Ohio manufacturers have another opportunity this September to apply for funds to be used to improve employees’ skills. Ohio’s Tech Cred program will accept applications for its 16th round of funding starting September 1 and continuing until 3:00 p.m. on September 30.

Frequently asked questions regarding the program include:

What is TechCred?

TechCred is a program available to eligible Ohio businesses and their current or prospective employees to support skill advancement. The state-funded program provides up to $2,000 per employee and $30,000 per company per funding round for employees to complete technology-focused training.

Which businesses are eligible to participate?

Eligibility criteria include businesses:

• Registered in Ohio, employing Ohio-resident W-2 employees
• With an OH|ID
• Of any size
• In any industry, although manufacturers have historically been the most frequent participants

One of my employees is interested in a credential not included on the list. Can they still participate?

All credentials must be short-term, industry-recognized, and technology-focused. If a credential meets these criteria and is not included on the current credential list, employers may submit it by choosing “Credential Not Listed” when prompted during the application process. They will then be asked for information including the name of the credential, credit hours, skills taught, and value brought to organizations. Employers must also submit a syllabus or brochure on the credential for it to be considered for program reimbursement.

How do I apply?

After ensuring eligibility, an interested business can apply at https://techcred.ohio.gov/apply. Eligible employers must be prepared to submit the following information:

• Employer information, including name, Federal Tax ID, supplier ID number, Ohio Charter Number, address, and more
• Credentials from approved credentials list
• Cost of training and certification
• Training Provider
• Number of current and prospective employees earning each credential
• Average wages of each employee before and after receiving the credential

How do I receive the funding?

Employers with approved applications will be eligible for reimbursement after the employee receives the credential or certificate. The employer must provide proof of credential completion, documentation of costs, proof of payment, and information about the individual(s) who earned the credential(s). Information must be submitted through the TechCred website at https://techcred.ohio.gov/apply, under “Submit for Reimbursement.”

Where can I learn more?

Learn more about the TechCred program at https://techcred.ohio.gov/about/overview. Or contact a member of the HBK Manufacturing Solutions team by email at manufacturing@hbkcpa.com, or call us at 330-758-8613.

Do you understand the intricate costing of each product you manufacture? Manufacturers know that accurate accounting records help them make good business decisions, but oftentimes, they consider their business as a whole, rather than a sum of the parts resulting from each product (or product line) produced. Evaluating profitability at this level can be enlightening; you may be able to assess the contribution margin (or revenue minus variable costs) of each product or how different products are absorbing the organization’s fixed costs, including building rent, depreciation, or certain salaries. Taking these steps can help you continue to improve the decisions you make for the business.

Three reasons cost accounting is important for manufacturers include:

1. Accurate cost accounting helps manufacturers set pricing policies. Knowing your costs is a crucial part of determining sales prices. Many manufacturers strive to maximize their profit, while selling their goods at a fair price to their customers. While industry benchmarks may be provided by competitors who sell similar products, understanding your business’s costs will help ensure you are pricing products in a way that supports your business’s longevity.
2. Accurate cost accounting helps manufacturers respond quickly to market changes. Market changes are forces that manufacturers cannot control but that can significantly impact their business. For instance, recent supply chain disruptions have forced businesses to consider alternative products or supply sources to meet demand. Manufacturers must understand the difference in cost between the original product’s components and substitute components to assess whether the option is viable.
   
   
3. Accurate cost accounting helps manufacturers determine the best options when you reach full capacity. Fortunately, demand for manufactured products has remained strong for many industries. However, this has caused capacity constraints for some companies. By analyzing contribution margins at capacity bottlenecks, businesses can determine the best product to produce to maximize profit. Alternatively, by understanding product costs (along with sales forecasts and other models), manufacturers can determine whether capacity expansion is a practical option for the business.

To discuss your cost accounting system, contact a member of HBK Manufacturing Solutions at 330-758-8613 or manufacturing@hbkcpa.com.

