Today’s blog is about a very negative side of corporate finance. One of the ways to finance your business is by borrowing money from a bank, but sometimes small businesses have trouble on getting them. Especially in times like these, with the crisis going on, it’s not hard to imagine that small - business owners would seek help in more desperate measures.
The article I read was about ‘shelf corporations’. A shelf corporation is a “(...) business entity that has no real assets or ongoing business activities, what is called a shell corporation, that is then “put on a shelf” for a few years while credit history is established (...)” (source)In the past, they were used to built up a new company, but now they are being abused to find a way to cheat on credit guidelines. The president of Better Business Bureaus (BBB) of South California, Doug Broten, gave an interview in the article about the research he did concerning these frauds, after a man that was involved in shelf corporation – scams had to answer to the appeals committee of BBB and the FBI.
Sometimes when a small company hasn’t got the credit history required to get a loan, they seek help on the internet. There, a whole lot of these shelf companies offer the client to use their ‘shelf company’ and especially its credit history to get a loan. These shelf companies make sure they have done enough transactions to look like a creditworthy company, without being a real company.
The president of BBB said it was difficult for banks to recognise this scam when confronted with it, because the shelf companies mostly tell their clients exactly what banks they should go to and that they should never ask for more than $ 150,000. When this amount or less is borrowed, banks normally don’t investigate the transaction.
When things turn out bad and loans aren’t paid back, banks have nothing and no one to go after. This is bad for the bank, but also for the bank’s customers whose money is involved. The small – business owner often get hurt themselves. The owners of the shelf companies ask for advances and once paid, they are never heard from again.
This practice is called unethical, but there is not yet a law that really forbids this practice.
This article highlights such a different way of corporate finance, or rather the lack of it. I agree with the president of BBB that there has to be a different way to finance your business when banks don’t want to give you any loans because they don’t find you creditworthy enough. Yes, even putting aside the idea of having your own business.
Myself, I would really like to have my own business when I am a bit older and experienced, but to be quite honest, I would never surf the internet ‘for money’ and get involved in such scams. If I wasn’t creditworthy enough to get a loan, I suppose I would first try to find some investors in my family or among business relations, etc. Or even, worst case scenario, close the doors of my company. I firmly believe that getting involved in this can turn out ten times worse than closing your doors in a neat and honest way.
Until next week for a new blog on corporate finance!
Kind regards, Lien Vanneder
Source: http://www.businessweek.com/smallbiz/content/jul2009/sb20090714_626511.htm
maandag 26 oktober 2009
Livine: Risky business
Insuring countries against climate catastrophe
I’ve chosen for an article about the global climate change and its effects on the economy.
The last 50 years there were a lot of victims because of the climate chance and the economy is also one of the victims. There are economical losses around 1 billion dollar.
It’s up to the countries to do something before it’s too late, the countries should build resilience to limit the consequences of this climate chance. Otherwise, there would come bigger economical losses for the following decennia.
According to a report of the ECA, the developing countries are most threatened. Developing countries are after all most depend of the climate. If the temperatures keep on rising, they will become the biggest victim. Rising temperatures lead to a shrinking of the vegetation-output and a scarcity of water. These countries will be less productive because there agriculture depends of the weather, they have almost no diversity of cultivated plants and no insurance products. If the global temperature keeps on increasing this way, these counties will lose around 19% of their GDP until 2030.
This report was in order of Del Rio because their government doesn’t do so much to help them with their insecurity because of this climate chance. This report is also meant to help other interested parties so that they can lead a policy to limit the consequences of this climate chance.
The report doesn’t go about the financing of the measures but they claim that they are effectively searching for cost-efficient methods. These methods will also contribute something to the insurers, financial institutes and potential investors. The reaction on this report were until now very positive.
Representatives of Oxfam and The Red Cross say that they are busy with projects for the agriculture in Ethiopia and with healthcare projects in Kenya.
It’s obvious that there is a economical impulse for the privately-owned companies who are involved with this initiative. This realization can result in recommending and asking for products in risk assessment.
The ECA provides now applicable methods for the whole world but it’s up to the local environments and governments to fulfill their task and to build resistance against these results of the global climate change.
I think this article is very interesting and it’s very important to stand still at this subject. There are a lot of people who don’t know or forget that the rising temperature has something to do with the economy.
I also think that we have it very good here so that we forget sometimes that there are also countries in development and that they need help, especially now. So I believe that it’s very good that there are companies such as Oxfam and The Red Cross who are prepared to help these countries in hard times like these.
You can read the article on: http://edition.cnn.com/2009/TECH/science/09/28/climate.insurance/index.html
Greet!
Livine
I’ve chosen for an article about the global climate change and its effects on the economy.
