Milwaukee Biz Blog

Recent news reports about the Justice Louis Butler/Michael Gabelman race referenced the last election in which an incumbent Wisconsin Supreme Court Justice was defeated. The winner in that race was my father, Justice Robert W. Hansen.

I remember the 1967 election vividly, and the only similarity between the two elections is the outcome.

As someone who believed in grassroots connections and an independent judiciary, my father would have been appalled at the recent campaign. My father loved a good, hard-fought political campaign, but he always approached being a judge and campaigning for election with a commitment to open, honest debate.

He possessed an inherent sense of integrity in his campaign and as a judge. 

As a lawyer who shares those values, I am appalled at the recent evidence that a seat on our state Supreme Court can be bought.

I have practiced for over 25 years and been active in many judicial campaigns, and I have been an unwavering supporter of an elected judiciary. At this point, serious changes need to occur if we are going to maintain public respect for and a belief in the integrity in our courts.

The concept that judges can only run on a platform of monied political agendas or a race to convince the public they will lock up the most defendants for the longest time is an embarrassment to the judiciary and my profession.

We currently have many fine judges who come from various legal backgrounds - prosecutors, defense attorneys and private practitioners. This balance contributes to the diversity and quality of our courts.
If the recent Supreme Court election is any indication, however, any defense attorney who does his or her job well may now be eliminated from the possibility of being a judge, based on attacks such as those levied against Justice Butler.

How can we expect to have competent and impartial judges who apply the law fairly and impartially if the only litmus test becomes having been a prosecutor or catering to interests that can fund exorbitantly expensive campaigns?

In my view, that is a judiciary for sale. The only question is who will be the next target.  If he were still alive, my father would share my sense of outrage at what judicial campaigns have become. The time for change is now.

Susan Hansen is a principal at Hansen & Hildebrand S.C., a Milwaukee law firm.

Wisconsin's small businesses and nonprofits deserve laws that will help them to get started, thrive and grow.

We're fortunate to have so many successful small firms - around 115,300 that employ about 54 percent of non-farm workers and represent 98 percent of all employers in our state, according to the most recent estimates of the U.S. Small Business Administration.

As a former owner of a small business, I often ponder how our government can work for small firms, not against them. As we review new regulations, we need to consider their effect on our states' employers. When President Ronald Reagan said, "The most terrifying words in the English language are: I'm from the government and I'm here to help," he articulated the sentiment of employers in America who think regulations are a hindrance, not a help. 

Government can help the employers in our state by passing progressive legislation that will benefit both the employers and their workers. That's why I've authored Assembly Bill 760. This bill will help small firms and their workers by providing sound regulation of a growing new industry - professional employer organizations, or PEOs. The bill has broad bipartisan support from legislators in nearly every part of the state, including Sen. Bob Wirch (D-Pleasant Prairie), who is authoring this legislation in the State Senate as Senate Bill 440.
AB 760 will require PEOs serving business clients in Wisconsin to register each year with the Department of Regulation and Licensing (DORL) and meet certain requirements to operate in our state. It's revenue neutral; the fees paid by PEOs will offset the administrative costs. The bill is supported by the PEOs already operating in our state and by the National Association of Professional Employer Organizations (NAPEO). 

The PEO industry wants to be regulated - can you imagine that? What other industry goes to state legislatures and asks for regulation? They recognize the importance of their service offering being delivered in a manner that ensures professionalism and compliance.

In fact, the NAPEO and its members want PEO registration or licensing bills in every state; 29 states currently have such laws. So why not Wisconsin, too?

PEOs provide valuable services that I've experienced first-hand. My small business benefited from working with one for several years. I outsourced the time-consuming human resource operations, such as paying and filing the taxes of workers and managing their benefits, to the PEO so I could focus on running my business.

Their professionals advised me on how to comply with local, state and federal employment regulations. And my workers had good health benefits that the PEO secured from major carriers.

As good as PEOs can be for a small firm, it's important to give all concerned - the PEOs, their clients and the workers, as well as the state of Wisconsin - the legal framework for PEOs operating in Wisconsin. We do want to make sure their important functions are delivered responsibly to workers and the state's businesses while providing the state essential employment compliance. There have been only a handful of PEO problems since this young industry's inception in the 1980s - none of those in Wisconsin - and we want to keep it this way.

Compliance with the PEO registration bill is simple and straightforward, requiring annual registration, a minimum amount of working capital or security guarantee and annual audited statements. The bill also will give DORL the ability to effectively and efficiently administer the legislation. 

This bill is a good example of sensible government regulation. This legislation makes sense for all concerned - Wisconsin companies, their workers and their PEOs.

