Weaver: Beyond the Numbers

Howard Altshuler went to hell and back to be with co-host Rob Nowak. Okay, not literally, but Altshuler did return from a recent visit to Weaver’s new office in Houston, Texas, and the Hotter’n Hell bike ride in Wichita Falls, an annual Texas ‘ride of passage’. Altshuler completed a fifty-mile ride in the Texas heat and finished in time to make it into the studio to tell Nowak about it.

Inflated bike tires were not the only things on Altshuler and Nowak’s minds; congress had just passed the Inflation Reduction Act of 2022, and some aspects of the legislation surprised them. Nowak wasn’t necessarily surprised by what was in the final bill; rather, he was surprised by what it did not include.

Nowak says, “There were no tax increases. So, it becomes a spending with a revenue offset plan, as opposed to a tax-related bill.” Nowak notes there are tax incentives in the bill, but no change in the solve cap for individual taxpayers, as state and local tax is limited to $10,000, along with no carried interest changes.

If the bill’s purpose is to reduce inflation, Altshuler asks how the legislation is a spending bill. Nowak thinks of it more as a zero-spend bill due to the revenue-raising potential of the new law. “It’s a spending bill, but because it was passed through reconciliation, there has to be a revenue offset mechanism in the bill,” Nowak says. “So, the spend provisions are largely incentives in the form of tax credits, many of which are environmentally friendly in nature.”

Other revenue offset provisions include the reimposed minimum tax of 15% on corporations with more than $1 billion in profits and IRS enforcement actions. “The IRS’s budget was beefed up by $80 billion,” Nowak says. “That does not all go to enforcement action. A good portion of it goes to help the IRS modernize their systems.”

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©2022

As the market grows and develops, it changes. Some of these changes include renewed marketplace dependence on third parties. To talk about this change, risk evaluations and direct examinations, host Tyler Kern chatted with Weaver’s Neha Patel, Partner-in-Charge of IT Advisory Services, and Alexis Kennedy, Partner of IT Advisory Services.

Patel broke down the current marketplace dynamic, "end to end from an operational standpoint, you still see a lot of organizations rely on different organizations to outsource a couple of their activities or processes." There continues to be a need for consistent and relevant transparency in outsourcing, in order to make evaluating and processing risk more accurate.

"When you outsource something, you're putting the actual diligence and production of that service on a third party. However, you still retain some level of risk for them to do that appropriately and make sure that they're doing it according to how you would like them to do it," said Kennedy. Knowing if the third party can handle customer data security and deliver on time is essential to evaluating and choosing a third party outsource that can assure business capability.

Currently, there are two primary avenues of reporting conducted for companies. SOC 1 focuses on financial controls, internal controls and financial reporting, whereas SOC 2 typically addresses data security, availability and confidentiality. SSAE 21 is different. Kennedy explained, "What we are looking at doing here is providing an avenue by which organizations can take maybe smaller subsets of subject matter and issue an opinion, a report, or get third party assurance."

Having an auditor look at the precise controls of a company is especially important for those companies in the immature infancy stage. While the more traditional SOCs are assertion-based examinations, meaning the client must assert they have evaluated and understood the relevant subject matter before the examination, the direct examination puts the initiative on the auditor and does not require the client to provide an assertion prior to the examination. The direct examination pathway may be more attractive for organizations in infancy.

SSAE 21, Patel clarified, is “...Less about what management’s defining and now more about what the auditor may be comfortable defining and then still providing that same level of assurance. Further, it enables the auditor to perform an examination engagement in which the auditor obtains reasonable assurance by directly measuring or evaluating underlying subject matter against criteria and expressing an opinion that conveys the results of that measurement or evaluation. SSAE 21 also requires the examination report to indicate that the auditor is required to be independent and to meet the auditor’s other ethical responsibilities in accordance with relevant ethical requirements related to examination engagements

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© 2022

At the beginning of the COVID-19 pandemic, many companies relied heavily on the work-from-home model and many were successful with it. But with lockdown restrictions lifted and fewer mask mandates, most companies want to see their workers in the office again. Weaver's Rob Nowak and Howard Altshuler discussed the matter on this episode of the podcast Location Cubed.

Nowak said companies that normally would be at ease with their employees working from home are dialing back with new in-office requirements. He stated that even a major Silicon Valley company, such as Apple, is requiring employees to come in to work in a hybrid approach. “We need to be collaborating more, we need to be working within our teams, and we’re not confident that that's necessarily happening when folks are sitting in their living rooms and bedrooms working away,” stated Nowak.

