Accepting checks? Proceed with caution

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Check fraud costs individuals, businesses and financial institutions as much as $50 billion annually, according to one estimate.

Forged checks have always been a problem, but with inexpensive laser printers and easily accessible paper, check fraud is more prevalent than ever before. Victims include financial institutions, businesses that accept and issue checks, and of course consumers. In most cases, these crimes begin with the theft of a financial document — stealing a blank check from your business, home or vehicle during a burglary, searching for a canceled or old check in the trash, or removing a check from your mailbox.

If your business accepts checks, a little knowledge of the payment system and a good eye can help you distinguish bad from good.

Look for alterations

Checks contain a nine-digit routing number in the bottom left-hand corner. The first two digits indicate the Federal Reserve Bank that will handle the check. A favorite trick of forgers is to change the routing number.

By knowing the routing number of your closest Federal Reserve Bank, you can quickly tell if there’s a problem with the number on a “local” check. If the routing number appears to be altered, there’s a good chance the check is bad. A quick scan can also spot discoloration, which is an indication of check alteration.

Another sign of a potentially fraudulent check: No perforated edge on one side. Checks made on a home printer are typically smooth on all edges.

Sometimes the checks themselves are legitimate, but the person trying to use them isn’t. Payroll and other checks are routinely stolen. That’s one reason why the federal government started electronically depositing Social Security checks.

Inspect signatures

If you’re a retail-type business, consider implementing a policy of matching the check’s signature to a piece of ID like a driver’s license. Instruct employees to not to pay attention to the appearance of the check writer, but rather the appearance of the check itself.

Consider “checks and balances”

Companies issuing checks are at risk, as well. Company executives should examine check stock and account balances regularly to look for discrepancies. The right financial controls can also help deter internal fraud. For example, make sure the same person doesn’t write checks and reconcile bank accounts. Limiting the number of people authorized to write corporate checks reduces the chances of fraud.

Get professional help

An experienced accounting firm can perform an internal control study and recommend ways to minimize employee fraud and theft. In addition, your financial institution may offer fraud deterrent methods like watermarked check stock. Payroll cards, on which the company loads electronic payments, are also gaining in popularity.

Remember that the best defense against the danger of check fraud is a proactive approach that prevents — rather than detects — the crime.

Keeping your firm’s debt in check

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Paying your company’s bills is just as important as collecting your own receivables — and they need just as much management. The good thing is, you have a surprising amount of control over how and when your company’s debts are paid and that provides several advantages.

Start inside the business…

First, adopt good internal controls for the payment of your bills. You need to reconcile both:

  • Purchase orders with the invoices and statements your vendors send
  • Accounts payable subsidiary ledgers with the general accounts payable ledger

Once you have those controls working, consider these ways to effectively manage your company’s debts and maximize your cash flow:

  • Keep interest-earning cashin the bank for as long as possible, but not too long. If you don’t already have an interest-earning account, talk to your banker about a money market or some other interest-bearing vehicle. Consider using cash to pay down your lines of credit.
  • Periodically provide your banker with updated cash-flow projections. An improved cash-flow picture might result in better terms on any open lines of credit. On the other hand, if the projection is less than robust, your banker might increase your line of credit with no bump in the interest rate, depending on your firm’s overall financial condition.
  • Consider borrowing against the cash values of executive life insurance policies. This can reduce your net interest cost, because life insurance loan rates are generally lower than bank rates.

Then work your way out…

Of course, you should be using your suppliers to help finance purchases, as well as freeing up some operating capital, by taking advantage of favorable payment terms.

The more business you give to suppliers, the better the payment terms you should obtain. The goal is to widen the spread between sales revenue and payments, allowing you to maximize your cash balances at very low cost. To that end:

  • Use every possible discount. Have your accounts payable department maintain a calendar-style schedule to ensure payments are made within discount periods.
  • Stretch payments to their latest date.
  • Negotiate extended terms when possible and appropriate.If you’ve been a good customer you might be surprised at what your vendors will agree to.

By implementing smart debt management practices, you’ll streamline your debt payment plan and gain more control over your bottom line.

Why a big tax refund is bad business

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Most people celebrate a big tax refund. And why not? It’s the only time of year we find the government giving us money rather than the opposite.

But a sizeable refund isn’t necessarily a good thing. It means you haven’t been putting that money to good use over the last 12 months. Whether you’re a business owner or comfortably ensconced in a corporate job, you have tons of options to make that money work a lot harder for you. Consider these facts:

You’re investing your money at 0% return. Know the term “ROI”? Trust us, zero isn’t a good one. And not only are you not making any money. With average inflation hovering around 2-3% the past decade, you’re actually losing money when you park it with the government.

