Chelan David

Friday, 24 November 2006 19:00

Technology today

If desktop computers serve as an organization’s brain, then a business-critical server functions as its backbone.

Acting as a lifeline to a trove of data, servers play a crucial role in today’s technologically driven society.

There are two key components to business-critical servers, says Hormazd Dalal, president of Castellan Inc. “The most critical component is the hard drive, because that is where your data is stored,” he says. “The next most vulnerable is the power supply, because those tend to fail.”

Should either key component fail, having server redundancy is an astute investment. This safeguard allows for continual operations in the event that a hard drive or power supply goes on the blink.

Smart Business spoke with Dalal about server redundancy, how often new servers should be purchased and the importance of warranties.

What is server redundancy?

Redundancy is making sure that if a key component in the server fails, a redundant piece of hardware ensures it will keep running. In the case that a drive fails, your data is still intact because the server will continue running on one drive. In the case of power supplies, if one power supply fails, the server continues to run and your network stays up.

Why is it so important to have server redundancy in place?

Your mission-critical server will typically affect several people if it goes down, so a server needs redundancy, while a desktop computer doesn’t. If a desktop component fails, then one user will be out of business. If a server component fails, then access to data is lost in its entirety, which will affect the entire company. For example, if an e-mail server does not have redundancy and one of those components fails, then the entire company is without e-mail.

What aspects of a server are most important when creating redundancy?

You should mirror your drive. This can be done either RAID 1, which is two drives mirrored, or RAID 5, which is three drives mirrored. This way, if one drive fails, the server continues to run and your data is still intact. The big manufacturers all offer dual power supplies, so that if the power to one supply fails, the server continues running. In most cases, the server will give you a warning saying that the component has failed, but will continue to run, which gives you enough time to call the manufacturer and arrange for a replacement part.

How does a business know when it’s time to buy a new server?

Typically, the life of a server is three years. Most manufacturers only sell a three-year warranty, which is an indication of when they think the items will start failing. After that, if you try and extend the warranty, it’s extremely expensive. It’s much like a car warranty: they don’t offer it after 50,000 miles because around that time, the components start to fail. The time frame for buying a new server depends on the critical nature of the server. If it’s a server that isn’t doing a mission-critical application, like e-mail, for example, it’s not as important. The servers that a business relies on should be changed every three to four years.

How important is it to have a warranty in place for servers?

It is essential to have a three-year warranty for parts and labor. When you purchase a parts-and-labor warranty for your server, you can have the manufacturer ship a part out or have a tech bring a part out within four hours or the next business day, depending on what you purchased.

We recommend a four-hour response time for mission-critical servers. The redundancy is useful, but the warranty is the icing on the cake because it allows you to replace a part in a timely manner.

What are some additional considerations for purchasing a server?

It depends on what you need. Today’s applications are all memory-intensive, memory being random access memory (RAM), not storage. We recommend at least four gigabytes of RAM and more if it’s a database server or if it’s running multiple applications.

The speed of the processor is important, although today’s processors are fast enough to run many server-based applications. SCSI hard drives are faster than SATA RAID hard drives. Your fastest SATA RAID drive today is 7,200 rpm. SCSI hard drives are 10,000 rpm to 15,000 rpm. This means that the ability to retrieve and write information back to the server is much faster.

HORMAZD DALAL is president of Castellan Inc. Reach him at (818) 789-0088, ext. 202, or

Friday, 24 November 2006 19:00

Work force harmony

In a business environment that operates at full throttle, it can be easy to overlook long-term strategies in favor of short-term objectives. This pursuit of doggedly chasing quarterly numbers often involves a reduced headcount where fewer employees are given larger workloads. As a result, employees can become resentful, believing they are nothing more than a cog in a machine.

The concept of slow leadership, says Andre van Niekerk, dean of the School of Business at Woodbury University, strives to bring humanity back into the workplace. “Slow leadership is about returning work to its role as a forum for expressing yourself and finding pleasure as well as a financial reward in your employment,” he explains.

Smart Business spoke with van Niekerk about slow leadership.

What is slow leadership?

Slow leadership is a movement to remind the world that work has purposes and meaning in our lives beyond the purely economic and financial ones; and that time and space must be allowed in the working week for people to express their creativity, the pleasure they take in using their abilities to the full, their desire to learn, and their needs for social interaction.

What factors in the contemporary workplace have led to the advent of slow leadership?

