By: Chuck Telk, CPA, Partner| email
Now would be an excellent time to review your policy regarding W-9 forms. To be fully compliant with IRS regulations, a W-9 form should be on file for any non-employee who receives a check from the cooperative. This form should be legible such that the name, address, EIN, and SSN can be easily read. It should also be signed. While there are many excuses as to why a potential payee will try to avoid providing this form, the fact is that it is required. Remedial action by the cooperative should be to withhold federal income tax, through back-up withholding, from a check to any non-employee who refuses to provide an appropriate W-9 form.
Please don’t confuse the requirement to have a signed W-9 on hand with the need to issue a 1099 to everyone that receives a check. This is not the case. The W-9 form is used to help determine whether or not a 1099 should be sent to the various payees. Payees should understand that providing a W-9 form doesn’t guarantee that they will receive a 1099. But, should a 1099 be required, important information is obtained from the W-9 form. It is far easier to have the W-9 on file than it is to try to track down a signed W-9 in January when preparing 1099’s for the prior year.
Should you have any questions regarding these or any other tax related topics, please do not hesitate to contact me at our Des Moines office at (515) 270-1446, or email me at ChuckT@GardinerCPA.com.
By: Chuck Telk, CPA, Partner| email
The IRS continues to send out notices to cooperatives, indicating a problem with EIN’s and SSN’s on 1099’s issued for prior tax years. If not handled in a timely manner, these will eventually result in a penalty assessment, and in some cases, a direct levy of funds.
If you receive any IRS correspondence, please promptly forward them to our Des Moines office. In the case of these proposed potential penalty assessments, simple corrective action can usually avert the assessment of the penalty. Corrective action includes sending the patron or recipient a “B” notice and a W-9 form, which must be done within 15 days of the date of the IRS notice. The B notice must ask the patron or recipient to legibly complete the W-9 and return it to the cooperative. The notice must threaten back-up withholding if the W-9 is not returned to the cooperative. The B notice must be addressed to the patron or recipient identified by the IRS letter. Because of this, a generic letter is not sufficient.
With our response to the IRS, we will include 2 copies of these B notices along with a description of the remedial action taken. This is the prescribed IRS action to take to avoid the imposition of the penalty. In my experience, it works about 50% of the time. Further action is often necessary, including additional correspondence as well as direct telephone calls to the IRS, in some cases. While frustrating, persistence will pay off resulting in no assessment of penalty, and in such cases where a levy has been applied, the seized funds will be refunded. The best chance for a favorable outcome in the least amount of time is to forward any IRS correspondence to our Des Moines office, attention: Chuck Telk, upon receipt.
At a recent board meeting, the question was raised of whether the Cooperative was “understaffed?” Not an easy question to answer, and it is only half of the question. The other half is: “How productive is the personnel group we employ?”
When considering whether or not your cooperaitve is understaffed, take a look at the coop’s profitability. As we discussed last quarter, if you are generating adequate local savings, you probably have the right number of employees and those employees are being productive. But we can dig a little deeper by examining a ratio I often discuss at board meetings – the labor income ratio.
The labor income ratio is an efficiency ratio that measures how well things are done, in this case personnel performance. It is computed by dividing personnel costs (salaries and benefits) into gross revenue generated. The lower the ratio, the better. It’s a simple concept, but difficult to manage.
There are several factors that can affect your ratio compared to other cooperatives. One is sale mix – grain and supply. Cooperatives with a higher percentage of grain business are less labor intensive and usually report a lower ratio than a cooperative with a higher mix of agronomy business and services. Petroleum businesses usually report the highest ratio. Smaller companies usually have higher ratios than larger ones because they have less volume to spread the cost over. Other factors can also affect this ratio. The drought this past year played a significant part in the ratio results for recent year-end closes. Fewer bushels to sell meant less margins generated. Overtime hours may have been reduced, however you can’t just reduce and rehire staff as you need people, so a majority of the personnel cost remained. The key to a cooperative’s success is the people you employ.
