Thursday, March 30, 2006

Big Name Companies Try XBRL

The SEC is saying that its second effort to encourage corporations to use XBRL in their filings has met with some increased success compared to their first call for XBRL. Seventeen corporations, including Dow, 3M, Xerox, Bristol-Myers Squibb, XM Radio and Donnelly and Son Publishers, will provide reports in XBRL for a year in return for expedited reviews. The expedited review incentive is new in this call, which may be the reason that the response almost doubled the nine responses from the first call.

Wednesday, March 29, 2006

Snow: Go Slow on Consumption-Style Taxes, Half a Loaf on Estate Taxes

Treasury Secretary John Snow issued a note of caution to conservatives favoring an increasingly consumption-oriented tax system. Snow said that although there were good theoretical points to a consumption-oriented tax, issues such as transition costs and unintended consequences needed to be more carefully studied. Additionally, although Snow still preferred a repeal of the estate tax, he indicated that a less drastic solution (perhaps significantly increasing the unified credit and capping the tax rate??) might be acceptable in preference to the present situation.

To some degree, Snow's comments are a recognition that President Bush is perceived to have lost some political clout as a result of the President's falling poll numbers and the nervous behavior of Republican Congresspeople looking ahead to the November elections.

More Scrutiny for Political-Oriented Nonprofits

A group of five House Republicans, led by Ways and Means committee member Eric Cantor (VA) and including my representative Marsha Blackburn, have asked IRS Commissioner Mark Everson to tighten up the regulations associated with "527" organizations. The Treasury Inspector General for Tax Administration indicated that Section 527 groups arguably owe over $15 million in taxes and penalties between underreporting of income and insufficient disclosure of donor sources. They acknowledged that a loophole in the present law may allow tax-exempt status in some cases for these organizations, which raised over half a billion dollars for the 2004 elections. Proposed legislation would limit the maximum contribution per contributor to a 527 to $5,000 for federal and $25,000 for nonfederal elections. In a related story today, Tax Analysts is reporting that Greenpeace was allowed to keep its tax exemption, but strongly warned that it could lose the exemption without better reporting.

On the heels of criticism of political activities by Democratic-leaning black churches and Republican-leaning white evangelical churches, it looks like increased scrutiny of the tax-exempt sector is almost a certainty. This should lead larger tax-exempt organizations to be looking for more tax help.

Tuesday, March 28, 2006

Ten Top Tax Transgressions

The AICPA has identified ten easily avoidable errors frequently made by taxpayers. The ten errors are: [1]leaving off attachments such as supporting forms and schedules; [2] forgetting prior year carryforwards such as NOLs or charitable contributions; [3] misclassifying income such as showing money market mutual fund income as interest when it should be dividends; [4] overpaying Social Security taxes for high earners with two or more jobs in the same year (note: if married filing joint--you cannot combine husband and wife earnings for the year to escape Social Security); [5] declaring state tax refund as income if you did not itemize the year before; [6] failing to document charitable donations--including the use of Form 8283 if noncash donations exceeded $500; [7] omitting Social Security numbers, especially on dependents; [8] making math miscalcuations; [9] failing to file Form 6251 (Alternative Minimum Tax--unless Congress acts soon; many new taxpayers will be subject to the AMT) and [10] assuming, in the absence of mortgage interest, major medical bills or major contributions, that itemized deductions will work out better than standard deductions (special note for high income taxpayers--certain charitable deductions may be partially phased out in some cases).

A competent tax preparer, such as a CPA or enrolled agent, should avoid all of these traps. Additionally, most of these should not be an issue if tax software is used so long as you thoroughly and accurately answer the tax software questionnaire.

Monday, March 27, 2006

Making Corporate Governance Work

The Committee for Economic Development, a business-oriented public policy group, recently announced a five-part set of recommendations to improve corporate governance. The five steps include: assuring a autonomous and active audit committee with close ties to the internal as well as external auditor; clearly stating that financial statement information is based on estimates and judgments with supplementary nonfinancial information; giving more time to see if Sarbanes-Oxley will be a cost-effective way to monitor internal control and ethical issues; getting a handle on executive performance evaluation and compensation and using nominating committees without management membership to select director nominees.

Roderick Hills, co-chair of the CED, is wise enough to not promise a panacea from these proposals--but the proposals make a ton of sense. Especially valuable are the clear statement of judgment in financial reports; the control over executive compensation and the director nominee proposals.

