Cannabis Growth & Sales in NY: Where Things Stand

Cannabis Growth & Sales in NY: Where Things Stand

Marijuana Struggling to Sow Roots In New York Amid Hazy Conditions

On March 31, 2021, the Marijuana Regulation and Taxation Act (MRTA) legalized adult-use cannabis in New York. What has happened since then?

By year-end 2021, 90% of New York municipalities agreed to issue dispensary licenses and/or onsite consumption licenses. Most of the remaining 600 municipalities opted to forgo offering both licenses (at least for now; they can opt in in the future). A high number of opt outs were in Dutchess, Jefferson, Nassau, Orange, Steuben, Suffolk, and Westchester counties. Leaders attributed their opt out decision to a lack of comfort with certain parts of the law (i.e., onsite consumption) and lack of regulations issued by New York’s Cannabis Control Board.

By the middle of 2022, the Board issued 162 recreational cultivation licenses. Just this month, 36 retail dispensary licenses were issued. The application process is onerous and some requirements (like having been arrested in New York in the past for a marijuana offense) are being challenged in court.

While the state gets its ducks in a row, New York City has seen an upsurge in sales from trucks, sidewalks, and bodegas – none of which are legal. Still, it’s hard to justify pursuing legal action when one of the requirements for opening a legal cannabis business is a past offense involving marijuana. So, what many have coined “a gray market” has emerged, raising concerns that legitimate cannabis businesses will be at risk before they ever open their doors.

Another concern relates to taxes. Sources estimate the cost for cannabis from legitimate sources will be two times more than what it costs in the gray market, thanks to several taxes.

Excise Taxes

As of April 1, 2022, Article 20-C of the New York State Tax Law imposed a THC potency excise tax – the first in the nation. The excise tax is an amount a retailer pays to a distributor. It equals: $0.005/mg of THC for cannabis flower, $0.008/mg of THC for concentrates, and $0.03/mg of THC for consumables.  In addition, there’s an adult-use excise tax of 13% paid by retailers. Of amounts collected, 9% goes to the state. Of the remaining 4%, 1% goes to the county where the sale took place and 3% is split between the cities, towns, and villages in the county that opted in based on respective cannabis sales.

IRC 280E & 471

For Federal income taxes, IRC 280E governs what expenses are deductible and credits are allowable, while IRC 471 governs inventory rules. To offset IRC 280E, New York’s Governor Hochul enacted Senate Bill S8009 when she signed the 2022-2023 budget into law. As a result, starting January 1, 2023, state cannabis taxpayers will be allowed standard business deductions and credits on state returns (even though IRC 280E bans them on Federal returns).

Franchise Tax

New York businesses are required to pay the highest of business income tax (6.5% to 7.25% or 0 for qualified manufacturers); business capital tax (0.1875% of business capital allocated to New York or 0 for qualified manufacturers); or fixed dollar minimum tax (ranging from $25 to $200,000 or $19 to $3,740 for qualified manufacturers). Note: There are some benefits to being treated as a qualified manufacturer.

Sales Tax

While New York businesses will not collect sales tax on cannabis, sales tax will apply to related products like rolling paper, pipes, and other paraphernalia.

(Some of the taxes referenced in this article may work differently in New York City.)

Beyond taxes, audit expectations are high. As noted in an article published by the New York State Society of Public CPAs (Klimek, Jason. Cannabis Taxes in New York State – How High Is Too High. April 1, 2022), “All of this adds up to a high likelihood of an IRS audit. In 2013, with solely medical cannabis legalized in a few states, the IRS determined that the average per hour recovery for IRS work in mainstream businesses was $493. For cannabis business, the average per hour recovery was $1,375.”

No doubt, 2023 will be a big year for legitimate cannabis businesses in New York. If you need assistance with related accounting, taxes, or audits, please let us know. RBT CPAs is one of the largest firms in the Hudson Valley. We believe we succeed when we help you succeed. Give us a call to learn more about what we can do for you.

Does Your Company Need a Mentor Program?

Does Your Company Need a Mentor Program?

