Spring 2009 issue of Horizons

A P u b l i c a t i o n b y R u b i n B r o w n L L P

S P R I N G 2 0 0 9

Sustainability: Planning for the Future

INSIDE

SUSTAINING YOUR BUSINESS AND THE ENVIRONMENT CREATING YOUR DESIRED FUTURE Page 3 EXPECT THE EXCEPTIONAL Page 9 LINKING ENVIRONMENTAL

AND ORGANIZATIONAL SUSTAINABILITY Page 23 SUSTAINING THROUGH VERSATILITY Page 21 AND MORE

horizons

CONTENTS

ii Welcome 1-2 RubinBrown New Hires, Promotions, Awards & Announcements 3-4 General Topics: Creating Your Desired Future 5-6 For Your Money 7-8 International News: BTI World Conference 9-10 General Topics: Expect the Exceptional 11-12 General Topics: Strategic Adaptation for Long-Term Sustainability 13-15 General Topics: Can Your Company Be Sustained After the Unexpected? 17-19 General Topics: Integrating Process Improvements and Internal Controls 21-22 General Topics: Diversity 23-26 Guest Feature: Clark Davis, HOK, Linking Environmental and Organizational Sustainability 27-30 Guest Article: Sam Toumayan, Meridian Enterprises Corporation 31-34 Client Spotlight: Bick Group

Industry News

35-36 CONTRACTORS 37-38 HOME BUILDERS 39-42 MANUFACTURING & DISTRIBUTION 43-46 NOT-FOR-PROFIT 47-48 PROFESSIONAL SERVICES 49-52 PUBLIC SECTOR 53-56 REAL ESTATE

INFORMATION

Editor: Tim Shannon Graphic Design: Hughes

Horizons, a publication of RubinBrown LLP, is designed to provide general information regarding the subject matters covered. Although prepared by professionals, its contents should not be construed as the rendering of advice regarding specific situations. If accounting, legal or other expert assistance is needed, consult with your professional business advisor. Please call RubinBrown with any questions. Located in St. Louis and Kansas City, RubinBrown has become one of the largest accounting and business consulting firms in the Midwest.

www.rubinbrown.com

Certno.XXX-XXX-XXXX

John F. Herber Jr., CPA Managing Partner

Welcome Sustainability. Recently the concept of sustainability has been pushed into the forefront as a result of trying economic times. It is our responsibility as professional business advisors to help our clients define the meaning of sustainability as it pertains to their specific business and vision. The word sustainability is all too often confused with simple survival. In challenging economic conditions, many businesses shift significant resources toward short-term cost cutting. In many cases, our clients can best benefit by focusing on long-term organizational strategies, helping them to gain market share when conditions recover. Now is the time for the forward thinking organization to assess its market, look at competitors and evaluate its long-term plan. When many companies are simply looking at ways to cut costs, our clients are advised to look at ways to streamline business processes, increase efficiencies and improve long-term profitability. The organization that stresses these underpinning disciplines will emerge the new leader in its respective industry. In this issue we examine sustainability from many different perspectives. HOK’s Clark Davis discusses the link between environmental and organizational sustainability, while an in-depth interview with Sam Toumayan of Meridian Enterprises Corporation teaches us how to sustain a business through adaptation and versatility. Finally, we explore the story of Bick Group, an innovative company that is leading the way in optimizing building operations from both a technical and facilities standpoint. I invite you to read this issue and offer us your feedback. Our goals as an organization revolve around two basic principles: to ensure we have both totally satisfied team members and totally satisfied clients. I hope to hear from you – john.herber@rubinbrown.com.

RubinBrown

St. Louis office One North Brentwood St. Louis, MO 63105

Kansas City office 10975 Grandview Drive Bldg. 55 Suite 600 Overland Park, KS 66210

Pleasant reading.

RubinBrown New Hires, Promotions, Awards & Announcements

New Partner

New managerS

Steve Moro joined RubinBrown as a manager in its Tax Consulting Group. He is responsible for providing tax services, including planning, tax return preparation and consulting. He also has experience providing operational audits, general ledger implementation and conversion, benchmarking, business process re-

Audrey Katcher joined RubinBrown as a partner to lead its IT Internal Audit practice. Katcher focuses on team development, business development and service execution and quality. She provides a range of services to clients, including IT risk assessment, IT auditing, data extraction and analysis,

engineering and IRS examination matters. Moro has more than 23 years of experience, previously working in the health care industry as an internal audit manager at BJC Healthcare Systems and a controller at The Rehabilitation Institute of St. Louis and St. John's Mercy Rehabilitation Hospital. He was a tax manager at Sharamitaro & Associates P.C. prior to joining RubinBrown. Moro holds a master’s degree in taxation from Fontbonne University and a bachelor’s degree in information management from Washington University. He also holds a bachelor’s degree in accounting from the University of Missouri- St. Louis.

