Experts Discuss Litigation, Economic Incentives, Healthcare Reform, Private Company Reporting & the Economy– June 18, 2013

Cohen & Company recently held its annual client CPE half-day seminar, focusing on timely topics important to CFOs, controllers and others with financial responsibility in private organizations. Our speakers gave practical guidance on ways to avoid litigation in the workplace, how to take advantage of negotiated economic incentives in Ohio, the promise of a new financial reporting framework for private companies, the ongoing impact of healthcare reform, and the state of the economy. Read some of the discussion highlights in the excerpts below.

Avoiding Litigation in the Workplace

Bill Edwards of Ulmer & Berne provided tips for avoiding litigation in the workplace, highlighting that it’s an expensive proposition of both money and time spent away from the business to defend a discrimination or wrongful termination suit.

Bill suggested beginning with the end in mind. Protect yourself upfront by knowing and following the law. The Ohio Civil Rights Act affects companies with four or more employees, so there is risk for employers of almost any size. Be fair, communicate clear guidelines for employees, and give them feedback and opportunities to correct behavior. Sound hiring practices are key, from asking strategic questions on the application to asking only job-related questions during an interview. He also noted that it is not wise to have systemic policies against hiring felons, policies that may trigger attention from the Equal Employment Opportunity Commission (EEOC). Additionally, Bill suggested remaining cautious in asking questions that may conflict with the Americans with Disabilities Act (ADA), especially during the pre-offer phase. This includes questions directed at recovering addicts, also protected by the act. Bill discussed keeping accurate and complete personnel records to help prevent litigation or minimize its impact, defining work expectations through good employee handbooks and a system to document employee performance, and terminating employees with care. Bottom line: Train like you are a large company, regardless of your actual size; conduct discrimination training and communicate often with your employees. And if it comes down to defending yourself or your company in a lawsuit, be realistic as to whether the risks and rewards are worth it.

Negotiated Economic Incentives

Dennis McAndrew of Silverlode Consulting provided a look at Ohio’s current negotiable incentive environment. Overall, the state climate for incentives is a swinging pendulum. Six months ago incentives were few and far between. Today Ohio has more to offer, but it still does not compare to programs offered five years ago. As state incentive offerings stabilize, local municipalities seem to be stepping up and becoming more aggressive to fill the gap. But as city incentive programs vary greatly, it has become a sort of “wild wild west” of incentives at the local level, according to Dennis.

Whether considering state or local incentives, the first step is spotting opportunities to pursue; incentives are not only for building expansion or new construction projects. Job creation projects are one of the most missed opportunities for incentives. The more jobs you can create, the more potential for a larger incentive opportunity. Additionally, there are specialized state incentive programs to consider, including Third Frontier or Clean Ohio grants and loans; the Incumbent Workforce Training Program, which should be available soon; and other programs targeted to narrow sectors. Regardless of the type of incentive, there will be requirements to satisfy, and the incentive generally must have meaningful impact on your ability to execute the project. Most importantly, incentive conversations must happen before the project begins, even before it is announced or approved, to qualify.

A few of Dennis’s best practices for businesses include: continually look for opportunities, act in a timely fashion to take advantage of those opportunities, do not rely on political connections to obtain incentives or shorten the process, and follow all steps closely to secure approvals and to conduct important annual reporting to maintain any incentives obtained.

New Financial Reporting for Private Companies

Pat Piteo of Cohen & Company has long been involved in the crusade to help provide private businesses with options for reporting their financial information in a way that is fair and beneficial to all parties involved. GAAP, generally accepted accounting principles, often outlines requirements better suited for public companies but become overly burdensome or ineffective for private company reporting. At our CPE event, Pat brought the audience up to speed on two new initiatives that will impact private companies: the formation of FASB’s Private Company Council (PCC) and the AICPA’s Financial Reporting Framework for Small and Medium-sized Entities.

The PCC, comprised of CPAs, CFOs, bankers and venture capitalists, provides input to FASB on how certain reporting standards will impact private companies. The group also recommends alternatives to GAAP with the intention of making reporting easier for private companies — the first three drafts, regarding intangibles, goodwill amortization and interest rate swaps, are due to be issued in late June.

Another significant development for private companies is the AICPA’s newly created Financial Reporting Framework for Small and Medium-sized Entities. This framework provides private companies with an alternative to GAAP for the reporting of financial information, in situations where GAAP reporting is not required. The framework is intended to be more cost-effective and responsive to the needs of private companies. Using the framework is optional and is now available for use but will first require discussions with a company’s bankers and accountants.

The Impact of Healthcare Reform

Joan Scully of Cohen Healthcare Consulting covered more on the impact of healthcare reform and the tough cost/benefit decisions employers will need to make. The size of your company in terms of employees, whether you offer health insurance coverage and what you offer will drive the impact reform will have on your company.

There are myriad changes that have already gone into effect, such as W-2 reporting requirements, or are on the horizon, such as auto enrollment into health coverage. But there are two primary ways, according to Joan, that employers can get penalized: 1) if they do not offer coverage and one of their employees applies for a healthcare exchange, or, 2) if an employer offers coverage that does not meet reform requirements and an employee signs up for an exchange.

Joan covered other important issues for businesses to consider beyond penalties and fees, such as considering how many employees will be eligible for Medicaid as the program expands in 2014. Medicaid-eligible employees are not included in the employee count that determines which employers must provide coverage. Another issue of concern is related to grandfathered plans. Employers with these plans must review their plans annually to ensure they maintain their status. Once grandfathered status is lost, the company becomes subject to the requirements of reform, and organizations will need to spend much time and money to comply to avoid facing penalties.

Joan also cautioned the audience on unintended consequences of reform itself, which could include employee lawsuits against employers not complying with reform or lawsuits challenging employers’ interpretations of the law. The implementation of reform will also most certainly mean great change for everyone in an organization, including expanded responsibilities for human resources, legal, finance, risk, and health and safety professionals.

The State of the Economy

Tom Haught of Sequoia Financial Group gave a global review of our economy and markets. Focusing in detail on the major sectors, Tom discussed the challenges and bright spots we are seeing on a national and global level that impact businesses in our own region. Overall, individuals are saving less and spending more, likely a result of the “wealth effect,” which comes into play when those who are not necessarily making more money feel wealthier and are more comfortable spending because their net worth has gone up (i.e., rising home values). In the jobs market, participation is down for younger individuals, who are finding it hard to get jobs right out of college, but is up for the 65+ demographic. On the housing front, supply remains at a good level and multi-family housing starts are up; mortgage rates are low but top credit scores still dictate who qualifies for a new mortgage; and delinquencies are still high and will continue to be an issue for banks. Corporate balance sheets overall are strong, and the manufacturing sector continues to expand — good news for Ohio. In particular, U.S. car manufacturers are gaining more market share. Inflation remains low and should remain so throughout 2013. Slow downs are occurring in the European and emerging markets as Europe’s recession continues. See important disclosures below.

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