A copy of the presentation given at the 2014 Architecture, Engineering and Construction Seminar.

1. 2014 ARCHITECTURE,
ENGINEERING & CONSTRUCTION
INDUSTRY SEMINAR
FRIDAY, OCTOBER 17, 2014
PRESENTED BY:
CBIZ & Mayer Hoffman McCann P.C.
INTRUST Bank
Seigfreid Bingham

2. ECONOMIC & MARKET OUTLOOK
PRESENTED BY: BILL MARTIN

3. U.S. ECONOMIC HIGHLIGHTS & OUTLOOK

4. U.S. Economic Indicators

5. U.S. Labor Market Perspectives
Source: BLS, FactSet, J.P. Morgan Asset Management

6. U.S. Economic Growth & Composition of GDP
Source: BEA, FactSet, J.P. Morgan Asset Management

7. U.S. Commercial Real Estate
Source: Reis, Inc., PREA, FactSet, J.P. Morgan Asset Management

8. KC METRO ECONOMIC HIGHLIGHTS &
OUTLOOK

9. KC Metro Economic Growth
KC’s economic growth rate slower than US since 2001

10. KC Metro Economic Growth
On a per-capita basis, KC Metro looks much better

11. KC Metro Economic Forecast
Source: Mid-America Regional Council and the Greater Kansas City Chamber of Commerce
KC’s economic growth is forecasted to rang between 2%and 3%thru 2016

12. KC Metro Job Growth Forecast by Industry
Source: Mid-America Regional Council and the Greater Kansas City Chamber of Commerce
KC’s service sector is expected to experience the most significant job growth

13. KC Metro Commercial Real Estate
Source: Stewart Title Guaranty Co. / Real Capital Analytics
Major real estate purchases in KC up to 56%from last year

14. KC Metro Commercial Real Estate
Source: FMI Construction Outlook, 2nd Quarter, 2014; Kansas City, MO-KS MSA
KC commercial construction forecast by industry

15. KC Metro Commercial Real Estate
Source: FMI Construction Outlook, 2nd Quarter, 2014; Kansas City, MO-KS MSA
Lodging and office construction forecasted to see fastest growth rate in KC

16. KC Metro’s Fastest Growing Cities in 2013
Source: U.S. Census Bureau, May 22, 2014

17. KC Metro Future Growth Forecasts
Source: U.S. Census Bureau, May 22, 2014
Source: Mid-America Regional Council, Transportation Outlook 2040

18. Education is Key is KC’s Economic Future
Source: Mid-America Regional Council
KC ranks 19th out of 52 metro areas in terms of educational attainment

19. MARKET HIGHLIGHTS
& OUTLOOK

20. Market Indicators

21. What’s Driving U.S. Treasury Yields So Low?
Country Yield on 10-Year
Sovereign Debt
United States 2.39%
Canada 2.05%
Brazil 3.77%
Columbia 3.39%
Germany 0.93%
Italy 2.45%
Switzerland 0.44%
Greece 5.72%
Japan 0.50%
South Korea 3.06%
Source: Bloomberg | Data as of August 31, 2014

22. U.S. Equity Valuation Considerations

23. How Can Investors Manage Market Uncertainty
 Goal-driven solutions.
 Intelligent diversification,
including prudent use of
alternative investments.
 Risk budgeting with a
focus on preservation of
Capital.
 Asset location and active
tax management.
 Disciplined investment
process with a long-term
time horizon.

24. Thank You

25. EMPLOYMENT LAW FOR THE
CONSTRUCTION INDUSTRY
PRESENTED BY: RITA CORTES & RACHEL BAKER

26. CRIMINAL BACKGROUND CHECKS:
What does the EEOC Have to Say?

27. The EEOC has taken the position that the use of criminal
background checks can have a larger impact on minority job
applicants, and can therefore be illegal employment
discrimination.

28. “BAN THE BOX” LEGISLATION:
What is it?

29. Kansas and Missouri do not currently have “Ban the Box”
statewide legislation.

30. When is it okay to consider criminal background information?

31. RESTRICTIVE COVENANTS FOR EMPLOYEES:
What Works & What Doesn’t

32. What Do You Want To Protect?
 Customer relationships?
 Proprietary Information?
 Regular competition?

33. Using restrictive covenants can protect certain corporate
interests, but cannot be used to prevent regular competition.

