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Category Archives: business continuity

ASC 606 Revenue Recognition

One of the changes affecting private businesses in 2019 is ASC 606, Revenue Recognition.

Danielle Moga provided the insights below about what ASC really means to you.  She is an associate of Barker Associates with a wide variety of accounting and finance experience with non-profit and public companies.

ASC 606 Revenue Recognition

ASC 606 What it Means to Private Business
Contributed by Danielle Moga

Public companies had to adopt the standard in 2018 and what we’ve learned is that the process to implement was not a straightforward exercise. Many companies underestimated the complexity of the change and did not have the appropriate time, resources or processes in place to implement seamlessly.

The new standard changes the way companies need to record and recognize revenue from their contracts.  The goal of the new standard is to enable users to understand better and consistently analyze revenues across industries, transactions, and geographies but the disclosure requirements are comprehensive, and the changes to the nature and timing of revenue recognition can be significant.

The good news is that you don’t have to be an industry-specific guru to implement the changes, as FASB opted for a more principles-based approach.  The challenge is, those preparing financial statements and disclosures will require more judgement.

ASC 606 breaks down the analysis of contracts into a 5-step process that is intended to help preparers wrangle the chaos of details but the task to determine revenue recognition can be daunting depending on the volume and types of contracts that exist.

  1. Identify the contract(s) with a customer

The contract must be fully executed, clearly identify the good/services to be transferred and specifically outline the payment terms.

  1. Determine the performance obligations in the contract

All distinct transfers of goods or services must be identified.  A good or service is distinct if 1) the customer can benefit from it on their own, or with resources they already have, and 2) can be transferred independent of other performance obligations.

  1. Determine the transaction price

The amount of consideration the company expects to be entitled to in exchange for transferring the promised good or service.

  1. Allocate the transaction price to the performance obligations in the contract

Performance obligations in the contract need to be separately identified priced or estimated.

  1. Recognize revenue when (or as) the entity satisfies a performance obligation

The timing of recognition of revenue is dependent upon the time frame in which satisfaction of the obligation occurs.  Point in time vs. variable over time.

The five steps are handy but don’t realistically help to manage the complexity of the project or the time it will take to meet the looming deadline.

We recommend a 3-phase approach:

  1. Analyze contracts and systems
  • Ensure you have the right resources on hand with the skills and time necessary to lead and organize the project; or hire those resources externally for support.
  • Outline all components of the contract(s), as denoted in the 5-step process.
  • Decide if the retrospective or cumulative method will be utilized.
  • Document the existing methods and systems used to report revenue streams.
  • Determine the necessary changes to process and systems to implement and control the new recognition methods.
  • Document judgements made where clarity is needed.
  1. Implement
  • Outline historical journal entries and the new ones necessary for compliance.
  • Determine differences and the impact on revenue, KPI’s and other material items.
  • Begin the conversion process and maintain parallel systems to ensure accuracy.
  1. Maintain
  • Schedule internal assessments of reporting and systems to ensure ongoing compliance.
  • Assess the skills and time of the internal team designated to safeguard this process to establish if additional support is needed.

 

Even with steps and a process, companies must set aside the time necessary to transition.  Companies with minimal impact may only need a few months to go through the process of outlining and documenting.  Companies with complex revenue streams and required system changes could take six months or more to transition and implement.

Don’t get caught in the 11th hour, start now!  If your internal team is seasoned enough to handle this change then there are many resources available to educate and plan.  Alternatively, leverage outside talent to minimize the chaos and challenges that come with significant change.

Ransomware – Not Just Hitting the Big Guys Any Longer

If you are a regular reader of my emails and blog posts, you know that I am passionate about companies having the right financial infrastructure to operate their business. Real costs are eroding your bottom line when you don’t have a handle on people, procedures, and process.

