All Categories - David A. Pope, CPA CGMA

IRA: Roth or Traditional?

1/31/2017

Roth IRA verses Traditional IRA

Retirement… something that most of us want and many of us are unprepared for. Retirement planning can be overwhelming with so many different options out there. For simplicity, I am going to outline some of the differences between a Roth IRA and a traditional IRA.

You can contribute for 2016 and 2017 up to $5,500 or $6,500 if you are over 50 each year for either a Roth IRA or a traditional IRA. You must have earned income to contribute to your IRA. One of the main differences between a Roth IRA and Traditional IRA is that a traditional IRA is tax deductible for federal and state income tax in the you make the contribution assuming your income doesn’t go over the income thresholds; whereas, a Roth IRA is not tax deductible. When you start taking money out for retirement through your ROTH IRA, withdrawals are not taxable, whereas money you take out of your traditional IRA is taxed at your ordinary rate. When deciding which IRA type to contribute to you should compare what your tax rate is now, compared to what you expect it to be in retirement, and whether you want to save the tax dollars now or in retirement.

Is A Health Savings Account Right For Me?

12/15/2016

Open enrollment in the individual marketplace is currently in effect until January 31, 2017, and many people are finding that their premiums are skyrocketing again, and out of pocket exposure is also going up. Have you ever thought about a Health Savings Account? A Health Savings Account (HSA) is like a savings account; but you can only use the money to pay for qualified health care expenses, and the money you put into the account is tax deductible. To be eligible for an HSA your insurance must be eligible as a high deductible plan, and have no copays. When searching for a health insurance plan they usually specify whether the account is HSA eligible or not.

A Path Forward Emerges

11/13/2016

In the initial hours and days of a Trump victory, the path forward for taxes begins to clarify. Much of this resembles principles that Ronald Reagan promoted in the lead-up to his 1986 overhaul of the tax code, mainly centering around simplification, elimination of preferences and overall fairness (most of which was abandoned first by Bush I and then Clinton, Bush II, and Obama in succession).

The following is an excerpt taken directly from a November 10 Wall Street Journal article by Laura Sanders and does a marvelous job of laying out the plans as they currently sit. As an aside, I believe every person in business, whether that business is large or small, should subscribe to the Wall Street Journal. Their insight is invaluable when planning for the future.

Income-tax rates:
Both Messrs. (President-Elect) Trump’s and (Speaker Paul) Ryan’s plans would consolidate the current rates on “ordinary” income such as wages and interest from seven brackets to just three—12%, 25% and 33%. It would also make changes to the calculation of “taxable income.”

The top rate of 33% would take effect at about $225,000 of taxable income for married couples; currently the top rate of 39.6% kicks in at $467,000 for couples. The top rate for singles under Mr. Trump’s plan would take effect at about $113,000, compared with $415,000 now, according to the Tax Policy Center in Washington.

In 2016 the 33% rate takes effect at about $231,000 of taxable income for married couples and $190,000 for singles.

Mr. (House Ways and Means Chairman Dave) Camp’s plan would also have three rates, with a top one set at 35%.

The upshot is that while most people would have lower tax bills, higher earners would save much more. According to the Tax Policy Center, nearly half the benefits from the Trump plan would go to the top 1% of households—those earning more than about $700,000. It could also increase taxes on many single parents and two-parent families with more than two children, although the Trump campaign said it would make sure this didn’t happen.

Deductions and credits:
All three plans would make it harder for individuals to benefit from specific tax deductions, for several reasons. One is that each plan raises the amount of the “standard” deduction, which gives taxpayers less need to break out deductions for mortgage interest, charitable gifts, state taxes and the like on Schedule A.

In addition, the value of a deduction drops as a taxpayer’s rate goes down. Thus higher earners may want to make charitable gifts this year to reap a greater benefit.

