Tag: accounting professional

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Courier or Messenger as Contractor or Employee? Compliance with Department of Labor

Courier or Messenger as Contractor or Employee? Compliance with Department of Labor

courierWhen it comes to dealing with the Department of Labor, there is only one prudent approach: keep meticulous records and self-audit regularly.  It’s not that the DOL is a particularly frightening group, but increasingly public conflicts suggesting wage theft and avoidance of employer responsibilities continue to shine a bright light on the gravely imperative nature of keeping the right records and operating within the proper constraints.  It is the DOL’s persistence in the auditing of independent contractor relationships which has put a tremendous amount of pressure on businesses which operate with primarily contracted workers.

The issue is not exclusive to any particular industry, but it seems that there are numerous rich targets in the area of logistics, as recent decisions impacting FedEx and UPS reflect.  Described in an MSNBC article quoting David Weil’s book “The Fissured Workplace”, the decisions supporting the DOL in the 9th Circuit “further undermine the “devolution of the proletariat” — corporate America’s ongoing effort to shed front-line, often low-wage employees through independent contracting, subcontracting, and franchising arrangements”.  The two federal appellate decisions disputed FedEx’s contention that its drivers in California and Oregon were properly classified as independent contractors.   While there are many situations where the argument supports fair treatment for workers who operate more as employees than contracted workers, there is an equally substantial base of business where the performers are contracted and independent and should remain free to operate as such.

One of the industries directly in the crosshairs of the Wage and Hour Division of DOL is the courier and messenger industry. Couriers and messengers pick up and deliver messages, documents, packages, and other items – generally between offices or departments within a business, or directly to other businesses or individuals – and do this while traveling by foot, bicycle, motorcycle, public transportation or private vehicle.  The Bureau of Labor statistics in 2012 indicated that almost 25% of those classified as couriers and messengers were local messengers and delivery providers, and that the highest concentration of these providers is in New York.

So what’s the deal with DOL versus courier/messenger services and their clients as it relates to the “contractor independence” issue?  Well, the initial approach by the DOL is often to consider the hiring authority (the client) as a Professional Employer Organization or simply as an employer.  This approach is often forwarded regardless of the provider’s owner/operator status, and may be due to a lack of supporting evidence that the courier was actively soliciting additional business from other sources (which is generally not the problem of the client, but in this case could be).  There is a requirement to substantiate not only the client’s position that he is not the employer, but to satisfy recordkeeping for the courier or messenger, as well, proving independence and having the necessary paperwork and proof to support the claim.

In a business where people are frequently on the move, scheduling jobs between pickups and deliveries, there isn’t a lot of time to spend filling out paperwork and getting written agreements.  These folks are working even as they’re scheduling more work, and a lot of this activity is done via text or telephone while riding a bicycle. The circumstances of how this industry works makes compliance a particularly difficult task, and the DOL doesn’t have to schedule audits and compliance visits – they can approach a business at any time and request to review records, observe activities, and more.

Given the frequency of such investigations and audits, every business in the industry should be looking for a simple and foolproof solution to keeping the right paperwork and records that will support the business operator claim of independence and protect them from unnecessary cost or litigation.  This is where an accounting professional or consultant may provide assistance, identifying the tools and developing the processes to ensure proper reporting and compliance with regulations on both sides of the transaction. Without the proper documentation and evidence supporting the position of the client as well as the provider (the courier/messenger), both parties may end up finding themselves in an unintentional and costly relationship.

jmbunnyfeetMake Sense?

J

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Revenue Recognition and closing the reporting GAAP

Revenue Recognition and closing the reporting GAAP

chartOne company earns what the other company spends.  This is business, and it seems like it would be pretty straightforward, accounting for the money coming in and the money going out.  But it is really not that simple when it comes to business finances and accounting for revenue.  With investor pressure to improve share prices and market pressures forcing greater competition, businesses have always sought out ways to make the performance look as good as possible – on paper even if not in reality.  It is this requirement to make the business look better than it may actually be that drives “innovation” in financial reporting, and encourages some companies to use whatever rules are available to mislead investors or paint a rosy picture for stakeholders.  When the balance is lost and financial reporting standards become so oblique as to allow regular and gross misrepresentation, it is time to change the standards.