Mentoring was once reserved for building senior leadership talent pipelines – not anymore. Today, over 70% of Fortune 500 companies make mentoring a fundamental part of their recruitment, retention, and engagement strategies for many employees. The fact is, when done right, mentorships can be a win-win, and their resurgence couldn’t have come at a better time.

We all know the statistics – the average age of retirement in construction is 61 and today more than 1 in 5 construction workers is over 55. As if the talent shortage isn’t bad enough, issues are compounded when you consider the pending loss of institutional and on-the-job knowledge that will accompany workers into retirement. Before construction managers, project managers, and experienced tradespeople leave the workforce, it’s imperative to tap into their wealth of knowledge and set up future workers – and your company – for success.

Gen Zers and Millennials make up about 40% of today’s workforce and they’re unlike any predecessor. They place a premium on having a purpose and being valued and respected. Being in the first two digitally native generations, they want continuous learning. Both work/life balance and professional development are important. If a company’s values, culture, and environment don’t align with their priorities, they may not stick around for an interview much less a job.

Unlike what these employees learned in a classroom, apprenticeship or internship, mentorships can help provide insights into your company culture, the value proposition your company and their profession offer, and soft skills like decision-making, active listening, communication, and collaboration.

Mentor programs are used to build leadership and communication skills; provide networking opportunities; improve quality and safety; promote employee ownership of professional development; navigate on-the-job challenges; provide a window into career opportunities and professional development; expose new employees to all aspects of a job; foster diversity and inclusion; break down silos; hasten the pace of merger and acquisition integration; and more.

By pairing a workforce entrant with an experienced employee, new employees gain insights into why things are done a certain way, the rewards and challenges of a construction career, what clients really expect, or even the best way to stay safe on the job (which is valuable considering 60% of on-the-job injuries involve employees with less than a year of service).

A mentor program can also serve as a retention tool for existing talent. When more experienced workers are asked to share experiences, skills, and knowledge, they feel valued and have another reason to put off retirement – in fact, retention rates are higher among mentors than non-mentors.

Today’s mentoring programs come in many formats – one-on-one, group, or even online – and last anywhere from a few months to a few years. Some build a talent pipeline by offering mentoring to high school or college students. Others focus on new hires or any employee seeking development. There are even reverse mentorships, where experienced business leaders pair up with new workers to learn about growing up with technology and other traits of Gen Z and Millennials.

Numerous construction associations offer mentor programs as part of their skill building toolkits. Still, many employers build customized programs targeting employee and company priorities. Software is available to help track and facilitate program activities.

Visible executive support is vital to help build support of the program; foster participation; and market an employee value proposition. “We have the best people. We learn from each other. We help each other succeed.” Those are potent selling points to employees that value living a meaningful life.

To maximize ROI, a program should have a formal structure and process for recruiting and training mentors, goals and success measures, and prescribed activities and timelines. One way to promote effectiveness is by conducting a pilot; asking for feedback; and making adjustments before launching companywide.

One challenge to prepare for is motivating existing employees to step up as mentors. Consider what’s in it for them. Plan for special recognition in company communications and at events. Share success stories. Provide incentives ranging from gift cards and extra time off to bonuses.

While there is no magic bullet for resolving current staffing challenges, mentoring programs check off a number of boxes in terms of delivering value to recruits, employees, companies, and clients. Interested in learning more? Our Visions Human Resources affiliate staff is available to work with your team on mentor programs (as well as other recruiting and retention tools), while RBT CPAs can free you up by taking on your accounting, tax, bookkeeping, and audit responsibilities. Give us a call today.

Should Your Company Be Taking Advantage of the IC-DISC Federal Export Tax?

Should Your Company Be Taking Advantage of the IC-DISC Federal Export Tax?

The Interest Charge Domestic International Sales Corporation (IC-DISC) offers eligible manufacturers and distributors that export U.S. products significant Federal income tax savings, which can come in handy given the current economic environment. In fact, an IC-DISC is treated as a federally exempt entity. No federal corporate tax applies. Could it be right for your business?

Who’s eligible?

