• The Overlooked Step: Understanding the Importance of Internal Controls

    by Sam Mansour, CPA, Mansour Advisory Group | Feb 07, 2025

    Internal controls are a cornerstone of financial systems, yet they are often misunderstood, undervalued or viewed as unnecessary burdens. Many organizations treat internal controls as mere suggestions, adding unnecessary paperwork or headaches for employees. This attitude, however, overlooks their critical role in safeguarding an organization’s financial health, especially during those pivotal moments when things can and do go wrong.

    In my 15-plus years as an auditor traveling across the United States, I have seen internal control systems that flourish and others that falter. What distinguishes successful systems is not just their design but the attitude of the people behind them. Organizations that embrace internal controls and view recommendations as opportunities to improve tend to have stronger systems that mitigate risks effectively. Conversely, organizations where internal controls are dismissed as an unnecessary burden often experience breakdowns, some of which lead to fraud or significant financial errors.

    Why Internal Controls Matter

    At their core, internal controls are designed to ensure the integrity of financial reporting, safeguard assets and improve operational efficiency. They serve as the backbone of any accounting environment, ensuring that accounting systems function properly over time.

    Breakdowns in internal controls can have dire consequences, including:

    • Fraud: Without proper controls, organizations are more vulnerable to fraudulent activities.
    • Errors: Mistakes in financial reporting can lead to regulatory penalties, reputational damage and financial losses.
    • Inefficiency: A lack of controls often results in duplicated efforts, wasted resources and operational delays.

    Despite their importance, many accountants and CPAs lack a strong understanding of internal controls, especially those who do not specialize in audits. This gap in knowledge is a significant issue in our industry, as internal controls are essential not just for auditors but for all financial professionals.

    Educating Teams on Internal Controls

    One of the most overlooked aspects of internal controls is the need to educate people within the organization on why they matter. Without this understanding, teams often fail to prioritize controls, leading to a weak or ineffective system.

    Internal control implementation starts with the tone at the top. Management must promote a culture of accountability, integrity and transparency. When leadership fails to emphasize the importance of controls, the entire system becomes vulnerable. However, setting the tone is not enough. Management must also:

    • Design controls thoughtfully. Controls should address specific risks and be practical for the organization’s size and complexity.
    • Monitor and evaluate controls periodically. As systems and processes evolve, controls must be reviewed and updated to ensure continued effectiveness.
    • Enforce segregation of duties. This prevents any one individual from having too much control over critical functions. If segregation is not feasible, compensating controls should be implemented.

    Bridging the Knowledge Gap

    Accountants and CPAs have a responsibility to understand internal controls deeply, regardless of their specialization. This knowledge allows them to identify weaknesses, recommend improvements and educate clients on the importance of controls for long-term financial success.

    To achieve this, professionals must go beyond viewing internal controls as a checklist or compliance exercise. Instead, they should understand how controls:

    • Prevent and detect fraud and errors.
    • Promote operational efficiency.
    • Foster confidence in financial reporting.

    Furthermore, organizations must ensure that employees at all levels understand their role in maintaining controls. A well-designed system is only as strong as the people executing it.

    The Buy-In Process

    Perhaps the most critical yet neglected step in implementing internal controls is gaining buy-in from the team. Without buy-in, even the best-designed systems will fail. Teams must understand:

    • The “Why:” Explain why controls are necessary and how they protect the organization.
    • The “How:” Describe how controls work and what their specific roles entail.

    Organizations should invest time in educating employees and fostering a culture that values strong controls. This process may seem basic, but it is foundational for building a system that can withstand the test of time.

    Internal controls are not just technical tools — they are essential safeguards that protect organizations from financial risks. Yet, their importance is often overlooked due to a lack of understanding or buy-in. As accountants and CPAs, we must advocate for internal controls not only as a best practice but as a critical component of financial systems.

    By prioritizing education, fostering a culture of accountability and continuously monitoring controls, organizations can build systems that are resilient, efficient and effective. Internal controls may sometimes feel like overkill, but in those critical moments when they are needed, they make all the difference.

  • It’s Time to Modernize the Painfully Obsolete $150,000 PAL Threshold

    by William M. Angelo, CPA, Angelo & Associates CPAs PC | Feb 05, 2025

    Imagine a firefighter and a schoolteacher in their late twenties. They get married, purchase a modest two-family home, live in one unit and rent out the other. On his days off, the firefighter makes improvements, while the teacher manages finances and paperwork. They’ve stretched themselves to the limit financially, but they feel good about owning their own home and building a foundation for future wealth through the rental.

    When they file taxes for the first time, they’re excited to get a big refund due to the massive rental expenses they incurred. Instead, they discover they can’t deduct a single dollar of rental losses in the current year. Their CPA explains why: their income is too high. A firefighter and a teacher’s salaries are considered too high to qualify for basic tax relief under the passive activity loss (PAL) threshold.

    The 1986 PAL Threshold: A Quick Refresher

    When the PAL threshold was introduced in 1986, its purpose was straightforward: prevent the ultrawealthy from using passive real estate losses to sidestep taxes. Back then, a $150,000 income was roughly six times the median household income of $24,900, so it effectively targeted those at the very top.

    Yet while other parts of the tax code — such as income brackets, the standard deduction and the Social Security wage base — are updated routinely, the PAL threshold has stayed frozen in time, actively punishing hardworking Americans. This is reminiscent of the alternative minimum tax (AMT) problem: Created to snare high earners, the AMT gradually caught many middle-income taxpayers as the cutoff failed to keep pace with inflation.

    Thanks to inflation, rising real estate prices and higher costs of living, many two-income families now exceed $150,000 without being anywhere near what could be considered “wealthy.” A household bringing in $150,000 might be juggling a mortgage, childcare expenses and a host of other financial commitments.

    The CPA Perspective

    Every CPA who handles real estate clients is familiar with the $150,000 PAL limitation. Part of our role is to warn clients just how quickly a teacher-and-firefighter household, or two average professionals, can lose these crucial tax benefits.

    More importantly, CPAs are in a unique position to witness how this outdated threshold mislabels middle-income families as high earners. Like the AMT scenario where CPAs across the country pushed for reform, and that collective voice led to change, more needs to be done on PAL. We need a similar push to bring the PAL threshold in line with modern reality.

    Call to Action

    Every year this threshold remains unchanged, thousands more middle-class families lose their chance at building financial security. This isn’t complex tax reform — it’s a simple threshold adjustment that Congress could implement tomorrow. As CPAs, we have a unique perspective and a responsibility to act:

    • Lobby for legislation: Urge your professional networks and organizations (like the AICPA and NJCPA) to put this on lawmakers’ radars.
    • Educate clients and the community: Use real-life examples — like our teacher-and-firefighter couple — to illustrate how the outdated threshold hurts ordinary families.
    • Reference the AMT success: We’ve already solved this exact problem with the AMT fix, proving that thresholds can be updated when enough informed voices unite.

    Remember our firefighter and teacher: they aren’t looking to game the system. They’re an everyday household, committed to their community, hoping to create a small nest egg through a modest real estate investment. Yet the tax code treats them as if they’re ultrawealthy, exposing a glaring disconnect between 1986’s notion of “high income” and today’s economic realities.

    The solution is straightforward. Index the PAL threshold to inflation or at least bring it up to a level consistent with modern income distributions. Doing so would align the rule with its original intent — preventing true tax abuses — while finally giving a fair shake to the middle-class families who were never meant to be targeted in the first place. Let’s lead the charge and ensure this outdated law gets the overhaul it desperately needs.

  • 5 Tactics Used by Highly Effective Leaders in the Heat of Busy Season Battles

    by Daniel J. McMahon, CPA, CMAA | Feb 04, 2025

    It’s easy to put your firm’s core values on a plaque in your lobby. But you won’t find out who has really bought into those values until the you-know-what hits the fan. Like elite sports teams and military units, high-performing accounting firms hold their composure during times of duress — a big client loss, a key employee quitting, a technology meltdown or simply busy season — whereas lesser firms throw in the towel, point fingers and watch staff head for the exits. 

    As a leadership coach, I’ve found that firms with a strong culture and governance model are particularly well equipped to handle “battlefield” conditions. They tend to use the following five key tactics:

    1. Aligning Amid Chaos

    Sun Tsu, the legendary Chinese general and philosopher of ancient times, said, “Every battle is won before it’s ever fought.” In the heat of battle, one must think like a medical triage unit in combat. Casualties are all around you and you’ve got to treat the most serious, life-threatening injuries first.

    Mid-February is when the kids get sick, your spouse is working late, the holiday bills come due, and then that hot prospect you pursued all last year suddenly wants a proposal ASAP — and it conflicts with three pressing client deadlines. High-performing firms follow a playbook, so every team member knows what to do on every play. They react instinctively to the task at hand rather than calling or emailing others in a panic about what to do next.

    2. Focusing on the Front Windshield, Not the Rearview Mirror

    The rearview mirror in your car is smaller than the front windshield for a reason — you should be focusing on what’s in front of you, not behind you. But, when firm leaders are putting out fires all day long, they’re simply leading from behind. They’re not managing their time well, and they’re not utilizing the leveraging model in which they can assign the highest billable rate jobs to the lowest-paid team members capable of doing those jobs. At firms where partners lead from behind, teams are often confused about the firm’s vision and have no clarity about what management is hoping to accomplish. High-performing firms, by contrast, have established a governance process and have a leveraging model in place. They set SMART goals and they align their strategy with their tactics.