There are numerous instances of fraud and scandal reported from the finance departments of big businesses, but instances of improper or misleading revenue recognition can happen in even the smallest of companies, and not necessarily on purpose.  It is important to understand that properly and accurately reporting business revenue and earnings isn’t done just for investor satisfaction, it is an essential part of describing business performance that any owner or manager must be able to rely on.

Generally Accepted Accounting Principles (GAAP) provide investors and business owners with some consistency in the financial statements they use to analyze company performance, but only minimally.  This is partly due to the fact that GAAP is based not only on some standards established by policy boards (the authoritative standards) but also on “generally accepted” standards, which are often not really standards at all but simply past practice that was found to be accepted.  Especially in the global economy where fewer businesses operate solely within traditional territorial boundaries – and where accepted reporting methods vary widely – having a single financial reporting standard has become more important than ever.

Make it so, Number One.

Now there are new rules from FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) which provide clear and detailed guidance for how businesses recognize revenues.  These rules are based on a consistently applied set of principles, no matter what sort of business is involved and regardless of where the business is located.

A focus of the new rules of revenue recognition centers on customer contracts, delving into the details of how earnings from those agreements should be recorded. Consider that many businesses combine multiple products and services into a single agreement, even though there may be several deliverables or milestones included.  This method of booking customer contracts allowed companies to report revenues they were not yet due as part of a total agreement, often resulting with inflated earnings reports.   Stakeholders would perceive that the company had reached one earning threshold, but the reality was something quite different and performance expectations were unmet.

“FASB and the International Accounting Standards Board (IASB) issued converged guidance on recognizing revenue in contracts with customers. The new guidance is a major achievement in the Boards’ joint efforts to improve this important area of financial reporting.”  http://www.fasb.org/jsp/FASB/Page/BridgePage&cid=1351027207987

The new rules force an additional level of discussion, including a full set of disclosure requirements that will provide more information about contracts with customers.  Businesses must identify each promised deliverable and attached revenue or earning component, which helps to better understand how the revenue may be earned (and recognized) as the business performs on the various obligations to the customer.

Just take a look at some big ERP companies and the lawsuits generated from problems and failures in delivery – problems that might have been more clearly identified to investors and stakeholders if the tie between product sales and services to be performed were more clearly described.  In many cases, these situations exemplify the revenue recognition reporting problem, where large customer contracts and license sales were fully booked and recognized even though implementation services milestones attached to those license sales remained undelivered.

“2010 – JDA Software (i2) – Dillard’s, Inc.:  Dillard’s had alleged i2 failed to meet obligations regarding two software-license agreements for which the department-store operator had paid $8 million.” http://www.zdnet.com/blog/projectfailures/erp-train-wrecks-failures-and-lawsuits/12055

For private companies, reporting periods beginning after December 15, 2017 must follow the new guidance.  It may seem like a long period of time – from the decision to apply the new rules to the effective date – but the number of businesses the new rules will impact is large.  The FASB made a decision to delay the effective date because of the broad scope of organizations affected and “the potentially significant effect that a change in revenue recognition has on other financial statement line items.”

Business owners and their accounting professionals need to make sure that financial systems and processes are up to the task and can track and produce the detailed reporting these new rules require. For investors and analysts, the new reporting rules and detailed information they generate will go a long way towards minimizing the impact of innovative revenue reporting practices, and will hopefully bring a new level of believability and usefulness to business financial reports.

Make Sense?