 

State Rep. Scott Newcomer (R-Hartland) represents Wisconsin's 33rd District.

It's that time of year again when we make resolutions in our personal lives that help guide us into the New Year.

Hopefully, for most of us, we'll follow through and achieve all of our resolutions - even if we do fall off the wagon once or twice. 

As a small business owner, this is also the perfect time of year to make a list of resolutions of things you can do to help grow your business in the coming year. Think of it as reinforcing your business plan - or in some cases, rewriting your business plan to take advantage of new opportunities.

Let's take a look at five resolutions that you can make for 2008 to grow and solidify your business.

Resolution #1: Backup your data.
Backup, Backup, Backup.  What would happen to your business come tomorrow if you woke up and found out that your computer with all your finances, customer information and invoices had died? All too often small businesses don't back up their data and as a result their computer turns into a ticking time bomb. In 2008 resolve to make better use of backup software and other technology that helps keep you protected from the failure that will happen sooner or later. Take advantage of new technology that allows for automatic, off-site backups that protect you even further by storing your critical data at another location. Most of these packages are available for a nominal fee and are worth their weight in gold when disaster strikes.

Resolution #2: Invest in customer relationship software.
Turn your customer data into something you can use to help you grow your business. So many companies store their customer data in spreadsheets or in files scattered across the office. Customer Relationship Management software (CRM is the industry slang) helps you manage your customer relationships and track not only their orders but also their interaction with you via phone, e-mail or other means. With a few clicks you can find out who your most valuable customers are, which ones are consuming large amounts of your time and which ones are prospects for growth in the upcoming year. There are many packages on the market that can help you with this, ranging from off-the-shelf varieties that can suit most business needs and are available at your local office supply store to fully customizable one from big vendors such as Microsoft and Oracle. Take some time this New Year to read up more on CRM software and learn how it can be a valuable tool in managing your customers and your business.

Resolution #3: Procure a good accounting package.
Make 2008 the year you stop using spreadsheets to track your finances and invest in a good accounting package. Spreadsheets are good for very small businesses, but the moment when you start growing you will find that you are being held back by their lack of ability to manage complex financial transactions. Another benefit you will receive from investing in a good accounting package is that tax time will be a breeze - many accounting packages on the market today have modules that let you literally point, click and print your tax returns for your business! A good accounting package can pay for itself within weeks and in many cases even sooner. Think how much more effectively you could run your business when you can get up in the morning and see, at-a-glance, how well your business is doing.

 

Resolution #4: Become a marketing pro.
Learn how to effectively market yourself and your business. You don't need an MBA in marketing to be an effective marketer thanks to the wealth of information online and in stores nowadays about how to market almost any type of business. Perhaps 2008 is the year you decide to take a class or two at your local college to brush up on your marketing skills. Many businesspeople are heading back to the classroom to learn about more effective business management and marketing - plus it is a terrific way to network. Take a few moments when you turn the calendar to put together a list of marketing resources available online and locally and then resolve to take action on one or more of them. After all, nobody is going to buy from your company if they don't know who you are to begin with!

 

Resolution #5: Outsource!
Take inventory in your business of how you can offload some of the more repetitive, routine tasks to others to allow you more time to grow the business. We often get loaded down with routine tasks that must be done, but end up stealing away our precious time we could be investing in the business to make it grow. Whether it be by hiring an administrative assistant to do some of these tasks or outsourcing some of the work to specialty companies or individuals, you may be surprised to find out that the additional cost of doing so is more than made up for by the "brain power" you are able to put back into your business. An added benefit is that by adding personnel to do such tasks they may be able to find even more efficiencies since they are often skilled in these areas - because, let's face it, not all of us can be an expert on every aspect of running a business!

 

So now it's time for you to act. What will you do this New Year to help your small business grow? What action plans can you put in place now to guide you through the upcoming year? 

 

Consultant David Bohl of Hartland is a contributing author at Small Business Trends.

Firestone and the Asphalt Paving Alliance might not come to mind when you think "green." But the significant presence of the two organizations at the recent Greenbuild International Conference and Expo in Chicago points out just how mainstream "green" is becoming.

Your probable disassociation of those two names with green also reflects a widespread challenge for those who want a greener world and more healthy living spaces.

That challenge involves the definition of green. More specifically, it involves a definition that consumers can relate to and easily understand. There are plenty of industry specification guidelines that architects, engineers, builders and developers are familiar with. But the homeowner pretty much has been left on his or her own when it comes to trying to figure out what building or home improvement products are green and to what degree of green.