Too many people today are facing work pressures that go far beyond a level that still lets them retain enough time and energy for enjoying the nonwork aspects of their lives. A rigid insistence on achieving their employer’s continually escalating financial objectives first — often at the expense of nearly everything else — robs work of much of its meaning. Employees are reduced to economic functionaries: ‘human resources’ to be optimized and exploited as ruthlessly and obsessively in pursuit of greater profits as any inanimate corporate resource.

How can the principles of slow leadership develop a company’s long-term foundation?

Conventional leadership — what I term ‘hamburger management’ because it relies on a very limited menu, high speed, and the cheapest possible ingredients — looks only to short-term objectives. Indeed, research has shown that the vast majority of managers today are willing to compromise the long-term strategies and needs of their business in order to fulfill quarterly quotas. As a result, businesses are mortgaging their futures to meet unreasonable demands for short-term results.

Slow leadership offers ways to retain high levels of productivity without putting the short-term cart before the long-term horse. People can’t exist on hamburgers alone. They don’t provide a balanced, healthy diet, let alone one that is a basis for a fully enjoyable life.

How does slow leadership benefit employees?

Work is an important source of satisfaction in learning, exercising your skills, earning the regard of your colleagues and developing a balanced sense of self-esteem. All of this is undermined when people find themselves driven to cut corners and rely on quick fixes, because the organization has reduced headcounts so much that there is no time to do any better.

People want to produce quality work. But if they are driven to focus on meeting numerical targets by any means possible, they will lose pride in what they do and a sense that anyone cares about their lives. The result is alienation, frustration and lack of interest in anything other than the pay check.

What are the first steps that management should take when implementing slow leadership?

Stop basing decisions on often spurious numerical summaries of organizational activity. Look to the long-term need to increase value and provide a stable basis for genuine growth. Then make it clear to everyone that creativity, insight and fresh thinking are to be the basis for future increases in productivity, not driving everyone to do more and more in less and less time with current methods.

The deep well of creative ideas in any work force is usually ignored. If you encourage people to help you grow the business and treat them as civilized human beings, they will surprise you with what they can offer.

Once a change has been made, how can a business owner determine its effectiveness?

Slow leadership is about finding ways to be successful and still retain a civilized workplace. What you should see are more effective and productive people, a higher quality of output and service, a happier team of employees and much lower turnover. Cutting jobs and forcing those who remain to work longer hours only provides a short-term boost to profitability. Taken too far, it begins to eat into the firm’s capacity for long-term survival.

Slow leadership takes the view that the only sustainable basis for building higher productivity is the creative thinking of everyone involved. And that needs time and space to operate — the very things that thoughtless, ‘hamburger managers’ keep removing in a frantic search for greater and greater short-term profits.

ANDRE VAN NIEKERK is dean of the School of Business at Woodbury University. Reach him at (818) 252-5284 or

Friday, 24 November 2006 19:00

Medical technology

Body scans afford people the opportunity to detect early warnings of cancer, cardiac disease and other abnormalities lurking beneath the skin. Typically, the process involves scanning the body with a form of X-ray energy that generates cross-sectional images.

Body scanning technology has come a long way since the first generation of CT scanners emerged in the mid-1980s, says Michael Yeh, director of the UCLA endocrine surgery program and assistant professor of surgery.

“In the present day, we have high-resolution, rapid scanners that are much more comfortable for patients,” he ays. “In my field, I frequently consult with patients who have had an abnormal growth found on a body scan.”

Smart Business spoke with Yeh about the diseases most commonly revealed with scans, how abnormal findings should be handled, and the importance of performing a risk-to-benefit analysis when considering further intervention.

What are some of the various scanning methods?

The various body-scanning methods available are ultrasound, computed tomography (also known as a CT or CAT scan), MRI (magnetic resonance imaging), and the fourth one, typically done for cancer, positron emission tomography or PET. Of those, the one that is most commonly performed is a CT.

What types of diseases are most commonly discovered by scans?

It’s a wide range. The principal body areas of interest are the chest and abdomen. Vascular disease, that is, disorders of the blood vessels, may be found. These include aortic aneurysms, which are abnormally enlarged vessel segments that usually arise in older men, particularly if they have ever used tobacco. Small nodules in the lungs are occasionally discovered. It is quite common to find benign tumors or masses, such as cysts, in the liver and/or kidneys.

My area of specialty is in the endocrine glands of the body: thyroid, parathyroid, adrenal and pancreas. A significant number of findings on body scanning occur in these endocrine glands.

The likelihood of having an abnormal growth on a scan increases with an individual’s age. For instance, approximately 4 percent of body scans performed on people aged 60 years will reveal an abnormal mass in one of the adrenal glands. This is considered a common problem by medical standards.

