David R. Peters, CPA, CFP®, MST, CLU, CPCU. Securities offered through Cetera Advisor Networks LLC, member FINRA/SIPC. Advisory services offered through Carroll Financial Associates, Inc., a Registered Investment Advisor. Carroll Financial and Cetera Advisor Networks are not affiliate.... ID: 726081
DownloadNote - The PPT/PDF document "Managing Risk in Business & Industry" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Presentations text content in Managing Risk in Business & Industry
Slide1
Managing Risk in Business & Industry
David R. Peters, CPA, CFP®, MST, CLU, CPCU
Securities offered through Cetera Advisor Networks LLC, member FINRA/SIPC. Advisory services offered through Carroll Financial Associates, Inc., a Registered Investment Advisor. Carroll Financial and Cetera Advisor Networks are not affiliated.
4201 Congress Street Suite 210 Charlotte, NC 28209
Slide2
Why risk management?
AICPA: Primary duty of the CPA is to protect the assets of the organization.
Internal Controls are part of risk management
Accountants are often the risk watchdogs of the organization
“statistical relationship between the use of good practices by accountants and lower incidence of dysfunctional behavior”
(Leitch, 2012)
Slide3
Why risk management?
More businesses are implementing risk management into their strategy
Formal ERM: 25% All Orgs (15% - 2011) & 51% Large Orgs (32% - 2011) (Amato, 2016)
Risk is becoming more complex
AICPA Survey: 57% believe that business risks have changed extensively in the past 5 years (Amato, 2016)
Slide4
Still have gaps though….
Barriers to ERM:
Insufficient Resources: 46%
Competing Priorities: 44%
Lack of Perceived Value: 34% Companies have not yet implemented ERM programs:Risk is managed in other ways besides ERM: 47%No requests to change the org’s risk mgt. approach: 31%
More pressing needs: 31%No one to lead an ERM program: 23%Don’t see benefits exceeding costs: 17%
LOTS
of misperceptions about value of risk
mgt…
(Amato, 2016)
Slide5
Where are we headed?
Enterprise wide risk management (ERM)
Measuring and Managing Risk
Risk Assessment
Risk Control vs. Risk FinancingCommon Insurance TermsCommon types of commercial policiesNon-Insurance Risk Mgt. IssuesSuccession Planning
Big Question: How can we improve risk mgt. functions of our organizations and make them more valuable?
Slide6
Let’s get some basics down…
Losses can be incurred through:
Assets; or
Activities
Loss Exposure – Any condition that presents the possibility of a loss, regardless of whether or not it actually happens
Slide7
Let’s get some basics down…
Every Loss Exposure has 3 Elements:
Asset/Activity exposed to loss
A potential cause of loss (aka - peril)
A potential for financial consequences of a loss
Removal of any element eliminates the loss exposure
Slide8
Let’s get some basics down…
Risk can be positive or negative
Pure Risks vs. Speculative Risks
4 General Risk Types:
Hazard Risks
Operational RisksFinancial Risks
Strategic Risks
Slide9
Traditional Risk
Mgt
vs ERM
Traditional Risk Management
Pure Risk No upside
Focused on Operational Risks
Siloed within the companyPrevent or Reduce Losses
Traditional Risk Management = How can I lessen or get rid of risk?
Slide10
Traditional Risk
Mgt
vs ERM
Enterprise-Wide Risk Mgt.
Pure & Speculative RisksAll Risk Types (including Strategic)
Integrated throughout CompanyOptimize Risks
ERM = How can I use risk to the company’s advantage?
Slide11
ERM is about Approach & Process
Slide12
ERM is about Approach & Process
Most Difficult!
Slide13
Developing the Risk Mgt. Process
Questions to Ask:
How are risk events identified?
Do employees know what constitutes a risk?
How often are they reviewed?
Who reviews them?How are risk events followed up on?
Slide14
What areas do we look to identify risks?
AICPA Examples:
Accounting Practices
Audits
– Is sufficient attention paid to potential “red flags” in accounting records, such as high sales volume at period end?Record RetentionPolicy Reviews – How often are procedures updated?
