In these current economic conditions, it’s a good time to reassess your tax and estate planning. Whether it is gifting stock and real estate to shore up your estate, or trying to make up for losses in your business, there are many ways to help make sure your finances are in order and your estate tax posture is maximized.
“Estate planning is the silver lining in the economic gloom,” says Robin Bell, a member at Brown Smith Wallace LLC. “While people always need to be cognizant of the value of their estates, you still need to do the basic blocking and tackling to make sure that your wishes are granted, and your heirs and beneficiaries are taken care of.”
Smart Business spoke with Bell about the new estate tax exemptions, how to take advantage of quick tax refunds if you have experienced a tax loss, the basics of the Section 179 deduction and new tax law changes.
How do you gift stock and real estate?
With the current value of stocks, you can gift more, and when the market does rebound, the appreciation in those marketable securities is out of the estate of the person who made the gift. Now is a good time to think about ways to reduce your estate, so in the future you can control and reduce estate tax problems.
Just as giving stock in a down market can be beneficial considering future appreciation, the same holds true with real estate, family limited partnership interests and closely held companies. You must go through the proper channels in order to benefit — have an appraisal or a business valuation conducted — but you will benefit greatly in future years by gifting these items when we are in a down economy.
What is the impact of the new estate tax exemptions?
The exemption had not increased for several years. Finally, the exemption has increased. For 2009, the exemption is $3.5 million. In 2010, estate tax totally goes away, unless we have another big tax bill in the next 10 months. In 2011, the exemption is supposed to be reset to $1 million. The general feeling is that they will probably permanently increase and index it to a level that makes sense, which could be somewhere between $2.5 and $3.5 million on a go-forward basis. However, with the latest news from President Obama, we can only plan for the laws today.
What types of quick tax refunds can you get for net operating loss years?
For companies that incur a tax loss, it can be carried back to recoup tax paid in the preceding two years. The goal would be the sooner the better, as the refund could impact cash flow planning.
Some companies may not have a net operating loss, but paid a lot in estimated taxes for 2009 based on 2008 results. If their 2009 year doesn’t look as good as their 2008 year, they can use Form 4466 for a quick refund. This can be filed before their return is filed, which is another way to impact the company’s cash flow. There are requirements — it has to be at least $500, at least 10 percent of your current estimated tax liability and the service has to act on it within 45 days.
What is the Section 179 deduction?
The Section 179 deduction is designed to help businesses that need to make investments in capital assets. For any business that places $800,000 or less of assets in service during their fiscal year, they are allowed to write off up to $250,000 immediately. Also in place is an immediate 50 percent bonus depreciation, which is for all assets placed in service for that year. This is available to everyone — some of the larger corporations that may have placed more than $800,000 of assets in service are not eligible for the entire 179 deduction, but they would be for the bonus depreciation. You can take the bonus depreciation if you have taxable income or loss. You have to have taxable income in order to take the 179 deduction. You can carry the deduction forward, but cannot create a loss with it, nor file a carry back claim.
How will the new tax law changes affect companies?
The new tax law targets individuals and small businesses. But for larger businesses, there is a work opportunity tax credit that has been expanded to include two new classes of people — unemployed veterans and disconnected youth — which might encompass more employers who qualify for that credit.
The credit is up to 40 percent of the first $6,000 of wages paid to the qualified employee. They’ve also expanded the rules for cancellation of certain indebtedness income. Consult your tax adviser on that. The rules are detailed, so make sure that you are following them correctly.
ROBIN BELL is a member at Brown Smith Wallace LLC. Reach her at (314) 983-1217 or firstname.lastname@example.org.
When Joe Steiner saw a headline that read, “Reinvent or die,” the phrase hit him so hard that he went to his top management and proposed that they rebrand the company.
When they were done, the company had a new vision for growth and would soon have a new name — Color Art Integrated Interiors Inc. Steiner, chairman and CEO of the office interiors dealer, walked the company through the rebranding process nearly seven years ago, and the company continues to grow: Color Art posted 2007 revenue of $92 million and anticipates $115 million for 2008.
“You have to constantly reinvent yourself and do things differently in the market, or the competition will either catch up or pass you,” Steiner says.
The rebranding process starts with understanding your clients and the market needs, evaluating your vision and then educating your employees and the marketplace about the changes, he says.
Smart Business spoke with Steiner about how to craft and implement a new brand for your company.
Evaluate your vision.
We go through a process of making sure where we’re going is still in alignment with our vision.
The vision meetings have some structure to them, but we don’t try to limit any thought or input or idea that somebody has because basically, our vision is as broad or as focused as we make it.
We don’t talk anything about numbers or goals or objectives. We just talk about where we want to go as an organization — looking at different ways to grow our business.
If you don’t do something differently, it’s just so hard to grow.
We keep ourselves wide open, and after we come out of the meeting with ideas and thoughts and where we want to go, we put it up on the whiteboard and say, ‘Is this in line with our vision?’
