Month: February 2023

How ASC 842 May Affect Your Decision to Lease or Buy

With ASC 842 in full effect, your lease versus buy decisions have become more complicated and they will impact your balance sheet, income statement, financial reporting, and more.

Senior VP of Lease Management Strategy at Visual Lease (a lease accounting software company) Joe Fitzgerald summarizes the situation this way, “For the first time ever, public and private companies, as well as government entities, are required to disclose asset and liability details for anything they pay for the right to use—including real estate, equipment, fleet and land leases—on the balance sheet under the new lease accounting standards.”

He continues, “This is easier said than done as leases are complex agreements that change all the time, and they’re managed by siloed stakeholders, processes, and systems. Not to mention, lease transactions can have hundreds of permutations and calculations to capture in reports and throughout the year in order for a company to successfully achieve and sustain lease accounting compliance.” (Pelovitz, Rachel E. Lease Accounting Readiness: A Report. November 7, 2022. Construction Executive.)

Joe also notes that failing to meet and maintain lease accounting compliance can compromise the accuracy of financial reporting and result in higher audit fees, not to mention a damaged reputation.

NetGain.tech, a finance and accounting application developer, summarizes key accounting impacts this way:

“Both leasing and purchasing recognize an asset and liability.
A lease will be recognized under the ROU asset and lease liability accounts, while purchasing is recognized under the fixed asset and note payable accounts.
The asset and liability for an operating lease would typically be smaller because the lease term would not be for a significant portion of the asset’s useful life
Otherwise, it would be classified as a financing lease.”

In addition, “On the income statement, an operating lease will be classified as an operating expense. This means that EBITDA and net income will be impacted. If a company were to buy an asset, the expense would be allocated to interest and depreciation expenses. These expenses are below the EBITDA line, which means that they only have an impact on net income. Because many companies are valued on multiples of EBITDA, it becomes a very important decision whether to lease or buy assets because it would have a direct impact on your valuation (sometimes a 15x swing, for better or worse).” (Triton, Lee. Deciding to Lease or Buy an Asset: Financial Statement Implications. September 14, 2022. NetGain.tech.)

When it comes specifically to fleets, workplace, and asset management software company Accruent reports,” What makes lease accounting complicated is that within a single master lease agreement for a fleet, individual items, and assets are constantly moving in and out of the lease. Previously, the financial accounting system did not have to be concerned with that, as the assets remained off the balance sheet.”It goes on to give example: a trucking manufacturer signs a 10-year master lease agreement for 50 tractors, which are ordered, delivered, and put into service. A change in business strategy 10 months later drives the need for 40 additional box trailers added to the lease, plus 10 cars for salespeople and executives.

“These bulk transactions, each with different lives (tractors 10 years, box trailers 7 years, and automobiles 5 years) need to be accounted for at the asset level. This is particularly important and challenging when one-off changes occur. Properly making those individual changes is an operational challenge. On top of that, those changes now impact the needs and functionality of the accounting software. Lease accounting now needs to occur not just on the macro level, but on the micro, or individual asset level, as well.” (Hammerslag, Mike. How Fleets Are Addressed Under the New Lease Accounting Rules. Accruent.com.)

That’s a lot to take in, but RBT CPAs is here to help. Our client advisory services team can help you understand the financial pros and cons of making a lease versus buy decision, while our accounting, tax, and audit professionals can help with financial calculations and reporting required under ASC 842. To learn more, give us a call today.

Recent HUD Changes Set to Improve Certain Section 8 Housing Costs & More

Soon after the U.S. Department of Housing and Urban Development (HUD) published Fair Value Rents for fiscal year 2023, the agency announced proposed changes to how Operating Cost Adjustment Factors (OCAFs) would be calculated, and updated Utility Allowance Factors (UAFs) for 2023. Both took effect February 11 and are designed to reflect the increased costs associated with providing housing thanks to historically high levels of inflation.

