The Accounting Podcast

In today's episode, we're talking about how the IRS refuses to postpone the July 15 deadline, and why the AICPA won't argue the point, despite a survey of members finding that a plurality want another delay. In other news, Wirecard's COO is on the lam while the spotlight falls on auditor Ernst & Young; tax audits fall dramatically as coronavirus cripples the IRS, and millionaires face a near-zero chance of an audit. We'll also get into the Senate's extension of the PPP, and one estimate of PPP fraud exceeds $1 billion. All this, and more! Grab snacks!

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If you've ever tried to get your clients' Stripe, Square, or PayPal transactions into QuickBooks or Xero, you've probably pulled your hair out a few times trying to get the income and fees recorded correctly so the deposit amounts match the bank statement. Did you know you could be using Synder to automatically do this for you? Stay tuned to hear more from our sponsor, Synder, later in this episode.
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David Leary: [00:00:23] I think I predicted last week- I was like, "Oh, they're just gonna change the date right before the weekend starts," but they didn't. 
 
Blake Oliver: [00:00:28] They did not, and we have confirmation now - the Treasury Department and the IRS have said they are not going to extend Tax Day a second time, so there's no getting around it.

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This episode of The Cloud Accounting Podcast is sponsored by ClockShark. Back in October of 2013, I became ClockShark's first Twitter follower. Today, ClockShark has grown into a highly rated and very-much-loved time-tracking app that is now used by over 5,000 small businesses globally. With features like crew tracking, scheduling, overtime notifications, routes, geofencing locations, job costing, budgeting, and reporting, ClockShark has built a robust mobile time-tracking app to handle the unique challenges that face your mobile workforce clients.
 
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This episode of The Cloud Accounting Podcast is sponsored by BQE Core. As firms everywhere are positioning themselves to work remotely, BQE Software is committed to supporting you and your employees during this critical time. BQE's Core products operate 100 percent on a native cloud platform that's uniquely able to help you in your efforts to embrace remote work while maintaining your productivity.

In response to the impact that COVID-19 has had on your firm and your clients' businesses, the team at BQE has let us know that Cloud Accounting Podcast listeners will now receive three months of BQE Core for free with an annual subscription package purchased on or before September 30, 2020. To learn more, head over to cloudaccountingpodcast.promo/core. That is Cloud Accounting Podcast dot promo forward slash C-O-R-E.
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Blake Oliver: [00:02:37] Welcome to The Cloud Accounting Podcast. I'm Blake Oliver.
 
David Leary: [00:02:40] And I'm David Leary.
 
Blake Oliver: [00:02:42] How was your Fourth of July, David?
 
David Leary: [00:02:44] Hot. It's very, very, very hot. Did, last night, go to the one hotel and met somebody for drinks. The hotel was at 50-percent capacity, and you had to serve yourself. You had to go and get drinks from the bar, and you had to bus your own table ... There was nobody around us for 30 feet. If I would've known, I woulda got a room at the hotel and just stayed there the whole weekend.
 
Blake Oliver: [00:03:05] What did you call it? The One Hotel?
 
David Leary: [00:03:07] Oh, no, we went TO a hotel. 
 
Blake Oliver: [00:03:08] Oh, to a hotel. Got it.
 
David Leary: [00:03:11] To a hotel. Yeah.
 
Blake Oliver: [00:03:12] I'm in my new place in Scottsdale, and I found out, of Fourth of July, that WestWorld, which is the event space in North Scottsdale, where they have horse shows and stuff, was doing fireworks. We were able to watch the fireworks from our house. It was really, really cool.
 
David Leary: [00:03:27] Oh, nice. You didn't even have to leave the property. 
 
Blake Oliver: [00:03:27] Yeah [crosstalk] didn't have to go anywhere. It's a good thing we could watch them from inside because it was 110 degrees. So, it was really nice to just kind of decompress and not look at my email for a day, but I kept thinking about all of our friends in the tax world who are struggling because they didn't get to take a three-day weekend because the tax deadline is now on the 15th, July 15. 
 
[00:03:52] I've got some discussion about the AICPA and their reasoning for not advocating to move the July 15 date, after previously saying it should be October 15. The logic there is a little bit interesting. We'll talk about that. I've got follow up on Wirecard, the Ernst & Young audit that apparently did not detect $2 billion in money that was missing. 
 
David Leary: [00:04:18] I've got some Wirecard, as well. 
 
Blake Oliver: [00:04:19] IRS news, appropriate for Tax Day coming up. The IRS is struggling, right now, due to coronavirus and just lack of funding. PPP, of course, is still in the news. That got extended. That's what I've got on my plate. How about you?
 
David Leary: [00:04:34] Similar stuff. I've got Wirecard in here; I've got PPP; the IRS, and the lack of audits that's happening- 
 
Blake Oliver: [00:04:39] Oh, yeah, yeah. 
 
