The Price of Falling Victim to Ransomware: Colonial Pipeline Forced to Pay $5 million ransom – could you be next?

May 17, 2021

By now, most of you have felt the impact of the recent ransomware attack on The Colonial Pipeline causing skyrocketing gas prices and even leaving some gas stations with shortages. Colonial Pipeline paid a pretty penny to resume operations by forfeiting $5 million to a well-known hacker group called Darkside. This is yet another example of a high-profile cyberattack.

Companies of all sizes are at risk of falling victim to cybercriminals. In late April of this year, Apple disclosed a third-party service provider had been attacked and cybercriminals were demanding $50 million in return for controls. The hackers behind the Colonial Pipeline have already attacked 3 additional companies only after collecting on the Colonial Pipelines ransom. The 3 companies were smaller in size and spread across the world – 1 in the United States, 1 in Brazil and, 1 in Scotland.

While Colonial Pipeline and Apple both experienced ransom attacks (cybercriminals deploy malicious software encrypting files on a computer system and then demand a ransom to be paid to restore the data), they were two completely different types of which exposures cybercriminals are now leveraging to ensure their payout:

  • Critical Infrastructure – Colonial Pipeline carries nearly half of the fuel supply on the East Coast meaning holding such a critical company at ransom to resume operations is a ruthless approach to ensuring a ransom will be paid. Cybercriminals are now turning their attention to critical infrastructure as prime targets.
  • Third-Party Targeting – Apple was not held at ransom within their own network, but at a third-party supplier of proprietary parts. Due to weaknesses within the third-party suppliers’ network, hackers used the vulnerability to their advantage. Knowing the third-party provider would not have the capital to pay combined with the proprietary data at stake, hackers knew Apple would forfeit the ransom.

It is imperative companies of all sizes assess their networks for weakness. A cybercriminal does not care if your business cannot survive after paying a ransom. They are looking for a quick payout. Many companies rely on third-party IT security professionals to help fill skills gaps to mitigate risks. There is no better time to ensure your company, big or small, has the right measures in place to keep your capital safe and secure.

How we can help
WVCT is here to help you assess your IT risks and support your overall security plan. To schedule a meeting today, connect with our Risk Services Practice Leader below.

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Tiffany Pollard, CISA
Tiffany.pollard@wvco.com
wvco.com | 419.891.1040

Categories: Risk Services


Capitalizing on the R&D Tax Credit For Manufacturers

Apr 28, 2021

While the Research and Development (R&D) Tax Credit has been around for some time, it remains one of the best opportunities for manufacturing and distribution companies to minimize their tax liability and leverage an immediate source of cash. The credit was designed to provide a tax incentive for U.S. companies to increase spending on research and development in the U.S.

How to qualify

What constitutes as R&D is much broader than manufacturers realize. Applying to not only the development of products, but also activities and operations, such as new manufacturing processes, environmental improvements, software development, and quality enhancements. The R&D credit is available to any business that incurs expenses while attempting to develop new or improved products or processes while on U.S. soil. A four-part test has been established to help manufacturers determine if they qualify:

  • An activity that creates a new or improved business component of function, performance, reliability, or quality;
  • Technological in nature and related to physical or biological science, engineering, or computer science;
  • Intended to discover information to eliminate uncertainty in capability, method, or design;
  • An activity that includes a process of experimentation, or evaluating one or more alternatives to achieve a result. This might include modeling, simulation, or systematic trial-and-error.

How to claim the credit

Since the credit may be claimed for both current and prior tax years, manufacturers should document their R&D activities to ensure they are positioned to claim the credit in both situations. You will be required to factually provide the number of qualified research expenses (QREs) paid with documentation such as payroll records, general ledge expense detail, project lists, and notes, etc. Qualified research expenses are defined as:

  • Wages paid to people directly working on, supervising, or directly supporting the development process
  • Supplies used or consumed during the development process
  • Contract research expenses paid to a third party for performing qualified research activities on behalf of the company
  • The cost of cloud service providers or leasing computers used in research activities

It is important to note that research doesn’t have to lead to a successful product or process for the expenses to count. Even if the project or research failed, you can still claim the credit.