OCAFs are used to adjust or set project-based Section 8 rents under the Multifamily Assisting Housing Reform and Affordability Act of 1997 (MAHRAA). They are determined based on market-driven cost calculations for a defined period of time. OCAFs are applied to contract rent excluding any portion paid for debt service.

The factors included in the analysis used to set the OCAFs include electricity, employee benefits, employee wages, fuel oil, goods/supplies/equipment, insurance, natural gas, property taxes, and water/sewer/trash.

For 2023 only, the calculations for determining OCAFs changed in a number of ways. First, instead of comparing data for one-year, longer time periods were used for certain components to ensure the impact of inflation was captured. Second, data was pulled from later in the year (August versus May) to make sure it was more time relevant. Third, HUD switched from the Consumer Price Index to the Producer Price Index and other data to better reflect insurance rate spikes and the real-time cost of property insurance (LeadingAge New York. New Hud Calculation Method Doubles Annual Budget Increase).

The 2023 OCAF values apply to properties with contracts expiring on or after February 11. They vary by state and are listed at the end of the Federal Register Notice. In 2024 and beyond, data used to determine OCAFs will continue to be pulled from August (instead of May), but year to year comparisons – rather than longer time periods – will once again be used.

As for UAFs, they are used when owners/agents of Multifamily Housing properties who receive a utility allowance seek an adjustment to that allowance, per Housing Notice 2015-04. UAFs are updated once a year and available on the U.S. Office of Policy Development and Research HUD Portal.

2022 ended with more good news for propping up Section 8 Housing funds, thanks to the Consolidated Appropriations Act of 2023, signed into law December 30, 2022. HousingFinance.com reports: “The section of the omnibus appropriations bill that funds HUD had a provision that will bring relief to the Section 8 portfolio, which had rents marked down to market (MTM) over the past 20 years. Section 236 of the general provisions amends MAHRAA to provide for MTM properties to receive a budget-based rent increase (BBRI) that includes new debt service, debt-service coverage, and reserve deposits.”

HousingFinance.com goes on to say: “An owner now has the opportunity to receive a budget-based rent increase to cover operating costs or to substantially rehabilitate and recapitalize the property for the next 20 years. Most owners likely will do a major rehab as these properties are more than 40 years old, and they typically had minimal work completed as part of the MTM restructuring.” Watch for additional guidance in the coming months. (Ruvolo, Anthony and Wallace, Stephen. New Life for Section 8 Market to Market Properties. January 11, 2023. HousingFinance.com.)

No doubt all of this is good news will also result in heightened Section 8 housing activities and work. While you’re focusing on making the most of financial enhancement opportunities, you can depend on RBT CPAs to stay focused on your tax, accounting, audit, and consulting needs. We’re one of the top accounting firms in the Hudson Valley, known for our professionalism, knowledge, ethics, community service, and exceptional client experience. To learn more, give us a call today.

Real Estate Markets: Which Way Will They Go?

While I originally set out to write about interest rates and inventory, research into the housing and commercial real estate markets left me feeling that there are a lot of mixed messages out there, and that’s probably because there are. With so many different ways to measure what’s going on with these markets and so many different indices, I feel a need to take a step back and simplify what I’m seeing.

To start, let’s talk interest rates. The Federal Reserve increased them for the eighth time on February 1 by a quarter point. The fact that it was a lower increase than the past few may signal efforts to rein in inflation are working – which would be good news for real estate and ultimately construction…maybe.

While the Fed doesn’t set mortgage rates, which are influenced more so by 10-year Treasury yields, lenders do try to determine what the Federal Reserve’s actions mean and that eventually impacts mortgage rates, which have dropped from their high of 7.12% last October to 6.3% as of Bankrate’s national survey on February 1. (The Mortgage Bankers Association is predicting rates as low as 5% by the end of 2023.)

Home prices are no longer soaring upward. In fact, they’re starting to stabilize or even decrease a bit, which you would think would mean a pickup in demand and sales, but there are other factors at play. Inventory for affordable housing is down for the 39^th consecutive month and the number of properties for sale are down for the 37^th consecutive month, according to a report from the New York State Association of Realtors.