Each of the three plans also imposes other limits on deductions. For example, Mr. Trump’s plan would cap the value of Schedule A deductions at $100,000 for singles and $200,000 for married couples. Mr. Ryan’s plan would eliminate all deductions other than those for mortgage interest and charitable gifts. The Camp plan limits mortgage interest and would only allow charitable deductions above 2% of income.

The Trump plan is notable in offering a child-care tax benefit, even if the parents don’t pay for child care.

Capital gains and qualified dividends:
Mr. Trump’s plan would leave the current rate structure of 0%, 15% and 20% in place.

Mr. Ryan’s plan would revert to an older code provision that taxes capital gains, dividends and interest as ordinary income—after excluding 50% of it. Thus lower earners would see their rate rise from 0% to 6%, those in the middle would owe 12.5%, and the rate for top earners would fall to 16.5% from top 20%.

The Camp plan takes a similar approach but gives a 40% exclusion for capital gains and dividends, for a top rate of 21%.

Both the Trump and Ryan plans would eliminate a 3.8% surtax on net investment income. The Camp plan would retain the surtax but in some cases reduce it to 2.28%.

Alternative minimum tax:
All three plans would eliminate the alternative minimum tax, a levy that rescinds tax breaks and the benefit of lower brackets for people it applies to.

Estate and gift taxes:
Mr. Ryan’s plan would eliminate all gift and estate taxes. Mr. Trump’s plan would also eliminate these levies, but it would impose income taxes on the capital gains of assets held at death—beyond an exemption of about $5 million per person or $10 million per couple.

The Camp plan has no proposal on gift and estate taxes.

Revenue effects:
These sweeping changes don’t come cheap. The changes to individuals’ taxes in Mr. Trump’s plan would reduce federal revenue by an estimated $3.5 trillion over 10 years, while Mr. Ryan’s plan reduced it by an estimated $2.2 trillion. Mr. Camp’s plan doesn’t raise or lower much revenue over 10 years, but reductions after 10 years could be significant. These figures don’t take into account changes in the economy that could raise or lower tax revenue.

Corrections & Amplifications:
Under the Trump and Ryan tax proposals, the top rate of 33% would take effect at about $225,000 of taxable income for married couples; currently the top rate of 39.6% kicks in at $467,000 for couples. An earlier version of this article said that currently “that” rate kicks in at $467,000 for couples, without specifying it was referring to the current top rate of 39.6%, not the 33% rate.

The top rate for singles under Mr. Trump’s plan would take effect at about $113,000, compared with $415,000 now, according to the Tax Policy Center in Washington. An earlier version of this article incorrectly said the top rate for singles would take effect at about $186,000. (Nov. 10)

Write to Laura Saunders at [email protected]

Also, feel free to contact me at [email protected]

Speech to Greater Cheyenne Chamber of Commerce

2/10/2016

For the story of our firm is not how much money we have made or how many engagements we have performed.
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The story is written in the lives of the clients, the employees and the community we call family. We celebrate their victories and we mourn their losses. And it has been an honor to be part of their lives and to serve them all. It is what makes this profession the only profession for me.

On February 14, 2016, DAPCPA celebrates its 20th anniversary as a CPA firm. We have seen many changes and weathered a our share of storms over the last 20 years and it has been a great ride. Attached is a video of the speech I gave to the Cheyenne Chamber of Commerce on Friday, February 6, 2016 to commemorate the anniversary. The sound quality isn't great, so I included the text of the speech below.

Thank you to everyone who has made the last 20 years possible.

