Crisis mode: Experts hone in on preventative company measures

Mandy Arnold, president and CEO, Gavin, Stuart O’Neal, Esq., Burns White, LLC, and Lisa Myers, Boyer & Ritter, LLC, pose following a panel discussion in September at Central Penn Business Journal. PHOTO/Markell DeLoatch


Central Penn Business Journal played host to a crisis roundtable discussion earlier this fall.

Experts in litigation, accounting and public relations took part in the hour-long discussion at CPBJ’s office in Harrisburg.

Contributing were Stuart O’Neal, a partner at the Law Firm of Burns White; Lisa Myers, principal with Boyer and Ritter; and Mandy Arnold, CEO of Gavin.  CPBJ’s associate publisher/editorial director, Cathy Hirko, moderated the panel.

The conversation has been edited for clarity and brevity.

HIRKO:  Crisis can mean different things to different companies. So what does a crisis look like to you and can you share some examples?

STUART O’NEAL: It really does depend on the industry. Crisis to me means any type of adverse event that has a connotation of really going sideways for either the company or the individual. In the healthcare industry, it usually has the connotation of a bad outcome on either the procedure or some sort of treatment.  In the entertainment industry, there is a litany of things there that can be classified as a crisis.

HIRKO:  Do you have any examples?

O’NEAL:  Crisis is a very wide, wide definition.  A typical situation has to be figured out, so to speak, and how you react to it. What pieces need to be in place? In our world, there is nothing worse than thinking that you know it all. You really have to get your resources in line. Because you can’t be like, yes, we do PR. Yes, we do HR. No, you don’t. So you need to be able to get a forensic accountant, that PR person.

HIRKO:  I’m assuming you see a lot of people at the time where they’re under the most stress. How do you coach and what’s your strategy on that?

O’NEAL: So you try to bring a human element to it very quickly and you turn into a counselor, not a lawyer or not an attorney. And you explain to those making the decisions, or having the crisis, that this is what we’re going to do and this is how we’re going to do it and, really, that basic communication of we’re here to help. And I think it doesn’t work all the time, obviously, because, again, we’re dealing with human nature.  And so anytime you can lay out a plan that can communicate effectively it will work pretty well.

Lisa Myers, Boyer Ritter, LLC, speaks during a panel discussion. PHOTO/Markell DeLoatch –

LISA MYERS:  In our crisis, it’s usually that a financial element is involved. So I have the owner of a large corporation in a closely held business feels that their CFO is stealing from them, or they’re seeing some type of embezzlement or the CFO calls and says, you know, I have X I’m missing. Crisis can be $100,000 loss to one entity or $100 million loss to another one. They need to know that we have confidence in what we’re going to be able to do. They need to have confidence in the team that they’ve pulled together, because it literally is a team.

We’re called in more in the front end instead of in the back … The majority are reactive. What we’re trying to teach, though, is to be proactive and think about these things ahead of time, and we’ll help you with that element, too. Not that I can prevent a crisis, but I can mitigate the risk of a crisis occurring.

HIRKO:  But I’m assuming a lot of you feel you’re in the reactive market, right?

MANDY ARNOLD:  Yes, like probably 80 percent.

MYERS:  I was going to say 90.

ARNOLD: Because we work in a variety of industries, we see a really wide array of situations. We’ve had situations where a school district has an issue where a superintendent did something they weren’t supposed to. Because you’re dealing with a public entity, everything is public. How do we manage this? So we’re called in behind the scenes.

You have to really think through where do you want your public affairs agency being seen, where do you not want them to be seen. There are actually situations where we’re working behind the scenes. And then there are situations where there is a death in a food factory. And the manufacturer is calling the police. It’s over the radio, instantly you’re going to have media here.

And then there is much smaller situations where there is a leadership change, because of, let’s say, some poor decisions that were made. How do we mitigate this to make sure that we end up OK financially?

Crises can look a lot of different ways?

HIRKO: So what advice do you give clients immediately when they’re in trouble?

O’NEAL: From my perspective, don’t hesitate to make the call. Because the sooner that we’re involved, the sooner that evidence can be controlled, witnesses can be corralled.  You know, really we can make a true assessment as to what is going on. And not only that, but what else do you need?

