Troy Sympson

Thursday, 26 March 2009 20:00

No interruptions

Disaster can strike at any time. And natural disasters aren’t a company’s only worries. From vandalism to robbery, employee theft to a disgruntled employee erasing the company’s hard drive, there is a lot that can go wrong.

Obviously, when disaster does strike, your business can be negatively affected if you’re not prepared. Not only that, the longer it takes you to recover, the less likely it is that your business will survive.

“Therefore, if you want to maintain the business’s continuity in the face of any disaster, you need to implement a comprehensive disaster recovery plan,” says Monty Ferdowsi, the president of Broadcore.

Smart Business spoke with Ferdowsi about disaster recovery processes and what companies can do to implement them.

How should a recovery plan be set up?

You’ll want to have a key person or persons in charge of the overall plan, but all people and departments should have some involvement. Your point person or persons will be responsible for making sure all departments are involved in providing input and that each department knows what it needs to do to implement the plan. Then everyone will know exactly what to do when disaster strikes.

What parts of a business’s telephony infrastructure can be affected by a disaster, power outage, etc.?

Premise-based PBX phone systems (those that serve a particular business or office) are vulnerable to outages and downtime under a number of different scenarios, including power outages, malfunctioning parts, humidity, water damage, lack of ventilation, vandalism, sabatoge, hacking and phone line out-ages. In many of those scenarios, the entire telephony infrastructure could be out of commission, resulting in inability to make or receive calls. And if you can’t make or receive calls, you’re not conducting business.

How can businesses prepare with both on-site and off-site solutions?

Internally, battery backup systems, uninterruptible power sources (UPS), proper ventilation, secured phone closets and proper service maintenance contracts with phone vendors can reduce the possibility of out-ages. However, businesses are still exposed to external, uncontrollable factors, such as natural disasters, vandalism and hackers.

Utilizing redundant servers (if the PBX phone system is capable of it) or an off-site hosted telephony and communications as a service (CaaS) provider will help reduce or eliminate the dependency on one, centralized premise-based telephony platform. In any case, however, you need to have a disaster recovery plan in place.

What else can a business do, besides utilizing off-site technologies?

Technology is key, and a good CaaS provider will save you a lot of time, money and headaches. Still, you need to be prepared to handle things on your end. The disaster recovery plan has to be properly designed and implemented, and your key personnel need to utilize the right equipment to successfully recover from any disaster.

No matter what happens — or how bad it is — you’ve got a business to run. You’ve got customers, equipment, productivity and your employees to consider. You have to know exactly what to do in any situation, down to the very last detail. Your disaster recovery plan has to spell out how you are going to recover, who is responsible for what and what equipment will be needed.

But, again, remote facilities, redundant servers and a good CaaS provider will be the key to a quick recovery time and minimized disruptions. This will ensure you have the proper resources in place to press on with business as usual. Another thing to consider is the space between your business and the data recovery facility. In the case of a natural disaster or catastrophic event, if your business is too close to your backup center, your backup data system could be destroyed in the same carnage your business is in.

How can the cost of a backup recovery system be justified in the current economy?

The key thing to consider is value, not cost. You have to ask yourself: ‘How much time can my company afford to be shut down?’ If the answer is hours or minutes, you need a quality backup system and a comprehensive disaster recovery plan, no questions asked. CaaS providers can assist you in putting together a system and plan that will keep your business constantly running with a minimal effect on the bottom line. When you look at it, you really can’t justify not having a backup system and a disaster recovery plan. The value and peace of mind you’ll get far outweighs any costs associated with a backup system.

So can a quality backup system and plan actually save a company money?

Absolutely. If you’re working with a good CaaS provider who can offer quality service, and you implement a comprehensive disaster recovery plan, not only will you be prepared for anything, you’ll also consolidate your servers and storage, leading you to true virtualization. This will reduce and/or eliminate specific hardware dependencies. Then, your company will be able to weather any disaster with little to no loss of data, equipment or revenue streams.

MONTY FERDOWSI is the president of Broadcore. Reach him at (800) 942-4700 or Broadcore is a leading CaaS provider in the United States.

Thursday, 26 March 2009 20:00

Weathering the storm

It’s no secret that this country is in the middle of some rough economic times. The only certainty in the world economy these days is uncertainty. Company executives are being forced to make some tough decisions — not only to deal with the economic downturn, but also to stay afloat.

Of course companies are watching, and cutting, expenses. But John Flatowicz, CPA, audit shareholder with Briggs & Veselka Co., is advising clients to do more than cut the budget to weather a tumultuous economy.

“Number one,” Flatowicz advises, “focus on your key customers. Your customer service should be at the highest possible levels. Be alert to opportunities; can you gain market share by offering superior service, closer relationships and a willingness to negotiate rates? Are you in a position to acquire or merge with companies who may be offered at a discounted rate?”