Variable Compensation Programs – Are they lined up with the best interests of the organization?Pension Calculation AssumptionsCapital Projects – Risk and return calculations
Employee TrainingTravel policiesSecurity and response plansContingency Plans
Slide15
Finding Risks
Checklists can be a good way to get you started:
Risk Management Society (RIMS)
Industry
the US Dept. of Agriculture has one!
Financial Statements/Legal RecordsCollaborative ApproachKey departments beyond Accounting and Legal
Front Line Employees
Slide16
Elements of a Good Risk Register
12 Key Elements:
Risk Category
Risk Description
Risk ID
Potential ImpactLikelihoodConsequence
Risk RankRisk TriggerPrevention PlanContingency Plan
Risk OwnerResidual RiskUpdated FrequentlyRecommended: QuarterlyScoring should allow for comparison & consistency
COSO favors a 5 pt. scaleScoring: Frequency & Severity
(Deloitte &
Touche
LLP, 2012)
Slide17
Example: Measuring Frequency
(Deloitte &
Touche
LLP, 2012)
Slide18
Example: Measuring Severity
(Deloitte &
Touche
LLP, 2012)
Slide19
Example: Measuring Severity
(Deloitte &
Touche
LLP, 2012)
Slide20
Example: Risk Scoring
Slide21
Risk Control vs. Risk Financing
Risks are typically dealt with using Risk Control and/or Risk Financing
Risk Control – Avoid/Minimize Losses
Risk Financing – Pay for the Loss
Most situations will require a combination of techniques….
Slide22
Risk Control Techniques
Slide23
Risk Financing Techniques
Insurance is normally a combination of transfer and retention
Deductibles
Slide24
Common Insurance Terms
Insurable Interest
P&C
Time of the Claim
Life Time of Application
Insurance to Value
Why is this important?
Coinsurance
Slide25
Common Insurance Terms
Deductibles
Small Business Losses
Valuation Methods:
Actual Cash Value
Agreed Value
Functional Value
Replacement Value = ACV less Depreciation
Slide26
Sections of the Insurance Policy
Declarations
Definitions
Insuring Agreements
Exclusions
Conditions
Miscellaneous Provisions
Slide27
Sections of the Insurance Policy
Declarations
Nuts & Bolts of the Policy
Definitions
What does stuff mean?
Slide28
Sections of the Insurance Policy
Insuring Agreements
Insured’s Responsibilities
Insurer’s Responsibilities
Exclusions
What isn’t covered
Slide29
Sections of the Insurance Policy
Conditions:
Requirements for paying the claim
Ex: Prompt Notice, Protection of Property, Police Reports
Miscellaneous Provisions
Dividends
Slide30
Insurance Policies: Rules of Thumb
Wear & Tear is never covered
Policies will generally exclude items that are:
Difficult to underwrite
Covered better under another policy
High Severity, Low Frequency Items are best covered by Insurance
Slide31
Commercial Package Policy (CPP)
Multiline Policy that combines several coverage lines
Common Forms vs. Coverage Part Forms
Often Includes: Commercial Property, Commercial Crime, Equipment Breakdown, Commercial General Liability, Commercial Auto, etc.
