Categories
Podcasts

Insight in Indian Country – Business Transactions & Valuations with the Pandemic

Have you had questions about purchasing or selling a business during the COVID-19 pandemic? As impacts of the health crisis continue to ripple, REDW’s Wesley R. Benally, CPA (Senior Manager, National Tribal Practice Co-Lead) and Brian Foltyn, CVA (Principal, and Valuation, Disputes & Transaction Advisory Services Practice Leader) provide insight on business valuation services and transaction advisory essentials, future expectations, and the important differences between price and value when buying or selling a business in the current economic climate.

REDW LLC is excited to bring you the first season of the Insight in Indian Country Podcast. We hope you’ll listen in!

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Categories
Podcasts

Insight in Indian Country – Bond Investments & 2021 Outlook


So, what is a bond, really? REDW Wealth Senior Investment Manager Rob Elzholz, CFP®, CRPC ®, AIF®, AAMS®, and Chief Investment Officer Daniel Yu, CFA®, AIF®, touch on the basics of bonds, maturity, interest rates and credit risk, and also share their outlook on fixed income, credit rates and inflation in 2021.

REDW LLC is excited to bring you the first season of the Insight in Indian Country Podcast. We hope you’ll listen in!

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Categories
Resources

M&A Earnouts? Count on Book & Tax Implications

A key challenge in any deal negotiation is agreement on purchase price between the buyer and seller. This is especially true during times of economic turbulence when current business results may not reflect past or future earnings of the target. To reach an appropriate purchase price that takes this uncertainty into account, parties may choose to include an “earnout†in the acquisition agreement.

What is an earnout?

In general, an earnout is additional consideration that is paid to the seller of the business if the business makes certain revenue or EBITDA (earnings before interest, taxes, depreciation and amortization) targets post-acquisition. If paid, the earnout is treated as additional consideration for the business and, therefore, for book and tax purposes. In certain circumstances, however, the buyer may require the seller to remain employed by the business to be entitled to the earnout. Depending on how the purchase agreement is structured, earnout payments tied to continued employment may be treated as compensation for both book and tax purposes, which would reduce earnings.

Situations where a seller must remain employed by the business to be entitled to an earnout have both favorable and unfavorable tax consequences, depending on the party.

If the earnout is treated as compensation rather than as part of the purchase price, the purchaser is entitled to a tax deduction for the earnout/compensation payment (subject to payroll tax withholding and, potentially, to the golden parachute and nonqualified deferred compensation rules). Conversely, the seller is taxed at ordinary income rates up to 37%, rather than at the 20% capital gains rate, which is disadvantageous for the seller-turned-employee.

When are earnouts treated as compensation?

While earnouts tied to continued employment are not intrinsically considered compensation, there is precedent for the IRS to scrutinize whether the earnout should be taxed as compensation, and a company’s auditors may have to review the facts and circumstances to determine the proper book treatment. There is also a court decision that supports the characterization of an earnout payment as compensation: in Lane Processing Trust v. United States, 25 F.3d 662 (8th Cir. 1994), the court held that payments made to employee-owners were considered compensation because the payments were tied to employment and the amounts paid were based on each employee’s job classification and length of employment.

Questions? Contact REDW Principal and Valuation, Disputes & Transaction Advisory Practice Leader Brian Folytn for further guidance.

However, a court reached a different conclusion in R.J. Reynolds Tobacco Company v. United States, 149 F. Supp. 889 (Ct. Cl. 1957). In this case, the company made payments to employee-shareholders based on a bylaw profit distribution plan where the payments were proportionate to the employee-shareholders’ shareholding percentages in the company. After treating the payments as dividends for many years, the company filed a refund claim contending that the payments were tax deductible compensation payments. The court rejected the claim, holding that the payments were dividends because: (i) they were proportionate to equity ownership, (ii) the payments would be considered “unreasonable†if treated as compensation because the employees earned market rate salaries, and (iii) the company’s long-standing treatment of the payments as dividends was approved by its auditors.

Don’t overlook letters of intent

Earnouts may become tied to employment as in Lane Processing Trust as a result of a provision requiring the sellers to remain employed post-close in a letter of intent (LOI). (An LOI is a document in which both parties declare their preliminary commitment to do business with one another.) If so, the language in the LOI could carry over to the purchase agreement, potentially tying the earnout to continued employment. Often, the parties to the agreement are not aware of the potential book or tax consequences discussed above.

However, when the issue is identified in an LOI prior to signing the acquisition agreement, there is still an opportunity to avoid it. For example, in certain situations, the earnout can be decoupled from the selling shareholders’ post-close employment agreements, or documentation can be prepared to support that the post-close compensation is commensurate with the services to be performed. Of course, there are other factors and drafting alternatives to consider and, given the consequences, care should be taken in drafting these documents. It is also prudent to preserve any analysis supporting the use of the earnout to bridge the parties’ views of the company’s value. An issue identified in an executed agreement, however, may be more difficult to address, so it is important to identify these issues prior to execution.

How REDW M&A Advisors Can Help

Because the book and tax treatment of earnouts depends on the documentation, buyers should discuss the intended treatment of the earnouts with their attorneys and trusted tax advisors. These discussions should consider the critical factors used to assess whether an earnout is purchase consideration or compensation. By discussing the intention and ensuring the documents reflect the intended consequences, buyers can put themselves into a better position to avoid unanticipated book and tax treatment.

Contact REDW Principal and Valuation, Disputes & Transaction Advisory Practice Leader Brian Folytn for further guidance.

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Categories
News

How to Laugh Your Staff (Meeting) Off — As Shared By LocalBiz Digital Magazine

REDW Principal & HR Consulting Practice Leader Cristin Heyns-Bousliman, Esq. shares tips for setting fun staff meetings for remote work environments in this South Carolina LocalBiz Digital Magazine feature.


By Cristin Heyns-Bousliman, Esq.

When is the last time you looked forward to gathering for your weekly staff meeting?

How about describing it as “fun?†Be honest. As remote work has become more prevalent, and gathering around the water cooler isn’t necessarily an option for everyone anymore, staff meetings need to evolve as well.

Here are five easy ways to enhance your team’s staff meeting experience:

1. If this meeting could have been an email, put it in an email.

Rather than reviewing a list of assignments or reading boring announcements, send them out before the meeting and simply ask if there are any questions or clarifications needed. This way you can save time in the meeting for sharing and connecting.

2. Everybody gets the mic.

To maintain engagement in a staff meeting (particularly a virtual meeting), make sure that every team member has to unmute (or inevitably be told “You’re on mute!â€) at least once. This can take the form of a facilitated discussion on a topic or decision relevant to the whole team, or through the team-sharing exercise described below.

3. Team share for the win.

Designing a weekly team-share exercise is a great way to drive engagement and build connections (even remotely) within your team. During the pandemic, my team had a “Mental Health Exercise of the Week†that would encourage creative ways to get through quarantine (Quarantine Bingo, a baking challenge, and a Covid signature cocktail creation, to name a few). The following week, the individual team members would talk about their experience.

As we are slowly approaching “normal,†we have converted this to our “Team-Building Exercise of the Week,†which we kicked off with the “Getting to Know You†challenge. Team members were assigned colleagues whom they perhaps didn’t know as well due to different projects or practice areas, and they conducted interviews to learn five things about the interviewee that no one on the team would know. I assure you, the information revealed during the following week’s team share was anything but boring!

4. Transparency is lit.

Be sure that the announcements you do make during meetings are limited to relaying the details you can share about company-wide initiatives to which the team may not always be privy. Feeling like they have the inside track also will drive your team’s engagement. Individual contributors can inadvertently wind up feeling like they are camped out on an island. Bring them back into the fold with interesting info on upcoming events and projects. Extra credit if you offer up the opportunity to participate on a committee or other internal initiative.

5. Close with gratitude.

Closing staff meetings with an opportunity to share statements of gratitude (aka “kudosâ€) will send everyone off into their week on a positive note. Watching my team in their Brady Bunch configuration on the Zoom call screen as they go around and offer thanks for each other’s hard work, guidance and support warms my shriveled little heart. I promise it will yours too!


The article shared above, “How to Laugh Your Staff (Meeting) Off,” by REDW Principal and Human Resources Consulting Practice Leader Cristin Heyns-Bousliman, Esq., appeared in the 2021 Q2 issue of South Carolina’s LocalBiz digital magazine.

Access the full issue and original posting, here.

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Categories
Resources

Finance: BSA Title 31 – A Collaborative Effort —As Shared By Indian Gaming

By Joe H. Smith, CPA, CFE, CFF, CGAP, REDW Senior Consultant

On December 10, 2020, Kenneth A. Blanco, Director, FinCEN, gave a speech at a Financial Crimes Enforcement Conference in which he encouraged financial institutions to utilize the 314(b)-information sharing program. He stated, “Information sharing among financial institutions through 314(b) is critical to identifying, reporting, and preventing crime and bad acts.†Furthermore, the Director announced the issuance of additional guidance (FinCEN Fact Sheet 12/2020) intended to clarify the circumstances where 314(b) applies in hopes of enhancing participation. The guidance noted that voluntary sharing is helpful to enhancing compliance with anti-money Laundering (AML) and terrorist financing requirements, most notably:

• Gathering info on customers or transactions.

• Shedding light upon overall financial trails.

• Building a more comprehensive picture of a customer’s activities.

• Alerting other participating financial institutions to customers’ suspicious activities.

• Facilitating the filing of more comprehensive Suspicious Activity Reports (SARs).

• Aiding in the detection of money-laundering and

terrorist financing schemes.

• Facilitating more efficient and reliable SAR reporting decisions. (Issue 23 of the SAR Activity Review-Trends, Tips & Issues)

The guidance clarified that casinos and card clubs are subject to the AML program requirement, and any associations of them are eligible to share information under Section 314(b). Accordingly, under the safe harbor provisions, information may be shared regarding individuals, entities, and organizations for purposes of identifying, and reporting activities that may involve possible terrorist activity or money laundering. The participants need not have information directly related to proceeds of a specified unlawful activity or transactions involving money laundering, nor is a conclusive determination necessary that the activity is suspicious. Instead, it is sufficient to have only a reasonable basis to believe the information relates to activities potentially involving money laundering or terrorist activity, actual or attempted. Whenever a SAR narrative has benefited from shared information, it should so note; however, disclosure of information revealing the existence of a SAR is precluded, although participants may work together to file joint SARs. (SAR Confidentiality Standard 31 CFR 1020.320)

Within tribal gaming, many associations have been formed. Some are defined by a state jurisdiction and others a common market area. Generally, their meetings represent a time to share training and discuss issues of mutual interest. However, it has been the exception for associations to enter into information sharing arrangements under Section 314(b). In part, this has resulted from a lack of clarity as to whether an association had to be a defined financial institution. The most recent guidance has addressed this issue by explicitly stating that “FinCEN does not require the organization that forms and operates an association of financial institutions…to itself be a regulated financial institution under the BSA and its implementing regulations.†Of course, the association must conform their membership and activities to the requirements of Section 314(b).

Those that have devoted decades to the gaming industry will likely acknowledge the challenges of change risk management, whether the change is purposeful or unexpected. Predicting, understanding, and managing the consequences of change can be a highly speculative exercise. Case in point, the pandemic has been a wrecking ball to this industry. Institutional knowledge has suffered because those that can retire have done so. Due to staff shortages, some people are put into positions they are minimally qualified for, with others promoted before they are ready. The outcome has been a weakening of the control environment and elevated vulnerability to the occurrence of irregularities.

The confiscation of counterfeit currency is a daily occurrence for most casinos. Likewise, the detection of patrons working the gaming machines to launder up bills has become a troublesome nuisance. Counterfeit checks, stolen credit cards, and false identification are costing operations dearly. Finally, the cybercriminal has benefited greatly from the state of flux created by the virus. Gaming has been victimized in the millions by schemes limited only by the creativity and tenacity of the perp. Operators and regulators need to be equally persistent in their pursuit of measures to mitigate the risk posed by this unexpected change to the way we have conducted business for decades. Section 314(b) offers an opportunity for gaming operations to share information about money laundering activities initiated by persons of nefarious intent. Participation in the information sharing program facilitates compliance with AML regulations and the detection and deterrence of criminal behavior in and to the enterprise.

In satisfying the requirements to benefit from the 314(b) safe harbor protection, an association must do the following (FinCEN Section 314b):

• Financial institutions and associations must register with FinCEN’s Secure Information Sharing System.

• Prior to sharing information, steps must be initiated to confirm the participants are also 314(b) registrants.

• Establish procedures to safeguard shared information and use it for appropriate purposes.

For additional information, a detailed user guide is available in FinCEN’s Secure Information Sharing System.


This article was published on March 23, 2021 by Indian Gaming. Reprinted with permission.

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Categories
Resources

New Requirements for Partnerships Capital Reporting – As Shared by ASCPA Magazine

Tax professionals have been waiting for the IRS to provide guidance with regard to partnership capital account reporting. To provide some history, the IRS unexpectedly launched the tax capital reporting requirement in 2018 via the 2018 Form 1065 instructions.  The IRS then delayed this reporting for tax years 2018 and 2019. On June 5, 2020, the IRS issued Notice 2020-43, requesting comments on the proposed-required methods for reporting partner’s capital under the tax basis method (TBM). In prior years, taxpayers were permitted to use a number of methods to report partner’s capital including tax basis, GAAP, Section 704(b) or other. Reporting on the tax basis allows the IRS to determine if a partner has distributions in excess of basis and estimate the basis on sale of partnership units.

On October 22, 2020 and January 14, 2021, the IRS released Form 1065 draft instructions that would require, for the tax year 2020, taxpayers to calculate partner capital using a transactional approach for the TBM. This reverses the IRS previous position, that the transactional approach could not be used. At this time, the IRS has not finalized those instructions, but Notice 2021-13’s recent publication suggests that they will not again delay TBM reporting.

Notice 2021-13, provides broad penalty relief for 2020 and thereafter, should the 2020 beginning capital accounts include incorrect information, provided the partnership can establish “that it took ordinary and prudent business care in following the 2020 Form 1065 instructions…†.

For the many partnerships that have used the TBM, this is not a change or an issue. However, for those that have used an alternative capital account method, such as 704(b), GAAP, or other, and for those partnerships that have errors in their tax capital accounts, this can present a challenge.

In addition to the TBM reporting, the draft instructions require several tax return statements:

  • The method used to determine beginning tax basis capital.
  • If the Previously Taxed Capital Method is used, state the method used to determine the partnership’s net liquidity value.
  • If on the 2019 return, a partner’s ending negative tax capital was disclosed and that value does not agree with the partner’s beginning 2020 tax capital, explain the difference.
  • If the Form 1065 balance sheet is tax basis and the beginning or ending balance sheet capital differs from the Schedule M-2 values, provide a reconciliation.

