Horizons Spring/Summer 2021

A publication by RubinBrown LLP

u Improving Business Processes to Prepare for Operations Post COVID-19 u Corporate Governance in COVID-19: Cyber Security & Technology Considerations FEATURING

SPRING/SUMMER 2021

Chairman & Managing Partner John F. Herber, Jr., CPA, CGMA

Impact of the Pandemic: Changing the Business Landscape Forever COVID-19 has had a long-term effect on almost every industry. The landscape will very likely never be the same for clients, organizations, or firms. How will the industry move forward beyond the pandemic?

Chicago Managing Partner Christopher J. Langley, CPA

Denver Managing Partner Ben Barnes, CPA, CGMA

Kansas City Managing Partner Todd R. Pleimann, CPA, CGMA

Features & Industry Updates

Las Vegas Managing Partner Glenn L. Goodnough, CPA, CFE

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FEATURE: Improving Business Processes to Prepare for Operations Post COVID-19

FEATURE: Corporate Governance in COVID-19: Cybersecurity & Technology Considerations

Nashville Managing Partner Bryan Keller, CPA, CGMA

10 12 15

18 23 20

COLLEGES & UNIVERSITIES

NOT-FOR-PROFIT

St. Louis Managing Partner Frederick R. Kostecki, CPA, CGMA

PUBLIC SECTOR

CONSTRUCTION

MERGERS & ACQUISITIONS

Editor – Ashley Fahrig Art Director – Brendan Coleman

HEALTHCARE

Horizons , a publication by 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. Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

www.RubinBrown.com

Readers should not act upon information presented without individual professional consultation.

RUBINBROWN NEWS SPRING/SUMMER 2021

RubinBrown's Las Vegas Office has Relocated to a New Location

RubinBrown has moved its Las Vegas office to a new location effective May 24, 2021. The announcement was made by Bryan Keller, Partner In Charge of the firm’s National Practices and Real Estate Groups. More than 85 accounting, tax and business professionals have moved to the Charleston Pavilion building located at 10801 W. Charleston Blvd., Suite 300. “We are excited about the opportunity we have to continue to deliver exceptional service and business advice to our clients as well as our business partners throughout Nevada from our new office,” said Glenn Goodnough, the Las Vegas Office Managing Partner. According to Keller and Goodnough, the move has

been in the planning stages for more than a year. “Being located in a premier business district, across from the Red Rock Casino, Resort and Spa will undoubtedly, help us better serve our clients and grow our business, as well as recruit the best and brightest talent to our firm,” they said.

RubinBrown Las Vegas Office 10801 W Charleston Blvd Suite 300 Las Vegas, NV 89135 702.415.2112

RubinBrown Partner, Tony Nitti, Launches Nitti Gritty Tax with Forbes

Sign up to receive weekly tax news, analysis and commentary from RubinBrown Partner, Tony Nitti. In partnership with Forbes , the latest tax news, notable legislation, important tax court cases, and updates from Capitol Hill can be delivered directly to your inbox every Wednesday. For more information and to sign up, please visit www.RubinBrown.com/ForbesNittiGritty .

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Improving Business Processes to Prepare for Operations Post COVID-19 by Kara Hershberger, CPA, CIA, CISA, CFE

C hange, especially sudden and drastic change, can be difficult to absorb and view in a positive way. Two typical reasons to change a business process are to increase profit or to decrease costs. At times, changes may have a dual effect and achieve both of these goals. This dual effect occurs when business processes are automated because the automation saves labor hours, thereby reducing cost and increasing profit. However, fully automating processes is not always achievable which is why small changes, such as eliminating manual steps and parts of processes, can be powerful tools in creating a culture that accepts and embraces change. Especially now as businesses are working through long-term changes and looking ahead past COVID-19, it is a good time to evaluate how you can improve business processes. Step one for a business improvement process is to understand the goal of the process you want to change. To clarify, you want to understand why the process is in place, and what purpose it ultimately serves. Next, you want to set a goal for the process improvement project. For example, if you are reviewing an order to cash function, and under the current process the business has a goal to process 100 invoices per day, a goal for improvement may be to double the output to 200 invoices a day without any additional staffing. Once a goal has been set, you should document the existing process from end to end. Documenting the process consists of understanding the starting point, including inputs, and ending point, including outputs, of the overall process. You will also want to capture the policies that govern the process and consider those as potential boundaries of any changes/improvements you want to make.

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For instance, if you make changes and can now process 200 customer invoices per day, but the Sales Manager only has the capacity to approve 100 per day, the efficiency is nullified. After identifying approval constraint as an issue, this could be a great opportunity to reexamine your approval policies. You may perform data analysis on your customer invoices and realize that 70% are under $500, and the other 30% are over $500 and consist of the majority of the dollar value of our accounts receivable. Refer to Figure 1 below as an example.

