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June 29, 2018

Tax Reform 2.0’ Coming After July 4 Break: Brady

(Think Advisor) June 26, 2018 – House Ways and Means Committee Chairman Kevin Brady said June 26 that the tax writing committee should have a draft “tax reform 2.0” package addressing charitable contributions and retirement savings measures ready to circulate to House Republicans after the July 4 recess.

Speaking at an event held at The Washington Post called “Tax Reform in America: A Six-Month Report,” Brady, R-Texas, said that the “centerpiece” of a tax reform 2.0 proposal will address “permanency” for middle-class families and small businesses.

During July, Brady said, Ways and Means members will be “listening to our colleagues in the House about what they want to see in 2.0 and incorporating those changes,” adding that he anticipates a “legislative outline” to be released in early August with votes in the fall.

Brady continued that he doesn’t envision 2.0 “as one bill — I see it as a package of two, three or four approaches with permanency being one of them.”

There are retirement savings areas “that we didn’t get to in tax reform,” Brady said, noting measures in the House and Senate in this area will be considered.

“Fine-tuning and tweaks” to the tax code will also be considered concerning charitable contributions, he said. “What I do know is that charitable contributions, whether it’s to your local church or local university, expand when the economy grows, [but] they tend to contract when the economy is not doing well,” Brady said. “We’ve seen that for too long in the United States. In the end, the net will be very positive for organizations who depend upon the generosity of Americans.”

While the House will be moving forward with tax proposals this fall, Brady said timing in the Senate will be up to Senate Majority Leader Mitch McConnell, R-Ky.

“The House’s job is to develop the best 2.0 package to send to the Senate,” he said.

Christopher Shelton, president of the Communications Workers of America, a union representing 700,000 workers in communications and other fields, opined at the event that any new tax reform package must be “pointed to the workers, not companies or the wealthy like this tax law.”

The same day, the Congressional Budget Office released a report stating that debt as a share of GDP will balloon through 2041 primarily because of legislation that boosted projected deficits through 2025, which includes the tax overhaul passed in December as well as subsequent laws that boosted spending.

When asked during the Washington Post event if he worried that the legacy of the tax law could be its impact on the deficit, Kevin Hassett, chairman of President Donald Trump’s Council of Economic Advisers, stated: “I think the deficit is skyrocketing, but it’s not a legacy of the tax law, it’s a legacy of the spending deal that just happened that spent a lot more than the president wanted.”

Brady also stated that he does have “concerns” about the president’s trade policies, and that it’s “very early in tax reform.”

The early signs, he said, “are encouraging — in six months we’ve transformed the question from ‘Where are the jobs?’ to ‘Where are the workers?,’ which is still a challenge, but a good one to have.”





Will AI Help Close the Skills Gap?

(Chief Learning Officer) By Ave Rio, June 21, 2018 – Forty percent of HR leaders believe artificial intelligence will help fill the skills gap. That’s according to a new study by Learning House and Future Workplace, which surveyed 600 U.S. HR leaders.

More than half of those surveyed acknowledged the skills gap and more than a third believe it’s harder to fill open positions now than it was in 2017, but some critics say companies are not doing much to fix the problem. The study found that 74 percent of companies are only investing $500 per employee on learning and development.

Jeremy Walsh, senior vice president of enterprise learning solutions at Learning House, said he was shocked by the low amount of money being spent on L&D. “It’s just ridiculous to see that amount of money being spent,” he said. “I think we will start to see a shift in how much they’re willing to invest in skilling and reskilling.”

Walsh did note that while $500 was the average amount spent among all companies, the larger companies spent more — closer to an average of $1,500 per employee. Further, more than half of employers noted a lack of budget as their most significant obstacle to upskilling employees.

“It takes a lot of time and money to fix the problem,” said Dan Schawbel, research director at Future Workplace. “Companies are moving very fast, and they may believe they have other priorities right now.” Instead of investing money on reskilling current employees, Schawbel said companies would rather just outsource the jobs or invest in AI. Indeed, 40 percent seem confident in AI.

“When people see a stat like that, our immediate posture as human beings — none of us want to be replaced by a machine — is thinking, ‘Wow, 40 percent of HR people think we’re going to be replaced,’” Walsh said. “But that’s not really what it’s saying. It’s saying it’s going to help us do a better job of finding the right people for the right jobs.”