So, what is TBM? The most significant difference is market value adjustments under IRC Sections 704(b) and 743 adjustments under Section 754 are not included in TBM reporting. These adjustments would include step-ups due to sale of partnership interests and death of a partner. However, Sections 734 and 754 adjustments related to transactions with the partnership are included in TBM.

Notice 2021-13 reiterates the four permitted methods that the draft instructions state must be used to calculate beginning tax basis capital. If the partnership has been using TBM, it can simply continue. If the partnership has TBM data, it can use it. If the partnership has not previously computed TBM capital, it must establish beginning tax basis capital with one of the permitted methods. The same method must be used for all capital accounts. After beginning 2020 capital is established, the TBM is the only permitted method.

       Specified Methods to calculate beginning Tax Basis Capital

1.     Tax Basis Method

2.     Modified outside basis method

3.     Modified previously taxed capital method

4.     Section 704(b) method

Tax Basis Method.

TBM is a transactional approach, applying partnership tax accounting principles:

The TBM increases a partner’s capital by:

  • Money contributed.
  • The tax adjusted basis of property contributed.
  • Partnership liabilities assumed by the partner.
  • The distributive share of income, gain, and tax-exempt income.
  • The partner’s share Section 734 adjustments.

The TBM decreases a partner’s capital by:

  • Distributions of money.
  • The adjusted tax basis of property distributed.
  • Partner liabilities assumed by the partnership.
  • The distributive share of losses and deductions, depletion items (up to the property basis).
  • The distributive share of the adjusted tax basis of charitable property contributions.
  • The partner’s share Section 734 adjustments.

Modified Outside Basis Method.

Beginning tax basis capital equals the partner’s adjusted outside basis, reduced by the partner’s share of liabilities and the net of all Section 743 adjustments. The partnership may rely on the basis information provided by the partners.

Modified Previously Taxed Capital Method.

Beginning tax basis capital equals the amount of cash the partner would receive in a liquidation, after selling all of the assets in a fully taxable transaction for cash equal to the FMV. This cash amount is increased (or decreased) by the amount of loss (or gain) allocated on the sale. IRC 743(b) and remedial IRC 704(c) adjustments are not applied.

Section 704(b) Method.

Beginning tax basis capital equals each partner’s 704(b) capital account, minus the partner’s share of the IRC 704(c) built-in gain in the partnership’s assets, plus the partner’s share of the IRC 704(c) built in loss in the partnership’s assets.

Because IRC 704(b) capital account maintenance undergirds the allocation safe harbor, if TBM capital and IRC 704(b) capital do not equal, IRC 704(b) capital must continue to be computed for each partner. Workpaper schedules should identify the IRC 704(b) and 704(c) basis for each asset and each partner’s share of the tax cost and built-in gain or book-up amounts.

Best Practices.

Best practices include reviewing capital that has been checked as “Tax Basis†in prior years. Look for items that are not TBM, such as IRC 743(b) adjustments and if the balance sheet is accrual and the partnership reports on the cash method.

Form 1065, Schedule M-2 must be reported on TBM. However, Schedule L (the balance sheet) reflects the partnership’s books and records and does not have to be tax basis. A reconciliation of capital between Schedules L and M-2 should be done to note differences.

Older partnerships might find computing beginning tax capital under the TBM impractical or impossible, leading them to using another method. Partnerships and CPAs must balance the burdens of these new rules, as they try to reach the Notice 2021-13 prudent business care standard.

Anne Davison, CPA, MBA is a tax manager at REDW specializing in small business entities, trusts & estates, and high wealth Individuals. Anne is a member of the AICPA and ASCPA. She can be reached at Anne.Davison@REDW.com.

Carl D. Harper, CPA is a senior tax manager at REDW specializing in partnerships, real estate development and high wealth individuals. Carl is a member of the AICPA and NMSCPA. He can be reached at Carl.Harper@REDW.com.


This article originally appeared in the March/April 2021 issue of the ASCPA Magazine. Reprinted with permission.

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Categories
Insights

Exclusivity Period for Smallest Businesses to Access PPP Loans Ends March 9, 2021

On Wednesday, February 24, the U.S. Treasury Department’s Small Business Administration (SBA) announced new rules for distribution of funds under the Paycheck Protection Program (PPP), a key pandemic relief program under the CARES Act, in order to target the smallest of small businesses. Until Tuesday, March 9, 2021 at 5pm ET, the end of a two-week period, the SBA will not accept new applications from lenders for businesses and nonprofits with 20 or more employees, so that lenders can focus on serving smaller companies.

Once the exclusivity period ends, lenders will be able to submit PPP loan applications for all eligible businesses and nonprofits again.

The change is an attempt to direct more funding toward the mom-and-pop businesses that may have had trouble accessing PPP loans in prior funding rounds because they may have lacked connections to larger banks.

One recent change to the program opened the lender pool to non-bank community partners, which tend to serve lower-income and minority communities. While the program was initially limited to payroll expenses, the new PPP funding extends to a range of new expenses including operations expenditures, property damage costs, supplier costs, and worker protection expenditures.

The SBA confirmed that applications already submitted by lenders before the start of the exclusivity period will still be processed by the agency. The agency will also consider a second PPP loan for some first-time recipients. Eligibility for a “second-draw†PPP loan is limited to businesses with fewer than 300 employees. Businesses receiving second-draw loans must have experienced a 25 percent or more reduction in revenue in 2020 compared to 2019. (This calculation does not include loan forgiveness.)

The third round of PPP funding expires on March 31, with no current plans to replenish funds after that date. Your trusted REDW tax advisors have assisted dozens of small businesses in preparing the financial information required for a PPP loan application and in calculating loan forgiveness after businesses receive their loans.

Contact Tax Senior Manager Craig Neumann at 602.730.3645 or Craig.Neumann@REDW.com for more information about PPP loan services and other COVID-19-related relief programs.


REDW is committed to keeping you informed at all times, and especially through the impacts of the COVID-19 pandemic. Stay connected with us on LinkedIn and @REDWLLC on Twitter. Access some of our other updates on our COVID-19 Resource Hub.

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Categories
News

REDW Celebrates 2020 Recipients of Firm’s Annual Native American Scholarship in Accounting Administered By AIGC

Albuquerque, NM – February 25, 2021 – REDW LLC, one of the Southwest’s 10 largest public accounting and business advisory firms, is pleased to announce the 2020 recipients of the REDW Native American Scholarship in Accounting are Isabel Yasana Hawley (The Klamath Tribes) and Christian Hopkins (Narragansett Indian Tribe of Rhode Island). The American Indian Graduate Center, a national nonprofit organization providing educational assistance to American Indian and Alaska Native college students throughout the United States, administers the scholarship. Both recipients are currently pursuing their Master of Business Administration degrees and focusing on tribal economic development and entrepreneurship.

“We congratulate Isabel and Christian as the 2020 REDW Scholarship recipients, in taking this important next step in completing their education,†said Corrine Wilson (Ft. McDermitt Paiute-Shoshone Tribe of Nevada), REDW Principal and Co-National Tribal Practice Leader.

“We’re proud to honor their hard work and determination with recognition and financial support. These young people have already shown their dedication to continue using their knowledge and skills to improve life in tribal communities.â€

Isabel Yasana Hawley

Isabel Yasana Hawley

Hawley has been building her career as a brand manager for an internationally known sportswear company and is pursuing her MBA in American Indian Entrepreneurship at Gonzaga University to acquire leadership skills and executive advancement. “I hope to inspire the next generation of Indigenous leaders to chase their crazy dreams and bring them into fruition,†she said.

In 2019, REDW renewed its commitment to an annual scholarship program administered by the American Indian Graduate Center. Deserving students awarded the REDW Native American Scholarship in Accounting are pursuing degrees in the field of accounting and finance; the scholarship is open to undergraduate and graduate level Native American students.

Christian Hopkins

Christian Hopkins

After earning his MBA from the University of Kansas, Hopkins plans to pursue a career in teaching in order to help tribal youth see the benefits of entrepreneurship and encourage them to see cultivation of wealth as one of the many methods they can employ to preserve their tribes’ cultural values. “I see the potential of entrepreneurship in my community and I hope to introduce it through the teaching of personal finance,†he said.

“Our scholarship continues a long tradition at REDW of supporting tribal youth and encouraging them to pursue careers in accounting and finance,†said Wesley Benally (Navajo Nation), REDW Senior Manager and Co-National Tribal Practice Leader.

“Through our work with tribal governments and their enterprises, we understand how funding education for young tribal leaders is an investment in the future. Our program benefits not only these individual students, but every tribal community they give back to.â€

Angelique Albert (Confederated Salish & Kootenai Tribes) Executive Director of the American Indian Graduate Center said, “Partnering with organizations like REDW allows us to increase our impact across Indian Country and empower more Native scholars to achieve their educational goals. Building partnerships like the one we have created with REDW is critical to continuing our success as an organization. We look forward to continuing this relationship and strengthening our mutual commitment to Native education.â€

Through the American Indian Graduate Center scholarship, REDW is able to achieve two key objectives: 1) encourage Native Americans who want to pursue a career in accounting and finance, and 2) build the pool of top talent from which to recruit for the firm’s Internship program and National Tribal Services team. REDW has long supported the American Indian Graduate Center through financial donations and the personal volunteerism of its team members. Additional information on American Indian Graduate Center scholarships and eligibility requirements is available at www.AIGCS.org.


About American Indian Graduate Center
American Indian Graduate Center is a national private 501(c)(3) non-profit providing scholarships to American Indian and Alaska Native undergraduate, graduate and professional students throughout the United States. American Indian Graduate Center and American Indian Graduate Center Scholars have awarded more than $350 million in scholarships since inception and are proud to empower Native students from over 500 Tribes in all 50 states with educational funding and academic support services. For more information, please visit www.AIGCS.org.

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Resources

Top Issues for CFOs and Tribal Leaders in 2021

From operations to accounting, the ongoing COVID-19 pandemic has affected everything. Now, with the continuing rollout of new funding regulations and standards, the challenge is to keep up with the myriad issues arising from the economic fallout.

As you look ahead to managing through 2021 and beyond, REDW wants you to be aware of the important considerations discussed in our in-depth understanding of key finance, accounting and business issues. Our well-honed perspective is the result of serving for more than 30 years as skilled advisors to tribes and their entities.

Below, our experts share what they consider to be the most important issues for tribal CFOs, CIOs, HR Directors, Investment Committees and other professionals in leadership positions.

Top Issues for CFOs & Tribal Leaders in 2021:

GASB revised effective dates

GASB 83,Certain Asset Retirement Obligations,fiscal year beginning after 6/15/2019

Recognition of a liability and deferred outflow when there is a legally enforceable liability for the retirement of a tangible capital asset.

GASB 84,Fiduciary Activities,fiscal year beginning after 12/15/2019

Review 1) pension/retirement governance potential component unit criteria;and 2) per capita or minors trust fiduciary funds for a change in fund accounting and reporting entity requirements.

GASB 88,Certain Disclosures related to Debt,including Direct Borrowing and Direct Placements,fiscal year beginning after 6/15/2019

Review any defeasances of debt when assets used from only existed resources (not resources of refunded debt) are placed in an irrevocable trust to extinguish,for change in accounting and disclosures.

GASB 89,Accounting for Interest Cost Incurred before the End of a Construction Period,fiscal year beginning after 12/15/2020

For incurred interest on construction projects,an accounting change that the interest may no longer be capitalized,and will be incurred as an expenditure (governmental funds/current resource measured funds) or expense (business-type/economic resource measured funds).

Statement 90,Majority Equity Interest,fiscal year beginning after 12/15/2019

When a government has a majority equity interest in a separate legal entity,and such equity interest meets the GASB definition of an investment,the investment shall be accounted for on an equity basis,with the exception of a special-purpose government engaged only in fiduciary activities,a fiduciary fund,or endowment fund –which would continue to be fair-market valued. If the entity does not meet the definition of investment,it should be accounted for as a component unit.

Statement 91,Conduit Debt Obligations,fiscal year beginning after 12/15/2019

For conduit debt with 3 separate parties involved,dated accounting and disclosure guidance are required.

Statement 93,Replacement of Interbank Offered Rates:

-All requirements except paragraph 11b,13 and 14,fiscal years beginning after 6/15/2020

-Paragraph 11b,fiscal years beginning after12/31/2021

-Paragraphs 13 and 14,fiscal years beginning after 6/15/2021

The Interbank Offered Rates,notably LIBOR rates,are under global reform with LIBOR expected to cease. The Standard covers debt and related derivatives/hedges and related accounting LIBOR requirement debt instruments are changed or replaced.

Accurate Audit Preparation/CARES Act

Accurate audit preparation and attention to the CARES Act are even more critically important this year. The Government Auditing Standards and Single Audit requirements put the burden on the auditees to accurately prepare and understand their financial statements,the Schedule of Expenditures of Federal Awards (SEFA) and footnote disclosures.

Further,2020 provided tribes with a variety of federal COVID-19 funds,with specific SEFA requirements,compliance and accounting requirements. Tribal Healthcare entities that received Provider Relief funds will have atypical audit preparation requirements.

Tribes with Single Audits due between 10/1/2020 and 6/30/2021 that received federal COVID-19 funding have a three-month extension to submit their Single Audit. Plan to attend one of our upcoming webinars this year to review COVID-19-related federal compliance requirements and/or freshen up your knowledge on other federal awards with our Grants Management training.

Contact Wes Benally,Senior Manager,WBenally@REDW.com,602.730.3632.

Accounting Software
Many tribes have moved –or are considering moving –to cloud-based and/or remotely accessed accounting applications,as well as procurement/payables and payroll/human resource processes that are approved electronically. These changes require implementing new controls in your accounting processes,software design and related policies. REDW provides training and support for Abila/MIP/Microix and Intacct accounting software to help with your design and control procedures. The REDW Software team also offers assistance with selecting new software. REDW Software has developed a new Abila SEFA tool,called SEFA Pro™,which can help you to automate your SEFA preparation and track grants information.

Business Data Intelligence and Process Automation
Many tribes face difficulties with producing meaningful,real-time data in an easy-to-understand format directly from their system(s). The REDW team provides interactive dashboards for various data analytics including budget,forecasting and KPIs. We can combine data from various systems in real time and provide in a single data report or dashboard to your decision makers in charts/graphs/Excel format. These reports/dashboards are accessible from any device,no matter where it is located.

Contact Mustafa Kamal,Principal and Software Practice Leader,MKamal@REDW.com,505.998.3423

Tribal Tax Enforcement and Collection.Many tribal governments have laws in place that govern taxation revenues,but the tribes sometimes have difficulty enforcing these laws and collecting the taxes due. Tribal governments should focus on educating the community,taxpayers doing business on tribal land,and even tribal government members about the tax laws. A strong understanding of the tax laws will help the tax administration team to enforce and collect taxes –and thus increase tax revenues.

