You have just taken over as president of the chapter and your first piece of mail is a letter from the Internal Revenue Service asking where the tax returns for the chapter are for the last five years. You immediately call the treasurer who has no clue as to what you are talking about. She has no record of the chapter ever filing. After all, why should it? The chapter is just a bunch of club managers getting together, and after all, doesn’t National Headquarters handle that?

Sound farfetched? Not really. For the last several years, we have focused on the issue and still many chapters have done nothing about it. The issue has been discussed extensively at the Leadership/Legislative Conference and articles have appeared in Chapter Digest. Unfortunately, chapter officers often do not focus on the administrative requirements and can be surprised at what their responsibilities really are. The IRS has increased the examination of tax-exempt organizations over the last few years and the fact that a chapter has not filed a return would be an easy adjustment. Failure to file for tax exemption could mean the IRS will treat you as a taxable entity. In the last year, at least one chapter ended up filing a corporate tax return and paying tax because it earned income and had never filed for tax exemption.

The Club Managers Association of America is an organization exempt from tax under section 501(c)(6) of the Internal Revenue Code. Chapters, if they have requested exemption, would be exempt under the same section of the code. However, chapters are not exempt merely because CMAA is exempt, and the filing by CMAA does not cover them.

Each chapter is a separate entity and should incorporate in its own right. Once incorporated, it should request exemption from the IRS. If the chapter has already done all of this, it probably has a filing requirement for state and federal purposes each year. Form 990 and Form 990EZ are used by tax-exempt organizations to provide the required information to the IRS.

If the chapter’s gross receipts exceed $25,000 per year, it must file either Form 990 or Form 990EZ. Note that we are talking about gross, not net, receipts. Gross receipts are defined as the total amount received from all sources during an annual accounting period, without deduction for any expenses. If a chapter charges dues and bills the members directly for any education or social activity, it could easily reach $25,000 in gross receipts. Some chapters try to avoid the requirement by having the members pay the club directly for any events. While it may eliminate the requirement in many cases, in the long run, this procedure may be more trouble than it is worth.

In addition, a recent change in the tax law requires a chapter to provide information to the IRS even if it does not have a formal filing requirement. This change makes it more imperative that a chapter file for tax exemption. Effective now, chapters with less than $25,000 in gross receipts must electronically file Form 990-N “e-postcard.” Minimal information is requested including name, address, Web site address, EIN and the name of the principal officer. Failure to file form 990-N for three consecutive years results in automatic loss of tax exempt status. 2010 was the end of the three year period and the IRS revoked the tax exempt status of hundreds of organizations during 2011.

If the chapter does not request exemption, the IRS could take the position that the entity is an association that should be taxed as a corporation. In that case, the chapter would be taxable on all its revenue and could be hit with penalties for a failure to file tax returns.

Most chapters will not have any unrelated business income (UBI). However, if a chapter has more than $1,000 in UBI, it must also file Form 990T. Note that the definition of unrelated business income is different for clubs than it will be for the chapter and does include advertising revenue.

Frequently, states will require a copy of the Form 990 to be filed with the state. Generally, a return for an exempt organization must be filed by the 15th day of the fifth month. Extensions can be requested that will extend this date until the 15th day of the 11th month.

Unless a procedure is established to ensure the yearly filing, problems are apt to arise since the board changes on a regular basis. Just remember, you do not want to be a chapter officer chased by the IRS because of a failure to file. If you have any questions about chapter filing requirements, please e-mail me at kreilly@wittmares.com.

]]> http://www.wittmares.com/2012/02/22/is-your-chapter-incorporated/feed/ 0 http://www.wittmares.com/2012/02/17/up-in-the-air-decision-making/ http://www.wittmares.com/2012/02/17/up-in-the-air-decision-making/#comments Fri, 17 Feb 2012 17:59:04 +0000 smiller http://www.wittmares.com/?p=3647 Continue reading →]]> By Kevin F. Reilly, J.D., CPA, Partner
As Published in The Boardroom

As I travel around the country and visit with boards and managers, an often repeated issue relates to the decision making process in a club. In spite of attempts by management to provide sufficient facts and structure to the decision making process, many clubs make decisions based on anecdotal evidence of what is happening in the club or even worse at the club down the street. Although club managers have made tremendous strides in running a club like a business, making decisions based on fact rather than opinion or emotion is not always the norm. Anyone who has been a member of a club board certainly has an understanding and appreciation of the dynamics in the boardroom. As is so often the case in the larger world, the most persuasive person or argument is not necessarily the right one.

In endeavors that matter most, including those associated with life and death such as flying a commercial airplane, decisions are made in a standardized, fact based manner, not based on opinion. Pilots for United or American don’t get to convince each other in the cockpit which items will be checked pre-flight and in which order. The confident, charismatic pilot does not get to convince the introverted co-pilot to change the pre-flight checklist. From the moment the pilots enter the cockpit, they are locked into a standardized, data driven routine governed by the airline’s chief pilot that is aimed at assuring no mistakes are made. Every pilot and co-pilot goes through the same process whether they agree with it or not, independent of their own view and feelings.

