LEDGER BEYOND WAYFAIR THE NEW LANDSCAPE OF ECONOMIC PRESENCE - Mazars Ledger
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LEDGER BEYOND WAYFAIR THE NEW LANDSCAPE OF ECONOMIC PRESENCE SEPTEMBER/OCTOBER 2018 Mazars USA LLP is an independent member firm of Mazars Group.
CONTENTS 2 | Mazars USA Ledger
CONTENTS
SEPTEMBER/OCTOBER 2018
4 | Space Oddity or Space Odyssey? 21 | The Ongoing Feud Between Airbnb And New York City, Explained
6 | Putting Healthcare Consumers in the Driver's Seat 22 | Beyond Wayfair - The New Landscape of Economic Presence
8 | US and Germany Auto Markets Both Set For Major Sustainability 24 | U.S. Treasury Report: A signal of an exciting future for Financial
Changes Services
10 | 2018 Food & Beverage Industry Study Results Executive Roundtable 27 | Is Your Organization Overdue for a Fraud Check-Up?
13 | How Developers Can Help New York City Reach Zero Waste By 2030 30 | Are You Maximizing Your Data's Value?
15 | Charitable Planning Ideas for Individuals Under the New Tax Law 33 | Employee Misclassification in the Trucking Industry
16 | On The Water 36 | Another Annual Interim Inspection Report
18 | NYC’s boutique hotels poised to draw more travelers—and investors 40 | Healthcare Alerts
19 | A New Standard For Lease Accounting 42 | Tax Alerts
20 | Why Clinical Documentation Improvement (CDI)?
*The Mazars USA Ledger contains articles and alerts published from August 1, 2018 - September 30, 2018.
September/October 2018 | 3
AEROSPACE
SPACE ODDITY OR SPACE ODYSSEY?
BY PIERRE RAZZO
“SPACE ODDITY,” THE 1969 SONG BY DAVID philanthropic overtones are particularly attracting Technological innovation, the reduction in the
BOWIE PRECEDED APOLLO 11’S MOON the attention of the media, regulatory authorities, cost of accessing space led by groups such as
LANDING. IN THIS, THE FIRST HALF OF THE investors, and markets. Space X, and the interest generated by data2
TWENTY-FIRST CENTURY, WHICH NUMER- has shown the possibility of a lucrative busi-
OUS EXPERIENCED OBSERVERS PERCEIVE These two competing projects, Oneweb and ness. Thus, many diverse projects have been
AS THE FIRST TRUE SPACE AGE, THIS Starlink (working with Space X), have the com- inaugurated, intensifying the race for internet via
MELODY IS STILL RELEVANT FOR SEVERAL mon goal of putting an end to the digital divide satellite or related technologies (solar-powered
REASONS, LIKE ELON MUSK’S PLAYFUL affecting close to 4 billion individuals (53% of the drones, helium-filled stratospheric balloons,
NOD TO IT LAST FEBRUARY DURING THE global population1), by guaranteeing high-speed rocket-launching airplanes), with initial launches
LAUNCH OF HIS NEW FALCON HEAVY internet access for all by 2027. The Solution That expected for the end of the year.
ROCKET AND PUTTING INTO ORBIT OF Came from Spaaace! … or Satellite Internet
HIS STARMAN AT THE WHEEL OF A TESLA STARLINK
ROADSTER. DAVID BOWIE’S SONG ISN’T A previous project named Teledesic was created
THE ONLY ODDITY WE’RE SEEING IN SPACE in 1994 with the goal of placing 840 satellites in Although the trademark Starlink was not intro-
RIGHT NOW – THE WORLD IS IN THE MIDDLE low earth orbit (altitude of less than 2,000 km) in duced until August 21, 2017, this project, which
OF A WILD SPACE RACE BETWEEN NA- order to provide high-speed internet. Although it would provide high-speed internet to all, had
TIONS AND, RECENTLY, PRIVATE ACTORS, was led by high-profile, internationally recognized been suggested by Elon Musk in 2015.
SOMETHING THAT IS TOTALLY NEW. personalities, such as Bill Gates, Craig McCaw,
and Saudi prince Alwaleed bin Talal, was a Like its main competitor Oneweb, the idea con-
Amid this nebula of futuristic projects (space failure and was stopped in 2002, after incurring sists of putting several small satellites (850 lbs.)
hotels, the conquest of Mars, and the explora- nearly $9 billion dollars in costs and only placing into low earth orbit by launching them from Space
tion of oceans in space), two major ones with a single demonstration satellite. X’s Falcon 9 and Falcon Heavy rockets. The low
4 | Mazars USA Ledger
altitude guarantees a fast internet connection and On June 15, 2015, Oneweb announced the nal documents. For Space X, this “satellite inter-
very low latency – 25 to 30 milliseconds3 – owing formation of a joint venture (JV) with Airbus net” activity could result in revenues of $30 billion
to the short distance the signal must travel in Defense and Space to manufacture 900 satellites dollars and operating income between $15 and
comparison to geostationary4 satellites. However, dedicated to the project. This JV will have to $20 billion dollars in 2025. Although these dizzy-
the decreased altitude limits coverage, creating take into account the two major challenges - the ing amounts, which the company never intended
the need for a greater number of satellites. expected satellite manufacturing cost ($500,000 to release, and that might have too optimistic in
dollars) and the constellation deployment the past, must be regarded with prudence, this
In the next five years, Space X, located in Haw- timetable, which will require the production of 15 activity would represent more revenue than the
thorne, California, plans to send 4,425 satellites satellites per week, a true break away from the current core business (launches) in 2020, and
into space to form its first constellation, which is current model which could take months to build nearly 86% of the company’s revenue in 2025.
nearly three times the number of currently active a satellite or to paraphrase the official project
satellites! A second constellation of an additional communication “mass production and satellites Morgan Stanley predicted in October 2017 that
7,500 satellites in low earth orbit (at altitudes have never been used in the same sentence.” overall industry revenues would reach $1.1 trillion
ranging from 335.9 km to 345.6 km5) is also ex- The first ten satellites will therefore be manufac- dollars by 2040,10 with the provision of satellite
pected in the long term, according to information tured in Toulouse. The rest of the production will internet contributing nearly $412 billion dollars.
presented to the U.S. Federal Communication take place at Exploration Park, near the Kennedy This would be nearly three times the space
Commission (FCC) in May 2017. Space Center in Florida. industry’s current revenues and satellite internet
contribution will be similarly tripled11.
