Establishing Controls In Manufacturing
Apr 01, 2016
One essential aspect of business not always considered is developing controls. This could be related to a number of areas including how processes are handled, the accuracy of data, physical controls over products and materials, or internal controls.
I just completed a comprehensive document specifically related to process, procedures, and internal controls for one of my clients. This particular client did not have any formal written procedures, but stead a number of informal policies. Recently, management recognized the importance of documenting their current polices and implementing additional regulations for protection and to improve efficiencies.
There are situations where a product may leave the facility without approval. Establishing safeguards and security measures to prevent such events is crucial to your business. Another example of physical controls can be those related to scrap. In some industries, scrap can be a considerable amount which may be costly. A significant resale value of such scrap may lead to intentional misuse and potential fraud. Having set standards and continuous monitoring can help deter possible fraud.
Another area requiring controls is with regard to the cost system. Most likely there are calculations and determinations made periodically within the cost system. Many times when reviewing a system, I discover erroneous and counterintuitive information. Unfortunately, by the time it becomes evident during my review, a considerable amount of time has passed. Thus, cost managers have been trusting their system’s information without evaluating to ensure the results are reasonable and realistic. Implementing controls within the program can help indicate errors to prevent these ongoing inaccuracies. I have seen many instances where manufactures have relied upon their inaccurate cost information to determine if they should enter into a product line or produce a specific product.
Of course, you do not want to implement so many controls there is no room for critical thinking or growth. However, you do want to eliminate as many inefficiencies as possible. Consider implementing some or all of these various controls. Start today by taking control!
Categories: Cost Accounting
Deductions and Documentation for Charitable Contributions
Mar 31, 2016
Before filing your 1040, you will need to compile the charitable contributions you made throughout the year. The IRS allows you to deduct both cash and noncash donations on your schedule A, along with other itemized deductions. There are specific rules for cash contributions. These can be made by way of a cash, check, electronic funds transfer, debit or credit card, or payroll deductions. You will need to keep proper documentation in case your contribution is questioned.
In order for your donation to be deductible, it must be donated to a “qualified” organization. These include nonprofit groups, public charities, and educational institutions. If you are unsure about the qualifications of an organization, you can use an IRS app to help you determine the validity.
If you donate to a charity but receive a benefit in return, such as dinner or merchandise, then you can only deduct the amount that exceeds the fair market value of the benefit. For example, if you pay $100 for an event and receive a dinner that is worth $30, then your deduction will be $70. That $70 is the difference between the $100 you paid and the $30 value of the dinner.
Various rules apply regarding documentation based on your donation being over $250. If your donation is under $250, all you need is a bank record, such as a print out of your monthly bank or credit card statement. You could also use a canceled check. If you cannot provide such, you may use a written letter from the charitable organization with your name, the amount donated and the date on which you donated. If you have a payroll contribution you can use your paystub, W-2, or a letter from your employer with the amount and date you donated. In addition, you may be required to present a pledge card or other documentation with the name of the charitable organization.
If your cash donation is over $250, you will required additional information above and beyond your bank statement. A written letter from the charitable organization along with a description of any goods or services provided will be obligatory. If you received any benefit from your gift, then the letter must state what was provided and the value of that benefit. You may deduct the net amount.
You do not have to combine separate donations to the same organization when determining if your gift is over $250. For example, if you make a monthly donation to the same organization of $40 for a total of $480 for the year, this is not considered a gift over $250. You are permitted to treat each donation separately. If you have two separate donations to the same organization which over $250 then you will need documentation for each.
If you require assistance in determining your contribution status or have questions about gifting to a local charity, please feel free to a William Vaughan Company representative today (419) 891-1040.
By: Brittany Jennings, Staff Accountant
Categories: Other Resources
Ohio Department of Taxation Warns of Fraud Scheme
Mar 29, 2016
(Columbus, OH. / March 28, 2016) — The Ohio Department of Taxation (ODT)* today began alerting employers to the latest fraud scheme that is being reported nationwide. Over the past few weeks, payroll and human resources offices at various companies across the country, including some in Ohio, have received emails that appear to come from the CEO or other high ranking management official of the company. The emails seem to be a legitimate request for confidential payroll data. In fact, those emails are a phishing scheme by cyber criminals posing as company officers and fooling employees into providing detailed payroll and W-2 information that is then used to file fraudulent tax returns.
This scam has been worked on more than thirty companies resulting in the theft of W-2 tax information for thousands of current and former employees. The W-2 form contains an employee’s Social Security number, salary and other confidential data. This information enables thieves to create a realistic looking, but fraudulent tax return requesting a tax refund that is then filed with Ohio or other states, and the IRS.
Any Ohio company that has been the victim of or experienced this or any email phishing scheme should immediately contact ODT at 1-800-282-1780 so appropriate measures can be taken to protect against potential tax fraud and safeguard Ohio taxpayer dollars.