How helpful are body scans in detecting cancer in its early stages?

Routine body scanning holds the promise of detecting a cancer at an early stage, when it might be more effectively treated. However, one cannot definitively diagnose a cancer on a scan alone. What you need is a tissue diagnosis — that is, usually a biopsy of some kind. In some instances, this can be done with a needle, and in other cases surgery is required.

A scan may detect a neoplasm or tumor. Tumors fall into two categories: benign or malignant (cancerous). Nobody has studied this formally, but the great majority of tumors that are found on body scans are almost certainly benign. This raises a bunch of questions. When an abnormal growth is detected on a scan, we are obligated to investigate the tumor further to determine whether or not an intervention is needed. The questions that a patient will want answered are: Is this a cancer? How will we find out? Does it need to be removed surgically?

How big a part does the physician’s judgment play in interpreting scans?

Most of the scans are interpreted by expert radiologists. When they see an abnormal mass, they alert the primary care physician or the clinician who ordered the scan. Then it’s up to the judgment of the physician, through discourse and dialogue with the patient, to decide what needs to be done next.

I’ll give you a few possible scenarios. The first is a young, healthy patient with an abnormal finding. In that case, you’re almost always going to be aggressive about making a diagnosis and potentially recommending surgery. That’s because a tumor, if left alone, will have plenty of time to grow and potentially cause problems down the road.

On the other hand, if you’re dealing with an older patient (say greater than 70 years) who has significant chronic illnesses such as heart disease, liver disease or lung disease, then the decision must be weighed carefully. In this second case, it comes down to a risk/benefit analysis because the patient may not tolerate an operation very well.

My job is to go over the ratio of risk to benefit with each patient and only offer patients an operation if I think they stand to gain from it.

Director of the endocrine surgery program, assistant professor of surgery UCLA

MICHAEL YEH is director of the UCLA endocrine surgery program and assistant professor of surgery. Reach him at (310) 206-0585 or For more information visit

Friday, 24 November 2006 19:00

Risk management

When it comes to selling a business, the perception of risk significantly impacts value. The less risk involved, the higher the selling price will be. One way to think of it, says Ted Collins, CPA, ABV, manager of business valuation for Vicenti, Lloyd & Stutzman LLP, is to think of the home buying process. You hire a home inspector to assess the condition of the house and tell you what needs fixing. You then notify the seller that your offer is less than asking price because of the leaking roof, termites and cracked driveway.

“Had the seller fixed the problems ahead of time, the buyer might not have had as many reasons to ask for a reduced price,” explains Collins.

Smart Business spoke with Collins about how risk impacts value, how business valuation professionals determine risk and why identifying risk is important even if an owner is not planning on selling his or her business.

Why is risk an important concept for private companies?

Each day in the public marketplace, companies are either rewarded for achieving their target profits or punished for falling short. Managers of public companies have a public scorecard of shareholder value, which is reflected in the stock price. Private companies, on the other hand, don’t have this type of scorecard until the time of sale. If a private company waits until then to focus on the perception of risk, much value can be lost.

How does risk impact value?

Risk impacts value by changing the perception of an investor or acquirer. Whenever an investment is deemed riskier than another, an investor demands a greater return on that investment. Investors are essentially buying the future potential of a business to generate the required return.

The financial theory of present value holds that future dollars are worth less than today’s dollars because you can invest today’s dollars and earn a return. To determine what to pay for a business, an investor uses a required return on investment to discount those future dollars to present day value. The more risk involved in the business, the higher the rate of return, which then discounts the value of the business further.

How do business valuation professionals look at risk?

Risk is very subjective in nature. Valuation professionals attempt to look at it from a hypothetical investor’s perspective in order to reduce some of that subjectivity. We look at risk through three windows: the macro environment, industry and the company-specific risk.

In the macro environment, we consider risks such as the direction of interest rates, trade policies and demographics.

Questions that will be raised about the industry include: Is competition increasing? Are customers leaving to new industries and technologies?

Finally, we consider the company itself. How well do the data benchmarks compare with the industry? How are its systems used to generate revenue? Are the systems operating efficiently? What makes this company different from its competition?

A valuation professional then makes a determination of what a hypothetical investor might expect as a return, given all of the known risks.

What steps should a private company take to minimize risk?

The purpose of minimizing risk for a privately held company is to build value for an eventual sale. If the owner is thinking of selling the business in the next five years, the company must develop a strategy to minimize a buyer’s perception of risk.

