Header Right

Coronavirus

COVID-19 is Accelerating Your Risk of Fraud. Here’s How…

by

Did you know that half of U.S. companies uncovered more fraud after the COVID-19 pandemic began than before? So if your business is finally welcoming employees back in person, don’t be surprised if you discover an increased incidence of scams and corruption.

Read on for guidance on how to position your company for a fraud-resistant future.

Assessing new risks as business vulnerability increases

If most of your employees worked from home during the pandemic, managers may have found supervising their activities a challenging task. Even if you kept workers physically on the job, it’s likely been difficult to maintain the usual supervisory levels and anti-fraud procedures in the new world of work.

In either scenario, you may have unknowingly created greater opportunities for dishonest employees to steal. Your employees may have also fallen victim to fraud schemes committed by third parties, such as customers and suppliers — and especially cybercriminals.

Now’s an ideal time to evaluate your internal controls with a fraud risk assessment (FRA). An FRA identifies the potential schemes facing your organization and the processes that can help detect or prevent their occurrence.

For example, let’s say you pivoted from making perfume to producing hand sanitizer during the pandemic. An FRA can look at your vendor vetting and new-hire processes to determine if you require new, more rigorous ones. If you’re now selling products primarily online, an FRA can assist in determining if your cybersecurity protections and payment systems are fit for the job.

Investigating misconduct and building your case

If your FRA reveals a suspicious transaction or an employee makes a fraud allegation, don’t wait to investigate. According to a report by the Association of Certified Fraud Examiners, typical fraud results in a median loss of $8,300 per month — a significant number for the majority of companies.

A thorough fraud investigation requires knowledge of employment law and advanced accounting principles, as well as tremendous attention to detail. A fraud expert — usually a CPA or forensic accountant — can lead the investigation, and establish the appropriate parameters and the type of evidence needed to successfully prosecute. This type of professional can also offer recommendations on how to prevent new fraud incidents through enhanced controls.

Stopping fraudsters in their tracks

A lot has changed in the business world since early 2020. As you navigate novel challenges, don’t forget to keep fraud prevention top of mind. The knowledgeable CPAs at Magone & Company can lend our fraud protection expertise to help your business remain unscathed. Give us a call today at (973) 301-2300.

Just Married? Financial and Legal To-dos for Newlyweds

by

Wedding season is upon us. September and October are typically the most popular months to tie the knot. And despite the pandemic still raging in many parts of the country, the wedding industry is forecasting a temporary boost in revenue, with the number of fall weddings scheduled already close to pre-pandemic levels for now.

Many engaged couples and their families are remaining hopeful and cautiously planning for their big day. Whether you’re preparing for a wedding celebration now or later, it’s important to remember the administrative tasks to address when you say, “I do.”

 Housekeeping chores for name changes

The majority of pre-marital tasks relate to taking your spouse’s name or vice versa. If your name is changing, here’s the protocol after you’re legally wed:

  • Visit your local SSA office. Notify the Social Security Administration (SSA) after you’re married to protect Social Security benefits and credit ratings. To get a new Social Security card, you need to complete an application and provide proof of identification with your old and new names, such as a driver’s license and a marriage certificate. If you were born outside the United States, you’ll also need proof that you’re a citizen or legally in the country. Keep in mind, the SSA doesn’t accept photocopies, notarized copies or your old Social Security card as evidence of identity.
  • Update IRS records. The SSA informs the IRS about name changes, and the tax agency’s records are generally updated 10 days later. If you don’t notify the SSA and file a tax return with your new married name, IRS computers won’t be able to match the new name with the Social Security number.
  • Spread the word. Once your name is officially changed with the SSA, share the good news with everyone else. To avoid confusion, also be sure to update your driver’s license, passport, tax records, voter registration, vehicle registration, utility records, retirement plans and more.

When you get back to work, consult your company’s HR department to evaluate how your change in marital status affects your benefits options. For example, you might save money by eliminating duplicate healthcare or life insurance coverage.

Joining your finances

Are you combining your savings, checking and credit card accounts into one? Even if you decide to maintain separate accounts, it may be helpful to have at least one joint account to pay for shared expenses, such as rent, mortgage costs, household expenses or childcare.

A joint account can also help avoid trouble in certain situations. When a spouse or common law partner dies and there are separate accounts, the survivor will be excluded from the separate account if the estate goes into probate. That could take months. CPAs often help newlyweds establish joint financial goals, including annual budgets and contingency plans in case a spouse passes away, becomes disabled or gets laid off.

Managing legal matters

From a legal perspective, you’ll need to update deeds, wills and power of attorney documents. Your attorney can also discuss the full array of estate planning tools, such as various trusts, that might be relevant now that you’re married.

People who have been previously married bring additional financial issues to the table, especially if there are children, alimony payments and child support involved.

