The first year of the new decade is already very busy for tribal leaders. At REDW, we want to share with you our in-depth understanding of the key finance, accounting and business issues you need to be aware of as you look ahead to 2020 and beyond.
As expert tribal advisors with more than three decades serving tribes and their entities, we have a keen perspective on many new or recently enacted federal regulations, as well as important operational processes. 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:
GASB 87 - Leases, effective December 15, 2019, establishes new requirements, and since tribes generally function as both lessee and lessor, leases will likely be accounted for as capital expenditures rather than operating expenses.
REDW has scheduled a 3-part webinar series on GASB 87, beginning in April. Check redw.com/events for details.
The Data Collection Form (DCF) for the Federal Audit Clearinghouse (FAC) now requires Single Auditees to include the text of their Notes to the SEFA and their Corrective Action Plans for any findings. Auditors must also transfer the text of their audit findings to the DCF.
For more information, see the FAC's Instructions and Documents webpage.
Annual Reviews of Vendors are vital to ensure that tribal databases include active, legitimate vendors. This is also a good time to review your Tribe’s process of ensuring the accurate determination of 1099 and W-2 vendors, and to double-check that you have a current W-9 on file. This is a prime target for IRS reviews, so make sure your processes and compliance are up to date. We can help if you need training or assistance with getting in compliance for this area.
Accurate Audit Preparation is critical. The Government Auditing Standards and Single Audit requirements put the burden on the auditee to accurately prepare and understand your financial statements, SEFA and footnote disclosures. So to help our clients improve and streamline their Grants Management process, REDW's Software Solutions team has developed a powerful new Abila MIP module called SEFA Proâ„¢, which extracts SEFA Reports directly from your existing Abila MIP Fund Accounting software.
In addition to a webinar demonstration of SEFA Pro, REDW will be conducting a series of Grants Management seminars in select cities. Check redw.com/events for details.
Broadband Rights for tribes was granted this month by the FCC, meaning tribes may now apply for licenses to help establish or expand internet access over their reservation lands. After August 3, 2020, private companies will bid for those rights across the nation – including in Indian Country.
For more information on assessing your Tribe's ability to gain broadband access, check out this article published by NAFOA.
New Overtime Rules took effect on January 1, 2020. If your Tribe’s legal counsel has determined that you follow FSLA and DOL regulations, then those with non-executive, non-administrative or non-professional duties are subject to 1.5 times their regular pay rates when more than 40 hours are worked in a work week. The threshold for salary levels for exempt employees is now $35,568. Also see related information under "Human Resources."
Social Security Deductions for Tribal Council Members may be deducted and paid if your Tribe has a Section 218A agreement in place with the Social Security Administration.
For more information on the Tribal Social Security Fairness Act, click to read an article from NAFOA. And for guidance on the proper filing of W-2s for Tribal Council pay, including when no Section 218A agreement is in place, visit the IRS tribal government website.
Taxation of Online Sales. The U.S. 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 a sale to a resident of the state. Now, physical presence is no longer required for a state to impose a sales tax on sellers, which can allow states to collect sales taxes from remote sellers. Tribes should explore adopting laws similar to state economic nexus laws that require remote sellers to remit and collect sales tax if they had aggregate sales of tangible personal property or services within tribal territory over 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 – and increase tax revenues – tribes can offer incentives to businesses who locate to trust land. This is similar to many states that offer credits and incentives, such as Oklahoma’s Investment/New Job Tax Credit package. It provides growing manufacturers a significant tax credit based on either an investment in depreciable property or the addition of full-time-equivalent employees engaged in manufacturing, processing or aircraft maintenance.
Protecting Tribal Sovereignty. State and taxation can be complicated when it comes to trust versus fee lands. The U.S. Supreme Court has stated that the power to tax transactions occurring on trust lands and significantly involving a tribe or its members is a fundamental attribute of sovereignty. 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 just extended a tax credit to employers who hire American Indians or their spouses who live on or near a reservation and work for an employer on that reservation. The credits, which encourage employers to hire American Indians, give employers a tax credit on a portion of the qualified wages and employee health insurance costs paid to an enrolled member of an Indian tribe or the enrolled member’s spouse.
REDW's Tribal Gaming team is presenting a webinar on the Bank Secrecy Act/Title 31 on May 14, 2020. Check redw.com/events for details.
Sports Betting: An opportunity or a mirage? Why are investors not wagering on this new source of revenue for the gaming industry, and what does this mean for tribal gaming? Sports books contribute minimally to casino profits, so as legal sports betting increasingly takes shape, will the shift benefit all, or just a small segment of the gaming industry?
Is a Resort Casino in Your Future? Strategic planning and market evaluations are vital to projecting the next opportunity. Gone are the days of certain success in the gaming industry. Competition, new regulations, economic growth, and changes in game offerings have executives and decision makers questioning their next move. Exploring what it means to be a “resort destination†versus a “local casino†could make the difference between generational income or paying lenders for decades. Income versus cash is a significant distinction all executives must understand, no matter the casino size.