Garbage In, Garbage Out: The Late Unlamented Service Center Closings

J. Russell George, Inspector General for Tax Administration, recently revealed that last year's unsuccessful plan to close 68 IRS Service Centers was based on faulty data. George said that an independent contractor developed a model based on five criteria. The model itself, George said, was satisfactory, but some of the data used was incomplete, inaccurate, outdated or some combination of the three.

This result certainly will not inspire confidence in the new plan, presently on hold, to have independent contractors collect past-due taxes.

A similar story is available on the Web CPA website at

Sunday, March 26, 2006

NCAA Tourney--End of Round Four--SECond to none

While Saturday featured mild surprises (and missed opportunities by the losers) with acronym names (LSU and UCLA), today featured a pair of Big East beasts crashing--one (Connecticut) in a seismic upset to George Mason; the other (Villanova) in a game less surprising for the winner (Florida) than the margin. On the distaff side, "my" Boilermakers played valiantly against favored North Carolina, but lost on a last-second drive and layup. No rest for the victors as they catch the mighty Rocky Toppers of Pat Summitt Tuesday.

Thursday, March 23, 2006

Bottle Deposit Law Considered by TN Legislature

A Republican legislator from East Tennessee (Russell Johnson) has introduced legislation requiring a five cent deposit on disposable beverage containers (e.g. beer bottles, soft drink cans). This procedure is already used in eleven states and some cities. The legislator hopes to reduce litter and provide at least a small amount of funding for preschool and "community service" programs.

I have some experience with bottle deposit laws from my graduate school days at the University of Missouri at Columbia. There are both positives and negatives to the bottle deposit law: positives include an excellent use of government to reduce a negative externality (litter) by increasing personal cost by an amount which approaches societial cost of the litter; more employment at stores and recycling centers and a way for low-income citizens to supplement their income. Negatives include considerable administrative inconvenience for retail store owners; competitive disadvantage for stores in cities near states without a bottle deposits law (in Tennessee--Clarksville, Chattanooga and Memphis would be major examples) and an influx of homeless people from surrounding states may occur (based on my anecdotal experience from Columbia, MO). An ideal solution--put it to a referendum and let the citizens of Tennessee vote on the legislation.

Update on Links

I did my periodic revision of blog links--with special emphasis on getting link to some of carnivals most likely to be of interest to readers of this blog. Welcome All Things Financial, Benefits Blog (which should have been linked earlier), Blueprint for Financial Prosperity, Five Cent Nickel, Fred Mischler, Intaxicated and Mighty Bargain Hunter and Retire at 30. Mighty Bargain Hunter hosts the Carnival of Debt Reduction and Retire at 30 hosts the Carnival of Investing; I had hoped to include these in the links section but had some problems--for now, just go to the web site and a link within the website will get you to the home page for these carnivals. Also, welcome back to PF Blog, which actually is kind of an anthology of personal finance blogs. I have taken Provident 360 off for lack of recent posting, but hope that he returns and will be glad to return Provident 360 to my links if he does--the blogging community is in serious need of quality auditing blogging.

Wednesday, March 22, 2006

How Do I Loathe Paying Taxes? Let Me Count the Ways!

37% of Americans feel frustrated by doing their tax returns, according to a Harris Poll. The most common frustration named was actually paying money to the government, with time spent finding receipts, time spent preparing return or amount paid to preparer also being significant sources of frustration. Some accountants surveyed stated that they were working until 10 pm with few if any days off. A number of firms have started providing activities to dilute the tension; examples included ordering dinners or pizza, Saturday morning buffets or table soccer tourneys. The article also reminds taxpayers to take advantage of applicable IRS resources, including VITA for low-income taxpayers and TCE for the elderly and to celebrate completion of the return with a special activity.

Personally, I am amazed that the frustration level was as LOW as 37%. My sympathies to the families of those working the hours mentioned in this article.

Tuesday, March 21, 2006

Nothing like a Tax Audit to Make a Dental Exam Look Good

(You've got to love the Accounting Web headline--link to story included in title). 41% of Americans considered a meeting with the IRS to be the last meeting they want to be involved with. By comparison, 20%of Americans were most uncomfortable having their teeth examined. Many survey respondents also preferred meeting with the IRS at home if they could not do so at their office. A pair of software products: Citrix Office Products' Go to Meeting and Microsoft's Live Meeting, may enable taxpayers to meet the IRS agents by web from their home.