For the record, Firestone Building Products Co. launched a green roofing initiative this year. (Yes, its parent corporation is the one that makes tires.) And the Asphalt Paving Alliance likes to note that asphalt is the most widely recycled product in America. That counts as green. Most of the people who attended Greenbuild this year understand that, even if not all of them are willing to live with such a broad definition.

Many of the products displayed by the 850 exhibitors at Greenbuild, however, were consumer oriented, including flooring, paint, toilets, windows and a myriad of other products. By and large, those products are purchased through retailers who have face-to-face contact with homeowners.

Those homeowners are confused, and many of the retailers that serve them have been frustrated by that confusion. We've heard that time and again from the many green retailers we deal with through the distribution side of our business, and from consumers we work with through our retail outlet. They want green definitions and guidelines to help them make informed decisions.

Our response has been Degree of Green - a program that helps retailers educate consumers and contractors on the green and healthy characteristics of home building and home improvement products. The program, which will officially be launched in January, received enthusiastic response from retailers who attended Greenbuild.

At the heart of Degree of Green is a product rating system. The judging panel, which includes Thiensville's Lyn Falk, a nationally recognized expert on green and healthy living spaces, reviews products from three perspectives: 1) the least adverse effects on human health; 2) the highest level of environmental sustainability; and 3) the least adverse effects on the environment.

That will not only help retailers educate consumers, but also allow consumers to make choices based on factors that are most important to them. Just as green building products come in varying degrees of green, consumers have varying desires and needs when it comes to green products. Some are more concerned about environmentalism while others are more concerned about personal health or the health of their families. (Products in the "green" world are most often less toxic than traditional building products. For example, "green" cabinetry, carpeting and paint do not out-gas the way traditional products do.) For others, the concern involves materials sourcing.

Each Degree of Green report describes a product, its composition, advantages and raw materials sourcing, and offers comparative data.

Retailers who participate in the Degree of Green program will not only receive an ongoing flow of rating sheets but also a full merchandising support program, including a web site that was just launched at www.degreeofgreen.com.

Industry thought leader Joel Makower asked this in a recent blog: "What will it take to bring honesty, accuracy, accountability, and transparency to the marketplace?" We believe Degree of Green is an answer to that question.

As recent national studies and the recent Greenbuild expo have shown, green is growing. Last year's expo in Denver drew 14,000 people. This year, more than 20,000 went to Chicago for the expo. Plenty of those people were from Wisconsin, as were many of the exhibitors, including Johnson Controls Inc., Johnson Diversey Inc., Marshfield Door, Super Sky Products, InPro, Kohler, Wausau Paper, Wausau Tile, Trane, Cooper Industries, FJA Christiansen Roofing (through Tecta America) and the Energy Center of Wisconsin.

Those are all established, mainstream companies that have solid green products or services.
And like those mainstream companies, the crowds at Greenbuild were pretty mainstream too. Sure, the "Birkenstock" crowd was represented at the expo. But based on the number of people with suits and ties or in corporately accepted business casual, green has certainly come of age in American business.

 

Andy Pace, CSI, is founder and president of Safe Building Solutions in Waukesha. Pace has served on the board of the Wisconsin Green Building Alliance and is a two-time president of the Construction Specifications Institute-Milwaukee Chapter. He can be reached at andy@safebuildingsolutions.com or by calling 800-697-5371.

Every business conducts its affairs as a particular kind of business entity (or business structure). The organizational form that you choose determines which tax and legal regulations will apply.

For tax purposes the IRS gives a choice of the following kinds of business structures:

• Sole proprietorship.
• Partnership (several types).
• Corporation (two types).

If you’re self-employed in business and you have done nothing about a business entity, your business is already structured. It is a sole proprietorship.
There is no need to complicate where simplicity will suffice. For all but a few newly-hatched solo ventures, a sole proprietorship is the way to go.

Wait. Wait. Wait.

If cousin Harry at the schvitz or Aunt Tillie during Thanksgiving dinner told you that you’re a big boy now and you’d better incorporate, hold on a minute.

Don’t rush into anything. Get some information.

When you look at how to structure your indie business, trying to decide which entity is best for you, be sure to ask yourself the right question.

So, ignoring Harry and Tillie for the moment, are you looking to change your business entity for tax reasons or for liability purposes?

If it’s for tax reasons, as a sole proprietor are you taking full advantage of every tax law and reg available to you? Don’t go into the expense and hassle of incorporation if you can’t answer a firm yes to that question.

The Feds say that nearly four out of five businesses in the United States are sole proprietorships. Yet just about every lawyer advises a budding indie to incorporate. In25 years of experience I have found only one attorney who didn't answer, "yes,” when asked, ”Should I incorporate?” And every new client that has come to me already set up as a corporation said he or she did it because "my attorney (or my accountant) told me to do it." None of them had a clear idea of why incorporation was supposed to be an advantage.

