1) The Madoff Ponzi scheme emphasizes the need for thorough due diligence when investing, as Madoff was able to exploit the lack of transparency in hedge funds.
2) The economic downturn has significantly impacted company-sponsored retirement plans, with many seeing large declines in asset values. Plan sponsors need to monitor investment performance and educate employees.
3) Taxpayers defrauded by Madoff may be able to claim theft losses or recover taxes paid on fictitious income reported by his fund. Plan sponsors also need to understand fiduciary responsibility and hardship withdrawal rules.
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The Advisor - Winter 2009
1. ADVi SOR
N O. 61
the
WINTER 2009
iNSIDE Understanding Preference Payments
The Personal Page In many business situations, being he
of new value to the debtor
page 2 preferred is a good thing. But, on Sept. 15, and so no
in bankruptcy language, being a preference payment need
nt
Madoff Scheme creditor who received a preference be returned.
Emphasizes payment is not a good thing. The second
Need for Due Under the Bankruptcy nary
exception is “ordinary
Diligence Code, if a creditor received a course.” Ordinary y
page 3
payment within 90 days of a course is when the e
customer filing for bankruptcy, payment was made de
From The Desk
repayment may be demanded in accordance with h
Of The CEO
page 3 as a “voidable preference.” In the debtor’s and
short, the creditor may have to creditor’s businesss
Economy Impacts “give the money back.” Once a terms or the
Company Sponsored demand is made for repayment, payment was made inde
Retirement Plans the creditor has the burden of accordance with the common
he
page 4 proof but, depending upon the business practice between the
circumstances, may be able to debtor and the creditor. require legal action to gain access
Get To Know void/avoid returning the money. For example, if the invoice to the debtor’s information. If two
Bill Frazier
page 5
The most common exception calls for “net 30” and all payments years ago, the debtor was paying
is “new value.” New value is in the recent past have been paid its bills to all creditors net 30, but
Introducing a contemporaneous exchange by the debtor net 30, then the in the last six months changed to
Cohen Professional of money, goods, services, or alleged preference payment might paying its bills net 90, a 90-day
Resources other property received by the not need to be returned by the ordinary course exception may be
page 5 debtor after the payment was creditor, as it was received the possible.
made to a creditor. Only the net same as other recent payments As a result of the Bankruptcy
News & Notes (the payment minus subsequent made by the debtor. Abuse Prevention and Consumer
page 5 shipment) can be voided by the There is also the ability to Protection Act of 2005, there are
debtor. assert that the common business two key restrictions on debtor’s
Proper Performance For example, on Aug. 1 a practice between the debtor preferential payment demands to
Management company ships $10,000 of goods and the creditor is controlling, help small business creditors.
Key to Success to the debtor. On Sept. 1, the irrespective of what was printed on 1. Only preferential payment
page 6
debtor pays the $10,000. Then, the invoice. Compare the invoice claims totaling at least $5,000 can
Comment on Sept. 15, the creditor ships date and the payment date for be asserted.
page 7 another $10,000 of goods to each shipment during the prior 24 2. Claims for more than
the debtor. On Sept. 30, the months. If the debtor consistently $5,000 but less than $10,000 can
debtor files for bankruptcy, owing paid “net 90,” even though the only be filed in the jurisdiction
$10,000. The debtor sends a invoices said “net 30,” you may be where the creditor resides,
letter demanding repayment of able to claim that ordinary course not “out of town” where the
the Sept. 1 payment, as it was between the parties is net 90. bankruptcy proceeding was filed.
made within 90 days prior to the Finally, the creditor can also Of course, it is never as simple
bankruptcy filing. You or your claim a common industry practice as these examples. There are
attorney responds with the “new or a common debtor practice. The numerous interpretations that can
value” defense noting that after latter looks to a trend in how the be made and keeping your
receiving the $10,000 Sept. 1 debtor was paying its bills before attorney’s number handy is in
payment, you shipped $10,000 filing for bankruptcy. This may your best interest.
www.cohencpa.com
2. PERSONAL
The Personal Page
ACHIEVEMENTS Advisory Board for the ANGELA INA, ANDREW STURGILL professional credentials.