IT internal controls effectiveness and Sarbanes-Oxley 404 controls development and testing. Katcher brings more than 18 years of public accounting experience and more than five years of expertise leading full internal audit outsourcing. Prior to joining RubinBrown, she was a partner at PricewaterhouseCoopers, leading the IT audit practice. Katcher serves on the University of Missouri-St. Louis Accounting Advisory Board and is a member of St. Louis Women’s Forum, American Institute of Certified Public Accountants, Missouri Society of Certified Public Accountants, Institute of Internal Auditors and Information Systems Audit and Control Association. She also served as past assistant treasurer of the Arts and Education Council and volunteers at Anne Malone Children and Family Service Center. Katcher frequently guest lectures at the University of Missouri-St. Louis on various accounting topics. She holds a bachelor’s degree in business administration with an accounting emphasis from the University of Missouri-St. Louis.

Kristin Parshay has been promoted to manager in the Internal Audit Services Group. She provides business process re-engineering, risk-based audit planning, internal audit and Sarbanes- Oxley compliance services to a variety of clients. She focusesonclients in thehealth care, retail and grocery retail industries.

Parshay provides significant expertise in leveraging Sarbanes-Oxley compliance efforts as a catalyst to offer innovative solutions to her clients’ business issues. Parshay has served at RubinBrown for nearly five years and recently published an article titled “Leadership in a Changing World” in the fall 2008 Horizons. In addition, she participates in the LEAD program and served as the treasurer of RubinBrown’s advisory board for two years. She holds a bachelor’s degree in business administration with an emphasis in accounting from Alma College in Michigan.

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AWARDS

Colleen Conrad , CPA, and Felicia Malter , CPA, were both honored as Women-to-Watch by the Missouri Society of Certified Public Accountants. The award recognizes female CPAs who have made significant contributions to the accounting profession. Conrad and Malter were among five recipients recognized in the state of Missouri and were both named in the Experienced Leaders category. They were highlighted as part of a panel discussion at the MSCPA Women’s Retreat in 2008. Chelle Adams , CPA, was named to the St. Louis Business Journal’s list of Most Influential Minority Business Leaders. Adams was recognized with the other honorees in the September 12 issue of the St. Louis Business Journal. She was one of 25 professionals recognized in St. Louis. They were honored at a reception on August 27 and a luncheon on September 12. Steven Harris , CPA, was named to Who’s Who in Black St. Louis’ 20 Most Interesting Personalities list. Harris is featured in the publication’s fifth edition alongwith several other African-American professionals in St. Louis. The annual magazine highlights the achievements of African-Americans in the community and

ANNOUNCEMENTS

RubinBrown has moved its Kansas City office into 12,700 square feet of new space at 10975 Grandview Drive in Overland Park. The office had outgrown its former Corporate Woods location and was able to find newly retrofitted space nearby to accommodate its needs. The new office design reflects RubinBrown’s corporate culture, whereby partner and manager offices are all the same size and in close proximity to all team members.

Fred Kostecki , CPA, has been appointed chairman of Baker Tilly’s North America Accounting & Auditing Committee. As a founding member of the committee, Kostecki has been instrumental in developing the group’s annual objectives and the formation of its subcommittees, which include Resources &Collaboration,

IFRS and Leveraging. He will assume the role of chairman in June and will be responsible for overseeing the committee and its initiatives. Prior to this appointment, Kostecki served as head of the group’s International Issues Task Force. The St. Louis Society of Women Certified Public Accountants has named Rachel Flavin , CPA, president, and Kathleen Lenzenhuber , CPA, vice president. Both women are staff accountants at RubinBrown. As president, Flavin is responsible for coordinating the events and activities of the society and its board of directors. Vice president Lenzenhuber handles follow-up and coordination of activities, manages meeting dates, oversees committee activities and coordinates company representatives.

serves as a networking tool for business professionals. Harris was recognized with other honorees at a reception on December 1 at America’s Center.

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GENERAL TOPICS

Creating Your Desired Future

• Create plans to employ the strengths and fill the gaps to capture the opportunities. • Finally, compose a statement, the vision, describing the desired future for your organization arising from this assessment.

RubinBrown has employed the visioning process for many years.

By James G. Castellano, CPA

“Vision … the act or power of imagination.” The process of imagining the desired future for your organization is often referred to as “visioning.” It is a powerful exercise, practiced by many organizations, to focus them on achievements that will help ensure their sustainability.

The RubinBrown vision –

“To build a super-regional firm on a solid foundation of commonly shared values and deep expertise, with totally satisfied team members and totally satisfied clients.”

Have you created a vision for your organization?