To qualify for IC-DISC status, a corporation must:

  1. Pass the qualified export receipt (QER) test (95% of gross receipts during a tax year are qualified export receipts).
  2. Pass the qualified export asset (QEA) test (at the end of a tax year, the adjusted basis of qualified export assets equals at least 95% of the sum of the adjusted basis of all assets).
  3. Have one class of stock with a stated value of at least $2,500 each day of the tax year.
  4. Maintain separate books and records.
  5. Have the same tax year as the principal shareholder with the highest percentage of voting power.
  6. File Form 4876-A, “Election to Be Treated as a Disc.”

What is it and what does it offer?

In 1971, Congress created the Domestic International Sales Corporation (DISC) to promote export sales. According to the New York State Society of CPAs (NYSSCPA), “A U.S. exporter was allowed to allocate a portion of its export profits to a domestic subsidiary (i.e., a DISC) to reduce its U.S. taxes.” Over the years, there have been several changes, with one occurring in 1984 that resulted in DISC owners paying interest on the deferred tax of undistributed earnings (a.k.a. an interest-charge); thus, the IC-DISC was born. The NYSSCPA further explains, “The IC-DISC is actually a corporate tax remedy – one that provides U.S. exporters and manufacturers large tax incentives in order to mitigate potentially significant tax burdens.”

How is an IC-DISC structured?

Typically, a flow-through entity (i.e., an LLC, partnership, or S-Corporation) holds the ownership interest in the IC-DISC (which is a C-Corporation). The IC-DISC can be structured as a buy/sell (taking title to the goods it sells outside the U.S.) or as a commission where it is treated as a commission agent selling products outside the U.S..

Why would you want to consider it?

By setting up a separate corporation and complying with related rules and restrictions, there’s a 15.8% direct tax benefit. If your company is a commission IC-DISC, the export company pays a commission (which is a deduction at the ordinary tax rate) to the IC-DISC based on foreign sales of products manufactured or produced in the U.S. (which is tax-free income). What’s more, an IC-DISC shareholder will get to treat any distributions, as well as any taxable income from export receipts exceeding $10 million, as taxable dividend income at the qualified dividend tax rate. If the IC-DISC doesn’t pay dividends to shareholders, an interest charge applies to the deferred tax.

Interested in learning more? For general information, visit IRS.gov. If you want to find out how an IC-DISC may benefit you and your organization, give RBT CPAs a call. We can help you determine whether your organization qualifies for IC-DISC and, if so, what the potential benefits could be. Give us a call to learn more.

How the Inflation Reduction Act Will Transform Construction

How the Inflation Reduction Act Will Transform Construction

What the introduction of the Intranet did for retail, the Inflation Reduction Act (IRA) – combined with the Infrastructure Investment and Jobs Act (IIJA) – will do for construction, fundamentally changing every aspect of the industry as we know it.

IIJA laid the groundwork for what some are calling the next industrial revolution. As we noted earlier this year in our thought leadership article, Hudson Valley Construction: Get Ready to Get Building (Marchione, 2022),  “The $1.2 trillion law has money for everything from roads, bridges, railways, and highways to clean water, a stronger power grid, internet, climate change, and more. It includes 375 programs, of which 125 are new. Of the $1.2 trillion budget, $550 is new spending. There’s also $650 billion in previously authorized funding for roads and other infrastructure.”

We followed that up with Prepare for the Infrastructure Construction Boom (Marchione, 2022), which included these tips: “For those in the construction industry, it’s a good time to become acquainted with the White House guidebook; raise your hand and let government representatives know if there are particular areas of interest to you; examine staffing and training needs for your organization, and consider whether you should be partnering with other firms.

When we wrote those articles, the IRA didn’t even exist. Now that it does, we still stand behind our initial thoughts and recommendations, but we also believe there’s a much bigger picture to consider.

There’s sort of a peer pressure aspect to the Act. While there are incentives targeting construction, there are also incentives for other industries that will ultimately impact how construction gets done.

For example, look at how the IRA impacts manufacturing. There are incentives for the creation of cleaner processes and materials that will be used in construction (i.e., paving materials). The same incentivization is true for the energy industry, public transportation, the automobile and heavy equipment industries, Internet and communication industries, and more. So, even if you were planning on taking advantage of the upcoming building boom based on the status quo, the “peer pressure” from other industries may give you no choice but to start transforming the way you do construction.

