Is your Business Protected Against Bank Cybertheft?

In the past few years, we have become increasingly aware of the potential threat in cyberspace that that our personal banking information could be obtained by so called “cybercriminals.” Most likely, if it has happened to you or someone you know, they were reimbursed for the fraudulent transaction from their bank as consumers. However, unlike consumers, business under the Uniform Commercial Code (UCC) could make it difficult to recover funds stolen from bank accounts leaving the victim (the business) to suffer the loss. One of the largest areas of concern, for businesses is the threat of a fraudulent electronic funds transfer (EFT). These thieves are mainly targeting small to medium sized business because of the ease of accessibility due to weak or non-existent controls. On August 26, 2009, the Federal Deposit Insurance Corporation (FDIC) issued an alert warning (FDIC SA-147-2009) that there has been an increase in reports of fraudulent EFT transactions resulting from compromised login credentials. The statement issued by FDIC specified how the cyber thieves maybe able to access accounts.

“Web-based commercial EFT origination applications are being targeted by malicious software, including Trojan horse programs, key loggers and other spoofing techniques, designed to circumvent online authentication methods. Illicitly obtained credentials can be used to initiate fraudulent ACH transactions and wire transfers, and take over commercial accounts. These types of malicious code, or "crimeware," can infect business customers' computers when the customer is visiting a Web site or opening an e-mail attachment. Some types of crimeware are difficult to detect because of how they are installed and because they can lie dormant until the targeted online banking session login is initiated. These attacks could result in monetary losses to financial institutions and their business customers if not detected quickly.” FDIC SA-147-2009

Generally, a business must notify the bank within two days of a fraudulent ACH transaction or the business may be liable for the loss. Identifying risks are key to understanding how vulnerable your business is to EFT fraud. Once the risks are accessed, the business can determine the appropriate steps (implementation of controls) to limit the risk.

Assessing your Business’ Risk for ETF Fraud?

Here are a few key items to consider when evaluating general fraud prevention: 1. Is your business in compliance with the bank’s recommended security procedures to facilitate a recovery of funds in the event of a fraudulent transaction? 2. What is the maximum dollar amount the entity could lose in a wire transfer, and does the business have insurance to cover that amount for fraud? 3. Has the business given proper education and/or training to key employees with online access so they understand the risks, how the fraud is perpetrated and the precautions they should take? 4. Does the business have security settings on computers to prevent malicious code (malware) from being installed into its systems?

Establishing Controls to Mitigate the ETF Fraud

Once you have determined the Company’s risks, a system of controls needs to be developed in order to limit that risk. The following is a list of potential controls in which might limit the risk: 1. Dedicate a computer or system for online banking, especially for EFT. If significant risk, use a computer that is not used for e-mail, web browsing, or other high-risk online activities associated with contracting malware infections. 2. Use an authentication with independent mechanism. For example, require login credentials and a temporary PIN sent to a pre-determined cell phone or a security code device (provided by the bank). This method makes attack more difficult because the authentication factor is not communicated through the compromised computer. 3. Segregate EFT controls so that one person performs online EFT functions, and a second person approves the transfer or verifies/reconciles that transaction. 4. Review bank accounts on a daily basis in order to detect unauthorized transactions timely. 5. Dedicate clearing accounts using “just-in-time” deposits. For instance, make deposits into a separate designated “EFT transfer” account from a different computer into that account just before a wire transfer. 6. Use “run as needed” bootable CD (such as the Ubuntu operating system) that cannot be contaminated by a virus or malware for the computer accessing online EFT. This is an FDIC recommendation.

There are many prevention and detection controls in which a business can implement into its day-to–day operations to protect from EFT fraud. However, selection of such controls is a tricky process. Too many controls can cause inefficiencies and have a negative impact on the business. Don’t hesitate to give dbbmckennon a call or email today, to discuss your particular business’ risks and potential internal controls in which you may implement to mitigate such risks.