Slide32
Business Owners Policy (BOP)
CPP tends to be for larger companies, while BOP tends to be for small & mid-size companies
Usually include: Building, Personal Property, Business Income, and the equivalent of CGL
Other coverage options
Slide33
Commercial General Liability
Covers Non-Professional Negligent Acts
Covers liability caused by your services, operations or employees for:
Reasonable Costs for Medical Treatment, Hospital, Ambulance, Funeral Expenses of Non-Employees
Slide35
Buildings & Personal Property (BPP)
Covers any combo of:
Building
Insured’s Personal Property
Personal Property of Others
Standard Deductible: $500
Slide36
Buildings & Personal Property (BPP)
Covered:
Leased Personal Property that you have a responsibility to insure
Tenant’s Interest in Improvements
Most Inventory
Not Covered:Money & Securities (Usually on Inland Marine)Electronic Data & Valuable PapersAirborne or Waterborne Personal Property
Slide37
Business Income Insurance
aka – Business Interruption
Part of BPP, CPP, or BOP
Not Stand-Alone
In the event of a disaster, covers:
Increased expenses
Income that would have been earned
Slide38
Business Income Insurance
Covered (based on prior F/S):
Profits
Temporary Location CostsFixed Costs
Extra ExpensesGovernment Mandated Closures
Slide39
Commercial Crime Policies
Criminal acts can be covered to some degree in other policies, but since loss exposures can vary significantly
Need special underwriting
Covers Money, Securities, and Other Business Property against criminal acts
Slide40
Commercial Crime Policies
Criminal Acts Covered:
Employee Theft
Robbery
Forgery
Extortion
Computer Fraud
Discovery or Loss Sustained basis
Slide41
Equipment Breakdown Insurance
Aka – Boiler & Machinery Breakdown
Covers almost any type of equipment that:
Operates under pressure
Controls, transmits, transforms, or uses mechanical or electric power
Slide42
Equipment Breakdown Insurance
Typically Covered for
Accidental
Losses:
Boilers and Pressure Vessels
Electrical Equipment
Mechanical Equipment
Air Conditioning EquipmentRefrigeration EquipmentOffice Equipment & SystemsExpertise Required small, specialized field
Slide43
Cyber & Privacy Insurance Policies
Covers Liability & Property Damage claims of consumers of technology services or products:
Internet Selling
Collecting Data
Not Technology E&O Coverage
Website Designers, Computer Software Manufacturers, etc.
Slide44
Cyber & Privacy Insurance Policies
Covers Liability for Data Breach:
Notification Costs
Credit Monitoring
Costs to Defend Claims by State Regulators
Fines and PenaltiesLoss Resulting from Identity TheftOften underwritten based on amount of data
Slide45
Specialized Policies
Inland Marine Policies
E&O Insurance Policies
Industry Specific Policies
ISO Farm Program
Financial Institution Bonds
Slide46
Non-Insurance Risk
Mgt
Issues
Employee Termination
Succession Planning
Slide47
Employee Termination – Best Practices
What to get from the employee:
All office property (Phones, Laptops, System Access)
If applicable, proof of departure (Resignation Letter)
Exit Interview
Feedback to Company
Documentation in case of future allegations
(Paychex.com, 2014)
Slide48
Employee Termination – Best Practices
What to give to the employee:
Final Paycheck
May have to include accrued PTO
COBRA For eligible employees, the HIPAA Certificate of Coverage (COC) must be provided no later than the COBRA election notice (44 days).
Severance
Agmts
. Relinquishment of Rights(Paychex.com, 2014)
Slide49
Employee Termination – Best Practices
Down the Road:
If an employee files for unemployment, you may need to supply a separation document, depending on the state.
Should have someone appointed to handle reference requests from former employees.
(Paychex.com, 2014)
Slide50
A Few Stats on Succession….
From the Financial Services Industry….
78% of accounting practices had identified suitable future business owners, only 53% had offered ownership partner training to them (
Knafo
& Dennis, 2014).
An AICPA survey of 500 multi-owner firms and 400 sole practitioners contained similar results. A majority of senior partners (60%) said that they were training for specific competencies in leadership-targeted staff, but only 15% of practices had identified specific leadership requirements (Amato, 2013)
Slide51
How Long Does Succession Take?
IP & Jacobs (2006) – 400 academic articles, 3 Steps:
Slide52
How Long Does Succession Take?
IP & Jacobs (2006) – 400 academic articles, 3 Steps:
Slide53
Succession Documents
Partner Agreements
Operating Agreements
Key Person Life Insurance
Buy/Sell Agreements
Slide54
Key Person Life Insurance
Financially covers the company for the period after a key employee leaves
Need to consider:
Duration of Coverage Needed
Age of the Insured
Cash available for funding the policy premiums
Slide55
Key Person Life Insurance
Advantages of Term:
Cheaper when Insured is young
Unknown/Short Coverage Needs
Advantages of Permanent:
Cheaper, if insured is likely to stay
Cash values may be used to fund retirement benefits of insured
Slide56
Buy-Sell Agreements
Variation on the Key Person Life Insurance Policy
Using life insurance to protect against the death of an owner
Closely-held Corporation
Partnerships
Slide57
Buy-Sell Agreements
Entity Agreement:
Individual policy on each business owner
Beneficiary on each policy is the company itself
If a business owner dies, the company receives the policy proceeds and is able to purchase (redeem) the ownership interest from the owner’s estate
Slide58
Buy-Sell Agreements
Cross-Purchase Agreement:
Each business owner owns a policy on all the other business owners.
