Accountants & Bookkeepers; What a Waste of My Money!

Every client that graces my conference room table winces at cost estimates associated with creating and maintaining their businesses books and records.  Smiles and pleasantries mask the reflexive repulsive emotion just beneath.  It’s easy to spot, because it’s difficult for them to hide.  Fewer than 10% will embrace the facts; while the remaining 90% will leave with a concocted plan to have their business partner, friend, or spouse manage the businesses books and records, if at all.

Sure, you can dismiss this basic business function; but beware, the decisions you make today will create bigger and costlier problems within the first 3 years of operations.

My ‘unsolicited’ advice is usually the same – do what you want, but beware of the consequences.  Plan on paying good - hard earned - money for your dismissal of the law…  Wait!! What law? What consequences? 

All laws associated within the State of North Carolina are published and codified in the printed volumes of the “North Carolina General Statutes”.  These laws have been presented; debated; and passed by the North Carolina General Assembly, which consists of the North Carolina House of Representatives and the North Carolina Senate.

Currently there are 168 Chapters within the North Carolina General Statutes.  Within Chapter 55, there are 17 Articles – each with various sub sections.  For this publication, we are going to be concerned with just Chapter 55 Article 16 of the “North Carolina Business Corporation Act”.

Here is a table of contents of those subsections:

Article 1           General Provisions

Article 2           Incorporation.

Article 3           Purposes and Powers.

Article 4           Name.

Article 5           Office and Agent.

Article 6           Shares and Distribution.

Article 7           Shareholders.

Article 8           Directors and Officers.

Article 9           Shareholder Protection Act.

Article 9A         Control Share Acquisitions.

Article 10         Amendment of Articles of Incorporation and Bylaws.

Article 11         Merger and Share Exchange.

Article 11A       Conversions.

Article 12         Transfer of Assets.

Article 13         Appraisal Rights.

Article 14         Dissolution.

Article 14A       Reorganization.

Article 15         Foreign Corporations.

Article 16        Records and Reports.

Article 17         Transition and Curative Provisions.

As of the date of this blog post, there are currently 11 active sub-sections within Article 16, “Records and Reports”.  I will be discussing a few of these sub-sections in the coming posts. 

NC General Statute Chapter 55 Article 16 (G.S. 55-16) lays out the rules that any business, more specifically ‘corporations’ must follow with regards to the business’s “Records and Reports”.  Remember – a corporations and LLC’s have their own legal existence.  Thus, it's the corporation or LLC that owns the business, its assets, debts, and liabilities.

G.S. 55-16-01 §(b)&(d); ‘Corporate Records’ reads as follows:

(b) A corporation shall maintain appropriate accounting records.

(d) A corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time.

Notice that I underlined “Shall”, “Appropriate”, and “Written Form”.  So what does this mean to you?  When you see the word “Shall”, it is legal speak that means – “you will” or a “command”.  There is no room to wiggle room when the language of a statute speaks of a demand.  Thus, we can say that NC State Law demands that you keep a written form of accounting records. 

Now that we know what “Shall” means… what about “Appropriate” and “Written Form”?!  The statute leaves room for interpretation; but the business owner would be wise to draw the inference that it’s considered ‘appropriate’ and ‘best’ business practice to create, and maintain a written set of standard accounting books and records.

So what is considered “Standard Accounting Books and Records”?  NC law is not specific on this matter; nor are there other U.S. cases that we can draw reference too.  But we can look to other sources to help us define this requirement.  For example: “In the matter of Swan Services Pty Limited (in liquidation) [2016] NSWSC 1724 the Supreme Court of New South Wales” – in Sidney Australia, the court considered the circumstances in which a company’s failure to maintain books and records would invoke a presumption of insolvency.  In summary:

…a company is required, for a period of 7 years, to maintain books and records that correctly record and explain its transactions and financial position and performance, and would enable true and fair financial statements to be prepared and audited.  Further; the “Corporations Act” provides for a presumption of insolvency throughout a period in which a company has failed to keep financial records as required…

This definition of ‘maintaining books and records’ clearly defines what may have been the intention of the NC law makers and invokes common sense.  Even though the State of North Carolina’s General Statutes is remiss on this language, it can be assumed that the jurisprudence would apply this foreign courts precedent.  The Supreme Court of New South further expounded upon it ruling; stating that:

The Court outlined two circumstances where the presumption will arise:

1.       The company kept no documents within the description “financial records” in the period.

2.       The documents that were kept were deficient as to content.

In concluding that the books and records of “Swan Services Pty Limited” were deficient, the Court referred to the following outline of evidence:

1.       The business owner was unable to locate any signed financial statements (apart from 1 year) for the 7 years prior;

2.       Management prepared the business’s transaction accounts 6 months prior to the date they purportedly related to; and

3.       The court found discrepancies between income recorded in the unsigned financial statements and income reported on the businesses filed tax returns.

4.       Finally, the court found that “Whilst there were books and records that fell within the broad definition of “financial records” under the Act, these documents did not enable true and fair financial statements to be prepared.”