Professor Michael McKennon (at least for a day)

On November 4, 2010, Michael McKennon was honored to be able to give back to his Alma Mater, California State University at Fullerton (CSUF), through the "Professor for a Day" program. This was the third consecutive year Michael participated in the program. Michael was allowed to speak with a “Critical Thinking” honors’ class filled with the exceptional freshman students at CSUF. “This was a very insightful and creative group of students I was able to share my time with. I asked each student what they are doing to make a difference in their respective fields to ensure they have opportunities upon graduation. Their answers were surprising; most students were actively involved in some regard, but they admitted that they could do more", said Michael. In addition, Michael communicated the need to make a difference in their respective fields by donating their time in academia and associations which enhance positions in their respective careers. At the end of the instruction, Michael had various individuals thank him for his time and the information provided. Once such individual added the following:

"Dear Mr. Michael McKennon:

Thank you for sharing your experiences today with my Critical Thinking Honors class. I truly appreciate your advise to start networking with teachers, peers, and possibly start looking into internships to get our names out there. You did not simply state that we have to or should network but you also explained why it is important to network. We, students, often hear from other people that we need to start networking since our first year of college to build strong relationships throughout our college years. Some students ignore this because they believe they have time to start in the next few years. Thank you again for taking time out of your busy day to give a truly motivational speech.

Sincerely,

Natassja Romero"

Based on the feedback and appreciation received, Michael is looking forward to next year's opportunity. Upon returning to work that day, Michael expressed the following to the firm personnel: "Sometimes we lose sight of our responsibilities as professionals to make a difference in our communities. I feel great reward in impacting these fine young honor students."

You can view Michael's Certificate here.

What You Need to Know About IRS Communications

Over the last several months, our firm has been receiving a substantial number of calls from clients in a panic because they had received an email notification from the Internal Revenue Service “IRS” stating that their filed tax return will be subject to an audit. The words “IRS” and “audit” are enough to ruin anybody’s day. The IRS will never initiate taxpayer contact via an unsolicited e-mail. All initial contacts are made via US Mail. In addition, the IRS does not use e-mail to discuss cases or to solicit sensitive personal financial information from taxpayers. If this happens to you, the official IRS website (www.irs.gov) has specific instructions on reporting suspicious e-mails or other unsolicited contacts for personal information. The above applies to most government entities including but not limited to the California State Board of Equalization, California Franchise Tax Board, etc.

The IRS website also has some helpful hints on how to spot an e-mail scam. Many e-mail scams are fairly sophisticated and hard to detect. Here are signs from the IRS to watch for if you receive a suspicious e-mail: • Requests detailed or an unusual amount of personal and/or financial information, such as name, SSN, bank or credit card account numbers or security-related information, such as mother’s maiden name, either in the e-mail itself or on another site to which a link in the e-mail sends the recipient. • Dangles bait to get the recipient to respond to the e-mail, such as mentioning a tax refund or offering to pay the recipient to participate in an IRS survey. • Threatens a consequence for not responding to the e-mail, such as additional taxes or blocking access to the recipient’s funds. • Gets the Internal Revenue Service or other federal agency names wrong. • Uses incorrect grammar or odd phrasing (many of the e-mail scams originate overseas and are written by non-native English speakers). • Uses a really long address in any link contained in the e-mail message or one that does not start with the actual IRS Web site address (http://www.irs.gov). The actual link’s address, or url, is revealed by moving the mouse over the link included in the text of the e-mail.

For those who have received a questionable e-mail claiming to come from the IRS you may forward directly to IRS. The information will assist the IRS track the suspicious e-mail to its origins and ultimately help shut down the scam. Please don’t hesitate to give dbbmckennon a call or email, to discuss any of your concerns or if you are actually subject to an IRS, California State Board of Equalization, California Franchise Tax Board, etc. audit.

What is the difference between a Certified Public Accountant (CPA) and Enrolled Agent (EA)?

For you or your business, the difference could be significant or inconsequential depending on the services you require and the experience of the professional. If you look at statistics alone, you will find there are more CPA’s in the United States than EA’s. This may lead you to believe that an EA is the more desired and difficult designation to attain; and therefore, the more valuable designation. In reality, the reason there are more CPA’s is because CPA’s can specialize in different areas (audit, income taxes, consulting, etc.), whereas EA’s only prepare basic income tax returns, primarily for individuals as opposed to corporations, trusts and estates. A CPA has general accounting and business knowledge along with a specific specialization. A CPA that specializes in income taxes will often have expertise in taxation of mergers and acquisitions, complex income tax matters, as well as multi-state tax compliance. To become an EA, you must either take a written exam based on the tax matters or have the required past experience with the IRS. A CPA on the other hand is required to have a minimum of 120-150 credit hours (differs by state) of higher education (university level), work experience in the field, and pass four rigorous exams within 18 months, which cover various subjects including: financial and cost accounting, taxes, regulation, general business, economics, IT in business, and others. Both are required take continuing education to maintain their status, which should keep them up to date on the latest trends and regulations.

But what is the difference to you the individual or small business owner?