AI Efficiency

At some level, this is already happening. Walsh pointed to LinkedIn algorithms that help recruiters find people with the right skills to match them with employment opportunities.

Walsh said one reason for the 40 percent finding is that companies want to invest in AI because they know it will become more stable and usable. “They realize it’s going to change the jobs that people need to do,” he said. “And so the idea of training a bunch of people for jobs that don’t exist — that’s hard.”

Schawbel said AI is also appealing because machines can work longer hours without requiring employee benefits or compensation. “They can also increase efficiencies that will enable organizations to grow without adding additional headcount,” he said.

For example, the average wage of a Starbucks barista is almost $20,000 per year, while a robot designed to make 120 cups of coffee per hour costs $25,000. “Robots can work seven days a week, you don’t have to pay the robot overtime and there’s no employee benefits,” Schawbel said. “So even at the basic level, if robots can do things more efficiently, it saves a company money.”

While coffee making may be a fairly trainable skill, some skills are more dynamic. Google Brain, for example, is a deep learning AI research team at Google that has been focusing on using AI to build software that can design machine learning software.

Walsh said that frees up the data scientists from hours of coding to focus on developing more sophisticated models and better applications of how to use the software. “It just takes the work that they’re doing to a higher level versus kind of punching the keys, which is what a lot of data scientists end up doing right now,” Walsh said. “They’re so ingrained into building the machine that they can’t think about how the machine is being applied.”

AI is changing marketing too, as it can already send emails, schedule posts and analyze data. A Forbes article reported that this is forcing marketers to be “technology gurus with a depth of social and emotional intelligence to complement their abilities.”

Schawbel said AI is still in its infancy so it’s hard to tell what the long-term productivity and labor impact will be, but there are estimates that it could cause a 35 percent growth in productivity.

Necessity or Choice?

Schawbel noted that since companies aren’t investing enough in employee training and thus don’t have the right pool of candidates, it might be out of necessity — not choice — that they are using AI in this manner.

Walsh, on the other hand, said companies that are constantly looking toward the future are going to adopt AI regardless. “Because many believe that AI is going to play a huge part in improving efficiency and improving a company’s ability to compete and meet customer demand, they’re naturally inclined to be investing in AI anyway,” he said. But he said the compounding pressure of fewer “work-ready” candidates — people who understand the exact skills needed in today’s workforce —is probably also expediting the adoption of AI.

Schawbel said this issue comes with its own implications, such as bugs, privacy issues, complaints and, most important, a lack of training for current employees in using AI. Schawbel said this dilemma could create a different skills gap scenario, where employees that retain their jobs are not going to be able to work with AI because of a lack of training. “You have to learn how to use these tools and machines, otherwise you’re going to be irrelevant too,” Schawbel said. “There’s going to be a training cost either way.”

Walsh said everyone is trying to wrap their heads around what the jobs of the future look like and one way to get ahead is to train employees to be digitally fluent in AI and machine learning. “The more comfortable we can get people with those concepts and get them fluent with working with those types of AI bots, the better and more efficient we’re going to be,” he said.

Schawbel and Walsh agreed the skills gap isn’t going away any time soon, as jobs and skills are constantly changing and technology is speeding up.

“We’re going to see more collaboration between educators, between companies and between the government to step in and provide training options to reskill and upskill individuals, for those whose jobs are going to either be eliminated or enhanced by AI,” Walsh said.






Three Steps to Start Being Relevant

(LinkedIn) By Chandra Bhansali, June 14, 2018 – Being relevant means identifying client needs and molding your firm to address and satisfy those needs. While it may seem like a simple concept, many accountants don’t know where to start.

Here are a few ways to get your firm up to speed.

Start from the inside out

It’s important to instill the culture of relevancy across the entire firm. In order to be successful, you must first send a clear message to your staff that your company is committed to finding new ways to do more of what’s good for your firm and your clients. This requires you to support and encourage your staff to explore new ways to improve all aspects of your practice. Technology is changing at an unprecedented pace. Make sure your firm continually evaluates new cloud software and other technologies that can boost firm productivity and profitability, enhance the level of client services, and open new revenue-generating opportunities. Be prepared to reengineer your processes to take full advantage of these technologies.

