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Countering the Counter-Attack

Readers write to say that blaming counterfeiting on outsourcing is a flawed argument; that not all auditor advice should be off-limits; that financial-reporting mistakes are usually caused by incompetent staff; and more.
CFO Staff, CFO Magazine
July 15, 2008

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Blaming counterfeiting on outsourcing is a totally flawed argument ("Counter-Attack," June). Counterfeiting existed well before manufacturing jobs moved abroad. Furthermore, outsourcing has kept product pricing down. Nobody ever wants to recognize that, but I am assuming you wouldn't want to pay more for the items you prefer, would you? It's the "have your cake and eat it, too" argument. Outsourcing has allowed companies to prosper, growing bottom lines, increasing stock value, and driving your 401(k)s.

Steven Berry
Via E-mail

We definitely brought the problem of counterfeiting on ourselves by outsourcing manufacturing jobs and becoming a service economy. If we keep the jobs here we don't have a problem with counterfeiting, because of proper oversight and restrictive laws.

Shane Fisher
Via E-mail


Accepting Risk

Your article "Waste Management Hauls SAP to Court" (Topline, June) was quite useful for alerting technology customers to the importance of getting commitments from vendors to deliver solutions that are useful to the particular customer. In far too many cases, customers contract for, and actually obtain, the vendor's generic "solution," without regard for whether it actually enhances their capability.

The advice of Mr. Wang, the Forrester consultant mentioned in the article, to this effect is quite well taken, but I would augment it in one important respect: Even with meaningful commitments from the vendor in the contract, the customer still requires genuine legal remedies, or a price reflecting their absence.

Many contracts will contain illusory commitments, which are subject to remedy limitations, such as a ceiling on fees paid under the contract for any damage claim, irrespective of the customer's actual damage from a vendor failure. Others will indicate that the customer's sole remedy is for the vendor to re-perform the services at issue, despite the customer's questioning of the vendor's capability. While in some cases customers knowingly accept the risk of vendor performance in return for discounted fees or other specific accommodations, in too many cases the remedy issue is never addressed at all.

Similarly, many vendor contracts contain warranty disclaimers, which expressly state that the vendor makes no assurance that its product will perform as intended. Again, if a customer can live with this limitation and is compensated for it, so be it. But the matter should be squarely addressed.

Marty Robins
Law Office of Martin B. Robins
Buffalo Grove, Illinois


We're Still Talking

Regarding your two cover stories under "Can We Talk?" (May): "Can This Relationship Be Saved?" hit the relevant points. From the client side, I understand the auditor's reluctance to give advice. But even providing anecdotal information regarding how other unnamed companies are handling complex issues would be useful. This would at least give clients other approaches being implemented, and would help broaden the client perspective without the auditor risking litigation for dispensing advice.

Also, I wholeheartedly agree with the second piece, "Auditor Angst," that many client companies treat the annual audit as a year-end exercise. For maximum efficiency, client companies should do audit preparation throughout the year by updating schedules, compiling new customer contracts/vendor leases, and copying supporting documentation. This spreads the work over the course of a year, which allows clients to be better prepared and auditors to be more efficient.

For both sides, a simple quarterly discussion to update each other on the current situation would improve the process. This would allow clients to address any potential issues with their auditors earlier than year-end, and auditors could maintain visibility with their clients throughout the year. That would go a long way toward smoothing the relationship and the year-end audit.

Carl S. Aloi
Vice President, Finance
AppLabs Technologies
Philadelphia


Big Concerns

I had to grimace a little at what I was reading in "Top 10 Concerns of CFOs" (By the Numbers, May). In the top internal concerns, No. 1 (cost and availability of nonfinance labor) and No. 3 (cost of health care) hit close to home. Their cost is too high because of the American way. And that's OK — but you can't profit from it and complain about it at the same time.


You quoted an executive from AMN Healthcare (although I know he was not quoted as complaining about the cost of either) regarding his company's issues, but it is his company and others like it that have contributed to the exorbitant cost of health care. Health-care providers can hire a nurse and pay benefits far more cheaply than it would cost them to "rent" one of AMN's staff over the same period of time. But nurses are not always the primary breadwinner in the family, and they will sometimes opt to work for a larger paycheck from AMN, et al., and let their spouses take care of the benefits through their employer.

Mitch Logan
Via E-mail


Not Your Garden-Variety Mistakes

Restatements that occur due to "errors" typically arise because of a problem with what the COSO (Committee of Sponsoring Organizations of the Treadway Commission) internal-controls framework describes as a problem of "…insufficient competent personnel.…" ("To Err Is Human, and Common," Topline, May). These errors arise because the reporting entity's financial staffers lack the needed skill set, or are too few to accommodate the size and scope of the operation. Very few are the garden-variety "mistakes" understood by readers seeing a reference to "errors."

Barrett Peterson
Via E-mail


Q&A for Health Plans

CFOs need to ask their health plans several questions, among them, "How many nurses are assigned to my members?" "Other than providing a network, claims payments, and a fancy name, what other value is being provided that can be measured?" ("A Fatal Flaw for CDHPs?" Topline, March). A repackage of WebMD isn't the correct answer.

Dan Ross
Via E-mail


More on ROC

In "ROC Solid" (By the Numbers, June) we discussed the virtues of operating return on capital (ROC) but did not spell out the calculation behind this metric. ROC is earnings before interest and tax (EBIT) divided by the sum of net working capital and net fixed assets. In this instance, cash is not included in the net working capital number.




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