Dallas (874)

It is amazing to me what gets measured in this world. Just say, Guinness World Records and you are now conjuring up outrageous tales of the biggest, fastest, most random anything.

What about when you need helpful measurements? It is interesting to me where measurements and metrics can go wrong. If you are thoughtful about your objectives when measuring data about your workforce, you will no longer look at all that human resource stuff as being the soft stuff.

Your people expenses are often your largest expenses. The metrics and workforce analytics are also the numbers attached to your only assets with self-awareness. Thus the asset and the numbers associated with them need to be managed even more carefully and in context than your more established management metrics.

Why first … then what

If we understand the goals for the organizations and the struggles the leaders are having, then we can start assessing what information would be helpful toward solving those problems. These conversations require a real dialog to get the best results.

Can you remember when you were a kid and were told to clean your room and you asked, “Why?” The result and motivation were very different if you got the annoyed parental, “Because!” Then if it was explained that Grandma was coming and she was staying in your room overnight, the latter answer received much more care to the details. The same is true when needing to understand why the organization or individual is seeking information.

The right ‘what’

After understanding the goals of your organization, you can design the proper information content and put it into context. Take a look at this real example:

A finance director is concerned about productivity and asks HR for the number of employees in each department. He runs his numbers and produces a cost and profit per employee and compares it to industry standards and his predecessor’s numbers.

He thinks he has the right picture of productivity, but there were several problems in this scenario. The finance director asked for the number of employees, and that is what he received.

However, the data didn’t include the differentiation between full-time and part-time employees, so his number was skewed. He didn’t include the number of contract workers being used in each department, thus he missed 8 percent of his workforce.

He also didn’t get a picture of the trends over time on this number; he just received a single data point. This is a problem because the snapshot in time was right after the busiest part of the season was over, and the student workers were no longer on the payroll, so his numbers couldn’t measure the busy season’s productivity.

How successful do you think his recommendations are going to be based on these numbers? Without context of the information and proper comparisons to the historical data, his analysis is going to be significantly flawed. He was focused on his HR metrics and didn’t focus on the dynamics of the organization’s workforce.

It is critical that the human resource department participate in the analysis of any details involving the workforce. It is also critical that managers and human resources are educated on how to interpret and design their reports. This will make a big difference in your decision-making.

Lois Melbourne is co-founder and CEO of Aquire, a workforce planning and analytic solution company based in Irving, Texas. Visit www.aquire.com for more information.

 

Over the past few years, employees have been trading in company-issued phones and bringing their own personal devices — phones and tablets — to connect to work servers. They want to carry a single device to access both work and personal material.

“Many companies have said there are enough people doing this that they no longer need to issue phones. They can just allow everyone to bring their own phones and connect them into the environment,” says Brian Thomas, partner in IT advisory services at Weaver.

However, the bring your own device (BYOD) trend comes with risks that companies need to recognize.

Smart Business spoke with Thomas about BYOD and practical steps to lessen risks.

How is the BYOD trend developing?

This is a strong trend among midsize businesses. As for the Fortune 500 organizations, it depends on the nature of the business. If a company has a lot of sensitive information, it will not necessarily adopt a pure BYOD strategy or will do so with an abundance of caution. Large corporations have information security departments that have been quick to identify the risks. In midsize organizations, there are simply not as many people to force a discussion about risk. Regardless, this is a broad trend that affects many businesses.

What are some of the risks?

The two primary areas of concern are physical access and the users themselves.

The No. 1 risk with mobile devices is that it’s not a matter of if they get lost, but when. If companies enable these devices to connect and receive company data, some of which will stay on the phone, then how do they protect that data when the device is lost and presumed to be in the hands of someone else? The primary methods for mitigating this risk are encrypting the phone’s contents, setting passwords to prevent unauthorized access and remote-wipe features that enable the company to delete the phone’s contents once lost. However, this is complicated in a BYOD scenario because users can connect a multitude of devices to the network, some of which will not support all of these features.

The reason users are a concern with BYOD is because they are often unaware of the risks associated with their mobile device activities. Because they own the phone, they may feel entitled to do with it as they please, including removing security features.

Do certain devices make companies more vulnerable to these risks?

