Troy Sympson

Tuesday, 26 May 2009 20:00

Managing risk

Monitoring and containing risks has always been important for businesses, but in today’s economy, the need to manage risk has become critical. By performing a holistic risk assessment, your organization can identify, analyze and mitigate risks, creating a culture of awareness and enhancing the organization’s value. Conducting a holistic risk assessment is especially important if your company operates in an industry hit hard by the current financial crisis.

“Organizations large and small can benefit from holistic risk assessments,” says Harry Cendrowski, CPA, ABV, CFF, CFE, CVA, CFD, CFFA, and managing director of Cendrowski Corporate Advisors LLC. “While many firms intensely monitor risks at a divisional or product-line level, a firm-level risk assessment can help the company better mitigate risks that may jointly affect differing areas of the organization.”

Smart Business learned more from Cendrowski about holistic risk assessments, why they’re so important and how they can benefit you and your business.

What is risk management?

Risk management is a process that identifies possible risk exposures an organization can face. It allows for the systematic evaluation and prioritization of risks while determining the likelihood of occurrence and the potential consequences if the risk occurs.

On the whole, risk management establishes what assets need to be protected, the value of those assets, the threats and vulnerabilities the company could face, the implications of those threats and vulnerabilities, and what can be done to minimize exposure to those risks.

A good risk management plan will contain appropriate controls and/or countermeasures to quantify each risk, and it should propose applicable and effective security controls for managing risks. The plan should also contain a schedule for control implementation and responsible persons for those actions.

What is involved in a holistic risk assessment strategy?

A holistic risk assessment involves three components: risk identification, analysis and mitigation. Organizational managers are often good at identifying and analyzing risks at the divisional or product-line level. However, in order for the risk management strategy to be effective, these managers need to look not only at the primary effects associated with individual risks but also at the correlation between identified risks across divisions and product lines.

If one of a firm’s product lines experiences a significant shock to its revenue, is it likely that another product line will experience a shock in tandem given the nature of the risk?

For example, if a supplier to a particular product line goes out of business, is it also likely that a supplier to another product line will meet the same fate given the nature of the risk?

By identifying highly correlated, risky events through a holistic risk management process, managers, boards and C-suite executives can move first to address these issues before proceeding to other risks. Without such a strategy in place, the firm could find itself facing significant issues occurring at the same time in separate divisions.

What are some key factors in successfully performing holistic risk assessments?

The act of performing a holistic risk assessment does not necessarily ensure its success in mitigating risks. It is a necessary condition but not a sufficient one. Many organizations actively perform risk assessments. However, the organization’s culture often hampers some part of the risk management assessment.

As an example, if the organization has sloppy data collection procedures, the information used in performing the risk assessment may lead to incorrect conclusions. On the other hand, even if accurate data are employed in a risk assessment, its success is predicated on management’s ability to shepherd the process throughout the organization. Weak management, or management’s indifference toward a risk assessment, can cripple the process.

Are there any types of businesses that are more susceptible to risks than others?

Firms using large degrees of leverage are particularly susceptible to risks because of the debt on their balance sheet. This leverage is often used to drive returns, but it also exposes the firm to significant downside risks. Firms with low debt-to-equity ratios, conversely, will generally be able to better weather an economic storm, all other things being equal.

Venture capital investments, for instance, are primarily equity investments with little to no leverage. While these types of assets experience shocks, there at least exists some downside cushion for venture investors due to the lack of leverage.

To take this point a step further, while the dot-com bubble and its subsequent bust were painful for many in the venture capital arena, it in no way catastrophically affected our financial system as did the current crisis. The current crisis’ shocks were made significantly more crippling due to the leverage employed by investment banks and homebuyers in their purchases.

Harry Cendrowski, CPA, ABV, CFF, CFE, CVA, CFD, CFFA, is managing director of Cendrowski Corporate Advisors LLC. Reach him at (866) 717-1607 or cs@cendsel.com, or visit the company’s Web site at www.cca-advisors.com.

Saturday, 25 April 2009 20:00

Unwelcome advances

Now more than ever, employers must be aware of the sensitive nuances that come with running a business. There are sensitive data, business plans, company secrets and employee information that must be properly handled.

Another sensitive issue that must be monitored — and prevented — is sexual harassment. You may think that in this day and age, sexual harassment is a nonissue, but it’s as prevalent now as in past decades. Only now it takes on many different forms and isn’t always overt.

The U.S. Equal Employment Opportunity Commission (EEOC) defines sexual harassment as any unwelcome sexual advances and/or requests for sexual favors. It also includes other verbal or physical conducts of a sexual nature when submission to such conduct is made either explicitly or implicitly a term or condition of an individual’s employment, or submission to or rejection of such conduct by an individual is used as a basis for employment decisions affecting such individual, or such conduct has the purpose or effect of unreasonably interfering with an individual’s work performance or creating an intimidating, hostile or offensive working environment.

“Sexual harassment can happen even if the harasser isn’t fully aware of his or her inappropriate behavior,” says Peter B. Maretz, a shareholder with Shea Stokes Roberts & Wagner.