Consider the cost of these infrastructure “fails”:

  • Little to no understanding of the cost of individual services or products and whether your price covers the costs;
  • The inability to seek funding from investors because you can’t pull together the required financial information;
  • The cost of replacing frustrated financial staff who refuse to follow old, antiquated processes;
  • Time spent by C-suite execs creating their own financial reports when their own Finance Department can’t meet their needs; and
  • Fraudulent activity that goes undetected until it’s too late due to the lack of proper procedures and education.

Finance and your company’s IT capabilities are closely linked by the daily transactions that run your business.  Sound, efficient infrastructure in Finance is great, but it must be supported by a highly secure and reliable IT infrastructure. I’m not speaking hypothetically, either. This reality hit home when a colleague shared with me his story of being a ransomware victim.  The following reads like a script for a cybersecurity who-dun-it!

Larry’s Story

Our company uses a cloud-based server provided by Intermedia Solutions to host mission-critical applications, including our QuickBooks accounting software and our back-of-the-house order management system. The actual computer hardware on which our cloud server was running was physically located in a server farm in Atlanta, Georgia.  This order management system handles everything from accepting of orders from all the channels we do business through (our own website, Amazon.com, Walmart.com, eBay and orders we take via telephone), plus it performs inventory control operations, vendor management, and purchase order issuance.  Virtually everyone in the company uses one or both applications throughout every day, seven days a week. They’re accessed via Microsoft’s Remote Desktop software.

On Sunday, February 26, 2017, one of our employees logged into the server, preparing to work, and saw this message on the screen of our supposedly secure cloud server:

Ransomware

Whoever posted the message said that our data and applications were being held for ransom and the only way to free the data was to pay, 24 bitcoins, at the time, about $35,000. We found that the data on the server was not available to us. It has been encrypted. We were a victim of a ransomware attack.

After a moment of panic, we recalled that we and our cloud server provider had prepared for this possibility. If we hadn’t prepared, we would have been a statistic- another company who was either forced to pay the ransom or go out of business as a result of the loss of all of the company’s data. In 2017, there were 184 million ransomware attacks, most in the United States.

But we were ready and if any day was a good day for a ransomware attack, it would be a Sunday when we aren’t speaking to customers.

We had backups. Our cloud services company made image backups of the hard drive containing our cloud server and its data every night at midnight. The one thing we weren’t going to be doing was paying the ransom. Instead, we contacted Intermedia’s after-hours helpdesk and explained what happened.

We instructed them that we did not want the physical computer hardware repaired (because we didn’t now and would never trust that hardware again). Instead, we wanted a new server configured for our use. They had that ready for us in about four hours. We now had a brand-new cloud server ready to go but with none of our data on it. We then asked for a SECOND brand new cloud server to be set up for us but re-imaged from the backup image taken Saturday night at midnight. This would take longer.

Monday morning, although we were still not operating, we now had a clean, empty server and another server that APPEARED to be working with all of our applications and data on it exactly as it was at the close of business Saturday night.  But I didn’t want to actually use this for fear that the ransomware application was lurking on the hard drive someplace ready to be reactivated again.

Over the next two days, we created data backups on the server and worked with our two application software companies to reinstall fresh versions of their software on the new empty server.  On the third day, we did a restore of the data from the server image to the new server we planned to use. We gave instructions to Intermedia to abandon the original server that had the ransomware and the server image we had created. We were almost ready to resume operation. But I wanted to get some idea as to how we might have become victim in the first place. What I learned is that ransomware is almost always delivered via a rogue email containing an image, HTML or a PDF. The travel path for the virus was likely from one of our users who likely clicked on an email on their local computer while they were also logged into the cloud server. If that was the case, then the ransomware virus was also residing on someone’s workstation.

In my investigation, I also learned that a) Microsoft’s included anti-virus software is completely inadequate for company use and b) the ant-virus software on the server was grossly out of date.