Other business owners are able to buy the ownership interest from the deceased owner’s estate using the proceeds they receive.
Slide59
Buy-Sell Agreements
Cross-Purchase Agreements:
Require more policies
Not ideal for a large number of business owners
Large cash outlays
Need to consider how ownership %’s change under either method
Slide60
Succession Planning Considerations
Succession Planning is not just about documents, it’s about people
Impact on Vendors/Suppliers
Impact on Customers
Impact on Company Culture
Impact on Firm Valuation
Slide61
Succession Planning Considerations
Executive Training Programs
What are you looking for in a future leader?
Internal vs. External Succession
Slide62
Summing It Up….
Risk Management is more than just insurance policies & operations
Risk management is strategic
Risk Management looks at the present and the future
Slide63
My Contact Information
David R. Peters,
CPA, CFP®, MST, CLU, CPCU
Financial Advisor
704-247-2817
dpeters@carrollfinancial.com
Carroll Financial Associates
4201 Congress Street, Suite 210Charlotte, NC 28209
Slide64
Works Cited
Amato, N. (2013). Succession Planning: The Challenge of What's Next.
Journal of
Accountancy
, 215(1), 44-47.
Amato, N. (2016, April 13).
The gaps that remain in risk initiatives.
Retrieved from Journal of Accountancy Website: http://www.journalofaccountancy.com/news/2016/apr/risk- management-initiatives-201614225.htmlDeloitte & Touche LLP. (2012). Thought Leadership in ERM: Risk Assessment in Practice. Retrieved from COSO Website: http://www.coso.org/documents/COSOAnncsOnlineSurvy2GainInpt4Up dt2IntrnlCntrlIntgratdFrmwrk%20-%20for%20merge_files/COSO- ERM%20Risk%20Assessment%20inPractice%20Thought%20Paper%20O Ctober%202012.pdf
Slide65
Works Cited
Ip
, B., & Jacobs, G. (2006). Business Succession Planning: A Review of the Evidence.
Journal of Small Business and Enterprise Development
, 326-350.
Knafo
, J., & Dennis, A. (2014). Succession Challenges for US.
CPA Firms to Tackle. Journal of Accountancy, 218(5), 54-59.Leitch, M. (2012, January). The reality of risk: culture, behaviour and the role of accountants. Retrieved from Association of Chartered
Certified Accountants: http://www.accaglobal.com/content/dam/acca/global/PDF- technical/corporate-governance/tech-afb-rrm_long.pdfPaychex. (2014, April 29). Terminating an Employee: Employee Separation Best Practices. Retrieved from Paychex Website: http://www.paychex.com/articles/human-resources/terminating-an- employee
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DownloadNote - The PPT/PDF document "Managing Risk in Business & Industry" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Presentations text content in Managing Risk in Business & Industry
Managing Risk in Business & Industry
David R. Peters, CPA, CFP®, MST, CLU, CPCU
Securities offered through Cetera Advisor Networks LLC, member FINRA/SIPC. Advisory services offered through Carroll Financial Associates, Inc., a Registered Investment Advisor. Carroll Financial and Cetera Advisor Networks are not affiliated.
4201 Congress Street Suite 210 Charlotte, NC 28209
Slide2Why risk management?
AICPA: Primary duty of the CPA is to protect the assets of the organization.
Internal Controls are part of risk management
Accountants are often the risk watchdogs of the organization
“statistical relationship between the use of good practices by accountants and lower incidence of dysfunctional behavior”
(Leitch, 2012)
Slide3Why risk management?
More businesses are implementing risk management into their strategy
Formal ERM: 25% All Orgs (15% - 2011) & 51% Large Orgs (32% - 2011) (Amato, 2016)
Risk is becoming more complex
AICPA Survey: 57% believe that business risks have changed extensively in the past 5 years (Amato, 2016)
Slide4Still have gaps though….