The visioning process is a key element of effective strategic planning and is really quite simple. The steps can be summarized as follows: • Assess the forces affecting your organization, leading to opportunities. • Assess your organization’s talent and other capabilities – your resources. • Compare the opportunities identified with the organization’s resources to identify existing strengths and gaps.

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Raise Your Expectations CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

Our vision is simple yet impactful. It is the beacon that guides us through our long-range and annual business planning. Once the vision is confirmed, the organization’s strategic priorities are defined and specific action plans created … the “bridge” to take the organization from here (today) to there (tomorrow). The RubinBrown strategic priorities are: • Sustain a high-performance culture founded on core values, personal growth and quality of work life. • Protect our reputation. • Attract, develop and retain top talent and leadership. • Earn intense client loyalty. • Diversify and grow our revenue streams. Our entire organization is energized by these strategic priorities and committed to achieving our vision. We have the solid foundation of core values. Our expertise is deep and we continue to invest to attract, develop and retain top talent. We are passionate about having totally satisfied clients and have created innovative programs tomonitor client satisfaction. Similar programs are in place to ensure that our team members are totally satisfied with their careers at RubinBrown. Nothing less than the total satisfaction of our clients and team members is acceptable to us. Yes, our vision is simple, but it is not easy to achieve. There is so much more that needs to be done. But we know where we want to be and are on the right course. We thank all of our clients, team members and other friends for your confidence in us.

Questions? Contact:

James G. Castellano, CPA Chairman 314.290.3300 james.castellano@rubinbrown.com

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For YOUR money

Business Sustainability and a Buy-Sell Agreement Most business owners are concerned with ensuring the sustainability of their business over time. One aspect of business sustainability involves the continuity of business ownership and management in the event one of the owners can no longer continue to work in the business. From this perspective, a business owner will want to think about how to transfer ownership of a business interest from a departing owner and how to fund the buy- out without hurting the liquidity needs of the business. Further, owners also would want their family members compensated reasonably for their ownership interest in a business. A “buy-sell agreement” is designed to address many of the issues that arise at a time when an owner is no longer involved in thebusiness. Abuy-sell agreement isdesigned to establish a framework for owners to agree on the price, terms and conditions of a future sale of an interest in a business. A properly drafted buy-sell agreement can help ensure long-term business sustainability and provide the departing owner with a ready market for the sale of his or her business interest. A buy-sell agreement provides for future sales of ownership interests in a business. It outlines the terms for transferring an ownership interest in a business upon the occurrence of certain predetermined triggering events. The most common triggering events include death, disability, retirement, termination of employment, attempted sale of an ownership interest to a third party, divorce and bankruptcy. By Rich Petrofsky

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Implementing a buy-sell agreement can assure business owners that their interest in the business is secured in the event of unexpected future circumstances such as death, disability, retirement, termination of employment, attempted sale of an ownership interest to a third party, divorce or bankruptcy. If your business does not have a buy-sell agreement and it is something you would like to explore, please do not hesitate to contact us.

Typically, a buy-sell agreement provides that the remaining business owners or the business entity itself will buy the departing owners’ share of the business. In addition to specifying the circumstances that will trigger a mandatory or optional buyout, the buy-sell agreement also will state the price to be paid for the ownership interest, or alternatively, the buy-sell agreement will provide a formula for how that price will be determined. A buy-sell agreement usually takes one of three general forms: a redemption agreement, a cross-purchase agreement or a hybrid agreement. In a redemption agreement, the departing owner agrees to sell his or her interest to the business entity itself. The business entity is responsible for financing the purchase, which may be funded by using business capital, loans or insurance on the departing owner’s life. In a cross-purchase agreement, a departing owner agrees to sell his or her interest to the remaining owners. This format works best in a business with only a few owners. As the number of owners increases, this format can become complicated, especially if the financing of the sell is through life insurance, because it can require multiple owners to have multiple life insurance policies on each of the other owners. A hybrid agreement is a combination of a redemption agreement and a cross-purchase agreement. Typically, the departing owner must first give the business entity the right to buy the departing owner’s interest. If the entity refuses to buy, then the ownership interest is offered to the remaining owners. Often a buy-sell agreement is funded with life insurance. Life insurance proceeds can provide cash to buy a departing owner’s interest in a business without jeopardizing the future sustainability of the business.

