On February 3rd the web site CreditCards.com published an article entitled Charitable Charging Comes Under Scrutiny.

The article indicated that shortly after the earthquake in Haiti the major credit card processors all agreed to waive their interchange fees (ranging from 1% to 3%) on each donation directed to Haitians in need. Some charity watchdog groups and other interested parties called for credit card issuers to waive fees on charitable donations permanently. The political action group MoveOn.org started a petition which it will deliver to the CEOs of the major credit card processors.

This is not the first time that the credit card processors waived or cut their transaction fees. They waived fees in 2004 after the tsunami struck Southeast Asia. Capital One has been waiving transaction fees on charitable donations since the fall of 2008. Capital One operates a website called No Hassle Giving or the Network for Good and it processes transactions to almost any charity without a fee (of course, using your Capital One credit card). I am sure this is part marketing effort and part charitable giving on Capital One’s part and I applaud it.

However, before we all jump on the bandwagon and rush off to sign the MoveOn.org petition, I would like to have you think about a few concepts. We can think of the credit card processing fee as additional fee income for the credit card company and subconsciously think of the millions of dollars that this generates, or we can think of the costs involved in processing credit card transactions and realize that these costs are as low as they are because every transaction is sharing in the payment of those costs. We realize that costs may increase for the remainder if some are exempted.

We could think of the processing fee as a cost the charity is willing to pay to facilitate the receipt of donations from millions of people. The credit card facilitates the donor’s effort (no check writing, mailing, stamp costs, etc.) and facilitates the charity’s donation deposit (no mail opening, endorsing, bank clearing time, internal control issues, etc.) and the charity is more than willing to pay for all this assistance and service.

In certain circumstances and in certain disasters, the credit card industry is willing to take a temporary cut in revenue as their way of contributing to the cause. They do this to provide an added incentive to the donor while assisting the charity at the same time. Added incentives work – think of how often you shop a “sale”.

So I applaud the credit card companies for their processing fee elimination in response to the Haitian crisis. And I applaud Capital One’s marketing/charitable giving plan and wish them success. I am not rushing to sign the MoveOn.org petition. What do you think?


By Frank Monti, CPA
Not-for-Profit Group

Labels: Accounting, Charitable Donations, Credit Card Processing Fees, Haiti Donations, Waved Transaction Fees

In my last post, I discussed some interesting facts about who is most likely to steal from your company and how much it is likely to cost you. (In case you missed it, here’s the link: http://www.kahnlitwin.com/blog/2010/01/can-you-identify-whos-going-to-steal_06.html.)

The cost of fraud to an organization can be devastating, yet many people don’t want to hear about it until it’s too late. You don’t have to be a financial expert to implement controls to prevent fraud, but you do need, at a minimum, a basic understanding of the different types of fraud in order to know what you are trying to prevent.

With that, I wanted to take some time now to highlight some of the common areas that are susceptible to fraud and the types of theft related to them.

• Cash theft schemes – these can include the obvious to the not so obvious. Under this category you will find theft of cash payments, theft of all or part of a daily deposit, skimming from a daily deposit, voided sales and/or revenue transactions, and the theft of petty cash funds.
• Accounts receivable schemes – receivables schemes are directly related to the theft of cash. These can be a bit more complicated, and can include the lapping of receivables (which involves shifting receipts amongst customer balances to cover up theft), the unauthorized crediting of customer accounts, and the re-aging of receivables in order to hide misappropriations.
• Inventory schemes – these can include the theft of inventory and supplies, as well as the scrapping and subsequent resale of inventory.
• Fixed asset schemes – these schemes can come in a variety of different forms. They can include the theft of equipment and other assets held for use, the personal use of company assets, over-purchasing schemes, as well as the recording of fictitious assets (which in turn can conceal other thefts).
• Payables and disbursement schemes – these schemes are also directly related to the theft of cash. Payables schemes can include payments made on false or inflated invoices (including those to shell companies), excess purchasing as well as duplicate payment schemes. In addition, you can have situations where the employee is brazen enough to write the check directly to themselves or a family member, as well as the stealing of check stock for future use. 
• Payroll schemes – payroll schemes can be some of the easier schemes to detect, yet they often fly under the radar. These can include payments to fictitious employees, overpaying/double paying current employees, paying terminated employees, the diversion of tax and/or employee benefit plan payments, and various expense report reimbursement schemes.

Please keep in mind that the above is just the tip of the iceberg, and some of these schemes (and others not mentioned above) can be occurring in your organization right now. Fraudsters have been getting more and more sophisticated and are continuing to utilize advancements in technology to further their efforts. You need to be proactive in not only understanding the different ways these criminals can steal from your organization, but how to best protect yourself.

In my next post, I will begin to explore these areas in greater detail, highlighting the various opportunities for internal theft and what you can start to do to protect yourself. Until then, remember, it will always be more economical to implement measures to prevent fraud than it will be to detect it.