In the larger world, as individuals, we are all free to make decisions in a manner consistent with our own personality. Some of us fly by the seat of our pants while some agonize over decisions and gather input and data from every conceivable source. We are not bound to make decisions in any particular manner when acting in our own self-interest. Yet what manner is required when we step into a role like the pilots – a fiduciary role? A fiduciary is someone acting on the behalf of another based on an expectation of trust. The commercial pilot is a fiduciary of the highest order. The passengers have placed their lives in the trust of the pilots. That is why all pilots follow a standardized pre-flight routine that is objective and independent of their own views, emotions and thoughts.

A club’s board is the central decision making body of the club. Members elect the board and expect the board to represent and act in the best interest of the club as a whole, not a particular segment. Members of boards in clubs are also fiduciaries. Life and death may not be at stake (but you cannot always tell that from the passion brought to some issues). However, there is still an expectation that decisions will be made in an objective manner with the necessary diligence. As a fiduciary in any walk of life, there is an obligation on the part of the fiduciary (board member) and an expectation on the trusting party (membership at large) that decisions will be made in an educated manner based on thought and diligence and that the right decision will be made based on all the facts available.

At the board level in a club, decisions are made by a group of people. Like pilots, the individuals in the group come to the table with a diverse set of personalities and experiences. Some are charismatic, some are introverted. Some are penny wise and pound wise, others are penny foolish and pound foolish. But all are charged with a common duty – which is exactly equal to the duty of a commercial pilot. Each board member is charged with acting with diligence on behalf of the membership of the club. Those meeting the standards of a fiduciary cannot make decisions based solely on their own emotions or opinions. Decisions are expected to be made based on data and fact. Once a decision is made, it must be supported by the board, regardless of the disagreements leading up to it. Basing these controversial decisions on fact makes it easier to support a decision a board member once opposed.

In the November/December edition of The BoardRoom magazine, Bob Salmore talked about benchmarking and its importance. Data is important. For more than 55 years, PKF has been involved in providing benchmarking data through its publication Clubs in Town & Country. Other firms provide data on a more localized level. While valuable, these publications have a limited value in that they are averages and clubs are different. Remember that two clubs, one with $99 in sales and one with $1 in sales average out to $50. Use of precise, “apples to apples” benchmarking data can have a profound effect on your board’s decision making process.

Data is the way to unite the various personalities on your board, to blend the view of the “penny pinchers” and the “pound fools” and to allow the board to discharge its fiduciary duty in an objective, fact based manner. Using all the tools available will give confidence to the board and result in a better operating club.

Several recent tax developments may impact you or your organization as you prepare to file your 2011 income tax returns. Many of these changes extend to future filings as well, and require action to ensure proper documentation. Please take a moment to review the following developments applicable to individuals and entities, as well as general information that may affect you. Should you wish to discuss any topic in more detail, or address how these updates may impact your unique situation, please contact your Witt Mares tax advisor who will be glad to assist you.

Should you wish to discuss any of these developments in more detail, or address how these updates may impact your unique situation, please contact your Witt Mares tax advisor who will be glad to assist you.

Information of General Interest

Standard mileage rates flat or lower. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 55.5¢ per business mile traveled after 2011. For 2011, it was 55.5¢ for miles driven after June 30 and 51¢ per mile for miles driven before July 1. Further, the 2012 rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 23¢ per mile. For 2011, it was 23.5¢ for miles driven after June 30 and 19¢ per mile for miles driven before July 1.

Recent Tax Developments Affecting Individuals

New foreign asset reporting guidance and form. The IRS issued detailed guidance on the new law requiring individuals with an interest in a “specified foreign financial asset” during the tax year to attach a disclosure statement to their income tax return for any year in which the aggregate value of all such assets is greater than $50,000 (or a dollar amount higher than $50,000 as the IRS may prescribe). In addition, the IRS issued Form 8938 (Statement of Specified Foreign Financial Assets), which individual taxpayers will use starting in the 2012 tax filing season to report specified foreign financial assets for tax year 2011. The temporary regulations detail which assets are covered, when the form must be filed and describes penalties for non-compliance.

New Form 8949 replaces Form 1040, Schedule D-1. The IRS is requiring more detail in reporting capital gain transactions. Many transactions that, in previous years, would have been reported on Form 1040, Schedule D or D-1 must be reported on Form 8949 if they occurred in 2011.

Recent Tax Developments Affecting Businesses

Reporting credit card transactions and third party payments. Beginning in 2011, banks and credit card companies are required to file an information return with the IRS, reporting the gross amount of credit card and debit card payments a merchant received during the year, along with the merchant’s name, address and taxpayer identification number. A parallel IRS requirement for businesses and rental property owners to segregate such receipts on their tax returns has been postponed until 2012, even though 2011 tax forms provide a space for the breakdown. The IRS has instructed taxpayers to report nothing on the line labeled “merchant and third party payments”.

Beginning with tax year 2012, segregating these receipts will be mandatory. If you have not begun to plan for this new requirement, you may consider setting up an income account for payments received by you or your business from customers, clients or tenants made by credit card or through a third party settlement organization, such as PayPal.