    3. Having a Strategic Not Just Tactical Mindset

    As Sun Tzu said, “Tactics without strategy is the noise before defeat.” I couldn’t agree more. As a firm leader, you must be willing to step away from day-to-day client responsibilities and focus on the big picture no matter how badly your technical skills are needed for complex client engagements. You must devote time to envisioning the future — anticipating the skills, resources and talent the firm will need months and years down the road. This type of complex strategic thinking requires large periods of uninterrupted reflection and concentration. If you keep allowing yourself to get pulled back into firefighter mode, the firm will just keep doing things “the ways we’ve always done them” and will never evolve.

    4. Overcoming the Tyranny of the Urgent

    No matter how stressful things get, high-performing firms have learned to distinguish between actual deadlines (i.e., IRS mandated), client-imposed deadlines and self-imposed deadlines. A governance model, which is then manifested in a unique trimester outlook methodology, emphasizes clarity around roles and responsibilities, policies and procedures, and metrics and  goals. This clarity leads to the opportunity to perform most efficiently and at your paygrade. Distinguishing tasks between “important” and/or “urgent” by using the Eisenhower Matrix (right) is the first step in prioritizing tasks in the heat of battle.

    5.  Sharpening the Saw

    To paraphrase Steven Covey: If you don’t sharpen the saw periodically, the blade gets dull, causing you to spend more time and effort to cut the same amount of wood. As a firm, if you don’t devote some time to working ON the business rather than solely IN the business, you’ll keep making the same busy season mistakes: you’ll continue burning out good staff and your leadership team will never build a sustainable and transferable firm. Effectively led firms envision the future and commit to providing the resources to build the skills and infrastructure that will be needed for years to come — not just to get through busy season.

    Is your firm minimizing chaos and leading from the front? Or are you leading from behind? I'd love to hear about it.

  • CEO Compass - Winter 2025

    by Aiysha (AJ) Johnson, MA, IOM | NJCPA CEO and Executive Director | Jan 27, 2025

    Modernizing New Jersey’s Accountancy Act

    On Jan. 8, 2025, Ohio Governor Mike DeWine signed into law a bill that provides more flexibility for obtaining a CPA license in the Buckeye State. Like Ohio, the NJCPA has been working on ways to ease the path to becoming a CPA without lowering the bar for licensure or compromising mobility. 

    The shortage of accountants and CPAs is becoming everyone’s responsibility. The problem will continue to grow unless critical changes are made. It has already had a negative impact on all sectors of society that rely on the advice and services provided by accountants: the business community (small businesses in particular), individual taxpayers, governmental entities and the people who rely on CPAs for financial advice. 

    What’s the situation in New Jersey? There has been a dramatic drop in the number of New Jerseyans graduating college with a degree in accounting, with a 25% decrease in the past five years. Although this has not received as much media attention as the shortage in other professions (e.g., teachers, nurses), it is just as alarming.

    Currently, candidates must earn at least 150 credits (a bachelor’s degree plus 30 extra credits, or a master’s degree), gain one year of experience and pass the CPA Exam. While this option would remain, our proposal would offer an additional pathway, where candidates could replace the extra 30 credits by gaining two years of general work experience instead of one. This was the requirement until 2001 when New Jersey, and eventually all the other states, changed to the 150-hour rule, a well-intentioned but ultimately unnecessary barrier to entering the CPA profession. This is why, to date, 23 state CPA societies have stated their intention to pursue changes to their states’ licensing laws to allow the two-years-of-experience alternative pathway. More are expected to do so over the coming year. 

    This change will encourage more accounting and business students to become CPAs by reducing the time and cost associated with obtaining initial licensure, all without compromising standards. Additionally, it could promote greater diversity within the profession. A study by MIT Sloan found that the 150-hour requirement for licensure led to a 14% decline in the number of new CPAs, including a 26% reduction in the number of minority candidates. 

    The law affects existing interstate mobility laws by evaluating candidates on their individual professional status rather than what state they are licensed in. It’s important to note that the New Jersey State Board of Accountancy has endorsed the alternative pathway outlined above and has asked the Division of Consumer Affairs for their approval to move it forward. Other states’ accounting boards have done the same.

    We are engaging with lawmakers who can help us pass legislation as soon as possible — before this crisis gets any worse.

    The legislation will tackle real challenges head-on, paving the way for a stronger, more diverse CPA workforce while safeguarding the high standards that define New Jersey CPAs. 

    As always, we’d like to hear from you at feedback@njcpa.org.

  • 3 Best Practices for Budgeting Success

    by Megan Schoeps, CPA, Wiss | Jan 24, 2025

    Accountants play a pivotal role in guiding businesses through their budgeting processes. A budget is not just a financial tool — it’s a roadmap for operational decision-making for the entire organization. With any size business, accountants can implement best practices that not only enhance accuracy and efficiency but also improve overall financial health.

    Following are three key budgeting best practices that every accountant should consider and the risks involved: 

    1. Understand the Business’s Goals and Strategy

    Before diving into the numbers, it’s essential to understand the business’s objectives. A budget should be aligned with a company’s broader strategy. The best results come from collaboration between executive leadership, the finance team, operational managers and department heads. Each team brings unique insights into expected revenue, operational needs and potential risks. Including the right stakeholders ensures the budget is comprehensive, challenging yet realistic, and aligned with the organization’s activities.

    • Risk: If a budget does not align with company strategy, it can result in a misallocation of resources and have a negative impact on both operational and financial performance.
    • Best practice: Involve cross-functional teams early in the budgeting process and collaborate closely with key stakeholders throughout the process to ensure the budget supports strategic initiatives. Ensure everyone understands the financial goals and the role they play in achieving them, communication is clear and everyone has a voice in determining resource allocation. This inclusive approach will make it easier to execute the budget and align everyone with the company’s strategic and financial goals.

    2. Focus on Cash Flow Management

    While creating a detailed budget, it’s important to not only focus on profit and loss but also on cash flow management which requires an understanding of the balance sheet. Accountants are the key to this given their knowledge of how to bridge net income to net cash flow. Profitable companies often find themselves cash strained. Making sure to proactively budget cash flows is a way to get ahead of any potential issues or, in the case of a cash surplus, plan for new investment opportunities.

    • Risk: Focusing on profit and loss will not identify whether investments can be funded through allocation of existing resources or will need additional financing.
    • Best practice: Start by understanding how to bridge profit to cash flows. Focus on the key balance sheet components and how they may fluctuate based on factors such as customer payment habits, asset expenditures (e.g., building up inventory or investing in property, plant and equipment) or vendor disbursements. Clearly highlight key balance sheet assumptions in the model to help operations understand how different decisions could impact cash flow.

    3. Ongoing Monitoring and Forecasting

    A budget is not a one-time exercise — it’s a dynamic tool that requires regular review of actual results and updates to the budget known as forecasts. Actual versus budget results analysis is important to gain insights into variances. Forecasts are an effective way to reflect actual results and changes in circumstances that could impact full-year results and decision making.

    • Risk: Not understanding variances or not being able to prepare a forecast as circumstances change could result in not mitigating future risks or missing opportunities for further growth.
    • Best practice: When building the budget model, make sure it’s built at the same level of detail as actual results are recorded. If it’s not, either adjust processes on how actual results are captured or adjust the budget accordingly. Make sure to have the right resources to close the books timely and with a level of accuracy to make comparison of those results to the budget meaningful. Investigate all material variances whether positive or negative. It’s also important to make sure the budget is built in a way that it can easily be updated as results come in or assumptions need to be adjusted.

    For accountants, helping businesses navigate budgeting effectively is not just about balancing numbers — it’s about enabling them to achieve their financial and operational goals and make informed decisions. By understanding the business’s objectives, focusing on cash flow and ongoing monitoring and forecasting, accountants can help business drive success.

  • How New Jersey Residents Can Avoid Double Taxation on New York and Pennsylvania Income

    by Salvatore Schibell, CPA, CFP®, CGMA, MST, MBA, Lawson, Rescinio, Schibell & Associates, P.C. | Jan 17, 2025

    Avoiding double taxation is a key item CPAs should be discussing with their clients. New Jersey residents earning income in other states may qualify for a credit on their New Jersey tax return to avoid double taxation. The credit offsets taxes paid to other jurisdictions and is limited to the lesser of the taxes paid to the other state or the New Jersey tax due on the same income.

    New Jersey taxes all income its residents earn, regardless of the source. Residents earning income in states like New York or Pennsylvania often face complex multi-state filings. Proper planning, accurate documentation and understanding reciprocal agreements can help reduce tax liabilities and ensure compliance. Filing Schedule NJ-COJ with supporting documents, such as tax returns and proof of payments, is necessary to correctly calculate and claim the credit.

    Credit Calculations

    To calculate the credit for taxes paid to other jurisdictions, it’s essential to understand the key components of the calculation and how to determine them for each jurisdiction and tax type. Specifically, the following must be determined:

    • Income actually taxed by the other jurisdiction
    • Income properly taxed by another jurisdiction
    • Income actually taxed by both New Jersey and the other jurisdiction
    • Income taxed by New Jersey
    • Actual tax paid to the other jurisdiction

    A jurisdiction is any state in the U.S. other than New Jersey, a political subdivision (e.g., county or municipality) of any state other than New Jersey, or the District of Columbia. A taxpayer cannot claim a credit for taxes paid to the U.S. government, Canada, Puerto Rico or any foreign country or territory.

