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Week of September 16, 2016

Best Practices for Ensuring Professional Skepticism in the Audit Process

( AccountingWEB ) By Lana Richards, September 7, 2016 – Auditors tend to get a lot of eye rolls from client personnel. After all, no one likes to have their work questioned or their errors pointed out to their bosses. Yet that questioning is foundational to the audit practice. If auditors are not appropriately skeptical – seeking only to corroborate management’s assertions, perhaps, or rationalize evidence that doesn’t make sense – then their opinion loses its value to investors. The Public Company Accounting Oversight Board says auditors should assess “what could go wrong” with their clients’ financial statements and obtain “sufficient appropriate evidence,” which is not necessarily the most easily attainable evidence. Professional skepticism, “an attitude that includes a questioning mind,” must be applied throughout all phases of the audit and by all team members.

AICPA Urges Congress to Modify Deadline for Reporting Estate Basis

( AICPA ) September 8, 2016 – The American Institute of CPAs has written Congress to urge it to modify the reporting deadline for estate basis statements. The AICPA is proposing a reporting deadline of February 15 following the end of the calendar year in which an estate distributes assets to a beneficiary, rather than 30 days after an estate files the federal estate tax return. Adopting the AICPA’s proposed change would “streamline the process and make the reporting more accurate and useful” to the beneficiaries and the Internal Revenue Service, Troy K. Lewis, chair of the AICPA Tax Executive Committee, wrote in the letter.

4 Steps to Reducing the Chances of Fraud

( FEI ) By Phil Ostwalt, September 8, 2016 – Strengthening your internal controls and taking advantage of data and analytics will go a long way to preventing fraud – or at least increasing the likelihood of detection before it can cause catastrophic damage. Here are four ways to put these strategies into action.

Do Your Employees Know Where They Stand?

( Chief Learning Officer ) By Bravetta Hassell, September 9, 2016 – Many managers underestimate their employees’ ability to handle constructive job performance feedback – so nine out of 10 of them don’t give any. As a result, fewer than half of employees are clear on whether they are doing a good job, Leadership IQ founder Mark Murphy wrote on Forbes.com. The insight comes from Murphy’s ongoing research, for which he’s asked more than 30,000 employees dozens of questions about their work. When asked, “I know whether my performance is where it should be,” 29 percent of respondents said they “always” knew. And while 90 percent of managers might believe employees won’t take feedback in stride, 39 percent of employees said if given constructive feedback regularly, they’d take it well, even parsing it to figure out where exactly things went awry.

Employers Hate the Cadillac Tax. Why?

( Modern HealthCare ) September 10, 2016 – Companies of all sizes have not backed away from offering health insurance to their employees—and have not dumped workers onto the new healthcare exchanges en masse—even though costs continue to escalate and the process remains administratively cumbersome. In part that's due to the need to recruit top talent in an environment with a low unemployment rate. But just as important is the deep-running societal norm, in place since World War II, that a job includes health coverage. Businesses and employer coalitions have aggressively lobbied against any government provisions that would change that status quo. The prime example is the Affordable Care Act's so-called “Cadillac” tax, which is a 40% surcharge on the value of employer-based health premiums above specific thresholds. Their opposition has paid off so far. The Cadillac tax was supposed to go into effect in 2018 but was pushed back until 2020. There is still a strong push for full repeal.

Finance Execs Favor Trump over Clinton by Large Margin

( CFO ) September 13, 2016 – Donald Trump is the overwhelming choice for the next president of the United States among finance executives and other CFO readers, with about 55% of 576 respondents favoring him compared with about 35% for Hillary Clinton. The real estate businessman was also the respondents’ preferred choice on eight out of nine selected issues, with the former U.S. senator and secretary of state besting Trump only in the area of climate change, 40% to 34%. Those who answered The CFO 2016 Presidential Election Survey during the week of September 4 preferred Trump over Clinton by a huge margin on the issue of corporate taxes, 61% to 23%. On his website, the Republican nominee says he would curb taxation of business income to 15% in contrast to the current 35% maximum and would make corporate tax rates “globally competitive and [make] the United States the most attractive place to invest in the world.”

Copying Legal Counsel Doesn’t Create Privileged Communication

( JDSupra Business Advisor ) By Elizabeth Daniels, September 13, 2016 – The attorney-client privilege is a long-standing and well-established principle that protects certain communication between client and attorney from disclosure. With the increased use of email, clients may often copy their counsel on messages even when they are not seeking legal advice, particularly if a company has in-house or general counsel. Clients cannot, however, transform such communication into “privileged” communication simply by copying their attorney. As a general rule, only communication between a client and his or her attorney for purposes of obtaining legal advice is privileged. The somewhat complicated role of in-house counsel, however, may create confusion as to what communication with in-house counsel is privileged. In particular, if in-house counsel has regular business duties in addition to serving as counsel, communication related to typical business duties is not protected by the attorney-client privilege. This is the reasoning underlying the decision reached by many courts that copying an attorney on otherwise non-privileged communication does not transform the communication into a privileged communication.

Accounting Firms Should Embrace the Digital Fountain of Youth

( Going Concern ) By Megan Lewczyk, September 8, 2016 – When did the AICPA decide that “young” professionals are 22 to 40 (yes, 40) years old? Am I the only one to thinks 40 may be too old for that designation? Imagine if society considered professional athletes “young” if they met the under 40 threshold. Don’t get me wrong -- accounting is one industry where experience (read: being older and wiser) matters. I’m the first to admit it. I learn something new every day. The problem is that, ageism does exist in accounting, just not in the same way as it does in other industries. According to Fast Company, “One in three older workers has either experienced discrimination or seen it happen firsthand since 2008.” In accounting, is it the other way around? Are younger CPAs edged out?

