Foundation Center: Nearly $3 Billion Given by Private Sources to Katrina Victims

Via the Accounting Web website (click title above for link): The Foundation Center, which monitors giving from corporate and foundation donors, found that $2.96 billion were given in private aid in response to Hurricane Katrina and the subsequent flooding in New Orleans. Of this amount, one-sixth or about one-half billion came from corporate and foundation giving. Cited as especially generous were: Starkey Help America Hearing Project, Walmart, Federal Home Loan Bank of Cincinnati, Freddie Mac mortgage, General Electric, Cox Communications, Office Depot, Comcast and IBM. This, along with the response to the tragic events of 9/11/01, were billion-dollar giving events.

Another source, though not listed by the Foundation Center, that deserves credit for the private response to Katrina was N.Z. Bear's blogosphere mobilization. Heavily promoted on Instapundit and with numerous participants in the financial blogosphere, this effort was an effective display of the grass-roots power of bloggers.

BlockHeads (or: Everything's Out-of-Date at Kansas City (Corporate))

From TaxProf: "Interesting press release yesterday from H. R. Block: 'As part of its ongoing work to remediate internal control...The restatement pertains primarily to errors made in determining the company's effective state income tax rate, resulting in a cumulative understatement of state income tax liability of approximately $32 million on April 30 (ed.--Would April 1 be more appropriate?), 2005...' Nice to see a company live up to its promise: 'We ensure that you will benefit from every deduction and credit available to you...' ".

Oh, to have Scott Ott's (www.scrappleface.com) skill at satire! The scary thing is--my wife and I are using TaxCut for our taxes this year. Guess I better double-check the results.

SOX for all publicly-held gets big name support

A group of retired but not retiring well-known names in the world of finance signed a letter urging Christopher Cox of the SEC and William Gradison of the PCAOB to maintain present standards under Sarbanes-Oxley for all publicly-traded companies. These luminaries included one-time Fed chairman Paul Volcker, former SEC chair Arthur Levitt, prior U.S. Comptroller General Charles Bowsher, past TIAA-CREF head John Biggs and Vanguard founder John Bogle. The letter said that proposed changes exempting public companies with revenues under $125 million and mitigating regulations on certain other smaller public companies said that the proposal was an overreaction to small firm complaints and that real reform of capital markets would be jeopardized if the proposal mitigating the impact on smaller public firms was implemented.

Long-term Care: a Growth Field

Kalorama Associates recently released a study indicating double-digit revenue growth for long-term care activities such as nursing homes, hospices and home health care. GAO found that while long-term health care insurance was growing in popularity; only 10% of those over 65 (in 2002) had purchased this insurance. Good news however--long-term health care insurance is generally deductible. Limits on deductibility range from $280 if under 40 to $1,060 if 50-60 to $3,830 if over 70.

Free CPE in St. Looie?

Financial services firm H. D. Vest is offering free registration for its "Vest Fest" at the end of May and start of June. More than 75 sessions will be held in retirement and estate planning, technology and insurance strategies. President Roger Ochs expects over 800 advisors to attend.

I have had no contact with H. D. Vest. I am intrigued by free CPE.

Katrina Response Flaws Heavily Related to Staffing Problems

A House committee report on the shortcomings of the US Government's response to Hurricane Katrina indicated that a dysfunctional culture within FEMA may have played a major part. Evidence cited included testimony by Mississippi FEMA director Bill Carwile that he had to turn to Forest Service and city firefighters because of personnel shortfalls and Louisiana deputy director Scott Wells indicating that Louisiana had neither the personnel, expertise or training for the hurricane. Additional statements indicated that FEMA had a poor reputation for morale with many top people leaving in the years leading up to Katrina and little evidence that top officals took action to address warnings of unpreparedness.

As I and many others have said before, there is plenty of blame to go around for the post-Katrina debacle. More importantly, are FEMA, Homeland Security and state and local governments learning and changing anything for the future. This article was not overly reassuring on that score.