Your New Year’s resolutions for your business could include starting and maintaining better-organized books and records. Keeping your company’s books organized and updated will help you make informed decisions in real-time. Following are a few easy ways, using Quickbooks, to maintain accurate and available information on your business’s performance throughout your fiscal year. • Reconcile bank statements and credit cards monthly. Knowing how much cash and credit you have readily available is a critical to conducting business. For up-to-date records of balances, perform bank and credit card reconciliations monthly with Quickbook’s Account Balances feature, then reconcile them with your bank’s balances at month-end. Not only will reconciling ensure the balances on your books match the bank’s, but the Balance Sheet accumulates and summarizes all your cash and credit card totals. Importing, categorizing, and reconciling these transactions each month will greatly improve the accuracy of not only your Balance Sheet but your Income Statement, so long as the transactions are coded correctly. For more information on reconciling, check out: https://quickbooks.intuit.com/accounting/bank-reconciliation/ • Organize a relevant numbered Chart of Accounts. To properly import and categorize your transactions, it is vital that you have a clean chart of accounts (COA)—that is, the accounts you use on the Balance Sheet and Income Statement are organized, relevant, and properly set up. Your accounts should also be numbered. While you might employ many accounts, to be sure that you are starting or assembling your records properly, list each under one of five Quickbooks account Types: Assets, Liabilities, Equity, Revenues, Expenses. As you set up your accounts under these Types, create Parent and Subaccounts to help group your accounts on the Balance Sheet and Income Statement for a more harmonious order of accounts, which will make it easier for you to assess your business’s financial health. To get started you might adopt the following list of commonly used numbered accounts: Balance Sheet:

• 1001 Checking Account
• 1002 Savings Account
• 1101 Accounts Receivable
• 1201 Equipment
• 1202 Accumulated Depreciation
• 2001 Accounts Payable
• 2101 Credit Card
• 3001 Draws
• 3101 Retained Earnings

Income Statement:

• 4001 Income
• 4010 Other Income
• 5001 Cost of Goods Sold (COGS): individual COG categories can be listed separately in the 5000 series
• 6001 Payroll
• 6002 Payroll Taxes
• 6003 Meals
• 6004 Entertainment
• 6005 Job Supplies
• 6006 Utilities
• 6007 Bank Charges
• 6008 Depreciation Expense
• 6009 Other Expense

Every company will have a different COA structure of individual accounts, but overall, your COA should be cohesive and formatted for ease of gathering and assessing financial performance as well as for benchmarking your performance to other similar businesses. Quickbooks allows you to modify pre-existing COA accounts. You can merge two accounts or deactivate pre-existing accounts. You can also edit the names and numbers of accounts you are already using. For more information on the Quickbooks COA, visit: https://quickbooks.intuit.com/r/accounting-money/chart-accounts/ Your Meals and Entertainment account serves as an example of why you should update and keep your COA current. Prior to the passage of the Tax Cuts and Jobs Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, 50 percent of your Meals and Entertainment expenditure was tax-deductible. Entertainment is no longer deductible for tax purposes. However, business meals provided by restaurants in 2021 and 2022 are fully deductible, and business-related meals not provided by a restaurant remain 50 percent deductible. Setting up separate accounts for these expenses will be helpful. • Lock your books. An easy step often forgotten in the bookkeeping and accounting process consists of locking your books by using a passcode to restrict access to entering information that precedes a certain date. For example, if you are finished entering information for December 2021, and you believe it is accurate, placing a passcode on your Quickbooks file dated December 30, 2021, will prevent mistakes in January, such as accidentally entering an invoice with a December date, from affecting your December accounting. In such a case, you would be prompted to enter the passcode, a friendly warning to keep you from rendering your December data incorrect. For more information on locking your books, go to: https://quickbooks.intuit.com/learn-support/en-us/help-article/close-books/close-books-quickbooks-online/L59LelyPM_US_en_US Getting your books and records organized is one way to get your business off to a good start in 2022. Accurate, up-to-date accounting will serve to relieve stress throughout the year. If you have questions or would like help getting better organized and structured, we’re here to help. Contact an HBK professional at 724-934-5300.