Withholding requirement for government contractors repealed. A law enacted in 2005 required the Federal government and the government of every state, political subdivision of a state, and instrumentality of a state or state subdivision (including multi-state agencies) making certain payments to a person providing any property or services (e.g., payments to a government contractor) to deduct and withhold 3% from that payment. Although the withholding requirement was originally set to apply to payments made after 2010, it was subsequently deferred to apply to payments made after 2012. A law enacted in November 2011 repealed the government contractor withholding requirement altogether.

Payroll tax cut temporarily extended. The Temporary Payroll Tax Cut Continuation Act of 2011 was enacted late last year. It temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2% to 4.2% of wages paid through Feb. 29, 2012. Shortly after its passage, the IRS instructed employers to implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. However, note that employees receiving more than $18,350 in wages during the two-month period will be taxed an extra 2% on wages over the $18,350, effectively negating the tax cut on the excess wages. Self-employed individuals also benefit from the cut as the social security tax rate for a self-employed individual remains at 10.4%, for self-employment income of up to $18,350 (reduced by wages subject to the lower rate for 2012). If Congress can negotiate a deal to extend the payroll tax cut for all of 2012, the recapture provision for employees would not apply.

Credit for hiring veterans extended and enhanced. A law enacted late in 2011 extended and enhanced the portion of the work opportunity credit that is allowed for hiring qualified veterans. Before the law was passed, the credit would have been available only if the qualified veteran were hired before Jan. 1, 2012. The new law extends the credit for hiring qualified veterans, adds two new classes of veterans who are considered qualified veterans, increases the credit for hiring certain qualified veterans, “fast-tracks” the process for certifying that an individual is a qualified veteran, and provides tax-exempt employers with a credit against payroll tax for hiring qualified veterans. The credit amount varies depending on a number of factors. It can be as high as $9,600 for hiring certain qualified disabled veterans. For an employer to qualify for the credit, the qualified veteran must begin work for the employer before Jan. 1, 2013 and other requirements must be met.

New rules for deducting or capitalizing tangible property costs. The IRS has issued new regulations for determining whether amounts paid to acquire, produce, or improve tangible property may be currently deducted as business expenses or must be capitalized. The regulations will affect virtually all taxpayers that acquire, produce, or improve tangible property. They are comprehensive, voluminous and virtually rewrite the rules in this area. For example, they provide detailed definitions of “materials and supplies” and “rotable and temporary spare parts” and prescribe new rules and elective de minimis and optional methods for handling their cost. They also have rules for differentiating between deductible repairs and capitalizable improvements, among many other items. The regulations generally are effective in tax years beginning after Dec. 31, 2011.

Should you have questions about recent tax developments, please do not hesitate to contact your Witt Mares tax professional who will be glad to discuss your particular situation with you.

Seeing a significant uptick in the number of loan modifications over the past few years, regulators and external auditors alike have been putting increased pressure on credit unions to become compliant with troubled debt restructuring rules. As a result, many institutions are receiving documents of resolution from the National Credit Union Administration for failing to properly identify and account for TDRs.

There are two primary reasons why credit unions are struggling: (1) TDRs are subjective, which means there are not always clear and concise answers, and (2) until now, there have been no regulatory or industry best practice guidelines on this issue, making it that much more challenging to properly identify, monitor and report troubled debt restructurings.

To clarify, a TDR occurs when a credit union grants a concession to a member because the member is experiencing financial difficulties. Both elements must be present for a loan modification to qualify as a TDR. The credit union must have granted a concession and the member must be experiencing financial difficulty. Concessions can be as simple as lowering the interest rate on the loan or extending the payoff date.

Seeing a need for specific industry guidelines, the Financial Accounting Standards Board has recently issued an Accounting Standards Update specifically for TDR accounting. This new guidance, ASU 2011-02, for the first time provides four specific guidelines to assist with identifying a TDR.

Guideline No. 1: This guideline focuses on the “market rate” for loan modifications and provides clarification on what constitutes a concession. It states that if the borrower does not otherwise have access to funds at a market rate for debt with similar characteristics as the restructured debt, the restructuring will be considered to be at a below-market rate, which may indicate a concession has been granted. For example, if the credit union is currently offering a 30-year, fixed-rate mortgage at 6 percent to its members, but modifies an existing 30-year, fixed-rate mortgage from 7 percent to 5 percent, then a concession has been granted because the “market rate” for the loan is 6 percent.

Guideline No. 2: A concession usually means giving something up, decreasing the interest rate or reducing the amount of principal or interest owed, but this is not necessarily always true. Under the new guidelines, a temporary or permanent increase in the contractual interest rate could still be considered a concession if the new interest rate on the restructured debt is below the market interest rate for new debt with similar characteristics.

As an example, a credit union may modify a loan by extending it by several years. Since the credit union is taking on more risk by extending the loan, it might increase the rate of a loan. Using the same example as above, but modifying the example so that the credit union increases the loan from 4 percent to 5 percent, even though the current market rate is 6 percent, the credit union in this example has still granted a concession by increasing to a rate lower than the current market rate.

Guideline No. 3: The third guideline states that a restructuring that results in a delay in payment that is insignificant is not considered a concession. The example provided is if a seven-year loan was extended by three months, this would not be considered a concession because the extension is not significant enough. Credit unions are encouraged to refine their loan modification policies to define by loan product type what would be considered an insignificant concession.