Smart Business spoke with Flatowicz about how companies can better cope in uncertain economic conditions.

What should a company do to cope with the current economic climate?

The first steps to take involve strengthening your balance sheet and taking the necessary steps to maintain or improve cash flows. By strengthening the balance sheet, you’ll be able to give your bankers a balance sheet that they can feel more comfortable with and they’ll be better equipped to renew your existing line of credit or extend it, if necessary.

Strengthening your balance sheet could involve reducing inventory levels while maintaining current sales levels via economic order quantities techniques, or keeping on hand only the best gross margin products.

The second step is to maintain or improve cash flows by cutting nonessential expenses. Also, you’ll want to enhance revenues and related gross margins. Reaching out to new and existing customers and being willing to negotiate terms can result in new sources of revenues, even in a down economy.

If you must cut expenses, what’s the best way to do it?

The most effective method is to cut nonessential expenses that don’t have an effect on the ability to generate revenues and cash flows and that don’t result in the loss of employee morale or quality of work. Once nonessential expenses are identified, it should be rather painless to cut or reduce them entirely, while still maintaining your revenue stream and quality of work or product. Every company will have different nonessential expenses, but some to consider include excessive travel, dining, entertainment and outside seminars and conferences.

How is this economy affecting staffing?

You should look at staffing in terms of which people you need to keep to maintain your company’s quality, revenue stream and related cash flows. Those personnel who are critical to maintaining revenues and cash flows should be kept. Noncritical employees can be cut, just like nonessential expenses. Companies should also think about which employees are long-term players and will be able to help the company grow when the economy turns around. You don’t want to lose talented employees by being shortsighted. If you have to reduce salaries to survive, consideration should be given to reducing or freezing salaries versus actual layoffs.

How can you ensure that budgets will remain sufficient and effective?

Budgets are even more critical to follow in tough times. You need to know if expenses are exceeding what you can afford in this economy. To help ensure that budgets are still reasonable, companies should review them monthly and change or update as needed to reflect the realities of reduced sales or critical expenses. If competition requires you to market more to maintain or increase sales, then you should increase your marketing budget while decreasing other budget items. On the other hand, if sales are down significantly, even after heavy marketing, then all purchases and other expenses may have to be budgeted to decrease on a prorate percentage. The budgeting process should never be a stale, once-a-year task. It should always be updated to reflect the current situation, particularly in a tough economy.

How to do you reconcile short-term goals without losing sight of the long-term picture?

The short-term goal of surviving in a tough economy should actually enhance a company’s ability to be more successful in the long run. If you focus on maintaining quality, keeping key people, and reducing nonessential staff and expenses, you’ll maintain revenues, related cash flows and reputations. Then, you’ll be in great shape to really expand when the economy turns around, as it surely will.

Companies that will thrive when the economy recovers are the ones that will focus on their key customers now by providing high levels of customer service. They’ll gain market share by offering superior service, closer relationships and a willingness to negotiate rates to help both existing and new customers.

JOHN FLATOWICZ, CPA, is an audit shareholder with Briggs & Veselka Co. Reach him at (713) 667-9147 or

Monday, 23 February 2009 19:00

Focused production

The biggest key in any business environment is having a good understanding of what the strategic focus of the business is. There must also be an understanding of what is affecting each process, both upstream and downstream.

But, sometimes it gets cloudy when you talk to employees as to what they contribute to the company’s bottom line. Many employees maintain a heads-down approach and just focus on their jobs.

“I’ve spoke to hundreds of employees in multiple industries to understand what they were seeing on a day-to-day basis,” says Fred Pratt, CEO of DYONYX. “Each one had so much to do they could only concentrate on getting those tasks done; there was no knowledge or caring of what was happening around them.”

Smart Business spoke with Pratt about this employee/productivity business dilemma, technology’s role in it and how to make it better.

If employees aren’t as productive as they should be, shouldn’t they be let go?

In an effort to reduce overhead costs, many companies have cut back their staffs to the point that the remaining few are so concerned about keeping their jobs they are working longer and harder to pick up the slack. They are working longer and harder, not smarter and faster. Rather than focus on cost reduction, a company should focus on productivity improvement. If the product you produce is truly in demand in the marketplace, producing it better and faster will gain you a competitive advantage.

The problem with just reducing staff to cut costs is that the productivity contributions by each employee are not capable of increasing as rapidly as the layoffs occurred. Instead, the cost reduction allows for a short-term backlog of revenues and this will make it appear that things are better. Eventually, productivity levels return to match the staffing output levels, and it becomes a death spiral.

Employees in these situations usually feel uncomfortable because they don’t see anything changing as far as how the work is going to get done; all they see is that it means more work for them, and they were already working hard. Instead of better methods, they get bigger and faster computers.

Doesn’t new and better technologies only enhance employee productivity?

