How ERISA’s Legacy Impacts Your Business Today

Key Takeaways

The Employee Retirement Income Security Act (ERISA) of 1974 marked a crucial turning point in U.S. retirement security, laying the groundwork for employee protections that are still evolving today.
Its foundation led to reforms that eliminated gender-based discrimination in retirement plans and introduced spousal protections, including the requirement of spousal consent for some benefit elections.
ERISA served as a spark to light the fire for continuous enhancements to employee protections with legislation that covers aspects of an employee’s health, family benefits, and retirement.

The Employee Retirement Income Security Act of 1974 (ERISA) represents a key moment for retirement security in the United States — and September 4, 2024, marked its 50th anniversary.

While its enactment is certainly an important milestone, ERISA’s most enduring impact may be that it began an era of continued enhancements to employee protections and contributed to the reduction of discriminatory treatment of U.S. workers. The 1974 landmark act opened the door for new laws and regulations, paving the way for many of the employee protections now considered standard for the American workforce.

Setting the Stage: The Political Climate of 1974

While ERISA coalesced years of growing concern to improve protections for U.S. workers’ retirement, it came about in direct response to a pivotal point in U.S. history. In 1974, the United States was navigating a tumultuous period marked by the ongoing Vietnam War and the Watergate scandal. Following President Richard Nixon’s resignation, President Gerald Ford came into office looking for opportunities to unify the country and restore public trust in the government. Ford and Democratic House Speaker Tip O’Neill collaborated on bipartisan legislation that pulled together existing draft legislation to quickly construct the Employee Retirement Income Security Act of 1974.

Enacted on Labor Day 1974, less than a month after Ford took office, ERISA was not as comprehensive as has often been assumed and required subsequent legislation to address its missing or incomplete components. Despite these initial shortcomings, ERISA laid the groundwork for the modern era of employee retirement security and employee protections in the United States. There have since been significant subsequent reforms and enhancements that have built on ERISA’s foundation.

Gender-Based and Spousal Discrimination

One of the early areas of reform was the elimination of gender-based and spousal discrimination in retirement plans. In 1978, the U.S. Supreme Court’s Manhart decision removed the requirement for female plan participants to pay more into a plan to account for their longer actuarial lifespans.

The Retirement Equity Act of 1984 (REA) furthered these protections by creating spousal protections and recognizing qualified domestic relations orders (QDROs). The REA required written spousal consent for married plan participants to elect a benefit other than a qualified joint and survivor annuity and provided spousal death benefits for terminated vested participants not in pay status. It also protected the prior vesting service for those taking parental leave or a break-in-service of less than five years’ duration.

Age-Based Discrimination

Later reforms addressed age-based discrimination. The Age Discrimination in Employment Act of 1967 (ADEA) had eliminated the mandatory retirement age and allowed participants to continue accruing benefits even if they worked past the normal retirement age. The Older Workers’ Benefit Protection Act of 1990 amended the ADEA to further ensure equal benefits for older employees and provide additional safeguards against age discrimination in the workplace.

Health Discrimination

Health discrimination was another critical area in need of reform, and saw it in the form of:

The Americans with Disabilities Act of 1990 (ADA), which prohibits discrimination against individuals with disabilities and requires reasonable accommodations for disabled employees.
The 2008 Genetic Information Nondiscrimination Act (GINA), which prevents the denial of insurance coverage or higher premium costs to a healthy individual based on a genetic predisposition to a disease.
The Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), which ensures mental health or substance use disorder benefits are on par with medical and surgical health benefits.

Expanded Health Benefit Protections

Protections focused on employee health benefits have been expanded significantly since 1974. Here are some ways:

The Consolidated Omnibus Reconciliation Act of 1986 (COBRA) established rules governing the continuation of health coverage, including provisions for limited-period health coverage continuation for employees and beneficiaries following certain life events that would otherwise result in a reduction in benefits.
The Affordable Care Act of 2010 (ACA) prohibits insurance companies from denying coverage or charging higher premiums based on pre-existing conditions.
The Family and Medical Leave Act of 1993 (FMLA) provides job-protected leave for serious health conditions and family care for eligible employees, including 12 weeks of unpaid parental leave for the birth and care of a newborn.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) implemented data security measures, expanded employee protections, and ensured the privacy and security of health information.

Other notable expansions relate specifically to women and children, including:

The Newborns and Mothers Health Protection Act of 1996, which mandates minimum hospital stays for childbirth.
The Women’s Health and Cancer Rights Act of 1998, which ensures insurance coverage for mastectomy reconstruction.
The Children’s Health Insurance Program (CHIP), which provides health coverage for children from low-income families.

The Evolution of Employee Protections

Since ERISA’s enactment, employee protections for U.S. workers have evolved significantly. While some legislation was met with initial resistance, the protections introduced have become indispensable to many in the U.S. workforce. As we celebrate the half-century mark for ERISA, we’re reminded that human capital is a company’s most valuable asset and employee protection helps maintain a thriving workforce.

How MGO Can Help

At MGO, we know that complying with the complexities of ERISA and the employee-related laws that followed can be challenging. Our Audit team leverages years of experience and knowledge to address your concerns about benefit plans, as well as offer suggestions based on your specific circumstances. Reach out to us today to learn more.