Align your new brand with customer and market needs.
As you look at your core competencies, you have to say, ‘Who is your customer?’ You try to take a look at your core competencies versus what your customer is really asking for.
That requires face-to-face visits with customers. It also requires taking a look at what they do and trying to cater your services around their needs.
I think it needs to be well thought out; that’s why we went out and hired a firm to help us through the process.
We hired a firm, and the firm basically did a marketing study on all the various businesses we were in and took all of our competitors and our strengths and our weaknesses and our threats and our opportunities and kind of brought that back and said, ‘How does the marketplace currently look at us, and ideally, how do we want them to look at us?’
[Ask], who are you? How does the marketplace perceive you? How do you want the marketplace to perceive you? And, if those are different, how are you going to change it?
Educate your employees.
First of all, we went through an extensive six-month process within our organization to help everybody understand what our vision was, how they fit in to the vision and what we were going to be doing and how that would make us different.
We had a booklet made up. We told them how we were changing our name, told them how we were branding ourselves going forward, and what the expected and the desired results of those were.
If employees don’t understand how we’re different and why we’re different, then it’s hard for them to envision how they play in to that, and everybody has to play in to it.
When I talk about our employees, I’m talking about every employee in our organization and how they have to understand.
We had a multidisciplined team that went down throughout the organization. We tried to seek input with every level of the organization to not only confirm we were on the right track but to gauge what their understanding level was and try to get a feeling of how they were going to be able to understand it and take it to the marketplace.
Your people have to understand the vision and the process thoroughly before you can take it to the market.
Inform the marketplace.
I’m a strong believer in core competency, and the way we define core competency is being able to do something that nobody else in the market can do. There may be others that say they can do it, but they can’t. And then taking that core competency, branding it and taking it to the market so that the marketplace knows how you’re different and why you’re different.
The significance is as an example: When we went out and researched the marketplace, the marketplace thought of us as an office furniture dealership. We already knew we were much more than that.
If we had all of this and we were trying to accomplish a certain thing in the marketplace but the marketplace only viewed us as an office furniture dealership, then we would have to do something to tell the marketplace how we were different, why were different, why we were better.
As we went through this whole rebranding process, we first of all ran two advertising campaigns. We went out and told the marketplace how we were different, which was basically expounding upon our core competencies.
After the first year of advertising, then we went into another campaign that basically said, ‘We’ve been telling you how we were different. Here are the results of that.’ We had customer testimonials, we had projects that we did and customers commented on.
HOW TO REACH: Color Art Integrated Interiors Inc., (314) 432-3000 or www.color-art.com
In the seven years that he’s been running Precision Practice Management Inc., Mike Barnell has probably used thousands of sports analogies.
The president and CEO of the medical billing company says that he sees a strong connection between sports and business, and he uses that connection to motivate his 85 employees.
“People get the concept of never giving up until the whistle blows, giving the extra effort, or knowing that races can be won and lost by tenths of a second,” he says. “When you apply that to business, that delivers a message that strikes home with people.”
Smart Business spoke with Barnell about how to communicate your message effectively and how to develop a vision your team will believe in.
Q. How do you create a vision your employees can buy in to?
You have to really know your business. That comes from being involved in a lot of the day-to-day things going on in all parts of the company.
You obviously can’t do that on a full-time basis, or you’d be micromanaging people. But if you are able to step in and step out of various issues, your people pick up a lot from you as the CEO from that process, and you get to know your business.
As you’re developing your vision, you had better know what your capabilities and limitations are because you’re the top guy who is trying to set the vision for where the company’s going. You obviously have to know your competitors and the industry you’re in — the big picture. It’s a great idea for the top guy to be involved in a trade association so you can make sure there’s not something big that’s happening in your industry or about to affect your industry that you’re not aware of.
Then your goal would be to carve a path for your company that is not just tracking where your larger competitors are going. That can be tempting — there’s someone bigger than you that has been successful, and you think, ‘If we just do what they’re doing, we can be successful, too.’
I’d much rather believe the Wal-Mart or Enterprise car rental examples, where they took a different path in an already well-established industry and carved a different niche for themselves.
Q. How do you avoid copycat visions?
If your vision is really somebody else’s vision, something you picked up from reading a book on Jack Welch or something, then your staff is going to pick up on that.
Your vision has to be real. It should come from the core, inside of you. Otherwise, you’ll find out over time that your staff just doesn’t buy in.
Then, you have to go live the vision. It’s one thing to say what you believe and what you think the company should do. But if you don’t yourself live and breathe that vision every day in terms of your actions, they’re going to pick up on that, as well.
It’s like the manager of a baseball team telling his players to be on time for every practice, and then the manager shows up late himself. Obviously, he’s lost a lot of credibility if that’s what he does.
Also, be consistent in your vision. If you’re changing your vision every 10 days, it’s not much of a vision after all. Not to say you don’t adjust what you do with new facts and circumstances, but there should be some consistency in the message you send to your staff and your clients.
