NEWSLETTERwww.LakeletAG.com January 2015

50 Fountain Plaza, Suite 1400Buffalo, NY 14202

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• LakeletFinancialForensicsGroupannouncedthepromotionofTimothyB.Crinotodirector.Inhisnewrole,Crinowillleadthefirm’slitigationsupport,financialforensics,andwhite-collarinvestigations,servicingclientsinBuffalo,Rochester,NewYorkCity,Cleveland,Boston,andToronto.

• LakeletAdvisoryGroupexpandeditsRochesterofficewiththeadditionofSeniorConsultant,JackL.Greco.Grecowillassistthefirmwithturnaroundsandtakingthoseorganizationstothe“nextlevel.”

• Dec.1 -MichaelKoeppelandTimothyCrinoservedasguest lecturers foragroupofundergraduatestudentsatSUNYFredonia.Thetopicwasfinancialforensicsandthefamous“CrazyEddie”fraudscam.

• Dec.9-MichaelKoeppelpresentedapaperentitledArticle 9 - Challenges Associated with TurnaroundstotheNewYorkStateSocietyofCertifiedPublicAccountants(NYSSCPA)RestructuringandBankruptcyCommittee,ofwhichheisamember.

“Strive not to be a success,

but rather to be of value.”

˜Albert Einstein

“Intelligence is the ability

to adapt to change.”

˜Stephen Hawking

Buffalo Office: 716-984-5303 | Rochester Office: 585-752-2823 | Email: info@LakeletAG.com

Search Lakelet Advisory Group and Lakelet Financial Forensics Group on LinkedIn and YouTube

What’s Happening with Lakelet this Quarter?

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endusercorruptsthedatainputandflowtoaccommodateaninternaldeficiency.Thisisevidentbythenumberofsuperfluousspreadsheetsorsecondaryrepositoriesofdataandcalculationsinorganizations.

How Can Your Company Overcome These Issues?Companies should consider industry specific accountingsystems that offer extensive reporting capabilities. Thesesystemsareusuallydesignedtohandlemillionsofrecordsandare built on secure databases. As a result,more time can bespentanalyzingdataandlesstimegatheringit.

Additionally,toensureexpensesdon’tslipthroughthecracksand remain unassigned to specific jobs, it’s important toset up a simple coding system.Cost codes are used for eachphase, allowing “mini-budgets” to be generated and tracked.In the construction industry, for instance, the ConstructionSpecifications Institute (CSI) has established an industrystandardcostcodingsystem.

Thebottomlineisthatwhendoneproperly,jobcostingcanbeagreattool.Notonlycanithelpyourbusinessdeterminetheprofitandlossofprojects,butitalsoservesasthefoundationfor Continuous Improvement, further strengthening yourbottomline.

Is “Job Costing” Costing Your Company?

Onasimplelevel,jobcostingisamanagementcontrolprocessoftrackingandcategorizingeachcostincurredinbusiness.Thecostsaretypicallyassociatedwithaspecificjoborprojectandthenfurthercategorizedbylabor,materials,subcontracts,andequipmentcosts.Inmanyjobcostingsystems,thecostsarealsoassociatedwithtasksonajoborthetypesofworkcompleted.Predominatelyused in construction, job costingmethods arealso used in the motion picture and shipping industries, infabrication,repair,andmaintenanceworks,andinservicessuchasauditing.

However,formanysmallerandmid-sizecompanies,jobcostingisn’t so simple. In fact, it’s anAchilles’heelwhen it comes todeterminingprofitability.Properjobcostingrequiresprojectinganddeterminingthetrueeconomiccostsofaspecificjob,task,orproject.Buttheprocesscanbeachallengetoemployforavarietyofreasons,includingthefollowing:

• Difficulttoestablish

• Requiresasolidbudgetprocess

• Requiressomemeaningfulcutoffprocedures,whetheritbemonthlyorquarterly

• Requiresanunderstandingofthetruecomponentsoftheproductsandservices

• Costsneedtobecapturedonthe“floor”

• Requiresfurthersegregation,notonlybythecompanybutalsobythespecificjobsandtasks

• Requiresatrue,proactivemeansofContinuousImprovement

In addition, too often a “random” allocation is calculated toa job.This processmay generate an accurate picture for theproject as a whole. But it does not reflect the true costs ofindividualtasks.Therefore,theentitymayhavesometasksthatactuallyarelosingmoneyandothersdoingverywellwithoutanyevidenceastowhicharewhich.

