Hear Ye, hear ye

When Banks Break the Law

the following article is from the web-site of Bruce Alan Block, Attorney at Law

Since the late 1980's, banks and lending institutions grew in size and become less friendly, less responsive, and more predatory. Deregulation of the banking industry led to major Goliath-sized banks which cared little or not at all for the small business customer who brought little profit. Ignored was the fact that these small companies were and are the major employer.

In the late 1990's, banks began canceling, calling, and refusing to renew lines of credit. Small businesses suddenly found themselves in the unenviable position of being without operating capital or credit; most drastically culled their work force, many others simply closed their doors. Of course, unemployed workers do not purchase the same amount of products (or pay taxes) which led to more national debt, more closures, and a real estate market collapse. The bank actions set into motion a chilling, chain reaction that wreaked serious havoc on the economy, leading to the financial crisis of 2007 and thereafter. Today, the country is still trying to recover from the domino effect caused by the tightening and elimination of monies for small business.



According to the Small Business Administration, 95% percent of U.S. employer firms are small businesses. It is not hard to understand why cutting off the supply of money to this vital segment of the economy set off such a crippling reaction.

Banks exist to receive and lend money. They act as a conduit of money from the Federal Reserve into the local economy. Banks are required to invest in local businesses and communities. As noted,Gone are the days when a bank would stand by a troubled business and try to help it through hard times. Sadly, nowadays the bank is the first to cut and run. The "friendly" bank of the last 20+ years that routinely renewed the credit line will suddenly decide to call the note and hands the small business a 90-day Forbearance Agreement.



Unfortunately, most businesses think they have no choice but to to sign the forbearance agreement — this is wrong thinking. Usually, the bank's 90-day forbearance agreement is pitched as a way for you to "obtain credit elsewhere." However, this is illusory, as you will find that no other bank will lend you money. Think about it, if your bank of 15+ years refuses to give you credit, do you really think another bank will? The answer of course is "no." In our experience, the small business will be unable to convince another bank to lend it money. Signing a forbearance agreement is the first step down a fast track to business closure or bankruptcy.



We strongly encourage any person or business faced with this situation to NOT sign a forbearance agreement (or anything else the bank "graciously" offers) until you have first talked to a knowledgeable lawyer. Why? Its simple. Forbearance agreements are lopsided and completely one-sided in favor of the bank. They give you a miserly 90 days that you would have had anyway. You give up and waive all rights to challenge the bank’s actions of why they won't lend to you, including the right to sue the bank for bad faith and unfair dealings. In our experience, those who did not sign a forbearance agreement remained in business. Every time, no exceptions.


Lender Liability, Good Faith and Fair Dealings.



It's a little known secret that banks and lending institutions can be sued for failing to act in good faith, failing to fairly treat its loan customers, and for its misdeeds. It is not impossible to go up against a big bank. An old adage comes to mind: "the bigger they are – the harder they fall." Likely, the bank has violated one or more of the numerous federal and state banking laws and regulations. Banks are subject to the same contract rules and common law principles as any other business.



Common law and contractual rules require that all parties to a contract (i.e. a loan agreement) act in good faith and with fair dealings. This means that both sides MUST act in a commercially reasonable manner, act in good faith, and fairly deal or treat the other party. Too often the banks think these principles do not apply to them, and that they can act in any manner they please. This is wrong. If a bank fails to act in good faith, if it fails to treat you fairly, if it fails to act in a commercially reasonable manner, it can be sued under a legal theory known as lender liability.


Equal Credit Opportunity Act – Spousal Signatures.



In the 1970's Congress passed the Equal Credit Opportunity Act which mandated certain criteria banks can and cannot use when making loans. The Equal Credit Opportunity Act prohibits a bank from requiring a spouse co-sign for a business loan. The ECOA and Regulation B, forbids banks from asking or requiring a non-involved wife to sign a personal guaranty for a loan being made to her husband's business (and visa versa). A bank will say that it will not make the loan or extend credit unless the wife also signs a personal guaranty. This is against federal law. If the husband and business are credit worthy and the wife is not involved in the business, a bank cannot ask nor require that a spouse personally guaranty company debt.