34. WHAT CAN YOU PROTECT?

35. Customer Relationships
 Cannot protect prospective customers.
 Can only restrict those who had meaningful and
regular contact.

36. Trade Secret & Confidential Information
 Can only protect true proprietary and confidential information.
 Can sometimes include customer lists.
 Can cover pricing and bid practices.

37. Other Methods To Protect Yourself
 Password Systems
 Limiting Access to Need to Know
 Training in Expectations on Information Management
 Having Others Sign Nondisclosures
 Relationship Management

38. What is Required For An Enforceable Agreement?
 Protectable Interests
 Consideration
 Reasonable Geographic Scope
 Reasonable Duration

39. Employee V. Independent Contractor
Classification

40. Emp. V. Indep. Contractor Classification
 High Priority for the Department of Labor Audits.
 Use of Misclassification as a Basis for Class Action
Relief Remains High.

41. Emp. V. Indep. Contractor Classification
 Not a discretionary issue
 Governed by separate tests:
 IRS – 20 Factor Test
 Courts- Economic Realities Test
 Key Issue: Who is really in control of the work?

42. Impact of Misclassification?
 Tax Audit
 Liability for unpaid payroll taxes
 Liability for injuries on the job
 Liability for unpaid overtime
 Liability for unpaid employee benefits

43. SOCIAL MEDIA:
It Doesn’t Affect My Company,
Does it?

44. Use of Social Media in Hiring
 Obtain information that you don’t want to know.
 How do you prove it had no impact on hiring
decisions?

45. Social Media and the NLRB
 Has been examined by the NLRB in non-union contexts.
 Recognized by the NLRB as a legitimate forum for
concerted and/or protected activity.

46. TAX UPDATES
FOR THE
AEC INDUSTRY
PRESENTED BY: ERIKA CUNDIFF

47. DEPRECIATION

48. Depreciation
 Large book tax difference for depreciation because of
previous favorable depreciation adjustments.
 Section 179 Limit for 2014.
 No bonus depreciation.
 There is still time for Congress to act.

49. TAX RATES

50. Tax Rates Have Increased
 Currently the highest individual rate is higher than the
highest corporate rate.
 2014/2015 tax rates for married filing joint:
$0 – 17,850 10%
17,850 – 72,500 15%
72,500 – 146,400 25%
146,400 – 223,050 28%
223,050 – 398,350 33%
398,350 – 450,000 35%
450,000 – …. 39.6%

51. Tax Rates Have Increased
 Medicare surtaxes are charged on SE income and
investment income, but not on corporate income.
 S-Corporation vs. S-Corporation
 In Kansas, pass through income is not taxed, but
C-Corporation income is.
 If all of your profits need to stay in the company for
bonding purposes, you may want to have an analysis
done to potentially revoke your s-election.
 Do not make a decision for short term reasons.

52. TANGIBLE PROPERTY REGULATIONS

53. Tangible Property Changes
 Changes are coming for any entity or individual who owns
tangible property and has repairs and maintenance.
 The changes for compliance must be implemented on your
2014 tax returns.
 The Service has temporarily told IRS agents to not examine
depreciable property.

54. Changes for Real Property
 What is a unit of property?
 A building will be broken down from one unit of property
to potentially eight units of property.
 You will be able to have a partial disposition on a building.
 Does a cost segregation still make sense?

55. Changes for Real Property
 Repairs vs. Improvements To Unit Property
 Routine repairs.
 One off repairs.
 What is conservative?
 Internal books vs. tax.

56. Implementing New Tangible Property Regs
 Implementing new tangible property regulations:
 Taxpayers will need to file an accounting method change
form with their 2014 tax return.
 Depending on your property a taxpayer may have several
accounting method changes.

57. HOW DOES THIS AFFECT YOU?

58. Affect On The Construction Industry
Demolition costs historically had to be capitalized for a
project.
 Going forward if they are broken out separately on an
invoice they can be expensed by the owner.
 A building will be broken out into multiple units of
property (i.e. the roof will be a unit of property, the elevator, the building).
 Contractors may have clients asking for breakdowns of
costs associated with each unit of property.