Having met IRS personnel at conferences and having had wisdom teeth pulled and a crown put in (and my wife assures me that neither procedure is as bad as a root canal), I cannot agree with the survey results. On the other hand, I have never been audited, either.

Business Roundtable Asserts Corporate Governance is Getting Better

The Business Roundtable, based on responses of 105 of 160 members (all business executives) surveyed, proclaimed that American business has greater transparency, more independent boards, a larger degree of director evaluation and upgraded shareholder communication. Survey support for some of these assertions include: 45% of those surveyed said that director evaluations were in place (and 90% had established qualifications for directors); 57% (for the first time, over half) based management pay on performance and 91% had an independent chair , lead director or presiding director for the board of directors. The Roundtable had good news on the SOX compliance front: less than half expected 2006 SOX compliance cost to exceed $10 million and a massive majority (94%) expected no compliance cost increase--in fact, a bare majority expected a decrease in compliance cost.

I sincerely hope that the Roundtable is correct, that improved communications with shareholders is on the rise and that management of large businesses is improving. Having said that, I do not expect Michelle Leder (Footnoted blog) to run out of material soon.

Monday, March 20, 2006

GASB--Masters of the Obvious or Groundwork for New Standards?

The Governmental Accounting Standards Board has released a study pointing out the major environmental differences between financial reporting for state and local governments and financial reporting for business organizations. The overall goal of governments is to maintain or improve the state of its citizenry by providing appropriate services at a reasonable cost; while the intrinsic goal of private businesses is wealth creation and providing a satisfactory return to shareholders. Additional significant differences include an expanded range of stakeholders for governments, far greater reliance on involuntary revenue, a greater emphasis on monitoring budgetary compliance and greater stability (little or no bankruptcy risk). Financial Accounting Foundation board chairman Robert Denham pointed out that state and local governments collected 20% of gross domestic product and employed 12% of Americans with jobs; Denham then justified differential accounting standards for state and local governments on this basis along with the intrinsic differences noted earlier.

It should be pointed out that several of the supplementary differences: expanded stakeholders, budget monitoring and long life effectively are also true of many large corporations (it is also true that some of those corporations have been criticized for being too set in their ways). While the differences cited may justify a different accounting focus at the individual fund (versus government as a whole) level, it also emphasizes the importance of upgrading service and efforts accounting and expanding popular financial reporting. Additionally, there is little if no excuse for all except the smallest towns, townships, etc. being required to report according to GASB GAAP--nevertheless, it still happens.

Carnival of Personal Finance

After too long an abscence (my fault, not thiers), I am back in the Carnival, which has entries on topics ranging from frugality to real estate to taxes.

The NCAA Tourney--Round 2--The Big Ten is Dead

An amazing turnaround since Thursday: the Big East, 0-3 on Opening Day, has gone 9-1 since and leads confernces with four Sweet 16ers. Meanwhile, the Big Ten went 2-0 on Thursday and 1-6 over the weekend, leaving the conference on the outside looking in. Beasts of the Midwest are now the Missouri Valley Conference with #7 Wichita State and #13 Bradley doing their best Molly Ringwald imitations (like many others, I must eat crow on the Braves; their weekend played very well in Peoria). Kudos also to George Mason; the #11 seed, previously most famous for having economist Walter Williams on staff, became the second double-digit seed to make it to the second weekend.

Saturday, March 18, 2006

The NCAA Tourney--Round I

One round in and no #1s or #2s out; though several had scares. The SEC had a gaudy 5-1 run (the ACC an even better but more expected 4-0). The Big Ten at 1-3 needed a little help from Arthur Murray yesterday, which was a contributing factor to a mediocre day for my brackets. All my Final Four picks are in and today especially should see a number of upsets since Day One was quite tame.

