The Social Security Administration recently announced an increase in the Social Security wage base, from $106,800 to $110,100. Any wages above $110,100 are not subject to the Social Security tax, but they are still subject to Medicare taxes.

Leaders of both political parties have indicated they’d like to keep the employee Social Security tax rate at 4.2 percent for all of 2012. But in case they cannot agree on another extension and the tax rate returns to 6.2 percent on March 1, the Continuation Act includes a “recapture” provision that essentially prevents high-wage earners from accelerating their income in order to have the full wage base taxed at the 4.2 percent rate. Only the pro-rated portion of the wage base – $18,350, or one-sixth of $110,100 - will be taxed at 4.2 percent, and any wages beyond $18,350 will be subject to an additional 2 percent income tax. The “recapture” will be a moot point if Congress extends the tax cut through all of 2012.

In addition to the payroll tax cut, Congress is expected to consider extensions of other tax cuts that are currently scheduled to expire December 31, including the Research & Experimentation Tax Credit, bonus depreciation and a state and local sales tax deduction. As always, we will monitor the debate and keep you abreast of any changes.

For more information on the Temporary Payroll Tax Cut Continuation Act and how it impacts your organization, contact your Barnes Dennig tax representative at (513) 241-8313.

As we approach the end of the year and the final payroll run of 2011, there are a few tax credits, deductions and reminders you should be aware of before you begin processing W-2s. If you outsource your payroll services, your provider likely is aware of these issues, but it is worth keeping them in mind.

HIRE Act: The HIRE Act provided tax breaks in 2010 and potential tax credits that can be claimed in 2011. If a business or non-profit hired a qualified employee and that person remained employed for one full year, the employer can claim a credit worth up to $1,000 on its 2011 income taxes. Click here for more information on the HIRE Act.

Unemployed veterans: Recent legislation expanded the tax credit for hiring unemployed veterans, increasing the value of the credit and extending it through 2012. Click here for more information.

W-2 “add-backs”: Companies may offer a number of fringe benefits that are taxable to their employees/shareholders and must be included in the recipient’s wages unless the law specifically excludes them. Among the most common are:

• Personal use of a company car.
• The cost of group-term life insurance premiums beyond $50,000 worth of coverage. For greater-than-2% shareholders of an S Corporation, the entire cost of group-term life insurance must be included in the recipient’s wages.
• The value of accident and health benefits for greater-than-2% shareholders of an S Corporation are included in the recipient’s wages. However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the recipient’s wages subject to Social Security, Medicaire and FUTA taxes.
• Employer-paid health savings account (HSA) contributions for greater-than-2% shareholders of an S Corporation should be included in the recipient’s wages or treated as distributions. Additionally, shareholders of an S Corporation are not eligible for pre-tax contributions to an HSA.

Finally, it is always worth remembering to maximize your Meals and Entertainment deduction. Click here for more information.

For more information on these issues, or to discuss other tax-planning ideas, contact your Barnes Dennig tax representative at (513) 241-8313.

In an effort to catch U.S. taxpayers who are hiding assets in unreported offshore accounts, the federal government passed the Foreign Account Tax Compliance Act (FATCA) in 2010, and it created new reporting requirements that you should be aware of as 2011 draws to a close.

FATCA requires that taxpayers with more than $100,000 worth of “specified foreign financial assets” must report those assets to the IRS on Form 8938. In addition, foreign banks must report to the IRS regarding accounts held by U.S. taxpayers, and those banks are subject to withholding on certain types of payments if they do not comply with the new reporting requirements.

U.S. citizens with bank accounts in other countries have long been required to file reports of those accounts; FATCA filing requirements are in addition to Foreign Bank Account Reporting (FBAR) requirements. The IRS has stepped up its enforcement of FBAR in recent years, particularly with Swiss banks, pressuring them to disclose information on their U.S. account holders.

Click here for more information on FATCA and Form 8938, or contact Barnes Dennig Senior Tax Accountant Lisa Gentile. The IRS is expected to release guidance by the end of the month. It is possible FATCA could be expanded to require U.S. businesses to file, but for now it only covers individuals.

Barnes Dennig Director Jay Rammes will be the featured presenter at Allied Construction Industries’ Taxation Fundamentals class on Friday, December 9. Click here for registration information.