DP

Here is the full text of the speech:

Thank you, Max! I appreciate the introduction. And welcome, everybody to the February Luncheon!
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This month, DAPCPA gets to celebrate its 20th year as a firm.
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As a matter of fact, that anniversary falls ON Valentine's Day. 20 years ago I went to my stunning wife, Melissa and said Honey - how about instead of going out on Valentine's, let's move office furniture into the old Tribune building and eat takeout Chinese food? To her credit, she smiled that gorgeous smile and started planning the move. We haven't looked back since.
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From the very beginning, we designed DAPCPA to be 100 percent focused on client satisfaction. I never wanted to be the biggest, though we are no longer small. But I always wanted to be among the best and to focus all of our efforts on helping our clients succeed.
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This goes way beyond recording numbers. It is all about using our experience and expertise to go beyond the numbers.
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Like when I got a call at 5am on January 1st a few years ago and one of our clients had a fire that consumed their building on New Years Eve. It was brutally cold out and the water from the fire hoses made the parking lot into a skating rink. We dug the smoldering server and laptops out of the rubble and, working in partnership with the IT department at MHP, we had the files restored and we re-built their accounting system, getting the client up and running again within a few days.
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Or four years ago when a former tax client just thought something didn't feel right with his accounting system. We took a look and within an hour found evidence of fraud. Working with the client's attorney, we were able to prove roughly four million dollars of losses over a 13 year period. Our testimony in court led to what was at the time one of the largest civil fraud judgements in Wyoming history.
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Or in 2007, we helped achieve an S-Corp election retroactively back to 1996. This saved the client nearly half a million dollars in taxes and penalties. Or when a client asked us to help them split with the partners in their business. In a very adversarial atmosphere, we designed a methodology for the split that saved the clients and their partners almost four hundred thousand dollars.
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As a result of our commitment to our clients and our community, we have grown from three clients in 1996 to a firm that has three offices and more than 2,000 clients located across all fifty states and several foreign countries.
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As in the beginning, Melissa remains the Operations Director for the firms and we have Jonath Jackson as the partner in Cheyenne, as well as a GREAT staff, all of whom continue to push me to be my best. That, combined with great clients and awesome competitors have made the last 20 years an incredible ride.
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And I will leave you with this: I am always asked what the best advice I could give to someone starting a business. I always answer by giving the advice that came from my father-in-law, Herb Warner, when I started my firm. Herb was an amazing businessman. And he always made his points by telling a story.
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Herb told me about this old boy from Texas that used to drill wells. There must have been a lot of old boys from Texas, because every story Herb told began the same way - "There was this old boy from Texas". Anyway, When they were planning a well, the legal department at Herb's company would create the contract - and it was a beautiful contract - full of terms of art, all of the i's dotted ant the t's crossed and weighing in at about 150 pages.
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The legal department was very proud of the contract and the old boy showed up for the signing and wrote one line at the bottom of the contract and above his signature. What it said was "regardless of the above, I will drill a well, it will be done on time and it will cost such and such an amount". This drove the lawyers nuts. But Herb told them it was ok. Because the old boy always drilled the well, it was done on time and it never cost more than he said it would.

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So, Herb told me, If you are going to go into business, make it about your WORD.
Make it about TRUST.
Make it about RESPECT.
And doing what is RIGHT for you, your clients and the public you serve.
Make it about treating each client as if they were your only client.
And make it about being the BEST.
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In taking Herb's advice I have been able to develop relationships that matter. For the story of our firm is not how much money we have made or how many engagements we have performed.
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The story is written in the lives of the clients, the employees and the community we call family. We celebrate their victories and we mourn their losses. And it has been an honor to be part of their lives and to serve them all. It is what makes this profession the only profession for me.
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And I have to finish by thanking the Cheyenne Chamber, the entire Cheyenne community and the State of Wyoming for making my dream of owning a firm possible.
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So enjoy the food and the wonderful presentation from our State Treasurer and remember: When you need an accountant, choose a CPA. And when you choose a CPA, choose DAPCPA. Thank you!
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TOO MANY CATS AND WHAT YOU CAN DO ABOUT IT

6/9/2015

This article was prepared by the Cheyenne Animal Shelter's education committee. As a member of their Board of Directors, it has been my privilege to help in the wonderful cause that they champion. If you have a desire to help animals in need, please consider helping the Cheyenne Animal Shelter. Mark your calendars for June 13 and 14. The Cheyenne Animal Shelter, in conjunction with the Northern Colorado Friends of Ferals, will hold a Trap-Neuter-Release event for feral cats in the Cheyenne area. Please call the Shelter at 307-632-6655 for more information, or go to www.cheyenneanimalshelter.org.