To this end, two experimental satellites were put On June 25, 2015, Oneweb also signed a
in orbit on February 21, 2018. Space X intends to contract with the French company Arianespace It is not surprising that corporate groups, such
begin the launches in 2019 with the objective of to launch an initial subgroup of satellites into as Facebook, start-ups and private equity firms12
completing the first constellation in 2024 and thus orbit on 21 Soyuz rockets (with the option of five have also embarked on the race to provide satel-
offer high-speed internet on a global scale. additional Soyuz launches and three Ariane 6 lite internet. Welcome to Space Age 2.0!
launches). The first launch is expected August
Space X differentiates itself from its main com- 19, 2018 from the Guiana Space Center in Pierre is a Manager in our New York Practice.
petitor Oneweb because of its integrated model Kourou (ten satellites should be put in orbit during He can be reached at 646.315.6155 or at Pierre.
– the company will manufacture the rockets and this launch, then 32 to 36 satellites during each Razzo@MazarsUSA.com.
satellites it will launch – and because the ITU following launch).
1
According to the latest figures from the International Telecommunication
has yet to assign the company frequencies for its Union (ITU) from June 2016. This entity is a sub-section of the United
signal distribution. Two other launch contracts have been signed Nations, in charge of information technology and communication.
2
“Whoever gets the most data wins” declared in 2017 Masayoshi Son, the
with Virgin Group and Blue Origin LL (Jeff President General Director of Softbank, who is one of Space X’s reference
ONEWEB Bezos). shareholders.
3
Compared to 600 milliseconds to date based on existing technology
(figures from Space X’s presentation on the project to the FCC)
The Oneweb Project, initiated under the name Oneweb’s internet design, development, and 4
At an altitude of 36,000 km
5
This is the same altitude as the International Space Station (350 km to
“WorldVu” in 2014, pursues the same objective infrastructure manufacturing (software, physical) 400km)
of providing high-speed internet access to all at were entrusted to Qualcomm Group, which is one 6
Thus, we speak of a fleet of potentially 2,620 satellites in total
7
$500 million dollars in January 2015 from, In particular, Qualcomm, Virgin
an affordable price as early as 2027. To this end, of the project’s shareholders. Group, Coca Cola, Boeing, Airbus and nearly €1.7 million euros raised from
the Arlington, Virginia based company plans, Softbank in December 2016 and 2017
8
“The web enables us all to participate. This is not just our mission, it’s
according to founder and President Greg Wyler, PHILANTHROPY OR BUSINESS? everyone’s.” (Oneweb official website)
to place three satellite constellations in low earth 9
“Exclusive peek at Space X Data shows loss in 2015, heavy expectations
for Nascent Internet service” (Wall Street Journal January 13, 2017)
orbit between 2018 and 20276. The space race which the key players are en- 10
Michael Sheetz “ Morgan Stanley predicts space industry will triple in
gaged is not simply one of philanthropic activities. size: Here’s how to invest”
https://www.cnbc.com/2017/10/12/morgan-stanley-how-to-invest-in-1-
648 small satellites (275 lbs. to 330 lbs.) should Underneath the marketing,8 the financial stakes trillion-space-industry.html
be sent into space as the first constellation couldn’t be higher. 11
Michael Sheetz “ These 90 Private Companies are Reshaping the Space
Industry, says Morgan Stanley”
between 2018 and 2020. In order to achieve https://www.cnbc.com/2017/12/13/morgan-stanley-spacex-blue-
this, the company was structured around the key The Starlink project’s launch cost is estimated to origin-and-other-private-companies-reshaping-space.html?__
source=sharebar|twitter&par=sharebar
players so as to guarantee the project’s financial be $10 billion dollars, but the potential profits are
stability ($2.2 Billion dollars raised at the end of staggering as shown by the Wall Street Journal
December 20177) and technical feasibility. on January 13, 2017,9 based on Space X’s inter-
September/October 2018 | 5
HEALTHCARE PUTTING HEALTHCARE CONSUMERS IN THE DRIVER’S SEAT OF THEIR DATA BY GILLIE MCCREATH 6 | Mazars USA Ledger
T
he use of electronic health records of unprecedented change and innovation, many put pricing information on their websites. But it’s
(EHR) came out of the American Re- segments of the healthcare industry are still important to note that there are two types of trans-
covery and Reinvestment Act of 2009 leveraging outdated record review and storage parency: cost transparency and price transparen-
with $19 billon of the stimulus package processes, ultimately putting their patients as cy. While “price” refers to what the hospitals are
dedicated to healthcare IT improvements. How- well as their bottom lines at risk. charging consumers, is it going to actually cost
ever, the disconnect between medical devices me as a consumer out of pocket? The healthcare
and EHR, or even between different systems, While the patients themselves might be willing to system has a relatively long way to go in terms of
persists. A movement to connect clinical and share their records and additional data between becoming truly transparent. By and large we still
financial data would ultimately allow the industry doctors, specialists, or health systems, they don’t estimate or pre-adjudicate a claim around the
as a whole to get new insight into consumer often find that the hospital, perhaps their past whole consumption of care. Patients today want to
behavior, and for consumers to make more insurance company, and even the technologies know not only what their hip surgery will cost, but
informed decisions about their healthcare. themselves are acting as barriers. The issue of also the complete cost of recovery and rehabilita-
data silos not only affects the clinical aspects tion. Many medical practices in other countries are
TECHNOLOGICAL CAPABILITIES TO IM- along the provider chain, it affects the revenue able to pre-adjudicate claims, with the full cost of
PROVE INTERACTION cycle. service ultimately being paid for upfront.