Unlocking Capital: 5 Key Strategies for First-Time Biotech Fundraising

Executive Summary:

Build investor trust through financial transparency, strong leadership, and solid internal controls to overcome the “first-time fundraising roadblock” in biotech.
Showcase your product’s potential with a compelling pitch and clear value proposition, backed by data and a talented research team.
Leverage your professional network and industry connections to get noticed by the right investors in the biotech space.

The biotech landscape is currently divided into the “haves” and “have-nots” when it comes to fundraising. Those who have successfully brought products to market or secured previous funding rounds have a substantial advantage. They possess the track record, relationships, and trust investors crave.

But what if you don’t have that? If your biotech company is preparing to raise capital for the first time, not to worry — you can still stand out and secure funding. Here are five key strategies to help you get around the first-time fundraising roadblock and gain the attention of investors.

1. Build Trust with Financial Transparency

Investors need to trust your company is financially sound. Without a track record, demonstrating your fiscal responsibility is essential. Start by having a quality audit of your financial statements, conducted by a reputable auditor with experience in the biotech space. Accurate, clear financial reporting builds investor confidence, showing you are serious about managing capital effectively.

If you have already raised seed funding or received a grant, highlight how you have used those resources responsibly. A grant audit, for example, can showcase you have maximized the value of previous funds—something investors will look for as they evaluate your business.

2. Strengthen Your Leadership and Team

Investors are not just funding an idea; they are funding the people behind it. If you lack in-house knowledge or experience, consider hiring or partnering with experienced professionals. A strong chief financial officer (CFO) — even an outsourced one — can make a significant difference. Outsourced accounting support allows you to tap into the knowledge of seasoned professionals without the full-time cost. A skilled CFO will strengthen your financial reporting and operations, further enhancing trust with investors.

Additionally, if you don’t have an executive with capital-raising experience, bring in someone who does. Investors are more likely to bet on a team with a proven track record in biotech, especially when that person has a Rolodex of contacts and a history of success. Just remember: there is no silver bullet. Even bringing in a seasoned executive won’t move the needle if the fundamentals aren’t in place. Investors will see through any attempts to paper over weaknesses.

3. Demonstrate Your Product’s Potential

At the core of any capital raise is the product you are developing. Investors want to know your biotech solution has potential. Your value proposition should be clear, well-researched, and backed by data. Whether you are creating a novel drug or pioneering a new treatment technology, demonstrate the market need, potential impact, and your path to commercialization. A strong, well-articulated product concept, supported by a talented research team, will help you stand out.

This is where you must focus on having a polished pitch deck and elevator pitch. If you do secure a meeting with potential investors, being prepared with a compelling and concise presentation can make or break the deal. Your pitch should clearly communicate your company’s vision, market potential, and how their investment will drive growth.

4. Establish Strong Internal Controls

Investors not only want to see financial transparency and a strong product, they also want to know your business is structured for long-term success. Demonstrating you have solid internal controls — related to compliance with regulations like the Sarbanes-Oxley Act (SOX) — shows you are prepared to scale responsibly.

An internal controls evaluation can identify areas for improvement and help strengthen your company’s operational documentation, efficiency, and security. This is a crucial step in building investor trust and positioning yourself as a mature, trustworthy business.

5. Leverage Your External Network

Building your company is just one part of the equation. The next step is expanding your personal network so you are speaking to the right investors. Start by identifying the key players in your biotech niche. Look at competitors and peers who have successfully raised capital and find out who their investors were. This will help you target the right people and increase your chances of getting noticed.

Once you have a list of potential investors, begin outreach. Attend industry events, schedule informal meetings, and use every opportunity to introduce yourself and your business. This is where your external network can become an invaluable resource. Don’t hesitate to tap into your legal, financial, and banking partners for introductions to investors. These professionals often have established relationships with investors and can open doors you would not be able to access on your own. If you don’t have all these partners in place, one can often connect you with the others. For example, at MGO, we can refer you to trusted legal and banking partners to help you get the full support you need.

Breaking Down Barriers to Secure First-Time Funding

Raising capital for the first time is undoubtedly challenging, but it’s far from impossible. By focusing on building a strong company, demonstrating your value, and strategically expanding your network, you can bridge the gap between the “haves” and “have-nots” of biotech fundraising — securing that essential first round of funding.

How MGO Can Help

Navigating your first capital raise can be daunting, but you don’t have to go it alone. We’re here to help you build the strong foundation you need to attract investors and take your groundbreaking ideas to the next level.

Our experienced biotech practice offers a range of services tailored to meet your specific needs, including:

Audit and assurance services to validate your financial statements
Outsourced CFO services to strengthen your financial operations
Internal control evaluations to enhance your operational efficiency
Strategic advisory services to help you navigate the fundraising landscape

Don’t let being a first-time fundraiser hold you back. Reach out to our team today to learn how we can support your journey from promising startup to funded success story.

How to Master Cost Management for Your Winery

Key Takeaways:

Effective cost management involves proper inventory costing methods, accurate accounting of tasting room operations, and appropriate financial reporting practices.

Wineries of different sizes face unique challenges, from implementing GAAP-based inventory costing for small wineries to comprehensive risk management strategies for large wineries.

Understanding production costs, distribution expenses, and potential risks helps wineries make informed financial decisions and achieve sustainable growth.

As a winery owner, mastering cost management is crucial for profitability. Understanding your expenditures and employing the right strategies can improve your financial health and boost your operational efficiency.

