APG has recently been alerted to the following activities. Please make note.
The following financial institutions have reported Counterfeit Cashier’s Checks presented for payments:
 
Baker Boyer National Bank of Walla Walla, WA, dated June 30, 2008
 
Community First National Bank of West Plains of West Plains, MO, dated July 28, 2008
 
First National Bank of Waynesboro of Waynesboro, GA, dated July 28, 2008 (counterfeit official checks)
 
Crystal Lake Bank and Trust, N.A. of Crystal Lake, IL, dated July 28, 2008
 
Queensboro National Bank & Trust Company of Louisville, GA, dated August 1, 2008
 
The information above is not meant to harm the integrity of the financial institutions; but to serve as a warning when accepting certain forms of payment. For additional details, please visit www.occ.gov.

Business Credit Announces Short Story Contest

Share your most memorable credit experience and get a chance to win $250. Credit Words: Real-life Stories of Victory and Defeat encourages you to send in your biggest success, proudest moment or most humorous situation you’ve experienced during your career, among many other possibilities.

Advanced Issues in Financial Statement Analysis
While legislation in the wake of high-profile fraud cases has reduced the occurrence of financial fraud, many companies still use what are called “creative accounting techniques” to improve their appearance and more easily secure financing, much to the chagrin of B2B vendors. “The idea is that it’s one thing when you’re doing financial analysis and you’re doing the ratios and you’re doing the statements, but the problem is how much faith you can put in those numbers,” said D.J. Masson, Ph.D., CTP in his recent NACM-sponsored teleconference, “Advanced Issues in Financial Analysis.” Masson suggested things that credit and financial analysts should keep in mind while investigating the creditworthiness of their potential customers and also delved into the motivations and reasons some companies resort to these techniques.
 
Despite the information and structure of U.S. generally accepted accounting principles, accounting for a company’s assets and liabilities is still a very vague science. “By its very nature, if we’re talking about accounting, it could be adhering 100% to GAAP, but at the same time there is some latitude,” said Masson. “You want to paint your company in the best light, but there’s a line.” In his presentation, Masson went through a group of companies who had been charged with questionable accounting practices within the last two decades, including Sybase, Bausch & Lomb, Sunbeam, California Micro Devices, Waste Management and, of course, Enron and WorldCom. “We have had recent legislation that we hope would try to prevent this and it’s probably going to happen again,” he said.
 
“This is one of those areas where one of the biggest issues today is that managers are very much judged by their quarterly numbers,” said Masson. “And so, managers are under a lot of pressure to meet the numbers.” In many instances, managers will be driven to use creative accounting practices in order to meet sales numbers, get a head start on next quarter’s earnings by “income smoothing,” a practice that involves not reporting a certain amount of income until a quarter after it was earned in order to make meeting the next quarter’s estimates much easier, or simply to secure a bonus that’s contingent upon management’s attainment of a specific sales value.
 
“All of this is part of accounting irregularity, things that analysts have to be aware of,” he said. “The idea behind all of these is that they’re taking the leeway that is given in some cases and making the company look as good as possible and at other times they’re going way beyond the line.”
 
Masson also went into specific things to look for in a potential customer’s practices and policies and offered further reference materials to attendees looking to learn more about detecting creative accounting practices. For more information on NACM’s teleconference series, or to register, click here.
 
Jacob Barron, NACM staff writer

Credit Policy and Procedures

According to Entrepreneur.com, a credit policy is defined as "guidelines that spell out how to decide which customers are sold on open account, the exact payment terms, the limits set on outstanding balances, and how to deal with delinquent accounts." Most companies have a certain tolerance level for risk that involves several factors, such as position in the market place, margins, sales channel, as well as the creditworthiness of a specific customer. As most credit professionals agree, we all have accounts we must sell… no matter what! To learn more about effectively structuring your company’s credit policy, tune in to NACM’s upcoming teleconference, “Credit Policy and Procedures,” on August 20 at 3pm. The presentation will be led by Susan Delloiacono, CCE and will focus on the "bones" of your credit structure beyond the scope of the credit report. For more information, or to register, click here.