    Income From New York

    New Jersey residents who work in New York or earn other taxable income are often taxed on an amount less than their actual New York source income due to the deductions allowed by New York. Only the income actually taxed by New York should be used when calculating a credit for taxes paid to New York.

    Taxpayers must file Schedule NJ-COJ and include their New York tax return (Form IT-203) and proof of withholding, such as W-2 forms. While this credit prevents double taxation, it may not eliminate all liabilities since New York’s tax rates are often higher than New Jersey’s.

    Income From Pennsylvania

    In contrast, income earned in Pennsylvania falls under a reciprocal tax agreement, meaning New Jersey residents working in Pennsylvania only pay New Jersey taxes on their wages. To benefit, residents should submit Form NJ-165 to their Pennsylvania employers and verify correct New Jersey withholding.

    Non-wage income, such as rental or business income, remains taxable in Pennsylvania, requiring a non-resident Pennsylvania return and potential credits on the New Jersey return.

    The reciprocal agreement does not cover the Philadelphia Wage Tax. New Jersey residents working in Philadelphia must pay this tax but can claim a credit on their New Jersey return by filing Schedule NJ-COJ with documentation, such as W-2 forms.

    Proper Planning

    Multi-state taxation can significantly affect a taxpayer’s finances, but proactive planning can help minimize its impact. Accurately filing Form NJ-COJ ensures that individuals receive the full credit for taxes paid to other jurisdictions, preventing double taxation. Understanding reciprocal agreements, such as those between New Jersey and Pennsylvania, can simplify filings and avoid unnecessary withholdings.

  • Understanding and Choosing the Best IRA

    by Assunta “Susie” McLane, CFP®, MBA, Summit Place Financial Advisors | Jan 09, 2025

    Individual retirement accounts (IRAs) are powerful tools for building retirement savings while enjoying valuable tax benefits. Whether used as a complement to an employer-sponsored plan, like a 401(k), or as a standalone savings vehicle, IRAs provide flexibility and potential growth to help secure individuals’ financial futures.

    However, with several types of IRAs to choose from, deciding which account to fund can feel overwhelming. The two most common types of IRAs are Traditional and Roth, and each offers distinct features and advantages depending on one’s financial goals, tax situation and income level.

    Traditional IRAs

    A traditional IRA allows individuals to make pre-tax contributions, which may qualify as a tax deduction and reduce taxable income in the contribution year. For 2025, the annual contribution limit is $7,000, or $8,000 for those age 50 or older and eligible for catch-up contributions. These contributions grow tax-deferred, meaning taxes on earnings are postponed until the funds are withdrawn in retirement. Once an individual reaches age 73, they must begin taking required minimum distributions (RMDs), which are taxed as ordinary income. Traditional IRAs can be especially beneficial for individuals who expect to be in a lower tax bracket during retirement, as the deferred taxes could result in overall savings compared to paying taxes at higher rates during their working years.

    Roth IRAs

    Roth IRAs, on the other hand, are funded with after-tax dollars. While contributions do not reduce taxable income in the year they are made, the advantage lies in the tax-free growth of one’s investments. When funds are withdrawn in retirement, both the contributions and earnings are tax-free, provided that the account has been open for at least five years and the taxpayer is age 59½ or older.

    For 2025, Roth IRA contribution limits are the same as those for traditional IRAs: $7,000 or $8,000 for individuals 50 or older. However, Roth IRAs have income limitations, with eligibility to contribute directly phasing out at $146,000 to $161,000 for single filers and $230,000 to $240,000 for married couples filing jointly. Unlike traditional IRAs, Roth IRAs do not require RMDs, making them a more flexible savings option for those who may not need to access their funds during retirement. This flexibility, combined with tax-free growth, also makes Roth IRAs advantageous for estate planning, as the account can continue to grow tax-free for heirs.

    For high-income earners who are ineligible to contribute directly to a Roth IRA, the backdoor Roth IRA offers a valuable workaround. This strategy involves contributing to a traditional IRA and then converting the funds to a Roth IRA. To execute a backdoor Roth IRA, one must first make a non-deductible contribution to a traditional IRA using after-tax dollars and then convert the contribution to a Roth IRA, ideally within a few days, to minimize the chance of earning taxable investment gains in the traditional IRA before the conversion. When executed properly, the conversion incurs little to no tax liability. However, it is important to be aware of the pro-rata rule, which requires the IRS to treat all of a taxpayer’s traditional IRA accounts as one. For those who have pre-tax balances in other traditional IRAs, a portion of the conversion will be taxable. Timing also matters when executing a backdoor Roth IRA. While IRA contributions for a given tax year can be made until the tax filing deadline (typically April 15 of the following year), the conversion itself is taxed in the year it is completed. To simplify tax reporting, it is often best to complete the contribution and conversion in the same calendar year.

    Weighing the Options

    When deciding which IRA to fund, several factors should be considered, including one’s current and expected future tax brackets, income level and retirement goals. A traditional IRA may be the better option for those who expect to be in a lower tax bracket during retirement and want the immediate benefit of a tax deduction. Conversely, those who expect to be in the same or a higher tax bracket in retirement may see greater long-term advantages with a Roth IRA due to its tax-free growth. For high-income earners, the backdoor Roth IRA provides a way to enjoy the benefits of a Roth IRA despite income limitations.

    There are some other important factors to consider. For example, Roth IRAs may be particularly appealing to younger individuals with a longer investment horizon, as they have more time to benefit from tax-free growth. Additionally, Roth IRAs are often preferred for estate planning purposes due to the absence of RMDs, which allows the account to grow tax-free for heirs. Market conditions can also play a role in timing Roth conversions, as executing the conversion during a market downturn may help reduce the taxes owed on the conversion amount.

    IRA contributions for the 2024 tax year can be made until April 15, 2025. This deadline applies to both traditional and Roth IRAs, allowing individuals to maximize contributions even after the end of the calendar year.

    IRAs are essential components of a well-rounded retirement plan, offering tax advantages and opportunities for long-term growth. The decision to choose a traditional IRA, Roth IRA or implement a backdoor Roth strategy depends on each person’s unique financial situation. With proper planning and execution, these accounts can help individuals achieve a comfortable and financially secure retirement.

  • Preparing Nonprofits: 5 Lessons from the Pandemic That Still Work

    by Maria A. Inciardi, MS, CPA, Make-A-Wish Foundation of New Jersey | Dec 30, 2024

    The COVID-19 pandemic reshaped the nonprofit landscape, exposing vulnerabilities in financial planning while offering valuable lessons in adaptability and resilience. As CFO of Make-A-Wish New Jersey, I witnessed firsthand how strategic planning and financial agility can help navigate uncertainty. Here are five lessons learned from the pandemic that still work:

    1. Flexibility in Budgeting is Essential

    The pandemic demonstrated the need for dynamic budgeting that prepares nonprofits for uncertainty. Developing best-case, worst-case and most-likely scenarios provides organizations with a roadmap:

    • Best-case: Plan to reinvest surplus funds into strategic initiatives like expanding programs or improving infrastructure.
    • Worst-case: Identify cost-cutting measures, such as deferring non-essential expenses or reallocating resources.
    • Most-likely: Use this as the foundation for routine operations, ensuring alignment with expected revenue and expenses.

    This approach reduces reactive decision-making and ensures operational stability, even in a crisis. CPAs can support nonprofits by implementing rolling forecasts and scenario analyses that adapt to evolving conditions, fostering a culture of proactive planning.

    2. Diversified Revenue Streams Provide Stability

    The pandemic revealed the risks of reliance on a single revenue source. Diversifying income — through grants, individual donations, corporate sponsorships and digital fundraising — helps mitigate vulnerabilities.

    CPAs play a crucial role in assessing revenue composition and identifying over-reliance on any single stream. By guiding nonprofits toward more balanced funding strategies, CPAs can ensure financial stability while aligning with organizational capacity and mission. Moreover, diversification strengthens donor engagement by appealing to various funding preferences.

    3. Technology Is a Game-Changer

    Understanding an organization’s technological capabilities is key to sustaining operations in uncertain times. During the pandemic, technology enabled nonprofits to shift to virtual events, implement online donor systems and deliver programs digitally — all while maintaining donor connections and continuity of services.

    Investing in technology doesn’t just improve efficiency; it also positions nonprofits to remain competitive and relevant. CPAs can guide nonprofits in evaluating existing tools, securing funding for upgrades and assessing return on investment to ensure technology is used strategically to achieve mission objectives. A forward-looking technology plan is now essential for resilience in an increasingly digital world.

    4. Reserves and Transparency Are Cornerstones of Resilience

    Robust reserves and unrestricted investments proved invaluable during the pandemic. Endowments generate steady income to support essential programs, while unrestricted investments provide liquidity to address urgent needs. These financial buffers safeguard an organization’s mission and allow them to adapt to disruptions without compromising long-term goals.

    Equally important is transparency with donors. Regular updates on financial health and program outcomes build trust and strengthen relationships. CPAs can assist nonprofits in crafting reserve policies, modeling financial scenarios and developing reporting frameworks that foster donor confidence.

    5. CPAs Play a Role in Building Resilience

    Nonprofits increasingly look to CPAs for strategic insights beyond compliance. CPAs bring a unique perspective that helps organizations optimize budgets, diversify revenue, leverage technology and strengthen reserves. By working closely with nonprofit leadership, CPAs can identify opportunities for growth and build financial strategies that ensure long-term sustainability.

