Fall 2010 issue of Horizons

horizons A Publication of RubinBrown LLP Fall | 2010

Growing Business Your RubinBrown Expands to Denver How Healthcare Reform Will Affect You and Your Business Acquisition Strategies: Do Your Financial Due Diligence!

Table Of Contents

Chairman James G. Castellano, CPA Managing Partner John F. Herber, Jr., CPA Denver Office Managing Partner Gregory P. Osborn, CPA Kansas City Office Managing Partner Todd R. Pleimann, CPA Editor Dawn M. Martin Art Director Joe Ebeler Horizons, a publication of RubinBrown LLP, is designed to provide general information regarding the subject matters covered. Although prepared by professionals, its contents should not be construed as the rendering of advice regarding specific situations. If accounting, legal or other expert assistance is needed, consult with your professional business advisor. Please call RubinBrown with any questions (contact information is located on the back cover). horizons A publication of RubinBrown LLP Fall | 2010

Features 2

Welcome From The Managing Partner

3 7 9

RubinBrown News Chairman’s Corner

Baker Tilly International Update RubinBrown Expands To Denver

11 15

How Healthcare Reform Will Affect You and Your Business

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Acquisition Strategies: Do Your Financial Due Diligence! Service Organization Control (SOC) Reports Trends in Retirement Plan Administration – Common Mistakes

23

27

65

Timely Reminders

Industry-Specific Articles 31 Automotive Innovative Compensation Plans For Salespeople 33 Real Estate Housing Conference Stirs Renewed Optimism 37 Home Builders Building Trends For Today’s Changing Market 40 Hospitality & Gaming

RubinBrown Gaming Survey Predicts Continued Growth for Regional Industry

43

Manufacturing & Distribution Is Your Company Focused on Innovation?

46

Media & Entertainment: Issues In Media Management

49

Not-For-Profit IRS Poised To Increase Examination Activity Of Not-For-Profits Public Sector/Colleges & Universities How the Revisions to the Single Audit Rules Affect You Contractors Increasing Revenues in the Government Marketplace

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57

61

Professional Services Tax Issues for Engineering Companies

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Growing your business. Isn’t this a strategic priority for all of us as businesspeople? At RubinBrown, we’re proud of our steady and stable growth over the years, especially during tough economic times like we’ve experienced the last two years. Certainly, the most visible indicator of our growth is our recent addition of our Denver office. Since we successfully moved into the Kansas City market in 2005, we have been working toward further expansion geographically throughout the nation. Without a doubt, Denver is a robust and dynamic market and our due diligence process guided us to an extraordinary firm named Saltzman Hamma Nelson Massaro. This century-old firm shares many attributes with RubinBrown—an unwavering commitment to exceptional client service, deep roots to their community, and a number of third- and fourth-generation clients. The combining of RubinBrown with Saltzman Hamma Nelson Massaro provides both firms with opportunities to learn from our each other and work collectively to position us as market leaders. The greatest benefit of our growth is to you, our clients. Our growth paves the way for more resources and talent, which translates to additional ways and innovative ideas to help you and your business flourish. As always, I personally welcome your feedback on this issue of Horizons and, overall, on your business views. Please email me directly at john.herber@rubinbrown.com . Welcome fromRubinBrown’s Managing Partner

John F. Herber Jr., CPA Managing Partner

Pleasant reading,

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News

RubinBrown Around Town

St. John’s Mercy Mardi Gras Masquerade Event To benefit St. John’s Mercy Foundation in St. Louis, RubinBrown sponsored the 2010 Mardi Gras Masquerade Mystery Tour. Hundreds of community

Cardinal Glennon’s Bob Costas Benefit

leaders gathered in St. Louis to raise money for the hospital and enjoy the whimsical spirit and music of the Beatles with the festive ambiance of Mardi Gras.

RubinBrown proudly served as a gold sponsor for the 22nd Annual Cardinal Glennon Children’s Medical Center Bob Costas Benefit in

St. Louis. This annual event, held on April 17 at the Fox Theatre in St. Louis, provides funding for the Bob Costas Cancer Center, which has been treating children with cancer and blood disorders since 1998.

mystery tour

BBB Torch Awards RubinBrown is one of twelve St. Louis companies to be honored with the Better Business Bureau’s TORCH Awards, which recognizes excellence in customer service, employee relations and ethical business practices.

RCGA Top 50 Awards

RubinBrown is proud to once again serve as presenting sponsor of the St. Louis Regional Chamber and Growth

Small Business Monthly’s Top Women’s Business Owners Luncheon

Association’s Top 50 Businesses Awards. The awards program recognizes companies based on their significant contributions to the St. Louis region and how they have positively affected the future of the business community.

RubinBrown Partner Theresa Ruzicka was one of the featured speakers at this year’s Top Women’s Business Owners Luncheon (RubinBrown was also a sponsor). Hosted by St. Louis’ Small Business Monthly, this event draws women from businesses of all sizes to celebrate their achievements and inspire more women-owned companies.