Taxation of Online Sales. The United States Supreme Court recently overturned a 1992 precedent that barred states from requiring an out-of-state seller with no physical presence to collect sales tax on sales to a resident of the state. Now that physical presence is no longer required for states to impose a sales tax on sellers,states can collect sales taxes from remote sellers. Tribes should consider whether to adopt laws similar to state economic nexus laws,which require remote sellers to collect and remit sales tax if they had aggregate sales of tangible personal property or services within tribal territory that exceeded stated thresholds. An economic nexus law can enable a tribe to increase tax revenues by collecting sales tax on sales delivered onto trust lands from remote sellers.

Economic Development. To promote economic development on trust land,thereby increasing tax revenues,tribes can offer incentives to businesses who locate there. This is similar to many states that offer credits and incentives. One example:Oklahoma’s Investment/New Job Tax Credit package provides a growing number of manufacturers a significant tax credit. It is based on either an investment in depreciable property or on the addition of full-time-equivalent employees engaged in manufacturing,processing,or aircraft maintenance.

Protecting Tribal Sovereignty.When it comes to trust versus fee lands,state taxation can be complicated. The U.S. Supreme Court has stated that a fundamental attribute of sovereignty is the power to tax transactions occurring on trust lands and which significantly involve a tribe or its members. Tribes need to be aware of what a state can and cannot tax on both trust and fee lands.

Indian Employment Credit.The federal government has extended,through 2020,the tax credit available to employers who hire American Indians or their spouses living on or near a reservation and work for an employer on that reservation. In order to encourage employers to hire American Indians,employers receive tax credit on a portion of the qualified wages and employee health insurance costs paid to an enrolled member of a Native American Tribe or the enrolled member’s spouse. Despite national efforts to make this permanent,it hasn’t happened yet;stay tuned for updates from the new Congress.

Payroll Tax Credits from Coronavirus Relief Act.Employers who adopted paid emergency sick leave policies during the COVID-19 pandemic under the federal Families First Coronavirus Relief Act (FFCRA) may voluntarily continue those leave policies after December 31,2020. As part of the December 2020 Coronavirus Relief Fund Extension legislation,the payroll tax credits related to the wages of employees who take that leave have been extended through the quarter ending March 31,2021.

 Contact James Ortiz,Principal,State and Local Tax,JOrtiz@REDW.com,505.998.3468.

The Future of Gaming Management:Historically,the gaming industry has relied on “next-dayâ€reporting of wins and losses and monthly reporting of financial data. But with the arrival of business intelligence and data analytics,gaming management has changed for those facilities that have taken steps to streamline their business processes. Now,with data analytics connected via a cloud infrastructure to casino systems and software,management has immediate access to critical information;this includes live cash floats,live patron interaction and financial data,and instantaneous reporting for stakeholders. Connecting accounting systems to cloud-environment reporting allows for instant business process automation of daily revenue and expense transactions,and activity. All this represents a new beginning in accounting and reporting for the gaming industry. Those facilities implementing these practices will be at the forefront of their competitors.

Economic Diversification:Although gaming has unquestionably been an economic engine for tribes in recent decades,the COVID-19 pandemic revealed a significant vulnerability,with repercussions that will likely require years to overcome. Complicating a recovery will be the market saturation that exists in some areas,along with continued expansion of gaming into new jurisdictions. In addition,the potential impact of online gaming is another risk that is difficult to predict or measure. The combination of these unknowns will encourage tribal leaders to evaluate their strengths and opportunities to seek out new sources of economic growth. Diversifying investments will be the future mindset as the leveraging of past gaming successes enables new ventures;this should now allow the risk to be spread across a broader investment portfolio than done in the past.

BSA/AML Due Diligence:Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) due diligence has been a well-recognized FinCEN requirement,although much diversity has existed within the gaming industry in operators’responses. This has been due partly to the subjective analysis of risks posed by the scope of gaming conducted and financial services offered. However,the federal agency is soon expected to provide detailed guidance on what is necessary to achieve compliance. For example,casinos will soon need to re-evaluate their design and implementation procedures so that high-risk patrons can be separated from lower-risk,casual gamblers. Compliance Officers will need to ensure documented procedures are in place that delineate the identification process,the frequency of review,the method of identifying source of funds and the process of reporting the results to key personnel.

Outsourcing:Outsourcing of accounting and internal auditing functions is,out of necessity,going to be considered by more gaming entities in the future. For the third consecutive year,in 2020 accounting and finance positions were among the top 10 hardest jobs to fill. In high growth markets,it can be hard to find qualified staff;and after they are found,hired,and trained,are even more difficult to retain. In response,gaming entities will increasingly turn to outside sources to provide these professional accounting and financial services. Gaming entities must be willing to give up the benefit of a daily presence in return for the assurance of a qualified person on whom they can depend. The additional advantage of outsourcing will be the knowledge and experience provided by accounting professionals who are well-seasoned in a specific industry.

PPP Loans:After first being unable to receive Paycheck Protection Program (PPP) loans,many gaming entities eventually were able to take advantage of them. The loans were designed to provide small businesses (which ultimately included tribal casinos) with funds to pay up to 24 weeks of payroll costs,including certain benefits,interest on mortgages,rents/leases,and utilities. The loans are fully forgiven if the entity demonstrates that the funds were used on these qualifying costs,including at least 60% on payroll costs. Now in the forgiveness application phase of this cycle,gaming operations are asking about the accounting ramifications. In short,PPP loans must be reported as a long-term debt liability on the balance sheet until the gaming operation receives a legal releasefrom the loan;at that point,a loan forgiveness revenue can be recognized. This recognition of long-term debt could potentially cause issues for gaming operations with other existing long-term debt and related covenants if the legal release from the PPP loan is not granted by the fiscal year-end date. The larger,long-term debt balance could jeopardize the gaming operation’s compliance with fixed-charge coverage ratios,leverage ratios,or other financial ratios. It’s important to maintain proactive communication with the debt holders –before any gaming operation potentially falls out of compliance. Additionally,the recognition of a “gain on forgiveness of debtâ€in fiscal year 2021 may impact the tribe’s revenue allocation plan with the casino(s). It will be vital for tribes to acknowledge the differences between net income and available cash available for distributions.

Contact our Gaming leaders,Anthony Gerlach,Principal,AGerlach@REDW.com,602.730.3612 or Adam Smith,Principal,Adam.Smith@REDW.com,505.998.3219.

From time to time,all qualified retirement plans must be updated to reflect recent legislative and/or regulatory changes. Some of these updates are made through plan amendments,but others require plan documents to be completely rewritten (a process known as "restating" the plan).

The deadlines for adopting these updates usually depend on the type of plan and plan document. For example,a defined contribution plan,(e.g.,a 401(k) plan or profit-sharing plan using a prototype document,) must generally be restated every six years. Alternatively,a defined contribution plan using an individually designed plan must generally be restated every five years. Amendments may still be required in between these mandatory restatements.

The following lists the various deadlines for defined contribution plans using either prototype or volume submitter documents. Different deadlines apply to governmental plans as well as defined contribution plans using individually designed documents.

Cycle 3 Restatement

  • Description:Full plan restatement for legislation and regulations since 2008
  • Effective Date:Various
  • Required For:All qualified plans
  • Earliest Due Date:July 31,2022
  • CARES Act Amendment

  • Description:Good-faith amendment covering the provisions from the Coronavirus Aid,Relief,and Economic Security (CARES) Act,including expansion of participant loans and distributions,postponement of participant loan payments and waiver of required minimum distributions for 2020.
  • Effective Date:Various dates in 2020
  • Required For:All qualified plans
  • Earliest Due Date:Last day of 2022 plan year (December 31,2022 for calendar-year plans)
  • SECURE Act Amendment

  • Description:Good-faith amendment covering the provisions from the Setting Every Community Up for Retirement Enhancement (SECURE) Act,including increase in the required minimum distribution beginning age,penalty-free distributions for birth and adoption,pooled employer plans,portability of lifetime income options,testing relief for frozen defined benefit pension plans and more.
  • Effective Date:Various
  • Required For:All qualified plans
  • Earliest Due Date:Last day of 2022 plan year (December 31,2022 for calendar-year plans)
  • Hardship Distribution Amendment

  • Description:Good-faith amendment covering the provisions from the Bipartisan Budget Act of 2018 and related regulations,including elimination of the deferral suspension,removal of the requirement to first take a loan,and making available safe harbor contributions as well as earnings on elective deferrals.
  • Effective Date:Various
  • Required For:All qualified plans that permit hardship distributions
  • Earliest Due Date:December 31,2021
  • Contact Dennis Davis,Principal,ABG Southwest*,DDavis@ABGSW.com,505.998.3294

    A culture of security awarenessis vital to protecting your tribe’s information and ensuring it is safe from hackers and data ransoms. In addition,the COVID-19 pandemic has produced a new threat vector:fake emails regarding PPP loans,stimulus payments,WHO and CDC data. This is in addition to such everyday phishing and social engineering attempts as phony video conference meetings,wire transfers,gift cards and invoices.

    A continuoussecurity awareness education program should include:

  • A Security Awareness Education Policy
  • Interactive training modulesassigned to employees bi-monthly –at least every second month
  • Phishing your team monthly,with remedial training assignments for those who get “hookedâ€
  • Assessments and quizzes
  • Providing educational materialssuch as current cybersecurity events,posters,and videos
  • Many employees have switched to a work-from-home environment,so ensure that remote workers are connecting to the business network with a secure virtual private network (VPN) connection or a virtual desktop interface (VDI) connection.

    Implement Multi-Factor Authentication (MFA)as an added layer of security to prevent hackers from gaining access to your organization with compromised credentials. MFA helps to protect network,email,financial accounts,social media accounts and mobile devices,and is a great feature to include with a VPN connection.

    Revisit logical access controls and ensure users have access to only the data and applications they need to perform their jobs. Make sure to review user network accounts and disable accounts that are no longer being used.

    As IT practices have pivoted during the pandemic,remember tocreate,review and/or update IT Security Policies and Procedures and ensure they are current with industry best practices. Be sure to share updates with all employees,and have them acknowledge these policies and procedures annually.

    Data backup and restoration procedures must be kept up-to-date and tested regularly. This will help to ensure that if your data becomes encrypted with ransomware,you’ll avoid paying cyber criminals –and avoid the possibility of being targeted again. Having data backup copies in multiple locations,i.e.,a copy on-site and one copy replicated to cloud storage,will help ensure data isn’t lost if you fall victim to a ransomware attack.

    Implement a Mobile Device Management solution and policy to assist with security controls,such as remotely wiping laptops,smart phones,and tablets,if a device is lost or stolen. With the new work-from-home environment,data security is top of mind.

    Perform annual penetration tests and run routine vulnerability scansto identify and secure hidden network vulnerabilities that cybercriminals are searching for to gain access into your network.

    Now is a great time to review the Disaster Recovery (DR) and Cybersecurity Incident Response Plans(CSIRP)to update any outdated information. These plans should also be tested regularly with their respective teams. Schedule testing time in advance for the entire year so testing doesn’t fall through the cracks.

    Confirm IT best practices are in place. Perform an annual IT Risk Assessment to evaluate overall technology and architecture.

    Implement a robust vendor management process for third-party providers. Ask what security practices are in place to protect your network and data,and review their SOC reports. Also,ensure a confidentiality agreement is in place.

    Evaluate your current cyber-liability insurance policyor speak with a reputable broker if your organization does not have this insurance.

    Contact Jennifer Moreno,CISA,IT &Cybersecurity Consultant,Jennifer.Moreno@REDW.com,505.998.3239.

    COVID-19and federal funding to help alleviate the crisis were the largest concerns for tribes and tribal enterprises during 2020,and will continue to be so in 2021. Policies addressing hazard pay,administrative pay,FFCRA (Families First Coronavirus Response ACT),EFMLEA (Emergency Family Medical Leave and Expansion Act),CARES (Coronavirus Aid,Relief and Economic Security) Act,remote work,and returning to work became essential in protecting tribes from potential claw backs due to lack of documentation. With the temporary extension of the FFCRA leave provisions,tribes can continue to take advantage of payroll tax credits through March 31 by offering leave under the same framework;however the payroll tax credits are not available where wages are paid with CARES Act funding (no “double-dippingâ€is allowed). Tribes must also begin designing a vaccination program by determining whether they will proceed with a mandatory,hybrid,or voluntary approach to vaccinating employees. The law supports a mandatory program –but exemptions for sincerely held religious beliefs,as well as high-risk health conditions,should be built into the program.

    Minimum Wage Increaseshave taken effect in 29 states and the District of Columbia,although the federal minimum wage has been $7.25/hour since 2009. Employers should also check local wage rates,as they may be higher than the state rates. In some instances,the minimum wage rate may vary based on more than just the geographic location,and could be based on employer size and industry.

    Pay Compressionmay be an unintended consequence for employers who increased employee salaries to meet the new minimum salary requirements under the FLSA in 2020 to keep these employees classified as exempt from overtime. Likewise,pay compression can become an issue when employers apply the increases to minimum wage rates in their organization. Pay compression occurs when the pay of one or more employees is very close to the pay for more experienced or longer-tenured employees in the same position,or when employees in entry-level type jobs are paid almost as much as colleagues in higher-level jobs,including supervisory or managerial positions. Employers should consider an adjustment to all related salary scales to avoid pay compression and ensure continued internal equity.

    Construction and Trades Positionsare steadily recovering after a net loss of over two million jobs in the last decade. In most states,construction is enjoying solid growth –but there’s a shortage of qualified employees for more complex projects. The new generation of workers is not embracing the industry as an option with a viable career path,and turnover in construction is already about twice the national average.

  • Employers need to find how to retain their construction and trades employees,as well as identify how to resonate with the millennial mindset. This means designing attractive compensation and competitive benefits to hire and retain highly skilled employees.
  • Compensation and benefitsmust be part of a viable Human Resources program that allows employers to retain top talent. Conducting a compensation study to determine whether your organization is competitive in the market in which you’re competing for talent is a good practice. It can ensure your organization is offering a competitive base wage,while also minimizing turnover and enhancing employee engagement. Intangible rewards also count! Talented,skilled employees recognize the value of organizational cultures that include mentoring,feedback,career paths,and technology. Other appreciated aspects include flexible work schedules,retirement plans,fitness benefits,and work/life balance.

    Workplace harassment claimsrequire annual and robust sexual harassment training for employees. Training can be especially important for managers,who may benefit from additional training about what constitutes inappropriate conduct with a subordinate,as well as how to identify sexually abusive behavior in those they supervise. Employers should also adopt clear sexual harassment policies,identify inappropriate behaviors,and give employees the tools and training they need to report instances of sexual harassment in the workplace. In California,employers are now mandated to provide sexual harassment training.

