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Summing It Up

Keeping you ahead of the curve with timely news & updates.


How Asset Based Lenders Can Help Customers Avoid Internet Fraud Schemes

Author: Mike Boeheim

Protect Your ABL’s Assets by Helping Your Clients Recognize and Stop Internet Fraud

fraudAs people flock to the Web to make purchases, they risk being snared by Internet fraud. Asset based lenders need to be aware of the latest scams that could affect your customers and impair debt service.

Popular Fraud Tactics

As you can imagine, cybercrime can take many forms, such as credit and debit card fraud, mobile phone transaction fraud, pay-per-click (PPC) scams, and, of course, identity theft.

Fraudsters can get very creative when “trolling” the Internet for opportunities. For instance, some might use malware to collect credit card information from unsecured merchant websites. PPC fraudsters also cause unsuspecting merchants to incur charges every time customers click on their ads. Then they redirect the customers to their website, thereby “stealing” the sale.

Help Your Clients Stop Internet Fraud

Determine whether your clients are taking appropriate steps to protect themselves against Internet fraud. Ask whether they’re analyzing transactions and identifying which are at a higher risk for cybercrime. Some examples of online order form red flags include customers who use drop shipment forwarding addresses, or post office boxes and payments split between multiple debit and credit cards. All of these can signal the use of stolen cards.

According to a survey by technology provider FIS’s ClearCommerce®, an e-payment processing and fraud prevention service;

other warning signs you need to be aware of include differences between billing and shipping addresses, the country of the billing and IP address, or the area code and the billing ZIP code. International shipping addresses — especially those in former Eastern Bloc countries or the Middle East may be suspect, Of course, just the existence of a red flag doesn’t mean that fraud has taken place. But it does mean that borrowers should take a closer look at the potentially high-risk order before processing it.

Asset Based Lenders Need to do Due Diligence too

As part of your due diligence, ask your clients whether they’ve taken steps to secure their IT against fraud. Transaction screening software can take a lot of the guesswork out of identifying these high-risk transactions. Another security measure you should pass along to your clients is to couple automated address verification services with card security code systems. This will not only verify the cardholder’s address, but also crosscheck the security code on the back of the card.

All borrowers should employ and maintain encryption codes, antivirus software, firewalls, and operating system and browser updates. By taking these measures, the client will be protected on the merchant side, as well as when ordering for its own materials, downloading, or sharing information with any supply chain partners.

Don’t go it alone

Of course, maintaining secure, efficient computer systems can be quite daunting and way outside the bailiwick of most entrepreneurs. So, if one of your borrowers simply can’t afford a dedicated IT professional, a CPA can help them tackle the cybercrime prevention tasks mentioned above on an as-needed basis.

Fraud Awareness3Freed Maxick’ s Asset Based Lending Team works with dozens of asset based lenders across the country. We can assist you in evaluating the integrity of your customers’ collateral by performing pre-loan surveys and rotational collateral monitoring field examinations.

Freed Maxick also provide specialized forensic accounting services.

If you or your clients need assistance in fraud detection, prevention or remediation, contact us, or call me directly at 716-847-2651.

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Asset Based Lenders Can Help a Business Survive Through Ownership Change

Author: Bob Abraham

Protecting Your Investment in a Client with Succession Planning Advice is Smart Business

You’ve likely heard the saying: “The only constant in life is change.” Most asset based lenders recognize this “reality” and they plan ahead with their clients to tackle future challenges, such as a change in management. The following fictitious tale shows how it’s done.

The Story of Susan and John

Some six years ago, Susan Matthews told her lender, John Deep-Pockets, that she wanted to retire at age 55 with her husband in Maui. She wanted to turn over Matthews Foods to her daughter, Abigail.

John was quite concerned about this move, since he knew firsthand how bad the failure rate was for second-generation owners. On top of that, Abigail, a young speech therapist, lacked the manufacturing experience, technical know-how and fiscal discipline that had made Matthews Foods a model borrower for the last 20 years.