Q. How do you make sure everyone gets the message?
When it comes to communication, I’ve found as our business was small and growing larger, I found the total volume of information that had to be managed, the total amount of detail that had to be taken care of was huge. We had different people struggling to communicate with each other on those various details.
So one thing we did was set up a client/staff meeting. Every two weeks, we have a meeting that actually takes a full day. You can imagine the commitment that it takes — one day out of 10 is devoted to all the senior management getting together, going over every single client, talking about what’s going on with that client.
But look at the results: On a routine basis — not random — we have a structure where everybody gets together and is able to share information about what took place in regard to a specific client or issue. And it updates everyone on what got taken care of, what new issue needs to be decided.
We do the same thing on a monthly basis with our operating teams — staff members who do the day-to-day work with clients.
I’ve found it eliminates the e-mails, the phone calls, the other meetings that might otherwise have taken place between those two weeks. We all get to influence each other, trade a lot of good information. Then, we depart for two weeks and get our business done somewhat independently before we have the next meeting.
HOW TO REACH: Precision Practice Management Inc., (314) 787-0681 or www.precisionpractice.com
Being a leader didn’t come easy for Kurt W. Gampp. The co-founder and chief operating officer of Synergetics USA Inc. was a tradesman with no college education who made the company’s first microsurgical instruments in co-founder Gregg Scheller’s garage.
Since its humble beginnings in 1992, Synergetics has grown into a burgeoning public company, earning $50.1 million in revenue in fiscal 2008, and Gampp has learned how to be a business leader.
Scheller left the company in August, and finding a new CEO has been a whole new challenge says Gampp.
“I feel like I just got a divorce, and I’m on my first date,” he says.
Smart Business spoke with Gampp about how he learned to manage with an open mind and how to empower employees to make decisions.
Q. How do you empower your employees?
I’ve always told my people the worst decision they could make is not to make a decision — and that’s a decision in itself. You can’t be afraid to make decisions. Sometimes they’re wrong, and I tell my people that that is OK. You can’t make a good decision every time.
The worst thing that can come from a bad decision is not learning from it. I always try to tell my people that. Make a decision, and we will live with it. We will correct it if we need to, and we will learn from it.
Q. How do you create a culture in which your employees aren’t afraid to make decisions?
The people I lead have been with me a long time. I’m not one to chastise people, if you will, over making a bad decision. Like I said, a bad decision gets made, it’s OK. Let’s sit down and, first of all, let’s figure out how we’re going to correct it.
Then, what did you learn, what did we learn from that? So that way, we ensure that a decision similar to that gets made correctly in the future. I’ve earned the respect of my people, and I respect them in the same way. Just that culture of mutual respect and trust that has been created here gives us some results.
Q. How do you build that trust?
I create that by being an example to them — by showing them that I do trust them and I do respect them. We come together as a team to mutually figure out problems and make decisions. And of course, being able to figure out who fits with the team.
You have to be able to staff properly and pick the people you want as part of your team, and you want to lead that fit with that culture and have the same type of morals and respect of people that you have and the rest of your people have.
Put together a team that fits together, that has like morals, interests and goals. We all work well together and know each other well. That culture comes out of that situation.
Q. How do you work together with your team?
One thing I always say to people is that you have two ears and you have one mouth. So listen twice and speak once. That is probably the biggest thing. I see so many people who just run over people. It’s talk, talk, talk, talk, talk, and they don’t listen.
You have to be knowledgeable about what you’re communicating, and you have to show an interest in people and what they are saying.
Q. How do you get employees to buy in to your vision?
As far as coming up with the vision, you’re listening. Listening to your customers, your employees, your salespeople. Listen to other people within the industry that you’re in. Once you’ve done that, come to a consensus of what all of those people are saying and align that with the organization’s mission and core competencies.
Inclusion of the people is the easiest way to get them to buy in to anything. Of course, you may have some differences there, but displaying a true confidence in that vision and having a passion for it goes a long way toward getting people to buy in to it.
Q. How do you include people in the decision-making process?
Basically, you want to give them as much information that you’re gathering about the industry as you can: what the doctors are saying, what the salesmen are saying and ask, ‘What do you think about this?’
You get some good input from those people. Everybody’s got good ideas, and everybody’s got opinions — some good, some not so good. Just basically, sit down and discuss things. I don’t do things in a vacuum. I believe in people and people’s ideas and they feel that.
Close-mindedness is a downfall for anyone who’s trying to lead people, because you need people to run a business. The people are the corporation’s greatest asset. They have ideas and opinions, and in order to lead those people, you have to consider those. And lo and behold, they come up with things that are better than I come up with anyway.
HOW TO REACH: Synergetics USA Inc., (636) 939-5100 or www.synergeticsusa.com
Sustainability isn’t about saving the planet. It’s about saving your business.