Questions? Contact:

Rich Petrofsky, JD, LLM Partner Wealth Management Services Group 314.290.3487 rich.petrofsky@rubinbrown.com

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Baker Tilly International

INTERNATIONAL NEWS u

BTI World Conference

By James G. Castellano, CPA

The member firms of Baker Tilly International came together in Tokyo, Japan, in October 2008 for the network’s annual World Conference. Approximately 250 delegates were in attendance at the conference, where we discussed the global economy, reinforced the value of membership in Baker Tilly International, and explored Japanese culture and philosophy. The theme of the 2008 World Conference – Connecting Cultures – aptly describes the success of the event. As chairman of Baker Tilly International, I offered the conference’s opening remarks, reminding the audience that in the current global economic situation, Baker Tilly International, the world’s eighth largest network, is in a prime position to succeed. Because of this, the network must be more vigilant than ever, maintaining its business plans, strengthening relationships between member firms and not taking success for granted. Geoff Barnes, CEO of Baker Tilly International, outlined the network’s strategic plan, mission and vision statements, identifying key success factors needed to retain our strength as one of the world’s leading networks. He encouraged delegates to strive to achieve these objectives and maintain consistency throughout each Baker Tilly International member firm. The week continued with a wide mix of presentations on business and economics. Atsushi Saito, president and CEO of the Tokyo Stock Exchange, spoke about the capital markets in Japan, and Toshio Kinoshita, CEO of the Japanese Institute of CPAs, informed our members about developments in the Japanese accounting profession.

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Although the economy influenced much of the

Japan through the ages. Tim Kelly, Tokyo bureau chief at Forbes, introduced delegates to critical elements of doing business in Japan. Spouses and guests participated in a lesson on Japanese flower arranging, creating the center pieces for the gala dinner, a banquet that took place at a traditional Japanese garden. At the closing of the conference, I again reminded delegates of our commitment to continue providing value to member firms and their clients, so that we can strengthen our position as the network of choice for the middle market.

conversation, the tone of the conference was anything but depressed. Speakers remained upbeat as they extolled the benefits our clients receive from the relationships between Baker Tilly International members. Additionally, we learned a great deal about Japanese culture, business practices and the country’s role in the global market. Yoshiko Sakurai, a highly respected Japanese journalist, spoke about the world’s views of

Questions? Contact:

James G. Castellano, CPA Chairman, Board of Directors Baker Tilly International Ltd. 314.290.3300 james.castellano@rubinbrown.com

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GENERAL TOPICS

Expect the Exceptional

One thing I’ve learned over my more than 20 years in business is that it’s all about customer and employee relations. You need to keep listening to and talking with your employees, customers, vendors and peers and take the best of what they offer. Employees are the ones in the trenches, day after day, with your key customers. They know them better than anyone. So, why not take their advice and try some new approaches? Another key way to “engage” with your customer is to tell them you are considering a change in approach and ask them what they think. In general, people are very happy to help if you are trying to improve operations. Also, as a senior executive in your company, are you talking regularly with your customer? Sometimes just a “How’s business?” call can send a clear message that you value your customer. When senior management goes out of his or her way, then your whole organization is truly in sync with your customer’s business. You need to maintain relationships not only with key influencers and decision-makers, but also keep the door open with that out-of-work professional or former employee. (One of them may become that all- important next key influencer or decision-maker.) You cannot communicate enough in times like these. Even the faintest connection can turn into a new business opportunity or perhaps lead to a new customer. Work at opening as many doors as you can with as many people as possible. Developing better listening skills also is essential. Delve deep inside a customer’s comment or observation and you may find your next project. When a customer talks about a problem, that usually means it’s foremost in his or her mind. Find ways to take cues, move the conversation forward and become a problem-solver. We all also need to be prudent in our business dealings – watch expenses, don’t overextend, stay on top of your company’s receivables, and be good stewards of your assets. Stick to what you do well and focus on doing it even better!

By John F. Herber Jr., CPA

These are tough economic and challenging times for business. No doubt about it.

But what is so extraordinary about business today is that the channels for communication are broader and more open than ever. Business owners and community leaders are looking for answers, and you need to be prepared and ready with the answers. At the same time, opportunities to gain important ground against competitors exist all around us. I believe every business’ most important job is to totally satisfy its customers. And, when possible, it is even better to surpass their expectations. In today’s economy, or any economy, it’s simply not good enough to be average. You must become exceptional at all you do. People are willing to pay for excellence and service but certainly not mediocrity. Microsoft founder, Bill Gates, once wisely said, “Your most unhappy customers are your greatest source of learning.” Rather than resisting criticism or complaints, embrace them as a way to serve customers better. There’s always something to learn about how to do your job better. Ask yourself: 1. Where did the process fail? 2. Where could this happen again? 3. What can I do to show this customer I heard him/her and want to make up for it? 4. And, finally, what can I learn from this experience? In a June 2007 Business Week article on customer relations, author Karen Klein observed, “O.K. or worse service gives the customer the sense of nothingmore than a business transaction. An excellent service is a personal interaction that builds relationships, encourages repeat business, and gets the customer telling their friends about the company.”