In some ways, yes. The iPhone, for example, is a phone manufactured by one company with one operating system. There are multiple versions, but the uniformity of the product makes it simpler to manage and secure. In the Android world, vulnerabilities are more case-by-case. Similar to Windows PCs, anybody can manufacture the Android phones, and the operating system has to be reconfigured to work with different devices. As a result, updates to address vulnerabilities cannot always quickly be distributed by manufacturers and carriers.

What can be done to manage the risks?

A combination of training and technology can be used to reduce the risks associated with BYOD.

Companies must educate employees about the responsibility they bear when accessing company data on their personal devices. Employees must also be educated about the risks associated with disabling security features, jailbreaking their phone, downloading apps from unknown sources, using open wireless connections and other activities that can compromise security. Employees need to understand that using their personal devices for work purposes requires them to give up a certain amount of freedom. Companies can have employees sign a contract that outlines the rules and consequences for violations, along with the company’s right to remove company data from the phone at any time.

Companies should use technology to enforce a central policy that applies minimum security standards on devices. Many companies implement mobile device management solutions, which assist with enforcing security polices to address the risks associated with lost or stolen phones.

Finally, this is a fast-changing technology area, so companies should always keep an eye on what’s new and assess how it affects their organizations.

Brian Thomas is a partner in IT advisory services at Weaver. Reach him at (713) 800-1050 or brian.thomas@weaverllp.com.

Blog: To stay current on audit, tax and advisory issues that may impact your business, visit Weaver’s blog.

Insights Accounting is brought to you by Weaver

 

Wednesday, 01 May 2013 08:40

How to manage third-party risk

Written by

Failure to assess and plan for risks associated with third parties can be costly. Of the more than 250 executives surveyed by CFO Research Services, 75 percent were harmed by action or inaction of a third party, resulting in financial loss, supply chain issues and data breaches.

“Companies initially think about risks with high-cost providers. But they may have a $10,000 contract with a small marketing or advertising firm that fails to adequately protect their customer information. Their servers get hacked and experience a breach that in turn raises concerns with their customers and brings reputational and financial risk and penalties,” says Jim Stempak, principal at Crowe Horwath LLP.

Smart Business spoke with Stempak about assessing third-party risk and solutions to limit exposure.

What poses third-party management risks?

Relationships that drive the most risks are:

  • Service providers — processing, accounting, computer services, IT, service centers, advertising and marketing, leasing, legal and collections.

  • Supply-side partners — production outsourcing, research and development, material supplies and vendors, and software development providers.

  • Demand-side partners — customers, distributors, franchises and original-equipment manufacturers.

  • Other relationships — alliances, consortiums, joint ventures and investments.

The Japanese tsunami and Hurricane Sandy illustrated this. If something happens to a single-sourced company, what’s the impact on suppliers or business partners?

What are some gaps that expose risk?

A ChainLink Research study found that 70 percent of organizations reported no resilience and risk mitigation standards for service providers. It also noted that risk assessment often focuses on the easiest risks to quantify, such as financial viability and business continuity plans.

With supply-side partners, vendor risk assessments are hampered by a lack of good data and poor visibility into contractor use.

How often should companies conduct risk assessments of third parties?

Risk assessments should be done at least annually for all vendor relationships that are high risk. Those with moderate or low risk can be done on a rotational basis.

In determining high-risk relationships, consider the financial risk penalty if a supplier has a breach. Another risk is reputational, such as a third party compromising private health information found in hospital records. Other high-risk areas are protection of systems and data, and reliability or continuity of operations. Are there contingency plans if a vendor faces a natural disaster or labor strike?

Many organizations don’t address risk management of third-party relationships until a problem arises. Before that happens, establish ownership for the organization’s third-party risk management framework, and responsibility for review and monitoring of individual relationships.

What other solutions address these risks?

First, establish ownership and buy-in, which requires executive leadership and oversight, with clear goals and objectives. Strengthen the overall relationship with the third party. Then evaluate risks by developing a risk profile of the organization that covers financial, integrity and operational issues. This spurs initiatives to audit, inspect, benchmark performance and costs, verify, and gain assurance or attestation.

A third-party risk management program should have:

  • Risk measurement and monitoring.

  • Performance measurement and monitoring.

  • Incident tracking.

  • Evaluation of the value received from the relationship.