Generally, the rule is that it takes a ratio of 42% to break even locally. As that percentage decreases, local savings increases. Again, the concept is simple – more revenue generated with less personnel cost means higher profitability. Achieving that result is a challenge. A general guideline range is 30% – 40%, with grain cooperatives at the lower end and cooperatives with a bigger supply mix at the higher end. The following table shows the percentage of personnel cost to revenue that our clients have averaged over the past three years:
•Sales up to $50 million = 43.86%
•Sales $50-$150 million = 33.44%
•Sales $150-$300 million = 29.59%
•Sales over $300 million = 34.18%
Personnel costs are a big investment every cooperative makes annually. Getting the most from that investment is a great challenge. If you would like assistance in analyzing the labor income ratio for your cooperative and discussing ways to make improvement please let us know.
By: Dave Thomsen, CPA, Partner| email
Local Savings are the key to maintaining a viable cooperative. You hear it from us in every audit meeting report, from the bank, and at management and director training programs you attend. The percentage of local savings is the key factor in determining a cooperative’s profitability. It is the cornerstone for providing essential benefits to the member patrons of your companies, such as; needed facilities and equipment, the ability to hire and maintain high quality employees, pay patronage, and subsequently redeem any deferred patronage through estate and equity retirement payments.
So, how do you know if you’re generating adequate local savings? Hopefully you are doing many of the items mentioned above; growing, adding new assets, keeping good employees– meeting the needs of your patrons, and of course, keeping your banker happy! Though there are several factors to consider, most cooperatives use a percentage number, local savings divided by sales, to determine if their local savings are on the right track. Depending on your cooperative’s mix of grain and supply sales, as well as commodity prices, that percentage should be in the 1 – 3% range. Our clients have been very profitable throughout the last several years. The following is an average of what we have seen over the past three year period:
• Sales up to $50 million = 1.75%
• Sales $500 – $150 million = 2.06%
• Sales $150 – $300 million = 1.92%
• Sales over $300 million = 1.48%
So, how does your local savings stack up? We know that every cooperative faces it’s own unique set of challenges and growth opportunities. If you’d like to discuss possible ways to improve your local savings, we’d be happy to speak with you.
The “Fiscal Cliff” deal extends beneficial key cost recovery provisions. Bonus depreciation, which was set to expire December 31, 2012, was extended to qualified properties acquired and placed in service prior to January 1, 2014. The additional deduction is equal to 50% of the acquired value of the qualifying property. The law also extended the definition of qualified 179 property to include qualified leasehold improvement property, restaurant property and retail improvement property. It also applies to most types of tangible personal property and computer software. Qualifying property is MACRS property with a recovery period of 20 years or less.
By: Greg Cargin, CPA, Partner| email
You may have noticed in the past few years that your annual audit seems to take longer than it once did. Changes in accounting and auditing standards, increased disclosure requirements, and the unprecedented growth of our clients are causing us to spend more time planning, documenting, and completing our audit procedures than ever before.
One afternoon, a member of my staff asked why we went to see our client that day. At first, I was surprised by the question, but quickly wondered the same thing. We had done what we were accustomed to; we packed up our computers and parked ourselves in the client’s boardroom. Over the next 6 hours, the client continued to email information, reports and files as needed, periodically popping in to make sure the items in the emails were what we wanted. The client had also provided us with access to their system so we were able to get our own reports and printouts as needed. We really needed very little face to face interaction with the client that day.
I wondered, can we be more efficient when working with our clients? Can we successfully accomplish many of the same audits tasks by the exchange of information electronically? Many data processing systems allow for outside access and it is becoming more common for employees to work from home using technology; can it be possible for us, as auditors, to do more work in our office?
For many clients, this may not be preferred, or even possible, but it may be time for all of us to have conversations about ways we can use our time more wisely. Being able to complete a larger percentage of planning, testing, documenting and research from our office versus yours can save travel time and expenses, costs of the audit that continue to rise annually. It also allows us to spend less time driving and more time working for you. We also get the personal benefit of additional opportunities to spend more evenings with our families.