I believe that many times a new technology comes into the marketplace, IT installs it, and the business is negatively affected. There seems to be a lag time of new technology being introduced until productivity catches up. It seems to take about a year per major introduction. For instance, in 2000, the business world was blitzed with new technology as a result of the Y2K bug. In 2001, there was a huge decrease in productivity on a worldwide basis. Do you believe in coincidence?

How can this productivity problem be solved?

In order for the productivity problem to be solved, we must find a way to measure productivity and then bring in methods for increasing the individual productivity of each user. By increasing the production of the individual, we can then affect change where it will be most effective — at the single-user level. The only kind of change that will have a lasting impact on performance is to change each user, one at a time. By increasing a person’s output, we may save jobs and heal a wounded production environment.

However, the thought of optimizing one user at a time is scary to most IT people, especially since IT typically thinks in terms of technology, not productivity. Not to mention the fact that each user will probably have his or her own ideas about what he or she needs to do their jobs.

How can a company get started with this process?

Present solutions that will cover the most important bases first and then assign teams to optimize work group by work group, employee by employee. Once the business processes are optimized, the IT group overlays the optimized business workflow with technology. This is the best scenario since you do not want the IT group dictating how the business workflow moves based on the package they select as a core system.

The key is to get the business units involved in the definition of the problems and then assist them in the definition of the solution. If you get the business units to define how they do things now, and then give them the opportunity to optimize their processes, you just created a requirements document for productivity improvement. It may be optimized technology, but more likely it will be the optimizing of business processes. Either way, the business will become more efficient.

By instructing business unit members on how to document their workflow and then allowing them to tune their own workflow activities, they become part of the solution. This also helps them see upstream and downstream inside the corporation. This experience is invaluable in creating an educated employee base. The most important education an employee can have is in how the business operates. That, coupled with the strategic objectives of the corporation, makes each employee work toward a better company.

FRED PRATT is the CEO of DYONYX. Reach him at (713) 293-6305 or

Monday, 23 February 2009 19:00

Take it to the limit

Last October, the Emergency Economic Stabilization Act of 2008 was passed. The act, which, among other things, increases Federal Deposit Insurance Corp.(FDIC) deposit insurance from $100,000 to$250,000 per depositor through Dec. 31, 2009, may lead businesses to reassess how their bank accounts are structured. Under the act, businesses can get more coverage than ever before, including increased non-interest-bearing demand deposit account(DDA) coverage. This is leading businesses to keep more money in their DDAs, since they are fully insured until Dec. 31, 2009.

“Businesses need to take stock of where they have their money and understand how banks can help them protect their funds,” says Tanya Lamothe, a vice president and commercial banking relationship manager for Capital One.

Smart Business spoke with Lamothe about the new FDIC limits and how they’ll affect your business.

How do the new FDIC limits affect businesses?

This new rule allows noninterest-bearing deposits to have unlimited FDIC coverage through Dec. 31, 2009. Each bank has the opportunity to decide whether it will participate in the program and, to do so, it must pay additional premiums for the coverage. Previous limits were set at $100,000 based on account type. For example, if a business has an operating account that is not currently earning interest but typically has balances greater than $100,000, the full amount would be guaranteed by the FDIC instead of just the first $100,000.

What about interest-bearing deposits?

Transaction accounts, such as money markets, and time deposits, such as savings and CDs, are limited to $250,000 in FDIC coverage. New rules apply to Interest on Lawyers’ Trust Accounts (IOLTAs) and certain interest-bearing accounts earning less than 50 basis points that are geared only toward sole proprietors, nonprofits and some governmental entities. Though sweep accounts are typically used to invest idle funds overnight, they are not covered by FDIC insurance at any dollar amount. However, euro sweeps are typically invested in deposits denominated in U.S. dollars held offshore and repurchase agreements in highly rated government securities.

How does a sweep repo work?

At Capital One Bank, at the close of each business day a specified dollar amount in the customer’s deposit account is swept into an account held at the Federal Reserve Bank (fed account), which is used to purchase AAA-rated securities for the benefit of the customer. The funds are held overnight by a custodian and are repur-chased from the customer by Capital One on the following business day. The funds representing the liquidation of the securities are swept back into the customer’s account with interest each morning.

The customer’s interest in the securities is reflected on the custodian’s records. The swept funds are not deposits of the bank, they are not insured by the FDIC and are subject to investment risk while they are invested overnight in the securities. In the unlikely event that adverse developments affect the ability to repurchase the securities and pay the customer’s deposit, the underlying securities or proceeds representing their liquidation value will be delivered to the customer.

Is there a way to protect deposits and still earn interest?

Consider placing idle funds in a bank money market account that is earning a higher interest rate. A money market has limitations that allow only six transactions per month. The money market can be used as a holding account until the funds are needed.

By maintaining the higher balances on the money market account, a client is able to maximize the interest earned on deposits that previously may have been placed in overnight sweep accounts. By having an associated noninterest-bearing account and online capabilities, this allows the opportunity to easily move funds into an account that is fully secured by the FDIC if there are specific triggers within the market that cause concern.