This information guides decisions about when and whether to renegotiate an agreement. Success depends on customizing the assessment to the relationship, using automation to streamline the process, and analyzing trends of incidents.

In the CFO Research Services study, less than half of companies had a formal process for assessing and managing third-party risks, and 97 percent said at least one aspect of their third-party risk management should be improved. Businesses do their due diligence when entering contracts but tend to take their eyes off of it once a contract is signed.

Jim Stempak is a principal at Crowe Horwath LLP. Reach him at (214) 777-5203 or jimstempak@crowehorwath.com.

 

Website: Learn more about third-party risk management with a webinar, podcast, white papers and more.

 

Insights Accounting is brought to you by Crowe Horwath LLP

Ronald Reagan was well known for not only his confidence but also his positive outlook and sense of humor. He had a way of never taking himself seriously and always found a way to find humor even during the direst times.

In fact, following the assassination attempt, he told his wife, “Honey, I forgot to duck.”

His constant positive outlook made him appealing to voters and is one of the reasons he continues to score high in polls ranking presidents.

Do we approach life and leadership the same way that Reagan did? Do we always take a positive outlook into the start of each day?

Some CEOs act as if being in charge makes them a victim and complain of the burden. Leadership is a privilege that all of us should learn to enjoy. We have to train ourselves to enjoy the process, not just the end result.

Let’s take some time to reflect on the victories, no matter how small, and celebrate them. Learn to reflect on the great clients we have and the great people who work for us instead of focusing on the one unhappy customer or an employee with a bad attitude. But most importantly, we shouldn’t take ourselves too seriously.

Each day that passes is a day that we do not get back. We have to look at each day as a series of moments and find the happy things that put joy in our life.

These can be simple things — a funny comment from your child, something silly you heard on the radio or a bright, sunny day. When we start focusing on these small joys in life and start stringing them together, we’ll find that an entire day has become joyous. Enjoy the time you are in now and don’t spend so much time fretting about tomorrow. Be intentional: Start by writing down four little things a day at work that bring you joy on a daily basis and build from there. This can even be a conversation around the watercooler that makes you laugh. String together a few days like this, and we are well on our way to a more joyous life.

By developing this habit, we will be more inclined to treat people better, and they, in turn, will treat others better, which will increase the overall positive culture of our workforce. The work environment is a bigger factor in why employees leave than money is, so focusing on providing a more joyful environment will also help your business in the end.

Whether in business or in life, it all comes down to being joyful. Happiness is fleeting based on circumstances, but joy becomes permanent once we have cultivated it. Start by focusing on the little joys and build from there. Remember, people won’t remember what you said, but they will remember how you treated them.

Fred Koury is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or fkoury@sbnonline.com.

The more there is available of something, the less it costs. Conversely, when there’s a limited quantity of that same something, the more it’s coveted and the more expensive it is. This is a rudimentary concept, but few companies know how to effectively manage the process to ensure they balance supply with demand in order to maintain or improve the profitability of a product or service. Of course, before you can maximize profitability, you must have something customers want, sometimes even before they know they need it.

Think about precious metals, fine diamonds and even stocks. The beauty and a portion of the intrinsic value of these things are effectively in the eyes of the beholder. In reality, much of their value or price is determined by the ease or difficulty of obtaining them.

As for equities, as soon as everyone who can own a given stock has bought it, then, in many cases, the only direction that stock can take is down because there are simply more sellers than buyers. On the flip side, when few people own a stock but everybody decides they want it, for whatever the reason, that stock may take a precipitous upward trajectory.

A case in point is Apple. At one time, when its per-share price was more than $400, $500 and even $600, everyone thought the sky was the limit and the majority of institutional funds and many home gamers, aka small individual investors, jumped on the bandwagon. The stock reached $705 a share in the fall of 2012, and just when all of the market prognosticators were screaming, “Buy, buy, buy,” there were too few buyers left (because everyone already owned it) and the stock fell out of bed. In many respects, Apple was still the same great company with world-class products, but there were simply more sellers than buyers and — poof — the share price evaporated, sending this once high-flying growth stock to the woodshed for a real thrashing.

The question for your business is how can you manage the availability of your goods or services to maximize profit margins? The oversimplified answer is once you have something of value, make sure that you create the appropriate amount of tension, be it requiring a waiting list to obtain the product or service or underproducing the item to create a backlog. However, this is a delicate balancing act, because if it’s too hard to get, then customers will quickly find an alternative, and your product will become yesterday’s news.