Guideline No. 4: The last guideline focuses on the member’s future ability to service the debt. A credit union may conclude that a borrower is experiencing financial difficulties, even though the debtor is not currently in payment default. The bar has been raised on this issue and now credit unions will be required to perform more due diligence on the member at the time of modification. A credit union should evaluate whether it is probable that the borrower would be in payment default on any of its debt in the foreseeable future (the next three to six months) without a modification.

Because identifying a TDR is so subjective, it can be extremely difficult for credit unions to ensure they have properly identified and accounted for all TDRs. Unfortunately, regulators and external auditors still expect the credit union to properly identify and account for them. The new FASB guidance will hopefully ease some of the confusion when it comes to TDR identification. The two main points are:

• It is all about the market rate. How does the rate we are giving in the modification compare to what we would give the member if this were a new loan and the borrower was not experiencing financial hardship; and
• No longer can credit unions simply rely on whether the member is currently delinquent at the time of modification to determine if the member is having financial difficulty. The credit union must perform additional due diligence and determine if the member is gong to be in default in the near future.

Andy Keeney, a nationally recognized credit union attorney with Kaufman & Canoles, and Harvey Johnson, a leading credit union accountant with Witt Mares, jointly authored this article.

]]> http://www.wittmares.com/2012/01/25/new-fasb-guidance-helps-clarify-tdr-accounting/feed/ 0 http://www.wittmares.com/2012/01/25/risk-management-the-roof-that-protects-your-organization/ http://www.wittmares.com/2012/01/25/risk-management-the-roof-that-protects-your-organization/#comments Wed, 25 Jan 2012 20:39:02 +0000 smiller http://www.wittmares.com/?p=3408 Continue reading →]]> By Harvey Johnson, CPA, Manager
As Published in Inside Business

Financial institutions – for right or wrong – have been directly tied to the systemic problems of the economic crash and subsequent Great Recession that followed. As a result banks and credit unions have had a renewed focus on effective risk management.

In the wake of all this, financial institutions have turned to a concept called Enterprise Risk Management, or ERM, to help provide a holistic view of the risk that affects their organizations. The concept of ERM was actually started in the mid ’90s but outside of Fortune 500 companies it never really took off, mainly because there wasn’t much guidance on how to build an ERM program. The same holds true today. There is no regulatory guidance on ERM so many banks and credit unions are turning to consultants to help them.

As ERM consultants are keen to note, putting an ERM program in place may not be as hard as you think. After all, banks and credit unions have been tracking various risks for years in some form, even if it’s with a fragmented, silo-bound sort of method. Getting an ERM program started may be as easy as taking those risk processes you already have in place and tying them all together into a cohesive system.

Pitfalls

Here are some of the most common pitfalls and five strategies for success to building a successful ERM program.

• Lack of cultural change. It’s a journey, not a destination. ERM has to be ingrained into the culture of the institution.
• No backing from senior-level management. If the CEO thinks it’s important, then it becomes important to everyone else.
• ERM is only seen as a compliance requirement. Product/service risk assessments are generally viewed as a compliance requirement, so they only get updated once a year and there is little value placed on what the actual assessment means. Asking a financial institution to do “another” risk assessment isn’t exactly at the top of their list of favorite things to do.
• Lack of board involvement. Many boards are already overwhelmed with regulatory requirements and reporting. As a result, the last thing on their minds is asking for more information.
• Risk is viewed in silos. Most risks are inter-related, meaning they affect many different aspects of the organization, crossing over operational, compliance and strategic risk initiatives. The current risk assessments being done by banks and credit unions are usually viewed in silos versus an integrated approach.
• Complexity – too many risks and threats to manage. You can come up with an infinite number of risks and threats if you think long enough about it. Given there is little to no guidance on how to implement effective ERM programs, the key is to focus on significant risks that affect the institution.
• Unrealistic project deadlines. Don’t think an ERM program can be built from the ground up by the end of the next quarter. Establishing an effective ERM program can take anywhere from 18 to 36 months.
• ERM is outsourced. Unfortunately, there is no turn-key, ready-made solution to simply pull off the shelf and implement. But using automated tools can help reduce the time and effort spent on risk management, especially if it’s an automated and integrated tool.

Best Practices

Now that we’ve addressed the pitfalls, let’s shift attention to some best practices for an effective risk management program.