A common investment disclaimer reads, “Past performance is not a guarantee of future results.” The
same applies to the world of construction. Annual and interim financial statements provide valuable
information about a contractor’s past performance and current financial strength, but offer little
clarity when it comes to what investors and lenders can expect going forward. That is why so many users of a contractor’s financial statements spend more time analyzing the company’s work-in-progress (WIP) schedule than they do their prior year’s income statement. There is a wealth of information buried in WIP reports that can be as beneficial to the contractor as those looking to invest in or provide financing for a project. This tool has proven itself critical to those who supply credit to a contractor (be it their surety or bank), so why do so many contractors fail to use it to run their businesses?

How WIP Works and What It Means

Under generally accepted accounting principles (U.S. GAAP), except in certain limited cases, contractors must recognize revenue on long-term contracts under the percentage-of-completion method. Under this method, revenue is recognized relative to progress toward completion of a
job. For example, if a contractor has incurred 50 percent of their total costs on a project, they are able to recognize an equal percentage of the contract price on that job as revenue, regardless of how much they have billed or collected. The amount billed to date, over or under revenue recognized, is either a contract asset (underbillings) or contract liability (overbillings) and is reflected as such on the company balance sheet.

If a company has a large amount of underbillings, this can be a red flag for sureties and bankers, who may interpret them as potential future losses. It should also be a warning sign for the chief financial officer, controller and project managers before these figures are ever released to outside parties. Are these an indication of poor project management, delays in the billing process, or a need to update projected total costs on a job? Perhaps there are unapproved change orders for which work has begun or there are significant material costs that are not billable until installed. Each job can have its own unique situation that creates an underbilled scenario, so it is important to evaluate each job individually. Management should be prepared to explain underbillings and their cause while also being able to determine the proper response to correct any operational deficiencies that may have contributed to them.

Overbillings are generally viewed more favorably by creditors, as they are a way to have the customer finance the completion of the project. However, there are also some concerns to be aware of when it comes to overbillings. A WIP schedule with a combination of jobs with losses and jobs with large overbillings can indicate trouble ahead. In such a case, the billings from one project
are essentially being used to cover the costs of other projects. This will create a squeeze on cash flow as the overbilled projects progress, the overbilling recedes, and cash received from one job is used to finance the completion of another. Think of it as a Ponzi scheme playing out in the financial statements. That is how creditors view it.

Overly Optimistic?

Lenders and surety bonding companies also focus on projected gross profit percentages for individual jobs. Are there any that look out of place given the contractor’s previous performance? Some contractors are eternal optimists and always project a best-case scenario when it comes to performance. If a contractor’s completed job schedule reports average profit margins of 20 percent, the lenders and sureties are certain to take a close look at jobs in progress that are projecting a gross profit of 25 percent or more. Contractors should ask themselves the same question and be able to explain why current jobs will outperform historical margins. Is there something different about this job that lends credence to the elevated gross profit percentage, or should we take a closer look at the cost to complete it? “Profit fade” is a term used to describe when gross profit from a contract is less than previously anticipated. Profit fade resulting from overly optimistic projections at an interim date will erode a creditor’s confidence in a contractor’s ability to estimate their job costs accurately. This in turn will result in reduced credit and lower bonding capacity for a contractor.

Monthly Job Reviews

A WIP schedule that is kept up on a monthly basis can be a great tool for measuring job performance. Of course, like any tool, it is only as good as the information that is put into it. If actual and estimated job costs are not correct, the report will be inaccurate and misleading, and the contractor will look incompetent in front of their surety and banker. Conversely, if monitored closely, warning signs, spotted early on, can help get a job back on track and avoid continued losses. The better a contractor becomes at monitoring their jobs in this fashion, the better they will be at preventing profit fade and demonstrating themselves as a skilled, knowledgeable and financially
savvy player in the construction industry. Contact a member of HBK’s Construction Solutions Group for additional resources.