This prohibition does not apply where the spouse is actively involved in the business or where the applicant spouse and business are not credit worthy. However, in our experience most spousal signatures are obtained in violation of the law.



Unfortunately, most business men and women are unaware of this federal prohibition. We continue to see cases where banks have ignored the prohibition and required that a non-involved spouse sign a personal guaranty. Banks do this for a simple reason: if there is a default, the bank can attach all of the couple's assets, including the family home – homestead which is normally out of reach of creditors. The personal guaranty from the spouse makesall family assets conveniently available for seizure.



We have seen family homes foreclosed and sold by calloused banks whose sole focus is the "almighty dollar." These banks are completely indifferent to the path of destruction caused. We have seen banks garnish wages of an innocent spouse who didn't borrow the money, didn't personally benefit, and had no involvement with the business. A violation of the ECOA can result in the Promissory Note being declared null and void, collection actions terminated, and the offending bank required to pay actual attorney fees, actual damages, and even punitive damages.



Ignorance of Federal Banking Laws.



Sadly few in the civil litigation arena truly understand the ECOA prohibition or know how to use it as a defense. We do. We have handled lender liability, ECOA, and spousal signature cases. We know how to force a bank to release the innocent spouse from its clutched talons. It's not easy — but it can be done.



There are many state and federal laws that regulate the extension of credit and the termination of a line of credit. Our civil litigation and business line of credit attorney is experienced in handling cases where a line of credit has been arbitrarily canceled or terminated. Banks cannot arbitrarily deny you access to credit.

http://brucealanblock.com/business-line-of-credit/

What is the Sarbanes-Oxley Act?

The Sarbanes-Oxley Act of 2002 is a United States federal law passed in response to the recent major corporate and accounting scandals including those at Enron, Tyco International, and WorldCom (now MCI). These scandals resulted in a decline of public trust in accounting and reporting practices. Named after sponsors Senator Paul Sarbanes (D-Md.) and Representative Michael G. Oxley (R-Oh.), the Act was approved by the House by a vote of 423-3 and by the Senate 99-0. The legislation is wide-ranging and establishes new or enhanced standards for all U.S. public company Boards, Management, and public accounting firms. The first and most important part of the Act establishes a new quasi-public agency, the Public Company Accounting Oversight Board, which is charged with overseeing and disciplining accounting firms in their roles as auditors of public companies. Some of the major provisions of the Sarbanes-Oxley Act's include:

• Certification of financial reports by chief executive officers and chief financial officers
• Auditor independence, including outright bans on certain types of work for audit clients and pre-certification by the company's Audit Committee of all other non-audit work
• A requirement that companies listed on stock exchanges have fully independent audit committees that oversee the relationship between the company and its auditor
• Significantly longer maximum jail sentences and larger fines for corporate executives who knowingly and willfully misstate financial statements, although maximum sentences are largely irrelevant because judges generally follow the Federal Sentencing Guidelines in setting actual sentences
• Employee protections allowing those corporate fraud whistleblowers who file complaints with OSHA within 90 days, to win reinstatement, back pay and benefits, compensatory damages, abatement orders, and reasonable attorney fees and costs.

Profit vs. Cashflow

It might seem obvious, but in managing a business, it's important to understand how the business makes a profit. A company needs a good business model and a good profit model.  A business sells products or services and earns a certain amount of margin on each unit sold. The number of units sold is the sales volume during the reporting period. The business subtracts the amount of fixed expenses for the period, which gives them the operating profit before interest and income tax.