Whether you are a small, medium, or large winery, here are some key factors to keep in mind:

Inventory Costing Methods

For small wineries — which make up 49% of the market — U.S. generally accepted accounting principles (GAAP) inventory costing methods are invaluable. These methods enable you to assign a monetary value to your inventory, providing the exact cost data capture you need to manage production and distribution expenses effectively. If you are a medium-sized (or larger) winery, you can benefit from more comprehensive financial models and robust accounting systems.

Tasting Room Operations

For wineries of all sizes, accurately accounting for tasting room activities is critical. This includes tracking your inventory, managing sample losses, and accounting for both owner and employee samples. Proper financial controls and expense categorization will provide you clear insights into profitability. Understanding these challenges, you should consider comprehensive solutions like inventory costing, financial modeling, and tax preparation to enhance your operational efficiency and profitability.

Audit Versus Review

As your winery grows, the need for independent Certified Public Accountant (CPA) audits or reviews becomes more important. This decision hinges on the level of assurance needed and the specific needs of lenders, investors, or creditors. While audits offer the highest level of assurance and can enhance credibility with stakeholders, they are also more costly. Reviews, on the other hand, are less expensive but provide more limited assurance. Tailored audit and review services can help meet the unique requirements of your winery, supporting accuracy and compliance in financial reporting.

Tax Return Considerations

Proper inventory valuation and tracking of production activities are essential for correct tax preparation. Formal inventory valuation methods — such as those adhering to U.S. GAAP — can aid in exact tax reporting and provide a reliable template for management. This appropriately accounts for all production costs, helping to minimize tax liabilities and avoid potential issues with tax authorities. Specialized tax preparation services tailored to the unique needs of your winery can help you meet compliance requirements and improve financial outcomes.

Small Wineries: Accurate Inventory Accounting

If your winery produces fewer than 1,000 cases annually and lacks extensive accounting resources, you may choose to keep books on a tax basis. However, implementing U.S. GAAP-based inventory costing — even if not needed — can offer valuable insights into your production costs and help you secure debt or equity financing. Accurate cost tracking allows you to make informed decisions about your operational efficiency and financial management, giving you a competitive edge in the crowded market.

Medium Wineries: Proactive Risk Management

For medium-sized wineries, effective risk management is crucial to safeguarding financial stability. Finding potential risks such as climate impacts or market fluctuations requires a proactive approach, including investing in insurance and strategic planning. Although these measures involve upfront costs, they can prevent substantial financial losses overall. Implementing robust risk management practices will help your winery keep consistent production quality and protect your financial health against unforeseen challenges, ultimately supporting sustainable growth and operational resilience.

Large Wineries: Strategic Risk Mitigation

Large wineries, with extensive operations and market reach, face significant risks from climate change and volatile market conditions. Investing in comprehensive risk management strategies, including climate-resilient infrastructure, diversified revenue streams, and market analysis tools, is essential. Upfront costs for insurance and strategic planning are necessary to mitigate these risks. By addressing potential vulnerabilities proactively, your winery can protect its substantial investments, maintain market stability, and set the table for long-term profitability despite external uncertainties. This approach will help you preserve your reputation and sustain growth in a competitive industry.

Distribution and Growth Considerations

For small wineries, distributing wine introduces challenges that require a clear understanding of both production and distribution costs. Increased production often involves significant investments in equipment and facilities, affecting the cost per case until production volumes grow sufficiently. Before entering any distribution channel, it is crucial to understand the full cost of production, develop a solid pricing strategy, and account for the costs involved in various sales channels to support profitability and growth.

Elevate Your Winery’s Profit Potential

Effective cost management is vital for wineries of all sizes to navigate the complexities of the market and achieve sustainable growth. By implementing robust financial practices, correct cost tracking, and comprehensive risk management strategies, your winery can enhance its operational efficiency and profitability.

How MGO Can Help

MGO’s tailored solutions can help you meet these challenges and thrive in this competitive industry. Reach out to our Vineyards and Wineries team today to learn how we can support you.

Are You Ready to Take Advantage of Rescheduling and Audit Opportunities?

Key Takeaways:

Audit services are crucial for cannabis businesses to navigate industry changes, especially with potential rescheduling on the horizon.

Audits can help strengthen your position in M&A deals by providing financial transparency and uncovering hidden risks or opportunities.

Comprehensive audits enhance operational efficiency, prevent fraud, and prepare businesses for evolving regulatory frameworks.

With the potential for rescheduling continuing to move forward, companies and investors need to assess the opportunities that may emerge in the cannabis industry. Have you considered how audit services can help your company thrive in this changing environment?

Here are some key areas where audit services may be beneficial:

Strategic Positioning for Mergers and Acquisition (M&A)

Whether you’re buying or selling a cannabis business, audit services can significantly strengthen your position. By demonstrating financial transparency to potential buyers, you can potentially improve your pricing and valuation. Additionally, streamlining due diligence can shorten the time to close deals and uncover any accounting irregularities or hidden risks — such as tax exposure or liabilities.

Operational Excellence

An audit isn’t just about numbers; it’s about enhancing your business operations. Identifying areas to streamline and reduce costs can lead to significant savings. Moreover, uncovering inefficiencies in your cash flow management and receiving recommendations to enhance your internal controls can improve your overall business efficiency.

Fraud Prevention and Detection

Protecting your business and assets is crucial. A comprehensive examination of your financial records can reveal potential vulnerabilities and spot red flags that may indicate fraudulent activity. Based on audit findings, you can implement stronger safeguards to protect your business.