Some very high-end fashion houses, such as Chanel, have it down to a science. It can be very difficult to walk into a marquis retailer today and obtain one of its satchels without being made to jump through waiting-game hoops, just for the privilege of giving the store your money in exchange for the fancy schmancy bag. That stimulates demand and keeps the price up because customers tend to want something they can’t seem to get.

Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at mfeuer@max-wellness.com.

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Interviewed by Dustin S. Klein | dsklein@sbnonline.com

With more than three decades of experience in the lodging industry, including the last seven years as president and CEO of LQ Management LLC, the company that owns the La Quinta hotel chain, Wayne Goldberg is a man on the move. The company’s two major brands, La Quinta Inn and La Quinta Inn & Suites, are in major expansion mode: La Quinta had 425 hotels at the end of 2005; today, it has more than 800, with 9,000 employees. The growth has been fueled in part by technological innovations that enable La Quinta’s customers to make fuller use of the technological devices with which they travel.

Goldberg recently talked with Smart Business about the technological modernizations and some of the other strategies he has used to drive La Quinta’s growth over the last few years.

SB: Let’s talk about innovation. How are you becoming innovative leaders in your space — not just in the properties, but how you market yourselves and build your brand?

WG: I’ll start with technology, because what I like to say is that I view us as the little engine that could. We have done some things that we’ve received a lot of recognition for. We were recognized this year by Technology Innovator magazine as Technology Innovator of the Year. In our little company of 845 hotels, we have done some very creative things.

First of all, what I would tell you is that the world has changed. It used to be that it was all about giving the guest the technology that they needed and wanted. You would make that technology available and put it in the room, whether it was a fax machine or the delivery of bandwidth to the room. The actual hardware and software — you gave the guest all of the technology they needed.

Today, it isn’t about giving them technology. It’s about giving them the capability of using the technology that they’re traveling with.

We’ve taken a different approach. We’ve done a number of firsts. In 2012, we launched a new mobile site, the first of its kind. On this site, we launched a platform called LQ Instant Hold. When you go to book a room, you’ll see a banner that says LQ Instant Hold. If you click on it, we will hold a room for you for up to four hours. All you have to do is enter your phone number. It’s unique.

We launched this in February, and by June, 40 percent of all our mobile bookings were coming through LQ Instant Hold.

SB: Are your properties franchised or company-owned?

WG: It’s a combination. It’s a different model than most of our competitors. In my view, this is another point of innovation; we own and operate 400 of our 845 hotels. We are significantly invested in the real estate and in the operation of our business, which I think is a big positive for us because we have real skin in the game.

We are going to our partners and saying, ‘Look, you need to change the bandwidth from 1.5 megs to 3 megs as a minimum standard. By the way, we can show you the return on the investment and the improvement in guest satisfaction. We can show you the reasons you should do it. And we’re doing it at 400 hotels. We’ve invested millions on our corporate side.’

All of a sudden, we have more credibility than someone just brand-building and telling people to increase profitability by spending money.

We don’t ask our partners to do anything that isn’t economical. It’s all about doing the things that are economical, and if it makes economic sense, then you can get the troops around those issues and initiatives and really make progress. But if you’re doing it just for the brand, where is the real economic value? And why would I do it?

I can tell you that being a franchisee of another brand — which we are — we see this all the time. We’re asked to do things and invest capital [where] there is no economic value. And, by the way, some of our competitors make money every time they require their franchise partners to do something by making them use certain vendors and products and then by taking a percentage of everything you’re buying. There’s a little bit of conflict of interest in that type of approach.

SB: Would you discuss your brand from both an ownership standpoint and a franchise standpoint. How has your brand changed and evolved?

WG: What I would tell you is that in 2000, we were 99 percent company-owned. We owned and operated 298 hotels, and we had one franchise property. What we have done over the last several years is our entire focus has been to leverage the brand, not the balance sheet.

For us, what that means is that we started the franchise business, and we decided we were going to grow our way out of a challenge we had of owning a large amount of older real estate.

Many of our owned assets are some of our older assets. In many cases, they were our inns. We’re one brand with two products. We have La Quinta Inns, which are limited-service hotels that operate in the upper end of the economy segment, and then we have the La Quinta Inn & Suites, which operate in the middle to upper end of the midscale category.