Original article published in The Dirt, Magazine.

The Last-in, First-out method (LIFO) of accounting, is one of the four acceptable methods of accounting for inventory allowed by U.S. Generally Accepted Accounting Principles and the Internal Revenue Code. LIFO is not a new concept, as it has been in existence since the 1930s, but is often dismissed or overlooked by many companies. In periods of inventory growth or periods of economic inflation, LIFO can provide immediate tax benefits.

LIFO matches current costs against current revenue to provide a better measure of current profit margins. During periods of inflation, the effect of using LIFO is that the value of the most recently purchased items are included in the cost of goods sold, as current deductions, while older lower-cost items remain capitalized in inventory. In other words, LIFO transfers current costs from the balance sheet to the income statement, thereby reducing income and creating long-term tax savings. When prices are rising and/or inventory is growing, the increase in the LIFO reserves will create immediate tax savings by reducing the taxable margins. Many companies that have large inventories can benefit from LIFO, such as manufacturers, distributors, retailers, and automobile or equipment dealerships.

For companies considering a LIFO election, the Inventory Price Index Computation (IPIC) method can be chosen to utilize Consumer or Producer Price Indexes (CPI or PPI) to measure the inflation used to calculate the annual change in LIFO inventory. Many companies take advantage of this opportunity because it allows them to maximize their LIFO benefits and is far less arduous than calculating via an internal index and manually tracking LIFO layers or specific items of inventory. Internal index calculations are usually a major undertaking and can be avoided if companies switch their inventory accounting methods for both book and tax purposes. Companies already on LIFO may also choose to adopt IPIC for tax purposes while continuing to use internal indexes for internal LIFO calculations. This will result in annual tax differences that should be considered in planning. Higher LIFO expense for tax purposes may result without increasing the amount of the internal LIFO expense if the internal indexes used for financial reporting are less than the IPIC tax indexes. In many cases, since IPIC is on a national level, it will create better tax results than internally calculated indices.

The Bureau of Labor Statistics recently released the September 2021 Consumer Price Indexes. The “all items” index rose 0.3% in September and has increased 5.4% in the last twelve months. In the long-term the U.S. Inflation rate is projected to trend about 2.60 percent in 2022 and 1.90 percent in 2023, making 2021 a perfect time to elect LIFO. Some of the top candidates to elect LIFO in 2021 are in the following industries:

• Metals and metal products
• Chemicals and allied products
• Rubber and plastic products
• Processed foods and feeds
• Lumber and wood products

This list is by no means all-inclusive. Many other industries can reap significant benefits by electing LIFO in 2021.

If you would like to discuss how LIFO can benefit your company, please contact a member of HBK Manufacturing Solutions.

We’re pleased to present our exclusive year-end seminar to our valued clients and colleagues. We have gathered important information about new regulations regarding year-end items.

Topics included:

• Accounting and auditing update
• Cyber security in remote work environments
• PPP Update and loan forgiveness and more

Download Materials.

HBK prides itself on offering the collective intelligence of hundreds of professionals committed to delivering exceptional value to clients. HBK continuously monitors industry trends as one way to provide higher quality services to our clients and help them improve how they conduct their businesses. Whether it’s moving into new sectors or adopting new technologies, we see innovation as a critical differentiator in our fiercely competitive landscape.

Critical to our success is delivering anticipatory services to clients that employ advanced technologies. Combining technology with human expertise and experience, HBK is enhancing our audit and strategic advisory services through our ability to understand and interpret our clients’ increasingly vast and complex data sets. We have deployed MindBridge Ai Auditor to bring artificial intelligence and machine learning to bear on client general ledger (GL) data, giving us a highly intelligent and interpretative risk-based approach to analyzing and reporting on financial health.