Barriers to ERM:
Insufficient Resources: 46%
Competing Priorities: 44%
Lack of Perceived Value: 34% Companies have not yet implemented ERM programs:Risk is managed in other ways besides ERM: 47%No requests to change the org’s risk mgt. approach: 31%
More pressing needs: 31%No one to lead an ERM program: 23%Don’t see benefits exceeding costs: 17%
LOTS
of misperceptions about value of risk
mgt…
(Amato, 2016)
Slide5Where are we headed?
Enterprise wide risk management (ERM)
Measuring and Managing Risk
Risk Assessment
Risk Control vs. Risk FinancingCommon Insurance TermsCommon types of commercial policiesNon-Insurance Risk Mgt. IssuesSuccession Planning
Big Question: How can we improve risk mgt. functions of our organizations and make them more valuable?
Slide6Let’s get some basics down…
Losses can be incurred through:
Assets; or
Activities
Loss Exposure – Any condition that presents the possibility of a loss, regardless of whether or not it actually happens
Slide7Let’s get some basics down…
Every Loss Exposure has 3 Elements:
Asset/Activity exposed to loss
A potential cause of loss (aka - peril)
A potential for financial consequences of a loss
Removal of any element eliminates the loss exposure
Slide8Let’s get some basics down…
Risk can be positive or negative
Pure Risks vs. Speculative Risks
4 General Risk Types:
Hazard Risks
Operational RisksFinancial Risks
Strategic Risks
Slide9Traditional Risk
Mgt
vs ERM
Traditional Risk Management
Pure Risk No upside
Focused on Operational Risks
Siloed within the companyPrevent or Reduce Losses
Traditional Risk Management = How can I lessen or get rid of risk?
Slide10Traditional Risk
Mgt
vs ERM
Enterprise-Wide Risk Mgt.
Pure & Speculative RisksAll Risk Types (including Strategic)
Integrated throughout CompanyOptimize Risks
ERM = How can I use risk to the company’s advantage?
Slide11ERM is about Approach & Process
Slide12ERM is about Approach & Process
Most Difficult!
Slide13Developing the Risk Mgt. Process
Questions to Ask:
How are risk events identified?
Do employees know what constitutes a risk?
How often are they reviewed?
Who reviews them?How are risk events followed up on?
Slide14What areas do we look to identify risks?
AICPA Examples:
Accounting Practices
Audits
– Is sufficient attention paid to potential “red flags” in accounting records, such as high sales volume at period end?Record RetentionPolicy Reviews – How often are procedures updated?
Variable Compensation Programs – Are they lined up with the best interests of the organization?Pension Calculation AssumptionsCapital Projects – Risk and return calculations
Employee TrainingTravel policiesSecurity and response plansContingency Plans
Slide15Finding Risks
Checklists can be a good way to get you started:
Risk Management Society (RIMS)
Industry
the US Dept. of Agriculture has one!
Financial Statements/Legal RecordsCollaborative ApproachKey departments beyond Accounting and Legal
Front Line Employees
Slide16Elements of a Good Risk Register
12 Key Elements:
Risk Category
Risk Description
Risk ID
Potential ImpactLikelihoodConsequence
Risk RankRisk TriggerPrevention PlanContingency Plan
Risk OwnerResidual RiskUpdated FrequentlyRecommended: QuarterlyScoring should allow for comparison & consistency
COSO favors a 5 pt. scaleScoring: Frequency & Severity
(Deloitte &
Touche
LLP, 2012)
Slide17Example: Measuring Frequency
(Deloitte &
Touche
LLP, 2012)
Slide18Example: Measuring Severity
(Deloitte &
Touche
LLP, 2012)
Slide19Example: Measuring Severity
(Deloitte &
Touche
LLP, 2012)
Slide20Example: Risk Scoring
Slide21Risk Control vs. Risk Financing
Risks are typically dealt with using Risk Control and/or Risk Financing
Risk Control – Avoid/Minimize Losses
Risk Financing – Pay for the Loss
Most situations will require a combination of techniques….
