Bonuses, Anyone?

Alan Johnson is among a small group of behind-the-scenes information brokers who help determine how Wall Street firms distribute billions of dollars to their workers. He operates as a compensation consultant in an obscure corner of the management consulting industry and in the shadows of high finance.

Questions:

1. What was the most interesting thing that you learned in this article?
2. How do this year’s bonuses compare to 2008?
3. What do Wall Street pay packages routinely include? Discuss how these bonus items are accounted for.
4. How does Mr. Johnson research his recommendations?

Source:

Roose, K. (2012).The Invisible Hand Behind Bonuses on Wall Street, The New York Times, Jan. 16 (Retrievable online at http://www.nytimes.com/2012/01/17/business/the-invisible-hand-behind-wall-street-bonuses.html?_r=1&ref=business)

We Did Everything Right and Still Lost Our Business: Five Failing Businesses in 2011

It has been another tough year for small businesses. According to the National Federation of Independent Businessesm one in four believes the biggest problem is weak sales. Issues of timing, cash, and a lack of realistic estimates also add to the challenges they face.

Questions:

1. After reading the article, what advice would you offer to anyone thinking about starting a business in 2012?
2. What was the main issue that Michelle Lewis mentioned that would have helped her business model and why is it important to you as a future accountant?
3. Which one of the five businesses mentioned do you think could have been viable with adequate advice from a financial advisor or accountant? Why?

Source:

Zimmerman, E. (2011). 5 Businesses That Failed to Survive Trials of 2011, The New York Times, Dec. 28 (Retrievable online at http://www.nytimes.com/2011/12/29/business/smallbusiness/five-businesses-that-did-not-survive-2011.html?pagewanted=1)

Ever Thought About Operating A Franchise?

Tired of not getting paid what you’re worth (or not paid at all) and want to start your own, already-proven business? That’s what is intriguing about franchising. Pick a brand, pay your money, take your chances, and then you’re an entrepreneur. Running day-to-day operations and turning a profit is another matter, of course. However, success starts with picking the right system, because there are roughly 3,500 franchises to choose from.

Questions:

1. The video talked about the top five types of franchises, but what are the top 10 actual franchise companies? (See http://www.entrepreneur.com/franchise500/index.html)
2. Look at the Forbes article. What four variables supported their recommendation for the best investments in franchises?
3. Now look at the Forbes “In Pictures: The Top 20 Franchises To Start,” which is hyperlinked in the article. Which one interests you and why? Use your accounting knowledge to explain. Discuss the risks and challenges involved.

Source: MSNBC video (2011), Top Five: Franchise Trends, Dec. 18 (Retrievable online at http://www.openforum.com/videos/top-five-franchise-trends)

Davis, L. and M. Farrell (2011). The Top Franchises for the Money, Forbes.com, January 18 (Retrievable online at http://www.forbes.com/2011/01/18/best-franchises-for-the-buck-entrepreneurs-finance-franchise.html)

Losing Millions

Bankrupt professional athletes are a sad fixture on the sports scene, and they may or may not mess up more often than the average person who earns a lot of money really fast.  However, their troubles seem outsize because of their fame and the pathetic schemes they fall for. The stakes are particularly high for football players, since their average professional career lasts just four seasons or so and may leave lingering injuries, health costs, or physical limitations.  This article and the interactive multimedia pictorial explain some of the specifics.

Questions:

1.  What are the three lessons that the author thinks almost anyone can put to work, whether you are a new college graduate getting a four-figure paycheck for the first time or you have suddenly inherited, earned or won a pile of money?  Do you agree or have any additions?  Discuss.

2. What are the requirements for financial advisors that appear on the N.F.L. players’ pre-screen advisor list?

3. What does the author think that the fiduciary standard should be in order to be listed on the players’ union prescreened advisor list? Discuss whether you think this is the best approach.

4.  What do you see as the CPA’s role in financial planning?

 

Sources:

Lieber, R. (2011). Financial Lessons From Sports Stars’ Mistakes. The New York Times, Sep. 9 (Retrievable online at http://www.nytimes.com/2011/09/10/your-money/financial-lessons-from-sports-stars-mistakes-your-money.html?pagewanted=1&_r=1)

Staff (2011). When Athletes Go Broke, The New York Times, Sep. 9 (Retrievable online at http://www.nytimes.com/interactive/2011/09/10/your-money/20110910-money.html?ref=your-money)

Brother, can you spare $5

Beginning Tuesday, Starbucks coffee drinkers can get their morning caffeine fix and help create jobs in small businesses across the country. According to CEO Howard Schultz of Starbucks, the company will accept donations for a program that helps raise money and spurs job creation by small businesses, at its almost 6,800 locations across the nation, in addition to its website at www.CreateJobsforUSA.org.