    Employer Drug Testingand your organization’s drug policies must be thoughtful and intentional,and should address current state laws as well as the organization’s position. With more states legalizing marijuana for medical or recreational use,some states are also passing laws prohibiting discrimination against employees who use marijuana. Will you accommodate marijuana use? If not,what accommodations are required by your state,if any? Are there certain job positions where no accommodation can be made due to safety sensitivities that may be governed by federal safety regulations? A reasonable-suspicion program is essential,as well as providing training for staff and management about how to react when someone is impaired on the job.

    Contact Cristin Heyns-Bousliman,Esq.,Principal and HR Consulting Practice Leader,Cristin.Bousliman@REDW.com,505.998.3452.

    Federal Government Funding is expected to ramp up again with another stimulus package on the horizon. President Biden’s initial plan calls for $350 billion in emergency funding for state,local,and tribal governments. Similar to the first round of stimulus funding from the CARES Act,we’d expect tribes to get some useful funds to help aid them in this crisis. Although most of the funds are used up quickly,remember that interest-bearing accounts may yield a little return on those funds before they’re needed.

    Inflation is a concern for many,as it should be with more government stimulus funding. Not only is the Federal Reserve pumping large amounts of money into the economy by buying all sorts of corporate and government debt,but the federal government is also racking up record high debt during this pandemic. With an increase in money supply by the Federal Reserve and higher national debt,inflation will rise at some point. It’s important to keep this in mind throughout the year and plan accordingly.

    The Accredited Investor Definitionnow includes tribes. In August of last year,the Securities and Exchange Commission (SEC) updated the definition to formally include tribes and their entities that own investments exceeding $5 million. The update also allows tribes with $100 million or more to participate in the commercial paper markets. Although some tribes previously obtained qualification as an accredited investor through state law,all tribes are now eligible under tribal law.

    Valuationson equities and fixed income securities are on the high end of historical averages. The U.S. stock market forward P/E ratio is at a level we haven’t seen since the Tech Bubble in the late 1990s. Similarly,U.S. fixed income market spreads (interest rate differential when compared to Treasuries) are on the low end of the range when compared to the last 15 years. With U.S. equity and fixed income valuations near historical highs,it’s important to review your portfolios regularly and make appropriate adjustments.

    Rebalancinghelps to keep the portfolio’s risk and return in line to meet long-term objectives. With valuations on the high end and portfolios performing well in 2020,it is a great time to rebalance portfolios. To maintain your intended risk/return profile on your portfolio,rebalancing is key.

    Investment Policy Statements (IPS)are like a roadmap to your investment strategy. The IPS helps to outline purpose,objectives,and constraints for the portfolios. It also helps with setting clear expectations for all parties involved by outlining roles and responsibilities for staff,committees,tribal councils,investment advisors,and others. Best practices call for annual reviews for any updates,and 2021 could be the year for some changes.

    Contact Paul Madrid,Principal,REDW Wealth** Practice Leader,PMadrid@REDW.com,505.998.3249.

    The REDW tribal experts are here to assist you in any of these areas,and many others not covered in this article. To learn more about how any of these issues may apply to your tribe or tribal entities more specifically,please contact Wes Benally at WBenally@REDW.com,602.730.3632,or Corrine Wilsonat CWilson@REDW.com,602.730.3609.

    Additionally,REDW will conduct a series of seminars and webinars throughout 2021,so please visit our events page periodically for more information and to register:www.REDW.com/events.


    *ABGSW is subsidiary of REDW LLC providing retirement plan design,administration and recordkeeping services.

    **REDW Wealth is an SEC-registered subsidiary of REDW LLC providing financial planning and wealth management services.

    GASB revised effective dates

    GASB 83,Certain Asset Retirement Obligations,fiscal year beginning after 6/15/2019

    Recognition of a liability and deferred outflow when there is a legally enforceable liability for the retirement of a tangible capital asset.

    GASB 84,Fiduciary Activities,fiscal year beginning after 12/15/2019

    Review 1) pension/retirement governance potential component unit criteria;and 2) per capita or minors trust fiduciary funds for a change in fund accounting and reporting entity requirements.

    GASB 88,Certain Disclosures related to Debt,including Direct Borrowing and Direct Placements,fiscal year beginning after 6/15/2019

    Review any defeasances of debt when assets used from only existed resources (not resources of refunded debt) are placed in an irrevocable trust to extinguish,for change in accounting and disclosures.

    GASB 89,Accounting for Interest Cost Incurred before the End of a Construction Period,fiscal year beginning after 12/15/2020

    For incurred interest on construction projects,an accounting change that the interest may no longer be capitalized,and will be incurred as an expenditure (governmental funds/current resource measured funds) or expense (business-type/economic resource measured funds).

    Statement 90,Majority Equity Interest,fiscal year beginning after 12/15/2019

    When a government has a majority equity interest in a separate legal entity,and such equity interest meets the GASB definition of an investment,the investment shall be accounted for on an equity basis,with the exception of a special-purpose government engaged only in fiduciary activities,a fiduciary fund,or endowment fund –which would continue to be fair-market valued. If the entity does not meet the definition of investment,it should be accounted for as a component unit.

    Statement 91,Conduit Debt Obligations,fiscal year beginning after 12/15/2019

    For conduit debt with 3 separate parties involved,dated accounting and disclosure guidance are required.

    Statement 93,Replacement of Interbank Offered Rates:

    -All requirements except paragraph 11b,13 and 14,fiscal years beginning after 6/15/2020

    -Paragraph 11b,fiscal years beginning after12/31/2021

    -Paragraphs 13 and 14,fiscal years beginning after 6/15/2021

    The Interbank Offered Rates,notably LIBOR rates,are under global reform with LIBOR expected to cease. The Standard covers debt and related derivatives/hedges and related accounting LIBOR requirement debt instruments are changed or replaced.

    Accurate Audit Preparation/CARES Act

    Accurate audit preparation and attention to the CARES Act are even more critically important this year. The Government Auditing Standards and Single Audit requirements put the burden on the auditees to accurately prepare and understand their financial statements,the Schedule of Expenditures of Federal Awards (SEFA) and footnote disclosures.

    Further,2020 provided tribes with a variety of federal COVID-19 funds,with specific SEFA requirements,compliance and accounting requirements. Tribal Healthcare entities that received Provider Relief funds will have atypical audit preparation requirements.

    Tribes with Single Audits due between 10/1/2020 and 6/30/2021 that received federal COVID-19 funding have a three-month extension to submit their Single Audit. Plan to attend one of our upcoming webinars this year to review COVID-19-related federal compliance requirements and/or freshen up your knowledge on other federal awards with our Grants Management training.

    Contact Wes Benally,Senior Manager,WBenally@REDW.com,602.730.3632.

    Accounting Software
    Many tribes have moved –or are considering moving –to cloud-based and/or remotely accessed accounting applications,as well as procurement/payables and payroll/human resource processes that are approved electronically. These changes require implementing new controls in your accounting processes,software design and related policies. REDW provides training and support for Abila/MIP/Microix and Intacct accounting software to help with your design and control procedures. The REDW Software team also offers assistance with selecting new software. REDW Software has developed a new Abila SEFA tool,called SEFA Pro™,which can help you to automate your SEFA preparation and track grants information.

    Business Data Intelligence and Process Automation
    Many tribes face difficulties with producing meaningful,real-time data in an easy-to-understand format directly from their system(s). The REDW team provides interactive dashboards for various data analytics including budget,forecasting and KPIs. We can combine data from various systems in real time and provide in a single data report or dashboard to your decision makers in charts/graphs/Excel format. These reports/dashboards are accessible from any device,no matter where it is located.

    Contact Mustafa Kamal,Principal and Software Practice Leader,MKamal@REDW.com,505.998.3423

    Tribal Tax Enforcement and Collection.Many tribal governments have laws in place that govern taxation revenues,but the tribes sometimes have difficulty enforcing these laws and collecting the taxes due. Tribal governments should focus on educating the community,taxpayers doing business on tribal land,and even tribal government members about the tax laws. A strong understanding of the tax laws will help the tax administration team to enforce and collect taxes –and thus increase tax revenues.

    Taxation of Online Sales. The United States Supreme Court recently overturned a 1992 precedent that barred states from requiring an out-of-state seller with no physical presence to collect sales tax on sales to a resident of the state. Now that physical presence is no longer required for states to impose a sales tax on sellers,states can collect sales taxes from remote sellers. Tribes should consider whether to adopt laws similar to state economic nexus laws,which require remote sellers to collect and remit sales tax if they had aggregate sales of tangible personal property or services within tribal territory that exceeded stated thresholds. An economic nexus law can enable a tribe to increase tax revenues by collecting sales tax on sales delivered onto trust lands from remote sellers.

    Economic Development. To promote economic development on trust land,thereby increasing tax revenues,tribes can offer incentives to businesses who locate there. This is similar to many states that offer credits and incentives. One example:Oklahoma’s Investment/New Job Tax Credit package provides a growing number of manufacturers a significant tax credit. It is based on either an investment in depreciable property or on the addition of full-time-equivalent employees engaged in manufacturing,processing,or aircraft maintenance.

    Protecting Tribal Sovereignty.When it comes to trust versus fee lands,state taxation can be complicated. The U.S. Supreme Court has stated that a fundamental attribute of sovereignty is the power to tax transactions occurring on trust lands and which significantly involve a tribe or its members. Tribes need to be aware of what a state can and cannot tax on both trust and fee lands.

    Indian Employment Credit.The federal government has extended,through 2020,the tax credit available to employers who hire American Indians or their spouses living on or near a reservation and work for an employer on that reservation. In order to encourage employers to hire American Indians,employers receive tax credit on a portion of the qualified wages and employee health insurance costs paid to an enrolled member of a Native American Tribe or the enrolled member’s spouse. Despite national efforts to make this permanent,it hasn’t happened yet;stay tuned for updates from the new Congress.

    Payroll Tax Credits from Coronavirus Relief Act.Employers who adopted paid emergency sick leave policies during the COVID-19 pandemic under the federal Families First Coronavirus Relief Act (FFCRA) may voluntarily continue those leave policies after December 31,2020. As part of the December 2020 Coronavirus Relief Fund Extension legislation,the payroll tax credits related to the wages of employees who take that leave have been extended through the quarter ending March 31,2021.

     Contact James Ortiz,Principal,State and Local Tax,JOrtiz@REDW.com,505.998.3468.

    The Future of Gaming Management:Historically,the gaming industry has relied on “next-dayâ€reporting of wins and losses and monthly reporting of financial data. But with the arrival of business intelligence and data analytics,gaming management has changed for those facilities that have taken steps to streamline their business processes. Now,with data analytics connected via a cloud infrastructure to casino systems and software,management has immediate access to critical information;this includes live cash floats,live patron interaction and financial data,and instantaneous reporting for stakeholders. Connecting accounting systems to cloud-environment reporting allows for instant business process automation of daily revenue and expense transactions,and activity. All this represents a new beginning in accounting and reporting for the gaming industry. Those facilities implementing these practices will be at the forefront of their competitors.

    Economic Diversification:Although gaming has unquestionably been an economic engine for tribes in recent decades,the COVID-19 pandemic revealed a significant vulnerability,with repercussions that will likely require years to overcome. Complicating a recovery will be the market saturation that exists in some areas,along with continued expansion of gaming into new jurisdictions. In addition,the potential impact of online gaming is another risk that is difficult to predict or measure. The combination of these unknowns will encourage tribal leaders to evaluate their strengths and opportunities to seek out new sources of economic growth. Diversifying investments will be the future mindset as the leveraging of past gaming successes enables new ventures;this should now allow the risk to be spread across a broader investment portfolio than done in the past.

    BSA/AML Due Diligence:Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) due diligence has been a well-recognized FinCEN requirement,although much diversity has existed within the gaming industry in operators’responses. This has been due partly to the subjective analysis of risks posed by the scope of gaming conducted and financial services offered. However,the federal agency is soon expected to provide detailed guidance on what is necessary to achieve compliance. For example,casinos will soon need to re-evaluate their design and implementation procedures so that high-risk patrons can be separated from lower-risk,casual gamblers. Compliance Officers will need to ensure documented procedures are in place that delineate the identification process,the frequency of review,the method of identifying source of funds and the process of reporting the results to key personnel.

    Outsourcing:Outsourcing of accounting and internal auditing functions is,out of necessity,going to be considered by more gaming entities in the future. For the third consecutive year,in 2020 accounting and finance positions were among the top 10 hardest jobs to fill. In high growth markets,it can be hard to find qualified staff;and after they are found,hired,and trained,are even more difficult to retain. In response,gaming entities will increasingly turn to outside sources to provide these professional accounting and financial services. Gaming entities must be willing to give up the benefit of a daily presence in return for the assurance of a qualified person on whom they can depend. The additional advantage of outsourcing will be the knowledge and experience provided by accounting professionals who are well-seasoned in a specific industry.

    PPP Loans:After first being unable to receive Paycheck Protection Program (PPP) loans,many gaming entities eventually were able to take advantage of them. The loans were designed to provide small businesses (which ultimately included tribal casinos) with funds to pay up to 24 weeks of payroll costs,including certain benefits,interest on mortgages,rents/leases,and utilities. The loans are fully forgiven if the entity demonstrates that the funds were used on these qualifying costs,including at least 60% on payroll costs. Now in the forgiveness application phase of this cycle,gaming operations are asking about the accounting ramifications. In short,PPP loans must be reported as a long-term debt liability on the balance sheet until the gaming operation receives a legal releasefrom the loan;at that point,a loan forgiveness revenue can be recognized. This recognition of long-term debt could potentially cause issues for gaming operations with other existing long-term debt and related covenants if the legal release from the PPP loan is not granted by the fiscal year-end date. The larger,long-term debt balance could jeopardize the gaming operation’s compliance with fixed-charge coverage ratios,leverage ratios,or other financial ratios. It’s important to maintain proactive communication with the debt holders –before any gaming operation potentially falls out of compliance. Additionally,the recognition of a “gain on forgiveness of debtâ€in fiscal year 2021 may impact the tribe’s revenue allocation plan with the casino(s). It will be vital for tribes to acknowledge the differences between net income and available cash available for distributions.

    Contact our Gaming leaders,Anthony Gerlach,Principal,AGerlach@REDW.com,602.730.3612 or Adam Smith,Principal,Adam.Smith@REDW.com,505.998.3219.

    From time to time,all qualified retirement plans must be updated to reflect recent legislative and/or regulatory changes. Some of these updates are made through plan amendments,but others require plan documents to be completely rewritten (a process known as "restating" the plan).