Owners of privately held companies may have issues that they’ve always been meaning to correct, but they’ve never identified them as a high priority. There may also be issues that have never been considered. To paraphrase the poet Robert Burns, ‘There is power in seeing ourselves as others see us.’

A valuation professional can help a business owner see his or her business from a buyer’s prospective and point out issues that may affect value before a buyer gets a chance to. Given enough time, the owner can either fix the issue or mitigate it on their terms and timetable, rather than at a stressful sale time when the risk of losing a buyer is present.

What if the owner is not planning on selling?

This process is useful even if an owner is not planning on selling, because it serves to strengthen the company for the day when it will be transferred to either an heir or to key employees.

Identifying risk is not an abstract idea; it often gets to the core of what makes a business thrive. This is why you see companies with chief value officers in charge of managing value. Outside of servicing customer needs and enhancing employee effectiveness, protecting and building the value of a company is critical to its long-term success.

TED COLLINS, CPA, ABV, is manager in the Business Valuation Group for Vicenti, Lloyd & Stutzman LLP. Reach him at (626) 857-7300 or

Wednesday, 25 October 2006 12:25

Money matters

Earlier this year, President Bush signed into law the Pension Protection Act of 2006. The reform is designed to ensure greater retirement security for American workers. While the title implies that the act only affects employee benefits matters, it also addresses charitable giving.

“The new law allows you to make a direct contribution out of your IRA to a charity and you don’t have to pay tax on the distribution like you did before,” says Mary Ann Quay, co-managing partner of Vicenti, Lloyd & Stutzman LLP.

Smart Business spoke with Quay about how retirement plans and charitable contributions are affected by the Pension Act and what additional changes in tax law she anticipates.

What provisions does the Pension Protection Act of 2006 make?
The Pension Act consists of a number of provisions intended to strengthen the funding rules for defined benefit pension plans. Its intent is to ensure the solvency of the plans by requiring greater contributions by employers, and thereby, avoiding future insolvencies. It also includes provisions related to charities and charitable donations.

How are retirement plans affected by this change in tax law?
Starting after 2007, the current funding system for single employer-defined benefit plans will be replaced with one that changes the way minimum contributions are calculated. Multi-employer plans will have new rules as well. Many of the changes are very technical in nature — they affect things like the way that interest rates are calculated and the minimum amounts of funding — but they all have the goal of strengthening the funding so that the pension plans will be more likely to be solvent in the future.

What amendments have been made as far as charitable deductions go?
The big change for charitable contributions that the charities are excited about has to do with the allowing tax-free IRA distributions to charities. In the past, if you wanted to make a contribution to a charity out of your Individual Retirement Account, you were required to withdraw the funds, pay the taxes on it and then you could use what was left to make a contribution. This provision is only applicable to taxpayers over age 70, and it expires at the end of 2007. Another change is that the rules for deducting charitable contributions have been tightened up, especially for noncash gifts. It’s going to be more important than ever to document every gift that is given.

How does the Section 179 deduction benefit business owners and what is the amount that can be deducted?
Section 179, which was not changed by this new law, allows businesses to immediately expense or write off up to $100,000 related to purchases of machinery, furniture, computers or other equipment that normally would be depreciated over time. This gives an immediate tax benefit for equipment purchase. There are limits and the very large and very profitable companies can’t take advantage of this. But for many companies, it’s a huge tax benefit. The deduction of up to $100,000 per year can be taken up through the year 2010.

When making a decision to write off assets, why is it important to compare how an accelerated write-off will affect taxes in future years?
It’s really important to plan the year you want the deduction. Taking it all in the first year may reduce your taxable income down to a very low tax bracket — which is great for this year, but then it means that you don’t have any write-off in future years and you could end up being in a higher tax bracket. Some companies, especially if the current year where the purchases were made is not a large tax year, may not want to make the election so they can defer the deduction into the future by depreciation. This way, the deduction will be used in a year when their tax bracket is higher.

In the future, what additional changes in tax law do you anticipate?
It’s really difficult to predict. It would not surprise me if there were more changes related to pensions even after this Pension Act, because this one is going to have the effect of inhibiting employers from doing defined benefit pension plans. We’ll see pensions decrease in the future, and there may be even more things that try to encourage other types of retirement plans. Other than that, it seems like there may need to be some kind of laws that increase taxes due to the high spending that’s been going on.

MARY ANN QUAY is co-managing partner of Vicenti, Lloyd & Stutzman LLP. Reach her at or (626) 857-7300.

