GAO: Does the IRS Really Know Whether Private Collection is Working?

The General Accountability Office just released a report indicating that the Internal Revenue Service needed clearer parameters for evaluating tax collection efforts. Special issues which the GAO looked at included: determining key success factors, assessing present information and lessons learned before going forward and whether present study plans will successfully address whether private collection efforts are a cost-effective approach to dealing with the tax collection backlog (presently about $132 billion). With large-scale implementation of private collection planned for the start of 2008, GAO asked IRS to address "results-oriented goals and measures; reliable, verifiable costs and evaluation plans"--as well as how to evaluate results, before March 2007.

Private collection of U.S. taxes has been controversial since its proposal and it is not surprising that the GAO has asked that the IRS be very careful before large-scale implementation occurs. At the same time, GAO should consider not only whether the private collection plan works against a set of criteria but also how it compares with present IRS-based collection processes.

Two More Months of Respite if "Katrina Made You Do It"

IRS Commissioner Mark Everson assured Alabama, Louisiana and Mississippi taxpayer in counties affected by Hurricane Katrina that collection efforts on late taxes or unfiled returns would not start until 2007. Almost 100 counties and parishes qualify. At the same time, the deadline for 2004 tax returns is now officially past; 2005 individual and some busineess returns may be extended by special extension to April 15, 2007.

This will conclude the special tax provisions for those affected by Katrina; some government spending programs still may be in effect for Katrina victims.

No Fiscal Fall-Back Position for Younger Americans

An AICPA survey of the investment habits of 25 to 34 year olds indicate that many in this age group of 40 million Americans have made little progress toward developing a nest egg for the future. During the past twenty years, the proportion of Americans with some form of interest-bearing financial investment has dropped from over 60% to 55% (and below 50% with a bank). More alarmingly, median net worth dropped from about $6,800 in 1985 to about $3,750 (about one and one-half month's gross pay for many entry level professional jobs) in 2004. Other findings showed a rise in unsecured debt (now at median greater than net worth) and that the Eastern South Central U.S. (Kentucky, Tennessee, Alabama and Mississippi--where I live now) had the worst performance on investments and net worth.

There is little doubt that the results of this survey support the efforts of the AICPA's Financial Literacy campaign, Junior Achievement and other programs designed to improve the financial savvy of younger Americans. Perhaps Dave Ramsey's Financial Peace (oops, temporarily forgot that church and state thing again :( ), Consumerism Commentary, Free Money Finance and similar guides to fiscal wisdom should be incorporated into more high school and college curricula.

Moody's Mood for Internal Audit

Bondrating firm Moody's recently published a guide to best practices in internal audit oversight for audit committees. In the guide, Moody's emphasized five functions: sufficient scope and timely completion, doable and implemented audit reports, independent, sufficient and supplemented audit team, knowledgable and effective committee performance and a transparent relationship with the internal audit team. Specific examples of each function are as follows: for scope/completion--risk based audit plan and comprehensive coverage; for audit reports--timeliness and action plan for implementation; for audit team--sufficient independence for both internal and external auditors (including suitable officer for reporting) and balance of experienced professionals with more visionary executives; committee performance and communication--sufficient training and regular meetings with personal such as the head of internal audit, lead partner of external auditor and CFO; transparency--"tone at the top" and networking with non-executives as well as executives.

Moody's guide is very well done and should be required reading for new directors of major corporations. Additionally, this would be a good reading assignment for a graduate course in auditing (and perhaps financial accounting theory as well).

Beware the Sharp Teeth of Your Credit Card--"What's in YOUR wallet" might bite

(NOTE 1: Radio talk show host Dave Ramsey would approve of the content of the article cited above).
(NOTE 2: The first sentence of the second paragraph has been rewritten; the first iteration was too general and too harsh).

A General Accountability Office (GAO) study looked at fees, interest rates and disclosure practices of 28 popular credit cards. Among the findings: fees have more than doubled over the last decade to $34 and interest rates approaching 30% in certain situations where payment is late or credit limit has been exceeded.
Senator Carl Levin (D-MI) harshly criticized credit card issuers for excessive charges and poor disclosure, intimating that issuer greed was damaging working families. GAO findings were not always as harsh as Senator Levin: interest rates were usually under 20% and many users paid little or no interest by making timely monthly payments. The GAO was considerably more critical of disclosure practices: citing obscure language, small payment and failure to clearly indicate all potential charges as examples.

I have little enthusiasm for the practices of credit card issuers--while motor vehicle branches have sometimes been used to make the case to libertarism; the more predatory of credit card issuers might conceivably be used by socialists to support their ideology. The latest bankruptcy bill, though probably good overall, definitely had a blind spot in the treatment of credit card issuers. I generally do not call for more business regulation--in this case, however, even Republicans should look more closely at significantly improving required credit card disclosures and limiting some of the other more aggressive/predatory practices of many credit card issuers.