“A victim may consent or agree to certain conduct and actively participate in it, but that doesn’t make other offensive and/or objectionable behavior appropriate or allowable.”

Smart Business spoke with Maretz about how to prevent sexual harassment and what to do if it happens at your company.

How can a company educate its employees about sexual harassment?

Companies need to have harassment training once every two years. It’s required by law for managers but strongly recommended for all employees. The training should focus on how to recognize harassment, handle complaints and discipline offenders. Thorough and consistent training is the best way to keep harassment from happening in the first place but will also enlighten employees who may have been harassed before but never knew it.

What preventive policies should be in place?

You have to have an employee handbook that contains a clear and unequivocal sexual harassment policy that emphasizes zero tolerance of inappropriate behavior, an unambiguous nonretaliation policy, and clearly defined consequences of unacceptable conduct.

Your employees must know that the company will simply not tolerate sexual harassment. Employees also need to be assured that if they do experience harassment, their complaints will be taken seriously and promptly investigated and that the offenders will be properly disciplined. Your sexual harassment policy should also include specific examples of inappropriate behavior, so everyone knows exactly what is suitable and acceptable. Employees should also know that they can report sexual harassment to their supervisor, human resources or any other member of management, as they see fit. Employees must feel comfortable talking to management without fear of retaliation or continued harassment.

In addition to reporting procedures, the handbook must also ensure that harassment complaints will be handled discreetly and promptly and that employees will not be retaliated against for reporting misconduct.

If harassment does occur, how should it be handled?

First, get a written statement from the victim, then meet with him or her. This meeting should not be one-on-one — have an HR member or another manager help interview the victim. Don’t promise confidentiality but assure the victim that you’ll use the utmost discretion in investigating the claim. Gather as much detail as possible — where and when the incident happened, who was involved, what was said and done. Don’t judge the victim or question his or her behavior. Focus on facts, and assure that you will handle this quickly and quietly. Do not interview the victim and accused together.

After you determine that the incident is indeed sexual harassment, talk to the accused harasser. Inform him or her about the claims being made, and get the person’s statement. Let the accused know full well about the company’s retaliation policy as well as the possible consequences of his or her actions.

At this point, if there are witnesses, interview them. If you’re worried friends may stick up for each other, make sure the employees know the consequences of falsifying information and interfering with a company investigation. Gather the information you need to make an educated and fair judgment.

While the investigation is going on, the accused should be suspended. The entire investigation process should only last a day or two. Once you determine the violations and their appropriate punishments, assure the victim that the situation was handled and that if they experience any further problems, especially retaliation, let them know that they should report it immediately.

Can the harasser and the victim work together again?

If the harasser isn’t terminated, it’s usually best to move him or her to another group or department. If the two parties absolutely must continue to work together, closely monitor the situation. Make sure the harasser knows that any more inappropriate behavior or retaliatory actions of any kind will not be tolerated and will lead to termination. Also, consistently follow up with the victim to make sure everything is OK.

Peter B. Maretz is a shareholder with Shea Stokes Roberts & Wagner. He regularly advises businesses on all aspects of employment law. Reach him at pmaretz@sheastokes.com or (619) 237-0909.

Saturday, 25 April 2009 20:00

Safe investing

A stranger to most of us last year, Bernie Madoff is now a household name and a hot topic of discussion in the financial world.

Unless you’ve been totally tuned out in the past months, you know Bernie Madoff was caught and arrested for running a Ponzi scheme. Another big name in the investment industry, Houston’s own Stanford Financial Group, also made headlines recently for allegedly defrauding investors out of billions of dollars through a Ponzi scheme.

A Ponzi scheme involves paying off investors with funds received from new investors, and con artists get away with it as long as they continue to attract new investors and maintain a client base large enough to support their original investors.

These scandals have increased the anxiety level of investors who’ve already seen their retirement savings dwindle in a very hairy bear market. Investors are increasingly cautious with their money, but that doesn’t mean they should stop investing altogether. There are still honest, reliable money managers in this country, and there are still safe and lucrative investments.

“Money and investments are a top priority for those who want to gather assets and, hopefully, retire while they still have time to enjoy it,” says Ed Gojara, CPA, CFE, an audit senior manager with Briggs & Veselka Co. “Risk and return have an inverse correlation. There are very safe investments, like treasury bills and CDs, with relatively low risk and low rates of return. At the other end of the risk spectrum, investments in penny stocks and start-up companies can yield higher returns but may result in larger losses.”

Gojara believes that now is as good a time as ever to invest, provided you know exactly what you are investing in, and the associated risks. Smart Business spoke with Gojara about making smarter — and safer — investments.

What should you be wary of when investing?

As a business owner, you may be investing for yourself, your company, your employees and numerous others who will look to you for guidance and advice. You want to have confidence that you’re working with trustworthy and reputable money managers and investment advisers.

Rule No. 1, if an investment sounds too good to be true, it probably is. If it’s ‘guaranteed,’ find out exactly how and by whom. Very little in life is guaranteed, so be skeptical. There are no free lunches.