Conducting business in a sustainable manner means you can spend less and increase revenue.
While sustainability does help the planet, the incentive of reducing your business costs by half is a strong reason to pay attention. The buzz is that traditional energy and other resources will be in tight supply in the future, resulting in volatile prices. By investing in sustainable efforts now, you can help ensure your business’s long-term success.
“Corporate sustainability isn’t just something to consider anymore; it’s a necessary way of conducting business,” says Lee Broughton, director of corporate sustainability, Enterprise Rent-A-Car. “Companies that are managed sustainably is what everyone’s talking about and everyone wants to be a part of the discussion.”
Americans compose 5 percent of the world’s population, yet contribute almost 25 percent of the greenhouse gas pollution, which scientists believe causes global warming. If everyone used and wasted energy and other resources this way, we’d need four planet earths to keep up with the demand. Consumers are finally taking notice of this egregious waste and are looking to buy from sustainable businesses, while more and more businesses are looking to obtain products from other businesses using sustainable practices. This is a time when your business can not only streamline production but also increase revenue by drawing in new customers.
“Barack Obama was so specific about forming an energy plan, we’ll be seeing things change soon,” says T. Boone Pickens, founder and chairman of BP Capital Management. “This means businesses have to get going on where they’ll be standing when this comes in to play.”
Ninety-six percent of readers polled by Smart Business say being green is an important part of their corporate philosophy, yet 45 percent report that they’re not willing to invest in greener practices. Experts say spending money on green initiatives isn’t paying for an image it’s a direct investment in a more economic way of running your business.
Why sustainability is important
Think of sustainability like the Internet. Fifteen years ago, when the Internet was emerging, it wasn’t pervasive, but now it’s everywhere. Eventually, sustainable business will just be called business and green building will just be known as building. Experts say that is the way it’s going to be and you have to adapt now.
If you want to know the value in sustainable management, think about the Dow Jones Sustainability Index. For almost a decade, Dow Jones has been providing sustainability indexes of businesses, which shows objective benchmarks for financial products linked to economic, environmental and social criteria. Sustainability indexes offer a performance baseline and an investment value for mutual funds, certificates, separate accounts and other investment vehicles based on the concept of sustainability. To date, the assets managed amount to approximately $6 billion.
“Sustainability doesn’t cost anything,” says Joseph Fiksel, principal and co-founder of Eco-Nomics LLC and co-director of the Center for Resilience at The Ohio State University. “Any investment you make is done for business reasons. Sustainability will save money and increase stockholder value in your company.”
The need for sustainability has already created thousands of jobs stemming from business consultants to waste managers. Experts say we’ve only scratched the surface of what sustainable practices can do for businesses. While solar and wind power commonly come to mind, sustainability includes using recycled products when building, collecting rain for watering purposes and designing your business’s landscape in a way that minimizes the need for upkeep and conserving resources.
While reducing waste has its obvious benefits, reduced insurance rates are another benefit to sustainable businesses. In fact, sustainability consultants predict business insurance will be more difficult to procure as nonsustainable practices are looked at as a risk.
In a 2008 report by SAB Miller, one of the world’s largest breweries, a survey of 4,000 senior executives showed 70 percent place corporate sustainability at the top of their priority list. That still leaves more than a quarter of businesses delaying action.
What you need to know
When initiating a sustainability plan, think about who your customers are and what they want. Consider how implementing sustainable practices can lead to more business. The challenge is making decisions that are financially, socially and environmentally intelligent. While there isn’t a one-size-fits-all plan, having a sustainability expert evaluate your business is a jumping-off point.
The Global Reporting Initiative is another ally for businesses seeking a sustainable route. It’s an organization that provides a framework companies can follow to measure and report their economic sustainability performance and monitor the performance of other companies. The organization sets the principles and indicators that businesses can use to measure and report their sustainability performance. GRI is growing as an international standard for corporate sustainability reporting.
“CEOs need to get an education on this now,” Pickens says. “Sustainability isn’t just wind or solar, you’re going to have to get off the foreign oil. Wind and solar do not replace the foreign oil, so we’re going to have to put it together and use all of them to have a more sustainable business. This should be something in businesses’ plans to work their way into understanding what the future holds.”
Another source for information comes from the U.S. Business Council for Sustainable Development, which was established in 2002 as a member-led, nonprofit organization that presents projects to demonstrate the business value of sustainable development. Projects featured by the council create value through economic returns and environmental and social benefits.
A sustainability consultant can help you identify what sustainable methods are available. After an assessment, you, along with department managers or those hired for the assignment, can construct an operational analysis that
details your plans with set goals and deadlines. This will include your estimated ROI time frame. Make sure your sustainability plan describes how sustainability topics relate to long-term organizational strategy, risks and opportunities, including supply chain topics.
Even if you don’t implement everything in your sustainability plan today, you can re-evaluate and implement more sustainability methods in the future.