J

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Following the Rules: Users and Licensing for Hosted QuickBooks

Following the Rules: Users and Licensing for Hosted QuickBooks

I have said many times before that the licensing for QuickBooks desktop editions appears to be a bit complicated, and a lot of that may have to do with the fact that so many people use QuickBooks in so many different ways.  With a solution like QuickBooks (or Microsoft Office or other really popular and widely used software products) there is a tendency for folks to want the flexibility of accessing their software regardless of what computer they are using.  Also, especially in businesses, there is the habit of installing software on a computer and then allowing anyone sitting at the computer to use the software.  In some cases these approaches are okay with the software vendors, but in most cases they’re not.  Yet too often, the small business owner doesn’t find out what the actual rules of using the product are until they try to deploy the software with a hosting service provider (because nobody ever actually reads the EULA, do they?).  If the provider has any credibility at all, they will enforce the licensing rules of the software, but that doesn’t always sit well with the customer.

picture-hostedQBThis situation rears its ugly head quite frequently in the QuickBooks hosting world.  Perhaps it is because there are a lot of possible working models involving QuickBooks users, or maybe it’s simply a matter of people not seeing the value of paying for what they want to accomplish.  Either way, service providers find themselves being challenged every day in trying to explain to a customer why they need to have more than one license for QuickBooks and more than one service account if they want more than one person to access the hosted solution.

Different people at different times: The Concurrent User approach

One of the arguments people make for not having licenses for all of their users is that they don’t actually need everyone in the system at the same time.  The belief is that there should be licenses enough only for the number of concurrent, or simultaneous, users that will access the system, yet each individual human being/user should have a login to the system with the software available (for convenience, of course).  A QuickBooks 3-user license, they believe, should be able to be used by any number of business users as long as no more than 3 of them are in QuickBooks at any given time.

While the customer may be making a reasonable argument, it all falls down when you consider the license agreement for QuickBooks.  Each user of the product is supposed to have a specific license.  A business with a 3-user license (or 3 single-user licenses) for QuickBooks has the rights to allow 3 people (unique human beings) to use the software, not any combination of people as long as they number no more than 3 at a time.   There is to be no sharing of licenses, and there is no “concurrent” licensing model: each person/user/human being is supposed to have their own license for the product no matter how often they access it.

Look but don’t touch: The Read-Only User approach

Another of the arguments people make for not licensing all of their users is that there is somehow a belief that if you don’t actually enter information, then you aren’t really using the software.  This often comes up in situations where an accounting professional works with their client, or when business owners want to occasionally see what’s going on in the company.  The approach centers on the concept of what a “user” is and suggests that users are the people entering or changing the data, and people only viewing that information aren’t really “users” at all.  When the bookkeeper opens QuickBooks and enters an invoice, the bookkeeper is recognized to be a user.  But when the business owner opens QuickBooks to view the financial statement or see the bank account balance, isn’t the business owner also a user?  Yup, they sure are. Any person that actually opens the program on the computer is a user, regardless of what they do when the program is open.  Just looking around at the data still requires that the program be open, and opening the program requires a license.

Two Fer: But the other hosting company lets me…

Just because you can do something doesn’t mean that you should.  So, just because a different hosting provider might let you get away with things that aren’t right (but perhaps are convenient or cost saving in the short-term) doesn’t mean you should expect a different host to allow the same thing.  If your current host says things like “as long as you don’t tell us…”, you should be concerned.  This often comes up in a hosting scenario where there is an outside accounting or outsourced back-office professional working with a hosted client business.  The outsourcer will want to access the client books, so they will want to have a login and access to QuickBooks software on the host system.

The trouble starts when the outsource professional doesn’t want to have to pay for their own service or licensing, yet they want to be able to login to the system and run QB just like the client does.  Falling sometimes under that attempt to leverage a concurrent user approach (see above), these outsourcers just aren’t realizing that the benefits of accessing their client information and working in real-time with that data is often valuable enough to support the cost of a hosted account and license.  Instead, they want their access to be free of charge and not be bound by silly rules of licensing, often because their client won’t want to pay for the accountant service in addition to their own.