Second, don’t invest if you don’t understand. It’s your money, and you need to understand where it’s going. Some investment funds are called fund of funds. This means they invest in other funds rather than directly in the underlying investments. If they invest in other funds, obtain audit reports for those funds so you can see where your money is truly going.

How do you know your advisers are working for you?

Ask how your advisers are compensated, what kind of fiduciary duties they have and what they are required to disclose to you. While brokers may disclose the fees you pay, they may not tell you that those fees are five times higher than the industry average.

Request and obtain audited financial statements from those with whom you invest and research the audit firm. It doesn’t have to be a national firm with thousands of offices. There are many qualified, good local and regional firms. And you should research the accounting firm’s reputation and resources by visiting the firm’s Web site or the Web site of the American Institute of Certified Public Accountants (AICPA) at www.aicpa.org. The AICPA maintains a database of those firms that have gone through the peer review process — a process designed to enhance the quality of accounting, auditing and attestation services performed by public accounting firms. You can also visit your state’s board of public accountancy (for Texas, the Web site is www.tsbpa.state.tx.us). There, you can search for the firm and individuals from the firm to verify they are registered with the state’s Board of Public Accountancy and discover if there are any disciplinary actions pending or previously taken against them.

Why is checking out the auditing firm so important?

Madoff’s auditor was Friehling and Horowitz, a three-person firm that was auditing billions of dollars. Stanford’s auditor was CAS Hewlett & Co., a tiny accounting firm with an office above a hair salon in London and a second office in Antigua — two rooms containing an old telephone book and a typewriter. If the audit firm and the scope of the work to be done don’t match (or if there aren’t any computers around), that’s a sign that something is wrong. If you can’t trust the auditing firm, how can you trust the businesses they’re auditing?

What other things should investors watch in today’s market?

Fraud is hard to detect on the outside, and usually when you do find it, it’s too late. However, you can take steps to prevent fraud. Always exercise proper due diligence. Monitor your investments before, during and after you contribute to them. As stated earlier, fully understand your investments, your advisers and the companies that audit your advisers. Don’t fall for the latest ‘get-rich-quick’ investment. The best investments are well planned and come to fruition over time. Understand your investment time horizons and the amount of risk you are willing and able to take.

Finally, don’t try to invest alone. Even if you are well versed in financial and business markets, it doesn’t hurt to seek advice from a trusted CPA and/or attorney.

ED GOJARA, CPA, CFE, is an audit senior manager with Briggs & Veselka Co. Reach him at egojara@bvccpa.com or (713) 667-9147.

Monday, 23 February 2009 19:00

Hosted or traditional?

Despite all the various advances in technology, there’s always going to be one old standby that every business needs: the telephone.

Today, there are more telephone options than ever before and deciding which one is right for your business can be a confusing and time-consuming process. One of the hottest options out there is hosted telephony — having your telephone services managed and maintained by an outside third party.

“There is a trend in the business world of moving toward Communications as a Service (CaaS), which is IP telephony that is managed, owned and housed by a third party,” says Monty Ferdowsi, president of Broadcore. “Hosted telephony centralizes all voice applications for all your locations, and it is the future of business class telephony.”

Smart Business spoke with Ferdowsi about hosted telephony, how it compares to traditional telephony, and how businesses can determine if and when it’s time to make a switch.

What are the pros and cons of traditional telephony?

Traditional requires the purchasing of on-site, premise-based equipment for every different feature you need, plus you have to obtain multiple services for Telco and Internet. First, you have to select your systems and equipment, which means dealing with different, biased vendors representing multiple brands. Then, you have to choose your phone company and what plans to use — and there are a host of different options when it comes to selecting a local, long distance or Internet service plan. All of this leads to a large initial capital investment and an even longer process.

And then the really hard work begins: implementation. You’ve got to get the system up and running, and then deal with ongoing repair, maintenance, upgrade and training costs. But, no matter how well you maintain and upgrade your equipment, it still becomes obsolete in a matter of a few years.

You’ve got to utilize internal resources and staff to oversee the phone system. Plus, you’re dealing with multiple vendors, which can lead to finger-pointing issues when something goes wrong. Multiple vendors also means multiple monthly bills, which means time-consuming, erratic expenses. You don’t have true control over the in-house system, moves and changes — you’re fully dependent on your vendors for support.

Are there pros to traditional telephony?

Absolutely. It’s old, proven technology, and it’s a mostly stable platform. And, if you have the need to own your platform, it’s great. But, with continually advancing technologies and the need to do business better and faster, the cons seem to outweigh the pros.

What is hosted telephony?

Hosted telephony eliminates the need for in-house equipment, so you don’t have to deal with all the issues associated with equipment, such as obsolescence, maintenance and upgrades. Also, since Telco and Internet services are provided on the same platform, hosted telephony eliminates the need for multiple vendors and multiple bills. There is no equipment on-site to be maintained, updated or repaired. You get advanced capabilities without the hassle and expense of multiple systems, vendors and pieces of equipment.

What are the benefits of hosted telephony?

