Business Wisdom Delivered Continuing [8] Moving, GROWTH ... Fall 2011 WEB.pdf · merger and...

BWDA RehmAnn PublicAtion Vol. 12 | issue 3 | FAll/WinteR 2011

Business Wisdom Delivered

GROWTHContinuing

[12] Building Bridgeshow Rehmann connects us and chinese businesses

[18] Opportunitiesin the new economyFranchise Funding options

[8] Moving, Expanding, Growingsteady growth and continued regional commitment

Rehmann’s China Business Team

Employee TrainingThe first step to protecting your organization from devastating losses due to fraud is to have each employee attend Red Flag Training where they will learn how to spot red flags and how to report them. This also sets a tone that your organization will not tolerate unethical behavior and is proactive about protecting its employees, board and/or owners from fraudulent activities.

ReportingImplementing safe and private avenues for employees to report suspicious behavior encourages employees to take action — without fear of repercussions. Your organization will receive a supply of visual materials such as wallet cards, posters and payroll stuffers to keep fraud awareness top of mind. Each piece will include a reference to both the toll-free Red Flag Hotline and Red Flag Webline as secure avenues for 24/7 reporting.

Expertly HandledHaving an independent party handle reports allows for employees to be more open when coming forward. Once a case is submitted, a Certified Fraud Examiner will evaluate the case and make a recommendation to key persons at your organization. If further investigation is desired, our forensic team will be available to assist you. With 24/7 reporting availability and a Certified Fraud Examiner handling each report, you can be assured each case will be evaluated and handled in a timely manner and with the utmost professionalism.

Your First Step to Protecting Your Organization’s Goodwill & Reputation.

As an owner or executive, the greatest

assets you protect are the employees,

resources, goodwill and value of your

organization. Through training, visual

reminders and 24/7 reporting options,

the Red Flag Reporting Program will

protect what matters most.

46% of frauds are found by someone speaking up*

Victims who have a hotline average a loss of $100,000. Those without average $250,000** Source: Association of Certified Fraud Examiners/2008 Report to the Nation

For further information regarding this system or its implementation, contact Steve Kerby of Rehmann Corporate Investigative Services at: [email protected].

A letter From The Editor

A WoRlD oFPOSSIBILITIESWe’re all familiar with the saying, “it’s a small world.” in business this appears to be particularly true. more and more businesses – of all sizes – are connecting on the global stage. And while the idea of international trade is not a new one, the current economy has even small businesses considering what opportunities are available beyond us shores. After all, nearly 96 percent of consumers and nearly two-thirds of the world’s purchasing power lie outside the us. it makes for a tempting scenario.

but just as business people throughout history had much to contemplate before taking their goods across the ocean, there is much to be considered when embarking on the voyage of international business. between import/export fees, international tax treaties, logistics and all the other considerations, it is at once scary, exciting, complex and intriguing. Perhaps it’s that combination that makes it so appealing.

in this issue of bWD, we explore the opportunities available in international business. our china business team helps us delve into the exciting and interesting arena of business with china – both inbound and outbound. Rehmann Principal tim Giacoletti gives us a glimpse of his experiences with a travel log of his recent trip on the trade mission with the Detroit chinese business Association. We take a closer look at the promising business opportunities available and what doing business globally can mean to a business, a region or even the national economy. And our Director of international tax offers some insight into the delicate topic of Permanent establishment and what must be done to avoid any “accidental” exposure.

As the year winds down, we also take a look at some of the tax changes and planning that should be considered before and during our tax preparation. For our michigan readers, there is valuable information on changes to taxes on pensions. And all of us can benefit from an update of impending changes as a result of the Patient Protection and Affordable care Act. Finally, our tax experts have some good tips on what you need to prepare before you make that trip to your cPA.

Franchising continues to be an attractive route for those who wish to run their own business, so we offer some interesting options for financing that enterprise in Funding solutions. And no edition of bWD would be complete without our resident bookworm – who of course never disappoints with his insightful thoughts on good reading.

the world is getting smaller, but the business possibilities it holds for those willing to explore them are endless. our hope is that you’ll find some information that will help you find those opportunities and expand your own corner of the world.

sincerely,

nancy Adamsmanaging editor

Bill Kowalski, JD

is the Director of Operations for Rehmann Corporate

Investigative Services. Bill began his investigative career

in 1983 as a Special Agent with the Federal Bureau of

Investigation (FBI) where he received numerous awards

and letters of commendation during his 25 year career.

Tim Giacoletti, CPA, MST

As one of the leaders of the China Business Team, Tim provides tax consulting to various industries including automotive, manufacturing, technology, and professional services. His expertise includes Research & Development Credits, International Tax and Transactional Support.

Cathy Lambert, CPA

is the principal of State and Local Tax Compliance. She

provides a full range of state tax compliance services for

both single state tax filers and multi-state tax filers.

Mike Bozimowski, JD, MST, CMI

is Rehmann’s Director of State and Local Tax Services.

His specialties include the various state and local taxes,

merger and acquisition assistance, settlement

negotiations, as well business and strategic planning.

Bryan Pukoff, CPA, JD

is a Principal and leader of the Southeast Michigan

Real Estate Industry group. He has been published in

several national publications. Bryan was also instrumental

in developing the state tax portion of the REIT Tax

Compendium for the National Association of Real Estate

Trusts.

Steve Kerby

is Director of Insurance Defense Rehmann Corporate

Investigative Services. Steve has been extensively

involved in fraud and background investigations

and has supervised over 1,500 surveillances in

connection with internal theft, insurance defense, worker’s

compensation, and employee productivity.

Dan Vanderberg, CPA

is Rehmann’s Director of International Tax and one

of the leaders of the China Business Team. Dan has assisted clients with US

and international business acquisitions, including

tax due diligence and has advised on international

tax matters related to both inbound and outbound

activities.

Heidi Bolger, CPA/ABV

is a founding Principal of our Rehmann Consulting Division and advises businesses in the areas of mergers and acquisitions, strategy, succession planning, profit improvement and valuation. She contributes a monthly column on succession planning to the American Institute of Certified Public Accountants CPA Insider newsletter.

Don McAnelly, CPA/ABV

is Managing Principal of Rehmann’s Saginaw office. He has experience in: practice assessments, corporate and personal income tax, compensation arrangements, practice mergers, internal control analysis, healthcare financial statement analysis and planning as well as various other areas regarding financial management in a physician’s practice.

Ricardo Resio, SPHR

is Rehmann’s Director of Human Resources. His responsibilities include providing labor law counsel, managing employee relations firmwide, strategic planning, mergers and acquisitions, developing and implementing policies and procedures as well as providing human resource consulting to clients.

notable Contributors

812

18

IN THIS ISSUE

BWDA RehmAnn PublicAtion Vol. 12 | issue 3 | FAll/WinteR 2011

Business Wisdom Delivered

BWD Staff:Publisher: steve KellyAssistant Publisher: mitchell Renomanaging editor: nancy Adams copy editors: cheri Reid casee WilloughbyWeb editor: claudia brim creative Director: marcy meinkecover Photography: imageWorks, ltd.