A key factor in all of this, however, is to make sure your bank is participating in the new FDIC coverage for noninterest-bearing deposits. Banks will be required to prominently display whether they are in the program. That way, you will know the amount of deposits covered at your bank.

What other options do businesses have right now?

For longer-term investments, ladder funds in bank CDs or through the Certificate of Deposit Account Registry Service (CDARS). By locking in a rate today in a falling rate environment, you have the ability to potentially maximize your return over a longer period of time. Repurchase agreements (repos) are an alternative as dollars are invested in government-backed securities at a locked in rate for a designated term. Though the return is low, but the funds are considered secure.

TANYA LAMOTHE is a vice president and commercial banking relationship manager for Capital One. Reach her at (972) 855-3646

Monday, 26 January 2009 19:00

Importing and exporting

The global business market is in constant motion. Keeping up requires akeen eye on emerging trends and technological advances and continually workingto be more attractive to international tradingpartners.

Whether your business is importing orexporting, you’ll want to know about all available banking and financing alternatives,including letters of credit, foreign exchangeand trade financing options.

“If your business is importing and/orexporting, there are several banking andfinance options available to you,” says Elias J.Nunez, vice president and international banking adviser with Capital One Bank. “If youunderstand them, your business will havemore leverage in the global economy andyou’ll be able to sell and do more.”

Smart Business spoke with Nunez abouthow businesses can be better importers andexporters.

What are letters of credit?

Letters of credit (L/Cs) facilitate tradearound the globe by protecting companiesagainst the risks of nonpayment or performance. They are contractual agreements inwhich the bank issuing the L/C substitutes itscreditworthiness for that of the applicant.Payment is made against documents presented by the beneficiary and in compliancewith the agreed-upon terms and conditionsstated in the L/C.

There are two basic types of L/Cs: commercial and standby:

Commercial: As an importer, you might beasked by your foreign supplier to provide anL/C. As an exporter, the bank can also serveyou as an advising and/or confirming bank.As an advising bank, the bank will authenticate L/Cs issued by foreign banks andprocess documents required for you toreceive payment in accordance with an L/C’sterms. As a confirming bank, the bank willsubstitute its creditworthiness for that of theissuing bank by committing to pay you inaccordance with the L/C upon presentationof the documents.

Standby: Unlike a commercial letter ofcredit, which is basically an internationalpayment mechanism used by exporters andimporters, a standby letter of credit is a formof a bank guarantee intended to be paid onlyin the event of our clients’ nonpayment ornoncompliance with contract terms. Standbys are issued for many purposes, such as:


  • Insurance premiums for workers’ compensation



  • Security deposits for utility bills, rents, leases



  • Bid and performance bonds


What is involved with foreign exchange trading?

Foreign exchange trading is for companiesthat have payables and/or receivables in foreign currencies. Two basic options:

Spot contract: A foreign exchange contract that allows you to convert foreign currency at the current market spot foreignexchange rate. In most cases, final settlementoccurs two business days later. Spot contracts are used to make a payment in a foreign currency or when you wish to convertforeign currency into U.S. dollars.

Forward contract: Forward foreignexchange contracts protect your profit margin when receiving or making a foreign currency payment at some point in the future. Aforward contract locks in the foreign exchange rate for a future date and eliminates the effect that a change in the foreignexchange rate would have on your profits.

What types of trade financing are available?

Banks can analyze your transactionrequirements and help you find the ideal payment and financing techniques to close eachdeal and improve your cash flow. Tradefinance options:


  • Insured accounts receivable (A/R) financing. Insuring your export-related A/R permits their inclusion in your borrowing base, thus increasing your cash flow and working capital. You offer qualified buyers competitive credit terms while protecting you against nonpayment due to commercial or political default.



  • Export working capital guarantee (EWCP). As holder of delegated lending authority on behalf of Ex-Im Bank, banks have the discretionary authority to expedite loans under the guidelines. Banks can offer loans with a 90 percent guarantee thus providing you the liquidity to accept new business and increase sales.



  • Medium-term insurance. Ex-Im Bank’s medium-term insurance program allows banks to finance foreign buyers of U.S. capital goods over longer time periods, generally up to five years. Exporters receive 15 percent upfront and 85 percent after shipment.


What consequences can a company face if itdoesn’t properly monitor its importing andexporting?

There are several different risks. Companies are concerned with different paymentoptions; country risks based on political andcommercial concerns; currency exchangerisks such as transaction, translation, forecast and economic exposures; and legal andregulatory risk requirements such as the U.S.Patriot Act, OFAC and Foreign CorruptPractices Act. Your bank is one of the bestsources to assist in minimizing internationalbusiness risks while helping you leverage themost appropriate financial option to generatemore sales and manage imports needs.