Jay Rammes, CPA

Jay leads Barnes Dennig’s construction client service team, so he has direct experience working with progressive, local construction and real estate companies. Among the topics he will discuss at ACI are accounting methods for short- and long-term contracts, entity selection, depreciation strategies, income tax, and sales and use tax.

Jay recently authored a whitepaper on the value of an insightful budget for contractors.

We are pleased to announce that Brian Harvey has been promoted to Principal within the firm. In this role, he will oversee client engagements with an emphasis on providing insight beyond the numbers.

Brian Harvey, right, has been promoted to Principal.

Brian has been with Barnes Dennig for more than a decade and has become an integral part of the leadership of the firm’s Construction / Real Estate Client Service Team and Employee Benefit Plan Audit Team. He has served leadership positions within the local construction industry – including his current role on the Board of Directors at Ohio Valley Associated Builders and Contractors (ABC) – and he has authored articles for publications such as the Journal of Construction, Accounting & Taxation. His accounting experience and knowledge of the construction and real estate industries make him a decided asset to the firm’s clients.

For the previous six years, Brian served as a Senior Manager and Team Leader for one of the firm’s five client service teams. He was responsible for coordinating and reviewing all of the team’s assurance activities, planning and executing accounting and tax engagements, and training and mentoring staff. He also serves on the firm’s Accounting and Auditing Quality Control Committee.

Brian is a graduate of the University of Cincinnati, where he earned a BBA in accounting and finance. In addition to serving as Secretary at ABC, he participates on the Education Committee for the Construction Industry CPAs/Consultants Association (CICPAC), and he is a board member and treasurer of First Step Home.

When your primary concern is simply surviving, it’s tempting to pay less attention to the routine fundamentals, such as preparing a realistic budget and following through on it. In fact, difficult times make attention to the basics more important than ever – which means now is a good time for contractors and sub-contractors to take a fresh look at their budgeting practices.

An up-to-date, credible budget is a valuable management tool that allows you to respond properly whenever conditions change. And it is essential for preparing competitive yet realistic bids, which in turns affects your margins and, ultimately, your ability to get work.

Here are six basic steps a contracting or subcontracting business should follow:

1. Assemble Your Budget Team
2. Be Sure Your Accounting Systems Are Up to the Task
3. Get an Updated Picture of Costs
4. Develop a Revenue-Driven Budget
5. Develop a Profit-Driven Budget
6. Monitor and Respond

For more information on each step, click here to download my whitepaper, “Budgeting for Success in the Construction Business: A Six-Step Plan for More Effective Budgeting.”

The budget exercise described in the whitepaper will strengthen your management team by making them more sensitive to your cost structure and more familiar with what drives profitability. But the budget’s real value is its use as a management tool. Having a practical, effective budget – and then managing your business to meet that budget – will help you navigate more effectively through the challenges that construction-related businesses will continue to face in the coming years.

Ohio and Kentucky employers should be aware that their federal unemployment taxes (FUTA) will increase for 2011 – effective retroactive to January 1, 2011, and due by January 31, 2012.

Because Ohio and Kentucky did not repay loans from the federal unemployment fund in time, their state FUTA credit will be reduced from 5.4% to 5.1%, which means employers within each state are now responsible for an additional 0.3% in federal taxes. This change is especially significant for business with a large number of employees.

Kentucky businesses also face increased tax liabilities due to the increase in wage base from $8,000 to $9,000 in 2012, meaning they must pay state unemployment tax (SUTA) on the first $9,000 of each employee’s wages. The Ohio wage base will remain unchanged at $9,000, and the federal base remains unchanged at $7,000.

The reduction in FUTA credit essentially negates a previous reduction in the tax. A longtime FUTA surtax expired June 30 and has not been reapplied, so the federal unemployment tax rate dropped from 6.2% in the first half of the year to 6% in the second half of the year. After applying the 5.1% state credit, employers in Ohio and Kentucky will owe 1.1% in federal unemployment taxes from January 1 through June 30 and 0.9% from July 1 through the end of the year.

The credit will shrink further in future years for any state that still has unpaid federal loans. As of November 2, Ohio owed more than $2.3 billion in unpaid federal loans and Kentucky owed $948 million.

In all, employers in 20 states will see their 2011 FUTA tax increase because their state has unpaid federal loans.

For more information on how the change in FUTA will impact your business, contact your Barnes Dennig representative at (513) 241-8313.

