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Tag: Audits

  • LA’s chief financial officer says the city has big financial problems

    LA’s chief financial officer says the city has big financial problems

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    LOS ANGELES – The City is under going an audit of finances and spending on Mayor Karen Bass and the city’s Inside Safe program after the LA Alliance for Human Rights and a federal judge expressed frustration over the management of funds to tackle homelessness through that and other services programs.

    LA City Controller Kenneth Mejia however, is raising alarms over what he says is a serious budget deficit that is creating greater financial issues for the City. “It’s fair to say that the city of L.A. should be worried about our financial health. It’s not looking good and the people of Los Angeles will suffer based on decisions that City Hall makes,” Mejia told KABC 7.

    According to Mejia, Los Angeles has a projected budget deficit of $476 million dollars, which is made up of $289 million in overspending and $187 million in less than expected revenues. The overspending occurred in three departments: police and fire – mainly because of staffing issues and overtime – and in liability claims.

    “We’re not in a recession. This is not COVID. This is a budget deficit that we made here in City Hall,” said Mejia.

    The City Controller in a statement when his office released the Annual Comprehensive Financial Report (ACFR) in January said: “It is my responsibility to report the bad news: this year the City is spending well beyond our actual revenues. Projected deficits for years to come will force wrenching choices that threaten the vital services Angelenos rely on. This is not the result of a sudden economic downturn, but the culmination of years of short-term budget balancing at the cost of long-term fiscal sustainability.”

    Mejia also pointed out that “despite widespread staff vacancies, General Fund departmental spending actually exceeded last year’s adopted budget by nearly $200 million. Had the vacancy rate been closer to normal, the budget would have been in the red.

    As our Office has consistently pointed out, citywide deferred maintenance of vital infrastructure requires urgent attention. Last year’s underspending of $316 million in budgeted capital expenditures underscores that the City continues to fall behind – which means even higher costs in the long run.

    Again, as we have warned, current staff shortages and long-term underinvestment in the training, technology, equipment and facilities for our workforce hobbles productivity and shortchanges our residents. The homelessness crisis and the reality of a changing climate put even further strain on City resources.”

    Mejia told KABC 7 he’s against eliminating 2,000 vacant positions to save money.

    “It’s not like these positions have been vacant for many years. They haven’t. All these departments have been trying to fill these positions. A few months ago, we were talking about ‘We need to fill these vacant positions. Come on, join the city.’ And now, we’re like ‘Oh wait. We need to hold back because we’re overspending on police, liability claims, on fire.’ Now, we have to cut other positions in other departments in order to cover that overspending,” said Mejia.

    He also warned that without a long-term approach to “putting our fiscal house in order, short-term decisions will doom Los Angeles to an inexorable decline in public services, undermining our quality of life and the economic prospects of our residents.”

    In a statement provided to KABC 7 and the Blade, the mayor’s office said they remain “focused on the work that has resulted in thousands more Angelenos coming inside last year than the previous year, a record number of LAPD applications, and finalizing a budget in partnership with our city department heads that will be balanced and protect services for Angelenos.”

    The deadline for Mayor Bass to release her budget for next year is April 22.

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    Brody Levesque

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  • Streamlining Your Tech Stack to Unleash Maximum Efficiency | Entrepreneur

    Streamlining Your Tech Stack to Unleash Maximum Efficiency | Entrepreneur

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    Opinions expressed by Entrepreneur contributors are their own.

    Amid escalating economic uncertainty due to inflation and a potential downturn, companies are increasingly gravitating toward cost-cutting measures and investment reduction. However, a more sustainable solution could lie in streamlining processes and bolstering operational efficiencies.

    Most businesses look to reduce spending, with the software and digital technology sectors heavily targeted. But this isn’t the only option. Rather than reducing your investments in this area, you could look more closely at your current activities in the digital arena, to first identify and then address inefficiencies. With this approach, you could reduce costs without actually hampering your capacity to serve your customers’ needs or scale up operations.

    Related: This Tech Leader Breaks Down How You Can Avoid Business Disaster With This Often-Overlooked Tactic

    Completing your tech stack audit

    Your tech stack audit should classify each technology according to use:

    • Marketing
    • Sales
    • Customer success
    • Ops and analytics

    This type of breakdown will facilitate a more organized approach to testing and evaluation. This necessary audit helps determine the overall return on your investment of each tool and how it contributes to the company’s operations, seamless internal and customer communication and objectives.

    Furthermore, the data you collect and analyze should shed light on the most important metrics, such as sales velocity and conversion rates.

    Your tech stack includes the software, web applications and tools needed to construct functional websites — for your customers and you.