If you are starting, or already have, a business and require annual income tax returns, tax planning, and business guidance on matters, then a CPA is likely your best choice. In addition, you may want to consider a CPA that is part of a full-service CPA firm, where there are multiple CPA’s with varying specialties including: income taxes and IRS representation, technical accounting and assurance services and consulting. Choosing a full-service CPA firm, will ensure that all your business needs can be serviced continually one firm. EA’s cannot perform assurance services, such as a compilation, review or audit of your company’s financial statements.

When determining the services you require, consider interviewing the professionals to determine their knowledge and expertise.

The IRS and Offshore Accounts

On July 15, 2010, Switzerland’s Federal Administrative Court issued a ruling rejecting a UBS account holder’s complaint that sought to prevent the release of her account information to the U.S. tax authorities. This ruling signifies the beginning of the end of the era of offshore bank secrecy. The Swiss banking system has long been a thorn in the IRS’s side. The Swiss’s bank secrecy laws provide that all account information is confidential and cannot be turned over to government officials unless a criminal act has been committed. The July 2010 ruling was in response to an agreement struck in August 2009 between the U.S. and Switzerland that sought to put an end to such practices. Under the deal, UBS agreed to provide the IRS with the names and account information of 4,450 Americans who housed as much as $20 billion in offshore accounts. The names were provided to the IRS by UBS in November 2010.

Expiring on October 15, 2009, the IRS offered a limited voluntary disclosure agreement ("VDA") program under which taxpayers were offered reduced penalties and exposure to a criminal indictment, if they came forward and voluntarily disclosed their previously unreported assets and income from foreign accounts. However, any individual included within the list provided by UBS in which had not begun the VDA program faces a high probability of facing significant penalties and potentially a criminal investigation.

This recent win is another notch under the IRS’s belt in its constant battle against tax evaders. The implications of the cooperation by the UBS and the Swiss government are vast. It is highly unlikely that the IRS will stop its crusade there. The IRS has shown time and time again that it is not a force to be reckoned with. As Ben Franklin famously said, “Two things in life are certain: death and taxes.”

The IRS requires any U.S. citizen or resident who owns a foreign financial account with a fair market value in excess of $10,000 to be reported annually on Form TDF 90-22.1. If you find that you have a foreign bank account in which has not been reported please contact us so that we may discuss the options in which you have. Over the past couple of years, dbbmckennon has represented various individuals in declaring foreign investment accounts and assisted in the preparation of the required forms.

Contractor or Employee?

One significant topic that consistently comes up….should an individual be classified as a contractor or an employee? Based on the IRS’ definition, the three aspects in determining whether an individual is a contractor or employee revolve around behavioral control, financial control, and relationship of the worker and firm. The IRS and other tax collecting agencies are auditing these classifications more frequently because the classification as an employee generally results in more income taxes by the employee and employer. The employment taxes, interest and penalties which may be assessed for incorrectly classifying an individual as a contractor will be significant. In addition, the misclassification of workers also opens the door to private causes of action from workers such as back pay, overtime pay, lost benefits and liquidated damages. The following is a brief outline of the factors that make up the three aspects:

Behavioral Control: - Do you train or instruct the worker? - Where does the individual perform services (onsite, offsite, etc)? - Does the individual work a fixed or variable amount of hours? - Can they hire for the company and who pays the hired individuals?

Financial Control: - Who provides equipment needed to perform work? - What expenses are incurred by the worker? - Is the pay fixed or variable based on other factors? - Does the firm carry workers compensation insurance for the individual? - Who has economic or financial risk?

Relationship of the Worker and Firm: - Does the worker receive benefits (i.e. Vacation, 401(K), etc)? - Does the worker provide services for other employers? - How does the firm represent the worker to customers?

There are often no bright lines in making your determination. For more guidance from the IRS, you can review the following link. If you wish to confirm a classification, you may request a free SS-8 determination letter from the IRS. If your company becomes the subject of an IRS audit, please contact us .

SOX 404(b) is Officially Dead for Small Business Filers!

Good news for small public companies, SOX 404(b) is dead! On July 21, 2010, the exemption from SOX 404(b), for public companies with less than $75 million in market capitalization was signed into law by President Obama. Since SOX was introduced in 2002, small public companies have experienced delays in the effective date of SOX 404(b), which requires auditors to attest to the design and operating effectiveness of internal controls. Each year we watched as the deadline for compliance extended for another year. When the House approved a version of its bill earlier this year, which included provisions to reverse 404(b) compliance for smaller reporting companies, we wrote our US Senators Boxer and Feinstein to support such provision to remove compliance with 404(b) for smaller reporting companies. Our position was contrary to our audit and accounting industry, its professionals and partners, as well as its powerful associations. Our position was contrary for various reasons, none of which took any consideration of the lost opportunity fees our industry would have enjoyed had 404(b) for smaller reporting companies not been repealed.

