Strategic Planning for Businesses Needs to Include Innovation

When the leadership teams of many companies engage in strategic planning, they may be inclined to play it safe. And that’s understandable; sticking to strengths and slow, measured growth are often safe pathways to success.

But substantial growth — and, in some industries, just staying competitive — calls for innovation. That’s why, as your business looks to the future, be sure you’re creating an environment where you and your employees can innovate in ways big or small.

Encourage ideas

It’s sometimes assumed that innovation requires limitless resources or is solely the province of those in technical or research roles. But every department, from accounting to human resources, can come up with ways to work more efficiently or even devise a game-changing product or service concept.

Developing an innovative business culture typically calls for actively encouraging employees to come up with ideas and explore their feasibility without fear of making mistakes. As part of your strategic plan every year, challenge staff to identify problems, ask questions, and seek out solutions and answers. In addition, build and maintain a strong structure for innovation. Doing so includes:

Establishing policies that promote research and development,
Incorporating discussions about innovation into performance reviews,
Allowing some or all employees to occasionally shift from their usual responsibilities to focus on innovative processes or new product or service ideas, and
Allocating funds to innovation in the company budget.

Ideas can come from other sources, too. For example, what do your customers complain about or ask for? Customer feedback can be an excellent source of innovative concepts. Encourage employees to engage in conversations with customers about what new products or services they may be looking for, as well as about ways to improve your current ones.

Hold brainstorming sessions

Innovation is rarely a straight shot. Outrageous, seemingly unworkable ideas may be the genesis of concepts that ultimately prove both viable and profitable. Employees need to be confident they can propose ideas without fear of ridicule or adverse employment actions. One way to make this happen is through regularly scheduled strategic innovation brainstorming sessions. The goal of these meetings is to help staff get comfortable suggesting bold ideas without censoring themselves or harshly criticizing others. Make it clear to participants that there are no bad ideas.

Be sure to include employees from throughout the business. People tend to feel comfortable with co-workers they know well and work with regularly, but “echo chambers” may develop that limit the feasibility of ideas. Staff members from other departments are often able to provide different perspectives. They can help employees with ideas question their assumptions and view concepts from different angles. In other words, when pursuing prospective innovations, it’s helpful to assemble cross-functional teams that can cover more ground.

Find your next breakthrough

Waiting around for the next big breakthrough in your business or industry to fall in your lap is a huge gamble. By making room for innovation in your strategic planning, you’ll increase the likelihood that you’ll find it.

While many facets of the economy have improved this year, the rising cost of living and other economic factors have caused many businesses to close their doors. If this is your situation, we can help you, including taking care of various tax responsibilities.

To start with, a business must file a final federal income tax return and some other related forms for the year it closes its doors. The type of return that must be filed depends on the type of business you have. For example:

Sole Proprietors will need to file the usual Schedule C, “Profit or Loss from Business,” with their individual returns for the year they close their businesses. They may also need to report self-employment tax.
Partnerships must file Form 1065, “U.S. Return of Partnership Income,” for the year they close. They also must report capital gains and losses on Schedule D. They indicate that this is the final return and do the same on Schedule K-1, “Partner’s Share of Income, Deductions, Credits, etc.”
All Corporations need to file Form 966, “Corporate Dissolution or Liquidation,” if they adopt a resolution or plan to dissolve an entity or liquidate any of its stock.
C Corporations must file Form 1120, “U.S. Corporate Income Tax Return,” for the year they close. They report capital gains and losses on Schedule D and indicate this is the final return.
S Corporations need to file Form 1120-S, “U.S. Income Tax Return for an S Corporation,” for the year of closing. They report capital gains and losses on Schedule D. The “final return” box must be checked on Schedule K-1.
All Businesses may need to be filed other tax forms to report sales of business property and asset acquisitions if they sell the business.

Tying up loose ends with workers

If you have employees, you must pay them final wages and compensation owed, make final federal tax deposits and report employment taxes. Failure to withhold or deposit employee income, Social Security and Medicare taxes can result in full personal liability for what’s known as the Trust Fund Recovery Penalty.

If you’ve paid any contractors at least $600 during the calendar year in which you close your business, you must report those payments on Form 1099-NEC, “Nonemployee Compensation.”

You may face more obligations

If your business has a retirement plan for employees, you’ll generally need to terminate the plan and distribute benefits to participants. There are detailed notice, funding, timing and filing requirements that must be met when terminating a plan. There are also complex requirements related to flexible spending accounts, Health Savings Accounts, and other programs for employees.

We can assist you with many other complicated tax issues related to closing your business, including debt cancellation, use of net operating losses, freeing up any remaining passive activity losses, depreciation recapture, and possible bankruptcy issues.

You also must cancel your Employer Identification Number (EIN) and close your IRS business account. In addition, you need to keep business records for a certain amount of time.

If your business is unable to pay all the taxes it owes, we can explain the available payment options to you. Contact us to discuss these responsibilities and get answers to any questions.

The Inflation Reduction Act provided the IRS with billions of dollars of additional funding to reduce the so-called “tax gap” between what taxpayers owe and what they actually pay. The tax agency has already launched numerous initiatives aimed at this goal, including several business-related compliance campaigns. Let’s take a closer look at three of the most significant recent targets.

Abusive pass-through practices

The IRS has accelerated its enforcement efforts against partnerships and other pass-through entities, which it claims have been overlooked for more than a decade. According to the IRS, while tax filings for pass-through entities have jumped by 70% since 2010, audit rates for them fell from 3.8% in 2010 to 0.1% in 2019.

To remedy this, the tax agency is creating a new office that will focus exclusively on partnerships, S corporations, and trusts and estates. That’s in addition to a special work group focused on pass-throughs, including complex partnerships, in its Large Business and International Division.

The IRS also launched a new regulatory initiative to prevent basis-shifting, which it calls “a major tax loophole exploited by large, complex partnerships.” Basis-shifting occurs when a single business with many related-party entities enters a series of transactions to maximize deductions and minimize taxes. For example, a partnership might transfer tax basis from property that doesn’t generate tax deductions (stock or land) to property that does (equipment).

The end game, the IRS says, is to take abusive deductions or reduce gains when the asset is sold, effectively making taxable income vanish. The IRS claims these “shell games” cost the federal government billions of dollars annually. To combat the losses, it plans on issuing regulations that:

Eliminate the inappropriate tax benefits created from basis-shifting between related parties, and
Prohibit partnership basis-shifting among members of a consolidated group.

