Las Vegas Sun

March 28, 2024

Q&A:

Q&A: Curt Anderson

curt anderson

Leila Navidi

Curt Anderson, CEO of Fair, Anderson & Langerman, says the Las Vegas firm specializes in audit accounting and high-end tax work.

Curt Anderson has a bird’s-eye view of the Las Vegas economy through his clients.

A partner in the local accounting firm Fair, Anderson & Langerman, Anderson said the Las Vegas Valley has yet to reach its bottom and suspects more businesses will close in the next couple of years because they will simply run out of money.

Many firms are cutting back because they aren’t generating the revenue they need to offset their expenses, Anderson said.

IBLV: How long have you been in the accounting field?

Anderson: I started with RSM McGladrey in the late 1970s in the Midwest and moved to California when McGladrey did and then came up here in the mid-1980s.

What got you interested in the field?

My dad was a lawyer, and I was going to go to law school. I got a business degree (from Notre Dame) and went into accounting and found out accounting can be as much as an advocacy-type position as law without a lot of the negativity. Litigators see a lot of the bad side of everything. If you do accounting the way we practice accounting, you help people take advantage of opportunities or fix problems. You are dealing with positive things. When you are dealing with tax law, you are dealing with advocacy. You can obtain the kind of favorable results for your client in tax law that you would be looking at in civil law.

What brought you here?

I left public accounting for four years and came up here for real estate development as a full-time job. Believe it or not, I missed public accounting. I got back into public accounting in 1988 when we formed this firm.

What kind of real estate development did you do?

I do office buildings, industrial buildings and retail. I developed about 1 million square feet of property over the past 25 years.

Why start the accounting firm?

Fair, Anderson and Langerman is Lee Fair, who was also a partner in McGladrey in Las Vegas at the time. He left and opened his own firm for a while before we got together. Jill Langerman was our third partner. She just recently retired from the firm as has Lee. She is still working with us on a part-time basis.

How many people did you have when you started?

I think we had eight. At the highest, we were around 34 or 35, but right now we are at 26.

When was that?

About five years ago. Things have contracted quite a bit in the past three years in the economy, and we have contracted right along with it.

What does your firm specialize in?

We do a lot of audit accounting and high-end tax work. Our client base is very similar to McGladrey here in town and BDO Seidman (a national accounting firm). It has a large client base that needs financial statements for banking purposes, for bonding purposes. Financial statements are very important to them and tax planning is very important to them.

For whom?

Typically companies. As an example, Martin-Harris Construction is a client of ours. Southern Highlands, we have done its audit and accounting work for 15 years. Harley Davidson — it has been a client of ours for 15 years. It is large organizations that have complexities that are looking for the kind of assistance we can give them to help their business.

In terms of competition, how do smaller, independent firms compete with global giants in the Las Vegas market like Deloitte & Touche, Ernst & Young and PricewaterhouseCoopers?

There are some clients that have to have those kinds of accounting firms. As an example, we don’t do publicly held companies. They are going to need that specialized service. National firms do that type of thing. Where we compete against the national firms is large, sophisticated organizations that need the technical skills that we have, but value a little more personalized approach and service.

Has your industry changed a lot in Las Vegas over the past decade?

It has become more sophisticated. I think with the growth and dollars involved, our industry has become far more sophisticated. I think lenders are requiring better-prepared financial statements, and I think from a tax standpoint, the transactions have gotten a lot more complicated.

Have we seen a lot of outside firms coming in the market as we have law practices?

Surprisingly, no. BDO Seidman came into town in the last couple of years, but there hasn’t been the influx of accounting firms as there has been law firms.

Why?

Most of the time these firms like to come in and get a foothold by finding a large local firm they can use as a base. That’s what these law firms did. Most of our accounting firms here aren’t as big as these firms want.

What’s the educational environment like locally for accounting professionals? Do UNLV and the other colleges and universities in the state do a good job of providing quality accounting graduates who can become certified public accountants?

We have a lot of people here from UNLV, and we have been very pleased with the educational background that they had. It is putting out a very good product. UNR is, as well.

What’s the job outlook like locally for CPAs and other accounting professionals? Can they generally find corporate in-house work or work at accounting firms?

It is still kind of lackluster. The shrinkage has affected the accounting industry, and jobs are not as plentiful as they would have been three years ago.

Can companies save a lot of money by doing bookkeeping internally or can they save by outsourcing such work to firms like yours?

