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Accounting firms should follow Wall Street’s lead on work-life balance

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Wall Street’s notorious culture of marathon workweeks is under fire due to talent burnout and a new generation of workers simply won’t stand for it. The accounting profession — grappling with both a shortage of talent and a generational shift in workplace expectations — needs to follow suit, and quickly.

Major investment banks, long known for their grueling work hours for junior talent, have begun to cap work schedules in response to mounting concerns over employee well-being. The shift is being driven by broad post-COVID workforce demands for a healthier work-life balance, and it’s prompting other industries to reassess their own practices. 

Given the current crises facing the accounting industry, firms need to get on board too.  And at some firms, this shift is already taking shape. 

What’s happening on Wall Street is a good thing. Some firms are changing their email policies to now prohibit sending messages between 7 p.m. and 7 a.m. unless there’s a crisis. They’re also trying to curb weekend emails. 

Financial institutions are starting to invest more in their people by offering better health and wellness benefits and paying for more robust professional development opportunities. Smaller institutions have become especially interested in offering talent more and better benefits.

The accounting industry has historically operated much like Wall Street banks do, meaning workers would often be expected to clock in 70+ hours a week. To the surprise of no one, those expectations have resulted in the extreme burnout we’ve seen in recent years, and has significantly contributed to the industry’s talent crisis. 

Something is broken in the system. Between 2019 and 2021, 300,000 accountants quit their jobs, according to the Bureau of Labor Statistics. Many accountants have simply left public accounting to take in-house corporate roles, which offer more predictable schedules and greater work-life rhythms. 

That labor exodus is about to get worse. Nearly 75% of working CPAs are nearing retirement age. If current hiring difficulties continue, that will deliver a catastrophic blow to the entire industry’s headcount in just a few years. 

If accounting firms don’t start to address this crisis now, the industry will be looking at a massive talent shortage in what is a largely recession-proof business. 

Smart accounting firms have begun to move away from the traditional partnership model, which requires team members to work back-breaking hours — but the payoff doesn’t happen until 15 to 20 years down the road when they are invited to join the partnership. That helps young accountants build a great nest egg for retirement, but younger workers don’t value secure retirement. Nor do they particularly long for country club membership or many other perks prioritized by previous generations of partners. 

So, how can these companies create a new model that transforms the culture away from the outdated goal of making partners? Many are starting to offer their workers employee stock purchase plans right out of the gate, which gives people a greater stake in their firm’s outcomes at the beginning of their tenure. 

Other firms are moving toward project-based or retainer-based pricing models, where clients pay by the project instead of being billed by the hour. This helps reduce the billable-hour mentality, which is necessary for true cultural transformation. As long as firms emphasize billable hours, it’s hard to change the mindset that 60+ hour weeks should be the norm.

Work-life rhythm plans that focus on setting career and life balance goals is a unique approach progressive firms are taking. Team members develop plans based on their individual goals and preferences. Plans are built with flexibility for customization for individual preferences — similar to professional development plans. These plans and adherence to them are considered as factors in determining bonuses, along with other factors such as client service and business development. 

Yes, it’s a very different generation and a different world. Winning firms will adapt. 

But there won’t be a single magic bullet solution. Work-life balance means different things for different people, so for employees who love 70-hour work weeks, limiting their hours and compensation will affect their zeal to work for your firm. Having individualized plans and evaluating employees based on how they use theirs can go a long way in building a culture that honors life outside of work. 

Now, what we don’t know yet is how far reforms like these will go toward improving retention rates and ultimately attracting the next generation of accounting talent. What we do know is that very few younger/future employees want 90-hour work weeks. Healthy work-life rhythms matter to them, and they want to engage more outside of work. 

This generation also doesn’t seem to have the same competitive spirit that previous generations have had, which is why the biggest drop-off in talent tends to occur when people are about to be promoted into the manager level. After spending years putting in many hours, they either burn out or — and this is especially true for female accountants who have children — they can’t see a pathway that’s conducive to both career and family so they leave the profession. 

It’s critical that the accounting industry avoid the looming talent cliff that is fast approaching. Firms should continue to follow the lead Wall Street is setting while also innovating to make the industry-specific changes that will keep the current shortage from turning into a lost generation.

Design work requirements and compensation systems that make your most junior employees feel energized and valued. If you do that during their first 10 years with your firm, retention will improve, and attracting new talent will become your competitive advantage.

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Accounting

Tax Fraud Blotter: Partners in crime

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Captive audience; some disagreement; game of 21; and other highlights of recent tax cases.

Barrington, Illinois: Tax preparer Gary Sandiego has been sentenced to 16 months in prison for preparing and filing false returns for clients. 