As non-profit organizations explore new ways to generate revenue and meet the growing need for their services, they can take advantage of a resource their for-profit colleagues have utilized for years: tax credits.

There are credits available for economic development in distressed areas, preserving historic buildings and improving energy efficiency, among others. A non-profit organization that wishes to expand, renovate or replace its current facility could fund up to 40 percent of the project by utilizing a variety of federal and state tax credits.

Barnes Dennig Tax Director John Michel recently partnered with Steve Kenat and Dale McGirr, Sr., of GBBN Architects to present a seminar on this topic. For an overview of their presentation – “Using Tax Credits to Help Fund the Facilities Needs of Non-Profit Organizations” – click here to download the slides.

St. Aloysius Orphanage received $19 million in financing via tax credits that will be used to renovate two buildings and build a multistory addition, which should allow St. Al’s to serve an additional 200 children. The United Way previously underwent a $16 million renovation that was funded in part by utilizing the New Markets Tax Credit.

By utilizing the many available credits, an organization might be able to afford a renovation or expansion without implementing a capital campaign or taking staff and funds away from its programs. It is an important consideration at a time when organizations are facing ever-tighter budgets and an increasing need for their services.

In an attempt to spur the growth of small businesses, the state of Ohio will offer a 10 percent tax credit on qualifying investments in recognized small businesses. The InvestOhio credit is worth up to $1 million, and state officials believe the program will generate at least $1 billion in new private investment.

Investors who wish to claim the credit and small businesses that wish to benefit from the investments must first register with the Ohio Business Gateway. Investors and small businesses that are accepted into the InvestOhio program can begin applying for the credit in early December.

Only individuals and pass-through entities are eligible to claim the credit, which will be a dollar-for-dollar reduction in Ohio income tax and can be carried forward for up to seven years. A C-Corporation that wishes to invest in a small business might consider establishing a new legal entity that would be eligible for the credit.

In order to qualify as an Ohio small business, a business must have less than $50 million in assets or $10 million in annual sales. Plus, at least 50 employees or 50 percent of the business’s total employee population must be based in Ohio.

The small business must reinvest that capital within six months of the qualifying investment, and the investor must hold his or her ownership interest in the small business for at least two years. The Ohio Department of Development is authorized to issue up to $100 million worth of credits through June 30, 2013.

For more information on the InvestOhio program, or to discuss other tax-planning ideas, contact me or your Barnes Dennig tax representative.

The Senate unanimously passed legislation yesterday that expands and extends the veteran portion of the Work Opportunity Tax Credit (WOTC), increasing the value of the credit for hiring eligible veterans and extending it through 2012. The House of Representatives is expected to pass the bill next week, and President Obama will likely sign it into law soon thereafter.

The amount of the credit will range from $2,400 to $9,600 per eligible hired veteran, and it will be available through December 31, 2012.

The bill does not extend the core WOTC program, but it includes the following provisions for businesses that hire military veterans:

• For a veteran who is entitled to compensation for a service-connected disability and who has a hiring date which is not more than one year after having been discharged or released from active duty, the amount of the wages subject to credit is $12,000 – potentially a $4,800 credit.
• For a veteran who is unemployed for at least six months during the year prior to being hired, the amount of wages subject to the credit is $14,000 – potentially a $5,600 credit.
• For a veteran who is entitled to compensation for a service-connected disability and is unemployed for at least six months during the year prior to being hired, the amount of wages subject to the credit is $24,000 – potentially a $9,600 credit.
• For a veteran who is unemployed for at least four weeks during the one-year period prior to being hired, the amount of wages subject to the credit is $6,000 – a credit of $2,400.

The amendment also includes a “simplified certification system” which requires the state work force agency (SWA) to certify that the veteran received unemployment compensation for the statutory periods of unemployment that are listed for each category. Note that the language used specifically mentions the SWAs, an integral part of the national WOTC infrastructure, as the certifying agency.

We will continue to monitor the bill as it reaches the House and White House, and we will keep you abreast of any changes. For more information on this or any other tax issue, contact me or your Barnes Dennig tax representative.

Whether your company has a staff of 10 or 1,000, some of the employees are entrusted with handling cash or other assets. It is a significant responsibility regardless of the size of your budget, and the pressures are magnified during times of economic stress.

There are plenty of recent, local examples of what can go wrong when an individual has unchecked access to assets, incentive to steal and a rationalization for doing so: the union president, the CEO, the accounting manager, the county auditor, the bank executive.