The tax benefits of incorporation are pushed heavily by attorneys because that’s what they’re used to: working with corporations, not working with solos who design web sites or computer programs. They don’t know the tax benefits available to indies!

Sometimes there are good reasons why a self-employed should incorporate, but, if advised that you must do it, find out why. Be sure the professional explains to your satisfaction - and also to the satisfaction of a savvy friend, colleague or relative - what makes incorporation necessary.

Facts - to stifle some old husbands' tales:
All business structures.

• Allow you to deduct business expenses.
• Allow some sort of deduction for medical insurance.
• Allow for contributions to pension plans.
• Allow you to hire employees or subcontractors.
• Allow the other guy to sue you.
• Do not allow you to hide income.
• Do not allow you to write off personal non-business expenses.

 

Other business structures
If four out of five businesses in the USA are sole proprietorships, that leaves one out of five that’s structured differently. The other choices are: partnerships - a sole proprietorship is a one-owner business, a partnership is for more than one owner; and two kinds of corporations - a regular or C-corporation, and an S-corporation, which is a hybrid, part partnership and part corporation.

I said that it is important to know why you are considering a change of business entities - because of taxes or liability. Well, sole proprietorships, partnerships and corporations are tax entities.

Now enter the new kid on the block - the LLC. An LLC is a limited liability company. Note that the “C” means “company,” not “corporation.” The important thing to know: An LLC is not a federal tax entity but a legal business structure set up under the laws of each state. Because LLCs are formed under 50 different sets of state law, regulations governing an LLC depend upon the state of organization. The legal treatment of an LLC may vary from state to state.

If your business is an LLC, it has liability protection similar to that enjoyed by a corporation. You are not personally liable for the debts or liabilities of the LLC. That means a disgruntled supplier could go after your office equipment (a business asset) as payment for a delinquent invoice but could not confiscate your kitchen appliances (personal assets).

The legal entity, LLC, may be set up for tax purposes as a sole proprietorship, a partnership or a corporation.

If, as a sole proprietor, you foresee potential liability problems because of the kind of business you are in, then speak to an attorney about forming an LLC as a sole proprietor.

Some states recognize another legal entity called a Limited Liability Partnership (LLP). This is available in certain states to certain professions such as doctors or attorneys or accountants. An LLP bears many similarities to an LLC.

Remember: LLCs and LLPs are legal designations, not tax designations. Before setting up an LLC or LLP speak to a knowledgeable attorney about the liability protection afforded you by your state’s regulations governing an LLC.

June Walker is a tax and financial consultant to the arts and independent professionals. She is based in Santa Fe, N.M., but she is a regular reader of the Milwaukee Biz Blog and has several clients in Wisconsin. Additional information is available at www.junewalkeronline.com.

The questions are frightening. How would you respond to the media if an accident at your company resulted in serious injuries or death? Or if someone tampered with your product, requiring a recall of millions of dollars of inventory? Or if an official at your company was charged with financial wrong-doing?

What would be your response to these or other crises? How would you handle the gaggle of reporters camping in your parking lot - or worse yet, the front lawn of your home - waiting for you to explain a business disaster of any kind?

A recent survey indicates that an alarming number of companies simply don't know how they would respond. They are without a crisis communications plan and may not have the foggiest idea of what to do when a crisis strikes. Yet any of these scenarios, plus some you might never dream of, could happen at any time.

The survey by BtoB Magazine showed 57 percent of companies have little or no idea how to handle a crisis, meaning nearly six in 10 companies would not be ready to respond to disasters with a crisis communications response plan in place. Of the 43 percent of companies that do have a crisis communications plan in place, 10 percent of those surveyed worried that their plans couldn't be implemented. And only half had trained spokespersons on their staff.

Yet your response to a crisis can have a direct effect on the health and well-being of your company and your brand. As with everything, there are right ways and wrong ways of handling a crisis. The key is to act quickly and to make sure your communications are accurate. The old adage, "tell it all, tell it fast and tell the truth" certainly applies. But without a crisis plan, how can you make sure that you accomplish those three rules?

Take one great example of how to handle a crisis: The case of the so-called Tylenol Murders, when someone tampered with Extra Strength Tylenol capsules, resulting in the deaths of seven people. In what is now a textbook case of how to handle a crisis aggressively, the manufacturer Johnson and Johnson immediately recalled all Tylenol Extra Strength capsules from the market and kept the media informed of every step. A quick response from the manufacturer, effective media relations and complete transparency were keys to allowing the product to be back on the market within the year. Johnson and Johnson suffered minimal damage to its long-term reputation as a result.