He owned and operated the tax prep business G. Sandiego and Associates and for 2014 through 2017 prepared and filed false income tax returns for clients. Instead of relying on information provided by the clients, Sandiego either inflated or entirely fabricated expenses to falsely claim residential energy credits and employment-related expense deductions.

Sandiego, who previously pleaded guilty, caused a tax loss to the IRS of some $4,586,154. 

He was also ordered to serve a year of supervised release and pay $2,910,442 in restitution to the IRS.

Ft. Worth, Texas: A federal district court has entered permanent injunctions against CPA Charles Dombek and The Optimal Financial Group LLC, barring them from promoting any tax plan that involves creating or using sham management companies, deducting personal non-deductible expenses as business expenses or assisting in the creation of “captive” insurance companies.

The injunctions also prohibit Dombek from preparing any federal returns for anyone other than himself and Optimal from preparing certain federal returns reflecting such tax plans. Dombek and Optimal consented to entry of the injunctions.

According to the complaint, Dombek is a licensed CPA and served as Optimal’s manager and president. Allegedly, Dombek and Optimal promoted a scheme throughout the U.S. to illegally reduce clients’ income tax liabilities by using sham management companies to improperly shift income to be taxed at lower tax rates, improperly defer taxable income or improperly claim personal expenses as business deductions. As alleged by the government, Dombek also promoted himself as the “premier dental CPA” in America.

The complaint further alleges that in promoting the schemes, Dombek and Optimal made false statements about the tax benefits of the scheme that they knew or had reason to know were false, then prepared and signed clients’ returns reflecting the sham transactions, expenses and deductions.

The government contended that the total harm to the Treasury could be $10 million or more.

Kansas City, Missouri: Former IRS employee Sandra D. Mondaine, of Grandview, Missouri, has pleaded guilty to preparing returns that illegally claimed more than $200,000 in refunds for clients.

Mondaine previously worked for the IRS as a contact representative before retiring. She admitted that she prepared federal income tax returns for clients that contained false and fraudulent claims; the indictment charged her with helping at least 11 individuals file at least 39 false and fraudulent income tax returns for 2019 through 2021. Mondaine was able to manufacture substantial refunds for her clients that they would not have been entitled to if the returns had been accurately prepared. She charged clients either a fixed dollar amount or a percentage of the refund or both.

The tax loss associated with those false returns is some $237,329, though the parties disagree on the total.

Mondaine must pay restitution to the IRS and consents to a permanent injunction in a separate civil action, under which she will be permanently enjoined from preparing, assisting in, directing or supervising the preparation or filing of federal returns for any person or entity other than herself. She is also subject to up to three years in prison.

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Los Angeles: Long-time lawyer Milton C. Grimes has pleaded guilty to evading more than $4 million in federal taxes over 21 years.

Grimes pleaded guilty to one count of tax evasion relating to his 2014 taxes, admitting that he failed to pay $1,690,922 to the IRS. He did not pay federal income taxes for 23 years — 2002 through 2005, 2007, 2009 through 2011, and 2014 through 2023 — a total of $4,071,215 owed to the IRS. Grimes also admitted he did not file a 2013 federal return.

From at least September 2011, the IRS issued more than 30 levies on his personal bank accounts. From at least May 2014 to April 2020, Grimes evaded payment of the outstanding income tax by not depositing income he earned from his clients into those accounts. Instead, he bought some 238 cashier’s checks totaling $16 million to keep the money out of the reach of the IRS, withdrawing cash from his client trust account, his interest on lawyers’ trust accounts and his law firm’s bank account.

Sentencing is Feb. 11. Grimes faces up to five years in federal prison, though prosecutors have agreed to seek no more than 22 months.

Sacramento, California: Residents Dominic Davis and Sharitia Wright have pleaded guilty to conspiracy to file false claims with the IRS.

Between March 2019 and April 2022, they caused at least nine fraudulent income tax returns to be filed with the IRS claiming more than $2 million in refunds. The returns were filed in the names of Davis, Wright and family members and listed wages that the taxpayers had not earned and often listed the taxpayers’ employer as one of the various LLCs created by Davis, Wright and their family members. Many of the returns also falsely claimed charitable contributions.

Davis prepared and filed the false returns; Wright provided him information and contacted the IRS to check on the status of the refunds claimed.

Davis and Wright agreed to pay restitution. Sentencing is Feb. 3, when each faces up to 10 years in prison and a $250,000 fine.