This is International Fraud Awareness Week, which makes it a perfect time to examine your company’s system of checks and balances. After all, it is cheaper and more effective to prevent a fraud than detect a crime.

Barnes Dennig Director Chad Martin is a Certified Fraud Examiner, and he wrote a whitepaper on “Deterring, Detecting and Reporting Fraud.” Click here to download the paper and read more about Barnes Dennig’s Forensic Accounting Services. Chad believes the most efficient way to prevent fraud is to establish a culture of integrity within the organization, and he offered the following advice:

• An organization should have a policy of hiring and promoting individuals with high levels of integrity, especially for positions of trust and in areas where fraudulent activity is most commonly found. If the proper tone is set and the right culture is created, it can lessen the pressure that employees might feel to commit fraud and lessen the opportunity for fraud, as co-workers are more likely to hold each other accountable.
• Management should communicate the company’s ethical values orally and in writing by using a code of conduct, and the code of conduct should be reiterated regularly to all employees.
• Strong internal control can prevent or quickly detect most types of theft and fraudulent financial reporting.
• Taking swift action to terminate and prosecute perpetrators may deter other employees who might consider committing fraud.

Republican Presidential hopeful Rick Perry introduced his tax plan Tuesday in the Wall Street Journal, and it raises more questions and concerns than it answers. Specifically, Perry promises to “scrap the current tax code” with a “flat tax” that is not flat and will not scrap the current tax code.

The highlights of his plan include:

• Individuals will be given a choice of paying a 20 percent tax rate or their current income tax rate. Families earning less than $500,000 per year will still be able to claim deductions for mortgage interest, charitable contributions and state and local taxes. The personal and dependency exemption will increase to $12,500.
• Individuals will be exempt from paying tax on dividends, capital gains and Social Security benefits.
• The corporate tax rate will be lowered to 20 percent – and temporarily lowered to 5.25 percent on foreign earnings.
• Multi-nationals would be subject to a “territorial” tax system rather than the current “global” tax system, meaning they would only be taxed on in-country income.

Perry’s plan does not address the many tax credits that U.S. corporations currently claim, nor does it explain how to calculate income for “flow thru” entities (sole proprietor, partnership, S Corp, LLC) that have business-related expenses in order to generate revenue. If Perry intends to eliminate the credits and deductions, then tax liabilities will skyrocket. If he intends to keep the credits and deductions, then he is not scrapping the current tax code.

And when he refers to a “flat tax,” he is actually describing a single tax rate. Most of us would consider a “flat tax” to be a tax on gross receipts with no deductions and no credits. Perry’s plan allows some deductions and does not address credits. It seems he is more interested in using the buzzword than truly creating a flat tax.

The IRS recently announced a Voluntary Compliance Program for employers who have improperly classified workers as “independent contractors” rather than “employees.” It is an opportunity for some companies to save a significant amount of money in potential taxes, penalties and interest.

Under the terms of the Voluntary Compliance Program, the employer will pay a penalty of just more than 1 percent of the wages paid to the workers over the most recent tax year, and the employer agrees to treat the workers as employees for future tax periods. In exchange, the employer will not be liable for employment taxes, penalties or interest from previous years.

The program is open to all businesses, non-profits and government entities that are not currently under an IRS audit. Organizations must meet certain minimum requirements and apply to the IRS for acceptance into the program.

In recent years, the IRS and Department of Labor have increased efforts to find and penalize companies that misclassify workers. The IRS has estimated that misclassification costs the government more than $1 billion per year in unpaid taxes.

If you believe your company might benefit from the voluntary compliance program, Barnes Dennig can help. Our tax professionals can advise you on the impact of participating and file the necessary forms with the IRS.

For more information, click here to read the IRS’s official announcement or contact your Barnes Dennig representative at (513) 241-8313.

For more than 30 years, Steve Hube has been instrumental in advancing the vision that Barnes Dennig’s founders had for the firm. He worked with Bob Barnes and Al Dennig, he knew the passion they had for providing exceptional client service, and he recognized how to instill that passion in succeeding generations even as the firm grew from a small office to the fifth-largest accounting firm in Greater Cincinnati.

“I understand the important role that people play within a business and how that relates to client service,” Hube said. “My philosophy is to surround myself with the best and brightest folks to chart a course for the future.”

