Why are Insurance Audits Important?

26. July 2018 11:28 by Megan Kunis in

An insurance audit is when an insurance company checks on the payroll or revenues of a customer or policyholder, to ensure that the policy reflects accurate rating information. Audits are common with all Worker's Compensation policies, many general liability policies, as well as some marine policies and other kinds of insurance.

Here's why audits are important: insurance policies are rated based on many different metrics, many of which we just do not know at the beginning of a policy term. For example, if a rating metric for a development is the number of acres in the development, that number won't change.  If the grading metric is gross revenues or gross payrolls, we don't know the true revenue or payroll until after the policy is over. The audit helps the insurance company to rate insurance policies most accurately.

Imagine you have a business that typically generates $1 million in revenues.  If you tell your broker that your business does only a half million dollars in revenues you may get a one year break in your insurance costs. The audit, however, is the mechanism insurance companies use to keep you honest.

The rating metric that drives Worker's Compensation costs is payroll. This makes sense: the more employees working at a place, the higher the payroll; this ties to the greater the exposure for somebody to file a claim.

Underestimating Payroll or Gross Revenues

Underestimating payroll or revenues for an insurance program carries some risks. Suppose a business does $1 million in sales and the general liability is based on that rating metric. To save money the business owner tells the insurance company their sales are only $500,000. Let's say the insurance costs $5,000 under these assumptions; you'd think the business saved $5,000. But when the audit uncovers the fact that the business does $1 million in sales, last year's policy cost is adjusted retroactively by $5,000 to get up to $10,000 in this example. (The additional $5,000 is due right away because it's for last year's policy.) Further, the insurance company has seen this tactic once or twice before.  In the interest of collecting a proper amount of premium for the new year, the insurance company will also update the estimated sales for that policy year to $1 million resulting in an additional $5,000 charge. This is the double whammy scenario: the insurance company collects the retroactive premium, as well as adjusts the current policy to reflect the reality: in this case resulting in a total $10,000 additional charge on what was budgeted as a $5,000 insurance cost.  This isn't good for cash flow or for relationships between risk partners. Underwriters don’t have a great sense of humor when it comes to mis-reported rating metrics.

We counsel our customers to be as accurate as possible or slightly underestimate projections so that audit adjustment is minimized, and premiums are paid as revenues and payrolls are accounted for.

A new trend in workers compensation is rendering these audits nearly obsolete. Worker's Compensation charged through a payroll service company allows Worker's Compensation expenses to tie almost exactly 2 labor expenses.

The Good that Comes from Audits

Not all is bad about audits. When sales come in below true expectations, most policies provide for return premiums under these circumstances. Some surplus and excess policies do not make such allowances, however, so it is important to discuss projected revenues and payroll with your professional agent or broker.

The audit exercise is typically a simple process of providing evidence of sales (income statement or tax reports) or payroll (941s and similar tax forms). However, we know it isn’t something anybody wakes up in the morning looking forward to doing. Thus, occasionsionally businesses don't get around to completing audits for their insurance company partners right away. The standard recourse is effective, but a nuisance: when an audit is not completed they generate an "assumed audit". Here the insurance company simply assumes that your payroll or revenues increased by 50% or more, generating a huge bill for the retroactive policy as well as a huge bill for the new policy. When an audit is not completed in a timely fashion the insurance companies leverage is often this giant bill. This is when the accounts payable folks get over to the bookkeeper to get that audit done. We work with our customers on expediting such events, but encourage prompt completion of any audit to avoid such unpleasantries.