It’s a truly consolidated service — one company provides you with all the PBX, Telco and Internet services you need. Instead of dealing with a phone system vendor, the local phone company, a long distance company, a broadband Internet provider and conferencing services, hosted telephony gives you all those systems and services under one reliable and advanced platform.

Also, your hosted telephony provider is responsible for the day-to-day operations and maintenance of your telephone system, including adding new lines and changing faulty components. With traditional telephony, you’re responsible for these functions, as well as the expenses that come with them. Hosted telephony offers reliability, seamless upgrades and complete mobility: manage your calls and messages and use your cell phone or a laptop soft phone as your business extension from anywhere using any phone or any Internet connection. With hosted telephony, you can conduct business from anywhere — from satellite offices, from home — just as if you’re in the office.

Hosted telephony generally offers a lower total cost of ownership than traditional phone systems. Again, you’re not plunking down a large initial investment, you don’t have to worry about replacing obsolete equipment and you’re combining your various phone charges into an all-in-one package.

Are there drawbacks to hosted telephony?

Since it does not require a core equipment purchase, hosted telephony may not be desirable to people who have to own and touch equipment. A potential problem with all phone systems is that when the connection to the outside world (i.e. phone lines, PRI, IP T1 services) goes down, you’ll lose the ability to make and receive calls. However, with hosted telephony, you can still receive calls and conduct business even if your connection is down. Since everything is run at the provider’s data center, all your systems will continue to function normally, even if your office is offline. This is particularly beneficial if your office is hit by a catastrophic event.

MONTY FERDOWSI is the president of Broadcore. Reach him at (800) 942-4700 or info@broadcore.com.

Monday, 23 February 2009 19:00

Time to recycle?

In these uncertain economic times, just about every company in every industry is looking at ways to reduce or eliminate costs. Because of this, more and more companies are running their equipment (computers, printers, etc.) until the very end, squeezing every last bit of life out of those systems to get the most bang for their buck.

This is a perfectly acceptable — and recommended — practice, but companies need to be fully aware of exactly when to dispose of equipment and how to properly do it.

“To optimize the life cycle of your assets, you’ve got to plan and monitor all life cycle costs, including disposal and recycling,” says Gregory G. Lorenzen, the vice president of operations for Pomeroy IT Solutions.

Smart Business spoke with Lorenzen about end-of-life services and what to do with your equipment when it reaches the end of its value.

How do you know equipment has reached the end of its value?

Resources need to be retired from use when they are no longer suitable or compatible to business. You know it’s time to retire a resource when the risk of business activities being disrupted increases and/or when the cost of operating, repairing or running it to enterprise standards increases.

It should be noted, however, that when you retire an asset you’re not just tossing it in the dumpster. First, you need to determine whether or not the asset could be used elsewhere in your company. Even if a computer or system is completely useless to one user, it could be an upgrade to another. You want to get as much value out of your assets while they still have useful lives.

If it is determined that the asset no longer has any use within your enterprise, look to a company like Pomeroy to handle the recovery logistics. That way you can be sure the asset is cataloged, tracked and processed in such as way that eliminates any chain of custody issues with the assets. Essentially, these types of companies act as the service agent and will process the transfer of both brokerage and disposal class materials using systems and bill of material processes that transfer the ownership of these assets to the purchasing party or to the e-waste recycler.

What should you look for in a good asset recovery vendor?

First, make sure they work with reputable and EPA-compliant recyclers in the United States and overseas. You must ensure the asset recovery vendor selected is a trusted agent. A good asset recovery company will completely sanitize and secure your assets, wiping hard drives to Department of Defense standards to ensure no data, intellectual property or business information remains. Select an asset recovery vendor for its transparency, security and record keeping. It should be able to meet your policies and earn your trust through execution and verification.

What can happen if a company doesn’t dispose of equipment properly?

As stated, there are legal concerns in regards to the EPA along with the moral requirements of being good stewards to the planet and its resources. The less we pull from the ground and the more we recycle will benefit not only our generation but many generations to come. Besides the fines you’ll face from EPA violations, you’ll also have the stigma of being a company that infringed EPA rules. In today’s environmentally conscious world, that negative perception can be far worse than any fine.

Also, if you don’t properly dispose of your assets, you risk exposing your company’s sensitive information. A competitor could obtain your critical business information, or you could violate the rules of SOX (Sarbanes-Oxley Act), HIPAA (Health Insurance Portability and Accountability Act) or Gramm-Leach-Bliley.

So, is proper disposal a legal and regulatory compliance challenge, or is it primarily an ethical dilemma?

Legal compliance is essential, of course, but ethics can have an even greater financial impact on the enterprise, as aging assets can represent financial liabilities.

At this time, legislation is mostly concerned with the disposal of plastic additives and four heavy metals: lead, mercury, cadmium and hexavalent chromium. Broader legislation is expected, as citizens hold governments and enterprises responsible for the cost of pollution and cleaning up the environment. So you’ve got to manage the risk of ecological issues damaging your business reputation, even if a legal case is proven.