Steven P. Hube, CPA

Because he has lived that philosophy so well – while also demonstrating technical expertise and leadership within the accounting industry – Hube was a natural choice to become the third Managing Director in the firm’s 46-year history. He will succeed Bill Cloppert in that role effective January 1, 2012.

Cloppert will continue as a Director within the firm. He has served as Managing Director – which is the equivalent of CEO – since 1988, when he succeeded Bob Barnes. During Cloppert’s tenure, the firm has grown from around 20 employees to nearly 100.

“The past 23 years have been very satisfying and challenging,” Cloppert said. “The culture Bob Barnes and Al Dennig established of superior client service and developing and treating employees with respect has continued on. Steve has worked in this atmosphere for 30 years, and I am sure he will carry it on into the future.”

Hube has been with Barnes Dennig since 1981 and has been a Director since 1990. He has played a key role in the management of the firm during that time, while also establishing himself as a leader within the industry. He served as chair of the Ohio Society of Certified Public Accountants’ Peer Review Acceptance Committee for five years.

“I want to build on the values that we have established here at Barnes Dennig,” Hube said.

Hube has been a member of the firm’s Executive Committee for the past six years, and he has played a leading role in all Human Resources initiatives since becoming a Director. During that time, Barnes Dennig’s employee retention rate has consistently been much higher than the national average within public accounting, which provides stability and peace of mind for the firm’s clients.

For the past 30 years, large manufacturers, pharmaceutical companies and software developers have benefitted greatly from the Research and Experimentation Tax Credit. Recent legislation has made it accessible to contractors, architects, engineers and smaller manufacturers, and pending legislation would make the credit permanent.

If research and innovation are part of your culture, it is worth your while to consider the Research and Experimentation (R&E) Tax Credit. Barnes Dennig representatives are available to discuss how it could be applied to your business.

The credit was created in 1981 as a temporary measure to jump-start the manufacturing industry, and it has been extended numerous times; it is currently in place through the end of 2011. Legislative changes over the years have allowed companies to claim the credit for a wider variety of activities, and the Alternative Minimum Tax “patch” that is in place for 2011 makes the R&E Credit valuable to middle-market companies that would not have benefitted in the past.

A contractor could quality for the credit if it has invested time, money or other resources on experimentation to improve a product or process. That could mean designing a unique HVAC system for a new building, testing new materials or streamlining an internal process – things you might shrug off as “just part of the job.”

The Obama administration has proposed expanding and simplifying the R&E Credit and making it permanent. Senators Max Baucus (D-Montana) and Orrin Hatch (R-Utah) recently introduced a bill that would raise the value of the credit even more and make it permanent. The US Treasury Department estimated that a simpler, permanent R&E credit would provide more than $100 billion in credits over the next 10 years and lead to at least an additional $100 billion in private-sector spending on research.

For more information on the R&E credit and how it might be applied to your business, contact a Barnes Dennig representative at (513) 241-8313.

Healthcare costs continue to rise, even as more and more data is available. Consumers and providers who are able to recognize trends in the data and implement changes in behavior have an opportunity to limit the inflation.

Organizations that are not proactive are at risk, because the overall health of the American workforce is declining as sharply as healthcare costs are rising.

That was one of the key takeaways from a recent seminar co-hosted by Barnes Dennig and USI Insurance. Craig Osterhues, an executive on loan to the Greater Cincinnati healthcare community, explained how and why costs have risen so dramatically, and he described ways that healthcare providers, employers and employees can bend that trend. Five local business leaders then discussed initiatives that have helped manage their companies’ healthcare costs.

 “If we don’t get healthcare figured out, it’s going to kill the economic engine of any given region,” Osterhues said. “We’re kind of at that tipping point. … It is becoming unsustainable. The alarm bells are going off across the country. It’s a big deal, not just for employers, but for communities.”

Osterhues has been working with local government, corporate and healthcare leaders on ways to improve health, improve care and lower costs in Greater Cincinnati, and he outlined steps they are taking to do so:

• Increase and improve the primary care that is available to consumers.
• Healthcare providers collect and share better data, eliminating wasted time and effort.
• Consumers become more engaged in the process, understanding the costs, risks and rewards of their behavior.

“Hopefully the work we’re doing with the broader stakeholder group is laying the groundwork for you guys,” Osterhues said.