• Define (and understand) your board’s risk appetite. While this sounds pretty simple, it’s not as straightforward as you think, especially given that risk appetites change. Most of the board members when asked will probably tell you their risk appetite has changed a bit since the current economic downturn. Most board members are a little more risk-adverse and conservative than they were five years ago.
• Define an assessment methodology that utilizes a common language to assess risk. As stated earlier, banks and credit unions have been assessing risk for years. The challenge is that it has been in a fragmented, silo approach. Many of the risk assessments are done with a completely different approach and do not consider the impact they have on other areas of operations, governance and compliance, making it difficult to provide a holistic view for management. The key is to use a common methodology and language to assess risk. A consultant typically asks that you measure the inherent risk (what could go wrong) against the control risk (procedures you have put in place to make sure things don’t go wrong). This will give you a residual risk rating that can be applied across all areas to begin to integrate the risk assessments.
• Build the program from the bottom up to ensure all threats and risks are considered. Think of your bank or credit union as a house. Your risk management program is like the roof on your house – it protects your institution much like a roof protects a house from the elements and other negative outside forces. But you didn’t build a roof and then build the foundation of your house. Rather, you built the foundation from the bottom up. The same goes with your risk management program. You want to build it from the bottom up to ensure all threats and weaknesses have been identified.
• Centralize an inventory of people, business processes, and technologies. Every product or service a bank or credit union offers is either provided by or supported by people and technologies. There is just an inherent correlation between the three. Have a central inventory that allows the organization to better understand the risks and controls related to them.
• Automate and integrate.Eliminate the “silos” and manual processes you have been accustomed to and automate the process in order to gain efficiency and leverage on the natural integration between operational areas. This allows management to focus on “running” the bank or credit union versus wasting time on a manual process that will most certainly be viewed as a compliance requirement (see pitfalls above).

If done properly, an effective risk management program can provide banks and credit unions with a real strategic advantage over its competitors. Major benefits of an effective risk management include: (1) identifying areas for potential operational losses; (2) identifying and reducing the cost of compliance; and (3) ability to link strategic goals to business practices. All of which lead to helping ensure the financial stability and safety and soundness of the institution.

Harvey Johnson is an audit manager and is an active member of the Financial Institution Services Team at Witt Mares PLC, a regional accounting and consulting firm serving clients throughout the mid-Atlantic. Contact him at hjohnson@wittmares.com or visit www.wittmares.com.

Particularly hard hit by the current state of the economy have been nonprofit organizations, many of which were forced to merge with other nonprofits or simply close their doors.

Much of the pain felt by nonprofits derives from the fact that so many rely on donor contributions or public funds to meet their budgetary needs. Individuals and organizations have had less ability to make donations to the worthiest of causes than in past years. Federal, state and many local governments have had to cut funding due to budgetary constraints as well.

Clearly, nonprofits can’t control what happens on Wall Street. They can, however, help themselves to weather such economic downturns by constantly emphasizing the need to budget and plan for the unexpected. What happens if major donors suddenly go away, if key personnel responsible for “rain making” leave for another job, or if the economy takes an unprecedented, across-the-board downturn?

The answer is that nonprofits must plan for such worst case scenarios, but do so in a way that is realistic. That planning begins with creating a sound and sustainable budget that is in line with the nonprofit’s mission, objectives, and goals. Budget planning not only will guide the organization’s direction and help it to make sound financial decisions, but will also ensure that the organization does not overspend its funds.

To be truly effective, nonprofit budgets should be:

• Attainable: To serve as a guide for fundraising efforts and program activities, a budget must be well-reasoned and reflect current conditions. Nonprofits should use the prior year’s actual results as a starting point and avoid unsubstantiated revenue projections and unsupported cost estimates.
• Consistent: An effective budget must be consistent with short and long-term strategic plans, and be aligned to the organization’s mission and goals.
• Flexible: Budgets are based on a combination of facts and assumptions. If actual events and conditions vary from these assumptions, there must be opportunities to amend the budget to account for unanticipated expenses.
• Measurable: The basis on which the budget is created should be the same as the operational activity accounted for internally.
• Accountable: Nonprofits should hold individuals in charge of budgeting their department or program accountable for the actual results of performance against the budget. It is important, though, not to make consequences too harsh or too rewarding. Going too far in either direction may tempt employees to manipulate the numbers or redirect efforts to focus on the numbers alone.
• Unique: Each organization’s budgeting process is unique, so find the budgeting process that works best for you. Remember: budgeting is an art, not a science.

To create an effective budget, begin by planning. Determine the goals for each program undertaken by the organization. Use the prior year as a starting point, then take a hard look at possible inefficiencies or additions, keeping in mind that personnel costs typically account for the largest expense within the budget. Adjust for known increases in rent, insurance, fuel prices, etc. Then use current data to get an idea for target budget amounts.

With that information in hand, a draft budget can be compiled. Once a solid draft of the budget has been completed, it should be reviewed in a collaborative manner with senior management and the Board. Document any assumptions you have made and have them reviewed by the appropriate oversight committee before finalizing the budget.

In Conclusion
Operating in the nonprofit industry can be extremely challenging, but creating a sound financial budget will create a firm foundation for your organization. The more documentation around the assumptions, the easier it is to account for and adjust to volatility that results from factors that impact the organization. Taking such formal and deliberate steps will help nonprofits to avoid the pitfalls, delays, and pushback that are all too often a part of the budgeting process – particularly in our current economic climate.

Lee T. Sullivan, CPA, is a Manager at Witt Mares, PLC and leads the firm’s nonprofit team. Bo Garner, MBA, is a Senior Accountant at the firm. Witt Mares, PLC is a regional accounting and consulting firm serving clients throughout the Mid-Atlantic. For more information, please contact the authors at lsullivan@wittmares.com or bgarner@wittmares.com.