David Leary: [00:04:40] Some of that. There's a couple tiebacks to some old things. Remember we were talking about cash, and the acceptance of cash? That's resurfacing again because now, with COVID, now, businesses are kind of like, "Hey, even more reasons not to take cash ..." 
 
Blake Oliver: [00:04:55] Oh, right, right. 
 
David Leary: [00:04:55] So, the bills that are gonna force you to take cash are coming up.
 
Blake Oliver: [00:05:00] We got some reviews.
 
David Leary: [00:05:01] We did get reviews. Want me to read the first one?
 
Blake Oliver: [00:05:03] Yeah, go for it.
 
David Leary: [00:05:04] All right, so this review was on Podchaser. This is from Joel_at_RN, which I'm assuming is Joel at Right Networks. This is a five-star review. "I have become a regular listener and enjoy the consolidated reporting and analysis of the news and events in the accounting industry. But I was compelled to write this review because Blake's take on the industry's recent words about racial reform and equity in the last episode really landed for me. We need to move beyond just words and committees with recommendations to tangible plans, with metrics and performance incentives which drive actual, measurable change. It will take time, but we have an opportunity to begin now. Great work. Blake, and David." Joel.
 
Blake Oliver: [00:05:40] Well, thank you, Joel. This is our second review. "The Cloud Accounting Podcast is my #1 source for current, real-world information and ideas on the leading edge of the new and evolving accounting profession. Blake and David provide hands-on, practical insights with every edition. Informative, entertaining, educational, humorous, authentic, sobering, witty, insightful. Their pragmatic perspectives cut through all the technical and theoretical minutia and all the marketing noise and hyperbole. It's easy (and free) to subscribe. I listen at my convenience and can't wait for each post. CAP is a must for all accounting professionals who want to stay current on the rapid pace of change at the intersection of the cloud and accounting. Thank you, Blake and David, for this invaluable and unique resource - you've helped me and my firm in our journey to the future of cloud accounting and CFO advisory services." So that's Reynaldo Arellano. He's a CPA, PFS, and CGMA. Thank you, Reynaldo.
 
David Leary: [00:06:34] Yeah, I mean, that's what we try to do, right? He's talking about we're just plowing through the minutia and all the noise that's out there and try to bring what's valuable and sift through it.
 
Blake Oliver: [00:06:45] Yeah! Let's talk about Tax Day. It's coming up, right? 
 
David Leary: [00:06:53] I think I predicted last week- I was like, "Oh, they're just gonna change the date right before the weekend starts," but they didn't.
 
Blake Oliver: [00:07:02] They did not, and we have confirmation now - the Treasury Department and the IRS have said they are not going to extend Tax Day a second time, so there's no getting around it. July 15 is the deadline, although, of course, you can still extend to October 15. The AICPA decided, somewhat controversially, not to advocate to extend the tax deadline any longer, which is interesting because back in March, during the whole coronavirus spin-up, the AICPA did advocate to move the deadline to October 15. They put out a couple of blog posts about their reasoning. They did a survey, apparently, at the end of May, and ... I never got this survey. I don't know who they surveyed. It's not really clear to me. They didn't release the specific details of the survey, but they- 
 
David Leary: [00:07:43] You mean like how many people who responded to it or took it? Did they release that type of a number?
 
Blake Oliver: [00:07:48] It just says, "Survey deployed at the end of May," that asked members 2 questions. Number one: based on the current COVID-19 environment and the impact on your tax practice, do you anticipate being able to file returns or extensions for your clients by the July 15 deadline? The second question is: do you believe the IRS should automatically extend the July 15 filing and payment deadline? They received over a thousand comments. Doesn't say if that's a thousand people took the survey. Don't know. Like I said, I didn't get the survey; at least, I didn't see it.
 
[00:08:20] What's interesting is that, although the majority of respondents said they would be able to file returns or extensions on behalf of their clients by the July 15 due date, a plurality of members wanted the IRS to move the July 15 due date to October 15. Some members suggested other dates. Plurality means it wasn't a majority, but the greatest percentage of respondents wanted the deadline moved, but the AICPA Tax Committee decided not to recommend that. There are some reasons for; some against.
 
David Leary: [00:08:52] Just to summarize, most people were saying, "Yeah, let's move it."
 
Blake Oliver: [00:08:56] The largest, yeah. A "plurality." The largest group said, "Let's move it." Then the Tax Committee decided not to make that recommendation and listed their reasoning. There's a tweet from Logan Graf, CPA. He's  @LoganGrafTax. He highlighted the reasons that the AICPA gave for moving it, and then, for not moving it. He said most of the reasons for not changing the deadline were stuff like, "Our clients are gonna procrastinate. We don't want these tax returns hanging over our head all year. Some clients wait until the last minute. Changing the due date is confusing for clients." 
 
