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Monthly Archives: June 2013

Network and Data Breaches: What Every Employer Should Know by Martin Prinsloo and Gabriel Campos

Posted on June 27, 2013 by Martin Prinsloo

Scenario: Jim Hotaire, a disgruntled employee, was terminated by the ABC Tire company. On the night of the termination the employee accessed the company’s computer network. An overall lack of controls in place allowed the terminated employee to not only access the computer systems of the company, but also able to do this remotely from the relative comfort of an internet café.

While having access to the system, Jim copied customer lists, inner tube manufacturer information and other proprietary information from ABC Tire’s shared drives. Furthermore, as an IT professional he had administrative rights to the system, which allowed him to alter and delete system files (to cover his tracks).

As a final act of revenge, he also altered certain administrative passwords for online email and storage accounts. He knew that this would affect the functionality of the company’s online services and interrupt the business operations of the company. His goal was to affect the operations of the company and use the stolen data to start a competing business.

The next day, staff at ABC Tire realized that certain computer functions were not working properly and management started to suspect that Jim may have had a hand in the situation.  Now the question is: what to do next?

 1- Identification

The first phase includes identifying at-risk resources, including: information, hardware and software resources.  This can be completed by management and the company’s IT professionals.  For this scenario, the IT professionals of ABC Tire identified the following resources the terminated employee had access to:

  • ·       Administrative (unrestricted) access to the systems software
  • ·       The password of the online system of a major vendor that allowed for ordering merchandise.
  • ·       A company email account
  • ·       A company-issued desktop PC
  • ·       A company-issued laptop (used as primary work computer)
  • ·       A company-issued cell phone

 2-Revocation

Once these at-risk resources are identified, the immediate impact must be mitigated as quickly as possible.  Security-minded IT personnel and forensic technology professionals are equipped to take the necessary steps. For this scenario, the IT professionals of ABC Tire took the following steps:

  • ·       Reset all administrative passwords for all users
  • ·       Reset the password for the online vendor system
  • ·       Disable the email account and change the password
  • ·       Isolate the desktop PC, laptop and cell phone
    • o   An IT staff member or forensic technology professional should be consulted to ensure that these electronic devices are isolated in such a way to reduce the risk of inadvertently altering or deleting data. The actual steps to be taken will depend on the specific circumstances of the event.

 3-Preservation

This phase may only be required in cases where litigation is possible and intended.  Keeping the chain of custody intact and following the federal rules of evidence are critical steps in the process of preserving the data and systems affected by misuse. This can be done by experienced forensic technology professionals. 

 In this specific scenario, is clear that ABC Tire had cause for criminal and civil charges.  The main evidence to support these charges should be on the primary work laptop and the company email account. The following will be the main steps to be taken to preserve the evidence:

  • ·       Record active memory of the laptop, if applicable
  • ·       Save a complete copy of all data on hard drive using forensically sound computer equipment and software
  • ·       Document the condition of equipment, active connections, access logs and accounts being maintained
  • ·       Forensically copy the emails of the terminated employee
  • ·       Document change-of-custody

 The preservation phase is critical to create a forensically sound copy of the data.  This data and the overall forensic process can be the subject of scrutiny. It is therefore critical to hire forensic technology professionals that pay particular detail to the forensic process as well as the documentation of all the steps taken, including the chain-of-custody.

  4-Prevention

Finally, prevention is the best method to reduce the risk of a scenario like our example. We encourage client companies to specifically address these types of incidents in their IT policies and procedures.  The necessary preventative steps can be implemented by either internal IT staff or information security consultants.

 ·       Ensure that policies and procedures are in place to prevent, identify and mitigate such incidents.

  • ·       Adopt policies and procedures which specifically ensure that crucial company data are backed up. This will allow for operational and network functions to be restored as soon as possible after any breaches resulting in loss of data.
  • ·       Document a computer and internet usage policy. As part of the hiring process all employees should be required to sign an agreement to abide by these policies.
  • ·       Encrypt all customers and employee data, such as Social Security Numbers, credit card numbers, bank records, health records, etc.
  • ·       Notify IT professionals as part of the formal employee termination process so they can immediately disable network and application access. If the terminated employee had IT responsibilities, the procedures should also specifically require that all administrative passwords are changed and remote access is revoked. It is strongly recommended that the all passwords associated with the employee be changed prior to him or her leaving the premises of the company.
  • ·       Arrange for vendor representatives to be onsite for termination processes if a company’s IT functions are outsourced. This usually creates a smoother transition of the responsibilities and the changing of access passwords and rights.
  • ·       Require terminated employees to hand over all electronic devices and relevant passwords prior to leaving the company’s premises.
  • ·       Perform regular security reviews by certified network security professionals. This will identify possible system access and network security weaknesses.
  • ·       Maintain a list of attorneys and computer forensic experts who can be called upon after any security incidents.