Proposed regulations released in June 2024 would require the reporting of certain basis-shifting transactions. The IRS has also issued a Revenue Ruling that provides that certain related-party partnership transactions involving basis-shifting lack economic substance — a sign it intends to challenge the transactions.

Improper Employee Retention Tax Credit claims

The IRS crackdown on ineligible Employee Retention Tax Credit (ERTC) claims came to light in July 2023, when the tax agency announced that it was shifting its ERTC review focus to compliance concerns. It began intensified audits and criminal investigations of both promoters and businesses that filed or were filing suspect claims.

Two months later, the IRS instituted a moratorium on processing claims submitted after September 14, 2023. The moves came in response to what the tax agency described as a flood of illegitimate claims largely driven by fraudulent promoters.

The moratorium gave the IRS time to review more than 1 million ERTC claims totaling more than $86 billion. The review found that 10% to 20% of claims have clear signs of being erroneous and another 60% to 70% of claims reveal an unacceptable level of risk. Tens of thousands of the former group have been or will be denied, and the IRS will perform additional analysis of the latter group.

The IRS continued to process claims made before September 14, 2023, during its review period. As of late June, it had processed 28,000 claims worth $2.2 billion and rejected more than 14,000 claims worth more than $1 billion. Review of claims filed for 2020 uncovered more than 22,000 improper claims, resulting in $572 million in assessments against taxpayers. These figures could be even higher when the IRS turns its attention to the 2021 tax year because the maximum per-employee credit amount was $7,000 per quarter that year. It was $5,000 for the 2020 tax year.

With more than 1.4 million ERTC claims still unprocessed, concerned businesses may want to take advantage of the IRS’s Withdrawal Program. The program is available to eligible employers that filed a ERTC claim but haven’t yet received, cashed or deposited a refund. The IRS will treat withdrawn claims as if they were never filed, so taxpayers aren’t at risk of liability for repayment, penalties or interest.

The IRS also may reopen its now-closed Voluntary Disclosure Program for employers that claimed and received the credit but weren’t entitled to it. A decision is expected this summer.

Personal use of corporate jets

In February 2024, the IRS unveiled a new audit initiative scrutinizing the personal use of corporate aircraft. The Tax Cuts and Jobs Act provides a generous bonus depreciation provision that prompted numerous businesses to buy corporate jets. These aircraft, however, are often used for both business and personal reasons, triggering some complicated tax implications.

Businesses generally can claim a deduction for expenses related to maintaining a corporate jet if it’s used for business purposes. Deductible expenses include depreciation, pilot wages, interest, insurance and hangar fees. The amount of the deduction for aircraft travel on a business’s tax return can reach into the tens of millions of dollars.

Corporate jets, however, are frequently used for both business and personal reasons by a company’s executives, shareholders and partners, as well as their family and friends. The personal use generally results in income inclusion for the individuals and can limit a business’s ability to deduct costs related to that travel.

Notably, personal use includes not only taking the jet for purely personal purposes (for example, to attend a concert in another city) but also bringing family members or other guests along on a trip that’s otherwise for a business purpose. That’s because the purpose of a trip is determined on a passenger-by-passenger basis.

The new audit initiative includes audits of aircraft usage by large corporations and partnerships (and also high-income taxpayers). The exams will focus on whether jet usage is properly allocated between business and personal reasons. While the initial plans called for dozens of audits, the IRS indicated that the number could increase based on the results and as it continues to add new examiners.

Protect yourself

An aggressive and well-funded IRS makes tax compliance more important than ever. We can help businesses minimize their tax bills while staying on the right side of the law.

Owning and running a company tends to test one’s patience. You wait for strategies to play out. You wait for materials, supplies or equipment to arrive. You wait for key positions to be filled. But, when it comes to sales, how patient should you be? A widely used metric called “sales velocity” can help you decide.

Four-point formula

In a nutshell, sales velocity tells you how quickly deals move through the various stages of your sales cycle to fruition, where revenue is generated.

Putting a number to sales velocity can enable you to benchmark it internally going forward, typically with the goal of speeding it up. Or you may even be able to find industry standards, so you can benchmark your number against those of other similar companies.

So, how do you calculate it? The most widely used formula for sales velocity comprises four components measured over a predetermined period:

Number of qualified opportunities (leads that meet certain criteria),
Average deal value in dollars,
Win rate (percentage of opportunities converted to actual sales), and
Sales cycle length in months.

The formula is then expressed as:

Sales Velocity = Opportunities × Deal Value × Win Rate / Sales Cycle Length.

How often you should assess sales velocity depends on your strategic goals. If you really want to improve it, calculate the formula quarterly so you can see how quickly or slowly deals are moving over a year or more. If you’re approaching the subject from more of a curiosity standpoint, you might calculate it annually or semi-annually.

Common challenges

When businesses begin calculating and tracking sales velocity, they run into a variety of common challenges.

First, you might have trouble locating or trusting the four data points included in the formula. If you’re not tracking them regularly, or the information you have is inconsistent or contradictory, you won’t get much benefit from the metric.

In such situations, you’ll probably need to reassess and improve how your business gathers sales data. Make sure you have the right software for your company size and type, and that everyone is using it regularly and properly.

Assuming your data is solid, you might eventually be able to diagnose your business with other typical maladies related to suboptimal sales velocity. One example: lack of alignment between marketing and sales. If the marketing department is focused on certain features or solutions related to your products or services, but your sales staff must constantly readjust the expectations of prospects and customers, closing deals can take much longer.

Other times, sales velocity can reveal issues with the quality or volume of qualified opportunities. It all starts with your leads; bad or shaky ones usually take much longer to turn into qualified opportunities. And even if they do, the criteria used to classify leads as qualified opportunities may be flawed. Also, sometimes businesses overfocus on volume of leads and opportunities. If you’re chasing too many prospects, your sales cycle will tend to take much longer to play out.

Last, there’s the most obvious problem: Your sales processes are too complicated! Sales velocity can often be increased by simplifying workflows, reducing unnecessary steps and redundancies, improving internal or external communication (or both), and upskilling salespeople.

Sweet spot

Although it’s tempting to want to make your sales cycle as short as possible, you don’t want to rush things recklessly. The optimal goal of sales velocity is to find your sweet spot and then make continuous improvements and adjustments to stay there. Our firm can help you gather, organize and analyze your sales data.

With a median loss of $766,000, financial misstatement schemes are the costliest type of fraud, according to “Occupational Fraud 2024: A Report to the Nations,” a study published by the Association of Certified Fraud Examiners. Fortunately, auditors and forensic accountants may be able to detect financial statement fraud by testing journal entries for errors and irregularities. Here’s what they look for and how these tests work.