The Unemployable Graduate Crisis and How We Can Fix It

( LinkedIn ) By Alistair Cox, September 8, 2016 – Around the world, millions of students have recently graduated from university and college and for many, September often marks a milestone month as they enter the world of work. Unfortunately, this won’t be the case for everyone. In the UK, more than half of graduates are working in non-graduate roles, while in the US graduate unemployment and underemployment (those who work part-time but want full-time roles) currently stands at 5.5% and 12.6% respectively. What is going wrong? There remains a fundamental mismatch between market demand and supply of skills. The longstanding concerns around a drought of STEM and digital talent have been well publicized, but the issue extends beyond that. Students are graduating with degrees offering neither technical nor vocational knowledge, yet these are what employers are often looking for first.

Best Practices for Ensuring Professional Skepticism in the Audit Process

( AccountingWEB ) By Lana Richards, September 7, 2016 – Auditors tend to get a lot of eye rolls from client personnel. After all, no one likes to have their work questioned or their errors pointed out to their bosses. Yet that questioning is foundational to the audit practice.

If auditors are not appropriately skeptical – seeking only to corroborate management’s assertions, perhaps, or rationalize evidence that doesn’t make sense – then their opinion loses its value to investors.

The Public Company Accounting Oversight Board (PCAOB) says auditors should assess “what could go wrong” with their clients’ financial statements and obtain “sufficient appropriate evidence,” which is not necessarily the most easily attainable evidence. Professional skepticism, “an attitude that includes a questioning mind,” must be applied throughout all phases of the audit and by all team members.

Subjectivity and judgment are more prevalent than ever, given the migration toward more principles-based accounting standards and the increased use of fair values in financial reporting. Professional skepticism is especially important in areas where judgment has been applied because there are more opportunities for management biases to creep in and misstatements to occur.

It also is critical in an auditor’s consideration of fraud because those who would intentionally misstate a company’s financials likely would also try to conceal their tactics.

Challenges to Professional Skepticism

Using their critical-thinking skills to apply context and perspective to clients’ financial statements is how CPAs add value to the audit process. But when busy season hits, most auditors find it challenging to shut the door and put their thinking caps on. Even if they did have the time, more thinking could lead to more questioning (read: more work).

In addition to workload demands, the following circumstances can impede auditors’ application of professional skepticism, according to the PCAOB:

• Pressures inherent in the audit process (e.g., incentives to maintain client relationships, keep audit costs down, or avoid conflicts with management).
• Trust in management, which is particularly common in long-term client relationships.
• Lack of training and expertise, as auditors must know what to question.

All of these situations can cause CPAs to take a client-favoring, as opposed to investor-protecting, approach. As a result, they may work too quickly, question less, obtain insufficient evidence, or fail to discover material misstatements. If these circumstances aren’t caught in internal reviews, then audit firms can get “dinged” in peer reviews. And in fact they do, quite often – so often that the PCAOB issued a staff audit practice alert to address the topic: SAP No. 10.

Best Practices

The PCAOB and the Center for Audit Quality direct auditors to bolster professional skepticism with the following best practices:

1. Optimize audit firm quality control systems. Audit firm quality control systems should include:

• A tone at the top that emphasizes the importance of professional skepticism. A firm’s culture can directly influence whether or not auditors dig deeper when something doesn’t look right.
• Compensation and promotion programs that promote (not discourage) professional skepticism. When auditors know their compensation and promotions hinge on maintaining key clients, they may be less likely to question management’s assertions.
• Professional training and proper engagement staffing. Though audit teams commonly assign the bulk of the fieldwork to younger staff, senior staff should be available to answer questions and review work in a timely manner. Firms also should train their staff on how to apply appropriate professional skepticism in an audit.
• Policies and procedures that assure appropriate audit documentation – especially in areas involving significant judgment. Audit work programs and checklists should remind auditors of the level of detail required in their work papers. Having to explain in writing how they developed an expectation for an analytical procedure, for example, will prompt auditors’ application of professional skepticism (more on this below).
• Consistent monitoring for appropriate use of professional skepticism. Quality control systems should constantly check for a critical assessment of audit evidence – and take corrective action as needed.

2. Appropriately design and document analytical procedures. Analytical procedures can bolster professional skepticism when auditors design them to detect material misstatements – as opposed to just corroborating management’s assertions. As mentioned previously, these evaluations prompt auditors to think critically and consider why certain comparisons look the way they do, given other factors. The challenge is in how auditors respond to that prompt.

Especially when workload demands are high, auditors may pass too quickly through an area simply because the analytics “checked out,” putting audit quality and compliance at risk. The good news is that technology can boost efficiency. Automating routine calculations and analyses can give auditors more time for areas requiring research and judgment. Audit technologies also can provide relevant, reliable data, such as industry benchmarks, deviations from which may indicate a need to dig a little deeper.

Professional skepticism is an individual, team, and firm-wide responsibility. Applying these best practices and taking advantage of time-saving tools and technology will help encourage professional skepticism in audits – and improve compliance, efficiency, and effectiveness.

AICPA Urges Congress to Modify Deadline for Reporting Estate Basis

( AICPA ) September 8, 2016 – The American Institute of CPAs (AICPA) has written Congress to urge it to modify the reporting deadline for estate basis statements. The AICPA is proposing a reporting deadline of February 15 following the end of the calendar year in which an estate distributes assets to a beneficiary, rather than 30 days after an estate files the federal estate tax return.

Adopting the AICPA’s proposed change would “streamline the process and make the reporting more accurate and useful” to the beneficiaries and the Internal Revenue Service (IRS), Troy K. Lewis, chair of the AICPA Tax Executive Committee, wrote in the letter.