By John Surrette, Jr., CPA, CFE, MBA
Senior Audit Manager

Labels: Accounting, CPA, Different Types of Fraud, Fraud, Fraud to an Organization, Fraudsters., How to Detect Fraud, Inflated Invoices, Petty Cash Funds, Resale of Inventory, Theft of Cash Deposits

Labels: Accounting, CPA, Cutting Costs, Economic Downturns, Economy, Fixed Costs, Fixed Spending, Government Spending, KLR, LeBlanc, Projected Revenue, Tax, Tax Collections, Tax Planning, Tax Revenue 2010

Are you one of the many business owners out there who have been planning a sale of your company but can’t find any buyers as a result of the current economy? Maybe there’s a solution to your problem in the form of an Employee Stock Ownership Plan or ESOP.

Tracing their roots as far back as 1973, ESOPs are a well known but often misunderstood business ownership structure that can provide liquidity to business owners. The concept is not to be confused with a stock option plan commonly established to compensate executive level employees. Instead, an ESOP is a tool that allows business owners to sell all or part of their ownership interest to their employees using debt.

The topic is frequently married with a discussion of the numerous tax benefits an ESOP can provide which includes repaying ESOP debt, principal and interest, with pre-tax dollars. There are other benefits which may include being able to find a ready buyer for your shares, the possibility of more favorable financing terms and the advantages of avoiding the strenuous, time consuming and often expensive process of selling your company through an investment bank or business broker. There are also the cultural benefits of employee ownership which may lead to higher profitability.

Sometimes business owners don’t want to give up control of their company but are interested in diversifying only some of their shares. An ESOP can help here too! In fact, many ESOPs are set up as minority owners so that existing business owners can take advantage of the ESOP tax benefits available to their company while enjoying the benefits an employee ownership culture. Also, if structured correctly, the business owner may be able to defer any capital gains taxes associated with the sale of these shares.

Although not all companies qualify and sometimes those that do find the IRS rules too restrictive, an ESOP is still an option often overlooked by business owners. With the help of a qualified accountant and attorney to help demystify the world of ESOPs, it might be worthwhile to find out if an ESOP makes sense for your company.

By. Gregg Hamilton-Piercy, CFA
Senior Valuation Manager

Labels: Business Valuation, CPA, Hamilton-Piercy

One theme that has been in the news over the past several months is the fact that accounting fraud has risen significantly over the past couple of years. Who didn’t see that one coming? Increased unemployment, the resetting of interest rates on adjustable rate mortgages, and the loss of personal wealth (mainly from declines in home values) are all reasons why we have seen a spike in this type of fraud.

At the end of my last post, I had mentioned that I was going to start to discuss some of the different types of fraud. As I think it’s important to understand who might be perpetrating the fraud, we’ll get into that topic next time.

So, you ask, what type of person is most likely to commit fraud? According to the 2008 Report to the Nation on Occupational Fraud & Abuse report (the Report) published by the ACFE, research shows that:

• Fraud is a man’s world. According to the survey, males are more than twice as likely to commit fraud as their female colleagues. Significantly, the median loss of fraud by men is more than twice as great as frauds perpetrated by women, according to the study.

• Many fraudsters are in their forties. The highest percentage of fraudsters in the study were between the ages of 41-50 (in more than half of all cases, the perpetrator was over 40). Generally speaking, older professionals often occupy positions with authority and more access to company resources. The Report finds that the median loss from fraud rose as the age of the fraudster increased. Schemes perpetrated by individuals in their 50s resulted in a median loss of $500,000, twice as high as any age bracket below them.

• The ‘lone wolf’ versus cooperative crooks. In nearly two-thirds of the fraud schemes covered by the study, the perpetrator acted alone. Yet when the scheme did involve collusion of two or more parties, the results were much more costly. Cases of collusion resulted in a median loss over four times higher than the amount lost to fraudsters acting alone. This might mean that collusion enables employees to better circumvent controls that might stop a single perpetrator.

• Education and position. Most perpetrators have attended or graduated from college.
About 11 percent have obtained a post-graduate degree. In general, the higher the education level, the more costly the fraud. Furthermore, the highest percentage of fraudsters worked in the accounting department when they executed their scheme. Because these employees handle financial transactions, they normally have the easiest access to fiscal assets and the most opportunity to conceal a fraud. Executives and upper management made up the second-most common category of fraudsters. The least common perpetrators? Internal auditors.

• Living the fraud life. According to the Report, there are several behaviors that serve as red flags displayed by perpetrators. The two most common traits are a tendency to live beyond one’s means, and a struggle with financial difficulties. More than a third of those identified displayed at least one of the aforementioned behaviors, and about 20 percent had either a “wheeler-dealer attitude,” control issues (unwillingness to share duties), or personal problems, such as a divorce. Other red flags might include irritability or defensiveness, addiction problems, past legal problems, refusal to take vacation and complaining about inadequate pay.

If you’d like to learn more about the findings in the Report, you can download online at the ACFE’s web site: www.ACFE.com/RTTN.

