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SPRING 2008 horizons A Publication by RubinBrown LLP Talent: Driving Innovation and Growth INSIDE GETTING READY FOR THE NEXT GENERATION BUILDING TALENT FROM THE INSIDE OUT Page 5 POSITION YOUR COMPANY TO ATTRACT TOP TALENT Page 7 GOT TALENT? Page 9 GENERATION Y – ARE YOU READY? Page 13 AND MORE horizons knowledge. commitment. value. knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS CONTENTS iiWelcome 1-2 RubinBrown New Hire & Awards 4 For Your Money 5-6 International News: Baker Tilly 7-8 Feature Article: Position Your Company to Attract Top Talent 9-11 General Topics: Got Talent? John F. Herber, Jr. CPA Managing Partner Welcome 13-16 Guest Article: Ginny Barnes, G.B. Communications, Inc. Talent. It is what we as business leaders seek for our organizations. It determines if we have the ability to get things done and take our organizations to the next level. At RubinBrown, settling for second best has never been an option, which is one reason we are able to support the growing needs of our clients and our firm with confidence. Industry News 17-18 ARCHITECTS & ENGINEERS Managing talent is an ongoing process at RubinBrown. We invest time and resources to find the best and the brightest individuals in the profession. In this competitive marketplace, however, finding them is not enough. We provide opportunities for development within our organization through a dynamic professional environment. 19-22 CONTRACTORS 23-24 HOME BUILDERS 25-26 LAW FIRMS 27-28 MANUFACTURING & DISTRIBUTION 29-30 MORTGAGE BANKING In this issue, we attempt to define how recruiting and retaining talented individuals will impact our organizations, our customers and our relationships into the next decade. In addition, Dr. Ginny Barnes, from the University of Missouri, defines generation Y and what we, as future employers and mentors, can expect from this emerging talent pool. 31-32 NOT-FOR-PROFIT 33-35 PUBLIC SECTOR INFORMATION Editor: Tim Shannon Graphic Design: Hughes Communications Specialist: Michelle Ward Horizons, a publication of RubinBrown LLP, is designed to provide general information regarding the subject matters covered. Although prepared by professionals, its contents should not be construed as the rendering of advice regarding specific situations. If accounting, legal or other expert assistance is needed, consult with your professional business advisor. Please call RubinBrown with any questions. Located in St. Louis and Kansas City, RubinBrown has become one of the largest accounting and business consulting firms in the Midwest. www.rubinbrown.com St. Louis office RubinBrown One North Brentwood St. Louis, MO 63105 Kansas City office RubinBrown 9300 West 110 th St. Ste. 600 Overland Park, KS 66210 I invite you to read this publication and offer us your feedback. Our goal, as always, is to totally satisfy you, our clients and friends. We hope to hear from you – [email protected]. Pleasant reading. horizons knowledge. commitment. value. knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS CONTENTS iiWelcome 1-2 RubinBrown New Hire & Awards 4 For Your Money 5-6 International News: Baker Tilly 7-8 Feature Article: Position Your Company to Attract Top Talent 9-11 General Topics: Got Talent? John F. Herber, Jr. CPA Managing Partner Welcome 13-16 Guest Article: Ginny Barnes, G.B. Communications, Inc. Talent. It is what we as business leaders seek for our organizations. It determines if we have the ability to get things done and take our organizations to the next level. At RubinBrown, settling for second best has never been an option, which is one reason we are able to support the growing needs of our clients and our firm with confidence. Industry News 17-18 ARCHITECTS & ENGINEERS Managing talent is an ongoing process at RubinBrown. We invest time and resources to find the best and the brightest individuals in the profession. In this competitive marketplace, however, finding them is not enough. We provide opportunities for development within our organization through a dynamic professional environment. 19-22 CONTRACTORS 23-24 HOME BUILDERS 25-26 LAW FIRMS 27-28 MANUFACTURING & DISTRIBUTION 29-30 MORTGAGE BANKING In this issue, we attempt to define how recruiting and retaining talented individuals will impact our organizations, our customers and our relationships into the next decade. In addition, Dr. Ginny Barnes, from the University of Missouri, defines generation Y and what we, as future employers and mentors, can expect from this emerging talent pool. 31-32 NOT-FOR-PROFIT 33-35 PUBLIC SECTOR INFORMATION Editor: Tim Shannon Graphic Design: Hughes Communications Specialist: Michelle Ward Horizons, a publication of RubinBrown LLP, is designed to provide general information regarding the subject matters covered. Although prepared by professionals, its contents should not be construed as the rendering of advice regarding specific situations. If accounting, legal or other expert assistance is needed, consult with your professional business advisor. Please call RubinBrown with any questions. Located in St. Louis and Kansas City, RubinBrown has become one of the largest accounting and business consulting firms in the Midwest. www.rubinbrown.com St. Louis office RubinBrown One North Brentwood St. Louis, MO 63105 Kansas City office RubinBrown 9300 West 110 th St. Ste. 600 Overland Park, KS 66210 I invite you to read this publication and offer us your feedback. Our goal, as always, is to totally satisfy you, our clients and friends. We hope to hear from you – [email protected]. Pleasant reading. RubinBrown New Partners RubinBrown New Managers Theresa Lynch Ruzicka, CPA, joined RubinBrown as partner-in-charge of its Small Business Group. She has more than 20 years of experience in business. Before coming to RubinBrown, Theresa worked at Ernst & Young, Washington University, ProjectProfessionals LLC, and Medical Billing Review LLC. She is a member of the American Institute of Certified Public Accountants and the Missouri Society of Certified Public Accountants. Theresa is involved in the Creve Coeur Economic Development Commission, St. Louis Forum, the Washington University Olin School of Business Alumni Executive Committee, FOCUS St. Louis and the Junior League of St. Louis. She holds a master’s degree in business administration from Washington University and a bachelor’s degree in business administration from Southeast Missouri State University. Elsa Coronado Fortune, CPA, joined RubinBrown as a manager in its Assurance Services Group. She specializes in the preparation and review of small audit engagements, compilations and reviews, as well as all aspects of financial statements, tax planning and consulting services for small business clients. Elsa concentrates on a diverse client base, including those in the firm’s Health Care and Law Firm Services Groups. She provides expertise in financial and management consulting, forecasts and projections, business performance analysis, general ledger implementation and financial statement presentation. Prior to joining RubinBrown, Elsa served as a manager with two other St. Louis accounting firms. She is a member of the American Institute of Certified Public Accountants and the Missouri Society of Certified Public Accountants and volunteers at St. Clement Parish, Cardinal Glennon and St. Martha’s Hall. She also coaches a girls’ club basketball team. Elsa holds a bachelor’s degree in accounting with a minor in Spanish from St. Louis University. Timothy Sims, CPA, joined RubinBrown as a partner in its Tax Consulting and Manufacturing and Distribution Groups. Tim provides several services to RubinBrown clients, including tax planning for mergers, acquisitions and divestitures, tax examination defense, tax litigation support and overall tax consulting and related tax compliance. He has more than 16 years of experience, working most recently for Charter Communications as the vice president of tax. Prior to that, he worked for 12 years at Arthur Andersen LLP. Tim holds a bachelor’s degree in accounting from Southern Illinois University-Carbondale and serves on the university’s School of Accountancy Board of Advisors. He also serves on the governance board for the Make-A-Wish Foundation and is the current secretary. Tim is a member of the American Institute of Certified Public Accountants and the Missouri Society of Certified Public Accountants. 1 u spring 2008 issue Brenda Hebenstreit, CPA, joined RubinBrown as a manager in its Assurance Services Group. Specializing in SEC reporting, Brenda works on audit and internal audit engagements. She brings more than 10 years of experience to RubinBrown. Previously, she served as an audit manager with Arthur Andersen. Brenda is a member of the American Institute of Certified Public Accountants. She holds a bachelor’s degree in business administration, with an emphasis in accounting, from the University of Missouri-St. Louis. Sharon Latimer, CPA, joined RubinBrown as a manager in its Assurance Services Group. Based in RubinBrown’s Kansas City office, she serves clients in the product distribution, service, restaurant and hospitality industries. Sharon brings more than 20 years of public accounting experience in Kansas City to RubinBrown. She is a member of the Kansas Society of Certified Public Accountants and holds a bachelor’s degree in accounting from Kansas State University. Sharon also serves on several committees at Church of the Ascension and for the Olathe School District. knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Nancy MacDonell joined RubinBrown as a manager in its Tax Consulting Group. Nancy brings nearly 10 years of experience to RubinBrown, having previously worked as a federal tax manager at Charter Communications and senior tax staff at Arthur Andersen. Nancy is a member of the Broadband Tax Institute. She holds a master’s degree in accounting from the University of Missouri-St. Louis and a bachelor’s degree in accounting from Western Michigan University. David Richert Jr., CPA, CIA, CISA, CQA, joined RubinBrown as a manager in its Internal Audit Services Group. He specializes in working with clients in the information technology and business process assurance industries. David has more than 25 years of accounting experience, previously working for the Federal Reserve Bank of St. Louis and PricewaterhouseCoopers LLP. He is a member of the American Institute of Certified Public Accountants, the Missouri Society of Certified Public Accountants and the Institute of Internal Auditors. David holds master’s and bachelor’s degrees in business administration from the University of Missouri-St. Louis. Shawn Schaefer, CPA, joined RubinBrown as a manager in its Assurance Services Group. He primarily serves clients in the company’s Real Estate, Contractors and Home Builders Services Groups. In his new role, he manages the audit engagement process, identifies new business opportunities, and assists in team member development and new talent recruitment. Shawn is a member of the Missouri Society of Certified Public Accountants, American Institute of Certified Public Accountants and University of Illinois Alumni Association. He holds a master’s degree in accounting and a bachelor’s degree in accounting from the University of Illinois at Urbana-Champaign. Jeffrey Schuetz joined RubinBrown as a manager in its State and Local Tax Group. In his new position, he manages and provides assistance on all phases of state and local tax compliance. Jeff also offers tax consulting and planning services to clients. He brings nearly 10 years of federal, state and local tax experience to RubinBrown. Jeff previously worked as a tax manager at Insituform Technologies Inc. and as a field auditor with the Missouri Department of Revenue. He holds a bachelor’s degree in accounting from Truman State University. Matthew Sprenger, CPA, joined RubinBrown as a manager in its Tax Consulting Group. He provides accounting and tax consulting to closely held companies in the manufacturing, construction, health care and professional services industries. Matt brings 15 years of accounting experience to RubinBrown, most recently working as a tax manager for another St. Louis accounting firm. He is a member of the American Institute of Certified Public Accountants, the Missouri Society of Certified Public Accountants and the Medical Group Management Association. Matt holds a bachelor’s degree in accounting from the University of Missouri-St. Louis. Awards Felicia Malter, CPA, a partner in the Assurance Services Group at RubinBrown, has been named to the St. Louis Business Journal’s 40 Under 40 Class of 2008. Featured in the Jan.11, 2008, issue of the St. Louis Business Journal, Felicia was selected as one of 40 honorees out of nearly 350 nominations. The recipients, recognized for their achievements before the age of 40, were selected by previous 40 Under 40 winners and St. Louis Business Journal editors. They were honored at a recognition dinner and ceremony on Feb. 7. 2 u spring 2008 issue RubinBrown New Partners RubinBrown New Managers Theresa Lynch Ruzicka, CPA, joined RubinBrown as partner-in-charge of its Small Business Group. She has more than 20 years of experience in business. Before coming to RubinBrown, Theresa worked at Ernst & Young, Washington University, ProjectProfessionals LLC, and Medical Billing Review LLC. She is a member of the American Institute of Certified Public Accountants and the Missouri Society of Certified Public Accountants. Theresa is involved in the Creve Coeur Economic Development Commission, St. Louis Forum, the Washington University Olin School of Business Alumni Executive Committee, FOCUS St. Louis and the Junior League of St. Louis. She holds a master’s degree in business administration from Washington University and a bachelor’s degree in business administration from Southeast Missouri State University. Elsa Coronado Fortune, CPA, joined RubinBrown as a manager in its Assurance Services Group. She specializes in the preparation and review of small audit engagements, compilations and reviews, as well as all aspects of financial statements, tax planning and consulting services for small business clients. Elsa concentrates on a diverse client base, including those in the firm’s Health Care and Law Firm Services Groups. She provides expertise in financial and management consulting, forecasts and projections, business performance analysis, general ledger implementation and financial statement presentation. Prior to joining RubinBrown, Elsa served as a manager with two other St. Louis accounting firms. She is a member of the American Institute of Certified Public Accountants and the Missouri Society of Certified Public Accountants and volunteers at St. Clement Parish, Cardinal Glennon and St. Martha’s Hall. She also coaches a girls’ club basketball team. Elsa holds a bachelor’s degree in accounting with a minor in Spanish from St. Louis University. Timothy Sims, CPA, joined RubinBrown as a partner in its Tax Consulting and Manufacturing and Distribution Groups. Tim provides several services to RubinBrown clients, including tax planning for mergers, acquisitions and divestitures, tax examination defense, tax litigation support and overall tax consulting and related tax compliance. He has more than 16 years of experience, working most recently for Charter Communications as the vice president of tax. Prior to that, he worked for 12 years at Arthur Andersen LLP. Tim holds a bachelor’s degree in accounting from Southern Illinois University-Carbondale and serves on the university’s School of Accountancy Board of Advisors. He also serves on the governance board for the Make-A-Wish Foundation and is the current secretary. Tim is a member of the American Institute of Certified Public Accountants and the Missouri Society of Certified Public Accountants. 1 u spring 2008 issue Brenda Hebenstreit, CPA, joined RubinBrown as a manager in its Assurance Services Group. Specializing in SEC reporting, Brenda works on audit and internal audit engagements. She brings more than 10 years of experience to RubinBrown. Previously, she served as an audit manager with Arthur Andersen. Brenda is a member of the American Institute of Certified Public Accountants. She holds a bachelor’s degree in business administration, with an emphasis in accounting, from the University of Missouri-St. Louis. Sharon Latimer, CPA, joined RubinBrown as a manager in its Assurance Services Group. Based in RubinBrown’s Kansas City office, she serves clients in the product distribution, service, restaurant and hospitality industries. Sharon brings more than 20 years of public accounting experience in Kansas City to RubinBrown. She is a member of the Kansas Society of Certified Public Accountants and holds a bachelor’s degree in accounting from Kansas State University. Sharon also serves on several committees at Church of the Ascension and for the Olathe School District. knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Nancy MacDonell joined RubinBrown as a manager in its Tax Consulting Group. Nancy brings nearly 10 years of experience to RubinBrown, having previously worked as a federal tax manager at Charter Communications and senior tax staff at Arthur Andersen. Nancy is a member of the Broadband Tax Institute. She holds a master’s degree in accounting from the University of Missouri-St. Louis and a bachelor’s degree in accounting from Western Michigan University. David Richert Jr., CPA, CIA, CISA, CQA, joined RubinBrown as a manager in its Internal Audit Services Group. He specializes in working with clients in the information technology and business process assurance industries. David has more than 25 years of accounting experience, previously working for the Federal Reserve Bank of St. Louis and PricewaterhouseCoopers LLP. He is a member of the American Institute of Certified Public Accountants, the Missouri Society of Certified Public Accountants and the Institute of Internal Auditors. David holds master’s and bachelor’s degrees in business administration from the University of Missouri-St. Louis. Shawn Schaefer, CPA, joined RubinBrown as a manager in its Assurance Services Group. He primarily serves clients in the company’s Real Estate, Contractors and Home Builders Services Groups. In his new role, he manages the audit engagement process, identifies new business opportunities, and assists in team member development and new talent recruitment. Shawn is a member of the Missouri Society of Certified Public Accountants, American Institute of Certified Public Accountants and University of Illinois Alumni Association. He holds a master’s degree in accounting and a bachelor’s degree in accounting from the University of Illinois at Urbana-Champaign. Jeffrey Schuetz joined RubinBrown as a manager in its State and Local Tax Group. In his new position, he manages and provides assistance on all phases of state and local tax compliance. Jeff also offers tax consulting and planning services to clients. He brings nearly 10 years of federal, state and local tax experience to RubinBrown. Jeff previously worked as a tax manager at Insituform Technologies Inc. and as a field auditor with the Missouri Department of Revenue. He holds a bachelor’s degree in accounting from Truman State University. Matthew Sprenger, CPA, joined RubinBrown as a manager in its Tax Consulting Group. He provides accounting and tax consulting to closely held companies in the manufacturing, construction, health care and professional services industries. Matt brings 15 years of accounting experience to RubinBrown, most recently working as a tax manager for another St. Louis accounting firm. He is a member of the American Institute of Certified Public Accountants, the Missouri Society of Certified Public Accountants and the Medical Group Management Association. Matt holds a bachelor’s degree in accounting from the University of Missouri-St. Louis. Awards Felicia Malter, CPA, a partner in the Assurance Services Group at RubinBrown, has been named to the St. Louis Business Journal’s 40 Under 40 Class of 2008. Featured in the Jan.11, 2008, issue of the St. Louis Business Journal, Felicia was selected as one of 40 honorees out of nearly 350 nominations. The recipients, recognized for their achievements before the age of 40, were selected by previous 40 Under 40 winners and St. Louis Business Journal editors. They were honored at a recognition dinner and ceremony on Feb. 7. 