This is when the “if you don’t tell us” stuff comes in – where the service provider may suggest to the accountant or outsourcer that they can simply login as the client and nobody would be the wiser.  I’ll fess up and say I have even entertained this idea with clients a few times but always shy away from discussing it in-depth.  While it is basically true that the service provider doesn’t generally know which exact human being is sitting at the other end of that remote desktop connection, that doesn’t mean that it is okay to leverage it into an abuse of services or licensing.

Two or more people sharing a single login just isn’t good ju ju, and it’s usually against a whole bunch of licensing rules and rights of use.  The funny thing is that many customers who initially leverage their service in this manner end up finding it was a really bad idea.  I saw a scenario a few years ago where a business allowed their outside auditors to share the logins of regular employees in the finance department.  When an employee tried to login to their remote desktop, they opened the session the auditor had open – exposing the employee to a lot of data that was not theirs to see but which the auditor user in QB had access to.  The company called it a security breach and it was on their part – and it was allowed to happen because they shared their remote desktops with the auditors rather than giving the auditors their own accounts with their own security profiles.  What seemed like a good, cheap approach on one day rapidly turned into a big issue the next, and the service provider had no power to prevent it from happening.

The moral of this story is simply that following the rules is the right thing to do and most reputable hosting service providers will try, even if they don’t end up doing it really well.  There are always going to be those who figure that the risks don’t measure up to the potential rewards, so they will do what they choose to do.  I’m always left wondering about those guys; if they have no problems breaking these rules, I wonder what other rules (or confidences) they are willing to break.  Hmmm.

Make sense?

J

 

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My Love/Hate Relationship with Partner Programs

My Love/Hate Relationship with Partner Programs

originally published on LinkedIn
 

I love Partner programs. You know, those business opportunities to get involved with a product or solution and earn revenue selling it to your customers. Particularly when the opportunity is attached to something you already do for a living, a partner program can represent a way to gain new competencies, new customers, and new revenue streams. Then again, I hate partner programs just a little bit, too.

When a business becomes a business partner, there’s an expectation that something will occur that benefits both participants (hence the word “partner”). Each side is supposed to benefit in some manner from the relationship. In the case of the partner program, the expectation is that the partner will sell the product or service to customers and gets compensation on sold deals in return. There may be marketing, lead generation, reseller pricing, training and other elements involved, but the relationship is generally one of “you sell my stuff and I’ll comp you for it”. The manufacturer gets more sales, and the partner gets products that customers buy, meaning revenue for the partner and the manufacturer. Sounds like a good deal.

Here’s why I hate partner programs at times: they tend to shift the focus from what a customer needs to what the partner can earn revenue on selling. For a product or solution-based business, this may not be a bad thing, as the business is in the business of selling product. For a consulting business, however, it can be quite problematic if the consulting team isn’t clearly focused on meeting the customer need rather than pushing product.

There’s an old saying that “if all you have is a hammer, then every problem looks like a nail”. Some consulting firms inadvertently fall into this situation, where they have their favored solutions (perhaps solutions they earn revenue from selling), and they automatically try to apply that solution to each and every customer engagement, whether it makes sense or not.

This happens time and again and not just with consultants, but also with accounting and bookkeeping professionals. Having developed an understanding for, and processes and procedures for working with, a particular business accounting product, the firm tends to make that product a standard recommendation for all clients. In this case the firm may not be literally reselling the solution for revenue, but has certainly “partnered” with the solution in the context that their ability to earn revenue becomes directly tied to the solution they want their client to purchase.

Partner programs can be hugely valuable to both the manufacturer and to the partner channel, and the value of having skilled “feet in the street” supporting and promoting the solution has been proven many times over. But accounting professionals and business consultants should take care when considering their possible participation in these types of programs, and be realistic about how that relationship fits in to the nature and quality of the service delivered to customers. The program may fit well with the needs of the practice, driving new revenue opportunities in new or existing areas of business. On the other hand, it may end up being a distraction, turning the focus from providing great client service and satisfaction to selling a product or solution just to earn an additional buck on the deal.

jmbunnyfeetMake Sense?