Disposal must be a budgeted item, not an unbudgeted contingency. Disposal is increasingly being factored into the cost of acquisitions, with a vendor appointed to manage disposals. You’ll find that your business will need disposal services, and you cannot expect to dispose of assets for free.

Bottom line, when your assets lose their value and can’t be reused or resold, engage an asset recovery provider you trust and build the cost of asset disposal into your project plans and budgets.

GREGORY G. LORENZEN is the vice president of operations for Pomeroy IT Solutions. Reach him at glorenze@pomeroy.com or (800) 846-8727 x1521.

Monday, 26 January 2009 19:00

Considering downsizing?

With today’s troubled economy leading to downturns in many companies’ businesses, an owner’s first instinct is often to cut back on a company’s typically biggest expense: labor costs.

Businesses across the board are looking to minimize expenses in these tough economic times, but as tempting as it may be to cut labor, there are many reasons to consider alternatives, says Peter B. Maretz, a shareholder with Shea Stokes Roberts & Wagner.

“During the dot-com burst, companies readily cut employees, and they came to regret not being more creative,” says Maretz. “There is an opportunity here not just to keep quality people, but to build employee loyalty, which is priceless.”

Smart Business spoke with Maretz about how your company can avoid layoffs, and how to handle layoffs if that becomes the only option.

What can be done to avoid layoffs?

Even in the toughest of economies, there are strategies you can employ to avoid layoffs. First, consider reducing hourly employees to four-day workweeks, rather than five. Keep in mind, however, that this only works for hourly employees. If you try to cut back salaried employees’ hours and pay, you run the risk of turning them into hourly employees, then you’re faced with the risks of overtime costs.

What you can do with salaried employees, though, is have them take one-week, unpaid vacations, or have them take a modest 1 or 2 percent pay cut, being mindful of whatever contractual obligations you have with those people. Your employees may be more willing to take the unpaid vacations. While that particular pay period will cause a financial crunch, their long-term finances would stay the same. Also, many employees feel that if they agree to a pay cut, they’ll never get their salaries back up to where they were, even if you tell them that it’s a temporary pay cut.

Other ways to avoid layoffs include cutting bonuses; scaling back or eliminating overtime; monitoring spending on travel, supplies and amenities; and cutting back on company parties or picnics.

If you do have to lay people off, what factors need to be considered?

First, consider federal and state Worker Adjustment and Retraining Notification (WARN) Acts. Under WARN, if you employ 75 or more people and are laying off 50 or more in a 30-day period, or are relocating or terminating operations, you must give a 60-day written notice to employees, the state dislocated worker unit (such as the California Employment Development Board) and the chief elected official of the city or county in which the layoffs are occurring. Failure to provide this notice will lead to hefty fines, up to $500 per day. There are exceptions to this, such as if you are in the process of raising capital, as well as additional requirements, so be sure to consult your labor counsel.

How should you go about laying people off?

If you’re forced to do layoffs, follow these steps:

 

  • Define clear, objective reasons for the layoffs and communicate those reasons.

     

     

  • Centralize the process and don’t push it down to department heads. Make sure the message remains consistent.

     

     

  • Be clear on selection criteria — make sure everyone knows who is getting laid off and why. Seek out volunteers first with severance incentives, such as early retirement, extended pay or covering COBRA costs.

     

     

  • Implement wage and hiring freezes.

     

     

  • Clearly document every decision.

 

How do you decide who stays and who goes?

First, consider the company’s needs, and then consider a merit-based approach where the weakest performers are let go first. But, keep people who are versatile, those who can switch from department to department. Independent contractors and consultants don’t fall under WARN Acts, so consider cutting them, as well.

Be careful of claims of disparate impact. Cutting the highest wage earners could mean you cut a disproportionate number of older workers, exposing you to an age discrimination claim. Keeping the senior most people could expose you to gender or race discrimination claims if recent efforts to diversify means women or people of color make up a disproportionate number of your least senior people. Plan your layoff carefully, being mindful of the affected demographics.

Note whether any of your candidates for layoff have had recent problems, such as harassment claims, disability leaves, or general complaints about the working conditions. These people are not immune to layoffs, but you do have to make sure you define a clear and defensible reason for laying them off, or you may face a retaliation claim.

What should be done to calm the nerves of the staff that remains after layoffs?

For one, don’t promise that the layoffs you just did will be the only ones that will happen. Let your employees know that you’re doing all you can to ensure that layoffs won’t happen again. Also, highlight the other cuts you made, especially ones made to management. Even if cutting a management perk won’t make a big difference financially, it will speak volumes to your employees, who will see that you’re all in the same boat.

PETER B. MARETZ is a shareholder with Shea Stokes Roberts & Wagner. He regularly advises businesses on all aspects of employment law. Reach him at pmaretz@sheastokes.com or (619) 237-0909.

Monday, 26 January 2009 19:00

Productive IT

As your company is settling in to the new year, you should ask yourself one question: If you measure productivity by the amount of customer-focused work being produced by individuals, does your IT department help accomplish that?