Suspicious entries

Statement on Auditing Standards (SAS) No. 99, Consideration of Fraud in a Financial Statement Audit, provides valuable audit guidance that can be applied when investigating fraudulent financial statements. It notes that “material misstatements of financial statements due to fraud often involve the manipulation of the financial reporting by … recording inappropriate or unauthorized journal entries throughout the year or at period end.”

Financial misstatement comes in many forms. For example, out-of-period revenue can be recorded to inflate revenue — or checks can be held to hide current period expenses and boost earnings. Accounts payable can be understated by recording post-closing journal entries to income. Or expenses can be reclassified to reserves and intercompany accounts, thereby increasing earnings.

To detect these types of scams, SAS 99 requires financial statement auditors to:

Learn about the entity’s financial reporting process and controls over journal entries and other entries,
Identify and select journal entries and other adjustments for testing,
Determine the timing of the testing,
Compare journal entries to original source documents, such as invoices and purchase orders, and
Interview individuals involved in the financial reporting process about inappropriate or unusual activity relating to the processing of journal entries or other adjustments.

Forensic accountants also follow audit guidelines when investigating allegations of financial misstatement. And financial statement auditors may call on these professionals when they notice significant irregularities in a company’s financial records.

Testing procedures

AICPA Practice Alert 2003-02, Journal Entries and Other Adjustments, identifies several common denominators among fraudulent journal entries. Auditors will ask for access to the company’s accounting system to test journal entries made during the period for signs of fraud.

Specifically, they tend to scrutinize entries made:

To unrelated, unusual or seldom-used accounts,
By individuals who typically don’t normally make journal entries,
At the end of the period or as post-closing entries that have little or no explanation or description,
Before or during the preparation of the financial statements without account numbers, and
To accounts that contain transactions that are complex or unusual in nature and that have significant estimates and period-end adjustments.

Other red flags include adjustments for intercompany transfers and entries for amounts made just below the individual’s approval threshold or containing large, round dollar amounts.

Getting professional help

Financial misstatement can be costly. But your organization can take steps to minimize its risk. External financial statement audits, surprise audits and forensic accounting investigations can help identify vulnerabilities and unearth anomalies. Contact us for more information, including how we use computer-assisted audit techniques to review accounting transactions.

Social media gets blamed for a lot these days — sometimes for good reason. Recently, the IRS issued a warning to individual and business taxpayers to beware of false claims about various federal tax breaks that appear on social media platforms. The common denominator of such claims is that they involve legitimate tax provisions for which most taxpayers don’t qualify. If you claim these breaks erroneously, it could delay a refund, require time-wasting correspondence and paperwork, and even result in penalties and criminal prosecution.

Abusing legitimate tax breaks

Intentionally fraudulent or even honestly inaccurate tax advice can come from many sources. These days, a lot of people put faith in social media “influencers,” who may not be qualified to dispense financial advice. According to the IRS, thousands of taxpayers submitted falsified returns during the 2023 filing season, many claiming they relied on advice from social media.

The tax agency is particularly concerned about bogus claims and filings involving:

The Fuel Tax Credit. Generally, only off-highway (non-fuel) businesses and farms can claim this credit. To file Form 4136, Credit for Federal Tax Paid on Fuels, you need to have a business purpose and qualifying business activity. Social media promoters and other fraudsters might try to convince you otherwise, and might even offer to sell you fictitious documents, including fuel receipts.

The Sick and Family Leave Credit. This credit was made available to employers and certain self-employed taxpayers during the pandemic in 2020 and 2021 but was no longer effective after 2021. Nevertheless, many people who weren’t eligible claimed it on 2022 and 2023 tax returns. Some claimed the credit for household workers they didn’t have and never paid.

Clean energy tax credits. The IRS has received returns that improperly claim clean energy credits made available by the Inflation Reduction Act (IRA). The returns might claim credits that offset income tax from sources including wages, Social Security and retirement account withdrawals. One particular scam involves an IRA provision that enables taxpayers to purchase federal income tax credits from investments in clean energy. Before claiming such credits, ensure that you are indeed eligible for them.

Trust and verify

The best way to avoid making serious tax mistakes is to arm yourself with accurate information from us and the IRS. Also, it’s important to work with qualified and experienced tax professionals when preparing tax returns and making strategic plans to reduce your tax burden.

In addition, be careful when using social media. If someone sends you an unsolicited friend request (even if you share a real-life friend), investigate thoroughly before accepting the invitation. And ignore suspicious messages and tax advice that seems “too good to be true.” Most social media platforms should enable you to block these unwanted posts and shady users.

Friends vs. foes

Whether you’re concerned about your individual or business taxes, it pays to remain skeptical of unsolicited tax advice. Although social media can be an important forum for communicating and connecting, users need to differentiate between friends and foes.

Are you buying a business that will have one or more co-owners? Or do you already own one fitting that description? If so, consider installing a buy-sell agreement. A well-drafted agreement can do these valuable things:

Transform your business ownership interest into a more liquid asset,
Prevent unwanted ownership changes, and
Avoid hassles with the IRS.

Agreement basics

There are two basic types of buy-sell agreements: Cross-purchase agreements and redemption agreements (sometimes called liquidation agreements).

A cross-purchase agreement is a contract between you and the other co-owners. Under the agreement, a withdrawing co-owner’s ownership interest must be purchased by the remaining co-owners if a triggering event, such as a death or disability, occurs.

A redemption agreement is a contract between the business entity and its co-owners (including you). Under the agreement, a withdrawing co-owner’s ownership interest must be purchased by the entity if a triggering event occurs.

Triggering events

You and the other co-owners specify the triggering events you want to include in your agreement. You’ll certainly want to include obvious events like death, disability and attainment of a stated retirement age. You can also include other events that you deem appropriate, such as divorce.

Valuation and payment terms

Make sure your buy-sell agreement stipulates an acceptable method for valuing the business ownership interests. Common valuation methods include using a fixed per-share price, an appraised fair market value figure, or a formula that sets the selling price as a multiple of earnings or cash flow.

Also ensure the agreement specifies how amounts will be paid out to withdrawing co-owners or their heirs under various triggering events.

Life insurance to fund the agreement

The death of a co-owner is perhaps the most common, and catastrophic, triggering event. You can use life insurance policies to form the financial backbone of your buy-sell agreement.