Contributors:heidi bolger mike bozimowski Jim carpptim Giacoletti steve Kerby bill Kowalski cathy lambert Greg light Don mcAnelly Ricardo Resio Dan shiffrin Dan Vanderberg Gerald Wernette casee Willoughby

Subscriptions & Circulation:send inquiries to: Rehmann – bWD1500 big beaver Rd, 2nd Floortroy, mi 48084248.952.5000 | [email protected]

[06][07][08][10][11][12][14][15][16][17][18][20][21][22][23]

Quotable RehmannNew Pension Laws for Michigan Taxpayers

Associate Spotlight

Moving, Expanding, Growing

Saving Green by Going Green

Rehmann Travel Journal

Building Bridges: How Rehmann Connects US and Chinese Businesses

Permanent Establishment

Unclaimed Property

The Patient Protection & Affordable Care Act

Carpp’s Book Corner

Opportunities in the New Economy

Successful Succession

What’s in Your Shoebox?

Preventing Workplace Fraud

Turning the Tables on Fraud

22

“Quotable Rehmann”because of their expertise, Rehmann associates are often

asked to comment in regional and national news programs

and publications. Recently, Wayne Pahssen was quoted

in an Accounting today article by Roger Russell entitled,

Tax to financial planning: A natural progression. The recent Corporate Income Tax law passed by the Michigan legislature includes several changes to individual pensions. So what does it mean for you? It depends.

There are three methods:

1) Persons born before 1946 (no change)a. Social Security income remains untaxedb. Public pensions are completely exempt c. Private pensions are exempt up to $45,120 for single

and $90,240 for joint d. No elimination of dividend, interest and capital gain exemption

2) Persons born between 1946 and 1952 a. Elimination of dividend, interest and capital gain exemptionb. Social Security income still exempt c. Pension tax

i. Before the taxpayer reaches 671. Portion of pension income exempt regardless

if private or public2. Up to $20,000 for single; $40,000 for joint

ii. Year taxpayer reaches 671. The $20,000/$40,000 exemption is good for all

types of income 2. Exemption phased out at $75,000 for single and $150,000

for joint

3) Persons born after 1952 a. Before taxpayer reaches age 67

i. No exemption on any type of pension incomeii. Social Security still exempt

b. After taxpayer reaches age 67i. Standard exemption replaced with $20,000/$40,000

exemption on all incomeii. Social Security is a part of the calculationiii. Special exemption is eliminated if household resources

exceed $75,000 for single filers or $150,000 for joint filersiv. Option to forego special exemption and instead exempt

100% of Social Security and receive standard exemption

Admittedly, these are confusing parameters. Consult with your trusted advisor for complete details.

New Pension Laws for Michigan Taxpayersby: cathy lambert, cPA

Any advice in this communication is not intended or written by Rehmann to be used, and cannot be used by a client or any other person or entity for the purpose of: (I) avoiding penalties that may be imposed on any taxpayer or; (II) promoting, marketing or recommending to another party any matters addressed herein. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Wayne Pahssen, cPA/AbV/cFF/PFs, cFP®

West michigan – Regional managing Principal

*Certified Financial Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP in the US, which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

“We try to provide a holistic approach to investment

management. We include tax planning, retirement

planning, estate planning, education planning, and

reviewing of insurance and risk-management concerns.”

“If other professionals - attorneys, insurance

professionals, brokers, etc. - are needed, we bring them

into the office, but we remain the quarterback in the

process,” said Pahssen.

“Most CPAs have reservations about getting involved

in investing their clients’ funds,” he opined. “They’re

concerned that if their clients lose money, it may risk

the relationship. But if they have the appropriate training

and skill set, and use accepted investment principles,

client portfolios should perform in the same direction that

investment markets are going. ... The CPA knows how all

the pieces fit together.”

6 BWD | Fall/Winter 2011

Our China Business Team is a

valuable resource for clients as they

manage the complex challenges of

international business.

Associate Spotlight

Rehmann’s china business team

the team includes multilingual professionals

with the experience and local knowledge

necessary to help our clients identify and

successfully leverage international opportunities.

Success in business requires training and discipline and hard work. But if you’re not frightened by these things, the opportunities are just as great today as they ever were.

– David Rockefeller

“ ”

Pictured left to right: Don Burke, David Tang (standing) Tim Giacoletti, Sarah Lin, Dan Vanderberg (seated) Not pictured: Wei Shen

Fall/Winter 2011 | BWD 7

Rehmann has a broad range of experience assisting multi-national businesses and individuals with an array of assurance, tax planning and consulting services. Within our international services practice area, our China Business Team includes multilingual professionals with the experience and local knowledge necessary to help our clients identify and successfully leverage international opportunities. A few of these team members are highlighted here.

“The team’s goal is to help clients structure their inbound and outbound operations in a manner that reduces worldwide effective taxes and increases current cash flow while providing other value added consultation related to mergers and acquisitions, cross-border employee matters, and business restructurings,” said Daniel J. Vanderberg, CPA, Principal and Rehmann’s Director of International Tax. “Our China Business Team is a valuable resource for clients as they manage the complex challenges of international business.”

sarah lin, cPA, msA, is a Senior Tax Associate based in the Grand Rapids office. She began her public accounting career in the United States in 2008, after five years of private accounting experience in China. Sarah advises clients on international tax compliance and consulting matters, both inbound and outbound from the United States, with a focus on China-related transactions. Sarah holds degrees from Grand Valley State University, Lanzhou University of Finance & Economics in Gansu, China and Xiamen University in Fujian, China.

David tang, cPA, msA, is a Senior Tax Associate with Rehmann and is located in the Farmington Hills office. David’s public accounting experience includes four years working for local CPA firms where he focused on inbound Chinese companies. David helps clients set up their businesses across the southeast Michigan region, in areas such as applying for governmental grants, expansion incentives and other tax credits. In addition to providing tax, accounting, audit and review services, he specializes in providing international tax services. David is a graduate of Eastern Michigan University and Fudan University in Shanghai, China.

Wei shen, mbA, is a Client Development Consultant with extensive global business experience, especially in China. Her network of entrepreneurs, investors and government officials within China and the United States enables her to facilitate business transactions and raise capital from diverse sources. As a Vice President of Industry and Governmental Relations for the Hummer Division of General Motors, Wei was instrumental in negotiating the sale of the division. She also has more than 20 years of marketing and brand management experience in China and the United States. Wei holds degrees from Fudan University in Shanghai, China and Northwestern University.