Another area of concern is the lack of workplace mentoring and experience for employees who began working at the height of the pandemic. According to Altshuler, in-person has some greater benefits that translate quicker and yield better results. He cited assisting an employee with troubleshooting. “If we had tried to do that over [Microsoft] Teams we’d have gotten there, but it definitely wouldn't have been as quick,” said Altshuler.

However, one advantage of the work-from-home model that has changed is deciding how meetings move forward. Nowak said that companies are “picking and choosing” when they want to do in-person meetings based on their schedules. Altshuler said in-person meetings at restaurants or cafes add more time to someone’s day due to the social aspect and general culture of patronizing an eatery for a meeting. He added that virtual meetings have a lot of benefits when it comes to time zones, and reducing meeting times. “When you’re on Zoom or Teams you can kind of cut things off a little bit quicker so people are going to be more selective,” said Altshuler.

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©2022

Technology continues to change the way organizations conduct business. Governments across the country can enhance their effectiveness by leveraging new tools and modernizing processes.

Morgan Page, Partner-in-Charge of Digital Transformation and Automation at Weaver joins host Adam Jones for a look at how governments can take that next step in their digital transformation journey.

Page doesn’t believe digital transformation is a new concept but a rebranded one. Digital transformation happens when organizations look to improve or accelerate business processes using technology, a regular occurrence in forward thinking government organizations. Page explains, “Now we are at this next layer of digital transformation that looks at how we can best use data to accelerate even faster.”

While digital transformation is linked to an organization’s strategy and cultural priorities, digital automation focuses on the tactical execution of the activities within that transformation. Page says, “We may have a goal of eliminating processing tasks. Our digital transformation objective is that process change. Our tactical execution is the automation, using some kind of RPA (robotic process automation) solution or intelligent OCR (optical character recognition) to extract that information.”

In the government industry, digital transformation and automation deployment is running slower than in the private sector, but that doesn’t mean it isn’t occurring. “We’re seeing an increased acceleration in the space,” according to Page. “More and more components are readily available that are a little bit more plug-and-play.”

While the solutions may be more standardized in government, Jones says many sizeable agencies are utilizing digital transformation and automation tools. “Everyone from the Texas DMV to the IRS has deployed RPA in some form or fashion.”

The transformation journey will look different for every organization as digital applications become streamlined and technology will continue to accelerate government capabilities through increased efficiencies and improved outcomes for constituents.

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It was time for a little myth busting on Location3 when Rob Nowak and Howard Altshuler spoke with Tyler Martin, Assurance Senior Manager at Weaver. There are some misconceptions people think of when they hear the term ‘manufactured housing,’ and Martin was more than happy to separate fact from fiction.

Martin says, “When you say manufactured housing, what a lot of people think of is, you know, the mobile home, the trailer. That’s a different thing; it’s a legacy name. So, one of the big misconceptions is from a quality standpoint that these (manufactured) homes are not built to last, they’re not comfortable, they don’t have the amenities, and that’s starting to change.”

Another misconception Martin says surrounds manufactured housing is exploitative practices. And while some of these communities may have government funding backing them, builders are moving towards the manufactured housing community approach due to myriad factors: rising interest rates, affordability and a general need for housing. These communities open doors for many looking for a home that was previously out of their reach. “Without a doubt, manufactured housing is one of the solutions to our affordable housing and attainable housing problems.”

The technological advancements that increase the quality of today’s manufactured housing mean a re-think of the traditional loan programs for this type of housing needs to occur. Previous concerns were that these homes would not last twenty-five years or more. That is no longer the case.

“Another interesting thing we’re seeing,” Martin says, “is the technology catching up and moving to the next level. 3D printing is one of those. There are a lot of new companies that are popping up. You’ve got homes now that will 3D print in concrete on-site and can lay down all the walls, interior, and exterior on a 2,500 square foot house in less than twenty-four hours.”

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©2022

On this episode of Weaver: Beyond the Numbers, host Becky Reeder, Partner-In-Charge, Alternative Investment Services, of the Alternative Investment Practice at Weaver speaks with Paul Olschwanger, Founder and Chief Inspiration Officer at Wendell Rhoads Consulting about the significance of developing human capital to meet an organization’s demands.

With over 30 years of experience in the asset management industry, Olschwanger’s knowledge lies in helping firms achieve balance and financial success by developing human potential differently. He also helps with recruiting and coaching to help individuals and small teams thrive. The conversation opens with the inspiration behind the company’s name – Wendell Rhoads Consulting.