    In a rapidly changing environment, CPAs also play a pivotal role in helping nonprofits interpret financial data, evaluate risks and align resources with mission-critical priorities. Their expertise is instrumental in creating agile, resilient organizations prepared to weather uncertainty and seize opportunities.

    The COVID-19 pandemic was a wake-up call for the nonprofit sector, emphasizing the need for flexibility, diversification, technology, reserves and transparency. These elements are not merely responses to past challenges but foundational strategies for building resilience and delivering long-term impact. As trusted advisors, CPAs are essential partners in this journey, helping nonprofits strengthen their financial health and navigate future uncertainties with confidence. By applying these lessons, organizations can ensure their ability to fulfill their missions and remain a vital force for good, no matter the challenges ahead.

  • When “Tax-Exempt” Becomes Taxable: Understanding the Unrelated Business Income Tax

    by Amy L. Dalen, J.D., HBK CPAs & Consultants | Dec 23, 2024

    In order to avoid paying federal (and often state) income tax on revenue generated by a nonprofit organization, the organization generally must affirmatively apply for tax-exempt status. The type of tax-exempt organization generally controls how much revenue can avoid tax under the federal tax rules. For example, an Internal Revenue Code (IRC) section 501(c)(3) organization may be exempt as a private foundation, which must pay income tax on net investment income, or as a public charity that avoids the net investment income tax. In total, there are 29 different tax-exempt organization types under IRC section 501(a), with 25 different categories found under section 501(c). Each organization type has different levels of tax-exempt status, but all may be subject to the unrelated business income tax (UBIT), which is a tax assessed on income that is generated by an unrelated trade or business.  

    What Qualifies 

    To fall under the unrelated business income rules, an activity must meet the following three requirements: 

    1. Be considered a trade or business: There is no objective definition of what is considered a trade or business. Instead, the IRS looks at multiple factors to determine whether an activity rises to the level of a trade or business. An activity is generally found to be a trade or business if it is carried out in a business-like manner, and there is an expectation that the activity will generate a profit.
    2. Be regularly carried on: To determine whether an activity is regularly carried on, the IRS will focus on the type of activity and the regularity required of that activity. For example, if an organization operates a store that is open every day with set hours, it would generally be found to be regularly carried on. In contrast, if an organization put on a one-time sale event at a local store to generate revenue, the “regularly carried on” factor would likely not be met.
    3. Be substantially unrelated: When determining whether an activity is related to an organization’s exempt purpose, the organization must analyze the activity being performed — not what is ultimately done with the revenue generated by the activity. This analysis is very fact specific and may be challenging to determine. For example, an organization whose exempt purpose is the furtherance of the arts within a community may argue that putting on an arts festival annually is related to their exempt purpose. However, if an organization whose exempt purpose is to protect wildlife puts on an annual arts festival to raise funds, it becomes harder to link an art festival to the protection of wildlife.

    Not all unrelated business activities will fall under the UBIT rules. For example, some income from investment activities — interest, dividends, capital gains and rental income — may be unrelated to the organization’s exempt purpose but are specifically excluded from the definition of unrelated business income for public charities and certain other organizations. In contrast, advertising revenue generated from a publication put out by an organization would generally fall under the UBIT rules due to its commercial nature. 

    UBIT Reporting 

    Once a charitable organization makes the determination that an activity falls within the unrelated business income rules, the organization must separately account for the revenue and expenses related to that activity. If the gross income from the activity exceeds $1,000, then the organization must file a Form 990-T to report the revenue and expenses and calculate any UBIT that may be owed. Each activity must be separately reported with its own tax calculation. If an organization invests in publicly traded partnerships or makes other investments that report unrelated business income, the income from these investing activities may qualify to be aggregated for reporting and tax calculation purposes. 

    Form 990-T is due on the 15th day of the fifth month after the end of the organization’s tax year. An organization that has a year-end of Dec. 31 will need to file Form 990-T by May 15 of the following year. The organization may also apply for a six-month filing extension by submitting a request on Form 8868 on or before the original due date. Note that this extension is separate from an extension to file the organization’s Form 990, 990-EZ, 990-N or 990-PF. In addition, any taxes that may be owed must be paid by the original due date of the return. Payments are made electronically using the Electronic Federal Tax Payment System (EFTPS). Late payment and late filing penalties may apply if the organization misses these deadlines.  

    Tax-exempt organizations should be cautious when engaging in activities that may not be substantially related to their exempt purpose. When an organization has a significant amount of revenue from unrelated business activities, the organization may owe a significant amount in tax or may even jeopardize its tax-exempt status.  

  • 6 Steps for CPAs to Guide Nonprofit Clients

    by David Safeer, David Safeer International | Nov 25, 2024

    “If you want to stop losing money, stop performing.” This was my tongue-in-cheek advice to the artistic director of a nonprofit choral organization. Each concert cost them more than $10,000 over and above the ticket sales they took in.

    The same is true for almost every nonprofit. So, stop doing what you exist for and your financial problems will be solved? Obviously, that’s not a great option.

    As a CPA advising nonprofit clients, you’ll encounter this fundamental challenge: balancing mission fulfillment with financial sustainability. While “just stop” might technically solve their financial equation, it completely misses the point of why these organizations exist. Instead, here are some strategies to share with your clients for managing their cash flow while continuing to serve their mission.

    1. Help Them Master Revenue Planning

    Guide your clients to understand their revenue streams. Start by helping them identify their minimum guaranteed receipts — these are the funds they can count on with near certainty. This becomes their baseline for budgeting decisions.

    Think of it as building a house: you wouldn’t construct the roof before ensuring the foundation can support it. Similarly, advise your clients not to commit to programming costs until they’ve secured their baseline funding.

    2. Recommend Subscription-Based Donations

    Show your clients how one-time donations are like catching raindrops in a bucket — unpredictable and inconsistent. Help them understand how subscription-based giving programs transform those sporadic raindrops into a steady stream. Research shows that donors typically give more through recurring donations, providing more-predictable revenue.

    Help them develop different “membership” levels with appropriate perks, making it easy for supporters to see the ongoing value of their contribution.

    3. Guide Them in Building Strategic Cash Reserves

    Teach your clients that smart cash management isn’t about keeping all funds in a checking account. Instead, advise them to:

    • Maintain only enough operating cash for one to two weeks of expenses.
    • Move excess funds into reserve accounts that earn interest.
    • During profitable periods, build an emergency fund.

    Think of cash reserves like a squirrel storing nuts for winter — you need enough readily available for immediate needs, but the rest should be safely stored away for leaner times.

    4. Implement a 52-Week Rolling Cash Flow Model

    Your nonprofit clients often face dramatic seasonal swings in both income and expenses. Show them how a 52-week rolling cash flow model helps:

    • Visualize their entire year’s financial patterns.
    • Identify potential cash crunches before they occur.
    • Plan strategies to smooth out the peaks and valleys.
    • Make proactive rather than reactive financial decisions.

    5. Optimize Workforce Strategy

    Since staff costs often represent the largest expense for nonprofits, help your clients develop a tiered approach to staffing:

    • Maintain minimal paid staff for critical roles.
    • Build a robust volunteer program for support functions.
    • Offer meaningful non-monetary rewards (e.g., exclusive access, recognition).
    • Create clear paths for volunteer development.

    Remember: volunteers aren’t free labor — they’re mission-driven supporters who deserve investment and appreciation.

    6. Provide Additional Cash Flow Best Practices

    Coach your clients on these fundamentals:

    • Negotiate favorable payment terms with vendors.
    • Accelerate receivables collection.
    • Time major expenses to align with revenue peaks.
    • Maintain strong banking relationships.
    • Regularly review pricing structures.
    • Explore grant opportunities strategically.

    The Bottom Line

    By implementing these strategies, you can help your nonprofit clients build financially sustainable organizations while fulfilling their missions. The key is to help your clients understand that financial sustainability isn’t about having the most money, it’s about having the right amount at the right time to do what matters most. With your guidance, your nonprofit clients can continue making a difference while maintaining fiscal health.

    Remember: Their mission is why they exist, but strong financial management is what allows them to continue existing.

  • My Public Accounting Career: 5 Pillars of Success a Quarter Century Later

    by Alexander Narcise, CPA, Wiss | Nov 15, 2024

    Here are the lessons I've learned in my first quarter century of working in public accounting — actually, it's been 27 years — but who's counting?

    The day I started writing this was a Friday in the summertime. Fridays are much different than they used to be when I first started in this business. Fridays are now a day to catch up on emails, make phone calls, do some billing and do my timesheet. Then, when I am done with that, it's time to help my wife with some household projects, maybe get the dogs to the vet or work as a pool boy at the house. I was inspired to write this piece because of the negative press the accounting industry has recently received. 

    The supply and demand dynamics in accounting have been a factor since I started in 1996, but they've worsened in recent years. I'm not sure if it's due to the 150 credit hours required to sit for the CPA Exam — or perhaps the misconception that a career in accounting means sacrificing your personal life. The latter is simply not true; with proper time management, you can achieve a great work-life balance in this field. Meanwhile, the evolution of industries like technology and alternative income streams has led to an inherent shortage of available candidates. Sometimes, I joke that if I were in my 20s today, I might just become a social media influencer. My family teases me because I tend to buy anything that's marketed well on Instagram.