In the contracting environment where a general contractor engages several types of subcontractors, the auditor will charge for costs of uninsured sub contractors much differently from insured subcontractors. When an uninsured contractor causes a loss, the general contractor's insurance may be responsible for covering a loss, therefore the attendant charge will be included for his policy.  Certificates of insurance properly organize and document insurance of subcontractors to reduce the effects of an audit on the general contractor's insurance program. See our separate blog on certificates of insurance

Be Prepared

Don't let an audit surprise you or catch you off guard. Here, we try to advise you in a way that results in the best possible insurance program while protecting your cash flow and budget. Don't hesitate to call or contact us if we can assist with achieving these common business objectives.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

The most common mistakes when managing personal finances

18. July 2018 11:30 by Megan Kunis in

The ability to manage money competently is especially valuable quality in the conditions of financial crisis, when the purchasing power of the population is shrinking, inflation is rising, and currency exchange rates are completely unpredictable. Below are the common mistakes related to money affairs along with financial planning advice to help manage your own finances properly.

The budget is the most basic thing in financial planning. It is therefore especially important to be careful when compiling the budget. To start you have to draw up your own budget for the next month and only after it you may make a yearly budget.

As the basis takes your monthly income, subtract from it such regular expenses as the cost of housing, transportation, and then select 20-30% on savings or mortgage loan payment.

The rest can be spent on living: restaurants, entertainment, etc. If you are afraid of spending too much, limit yourself in weekly expenses by having a certain amount of ready cash.

"When people borrow, they think that they should return it as soon as possible," said Sofia Bera, a certified financial planner and founder of Gen Y Planning company. And at its repayment spend all that earn. But it's not quite rationally ".

If you don't have money on a rainy day, in case of an emergency (e.g. emergency of car repairs) you have to pay by credit card or get into new debts. Keep on account of at least $1000 in case of unexpected expenses. And gradually increase the "airbag" to an amount equal to your income for up to three-six months.

"Usually when people plan to invest, they only think about profit and they don't think that loss's possible", says Harold Evensky, the President of the financial management company Evensky & Katz. He said that sometimes people do not do basic mathematical calculations.

For example, forgetting that if in one year they lost 50%, and the following year they received 50% of the profits, they did not return to the starting point and lost 25% savings. Therefore, think about the consequences. Get ready to any options. And of course, it would be wiser to invest in several different investment objects.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

How Trump’s New Tax Plan Might Affect Your IRS Debt

31. March 2018 13:21 by Zach Haris in

It’s really too soon to tell how any changes within the Trump administration will affect taxes, but one thing is certain, if you are currently in debt with the Internal Revenue Service (IRS), it is fully expected for you to pay what you owe. That’s not going to change no matter if the taxes are raised or lowered.

Stay Focused! Do Your Due Diligence.

It’s important to not let your emotions get in the way of your financial obligations to the IRS. No matter who is in office, as United States citizens, it our responsibility to uphold our part and pay the taxes we owe. If for some reason you believe that the amount that you owe is incorrect, you have a right to contest these numbers. You can do this by mail or telephone, although we recommend that you do both—in that order. This way, you’ll have written documentation that proves you’re actively communicating with the IRS, and speaking to a representative by phone will show that you’re following up accordingly.

Need Help with That?

We realize personally speaking to the IRS can be intimidating. That’s why the professionals at Success Tax Relief, a tax relief firm is staffed with a team of tax experts to communicate with the IRS on your behalf.

Back to the Whole Tax Thing!

We realize that you still may be a bit concerned about how Trump’s new tax plan might affect your taxes in the years to come.

The plan has been described as “Reagan on steroids”, a plan that follows the concept of the ‘rich getting richer and the poor getting poorer’—all in theory, of course!

According to White House Reporter, Matthew Nussbaum ,who tweeted a photo of the one-page 2017 Tax Reform for Economic Growth and American Jobs, are as follows:

  • The standard deduction will double, but many tax breaks will no longer be available to individual filers except for home ownership and charitable contribution—this will reduce a number of deductions that you’ll be able to claim.
  • Tax relief will be provided for families with dependent care expenses.
  • “Eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers”
  • Repeal:
    • Alternative Minimum Tax
    • Death tax
    • Obamacare
  • For businesses, the overall objective is to level the playing field of the territorial tax system for American companies.