Typically, firms that cut back on their internal accounting staffs try to keep it as tight as possible. But normally that is more efficient than coming to a firm like us to do that kind of work. From a timeliness and consistency standpoint, they are better off doing it themselves. We haven’t seen that much where our clients wanted us to do that as an alternative.

How do they use you compared to their internal staff?

Sometimes they will have a special project they want us to take a look at such as evaluating a product or project. They may not have the experienced staff they used to have. Generally, they do it themselves. That is part of that opportunity work that has contracted somewhat. They don’t have any special projects for us to look at.

Because of the recession, have you lost some clients and seen some companies go out of business?

We have been fortunate. We have only had a couple of clients that have gone out business. Most of our clients are limping along. They are not making a lot of money, but they are not losing a lot of money. They are doing OK. We are fortunate. What we have seen, though, is a contraction in the opportunity-related work we do with clients. I don’t have a computer in my office because I don’t do tax returns. What I do is help clients figure out what their issues are and take advantage of an opportunity or how to avoid a problem and find solutions. Three years ago, it was all about opportunity. Businesses were running. There were a lot of things to go out and do — build new buildings, buy new things and expand. In the last three years, that is all kind of contracted. The consulting has contracted accordingly. Our clients still need help in making decisions in this kind of economy in how to best run their businesses, still save in taxes and keep as much money in their pockets as they can.

What kind of work have you been doing lately?

There is this whole thing of restructuring debt right now. There are a lot of opportunities coming out of all this misery we are living through. A lot of this debt that people incurred from real estate projects — well, they can’t pay it back. They are trying to negotiate with the banks to restructure the debt. What is interesting is the banks around here are trying to be part of the solution. There are a lot of personal guarantees out there from people who fundamentally don’t have anything other than their business. The reality is when the banks come in and look at it — the business can’t pay this back, but the individual can’t pay it back either because everything the individual has is in the business. They are not sitting out there with $5 million boats and $2 million airplanes. These are working stiffs who have a lot of money, but it is all reinvested in the business.

What happens is you have this toppling effect — the values crater and the loans are due. The values of the property are way below the dollar amount due on the loan. The bank comes in and says, “We understand. We are willing to take the property back and satisfy the debt with the property.” The bad news is you have a $10 million debt and the property is worth $3 million. They say, “We will let you off the hook.” But the bad news is if you are not careful you have a $7 million income for the fact that they let you off the $7 million in debt, which adds insult to injury. The first thing you say is you got off the debt, but you owe 35 percent in taxes if you don’t address it properly. That is the danger. So there is a lot of opportunity work right now that I am doing because we are finding banks will work with people, will readjust these debts and let people off the hook. But we have to structure it properly so they don’t get whacked with these huge tax bills at the same time.

How do they deal with it?

The starting point is understanding that if you are getting let off the hook for some amount of debt, you have a tax issue that you have to take a look at. Before you get too far in the discussion with the bank about the specifics of how they are going to let you off that debt (you need a plan). Where we see strange things happening — I will give you an example. We had some people who owned a large parcel of land. They had a $32 million debt on it. The bank said, “We will take $20 million and we are happy. We will let you go.” The land partnership owed $32 million for this property, and they have about $34 million of cost in the property. Some of the people in the land partnership form a new loan-purchase partnership because the bank said it would sell you your $32 million loan for $20 million. They went down the road talking to the bank, but what they didn’t realize is that if you have a separate company that comes along and buys that note, there is overlapping ownership. That creates a situation that if this partnership buys this loan for a $12 million discount, it creates $12 million of ordinary income to the land partnership. They didn’t know that, and their lawyer didn’t know that because lawyers don’t deal with this. A lot of accountants don’t deal with this. I go back far enough that I worked clients in the late 1980s when we had the savings-and-loan debacle. There was this debt restructuring back then that I did a lot of.

So what happened?

They had this great deal, but they were going to have to pay $4 million in taxes. By the time I found out about it, we were able to restructure some things to create an exception that allowed that note to be purchased without triggering the tax.

Employee theft and other internal fraud is always a problem. Have you seen any trends indicating this problem is increasing or has it held steady?

I think it has more or less held steady. If you have good systems and good people, the risk is about the same as it always has been.

Is it worse in Las Vegas than in other cities because so many people have gambling problems and some steal to feed their habit?

People have marriage problems, gambling problems and liquor problems all over the country. I am from Indiana. I saw that back there. When I practiced in L.A., I saw it in L.A. Fundamentally, it is people.

What are the basic ways companies can prevent and detect internal fraud?

Just basically good accounting systems and good segregation of duties and good internal controls and having the owner sign the checks. Simple things like that.