In the simplest case of a cross-purchase agreement between two co-owners, each co-owner purchases a life insurance policy on the other. If one co-owner dies, the surviving co-owner collects the insurance death benefit proceeds and uses them to buy out the deceased co-owner’s interest from the estate, surviving spouse or other heir(s). The insurance death benefit proceeds are free of any federal income tax, so long as the surviving co-owner is the original purchaser of the policy on the other co-owner.

However, a seemingly simple cross-purchase arrangement between more than two co-owners can get complicated, because each co-owner must buy life insurance policies on all the other co-owners. In this scenario, you may want to use a trust or partnership to buy and maintain one policy on each co-owner. Then, if a co-owner dies, the trust or partnership collects the death benefit proceeds tax-free and distributes the cash to the remaining co-owners. They then use the money to fund their buyout obligations under the cross-purchase agreement.

To fund a redemption buy-sell agreement, the business entity itself buys policies on the lives of all co-owners and then uses the death benefit proceeds buy out deceased co-owners.

Specify in your agreement that any buyout that isn’t funded with insurance death benefit proceeds will be paid out under a multi-year installment payment arrangement. This gives you (and any remaining co-owners) some breathing room to come up with the cash needed to fulfill your buyout obligation.

Create certainty for heirs

If you’re like many business co-owners, the value of your share of the business comprises a big percentage of your estate. Having a buy-sell agreement ensures that your ownership interest can be sold by your heir(s) under terms that you approved when you set it up. Also, the price set by a properly drafted agreement establishes the value of your ownership interest for federal estate tax purposes, thus avoiding possible IRS hassles.

As a co-owner of a valuable business, having a well-drafted buy-sell agreement in place is pretty much a no-brainer. It provides financial protection to you and your heir(s) as well as to your co-owners and their heirs. The agreement also avoids hassles with the IRS over estate taxes.

Buy-sell agreements aren’t DIY projects. Contact us about setting one up.

If your organization is having a tough time finding the right person to fill a key role, it might be time to set aside the resumés and pick up your organizational chart. Many employers become so consumed with posting job ads and conducting interviews that they overlook the potential of their own in-house talent. Let’s review some of the upsides of internal hires, as well as some of the inevitable risks.

Cost-effective approach

Two of the biggest upsides to promoting employees to open positions are efficiency and cost-effectiveness. (For the purposes of this article, we’re assuming internal hires are promotions. In some cases, they may be lateral moves.)

It’s usually faster and easier to identify and meet with employees than to find and schedule interviews with outside candidates. And promoting internally is generally less expensive because you save on the costs of finding, recruiting and hiring. These costs include advertising on job boards and engaging with recruiters. Plus, internal hires won’t need onboarding and may require less training, depending on the position.

In addition, promoting employees can help boost morale and improve retention. One reason some employees leave their jobs is because they don’t see opportunities for advancement. Staff members might be less likely to feel this way if they see colleagues promoted to higher positions.

Another benefit is the level of familiarity you have with your employees. An external applicant’s resumé might look impressive, and the interviews could go great, but the individual’s personality might clash with your organizational culture once work begins. Or the person’s actual skill level might not match up to what was presented. You should already have documented records of internal candidates’ skill sets and performance histories.

Risks to consider

Naturally, for many positions, promoting employees isn’t risk-free. Some employees simply aren’t cut out to be managers, supervisors or to fill other “high stakes” roles. For example, a star salesperson might thrive out in the world selling but flounder when asked to sit in an office and manage a sales team.

Indeed, shifting more emphasis to internal promotions shouldn’t mean giving up on outside hires. The greater job market still offers a much larger pool of candidates. And new employees could provide fresh perspectives, innovative ideas, new skills and insightful experiences that might lead to more efficient processes and improved organizational performance.

Furthermore, recruiting outside candidates avoids the unhealthy competition that may arise when employees vie against each other for higher positions. Resentment often occurs among those ultimately passed over for promotion who now must report to someone who used to be their peer. For these reasons, it’s critical to carefully choose which positions to open to internal hires.

The right balance

Hiring internally is no silver bullet. For starters, if you promote an employee to a new position, you’ll need to fill that person’s former job! Then again, it does tend to be easier to fill lower-level positions than upper-level ones.

The bottom line is to ensure your approach to hiring is flexible and isn’t turning a blind eye to the cost- and time-efficiencies of internal hires. We can help you assess your hiring costs, compensation structure and other factors that play into staffing decisions.

Controlling costs is fundamental for every business. But where and how to address this challenge can change over time based on various economic and logistical factors.

Earlier this year, global consultancy Boston Consulting Group published a report entitled The CEO’s Guide to Costs and Growth. Within it were the results of a survey of 600 C-suite executives that found, among other things, cost management was a top priority for respondents heading into 2024. According to the survey, three of the top categories for cost-cutting initiatives were:

1. Supply chain / manufacturing. Not every company incurs manufacturing costs, but most have a supply chain. Costs and delays in this area soared during the pandemic because of global disruptions and backups. Since then, some sense of normalcy has returned, though that doesn’t mean managing supply chain costs has become easy.

Many companies find that most of their spending is done with just a few vendors. By identifying these vendors and consolidating spending with them, you may be able to put yourself in a stronger position to negotiate volume discounts. Consolidating your supplier base also tends to streamline the administrative work associated with purchasing.

It also pays to really know your suppliers. One way to gather an abundance of relevant information is to conduct a supplier audit. This is a formal process for collecting key data regarding each supplier’s performance to manage quality control and ensure you’re getting an acceptable return on investment.

2. Labor/nonlabor overhead. Controlling labor costs is tricky in today’s environment. Many industries are facing skilled labor shortages, meaning businesses would love to spend more on labor if they could find people to fill those positions. Nevertheless, with payroll being such a dominant expense category for most companies, it’s critical to monitor these costs and prevent overspending.

A logical first step in managing labor costs is to know how much you’re spending. And the answer isn’t as simple as looking at the total gross wages you pay out every month or year. You need to know the actual and total amount of these costs. Fortunately, there’s a metric for that. Labor burden rate reflects the additional costs that companies incur beyond gross wages. These generally include expenses such as payroll taxes, workers’ compensation insurance and fringe benefits. Knowing your labor burden rate can enable you to truly “right-size” your workforce.

Beyond that, outsourcing remains an option for mitigating labor costs — especially given the vast pool of independent contractors now available. Although you’ll obviously incur costs when outsourcing, the time and labor cost that it saves you could end up a net gain. Carefully chosen and implemented technology upgrades can provide similar results.