J

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QuickBooks online, or QuickBooks Online? Use Software on the web without using Web-based software

cloud-computingThere is a trend among software makers these days to more fully leverage the “power of the web”, and why wouldn’t they?  The Internet has become the way businesses and users get and stay connected, and has become a foundation for how business gets done.   Remote and mobile access to information and applications has become an expectation of users, as social computing models have encouraged them to remain connected on all of their devices and from any location.  Online describes a working model that many businesses strive for, and software makers are seeking to capitalize on the trend.

The belief that software should no longer be installed and run from a local device has been adopted by some of the largest software vendors in the market, which would lead many users to expect that this is the important trend to follow.  Being encouraged to ditch their desktop software products and transition to using the web-based or SaaS alternative, users who have grown to trust their software products are now facing new buying decisions.  Any time a customer is forced to make a buying decision – like moving from a desktop product to a SaaS solution – there is a potential that the customer will go with a different vendor and leave the product line altogether.   Yet this is exactly what is happening with small business applications, and specifically with the tried-and true QuickBooks products – the solutions which had become the cornerstone of small business finance.

Where QuickBooks Pro, Premier and Enterprise desktop editions were the favored and trusted small business accounting solutions, Intuit is now on a wholesale push to get users transitioned to the QuickBooks Online edition.  In doing so, they’ve opened up the door for new competitors, because they’re forcing their QuickBooks users to make a new buying decision.   Assuming that customers will adopt the QuickBooks Online solution simply because it’s “QuickBooks” was perhaps a poor assumption on the part of Intuit.  Particularly by naming the product “QuickBooks”, Intuit invested the trust and long-standing recognition of the brand and product line into the online edition, and the user base and market has not been amused.  “It may be called QuickBooks, but it’s not the QuickBooks I want” says one customer.  Apparently, the QuickBooks Online edition is not what many experienced QuickBooks desktop users are looking for in a new version of the product.

Desktop QuickBooks users don’t have to move to the Online edition just to get the benefits of the cloud with their beloved QB.  The hosting and cloud service providers I work with help businesses run the QuickBooks desktop products as online service.  We deliver fully managed applications and data, allowing users to access their QuickBooks desktop products online and from a variety of devices just as if they were web-based.  Gaining the benefits of anytime/anywhere access with the added advantage of not changing software is a direction many users are electing to go.  While the price of a hosted solution may not be as low as a QuickBooks Online subscription, it is generally far less than a subscription to Salesforce.com, for example.  Isn’t the business financial data at least as valuable as CRM? The price isn’t unreasonable, and the benefits of online/remote access, managed IT, protected data, and an ability to take your ball and go home if you like are huge.  Grab your data file, install QuickBooks on your PC, and you’re back in action.  Can’t do that with most SaaS solutions, can you?  It’s only do-able with desktop software, which you can run in the cloud with a hosting provider or run on your own PC.

Assuming that all software will ultimately run online could be a big a mistake.  As technology advances and new capabilities introduce new complexities, the “heavy lifting” shifts from the center to the end points and back again.  While there may be a trend towards SaaS and leveraging the power of a remote system, the reality is that our devices – desktops and laptops, tablets and phablets and phones – are all getting more powerful.   Many SaaS applications and remote access technologies rely upon (and find ways to push more resource utilization to) the local device.  Video processes more quickly, input and output devices are more easily recognized, and the storage on the device is faster and easier to access.  A lot of work happens on the local device, and it will continue to be this way as the devices continue to get smarter and more powerful.  “There’s an app for that” for a reason: apps on the device work well and give users the functionality necessary to get things done efficiently.

SaaS is not all that’s out there – much of the software businesses know and love is still available the way they want it.  QuickBooks users need to know they can get their QuickBooks online without having to use QuickBooks Online.  The desktop is not dead, and it won’t be for a long time.  Desktop software isn’t dead either; it’s just being pushed to the background as software companies attempt to wrap their arms firmly, with subscription based business models, around their respective customer bases.

Make sense?