Make sure you are meeting all local and national protocols while setting some of your own standards. Define sustainability issues for your business based on your industry and the department. For example, if your business uses a lot of water, utilize rainwater recycling to minimize the amount of water you must purchase.
“We didn’t move out of the Stone Age because we ran out of stones,” says Tim Center, vice president of sustainability initiatives, Collins Center for Public Policy and director of the Council for Sustainable Florida. “Business is about innovation, and that’s what sustainability brings.”
Dave Spence likes to live in what he calls a state of paranoia to help him avoid the stages of complacency and arrogance he’s seen competitors run into.
As president and CEO of Alpha Packaging, a bottle manufacturing company, that has meant maintaining momentum and sticking to the foundations of what is best for the company.
“The one thing I always say about our company is the only thing stopping us is us,” Spence says. “There’s nobody putting artificial roadblocks in front of us.”
And there’s been little stopping Alpha Packaging. The company grew revenue from $18 million in 2001 to $107 million in 2007, it’s Spence’s goal to reach $150 million without acquisitions in the next two years. The keys to growth, says Spence, have been choosing the right customers and employees and staying flexible in a changing marketplace.
Smart Business spoke with Spence about how to attract the right people to your company and how to identify your marketplace.
Know who you want to do business with and gain their trust. We’ve grown more organically, and that is developing relationships with customers and then expanding those relationships once we start.
I’m a believer that your best source of new business is going to be your new customers. Everybody is always looking for a sale they don’t have. But if you concentrate on your existing customers, it will grow quicker.
It’s a matter of trust. I think people like to do business with people that they generally like. They’re going to try to do business with people they’ve done business with in the past.
I think, good news or bad news, always be there. Be honest and be forthright; I swear that works. People want to know that you’re going to be around and you’re consistent.
Stick with your core competencies. I don’t think every piece of business is made for you. You want to make sure you can bring a level of competitive advantage to it. In other words, is it in your core strengths?
We don’t want to chase rainbows. You can chase rainbows and do some things outside of your strength, and you typically aren’t going to do well at that. We want to make sure it fits geographically, it fits mate-rialwise, it fits capabilitieswise. If it fits three of four characteristics and it’s a company you want to do business with.
A lot of people are trying to reinvent themselves too much. You’ve got to stick with what works.
There’s no way you’re going to be everything to everybody. If you’re going to step out of your comfort zone, make sure
it’s with a customer that understands that this is a new venture for you.
Review goals often and stay flexible. The parameters in our industry are constantly moving, and so we need to make sure we’re answering those.
Those people who do a five-year plan, it isn’t worth the paper it’s written on. I think having a five-year plan in today’s world is useless. It moves too fast, too many variables change, markets change.
We have rolling goals, so some stuff is by the day. But every six months, we’re updating the macro goals.
I think that you have to stay close to what’s going on in your industry and your company. You constantly have to reinvent yourself. Just because it worked last year doesn’t mean it’s going to work this year.
If you look back and don’t keep changing the way you do things for the better every day, I think you’re going to get lost and you’re going to get passed over.
Your customers will coach you quite a bit, and I think you need to stay close to them.
A lot of people don’t give a forum for improvement in the company, and I think there’s a lot of people who care and want to be heard. A lot of people don’t seek advice from the people who do jobs every day, and they’re the ones that do it the best.
Hire good personality fits. My philosophy is you surround yourself with good people and get the heck out of their way.
It’s pretty obvious as you grow that there’s some people that will rise to the challenge and some people that will not. When they don’t rise to the challenge, you decide if you’re going to keep them or move them aside and bring in people that you think can bring in new energy and new ideas.
I’m looking for people that aren’t going to get stagnant. People that want to continue to get out of bed every day with fire in their belly and want to continue to push the company.
I tailor each interview toward the position. You want to have personalities that fit with the personality of the company. One person can ruin the chemistry, especially if you have a lot of interaction with them.
First of all, do you generally like that person, do you mesh with them. We want to make sure they haven’t come from a company where complacency is accepted.
We’ve gone to personality testing. Every time I try to say those tests are wrong, it comes back to bite me. You like somebody and you say, ‘Well, it’s a good fit; we should hire them.’ Then you get the testing back, and it says it’s not a good fit. Those tests don’t lie. I do think personality testing is important because a bad hire can cost you money, as well.
HOW TO REACH: Alpha Packaging, (314) 427-4300 or www.alphap.com
No company is immune to internal fraud. Organizations that take a wait-and-see approach risk severe financial damage. The fact is that every business — from small mom-and-pop businesses to notfor-profit organizations to large public companies — is subject to fraud at some level.
“Fraud can have a devastating impact on organizations and, when not prevented or detected early enough, can cause major financial and reputational problems for companies of all shapes and sizes,” says Ryan Hauber, a certified fraud examiner (CFE) and principal at Brown Smith Wallace LLC.