It's important not to confuse profit with cash flow. Profit equals sales revenue minus expenses. A business manager shouldn't assume that sales revenue equals cash inflow and that expenses equal cash outflows. In recording sales revenue, cash or another asset is increased. The asset accounts receivable is increased in recording revenue for sales made on credit. Many expenses are recorded by decreasing an asset other than cash. For example, cost of goods sold is recorded with a decrease to the inventory asset and depreciation expense is recorded with a decrease to the book value of fixed assets. Also, some expenses are recorded with an increase in the accounts payable liability or an increase in the accrued expenses payable liability.

Remember that some budgeting is better than none. Budgeting provides important advantages, like understanding the profit dynamics and the financial structure of the business. It also helps for planning for changes in the upcoming reporting period. Budgeting forces a business manager to focus on the factors that need to be improved to increase profit.  A well-designed management profit and loss report provides the essential framework for budgeting profit. It's always a good idea to look ahead to the coming year. If nothing else, at least plug the numbers in your profit report for sales volume, sales prices, product costs and other expense and see how your projected profit looks for the coming year.

Accounting Software

If you think that starting your own business is cakewalk, you’re very wrong. Aside from developing good products and services, you still need to sell them to the market. One of the essential factors in running a business is effectively managing finances. The language of any business, whether big or small, is accounting.

The business scene is always loaded with work pressure. Therefore, there is an unerring need for handling accounts and finances effectively. Even small businesses need to be organized to achieve success and to do this the business owner should get the appropriate accounting software. Business units usually set long-term goals and to reach the goals, accounting management is required. If you want to be your business’ boss, you will need accounting software. Manually doing all the accounting works can lead to a lot of errors which can terribly affect any business.

As owner of a small business, you have to know where funds come from and where it goes. If you decide to do accounting tasks manually, it can consume a great portion of your time and it will be cumbersome on your part.

Here are some of the benefits that you will get by using an accounting software program:

• You can finish all the accounting tasks promptly and you will be able to run your small business without too much problems.

• You can be provided with correct reports as well as special tools to make accounting tasks a lot simpler. That way, you can manage all the financial data of the business effectively.

• In minutes, you can already manage the cash flow of the business.

• With the accounting software, it will now be possible to predict revenues, bills, and generating reports.

These are some of the benefits of using an accounting software. However, don’t purchase the first accounting software that you come across. You see, there are things to consider when selecting the proper accounting software for the business. You have to determine the software’s functionalities. It should be user-friendly and most especially, it should resemble the paper counterparts so that you can run the software smoothly. Once you’re familiar with the software’s layout, you can already explore its functionalities.

If you can find software which combines the internet and e-commerce, the better; you see, there are a great number of accounting software sold in the market. If you want to enjoy all the benefits, you must be able to choose the finest accounting software that is suited to your small business.

In choosing an accounting software, you need to consider the number of your employees. You can find accounting software that is suited for small business with less than 25 employees. Other software is suited for large businesses with bigger numbers of employees.

A software that is suited for small businesses helps the business owner analyze financial data, customize reports like transaction history, profit & loss, check details, reconciliation details, and many more. By simply looking at the various reports, you can already determine your business status. Some software also offers built-in features like forecasting tools. These tools can be used to manage business risks and control cost of operation.

If you’re running a small business, it is now time to purchase accounting software. By doing so, you can secure your business’ future and you can be certain that all your financial tasks are handled effectively.

Corporate Accounting Scandals

When a corporation deliberately conceals or skews information to appear healthy and successful to its shareholders, it has committed corporate or shareholder fraud. Corporate fraud may involve a few individuals or many, depending on the extent to which employees are informed of their company's financial practices. Directors of corporations may fudge financial records or disguise inappropriate spending. 

Fraud committed by corporations can be devastating, not only for outside investors who have made share purchases based on false information, but for employees who, through 401ks, have invested their retirement savings in company stock.

Some recent corporate accounting scandals have consumed the news media and ruined hundreds of thousands of lives of the employees who had their retirement invested in the companies that defrauded them and other investors. The nuts and bolts of some of these accounting scandals are as follows:

• WorldCom admitted to adjusting accounting records to cover its operation costs and present a successful front to shareholders. Nine billion dollars in discrepancies were discovered before the telecom corporation went bankrupt in July of 2002. One of the hidden expenses was $408 million given to Bernard Ebbers (WorldCom's CEO) in undisclosed personal loans.