Lewis explained that in 2015 Congress amended Internal Revenue Code section 1014 to provide for the consistent use of the value of property passing from a decedent’s estate and the value subsequently used by the beneficiary to determine gain or loss upon the disposition of such property acquired from a taxable estate.

Congress also added section 6035, which requires the executor of any estate required to file a return under section 6018(a) to furnish to the Secretary of the Treasury and to each person acquiring an interest in property included in the decedent’s gross estate for federal estate tax purposes a statement identifying the value of each interest in such property as reported on such return and such other information with respect to such interest as the Secretary may prescribe. Section 6035(a)(3) states that the time for filing such statement is 30 days from the earlier of the date the return was required to be filed (including extensions, if any) or the date the return was actually filed.

“For many estates, the executor does not know within thirty days after filing the estate tax return which beneficiary will receive what asset. In fact, it is customary that many, if not most, executors do not fully distribute estate assets until after they have received the IRS closing letter to ensure that there are sufficient funds in the estate to meet its federal and state tax obligations,” Lewis wrote.

Lewis stated the AICPA’s proposal would:

• Continue the reporting of estate basis to beneficiaries and the IRS;
• Maintain the intent of the provision
• Simplify and improve the administrative process;
• Result in more accurate reporting; and

Provide more meaning to the information provided by the executor to beneficiaries.

4 Steps to Reducing the Chances of Fraud

( FEI ) By Phil Ostwalt, September 8, 2016 –Strengthening your internal controls and taking advantage of data and analytics (D&A) will go a long way to preventing fraud – or at least increasing the likelihood of detection before it can cause catastrophic damage. Below are four ways to put these strategies into action:

1. Fight back with technology: Companies should be using automated computer programs with D&A capabilities to conduct 24/7 surveillance and monitoring. Our survey found that only three percent of frauds were detected by proactive data analytics; this is a clear indication that companies are not fully utilizing this important fraud-fighting weapon.

These types of software programs are capable of monitoring and analyzing:

• all business transactions, anywhere in the world
• employee conduct, including when they arrive and leave; computer usage; where they go on business premises, etc.
• public records, news and social media for indications of employee or third party lifestyle changes, financial activities, questionable activities, etc.

D&A programs can be designed to flag aberrations or changes in behavior or business patterns that might be indicators of fraud.

2. Conduct regular fraud risk assessments: One of the best strategies to combat fraud is a regular fraud risk assessment conducted as part of an enterprise-wide risk assessment process. Formal assessments should be conducted annually; it should be done more frequently if the company is experiencing high levels of change. This would include companies expanding globally, implementing new business operations, or subject to new regulations.

These assessments can show where a company has gaps in its internal controls (e.g., both activity-based and entity-level). They can also help companies prioritize the areas in which it needs to invest in anti-fraud measures.

3. Know your business partners and third parties: In addition to monitoring their employees, companies need to scrutinize their business partners and other third parties conducting business on their behalf. This is particularly true as companies extend their reach across the globe.

Specifically, organizations should:

• perform comprehensive background searches and integrity evaluations prior to entering into a business relationship.
• periodically check to ensure that suppliers are billing them as per contractual agreement; this can be required under the “right to audit” clause that’s normally included in business agreements.

For companies with hundreds, let alone thousands or tens of thousands, of business relationships, this may seem like an overwhelming task. But the same technology and D&A advancements discussed above can enable you to conduct cost-effective due diligence of third parties and contractual agreements, both initially and throughout the course of your relationship.

4. See something, say something: One of the most effective ways of detecting fraud is through the good, old-fashioned technique of encouraging tips from employees and/or vendors and suppliers. To be successful, however, it’s essential to develop a strong culture in which employees (and third parties):

• are aware of the risks of fraud
• know what to look for
• have ready access to reporting options
• are not afraid to come forward (this is critical)

What to look for: As noted earlier, it’s likely that the fraudster is an employee who’s been with your company for several years, often a well-respected individual who no one suspects. But there typically are tell-tale signs of fraud, if you look closely enough.

For example, the following are some of the top red flags associated with fraudsters:

• Living beyond means
• Financial difficulties
• Overly close association with vendors/customers
• Control issues/unwillingness to share duties
• “Wheeler-dealer” attitude/shrewd or unscrupulous behavior
• Divorce/family problems

Nurture a culture of trust: See something, say something is a catchy phrase. But it won’t mean a thing unless employees believe that they won’t have to fear for their job if they raise a red flag. This may be an easier task for some companies than others, but it will be worth the effort.

Provide training courses on fraud, and offer a variety of “whistle blowing” options, such as their supervisor, a human resources person, or an anonymous hotline (preferably that’s independent from the company).

Take appropriate action: Once an alarm is sounded – whether from a tip or a D&A alert – you need to take appropriate action.

Not every transactional aberration, change in behavior, or employee exhibiting a red flag means that a fraud is being perpetrated. However, you need to at least make an inquiry into the matter, regardless of who the suspect is. And depending on the tip or the result of your initial inquiry, a more formal investigation may need to be conducted.

It’s also a good practice to publicize when an executive, manager or other employee is found guilty of fraud, particularly if it’s the result of a tip. It will help reinforce the perception that your company takes tips seriously, acts upon them, and does not retaliate against people who come forward.

All of these action steps will not prevent fraud from occurring but will discourage some individuals from attempting it. The simple truth is that as long as individuals think they can gain financially through illegal means without getting caught, they will try to commit fraud.

However, by being aware of who potential fraudsters are, and employing the strategies covered in this article, you stand a better chance of ferreting them out before they can do real damage.

Do Your Employees Know Where They Stand?