Today, 50% of consumers are okay with sending When hospitals or physicians are considering Even with new technologies, hospital consol-
their health information digitally. Take the ex- improvements to their technical capabilities, they idations, and staffing strategies, maturing the
ample of a patient who has recently received an should explore how they will affect consumers Quadruple Aim (reducing costs, reducing physician
EKG, but now another health system is asking and staff around the multiple lines of business burn out, improving patient experience, and
for a new one. Would the second procedure be they serve, along with the operational, clinical, improving health populations) is still a formidable
deemed necessary if the provider had access and financial impact. The ability to relieve challenge. We can’t lose sight of the key elements
to more complete data about the patient? This operational pain points often features promi- that healthcare consumers need - accountability,
”While the patients themselves might be willing to share
their records and additional data between doctors,
specialists, or health systems, they often find that the
hospital, perhaps their past insurance company, and even
the technologies themselves are acting as barriers. The
issue of data silos not only affects the clinical aspects along
the provider chain, it affects the revenue cycle.”
duplication of procedures has cost and clinical nently into the decision-making process when accessibility, and affordability. We certainly have
implications. And ultimately, it’s just a big waste selecting technology solutions. Often, though, tools that are maturing and going to help us along
of healthcare, especially for a system that’s it’s worthwhile to flip the discussion, examining that spectrum, but until we put the consumer in
experiencing extremely high rates of physician the operational ineffectiveness of the organiza- the driver’s seat of their own data, it’s going to be
burnout and data fatigue. tion that needs technology, and what solutions a real problem to get behavioral health and other
will result in the highest return. information across the system.
Add to that the fact that 9% of patients’ misiden-
tifications ultimately lead to death or permanent COST AND PRICE TRANSPARENCY Gillie is a Principal in our New York Practice. He
injury, and that 35% of denied claims are due to can be reached at 212.375.6568 or at
patient misidentifications, and the seriousness To better meet their patients’ needs for Gillie.McCreath@MazarsUSA.com.
of this data problem comes into focus. In this era affordability, some hospitals are beginning to
September/October 2018 | 7AUTOMOTIVE
US AND GERMANY AUTO MARKET
BOTH SET FOR MAJOR
SUSTAINABILITY CHANGES
BY JEREMY RICE AND KRISTIN JOHANNIMLOH
B
oth the US and German auto markets have been slower than commitment. General Motors has already seen growing, albeit small, inter-
other countries to adapt to electric vehicle (EV) technology, est in its electric vehicle (EV) offering, the Chevy Bolt, and has announced
partially because of their larger size as countries, both in terms of similar intentions to increase its electric and hybrid fleet. But while sustain-
population and geographic area. At the same time, these deeply able mobility momentum is picking up at company level, taking into account
inter-linked markets are going through substantial innovation both individually the geographical make-up and demographics of the US is key to catering
and in tandem. for consumer needs and preference.
With large combustion engine SUVs still the best-selling vehicles in the US, Similarly, in Germany, car manufacturing giants such as BMW and Volk-
OEMs are struggling to find an approach that takes advantage of cutting swagen have built their reputations on their expertise in combustion engine
edge thinking on sustainable mobility development, while at the same time technology and manufacturing excellence built up over the past 80 to 100
keeping Wall Street happy. Conscious that the sustainable winds of change years. Accounting for 20% of total German industry revenue and employing
are blowing stronger, Ford has recently announced an $11bn investment approximately 800,000 people, there is little political will to meddle with an
program in electric vehicles by 2022, which more than doubles its previous industry that is an integral part of the country’s social fabric.
8 | Mazars USA LedgerHowever, with the political and regulatory landscape moving firmly in the the public that EVs are both a viable and reliable alternative.
direction of car electrification, the industry is having to seriously examine its
future. For example, a Federal Administrative Court ruling in February 2018 In both the US and Germany, charging station infrastructure is key to
giving cities the right to ban diesel cars, together with a fall in diesel car sales gaining consumer traction. The complexity of changing established infra-
and the lingering emissions scandal, are creating the perfect storm forcing the structure to propel EV popularity has been slower than hoped, resulting
automotive industry to explore alternatives. in bottle necks as governments struggle to accommodate consumer
charging needs.
LEVERAGING R&D INVESTMENT IN GERMANY
Germany’s recent move to convert 12,000 distribution boxes into
The automotive industry is by far the biggest investor and employer in the charging stations is a great example of how to leverage existing
R&D arena in Germany, employing over 110,000 people., and has been one infrastructure to create more EV charging points without infrastructure
of the main reasons for the country’s reputation for reliability, safety and displacement.
manufacturing excellence. According to German’s automotive industry associ-
ation, VDA, the industry accounts for more than one third of total global R&D THE CHALLENGE OF SECOND GUESSING INNOVATION
spending in the automotive sector, putting it ahead of Japanese and American
companies. Moving forward, it will be critical to leverage this investment for While advances in technology, particularly in the area of automated
development of sustainable automotive technologies. driving, are disrupting OEMs, it’s equally as hard to envisage what the
end game is for those in the US supply chain. As a result, some players
Elon Musk’s Tesla has spent millions of dollars developing and testing EV are hedging their bets and investing heavily in technology to cope with
batteries. But investing money into new technology doesn’t always equate to a life without combustion engines or traditional car materials. While it’s
mass-market ready product as quickly and effectively as anticipated. German a gamble to invest in expertise and capabilities 5-10 years before the
auto-makers are still on a learning curve. Learning from pioneers such as landscape becomes readable, companies that delay plans to acquire the
Tesla and honing production capability, while learning from pioneers can help right skills and expertise could potentially fall too far behind the curve.
achieve a better and more revenue-certain product as is one late-mover ad-
vantage that Volkswagen and Daimler are currently exploiting in the EV sector. In Germany, despite the fact that Volkswagen has recently pledged
34 billion euros towards the development of battery-powered and
AN URBAN VERSUS RURAL STRATEGY IN THE US autonomous vehicle technology, and has partnered with Silicon Valley
start-up, Aurora, to bring self-driving taxis, cars and trucks to the road, it
Despite a decrease in engine cylinder size over the past 10 years, the market and other German OEMs are still working to improve traditional engine
for larger vehicles such as SUV/Crossovers has never been stronger. This is powertrain development.
not surprising based on the sheer size of the US, where 97% of land is rural.