Cohen & Company was Department of Accountancy at and JOSH SWANDER participated Congratulations to the
recognized by Accounting Today Xavier University. LISA LOYCHICK in the American Diabetes following individuals on their
as the 14th “Best Accounting was appointed trustee for the Association Walk. recent promotions; COURTNEY
Firm to Work For” in its Mahoning-Shenango Valley TRAVIS BOWER, JON DOMBRADY, BASKEY, ALY FRITZ, MATT LEWIS and
inaugural program. Cohen Estate Planning Council. JIM MEGAN MAST, JEREMY SMITH, MATT RICCOMINI to Senior, MELISSA
& Company was one of only STOBE was appointed Treasurer CASSANDRA TORCH, ROBERT VENABLES, BISH, BRETT EICHENBERGER and MIKE
two Ohio firms to make the of the Rocky River United AMBER WADE and MARIAN WEST McGIVNEY to Manager and KATSIE
distinguished list. The firm Methodist Church. hosted the Accounting Freshman O’NEILL to Cleveland Office
also was honored for its “Best ANGELINA MILO, TRACY MONROE Interest Group from Kent State Manager.
Practices at Work” by the and KIM PALMER spoke on University for a casual discussion Please join us in welcoming
AICPA’s Private Companies “Year End Tax Planning for about opportunities in the some new faces to the firm.
Practice Section. Corporations and Individuals” accounting field. TERRI ANDRUS and LAUREN DIX
Congratulations to ANGELINA at the Ohio Society of CPAs (Tax); BRITTANY BURNETT, MATT
CPE forum. In addition, STAFF HAPPENINGS McCALL and AMBER SINKOVICH
MILO on her acceptance into the
2009-10 class of Leadership Angelina presented at the The co-ed SQIF football (A&A); MARY JO HORTON and
Akron. University of Akron National team recently ended another JULIA ZOZULYA (Admin); GEOFF
Tax Conference on “Income Tax season with a very respectable MOORE (IT); BILL FRAZIER (Cohen
COMMUNITY Advantages & Disadvantages of 5-3 record and a trip to the Capital Advisors); SARA
In his expanding role with Partnerships & LLCs.” second round of the playoffs. GOLDEN (Cohen Professional
Cleveland State University, ROB WHITTALL, with insight Giving it all they had were Resources); and STEPHANIE
TONY BAKALE has been asked from KEN SMITH, was featured in BRANDY BURKARD, MARCY CONKLIN, HANAYIK (Sequoia Financial
to participate on the CSU the British American Business STACEY DIETZ, ANGIE FERENCHAK, Group).
Presidential Search committee Council’s Connect newsletter ALEX HOCKING, JULIE LOWRY, MIKE Our congratulations go out
and the CSU Football regarding the U.S. mortgage MAIMONE, LINDSAY MUNARETTO, to newlyweds, JULIE and Mike
Exploratory Committee. In crisis. ANDREW STURGILL, JOSH SWANDER, LOWRY (nee Mace).
addition, Tony spoke at CSU’s Several members of the DAVE TALENDA and JIM YEZBAK. Finally, a warm welcome to
December commencement, Firm participated in the ANDY FINGER and his wife, the newest members of the
welcoming the new graduates Accounting for Kids Day Judith, curated a traveling family, Nicholas Paul (ALANE
into the alumni association. program. LAINE BOFFEY, BRANDY exhibit regarding “Circles of and David BOFFA), Parker James
MIKE BOECKMAN was elected BURKARD, KRISTI CLINE, MARCY Life: Katsina Imagery in Hopi (FRANK and Lisa BUCKLEY),
President of the Bay Village CONKLIN, TONY CONSTANTINE, BRETT Basketry” at the Arizona State Leighton Marie (TREVOR and
Schools Board of Education. EICHENBERGER, ALY FRITZ, ANGELA Museum. Pam CHUNA), Brendan Matthew
ANNIE McCAULEY was elected INA, ALENA KASCHISZKI, JEN KRUEGER, COURTNEY BASKEY, AJ CHASKO, (BRIAN and Amy HAGERMAN),
to the board of directors ADAM MAGANA, NATALIE MAHER, JOE STACEY DIETZ, ALY FRITZand Carter Burley (JUSTIN and April
for Planned Parenthood MAHLENKAMP, MICHAEL MAIMONE, MATT RICCOMINI passed the RUSH) and Ethan Malachi (ADAM
of Northeast Ohio. MAURA TERI MELANI, LINDSAY MUNARETTO, CPA exam. ANDY FINGER, STEVE and LaShana TIMBLIN).