2 u spring 2008 issue Value. With the right financial partner, it all fits together. For YOUR money knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS responsible to invest the money. Although the parents can guide them and oversee the investment, the children must work together. If the investment does well, maybe the family takes a better vacation. If the investment tanks, maybe the family only goes camping. Other families have had their children run garage sales to teach them how to work together and handle money. It could be interesting to see how children divide up tasks to get the work done. Who will set the prices? Who will get the word out that the garage sale will take place? Who will deal with the customers? How will the profits from the garage sale be split? People with family businesses may want their children to work in the business part-time to gain real world experiences. For more than half a century, RubinBrown has been making a lasting mark on business. Our one-firm approach means you gain access to a comprehensive chain of services, all managed and delivered by an integrated team of experts. It’s how we’re able to provide the kind of insights and solutions you need to succeed. Firm-wide, specialized knowledge. An unmatched commitment to service. That’s the value RubinBrown delivers. Contact us today and discover for yourself the RubinBrown difference. www.RubinBrown.com Certified Public Accountants and Business Consultants Knowledge. Commitment. Value. Teaching Teamwork and Financial Management to Children It is not uncommon to see families bicker over finances. One cause of this problem is that some families are completely unprepared to handle money. For children, it is quite possible that the first time they have to make significant wealth decisions together occurs when one or both of their parents die and they are settling their estate. This event is not a good time for siblings to learn about making group financial decisions. Some parents have started to teach their children about teamwork and money management at an early age. For example, a parent can entrust his/her children with a set sum of money (let’s say $5,000) each year. The children (let’s assume they are ages 13 and 15) will be primarily The point of these exercises is to teach children to work together and make intelligent decisions about money. Simply talking about teamwork and money management may not be enough for children. Tying educational moments to an actual event provides a better chance to have the lesson really sink in. When children reach an appropriate age, it also is important to teach them how the capital markets and investments work and how financial decisions can be made. Providing children with this financial foundation can help them learn to manage money and ensure financial stability when they get older. Your financial advisor can be helpful in this area. The teamwork concept helps strengthen families and prevents hurt feelings. Such lessons are useful for families regardless of their financial status. Any teaching that goes on for several years gives a message to children that it takes time to build a financial base. It also can be useful to teach children your values. Otherwise, the children may adopt the culture of their peers, which might be about undue consumption and spending beyond a person’s means. Questions? Contact: Mike Ferman, CPA Partner RubinBrown Advisors 314.290.3211 [email protected] Assurance | Internal Audit | Litigation Support | Qualified Plan Audit | SEC Advisory | Small Business State and Local Tax | Tax and Compliance | Valuations | Wealth Management 4 u winter 2008 issue 4 u spring 2008 issue Value. With the right financial partner, it all fits together. For YOUR money knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS responsible to invest the money. Although the parents can guide them and oversee the investment, the children must work together. If the investment does well, maybe the family takes a better vacation. If the investment tanks, maybe the family only goes camping. Other families have had their children run garage sales to teach them how to work together and handle money. It could be interesting to see how children divide up tasks to get the work done. Who will set the prices? Who will get the word out that the garage sale will take place? Who will deal with the customers? How will the profits from the garage sale be split? People with family businesses may want their children to work in the business part-time to gain real world experiences. For more than half a century, RubinBrown has been making a lasting mark on business. Our one-firm approach means you gain access to a comprehensive chain of services, all managed and delivered by an integrated team of experts. It’s how we’re able to provide the kind of insights and solutions you need to succeed. Firm-wide, specialized knowledge. An unmatched commitment to service. That’s the value RubinBrown delivers. Contact us today and discover for yourself the RubinBrown difference. www.RubinBrown.com Certified Public Accountants and Business Consultants Knowledge. Commitment. Value. Teaching Teamwork and Financial Management to Children It is not uncommon to see families bicker over finances. One cause of this problem is that some families are completely unprepared to handle money. For children, it is quite possible that the first time they have to make significant wealth decisions together occurs when one or both of their parents die and they are settling their estate. This event is not a good time for siblings to learn about making group financial decisions. Some parents have started to teach their children about teamwork and money management at an early age. For example, a parent can entrust his/her children with a set sum of money (let’s say $5,000) each year. The children (let’s assume they are ages 13 and 15) will be primarily The point of these exercises is to teach children to work together and make intelligent decisions about money. Simply talking about teamwork and money management may not be enough for children. Tying educational moments to an actual event provides a better chance to have the lesson really sink in. When children reach an appropriate age, it also is important to teach them how the capital markets and investments work and how financial decisions can be made. Providing children with this financial foundation can help them learn to manage money and ensure financial stability when they get older. Your financial advisor can be helpful in this area. The teamwork concept helps strengthen families and prevents hurt feelings. Such lessons are useful for families regardless of their financial status. Any teaching that goes on for several years gives a message to children that it takes time to build a financial base. It also can be useful to teach children your values. Otherwise, the children may adopt the culture of their peers, which might be about undue consumption and spending beyond a person’s means. Questions? Contact: Mike Ferman, CPA Partner RubinBrown Advisors 314.290.3211 [email protected] Assurance | Internal Audit | Litigation Support | Qualified Plan Audit | SEC Advisory | Small Business State and Local Tax | Tax and Compliance | Valuations | Wealth Management 4 u winter 2008 issue 4 u spring 2008 issue INTERNATIONAL NEWS Baker Tilly International Joe Pimmel, RubinBrown St. Louis Office RubinBrown: Building Talent from the Inside Out What? From the inside out? What do you mean? I mean internationally. RubinBrown is building our team members into stronger professionals every year through the Baker Tilly International Secondment Program. Through this innovative approach, RubinBrown sends two to four of its promising team members overseas to network firms across the globe. This past year we sent team members to Glasgow, Scotland, and Melbourne, Australia, to learn about local accounting practices, firm structure and processes, and the local culture. If you ask team members who have traveled abroad in this program, you will hear their excitement in “meeting new people, observing how other people do things, and reflecting on how things are going back home.” What does the secondment program through Baker Tilly International offer its member firms? For the staff of RubinBrown, the secondment program: • Provides international work experience • Provides personal and professional development • Facilitates partnership through working with others and strengthens personal relationships within the network For RubinBrown, the secondment program: • Assists with staff retention and motivation • Aids in recruitment • Provides international work experience for staff development • Facilitates partnerships between firms and strengthens firm relationships in the network As our recent secondment program participants will tell those who ask, “Work was the important part of the experience.” A secondee (as secondment program participants are dubbed) works with firms that vary greatly in areas of expertise and local size. “We learn about other firms, their office size and the work environment (open work tables versus cubicles).” A secondee also learns about how other firms are managed and how they service their clients on a day-to-day basis. “Managers sit with the staff, which differs from RubinBrown.” For smaller firms, “They need paper more than we do. Our approach is moving to a paperless environment.” For secondees visiting larger network offices, they learn “how they (the firm) attempt to meet their objectives – how they handle a paperless audit and how they handle their work papers, audit sampling, scheduling and time off, internships and recruiting, and how they use technology to provide services to their clients.” 5 u spring winter 2007 2008 issue issue Chester Moyer, RubinBrown Kansas City Office Not only does the secondee learn international accounting practices, new ideas and best practices from other firms, they also grow personally. According to one participant, “Many of the individuals I met during the secondment had a much different view on life than the ‘average American’ – they all seemed to make every available opportunity to travel or experience something new. Many Americans discuss 'back-packing' through Europe, taking long holidays, moving to foreign cultures, etc., but rarely make good on these thoughts. Most of the people I met during this experience had the same thoughts but followed through on them and had incredible stories and experiences to share.” Not only does the experience grow and enrich the team members of RubinBrown and the firm, but RubinBrown secondees also are ambassadors to the world. One of our recent secondees remarked, “I gained an appreciation for the reach of RubinBrown. Those we visited know about St. Louis and our culture through RubinBrown by knowing team members from RubinBrown even if they never travel to St. Louis. Those things that we define as St. Louis or KC, like the Rams or the Chiefs, are little known in foreign lands. It is RubinBrown that is St. Louis and KC to them.” RubinBrown is an active participant within the secondment program of Baker Tilly International because we focus on building talented professionals to provide services to our clients doing business in a growing global economy. Questions? Contact: Jim Castellano, CPA Chairman 314-290-3300 [email protected] International World Conference The Baker Tilly International World Conference recently was held in “The City of Lights” – Paris, France. Staying consistent with the theme of collaboration and embracing change, member firms from around the world met to discuss issues related to international communications and the global economy. Conference attendees included 340 delegates from more than 70 countries and more than 190 guests. RubinBrown’s Jim Castellano, chairman of Baker Tilly International, provided the session’s opening remarks. The conference formally commenced with a reception in the Pyramide de Louvre, where Castellano thanked everyone for their commitment to the network and congratulated Baker Tilly International on 20 successful years. Castellano commented on the scale of change in the profession over the past two decades. He added that Baker Tilly International has matched the progress of the profession but continues to challenge each region for further growth and to operate as a business. Robin Oakley, European political editor for CNN, provided an overview of the EU as it celebrates its 50th birthday. Oakley discussed whether the EU has been a success story and presented the need to strike a balance between economic reform and social protection. He felt the key test will be how the EU handles Turkey’s Union admission; immigration; the United States, China and Russia; and energy security. To date, Baker Tilly International is the 8th largest accounting and consulting network in the world, with 138 independent firms representing 104 nations and annual aggregate billings of more than $2.5 billion. New members to Baker Tilly International represent Armenia, Azerbaijan, Indonesia, Moldova, Mongolia, Spain and Zambia. 66 u u spring winter 2008 2007 issue INTERNATIONAL NEWS Baker Tilly International Joe Pimmel, RubinBrown St. Louis Office RubinBrown: Building Talent from the Inside Out What? From the inside out? What do you mean? I mean internationally. RubinBrown is building our team members into stronger professionals every year through the Baker Tilly International Secondment Program. Through this innovative approach, RubinBrown sends two to four of its promising team members overseas to network firms across the globe. This past year we sent team members to Glasgow, Scotland, and Melbourne, Australia, to learn about local accounting practices, firm structure and processes, and the local culture. If you ask team members who have traveled abroad in this program, you will hear their excitement in “meeting new people, observing how other people do things, and reflecting on how things are going back home.” What does the secondment program through Baker Tilly International offer its member firms? For the staff of RubinBrown, the secondment program: • Provides international work experience • Provides personal and professional development • Facilitates partnership through working with others and strengthens personal relationships within the network For RubinBrown, the secondment program: • Assists with staff retention and motivation • Aids in recruitment • Provides international work experience for staff development • Facilitates partnerships between firms and strengthens firm relationships in the network As our recent secondment program participants will tell those who ask, “Work was the important part of the experience.” A secondee (as secondment program participants are dubbed) works with firms that vary greatly in areas of expertise and local size. “We learn about other firms, their office size and the work environment (open work tables versus cubicles).” A secondee also learns about how other firms are managed and how they service their clients on a day-to-day basis. “Managers sit with the staff, which differs from RubinBrown.” For smaller firms, “They need paper more than we do. Our approach is moving to a paperless environment.” For secondees visiting larger network offices, they learn “how they (the firm) attempt to meet their objectives – how they handle a paperless audit and how they handle their work papers, audit sampling, scheduling and time off, internships and recruiting, and how they use technology to provide services to their clients.” 5 u spring winter 2007 2008 issue issue Chester Moyer, RubinBrown Kansas City Office Not only does the secondee learn international accounting practices, new ideas and best practices from other firms, they also grow personally. According to one participant, “Many of the individuals I met during the secondment had a much different view on life than the ‘average American’ – they all seemed to make every available opportunity to travel or experience something new. Many Americans discuss 'back-packing' through Europe, taking long holidays, moving to foreign cultures, etc., but rarely make good on these thoughts. Most of the people I met during this experience had the same thoughts but followed through on them and had incredible stories and experiences to share.” Not only does the experience grow and enrich the team members of RubinBrown and the firm, but RubinBrown secondees also are ambassadors to the world. One of our recent secondees remarked, “I gained an appreciation for the reach of RubinBrown. Those we visited know about St. Louis and our culture through RubinBrown by knowing team members from RubinBrown even if they never travel to St. Louis. Those things that we define as St. Louis or KC, like the Rams or the Chiefs, are little known in foreign lands. It is RubinBrown that is St. Louis and KC to them.” RubinBrown is an active participant within the secondment program of Baker Tilly International because we focus on building talented professionals to provide services to our clients doing business in a growing global economy. Questions? Contact: Jim Castellano, CPA Chairman 314-290-3300 [email protected] International World Conference The Baker Tilly International World Conference recently was held in “The City of Lights” – Paris, France. Staying consistent with the theme of collaboration and embracing change, member firms from around the world met to discuss issues related to international communications and the global economy. Conference attendees included 340 delegates from more than 70 countries and more than 190 guests. RubinBrown’s Jim Castellano, chairman of Baker Tilly International, provided the session’s opening remarks. The conference formally commenced with a reception in the Pyramide de Louvre, where Castellano thanked everyone for their commitment to the network and congratulated Baker Tilly International on 20 successful years. Castellano commented on the scale of change in the profession over the past two decades. He added that Baker Tilly International has matched the progress of the profession but continues to challenge each region for further growth and to operate as a business. Robin Oakley, European political editor for CNN, provided an overview of the EU as it celebrates its 50th birthday. Oakley discussed whether the EU has been a success story and presented the need to strike a balance between economic reform and social protection. He felt the key test will be how the EU handles Turkey’s Union admission; immigration; the United States, China and Russia; and energy security. To date, Baker Tilly International is the 8th largest accounting and consulting network in the world, with 138 independent firms representing 104 nations and annual aggregate billings of more than $2.5 billion. New members to Baker Tilly International represent Armenia, Azerbaijan, Indonesia, Moldova, Mongolia, Spain and Zambia. 66 u u spring winter 2008 2007 issue FEATURE ARTICLE knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Position Your Company to Attract Top Talent Remember the days when you ran an ad and received hundreds of qualified candidates? Demographics, increased accounting college credit hours (to sit for CPA) and, until recently, a strong economy have created a shortage of top talent. That doesn’t mean you should give up. There are many talented candidates – you just need to know how to position your company to attract them. Based on our research and work with employers across the country, we have identified the distinguishing traits of organizations that attract, retain and motivate the best employees. The bottom line is: • Money is a necessary – but not sufficient – condition to attract, retain and motivate good employees. You and I will go to work for a paycheck and benefits plan. But we won’t really do work (at least our best work), unless something else is present. • It is the quality of work itself and our relationships with others at work that draw us to the best organizations and keep us there, performing at peak effectiveness. Expanding further, here are the detailed steps to make sure your company is ready to draw in the top talent. 1. Get excited about your company. Make a commitment to create a workplace with purpose, excitement and mutual alignment. Refocus your energy on your employees from a whole-life prospectus. Poll your employees on what they appreciate about their jobs and co-workers. Knowing what makes your company unique and communicating that message is the foundation for 7 u spring 2008 issue building a workforce that is committed and energized to achieving the organization’s goals. 2. Make lifestyle part of your offer. Many employees are just as concerned about quality of life as they are about the amount of money a position offers. Make your company more attractive to potential employees by offering things such as flexible hours and work at home options. Among the more unusual benefits, some of our clients offer their employees an option to bring their pet to work. You may not be able to do this, but add your signature by offering some type of perk that your employees will appreciate. 3. Offer an employee benefit program. In times when employees get to pick and choose companies, an employee benefit program moves from their wish list to their necessities list. For successful employee recruitment, your company needs to offer employees at least life, medical and dental coverage. If your business is small, check with business organizations like the Chamber of Commerce about more inexpensive insurance. 4. Start a profit sharing program and/or a 401(k) plan. There is no better way to give employees a stake in your company’s success. For businesses that are going somewhere, profit sharing and/or a 401(k) plan can be a powerful inducement to work for you instead of someone else. 5. Offer employees upward mobility. Most employees are looking for positions that offer opportunities for advancement. What will your position offer? The chance to develop new skills? A stepping stone to a position with more responsibilities? More money after a certain amount of time on the job? Whatever it is, in terms of attracting employees, be sure to communicate future advancement possibilities. 6. It’s the M word again (money). One common mistake businesses make when creating a position is to base the salary on their budget rather than the market realities. If the going rate for a two-year accounting professional is $55,000 a year, why would someone accept $40,000 a year? Save yourself time, money and training in the long run by paying market rates to get top talent. 7. Create an employee incentive program. Employee incentive programs not only reward good employee performance, but also give prospective employees something to look forward to if they come to work for you. Whether it’s an annual company-paid retreat or a program in which employees collect points that they can trade in for cash, employee incentive programs can increase your chances of attracting top talent. 8. Sweeten the pot. When competition is fierce, a plain old-fashioned signing bonus may be what is needed to attract the employee you want. If you choose to do a signing bonus, it should be large enough to matter, and the bonus should be contingent on a certain amount of time of employment. (Otherwise you will be running a revolving door as people sign up, take the money and run.) 9. Develop a relationship with a recruiter. Invite the recruiter into your company to learn as much about your company, its culture and a wish list of your needs. When a recruiter gets excited about your company, he/she can be in a constant search mode for quality talent for you. There also should be an agreement that the recruiter will not solicit your own employees. 10. Be transparent. Employees love to be a part of the big picture. Communicate goals and objectives of the company. Develop a mission statement and strategic objectives, then communicate it at all levels of your organization. Attracting and retaining employees is as much a marketing issue as it is a management issue. Developing and promoting a positive organization and reminding employees of the value of being part of it are critical to recruiting and retaining top talent. Questions? Contact: Tamara Vasquez President ABACUS Recruiting 314-878-5522 [email protected] 8 u spring 2008 issue FEATURE ARTICLE knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Position Your Company to Attract Top Talent Remember the days when you ran an ad and received hundreds of qualified candidates? Demographics, increased accounting college credit hours (to sit for CPA) and, until recently, a strong economy have created a shortage of top talent. That doesn’t mean you should give up. There are many talented candidates – you just need to know how to position your company to attract them. Based on our research and work with employers across the country, we have identified the distinguishing traits of organizations that attract, retain and motivate the best employees. The bottom line is: • Money is a necessary – but not sufficient – condition to attract, retain and motivate good employees. You and I will go to work for a paycheck and benefits plan. But we won’t really do work (at least our best work), unless something else is present. • It is the quality of work itself and our relationships with others at work that draw us to the best organizations and keep us there, performing at peak effectiveness. Expanding further, here are the detailed steps to make sure your company is ready to draw in the top talent. 