]]> http://www.wittmares.com/2012/01/18/nonprofit-budgeting/feed/ 0 http://www.wittmares.com/2011/12/28/financial-trends-in-a-recovering-economy/ http://www.wittmares.com/2011/12/28/financial-trends-in-a-recovering-economy/#comments Wed, 28 Dec 2011 21:14:33 +0000 smiller http://www.wittmares.com/?p=2945 Continue reading →]]> By Kevin F. Reilly, J.D., CPA, Partner
As Published in The Boardroom

It is nothing you haven’t heard. Clubs continue to face a very difficult time with the economy slowly recovering from a recession. Consumer confidence is still low and unemployment is unreasonably high. At a session at the recent Club Managers Conference, well over 65 percent of the managers in attendance stated that while they expected 2011 to be a better year, they did not feel that the club industry had turned the corner. By the time this article is published, you should know how 2011 will turn out. Extensive coverage has occurred about the problems that clubs are having in media as diverse as CNN to the Wall Street Journal to local newspapers to internet blogs. It seems that the public as a whole is reveling in the difficulties that the club industry is having. Pundits predict that 100-200 golf courses will need to close each year for the next several until supply and demand are equal. There was a net loss of 90 clubs in 2009 (140 closed) and 61 in 2010 (107 closed). But it started long before 2009. From 1990 -2000 the number of member owned clubs dropped by six percent and since then the number has dropped another ten percent. More than one quarter of the closures in the past decade were private clubs. Even now, it appears that 10-15 percent of public golf courses are at risk. From the excesses of the early parts of the decade to the pull back during the recession, the private club has experienced a wide range of issues but none more important than relevancy.

The amount of funds available for entertainment continues to shrink and the competition for this smaller pot continues to increase. Prospective and even existing members debate as to whether they should spend the funds to join or to remain a member at a club. The demographic mix within the United States continues to change and unless the private club industry changes some of its membership policies, the pool of potential applicants will continue to contract. Baby boomers did not join clubs in the numbers expected and most are passed the age when historically people have joined clubs. Generation X and Y have different interest. For many, the club is a luxury they can no longer afford or even desire.

Exclusivity is not quite as important and may even work against private clubs when going after the younger generation. The private club is opening its doors to the general public to generate additional revenue. Members wonder just how exclusive it really is. Many private clubs still have policies that attract those who are already members but may turn off the potential member. Clubs must addressed the issues of importance to the younger generations including: denim, families, social media, cell phones and significant others. Private clubs still seem to be more appealing to men than women but women control more of the discretionary funds in a household. With corporations changing the way they do business, the increased time people spend commuting, and the desire to spend more time with family, it becomes more difficult for many to justify the cost of membership.

Clubs continue to lose members and are having a very difficult time in finding new ones. The days of a long waiting list and ever increasing initiation fees are long gone. As we have said many times in the past, clubs are in the dues business and if membership drops, so does dues revenue. In this difficult economy, clubs must find ways to increase membership value, while at the same time, control cost. When it comes right down to it, membership in a club is discretionary. Members have a limited amount of discretionary funds and the club needs to convince its members that those funds would be better spent at the club. With so much competition for the entertainment dollar, members, and potential members, must be convinced that the club is a good investment.

Clubs are adapting to the recession in a number of ways. No matter how creative a club gets, the members still foot the bill. The club needs to keep its existing members and get new members in the door. New and creative programs reducing the amount of up-front cost are the norm. Initiation fees are coming down in many locations and special incentives now are prevalent. Clubs are reaching out to more and more people to find members.

Clubs must be very careful in making long term decisions based on a hopefully short – term recession. Of course clubs must make cuts but they must do this while still providing value. Management is spending more time in trying to cut expenses. The problem of course is doing this while keeping the facilities looking good and up-to-date. If your members no longer receive the same service, the “value” of membership is less and it makes it easier for members to leave. You can cut yourself into bankruptcy. In addition, if the club down the street is having a special on joining, with little or no initiation fee, there is less incentive for your members to stay.

For many clubs, long range planning has taken a back seat to short term survival. This is expected but be careful that decisions made now do not prevent long-term success. While the club may be going through a difficult time, it is because many of its members are as well. Clubs must be empathetic to these members but must also be realistic in what it can do. The board must come up with a policy on leave of absences related to economic hardships and apply it consistently. The problem with allowing a leave of absence is that the fixed costs in running a club do not go away. For every member on leave, you are asking the current members to carry a heavier load. On the other hand, you may want to allow the member back at some future time.

One of the more concerning trends with clubs is that members are spending less at the Club. The two charts show that both country and city clubs members are spending less. Even with an increase in dues, income per member is the lowest it has been since 2004 for country clubs and 2003 for city clubs. However, all is not totally bleak. While members spent less, clubs have come to grips with this and adjusted expenses accordingly. However, this is a short term solution.

In the medium and longer term, the club must evaluate its total operations. What is the mission statement of the club? Is it realistic? Can it be all things to all people? What differentiates it from other clubs in the area? Can that be highlighted? Would the club be more profitable if it eliminated certain functions or venues and focused on what it does best? Clubs, and members, are notorious for coming up with new non-revenue, but not non-cost, activities. Is this the time and place to be implementing them? Is everything on the table in the evaluation? It is critical that clubs get all stakeholders involved in any analysis. It has to be more than the board and upper management. Engage the members and all employees in the discussions. It is amazing where good ideas can arise.