We all know cats multiply and we should know that a pair of breeding cats can produce many, many kittens in just seven years. The unhappy result is booming feral cat colonies, too many "free kittens" ads, and too many cats being euthanized.

There are several types of cats that cause problems. Feral cats have never had owners and have fully reverted to the wild state, often in one generation. Strays are pets that have wandered off and can be mistaken for feral; the recovery rate for strays is a dismal three percent. Barn cats often are not afraid of people, but frequently are allowed to breed like ferals and their kittens are not tame. There are pet cats that roam outside but return home regularly, in violation of Cheyenne’s leash law. These cats have one thing in common: unless neutered or spayed, they are the source of the many kittens arriving at the animal shelter every week.

Year End Tax Planning - 2014 Style

10/3/2014

The following is comprised of information provided by Thompson-Reuters

Now that we have almost made it through the final individual extension deadline, we have to look at 2014 taxes and see if there is a way to minimize what we pay for this year. Year-end tax planning is especially challenging this year because Congress has yet to act on a host of tax breaks that expired at the end of 2013. Some of these tax breaks may be retroactively reinstated and extended, but Congress may not decide the fate of these tax breaks until the very end of this year (and, possibly, not until next year). These breaks include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line-deduction for qualified higher education expenses; tax-free IRA distributions for charitable purposes by those age 70- 1/2 or older; and the exclusion for up-to-$2 million of mortgage debt forgiveness on a principal residence. For businesses, tax breaks that expired at the end of last year and may be retroactively reinstated and extended include: 50% bonus first year depreciation for most new machinery, equipment and software; the $500,000 annual expensing limitation; the research tax credit; and the 15-year writeoff for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.

Higher-income-earners have unique concerns to address when mapping out year-end plans. They must be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax that applies to individuals receiving wages with respect to employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately).

The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). As year-end nears, a taxpayer's approach to minimizing or eliminating the 3.8% surtax will depend on his estimated MAGI and net investment income (NII) for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year, others should try to see if they can reduce MAGI other than NII, and other individuals will need to consider ways to minimize both NII and other types of MAGI.

The additional Medicare tax may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward year end to cover the tax. For example, an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year. He would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don't exceed $200,000. Also, in determining whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals also should be mindful that the additional Medicare tax may be overwithheld. This could occur, for example, where only one of two married spouses works and reaches the threshold for the employer to withhold, but the couple's income won't be high enough to actually cause the tax to be owed.

We have compiled a checklist of additional actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you (or a family member) will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make:

Year-End Tax Planning Moves for Individuals

Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.
Postpone income until 2015 and accelerate deductions into 2014 to lower your 2014 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2014 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2014. For example, this may be the case where a person's marginal tax rate is much lower this year than it will be next year or where lower income in 2015 will result in a higher tax credit for an individual who plans to purchase health insurance on a health exchange and is eligible for a premium assistance credit.
If you believe a Roth IRA is better than a traditional IRA, and want to remain in the market for the long term, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2014.
If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the assets in the Roth IRA account may have declined in value, and if you leave things as is, you will wind up paying a higher tax than is necessary. You can back out of the transaction by recharacterizing the conversion, that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA, if doing so proves advantageous.
It may be advantageous to try to arrange with your employer to defer a bonus that may be coming your way until 2015.
Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2014 deductions even if you don't pay your credit card bill until after the end of the year.
If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2014 if doing so won't create an alternative minimum tax (AMT) problem.
Take an eligible rollover distribution from a qualified retirement plan before the end of 2014 if you are facing a penalty for underpayment of estimated tax and having your employer increase your withholding isn't viable or won't sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2014. You can then timely roll over the gross amount of the distribution, i.e., the net amount you received plus the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2014, but the withheld tax will be applied pro rata over the full 2014 tax year to reduce previous underpayments of estimated tax.
Estimate the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2014, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses, are calculated in a more restrictive way for AMT purposes than for regular tax purposes in the case of a taxpayer who is over age 65 or whose spouse is over age 65 as of the close of the tax year. As a result, in some cases, deductions should not be accelerated.
You may be able to save taxes this year and next by applying a bunching strategy to "miscellaneous" itemized deductions (i.e., certain deductions that are allowed only to the extent they exceed 2% of adjusted gross income), medical expenses and other itemized deductions.
You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.
You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70- 1/2. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70- 1/2 in 2014, you can delay the first required distribution to 2015, but if you do, you will have to take a double distribution in 2015—the amount required for 2014 plus the amount required for 2015. Think twice before delaying 2014 distributions to 2015—bunching income into 2015 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2015 if you will be in a substantially lower bracket that year.
Increase the amount you set aside for next year in your employer's health flexible spending account (FSA) if you set aside too little for this year.
If you are eligible to make health savings account (HSA) contributions in December of this year, you can make a full year's worth of deductible HSA contributions for 2014. This is so even if you first became eligible on Dec. 1, 2014.
Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. You can give $14,000 in 2014 to each of an unlimited number of individuals but you can't carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