Anotherflawedapproachtojobcostinginvolvestheautomationprocess. Most accounting software solutions address jobcostinginaverystructuredandaccuratemanner.However,the

It’sthereforeimperativethateveryorganization,largeorsmall,bevigilantandpro-activeaboutprotectingdataassets.Many,however,arenot.Why?Considerthefollowing:

1.During the course of an audit,where suchproblems canbedetected,auditorsfoundbreachesonly3%ofthetime,andtwiceasoften(6%ofthetime)byaccidentratherthanthroughtheauditprocessitself.However,thisdetectionisnottheobjectiveofauditors,norisittheirareaofexpertise.Auditors shouldnotbe IT security specialists; that isnottheirrole.

2.ITandsecurityteamsareintimatelyinvolvedwiththedataanditssecurityonaconstantbasis.Asaresult,companiesmust look beyond IT when assessing data breach risksand invest in independent, professional, proven andcredentialedthirdpartiesthatcananalyzethedatasecurityanditsenvironmentfromalternativeperspectives.

The lessonhere is that inorder to reducedatabreaches,companies must integrate security into the corporateculture and consistently evaluate the risks of everyinteraction with networks, devices, data, and of course,other users, including internal employees. That processbegins with having a financial/technological forensicsauditperformed.

If you’re interested in learning more, contact LakeletFinancial Forensics Group. Our certified informationtechnologyprofessionals as recognizedby theAmericanInstituteofCertifiedPublicAccountants are available toassistyouinmanagingthisexposure.

www.LakeletAG.com Lakelet Advisory Group LLC January 2015www.LakeletAG.com Lakelet Advisory Group LLC January 2015

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Declining IndustriesThenewshasn’tfaredsowellforotherindustries.Somesimplycan’tbouncebackfromthelastrecessionastheystruggletofindcustomersinaglobaleconomy.Forothers,newtechnologyismakingthemfarlessrelevantortheyfaceseverepressuretocutcosts.Whateverthecase,belowoffersalookatthe10industriesexpectedtoexperiencethesteepestdeclinesin2015:

1. Departmentstores

2. Semiconductorandotherelectroniccomponentmanufacturing

3. Motorvehiclepartsmanufacturing

4. Postalservice

5. Printingandrelatedsupportactivities

6. Cutandsewapparelmanufacturing

7. Newspaperpublishers

8. Supportactivitiesformining

9. Gasolinestations

10.Wiredtelecommunicationscarriers

Industries to WatchAs we progress into 2015, some emerging industries areshowingsignsofapositiveoutlooktowardgrowth.Afewofourprojected“hotspots”in2015andbeyondincludethefollowing:

3D Printing–AccordingtoIDTechEx,whichconductsdetailedexaminations of emerging technologies, the total market for3Dprintingsurpassed$1billioninrevenuesduring2012andgrowthisexpectedtocontinuethroughoutalltargetsectorstoreach$20billionby2025.

Cyber Security–Thereport“CyberSecurityMarket”releasedbyMarketsandMarkets,aglobalmarketresearchandconsultingcompany, estimates thecyber securitymarketwill grow from$95.60billionin2014to$155.74billionby2019,ataCompoundAnnualGrowthRate(CAGR)of10.3%from2014to2019.

Medical Devices – A recent report from EP Vantage, theeditorialarmoftheLondon-basedlifescienceindustryanalysisgroup Evaluate, shows that most medical device companiesgrewinheadcountlastyear.Thereportanalyzedthe15biggestcompanies (by market capitalization) in the world, all ofwhichareeitherbasedintheU.S.orhaveasignificantchunkof their employeeshere.Theresults show that 12 of the15companiesreportedanetincreaseinemploymentfrom2012to2013.

Industries Projected for Growth and Decline in 2015

Growing IndustriesIt’sbeenaslowrecovery,tosaytheleast.ButaccordingtoreportsfromtheU.S.BureauofEconomicAnalysis,growthisexpectedtoaccelerate in thecomingyears.Thenation’seconomygrewbyonly1.8%in2013.In2014,however,theeconomygrewby3.9% in the thirdquarter and in 2015, it’s forecasted to growbyanother3.2%.Sowhichindustriesarefuelingtheprogress?Belowisalookatthetop10:

1.Management,scientificandtechnicalconsultingservices

2. Officesofphysicians

3. Computersystemsdesignandrelatedserviceswithanemphasisoncybersecurity

4. Othergeneralmerchandisestores

5. Employmentservices

6. Localgovernment,excludingeducationandhospitals

7. Homehealthcareservices

8. Servicesfortheelderlyandpersonswithdisabilities

9. Nursingcarefacilities

10. Full-servicerestaurants

andthepress.Communicationshouldneverbeasecondaryconsideration. In fact, next to cash, it’s one of the mostimportantingredientsofasuccessfulturnaround.