Moving,Expanding,Growing!

The new facility houses all of Rehmann’s 135 Troy associates. An additional eight associates from Mount Clemens-based accounting firm Goerlich, Richert & Kaiser, which Rehmann intends to merge with on January 1, 2012, will move in as well.

To accommodate expected growth, the Troy office has 40 additional cubicles, 13 additional offices, four additional conference rooms and open space dedicated to fostering collaboration, and hosting training and events. All associates work on the same floor, opening the lines of communication and strengthening Rehmann’s ability to function as a team across business units. When associates know their colleagues’ capabilities and understand the functions of each service area, they become well-informed advocates for their clients.

This move is part of Rehmann’s larger strategy to expand its footprint in Michigan. In addition to the new space in Troy, Rehmann will be adding a Detroit location. The Detroit office is located in the Dime Building at 719 Griswold Street. Opening an office in the city will help the team stay better connected to current and potential Detroit- and Wayne County-based clients. It also demonstrates Rehmann’s ongoing support for Detroit.

“The decision to open a Detroit office was an easy one,” said Steve Maltzman, regional managing principal, Rehmann. “Detroit’s resurgence has a direct impact on our entire region. As our business continues to grow, we find it increasingly important to take real actions to positively affect the city and Wayne County.”

As the economy begins to show signs of improvement, companies are

beginning to reflect signs of that growth. Rehmann is leading the charge

with its own contributions. in late october, the firm’s troy, michigan office

moved to a 40,000-square-foot space at 1500 W. big beaver Road.

the location is in the heart of southeast michigan’s corridor of economic

strength – home to clients, peers and prospects.

Steady growth and continued regional commitment

“

”

our approach to client service is

supported by our ability to collaborate

as cross-functional teams to meet

each client’s needs,” said Phil bahr,

regional managing principal, Rehmann.

“the combination gives us the flexibility

to pursue our goals for growth and

expansion, while enhancing our work

quality and client satisfaction.

Troy


Moving,Expanding,Growing!

The new offices, paired with recent mergers, are strong indicators of Rehmann’s upward climb, despite the economic climate. The company is committed to growing its suite of services and its geographic reach.

Since 2009, Rehmann has acquired four companies in Southeast Michigan, adding more than 100 associates to the team:

• January 2009: MSW Group, Farmington Hills, Mich.; approx. 35 new associates

• June 2010: Veritas Global, Bloomfield Hills, Mich.; approx. nine associates.

• December 2010: Hylant Financial Services, Ann Arbor, Mich.; approx. nine associates

• January 2011: Wright Griffin Davis, Ann Arbor, Mich.; approx. 50 associates

Last year’s Veritas merger created Rehmann’s Corporate Investigative Services (CIS) business unit, formerly known as Kerby, Bailey & Associates. It is staffed by a number of former FBI agents, including the former Assistant Director, Dan Roberts. Roberts joined CIS as principal and director of governmental investigations and compliance in August.

Every merger is a good business decision, said Phil Bahr, regional managing principal, one that moves the company towards its goal of being a better, not a bigger Rehmann.

“Our approach to client service is supported by our ability to collaborate as cross-functional teams to meet each client’s needs,” said Bahr. “The combination gives us the flexibility to pursue our goals for growth and expansion, while enhancing our work quality and client satisfaction.”

Steady growth and continued regional commitment

the decision to open a Detroit office was an easy one,” said steve maltzman, regional managing principal, Rehmann.

“Detroit’s resurgence has a direct impact on our entire region. As our business continues to grow, we find it increasingly

important to take real actions to positively affect the city and Wayne county.

“”

Detroit


With the myriad tax credits and deductions available, building and improving facilities that are eco-friendly has become more than just good for the environment; it’s good business, too. But with so much information available, how do you know what makes the best sense — both economically and environmentally — for your business?

Rehmann has teamed up with Engineered Tax Services (ETS) to help companies make that determination. By blending the science of green engineering with the principles of tax and accounting, Rehmann and ETS can help develop financial solutions to increase cash flow, minimize tax payments and maximize return on investment.

ETS is the only national and qualified professional engineering firm that has both licensed engineers, LEED-accredited professionals and CPAs on staff. The Rehmann team adds its vast knowledge and experience in tax credit and minimization strategies to provide clients the information needed to make the most of energy tax credits, energy policy act certifications, cost segregation studies, repair & maintenance deductions , energy audits and renewable energy credit services.

For more information on adapting green technology, available tax credits or tax minimization strategies, contact your trusted business advisor.

Helping clients make the most of energy credits

Saving green by going green

ETS AdvantageWhere Engineering and Accounting Come Together

866.799.9580 www.rehmann.com

We marry the science of engineering with the principles of tax and accounting to arrive at financial solutions that result in increased cash flow, minimized tax payments and maximum return on investment and energy. our attention to detail is second to none.

We meticulously follow iRs guidelines and go beyond the standards required. our procedures, processes and final work product set the benchmarks that others strive to reach.

contact Andrew Rose at [email protected] or David swatosh at [email protected] to see how we can help.


Thursday September 22, 2011Today began with a bus trip to a meeting with Shanghai International Automotive City (SIAC) and government officials. At SIAC, we discussed the need for alternative energy vehicles and were given the opportunity to drive some of China’s newest entries into the electric and hybrid vehicle market. Alternative energy vehicles are a high priority to the Chinese. Last year alone, China sold 18 million vehicles within its borders and it is projected that 30-40 million vehicle sales annually is a realistic target in the next five to seven years. Not only will the fuel needs be enormous, the cities already have smog and pollution issues. Therefore, finding vehicles that do not add to the problem is very important.

Sunday September 25, 2011At lunch today I had a discussion with an investment banker representing a number of Chinese investors who are looking for businesses in the US. After the lunch, he said he wanted to continue our discussion and was not dissuaded when I explained that we were heading to another meeting. He drove the three hour distance to meet with me. His actions demonstrated that the Chinese are very eager to acquire US businesses, a fact which was driven home many more times during the trade mission.

In late September, I had the privilege to be among the delegates on the Detroit Chinese Business Association (DCBA) trade mission to China. The following are just a few highlights of the trip.

Leaving Detroit, we flew due north over the North Pole. The flight was a 14-hour, non-stop to Shanghai. My travel companion was Wei Shen from BridgeConnect – Rehmann’s business development partner.

Wednesday September 28, 2011Wei and I were off to meetings with a local valve manufacturer who is hoping to find a partner in the US to jointly develop products and sales. The company officials provided a presentation of the company, a tour of their operations and a very nice lunch. They are planning to break ground on an expansion behind their current building. Business in China is still expanding quickly. The government has said it will slow the growth of business, but you cannot tell from all the construction that is happening.