Pay-if-Paid Provisions Lose Big in Nevada Supreme Court
With the construction sector struggling as the U.S. real estate market deflates, the onus placed on measures enabling contractors and subcontractors to get paid has strengthened. Around the country, the triggering of mechanic’s liens has been on the rise and that trend is expected to continue into the foreseeable future. In line with that inclination, other payment resolution gambles will also likely garner greater attention as well.
 
Unfortunately, for general contractors and project owners working in Nevada, the state Supreme Court has vanquished pay-if-paid contract provisions, ruling that they violate public policy and interfere with the administration of mechanic’s lien law.
 
The ongoing and oft-followed case, Lehrer McGovern Bovis, Inc. v. Bullock Insulation, Inc., et al., involved the project owner and the out-of-state general contractor against a subcontractor that was seeking money for retrofitting work. Bovis was contracted by Las Vegas Sands, Inc. to manage the remaining construction of the Venetian Casino Resort and Hotel. Bovis then subcontracted Bullock Insulation to install firestop putty pads around electrical boxes in the hotel.
 
Bullock’s contract stated that the company was to provide firestop protection around electrical boxes where required by code. The subcontractor did the work to what it believed was the extent of the contract and to the general contractor’s direction and, as such, failed to install the firestop putty in the guest rooms. After much of the work was completed, building inspectors gave notice that firestop protection was actually required in those rooms. Bovis, proclaiming to the project owner that the omission was simply a good-faith mistake, directed Bullock to retrofit all the guest rooms with the required fire retardant material. This task required a substantial amount of work since the majority of the rooms had already been completed.
 
After the retrofit work was finished, Bullock filed a mechanic’s lien on the project for more than $1.6 million, including labor costs totaling $326,905.
 
In a warning for all materials suppliers in the construction industry, the case partially hinged on a poorly worded waiver of mechanic’s lien rights and a pay-if-paid provision. Bullock had agreed “not [to] suffer or permit any lien or other encumbrance to be filed” against the project. And in preceding sections of the contract, Bullock also agreed that payment for its work was contingent upon the Venetian Resort’s payments to Bovis.
 
In the trial that ultimately resulted, Bovis argued that the pay-if-paid provision that Bullock Insulation agreed to prevented it from recording a lien. But, at the end of the initial lawsuit, the district court concluded that a pay-if-paid provision was unenforceable because “[i]t deprives people who work on construction projects of a statutory right” to mechanic’s liens. The district court awarded Bullock the monies for labor costs and then some. The case then continued on to higher courts.
 
Surprisingly, the state Supreme Court ultimately has upheld the lower court’s decision. “We agree with the district court’s ruling that the lien waiver provision was unenforceable and therefore affirm the portion of the district court’s judgment enforcing the lien.” Regarding the pay-if-paid provision, the Nevada State Supreme Court concluded “that the district court properly struck down the pay-if-paid provision as unenforceable based upon public policy.”
 
This is an upset for many in the construction industry in Nevada, since just five years ago the state Supreme Court ruled that “a waiver of mechanic’s lien rights is not contrary to public policy” in the case of Dayside, Inc. v. District Court.
 
The battle in Nevada over pay-if-paid rights will likely wage on. Legal experts, like those at Pezzillo Robinson agree. “Undoubtedly, this will not end the debate on ‘pay-if-paid’ provisions and it would not be surprising to see the issue move to the Nevada Legislature,” wrote Brian J. Pezzillo, Esq., Pezzillo Robinson. “But for now, ‘pay-if-paid’ provisions are not enforceable.”
 
Matthew Carr, NACM staff writer

NACM's Mechanic's Lien and Bond Services (MLBS)

The best-in-class service options for today's construction credit professional.