[00:09:39] He says, "Well, those are things that we can control." We can explain to our clients what they need to do, and we can [manage] our work. Then, he highlights the reasons for moving the deadline, which is stuff like, "Half the staff are teaching their children and working at the same time; fear of the illness - on my part, as well as my family, and clients - has made the process much longer and not as efficient; there are investment reports, K-1s, and revised 1099s that are not available." He highlights those, and says, "Well, those are now things that we can't control, so why are we not advocating to move the deadline because it's a lot of things that are out of our control." Especially having kids at home. That's ... How do you do tax season from your home office, when you got your whole family there?
 
David Leary: [00:10:25] That could be a reason to not move the deadline because kids are not going back to school, apparently. It's starting to be very clear about this, which means it's not gonna be any better doing taxes in October than it is doing taxes in July.
 
Blake Oliver: [00:10:40] I don't think this was listed in the blog post about the reasoning for not moving the deadline, but I did hear some speculation that the big reason managing partners wouldn't wanna move the deadline is that they collect payment from clients when they file returns. So, if they don't file the returns, if the deadline doesn't stick, and it gets extended again, then clients aren't gonna turn in their paperwork, and the firm is not gonna be able to collect the cash. So, it's a cashflow problem, but that's based on the way they're billing their clients-
 
David Leary: [00:11:10] So, this is a revenue play and it's not a ... I can kinda see one argument of not moving it. They loosely talk about that in the article I saw. The AICPA's Vice President of Taxation, Edward Karl, he said that it's the realities of COVID's uncertainty. I kinda buy into that a little bit because let's just say there's another crazy version of PPP that comes out three months from now because COVID's still not going away. It'll just never, never end. It's almost like, okay, just rip the Band-Aid off. Let's try to get taxes done on this deadline. If you can't, extend the people that need to be extended, because chances are ... It's probably not even chances; probably a very high possibility, accountants are gonna be busy with a bunch of headache COVID-related stimulus work again. If it's not the forgiveness stuff, it's gonna be some new things.
 
Blake Oliver: [00:12:02] Let's talk about Wirecard. Some interesting developments this week. Wirecard filed for insolvency - the German equivalent of bankruptcy - last week, or the week before that. Now, prosecutors- police officers are searching their offices. I don't think they're trying to find the $2 billion. I think we're kinda realizing that didn't ever exist. They're trying to find a trail. In particular, one challenge is that Wirecard's COO, Jan Marsalek, has disappeared. He is on the lam. He stopped responding to messages from colleagues when the company ran into trouble around June 18, on the day that Wirecard revealed that $2 billion was missing. 
 
[00:12:45] This guy, Jan Marsalek, is 40 years old, and he joined the company at age 20, as a payment-systems project manager and ended up basically running a huge chunk of the company. Now, we're not sure exactly where he is, but immigration records in The Philippines cropped up that appeared to show him entering the country on June 23, and then departing the following day for China. But The Philippines Justice Secretary said that those were faked records, and he didn't actually enter the country-
 
David Leary: [00:13:15] Kinda like the bank statements were faked.
 
Blake Oliver: [00:13:18] Yeah. A theory is that Marsalek had these immigration records entered to figure out if there was an international warrant out for his arrest - an Interpol arrest warrant - so that he could then know, wherever else he's going, if he'll be safe. Apparently, he is; he's somewhere safe because he texted a friend on the encrypted-messaging app, Telegram, saying that he's now in a safe place, but nobody knows where that is. So, some spy drama going on with Wirecard, there- 
 
David Leary: [00:13:50] They're gonna catch up to him, right?
 
Blake Oliver: [00:13:51] I don't know. There's a question as to whether the $2 billion ever existed, but maybe some of it did exist, and this guy has it squirreled away somewhere. He's also big in the cryptocurrency world, so maybe he's got crypto that he can live off of. Maybe he's got another identity-
 
David Leary: [00:14:09] Or he's moved some of the money into crypto as a shelter.
 
Blake Oliver: [00:14:14] While the police are searching for Jan Marsalek, the spotlight is on Ernst & Young now, as the auditor that signed off on Wirecard's financial statements for three years before this was finally revealed. They gave Wirecard an unqualified audit for years 2016 through 2019, while these accounts were supposed to exist. It's kind of interesting, we talked a little bit last episode about exactly what happened here, and we have a little bit more information about that now.
 
[00:14:48] The $2 billion, it was supposed to be in The Philippines, but not in normal bank accounts. Apparently, these are trustee-controlled accounts. It's because this is part of a business where Wirecard used third-party partners to process payments for it in markets where it didn't have licenses to process payments, so Wirecard's revenue from those businesses would be deposited in trust accounts rather than paid straight to Wirecard.
 
[00:15:14] The rationale for that, according to Wirecard, in past years, was that the money had to be kept in trustee accounts as a form of risk management. The cash would be available to provide refunds and chargebacks to customers for things such as canceled airline tickets or disputed charges. What got weird about that is that the amount in those accounts became so large- it's equivalent to more than a quarter of the total group revenue for Wirecard in the years 2016 through 2019; a quarter of all of their revenue.
 
