National Society of

Accountants for

Cooperatives

Summer 2016

Hard to believe it’s already August, seems like spring flew by and before you know it will be

fall. I hope you have time to take in a deep breath and enjoy the summer months!

The Presidential election process and our current cast of characters continues to amaze and

entertain. Watching the news is not without risk however, there are constant reminders of the

racial issues that continue to exist in this Country, and the ever present fear of terrorist attacks.

With 24 hour news and social media commentary at every turn, I sometimes wonder if retreating

to a cabin in the woods might make some sense. Maybe one day.

The Pacific Northwest Chapter of the NSAC continues to thrive. Our annual meeting was held

in Yakima this year, we had a great agenda with approximately 35 participants in attendance.

For an evening event, we toured a local brewery and capped it off with a fine dinner where we

enjoyed some great networking with the group.

As of July, 2016 our chapter has stayed strong from a membership perspective with over 120

members, but we are always looking for new members. Please let us know if you have any

suggestions on how to increase our membership.

I hope you have a great summer!

Jeff Dieleman, Moss Adams LLP

What is NSAC’s

Cooperative learning

Network?

A NSAC Cooperative Learning Network

is a live 60 Minute conference which

can be held at any location with telephone

and internet access. You pay one registration fee

for as many participants as you wish

at each call/log in location

Current Cooperative Tax Update George Benson, Attorney, McDermott Will & Emery, LLP

September 14, 2016 – “Current Cooperative Tax Update” –

George Benson, Attorney, McDermott Will & Emery, LLP

The Top Ten Cooperative Tax Schemes 2016 Jeff Brandenberg, CPA, Principal, CliftonLarsonAllen

September 29, 2016 – “The Top Ten Cooperative Fraud Schemes for 2016” – Jeff Brandenburg, Principal, Clif-tonLarsonAllen LLP

Cooperative Learning NetworkCooperative Learning NetworkCooperative Learning Network

Message From The Newsletter Editor

I’d like to thank Jeff Dieleman and Amy Waller for handling this

newsletter (among many other activities) for our chapter over the recent years.

To help take a bit off their plate, I (David Enquist) will be the newsletter editor

moving forward. If you have any questions, comments or concerns, please reach

out to me at david.enquist@claconnect.com. Suggestions for material are always

appreciated.

The Hidden Costs of a Data Breach Much of the business discussion around cyber-security relates to protection of key assets such as customer information and intellectual property, often after the news that another company has suffered a large data breach. While strengthening defenses against cyber-attackers is important, companies also must be prepared to handle the reputational and financial hits that a cyber incident can produce for years down the road.

Cyber-security has the attention of CFOs and other decision-makers. And for good reason: The average cost of a data breach has risen 29% since 2013, to about $4 million per incident, according to an annual report from IBM and Ponemon Institute. And a 2015 survey of US finance decision-makers shows that organizations are increasing spending on cyber-security.

A new report by Deloitte addresses issues that go beyond data protection, pointing out the hidden costs that go along with responding once a cyber-attack has occurred.

Cyber readiness, the Deloitte report said, is not just about what happens after an attack. In other words, it is far more involved than following through on a six-week or six-month incident response plan with technology upgrades and planned communication with customers and other stakeholders.

The report lists 14 impact factors of a cyber-attack, including seven classified as "beneath the surface" and having less visible costs:

Insurance premium increases: A company might need to buy or renew its cyber-security insurance after a cyber incident. But that doesn't mean it's renewing or buying for the same cost as its previous policies. Deloitte said it was not uncommon for companies to face premium increases of 200% for the same coverage, or to be denied coverage until demonstrating to the insurer that is had strengthened cyber defenses. Insurers could cite any number of issues with a company in the aftermath of a data breach; citing weak access controls, an insufficient incident response plan, or insufficient monitoring as among the possible factors. Basically, insurers are in position to tell a company what it needs to fix before coverage will be continued.