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Women of Achievement RubinBrown leaders attended the Women of

Achievement Awards Luncheon, which recognizes and honors the achievements of women who, through their volunteer efforts, have demonstrated their dedication and commitment to improving the quality of life in the St. Louis community.

RubinBrown’s (front row) Colleen Conrad, Audrey Katcher, Judy Murphy, Amy Broadwater, (back row) Lynn Davis, Theresa Ruzicka, Linda Paradis, and Felicia Malter

RubinBrown Promotions Promoted to Partner

Firm Management Promotions

RubinBrown recently promoted Jennifer Jones, CPA to chief financial officer. Jones joined RubinBrown as its controller in 2008,

Steven Harris, CPA has been promoted to partner in RubinBrown’s Assurance Services Group. His work includes clients in the contractor, home builder, entertainment, not-for-profit, public sector, and manufacturing and

having previously worked for Compass Group’s Canteen Vending Sector and as a controller for the Flex-O-Lite Division of Jackson Products. In her new position, Jones manages the firm’s financial, insurance and treasury functions, as well as responsible for budgeting, forecasting, record-keeping and financial reporting.

distribution industries, concentrating on client relations and account management, auditing, tax and consulting. Harris was recently named national director for the National Association of Black Accountants (NABA).

David Duckwitz, CPA was recently promoted to director of quality control at the Kansas City office. Previously serving as a manager in RubinBrown’s Assurance Services Group, Duckwitz works with clients in the contractor, hospitality,

Kaleb Lilly, CPA has been promoted to partner in RubinBrown’s Assurance Services Group. In addition, he relocated from the St. Louis office to the Kansas City office. He provides auditing and consulting services to clients primarily in the public

manufacturing and distribution, and not-for-profit industries. His responsibilities as director of quality control include the review of financial statements and required communications, as well as providing guidance related to compliance with relevant professional standards.

sector, manufacturing and distribution industries. His specialties include audits of state and local governments, public colleges and universities, special-purpose government entities and local school districts.

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News – continued

RubinBrown Promotions Promoted to Manager

Darryl Marschke, JD , provides income and estate tax planning for clients as well as individual and fiduciary tax return preparation and review services. She is a member of the Estate Planning Council of St. Louis and a member of the New York State Bar. Lisa Mueller, CPA performs auditing services for clients in the manufacturing and distribution industry. She also is one of the firm’s experts in auditing employee benefit plans. She holds a masters in accounting from Truman State University. Beverly Riola, CPA , provides tax services to business clients primarily in the manufacturing and distribution industry. In addition to her professional work, Riola has been active in several breast cancer organizations. Jeff Sackman, CPA , works with clients in the hospitality, country clubs and real estate industries. In addition, he concentrates his services on audit and advisory services. Sackman holds his master’s degree in accounting from Saint Louis University. David Taylor performs real estate services, including acquisition and disposition structuring, tax consulting, forecasting and projecting, and works on low-income, historic, new market, and investment tax credits. He is a finance major of the University of Missouri-Columbia.

Clark Affholder, CPA provides services such as real estate partnership and investment fund auditing, as well as low-income housing and historic tax credit cost certifications. He is an accounting graduate of the University of Missouri- Columbia. Mary Berry, CPA , has been with RubinBrown for more than 15 years. She provides trust and estate planning services, as well as individual tax return preparation and review. Berry holds accounting and MBA degrees from the University of Missouri-St. Louis. Kevin Ensminger, CPA provides tax consulting services at RubinBrown’s

Kansas City office to clients in various

industries including not- for-profit, automotive, and manufacturing and

distribution. He graduated from Truman State University.

Matt Finke, CPA has a masters degree in

accounting from Truman State University. He works with clients in various industries including construction, not-for- profit and colleges and universities. He is a member of the American Subcontractors Association.

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RubinBrown Awards and Recognitions Partner Awarded UMSL Salute to Business Award RubinBrown Partner Audrey Katcher has been recognized in University of Missouri-St. Louis’ College of Business Administration Alumni Chapter’s 2010 Salute to Business Achievement Awards program. Business Journal Names Partner One of St. Louis’ Diverse Business Leaders Newly promoted partner, Steven Harris, was named one of St. Louis Business Journal’s Diverse Business Leaders. Community Service Award

Craig White, CPA , is an accounting graduate of the University of Missouri- Columbia. He provides auditing services for clients in the public sector and manufacturing and distribution industries.

RubinBrown Announcements Partner Named NABA National Director

RubinBrown Partner Steven Harris has been elected a national director for the National Association of Black Accountants.

Previously recognized by NABA with a Rising Star Award in 2009, Harris has been a member of the association for seven years and currently serves as president of the St. Louis chapter. He was inducted into the position on June 15 at the organization’s national convention in Houston. Partner Selected To St. Louis Business Diversity Initiative & Gaming Audit Group RubinBrown Partner Chelle Adams has been selected to participate in St. Louis Business Diversity Initiative’s 2010-11 Fellows Program. The Fellows Program is a leadership curriculum designed to address the interests and challenges of minority professionals as they work to develop and advance their careers. Adams was also appointed as a board member of the Institute of Internal Auditor’s Gaming Audit Group.