The pervasiveness of corporate fraud, employee misappropriation of assets and financial statement abuse is a significant problem in corporate America. More companies are taking a proactive approach to identifying and mitigating fraud risk.
Smart Business spoke to Hauber about how to address the risk of fraud and how to minimize the overall business risk.
Are specific industries and/or companies of a certain size more prone to fraud than others?
Small businesses are especially vulnerable to occupational fraud due to their lack of effective and adequate segregation of duties, but the potential for fraudulent activity exists for larger organizations, as well. According to the 2008 Report to the Nation on Occupational Fraud & Abuse, the area of financial services is one of the most victimized industries. Based on this study, the largest median losses of fraud occurred in the manufacturing industry, followed by banking and insurance. Fraud happens at every company to a certain degree, shape or form at some point. For this reason, companies that have not already utilized a CFE or an expert with a certified forensic accountant (Cr.FA) designation to evaluate fraud potential are wise to consider, at the very least, a quick fraud prevention checkup.
What types of fraud have a significant and detrimental impact on organizations?
The three main categories of fraud include: corruption/bribery, asset misappropriation and fraudulent financial statements. Fraudulent financial statements are the least commonly reported type of fraud, but the most costly per scheme. On the other hand, asset misappropriation schemes are the most commonly reported and least costly. Over time, these schemes can add up to severe financial impact. Often, under-the-radar fraudulent activity is not detected until serious damage has been done. Any type of fraud is a major risk for all organizations from both a financial and reputation perspective. That’s why assessing risk and developing controls to prevent internal fraud is paramount in today’s business environment.
How can an organization reduce the risk of fraud?
There are a variety of proactive fraud tools and techniques available to help deter and prevent fraudulent activity, including fraud prevention checkups, fraud risk assessments, data analysis focused on fraud risk factors, development of fraud policies and reporting mechanisms, fraud training and various tool kits, and scorecards for detecting internal fraud. More small to midsized organizations have shifted toward partnering with a licensed CFE to conduct fraud prevention checkups, fraud risk assessments and data analysis, using software such as Audit Command Language (ACL).
What’s involved with fraud prevention checkups, fraud risk assessments and ACL data mining tools?
For decision-makers on a limited budget, one of the best uses of time and money to minimize fraud potential is a tailored fraud prevention checkup. These projects are generally completed by a licensed CFE and can be conducted in a few business days or less for most organizations with revenue less than $250 million. The checkup involves interviews with management and key employees. Questions are targeted based on the company’s size and industry and the employees’ role in the organization. That information is compiled and a report is prepared that provides an overview of the entity’s fraud prevention performance.
In contrast, fraud risk assessments dig deeper and can require compiling in advance certain company records (i.e., gratuity logs, beginning and ending trial balances, etc.). The interview process is more detailed. The organization’s risk is benchmarked against similar industry competitors.
Finally, data analysis tools such as ACL have the capability to mine electronic data for suspicious behavior based on the industry and company size when utilized by an experienced data analysis professional. An experienced fraud professional then works with the company to help it change its processes and/or mitigate potential risks for fraud based on any identified unusual patterns, anomalies and/or outliers of data.
These fraud prevention methods can shed light on risky areas of a business that decision-makers must address before fraud occurs — especially given the current state of our economy, which increases the risk of compromised employee and vendor behavior.
RYAN HAUBER, CFE, is a principal at Brown Smith Wallace LLC. Reach him at (314) 488-3048 or email@example.com.
As the health care industry continues to grow at an explosive rate, the federal government continues to add new regulations and change existing ones to keep up.
Many of the changes made by the government aren’t noticeable by the general public unless they directly affect the health care service received by patients. However, the government has enacted many of these regulations in an effort to prevent fraud and abuse in the health care system.
“I don’t believe that the public is aware of the complexity of these regulations and how they affect the business relationships between health care providers,” says Kathy Butler, manager of the Health Law Practice Group at Greensfelder, Hemker & Gale, P.C. “I think they hear on a broader scale of the government’s numbers about how many billions of dollars it is collecting from people erroneously billing or committing fraud.”
Smart Business spoke to Butler about how often regulations change and how they affect the health care industry.
Do regulations change a lot in the health care industry?
Yes, they do. The Centers for Medicare and Medicaid Services regulate all the different types of service providers. These services include hospitals, physicians, diagnostic testing facilities, medical device suppliers, etc. There are various times throughout the year, on a fairly constant basis, when changes are being made.
Typically, any changes made to the Medicare physician fee schedule come out in the summer and are finalized by Nov. 1; we just finished up this process for the year. There are also rules for hospitals that change every year related to the inpatient services and for outpatient services that come out at a different times. The government can publish regulation changes at any time it feels there is a need.
In the last couple of years, there have been significant and sometimes complex changes that have had a huge effect on physician-hospital relationships and medical provider business structures. It is a constant education and effort to keep up with all the changes.
Are these changes necessary to keep up with the ever-growing health care industry?