Going back to continue with our manufacturing example, to maximize IRA opportunities, let’s imagine manufacturers start shifting from the production of current construction materials to greener/cleaner/more sustainable ones, which will impact construction project planning (Strupp, 2022), sourcing, and procurement (especially given Buy American provisions). Everything from doors, windows, ductwork, insulation, wiring, heating and cooling systems, electric panels, paving materials and more will likely change.

Employees will have to be trained on using the new materials. Prevailing wage requirements under IIJA and the IRA will likely come into play. The equipment you use to get work done – from vehicles to handhelds – may have to be modified or updated to handle new materials. (It will be a good time to take advantage of the first federal tax credits (Electrification Coalition, 2022) for commercial EVs). No doubt, that’s just the tip of the ice burg.

So, as you consider how your business may benefit from IIJA and the IRA, also consider how it will have to change. Whether that change starts now or will be eventually driven by transformation in other industries is up to you.  In the meantime, if you need any assistance with accounting, audits, and/or taxes, RBT CPAs – the largest CPA firm in the Hudson Valley – is here to help. Give us a call today.

What To Know About GASB Changes Taking Effect in 2023

What To Know About GASB Changes Taking Effect in 2023

As you start your 2023 planning, make sure Governmental Accounting Standards Board (GASB) changes taking effect next year are on your radar. Following are some highlights…

GASB Statement No. 96 (Subscription Based IT Arrangement or SBITA). A SBITA is a contract that gives one the right to use another party’s IT software for a defined period in an exchange or exchange-like transaction. Examples include cloud computing arrangements; Enterprise Resource Planning systems; online conferencing or payment tools; as well as email, calendar, and office tools. The standard is similar to 2022 implementation for leases and takes effect for fiscal year 2023 reporting.

GASB Statement No. 94 (Public-Private and Public-Public Partnerships and Availability Payment Arrangements). GASB No. 94 defines PPP as an arrangement where a government (the transferor) contracts with an operator for public services by giving the right to operate or use a non-financial asset (i.e., infrastructure) for a period in an exchange or exchange-like transaction. The transferor can change and approve which services the operator provides, to whom, and prices that can be charged. What’s more, the transferor is entitled to residual interest in the service utility of the PPP asset at the end of the arrangement. There are other special arrangements for SCAs and APAs. GASB No. 94 takes effect for fiscal year 2023 reporting.

GASB Statement No. 100 (Accounting Changes and Error Corrections). This amendment of No. 62 takes effect fiscal years starting June 15, 2023. (Earlier adoption is encouraged.) GASB No. 100 defines accounting changes as changes in accounting principles, changes in estimates, and/or changes to or within the financial reporting entity. Implementation of changes/corrections must be identified as prospective or retrospective. Prior period financial statements must be restated. Financial statements must display the aggregate amount of adjustments to and restatements of beginning net position, fund balance, or fund net position by reporting unit.

Required supplementary information (RSI) – like Management’s Discussion and Analysis (MD&A) for earlier periods than those included in basic financial statements – should be restated for error corrections – but is not required for changes in accounting principles.

Financial reporting entity changes should be reported by adjusting the current period’s beginning balances. Estimated changes should be recognized in the current period and reported prospectively.

Finally, financial statements should reflect the organization has adopted Statement No. 100 provisions; note disclosures detailing changes, errors, impacts on starting balances; and highlight why the new methods are preferable (i.e., understandability, reliability, relevance, timeliness, consistency, and/or comparability). Financial statements must note consideration of Statement 100, as well as the date of adoption.

GASB Statement No. 101 Enhancements to compensated absence recognition, measurement and disclosure requirements take effect fiscal years starting December 15, 2023. (Earlier adoption is encouraged).

Statement No. 16 (Accounting for Compensated Absences) is being replaced by Statement No. 101 (Compensated Absences) to reflect paid time off practices (including vacation and sick time) in today’s workplace. The enhanced standards focus on recognition, measurement, and reporting.