This analysis could reveal that it would be most efficient for the Sales Manager to approve customer invoices $500 and over and to have a supervisory level employee review and approve customer invoices below $500. Once the policy is adjusted, the process improvement can be implemented with maximum success. In the example above, imagine that as part of documenting the process you discover sales orders are received through multiple methods (website, phone, email, hardcopy order forms through the mail) and to multiple locations. Order entry is performed by a clerk at each location and is manual. This includes the website orders which must be downloaded and batch uploaded to the company’s ERP. Because of cost, the company has made a strategic decision not to invest in an application programming interface (API) to connect the e-commerce site and their ERP. However, through the process improvement project, the company realizes it can centralize order taking and convert the phone, email, and hardcopy order entry to a consolidated batch format, similar to the website orders.

Figure 1

NUMBER

AMOUNT

BELOW $500

3,186

70%

$955,800

26%

$500 & ABOVE

1,352

30%

$2,704,000

74%

4,538

$3,659,800

Clerks that were previously spending hours entering data are now able to assist with

4 Improving Business Processes to Prepare for Operations Post COVID-19

sales and order completion tasks at each office. Note that the examples provided above show changes to a segment of the order to cash process. These changes, while not a wholesale revision of the process, can be impactful to business cost and efficiency. When initiating process improvement projects, there are pitfalls to avoid. First, include all stakeholders when implementing the project. Working in a silo, leaving out “problem” people, and leaving out minor stakeholders could end up hampering the effectiveness of the improvements. This is because you may not receive full buy- in from those left out, and they may not fully implement the change as a result. Additionally, these individuals could provide valuable input on whether the proposed change or improvement could work across departments, including obstacles that are in your blind spot. It is also important not to underestimate the work the project may take or to underestimate the overall benefit of the changes or improvements. Your team may not realize how much effort it is to change a business process, and it is important you acknowledge that challenge.

However, you also want to emphasize that the change may make their actions more effective and less wasteful. Improving business processes can be challenging but also rewarding to the stakeholders who complete the project. Making minor changes to processes can ultimately free the team to work on more challenging and interesting work, such as analysis and strategy, and to better serve customers.

BUSINESS IMPROVEMENT SERVICES

At RubinBrown, we're committed to providing services that create value, wealth and prosperity for our clients and the community. The Business Improvement team is experienced in delivering process improvement and business intelligence solutions to your most critical issues.

Rick Feldt, CPA, CGMA Partner-In-Charge Business Advisory Services 314.290.3220 rick.feldt@rubinbrown.com

Kara Hershberger, CPA, CIA, CISA, CFE Partner Business Improvement Services 702.579.7034 kara.hershberger@rubinbrown.com

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Corporate Governance in COVID-19: Cybersecurity & Technology Considerations This article was originally published in The Journal of Accountancy

C ybersecurity oversight is a significant concern for companies even before the COVID-19 pandemic forced so many organizations to suddenly shift to remote work. Data breaches and other cyber threats pose significant competitive, reputational, and litigation risks and require increasingly costly investments to prevent, detect, and respond to. Changes in the environment as a result of the pandemic have created new risks that need to be managed with board oversight. With a cyber breach considered by most experts to be inevitable, cyber risk must be part of the board’s overall risk oversight. Keep in mind that directors don’t need to be technologists to play an effective role in cyber risk oversight. Every board can take the opportunity to improve the effectiveness of its cyber oversight practices. key fiduciary responsibility for a board of directors and was a

The board should ask the following general questions to understand cybersecurity risk:

∙ What are our organization's top five cybersecurity risks?

∙ How are we managing these risks?

∙ How is security governance managed?

∙ In the event of a serious breach, has management developed a robust response protocol? The board should also ask the following technology- and pandemic-related questions, broken up into four categories: commitments, working from anywhere, compliance, and plans.

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Commitments: ∙ How confident is the company (and the board) that technology commitments are being met despite people and technology disruption due to the pandemic? Working From Anywhere: ∙ How has the company secured information due to employees’ and contractors’ working remotely? ∙ Is the company providing employees appropriate safeguards to securely operate remotely, including training? Compliance: ∙ How is the company maintaining and validating compliance with its legal and regulatory requirements? Plans: ∙ What are the company plans for the “worst-case scenario” for pandemic- related incidents or outages? Have tabletop exercises been performed? ∙ What new metrics is the company providing for the board to monitor risk, including company viability? Are communication triggers in place for cases of unexpected disruption? ∙ How has the company applied lessons learned about its pandemic preparedness from its recent situations or situations from others in their industry? ∙ What changes to the scenario planning need to be made to improve the company’s future resilience? ∙ Have appropriate resources, including funding and personnel, been allocated to manage future risk? Broadening Role for the Board The National Association of Corporate Directors defines two critical roles for corporate boards: (1) “overseeing management on behalf of shareholders and other constituencies”; and (2) “advising

