ANNUAL UPDATE FOR FINANCE MANAGERS Jeanne H Yamamura

ANNUAL UPDATE FOR FINANCE MANAGERS Jeanne H. Yamamura CPA, MIM, Ph. D APIPA 2010 1

TOO BUSY TO KEEP CURRENT? Topics: • The Economy • Excel Tips • Open Source Software • Cloud Computing • Ethics APIPA 2010 2

THE ECONOMY APIPA 2010 3

DOING BUSINESS 2010 • Ongoing project sponsored by the World Bank and the International Finance Corporation (launched 8 years ago) • Benchmarks the ease of doing business in 183 economies worldwide looking primarily at laws and regulations • Goal – to provide an objective basis for understanding and improving the regulatory environment for business. • www. doingbusiness. org APIPA 2010 4

OVERALL RANKING (0 UT OF 183) Country Ranking 2010 Ranking 2009 Change FSM 127 125 (2) Marshall Islands (RMI) Palau (ROP) 98 93 (5) 97 92 (5) APIPA 2010 5

1. STARTING A BUSINESS The challenges of launching a business • The number of steps entrepreneurs can expect to go through to launch • The time it takes on average • The cost and minimum capital required as a percentage of gross national income (GNI) per capita APIPA 2010 6

2. DEALING WITH CONSTRUCTION PERMITS The procedures, time, and costs to build a warehouse • Obtaining necessary licenses and permits • Completing required notifications and inspections • Obtaining utility connections. APIPA 2010 7

3. EMPLOYING WORKERS The difficulties that employers face in hiring and firing workers: • Difficulty of hiring • Rigidity of hours • Difficulty of redundancy (termination) • Redundancy costs (weeks of salary) APIPA 2010 8

4. REGISTERING PROPERTY The ease with which businesses can secure rights to property: • Number of steps • Time required • Cost involved APIPA 2010 9

5. GETTING CREDIT Addresses credit information sharing and the legal rights of borrowers and lenders: • Strength of legal rights • Depth of credit information • Availability of credit information through public registry or private bureau APIPA 2010 10

6. PROTECTING INVESTORS Addresses three dimensions of investor protection: • Transparency of transactions (Extent of Disclosure Index) • Liability for self-dealing (Extent of Director Liability Index) • Shareholders’ ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index) APIPA 2010 11

7. PAYING TAXES The tax that a medium-size company must pay or withhold in a given year, as well as measures of the administrative burden in paying taxes. • Number of payments an entrepreneur must make • Number of hours spent preparing, filing, and paying • Percentage of profits to be paid in taxes APIPA 2010 12

8. TRADING ACROSS BORDERS The costs and procedures involved in importing and exporting a standardized shipment of goods: • Documents to export • Time to export • Documents to import • Cost to export • Time to import • Cost to import APIPA 2010 13

9. ENFORCING CONTRACTS The ease or difficulty of enforcing commercial contracts: • Number of procedures involved from the moment a plaintiff files the lawsuit until actual payment • Time involved • Cost involved APIPA 2010 14

10. CLOSING A BUSINESS The time and cost required to resolve bankruptcies: • Time • Cost • Recovery rate (claimants’ recovery rate from insolvent company) APIPA 2010 15

OVERALL RANKING (0 UT OF 183) Country United States Philippines China APIPA 2010 Ranking 2010 4 Ranking 2009 4 Change 144 141 (3) 89 86 (3) - 16

COMPARISON 2010 FSM RMI ROP Starting a business 79 39 103 Dealing with construction permits Employing workers 11 5 54 14 4 8 Registering property 183 18 Getting credit 113 150 183 APIPA 2010 17

COMPARISON 2010 FSM RMI ROP Protecting investors 172 154 172 Paying taxes 86 94 91 Trading across borders Enforcing contracts 98 64 124 149 63 144 Closing a business 154 128 59 APIPA 2010 18