But don’t get too excited, SOX 404(a) is still in effect for all public companies. SOX 404(a) requires management to conduct a review of internal controls over financial reporting and document your processes and findings.

Here is a brief description of what you should consider based on your company size.

Management of public company with less than $75 million in market capitalization: Continue to conduct internal review of controls, as you will need to conclude on the effectiveness of those controls in 10-K’s and 10-Q’s. Be aware of future growth of your company and its stock price through organic growth or M&A activity, and consider the fact that you may have to be compliant with SOX 404(b) at some point. If a material weakness is discovered by the auditor the company will still be required to report the deficiency in its quarterly and/or annual reports and their remediation plan for such.

Management of Public company with over $75 million in market capitalization: Stay tuned to additional changes as studies are being conducted to determine the benefit of SOX 404(b) to companies with market caps between $75 and $250 million. Such studies could result in companies with higher market caps also being exempt.

Private companies looking to go public through mergers, acquisitions, or reverse mergers: Consider what your market capitalization may be based on your IPO, reverse acquisition, etc. If you are planning on selling your company to a public company or taking it public, know that private companies with strong internal control framework are usually more valuable than those without it.

All Companies: As part of an audit, an auditor is REQUIRED to conduct a walkthrough of your internal controls to assess where risks may be and to identify potential weaknesses in controls. If deficiencies are detected they are REQUIRED to inform you. Use this information to strengthen your company.

Don’t hesitate to give dbbmckennon a call or email today, to ask us about how SOX 404(a) and the exemption to 404(b) impacts your company, especially if you are considering a reverse merger, acquisition, or other entity altering transaction. We would be happy to help answer your questions or assist you in compliance in order to put your company on a path to success.

What is an S Corporation?

By Lynne Bolduc of Oswald & YapContact Lynne Here

An S corporation is a form of business classified for federal income tax purposes as a corporation that has elected to be taxed as a pass-through entity, in a manner similar to a partnership or sole proprietor. Unlike a regular corporation, or C corporation, an S corporation (both names derive from sections of the Internal Revenue Code) generally is"not subject to federal income tax. Instead, its income is reported on the tax returns of its shareholders, and they have the responsibility for paying the tax. If there are losses suffered by the corporation, they also pass through and are reported on the shareholders' income tax returns.

Because only the shareholders, and not the corporation, are taxed, S corporations avoid the problem of double taxation associated with C corporations. This is the biggest drawback for creating an S corporation, particularly for closely held corporations.

Shareholders in an S corporation, like shareholders in a C corporation, generally have limited liability arising from corporate matters, even though they pay taxes as if they were partners or sole proprietors. In addition, when the corporation eventually is sold, there can be reduced taxable gains, as compared with the sale of a business operating as a C corporation.

On the downside, the limitation on classes of stock in an S corporation provides less control over the company and the value of its stock. Potential outside investors likely will not be attracted by the pass-through tax characteristics of an S corporation, nor by the limit on the number of shareholders. Although corporate taxes are avoided, there is still a requirement for filing an informational tax return every year for a corporation with more than one owner. Finally, if avoiding formalities is an important consideration, it should be noted that, like any other corporation, an S corporation must follow the requirements for having regular meetings and keeping company minutes. The balancing of the advantages and drawbacks of S corporation status in any given case is sufficiently complex that it is advisable to seek professional advice before making this important choice.

Is a Reverse Acquisition right for you?

One of the more popular ways for a small business to go public is through a reverse acquisition. A reverse acquisition allows private companies to go public without a number of regulatory requirements present in a typical IPO. A typical IPO can take at least six months to complete and require hundreds of thousands of dollars in professional fees due to the comment and review process with the Securities and Exchange Commission. A typical reverse acquisition, involves 100% of the private company’s stock or equivalent being acquired for a large equity stake in the public company, generally over 90% but can be as low as 40%. Generally, the public company is known as a “shell corporation” in which has limited or no operations. The two businesses are then merged using the private company’s products with a public company’s structure.

One of the biggest factors in considering whether or not you have a reverse acquisition is who controls the public company after the transaction. In cases where the private company’s shareholders own less than 50% of the public company, analysis of operational control, board control or other factors impacting control must be conducted. We have experienced reverse acquisitions where private company shareholders control 40% of the public company stock, and the board is controlled or evenly controlled by the private company’s management. Thus, control is maintained by the private company.

