Perturbed By Clarity, Directness Informed Opinion sometimes we learn the lesson of being too smart and too forthright…the consequence is often worse than the “noseinthebook”…especially if you deal with Hunter Wilson. The result can be
Our good friend, Sean Hocking summarizes his take on the situation as:
Before we get on to the article, a little background.
Jordan Zoot has been providing feedback on a number of complicated accountancy and regulation issues, with regard to California, on the Growers Network forum.
This week he was given his marching orders with some classic west coast passive aggressive language and semantics. The long and short of it is, “we respect your opinion.. but we don’t really want it…. if you still want to contribute we will moderate you so as not to upset anyone”
Storm in a teacup: well, maybe?
But it all digs into a deeper well and begs the question, how much advice out there can be considered concrete?
It’s hard enough in the regulated CA cannabis market with the sands of regulation constantly shifting and we’d suggest now is the time to be as clear as a bell otherwise further down the line some people are going to suffer in the courts because of misplaced and even bad advice.
And.. we can be pretty sure it’ll be the client, not the “advisor” who’ll be out of pocket at the end of the day.
I understand that you will not appreciate the entire content of this letter but, you approached the issue in a manner that clearly demonstrated a lack of understanding of the issues and the information that we deal in. Had your initial response been less of. a blindsiding I might have had more patience.
However, when you attempt to shove an ultimatum in my face, it precludes the possibility of ending well.
You can read the entire post here.
Our concerns extend to a specific subset of questions with respect to the role and function of professional advisors such as CPA’s and Attorneys.
- The definitions of “Ownership Interest” and “Financial Interest Holder” contained in Secs. 5003 and 5004 of the regulations have finally been issued and homogenized across BCC, CDPH and CDFA.
- We understand that there are situations where an individual who may have intended to merely be an advisor such as an attorney or certified public accountant [an “Advisor”] may have place themselves in a role where they would be deemed to possess an Ownership Interest or become a Financial Interest Holder by virtue of their ability to assert influence, if not outright control over the business, legal and economic consequences to a licensee through their actions. We presume that is such situations, the Advisor would have been required to submit the appropriate disclosures and information for vetting at the time that the licensee’s application was submitted. Please confirm
- Lack of Provision for Applicants and Licensees to be Represented by Counsel – Attorney or Certified Public Accountant under Prop. 64 Legislation or the Emergency Regulations
- Lack of Guidance from Regulators under definitions of Ownership Interest and Financial Interest Holder where an Advisor [e.g. Attorney or CPA] exerting influence, management, or control over a Licensee would be sufficient to require an amendment of the Licensee’s application.
- If so, would the Licensee or the Advisor be subject to sanction or would there be a “safe harbor” for a corrective filing, or a more severe sanction upon discovery if either the Licensee or the Advisor failed to self-report?
- Would a transaction or filing as described above require corrective filing with your agency as well?
We view this set of questions as directly relevant to professionals as they seek to set up Best Practices for working with California commercial cannabis industry clients. A copy of our letters to the regulators follows:
Advanced Nose In the Book Training
Our advanced training extends the Nose In The Book techniques in analytics to the use of the palmistry hand. Palmistry, also known as chiromancy, has its roots in India, China and areas of ancient Israel, but it’s truly a worldwide art of understanding your life and of telling your fortune. During the Middle Ages and the Renaissance, palmistry was often suppressed as a superstitious practice.
Where information gathering and cooperation are paramount, the Tucker Telephone is the “gold standard”. The literature demonstrates that once an individual’s number is dialed their willingness to share information and become compliant increases exponentially.
The Tucker Telephone is a device designed using parts from an old-fashioned crank telephone, The electric generator of the telephone is wired in sequence to two dry cell batteries so that the instrument can be used to administer electric shocks to another person.
The interviewee is where they are restrained and two wires would be applied to the subject. The ground wire was wrapped around the big toe and the “hot wire” (the wire that administers the current of electricity) would be applied to the genitals. The crank on the phone would then be turned, and an electric current would provide “encouragement”. Continuing with the telephone euphemisms, ‘long-distance calls’ referred to several such charges
- Our goals in hiring, retention, and promotion is to maintain rigorous quality standards in our professionals that match or EXCEED:
- Big 4 Firms in the markets where we have a presence – New York, Chicago, and San Francisco
- Analyst Programs at top-tier Wall Street investment banks
- Sand Hill Road Venture Capital Firms and
- First Tier Management Consulting Firms – Mckinsey, Bain, BCG
- Our compensation is targeted to meet or exceed such firms on the average, not eight and nine digit exceptions.