Join Greg Powelson, director of MLBS, for one in a series of half-day lien workshops, coming to middle-America:

August 20, 2008
Location: Ramada Inn, 2519 E. Center Street
US 30 and Center Street
Warsaw, IN 46580

August 25, 2008
Location: Link Belt Construction Equipment
2651 Palumbo Drive
Lexington, KY 40509

August 26, 2008
Location: Hilton Garden Inn – Louisville East
1530 Alliant Avenue
Louisville, KY 40299

August 27, 2008
Location: Atlas Van Lines, Inc.
1212 St. George Road
Evansville, IN 47703

August 28, 2008
Location: Holiday Inn Nashville Brentwood
760 Old Hickory Blvd.
Brentwood, TN 37027

For more information, or to attend, contact Greg Powelson at gregp@nacm.org or call 216-212-6020.

Where Do You Get Your Credit Reports?

If you aren’t getting them from your local NACM Affiliate, “you should be,” said NACM Chairman Jim Fried, CCE, CCM at this year’s Credit Congress speaking of the relationship that NACM members should and need to have with their NACM Affiliates. “Your Affiliate needs your business…it’s how each of us supports our Affiliate,” he said. Plus, NACM Affiliates are often capable of offering reports for less and with more accurate data than the big bureaus currently in the middle of reform.

NACM credit reports offer a way to make a sound, informed credit decision. Contact your local Affiliate or click here for more information.

How Now Global Dow
All eyes are on the global stage. The world’s economies are changing, and more and more profitable opportunities are blooming in new and exciting markets. Not to be caught flat-footed, Rupert Murdoch, chairman and chief executive, News Corporation, has announced two initiatives to cash in on the increasing need for international investment information.
 
“The world is changing and how we measure that change economically and financially is clearly a challenge and an opportunity,” said Murdoch. “We have seen a reweighting of risk around the world, but the world itself is being economically rerated and so we need an index that allows investors to take advantage of these changes.”
 
During the last 20 years, emerging markets have courted increased investor interest, with the BRIC countries—Brazil, Russia, India and China—being the belles of the ball. Dow Jones Indexes will launch a Global Dow, an index with components selected by editors of The Wall Street Journal, as well as an Indian blue-chip index.
 
The Global Dow will track the share prices of companies from emerging markets, which will be included along with companies from emerging sectors as alternative energy.
 
“While we must reflect the global stock market as it is, we must also recognize the rapid rise of companies in countries such as India,” said Robert Thomson, managing editor, The Wall Street Journal. “We have already seen great Indian companies acquiring famous brands such as Jaguar and Land Rover, but these developments are just the beginning of a long-term trend that will fundamentally change the international corporate landscape.”
 
Matthew Carr, NACM staff writer

Containing the Outbreak

Businesses are being confronted with a cadre of challenges at the moment. The U.S. economy is flirting with recession, financial markets are in turmoil as investment vehicles are failing and write-downs are approaching a staggering point. Some estimates have foreseen as much as $1 trillion in losses incurring from the crumbling U.S. housing and mortgage markets. In the September 2008 issue of Business Credit magazine, read about the larger problem. The world is no longer made up of national economies, they are all part of a growing, increasingly homogenous global economy where logistic chains are ever expanding, crossing more and more borders; where even labor markets have become global due to outsourcing, shared services centers and migration. In turn, risks at home can mean risks abroad, making risk management and analysis a paramount focus in the corporate world, both locally and globally. How well are some of the models, practices and policies working?

Treasury Sanctions Mexican Companies Tied to Cartel Operator
The U.S. Department of the Treasury recently named 14 companies and 17 individuals with whom American companies can no longer conduct business due to their ties to drug trafficking kingpin Rigoberto Gaxiola Medina. Each of the designated companies and individuals are based in Mexico and are now subject to the economic sanctions pursuant to the Foreign Narcotics Kingpin Designation Act, which applies financial measures against significant narcotics traffickers worldwide. Since June 2000, more than 300 businesses and individuals associated with 75 separate kingpins have been designated.
 
