architecture, engineering & construction seminar - 2014
TRANSCRIPT
2014 ARCHITECTURE, ENGINEERING & CONSTRUCTION INDUSTRY SEMINAR
FRIDAY, OCTOBER 17, 2014
PRESENTED BY:CBIZ & Mayer Hoffman McCann P.C.
INTRUST BankSeigfreid Bingham
ECONOMIC & MARKET OUTLOOKPRESENTED BY: BILL MARTIN
U.S. ECONOMIC HIGHLIGHTS & OUTLOOK
U.S. Economic Indicators
U.S. Labor Market Perspectives
Source: BLS, FactSet, J.P. Morgan Asset Management
U.S. Economic Growth & Composition of GDP
Source: BEA, FactSet, J.P. Morgan Asset Management
U.S. Commercial Real Estate
Source: Reis, Inc., PREA, FactSet, J.P. Morgan Asset Management
KC METRO ECONOMIC HIGHLIGHTS & OUTLOOK
KC Metro Economic Growth
KC’s economic growth rate slower than US since 2001
KC Metro Economic Growth
On a per-capita basis, KC Metro looks much better
KC Metro Economic Forecast
KC’s economic growth is forecasted to rang between 2% and 3% thru 2016
Source: Mid-America Regional Council and the Greater Kansas City Chamber of Commerce
KC Metro Job Growth Forecast by Industry
KC’s service sector is expected to experience the most significant job growth
Source: Mid-America Regional Council and the Greater Kansas City Chamber of Commerce
KC Metro Commercial Real Estate
Major real estate purchases in KC up to 56% from last year Source: Stewart Title Guaranty Co. / Real Capital Analytics
KC Metro Commercial Real Estate
KC commercial construction forecast by industry Source: FMI Construction Outlook, 2nd Quarter, 2014; Kansas City, MO-KS MSA
KC Metro Commercial Real Estate
Lodging and office construction forecasted to see fastest growth rate in KC
Source: FMI Construction Outlook, 2nd Quarter, 2014; Kansas City, MO-KS MSA
KC Metro’s Fastest Growing Cities in 2013
Source: U.S. Census Bureau, May 22, 2014
KC Metro Future Growth Forecasts
Source: U.S. Census Bureau, May 22, 2014
Source: Mid-America Regional Council, Transportation Outlook 2040
Education is Key is KC’s Economic Future
Source: Mid-America Regional Council
KC ranks 19th out of 52 metro areas in terms of educational attainment
MARKET HIGHLIGHTS & OUTLOOK
Market Indicators
What’s Driving U.S. Treasury Yields So Low?
Country Yield on 10-Year Sovereign Debt
United States 2.39%
Canada 2.05%
Brazil 3.77%
Columbia 3.39%
Germany 0.93%
Italy 2.45%
Switzerland 0.44%
Greece 5.72%
Japan 0.50%
South Korea 3.06%
Source: Bloomberg | Data as of August 31, 2014
U.S. Equity Valuation Considerations
How Can Investors Manage Market Uncertainty Goal-driven solutions.
Intelligent diversification, including prudent use of alternative investments.
Risk budgeting with a focus on preservation of
Capital.
Asset location and active tax management.
Disciplined investment process with a long-term time horizon.
Thank You
EMPLOYMENT LAW FOR THE CONSTRUCTION INDUSTRYPRESENTED BY: RITA CORTES & RACHEL BAKER
CRIMINAL BACKGROUND CHECKS:
What does the EEOC Have to Say?
The EEOC has taken the position that the use of criminal background checks can have a larger impact on
minority job applicants, and can therefore be illegal employment
discrimination.
“BAN THE BOX” LEGISLATION:
What is it?
Kansas and Missouri do not currently have “Ban the Box” statewide
legislation.
When is it okay to consider criminal background information?
RESTRICTIVE COVENANTS FOR EMPLOYEES:
What Works & What Doesn’t
What Do You Want To Protect?
Customer relationships?
Proprietary Information?
Regular competition?
Using restrictive covenants can protect certain corporate interests,
but cannot be used to prevent regular competition.
WHAT CAN YOU PROTECT?
Customer Relationships Cannot protect prospective customers.
Can only restrict those who had meaningful and regular contact.
Trade Secret & Confidential Information Can only protect true proprietary and confidential information. Can sometimes include customer lists.
Can cover pricing and bid practices.
Other Methods To Protect Yourself Password Systems
Limiting Access to Need to Know
Training in Expectations on Information Management
Having Others Sign Nondisclosures
Relationship Management
What is Required For An Enforceable Agreement?
Protectable Interests
Consideration
Reasonable Geographic Scope Reasonable Duration
Employee V. Independent Contractor Classification
High Priority for the Department of Labor Audits.
Use of Misclassification as a Basis for Class Action Relief Remains High.
Emp. V. Indep. Contractor Classification
Not a discretionary issue
Governed by separate tests: IRS – 20 Factor Test Courts- Economic Realities Test
Key Issue: Who is really in control of the work?
Emp. V. Indep. Contractor Classification
Impact of Misclassification?