  • Do you have business debts or obligations with your former spouse?
  • Are you required to keep a former spouse on your insurance?
  • Does a former spouse have a claim on your employer-sponsored retirement account?
  • If you’re entitled to assets from a former spouse (for example, an inheritance or other financial interest) will your remarriage end that entitlement?

Marriage is a celebration — but it also involves a lot of paperwork. Don’t let administrative chores prevent you from living happily ever after. Contact the CPAs at Magone & Company at (973) 301-2300 to help tackle the critical tasks head on.

President Signs COVID-19 Relief Act

by

The President signed the COVID-19 Relief Act Sunday night. Echoing a previous post, a lot of uncertainty has been resolved. However, all may not be good in Mudville.

The deductibility of Paycheck Protection Program (PPP) loan expenses is generally seen as a positive result.  However, there is one catch.

If you are a shareholder in an S-Corporation or a member or partner in an LLC or partnership and you do not have basis (i.e., amounts at risk), the loss may not be deductible. Why? Because your PPP loan has not been forgiven in 2020, but will most likely be forgiven in 2021, which creates a mismatch of positive and negative basis adjustments.

The end result will be non-deductibility of your loss, which will be carried forward to 2021 when your loan is actually forgiven.  If you have enough basis, this will not be an issue for you and you can rest easy.

C-Corporations have no issue as it will create a Net Operating Loss (NOL) for future or carryback use.

Magone & Company clients who are concerned about deductibility should call us at (973) 301-2300 to discuss.

PPP News: Stimulus Package Approved by Congress

by

On December 20, 2020, Congress agreed on a $900 billion stimulus package. The President is expected to sign this legislation into law before Christmas.

What does this mean for you?
The uncertainty has finally been resolved! Businesses that received a Paycheck Protection Program (PPP) loan and had it forgiven would now be entitled to a tax deduction for costs covered by the loan. The COVID-19 relief bill clarifies that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided” by Section 1106 of the CARES Act (which has been redesignated as Section 7A of the Small Business Act). This provision applies to loans under both the original PPP and subsequent PPP loans.

The COVID-19 relief bill creates a simplified forgiveness application process for loans of $150,000 or less.  Specifically, borrowers who received less than $150K would now be eligible to submit a simplified, one-page forgiveness application.

There will also be a new round of PPP loans available to businesses that are determined to be “eligible entities.” Businesses would need to demonstrate that the loan would be “necessary to support the on-going operations of the business.”

It appears that an “eligible entity” would be one with fewer than 300 employees that experienced at least a 25% reduction in revenue compared with the prior year or compared with the first quarter of 2020 for new businesses.

Stay tuned…

 

Business Operations, 2020 Edition: Connecting in a COVID World

by

The year 2020 has brought much confusion and turmoil as a result of the COVID-19 global pandemic. As the world went into lockdown, many businesses were forced to close in an effort to decrease the spread of the virus. Unfortunately, many local businesses had to shut down due to financial issues, while others were faced with a new challenge of how to maintain operations in the new age of social distancing.

Large companies such as Google, American Express, Microsoft and Airbnb extended work from home policies indefinitely, with Google extending its policy into 2021. However, not all businesses have the luxury or resources to follow suit.

Fortunately, companies can take advantage of some opportunities despite the current global climate. Below, we will focus on the importance of technology and a change in mindset, which could help businesses continue to grow as if the pandemic never happened.

Technology: An investment, not an expense
Technology is extremely prevalent in the modern workplace. Every day we converse with clients via phone calls and email. Some companies, however, still value their face-to-face communication with clients. Did you know that there are more avenues of technology that can keep people connected?  COVID-19 has given birth to a different means of communication. Since the pandemic, there has been a drastic increase in demand for video calls via platforms such as Zoom, Microsoft Teams and Skype.

Utilizing video calls can help companies maintain relationships with clients as well as build new ones. This is more than a simple telephone call; the use of the video function allows for more meaningful communication because you can read the body language of the client.

At Magone & Company, we’ve made it a point to engage in video calls for almost all our client meetings and are seeing great results. Clients are more willing to help us in performing our procedures since we’ve made an extra effort to be present in their business, even from behind a screen.

Gone is the time of technology being an expense; it is an investment in the business and relationships that cannot be overlooked.

Turning pandemic challenges into business opportunities
Look for opportunities in your organization to change delivery processes or business development strategies using technology. It’s one thing to have the technology, but now you must use it. Some companies may not feel comfortable with the use of video conferencing due to a lack of knowledge, or maybe they just do not feel it will have a positive effect on business.

In contrast, a transition to a more remote based work setting can have significant positive outcomes, such as reduced rental expenses or building operating costs. Reimagine your facility needs as well as your hiring needs. What skill sets are required? Geography may no longer be an impediment to hiring the perfect candidate, though you still need to be cognizant of the state tax effect of such a decision.