    The deadlines for adopting these updates usually depend on the type of plan and plan document. For example,a defined contribution plan,(e.g.,a 401(k) plan or profit-sharing plan using a prototype document,) must generally be restated every six years. Alternatively,a defined contribution plan using an individually designed plan must generally be restated every five years. Amendments may still be required in between these mandatory restatements.

    The following lists the various deadlines for defined contribution plans using either prototype or volume submitter documents. Different deadlines apply to governmental plans as well as defined contribution plans using individually designed documents.

    Cycle 3 Restatement

  • Description:Full plan restatement for legislation and regulations since 2008
  • Effective Date:Various
  • Required For:All qualified plans
  • Earliest Due Date:July 31,2022
  • CARES Act Amendment

  • Description:Good-faith amendment covering the provisions from the Coronavirus Aid,Relief,and Economic Security (CARES) Act,including expansion of participant loans and distributions,postponement of participant loan payments and waiver of required minimum distributions for 2020.
  • Effective Date:Various dates in 2020
  • Required For:All qualified plans
  • Earliest Due Date:Last day of 2022 plan year (December 31,2022 for calendar-year plans)
  • SECURE Act Amendment

  • Description:Good-faith amendment covering the provisions from the Setting Every Community Up for Retirement Enhancement (SECURE) Act,including increase in the required minimum distribution beginning age,penalty-free distributions for birth and adoption,pooled employer plans,portability of lifetime income options,testing relief for frozen defined benefit pension plans and more.
  • Effective Date:Various
  • Required For:All qualified plans
  • Earliest Due Date:Last day of 2022 plan year (December 31,2022 for calendar-year plans)
  • Hardship Distribution Amendment

  • Description:Good-faith amendment covering the provisions from the Bipartisan Budget Act of 2018 and related regulations,including elimination of the deferral suspension,removal of the requirement to first take a loan,and making available safe harbor contributions as well as earnings on elective deferrals.
  • Effective Date:Various
  • Required For:All qualified plans that permit hardship distributions
  • Earliest Due Date:December 31,2021
  • Contact Dennis Davis,Principal,ABG Southwest*,DDavis@ABGSW.com,505.998.3294

    A culture of security awarenessis vital to protecting your tribe’s information and ensuring it is safe from hackers and data ransoms. In addition,the COVID-19 pandemic has produced a new threat vector:fake emails regarding PPP loans,stimulus payments,WHO and CDC data. This is in addition to such everyday phishing and social engineering attempts as phony video conference meetings,wire transfers,gift cards and invoices.

    A continuoussecurity awareness education program should include:

  • A Security Awareness Education Policy
  • Interactive training modulesassigned to employees bi-monthly –at least every second month
  • Phishing your team monthly,with remedial training assignments for those who get “hookedâ€
  • Assessments and quizzes
  • Providing educational materialssuch as current cybersecurity events,posters,and videos
  • Many employees have switched to a work-from-home environment,so ensure that remote workers are connecting to the business network with a secure virtual private network (VPN) connection or a virtual desktop interface (VDI) connection.

    Implement Multi-Factor Authentication (MFA)as an added layer of security to prevent hackers from gaining access to your organization with compromised credentials. MFA helps to protect network,email,financial accounts,social media accounts and mobile devices,and is a great feature to include with a VPN connection.

    Revisit logical access controls and ensure users have access to only the data and applications they need to perform their jobs. Make sure to review user network accounts and disable accounts that are no longer being used.

    As IT practices have pivoted during the pandemic,remember tocreate,review and/or update IT Security Policies and Procedures and ensure they are current with industry best practices. Be sure to share updates with all employees,and have them acknowledge these policies and procedures annually.

    Data backup and restoration procedures must be kept up-to-date and tested regularly. This will help to ensure that if your data becomes encrypted with ransomware,you’ll avoid paying cyber criminals –and avoid the possibility of being targeted again. Having data backup copies in multiple locations,i.e.,a copy on-site and one copy replicated to cloud storage,will help ensure data isn’t lost if you fall victim to a ransomware attack.

    Implement a Mobile Device Management solution and policy to assist with security controls,such as remotely wiping laptops,smart phones,and tablets,if a device is lost or stolen. With the new work-from-home environment,data security is top of mind.

    Perform annual penetration tests and run routine vulnerability scansto identify and secure hidden network vulnerabilities that cybercriminals are searching for to gain access into your network.

    Now is a great time to review the Disaster Recovery (DR) and Cybersecurity Incident Response Plans(CSIRP)to update any outdated information. These plans should also be tested regularly with their respective teams. Schedule testing time in advance for the entire year so testing doesn’t fall through the cracks.

    Confirm IT best practices are in place. Perform an annual IT Risk Assessment to evaluate overall technology and architecture.

    Implement a robust vendor management process for third-party providers. Ask what security practices are in place to protect your network and data,and review their SOC reports. Also,ensure a confidentiality agreement is in place.

    Evaluate your current cyber-liability insurance policyor speak with a reputable broker if your organization does not have this insurance.

    Contact Jennifer Moreno,CISA,IT &Cybersecurity Consultant,Jennifer.Moreno@REDW.com,505.998.3239.

    COVID-19and federal funding to help alleviate the crisis were the largest concerns for tribes and tribal enterprises during 2020,and will continue to be so in 2021. Policies addressing hazard pay,administrative pay,FFCRA (Families First Coronavirus Response ACT),EFMLEA (Emergency Family Medical Leave and Expansion Act),CARES (Coronavirus Aid,Relief and Economic Security) Act,remote work,and returning to work became essential in protecting tribes from potential claw backs due to lack of documentation. With the temporary extension of the FFCRA leave provisions,tribes can continue to take advantage of payroll tax credits through March 31 by offering leave under the same framework;however the payroll tax credits are not available where wages are paid with CARES Act funding (no “double-dippingâ€is allowed). Tribes must also begin designing a vaccination program by determining whether they will proceed with a mandatory,hybrid,or voluntary approach to vaccinating employees. The law supports a mandatory program –but exemptions for sincerely held religious beliefs,as well as high-risk health conditions,should be built into the program.

    Minimum Wage Increaseshave taken effect in 29 states and the District of Columbia,although the federal minimum wage has been $7.25/hour since 2009. Employers should also check local wage rates,as they may be higher than the state rates. In some instances,the minimum wage rate may vary based on more than just the geographic location,and could be based on employer size and industry.

    Pay Compressionmay be an unintended consequence for employers who increased employee salaries to meet the new minimum salary requirements under the FLSA in 2020 to keep these employees classified as exempt from overtime. Likewise,pay compression can become an issue when employers apply the increases to minimum wage rates in their organization. Pay compression occurs when the pay of one or more employees is very close to the pay for more experienced or longer-tenured employees in the same position,or when employees in entry-level type jobs are paid almost as much as colleagues in higher-level jobs,including supervisory or managerial positions. Employers should consider an adjustment to all related salary scales to avoid pay compression and ensure continued internal equity.

    Construction and Trades Positionsare steadily recovering after a net loss of over two million jobs in the last decade. In most states,construction is enjoying solid growth –but there’s a shortage of qualified employees for more complex projects. The new generation of workers is not embracing the industry as an option with a viable career path,and turnover in construction is already about twice the national average.

  • Employers need to find how to retain their construction and trades employees,as well as identify how to resonate with the millennial mindset. This means designing attractive compensation and competitive benefits to hire and retain highly skilled employees.
  • Compensation and benefitsmust be part of a viable Human Resources program that allows employers to retain top talent. Conducting a compensation study to determine whether your organization is competitive in the market in which you’re competing for talent is a good practice. It can ensure your organization is offering a competitive base wage,while also minimizing turnover and enhancing employee engagement. Intangible rewards also count! Talented,skilled employees recognize the value of organizational cultures that include mentoring,feedback,career paths,and technology. Other appreciated aspects include flexible work schedules,retirement plans,fitness benefits,and work/life balance.

    Workplace harassment claimsrequire annual and robust sexual harassment training for employees. Training can be especially important for managers,who may benefit from additional training about what constitutes inappropriate conduct with a subordinate,as well as how to identify sexually abusive behavior in those they supervise. Employers should also adopt clear sexual harassment policies,identify inappropriate behaviors,and give employees the tools and training they need to report instances of sexual harassment in the workplace. In California,employers are now mandated to provide sexual harassment training.

    Employer Drug Testingand your organization’s drug policies must be thoughtful and intentional,and should address current state laws as well as the organization’s position. With more states legalizing marijuana for medical or recreational use,some states are also passing laws prohibiting discrimination against employees who use marijuana. Will you accommodate marijuana use? If not,what accommodations are required by your state,if any? Are there certain job positions where no accommodation can be made due to safety sensitivities that may be governed by federal safety regulations? A reasonable-suspicion program is essential,as well as providing training for staff and management about how to react when someone is impaired on the job.

    Contact Cristin Heyns-Bousliman,Esq.,Principal and HR Consulting Practice Leader,Cristin.Bousliman@REDW.com,505.998.3452.

    Federal Government Funding is expected to ramp up again with another stimulus package on the horizon. President Biden’s initial plan calls for $350 billion in emergency funding for state,local,and tribal governments. Similar to the first round of stimulus funding from the CARES Act,we’d expect tribes to get some useful funds to help aid them in this crisis. Although most of the funds are used up quickly,remember that interest-bearing accounts may yield a little return on those funds before they’re needed.

    Inflation is a concern for many,as it should be with more government stimulus funding. Not only is the Federal Reserve pumping large amounts of money into the economy by buying all sorts of corporate and government debt,but the federal government is also racking up record high debt during this pandemic. With an increase in money supply by the Federal Reserve and higher national debt,inflation will rise at some point. It’s important to keep this in mind throughout the year and plan accordingly.

    The Accredited Investor Definitionnow includes tribes. In August of last year,the Securities and Exchange Commission (SEC) updated the definition to formally include tribes and their entities that own investments exceeding $5 million. The update also allows tribes with $100 million or more to participate in the commercial paper markets. Although some tribes previously obtained qualification as an accredited investor through state law,all tribes are now eligible under tribal law.

    Valuationson equities and fixed income securities are on the high end of historical averages. The U.S. stock market forward P/E ratio is at a level we haven’t seen since the Tech Bubble in the late 1990s. Similarly,U.S. fixed income market spreads (interest rate differential when compared to Treasuries) are on the low end of the range when compared to the last 15 years. With U.S. equity and fixed income valuations near historical highs,it’s important to review your portfolios regularly and make appropriate adjustments.

    Rebalancinghelps to keep the portfolio’s risk and return in line to meet long-term objectives. With valuations on the high end and portfolios performing well in 2020,it is a great time to rebalance portfolios. To maintain your intended risk/return profile on your portfolio,rebalancing is key.

    Investment Policy Statements (IPS)are like a roadmap to your investment strategy. The IPS helps to outline purpose,objectives,and constraints for the portfolios. It also helps with setting clear expectations for all parties involved by outlining roles and responsibilities for staff,committees,tribal councils,investment advisors,and others. Best practices call for annual reviews for any updates,and 2021 could be the year for some changes.

    Contact Paul Madrid,Principal,REDW Wealth** Practice Leader,PMadrid@REDW.com,505.998.3249.

    The REDW tribal experts are here to assist you in any of these areas,and many others not covered in this article. To learn more about how any of these issues may apply to your tribe or tribal entities more specifically,please contact Wes Benally at WBenally@REDW.com,602.730.3632,or Corrine Wilsonat CWilson@REDW.com,602.730.3609.

    Additionally,REDW will conduct a series of seminars and webinars throughout 2021,so please visit our events page periodically for more information and to register:www.REDW.com/events.


    *ABGSW is subsidiary of REDW LLC providing retirement plan design,administration and recordkeeping services.

    **REDW Wealth is an SEC-registered subsidiary of REDW LLC providing financial planning and wealth management services.

    GASB revised effective dates

    GASB 83, Certain Asset Retirement Obligations, fiscal year beginning after 6/15/2019

    Recognition of a liability and deferred outflow when there is a legally enforceable liability for the retirement of a tangible capital asset.

    GASB 84, Fiduciary Activities, fiscal year beginning after 12/15/2019

    Review 1) pension/retirement governance potential component unit criteria; and 2) per capita or minors trust fiduciary funds for a change in fund accounting and reporting entity requirements.

    GASB 88, Certain Disclosures related to Debt, including Direct Borrowing and Direct Placements, fiscal year beginning after 6/15/2019

    Review any defeasances of debt when assets used from only existed resources (not resources of refunded debt) are placed in an irrevocable trust to extinguish, for change in accounting and disclosures.

    GASB 89, Accounting for Interest Cost Incurred before the End of a Construction Period, fiscal year beginning after 12/15/2020

    For incurred interest on construction projects, an accounting change that the interest may no longer be capitalized, and will be incurred as an expenditure (governmental funds/current resource measured funds) or expense (business-type/economic resource measured funds).

    Statement 90, Majority Equity Interest, fiscal year beginning after 12/15/2019

    When a government has a majority equity interest in a separate legal entity, and such equity interest meets the GASB definition of an investment, the investment shall be accounted for on an equity basis, with the exception of a special-purpose government engaged only in fiduciary activities, a fiduciary fund, or endowment fund – which would continue to be fair-market valued. If the entity does not meet the definition of investment, it should be accounted for as a component unit.

    Statement 91, Conduit Debt Obligations, fiscal year beginning after 12/15/2019

    For conduit debt with 3 separate parties involved, dated accounting and disclosure guidance are required.

    Statement 93, Replacement of Interbank Offered Rates:

    -All requirements except paragraph 11b, 13 and 14, fiscal years beginning after 6/15/2020

    -Paragraph 11b, fiscal years beginning after12/31/2021

    -Paragraphs 13 and 14, fiscal years beginning after 6/15/2021

    The Interbank Offered Rates, notably LIBOR rates, are under global reform with LIBOR expected to cease. The Standard covers debt and related derivatives/hedges and related accounting LIBOR requirement debt instruments are changed or replaced.

    Accurate Audit Preparation/CARES Act

    Accurate audit preparation and attention to the CARES Act are even more critically important this year. The Government Auditing Standards and Single Audit requirements put the burden on the auditees to accurately prepare and understand their financial statements, the Schedule of Expenditures of Federal Awards (SEFA) and footnote disclosures.

    Further, 2020 provided tribes with a variety of federal COVID-19 funds, with specific SEFA requirements, compliance and accounting requirements. Tribal Healthcare entities that received Provider Relief funds will have atypical audit preparation requirements.

    Tribes with Single Audits due between 10/1/2020 and 6/30/2021 that received federal COVID-19 funding have a three-month extension to submit their Single Audit. Plan to attend one of our upcoming webinars this year to review COVID-19-related federal compliance requirements and/or freshen up your knowledge on other federal awards with our Grants Management training.