ARNOLD:  It’s often a partnership…and a lot of times we’re hired by the attorneys. We’ll often recommend that our clients go through an attorney. We know there are specific details that we want to protect them legally. We can’t give you legal advice.

HIRKO: Lisa, what do you think people would be surprised to know what you do with your position and how you help your clients?

MYERS: If I can’t get the evidence electronically and work externally, then (I’m working discreetly onsite). Typically, we will meet with the attorney and the client somewhere offsite. And then we’ll figure out a plan, bring the PR people in. I’m part of the offensive line. We need to get to the facts to be able to bring the evidence back to the attorney, back to the PR, and kind of talk that way. A lot of times, when you’re following the money, it’s black and white. Here is the evidence. All I do is I present the evidence. But as I’m finding the evidence, I want to be able to talk with the legal counsel and the legal counsel then will share with the client. So we want to make sure that everything is covered by attorney-client privilege.

ARNOLD:  There are situations where you want to keep it quiet and you want to stay out of sight, take it offsite. There are also situations that we’ve seen how the executive team manages the rumors or the information of what’s happening.

More often than not employees know something is up and they fill that vacuum pretty quickly with misinformation if they’re not given the facts. And so we’re often talking to our clients about what communications are going to be with your internal team. It doesn’t mean you’re giving all the details, but it’s perhaps something has happened and they’re going to see people onsite or you want to make sure they know you’re taking precautionary measures. There is a level of appropriate transparency. It’s a trust.  A trust relationship is the big thing. If you have that communication cadence, you’re not leaving it up to people to fill in the void of information.

HIRKO:  What would you recommend for the proactive steps for that 10 percent who will reach out and say ‘I want to avoid this?’ What are some of the tips that you can share?

MYERS: We’ve actually built a tool. How can we go in and help clients to mitigate whatever risks they may have? It gives a scorecard. We go into 12 different categories within their firm or within their company and talk about internal controls. People will say they have internal controls, but they really don’t. Most of the time they may have controls in place but things change, technology changes, right?  And they may not go back and reevaluate. Is that control still in place or are they monitoring those controls?  Looking at insurance coverage, IT security, etc. And then they can look at their scorecard and basically you can see where the risk is. We’ll rank it as high, moderate, or low. And then they have to evaluate. What is their tolerance for risk? We encourage clients to engage to be proactive versus reactive.

HIRKO: What’s been their reaction to that scorecard? Because, we all tend to think we’re doing very well, right?

MYERS:  Yes. They’re actually shocked. It’s an educational process then. The cost of this may be too much to mitigate. But you need to understand you have this risk. What’s the worst case scenario that can happen? It may never happen. Many clients would say, no, I can’t live with that risk, fix it.

Stuart O’Neal, Esq., Burns White, LLC, speaks during a panel discussion. PHOTO/Markell DeLoatch –

O’NEAL:  I would say 80 percent of what we encounter with clients, maybe a little bit more, didn’t come out of left field. It just doesn’t. So when you get everyone around the table and you say ‘Tell me everything you know about this,’ and you have everyone going “I had no idea, I had no idea.” There is that one person that is fidgeting a little bit, looking down, and you look at them like this. And you say  “Can you talk to me?” And then that’s where everything comes out. “I knew about it, you know, three months ago. X Y and Z was going on then…” That’s what you really drill down to.

We give that example during presentations. The more you know ahead of time the better off you can prepare. But it just doesn’t come out of left field. Mandy [Arnold}, you used the term communication cadence … (O’NEAL asks her to elaborate on that phrase).

ARNOLD: I just came from a leadership military training at West Point for a couple of days, so it’s hot on my mind building this culture of trust. When people see something, they share it. They feel comfortable.

O’NEAL: Right.

ARNOLD:  I do think part of creating that culture of trust is communication cadence.  It’s this ongoing schedule of information and this relationship between the leadership team and the employees and the management team that there is an exchange of details at a certain level where you know what’s going on. I’m keeping you in the loop. But then also externally making sure that you have scheduled communications that are not just managing the issue, but proactively setting the tone to build your brand equity. We developed a plan.

And as an example, we work with a lot of authorities that are regulated by environmental agencies and so what we run into is that people don’t want to share information, because they’re concerned that the public doesn’t know how to interpret it. And it’s quite the opposite. If they’re not receiving information from you, they think you’re ignoring issues versus you sharing proactively these things are happening or making improvements or making investments.