Year-End Tax-Planning Moves for Businesses & Business Owners

Businesses should buy machinery and equipment before year end and, under the generally applicable "half-year convention," thereby secure a half-year's worth of depreciation deductions for the first ownership year.
Although the business property expensing option is greatly reduced in 2014 (unless legislation changes this option for 2014), don't neglect to make expenditures that qualify for this option. For tax years beginning in 2014, the expensing limit is $25,000, and the investment-based reduction in the dollar limitation starts to take effect when property placed in service in the tax year exceeds $200,000.
Businesses may be able to take advantage of the "de minimis safe harbor election" (also known as the book-tax conformity election) to expense the costs of inexpensive assets and materials and supplies, assuming the costs don't have to be capitalized under the Code Sec. 263A uniform capitalization (UNICAP) rules. To qualify for the election, the cost of a unit-of-property can't exceed $5,000 if the taxpayer has an applicable financial statement (AFS; e.g., a certified audited financial statement along with an independent CPA's report). If there's no AFS, the cost of a unit of property can't exceed $500. Where the UNICAP rules aren't an issue, purchase such qualifying items before the end of 2014.
A corporation should consider accelerating income from 2015 to 2014 where doing so will prevent the corporation from moving into a higher bracket next year. Conversely, it should consider deferring income until 2015 where doing so will prevent the corporation from moving into a higher bracket this year.
A corporation should consider deferring income until next year if doing so will preserve the corporation s qualification for the small corporation alternative minimum tax (AMT) exemption for 2014. Note that there is never a reason to accelerate income for purposes of the small corporation AMT exemption because if a corporation doesn't qualify for the exemption for any given tax year, it will not qualify for the exemption for any later tax year.
A corporation (other than a "large" corporation) that anticipates a small net operating loss (NOL) for 2014 (and substantial net income in 2015) may find it worthwhile to accelerate just enough of its 2015 income (or to defer just enough of its 2014 deductions) to create a small amount of net income for 2014. This will permit the corporation to base its 2015 estimated tax installments on the relatively small amount of income shown on its 2014 return, rather than having to pay estimated taxes based on 100% of its much larger 2015 taxable income.
If your business qualifies for the domestic production activities deduction for its 2014 tax year, consider whether the 50%-of-W-2 wages limitation on that deduction applies. If it does, consider ways to increase 2014 W-2 income, e.g., by bonuses to owner-shareholders whose compensation is allocable to domestic production gross receipts. Note that the limitation applies to amounts paid with respect to employment in calendar year 2014, even if the business has a fiscal year.
To reduce 2014 taxable income, consider deferring a debt-cancellation event until 2015.
To reduce 2014 taxable income, consider disposing of a passive activity in 2014 if doing so will allow you to deduct suspended passive activity losses.
If you own an interest in a partnership or S corporation consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.