With rapidly evolving technologies and seemingly endless considerations about compatibility and upgrades, the technology-to-productivity curve is low, according to Fred Pratt, CEO of DYONYX.

“Productivity is much more than having sophisticated tools,” Pratt says. “To understand and measure productivity, business must return to the basics. Remember what your company’s goals are and then define how each business unit supports those goals.”

Smart Business spoke with Pratt about productivity, IT’s role in it and how to get all aspects of your business on the same page.

How should a business look at productivity?

Productivity is not just about how much has been manufactured and how much it sold for; it is about each and every component that makes up the process of producing a deliverable for the customer. Productivity is best defined as ROE, return on effort.

Productivity has many small and often unnoticed components that cause a ripple effect up and down the line. Productivity includes how well you recognize what triggers a customer to order, why customers ordered from you instead of the competition, and whether or not they will order from you again. Productivity is about what products are being created to support the customer requirements and whether or not the profit margins are where they need to be to remain competitive. Productivity is also about how all of the costs of doing business can be properly accounted for. Finally, productivity is those intangible elements of being able to determine if you are really providing a value to the customer. This will ultimately determine your corporation’s position in the market.

Does enhanced technology equal enhanced productivity?

Based on raw horsepower, desktop computing should have a higher productivity rate than ever before. Desktop computing capability far exceeds the mainframe capacity in many large companies from just a few years ago. The average desktop user can now produce multimedia presentations for customers, merge several different types of documents into one and access data from all over the world, data they could never access before. So if productivity relates directly to the horsepower available to a user, we should be much more efficient than before.

Are companies more efficient than ever before?

The productivity figures gathered from GNP numbers for the past few years show nearly a flat-line average with some spikes and dips, yet technology has grown at an almost ballistic rate. Is there a separation occurring from technology and productivity? The situation is a paradox: If you do not have time to explore the technology, you cannot fully understand the capabilities of it and increase your productivity. Yet, if users are exploring the technology, then they are not completing their daily job functions and are not as productive.

Since a separation is being created because of technology outrunning users’ ability to utilize it, the separation will widen with the accelerated rate of new technology development. New training techniques are coming into the market that will shorten the productivity curve time; however, technology being available and technology being deployed into practical use are two different things. Often, by the time a business is ready to use a technology, the tools are already outdated.

How can IT help bridge the gap?

IT groups are frustrated and cannot understand the unreasonableness of the users. Users say IT groups do not provide them with what they need to do the job. As a result of not meeting the user groups’ needs, the business units will begin to seek their own solutions. Then business units are buying or designing technology without IT support, which makes for conflict.

If IT could fully understand the problem and develop a solution that includes the business unit, it would get more cooperation from business. This means that IT must close the gap between technology and a user’s production level, which is not easy since you have technical people trying to teach business people how to use the desktop tools. The business unit wants to be able to do its job better; the IT wants to get a technology installed and move on to the next problem.

Technology is often installed by IT because it is the latest revision, not because it solves a business problem. The first objective of IT should be to increase productivity with the tools that exist; just saying that the tools exist without them being used does not help the corporation.

FRED PRATT is the CEO of DYONYX. Reach him at (713) 293-6305 or fred.pratt@dyonyx.com.

Friday, 26 December 2008 19:00

FMLA revamped

Enacted in 1993, the Family and Medical Leave Act (FMLA) requires that employers must grant eligible employees up to 12 workweeks of unpaid leave during any 12-month period for the birth and care of a newborn or adopted child, to care for an immediate family member with a serious health condition, or when the employee has a serious health condition.

Recent changes to FMLA are effective as of Jan. 16, 2009. They include new military family leave entitlements as well as revisions designed to clarify the requirements that the FMLA imposes on both employees and employers.

“As an owner, make sure your managers are sensitive of the FMLA and have at least one person, such as a benefits manager or HR person, who is particularly well-versed in FMLA,” says Peter B. Maretz, a shareholder with Shea Stokes Roberts & Wagner.

Smart Business spoke with Maretz about the new FMLA changes and how employers can stay on top of them.

What are some of the key changes to the FMLA?

Once an employer knows an employee may qualify for FMLA, the employer has five days to request medical certification. Once an employee delivers medical certification, the employer has five days to tell the employee whether or not the request qualifies for FMLA leave. Also, if employers are going to deny the leave, they must, within those five days, notify the employee in writing as to why the leave was denied.

Another change concerns intermittent leave, such as when an employee needs random days or half-days off to receive counseling or therapy. Under the old rule, employees had to ‘attempt’ to schedule foreseeable leave during times that would not be disruptive to business. Now, employees must ‘make reasonable efforts’ to schedule foreseeable leave to avoid disrupting business.

This is not new, but you cannot punish an employee for poor performance due to an FMLA leave, such as when a salesperson doesn’t hit his or her numbers based on the fact he or she took FMLA leave. Under the new rules you can, however, deny someone a perfect attendance award because the person took FMLA leave.

Also, employers are required to post FMLA policies in the workplace, either in a common area or on the company’s server or intranet.

What constitutes a serious health condition?