Rather than adding to inventory, homebuilders are focusing on getting rid of their existing inventory (and boosting new home sales) and people who locked in historically low mortgage rates will likely continue holding onto their homes. While single family home starts did increase in December, permits decreased. Then starts decreased in January, sending more mixed messages.

Still, the National Association of Homebuilders (NAHB) national Housing Market Index (HMI) increased for the first time in 13 months in January and again in February. The NAHB predicts this increase in homebuilder sentiment combined with lower mortgage rates will spur permits and new starts for single-family homes, which have fallen to the wayside in favor of multi-family homes due to the expectation that people would continue to rent versus buy. However, the NAHB anticipates higher vacancy rates and tighter lending conditions may lead to a slowdown in multifamily housing starts this year, while others believe multi-family housing remains attractive to investors especially during an uncertain economy.

Turning to commercial real estate, what the Fed does has a bigger impact. When rates increase, there are corresponding slowdowns in investor activity on the commercial side. The 2023 Dodge Construction Outlook expects total construction starts to decrease, with retail, warehouse and hotel projects falling dramatically and office and warehouse sectors seeing pullbacks. There’s still a high volume of unfilled office spaces in big cities, although Moody’s Analytics indicates vacancy rates haven’t dropped below 2019 levels.

Thanks to onshoring, CHIP manufacturing and data centers, U.S. industrial real estate needs are on the rise. E-commerce continues to drive the need for warehouse and industrial space. Neighborhood retail is doing well, but malls are not. While the Dodge Momentum Index, which measures nonresidential building projects in planning and leads nonresidential construction spending, was down 8.4% in January it’s still up 32% year over year. It also doesn’t hurt that when interest rates are rising, commercial real estate is seen as a solid investment.

That’s where things stand as of 2:12 PM EST on February 23, 2023. If inflation starts increasing again, the Feds change direction, and/or mortgage rates start increasing again, the message will likely change once again.

Seven Ways Health Care Institutions Are Addressing Staffing Challenges

We can all agree there is a global talent shortage and, considering the U.S. population is shrinking along with the number of people in the workforce, the issue is only going to get worse. So, we scoured publications, websites, and more to learn how health care practices and hospitals across the country are addressing the challenge. Here is some of what we found…

Upskill your current workforce.

Nothing says you value your people more than when you invest in their future. A 55,000-person healthcare system in Cincinnati, called Beons Secours Merc Health (BSMH), created Called to Grow – a program consisting of tuition reimbursement and career pathways to help employees move into higher skilled roles. BSMH partnered with a company specializing in upskilling employees. All employees – whether on-call or full-time – are eligible to participate starting their first day of work. (Hilgers, Laura. How One Healthcare System Is Addressing a Talent Shortage. February 7, 2023. LinkedIn.)

Provide 100% tuition assistance paid up front.

As part of the Called to Grow program, BSMH covers 100% of tuition – paid up front – for more than 120 clinical certifications, undergraduate and graduate degrees, and nursing degrees at 15 institutions. (Hilgers, Laura. How One Healthcare System Is Addressing a Talent Shortage. February 7, 2023. LinkedIn.)

Career planning.

BSMH has three HR internal mobility specialists to learn about employee interests, identify potential careers, layout career paths, and help employees follow them. “Someone in laundry and linen services, for example, could train to become a care companion on the nursing support team. A care companion could then train to become a patient care technician.” (Hilgers, Laura. How One Healthcare System Is Addressing a Talent Shortage. February 7, 2023. LinkedIn.)

Engage students to create a talent pipeline.

Three hospital groups in Chicago created Healthcare Forward, a program offering high school students in economically depressed areas training and the guarantee of a job interview for entry-level positions. (UChicagoMedicine. Chicago Health Systems join forces to promote careers in healthcare across West and South Sides. December 6, 2021.)