Medina’s financial network, despite his 2003 arrest and current imprisonment, has continued to operate under the leadership of his family and close business associates, who have continued to successfully launder drug proceeds through a series of companies. The designation of these 31 entities freezes any of their assets which may be under U.S. jurisdiction and, furthermore, prohibits U.S. persons from conducting transactions or dealings in property interests of the designated individuals and entities. Companies that violate these rules can incur penalties of up to $1,075,000 per violation to even more severe criminal penalties, including a potential 30 years in prison and fines of up to $5,000,000 for corporate officers as well as criminal fines of up to $10,000,000 for corporations.
 
“We are sanctioning Rigoberto Gaxiola Medina’s network of companies and associates to support and advance the Mexican authorities’ important efforts against this criminal organization,” said Adam Szubin, director of the Treasury’s Office of Foreign Assets Control (OFAC).
 
Designees are comprised of companies in the Mexican states of Sonora, Sinaloa and Jalisco, including four mining firms, Minera Rio Presidio, S.A. De C.V., Minera La Castellana y Anexas, S.A. De C.V., Copa de Plata, S.A. De C.V. and Compania Minera Del Rio Cianury, S.A. De C.V., a car dealership, Distribuidora Gran Auto, S.A. De C.V., and a private gym, Bioesport, S.A. De C.V. A full list of sanctioned entities is available here.
 
Jacob Barron, NACM staff writer

NACM’s Monthly Survey for August Now Open

This month, we’re asking:

“When did your company start exporting?”

Please participate by clicking here, even if your company doesn’t currently export. It’s a quick .1 roadmap point and a chance to win a free NACM teleconference registration.

U.S. Manufacturers and Distributors Report Significant Increase in Inflationary Pressures
RSM McGladrey released data gathered in the last 10 days of July that shows global competition for raw materials and rising energy costs are driving up costs and substantially reducing the bottom line of middle market manufacturers and distributors more than they were just three months ago.
As a follow-up to the 2008 RSM McGladrey Manufacturing and Wholesale Distribution survey conducted in April 2008, the new survey polled the same respondents concerning expected price increases in energy, transportation and raw materials. A majority of respondents were from private companies, offering rare insight into the strategies and challenges of private manufacturers and distributors.
 
"The impact of the rising cost of energy is rippling throughout the manufacturing and distribution sectors," said Tom Murphy, executive vice president of manufacturing and wholesale distribution for RSM McGladrey. "With at least 50% more companies expecting energy, raw material and transportation cost increases of 10% or more, we can expect profitability to take a hit over the next several months as companies absorb these costs."
 
According to the findings, 48% of companies are expecting energy prices to rise by 10% or more—50% more than in April 2008. In addition, 43% of companies predict raw material costs to increase by 10% or more, a 60% increase from April. For projected transportation costs, 52% of companies expect drastic increases compared to 20% previously—an astounding 160% increase from just three months ago.
 
"Various global demand pressures are contributing to increased commodity prices which are reflected in the raw material costs for many manufacturers and distributors," said Murphy. "Product costs are additionally impacted by the significantly higher freight costs driven by the cost of fuel."
 
While companies are taking immediate action to offset the impact of rising costs, RSM McGladrey also recommends that companies consider a long-term strategy to managing the structural cost changes being driven by the new realities in commodities pricing and transportation costs.
 
"The disconnect in the supply chain has the potential to cause a deeper fault line if companies are not prepared moving forward," commented Murphy. "This inflationary surge is not an anomaly—it's a sign of a new, long-term global cost environment. It's paramount that companies change the way they do business to survive now and thrive in the future."