( Chief Learning Officer ) By Bravetta Hassell, September 9, 2016 – Many managers underestimate their employees’ ability to handle constructive job performance feedback – so nine out of 10 of them don’t give any. As a result, fewer than half of employees are clear on whether they are doing a good job, Leadership IQ founder Mark Murphy wrote on Forbes.com.

The insight comes from Murphy’s ongoing research, for which he’s asked more than 30,000 employees dozens of questions about their work. When asked, “I know whether my performance is where it should be,” 29 percent of respondents said they “always” knew. And while 90 percent of managers might believe employees won’t take feedback in stride, 39 percent of employees said if given constructive feedback regularly, they’d take it well, even parsing it to figure out where exactly things went awry.

For all the real and perceived employee anxiety around having job performance conversations, Murphy wrote that managers can lessen the likelihood these talks will be stressful by having regular, bite-sized versions of them. Employees want to know whether they’re on the right track. If there are areas in which they need to improve, they want to know them—“Because they know that it’s tough to be successful in their careers if they’re not receiving sufficient constructive feedback,” Murphy wrote.

A manager-employee disconnect around job performance can spell trouble for employee performance, engagement and business results. When managers hold back on giving constructive feedback or reserve it for annual performance reviews, they’re making room for problems to compound and robbing employees of the chance to improve their work.

To develop stronger people managers and more engaged, high-performing employees, learning leaders can encourage managers to ask their employees how often they’d like to receive feedback about their performance, and then proceed accordingly.

Murphy wrote that managers also might consider setting up monthly coaching sessions with employees. This wouldn’t be an alternative to giving regular, real-time feedback, it would be a complement to it. “Each month, have a sit down where you discuss the employee’s high and low points, learning opportunities and areas where they could elevate their performance.”

Employers Hate the Cadillac Tax. Why?

( Modern HealthCare ) September 10, 2016 – Steve Banke employs 40 people at 3-Points, a small IT outsourcing company he founded almost 15 years ago. And he wants those workers and their families to have strong health insurance options.

Employees at the firm, based in Oak Brook, Ill., can choose between two types of Blue Cross and Blue Shield of Illinois plans: a PPO with a broader network of hospitals and doctors or a cheaper HMO network. Banke's company covers a percentage of the premiums, and those costs have risen rapidly over the past several years, often more than 12% annually, he said.

“It's seriously concerning that it is rapidly becoming one of the largest expenses in the organization,” Banke said. Other companies have avoided steep premium increases by moving employees into high-deductible plans.

Yet when asked if his company would ever discontinue health benefits, Banke said it would “never” happen, even as 3-Points looks to grow past 50 employees. “I would not see that anywhere in our future.”

3-Points and other companies of all sizes have not backed away from offering health insurance to their employees—and have not dumped workers onto the new exchanges en masse—even though costs continue to escalate and the process remains administratively cumbersome. In part that's due to the need to recruit top talent in an environment with a low unemployment rate. But just as important is the deep-running societal norm, in place since World War II, that a job includes health coverage.

Businesses and employer coalitions have aggressively lobbied against any government provisions that would change that status quo. The prime example is the Affordable Care Act's so-called “Cadillac” tax, which is a 40% surcharge on the value of employer-based health premiums above specific thresholds.

Their opposition has paid off so far. The Cadillac tax was supposed to go into effect in 2018 but was pushed back until 2020. There is still a strong push for full repeal.

The policy also controversially gives employers an excuse to back out of offering healthcare, an expensive obligation that usually has nothing to do with the core of their business. So why are employers pushing for the tax's demise?

Experts say employers won't rally behind the Cadillac tax, or the idea of eliminating employer coverage altogether, for a host of reasons. Self-preservation is at play for the benefits industry. From a business perspective, companies want to continue to take advantage of the full tax exclusion since untaxed dollars make paying workers a little cheaper, said Loren Adler, an associate director at the Brookings Institution's Center for Health Policy.

And ultimately, employers have realized it would be a political and reputational nightmare in the short term to stop providing health benefits. It would immediately raise the ire of workers who expect jobs to come with a halfway decent health plan.

“It's just a lot easier to cut the benefits than to abolish the benefits,” said Joseph White, a health policy professor at Case Western Reserve University.

Approximately 155 million Americans receive their health insurance from their employer, according to the Congressional Budget Office. But the employer-based system was never intended to become as mainstream as it is today.

During World War II, the federal government decided to exempt employer-sponsored health plans from taxes as a way to address the labor shortage. Not surprisingly, enrollment in employer plans exploded.

The tax write-off was never addressed after the war because it proved to be popular. “The whole thing is a historical accident,” said Jon Gabel, a senior fellow at the University of Chicago's research institution called NORC.

That accident leaves a big hole in the country's piggy bank. The employer-sponsored insurance tax exclusion will result in more than $342 billion in foregone income and payroll tax revenue in 2016, according to a U.S. Treasury Department report. From 2016 through 2025, the government expects the tax break will cost almost $4.4 trillion. However, actual tax collections on health benefits wouldn't be that high because people and employers would surely choose less-generous plans—the whole point of the Cadillac tax.

Employers view health benefits as both a tax perk as well as an investment in “human capital,” said Larry Boress, CEO of the Midwest Business Group on Health, which opposes the Cadillac tax. If someone is sick or injured on the job and can't afford the care needed to return to work, then that impacts a company's bottom line.

“Benefits have never been viewed as an altruistic thing,” Boress said. “They offer them for these fundamental reasons.”

But, as Adler of the Brookings Institution said, “One would imagine that most employers do not love having to spend a decent chunk of their revenue figuring out how to run a health insurance company.” Both self-insured and fully insured companies have legions of employees and consultants who manage benefits for their workers.