ELIAS J. NUNEZ is a vice president and international banking adviser with Capital One Bank. Reach him at elias.nunez@capitalonebank.comor (713) 435-5448, or reach Jorge Calderon, commercial relationship manager, at or (972) 855-3936.

Tuesday, 25 November 2008 19:00

Back up after a disaster

With Hurricane Ike a not so distant memory, many Houston business owners are still assessing what may be covered by their commercial insurance policies.

Current estimates suggest that Hurricane Ike caused $13 to $21 billion in damages, making it the third most costly U.S. hurricane after Katrina and Andrew. Many face the task of rebuilding and repairing businesses and, in the interim, have suffered losses in income due to the inability to resume normal operations.

Though business owners may principally focus on personal and property insurance, a company’s survival after a disaster like Ike may depend on having adequate business interruption insurance, says Laura Freudenberger, a shareholder with Briggs & Veselka Co.

“If a company is lucky enough to have business interruption insurance, it is frequently difficult to assess the extent to which coverage applies and what steps must be taken in order to file an appropriate claim,” Freudenberger says.

Smart Business learned more from Freudenberger about business interruption insurance and how to know if you’re adequately covered.

What are the key considerations in understanding and filing a business interruption claim?

  • Determine the extent of business interruption coverage. Many business property policies include business interruption coverage to cover lost business income and at least some of the extra expenses associated with restoring business operations following a property loss. In general, business interruption insurance is designed to replace income that would otherwise have been earned by the business had no loss been incurred. Business income insurance only applies to losses caused by a covered loss to covered property. Many companies find out the hard way that loss of power or flood damage, for example, will typically not be sufficient to file a business income insurance claim.

  • Consider the limitations of your policy. The end of the loss period (typically 30 days after you can resume normal operations), the time frame covered (typically up to 12 months), any monthly or aggregate limits or waiting periods will be spelled out in the policy.

  • Be aware of coverage adjustments. Co-insurance provisions require the policy-holder to pay a share of the business interruption loss where the actual loss sustained is higher than the estimated business income established at the time the insurance was purchased.

  • Know about provisions for extended coverage. Common extensions include: extra days, contingent business interruption (losses in income incurred due to property loss at key supplier or customer location) and civil authority (losses in income sustained as a result of a government denial of access to your property due to property loss at a location not owned by you).

What information is needed to calculate the claim?

Be prepared to provide the business interruption policy, declaration pages, three years of tax returns, three years of monthly financials, and listings and support for extra expenses incurred during the loss period. Also, you should project your revenue for the next 12 months. Setting up separate accounts within your general ledger to track extra expenses will facilitate the accounting for these expenses.

How is the business interruption loss calculated?

Generally, the policy will guide you as to the calculation of the loss to be claimed. The business interruption loss generally is calculated as the projected or expected net profit or loss before taxes, plus continuing normal operating expenses, including payroll, less actual revenue or gross profit collected. Extra expenses (expenses to help reduce loss) add to the loss amount.

Should companies seek outside assistance in calculating their business interruption claim?

It is important to be aware that the adjuster, and the professionals he or she employs to calculate your claim, work directly for the insurance company. Accordingly, it is in the best interest of the insured to secure the help of a forensic CPA immediately so that the proof of loss will include the CPA’s loss claim calculation. The forensic CPA will prepare a report that calculates the loss in accordance with the policy provisions, using information and assumptions provided by the insured. It is not uncommon for insurance policies to provide reimbursement of the professional fees incurred in connection with the preparation of the claim. In any event, hiring a qualified forensic accountant often results in a settlement that far exceeds the costs of the professional fees incurred.

Whose responsibility is it to file the business interruption claim?

It is the insured’s responsibility to provide the insurance company with a sworn proof of loss. Once the insurance company receives this, it has 30 days in which to tender, or be subject to substantial penalties.

LAURA FREUDENBERGER is a shareholder with Briggs & Veselka Co. Reach her at (713) 667-9147 or

Tuesday, 25 November 2008 19:00

Mitigating risks

Any business owner will tell you that the current economy is forcing some hard choices. Still, difficult times can create opportunities, such as acquiring businesses or property on favorable terms. But, this is a delicate endeavor. You’ve got to consider all the risks involved, particularly the environmental ones.

“Don’t underestimating potential environmental risks while trying to reduce costs or turn a profit,” says Chris Jones, an attorney with Calfee, Halter & Griswold LLP. “You’ll likely end up losing more than you save.”

Smart Business spoke with Jones about environmental risks, how to spot them and how to pull off successful acquisitions.

What environmental exposures can owners face when considering an acquisition?

Simply considering an acquisition will not create any environmental liabilities, nor will completing the necessary due diligence on environmental matters prior to an acquisition. But, once the deal is done, there are several potential environmental liabilities that may be inherited by the purchaser. Whether it is an existing underground storage tank that has leaked or old drums of hazardous wastes that have been stored in a building or the seller’s failure to obtain all of the permits that are required to run the operations, once you become the owner, you own the liabilities. Some problems are easily remedied (though perhaps at a significant cost), but others can result in complicated, expensive, time-consuming environmental cleanups.