    Contact Wes Benally, Senior Manager, WBenally@REDW.com, 602.730.3632.

    Accounting Software
    Many tribes have moved – or are considering moving – to cloud-based and/or remotely accessed accounting applications, as well as procurement/payables and payroll/human resource processes that are approved electronically. These changes require implementing new controls in your accounting processes, software design and related policies. REDW provides training and support for Abila/MIP/Microix and Intacct accounting software to help with your design and control procedures. The REDW Software team also offers assistance with selecting new software. REDW Software has developed a new Abila SEFA tool, called SEFA Pro™, which can help you to automate your SEFA preparation and track grants information.

    Business Data Intelligence and Process Automation
    Many tribes face difficulties with producing meaningful, real-time data in an easy-to-understand format directly from their system(s). The REDW team provides interactive dashboards for various data analytics including budget, forecasting and KPIs. We can combine data from various systems in real time and provide in a single data report or dashboard to your decision makers in charts/graphs/Excel format. These reports/dashboards are accessible from any device, no matter where it is located.

    Contact Mustafa Kamal, Principal and Software Practice Leader, MKamal@REDW.com, 505.998.3423

    Tribal Tax Enforcement and Collection. Many tribal governments have laws in place that govern taxation revenues, but the tribes sometimes have difficulty enforcing these laws and collecting the taxes due. Tribal governments should focus on educating the community, taxpayers doing business on tribal land, and even tribal government members about the tax laws. A strong understanding of the tax laws will help the tax administration team to enforce and collect taxes – and thus increase tax revenues.

    Taxation of Online Sales. The United States Supreme Court recently overturned a 1992 precedent that barred states from requiring an out-of-state seller with no physical presence to collect sales tax on sales to a resident of the state. Now that physical presence is no longer required for states to impose a sales tax on sellers, states can collect sales taxes from remote sellers. Tribes should consider whether to adopt laws similar to state economic nexus laws, which require remote sellers to collect and remit sales tax if they had aggregate sales of tangible personal property or services within tribal territory that exceeded stated thresholds. An economic nexus law can enable a tribe to increase tax revenues by collecting sales tax on sales delivered onto trust lands from remote sellers.

    Economic Development. To promote economic development on trust land, thereby increasing tax revenues, tribes can offer incentives to businesses who locate there. This is similar to many states that offer credits and incentives. One example: Oklahoma’s Investment/New Job Tax Credit package provides a growing number of manufacturers a significant tax credit. It is based on either an investment in depreciable property or on the addition of full-time-equivalent employees engaged in manufacturing, processing, or aircraft maintenance.

    Protecting Tribal Sovereignty. When it comes to trust versus fee lands, state taxation can be complicated. The U.S. Supreme Court has stated that a fundamental attribute of sovereignty is the power to tax transactions occurring on trust lands and which significantly involve a tribe or its members. Tribes need to be aware of what a state can and cannot tax on both trust and fee lands.

    Indian Employment Credit. The federal government has extended, through 2020, the tax credit available to employers who hire American Indians or their spouses living on or near a reservation and work for an employer on that reservation. In order to encourage employers to hire American Indians, employers receive tax credit on a portion of the qualified wages and employee health insurance costs paid to an enrolled member of a Native American Tribe or the enrolled member’s spouse. Despite national efforts to make this permanent, it hasn’t happened yet; stay tuned for updates from the new Congress.

    Payroll Tax Credits from Coronavirus Relief Act.Employers who adopted paid emergency sick leave policies during the COVID-19 pandemic under the federal Families First Coronavirus Relief Act (FFCRA) may voluntarily continue those leave policies after December 31, 2020. As part of the December 2020 Coronavirus Relief Fund Extension legislation, the payroll tax credits related to the wages of employees who take that leave have been extended through the quarter ending March 31, 2021.

     Contact James Ortiz, Principal, State and Local Tax, JOrtiz@REDW.com, 505.998.3468.

    The Future of Gaming Management: Historically, the gaming industry has relied on “next-day†reporting of wins and losses and monthly reporting of financial data. But with the arrival of business intelligence and data analytics, gaming management has changed for those facilities that have taken steps to streamline their business processes. Now, with data analytics connected via a cloud infrastructure to casino systems and software, management has immediate access to critical information; this includes live cash floats, live patron interaction and financial data, and instantaneous reporting for stakeholders. Connecting accounting systems to cloud-environment reporting allows for instant business process automation of daily revenue and expense transactions, and activity. All this represents a new beginning in accounting and reporting for the gaming industry. Those facilities implementing these practices will be at the forefront of their competitors.

    Economic Diversification: Although gaming has unquestionably been an economic engine for tribes in recent decades, the COVID-19 pandemic revealed a significant vulnerability, with repercussions that will likely require years to overcome. Complicating a recovery will be the market saturation that exists in some areas, along with continued expansion of gaming into new jurisdictions. In addition, the potential impact of online gaming is another risk that is difficult to predict or measure. The combination of these unknowns will encourage tribal leaders to evaluate their strengths and opportunities to seek out new sources of economic growth. Diversifying investments will be the future mindset as the leveraging of past gaming successes enables new ventures; this should now allow the risk to be spread across a broader investment portfolio than done in the past.

    BSA/AML Due Diligence: Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) due diligence has been a well-recognized FinCEN requirement, although much diversity has existed within the gaming industry in operators’ responses. This has been due partly to the subjective analysis of risks posed by the scope of gaming conducted and financial services offered. However, the federal agency is soon expected to provide detailed guidance on what is necessary to achieve compliance. For example, casinos will soon need to re-evaluate their design and implementation procedures so that high-risk patrons can be separated from lower-risk, casual gamblers. Compliance Officers will need to ensure documented procedures are in place that delineate the identification process, the frequency of review, the method of identifying source of funds and the process of reporting the results to key personnel.

    Outsourcing: Outsourcing of accounting and internal auditing functions is, out of necessity, going to be considered by more gaming entities in the future. For the third consecutive year, in 2020 accounting and finance positions were among the top 10 hardest jobs to fill. In high growth markets, it can be hard to find qualified staff; and after they are found, hired, and trained, are even more difficult to retain. In response, gaming entities will increasingly turn to outside sources to provide these professional accounting and financial services. Gaming entities must be willing to give up the benefit of a daily presence in return for the assurance of a qualified person on whom they can depend. The additional advantage of outsourcing will be the knowledge and experience provided by accounting professionals who are well-seasoned in a specific industry.

    PPP Loans: After first being unable to receive Paycheck Protection Program (PPP) loans, many gaming entities eventually were able to take advantage of them. The loans were designed to provide small businesses (which ultimately included tribal casinos) with funds to pay up to 24 weeks of payroll costs, including certain benefits, interest on mortgages, rents/leases, and utilities. The loans are fully forgiven if the entity demonstrates that the funds were used on these qualifying costs, including at least 60% on payroll costs. Now in the forgiveness application phase of this cycle, gaming operations are asking about the accounting ramifications. In short, PPP loans must be reported as a long-term debt liability on the balance sheet until the gaming operation receives a legal release from the loan; at that point, a loan forgiveness revenue can be recognized. This recognition of long-term debt could potentially cause issues for gaming operations with other existing long-term debt and related covenants if the legal release from the PPP loan is not granted by the fiscal year-end date. The larger, long-term debt balance could jeopardize the gaming operation’s compliance with fixed-charge coverage ratios, leverage ratios, or other financial ratios. It’s important to maintain proactive communication with the debt holders – before any gaming operation potentially falls out of compliance. Additionally, the recognition of a “gain on forgiveness of debt†in fiscal year 2021 may impact the tribe’s revenue allocation plan with the casino(s). It will be vital for tribes to acknowledge the differences between net income and available cash available for distributions.

    Contact our Gaming leaders, Anthony Gerlach, Principal, AGerlach@REDW.com, 602.730.3612 or Adam Smith, Principal, Adam.Smith@REDW.com, 505.998.3219.

    From time to time, all qualified retirement plans must be updated to reflect recent legislative and/or regulatory changes. Some of these updates are made through plan amendments, but others require plan documents to be completely rewritten (a process known as "restating" the plan).

    The deadlines for adopting these updates usually depend on the type of plan and plan document. For example, a defined contribution plan, (e.g., a 401(k) plan or profit-sharing plan using a prototype document,) must generally be restated every six years. Alternatively, a defined contribution plan using an individually designed plan must generally be restated every five years. Amendments may still be required in between these mandatory restatements.

    The following lists the various deadlines for defined contribution plans using either prototype or volume submitter documents. Different deadlines apply to governmental plans as well as defined contribution plans using individually designed documents.

    Cycle 3 Restatement

  • Description: Full plan restatement for legislation and regulations since 2008
  • Effective Date: Various
  • Required For: All qualified plans
  • Earliest Due Date: July 31, 2022
  • CARES Act Amendment

  • Description: Good-faith amendment covering the provisions from the Coronavirus Aid, Relief, and Economic Security (CARES) Act, including expansion of participant loans and distributions, postponement of participant loan payments and waiver of required minimum distributions for 2020.
  • Effective Date: Various dates in 2020
  • Required For: All qualified plans
  • Earliest Due Date: Last day of 2022 plan year (December 31, 2022 for calendar-year plans)
  • SECURE Act Amendment

  • Description: Good-faith amendment covering the provisions from the Setting Every Community Up for Retirement Enhancement (SECURE) Act, including increase in the required minimum distribution beginning age, penalty-free distributions for birth and adoption, pooled employer plans, portability of lifetime income options, testing relief for frozen defined benefit pension plans and more.
  • Effective Date: Various
  • Required For: All qualified plans
  • Earliest Due Date: Last day of 2022 plan year (December 31, 2022 for calendar-year plans)
  • Hardship Distribution Amendment

  • Description: Good-faith amendment covering the provisions from the Bipartisan Budget Act of 2018 and related regulations, including elimination of the deferral suspension, removal of the requirement to first take a loan, and making available safe harbor contributions as well as earnings on elective deferrals.
  • Effective Date: Various
  • Required For: All qualified plans that permit hardship distributions
  • Earliest Due Date: December 31, 2021
  • Contact Dennis Davis, Principal, ABG Southwest*, DDavis@ABGSW.com, 505.998.3294

    A culture of security awareness is vital to protecting your tribe’s information and ensuring it is safe from hackers and data ransoms. In addition, the COVID-19 pandemic has produced a new threat vector: fake emails regarding PPP loans, stimulus payments, WHO and CDC data. This is in addition to such everyday phishing and social engineering attempts as phony video conference meetings, wire transfers, gift cards and invoices.

    A continuous security awareness education program should include:

  • A Security Awareness Education Policy
  • Interactive training modules assigned to employees bi-monthly – at least every second month
  • Phishing your team monthly, with remedial training assignments for those who get “hookedâ€
  • Assessments and quizzes
  • Providing educational materials such as current cybersecurity events, posters, and videos
  • Many employees have switched to a work-from-home environment, so ensure that remote workers are connecting to the business network with a secure virtual private network (VPN) connection or a virtual desktop interface (VDI) connection.

    Implement Multi-Factor Authentication (MFA) as an added layer of security to prevent hackers from gaining access to your organization with compromised credentials. MFA helps to protect network, email, financial accounts, social media accounts and mobile devices, and is a great feature to include with a VPN connection.

    Revisit logical access controls and ensure users have access to only the data and applications they need to perform their jobs. Make sure to review user network accounts and disable accounts that are no longer being used.

    As IT practices have pivoted during the pandemic, remember to create, review and/or update IT Security Policies and Procedures and ensure they are current with industry best practices. Be sure to share updates with all employees, and have them acknowledge these policies and procedures annually.

    Data backup and restoration procedures must be kept up-to-date and tested regularly. This will help to ensure that if your data becomes encrypted with ransomware, you’ll avoid paying cyber criminals – and avoid the possibility of being targeted again. Having data backup copies in multiple locations, i.e., a copy on-site and one copy replicated to cloud storage, will help ensure data isn’t lost if you fall victim to a ransomware attack.

    Implement a Mobile Device Management solution and policy to assist with security controls, such as remotely wiping laptops, smart phones, and tablets, if a device is lost or stolen. With the new work-from-home environment, data security is top of mind.

    Perform annual penetration tests and run routine vulnerability scans to identify and secure hidden network vulnerabilities that cybercriminals are searching for to gain access into your network.

    Now is a great time to review the Disaster Recovery (DR) and Cybersecurity Incident Response Plans (CSIRP) to update any outdated information. These plans should also be tested regularly with their respective teams. Schedule testing time in advance for the entire year so testing doesn’t fall through the cracks.

    Confirm IT best practices are in place. Perform an annual IT Risk Assessment to evaluate overall technology and architecture.

    Implement a robust vendor management process for third-party providers. Ask what security practices are in place to protect your network and data, and review their SOC reports. Also, ensure a confidentiality agreement is in place.

    Evaluate your current cyber-liability insurance policy or speak with a reputable broker if your organization does not have this insurance.

    Contact Jennifer Moreno, CISA, IT & Cybersecurity Consultant, Jennifer.Moreno@REDW.com, 505.998.3239.

    COVID-19 and federal funding to help alleviate the crisis were the largest concerns for tribes and tribal enterprises during 2020, and will continue to be so in 2021. Policies addressing hazard pay, administrative pay, FFCRA (Families First Coronavirus Response ACT), EFMLEA (Emergency Family Medical Leave and Expansion Act), CARES (Coronavirus Aid, Relief and Economic Security) Act, remote work, and returning to work became essential in protecting tribes from potential claw backs due to lack of documentation. With the temporary extension of the FFCRA leave provisions, tribes can continue to take advantage of payroll tax credits through March 31 by offering leave under the same framework; however the payroll tax credits are not available where wages are paid with CARES Act funding (no “double-dipping†is allowed). Tribes must also begin designing a vaccination program by determining whether they will proceed with a mandatory, hybrid, or voluntary approach to vaccinating employees. The law supports a mandatory program – but exemptions for sincerely held religious beliefs, as well as high-risk health conditions, should be built into the program.

    Minimum Wage Increases have taken effect in 29 states and the District of Columbia, although the federal minimum wage has been $7.25/hour since 2009. Employers should also check local wage rates, as they may be higher than the state rates. In some instances, the minimum wage rate may vary based on more than just the geographic location, and could be based on employer size and industry.

    Pay Compression may be an unintended consequence for employers who increased employee salaries to meet the new minimum salary requirements under the FLSA in 2020 to keep these employees classified as exempt from overtime. Likewise, pay compression can become an issue when employers apply the increases to minimum wage rates in their organization. Pay compression occurs when the pay of one or more employees is very close to the pay for more experienced or longer-tenured employees in the same position, or when employees in entry-level type jobs are paid almost as much as colleagues in higher-level jobs, including supervisory or managerial positions. Employers should consider an adjustment to all related salary scales to avoid pay compression and ensure continued internal equity.