CORRIGAN was elected as MAKIA PHILPOTT, DAVE TALENDA, PIATAK and JOHN STARK earned
Chair of the Lake Hospital JOSH SWANDER and ROB WHITTALL the Certified in Financial
Foundation, and ADAM HILL was went to several area elementary Forensics Certificate (CFF)
elected President of the board schools and played games from the American Institute of PHOTOS:
of directors for the Boys & with the children to teach Certified Public Accountants. Brandy Burkard,
Girls Clubs of Lorain County. them fundamental concepts of Congratulations to all of Dave Talenda, Alane Boffa,
MARCY CONKLIN was appointed financial literacy. them for their continued hard Andy Finger, Marian West
to the Young Professionals SCOTT BERLIN, BRANDY BURKARD, work and enrichment of their
2 Cohen & Company
3. Madoff Scheme Emphasizes
Need for Due Diligence
The arrest of former NASDAQ
chairman Bernard Madoff has
further shaken the investment from the
community. If securities fraud is
proved, the $50 billion of losses
Desk of the CEO
would make it the biggest Ponzi
scheme in history. Love it or hate it, we are
While Madoff ’s scheme where we are. Being negative
or pessimistic will not help. If
was typical of a Ponzi in its
anything, it could make things
structure—paying returns to
worse. We need to move
investors out of the money forward in this crazy economy.
received from subsequent Part of doing so is to embrace
investors rather than from a positive perspective both in
profit—its strategy was regards to the world around you
unique. Rather than offering and, more importantly, to your
suspiciously high returns to own organization.
I look at Cohen & Company
an indiscriminate group of it. Despite investigations by may give investors defrauded
and am very proud of the
investors with whom he had regulatory authorities, it was by Madoff the most direct significant talent we offer in
personal relationships, Madoff not until the general market method for recovering some of today’s marketplace: corporate
offered modest, but steady downturn of 2008, which the money they have lost. The finance and restructuring to
returns to an exclusive clientele. motivated a larger than usual primary tax issues will be: (1) help clients carefully manage
It was not just direct investors number of investors to cash out claiming theft losses for the cash flow, working capital, bank
who were hurt. Many investors their positions, that the scheme money invested in the fund; covenants and overall capital
in portfolios of hedge funds, structure; human resource
collapsed. and (2) recovering taxes paid
management to help clients
known as funds of funds, were As a result of the Madoff on fictitious income reported
handle complex staffing issues;
victims as well. scandal, investment advisors by the fund. Taxpayers will personal financial planning to
By definition, a hedge fund and nonprofit boards can need to act quickly because help clients integrate personal
is a private investment fund be expected to come under certain refund claims must be liquidity needs with business
open to sophisticated investors increasing pressure to assure filed within three years. plans; and certainly, deep
and is permitted to undertake investors and donors that they Additional information on resources in financial reporting
a wider range of activities have a thorough due diligence the topics discussed in this and tax planning.
than other investment funds. I suspect that your
process. article can be found on our
organization is also well
Madoff exploited the lack While numerous lawsuits Web sites at www.cohencpa.com positioned to help your
of transparency and limited have been filed, the tax laws and www.cohenfund.com. customers navigate today’s
regulation characteristic of rough waters. Leave pessimism
these funds. behind; focus on what’s
Perhaps the most troubling “right” in your company,
CONTACT i NFO then roll up your sleeves
aspects of the alleged fraud are
For further discussion regarding specific Madoff or other Ponzi losses, please and get to work.