Tax Audit Liability for unpaid payroll taxes
Liability for injuries on the job
Liability for unpaid overtime
Liability for unpaid employee benefits
SOCIAL MEDIA:It Doesn’t Affect My Company,
Does it?
Use of Social Media in Hiring
Obtain information that you don’t want to know.
How do you prove it had no impact on hiring decisions?
Social Media and the NLRB
Has been examined by the NLRB in non-union contexts. Recognized by the NLRB as a legitimate forum for concerted and/or protected activity.
TAX UPDATES FOR THE AEC INDUSTRYPRESENTED BY: ERIKA CUNDIFF
DEPRECIATION
Depreciation
Large book tax difference for depreciation because of previous favorable depreciation adjustments.
Section 179 Limit for 2014.
No bonus depreciation.
There is still time for Congress to act.
TAX RATES
Tax Rates Have Increased
Currently the highest individual rate is higher than the highest corporate rate.
2014/2015 tax rates for married filing joint:$0 – 17,850 10%17,850 – 72,500 15%72,500 – 146,400 25%146,400 – 223,050 28%223,050 – 398,350 33%398,350 – 450,000 35%450,000 – …. 39.6%
Tax Rates Have Increased
Medicare surtaxes are charged on SE income and investment income, but not on corporate income.
S-Corporation vs. S-Corporation In Kansas, pass through income is not taxed, but
C-Corporation income is.
If all of your profits need to stay in the company for bonding purposes, you may want to have an analysis done to potentially revoke your s-election.
Do not make a decision for short term reasons.
TANGIBLE PROPERTY REGULATIONS
Tangible Property Changes
Changes are coming for any entity or individual who owns tangible property and has repairs and maintenance.
The changes for compliance must be implemented on your 2014 tax returns.
The Service has temporarily told IRS agents to not examine depreciable property.
Changes for Real Property
What is a unit of property?
A building will be broken down from one unit of property to potentially eight units of property.
You will be able to have a partial disposition on a building.
Does a cost segregation still make sense?
Repairs vs. Improvements To Unit Property
Routine repairs.
One off repairs.
What is conservative?
Internal books vs. tax.
Changes for Real Property
Implementing New Tangible Property Regs Implementing new tangible property regulations:
Taxpayers will need to file an accounting method change form with their 2014 tax return.
Depending on your property a taxpayer may have several accounting method changes.
HOW DOES THIS AFFECT YOU?
Affect On The Construction Industry
Demolition costs historically had to be capitalized for a project.
Going forward if they are broken out separately on an invoice they can be expensed by the owner.
A building will be broken out into multiple units of property (i.e. the roof will be a unit of property, the elevator, the building).
Contractors may have clients asking for breakdowns of costs associated with each unit of property.
FRAUD PREVENTIONFOR THE AEC INDUSTRYPRESENTED BY: JOYCE FARRIS & ERIKA CUNDIFF
Why Is Fraud A Hot Topic?
Typical organization loses 5% of revenues each year to fraud.
Applied to the 2013 estimated Gross World Product - Potential projected global fraud loss of nearly $3.7 trillion.
Median loss caused by fraud was $145,000.
22% of the cases involved losses of at least $1 million.
Median duration – amount of time from when fraud commenced until it was detected – 18 months.
Association of Certified Fraud Examiners’ 2014 Report to the Nation
No Immunity to Fraud
Fraud does not discriminate.
All Industries, Companies, Sizes.
Fraud schemes are not new.
WHAT SHOULD YOU DO?
Implement anti-fraud controls to limit risk.
Eliminate the “It can’t happen here” mindset.
IT CAN HAPPEN HERE & IT HAS
Recent KS/MO Fraud Cases
April 2014 – Waechtersbach CEO pleaded guilty to embezzling up to $338,000 over 9
years.
July 2014 – Galvmet Inc. Controller indicted on alleged embezzlement up to
$2,963,914.
Company filed for bankruptcy.
August 2014 – Lawrence businesswoman indicted on five counts of
bank fraud connected to loans obtained through Farmers Bank in Overland Park.
Recent KS/MO Fraud Cases
August 2014 – Dorfman Plumbing Bookkeeper pleads guilty to embezzling $543, 000 over
eight months.
North Point Nursing Home - Pleads guilty to embezzling an additional $188,460 in following four months.
September 2014 – Westheffer Company Office Manager pleads guilty to embezzling between
$750,000 - $1 million.
August 2014 – Clarkson Construction Director of Information Technology accused of
embezzling more than $300,000.
Why Do People Commit Fraud?
Pressure / Motivation
Mounting debt. Divorce. Unrealistic business results due to economy.
Opportunity
Unlimited access to Company assets. Jobsite with week controls.
Rationalization
Embezzler believes “deserves” more. The Employer “owes” them.
Red Flags
Companies
High turnover rates. Ignore irregularities.
Employees
Refusal to take vacation. Exhibit on-the-job behavioral changes. Elevated lifestyle purchases:
New car Jewelry Remodel home
Who Commits Fraud?
Employee Manager Exec/Owner other0.00%5.00%10.00%15.00%20.00%25.00%30.00%35.00%40.00%45.00%
According to ACFE, the average fraud perpetrator is generally a first-time offender with a spotless
record.
