We know this week begins the flurry of quarter-end activities – so we’ll get right to the good stuff.
This week’s focus is the IRS Tax Exempt Bond Office’s shifting strategy on bond audits, as well as the increasing roles risk and transparency play in your post issuance compliance…
CURRENT EVENTS
It looks as if the IRS’s tax-exempt bond (TEB) office will be modifying its approach to their bond audits going forward. In past years, you may have noticed the TEB office would select different categories of bonds to randomly audit each year.
Each year, we all anxiously wait to hear if “our” bonds fell into the coming year’s focus category. One year it could be a certain sector (such as utilities or healthcare) or say bonds financing research facilities or special districts.
Now the TEB office is saying they will look at a broader variety of bonds , figure out the greatest areas of risk, and then focus their attention on those areas. With less staff, the TEB office is devoting their limited resources on the highest priority areas to audit compliance.
They are looking to restart their program by surveying issuers about various aspects of their compliance programs, as well as looking for areas of risk and non-compliance through issuer Form 8038 submissions and public databases.
Hmmm…
There have been lots of changes in the TEB office in the last 10 years since I’ve been watching their website. Positive changes, in my opinion, have been a continual focus on providing a website with organized, educational resources for issuers.
These resources increase our knowledge in the many facets of post-issuance compliance as well as our responsibilities as issuers. They’ve published various whitepapers, newsletters and conducted webinars and have asked for input on ways to improve their outreach and education to us.
I’m always looking for economical, educational information in the area of post-issuance compliance. The IRS TEB website is one educational resource where I can stay up-to-date on a variety of “hard-to-find” post issuance compliance areas. The TEB website has been very helpful to me. How about you?
Check out the Knowledge Library on our website under the IRS/SEC tab for links to good TEB or IRS educational sites. It’s kind of a smorgasbord of information for those of us who love PIC. Two thumbs up for the TEB office. Did I just say that?
Absolutely.
Now…it’s our job to make sure we, as issuers, get two thumbs up from the IRS TEB office if and when our tax-exempt bonds are randomly audited for compliance.
OUT AND ABOUT
Were you able to catch the Orrick Webinar – The Changing Landscape of Municipal Bankruptcy, last Tuesday? A fairly advanced course, it covered many legal as well as who gets what and in what order aspects of the Detroit, Jefferson County and Vallejo bankruptcies. Here’s a quick recap:
While the vast majority of issuers are not in this precarious financial position, these high profile cases impacted the citizens, current and retired employees as well as the bondholders…possibly the same bondholders who hold our current bonds…and who we will need to buy our bonds in the future.
Three key takeaways from the session:
1) State law must also be considered during a bankruptcy – and can impact the outcome,
2) Pensions and OPEBs (including unfunded liabilities) are viewed as a growing, high profile factor, and
3) If more bankruptcy protection filings occur, we can expect to see increased demands for oversight and transparency, more stringent due diligence and additional continuing disclosure filing requirements.
This webinar is now available on demand.
Conferences being held in October and November:
For our California Issuer friends:
The California Public Finance Conference (Oct 8th-10th, San Diego, CA)
For Healthcare and Higher Ed:
Healthcare and Higher Education Super Conference (Oct 26th-28th, New York, NY)
And another Hot Topic area, Transportation/P3s:
The Transportation Finance/P3 Conference (Nov 16th-18th, Arlington, VA)
SOLVING THE COMPLIANCE PUZZLE
I (Debbie Todd) just fell in love with this graphic as it so clearly and brilliantly represents the puzzling complexity we are dealing with, as issuers, in meeting our compliance needs. We also know that both the IRS and SEC are paying much closer attention to it these days – and that it is our obligation as issuers to understand (and have fully complied with) our respective bond covenants. As part of a 10 week series called Solving the Compliance Puzzle, I will focus on providing tips, insights and resources for one new line of our compliance puzzle.
So, are you ready?
Today, we are going to take a closer look at the fourth line of our puzzle – Transparency.
Yep, we all want it – us, our family and friends, our bosses, our Board of Directors…and our Bondholders.
Transparency, by definition (as a noun) means, “the condition of being transparent” or “shining through”. We commonly think of a window or water – clear and easy to see through, right? In business and compliance, we’ll focus on the behavioral aspects – openness, communication and accountability.
So, what do these aspects look like?
They mean operating in such a way that it is easy for others to see what action is being performed. A definition commonly used is “the perceived quality of intentionally shared information from the sender.”
So…why should we be concerned with our perceived quality? Simply stated – it’s all about trust.
Trust placed into us by others that we will be forthcoming about our actions, sharing the good, the bad and…if needed…the ugly. Being accurate, telling the truth and taking responsibility to make any corrections needed to resolve the problem(s).
Think of someone you trust implicitly – you know, that person you can always count on – no matter what – to be there. You have absolute confidence in what they say and know without a shadow of doubt that they are looking out for your best interests, right?
Now, what feelings come to mind when someone has betrayed you, lied or broken a significant promise? Is untrustworthy one of the first words you think of? If so…is that someone you want to work with, be around or have large financial transactions with? Probably not, right? Think Enron and WorldCom…
For us, the accounting scandals, financial schemes and impacts of the global economic meltdown, have resulted in dramatically increased demands for regulations, more stringent oversight, due diligence and transparency of reporting. Some of the financial settlements for wrongdoing have been astronomical.
In conclusion, we are still working in a time where, for the reasons just mentioned, trust is still shaky. Our bosses and our Board of Directors need to reassure our bondholders they can continue to count on us.
By continuing to be open, forthright and accountable in our actions, we demonstrate transparency. With transparency, we retain and enhance trust…which will continue to be critical factors in helping us access the lowest cost of capital for our organizations going forward.
We hope you found this segment helpful! Stay tuned – next week, we will go a little deeper into our series – it’s line 5 of the puzzle –Rules.
To your compliance success,
Debbie
P.S. Are we hitting the mark? Please take 30 seconds, drop us a line in the comments box below, and let us know. We’d really appreciate it!
P.P.S. To help as many colleagues as possible, please feel free to share this newsletter with your fellow issuer friends…