There are several other studies out there that have come up with similar conclusions. I don’t think there is anything too surprising in the results, but don’t be fooled. I’ve seen frauds committed by men and women much younger and much older. However, the one theme that you should focus on is the fact that these people are in positions of power and influence within their respective organizations. If those positions are appropriately monitored, your exposure can be reduced significantly. Remember, it’s much easier (and cheaper) to prevent fraud than it is to detect it and recoup your losess.

The ability to appropriately monitor these positions is predicated on the fact that you know what risks your company are exposed to, and how you can appropriately mitigate them. Having an understanding of the different types of frauds and how they can be perpetrated can be very helpful in assessing your exposure. We will start to explore these areas in my next post.

By. John Surrette, Jr., CPA, CFE, MBA
Senior Audit Manager

Labels: Accounting, CPA, Fraud, KLR, Surrette

There are only a few weeks left before the year ends and your 2009 tax life is sealed in stone. However, there is still time for considering a few tax-wise moves that could save you money now or in the future.

On involves making gifts to others. A person can give any other person up to $13,000 in 2009 without incurring any gift tax. The annual exclusion amount increases to $26,000 per donee if the donor's spouse joins in making a gift. Anyone who expects eventually to have estate tax liability and who can afford to make gifts to family members should do so. In addition to avoiding a gift tax today, if the property you are gifting (such as stock) increases in value, that increase in value is also out of your estate. With today’s deflated stock prices, this may be worth considering a bit more carefully than in prior years.

Double check your potential tax liability for 2009 and compare it to amounts paid in via withholding or estimated taxes. If you think you may be underpaid – perhaps you missed an estimated tax payment earlier in the year – you can increase your withholding for the last one or two pay periods in the year. All amounts paid via withholding count as if they were paid evenly throughout the year. So if you missed an estimated payment and face a penalty for the late payment of the amount, you may be able to eliminate that penalty by increasing your withholding before year-end.

If you have a health flexible spending account (FSA) at work and you must use the account before year-end, check to see if you have any unused funds in your account. If you have unused funds that you are in danger of losing, consider expenditures such as eyeglasses, contact lenses, etc. And, don’t forget that nonprescription drugs like antacid, allergy medicine, pain relievers or cold medicines qualify for FSA reimbursement. You need to make the purchase prior to year-end even if you are not able to submit the reimbursement until after the first of the new year.

While I am not expecting anyone to go out and buy a new car because of my blog, it is worth noting that depending on meeting certain conditions you can deduct qualified motor vehicle taxes paid on the purchase of a car in 2009 that you will not be able to deduct in 2010 (unless Congress changes the law). There are also tax credits available for the purchase of a qualifying fuel efficient car. The most widely available type of these vehicles is the hybrid.We don’t want you to miss any of these opportunities. If you have any questions, call your KLR tax advisor today.

By. Frank Monti, CPA
Not For Profit Group

Labels: Accounting, CPA, KLR, Monti, Tax

In these troubling times every business seems to have one major goal -- cut costs. Unfortunately this happens most often as a knee jerk reaction with across the board cuts in payroll and everything that even smells non-essential. But what if there was a better way? And you could learn about it for FREE??

One of our clients has grabbed the Toyota concept of efficiency (lean) and taken it to an art form – and they are so passionate about it that the President of the company has felt the call to duty and is hosting a daily radio show on AM790 from 4 – 5pm. There is also a local website dedicated just to the war on waste (LeanRI.org). The show and site focuses on efficiency and cost cutting without using the all too common slash and burn process. If you can’t tune in, the show streams live from the 790 website and there are other tips you can read online. Here are some links to get you started.

http://www.790business.com/sectional.asp?id=35739
http://www.leanri.org/
http://www.facebook.com/pages/K-Dubs-Lean-Nation-Radio-Show/205913446176

What is lean anyway?
Lean is eliminating the 7 deadly wastes that are in every corner of our businesses, homes, and government.

1. Waiting - people or goods idle while a process finishes
2. Over production – making more than you need now
3. Over processing – doing more work than is necessary (too many steps)
4. Motion – reaching, turning, bending, or walking to your resources
5. Transportation – moving product around
6. Defects – we all know this one
7. Inventory – do you need more than you could have on-hand tomorrow?

I know these sound like they only apply to manufacturing but don’t be fooled. They apply to everything and anything that involves a process resulting in a finished product (even making toast has a process to it). What I’m saying is: everything is manufacturing when you think about it. For example (and I’ll pick a tough one) - an insurance agent. They might not have a machine shop but they do go through the process of obtaining leads, researching, quoting, revising, and ultimately binding coverage - all which results in the finish product of an insurance policy. Their equipment is a computer, printer, and fax machine instead of drill presses and grinding machines - but they still go through a process - and that process is burdened with the 7 wastes above.

You will never reach the perfection of a totally waste free environment but the idea is to continuously improve towards that goal. For a lot more on this topic check out one of the links above. You’ve got nothing to lose and it will make you look at your business in a whole new way.

By. Norman LeBlanc, CPA
Tax Services Group

Labels: Accounting, efficiency, KLR, LeanRI, LeBlanc