management, albeit with limited involvement in everyday company operations.” Amid the pandemic, the board has an enhanced responsibility to provide advice based on past experiences, across industries, and based on current experiences, across organizations. To support this expanded responsibility, boards are: ∙ Adding directors for technology risks due to, for example, the work-from-anywhere environment. ∙ Adopting a technology and cyber committee to work with the company’s pandemic team. ∙ Requesting expert sessions for technology and security considerations for managing through the pandemic. ∙ Continuing to ask about security and technology risks in the supply chain, including vendor and business dependencies. The Role of the Company In this board conversation, the company also has responsibilities. Here are some of the technology-related items for the company to address with the board. Companies should be prepared to communicate to the board that they are learning from the past, are performing scenario planning/tabletop exercises, are updating their strategic plans where necessary, and are ready to roll as they are presented with new changes and challenges. Companies should have strategic plans for the “next normal” and perform scenario planning to consider:

Who: ∙ Key employee dependency and succession planning.

∙ Commitments made to clients, regulators, etc. for security, availability, confidentially, and compliance. ∙ Primary vendor, business partner, and service organization dependency for technology and security commitments (with knowledge that outsourcing does not remove company accountability).

8 Corporate Governance in COVID-19: Cybersecurity & Technology Considerations

Audit committee considerations for auditor responsibilities Lastly, external auditors have responsibilities, too. Auditors should get a sense for the level of oversight from a board and review meeting minutes, noting risk assessments reviewed, strategic plans assessed, and scenario planning performed. As external auditors, there will be focus on general disclosures about the pandemic and its overall impact on a reporting entity, along with other topics, such as asset impairments, going concern, use of estimates, lease concessions, restructurings, Paycheck Protection Program loans and Economic Injury Disaster Loans, income taxes, and subsequent events. Key Leadership Role Board leadership is critical and must continue to evolve in response to the pandemic. Technology and security are foundational areas to monitor for company success. Protecting your organizational information is now more important and as complicated as ever..

What: ∙ Rolling employee and contractor unavailability.

∙ Rolling supply chain unavailability.

∙ Sudden facility unavailability.

∙ Client or supply chain entity bankruptcy or other viability issues. ∙ Technology and technology-dependent commitments made via contracts or other agreements. Then, companies should be prepared to answer questions related to the items noted. In conjunction with the overall strategy and scenario planning, technology is an enabler for success. Technology leaders such as the chief information officer and chief information security officer should communicate cyber risk to the board. This is more of an art than a science. Technology leaders should not fall into the trap of presenting technical details about vulnerabilities. Rather, they should prepare to discuss issues in terms of “business risks” and the options the company has to manage the risks so that executives and the board can make decisions. For example: “To maintain our competitiveness and business viability, we must be able collaborate on client matters anytime and anywhere,” and to do so, we have three options: ∙ Option B: Implement a cloud solution to address the risks related to security, compliance, information retention, etc. ∙ Option C: Implement a cloud solution to help support our legal, regulatory, and risk management obligations; or implement security enhancements such as multifactor authentication, encryption for client communication, and backup resources to support quicker recovery. ∙ Option A: Do nothing.

CYBER SECURITY ADVISORY SERVICES

RubinBrown's Cyber Security Advisory Services team monitors emerging threats and trends, develops tools and methodologies to address them, and delivers specialized services to organizations seeking independent third party security services.

Rob Rudloff, CISSP-ISSMP Partner Cyber Security Services 303.952.1220 rob.rudloff@rubinbrown.com Audrey Katcher, CPA, CISA Partner Cyber Security Services 314.290.3420 audrey.katcher@rubinbrown.com

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INDUSTRY UPDATE COLLEGES & UNIVERSITIES

Five Ways That Higher Education Could Change in the Next 10 Years by Chester Moyer, CPA T he impact of COVID-19 on higher education will continue to be seen for many years. As with many industries, up in these discussions are the hiring, compensation, and promotion methods

traditionally deployed by colleges, including tenure. For all the benefits of tenure, some have expressed concern about tenure, pointing out the financial implications, lack of diversity, and more. Suppliers of Remote Learning Platforms will Capture Margin from the Universities One of the “five forces that shape industry completion” that Michael Porter identified in his famous analysis is the “Bargaining Power of Suppliers.” Just as the Windows operating system now captures much of the total profit built into the price of a new computer,

COVID-19 forced institutions and students to behave differently than they would have otherwise, and the experience has likely led to changes going forward. Tenure Will Change COVID-19 has made the financial reality of operating a college or university much more transparent to its constituents. Regularly, decisions about closing down programs have elevated discussions about the balance between historical operating models and the realities of balancing a budget. Wrapped