You’re not making payments on your business line of credit. If you’re going the interest-only route, instead of overpaying the government you could be paying back the bank. With rates around prime +1.75%, this one’s really a money-losing proposition.

You may owe state tax next year. If you overpaid on your federal income taxes and itemized your deductions, it’s likely you’ll get stuck paying state tax on your federal refund the following year. If you find form 1099-G in your mail, that’s exactly what happened.

You’re not investing in your growth. The cash you “lent” the government last year could’ve funded a variety of revenue-driving initiatives. Think upgraded technology like marketing automation, professional development for your staff, or an investment in SEO to raise your profile in a new vertical.

You’re not funding your future. Tucking money into a 401(k) or other retirement savings vehicle is never a bad idea. And unless it’s a Roth, you gain tax benefits, too.

Start thinking now about better ways to invest a few hundred bucks a month or more. Next year, when everyone’s crowing about their big refund, you’ll know you’re ahead of the game.

Tax Reform Update: Alimony

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Under the current rules, an individual who pays alimony or separate maintenance may deduct an amount equal to the alimony or separate maintenance payments paid during the year as an “above-the-line” deduction. (An “above-the-line” deduction, i.e., a deduction that a taxpayer need not itemize deductions to claim, is generally more valuable for the taxpayer than an itemized deduction.) And, under current rules, alimony and separate maintenance payments are taxable to the recipient spouse (includible in that spouse’s gross income).

However, new rules are coming soon
Under the Tax Cuts and Jobs Act rules, there is no deduction for alimony for the payer. Furthermore, alimony is not gross income to the recipient. So for divorces and legal separations that are executed (i.e., that come into legal existence due to a court order) after 2018, the alimony-paying spouse won’t be able to deduct the payments, and the alimony-receiving spouse won’t include them in gross income or pay federal income tax on them.

These new rules don’t apply to existing divorces and separations
It’s important to emphasize that the current rules continue to apply to already-existing divorces and separations, as well as to divorces and separations that are executed before 2019.

Some taxpayers may want the Tax Cuts and Jobs Act rules to apply to their existing divorce or separation. Under a special provision, if taxpayers have an existing (pre-2019) divorce or separation decree, and they have that agreement legally modified after Dec. 31, 2018, the new rules apply to that modified decree if the modification expressly so provides.

There may be situations where applying these new rules voluntarily is beneficial for the taxpayers, such as a change in the income levels of the alimony payer or the alimony recipient.

To discuss the impact of these rules on your particular situation, please call us at (973) 301-2300.

Bracing for impact: New employment initiatives hitting NJ businesses

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New Jersey Governor Phil Murphy took office earlier this year with an ambitious agenda regarding NJ employment laws. From a minimum wage increase to paid sick leave to companies’ drug and alcohol policies, Murphy’s agenda will impact the way you run your business, one way or another.

Minimum wage increase
New Jersey’s minimum wage currently stands at $8.60 per hour. During his campaign, Murphy vowed to boost it to $15 per hour. While many legislative leaders back this change, there’s still some uncertainty regarding its scope — just teenagers, or all minimum wage workers? It’s possible we’ll see a gradual implementation rather than an abrupt rise across the board. When this becomes effective, employers in minimum wage-heavy industries — fast food, retail, maintenance and personal care, to name just a few — will need to dramatically adjust their labor cost projections.

Legalization of marijuana
Nine states have already legalized recreational marijuana, with New Jersey poised to follow suit. Employers are not obligated to accommodate its use, and employees who test positive are still subject to termination based on your company policy. However, this may change if New Jersey passes an accommodation requirement for medical marijuana usage. Companies will have to review and update current drug and alcohol policies to follow the new law.

Mandated coverage of medication-assisted opioid addiction treatment
Drug addiction is covered under the New Jersey Law Against Discrimination (NJLAD). And employers are required to provide disabled employees with reasonable accommodations. If an eligible employee requests time off for drug treatment, you’ll be required to grant them leave for treatment, regardless of how business will be affected.