Initiatives RSM McGladrey recommends to shield companies against rising energy costs include:

• Turning to export markets as an alternative for growth
• Sourcing product through the global value chain to reduce import and material costs while maintaining product quality, including reconsidering domestic suppliers, which may be attractive options due to escalating transportation costs
• Implementing lean manufacturing, a key component of cost reduction under any circumstances
• Pursuing cost savings opportunities to curtail unnecessary expendituresTaking advantage of government programs and tax incentives to support efficiency efforts and boost cash flow

For more information on the complete RSM McGladrey 2008 Manufacturing and Wholesale Distribution National Survey with insight from more than 960 industry executives, visit http://www.rsmmcgladrey.com/2008survey.

Help the NACM Scholarship Foundation Give the Gift of Education

The NACM Scholarship Foundation strives to provide financial assistance, in the form of scholarships, to credit professionals eager to learn and share their knowledge with others. In its first two years, over $40,000 was raised through various fundraisers, such as the Annual Silent Auction at Credit Congress, the Annual Golf Outing, fun ribbon sales and generous donations.

All credit professionals are encouraged to apply for scholarships, regardless of membership status. For more information on applying, click here.

If you wish to make a tax-deductible donation, click here.

The Rapid Fall from Grace
Once considered a safe investment, auction rate securities have buckled under the strain of liquidity problems caused by the tightening credit markets. The market is dead in the water because no one wants to go near them and investors are stuck with their holdings. From 1984 to the end of 2007, only a couple dozen rate securities auctions had failed. But by February 2008, the auctions were failing by the hundreds per week. There were more sellers than buyers, and banks, typical purchasers of unsold securities, backed away from the increased exposure. The $330 billion market froze, leaving investors without a way to exit.
 
The snapback from the market collapse and freeze has been swift and harsh. Government agency investigations and hearings into the problems began late last year and have culminated in a series of investor lawsuits with states joining in, demanding staggering fines. State attorney generals are seeking retribution for the damage caused to their municipalities and citizens and New York’s Andrew Cuomo is currently headlining the crackdown.
 
Last week, the Attorney General’s office of New York announced two massive settlements with investment banks Citigroup and UBS Securities LLC and UBS Financial Services, Inc. totaling nearly $20 billion and including more than $250 million in fines.
 
“The industry is beginning to take responsibility for correcting a problem they created, and that’s a good thing,” said Cuomo. “The fundamental goal has been to return money into the hands of investors, and that’s what this deal does.”
 
UBS has held up its hands and will return $11 billion to investors across the country as a quick settlement in a lawsuit Cuomo filed on July 24, 2008. The attorney general charged the company with misrepresenting auction rate securities as safe investments, when in fact they were facing increased liquidity risks because of an increasing number of failed auctions and a growing distaste for the non-traditional vehicle. UBS will also have to pay another $150 million in penalties, $75 million of which will go to the state of New York.
 
Citigroup, which was notified on August 1, 2008 of Cuomo’s intent to file charges, agreed to return $7.3 billion to investors and will pay fines of $100 million, $50 million of which will go to the state.
 
Both companies must also set up special arbitration processes to resolve consequential damage claims from investors because of the market freeze, and undertake an expeditious course of action to purchase all illiquid auction-rate securities from all retail customers, charities and small- to mid-sized businesses.
 
Merrill Lynch, whose retail clients hold about $12 billion in auction rate securities, and who has also been under investigation by Cuomo, quickly announced a voluntary buy-back of all illiquid auction-rate securities from its retail investors.
 
“Our clients have been caught in an unprecedented liquidity crisis,” stated John Thain, Merrill Lynch’s chairman and CEO. “We are solving it by giving them the option of selling their positions to us.”
 
The company hopes to reduce the total of its clients’ auction rate securities holdings to less than $10 billion by January 2009 and will continue to offer attractive loan agreements to clients to provide them needed liquidity.
 
“We have made tremendous strides in working with issuers during the last five months; over 40% of our clients’ auction rate securities holdings have been liquidated,” said Robert McCann, president of Global Wealth Management, Merrill Lynch. “But we are not satisfied with this pace, even though the marketplace continues to move forward and we expect issuer redemptions to accelerate with time.”
 