Also be aware that you are building for future business. There’s a lot of human capital on the market right now,

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“Our real problem, then, is not our strength today; it is rather the vital necessity of action

and you might be able to gain market share by attracting talent that may have been out-of-reach this time last year. Also, if there are policies, procedures, people or customers who are preventing your growth, then now may be the time to lighten the load. The beauty of this type of economic environment is that you can make changes that you may have thought about for a long time but that you were unable to implement. Because of the turbulence in the market, you can make big bold moves that could significantly enhance your company. As President Dwight D. Eisenhower once said, “Our real problem, then, is not our strength today; it is rather the vital necessity of action today to ensure our strength tomorrow.” Think about what you need to do today to be strong tomorrow.

today to ensure our strength tomorrow.”

Questions? Contact:

John F. Herber Jr., CPA Managing Partner 314.290.3300 john.herber@rubinbrown.com

President Dwight D. Eisenhower

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GENERAL TOPICS

and other environmental-related issues. You would be hard pressed to find much pertaining to how this would apply to a business. However, if you look at businesses and industries that have survived the test of time, one of the key elements of their success is their mastery at strategically adapting the core of what their organizations do and how they do it. In putting together strategic plans for companies, a key element that is often left out is planning around the unknown – the organizational development required around dealing with adaptation. It is the organizations that are able to build into their strategies the capabilities to adapt and strategically transform that will sustain the ever-changing conditions inwhich businesses, customers and economies operate. This capability has become even more important as businesses in today’s economic environment are being faced with challenges that most likely were not part of existing strategic plans. The specific issue or event that is the catalyst for adaptation or transformation is not the key factor in establishing the impact that it will have on an organization. It is the ability of the business itself to react in a strategic fashion that will determine the degree of success it will have. In this article, we will look at a few examples of companies or industries to illustrate how their ability to adapt and transform have allowed them to sustain over a long period of time. The auto industry is a great example of how an industry has transformed multiple times over a long period and adapted itself. In the early years of the industry, the focus and strategy was on creating an alternative means of transportation. The automobiles were built typically one at a time and were not generally available to the majority of the population. The car companies were focused on producing a car and getting it to market. Over time, as people accepted the automobile as a primary means of transportation, various barriers, such as cost and the ability to produce the automobile efficiently, became the catalyst for strategic changes. The industry began focusing on improving manufacturing processes, eventually developing the concept of an assembly line,

Strategic Adaptation

for Long-Term Sustainability

By Dan Raskas

If you were to do a Google search on “adaptation for sustainability,” you would return nearly 3 million results, of which the overwhelming majority would be discussing topics such as the climate, social changes

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Raise Your Expectations CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

which allowed for significant increases in the efficiency of production. As additional improvements in manufacturing techniques and automation came into play, the industry transformed again. Strategies evolved, shifting the focus to efficiency in product design and delivery; it was no longer getting the same car out fast but getting multiple, uniquely designed vehicles to fit a broad spectrum of buyers at various price points. The companies who led the market were those who could produce the highest quality, most appealing vehicles at the right price. The next shift occurred when the industry realized that it could leverage the automobile for other revenue streams. The emphasis increased on the services around the automobile, and the car companies were making more money on the financing and servicing of the automobiles than the sales of the cars themselves. Strategies started shifting again toward what other additional services could be created around the automobile. Some of the companies started building business models of selling a version of a car and allowing for fee-based features to be added on demand. If additional options were desired after the sale, simply tell the car and a monthly fee is charged. Services like OnStar ® , subscription radio, subscription GPS systems, etc., are some examples of these services that are available today. Future strategies are now evolving around high levels of efficiency (high MPG), safety (lane departure detection, variable speed control, self-driven cars) and environmental concerns (alternative fuels). The companies in this industry that have been able to survive are those companies that have developed the strategic ability to adapt, manage and in many cases create the catalyst for strategic transformation. With the current state of the auto industry, the ability to strategically adapt will be the key factor in determining the fate of many companies, even those that previously were viewed as leaders in the industry. As you will read in this issue of Horizons, Sam Toumayan speaks about his company, Meridian Enterprises, and how it has adapted over its 30-year history to achieve success. Having worked with Sam and his company for more than 20 years, I have witnessed firsthand how Meridian has been able to transform its company. Meridian has learned as an organization to strategically position itself to adapt to the ever-changing market conditions