David Leary: [00:15:45] This is starting to ... Yeah, somebody figured out a way to pretend that money was there, and they were pulling it out.
 
Blake Oliver: [00:15:51] So, maybe it started small, and then it just sort of ballooned over time? Because the amount is just way too big, from a risk-management perspective. It doesn't make sense. There's no way they would ever have that many chargebacks-
 
David Leary: [00:16:06] But that's what happened with Michael Mann and the MyPayrollHR [crosstalk] that went on, right? It would start at small, small, small; then, eventually, it was like, "I just gotta move the entire payroll to my own bank account, or the entire run." 
 
[00:16:17] Ernst & Young has said, "Oh, this isn't our fault," that this was a sophisticated fraud that many people at Wirecard participated in. Well, you know, this is pretty simple because it was KPMG that came in to do a special audit after investors raised concerns, and they figured it out pretty quickly because they did the bank confirmations; then, the banks said, "Oh, we don't actually have any accounts for Wirecard." I'm thinking maybe this started small and then, it kind of spiraled. The thing that's damning for Ernst & Young is that there's emails that The Wall Street Journal says it saw that say that the auditor had questions about this arrangement as early as 2016. So, they were asking questions, but they never got to the bottom of it.
 
David Leary: [00:17:05] I have an article where the German regulator, BaFin ... Whistleblowers reported to them, so there was oversight failure. I think there's a lot more going on than just these two bank accounts, possibly, we're gonna find out as it goes. Then, EY, they got added to a class action lawsuit against Wirecard on Tuesday. Essentially, this article does talk about how this is really a systemic problem.
 
[00:17:33] BaFin has already come under fire after it took more than a year to report Wirecard for suspected market manipulation, following a tip-off from a whistleblower about irregularities at the payments company. BaFin's Chief Felix Hufeld issued an apology saying that it would share responsibility for the "complete disaster" at Wirecard because it didn't do a good enough job as a regulator. Isn't that their only job and role? If a whistleblower alerts them with an irregularity, as a regulator, you're supposed to investigate irregularities?
 
Blake Oliver: [00:18:03] Yeah, yeah. 
 
David Leary: [00:18:03] There's just a lot of finger-pointing going on.
 
Blake Oliver: [00:18:09] I've read stories about how they did the opposite, where there would be these investors complaining that it doesn't add up. Then, the regulator, BaFin, whatever they're called, they would go after the investors instead of Wirecard. 
 
David Leary: [00:18:25] In the UK, they have the Financial Reporting Council, and a bunch of former partners from the Big Four firms sit on the committees at that council. It's the same problems we're seeing- the governing boards in these regulators are made up of people who used to work for those firms. Why are those firms gonna go after their buddies?
 
Blake Oliver: [00:18:44] Yeah, no, it doesn't make sense. 
 
David Leary: [00:18:45] Especially if they might get a job there three years from now, again, as a partner, or something. The whole thing is just- there's a lot of finger-pointing going on. I think this Wirecard thing's gonna be a much bigger fraud than just these two accounts. It's starting to shape up that way.

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This episode of The Cloud Accounting Podcast is sponsored by Synder. If you've ever tried to get your clients' Stripe, Square, or PayPal transactions into QuickBooks or Xero, you've probably pulled your hair out a few times trying to get the income, and fees recorded correctly so the deposit amounts match the bank statement, so you can reconcile. Synder automatically and accurately categorizes and posts these transactions into the accounting system. Synder can sync all the necessary details, like inventory items, tax, shipping, discounts, classes, locations. It even correctly handles the processor fees.  

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Blake Oliver: [00:20:06] So, it wasn't just the German entity that had problems. The Wirecard has a US, and UK entity. Now, the US entity is pretty much separate and just sharing the name; they don't really do the same thing that Wirecard does  in Germany, so they're actually okay. They're looking for a buyer, right now. The UK entity, very similar situation, although because of the problems in Germany, the UK regulators shut down Wirecard in the UK, from Friday to Monday. 
 
[00:20:33] Wirecard in the UK processes payments for a bunch of fintechs, so it actually stopped people from being able to access their money at these challenger banks, such as Curve, Pocket, and Anna. These are apps that are banks basically; totally shut off. Now, most of these customers don't use it as their main bank account. It's a good reason not to. The regulation is very different. So, there are calls now, or there've been some folks who've been calling for more regulation of payment processors similar to banks.
 
David Leary: [00:21:08] You're talking about the tech companies. SoftBank, this is the investors; this is the people that invested in WeWork, and we've talked about the other the flopped investments they've been having. They've been having a lot of problems. Massive, massive investments ... They actually they had- they struck a billion-dollar investment deal with Wirecard. 
 
Blake Oliver: [00:21:26] Oh, when was that? 
 