1. Get excited about your company. Make a commitment to create a workplace with purpose, excitement and mutual alignment. Refocus your energy on your employees from a whole-life prospectus. Poll your employees on what they appreciate about their jobs and co-workers. Knowing what makes your company unique and communicating that message is the foundation for 7 u spring 2008 issue building a workforce that is committed and energized to achieving the organization’s goals. 2. Make lifestyle part of your offer. Many employees are just as concerned about quality of life as they are about the amount of money a position offers. Make your company more attractive to potential employees by offering things such as flexible hours and work at home options. Among the more unusual benefits, some of our clients offer their employees an option to bring their pet to work. You may not be able to do this, but add your signature by offering some type of perk that your employees will appreciate. 3. Offer an employee benefit program. In times when employees get to pick and choose companies, an employee benefit program moves from their wish list to their necessities list. For successful employee recruitment, your company needs to offer employees at least life, medical and dental coverage. If your business is small, check with business organizations like the Chamber of Commerce about more inexpensive insurance. 4. Start a profit sharing program and/or a 401(k) plan. There is no better way to give employees a stake in your company’s success. For businesses that are going somewhere, profit sharing and/or a 401(k) plan can be a powerful inducement to work for you instead of someone else. 5. Offer employees upward mobility. Most employees are looking for positions that offer opportunities for advancement. What will your position offer? The chance to develop new skills? A stepping stone to a position with more responsibilities? More money after a certain amount of time on the job? Whatever it is, in terms of attracting employees, be sure to communicate future advancement possibilities. 6. It’s the M word again (money). One common mistake businesses make when creating a position is to base the salary on their budget rather than the market realities. If the going rate for a two-year accounting professional is $55,000 a year, why would someone accept $40,000 a year? Save yourself time, money and training in the long run by paying market rates to get top talent. 7. Create an employee incentive program. Employee incentive programs not only reward good employee performance, but also give prospective employees something to look forward to if they come to work for you. Whether it’s an annual company-paid retreat or a program in which employees collect points that they can trade in for cash, employee incentive programs can increase your chances of attracting top talent. 8. Sweeten the pot. When competition is fierce, a plain old-fashioned signing bonus may be what is needed to attract the employee you want. If you choose to do a signing bonus, it should be large enough to matter, and the bonus should be contingent on a certain amount of time of employment. (Otherwise you will be running a revolving door as people sign up, take the money and run.) 9. Develop a relationship with a recruiter. Invite the recruiter into your company to learn as much about your company, its culture and a wish list of your needs. When a recruiter gets excited about your company, he/she can be in a constant search mode for quality talent for you. There also should be an agreement that the recruiter will not solicit your own employees. 10. Be transparent. Employees love to be a part of the big picture. Communicate goals and objectives of the company. Develop a mission statement and strategic objectives, then communicate it at all levels of your organization. Attracting and retaining employees is as much a marketing issue as it is a management issue. Developing and promoting a positive organization and reminding employees of the value of being part of it are critical to recruiting and retaining top talent. Questions? Contact: Tamara Vasquez President ABACUS Recruiting 314-878-5522 [email protected] 8 u spring 2008 issue GENERAL TOPICS knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Got Talent? If you are struggling to find top finance and accounting talent, you are in good company. Attracting and retaining talent continues to be a leading management issue facing all forms of entities – from banks to accounting firms, from small private to large public enterprises, from notfor-profits to government organizations. The competition for talent is fiercer than ever before, and there is no end in sight. The question is: How do you position your organization to win this battle? Uncovering strategies to forge this war on talent must begin by understanding the underlying issues, and there are a number of them. Demand is at an all-time high due to a perfect storm of economic conditions, demographics and increased regulation. Although the subprime mortgage crisis is calling into question the current economic stability, the unemployment rates are still relatively low and have been for a number of years. In other words, there is an overall shortage of talent in the marketplace, and the shortage of finance and accounting professionals is much more extreme given some additional complicating factors. The supply of available talent is scarce at all levels of experience. It is the most experienced talent that is most troublesome. More finance and accounting professionals will retire in the next 10 years than in the last three decades combined. We will lose a generation of the workforce that not only has a wealth of knowledge, but also represents a generation of career-minded, loyal employees. This shift occurs at the same time a new generation, generation Y, is entering the workforce. This new generation’s free agent mentality will indubitably complicate the talent issue, as they are much more prone to change employers multiple times over the course of their careers. It was with this backdrop that the now infamous corporate scandals of Enron and WorldCom shook the financial markets. The regulators answered with the Sarbanes-Oxley Act of 2002, an unprecedented law virtually doubling the need for finance and accounting talent overnight. In addition, the resulting lack of overall investor confidence has created a cascading effect of similar requirements for both private and public sector organizations. As such, the demand for talent is at an alltime high and likely will continue to increase, straining an already depleted supply. Organizations will need to be creative to win the talent game. Here are a few of the strategies being employed to combat the talent crisis. As with most solutions, the answer doesn’t lie with one big action but a series of small actions. 1. Embrace superior corporate governance practices. Think about it. More than any other employees, finance and accounting professionals appreciate the value of good corporate governance practices. Given the wealth of employment opportunities awaiting these individuals, why would they settle for an organization that doesn’t embrace these principles? Given the all-too-recent corporate scandals, setting a strong tone at the top for your organization will have the derivative effect of attracting top talent. 2. Revisit your campus recruiting strategy. To get the best graduates, the best organizations are hiring interns from the junior ranks. To get the best interns, these same organizations are now seeking out sophomores for top intern slots. There is a certain stickiness with interns. They are much more likely to accept full-time offers of employment than non-interns. Moreover, you have a lowrisk opportunity to evaluate their on the job performance before committing to them for the long-term. Send the heavy hitters to campuses. Don’t just rely on your recruiters to visit campuses and interview. If you want to differentiate your organization, bring members of top management to meet the recruits, and give them firsthand knowledge of your corporate culture and the real opportunities that await them. 9 u spring 2008 issue 3. Accelerate the hiring process. Recruits are entertaining multiple employment offers, including offers from your competition. Don’t delay in making hiring decisions. According to a recent Hackett Group (a Boston consulting firm) survey, the average Fortune 2000 company spends 52 days selecting a candidate, whereas the best companies make their hiring decisions 31 percent faster. Accelerate interviews, personality tests and background checks. Try to have all interviews take place in one visit. 4. Consider outsourcing opportunities. The scarcity of talent is so severe that outsourcing may make good sense for some employers. Focus on your business and let professional firms recruit and train top talent so that you can gain access to it when you need it. 5. Employ online recruiting tactics. Organizations need to look beyond their local markets for top talent. Take advantage of the Internet to broaden your search. Look for opportunities to hire talent relocating into your market. 6. Connect with your existing employees. As challenging as it is to recruit new employees, organizations should invest an equal amount of time and energy in retaining existing employees. People don’t quit an entity; they quit people. Leaving is easier for them if there is not an emotional connection between them and your people. Create a mentoring program that focuses on building relationships with staff. The stronger the emotional bond with your staff, the more difficult it will be for them to leave. Create a flexible work environment to attract and retain non-traditional employees, including working mothers. Utilize technology to allow for work outside the office or from home. Embrace diversity and expand your traditional hiring profile. Not only will you open up a new talent pool; your organization will be stronger in the long run. 10 u spring 2008 issue GENERAL TOPICS knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Got Talent? If you are struggling to find top finance and accounting talent, you are in good company. Attracting and retaining talent continues to be a leading management issue facing all forms of entities – from banks to accounting firms, from small private to large public enterprises, from notfor-profits to government organizations. The competition for talent is fiercer than ever before, and there is no end in sight. The question is: How do you position your organization to win this battle? Uncovering strategies to forge this war on talent must begin by understanding the underlying issues, and there are a number of them. Demand is at an all-time high due to a perfect storm of economic conditions, demographics and increased regulation. Although the subprime mortgage crisis is calling into question the current economic stability, the unemployment rates are still relatively low and have been for a number of years. In other words, there is an overall shortage of talent in the marketplace, and the shortage of finance and accounting professionals is much more extreme given some additional complicating factors. The supply of available talent is scarce at all levels of experience. It is the most experienced talent that is most troublesome. More finance and accounting professionals will retire in the next 10 years than in the last three decades combined. We will lose a generation of the workforce that not only has a wealth of knowledge, but also represents a generation of career-minded, loyal employees. This shift occurs at the same time a new generation, generation Y, is entering the workforce. This new generation’s free agent mentality will indubitably complicate the talent issue, as they are much more prone to change employers multiple times over the course of their careers. It was with this backdrop that the now infamous corporate scandals of Enron and WorldCom shook the financial markets. The regulators answered with the Sarbanes-Oxley Act of 2002, an unprecedented law virtually doubling the need for finance and accounting talent overnight. In addition, the resulting lack of overall investor confidence has created a cascading effect of similar requirements for both private and public sector organizations. As such, the demand for talent is at an alltime high and likely will continue to increase, straining an already depleted supply. Organizations will need to be creative to win the talent game. Here are a few of the strategies being employed to combat the talent crisis. As with most solutions, the answer doesn’t lie with one big action but a series of small actions. 1. Embrace superior corporate governance practices. Think about it. More than any other employees, finance and accounting professionals appreciate the value of good corporate governance practices. Given the wealth of employment opportunities awaiting these individuals, why would they settle for an organization that doesn’t embrace these principles? Given the all-too-recent corporate scandals, setting a strong tone at the top for your organization will have the derivative effect of attracting top talent. 2. Revisit your campus recruiting strategy. To get the best graduates, the best organizations are hiring interns from the junior ranks. To get the best interns, these same organizations are now seeking out sophomores for top intern slots. There is a certain stickiness with interns. They are much more likely to accept full-time offers of employment than non-interns. Moreover, you have a lowrisk opportunity to evaluate their on the job performance before committing to them for the long-term. Send the heavy hitters to campuses. Don’t just rely on your recruiters to visit campuses and interview. If you want to differentiate your organization, bring members of top management to meet the recruits, and give them firsthand knowledge of your corporate culture and the real opportunities that await them. 9 u spring 2008 issue 3. Accelerate the hiring process. Recruits are entertaining multiple employment offers, including offers from your competition. Don’t delay in making hiring decisions. According to a recent Hackett Group (a Boston consulting firm) survey, the average Fortune 2000 company spends 52 days selecting a candidate, whereas the best companies make their hiring decisions 31 percent faster. Accelerate interviews, personality tests and background checks. Try to have all interviews take place in one visit. 4. Consider outsourcing opportunities. The scarcity of talent is so severe that outsourcing may make good sense for some employers. Focus on your business and let professional firms recruit and train top talent so that you can gain access to it when you need it. 5. Employ online recruiting tactics. Organizations need to look beyond their local markets for top talent. Take advantage of the Internet to broaden your search. Look for opportunities to hire talent relocating into your market. 6. Connect with your existing employees. As challenging as it is to recruit new employees, organizations should invest an equal amount of time and energy in retaining existing employees. People don’t quit an entity; they quit people. Leaving is easier for them if there is not an emotional connection between them and your people. Create a mentoring program that focuses on building relationships with staff. The stronger the emotional bond with your staff, the more difficult it will be for them to leave. Create a flexible work environment to attract and retain non-traditional employees, including working mothers. Utilize technology to allow for work outside the office or from home. Embrace diversity and expand your traditional hiring profile. Not only will you open up a new talent pool; your organization will be stronger in the long run. 10 u spring 2008 issue You’ve gained the knowledge. Do you have the commitment? GENERAL TOPICS Got Talent? (cont.) 7. Create a leadership development program. Identify your top performers and develop their talent and leadership skills. This investment will not only serve to invest in the future, but also retain this group for longer periods of time. Top management must be actively involved in such a program. Get participants involved in all aspects of the business through special projects and job shadowing opportunities. Involve them in real business problems, not just case studies. 8. Don’t settle for second best. Although it may be tempting to settle for “B” players in a tight labor market, it will damage your organization in the long run. Don’t be too stringent on the specific qualifications and experience you desire; rather, look for candidates with overall intelligence, a desire to learn and energy. You can teach these candidates what they need to learn. We are in the midst of a war for finance and accounting talent that will only become more competitive. Given the current economic conditions, demographics and regulatory environment, organizations will need to consider alternative strategies to remain successful. We hope the above ideas give you a fresh perspective on this challenge as well as new insights on how to overcome it. Commitment. It’s a special value here at RubinBrown. It describes the professional pride in the work we do. It also defines the personal care we take in the relationships we build – with our clients, with our partners and, of course, with one another. Questions? Contact: Fred Kostecki, CPA Partner-in-Charge Assurance Services Group 314-290-3398 [email protected] For the career minded individual looking to grow and advance in the accounting profession, it means an or We invite you to explore the RubinBrown difference. Steve Newstead, CPA, FLMI Partner-in-Charge Internal Audit Services Group 314-290-3325 [email protected] www.RubinBrown.com unparalleled opportunity to work alongside a team of leading experts. To grow your knowledge by drawing upon the global resources of Baker Tilly International. And ultimately to realize the rewards that come from a firm-wide commitment to being the very best. Certified Public Accountants and Business Consultants Knowledge. Commitment. Value. Assurance | Internal Audit | Litigation Support | Qualified Plan Audit | SEC Advisory | Small Business 11 u spring 2008 issue State and Local Tax | Tax and Compliance | Valuations | Wealth Management You’ve gained the knowledge. Do you have the commitment? GENERAL TOPICS Got Talent? (cont.) 7. Create a leadership development program. Identify your top performers and develop their talent and leadership skills. This investment will not only serve to invest in the future, but also retain this group for longer periods of time. Top management must be actively involved in such a program. Get participants involved in all aspects of the business through special projects and job shadowing opportunities. Involve them in real business problems, not just case studies. 8. Don’t settle for second best. Although it may be tempting to settle for “B” players in a tight labor market, it will damage your organization in the long run. Don’t be too stringent on the specific qualifications and experience you desire; rather, look for candidates with overall intelligence, a desire to learn and energy. You can teach these candidates what they need to learn. We are in the midst of a war for finance and accounting talent that will only become more competitive. Given the current economic conditions, demographics and regulatory environment, organizations will need to consider alternative strategies to remain successful. We hope the above ideas give you a fresh perspective on this challenge as well as new insights on how to overcome it. Commitment. It’s a special value here at RubinBrown. It describes the professional pride in the work we do. It also defines the personal care we take in the relationships we build – with our clients, with our partners and, of course, with one another. Questions? Contact: Fred Kostecki, CPA Partner-in-Charge Assurance Services Group 314-290-3398 [email protected] For the career minded individual looking to grow and advance in the accounting profession, it means an or We invite you to explore the RubinBrown difference. Steve Newstead, CPA, FLMI Partner-in-Charge Internal Audit Services Group 314-290-3325 [email protected] www.RubinBrown.com unparalleled opportunity to work alongside a team of leading experts. To grow your knowledge by drawing upon the global resources of Baker Tilly International. And ultimately to realize the rewards that come from a firm-wide commitment to being the very best. Certified Public Accountants and Business Consultants Knowledge. Commitment. Value. Assurance | Internal Audit | Litigation Support | Qualified Plan Audit | SEC Advisory | Small Business 11 u spring 2008 issue State and Local Tax | Tax and Compliance | Valuations | Wealth Management Guest Article Dr. Ginny Barnes, G.B. Communications, Inc. Here are four core traits that, in general, the workplace will focus on as it prepares for recruiting, hiring and retaining this generation Y workforce: 1. Achievement Goals: Fame, Fortune, Leadership and Trust Generation Y Are You Ready for Them? Generation Y – Who Are They? Members of generation Y, born between 1980 and 1994, are the children of 78 million baby boomers. Reaching numbers of more than 60 million, they are an enormously powerful, savvy and diverse market. They have grown up in a time in which the world was no longer safe and reliable, recalling events such as school shootings, the Oklahoma City bombing, Sept. 11, terrorists’ activities and the Iraq War. They have been exposed to AIDS, drugs, rapidly improving technology, reality TV, talk shows and MTV. They also benefited from growing up in a 13 u spring 2008 issue CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Four Core Traits of Generation Y @ Work Guess Who Is Coming to Work? Yes, they are here! Generation Y, otherwise known as the millennial generation, has grown up and is now job hunting. Companies are responding to this potential employee market with mixed reactions. On the one hand, the generation Y market exhibits competitive and attractive applicants. On the other hand, this generation comes with a set of expectations and behaviors unlike those of generation X, boomers or the matures. Companies are competing for the best applicant, yet often are unprepared for the recruitment, interview, hiring and coaching process that creates a successful hire. What are the characteristics of this generation, and how can you position your company processes to be successful? knowledge. commitment. value. 