Lead (don’t be led by) your clients

No one can deny the fact that you play a crucial role in accounting, which is a core business service. Unfortunately, most accounting software companies have chosen to bypass accountants and sell their accounting systems directly to your clients. This has diminished your relevance.

To raise your relevance, you need to have stronger control over accounting. Today, a new class of accountant-centric cloud solutions helps accountants regain stronger control over accounting. But many accountants don’t take advantage of the remarkable capabilities of the software to revamp their practices, because they feel they wouldn’t be able to move their clients away from the software they currently use. The irony is that many small business owners bought cloud-based accounting solutions on their own and then forced their accountants to use that software. The tail is wagging the dog!

You must lead and guide your clients to help them to do what’s good for them. If you find software that lets you customize your accounting services to best meet each client’s needs, then you need to firmly communicate your stance to clients. Explain all the benefits that clients would get when they work collaboratively with you on a customized solution you provide to them. Show them how it would reduce their burden of accounting, and how it would help your firm better monitor their cash flow and business performance.

This kind of firmness strengthens your clients’ trust in you.

Don’t assume clients know what they need

Helping your clients uncover and understand their true needs is one of the hardest - and most critical - parts of being relevant. As Henry Ford once said, “If you asked people what they wanted, the answer would have been, ‘faster horses.’” Most clients don’t even know the broad purpose of accounting as a management tool. They don’t know that used effectively, accounting can reduce the risk of bankruptcy, minimize cash flow problems, prevent other business issues before they happen and increase their company’s profits. Many think accounting is only a requirement because financials are needed for preparing tax returns. Expand your clients’ horizons and explain to them both the broad scope of accounting and how much more the latest advances in accounting technology can do to improve their business.

Remember, true relevance builds on your existing advisory role and allows you to lead your clients.






Payments Push

(CFO) By Russ Banham, June 26, 2018 – Today’s gotta-have-it-now mindset often seems more ingrained in the United States than anywhere else. It’s odd, then, that the country has lagged behind many others in building the infrastructure to make near-instantaneous electronic payments.

Finally, though, change is underway, in the form of a new inter-bank payments system dubbed RTP, for “real-time payments.” Lightning-fast settlements — versus next-day automated clearinghouse (ACH) transactions, wire transfers (which can take days to clear), or, worst of all, checks — could provide a host of benefits for businesses.

The advantages range from freeing up working capital sooner for strategic investment to accelerating supply-chain operations.

It’s not all about speed, though. In fact, other aspects of RTP, including the provision of standardized data relating to payments and transaction confirmations that payments are final and certain, may hold greater appeal.

At the same time, don’t expect to see hordes of companies rushing to update their internal systems to accommodate the new payments technology. Reasons for caution abound, at least in these early days.

Unceasing Movement

The new payments era launched on Nov. 13, 2017, when BNY Mellon initiated the first-ever real-time payment in the United States. Faster than you can say “show me the money,” $3.50 was successfully transferred from an account at BNY Mellon to one at U.S. Bank.

Those two banks and four others — Citibank, JPMorgan Chase, PNC Financial Services Group, and SunTrust — now have the capability to execute inter-bank payments within three seconds. Nineteen additional large commercial banks are working toward joining the party by 2020.

RTP is the first new core payments structure in the United States in more than 40 years. In developing it, the 25 banks are partnering with The Clearing House (TCH), a banking association and payments company. TCH wrote the code for RTP and is the system operator.

RTP exemplifies the unceasing movement toward real-time execution in business. Many activities are in that mode now, from the gathering of customer transactional data for gauging buying preferences, to the second-by-second analyzing of social media imprints, to the continuous accounting (in some companies) that automatically reconciles millions of transactions each day.

Speeding up electronic payments is particularly ripe for this environment, given the “just-in-time” supply chain pressures that companies sometimes face. If a company buys a product from a supplier with which it doesn’t have a credit relationship, but the buyer needs the product to ship right away, RTP can ease the concerns of a seller worried about the timeframe in which it will get paid.

Payment speed is especially attractive to midsize and small companies, which generally aren’t very adept at cash-flow forecasting.