In a Nutshell…

The plan reportedly is not projected to decrease the country’s deficit until after 10 years from now, and it will need a straight party vote. So, as of right now, there’s nothing to be actively concerned about, because it’s too soon to tell. It also doesn’t have much to do with you pay the IRS what you owe.

What Can You Do?

The best thing to do during this continuous transition is to continue taking care of your financial obligations. Maxfinancials.com/taxationandadvisory can help you along with this process. We work on your behalf—not for our benefit.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

Business 2017 - The Need for Speed

21. December 2017 21:02 by Zach Haris in

We are racing rapidly towards 2017 (where did this year go?), and never have I seen such a compelling argument for business leaders to adopt the "need for speed" as part of their culture.

The phrase that haunted me from my course at UC Berkeley HAAS school of business is "If you don't someone else will", suggests that if you don't move rapidly in your business to implement strategies and actions, others will. Those "others" may be existing competitors, or as we are seeing more and more, fresh new entrants. Think Uber to taxis and Airbnb to hotels.

A good example is Tesla which started producing cars in 2008 and really shifted gear into mass production with the Model S in 2012. In one of the toughest industries to enter, Tesla within the space of 8 years has become a household name.

A year to adopt the idea, a year to produce business cases and amend budgets and then a year or two at best to implement. During this four to five year process nimble, agile entrepreneurs can race ahead. of slow moving corporates.

I also find that while it is important to have considered thinking, many organisations are procrastinating. "Democratic" management hierarchies are stifling debate. dumbing down decisions and slowing down decisions.

I have seen organisations undertake management buy outs in the space of six months while others take three years.If a major company can do an MBO in six months, then surely a new website can be created in two months or selling our existing products into a new market should take no more than three months. Leaders are setting themselves up for failure by accepting a culture of stretched timelines.

Why speed?

Speed will give you the competitive edge, and if you don't move quickly in your business, guaranteed others will seize the opportunity. It is not a matter of big corporate's beating small businesses anymore. It is about fast businesses versus slow businesses.

7 Ways to develop speed.

1. Think as an entrepreneur. If you were setting up tomorrow to compete with your own business, what would you do differently? What would be the priorities you would focus on? You need to document the urgent big ticket items.

2. Work out why decisions or major projects are taking too long in your business. Work out the blockages. Every business is different and has its own unique culture. I would use the "Five Whys" tool, to identify "Why are decisions taking too long?"

3. Do an agility audit. McKinsey have a very useful guide to what is agility and the importance of agility.  

4. Set a deadline and work backwards. Don't write a  plan where the end date is a result of all the actions. This will lead to the actions driving the timing. Urgency must create the timing.

5. Have a good change process that you follow every time. I use the Mindshop 8 week cycle, so every 8 weeks we can drive the thinking and have a plan around any major issue. The teams produce a GANNT chart and also examine their likelihood of change success using the Mindshop "Change Success Audit". 

6. Accountability. It is important that any major change has someone who is independent of the project monitoring the speed of implementation. At Dropbox, they have the Objectives and Key Results ("OKR") police. The police have the right to question anyone in the company right up to CEO level on how they are progressing on a project, and if they are behind, why they are behind and what are their plans to get back on track.

7. Resource properly. Too many people get distracted by their day jobs and use this as an excuse as to why longer term projects have not been tackled. Either take tasks off existing people to free them up, or employ additional resource to help out.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

Importance of Timing in Asset Protection

20. December 2017 17:45 by Megan Kunis in



Importance of Timing in Asset Protection. Today, let’s study the important component of timing when you do an asset protection plan. Let’s first ask when is the best time in order to undertake asset protection. Well the answer is simple. It is before any lawsuit or claim arises against you. Why? Because it allows you and enables you to do planning for what is called a rainy day. And in reality what you want to keep in mind always with planning for asset protection is that you want it to be complementary to an overall estate planning objective such as minimizing your estate taxes and so forth. So what happens if you do start to do some asset protection planning after a lawsuit or claim arises where you are basically looking at two different situations.