As we continue to strive for ways to provide better service and value to our clients as costs continue to increase, please feel free to discuss with us alternatives to what we have done in the past. Open communication is not only the key to successful relationship, but also provides for a more successful audit.
You’ve heard it in the news, or perhaps it’s happened to you: a reputable, trusted business has been hacked, and sensitive, personal information could be in the wrong hands. In todays always-online, technology-driven business environment, keeping information secure is more important than ever before. This is especially true for any business that holds the personal information of their employees and patrons in their systems. Businesses need to be concerned with the security of their computer networks as well as the record keeping policies and procedures that employees must follow.
Cybercrime can be defined simply as committing a crime via the internet. While this is a pretty broad definition (though for good reason), one major concern is on safeguarding against intrusive cyber crime, or hacking. Hackers typically look for weak spots in online networks, and dig for information that they can later use in a criminal manner. Unfortunately, all online networks can have weak spots, such as; outdated networks, obvious or old passwords, firewalls with several holes and network hosts running unnecessary services.
The human factor is another major concern. Cyber criminals often play on the naievity of computer users by attaching malware to programs or files, disguising it as useful information for download, or simply emailing it as an attachment that launches upon opening the email. Viruses, worms and trojans are all common forms of malware that make their way into computers via user error. Users can also be easily taken advantage of by cyber criminals simply because of negligence. Using public computers, writing down passwords and saving passwords to a computer leaves the user, and potentially the company, wide open for attack.
While the prevention of cyber crime goes beyond the scope of our business, we know how detrimental it can be to your bottom line. That is why we are partnering with Arthur J. Gallagher to bring to you valuable information regarding the variety of cyber crimes risks that can threaten your business, and how to help safeguard against them. At the seminar, you’ll learn to assess the risks your business faces when doing business online, and what you can do about them. You’ll also have the chance to interact with two experts on cyber liability, risk and crime. If you have any questions or would like to learn more, please call our Des Moines office. We hope you’ll join us for this important, complimentary seminar!
1. Does the person who handles incoming cash receipts also record transactions?
2. Is a cash register used in the business?
3. Is a bank lockbox used for processing customer payments?
4. Are deposits made daily and secured prior to depositing in a safe?
5. Are incoming checks restrictively endorsed?
6. Is the monthly bank statement received and reviewed by someone other than the person handling the cash and checks?
7. Is the monthly bank reconciliation completed by someone other than the person handling the deposits or with check-signing authority?
8. If there are discounts/coupons, are they approved by management?
9. Are returns, voided transactions, and credit memos greater than 10% of all sales transactions?
10. Do cash transactions exceed 20% of all sales transactions?
11. Are actual, itemized receipts required for reimbursement?
12. Is a detailed list of names of guests and the type of business activity or entertainment required for expense reimbursement?
13. Are employees encouraged to report concerns about fraudulent activities?
Save the date for our free seminar on cyber liability and crime!
When: Tuesday, April 30th, 2013 from 10 AM- 12 PM
Where: Hilton Garden Inn, 8600 Northpark Drive, Johnston, IA 50131
We hope to see you there!
By: Dennis Gardiner, CPA, Partner| email
Many factors contribute to a cooperative’s efficiency, not the least of which is the use of technology. The agriculture industry has invested significantly in technology over the years. It is weaved throughout so much of a cooperative’s organization, operations and facility already, where else might it be useful in improving the bottom line?
Emerging technology is helping cooperatives to reduce the cost of shrink, and over a short period of time, lead to a net reduced cost to the bottom line. This technology, known as AGM (Advanced Grain Management), has recently been accepted by some cooperatives that have chosen to automate their grain management decisions. We encourage our clients to invest in agriculture technology where it is appropriate, and while Gardiner Thomsen doesn’t endorse any particular product or brand, we think that this new technology is worth taking a look at.
We were recently introduced to Scott Haugan, President of HOWGAN SCC, the developer of the HOWGAN AMP (Asset Management Plan) and largest US dealer of OPI/Integris Advanced Grain Management system. This AGM system allows cooperatives to proactively monitor and control temperature, airflow and moisture content; prevent lost grain and lost profits due to spoilage, hot spots and over-drying; and help to measure, monitor and manage grain to reduce the impact of shrink while driving down energy costs.