• Failure to share bad news.Noonewantstosharebadnews.However,lettingemployeesreadaboutplantclosingsinthepaper is amistake.Theyshouldbe toldfirst and foremostwhatishappeningandwhattoexpectinthefuture.Theywillbefarmorelikelytoremainloyalwhentheyknowthefacts.

• Failure to share the pain.Turnaroundsarepainful,plainand simple.That’swhy it’s critical that executives leadbyexample.Thatmeansgettingridoftheclubmemberships,first class air tickets and limo rides. Remember, in aturnover,everyexpensemustbeexaminedandnoneistoosacredtotouch.

Whenitcomestoturnarounds,thereareneveranyguaranteesforsuccess,evenwhenproperactionsare taken.However,byavoiding themissteps above – and approaching the situationwithasenseofurgency–acompanycanchangecourseforthebetter,achievingprofitabilityandrealizingthenextlevel.

Top Reasons Turnarounds Fail

Backinthelate1990s,Applewasonthebrinkofbankruptcy.Enter one Steve Jobs, who had been fired in a boardroomdispute, and he was able to transform the company into aworldwidesuccessstory.It’slikelythemosteffectiveturnaroundinbusinesshistory.

Sadly,alldon’thavesuchhappyendings.Insomecases,helpisn’tbroughtinsoonenough.Everyday,week,ormonththatgoesby

withoutaction,orrecognizingwhenoutsideexpertiseisnecessary,resultsinaworseningsituation.

In other instances, a turnaroundprofessionalisengagedtorestructureand reposition a company as aviable, competitive entity, but

somethinggoesawryduringtheprocess.Moreoftenthannot,it comesdown toa failureof executionofoneor two simplekeys,includingthefollowing:

• Failure to change.Executivesortheboardarenotwillingtomakenecessaryandsubstantialchanges.Theywillaltercourseattheperiphery,butnotatthecorelevel,whereit’strulynecessary.However,whenacompanyisindistress,itisclearthattheteamofthepastcannotsuccessfullyaddressthecurrentchallengesandthosecomingdownthepike.

• Failure to estimate the working capital necessary to succeed. In a turnaround, cash is apriceless commodity.Unfortunately, many executives underestimate justhow much capital requirement is necessary to get theircompaniesbackonsolidfinancialfooting.

• Failure to innovate. Products, especially in today’stechnological environment, can become outdated or nolongerperceivedasessential.Asaresult,newstrategiesforinnovationarerequired.Turnaroundsarenotallaboutcostcutting.Tosucceed,it’scriticalthatacompanyaimtogroworganically and increase revenue,while at the same timetrimmingexpenses.

• Failure to learn from others and evaluate culture. It’sstrongly recommended that every executive and boardmember visit at least four different organizations permonth.Indoingso,theycanviewandlearnfromthegood,bad and ugly of themarketplace. Just by walking into afacility and assessing the landscaping, the reception area,andtheattitudeandattireofemployees, theycanpredictwith a very high degree of precision the success for thatorganization.

• Failure to communicate to stakeholders. This includesemployees,suppliers,wholesalers,customers,shareholders,

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continued from page 2The High Cost of Cyber Theft:

Is Your Company Prepared?

“There are two types of companies in the US; those that have been hacked by the Chinese and those that don’t yet know they have been hacked by the Chinese.”

–FBIDirectorJamesComey

Information isperhapsyourmostvaluedasset.Yet, formanycompanies,itremainsinanenvironmentthatissusceptibletobothinternalandexternalthreats.

However,intoday’sworld,“datasecurity”cannolongersimplybeasecondaryconsideration.Infact,databreachesareamongthemostcommonandcostlysecurityfailuresinorganizationsofanysize.

AccordingtoanannualstudyconductedbyPonemonInstitute(anindependentthirdpartythatconductsresearchonprivacy,dataprotection,andinformationsecuritypolicy)inpartnershipwithIBM,thetotalaveragecostofadatabreachworldwidehasincreased 15% over the past year tomore than $3.5million.Thepriciestdatabreachtoresolvecostthecompanynearly$31million.Eventheleastexpensivedatabreachinthestudystillcostthecompanyupwardsof$750,000.

44%

25%

31%

Root Cause of Data Breaches Based on Ponemon Institute 2014 Cost of Data Breach Study

Malicious orcriminal attack

System glitch

Human error