The Cadillac tax and other policies to reduce or terminate employer coverage would reduce the influence of these large, self-interested firms. The employer benefits consulting industry—which includes large companies such as Aon, Willis Towers Watson and Marsh & McLennan Cos. as well as many brokerage firms—wants companies to continue offering health insurance because it is a lucrative business. Aon and Marsh & McLennan have spent a combined $1.8 million in political contributions and lobbying during the 2016 election cycle, according to the Center for Responsive Politics.

The careers of human resources professionals also depend on employers providing health coverage. “The opinion of the CFO is probably different than the VP of HR,” Gabel said. “You've got this whole segment of corporate America where this is their job.”

The possibility of the Cadillac tax is at least forcing employers to consider paring their standard benefits package. Case Western Reserve University, where White teaches, scaled back benefits several years ago, and he said the changes were blamed in part on the ACA's tax. Harvard University notably altered health insurance for employees in 2015, creating a furor. The Cadillac tax could have hit anywhere from a quarter to a third of employers if it had gone into effect in 2018, according to some estimates.

Shifting employees into high-deductible plans is one of the most common ways companies are avoiding the Cadillac tax. About 24% of workers in employer plans were enrolled in a high-deductible option with some type of savings account in 2015, compared with 20% in 2014, according to the Kaiser Family Foundation. In 2006, only 4% of employees were in high-deductible plans. Experts and even some companies have said the connection between high deductibles and the looming Cadillac tax is not coincidental.

“Raising the deductible to $1,500 from $1,000 is a lot less visible than dropping coverage,” White said.

Indeed, while benefits are getting trimmed and deductibles are getting higher, most companies like 3-Points still have little to no desire to take the extreme step of ending health benefits. Only 4% of large employers believe it's likely they will terminate their health plans within five years, according to a 2015 survey from benefits firm Mercer, which is owned by Marsh & McLennan.

Steve Glass, chief financial officer at Cleveland Clinic, said the self-insured academic health system has no intent of ending health benefits or pushing people to the public exchanges. “We don't want to give them a contribution and tell them to go shopping,” he said, adding the organization is “well-managed” for the Cadillac tax. Cleveland Clinic also does not have any high-deductible offerings for employees and instead relies on wellness programs, Glass said.

If a company axed health benefits, some logistical problems would crop up, White said. It would have to pay workers more in salary so they could buy their own plan on the exchanges. But that pay bump would be somewhat muted by the penalties associated with the ACA's employer mandate. Companies would also have to calculate how they would compensate a single employee versus an employee who has a family and inherently receives more untaxed health benefits.

Perhaps most importantly, no company wants to be the first to make that move because employees could easily decide to jump to a different employer that still offers coverage. “You are looking like the crappy employer compared to all the other ones,” White said. “It's just opening a can of worms.”

The Cadillac tax is a cap on the tax exclusion. During the run-up to passage of the Affordable Care Act in 2010, most policymakers concluded getting rid of the tax-advantaged nature of employer benefits would be as impossible today as it was during the 1990s healthcare reform debate.

“It's a very difficult thing to do politically,” said Stuart Butler, a senior fellow at the Brookings Institution who promoted many of the ACA's concepts when he was at the conservative Heritage Foundation. “The only way this could be done is to phase it in very slowly and gradually over many years so that one year from the next the impact on anybody is not very high.”

Stanford health economist Laurence Baker agrees. “Who doesn't like getting something tax-free?” he said. Baker and Butler were two of the 101 economists and policy experts who wrote an open letter to senators last year in support of the Cadillac tax.

As long as that tax preference and a public expectation of linking a job with health insurance exists—and as long as the Cadillac tax stays at bay—the private sector will likely continue to be the main source of health benefits for most of the employed population and their dependents.

“It's a very important part of our business model,” said Banke, the owner of 3-Points. “We're in the service business. We want to ensure our staff has the greatest healthcare.”

Finance Execs Favor Trump over Clinton by Large Margin

( CFO ) September 13, 2016 – Donald Trump is the overwhelming choice for the next president of the United States among finance executives and other CFO readers, with about 55% of 576 respondents favoring him compared with about 35% for Hillary Clinton.

The real estate businessman was also the respondents’ preferred choice on eight out of nine selected issues, with the former U.S. senator and secretary of state besting Trump only in the area of climate change, 40% to 34%.

Those who answered The CFO 2016 Presidential Election Survey during the week of September 4 preferred Trump over Clinton by a huge margin on the issue of corporate taxes, 61% to 23%. On his website, the Republican nominee says he would curb taxation of business income to 15% in contrast to the current 35% maximum and would make corporate tax rates “globally competitive and [make] the United States the most attractive place to invest in the world.”

Clinton’s website, on the other hand, says that “Corporations don’t need another tax break” and that as president she would “crack down on companies that shift profits overseas to avoid paying their fair share in U.S. taxes.”

Asked to elaborate on their answers to the survey, some respondents were less than enthusiastic about the choice this November 8. “Terrible. I don’t really embrace either candidate,” said Deborah S. Gardner, finance director, Responsive Holdings Group, a personal lines insurance company in Plantation, Fla.

16Sep_ElectionSurvey“I do believe, however, that Hillary will be Obama on steroids, and I do not approve of the regulations that have been imposed by this administration. I think they’re over the top, especially for small businesses,” says Gardner, who indicated on her survey that she favors Trump, although she feels he’s still a “wild card.”

Similarly, Clinton supporter Todd K. McCoy, vice president of finance and risk management at the University of Kentucky Federal Credit Union, Lexington, Ky., says the choice in this election is between “mediocre/normal and unpredictable.”