Based on your dealings with your clients, what’s your sense of where the economy is headed in Las Vegas?

I think we haven’t bottomed out yet. We are getting close. What I think has happened is there are two levels of endurance that you have to have to get through this period. One level is financial endurance and the other is mental endurance. For 2008, we saw this coming and knew it was going to be a problem. Everybody was hoping by the beginning of 2010, everything would be OK. People started trying to withstand the storm in 2008 and 2009, and now we are coming into 2010 and a lot of those people who were able to stick it out are running out of money. Their reserves are down, and people are kind of losing their mental resilience. It is an endurance run. It is going to take a long time and people are getting fatigued. What we are finding is that when you go in and sit and talk about making the business profitable and cut costs is that you have to pump people up because it is like a malaise (to them). That’s what is going to get them through this period is that mentality of continuing to look at issues, dealing with them head on, cutting your costs, increasing your efficiency, and doing what you need to do so you are still standing when things get better.

What is the malaise?

The biggest difficulty is not wanting to recognize the situation they are in and hoping things will get better. You are running a $50,000 a month deficit and you are hoping that sales are going to get better by the end of the year so you will be OK versus I can’t wait on sales being better, I better cut $50,000 out of my monthly budget. That is hard work, and it typically involves cutting back on personnel and staffing and that’s doubly hard. People talk about employers not caring about their employees. My experience is our clients are definitely concerned about their employees, and they hate cutting their payroll back. They hate cutting staffing. They know these people. They know they have families, and it hurts to go to people and say, “You don’t have a job any more.” This is face to face. You have 50 people and you know all of those 50 people. Our clients take that very personally when they have to go and cut back like that.

Are they still cutting back today?

Yes. That is going back to the recognition that this isn’t going to end. We still have clients that have done cuts in 2008 and 2009 and are looking at still having to do something in 2010.

So how long will this last?

I think it is going to be another year of this. I think sometime in the middle of next year at the earliest. The drivers just aren’t there yet. I am on the board of Service 1st Bank, and we spend a lot of time getting information to help us understand what is going on in this economy. Fundamentally, this town is still driven by what happens on the Strip, and it’s just not that vibrant. Once the Strip gets vibrant, and we get more people coming and spending more money, that is where it is going to flow out. We need diversification, other things than the Strip to drive our economy long term. But in the short run, what is going to get us out of that is the Strip. Hopefully, we have learned a lesson that we can’t keep that thing as the primary driver.

What does that mean in terms of recovery?

I think the recovery will begin, but it will be inching up, and things will get better over a period of time. And it will happen without us realizing it.

Then some companies aren’t going to make it?

I think that issue of endurance, financial endurance and mental is going to be a factor of who is going to make it over the next two years. Some people are going to run out of money or run out of endurance. I think we will see more failures over the next year or two because people will run out of money. If you are tied into construction, this is a very tough time. There is no work out there. You will see a lot of people making a decision to just shut their businesses down and not go forward. They will be lucky to make that decision rather than have it imposed upon them by the marketplace.

What lesson has your clients learned from this boom-and-bust cycle?

I think the same lesson everybody has learned. There is an old saying that people see the short-term future identically to the short-term past. So when things are really good, you can’t conceive of the future being any different and when things are really bad, you can’t conceive of the future being any different as well. I think we just learned once again that just because things are really good, we can’t assume they will stay good forever and at that level forever. We have to be far more cautious about what we expect in the future. That herd mentality — I think we are going to be a lot more careful about that.

What lesson do we take from this as a community?

I think the lesson is you build education in this town. I still think it comes down to having a smart employee. When you look at our graduation rates from high school and you look at the high school graduates not going on to college but going out and taking jobs on the Strip and making $50,000 at 25 years of age valet parking — what do they do when they are 50? I don’t think we value education here as a population the way we should. That affects employers coming here because they don’t think they are going to find a qualified workforce. That is the good new-bad news about the Strip and our economy. There are multiple effects of that.

Your industry has had some black eyes over the years for not being independent. How do lenders know they can trust the work of accounting firms?

If you look at some of the issues that come up in the early 2000s with Arthur Andersen and Enron and WorldCom, you started to have people who got a little too smart for their breeches so to speak. Sometimes, good fundamental common sense goes a long way. And if doesn’t sound right and smell right, maybe it isn’t right. I think sometimes people in accounting get caught up in theoretical issues that they can use to create a structure or treatment that they can support being theoretically correct, but if you really look at it with the light of day or common sense, it doesn’t make sense.