Tuesday, 24 October 2006 20:00

Workers’ compensation

Just a handful of years ago, it appeared that workers’ compensation costs in California would hit the stratosphere. The confluence of increased litigation, larger permanent disability awards and escalating medical costs combined to drive prices upward. Recent legislation, however, has enabled carriers to decrease premiums significantly over the past couple of years.

“From Jan. 1, 2004 to July 1, 2006, the pure rates in California have gone down approximately 55 percent on average,” says Warren Meyer, area senior vice president for Arthur J. Gallagher & Co. “It’s a huge difference.”

Smart Business spoke with Meyer about why workers’ compensation costs have dropped so quickly, how the new regulatory environment has attracted more insurance carriers, and what his prediction is for workers’ compensation costs in 2007.

What are the primary reasons why workers’ compensation costs have dropped so significantly in the past couple years?
The primary reason is the passage of Senate Bill 899 (S.B. 899), and specifically several provisions of that bill relating to the guidelines for medical treatment that are now in place. Also, the bill initiated greater employer control when an employee is injured on the job.

Prior to the reforms, employers had 30 days of medical control whereby they could direct an injured worker to a medical provider for treatment of the injury. With the reforms, they have unlimited medical control, provided that they join a medical provider network. The benefit is that employees are no longer opting out after 30 days and getting their own doctors; they must stay within the network and seek treatment.

Will the cost reductions from the regulatory changes in workers’ compensation remain?
The bulk of the cost reductions should remain for a number of years. However, there is some concern about pending legislation that could potentially erode some of the reforms. In addition, a number of cases are up for appeal within the workers’ compensation system that may ultimately need to be addressed by the Supreme Court of California. Those two issues may end up eroding some of the benefits, but the bulk of the benefits should remain.

How has the improved regulatory environment changed the availability of workers’ compensation insurance in California?
The environment has improved significantly over the last 24 months with the entrance of a number of new insurance companies. Prior to the reforms, the supply of workers’ compensation insurance providers was very, very low. Now, because occupational medical costs have come more in line with non-occupational medical costs, insurance companies have a better handle on what the ultimate costs will be and therefore can price their products appropriately.

The passage of S.B. 899 has allowed new insurance companies to enter the market and enabled inactive insurance companies to return to California to underwrite workers’ compensation. Probably the most notable point is that we are seeing a number of multi-line insurance companies offering workers’ compensation once again, whereas in the past, they had — for all intents and purposes — pulled out of the market for guaranteed-cost business.

Are alternate risk financing programs still a viable tool for companies to minimize the costs of workers’ compensation?
They certainly are, especially for larger companies that have a predictability of losses and can absorb the expense of the alternate programs. However, as guaranteed-cost programs or zero-dollar programs become more competitive, the benefit for these alternate risk programs has decreased. A number of medium companies are now rolling into guaranteed-cost programs to minimize the downside risk of workers’ compensation.

How important is for top management to stay committed to maintaining a safe work environment?
It is very important for management at all levels of a company to remain committed to a safe work environment and to pro-active claims management. Preventing losses remains the No. 1 means of reducing overall workers’ compensation costs. California continues to use an experience modification rating system, so historical losses will continue to affect the pricing of workers’ compensation. Therefore, management should continue to stay focused on preventing losses and aggressively managing claims once they occur.

What is your forecast for workers’ compensation costs in 2007?
At this point, our forecast is that prices will remain flat or go slightly lower. However, pending legislation before the governor could potentially increase benefits for permanent disability and therefore slightly increase workers’ compensation premiums into next year. Overall though, the trend for 2007 looks very positive with a strong supply of workers’ compensation insurance companies that have aggressively priced and solicited new business.

WARREN MEYER is area senior vice president for Arthur J. Gallagher & Co. Reach him at (818) 539-1365 or

Thursday, 21 September 2006 07:18

Food allergies

Food allergies can make the routine experience of eating into an adventure. While a number of different foods are known to trigger reactions, only eight account for 90 percent of all food-allergic reactions: milk, egg, peanut, tree nut, fish, shellfish, soy and wheat.

All told, about 12 million people are affected by food allergies in the United States, says Dr. Marc Riedl, assistant professor of medicine at the UCLA Medical Center. While no preventive methods for food allergies exist yet, there are some promising possibilities in the pipeline. “There is a great deal of interest in therapeutics because our current treatment is so limited,” says Riedl.

Smart Business spoke with Riedl about food allergies, how you should proceed if you suspect you have an affliction, and what type of research is being conducted in this field.