• At Tyco, shareholders were not informed of the $170 million in loans that were taken by Tyco's CEO, CFO, and chief legal officer. The loans, many of which were taken interest free and later written off as benefits, were not approved by Tyco's compensation committee. Kozlowski (former CEO), Swartz (former CFO), and Belnick (former chief legal officer) face continuing investigations by the SEC and the Tyco Corporation, which is now operating under Edward Breen and a new board of directors.

• At Enron, investigations uncovered multiple acts of fraudulent behavior. Enron used illegal loans and partnerships with other companies to cover its multi-billion dollar debt. It presented erroneous accounting records to investors, and Arthur Anderson, its accounting firm, and began shredding incriminating documentation weeks before the SEC could begin investigations. Money laundering, wire fraud, mail fraud, and securities fraud are just some of the indictments directors of Enron have faced and will continue to face as the investigation continues.

Bookkeeping Basics

Most people probably think of bookkeeping and accounting as the same thing, but bookkeeping is really one function of accounting, while accounting encompasses many functions involved in managing the financial affairs of a business. Accountants prepare reports based, in part, on the work of bookkeepers.

Bookkeepers perform all manner of record-keeping tasks. Some of these tasks include the following:

• They prepare what is referred to as source documents for all the operations of a business - the buying, selling, transferring, paying and collecting. These documents include papers such as purchase orders, invoices, credit card slips, time cards, time sheets and expense reports. Bookkeepers also determine and enter in the source documents what are called the financial effects of the transactions and other business events. Those include paying the employees, making sales, borrowing money or buying products or raw materials for production.

• Bookkeepers also make entries of the financial effects into journals and accounts. These are two different things. A journal is the record of transactions in chronological order. An accounts is a separate record, or page for each asset and each liability. One transaction can affect several accounts.

• Bookkeepers prepare reports at the end of specific period of time, such as daily, weekly, monthly, quarterly or annually. To do this, all the accounts need to be up to date. Inventory records must be updated and the reports checked and double-checked to ensure that they're as error-free as possible.

• The bookkeepers also compile complete listings of all accounts. This is called the adjusted trial balance. While a small business may have a hundred or so accounts, very large businesses can have more than 10,000 accounts.

• The final step is for the bookkeeper to close the books, which means bringing all the bookkeeping for a fiscal year to a close and summarized. 

What Is Accounting

  

     Anyone who's worked in an office at some point or another has had to go to the accounting department. The employees whom work in the accounting department are the ones that pay bills, invoice customers and generally keep the business running. They much more than this mind you. Although sometimes they are referred to as "bean counters", they also keep their eye on income, costs and cash flow. All businesses big and small, require some form of an accounting department.

      No matter what business you're in, even if all you do is balance a checkbook, it is still considered accounting. Accounting is even part of children's lives in terms of saving an allowance or spending it all at once - these activities are still part of accounting principles.

      What are some other businesses where accounting is critical? Well, farmers need to follow careful accounting procedures. Many of them run their farms year to year by taking loans to plant the crops. If it's a good year, a profitable one, then they can pay off their loan; if not, they might have to carry the loan over, and accrue more interest charges.

      Every business and every individual needs to have some kind of accounting system in their lives. This is so because otherwise the expenses can get away from them, they don't know what they've spent, or whether they can expect a profit or a loss from their activities that month. Staying on top of accounting, whether it's for a multi-billion dollar business or for a personal checking account, is a necessary activity on a daily basis if you're smart. Not doing so can mean anything from a bounced check or showing a loss to a company's shareholders. Both scenarios can be equally devastating.

      Accounting is basically recording and reporting financial information, and it this information that is relied on by any group having a vested interest in a business.