While the economy is not good, it has begun to turnaround. While clubs are going through a difficult time, it should not be seen as all doom and gloom. Private clubs have been around for a long time. They provide a need, particularly in an era of mobility. People need a place they can call home. The club that will survive and even flourish is the one that can identify its core values, understand its members and its market and be willing to make the changes that are necessary. The healthiest are still healthy and the economy has removed some of the competition. As long as club realize they must, and are willing to, change, the improvement expected in the economy will only help the industry.

]]> http://www.wittmares.com/2011/12/28/financial-trends-in-a-recovering-economy/feed/ 0 http://www.wittmares.com/2011/12/16/inside-business-names-witt-mares-mary-c-aldrich-sphr-a-2011-women-in-business-honoree/ http://www.wittmares.com/2011/12/16/inside-business-names-witt-mares-mary-c-aldrich-sphr-a-2011-women-in-business-honoree/#comments Fri, 16 Dec 2011 15:28:36 +0000 smiller http://www.wittmares.com/?p=2887 Continue reading →]]> For Immediate Release
Contact: Jessica Trzyna or Ray Weiss
443.621.7690 or jtrzyna@weissprassociates.com

NEWPORT NEWS, VA (December 16, 2011) – Witt Mares, PLC, a regional public accounting and consulting firm serving clients throughout the Mid-Atlantic, is pleased to announce that Mary C. Aldrich, SPHR, has been recognized as one of this year’s Women in Business by Inside Business.

In its ninth year, this award is meant to acknowledge and honor successful women in business in the Hampton Roads community who are leaders in their industry, mentors to their coworkers and decision makers within their business. This year’s nominees were selected based on their entrepreneurial and professional accomplishments, their power and influence and their involvement in the business community.

This year’s winners join a group of 194 who have been honored through this program since it begain in 2003. Ms. Aldrich, along with her fellow nominees, was honored at an event hosted by Inside Business at the Norfolk Waterside Marriott on December 15.

To view a complete list of the winners, visit the publication’s website at www.insidebiz.com.

About Witt Mares, PLC
With a long history dating back to 1979, Witt Mares, PLC is a regional public accounting and business consulting firm headquartered in Newport News, VA. The firm also has offices in Fairfax, Richmond, Norfolk, and Williamsburg. Witt Mares provides its clients a broad range of business services in the areas of audit and accounting, tax planning and preparation, pension plan design/administration, merger and acquisition consulting and investment management.

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]]> http://www.wittmares.com/2011/12/16/inside-business-names-witt-mares-mary-c-aldrich-sphr-a-2011-women-in-business-honoree/feed/ 0 http://www.wittmares.com/2011/11/15/partial-plan-termination/ http://www.wittmares.com/2011/11/15/partial-plan-termination/#comments Tue, 15 Nov 2011 20:13:21 +0000 smiller http://www.wittmares.com/?p=2761 Continue reading →]]> Submitted by Witt Mares, PLC
As Published in Employee Benefit Plan Review

Has Your Organization Terminated Your Plan Without Knowing?

According to a recent report by the U.S. Bureau of Labor Statistics, approximately 14 million people currently are unemployed across the country, pushing the national unemployment rate to 9.1 percent. Based on this data, it is clear the economic downturn continues to have an impact on virtually every American. Businesses, of course, are not immune to this and – as a result – have been looking for new ways to make ends meet while retaining as much capital as possible.

One way companies have managed to cut back and save a significant amount of money without laying off employees is to decrease benefit plans, with an eye specifically toward 401(k) plans. This allows employees to keep their jobs while giving employers another way to save funds. Employers that eliminate or suspend matching funds into 401(k) plans potentially can save hundreds of thousands of dollars annually.

Employers, however, have to be aware of what they are cutting – and how much. There is a good chance that the company’s plan may have been terminated without even knowing it. Being aware of what causes a plan termination will help to prevent potential problems with the Department of Labor and Internal Revenue Service in the future.

What Constitutes a Partial Plan Termination?
A partial plan termination usually occurs when (1) an event or series of events causes a group of participants to be excluded from coverage or (2) a plan amendment adversely affects employees’ rights to vest in plan benefits. Another reason for a partial plan termination comes when there has been a substantial reduction in the number of participants due to an action by the employer, such as employee layoffs or cutbacks in benefit plans.

As with so many situations, determining a partial plan termination must be analyzed on a case-by-case basis. The facts and circumstances of each particular case are weighed out when determining whether the reduction in the number of participants is significant enough to cause a partial plan termination. Criteria that help make this determination include:

• Exclusion of a group of employees who have previously been covered by the plan. This can result from a plan amendment or termination actions by the employer. Should an organization experience a reduction in force representing 20 percent of its workforce and plan participants, a partial plan termination may occur.
• Impact on employee rights. A partial plan termination also can occur when plan amendments adversely affect the rights of employees to vest in benefits under the plan.
• Turnover rate. The turnover rate is used to support a partial plan termination. This is determined by a mathematical equation, calculated using a multitude of factors [26CFR 1.411(d)-2] Rev. Rul. 2007-43.