A reverse acquisition, with a public company will cause a change in reporting entity which, in effect, causes the financial statements of the public company to be eliminated and replaced with those of the private company for all previously reported periods which are included in future filings with the SEC; no previously filed reports of the public company are required to be amended and re-filed. A change in reporting entity is generally a preferable reporting requirement because the readers of the financial statements can see comparable amounts in the interim and annual reporting by the public company. Alternatively, in a forward acquisition, the private company’s financial statements and results are included only from the date of the acquisition forward.

One of the key requirements to a reverse acquisition is that an 8-K, commonly known as a Super 8-K, needs to be filed within four (4) business days of the acquisition date. The 8-K will include information similar to that of a standard 10-K, including audited and reviewed financial statements of the private company. All future public filings will present the historical financial statements of the private company as if they acquired the public company.

If you are considering a reverse acquisition it is extremely important that you obtain proper guidance from a securities attorney and an experienced auditor. One of the major delays in closing a reverse acquisition is obtaining the required audits and the completed 8-K. At dbbmckennon we have conducted numerous audits in connection with reverse acquisitions. If you are contemplating a reverse acquisition to take your private company public, please contact us to discuss if this is the right method for you.

1099 Changes Are Coming

Included within the 2010 Health Care Reform Bill were substantial potential changes to the current 1099 reporting requirements. Some of the key changes are as follows: • The corporate exception is ending and, with few exceptions, all corporations will need to be reported on Form 1099-Misc for payments made after December 31, 2011. • Payments for property (goods) will need to be reported on the 1099-MISC if at or above the familiar $600 annual payment threshold. These changes are effective for all payments made after December 31, 2011. • Establishment of Form 1099-K which aims targets currently hard-to-track payment stream: credit cards. Starting in 2011, financial firms that process credit or debit card payments will be required to send their clients, and the IRS, an annual form documenting the year's transactions.

So how large of an impact will this have on small businesses? No one currently knows; however, the accumulation of payee data will be the area where companies will need to devote additional time to comply. Assuming the $600 threshold is met, all vendors will have to provide their name and taxpayer identification number, generally on Form W-9. Currently, many companies required such information and report payments made for services. The new law includes reporting for amounts paid for goods. For instance, a 1099 will be required to be issued if you purchased a computer at a local retailer. However, there appear to be benefits of the change due to the $600 “bright line” for all payments. Another key change is that financial firms that process credit or debit card transaction will now be required to provide that information on Form 1009-K. What does this mean? All payment processors, including Paypal, eBay, Amazon, etc that service individuals and very small businesses will be providing information to the IRS regarding processed transactions. The goal of the new regulations is to capture income that is unreported to the IRS. This requirement has the potential to cause significant tax issues for various individuals and small businesses who conduct ecommerce transactions without reporting the income. Could the impact be as big as recent Foreign Disclosure (UBS, etc.) rules? Only time will tell.

Please note that final regulations are still be interpreted by the IRS and will likely not appear until next year. However, we have been guiding our clients at dbbmckennon to be aware as the reporting requirements will affect substantially all businesses in the US and doing business in the US. Please contact us if you have any questions.

dbbmckennon moves its Orange County office to a new location within Newport Beach, CA

Newport Beach, CA –dbbmckennon moved its Orange County office to: 20321 SW Birch Street Suite 200 Newport Beach, California 92660

All other contact information including phones and email will remain the same.

Our new building provides for our future growth, and enables us to incorporate the latest technologies and space efficiency to achieve cost effectiveness. For more information, contact dbbmckennon at 949-203-3010 or info@dbbmckennon.com.

dbbmckennon is a full service public accounting firm in which was established to provide tax, attestation and consulting services to individuals and businesses through our two offices located in Southern California. Our partners have represented hundreds of small businesses and audited over a hundred smaller reporting public companies in the United States and abroad. We deliver high-quality professional services, in a timely manner, and focus on providing value to our clients. Our technical skills rival those offered by our strongest competitors, which enable our clients comply with the rules and regulations of our profession. We take every engagement seriously with the expectation that our clients will be completely satisfied with our performance. In addition, the firm has a highly competitive fee structure for the Southern California market. We take every engagement seriously with the expectation that our clients will be completely satisfied with our performance and fees. Our rate structure is intended to be the most competitive in light of the current economic conditions.

dbbmckennon now registered with CPAB

dbbmckennon recently received notice from the Canadian Public Accountability Board ("CPAB") that it has been added to the CPAB's list of participating audit firms. The CPAB is Canada's version of the Public Company Accounting Oversight Board ("PCAOB") here in the United States. The CPAB was formed in 2003 and oversees auditors of Canadian reporting issuers. Generally their jurisdiction covers all companies that have raised funds from the Canadian investing public and who, for that reason, must file financial statements with one or more provincial securities commissions.

dbbmckennon is a full service public accounting firm in which was established to provide tax, attestation and consulting services to individuals and businesses through our two offices located in Southern California. To contact dbbmckennon click here.