This afternoon, Wei and I split up to attend separate meetings (Wei with the US Commerce Department and me to our largest Beijing Nexia affiliate). The Nexia CPA practice was remarkably similar to our offices. The big difference is they don’t use cubicles but rather have desks facing one another, approximately three-feet wide. I shared the Rehmann story and they explained their business. Our hope is to be able to work with one another in the future.

Wei and I met up to attend Governor Snyder’s Beijing Reception. There were more than 100 people in attendance – US and Chinese government officials, business owners or representatives and professionals. Over and over, people shared the same messages with me:• TheChinesewillbeinvestingheavilyintheUSoverthenextfive

to ten years• AlternativeenergyisoneofthemostimportantindustriesinChina• ItisnottoolatetogointobusinessinChinaandridethewaveof

growth and expansion• ChineseindividualswanttocometoliveintheUS(especiallythose

under the age of 40)

The reception included a formal sit-down dinner. Meals in China are quite different than in the US. A variety of dishes are brought out and placed so everyone can sample the different dishes. Clearly, meals are where relationships are built and people bond. They are an integral part of doing business. In China, everything begins with the relationship. As an old Chinese saying states,

“The Chinese do not care how much someone knows, until they know how much someone cares.”

Among the many things we learned during the mission, one key message stood out: The relationships we began to develop during our trip must be renewed frequently to gain the trust necessary to generate long-term business relations.

Tim’s complete “diary” of the mission trip can be found at rehmann.com/TradeMission.

Rehmann Travel JournalDetroit Chinese Business Association China trade mission

by: tim Giacoletti, cPA


How Rehmann Connects US and Chinese BusinessesBuILdInG bRiDGes:

Bridging the Culture GapDoing business internationally presents many challenges, perhaps none more important than overcoming cultural differences. “A key difference between American and Chinese business people,” says Shen, “is that to do business with the Chinese you first must build a relationship and earn their trust. It’s important for them to feel comfortable with you and like you. Americans also prefer to do business with people they like, but they can put their discomfort aside more easily.”

Giacoletti learned about the importance of relationship building on a recent trade mission to China (page 11). He was touched by the hospitality and warmth of his Chinese hosts and saw how important meals and other social activities are to building business relationships. Giacoletti feels that Rehmann has an advantage over other advisory firms because “our culture matches the Chinese culture very well.” Among the firm’s stated core values, he notes, are “put people first,” and “exhibit unwavering integrity.”

Shen agrees with Giacoletti’s assessment. Born and raised in Shanghai, Shen has extensive business experience in both the US and China and a vast network of business and government connections in both countries. Among other things, she was the General Motors Brand Marketing Vice President responsible for successfully launching the Buick brand in China. More recently, she founded BridgeConnect, LLC,

Continuing GrowthBusiness opportunities in China are nothing new – the country’s remarkable economic growth over the last couple of decades is well known. But as China’s economy continues to grow and consumer demand there continues to rise, these opportunities will become even more abundant. Tim Giacoletti, one of the Rehmann principals leading the firm’s China initiative, says that “Some people think they’ve missed their chance if they haven’t tapped the China market in the last 20 years, but the next 20 are going to be even more profitable.”

The auto industry is a good example – although by no means the only one. According to J.D. Power and Associates, annual auto sales in China are projected to reach 29 million units by 2015, up from a record 18 million in 2010. This unprecedented demand creates opportunities not only for parts suppliers and other auto-related businesses, Giacoletti says, but also for developers of alternative energy technologies.

There’s another factor driving increased US interest in China: The Chinese government is becoming more open to foreign direct investment. According to Don Burke, a Rehmann audit principal involved with the firm’s China activities, “until recently, some US businesses were hesitant to expand into China because of strict limitations on foreign ownership of Chinese companies. Foreign investors were prohibited from obtaining a majority interest, which

meant a Chinese partner was required, and not everyone was comfortable with that structure.” Recently, Burke explains, the Chinese government relaxed these restrictions, allowing majority ownership by foreign investors in certain industries.

On the inbound side, with encouragement from the Chinese government, many Chinese businesses are aggressively pursuing opportunities to expand their operations into North America or acquire American companies. Often, these investments are strategic – Chinese automotive suppliers, for example, are establishing a presence in Southeastern Michigan and throughout the Midwest to be closer to US automakers. But in many cases, Giacoletti observes, Chinese companies are simply looking for promising businesses, even if they’re in unrelated industries. “A mining company might acquire a bank,” he says, “or an automotive company might acquire an industrial products company. The important thing is that the target has a good business model and a reasonable expectation of profitability.”

This approach illustrates an important difference between Chinese and American businesses. Wei Shen, a Chinese business consultant who has partnered with Rehmann, observes that “in China, most companies, whether state-owned or private enterprises, have a rich portfolio of diverse businesses. Like individual investors, they feel that you shouldn’t put all of your eggs in one basket.”

by: Dan shiffrin, Dan shiffrin communications

As the world continues to “shrink” and become more interconnected, even small and mid-sized companies are expanding their

global reach. In this environment, few businesses can afford to ignore China. Today, in addition to opportunities for US companies

to make “outbound” investments in China, many cash-rich Chinese companies are hungry for investment opportunities in the US.

These “inbound” investments can provide a welcome influx of capital, technology and jobs.

To help clients around the globe take advantage of these opportunities, Rehmann offers a fully integrated suite of accounting,

auditing, tax, financial, and corporate investigative services. And as a member of the highly selective Nexia International network,

the firm has access to a worldwide network of independent, high-quality accounting and consulting firms.


How Rehmann Connects US and Chinese Businesses

an organization dedicated to connecting US and Chinese businesses and facilitating cross-border transactions.

In searching for US advisory partners, Shen met with several firms but felt that Rehmann provided the best fit. It’s no surprise that her first meeting with a Rehmann representative was over breakfast. They hit it off and Shen went on to meet many other people at the firm. She was impressed by “their openness, their lack of arrogance, and their genuine interest in learning more about Chinese business culture.” All of these things, combined with the firm’s professional competence, international experience and comprehensive service offerings, Shen said, “made me feel very confident that Rehmann is the right partner to work with.”

Another significant challenge is overcoming the language barrier. “If you don’t have the language ability,” Shen says, “don’t even think about trying to do business with Chinese companies.” Rehmann has already

taken steps to meet this challenge by hiring two Chinese-born, bilingual international tax professionals – David Tang and Sarah Lin. “With my knowledge of international issues and the ability to communicate directly with Chinese companies as well as their American partners,” Tang says, “I’m in a good position to serve clients, both inbound and outbound.”

Lin feels that her background provides an advantage when working with Chinese business people. “Regardless of your experience, you have to gain their trust before they’ll listen to you as an advisor,” she says. “They have to know you care first.”