We needed an anti-malware application that created a closed loop- coverage for the server and all of the user’s workstations that access the server. Also, it needed to be managed centrally. Users could not be trusted to keep their anti-virus software up to date.  This was not the time for “free” anti-virus protection.  Ultimately, I selected Symantec’s Endpoint Protection. For $28 a year per workstation/server, we got a managed malware protection suite. From a single web portal, I can see that everyone’s computers are properly protected. Then I installed it on the server and in the process, it confirmed that my restored data was clean.

Finally, on Thursday morning, we were back in full operation and properly secured.

I was pleased we had no data loss and didn’t have to pay the ransom but disappointed it took four days to recover. Here’s what I learned:

  1. We chose wisely when we chose Intermedia. They take our cloud-based service needs seriously.
  2. If you’re using computers in your business, take a good long time to think about what would happen to if you had a complete data loss, ransomware attack, etc.
  3. Take your IT infrastructure security needs seriously. PLAN for a worst-case breach. Do not presume that your employees keep their computer software updated.
  4. Don’t take your provider’s word for it that you’re protected, backups are being created, etc. Every few months I have a new server brought online and a restore performed. Once I’ve seen with my own eyes that everything works, I delete the server. It’s like conducting a fire drill.

 Lessons Learned for Finance

Had Larry not had the right disaster preparedness and IT infrastructure, the costs of his crisis would have been much more than the $35,000 ransom. He still would have incurred at least 4 days of downtime. With his confidence shaken in the violated server, he still would have repeated the recovery process to bring new servers online.

Larry’s Lessons may be applicable to your own IT infrastructure, whether you’ve followed a similar process or realized that you should. Here is how Larry’s Lessons Learned can be applied to your Finance infrastructure:

  1. Have a disaster preparedness plan for your department that aligns with your IT disaster preparedness. Test it periodically against various scenarios, but not less than every 6 months. Update the plan based on changes in your systems, procedures or business.
  2. Cheaper is not always better – in fact, it rarely is. Understand your needs and invest in meeting them with the most robust tools you can afford.
  3. Have an IT Security Policy and related Procedures. Educate your staff at time of hire and throughout the year on the latest scams and the importance of following your company procedures.

Finally, have a third party review your processes for areas of improved efficiency and security.

Barker Associates has the unique ability to work with all sizes of organizations and building infrastructure that matters.  Contact us today!
Mindy Barker, Founder & CPA | Jacksonville, FL 32256
(904) 394-2913 or (904) 728-2920 | CFO@MindyBarkerAssociates.com

Who is Your Betty?

My first CFO job was working for a relatively small organization with an administrative assistant who still used a typewriter and refused to have a computer on her desk.  She had been with the company since its origination and she knew where everything was located.  She had all the contracts, historical Board reports and legal agreements in a file drawer.  If you asked her for a document, she could stand up from her desk open one file drawer and hand it to you within 3 minutes tops.

The truth is, in today’s environment, to locate corporate, financial and administrative documents when they are needed can cost organizations unbelievable amounts of money.

Who is Your Betty?

Betty did not like me too much when I became CFO, as she thought I was taking a job away from a man. My approach to this and all discrimination I have experienced in my career is to analyze the situation and determine if I could make it better by doing such an awesome job no one could ignore me.  If that was not possible, I would have changed my geography.

When she came to some of the first C-level management meetings, she would ask all the men in the room what they wanted to drink and skip over me.  I was fortunate to have a wonderful boss who would then follow her out of the room and tell her what I would like.  I quickly realized that if I wanted to be successful in this position, I had to figure out how to win Betty over so that I could get to those documents and of course get a cup of coffee at the management meetings.

Who’s Job is it to Manage Corporate Documents?

Times have changed and the days of Betty or any administrative assistant asking if you would like something to drink or logically organizing documents have gone the way of the rotary telephone.

Businesses have, for the most part, eliminated the administrative assistant position as they feel the position is not needed now that professionals have email and all the APPs and tools a computer provides. Even if there is an administrative assistant, the job description generally will not include managing and maintaining corporate documents. I frequently ask when I begin a new job with a company who has this responsibility; C-Level executives of small and large organizations look at me just like I asked them what kind of cheese is on the moon.  They have no idea.