For Magone & Company, we’re winning new work outside of our geographic region despite having no offices remotely close to the client location. Our consistent use of video calls allows our employees to build positive relationships and also produce efficient communication to discuss our engagement progress, without ever stepping foot in the office. What was unimaginable in January or February of 2020 is now standard operating procedure — and it’s paying significant dividends.

Embrace the transformation
The year 2020 has taught us that life can change instantaneously. One of the key components to a running a successful business is being open to change. COVID-19 brought more change than most would have hoped for, however this did not stop businesses from assessing new avenues of success.

Restaurants suffered greatly from the imposed lockdowns, which caused owners to develop solutions to help mitigate the risk of closing. As a response, many establishments experimented with outdoor dining and curbside pick-up as a means to generated revenue flow. Others have gotten even more creative. According to an article from the Journal of Accountancy, one particular restaurant owner considered transforming a section of his establishment into a market for customers to buy food.

The same can be accomplished with your business with the right mentality. At Magone & Company, we saw an opportunity to establish a more prominent advisory practice in which we help our clients be better prepared to operate. This proactive, rather than reactive, approach has helped our clients to establish more efficient and effective business strategies. How can you reimagine your business to take advantage of possible opportunities?

Yes, this year has been rough and challenging; however, as outlined above, there is no need to panic. There are ways that businesses can restructure, recalibrate and execute successful business tactics. We have seen positive outcomes to continue to help our clients grow.

 

 

 

PPP Loans: Forgiveness, Guidance and Disclosure

by

In the wake of the coronavirus (COVID-19) pandemic emerged the Coronavirus Aid, Relief and Economic Security (CARES) Act, which included the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA). The SBA incentivized banks to extend PPP loans to those small businesses that qualified by paying a percentage to the banks for the lenders’ fees for processing the PPP loans.

Over 5.2 million loans were approved, totaling more than $525 billion. The deadline to apply for a PPP loan has passed and companies are beginning to apply to their lenders for forgiveness. Financial reporting periods for business are here and the PPP loan must be presented and disclosed properly. There are issues affecting both banks and businesses, regarding the compliance of loan covenants.

Loan forgiveness
Banks that receive PPP loan forgiveness applications must determine if the company has met the proper requirements for forgiveness within 60 days of submission. If the bank approves the forgiveness, they must then submit to the SBA for approval of the forgiveness, which could take up to 90 days. If the SBA approves the forgiveness, then the SBA will pay the bank back for the loan and the company will be relieved of their debt to the bank. If the bank and/or the SBA does not approve the forgiveness, then the company will still owe all or a portion of the loan based on the terms of the loan.

Forgiveness of a PPP loan all depends on if the company complied with the covenants of the loan to ensure the funds were used in accordance with what was intended. Covenants include using 60% of the loan on payroll costs over an 8- or 24-week covered period ending prior to December 31, 2020, among others.

Uncertainty in guidance
There has been uncertainty surrounding presentation and disclosure requirements for financial statements for both for-profit companies and not-for-profit organizations that received a PPP loan. This is affecting many entities with reporting periods that have passed and are coming in the near future.

The question is whether the PPP loan should be recognized as a liability or as revenue at year-end, given the timing of whether the PPP loan has been forgiven. Due to a lack of specific guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) for a program as unique as the PPP, the AICPA developed the Technical Questions and Answer (TQA) 3200.18. The TQA provides multiple models in which to account for the PPP loan in the financial statements.

Presentation and disclosure
The most conservative option to present and disclose the PPP loan in the financial statements is FASB ASC 470, Debt, in which the PPP loan would be presented on the balance sheet as a liability and disclosed as a loan in the footnotes with the proper terms. The loan will not be recognized as revenue until it is forgiven by the SBA. Interest would also be accrued in accordance with the interest method under FASB ASC 835-30.

There are multiple other options that can be used in which a company can recognize revenue prior to the loan being forgiven. Their options include: FASB ASC 958-605, Not-for-Profit Entities: Revenue Recognition, FASB ASC 450-30, Contingencies: Gain Contingencies Model, and International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance.  The preferred method for not-for profit entities is FASB ASC 470 and FASB ASC 958-605. The entity must decide which method best fits its specific situation.

The Payroll Protection Program has been a savior for many businesses during this trying time, however it is not without flaws. Constant changes and lack of authoritative guidance have created uncertainty for banks and companies alike. The PPP loans were originally designed to be forgiven by the banks and the SBA if the covenants were complied with; however, this has become a long process. It also appears that those entities who received larger loans have a more scrutinized process of loan forgiveness as opposed to those that receive a smaller loan amount.

There is no right or wrong answer as to what guidance must be used in order to present and disclose the PPP loan in an entity’s financial statements; it is based on the specific entity’s situation and professional judgment should be used. These issues are of the utmost importance pertaining to how banks handle loan forgiveness and covenants, as well as how companies comply with financial statement presentation and disclosure.

Need help navigating PPP forgiveness? Reach out to Magone & Company or call (973) 301-2300.