The ultimate winners and losers in the global automotive industry will
While Ford‘s F150 pick-up truck is America‘s best-selling vehicle, smaller not only be decided by national considerations, but also what happens
cars are gaining popularity in more densely populated cities, particularly on worldwide. As players in the industry jockey for position, an increase in
the coasts. This gives a potential market for EVs from younger city-based investment and research into sustainable mobility solutions, collabora-
consumers who use cars to commute to work and prefer to fly for longer tion and acquisitions will
trans-America journeys. With fully 80% of America’s 327 million population liv- become the strategic norm.
ing in urban areas it makes sense for OEMs to have a specific urban-focused
sustainable mobility strategy. This also opens the door for building partner- Jeremy is a Partner in our Chicago Practice. He can be reached at
ships that give access to shared mobility options such as ride-hailing and car 312.863.2406 or at Jeremy.Rice@MazarsUSA.com.
sharing which have more traction in densely populated areas. Meanwhile,
in rural areas hybrid vehicles offer an interim solution to current consumer Kristin is a Manager in our New York Practice. She can be reached at
reluctance for EVs. 646.435.1623 or at Kristin.Johannimloh@MazarsUSA.com.
ARE WE THERE YET?
For EVs to match their combustion engine counterparts, significant investment
in infrastructure and continued development in longer life battery technology
is required. OEMs that can achieve this will be in a better position to convince
September/October 2018 | 9FOOD & BEVERAGE
MAZARS USA 2018 FOOD & BEVERAGE INDUSTRY
STUDY RESULTS EXECUTIVE ROUNDTABLE
BY HOWARD DORMAN
SO FAR IN 2018, THE FOOD & BEVERAGE For close to 90 years, the Food Institute Bob: Uncertainty due to government actions is
INDUSTRY CONTINUES TO SHOW SIGNS OF has been the best source for food industry causing a lot of concern because companies
GROWTH, PAIRED WITH A STRONG SENSE executives delivering actionable informa- don’t know what their true cost of doing business
OF TRANSFORMATION THROUGHOUT ALL tion regarding current, timely and relevant is or may be. Tariffs and removal of countries
INDUSTRY SUBSECTORS. information about the food industry from long-standing trade programs are two
• Richard McArdle, Executive Director at the issues that come to mind. Some announcements
HOWARD DORMAN, PRACTICE LEADER Rutgers Food Innovation Center. Richard is come with little advance warning and most don’t
FOR THE FOOD & BEVERAGE SECTOR a thought leader in the food and agriculture allow time to develop suitable replacement pro-
SPOKE WITH LEADING EXPERTS TO GAIN industry and an authority on product devel- ducers (if they exist) of the products in question.
AN UNDERSTANDING OF WHAT’S GOING ON opment and commercialization.
AND WHAT IS AHEAD. Brian: The low inflation in commodity prices, in-
The three of you represent very important, cluding deflation in some categories, should aid
The group included: but different, sectors of the F & B commu- food and beverage manufacturers in their efforts
nity. Our study showed optimism and an to increase profitability in the short term, as the
• Bob Bauer, President of the American expected increase in sales and profitability positive economy hopefully helps lift sales. Fur-
Food Industries (AFI). The AFI is a trade over the short term. At the same time, our ther down the pike, however, commodity prices
association of more than 1,000 companies respondents felt the top concerns are rising will likely rise and managing those increases will
worldwide involved in importing a wide commodity and other costs, food safety and be vital to maintaining profitability.
variety of food products into the U.S. and quality assurance, and the ability to develop
Canada. Their specialties range from Food new products. What do each of you view Being aware of the new omnichannel market-
Import Issues to Food Safety. as challenges in F & B over the next 12-18 place will also be an important factor so com-
• Brian Todd, President of The Food Institute. months? panies and products are relevant to a variety of
10 | Mazars USA Ledgerconsumers who use multiple channels to buy their food products. Food and leaving their home.
beverage processors will have to be fluent in this new language, actually
multiple languages, dealing with new means of distribution and sales. And I think down the road we have to deal with a bifurcated consumer pop-
ulation who will demand convenience, but also wants products and meals
It will also be vital to be aware of any regulatory changes, such as those that meet their own specifications. This will go beyond the refrigerated
being implemented through the Food Safety Modernization Act. prepared food cases supermarkets offer now and simply ordering meal kits
online. At some point, the process will become more personalized for each
Richard: With strong overall economic growth, low unemployment and consumer so they can have exactly what they want in the format they want:
rising wages, both retail and foodservice operations should do well for both to prepare themselves, partially prepared, fully prepared, frozen, etc.
topline (food businesses have the ability to pass on inflation in higher prices
in good economic times) and bottom line, and I see commodity prices being That’s a deep dive into the crystal ball, however that will take a melding of
tempered by surpluses and the current trade/tariff issues. I think most technology, food safety, and logistics.
large food companies will finally see respectable increases in topline in the
next year, and cost-cutting programs will have similar impact on profitability. Bob: A combination of the ongoing trends of better-for-you, sustainability
and convenience will drive disruption/innovation. Having said that, the latter
For retail products, the competition at the retailer level (store and on-line) two often are at odds with one another and the first is often asked for by
will continue to accelerate. I see increased consolidation of retailers and consumers for some products, though they’re willing to make exceptions for
retailer space, and expansion of online selling (whether shipped, or store long-standing favorites.
to door). This competition may force some price/margin concessions from
large manufacturers. With all of this optimism in our study, what can companies improve
on to continue the success they are having?
I see the biggest issue in the short term as the talent war. After a long
period of recovery, demand for skilled employees is outstripping supply and Bob: Since much of AFI’s work focuses on compliance, I’ll go there. Com-
there is a significant issue for many businesses around getting skilled work- panies need to spend the resources to ensure they are in compliance with
ers for manufacturing jobs, and top talent for management, especially since regulations. One food safety issue, for example, can set a company back
management, finance, marketing, and sales tend to move and compete several years, or perhaps even cause its demise, and one regulatory issue
across industries. can wipe out the profit made on many other successful entries or production
cycles.