The government believes, and rightly so in some cases, that some providers are billing inappropriately or engaging in fraudulent activity at the government’s expense. It is a complicated system and there is a lot of money involved in delivering health care services. Although most providers try very hard to comply with all the rules, whenever you have complexity some people will try to defraud the system to make money.
For example, in South Florida, the government is dealing with providers of various types of services, such as infusion clinics and medical equipment, which are under scrutiny because some providers are billing for services they have not provided or that are not medically necessary. It’s a complicated regulatory scheme and people take advantage of it, so the government has created regulations in an effort to minimize fraud and abuse.
As a result, the government applies its regulations with a broad brush, and sometimes those regulations frustrate legitimate business activities that may actually be beneficial and create efficiencies for patients, the community and the industry.
Can you give an example?
One of the most recent changes involves a rule change that allows hospitals to contract with other entities to provide services that the hospital doesn’t have, and then bill for the services ‘under arrangement.’ The hospital bills as if the service was provided by it and then pays the entity that performed the service a fair market value rate. But, due to concerns about financial relationships between hospitals and physicians, a new regulation, due to go into effect in October 2009, will prohibit that type of arrangement between a hospital and any entity that has physician owners that refer to the entity.
The government is concerned that hospitals inappropriately allow physicians to benefit financially by contracting with physician-owned companies. A small hospital with limited resources that contracted for MRI services with a physician group that already had an MRI may have to spend money to buy its own MRI and duplicate a service that already exists in the community. The hospital will then have less money to spend on other services that may be needed in the community.
What is the Stark Law?
It is a federal strict liability law that prohibits a physician from making a referral to certain types of entities (including hospitals), and prevents the entity for billing for that referral, if the physician has a financial relationship with the entity, unless the relationship fits within a specific exception.
For example, if a hospital contracts with a physician for administrative services, that physician, if he or she also refers patients to the hospital, must have a written contract that meets very specific standards. Failure to meet each standard, even if it is inadvertent, could result in the providers having to return the payment for the services they provided, and other severe penalties.
KATHY BUTLER is manager of the Health Law Practice Group at Greensfelder, Hemker & Gale, P.C. Reach her at (314) 516-2661 or firstname.lastname@example.org.
After 34 years of operation, the Kennelwood brand was due for a change. Co-owner and Chief Marketing Officer Chris Danforth says that the company was founded as Kennelwood Village, and it had a “village mentality.” At the time, it was one store that did pet boarding and grooming, with some elements of retail. Now, the company, which has grown to 2007 revenue of $9.5 million, has changed its name to Kennelwood Pet Resorts to reflect its new concept: a vacation spot for pets, with plans to expand to new markets.
“We saw an opportunity to change our look and tie it all together,” he says.
Smart Business spoke with Danforth about how to plan a rebranding effort and how to expand without getting in over your head.
Q. What advice would you give a CEO who is considering rebranding?
As we’ve just begun the process and are learning about it, we have been conservative. We want to make sure we’re doing it right. We don’t want to rush in and grab into a market we’re not prepared to be in yet.
You have to do your due diligence and really understand that cities are becoming more and more like each other, but there certainly are some differences. Make sure you understand the differences in the marketplace. If it takes a little longer, that’s better than rushing into it and realizing you missed it or you’re in over your head.
Q. How do you decide where to expand?
The way we’re targeting is looking geographically and making sure there are households with a propensity to spend. We’ve also looked at competition. We know we can open up multiple locations in Chicago, Nashville or wherever, then break down the market and use our partners to research real estate.
That helps make sure we’re in the right areas. Get close proximity to the ZIP codes we want to hit. In St. Louis, we know what ZIP codes we want to hit, but we also know that we might not want to be right in that ZIP code. We could be a stone’s throw away and save some money on leasing or owning land.
We rely on the experts we’ve brought along the way to help us out. The real estate brokers, the construction management company, whatever.
Q. How did you get people on board with the new direction of the brand?
There are two elements to it. There is one in the consumer market, and one is the internal employees. They certainly have strong opinions, and when you’re trying to change something they identify with, it’s hard. It’s just as important to get them on board. So, we try to include them as much as we could on the decision-making process for logos.
For example, we had everyone come in and vote [on several different logos]. We tried to engage them as much as we could in the process.
Our concept has changed over the years. Now, moving forward with the franchise is sort of a resort theme. We wanted to tie everything together. The logo now is a dog in a beach chair.
All the posters and brochures tie heavily into the resort theme and borrow heavily from the travel agency look with destinations and really making the pet stay about them going on a vacation.
Also, we tried to have fun events at the store — not only for the customers but for the employees — to teach them about the history of the company but then introduce the new brand to them, as well. We inform them of the thought process, like why we chose that particular logo.
Communication is vital and has been something we have been trying to do as we implement change in our local market and certainly as we venture into franchising.
It’s been a challenge for us, just making sure the key people not only know what’s going on but why it’s going on, so they can buy in to the idea.