Additional tax benefits

  • Alternative Minimum Tax – Eligible small businesses with an average of $50 million or less in gross receipts over the past three years may claim the federal R&D tax credit against their alternative minimum tax liability beginning in 2016.
  • Payroll Tax – Eligible startups can use the credit to offset payroll withholding taxes. Startups using the provision must have gross receipts of less than $5 million and no gross receipts prior to the five taxable years ending in the then-current tax year. The credit towards payroll withholding taxes is limited to $250,000 in one year, but companies can carry forward excess credits to apply to future payroll withholding taxes.

How we can help

For more information about R&D credits or reducing your company’s risk of facing penalties, contact our Manufacturing & Distribution Practice Leader below.

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Robert Bradshaw, CPA
Manufacturing & Distribution Practice Leader
bob.bradshaw@wvco.com | 419.891.1040

Categories: Manufacturing & Distribution, Tax Planning


SBA Announces Restaurant Revitalization Fund Registration & Application Date

Apr 27, 2021

Today, the SBA announced it will open registration for the Restaurant Revitalization Fund (RRF) on Friday, April 30, 2021, at 9 am ET. Applications will officially be available on Monday, May 3, 2021, at noon ET and will remain open for any eligible entity until the funds are completely exhausted. In order to prepare for the launch of the RRF, the SBA recommends applicants become familiar with the application process by doing the following:

  • Register in advance for an account at restaurants.sba.gov. This registration will go live on Friday, April 30, 2021, at 9 a.m. EDT.
  • Review the official guidance, program guide, FAQs, and sample application published by the SBA.
  • Prepare your required documentation.
  • When the portal opens on Monday, May 3rd, 2021 work with your point-of-sale vendor or visit restaurants.sba.gov to submit your application. The SBA noted if you are working with a point-of-sale vendor, registration prior to submitting the application is not required.

The SBA will host two webinars on Tuesday, April 27, and Wednesday, April 28 covering the Restaurant Revitalization Fund program details and how to submit an application. To register for one of the webinars, click below:

While the webinars are limited to the first 20,000 registrants, recordings will be made available on the SBA’s YouTube Channel.

The SBA will be prioritizing funding applications from businesses owned by women, veterans, and socially and economically disadvantaged individuals for the first 21 days. However, all eligible applicants are strongly encouraged to submit their applications as soon as the portal opens. Once the 21 day priority period has passed, all eligible applications will receive funding on a first-come, first-serve basis.

If our team can be of assistance please reach out to us. We will continue to update and monitor this topic as more news is shared.

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Kristin Metzger, CPA
Restaurant Practice Leader
kristin.metzger@wvco.com | 419.891.1040

Categories: COVID-19, Restaurant & Hospitality


Restaurant Revitalization Fund – Updated 4/20/21

Apr 20, 2021

Further details on the Restaurant Revitalization Fund (RRF) were released by the SBA late last week. Details regarding application requirements, eligibility, and a program guide were all included in this announcement. A sample application for the RRF can be found here.

Over the next two weeks and before the application launch, the SBA is initiating a 7-day pilot period for the RRF application portal. Selections for the pilot period will be made at random and the participants will be from existing borrowers of PPP funds in priority groups. The funds requested from these early participants will not be made available until the application portal is open to the general public. Also, the SBA is working on an application program interface to allow for the application to be embedded in POS systems such as Toast, Aloha, Clover, and Square. This interface will allow operators to be able to submit applications directly within the POS system.

The SBA is expected to announce the official application launch date soon. Once the application is open to the general public, the first 21 days will be reserve for the priority groups including businesses owned by women, veterans, and socially and economically disadvantaged individuals. Furthermore, there will be funds set aside for various revenue groupings. Currently, there is $5 billion set aside for applicants with 2019 gross receipts of less than $500,000. There is also $500 million set aside in grant money for applicants that had gross receipts less than $50,000. The fund also has set aside $4 billion for applicants that had 2019 gross receipts ranging from $500,000 and $1.5 million.