Mary Washington Healthcare in Virginia worked with a local community college to create a clinical education model that allows student nurses to support current nurses before graduation. Geisinger in Pennsylvania provides up to 175 employees $40,000 in support a year to pursue a nursing career in return for a five-year commitment to work as an inpatient nurse. (American Hospital Association. Senate Statement: Recruiting, Revitalizing and Diversifying – Examining the Healthcare Workforce Shortage. February 10, 2022.)

Children’s Hospital Colorado and Denver Health’s Medical Career Collaborative (MC2) gives high school students hands-on experiences to foster interest in healthcare careers. 96% of participants complete the program and over 70% go on to pursue a healthcare career. Some even end up working for one of the two institutions involved. (Davis, Carol. Stop Workforce Shortages: 3 Ways. June 2022. HealthLeadersMedia.com.)

Offer an Apprenticeship Program.

Trinity Health in Michigan addressed its medical assistant shortage by adopting an apprentice program that has trained 129 assistants since its start and improved retention by 76%. It pays students to go to school three days a week and work at the hospital two days. (American Hospital Association. How Some Hospitals Are Grappling with the Workforce Shortage. June 28, 2022. AHA.org.)

Succession planning & promotion from within.

Indiana University Health places great emphasis on the talent review process. Staff record short- and long-term career goals on talent profiles, their dreams, and where they are willing to live. Each employee’s leader completes a talent assessment. Then senior leaders turn to the talent pool to fill manager and senior-level positions. Two out of every three promotions go to an existing employee. (Davis, Carol. Stop Workforce Shortages: 3 Ways. June 2022. HealthLeadersMedia.com.)

Use artificial intelligence (AI) for greater accuracy in staffing needs and scheduling.

Sanford Health’s previous nurse staffing plans were accurate about 60% of the time. Its AI driven tool enables data analytics that increased nurse staffing plans to 90% accuracy. As a result, patients were cared for, and staff didn’t burn out from being overworked or unable to take time off. (Davis, Carol. Stop Workforce Shortages: 3 Ways. June 2022. HealthLeadersMedia.com.)

There is one other thing you can do – engage RBT CPAs for all of your accounting, tax, audit and business consulting needs so your staff is freed up to focus on attracting and retaining the talent needed to provide care today and in the future. To learn what RBT CPAs can do for your organization, click here.

Seven Questions Municipalities Should Ask to Prepare for Year-End

After working with multiple New York-based municipalities year after year to close their books and prepare for what’s next, RBT CPA experts have identified seven key questions you should answer to help ensure a smooth process.

Does your interfund activity agree? Interfund activity is the financial interaction between a government’s funds. How activity is treated impacts a financial statement’s accuracy. As noted on the NYS Comptroller Website for Financial Reporting:

- Interfund Transactions – Quasi-External. Treated and accounted for as revenues, expenditures, or expenses when involving organizations outside of New York. For example: A state agency’s payment to the Office of General Services and Centralized Services for billings.
- Interfund Transaction – Reimbursement. Recorded as expenditures or expenses of the reimbursing fund and reductions of expenditures or expenses of the fund reimbursed. This excludes interfund receivables or payables that have been set up.
- Interfund Transfer – Residual Equity Transfer. Nonrecurring or non-routine transfer of equity between funds should be reported as additions to or deductions from the starting Governmental Funds balance; additions to or deductions from contributed capital; or as deductions from Proprietary Funds’ retained earnings. For example: transfer of a discontinued fund’s residual balance to the General Fund or Debt Service Fund.
- Interfund Transfer – Operating Transfers From/To Other Funds. This includes all other interfund transfers. For example: legally authorized transfers from a fund receiving revenues to the fund expending resources. Loans or advances are not included.