Failure to follow a document management process costs your organization in the following ways:

    1. The C-Level executives do not have a clear line of sight to the contract terms they are bound to as they are carrying out their corporate responsibilities.  This can lead to losing major customers, noncompliance issues with regulatory bodies and lawsuits that take a tremendous amount of time to litigate.

 

    1. Creates negative relationships with vendors.  I once spoke with a professional who had served as a manufacturer’s rep for an organization for several years.  The management of the company changed, and when the manufacturer’s rep came to meet with the new management, they were told: “I looked in the file drawer, there was not a contract, so I am terminating our relationship today.”  The manufacturer’s rep had a long-term relationship with the company and its customers in a very closely held industry.  Once the new management realized the mistakes they had made, it was too late. Not only did the contract had a 90-day termination notice clause, but the rep was well-loved by many customers.  The negative ethical behavior on the part of company management left the rep unwilling to work with that company.

 

    1. I have seen many a deal fall apart, and the potential investor or buyer walk away, before due diligence is complete.  When a company’s documents are distributed in corporate and personal emails, shared corporate drives, personal drives, even the email files of terminated employees, locating them takes valuable time in which the potential buyer can find a lot of other things that interest them, causing them to move on to another deal that is ready to move forward.

 

    1. Compliance issues are not dealt with on an ongoing basis.  As a new CFO at an organization with government contracts, a governmental agency called me to report my organization was out of compliance with the terms of the contract.  I pulled the “I am the new kid on the block” card and asked to call them back.  It was shocking how long it took to locate the contract after I hung up the phone and even more shocking to learn the terms of the contract to which we had agreed. It was apparent to me that our organization had failed to thoroughly read and understand their contractual obligations.  When I appealed to the agency that the terms were not reasonable, the agency basically said, “Well you (meaning the organization) signed the contract and you will be compliant, or we will terminate the contract.”  This was not the welcoming present I was looking for.

 

Who is Your Betty?

If I had a nickel for every time someone sent me a contract they considered final, but was not fully reviewed and executed with all signatures, I would be inviting you to my corporate yacht this weekend.  Betty would never have filed an incomplete document in her precious filing system without all the signatures, dates, notary stamps and corporate seals.  Honor Betty and her memory, as she now rests in peace in the clouds; put someone you trust in charge of finding and organizing all the corporate documents and maintaining them.  Your organization will be better for it.

 

Barker Associates has the unique ability to work with all sizes of organizations and building infrastructure that matters.  Contact us today!
Mindy Barker, Founder & CPA | Jacksonville, FL 32256
(904) 394-2913 or (904) 728-2920 | CFO@MindyBarkerAssociates.com

An Analytical Approach to Scaling Growth

An Analytical Approach to Scaling Growth

When you scale you need to have a more analytical approach of targeting and segmentation, but in the beginning, it’s more much qualitative. (Pavel Malos 6/11/18, uxdesign.cc)

Chief Executive Officers, Board Members, and Investors have a fiscal responsibility to ensure an organization can handle planned growth.  For-profit business leaders must back up the strategy with the right level of working capital and financial infrastructure.  Nonprofit leaders must make certain they have the right financial and fundraising data to analyze and plan effectively.

 

QuickBooks and other simple financial programs have elevated the confidence of professionals, not trained in accounting, past their competence.  These systems allow you to process the basic information easily; however, the non-accountant may not have applied the required strategic thought process to the design of the infrastructure that a trained and experienced financial strategist would apply. Some entities can be run effectively in QuickBooks, and the financial data can be analyzed if the infrastructure is set up properly in the beginning.