“The instant availability of funds and the fact that payments are final and irrevocable are great things,” says Andrew Kirk, CFO of Trion Solutions, a provider of HR outsourcing services. “You’re getting immediate liquidity, as opposed to waiting for funds with crossed fingers. It gives you the opportunity to invest the dollars sooner to grow the business.”

The near-simultaneous transfers can occur 24 hours a day, every day of the year, as opposed to banks’ current Monday-through-Friday systems.

Need for Speed?

A business technically can receive RTP payments without doing anything, as the money will be in its bank account. But as a practical matter, it must update its accounts receivable system to automatically apply the payments.

Speed usually ranks third among the factors that may drive a company to adopt RTP, says Steve Ledford, senior vice president of product and strategy for TCH. He polls groups of corporate officials on that question when he makes presentations on the new technology.

Better handling of data and certainty of payment typically come out on top, Leford says. Indeed, he notes, TCH named the new system RTP rather than Real-Time Payments because “we’re trying to inch away from the focus on speed.”

With RTP, a standard set of data is guaranteed to arrive simultaneously with the payment. That eliminates confusion and creates efficiency.

“Some wires lack the necessary details explaining what the payment is for, creating accounting delays for the recipient company as it researches days of transactions,” says Patrick Villanova, controller and principal accounting officer at software provider BlackLine.

Notes Jennifer Lucas, executive director of financial services advisory for the payments practice at Ernst & Young, “The beauty of RTP is that the amount paid, what it was for, who paid it, and confirmation of payment are all transmitted without any manual processing.”

The information associated with a payment can be as simple as an account number, but it can also be specialized and complex. For example, automotive manufacturers buy a variety of parts from multiple suppliers, and they often claim allowances for parts damaged in transit or for other reasons.

RTP’s standard message format, ISO 20022, is based on the way data is handled in web and mobile applications. Every piece of information is tagged to facilitate automating much of the back-office payment-processing work. That “saves labor costs, reduces errors, and accelerates the entire purchase-to-pay cycle,” says Ledford.

A set of real-time messaging functions related to payments is also part of the value proposition for finance. In addition to “Payment Confirmation,” these include “Request for Additional Information,” “Request for Payment,” and “Remittance Detail.”

“The notifications create frictionless customer-facing interactions, replacing today’s frustrating and costly back-and-forth interactions between payers and recipients,” says Villanova.

For example, a payment confirmation can free the accounts payable department from the familiar exercise of paying a bill and then contacting the recipient to make sure it received the payment.

“Such operational hassles eat up money and time and adversely affect customer and trading-partner engagement,” says Ledford. “The bane of cash management is inherent uncertainty. Neither side knows exactly when the cash will be there.”

Taking It Easy

Here’s what the new payments model is not: a wholesale replacement for ACH transactions, wire transfers, checks, credit cards, and good old cash.

Rather, RTP is an option.

“CFOs now have more tools at their disposal insofar as how they want money to settle,” explains Carl Slabicki, director of immediate payments at BNY Mellon. “If they want a payment to clear within seconds or on a weekend or at night, they now have the opportunity.”

But while it’s likely that RTP will be used increasingly, there are good reasons why business adoption will occur at a gradual pace.

First, there’s currently a $25,000 limit for RTP payments. That might make the technology a big yawn for CFOs of large companies, notes Art Brieske, head of faster payments at JPMorgan.

The ceiling eventually will be lifted, however. “That makes now a good time to do what’s needed internally to get ready for opportunities, like improved cash forecasting, that RTP provides,” Brieske says.

Second, while RTP has features that make it well suited for a variety of applications, businesses may prefer other, existing payment methods for certain kinds of transactions, similar to how consumers particularly like using credit cards for travel and dining.

Third, RTP is new. A company may want to try it on a small scale before committing to it as a primary payment method.

But the biggest limiting factor of all is resource constraints. “If an existing process is working well with established payment options, it may not make sense to divert budget and IT staff to convert the accounts receivable function to accommodate RTP,” says Ledford. “ACH is cheap and effective, especially for recurring, low-risk payments.”

Frank D’Amadeo, director of treasury operations at electric utility Consolidated Edison Company of New York, acknowledges that RTP could improve the utility’s cash flow. “But,” he says, “and this is a big ‘but,’ it would require us to customize our ERP system.”

An alternative solution would be for the major ERP vendors like SAP and Oracle to modify their systems. But D’Amadeo isn’t high on that either.