Everyone talks about disruption. I would rather refer to it as inno-
vation. What is causing it and with the crystal ball you have on your Richard: “Digitize” and automate all possible processes. Growth (compet-
desk, what is something you see coming down the pike? itive advantage) and profit will come from the value adds of efficiency and
convenience, to creating, manufacturing, marketing and delivering the food
Richard: F&B in the US is a saturated market, although beginning to frag- and beverage products. While there will be some disruption in the types of
ment – especially because of the connectivity and direct sourcing models foods people consume, the highest value will be in taking advantage of the
provided by mobile/internet. So the F&B industry will continue to segment, efficiencies and speed available in robotics, IOT, AI, and automation.
by age and income (as in the past), but now also by geography. More local,
regional and small/direct ship companies will gain a foothold in the market. Brian: Don’t be complacent and to be ready to change as needed to meet
the demands of the consumer and the marketplace. Also embrace innova-
My prediction for innovation (in 5-10 years) is that the selling and distribution tion, but make sure the numbers work to keep a positive bottom line.
models will change, not so much the food. This will include much more
direct selling from small/regional players, an increase in out-of-home food Information is key in that effort, from your own people to being informed
purchases, an increase in premium segment offerings and especially, direct about the industry…your customers, your competitors and your partners.
delivery of prepared meals. This won’t be the result of one technical innova-
tion or company’s actions, but a slow change in how consumers obtain their Howard is a Partner in our New Jersey Practice. He can be reached at
meals and meal components. 732.205.2040 or at Howard.Dorman@MazarsUSA.com.
Brian: I believe we are in the midst of the most innovative and disruptive
period the food industry has ever experienced. Consumers have the ability
to access any type of product from virtually anywhere on the globe without
September/October 2018 | 11UPCOMING EVENTS Mazars USA 2018 New York Food & Beverage Executive Forum | October 10, 2018 | New York City, NY The Mazars Food and Beverage Executive Forum is the premiere Food & Beverage Industry event in the New York, New Jersey and Pennsylvania metropolitan markets. Each year over events bring together over 300 food and beverage senior executives collectively for an evening to network and to hear from leading industry panelists. Mazars USA 2018 Consumer Products Forum | October 24, 2018 | New York City, NY Please join Mazars USA and MMG Advisors for an exclusive, invitation-only retail and consumer products forum. This year's topic will address Growing in the Age of eCommerce - It’s All About Strategy! Real Estate and Construction Roundtable Breakfast | November 15, 2018 | Philadelphia, PA Please join us for a lively gathering of area Real Estate and Construction professionals to discuss current issues affecting our industry. Our guest speaker will be B. Scott Zuckerman, Principal of Domus Inc. Scott will discuss Domus’ current projects as well as share his views on the state of real estate development in our area. Leaders of the Mazars USA Real Estate and Construction practices will moderate the discussion. Mazars USA 2018 Pennsylvania Food & Beverage Executive Forum | November 28, 2018 | Bensalem, PA The Mazars Food and Beverage Executive Forum is the premiere Food & Beverage Industry event in the New York, New Jersey and Pennsylvania metropolitan markets. Each year over events bring together over 300 food and beverage senior executives collectively for an evening to network and to hear from leading industry panelists. FEATURED SURVEY 2018 U.S. Water Industry Outlook We are seeking the views of leaders and decision makers in the water industry. With your help, we will continue to define industry trends and build a knowledge base of challenges and opportunities that are shaping the future of the water industry. Scan the barcode to participate in our survey. WELCOME OUR NEW PARTNERS What Mazars Means to Me Stacey Barbaro, Michael LaMantia, Christopher Lieto, Chris Moore, Laura Peth, Jeremy Rice and Jennifer Safran have been elected for admission to the Partnership effective September 1, 2018. Stacey is in the ESG group located in Long Island, NY, Michael is in the Real Estate group located in New York City, Christopher Lieto is in the PCS group located in New Jersey, Chris Moore is in the Management Consulting group located in Maryland, Laura is in the Healthcare Consulting group located in Sacramento, Jeremy is in the Manufacturing & Distribution group located in Chicago and Jennifer is in the Real Estate group located in Long Island, NY. Our new Partners recently made a video on what Mazars means to them. Scan the barcode to watch our video and learn more about our new partners. Welcome to the Partnership! 12 | Mazars USA Ledger
REAL ESTATE
HOW DEVELOPERS CAN HELP
NEW YORK CITY REACH ZERO WASTE BY 2030
BY BISNOW, SPONSORED BY MAZARS
Take a walk on one of New York City’s busy sidewalks, and chances are you will see
piles of trash blocking the street. A new report recently named New York the dirtiest
city in America, but the city’s waste management problem is not new. The Big Apple
has a legacy of struggling to manage its approximately 50,000 tons of daily waste.
In 2015, Mayor Bill de Blasio announced plans to mitigate some of these issues
through OneNYC, a program to establish a "fair and just city" for the people of New
York. In addition to lifting hundreds of thousands of New Yorkers out of poverty by
2025, the comprehensive plan outlines a strategy to send zero waste to landfills by
2030. The city is relying on commercial real estate developers, who control much of
the city’s land and property, to help make this goal a reality.
September/October 2018 | 13REAL ESTATE
“Environmental and economic sustainability must go hand in hand – and Other developers have employed sustainable strategies by recycling
OneNYC is the blueprint to ensure they do,” de Blasio said in prepared the ruins of already demolished buildings. This approach requires an
remarks at the time. understanding of what kinds of materials are recyclable, including wood,
glass, plastic and brick.
As the people who build the city’s buildings and facilities, developers are
responsible for ensuring the built environment meets the needs of its users. Reducing the disposal of construction and demolition materials not only
benefits the environment, it also has positive implications for the developer.
One way developers can help manage the city’s waste is by implementing a This strategy eliminates unnecessary building expenses, and developers
more sustainable approach to construction and development. As developers who donate recovered materials to qualified nonprofit organizations and
mark their territory in neighborhoods across the city, they are demolishing charities are eligible for tax benefits. Reusing C&D materials can also create
several existing structures to build new ones. These activities have played a economic growth through increased employment opportunities for workers in
role in increasing the city’s waste. According to the Environmental Protection the recycling industry.
Agency, an average 13,300 SF commercial demolition project generates over
2 million pounds of waste. The city continues to work with developers and construction managers to
push its Zero Waste effort. In 2016, de Blasio challenged local businesses to
"Developers need to look at waste as a design flaw," Mazars partner Arthur reduce waste. Participating businesses collectively diverted 36,910 tons of
Adams said. "While most have taken steps on energy conservation, they waste that would have otherwise ended up in a landfill.
need to take the same approach to waste management. They must make
upfront plans for waste segregation for recycling, look to use recycled “This challenge proves that our commitment can be achieved so long as
materials in their materials and finishes, plan for off-site or modular every New Yorker does their part to create a more sustainable city,” de Blasio
construction, which has been shown to reduce errors and waste, and design said in a release.
with the idea of standardized dimensions to reduce cuts that lead to waste.