Independence Day

7/4/2014

Is life so dear or peace so sweet as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take, but as for me, give me liberty or give me death! - Patrick Henry

Have a safe and happy Independence Day! The American Dream of hard work breeding success is still alive. Today is a beautiful day to remember both the sacrifices made to achieve our freedom and the dream of freedom that leads to those sacrifices. Dreams lead to goals, goals lead to action, action leads to results and results lead to success. The freedom to put forth effort, risk all in success or failure - the idea that we can rise or fall - and yet in falling, still have the opportunity to rise again - That is what makes The United States of America the greatest nation ever to grace God's Green Earth.

Adaptive Adventures

3/19/2014

Adaptive Adventures is a 501(C)3 non-profit organization that is dedicated to helping physically challenged individuals engage in adventure sports that help them develop athleticism and self-confidence. Please click the button on my product and service referral page (http://www.davidapope.com/product-and-service-referrals.html) to find out how you can donate or volunteer (Or go directly to www.adaptiveadventures.org).

I recently had the honor of meeting Matt Feeney, one of the founders of Adaptive Adventures, at the Winter Park/Fraser Valley Rotary Club. He had been invited to speak about the history and mission of his group.
Needless to say, I was both impressed and inspired. Adaptive Adventures, a non-profit corporation, helps physically challenged folks learn and experience adventure sports. His group has paved the way for these extraordinary individuals to be able to live a life that has fewer boundaries. Of particular interest is their work with wounded veterans. Funding from Wounded Warrior makes up almost one-third of the budget for Adaptive.
On the financial side, I was particularly impressed with the Group's stewardship of the donations it receives. Approximately 90% of the donations go directly to program expenses - directly for the benefit of the participants. In addition, program fees (the amounts charged to the participants) make up only 10% of their funding. This means that Adaptive is able to meet their mission by charging the participants 90% less than they would have to charge if the public did not help. The direct result is that the adventures are opened up to a much wider array of individuals. As a numbers guy, this is impressive to me. It is a huge challenge for many non-profits to perform the marketing and administration necessary while continuing to make sure the greatest amount of money possible flows into the actual programs.

Please keep these folks in mind when you are making your donation plans for this year.

Fearless Fosdick and Anyface

1/23/2014

This is part one in a series of several installments on the subject of fraud. This first installment asks who commits fraud. Future installments will discuss ways to prevent fraud, how to find fraud and what to do when it is found. -DP

The challenge for capitalism is that the things that breed trust also breed the environment for fraud.

- James Surowieki

The famous comic book investigator, Fearless Fosdick* heard a rumor. His arch enemy Anyface* was back in town. And Fearless knew where Anyface was going to be. With a knowing smile, Fearless grabbed his gun, went to the busy street corner at the allotted time, sat on a bench and awaited the fateful appearance of Anyface.

Now, Anyface had gained his moniker appropriately - he was such a master of disguise that you could never tell who he was. Fearless had a plan, though. He pulled his gun and shot every person that passed his corner. He saw a businessman and shot him. He saw a housewife and shot her. A priest. A librarian. A banker. All shot.

Satisfied that he must have killed Anyface, Fearless smiled and left the scene, walking over his victims and fully self-assured that the ends justified the means.

After Fearless is gone, though, the bench he sat on gets up and walks away.

Fraud is insidious and evil. It can take many forms and I have seen it turn otherwise trusting business owners into bitter, angry tyrants. And often, even after going on a rampage where nobody but the most trusted are left standing, the object of their frustration remains right under them. In Fosdick's case, Anyface was quite literally beneath him and he never knew it.

The reason I start with Fearless is that fraud can happen at any time to any business and can be perpetrated by any employee, subcontractor, vendor or customer you deal with.

Management and business owners are not exempt from committing fraud, either. It is not uncommon for them to commit fraud against lenders, investors and regulatory agencies.

What is Fraud?