Regulatory Readiness

While rescheduling may ease some burdens, it could introduce new regulatory frameworks. An audit can help you assess your current compliance status and identify areas that may need attention under potential new regulations. This positions your company to adapt quickly to regulatory changes.

How MGO Can Help

With a dedicated Cannabis practice and personalized audit and assurance solutions based on your needs, we can help you navigate the evolving landscape of the cannabis industry with confidence. Schedule a consultation with Cannabis Industry Leader Scott Hammon today to discover how our audit solutions can benefit your business.

How to Prepare Your Tech Company for a Financial Audit

Key Takeaways:

A financial audit is crucial for tech companies seeking investment or acquisition, providing credibility and insights into financial health and processes.

Proper preparation involves assembling the right team, establishing solid financial systems, and gathering comprehensive documentation.

Approaching the audit as an opportunity rather than an ordeal can lead to stronger financial practices and a clearer path toward business objectives.

You have taken your tech company to the next level with a groundbreaking idea and compelling vision. Now, you are eyeing the next big move — going public, courting major investors, or positioning for an acquisition. But innovation alone will not seal the deal; you need a captivating financial story that stands up to public scrutiny and due diligence.

Enter the financial audit. A well-executed financial audit can be a powerful tool for your business, providing credibility to investors and partners while offering valuable insights into your financial processes. With the right preparation, you can transform an audit from a perceived hurdle into a launchpad for your next phase of growth.

Understanding the Goal of a Financial Audit

A financial audit is an independent examination of your company’s financial statements and underlying records, conducted by a certified public accountant (CPA) or CPA firm. The goal is to provide reasonable assurance that your financial statements are free from material misstatement and fairly represent your company’s financial position.

For tech companies eyeing future fundraising, acquisitions, or public offerings, an audit is more than a compliance exercise — it is a crucial step in telling your financial story accurately and building trust with potential investors or acquirers.

Building an Audit-Ready Foundation

Your audit journey begins long before the auditors arrive. Set your business up for success by having these elements in place:

Human resources: Staff your team with personnel who have solid financial accounting backgrounds. Their knowledge will be essential in maintaining accurate financial records and complying with relevant accounting standards.

Internal systems: Implement accounting platforms to accurately track transactions, inventory, and sales. An efficient accounting system will streamline the process of gathering and presenting financial data.

Formation documents: Maintain comprehensive records from your company’s inception with complete capitalization tables, including intellectual property (IP) documentation. This will make all foundational aspects of your business well-documented and easily accessible.

Legal support: Engage an attorney knowledgeable in your industry to help protect your IP. They can also assist with contract reviews and regulatory compliance, which are often scrutinized during an audit.

Regular period closes: Establish a routine for closing your financial periods (monthly or quarterly) to keep your books consistently up to date. This practice will facilitate the audit process by providing timely and reliable financial information.

Assembling Your Audit Team

Choosing the right team is critical to how efficiently your audit is conducted. Selecting your external team typically includes:

CPA firm: Choose a reputable CPA firm with experience in your industry and the ability and resources to grow with your entity. A CPA firm with relevant industry experience will have a better understanding of the specific challenges and requirements of your business.

Investment banker: Depending on your transaction type, you might need an investment banker. Investment bankers can provide valuable insights and assistance in structuring and executing your financial transactions.

Specialized attorney: If planning for an initial public offering (IPO), engage a Securities and Exchange Commission (SEC) attorney. An attorney will help in navigating the complex regulatory requirements associated with going public.

Unrecognized transactions or errors: These may require significant time to research and correct. Proactively reviewing, identifying, and addressing any unrecognized transactions or errors early on will help in avoiding delays during the audit.

Timeline and Planning

Establish a realistic timeline for your audit and subsequent transactions. A well-planned timeline will help in managing the audit process so that all necessary steps are completed on time.

Audit duration: Allocate at least one to three months for the audit process, factoring in elements like company size and complexity, quality of accounting records, and completeness of your documentation.

Public offering timeline: Keep in mind that going public can take at least three months, and unexpected issues can cause delays.

Regular reviews: Regularly review your timeline with your service providers to adjust, as necessary.

Gathering Your Documentation

The success of your audit hinges on the quality and completeness of your documentation. From the C-suite to your front-line employees, all your documentation needs to be up to date and accurate. Prepare:

Financial statements: Have your income statement, balance sheet, and cash flow statement up to date to accurately reflect your financial position. Accurate financial statements are essential in providing a clear picture of your company’s financial health.

Supporting schedules and notes: Prepare detailed breakdowns of major accounts and transactions, along with explanatory notes for complex items. Supporting materials provide additional context and clarity to your financial statements.

Internal controls documentation: Compile documentation of your financial policies, procedures, and risk assessment activities. Internal controls documentation demonstrates your company has effective processes in place to manage financial risks.

Contracts and agreements: Gather all significant contracts, including customer agreements, vendor contracts, and loan documents. These documents provide evidence of your company’s legal obligations and financial commitments.

Tax filings and records: Have your tax returns and related documentation ready for review. Tax filings and records are essential in verifying your company’s compliance with tax regulations and identifying any potential tax liabilities.