For example, the lack of permits can be remedied, but you face the threat of shutdown while the permits are obtained. Hazardous wastes can be disposed of properly, but they may have created a hazardous waste ‘unit’ that must be properly ‘closed’ under state regulations and monitored for several years thereafter at great expense to the purchaser. A leaking underground storage tank could cost hundreds of thousands of dollars to clean up as you chase the plume of contamination resulting from the leak.

If a company faces environmental exposures, what should it do?

The essential first step prior to an acquisition is to complete a Phase I environmental assessment of the facilities you plan to acquire. Even for small operations, this is money well spent. Under the U.S. EPA’s ‘All Appropriate Inquiries Rule,’ in order to claim protection from liability under CERCLA (the Comprehensive Environmental Response, Compensation and Liability Act, or the ‘Superfund’ statute) as an ‘innocent landowner,’ a ‘bona fide prospective purchaser’ or a ‘continuous property owner,’ the purchaser may only avoid liability by completing a Phase I assessment within six months prior to the acquisition and address all of the ‘recognized environmental conditions’ identified during the assessment. The cost of such an assessment will vary according to the size and complexity of the property/facility being purchased, but if it identifies an environmental problem that could costs hundreds of thousands of dollars to address, it will be money well spent. In addition to CERCLA liability protection, it is a tool that can be used to evaluate the potential environmental risks associated with the acquisition with an eye toward structuring a deal to account for those potential risks.

For example, if you know that the property you intend to purchase was once a gas station, the Phase I assessment can tell you whether there is any record of a release from the underground storage tanks that are/were on the site and what was done in response to the release. With that information, a purchaser can evaluate the potential risks and account for those risks as a part of the transaction. In any transaction, depending on the nature of the potential risks and the amount of information available, the deal can be structured to account for these exposures in a manner that makes the most economic sense. The structure could be in the form of a reduced purchase price or setting aside a part of the purchase price to account for potential remedial costs.

If a company doesn’t properly address environmental exposures, what consequences could it face?

The most onerous environmental statute is CERCLA, which says an owner or operator of a facility with a release of a hazardous substance is strictly, jointly and severally liable for the cost of cleaning up the contamination. What that means is, if you are the owner of a contaminated property and you have not done your due diligence under the ‘All Appropriate Inquiries Rule’ prior to your acquisition, you can be held liable for the complete cost of the cleanup. There may be opportunities for you to recover your costs from other parties (like the seller), but the government is going to look first to the current owner of a contaminated property to get the cleanup completed. In short, if you don’t address these issues prior to the acquisition, it will be a cost that you will bear.

What does a company need to do during a business or property acquisition with environmental concerns?

The company must complete its environmental due diligence and account for any environmental problem identified. The company may not need to complete a cleanup if the purchase agreement requires the seller to deal with it. But, each recognized environmental condition identified during due diligence must be accounted for in order to provide the best protection for the purchaser.

CHRIS JONES is an attorney with Calfee, Halter & Griswold LLP. Reach him at or (614) 621-7004.

Sunday, 26 October 2008 20:00

Be prepared

As another year is winding down, most people are taking the time to reflect on the ups and downs of the past year, while tying up any loose ends and making preparations for the year ahead.

Business is no different, and right about now, many companies are preparing for their year-end audits. Unlike personal reflections, however, for many businesses, a corporate audit is mandatory.

A number of setbacks and hindrances can delay or derail an audit process, so companies need to be properly primed and prepared for issues that may arise.

“The end of the year is hectic for all organizations, but taking time to plan and prepare for your internal year-end closing and external audit process will pay huge dividends,” says Meresa Morgan, an audit shareholder at Briggs & Veselka Co. “You need to be fully prepared for any and all aspects of the audit.”

Financial audits exist to add credibility to the implied assertion that your organization’s financial statements fairly represent your financial position to stakeholders and creditors. A financial audit is an important step in providing a level of assurance not only to your shareholders and creditors, but also to regulators, customers, suppliers and employees. Because of the significance of an audit, some companies may hire consultants to help ensure that they are prepared and that records are in proper order.

Smart Business spoke with Morgan about year-end audits and how your company can be adequately prepared for them.

What’s involved in a year-end audit, and why does it have to be done?

Many organizations — public, private and nonprofit — are required to have a year-end audit. The requirement may be imposed by various regulators, financial institutions, investors, board of directors, grantors, etc., and is usually required to be performed by an independent certified public accountant. In most instances, there is also a deadline imposed for completion of the audit, which usually ranges from 90 to 120 days after year-end.

What are the first steps a company must take when preparing for a year-end audit?