    To deliver great results, your digital interfaces and applications should be fast, well-organized and straightforward. One or two poorly chosen technologies can hinder performance by introducing inefficiencies that can cost both time and money, and by making it more difficult to complete sales, or collect and process essential data.

    Greater diversification in the tasks required by their users have caused tech stacks of today to become increasingly byzantine in their structures, resulting in an increase of both the types of digital devices needed to access online portals and in the volume of data that sites are now required to process. Businesses with an online presence are expected to do more in the digital environment than before..

    This increases the likelihood of inefficiencies developing due to incompatibilities with software that doesn’t integrate smoothly with other technologies in your stack. For optimum efficiency and integration, your first step should be to evaluate each technology.

    Your tech stack audit should classify each technology according to whether it’s used for marketing, business development, analytics, customer support or sales. This type of breakdown will facilitate a more organized approach to testing and evaluation, as your evaluators go through each category one at a time.

    Finding the inefficiencies that sabotage your business

    There may be multiple inefficiencies hidden deep within your tech stack. In your relentless efforts to uncover obstacles that might negatively impact profitability, here are some critical aspects of your business operation you should be evaluating.

    Related: Your Tech Employees Are Your Most Potent Reputational Tool as Your Firm Recruits

    Data collection

    You can choose a set of tools that functions in a perfectly coordinated manner, but it doesn’t benefit you if the right data are not being collected, analyzed and communicated.

    The data you collect and analyze should shed light on the most important metrics, such as sales velocity and conversion rates. If you aren’t getting actionable data that helps you streamline your operations or strengthen your relationships with your customers, you may need to eliminate some tools from your stack or replace them with newer technologies.

    Business processes

    If you haven’t already done so, you should add software to your tech stack that can automatically calculate prices for the customized products and services you provide. Trying to handle CPQ (configure-price-quote) responsibilities the old-fashioned way, via human calculation, will take too much time and increase the chances of miscalculation.

    Customer retention services

    You need to differentiate your strategic customers (your most loyal and active supporters) from those who are less committed. While the customer service you provide should be diversified and personalized to meet the needs of both constituencies, you shouldn’t waste time and money on services aimed at low-value customers — a negative return on investment is highly likely.

    Marketing

    You need to analyze your current marketing efforts carefully and with a skeptical, even critical eye. You need to know if you’re getting an acceptable return on investment, which means reaching your targeted audience with a message that resonates. If your ROI is lacking, your present marketing strategies should be sent packing.

    CRM capabilities

    Your customer relationship management (CRM) platform is the hub of your operations, and as such, you can’t afford to choose or keep a product that doesn’t fully support the implementation of your business plan.

    You shouldn’t assume that any CRM platforms like HubSpot, Salesforce or Zoho are automatically right for everyone. And while one, all three or others may very well be, you should carefully evaluate the strengths and the weaknesses of your current CRM choice and be prepared to switch to another option with capabilities that are more closely aligned with your unique and vital needs.

    Scalability

    Your technology ecosystem should always be scalable, no matter how rapidly your growth occurs. Your software should be able to accommodate increases in customer engagement and sales volume without creating logjams or bottlenecks that require technological additions, subtractions or substitutions.

    Related: Want Tech Workers to Stick Around Longer? Think 30 Years — Not 3.

    Greater efficiency will give you the edge

    The kind of exhaustive tech evaluation proposed here is not for the faint of heart. It’s a meticulous and comprehensive process that will take time, effort and extraordinary attention to detail, whether you hand the responsibility over to an in-house vetting team or contract outside experts to perform the job for you.

    What you’re really doing when you undertake such a process is signaling a revolution in your way of thinking. A comprehensive review of your technology choices can help you refine, retool or redevelop your go-to-market (GTM) strategies without cutting your investment in your business, which you now realize is the best way to survive difficult times. The changes you make afterward will give you a leg up on the competition, providing you with a real opportunity to scale up while others are only thinking about scaling back.

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    Catherine Mandungu

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  • What Small Businesses Can Do If the IRS Comes Knocking

    What Small Businesses Can Do If the IRS Comes Knocking

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    Opinions expressed by Entrepreneur contributors are their own.

    Disclaimer: This article is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other financial professional to determine what may be best for your individual needs.

    Although most small business returns filed every year don’t get audited, the IRS is certainly becoming more active. For instance, in November 2020, the IRS announced it would ramp up audits of small businesses by 50% in 2021. Then, in August 2022, Congress passed the Inflation Reduction Act, including $80 billion in IRS funding, with approximately $45 billion going toward enforcement — conducted by at least some of those 87,000 new agents the IRS is reportedly hiring.

    So how can you stay out of the IRS’s crosshairs? To an extent, there’s nothing you can do, as some audits are totally random. However, in most cases, audits result from actions or omissions by the taxpayer — certain of which are more likely to trigger some unwelcome mail from the IRS announcing an audit.