From a medical standpoint, why do food allergies occur?
Allergic conditions result from a combination of genetic and environmental factors. We think of food allergies as a breakdown of something called oral tolerance — an immune mechanism by which our gastrointestinal tract learns to discriminate between harmless things, such as foods, and harmful things, such as bacteria or parasites. When someone has a food allergy, that mechanism is failing and we don’t know exactly why that is. A number of hypotheses have been put forward. Probably the most advanced one is that the microflora of the gut in young children may have changed with our recent hygienic lifestyle.

What are the common symptoms that accompany a food allergy reaction?
The primary gastrointestinal symptoms can be itching of the mouth, diarrhea, nausea or abdominal pain. Often, food allergy reactions are accompanied by skin symptoms such as hives, swelling of the lips or throat, or itching of the skin. Once in a while, respiratory symptoms like shortness of breath or nasal congestion can be observed. With the most severe reactions you get anaphylactic shock, which is accompanied by a drop of blood pressure and lightheadedness.

What is the best treatment?
The best treatment is to prevent the reactions through strict food avoidance measures. That requires a great deal of education and vigilance by the patients. In the event that an ingestion of a food allergen occurs, then treatment is focused on the use of epinephrine or injectable adrenaline.

How should people proceed if they suspect they have a food allergy?
The most important thing is to see an allergist or health care provider who has experience in dealing with food allergies. The history is very important, so patients need to pay attention to the timing and the symptoms that occur after they eat a food that they’re suspicious of. A food diary can be helpful if a patient is uncertain whether reactions are related to eating a certain food.

What kinds of tests are conducted when determining if a food allergy is present?
There are two major types of food allergy testing.

The first is allergy skin testing, which consists of pricking the skin with a small amount of food allergen. If an allergic antibody is present in the immune system, then you’ll get a wheel-and-flare reaction. This is probably the best screening test that we have for food allergies because it’s very quick, efficient and easy for most patients to tolerate.

The other type of food allergy testing is blood testing, which we often call RAST IgE testing. This method involves collecting blood from a patient and sending it to the laboratory where the blood is screened for allergic antibody to specific food allergens.

There are no medications that cure food allergies. What type of research is being conducted in this area?
The first is what I’ll call more traditional medical treatment, which is taking a medication to prevent food reactions from occurring. The two that are in development right now are Anti-IgE and FAHF2.

Anti-IgE is a medication that has been used to treat severe asthma. There have been some early human trials looking at the effectiveness of this drug in preventing food allergy reactions. Unfortunately, there have been some adverse reactions in those clinical trials. As you can imagine, it’s difficult to give food-allergic people the food they’re allergic to without the risk of reactions. FAHF2 is a Chinese herbal formula that has shown some promise in preventing allergic reactions to peanuts in laboratory and animal studies.

The other category of treatments is immunotherapy, which is an effort to teach the immune system how to tolerate food allergens.

MARC RIEDL, M.D., is an assistant professor of medicine at the UCLA Medical Center. Reach him at (310) 794-1745 or

Tuesday, 29 August 2006 20:00

Electronic transactions

The ability to prevent fraud is crucial when competing in a competitive marketplace. Check fraud, in particular, can have a major impact on a company’s bottom line. Certainly, using ACH (Automated Clearing House) transactions to transfer and process electronic funds is on the rise. According to the Electronic Payments Association, 14 billion payments were made in 2005 through the nationwide ACH network, an increase of approximately 16 percent over 2004.

Safeguarding against check fraud — both traditional and electronic — requires diligence and determination, but new technologies are making the process simpler and more cost-effective.

“Financial institutions offer tools that allow customers to protect their assets for a relatively low cost,” says Lynnell Harris, senior vice-president of Comerica Bank. “It’s very much a win-win situation.”

Smart Business spoke with Harris about methods that can be used to help prevent check fraud, the benefits of Positive Pay and what distinguishes ACH Positive Pay from other fraud-protection products in the marketplace.

What types of companies are most susceptible to check fraud?
All types of companies. In today’s environment, anyone who sends out checks or transacts business with partners or consumers is subject to fraud and should take precautions. Companies across America, regardless of their size, are at risk.

What are some methods that companies can utilize to help prevent fraud?
There are a variety of safety measures and financial tools. For example, employees can help protect sensitive information by making sure items such as checks, account numbers, bank statements and other sensitive financial information are locked up and stored away. A system of checks and balances can be employed within the company to ensure appropriate access and approval authority.

In today’s environment, electronic transfers offer more control, as systems enable companies to set up various layers of authority based on dollar amounts or transaction types. Other tools include online account review and Positive Pay.