As I said, we wanted to grow our way through some of the challenges we have with our own real estate, so we have sold some older hotels. We have identified hotels that we felt were obsolete or at the end of their life and took them out of the system and sold them.

We’ve done this a number of times. From 2000 to 2006, prior to our acquisition and public-to-private transition to Blackstone, we were 99 percent company-owned, approximately 70 percent of our properties were Inns, the average age of our hotels was 26.1 years, and about 70 percent of our properties were exterior-corridor.

Today, we’re 53 percent franchised and 47 percent company-owned, we’re 70 percent Inns & Suites, the average age of our properties is 15 years, and we’re 70 percent interior-corridor. And it absolutely enhances our brand when we move to interior.

SB: Let’s go back to wireless service. How is your company innovating with the delivery of wireless to La Quinta customers?

WG: For Internet, bandwidth has been and continues to be the key issue. We embarked on a program two years ago where we fundamentally changed the way we deliver bandwidth to our properties and changed our brand standards.

For most of our competitors in our space, the typical bandwidth requirement for a property is 1.5 (Mbps), so to speak. We began about two years ago integrating circuits, and now it’s almost like delivering bandwidth “on tap.” So you’re not paying for extra bandwidth that you’re not using. We’re only buying and using what is needed.

What we do is integrate circuits with a multitude of providers, and we deliver bandwidth to the hotels based on what is actually being used. It changes based on the usage, so that the bandwidth being delivered is sufficient for the property.

We also changed our minimum from 1.5 to 3 megs. On average, we’re closer to 6, and we actually have a property with 19 megs of bandwidth. Now, that property is a hotel where we have a contract with a dorm, and they have a whole building, and there are two students per room and they’re on the Internet 24/7, so in order to give them what they need, we deliver 19 megs. So that is an extreme and an exception. But we basically doubled our minimum.

And what we watch for is 90 percent of the capacity being used. When that happens, then you move and integrate an additional circuit and additional bandwidth.

SB: So you basically have bandwidth on demand and there’s a trigger point where you flip a switch and it’s on?

WG: Well, it’s a little more complicated, but we would change the bandwidth for that property based on what the usage is over a period of time.

SB: So it’s not just for a day or a week? You bump it up because you’re seeing the trends?

WG: Correct.

SB: How are you gauging and monitoring the system?

WG: We monitor the percentage of what is being delivered and the usage of what is being delivered.

SB: Is there a correlation between that and the room occupancy rate?

WG: It plays a part, and it’s a significant correlation, but it also has a lot to do with the demographics of the property. For example, if you’re in a location next to a technology park and you’ve got a sophisticated, technologically advanced consumer staying with you, they will be using more bandwidth, so you have to deliver more.

What happens in this industry and what used to happen with us is that there are small percentages of people using a large percentage of the bandwidth. What most of our competitors are still doing today is when folks are streaming video and using an inordinate amount of the capacity, they bump them off the system basically to make room for the folks that are just checking email. They’re not allowing people to use the kind of bandwidth they may require. ?

How to reach: LQ Management LLC, (214) 492-6600 or www.lq.com

The Goldberg File

Wayne Goldberg

President and CEO

LQ Management LLC

Education: Bachelor’s degree, University of Louisville

Goldberg on fee-based franchising: We have very strategically focused on growth through our franchise fee-based organization. Today, we are 70 percent Inns & Suites, and if we take our pipeline and take some things we’re going to do with additional assets, where we have identified some noncore assets, we’re going to look to divest.

In 2014, those numbers will change. The breakdown between Inns versus Inns & Suites will be 75 percent Inns & Suites. If you look at the average age in 2000 — 26.1 years — today, it’s 15 years, and in 2014, it will be 13. The average age has come down dramatically because the bulk of our new franchise fee-based has been new construction. Even the ones that aren’t new construction are much newer properties, because we’re not allowing anything out of the system.

Goldberg on growth: We were recognized in 2012 as the fastest-growing limited-service hotel brand. If you look over 10 years, we have grown 166 percent. Our closest competitor, Holiday Inn Express, grew 62 percent. And in addition to begin the fastest-growing brand in the segment over 10 years, we’re also the fastest-growing brand over five years. According to Smith Travel research, we’ve grown 62 percent over five years. The closest competitor is Hampton Inn at 43 percent.