    Here are five of the most common small business tax audit triggers.

    Related: These Are the Top Tax Filing Mistakes Made by Small Business Owners (and How to Avoid Them)

    1. Failing to report income

    Whether it’s intentional or simply due to an oversight, failing to report income is a common trigger for an IRS audit.

    The IRS receives copies of 1099 forms sent to your business, so in many cases, it’s easy to spot a discrepancy between reported income on a tax return and the information included in tax reporting forms. If there is a discrepancy, the IRS will flag it on your return and, most likely, initiate an audit.

    In addition, as more individuals turn to side hustles and gig work to make money, the IRS is taking steps to ensure that it’s keeping tabs on what people are earning. While it has delayed implementation for tax year 2022, the IRS will soon be requiring third-party settlement organizations such as PayPal and Venmo to issue 1099-K forms to individuals being paid $600 or more via these platforms.

    Fail to report income? There’s a good chance the IRS will notice.

    2. Large deductions and excessive expenses

    Small businesses should claim all justifiable business deductions. That’s their right under our tax laws.

    However, there are no bright-line rules that define what’s “justifiable” — only a somewhat fuzzy standard that a business expense must be both ordinary and necessary.

    Because there’s ambiguity in these terms, some taxpayers take it too far and claim unreasonably large deductions and excessive expenses, leading to audits. The odds that a deduction will trigger an audit increase if such deductions or expenses are either out of line with IRS standards for similarly situated businesses and/or significantly larger than the prior year.

    It’s also important to note that certain deductions tend to draw more scrutiny than others, including the home office deduction, travel costs and vehicle use, to name a few.

    Related: Top Tax Write-Offs That Could Get You in Trouble With the IRS

    3. Large amounts of cash transactions

    If you run a “cash business,” such as a restaurant or barber shop, that fact alone makes it more likely that you’ll be audited. When a business relies mostly on cash transactions, they face an increased audit risk because the IRS may be concerned that the business is underreporting income.

    If your small business has a large number of cash transactions, there may not be much you can do to prevent an audit — but if you keep good records and disclose your income, the risks stemming from an audit will be greatly reduced.

    4. Claiming business losses year after year

    Are you running a business or trying to write off expenses for a hobby? IRS guidelines say that if you have earned a profit in at least three of five consecutive years, the presumption is that the business is being run to generate a profit. If not, it could trigger an audit, because having multiple years of losses can lead to the IRS questioning if you have a legitimate business.

    If your business is not, in fact, a hobby but continues to generate losses, make sure to keep accurate and extensive records to help prevent the reclassification of your business as a hobby.

    5. S Corp shareholder-employees earning low or no salaries

    It’s common for small business owners to establish an S Corp instead of an LLC to avoid paying self-employment tax on distributions. However, to take advantage of these tax benefits, the S Corp shareholder-employee must be paid what the IRS deems a “reasonable salary” — a paycheck comparable to what other employers would pay for similar services.

    If there’s additional profit in the business beyond the salary, those can be paid as distributions.

    The IRS is on the lookout for S Corps paying shareholder-employees unreasonably low salaries — or in some cases, no salaries at all. When compensation is misaligned relative to a similar position in a similar industry, it may trigger an audit.

    Related: What I Learned From a Two-Year IRS Audit

    What to do if you get audited by the IRS

    The idea of an audit strikes fear in most people because they immediately conjure up a vision of IRS agents forcefully knocking on the front door of their home or business, ready to rifle through their records.

    That’s not how things work, at least for most people who are subject to audits. Remember, audits are rare. And when they do happen, most are done by mail. While it’s not common, some audits take place at an IRS office (a “desk audit”) or at a home or business (a “field audit”). Regardless, if you find out you’re getting audited, don’t panic and contact an experienced tax audit lawyer, especially if there’s significant money at stake. Do this right away, because the IRS requires a timely response.

    In many instances, resolving an audit will involve providing documentation to the IRS to substantiate the figures on your return. That may end the matter, or there may be some adjustment to the amount you owe, as well as penalties and interest, that you may agree to pay.

    However, you may disagree with the conclusion reached by the IRS, in which case you’ll have 30 days to appeal the IRS’ findings. Disputes proceed with an appeal with the IRS Office of Appeals, followed by a petition to the U.S. Tax Court in the event your appeal is unsuccessful.

    While it’s important to know what to do in the event of an audit, the best way to avoid negative repercussions from an audit is to avoid one in the first place. Be aware of the most common audit triggers. Avoid them if possible. Keep good records. And if the IRS comes calling anyway, contact an experienced audit defense attorney to help you through the process.

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    Jason Carr

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