Friday, March 17, 2006

Five Steps to Becoming a Great Small Business

Not being an practitioner, I generally leave accounting firm strategy to front-liners Jeff Moore (Solo Accounting Practice), Rick Tedford (BSG Trendlines) or Will Keller (Vanilla Accounting--see links at right). Patrick McEvoy, however, has written a superb article in Accounting Web which spells out five steps which can be implemented in about two months to become a dominant force in a given niche of accounting. The first step is to only aim at one niche at a time until you have mastered it. He compares this to a young man's efforts to court his dream lady. Step two is to create a dynamic message which will address the main desire or fear of your customers. The example here is Domino's assauging the fear of cold, boring pizza with a maximum delivery time promise. Step three is to become an obvious expert. McEvoy believes that most professionals meet the criteria here--but then need to identify WHO is interested in this expertise. Step four, therefore, is to identify 100 important present or potential customers/clients and contact them at least every ten days with your best marketing message (see step two). Among marketing steps here would be a direct mailing, an e-mail list, a special website and phone calls every three weeks. Step five is to develop a referral system which would include features such as asking for introductions, developing an industry group and appreciation activities.

McEvoy's advice is well done and deserving of consideration by a wide range of people from new CPA firms to marketing faculty.

BlockHeads Again?

Tax preparation giant has been sued in Missouri district court over possible fraudulent marketing of Express IRAs. The suit claims that top executives at Block knew that most customers would pay more in fees than they would receive in interest. Suggestions have been made that the suit is being filed in conjunction with New York Attorney General Eliot Spitzer, but plantiff's attorney Lerach Coughlin is presently denying those assertions. H & R Block intends a vigorous defense.

Overaggressive marketing, an overambitious politican, a combination or something else? You (and the Missouri jury) decide.

Is D&T Deemphasizing Auditing?

A Business Week interview with Barry Salzberg of Deloitte and Touche seems to indicate that the Big Four is putting heavy emphasis on the consulting side of their practice. Salzberg points out that the 150 or so MBAs hired each year primarily go into strategy, operations and human capital activities and that they need to be creative problem-solvers. Some of their favorite MBA programs for recruiting include Cargenie-Mellon, Cornell, Dartmouth (Tuck), Northwestern (Kellogg) and Penn (Wharton).

One wonders with the increased expectations of auditors based on SOX if even large CPA firms will move emphasis from auditing to consulting--and, if this does happen, how the "slack" will be filled.

Wednesday, March 15, 2006

Desparately Seeking Tax Savings

Many readers of this blog (THANKS!!!!) have undoubtedly seen the mighty Roth CPA Updates blog of Joe Kristan. If you have not and you REALLY, TRULY need another deduction or credit even if a cash outlay is required, scroll down the Roth blog until the fourth post ("absolutely, positively") of March 13 (below the fish picture and the hacking story) where Mr. Kristan reviews IRAs, education credits and other options.

Students Wait Longer to Take CPA Exam

A Kansas City Business Review article finds that although an increasing number of students are majoring in accounting, career goals and time constraints are causing many of these graduates to defer taking the CPA exam. The AICPA, National Association of State Boards of Accountancy (NASBA) and Thomson-Prometric (who operate the test-taking sites) found that the number of CPA exam candidates has dropped 37% since the computerized exam started in April 2004. A possible explanation would be the movement to 150 hours; at the same time, a Robert Half survey (previously posted here) indicated that 71% of Chief Financial Officers surveyed found that accounting graduates are equally or better prepared than graduates ten years ago.

Our student accounting group had a guest speaker from the Becker CPA review program today. Without necessarily endorsing Becker vs. similar CPA review programs, the Becker representative was dead on when he recommended to students to take the exam at their first legitimate opportunity.

More CPA Tax Help for Hurricane Victims

The American Institute of Certified Public Accountants and American Association of Attorneys--CPAs have partnered with the Internal Revenue Service to provide free tax help to qualifying taxpayers affected by Hurricanes Katrina, Rita or Wilma. This partnership, to be accomplished through the VITA and TCE programs, will allow taxpayers with income under $38,000 a higher quality of free tax preparation assistance than is often available including the ability to handle moderately complex transactions. In certain locations, this aid may also be available through FEMA disaster recovery centers.

Congratulations and applause to the men and women providing this assistance. This should help to burnish the reputation of CPAs.