3. Marketing/sales. Much like labor, strong marketing and sales are critical to most businesses operating today. So, skimping on their related costs typically isn’t going to pay off. But, of course, you also need to ensure a strong return on investment.

Again, choosing and monitoring the right metrics can prove useful here. The optimal ones tend to vary by industry and company type, but some of the most widely used for marketing purposes include lead conversion rate, click-through rate for online ads and cost per lead. Popular sales metrics include total revenue, year-over-year growth and average customer lifetime value.

Whether it’s sales metrics, labor burden rate or supply chain management, getting objective, professional advice can help you and your leadership team obtain an accurate picture of what’s going on with your costs and target feasible solutions. Please consider our firm for assistance.

Effectively managing a 401(k) plan is a significant responsibility for employers, not only to benefit their employees but also to comply with regulatory requirements. One critical aspect of this responsibility is ensuring that all participant disclosures are properly communicated. Here’s what employers need to know about 401(k) participant disclosures.

Key Disclosures Required

Summary Plan Description (SPD): The SPD is the primary document that describes the plan’s provisions, including eligibility requirements, benefits, participant rights, and the plan’s claims and appeals process. It must be provided within 90 days of an employee becoming a plan participant or within 120 days of the plan becoming subject to ERISA.
Summary of Material Modifications (SMM): Whenever the plan undergoes significant changes, such as amendments or modifications, participants must receive an SMM within 210 days after the end of the plan year in which the change was made.
Summary Annual Report (SAR): The SAR is a summary of the plan’s financial status, including information from the plan’s annual report (Form 5500). This must be furnished to participants within nine months after the end of the plan year or two months after Form 5500 is filed.
Individual Benefit Statements: These statements provide participants with information on their account balances and vested benefits. Participants should receive these statements quarterly if their plan allows for participant-directed investments or annually otherwise.
Fee Disclosures: Employers must disclose information about the 401(k) plan fees, including plan administration fees, individual service fees, and investment fees. These disclosures must be provided annually, with any changes communicated at least 30 days in advance.

Timing and Delivery Requirements

The timing and method of delivering these disclosures are critical. Employers can distribute disclosures electronically if participants can effectively access them and are notified of their significance. However, paper disclosures must be provided for those without electronic access.

Best Practices for Compliance

Develop a Disclosure Calendar. A calendar outlining when each disclosure must be provided can help ensure timely distribution. Using a disclosure calendar reduces the risk of missing deadlines and helps maintain regulatory compliance.
Use Clear and Understandable Language. Disclosures should be written in plain language to ensure participants can easily understand the information. Avoiding technical jargon can improve comprehension and participant engagement.
Maintain Accurate Records. Keeping detailed records of all disclosures and their distribution dates is essential. This documentation can be crucial if the plan is audited or disputes arise.
Regularly Review and Update Procedures. Laws and regulations can change, so it’s important for employers to review their disclosure procedures and update them as necessary. Staying informed about regulatory changes can help avoid compliance issues.

Proper management of 401(k) participant disclosures is crucial for both regulatory compliance and participant satisfaction. Partnering with a qualified 401(k) provider can help employers navigate requirements and avoid penalties. Yeo & Yeo CPAs & Advisors can help. Get in touch.

Source: https://www.employeefiduciary.com/blog/401k-participant-disclosures-what-employers-need-to-know

Yeo & Yeo is proud to announce that Bill Stec has received the Don Hunt Service Award from the Michigan Career Educator & Employer Alliance. This award recognizes a member of the Michigan Co-op and/or Internship community for significant contributions to promoting and sustaining the cooperative education and internship philosophy in Michigan.

“Winning the Don Hunt Service Award is a tremendous honor that underscores the importance of collaborative efforts in education and employment,” Stec said. “I am proud to be part of a community that is committed to providing valuable opportunities for students and helping them build successful careers.”

Bill Stec is the Manager of Recruitment & Campus Relations at Yeo & Yeo. He develops and executes strategic talent management initiatives to recruit the best candidates, engage and retain current employees, and drive a high-performance culture across all Yeo & Yeo offices. With over seven years of experience in college career services, he understands the challenges of navigating career choices and employment opportunities.

Recognized for his passion and dedication, Bill was selected as the 2019 Michigan Career Services Professional of the Year. In 2021, he was honored as a RUBY Award recipient for his impact in the Great Lakes Bay Region. He is the past President of the Michigan Career Educator & Employer Alliance and just completed a term as Vice President of employers for the organization. He is actively involved in Saginaw, Bay City, and Midland’s Chambers of Commerce. Bill is also a member of the National Association of Colleges and Employers and the Valley Society for Human Resource Management.

“Bill’s exceptional leadership in recruitment and campus relations has profoundly strengthened our organization,” said Yeo & Yeo President & CEO Dave Youngstrom. “This award is a testament to his passion for career development and the positive impact he has made on our firm and the broader Michigan community.”

If you’re selling property used in your trade or business, you should understand the tax implications. There are many complex rules that can potentially apply. To simplify this discussion, let’s assume that the property you want to sell is land or depreciable property used in your business, and has been held by you for more than a year.

Note: There are different rules for property held primarily for sale to customers in the ordinary course of business, intellectual property, low-income housing, property that involves farming or livestock, and other types of property.

Basic rules

Under tax law, your gains and losses from sales of business property are netted against each other. The tax treatment is as follows:

If the netting of gains and losses results in a net gain, then long-term capital gain treatment results, subject to “recapture” rules discussed below. Long-term capital gain treatment is generally more favorable than ordinary income treatment.
If the netting of gains and losses results in a net loss, that loss is fully deductible against ordinary income. (In other words, none of the rules that limit the deductibility of capital losses apply.)

The availability of long-term capital gain treatment for business property net gain is limited by “recapture” rules. Under these rules, amounts are treated as ordinary income, rather than capital gain, because of previous ordinary loss or deduction treatment.

There’s a special recapture rule that applies only to business property. Under this rule, to the extent you’ve had a business property net loss within the previous five years, any business property net gain is treated as ordinary income instead of long-term capital gain.

Different types of property

Under the Internal Revenue Code, different provisions address different types of property. For example:

Section 1245 property. This consists of all depreciable personal property, whether tangible or intangible, and certain depreciable real property (usually real property that performs specific functions). If you sell Section 1245 property, you must recapture your gain as ordinary income to the extent of your earlier depreciation deductions on the asset.
Section 1250 property. In general, this consists of buildings and their structural components. If you sell Section 1250 property that’s placed in service after 1986, none of the long-term capital gain attributable to depreciation deductions will be subject to depreciation recapture. However, for most noncorporate taxpayers, the gain attributable to depreciation deductions, to the extent it doesn’t exceed business property net gain, will (as reduced by the business property recapture rule above) be taxed at a rate of no more than 28.8% (25% plus the 3.8% net investment income tax) rather than the maximum 23.8% rate (20% plus the 3.8% net investment income tax) that generally applies to long-term capital gains of noncorporate taxpayers.