2. Strong Parent Connection Impacts Problem Solving 3. Desire for Psychological Comfort: Fear of Failure 4. Hyperlink Communication and Impacted Attention Span time of economic growth and personal wealth for parents and the country, creating a menu-driven society and options for busy schedules, activities and lots of things given to them. They were the first generation to grow up having the global world view at their fingertips. Achievement Goals: Fame, Fortune, Leadership and Trust Sociologists and psychologists disagree about the future of generation Y. They have been described as being the next great “hero generation,” indicating their traits as being extraordinarily well rounded, having high selfesteem, being civic-minded, and raised to believe they could do anything. Others describe them as the next “me generation,” indicating their self-focus, expectation of entitlement, and desire for fame and fortune. Members of generation Y are optimistic about their futures and fairly cynical about current leadership. Because of the current situation of the world (unsafe, war, terrorism, etc.), they do not see that current leadership is producing the type of world they want. So, the status of being a leader is not based on old patterns of hierarchy, title or age. Rather, for generation Y, good leadership is based on trust, which is built one day at a time by the actions of the leader. This criteria for leadership means that the person who leads can be anyone worthy of that trust, and that produces a free agent mindset of “I can do it my way.” While the jury is still out on the future of generation Y, what is most important are the core traits they exhibit as a generation and what can be done in the workplace to support, challenge and prepare this generation for the years to come. Often, other generations like baby boomers misinterpret the questioning behavior of generation Y as a lack of respect for authority or seniority, instead of understanding that the primary quality search for leadership is trust. Generation Y not only seeks a trustworthy leader, but also wants seniority to trust them and give them the opportunity to produce good ideas and quality results. Then, generation Y’s goal is to gain recognition (fame) and ultimately fortune. The difficulty for both seniority and this generation is in the timing factor. Generation Y expects this rise to leadership to come faster, while boomers believe one should “pay ones’ dues.” Thus, the conflict for leadership and achievement are strong issues in the workplace with generation Y. It is important for seniority and managers to communicate frequently the pattern for leadership development within the organization, documenting the benchmarks necessary for leadership success. This communication is done most effectively during recruitment, interviewing and at hiring with mentors and coaches, where both parties can share dreams, ideas and conflicts. Strong Parent Connection: Impacts Ability to Problem Solve The term “helicopter parent” has been overused and appeared as front-line news in studying and analyzing generation Y. Parents were described as swooping in to rescue the young adult from problems and situations. Stories proliferated in every college setting as generation Y became a freshman. College admissions counselors and academicians began describing the unwarranted parent interference as “Blackhawk helicopter” because of parental intrusion into grades, faculty decisions and social issues. The relationship of generation Y to its parent is both a positive and negative influence on the young adult and the workplace. Basically, the strong parent connection has been largely responsible for producing young adults who have been sheltered from consequences, have weak problem-solving skills, have a high sense of entitlement and have a high expectation of being cared for and being served. Stories (which may by now have reached fable proportion) abound on both the college campus and the workplace environment about how parents rescue little Johnny or Mary. When Johnny’s mother asks his teacher to give him a wake-up call so he won’t miss class, or mom and dad sit in on the job interview or do the salary 14 u spring 2008 issue Guest Article Dr. Ginny Barnes, G.B. Communications, Inc. Here are four core traits that, in general, the workplace will focus on as it prepares for recruiting, hiring and retaining this generation Y workforce: 1. Achievement Goals: Fame, Fortune, Leadership and Trust Generation Y Are You Ready for Them? Generation Y – Who Are They? Members of generation Y, born between 1980 and 1994, are the children of 78 million baby boomers. Reaching numbers of more than 60 million, they are an enormously powerful, savvy and diverse market. They have grown up in a time in which the world was no longer safe and reliable, recalling events such as school shootings, the Oklahoma City bombing, Sept. 11, terrorists’ activities and the Iraq War. They have been exposed to AIDS, drugs, rapidly improving technology, reality TV, talk shows and MTV. They also benefited from growing up in a 13 u spring 2008 issue CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Four Core Traits of Generation Y @ Work Guess Who Is Coming to Work? Yes, they are here! Generation Y, otherwise known as the millennial generation, has grown up and is now job hunting. Companies are responding to this potential employee market with mixed reactions. On the one hand, the generation Y market exhibits competitive and attractive applicants. On the other hand, this generation comes with a set of expectations and behaviors unlike those of generation X, boomers or the matures. Companies are competing for the best applicant, yet often are unprepared for the recruitment, interview, hiring and coaching process that creates a successful hire. What are the characteristics of this generation, and how can you position your company processes to be successful? knowledge. commitment. value. 2. Strong Parent Connection Impacts Problem Solving 3. Desire for Psychological Comfort: Fear of Failure 4. Hyperlink Communication and Impacted Attention Span time of economic growth and personal wealth for parents and the country, creating a menu-driven society and options for busy schedules, activities and lots of things given to them. They were the first generation to grow up having the global world view at their fingertips. Achievement Goals: Fame, Fortune, Leadership and Trust Sociologists and psychologists disagree about the future of generation Y. They have been described as being the next great “hero generation,” indicating their traits as being extraordinarily well rounded, having high selfesteem, being civic-minded, and raised to believe they could do anything. Others describe them as the next “me generation,” indicating their self-focus, expectation of entitlement, and desire for fame and fortune. Members of generation Y are optimistic about their futures and fairly cynical about current leadership. Because of the current situation of the world (unsafe, war, terrorism, etc.), they do not see that current leadership is producing the type of world they want. So, the status of being a leader is not based on old patterns of hierarchy, title or age. Rather, for generation Y, good leadership is based on trust, which is built one day at a time by the actions of the leader. This criteria for leadership means that the person who leads can be anyone worthy of that trust, and that produces a free agent mindset of “I can do it my way.” While the jury is still out on the future of generation Y, what is most important are the core traits they exhibit as a generation and what can be done in the workplace to support, challenge and prepare this generation for the years to come. Often, other generations like baby boomers misinterpret the questioning behavior of generation Y as a lack of respect for authority or seniority, instead of understanding that the primary quality search for leadership is trust. Generation Y not only seeks a trustworthy leader, but also wants seniority to trust them and give them the opportunity to produce good ideas and quality results. Then, generation Y’s goal is to gain recognition (fame) and ultimately fortune. The difficulty for both seniority and this generation is in the timing factor. Generation Y expects this rise to leadership to come faster, while boomers believe one should “pay ones’ dues.” Thus, the conflict for leadership and achievement are strong issues in the workplace with generation Y. It is important for seniority and managers to communicate frequently the pattern for leadership development within the organization, documenting the benchmarks necessary for leadership success. This communication is done most effectively during recruitment, interviewing and at hiring with mentors and coaches, where both parties can share dreams, ideas and conflicts. Strong Parent Connection: Impacts Ability to Problem Solve The term “helicopter parent” has been overused and appeared as front-line news in studying and analyzing generation Y. Parents were described as swooping in to rescue the young adult from problems and situations. Stories proliferated in every college setting as generation Y became a freshman. College admissions counselors and academicians began describing the unwarranted parent interference as “Blackhawk helicopter” because of parental intrusion into grades, faculty decisions and social issues. The relationship of generation Y to its parent is both a positive and negative influence on the young adult and the workplace. Basically, the strong parent connection has been largely responsible for producing young adults who have been sheltered from consequences, have weak problem-solving skills, have a high sense of entitlement and have a high expectation of being cared for and being served. Stories (which may by now have reached fable proportion) abound on both the college campus and the workplace environment about how parents rescue little Johnny or Mary. When Johnny’s mother asks his teacher to give him a wake-up call so he won’t miss class, or mom and dad sit in on the job interview or do the salary 14 u spring 2008 issue Guest Article Dr. Ginny Barnes, G.B. Communications, Inc. (cont.) negotiations for little Mary’s new job, we tend to laugh and shake our heads in disbelief. Yet, this strong connection between parents and generation Y continues in the workplace environment and has resulted in companies opening “parent interface offices” to deal with specific questions related to recruiting, interviewing, hiring and negotiating salary. What implication does this interference have for the workplace and for managers? Often, generation Y anticipates and can benefit from a “surrogate” parent in the form of a company coach or role model from whom to learn the ropes and assist with problem solving. A trusting role model or coach can teach and mentor a generation Y employee to success. As generation Y matures, it will be necessary for them to create appropriate boundaries with their own parents while maintaining good relationships. Having a mentor or coach in the workplace can help the young employee become more independent while being encouraged and supported. Desire for Psychological Comfort: Fear of Failure Increasing numbers of generation Y are seeking mental health services, with an increase in reported panic attacks and stress. In focus groups, individuals report fear of failing parents, pressure in school and panic when unable to locate parents to help solve problems or have someone to talk to. While generation Y appears to have high self-esteem, it often hides the shallow or fragile lack of confidence that is impacted by dealing with failure. Because of the support of parents who often step in to solve problems for generation Y, there appears to be a disturbing lack of critical thinking and problem-solving skills. Thinking long-term, planning and evaluating risk are weak life skills of this generation, and those inabilities lead to psychological discomfort when problems surface that they do not know how to solve. This generation often received awards, trophies and stars for competing in team activities in which they may or may not have excelled. Just showing up often resulted in an award. As a result of being a recipient of much praise, photography and awards, generation Y often expects immediate feedback 15 u spring 2008 issue and praise when working on a project or simply fulfilling the job description. Silence is often seen as a negative response and has the potential to impact performance. This perception has implications for seniors or managers in a company who believe that simply doing a job is the award in and of itself – not so for this generation, who wants and gives immediate feedback on relationships, work, activities, etc. They are not afraid to challenge authority or speak out. However, they respond negatively to threats of discipline or consequences and are apt to network or negotiate to solve a problem in order to secure comfort for themselves. Both educators and company managers cite examples of parents, officials and friends stepping in to assist with solutions when negativity or stress results. Generation Y’s need for support may go unnoticed in the workplace due to the appearance of high self-esteem initially and only begin to surface when problems or conflict occur or award is not timely enough. Seniority and managers should be observant about potential problems, negativity and depression or decreased work performance due to lack of a company network, feedback or successful progress. Keeping open communications with generation Y employees and helping them understand the operations of a company and where they can go for help within the company will provide needed help. knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS multi-focused, managing many ideas at one time and hyperlinking or hopscotching from one idea to another. They indicate a decline in undivided attention span and, as a result, the old linear patterns of meetings, project organization or communication don’t work as effectively with these generational workers. They want to work quickly, create ideas and projects as they come, in any order, and put many things together to create one. The best way for generation Y to work is in teams, where ideas can be expressed, feedback is quick and members can work on different parts of the whole. When generation Y’s are asked to work on a project solo, they will often network and create their own web of support and communication to hyperlink the project to completion. Maximize the talents of generation Y by creating virtual and real teams for work-related issues and projects. Provide a variety of ways for them to network and communicate on and off the company property. Create a variety of patterns for workdays that are different from the standard 8-5, five days a week model. This variety will maximize their efforts and motivate them to creativity and performance. To prepare for generation Y, companies need to be flexible and analyze why and how they currently conduct business internally. Admit it to yourself! Generation Y brings new ways of thinking, behaving and expecting. This innovation doesn’t have to be a negative thing. Ginny Barnes, President/Owner G.B. Communications Inc. Dr. Ginny Barnes is president and owner of G. B. Communications Inc., a consulting and training firm in Columbia, Mo. Barnes specializes in areas of diversity, communication, conflict management and organization development. She is the author of “Eight Steps of Highly Effective Negotiations: Letting the Other Person Have Your Way” and is the 2006 recipient of the Telly Award for her production of a diversity video titled “Can You See Me Now?” Hyperlinking Communication and Impacted Attention Span This generation is fast-paced and has been exposed to many activities in life, with access to fine-tuned, portable technologies. They are accustomed to being chronically stimulated since childhood and as a result get bored easily and don’t know how to deal with dead time. While their fast-paced, get-it-done attitude is a plus for employers in terms of fast performance, they also exhibit the need for instant gratification, getting it done and moving on to something else. So, commitment to a long project, dealing with slow bureaucratic wheels, longterm decision-making tools and staying the course to pay attention to accuracy and details are not necessarily their best features! As experiential learners, they are The relationship between your company and your new generation employee can be a success by: 1. Developing trust in leadership relationships. 2. Improving problem solving and critical thinking skills. 3. Communicating steps for performance success. 4. Developing new ways to work and communicate. 16 u spring 2008 issue Guest Article Dr. Ginny Barnes, G.B. Communications, Inc. (cont.) negotiations for little Mary’s new job, we tend to laugh and shake our heads in disbelief. Yet, this strong connection between parents and generation Y continues in the workplace environment and has resulted in companies opening “parent interface offices” to deal with specific questions related to recruiting, interviewing, hiring and negotiating salary. What implication does this interference have for the workplace and for managers? Often, generation Y anticipates and can benefit from a “surrogate” parent in the form of a company coach or role model from whom to learn the ropes and assist with problem solving. A trusting role model or coach can teach and mentor a generation Y employee to success. As generation Y matures, it will be necessary for them to create appropriate boundaries with their own parents while maintaining good relationships. Having a mentor or coach in the workplace can help the young employee become more independent while being encouraged and supported. Desire for Psychological Comfort: Fear of Failure Increasing numbers of generation Y are seeking mental health services, with an increase in reported panic attacks and stress. In focus groups, individuals report fear of failing parents, pressure in school and panic when unable to locate parents to help solve problems or have someone to talk to. While generation Y appears to have high self-esteem, it often hides the shallow or fragile lack of confidence that is impacted by dealing with failure. Because of the support of parents who often step in to solve problems for generation Y, there appears to be a disturbing lack of critical thinking and problem-solving skills. Thinking long-term, planning and evaluating risk are weak life skills of this generation, and those inabilities lead to psychological discomfort when problems surface that they do not know how to solve. This generation often received awards, trophies and stars for competing in team activities in which they may or may not have excelled. Just showing up often resulted in an award. As a result of being a recipient of much praise, photography and awards, generation Y often expects immediate feedback 15 u spring 2008 issue and praise when working on a project or simply fulfilling the job description. Silence is often seen as a negative response and has the potential to impact performance. This perception has implications for seniors or managers in a company who believe that simply doing a job is the award in and of itself – not so for this generation, who wants and gives immediate feedback on relationships, work, activities, etc. They are not afraid to challenge authority or speak out. However, they respond negatively to threats of discipline or consequences and are apt to network or negotiate to solve a problem in order to secure comfort for themselves. Both educators and company managers cite examples of parents, officials and friends stepping in to assist with solutions when negativity or stress results. Generation Y’s need for support may go unnoticed in the workplace due to the appearance of high self-esteem initially and only begin to surface when problems or conflict occur or award is not timely enough. Seniority and managers should be observant about potential problems, negativity and depression or decreased work performance due to lack of a company network, feedback or successful progress. Keeping open communications with generation Y employees and helping them understand the operations of a company and where they can go for help within the company will provide needed help. knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS multi-focused, managing many ideas at one time and hyperlinking or hopscotching from one idea to another. They indicate a decline in undivided attention span and, as a result, the old linear patterns of meetings, project organization or communication don’t work as effectively with these generational workers. They want to work quickly, create ideas and projects as they come, in any order, and put many things together to create one. The best way for generation Y to work is in teams, where ideas can be expressed, feedback is quick and members can work on different parts of the whole. When generation Y’s are asked to work on a project solo, they will often network and create their own web of support and communication to hyperlink the project to completion. Maximize the talents of generation Y by creating virtual and real teams for work-related issues and projects. Provide a variety of ways for them to network and communicate on and off the company property. Create a variety of patterns for workdays that are different from the standard 8-5, five days a week model. This variety will maximize their efforts and motivate them to creativity and performance. To prepare for generation Y, companies need to be flexible and analyze why and how they currently conduct business internally. Admit it to yourself! Generation Y brings new ways of thinking, behaving and expecting. This innovation doesn’t have to be a negative thing. Ginny Barnes, President/Owner G.B. Communications Inc. Dr. Ginny Barnes is president and owner of G. B. Communications Inc., a consulting and training firm in Columbia, Mo. Barnes specializes in areas of diversity, communication, conflict management and organization development. She is the author of “Eight Steps of Highly Effective Negotiations: Letting the Other Person Have Your Way” and is the 2006 recipient of the Telly Award for her production of a diversity video titled “Can You See Me Now?” Hyperlinking Communication and Impacted Attention Span This generation is fast-paced and has been exposed to many activities in life, with access to fine-tuned, portable technologies. They are accustomed to being chronically stimulated since childhood and as a result get bored easily and don’t know how to deal with dead time. While their fast-paced, get-it-done attitude is a plus for employers in terms of fast performance, they also exhibit the need for instant gratification, getting it done and moving on to something else. So, commitment to a long project, dealing with slow bureaucratic wheels, longterm decision-making tools and staying the course to pay attention to accuracy and details are not necessarily their best features! As experiential learners, they are The relationship between your company and your new generation employee can be a success by: 1. Developing trust in leadership relationships. 2. Improving problem solving and critical thinking skills. 3. Communicating steps for performance success. 4. Developing new ways to work and communicate. 