David Leary: [00:21:26] In April of 2019. Now, SoftBank wants out, but essentially, a part of that deal, the agreement was for Wirecard to become affiliated as the digital payments provider for all the companies in Softbank's base of tech firms-
 
Blake Oliver: [00:21:41] I feel like-
 
David Leary: [00:21:42] -and for SoftBank to help Wirecard expand in Japan and South Korea.
 
Blake Oliver: [00:21:46] Wow, I feel like SoftBank just gonna end up collapsing. They've made so many of these terrible investments.
 
David Leary: [00:21:53] Yeah. They're really tied with so many questionable deals at this point. Now, they're trying to separate themselves from this. It's just- it continues on.
 
Blake Oliver: [00:22:04] Right. Should we talk about the challenges the IRS is facing?
 
David Leary: [00:22:06] Yeah.
 
Blake Oliver: [00:22:07] The coronavirus has created massive problems for the IRS because so much of what they do is still in the office; it's not in the cloud. Particularly, mail; opening mail is something that has to be done in close quarters, generally, and you can't do it when you're at home. 
 
David Leary: [00:22:22] I think we talked about that a couple episodes ago. Yeah. 
 
Blake Oliver: [00:22:22] That's actually been one of the big problems with audits. Corporate audits fell 71 percent, this spring, compared with the same time period a year ago. This is a story in Accounting Today. It turns out that part of the problem isn't just people working at home. It's that a lot of this correspondence for audits is done via mail. All of the audits got paused that could be. The only audits that went forward were those where the statute of limitations would make them unable to recover any funds. So, they're gonna have a lot of catch-up to do. 
 
[00:23:01] The problem is they're not very well funded. The IRS has been facing budget cuts for a long time, and they seem to have a problem with talent. There's another story this week. The headline is: "IRS Wasting Millions on Audits With No Results." This is another watchdog report. The Treasury Inspector General for Tax Administration said, in a report released on Thursday, that almost half of the audits on large companies from fiscal years 2016 through 2018 resulted in the IRS concluding that no additional tax was due. In other words, they wasted almost $23 million auditing tax returns that resulted in no additional revenue for the federal government.
 
David Leary: [00:23:40] Of course! You know why, right? 
 
Blake Oliver: [00:23:40] Why is that? 
 
David Leary: [00:23:40] Basically, if you have income of $1 million or more, there's less than a one-percent chance you'll get audited; the IRS will call you. 
 
Blake Oliver: [00:23:48] Yeah. That's on the individual side. 
 
David Leary: [00:23:51] Individuals ... In total, the IRS has audited about 0.15 percent of individual returns in 2018; but people who claimed earned income tax credit, which basically is low-income earners, those are getting audited at-
 
Blake Oliver: [00:24:07] 0.6 percent. 
 
David Leary: [00:24:07] -0.6 percent; four times greater.
 
Blake Oliver: [00:24:11] Yeah. 
 
David Leary: [00:24:11] If they audit those ones, because they're kinda easy ... There's no return there except for the income tax credit; they're easy to audit, but it's not gonna produce any revenue unless somebody was fraudulent at that- 
 
Blake Oliver: [00:24:23] Right. It produces revenue if somebody is claiming it wrongly because then, you can claw it back. 
 
David Leary: [00:24:27] What is that 2,400 bucks? What's that, 6,200 bucks? 
 
Blake Oliver: [00:24:32] I think the point you make is valid, which is that it's easy, and these corporate audits are hard. Clearl.com, the IRS is not doing a very good job of choosing which companies to audit.
 
David Leary: [00:24:46] Well, as it goes up ... The higher the return goes up, the less chance it gets audited. 
 
Blake Oliver: [00:24:49] The less chance it gets audited, and the less chance there is a tax due. I think it's because the returns are complex, so the IRS has been losing talented people and not replacing them. They don't have the expertise to audit those complex returns and to argue with the talented people, who are on the other side, who are representing the taxpayers.
 
David Leary: [00:25:08] The other problem is they're doing more returns than ever. In 2010, they received 230 million returns, and they employed almost 14,000 agents. Now, in 2019, they had 253 million returns, so you're talking 30 million more returns, and now they're at about 8,500 agents. Until this gets funded, I don't know ... Again, I think we've talked about this on the show, this is your profit center. You would double down on this. If this was a business, you would double down on your revenue-producing agency.
 
Blake Oliver: [00:25:42] I think the number that you mentioned at the beginning of that story is- we just gotta mention it again. If you earn between $1 million and $5 million, your chance of getting audited for tax year 2018 was 0.05 percent. So, a twentieth of a percent. That's amazing. If you earned over $10 million, then it's 0.03 percent.
 
David Leary: [00:26:05] But, there's good news, right? We talked about the earned income tax credit, and we've talked about racism in taxes, and things like this. The IRS chief, he's IRS Commissioner, Charles Rettig, said Tuesday that he would work with Congress now to examine any ways the tax code contributes to racial wealth disparities. There's no actual data in it, in that statement. He did say that he is a huge proponent of inclusiveness and diversity.
 