Statewide paid sick leave
The governor’s statewide paid sick leave ordinance, which becomes effective in late October 2018, requires employers to grant workers one hour of paid sick leave for every 30 hours worked, with an annual cap of 40 hours. Workers are entitled to time off to care for their own or a family member’s physical or mental illness or injury; when their child’s school is closed because of a public health emergency; or to address domestic or sexual violence. Employers are now in the process of modifying their leave policies to ensure compliance. Smaller companies, unfamiliar with sick leave laws, are more likely to encounter challenges along the way.

With major policy shifts like these poised to take place, it’s time to take a top-down look at how they could affect your HR policies, labor cost projections and cross-training efforts. And don’t forget compliance — failure to meet new requirements could result in severe financial penalties as well as a reputational black eye. Embrace the challenge and you just might uncover opportunities to strengthen your organization and become more competitive.

The connection between PR & profitability: How a proactive strategy can help your bottom line

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Sometimes how leaders react during a business crisis can have more of an impact than the crisis itself.

Remember when Equifax announced that the personal information of over 143 million Americans was compromised in a huge cybersecurity breach? The company claimed they learned about the attack in July 2017, but didn’t share that information with the public until September. They caught flak for not only failing to alert customers, but for a lack transparency in general — the result of a reactive, poorly executed public relations strategy.

So why are CPAs blogging about public relations? Ask Equifax CEO Richard Smith, who stepped down after 12 years at the helm. Shares of Equifax declined more than 23%, and the company logged over $87 million in costs related to the privacy breach.

PR is too often viewed as “feel good” marketing fluff. But when bad news hits the fan, a well-crafted PR strategy can help mitigate its impact on your bottom line — very much the purview of a CFO.

Not convinced? Here are four ways that first-rate PR can help protect your reputation as well as your earnings:

1. Managing media relations during a crisis. Let’s say your company is responsible for an accident that pollutes a local waterway. Now imagine that you’re in the middle of negotiating a major deal when the news breaks. The accident can hurt your company and put the deal in jeopardy. What can you do?

A skilled PR person — whether an employee of your organization or outside counsel from an established public relations firm — knows how to mitigate the potential damage to your brand and assist your organization in properly taking responsibility in a manner that engenders trust, restores brand confidence, stems sales attrition and re-establishes good will.

The problem? Many organizations first contact a PR firm in the midst (or the immediate aftermath) of a crisis, when significant brand damage has already occurred and public trust has eroded, according to Kathleen McMorrow, principal at The Communications Optic, a strategic communications and media advisory firm based in Chatham, NJ.

“The midpoint of a crisis is certainly not the ideal time to onboard a PR firm,” says McMorrow. “A far better strategy is to have established a relationship before a problem even occurs. That way, the firm can be a true partner to your organization, performing at an optimal level to contain the damaging effect of a negative incident far better than someone who just received your panicked call and knows nothing about your company.”

2. Overseeing relationships during litigation. Some types of legal actions, like those involving insurance coverage, for example, are between companies that have ongoing, profitable business relationships. A skilled professional can help balance your lawyer’s strong advocacy on your behalf with sensitivity to the business relationships that keep your company financially healthy.

Here’s where having an established relationship with a PR pro can also pay dividends, according to McMorrow. “When your PR firm is already your trusted advisor, fully engaged with your business strategy and market position, they’ll understand the nuances of your other business relationships and will act to protect them, along with your public image.”

3. Boosting employee morale during tough times. Sometimes, reaching out to the media can help with employee morale. Here’s an example: Your company is forced to make cutbacks, and remaining employees are losing confidence in their future with the firm.

Of course, establishing or maintaining professional development or other performance incentive programs can help keep staff engaged and productive. But think how much more effective your effort would be if a PR professional helped you relay this positive story to the media. Impartial media coverage would go a long way toward reassuring current employees and helping to attract talented candidates in the future. In addition, your strategic partners and vendors might have greater confidence and enthusiasm in their dealings with your organization.

4. Presenting a consistently positive image of your company. The court of public opinion is a powerful force in today’s justice system. Crisis management strategies can be enhanced by a consistently positive image of your company.

We’ve all seen the trend toward frivolous lawsuits and noticed the skepticism toward corporations in light of well-publicized abuses by a few firms. If people see that a company is investing in the community, giving back at charitable events or providing generous volunteer opportunities for employees, they might be less likely to sue for minor injuries or infractions. At the very least, they may accept a reasonable settlement if offered.

CFOs can’t afford to ignore reputation management in today’s litigious world. Rather than viewing a strategic PR plan as fluff, you might want to huddle with your marketing team and learn about the relationships and resources they have in place to prevent bad news from turning into a bottom-line nightmare.