16 u spring 2008 issue INDUSTRy u ARCHITECTS & ENGINEERS knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS The Key to a Firm’s Success Architecture and engineering firm leaders know that talented, motivated employees are the key to a firm’s success. The challenge lies not only in attracting the best personnel, but also in developing and retaining them. So, what are some ways a firm can attract, develop and retain desired employees? Listed below are suggestions in each of these three main categories. Attracting Talent A tried and true method to attract top talent is to recruit. Interviewing may only occur a few times each year; however, recruiting for top talent should be a continuous process. Firms should be cognizant of where to search for talent. Search opportunities should include academic universities and search firms, as well as inquiries among current personnel for acquaintances. If universities are deemed the top talent pool, architecture and engineering firms should establish solid relationships with both professors and students. Firms may offer academic scholarships, give presentations to undergraduate classes, and provide internships to undergraduates as a means of establishing relationships with top recruits. Firms also must value the power of alumni. While no firm wants to lose talented employees, it unfortunately happens. A firm whose alumni are viewed as outstanding talent can take pride in being a developer of such talent. If it becomes widely known that a company actively develops its personnel, recruiting and attracting talent becomes a much easier process. 17 u spring 2008 issue Firms also may offer incentives such as flexible work schedules. Part-time and alternative work weeks are some examples of flexible arrangements. Developing Talent Developing employees is crucial to the longevity of a firm and its ultimate success. Top executives must make the development of top talent a priority. They also should be involved in the formulation of core competencies that employees must master to excel within the firm. Having a foundation of core competencies enhances the performance review process. Competencies can be referenced in an evaluation session. They also can be used as benchmarks when evaluating top performers. This process allows for open communication in determining where an employee is, where he/she wants to be, and what areas can be improved upon to help him/ her accomplish his/her career goals within the firm. Training, training and more training! There are a variety of avenues to take when increasing training for employees. On-the-job training, in-house courses taught by more experienced company personnel, and tuition reimbursement for academic courses and degrees are just a few examples. Some firms also offer a flexible work schedule to those employees interested in obtaining a more advanced degree with the hope that once the degree is completed, the employee will return to full-time status with increased performance ability. Retaining Talent A “growth from within” strategy allows top talent to see career advancement as a possible reward for their efforts. At times, it is necessary to hire from outside the firm in order to fill key gaps. However, if the standard practice is to promote from within, top employees will see career advancement as an attainable goal within the firm without feeling the need to leave to achieve it. Training, as previously mentioned, is key to developing employees, but it also may be used to enhance cultural integration as a method of retaining employees. Training sessions may be held off-site, and employees may spend as little as a few hours to a few weeks together. These training sessions enable employees to develop bonding relationships while still achieving necessary technical competencies. Top executives need to act as both advisers and mentors to top talent. As advisers, they can provide answers to daily task-oriented questions or inquiries relating to the firm’s practices or policies and procedures. An adviser also assists with personal assessments of strengths and areas for improvement. As a mentor, the relationship is deeper to enhance long-term personal growth and career development. Mentors may need to work personally with their protégés to address both personal and professional issues. It requires tremendous planning and strategy to reach or maintain the status of a top-tier architecture and engineering firm. The best firms, however, realize the importance of not only attracting top talent, but also developing and retaining that talent. Questions? Contact: Mark Jansen, CPA Partner-in-Charge Architects & Engineers Services Group 314-290-3208 [email protected] If it becomes widely known that a company actively develops its personnel, recruiting and attracting talent becomes a much easier process. 18 u spring 2008 issue INDUSTRy u ARCHITECTS & ENGINEERS knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS The Key to a Firm’s Success Architecture and engineering firm leaders know that talented, motivated employees are the key to a firm’s success. The challenge lies not only in attracting the best personnel, but also in developing and retaining them. So, what are some ways a firm can attract, develop and retain desired employees? Listed below are suggestions in each of these three main categories. Attracting Talent A tried and true method to attract top talent is to recruit. Interviewing may only occur a few times each year; however, recruiting for top talent should be a continuous process. Firms should be cognizant of where to search for talent. Search opportunities should include academic universities and search firms, as well as inquiries among current personnel for acquaintances. If universities are deemed the top talent pool, architecture and engineering firms should establish solid relationships with both professors and students. Firms may offer academic scholarships, give presentations to undergraduate classes, and provide internships to undergraduates as a means of establishing relationships with top recruits. Firms also must value the power of alumni. While no firm wants to lose talented employees, it unfortunately happens. A firm whose alumni are viewed as outstanding talent can take pride in being a developer of such talent. If it becomes widely known that a company actively develops its personnel, recruiting and attracting talent becomes a much easier process. 17 u spring 2008 issue Firms also may offer incentives such as flexible work schedules. Part-time and alternative work weeks are some examples of flexible arrangements. Developing Talent Developing employees is crucial to the longevity of a firm and its ultimate success. Top executives must make the development of top talent a priority. They also should be involved in the formulation of core competencies that employees must master to excel within the firm. Having a foundation of core competencies enhances the performance review process. Competencies can be referenced in an evaluation session. They also can be used as benchmarks when evaluating top performers. This process allows for open communication in determining where an employee is, where he/she wants to be, and what areas can be improved upon to help him/ her accomplish his/her career goals within the firm. Training, training and more training! There are a variety of avenues to take when increasing training for employees. On-the-job training, in-house courses taught by more experienced company personnel, and tuition reimbursement for academic courses and degrees are just a few examples. Some firms also offer a flexible work schedule to those employees interested in obtaining a more advanced degree with the hope that once the degree is completed, the employee will return to full-time status with increased performance ability. Retaining Talent A “growth from within” strategy allows top talent to see career advancement as a possible reward for their efforts. At times, it is necessary to hire from outside the firm in order to fill key gaps. However, if the standard practice is to promote from within, top employees will see career advancement as an attainable goal within the firm without feeling the need to leave to achieve it. Training, as previously mentioned, is key to developing employees, but it also may be used to enhance cultural integration as a method of retaining employees. Training sessions may be held off-site, and employees may spend as little as a few hours to a few weeks together. These training sessions enable employees to develop bonding relationships while still achieving necessary technical competencies. Top executives need to act as both advisers and mentors to top talent. As advisers, they can provide answers to daily task-oriented questions or inquiries relating to the firm’s practices or policies and procedures. An adviser also assists with personal assessments of strengths and areas for improvement. As a mentor, the relationship is deeper to enhance long-term personal growth and career development. Mentors may need to work personally with their protégés to address both personal and professional issues. It requires tremendous planning and strategy to reach or maintain the status of a top-tier architecture and engineering firm. The best firms, however, realize the importance of not only attracting top talent, but also developing and retaining that talent. Questions? Contact: Mark Jansen, CPA Partner-in-Charge Architects & Engineers Services Group 314-290-3208 [email protected] If it becomes widely known that a company actively develops its personnel, recruiting and attracting talent becomes a much easier process. 18 u spring 2008 issue INDUSTRy u Contractors knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Reimbursing Business Expenses The end of one calendar year and the beginning of the next is a good time to revisit topics related to wages, W-2 reporting and expense reimbursements. Contractors frequently reimburse employees for travel, lodging, meals and other incidental expenses, and it is important to be aware of the requirements in this area. Reimbursed Business Expenses of the Employee An employer may reimburse an employee for travel, meals and entertainment expenses incurred while performing services for the employer. This reimbursement can and is done in many ways. At one end of the spectrum, employees are required to turn in receipts and other documentation in order to be reimbursed. At the other end, the employer may just give the employee an amount of money the employer believes is adequate to cover any expenses the employee may incur and not require the employee to report back on actual expenses incurred. In between, there are nearly as many separate methods as there are employers. As far as the IRS is concerned, all these reimbursement plans fit into two categories. Either the plan is an accountable plan or a non-accountable plan. The tax treatment of the reimbursement, for both the employer and the employee, depends on whether the employer has an accountable plan or a non-accountable plan. In an accountable plan, the employee is required to provide certain required documentation (see discussion below) to the employer. All other plans are considered non-accountable plans. If expenses are reimbursed under an accountable plan, the employer deducts the amount allowable as travel, meals and entertainment expense. The amounts are not treated as income to the employee; therefore, no amounts are required to be included on the employee’s W-2, no employment taxes need to be paid, etc. The 50 percent limitation on the deduction for meals and entertainment applies to the employer’s deduction of meals and entertainment expenses that are reimbursed. The employee excludes the reimbursement from income. Under a non-accountable plan, the IRS rules require the employer to report the reimbursement as taxable wages to the employee on Form W-2. The employer receives a deduction for compensation expense but also is required to withhold income and Social Security taxes. The employer also is responsible for the employment taxes on the payment. The employee is allowed to deduct business expenses that are reimbursed under a non-accountable plan, as well as expenses that are not reimbursed, as miscellaneous itemized deductions. The portion of the expenses representing meals and entertainment is subject to the 50 percent limit on deductions for meals and entertainment. As miscellaneous itemized deductions, these expenses also are subject to the 2 percent of Adjusted Gross Income limitation. These limitations result in the employee paying tax on a portion of the payment. Accountable Plan To qualify as an accountable plan, employees must: 1) Have paid or incurred deductible expenses while performing services as an employee; 2) Adequately account to the employer for these expenses within a reasonable period of time; and Adequate Accounting Employees must adequately account to the employer for their travel, meals and entertainment expenses. They must give the employer documentary evidence of their travel, mileage and other employee business expenses. This evidence should include items such as receipts, along with a statement of expenses, an account book, a day planner or similar record in which the employee has entered each expense at or near the time the expense was incurred. To minimize the administrative effort required to meet these rules, the employer may use a per diem plan. The rules of per diem plans are discussed below. Excess Reimbursement Any amount advanced to the employee that exceeds the amount adequately accounted for by the employee must be returned to the employer within a reasonable period of time. Reasonable Period of Time Interpretation of a “reasonable period of time” depends upon the facts and circumstances of the situation. Actions that take place within the periods listed below will be treated as occurring within a reasonable period of time. • The employer reimburses an expense within 30 days of the time the employee incurred the expense. • The employee adequately accounts for the expense within 60 days after the expense was paid or incurred. • The employee returns any excess reimbursement within 120 days after the expense was paid or incurred. • The employer gives the employee a periodic statement, at least quarterly, that asks the employee to either return or adequately account for outstanding advances, and the employee complies within 120 days of the date of the statement. 3) Return any excess reimbursement or allowance within a reasonable period of time. An arrangement under which the employer advances money to the employees is treated as meeting the third requirement above only if the following requirements also are met: a) The advance is reasonably calculated not to exceed the amount of anticipated expenses. b) The employer makes the advance within a reasonable period of time. 19 u spring 2008 issue 20 u spring 2008 issue INDUSTRy u Contractors knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Reimbursing Business Expenses The end of one calendar year and the beginning of the next is a good time to revisit topics related to wages, W-2 reporting and expense reimbursements. Contractors frequently reimburse employees for travel, lodging, meals and other incidental expenses, and it is important to be aware of the requirements in this area. Reimbursed Business Expenses of the Employee An employer may reimburse an employee for travel, meals and entertainment expenses incurred while performing services for the employer. This reimbursement can and is done in many ways. At one end of the spectrum, employees are required to turn in receipts and other documentation in order to be reimbursed. At the other end, the employer may just give the employee an amount of money the employer believes is adequate to cover any expenses the employee may incur and not require the employee to report back on actual expenses incurred. In between, there are nearly as many separate methods as there are employers. As far as the IRS is concerned, all these reimbursement plans fit into two categories. Either the plan is an accountable plan or a non-accountable plan. The tax treatment of the reimbursement, for both the employer and the employee, depends on whether the employer has an accountable plan or a non-accountable plan. In an accountable plan, the employee is required to provide certain required documentation (see discussion below) to the employer. All other plans are considered non-accountable plans. If expenses are reimbursed under an accountable plan, the employer deducts the amount allowable as travel, meals and entertainment expense. The amounts are not treated as income to the employee; therefore, no amounts are required to be included on the employee’s W-2, no employment taxes need to be paid, etc. The 50 percent limitation on the deduction for meals and entertainment applies to the employer’s deduction of meals and entertainment expenses that are reimbursed. The employee excludes the reimbursement from income. Under a non-accountable plan, the IRS rules require the employer to report the reimbursement as taxable wages to the employee on Form W-2. The employer receives a deduction for compensation expense but also is required to withhold income and Social Security taxes. The employer also is responsible for the employment taxes on the payment. The employee is allowed to deduct business expenses that are reimbursed under a non-accountable plan, as well as expenses that are not reimbursed, as miscellaneous itemized deductions. The portion of the expenses representing meals and entertainment is subject to the 50 percent limit on deductions for meals and entertainment. As miscellaneous itemized deductions, these expenses also are subject to the 2 percent of Adjusted Gross Income limitation. These limitations result in the employee paying tax on a portion of the payment. Accountable Plan To qualify as an accountable plan, employees must: 1) Have paid or incurred deductible expenses while performing services as an employee; 2) Adequately account to the employer for these expenses within a reasonable period of time; and Adequate Accounting Employees must adequately account to the employer for their travel, meals and entertainment expenses. They must give the employer documentary evidence of their travel, mileage and other employee business expenses. This evidence should include items such as receipts, along with a statement of expenses, an account book, a day planner or similar record in which the employee has entered each expense at or near the time the expense was incurred. To minimize the administrative effort required to meet these rules, the employer may use a per diem plan. The rules of per diem plans are discussed below. Excess Reimbursement Any amount advanced to the employee that exceeds the amount adequately accounted for by the employee must be returned to the employer within a reasonable period of time. Reasonable Period of Time Interpretation of a “reasonable period of time” depends upon the facts and circumstances of the situation. Actions that take place within the periods listed below will be treated as occurring within a reasonable period of time. • The employer reimburses an expense within 30 days of the time the employee incurred the expense. • The employee adequately accounts for the expense within 60 days after the expense was paid or incurred. • The employee returns any excess reimbursement within 120 days after the expense was paid or incurred. • The employer gives the employee a periodic statement, at least quarterly, that asks the employee to either return or adequately account for outstanding advances, and the employee complies within 120 days of the date of the statement. 