Then think of the Sago Mining disaster, where mine officials announced that 12 trapped miners were alive after a mine collapse, only to later have to announce that 12 men were killed. This mishandling of facts not only damaged the company's credibility, it had a devastating effect on the families of those miners.

But death and injury are not needed to create a crisis for your company.
Lawsuits can be particularly nasty, as the charges are often publicized as fact while the company response is often buried in the story. Charges of financial malfeasance can cripple a company's credibility, especially in the investor community. A fire or natural disaster requires not only external communications, but internal communications so that employees know whether or not to report to work.

What would you do?

One way to plan for the unforeseeable is to dream up any conceivable crisis and create a response. Anticipate crisis before it occurs. Trying to perform crisis communications on the fly can only make matters worse as your message gets muddled in the frenzy of media activity. Making matters worse, decisions may be made hastily and without necessary information.

It's important to remember that the Internet allows all information - including misinformation - to travel quickly. The needs of radio, television and print media need to be served, but awareness of the blogging community and other non-traditional media also needs to be taken into consideration.

A few general rules are helpful, but are by no means a substitute for a comprehensive crisis communications plan.

• First, create a crisis response team. Make sure all key players, from the CEO, the communications department, the legal department and any of those involved with the technical aspects of a crisis scenario are involved. Make sure you have all contact information - home phone, cell phone, direct office lines - for all key personnel. Remember, in an era of Blackberrys and Treos, no one should ever be out of communication. Even instant messaging can be helpful in getting word to the key players in any crisis.
• Next, provide media training to anyone who may become involved with the crisis publicly. This means everyone from the CEO to the technical staff needs to be aware that what they say will directly affect your company's credibility in a crisis.
• Name a spokesperson. It's important to have message consistency in a crisis, and having one person in charge of speaking publicly diminishes chances of conflicting messages.
• Know your audience. Who are you trying to reach? Stockholders? Employees? Consumers? Remember, your first audience is the media, but it is through them that you will often be communicating with your key stakeholders.

It's crucial that a crisis communications plan be created for your business before crisis strikes. The stakes are too high to ignore crisis communications. Your company's reputation and even your bottom line are at risk without proper planning.

Bill Zaferos is the public relations director for Nelson Schmidt in Milwaukee.

Dear Wisconsin Legislators:
The 35 cities, towns and villages of the Regional Telecommunications Commission oppose the Plale-Montgomery bill. Here are some of the problems we see. 

The justification for this bill is to generate competition among cable and video providers. This is a goal that our organization has fought to achieve for years.
For example, before the high-tech bust we fast tracked Digital Access, a new cable-Internet-phone provider. In six months we had an agreement that was fair for our communities and our cable provider, Time Warner.

In late 2005, we contacted AT&T Wisconsin and began a year’s negotiations for a model agreement that we thought all of Wisconsin’s communities could adopt. AT&T stopped negotiations when they thought they could get a "better" deal from you in Madison. The Pale-Montgomery bill obstructed our negotiations.

Indeed, AT&T could have had a model agreement by mid-2006. Today we would happily agree to the Milwaukee-AT&T agreement. AT&T refuses to talk.
Let us make clear that we want competition to improve service and lower costs for our consumers. We just do not think that this bill accomplishes this goal.

 

Let us look at why:
Many of our communities use PEG for governmental and educational purposes, servicing those who live in our cities, villages and towns. PEG operates on a shoestring but produces value. PEG is supported by volunteers. Yet the bill forces PEG to "raise" its own funding after three years, according to Senator Plale. This will kill PEG.

The elimination of PEG does not help competition. The modest pass-through costs are by paid by subscriber. What it does is to allow the provider to raise its own rate. This is exactly what Time Warner did when it won concessions from Milwaukee for PEG.

On a different issue, we think that it is fair for new providers to carry PEG once they have reached a certain thresh hold of subscribers and to connect PEG to their system. This is what current providers do.

We want our citizens to receive service on a neutral basis and not based on race or wealth. While the bill makes accommodations, enforcement is inadequate. A weak department, with no consumer experience, has purposely been assigned this task. But to insure non-enforcement, its "budget" was cut to less than $70,000. 

The RTC just finished an audit of one of our providers. We are claiming fees that were not paid. Other communities have had success with their audits. The Plale-Montgomery bill restricts our audits. What does this have to do with competition?

The answer is nothing.

The Plale- Montgomery bill is about power in an industry to control and dominate the market. This is bad business and bad government.

The argument also has been made that AT&T will not invest capital or manpower if this bill fails. But reality shows that they are competing now. Moreover, AT&T has no other choice. They have lost 1/3 of their telephone market to cable and VOIP providers. They have no other choice!