    Construction and Trades Positions are steadily recovering after a net loss of over two million jobs in the last decade. In most states, construction is enjoying solid growth – but there’s a shortage of qualified employees for more complex projects. The new generation of workers is not embracing the industry as an option with a viable career path, and turnover in construction is already about twice the national average.

  • Employers need to find how to retain their construction and trades employees, as well as identify how to resonate with the millennial mindset. This means designing attractive compensation and competitive benefits to hire and retain highly skilled employees.
  • Compensation and benefits must be part of a viable Human Resources program that allows employers to retain top talent. Conducting a compensation study to determine whether your organization is competitive in the market in which you’re competing for talent is a good practice. It can ensure your organization is offering a competitive base wage, while also minimizing turnover and enhancing employee engagement. Intangible rewards also count! Talented, skilled employees recognize the value of organizational cultures that include mentoring, feedback, career paths, and technology. Other appreciated aspects include flexible work schedules, retirement plans, fitness benefits, and work/life balance.

    Workplace harassment claims require annual and robust sexual harassment training for employees. Training can be especially important for managers, who may benefit from additional training about what constitutes inappropriate conduct with a subordinate, as well as how to identify sexually abusive behavior in those they supervise. Employers should also adopt clear sexual harassment policies, identify inappropriate behaviors, and give employees the tools and training they need to report instances of sexual harassment in the workplace. In California, employers are now mandated to provide sexual harassment training.

    Employer Drug Testing and your organization’s drug policies must be thoughtful and intentional, and should address current state laws as well as the organization’s position. With more states legalizing marijuana for medical or recreational use, some states are also passing laws prohibiting discrimination against employees who use marijuana. Will you accommodate marijuana use? If not, what accommodations are required by your state, if any? Are there certain job positions where no accommodation can be made due to safety sensitivities that may be governed by federal safety regulations? A reasonable-suspicion program is essential, as well as providing training for staff and management about how to react when someone is impaired on the job.

    Contact Cristin Heyns-Bousliman, Esq., Principal and HR Consulting Practice Leader, Cristin.Bousliman@REDW.com, 505.998.3452.

    Federal Government Funding is expected to ramp up again with another stimulus package on the horizon. President Biden’s initial plan calls for $350 billion in emergency funding for state, local, and tribal governments. Similar to the first round of stimulus funding from the CARES Act, we’d expect tribes to get some useful funds to help aid them in this crisis. Although most of the funds are used up quickly, remember that interest-bearing accounts may yield a little return on those funds before they’re needed.

    Inflation is a concern for many, as it should be with more government stimulus funding. Not only is the Federal Reserve pumping large amounts of money into the economy by buying all sorts of corporate and government debt, but the federal government is also racking up record high debt during this pandemic. With an increase in money supply by the Federal Reserve and higher national debt, inflation will rise at some point. It’s important to keep this in mind throughout the year and plan accordingly.

    The Accredited Investor Definition now includes tribes. In August of last year, the Securities and Exchange Commission (SEC) updated the definition to formally include tribes and their entities that own investments exceeding $5 million. The update also allows tribes with $100 million or more to participate in the commercial paper markets. Although some tribes previously obtained qualification as an accredited investor through state law, all tribes are now eligible under tribal law.

    Valuations on equities and fixed income securities are on the high end of historical averages. The U.S. stock market forward P/E ratio is at a level we haven’t seen since the Tech Bubble in the late 1990s. Similarly, U.S. fixed income market spreads (interest rate differential when compared to Treasuries) are on the low end of the range when compared to the last 15 years. With U.S. equity and fixed income valuations near historical highs, it’s important to review your portfolios regularly and make appropriate adjustments.

    Rebalancing helps to keep the portfolio’s risk and return in line to meet long-term objectives. With valuations on the high end and portfolios performing well in 2020, it is a great time to rebalance portfolios. To maintain your intended risk/return profile on your portfolio, rebalancing is key.

    Investment Policy Statements (IPS) are like a roadmap to your investment strategy. The IPS helps to outline purpose, objectives, and constraints for the portfolios. It also helps with setting clear expectations for all parties involved by outlining roles and responsibilities for staff, committees, tribal councils, investment advisors, and others. Best practices call for annual reviews for any updates, and 2021 could be the year for some changes.

    Contact Paul Madrid, Principal, REDW Wealth** Practice Leader, PMadrid@REDW.com, 505.998.3249.

    The REDW tribal experts are here to assist you in any of these areas, and many others not covered in this article. To learn more about how any of these issues may apply to your tribe or tribal entities more specifically, please contact Wes Benally at WBenally@REDW.com, 602.730.3632, or Corrine Wilson at CWilson@REDW.com, 602.730.3609.

    Additionally, REDW will conduct a series of seminars and webinars throughout 2021, so please visit our events page periodically for more information and to register: www.REDW.com/events .


    *ABGSW is subsidiary of REDW LLC providing retirement plan design, administration and recordkeeping services.

    **REDW Wealth is an SEC-registered subsidiary of REDW LLC providing financial planning and wealth management services.

    GASB revised effective dates

    GASB 83, Certain Asset Retirement Obligations, fiscal year beginning after 6/15/2019

    Recognition of a liability and deferred outflow when there is a legally enforceable liability for the retirement of a tangible capital asset.

    GASB 84, Fiduciary Activities, fiscal year beginning after 12/15/2019

    Review 1) pension/retirement governance potential component unit criteria; and 2) per capita or minors trust fiduciary funds for a change in fund accounting and reporting entity requirements.

    GASB 88, Certain Disclosures related to Debt, including Direct Borrowing and Direct Placements, fiscal year beginning after 6/15/2019

    Review any defeasances of debt when assets used from only existed resources (not resources of refunded debt) are placed in an irrevocable trust to extinguish, for change in accounting and disclosures.

    GASB 89, Accounting for Interest Cost Incurred before the End of a Construction Period, fiscal year beginning after 12/15/2020

    For incurred interest on construction projects, an accounting change that the interest may no longer be capitalized, and will be incurred as an expenditure (governmental funds/current resource measured funds) or expense (business-type/economic resource measured funds).

    Statement 90, Majority Equity Interest, fiscal year beginning after 12/15/2019

    When a government has a majority equity interest in a separate legal entity, and such equity interest meets the GASB definition of an investment, the investment shall be accounted for on an equity basis, with the exception of a special-purpose government engaged only in fiduciary activities, a fiduciary fund, or endowment fund – which would continue to be fair-market valued. If the entity does not meet the definition of investment, it should be accounted for as a component unit.

    Statement 91, Conduit Debt Obligations, fiscal year beginning after 12/15/2019

    For conduit debt with 3 separate parties involved, dated accounting and disclosure guidance are required.

    Statement 93, Replacement of Interbank Offered Rates:

    -All requirements except paragraph 11b, 13 and 14, fiscal years beginning after 6/15/2020

    -Paragraph 11b, fiscal years beginning after12/31/2021

    -Paragraphs 13 and 14, fiscal years beginning after 6/15/2021

    The Interbank Offered Rates, notably LIBOR rates, are under global reform with LIBOR expected to cease. The Standard covers debt and related derivatives/hedges and related accounting LIBOR requirement debt instruments are changed or replaced.

    Accurate Audit Preparation/CARES Act

    Accurate audit preparation and attention to the CARES Act are even more critically important this year. The Government Auditing Standards and Single Audit requirements put the burden on the auditees to accurately prepare and understand their financial statements, the Schedule of Expenditures of Federal Awards (SEFA) and footnote disclosures.

    Further, 2020 provided tribes with a variety of federal COVID-19 funds, with specific SEFA requirements, compliance and accounting requirements. Tribal Healthcare entities that received Provider Relief funds will have atypical audit preparation requirements.

    Tribes with Single Audits due between 10/1/2020 and 6/30/2021 that received federal COVID-19 funding have a three-month extension to submit their Single Audit. Plan to attend one of our upcoming webinars this year to review COVID-19-related federal compliance requirements and/or freshen up your knowledge on other federal awards with our Grants Management training.

    Contact Wes Benally, Senior Manager, WBenally@REDW.com, 602.730.3632.

    Accounting Software
    Many tribes have moved – or are considering moving – to cloud-based and/or remotely accessed accounting applications, as well as procurement/payables and payroll/human resource processes that are approved electronically. These changes require implementing new controls in your accounting processes, software design and related policies. REDW provides training and support for Abila/MIP/Microix and Intacct accounting software to help with your design and control procedures. The REDW Software team also offers assistance with selecting new software. REDW Software has developed a new Abila SEFA tool, called SEFA Pro™, which can help you to automate your SEFA preparation and track grants information.

    Business Data Intelligence and Process Automation
    Many tribes face difficulties with producing meaningful, real-time data in an easy-to-understand format directly from their system(s). The REDW team provides interactive dashboards for various data analytics including budget, forecasting and KPIs. We can combine data from various systems in real time and provide in a single data report or dashboard to your decision makers in charts/graphs/Excel format. These reports/dashboards are accessible from any device, no matter where it is located.

    Contact Mustafa Kamal, Principal and Software Practice Leader, MKamal@REDW.com, 505.998.3423

    Tribal Tax Enforcement and Collection. Many tribal governments have laws in place that govern taxation revenues, but the tribes sometimes have difficulty enforcing these laws and collecting the taxes due. Tribal governments should focus on educating the community, taxpayers doing business on tribal land, and even tribal government members about the tax laws. A strong understanding of the tax laws will help the tax administration team to enforce and collect taxes – and thus increase tax revenues.

    Taxation of Online Sales. The United States Supreme Court recently overturned a 1992 precedent that barred states from requiring an out-of-state seller with no physical presence to collect sales tax on sales to a resident of the state. Now that physical presence is no longer required for states to impose a sales tax on sellers, states can collect sales taxes from remote sellers. Tribes should consider whether to adopt laws similar to state economic nexus laws, which require remote sellers to collect and remit sales tax if they had aggregate sales of tangible personal property or services within tribal territory that exceeded stated thresholds. An economic nexus law can enable a tribe to increase tax revenues by collecting sales tax on sales delivered onto trust lands from remote sellers.

    Economic Development. To promote economic development on trust land, thereby increasing tax revenues, tribes can offer incentives to businesses who locate there. This is similar to many states that offer credits and incentives. One example: Oklahoma’s Investment/New Job Tax Credit package provides a growing number of manufacturers a significant tax credit. It is based on either an investment in depreciable property or on the addition of full-time-equivalent employees engaged in manufacturing, processing, or aircraft maintenance.

    Protecting Tribal Sovereignty. When it comes to trust versus fee lands, state taxation can be complicated. The U.S. Supreme Court has stated that a fundamental attribute of sovereignty is the power to tax transactions occurring on trust lands and which significantly involve a tribe or its members. Tribes need to be aware of what a state can and cannot tax on both trust and fee lands.

    Indian Employment Credit. The federal government has extended, through 2020, the tax credit available to employers who hire American Indians or their spouses living on or near a reservation and work for an employer on that reservation. In order to encourage employers to hire American Indians, employers receive tax credit on a portion of the qualified wages and employee health insurance costs paid to an enrolled member of a Native American Tribe or the enrolled member’s spouse. Despite national efforts to make this permanent, it hasn’t happened yet; stay tuned for updates from the new Congress.

    Payroll Tax Credits from Coronavirus Relief Act.Employers who adopted paid emergency sick leave policies during the COVID-19 pandemic under the federal Families First Coronavirus Relief Act (FFCRA) may voluntarily continue those leave policies after December 31, 2020. As part of the December 2020 Coronavirus Relief Fund Extension legislation, the payroll tax credits related to the wages of employees who take that leave have been extended through the quarter ending March 31, 2021.

     Contact James Ortiz, Principal, State and Local Tax, JOrtiz@REDW.com, 505.998.3468.

    The Future of Gaming Management: Historically, the gaming industry has relied on “next-day†reporting of wins and losses and monthly reporting of financial data. But with the arrival of business intelligence and data analytics, gaming management has changed for those facilities that have taken steps to streamline their business processes. Now, with data analytics connected via a cloud infrastructure to casino systems and software, management has immediate access to critical information; this includes live cash floats, live patron interaction and financial data, and instantaneous reporting for stakeholders. Connecting accounting systems to cloud-environment reporting allows for instant business process automation of daily revenue and expense transactions, and activity. All this represents a new beginning in accounting and reporting for the gaming industry. Those facilities implementing these practices will be at the forefront of their competitors.

    Economic Diversification: Although gaming has unquestionably been an economic engine for tribes in recent decades, the COVID-19 pandemic revealed a significant vulnerability, with repercussions that will likely require years to overcome. Complicating a recovery will be the market saturation that exists in some areas, along with continued expansion of gaming into new jurisdictions. In addition, the potential impact of online gaming is another risk that is difficult to predict or measure. The combination of these unknowns will encourage tribal leaders to evaluate their strengths and opportunities to seek out new sources of economic growth. Diversifying investments will be the future mindset as the leveraging of past gaming successes enables new ventures; this should now allow the risk to be spread across a broader investment portfolio than done in the past.

    BSA/AML Due Diligence: Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) due diligence has been a well-recognized FinCEN requirement, although much diversity has existed within the gaming industry in operators’ responses. This has been due partly to the subjective analysis of risks posed by the scope of gaming conducted and financial services offered. However, the federal agency is soon expected to provide detailed guidance on what is necessary to achieve compliance. For example, casinos will soon need to re-evaluate their design and implementation procedures so that high-risk patrons can be separated from lower-risk, casual gamblers. Compliance Officers will need to ensure documented procedures are in place that delineate the identification process, the frequency of review, the method of identifying source of funds and the process of reporting the results to key personnel.

    Outsourcing: Outsourcing of accounting and internal auditing functions is, out of necessity, going to be considered by more gaming entities in the future. For the third consecutive year, in 2020 accounting and finance positions were among the top 10 hardest jobs to fill. In high growth markets, it can be hard to find qualified staff; and after they are found, hired, and trained, are even more difficult to retain. In response, gaming entities will increasingly turn to outside sources to provide these professional accounting and financial services. Gaming entities must be willing to give up the benefit of a daily presence in return for the assurance of a qualified person on whom they can depend. The additional advantage of outsourcing will be the knowledge and experience provided by accounting professionals who are well-seasoned in a specific industry.