One-Stop ShoppingIn addition to traditional audit and tax services, Rehmann also offers a full range of accounting and consulting services, including M&A due diligence, entity and business structure planning, corporate investigative services, and tax and wealth management services for executives and their families.

The firm’s ability to offer one-stop shopping is important for two reasons. First, it supports relationship-building by enabling clients to deal with a firm they know and trust for most of their needs. Overseas clients particularly appreciate Rehmann’s corporate investigative team, which can provide intensive background checks on companies, executives, and prospective employees.

Second, working with one firm from the planning stage onward provides significant benefits. According to Dan Vanderberg, Rehmann’s Director of International Tax, “Our goal is to help clients minimize their worldwide effective tax rate. To do that, you need to consider complex international tax and transfer pricing rules before you decide how to structure a business or transaction or how to price your products and services.”

Foreign clients also appreciate the practical, industry experience of many Rehmann professionals. Burke, who spent several years as an executive with a multinational manufacturing company, says that “this experience enables us to go beyond the normal financial due diligence to examine production efficiencies and other operational aspects of a business.”

Spanning the GlobeThe future looks bright for both American and Chinese businesses that take advantage of international business opportunities. Rehmann is well-positioned to help clients build bridges between the two countries and make these opportunities a reality.

“

”

A key difference between American

and Chinese business people,”

says Shen, “is that to do business

with the Chinese you first must

build a relationship and earn their

trust. It’s important for them to feel

comfortable with you and like you.

Shanghai Pudong skyline


Take for example, the concept of permanent establishment (PE). A PE is a fixed place of business through which the dealings of an enterprise are wholly or partly conducted. When a company has PE, it means that the company is performing cross-border business activity and – theoretically – deriving profits from that activity. Like a Vegas marriage, having a PE in a foreign country is not necessarily bad. The key is that it should be well thought-out and intentional.

Similar to the concept of “Nexus” in multi-state taxation, PE defines the threshold for international taxation. Most income tax treaties contain a PE provision. This provides that business profits of a resident of one country are exempt from taxation by the other treaty country. A treaty typically lists the activities which are deemed to especially constitute a PE, and it also lists activities that shall be deemed to not constitute a PE. The specific language of each treaty will vary.

Types of Permanent Establishments include:

• Fixed-Place – an office with income generating activities (except those performing only preparatory and auxiliary activities)

• Agency – an employee or dependent agent performs certain activity abroad (independent agents will not usually constitute a PE)

• Installation – a building site, construction, installation or assembly project lasting beyond a specified time

• Services – an employee or other personnel providing services beyond a specified time

A company is required to attribute a portion of the business profits based on the PE being a distinct and independent enterprise. The company pays local country income tax on profits attributable to the PE plus perhaps branch profits tax on the net after tax profits. The company’s cross-border employees are likely subject to foreign country payroll tax withholding and foreign individual income tax filings. The employees’ individual income tax returns filed in the home country may be more complex as a result of the foreign country taxes. When a company determines a PE exists, the next consideration should be whether there any legal, tax and economic benefits exist from setting up a formal entity to, “house the PE.”

In some cases, an intentional PE can actually reduce a company’s foreign tax expense. For example, a US company provides consulting services to a customer supervising an installation project in China. The company operates below the Chinese PE threshold. The Chinese customer deducts a 10 percent withholding tax plus a 5 percent business tax from the payments to the US company for consulting fees. If the Chinese tax authorities recognize that a PE exists, there will be no withholding tax on the gross income. Rather the US company will pay a 25 percent (or lower) corporate income tax on the net profits. Depending on the amount of expenses that are attributable to the PE activity, the tax on net profits may be less than the tax on gross income.

A company contemplating cross-border activity should be sure to have the tax consequences of the cross-border activity assessed by a qualified International Tax Specialist. A specialist can recommend applicable tax planning which should enable the company to mitigate tax risk, reduce tax expense and factor into its price quotation any additional tax costs or increased administrative burdens related to the cross-border activities. For more information, consult your trusted business advisor.

To read this article in its entirety, go to rehmann.com/PermEst.

Establishment Permanentby: Dan Vanderberg, cPA


A friend recently went on a weekend vacation

to Vegas and “accidentally” got married. As

you might suspect, it did not turn out well. Now

that’s not to say that every Vegas wedding is a

bad idea… it’s merely that few things in life that

happen accidentally turn out for the good. This is

especially true in the world of international taxation.


What Qualifies as Unclaimed Property?The most common form of unclaimed property is un-cashed checks. These could be payments for items such as:

• Wages

• Commissions

• Dividends

• Vendor payments

• Pensions

• Insurance claims

Other common examples:

• Account receivable credit balances

• Unclaimed money orders

• Gift cards/certificates

• Utility deposits

• Unclaimed stocks or intangible ownership interest

• Unclaimed money from Dividend Reinvestment Plans (DRPs)

According to Michigan Public Act 29 of 1995 (The Michigan Uniform Unclaimed Property Act), every business that has unclaimed property belonging to persons whose last known address is in Michigan and every business incorporated in Michigan that has unclaimed property belonging to persons for whom there is no known address must annually report and turn that property over to the Unclaimed Property Division of the Treasury Department.

What makes this year different than others is that the unclaimed property act was recently amended, shortening the dormancy period for many reportable items down to three years. Additionally amendments include a change in the reporting due date from November 1st to July 1st and the addition of Form 4305, Attestation of Compliance with Unclaimed Property Reporting, which must be completed by taxpayers who have determined that they have no unclaimed property to report.

The due date for this attestation was July 1, 2011, and based on MCL 567.255(2), any person who willfully fails to file any required report may need to pay up to a $5,000 civil penalty. Based on our discussions with the Unclaimed Property Division, there are currently no penalties being assessed for those that file Form 4305 late and this form must only be filed for 2011.

Several of our clients who have not historically been filing any unclaimed property reports have received notices regarding the new attestation reporting requirement. It is our understanding that if these letters are ignored, the state will continue to send notices until either any unclaimed property they possess is reported or the Form 4305 is filed. It is also possible that the state may decide to audit a taxpayer who fails to reply to ongoing notices.

For those taxpayers who have not yet received a notice regarding their unclaimed property reporting requirement, the law does still require that they review their records for any unclaimed property and remit it to the state on an annual basis or file the attestation report that was due on July 1, 2011. However, some taxpayers may choose to wait until they receive a notice from the state asking them to comply with this requirement. Each taxpayer should carefully weigh the likelihood of whether they have any unclaimed property before deciding which course of action to take.

For more information or to determine if you need to file a Form 4305, contact your trusted business advisor.

unclaimed Property: any personal property – including income

or increment – that is held, issued or owing in the ordinary course of

business that remains unclaimed by the owner for more than the statutory

dormancy period after it becomes payable or distributable.