HIRKO: What kind of advice would you give to a company when it comes to social media?

O’NEAL: Social media is generally a good thing if you have the right folks that know what they’re doing and marketing appropriately. From my angle, it’s terrible usually in a crisis, because you’re reacting to a post or a Tweet of some sort that is ill advised in a particular situation. We have counseled companies to have a social media liaison. One person in the company or two, depending on how big you are, who oversees and monitors. But you need to keep tabs on social media at this point. Really need to pay attention to it, and that’s from a proactive point of view.

MYERS: You have to have the right element, the right folks inside your firm managing that or inside the company, that external resource. Because depending on what environment or industry you’re in, you’re going to need a Mandy, right?

I think the key is being proactive, having those conversations internally. If you’re going to have a situation, pull together the right individuals within the firm who’s going to manage that message working with the C suite folks, right?

Social media is more proactive. Once you’re in the reactive…

ARNOLD: You’re in trouble.

MYERS: You’re in trouble.

ARNOLD: I mean, definitely having a social media policy so that every employee that comes on, anyone that is coming in on the factory floor, to an engineer to somebody is in the marketing

Mandy Arnold, president and CEO, Gavin, speaks during a panel discussion. PHOTO/Markell DeLoatch –

department, has a clear understanding of your social media policy.

There are a couple of things I recommend. One is active social media monitoring. There are some great tools like Sprout Social where you can monitor hash tags and tagging and conversations and influencers. But then just making sure that it is not a reactive approach, because there is nothing worse than a company with zero social media presence — and that goes back to that communication cadence. Social media can be a powerful tool when reaching audiences. Let’s say if you are a public entity or you’re a health organization, you have to get a public service announcement out.  Well, public service announcements from social media are very important … posting information, posting video tutorials. It educates them both visually and conceptually.

HIRKO: What would you say keeps you up at night that you think your clients really should be worrying about and maybe they aren’t?

ARNOLD: It’s understanding what tools and resources do you have in house, because there is nothing worse than getting a call in the middle of the night from a client. Who is on your contact list?  Who is your core management team?  And having those resources right at your fingertips … What’s your phone train, as an example. What’s your relationship with the local hospitals, with the schools?  Where is that contact list?

And not only having just the basics, but the fundamentals to an effective communications plan being implemented … writing the plan, test, stress-testing it, tearing that muscle a little bit in the sense that they’re learning how to be better communicators every time.  And so those tools and resources are what’s always on my mind. That’s the first thing I have to ask them. One, tell me all the skeletons. I need to know what I’m dealing with so I can really help you. And, two, I need to know what you’ve got in place. You know, what can I do to jump in quickly?

MYERS: So what I’d like to say about accounting is there are no accounting emergencies or there shouldn’t be, right? While you may have some really good processes in place, they need to go back and reevaluate that and have a third party look at that. People are not always communicating because they may stay in their silo within their organization.

O’NEAL:  Not to hesitate to ask for help. It’s a lot cleaner, for lack of a much better term, if we’re involved from minute one. That way we know we’re on the ground floor right then and there as opposed to 48 hours after the fact.

CPA taps in-house expertise to fight fraud

Mike Breon spent part of his 20-year accounting career working to investigate questions from workers – their concerns and their tips about fraud – who had reached out through a company hotline.

Now, he has taken his experience with Rite Aid Corp., where he helped uncover a kickback scheme, into the classroom, as well as into private practice.

“Accounting can be fun,” said Breon, who teaches at Bloomsburg University while also running Breon & Associates, which has several offices in the Harrisburg area. The lessons in his courses cover ethics, fraud and forensic accounting. “The kids seem to like that it is not the traditional accounting.”

Mike Breon helped uncover a kickback scheme at Rite Aid Corp. He took his expertise in fraud prevention and forensic accounting to his own firm Breon & Associates and to the classroom at Bloomsburg University. (Photo: Submitted)
CPA Mike Breon helped uncover a kickback scheme at Rite Aid Corp. He took his expertise in fraud investigation and forensic accounting to his own firm Breon & Associates and to the classroom at Bloomsburg University. (Photo: Submitted)

Breon says he gives students a taste of what it is like to be an investigator, which requires additional training beyond an accounting degree. Those who specialize in fraud detection can obtain several different credentials, including certified fraud examiner or certified internal auditor, which are among the designations he holds.