TOP THREE COUNTRIES FOR DOING BUSINESS 1. Singapore 2. New Zealand 3. Hong Kong APIPA 2010 19

LATEST ECONOMIC PROJECTIONS FOR 2010 • As of May 2010 • Solid (slow) growth through October • Increased consumer and business spending • Continued tight credit, high debt, high unemployment APIPA 2010 20

IMPACT ON LOCAL GOVERNMENTS • Headline “Bond Costs Drag Reno Budget” 5/29/10 – Reno Gazette Journal • Bond payments of $2. 5 mm for 2010 -2011 a huge drain on general fund budget – Resulting in temporary shutdown of fire stations • Room taxes designated to cover bond payment expected to bring in $4. 7 mm, not $7. 2 mm needed for bond payment • Sales taxes will have to be tapped to make up difference APIPA 2010 21

IMPACT ON LOCAL GOVERNMENTS • 2002 City of Reno sold $108 mm in revenue bonds to build downtown events center and refinance National Bowling Stadium • Bonds backed by 3 different room taxes, combined equal to a tax of 2. 5% on lodging; Also backed by pledge of up to 15% of city’s sales taxes APIPA 2010 22

IMPACT ON LOCAL GOVERNMENTS • 2005 Bonds repackaged to free $18 mm cash to build Downtown Ballroom next to Events Center • One set of bonds sold for $72. 6 mm in auction-rate bonds • The other two sets to be paid once the auction rate bonds are paid APIPA 2010 23

IMPACT ON LOCAL GOVERNMENTS • 2008 Financial disaster!! – Auction-rate market collapses – City must pay extra $125, 000 PER WEEK in interest on bonds – $5 mm reserve fund for bonds wiped out • Feb. 2009 – bonds switched to variable interest rate – Required payment to Bank of America of $1 mm fee for a letter of credit to guarantee payment – The $1 mm fee must be paid annually – One set of bonds sold for $72. 6 mm in auctionrate bonds • Now planning to refinance bonds again APIPA 2010 24

EXCEL TIPS APIPA 2010 25

SPREADSHEETS • A blessing and a curse! • Too many worksheets – Repetitive, redundant – No established protocol for creation – Hidden waste or time loss as a result • Errors!! APIPA 2010 26

SPREADSHEET ERRORS • December 2007 – “Impact of Errors on Operational Spreadsheets” – Powell, Baker & Lawson • Study of 25 operational spreadsheets – Identified 381 potential errors – Confirmed 117 actual errors • 47 (40%) had no quantitative impact • 70 (60%) effect of error ranged up to $100 million – Only 9 spreadsheets had NO errors APIPA 2010 27

MAKING A POLITICAL PLUS OF A MATH ERROR Star Tribune, 12 Apr 2006 Minneapolis-St. Paul, Minnesota DFLer Rebecca Otto is accusing Auditor Pat Anderson, a Republican, of sloppy work. In a column reporting the percentage changes in unreserved fund balances from 2003 to 2004, instead of dividing the difference by the 2003 figure, the auditor's office divided it by the 2004 figure. Deputy Auditor Tony Sutton said "The researcher who worked on that report just made a mistake in the formula in the spreadsheet. He feels bad about it. " APIPA 2010 28

HUD ALLEGES OVERPAYMENT FOR SECTION 8 Columbia Tribune, 22 Feb 2006 Columbia, MO • Government audit requested repayment of $216, 352 resulting from excess Section 8 payments • Columbia Housing Authority agreed to pay $118, 387 resulting from a spreadsheet data entry error that overpaid landlords APIPA 2010 29

CONFIDENTIAL DATA RELEASED Sun Life Financial Inc. Toronto, Canada • Fourth quarter profits released a day early after possible leak. • The company’s quarterly statistical supplement is routinely provided to analysts before the actual earnings announcement. The supplement is supposed to have the latest quarter blanked out. • The spreadsheet with the info is converted into a document file. • But the censored information was retrievable using Acrobat software. APIPA 2010 30