The last 50 years there were a lot of victims because of the climate chance and the economy is also one of the victims. There are economical losses around 1 billion dollar.It’s up to the countries to do something before it’s too late, the countries should build resilience to limit the consequences of this climate chance. Otherwise, there would come bigger economical losses for the following decennia.
According to a report of the ECA, the developing countries are most threatened. Developing countries are after all most depend of the climate. If the temperatures keep on rising, they will become the biggest victim. Rising temperatures lead to a shrinking of the vegetation-output and a scarcity of water. These countries will be less productive because there agriculture depends of the weather, they have almost no diversity of cultivated plants and no insurance products. If the global temperature keeps on increasing this way, these counties will lose around 19% of their GDP until 2030.
This report was in order of Del Rio because their government doesn’t do so much to help them with their insecurity because of this climate chance. This report is also meant to help other interested parties so that they can lead a policy to limit the consequences of this climate chance.The report doesn’t go about the financing of the measures but they claim that they are effectively searching for cost-efficient methods. These methods will also contribute something to the insurers, financial institutes and potential investors. The reaction on this report were until now very positive.
Representatives of Oxfam and The Red Cross say that they are busy with projects for the agriculture in Ethiopia and with healthcare projects in Kenya.
It’s obvious that there is a economical impulse for the privately-owned companies who are involved with this initiative. This realization can result in recommending and asking for products in risk assessment.
The ECA provides now applicable methods for the whole world but it’s up to the local environments and governments to fulfill their task and to build resistance against these results of the global climate change.
I think this article is very interesting and it’s very important to stand still at this subject. There are a lot of people who don’t know or forget that the rising temperature has something to do with the economy.
I also think that we have it very good here so that we forget sometimes that there are also countries in development and that they need help, especially now. So I believe that it’s very good that there are companies such as Oxfam and The Red Cross who are prepared to help these countries in hard times like these.
You can read the article on: http://edition.cnn.com/2009/TECH/science/09/28/climate.insurance/index.html
Greet!
Livine
Evelien: The ‘Enron scandal’
For this week’s blog I’ve chosen a total different approach. I’ll discuss a topic that was addressed in my last course of English namely the ‘Enron scandal’. It’s an interesting case and a nice match with our training as accountants.
Enron was a very large American energy company based in Houston, Texas. Late 2001 the company was still one of the world’s leading electricity, natural gas, pulp and paper, and communications companies. But in October 2001 several scandals came at the surface. Since then, Enron became a symbol of well thought-out corporate fraud and corruption.
The ‘Enron scandal’ refers to a systematic and creatively planned accounting fraud. While people saw the company as the proof that it was possible to make fast money in the new service economy, Enron spent more than it received and they kept losses out of their books. The creative accounting namely existed of shadowy constructions with hundreds of subsidiaries.
Eventually all the lies and deception led to Enron’s downfall, resulting in the largest bankruptcy in American history at the time. Only then the seriousness of the case got revealed. After an investigation by the Securities and Exchange Commission (SEC), the American supervisor of different exchanges, revealed that the company exaggerated its profits for a long time and that Enron was in the red for 20 billion dollars. Managers had put millions in their pocket, accountants had destroyed evidence and nearly thousand subsidiaries had been created to evade taxes and to show much better financial figures than they could have done in reality.
In January 2002 a criminal investigation got set, the executive resigned and an ex-CEO committed suicide. Arthur Andersen, the accounting office that approved the last annual accounts, ceased to exist. It speaks for itself that the ‘Enron scandal’ increased the attention for corporate governance worldwide and was the indirect cause of a tighter legislation in this area.
As the accountant is always responsible for the books, the company’s accountancy should be done correctly. According to the deontological rules of accountancy, the accountant must not agree with messing around with the figures.
I believe it’s a disgrace to the accountancy profession to cooperate with such a form of fraud. I can understand that small companies sometimes work without creating an invoice, for, especially in Belgium, the tax pressure is that high that a lot of companies can hardly survive.
But there are limits of course. When it’s just from time to time I can tolerate it, but it should never have a big influence on the company’s figures. Sure, when I work as an account in a company I don’t want to be aware of these practices. Then everything has to go by the book because in the end, I’ll be the one who is responsible for the books.
At my opinion the accountants of Enron crossed the line much too far. In the case of Enron the stakeholders’ imprisonment is justified because their actions are unacceptable and the consequences too severe.
By Evelien Van Gaeveren
I’ve based my blog on the information given on www.wikepedia.com
zondag 25 oktober 2009
Annelies: New jobless claims climb more than expected
New jobless claims climb more than expected
Link with corporate finance
This week I selected an article that is indirectly related to corporate finance. In previous articles on my blog it became clear that current corporate finance is difficult because of the recent financial crisis. These difficulties are also reflected in the unemployment rate in the US. That is what this week’s article is about.