 

All organizations need to have financial information, in proper segments in the General Ledger and make sure there are proper period end procedures.  Lack of proper information can lead to performing services or selling product at a loss, non-compliant reporting and a lack of proper cash flow.  All of these issues can lead to an untimely end to any organization, for-profit or nonprofit.  We have all heard of employees showing up for work one day to find the doors locked and an abrupt end to their job and paycheck.  Sometimes these employees learn their employers have not remitted federal income taxes, deducted from their paychecks, to the IRS and they have to pay the taxes again.  Leaders of organizations should listen to their financial leaders when they request upgraded systems and more people to account properly for the organization’s financial data.

 

Leaders who make it a priority to set up, manage and monitor metrics have thought through configuring their reporting infrastructure. Leaders without such foresight run through their day-to-day life worrying about how to make payroll and pay bills, with little to no awareness about which decisions are working and which are not working to scale growth to new levels.

 

Barker Associates has the unique ability to work with all sizes of organizations and building infrastructure that matters.  Contact us today!
Mindy Barker, Founder & CPA | Jacksonville, FL 32256
(904) 394-2913 or (904) 728-2920 | CFO@MindyBarkerAssociates.com

Yikes! Are You Still Using Paper Checks?

Placing paper checks in the mail to vendors places your company at risk if you are placing them in the mail without Positive Pay.
Why don’t you just play Russian roulette with a full chamber or ride a motorcycle without a helmet? That may seem a little over the top, but the paper check is a risky way to submit payments to vendors. 

What Can Happen?

A client contacted me recently to help unravel the mystery of the missing payment to one of his vendors. By researching his automated AP system and conferring with his third-party print vendor, we confirmed that the check had been produced and picked up by the post office for delivery. The check was eventually presented to a bank in Chicago for payment. The vendor was in North Carolina.

The bank in Chicago eventually released a photo to the FBI (yes, they had to get involved) of the person trying to cash the check. We had the chance to view the photo to confirm the person was not an employee of my client’s company. Thanks to using Positive Pay, they did not lose out on the amount of the check.

Check Fraud

The incidents of check fraud are so frequent that law enforcement officials such as the FBI aren’t that interested in pursuing the “little guys;” they want to go after the big fish. Even though the check my client had cut was over $20,000 – big to him – it wasn’t worth pursuing just that instance to the FBI.

If you thought checks were old news, take a look at these statistics from the 2016 AFP Electronic Payments Fraud and Control Survey:

  • Seventy-five percent of organizations that were victims of fraud attempts/attacks in 2016 experienced check fraud, a 4% increase over 2015.
  • Positive pay continues to be the method most often used by organizations to guard against check fraud, used by 74 percent of organizations. Other methods include:
    • Segregation of accounts (cited by 69 percent of respondents)
    • Daily reconciliations and other internal processes (64 percent)
    • Payee positive pay (41 percent)
  • Lack of positive pay (cited by 23 percent of respondents) and clerical errors (18 percent) were two primary reasons for financial loss due to check fraud.

Electronic Payments

As the statistics show, checks continue to be the payment method most frequently targeted by those committing or attempting to commit fraud. One method companies use to fight check fraud is converting to electronic payments. In addition to the fraud prevention benefits, ePayments provide benefits such as:

  • Ability to quickly process last-minute bill and payroll payments.
  • Take advantage of early payment discounts, while paying closer to the due date.
  • Improved client-vendor relationships due to rapid, more efficient payments.
  • Eliminate the cost of printing and mailing paper checks, which can be as much as $9 per check.

Often implemented as an add-on to your existing financial system, the selection of vendors offering B2B ePayment solutions is huge. Barker Associates has seen the “deer-in-the-headlights” look that clients get when trying to sort through the options to choose the best solution for their company.


Gathering this information and learning more about the ePayment process can be overwhelming. Want help? Sign up for a 30-minute consultation with me to discuss. 

In addition, we have compiled an invaluable checklist that will guide you in the transformation of your payment process to select the best vendor for your circumstances.



Surviving a Disaster – Hurricane Irma

Mindy Barker | Barker Associates