How AI offers the opportunity to get ahead
“The technology mandate was issued by our CEO,” said HBK Principal Christopher Marrie. “We want to be on the front end of adapting AI industry solutions. Our more sophisticated clients are also moving to new technologies and they see our commitment as a benefit to them.”

Adopting AI has also attracted new recruits. With technology being a top trend in hiring for public accounting, that HBK can satisfy the demands of an increasingly tech-savvy and analytical workforce is a key advantage.

“New technology is something that’s talked about by candidates interested in public accounting,” Antonio Ribeira, CPA, Senior Manager at HBK explains. “No one wants to be your stereotypical auditor crunching Excel spreadsheets. AI lets them offload tedious work so they can focus on developing more interesting and valuable analysis and insights.”

Bringing AI into the firm
As with any digital transformation, the move to MindBridge Ai Auditor required both a technical plan and people to fit new capabilities into our existing environment. Most critical was getting staff on board.

“Converting to new ways of operating is a challenge in any organization,” Marrie said. “To get the new technology into broad use as quickly as possible, we provided information about how Ai Auditor works—that it isn’t a black box and that it provides transparency to the analysis. We also detailed how it adds value for our clients.”

Training for HBK auditors involved a course curriculum and adoption strategy provided by MindBridge. The courses ran through real-world scenarios, from data ingestion to risk analysis, which proved an excellent path to understanding how the technology works.

“We’ve used other audit software packages that weren’t as easy to implement as Ai Auditor,” said Ribeira. “They often came with their own set of problems to overcome. But the MindBridge training and adoption teams came in to guide us and we found the process very intuitive.”

Real results with AI
As HBK began using Ai Auditor on client engagements, we found improvements across the board. Having the opportunity to investigate entire general ledgers (GL) in detail and use AI-based scoring to focus on the highest areas of risk has transformed our auditing process.

“The biggest advantage was in planning and testing,” said Marrie. “AI identifies risks and highlights transactions that are particularly difficult to catch. This makes the audit smarter as well as simplifies the process.”

The adoption strategy included getting clients on board with the process, ensuring they were comfortable with a new way of doing things.

With three years of AI experience under our belts, we have plans to extend the application of AI.

“AI will empower a shift to non-traditional services,” Marrie said. “AI lets us develop a deeper and better understanding of clients, which is one of our core values.

“Recently, one of our tax clients was considering an exit-business transaction and didn’t have the expertise internally to assess financial risk,” he explained. “With over $50 million in revenue, the business had a level of exposure that was both substantial and complex, but with AI Auditor, the analysis was simple. We could upload the entire GL and tell the client everything that appeared unusual or high risk.”

As traditional audit becomes more transactional and less lucrative for firms, AI opens up new opportunities for the kind of consultative and advisory engagements that deliver higher value for clients.

“It’s almost impossible to come up with a pricing model for going through an entire GL manually,” noted Marrie. “Even coming up with a ballpark estimate for manually doing the things that AI Auditor does by design would be daunting, much less guaranteeing that manual methods would be as effective. It’s clear that the traditional ways of working are going away and AI will evolve how things are done in audit and assurance.”

As we can offer insights and value with AI that we couldn’t before, we are moving toward getting four years of data from clients to report on. It’s as impressive as it is valuable. AI isn’t something that’s up and coming; it’s already here.

For more information on MindBridge Ai Auditor or to sign up for a demonstration, visit MindBridge.ai.

About MindBridge:
Through the power of human-centric artificial intelligence, MindBridge helps organizations deliver rapid value to their clients with deeper insights and higher risk assurance for 100% of their data. With MindBridge Ai Auditor, the world’s first AI-powered auditing solution, organizations across multiple industries are augmenting human capacity to restore confidence in their financial data.

Whether this is your first nonprofit accounting audit, and you have no clue what to expect or you’ve been involved in the process for years, there are always ways to make it more efficient.

Rule #1 – Plan ahead.
When should you start planning for your annual audit? The answer is really, as soon as last year’s audit is done. So, you’re a bit behind already, right? Let’s get started. First, who should be involved?