3) Return any excess reimbursement or allowance within a reasonable period of time. An arrangement under which the employer advances money to the employees is treated as meeting the third requirement above only if the following requirements also are met: a) The advance is reasonably calculated not to exceed the amount of anticipated expenses. b) The employer makes the advance within a reasonable period of time. 19 u spring 2008 issue 20 u spring 2008 issue INDUSTRy u Contractors knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Use of Per Diems A per diem is an allowance for travel, lodging, meals and incidental expenses that is calculated based on the number of days of an employee’s travel. An employer can reimburse employees under an accountable plan based on travel days, miles or some other fixed allowance. The employee is considered to have accounted to the employer the amount of the expense that does not exceed the rates established by the federal government. By using a per diem allowance, the employee is not required to submit receipts to the employer to meet the accountable plan rules. However, employees are still required to substantiate the time, place and business purpose of the trip. Federal Per Diem Rates: The federal rate can be figured using one of the following: • The regular federal per diem rate is defined as the highest amount the federal government will pay to its employees while away from home on travel. Rates differ depending upon the travel location. The federal government publishes the rates for each location annually. The published rates are effective for the period from Oct. 1 of one year to Sept. 30 of the next. The rules allow employers to use the same rates for the entire calendar year. The rates for 2008 can be found in IRS Revenue Procedure 2007-63. • The standard meal allowance is the meals and incidental expenses portion of the regular federal per diem rate. The standard meal allowance is the only per diem allowed if the employer pays for or reimburses actual lodging expenses or the employee is not reasonably believed to have incurred any lodging expenses. Whether the employer uses the regular federal per diem rate to cover all expenses (including lodging) or the standard meal allowance, the amount of the reimbursement that represents the meals and incidental expenses is subject to the 50 percent disallowance of meal and entertainment expenses. • The high-low method is a simplified method of computing the federal per diem rate for lodging and meal expenses. It eliminates the need to keep a current 21 u spring 2008 issue list of the per diem rate in effect for each city. Instead, each travel location is considered either a high-cost or low-cost destination, and there are two levels of per diems depending on the travel destination. The 2008 high and low per diems are: Lodging Expense M&IE Rate Rate Maximum Per Diem Rate High-cost locality $179 $58 $237 Low-cost locality $107 $45 $152 The high and low-cost destinations for 2008 can be found in IRS Rev. Proc. 2007-63. Allowance Not Equal to Federal Rate If the allowance for an employee is less than or equal to the appropriate federal rate, the allowance is treated as reimbursed under an accountable plan and is not included in the employee’s taxable wages. If the allowance is greater than the federal rate, the amount up to the federal rate is excluded from the employee’s taxable wage under an accountable plan but reported to the employee in box 12 (code L), Form W-2. Incidental Expenses Expenses included in the rate for meals and incidental expenses are: • Fees and tips given to porters, baggage carriers, bellhops, hotel maids and others. • Transportation between places of lodging or business and places where meals are taken, if suitable meals cannot be obtained at the temporary duty site. • Mailing costs associated with filing travel vouchers and payment of government charge card billings. No Standard Deduction for Lodging Employee Related to Employer The per diem rates for meals can be used as a standard meal allowance by both employees and self-employed taxpayers for determining a deduction for unreimbursed meal expenses. However, the per diem rates for lodging are only used for purposes of determining the amount of an employer reimbursement that meets the accountable plan rules. Employees who are not reimbursed by their employer and self-employed taxpayers cannot use the per diem rates for lodging as a means to determine a deduction for lodging. They must use the actual expense method for this purpose. If the employee is related to the employer, the employee must still be able to prove expenses to the IRS even if the expenses have been adequately accounted to the employer under a per diem or car allowance plan and any excess reimbursement is returned. For this rule, an employee who directly or indirectly owns more than 10 percent of the stock in a corporation is considered related to the employer. Travel on First and Last Days of Trip The per diem rate for meals must be prorated (a reduced rate) on the first and last days of a trip. A taxpayer can either claim three-fourths of the standard meal allowance for each day or prorate the amount using any method that is consistent and within reasonable business practice. Non-Accountable Plan Any form of reimbursement that does not meet the accountable plan rules discussed above is a nonaccountable plan. All amounts paid, or treated as paid, under a non-accountable plan are reported as wages on Form W-2. The payments are subject to income tax withholding, Social Security, Medicare and federal unemployment taxes. Questions? Contact: Frank Hogg, CPA Partner-in-Charge Contractors Services Group 314-290-3413 [email protected] 22 u spring 2008 issue INDUSTRy u Contractors knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Use of Per Diems A per diem is an allowance for travel, lodging, meals and incidental expenses that is calculated based on the number of days of an employee’s travel. An employer can reimburse employees under an accountable plan based on travel days, miles or some other fixed allowance. The employee is considered to have accounted to the employer the amount of the expense that does not exceed the rates established by the federal government. By using a per diem allowance, the employee is not required to submit receipts to the employer to meet the accountable plan rules. However, employees are still required to substantiate the time, place and business purpose of the trip. Federal Per Diem Rates: The federal rate can be figured using one of the following: • The regular federal per diem rate is defined as the highest amount the federal government will pay to its employees while away from home on travel. Rates differ depending upon the travel location. The federal government publishes the rates for each location annually. The published rates are effective for the period from Oct. 1 of one year to Sept. 30 of the next. The rules allow employers to use the same rates for the entire calendar year. The rates for 2008 can be found in IRS Revenue Procedure 2007-63. • The standard meal allowance is the meals and incidental expenses portion of the regular federal per diem rate. The standard meal allowance is the only per diem allowed if the employer pays for or reimburses actual lodging expenses or the employee is not reasonably believed to have incurred any lodging expenses. Whether the employer uses the regular federal per diem rate to cover all expenses (including lodging) or the standard meal allowance, the amount of the reimbursement that represents the meals and incidental expenses is subject to the 50 percent disallowance of meal and entertainment expenses. • The high-low method is a simplified method of computing the federal per diem rate for lodging and meal expenses. It eliminates the need to keep a current 21 u spring 2008 issue list of the per diem rate in effect for each city. Instead, each travel location is considered either a high-cost or low-cost destination, and there are two levels of per diems depending on the travel destination. The 2008 high and low per diems are: Lodging Expense M&IE Rate Rate Maximum Per Diem Rate High-cost locality $179 $58 $237 Low-cost locality $107 $45 $152 The high and low-cost destinations for 2008 can be found in IRS Rev. Proc. 2007-63. Allowance Not Equal to Federal Rate If the allowance for an employee is less than or equal to the appropriate federal rate, the allowance is treated as reimbursed under an accountable plan and is not included in the employee’s taxable wages. If the allowance is greater than the federal rate, the amount up to the federal rate is excluded from the employee’s taxable wage under an accountable plan but reported to the employee in box 12 (code L), Form W-2. Incidental Expenses Expenses included in the rate for meals and incidental expenses are: • Fees and tips given to porters, baggage carriers, bellhops, hotel maids and others. • Transportation between places of lodging or business and places where meals are taken, if suitable meals cannot be obtained at the temporary duty site. • Mailing costs associated with filing travel vouchers and payment of government charge card billings. No Standard Deduction for Lodging Employee Related to Employer The per diem rates for meals can be used as a standard meal allowance by both employees and self-employed taxpayers for determining a deduction for unreimbursed meal expenses. However, the per diem rates for lodging are only used for purposes of determining the amount of an employer reimbursement that meets the accountable plan rules. Employees who are not reimbursed by their employer and self-employed taxpayers cannot use the per diem rates for lodging as a means to determine a deduction for lodging. They must use the actual expense method for this purpose. If the employee is related to the employer, the employee must still be able to prove expenses to the IRS even if the expenses have been adequately accounted to the employer under a per diem or car allowance plan and any excess reimbursement is returned. For this rule, an employee who directly or indirectly owns more than 10 percent of the stock in a corporation is considered related to the employer. Travel on First and Last Days of Trip The per diem rate for meals must be prorated (a reduced rate) on the first and last days of a trip. A taxpayer can either claim three-fourths of the standard meal allowance for each day or prorate the amount using any method that is consistent and within reasonable business practice. Non-Accountable Plan Any form of reimbursement that does not meet the accountable plan rules discussed above is a nonaccountable plan. All amounts paid, or treated as paid, under a non-accountable plan are reported as wages on Form W-2. The payments are subject to income tax withholding, Social Security, Medicare and federal unemployment taxes. Questions? Contact: Frank Hogg, CPA Partner-in-Charge Contractors Services Group 314-290-3413 [email protected] 22 u spring 2008 issue INDUSTRy u HOME BUILDERS knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS with another 5 percent decrease expected. There is apparent capacity in many of the production facilities, especially in the Southwest and Southeast, barring any future hurricanes. The NAHB is working very hard to lobby the Fed for some additional short and long term interest rate relief. If nothing else, these rate cuts should help the psyche of the market and provide some much needed good news.; THE LOCAL MARKET Surviving the Market NEWS FROM NAHB “Survival” and “crisis” were the words most uttered by those in attendance at the NAHB fall board meeting in Seattle. There was certainly a serious tone as all in the home building industry attempt to maneuver through these challenging times. Only a few markets in the country have not been affected by the downturn. NAHB is now predicting the market may hit bottom sometime in 2008, although all recent forecasts have been off target. “Mortgage disruption,” as it is now called, is a huge concern for an otherwise weakened industry. The sub-prime market is virtually gone, and the availability of credit has been limited, especially for jumbo loans. While not as much of a problem locally, the number of foreclosures that will impact the market and compete with new home inventory is substantial. Some good news – it appears raw material prices nationally have fallen an average of 10 percent this year, 23 u spring 2008 issue The market continues to sputter along. Despite time periods of inconsistent sales, decent to good traffic, and very attractive incentives, the home-buying public continues to lack a sense of urgency to buy. It is truly unfortunate given all the excellent opportunities available to purchase. Also, for the first time, there is a fear from potential buyers of swapping their existing mortgage rate for one that is likely to be substantially higher. The local market showed signs of a slowdown beginning in August 2005. Despite a few spurts in the last two years, overall sales have decreased since 2005. Eventually there will be some pent-up demand that should occur, especially given the reduction of finished spec inventory. The slowdown in new projects being developed also will help reduce the perceived oversupply of lots. withholding. The industry has worked well for a variety of reasons with those treated as independent contractors. Let’s hope there are no major changes. • There seems to be some clarification forthcoming on the definition of a “green builder” or a national green building standard. NAHB has accelerated its work on a National Green Building Program. It appears there will be four to five levels of “green,” starting with emerald and ending with bronze. • NAHB has developed a help piece titled “Back to Basics, NAHB’s Toolkit for a Challenging Market,” which can be obtained by viewing NAHB.org – good stuff! • A slightly revised NAHB Chart-of-Accounts will be published later this year. What Can Be Done Now to Survive the Crisis? Create a Business Plan and Upgrade Systems and Processes • Strive to be the best you can be at your current level of activity. • Cross-train individuals to keep them productive and better utilize resources. • Walk your job sites to identify needless waste and opportunities for savings. • Remember, cash is king – treat it carefully! Work with Professionals • Ensure that your relationships with your bankers are solid. • Be sure to get ahead of your banker with your forecast. • Remove the element of surprise in your year-end financial statements. • Always work with a lawyer before signing contracts. • Adjust insurance production levels. rates based on your new Questions? Contact: Steve Hays, CPA Partner-in-Charge Home Builders Services Group 314-290-3336 [email protected] • Use this time to upgrade and improve your systems and processes. • Create a short-term (one-year) and a long-term (five-year) plan. Hays’ Bits It remains even more imperative that all home builders, lenders, suppliers and subcontractors work together to navigate these challenging times. • Include both your income statement results and a period end balance sheet to monitor ratios like debt to equity. Stay tuned! • Budget at a detailed level to remain accountable and manage costs. Builder Magazine America’s Best Builder Award. Other News • Update your short-term plan quarterly and your longterm plan annually. that are consistent with these outstanding • NAHB is concerned about Congress’s renewed efforts to close what is perceived as the “Tax Gap,” i.e., what is actually collected versus what is owed. Legislators have increased resources to examine those in the industry classified as “independent contractors.” In particular, it is alleged or assumed that many of these workers are treated as independent contractors instead of employees to avoid the required Manage Your Overhead • Review your staffing levels versus your current, short-term plan and long-term plan sales. • Keep control of your developed lots and spec inventory levels. I was fortunate to serve as a judge again for It is very interesting to see the characteristics companies – mainly exceptional people, processes and systems. Heard a new term for a punchout carpenter – “detail technician.” • Review each detail income statement expense account for cost savings. 24 u spring 2008 issue INDUSTRy u HOME BUILDERS knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS with another 5 percent decrease expected. There is apparent capacity in many of the production facilities, especially in the Southwest and Southeast, barring any future hurricanes. The NAHB is working very hard to lobby the Fed for some additional short and long term interest rate relief. If nothing else, these rate cuts should help the psyche of the market and provide some much needed good news.; THE LOCAL MARKET Surviving the Market NEWS FROM NAHB “Survival” and “crisis” were the words most uttered by those in attendance at the NAHB fall board meeting in Seattle. There was certainly a serious tone as all in the home building industry attempt to maneuver through these challenging times. Only a few markets in the country have not been affected by the downturn. NAHB is now predicting the market may hit bottom sometime in 2008, although all recent forecasts have been off target. “Mortgage disruption,” as it is now called, is a huge concern for an otherwise weakened industry. The sub-prime market is virtually gone, and the availability of credit has been limited, especially for jumbo loans. While not as much of a problem locally, the number of foreclosures that will impact the market and compete with new home inventory is substantial. Some good news – it appears raw material prices nationally have fallen an average of 10 percent this year, 23 u spring 2008 issue The market continues to sputter along. Despite time periods of inconsistent sales, decent to good traffic, and very attractive incentives, the home-buying public continues to lack a sense of urgency to buy. It is truly unfortunate given all the excellent opportunities available to purchase. Also, for the first time, there is a fear from potential buyers of swapping their existing mortgage rate for one that is likely to be substantially higher. The local market showed signs of a slowdown beginning in August 2005. Despite a few spurts in the last two years, overall sales have decreased since 2005. Eventually there will be some pent-up demand that should occur, especially given the reduction of finished spec inventory. The slowdown in new projects being developed also will help reduce the perceived oversupply of lots. withholding. The industry has worked well for a variety of reasons with those treated as independent contractors. Let’s hope there are no major changes. • There seems to be some clarification forthcoming on the definition of a “green builder” or a national green building standard. NAHB has accelerated its work on a National Green Building Program. It appears there will be four to five levels of “green,” starting with emerald and ending with bronze. • NAHB has developed a help piece titled “Back to Basics, NAHB’s Toolkit for a Challenging Market,” which can be obtained by viewing NAHB.org – good stuff! • A slightly revised NAHB Chart-of-Accounts will be published later this year. What Can Be Done Now to Survive the Crisis? Create a Business Plan and Upgrade Systems and Processes • Strive to be the best you can be at your current level of activity. • Cross-train individuals to keep them productive and better utilize resources. • Walk your job sites to identify needless waste and opportunities for savings. • Remember, cash is king – treat it carefully! Work with Professionals • Ensure that your relationships with your bankers are solid. • Be sure to get ahead of your banker with your forecast. • Remove the element of surprise in your year-end financial statements. • Always work with a lawyer before signing contracts. • Adjust insurance production levels. rates based on your new Questions? Contact: Steve Hays, CPA Partner-in-Charge Home Builders Services Group 314-290-3336 [email protected] • Use this time to upgrade and improve your systems and processes. • Create a short-term (one-year) and a long-term (five-year) plan. Hays’ Bits It remains even more imperative that all home builders, lenders, suppliers and subcontractors work together to navigate these challenging times. • Include both your income statement results and a period end balance sheet to monitor ratios like debt to equity. Stay tuned! • Budget at a detailed level to remain accountable and manage costs. Builder Magazine America’s Best Builder Award. Other News • Update your short-term plan quarterly and your longterm plan annually. that are consistent with these outstanding • NAHB is concerned about Congress’s renewed efforts to close what is perceived as the “Tax Gap,” i.e., what is actually collected versus what is owed. Legislators have increased resources to examine those in the industry classified as “independent contractors.” In particular, it is alleged or assumed that many of these workers are treated as independent contractors instead of employees to avoid the required Manage Your Overhead • Review your staffing levels versus your current, short-term plan and long-term plan sales. • Keep control of your developed lots and spec inventory levels. I was fortunate to serve as a judge again for It is very interesting to see the characteristics companies – mainly exceptional people, processes and systems. Heard a new term for a punchout carpenter – “detail technician.” • Review each detail income statement expense account for cost savings. 24 u spring 2008 issue INDUSTRy u LAW FIRMS knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Resources. Both human and financial resources are made available to further the committee’s mission. Management support is needed so committee members can take time from engagements and other responsibilities. Meeting expenses, research data and outside consultants may be needed. Staging. To ensure the support of the entire firm, regular communication about the committee’s mission and progress should be disseminated through the firm and presentations made to the partners and other firm leaders. Staff Committees Can Help Law Firms Retain Top Talent Who knows more about how to improve your firm’s approach to recruiting, retaining and developing talent than your current team members? Your law firm’s partners participate in various committees devoted to hiring, marketing, technology and practice development. Does your firm have separate committees that allow professional staff to help tackle key firm issues? If you haven’t yet created staff committees, it is definitely an approach to consider at firms that want to improve recruitment and retention. Giving staff the power to explore these issues gives them a sense of ownership and helps your firm develop talent. Major firm committee areas that can benefit from 25 u spring 2008 issue staff involvement include strategic planning, career development, budgeting and engagement management, information technology and corporate culture. Assistance with orienting incoming employees is an obvious area in which staff committees can help. Others to consider are flex time programs, training and compensation. Benefits are an excellent example of an area in which staff input can help – and perhaps even surprise your firm’s leadership. You may find, for instance, that staff highly value family health care coverage and are willing to forego or reduce other benefits so that the firm is able to contribute more to that benefit. Another area is the 401(k) plan match and duration of time for entry to the plan. Staff can let you know what makes the most sense to them. The firm may be able to deploy valuable resources in other directions as a result. Like all good ideas, results depend upon execution. If staff committees are used, they should address the following: Mission. Each committee must focus on a welldefined need. Leadership. The committee chair drives the committee’s mission. A partner or senior leader, such as the firm administrator, is responsible for overseeing and directing the committee’s activities. Structure. The committee should report to the managing partner, firm administrator or another partner identified as being in charge of the particular committee. The topic of the committee will affect this choice: for instance, the firm administrator is probably the logical person to oversee a committee on benefits. Other steps to take to keep committees on track include: • Evaluating members’ participation to make sure they are contributing to the committee’s mission. • Establishing goals and routinely communicating progress toward reaching them. • Making sure committee activities aren’t competing or redundant. • Reviewing each committee’s mission to make sure it’s on course; if it isn’t, it is quickly disbanded. Establishing staff committees can not only help your firm develop and retain talent, but also can increase your firm’s profits. Questions? Contact: Don Esstman, CPA Partner-in-Charge Law Firms Services Group 314.290.3384 [email protected] 26 u spring 2008 issue INDUSTRy u LAW FIRMS knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Resources. Both human and financial resources are made available to further the committee’s mission. Management support is needed so committee members can take time from engagements and other responsibilities. Meeting expenses, research data and outside consultants may be needed. Staging. To ensure the support of the entire firm, regular communication about the committee’s mission and progress should be disseminated through the firm and presentations made to the partners and other firm leaders. Staff Committees Can Help Law Firms Retain Top Talent Who knows more about how to improve your firm’s approach to recruiting, retaining and developing talent than your current team members? Your law firm’s partners participate in various committees devoted to hiring, marketing, technology and practice development. Does your firm have separate committees that allow professional staff to help tackle key firm issues? If you haven’t yet created staff committees, it is definitely an approach to consider at firms that want to improve recruitment and retention. Giving staff the power to explore these issues gives them a sense of ownership and helps your firm develop talent. Major firm committee areas that can benefit from 25 u