    The Early Years

    The truth is, this business has afforded me an excellent life. My dad is a CPA, and I used to admire how quickly he could add numbers on an adding machine tape — his fingers seemed to fly! He inspired me to pursue a career as a CPA. I've dedicated a lot to this profession, which has given me so much in return. I started at a small firm making $22,000, then moved on to CohnReznick and EY before joining Wiss in 2002. Each step of my journey was influenced by connections I made along the way; for instance, I served coffee and bagels to the people who later hired me at CohnReznick while working at a deli during high school and college. That experience taught me the true meaning of customer service, and I still make a pretty mean egg sandwich! The deli owner once told me, "If a customer wants a fresh cup of coffee, brew a new pot."

    Accounting Landscape

    In recent years, that coffee example has been a good reminder about customer service. Firms have made significant investments to meet their clients' evolving needs. While many say that robots are coming, the reality is that this presents an opportunity for us to provide even greater value to our clients. Who has more data than we do? Clients will always need a trusted advisor, especially in today's fast-paced environment. As CPAs, we are their most trusted partners.

    This is, has been — and always will be — a relationship business. Although it might feel more transactional today due to reduced time in the field and less face-to-face interaction through tools like Zoom and Teams, the essence of our work remains rooted in relationships. I encourage all of my teams to "walk the halls" of their clients. Even if you arrive with a light agenda, the conversation doesn't always have to focus on work. As we learned during the pandemic, human connection is vital in business. The more trust we build with our clients, the more they will choose to work with us; it's simply a fact. Ask yourself, do you want to be an order taker or a trusted advisor?

    As I reflect on my time in this business, there are five pillars of success that come to mind:

    1. Build Relationships

    • Internal/External Client Service. Internal client service — working effectively with your teams — is even more crucial than external client service. Clients can't receive outstanding service from the firm without a well-oiled, cohesive team. It truly takes a village to serve a client in today's environment. The more team members you introduce to your client, the better their experience will be, leading to a more profitable relationship.
    • Networking. Building relationships with your peers at the firm is incredibly powerful and should begin when you first join an organization. To this day, I'm still connected with those in my entry-level class. It doesn't solely involve networking with people outside one’s firm like bankers or lawyers.
    • Leadership. It's never too early to start thinking about leadership and management. As a young associate, you may focus on executing tasks, but when you get promoted to manager, you will need to know how to handle relationships. Reading books and listening to podcasts on leadership and management, even at a young age, is a wise investment in your future.

    2. Enhance Communication and Business Writing

    • Becoming an accountant doesn't mean you can neglect writing and communication skills — quite the opposite. Effective communication and business writing are among the most critical skills for a successful public accounting career.
    • Anticipate client needs. Like a skilled quarterback, you must be able to throw to the open receiver. Anticipating where the receiver will be at the end of the route is essential for building strong client relationships.
    • Listen more than you talk. Listening is just as important as conveying your message.
    • Have a long-term perspective. This business is a marathon, not a sprint. It's not a get-rich-quick scheme; it takes years of cultivating both internal and external relationships to achieve your professional and personal goals.

    3. Create a Support System

    • Don't bring work problems home. It's crucial to maintain boundaries between work and home life.
    • Support your family. I've worked extremely hard during my 27 years in this field, but never missed any of my kids' games, school events or important milestones. With today's technology, it's possible to be flexible, nimble and responsive.
    • Embrace flexibility. To be honest, I was practicing a flexible work arrangement long before it became a formal option.
    • Seek out a mentor. I was fortunate to have a wonderful mentor at the firm. He was the best listener I've ever met. As I navigated my career, he allowed me to make mistakes while guiding me toward my long-term goals.
    • Faith, family and firm. This motto guides my life. Regardless of your faith, having a spiritual presence has been one of the most profound influences on my success.

    4. Develop Your GRIT

    • Hard work beats talent. Hard work always triumphs when talent doesn't put in the effort.
    • Ask for more when you're slow. When you have the capacity, don't hesitate to seek additional responsibilities.
    • "Go into the tent." I coach my daughters' sprint track team for ages 13 to 15. At league championships, the tent is where the girls line up before their races. This is the moment when anxiety is at its peak; they all want to perform their best, but the anticipation can be overwhelming. Sound familiar? Once the race is over, they feel proud of their efforts, win or lose, knowing they ran their best. I encourage everyone to "go into the tent" in your own life — make that phone call, send that email or schedule that meeting. You won't regret it.
    • Stay consistent. Regular physical fitness is crucial for both physical and mental well-being. Consistency is key to success.
    • Prioritize mental health. I see a mental health professional every other week to maintain my mental well-being.

    5. Obtain Lifelong Learning and Purpose

    • At the beginning of my career, I thought I would do my two years in public accounting and then move on to a controller or CFO role. However, over the past 27 years, I've learned something new every single day. Early on in public accounting, I had the opportunity to interact with business owners and high-level executives, which was invaluable.
    • In my 20s, I worked for a large international construction company in Queens, NY. The CFO made it clear that he would only answer questions at 7 a.m. I lived at my wife's mother's house, so I had to be up by 5 a.m. She was a school bus driver and would wake up early to buy me a bagel and coffee before I headed into Queens. It wasn't fun then, but looking back, I realize how that experience sparked something in me. I learned the importance of being on time and delivering results on budget, which instilled a sense of ownership and pride.
    • I was an assurance specialist for the first 15 years of my career. Twelve years ago, the firm asked me to take over the real estate practice, which required a solid understanding of tax. At that time, I knew very little about tax, so I quickly sought help and asked many questions of my tax-expert colleagues. Today, public accounting offers numerous opportunities to pivot within the firm, whether in advisory, tax, assurance, or family office services.
    • For the last few years, my daughter and I have raised money for a unique charity each year by running a 5K on Thanksgiving morning. Knowing that I am helping others, even if it's just a small contribution to a greater cause, gives me a sense of purpose.

    It's especially important for those of us who have found success in this business to share our stories. A career in public accounting has provided me with so much; I've been able to support my family financially and never miss a moment. My son is an accounting major at the University of South Carolina, and I hope this inspires him as well.

    I want to give a shout-out to my family, especially my wife of 22 years, Patti Narcise. Thank you for your unwavering love and support throughout this journey. I have three children: Alex (20), Abbey (18) and Avery (12). They are the most important people in my life.

    There is still a long way to go in this business, but I am very excited about the future of the CPA profession and all its possibilities.

  • Integrating Emerging Technologies into Accounting Education

    by Dr. Sean Stein Smith, CPA, DBA, CMA, CGMA, CFE, City University of New York - Lehman College | Oct 31, 2024

    There is no shortage of articles, podcasts or webinars discussing the current state of accounting education, as well as what aspects should be changed to attract and retain students throughout the high school and college pipeline. In addition to these changes, the profession is in the midst of a dramatic technological shift, with tools such as blockchain, tokenized transactions and artificial intelligence (AI) driving change through every aspect of the accounting world. Educators and institutions of higher education find themselves tasked with not only trying to attract and retain students in the face of accounting pipeline challenges, but also trying to integrate these emerging topics and technologies into the classroom. And this is all while seeking to prepare students for a revamped CPA Exam that is both more personalized and more technologically oriented.

    While sounding like being between the proverbial rock and hard place, this is actually an opportunity for something many educators have long clamored for: flexibility to experiment and the ability to not just teach from the text or to a certain exam. Let’s take a look at a few strategies that educators can implement today to better integrate technology topics with zero or almost zero cost to students.

    AI-Driven Accounting Problems

    One approach is to begin by explaining how AI is transforming the accounting field, particularly in areas like automating repetitive tasks, fraud detection and data analysis. Lectures can highlight the growing importance of AI in financial decision-making and how understanding these tools is becoming essential for modern accountants.

    Professors can then introduce AI-powered accounting software, demonstrating the features in a classroom setting. Assignments can be designed for students use these tools to automate tasks such as data entry or tax calculation or to analyze large datasets to identify trends and anomalies. This hands-on approach gives students practical experience with the technology they will likely encounter in the workplace.

    Some of the software options that provide free trials and/or educator versions for hands-on experience with AI include, but are not limited to, the following:

    • QuickBooks provides a free trial with AI features for automating bookkeeping tasks.
    • Microsoft Power BI’s educator licenses allow free access to AI-driven data analytics tools.
    • MindBridge AI Auditor offers limited free trials, allowing students to explore AI in auditing.

    Crypto Integration into Accounting Courses

    Instructors can also incorporate case studies that demonstrate how companies are incorporating cryptocurrency in their operations and the specific accounting challenges posed, such as valuing crypto assets, recognizing revenue from crypto transactions and understanding tax obligations in different jurisdictions. The real-world adoption of crypto payments, including by firms with household names like PayPal, provides a wide range of information from which to construct problems, discussions and assignments.

    Hands-on projects can involve students in using blockchain-based accounting systems or wallets, allowing them to record transactions using cryptocurrency. Simulated accounting exercises involving crypto transactions help students understand how to report and audit cryptocurrency holdings.

    Students could also explore the regulatory environment surrounding cryptocurrency, examining frameworks like the Financial Accounting Standards Board (FASB) guidance on digital assets and the IRS rules for crypto taxation. Since all of these publications are publicly and freely available, these are also excellent resources from which both instructors and students can learn.

    Additionally, several crypto wallet and service providers provide free demos or access that can be utilized, including the following:

    • Coinbase provides free tools and a sandbox environment for trading and managing cryptocurrencies, including opportunities to take free course and earn crypto as a result.
    • Cryptoverse offers free educational modules on cryptocurrency and blockchain for students.
    • BitPay has educator resources on accepting and managing crypto payments for financial reporting.
    • IBM SkillsBuild offers free access to courses, whitepapers and other learning resources.