Q. How do you get buy-in on branding ideas from your employees?
I like to be fairly open with what we’re doing and bounce ideas off them. It’s the ideas that matter, and if people take ownership of them, if it’s presented in a certain way, they feel like they helped craft it.
It could just be as simple as floating out a top outline idea and having a sense of the direction you want it to lead, help drive that process but let other people fill in the blanks and let them feel like they are part of the decision-making.
Get employees involved through meetings. Present ideas and have them go back to other people and survey their staff, or just think about it for a while and then get back to people.
Just be honest and lay things on the table. When I’m explaining the direction or explaining a decision or explaining a new concept, I try to give as much background as possible. Try to be open and have dialogue back and forth.
HOW TO REACH: Kennelwood Pet Resorts, (314) 446-1000 or www.kennelwood.com
Tracy Hart is not one to hogall the credit for a job well done.
Instead, the co-owner, president and CEO of Tarlton Corp. isfirst in line to give credit wherecredit is due.
“It comes into play all thetime,” she says. “For instance,somebody will say to me, ‘Youdid a great job on XYZ project,’and the best thing I can do is tosay, ‘We had a very talentedteam on that job.’ It certainlyisn’t my credit. I didn’t build thejob.”
Hart says it takes a healthydose of humility to lead her300 employees at her family’sgeneral contracting and construction management firm,which posted fiscal 2007 revenue of $108 million. And it’snot important that a leader becredited with every success.
“If you’re not worried aboutthat, then you’re going to dowhat’s in the best interest ofthe company,” she says. “Ifyou can think company first,that’s exciting.”
Smart Business spoke withHart about how to build a solidteam and why it’s important toacknowledge others’ success.
Acknowledge the success of others. It’s fun when you say, ‘Andthis team came up with thisgreat idea.’ If they had a success, share that with folks. Itgives away your power, andempowerment is fun.
We have the Monday morning memo, a weekly one-page memo that goes toeverybody in the companyby e-mail or hard copy forour job sites, and it talksabout our successes. Ourexecutive assistant collectsthe information, and anybody can put something in it.We’ve been doing it for atleast six or seven yearsbecause people need toknow what’s going on.
It’s important to communicate important informationthat your employees need ona weekly basis. When thingsstarted going electronic, westopped doing the company’squarterly newsletter, andusually, by the time it cameout, the information was oldanyway.
Talk and listen. Communicationis the key to collaborationbecause you have to spendtime talking to your teamabout all of the issues surrounding whatever it isyou’re leading. I go to different job sites, and I walkaround the building. Part ofit is discipline because it’seasy to hide behind our e-mails and not get out andtalk to people.
I do things like turning offthe computer when employees come in my office. It’sthat eye-to-eye contact. It’snot checking my Treo. Allthose things are just plaingood listening skills.
And then, I believe thatnone of us is as smart as all of us. You have to be willingto listen to ideas and suggestions and vet those ideas as agroup. Then you build consensus on what the appropriate solution is. When you dothings like that, it helps yougroom future leaders, aswell. Nobody has to be theman behind the curtain.
Choose the right teammates. Youcan always train technical.We look for attitude and foraccomplishments. Have theybeen able to accomplishthings? It depends on whatlevel of position you’re looking for. The accomplishments of somebody out ofcollege are going to be different than a senior manager,for instance, but you want tosee if they’ve taken initiative, taken some risks and triedsomething.
We also do personality testing by a third party and lookat all the different aspects ofthe individual to see if they’rea good fit for our culturebecause we all work on thesame team.
Create a positive culture. Myfather [Robert Elsperman,former Tarlton president]would say that he has twofamilies: the one that he’srelated to and the one at5500 W. Park Ave. Employeesspend a lot of time here, andit ought to be enjoyable.
They ought to have balancein their lives, but we expecta lot while they’re here, aswell. It’s that work hard, play hard piece. As long asour clients are happy, andeverybody here is happy, weusually have great results.
We (recently) had our fieldversus office softball game.We have a company picnic.We have a day in our equipment facility where employees can bring their families,and their kids can climb onequipment. We try to have alittle levity at Tarlton becauseour employees are hereawake more than any placeelse. We want people tostick around.
Loyalty is important to us.If I treat you as I’d like to betreated, it works.
Keep an open mind when makingdecisions. Sometimes you’vealready gone down the process of, ‘I know how wecan solve this.’ Sometimesyou have to be the personthat solves it, and sometimesyou have to make unilateraldecisions. If you’re lookingfor lasting success, createopportunities for decision-making that people can buyin to.
That trickles down intoour projects. For instance,one of the best things wecan do when we put together a schedule for a construction project is to getsubcontractor feedback aswe’re going through thatprocess. It makes them partof the team and helps thembuy in to those goals thatwe’re setting up.
HOW TO REACH: Tarlton Corp., (314) 633-3300 or www.tarltoncorp.com