J

Read more: Cloud Hold Out No More: QuickBooks Desktop Editions in the Cloud

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The CPA for Small Business: Proactive, Responsive, and Helps Paint a Beautiful Picture

chartI once read an article written by Doug Sleeter which describing the findings of a published report titled What SMBs Want from Their CPA.  The report was a summary of results from a study conducted by The Sleeter Group, and was intended to help accounting professionals understand the factors in the market which influence business use of professional accounting services.  While adoption and use of technology was not named as the top item on the list, capabilities which can be rendered only if such adoption occurs were.  In short, it’s not the technology that clients demand, but the level of service that professionals can only deliver by embracing advancements in technology and applying them to the client engagement.

The report and article placed a specific focus on trends relating to technology adoption and use in the professional practice, and establishes a foundation for firms to understand why technology is and always has been a key factor in the success of the CPA-client relationship.  It’s not that the accounting professional must become a skilled technologist and promote high technology to the client.  Rather, the success factor rests with the firm’s motivation to implement technologies and tools which will improve their ability to deliver more (and more valuable) service to the client in a more direct and timely manner.

The survey’s two critical questions posed to small business owners who use the services of a CPA were 1. What factors played a role in your decision to leave your former CPA?, and 2. What types of services would you like to receive from your CPA?   Both questions are pretty straightforward, and the top responses from surveyed SMBs were equally unambiguous.

To the first question (factors playing into a decision to leave former CPA), the top two answers indicated that reactive and/or unresponsive are the problems which ultimately cause a small business owner to change accounting professionals.  The top response was “Former CPA didn’t give proactive advice, only reactive”.  The close second response was “Former CPA had poor responsiveness”.

Unfortunately, these responses more than accurately describe many professional firms and their approach to client service.  These firms are perfectly content with waiting for clients to deliver after-the-fact information, delivering reports long after their relevance has past, and providing no sense of urgency in helping clients address business issues facing them here and now.  These firms are content to work with their write-up and trial balance solutions, depreciation and amortization and tax products – and give little consideration to how they could adjust their operation to a better, more relevant and rapid delivery of service and insight to the client.

The second question, “What services do SMBs want from their CPAs?”, was met with the same responses professionals have been hearing for years; small business owners need help with business planning and business strategy and they wish the help would come from their CPA.   It is surprising how many accounting professionals list business planning and strategy among the services they promote on their websites, and then just sit back and wait for clients to ask.  Communication with clients remains relegated to annual reminders for tax information, or maybe slightly more frequent notes about other tax or compliance work to be done.  It may be a bit unfair to place all the blame on the professional.  Regulatory and reporting impacts on business are increasing and are increasingly complicated.  Many professionals find it challenging enough simply to keep up with changes relating to the services they currently and regularly provide.

This is where practitioners should seriously take notice, and accept that the ability to meet changing market and customer demands is by intelligently leveraging technology to accomplish what people and process cannot do alone.

  • It takes information technology to speed up the bookkeeping, accounting and reporting processes; technology is required to help turn information into useful and relevant data;
  • technology facilitates the faster collection of information from and the delivery of information to clients;
  • technology is applied to reflecting numbers as pictures and helping users visualize the meaning of the data, and
  • technology enables the collection and analysis of “big data”, which leads to AI advancements and greater intelligence delivered through the applications businesses use.

The Sleeter Group report clearly demonstrated that small business owners continue to need and want more than just tax returns and post-facto reports from their accounting professionals, and that the lack of attention in these areas pose a direct threat to the small business/CPA relationship.  Professionals can remove the threat by working closer with their small business clients, applying technology and process controls to get better information in a more timely manner, and returning the result with greater insight.  Be proactive and be responsive, and apply the necessary technologies and business philosophy to get there before the client base looks for satisfaction elsewhere.

I’ve said before that small business owners don’t care about the numbers, they care about the picture the numbers paint, and they care about getting to a place where the picture is absolutely beautiful.  With the right tools in place, their CPA can help guide them there.

jmbunnyfeetMake Sense?

J