- We require seal transcripts as part of academic integrity.
We no longer seek to employ –
Dummies or Bots
Great Apes or Monkeys
Piece Workers or Clown Accounting Experts
Enrolled Agents Lacking 30 Hours of Accounting and Bachelor’s Degree
Liars, Thieves or Anyone Named Trump
Cletus Smelly’s Blood Relatives Less 7 Degrees Removed
Anyone that isn’t capable of original thought, requires constant coddling, is emotionally needy to a degree that it interferes with their job, doesn’t understand what zero tolerance for racists, bigots, emotionally brittle, small-minded mental midgets, or doesn’t understand the commitment we make to put the needs and success of our clients above everything else…which means accepting our sixty hours average workweek for Associates,=,
The expectation that the needs of our clients may require each of us to miss holidays, family commitments, and social events…our focus is on a long-term outcome, everyone’s good judgment, our willingness to be flexible with respect to raising children, care for parents, involvement in our communities and responsibilities to each other. Where you choose to work is based on good judgment subject to our ability to contact policy and Managing Director’s judgment on the needs of the practice.
We are committed to being flexible, subject to, being provided with advance notice, good judgment, respect for confidentiality, zero tolerance for fake news, lying, failure to meet applicable professional standards, ethics and CPE requirements, and the assumption that we have mindreading abilities.
“Business of Tax Compliance“
– scheduling, oversight of production, review, delivery of completed tax returns, review of work in process and generation of invoices and production analysis is the responsibility of our Managers and Directors, with oversight by Managing Directors. We have adopted fixed-fee billing arrangements for substantially all of our compliance work – bookkeeping, accounting, tax and regulatory compliance.
We analyze our use of resources – software, payroll and out of pocket costs in both qualitative and quantitative dimensions as part of our process improvement efforts. We have strict procedures that are designed to prevent Associates from usurping the collection of real-time data and the analysis of data which is a responsibility of Managers and Directors. Associates report all of their time, they don’t “adjust realization” by working off the clock”.
- Every professional employee [including Managing Directors] is required to submit a timely report by 10 AM the following day, the sole acceptable exception being death or grave illness, PERIOD. Failure to meet the requirement has severe consequences – miss the 10 AM deadline three times in a quarter result in the loss of ability to use direct deposit for a year. We have not had anyone “earn” the penalty in close to three years.
- If you don’t like the policy, you are welcome to seek employment elsewhere...our people understand the direct relationship between timely submission of time reports, generation of invoices, everyone must focus on the collection of A/R, and the paycheck they receive twice a month. I am a CPA, not magician…if you don’t aggressively engage, you harm the process and we all suffer. We have very close to zero problems with the process, and less than 5% of our A/R is beyond 45 days.
noseinthebook – Best Practices Framework
- We have a firm credit card, the monthly bill is sent to and the legal responsibility or the individual to whom the card is issued. Everyone is required to submit proper documentation for expense reimbursement within one billing cycle, . Any item lacking proper documentation is rejected and becomes a personal expense. We allow one resubmit within 5 business days of notification. We don’t have “Oh I forgot to turn these expenses in amnesty days”.
Our practice is comprised of exceptionally skilled, motivated, tenacious and AGGRESSIVE human beings on an inclusive basis which includes race, age, gender in the flavor of your choice [however any discussion thereof should be moderated by good judgment, religious orientation, LBGTQ welcome, and the statement contained in every Engagement Letter we write applies internally, and it is worth repeating.
Our personnel is expected to treat their colleagues, agents, suppliers, and clients with respect and we expect the same in return. Providing a safe, healthy, and productive work environment is a priority. We will support efforts to eliminate any actions or circumstances that undermine such an environment. Unlawful discrimination, verbal or physical harassment or abuse, or offensive behavior (whether or not sexually related) by personnel, agents, or clients of aBIZinaBOX will not be tolerated and can be cause for the termination of any such relationship.
The core principle of “The Nose In The Book” is that managing a CPA firm is like raising a puppy.
Providing structure with clearly defined boundaries, known consequences for failure to adhere the structure [the “Fear“], consistent application and enforcement of consequences that are onerous enough to cause anguish and hurt [the “Pain“] and reward for both following the program and the demonstration of excellence, poise and fitness in daily participation. As an image, you won’t forget, anyone that takes a dump on the floor in the office is seeking employment.