More light blog weeks

The next two weeks will also be light on blogging; though they should be heavier than the week just past (three posts in six days?).

More than Norton or McAfee Needed to Stop These Viruses

Germs in the Marketplace, a study conducted by the Clorox Company in Tuscon and Washington, DC found that accounting offices were second only to teachers in level of bacteria contaminations. By contrast, law offices only had about one-seventh of the germ level as accounting offices (this should provide plenty of good material for both accountant and attorney jokes). Dr. Charles Gerba of the University of Arizona recommended regular hand-washing (do accounting offices need the "wash your hands" signs used by restaurants?) and daily use of disinfectant wipes on commonly-used surfaces.

The study probably is most valuable as a post-Thanksgiving reminder to be careful during the flu season to practice good hygiene.

Time to Update Peer Review?

An AICPA Task Force has recommended modifications to the present peer review system to make it more transparent and bring it more into line with present practice. Included in specific requirements were: concise and "plain English" reports, call for all 50 states to require peer reviews, disclosure of results and an AICPA campaign to recruit peer reviewers.

The recommendations should help continue the rebuilding process of trust in the profession which has been going on since Enron. My biggest concern--with many CPA firms already stretched thin; how are you going to get firms to start peer reviewing?

Contracts Matter

Was going to make a much longer post on this topic; then time realities set in. On a day glorifying romance and sizzle; it can be easy to look longingly at the nearby pasture and think about how green it is. There is, however, a reason for wedding VOWS and it goes beyond protecting any offspring of the union to protecting the emotional state of the couple.

This is not meant to be harsh on the divorced and remarried--I don't know their circumstances and I have plenty of flaws myself. For those who are both passionate and perserverant and combine amore with agape, congratuations and applause--you are better men and women than I. At the same time for the imperfect rest of us, faithfulness is probably better than realizing fantasies.

Watch those Family Limited Partnerships! The IRS is Coming!

The IRS is putting extra emphasis on family limited partnerships (FLP), a popular device for controlling gift and estate taxes, to insure that the FLP has more substance than simply a tax avoidance device. A common design for the FLP is for the general partner (usually one or both parents) to manage the partnership with the limited partner (children or other heirs) having rights to receive distributions but few if any other rights. As far as substance, typically general partners will place assets into the trust with the plan to distribute the assets to limited partners at below-market values, citing minority discounts and lack of marketability, two common discounts used by minority shareholders in a corporation. Keys to protecting a FLP include: assuring that a business purpose other than tax avoidance clearly exists, limiting assets in the FLP to business-oriented assets and keeping enough assets outside the FLP for the parents to live on, assuring that general partner income is limited to a reasonable return on assets and establishing the FLP while the parent is in good health.

Are We Family? The Joys and Tensions of Family Businesses

A Business Week Special Report, the first part of a multi-part series, points out that family-owned businesses, both large (Ford, Wal-Mart) and small, are an integral part of the American economy. Among other things, family-owned businesses provide over half of American jobs. Transition from one generation to the next has frequently been awkward in the past and continues to be so today--the recent resignation of Rupert Murdoch son's from News Corporation being one example. A relatively recent development in family-owned businesses is daughters inheriting the business--and William O'Hara of the Institute of Family Enterprise at Bryant College (RI) notes that this can be a good thing. Women-owned businesses, a Mass Mutual research study points out, tend to do better at succession planning, family retention and debt control. As generational friction occurs, one advantage is the trend toward bringing in expertise from the outside and developing more formal management structures.

Light Blog Week

With four exams to give and two faculty candidates coming in this week, posting will be noticeably lighter than usual.

