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Article Dean Dorton

Last night, the annual Best Places to Work in Kentucky awards ceremony was held at the Lexington Convention Center, where the Kentucky Chamber of Commerce and the Kentucky Society for Human Resource Management announced this year’s winners. Nearly 1,300 attendees joined in celebrating the 100 Kentucky companies who were recognized for their commitment to focus, measure, and move their workplace environments toward excellence. For the 13th consecutive year, Dean Dorton was a part of this prestigious list.

This year, Dean Dorton ranked #4 overall in the Medium Companies category (150 to 499 employees; determined as of November each year), having previously ranked #10 in the Small Companies category. This was Dean Dorton’s first year in the Medium Company category. Dean Dorton was also recognized as one of only six companies who has been a Best Place to Work for 13 years and is a member of the Best Places to Work Hall of Fame!

David Bundy, President & CEO,

“We are beyond proud and honored to be recognized in the Top 5 of Medium Companies in Kentucky this year. Our team members are the cornerstone of our success and their passion for each other, our clients, and their communities plays a large role in the overall culture of the firm. We strive to maintain a workplace that is both satisfying personally and professionally and through the information from the Best Places to Work in Kentucky survey, we are able to create and execute initiatives important to our team.”

The selection process, managed by Best Companies Group, is based on an assessment of the company’s employee policies and procedures and the results of an internal employee survey.

More about Best Places to Work in Kentucky and the full list of winners can be found at bestplacestoworkky.com.

Article Dean Dorton

Third party relationships have become more important as companies look to leverage outside expertise. As relationships evolve, management needs to keep a close eye to determine if the third party contractor has become an employee through the eyes of the IRS. The IRS provides guidance through Topic 762 (see below).

As discussed below, criteria exists to evaluate the contractor relationships; this area has drawn a lot of attention from the IRS. Companies should use caution in drafting service agreements — how much control a company has will go a long way in supporting the conclusion. The more autonomy a contractor can demonstrate in how he/she works will help support the contractor conclusion.

Please let us know if you want to discuss this situation with one of our subject matter experts.

Topic 762: Independent Contractor vs. Employee

For federal employment tax purposes, the usual common law rules are applicable to determine if a worker is an independent contractor or an employee. Under the common law, you must examine the relationship between the worker and the business. You should consider all evidence of the degree of control and independence in this relationship. The facts that provide this evidence fall into three categories: behavioral control, financial control, and the relationship of the parties.

Behavioral control covers facts that show if the business has a right to direct and control what work is accomplished and how the work is done, through instructions, training, or other means.

Financial control covers facts that show if the business has a right to direct or control the financial and business aspects of the worker’s job. This includes:

  • The extent to which the worker has unreimbursed business expenses
  • The extent of the worker’s investment in the facilities or tools used in performing services
  • The extent to which the worker makes his or her services available to the relevant market
  • How the business pays the worker
  • The extent to which the worker can realize a profit or incur a loss

Relationship of the parties covers facts that show the type of relationship the parties had. This includes:

  • Written contracts describing the relationship the parties intended to create
  • Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay
  • The permanency of the relationship
  • The extent to which services performed by the worker are a key aspect of the regular business of the company

Source: https://www.irs.gov/taxtopics/tc762.html

Contact your Dean Dorton advisor or Gina Whitis at gwhitis@deandorton.com to learn more.

Article Dean Dorton

More than ever, public companies and their auditors are under tremendous scrutiny. History shows us that changes in the public realm may trickle down to the private sector as well. An assessment of the current public landscape highlights the following audit and accounting items:

  • The SEC requires audit firms to file with the PCAOB the name of the engagement partner for all public company audits issued on or after January 31, 2017. Will the personal identification of the audit partner(s) in a public document impact the extent of audit procedures?
  • The PCAOB is working on the following projects to enhance audit procedures:
      • Work of specialists
      • Supervision of other auditors
      • Accounting estimates
      • Going concern
  • New accounting standards facing public companies include:
      • Going concern assessment relevant in 2016 for calendar year end companies.
      • Lease accounting to implement by 2019 with early adoption allowed. Traditional operating versus financing leases is relevant, but now all long-term leases are placed on the balance sheet.
      • Revenue recognition can be early adopted in 2017 for calendar year end companies. Even if companies do not early adopt, systems should be set up now for purposes of transitioning in 2019 for comparative purposes.
  • The SEC and FASB continue to work on a joint disclosure simplification project. Other interesting FASB proposals include:
    • Removing step 2 of the goodwill impairment assessment. Impairment would equal the difference between carrying value and enterprise value.
    • Inclusion of restricted cash in the beginning and ending cash total on the statement of cash flows. This will remove the need to decide between operating and investing classification for restricted cash.