How does Positive Pay work?
Essentially, the bank delivers information to the customer regarding checks or ACH transactions that will be posted against his or her account. The customer then has the opportunity to review the information and determine if they are valid items. The customer authorizes the posting of the transactions and notes any unauthorized transactions. When notification is returned to the bank prior to the deadline, unauthorized transactions are returned to the depositing/originating financial institution.

Tools such as Positive Pay significantly mitigate risk for the company without requiring a huge investment in technology.

How can a business utilize ACH Positive Pay to accept or reject ACH transactions before they are posted?
In a manner similar to checks, the bank will present to the customer, before posting, all ACH transactions. The customer then has the opportunity to identify any unauthorized ACH activity. The customer authorizes the posting of the transactions and notes any unauthorized items prior to the notification deadline. The bank will return those items before posting to the customer account.

What distinguishes the ACH Positive Pay service from other fraud protection products in the marketplace?
Typically, most banks are only able to protect companies that write checks. But technology introduced recently enables some banks to protect the customer against unauthorized electronic activity as well. With ACH Positive Pay, the customer looks at all paper and electronic items. It offers more comprehensive protection against fraud.

If a business detects suspect items using either Positive Pay or ACH Positive Pay, what course of action can it take?
The first step would be to contact its financial institution prior to the Positive Pay notification deadline and advise which items should be returned. Typically, the information regarding suspect items is available first thing in the morning. Customers pull information electronically, review it and authorize payment of the valid items. If there is an unauthorized item, they would notify their bank in that response. The bank would then return those unauthorized transactions before they post to the customer’s account.

LYNNELL HARRIS is senior vice president of Comerica Bank. Reach her at (714) 424-3895 or

Wednesday, 30 August 2006 12:31

A multi-year activity

Pro-actively tackling taxes is a wise decision for any business. As the end of the year approaches, taking advantage of tax breaks can reduce your 2006 tax liability, points out Carl Pon, co-managing partner of Vicenti, Lloyd & Stutzman LLP.

“I would suggest that a business confer with its tax professional in the month of September, which then gives it a full quarter to implement the changes, assuming it has a December fiscal year,” Pon says.

Smart Business spoke with him about the virtues of planning for taxes early, how to maximize deductions and rules to keep in mind when making year-end purchases of depreciable assets.

How should a business go about planning for year-end taxes?
The first step is to get hold of the information regarding the prior year’s taxes to work up a rough projection of what the current year looks like. Also, some thought should be given to what the numbers might look like in the next tax year. Part of the opportunities of tax planning are to take advantage of when you may be in relatively higher or lower tax brackets and to move income and deductions in a way that you can take advantage of those differing tax brackets.

Why is it so important to start early?
The main reason is that it usually takes time to implement whatever action items are identified. For example, if you decided that you wanted to defer income into the next tax year, the sooner you start that process the more income you can defer. If you wait until the last two weeks of December to defer income, you have fairly limited options.

What are the advantages of deferring income?
First is that even if you’re in the same tax brackets both years, by deferring the income a year, you defer the payment of the tax for a year. Basically, you get an interest-free loan from the government in the form of the reduced taxes.

The second advantage is that often we’re fairly confident of the tax bracket that we’re going to be in this year, but the future is a little bit hazy. It’s conceivable that next year might not be as good as this year, and if so, deferring income into next year at least gives you the possibility that you’ll be in a lower tax bracket.

How can a business maximize deductions?
At one level, you can maximize deductions by accelerating the rate at which you incur discretionary expenses such as advertising, marketing and consulting fees. Even though the government is paying for some of these expenses in the form of reduced income taxes, you’re still bearing the bulk of the costs. So you want to make sure that you’re spending money on things that make good business sense to spend money on. You don’t want to just spend money for sake of reducing taxable income.

What are some rules to keep in mind when making year-end purchases of depreciable assets for tax purposes?
Usually, we’re looking at this in context of the Section 179 election, which allows taxpayers to expense certain types of depreciable assets.

One of the things that should be examined is the maximum amount of capital outlay that you plan on for the current year as well as the upcoming year. Also, you should bear in mind that the depreciation for what the IRS calls listed property, which includes most automobiles, is significantly restricted. Often, purchasing an automobile at the end of the tax year is not a significant tax-saving opportunity. On the other hand, technology is constantly evolving and improving, so if there is some new computer-based or telecommunications equipment that looks very appealing, you might as well get it at the end of the year.

It is important to keep in mind that to take the depreciation deduction, the asset actually has to be put into service. If you buy something and don’t even open the box until the next tax year, technically you haven’t put it into business service.