IRS Deputy Director Justifies Circular 230 Proposals

Stephen Whitlock, Deputy Director of the Office of Professional Responsibility, defended proposed changes in Circular 230. The most controversial proposal would make open to the public OPR enforcement proceedings after the following steps had been taken: complaint, investment, allegation letter and practitioner response. Reasons given for the decision to open enforcement proceedings included enabling practitioners to understand the OPR process and to show that the OPR is independent of IRS enforcement activities. Other issues addressed included requirements related to written conflict of interest disclosures and tightening contingent fee rules.

Earmark Bill Proposed in Senate

Congratulations and applause to sponsors including conservative Republicans such as Coburn (OK) and Corwyn (TX), moderate Republicans such as DeWine (OH) and McCain (AZ) and Democrats Bayh (IN) and Feingold (WI). Applause also to political blog giants N.Z. Bear and Glenn Reynolds (Instapundit) for putting together this website. For FAR too long, elected members of Congress have been spending our money in an attempt to buy votes and "immortality".

GAO Criticizes VA Savings Claims

The General Accountability Office characterized as misleading accounting methods used to claim savings of $1.3 billion in 2003 and 2004. An additional consequence of the savings claim, according to the GAO, is that budget cuts based on these numbers may have reduced availability of needed medical services to some veterans. A specific finding cited savings of $3 million on reduced overtime on deferring hiring and eliminating overtime while claiming no loss of service; at the same time, the biggest problem appeared to be a mixing of data streams resulting in inability to find documentation of the purported savings. VA Deputy Secretary Gordon Mansfield acknowledged shortcoming in VA accounting procedures, but criticized the insinuation that the claims were simply made to justify budget numbers.

Look for this audit to be part of the Democrats' campaign in 2006, especially in districts with significant numbers of military families. An additional aspect--the Federal Government MUST get serious about accounting reform. Some agencies and bureaus have significantly improved, but the improvement has to be across the board--with the present amount of federal spending and revenue, there is no excuse for federal accounting to be second in quality to private sector accounting.

Is the PCAOB Unconstitutional?

An unnamed small CPA firm, in conjunction with a libertarian think-tank, is considering a lawsuit asking that the Public Companies Accounting Oversight Board be declared unconstitutional. The rationale provided by the Competitiveness Enterprise Institute (CEI) , include the manner of selecting board members and structure does not meet constitutional muster. Surprisingly at this point, there is no present challenge to the fees paid to the PCAOB as an unconstitutional form of tax.

Personal guess: Given the Kelo ruling last summer and the ruling on the McCain-Feingold campaign contribution legislation, CEI has almost no chance. Should the case reach the Supreme Court, it could be an interesting test of the philosophies of new Justices Alito and Roberts.

Update: An article in Business Week (http://www.businessweek.com) states that the Free Enterprise Fund has become involved, the CPA firm is in Henderson (suburban Las Vegas), Nevada; that another complaint is lack of accountability and that Ken Starr of Monica Lewinsky fame is one of the potential attorneys for the plantiffs.

OMB: IRS Wins (Slightly) More Money

In a day chock full of good stories from Tax Analysts, one of the stories was a $46 billion increase in IRS funding. To the undoubted disappointment of Nina Olson, present IRS plans are to spend most of the new funding on enforcement as opposed to modernization or customer service. One reason for the emphasis on enforcement--a tax gap that is perceived as growing. Proposed enforcement tools, some of which may be controversial, especially in the tax preparer community, include: increased frivolous tax penalties, expanded Tax Court jurisdiction, loosening of due process rules, higher expectations of paid preparers (possibly including new e-filing requirements) and expanding backup withholding on certain government payments. In a separate development reported elsewhere on the Tax Analysts site, the IRS announced that notification of "frozen refunds" would begin shortly.

I do not want to minimize the tax gap; failure to pay taxes is unfair to honest taxpayers. At the same time, I am uncomfortable with the increased emphasis on enforcement; have Republicans forgotten the "Taxpayer Bill of Rights" hearings in the 1990s? A better solution--improve customer service and modernization and simplifing the tax code. It is possible that drawing down troops from Iraq and reducing the progressivity of the income tax code may also help. Additionally, the tax preparing community needs to look into the enforcement mechanisms here and make sure that these provisions are not overly onerous.