“Unless they could provide a cookie-cutter, out-of-the-box customization, we’d have to pay them to modify our internal systems, which would be costly and chaotic,” D’Amadeo says. “We need standardization in the ERP industry without the vendors looking to nickel and dime us for customization. Until that happens, we’re going to do nothing [to move to RTP].”

Aware of the issue, TCH is addressing ERP integration in several ways.

For one, it’s reaching out to ERP vendors through its member banks to reinforce the importance of RTP to the payments industry, notes Jim Colassano, the organization’s vice president of product development and strategy.

TCH is also educating some vendors about the opportunities RTP offers them and their corporate clients.

Further, it’s teaming with several partnering banks to test the concept of an industry utility for B2B payments. The utility would support integration of RTP across vendors’ platforms, obviating the need for customization.

SAP and Oracle are huge, influential organizations, but the sheer clout of TCH’s member banks may well force the vendors’ hands. “It will come. It’s just a matter of time,” says EY’s Lucas.

Risk Avoidance

Another stumbling block to widespread adoption of RTP is the need to link it to a directory of databases for purposes of verifying user identities. Without that capability, banks may run afoul of strict Know Your Customer (KYC) regulations.

“Without a business directory maintained by an independent third party that verifies the authenticity of customers, RTP is just a dream,” says D’Amadeo.

TCH is tackling the issue on two fronts. At the retail end of the banking spectrum, it’s working to integrate its platforms with an existing directory operated by Zelle, a digital payments network owned by seven large banks.

On the wholesale banking side, TCH is looking to develop a secure model that would allow banks to reliably access one another’s business credentials.

Yet another perceived hurdle to RTP relates to cybersecurity. For RTP, security must be embedded in a company’s operational processes at the item-based level rather than at merely the batch-based level.

A related issue is fraud. “One benefit of today’s somewhat antiquated system is that we have traditional checks and balances to detect fraud in funds withdrawals and transfers,” says Villanova. “Banks have at least a full day to make that assessment.”

If those hurdles are overcome, RTP may have a lasting effect, moving organizations closer to real-time accounting.

“If everyone migrates to RTP and uses a cloud-based finance and accounting solution that provides real-time transaction matching — identifying cash in and out and then linking it to the corresponding invoices and payables — a business could theoretically do a virtual close of the books at the end of each day,” says Villanova. “A company would know every single day exactly where it stood from a financial standpoint.”

Armed with this data, organizations could make better, more strategic expense-control and resource-allocation decisions and adjustments. In fact, if enough U.S. businesses combine RTP and continuous accounting, they could arguably have a positive influence on the entire economy.

“A country’s economy is heavily dependent on the velocity of money—the speed at which the same dollar bill turns over,” Villanova points out.

Similarly, notes Ledford, “Every company deals with the problem of stranded cash that can’t be used. Making working capital more accessible instead of idle will have a big impact.”

And it’s not just the U.S. economy that may benefit. Many nations are looking to support platforms that enable real-time payments across all accounts globally.

That vision may come to pass—eventually. In the meantime, cautious though CFOs may be, RTP offers plenty of potential for achieving a less-glamorous but just-as-important goal: saving finance departments time, money, and endless headaches.






While Iconic Brands Feel Tariff Pain, Corporate America Braces for More

(Industry Week) June 27, 2018 – With the U.S.-versus-the-world trade war threat heating up, Harley-Davidson Inc. and Jack Daniel’s maker Brown-Forman Corp. may just be the canaries in the coal mine.

Both iconic American brands -- singled out for tariffs in part to inflict maximum pain on U.S. districts that voted for President Donald Trump or his allies -- have warned investors that retaliatory measures will have tangible effects on their businesses. Wall Street should expect more companies to disclose pain ahead when they report second-quarter results in coming weeks as the list of goods in the crosshairs of major trading partners like the European Union, China and Mexico grows.

“We don’t know where it’s going to hit hardest, but it will hit companies like suppliers, transportation, retailers -- a lot of different people,” said Bob Phibbs, head of the Retail Doctor, a consulting firm for retailers. “It will take months to assess what that means for the supply chain and just how it will escalate. There is no safe harbor.”