How does the Alternative Minimum Tax (AMT) affect tax planning?
The AMT adds another level of complexity to tax planning. Individuals who do a really good job of knocking down their personal income tax liability can find themselves with a reduced regular income tax, but they are now paying the AMT in its place. The rules are significantly different for the AMT. For example, some of the items that are deductible for regular tax purposes are not deductible for AMT purposes. It is a good idea to consider both the regular tax and the AMT to make sure that your taxes end up where you plan for them to be.

CARL PON is co-managing partner of Vicenti, Lloyd & Stutzman LLP. Reach him at

Sunday, 30 October 2005 19:00

The great communicator

Effective strategic communication is a critical component for the success of any business. A clearly defined message serves as the backbone of a company’s identity and articulates its future vision.

Edward Clift, an assistant professor of communication at Woodbury University, believes it is a mistake to consider communication as a separate entity that exists apart from the fabric of a company.

“Strategic communication seeks to align an organization’s goals with its communication practices,” he says. “It is about creating a coherent mindset that values differences, handles conflict constructively, operates according to larger ethical principles of community, and minimizes the destructive effects of bias and stereotyping.”

Smart Business spoke to Clift about using strategic communication to motivate employees, the importance of having a clearly defined strategy and some of the dangers of poor communication.

What are some effective methods of communication that can be integrated into a company by the CEO?
Communication, even when it’s not the subject of a CEO’s self-reflection, saturates all organizations — it is what defines corporate identity. Once the CEO starts to self-reflect about communication practices, then corporate communications can become subject to modification and improvement.

I recommend that they start at the top by learning how to listen, for example, before they lead. Concentrating only on the effectiveness of communication, however, will limit the growth of the company. One should focus instead on maximizing the full potential of all interactions so that the company can find ways to direct its own change.

How can effective strategic communication help motivate employees and increase retention?
The idea behind strategic communication is to align corporate interests with the full range of messages distributed to the public, to employees, to the media and others. Employees want to understand how their labor contributes to the success of a company, and this alone will motivate them and increase retention. You can take that one step further as well.

Because of the flattening of management in the corporate world, employees are increasingly responsible for their own oversight. The employees that survive in such a world are those who grasp the strategic mission of the business and make it their own. An effective strategic communication policy will help employees identify and understand the vision of the company.

How can a CEO or business owner be sure that employees are satisfied with the company’s communication program?
People are satisfied when they feel like they’ve contributed to the environment that they work in, which includes the communication environment. You want to build an organization that is open to the input of all the employees. This can be designed into the corporate communication policy, but it has to begin with the recognition that people are sometimes scared of their own ability to influence the world.

You not only need to create the avenues, but also find ways to encourage participation in those communication practices. Concrete ways to measure how satisfied employees are would include feedback forums, participant observation, anonymous surveys and quality control indicators.

Why is it important that senior management has a clearly defined communication strategy?
No company can compete in the Information Age unless it reflects upon its own communication practices. If you develop a well-defined communication strategy, you can link your corporate goals to your way of knowing and interacting with the world as a business.

The relative success of one business over another is in large part attributable to the communication strategies they choose to implement. This is why many investment professionals choose to buy the management team of a company rather than the product; they want to know that the communication strategy internal to the corporation is aligned with their business goals.

What are the dangers of poor communication in business?
Primarily that you risk appearing crazy when your actions and your words do not coincide. The goal of a CEO is to create a coherent vision of a company that articulates a mission that matches what it is doing. Otherwise you say one thing while doing another and people don’t have trust in you.

This is one reason why many corporate reorganizations and mergers fail: you can’t just make a structural change and expect the communication practices to also change.

The dangers of poor communication do not end at the door of the company. Huge external risks face all organizations, but especially those operating on a global stage. These include natural disasters, forced changes in ownership or management, powerful stakeholders, ideological challenges and direct attack.

Strategic communication dictates that any business become conscious of these potential perturbations to its viability. It should then use its observations to strategically design a robust set of internal and external communication practices.

What is a common communication mistake that business owners make?
Business owners tend to become overly reliant on technology to solve their communication problems. They make the mistake of trying to improve communication in an impersonal manner.

Communication thrives on feedback, collaborative meanings and close personal engagement. The challenge is to balance technology with an appreciation for everybody’s unique insights — whether they’re workers inside the company or customers outside the company.

Edward Clift is an assistant professor of communication at Woodbury University. Reach him at (818) 252-5197 or through the university’s Web site,