and leverage the core strength of its company, which is primarily the knowledge it possesses on how to help customers market and sell their products or services. Meridian has accomplished this success through a series of strategic decisions that have occurred over the past 20+ years that have resulted in changes to the structure of the organization, innovations in various business processes, and the creation of state-of-the-art computer systems containing much of the intellectual capital that has been gained since the company started in 1978. As these systems were developed, they were designed to continually evolve themselves as additional knowledge is gained. This knowledge has allowed Meridian to effectively and efficiently add capabilities that were not envisioned or possible when the systems were first created. The powerful combination of the organizational, process and system agility that is part of the Meridian strategy has allowed Meridian to enter into areas of business that it never had considered possible prior to having the capabilities it now has. What makes Meridian successful is not individual structures, processes, systems or knowledge but the organization’s ability to recognize potential catalysts and leverage all parts of the organization to strategically adapt and transform to maximize these opportunities to their advantage. In the general business and economic climate, we will always experience multiple catalysts that will disrupt strategies and plans that have been produced. In the example of both Meridian Enterprises and the automotive industry as a whole, a common theme exists in the long-term success that each has been able to achieve, which is their ability to strategically adapt and transform. Companies that have the ability to deal with the unknown and include it as part of the strategic planning process will be positioned to address issues strategically, minimizing the need to be reactive as they occur.

Questions? Contact:

Dan Raskas Partner

Corporate Finance and Forensic Services Group 314.678.3530 dan.raskas@rubinbrown.com

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GENERAL TOPICS

Can Your Company Be Sustained After the Unexpected? In September 2008, the remnants of a hurricane brought heavy rain and winds to the St. Louis metropolitan area. Already saturated with waters brought by the remains of a previous hurricane a few weeks earlier, the grounds were unable to handle the downpour. Unprepared companies suddenly found themselves in a critical situation. The storm destroyed the servers and computers of some St. Louis businesses, many of which were unaware they operated in a flood plain. Although few could have anticipated the effects of these storms reaching so far inland, the fact remains that natural and man-made disasters take businesses by surprise every year. A loss of data or systems can be fatal to modern organizations, which is why ensuring data is backed up and recoverable is very important. After reading this article, you should be able to ask some key questions that will help you assess your organization’s sustainability. Disaster Recovery Planning Before talking about data backup methodologies, it is important to mention how Business Continuity Planning and Disaster Recovery Planning help an organization prioritize the processes, data and systems needed By Brandon Holzhueter and Brandon Loeschner, CPA, CISA

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to recover in time to sustain operations. Some helpful resources are the Department of Homeland Security’s Web site on business continuity and disaster planning, http://www.ready.gov/business/plan/index.html, and the Disaster Recovery Journal, www.drj.com. BCP and DRP are ongoing business activities that grow and change with the company’s goals, strategy and size. The goal is to plan for continuation and resumption of key business processes after a disaster. Organizations that embrace BCP and DRP are better prepared for unplanned outages, disruptions or worst – disasters. In today’s business environment, recovery of many key business processes hinge on the availability of data and systems. Therefore, representatives from IT need to be involved as you determine your strategy and develop your plan. The following are critical steps management must consider when developing and implementing a disaster recovery plan: 1) Define the environment, including, but not limited to: a. Key processes and process owners

2) Perform an impact analysis – answer the hard questions. a. What must we have? b. What should we have? c. What can we live without and for how long? 3) Implement and periodically test the plan. 4) Monitor and update the plan throughout the year. Data Backup Methodology Regardless of how extensive, the DRP must account for the data and systems. Mission critical data and systems must be given additional attention. Management needs to know the data backup frequency and history and where and in what media the data is stored (i.e. tapes, DVD, hard drive). Without all the required data backed up, businesses that experience data loss or corruption must physically reconstruct all data from hard copy – assuming hard copies or other source documents are available. This process requires many hours to complete, usually at a high cost to the organization. Businesses that have backups of their critical data, as defined in the DRP, will be able to restore the data much faster and with less effort and cost to the organization. Some generally accepted

b. Key systems and data c. Key metrics for recovery d. Risk tolerance against budget

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GENERAL TOPICS Sustaining After the Unexpected (cont.)

Devoting appropriate resources to the data backup processes, and eventually a full DRP/BCP, can greatly increase an organization’s sustainability after a loss or corruption of data and systems. Sustainability requires management commitment to leveraging the right resources and willingness to invest the time and capital in the technology and people. Making this commitment will ensure that your organization is prepared to weather any unexpected storm that comes its way. Some helpful resources are the Department of Homeland Security’s Web site on business continuity and disaster planning, http://www.ready.gov/business/ plan/index.html, and the Disaster Recovery Journal, www.drj.com.