Having to wait for Reliable and Timely Financial Data? Decision-makers need timely and reliable financial information to strategically plan and execute both short- and long-term goals. In today’s data-driven environment, waiting two months for closed books is unacceptable.
Check out our webinar recording on "Data Extraction Tips to Ease Your Audit Pain" from May 2019.
The SECURE Act of 2019 (Setting Every Community Up for Retirement Enhancement) is viewed by some as the most significant retirement legislation in over a decade. Four changes will likely have the greatest impact on your tribal retirement plans, both governmental and commercial:
•  Increased Age for Required Start Date for Mandatory Distributions. The Act raises the Required Minimum Distribution (RMD) starting age from 70½ to 72; individuals now have until April 1 of the year following the year they turned age 72 to take their first RMD. Participants age 72 and older in a retirement plan who are still employed may delay RMDs until retirement.
•  Long-term, Part-time Workers Must Be Allowed to Participate in 401(k) Plans. Employers with 401(k) plans must have a dual eligibility requirement for employees who complete either a one-year-of-service requirement (with the 1,000-hour rule) or three consecutive years of service with at least 500 hours of service.
•  Simplification of Safe Harbor Rules. The Act eliminates the annual safe harbor notice requirement for retirement plans that use the 3% safe harbor non-elective contribution.
•  Increased Penalty for Failure to File. The penalty for failing to file Form 5500 Annual Return/Report for Employee Benefit Plans has increased from $25 a day/$15,000 maximum to $250 a day/$150,000 maximum.
•  A Security Awareness Education Policy
•  Interactive training modules assigned to employees bi-monthly, or at least every two months
•  Phishing your team monthly, with remedial training assignments for those who get “hookedâ€
•  Assessments and quizzes
•  Educational materials, such as current cybersecurity events, posters, and videos.
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.
Confirm IT best practices are in place. Perform an annual IT Risk Assessment to evaluate overall technology and architecture.
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 email, financial accounts, social media accounts and mobile devices.
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 (Service Organization Controls) 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.
Minimum wage increases have taken effect in many states, although the federal minimum wage has been at $7.25/hour for a decade. 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 could be an unintended consequence for employers who are increasing employee salaries to meet the new minimum salary requirements under the FLSA (see above) and 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. In both instances, 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 experiencing 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 a way 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 structure 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 value organizational cultures that include mentoring, feedback, career pathing and technology, as well as flexible work schedules, retirement plans, fitness incentives and work/life balance.
Workplace harassment claims and the #metoo movement both require annual, 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 discriminating against employees who use marijuana. Will you accommodate marijuana use? If not, what accommodations does your state require, 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? Of paramount importance, a reasonable-suspicion program must be in place, as well as providing training for staff and management about how to react when someone is impaired on the job.
Volatility will most likely rise in 2020, as we haven’t had a meaningful correction in the last year, and some uncertainties – such as the U.S. presidential election – are on the horizon. Last year was stellar for equity markets, with the S&P 500 up about 31%. However, with strong equity performance come higher valuations and the potential for more volatility. Historically, election years can be more volatile than non-election years; investors don’t know which candidates will win, and this makes it difficult to make certain projections that have an impact on valuation models. When the election is over, investors have more clarity and can move forward.
The SECURE Act includes some new measures for your defined contribution (401k) plans. Among the many changes under the new law, Tribal Investment Committees that oversee retirement plans should be especially aware of two: 1) the new law provides a new cap of 15% for safe-harbor automatic enrollment; and 2) annuities are now allowed in 401(k) plans.
For more details on the SECURE Act, see the Winter 2020 issue of Planning Matters, a newsletter from REDW Wealth.
Fixed Income returns were abnormally high in 2019 when compared to the long-term average. The Barclays Aggregate Bond index was up about 8.7% for 2019, nearly double its average over the last 15 years. Most of the year’s gain was attributed to capital appreciation as bond values rose with a decline in interest rates. Despite the strength of fixed income returns in 2019, it is important to lower your expectations for 2020. Although many Tribes have large fixed income holdings, and many of these holdings are funding operations, it’s important not to overestimate your return expectations for the year just started.
Fees will most likely be higher in 2020. Most advisors and consultants charge their fees on a percentage of assets, and a basic 50/50 global stock and bond portfolio gained about 16% in 2019, so fees are bound to increase. Also, some hidden fees and/or commissions may add to the percentage of assets fees, so ask your advisor for a transparent breakdown of fees for your records. If your portfolio has grown significantly over the past couple of years, this may be a good time to negotiate a new fee structure. You may want to consider a competitive bid/quote process by putting out a Request for Proposal (RFP) or Request for Quote (RFQ). By doing this on a regular basis, you’ll satisfy your fiduciary duty and you may be able to discover new options, such as flat fees.
REDW’s tribal experts are here to assist you in any of these areas, and many others not covered in this guide. To learn more about how any of these issues may apply to your Tribe or tribal entities more specifically, please contact Corrine Wilson at cwilson@redw.com or 602.730.3609.