the willingness of investment contact Natalie Takacs at (440) 205-4814 or ntakacs@cohencpa.com.
professionals to place money
For assistance regarding fund due diligence procedures, contact
with Madoff without proper
Cohen Fund Audit Services partner Chris Bellamy at (440) 250-8527 or
due diligence and the failure of cbellamy@cohenfund.com
regulatory authorities to detect
3
4. TAXES
Economy Impacts Company Sponsored Retirement Plans
It is no secret that 2008 was UNDERSTAND HOW PLAN than $1,000. The maximum In times of market turmoil,
INVESTMENTS ARE PERFORMING
one of the worst years in COMPARED TO SIMILAR INVESTMENTS bond amount required with one of the most important
history for the stock market Many employers select a regard to any one plan is tools that can be provided to
with investors seeing a decline group of investments to make $500,000 per plan official, or employees is information.
in assets of anywhere from 20 available to their employees $1 million per plan official in The base level investment
to 40%. Company sponsored covering a number of asset the case of a plan that holds concepts of asset allocation,
retirement savings plans have classes, but do not monitor the employer securities. Further diversification, and risk
not been immune to this ongoing performance of the information can be obtained management have not
decline. As plan participants investments. Now, more than at www.dol.gov/ebsa. This is changed. The best resource
see their retirement assets ever, it is extremely important important because an owner that a plan sponsor can
decrease in value each time that a plan sponsor have an often acts as the trustee of a provide is education and
they receive a quarterly Investment Policy Statement company’s retirement plan information that will allow
statement, they may also see (IPS) and regularly compare and can be individually sued the employees to make the
their anticipated retirement actual performance to the by participants for breach of investment decisions best
date get later and later. guidelines set forth in the IPS. fiduciary responsibility. suited for each individual.
In times of crisis, an Your plan investment advisor And in no situation should
UNDERSTAND HARDSHIP
employee may turn to should be able to assist you WITHDRAWALS
the plan sponsor or company
desperate measures, including with preparing an IPS and Unfortunately, today’s representative give investment
legal action. As a plan in monitoring performance. economic conditions have left advice to employees.
sponsor or administrator It is the responsibility of the some employees strapped for
there are a number of plan fiduciaries to understand cash and, as such, there may
fiduciary responsibilities that CONTACT i NFO
not only the amount of fees be requests for a hardship For additional assistance with
you are required to fulfill. incurred, but to whom those withdrawal. It is important your plan, contact Marlene Piatak
Understanding and actively fees are being paid and if value to review and document at (216) 774-1182 or
monitoring plan activity can is being received for those hardship withdrawal requests. mpiatak@cohencpa.com or
reduce your risk for employee services. Employees must have an
Kevin Tichnell at (330) 255-4341
legal action. or ktichnell@sequoia-financial.com
UNDERSTAND THE FIDUCIARY
immediate and heavy financial
UNDERSTAND THE
BOND COVERAGE REQUIREMENTS need, such as medical
PLAN’S FEE STRUCTURE ERISA requires all persons, expenses, payments needed Sequoia Financial Group, LLC and
Typically, the plan or the to prevent eviction from Cohen & Company are separate
including fiduciaries, who
companies with similar (but not
plan sponsor pays a certain handle funds or other property their principal residence or identical) ownership interest.
percentage of the plan’s assets as of an employee benefit plan mortgage foreclosure, payment Fee-Based Financial Planning and
a management fee. But is this of college tuition, etc. Only Investment Advice offered through
(otherwise referred to as
Sequoia Financial Advisors, LLC, an
really all of the fees the plan is plan officials) to be bonded, the employee’s elective SEC Registered Investment Advisor.
being charged? Are there hidden unless they are covered by an deferrals may be withdrawn, Securities offered through ValMark
fees that aren’t being disclosed? not plan earnings. Also, the Securities, Inc., Member FINRA, SIPC
exemption. The Department
Are there similar investment of Labor has just issued participant may not make an
alternatives offered in the guidance, Field Assistance elective deferral or any other
marketplace that are available at Bulletin 2008-04, that covers voluntary contribution to
a lower cost? As the retirement questions relating to this the 401(k) arrangement or
plan industry changes and issue. Each plan official is other retirement plans of the
company demographics evolve, required to be bonded for at sponsor during the six months
the cost structure of a plan may least 10% of the amount he following the withdrawal.