On the other hand, Time Warner is investing $20 million in a new building in Appleton and will hire 300 workers over the next five years.

We are also concerned that we have been systematically excluded from this process.  Representative Montgomery made clear that the RTC and other municipalities would "not have a seat at the table."  As they say, "When you don’t have a seat at the table, you are liable to be part of the meal."

AT&T likes this bill. Our communities oppose it. AT&T- Wisconsin lobbyists helped write this bill. They have hired a battalion of lobbyists, set up a phony advertising campaign and contributed over $100,000 to members of the Senate and Assembly. The members of our organization, the RTC, are all volunteers and local officials. We are not sophisticated lobbyists, nor do we have funds to contribute to your campaigns. We are just trying to keep our rights of way and represent the best interests of our citizens.

These citizens believe that their rates will go down. They are wrong.  AT&T has been up front that their current rates are only for promotional purposes. They originally project a 20 percent increase to $120. Now they are projecting an increase of 45 percent to $145. 

We ask that you either reject this bill or change it to be in accord with the Milwaukee-AT&T agreement.

 

Sincerely,

Bob Chernow
Chairman of the Regional Telecommunication Commission

Fraud comes in all sizes, ranging from billion dollar cases of corporate fraud and thousand dollar cases of employee embezzlement to employees overcharging their expense reports.

Therefore, an effective fraud prevention strategy must be multi-dimensional, considering senior management, employees and even outside parties such as customers and vendors. An effective fraud prevention strategy must also be adaptable to the ever-changing fraud schemes as internal controls and technology change the operating environments of most companies.

So how does a company develop a fraud prevention strategy without spending millions of dollars and scrutinizing all of its transactions? One technique is to break the problem into smaller pieces. Let’s consider (1) the work environment; (2) control systems; and (3) fraud-specific procedures.

Work environment
An effective fraud prevention strategy begins with creating a work environment that defines and reinforces anti-fraud behavior. This includes how the company treats its customers, employees and suppliers. No matter how many internal control systems or anti-fraud procedures are used, there needs to be the proper "tone at the top" that demands to "always do the right thing no matter what the cost to the company."

Without a strong anti-fraud culture, opportunity and rationalization will appear to those individuals with enough pressure to commit the fraudulent act. A key element to an anti-fraud work environment is a clearly written fraud policy. This policy should describe the corporate commitment to the fair treatment of all employees, customers, and suppliers.

Any variances from company policy need to be handled according to the written fraud policy. Any variances, no matter the size, will limit the effectiveness of the company policy allowing the rationalization of future fraud activity.

It is important to have a history of prosecuting fraudulent activity.

The whistle blower system is also an effective tool for the work environment. According to the "2006 Report to the Nation on Occupational Fraud and Abuse" of the Association of Certified Fraud Examiners (ACFE), 34.2 percent of the initial reports of occupational abuse resulted from tips. These tips came from employees, customers and vendors. An effective whistle blower system allows key individuals to report fraud without the threat of retribution. It is also important to have a history of prosecuting fraudulent activity. Too often, employees caught committing fraud against the company are terminated without the negative, embarrassing consequences of being prosecuted for their crime. Faced with only termination, the employee often commits the act again at their next employer.

 

Control systems
Control systems include the internal control systems of the company. These control systems are front lines in the fight against fraud. An adequate system of internal controls reduces the number of opportunities available to those individuals with pressure and rationalization. The importance of internal control systems is evident by Section 404 of Sarbanes-Oxley. This law requires not only the establishment of a system of internal controls but also is concerned with how management assesses these controls. Currently, public companies are spending significant resources, both people and money, in compliance with this law. ACFE’s “2006 Report to the Nation” illustrates the importance of control systems with 20.2% of initial reports resulting from internal audits and 19.2% resulting from internal controls.

 

Fraud-specific procedures
The core of the fraud prevention strategy is the use of fraud-specific procedures. These procedures are specifically designed to detect fraud, in contrast to the control activities of the internal control systems which are generally applied to achieve the control objectives.

Whereas control objectives are designed to reduce the opportunities for fraud, the fraud-specific procedures are designed to test for the presence of fraudulent activity.

These procedures are analogous to a medical exam. Even though an individual may live a healthy lifestyle, with proper eating and exercise habits, regular medical exams are still recommended. During these medical exams, the doctor is looking for the presence of disease or other medical conditions, that if detected early, can be effectively treated. Similarly, the use of fraud-specific procedures looks for the presence of fraud-related activities. These procedures should be performed randomly throughout the year by testing a variety of areas of potential fraud, including areas such as ghost employees, fictitious vendors, kiting and inventory shrinkage.