According to the Association of Certified Fraud Examiners (ACFE), fraud is an intentional act of deceit that results in a perpetrator gaining an unfair advantage over another person. Legally, for an act to be fraudulent, there must be:

a. A false statement, representation or disclosure,

b. A material fact which induces a person to act,

c. An intent to deceive,

d. A justifiable reliance;

e. An injury or loss is suffered by the victim.

Direct or indirect financial benefit is usually the reason people commit fraud and the result is always some sort of injury to another person's rights or interests. This can take the form of false or misleading information, obfuscation of the truth, outright lies, tricks, confidence schemes, outright theft and misappropriation of assets. The costs are measured in the loss of assets, revenues or reserves.

The ACFE prepares a bi-annual report on occupational fraud. The 2012 version studied 1,388 cases and highlighted a group of very interesting statistics:

The average business lost 5% of its gross income to fraud,
The median occupational fraud lasted 18 months and cost the company $140,000,
Frauds committed by high level employees or owners are almost always more expensive than others - in fact, they were triple the average loss,
20% of the frauds studied caused more than a million dollars in losses,
77% of the frauds were committed by employees in the following departments: accounting, operations, sales, executive, customer service and purchasing,
Prior to the fraud, 85% of the perpetrators had never been convicted or had their employment terminated because of fraud,
And, in my mind one of the most compelling statistics; 27% of all frauds were committed by employees that have been with the business for more than 10 years. This means that many times, those that you think you can trust most are the ones you need to watch the closest.

The National Center for Crime Data also released the following statistics:

80% of the frauds they studied were the work of insiders,
30% of all business failures are caused by fraud,
At one point in time, 45 of the 100 largest military suppliers were under investigation for fraud,
44% of all restaurant employees admit to stealing food or money from their employers.

Characteristics of the perpetrators

Living beyond their means: The accounts payable clerk that drives the Porsche or takes exotic vacations every year may bear watching.
Experiencing financial difficulties: Collection calls, levies, garnishments are all red flags that these folks may be desperate.
Exhibiting control issues or protectiveness about their work: Classic red flag.
Unusually close association with vendors or customers: They may like him for a reason.
Over-the-top deal-maker: This guy can convince you of anything and may be willing to fudge everything.
Divorce or family problems: This can cause similar types of desperation to the ones with financial difficulties.
Irritability, suspiciousness or defensiveness: Speaks for itself.
Addiction problems: This is an unfortunate and insidious problem that causes a different type of desperation in people and has to be confronted if it becomes known.
Refusal to take vacations: There is a reason they don't want to be gone.
A discontent, whether vocal about it or not: They mentally justify their behavior because they are getting back at YOU.
An overly enthusiastic person who tells you not to worry and that they can do it all: They can't do it all and you shouldn't let them try.

Much as Fearless had to fear everybody on the street corner, these statistics and characteristics may make you feel like you have to fear everybody you work with. However, these are just signs to watch for and hopefully I have been able to help you start to think about your organization as well as your employees. Unfortunately, it is a matter of keeping an eye on everyone and still trying to enjoy relationships with them. In the future installments of this series, I will hopefully give you some tools that will help you sleep at night knowing that you have covered your bases adequately enough.

*Fearless Fosdick was a comic strip within the Li'l Abner comic strip that was published for several decades. It was originally a parody of the Dick Tracy series, but grew to have its own following due to the heavy dose of satire that the author (Al Capp) injected into the strip.

My re-telling of this episode is based on an old memory, so it may not be exact. I am happy to accept edits if there is anyone out there that has the original.

Our Client Service Philosophy

1/6/2014

It is very simple. As a firm of Certified Public Accountants, we first serve the public in the public interest.

Beyond the public service side, how do we differentiate ourselves for our clients? In addition to our expertise, we strive to make it so every client:

Has access to the firm's principals as well as the personnel with the expertise appropriate to their needs when they need it,
Knows how important they are to us, and
Is always heard.

Very simple.

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