[00:26:31] He goes on to say, "I think you're possibly aware of the fact that I'm the first commissioner whose spouse came from a country as a refugee, and I understand how people are treated in different arenas, and we're all in." Virtually, there's no ... Other than him committing to doing it, there's not a lot what he's gonna do. He's just committing to do it, which is good. The fact that somebody's actually saying they're gonna go look at it and try to work with Congress about this is the first step. They could start with the earned income credit, I guess. That would be the easiest thing to start with.
 
Blake Oliver: [00:26:59] Let's talk about the PPP. The PPP - Paycheck Protection Program - has been extended. The Senate passed an extension along with the House; the President signed it, and the new deadline is August 8. There is still $130 billion in funding left. So, hopefully, folks will get it together in the month of July and take advantage of that. We have some details from the SBA on what's happened so far. So far, we've had 4.8 million loans totaling $520.6 billion, as of Tuesday night. There are $669 billion allocated to the program.
 
David Leary: [00:27:36] What's left now? Is it 103? 
 
Blake Oliver: [00:27:36] $130 billion. 
 
David Leary: [00:27:39] $130 billion still left.
 
Blake Oliver: [00:27:41] Now, there's $130 billion left in the PPP. You wanna take a gander at how much fraud there's been so far? The Government Accountability Office released a report saying that the PPP almost certainly fell victim to a significant amount of fraud. Now, they didn't say exactly how much, but Entrepreneur talked to the CEO of risk-management firm ClearForce, who told them that his company estimates there's been over a billion dollars of verified criminal fraud within the PPP program. The Government Accountability Office, for its part, said in the report, "Because of the number of loans approved, the speed with which they were processed, and the limited safeguards, there is a significant risk that some fraudulent, or inflated applications were approved."
 
David Leary: [00:28:31] What's the real number, like from a percentages? Because this is a lot of money that went out the door.
 
Blake Oliver: [00:28:39] Yeah, let's say it is a-
 
David Leary: [00:28:40] Oh, what's a couple hundred million? I think maybe that's acceptable.
 
Blake Oliver: [00:28:43] A lot of money, but in the big scheme of things, I think I agree with you, David, not material, or worthwhile cost of doing business in order to get the money out, like you said- you actually said, at the beginning of this whole PPP program, that one of the lessons we learned from the last recession, the Great Recession-
 
David Leary: [00:29:02] 2008 recession; yeah, the Great Recession, I think they called that one. The lesson learned is they didn't get the money out fast enough is what they learned in that.
 
Blake Oliver: [00:29:11] Right. 
 
David Leary: [00:29:11] You have to take the risk that people- you're gonna send checks to dead people; you're going to have businesses that apply for a loan that shouldn't have applied for it.
 
Blake Oliver: [00:29:19] You mentioned the stimulus checks to dead people, so I just had to bring up this little tidbit from this week. Gene Dodaro, the Comptroller General of the U.S. Government Accountability Office - the GAO, which is releasing all of these reports, the one we just talked about - he told a congressional panel on Friday that the IRS sent his mother a $1,200 payment this spring, even though she died in February of 2018. Doesn't look good for the IRS, right? 
 
David Leary: [00:29:45] He should just file it; claim it on his taxes. He won't get audited [crosstalk] 
 
Blake Oliver: [00:29:48] So, he sent it back like he should, but he's worried that a lot of people will cash the checks and don't know that they should send them back. So, that's all I've got this week.
 
David Leary: [00:29:58] Yeah, I think the only other one is the- Billie Anne Grigg wrote up an article on AccountingWEB about what should business owners do after they run out of PPP loan money. She has some tips in here on things they should do, like do an expense analysis, determine determining income target, build a multi-layer contingency plan, build a strong cash position. The whole time I'm reading this, I'm just kind of thinking this is probably good, if you have a brand-new client that just came through your door and said, "Hey, I got the PPP loan. I'm on my own, and now I spent the whole thing. Now what do I do?" If they're a brand-new client. But if you've already had this client, and you helped them get the loan, you should have done these things with that client ahead of time. Waiting til the PPP money's out to build their cashflow, and their future plans just seems a little bit ridiculous. It's not that the article's ridiculous, it's just that's what I was thinking when I was reading ... Hopefully you've done this already.
 
Blake Oliver: [00:30:54] Well, yeah, I guess a lot of times, this stuff doesn't happen until necessity, until it becomes necessary. Clients have to want it. In the good times, it's hard to convince clients to pay for this kind of stuff because their business is working. Everything's working. It's not until it breaks that they really need your help.
 
David Leary: [00:31:13] Maybe at that time they thought their focus and eyes were just like, "I just need that PPP money because, hey, COVID's gonna be gone soon. I've been watching the news. We're gonna reopen. This'll get me by, and that's all the help I need with is just to get the loan." You're right, maybe they're coming back now, like, "Okay, great. I got the loan. It's gone. Now, what do I do?"
 