    PPP Loans: After first being unable to receive Paycheck Protection Program (PPP) loans, many gaming entities eventually were able to take advantage of them. The loans were designed to provide small businesses (which ultimately included tribal casinos) with funds to pay up to 24 weeks of payroll costs, including certain benefits, interest on mortgages, rents/leases, and utilities. The loans are fully forgiven if the entity demonstrates that the funds were used on these qualifying costs, including at least 60% on payroll costs. Now in the forgiveness application phase of this cycle, gaming operations are asking about the accounting ramifications. In short, PPP loans must be reported as a long-term debt liability on the balance sheet until the gaming operation receives a legal release from the loan; at that point, a loan forgiveness revenue can be recognized. This recognition of long-term debt could potentially cause issues for gaming operations with other existing long-term debt and related covenants if the legal release from the PPP loan is not granted by the fiscal year-end date. The larger, long-term debt balance could jeopardize the gaming operation’s compliance with fixed-charge coverage ratios, leverage ratios, or other financial ratios. It’s important to maintain proactive communication with the debt holders – before any gaming operation potentially falls out of compliance. Additionally, the recognition of a “gain on forgiveness of debt†in fiscal year 2021 may impact the tribe’s revenue allocation plan with the casino(s). It will be vital for tribes to acknowledge the differences between net income and available cash available for distributions.

    Contact our Gaming leaders, Anthony Gerlach, Principal, AGerlach@REDW.com, 602.730.3612 or Adam Smith, Principal, Adam.Smith@REDW.com, 505.998.3219.

    From time to time, all qualified retirement plans must be updated to reflect recent legislative and/or regulatory changes. Some of these updates are made through plan amendments, but others require plan documents to be completely rewritten (a process known as "restating" the plan).

    The deadlines for adopting these updates usually depend on the type of plan and plan document. For example, a defined contribution plan, (e.g., a 401(k) plan or profit-sharing plan using a prototype document,) must generally be restated every six years. Alternatively, a defined contribution plan using an individually designed plan must generally be restated every five years. Amendments may still be required in between these mandatory restatements.

    The following lists the various deadlines for defined contribution plans using either prototype or volume submitter documents. Different deadlines apply to governmental plans as well as defined contribution plans using individually designed documents.

    Cycle 3 Restatement

  • Description: Full plan restatement for legislation and regulations since 2008
  • Effective Date: Various
  • Required For: All qualified plans
  • Earliest Due Date: July 31, 2022
  • CARES Act Amendment

  • Description: Good-faith amendment covering the provisions from the Coronavirus Aid, Relief, and Economic Security (CARES) Act, including expansion of participant loans and distributions, postponement of participant loan payments and waiver of required minimum distributions for 2020.
  • Effective Date: Various dates in 2020
  • Required For: All qualified plans
  • Earliest Due Date: Last day of 2022 plan year (December 31, 2022 for calendar-year plans)
  • SECURE Act Amendment

  • Description: Good-faith amendment covering the provisions from the Setting Every Community Up for Retirement Enhancement (SECURE) Act, including increase in the required minimum distribution beginning age, penalty-free distributions for birth and adoption, pooled employer plans, portability of lifetime income options, testing relief for frozen defined benefit pension plans and more.
  • Effective Date: Various
  • Required For: All qualified plans
  • Earliest Due Date: Last day of 2022 plan year (December 31, 2022 for calendar-year plans)
  • Hardship Distribution Amendment

  • Description: Good-faith amendment covering the provisions from the Bipartisan Budget Act of 2018 and related regulations, including elimination of the deferral suspension, removal of the requirement to first take a loan, and making available safe harbor contributions as well as earnings on elective deferrals.
  • Effective Date: Various
  • Required For: All qualified plans that permit hardship distributions
  • Earliest Due Date: December 31, 2021
  • Contact Dennis Davis, Principal, ABG Southwest*, DDavis@ABGSW.com, 505.998.3294

    A culture of security awareness is vital to protecting your tribe’s information and ensuring it is safe from hackers and data ransoms. In addition, the COVID-19 pandemic has produced a new threat vector: fake emails regarding PPP loans, stimulus payments, WHO and CDC data. This is in addition to such everyday phishing and social engineering attempts as phony video conference meetings, wire transfers, gift cards and invoices.

    A continuous security awareness education program should include:

  • A Security Awareness Education Policy
  • Interactive training modules assigned to employees bi-monthly – at least every second month
  • Phishing your team monthly, with remedial training assignments for those who get “hookedâ€
  • Assessments and quizzes
  • Providing educational materials such as current cybersecurity events, posters, and videos
  • Many employees have switched to a work-from-home environment, so ensure that remote workers are connecting to the business network with a secure virtual private network (VPN) connection or a virtual desktop interface (VDI) connection.

    Implement Multi-Factor Authentication (MFA) as an added layer of security to prevent hackers from gaining access to your organization with compromised credentials. MFA helps to protect network, email, financial accounts, social media accounts and mobile devices, and is a great feature to include with a VPN connection.

    Revisit logical access controls and ensure users have access to only the data and applications they need to perform their jobs. Make sure to review user network accounts and disable accounts that are no longer being used.

    As IT practices have pivoted during the pandemic, remember to create, review and/or update IT Security Policies and Procedures and ensure they are current with industry best practices. Be sure to share updates with all employees, and have them acknowledge these policies and procedures annually.

    Data backup and restoration procedures must be kept up-to-date and tested regularly. This will help to ensure that if your data becomes encrypted with ransomware, you’ll avoid paying cyber criminals – and avoid the possibility of being targeted again. Having data backup copies in multiple locations, i.e., a copy on-site and one copy replicated to cloud storage, will help ensure data isn’t lost if you fall victim to a ransomware attack.

    Implement a Mobile Device Management solution and policy to assist with security controls, such as remotely wiping laptops, smart phones, and tablets, if a device is lost or stolen. With the new work-from-home environment, data security is top of mind.

    Perform annual penetration tests and run routine vulnerability scans to identify and secure hidden network vulnerabilities that cybercriminals are searching for to gain access into your network.

    Now is a great time to review the Disaster Recovery (DR) and Cybersecurity Incident Response Plans (CSIRP) to update any outdated information. These plans should also be tested regularly with their respective teams. Schedule testing time in advance for the entire year so testing doesn’t fall through the cracks.

    Confirm IT best practices are in place. Perform an annual IT Risk Assessment to evaluate overall technology and architecture.

    Implement a robust vendor management process for third-party providers. Ask what security practices are in place to protect your network and data, and review their SOC reports. Also, ensure a confidentiality agreement is in place.

    Evaluate your current cyber-liability insurance policy or speak with a reputable broker if your organization does not have this insurance.

    Contact Jennifer Moreno, CISA, IT & Cybersecurity Consultant, Jennifer.Moreno@REDW.com, 505.998.3239.

    COVID-19 and federal funding to help alleviate the crisis were the largest concerns for tribes and tribal enterprises during 2020, and will continue to be so in 2021. Policies addressing hazard pay, administrative pay, FFCRA (Families First Coronavirus Response ACT), EFMLEA (Emergency Family Medical Leave and Expansion Act), CARES (Coronavirus Aid, Relief and Economic Security) Act, remote work, and returning to work became essential in protecting tribes from potential claw backs due to lack of documentation. With the temporary extension of the FFCRA leave provisions, tribes can continue to take advantage of payroll tax credits through March 31 by offering leave under the same framework; however the payroll tax credits are not available where wages are paid with CARES Act funding (no “double-dipping†is allowed). Tribes must also begin designing a vaccination program by determining whether they will proceed with a mandatory, hybrid, or voluntary approach to vaccinating employees. The law supports a mandatory program – but exemptions for sincerely held religious beliefs, as well as high-risk health conditions, should be built into the program.

    Minimum Wage Increases have taken effect in 29 states and the District of Columbia, although the federal minimum wage has been $7.25/hour since 2009. Employers should also check local wage rates, as they may be higher than the state rates. In some instances, the minimum wage rate may vary based on more than just the geographic location, and could be based on employer size and industry.

    Pay Compression may be an unintended consequence for employers who increased employee salaries to meet the new minimum salary requirements under the FLSA in 2020 to keep these employees classified as exempt from overtime. Likewise, pay compression can become an issue when employers apply the increases to minimum wage rates in their organization. Pay compression occurs when the pay of one or more employees is very close to the pay for more experienced or longer-tenured employees in the same position, or when employees in entry-level type jobs are paid almost as much as colleagues in higher-level jobs, including supervisory or managerial positions. Employers should consider an adjustment to all related salary scales to avoid pay compression and ensure continued internal equity.

    Construction and Trades Positions are steadily recovering after a net loss of over two million jobs in the last decade. In most states, construction is enjoying solid growth – but there’s a shortage of qualified employees for more complex projects. The new generation of workers is not embracing the industry as an option with a viable career path, and turnover in construction is already about twice the national average.

  • Employers need to find how to retain their construction and trades employees, as well as identify how to resonate with the millennial mindset. This means designing attractive compensation and competitive benefits to hire and retain highly skilled employees.
  • Compensation and benefits must be part of a viable Human Resources program that allows employers to retain top talent. Conducting a compensation study to determine whether your organization is competitive in the market in which you’re competing for talent is a good practice. It can ensure your organization is offering a competitive base wage, while also minimizing turnover and enhancing employee engagement. Intangible rewards also count! Talented, skilled employees recognize the value of organizational cultures that include mentoring, feedback, career paths, and technology. Other appreciated aspects include flexible work schedules, retirement plans, fitness benefits, and work/life balance.

    Workplace harassment claims require annual and robust sexual harassment training for employees. Training can be especially important for managers, who may benefit from additional training about what constitutes inappropriate conduct with a subordinate, as well as how to identify sexually abusive behavior in those they supervise. Employers should also adopt clear sexual harassment policies, identify inappropriate behaviors, and give employees the tools and training they need to report instances of sexual harassment in the workplace. In California, employers are now mandated to provide sexual harassment training.

    Employer Drug Testing and your organization’s drug policies must be thoughtful and intentional, and should address current state laws as well as the organization’s position. With more states legalizing marijuana for medical or recreational use, some states are also passing laws prohibiting discrimination against employees who use marijuana. Will you accommodate marijuana use? If not, what accommodations are required by your state, if any? Are there certain job positions where no accommodation can be made due to safety sensitivities that may be governed by federal safety regulations? A reasonable-suspicion program is essential, as well as providing training for staff and management about how to react when someone is impaired on the job.

    Contact Cristin Heyns-Bousliman, Esq., Principal and HR Consulting Practice Leader, Cristin.Bousliman@REDW.com, 505.998.3452.

    Federal Government Funding is expected to ramp up again with another stimulus package on the horizon. President Biden’s initial plan calls for $350 billion in emergency funding for state, local, and tribal governments. Similar to the first round of stimulus funding from the CARES Act, we’d expect tribes to get some useful funds to help aid them in this crisis. Although most of the funds are used up quickly, remember that interest-bearing accounts may yield a little return on those funds before they’re needed.

    Inflation is a concern for many, as it should be with more government stimulus funding. Not only is the Federal Reserve pumping large amounts of money into the economy by buying all sorts of corporate and government debt, but the federal government is also racking up record high debt during this pandemic. With an increase in money supply by the Federal Reserve and higher national debt, inflation will rise at some point. It’s important to keep this in mind throughout the year and plan accordingly.

    The Accredited Investor Definition now includes tribes. In August of last year, the Securities and Exchange Commission (SEC) updated the definition to formally include tribes and their entities that own investments exceeding $5 million. The update also allows tribes with $100 million or more to participate in the commercial paper markets. Although some tribes previously obtained qualification as an accredited investor through state law, all tribes are now eligible under tribal law.

    Valuations on equities and fixed income securities are on the high end of historical averages. The U.S. stock market forward P/E ratio is at a level we haven’t seen since the Tech Bubble in the late 1990s. Similarly, U.S. fixed income market spreads (interest rate differential when compared to Treasuries) are on the low end of the range when compared to the last 15 years. With U.S. equity and fixed income valuations near historical highs, it’s important to review your portfolios regularly and make appropriate adjustments.

    Rebalancing helps to keep the portfolio’s risk and return in line to meet long-term objectives. With valuations on the high end and portfolios performing well in 2020, it is a great time to rebalance portfolios. To maintain your intended risk/return profile on your portfolio, rebalancing is key.

    Investment Policy Statements (IPS) are like a roadmap to your investment strategy. The IPS helps to outline purpose, objectives, and constraints for the portfolios. It also helps with setting clear expectations for all parties involved by outlining roles and responsibilities for staff, committees, tribal councils, investment advisors, and others. Best practices call for annual reviews for any updates, and 2021 could be the year for some changes.

    Contact Paul Madrid, Principal, REDW Wealth** Practice Leader, PMadrid@REDW.com, 505.998.3249.

    The REDW tribal experts are here to assist you in any of these areas, and many others not covered in this article. To learn more about how any of these issues may apply to your tribe or tribal entities more specifically, please contact Wes Benally at WBenally@REDW.com, 602.730.3632, or Corrine Wilson at CWilson@REDW.com, 602.730.3609.

    Additionally, REDW will conduct a series of seminars and webinars throughout 2021, so please visit our events page periodically for more information and to register: www.REDW.com/events .


    *ABGSW is subsidiary of REDW LLC providing retirement plan design, administration and recordkeeping services.

    **REDW Wealth is an SEC-registered subsidiary of REDW LLC providing financial planning and wealth management services.

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    Categories
    News

    Charles Weill Joins REDW HR Consulting Practice as Compensation Consultant

    Phoenix, Ariz. — January 29, 2021 — REDW LLC, one of the Southwest’s largest and fastest growing certified public accounting and business advisory firms, is pleased to announce that Charles Weill, aPHR, has joined REDW’s Human Resources Consulting team as a Compensation Consultant in the firm’s Phoenix office.

    “We are delighted to welcome Charles to our team, where his expertise and experience will enhance our abilities to provide clients with both broad-based compensation engagements and executive compensation services,†said Cristin Heyns-Bousliman, REDW Principal and HR Consulting Practice Leader.

    “Initially, Charles will conduct an efficiency study of our department’s already state-of-the-art processes,†continued Heyns-Bousliman. “We anticipate the results will help us serve clients in an even more efficient and cost-effective manner.”

    “Just as important, adding Charles to our firm marks a significant milestone for our practice, as he is the first HR Consulting team member in our Phoenix office.â€

    Weill’s background as a compensation consultant includes broad-based and executive compensation services in the media, entertainment and aerospace/defense industries, and for tax-exempt organizations. He is experienced in designing pay structures, pay programs including merit and incentive pay, and peer group development. As an executive compensation analyst, he partners with clients to design philosophies and strategies that attract, retain and reward top talent.

    Charles Weill earned a Bachelor of Science in Accounting and Finance and is currently pursuing an MBA in Human Resources Management at Southern New Hampshire University. He holds an aPHR® certification from the Human Resources Certification Institute (HRCI).

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