Goldberg on evolving the company’s brand: Speaking to the evolution of the brand and the product and the positioning of the organization, last year we were recognized by Forester Research. We were recognized across all brands, full-service brands included, on customer experience. They asked how easy the company was to transact with, and whether you would transact with them again. We ranked No. 2 in consumer experience among all brands, one point beyond Hampton Inn & Suites.

A few weeks ago, I was in a CVS, buying a few items that included a case of water, a newspaper and a candy bar for one of my kids. As I was leaving, the cashier handed me my receipt, which literally took 15 seconds to print out — no exaggeration. As I was walking out, I chuckled a little bit while reviewing the 42-inch receipt. I bought three items and the receipt was more than 3½-feet long.

OK, let’s get past that and go to what was on the receipt. Besides my items, there was an opportunity for a $1,000 sweepstakes and coupons for:

?  Get a flu shot today and receive 20 percent off.

?  $4 off when you spend $20 on vitamins.

?  $6 off a beauty purchase of more than $15.

?  $1.50 off any shampoo or conditioner.

?  $2 off any Nature Bounty Vitamin.

?  $1 off Excedrin — for life’s headaches.

Very few of these coupons are personalized to me — meaning based on prior purchases. Why is this? Since I used my ExtraCare card, CVS knows a ton about me, my habits, what I buy, when I buy it and the regularity of those purchases. Of these six offers, I bought only vitamins a week prior to this purchase. Clearly, there was no chance for me to buy them again. I forgot to mention that all of these coupons expired less than a week after my visit.

Use resources wisely

I must admit: I don’t get it. I feel that CVS has wasted resources, information, paper, my time and — most importantly, from the company’s standpoint — an opportunity to persuade me to shop more in its store and increase its revenue.

The way I look at it, I am in the company’s store, I am a customer, I am buying products, and then I am leaving the store. Furthermore, I assume CVS wants me to return, it wants more of my business, and it wants me to spend money in its store.

Since we know all of that is true, CVS should find a way to personalize all the offers to my needs. It should understand that I have seasonal purchases and understand how often I buy water, soda and candy bars. Customize the receipt to the customer. If you can’t customize all of the offers, then customize a few of them.

If the six coupons were about the products that I shop for there, such as soda, newspaper, candy for my kids, dish soap, detergent and paper towels, then the coupons would have had a positive effect on my purchase intent.

Problem is pervasive

Even though I mentioned CVS, the same is true for many other retailers. When looking over recent receipts from Walgreens, Panda Express, Tom Thumb and Golfsmith, they are all missing opportunities to effectively communicate with customers. In the age of big data, why aren’t companies using this more to their advantage?

To me, the winning retailers in 2013 will be the ones that understand and can implement personalization in dealing with their customer base. As a customer of a lot of retailers, I truly hope this happens sooner than later. ?

Merrill Dubrow is president and CEO, M/A/R/C Research, located in Dallas, one of the top 25 market research companies in the U.S. Merrill is a speaker and has been writing a blog for more than six years. He can be reached at merrill.dubrow@marcresearch.com or at (972) 983-0416.

In August 2012, the Securities and Exchange Commission (SEC) issued a final rule regarding the conflict minerals disclosures mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Act). Public companies will be required to disclose whether they use conflict minerals such as tantalum, tin, tungsten and gold in their manufactured products — and whether the minerals originated from one of the “covered countries” defined by the Act.

“This rule could be very broad reaching, with the SEC estimating approximately 6,000 issuers will be required to provide new disclosures under the rule. Many private companies may also be impacted,” says Dale Jensen, partner-in-charge of Weaver’s SEC practice.

Smart Business spoke with Jensen about how to prepare for compliance.

Why do companies need to be concerned with supply chains now?

Hundreds of products contain conflict minerals, from cell phones and laptop computers to jewelry, golf clubs, drill bits and hearing aids. The SEC estimates that thousands of public companies will have to provide the new disclosures, and many private companies that are part of the impacted public companies’ supply chains may also be affected. Additionally, they estimate the initial compliance costs to be $3 to $4 billion, with subsequent costs of more than $200 million annually.

Who is impacted by this new rule?