Slide22Risk Control Techniques
Slide23Risk Financing Techniques
Insurance is normally a combination of transfer and retention
Deductibles
Slide24Common Insurance Terms
Insurable Interest
P&C
Time of the Claim
Life Time of Application
Insurance to Value
Why is this important?
Coinsurance
Slide25Common Insurance Terms
Deductibles
Small Business Losses
Valuation Methods:
Actual Cash Value
Agreed Value
Functional Value
Replacement Value = ACV less Depreciation
Slide26Sections of the Insurance Policy
Declarations
Definitions
Insuring Agreements
Exclusions
Conditions
Miscellaneous Provisions
Slide27Sections of the Insurance Policy
Declarations
Nuts & Bolts of the Policy
Definitions
What does stuff mean?
Slide28Sections of the Insurance Policy
Insuring Agreements
Insured’s Responsibilities
Insurer’s Responsibilities
Exclusions
What isn’t covered
Slide29Sections of the Insurance Policy
Conditions:
Requirements for paying the claim
Ex: Prompt Notice, Protection of Property, Police Reports
Miscellaneous Provisions
Dividends
Slide30Insurance Policies: Rules of Thumb
Wear & Tear is never covered
Policies will generally exclude items that are:
Difficult to underwrite
Covered better under another policy
High Severity, Low Frequency Items are best covered by Insurance
Slide31Commercial Package Policy (CPP)
Multiline Policy that combines several coverage lines
Common Forms vs. Coverage Part Forms
Often Includes: Commercial Property, Commercial Crime, Equipment Breakdown, Commercial General Liability, Commercial Auto, etc.
Slide32Business Owners Policy (BOP)
CPP tends to be for larger companies, while BOP tends to be for small & mid-size companies
Usually include: Building, Personal Property, Business Income, and the equivalent of CGL
Other coverage options
Slide33Commercial General Liability
Covers Non-Professional Negligent Acts
Covers liability caused by your services, operations or employees for:
Bodily Injury & Property Damage (Part A)
Ex: Customer slips & falls in your store
Slide34Commercial General Liability
Personal and Advertising Injury (Part B)
Libel, Slander, False Arrest, Copyright Infringement, Malicious Prosecution
Medical Payments (Part C)
Reasonable Costs for Medical Treatment, Hospital, Ambulance, Funeral Expenses of Non-Employees
Slide35Buildings & Personal Property (BPP)
Covers any combo of:
Building
Insured’s Personal Property
Personal Property of Others
Standard Deductible: $500
Slide36Buildings & Personal Property (BPP)
Covered:
Leased Personal Property that you have a responsibility to insure
Tenant’s Interest in Improvements
Most Inventory
Not Covered:Money & Securities (Usually on Inland Marine)Electronic Data & Valuable PapersAirborne or Waterborne Personal Property
Slide37Business Income Insurance
aka – Business Interruption
Part of BPP, CPP, or BOP
Not Stand-Alone
In the event of a disaster, covers:
Increased expenses
Income that would have been earned
Slide38Business Income Insurance
Covered (based on prior F/S):
Profits
Temporary Location CostsFixed Costs
Extra ExpensesGovernment Mandated Closures
Slide39Commercial Crime Policies
Criminal acts can be covered to some degree in other policies, but since loss exposures can vary significantly
Need special underwriting
Covers Money, Securities, and Other Business Property against criminal acts
Slide40Commercial Crime Policies
Criminal Acts Covered:
Employee Theft
Robbery
Forgery
Extortion
Computer Fraud
Discovery or Loss Sustained basis
Slide41Equipment Breakdown Insurance
Aka – Boiler & Machinery Breakdown
Covers almost any type of equipment that:
Operates under pressure
Controls, transmits, transforms, or uses mechanical or electric power
Slide42Equipment Breakdown Insurance
Typically Covered for
Accidental
Losses:
Boilers and Pressure Vessels
Electrical Equipment
Mechanical Equipment
Air Conditioning EquipmentRefrigeration EquipmentOffice Equipment & SystemsExpertise Required small, specialized field
Slide43Cyber & Privacy Insurance Policies
Covers Liability & Property Damage claims of consumers of technology services or products:
Internet Selling
Collecting Data
Not Technology E&O Coverage
Website Designers, Computer Software Manufacturers, etc.