Blake Oliver: [00:31:32] So, to take us out here, do you have any guess as to when this latest surge of virus will recede? We've talked about it in the past a bit. It's funny because July was one of our estimates, and now it's ... It hasn't even peaked here in Arizona, yet. Supposedly, it's gonna peak mid-July.
 
David Leary: [00:31:55] Is it because people are in these hot states, and you have to be indoors more, versus New York and back East, where they had their spike before- it was in the winter, when they were all indoors. Is that the reason for the difference in the spikes, or is it New York and those places are down now because they got over this major spike? You almost have to get up and over that hump. I don't know at this point. I just know that I'm done. I'm starting to fall into that bucket of does this make a lot of sense anymore.
 
Blake Oliver: [00:32:26] Yeah. Well, I think the thing that's really challenging for both of us is we have kids at home. I have a five-year-old. You've got a bunch of preteens and teens, right? 
 
David Leary: [00:32:36] Preteens. 
 
Blake Oliver: [00:32:38] That's rough. 
 
David Leary: [00:32:39] The reality of our kids not going back to school is here, now. I think, for the rest of the country, it is still eight to 12 weeks out before school starts; during their summer ... A lot of schools just started summer vacation two weeks ago, but we're five weeks out; four weeks out from school, and it already got delayed. Now, it's got delayed into that, "Until we deem it safe," which could be two years.
 
Blake Oliver: [00:33:01] Right. 
 
David Leary: [00:33:01] There's just no knowing when this is gonna stop. Kids are suffering. Not going to school is damaging children.
 
Blake Oliver: [00:33:09] There was a great op-ed in The New York Times about this. It's a blogger who wrote this, who works at home, and her husband lost his job. They're both at home with their son and are trying to imagine a fall in which school doesn't open. They're in New York City. New York City is one of those places that has said that the schools aren't going to open until it's safe. It's challenging because it's creating an environment in which you can't work and have kids. You can't open the economy and not have daycare and not have school. It doesn't work. My wife and I are in that situation. We both work. We like working. One of us could afford, now that we're in Arizona, to not work, but we don't want to, and we're kind of being forced into that situation, potentially, in the fall. It's either that or we have to find somebody who can provide daycare, or a place that can provide it, right? 
 
David Leary: [00:34:04] Basically, in COVID times, you have to choose - do you have a job, or do you take care of your kids? Because it's very hard to do both. You can't be half-assed both. The worst part is, unfortunately, the option's starting to become I have to be a half-assed teacher to my kids because there's no option. They can't do a school. There's no option on the table.
 
Blake Oliver: [00:34:23] I found it. It's called, "In the Covid-19 Economy, You Can Have a Kid or a Job. You Can’t Have Both," New York Times, July 2; by Deb Perlman. 
 
David Leary: [00:34:32] Imagine if you actually were an accountant, as well, and you had tax deadlines on top of all [crosstalk] 
 
Blake Oliver: [00:34:36] Yeah, it's hard enough just doing my normal job. I can't imagine being on a tax deadline, and having kids at home, and having to deal with all that. You, and I, David, we're - relatively speaking - very well off, compared to most people in this country; I think most accountants, most CPAs, most EAs, hey, we're professionals. We're gonna be okay. Let's say I'm a cop, and I've got to go to work. What do I do with my kids? I gotta have daycare. I guess there's actually daycares for the essential people. Those are open. 
 
David Leary: [00:35:10] Yes, but did you know what the observation of those daycare centers are? 
 
Blake Oliver: [00:35:13] What?
 
David Leary: [00:35:14] The kids aren't getting sick. [crosstalk] They're not getting sick; they're not dying. We have to figure out what this balance is. I'm gonna say it on the podcast- I'll say it ... I'm starting to wonder what's worse for kids - them having a worst horrible year of lack of education for a year of their life, or possibly losing the grandparents? What's worse? Because that's basically where we're at. It's very clear, the data is- it skews much higher to old people, whether they're aged 55, 65, 75, and it gets worse. Every decade older, the death rates are way higher. What are we balancing out? The long-term impact to the youth of America, or the youth of the world?
 
Blake Oliver: [00:36:00] I had to make a choice pretty early on in this whole thing about what we were gonna do with my son. He's five years old, and he is deaf and has cochlear implants. So, this is a critical point in his development, where he needs to be talking with other kids so that he can learn language and catch up because he's behind. He didn't get these when he was born. He had to wait a year. So, he's already behind. He needs to be with other kids, talking to them, listening to them, interacting with them.
 
[00:36:31] We moved from California to Arizona, specifically because we knew that even if the public schools wouldn't be open in Arizona, that the political climate is such that at least private schools would be open or daycares would be open, which we have been able to find. Those are closed to nonessential folks in California. So, we would have had to, one of us, quit our job and the other one work and then try to homeschool him. It's just terrible for him to be at home; it's gonna create ... If you have these kids home for longer than a year without interacting with other kids, it's gonna really stunt their development. Then, the online education is just atrocious. It doesn't work for young kids. It's hard enough for adults. It's not effective.
 