Tuesday, March 14, 2006

SEC Wants Comments on Audit--Tax Independence Proposals

The Securities and Exchange Commission has invited comments on Public Companies Accounting Oversight Board proposed standards involving the independence of certain tax work if done by the auditing CPA firm of the company. The proposed rules would bar CPA firms which audit publicly-traded firms from providing the following tax services for these clients: tax services involving contingent fees, tax advice or planning that is considered confidential or which takes aggressive positions and tax services provided to certain financial executives and their family members if the financial executive plays an important role in audited financials. The proposal also requires that the CPA firm disclose to the audit committee (presumably prior to pre-approval) a list of proposed tax services to be provided.

It is not surprising that some limitations on tax services are being proposed by PCAOB on tax services to audit clients and the proposals made are not unreasonable at face. The potential problem here is that small CPA firms, which already fear "creeping PCAOB influence" may find this sort of requirement unacceptable.

Monday, March 13, 2006

Accounting Firms Expect Net Hires

The Hudson Employment Index and Robert Half have recently sounded positive news for professional accountants in the job market. Hudson indicated that 35% of surveyed firms expected to be hiring while Robert Half found that more businesses were hiring on net than downsizing. The Mountain states were particularly active with many employers raising salary and benefit offers while the Mid-Atlantic was also doing well. Construction, retail and transportation were among the hottest business sector opportunities for accountants.

The Wonderful Madness of March (NCAA Hoops)

The annual ritual of the NCAA tournament starts Thursday (actually Tuesday for two of the small fry)--I'm sure that almost everyone here has seen a bracket. The choices were generally good: I would have replaced Seton Hall with Cincinnati in the Big East and Missouri State over Bradley in the Missouri Valley. One that I did not understand: Michigan, Florida State and Colorado (maybe even Nebraska!) seemed to me to have a better case than Air Force. My other quibble: Within the SEC, I would have put FL as a 2, LSU as a 3 and TN as a 4. My initial guess as to the result will look to be geographically biased (I not long ago moved from Indiana to Tennessee): Ohio State beats LSU in the championship with Illinois and Memphis also in the Final Four.

On the women's side, "my" Purdue Boilermakers have chances at the Final Four, but will have to make the Sweet 16, then beat a Duke, Tennessee, etc. caliber team in the Sweet 16.

Saturday, March 11, 2006

IRS Chooses Three Firms for Tax Collection

To follow up on the March 1 post about private collection of Federal taxes, the Internal Revenue Service has awarded three companies out of 33 bidders-- the CBE Group of Waterloo, IA; Linebarger, Goggan, Blair and Sampson of Austin, TX and Pioneer Credit Recovery of Arcade, NY--contracts for collection. A second phase will take place by 2008 and will involve up to 10 private businesses. IRS Commissioner Mark Everson asserts that safeguards are in place for the collections: the private companies will be closely monitored; employees have taken a required training session; they are required to follow IRS guidelines on taxpayer protection and privacy rights and firms will be only be assigned cases whether the tax has not been disputed. The IRS hopes to collect over $1 billion in additional taxes through the collection agency program.

Thursday, March 09, 2006

CCH Joins the XBRL Revolution

Financial information giant Commerce Clearing House has joined with Rivet Software to make XBRL (eXtensible Business Reporting Language) coding a feature of CCH's Pro System fx software. In the initial stages, the program primarily would allow middle-sized and larger audit clients to convert accounting data into the XBRL format. There is some talk as well of making Pro System tax software compatible with XBRL; the IRS may at some point follow the SEC's support of the "real-time" language. Although the SEC does not require XBRL, recent statements by Chairman Cox have clearly endorsed a movement toward the use of XBRL.

Wednesday, March 08, 2006

Medicare Accounting Improved, US Government Financials Still a Mess

(see link to Accounting Web in title above). A new information system for Medicare has improved reimbursement reporting and generated about $9 million in interest revenue in seven months according to the Center for Medicare and Medicaid Services. The system, called Healthcare Integrated General Ledger Accounting System, is based on an Oracle product and is already being used by Mutual of Omaha and five of 40 other health plans which administer Medicare claims. Mark McClellan, Medicare Center administrator, says that he expects greater savings as more insurance plans use the new web-based system.

In less favorable news, the General Accountability Office has disclaimed an opinion on the Federal Government's financials for the NINTH straight year. Contributing to the inability of GAO to form an opinion were internal control weaknesses, financial management shortcomings in Defense, inability to reconcile transactions between government agencies and an ineffective process for combining the fiscal results of the various agencies, bureaus and departments into results for the whole of the U.S. government.