 Preventative controls are the best defense against these types of incidents.  Given the complexities of modern computer environments and the storage of data, it is prudent for companies and counsel to consult with a computer security and forensic technology professionals as early on in the process as possible.

 

About the Authors: Martin Prinsloo and Gabriel Campos are members of Berkowitz Pollack Brant’s Forensic Technology Practice. For more information, call (305) 379-7000 or e-mail mprinsloo@bpbcpa.com or gcampos@bpbcpa.com.

 

 

Women’s Leadership at Berkowitz Pollack Brant

Posted on June 25, 2013 by Richard Berkowitz, JD, CPA

As a firm with a commitment to its female members, Berkowitz Pollack Brant has adopted a women’s initiative that seeks to harness the experience of senior leaders and outside experts to help our younger colleagues navigate the issues of work-life balance.

 A recent internal meeting focused on best-practice sharing and Sheryl Sandberg’s Lean In book and website. The women who attended enjoyed the company of their peers and a lively discussion that was off-the-record but very valuable.

 A group of individuals from across the firm recently attended PrimeGlobal’s Women’s Leadership Conference. Topics included the trend of young women abandoning public accounting careers, what persuades them to stay and how great firms build career employees by creating a culture of engagement.  Family Law and Forensics Director Sandi Perez was among the speakers and she shared insight into our program and successes. We also picked up some good ideas for future programs.

In addition, we had a delegation of firm members at the FICPA’s Women’s Leadership Summit. This full-day program included discussions about managing multiple generations, leadership, communication and career navigation strategies.

 Berkowitz Pollack Brant has a deep commitment to firm members and the unique challenges of women in the workplace.

Upcoming Tax Deadlines for Individuals with Foreign Accounts and Gift and Generation-Skipping Transfers

Posted on June 21, 2013 by Joseph Saka

While many people breathe a sigh of relief after the April 15 deadline, there are a few other important dates to keep in mind. Many Berkowitz Pollack Brant clients have a financial interest in or signature authority over a foreign bank account, brokerage account, trust or other type of foreign account.

Individuals in this situation are required to file a Report of Foreign Bank and Financial Accounts (FBAR) by June 30. An FBAR is not filed with a federal income tax return and is not subject to extension.

Individuals who need assistance with FBAR reporting should call us right away. Our tax accountants will help you comply with the federal guidelines.

In addition, many families refined their estate plans when the amounts of gift tax and generation skipping exemptions were being debated by Congress as part of the Fiscal Cliff deal. A lot of these filings were extended past April 15 but can be completed during the slower summer months.

 We can help you complete the mandatory filings and answer questions about these and other requirements.

 

 

Joseph L. Saka is director in charge of the Tax Services practice of Berkowitz Pollack Brant. For more information, call 305-379-7000 or e-mail jsaka@bpbcpa.com

 

 

 

Kenneth J. Strauss Sworn in as Chairman of the FICPA

Posted on June 19, 2013 by

MIAMI, June 14, 2013 – Kenneth J. Strauss CPA/PFS was sworn in as chairman of the board of the Florida Institute of Certified Public Accountants (FICPA) at the organization’s annual conference in Orlando.

Strauss, a director in the tax services practice of Berkowitz Pollack Brant Advisors and Accountants, has been active in the organization for more than 30 years. He has served on or chaired more than 40 statewide committees, spearheaded a financial literacy task force and is credentialed to teach the FICPA’s ethics course for accountants. In addition, he has chaired the annual FICPA’s 1040k/Money Run, which raised more than $300,000 in scholarships for African-American accounting students in 20 years.

Complementing his leadership outside the firm, Strauss has served as Berkowitz Pollack Brant’s director of training since 1999, established an in-house Toastmasters group for firm members and has been involved in on-campus recruiting. He serves on the board of directors and investment committee of the firm’s affiliate Provenance Wealth Advisors, which has more than $1.5 billion in assets under advisement.

He is the third Berkowitz Pollack Brant firm member to hold the chairman’s role at FICPA.