In an effort to expedite the audit to meet these deadlines, some audit procedures may be performed prior to year-end. If the company has a sufficient accounting department and has internal control processes that have been documented and implemented, the audit firm can test these controls by performing interim audit procedures. Also, if the company has inventory, cycle counts and reconciliations may be performed during the year, versus at year-end. Interim procedures can be especially important if the company’s audited financial statements are due within 90 days after year-end.

The following steps should make the audit process more efficient and less costly:

  • Document existing controls and ensure that they are implemented as documented.

  • Review prior year recommendations made by the audit firm to ensure any significant weaknesses have been addressed.

  • Meet with your auditor prior to year-end to discuss any significant issues or significant changes in management or in the company’s financial statements.

  • Notify your auditor if the company is not in compliance with credit agreement covenants.

  • If not automatically provided, request from your auditor a list of items you will need to have available for him or her to perform the audit. Then, have all requested documents available when the auditor arrives for fieldwork and preferably in an electronic format.

  • Reconcile and document support for all balance sheet accounts prior to the start of the audit.

  • Make sure management is available and involved in the auditing process. Also, an exit conference at the end of fieldwork is beneficial for both the company and the auditor.

  • Take responsibility for drafting the financial statements, including required disclosures.

What are the consequences a company faces if it doesn’t perform year-end audits?

If the company were unable to meet the due date requirements imposed by a financial institution, they would most likely fall into default of their loan covenants and would need to request a waiver from that particular lender.

Should a company seek assistance in preparing for a year-end audit?

Some companies that feel they are unable to perform the steps above or that have staffing concerns will hire consultants to assist them in preparing for a year-end audit. While that is definitely an alternative solution, it is important for management to maintain responsibility for the performance of the consultant and for the integrity of the financial statements.

MERESA MORGAN is an audit shareholder at Briggs & Veselka Co. Reach her at (713) 667-9147 or

Tuesday, 26 August 2008 20:00

ERISA claims to increase

Arecent Supreme Court decision has significantly altered who can and cannot bring claims against ERISA (the Employee Retirement Income Security Act of 1974) plan fiduciaries. ERISA was enacted to protect the interests of employee benefit plan participants and their beneficiaries.

The new ruling says that individual plan participants may sue an ERISA plan and its trustees for breach of fiduciary duties that impair the value of plan assets in a participant’s individual account. Thus, it is much easier for individual participants in 401(k) plans to bring lawsuits against their employers and other plan fiduciaries for losses to their accounts arising from alleged breaches of fiduciary duty.

“This ruling could have a significant impact on the number of claims filed against ERISA plan fiduciaries, and it likely will make fiduciary insurance more costly,” says Al Lucas, the head of the Columbus litigation department at Calfee, Halter & Griswold LLP.

Smart Business spoke with Lucas about the case that brought this on and what companies can do to protect themselves.

Why did the Supreme Court make this ruling?

On Feb. 20, 2008, the U.S. Supreme Court unanimously issued a decision in LaRue v. DeWolff, Boberg & Associates Inc. that overturned an earlier decision by the 4th Circuit Court of Appeals. The Supreme Court decision says that individual participants do have the right to sue and recover losses to their individual accounts in a defined contribution plan. The plaintiff in the LaRue case sued his former employer, who was the sponsor of a section 401(k) plan in which he was a participant. The plaintiff alleged that he had directed his employer to make certain changes to the investments in his account under the plan, but that his employer never carried out those directions. He claimed that this omission depleted his interest in the plan by approximately $150,000 and that it was a breach of fiduciary duty under ERISA.

The U.S. District Court granted the employer’s motion to dismiss, and the 4th Circuit upheld it. The 4th Circuit cited the 1985 U.S. Supreme Court Massachusetts Mutual Life Insurance Company v. Russell, which held that relief for a breach of fiduciary duty claim could only be granted for an entire plan, not for individual participants under a plan. In LaRue, the Supreme Court limited its holding in Russell to being applicable only to defined benefit plans in which participants do not maintain separate accounts within the plan. The Supreme Court stated that when ERISA was enacted and when Russell was decided, the defined benefit plan was the norm of American pension practice, while defined contribution plans dominate today’s retirement plans.

In light of these circumstances, the court held that ERISA does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account in a defined contribution plan.

What has been the fallout from this decision?

Prior to LaRue, claims against ERISA plans and their fiduciaries alleging a breach of the duty of care could only be brought on by or on behalf of the plan. Now, a plan participant has legal standing to bring fiduciary breach claims where there is alleged damage to the participant’s individual account balance. Now that participants have the right to sue for damages to individual account balances, a greater number of claims will undoubtedly be filed against ERISA plans and their fiduci-aries. This is particularly true in the current economic climate, which is marked by stock market declines and decreases in the value of plan assets. ERISA plans and their sponsors should also expect to see an increase in the cost of fiduciary insurance. As future fiduciary breach claims are filed, insurers will increase premiums to offset the cost of defending against such claims.