The employee has to miss at least three consecutive days, he or she must go to the doctor within seven days of the onset of the condition, and the doctor or health care provider has to decide that the employee needs to come back for further testing or treatment in 30 days.

What are the new rules concerning military family leave entitlements?

These are the most important of the changes. Under the new rules, if an employee has a spouse, son, daughter, parent or next of kin who is on active duty or is called up to active duty, the employee has up to 12 workweeks to attend to things such as arranging child care, tending to legal or financial matters, attending counseling, going to farewells or arrivals, and/or matters brought on by the missing status or death of the family member.

The qualifying employee also has up to 26 workweeks of leave to care for a member of the Armed Forces (including the National Guard or Reserves) who is undergoing medical treatment, recuperation or therapy, is in outpatient status, or is on the temporary disability retired list for a serious injury or illness.

What should a company do if it suspects an employee is abusing the FMLA?

This actually happens quite a bit, unfortunately. Most importantly, you have to be vigilant about requesting medical certification. And do it for every employee, not just the ones you suspect. Even if the employee is caring for a parent or child, get medical certification. In cases where there’s a strong suspicion of fraud, consider surveillance. There are laws against audio recording, but if you can get a video or still picture of an employee caught in the act (like an employee who took time off for a bad back playing golf), you’ll be protected against fraud. You should hire a professional for this, however.

What if a company improperly denies an FMLA claim?

If an employee claims that he or she has been improperly denied FMLA, do a thorough investigation. If you find that the leave was improperly denied, extend the leave immediately, counsel and/or discipline the manager responsible, and check with the employee to make sure there are no further concerns. Document everything.

If an employee is wrongly terminated or improperly denied leave, you could be forced to pay back pay or reinstate the employee, give the employee front pay for years and/or pay actual damages, not to mention the employee’s attorney fees. Don’t be afraid to consult with your legal counsel or even hire additional legal counsel that specializes in FMLA. A small investment now saves huge exposure down the road.

PETER B. MARETZ is a shareholder with Shea Stokes Roberts & Wagner. He regularly advises businesses on all aspects of employment law. Reach him at pmaretz@sheastokes.com or (619) 237-0909.

Sunday, 26 October 2008 20:00

Be prepared

Any time a business is looking to undertake an economic development or capital improvement project, a litany of questions must be asked. Do we need new equipment or new facilities? Are we going to stay where we are? Will we be creating new jobs and/or retaining them?

But in today’s uncertain economic times, perhaps the most important question concerns the availability of funding. Often, private funding isn’t enough.

“Credit is tight, and it’s hard to get financing,” says Kip Wahlers, head of the Columbus public finance group at Calfee, Halter & Griswold LLP. “Transactions that were routine a year ago are nearly impossible today.”

Because of this, it makes sense to reach out to the public sector to assist in financing projects. In many cases, public sector assistance can lower costs and enable your business to make more efficient use of its resources.

Smart Business spoke with Wahlers about economic development and how to create productive public/private partnerships.

Where is assistance available?

In Ohio, if one is undertaking a project, the place to start for low interest loans and job training assistance is generally the regional office of the Department of Development. The drawback of this assistance is that in accepting it, a business may be required to pay prevailing wages for capital improvements constructed as part of the project. In addition, for those businesses with retail projects, the Department of Development’s ability to help is limited by statute. In the case of projects involving capital improvements, local jurisdictions (cities, counties and port authorities) may be able to provide meaningful assistance in the form of tax abatements or tax increment financing (TIF).

What is TIF and what are the benefits?

TIF uses revenue coming from future increases in real property values to pay costs of public or, sometimes, private improvements. Usually, a new capital project will result in an increase in assessed valuation. TIF can be thought of as taking the property taxes (in the form of payments in lieu of taxes) resulting from the new development, and using those payments to pay costs of new capital facilities. In most cases, the cost to the business is minimal, since it would have had to pay property taxes anyway.

If structured properly, bonds that are issued that are paid from TIF revenues can be tax-exempt, often resulting in cost savings when compared to bank financing. In some cases, it may be possible for a business to transfer land in its possession to a local government for public improvements benefiting a project, and for the local government to finance the cost of that acquisition with TIF revenues.

How does a business obtain TIF?

TIF is always done through local governments. And, since it often requires the consent of other affected subdivisions, including school districts, it is important to understand the ins and outs of school financing, and appreciate how school compensation needs to be structured. TIF often takes a few months to put in place, so the process of building support should begin early.

What about prevailing wage?

Ohio’s prevailing wage law applies to construction projects undertaken by public authorities and requires that the public authorities pay the locally prevailing rate of wages to workers on the project. In general, this rate is equal to union scale wages. The majority of projects triggering prevailing wage are traditional public construction works projects, but, if a public entity contributes funding or other direct support (e.g. public land) to a private project, it is possible that prevailing wages must be paid to the workers on that project. This can increase the cost of a project by up to 20 percent.

The Department of Commerce is responsible for enforcing the prevailing wage law. Recently, there has been confusion regarding the determination of whether publicly funded construction activity is intertwined with private construction activity. The issue is whether the activity constitutes a single project, or if the projects are considered to be sufficiently separate and unrelated, so one is publicly supported (thus triggering prevailing wage) and the other is privately financed (which does not trigger prevailing wage).