As Scott explained to us, this technology has fully automated monitoring, alarms, and automated aeration controls. His systems are designed to maximize storage profitability by optimizing grain quality, minimizing shrink and spoilage, reducing energy costs and increasing grain dryer throughput. In addition, Scott said that target grain temperature and moisture can be achieved in less time because the system identifies the most effective time to automatically run your fans. The HOWGAN AGM system also detects insects, monitors weather conditions, and monitors grain inventory levels to within a 3% margin of error. Scott also said that cooperatives are able to add this technology to existing bins or to new projects to manage fans and electrical usage.
Since the inherent purpose of purchasing new technology and equipment is to drive improved results and have a positive impact on the bottom line, we wanted to talk with some current users of this technology. We recently spoke with Mark Kistenmacher of Mid-Iowa Coop, a customer of HOWGAN SCC who has invested in Integris AGM. Mark said that he views the purchase of the system as an investment in his facility, and offered his perspective that being on the cutting edge of technology in the agriculture industry is more of a business philosophy for his cooperative. Mark believes in being responsible with his investments and that AGM aligns with his cooperative’s goals.
Randy Dunn, Grain Department Manager at First Coop, said that they began installing the HOWGAN AGM system 5 years ago and now have it at 7 of their locations, built into new projects as well as retrofitted into old ones. First Coop uses the HOWGAN AGM system primarily for temperature and moisture control, but it has also had a great impact on reducing their electrical bill.
He said, “Our electrical usage is on a demand meter, so we pay a higher rate during peak usage. With (AGM) we don’t have to run our fans at those peak times, and that’s been a pretty big savings for us.”
We asked Scott Haugan how people are accepting this new technology, which can change the paradigm from simply accepting shrink to proactively managing it. He said that early adopters, like Mark Kistenmacher, are present. Out of the top 20 cooperatives, who have over 400 locations, HOWGAN has 12% of the facilities now measuring and managing their temperature and moisture to drive improved results. These early adopters have equipment paid for with savings, before others are willing to change their status quo.
When asked about status quo, Mark Kistenmacher said, “Status quo is unacceptable once you realize that your investment will drive a significant ROI. Avoiding change is no longer acceptable when you realize that investing today drives improved results today”.
But is “today” the right time for your coop to invest in technology improvements? Cooperatives should also consider the time investment necessary for training staff on how to use such advanced technology.
Dave Holm, Executive Director of the Iowa Institute for Cooperatives, described his introduction to the HOWGAN AGM system; “I met with Scott Haugan in January to learn more about it. Once we got talking about what this thing can do, I thought… Oh my goodness! We’re going from riding bicycles to flying jet airplanes! This is truly a loaded up system.”
Dave commented that this is a very sophisticated grain management system. He thinks the industry will move toward it over time, but he’s not certain that every cooperative is prepared to do this today. A great deal of training is necessary to fully utilize all the functions this system can perform.
“The ironic thing is, a lot of times, once you incorporate that technology and learn how to run it, it’s actually easier than the way we were doing it. But it’s just the idea of learning how to run it that might be the issue.” Dave said. He still suggests that every coop should at least learn about what the Integris AGM system can do, but make their own decisions about whether it’s right for their coop, and if it’s the right time.
Moving beyond time constraints, another obstacle HOWGAN SCC has encountered is that some grain elevators are concerned about not having “money in the budget” as they spec out a project. With a supposed 18 month ROI potential, the decision to invest in this new technology could be more of a cash flow concern rather than an “expense vs. investment” concern. It also could depend on the cooperative’s business philosophy regarding emerging technology.
So, we’d like to ask our clients– do you consider technology improvement to be a budgeted expense, or long-term investment? What other factors do you take into consideration when making improvements to your facilities? As I mentioned before, while we don’t endorse any particular product or brand regarding AGM, we are very curious about it and encourage our clients to take a closer look to see if it would be a benefit to them. We would also be happy to talk with you about AGM and to see how it might potentially impact your bottom line.