Under Statement No. 101, an unused leave liability (including sick leave) will be recognized if the leave is attributed to services rendered; accumulates; and is likely to be used for time off or paid/settled. This applies even if the leave hasn’t been used or has been used but hasn’t been paid/settled. One exception: for parental and military leaves, as well as jury duty, liability is recognized at the start of the leaves/duty.

Measurement will be based on an employee’s pay rate in effect on the financial reporting date, unless a compensated absence arrangement calls for a different pay rate at the time of payment (for example, sick pay based on 50% of the employee’s pay rate). As is the case under GASB 16, salary related payments – including the employer’s share of payroll related taxes, defined pension contributions, and other post-employment benefit plans – should be part of the compensated absence liability calculation.

Finally, certain requirements are being eliminated or made optional for financial disclosures. The government funds used to liquidate liability for compensated absences will not have to be disclosed. Also, governments can choose how to identify increases and decreases in long-term liability change, as either gross or net amounts. Financial statements must note consideration of Statement 101, as well as the date of adoption.

For complete details, visit the GASB website at www.gasb.org or give RBT CPAs a call. We’re a leading accounting, tax, and audit firm in the Hudson Valley and beyond. We pride ourselves on our knowledge and application of accounting rules for government organizations. 2023 is going to be a big year in terms of GASB changes and compliance. Get peace of mind that your municipality complies by partnering with a firm you can trust. Give RBT CPAs a call today.

Is Your Training Strategy Preparing Employees & Your Company for Future Success?

Is Your Training Strategy Preparing Employees & Your Company for Future Success?

Did you ever think your organization would be competing with Silicon Valley, startups, and major tech companies for talent? As Industry 4.0 (or is it 5.0, now?), AI, robotics, the Internet of Things, smart manufacturing, and more move full steam ahead, ensure your training strategy keeps pace and helps your company and employees secure the skills needed for future success.

We realize there’s no need to preach to the choir about current and pending staffing challenges in manufacturing – you get it. Taking a cue from buy versus build acquisition and growth strategies, have you explored investing in your current employees to build their skillsets and complement your recruiting, retention, and engagement initiatives? It can be a win-win for employees and your business.

As reported by Exploding Topics, “McKinsey predicts the demand for physical and manual skills in repeatable tasks will decline by 30% over the next decade. At the same time, the demand for technological skills will increase more than 50%, and the demand for leadership and high-level social/emotional skills is expected to rise 30%.”

What’s more, The Manufacturing Institute’s 2020 Manufacturing Engagement and Retention Study found two-thirds of those under age 25 feel training and skill development motivate them to stay with their current employers.

Armed with this knowledge, consider enhancing your training strategy and toolkit:

  • Create a reskilling strategy for your workforce. Check out Manufacturing X Digital’s free Hiring Guide, which reviews how to upskill almost 250 different roles.
  • Build relationships with local colleges and let them know the skills you seek in today’s worker and tomorrow’s. See if a college representative will visit your operation and speak with current employees about the classes, certifications, and degrees that can help them reskill for the future. While you’re at it, reach out to their internship/co-op program directors to enhance your talent pipeline.
  • Offer or enhance tuition reimbursement benefits. Nothing tells employees you believe in them and value what they bring to the table than an investment in their future. Tuition reimbursement can open doors to opportunities previously unattainable, while ensuring you’ll have the talent and skills to keep driving your company forward.
  • Explore free, online training opportunities. The Institute for Advanced Composites Manufacturing Innovation (IACMI) America’s Cutting Edge free online program teaches machinists CNC machining skills.

For more ideas, check out The Manufacturing Institute’s 2022 Manufacturing Perception Study results report.

While you focus on enhancing your company’s training strategy for the future, let RBT CPAs help free you up by taking on your tax, audit and accounting needs. We’ve been providing professional, ethical services to clients in the Hudson Valley for over 50 years. Give us a call.

Transitioning to the New York State Pension Plan Reporting Requirements by Year End

Transitioning to the New York State Pension Plan Reporting Requirements by Year End

After December 31 of this year, New York State & Local Retirement System (NYSLRS) legacy reporting will be phased out and replaced by Retirement Online for enhanced reporting. Over 900 employers have already made the switch. Since initial discussions about the change started over four years ago, we figured it’s a good time to review everything and remind you of the many resources available to help ensure a smooth transition for your office and your employees.