While “I’m not going to tell you I’m a huge Hillary Clinton fan,” he says, “she probably has the experience in government and understands how it works, so that I don’t think we would have the upheaval we might have under a Trump presidency.”

Although Steve Underhill, the treasurer and controller of R.O. Whitesell & Associates, a Carmel, Ind.-based electronics manufacturers’ representative firm, favors Trump, he summed up the views of many survey respondents this way: “I think it’s an absolute shame that in a country the size of ours and with the history of ours that we’re down to these two candidates for president.”

CFO survey respondents, who largely consisted of senior finance executives but also included controllers and risk and accounting executives, also favored Trump over Clinton by big margins on the issues of homeland security (56% to 31%), health care (52% to 33%), and energy policy (52% to 34%).

Concerning health care, a large number of respondents called for renunciation, restructuring, or repeal of the Affordable Care Act, or Obamacare, in answer to the question “If the incoming president could sign one major piece of legislation in his or her first year, what would you want it to be?”

On her website, Clinton says she would “Defend and expand the Affordable Care Act, which covers 20 million people, and make a “public option” possible. On his site, Trump says, “On day one of the Trump Administration, we will ask Congress to immediately deliver a full repeal of Obamacare.”

Gardner feels the ACA has hit small businesses hard, with her company a case in point. She notes that the insurance firm will this year exceed 50 employees for the first time, which would make it subject to Obamacare regulations. Reaching that headcount “should be an exciting thing,” rather than something to worry about, she said.

In anticipation of being subject to the rules, the firm has outsourced its entire payroll and benefits processing operation to ADP because it would rather be focusing on its core business rather than “stupid compliance issues, where you’ve stubbed your toe on some minor issue, even though your intent and your spirit was to comply with the law,” Gardner added.

On the issue of climate change, the only one in which Clinton scored higher with CFO‘s readers than Trump, Clinton declares that it represents “an urgent threat and a defining challenge of our time.” On the first day of her administration, she adds, she would “set bold, national goals” including the installation of half a billion solar panels, the elimination of energy waste by a third, and the reduction of American oil consumption by a third.

For his part, Trump says he would “[r]escind all the job-destroying Obama executive actions including the Climate Action Plan and the Waters of the U.S. rule”; “[s]ave the coal industry and other industries threatened by Hillary Clinton’s extremist agenda”; and cancel the Paris Climate Agreement.

A number of survey respondents saw the election through the lens of the economic difficulties of their regions. McCoy, the Kentucky credit union executive, offered this advice to the next president on his survey form: “Build things. We need things, and people need good jobs.”

Acknowledging in an interview that the federal government has “borrowed a lot,” he says that it could “could borrow a little bit more and spend money fixing some bridges, fixing some roads that will actually be more of a concrete effort to bring back some real blue-collar jobs.”

The construction and engineering skills needed to perform such big public projects would provide a bigger boost to the economy, “rather than just contributing to a financial system that is really just supporting stock prices right now,” he added.

McCoy thinks the nation’s top legislative priority is to enact a bill that would provide substantial funding for infrastructure improvement. He acknowledges that the central Kentucky region where he works, which abounds in hospitals and universities and has a number of large corporations, has enjoyed a “relatively decent, steady economy.”

But in the eastern, rural, part of the state, coal production “has gone away, and I don’t think it’s going to come back,” he said. To build roads and other forms of access to that region would be essential for other industries to replace coal production there, according to McCoy.

In Michigan, the CFO of a manufacturing company that takes in $20 million in annual revenues feels that “the whole NAFTA policy of the 1990s has ruined manufacturing in the Great Lakes area of the United States.” He indicated his support for Trump on the survey.

What Hillary Clinton didn’t talk about when she spoke in Michigan after the Democratic primary was “the unopened manufacturing facilities that she passed,” according to the finance chief, who did not want to be identified. “She was gloating at the one that she was at, which was a relatively new facility.”

Many assert that the North American Free Trade Agreement and other free-trade policies of President Bill Clinton, which are commonly linked to Hillary Clinton as well, led to the loss of manufacturing and jobs in the United States. “She passed hundreds of other locations that were boarded up,” said the CFO, who blames Congress, including Clinton when she served as a U.S. Senator, for supporting those policies.

Copying Legal Counsel Doesn’t Create Privileged Communication

( JDSupra Business Advisor ) By Elizabeth Daniels, September 13, 2016 –The attorney-client privilege is a long-standing and well-established principle that protects certain communication between client and attorney from disclosure. With the increased use of email, clients may often copy their counsel on messages even when they are not seeking legal advice, particularly if a company has in-house or general counsel. Clients cannot, however, transform such communication into “privileged” communication simply by copying their attorney.

As a general rule, only communication between a client and his or her attorney for purposes of obtaining legal advice is privileged. The somewhat complicated role of in-house counsel, however, may create confusion as to what communication with in-house counsel is privileged. In particular, if in-house counsel has regular business duties in addition to serving as counsel, communication related to typical business duties is not protected by the attorney-client privilege. This is the reasoning underlying the decision reached by many courts that copying an attorney on otherwise non-privileged communication does not transform the communication into a privileged communication.

For example, the U.S. District Court for the Southern District of Texas ordered a company to produce certain emails between its senior managers, even though the company’s in-house counsel was copied on the emails. Sand Storage, LLC v. Trican Well Serv., L.P., No. 14 C 3012, 2015 U.S. Dist. LEXIS 56417 (S.D. Tex. April 30, 2015). The court concluded that because the messages were not sent for the purpose of obtaining or providing legal services, the messages were not protected. The court also noted that an attorney does not necessarily have to be the sender or primary recipient in order for the communication to be privileged, but to be protected, the communication must be for the purpose of providing legal services.