Time Management and Small Businesses

As a small business owner your job description is likely, President, CEO, Chairman of the Board, Receptionist, Janitor, HR Manager, Payroll Manager, and Salesman.  To complete all these functions, one must be a master of time management or have the ability to function on little sleep.  Whether you live to work, or work to live, you can probably start with these basic principles and suggestions to start living more and working less.

1. Delegate – Being lazy isn’t always a bad thing.  You hire employees to do work, so let them earn their paycheck.  When looking to delegate, ask “can someone else do 60% of this project”?  If the answer is yes, then try delegating the project.  If you only need to be a part of 40% or less of the total project time, then it is likely going to be beneficial to delegate the work.  Make sure to build in time to check-in, answer questions, and review along the way.  In addition, require a deadline for delegated work that gives you enough of a buffer to correct anything that was done wrong before the actual deadline arrives.  This will ensure success and timeliness of any project delegated.
2. Consolidate – If you have multiple businesses you may have multiple professionals you consult with for each company.  Instead of using multiple lawyers, CPA’s, insurance agents, PR firms, etc… use the same for all companies you own.  Try to find professionals who have close relationships with each other.  If you lawyer needs a tax return, wouldn’t it be easier if they called or emailed your CPA directly?  If you have a good relationship with a professional, ask for references to professionals they know and trust.  Creating a close network of advisors will save you time and anxiety.
3. Automate – Let technology work for you.  Eliminate paper time cards and reports and implement an electronic time tracking system that your payroll manager can efficiently review.  Leverage your workforce to create templates that will streamline processes.  Download financial transaction from your credit card companies and banks into your financial reporting system.  Anything that will save your employees time, will allow you to shift more responsibility to them and off of you.
4. Outsource – Tired of being on the phone with your IT guy every week about terms you don’t understand?  Server crashed?  Virus infiltrated your employee’s computer causing your system to crash?  Having to pay for new servers and firewalls?  Why deal with this headache and ultimately the associated expense.  Look into cloud computing. By outsourcing much of your technologic needs, you can reduce risk to your business, save money, and increase efficiency.  No more lengthy calls to the IT guy is like Christmas in July.
5. Stay Organized – A little up-front work will save you time down the line.  Clean work areas correlate to organized minds.  Being able to find something quickly will reduce frustration and inefficiency.  Create a filing system that is easy for both you and the people who assist you.  Try to end each day by organizing your desk, paperwork, email, etc.  This will help you start the next day smoothly.

With these tips, make sure that your time away from work is equally as important as your time at work.  Allowing yourself a little time off at night or on the weekends will help you to focus on work when the time comes.

At DBBM, we work with many small business owners who benefit from a few of these tips.  As trusted friends and advisors, we want to make all of our clients’ lives easier.

Mini golf, little kids, BIG VISION

On March 24, 2010, dbbmckennon joined other prominent San Diego businesses in sponsoring an event benefiting the One Small Voice Foundation. The event, which took place at the Strategic Business Communications, Inc.’s office, consisted of nine mini golf holes constructed by each sponsor. dbbmckennon was the sponsor of the first hole. The event was attended by approximately 80 golfers and raised over $2,500 in proceeds of which 100% was given to the One Small Voice Foundation. We would like to thank Jim Hernandez and Strategic Business Communications, Inc. for allowing us to be a part of this fun and unique event. The One Small Voice Foundation strives to give a voice to all children with Optic Nerve Hypoplasia and Hydrocephalus through the education of others regarding these disorders and through direct support of research efforts.

dbbmckennon moves San Diego office

Effective immediately, dbbmckennon has moved its San Diego location to: 12790 El Camino Real, Suite 130 San Diego, California 92130

Previously the San Diego office was based in Solana Beach. The new office is located in the heart of the Del Mar Business Park and will allow dbbmckennon to expand its staff and operations. The new office is centrally located amongst our clients and associates throughout San Diego County.

What’s the Cloud?