Congratulations to Medicare on their improved reporting; the rising costs of health care are such that any increase in billing efficiency helps. On the other hand, how can we continue to call for more government programs and more regulation when the government cannot account for what it does at present?

IRS: Cheaters Never Win in Public Opinion

An IRS Oversight Board annual survey for 2005 indicates that tax compliance has reached new highs in popularity for the seven-year period surveyed. 88% (about seven of eight) consider cheating on income taxes unacceptable (vs. 86% the year before). 30% would be willing to turn in tax cheats, vs. 24% the year before. The survey also found support for greater IRS funding; 67% favored extra funding for customer service and 63% favored extra enforcement spending. The one (slightly) down note, satisfaction with interactions with IRS, though at 78%, was slightly down from 2004.

Probably the biggest surprise to me was the willingness of those surveyed to turn in tax cheats; in general, society seems to be very opposed to "snitching." Call me a cynic, but I think that there may be either a bias or a NIMBY effect as well on tax compliance; this level of support for tax compliance does not easily square with the tax gap numbers which have been in the news recently.

Tuesday, March 07, 2006

IRS Set to Review Nonprofits in Wake of Katrina

Marvin Friedlander of the Internal Revenue Service recently told a nonprofit tax conference that the IRS will soon be gearing up to insure that exempt organizations have not been abusing exempt status in view of the massive level of donations related to Hurricane Katrina. Friedlander cited maintainance of the public trust as a major reason for the more thorough look at exempts and specifically mentioned exempt hospitals and private foundations as targets of attention.

In a setting where large amounts are donated and with the sizable tax break (up to 35% of excess revenue over expenses) given to exempt organizations, some scrutiny of their performance is reasonable. As long as scrutiny does not become heavy-handedness, the IRS is acting appropriately.

Going Beyond Sight to Insight

Danny Novielli received a 4.0 at Middle Tennessee State but was not able to get a job because of blindness. With the help of a two-year intensive program, referred to as a "boot camp", run by the National Institute for the Blind, Mr. Novielli is now the business development manager of a business which is oriented toward the blind and makes gloves for the VA. His is hardly a unique story; only 30% of the blind have jobs and rarely until very recently have blind people reached management level. Two other people, David Geary and Sharon Giovinazzo, were also cited as attending the program. Geary entered the program even though he once was an assistant district attorney and Ms. Giovinazzo went from being a seamstress to working in consumer relations for a government agency.

About 20 years ago, during my doctoral program, I did research on deafness and why there was no tax incentive for deaf taxpayers versus the then-exemption for the blind. I was surprised to learn that the mid-80s income disparity between hearing-capable and hearing-impaired Americans was considerably greater than the disparities between white and black or between men and women. Even with the Americans with Disabilities Act, this article appears to indicate that blind Americans (and probably deaf as well) still have a long way to go to catch up in the job market. Bravo to the NIB for their training program and congratulations to Mr. Novielli and Ms. Giovinazzo on their new jobs!

Monday, March 06, 2006

PWC Pursues Future Racial Inclusion through Accounting Careers Institute

PriceWaterhouseCoopers is holding an Accounting Careers Leadership Seminar for black and Hispanic high school students June 18-23 at Bryant College in Rhode Island. Qualifying students, juniors from the Northeast who have completed Algebra II and have a GPA of at least 2.7, will be immersed in a program of case studies and role-playing exercises with PWC professional accountants. Dr. Roohani of Bryant says that the program gives students an opportunity to learn about the exciting opportunities that accounting offers.

Given the paucity of African-American and Hispanic CPAs at present, PWC is to be highly lauded for this effort as an influx of racial diversity is likely to add richness to the profession. I encourage PWC to extend this program to other parts of the country as well.

A Contrarian Speaks up for New Charities

Christine Cronin, manager of a website (www. which encourages giving to literally myriads of charities in New York state, counters the conventional wisdom that too many charitable organizations are fighting for the same dollars, thus causing worthy charities to be underfunded. According to Cronin, market forces can use the large number of choices as a good thing, forcing inefficient charities to either improve or lose ground. To support her argument, she cites the large amount of expected giving ($41 trillion in the next decade) to charities and heirs and points out the importance of dedication and passion to the growth of causes, indeed pointing out how the feminist movement tended to have duplication in its early years before hitting its stride.