The U.S. District Court for the Eastern District of Pennsylvania similarly has found that several emails between non-attorney employees, copied to an attorney, were not privileged and not protected from disclosure because the emails did not contain requests for legal advice. In re Avandia Mktg., No. 07-md-01871, 2009 U.S. Dist. LEXIS 113562 (E.D. Pa. Dec. 7, 2009).

Likewise, in Hamdan v. Indiana University Health North, LLC, No. 1:13-cv-00195-WTL-MJD, 2014 U.S. Dist. LEXIS 86097 (S.D. Ind. June 24, 2014), the Southern District of Indiana reviewed several email chains to determine whether they were subject to disclosure. The court found that an email chain between supervisors and human resources personnel discussing a former employee’s behavior was not protected, even though the employer’s in-house counsel was copied on the email. The court reasoned that the email was neither addressed to the attorney nor sent directly to the attorney, the email exchange did not include mental impressions of the attorney, and the sender of the email was not seeking legal advice. Therefore, the attorney-client privilege did not protect the communication.

While it may be necessary to keep a company’s counsel informed of certain business issues, it is important to remember that not every communication to an attorney is protected by the attorney-client privilege. In order for a communication to be protected from disclosure, it must be between a client and the client’s attorney for the purpose of seeking legal advice. When questions arise, McNees Wallace & Nurick’s team of experienced litigators can assist in determining whether communication is protected by the attorney-client privilege or work-product doctrine.

Accounting Firms Should Embrace the Digital Fountain of Youth

( Going Concern ) By Megan Lewczyk, September 8, 2016 – When did the AICPA decide that “young” professionals are 22 to 40 (yes, 40) years old? Am I the only one to thinks 40 may be too old for that designation? Imagine if society considered professional athletes “young” if they met the under 40 threshold.

Don’t get me wrong -- accounting is one industry where experience (read: being older and wiser) matters. I’m the first to admit it. I learn something new every day. The problem is that, ageism does exist in accounting, just not in the same way as it does in other industries.

According to Fast Company, “One in three older workers has either experienced discrimination or seen it happen firsthand since 2008.” In accounting, is it the other way around? Are younger CPAs edged out?

I argue yes -- and it’s too bad.

Prescribed pecking order

Is it just me or does it seem like you have to have at least a few public accounting war stories to get taken seriously? I can’t even count how many times I’ve heard, “You have to pay your dues in public to succeed in accounting.”

Remind me again why Big 4 is such a great place to start your career? Oh, that’s right, ladder climbing is a rite of passage in public accounting. It opens doors in your career. Survive until Senior -- that’s ok. Manager -- even better.

Ugh.

Yes, a “seasoned” professional brings a lot to the table. I know I wouldn’t want a doctor who's fresh out of medical school. But isn’t there room at the “big kid” table for a little diversity of experience?

That’s the frustrating part about Big 4 -- you must put in the time to advance. According to the Journal of Accountancy, “institutional rules and procedures can make it particularly challenging to accelerate the process” of being named partner. Of course, early promotions to partner might disrupt the balance of power and seed dissatisfaction in the ranks because it “wasn’t fair” to everyone. Partnership takes at least 10-15 years at Big 4, national, and regional firms. Although, some firms are known for promoting rock star CPAs more quickly than Big 4.

Digital natives

Why not spice things up by taking a chance on tech-savvy digital natives? After growing up with technology, firms might be surprised what someone brought up in the age of tech innately knows. Knowledge that is valuable and untapped.

With few exceptions, accounting firm partners are primarily digital immigrants, or born before the advent of modern technology. Inside Public Accounting cited the average age of equity partners as 52.7.

And, even though partners are the powerful leaders of an office, many don’t know what they are doing when it comes to technology. Without the native digital fluency, partners have to fake it. No one want to admit their weaknesses. Are any Big 4 teams still favoring hard copy workpapers for partner review and sign-off? My bet is yes.

Bravo, SAP

Occasionally, someone breaks into the upper echelon without following the standard timeline. Mark Jain made partner at EY at age 32. Last week, Forbes interviewed Thomas Saueressig, newly appointed CIO of SAP. Outside public accounting, I know, but he’s only 31 and it’s a noteworthy move. In his own words, he shares what makes him valuable to the company:

There is more than one advantage. While I am not officially a digital native, I am of the generation that grew up with personal computers. I could write Basic code at the age of six – long before I could write a grammatically correct sentence. This level of comfort with PCs means I completely understand and relate to how millennials expect their work environment to function. They want to be flexible, they want instant access, and they want applications to be seamless. This makes them both happy and productive.

… and continuing:

On the whole, millennials are able to accept and embrace change. While we rely on our older colleagues for their wisdom and experience, it is also important to have individuals who fuel change energetically. I appreciate that the SAP workplace makes room for both.

This raises obvious questions: Why are accounting firms so hesitant to give more young, millennial CPAs a chance? Aren't digital natives’ innate technology skills worth recognizing? Let's talk it out.

The Unemployable Graduate Crisis and How We Can Fix It

( LinkedIn ) By Alistair Cox, September 8, 2016 – Around the world, millions of students have recently graduated from university and college and for many, September often marks a milestone month as they enter the world of work.

Unfortunately, this won’t be the case for everyone. In the UK, more than half of graduates are working in non-graduate roles, while in the US graduate unemployment and underemployment (those who work part-time but want full-time roles) currently stands at 5.5% and 12.6% respectively. After years of study and expense, what a shocking waste of talent and money and dreams. Year after year however I listen to concerned clients of Hays who are worried that each fresh wave of graduates simply will not possess the skills required to excel in the modern world of work, or even get their foot in the door.

What is going wrong?