Repeat the following on a daily basis – our Managing Directors are expected to be inspirational role models that have a personal stake in the success and profitability of their careers, the firm, and every single one of or our employees. The firm pays for comprehensive health insurance at the Gold Plan Level for immediate families, period. Managing Directors are your bosses and professional colleagues, whether they are your social friends is not our concern.
We do NOT drug test, have any reason to be concerned with an activity that you engage in within the confines of your bedroom or bathroom, use of tobacco, cannabis or alcohol because our experience teaches us that we rely on your personal and professional judgment to ensure that all of the above has a positive impact on your health and happiness and those that you care about.
We respect the Second Amendment on the same basis we apply to other Constitutional rights. You are welcome to concealed carry a firearm within the office subject to the following:
- Zero tolerance adherence with respect to firearm safety rules, compliance with all legal requirements, affirmation of your maintenance, practice with and storage of firearms. Concealed means concealed within the office, loading, and unloading is done solely within the station which we provided for that purpose. Managing Directors may revoke firearm privileges at any time, for any reason that warrants it, in their judgment, the basis for which is non-contestable, and can be arbitrary and capricious. We will rely upon your good judgment, don’t fuck it up. If you have an irrational fear of firearms you should probably seek employment elsewhere.
Our people are the most important asset we have. If you are struggling with an issue, we are committed to going to extraordinary levels to support you for professional, personal, financial or health-related issues If you choose to demonstrate bad judgment, we have a process to deal with it, and ultimately it comes down to is an action worth putting everything at risk.
“The Nose In The Book” – is the framework we developed to serve and a platform that overarches and provides a bridge between accounting, operations, tax and regulatory compliance. The Nose in the Book evolved from our Close But No Cigar program.
The Practice Framework
The development, documentation, and review of best practices are a critical component of the foundation for a successful commercial cannabis business. The framework has components and consequences in everything we do, the discussion is in sufficient detail for you to be able to understand it. We discuss elements as they exist in our firm because that is what we know. A successful framework is tailored to the needs and requirements of a practice, not the other way around
We have learned the harsh lesson that taxpayers will continue to lose in proceedings in the Tax Court unless they have prepared and maintained complete and accurate financial records. The creation and maintenance of complete and accurate financial records for a cannabis dispensary require the guidance of qualified professionals as well as adherence to the recordkeeping guidance they provide.
Diligence is required of a cannabis industry business in vetting professionals [e.g. attorneys, certified public accountants] as well as in securing appropriate advice relating to compliance, security, and inventory control. The selection of an advisor lacking in competence will exacerbate the problems for a cannabis business.
Nose In The Book Day One
Nose In The Book Day One…sometimes “scope creep” winds up being a good thing. This microsite is a consequence of the aBIZinaBOX Cannabis Practice Group’s creation of a “Center of Excellence” to develop and expand “best practices” in accounting, tax and regulatory compliance for the cannabis industry.
noseinthebook – Best Practices Framework using our proprietary “Nose In the Book” techniques to improve accounting and tax reporting for the cannabis industry. The training will focus on lessons that learned from the Tax Court Decisions in Alterman and Gibson TC Memo 2018-83, and Neil Feinberg et ux., et al. v. Commissioner, (2017 Memo 2017-211).
Watch for some exciting developments from aBIZinaBOX including
- “Our Nose in the Book” Best Practices in Cannabis Business Accounting Webinar Series
- The rollout of our Accounting Best Practices microsite at noseinthebook.accountants
Best Practices Webinar Topics
- A concise definition of IRC Sec. 280E and its statutory construction
- CCM 20150411
- Best Practices for Tax Accounting including
- Cloud Software Selection, distinctions for Dispensary, Distribution, Cultivation, and Extraction
- Creation and maintenance of Books of Account
- Creation of inventory records, selection of cost flow assumptions and calculation and support of Cost of Goods Sold [“COGS”]
- Internal Controls over cash and maintaining bank accounts
- Documentation of business expenses, and IRC Information Reporting – 1099’s
- Highlights of information records for Excise, Sales and Gross Receipts taxes – the detail here is easily a distinct program
- Design, maintenance, and retention of records – IRS, FTB, CDTFA and Regulatory Compliance Requirements
- An interface between accounting function and tax return preparation, tax return work papers and support
- Review, quality control and documentation of process improvement – IRC Sec. 6694(b)(2) and “a pattern of negligence”
The background articles are must be reading to fully understand the context see Cannabis CPA Becomes Cannibal, Lesson From The Tax Court: Into The Weeds on COGS, Alterman TC Memo 2018-83 Alternative View, Missing Opportunity IRC Sec. 280E and our IRC Sec. 280E Repository.