10 Five Ways That Higher Education Could Change in the Next 10 Years

suppliers of remote learning platforms will likely capture additional profit built into the total cost of student tuition. Because these suppliers are not constrained by working with any particular university, they can continue to advance their technology to a point that can make it difficult to replicate. In the next 10 years, it is reasonable to expect that artificial intelligence on these platforms will replace much of the work of graduate assistants who support large lecture classes. colleges and universities resulted in significant financial strain on those institutions. As a result, the US Government, by granting billions of dollars to those institutions and to the students attending, reaffirmed its recognition of the importance of higher education to helping the United States in its global position and to the quality of life of those in the U.S. Concurrent with the billions of dollars in aid, the Biden administration is currently pushing for free community college. Although it will not be easy to implement (funding models at each community college are varied in a way that would make a blanket approach to making community college free by the federal government challenging), the idea of free community college extends the guarantee of school from being a K-12 model to a K-14 model. Furthermore, the idea is one that recognizes that many students who enter universities are not academically prepared and leave prior to graduating with a degree, but have thousands of dollars of debt. Any learning loss experienced by high school students due to COVID-19 will exacerbate this college readiness problem. Lifelong Learning & Career Advising will Expand Revenue Sources for Colleges As the skills and perspectives needed for effective employment, management, and leadership evolve fast, people will need to keep up to stay relevant. Colleges and universities, under a lifetime learning model, can fill this gap. Under the current structure, students attending college mid-career, after they have received one degree, are nowhere near as common as the first time K-12 Will Become K-14 In general, the response to COVID-19 for

student, which implies that market is likely under served. Furthermore, colleges and universities can demonstrate their value through lifelong career advising to students after they have graduated. Residential Campuses Are Here to Stay The response to COVID-19 at most colleges included an expansion of remote learning, and many have realized that a lot of the transfer of knowledge can take place remotely. But as authors Modesta and Horn noted in their book, Choosing College: How to Make Better Learning Decisions Throughout Your Life , there is a significant segment of the population that is seeking a residential experience of college and that segment believes the greatest learning comes through a residential experience. While many of the growth opportunities for colleges might significantly involve an online approach, most schools will continue to be anchored by their residential campuses. Conclusion The recent changes to higher education have been fast and drastic. For those willing to put forth a significant investment in evaluating how to respond to the changes and opportunities provided by the current environment, there is great reason to be optimistic about the future of higher education.

COLLEGES & UNIVERSITIES SERVICES

The Colleges & Universities Services Group provides a full range of assurance, consulting services and tax to colleges and universities. Our specialized services and expertise are delivered with close personal attention to our clients.

Chester Moyer, CPA Partner-In-Charge Colleges & Universities Services 816.859.7945 chester.moyer@rubinbrown.com

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INDUSTRY UPDATE CONSTRUCTION

The State of the Construction Industry Post COVID-19 By Ken Van Bree, CPA, CGMA & Matt Beerbower, CPA T he construction industry is strong and resilient and is used to weathering storms and recessions; however, how has the construction industry weathered a pandemic?

with uncertain project pipelines, health safety issues/disruptions, supply chain issues (including volatility in materials prices) and capital market fluctuations. Paycheck Protection Program (PPP) loans and other stimulus have certainly supported the business community and temporarily supported industries including construction; however, questions and uncertainty remain and will continue to present opportunities for the industry as it progresses into a post COVID-19 world (yes…opportunities).

The industry has remained essential in many locations throughout the country during the pandemic, and contractors have largely remained busy, albeit managing through significant uncertainty like everyone else and dealing with project delays and/or cancellations. Other challenges contractors have faced include social distancing on projects, managing cash flows and labor force

The State of the Construction Industry Post COVID-19

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How Will Things Change? While we have all read the doom and gloom for months on end, let’s dive deeper into some areas the industry is likely to experience change. While there are challenges, those embracing change are certain to find opportunities and learn to thrive. Technology First, with respect to the construction environment, whether you are a local trade contractor in a rural community or a large international E&C player, the marketplace is changing or will change. Will investments in infrastructure to stimulate the economy affect your environment and how can you position yourself to be ready? Increased residents in communities working from home and that changing landscape will lead to change in design and construction, and along with that, create new opportunities (it always does). Technology is an area where we were already seeing changes and the pandemic has led to more. Social distancing strategies and rules relied on technology to keep design, communication, inspections, and other elements of the construction business functioning effectively. While most of us complain occasionally that we would prefer not to have another Zoom meeting ever again, will we take these experiences and turn them into a competitive advantage? Best in class contractors are continuing to develop strategies around technology to enhance their performance, including increased drone usage, thermal cameras,

Increased residents in communities working from home and that changing landscape will lead to change in design and construction, and along with that, create new opportunities.

and bidding and costing software/tools amongst others.