    Accountants and accounting educators are no strangers to integrating new technologies and tactics into work products; the newest batch of emerging technologies are critical to know and even more important to teach. 

  • Programs and Classes that Appeal to the Next Gen and Beyond

    by Sarah L. O’Rourke, CPA, Rutgers Business School | Oct 24, 2024

    Traditional accounting classes such as financial and managerial accounting are important and serve as the foundation for the greater accounting profession. A solid understanding of these concepts is essential and paves the pathway for many other exciting accounting topics. However, young professionals are increasingly expected to enter the practice with additional abilities such as analytical, technological and planning and organizational skills. The recently revamped CPA Exam certainly reflects this new focus with these topics mixed throughout the various sections.

    Additionally, while there is still great value in the traditional classroom format — a full three-credit course with regular classroom meetings and plenty of in-person discussion where students can learn communication skills — students also desire flexibility that works with busy schedules. This means online offerings, exposure to a variety of topics, availability of customization, etc. Students might want to add an extra credit here or there (as in one credit), rather than a full three-credit course. This can be an especially useful approach in gradually working toward the 150-hour requirement.

    Rutgers’ Flexibility

    At Rutgers Business School, we have a program that checks all these boxes in one flexible program. The Build Your Own Courses (BYOC) series is an innovative online learning initiative developed by the Accounting Information System (AIS) and Continuous Auditing & Reporting (CAR) Lab which builds on the “School With A Million Courses” (SWAM) platform, a learning management system built by the AIS department to offer diverse modules on a variety of subjects.

    The program was developed by Miklos Vasarhelyi, KPMG Distinguished Professor of Accounting Information Systems and Director of Rutgers Accounting Research Center and CAR Lab, along with Hussein Issa, associate professor with tenure.

    Basically, each course is worth one credit and is made of five modules. One module is mandatory, which sets the tone for the other modules selected. Students can “build their own course” with a variety of topics that interest them. Basically, the students can select any four modules from a library of over 65 modules (and increasing). 

    For example, a potential course option is AI in Accounting and Auditing. The required module is Basics of Artificial Intelligence in Accounting and Audit, which introduces the topic of the one-credit course. The students can then pick four choices from the modules library, such as the recommended modules below: 

    • Basics of Continuous Auditing and Continuous Monitoring
    • Introduction to Process Mining
    • Use of Classifiers in Audit
    • Analyses of Exceptions and Anomalies
    • Duplicate Detection Techniques
    • Introduction to Audit Automation
    • Basics of Clustering for Audit
    • Basics of Regression Analyses for Audit
    • Advanced Artificial Intelligence in Accounting and Audit

    Along with great flexibility with these courses, there is still full instructional support. Students are required to successfully complete a set of assessments that can include quizzes, projects, case studies and exams. These assessments are dependent on and relate to the specific modules selected by every student.

    Thus, the BYOC series allows the flexibility demanded by its users and provides a fantastic opportunity for students to gain the necessary skills for an ever-changing profession — one credit at a time. There is no one “right way” to learn, no “one size fits all” plan, so why not mix it up? It will engage more students. 

  • CEO Compass - Fall 2024

    by Aiysha (AJ) Johnson, MA, IOM | NJCPA CEO and Executive Director | Oct 21, 2024

    A New CPA Path Emerges

    As we think about the fall season, we have a lot to reflect on. The 150-hour requirement for CPA licensure is always top of mind. After much discussion over a long period of time, the American Institute of CPAs (AICPA) and the National Association of State Boards of Accountancy (NASBA) recently unveiled an alternative pathway to the standard 150-hour requirement. The proposed CPA Competency-Based Experience Pathway is intended to help the accounting profession fix our well-publicized CPA well-publicized CPA shortage.

    The additional option would not replace existing pathways to licensure but aim to provide an alternative pathway for candidates without lowering the bar to enter the profession. The proposed pathway would allow CPA candidates to obtain an additional year of competency-based work experience instead of the additional 30 hours to demonstrate their professional and technical skills. (See the chart below.) Candidates would still be required to earn a bachelor’s degree, complete one year of general experience and pass the CPA Exam.

    Under the proposal, candidates could become a CPA by demonstrating skills in areas such as ethical behavior, critical thinking, audit services, tax engagements and financial reporting based on a year of competency-based work experience. Candidates would be required to exhibit all seven professional competencies and at least one of the three technical competencies, which would be verified by at least one “CPA Evaluator” in their organization. In addition, a CPA Candidate must obtain one year of general work experience.

    In line with that proposal, the AICPA and NASBA are also recommending changes to the Uniform Accountancy Act (UAA). The UAA model legislation gives state legislatures and boards of accountancy a national model that can be adopted in full or in part to meet the needs of their own jurisdiction. The changes in the UAA provide for implementing the competency model. They would also make changes to the current substantial equivalency provisions in the UAA, which would be monitored and implemented by NASBA.

    Comments on the proposals are due Dec. 6 and Dec. 30, respectively. The AICPA and NASBA are aiming to finalize the framework as early as February.

    We at NJCPA support an alternative pathway to licensure but we have fundamental differences with the AICPA/NASBA proposal on how to get there. The basis of our recommendations is to ensure ease and to streamline the process to reduce barriers to licensing while supporting the rigor that is expected to enter the profession. 

    The two proposals were reviewed at the NJCPA’s Board of Trustees meeting on Sept. 26. The Board supports licensure with an additional year of experience instead of 30 credits but does not support the proposal’s requirement that the first year of experience be done within the competency-based framework outlined in their proposal. We are concerned about the onerous compliance requirements on employers to document specific competencies. We are also concerned about the potential to disproportionately impact small firms. 

    The Board did not support the draft UAA’s proposal to adopt a modified version of the current substantial equivalency system to provide for interstate mobility. Instead, the Board supports the concept of “automatic mobility,” which provides mobility privileges to any person with a CPA license in any other state, so long as they have passed the CPA exam, received a bachelor’s degree, and have two years of experience.

    A member working group was formed by the Board to compose the NJCPA’s response by November, which will be shared with members and interested stakeholders. We’d also like to hear from you at feedback@njcpa.org.

    You can learn more about the proposals at our free webinar on Nov. 13 or Nov. 19. And, as always, learn more about what the NJCPA and others are doing to meet the pipeline challenge at njcpa.org/pipeline.

     

  • How to Protect Yourself from Imposter Scams

    by Megan Kelly, CPA, CFE, CVA, FAZ Forensics | Oct 03, 2024

    As technology continues to become more advanced, it’s more important than ever to be able to identify imposter scams and protect yourself from them. An imposter scam occurs when a scammer pretends to be someone else to deceive an individual into sending them personal identifiable information or money or allowing direct access to bank accounts. In 2023, more than 330,000 business impersonation scams and more than 160,000 government impersonation scams were reported to the Federal Trade Commission (FTC); losses from these scams were more than $1.1 billion, which is about three times what had been reported in 2020.

    Imposter scams do not discriminate. Although we typically hear about the elderly being common targets of fraudsters, per the FTC, younger adults, including Gen Z and millennials, were 34% more likely to report losing money due to fraud compared to individuals over 60. Earlier this year, a financial-advice columnist for The Cut put $50,000 in a shoebox and gave it to a stranger, after being duped by a scammer pretending to be an investigator with the FTC.

    An imposter scam may start with a text message, phone call, or email — it is likely that those of you reading this blog have received a threatening phone call from the IRS” or a text message from a stranger pretending to be someone you are supposed to know. The FTC has noted that scams involving text messages are on the rise. These fraudsters want you to panic and act irrationally in response to these communications.

    Per the FTC, the following are some of the top imposter scams of 2023:

    • Copycat account security alerts: An individual receives a text message from a company like Amazon or a bank reporting suspicious activity or unauthorized charges on his or her account. These messages frequently include an additional step, like responding “yes” or “no” to a prompt, or an offer to provide further assistance with the alleged issue. The goal of these messages is to engage in communication that will convince the person to share personal identifiable information.
    • Sweepstakes scams:  A scammer convinces someone that they’ve won a prize or a contest and subsequently tricks that person into providing personal identifiable information or paying money to get access to the prize.
    • Subscription renewal scams: Phishing emails or text messages attempt to trick people into paying to renew a subscription to a known business. These messages often look legitimate, including company logos and fake invoices; the FTC has seen many instances of this fraud scheme involving a subscription renewal for the Geek Squad.
    • Package delivery scams: Fabricated messages about package deliveries from UPS, the Postal Service, FedEx or Amazon indicate that there’s an issue with a package delivery. The message includes a link to a website that typically requests credit card information to process a redelivery fee or update payment information.

    Additionally, criminals are using artificial intelligence (AI) to create deepfake videos or phone calls utilizing voice cloning, which has made imposter frauds even more convincing. These methods are typically utilized in a family member scam, where fraudsters will use technology to mimic the voice of a family member to make it sound as if this person is in danger and needs financial assistance. Last year, scammers demanded a $1 million ransom from a mother in Arizona by using AI to clone her daughter’s voice to claim that she had been kidnapped. These scams typically target elderly family members who may be less technologically savvy; however, voice cloning has the potential to fool even the most diligent skeptic.