Did you have any new bonding for the year? Be sure to have copies of bonding documents and the amortization schedule available for review.
Have you updated fixed assets for current year additions and deletions? As noted in the NYS Comptroller’s Local Government Management Guide, “Every local government should have a complete up-to-date inventory of capital assets to ensure that both physical control and accountability are maintained over all assets, including lower-cost assets that aren’t reported in financial statements. Some local governments use perpetual inventory records to maintain control over their capital assets. Perpetual inventory records are detailed records that are continually updated as items are added or removed from supply. This inventory system provides officials with direct access to reliable information on current capital assets throughout the year.”
Have you completed all bank reconciliations? Making sure bank statements match your accounting records is not only critical to financial statement accuracy, but also helps detect fraud and/or theft, as well as data entry errors (i.e., wrong amount or duplicate entries). Failure to reconcile accounts is often the subject of audit findings.
Have you reviewed prior year audit entries and proactively entered them for this year?
Are items recorded to accounts receivable (AR) last year, if annual, recorded to AR this year?
Are all bills applicable to prior year recorded to accounts payable (AP)?

For additional information, refer to the training resources available through the NYS Comptroller’s website, as well as the NYS Financial Toolkit for Local Officials.

As always, RBT CPA accounting, tax, audit and advisory professionals are available to answer your questions to ensure your municipality is on the best track for financial reporting and accuracy. Click here to contact us today.

Visions Human Resource Services, LLC’s Kelly Caldwell, Admitted to the Partnership

FOR IMMEDIATE RELEASE

Visions Human Resource Services, LLC, an affiliate of RBT CPAs, takes great pleasure in announcing that Kelly Caldwell of Saugerties, New York has been named Partner.

Kelly graduated from SUNY Ulster with an associate degree in Individual Studies, earned a Paralegal certificate from Marist College, and received a Certificate in Leadership from The Chamber Foundation, Inc. She also has her certification as a Senior Human Resources (SHRM-SCP) Professional from the Society of Human Resources Management (SHRM). She joined Visions Human Resource Services in 2022.

Kelly is very active in her community, volunteering with several organizations including the Kingston Chapter of the Association of Junior Leagues International and the Kingston Chapter of Kiwanis International. She is also the Mid-Hudson Chapter President for SHRM and a member of SHRM’s New York State Council and Insights Panel.

Kelly is a lifelong Hudson Valley resident. Since 2009, she has lived in Saugerties with her daughter Bailey.

She says, “Being a partner enables me to bring another level of experience and knowledge to client engagements. In addition to specializing in human resources, I now share many of my clients’ concerns and priorities as a business owner. This will make me even more effective at helping business owners with everything related to having employees, so they’re freed up to focus on what they need to do to succeed in the core of their businesses.”

Visions Partner Janet Gianetta says, “I am very pleased and proud for Kelly to be a Partner in Visions HR. She is a highly skilled, Certified HR professional and is an excellent resource for our clients.”

RBT Managing Partner, Michael Turturro adds, “Congratulations to Kelly! We are thrilled to have Kelly as a Visions HR Partner and know she is going to do great things for our clients and other Hudson Valley businesses in the future.”

RBT CPA’s Kirstyn Cerone, CPA, Admitted to the Partnership

FOR IMMEDIATE RELEASE

RBT CPAs LLP, takes great pleasure in announcing that Kirstyn Cerone, CPA, of Montgomery, New York, has been admitted to the Firm as a Partner.

Kirstyn has been with the Firm since 2013, when she graduated Mount Saint Mary College with an Accounting degree and subsequently earned an MBA. Kirstyn works out of the Client Advisory Services Department in the Newburgh office. She is also Treasurer for the Business Council of Greater Montgomery and on the parent advisory board at the Children’s Hospital of Philadelphia for the spina bifida program. Kirstyn grew up in Montgomery, where she now resides with her husband Dave and son David.

Of her new role, Kirstyn says, “I am most excited about being able to play a leadership role in advancing the firm by helping our clients and my team develop, grow, and succeed.”

Managing Partner, Michael Turturro adds, “Kirstyn is one of the most genuine people you’ll ever meet. She is whole heartedly committed to treating her clients and team the way she wants to be treated and to going above and beyond to help them succeed. RBT is lucky to have her as a Partner and we can’t wait to see the amazing things she is going to do in the years ahead.”