Typically, the Board of Directors or the Audit Committee starts the process by hiring the independent auditor and executing an audit engagement letter. Other services, such as tax preparation may also be included in the audit engagement letter. The Board may choose to meet with the auditor before the audit fieldwork to establish a relationship, open the communication process, and set the tone for the relationship with the audit firm. Communicate all internal and external deadlines with the auditor. When is the audit draft to be presented, when is the final audit due? Will the audit be needed for grant or lending deadlines? If the auditor will also be preparing tax and compliance filings, know those deadlines and the expectations of meeting those or if extensions will be requested.

Once contracted, the accounting/finance director usually meets with the auditor and determines exactly what they expect and when and how information should be communicated. Typically, a “Document Request” list is provided well in advance of audit fieldwork. Most auditors now work with electronic documents and have a secure portal system to transfer audit information. If you are still a “paper only” shop, let the auditor know this as well. Ask who will be on the audit and tax teams for the engagement, so you know the new team members who may be asking for information.

The “auditee”, i.e. YOU, should determine who will most likely be involved in the audit process. No, it’s not just the accounting/finance staff. Besides the Board or its Audit Committee, the CEO, COO, program directors, development staff and all accounting/finance staff will most likely participate in the audit process. Each of these parties needs to know the timing of the audit and what is expected of them.

Certain professionals will also be contacted such as your banker, investment manager, attorney, payroll service, billing service and insurance agent. You may want to let them know your audit is beginning and identify the firm that may contact them regarding the audit.

Rule #2 – Be ready.
Try to provide all requested documents on the auditor’s timeline. It will allow the auditor to plan and document preliminary procedures for your engagement. Be honest, if you cannot make a deadline, communicate with the auditor. NEVER allow the fieldwork to begin if you are not completely ready but know that audit teams are scheduled months in advance, so rescheduling may be difficult.

If possible, make a private space available for the audit team to work. They will need workspace and WIFI access if available. Let them know the logistics of your organization. What are the working hours? Do they have to deal with security? Is parking available? How should the audit team reach other staff members they might need to question? How would you like to handle audit questions, email or come on in and chat?

Try to respond to inquiries and additional document requests as soon as possible. If you have any difficulties with any of the audit team members, discuss your issues with the team manager or partner, immediately. Once the fieldwork is done, obtain a list of “open items” needed to complete the engagement and reiterate expected timelines. Depending on the progress of the engagement, the auditor may be in the position to give you proposed adjustments for your books and records and a preliminary final accounting. Respond to the open items and last inquiries as soon as you can. The ability to meet deadlines is resting with you at this point. At this point, the Audit Committee may request a “check-in” with the auditor.

Management should be allowed to review audit adjustments, and findings and present additional information if needed. Management should also review a draft of all reports, tax returns and communications to be presented to the Audit Committee and Board. By this time, there should be no “surprises” for anyone involved in the process. Good communication is key throughout the audit.

Invite the auditor to make their presentations to the Committee or Board in person. This will allow the Committee and Board is further their relationship with the auditor and potentially ask private questions. Board members will appreciate the audit presentation, particularly if they are new to the board.

Once the audit and tax returns are approved and finalized, debrief with the auditor. Make sure your books and records agree to the final audit. Ask: What when right this year? What can we do better this year?

Rule #3 – Stay in touch.
Make the auditor a trusted advisor. They want to hear from you throughout the year, particularly if you are involved in anything with an audit or tax significance, such as:

• Starting or closing a program or service
• Obtaining a new grant or large new contract
• Starting a new fundraising appeal
• Entering into new debt, or long-term leases
• Converting to new software
• Changes in key personnel
• Unusual transactions
• Pending litigation
• Fraud or theft

It’s always better to solicit advice on handling these items as soon as possible so the impact on the audit is managed properly.

Rule #4 – Celebrate completing the audit.
Close the year and treat yourself and your team members. You’ll need them again next year.