become outdated. or she handles, but no less
4 Cohen & Company
6. BUSINESS
Proper Performance Management Key to Success
When faced with a troubled success of the organization.
economy, businesses of all sizes When developing these values,
often have no choice but to it is critical to define thoroughly
make tough decisions. Often, and ensure that staff is clear on
the first major move considered their meaning and can practice
is a reduction in staff. But in them to the organizations’
the end, while it may bring expected level. For example,
temporary relief to the bottom business owners often value
line, a staff reduction will not “integrity,” but what does that
lead to a prosperous enterprise mean? Ask yourself, “When I
long term. see someone with integrity,
In good, and particularly in what do I see?”
bad times, the attention given
to organizational performance ROLES: Simply put, role
is the difference between definitions are job descriptions
success, mediocrity, or failure. or complete descriptions of
The definition of duties and what someone does, the
activities, how well they are outcomes, and the time in
monitored and the feedback which things are to be
provided are the things that completed. When an individual
drive performance. A business outside the organization can
can maximize performance by understand a role by simply
carefully defining values, roles, reading the job description,
and goals, then establishing a then it is properly crafted. to be written with enough appreciate understanding the
regular feedback mechanism. information to not be full scope of their job, what to
GOALS: This is the list of misinterpreted, and clearly state expect, and what the company
VALUES:Even the smallest items that require additional or the “what” that needs to be expects.
organizations have unique special attention. Goals need to accomplished and the “when” Managing performance is
qualities that define or separate be clear, identifiable, achievable, it needs to be completed. arguably the single most
them from the competition. and most importantly, relevant Now, put it all together. important step a manager or
These values are the attitudes to the success of the organization. Many organizations prefer business owner can do to
and behaviors important to the Like a role definition, they need the concept of a “work promote the future success of
plan,” which combines the an organization.
organizational values, the
A staff reduction is a traumatic event for an organization that can lead role definition, and the
to various issues and may potentially expose a business to litigation if individual goals into a single
the proper steps are not followed. Careful consideration is necessary to
document. With a work plan CONTACT i NFO
determine if a protected group, such as those defined by age, race, sex,
in hand, an organization has For more information regarding
or national origin, is adversely affected. To this premise, matters such any of the information in this
yet another tool to aid in
as severance pay, benefits and outplacement need to be measured article, please contact Hugh Fisher,
performance management. At
to ensure no stone is left unturned. These and other matters must be Director of HR Consulting,
the end of the year, use the
reviewed before moving forward, as every situation is different and fact at (216) 774-1121 or
dependent. Business owners should consult an employment attorney or plan as part of an employee’s hfisher@cohencpa.com.
HR consultant before implementing these types of changes. annual review. Employees will
6 Cohen & Company
7. Comment Service Directory
This is one of those rare of and the access to our health down, no one can put self or Accounting, Auditing
& Financial Reporting
occasions when I had no care system? What are we party ahead of the national
Audits, Reviews and Compilations
problem deciding what to going to do with the estimated interest. Locally we need to
Budgeting & Cash Forecasting
write about, just where exactly 2 million foreclosures? How can reexamine issues such as having Business Advisory Services
I should start. On one hand, states and local communities 56 municipal bureaucracies in a Financial Projections and Forecasts
people are worried and trying to handle the reduction in their county that has less population Management & Internal
save money, while postponing revenue from declines in than a dozen cities. Control Reviews
or cancelling non-essential sales, payroll and real estate Another reason for my Tax Services
purchases. On the other hand, taxes? That still leaves us optimism is the incredible Business, Estate &
the government is encouraging with the illegal immigration number of creative new ideas Personal Tax Planning
spending and forcing banks to problems, declining educational that are being generated, Employment Benefit Plans &
Administration
loosen credit so individuals can performances, environmental especially in Northeast Ohio.