These steps will help the construction industry contribute to a zero-waste As developers rebuild and reshape New York City, they have a crucial role
initiative and greater sustainability." to play in the fight for a cleaner and more sustainable city. Implementing
a recycling strategy as part of development plans can ensure the city’s
Many of these costs can be mitigated through adaptive reuse projects. buildings serve the environment, and the people who live there.
Instead of demolishing buildings, developers can repurpose existing
structures. This approach has both economic and environmental benefits. This feature was produced in collaboration between Bisnow Branded Content
Using existing resources cuts construction costs, which would otherwise be and Mazars. Bisnow news staff was not involved in the production of this
allocated to purchasing materials for new construction. This has become content.
more of a concern for the industry over the past few months, as tariffs have
made materials like steel and lumber more expensive. These adaptive reuse Arthur is a Partner in our New York Practice. He can be reached at
projects offer a more sustainable alternative. 212.375.6524 or at Arthur.Adams@MazarsUSA.com.
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Our "Good Day To Be Visible" video features new Partner Stacey Barbaro interviewing Partner Tifphani White-
King as they discuss what's at stake when we are not visible and the impact that it has on our clients and staff.
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14 | Mazars USA LedgerPRIVATE CLIENT SERVICES
CHARITABLE PLANNING IDEAS FOR INDIVIDUALS
UNDER THE NEW TAX LAW
BY LAUREN REO
The Tax Cuts and Jobs Act of 2017 brought with it many changes, fund. This way, they can benefit from the tax deduction in one year as well
including several to itemized deductions, such as a limitation as continue to support the charity each year. On the flip side, by making a
on the total deduction for state and local taxes, changes to the small direct donation to the charity annually, the taxpayer may not be able to
mortgage interest deduction, an increase in the AGI limitation on itemize their deductions and as such claim the standard deduction, resulting
cash contributions and the elimination of the deduction for 2% in zero tax benefit for these small annual contributions.
miscellaneous itemized deductions.
Another option is to bundle your charitable donations into one year, to cover
These changes will certainly impact many taxpayers and new planning ideas multiple years of support. This way, you would notify the charity that the
are a necessity. Many taxpayers’ largest itemized deduction was the state larger gift covers a multiple-year period and likely increase the opportunity
and local tax deduction. With the new law allowing only $10,000, we may for you to itemize deductions in the year you make the donation while still
see many taxpayers claiming the standard deduction. For a couple filing giving the same level of support to the charity.
married filing joint, the standard deduction is now $24,000.
These planning opportunities should be considered as part of your entire
These changes will put taxpayers at risk of losing the benefits of most of their tax plan for any given year. If there is a year where you know income will
charitable contributions. One strategy to mitigate the potential loss is the use be significantly higher due to a specific tax event, you may want to plan
of a Donor Advised Fund (DAF). A DAF gives the owner the flexibility to keep to increase your charitable deductions so that you are able to itemize and
their annual charitable giving the same, while maintaining most of the tax maximize your deduction amount to minimize tax.
benefits for charitable contributions.
The TCJA will impact many planning practices and open the door to many
A taxpayer can open a DAF, which is relatively economical to establish and new planning ideas. Be sure to consult your tax-advisor.
maintain, and make a large contribution to it one year to ensure the benefit
of itemizing their deductions. In subsequent years, where there may not be Lauren is a Senior Manager in our New Jersey Practice. She can be reached
a large addition to the fund, they will likely claim the standard deduction, but at 732.475.2145 or at Lauren.Reo@MazarsUSA.com.
still be able to support their favorite charity by making donations from the
September/October 2018 | 15WATER
ON THE WATER BY JEROME DEVILLERS
THERE IS NO QUESTION THAT THE U.S. WATER INFRASTRUCTURE and distribution/collection networks is focused on reducing capital
NEEDS REPAIR. THE UNPRECEDENTED FLOODING AND DROUGHTS and operating costs, particularly those associated with maintaining or
ACROSS THE COUNTRY OVER THE PAST 15 YEARS AND THE LEAD enhancing distribution networks. The traditional economic model for
CONTAMINATION OF PUBLIC WATER IN FLINT, MICH., ARE JUST A funding these distribution network improvements is collecting tariffs
FEW EXAMPLES THAT HIGHLIGHT WIDESPREAD NEED FOR MORE from users, and banking on these long-term future cash-flows to finance
RESILIENT WATER INFRASTRUCTURE. WHILE THERE HAS BEEN construction. As a result, having a financing mechanism in place is
MOVEMENT TO IMPROVE U.S. INFRASTRUCTURE – INCLUDING essential for the civil engineering construction vertical to play in that field.
A $1 TRILLION PLAN RECENTLY ANNOUNCED BY THE CURRENT On the other end, improved technology offers promising solutions at
ADMINISTRATION TO BOOST INFRASTRUCTURE INVESTMENT – THE the point of use and creates opportunities in residential and industrial
NEED FOR CONSTRUCTION IN THIS AREA MAY GO WELL BEYOND construction. For example, not all water must be of drinking quality, and
CURRENT PLANS. ACCORDING TO THE AMERICAN WATER WORKS self-sustainable building, encompassing re-use of grey water and/or rain
ASSOCIATION, THE TOTAL COSTS TO REPLACE ALL PIPES IN THE water for lawn irrigation, production processes, toilets or showers, is a
UNITED STATES COULD VERY WELL PASS $1 TRILLION – THAT’S less expensive and easier to implement solution that has been gaining
BEFORE ANY WORK ON ROADS, BRIDGES OR OTHER PROJECTS momentum.
CONTEMPLATED IN THE PLAN BY THE CURRENT ADMINISTRATION.