Beside-the-fact that you are required under law to maintain accurate books and records, doing so will save you additional frustration later on.  In fact, “poor accounting” is one of the top reasons businesses fail.  Without bookkeeping or accounting, you are blindly driving your business.  Avoid drawing unfavorable attention to yourself as a business owner.  Poor financial records and bookkeeping activities can lead to a public reputation of impropriety.

Firm Services: Average Fees for Accounting & Tax

I get these questions all the time; whether in passing, over the phone, or in a consultation.  How much does your firm charge to prepare a 1040? How about other forms? What about the accounting and business advisory services you offer?

My initial response is to explain the process of preparing their return.  CPA’s typically do not operate like a “tax return preparation mill”; you can surmise who those businesses are.  I tell them that if they choose to engage a “tax mill”, they can expect to spend 15 minutes in a chair sitting next to the preparer, getting their return completed.  This is certainly acceptable if you are a simple filer.  But most people that have a more complex tax return need additional “hand holding / advocacy and advice”.  Thus, CPA’s spend approximately one to three hours in meetings; phone calls; emails; and text messages with the tax client in order to ‘carefully’ prepare their tax returns.

So here is the industry average for a simple personal tax return:  The average fee charged to prepare an itemized Form 1040 with Schedule A and a state tax return is $273, and the cost for a Form 1040 without itemized deductions and a state return is $176.

TAX RETURN PREPARATION SERVICES BY FORM

The following table identifies some of the various tax preparation forms and their related fees.  This matrix is a benchmark and should be used to help you budget your tax preparation expenses.  Average fees to prepare the following forms include:

Form 1040 with a Schedule A and state return	$273
Form 1040 (non-itemized) and a state return	176
Form 1040 Schedule C (business)	184
Schedule D (gains and losses)	124
Schedule E (rental)	135
Schedule F (farm)	180
Form 1065 (partnership)	656
Form 1120 (corporation)	826
Form 1120S (s corporation)	809
Form 1041 (fiduciary)	482
Form 990 (tax exempt)	733
Form 940 (federal unemployment)	69
Form 706 (estates)	1,563
Form 709 (gift tax)	413
Form 8824 (like-kind exchanges)	242
Form 5500 (pension/profit-sharing plans)	532
Form 3115 (application for change in accounting method)	282
Form 8962 (premium tax credit calculation)	59
Form 8965 (health coverage exemptions)	53
Form 1095‐A (health insurance marketplace statement)	58
Shared Responsibility Payment Calculation	57
Form 4562 Fixed Asset & Depreciation (Depends on # of assets)	135

DISORGANIZED OR INCOMPLETE FILES

Most CPA firms charge additional fees if the client is not prepared to have their return filed timely.  Thus, firm’s charge an added fee for disorganized or incomplete files; known in the industry as a “paper bag job”.  Some firm’s charge an additional fee for “Late Filing Extensions”.  Additionally you can expect to be charged an additional fee to expedite your tax returns.  Some CPA’s charge a fee for information received after a set deadline.  This occurs when the preparer has to set aside your tax return and wait for you to gather the requested information.  Once received, the preparer has to reacquaint themselves with the ‘shelved return’.  As a result, CPA firms charge for this time.

TAX AUDIT

Average hourly fee for an in-person IRS audit is $150.

Average fee for an IRS audit response letter is $128.

OTHER CLIENT SERVICES

You can anticipate the following as an hourly fee - budget benchmark for these various client services:

Offers in Compromise (Form 433a; 433b; & 433f)	$177
Estate/Financial Planning	163
Financial Services	144
Tax Services (IRS Correspondence)	145
Management Advisory Services	146
Elder Care Financial Services	131
Financial Statement Presentation (Management Report)	134
QuickBooks or Bookkeeping Advisory Services	97
Write-up Work	93
Payroll Services	83

Source: CPA Practice Advisor

So you decided to sue… And, you want to win… We do too!

So you decided to sue… Now you need to put together your case. Most cases involving civil disputes end up in small claims court. It’s a court venue that allows each side; a “lot” of latitude when it comes to court protocol and procedures. Unfortunately for most, the litigant enters those chambers unprepared. Once you are called up to present your case, the defendant or plaintiff brings with them a bevy of drama. To win, you will need to have a team on your side that is well prepared to present your case. 

The lawyer will always act as your spoke person and advocate while presenting your case. The key to winning is to have an expert witness report that tell your side of the story with deposition testimony, witness testaments, and supporting documents. 

Enhancing your legal matter with a forensic investigator is more affordable than you think. Forensic and litigation can become a very expensive endeavor, unless you plan carefully how you will put together your file. Let me better explain the circumstances of such a matter and then what one would expect in the way of costs. 

A few months ago, I was in a civil court in a local town, attending to another legal matter. Before my team was called to up by the court clerk, we watched and listened to the case of Peterson v. Finnegan. 