This is one of those questions, like whether Protestant Christianity has too many denominations, which does not have an easy answer. One man's passion is another's duplication.

Friday, March 03, 2006

IIA Prepares Helpful Guide to Audit Committees

The front page of the Institute of Internal Auditors website links to a brouchre entitled "Audit Committee: Purpose, Process, Professionalism." The brouchre (p. 3) lists responsibilities of an audit committee to include ensuring that financial statements are reliable and understandable, monitoring the risk management program, helping to achieve strong internal controls, reviewing corporate policies for compliance with laws, regulations and ethical standards, regularly communicating with senior management, maximizing access for internal auditors and maintaining dialogue with external auditors. Also included is a best practices list (p. 4), a summary of how audit committees can add value to the business (p. 8), a checklist of 20 basic questions (p. 9) and developing a charter or policy statement (pp. 10-11).

The brouchre is well done and recommended for new audit committee members, boards of directors of not-for-profit organizations and faculty covering internal auditing or auditing.

Thursday, March 02, 2006

PWC Gets Audit of Homeland Security

PriceWaterhouseCoopers has received a five-year contracts with fees potentially in excess of $40 million to evaluate and recommend improvements the internal controls of the Department of Homeland Security. DHS spokesman Larry Orluskie stated that in the first year of the contract, PWC would emphasize pointing out shortcomings. The audit is due by September 30, the end of the federal government's fiscal year. According to Todd Platts (R-PA), DHS is not being singled out; rather, internal control audits now will be required, along with financial management audits, of 24 seperate government departments, bureaus and agencies.

Given the criticism of DHS resulting from the Katrina aftermath, top brass in DHS should welcome the expertise of PWC in finding internal control shortcomings.

House Ways and Means Chair Thomas: Still No More Taxes!

William Thomas (R-CA), head of the House Ways and Means Committee, has rejected the use of offsetting revenue-raisers to keep the reconciliation tax bill within the original $70 billion guideline. Instead, he, like Senator Grassley (R-IA) is suggesting taking popular tax break extenders, such as a provision to extend the tax incentive for K-12 teachers purchasing school supplies, outside the reconciliation process. Part of the problem is that the Senate has approved a one-year AMT patch to keep middle-class taxpayers out of AMT while the House has approved a two-year extension on reduced capital gain and dividend rates.

I am favorable toward the AMT patch (and in fact would have gone for a longer and more thorough tax extension), favorable toward the tax extenders, lukewarm on the capital gain and dividend (especially capital gain) extension, and not particularly eager for offsets, which probably will add complexity as well as tax revenue. I do not feel committed to $70 billion either; after all, it ultimately SHOULD be the taxpayers' money unless Washington can make a good case for keeping it.

Wednesday, March 01, 2006

IRS: Only One of Five Eligible Claims EITC

The earned income tax credit, used by an estimated 21 million taxpayers to reduce taxes by a cumulative $40 billion last year, is almost certainly being underused according to the Internal Revenue Service. The IRS has started several initiatives to increase awareness of the credit; these include a Connecticut slogan saying: If you have income of less than $38,000; come in to our offices for assistance". A major problem with the EITC is complexity: many of the taxpayers not claiming the credit appear to be unaware that the credit is refundable and provides a refund even if the taxpayer does not owe; additionally, some taxpayers WITHOUT children qualify. Additionally, the EITC appears to an audit magnet--the infamous "frozen refund" program appeared to many to target taxpayers claiming the EITC and there have been some fraud problems--particularly misstatement of income and indicating an incorrect marital status.

The EITC has long been praised by both Democrats and Republicans as an effective use of the tax code for accomplishing social goals. It is important to find a way to make this credit easier to understand.

Calling St. Matthew? IRS Outsources Delinquent Debt Collection Today

The IRS is set announce today a program to use private companies to collect delinquent taxes. However, the obstacles to outsourcing are formidable--a public protest is almost certain; taxpayer advocate Nina Olson is partially but not completely satisfied with the proposed program; there are questions whether the law permits the IRS to choose the collection agencies and government unions are fighting the outsourcing. Among the issues of discontent are who trains private collection employees and whether there are sufficient protections regarding strong-arm tactics.

As in the case of many laws, the problems here appear to be the unexpected or unintended consequences of being in too much of a hurry to get some law passed to make sure that Congress "gets it right."

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