Establishment


unclaimed PropertyMichigan’s new reporting requirementsby: mike bozimowski, JD, mst, cmi


Changes implemented in 2010:• Nodiscriminationagainstchildrenwithpre-existingconditions• ImplementationoftheSmallBusinessTaxCredit• Eliminationoflifetimelimitsoncoverage• Extendeddependentcoveragetodependentsunderage27

Changes implemented in 2011:• Requirehealthinsurerstoannuallyreportshareofpremiumdollarsspenton

medical care as opposed to profits retained and administration. When less than 80-85 percent of dollars are used for benefits, consumer rebates must be provided

• Increasereimbursementforprimarycarephysicians—providesfora10percentMedicare bonus payment to primary care physicians and general surgeons in underserved areas

• Improvepreventivehealthcoverage—providesforafree,annualwellnessvisitfor Medicare beneficiaries and requires new plans to provide low cost preventive services

• Medicarepremiumsforhigherincomebeneficiaries—incomethresholdsforpremium determinations frozen at 2010 levels

• ParticipantsinHSAsandFSAs*nolongerreceivereimbursementfromtheiraccounts for over-the-counter drugs not prescribed by a doctor

Key changes this year (2011)• 1099Reporting—requirementrepealedApril2011• W-2reportingofhealthinsurancecosts—implementationdelayeduntil2013

The lengthy implementation timeline may cause a false sense of security. But these changes are coming. Without any further delay, these significant aspects are scheduled for implementation in 2012:

• Annualfeesonpharmaceuticalindustry— new federal fees will be assessed to large pharmaceutical manufacturers which will likely be passed to consumers

• Medicarevaluebasedpurchasing—thisestablishesa reimbursement mechanism to pay hospitals and other institutional providers based on quality performance measures

• Medicarepaymentsforhospitalreadmissions—reduction of Medicare payments made to hospitals to account for excess and assumedly preventable hospital readmissions

• AccountableCareOrganizationsinMedicare—allows for providers (e.g. physicians and hospitals) organized as Accountable Care Organizations to share in the cost savings they achieve for Medicare

• MedicareIndependenceatHomeDemonstration— creates the Independence at Home Demonstration Program to provide high need Medicare beneficiaries with primary care services in their home

• Medicareproviderpaymentchanges—addsaproductive adjustment to the market basket update for certain providers. It is largely anticipated that it will result in lower reimbursements to providers

The Act’s provisions have implementation dates extending out into 2018. It is anyone’s guess as to how or what changes may occur due to upcoming elections. Stay tuned to Rehmann and BWD for future discussion on this hot topic.

*Health Savings Accounts and Flexible Spending Accounts

Any advice in this communication is not intended or written by Rehmann to be used, and cannot be used by a client or any other person or entity for the purpose of:(I) avoiding penalties that may be imposed on any taxpayer or;(II) promoting, marketing or recommending to another party any matters addressed herein. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

in march 2010 the Patient Protection and Affordable care Act became

law. it detailed comprehensive health insurance reforms intended to hold

insurance companies accountable, lower costs, guarantee choice and

enhance quality health care for all Americans. no matter what your political

preference, all can certainly agree the Act imposes sweeping and significant

tax and regulatory changes.

While many changes have already taken place and some anticipated

changes have been modified, there are likely many more to come. let’s

take a look at some of the more impactful ones that have already occurred.

by: Don mcAnelly cPA/AbV

the Patient Protection & Affordable Care Act What’s happening next?


carpp’s Book Corner

Volumes of business wisdomWith all the negativism in the press today, i think it is time that we change

our perspective and focus in on what is positive. With this in mind, i have

assembled three books that when read and acted upon can change your

outlook, actions and fortune. As Geoffrey Gitomer says, “Feed your mind,”

and these books are a great place to start. As always, good reading!

The Fred Factorby: mark sanborn

This book should be in the hands of everybody in your organization as it lays the foundation for a positive customer service orientation. Mark takes us on a journey of the interactions he had with his Postman that influenced his perspective on work and relationships. The concepts are simple, easy to grasp as well as to implement. This is a must read if you want to rev up your customer service!

The Rational Optimist – How Prosperity Evolves by: matt Ridley

This is a breath of fresh air as Matt makes the case that civilization is actually improving rather than deteriorating as the popular doctrine of today would lead you to believe. He explores the virtuous cycle of exchange, specialization and technological innovation that has led to the standard of living we enjoy. This is an optimistic spin on today’s current state and it is a refreshing macro view of our world. You will leave this book feeling optimistic for the future.

Influencer – The Power toChange Anything by: Kerry Patterson, Joseph Grenny, David maxfield, Ron mcmillan and Al switzler

Successfully influencing others can be challenging. If you have been perplexed on how to improve your abilities, this gem identifies six sources of influence which, when appropriately leveraged, can significantly enhance your outcomes. This upbeat book might be the key to changing your future.

— Jim Carpp


401(k) FinancingAn entrepreneur can establish a 401(k) plan inside a newly formed corporation utilizing assets from an IRA or a previous employers’ retirement plan. Some or all of those rollover assets can then be used to purchase stock in the new corporation, providing the funds for financing. Care must be taken in using this method of financing as the IRS considers these transactions “questionable.” Why? Because they may benefit only one individual – the person who rolls over the retirement funds in a tax-free transaction.

Because a qualified retirement plan is being used for this form of financing, particular care must be taken to properly establish and administer the plan on an ongoing basis. A plan document is required along with annual Form 5500 filings. If other employees of the business sponsoring the retirement plan become eligible to participate in the plan, they may also become owners in the business stock held by the plan. In order to obtain assurance that the IRS approves the Rollover as Business Start-Ups (ROBS) arrangement, the entrepreneur often applies for a favorable determination letter. This is basically a blessing on the plan from the IRS. However, the IRS has cautioned that the determination letter is issued based on the terms of the plan meeting the Internal Revenue code – not on the plan sponsor incorrectly applying the terms or operating the plan in a discriminatory manner. An initial valuation of the stock in the plan will also need to be obtained as well as annual valuations after that.

Additionally, certain costs will not be payable from retirement plan assets (e.g. fees to establish the plan documents or fees to a promoter who is assisting with the plan establishment process). Care must be taken in pursuing this path of financing as the entrepreneur is putting retirement plan assets at risk. Entrepreneurs need to make sure they are working with qualified professionals that will not only assist them with setting up the retirement plan in the beginning, but will be with them for the long haul.

investorsMany entrepreneurs seek financing from investors. This form of financing provides for almost limitless flexibility as varying sized interests can be sold, specific restrictions can

be written into operating agreements, and dividends and distributions can be adjusted frequently.

However, investors often seek some level of control when providing financing for a business and will often require the entrepreneur to invest some amount of capital themselves. These factors may lead to friction with investors as the entrepreneur

may not have sufficient capital to invest or may not want to give up an level of operating control.