About the Florida Institute of Certified Public Accountants

The Florida Institute of Certified Public Accountants serves as the association for all CPAs certified in the state. Founded in 1905, the FICPA has been working to advance the accounting profession in Florida for more than 100 years and now has more than 18,500 members. Continued membership growth and renewal has made the FICPA one of the largest CPA organizations in the United States.

About Berkowitz Pollack Brant Advisors and Accountants

For nearly 30 years, the professionals of Berkowitz Pollack Brant have solved problems, provided knowledge and helped clients build their companies. The firm and its affiliates Provenance Wealth Advisors and BayBridge Real Estate Group have offices in Miami, Ft. Lauderdale and Boca Raton, Florida.

Berkowitz Pollack Brant has been named one of the top 100 firms in the U.S. by both Accounting Today and INSIDE Public Accounting. One of the largest firms in South Florida, it is comprised of talented and resourceful professionals who provide consulting services with an entrepreneurial focus. Specialty areas include tax planning and compliance, corporate and commercial audits, forensics and litigation, business valuation, and wealth management and preservation.

For more information about the firm or its affiliates Provenance Wealth Advisors and BayBridge Real Estate Group, visit www.bpbcpa.com

Richard A. Berkowitz Honored with FICPA’s Outstanding Florida CPA in Public Service Award

Posted on June 17, 2013 by Richard Berkowitz, JD, CPA

MIAMI, June 14, 2013 – Richard A. Berkowitz, chief executive officer of the accounting and advisory firm Berkowitz Pollack Brant, has been honored with the Outstanding Florida CPA in Public Service award.  The award was presented by the Florida Institute of Certified Public Accountants (FICPA) at the organization’s annual conference in Orlando.

Berkowitz was recognized for his leadership and contributions to numerous community organizations and for improving the CPA profession in the state. He is immediate past chairman of the Community Foundation of Broward, an organization that promotes leadership on challenging community issues. The organization’s work that is closest to his heart is School is Cool, a middle-school initiative to boost graduation rates in Broward schools.

He served as Statewide Chair of Take Stock in Children from 2008 – 2011 and donates his time and talents to a variety of organizations, including Take Stock in Children’s executive committee; the Greater Miami Jewish Federation, where he serves on the board of directors and Financial Management Committee; the Fisher Island Finance Committee which he chairs; the University of Miami’s Citizens Board; and the Greater Miami Chamber of Commerce. 

Berkowitz is a founding board member of the Dolphins Cycling Challenge, a 170-mile bicycle ride for the benefit of the Sylvester Comprehensive Cancer Center. His involvement was a natural extension of his 25 years as a rider in the PanMass Challenge, a 190-mile ride in Boston benefitting the Dana-Farber Cancer Institute, for which he has raised more than $600,000.

 In 2005-2006 Berkowitz served as president of the FICPA. Earlier in his career he was elected world president of PrimeGlobal, an international association of CPA firms with representation in more than 150 countries.

 About the Florida Institute of Certified Public Accountants

The Florida Institute of Certified Public Accountants serves as the association for all CPAs certified in the state. Founded in 1905, the FICPA has been working to advance the accounting profession in Florida for more than 100 years and now has more than 18,500 members. Continued membership growth and renewal has made the FICPA one of the largest CPA organizations in the United States.

 About Berkowitz Pollack Brant Advisors and Accountants

For nearly 30 years, the professionals of Berkowitz Pollack Brant have solved problems, provided knowledge and helped clients build their companies. The firm and its affiliates Provenance Wealth Advisors and BayBridge Real Estate Group have offices in Miami, Ft. Lauderdale and Boca Raton, Florida.

 Berkowitz Pollack Brant has been named one of the top 100 firms in the U.S. by both Accounting Today and INSIDE Public Accounting. One of the largest firms in South Florida, it is comprised of talented and resourceful professionals who provide consulting services with an entrepreneurial focus. Specialty areas include tax planning and compliance, corporate and commercial audits, forensics and litigation, business valuation, and wealth management and preservation.

 For more information about the firm or its affiliates Provenance Wealth Advisors and BayBridge Real Estate Group, visit www.bpbcpa.com

Safeguard Your Tax Records This Hurricane Season by Jeffrey Mutnik

Posted on June 12, 2013 by Jeffrey Mutnik

Living in South Florida, we are well aware of the stress and challenges caused by hurricane season. The natural disasters that have occurred in Oklahoma and other areas in the last few months are a good reminder that we should all protect important documents.

