Hartford Business Journal

20 Hartford Business Journal • November 6, 2017 • www.HartfordBusiness.com OTHER VOICES How to make Americans more generous, not less By Daniel Rashke and Alyssa A. DiRusso O ver the past century, tax incentives for giv- ing to charity have helped improve American society in countless ways, from spurring medical research to building more vibrant communities to providing a safety net for those most in need. Yet Congress is now considering changes to the tax code that would greatly reduce the already-too-slim proportion of taxpayers who can benefit from existing incentives for charitable giving. Instead lawmakers should adopt a new approach that treats taxpayers more fairly, broadens the nation's philanthropic base and helps defray government spending. Congress and the Trump administration should consider au- thorizing "Flexible Giving Accounts" (or FGAs) that would allow American workers — whether they itemize deductions on their tax returns or not — to set aside money for charities of their choice. Workers would not have to pay taxes on the part of their income that they donate to charity. It's a concept that would be familiar to more than 100 million Americans who opt in to consumer-directed accounts (such as FSAs, HRAs, HSAs), which allow participants to use pre-tax payroll deductions to defray the cost of everything from doctor visits to day care. With FGAs, millions more Americans would be able to efficiently leverage the tax code to benefit worthwhile charities, creating a whole new class of "everyday philanthropists." Currently, the tax code allows income tax deductions for chari- table donations, but only for the roughly one-third of filers who itemize deductions on their returns. Nearly all individual taxpay- ers in the highest income tax bracket itemize deductions and can reduce their tax obligations through a charitable deduction. In contrast, fewer than a quarter of Americans making less than $100,000 itemize and thus most are unable to receive a tax reduc- tion from their giving. The proposed hike in the standard deduction that's now on the table would further discourage taxpayers from itemizing deductions and reduce an important incentive for charitable giving. Breaking it down Here's how FGAs would level the playing field. As an extension of their existing fringe benefits plans, companies could offer workers the opportunity to set aside a portion of their pre-tax earnings for charitable contributions. Each participating employee would select a certain amount from each paycheck to go into a dedicated FGA. The employee could then distribute that money to the charitable organiza- tions of his or her choice. That could include qualified religious and educational organiza- tions and any other entities for which donations are currently tax deductible. This new option would complement the standard deduction and traditional itemized charitable income tax deduction. Implementation requires just a simple update to the tax code and would not affect those who itemize their contributions. To avoid double-dipping, taxpayers who make use of a FGA would be unable to file for a charitable deduction, and those who itemize their charitable deductions would be unable to use a FGA for the charitable gifts they itemize. For millions of Americans, the change would open up a convenient way to regularly do- nate. Since it makes use of a common method of employee benefits management, it would be easy and inexpensive for many companies to establish. FGAs would yield distinct benefits to employers, especially smaller businesses that could pay less in payroll tax. What's more, there is a growing body of evidence supporting the wellness benefits of individual giving. Improving corporate citizenship also has been shown to improve sales, visibility and employee recruitment and retention. Broadening the nation's philanthropic base would foster more routine, predictable dona- tions rather than a big donation frenzy at the end of each year. That would enable charities to plan more wisely and leverage projected gifts to maximum effect. This model also would enable the public and private sectors and the philanthropic com- munity to work together to increase the national giving rate, which could dramatically reduce expenditures for government-funded social programs. Daniel Rashke is CEO and owner of TASC, a Wisconsin-based benefits administrator, and chairman of The Greater Give Inc., a nonprofit formed to increase philanthropic giving and engagement. Alyssa A. DiRusso is the Palmer Professor of Law at the Cumberland School of Law at Samford University in Alabama. This commentary first appeared on CNN. STRATEGIC MANAGEMENT Business embezzlement is everywhere By Bob Ainsworth I t would never happen here. Our employees are good people. I trust them implicitly. Besides, it's only big companies that get scammed. And on and on go the reasons for not taking even simple steps to protect your company from fraud and theft. Do these excuses hold up? While working as a CPA, our audit team uncovered a payroll fraud at a local company paying hourly wages. The payroll clerk added hours to her husband's and son's time cards and then paid the doc- tored amounts. We caught her by looking for any employees with her last name and verifying the paid hours to the original time-card hours. In my 30 years as a corporate con- troller, a number of embezzle- ments crossed my path. A revenue inflation scheme came to light that generated large, unearned bonuses for a senior execu- tive and the sales manager. Another case occurred when a controller stole cash sales and then doctored the books to hide the theft so he could pay for a home improvement. The final case was a drug user wiring money to her and a daugh- ter's account. She'd been given complete authority over money transactions by the CEO. He believed his sole job was generat- ing revenue and refused to look at bank statements or account reconciliations. While teaching grad school for over 10 years, I asked students to describe a fraud they personally knew about. The best one, in my view, involved a bank manager who never took vacation, gladly covered other employees' hours and seemingly checked every detail of his branch's operations. It turns out he was looting unused home equity lines and grabbing the customers statements before they were mailed. And those examples are from a very small universe of people. The local news runs almost a story a week about employees violating the trust placed in them. What about the town business manager that almost bankrupt the town to pay for her riding stable? Or the local museum CFO who stole money using credit cards for her and her children? Or the project manager who submitted fake invoices for work on one of his construction projects? The Association of Certified Fraud Examiners issues an annual report on fraud cases throughout the world that will make you never trust anyone. Covering 2014 and most of 2015, they reported $6.3 billion in fraud losses with the average loss of $150,000. Losses were the same for large and small companies, but smaller companies were hurt more because they couldn't financially absorb the loss. And those small companies were less likely to take steps to reduce the risk of fraud. The most likely embezzler is a female who works in accounting and acts alone. What's a company of any size to do? Here are some basic steps to take: 1. Make every accounting person take a vacation and have someone else do their work. 2. Request a credit check on every em- ployee. If they can't handle their own money, they might like to get their hands on yours. 3. Never let the same person deposit cash and write and sign checks or create bank transfers. 4. Have all bank statements and credit card statements go to a non-financial executive for review. 5. Verify all resume information on new hires. Liars keep on lying. 6. Set an example of honesty by treating customers fairly. 7. Treat employees with bonuses and commissions fairly. Don't use tricks or overly aggressive goals to reduce or eliminate the chance for people to be hon- estly rewarded. 8. Have an audit by a CPA. If you can't afford one, have a CPA conduct an in- ternal control review. It will let employees know that you care about frauds. 9. Have a policy that honesty and fairness are key parts of the company culture. 10. Never conduct business in cash. 11. Limit vendor gifts to $25. 12. Look at employee lifestyles for exor- bitant travel or spending or continual borrowing from fellow employees. 13. Watch for the four d's: divorce, debt, drugs and disgruntlement. 14. Make sure all signed checks are mailed out immediately and not returned to the check preparer. 15. Review the payroll each pay period for changes such as new employees, salary changes and departed employees. Bob Ainsworth is a CPA and former CFO of New England Business Media, the owner of the Hartford Business Journal. He is the author of a crime-thriller book, "A FRAUD OF THE PONZI KIND." Bob Ainsworth Alyssa A. DiRusso Alyssa A. DiRusso Opinion & Commentary The local news runs almost a story a week about employees violating the trust placed in them.

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