Joel Lesser, CFO - Executive Portfolio

Detecting Fraud

Identifying employees involved with fraud can be very difficult, but certain signs should be shared with the entire company. For example, living beyond ones means or those experiencing severe financial hardship have committed fraudulent acts in over 35% of cases. These individuals may have experience in concealing these circumstances, but if your A/P person is suddenly driving a new Porche and wearing expensive jewelry, it might be time to look at certain internal controls with bill paying.

Another sign could be those in the same role for many years, and/or an unwillingness to change processes or give-up control. Employees who commit fraud are likely to work in accounting, operations, sales, upper management or purchasing, according to an article in the October 2010 Financial Executive magazine, called "Challenges in Detecting Fraud Identified".

Speaking from personal experience, our company management identified a ring of at least 5 associates working in concert to pilferage merchandise from our warehouse. Our investment in a camera surveillance system paid-off.

Business Combinations & Valuing Contingent Consideration

In many mergers and acquisitions, a contingent consideration is part of the deal terms. Valuing this potential future obligation of the buyer is explained in ASC 820. In the June 2010 issue of Financial Executive magazine, P.J. Patel describes many details in his article: "Current Issues in Accounting fro Business Combinations". Fair value is the price to sell an asset between the buyer and seller at the time of measurement.

The most common approach to valuing a contingent consideration is the utilization of a probability-adjusted income model. A range of potential results are projected and probabilities are associated with each outcome. The product of achieving different results, along with the contingent payment that would occur for each, is used to determine a weighted average or expected contingent payment.

As with any deal, the potential earn-out could exceed the anticipated goal or be zero, depending on the actual results realized by the acquirer.

Is a Paperless Society Realistic?

Thirty years ago, most of us thought that paper reports would be archaic. Even though our society has made excellent progress, we are far from paperless. As Jeffrey Marshall points out in his article "Whatever Happened to the 'Paperless Society?'", in the March 2010 edition of Financial Executive, the controversy with paper versus on-line reading, is and will remain with us for generations to come.

There is no doubt that paperless mediums are helping us become "greener" and more efficient; just look at E-Ticketing, EDI transactions, on-line bill paying and banking, and E-document creation and sharing, just to name a few. Many believe that the most efficient way to review and edit documents is electronically, but startup costs can be very expensive, depending on the application. The medical and real estate industries are still using paper as the primary means. But we are seeing some progress, even with the government: the 1998 Government Paperwork Elimination Act has forced some changes, like the acceptance of electronic payments and signatures with various government agencies.

Will we be paperless eventually? Probably not, but the trend for electronic media is growing, as with paper conservation. I just hope that there will always be a newspaper available when drinking my coffee at the family breakfast table.

Big Picture vs. Details

One of the more challenging aspects of an executive’s duty is know when and how long to focus on the big picture versus the details.

It all starts with a corporate vision and understanding the objectives and milestones in attaining that vision. Each objective can have numerous and complex details that teams of resources tackle everyday. It is the executive’s responsibility to give guidance throughout the organization and to assist its management and employees to learn a process of prioritizing the detailed tasks which would complete an objective in support of the company vision. Executives must understand the most critical, but not all, of the details associated with a particular task or objective. 

For example, if your company is about to acquire another organization, the synergies between the two organizations must be very clearly understood by the entire executive team. It is the CFO’s responsibility to ensure a thorough due diligence process. However, the CFO will not and should not review every account on the ledger, but should understand all of the trends and possible inconsistencies of the target company.