Presented to Partner Congratulations to Meyer Saltzman, one of our new Denver partners, who was honored earlier this year by Denver University as the recipient of their annual

Community Service Award for his tireless and generous volunteer efforts over the years. Manager Named For Business Journal’s 30 Under 30 RubinBrown Manager Jeff

Sparks was named one of the St. Louis Business Journal’s 30 Under 30. Jeff was selected based on his career history and his work in the Jewish community. Partner Named For St. Louis’ Jewish Light’s Unsung Hero RubinBrown Partner Ken Rubin was featured as one of Jewish Light’s Unsung Heroes thanks to his work with the skilled nursing facility, Cedars At The JCA, and throughout the community.

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Chairman’s Corner

It’s An Attitude of Ambition By Jim Castellano, CPA Growth:

Growth is a concept that is on our minds constantly at RubinBrown. It is very much a part of our core ideology. Growth is an attitude of ambition that creates the healthy tension needed to reject complacency and to seek continuous improvement in all that we do. We are excited that RubinBrown is growing geographically. It is with great delight that we announce the partners and team members of Saltzman Hamma Nelson Massaro LLP have joined RubinBrown, marking our entry into the wonderful city of Denver, Colorado.

This combination creates new opportunities for growth as we pursue achievement of our vision to create a major regional accounting firm. Now with offices in Denver, Kansas City and St. Louis, RubinBrown has grown to be among the fifty largest accounting firms in the United States. While that is a notable achievement, why might such growth be important to our clients and our team members? Let’s explore some possibilities. Our Denver partners and team members bring new talents and experience to RubinBrown, providing increased resources for clients. Likewise, the

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Jim Castellano, CPA Chairman james.castellano@rubinbrown.com 314-290-3300

For our team members, expanded geographic reach creates many exciting opportunities. Aside from the obvious opportunity to serve an expanded client base, team members will build new relationships, have new learning experiences, be surrounded by even more extraordinary talent and, we expect, have increased and exciting advancement opportunities. Overall, the combination of our firms offers new value and greater depth of resources to our clients, as well as exciting learning and advancement opportunities for our team members. Denver, Kansas City and St. Louis – we are well on our way to achieving our vision of creating a major accounting firm with totally satisfied clients and inspired team members. Rest assured that we will not lose sight of the things that we know are important to our clients as we seek expanded growth – superior quality, personal attention, continuity of people serving you and competent professionals all offered at rates structured to provide you with significant value. We welcome your comments on our strategy. Please contact me with your comments and suggestions. Thank you for your confidence in us. We value our relationship very much.

RubinBrown capabilities offer the opportunity for us to provide even more comprehensive services to our clients in Denver. The seamless integration of our talent will enable us to bring the best resources available to serve our clients, wherever they may be. It has been said that culture often marks the success of any combination of professional service firms. No doubt, the heritage of exceptional client service of each firm was a major attraction leading to the combination of our firms. Now, this passion for the total satisfaction of our clients, reinforced with expanded resources, will lead us as we seek to improve our service to clients in any way possible.

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Baker Tilly International

Baker Tilly International Ltd. – Great Firms. Outstanding Network By Jim Castellano, Chairman of RubinBrown LLP and Baker Tilly International Ltd.

We are pleased to report that Baker Tilly International, Ltd. has grown to become the eighth largest network of accounting firms in the world and proud that RubinBrown is a leading member of this most prestigious network. Seeking to strengthen our position among the world’s leading networks, the international board established a strategic planning group to evaluate our present state and make recommendations for strategic initiatives to continue our record of growth. The group, consisting of representatives of member firms from around the world, presented its report to the International Board of Directors in May. While the strategic planning group affirmed the mission and vision of Baker Tilly International, numerous issues were identified that must be addressed to secure the continued growth of our network. While our network presently consists of many of the leading accounting firms around the world, the

strategic planning group recognizes the need for continuous improvement. In that regard, refinements to the existing membership criteria were proposed to strengthen the alignment of members and further enhance the standards of quality required of members. Our rigorous quality assurance review process ensures that clients receive the quality services they expect and deserve. In addition, members are expected to be ranked within the top 10 in their local markets. The group assessed the economic landscape and markets in which we operate. It is expected that “the next 10 years will bring further massive changes to the shape of the world economy and to the landscape of major industries. There will be a redistribution of economic power. Emerging markets, and China and India in particular, will take a greater slice of the world economy. Labor- intensive production processes will continue to shift to lower-cost economies.

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Issue

Strategic objective

Position

Maintaining our position as a top 8 global network.

Branding

Recognition of Baker Tilly International as a leading global brand for professional services Having members that are strategically aligned, share the same values and offer a consistent quality of client service, taking into account differences in size and capabilities Increase collaboration to help our members expand their business and to make them prosper.