RBT CPA’s Chris Seger, CPA, Admitted to the Partnership

FOR IMMEDIATE RELEASE

RBT CPAs LLP, takes great pleasure in announcing that Chris Seger, CPA, of Montgomery, New York, has been admitted to the Firm as a Partner.

Chris graduated from Coastal Carolina University with a bachelor’s degree in Accounting in 2014 and a master’s degree in Accounting with a focus on taxation in 2015. He joined RBT CPAs in 2015 as a member of the Client Advisory Services team in Newburgh, and earned his CPA in 2016.

Chris strives to make a difference in the local community. He is a board member of the New York State Society of CPAs Mid-Hudson Chapter and Walden Rotary member. Chris is also treasurer and a board member of Independent Living, Inc., which advocates and strives to provide the highest quality of life for all.

Chris was born in Lake Katrine and grew up in New Paltz. After moving south for college, he returned to the Hudson Valley, building a home in Montgomery with his wife Katrina and his children Harlow and Grayson. In his spare time, Chris enjoys working on home projects and cars.

He says, “RBT is a wonderful place to work. The firm is very client focused and makes client relationships the main priority. It is our goal to get to know our clients and support them in ways that allow us to see their businesses grow.”

Managing Partner, Michael Turturro adds, “Chris has a tremendous amount of energy and enthusiasm, which he puts into everything he does. I look forward to watching him grow as a leader and major contributor to our clients’ and company’s success.”

RBT CPA’s Kurtis Nordahl, CPA, Admitted to the Partnership

FOR IMMEDIATE RELEASE

RBT CPAs LLP, takes great pleasure in announcing that Kurtis Nordahl, CPA, of Modena, New York, has been admitted to the Firm as a Partner.

Kurtis has a bachelor’s degree in math, a bachelor’s degree in accounting and an MBA from SUNY New Paltz. He joined RBT in Client Advisory Services in the Newburgh office in 2012 and earned his CPA in 2014. Kurtis is currently treasurer of the local Southern Ulster Rotary. He also serves as treasurer for ARC of the Greater Hudson Valley and is on the finance committee for the Community Foundation of Orange and Sullivan.

Kurtis grew up in the Hudson Valley, where his father ran a small business and his two sons – Zakary and Lukas – currently attend the same school district he and his wife Ashley did growing up. In his free time, he enjoys long distance running and cross-country skiing, as well as being an active and involved dad.

He is excited to begin his new role at RBT and says, “We’re innovative. We listen to our clients and team members and try to implement change when we can. I also believe in our commitment to quality. You can get taxes done anywhere, but we really care about the work and getting it done right.”

Managing Partner, Michael Turturro adds, “Kurtis keeps his eye on the prize and works tirelessly to achieve what he sets his mind to. He will undoubtedly deliver a lot of value to our company, clients, and team in the years ahead.”

RBT CPA’s Nicholas Watkins, CPA, Admitted to the Partnership

FOR IMMEDIATE RELEASE

RBT CPAs LLP, takes great pleasure in announcing that Nicholas Watkins, CPA, of New Windsor, New York, has been admitted to the Firm as a Partner.

Nick graduated from SUNY New Paltz with an Accounting degree in 2013 and joined RBT CPAs’ Tax Department in the Newburgh office in 2015. Nick is on the local Board for the New York State Society of CPAs, serves as the group’s Secretary, and chairs the NextGen Committee. He is also President of the Mid-Hudson Bowling Association responsible for promoting the sport of bowling through leagues, tournaments, and fundraisers.

Nick grew up in the Hudson Valley. An avid bowler, you’ll likely find him at the lanes at least once a week or watching or attending a New York sporting event as a huge Mets, Jets, and Rangers fan. On becoming partner, Nick says, “A lot of people have helped me get to where I am, and I want to do the same for others – to help them get to the next level in their career.”

Managing Partner, Michael Turturro adds, “Nick is a focused, thoughtful, and tenacious professional who continuously delivers value to our team, clients, and firm. He is a welcome addition to our partnership. We know there are great things ahead for Nick and RBT.”