Cloud computing is Internet - ("cloud") based development and use of computer technology ("computing"). In concept, it is a paradigm shift whereby details are abstracted from the users who no longer need knowledge of, expertise in, or control over the technology infrastructure "in the cloud" that supports them. It typically involves the provision of dynamically scalable and often virtualized resources as a service over the Internet. The term cloud is used as a metaphor for the Internet, based on how the Internet is depicted in computer network diagrams and is an abstraction of the underlying infrastructure it conceals. Typical cloud computing services provide common business applications online that are accessed from a web browser, while the software and data are stored on the servers.

These services are broadly divided into three categories: Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS). The name cloud computing was inspired by the cloud symbol that is often used to represent the Internet in flow charts and diagrams." (source wikipedia)

Why be in the Cloud?

The whole point of having a wireless enterprise infrastructure is to increase mobility, reliability, security, reduce hardware and IT consulting costs, and ultimately your software licensing costs. Yet for many enterprises, they use wireless LANs (WLANs) that require an on-site server(s) which occupy space, require field maintenance and repair, and can be stolen.

dbbmckennon and their preferred IT networking vendor is now aiming to change the wireless management paradigm with a new cloud-based Software-as-a-Service (SaaS) offering.  Can you imagine reducing your hardware costs by about 50% alone?  IT consulting costs too?  dbbmckennon will join this vendor to ensure client transitions seamlessly with integrity and security. 

Benefits of the Cloud!

• Improve company performance – Applications run real time and give your entire management team the ability to quickly view, understand and take action to respond to changing business conditions.  Improves effectiveness and efficiencies in the organization.
• Allows remote access – at high speed from anywhere in the world.
• Dramatically reduce IT and operating costs – Reduce your costs of servers and desktop computers, and probably printers.  You maintenance costs for computers and servers is substantially eliminated.  You will not need an air conditioned, dedicated server room once on the cloud.
• Reliability – In today’s data centers are extremely reliable.  These are the same data centers that fortune 100 companies utilize.  No more rebooting your company server and server downtime, as well as costly IT field maintenance.  A reliable internet connections can be found anywhere if your primary connection fails.  Back ups are imagined real time, thus no tape, disk or on-line back is needed.
• Security – Secure networks on offices are generally much more vulnerable to damage and theft. Redundant systems and data encryption protect data from loss and intruders.  The cloud greatly reduces documents sent via email, which are often not secure.  Netbooks, not  laptops, will be used by sales and field personnel; Netbooks have no confidential data stored on them if lost!
• Going Green – The cloud reduced paper, postage and handling costs.  Since you documents and files are maintained electronically, storage space is greatly reduced.

Please contact us if you have any questions or would like additional information.

Year of the…Roth?

The 2010 year presents a unique opportunity for high-net work individuals.  Prior to 2010 most individuals making over $100,000 per year, were restricted from converting a Traditional IRA or 401(k) to a Roth IRA.  However, 2010 presents an opportunity to those previously restricted. Not only will high earning individuals be able to complete these conversions during 2010, they will also be able to do so without incurring the normal 10% penalty for early withdrawal, and the tax burden can be deferred over a two year period (2010 and 2011 tax years). 

So why is this important to you as a high earning individual?

Let’s face it; taxes aren’t going down in the foreseeable future.  With increasing federal and state deficits and additional programs being proposed on a daily basis, there is more of a chance taxes will increase over the long-term as opposed to them decreasing.  Thus, taking a smaller hit now may be more beneficial than taking a larger hit down the road depending on the circumstances.

Also consider this: the market is still down from its high in 2007 and is at approximately the same level it has been for the past five years.  Taking that into consideration, any money put into a pre-tax account during that time frame, will likely have little if any capital gains to pay taxes on

So who would benefit from this most?

Not considering other factors unique to each individual, people that stand to benefit the most are:

• Wealthy Individuals
• Those seeking to reduce estate settlement
• Individuals who won’t need to draw income from converted accounts
• Young high-earners
• Those who believe their tax bracket will be higher in retirement

The kicker in all of this is (and golf fans will love this), you get a mulligan.  If for any reason you regret the decision or it becomes a bad decision due to market fluctuation, you can reverse the transactions without any tax consequence within six months of the tax return due date (i.e. April 15, 2011 due date would give you until October 15, 2011). 

Here at dbbmckennon we would be more than happy to answer any questions you may have about these conversions, the tax consequences, and discuss what is in your best interest as a unique individual.  We can also refer you to one of our trusted financial advisors, who can assist you in a Roth conversion; even if you don’t have one set up yet. 

Plan today, to give yourself a brighter future tomorrow.

Should I care about my firms PCAOB inspection report?