“Six years ago, I watched the show Billions. The first episode really caught my attention and it really hit to the essence of my puzzle, my career in terms of helping other people figure things out to be their best – whether it’s individually or the way they impact others as a leader,” said Olschwanger.

He connected with the character Wendy Rhoads, who helped individuals achieve the success they were capable of while recognizing their value whenever possible. It was then that he knew he would one day name his company after the character. So, what exactly does Olschwanger do, and how does it help? He likes to explain it this way:

“I’m a little bit like an eye doctor. At some point in time, we may not have 20/20 vision. We have to recognize that, we have to care about it, and we have to go do something about it,” Olschwanger explained. “When it’s a vision issue, we go to the eye doctor where the problem is diagnosed and treated.”

“Now, our vision is better. Now, we’re seeing things we didn’t see before. And that’s the analogy I use with people. You’re probably not seeing everything but you’ve got to take that step to do something about it and let me be that person who can help you. At the end of the day, you can get 100% credit for it. I’ll be in the corner clapping for you,” Olschwanger said.

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© 2022

This episode of Location3 has a little bit of everything. Weaver’s Howard Altshuler spilled the beans about his vacation trip to Boston, which included stepping inside the iconic "Cheers" bar. Altshuler was surprised by the city's fantastic development, especially in the seaport district where there is a lot of mixed-use development, all accessible on foot.

But all isn’t sunny in the development world. Deals are falling apart. What are the causes? There’s that thing called rising interest rates. The feds have raised interest rates twice this year, and with indications that there could be additional raises on the way.

“From the standpoint of real estate, things aren’t working anymore,” Altshuler says. “Because the higher interest rate on the base creates a potentially bigger credit risk. Instead of LIBOR (London Interbank Offer Rate) plus one hundred fifty, now its LIBOR plus two hundred, so you’re getting a double whammy here.”

"The challenge comes when deals are proforma’d out at one rate, and later the rate is increased," says Weaver’s Rob Nowak. "Either the parameters of the agreement need to change, or the deal is dead. I’ve seen anecdotal evidence from the media, and our client base. Some folks are taking the lesser of two evils option, saying it’s better to walk away from this deal.”

Altshuler believes walking away isn’t necessarily the first step but perhaps a renegotiation tactic to return to the seller and look for a different pricing structure could be negotiated. Office space and industrial assets are a couple of areas where long-term pricing strategies come into the mix when considering the value of a current deal. These types of assets may not have the flexibility to stay in a deal without restructuring pricing.

Weaver’s Tax Partner, Rob Nowak, and Partner-in-Charge of Real Estate and Construction Services, Howard Altshuler, discuss upcoming events and the benefits of rehabbing versus building new on this episode of Location Cubed. First, there are two upcoming events to highlight, the Construction CPE event in Midland in late September and the Urban Land Institute (ULI) Conference in Dallas in October.

At the Construction CPE event, speakers will cover sales tax, construction accounting and MNA evaluation, and the event will conclude with a happy hour. The ULI Conference returns to Dallas for the first time since 2016. Altshuler is working on a program called "rEvolution of the Workplace." The panel for this program will highlight changes in work habits and office leases.

During their discussion, Altshuler and Nowak make the case for looking toward renovations and adaptive re-uses of spaces. “We have a few clients that do renovation work,” said Altshuler. Weaver supports clients in different renovation projects. Some focus on upgrading multi-family units to increase the rent and property. Others take on “...the larger signature projects going on with respect to office buildings,” said Altshuler.

Successful renovations have to make sense for the area. You wouldn’t want to place a multi-family unit in industrial and office space where there aren’t the necessary amenities to support residents. Instead, the space may be suitable for a retail center or a hotel. But with recent trends related to rezoning and fulfilling the needs that exist in a particular area, some projects are starting with questions like “...How creative can we be in creating value of the property to put something else there?” says Nowak.

“Historically, it’s cheaper to build something new than it is to renovate,” said Altshuler. There are a lot of extra fees involved in rehab. “You have to balance the cost of building new or rehab versus building the asset from the ground up. Consider acquiring the asset, re-zoning, re-entitlement processing, incurring rehab costs, and being down for a period of time.” said Nowak. However, new-age renovations and rehabs are going to look different than their traditional counterparts and Altshuler and Nowak are sure that the project’s viability depends on what the purchase is, what the plan is and whether the numbers work.

Subscribe to the Location Cubed podcast on Apple Podcasts and Spotify for the next episode of this series.

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©2022

Steve Kinard, Director of Mining at the Texas Blockchain Council, joined Weaver’s Tim Savage for a look into the bitcoin mining process. Many people may be familiar with term bitcoin mining, but not everyone understands what that process entails.