Other rules apply to, respectively, Section 1250 property that you placed in service before 1987 but after 1980 and Section 1250 property that you placed in service before 1981.

As you can see, even with the simple assumptions in this article, the tax treatment of the sale of business assets can be complex. Contact us if you’d like to determine the tax implications of transactions, or if you have any additional questions.

Traditional and Roth IRAs can be powerful estate planning tools. With a “self-directed” IRA, you may be able to amp up the benefits of these tools by enabling them to hold alternative investments that offer potentially greater returns.

However, self-directed IRAs may present pitfalls that can lead to unfavorable tax consequences. Therefore, you need to handle these vehicles with care.

Alternative investments

Unlike traditional IRAs, which typically offer a limited menu of stocks, bonds and mutual funds, self-directed IRAs can hold a variety of alternative investments that may offer the potential to earn higher returns. The investments can include real estate, closely held business interests, commodities and precious metals. Bear in mind that they can’t hold certain assets, including S corporation stock, insurance contracts and collectibles (such as art or coin collections).

From an estate planning perspective, self-directed IRAs have considerable appeal. Imagine transferring real estate or closely held stock with substantial earnings potential to a traditional or Roth IRA and allowing it to grow on a tax-deferred or tax-free basis for the benefit of your heirs.

Risks and tax traps

Before taking action, it’s critical to understand the significant risks and tax traps involved with self-directed IRAs. For example:

The prohibited transaction rules restrict dealings between an IRA and disqualified persons, including you, close family members, businesses that you control and your advisors. This makes it difficult, if not impossible, for you or your family to manage, work for, or have financial dealings with business or real estate interests held by the IRA without undoing the IRA’s tax benefits and triggering penalties.
IRAs that invest in operating companies may generate unrelated business income taxes, which are payable currently out of an IRA’s funds.
IRAs that invest in debt-financed property may generate unrelated debt-financed income, creating a current tax liability.

Proceed with caution

If you’re considering a self-directed IRA, determine the types of assets in which you’d like to invest and carefully weigh the potential benefits against the risks. Contact us with any questions.

When companies reach the point where they’re ready to sponsor a qualified retirement plan, the first one that may come to mind is the 401(k). But there are other, lesser-used options that could suit the distinctive needs of some business owners. Case in point: the 412(e)(3) plan.

Nuts and bolts

Unlike 401(k)s, which are defined contribution plans, 412(e)(3) plans are defined benefit plans. This means they provide fixed benefits under a formula based on factors such as each participant’s compensation, age and years of service.

For 2024, the annual benefit provided by 412(e)(3)s can’t exceed the lesser of 100% of a participant’s highest three-year average compensation or $275,000. As with other defined benefit plans, 412(e)(3)s are funded only by employers. They don’t accept participant contributions.

But unlike other defined benefit plans, which are funded through a variety of investments, 412(e)(3)s are funded with annuity contracts and insurance. In fact, the IRS refers to them as “fully insured” plans. The name “412(e)(3)” refers to Section 412(e)(3) of the Internal Revenue Code, which authorizes the plan type’s qualified status.

Under Sec. 412(e)(3), defined benefit plans funded with annuity contracts and insurance aren’t subject to minimum funding requirements — so long as certain conditions are met. Companies sponsoring these plans don’t have to make annual actuarial calculations or mandatory contributions. However, they risk penalties if a plan’s insurer doesn’t satisfy certain obligations. In other words, the plan needs to be safely insured.

Potential benefits

Some professionals advise relatively older business owners who want to maximize retirement savings in a short period to consider 412(e)(3)s because of the way defined benefit plans differ from defined contribution plans. That is, business owners who sponsor and participate in defined benefit plans can take a bigger share of the pie — particularly if they have few, if any, highly compensated employees. Meanwhile, they can also enjoy substantial tax deductions for plan contributions.

In addition, 412(e)(3)s may be more attractive than other defined benefit plans for some small business owners. Although they tend to sacrifice potentially higher investment returns, these plans offer greater flexibility by using potentially lower-risk and easy-to-administer annuity contracts and insurance. They might also appeal to closely held business owners who want to maximize tax-deductible contributions to a retirement plan in the early years of ownership.

As is the case with all defined benefit plans, however, sponsors must have the financial stability to support their plans indefinitely. So, 412(e)(3)s usually aren’t appropriate for start-ups.

Administrative requirements

Tax-favored treatment for 412(e)(3)s isn’t automatic. These plans must meet various requirements as spelled out in the tax code.

For example, as mentioned, 412(e)(3)s must be funded exclusively by the purchase of annuity contracts or a combination of annuity contracts and insurance. Sponsors must buy the contracts and/or insurance from insurers licensed by at least one of the 50 states or the District of Columbia.

Also, the contracts must provide for level annual (or more frequent) premium payments starting on the date each participant joins the plan. Premium payments need to end no later than the normal retirement age of a participant — or by the date the individual ceases participation in the plan, if earlier.

These are just a couple examples of the rules involved. It’s critical to fully understand all the requirements before sponsoring a plan.

An intriguing possibility

A 412(e)(3) plan may be an under-the-radar choice for some businesses under the right circumstances. For help choosing the best plan for your company, contact us.

July marks the halfway point of the year and is generally an ideal time for manufacturers to assess their tax situation and plan appropriate strategies for reducing their 2024 tax liability. Bearing in mind that every company’s situation is unique, here are seven tax-reduction moves to consider.

1. Purchase new or used equipment

Under the Section 179 expensing deduction, your manufacturing company can deduct the full cost of qualified new or used equipment — such as milling or drilling machines — placed in service during the tax year, up to a limit of $1.22 million for 2024. If the cost of equipment and other eligible assets exceeds an annual threshold, the maximum Sec. 179 expensing deduction is reduced on a dollar-for-dollar basis. For 2024, the threshold is $3.05 million. Also be aware that Sec. 179 expensing can’t exceed net taxable income from business activities.

Fortunately, if you aren’t able to fully deduct your 2024 equipment investments with Sec. 179 expensing, new or used equipment may also qualify for first-year bonus depreciation. For 2024, it’s 60% of the cost of qualified assets. Any remaining costs can still be recovered over time by regular depreciation deductions subject to the usual rules.