Public companies, foreign private issuers, emerging growth companies and smaller companies must all comply. Packaging essential to the product’s function, such as a tin can, is also covered, but materials purchased or inventoried before Jan. 31, 2013, should be outside the rule’s scope.

Retailers are not required to report on products bought or resold, only manufactured or contracted to manufacture. When contracting, the retailer’s degree of influence determines compliance, though it doesn’t need to be substantial.

What’s involved with complying?

First, a company should determine whether any products it manufactures or contracts to be manufactured contain conflict minerals necessary to functionality or production. If the minerals are necessary, but they didn’t come from covered countries or are from scrap or recycled sources, the company’s inquiry method and conclusion has to be annually disclosed on SEC Form SD. This information must also be posted on the company’s website.

However, if there’s reason to believe the minerals originated from covered countries, their origin is unknown, or they may not be from scrap or recycled sources, the company must perform due diligence on the source and chain of custody of the minerals.

After due diligence, if the issuer determines that its conflict minerals are from a covered country and not from scrap or recycled sources, the company will be required to file a Conflict Minerals Report as an exhibit to Form SD. An independent audit of the Conflict Minerals Report is required. The SEC estimates that 75 percent of companies subject to the Act will need to develop a Conflict Minerals Report and have it audited.

What is the timing for compliance?

The first filing isn’t due until May 2014 for the 2013 calendar year, but complying may require substantial preparation for public companies. Companies will also need to file a new Form SD annually by May 31.

What are some next steps for companies?

Management must determine whether the new rule impacts the company, prepare cost estimates for compliance and put a plan in place. Companies should identify products that may contain conflict minerals as soon as possible, keeping in mind that they must comply even if the product contains only small traces of a mineral. Companies should be prepared to report results on a product-by-product basis. Finally, they should work with advisers to develop policies and procedures for supply chain vetting, filing Form SD, and if needed, conducting due diligence and preparing and auditing Conflict Minerals Reports.

Dale Jensen, CPA, CFE, is partner-in-charge, SEC Practice, at Weaver. Reach him at (972) 448-9283 or Dale.Jensen@WeaverLLP.com.

Blog: To stay current on audit, tax and advisory issues that may impact your business, visit Weaver’s blog.

Insights Accounting is brought to you by Weaver

 

Recently a number of corporate tax and accounting professionals were surveyed to gain insight into their tax provision process. They identified three major issues with their provision process:

  • Data collection — the provision model does not contain all of the required financial information.

  • Resource constraints — the tax provision process is very labor intensive.

  • Timing — more than half the companies surveyed reported that they have less than one week to prepare their consolidated tax provision.

The survey clearly demonstrates the need for automation. Corporate tax executives understand an automated system provides the standardized platform to consolidate data, eliminate many of their manual processes and be more time effective.

Tom DeMetrovich, director at Crowe Horwath LLP, says the survey results are indicative of the challenges faced by most corporate tax departments.

“Responsibilities are increasing and staffing trends generally are flat,” he says. “Implementing a Web-based software tool, such as the Thompson Reuters ONESOURCE Tax Provision, can be the solution that most corporate tax departments are seeking.”

Smart Business spoke with DeMetrovich about automating the tax provision process and the capabilities provided by a software solution to address the three major concerns expressed in the survey.

How can an automated solution assist with data collection?

An automated solution allows a company to consolidate the majority of its data into one platform. The software can interface with the existing accounting or financial reporting system and upload the required financial information. The software also is able to roll data forward from period to period. There’s no need to manually update and reconcile multiple Excel schedules for the new year or roll forward Excel workbooks. This functionality significantly reduces time spent gathering data and eliminates many of the errors in the current process.

How can an automated solution assist with resource constraints and timing?

Reducing the need for manual processes frees up corporate resources to handle more strategic, higher value tasks, leading to increased review time and increased time for analysis and forecasting.

An efficient, automated solution also reduces the time needed for processing the provision. The system allows multiple users to access and update the provision calculation in a controlled, secure environment. Therefore, the provision calculation is done more timely and accurately, which allows additional time for analysis, adjustments and reporting.

Can the software be implemented in-house?

Companies rarely implement a provision system in-house. The project generally is undertaken in conjunction with an outside provider, whether an accounting firm or the software provider. Tax departments have knowledge of their current provision process but lack the depth of knowledge necessary to select, install, configure and train their personnel on the new software.