Consistency

Collaboration

In spite of globalization, there will be very significant differences between regions. Emerging markets differ considerably in their economic potential. Mature markets will see different demographic developments, where the favorable demographic profile of the US will help to spur growth; aging populations in Europe will inhibit it. Industries will target more products and services at aging populations, from investment advice to low-cost functional cars. In addition, the health care sector will grow substantially. Processes, firms, customers and supply chains will fragment as companies expand overseas, work flows where it is best done and as information digitizes. As a result effective collaboration will become more important.” With this background, the strategic planning group identified the strategic issues and objectives for our network. For each strategic objective, the strategic planning group defined key success factors and recommended action plans to achieve them. The plan is ambitious but necessary to lead our network to continued growth. Such growth will enable our member firms to continue serving clients with world class service and leading capabilities. For more information, please visit the Baker Tilly International website at www.bakertillyinternational.com .

Baker Tilly International Mission & Vision

MISSION - The mission of Baker Tilly International is to operate a network whose members deliver, with integrity and objectivity, superior independent audit, accounting, tax and financial services to clients through global resources and relationships. VISION - To be widely recognized as a global network of closely aligned, premier, independent accounting firms serving leading national and global organizations. This recognition reflects the quality, broad intellectual capabilities, depth of talent, specialized industry expertise, integrity and stature of our member firms. Collaboration will enable our member firms to prosper with a unique, sustainable competitive advantage in their markets.

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General Topics

RubinBrown Expands to Denver

RubinBrown LLP and Denver-based Saltzman Hamma Nelson Massaro LLP (SHNM) have joined together to form what is projected to be among the 50 largest accounting firms in the United States. SHNM had succeeded for more than a century thanks to their commitment to innovative business solutions and personal service. The combination of the firms offers new value and greater depth of resources to all current and prospective clients. Gregory Osborn, who served as SHNM’s managing partner, is continuing in this role at the Denver office. In addition, Brian Frevert, James Massaro, Meyer Saltzman, Frank Seffinger, and Russell White, have continued as partners of the expanded RubinBrown.

SHNM was drawn to RubinBrown thanks to our commitment to client service and industry-specific expertise. In addition, the firm was very impressed with RubinBrown’s membership in Baker Tilly International, the world’s eighth largest network of accounting firms with offices in 114 countries. Through the months of discussions, it became clear that SHNM and RubinBrown shared a common vision, philosophy, and commitment to exceptional client service. In addition, we share the same dedication to providing fulfilling careers for our people and an unwavering commitment to our communities. “Our services and business approaches complement each other extremely well,” says RubinBrown Chairman Jim Castellano. “Both firms have focused on high-level service, demonstrating

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Facts About RubinBrown LLP

Leadership:

James G. Castellano, CPA, Chairman John F. Herber, Jr., CPA, Managing Partner Gregory P. Osborn, CPA, Managing Partner - Denver Office Todd R. Pleimann, CPA, Managing Partner - Kansas City Office

expertise in key industries, and have built a loyal client base through long-term business relationships.” RubinBrown has been looking toward a third regional office since it successfully expanded into the Kansas City market in late 2005. Commenting on the joining of the two firms, RubinBrown Managing Partner John Herber said the Denver market and the firm of SHNM provide a perfect fit for RubinBrown, not only for its business, but also for its people. “Colorado currently has three of the nation’s top ten mid-sized business cities (Boulder-1, Fort Collins-3, and Colorado Springs-7), plus it is a strong center for government, energy and technology,” said Herber. “We see future growth in many of our areas of specialization.” “Saltzman Hamma Nelson Massaro has a proud Colorado tradition, beginning as Hamma and Nelson, PC, Denver’s oldest CPA firm, in the 1890s,” said Osborn. “Morton Marshall Hamma received one of the original unnumbered CPA certificates in 1907 (once the State Board of Accountancy was formed later that year, all certificates were issued numbers).” In 1998, the firm merged with Saltzman Cohen Massaro & Co., founded by Meyer Saltzman

# of Partners:

61 89

# of Managers:

Total Staff:

375

Rankings:

• 54th in Accounting Today’s 2010 Top 100 Firms • 1st in St. Louis Business Journal’s 2009 Largest Accounting Firms • 11th in Kansas City Business Journal’s 2009 Largest Accounting Firms • 20th in Denver Business Journal’s 2009 Largest Accounting Firms

Office Locations: Denver

Kansas City St. Louis

in 1976. Similar to RubinBrown, where client relationships are revered and customer service is a priority, SHNM has several third and fourth generation clients who rely on the firm.” Relocating to the Denver office from St. Louis is Rodney Rice, who has served for many years as partner in RubinBrown’s Assurance Services Group in St. Louis.

Left: John Herber (left), Greg Osborn (center), and Jim Castellano (right) join together to commemorate the combination of their firms.

t Located in downtown Denver, the addition of this office is expected to elevate RubinBrown into the top 50 firms in the United States.