59. FRAUD PREVENTION
FOR THE
AEC INDUSTRY
PRESENTED BY: JOYCE FARRIS & ERIKA CUNDIFF

60. Why Is Fraud A Hot Topic?
Association of Certified Fraud Examiners’
2014 Report to the Nation
 Typical organization loses 5% of revenues each year to fraud.
 Applied to the 2013 estimated Gross World Product -
Potential projected global fraud loss of nearly $3.7 trillion.
 Median loss caused by fraud was $145,000.
 22% of the cases involved losses of at least $1 million.
 Median duration – amount of time from when fraud
commenced until it was detected – 18 months.

61. No Immunity to Fraud
 Fraud does not discriminate.
 All Industries, Companies, Sizes.
 Fraud schemes are not new.
WHAT SHOULD YOU DO?
 Implement anti-fraud controls to limit risk.
 Eliminate the “It can’t happen here” mindset.

62. IT CAN HAPPEN HERE
& IT HAS

63. Recent KS/MO Fraud Cases
 April 2014 – Waechtersbach
 CEO pleaded guilty to embezzling up to $338,000 over 9
years.
 July 2014 – Galvmet Inc.
 Controller indicted on alleged embezzlement up to
$2,963,914.
 Company filed for bankruptcy.
 August 2014 –
 Lawrence businesswoman indicted on five counts of
bank fraud connected to loans obtained through
Farmers Bank in Overland Park.

64. Recent KS/MO Fraud Cases
 August 2014 – Dorfman Plumbing
 Bookkeeper pleads guilty to embezzling $543, 000 over
eight months.
 North Point Nursing Home - Pleads guilty to embezzling
an additional $188,460 in following four months.
 September 2014 – Westheffer Company
 Office Manager pleads guilty to embezzling between
$750,000 - $1 million.
 August 2014 – Clarkson Construction
 Director of Information Technology accused of
embezzling more than $300,000.

65. Why Do People Commit Fraud?
 Pressure / Motivation
 Mounting debt.
 Divorce.
 Unrealistic business results due to economy.
 Opportunity
 Unlimited access to Company assets.
 Jobsite with week controls.
 Rationalization
 Embezzler believes “deserves” more.
 The Employer “owes” them.

66. Red Flags
 Companies
 High turnover rates.
 Ignore irregularities.
 Employees
 Refusal to take vacation.
 Exhibit on-the-job behavioral changes.
 Elevated lifestyle purchases:
 New car
 Jewelry
 Remodel home

67. Who Commits Fraud?
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
Employee Manager Exec/Owner other
According to ACFE, the average fraud perpetrator is generally a first-time offender with
a spotless record.

68. Duration Before Detected
30
25
20
15
10
5
0
Employee Manager Exec/Owner Other
Months

69. Fraud Schemes
 Corruption
Association of Certified Fraud Examiners’
2014 Report to the Nation
 Bribery / Kick Backs / Bid Rigging.
 Purchasing Schemes .
 Asset Misappropriation
 Cash on hand / Cash Receipts / Skimming .
 Fraudulent Disbursements / Fraudulent Billings
 Misuse of Other Assets / Larceny.
 Financial Statement Fraud
 Asset / Revenue is Overstated/Understated.

70. Fraud Schemes In AEC Industry
Association of Certified Fraud Examiners’
2014 Report to the Nation
Billing 34.9%
Cash Larceny 14.0%
Cash on Hand 7.0%
Check Tampering 27.9%
Corruption 46.5%
Expense Reimbursements 27.9%
Financial Statement Fraud 11.6%
Non-Cash 20.9%
Payroll 18.7%
Register Disbursements 2.3%
Skimming 7.0%

71. No-Tolerance Tone At The Top
 Fraud-free culture starts at the top.
 Superiors who model ethical behavior
encourage others.
 Code of conduct – benchmark for
behavior.
 Educate employees about fraud &
affect on company.
 Willingness to Prosecute all finding.
Nothing disregarded!