Mr. & Mrs. Peterson decided to give up their two dogs for adoption right after their first child was born. The dogs became unruly and a concern due to their hostile reaction to the Peterson’s newborn. As a result, the two pups had to be confined to their crates. Neither the Peterson’s nor the dogs were happy. Mr. Peterson contacted a dog interventionist who placed unwanted pets into foster homes. 

The Peterson’s were anxious to settle the family turmoil, thus calling and requesting that Ms. Finnegan, the interventionist, come over and remove the two animals as quickly as possible. Ms. Finnegan obliged; having taken the dogs and then immediately finding a foster home for them. 

Over the next 7 to 10 days Mr. & Mrs. Peterson began to experience a sense of regret. Mrs. Peterson began weeping during the day; and Mr. Peterson, seeing his wife’s anguish, decided to reach out to Ms. Finnegan – asking her to return their two dogs. 

Unfortunately for the Peterson’s, Ms. Finnegan had already placed the pups with a caring foster family. Further, Ms. Peterson had taken the two dogs to a local vet; where it was found that the dog’s health and hygiene had been neglected. The veterinarian treated the animals and Ms. Finnegan paid the bill. 

When the Peterson’s were told by Ms. Finnegan that they were not eligible to retrieve the dogs, Mr. & Mrs. Peterson began a campaign of relentless phone calls upon Ms. Finnegan. Some of the calls could be considered threatening. Further, the Peterson’s began to post unflattering, derogatory and inflammatory comments about Ms. Finnegan and her business in various social media websites on the internet. 

After a period of weeks, attempting to coerce Ms. Finnegan to acquis, the Peterson’s filed a civil suit against Ms. Finnegan; and all party’s show up in small claims court to plead their case. 

The Peterson’s were first to tell their side of the story. With a quivering voice, and ultimately tears, Mrs. Peterson told the magistrate how she had made a terrible mistake and just wanted her dog’s back. Her husband further stated that they tried relentlessly to contact Ms. Finnegan, to no avail. When Ms. Finnegan finally reached out to the Peterson’s, the animals were already settled into a new home and that the Peterson’s were out of luck. 

Then it was Ms. Finnegan’s turn. She desperately tried to overcome Mrs. Peterson’s theatrics with a more stoic approach; stating facts and trying to get the Magistrate to listen to her side of the story. Unfortunately for Ms. Finnegan, the Magistrate immediately sensed that Ms. Finnegan was ill prepared and was struggling to regain her legal footing in the court room. 

At one point during the proceeding, the Magistrate began to admonish Ms. Finnegan and referred to the two dogs given up for adoption by the Peterson’s as Mrs. Peterson’s “children”. Ms Finnegan was losing her case; badly. She had the facts on her side. But, she could not get them presented to the Magistrate as a rebuke to Mrs. Peterson’s drama. 

This is where a good legal and forensic team can win you the case. Had Ms. Finnegan hired our team to represent her, she would have been in a much better position to get her case heard. Our team would have worked with Ms. Finnegan to craft an expert witness report laying out all the facts along a well-defined time line. We would have entered into evidence the threatening Mr. & Mrs. Peterson sinister campaign of relentless phone calls upon Ms. Finnegan. We would have gathered transcripts of those calls as recollected by Ms. Finnegan; pointing out the some of the calls were considered threatening. Further, we would have presented evidence that the Peterson’s posted unflattering, derogatory and inflammatory comments about Ms. Finnegan and her business in various social media websites on the internet. We would have further introduced evidence that the two dog’s given up for adoption by the Peterson’s were in fact physically neglected and might have bordered on animal cruelty. We would have used the Magistrates own word’s – referring to the two pet’s as “Children” and raised the question of Mr. & Mrs. Peterson’s parenting skills.

I believe we would have won this case for Ms. Finnegan, had she hired us. Now, there is no guarantee that the Magistrate would rule in our favor. But the odds would have been more advantageous for Ms. Finnegan. So what exactly do we do to support the lawyer? 

As a Certified Fraud Examiner, I and my team provide the lawyer with the needed litigation support – following all of these three standard services:

1. Investigate the circumstances and gather the corroborating evidence.

2. Produce a written report of our investigative findings.

3. Serve as a testifying expert (also known as an expert witness) or as a consulting expert.

A testifying expert takes the witness stand during a trial and answers questions from both lawyers and, if necessary, also from the judge. As your expert in this matter, I have or will acquire the specialized technical experience and training that would qualify me to offer a professional opinion on complex factual matters at issue in the litigation.

So what are we talking about when going to small claims court? Small claims court is designed to allow those without the financial means to plead a case to a magistrate without the heavy burden of legal fees. Okay… but do you want to win your case? In a legal matter such as the one noted above; Ms. Finnegan could expect to pay the lawyer $2,000 and the forensic team $3,000 to prepare the case. 

Every case is different; the circumstances and the period of time that has elapsed since the matter occurred. It's not a $500 fix, but... the only way to determine the cost / benefit is to reach out to us for a consultation. Good luck in your next court battle. We hope to be on your winning side.

STEVEN M. APA, CPA