The National Restaurant Association recently published a Q&A which can be found here to help clarify several questions surrounding the RRF program. Some highlights and further information of additional points of clarification can be found below.

Covered Period
There is a discussion that the RRF covered period will potentially be extended for an additional 14 months, which would allow applicants to have until March 2023 to spend the grant money.

Eligibility
An entity that has permanently closed or has filed for bankruptcy protection (without an approved plan of reorganization) will not be eligible for the RRF grant. Furthermore, the eligibility requirements include demonstrating at least one-third of an entity’s revenue comes from the sale of food or beverages being consumed on-site.

Required Documentation

The following documents should be prepared for those entities entitled to RRF grants:

  • An application form and the IRS Form 4506-T.
  • Applicants in operation before January 1, 2019, must supply gross receipts for both 2019 and 2020
  • Applicants in operation through part of 2019 must supply gross receipts for both 2019 and 2020
  • Applicants that began operations on or between January 1, 2020, and March 10, 2021, and applicants that have not yet opened as of March 11, 2021, but have incurred eligible expenses, must supply documentation of both gross receipts and eligible expenses for the length of time in operation.
  • Gross receipts and eligible expense documentation:
    – Business tax returns (IRS Form 1120 or IRS 1120-S)
    – IRS Forms 1040 Schedule C; IRS Forms 1040 Schedule F
    – IRS Form 1065 (including K-1s)
    – Bank statements
    – Financial statements such as income statements or profit and loss statements
    – Point of sale report(s), including IRS Form 1099-K

We will continue to monitor and provide updates on the RRF grant program as they are made available.

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Kristin Metzger, CPA
Restaurant Practice Leader
kristin.metzger@wvco.com | 419.891.1040

Categories: COVID-19, Restaurant & Hospitality


Industry 4.0 In A Pandemic World

Apr 08, 2021

In our last manufacturing-focused blog, we explored the topic of the fourth industrial revolution known as Industry 4.0. This highly developed revolution focuses on the use of technology, automation, and digitization for operational efficiency. Many are now curious to know how this new phase of manufacturing was impacted by the disruption of the pandemic. With a vast shift from in-person work to a more remote setup, Industry 4.0 experienced a surge in the scaling of related technologies.

According to a survey by McKinsey, of their 400 respondents, 94% of respondents told noted that Industry 4.0 had helped them to keep their operations running during the crisis, and 56% percent said these technologies had been critical to their crisis responses. For those organizations who had already taken the leap to incorporate Industry 4.0 into their daily operations, the pandemic was a win situation. These early adopters were simply able to rely on their automation to overcome the loss of physical presence in their factories and at the same time utilize their real-time data analytics to assess their operations and make prompt adjustments.

For others, the pandemic was a wake-up call. Manufacturers who have yet to make the transition to Industry 4.0 were met with the stark reality of being unable to pivot during the disruption which left them negatively impacted. According to the McKinsey survey, 56% of respondents that hadn’t implemented Industry 4.0 technologies prior to COVID-19 found themselves constrained in their ability to respond to COVID-19 in the absence of digital technologies to support them.

While the pandemic made organizations realize the importance of Industry 4.0. It has also hindered progress. For some, the pandemic wreaked havoc on cash flow and talent creating a sort of catch-22. The need for automation and digitization is apparent, but without the capital to support the transition, manufacturers are stuck in a rock and a hard place.

So what is next? Manufacturers must first recognize the value-add of Industry 4.0 and commit to scaling their operations to include features of this forward-thinking revolution. Once committed, the next step is to develop a detailed plan. Given limited resources, having a strategic approach will ultimately maximize the benefits of smart technology without having to reprogram due to short-fixes. The biggest hurdle is making the decision to scale and take the first step. Whether it’s setting up your current system to pull data in an efficient manner for future data analytic software or focusing on best practices for remote working, committing to Industry 4.0 is the first step. Don’t make the mistake of discounting Industry 4.0, it could be deadly in a time of disruption. Organizations that learned from the pandemic, have embraced this new revolution, and can be nimble during uncertainty are those who will survive and thrive.

Categories: COVID-19, Manufacturing & Distribution