John knew he had to have a heart-to-heart discussion with Susan about the future of Matthews Foods. Although Susan really wanted to see Abigail take over the reins, she wondered if Abigail was truly qualified for the job and willing to dig in. Moreover, Susan wondered if Matthews Foods would survive her.

When Susan admitted that her daughter really didn’t have much of a “head for business” or even an interest in learning the trade, she gifted stock to Abigail, which provided her with a passive income stream, as well as a seat on the company’s board of directors. Susan’s treasurer filled in as interim CEO and assembled a professional management team that would handle all the day-to-day operations going forward.

Susan did make her dreams come true and retired in Maui. Although she isn’t involved with the company anymore, her legacy still lives on through Matthews Foods. The new management team took the company to the next level, and is currently considering a public offering.

Get up Close and Personal

At some point all companies outgrow the “first-generation” entrepreneurs. Maybe the founder wants to retire, or has health issues. Or perhaps the business reaches a critical mass that exceeds the founder’s abilities. When current management is struggling just to stay afloat, the owner must deal with some tough choices. For example, should it bring in a family member, sell to a larger organization or hire more experienced outsiders? In order to recognize when it’s time to upgrade management, lenders should visit the borrower’s premises to get acquainted with all the staff.

When interviewing owners and managers, it’s important to consider their health, ages and retirement goals. Determine if the owners are so buried in administrative chores that they are spending less time in important management activities such as selling new accounts and brainstorming ideas.

Also, ask to see the business’s organizational chart and job descriptions. Every company should have a tiered structure and a viable succession plan. Such planning can help minimize the risk of relying too heavily on key people. Also evaluate the qualifications of any up-and-coming managers. Consider whether they truly have what it takes to run the show. If they don’t, mentoring and training are in order.

Time for Change?

If one of your borrowers is in a similar situation as Susan, it’s time for a management upgrade or change. With higher-than-average unemployment rates in the United States, it’s truly an employer’s market. There are hundreds of skilled but out-of-work managers that would likely be eager to jump aboard your borrower’s ship.

Lenders can help introduce borrowers to their networks of business contacts. Moreover, lenders often know of retired corporate executives who would be willing to fill a seat on the board of directors. Experienced people like these can be invaluable advisors to a business in need of advice.

As a lender, you value established customer relationships. And when you see a change in a relationship on the horizon, take advantage of the opportunity to render sound advice and prepare yourself for the future.

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ABLFreed Maxick’s Asset Based Lending Team works with dozens of asset based lenders across the country. We can assist you in evaluating the integrity of your customers’ collateral by performing pre-loan surveys and rotational collateral monitoring field examinations.

We also provide specialized succession planning services to assist your clients with ownership transitions.

For more information about our services for asset based lenders, contact us here, or call us at 716.847.2651.

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Percentage of Completion Accounting Can Help You Make Prudent Lending Decisions

Author: Paul Muldoon                               

Six questions – and answers –  to help you better evaluate your borrowers’ performance

According to Generally Accepted Accounting Principles, “GAAP”, any revenue from projects that span more than a calendar year are typically recorded under the “percentage of completion method” for long-term contracts. Here’s what you need to know to help you better evaluate your borrowers’ performance.

Q: What do I need to know about the percentage of completion method?

A: If a borrower enters into a long-term contract, the percentage of completion method will affect its financial statements, and the subjective use of estimates might put you at risk for financial misstatement. It’s critical that you understand the basics of percentage of completion accounting so you can make more informed, prudent lending decisions.

Q: What types of lenders typically use the method?

A: Any company entering into a long term contract. For example, homebuilders, architects, commercial developers, creative agencies or engineering firms, use this method. There are several ways to report long-term contracts, according to the AICPA’s Accounting Research Bulletin (ARB) No. 45, Long-Term, Construction-Type Contracts, and Statement of Position (SOP) 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts.

The first method is known as the “completed contract.” With this method, revenues and expenses are recorded once the contractor fulfills the terms of the contract. The “percentage of completion method,” on the other hand, ties revenue recognition to the incurrence of any job costs (or estimates of an annual completion factor). SOP 81-1 establishes a strong choice for the percentage of completion method, so long as businesses can make estimates that are “sufficiently dependable.” Many contractors use the method for income tax purposes.