At Dean Dorton, we work with public companies in a consulting capacity including SOX compliance. Contact Bill Kohm or Jim Tencza to learn how we can partner to help you tackle these audit/accounting items and free you up to stay focused on your strategic objectives.

Bill Kohm: bkohm@deandorton.com
Jim Tencza: jtencza@deandorton.com

Article Dean Dorton

Many businesses host a picnic for employees in the summer. It’s a fun activity for your staff and you may be able to take a larger deduction for the cost than you would on other meal and entertainment expenses.

Deduction limits

Generally, businesses are limited to deducting 50% of allowable meal and entertainment expenses. But certain expenses are 100% deductible, including expenses:

  • For recreational or social activities for employees, such as summer picnics and holiday parties,
  • For food and beverages furnished at the workplace primarily for employees, and
  • That are excludable from employees’ income as de minimis fringe benefits.

There is one caveat for a 100% deduction: The entire staff must be invited. Otherwise, expenses are deductible under the regular business entertainment rules.

Recordkeeping requirements

Whether you deduct 50% or 100% of allowable expenses, there are a number of requirements, including certain records you must keep to prove your expenses.

If your company has substantial meal and entertainment expenses, you can reduce your tax bill by separately accounting for and documenting expenses that are 100% deductible. If doing so would create an administrative burden, you may be able to use statistical sampling methods to estimate the portion of meal and entertainment expenses that are fully deductible.

For more information about deducting business meals and entertainment, including how to take advantage of the 100% deduction, please contact us.

Article Dean Dorton

The U.S. and international economies are becoming more competitive every day. Many of us are competing for the same workforce; for others it may be the same customer, but we have to ensure that we continue to respond to the rapidly changing environment in which we operate. Ten years ago, did you ever worry about cybersecurity?

These are a few of the reasons – it is critical to analyze your business risks at least annually. We recommend formally documenting your key risks along with how you are responding to those risks. This can be a very helpful exercise when strategizing how you should be spending your most valuable resources (your people). Below are a few of the key risks that you may want to monitor in 2016.

5 Key Risks Companies Should Monitor in 2016
Plan now to address employment, inflation, currency, cybersecurity and vendor risks

By: Joe Brusuelas and Rob Kastenschmidt of RSM US LLP

The U.S. economy continues its slow but steady improvement. While growth slowed to 0.6 percent in the first quarter of 2015, it rebounded to 3.9 percent in the second quarter, and we expect growth for the year of about 2.2 percent. Unemployment dropped to 5.4 percent by the second quarter and was down to 5 percent by November. Consumer demand, especially for services and autos, is strong; the housing market continues to improve; and energy and commodity costs remain low.

But the international picture is less sunny. While we expect global growth of about 3 percent in 2015, with a slight uptick next year, a variety of issues are affecting international economies. Growth in China continues to slow as it seeks to rebalance its economy from an export-oriented model to a growth model driven by internal consumption. While the long-term outlook for China is positive, its current slowing growth and the related reduction in demand for resources is adversely affecting many emerging economies. The already uncertain economic picture in Europe is being further stressed by the massive influx of refugees from the Middle East. All of this means lower international demand for U.S. goods and services. It also is leading to a divergence in monetary policy between the U.S. and other economies. In the U.S., the Federal Reserve will likely increase the federal funds rate by 25 basis points in December 2015 followed by another 50 to 70 basis points by mid-2016, while central banks in Europe, Japan and possibly even China are pushing rates toward zero.

What does all this mean for U.S. companies? For 2016, this means you should monitor and be prepared to respond to three key economic risks: a tightening domestic labor market, inflation and the challenges presented by a strengthening dollar. In addition, cybersecurity risks continue to increase and diversify, requiring heightened attention, and the increasing reliance of many companies on third parties raises new risk management issues.

1. Plan for a tighter labor market

An unemployment rate of 5 percent doesn’t tell the whole story. The number of unemployed persons per job opening is down to 1.44 from a peak of almost 7 in 2010. Not only is the overall unemployment rate down, we are also finally seeing stronger growth in higher-wage jobs. Since January 2014, the U.S. has added 2.4 million high-wage jobs compared to 2.3 million lower-wage jobs. While this is helping boost consumer confidence and demand, it also means U.S. employers need to plan for a tighter labor market. The risks of a tighter labor market? Increased labor costs, higher attrition and stronger competition for top talent. To offset these risks, employers should consider the following strategies:

  • Explore automation strategies. Now may be the time to investigate whether the expense of improved automation might be offset by savings in labor costs.
  • Consider offshoring, outsourcing and contractor services. With the U.S. economy outperforming its global peers, offshoring certain functions may offer improved returns given continued low labor costs overseas. Outsourcing non-core functions or increasing reliance on contractors is another way to manage labor costs and can have the added benefit of reducing administrative demands and benefit expenses.
  • Re-evaluate compensation programs. Competition for top performers is heating up. Take a look at your compensation practices to ensure that you are effectively rewarding and motivating your best people. This will also make you more attractive to the candidates you wish to hire.
  • Improve your recruiting practices. LinkedIn and other social media platforms are far more important now than they were prior to the economic crisis, but can’t be relied upon as the sole way of identifying potential candidates. Are your talent identification and recruiting practices keeping up?