2. Conduct research and development

Investing in technology today can increase output and streamline operations in the future. One potential tax-saving option is to determine whether your manufacturing company’s research and experimentation expenditures qualify for the research credit (commonly referred to as the “research and development,” or “R&D,” credit).

The research credit generally equals 20% of the qualified expenses above a base amount. Alternatively, you can elect to use a simplified 14% credit. Note that R&D expenses must be amortized over a five-year period.

3. Save tax dollars by “going green”

The Inflation Reduction Act (IRA) introduced and expanded several clean air tax incentives for expenditures by domestic manufacturers. They include:

A new production tax credit for energy-saving property with solar and wind energy components.
The revival of the advanced energy project credit. Generally, this credit is 30% of the cost of constructing, refitting or expanding a manufacturing facility with qualified property.
The extension of the solar investment tax credit (ITC). The IRA expanded the 30% ITC to include energy conservation technologies; fuel cells, microturbines or energy storage systems and components; and energy-saving property with solar, wind, water, geothermal or other renewable source components.

Manufacturers can also benefit from a credit for electric vehicles (EVs) comparable to the EV credit available to individual taxpayers.

4. Cue the QBI deduction

Owners of manufacturing companies structured as pass-through entities can benefit from the Section 199A deduction based on their qualified business income (QBI). The deduction is generally equal to 20% of QBI.

But if a taxpayer’s income exceeds the applicable threshold, additional limits begin to apply. For example, the deduction generally can’t exceed the greater of the owner’s share of:

50% of the amount of W-2 wages paid to employees during the tax year, or
25% of W-2 wages plus 2.5% of the cost (not reduced by depreciation taken) of qualified property owned by the business.

For this purpose, “qualified property” is tangible property (including real estate) owned and used by the company for production of QBI during the tax year.

5. Ramp up accessibility accommodations

A manufacturing company may be entitled to tax benefits for making its facility more accessible to disabled employees. The disabled access credit is available to manufacturers that in the prior tax year had gross receipts of $1 million or less or no more than 30 full-time employees. It’s effectively equal to 50% of the first $10,000 of qualified expenses for a maximum of $5,000. The credit can be claimed, for example, for removing structural barriers or providing accommodations to hearing-impaired individuals.

A manufacturer of any size can deduct up to $15,000 of the costs of removing architectural and transportation barriers to benefit disabled employees. The qualified costs include making accommodations to parking lots, building ramps, and installing water fountains and restrooms that are accessible to people in wheelchairs. Normally, these costs must be capitalized.

Manufacturers can claim both the credit and the deduction in the same tax year (but not for the same expenses).

6. Take aim at targeted jobs credits

In today’s tight labor market, consider widening your search for job candidates and, in doing so, possibly qualify for a tax credit. For example, a manufacturer can claim the Work Opportunity Tax Credit (WOTC) if it hires a worker from one of several “target” disadvantaged groups. Generally, the WOTC is equal to 40% of the first $6,000 of first-year wages, for a maximum $2,400 per worker. But it can be higher in some cases.

The WOTC has expired and been reinstated multiple times. It was recently extended through 2025.

7. Repair your facility

Perhaps your manufacturing company needs to replace broken windows or repair a leaky roof. The tax law allows you to deduct the full cost of repairs. Consider taking care of these minor nuisances before the end-of-the-year crunch.

Conversely, the cost of capital improvements must be depreciated over time. Distinguishing between repairs and improvements can be difficult. Fortunately, some IRS safe harbors can help: 1) the routine maintenance safe harbor, 2) the small business safe harbor or 3) the de minimis safe harbor.

No time like the present

July has arrived. We can help you determine the midyear actions that will be most beneficial to your manufacturing company.

Whether your company acquires businesses that own real estate or you invest in real estate directly, fraud poses an ever-present threat. Buying and selling real estate is complicated, and it’s relatively easy for crooks to manipulate the process.

To help mitigate real estate fraud threats, thorough due diligence is essential. Staying current on common schemes and red flags also may enable you to identify risky transactions before you put down any money.

5 schemes

First, be aware of these five common real estate fraud schemes:

Fake documents. Every real estate transaction requires extensive documentation. To make an acquisition more enticing, sellers could fake rent rolls, financial statements or other documents that indicate an asset’s profitability. Additionally, sellers might doctor environmental impact reports to, for example, hide the existence of toxic chemicals.
“Optimistic” appraisals. Although most lenders will require an independent appraisal, some sellers may secure inflated real estate appraisals to justify a higher price. Or they may alter the date and valuation associated with an older appraisal to convince buyers to forgo a new one.
Flipping to inflate value. Sellers could inflate a property’s value by paying straw buyers to take ownership of it at inflated prices. At an agreed-upon date, the seller buys back the property, generating another sales transaction associated with the building.
Short-selling and buybacks. Shady sellers might use straw buyers to take out a loan to purchase a property and then default on it. The original sellers then offer to repurchase the property from the lender — usually at a rock-bottom price. Then the sellers make cosmetic improvements to the property and sell to unsuspecting buyers.
Falsified financial statements. Some business owners may inflate the value of real estate holdings in financial statements to make the overall company more attractive to potential acquirers. This can include overvaluing properties, omitting liabilities and inventing nonexistent entities and transactions.

Red flags

To succeed, real estate fraudsters need to manipulate or conceal an asset’s actual value. So look out for these red flags when buying real estate:

Missing, altered or unsigned documents,
A seller who’s overly anxious about finalizing the deal and even suggests taking due diligence shortcuts,
Real estate assets that have changed hands frequently for no apparent business reason,
Difficult-to-locate ownership records or records that show complex ownership structures,
Property descriptions that are inconsistent with inspection reports and public records,
Renovations that seem superficial or shoddy, and
Undisclosed or inaccurately disclosed liens, encumbrances and judgments.

Also be wary if a seller requests additional payments outside the closing process — including payments to unknown third parties.

Inherently complicated

Even valid real estate transactions can raise red flags that, upon closer inspection, aren’t, in fact, signs of fraud. Robust due diligence, a healthy degree of skepticism, and guidance from a real estate attorney and experienced financial advisors can help your business buy property with confidence.

If there’s one thing most employers have in common, it’s meetings. That’s right, these ubiquitous gatherings of invited participants are commonplace occurrences at workplaces, whether real or virtual, far and wide.