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General Topics – continued

Meet Your RubinBrown Denver Partners

Greg Osborn, CPA Managing Partner Denver Office Greg is managing partner of the Denver office of RubinBrown LLP. He joined the firm in 1981 and has served as a partner since 1989. Osborn has more

member of Colorado Concern, a political action committee for improving the economy, education, and quality of life in Colorado. A graduate of the University of Denver, Saltzman is the recipient of the 2000 SAVVY Award and was named the 2001-02 University Of Denver School Of Accountancy Alumnus of the Year. James Massaro, CPA Partner

than 29 years of experience in corporate and individual taxation, income, estate and gift tax planning strategies, retirement plan consulting and administration. He serves clients primarily in the medical, manufacturing and distribution, real estate, not-for-profit and agricultural industries. Osborn is an investment advisor representative and a registered representative affiliated with NFP Securities, Inc. He served on the board of directors of AGN International, an association of national and international accounting firms. He graduated from the University of Northern Iowa with a bachelor’s degree in accounting. Meyer Saltzman, CPA, CFF, DABFA Partner Meyer is a partner at RubinBrown LLP. A Denver native, Saltzman founded and led the accounting firm, Saltzman Cohen Massaro & Co. through several mergers and years of internal growth. His expertise includes matters regarding litigation support, business formation and valuation, capital acquisition and real estate. He has testified and been considered an expert in various U.S. and Colorado courts and has served as Special Master in U.S. Probate Court and Denver County District Court. Saltzman is certified in Financial Forensics and is a diplomat of the American Board of Forensic Accounting. He currently serves on the boards of the Denver Zoological Foundation and Western State College of Colorado and is a commissioner on the Colorado Limited Gaming Control Commission. He is a

Jim serves as a partner for RubinBrown LLP with expertise in individual and corporate taxation, S-corporations, partnerships, and inventories. He also specializes in tax planning

for acquisitions, mergers and liquidations, as well as provides representation in IRS examinations. His clients include those in the real estate, retail, hospitality, not-for-profit, professional services, and manufacturing and distribution industries. He previously served on the board for Evergreen Mountain School and Hunger Artists, as well as on the board of advisors for the Mountain School Fund, Rocky Mountain Chapter of the Leukemia Society of America and the University of Denver Bridge Project. After receiving his bachelor’s degree in accounting from Northern Illinois University, Massaro earned a Master of Science in Taxation degree from DePaul University. Brian Frevert, CPA, CFP, MBA Partner

Brian serves as a partner at RubinBrown LLP, specializing in financial and estate planning and third-party administration planning for qualified retirement plans for

individuals, partnerships and S-corporations. Frevert’s previous experience includes positions with national and local accounting firms. He previously worked as an accounting manager and financial planner for American Express Financial Advisors

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(formerly IDS Financial Services) and also served as a chief financial officer for a start-up business in Minnesota. He earned his Master of Business Administration degree from the University of Minnesota after receiving a bachelor’s degree from the University of Northern Iowa. Frank Seffinger, CPA, LL.B., LL.M. Partner Frank is a partner at

He has also served as chief financial officer of a large construction supply company. White earned both his bachelor’s degree in accounting and his Master in Business Administration from Central Missouri State University. Rodney Rice, CPA Partner relocated from the St. Louis office to RubinBrown’s new Denver office. He provides auditing, consulting and tax services to companies primarily in the manufacturing, distribution and public sector industries. Rice serves on the accounting and auditing committee for the North American Region of Baker Tilly International and the special review committee of the Government Finance Officers Association. Rice has also served as a member of the AICPA Technical Issues Committee. He graduated from Eastern Illinois University with a bachelor’s degree in accounting. Rodney is a partner in the Assurance Services Group at RubinBrown LLP. He recently

RubinBrown LLP with over 40 years of diversified experience as a tax consultant and advisor specializing in partnerships, closely held corporations and mergers and acquisitions.

Prior to joining the firm, Seffinger was the founding and managing partner of a large Denver CPA firm. He is a past member of the executive committee and former treasurer of the Colorado Society of Certified Public Accountants. He formerly served as president of the Rocky Mountain Estate Planning Council and a member of the board of directors of Cherry Creek Chamber of Commerce. Seffinger received his bachelor’s degree in accounting from Baruch School of Business, as well as a bachelor’s of law degree from Brooklyn Law School and a Master of Laws degree in taxation from New York University School of Law. Russell White, CPA, MBA Partner Russell, a partner at RubinBrown LLP, performs management and

coordination services of audit, review and compilation engagements, business consulting and

implementation of accounting systems. White has previous experience working for the Missouri State Auditor and serving as an audit manager and partner for a local firm located in the Denver Technology Center.

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General Topics

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How Healthcare Reform Will Affect You and Your Business

The Patient Protection and Affordable Care Act (H.R. 3590), was signed into law on March 23, 2010 by President Obama. Along with its reconciliation bill titled, the Health Care and Education Tax Credits Reconciliation Act of 2010 (H.R. 4872), this new healthcare legislation contains numerous tax provisions which may impact individuals and businesses. This is an executive summary of the many tax provisions in both the Patient Protection Act and the House Reconciliation Act. Overall, the newly enacted healthcare legislation will fundamentally alter the healthcare landscape for individuals and employers. Individuals All individuals not covered by Medicaid or Medicare would be required to obtain health care coverage or pay penalties. Employer provided coverage satisfies the universal coverage requirement. Penalties For Remaining Uninsured • Beginning in 2016, the greater of: (1) 2.5 percent of household income over the income threshold required for income tax return filing, or (2) $695 per uninsured adult. • Maximum penalty cannot exceed 300 percent of the per adult penalty ($2,085). • Phased-in per adult: $95 in 2014; $325 in 2015; $695 in 2016 for the flat fee or 1 percent of taxable income in 2014, 2 percent in 2015, and 2.5 percent in 2016. • For individuals under the age of 18 or in college, the applicable flat dollar penalty would be one-half of the above amounts. Coverage Subsidies • Tax credits and reduced cost sharing apply to qualified individuals based on a sliding scale.