The construction industry as a whole has been long overdue for technological advancement, and the events of the last year or so only add fuel to the fire and have provided real life examples of the need to invest further. The largest industry leaders are paving the way with technology. Do you remember when your boss or leader looked at you and said, “if we are not growing, we are dying?” The same concept holds true with technology. Pre-Fabrication & Modular Construction COVID caused many project teams to consider the number of employees on a project at any point in time. The industry found a way to get work done as safely as possible. Is there a take away here? Of course…remember, even before the pandemic, we have been talking about pre-fabrication and modular construction as a large part of the future for building.

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The pandemic has amplified momentum in this area. Immense opportunity exists to invest further in off-site and modular construction as recovery begins and the industry evolves. There is both long-term strategy in play and near-term opportunity as demand is knocking on the door in certain sectors to enhance or change infrastructure as a result of the pandemic.

Talent Before the pandemic, contractors were already facing challenges competing for talent, especially with regards to experienced talent in the trades, an aging workforce and challenges keeping younger workers engaged. These talent challenges have not changed. While technology continues to evolve, the need for developing talent and building teams has never been more important. Contractors with good plans and programs in place to build and develop their teams, address compensation, and keep their employees safe will continue to have a competitive advantage in the marketplace. Conclusion While no one’s vision for 2020 went as planned, it’s never too late to embrace change; the industry will be stronger for it! Let’s appreciate, as an industry, that we are resilient and know how to go up and down (remember 2010?). Finally, keep in mind that regardless of how we communicate, and how we build, relationships will continue to drive business. We have plenty of opportunities to come out of this transition stronger and ready to keep building a new world.

CONSTRUCTION SERVICES

RubinBrown has an established and well-recognized team that provides a full range of assurance, tax, business planning and management consulting services to the construction industry.

Ken Van Bree, CPA, CGMA Partner Construction Services 314.290.3429 ken.van.bree@rubinbrown.com Matt Beerbower, CPA Partner & Vice Chair Construction Services 303.952.1252 matt.beerbower@rubinbrown.com

The State of the Construction Industry Post COVID-19

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INDUSTRY UPDATE HEALTHCARE

Five Ways COVID-19 Has Changed Healthcare by Thomas Zetlmeisl, CPA, CFE, CFF, CGMA & Tom Norton, CPA, CPC T he COVID-19 pandemic is a healthcare crisis, and the healthcare industry has been uniquely affected. Telehealth Pre-pandemic, Medicare, and most private insurers, allowed telehealth in very limited circumstances. Once the pandemic hit, they pivoted quickly. Telehealth was suddenly

Some providers have been overwhelmed and overworked, while others saw revenues drop precipitously. Government money poured into the system, and rules and regulations were changed. The question now is, what will be the lasting impact of the pandemic on the healthcare providers and the industry at large? The following are five areas RubinBrown professionals believe we will see long-lasting change in the industry.

available everywhere, and patients and providers could use their smartphones to complete the visits. Consumers loved it. Even providers, skeptical at first, ended up embracing the “new” paradigm. Telehealth is here to stay. Providers will need to get comfortable with the technology and change their scheduling and billing practices to account for it.

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Long-Term Care The pandemic hit long-term care (LTC) facilities early and hard. As of April 15, 2021, there have been an estimated 182,000 COVID-19 deaths in the U.S. among residents and staff of LTC facilities. Going forward, it is only natural that seniors may be wary of entering long-term care facilities. Facilities may face pressure to provide increased compensation to its staff. And, the government will likely be under pressure to further regulate the industry. All of this means increased costs and potential pressure on top line revenue. To survive, long-term care facilities will need to demonstrate to a wary public, their commitment to the health of their residents. Facilities may also further embrace the trends toward in-home care, perhaps by partnering with physicians and home health agencies. Make no mistake, the population is still aging, and senior living services will continue to be in demand. Acknowledging the challenges and facing them head-on will give facilities the best chance of thriving in a post- pandemic world.

Behavioral Health The pandemic has led to a sharp increase in mental health awareness and those seeking help. Behavioral health is a big part of the previously mentioned growth in telehealth. Many people who may not have been comfortable walking into a therapist’s office are able to get care via smart phones or other internet-connected devices. Public awareness of mental illness has also increased, perhaps with a lessening of the associated stigma. These factors, and others, will lead to increased individuals seeking help. By embracing technology and documenting improved clinical outcomes, behavioral health providers will be well positioned for the future. Government Funding and Regulation The debate over the extent of government involvement in healthcare has been raging in the U.S. for decades. No matter where you land on this issue, no one can deny the money the federal government put into the system this past year: Provider relief funds alone were $178 billion, and PPP “loans” (effectively grants) to healthcare providers were another $68 billion.