Common Pitfalls (and How to Avoid Them)

Be aware of potential challenges that can delay your audit:

Complex transactions: Tech companies often deal with complex financial instruments like preferred stock, stock options, or convertible instruments. Proper accounting for these is crucial. Equip your team with the necessary knowledge to handle complex transactions.

Revenue recognition: Follow appropriate guidelines, especially for Software as a Service (SaaS) companies where revenue recognition can be complex. Accurate revenue recognition is critical in providing a true and fair view of your company’s financial performance.

Inadequate documentation: Lack of proper documentation can significantly slow down the audit process. Have all required documents complete and readily accessible to avoid delays.

Best Practices for a Smooth Audit Process

Once the audit begins, your role shifts to facilitating the auditors’ work. Your team can contribute to the speed and efficiency of the audit by employing these practices:

Respond promptly: Provide requested information and documents in a timely manner. Delays on your end can derail the entire timeline.

Maintain open communication: Be transparent with your auditors about any issues or concerns.

Stay focused on your objectives: Remember the audit is a means to an end — whether that is preparing for an acquisition, going public, or attracting investors. Keep this perspective to maintain a positive attitude throughout the process.

Embracing the Audit as an Opportunity

Your financial audit doesn’t need to be a stressful ordeal. By approaching it with thorough preparation, open communication, and a focus on your long-term objectives, you can turn this process into a valuable opportunity for growth and improvement.

Remember, the goal is not just to get through the audit — it is to emerge with stronger financial practices, increased credibility, and a clearer path toward your business objectives. With the right mindset and preparation, your audit can be a pivotal step in your company’s journey to success.

How MGO Can Help

We have extensive experience working with tech companies, including serving as the auditor for companies preparing for IPOs, mergers, acquisitions, and other capital-raising activities, as well as tech companies that need an annual audit for a bank or investor.

Our approach includes:

Rapid response times: Echoing our firm’s fundamental “Be a Fanatic About Response Time,” we prioritize quick response to all your requests.

Automated processes: We integrate automation into our audit process to minimize the burden on your team.

Network of resources: We can help connect you with attorneys, investment bankers, and other professionals to meet your needs.

If you need assistance preparing for your financial audit or an experienced auditor who understands your needs, reach out to MGO today. We are here to support you in achieving your objectives and guide you through a successful audit process.

How to Protect Your Business Against Asset Misappropriation

Key Takeaways:

Asset misappropriation involves the theft or misuse of an organization’s physical and digital assets, posing a major threat to businesses.

Red flags of asset misappropriation include unexplained shortages, unauthorized transactions, altered records, excessive resource use, and employees living beyond their means.

Strategies to combat asset misappropriation include strong internal controls, employee education, surveillance technology, promoting an ethical culture, and data analytics for fraud detection.

In the dynamic landscape of modern business, asset misappropriation remains a pervasive threat, undermining the financial stability and integrity of organizations across industries. As part of MGO’s fraud series, this article delves into the critical issue of asset misappropriation — offering your business the knowledge and tools needed to safeguard your valuable assets.

Understanding Asset Misappropriation

Asset misappropriation, a prevalent form of fraud, involves the theft or misuse of an organization’s assets. Unlike financial statement fraud, which distorts the truth on paper, asset misappropriation manifests in the direct pilfering or misuse of physical and digital assets. From cash and inventory to intellectual property and digital data, no resource is immune to this fraudulent activity.

Red Flags of Asset Misappropriation

Unexplained shortages or discrepancies: Whether it is cash, inventory, or other assets, unexplained shortages are classic signs of theft or embezzlement. For instance, casinos might notice discrepancies in chips or cash, pointing toward internal theft.

Unauthorized transactions: Any unauthorized withdrawals or transfers, especially in sensitive environments like casino accounts or gaming tables, should raise immediate concerns about asset misappropriation.

Alteration of records: Manipulating gaming records, player accounts, or payout systems can facilitate theft, often going unnoticed without rigorous audits.

Excessive use of company resources: When employees use company vehicles, equipment, or facilities beyond their professional needs, it suggests potential misuse of organizational assets for personal gain.

Lifestyle inconsistencies: Employees exhibiting a lifestyle significantly above their income level can be a red flag for embezzlement or fraud, often funded by stolen assets.

Strategies to Combat Asset Misappropriation

To effectively shield your organization from the perils of asset misappropriation, a multifaceted approach is necessary. These strategies are designed to fortify your defenses, helping your business operate with the highest standards of integrity and security. By implementing these measures, you can create a resilient barrier against fraudulent activities and safeguard your organization’s future.

Here are some pivotal strategies to combat asset misappropriation:

Establishing robust internal controls is the first line of defense. Professionals with experience enhancing internal controls can assist your organization in assessing and refining its practices — including segregation of duties, regular audits, and securing access to sensitive areas and systems. This approach establishes a solid foundation for preventing asset misappropriation.

Educating employees about the signs of fraud and the importance of ethical behavior is essential to deter potential fraudsters and empower your staff to report suspicious activities. Training programs, which can be supported by advisory firms, effectively communicate the risks of fraud and the importance of vigilance, helping to build a knowledgeable and proactive workforce.

Utilizing technology like surveillance cameras, advanced access controls, and cybersecurity measures can significantly reduce the risk of asset theft or misuse. Cybersecurity and physical security professionals can integrate cutting-edge solutions to protect your assets from both internal and external threats, providing a comprehensive defense strategy.