Questions:

1. What is the Opportunity Finance Network? Do you think this a good approach to the downturn in our economy? Discuss.
2. Based on these articles, each job created equal to a salary of $21,000 or are other factors being considered in the multiplier effect mentioned?
3. Do you believe that this campaign is about marketing rather than what the CEO purports? Discuss the pros and cons.
4. Comment on Mr. Schultz’s comment about the importance of a trade off between social contract and traditional profit being needed. Does this indicate that there might be a new profit paradigm emerging in today’s economy? Discuss.
5. Mr. Schultz indicated that Starbucks would probably be spending millions of dollars on the campaign. How would you as their accountant classify these costs?

Sources:
Clifford, C. (2011) Starbucks steps up to the jobs challenge, Oct. 4 (Retrievable online at http://money.cnn.com/2011/10/03/smallbusiness/starbucks_jobs/index.htm?iid=EL)
Clifford, C. (2011) Get your Starbucks, create a job, Nov. 2 (Retrievable online at http://money.cnn.com/2011/11/01/smallbusiness/starbucks_jobs/)

Eneslow Shoes: Change is Good!

Eneslow – The Foot Comfort Center was founded in 1909 and is a family owned business providing high quality, stylish and comfortable shoes, as well as therapeutic accessories, on-site shoe makeovers and repairs and custom-made footwear. When New York State dropped Medicaid support for orthopedic shoes, Robert Schwartz saw his business drop by nearly 50%. As a result, he sought counsel and closed seven out of eight of the company’s stores in 1989. He used this as an opportunity to reposition the company’s products and now avoids the perception of being an “old ladies store.”

Questions:
1. What were some of the key costs that Robert Schwartz probably eliminated in repositioning his store? What are some costs that Schwartz probably could not eliminate in the downsizing of his operations?

2. Schwartz mentioned that he went to a mentor/counselor about the downturn in his business. What type of services could you provide him as a CPA regarding increasing his business?

3. What was the old model that Eneslow followed? What is the new model according to the video?

4. Go to Eneslow’s website at http://www.eneslow.com/home.cfm Does the company still have one store? What are the most interesting/favorable things that you notice about the company’s website?

Source:

MSNBC Video. (2011). If the Shoe Fits, Your Business (Retrievable online at http://www.msnbc.msn.com/id/21134540/vp/25142886#25003452)

Eneslow website, http://www.eneslow.com/home.cfm.

Visit msnbc.com for breaking news, world news, and news about the economy

The Delmonte Deal in the News

Del Monte and Barclays Capital said on Oct. 6 they had agreed to pay $89.4 million to Del Monte shareholders to settle a lawsuit that alleged conflicts of interest in last year’s $5.3 billion buyout of the company by Kohlberg Kravis Roberts, Vestar Capital and Centerview Partners. The case centered on Barclays advising Del Monte while also providing financing to the buyers.

Questions:

1. Explain the problems with the “staple financing” outlined in the article.  What is staple financing?  Is it legal?  Compare this conflict of interest with one that might occur in the accounting profession.

2. In the settlement of $89.4 million, it appears that the Delaware court will not oppose defendant lawyer fees of $22.3 million for lawyers fees plus $200,000 expenses.  What percentage is this? 

3. Do you believe this will put a damper on merger and acquisition activity in the short-run or long-run? Do you think it is warranted?  Why or why not?

Source:

Goldfarb, J. (2011). Food for thought. Reuters News, October 6 (Retrievable online at http://www.breakingviews.com/del-monte-settlement-quantifies-cost-of-conflicts/1609942.article)

Huge job cuts – Bank of America

Bank of America, trying to break free from a pile of bad mortgages and a sagging stock price, announced plans to lay off 30,000 employees over the next few years.

In a statement Monday, the bank said its goal is “not a given number of job reductions,” but to focus “all of its resources on serving individuals, companies, and institutional investors.”

The Charlotte, N.C.-based bank, the largest in the U.S. by deposits, said it will cut $5 billion in costs.  The bank, which has a workforce of 288,000, has already said it plans to cut 6,000 jobs by the end of the year.

According to analyst Paul Miller of FBR Capital Markets & Co., “we knew they were shrinking the balance sheet and cutting costs. Today, there is just an exact plan. If the bank got rid of Countrywide’s litigation expenses and liabilities, it could have a $10 to $12 stock price overnight,” Miller told ABC News.  But Miller added that he did not think bankrupting Countrywide would be politically and legally feasible.