spring 2008 issue staff involvement include strategic planning, career development, budgeting and engagement management, information technology and corporate culture. Assistance with orienting incoming employees is an obvious area in which staff committees can help. Others to consider are flex time programs, training and compensation. Benefits are an excellent example of an area in which staff input can help – and perhaps even surprise your firm’s leadership. You may find, for instance, that staff highly value family health care coverage and are willing to forego or reduce other benefits so that the firm is able to contribute more to that benefit. Another area is the 401(k) plan match and duration of time for entry to the plan. Staff can let you know what makes the most sense to them. The firm may be able to deploy valuable resources in other directions as a result. Like all good ideas, results depend upon execution. If staff committees are used, they should address the following: Mission. Each committee must focus on a welldefined need. Leadership. The committee chair drives the committee’s mission. A partner or senior leader, such as the firm administrator, is responsible for overseeing and directing the committee’s activities. Structure. The committee should report to the managing partner, firm administrator or another partner identified as being in charge of the particular committee. The topic of the committee will affect this choice: for instance, the firm administrator is probably the logical person to oversee a committee on benefits. Other steps to take to keep committees on track include: • Evaluating members’ participation to make sure they are contributing to the committee’s mission. • Establishing goals and routinely communicating progress toward reaching them. • Making sure committee activities aren’t competing or redundant. • Reviewing each committee’s mission to make sure it’s on course; if it isn’t, it is quickly disbanded. Establishing staff committees can not only help your firm develop and retain talent, but also can increase your firm’s profits. Questions? Contact: Don Esstman, CPA Partner-in-Charge Law Firms Services Group 314.290.3384 [email protected] 26 u spring 2008 issue INDUSTRy u MANUFACTURING & DISTRIBUTION knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Driving Financial Performance with Standard Cost Companies already using a standard cost accounting system have a tool at their disposal to drive business performance. There is no need to add costly performance management systems to measure progress toward achieving your strategic goals. When standards are set with the strategic initiatives in mind, variance analysis provides the information to track your progress. Tying incentive pay programs to the variances also focuses management’s attention on achieving the strategic objectives. Initially, the standard costs need to reflect the strategic initiatives of your company. For example, the strategic planning process results in the anticipation that the direct materials cost can be reduced by 5 percent. This reduction would be reflected in the standard costs by reducing the standard cost of purchased parts by 5 percent. Most accounting systems have a global update procedure that can perform such a function, or the standards could be exported to a spreadsheet or database where a global update could be done and then imported back into the accounting system. Another example would be establishing a goal of a 10 percent increase in efficiency, in which case the hours on routing could be reduced by 10 percent across the manufacturing departments. Apart from normal budget to actual variance analysis, the performance of key departments like manufacturing and purchasing can be monitored using standard cost variances. To fully benefit from the variances generated 27 u spring 2008 issue For goals to be effective, they must be specific, measurable, attainable, results-oriented and time-based. in a standard cost environment, the income statement must break out the variances – purchase price variance, inventory adjustments, usage variance, material burden variance, and labor and overhead efficiency and rate variances. Purchase price variance is the difference between the standard cost and the actual price paid. Usage variance reflects the difference in the amount of raw materials consumed versus what is called for on the bill of material. Any additional usage differences will be caught during cycle counts or the physical inventory and appear as inventory adjustments. The material burden variance would include overhead activities associated with acquiring and handling purchased materials, such as the purchasing department and the receiving department. Efficiency and rate variances often are lumped together in the under/over absorption line on the income statement. To break these out, your accountant will need to use actual hours, standard hours, actual rates and standard rates to compute. Management’s incentive plans can be set to achieve these goals. The purchasing department could be incentivized to achieve the 5 percent reduction in material cost. Progress toward the goal can be monitored by evaluating the purchase price variance. Likewise, the production management could be incented to achieve efficiency improvements and progress would be monitored by the efficiency variance. In both cases, the cost of attaining these goals could be monitored by looking at the material burden variance and manufacturing rate variances (both labor and overhead variances), which would compare the standard unit cost for these departments to the actual costs incurred. For goals to be effective, they must be specific, measurable, attainable, results-oriented and timebased. A monthly reporting from your standard costing system provides you with the feedback and monitoring system to judge performance. When the strategic objectives are tied to compensation plans and monitored with a timely reporting system using standard cost, they create a powerful system for achieving your company’s goals. Questions? Contact: Mike Lewis, CPA Partner-in-Charge Manufacturing & Distribution Services Group 314-290-3391 [email protected] or Rick Feldt, CPA Partner Manufacturing & Distribution Services Group 314-290-3220 [email protected] 28 u spring 2008 issue INDUSTRy u MANUFACTURING & DISTRIBUTION knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Driving Financial Performance with Standard Cost Companies already using a standard cost accounting system have a tool at their disposal to drive business performance. There is no need to add costly performance management systems to measure progress toward achieving your strategic goals. When standards are set with the strategic initiatives in mind, variance analysis provides the information to track your progress. Tying incentive pay programs to the variances also focuses management’s attention on achieving the strategic objectives. Initially, the standard costs need to reflect the strategic initiatives of your company. For example, the strategic planning process results in the anticipation that the direct materials cost can be reduced by 5 percent. This reduction would be reflected in the standard costs by reducing the standard cost of purchased parts by 5 percent. Most accounting systems have a global update procedure that can perform such a function, or the standards could be exported to a spreadsheet or database where a global update could be done and then imported back into the accounting system. Another example would be establishing a goal of a 10 percent increase in efficiency, in which case the hours on routing could be reduced by 10 percent across the manufacturing departments. Apart from normal budget to actual variance analysis, the performance of key departments like manufacturing and purchasing can be monitored using standard cost variances. To fully benefit from the variances generated 27 u spring 2008 issue For goals to be effective, they must be specific, measurable, attainable, results-oriented and time-based. in a standard cost environment, the income statement must break out the variances – purchase price variance, inventory adjustments, usage variance, material burden variance, and labor and overhead efficiency and rate variances. Purchase price variance is the difference between the standard cost and the actual price paid. Usage variance reflects the difference in the amount of raw materials consumed versus what is called for on the bill of material. Any additional usage differences will be caught during cycle counts or the physical inventory and appear as inventory adjustments. The material burden variance would include overhead activities associated with acquiring and handling purchased materials, such as the purchasing department and the receiving department. Efficiency and rate variances often are lumped together in the under/over absorption line on the income statement. To break these out, your accountant will need to use actual hours, standard hours, actual rates and standard rates to compute. Management’s incentive plans can be set to achieve these goals. The purchasing department could be incentivized to achieve the 5 percent reduction in material cost. Progress toward the goal can be monitored by evaluating the purchase price variance. Likewise, the production management could be incented to achieve efficiency improvements and progress would be monitored by the efficiency variance. In both cases, the cost of attaining these goals could be monitored by looking at the material burden variance and manufacturing rate variances (both labor and overhead variances), which would compare the standard unit cost for these departments to the actual costs incurred. For goals to be effective, they must be specific, measurable, attainable, results-oriented and timebased. A monthly reporting from your standard costing system provides you with the feedback and monitoring system to judge performance. When the strategic objectives are tied to compensation plans and monitored with a timely reporting system using standard cost, they create a powerful system for achieving your company’s goals. Questions? Contact: Mike Lewis, CPA Partner-in-Charge Manufacturing & Distribution Services Group 314-290-3391 [email protected] or Rick Feldt, CPA Partner Manufacturing & Distribution Services Group 314-290-3220 [email protected] 28 u spring 2008 issue INDUSTRy u MORTGAGE BANKERS knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Several local lenders have done a good job of establishing specialized niches within the marketplace, and this differentiation will remain crucial for capitalizing on opportunities in 2008. A Challenging Year for Originations Originators continued to struggle in 2007 under very tough market conditions. A poor housing market, combined with turmoil in the credit markets, resulted in double-digit declines in originations in 2007. Although final numbers have not yet been published, the consensus among Mortgage Bankers Association of America and Fannie Mae economists is that 2007 origination volume will be down approximately 15 percent from 2006 levels. Our early indications are that St. Louis lenders’ total origination activity will be down approximately 12 percent in 2007. Sales of new and existing homes remained very sluggish in 2007. The turmoil in the credit markets, which resulted in tighter lending standards and fewer mortgage products, certainly hurt the housing market this past year. Unfortunately, the projected declines in 29 u spring 2008 issue 2007 total origination activity are on top of significant decreases in 2006. As a result, we anticipate that St. Louis originations for 2007 will be at their lowest level since 2000. Purchase originations will be leading the decline in 2007. Our early indications are that purchase originations in St. Louis will be down approximately 15 percent in 2007. This projected decrease in 2007 follows an approximate 10 percent decline in 2006 in St. Louis purchase originations. The one bright spot in the origination landscape may be refinance activity. As we neared the end of 2007, the yield on the benchmark 10-year Treasury note moved toward 4 percent. This change should provide an increase in normal rate-based refinancings of fixed rate mortgages. In addition, a significant number of loans will face resets toward the beginning of 2008. Hopefully, interest rate cuts by the Federal Reserve will restore more liquidity to the financial markets and provide meaningful opportunities for refinance activity. Although refinance activity appeared promising toward the end of 2007, refinancings for the entire year were sluggish. At this point, RubinBrown’s indications are that refinance originations in St. Louis will decline approximately 10 percent in 2007. Refinance activity for most of 2007 consisted of cash-out refinancings and the conversion of upward-adjusting adjustable rate mortgages into fixed rate mortgages or other loan products. Unfortunately, the decline in origination volume over the past several years also has been combined with continued erosion of profit margins (i.e., gain on sale percentage). With the end of 2007, the industry has now completed its fourth full year in the post-refinance landscape. Despite being four years removed from the peak refinance year of 2003, there is no question that overcapacity remains an issue within the industry. The turmoil in the credit markets during 2007 has resulted in more lenders struggling and going out of business. In addition, more lenders are requiring significant capital infusions in order to maintain their operations. Even with many lenders struggling, competition within the industry in 2007 remained intense. In addition to profit margins, the cost side of the equation needs to be constantly monitored. We continue to recommend that lenders be very deliberate in adding overhead costs in the near future. Most lenders have done a relatively good job of adjusting their cost structures to the current origination environment. The key is managing overhead expenditures in the context of projected origination activity. This short-term perspective on cost containment, however, must be balanced against a longer-term investment in certain core employee and other infrastructure costs. Investments in these costs will be crucial to prospering when market conditions become more favorable. In terms of the outlook for 2008, it is easy to be discouraged by the forecasts of many of the national economists. Projections of double-digit declines in origination activity in 2008 are relatively common. Hopefully, the housing market will begin to recover in 2008 and credit markets will stabilize. In addition, as we discussed earlier, the opportunities for refinance activity appear promising for early 2008. In order to capitalize on whatever opportunities are present, we continue to emphasize one key factor for success in 2008. It is critical that mortgage lenders differentiate themselves in some manner from their competition. Unfortunately, overcapacity remains an issue within the industry, and there are still too many lenders chasing too few loans. Several local lenders have done a good job of establishing specialized niches within the marketplace, and this differentiation will remain crucial for capitalizing on opportunities in 2008. Questions? Contact: Frank Hogg, CPA Partner-in-Charge Mortgage Bankers Services Group 314-290-3413 [email protected] As a result, we anticipate that profit margins will decline several basis points in 2007. This projected decrease is on top of significant decreases for the period of 2004 through 2006. We have noted that this erosion of profit margins has been gradually slowing and will hopefully stabilize in the upcoming year. 30 u spring 2008 issue INDUSTRy u MORTGAGE BANKERS knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Several local lenders have done a good job of establishing specialized niches within the marketplace, and this differentiation will remain crucial for capitalizing on opportunities in 2008. A Challenging Year for Originations Originators continued to struggle in 2007 under very tough market conditions. A poor housing market, combined with turmoil in the credit markets, resulted in double-digit declines in originations in 2007. Although final numbers have not yet been published, the consensus among Mortgage Bankers Association of America and Fannie Mae economists is that 2007 origination volume will be down approximately 15 percent from 2006 levels. Our early indications are that St. Louis lenders’ total origination activity will be down approximately 12 percent in 2007. Sales of new and existing homes remained very sluggish in 2007. The turmoil in the credit markets, which resulted in tighter lending standards and fewer mortgage products, certainly hurt the housing market this past year. Unfortunately, the projected declines in 29 u spring 2008 issue 2007 total origination activity are on top of significant decreases in 2006. As a result, we anticipate that St. Louis originations for 2007 will be at their lowest level since 2000. Purchase originations will be leading the decline in 2007. Our early indications are that purchase originations in St. Louis will be down approximately 15 percent in 2007. This projected decrease in 2007 follows an approximate 10 percent decline in 2006 in St. Louis purchase originations. The one bright spot in the origination landscape may be refinance activity. As we neared the end of 2007, the yield on the benchmark 10-year Treasury note moved toward 4 percent. This change should provide an increase in normal rate-based refinancings of fixed rate mortgages. In addition, a significant number of loans will face resets toward the beginning of 2008. Hopefully, interest rate cuts by the Federal Reserve will restore more liquidity to the financial markets and provide meaningful opportunities for refinance activity. Although refinance activity appeared promising toward the end of 2007, refinancings for the entire year were sluggish. At this point, RubinBrown’s indications are that refinance originations in St. Louis will decline approximately 10 percent in 2007. Refinance activity for most of 2007 consisted of cash-out refinancings and the conversion of upward-adjusting adjustable rate mortgages into fixed rate mortgages or other loan products. Unfortunately, the decline in origination volume over the past several years also has been combined with continued erosion of profit margins (i.e., gain on sale percentage). With the end of 2007, the industry has now completed its fourth full year in the post-refinance landscape. Despite being four years removed from the peak refinance year of 2003, there is no question that overcapacity remains an issue within the industry. The turmoil in the credit markets during 2007 has resulted in more lenders struggling and going out of business. In addition, more lenders are requiring significant capital infusions in order to maintain their operations. Even with many lenders struggling, competition within the industry in 2007 remained intense. In addition to profit margins, the cost side of the equation needs to be constantly monitored. We continue to recommend that lenders be very deliberate in adding overhead costs in the near future. Most lenders have done a relatively good job of adjusting their cost structures to the current origination environment. The key is managing overhead expenditures in the context of projected origination activity. This short-term perspective on cost containment, however, must be balanced against a longer-term investment in certain core employee and other infrastructure costs. Investments in these costs will be crucial to prospering when market conditions become more favorable. In terms of the outlook for 2008, it is easy to be discouraged by the forecasts of many of the national economists. Projections of double-digit declines in origination activity in 2008 are relatively common. Hopefully, the housing market will begin to recover in 2008 and credit markets will stabilize. In addition, as we discussed earlier, the opportunities for refinance activity appear promising for early 2008. In order to capitalize on whatever opportunities are present, we continue to emphasize one key factor for success in 2008. It is critical that mortgage lenders differentiate themselves in some manner from their competition. Unfortunately, overcapacity remains an issue within the industry, and there are still too many lenders chasing too few loans. Several local lenders have done a good job of establishing specialized niches within the marketplace, and this differentiation will remain crucial for capitalizing on opportunities in 2008. Questions? Contact: Frank Hogg, CPA Partner-in-Charge Mortgage Bankers Services Group 314-290-3413 [email protected] As a result, we anticipate that profit margins will decline several basis points in 2007. This projected decrease is on top of significant decreases for the period of 2004 through 2006. We have noted that this erosion of profit margins has been gradually slowing and will hopefully stabilize in the upcoming year. 30 u spring 2008 issue INDUSTRy u NOT-FOR-PROFIT knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Tax Assessors and Not-for-Profits While most not-for-profits assume they are exempt from property taxation, the mere fact that they have been granted exempt status by the Internal Revenue Service or by a state-level taxing agency such as Missouri’s Department of Revenue does not guarantee exemption from property taxes. The local property tax assessor applies a higher standard in determining whether to grant exempt status. In recent years, as a result of pressure to increase the value of property on the tax rolls, tax assessors have increased their scrutiny of organizations seeking or enjoying exemption from taxation. If an assessor requests operational data regarding the business that owns or operates exempt property, it is imperative that the request be promptly reviewed and the appropriate response submitted. Exemption from taxation requires the entity requesting the exemption to prove that it qualifies for the exemption. Failure to respond in a timely manner may cause the exemption to be revoked pending proof of qualification for the exemption. It is far easier to convince the assessor before there is a revocation than to undo the revocation before a review panel. 2) be owned and operated on a not-for-profit basis, and As the legal requirements for exemption from property taxation vary by state, it is recommended that the laws of each state be reviewed with a tax professional rather than assuming the organization automatically qualifies for the exemption. 