In addition to American motorcycles and bourbon, the EU is also targeting a variety of products from tobacco and fruit juice to apparel and playing cards. The potential impact from these duties spans the corporate landscape, from packaged-food and soft-drink companies such as Hormel Foods Corp. and Coca-Cola Co. to consumer-goods conglomerates like Newell Brands Inc. and closely held jeans maker Levi Strauss & Co.

Sixty Percent

Companies must also contend with Mexican tariffs on items including U.S. pork, steel and whiskey, while Canada has honed in on steel, food, home appliances and household goods. China is primarily slapping duties on agricultural products and cars, and India has raised levies on items such as chickpeas, walnuts and some hot-rolled steel.

Taken together, the EU, China, Mexico, India and Canada are the destination for more than 60% of U.S. exports. Currently, only a small portion of this flow is the target of duties. But the rapid escalation of trade tensions follows a prolonged period of relative stability in the global movement of goods, and companies are now scrambling to get ahead of the new supply chain challenges that loom.

“The current rhetoric around trade is worrying,” Coke spokesman Scott Leith said. “If strict tariff policies implemented in one country are mirrored in others, the world will become more insular, goods and services will be less affordable for consumers and that would have a negative impact on global economic prosperity.”

Only a few companies have disclosed those risks publicly so far. Harley-Davidson said it is shifting production of motorcycles destined for the EU market out of the U.S. to avoid 31% tariffs -- a move that prompted a backlash from Trump on Twitter. Brown-Forman, which produces Jack Daniel’s, Woodford Reserve and other spirits, will have to hike whiskey prices in the EU by about 10% and has stockpiled supplies there ahead of the tariffs going into effect.

Commodities Impact

In the commodities market, China and Mexico make up two of the largest export destinations for U.S. farm products, so tariffs have left agricultural goods mired in a slump. Soybeans fell to a two-year low last week and prices for many grain, meat, cotton and dairy products have also declined.

That’s tough news for farmers, who rely on foreign demand to offset domestic surpluses. Plus, favorable growing weather in the U.S. Midwest for this season’s crops means supply may remain ample ahead.

Meat producer Tyson Foods Inc. is facing “day-to-day uncertainty” amid the trade volatility, the company said last week. Earlier this month, a Cargill Inc. executive warned that trade has become “villainized” and misunderstood.

“The president’s actions on trade are causing whiplash for America’s retailers, farmers and manufacturers,” Hun Quach, Retail Industry Leaders Association’s vice president of trade, said in an email. “No question, tariffs will hurt U.S. workers and companies in every sector of our economy.”

Economic Impact

Even as specific companies gear up for potential pain, the U.S. as a whole isn’t sweating the tariffs, with Bloomberg Economics only predicting a total GDP impact of just one-tenth of a percentage point in a year that the economy is already growing at the fastest rate of the current cycle.

“In terms of motorcycle exports or whiskey or bourbons, these are not substantial shares of U.S. exports so this doesn’t move the needle economically,” said Bloomberg Economics’ Chief U.S. Economist Carl Riccadonna. “Everyone keeps wanting to call it a trade war when really we’re talking about something that’s a rounding error in the GDP account. But that doesn’t mean we couldn’t get there.”

Economists are watching the data carefully for any sign of an impact, with next Friday’s jobs report, in particular, a place where corporate fears could potentially start showing up in the form of lower hiring.

“Capitalism hates economic uncertainty,” Riccadonna said. “We’ve been banging the drum on trade. That anxiety could start to create a negative feedback loop” that starts to impact companies’ behavior, he said.

Domino Effect

For some companies, the tariffs have created a complex domino effect. This was illustrated on a recent conference call with executives from La-Z-Boy Inc., the makers of the ubiquitous reclining chairs. When asked last week about the company’s outlook, Chief Executive Officer Kurt Darrow first cited a 10% tariff from Canada on U.S.-made furniture before referring to a potential U.S. duty on Chinese actuators, a machine component used in its products.

“And then there’s the announcement of a plan for more tariffs coming, so it is an uncertain time as far as our cost inputs,” he said as the company reported fourth-quarter results.

Darrow said that when it comes to tariffs and input costs, the Monroe, Michigan-based company will just have to see what happens.

“You really can’t get ahead of it,” he said. “You have to wait until you deal with the raw materials and then decide how much you pass on and how much you keep.”