Duration Before Detected
Employee Manager Exec/Owner Other0
5
10
15
20
25
30
Months
Fraud Schemes
Corruption
Bribery / Kick Backs / Bid Rigging. Purchasing Schemes .
Asset Misappropriation
Cash on hand / Cash Receipts / Skimming . Fraudulent Disbursements / Fraudulent Billings Misuse of Other Assets / Larceny.
Financial Statement Fraud
Asset / Revenue is Overstated/Understated.
Association of Certified Fraud Examiners’ 2014 Report to the Nation
Fraud Schemes In AEC Industry
Association of Certified Fraud Examiners’ 2014 Report to the Nation
Billing 34.9%Cash Larceny 14.0%Cash on Hand 7.0%Check Tampering 27.9%Corruption 46.5%Expense Reimbursements 27.9%Financial Statement Fraud 11.6%Non-Cash 20.9%Payroll 18.7%Register Disbursements 2.3%Skimming 7.0%
No-Tolerance Tone At The Top
Fraud-free culture starts at the top.
Superiors who model ethical behavior encourage others.
Code of conduct – benchmark for behavior.
Educate employees about fraud & affect on company.
Willingness to Prosecute all finding. Nothing disregarded!
FRAUD REPORTING MECHANISMS
Implement Fraud Reporting Mechanisms
Whistleblwoing by employees - #1.
Encourage confidential reporting.
Set clear channels for how and to whom to report.
Environment of trust and accountability.
Tips are consistently and by far the most common detection method. Over 40% of all cases were detected by a tip – more than twice the rate of any other detection method. Employees accounted for nearly half of all tips that led to the discovery of fraud. (ACFE 2014 Report)
INTERNAL CONTROLS
Establish Internal Controls Internal Controls
Processes designed to provide reasonable assurance regarding the achievement of certain objectives.
Safeguard assets against unauthorized acquisitions, use or disposition.
Minimizes risk of employee theft or fraud.
Communicate to all personnel involved.
Monitored by management.
Relied on segregation of accounting duties: Prevents a single employee from both perpetrating and
concealing fraud.
Many small businesses don’t have the appropriate number of personnel to handle such segregation.
Internal Controls – Cash Preparation of monthly bank reconciliations.
Proper approval of invoices.
Dual signatures on checks of Authorized check signers. Check singer can not generate checks.
Use of lock box for customer payments.
Individual billing customers isn't allowed to received or record customer payments.
Officer received bank statement or reviews online.
Use of positive pay verification system at your bank. Consider bonding employees who handle cash.
Internal Controls – Accounts Receivable
Accounts receivable aging reports reviewed monthly by management – explanation of over 90 day items.
Receivable write-offs should be authorized and approved.
Consider shifting responsibility for collecting receivables to the project managers on their jobs – provides oversight of collection process.
Internal Controls – Accounts Payable
Pre-numbered purchase orders.
Approval of invoices by non-purchasing agent.
Review invoices for delivery location.
Compare payments to original contract amounts.
Original contract costs should be compared to revised contract costs on a monthly basis.
Once signed, checks should not be returned to employee responsible for generating the checks.
Internal Controls – Subcontractors
Monitor subcontractors / supplier bidding process.
Require proof of insurance / monitor the expiration.
Consider number of jobs the subcontractor is working on to determine their capacity to complete your job.
Obtain references on new subcontractors.
Perform credit checks on new subcontractors.
Consider reviewing financial statement of subcontractors for the ability to pay for and complete the job.
Internal Controls – Jobsite Controls
Use of security cameras.
Comparison of purchased material quantities to original estimates.
Surprise visits by management to ensure procedures are being followed, locate unrecorded invoices and make sure job is on track.
Jobsite equipment and materials should be secured when there are no employees present.
Written safety and health policy to minimize hazards on the jobsite.
Internal Controls – Payroll/ HR Controls Report jobsite labor daily using an electronic sign-in/out system.
Payroll hours should be approved by management.
Enforce mandatory vacations
Surprise jobsite visits on payday to verify employees receiving payroll checks are not fictitious.
Payroll clerk should not be authorized to enter pay raises in computer system.
Consider background checks and/or drug testing.
Internal Controls – Technology
Utilize secure passwords to transmit data.
Utilize the security system in accounting and data programs to limit access.
Utilize controlled electronic data exchange from jobsites for payroll, etc.
Utilize an internal electronic routing system to obtain approvals and track documents.
No Internal Control Is Perfect Limitations of internal controls.
Human judgment and error. Cost restraints. Management override. Collusion.
To be successful, internal controls:
Driven by companies management. Oversight and monitoring.
Stamping Out Fraud
Impossible in the Construction Industry.
Prosecution of offenders.
Stricter practices and tighter controls.
It is possible to mitigate risk!
THANK YOU!
Rachel Baker Seigfreid Bingham [email protected]
Rita CortesSeigfreid Bingham [email protected]
Joyce Farris CBIZ MHM, LLC [email protected]
Erika Cundiff CBIZ MHM, LLC [email protected]
Bill Martin INTRUST Wealth Bill,[email protected]