As part of his work with Rite Aid, the pharmacy chain based in Cumberland County, Breon said, he and his team would investigate complaints that came in and then determine if there were patterns. He would then make recommendations on how to link those findings to employee training.

The training initially might spur an increase in complaints as workers become more aware of what is allowed and what isn’t. That is a good thing, he said, because the long-term culture will change and complaints eventually should diminish.

“A lot of times, businesses have some blind spots,” he said, adding that hotlines can help shed light on those areas.

Controls, though, start at the beginning.

“Hiring the right people is the most important,” Breon said. “You need to hire people who share your core values.”

Even then, companies shouldn’t assume that workers know what is OK and what isn’t. Adequate training can clearly lay out all expectations, he said. The rules – covering everything from mileage reimbursement to travel expenses to behavior – need to be clear and followed at all levels of management.

While many people note that top leaders must follow the rules and set a good example, he pointed out, most workers spend their time with middle managers.

“Tone at the top is important,” said Breon, who is a member of the Pennsylvania Institute of Certified Public Accountants. “But the person they see is their supervisor.”

If the tone is set and clear at all levels, he said, then employees can better navigate what might become ethical dilemmas, especially if employees feel valued and respected.

From corporate suite to classroom

Breon said he started his own accounting business in 2011, while still working at Rite Aid. After he lost the corporate job in a downsizing early last year during merger talks, he expanded his business, Breon & Associates. In addition to its fraud and forensics practice, the firm also offers traditional accounting services.

His experiences with the pharmacy company continue to offer lessons for both his students and his clients, he said. Rite Aid did a good job, including hiring well at the store level with “a lot of great employees.” The hotline showed that the company cared about its workers and that company executive wanted to make sure that concerns were investigated, he added.

The kickback scheme at Rite Aid involved a top manager working with outside vendors to defraud the public company based in Cumberland County. The co-owner of Nuvision, an Atlanta-based electronics company, and a Rite Aid Vice president, James Pilsner, were charged. A second Nuvision executive was exonerated earlier this year after a trial.

From 1995 to 2017, prosecutors alleged, Nuvision would submit fraudulent invoices that Pilsner would approve. Kickbacks of about $5.1 million were paid to Pilsner, according to previous reports by the CPBJ. Pilsner pleaded guilty last year and has yet to be sentenced. Breon said he and his team had investigated the problems after patterns emerged and through tips before the case was turned over to authorities.

James A. Krimmel, a CPA with Hamilton & Musser in Mechanicsburg, said such schemes are rare. Usually, fraud is much more mundane in that it involves theft or corruption involving individuals acting alone – where secrecy can be maintained – and not a group of people.

“It’s often good-old theft, where someone thinks they are going to get away with it,” said Krimmel, who specializes in fraud and forensic accounting and teaches accounting at Messiah College.

Companies will contact Krimmel when they either know something is amiss but aren’t sure the depths of the issues or if they think there is a problem but are not sure. He and others said they often hear the same things from managers and workers who know the person involved: They never thought it would happen to their company; and they never thought so-and-so would do such a thing.

Krimmel, a certified fraud examiner, sometimes encounters another reaction – “I thought something was wrong.” It is a thought that can haunt people who wonder why they didn’t act earlier

That is where internal controls become critical, the experts said, including establishing basic sets of checks and balances where no one person is in control of a system that could be abused.

“Every case is going to be different,” said Krimmel, who also is a member of PICPA. And the size of the organization doesn’t really matter. A large organization might be so complex that it takes time to unravel a scheme, but a smaller company is just as susceptible to people who want to manipulate a system to their advantage.

He agreed that good training is imperative, where fraud awareness is a key component, and then establishing systems such as hotlines and whistleblower policies that will allow workers who care about the company to report an issue. But the entire program needs to be established.

From words to action

When Enron imploded nearly a generation ago in an accounting scandal, Krimmel said, he looked at the company’s written policies and codes of ethics. The documents were “fantastic,” he said. “Thorough and complete.”

Clearly, he added, “It has to be more than words.” The words need to be put into action.

“It’s not one of the other,” Krimmel said. “It has to be both.”