Impact and Corrective Actions
A partial plan termination can be significant, especially if the plan sponsor is unaware of the termination. On a partial plan termination, participants become 100 percent vested in their funded and accrued benefits. Failure to fully vest participants involved in a partial plan termination could lead to plan disqualification. [IRC Sec. 411(d)(3)].

It is worth noting that the federal government puts full responsibility on the employer when it comes to fully complying with federal laws. If a plan sponsor is not in compliance, the organization could face serious repercussions from the Department of Labor (DOL) and/or the Internal Revenue Service (IRS), such as significant fines or even a plan disqualification.

Employers can request that the IRS make a determination as to whether a partial plan termination has occurred by filing a Form 5310 (Application for Determination of Employee Benefit Plan). The IRS operates on a six-year filing cycle for pre-approved plans and a five-year cycle for individually designed plans. Unless an organization’s plan happens to be on this cycle, it could be a particularly long wait to receive a determination letter back from the IRS.

What About Standard Plan Termination?
While 401(k) plans must be established with the intent to continue indefinitely, an employer, of course, may decide to terminate its plan at its discretion. As with a partial plan termination, participants in a plan will become fully vested in their account balances upon a standard plan termination.

A standard plan termination generally begins with the plan sponsor adopting a board resolution or initiating termination procedures as stipulated in the plan document. If this occurs, the plan administrator must immediately provide notice of the plan termination to all participants. Participant and employer contributions must also stop once the resolution to terminate the plan has been adopted. And of course, once adoption occurs no new participants may enter the plan.

Upon plan termination , the plan assets should be distributed as soon as administratively feasible, but generally the IRS views this to mean within one year after the resolution to terminate the plan.. Until that time, the plan administrator should continue to carry out normal plan operations. Beneficiaries, for example, should continue to be paid. Plan assets should continue to be invested. And Form 5500 should continue to be filed until all of the plan assets have been distributed.

It also should be noted that until the date that the plan administrator notifies the IRS of the termination under regulations [IRC Sec. 411(d)(3)], a plan that experiences a complete discontinuance of contributions will not be treated as terminated. That plan presumably will be treated as terminated only after all of the assets have been distributed to the participants and the IRS has been notified via the plan’s Form 5500.

In Conclusion
A yearly audit provides one way to identify potential issues with the federal government. While plan audits may be required, the benefit of an audit will help plan sponsors catch, or become aware of, such mistakes and correct them during the plan year through self-correction, if eligible. Once self-correction is off the table, an organization is looking at very long, complicated, and expensive process to resolve any problems with the IRS.

All of this points to the need to talk to the record keeper, ERISA attorney or auditor regularly – not just at the end of the plan year. Regularly communicating with your auditor is particularly important if the plan is changing quickly or substantially. By being aware of plan changes, an organization can prevent major headaches on the backend.

WILLIAMSBURG, VA (11/3/11) – Addison Pock has joined Witt Mares Financial Vision, LLC, as a Wealth Strategy Associate. Witt Mares Financial Vision is a Registered Investment Advisory firm headquartered in Williamsburg, Virginia.

Pock, a recent graduate of Virginia Tech, was previously an intern with Witt Mares Financial Vision. While interning, Pock focused on learning investment strategies and gained experience in performing portfolio analyses.

“With the current state of the economy, there are many qualified candidates available,” said David Bush, CPA, CFP®, PFS, and Managing Director of Witt Mares Financial Vision. “But, having had the opportunity to work with Addison last summer, we saw how seriously he took his responsibilities, and how he consistently placed the clients first. When we recognized the need to add a new member to the team, Addison was our first choice.”

While at Virginia Tech, Pock was a member of the Financial Management Association and participated in the Gamma Beta Phi Honor and Service Society. Pock was also on the Dean’s List and graduated Magna Cum Laude with a degree in finance.

Most recently, Witt Mares Financial Vision was named to Financial Advisor Magazine’s 2011 Financial Advisor Top Registered Investment Advisor Ranking.

About Witt Mares Financial Vision, LLC
Witt Mares Financial Vision, LLC, a wholly owned division of Witt Mares, PLC, is a Registered Investment Advisory firm providing affordable, fee-only investment advice and asset management using the world’s leading no-load passive asset-class funds. Witt Mares Financial Vision consists of talented and experienced Certified Public Accountants, Certified Financial Planners, and registered investment advisors who have strong business and investment experience. This team combines financial, tax and estate planning services with investment advisory services to provide clients with sound recommendations to help them achieve their financial goals and peace of mind.

About Witt Mares, PLC
With a long history dating back to 1979, Witt Mares, PLC is a regional accounting and business consulting firm headquartered in Newport News, VA. The firm also has offices in Fairfax, Richmond, Norfolk, and Williamsburg. Witt Mares provides its clients a broad range of business services in the areas of audit and accounting, tax planning and preparation, pension plan design/administration, merger and acquisition consulting and investment management.

Witt Mares Financial Vision, LLC is an SEC registered investment advisor. The “FA’s 2011 Independent RIA Ranking” is based upon the assets information and the number of clients information provided on Form ADV for 454 advisors. Financial Advisor Magazine is an independent association unaffiliated with Witt Mares Financial Vision, LLC. The ranking is not indicative of an advisor’s performance and is not representative of any client’s experience.

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