72. FRAUD REPORTING MECHANISMS

73. Implement Fraud Reporting Mechanisms
 Whistleblwoing by employees - #1.
 Encourage confidential reporting.
 Set clear channels for how and to whom to report.
 Environment of trust and accountability.
Tips are consistently and by far the most common detection method.
Over 40% of all cases were detected by a tip – more than twice the
rate of any other detection method. Employees accounted for nearly
half of all tips that led to the discovery of fraud.(ACFE 2014 Report)

74. INTERNAL CONTROLS

75. Establish Internal Controls
 Internal Controls
 Processes designed to provide reasonable assurance
regarding the achievement of certain objectives.
 Safeguard assets against unauthorized acquisitions, use or
disposition.
 Minimizes risk of employee theft or fraud.
 Communicate to all personnel involved.
 Monitored by management.
 Relied on segregation of accounting duties:
 Prevents a single employee from both perpetrating and
concealing fraud.
 Many small businesses don’t have the appropriate
number of personnel to handle such segregation.

76. Internal Controls – Cash
 Preparation of monthly bank reconciliations.
 Proper approval of invoices.
 Dual signatures on checks of Authorized check signers.
 Check singer can not generate checks.
 Use of lock box for customer payments.
 Individual billing customers isn't allowed to received or
record customer payments.
 Officer received bank statement or reviews online.
 Use of positive pay verification system at your bank.
 Consider bonding employees who handle cash.

77. Internal Controls – Accounts Receivable
 Accounts receivable aging reports reviewed monthly by
management – explanation of over 90 day items.
 Receivable write-offs should be authorized and approved.
 Consider shifting responsibility for collecting receivables to
the project managers on their jobs – provides oversight of
collection process.

78. Internal Controls – Accounts Payable
 Pre-numbered purchase orders.
 Approval of invoices by non-purchasing agent.
 Review invoices for delivery location.
 Compare payments to original contract amounts.
 Original contract costs should be compared to revised
contract costs on a monthly basis.
 Once signed, checks should not be returned to employee
responsible for generating the checks.

79. Internal Controls – Subcontractors
 Monitor subcontractors / supplier bidding process.
 Require proof of insurance / monitor the expiration.
 Consider number of jobs the subcontractor is working on to
determine their capacity to complete your job.
 Obtain references on new subcontractors.
 Perform credit checks on new subcontractors.
 Consider reviewing financial statement of subcontractors
for the ability to pay for and complete the job.

80. Internal Controls – Jobsite Controls
 Use of security cameras.
 Comparison of purchased material quantities to original
estimates.
 Surprise visits by management to ensure procedures are
being followed, locate unrecorded invoices and make sure
job is on track.
 Jobsite equipment and materials should be secured when
there are no employees present.
 Written safety and health policy to minimize hazards on
the jobsite.

81. Internal Controls – Payroll/ HR Controls
 Report jobsite labor daily using an electronic sign-in/out
system.
 Payroll hours should be approved by management.
 Enforce mandatory vacations
 Surprise jobsite visits on payday to verify employees
receiving payroll checks are not fictitious.
 Payroll clerk should not be authorized to enter pay raises
in computer system.
 Consider background checks and/or drug testing.

82. Internal Controls – Technology
 Utilize secure passwords to transmit data.
 Utilize the security system in accounting and data programs
to limit access.
 Utilize controlled electronic data exchange from jobsites for
payroll, etc.
 Utilize an internal electronic routing system to obtain
approvals and track documents.

83. No Internal Control Is Perfect
 Limitations of internal controls.
 Human judgment and error.
 Cost restraints.
 Management override.
 Collusion.
 To be successful, internal controls:
 Driven by companies management.
 Oversight and monitoring.

84. Stamping Out Fraud
 Impossible in the Construction Industry.
 Prosecution of offenders.
 Stricter practices and tighter controls.
 It is possible to mitigate risk!

85. THANK YOU!

86. Rachel Baker
Seigfreid Bingham
rbaker@seigfreidbingham.com
816.421.4460
Rita Cortes
Seigfreid Bingham
rcortes@seigfreidbingham.com
816.421.4460
Joyce Farris
CBIZ MHM, LLC
jfarris@cbiz.com
913.234.1340
Erika Cundiff
CBIZ MHM, LLC
ecundiff@cbiz.com
913.234.1907
Bill Martin
INTRUST Wealth
Bill,Martin@INTRUSTwealth.com
316.383.1170