Here are a few tips for protecting personal records and tax documents.

1.     Have a back-up set of records if you keep paper copies. Berkowitz Pollack Brant clients can log onto the firm’s portal at any time to access or upload tax documents in a secure environment. Visit www.bpbcpa.com and look for the link in the upper right corner.

2.     Scan copies of paper-only records so you have them in an electronic format. Documents in an electronic format can be downloaded to a backup storage device or burned to a CD.

3.     Many companies, including insurance vendors, banks, credit card issuers and the phone company, provide online access to client documents and bills. As part of your family disaster plan, compile passwords and keep them in a safe place. Especially if you have to evacuate.

4.     Sign up for online banking so you can keep bills current and receive messages about loan abatements and other issues in the event of a disaster. If your company offers direct deposit, take advantage so you do not have to worry about access to your paycheck or depositing a paper check if the bank is not open.

5.     Store sensitive documents that do not have protected online access in a bank safe deposit box.

6.     Consider videotaping or photographing the contents of your home. The IRS offers a disaster loss handbook called Publication 584, which is available at www.IRS.gov and can be very helpful in the event of a disaster. Photographs or visual evidence will be useful in the event of an insurance claim or tax write off.

7.     Review your emergency plan. At the minimum, employers should have plans for contacting and communicating with all employees, safeguarding technology and records and first steps to take when a storm passes. Families should have a designated meeting place and an emergency contact outside the local area in case they are separated.

We hope our clients and communities are not impacted by any severe weather events this season, but it is always safer to be prepared. If you have questions about our portal or your access information, please contact your accountant.

 

About the Author: Jeffrey M. Mutnik a director in the tax practice of Berkowitz Pollack Brant. For more information, call (305) 379-7000 or e-mail info@bpbpa.com.

 

Calculating Lost Profits by Richard Pollack

Posted on June 05, 2013 by Richard Pollack

 

The recent Apple/Samsung feud shined a bright light on a specific area of accounting that lawyers may encounter on a routine basis – lost profits analysis. In the high-profile litigation, Apple sued Samsung for alleged patent infringements and was awarded over $1 billion in damages by a jury, which included a disgorgement of Samsung’s profits, reasonable royalties and Apple’s lost profits.

Samsung successfully argued that a portion of the award was improperly calculated and a new trial was recently ordered by the trial court judge, but the lost profits analysis played a key role in the Apple victory, and while certain issues will be retried, Apple’s lost profits analysis was praised by the appellate court. Because lost profits analyses play a major role in litigation. An understanding of the metrics used to calculate lost profits can help lawyers as they craft their litigation strategies.

Overview of Lost Profits Analyses

 

In litigation, lost profits are typically claimed as an element of economic damages. Accountants typically prepare damages analyses to either 1) estimate the loss suffered by the plaintiff as a result of the defendant’s wrongful conduct; or 2) refute the plaintiff’s alleged damages. To prove damages, the plaintiff must show 1) the defendant’s wrongful conduct caused the loss; 2) the amount of the loss can be estimated with reasonable certainty and 3) the loss was a foreseeable consequence of the defendant’s actions.

 

Only lost net profits are permitted as recoverable damages. The lost net profit is generally computed by estimating the gross revenue that would have been earned but for the defendant’s wrongful conduct and subtracting “avoided costs” – incremental costs that would have been incurred by plaintiff in connection with the lost revenue. Any actual profits earned by plaintiff are then deducted from the net lost profits to compute the damages amount.

 

Lost profits can only be claimed over the “loss period.” The loss period can be computed based on a variety of indicators, depending on the nature of the case. For example, statutory requirements, industry customs and contract terms can all dictate the loss period for the purposes of calculating lost profits. Oftentimes, the length of the loss period is a source of contention for battling experts in litigation, with the plaintiff claiming a longer loss period and the defendant claiming a shorter one.

 

Methods of Calculating Lost Profits

 

Calculating lost profits requires a two-prong analysis: first, calculate the lost revenues and second, calculate the cost associated with generating the lost revenues. The difference between the two generally constitutes the lost profits.

 

 

Calculating Lost Revenue

 

Methods generally used to calculate lost revenue include:

– The “Before and After” method

– The “Yardstick” (or “Benchmark”) method

– Analysis of the underlying contract

– Accounting of the defendant’s profits

 

In certain specialized damages areas, such as the Apple/Samsung patent infringement case, methods may be impacted by statutes or specific case law.