Continued

Increased cost to raise debt: Perception becomes reality when an organization has suffered a cyber-attack. A company's credit rating can be lowered in the aftermath of a data breach, and that can affect a company's ability to raise debt or renegotiate its existing debt, Deloitte said. The corporate credit rating of US retailer Target was downgraded from "A+" to "A" in March 2014 by ratings agency Standard & Poor's months after a cyber-attack. While Standard & Poor's has kept a stable outlook for the company and says it believes the data security issues are largely behind Target, it has not bumped Target's credit rating back to "A+". Deloitte's analysis said that credit ratings agencies typically downgrade by one level companies that have experienced a cyber incident.

Impact of operational disruption or destruction: Any disruption of normal business operations will have financial repercussions. Resources from one part of a company could be diverted to other parts in the wake of a data breach. If a company's e-commerce site has to be shut down temporarily, for example, the company will lose out on current and potentially future business when customers go to a competitor.

Lost value of customer relationships: If those customers like what they see from the competitor, they might not return to the business that suffered a breach. Deloitte's hypothetical analysis showed that customer attrition rate increases 30% in the wake of a cyber incident and doesn't return to normal until three years later.

Value of lost contract revenue: Similar to the effect on a company's ability to raise debt, contract negotiation with other entities is more difficult after a data breach. And that's in addition to contracts that might be terminated as a direct result of a cyber-attack. A company may have built cost increases for services into its financial models, so those models must be recalculated in the event of a data breach. The IBM and Ponemon Institute report said the "biggest financial consequence to organizations that experienced a data breach is lost business."

Devaluation of trade name: If a company's business is offering services to other companies, the company on the receiving end of the services is less likely to seek additional services from a company that has suffered a data breach. And a company such as a retailer obviously must rebuild brand loyalty after a data breach.

Loss of intellectual property: This can be the most crippling effect for a company that suffers a data breach. The effects could be long-lasting or potentially fatal to the company's survival, depending on what type of intellectual property is lost.

(Source: CGMA Magazine Update – August 5, 2016)

It is not uncommon in long-standing Ag. cooperatives for retained member equities to take several years to come up

for revolving payment. In supply cooperative it is fairly routine for someone to join the cooperative but then fade in

patronage purchases over time, or even move away without contact or forwarding address.

So if you are the manager or finance officer and that long-term revolved equity check is returned unopened or even

an annual small patronage rebate comes back with the Yellow “undeliverable” sticker from the Post Office, what do

you do with it?

First- hold onto the envelopes and then check the bylaws (I know the lawyers always say that), but it is true. Over

the years the rules have evolved and some cooperatives made a policy to pay those to a charitable cause, school, or

university research fund. I also advise my clients (if the number is too extreme) to have a staff member at least make

a phone call or local records search to find the member or former member and get a good address.

It can also be practical to submit a list of names of lost members to the Board once a year for review at a regular

meeting to see if any Director know how to reach them. While not the company’s obligation to search or spend

unreasonable efforts, some good faith process can avoid claims or angry members later.

Second, if you still can’t find them, in Washington RCW 23.86.160 includes a coop-friendly provision that other

businesses do not enjoy. After a full year- those unclaimed funds can revert to the cooperative at the Board’s

election, often as unallocated capital.

…“All unclaimed dividends or distributions authorized under this chapter or funds payable on

redeemed stock, equity certificates, book credits, or capital funds shall revert to the associa-

tion at the discretion of the directors at any time after one year from the end of the fiscal year

during which such distributions or redemptions have been declared.”

Most banks or other businesses with accounts, gift-cards, or unclaimed checks are subject to the State Unclaimed

Property rules and paying those funds to the Department of Revenue.

On the Oregon side, ORS 62.425 regarding unclaimed distribution, redemptions or payments, makes the cooperative

hold those funds for four years- and make one last effort give notice before forfeiting and reverting to the company.