Five Ways COVID-19 Has Changed Healthcare

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All this is in addition to the $799 billion already spent on Medicare, and the $613 billion on Medicaid (2019 figures). Where the government spends money (once the emergency passes), you can be sure regulations will follow. Providers who want to play the game will need to know and follow the rules. This will make compliance with billing, documentation and electronic reporting requirements even more important. The Next Pandemic Public health experts agree that COVID-19 will not be the last pandemic—far from it. History is rife with plagues and epidemics. COVID-19, as deadly as it has been, is not nearly as deadly as the plague, smallpox or Ebola. As a result of this pandemic, though, new vaccines were developed in record time, including those using the relatively new mRNA technology. The world will be on heightened alert for potential new outbreaks. These new technologies can hopefully be leveraged for the next pandemic. Healthcare providers can be leaders in preparing for future pandemics and other public health emergencies.

Investing in supplies, technology, training, etc. will put hospitals and other providers in the public spotlight while making their communities safer. After the pandemic, the demand for healthcare will continue to increase. Those providers who are capable, adaptable, and alert to the needs of their patients and community will thrive.

HEALTHCARE SERVICES

RubinBrown’s Healthcare Services Group provides a broad array of services to a diverse group of clients in the healthcare industry including hospitals, physician practices, multi-site medical groups and not-for-profit health organizations.

Tom Zetlmeisl, CPA, CFE, CFF, CGMA Partner-In-Charge Healthcare Services 314.290.3395 thomas.zetlmeisl@rubinbrown.com

Tom Norton, CPA, CPC Manager Healthcare Services 314.290.3708 tom.norton@rubinbrown.com

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INDUSTRY UPDATE NOT-FOR-PROFIT

What is on the Horizons for Organizations in the Not-For-Profit Industry by Amy Altholz, CPA, CGMA A s not-for-profit organizations leave 2020 behind and look forward into 2021 and beyond, the pandemic situation that need to be evaluated, but a hybrid environment is likely.

has revealed new opportunities and considerations for organizations.

This hybrid type environment may yield benefits to an organization such as cost savings arising from a reduction in physical infrastructure. If employees can effectively and efficiently complete their job responsibilities either from their homes or onsite with the populations being served, will your organization need as much administrative space? Additionally, could your existing space be reconfigured to allow for more shared spaces for employees to work together and collaborate, but not necessarily have a dedicated workspace?

The Working Environment One of the first considerations for not- for-profits is what will their future working environment look like? Although it may no longer be required to comply with government social distancing and capacity mandates, will having employees work remotely still be as prevalent? There are pros and cons to each organization’s unique

18 What is on the Horizon for Organizations in the Not-For-Profit Industry

Expanding Organizations' Reach Organizations should also continue looking for innovative ways to enhance program delivery and donor, staff, board, and volunteer engagement. Connecting in-person is ideal, but there are silver linings in a virtual environment that allow not-for-profit organizations to expand their geographic footprint. Whether it is being able to serve a population that was not previously accessible, reaching an expanded donor base through virtual special events and fundraising campaigns, or enhancing your Board with specialty expertise from a non-local member, these opportunities will remain beyond the pandemic. Flexible working arrangements may be necessary as organizations move forward. Virtual engagement will be crucial. To allow for this flexibility and engagement, organizations will need to ensure they have the technology infrastructure in place to allow employees to successfully perform their job responsibilities anywhere, anytime. A digital transformation may be necessary to allow employees to best execute the organization’s mission, goals and objectives. A key element of this may be centralized data management. The ability for all employees to be able to make strategic and necessary decisions based on anytime access to the same data could increase mission effectiveness. This centralized data management will also be beneficial to not-for-profit organizations as they consider how the fundraising environment is evolving post pandemic. Community and program impact has always been emphasized by funders and granters. This will be of even higher importance Talent & Technology Reflecting on this future working environment, not-for-profit organizations also have to consider how this affects their most valuable resource, their talent.

This hybrid type environment may yield benefits to an organization such as cost savings arising from a reduction in physical infrastructure.

as Charity Navigator roles out its new Encompass Rating System, which includes a new impacts and results beacon. This beacon assesses how well a nonprofit delivers on its mission by estimating the actual impact a nonprofit has on the lives of those it serves and determining whether it is making good use of donor resources to achieve that impact. Data management and tracking will be fundamental. All of these considerations should be on an organization’s radar as it moves forward in the future.

NOT-FOR-PROFIT SERVICES As a recognized leader in the not-for-profit sector, RubinBrown has the resources essential to serve arts and cultural organizations, foundations, private schools, religious organizations, social service agencies, trade and membership associations, and other nonprofit organizations.