1.      With reserves. So let’s say that you have a million dollars in asset and someone comes up to you for two hundred thousand dollars. While you are completely allowed to extract $ 800,000 out of your assets and basically set it aside and protect it from the lawsuit. It is called the no harm no foul rule so to speak because there is sufficient asset to satisfy the claim.

2.      The second situation is basically with no reserve. This is when you chose to basically strip yourself from any equity from your belongings. That is a rather dangerous approach, one I would definitely not recommend.

Why is that? Because you would be entering into what is called fraudulent transfer. Fraudulent transfer is a term of art that basically claims an assertion against the debtor; the debtor is the person that owes the money, where that person undertakes some asset protection when he or she knows there is a present creditor or an individual coming after them for a specified amounts. So if you do that and you have the intent to hinder, delay, or defraud the creditor you would be clearly in the fraudulent transfer universe.

Now when you have the specific intent to bypass that lawsuit it is easy to claim a fraudulent transfer and that is basically when you enter, what people call, a natural intent to defraud. The truth is you know, in all my years, most people don’t go ahead and volunteer the specific intent, “Oh yes, I really did want to bypass this lawsuit and I had the actual intent to defraud this creditor.” So what the law has created is called batches of fraud which is basically a test with series of element and upon meeting some of those elements they will be able to determine that they indeed did have the intent to defraud the creditor.

So hopefully that was a helpful piece of information. If you want to find out more about this then go ahead visit our contact us page  and we  will be happy to talk about your situation.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

Timing Strategies Could Become More Power In 2017, Depending On What Happen With Tax Reform

12. December 2017 18:22 by Selina Stewart in

Projecting your business income and expenses for this year and next can allow you to the time when you recognize income and incur deductible expenses to your tax advantage. Typically, it’s better to defer tax. This might end up being especially true this year, if tax reform legislation is signed into law.

Timing strategies for businesses
Here are two timing strategies that can help businesses defer taxes:

1. Defer income to next year. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or be delivering services.

2. Accelerate deductible expenses into the current year. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before December 31, so you can deduct it this year rather than next. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

Potential impact of tax reform

These deferral strategies could be particularly powerful if tax legislation is signed into law this year that reflects the nine-page “Unified Framework for Fixing Our Broken Tax Code” that President Trump and congressional Republicans released on September 27.

Among other things, the framework calls for reduced tax rates for corporations and flow-through entities as well as the elimination of many business deductions. If such changes were to go into effect in 2018, there could be a significant incentive for businesses to defer income to 2018 and accelerate deductible expenses into 2017.

But if you think you’ll be in a higher tax bracket next year (such as if your business is having a bad year in 2017 but the outlook is much brighter for 2018 and you don’t expect that tax rates will go down), consider taking the opposite approach instead — accelerating income and deferring deductible expenses. This will increase your tax bill this year but might save you tax over the two-year period.

Be prepared

Because of tax law uncertainty, in 2017 you may want to wait until closer to the end of the year to implement some of your year-end tax planning strategies. But you need to be ready to act quickly if tax legislation is signed into law. So keep an eye on developments in Washington and contact us to discuss the best strategies for you this year based on your particular situation.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

Tips to avoid liability risks in your CPA practice

11. December 2017 17:20 by Jason Kelley in

CPAs face a huge amount of responsibility, and with responsibility comes risk. We can make sincere mistakes, or a client may allege that we made a mistake and should have foreseen potential pitfalls. On top of all that is an ever-changing mountain of financial and tax regulations which CPAs are expected to constantly stay on top of.

The AICPA recommends and certain states mandate that accounting professionals and firms carry professional liability insurance, but a firm can still find itself wasting time in court even with insurance. Accounting firms should thus identify which areas often pose the biggest liability risks and know how they can reduce risk.

Know what you know

Accountants as a profession are transitioning into true financial professionals, willing to offer clients useful advice on how to get the most out of their assets.