Warren Buffett, CEO of Berkshire Hathaway, announced plans on Aug. 25 to buy $5 billion of Bank of America shares.

Questions:

1.  How will the plans presented in the article shrink the balance sheet?  Be specific.  Based on the video, where does the Wall Street analyst think that the money from the cuts will go?

2. Explain the recording of Countrywide’s litigation expenses and liabilities.  What specific types of liabilities will be affected?

3.  What do you understand Bank of America’s strategy to be at this point and what is Berkshire Hathaway’s role?  What is Bank of America’s current stock price and what has happened to it during 2011?

4.  What percent of jobs is the bank cutting this year as a percentage of its total workforce?  If you compare the 30,000 job cut against their current workforce, what percentage is this?

Source:

Kim, Susanna (2011) Bank of America Confirms 30,000 Layoffs. ABC News.com, September 12 (Retrievable online at http://abcnews.go.com/Business/bank-america-layoff-30000-workers/story?id=14500577)

 Gogoi, P. (2011). Bank of America will cut 30,000 jobs. Associated Press, Sep. 12 (Retriveable online at  http://abcnews.go.com/Business/wireStory?id=14500592)

Fox News video, Bank of America to Cut 30K Jobs, Sep. 12 (Retrievable online at  http://video.foxnews.com)

Maybe he should have taken an accounting course?

Former Director Tom Wheeler is on trial, charged with several counts of fraud, misconduct in office and conspiracy. Wheeler has pleaded not guilty to the charges.  His defense focuses on his lack of experience, being a bad student in college, and not taking an accounting or law class.

Questions:

1.  Why was Mr. Wheeler charged with fraud? 

2.  From everything you have read, how do you believe he may have committed fraud or benefitted from his position? Discuss his defense.  Is it plausible?

3. Explain some of the internal controls mentioned in the case that were violated, beginning with the hiring of Mr. Wheeler.

 

Sources:

Boshart, R. (2011). Tom Wheeler wanted to leave Iowa Film Office, brother testifies. The Gazette, August 24 (Retrievable online at http://thegazette.com/2011/08/24/tom-wheeler-wanted-to-leave-iowa-film-office-brother-testifies/)

WHO-TV Staff. (2011). WHEELER TRIAL: Minnesota filmmaker Wendy Weiner Runge Testifies During Tom Wheeler’s Fraud Trial. MSNBC.com, August 24 (Retrievable online at http://www.msnbc.msn.com/id/44258762/ns/local_news-des_moines_ia/t/wheeler-trial-minnesota-filmmaker-wendy-weiner-runge-testifies-during-tom-wheelers-fraud-trial/)

KCCI.com Staff (2011). Film Office Director Talks Experience, Budgets, More. KCCI.com, August 24 (Retrievable online http:// www.kcci.com/news/28961656/detail.html)

Staff (2011). Blouin: Former film office manager not qualified. Chron.com, August 26 (Retrievable online at http://www.chron.com/news/article/Blouin-Former-film-office-manager-not-qualified-2142472.php ).

Does Embezzlement Pay?

Bradley Whitsell, chief accountant of SDN Communications in Sioux Falls, SD, pleaded guilty to mail fraud on Monday, August 22.  According to the U.S. Attorney’s office 46-year-old Whitsell used his various oversight positions to embezzle more than $392,000 over a 10 year period beginning in 2000. Whitsell could end up in prison for up to 20 years. Whitsell has agreed to pay back the $392,111.65 and will also pay for the $84,000 cost of the audit that uncovered his theft.

Questions:

1.  According to the article, what specific problems with internal controls allowed Whitsell to commit this fraud?  Also, discuss the fraud triangle as it pertains to the case in your answer.

2. Look up the most recent 2010 Report to the Nation at the Association of Fraud Examiners website.  Was the length of Mr. Whitsell’s fraud longer, shorter or about the same of the average fraud in terms of months before getting caught?  Explain.

3.  Compared to the average fraud committed by a man this age, as reported in the 2010 Report to the nation, did Mr. Whitsell steal more, less, or about the same amount of money? How does this compare to the average amount stolen by a women of the same age?  What is typically the key difference between these amounts?

Source:

Gonzalez, A. (2011). Embezzling Accountant Will Pay Back Stolen Money and Pay for Audit That Caught Him. Going Concern, August 23 (Retrievable online at http://goingconcern.com/2011/08/embezzling-accountant-will-pay-back-stolen-money-and-pay-for-the-audit-that-caught-him/ )

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