Summary
Last week, there are more laid-off workers in the US because the employers don’t hire employees in spite of the improved economy.
The Wall Street economists expected a slightly decrease of jobless claims, but instead there is an increase from 520 000 people with jobless claims until 531 000 people. Economists say that the unemployment benefits give a good image of the readiness of enterprises to hire people and the improved economy.
The four-week average of claims is slightly decreased until 523 250. It is the lowest level since January and 125 000 below the peak of the recession during the spring. However, that still is way to high since economists consider 325 000 claims to be consistent with a healthy economy.
A lot of people are moving into extended benefit programs. These programs were approved by the US Congress in response to the recession. In the US laid-off workers get an unemployment benefit for 26 weeks. The extensions approved by the Congress add up to 53 weeks of benefits on top of these 26 weeks.
Last week, the total numbers of recipients dropped with 50 000. Economists say that this decline is not because people find new jobs, but because recipients are running out of benefits.
Although the economy is expected to grow in the last quarter with 3% employers remain reluctant to hire. They wait until it becomes clear that the economic recovery will last.
In this respect the recent decision of Sun Microsystems Inc. to eliminate up to 3,000 jobs, as it awaits a takeover by Oracle Corp. is typical.
My opinion
The article clearly indicates that the financial crisis has devastated the trust of companies and employers. Although the economy starts growing again, employers are still afraid of hiring new workers. I believe that is a dangerous situation because when the unemployment rate remains high consumer’s expenses will not increase. And that in turn can have a negative effect on the economy.
Another thing I would like to say about the article is that in the US, after a period of time, you can no longer claim an unemployment benefit. That is different from our country where there is no limit to the time you can receive a jobless claim. Although people can abuse this right, I think that in the current economic crisis it is necessary that people who remain unemployed for a long time, still can receive an unemployment benefit. After all, our society needs to protect the weakest. They are the ones who are hit most by the economic crisis. Therefore I believe that it is important that we have a solid social security for them. In this respect unemployed people are better off in Belgium than in the US.
Source: http://www.msnbc.msn.com/id/33427918/ns/business-stocks_and_economy/
Greet Annelies
Link with corporate finance
This week I selected an article that is indirectly related to corporate finance. In previous articles on my blog it became clear that current corporate finance is difficult because of the recent financial crisis. These difficulties are also reflected in the unemployment rate in the US. That is what this week’s article is about.
Summary
Last week, there are more laid-off workers in the US because the employers don’t hire employees in spite of the improved economy.
The Wall Street economists expected a slightly decrease of jobless claims, but instead there is an increase from 520 000 people with jobless claims until 531 000 people. Economists say that the unemployment benefits give a good image of the readiness of enterprises to hire people and the improved economy.
The four-week average of claims is slightly decreased until 523 250. It is the lowest level since January and 125 000 below the peak of the recession during the spring. However, that still is way to high since economists consider 325 000 claims to be consistent with a healthy economy.
A lot of people are moving into extended benefit programs. These programs were approved by the US Congress in response to the recession. In the US laid-off workers get an unemployment benefit for 26 weeks. The extensions approved by the Congress add up to 53 weeks of benefits on top of these 26 weeks.
Last week, the total numbers of recipients dropped with 50 000. Economists say that this decline is not because people find new jobs, but because recipients are running out of benefits.
Although the economy is expected to grow in the last quarter with 3% employers remain reluctant to hire. They wait until it becomes clear that the economic recovery will last.
In this respect the recent decision of Sun Microsystems Inc. to eliminate up to 3,000 jobs, as it awaits a takeover by Oracle Corp. is typical.
My opinion
The article clearly indicates that the financial crisis has devastated the trust of companies and employers. Although the economy starts growing again, employers are still afraid of hiring new workers. I believe that is a dangerous situation because when the unemployment rate remains high consumer’s expenses will not increase. And that in turn can have a negative effect on the economy.
Another thing I would like to say about the article is that in the US, after a period of time, you can no longer claim an unemployment benefit. That is different from our country where there is no limit to the time you can receive a jobless claim. Although people can abuse this right, I think that in the current economic crisis it is necessary that people who remain unemployed for a long time, still can receive an unemployment benefit. After all, our society needs to protect the weakest. They are the ones who are hit most by the economic crisis. Therefore I believe that it is important that we have a solid social security for them. In this respect unemployed people are better off in Belgium than in the US.
Source: http://www.msnbc.msn.com/id/33427918/ns/business-stocks_and_economy/
Greet Annelies
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