A Trio of Ethics Articles from Business Week

Business Week has three articles related to ethics in their February 13 edition. "Defining the Role of an Ethics Monitor" interviews former SEC Chairman Richard Breedan (now with KPMG) on what an internal compliance officer can accomplish. Among Breedan's perspectives: compliance officers cannot prevent fraud but may be able to catch it while small and managable, ethics officers must have clout--junior management is not good enough and, by hiring him, KPMG is trying to avoid the Arthur Andersen fiasco. "Calling the Ethics Cops" tells about the increase in ethics compliance officers in an attempt to avoid the financial and reputational disaster of an ethics scandal. To work, companies must tighten ethics policies, upper management must be seen as at least as suspectible to ethics sanctions as lower levels of management and compliance officers must be fearless men or women who realize that they can be fired with little warning. "The New Ethics Enforcer" looks in depth at the work of Patrick Gnazzo of Computer Associates.

My first suggestion in regard to publicly-traded companies in regards to ethical behavior--whether or not the SEC, PCAOB or any other regulatory body has come to call. If Footnoted.org has a piece about your company and Michelle has not awarded the company a gold star--to paraphrase Jeff Foxworthy, you may have an ethics problem.

IRS Summer Tax Forums--One Way to Beat the Heat, I Guess

The Internal Revenue Service will sponsor six forums during the late June to late August period. Representatives of the IRS, American Bar Association, American Institute of CPAs and National Association of Enrolled Agents, among others, will provide updates on tax developments. The forums will be held in Anaheim in late June, Chicago and Orlando in July, Orlando in early August and Las Vegas and New York City in late August.

Senate Goes for $70 Billion in Tax Cuts

A $70 billion tax cut bill recently passed by the U. S. Senate includes as its centerpiece a one-year deferral on the alternative minimum tax (AMT) for middle-income families. The politically controversial capital gain and dividend cuts are extended two years (to 2010). Other provisions include a business research and development credit and extensions of dedcutions for college tuition, K-12 teacher expenses and a credit for low-income savers.

GASB Releases ED on Pollution Liability

The Governmental Accounting Standards Board recently released an exposure draft detailing five situations where a state or local government may have to book a liability for pollution remediation (clean-up). The scenarios are: [1] pollution remediation must be done immediately by the government because of ecological endangerment, [2] the government itself violated pollution laws or regulations, [3] the government is named by a regulatory agency (such as the Environmental Protection Agency) as a responsible or potentially responsible party OR a party which will share costs with the responsible party, [4] the government has been named or is likely to be named in a lawsuit to remediate pollution, [5] the government either acts to start clean-up or legally commits itself to remediation. Generally, the cost will have to be shown in the government's operating statement, but the government can treat the cost as a capital outlay under one of four conditions: [1] prepare property for sale, [2] prepare property bought with pre-knowledge that remediation would be needed, [3] permits use of utility property damaged by pollution, [4] property used in pollution remediation can be used for other purposes.

GASB 45--What Will State and Local Governments Do with Retiree Healthcare Costs?

The Washington Post reports that GASB Statement 45, which requires that future health care benefits after retirement be loaded as a liability on the balance sheet, will be closely watched by bond agencies and Wall Street. As a result, state and local governments will be forced to make tough decisions about how to fund prior shortcomings and whether to continue or reduce these benefits in the future. Maryland and Nevada are given as examples--each faces costs exceeding $1 billion. An interesting ramification is how this will affect negotiations between states and powerful employee unions. Hank Scheff of Chicago AFSCME vows to fight benefit cutbacks while Gino Renne, a union offical in the Maryland suburbs of Washington, DC, prefers cooperative efforts by governments and unions to control health costs.