Because of this confusion, the Department of Commerce has issued new guidelines explaining how it will interpret and apply the law in various sets of circumstances. Therefore, businesses need to know these laws and the Department of Commerce’s views in order to make informed choices about their decisions regarding public assistance and, if possible, to avoid the application of prevailing wages to their project.

What other considerations should businesses be aware of?

Don’t try to move ahead with a project and hope to get incentives after the fact. It’s not going to happen. Plan ahead with your counsel to see if you’ll be eligible for any government assistance, including job training, loans, grants and tax exempt financing.

It’s also important be mindful that governments are public bodies whose records are often available to the public upon request. A business applying for assistance with a government needs to make sure that its vital information, like customer lists or business plans, are protected. Designating confidential information that is provided to a government as a trade secret is a very good idea.

KIP WAHLERS is the head of the Columbus public finance group at Calfee, Halter & Griswold LLP. Reach him at kwahlers@calfee.com or (614) 621-7009.

Thursday, 25 September 2008 20:00

Fighting fraud

Business owners have learned to be leery of fraud, thanks to the high-profile cases of Enron, Tyco and WorldCom and the resulting increase in accountability via the Sarbanes-Oxley Act. Despite heightened awareness, fraud remains all too prevalent in today’s business world.

The Association of Certified Fraud Examiners’ 2008 Report to the Nation on Occupational Fraud and Abuse reports that U.S. organizations lose 7 percent of annual revenues to fraud. That translates to approximately $994 billion in fraud losses as applied to the projected 2008 U.S. gross domestic product.

And don’t assume that major corporations are the most affected. The same report cited that businesses with 100 or fewer employees post a median loss of approximately $200,000 each year.

“Fraud affects all companies, and it’s not going away,” says Ed Gojara, CPA, CFE, an audit manager with Briggs & Veselka Co. “It is imperative that companies implement fraud prevention programs that feature thorough auditing procedures and frequent communication with employees.”

Smart Business spoke to Gojara about the types of fraud companies face and what measures can be taken to reduce risk.

What are the main types of fraud?

There are three primary types of occupational fraud: asset misappropriation, corruption and fraudulent statements.

  • Asset misappropriation involves the theft or misuse of a company’s assets. For example, an employee opens an account and subsequently forges company checks payable to the account. Reduce the risk by mandating a review of every endorsed check. Also, be sure sensitive job duties, such as accounts receivable and accounts payable, are not assigned to the same employee.

  • Corruption involves the wrongful use of influence in a business transaction to procure some benefit for the perpetrator or someone else, contrary to his or her duty to the company. For example, one of your employees is in cahoots with one of your vendor’s employees to retain or increase assets purchased. They work together to perpetrate the fraud and then split the funds. To reduce your risk, rotate purchasing responsibilities among employees or appoint someone outside the purchasing department to frequently review invoices.

  • Fraudulent statements are the falsification of a company’s financial statements, either for personal gain within the business or to deceive external parties for the company’s gain. For example, an employee reports revenue sooner than it’s realized or fabricates it to qualify for an incentive. Reduce your risk by conducting thorough background checks and hiring a qualified professional to regularly perform a full-scale audit of your company. The auditor will closely study your finances and recommend specific internal controls.

Besides those specific methods, what other ways can a company avoid fraud?

You’ve got to build fraud prevention measures into your company policies. Implement a code of conduct and organizational protocols that explicitly define the company’s policies as well as the penalties for violating them. With policies and procedures in place, you’ll show employees that the organization is serious about fraud. You’ll also remove the excuse, ‘I didn’t know I couldn’t do that.’

Create a code of conduct handbook that every employee must read and sign. You’ll have legal documentation that employees know the rules and the consequences of breaking those rules. Also, address fraud issues with your employees regularly. Show your employees the challenges the company faces through an annual presentation. Help your employees understand that if the company is hurting, the employees will be hurt, as well. Don’t forget that honest employees are your best assets. Create an anonymous tip line so employees can report wrongdoers.

Finally, assign someone, preferably someone in a senior management position, to have the responsibility of assessing fraud risks throughout the company. This person may or may not delegate some of his or her responsibilities, but in the end, he or she has the ownership.

Should companies seek outside assistance in preventing fraud?

Your CPA firm and attorneys should have experience with fraud risks and can help you identify issues. No matter how strong you believe your internal control system to be, outside assistance is advised. Think about the locks on your doors. You can have the most sophisticated locks and security systems, but if someone has the key and knows the codes, he or she can get inside.

Remember, too, that people in your organization can get too friendly with one another. As a result, checks and balances may be overlooked. Even honest people can do dishonest things if put in the right situation. An outsider can help you examine your company’s structure and suggest the segregation of duties where appropriate.

ED GOJARA, CPA, CFE, is an audit manager with Briggs & Veselka Co. Reach him at egojara@bvccpa.com or (713) 667-9147.