Let’s talk about the accounting industry nationwide in relation to the recession. Did the accounting industry fail to sound the alarm that the overheated housing market was threatening the viability of investment banks such as Bear Stearns and Lehman Brothers, which failed in 2008 and contributed to the Great Recession?

I don’t think so because, in looking at the audited financial statements, they are done in retrospect. This thing happened so fast in 2007 and 2008 that the warning signs of diminished demand just cratered these industries overnight.

What is the concern out there about the Obama administration in terms of changes to the tax law that could affect your clients?

Most of the stuff that came through on tax benefits didn’t help our clients because our clients are too big — like this 35 percent credit for medical insurance. Fundamentally, our client base is hurt because the capital gains tax is going to up next year. The ordinary income tax rate is going to go up next year. They are talking about layering on as part of the health care proposal a Medicare tax on top of income tax on capital gains transactions. So now all of a sudden a 15 percent capital gains transaction becomes a 23.8 percent capital gains transaction, which is a big disincentive to capital markets. Also, you are talking about taking some of the structure of promoted interest that you see in real estate development projects and hedge funds projects where the managing partners get a piece of the ultimate profit. If they create that profit, that was taxed in the past as long-term capital gains, it is now (proposed) to be taxed as ordinary income both at the time it is earned and at the time it is sold. There is a punitive effort in Congress right now that I think it is going to have a very bad effect on capital formation in the next 10 years. They don’t understand that the capital formation is what makes things work.

Aren’t some of what we are talking about is not legislative action, but the expiration of the Bush tax cuts on Jan. 1?

The 15 to 20 percent capital gains rates and 35 to 39.6 percent (on income tax), those are expirations. The 3.8 percent Medicare add-on (for capital gains) will occur in 2013 (as part of the health care plan). The treatment of promoted interest on real estate projects and other capital formation projects are being discussed in Congress right now.

What about the Medicare tax you are referring to?

Part of it is on your wages. I believe that if you are over $250,000 in income and that’s where the capital gains add-on can occur as well. Remember, $250,000 sounds like a lot of money, but if you are a business owner and running a profitable business and reinvesting that money in the business, which is what most businesses require, that starts adding up in costs in terms of your ability to keep growing your business.

Is the accounting industry now moving to become more conservative so companies can’t inflate the assets on their books and investors have better information about the true value of those assets?

In some ways, we are going the other way. There is a movement in our industry to go to “fair value” accounting, which is talking about assets based on fair market value. That may not be the same thing as original cost. In some cases, that value could be greater than the original cost or less than the original cost.

As Congress debates overhaul of our system of regulating the financial industry, the 1,600-member Nevada Society of CPAs argued against weakening the Sarbanes-Oxley Act, which requires extensive disclosure by public companies. What is your stance?

I am of two minds about Sarbanes, quite frankly. Sarbanes is extremely expensive. Sarbanes is a system of oversight in the management of a business where there are significant checks and balances and oversight of financial transactions. The bank I am on the board on, we adopted Sarbanes-Oxley principles. We have independent oversight of corporate functions. We oversee the budgeting process. We oversee accounting processes. There is a committee that oversees vendor purchase transactions. There is all sorts of regimentation and documentation of processes under Sarbanes with the idea that oversight and transparency means there is less chance of people hiding mistakes or hiding any transactions they don’t want people to see. The reality is there is a huge cost to that. Most of us in the industry aren’t sure the cost equals the benefits. The principles of Sarbanes are sound, but the application to some degree is overblown. I would like to see it applied at a stratified level. There are a lot of companies in which Sarbanes can cost millions of dollars to apply in the public market that because they are in the public market they have to do it.

Is there any concern among your clients about tax implications from the Nevada Legislature to deal with the state’s deficit?

There is concern about payroll taxes and business license issues and sales tax issues. All that stuff affects our clients because it adds to the cost of operations. Our clients are very concerned about that. They feel ... the severity of the effect. There is less severity to the state types of things than the federal.

How do they want to pay for education and other programs needed to lure companies to Nevada?

Our client base tends to be very capitalistic and conservative. They tend to think we are spending too much in the wrong ways and not spending enough the right way in terms of how we are funding education. They see a lot of money being spent inappropriately where those savings could be put to better use elsewhere.

What is that?

I think most of our clients think that state and local employees have higher salaries and benefits than the private marketplace. They see a lot of money thrown at education, but not effectively. Not all our clients think we should cut back the money we spend for education, but maybe spend it differently. Most of our clients see the money spent on administration and things of that sort where it may be better utilized in training and paying teachers directly to get a better result.

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