But there’s trouble afoot. Earlier this year, global software developer Atlassian surveyed 5,000 knowledge workers on four continents. Of those respondents, 78% said they must attend so many meetings that it negatively affects their productivity, and 77% reported that they’re often in meetings that conclude with the immediate need to schedule another meeting!

Has your organization ever addressed how to best handle meetings? Perhaps the best way to optimize their frequency and prevent them from lowering productivity is to run meetings in a manner that inspires participation and focuses on results. Assuming you’re the meeting leader, here are some best practices to keep in mind.

Motivating participants

Meetings often fail because attendees feel more like spectators than participants. They’re less likely to zone out if they have some say in the purpose and content of the gathering. So, before each session, touch base with those involved and use their feedback to create a clear agenda of what you’ll be discussing.

Another common problem with meetings occurs when someone leads the meeting, but no one owns it. Speak with conviction and express positivity, if not passion, for the subject matter. If others will be delivering presentations during a meeting, encourage them beforehand to do the same.

Mixing it up

To the extent possible, keep meetings short. Cover what needs to be covered but ensure you’re concentrating only on what’s important. Go in armed with easy-to-follow notes so you’ll stay on track and won’t forget anything. The latter point is particularly important because overlooked subjects often lead to those hasty follow-up meetings mentioned in the survey results.

In addition, if the contingent of attendees is large enough, consider having employees break out into smaller groups to focus on specific points. Then call the meeting back to order to discuss each group’s ideas. By mixing it up in such creative ways, you’ll keep attendees more engaged.

Telling a story

Many potential distractions can inhibit the value of any given meeting. If it’s held in the morning, for example, the busy day ahead may preoccupy participants’ thoughts. If it’s an afternoon meeting, they might grow anxious about their commutes home or after-work obligations. And if the meeting is held virtually, there’s no denying the ease with which participants can sneak peeks at their smartphones to check emails, texts and social media.

How do you break through? People appreciate storytellers. Think about how you can use this technique to find a more relaxed and engaging way to speak to everyone in the room. Devise a narrative that will grab attendees’ attention and keep them in suspense for a little bit. Then deliver a conclusion that will inspire them to work toward achieving the actionable items raised.

Recognizing the possibility

For most employers, occasional or even relatively frequent meetings are a necessity. How often to hold them, however, depends on many factors, including your organization’s mission and the specific needs of its respective departments. Just be sure you’re recognizing the possibility that those with the power to call meetings are doing so too frequently. An employee survey can help you find out.

From there, it may be worth your while to invest in leadership training that teaches managers, supervisors and others to run meetings with efficiency and measurable results in mind. Contact us for help analyzing your organization’s productivity and identifying all the costs associated with holding more effective meetings.

Here are some of the key tax-related deadlines affecting businesses and other employers during the third quarter of 2024. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

July 15

Employers should deposit Social Security, Medicare and withheld income taxes for June if the monthly deposit rule applies. They should also deposit nonpayroll withheld income tax for June if the monthly deposit rule applies.

July 31

Report income tax withholding and FICA taxes for second quarter 2024 (Form 941) and pay any tax due. (See the exception below, under “August 12.”)
File a 2023 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

August 12

Report income tax withholding and FICA taxes for second quarter 2024 (Form 941), if you deposited on time and in full all the associated taxes due.

September 16

If a calendar-year C corporation, pay the third installment of 2024 estimated income taxes.
If a calendar-year S corporation or partnership that filed an automatic six-month extension:
- File a 2023 income tax return (Form 1120-S, Form 1065 or Form 1065-B) and pay any tax, interest and penalties due.
- Make contributions for 2023 to certain employer-sponsored retirement plans.

Employers should deposit Social Security, Medicare and withheld income taxes for August if the monthly deposit rule applies. They should also deposit nonpayroll withheld income tax for August if the monthly deposit rule applies.

School nutrition programs play a crucial role in providing meals to students. However, managing these programs involves tracking, financial reporting, and meeting audit requirements to ensure compliance with federal and state regulations. This article will explore key compliance and audit considerations for school nutrition programs.

Internal Controls and Compliance

Maintaining robust internal controls is essential for compliance. Organizations should establish strong internal controls to mitigate risks, ensuring compliance through systematic processes rather than relying on chance. Your auditors will conduct comprehensive sample tests to verify compliance with allowable costs, eligibility, and procurement procedures, including disbursements, payroll, and indirect cost calculations.

It is recommended to review your controls periodically to avoid surprises when your auditors conduct their tests. Additionally, keep detailed records of procedures, invoices, timesheets, meal counts, and other relevant documents to substantiate compliance.

Allowable Cost Principles

School districts must ensure funds are used solely for allowable operating and administrative costs. Consider the following:

Direct Costs: Verify that the controls properly identify which costs are specifically related to the nutrition program. Auditors will test disbursements and payroll to confirm they are directly related to the program and not a component of indirect costs.
Indirect Costs: Verify calculations and that transfers out of the food service fund comply with regulations.

Eligibility Requirements

Retaining proper documentation of eligibility determination and testing of eligibility are critical. Verify the accuracy of eligibility determinations and procedures during the annual certification/application process, and ensure accurate procedures for direct certification reports.

Procurement, Suspension, and Debarment

Adhere to purchasing policies aligned with federal compliance requirements. Your auditors will test policies and procedures for compliance, including disbursements.

Reporting

Accurate and timely reporting is crucial. Ensure accurate claims are submitted promptly for reimbursement requests, and ensure compliance with regulations to verify free and reduced-price applications.

Navigating Audit Findings

When audit findings occur, consider the following:

Single Audit Report: Provides reports on financial statements, internal control over financial reporting, and compliance with major programs. A description of any material noncompliance, internal control deficiencies, or material weaknesses will be included within this report if the district is over the federal award threshold requiring a single audit.
Corrective Action Plans: Lists management’s plans to address deficiencies, including explanations, responsible parties, and completion dates.
Responding to MDE Requests: Proactively address requests from the Michigan Department of Education (MDE) if internal controls, policies, or procedures need to be updated or additional information is requested.

Annual Financial Reporting Requirements

Adhere to the following for annual financial reporting:

Financial Information Database (FID): Local Education Agencies, Intermediate School Districts, and Public-School Academies must report using proper coding to avoid issues with submitting the FID.
Consistent Method for Recording: Utilize the Michigan Public School Accounting Manual for consistent financial accounting.

Ensuring Successful Management of Your School Nutrition Programs

Managing the financial aspects of school nutrition programs can be complex but essential for compliance and program success. By maintaining robust internal controls, accurate documentation, and proactive responses to audit findings, districts can ensure the continued success of these vital programs.