*http://www.prod.tax.ohio.gov/Portals/0/OhioTaxAlert/ArchivedAlerts/TaxFraudAlert.pdf
Categories: Other Resources
Tax Break Extender Package Approved By Congress
Mar 24, 2016
At the end of last year, Congress continued its tradition of passing an “extender package.” Typically, the year-end packages extend various tax benefits for one year only, but this most recent legislation — the Protecting Americans from Tax Hikes (PATH) Act of 2015 — extended many benefits for longer periods, and in some cases, permanently.
Individuals
Following are some of the more important provisions affecting individual taxpayers:
State and local sales taxes. The new law permanently extends the provision allowing taxpayers to take an itemized deduction for state and local sales taxes rather than state and local income taxes. This provision may be useful to individuals who live in states with no income tax or who have purchased an expensive item, such as a car.
American Opportunity Tax Credit. Also made permanent is the tax credit of up to $2,500 per year for the payment of qualified tuition and related expenses for the first four years of post-secondary education. The credit is subject to phaseout based on income level.
Higher education expense deduction. This provision allows eligible individuals to deduct up to $4,000 or $2,000 (depending on income) of qualified tuition and related expenses. Because the deduction is “above the line,” taxpayers do not need to itemize to take it. The deduction is extended for 2015 and 2016.
Nontaxable IRA charitable transfers. Under this provision, now permanent, individuals age 70½ or older may exclude from gross income up to $100,000 per year for direct transfers from their individual retirement accounts to qualifying charities. If all requirements are met, such contributions also count toward the taxpayer’s required minimum distributions.
Businesses
Among other changes, the PATH Act of 2015 provides more generous write-offs for qualifying fixed asset purchases:
Higher Section 179 limit. Effective for the 2015 tax year, the new law makes permanent the $500,000 limit on the cost of machinery, equipment, and other eligible property that businesses may expense each year. The election is subject to a dollar-for-dollar phaseout once the cost of expensing-eligible property exceeds $2,000,000.
“Bonus” first-year depreciation. Thanks to the new law, businesses will continue to have the option of deducting 50% of the cost of qualifying property (e.g., most machinery and equipment) in the year the property is placed in service. The 50% “bonus” depreciation percentage is available for 2015, 2016, and 2017. The percentage drops to 40% in 2018 and to 30% in 2019.
Categories: Other Resources
Is It Truly Lean Manufacturing?
Mar 24, 2016
I recently met with the CFO of a large manufacturing firm located in Northern Ohio which primarily produced automotive parts. This particular firm was part of a much larger organization with multiple plants across North America, as well as internationally. As we discussed the current state of the industry and his individual division, he mentioned a number of years earlier the entire company, including the international affiliates, went to lean manufacturing.
The primary goal of lean manufacturing is to use the least amount of resources necessary to make a given product and to maintain your inventory to avoid retaining large inventories. Providing customers with continuous, perfectly timed shipments without creating a stockpiling effect is also an element of lean manufacturing.
As we talked about how the operations were working, he mentioned one of the plants in his division recently failed to deliver and as a result, the assembly line was shut down for an extended period. He was concerned because the penalty rate for causing a shutdown of this operation was $15,000 a minute. Given the shut down for his plant was over an hour, this cost can add up quickly. At the time of our discussion, he had yet to receive the penalty charge from the customer and was hoping due to mitigating circumstances there would be no such penalty.
Such experience led to a conversation about how lean manufacturing was working in his operation. He acknowledged a number of plants had become very efficient, however behind the scenes, there was slippage occurring in each of the organizations.
He explained many manufacturing plants operating under extreme penalty provisions from their customers kept a small, off the books inventory, containing some of the most critical parts. There is no actual inventory kept in the plant, but instead in storage trailers on the grounds or at the customer’s location. The idea being if there is an absolute need due to a failure in the production process, the customer’s assembly line would not be shut down. Instead, the hidden inventory would be used to keep operations running. Based on his description, this concealed inventory never appeared on any of the lean analysis. In fact, it represented an off the books safety margin for emergencies.
The CFO spoke about how many of the operations have become very lean in relationship to manufacturing labor costs. In fact, some of the plants were running with exceptional efficiencies as a result of lean initiatives. It has also helped reduce crew sizes and still maintain production. However, the slippages have occurred in that some of the production support or perhaps production indirect labor was being recorded as an administrative charge. In doing so, the particular labor involved was not being considered with regard to the lean analysis being done on the overall labor. In effect what was happening is the crew was being supported and maintained by an indirect or support of direct labor positions, but the accounting department recorded such indirect support position as an administrative cost. Therefore, it was ignored as part of the overall efficiencies.
This manufacturing CFO was totally supportive of the lean manufacturing initiative and believed it did bring improved efficiencies to the operations. However, perhaps the true gains were somewhat less than reported gains if all of the slippages had been accounted for completely. The results may be quite different and may even result in a different conclusion.
Categories: Cost Accounting