As noted on the Office of New York State Comptroller, Thomas P Dinapoli’s website, “When it comes to using Retirement Online, state agencies will primarily use it to enroll optional employees in the Retirement System. However, Retirement Online offers you much more than just easy enrollment.”

Retirement Online is faster and easier than the legacy system. Municipality users are commenting on how simple it is to use, which is especially valuable for smaller offices where staff wear many hats.

With the new system, government employers can easily enroll new members; generate reports; get instantaneous access to information about days worked, earnings, and job information; process and change deductions accurately and in a timely manner, and receive timely notifications about potential issues.

In addition, Retirement Online allows users to view new hire information and contribution rates, as well as historical reporting data and financial transactions; update information about your organization; manage and assign security access; request events; and submit the Statement of Accrued Payments and Leave Credits form for retiring employees.

There are numerous resources available to support the transition:

While you’re focusing on making the transition, remember, RBT CPAs is here to focus on all of your accounting, tax, and auditing needs. We’ve been supporting municipal clients in the Hudson Valley and beyond for over 75 years, and we’re committed to upholding the highest levels of professional, ethical service. Give us a call today.

Examining 179D Deductions through the Eyes of the IRS

Examining 179D Deductions through the Eyes of the IRS

If you are looking to take a 179D Deduction as the official designer of a government-owned property or a commercial property owner, take note! Recently, the IRS Large Business and International (LB&I) Division released an updated its training with guidelines for IRS staff to perform examinations for 179D deductions. While this serves as a job aid for IRS staff, it also provides important insights to architects, engineers, and contractors looking to take advantage of 179D deductions.

179D tax deductions took effect in January of 2006 and became permanent as part of the Consolidated Appropriations Act of 2021 (signed into law December 27, 2020). Basically, 179D deductions enable eligible building owners to claim a tax deduction for installing qualifying systems that reduce energy and power costs by 50% or more. Qualifying systems include interior lighting; building envelope; heating, cooling, ventilation, or hot water systems.

This year, the deduction can equal up to $1.88 a square foot. So, if the qualified building is 100,000 square feet, that could mean up to a $188,000 tax deduction for the work completed.

Commercial building owners and designers of government-owned buildings are eligible for 179D tax deductions; however, the updated IRS training places more emphasis on what to watch for during government-owned building examinations.

Since government buildings are non-taxable, government building owners can allocate 179D tax deductions to the building designer, namely the person who created the technical specifications for a new building or an energy-efficient commercial building property addition. This may include an architect, engineer, contractor, environmental consultant, or energy services provider; it does not include a person who installs, repairs, or maintains a system. However, it is the IRS examination – not the building owner – that determines whether a taxpayer meets the definition of designer.

An allocation letter from a government building owner alone is not enough to establish a taxpayer as a designer eligible for the 179D deduction. Examiners determine eligibility by reviewing who contracts designate as responsible for design. To establish designer status, a designer must provide the contract along with technical specifications, stamped or sealed drawings, and any other relevant documentation.

Government building owners that do provide an allocation letter may be interviewed by agents to ensure they have the authority to make the allocation. Also, to claim the deduction, certification by properly licensed individuals is required.

IRS examiners are encouraged to determine the Designer of Record by reviewing stamped or sealed drawings; however, this excludes shop drawings used to make sure a building conforms to an architect’s or engineer’s design requirements. Technical specifications created by the architects and engineers take precedence over shop drawings, increasing the likelihood that architects and engineers will qualify as project designer(s). While not explicitly addressed in the IRS training, it seems likely that contractors engaged to provide both design and construction services can also meet designer status requirements.

In addition to these efforts to clarify who is considered an eligible designer, the IRS training emphasizes tax-exempt and non-profit organizations cannot allocate 179D deductions to designers. For example, a state university that places some buildings under a private foundation cannot allocate 179D deductions.

The examination’s final step focuses on whether penalties for taxpayers are warranted based on adjustments. If an adjustment results in underpayment or an excessive refund or credit, agents will consider accuracy-related penalties (i.e., for negligence or substantial underpayment or an erroneous claim for refund).