SPREADSHEET ANALYSIS 1. Inventory ALL of your Excel spreadsheets 2. Audit existing spreadsheets 3. Create and use spreadsheet templates APIPA 2010 31

1. INVENTORY SPREADSHEETS • Generate list of file names – Click Windows Start button – Click Run – Type “cmd” (no quotes) and press Enter (or “command”) – Click “OK” • To list the files in the C drive in a text file named XLSlist. txt in a designated location, e. g. , the F drive – dir C: *. xls>F: XLSlist. txt APIPA 2010 32

CORRECTED COMMAND TO LIST SPREADSHEETS IN SUBFOLDERS From C: Documents and SettingsJeanne> dir_/s_*. xls>CExcel. Files. txt Note: The spaces are important! APIPA 2010 33

1. INVENTORY SPREADSHEETS • Import data from the text file into Excel using the open file command – Text Import Wizard – Sort by columns using an “IF” statement to see if preceding file “equaled” the current file – Sort by date to find most current files APIPA 2010 34

2. AUDIT EXISTING SPREADSHEETS • Formula Auditing Tool Bar – Error Checking – checks for errors in spreadsheet – Trace Precedents – arrows will identify source cells formula elements in current cell – Remove Precedents’ Arrows APIPA 2010 35

2. AUDIT EXISTING SPREADSHEETS • Formula Auditing Tool Bar – Trace Dependents – arrows will identify any other cells using data in current cell – Remove Dependents’ Arrows – Trace Errors – arrow will identify cause of error in current cell – Add Comment – comment entered appears only when cursor hovers over the cell, cells with comment marked by small red triangle APIPA 2010 36

2. AUDIT EXISTING SPREADSHEETS • Formula Auditing Tool Bar – Circle Invalid Data – highlights cells which fail Data Validation rules • Note: To set up data validation rules, click on “Data” and then on “Validation” – Remove Circles Around Data – Show/Watch Window – enables you to watch cells and formulas of particular interest while you are moving around on a spreadsheet APIPA 2010 37

2. AUDIT EXISTING SPREADSHEETS • Formula Auditing Tool Bar – Evaluate Formula – will walk you through each of the steps in a calculation APIPA 2010 38

3. CREATE AND USE SPREADSHEET TEMPLATES • To create generic template: – File > Save – Select “Template (*. xlt) from “Save as Type” – Type in name and click “Save” APIPA 2010 39

SUGGESTIONS FOR WORKSHEET TEMPLATES • Multiple tabs – File Info • File name, Date revised, Who revised – Assumptions – Analysis • Include comments or hidden text to help you remember where/how/why the data were obtained APIPA 2010 40

SUGGESTIONS FOR WORKSHEET TEMPLATES • Maintain logical flow – Top-left to bottom right – Front spreadsheet to back spreadsheet • Move constants into their own cells • Break long and complex formulas into separate cells APIPA 2010 41

OPEN SOURCE SOFTWARE • Software with freely available source code • Studied, changed, and improved by users • Often developed in public, collaborative manner • Estimated savings of $60 billion per year to consumers APIPA 2010 42

SPECIFIC REQUIREMENTS FOR DISTRIBUTION OF OPEN SOURCE SOFTWARE • License must allow free distribution • Program must include source code and allow distribution of source code and program • License must allow modifications and derived works with same free distribution rights APIPA 2010 43

SPECIFIC REQUIREMENTS • License may restrict distribution of modified source code if distribution of patch files allowed • License must not discriminate against any person or groups • License must not restrict use in any specific field of endeavor • Rights attached to program apply to anyone receiving program APIPA 2010 44

SPECIFIC REQUIREMENTS • Rights attached to program cannot restrict to a specific product • No restrictions allowed on software distributed along with licensed software • License cannot rely on particular technology or interface (technologyneutral) APIPA 2010 45