To audit public companies our Firm must be registered with the Public Company Accounting Oversight Board (“PCAOB”), the watchdog of the public accounting industry. For us smaller firms, the PCAOB is required to inspect our audit work papers at least once every three years. Believe us, these inspections are not very easy as the inspectors critically analyze and challenging key areas of the audit work papers. The process is time consuming and stressful. At the end of the process, a report is issued identifying their findings. The report is available to the public through the PCAOB’s website. Although the PCAOB members have repeatedly stated that the inspection reports are not designed or intended to rate accounting firms according to a scorecard. We at dbbmckennon believe that at times these reports can provide a rough bearing as to the quality of your independent auditor, especially for the small/medium firms. You can find your firms inspection report here. The most important area of the report is section A “Review of Audit Engagements”. Within the section, the PCAOB highlights areas in which they have identified audit deficiencies. Meaning areas in which the firm did not adequately document their audit procedures. Generally, a firm might expect to get one or two comments regarding its work papers. Anything in excess of this might be a cause for concern.

Being a member of the PCAOB is a privilege not a right. The PCAOB has the power to rescind a firm’s registration within the PCAOB. Upon rescinding, all of the firm’s audit reports will be deemed invalid, thus requiring the company’s financial reports to be re-audited by a new firm.  For an example of an action against a firm, see the disciplinary release on Moore & Associates.

The answer to our questions is YES!  At dbbmckennon we pride ourselves on the timeliness and quality of services we provide.  If you have any questions regarding your firm’s report or the inspection process and how it might impact you, feel free to contact us.

Audit, Review and Compilation – What is the difference?

The difference in each is significant. In most cases, audits, reviews and compilations are necessary to comply with the requirements of banks and lending institutions, suppliers, regulatory agencies or others who rely heavily on the information contained in your financial statements. Depending on the level of assurance required will determine the type of report needed.  The services discussed below may only be performed by certified public accountants, which are registered to do so.  Such firms are subject to quality review inspections.  dbbmckennon, certified public accountants, are registered to perform these services. An Audit provides the highest level of assurance involving gaining an understanding of the internal controls, a critical review of financial analytics, the testing of source documents such as sales orders and disbursements and an independent verification of financial information through third party confirmations. An audit results in an independent opinion from a certified public accountant attesting to the fairness and accuracy of your financial statements and the representations they contain. Audits provide the "highest level of assurance" about the reliability of your financial statements.

A Review is an evaluation of your financial statements through obtaining knowledge of the business and industry, making management inquiries, analytical procedures, and in some cases performing a limited amount of substantial testing. The scope of a review is less than an audit, and thus, the report issued provides "limited assurance" that nothing came to the certified public accountants attention that would require modification. In addition, the financial statements are clearly marked “unaudited”.

A Compilation requires the certified public accountant to obtain an understanding of your business in which your company operates, as well as the basic accounting function and those involved. A compilation is the assembling of financial data from your accounting records and presenting, in the form of financial statements, information that is the representation of management without undertaking to express any assurance on the statements. A compilation provides the assistance needed for you to prepare meaningful financial statements in which the certified public accountant provides no assurance. In addition, the financial statements are clearly marked “unaudited”.

A compilation may be prepared on a basis other than generally accepted accounting principles, such as a cash-basis financial statement.  A compilation may include notes to the financial statements or no notes at all.  The form of compiled financial statements depends on the requesting party or your particular needs.

Please contact us to assist you in evaluating your financial reporting needs and determining which level of service you require.

Is SOX 404 dead?

On November 4, 2009, the House Financial Services Committee approved the Investor Protection Act (H.R. 3817). Included within the Act was the exemption from SOX auditor attestation requirements for small businesses. Specifically, the Act was amended by the committee to exempt permanently companies with a market capitalization of less than $75 million from the Sarbanes-Oxley Act requirement that auditors attest to management's declaration that their internal controls over financial reporting are effective. However, the legislation still has to move through the House and Senate. We immediately provided a hopeful update to our clients, before many Registered Public Accounting Firm were even aware of the Committee approval.

Although it appears the requirement for auditors to attest to management's declaration that their internal controls over financial reporting are effective is well on its way to the grave. The Act does not change the requirement that all public companies must document, test and report on the adequacy of the company's internal control over financial reporting.  Sorry!  Until further notice, SOX 404 is still required for smaller reporting companies with fiscal years ending after June 15, 2010.

Since 2004, members of dbbmckennon have been assessing, documenting and testing internal controls. Our members have worked with some of the largest companies in Southern California. Please contact either Michael McKennon or Russ Boyer if you have any questions.