 

The “Before and After” method compares the plaintiff’s profitability prior to the defendant’s alleged wrongdoing to the plaintiff’s profitability after that event. The theory is that the plaintiff’s historical profits may provide a reasonable basis to estimate profits that would have otherwise been generated during the damage period but for the defendant’s bad acts. It is important, however, that the expert takes into consideration and, where appropriate, adjusts for, factors that were likely unrelated to the defendant’s actions.

 

When using the “Yardstick” or “Benchmark” method, the expert identifies and applies an operating metric that serves as a benchmark to estimate what the revenues and profits of the affected business could have been. Some examples may include:

 

– Performance of the plaintiff’s business at a different location;

– The plaintiff’s actual experience versus past-budgeted results;

– The actual experience of a similar business unaffected by defendant’s actions;

– Comparable experience and projections by non-parties;

– Industry averages; and

– The plaintiff’s pre-litigation projections

 

In breach of contract disputes, a lost profits calculation may be based upon a specific contract between the parties. For example, a contract may contain elements such as the number of units to be sold and unit prices, which can be used to calculate lost profits.

 

In cases involving unfair competition or misappropriation of trade secrets, an accounting of the defendant’s profits can serve as a measure of damages. In general, the plaintiff is only entitled receive the value of the unjust enrichment – the profits attributable to the defendant’s bad acts to the plaintiff. If the profits are attributable to other factors, the defendant would not have to pay those amounts.

 

Oftentimes, the plaintiff’s lost profits may include past and future losses. If the loss period extends beyond the date of trial, future lost profits will be calculated by subtracting the future profits that the plaintiff is projected to realize from the profits that the plaintiff would have realized but for the defendant’s wrongful acts. These future lost profits are then discounted back to their present value using a discount rate that takes into consideration the time value of money and, in some cases, risk inherent in the lost profits projection.

 

Calculating Cost Estimation

 

After establishing the amount of lost revenues, the expert calculates costs associated with the generation of those revenues and deducts them from the lost revenues to determine the net lost profits.

 

The costs that should be deducted from lost revenues are generally known as “avoided costs” – those costs that would have been incurred in connection with the generation of the lost revenues, but were not incurred because the revenues were not generated.

 

Each product or service that the plaintiff sells has a cost associated to produce it. Some of those costs are fixed, for example, rent, utilities, cost of equipment and certain salaries. Costs that fluctuate based upon the number of products or services sold are variable costs. If the good or service is not produced, these costs are not incurred. Determining the avoided costs requires an analysis of the costs associated with the production of the goods or services, including a classification of the nature of each cost – variable or fixed. Avoided costs are the variable costs that were not incurred due to the plaintiff’s reduced production resulting from defendant’s wrongful conduct.

 

In the 2008 case of RKR Motors, Inc. v. Associated Uniform Rental & Linen Supply, Inc., 995 So. 2d 558 (Fla. 3d DCA 2008), the appellate court held that fixed costs should be included, on a prorated basis, in the costs that are deducted from lost revenues.

 

Let’s look at a simplified example: Buyer and Seller enter into a contract. Buyer agrees to purchase 10,000 widgets at $1 apiece. Seller manufactures the widgets in its factory that it rents for $15,000 a month. Seller’s contract with Buyer makes up 5% of Sellers factory production. Before production begins, Buyer terminates the contract and Seller sues for lost profits, claiming Buyer improperly terminated the contract. Based upon the holding in RKR Motors, the rent, a fixed cost, must be taken into account. Since the contract with Buyer makes up 5% of Seller’s factory production, 5% of the rent, or $750 a month, over the length of the loss period, should be deducted from the lost revenue calculation. While the holding in RKR Motors may be subject to further review, today it remains good law. Accordingly, it is important to remember when calculating lost profits that a portion of fixed costs can be classified as “avoided costs” to offset the amount of lost revenue.

 

 

Conclusion

 

In cases where lost profits are at issue, although it is important to have a reliable and seasoned expert on the trial team, attorneys who truly understand the logic behind the lost profits analysis may find that it helps to develop key arguments and strategies to support the client’s position. Furthermore, understanding the damage calculation and how it is supported by the case law can help prevent a reversal on appeal.

 

 

 

Richard A. Pollack CPA is director in charge of the Forensic and Business Valuation Services practice of Berkowitz Pollack Brant. For more information, call (305) 379-7000 or e-mail info@bpbcpa.com.

 

 

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