St. Louis: Tax attorneys Michael Elliott Kohn and Catherine Elizabeth Chollet and insurance agent David Shane Simmons have been sentenced to prison for conspiring to defraud the U.S. and helping clients file false returns based on their promotion and operation of a fraudulent tax shelter.

Kohn was sentenced to seven years in prison and Chollet to four years. Simmons was sentenced to five years in prison.

From 2011 to November 2022, Kohn and Chollet, both of St. Louis, and Simmons, who is based out of Jefferson, North Carolina, promoted, marketed and sold to clients the Gain Elimination Plan, a fraudulent tax scheme. They designed the plan to conceal clients’ income from the IRS by inflating business expenses through fictitious royalties and management fees. These fictitious fees were paid, on paper, to a limited partnership largely owned by a charity. Kohn and Chollet fabricated the fees.

Kohn and Chollet advised clients that the plan’s limited partnership was required to obtain insurance on the life of the clients to cover the income allocated to the charitable organization. The death benefit was directly tied to the anticipated profitability of the clients’ businesses and how much of the clients’ taxable income was intended to be sheltered.

Simmons earned more than $2.3 million in commissions for selling the insurance policies, splitting the commissions with Kohn and Chollet. Kohn and Chollet received more than $1 million from Simmons.

Simmons also filed false personal returns that underreported his business income and inflated his business expenses, resulting in a tax loss of more than $480,000.

In total, the defendants caused a tax loss to the IRS of more than $22 million.

Each was also ordered to serve three years’ supervised release and to pay $22,515,615 in restitution to the United States.

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Accounting

On the move: KSM hired director of IT operations

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Hannis T. Bourgeois celebrates 100 years with charitable initiative; KPMG and Moss Adams release surveys; and more news from across the profession.

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Accounting

AICPA wary of new PCAOB firm metrics standard

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The American Institute of CPAs is still concerned about the Public Company Accounting Oversight Board’s new firm and engagement metrics standard, despite some modifications from the original proposal. 

During a board meeting Thursday, the PCAOB approved two new standards, on firm and engagement metrics, and firm reporting. Both would have significant implications for firms. 

Under the new rules, PCAOB-registered public accounting firms that audit one or more issuers that qualify as an accelerated filer or large accelerated filer will be required to publicly report specified metrics relating to such audits and their audit practices. The metrics cover the following eight areas:

  • Partner and manager involvement;
  • Workload;
  • Training hours for audit personnel;
  • Experience of audit personnel;
  • Industry experience;
  • Retention of audit personnel (firm-level only);
  • Allocation of audit hours; and,
  • Restatement history (firm-level only).

The AICPA reacted cautiously to the announcement. “We’re still studying the components of the final firm metrics requirements but, as we stated in our comment letter to the PCAOB this past summer, these rules will place a significant burden on small and midsized audit firms and could lead some to exit public company auditing altogether,” said the AICPA in a statement emailed Friday to Accounting Today. “This is not just conjecture: a majority of respondents (51%) to a recent survey we did of Top 500 firms with audit practices said they would rethink engaging in public company audits if the requirements were approved.”

AICPA building in Durham, N.C.

The PCAOB it made some modifications to the original proposal in  response to the comments had received since April:

  • Reduced the metric areas to eight (from 11);
  • Refined the metrics to simplify and clarify the calculations;
  • Increased the ability to provide optional narrative disclosure (from 500 to 1,000 characters); and,
  • Updated the effective date. (If approved by the SEC, the earliest effective date of the firm-level metrics will be Oct. 1, 2027, with the first reporting as of September 30, 2028, and engagement-level metrics for the audits of companies with fiscal years beginning on or after Oct. 1, 2027.)

The AICPA welcomed those changes but doesn’t think they go far enough. “We’re glad the PCAOB took some comments to heart by extending implementation dates, particularly for smaller firms, and lowering the number of required metrics,” said the AICPA. “But the potential consequences of the remaining requirements — reduced competition and market diversity in the public audit space — are a significant risk. We hope the SEC will give these unintended outcomes the weight they deserve before giving final approval to the requirements.”

The Securities and Exchange Commission would still need to give final approval to the standard, as well as the new firm reporting standard. Last week, the PCAOB decided to pause work on its controversial NOCLAR standard, on noncompliance with laws and regulations, until next year. On Thursday, SEC chairman Gary Gensler announced he would be stepping down in January, which may affect the timing of its approval or disapproval by the SEC. With the incoming Trump administration, the SEC is expected to take a far less aggressive stance on enforcement and regulation. On Friday, the SEC announced that it filed 583 total enforcement actions in fiscal year 2024 while obtaining orders for $8.2 billion in financial remedies, the highest amount in SEC history.

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