Unfortunately for Merrill Lynch, from Cuomo’s eagle-eyed perspective, this move is seen as not sufficient enough and he has said the company will continued to be reviewed. Nonetheless, his victories thus far, while avoiding trial, provide a clear signal to all involved in the market.
 
“Today’s settlement sends a resounding message to the entire auction rate securities industry: This type of deceptive behavior will not be tolerated and we will actively seek justice on behalf of investors in auction-rate securities,” charged Cuomo.
 
Matthew Carr, NACM staff writer

DHL Partner Savings Program and Survey

The National Association of Credit Management proudly offers shipping discounts through the DHL Partner Savings Program as one of its member benefits. You can take advantage of discounts up to 25% when you ship with DHL Express on Next Day, 2nd Day, Ground, International and prepaid SHIPREADY™ services.
 
Please take a moment and complete the following survey so we can better gauge your shipping needs. This should take no more than a minute of your time. Click here to take the survey.

Full Adoption of IFRS Expected; Becoming Important for Companies to Develop Response, Implementation Plan
Company Leaders Must Understand the Impact of IFRS across the Enterprise for a Successful Transition, According to Deloitte Whitepaper
International Financial Reporting Standards (IFRS) implementation is expected to result in significant changes for companies and, in light of the regulatory landscape, the time is now for companies to develop a plan for the accounting switch according to a paper recently released by Deloitte.
 
The Deloitte paper, "International Financial Reporting Standards for U.S. Companies: Planning for IFRS Adoption," provides analysis of the planning process, which includes assessing technical accounting and tax, process and statutory reporting, technology infrastructure and organizational issues.
 
"As economic turmoil has brought accounting and financial issues to the forefront, investors, companies, regulators and the public are paying close attention to how IFRS can impact financial reporting and market conditions," said D.J. Gannon, a partner with Deloitte & Touche LLP and leader of its IFRS Solutions Center. "IFRS emphasizes transparency in financial reporting which, ultimately, is expected to provide financial information that is more closely aligned with the economics underlying the transactions and events accounted for in the financial statements. This is expected to enable executives and investors to make proactive and better-informed business decisions."
 
The Deloitte paper is available at http://www.deloitte.com/us/ifrs/planning. To view this press release in its entirety, please click on the following link: http://www.deloitte.com/us/pr/ifrsfulladoption.
 
Source: Deloitte

Committee Analyzes Small Business Regulatory Burden
The House Small Business Committee recently held a hearing regarding the federal regulatory burden on American small businesses and how it might be exacerbating the current economic downswing. The hearing was held by the Subcommittee on Regulations, Health Care and Trade and sought to examine necessary regulatory reforms in order to allow small businesses to thrive.
 
“Small businesses are critical to our economy’s health and we should be giving them every possible opportunity to thrive,” said Subcommittee Chairman Charlie Gonzalez (D-TX). “Complex and burdensome regulations mire small firms in costly and time intensive paperwork, holding them back from achieving their highest potential.”
 
When compared to the regulatory costs of larger firms, small businesses bear a disproportionately large amount of the burden, with compliance costs that are 45% higher than their larger counterparts and tax regulations requiring 67% more in terms of costs for smaller firms. The committee focused on the unmet requirements of the 1980 Regulatory Flexibility Act (RegFlex) which mandates that federal agencies consider and review the economic burden of federal regulations on smaller firms. Many agencies, however, have held only limited numbers of reviews. “When given the opportunity small firms can bolster our economy, but these regulations are costing them their valuable capital and time,” said Gonzalez. “Clearly more needs to be done to ensure that regulations do not unfairly burden small firms.”
 
“With an economy in distress from high energy prices, high unemployment and a troubled financial market, we must do all that we can to promote a strong small business sector,” he added.
 
Jacob Barron, NACM staff writer