But there is a dangerous downside to this trend. CPAs who have learned to do additional financial work in one field may decide that they can give advice in a separate field, often out of a desire to help clients and an unwillingness to admit that they do not know everything. And if a CPA performs a service for the first time and gets used later, their lack of professional expertise can be held against them.

It is commonly said that the wisest men in the world are those who know just how ignorant they are, and CPAs should remember that. Instead of thinking that you can just learn what the client wants you to do on the fly, do not hesitate to recommend other, more specialized accountancies. You will reduce the risk of making a mistake and facing a potential lawsuit and your client will appreciate your firm’s honesty.

Cybersecurity and the Cloud

Accountants hold huge amounts of personal and financial information as part of their profession, information which criminals and hackers would love to obtain. The consequences of a data breach are not just embarrassment and lost reputation. Clients will look to sue, and small accounting firms cannot count on being protected from hackers by the shield of obscurity.

There are plenty of guides out there on how accountants can improve their cybersecurity. Basic measures such as not using Microsoft XP or Vista or purchasing cybersecurity protection programs will do a great deal to deter hackers who will search for easier targets. Cybersecurity training is also important so that employees can be aware of threats such as phishing, malware, and even basic concepts such as that Nigerian prince is not actually going to send you a million dollars.

The importance of cybersecurity and data protection takes on a further dimension when the growing popularity of cloud computing is factored. While storing data on the cloud can be cheaper and allow for increased scalability, security breaches with cloud vendors have occurred. Accounting firms should thus do their due diligence and select a cloud vendor with a good security reputation and inform clients that their information will be stored on the cloud. If your clients are concerned, it is better for them to be aired out now than after a data breach.

The Importance of Engagement Letters and Writing

Accountants have to remember that even if they did everything right, they are still at risk of being sued. A client whose financial situation suddenly gets worse can easily decide that you could have done something to prevent it even if that is not the case.

And if the client’s argument can get past a motion for summary judgment, accountants can find themselves stuck with the expenses both in time and money of a court case for years. Do not forget that it can be easy for a lawyer to spin a story to some jury about how the evil financial mogul defrauded the poor common American.

It is important for these reasons for accountants to document everything and not just that which is required by professional standards. Engagement letters, in particular, are an important documentation tool. They define what services the accountant provide, what responsibilities the accountant and the client share, and any limitations. Most importantly, accountants should provide only the services described in the engagement letter and do not try to push the boundaries. If an accountant wants to provide additional services, draft a new engagement letter.

Accountants may hesitate about providing letters to established clients. They fear that it would indicate a lack of faith and that they could potentially lose a client by doing so. But the downside of a lost client is trivial compared to the downside of a long and expensive trial.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

The Problem with Quit Claim Deeds

2. December 2017 15:54 by Jason Kelley in

When transferring real estate, there are several different property deed types to choose from, with the most popular being Quit Claim Deeds, Grant Deeds, and Warranty Deeds.  Unfortunately, too many real estate investors opt for Quit Claim option most likely due to its common parlance amongst investors when discussing the transfer of real estate.

A client just felt the pain of using a Quit Claim Deed when selling a property he owned for five years.  His situation set up as follows:

THE BEGINNING

  • Jim buys a house in his own name with title insurance
  • Jim attends a seminar and learns about asset protection and the benefits of LLCs
  • Jim hires a local attorney to create an LLC and deed the property into the LLC
  • Jim’s attorney prepares a Quit Claim Deed and transfer the property into the LLC

FIVE YEARS LATER

  • Jim’s LLC sells the house for $130,000
  • They holds on to $120,000 and refuses to pay it over to Jim’s LLC because of a HELOC from the prior owner clouding title
  • Jim contacts his title company to bring a claim
  • Title company informs Jim it missed the HELOC when he purchased the property but Jim blew his policy upon transferring it into his LLC i.e., WE WON’T PAY!