• The subsidy credit starts at 133 percent of the federal poverty level. • Medicaid coverage is expanded to cover those with income less than 133 percent of the federal poverty level.

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General Topics – continued

The Impact on Healthcare Reform on Physicians

Employers Employers are not required by this legislation to provide health coverage, but “applicable large employers” that do not will be liable for an additional tax. An employer is an “applicable large employer” with respect to any calendar year if it employed an average of at least 50 full-time employees during the preceding calendar year. The penalty for any month is an excise tax equal to the number of full-time employees over a 30-employee threshold during the applicable month (regardless of how many employees are receiving a premium tax credit or cost-sharing reduction) multiplied by one- twelfth of $2,000. The penalty would apply to employers with 50 or more workers the first 30 workers would be subtracted from the payment calculation. Businesses with fewer than 50 employees would be exempt from any employer responsibility. In addition, the bill requires employer W-2 reporting of the value of health benefits. Small Business Tax Credits • From 2010-2013, eligible employers (fewer than 25 employees and less than annual wages of $50,000) may qualify for a tax credit of up to 35 percent of their contribution toward employees’ health insurance premium. • In 2014 and beyond, eligible employers may qualify for a credit for two years of up to 50 percent of their contribution. Other Significant Provisions Additional Medicare Payroll Tax • Increased Medicare tax on employees of 0.9 percent on earned income in excess of $200,000 for individuals and $250,000 for joint filers (rate increased from 1.45 percent to 2.35 percent ) beginning in 2013.

The Patient Protection and Affordable Care Act (a.k.a. “Health Care Reform”) became law in March of 2010. While there are provisions that will impact all Americans, included in the laws are specific provisions that will specifically impact health care providers.

Public Reporting of Physician Performance Information

By January 1, 2011, the Secretary of Health and Human Services will create a physician website that contains information on physicians enrolled in the Medicare program and other eligible professionals who participate in the Physician Quality and Reporting Initiative.

Improvement to the Physician Feedback Program

Medicare’s Physician Feedback Program will be expanded to provide for development of individualized reports by 2012. Reports will compare the per capita utilization of physicians (or groups of physicians) to other physicians who see similar patients. Reports will be risk adjusted and standardized to take into account local health care costs. Creation of Accountable Care Organizations under the Medicare Shared Savings Program A shared savings program has been created to promote accountability for a patient population, coordinate items and services under Medicare part A and B, and encourage investments in infrastructure and redesign care processes for a high quality and efficient service delivery. Accountable care organizations, composed of a group of providers, will be rewarded with a share of the savings for providing high quality of care and/or care at lower costs relative to a spending benchmark. Payments under the Physician Quality Reporting Initiative are extended through 2014. Beginning in 2014, physicians who do not report quality measures to the Physician Quality Reporting Initiative will have their Medicare payments reduced. Physician Fee Schedule Value Based Payment Modifier The Secretary of Health and Human Services is required to develop and implement a budget-neutral payment system that will adjust Medicare physician payments based on the quality and cost of care they deliver. Quality and cost measures will be risk-adjusted and geographically standardized. The Secretary will phase in the new payment system over a two year period beginning in 2015. Improvement to the Physician Quality Reporting System

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• Imposition of Medicare tax on unearned income at 3.8 percent of investment income (e.g., interest, dividends, rents, etc.) for adjusted gross income in excess of $200,000 for individuals and $250,000 for joint filers beginning in 2013. Tax On High-Cost Insurance • 40 percent surtax on high-cost health insurance beginning in 2018, to the extent the annual premium exceeds $10,200 for single coverage, $27,500 for family coverage. Dependent Coverage • Children are permitted to stay on their parents’ insurance policies until they are 27 years of age. FSAs & HSAs • Flexible Spending Accounts and Health Savings Accounts must use the definition of “medical expense” for itemized deduction purposes – over-the-counter medicines will no longer be available for reimbursement beginning in 2011.

• Health Flexible Spending Accounts are capped at $2,500 per year after 2013 (to be indexed annually for inflation after 2013). • Nonqualified distributions from Health Savings Accounts increased from 10 percent to 15 percent effective for distributions after 2010. • Nonqualified distributions from Archer Medical Savings Accounts increased from 15 percent to 20 percent effective for distributions after 2010. Medical Expense Deduction • Threshold for itemized medical expenses increased from 7.5 percent of adjusted gross income to 10 percent effective for years beginning after December 31, 2012, except the effective date for individuals age 65+ and their spouses will be years beginning after December 31, 2016.