The benefit of using an accounting firm for implementation is that the firm provides in-depth knowledge of the software and has broad-based knowledge of tax and the provision process. The company also has access to the accounting firm’s knowledge of its industry. The firm can:

  • Align software to the company’s current processes.

  • Make sure processes are correct from a technical tax standpoint.

  • Use industry knowledge to provide best practices that can be incorporated into the new automated process.

Once implemented, can tax departments manage the software without assistance?

Once the software has been properly installed, configured, tested and training has been completed, the tax department staff should be able to maintain the software. One of the biggest benefits to a Web-based solution is that the company’s internal IT group rarely has to be involved. Software updates are handled directly by the software provider. And, the tax department will be able to handle updates for changes in general ledger accounts, the addition of new entities and other enterprise-wide changes.

Tom DeMetrovich is a director at Crowe Horwath LLP. Reach him at (214) 777-5272 or Tom.DeMetrovich@crowehorwath.com.

 

More information on tax provision automation.

 

Insights Accounting is brought to you by Crowe Horwath LLP

Decent bosses typically try to lead by example. As a leader, you must model appropriate behavior to promote the greater good and to send a constant message with teeth in it.

The French term “esprit de corps” is used to express a sense of unity, common interest and purpose, as developed among associates in a task, cause or enterprise. Sports teams and the military adopt the sometimes-overused cliché, “One for all and all for one.” “Semper Fi” is the Marine Corps’ motto for “always faithful.” We commonly hear, “We’re only as strong as our weakest link.”

However, the real test of team-building and motivational sayings is that they are good only when they move from an HR/PR catchphrase to a way of doing business — every day.

As soon as you put two or more people in the same room, a whole new set of factors comes into play, including jealousy, illogical pettiness and one-upmanship, all of which can lead to conflicts that obstruct the goals at hand. Certainly, much of this is caused by runaway egos. Perhaps a little bit of it is biological, but most of it is fueled by poor leadership. Everyone has his or her own objective and it’s the boss’s responsibility to know how to funnel diverse personal goals in order to keep everyone on track. This prevents employees from straying from the target and helps avoid major derailments. Essentially, it all gets down to the boss leading by example with a firm hand, understanding people’s motives and a lot of practicing “Do as I say and as I really do myself.”

Communicating by one’s actions can be very powerful. A good method to set the right tone is stepping in and lending a hand, sometimes in unexpected and dramatic ways. This shows the team that you govern yourself as you expect each of them to govern their own behavior. In my enterprises, I constantly tell my colleagues that the title following each person’s name boils down to these three critical words: “Whatever it takes.” Certainly, I bestow prefixes to this one-size-fits-all, three-word title, such as vice president or manager, but I consider these as window dressing only.

After speeches, when I explain this universal job description, I always get questions from the audience about how I communicate this concept. I follow with a real-life experience that played out in the first few months after I started OfficeMax. As a new company, we had precious, little money, never enough time and only so much energy, which we preserved as our most valuable assets in order to be able to continually fight another day.

In those early days, too frequently, I would see what looked like a plumber come into the office, go into the restroom and emerge a few minutes later presenting what I surmised to be a bill to our controller. I knew whatever he was doing was costing us money and probably not building value. The third time he showed up, in as many weeks, I immediately followed him into the restroom (much to his shock and consternation). I asked him what in the world kept bringing him back. He then proceeded to remove the john’s lid and give me a tutorial on how to bend the float ball for it to function properly. That was the last time anyone ever saw this earnest workman on our premises. Instead, after making known my newly acquired skill, whenever the toilet stopped working, I became the go-to guy.

This became an object lesson to my team about how to save money. At that time, 50 bucks a pop was a fortune to us. It got down to people knowing that all of us in this nascent start-up were expected to live up to their real, three-word title. This was our version of how to build esprit de corps. Others began boastfully relaying their own unique “whatever it takes” actions, and it became our way of doing business.

The lesson I learned in those early days was that it wasn’t always what I said that was important but rather what I did that made an indelible impression. A leader’s actions, with emphasis on the occasionally unorthodox to make them memorable, are the ingredients that contribute to molding a company’s culture.

Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at mfeuer@max-wellness.com.

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