There remains a fundamental mismatch between market demand and supply of skills. The longstanding concerns around a drought of STEM and digital talent have been well publicized, but the issue extends beyond that. Students are graduating with degrees offering neither technical nor vocational knowledge, yet these are what employers are often looking for first.

Recent research in the US found that while 87% of recent graduates feel well prepared to hit the ground running in their new job, only half of hiring managers agreed. The shortfall across hard and soft skills is plain to see – one in four roles go unfilled due to the technical skills gap and hiring managers report worrying gaps in graduates’ critical thinking, communication and leadership skills. Around the world, many graduates simply aren’t employable in the roles being created today, yet will have spent at least 3 years racking up debt to study a course that will not help them find a relevant role.

If steps are not taken to address this, then I genuinely fear for our graduates, employers and the global economy. We are already seeing the skills gap widening into a skills chasm.

So where does the blame and solution lie? With educational institutions, employers, governments or the graduates themselves? In my opinion, all four are culpable.

Sad to say but I've seen at first-hand how many schools, universities and colleges are unable to provide students with worthwhile career advice that allows them to consider all the options available for on-going education and where this can realistically take them. It's understandable when most of these institutions are staffed solely by professionals from the world of education that they may not have the insights required to advise on careers outside their own field. But it does leave a big gap of information for their customers, the students. In my view too, the education system is often focused far too much on league table positions than actually ensuring that young people know which courses have the best employment opportunities before applying and are prepared for a career once they walk out the door. I’m a big admirer of the approach taken by the Rochester Institute of Technology, who use data from the US Bureau of Labor Statistics to provide prospective students with a frank guide to how various careers are set to fare in coming years. This treats incoming students as adults, honestly informs them which careers are set to be in demand and highlights which qualifications or skills would be favored in these careers. I would like to see this or a similar approach become the norm for higher education providers around the world.

Governments have been too quick to assess educational institutions on grades alone, a short-sighted approach that puts frankly unfair pressure on universities and ignores the long-term economic impact. Our political leaders should instead encourage universities to focus on providing the skills that will be vital to driving employment, businesses and our economies. We should be incentivizing our students to opt for courses that will keep talent pipelines well stocked. In the UK over recent years, undergraduate fees have increased dramatically and almost uniformly across all courses and institutions. Yet employment prospects vary tremendously based on course and college. As the government looks for ways to build a long-lasting economy and itself spends billions on educating the future workforce, it makes sense to me to use pricing to incentivize behavior, making the high-employability courses and institutions free or significantly cheaper via subsidies. This would lower the fees for in demand subjects such as STEM and digital, as well as valuable vocational courses, incentivize more young people to study the subjects that business and the economy need and would pay economic dividends as higher numbers of graduates emerge with the skills that employers are crying out for. Those who still choose to follow a course of study that will likely lead to no relevant job can still do so, but they would have to recognize that will come with an appropriate personal price tag attached. For the first time then we would have government fiscal policy around education aligned with business' need for skills and the appropriate incentives and rewards in place.

Business leaders should be approaching top colleges and universities, asking how they can help prepare the future workforce with careers advice, informing them which areas their business is struggling to recruit in. We must combine the vast amounts of insight and data available in both worlds and put it to good use in shaping our curriculum and courses. We also hear all too often that graduates join the workforce lacking crucial professional skills and industry awareness. By playing an active role in liaising with educators, businesses have the opportunity to emphasize the importance of specific technical and soft skills while also providing future candidates with industry insight – all before they even set foot into the interview room.

Our young people also have a responsibility to focus on acquiring skill sets that will benefit them. A recent Accenture study of US college graduates found that only half believed their area of study would provide them with a good long-term career. This number struck me as appallingly low – entering higher education is a costly experience, and students have a duty to themselves to ensure that neither time nor money is wasted on frivolous qualifications that mean little to employers. We need to be encouraging our young people to consider the future jobs market before choosing what to study. At the very least they should weigh up whether a particular degree will provide them with vocational or soft skills valued by employers. It’s up to the rest of us to provide them with relevant guidance that will help them make an informed choice.

When I first arrived at the University of Salford to embark on an engineering course in the late 1970's, university attendance was far lower than today and there was a general understanding that acquiring a degree would dramatically improve your employment opportunities. It was almost taken as a given that we would all graduate into interesting and rewarding relevant jobs. I chose engineering because it’s a subject I’m passionate about, but at the same time degrees were heavily weighted towards providing both deep theoretical knowledge and vocational skills – both were put to the test after my graduation as I worked as an aerospace engineer and on North Sea oil rigs.

Today, the intense focus on making higher education accessible to all - an admirable goal which I believe has been mishandled - means there’s an incredibly wide range of qualifications on offer. Unfortunately the focus on skills, hard or soft, has been lost along the way, and the guidance given is often woeful. I’m sorry to say that many of those currently looking for post-graduation employment will have emerged from university with a degree that just isn’t valued by employers. They would have been served far better to follow a different course of study or a different education path entirely, such as a trade apprenticeship. Sadly in the UK at least the last 15 years of policy has enshrined that the only valuable person for the workforce is one with a degree. That is just so wrong as it has coerced young people into higher education that is totally inappropriate for them and their career prospects, and has seriously undermined the true value that other non-degree roles offer the world. I benefited from an apprenticeship alongside my degree and for many people the vocational or technical training around a trade is far more appropriate than studying at university.

As the global economy continues its slow recovery, now more than ever we need to ensure we have the talent required to steer ourselves through. Success depends on our employers, educational institutions and governments providing the tools and opportunities for young people to take up much-needed skills. We owe our future graduates the guidance they deserve – and they owe it to themselves to choose qualifications that will drive their career and tomorrow’s economy.