procedures to keep in mind when evaluating the data backup methodology at your organization are: • Completing a full data backup at least once per week and an incremental or differential backup at the end of each day; • Completing backups of transaction logs periodically throughout the day; • Completing backups of key system configurations and application files before and after system changes; • Keeping backup copies off-site in a secured and climate-controlled environment; • Performing trial data and full system restores on a regular basis (i.e. monthly, quarterly, etc.) to check the plan and procedural effectiveness and efficiency, as well as system and tape efficacy; and • Reviewing the backup methodology on an annual basis and updating as necessary. Depending on the nature of your business, the extent of your DRP, recovery metrics and budget, options are available to back up and secure data. No matter the solution you choose, it’s important to formalize the process and document the methodology. Share your methodology with your vendor(s) and make sure they are meeting your data backup requirements. Document the understanding in a service agreement to ensure no surprises during a disaster. Conclusion A good data backup, DRP and BCP approach must consider all data for recovery of period end as well as necessary interim and historical information. Developing a data backup plan that meets the needs of the business, customers and owners requires time and effort from a committed management team aware of the risks to the business. It can be advantageous to leverage specialists that are able to provide experience and an unbiased, broad perspective in developing and reviewing a cross-departmental plan. Specialists also can assist management in implementing the plan. Once the plan is defined, investments may be necessary to implement and, if needed, execute the recovery plan.

Questions? Contact:

Audrey Katcher, CPA, CISA Partner Internal Audit Services Group 314.290.3420 audrey.katcher@rubinbrown.com

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GENERAL TOPICS

Integrating Process Improvements and Internal Controls Process improvement is a concept that has been around for a long time, but it has taken on greater importance as our clients work through current economic conditions. There are many benefits associated with process improvement efforts. The most recognizable benefits are cost reduction and profit increase achieved by eliminating waste within a process. An often overlooked benefit is increased operational and administrative capacity, which allows a company to grow revenue with a minimal increase in costs. Other benefits could include increased customer satisfaction, improved supplier relationships and higher employee satisfaction and retention. At the same time your company is implementing process improvements, the internal control structure should be evaluated. Many companies lack the experience to effectively evaluate internal controls and often take a “more is better” approach. This approach usually results in a control structure littered with duplicative manual transactional controls that create over-processing waste. It is vital to evaluate your current internal control structure and look for opportunities to eliminate duplicative controls and transform manual transactional controls into automated and monitoring controls. By Rick Feldt, CPA, and Kristin Parshay

Automated Controls Automated controls are procedures completed within your information technology system. They are the most efficient form of internal controls, as the procedures are completed without significant employee intervention, are consistently applied and, in most cases, have minimal error rates. Two common automated controls are: • Accounts Payable Three-Way Match and Payment – In most systems, a vendor invoice can be matched to a purchase order and receiving documentation. In an average company, more than 80 percent of vendor invoices could be processed and paid without involvement from an accounts payable clerk. In an automated three-way match process, only those vendor invoices not in agreement with the purchase order and receiving documentation are handled by an employee. • Payroll Processing – Systems that capture employee time punches, process payroll and prepare signed payroll checks are common. The periodic processing of payroll should be completed without manual intervention by a payroll clerk. Companies that spend significant time processing weekly payroll would probably achieve a good ROI by implementing an automated payroll system. Both of these examples are common for many of our clients. Accounting personnel routinely complete work that can easily be performed by their system. Process improvement efforts streamline and automate these processes and simultaneously improve the internal control environment. Monitoring Controls A monitoring control identifies financial and operational errors and exceptions in established processes. A monitoring control can be automated or manual, but it is more efficient when automated. It is important that a monitoring control be performed by someone without direct responsibility for the procedure being monitored.

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In the automated payroll process, exception reports are an excellent monitoring control. A payroll exception report automatically notifies the payroll clerk of transactions that are outside parameters established in the system, e.g., employees added/deleted since the last payroll, address changes, excessive hours worked, duplicate checks. The report allows the clerk to research those items identified and take any necessary actions. Many companies utilize secondary review procedures on all transactions that flow through the process. By identifying the opportunity to replace these reviews with automated monitoring reports, the integrity of the internal control environment is maintained while reducing the labor required in executing the controls.

Transforming Your Internal Control Environment

So how do you identify these opportunities within your own internal control environment? What are the questions you need to ask to ensure you are not eliminating a control and exposing your company to greater financial or operational risk?

Let’s build on the payroll exception report example mentioned above.

In many payroll processing functions, a common control implemented is a secondary review by the payroll supervisor of all changes made by the payroll clerk. If management were to evaluate this control to identify waste, the following questions should be asked: • By not applying this control, how often would errors be identified? • Are the errors found sizable enough to warrant the labor applied for their identification? • Can management set a tolerance level whereby errors under an established threshold would be acceptable? To transform this manual control into a more efficient and effective control, a payroll exception report can be created to automatically identify edits to hours worked that are outside of an established tolerance. The exception report is routed directly to the payroll clerk’s supervisor,

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GENERAL TOPICS Process Improvements and Internal Controls (cont.)