Finally, real-time monitoring/smart management is becoming a critical
More than one-third (41 percent) of survey respondents in the Mazars USA element of innovation. Smart metering and data analytics foster more
2017 US Water Industry Outlook said they expect capital expenditures to detailed and accurate metrics to identify weaknesses and highlight
increase in excess of 5 percent compared to the prior year. While water opportunities for improving water and wastewater operational cycles.
is currently a very small contributor to the overall construction industry, Construction companies targeting water-related projects must incorporate
there are still very large water-related projects with important construction these technologies into their plans for greenfield and brownfield
components. For example, the water management project being developed developments.
in Fargo-Moorehead Metropolitan Area Flood Diversion Channel P3
Project, which will markedly reduce flood risk. Add to that the fact that there RISK-SHARING MECHANISMS
are many pipes that will need replacing soon – 39 percent of respondents
estimated less than 10 years of useful life remaining in their water mains Water projects, like all major construction undertakings, are dependent
– and there are plenty of potential opportunities for constructions projects on the developer’s ability to predict future cash flows and profitability. The
today. accuracy of these projections is a challenging exercise, and the reality
sometimes differs significantly, due to delays, poor estimation processes
While it can still be a challenging process to get water-related construction and failed risk management.
projects off the ground, there are a few key factors that are critical:
innovation, risk-sharing mechanisms and financing. As the industry seeks to address challenges, limit costs and attract capital,
it will benefit from alternative procurement methods, also known as public-
INNOVATION private-partnerships (P3). This alternative procurement process, which
allocates risks to different stakeholders based on their ability to manage
At the forefront of innovation in water-related construction are them, results in on-time and on-budget project delivery, and thus reduces
environmental regulations compliance, reduced capital and operating construction companies’ risks.
costs, and real-time monitoring/smart management. The technologies
developed address challenges at different levels of the treatment, This model has proven important to successful infrastructure plans in a
distribution, use and collection cycle of water management, and they will number of developed countries. Companies looking to seize opportunities
affect the opportunities for the construction industry. in water-related projects should build teams of experts who understand
the water sector, can educate the construction company team, and can
On one end, innovation targeted at large-scale treatment facilities facilitate connections with P3 players.
16 | Mazars USA LedgerFINANCING aging infrastructure where rates have increased to a point of becoming an
excessive burden to water users.
As underscored in the above-referenced Outlook, financing is readily
available for infrastructure projects. The administration’s proposed tax Construction companies can take advantage of alliances and programs
incentives and infrastructure bills suggest that even more capital can be such as the Water Resources Development Act, which seeks to better
expected for the sector in the coming years. However, the water segment manage the country’s water resources, to ultimately bring down financing
is hampered by its small size relative to projects in transportation, roads costs.
and bridges, ports and airports. Thus, the water industry must ensure
its voice is heard and is part of the suite of ideas for the administration With the right mix of factors, it is likely that water-related construction and
and Congress, in order to attract its share of the infrastructure capital development in the United States will continue to grow. Those companies
poolAs education around the importance of water continues, infrastructure that can work with municipalities, utilities and other stakeholders to address
financing will inevitably come through municipal bonds for state programs, local water infrastructure challenges and secure available financing will be
public utilities or listed investor-owned utilities. One barrier to greater positioning themselves well for that growth.
infrastructure investments, resulting in additional construction spending,
might be wider customer acceptance. In today’s model, rate payers end up Jerome is a Partner in our New York Practice. He can be reached at
funding these investments, which is particularly troubling in jurisdictions with 212.375.6866 or at Jerome.Devillers@MazarsUSA.com.
September/October 2018 | 17REAL ESTATE
NYC'S BOUTIQUE HOTELS POISED TO DRAW
MORE TRAVELERS—AND INVESTORS
BY MICHAEL MOCTON
A BIG FIRST QUARTER AND OTHER TRENDS BODE WELL DESPITE
AIRBNB AND FOREIGN POLICY HEADWINDS.
GOOGLING “BOUTIQUE HOTEL MIDTOWN MANHATTAN NY” YIELDS
A WHOPPING 713 LODGING OPTIONS. THIS IS A RECENT DEVEL-
OPMENT AS THE CITY IS SEEING A BOOM IN BOUTIQUE HOTELS,
WHICH ARE DEFINED AS SMALL HOTELS WITH BETWEEN 10 AND
100 ROOMS, UPSCALE ACCOMMODATIONS, AND UNIQUE SELLING
POINTS OR A THEME. MANY ALSO HAVE RESTAURANTS THAT
REFLECT THE AMBIANCE AND CULTURE OF THE HOTEL.
Much of this can be attributed to a change in the average New York City
visitor. Historically, hotels have had a harder time filling rooms on weekends Despite the disruption from Airbnb, occupancy rates for New York City
than on weekdays. However, data from STR show weekends are now gen- hotels are growing and anticipated to continue in that direction, at least for
erally seeing higher prices (as measured by average daily rate) and higher the near term. The expectation is for the current supply of hotels as well
occupancy rates, which suggests that city visitors are now more leisure as those scheduled to open in the next few years (22 hotel openings are
travelers; indeed, a 2017 US Travel Association report noted that leisure anticipated in 2018, adding 5,000 rooms) to be fully absorbed by visitors.
visitors comprise a healthy 79% of Big Apple travelers.
Boutique hotels should enjoy the same occupancy trends. The flip side
to this is the average daily rate, which has declined or remained steady
throughout 2016 and 2017. However, the first quarter of 2018 was a break-
through, with hotels experiencing a 3.5% increase in that rate.
The increase in average price per room was led by the luxury hotel class.
This is good news for the boutique hotel industry, which caters to the leisure The pricing for the 713 search results ranged from $53 to nearly $1,000 per
market. Boutique hotels usually charge a premium for rooms, and business night. The recent indicators of the return of “pricing power” to city hoteliers
travelers' companies are usually not inclined to cover these costs. The may be a great sign for boutiques.
standard hotel occupancy rate in the city is 86.7%, and overall in the U.S.,
boutique hotels enjoy a higher occupancy rate than other hotel categories. With the hotel market’s overall positive performance, hotels continue to
be an acquisition target for both institutional investors and private equity
If developers and operators are to maintain these high rates in 2018, the nationally. As one of the most significant hotel markets globally, New York
4,000 boutique hotel rooms in New York City would need to attract 1.3 City remains a key investment target. Hoteliers should focus on differenti-
million visitors. According to NYC & Company, 65.1 million visitors are ating their offerings to attract this investment capital, and a well-designed
expected this year, which means boutique hotels would need to capture 2% boutique hotel is the way to do it.
of the market. They comprise 3.5% of the city’s hotel supply, so this seems .
achievable. Michael is a Senior in our New York Practice. He can be reached at
646.225.5960 or at Michael.Mocton@MazarsUSA.com.