The panelists – two from companies with more than 100 employees, three from companies with fewer than 100 – discussed strategies that helped them control costs. Among the ideas they suggested were:

• Take on some risk in exchange for lower costs.
• Understand your true cost drivers and closely manage the enrollment process.
• Whenever possible, negotiate with insurance brokers and healthcare providers for discounts.
• Educate employees and incentivize them to make healthier and cost-efficient choices.

Click here for more details on the panel discussion.

Barnes Dennig Staff Accountant Logan Conner is playing Santa Claus this Christmas, and he could use some elves.

Logan Conner

Logan will spend the holidays in Africa with his sister, who is studying in Senegal, and he is collecting used soccer equipment to distribute to area children during his visit. More information is available at www.cleats4kids.com, including details on how you can contribute to his efforts:

We are looking for used soccer cleats and balls that are still in good condition.  Shoes and balls are the focus because these are the two most important and often most expensive things necessary to play the game. With that being said, if people have other soccer related equipment they would like to donate we will definitely take it and ensure it gets to a kid who needs it.

In addition to equipment, Logan is accepting donations via PayPal to help with shipping costs.

Logan graduated from Xavier University in 2009 and joined Barnes Dennig in January 2010. From September 2010 until January 2011, he served a five-month secondment with PKF Ampersand in Paris where he gained experience working with IFRS and other international business and accounting issues. Logan returned to Barnes Dennig in 2011 and is a member of the Wholesale / Distribution Client Service Team, where he assists with both the audit and tax functions.

President Obama’s proposed jobs bill includes hiring incentives for non-profit organizations, but the incentives are smaller than those offered to for-profit entities – and the accompanying tax increase could make wealthy individuals less likely to contribute to non-profits, an unfortunate side effect at a time when government contributions also are shrinking.

The American Jobs Act would limit itemized deductions for wealthy individuals to 28 percent of income, down from the current 35 percent. Opponents of the bill argue that such a cap will cause individuals to contribute less, which in turn will cause non-profits to cut costs and staff, thus negating the benefits of hiring incentives. One report estimated that the bill would cost non-profits between $2.9 billion and $5.6 billion in lost revenue.

Plus, the incentives for non-profit organizations are smaller than the incentives for for-profit companies. Where a for-profit company could receive an income-tax credit worth up to $4,000 for hiring a long-term unemployed worker, a non-profit would receive a $2,600 payroll-tax credit. And where a for-profit company would receive an income-tax credit worth between $2,400 and $9,600 for hiring a military veteran, a non-profit would receive a payroll-tax credit of between $1,560 and $6,240.

In a document released by the White House, the administration explained that the difference in dollar amounts reflects the different tax liabilities between for-profit and non-profit entities. “When these factors are considered, the value to a non-profit is similar to the value claimed by a for-profit firm,” the document reads.

The non-profit coalition Independent Sector said it will lobby President Obama to remove the cap on deductions and “make the full value of these tax credits available to nonprofit organizations.”

A recap of our 2011 Wholesale/Distribution Annual Seminar, by Barnes Dennig Senior Accountant Tyler Duff:

A successful distributor should plan for profit, take it off the top and maintain a net profit before taxes of at least 30 percent. To get there, Dr. Don A. Rice said, it is important to measure every business activity, train employees to generate profit and reward them for doing so.

Don A. Rice, PhD.

Dr. Rice, an experienced executive and educator in the distribution industry, highlighted five practices of successful distributors:

• Make a healthy profit.
• Offer a level of customer service that makes them ecstatic, not simply satisfied.
• Train all employees how to serve customers and generate profit.
• Measure every business activity.
• Take the necessary actions to meet your goals. 

It was the focus of Dr. Rice’s recent presentation – “Planning and Managing the Distributorship for Greater Profit” – at the 15^th Annual Wholesale/Distribution Seminar, sponsored by Barnes Dennig, Key Bank and Martin & Associates. 

Dr. Rice recommended the DuPont Model of financial analysis, which calculates return on investment and allows a business to easily measure the profitability of each area of the company. He challenged all attendees to “run” the numbers and enter their company’s financial data into the ROI calculator to determine what areas they must improve. He suggested designating one individual at the executive level to constantly monitor profitability.

The next step, Dr. Rice said, is to use that information to educate and incentivize employees. Whatever their role, they should understand precisely how they can improve the company’s profit, and they should be rewarded when they succeed.

“Your managers need to think like owners,” he said.