    Action Steps

    In 2023, consumers lost $10 billion to fraud, and imposter scams were the most prevalent kind of fraud reported to the FTC. The following are measures CPAs can take to recognize imposter scams and protect their clients:

    • Remain educated and communicate.  CPAs need to stay informed about imposter scams and changing technology to be able to identify red flags and tactics used by fraudsters, and they need to communicate this information to clients on a regular basis. Consider creating a newsletter or an awareness campaign regarding new and developing fraud schemes.
    • Instill clients with best practices. This could include monitoring bank account statements on a regular basis, avoiding communicating with unexpected text messages from unknown numbers and remaining skeptical and calm in response to unsolicited messages.
    • Do an internal controls review.  Review your clients’ internal controls to identify any areas of weakness, especially around data security.

    It is important to stay diligent and educated to protect yourself from imposter scams. Remain skeptical and perform your own due diligence in response to suspicious communications. Should you become a victim of a fraud scam, report it to the FTC or the FBI’s internet crime complaint center. 

  • How to Prevent Fraud and Sail Through New Jersey Division of Taxation Audits of Cash Businesses

    by Victor Treglia, CPA, NJ Sales and Audit Refund Specialists (NJSTARS.com) | Oct 02, 2024

    While it’s certainly reasonable for the New Jersey Division of Taxation to expect that a business’s filed sales tax and income tax returns accurately reflect the business’s true financial activities, unfortunately, that is not always the case.

    For numerous reasons, there may exist reporting discrepancies and/or deficiencies with respect to the business’s tax returns and associated books and records that may go back several years. Simply due to their small size, many small businesses (e.g., sole proprietorships, single-member LLCs) — particularly those with primarily cash operations —, do not have proper internal controls. Additionally, their bookkeeping and recordkeeping practices are oftentimes less than adequate.  Moreover, implementing reporting improvements, such as a point-of-sale system, are quite costly to purchase and require constant maintenance. Thus, depending on the nature and/or severity of the associated issues, the business’s stakeholders may be at risk when being audited by the Division. The resulting audit assessment may directly and adversely impact the financial affairs of the business and its owners, as well as the business’s ability to remain as a going concern. 

    The good news is that many of the potentially adverse issues and concerns can be timely detected and resolved, thus ensuring that the business remains viable. For example, the business’s CPA or outsourced tax specialist should consider spearheading a team effort which, hopefully, will bring the business entity into reasonable compliance with all of the Division’s applicable statutes, regulations, rules and policies. Creating a compliance plan is a good starting point for the engagement. Many of the items within the plan should be already known and quite familiar to the team’s participants These include the nature and tax implications of the industry the business operates within; the business’s existing accounting system and associated recordkeeping procedures; and a host of other miscellaneous items.

    Additionally, there are two critical areas to focus on when reviewing a cash business’s compliance with New Jersey’s taxes.

    Reconciliation of Gross Receipts

    All primary categories of gross receipts as listed below should be totaled annually/fiscally and then compared to each other for the last four years. 

    • Monthly bank deposits
    • Total sales per business income tax return
    • Total sales per books and records
    • Total sales per sales tax returns

    All material differences should be investigated and reconciled. This procedure may prove to be extremely difficult due to the passage of time, which may result in the loss of what formerly was readily available information. However, on a go-forward basis, perform the applicable steps in this process at least on a quarterly basis and detail/support/retain the information associated with the reconciliation of gross receipts procedures.

    Additionally, the reported taxable receipts as listed on the business’s sales tax returns should be scheduled and analyzed for the same four years with all issues reviewed and further investigated if required. By performing the above procedures, you may be directed into various other areas that may require further investigation and analysis. 

    For example, the business’s CPA may file the entity’s income tax returns while the business’s owner may file the entity’s sales tax returns. Since the sales in a cash business (e.g., restaurant, bar, landscaping company) are usually fully subject to sales tax, the totals for each year should be approximately the same. By performing this procedure, material weaknesses in the business’s recordkeeping procedures and/or sales tax compliance processes (among other areas) may be detected. Once an issue or error is detected it can usually be corrected. Choosing to wait for the Division’s auditor to inform you about this type of discrepancy during an audit may prove to be an extremely costly decision.    

    Analysis of the Business’s Cost of Goods Sold (COGS)

    Reviewing and analyzing the business’s reported COGS is another important area. An appropriate test period to perform this procedure would be the last fully completed year. Generally, the records that should be reviewed are the purchase journals listing all COGS purchases, the bank statements evidencing the payment of all purchases and the purchase invoices from the associated supplying vendors. Additionally, all purchases paid in cash should be fully detailed and also supported by purchase invoices.        

    Note: The Division obtains a report directly from New Jersey’s alcohol distributors fully listing all of the business’s purchases of alcoholic beverages (beer, wine and liquor) for all periods under audit. Additionally, auditors generally seek and obtain a report from the business’s additional suppliers detailing all of the COGS purchases for the audit period.

    Should any issues be detected when performing this procedure, they should be fully investigated, resolved if possible, and a procedure/system put in place to ensure compliance on a prospective basis.

    While the above information only scratches the surface, it’s a start in assisting and safeguarding your clients, so they can remain your clients. Instead of hearing (right or wrong) from small business owners, “Why didn’t my accountant tell me that?” I am looking forward to hearing, “Yep, made it through the audit in fine shape.”

  • Speaking with Clients about 2FA Fraud Prevention

    by Dr. Sean Stein Smith, CPA, DBA, CMA, CGMA, CFE, City University of New York - Lehman College | Sep 26, 2024

    As technology and digitization has increasingly become part of our everyday personal and professional lives, the importance of safeguarding data has only increased. For CPAs, very frequently tasked with handling personally identifiable information (PII) and other confidential/financial information, institution of solid internal controls for firm and client use is of paramount importance. One of the most commonly utilized methods for increasing the security over data is two-factor authentication (2FA). While the specifics will vary depending on the protocol implemented, 2FA is an identity and access management security method that requires users to have access to two forms of ID. This can take the form of a text code, biometric (such as with Bloomberg), facial ID (like with the iPhone) or a retinal scan. In the post-COVID economic landscape, the potential opportunity for bad actors to leverage weak controls and implementation of 2FA has continued to grow.

    Two methods have been identified by the Federal Communications Commission (FCC) that have been used by fraudsters to wreak havoc leveraging the very tools individuals trust to keep data safe. Additionally, I myself fell victim to one of these methods in March 2024, so these events can happen to anyone at any time.

    SIM Swapping

    SIM swapping occurs when a cybercriminal obtains enough personal information — either through phishing scams or via dark web auctions — to trick the victim’s cell service provider into believing the victim has changed carriers. By completing this part, the cybercriminals have transferred the cell number to a new device and gained virtually complete control over the cell phone and all associated data. As all calls and texts are routed to the new device, 2FA protocols now provide unlimited access to all social media, financial and other accounts connected to the phone number.

    Port-Out Fraud

    Similar to SIM swapping, a port-out fraud occurs when the cybercriminals open an account with a different cell phone carrier than the one the victim uses. Once completed, the cybercriminals will contact the new carrier — the one with the fraudulently set up account — and transfer the victim’s number to it. While slightly more complicated than the SIM swap, which only involves activating a new SIM card, the end result is the same. This is the 2FA fraud that impacted me, and it took me several weeks to unwind and rectify. For more on this please watch the webinar (passcode:  G+^9mj&H) where the entire episode was explained in detail.

    Prevention Measures

    2FA fraud can strike any individual or institution at any time, but there are steps that CPAs can take with colleagues and clients to help keep important data safe and secure from cybercriminals. These are in addition to the “standard” recommendations for utilizing up-to-date firewalls, establishing (and enforcing) a password change schedule and potentially implementing passkeys for sensitive data. Let’s take a look at a few of them:  

    • Invest in identity monitoring. Especially for business owners or high-net-worth individuals, investing in and establishing an identity monitoring program is essential. There are different levels of scanning and protection available but having that real-time access to news about the business and whether websites that are linked to an online profile have been comprised can allow you and your clients to proactively monitor potential hacks and breaches.
    • Utilize separate personal and business devices. The popularity of bring-your-own-device (BYOD) policies has been a boon from a convenience perspective but potentially a disaster from a data security point of view. By keeping the devices, numbers and 2FA distinct from each other, this allows a greater ability to minimize damage if a 2FA hack or breach occurs, and it also provides your client with a secondary device from which to maintain contact and operations if such an event occurs.  
    • Minimize the use of public Wi-Fi, enable a VPN and obtain backup numbers. As convenient as public Wi-Fi is, public networks are never as secure as an enterprise network or a home network that have passwords that are updated and only have a small number of people that are aware of and/or use them. Especially with the importance of phone numbers, enabling a mobile VPN protocol (usually via an identity protection plan) is a solid first step. Additionally, consider advising clients or colleagues to obtain a non-phone number, such as a Google number, for additional security (or even 2FA) purposes.

    2FA is a powerful tool that helps CPAs keep firm and client data secure, but if not carefully monitored and updated, it can be leveraged against its users. CPAs and other financial advisors should be well versed in how to effectively leverage 2FA, as well as how to prevent unethical actors from seizing control of these security measures. 