Promoting a corporate culture that values honesty and transparency can discourage fraudulent behavior. Developing policies and practices that foster open communication and a strong ethical foundation is crucial. Establishing a whistleblowing policy that encourages reporting without fear of retaliation can be an integral part of this effort.

Deploying data analytics and fraud detection software to monitor for unusual patterns or anomalies can indicate asset misappropriation. Advanced data analytics and forensic accounting services can identify and investigate suspicious activity, using sophisticated tools to detect early signs of fraud and prevent asset loss.

Safeguarding Your Assets Against Pervasive Threats

Asset misappropriation poses a significant risk to businesses, draining resources and eroding stakeholder trust. By understanding the red flags and implementing a comprehensive strategy to detect and prevent asset misappropriation, your organization can protect its assets and maintain its financial integrity.

MGO’s Business Advisory solutions offer a pathway to strengthen your defenses against the risks of asset misappropriation. For a deeper dive into how we can help protect your business, reach out to our team today.

This article is part of our ongoing fraud series, “Alert Signals: Uncovering the Spectrum of Fraud,” aimed at educating your business on identifying and preventing fraudulent activities. Read the previous article in the series on spotting red flags of financial reporting fraud and stay tuned for more insights and strategies to protect your organization.

Did You Miss the Deadline for Your SBA Shuttered Venue Operators Grant (SVOG) Audit?

Key Takeaways:

The SVOG program distributed billions to assist live venues and operators impacted by COVID-19, with mandatory audits required for recipients of $750,000 or more.
For-profit entities were required to submit SVOG audit packages by the later of nine months after the July 22, 2022, guidance or nine months after their 2022 fiscal year end.
Organizations that missed the deadline should complete their audits immediately, submit them to the SBA, and be prepared to justify any delays.

The Shuttered Venue Operators Grant (SVOG) program provided more than $16 billion in emergency assistance to live venues, performing arts organizations, theatrical producers, museums, movie theaters, and other eligible businesses impacted by the COVID-19 pandemic. Recipients that received $750,000 or more in SVOG funds were required to complete an audit by a third-party auditor.

For for-profit organizations, the deadline for submitting SVOG audits to the Small Business Administration (SBA) was the later of nine months after the release of SVOG For-Profit Guidance Document (which was issued on July 22, 2022) or nine months after the end of the entity’s fiscal year. This means all companies required to submit an SVOG audit should have done so prior to the conclusion of 2023.

If you missed this deadline, here are the key things you need to do:

Complete the audit process immediately if you haven’t already done so. The audits are mandatory for SVOG recipients above the $750,000 threshold.

Submit your completed audit package to the SBA as soon as possible after completion. There is no formal extension or grace period, so submitting late is better than not submitting at all.

Be prepared to justify the late submission and any delays in completing the audit process. The SBA may request an explanation.

Maintain all records and documentation related to your SVOG award and spending for future audits or reviews.

SVOG audits provide accountability for the proper use of these emergency pandemic relief funds. Failure to complete and submit the required audit can potentially result in having to return a portion or all of your SVOG funds received.

If you missed the deadline to complete your SVOG audit, MGO can help. Please contact our team immediately for assistance fulfilling this requirement.

Optimal Audit Approach for Federal Awards in Biotech and Lifesciences

Executive Summary

Federal awards fuel innovation and growth in the biotechnology and life sciences sector, but they require stringent adherence to regulations and the terms of the award.
The risks of non-compliance include financial penalties, loss of funding, and even legal action.
An experienced federal award audit provider can improve performance by mitigating risk, adhering to complex regulations, and delivering additional operational and financial insight.

The path to groundbreaking biotech and life science innovations is paved with both opportunities and regulatory challenges. Federal awards and grants support the biotech sector’s quest for advancement. However, navigating the maze of compliance requirements demands expertise, precision, and a proactive approach.

Most federal awards require stringent adherence to federal regulations and the terms of the award. The result of non-compliance is severe, and may include financial penalties, the loss of funding, reputational damage, and in the worst circumstances, potential legal action from funding agencies and/or stakeholders.

This is why it is essential to work with an assurance provider with specific knowledge of the biotech/life science landscape. Your audit provider must provide specialized guidance for the sector’s dynamic nature, focusing on risk assessment, control evaluation, and regulatory adherence to safeguard your projects and funding.

Why Program-Specific Audits Matter

In the detail-oriented and highly regulated biotech industry, a generic approach to auditing cannot uncover or address the nuanced complexities of federal funding compliance. Every federal award program has unique regulatory and reporting requirements. A one-size-fits-all approach is likely to miss key details of your specific requirements and may waste essential time and resources on irrelevant matters.

The benefits of a well-run audit by a seasoned provider should include:

Compliance with Regulations: Support adhering to the terms of the federal award will help reduce the risk of penalties and funding termination.
Improved Financial Management: An objective, independent review of financial management practices can help make sure funds are used for their intended purposes and are properly accounted for.
Added Transparency: A clear view into operations and financials – validated by a trusted auditor – will help build trust with both funding agencies and stakeholders.
Superior Risk Management: Reduce and mitigate risks related to financial management, compliance, reporting, and potential fraud.
Performance Improvement: Identify areas for improvement in financial management practices, internal controls, and compliance processes.