Q: How does the method differ from the revenue recognition principle?

A: GAAP requires that all borrowers report revenues as earned, regardless of when the cash is received. Typically, revenues are considered as “earned” when a business delivers the products or services to the customer. The percentage of completion method deviates from the revenue recognition principle by identifying income before a job’s completion.

This method matches any revenues to costs incurred, including materials, direct labor, and overhead. Normally, borrowers use the cost comparison method in order to estimate percentage complete. And sometimes, contractors will estimate the percentage complete with an annual completion factor. Keep in mind that the IRS requires detailed documentation or certification from an engineer or architect to support annual completion factors.

Q: How does percentage of completion work?

A: This is how percentage of completion affects financial statements: Let’s look at a $1 million job that’s expected to span two years and cost somewhere around $800,000. In the first year, the contractor incurs some $400,000 in costs and then sends an invoice of $450,000 to the client.

At the end of Year 1, the percentage complete is 50% — that is, $400,000 in actual costs divided by $800,000 in expected total costs. Thus, the contractor would record some $500,000 in revenues (calculated as $1 million times 50%) to match the $400,000 in costs. So, the contractor’s net gross profit is $100,000 in Year 1.

Next, the contractor reports billings in excess (a liability) or costs in excess (an asset) on the balance sheet. Here, the borrower has billed $450,000 but has recorded $500,000 in revenues. The $50,000 difference will show up as costs in excess, a current asset account that reflects the under billings in Year 1.

Many companies run several jobs simultaneously. GAAP doesn’t allow contractors to offset (or net) assets against liabilities. So it’s possible that a contractor will report both costs and billings in excess on its balance sheet.

As you can see, percentage of completion accounting requires subjective estimates about expected costs. Further complicated by job cost allocation policies, changes in estimates and orders, and differences between book and tax accounting methods.

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ABLFreed Maxick’ s Asset Based Lending Team works with dozens of asset based lenders across the country. We can assist you in evaluating the integrity of your customers’ collateral by performing pre-loan surveys and rotational collateral monitoring field examinations.

For more information about our services for asset based lenders, contact me here, or call us at 716.847.2651.

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Fraud Awareness Workshop: April 17-19 | Best Practices

Best Practices in the Prevention and Detection of Borrower Fraud!  

Mike Boeheim, CIA, CFE and Director at Freed Maxick ABL Services will take part in the upcoming Fraud Awareness Workshop presented by the CFA on April 17th-19th.

The event is a three-day program presenting best practices in the prevention and detection of borrower fraud while also recommending fraud prevention procedures for a variety of ABL disciplines. Reinforcing each learning point through numerous case studies, the goal of the program is for participants to understand their roles in mitigating the risk of fraud within their organizations.

This is a must attend for any staff member seeking to minimize their institutions' fraud risk. 

Program Times:
Wednesday, April 17: 8:30 a.m. - 5:00 p.m.
Thursday, April 18: 8:30 a.m. - 5:00 p.m.
Friday, April 19: 8:30 a.m. - 1:00 p.m.

Continental breakfast will be served each day beginning at 8:30 a.m.  The program will begin at 9:00 a.m. Lunch will also be provided each day.

Program Level: Intermediate 


April 17 - 19, 2013

Event Start Time: 8:30 a.m.
Troutman Sanders, LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174

Follow links to Register or for more information

Member: $745 
Non-Member: $945  

Sign Up Today! 



ABLTo gain more insight into fraud and Asset Based Lending issues, check out related blog posts on our "Summing it Up" blog. You can also get a free copy of the keynote presentation delivered at the Commercial Finance Association Fraud Awareness Program Workshop. 

We’re pleased to offer a complimentary copy of this valuable resource. 
Inside includes:

  • 11 common fraud schemes

  • Critical management pressure points that lead to fraud

  • 6 red flags that every asset based lender needs to be on the lookout

  • Recognizing irregularities in  source documents, accounts payables and financial statements

  • 9 common inventory fraud schemes and deterrents

For information about our ABL Services team and related services,
check us out on the web.

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