  • Fraud Targeting the Elderly and Estates: A Growing Concern

    by Henry Rinder, CPA, ABV, CFF, CGMA, CFE, DABFA, Smolin, Lupin & Co., LLC | Sep 23, 2024

    Fraud schemes targeting older adults and estates have become a growing concern in recent years. The elderly are often targeted because of their financial stability and the perception that they may not be as technologically or cognitively savvy. Estates represent significant wealth repositories and can be easy marks for sophisticated scams. CPAs can inform and educate their elderly clients and estate representatives about the most common types of fraud perpetrated against these groups and essential strategies to protect against them. The common scams/frauds include the following:

    • Grandparent scam: This scam preys on the emotions of elderly individuals by exploiting their love and concern for their grandchildren. Scammers call, posing as a distressed grandchild, claiming to need urgent financial help due to an emergency, such as an arrest or accident. The urgency created by these fraudulent calls pressures the elderly victim into sending money without verifying the story.
    • Imposter scams: These scams involve fraudsters posing as government officials from agencies like the IRS, Social Security Administration or Medicare. The perpetrators often claim that the victim owes money or is at risk of losing benefits, creating a sense of fear and urgency. This fear is used to manipulate victims into making immediate payments or providing sensitive personal information.
    • Tech support scams: In these scams, fraudsters impersonate tech support representatives from reputable companies. They convince the victim that their computer is infected with a virus and offer to fix it. Once they gain remote access, they steal personal information or install malware.
    • Romance scams: Scammers create fake profiles on social media or dating websites, building trust with elderly victims over time. Once an emotional bond is formed, they ask for money for fabricated emergencies, such as medical bills or travel expenses. These scams not only result in financial loss but also cause emotional distress.
    • Sweepstakes and lottery scams: In these scams, elderly individuals are notified that they have won a prize but must pay a fee to claim it. Fraudsters create a sense of excitement and urgency, persuading victims to pay these fraudulent fees.

    Social Engineering Frauds Targeting Estates

    Estates are targeted by scammers for their wealth. The fraudsters explore the potential vulnerabilities of the executors or beneficiaries. Common scams in this category include the following:

    • Executor impersonation: Scammers pose as executors or other estate representatives, contacting beneficiaries or creditors to obtain personal or financial details. They may claim they need this information to process payments or settle debts, exploiting the trust and lack of familiarity with estate procedures.
    • Phishing attacks: Estate representatives or beneficiaries receive phishing emails that appear to come from legitimate sources. These emails or text messages contain malicious links or attachments that, when clicked, can lead to malware infections or theft of sensitive information. Phishing strategy often involves creating a sense of urgency or the promise of a tempting deal.
    • Inheritance scams: Fraudsters contact potential beneficiaries, claiming to be the deceased’s relative or trusted representative. They ask for personal information or financial details to facilitate the transfer of an inheritance, often providing seemingly credible details about the deceased to build trust with the target.
    • Estate planning fraud: Targeting elderly individuals or those with health concerns, scammers offer fraudulent assistance with estate planning. They may convince victims to sign documents that transfer assets or provide access to financial information.
    • Fraudulent probate proceedings: Scammers manipulate or forge probate documents to gain control of an estate’s assets. They might appoint themselves as executors or beneficiaries and divert assets for personal gain.

    Steps to Protect Against Fraud

    CPAs can review their clients' financial activities for suspicious transactions, which would generally include monitoring for sudden large transfers, unexpected changes in spending patterns, or withdrawals that might indicate a scam. They can also recommend effective internal controls for estates, such as secure communication channels, multi-factor authentication and regular account reconciliations, as well as investigate discrepancies in estate documents. Clients should know the following: 

    • Verify information independently. Never provide personal or financial information to someone you don’t know or trust. Always independently verify the identity of anyone contacting you about your finances or estate.
    • Be wary of any unsolicited contacts. If you receive a suspicious call, text message, email or letter, verify the sender’s identity before responding. Use trusted and secure communication channels, and avoid clicking on links, scanning bar codes or downloading attachments from unknown sources.
    • Secure your digital presence. As cybercrime evolves, securing digital communication is essential, especially regarding sensitive financial documents and confidential personal information. Strong passwords, multi-factor authentication and encrypted communication will help to prevent unauthorized access.
    • Consult with professionals. Engaging CPAs, experienced estate attorneys and cybersecurity professionals can help protect against fraudulent scams. These skilled professionals will offer guidance on securing your assets, communications and proper legal procedures.
    • Stay informed and educated. Staying informed about the latest scams and understanding how fraudsters operate is crucial. Education on recognizing social engineering tactics can significantly reduce the risk of falling victim to these schemes.

    Safeguarding financial assets requires awareness, vigilance and proactive measures. By understanding the various scams and implementing protective strategies, elderly individuals and estate representatives can take steps to protect their assets and financial well-being. 

  • 4 Practical Steps for CPAs to Start with AI

    by Rick Meyer, CPA, MBA, MST, alliantgroup | Sep 12, 2024

    I am just a practical, old time, semi-retired non-tech savvy CPA who struggles to even use a TV remote control. Don’t waste my time with theory. Just give me answers to a few basic questions:

    • What specific practical tasks can artificial intelligence (AI) do today to make a CPA’s life easier?
    • What specific practical steps can a CPA do today to prepare AI for the 2025 tax season?
    • How much will this save me?

    AI Discovery

    CPAs understand that there is incredible potential with AI, but they don’t know what to do with it. Last year, with my frustration and passive aggressive nature in hand, I marched into the office of Chris Stephenson, our Director of Intelligent Automation, and aired my AI grievances. I realized his answers to the above questions could help a lot of CPAs.

    To him, the answer to all three of the questions above lies in the following: It’s called AI Discovery. Last year he created a think tank with about 200 CPA firm professionals who overwhelmingly said, “I don’t know where to start.” Here are some practical first steps he recommends:

    1. Set up an ideation session. This part is a workshop with partners and staff that gives everyone an opportunity to present their problems and ideas for possible AI solutions. Everyone on your team probably has AI ideas.
    2. Initiate scoring: So, you got a bunch of ideas but now what? This is where scoring is critical. Discovery often hinges on scoring each idea based on objective measures to determine their priority. Every firm is different, but you want to score on several dimensions like which can get solved the fastest, which will have the biggest impact, which can scale for every department, etc.
    3. Do technology infrastructure assessment: Ok, you know which AI projects are going to have an impact on your business but is your firm’s system even ready for AI? You’ll need to have your tech infrastructure evaluated to determine its AI readiness, and to find out if there are any shortcomings preventing you from getting started.
    4. Create a roadmap: Finally, you need a clear roadmap to lay out how you’re going to deploy each solution. Do you need to buy a solution? Build an AI? How about training employees? How do you measure if your solution is having an impact?

    He instantly identified five problems where AI could help:

    • Collecting payments from clients
    • Requesting and processing documents from clients
    • Moving trial balances to workpapers
    • Responding to IRS letters
    • Setting up a Chatbox to handle internal queries, like HR questions

    With this information, AI solutions can be created to address each of these problems. Do your own AI discovery to identify your firm’s biggest pain points and develop a plan to attack with AI.

    How Much Can CPAs Save

    With AI in hand, I think about CPAs increasing their bottom-line profits by looking at the following:

    • The time spent on client billing analysis such as excel spreadsheets that track time, project by project, to justify hours and bills, and put that into a client letter
    • Those routine IRS Notice letters written to explain why a client’s 1099-DIV did not match the tax return Schedule B
    • Other mundane tasks which I used to do in public practice that bored me

    Would life have been better as a CPA 45 years ago when I started in public practice if AI existed back then? Should I even consider a return to public accounting from my semi-retirement with AI in the picture?

    The answer to the first question is an obvious “Yes” and to the second question an even more obvious “No.” But for those still in the game, let’s face it. It’s time to jump on the AI bandwagon to be more profitable, have less stress, have more free time and have more fun.


  • My Journey: From Uncertainty to Certainty

    by Kathryn Meehan, student at Rowan University | Sep 09, 2024

    Accounting seemed to catch my attention when I least expected it. I began college as a marketing major, not entirely sure of what I wanted for my future. I would think of potential career options, but none I could actually picture myself doing for the majority of my life. Scared of the future, and anchored to my past, I quickly realized that the present is the only thing I have control of. This realization pushed me to explore new areas outside of my initial field of study, leading me to discover my passion for accounting- a field I had originally overlooked.

    It was during my first accounting class where this newfound interest fascinated me. Throughout my life, I have always gravitated towards structure and precision — traits that I found translate directly into the accounting concepts I was learning. It wasn’t just the numbers that stuck out to me; it was the systematic approach to understanding and managing those numbers, making it evident how closely my personal qualities were mirrored into the field of accounting.

    This journey has also sparked a specific interest in forensic accounting, an area I am eager to learn more about. It is a specialization that combines my passion for accounting with a strong desire to protect the public. Despite not knowing what I wanted for my future, the one thing that I have always known is that I want to help people and make a difference in the world; whether big or small. My commitment to pursuing a career in forensic accounting stems from a strong aspiration to utilize my skills in accounting, not just for economic efficiency, but for the greater good.

    As I look forward to becoming a CPA, I am driven by the positive impact I am going to make on individuals, businesses and society as a whole. It’s going to be a challenging path, but it also promises a rewarding career where I can not only excel in a supporting work environment, but also contribute meaningfully to the communities I serve.

    While embracing accounting in this new chapter of my life, I’ve learned that fear of the unknown is normal, but it should never deter us from exploring new possibilities. This journey from uncertainty to discovery has taught me the value of being open to change and the importance of finding work that aligns who we are with what we dream to accomplish. Accounting, for me, is not simply just a profession — it is the perfect combination of a career that combines my skills, interests and aspirations in a way that I could have never imagined when I first stepped foot at Rowan University. Through this transition of my life, I am no longer afraid of the future. I am excited to have the opportunity to discover who I am and how I can make a difference in the world.

    This article was reprinted with permission from Rowan University. Kathryn Meehan won honorable mention in Rowan's "Celebrating Success" accounting essay award program in May.