2. Manage inflation

  • Inflation is still near historic lows and deflation continues for energy and commodities. But energy and commodity costs are likely at or near their floors, and the Fed is almost certain to start raising rates soon. According to RSM’s Middle Market Leadership Council survey, 67 percent of executives expect increases in their costs over the next six months, compared to just 54 percent in the second quarter. What to do?
  • Focus on efficiency and cost-cutting programs. Decreased costs during the crisis and recession diverted attention from these efforts at many companies. Now is the time to increase discipline.
  • Explore hedging strategies.
  • Shift your purchasing patterns and explore supply chain changes. Global economic conditions are uneven. Weaker economic conditions in other markets may present purchasing opportunities.
  • Audit vendors and monitor margin compression at key customers. Now is the time to reevaluate your vendor relationships to ensure they are delivering real value. And keep an eye on how inflation is affecting margins with your key customers so you can make appropriate pricing and relationship management decisions.

3. Minimize the risks and maximize the benefits of a stronger dollar

  • The U.S. economy is outperforming its global peers. Higher U.S. Treasury rates are spurring an influx of foreign capital and strengthening the dollar. For middle-market companies, this is a double-edged sword. It makes U.S. exports more expensive and diminishes the value of foreign earnings denominated in U.S. dollars. But it also drives down the cost of off-shore sourcing options and can create international acquisition opportunities.
  • Look for global supply chain opportunities. Take advantage of the strong dollar by finding offshore sourcing options.
  • Consider global hedging options to control risks and costs.
  • Consider international expansion opportunities. If expanding through acquisition in new global markets is part of your corporate strategy, the strong dollar could mean a better deal.

4. Increase attention to cybersecurity

No organization can afford lax cybersecurity controls. Many companies think they aren’t large enough to attract the attention of cyber criminals, but the NetDiligence® 2015 Cyber Claims Study shows nano organizations and small organizations actually experienced the most incidents, with 29 percent coming from each of those groups. Your best defense? Make sure you have three layers of cybersecurity controls—preventative controls that make you a hard target, detective controls to timely identify any breach and corrective controls that let you respond quickly and appropriately to intrusions.

  • Preventative controls. Your preventative controls should include a vulnerability assessment, patch management, strong access and authentication controls, a solid intrusion prevention system (IPS), configuration management, and up-to-date anti-virus protection.
  • Detective controls. Most companies choose either to outsource detection controls to a Managed Security Service Provider (MSSP) or to purchase a Security Information and Event Management (SIEM) product. Weigh that choice carefully and be sure the solution you choose is appropriate to your threat environment and internal capabilities. A strong intrusion detection system is also vital, along with compliance and operational monitoring, and anti-virus and network alerts.
  • Corrective controls. Effective corrective controls start with a robust incident response plan. You will also want strong forensic capabilities; anti-virus quarantine and isolation protocols; disaster recovery and business continuity plans; and administrative, legal and insurance protections.

5. Control your third-party risks

Corporate boundaries are getting fuzzier as businesses of all kinds explore a wide range of third-party relationships that allow them to focus on their core business while leveraging outside expertise in areas like logistics, technology and a variety of other specialized functions. That creates efficiencies that drive growth, but it also gives rise to a wide range of new risk issues. Your ability to execute your strategy now hinges partly on the performance of third parties. You could face liabilities stemming from non-performance by your vendors. Connections between your systems and those of your vendors create new security risks. And the web of social media and other connections between you and your vendors can expose your organization to reputational risk due to the failings of third parties. Here are six third-party risk questions to consider in 2016:

  • Do you know where all your contracts are located? Are they stored electronically?
  • Do you understand and are you fulfilling all of your contractual responsibilities?
  • Have your contracts been updated to reflect new regulations for privacy and data security?
  • Are you adequately monitoring the IT risks associated with your third parties?
  • Is the insurance coverage maintained by your third parties sufficient to cover losses in the event of a data breach?
  • Are your audits of the contract performance and related invoices sufficient to ensure alignment with acceptable risk levels directed by your senior management and board of directors?

If you have any questions about the key risks above or how to perform your own formal risk assessment, please contact:
Lance Mann: lmann@deandorton.com or 502.566.1005
Jim Tencza: jtencza@deandorton.com or 502.5661071

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