Executive Compensation Planning
borrow and buy more. Wait a issues, our crumbling Unlike prior years, a good
International Tax and Consulting
second, isn’t that how we got infrastructure and dependence percentage of these are being IRS Representation
into this mess in the first place? on Middle Eastern oil. funded and becoming the State & Local Tax Issues
Obviously, nobody knows the After reading the previous nucleus of many exciting new Tax Return Preparation
answer to all the economic issues statements you are probably companies. Furthermore, even
Consulting Services
that we have to cope with. Will thinking that I must be in though many of the country’s
Business Valuation
history repeat itself in the form the “glass half-empty” club. largest companies have become Buy-Sell Agreements
of the Great Depression when However, this is not the case. inefficient and/or greedy, our Cost Management
unemployment was at 25% and I know that, in America, the closely held businesses are as Executive Search
much of our population was time to be pessimistic is when flexible, responsive, customer Financial Management,
living in squalor? Although there everything is going great. Stock friendly and efficient as ever. Restructuring & Reorganization
are some real similarities, there prices soaring, homes bought Finally, I have some guarded Human Resources Consulting
are far more distinctions. In my with nothing that sky rocket optimism for how well our Merger & Acquisition Services
Ownership Succession Planning
opinion, the biggest difference in value, everyone maxing out new president will perform. By
Performance Measurement
is in the tools we have to cope multiple credit cards—that now, everyone knows his story,
Profit Improvement
with the problems. How we use was when we should have been but he also appears to have Strategic Planning
those tools is another issue. worried. As a nation we have quiet confidence and the right
The American people have not been good at addressing attitude. The most impressive Litigation Services
Bankruptcy & Reorganization
just chosen a new president. problems when voters are happy. thing he said in his election
Business, Asset &
Let’s talk about some of the We just won’t rock the boat. night speech was that he knows Matrimonial Valuation
issues Barack Obama must However, our record shows that 47% of the people voted Employment, Injury &
cope with immediately. that we can be resourceful and against him and he needs Wrongful Death Damages
Winding down the war in Iraq disciplined in time of crisis. to serve them as well. His Intellectual Property, Contract &
Business Interruption Damages
and refocusing on the war in I certainly don’t know what appointments seem to indicate
Partnership Disputes
Afghanistan somehow seem steps the new administration that he is really trying to bring
to be on the backburner. How will take to combat the myriad the country together. Now, if Related Companies & Services
are we going to deal with a problems hitting us, but I do we could only do something Cohen Capital Advisors, Ltd.
trillion-plus deficit? How are we know what all of us must do about those Browns… Cohen Fund Audit Services, Ltd.
Cohen Professional Resources, Ltd.
going to stem the almost certain collectively. First and foremost,
KGLC
increase in unemployment and we have to disregard political
Lanese & Associates
business failures? How are we expediency. On a national
Mercurio & Bridgford
going to address both the cost basis, from our leaders on Sequoia Financial Group, LLC
7
8. PRSRT STD
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1350 Euclid Ave., Ste 800 PAID
Cleveland, OH 44115 Cleveland, OH
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ADVi SOR
the
NO. 6 1 WINTER 2009
iNSIDE
Akron Columbus Youngstown
Madoff Scheme
121 S. Main St., Ste 300 495 Metro Place S., Ste 200 201 E. Commerce St., Ste 400
Emphasizes Need
Akron, OH 44308 Dublin, OH 43017 Youngstown, OH 44503 for Due Diligence
(330) 374-1040 (614) 707-5400 (330) 743-1040 page 3
Canton Mentor Economy Impacts
4684 Douglas Circle NW 8820 Tyler Blvd. Company Sponsored
Canton, OH 44718 Mentor, OH 44060 Retirement Plans
page 4
(330) 492-1040 (440) 205-1040
Proper Performance
Cleveland Westlake Management Key
1350 Euclid Ave., Ste 800 800 Westpoint Pkwy., Ste 1100 to Success
Cleveland, OH 44115 Westlake, OH 44145 page 6
(216) 579-1040 (440) 250-8540
AND MORE!
www.cohencpa.com