BENEFITS • Code for open source software widely available (e. g. , UNIX, Linux OS, Apache) • Open source software may be more reliable • Open source tools are FREE! • Flexibility and the ability to fix code yourself APIPA 2010 46

RISKS • Quality control of independent programmers • Lack of IT knowledge APIPA 2010 47

EXAMPLES • Operating system – Ubuntu www. Ubuntu. com • Internet browser – Firefox www. mozilla. org APIPA 2010 48

EXAMPLES • Customer Relationship Management – Vtiger www. vtiger. com • Budgeting and Forecasting – Adaptive Planning www. adaptiveplanning. com APIPA 2010 49

OPENOFFICE. ORG • Multi-platform office productivity suite • Includes: – – – Word processor (Writer) Spreadsheet (Calc) Presentation manager (Impress) Drawing program (Draw) Database (Base) Equations (Math) • Written in C++ • Runs on Solaris, Linux, Windows, Mac OS X, and other platforms APIPA 2010 50

WRITER APIPA 2010 51

WRITER • Create memos, books, and other documents • Built-in wizard for standard documents, e. g. , letters, faxes, minutes • Create personalized templates • Change styles and formats • Spell check, Auto. Complete, Auto. Format APIPA 2010 52

WRITER • Email documents • Save in HTML, PDF, Open. Document format (XML), or Word format • Read Microsoft Word documents APIPA 2010 53

CALC APIPA 2010 54

CALC • Create formulas • Use Wizards for advanced spreadsheet functions • Pull in data from corporate databases • Create “what if” scenarios • Apply flexible cell formatting options • Save in Open Document, PDF, or Excel format APIPA 2010 55

Let’s take a look APIPA 2010 56

CLOUD COMPUTING Source: http: //www. ekinsystems. com/Portals/0/cloud%20 computing. png APIPA 2010 57

CLOUD COMPUTING • Internet-based computing – Delivery of hosted services over the Internet – All you need is a personal computer and internet access – Sold on demand, use a little, use a lot – Service fully managed by provider • Save investment in hardware and software plus computer staff APIPA 2010 58

CLOUD COMPUTING • Three categories of hosted services – Infrastructure-as-a-Service (Iaa. S) • Provides virtual servers with unique IP addresses and blocks of storage on demand • Pay only for as much capacity as you need • Amazon Web Services – Platform-as-a-Service (Paa. S) • Provides software and product development tools • May access through application programming intefaces (APIs), website portals, or gateway software • Force. com, Google. Apps APIPA 2010 59

CLOUD COMPUTING • Three categories of hosted services – Software-as-a-Service (Saas) • Provider hosts application and data • Customer accesses via front-end portal • Services range from Web-based email to inventory control and data processing APIPA 2010 60

CLOUD COMPUTING • • Benefits Easy implementation Frees up resources Possible higher service quality Easy to increase/decrease Reduced capital outlay Automatic software updating Easier data access Reduced floor space APIPA 2010 Risks • Loss of control • Internet transmission of information • Privacy and security concerns 61

ONLINE FRAUD • JM Test Systems, an electronics testing firm in Louisiana, lost $97, 000 in two separate fraudulent bank transfers • 2/20/09 $45, 640 unauthorized wire transfer identified and bank notified • 2/25/09 bank issued new user name and password • 3/2/09 $51, 556 fraudulently added to payroll • JM suing bank to recover funds lost APIPA 2010 62

ONLINE BANK ACCESS • European cyber gangs targeting small businesses (and governments!!) • Private security alert sent to largest banks (e. g. , Bank of America, Citigroup) – “significant increase in funds transfer fraud involving the exploitation of valid banking credentials belonging to small and medium sized businesses” APIPA 2010 63

ONLINE BANK ACCESS • Scammers send targeted email to controller or treasurer • Message contains virus in attachment or link that secretly installs malicious software designed to steal passwords • Series of wire transfers then initiated, usually in amounts less than $10, 000 APIPA 2010 64