Opportunities in the new Economy

by: Greg light, cFA & Gerald Wernette, cPA, cebs, AiFA

Franchise funding options

in today’s economy, many individuals have lost their jobs, been

forced to take pay-cuts or have ended up in dead-end jobs. so it

is no surprise that many have decided to take a chance at starting

a business of their own. First time entrepreneurs often choose to

open a franchise since it’s generally thought to have less risk than

starting a new business from scratch.

one of the primary concerns for most people about to start a

business is how it will be financed. in determining what financing

option makes the most sense, it is important to consider the

existing financial situation of the entrepreneur. in the case of the

entrepreneur that has no other source of income, the path to

successful financing may include 401K financing and/or external

investors. if the entrepreneur has additional income (from continued

employment or a spouse), the path to successful financing often

includes a small business Administration (sbA) loan.

let’s examine these financing options and look at the potential

positive and negatives of each.

GregGera

ld


sbA loansSBA loans are made through banks, credit unions and other lenders who partner with the SBA. The SBA provides a government backed guarantee on a portion of the loan. These loans typically feature low interest rates, a long (10-year) amortization period with no balloon payment and provide for a total financing package accounting for 70-80 percent of project costs. SBA loan volume has soared recently in both Michigan and nationwide as the government increased the SBA loan guarantee percentage to banks to 90 percent.

The SBA loan process can be quite tedious however. These difficulties can be alleviated by working with an experienced financing broker. Randy Jones is a financing consultant from Funding Solutions and specializes in the financing of franchise loans. He is very familiar with SBA loans and suggests working with a financing consultant because they, “Can help the borrower navigate the entire process. They understand what the lenders will require for the underwriting and closing of the loan and can simplify the process by providing a full package upfront.”

An experienced loan broker will have a database of lenders which can save significant time. “They know which banks are lending and to whom,” Jones adds. “Their goal is to streamline the entire process from pre-qualification through closing; allowing the borrower to focus on other aspects of opening a new business.”

Other concerns associated with SBA loans include the inclusion of personal assets as collateral, the government guarantee fee of 2.25 percent and the possible need for a business valuation if any intangible assets are purchased as part of the transaction.

home equity loansHome equity loans experienced significant growth until real estate values declined dramatically in 2007 and beyond. These loans were popular as they allowed individuals to utilize savings that were tied up in the value of their home and typically had very reasonable interest rates.

However, these loans do have their drawbacks as they put your home at risk, typically have variable rates and are difficult to obtain without an external source of repayment.

traditional bank loanTraditional bank loans are typically hard to obtain for startups and first unit franchises. These types of loans are not the primary focus of the traditional lending community since they are usually smaller and riskier in nature than loans made to larger, more established businesses. In the event that a loan can be obtained, it is usually usable only for physical assets such as machinery and equipment, leasehold improvements, etc. Because of these factors, traditional bank loans are not a recommended source of financing for startups.



SuccessionSuccessfultips to help clients plan

by: heidi bolger, cPA/AbV

Heidi Bolger contributes her expertise to

the AICPA’s CPA Insider newsletter through

a monthly column. The full version of the

articles summarized here as well as others

can be found at www.cpa2biz.com under

the newsletter tab.{ }

How Good Is Your Succession Plan?Five best practice tips to consider Succession plans always entail a contemplated change in the ownership and management of any business. And having the right elements in your plan can have a huge impact on achieving successful outcomes. Here are five elements to consider:

1. Clear owner goals2. A willing seller/willing buyer3. A systematic and sustainable business model4. Financial and tax terms that are efficient5. An implementation approach that’s

rock solid

Is There an Ideal Time to Create a Succession Plan?When it comes to succession planning, we have all heard about the consequences of people who did not have a plan in place and even as the years rolled by, continued to ignore the necessity to plan.

In the big picture, a succession plan addresses two very different scenarios:

1. Owner’s sincere desire to exit the business at a planned point in time.

2. Owner’s unforeseen exit of the business as a result of an event beyond their control (such as death, disability, etc.).

A Great Time to StartThe sooner a succession plan is developed, the more options are available. This is particularly true if stock gifts are part of the plan and family members or key employees need growing time. However, engaging your client in succession planning before they are ready can turn into a failed attempt and negatively impact their willingness to invest time in future planning. My advice is to begin the succession planning process in your 40s, but I understand that you may not be ready for it emotionally until you reach your 50s and some may even hold out until their 60s or 70s.

Most people don’t do much about succession planning until they have reached an age when they are nearly ready to exit their business. The typical business owner is 60 years of age or older before they start considering a succession plan. However, the current tax environment provides some encouragement to start thinking about getting a plan in order earlier.

The changes made by the 2010 Tax Relief Act make lifetime transfers particularly attractive this year and next. In 2011 and 2012, individuals with substantial wealth can take advantage of a number of timely opportunities:

1. The $5 million gift tax applicable exclusion and the generation skipping tax exemption amounts

2. The deceased spousal unused exclusion amount

3. Historically low federal interest rates, 4. Relatively low asset (e.g. company stock

values) 5. No current legislation restricting the use

of grantor retained annuity trusts (GRATs) or valuation discounts on family limited partnerships and limited liability companies



What to bring when meeting with your CPASHOEBOX?A while back, I was watching a television show and the main character had an appointment with her accountant. It was a few days before the filing deadline and she had lugged several shoeboxes heaped with receipts and other assorted papers. The remainder of the show was filled with one stress-filled moment after the next as the woman tried to account for each entry.

I remember thinking two things: 1) I was glad I wasn’t her CPA and 2) if she’d only done a bit of work up front, the whole process would have been a lot less stressful. The most important thing you can do before meeting with your CPA is to Get Prepared. This is particularly true for business owners.

First, schedule an appointment. This not only ensures that your CPA will have the proper amount of time reserved for you, but it will also help you establish a deadline for getting things organized and ready. At least a couple weeks before your appointment, begin gathering and organizing your documents. Remember, CPAs are more than just number crunchers or tax return preparers. A good CPA is a consultant who can assist you with tax planning, business referrals and strategic planning. In addition, they can help you avoid tax audits. If you go to your meeting prepared, you are more likely to obtain the results you are seeking.

So what do you need to bring with you?

Bring any document that provides a complete financial snapshot for the year. This can be as extensive as a complete financial statement along with a detailed general ledger or as simple as a spreadsheet of all your income and expenses. Be prepared to be able to explain each item of income and expense that is included in the financial snapshot. For example, if you have an expense for taxes, be able to explain the type and amount of each item that makes up the total.

You will also want to provide a detailed mileage log for any driving you do for business. The log should include details such as date, location driven, as well as your total commuting and personal miles for the year. In addition, be prepared to provide detailed information on the vehicles that are used for business driving, such as the year purchased and cost, as well as a history of previous depreciation deductions taken.