“Any distribution of net margins by a cooperative or any redemption of or payment

based upon any indebtedness, capital stock of a cooperative or other equity interest which re-

mains unclaimed four years after the date authorized for payment, redemption or retirement

may be forfeited by the board. Any amount forfeited may revert to the cooperative, if, at least

six months prior to the declared date of forfeiture, notice that the payment is available has

been mailed to the last-known address of the person shown by the cooperative’s records to be

entitled thereto or, if the address is unknown, is published …”

So keep an eye on those returned checks, and make a clear and consistent process. That can help clean up the ac-

counting for those uncashed-checks, and benefit the coop. Be grateful to our NSAC predecessors who passed these

statutes. Many other states do not have that option, and I know they wish they did.

Lost-Member Equites or Refund Checks- What do you do? Dustin R. Klinger, Co-op Attorney. (503)-416-6148

Annual Finance, Tax and Accounting

Conference for Cooperatives

Chapter National Director—Linda Gray

The annual Finance, Tax and Accounting Conference for Cooperatives was held

this August in Washington DC. I was thrilled to see a large contingent of Pacific

NW Chapter members in attendance. The NSAC Board continues to strive to

provide top quality and relevant CPE and networking opportunities. There was

a wide variety of excellent speakers including our chapter president,

Jeff Dieleman, enlightening us on the new Lease Accounting Standard.

The conference had more general sessions addressing all participants. The

National Program Planning Committee, including Phil Blankney, put together

a particularly strong final day of speakers which kept attendance high all the

way to the end of the conference. Bill Erlenbush, the Education Director, was

able to secure a number of session presenters for CLNs over the next several

months. The hot topics with strong attendance included Internal Controls, Fraud

Prevention, and Cyber Security.

The Annual National Board Meeting was held for 2016. The single largest

concern of the Board is continued involvement of members to keep the Society

vibrant and relevant. If anyone is interested in being on one of the standing

National Committees, the support and interest will be greatly appreciated. Some

of the committees include: Accounting and Auditing, Tax, National Program

Planning, and Membership among others. The more you get involved the more

you get from the organization.

As always the NSAC National Board welcomes your feedback and encourages

you to take advantage of all the opportunities that being an NSAC member has

to offer.

Chapter Officers

President Jeff Dieleman

Moss Adams LLP

Vice-President Cindy Lyden

NW Farm Credit Services

Secretary

Erik Gillam AKT, LLP

Treasurer

Dwaine Brown Tree Top, Inc.

National Director

Linda Gray Diamond Fruit Growers,

Inc.

Editor/Publisher David Enquist

CliftonLarsonAllen

Director Mike Phillips

Northwest Wholesale Inc.

Membership Chair Nancy Greenwalt

Ritzville Warehouse Co.

Mentor Coordinator Phillip Blakney

Cordell, Neher & Co., PLLC

FASB Proposes Changing Income Tax

Disclosure Requirements

FASB proposed accounting rules Tuesday that would change disclosure requirements for income taxes on organizations' financial statements.

Under the proposal, existing disclosure requirements would change and organizations would be re-quired to provide new disclosures. The proposal would require preparers to:

Describe an enacted change in tax law.

Disaggregate certain income tax information between foreign and domestic.

Explain the circumstances that caused a change in assertion about the indefinite reinvestment of

undistributed foreign earnings.

Disclose the aggregate of cash, cash equivalents, and marketable securities held by foreign subsidi-

aries. Additional disclosures also would be required, with differentiation between requirements for public busi-ness entities and other organizations. The proposal is titled Proposed Accounting Standards Update, Income Taxes (Topic 740), Disclosure Framework—Changes to the Disclosure Requirements for In-come Taxes.

The proposal is part of FASB's broader disclosure framework project, which is designed to improve the effectiveness of disclosures in notes to financial statements by clearly communicating the information that is more important to users.

FASB also is evaluating possible changes to existing disclosure requirements for fair value, inventory, and an employer's disclosure of defined benefit plans.

Comments can be made by Sept. 30 at FASB's website.

(Source: AICPA – Global CPA Report – Journal of Accountancy – August 3, 2016)

CONTACT US

NSAC NATIONAL

OFFICE

136 South Keowee St. Dayton, OH 45402

Phone: 937.222.6707

Fax: 937.222.5794