Sixty eight executives from local companies attended the seminar at the Cintas Center, and 89 percent of survey respondents rated the content “very good” or “excellent.”

“It was great to receive some practical tools to help evaluate our business,” one attendee wrote. “It was also good to get a different perspective. Now the challenge will be to convince others in the organization to look at life differently.”

Three Ohio state senators recently introduced a bill that would repeal elements of the state’s alternative energy requirements, reneging on a commitment the state made only three years ago and potentially hurting a growing industry.

State Bill 216, which was introduced by State Sen. Kris Jordan of Powell and co-sponsored by Sen. Bill Seitz of Cincinnati, would repeal the requirement that 25 percent of the state’s consumer electricity come from alternative energy sources by 2025.

The so-called “25 by 25” provision was a key component of Ohio’s 2008 energy law – SB 221 – which was a priority of then-Governor Ted Strickland. Thirty nine states have similar provisions, known as renewable portfolio standards (RPS). Current Ohio Gov. John Kasich recently hinted that he supports a rollback of Ohio’s “25 by 25” RPS.

Supporters of SB 216 argue that the cost of alternative energy is too high and the industry has not created enough jobs, so the 25 percent requirement is hurting the state’s economy. But the “job killing” rhetoric is misplaced when discussing renewable energy such as solar and wind. The cost of producing such energy is falling as the technology improves; meanwhile, public utilities are relying on decades-old plants that will need to be upgraded or even decommissioned, which will not be free of cost to ratepayers.

As it is written, SB 216 would not only kill future projects, it would penalize projects that are currently up and running – projects that were started in the wake of SB 221, when Ohio’s leadership advocated investing in the alternative energy industry and offered incentives to do so. Many solar adaptors rely on recouping their investment by selling Solar Renewable Energy Certificates (SRECs) to the public utilities, which in turn helps the utilities reach their quota of renewable energy. If SB 216 shrinks or removes the quota, it would essentially remove the incentive that was promised to those solar adaptors.

Ohio has a viable solar energy/manufacturing industry, notwithstanding the recent high-profile bankruptcies of solar companies in California and Massachusetts. Production and installation costs are falling precipitously, and rooftop solar panels have created long-term energy savings and short-term income for a wide range of for-profit and not-for-profit organizations.

Besides the obvious environmental benefits, Ohio’s RPS has spurred a strong new industry that is not raising electricity costs.

A local Ohio State Senator plans to introduce a bill into the Ohio General Assembly that clarifies Ohio tax law regarding real property owned by a tax-exempt organization and used for non-exempt activity, and Barnes Dennig has proposed language to be incorporated into the bill. Specifically, the proposed bill refers to “solar arrays” which are designed to generate electricity on-site and make that electricity available to the host organization for a charge.

Currently, Ohio law is unclear as to whether an array owned by a for-profit enterprise and hosted by a non-profit organization would threaten the host’s real property exemption, and the lack of clarity could slow Ohio’s growing alternative energy industry.

The solar arrays are installed on existing rooftops, above parking lots or on idle land, and the non-profit host imposes a modest charge on the for-profit entity. The non-profit also receives reduced energy costs. Because it controls the host’s operational costs, the arrangement is often viewed as supporting the mission of the non-profit, and thus the non-profit maintains its exemption from real property taxation.

This arrangement is used by social service organizations; non-profit medical organizations; organizations that provide housing for the poor, the elderly or children; public and private schools; government agencies and tax-exempt religious organizations. The uncertainty in current Ohio law could potentially stop similar alternative energy projects from moving forward.

It is an even more sensitive consideration considering the recent successful legal challenges in Ohio to the real property tax exemptions enjoyed by municipally owned golf courses and convention centers operated by for-profit organizations.  The issue was not cut-and-dry before those challenges, and it is much less certain today.

Clearly, conventional practices in the past have not been considered detrimental to the real estate tax exemption enjoyed by many organizations.  Such uses include assets owned by public utilities or commercial amenities such as ATMs, shoe shine stands and vending machines that are situated on exempted real estate, whether or not the for-profit is assessed a charge by the host.  The “host” still requires a roof and parking to accommodate its operations – the roof and parking lot weren’t installed for the purpose of hosting a third party’s assets.

In the case of a non-profit that hosts assets on excess land, it might not be as easy to defend the tax exemption. In such cases, it might be wise to consider re-parceling the land, so as not to jeopardize the entire exemption.