The application of these procedures offers two benefits. The first benefit is the possible discovery of a fraud in progress. This is a direct benefit resulting in a reduction of the possible financial damage from the fraudulent activity. The other is the indirect benefit of reducing the opportunity to commit fraud. With the presence of these random, fraud-specific procedures, anyone contemplating a fraud needs to consider the potential their fraudulent activity will be identified. This unknown may be enough to convince an individual that opportunity does not exist, therefore the fraudulent activity cannot be successful.

A fraud prevention strategy starts with a work environment intolerable to fraudulent behavior.
Fraud is committed by individuals motivated by pressure, opportunity, and rationalization, working in an ever-changing environment. In order to be effective, a fraud prevention strategy needs to be multi-dimensional. The strategy starts with a work environment intolerable to fraudulent behavior. This work environment is supported by robust control systems which are monitored and revised to address current environmental conditions. In addition, these control systems are supplemented by fraud-specific procedures, designed to identify existing fraudulent activity.

 

Craig Siiro is a partner at Virchow Krause & Company LLC, where he leads the accounting firm's Fraud and Forensic Accounting Team. He specializes in fraud examinations and forensic accounting services. He can be reached at csiiro@virchowkrause.com.

Most companies use innovation to create a new product offering, solve an internal operations problem or improve value delivered to the customer. But they keep their solutions within their businesses, ignoring the broad market appeal that often exists. Visionary CEOs, on the other hand, have been highly rewarded for taking those solutions to the market through corporate venturing strategies.

I've seen a number of those innovations turn into software-centric web products that can be a competitive advantage for the company, but which are then spun-out through new ventures that can attract high valuation multiples, in some cases exceeding those of the parent.

Corporate venturing is the strategic allocation of a company's resources to purposefully start new businesses. Some are started inside the business (internal corporate venturing) using informal activities like a Skunkworks project or ad hoc idea creation. Others are externally focused, such as investing in an emerging outside company or an indirect investment through a company-sponsored fund.

We'll confine this article to a review of internal corporate venturing strategies, since little has been written about the topic and since the strategy offers potentially high rewards, specifically when the strategy is grounded in the development of proprietary software-centric services  that, while serving an internal need, become the foundation of a valuable new company. (Note: These software centric companies are often spearheaded by CEOs in everyday businesses, not software visionaries and whiz kid developers.)

You may not be familiar with the term corporate venturing, but I am sure you've seen the results all around you.

Some of the region's highly regarded companies provide examples. Metavante, which was formed in the 60s as M&I Data, is a corporate venture of M&I Bank.

Another is Quad/Graphics Inc., a company known for innovation since its formation 36 years ago. A corporate venturing strategy at Quad has spawned a number of new businesses that initially served the parent but then began serving a larger global market as subsidiaries. One of those businesses is

QuadTech, a technology-centered subsidiary formed in 1982 as the R&D arm in support of its parent. The firm gradually expanded its customer reach outside the walls of Quad after creating a competitive advantage for the parent and then leveraging its culture of innovation.

QuadMed is another company nurtured at Quad Graphics before competing in the open market. QuadMed was founded in 1990 to control the skyrocketing health care costs for more than 10,000 employees. Although out-of-control costs were not unique to Quad, the corporation's culture of innovation supported a bold approach to solving the problem, including hiring primary care physicians and building on-site care facilities, pharmacies and health fitness facilities. After its internal success serving Quad Graphics, and reported savings of 30 percent over average Wisconsin companies, it was ready to go to market directly to businesses faced with the same health care cost concerns. Today, QuadMed is a national leader in employer-sponsored healthcare.

But you don't have to be a large company to capitalize on internal corporate venturing.

Zywave was formed inside insurance broker Frank F. Haack & Associates in Wauwatosa and now is a leader in providing software-based reporting solutions to insurance brokerages nationwide.

EMSystem was started by the emergency physician group, Infinity Healthcare in Mequon, and is now a national leader in web-based communications and resource management for emergency services providers.

FurstPerson, based in Chicago, is a leading recruitment process outsourcing (RPO) services firm. The company leverages web-based simulation, analytics and assessment tools to dramatically improve hiring and retention outcomes for clients with call center operations. FurstPerson was launched and nurtured inside a family-owned temporary staffing firm before spinning out in 2000.

Those companies all employ fewer than 150 people. They also leverage proprietary web-software technology as a delivery mechanism for their services. In addition, they are poised for continued growth and margin expansion. That's a great business model. What all of the parent companies have in common is strong market expertise and a willingness to apply resources to innovation and forming new ventures.