Inside Public Accounting's Top 25 (No Bowl Games, Though)

Inside Public Accounting surveyed hundreds of CPA firms, then chose their 25 "Best of the Best." The list has a sizable number of small firms, with 11 having net fees under $20 million and only one obvious large firm (Crowe of Indianapolis). California leads the states with five honorees while Florida, Georgia, Maryland, New York and Texas each have at least two. Impressive statistics for the honorees include average profit margin of over 38%, revenue growth averaging about 25%, salaries per employees 12% higher than the average and turnover 2% below average.

Congratulations to each of the winners: Armanio McKenna, Aronson and Co., Beers and Co., Berkowicz, Dick, etc., Burr Pilger Mayer, Crowe Group, Feeley and Driscoll, Grassi and Co., Harb Levy Weiland, Hein and Associates, Hothouse Carlin VonTrigt, Malone and Bailey, Marcum and Kleigman, Miller Crossbard and Associates, Moore Colson, Morrison Brown etc., RBZ, Seiler and Company, Stout Causey Horning, TR Moore and Co., Tauber and Balser, Whitley Penn, Windham Brannon and Withum, Smith+Brown.

AICPA About Ready to Take a Position on Business Valuation

The AICPA's second Exposure Draft on Valuation of Businesses, Securities or Intangible Assets has been issued and interest parties have until December 15 to comment on the draft. Among issues addressed are the treatment of oral valuations, scope of service clarification, procedure when an accountant relies on a specialist (such as a real estate appraiser) and clarifying the distinction between valuation and calculation engagements. The AICPA estimates that 25,000 members provide such services, including CPAs in tax, financial planning and mergers and acquisitions.

At first read, this draft may appear to only affect CPAs like Eva Lang of the Business Valuation blog. Don't sell this short, however, I could see how this could affect tax and financial planning issues, especially in the case of filing an estate/gift tax return or designing (perhaps in concert with attorneys) a trust for a child's education.

Reconstruction Contracts in Iraq: Where is Buford Pusser When You Need Him?

A panel of Iraq reconstruction experts, including Christian Miller, Stuart Bowen and Kathleen Schanasi, spoke at a Friday program at George Washington Law School. Miller related his experience with water purification systems; stating that initial optimism was dashed by failure to plan for colder winter weather and failure to consider piping to homes from the purification plant. Miller also criticized severe shortages of staff, hasty decisions forced by tight deadlines and excessive layers of contracting for the problems. Bowen and Schanasi were less blunt, but acknowledged that present performance on procurement was not satisfactory.

Obviously, it hurts as a taxpayer to see tax money spent carelessly. However, an equally significant feature here is the impact on hostilities in Iraq; sloppy procurement and contracting in rebuilding the Iraqi infrastructure may make the Iraqi people less confident in their new government; less enthusiastic about a continued US presence and thus less UNcomfortable with insurgents/terrorists, thus less likely to report terrorist activities, thus making it easier for terror to occur, thus making an easier case for anti-war activists outside Iraq.

Note: This Govexec article was cited in the AGA website

Buffett Scorns "Accounting Gimmicks"

Berkshire Hathaway CEO Warren Buffett warned senior management to eschew "accounting gimmicks" and to be wary of any technique justified by the phrase "everybody's doing it." Of particular concerns are smaller capitalization firms without resourses for large internal audit staffs and comprehensive internal controls. Todd Wenning of Motley Fool says that small capitalization companies are pressed to grow and may fall into temptation to "cut corners" as demands for profits and market share increase, pointing to Krispy Kreme and Rite Aid as examples. Buffett concludes by reminding senior execs that unacceptable practices may occur from time to time, but that these practices must be stopped as soon as they become known.

Buffett has long been known as a shrewd businessman, but it was interesting to get a glimpse into his ethical philosophy. Certainly, the phrase "everybody's doing it" has "justified" a substantial amount of bad behavior over the course of human history.

Accounting Faculty--Most God-Fearing Academics?

Paul Caron, recently named one of America's 100 most influencial people by Accounting Today, published a study by Neil Gross and Solon Simmons which made it to Inside Higher Ed. According to the study, accounting faculty (63.6% vs. 35.7% for all faculty) had the highest proportion of faculty with a strong belief in God. Business and related disciplines were quite interesting: finance faculty rated third and marketing faculty fourth--by contrast, economics and computer science were among faculty groups least likely to believe.

I have not spoken about faith in a while, nor by any means am I the best example of a devout and fully righteous person. I do believe--though I am somewhat surprised to find many others in my field. It should be remembered, however--the study did NOT specify WHAT God the faculty member believed in.

Americans Overseas in High-Cost Areas May Get Tax Relief

The U. S. Treasury recently announced that they would allow a greater amount of housing costs to be tax-deductible in certain high-cost locales in accordance with provisions of the 2005 Tax Increase Protection and Reconciliation Act. While the act generally limits deductible housing costs to $11,536; it is permissable under the law to raise this cap for specific high-cost cities. The Treasury will provide relief to over 40 cities and areas; Hong Kong got the greatest increase to over $100,000 while London, England and Caracas, Venezuela were also raised to over $50,000.