3)must be for the benefit of an indefinite number of individuals or society in general. Questions? Contact: In Missouri, like most states, the exemption from property taxation is granted by the state constitution. In Missouri, the exemption is limited to property “not held for private or corporate profit and used exclusively for religious worship, for schools and colleges, for purposes purely charitable, for agricultural and horticultural societies, or for veterans’ organizations.” The Missouri Supreme Court has established a three-part test to define the exemption. The test requires the property: 1) be used exclusively for purposes purely charitable, Assessors have looked at various aspects of property use and the organizations that operate those properties. For example, organizations operating health care facilities must use judgment in the collection of fees charged for services received by patients. Aggressive tactics such as the use of a collection agency to recover unpaid bills have been viewed as lacking the charitable intent of the exemption provisions of the law. Although there is no clear definition of what would cause the revocation of the 31 u spring 2008 issue exemption, clearly an entity that has profits that greatly exceed the value of its charitable acts may not represent a charitable organization. Similarly, a limitation that restricts the general public from using the property creates the circumstance under which an assessor could determine a property is not of benefit to the general public. Judy Murphy, CPA Partner-in-Charge Not-for-Profit Services Group 314-290-3496 [email protected] Major Changes to Form 990 In December 2007, the IRS released a redesigned version of the Form 990. This is the first major revision of the Form 990 since 1979. For most organizations, this new form and related schedules must be used for the 2008 tax year, i.e., returns filed in 2009. However, the IRS has established a graduated transition period for organizations with gross receipts under $1 million as well as new schedules for tax-exempt bonds and hospitals. This revision has been expected. As discussed in the fall 2007 issue of Horizons, the IRS issued a draft of the proposed revision on June 14, 2007, with a 90-day comment period. The IRS received nearly 3,000 pages of comments related to the draft. Based on these comments and input from numerous nonprofit experts and state regulators, the IRS changed some of the proposed revisions to the form. The IRS believes this input helped create a final form that achieves its guiding principles of transparency, compliance and burden minimization. For additional details, our most recent “Focus on Not-for-Profits” e-newsletter, and a copy of the revised Form 990, visit our Web site, www.rubinbrown.com. 32 u spring 2008 issue INDUSTRy u NOT-FOR-PROFIT knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Tax Assessors and Not-for-Profits While most not-for-profits assume they are exempt from property taxation, the mere fact that they have been granted exempt status by the Internal Revenue Service or by a state-level taxing agency such as Missouri’s Department of Revenue does not guarantee exemption from property taxes. The local property tax assessor applies a higher standard in determining whether to grant exempt status. In recent years, as a result of pressure to increase the value of property on the tax rolls, tax assessors have increased their scrutiny of organizations seeking or enjoying exemption from taxation. If an assessor requests operational data regarding the business that owns or operates exempt property, it is imperative that the request be promptly reviewed and the appropriate response submitted. Exemption from taxation requires the entity requesting the exemption to prove that it qualifies for the exemption. Failure to respond in a timely manner may cause the exemption to be revoked pending proof of qualification for the exemption. It is far easier to convince the assessor before there is a revocation than to undo the revocation before a review panel. 2) be owned and operated on a not-for-profit basis, and As the legal requirements for exemption from property taxation vary by state, it is recommended that the laws of each state be reviewed with a tax professional rather than assuming the organization automatically qualifies for the exemption. 3)must be for the benefit of an indefinite number of individuals or society in general. Questions? Contact: In Missouri, like most states, the exemption from property taxation is granted by the state constitution. In Missouri, the exemption is limited to property “not held for private or corporate profit and used exclusively for religious worship, for schools and colleges, for purposes purely charitable, for agricultural and horticultural societies, or for veterans’ organizations.” The Missouri Supreme Court has established a three-part test to define the exemption. The test requires the property: 1) be used exclusively for purposes purely charitable, Assessors have looked at various aspects of property use and the organizations that operate those properties. For example, organizations operating health care facilities must use judgment in the collection of fees charged for services received by patients. Aggressive tactics such as the use of a collection agency to recover unpaid bills have been viewed as lacking the charitable intent of the exemption provisions of the law. Although there is no clear definition of what would cause the revocation of the 31 u spring 2008 issue exemption, clearly an entity that has profits that greatly exceed the value of its charitable acts may not represent a charitable organization. Similarly, a limitation that restricts the general public from using the property creates the circumstance under which an assessor could determine a property is not of benefit to the general public. Judy Murphy, CPA Partner-in-Charge Not-for-Profit Services Group 314-290-3496 [email protected] Major Changes to Form 990 In December 2007, the IRS released a redesigned version of the Form 990. This is the first major revision of the Form 990 since 1979. For most organizations, this new form and related schedules must be used for the 2008 tax year, i.e., returns filed in 2009. However, the IRS has established a graduated transition period for organizations with gross receipts under $1 million as well as new schedules for tax-exempt bonds and hospitals. This revision has been expected. As discussed in the fall 2007 issue of Horizons, the IRS issued a draft of the proposed revision on June 14, 2007, with a 90-day comment period. The IRS received nearly 3,000 pages of comments related to the draft. Based on these comments and input from numerous nonprofit experts and state regulators, the IRS changed some of the proposed revisions to the form. The IRS believes this input helped create a final form that achieves its guiding principles of transparency, compliance and burden minimization. For additional details, our most recent “Focus on Not-for-Profits” e-newsletter, and a copy of the revised Form 990, visit our Web site, www.rubinbrown.com. 32 u spring 2008 issue INDUSTRy u PUBLIC SECTOR knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Rubin Brown Public Sector Group Issues First Benchmarking Survey In October 2007, RubinBrown’s 2006 Financial Ratio Study for Municipalities was released. As auditors for many municipal governments, it was always frustrating not to have benchmarking information available to help government officials see how they were doing as compared to their peers. We often heard from our clients that they would like to see how they matched up against similar governments. The study included statistical financial results for municipalities in both the St. Louis and Kansas City metropolitan areas, focusing on cities with populations greater than 5,000. For purposes of this study, metropolitan St. Louis included municipalities in both Missouri and Illinois; metropolitan Kansas City included municipalities in both Kansas and Missouri. Methodology RubinBrown team members contacted the finance officers from the selected municipalities, requesting financial information for the ratio calculations. Financial information was then collected from the 2006 Comprehensive Annual Financial Report or 2006 Audited Financial Statement if no CAFR was prepared. All municipalities included in the study prepare financial statements in accordance with generally accepted accounting principles. Key financial ratios were calculated in three categories: governmentwide (governmental activities only), governmental funds and general fund information. 33 u spring 2008 issue The following shows a breakdown of participating municipalities by location: • Debt per capita averaged $1,093, which represents the debt burden on each citizen. • Tax revenues per capita averaged $705, while expenses per capita averaged $842, showing the need for other types of revenue, like charges for services and grants. Municipalities Participating Metro St. Louis Metro Kansas City Total 30 13 43 Format of the Report The ratio results were presented separately for the St. Louis and Kansas City metropolitan areas. Information for the St. Louis metropolitan area was further segmented by population greater than or less than 20,000. The Kansas City information was not segmented; however, the average population of the metro Kansas City municipalities was 57,600. For each ratio presented, the report gave information both by quartile and average. The computed values for each ratio were sorted from most favorable to least favorable, and quartiles were determined. A description and interpretation of the ratios also were provided. Analysis In the St. Louis area, we noted that, on average, municipalities experienced the following: • A 13 percent increase in their government-wide net assets, representing a very healthy improvement in the financial condition of those cities. • 90 percent of the respondents experienced an increase in net assets and experienced positive interperiod equity and, on average, revenues exceeded expenses at a clip of 1.2 times. • An aging infrastructure exists because, on average, accumulated depreciation on assets approximated 42 percent of the cost, and cities in the region may be experiencing significant replacement cost in the future. • Debt to assets, which shows how leveraged the cities’ capital assets are, averaged .41 times. • Total grants and other non-tax revenues represented an average of 12 percent of total revenues, so cities are somewhat reliant on revenues from external sources. • Public safety expenses are always the largest functional expense and, on average, comprised 35 percent of total expenditures. • Debt service expenditures at the fund level use an average of up to 14 percent of total revenues that potentially could be used for services. • Also on a fund basis, capital expenditures as a percent of total expenditures averaged 16 percent, which represents the government’s commitment to adequately provide for its capital asset needs. • On a fund basis, the unreserved fund balance amounted to, on average, a healthy 46 percent of revenues, which shows that most cities can weather a temporary shortfall in revenues. For the Kansas City governments participating in the survey, we noted very similar averages to St Louis, as follows: • A 7 percent increase in their government-wide net assets, also representing a very healthy improvement in the financial condition of those cities. • 78 percent of the respondents experienced an increase in net assets and experienced positive interperiod equity in 2006 and, on average, revenues exceeded expenses at a clip of 1.2 times. • A younger aged infrastructure exists because accumulated depreciation on assets averaged approximately 34 percent of the cost, and cities in the region currently are addressing their replacement cost. 34 u spring 2008 issue INDUSTRy u PUBLIC SECTOR knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS Rubin Brown Public Sector Group Issues First Benchmarking Survey In October 2007, RubinBrown’s 2006 Financial Ratio Study for Municipalities was released. As auditors for many municipal governments, it was always frustrating not to have benchmarking information available to help government officials see how they were doing as compared to their peers. We often heard from our clients that they would like to see how they matched up against similar governments. The study included statistical financial results for municipalities in both the St. Louis and Kansas City metropolitan areas, focusing on cities with populations greater than 5,000. For purposes of this study, metropolitan St. Louis included municipalities in both Missouri and Illinois; metropolitan Kansas City included municipalities in both Kansas and Missouri. Methodology RubinBrown team members contacted the finance officers from the selected municipalities, requesting financial information for the ratio calculations. Financial information was then collected from the 2006 Comprehensive Annual Financial Report or 2006 Audited Financial Statement if no CAFR was prepared. All municipalities included in the study prepare financial statements in accordance with generally accepted accounting principles. Key financial ratios were calculated in three categories: governmentwide (governmental activities only), governmental funds and general fund information. 33 u spring 2008 issue The following shows a breakdown of participating municipalities by location: • Debt per capita averaged $1,093, which represents the debt burden on each citizen. • Tax revenues per capita averaged $705, while expenses per capita averaged $842, showing the need for other types of revenue, like charges for services and grants. Municipalities Participating Metro St. Louis Metro Kansas City Total 30 13 43 Format of the Report The ratio results were presented separately for the St. Louis and Kansas City metropolitan areas. Information for the St. Louis metropolitan area was further segmented by population greater than or less than 20,000. The Kansas City information was not segmented; however, the average population of the metro Kansas City municipalities was 57,600. For each ratio presented, the report gave information both by quartile and average. The computed values for each ratio were sorted from most favorable to least favorable, and quartiles were determined. A description and interpretation of the ratios also were provided. Analysis In the St. Louis area, we noted that, on average, municipalities experienced the following: • A 13 percent increase in their government-wide net assets, representing a very healthy improvement in the financial condition of those cities. • 90 percent of the respondents experienced an increase in net assets and experienced positive interperiod equity and, on average, revenues exceeded expenses at a clip of 1.2 times. • An aging infrastructure exists because, on average, accumulated depreciation on assets approximated 42 percent of the cost, and cities in the region may be experiencing significant replacement cost in the future. • Debt to assets, which shows how leveraged the cities’ capital assets are, averaged .41 times. • Total grants and other non-tax revenues represented an average of 12 percent of total revenues, so cities are somewhat reliant on revenues from external sources. • Public safety expenses are always the largest functional expense and, on average, comprised 35 percent of total expenditures. • Debt service expenditures at the fund level use an average of up to 14 percent of total revenues that potentially could be used for services. • Also on a fund basis, capital expenditures as a percent of total expenditures averaged 16 percent, which represents the government’s commitment to adequately provide for its capital asset needs. • On a fund basis, the unreserved fund balance amounted to, on average, a healthy 46 percent of revenues, which shows that most cities can weather a temporary shortfall in revenues. For the Kansas City governments participating in the survey, we noted very similar averages to St Louis, as follows: • A 7 percent increase in their government-wide net assets, also representing a very healthy improvement in the financial condition of those cities. • 78 percent of the respondents experienced an increase in net assets and experienced positive interperiod equity in 2006 and, on average, revenues exceeded expenses at a clip of 1.2 times. • A younger aged infrastructure exists because accumulated depreciation on assets averaged approximately 34 percent of the cost, and cities in the region currently are addressing their replacement cost. 34 u spring 2008 issue INDUSTRy u The knowledge you need. PUBLIC SECTOR Public Sector Group Issues First Benchmarking Survey (cont.) • Debt to assets, which shows how leveraged the cities capital assets are, averaged 0.27 times. • Debt per capita averaged $887, which represents the debt burden on each citizen. • Tax revenues per capita averaged $608, while expenses per capita averaged $859, showing the need for other types of revenue like charges for services and grants. • Total grants and other non-tax revenues represented an average of 24 percent of total revenues, so these cities are more reliant on revenues from external sources. • Public safety expenses are always the largest functional expense and, on average, comprised 35 percent of total expenditures. • Debt service expenditures at the fund level use an average of up to 15 percent of total revenues that potentially could be used for services. The commitment you expect. The value you deserve. • Also on a fund basis, capital expenditures as a percent of total expenditures averaged 32 percent, which represents the government’s commitment to adequately provide for its capital asset needs. • On a fund basis, unreserved fund balance amounted to a healthy average of 39 percent of revenues, which shows that most cities can weather a temporary shortfall in revenues. For more than half a century, RubinBrown has been making a lasting mark on business. Our unique, one-firm approach means you benefit from the best of both worlds – specialized expertise and comprehensive services. All designed to deliver A complete copy of the statistical analysis can be found on our Web site at www.rubinbrown.com. the kind of insights and solutions you need to succeed. Questions? Contact: A passionate, professional team. A one-firm approach to service excellence. It’s how we bring real value to our clients. And it’s why they remain clients for decades, not just years. That’s the RubinBrown difference. Jeff Winter, CPA, CGFM Partner-in-Charge Public Sector Services Group 314-290-3408 [email protected] www.RubinBrown.com Certified Public Accountants and Business Consultants Knowledge. Commitment. Value. Assurance | Internal Audit | Litigation Support | Qualified Plan Audit | SEC Advisory | Small Business 35 u spring 2008 issue State and Local Tax | Tax and Compliance | Valuations | Wealth Management INDUSTRy u The knowledge you need. PUBLIC SECTOR Public Sector Group Issues First Benchmarking Survey (cont.) • Debt to assets, which shows how leveraged the cities capital assets are, averaged 0.27 times. • Debt per capita averaged $887, which represents the debt burden on each citizen. • Tax revenues per capita averaged $608, while expenses per capita averaged $859, showing the need for other types of revenue like charges for services and grants. • Total grants and other non-tax revenues represented an average of 24 percent of total revenues, so these cities are more reliant on revenues from external sources. • Public safety expenses are always the largest functional expense and, on average, comprised 35 percent of total expenditures. • Debt service expenditures at the fund level use an average of up to 15 percent of total revenues that potentially could be used for services. The commitment you expect. The value you deserve. • Also on a fund basis, capital expenditures as a percent of total expenditures averaged 32 percent, which represents the government’s commitment to adequately provide for its capital asset needs. • On a fund basis, unreserved fund balance amounted to a healthy average of 39 percent of revenues, which shows that most cities can weather a temporary shortfall in revenues. For more than half a century, RubinBrown has been making a lasting mark on business. Our unique, one-firm approach means you benefit from the best of both worlds – specialized expertise and comprehensive services. All designed to deliver A complete copy of the statistical analysis can be found on our Web site at www.rubinbrown.com. the kind of insights and solutions you need to succeed. Questions? Contact: A passionate, professional team. A one-firm approach to service excellence. It’s how we bring real value to our clients. And it’s why they remain clients for decades, not just years. That’s the RubinBrown difference. Jeff Winter, CPA, CGFM Partner-in-Charge Public Sector Services Group 314-290-3408 [email protected] www.RubinBrown.com Certified Public Accountants and Business Consultants Knowledge. Commitment. Value. Assurance | Internal Audit | Litigation Support | Qualified Plan Audit | SEC Advisory | Small Business 35 u spring 2008 issue State and Local Tax | Tax and Compliance | Valuations | Wealth Management Knowledge. Commitment. Value. One North Brentwood St. Louis, Missouri 63105 Timely Reminders April 15 Individuals. File a 2007 income tax return and pay any tax due. If you want an automatic six-month extension of time to file the return, file Form 4868. If you paid cash wages of $1,500 or more in 2007 to a household employee, you must file Schedule H. Contributions to an IRA must be made by this date. If you are not paying your 2007 income tax through withholding (or will not pay in enough tax during the year that way), pay the first installment of your 2008 estimated tax. Use Form 1040-ES. Partnerships. File a 2007 calendar year return (Form 1065). Provide each partner with a copy of Schedule K-1. Corporations. Deposit the first installment of estimated income tax for 2008. April 30 Employers’ Taxes: Employers of non-agricultural and non-household employees must file Form 941 to report income tax withholding and FICA taxes for the first quarter of 2008. May 15 Exempt Organizations: Exempt organizations with a calendar year must file the annual return (Form 990, Form 990-EZ or Form 990-PF) for 2007. Organizations are exempt from income tax under Code Section 501. Calendar year Section 501 organizations with unrelated business income must file income tax returns (Form 990-T). June 2 IRA or SEP: Annual statements to IRS must be filed regarding 2007 account balances for an IRA or SEP (Form 5498). Participants and the IRS must be provided with IRA plan contribution information. June 16 Individuals: Payments of second installment of 2008 estimated tax by individuals (other than farmers and fisherman), trusts and estates and certain trusts. Corporations: Payment of second installment of 2008 estimated income tax by calendar year corporations. July 31 Employers’ Taxes: Employers of non-agricultural and non-household employees must file Form 941 to report income tax withholding and FICA taxes for the second quarter of 2008. Filings: Form 5500 due for calendar year taxpayers for 2007. “Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.”