Optimal Federal Award Audit Approach

Conducting a federal award audit for a biotechnology company involves several key steps to ensure compliance with federal regulations and the terms of the award. Our audit process is differentiated by its collaborative, transparent, and client-focused methodology. We start with an in-depth evaluation of your unique needs and the specifics of your programs to craft a tailored strategy. Throughout the audit journey, we provide open communication, delivering insights and updates to keep you informed and engaged. Our final deliverable is a comprehensive report that addresses compliance, empowers strategic decision-making, and program enhancement.

The following is our outline of the process:

Analysis of Award Terms: Review of the terms and conditions of the federal award to understand the requirements related to financial management, reporting, and compliance.
Collect Documentation: Assemble all relevant documentation, including financial records, invoices, receipts, and others.
Financial Record Review: Examination of your company’s financial records to confirm that expenses are properly documented and allocated.
Compliance Assessment: Evaluation of your company’s compliance with the federal award requirements, including allowable costs, cost-sharing, reporting, and other terms in the award agreement.
Perform Testing: Select a sample of transactions and expenses to test for compliance with federal regulations and the award terms. This may include testing for allowability, allocability, and reasonableness of costs.
Document Findings: Document the results of the audit, including any findings of non-compliance or areas for improvement.
Prepare Audit Report: Prepare a formal audit report summarizing the audit findings, conclusions, and recommendations for corrective action, if necessary.
Communicate Results: Discuss the audit findings with the company’s management and provide them with an opportunity to respond and address any issues identified during the audit.
Follow-Up: Monitor the company’s corrective actions and follow up to identify and resolve issues in a timely manner.
Federal Agency Report: Submit the audit report to the appropriate federal agency responsible for overseeing the award, along with any recommendations for further action.

Benefits of an Experienced Biotechnology Audit Provider

When selecting a federal audit provider, it is important to identify a firm with a dedicated biotechnology and life sciences practice with professionals actively serving the industry. Your provider should bring a wealth of experience and a multidisciplinary team that specializes in the financial intricacies and regulatory frameworks governing the biotech industry.

At MGO, our professionals are not only auditors but also advisors versed in the nuances of biotech funding and federal award compliance. We understand the operational, financial, and compliance pressures you face and offer bespoke auditing solutions that reflect the latest regulatory standards and industry best practices.

We can provide support in a number of areas:

Compliance Assurance: Leveraging our deep understanding of federal regulations and the biotech landscape, we can guide your organization through all compliance requirements, protecting you from potential penalties and financial discrepancies.
Risk Management: Our targeted audits help identify and address risks specific to your federal awards, enhancing the efficiency and impact of your funded programs.
Strategic Guidance: We go beyond compliance, offering insights and strategies to optimize the management and performance of your federally funded projects, aligning them with your mission and federal objectives.

Let’s get to Work

In the biotech sector, where federal awards catalyze innovation, MGO is uncommonly positioned to guide organizations through the complexities of program-specific audits for federal awards, determining compliance, and the strategic allocation and utilization of federal funds. MGO can help you optimize the management and performance of your federally funded projects, leading to greater efficiency, impact, and innovation.

Discover how MGO’s specialized auditing services can empower your biotech organization to achieve compliance, efficiency, and innovation. Contact us today to explore how we can support the success and compliance of your federally funded programs, allowing you to focus on advancing biotechnology’s boundaries.

How to Elevate Your Company’s IPE Documentation to Optimize SOX Compliance

By Jonathan Bayeff, CPA & Cesar Reynoso, CPA

Executive Summary:

The Sarbanes-Oxley (SOX) Act established stricter financial reporting requirements for public companies, leading to increased scrutiny of Information Produced by the Entity (IPE).
IPE carries different levels of risk depending on whether it is system-generated and manually prepared IPE. Strong documentation is key to validating completeness and accuracy of IPE.
Best practices for IPE documentation include identifying the source, parameters, and format of reports; validating totals and counts; retaining screenshots; and having knowledgeable reviewers.

Passed by Congress in 2002, the Sarbanes-Oxley (SOX) Act revolutionized public company audits by introducing financial reporting requirements aimed at increasing transparency and preventing fraud. Most notably, the SOX Act established the Public Company Accounting Oversight Board (PCAOB), a nonprofit organization that oversees the audits of public companies to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports.

The PCAOB refines its auditing standards annually and, in recent years, the organization has placed greater scrutiny on the work of external auditors. To keep up with PCAOB compliance, external auditors have imposed more rigorous documentation requirements on companies. As a result, companies have felt pressure to provide more expansive Information Produced by the Entity (IPE).

If external auditors have applied greater scrutiny on your reporting, you may be wondering: What level of documentation is sufficient? How can you improve your documentation to avoid deficiencies and provide greater clarity? In this article, we will discuss: 1) what IPE is, 2) the risks associated with different IPE, and 3) how to document your IPE thoroughly.

What is IPE?

IPE is any information created by a company used as part of audit evidence. Audit evidence may be used to support an underlying internal control or as part of a substantive audit. Although there are documentation and risk severity differences between system-generated and manually prepared IPE, the fundamental questions that need to be addressed are the same:

Is the data complete?

Is the data accurate?

Risk Levels of Different IPE

Here is an overview of how risk levels vary for different types of information you report to auditors:

Low Risk

“Out of the box” reports carry the lowest risk. These reports are also referred to as “standard” or “canned” reports. Standard reports have been developed by software companies — such as Oracle NetSuite, QAD, or SAP — as part of their enterprise resource planning (ERP) systems. Typically, the end user (you) and even your IT team cannot modify these reports. Given the constrained editability, greater reliance is placed on these reports.