What is now known as FurstPerson was formed inside a traditional staffing business that had been around for 25 years. But company chief executive officer Jeff Furst noticed client interest in a specific area of the business and realized there could be a broader market for a technology-enabled service.
FurstPerson was initially able to leverage the back-office infrastructure and resources of its parent, so it could focus on sales, investments in software and organic growth. By 2002, its new business model began to take shape and, since then, FurstPerson has achieved more than 500% growth in revenues.

Businesses spawned from an internal corporate venturing initiative have increased odds of success vs. a pure start-up. While start-ups face the daunting task of launching with few or no customers and little structural support, an internal venture can leverage the parent's infrastructure including the customer base of the parent, its established relationships and the infrastructure of the parent in its formative years. In addition, the operating parent can be a forgiving beta customer and a reference.

From the standpoint of the parent, corporate venturing provides a framework for innovation, access to new markets or monetizing a market niche – even if it takes years before the new entity stands on its own. Worst case, corporate venturing can lead to new products and services for the parent.

Corporate venturing does, however, require patience and, often, a willingness to let the developing entity operate under different standards. While the parent company must support the efforts, internal corporate venturing activities are often best accomplished when the innovators on staff are given a certain amount of operational freedom.

How do you know if your company is right for internal corporate venturing? From a review of companies formed via corporate venturing, a set of conditions and best practices can be seen.

 

Conditions that foster internal corporate venturing market success include:

• Deep knowledge and experience in a market niche by the parent and leadership team.
• The operating company's support for innovation, including a willingness to let new ventures mature at a realistic pace.
• Existence of a solid customer base that can be accessed by the new entity. This is key, because it lowers the cost of bringing in revenue. 
• Ability to scale the new entity through technology rather than through people.
• Once developed, an ability to have a substantial price advantage against existing solutions.
• The parent's reputation and stature in the marketplace as an innovator lend credibility to the new venture.
• Strategic and broad vision that ponders whether a corporate developed “solution” can be commercialized into the broader market.

 

Best practices of internal corporate venturing include:

• Use corporate resources and expertise to hone the new idea.
• Formalize your corporate venturing activities.
• Establish and support a sufficiently separate brand identity for the new entity.
• Plan transitions thoroughly to ensure the survival of the venture as an independent.
• Maintain accountability without suffocating the innovative spirit of the new venture.
• Tap into the expertise of industry peers for feedback. That group is also your first set of customers.
• Use marketing skills to position the new venture as independent at the appropriate time.

 

Take a look at your company to see whether it has the right stuff for corporate venturing. With a formal, strategic approach, complemented by the efficiencies of today's web-based software technologies, your ideas could lead to great rewards.

Kelley Starr is president of Thin Air Software, based in Wauwatosa. He is a contributing writer on technology and business strategy topics. Thin Air Software provides custom software engineering, outsourced Web product development, and managed services for its clients and partners. He can be reached at kelley.starr@thinairsoftware.com.

 

 

How hard it is to do business in Wisconsin? Let me count the ways …

So, I bought this little Oil & Gas company in Texas this month, several million in revenue added to the bottom line and 11 new employees, nothing major.
Well, let me assert this point. It was made a whole hell of a lot easier by the State of Texas and the cities of Dallas, Houston and San Antonio. The folks in their offices of Business Development and others went above and beyond anything I have ever encountered in the state of Wisconsin.  They were courteous, they were willing to assist with needs based on how we wanted to handle the purchase, how to keep jobs, how to license, how to deal with a number of layoffs. They even paid for lunch in Houston that I asked them to come to in order to drill into more questions.

Now, compare that to the hassles of no call backs, standing in lines with an uneducated person who felt I was bothering her and asking too many questions before she was to go on her cigarette break, (yes, she asked me to hurry she needed a ciggy break!)

So once she went on her break, I was asked questions rather than being the question asker, and all the new man wanted to know was if the new company was going to funnel monies into the current company and how much? (His quote, "Milwaukee needs to tax you on that you know!") Milwaukee needs to tax me? Are you nuts? Milwaukee needs to tax me?

So, this is the BS that I had to face for three weeks out of my life, and I am sure no one from city hall is going to give me those three weeks back, so no, the company is purchased but it is going to stay in Texas - every last cent until I retire or sell it, and then I will be in another state with no state taxes or even the scent of a universal health care program.

The City of Milwaukee should wake up and smell the dollars running from this city. As I said to the Future 50 program, I love Milwaukee and I want to grow here, but man alive, be happy companies like mine stay here with all this taxing bull, because it is a full tax break to pick up and move to a Texas or an Atlanta where they cater to our business and not try to choke it by stepping on our throats.

Food for thought!

Christopher Carter is the chief executive officer of CCI in Milwaukee.