Return of "Twelve Blogs of Christmas" Coming

In December I plan to run the second installment of the "Twelve Blogs of Christmas"; in effect the start of a Hall of Fame of sorts for accounting-oriented blogs. Brian Tankersley summarized last year's list in a post linked in the title above. Both new blogs plus those skipped over last year will be eligible. I intend to do a short revisit of last year's blogs (Accounting Observer, Consumerism Commentary, CPA Firm Technology Blog, Financial Rounds, Found in the Footnotes (also known as Footnoted), Free Money Finance, Frugal for Life, Mauled Again, Roth CPA Updates, TaxProf, Taxable Talk and the late Vanilla Accounting) then group this year's blogs into accounting, personal finance and tax categories. Criteria, in approximate order of importance: (1) last year's blogs are not eligible, (2) at least 75% of posts are on accounting-related topics, (3) minimum posting once per month (at least once per week is strongly valued), (4) association with a carnival is beneficial, (5) I have enough vanity that linking to Tick Marks helps--Accounting Observer and Free Money Finance from last year prove that this is not necessary.

Presently, the following 20 blogs are being considered: from Accounting: Big4Guy, BSG Trendlines, Corporate Governance, Fraud Files, Neil McIntyre and Tech Gap; from Personal Finance: All Things Financial, Blueprint for Financial Prosperity, Five Cent Nickel, Mighty Bargain Hunter, My Money Forest and PF Blog; from Tax: Brian Brown, CPA; Death and Taxes, Gina's Tax Page, Intaxicated, Tax and Business Law Commentary and Tax Guru. Two other blogs under consideration are wild cards: Benefits Blog could go in either Accounting or Tax and Don't Mess with Taxes in either Personal Finance or Tax. Feel free to nominate your another blog (including your own!) if you feel I have overlooked someone.

Restatement Problems Not Limited to the Private Sector

The Governmental Accountability Office recently reported that seven of 24 agencies covered by the Chief Financial Officers Accountability Act (CFO Act) needed to restate their financials in 2005 and that nine of eleven agencies which had restatements in 2003 failed to consistently communicate those restatements. Specific findings of the GAO (eleven total) included failure to tag the revised statements as restated; insufficient detail in agency footnotes and lack of disclosure of the 2003 financials.

The Federal Government is doing a better job with financial reporting than 15-20 years ago; nevertheless, given the involuntary nature of the large majority of receipts, it MUST do better yet.

IRS Ready to Roll with New EA Exam

The Internal Revenue Service recently announced that its enrolled agent exam, which was scheduled this past April for a makeover, is now already revised and available for the October-November testing window. The new test, completed with the help of Thomson and with active agent input, now has three sections: individuals, businesses and policies and procedures with about 100 questions. Among other changes to make the EA exam more user friendly: the exam will be offered throughout the year, over 290 Thomson-based test sites will be available for test-takers and the test need not all be taken at one sitting.

The biggest surprise in the article was that many EAs were also CPAs or attorneys--I believed that the primary reason for getting the EA exam was to be able to represent taxpayers before the IRS but still avoiding having to take the CPA exam. A reainder for EAs--make sure to renew every three years and to get two hours of ethics each year.

No Need to Start Pixel-Hugging, Yet

Consumption of paper for printing in 2006 was at 29 million short tons, a number similar to the 2000 amount. Among reasons given for a slower conversion to the electronic office than expected include the corporate accounting scandals, such as Enron and WorldCom from earlier in this decade and a sense that users feel more comfortable reading printed copies rather than monitors when it comes to longer documents.
One place where e-transmission has had a real impact is tax preparation--over 50% of tax returns were filed electronically in 2006 vs. less than 4% in 1990. Some CPA firms, including Wisconsin-based Wipfli, ARE consciously trying to develop a paperless office.

For the foreseeable future, I envision electronic documents complementing rather than supplanting paper documents, both for the comfort reasons given here and for comparatively easier recovery in case of a natural disaster a la Katrina.

"Book It, Danno;" Pension Funding to Hit Balance Sheets

Statement of Financial Accounting Standards Number 158 (or SFAS 158), recently issued by the FASB, will require balance sheet disclosure of pension plan status with particular emphasis on defined benefit plans. Under the new standard, overfunded plans will be recorded as assets and underfunded plans as liabilities; previously, note disclosure was sufficient in many cases. Additionally, SFAS 158 will require measurement of fund assets and obligations to be measured and reported at the end of the business's fiscal year. Due dates are as follows: December 2006 for publicly-traded businesses; June 2007 for other businesses on balance sheet recording; December 2008 for pension fund asset and liability measurement.

With the new standard, only highly overfunded pension plans or plans involving the very largest and most stable of businesses probably can remain as defined benefit plans. The push to defined contribution plans, which still will require some additional reporting under SFAS 158, will receive added momentum--as if there wasn't enough such momentum already.