Nothing is guaranteed, of course. Risk factors for boutique hotels and the
whole hospitality industry include perception of the U.S. as unfriendly to
foreign travelers, stemming from the nation's current foreign policy and
media narrative, exchange rate issues, and the ever-present risk of natural
disasters and terrorist threats.
18 | Mazars USA LedgerHEALTHCARE
A NEW STANDARD FOR LEASE ACCOUNTING
BY JASON GUTMAN AND JESSICA HESS
O
n February 25, 2016, the FASB issued Lessees will classify their leases as either WHEN TO START?
ASC 842 Leases - a new standard operating or finance; each classification has its We expect implementing ASC 842 will be a
seeking to address concerns of financial own unique accounting treatment. All leases are significant challenge for most organizations. Now
statement users and provide a clearer picture initially recorded as liabilities equal to the present is the time to gather data and identify solutions in
of companies’ leasing activities. For public value of the lease payments, along with a corre- order to achieve compliance by the effective date
companies, ASC 842 will be effective for fiscal sponding ROU asset equal to the lease liability. of the standard. Visit mazarsusa.com/hc to see
years beginning after December 15, 2018; for all The level of financial statement disclosure around the effective solutions our experts can offer you.
other entities, including most non-profits, ASC leasing activities also increases under the new
842 is effective for fiscal years beginning after standard. Tifphani is a Manager in our New York Practice.
December 15, 2019. He can be reached at 646.225.5992 or at Jason.
WHAT ARE THE STEPS TO IMPLEMEN- Gutman@MazarsUSA.com.
WHAT ARE THE MAJOR IMPACTS? TATION?
ASC 842 establishes a new concept in lease • Gather and catalog your current inventory Jessica is a Senior in our New York Practice.She
accounting known as the “right of use” (“ROU”) of leases, store lease data in a centralized can be reached at 646.315.6125 or at Jessica.
asset. An ROU asset results from a contract repository Hess@MazarsUSA.com.
which conveys the right to control an “identified • Design and implement a new lease
asset” for a period of time, in exchange for accounting process to manage your organi-
consideration. In the healthcare industry this new zation’s lease data
standard will affect leases for the use of: • Select a software solution that will support
• Inpatient and outpatient treatment facilities your organization’s adoption of the new
• Medical and diagnostic equipment lease accounting standards, and ongoing
• Offsite document storage lease monitoring and maintenance
• Software solutions for case management, • Transition to Business as Usual (BAU), fully
billing, and compliance train staff on new software solution, design
and implement internal controls
September/October 2018 | 19HEALTHCARE
WHY CLINICAL DOCUMENTATION IMPROVEMENT (CDI)?
BY DOUG BARRY AND ALICIA GORDON
RESEARCH REVEALS THAT A LACK OF
ADEQUATE CLINICAL DOCUMENTATION IS A
PROBLEM THROUGHOUT THE HEALTHCARE
INDUSTRY. WHILE HIGH-QUALITY
DOCUMENTATION IS ALWAYS SOUGHT,
IT REMAINS UNCOMMON WITHIN MOST
HEALTHCARE SETTINGS.
Provider documentation is the sole data source
for coding professionals, reimbursement and
public reporting. Coding professionals use
documentation in the patient record and translate
it into ICD-10 codes using very specific Centers
for Medicare and Medicaid Services (CMS) and
National Center for Health Statistics (NCHS)
within the US Federal Government’s Department
of Health and Human Services (DHHS)
guidelines. Once these codes are submitted via
claims, the data is used to develop perceptions of 26, 2017, a study by Change Healthcare Healthy accurately reflect medical management/decision-
performance in quality of care, mortality/severity Hospital Revenue Cycle Index found there making and illustrate the importance of specific
of illness scoring, length of stay and readmission are many reasons for denials, and the second documentation. Appropriate selection of CDI
rates. leading cause is missing/invalid claim data staff, effective communication of the CDI program
(14.6%). mission, appropriate metrics and C-suite support
Consumers are more aware of, and are are essential for sustained success. As providers
choosing facilities/providers based upon scores An effective CDI program can help solve learn the goals of the program and query
provided by governmental agencies, accrediting this problem. CDI programs are considered process, provider engagement increases.
organizations, or non-profit organizations such a bridge between a host of professionals,
as health grades and US News and World including physicians, mid-level providers, case In summary, Clinical Documentation programs
Report. Some of the challenges with these management, coding, quality management and can lead to improved quality scores, faster
scoring systems are the potential inaccuracy of financial services. coding, higher case-mix indices, increased
data and the possibility that it may be incomplete revenue capture and help with facility
or old. Scoring systems are proprietary. One The goal of an effective CDI program is to compliance. As one of the key areas of focus in
organization’s rating attribute(s) may be different support medical staff efforts to most accurately the Mazars Revenue Cycle consulting services,
from another organization’s depending on the depict: CDI is driving higher reimbursement and
focus of the score/rating. It is up to the patient to • The patient’s comorbidities on presentation improved CMI for clients across the US.
interpret these scores and determine where to • What caused the patient to seek treatment
seek care. • What happened during treatment Doug is a Principal in our New York Practice.
• Reasons for resource utilization He can be reached at 212.375.6558 or at Doug.
Payers are also moving from fee-for-service • Reflection of personalized, quality medical Barry@MazarsUSA.com.
to fee-for-value reimbursement models in an care
effort to strategically manage costs while also • Continuum of care on discharge Alicia is a Manager in our Sacramento Practice.
requiring improvements in care quality. Providers She can be reached at 802.999.4688 or at Alicia.
and payers alike struggle with incomplete or Clinical documentation education is often not Gordon@MazarsUSA.com.
inaccurate claims based upon incomplete provided during medical training. CDI programs
documentation. Per Becker’s CFO Report, June help providers understand what is necessary to
20 | Mazars USA LedgerYou can also read