Other items you will want to bring are: information documenting any retirement plans you have, including contributions for the year; payroll tax returns; health insurance premiums paid; copies of any IRS or state correspondence you received; and documentation related to any new loans during the year.

what’s in your

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2}

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by: bryan Pukoff, cPA, JD

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If the CPA will also be preparing your individual income tax return, make sure to bring the following additional items:

• AllyourW-2’s,Form1099sforinterest,dividend and stock transactions; Schedule K-1’s from any partnership, trust or S Corporation you may own; Social Security statements and any other form you received that includes additional income you earned (e.g. unemployment, cancellation of indebtedness or gambling winnings)

• AllyourForm1098sreportingmortgageinterest; real estate tax bills; closing statements if you refinanced or purchased any property during the year; vehicle license plate renewals; contributions to individual retirements plans; medical expenses and donations to charity

If this is your first visit to a CPA, they will also require copies of the three previous years’ tax returns and any business formation documents (partnership agreements, incorporation or limited liability company documents).

Remember, a CPA is not a mind reader. In order for you to get the most out of your visit, you need to come prepared! If you do, the benefits you get from using a CPA will far outweigh the costs associated with your visit.


The value of a whistleblower systemby: William J. Kowalski, JD

Preventing Workplace Fraud

case Study

CASE STUDY ONE CASE STUDY TWO

A senior manager at an international automotive supply company was going through the weekly invoices with her usual diligence. she noticed one of the invoices looked vaguely familiar. it was not the vendor or the amount which piqued her interest, but the services provided. she pulled other recent invoices and noticed a disturbing pattern. A large number of invoices had been submitted for the same specific service and at the same price. With minimal effort she was able to determine the “vendor” listed on the invoices was no longer approved for business with the company and furthermore maintained no existing contractual relationship.

the manager took the information she had assembled and reported her findings through the company’s previously established and publicized whistleblower hotline. the data was collected and thereafter furnished to decision makers within the company. An investigation was ordered through Rehmann corporate investigative services and what was uncovered is startling. A company executive had committed a $700,000, two-year fraud, through creation of false purchase orders, invoices and bank accounts. After the completed investigation was turned over to the Fbi, the subject was arrested at the airport on his way out of the country. if not for the whistleblower’s diligence and ability to report the information in a timely manner, the fraud would have gone undetected and the perpetrator would have likely escaped.

in a not dissimilar situation, members of a board of Directors of a company discovered severe decreases in revenue. A forensic accounting investigation was opened and revealed discrepancies and improper transfer of funds conducted by a senior executive within the company. two of the first three employees contacted and interviewed admitted some knowledge of the improper transfers over the previous two years. they noted they would have reported it had there been a mechanism for them to do so which may have provided anonymity and protected them from retaliation by the offender. the fraud was extended for years because of this lack of reporting and resulted in a significantly greater loss of funds to the company.

studies indicate the establishment of an effective whistleblower hotline is the single most significant method to alert executives to fraud within their organizations. over 60 percent of the fraud schemes uncovered are discovered through employee or customer complaints — most often through utilization of a whistleblower hotline. such hotlines can be structured to allow for anonymous receipt of information increasing the rate of success and occurrence of usage. they are a proven deterrent to potential fraudsters and have proven time and again to greatly reduce the length of ongoing frauds and the total dollar amount of loss.

Fraud continues to be a significant risk for many companies, especially in these uncertain economic times. the Association of certified Fraud examiners estimates that us organizations will lose 7 percent of their annual revenues to fraud. based on recent figures, that translates to $994 billion in fraud losses.

the scenarios recounted below are actual cases. no names have been used, but the events are real. { }


The value of a whistleblower system

by: steve Kerby & Ricardo Resio, sPhR

A new weapon in the battle

*Source: Association of Certified Fraud Examiners/2009 Report to the Nation

It’s an unfortunate fact of business life. The potential for fraudulent activity is not only very real, it is on the rise. Last year alone, more than $400 billion was lost by US organizations due to fraud and the average lossinafraudoccurrencewas$160,000.*Perhaps even more disturbing is the fact that much of this fraud is committed by employees. In fact, the typical organization loses seven percent of its annual revenue to occupational fraud.

Red Flag Reporting is a system that enables employees to report any concerns of improper activity within the workplace. It is estimated that 46 percent of frauds aredetectedbysomeonespeakingup.*Implementing a safe and private avenue for employees to report suspicious behavior — without fear of repercussion — encourages employees to become part of the solution. Red Flag Reporting has been implemented by Rehmann for use throughout the firm.

The system is simple. Comprised of a 24/7 toll-free hotline and website, Red Flag Reporting allows employees to anonymously “voice” their concerns — financial concerns such as theft or compliance matters, personal concerns such as harassment, discrimination or safety issues or substance abuse, etc. And whether reported by phone or on-line, participants have the option of being completely anonymous.

This is an important internal control procedure that constructively brings potential unethical or illegal concerns to the forefront. Even if an employee only suspects something may be amiss, bringing it to someone’s attention early enables a concern to be resolved while it is small — well before it has the chance to escalate into a large problem. Further, it shows employees that their company is committed to maintaining a work environment free from such distractions.

Estimates calculate that three out of five companies will be sued by an employee for a matter that occurred sometime between the pre-hiring process and the exit interview. The average court settlement for an employee related claim is $40,000. The average verdict in an employee related case is $140,000. A hotline allows employers to address a situation early — before it becomes a matter for the courts.

Red Flag Reporting was created as an effective, turn-key protection program to help initiate the best practice controls. Developed by experienced fraud investigators and human resources consultants, Red Flag Reporting is a highly effective program to detect and report unethical behavior, and stop costly problems such as embezzlement, false billing, misuse of assets and accounting irregularities. The program also addresses employee protection, raising red flags before a work condition leads to a litigious situation. With a user-friendly interface, Red Flag Reporting is proven to protect your organization’s employees, goodwill and bottom line.

It’s not merely an 800 number. Red Flag Reporting is unique from other hotlines because its features make it more than just a reporting function. The system includes analysis of reports and training that is focused on helping you maintain a positive tone at the top of your organization. Red Flag provides effective fraud and abuse prevention and detection measures, so your focus can remain on your customers. What’s more, it’s also available in Spanish (both on the website and by phone).

For further information regarding the system, its implementation or if you are interested in purchasing it for your company, contact your trusted Rehmann business advisor.

The average court settlement

for an employee-related

claim is $40,000. The average

verdict in an employee-

related case is $140,000. A

hotline allows employers to

address a situation early —

before it becomes a matter

for the courts.

Turning the Tables on Fraud


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Business Wisdom Delivered Continuing [8] Moving, GROWTH ... Fall 2011 WEB.pdf · merger and...

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