Judy Murphy, CPA, CGMA Chair & Partner Not-For-Profit Services 314.290.3496 judy.murphy@rubinbrown.com Amy Altholz, CPA, CGMA Partner-In-Charge Not-For-Profit Services 314.290.3369 amy.altholz@rubinbrown.com

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INDUSTRY UPDATE PUBLIC SECTOR

Looking Beyond the Pandemic for the Public Sector Industry by Renita Duncan, CPA & Matt Marino, CPA

T he initial impact of the COVID-19 cases were front and center because of their role in addressing the public health emergency. They were faced with additional challenges, such as projected budgetary shortfalls, service continuity difficulties and overall political fallout surrounding public health policies. As vaccine distribution and utilization has ramped up, governments have begun the process of returning to normal. pandemic was felt throughout the world. Governmental entities in many

This leaves many wondering what the new normal will be and what long-term impact the pandemic will have on the public sector industry. One of the more universal changes that comes to mind is the utilization of the remote working environment. While there were initial challenges ramping up early in the pandemic due to technological limitations at organizations and a learning curve for many, remote working has enabled many entities to continue operations with little, long-term negative impact.

Looking Beyond the Pandemic for the Public Sector Industry

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At first, the remote working environment was a necessity in order to maintain social distancing; however, as time has passed, many entities and their teams have begun to see the benefits of working remotely, such as increased flexibility for both the organization and its teams. A remote work environment allows collaboration to take place quickly and efficiently through the use of technology, while neatly fitting around the many other tasks entities and individuals carry out throughout the day. The high adoption rate has allowed team members to work from virtually anywhere and, in many cases, has broadened the talent pool, as it is no longer a forgone conclusion that all members of a team must reside in the same city, state or region. Meetings are being held via numerous software platforms (Zoom/Teams/Meets/ YouTube), resulting in increased public accessibility, participation and transparency, as average citizens can now interact and attend governance meetings from the comfort of their own homes. Budgetary and strategic planning related to this new working style are likely to be impacted in the long-term by the pandemic. According to a recent article in U.S. News and World Report quoting a Pew Charitable Trust study and Moody’s’ Analytics projections regarding impacts of the pandemic on tax revenue collections, “Generally, revenue losses have not been as dire as feared at the pandemic’s outset,” wrote Barb Rosewicz, project director for the Pew initiative. Still, a national projection issued by Moody’s Analytics in February predicted aggregate state government general fund revenue could fall for three consecutive years—from

At first, the remote working environment was a necessity in order to maintain social distancing; however, as time has passed, many entities and their teams have begun to see the benefits...

The federal government via the CARES Act and American Rescue Plan has deployed hundreds of billions of funds in the form of grants and new programs that state and local governments must plan for, spend and administer. In addition to the utilization of the federal funds, governments are likely going to be faced with decisions about prioritizing the use of funds in areas that are new or changed as a result of the pandemic. For many, moving to a remote or hybrid working environment has highlighted deficiencies or gaps in information technology (IT) areas. Additional funding may be required to address long-term, IT upgrades in the form of equipment, software, personnel and cybersecurity. Governments may need more core IT assistance but also may require a savvy professional to navigate the virtual public interfaces. Along with internal IT considerations, the remote environment could impact the long- term physical space needs of an entity in the form of a potentially reduced footprint due to co-working/shared workspaces. Remote work may impact the broader local community, such as the community’s internet availability, reliability and capacity.

fiscal 2020 through fiscal 2022—with a combined revenue loss of about $100 billion.

While many governments were or are facing budgetary shortfalls, some also have other significant budget considerations to make.

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Communities must ask themselves many questions, such as:

∙ Will there be a need for significant economic development due to the shift in buying and spending habits? ∙ Are brick-and-mortar retail stores and restaurants adapting to the changes in consumer buying habits and decreased foot traffic? The major benefits of remote work and virtual retail, such as convenience and accessibility, might be too great for employers and consumers to revert to traditional work and lifestyles. Consumer preferences and demands may not return to pre-pandemic levels in all areas. The entities that are focused strategically on responding to the changes brought on by the pandemic have the opportunity to set their entities or communities apart from the pack.

∙ Is additional investment in internet capabilities needed in the form of 5G, fiber optics or overall availability?

PUBLIC SECTOR SERVICES

Through our extensive list of clients, including many cities and governmental entities, RubinBrown understands the issues unique to the public sector.