Slide44Cyber & Privacy Insurance Policies
Covers Liability for Data Breach:
Notification Costs
Credit Monitoring
Costs to Defend Claims by State Regulators
Fines and PenaltiesLoss Resulting from Identity TheftOften underwritten based on amount of data
Slide45Specialized Policies
Inland Marine Policies
E&O Insurance Policies
Industry Specific Policies
ISO Farm Program
Financial Institution Bonds
Slide46Non-Insurance Risk
Mgt
Issues
Employee Termination
Succession Planning
Slide47Employee Termination – Best Practices
What to get from the employee:
All office property (Phones, Laptops, System Access)
If applicable, proof of departure (Resignation Letter)
Exit Interview
Feedback to Company
Documentation in case of future allegations
(Paychex.com, 2014)
Slide48Employee Termination – Best Practices
What to give to the employee:
Final Paycheck
May have to include accrued PTO
COBRA For eligible employees, the HIPAA Certificate of Coverage (COC) must be provided no later than the COBRA election notice (44 days).
Severance
Agmts
. Relinquishment of Rights(Paychex.com, 2014)
Slide49Employee Termination – Best Practices
Down the Road:
If an employee files for unemployment, you may need to supply a separation document, depending on the state.
Should have someone appointed to handle reference requests from former employees.
(Paychex.com, 2014)
Slide50A Few Stats on Succession….
From the Financial Services Industry….
78% of accounting practices had identified suitable future business owners, only 53% had offered ownership partner training to them (
Knafo
& Dennis, 2014).
An AICPA survey of 500 multi-owner firms and 400 sole practitioners contained similar results. A majority of senior partners (60%) said that they were training for specific competencies in leadership-targeted staff, but only 15% of practices had identified specific leadership requirements (Amato, 2013)
Slide51How Long Does Succession Take?
IP & Jacobs (2006) – 400 academic articles, 3 Steps:
Slide52How Long Does Succession Take?
IP & Jacobs (2006) – 400 academic articles, 3 Steps:
Slide53Succession Documents
Partner Agreements
Operating Agreements
Key Person Life Insurance
Buy/Sell Agreements
Slide54Key Person Life Insurance
Financially covers the company for the period after a key employee leaves
Need to consider:
Duration of Coverage Needed
Age of the Insured
Cash available for funding the policy premiums
Slide55Key Person Life Insurance
Advantages of Term:
Cheaper when Insured is young
Unknown/Short Coverage Needs
Advantages of Permanent:
Cheaper, if insured is likely to stay
Cash values may be used to fund retirement benefits of insured
Slide56Buy-Sell Agreements
Variation on the Key Person Life Insurance Policy
Using life insurance to protect against the death of an owner
Closely-held Corporation
Partnerships
Slide57Buy-Sell Agreements
Entity Agreement:
Individual policy on each business owner
Beneficiary on each policy is the company itself
If a business owner dies, the company receives the policy proceeds and is able to purchase (redeem) the ownership interest from the owner’s estate
Slide58Buy-Sell Agreements
Cross-Purchase Agreement:
Each business owner owns a policy on all the other business owners.
Other business owners are able to buy the ownership interest from the deceased owner’s estate using the proceeds they receive.
Slide59Buy-Sell Agreements
Cross-Purchase Agreements:
Require more policies
Not ideal for a large number of business owners
Large cash outlays
Need to consider how ownership %’s change under either method
Slide60Succession Planning Considerations
Succession Planning is not just about documents, it’s about people
Impact on Vendors/Suppliers
Impact on Customers
Impact on Company Culture
Impact on Firm Valuation
Slide61Succession Planning Considerations
Executive Training Programs
What are you looking for in a future leader?
Internal vs. External Succession
Slide62Summing It Up….
Risk Management is more than just insurance policies & operations
Risk management is strategic
Risk Management looks at the present and the future
Slide63My Contact Information
David R. Peters,
CPA, CFP®, MST, CLU, CPCU
Financial Advisor
704-247-2817
dpeters@carrollfinancial.com
Carroll Financial Associates
4201 Congress Street, Suite 210Charlotte, NC 28209
Slide64Works Cited
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