Please contact us if you have questions or concerns regarding how healthcare reform may affect your business.

RubinBrown’s Tax Consulting Services Group

Jim Massaro, CPA Partner

Steve Brown, CPA Partner-In-Charge Tax Consulting Services Group steve.brown@rubinbrown.com 314.290.3326

Tax Consulting Services Group jim.massaro@rubinbrown.com 303.698.1883

Mary Ramm, CPA Partner

Ken Rubin, CPA Partner-In-Charge

Tax Consulting Services Group mary.ramm@rubinbrown.com 913.491.4406

Professional Services Group ken.rubin@rubinbrown.com 314.290.3417

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General Topics

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Acquisition Strategies: Do Your Financial Due Diligence!

Issues of concern discovered during financial due diligence include: • Unreliable financial information • Surprise adjustments to financial information • Adjusted earnings that don’t support the agreed-upon price or proposed debt financing • Lack of adequate collateral for proposed debt financing • Unforeseen negative tax consequences Some specific procedures that should be considered during the analysis of both financial and operational investigation fall into three categories: 1. General Company Health • Analyze the quality of their earnings review. Look for one-time unusual revenue and expenses, errors, or GAAP and deal adjustments • Review all business plans, strategic plans and forecasts • Assess the adequacy of internal controls

“For every disciplined effort, there is a multiple reward.”

Jim Rohn, Best-Selling Author & Business Speaker

We’ve all heard and experienced the old cliché that hard work pays off. But when it comes to acquiring a business, nothing could be truer. Without a doubt, a critical component of a successful acquisition is a thorough and complete financial due diligence process. And while this process certainly isn’t easy or quick to complete, the results of this hard work can literally pay off in dividends. Overall, the financial side of due diligence is similar to an audit, but actually on a broader scope. While analysis of the financials is crucial to the process, it is just as important to investigate the health of the company as well as analyze the operations and governance structure. Typically, the financial due diligence is one of the last steps before closing and can literally serve as a deal breaker.

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General Topics – continued

2. Accounting & Financial • Analyze the appropriateness of accounting policies • Evaluate any balance sheet exposures, including asset existence and valuation and unrecorded liabilities • Determine working capital and capital expense requirements • Review tax returns and identify potential exposures 3. Operational & Governance • Evaluate the corporate governance structure • Review employee benefit plans • Assess the quality of financial management • Analyze the technology, including the appropriateness and scalability of systems, security and potential integration issues

“Red flags” to be aware of before closing the transaction: • Unaudited financial statements

• Qualified or “going concern” audit opinions • Errors in financial statements or tax returns • Lack of qualified financial management • Poor internal controls • Auditor letter indicating significant deficiencies or material weaknesses • Significant audit adjustments • Customer or vendor concentrations • Related party transactions not at fair value • Significant unresolved litigation or contingencies Please contact us for more information on financial due diligence and ways your company can properly assess another before a transaction.

RubinBrown’s Assurance Services Group

Dan Raskas Partner-In-Charge Mergers & Acquisitions Services Group dan.raskas@rubinbrown.com 314.678.3530

Fred Kostecki, CPA Partner-In-Charge Assurance Services Group fred.kostecki@rubinbrown.com 314.290.3398

Todd Pleimann, CPA Managing Partner Kansas City Office todd.pleimann@rubinbrown.com 913.491.4411

Russ White, CPA, MBA Partner Assurance Services Group russ.white@rubinbrown.com 303.698.1883

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Cover Welcome ii RubinBrown News 3 Chairman’s Corner 7 BakerTilly International 9 RubinBrown Expands to Denver 11 How Healthcare Reform WillAffect You andYour Business 15 Acquisition Strategies: DoYour Financial Due Diligence! 19 Service Organization Control (SOC) Reports 23 Trends in Retirement Plan Administration – Common Mistakes 27 Automotive 31 Real Estate 33 Home Builders 37

horizons A Publication of RubinBrown LLP Fall | 2010

Growing Business Your RubinBrown Expands to Denver How Healthcare Reform Will Affect You and Your Business Acquisition Strategies: Do Your Financial Due Diligence!

Introducing… ANewDigital Edition Of Horizons!

You can access the new digital edition of Horizons at http://www.rubinbrownhorizons.com Going forward, this site will house all archive copies of Horizons , which provides you the opportunity to search by keyword or reference previously published articles. All RubinBrown clients and contacts will continue to receive both the printed and online versions of Horizons . Please let us know how you like the new digital edition! You may contact our communications department by emailing Dawn Martin, RubinBrown’s Director of Communications & Client Relations at dawn.martin@rubinbrown.com

RubinBrown is proud to present a new, interactive way to enjoy Horizons , our firm’s full color, informational magazine. The new digital Horizons offers a number of enhanced tools, including: • Easy navigation and readability • Keyword search capability • Active links to websites and email addresses • Easy printing capabilities • Forward to a friend/posting to your social media network functionality • Desktop shortcut