David Leary: [00:37:14] I think this lockdown stuff and kids not going to school ... The next four weeks is gonna be really interesting because the unemployment- that extra 600 bucks is going away.
 
Blake Oliver: [00:37:24] Yeah.
 
David Leary: [00:37:24] All of a sudden, people who are maybe staying at home because maybe the unemployment was there, and maybe it's not as stressful. You have that money coming in; you're able to pay your rent. But what happens ... That money goes away. Now you can't pay rent, and you're stuck at home with your kids. There's just all these stresses. I think people are starting to get stressed out from this. There's gonna have to be a swing here in the pendulum somewhere. I don't know what it is, but where ... 
 
[00:37:49] Maybe the real fear is just the hospitals, and the volume, and we have to ... If somebody's in a car accident, now, there's no beds for them. I kinda get these things, but also, at some level, this is getting ... The guy down the street, he's 90 years old, lives by himself; super-independent, and literally has the strongest handshake of any person I've ever shook hands with my whole entire life. I was talking to him yesterday morning, and he said he hasn't touched a human being in 90 days. That's not healthy, mentally, for people, either.
 
Blake Oliver: [00:38:21] No, it's not. 
 
David Leary: [00:38:21] I don't know ... I don't have the answers, but it feels like, for me personally, I'm burning out on this. I'm kind of over it. 
 
Blake Oliver: [00:38:31] We need to figure out what the end game is of this, because locking up forever is not a solution, and the cat's out of the bag. This infection has spread so much in this country that we can't- we can't stop it. I heard somebody saying that in order to get rid of it in Arizona, at this point, we'd have to shut down for months, which is not gonna happen. There's no way. It's impossible. So, do we live with it? Is that what ends up happening? We can mitigate it as much as we can - wear masks. Masks work. If we all wear masks, and we go back to school, and work, then hopefully that works. I mean, you look at other countries, like Japan and Korea, that's what they're doing. It's working.
 
David Leary: [00:39:13] They had masks kind of from day one.
 
Blake Oliver: [00:39:15] Yeah, yeah, exactly. So, it can be done. Unfortunately, we've just got this totally screwed-up system, where this has all become really political. I don't know ... I hope we can fix it. I feel you, David. I'm burned out on this, too. I think everybody is. If you're feeling burned out, and you're listening to this, you are not alone. 
 
David Leary: [00:39:36] Give us a call. We'd love to hear what your take is ... Obviously, we just spent eight minutes not talking about anything accounting-related, but it is related, right? Because we're all, all of us, like it or not, are going through this same journey. This is not unique to you, and I, Blake. We're all dealing with this COVID thing. We're now, what, 16, 17, 18 weeks in, 20 weeks in? I mean, basically, we still have half this year to go - 2020 - half the year to go still.
 
Blake Oliver: [00:40:05] I think basically all accountants are going through the same thing right now, which is trying to work from home with everybody at home, with your kids at home trying to homeschool them, while you're at home. Even if you have a spouse that does it, it's being distracted because you're at home while they're at home. Not everybody gets to have an office. Even if you do have a home office, the kids come barging in. That's the big thing, and I think we're all going through that.
 
David Leary: [00:40:29] And the stress of not separating work from home, which is very, very hard right now.
 
Blake Oliver: [00:40:33] Very hard, yeah. 
 
David Leary: [00:40:33] There's no division ... You can't turn off ...
 
Blake Oliver: [00:40:38] If you wanna talk to us about that, if you wanna vent, or just tell us what you think, or tell us we're wrong, or agree with us, leave us a message. We have a number set up. You can call it: (202) 695-1040 That is (202) 695-1040. Call us. Leave a voicemail. We'll listen. And maybe we'll even play it on the air.
 
David Leary: [00:40:58] Even better idea: tell your kids the call, so that way, you can at least get an extra three, or four minutes of getting some work down while they're calling us instead, leaving us a prank jokes or something. That could be kind of funny. I did see something that I really loved. I do not know who on Twitter this was from. It was something about, "Hey, my five-year plan is just getting through 2020." I thought that is perfectly said in just a beautiful perfect way, right now.
 
Blake Oliver: [00:41:25] David, stay safe. Stay sane until the next time we talk.
 
David Leary: [00:41:29] Absolutely.
 
Blake Oliver: [00:41:30] Take care.

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Creators & Guests

Host
Blake Oliver
Founder and CEO of Earmark CPE
Host
David Leary
President and Founder, Sombrero Apps Company

What is The Accounting Podcast?

The Accounting Podcast (formerly the Cloud Accounting Podcast) is the world's #1 accounting, bookkeeping, and tax podcast! Join us weekly for a roundup of accounting news, analysis, and interviews. Plus, earn free NASBA-approved CPE credits for listening with the Earmark app. Learn more at https://earmarkcpe.com.