“A simple explanation is that mining involves a piece of data that is difficult to find and relatively easy to verify,” Steve says. “Bitcoin is a protocol that allows peer-to-peer transactions between you and me or anybody else who is free to come into the network. The function of mining is to validate those transactions. Bitcoin transactions build up into what is called the mempool and eventually miners they form them into a block.”

Operating on the Secure Hash Algorithm 256 (SHA-256) cryptographic algorithm, miners race to form new blocks on the bitcoin network by searching for a piece of encrypted data that allows a miner to mint a new block on the chain when found. The new block confirms the transactions in the mempool and the miner is rewarded with transaction fees and a block mining reward.

Currently, the mining reward, excluding transaction fees, is 6.25 btc until mid-2024 when it is projected to halve, which occurs every four years and is known as the halving cycle. New blocks are minted on the bitcoin network approximately every ten minutes, averaging 144 blocks per day. Based on the number of miners participating in the network, the algorithm establishes a difficulty target to ensure the ten minute process, and miners simply run computers that perform this mathematical function.

At an industrial level, the bitcoin mining process utilizes higher amounts of energy. However, Tim and Steve discuss some common misconceptions about energy consumption from mining. Tim points out, “energy conversion is not a bad thing. Use of energy is essential to the network’s security and adds a real cost for someone who might want to attack the network. An attacker would need to win 51% of the computing power, meaning they would need to obtain local licenses and approvals to operate in places where power availability exists, buy a significant of mining equipment, and build the infrastructure to run it. This would cost tens of billions of dollars, and at that point the attacker would be much more monetarily incentivized to act according to the rules than to manipulate transaction data. Otherwise, people would leave the network and bitcoin could go to zero. This is the game theory that underpins the bitcoin network, and energy is a fundamental piece of the equation.” While this kind of attack is theoretically possible, Tim and Steve agree the bitcoin network has propagated to a point of decentralization where this is becoming exceedingly unlikely.

In actuality, bitcoin mining helps stabilize the grid when constructed properly. Before bitcoin was invented, the world was not able to instantaneously increase or decrease load demand in such a way that bitcoin mining offers. Steve comments, “consistent power consumption provides flexibility to the grid when requests for more power come from other areas. The miners can instantly shut down power to allow the grid to divert it elsewhere as needed. The more of that we can have, the stronger our grid will be, and the better it will be able to serve all users and all citizens.”

Tim and Steve also discuss how miners are seeking new energy sources in an effort to reduce energy costs. Miners are increasing demand for renewable sources such as solar, wind, and hydro, and some studies show that as much as 50% of bitcoin mining is powered from these sources. Additionally, miners are utilizing stranded sources of energy such as natural gas that would otherwise be wasted. Increasingly, miners and exploration companies are working together to reduce carbon emissions and monetize these stranded sources of energy.

Malicious cybercriminals see government entities as prime targets and many leaders are investing in the best protection against loss and interruption. In this edition of The Business of Government, our host, Adam Jones, is joined by Trip Hillman, Weaver’s Partner of IT Advisory Services to discuss the ever-changing cybersecurity landscape and the growing need for cyber insurance.

Hillman says the expanding role that cybersecurity plays in all areas of business and government requires the use of specialists to ensure networks are safe. “There are many standards, requirements, and frameworks that organizations, including governments, are subjected to, and each day presents a new best practice, a new book, or a new set of compliance standards that should be followed.” On top of all these standards are frameworks that IT specialists can help to utilize.

Part of the evolving cybersecurity landscape is a market for cybersecurity insurance. No longer an uncommon practice, Hillman says people recognize cyber insurance as one of the mechanisms for mitigating IT risk. “Many organizations consider it part of a portfolio for how they treat their overall cybersecurity risk posture.”

Like everything else in the IT world, cybersecurity insurance is gaining in complexity. “Cybersecurity questionnaires can easily be eighty plus questions and I’ve seen some run over one hundred questions,” Hillman says. Many metrics go into a cyber insurance quote today as well as the parameters around which types of attacks need coverage.

One trend Hillman is seeing is with organizations that already have cyber insurance. Brokers tend to ask many more questions during renewals to ensure the coverage is sufficient to cover all their needs. It is essential to ensure that your cyber insurance paperwork is detailed and thorough, but also that it is a true representation of your security posture.

Cybercrime will continue to evolve as criminals develop more sophisticated ways to access systems. In turn, cybersecurity insurance will also continue to change. Ensuring the right type of coverage and that the policy will cover costs should you need them is paramount.