ONLINE BANK ACCESS • “Carry out all online banking activity from a standalone, hardened, and locked-down computer from which email and Web browsing is not possible” – Virgin install of Windows with all proper updates, using Microsoft steady state – Even better, a Mac or Linux • Anti-virus software may not detect the increasingly sophisticated malware APIPA 2010 65

ONLINE BANK ACCESS • Business protection from online fraud less than for consumers – Consumers typically have up to 60 days from receipt of monthly statement – Companies have two business days to identify and dispute unauthorized activity • Commercial banks may not have strong controls in place to protect companies as they do not cover losses APIPA 2010 66

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ETHICS IN THE NEWS “Ethics office asks for investigation of lobby firm PMA Group’s clients” Friday, May 28, 2010 • Review of documents suggesting companies are providing campaign cash to lawmakers for no-bid contracts • One example – attendance at a winetasting fundraiser APIPA 2010 68

ETHICS IN THE NEWS “A culture of ethical failure” seen at Interior – Thursday, Sept. 11, 2008 • Three reports by Office of Inspector General released • Minerals Management Service – Drug use and sexual activity by top management – Nearly 1/3 of employees in royalty-in-kind program accepted gifts from oil companies – “Pervasive culture of exclusivity, exempt from rules that govern other employees of the federal government” APIPA 2010 69

FAILURE SO FAR • Four decades of good faith effort – To teach ethics in business schools – To require additional ethics training for employees – To increase ethical awareness • Still see headlines about egregious excess and scandal on a regular basis APIPA 2010 70

NEW APPROACH – GIVING VOICE TO VALUES • Most ethics courses focus on hypothetical decision-making and determining what is the right thing to do – Theories of ethical reasoning – Analysis of complicated dilemmas • But “knowing” does not lead to “doing” APIPA 2010 71

NEW APPROACH – GIVING VOICE TO VALUES • Often the issue isn’t distinguishing between right or wrong • It is knowing how to act on your values despite opposing pressure • What is needed: Skills in figuring out what to do APIPA 2010 72

GIVINGVOICETO VALUES. ORG • www. givingvoicetovalues. org • Funded and hosted by Babson College • Developed new action-oriented approach for values-based leadership APIPA 2010 73

SKILL SET When an ethical question arises • What to say • Whom to say it to • How to say it APIPA 2010 74

THE STORY • George, college student • John, night manager for car parts store and good friend • George got ideal PT job at store – – Close to school Flexible hours Work fun Work with John APIPA 2010 75

THE STORY • George worked at night with John • After one month, George noticed that – John disappeared for 30 minutes at a time – John constantly in back room checking inventory – John the only manager who does this APIPA 2010 76

THE STORY What George saw or heard • John would bring back list with different part numbers and then print invoices from the computer • John would remove money from the register • John said it was a routine procedure for sales returns APIPA 2010 77

THE STORY APIPA 2010 • John agreed to tell George the secret if he promised not to tell • George agreed • John looked up inventory on computer and then checked to see if number was correct • If not and extra part in storeroom, John used sales info to give a cash refund that he would keep. • As manager, John could approve refunds 78

THE STORY • Obvious to George that this is wrong – both dishonest and illegal • But he has been friends with John for more than 5 years • And he doesn’t want to be a “rat” • He needs to talk to John APIPA 2010 79

DISCUSSION QUESTION #1 What are the main arguments John is likely to raise? That is, what are the reasons and rationalizations George needs to address? APIPA 2010 80

DISCUSSION QUESTION #2 Who are the key parties and what’s at stake for them? APIPA 2010 81

DISCUSSION QUESTION #3 What levers / arguments can George use to influence John? APIPA 2010 82

DISCUSSION QUESTION #4 What is the most powerful and persuasive response to the reasons and rationalizations George needs to address? APIPA 2010 83

DISCUSSION QUESTION #5 What should George say to John, and where? APIPA 2010 84

THE END!! Questions/comments: yamamura@unr. edu APIPA 2010 85