and the appropriate steps can be taken to investigate and determine whether the edits are appropriate. As a result, labor costs are reduced, and management can be comfortable that an internal control is in place to ensure employees are not paid in error. Another example we see with many of our clients is the account reconciliation review process. Most companies prepare account reconciliations for all balance sheet accounts every period. Each of these account reconciliations are then reviewed by an independent person. Depending on the number of divisions within the company and the company’s chart of accounts, hundreds and sometimes thousands of account reconciliations are prepared and reviewed each year. Think about the time and effort that is devoted to that control! So where would you start in evaluating how this control could be transformed to find a more efficient and effective approach to review? Ask these questions: • What other controls are upstream or downstream in your closing process from the account reconciliation review that mitigates your financial risk? • What are the attributes of your accounts: size of the balances, transactional volume, application of judgment to determine balances, and the relationship of the general ledger system with sub-systems? • What tools are available within your general ledger system that can be used to monitor account balances that are not currently being optimized? In some instances, companies have maintained the procedure of completing reconciliations on a monthly basis but have implemented a risk-based approach to account reconciliation review. Accounts identified as high-risk are still reviewed on a monthly basis. However, medium-risk accounts are only reviewed quarterly and low-risk accounts are reviewed annually. In addition, a monitoring control is implemented to identify any account balances that exceed a tolerance level when compared against budget, forecast or prior period, and a review is performed for these accounts to research the cause of the variance. As a result, companies see reduced labor costs and an increase in the quality of their account reconciliations.

Process improvement and a strong internal control structure are interdependent. By implementing the right combination of automated and monitoring controls, your company will maximize the benefits of process improvement efforts while managing risk to an acceptable level.

Questions? Contact:

Rick Feldt, CPA Partner Internal Audit Services Group 314.290.3220 rick.feldt@rubinbrown.com

or

Kristin Parshay Manager Internal Audit Services Group 314.290.3499 kristin.parshay@rubinbrown.com

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GENERAL TOPICS

Sustainability: Diversity

By Steven L. Harris, CPA

The conversation on sustainability would not be complete without highlighting one of the key elements of this concept: diversity. Organizations across the globe are placing a major emphasis on and allocating substantial resources toward creating an inclusive environment. Making diversity an essential priority is a growing concept not only in companies, but even in cities across the country. This effort is gaining substantial momentum and requiring organizations to develop key strategies that address their individual and regional diversity needs. Significant changes and challenges have emerged in today’s environment, which have made the ability to evolve essential to companies’ success. As we navigate through increasingly difficult economic times, the value of an inclusive region has become more significant for RubinBrown and other St. Louis companies. The vision of the benefits and overall economic impact associated with a diverse St. Louis is what led to the establishment of InSight St. Louis. Since 2006, InSight St. Louis has provided opportunities for current college students attending Historically Black Colleges and Universities to connect with Fortune 500 and midsize companies to find careers and create lives for themselves in the city of St. Louis. This objective is accomplished

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by RubinBrown and 17 other St. Louis-based companies sharing resources to promote the city as a great place to develop an exciting career and maintain an appealing lifestyle. Through InSight St. Louis, member companies are able to attend career fairs and events on the campuses of well-known HBCUs in the cities of Atlanta, Washington, D.C., and Hampton, Va. Company representatives have the opportunity to meet and interview top students and develop relationships with key faculty and staff at the targeted schools. Students identified through the recruiting efforts of InSight St. Louis are invited to apply for an all-expense paid trip to St. Louis in the fall. Selected candidates are given the opportunity to network with top executives and other young professionals at various functions during their visit. The students also can interview with any of the 18 member companies during their visit. Once a candidate is hired by a member company, they canchoose topursueadvancededucational opportunities and training at one of St. Louis’ premiere universities, while beginning their careers at their sponsoring company. Candidates also learn about the inner workings of St. Louis and gain access and exposure to some of the major decision-makers and key organizations in this region through the distinguished Immersion Program. The Immersion Program was created to help candidates integrate into the community by connecting with key professional associations and established corporate and community leaders. Candidates in this program are viewed as “favorite sons and daughters of the city” and given an exclusive introduction to the city while they create the lifestyle they desire here. This year, RubinBrown was honored to host one of the featured events of the visit, the Annual Corporate Roundtable and Career Expo. At the Corporate Roundtable, each member company of InSight St. Louis presents to the students the opportunities available, corporate culture and key differentiators of their organizations. Students are encouraged to participate in the Career Expo to learn additional information about the member companies. Along with the other great events and activities of the visit, the Corporate Roundtable

showcases the best that St. Louis has to offer in careers and gets individuals excited about living and working in this city. Through InSight St. Louis, RubinBrown is able to make a difference and add depth and variety to the fabric of the firm, the city of St. Louis and the accounting profession. RubinBrown truly values all that St. Louis has to offer and is excited to share it with an exceptionally talented group of individuals.

Questions? Contact:

Steven L. Harris, CPA Manager Assurance Services Group 314.290.3265 steven.harris@rubinbrown.com

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