Medium Risk

Custom reports are typically driven by the business team and developed in-house by your company’s IT team. When your company’s ERP system does not have a report that would provide sufficient data, the in-house developers create a custom report. The IT team follows their change management process when developing the request report. If the report results do not align with your business team’s expectations, the query is refined, and the process is repeated until it does.

High Risk

A manually prepared workbook or an ad-hoc query are inherently the riskiest documentation. A manually prepared workbook may be a debt reconciliation prepared by your staff accountant, or a list of litigations the company is involved in drafted by your legal department. Given that these are manually drafted, the margin of error may be high.

An ad-hoc query is considered high risk since the report is not subject to IT General Controls (ITGC) testing. The end user may input any parameters to generate the report. Since no control testing is performed by your company, external auditors would need to rely on their own IT team to vet the nonstandard query.

How to Document IPE?

Your documentation will vary to a certain degree depending on whether the IPE is manually prepared or system generated. In either case, it is important to be as thorough as possible when documenting your procedures.

Manual IPE

For a manually prepared workbook, provide thorough documentation about the origins of the data. It is ideal to have someone who is privy to the information review the workbook.

When the reconciliation is comprised of debt instruments, the reviewer should do the following:

Match the list of individual debt instruments to the signed agreements.

Validate the reconciliation and each individual schedule for mathematical accuracy.

Confirm ending principal balances with creditors (where possible).

If the list consists of litigations compiled by the legal department, the reviewer should do the following:

Send confirmations to outside counsel (where possible).

Obtain a list of commitments and contingency journal entries made to an accrual.

These additional steps provide greater comfort that the list compiled is complete and accurate.

System-Generated IPE

For system-generated IPE, there are a handful of questions to keep in mind:

Have you identified the report or saved search that was used?

What parameters were used to generate this report?

In what format is the data exported?

After you run your report and confirm the parameters are correct, what format should be utilized for your export?

Exported Data

Most ERP systems allow the exporting of data in the following four formats:

PDF (portable document format)

Excel

CSV (comma-separated values)

Text file

One major drawback in an Excel, CSV, and text file is that, by their nature, they are editable upon export. An additional drawback of a text file is that it does not contain formatting. As the volume of data grows, proving out the completeness and accuracy becomes more challenging. For these reasons, a PDF export is typically preferred.

After the data is exported in one of the four formats, you want to ensure that it agrees back to the system (completeness and accuracy). Here are a few ways to do that:

Does the exported data have dollar amount totals? If so, agree the total dollar amount to the system.

Does the exported data have hash totals? An example of a hash total is employee ID numbers which in aggregate have no real value other than providing confirmation that the data is complete and accurate.

Does the report have a total line count? If totals are not available, line counts may be used. However, it is important to note that while the line count may agree, the data itself could have still been inadvertently manipulated.

Screenshots of Data

Retaining screenshots is imperative for documentation. A detailed screenshot should include some (if not all) of the following:

Totals (dollar amounts, hash amounts, etc.)

Lines count

Parameters utilized

Time and date stamp

The first three items validate the completeness and accuracy of the exported data. The fourth item confirms when the report was run and if it was timely. There are many reports that are point-in-time and may not be recreated at a future date. Knowing the constraints of the reports you use is important. Retaining screenshots cannot be overemphasized, especially for point-in-time reports.

Certain ERP systems or online portals do not provide a preview of the report prior to the export. This puts a constraint on the validation of completeness and accuracy, as it inhibits screenshots from being taken. In this case, as part of the review, the reviewer should re-run the report and validate that the original report used matches the information in the re-run report.

Strengthen Your SOX Compliance by Implementing Best Practices

There is no perfect science to IPE documentation. But the end goal is to be as detailed as possible. By simply focusing on the fundamental questions and ensuring that your documentation addresses them, your documentation will inevitably improve.

Developing best practices for your team is the cornerstone for any successful audit. Ensure you have the right guidance to make it happen. Our Audit and Assurance team can tailor a SOX environment to meet your needs. Contact us today to learn more.

Latest Update: GASB Expert Panel

Governmental Audit Quality Center

The Governmental Audit Quality Center (GAQC) promotes the importance of quality governmental audits and the value of such audits to purchasers of governmental audit services. GAQC is a voluntary membership center for CPA firms and state audit organizations that perform governmental audits. The GASB Matters section of the GAQC site highlights key interest areas, key resources, and advocacy efforts related to state and local government engagements.

Pension-related matters

GASB Pensions: Issues & Resources page of the GAQC Web site consolidates the various resources available to practitioners to assist with understanding the new standards and developing appropriate audit strategies. This page also includes links to various whitepapers and related auditing interpretations addressing cost-sharing and agent multiple-employer plans.
Comment Letters

September 16, 2019 comment letter on GASB’s Exposure Draft, Public-Private and Public-Public Partnerships and Availability Payment Arrangements
September 16, 2019 comment letter on GASB’s Exposure Draft, Omnibus 20XX
April 30, 2019 comment letter on GASB’s Exposure Draft, Leases Implementation Guide
March 8, 2019 comment letter on GASB’s Exposure Draft, Fiduciary Activities Implementation Guide
February 14, 2019 comment letter on GASB’s Financial Reporting Model Improvements & Recognition of Elements of Financial Statements