Month: May 2018

Security Solutions!

Steve Golia1 Comment

If you have read my (numerous!) surety articles online, you may think bonds are the only thing I care about.  While this is true, I do have ideas on other subjects and here is one that has me worried: Cyber Security.

The threats are all around us: Phishing, hacking, denial of service attacks, viruses, identity theft and credit card fraud.  It is obvious that the bad guys will never let up, never stop looking for ways to take advantage of people – unless we do something dramatic to thwart them forever.

So here they are, solutions that are inexpensive or FREE! that will help protect you, your privacy and your assets.

Protect Your Data

Do you trust the “cloud”?  What if they lose your data, sell it or they get hacked?! Here is a solution that will protect your passwords, account numbers and other valuable info, prevent all internet and email scams and assure that you have complete access to all your info, all the time.

This solution is portable and permanent, and the total cost is (you’re gonna love this): $1.79 at Staples. 

This security solution is called a “Pocket Notepad.”  Here’s how it works:

You write down all your important stuff, then you put the notepad in your pocket. 

THAT’S IT!  No hacking, no phishing, and you can take it with you when you go fishing. Totally portable!

Credit Card Fraud

So many ways for thieves to get your info.  They use skimmers to read your data. There is malware, web scams and picking through your trash.

Here is a security solution that will prevent all unauthorized use of you credit / debit cards – and this one is Free!  This solution is called “Cash.”

Cash is paper money and coins issued by the government.  You can use it to buy anything, and it is accepted everywhere.  Pay with Cash and never worry again about unauthorized access to your account.

Privacy

Facebook and other social network platforms gather your info – then what?  There is no way to predict who may have access and then misuse it.

Our final security solution is another Free one!  This will absolutely protect your info from misuse or attack on the internet.  You will still have the ability to pursue new relationships and maintain current friendships as you do with your current social media.

In fact, this solution goes even further! It enables an enhanced level of communication where you can see the individual in real time, and actually touch them!!!  It is called “Talking.”  You talk to the person, they answer you and (get this) they are right in the room with you!!!  Insane!

This is actually a very old concept that has been used successfully for thousands of years.  It is tried and proven – and it could work for you.

So there you have them, three great inexpensive / free solutions to the cyber threats we face.  Technology is the cause of the problem, and it may not be the cure.  With this article, we invite you to consider the following:

  1. You may not find the solution to every problem in your cell phone. I admit they are cool and do a lot – more every day.  But sometimes “old school” is better.  Try giving it a chance occasionally.
  2. You think all Bond People are boring? We’re not!  We love to use our knowledge and creativity to solve bonding problems. Our underwriting staff has many (many, many) years of contract surety expertise.  When you call needing a bid or performance bond up to $10 million, our greatest joy is to be the solution you were looking for.  Keep this number in your new $1.79 Notepad: 856-304-7348.

We are the national contract bond underwriting department for Great Midwest Insurance Company, a corporate surety with an A-8 rating.  We can help you solve your next contract surety need. KIS Surety 

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Secrets of Bonding: #163: Financial Statement Fraud!

Steve GoliaLeave a comment

You know the old adage, “Financial statements don’t kill people, people kill people.”

While it’s true there can be misrepresentation and deception in a financial statement (FS), the document is not inherently bad, it is the poor intentions of the preparer or company that is to blame.

As credit analysts, we always review and rely on FSs when underwriting surety bonds. We know there may be attempts to mislead our judgement or even downright deception. But the need to evaluate the financial report is unavoidable. It is considered a valuable “report card on the quality of management.”

There are three levels of financial presentation by Certified Public Accounts (CPAs):

Compilation – a properly organized report where the numbers have not been verified or evaluated by the CPA

Review – includes some checking “Review” of key elements

Audit – is the highest level and includes the CPA’s statement that they have checked and believe the numbers are correct

The reader of the FS is entitled to certain expectations: A candid and complete presentation that informs the reader. Are they entitled to more than that? Does the reader sometimes expect too much?

Let’s consider what the FS actually says, and what it doesn’t… 

The Balance Sheet

This shows assets and liabilities. It describes the dollars in the company (assets) and who owns them (liabilities and stockholder’s equity). You know many of the normal entries: Cash, accounts receivable, accounts payable, inventory, bank debt, the net worth / stockholder’s equity section, etc.

The balance sheet always has a date, such as 12/31/2017. It shows the status of these accounts on the one day. Credit analysts calculate the Working Capital aka Net Quick (NQ) which is considered a measure of short term financial strength. You find the NQ by subtracting current liabilities from current assets. When the bond underwriter has the NQ number, it can then be incorporated in the decision making.

“What size bonds will be approved for this applicant?”  “How much total capacity can they be allocated?” The NQ figure becomes a benchmark that is used for the remainder of the year.

For many analysts, this one number carries a huge importance for the following 12-15 months.

Let’s move forward one day in time, to 1/1/2018. “Happy New Year!” and let’s check the bank account. Some money has come in! The accounts receivable and cash have changed. Other elements are also different and so, if we calculate the NQ based on the 1/1 balance sheet, the NQ will probably be different from 12/31. Again, that’s because the balance sheet shows the state of these accounts on ONE DAY. It is always changing!

The reality is that the working capital number is only correct for one day, then it is subject to revision. This is not to say the number is not important or relevant. And certainly decision-makers must have annual benchmarks and a method for their determinations. It is very important, but so are other elements.

Financial Statement Fraud

The most common FS fraud is not committed against us by others. It is the self-deception we commit by over relying on these “one-day numbers.” To do so is to miss the big picture!

Underwriters love to see a big cash account sitting on that top line (of the balance sheet). But that’s a one-day number. Isn’t it even more important to determine the average funds on deposit for the prior six months or year? Many analysts fail to ask for this.

Accounts Receivable and Payable – here is another key area where the “one-day number” can easily be given a historical perspective. Aged schedules of A/R and A/P are easy to obtain and they give a view over more than one day. These documents are not automatically included in FSs, and underwriters may fail to ask for them.

Another example: A broader understanding of the banking relationship is accomplished by looking beyond the balance sheet bank debt.  A reference letter can reveal if the client has bounced checks, broken loan covenants or defaulted.

Conclusion

As readers of these documents and analysts, let’s not cheat ourselves by over relying on the balance sheet or thinking it is more than a one-day snapshot. It should be scrutinized and viewed in harmony with other key underwriting factors such as mid-year financial reports and supporting documents.

In this manner underwriters can make realistic, well-informed decisions.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.