How can a company protect itself from these claims?

As the old saying goes, an ounce of prevention is worth a pound of cure. Now is the time for ERISA plan sponsors to reevaluate their plan administrative process to reduce the likelihood of future claims. The LaRue case involved a claim that plan fiduciaries ignored the participant’s directions regarding the management of the participant’s individual account. Plan administrators and fiduciaries should make sure that proper systems are in place to accurately record and timely implement participant directions regarding an individual account.

Plan administrators and fiduciaries should also make sure that their ERISA plan is offering appropriate investments in the current economic climate and make sure that fund managers are performing at or above market standards. Plan administrators and fiduciaries should also review the level of fiduciary insurance to make sure that there is adequate coverage to protect against future claims.

In addition, plan administrators may want to reconsider those employees who are serving as plan fiduciaries. As the number of ERISA claims increases, the amount of time fiduciaries spend on these claims will also increase, thereby taking away from their other duties. Adopting these measures will greatly reduce the likelihood of claims by individuals against ERISA plans and their fiduciaries, and will help companies manage claims more efficiently in the future.

AL LUCAS is the head of the Columbus litigation department at Calfee, Halter & Griswold LLP. Reach him at or (614) 621-7002.

Monday, 26 May 2008 20:00

Contemplating outsourcing

At some point in a company’s life cycle, a decision must be made on whether or not to build the necessary infrastructure to support growth in various business activities, such as information technology (programming, security administration, core application development), specific operations (accounting, human resources/ payroll, back-office support, reconcilement, customer service) and risk management (internal audit, regulatory compliance).

Many companies attempt to do this “in-house,” only to find it to be an overwhelming, daunting task. As a result, outsourcing financial services is becoming an increasingly popular option, for both start-up companies that experience resource constraints relative to their sizes and large public companies searching for more efficient, effective and cost-reducing solutions.

“Some industries were outsourcing record retention services as early as 1970,” says Terry Sherrill, a manager with Briggs & Veselka Co.’s business advisory services practice. “With the rapid advancement of technology, however, today’s business world has greater opportunities, as well as reduction of costs, when outsourcing financial services. The decision to outsource is both a human resource issue and an economic capital issue. On the HR side, you need to ask, ‘Can the company afford to hire the person or persons with the necessary skills to perform the functions on a full-time basis? Can you afford the training and related overhead costs to maintain their skills and/or certifications?’ On the economic capital side, ‘Can the company expend the necessary resources to build, support and maintain updated systems to effectively support information technology in-house?’”

Smart Business spoke with Sherrill about outsourcing financial services, how to do it, and how it can help any company.

What are the benefits of outsourcing financial services?

Cost reduction, better experience and expertise, less overhead, improved efficiency, effective product delivery in organizations with multiple locations, state-of-theart technology and staying competitive.

What problems or issues can arise from outsourcing financial services?

Lack of control, confidentiality of customer information, communication, contract compliance and business continuity.

How can the problems be solved?

Establish procedures to ensure that outsourced arrangements are managed and evaluated for risk, just as a company would evaluate a new product or service prior to delivery.

What are the consequences a company faces if this isn’t done?

Unanticipated loss due to nonperformance of vendor contracts and reduction in the operational efficiencies expected to be achieved from the outsourced arrangement.

So, what is the resolution to all this?

Develop processes that mitigate outsourcing risk. The procedures should address the following key elements to effectively outsource financial services:

  • Managing and monitoring the outsourcing arrangements — The board of directors and senior management must retain accountability for the outsourced function, determine the objectives for the outsourced activity and how it fits with the company’s overall business strategy, and provide necessary approval.

  • Selecting a qualified vendor — Perform due diligence on the service provider to ensure technical capabilities, managerial skills, financial viability, familiarity with the financial services and a demonstrated capacity to keep pace with innovation in the marketplace.

  • Structuring the outsourcing arrangement — Negotiate a written contract that is operationally flexible and that clearly articulates the expectations and responsibilities of both sides.

  • Managing human resources — Involve the human resources department early in the process when staff is to be released or transferred to the service provider.

  • Establishing controls and ensuring independent validation — Clearly define expected security controls in the outsourcing contract and develop appropriate performance measures to monitor consistent application of those controls.

  • Establishing a viable contingency plan — Ensure that contingency plans are formulated and viable in the event of nonperformance by the service provider.

If a company wants to outsource financial services, what’s involved with the process?

Submit requests for proposals from at least three service providers. Ensure that a team of company representatives evaluates the proposals and obtains the necessary senior management and board approval. To ensure that long-term outsourced arrangements maintain competitive pricing, I recommend that the company periodically submit the services out for bid.

TERRY SHERRILL is a manager with Briggs & Veselka Co.’s business advisory services practice. Reach her at (713) 667-9147 or tsherrill@BVCCPA.COM.