Renita Duncan, CPA Partner-In-Charge Public Sector Services 314.678.3546 renita.duncan@rubinbrown.com Matt Marino, CPA Partner Public Sector Services 303.952.1221 matt.marino@rubinbrown.com

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INDUSTRY UPDATE MERGERS & ACQUISITIONS

M&A Outlook: Comes In Like a Lamb, Out Like a Lion by Ben Barnes, CPA, CGMA & Jeff Sackman CPA, CM&AA A s the country exits the cold winter of 2020/2021, optimism regarding the M&A market is universally held, and strategic investors; however, the capital investment from these buyers did not parallel the amount of cash reserves available.

with an expectation of a seller’s robust market. The sources of these tailwinds are numerous; however, the key drivers can be simply defined to the following: availability of uninvested capital, baby boomers looking to exit their companies, COVID-19 in the rearview mirror, the uncertainty around future changes in tax laws, and cheap debt. Dry Powder – Plan for an Explosion After a brief swoon from the initial COVID-19 outbreak, the 2020 U.S. M&A volume improved as sellers were able to extract some value from private equity (PE) funds

As of March 2020, there was approximately $1.53 trillion of available cash reserves held by PE funds (including VC investors). In comparison, at the end of 2015, there was $0.75 trillion available. Despite the sidelined cash held at the beginning of 2020, deployment was uncertain as PE funds weren’t able to read the tea leaves in deciphering our new world post COVID-19. Now, in 2021, with time distancing the economy from the onset of the pandemic, buyers have the required confidence to

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position capital in hopes of gaining scale and accelerating growth.

sellers to negotiate transactions without any COVID-19 adjustments. Additionally, these 12-month operating results demonstrate to buyers if a target is built strong enough to live in this new world. Tax Law Changes – Death & Higher Taxes Democrats control the White House, Senate, and the House of Representatives. This group will have at least two years of unilateral decision making (assuming appointees vote on their current party lines). Changes to the tax laws remain in the smoke signals, but President Biden’s policies point to nearly a double increase in rates on material long-term capital gains (20% - 39.6%, for those with AGI exceeding $1 million), the elimination of the qualified income deduction for partnerships and S corporations, and an increase in the corporate rate from 21.0% - 28.0% . Radical changes to the aforementioned tax laws could result in unintended consequences furthering sellers’ motivation to transact sooner than later. Cheap Debt – Tinder on the Powder It is expected that the majority of the 2021 buyouts will be sponsored by private equity funds structuring the transactions with significant amounts of debt. Recently, debt has been rather cheap fueling future buyouts. In response to the pandemic, during March 2020, the Federal

Baby Boomers – Looking to the Sunset There is a popular expression sell-side advisers whisper to their clients: “you can always be early, but you can’t be late.” As more than 12 million baby boomer business owners approach retirement age and look to monetize their closely- held businesses, new motivation from the pandemic drives sellers to reevaluate that ‘perfect’ moment to transact. Owners were startled and began to focus on value preservation, possibly even at the risk of sacrificing transactional up-side. Given the number of sellers in tandem with the fear of another economic crushing event, volume and motivation will be high from these baby boomers. Buyers and sellers who transacted during Q2’20 – Q1’21 entangled over profit and loss (“PnL”) COVID-19 adjustments. Regardless of their validity, this topic remained a sour topic between parties as buyers rarely wanted to give sellers the benefit for these adjustments, leaving sellers feeling short changed, possibly even jeopardizing the deal. As soon as Q2’21, sellers will have ‘clean’ twelve month operating results absent any COVID PnL impact, allowing buyers and Trailing Twelve Months' Financial Results – COVID Results Are Negative

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Additional Resources

Reserve lowered the fed funds rate to 0.00% - 0.25%. At the beginning of April 2021, the rate has not yet increased. Though lenders have experienced defaults from COVID, their portfolios must be ‘rebalanced’ to make up for these losses through additional lending. If lenders can borrow on such a discount, the opportunity cost of not lending is too high. Conclusion The above mentioned tailwinds could set the stage for one of the most feverish M&A markets to be experienced in the last 50 years. Though uncertainty lingers (e.g., pace of the COVID-19 vaccination), the strong factors driving the future M&A environment will outweigh the concerns.

E-Focus Newsletters Breaking regulatory updates, technical summaries and industry information are sent electronically through E-Focus newsletters. View the most current industry news by visiting www.RubinBrown.com/E-Focus . Seminars From our year-end tax and accounting updates to industry-specific education, we offer events to help you learn and connect with other businesses.

Learn more and register by visiting www.RubinBrown.com/Events .

Guides and Statistical Analysis Thought leadership and market research are provided annually to assist our clients benchmark their own results. View RubinBrown’s stat books by visiting www.RubinBrown.com/Stat-Books .

These unprecedented times will drive investors to deploy capital at an alarming rate fueling the M&A market through 2021.

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties. Readers should not act upon information presented without individual professional consultation.

MERGERS & ACQUISITIONS SERVICES RubinBrown can help successfully navigate the transaction process. From initial thought to critical post-closing and integration activities.

Ben Barnes, CPA, CGMA Partner-In-Charge Mergers & Acquisitions Services 314.678.3531 ben.barnes@rubinbrown.com

Jeff Sackman, CPA, CM&AA, CGMA Partner Mergers & Acquisitions Services 314.290.3406 jeff.sackman@rubinbrown.com

www.RubinBrown.com

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