You probably guessed where Jim went wrong – using a Quit Claim Deed.  Title insurance protects you from any defects or claims brought against you at a later date in connection with a title defect.  The key to staying protected when deeding property into an LLC is to ensure claims can still be brought against you.  You are probably thinking why would I want claims to still be brought against me?  The purpose of the LLC is to protect me from claims.  Well, we are not referring to lawsuits with third parties.  In this context, you will be suing yourself.  Sounds crazy but in reality that is what Jim could do if he had used the proper deed form.

A Quit Claim Deed transfers bare legal title to the grantee without any warranties of any sort.  Think of it like the “AS IS” clause in a real estate purchase and sale agreement.  A Warranty Deed on the other hand guarantees free and clear title of any defects.  When Jim’s LLC did not get paid on the sale of the property it could not bring a claim against Jim for transferring defective title because the type of deed he used (a Quit Claim) came without any warranties.  A Warranty Deed solves this dilemma because Jim’s LLC could sue Jim under his warranty of clear title.  Jim, in turn, will give the claim over to his title insurance company who agreed to insure Jim against any claims for a defective or clouded title.

We discovered it is sometimes the small things that end up generating the biggest problems.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis

Shine the light on corruption and tax evasion

5. October 2017 13:18 by Jason Kelley in

Some good news for a change. In a rare display of bipartisanship, a bill was introduced in Congress this week to fight financial crimes by mandating companies incorporated in the United States to identify the physical persons who own and control them.

Corruption, tax evasion, arms trafficking, human trafficking, terrorism financing, sanctions busting, fraud, you name it: the trail of investigations into financial crimes often ends with an anonymous company. Nobody goes to jail because law enforcement officials cannot identify the people reaping the spoils behind the veil of shell companies.

Corruption is a plague stunting economic development of poor countries. Not only does it waste public resources that could otherwise fund schools, clinics and other social services, but it also discourages private investment and fosters distrust between citizens and their government, which makes countries ungovernable.

Almost a third of rich Africans’ wealth – about $500 billion – is estimated to be held offshore, which may cost African governments $14 billion a year, enough money to pay for healthcare to save the lives of 4 million children and to employ teachers and allow every African child to go to school.

Shell companies are usually associated with exotic tax havens. The Panama papers – leaks from a law firm in Panama that revealed the owners of a trove of shady companies – come to mind.

However, it turns out that the United States is the location of choice for shell companies. While you need identification to own a car or get a library card in America, it is not necessary to create a company. Acting under cover of shady intermediaries for a corrupt African minister, our colleagues at Global Witness have approached lawyers and demonstrated how easy it is to launder money in the United States.

US-based intermediaries setting up shell companies have a comparative advantage over exotic tax havens because US companies are protected by a strong rule of law and have access to a deep financial market, in addition to the veneer of good reputation that an American address provides. A World Bank review of 150 cases of grand corruption found that they involved 817 corporate vehicles, 102 of which were incorporated in the United States.

Paradoxically, the United States played a leading role in the aftermath of the terrorist attacks of 9/11 to step up the work of the Financial Action Task Force, a global body dedicated to setting standards to fight money laundering. Europe and many other nations are now collecting the names of the physical persons owning or controlling companies. The United Kingdom has even put their registry online, which can help investigative journalists track down corrupt officials in countries unwilling or unable to crack down on corruption.

The bill introduced in Congress this week follows a regulation of the Obama administration that mandated financial institutions to know the identity of the beneficiaries of bank accounts. The bill does not require public registries, but allows the federal government to collect beneficial ownership information from companies when states fail to do so, and to share that information with law enforcement authorities and financial institutions.

This bill has bipartisan support and is promoted by a wide coalition of public interest groups including clean government, taxpayers, human rights, international development as well as small businesses and law enforcement groups and even banks. In this climate of acute partisanship, Congress should demonstrate it can get things done.

Share or bookmark this post
  • Facebook
  • Google
  • LinkedIn
  • TwitThis