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General Topics

Successful companies constantly search for opportunities to strengthen the bottom line by focusing on their core businesses. One approach is to outsource back office activities to third party service providers who can operate, collect, process, transmit, store, organize, maintain, and dispose of business information for user organizations. Examples of outsourced functions include cloud computing, hosted data processing, payroll, and invoice processing. Properly managed, companies outsourcing support activities can add specialized skills to their business thereby gaining a competitive advantage. However, outsourcing is not without risks. With outsourcing, a user entity exposes itself to additional risks related to the service organization’s system. These risks include business, technology, governance/vendor management, and information leakage. The following are examples of such risks: S ervice O rganization C ontrol (SOC) Reports By Audrey Katcher, CPA, CISA and David Richert, CPA, CIA, CISA, CQA

To assess and address risks associated with the outsourced service, management needs information about controls over the service organization’s system that affect the services provided to the user entity. The limit on the transparency into a service organization’s control environment underscores the importance that an activity can be outsourced, but not the responsibility for controls over how that activity impacts the security, privacy and continuity of business data.

• Data security over public networks • Service organization insider risks • Data privacy • Vendor ‘lock-in’ impairing the ability to change service providers • Data loss and leakage

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Informed Trust The AICPA helps clients and their auditors gain third-party assurance through reports such as Agreed Upon Procedures (AUP), Trust Services (Systrust), or those based on Statement on Standards for Attestation Engagements (SSAE) No. 16, formerly known as Statement on Auditing Standard (SAS) No. 70*. While there are other reports on processing activities, such as

those based on Payment Card Industry (PCI) or International Organization for Standardization (ISO) models, SSAE 16 reports on controls at a service organization relevant to the user entities’ internal controls over financial reporting. However, there was a growing need for third-party comfort over operational and compliance controls. The profession addressed this gap by developing Trust Services Principles, Criteria, and Illustrations

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Decision Chart

Looking to address internal control over financial reporting requirements? SOC 1

User Organization/ Entity

Service Organization

Concerned about non-financial reporting risks to your organization? SOC 2

Source: AICPA

• AICPA SOC 3 : Trust Services Report

(AICPA, Technical Practice Aids, vol. 1, sec. 100). Trust Services provides criteria for evaluating and reporting on a system’s security, availability, processing integrity, protection of information designated as confidential, and maintenance of the privacy of personal information. New Approach The AICPA has embarked on a new approach to offer alternative solutions for reports designed to provide users of third-party services comfort around those business controls relevant to them: AICPA Service Organization Control (SOC) reports. There are three reports in this framework: • AICPA SOC 1 : Report on Controls at a Service Organization Relevant to User Entities’ Internal Control over Financial Reporting (provides comfort around financial reporting and transaction services) • AICPA SOC 2 : Report on Controls at a Service Organization Relevant to Security, Availability, Processing Integrity, Confidentiality and/or Privacy

Service organizations providing user entities comfort relevant to internal controls over financial reporting (ICFR) will take the SOC 1 report approach. For users of cloud computing (as an example), the AICPA SOC 1 approach, testing financial reporting controls, provides little assurance regarding key controls around availability, reliability, confidentiality, and integrity of data. Such situations may best be served through the issuance of an AICPA SOC 2 report. Service Organization Control Report 2 AICPA SOC 2 engagements will apply a risk-based approach for hosted-applications, software as a service (SaaS) and cloud computing spaces, where information security, availability, confidentiality, privacy and processing integrity of user data is more relevant. AICPA SOC 2 reporting will give user entities transparency into service organizations by

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providing independent assurance that processes and systems are: • Adequately designed to achieve operational and compliance objectives • Effective to achieve operational and compliance objectives Note, guidance for SOC 2 reporting is not formally published at this time. To stay abreast of the latest developments, visit the Accounting & Auditing interest area of www.aicpa.org and select “Resources” then “Assurance Services.”

An AICPA SOC 2 report enables a user entities’ management to carry out their internal control responsibilities related to the design and operating effectiveness of controls at the service organization, with regard to security, availability, processing integrity, confidentiality or privacy.

*SAS 70 was updated when the International Auditing and Assurance Standards Board (IAASB) developed International Standard for Attest Engagements (ISAE) 3402, providing international guidance for reporting on controls at service organizations. This international standard was developed concurrently with the Accounting Standards Board (ASB) convergence project, resulting in the promulgation of SSAE 16.

Summary Today’s business environment is growing

increasingly complex and, as a result, businesses look for strategic partners with the tools and technology available to deliver goods and services. For the user entity that outsources a task or function to a service organization, it is important for the user entity to understand what they are buying.

RubinBrown’s Business Advisory Services Group

Michael T. Lewis Partner-In-Charge

Audrey Katcher, CPA, CISA Partner Business Advisory Services Group audrey.katcher@rubinbrown.com 314.290.3420

Business Advisory Services Group michael.lewis@rubinbrown.com 314.290.3349

Russ White, CPA, MBA Partner Assurance Services Group russ.white@rubinbrown.com 303.698.1883

Todd Pleimann, CPA Managing Partner, Kansas City Office todd.pleimann@rubinbrown.com 913.491.4411

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