For 2023, the Inflation Reduction Act significantly increases certain reimbursements and enhances flexibility to take advantage of 179D deductions. Watch for more information in the weeks ahead. In the meantime, if you need help understanding, securing, and certifying 179D deductions, RBT CPAs – a leading accounting firm in the Hudson Valley and beyond – can help. Visit rbtcpas.com or contact the office closest to you:

  • Hudson 518-828-4616
  • Lake Katrine 845-336-7183
  • Newburgh 845-205-7482; 845-567-9228
  • Poughkeepsie 845-262-4338; 845-485-5547
  • Wurtsboro 845-260-6138; 845-888-2789

(Source: Aberin, CJ. “IRS updates guidance on tax deductions for energy efficient buildings.” AccountingToday, July 15, 2022, https://www.accountingtoday.com/opinion/irs-updates-guidance-on-179d-tax-deduction-for-energy-efficient-commercial-buildings.)

Cyber Criminals Outsmart Higher Ed Institutions: Beware!

Cyber Criminals Outsmart Higher Ed Institutions: Beware!

$3 million. That was the asking price from cyber criminals to provide a decryption key to release the University of California, San Francisco’s data in 2020. The university paid $1.14 million. Since then, the problem has only gotten worse.

In a survey commissioned at the start of 2022 by Sophos, a global cybersecurity leader, 75% of ransomware attacks on higher education institutions succeed.  Recovery from an attack is slow, with 9% of higher ed institutions indicating it took 3 to 6 months; 31% took 1 to 3 months; and 40% took a month. It cost $1.42 million more for remediation than in other sectors.

Two-thirds of higher ed institutions that responded to the Sophos survey indicated they had been the target of an attack. Half paid ransoms to get their data back – 61% got some of their encrypted data back; only 2% got all of it back. 97% said the attack impacted their ability to operate and 96% indicated the attack caused a loss of revenue/business. Some were victims multiple times.

Cyber criminals have a higher success rate attacking higher ed than business, financial institutions, and healthcare. As reported in Forbes, the average ransom paid is around $112,000; but the total cost of recovery actually reaches around $2.7 million.

The barrage of successful attacks on higher education institutions have impacted cybersecurity insurance. Insurance companies have raised the bar on what is required to secure coverage. There are fewer insurers offering coverage. The time to secure a policy is longer; policies are more complex; and coverage is more expensive. While insurance provides some peace of mind, higher education still falls behind most other industries in shoring up their defenses.

In May, the FBI issued a warning to higher education institutions. As reported by SecurityWeek.com, on the dark web there was an increase in in offers to sell VPN login credentials, usernames and passwords, and more. Not only did this put higher ed institutions at risk, but also the individuals who use their systems could find their bank accounts drained or credit cards stolen.

In September, the FBI, the Cybersecurity and Infrastructure Security Agency (CISA), and the Multi-State Information Sharing and Analysis Center (MS-ISAC) issued another alert targeting education (with a special emphasis on K-12 schools): “The FBI and CISA recommend organizations, particularly the education sector, establish and maintain strong liaison relationships with the FBI Field Office in their region and their regional CISA Cybersecurity Advisor. The location and contact information for FBI Field Offices and CISA Regional Offices can be located at www.fbi.gov/contact-us/field-offices and www.cisa.gov/cisa-regions, respectively. Through these partnerships, the FBI and CISA can assist with identifying vulnerabilities to academia and mitigating potential threat activity. The FBI and CISA further recommend that academic entities review and, if needed, update incident response and communication plans that list actions an organization will take if impacted by a cyber incident.”

While higher education institutions may be competing for students, the war on cybercrime has brought them together in cyberspace. As reported in GovernmentTechnology.com, over 50 higher education institutions have come together “with the goal of creating a forum for educators, experts and IT security advocates to network with and share cybersecurity insights with each other.”

To free up your resources to focus on cybersecurity and other priorities for higher education, why not entrust RBT CPAs to handle all your accounting, audit, and tax requirements? We’re the largest CPA firm serving the Hudson Valley and beyond for over 50 years. We believe we succeed when we help our clients succeed. So, give us a call and let’s see what we can do for you.