The astonishing thing about Enron, Breon said, is that it brought down Arthur Andersen, which was an elite accounting firm with some of the top accountants in the world. A serious red flag should have been raised when Enron officials tried to explain that its business model of energy trading was too complex for its documents to be easily understood.

“Whenever someone tells you something is so complex that it isn’t easy to understand, that’s a big problem,” Breon said.

The more basic schemes involve patterns of behavior that Krimmel teaches to clients and students. The patterns can be seen in just about every fraud case and involve what experts call the fraud triangle:

  1. Pressure: This might involve a worker who is under financial stress caused by substance-abuse problems, gambling, financial problems or other issues that might get someone to think about doing something wrong when they might not otherwise do so, Krimmel said.
  2. Rationalization: They make the leaps in logic that they deserve the money. That might include having been passed over for promotion or feeling like they deserve a bigger raise, he said.
  3. And the opportunity: That is where they have access to the money through their work and can commit fraud because of poor internal controls.

All three situations often are present. If they hire well, companies can do a lot to mitigate the first two, he said. But companies have the most control over the third.

“If they can’t do what they want to do because controls are in place, it is not going to happen,” Krimmel said.

Accountants trained in these areas can help companies find the weaknesses in the systems, he and others added, especially with experts bearing credentials such as certified fraud examiner, or CFE, credentials.

Lisa Myers, a CPA and CFE with Boyer & Ritter in Camp Hill, and her colleague, Kyle Taylor, said in a written response to questions that the accounting industry has evolved beyond the “jack-of-all-trades expert” and into such specializations.

“Forensics is a niche with a growing demand and supply dilemma,” they wrote.

That is where teaching some of the lessons in forensic accounting on the college level can be productive, they said.

“Even if the career path for specific individuals is in a different facet of accounting, the material taught in a forensic class is informative and creates future professionals who are more aware of risk,” they wrote.

Guest view: Small business can find allies among forensic accountants

When people think of forensic accounting, they often think of fraud investigations. The skill set, however, covers a much broader field.

The American Institute of Certified Public Accountants defines forensic accounting on its website as generally involving “the application of specialized knowledge and investigative skills possessed by CPAs to collect, analyze, and evaluate evidential matter and to interpret and communicate findings in the courtroom, boardroom, or other legal or administrative venue.” There are other credentials and certifications in addition to CPAs that professionals may obtain in the course of specializing in forensic accounting.

Privately held businesses most often encounter the use of forensic accounting services in valuation of their enterprise when contemplating a sale, transfer or inheritance, or in post-acquisition disputes.

Owners sometimes hold a general idea of what they think their business is worth, but unless they find a buyer willing to pay the price they have in mind, it is advisable to obtain an objective valuation that is supported by appropriate evidence. Forensic accounting is used to gather data about the business and its operation, industry, potential for growth, and ability to generate positive cash flows and a return on invested funds.

Forensic accountants also look at the competitive environment, what barriers to entry may exist, potential risks of technological disruption, and any other relevant facts and circumstances. Owners, who reinvest in their business to stay on the forefront of their industry, may be able to obtain higher valuations than those who use all the cash flows generated for compensation to support a more lavish lifestyle.

When and how cash generated by the business is used will impact its value. If assets are not used to optimize the operation of the company, it may be more valuable to liquidate and sell the equipment than to continue running it, since the return on investment may be inadequate to generate sufficient cash flows to provide adequate return on the investment.

Industry trends may also play a role in valuations. Fields considered fragmented – where many small, private operations are prevalent – will over time attract larger, often public, companies that consolidate such businesses. They may offer exiting owners potential prices that appear to include premiums.

However, the terms may not involve up-front cash payments of the full price, but rather include continued involvement of the owner, and contingent amounts that may be paid over time if certain targets are met. In such situations, it is advisable to consult a CPA to help evaluate an offer and present alternatives in an objective format that helps the business owner make informed decisions.

Entrepreneurs generally start businesses because they identify a need that they can meet and make money doing it. But there is another trait they share: they prefer to be in control.

When presented with an opportunity to sell at what appears to be an attractive price, if the sale involves their continued involvement under new ownership, and requires meeting specified targets, part of the decision-making process should be to decide whether the criteria are reasonable and are they receiving sufficient compensation for giving up control. Forensic accounting can aid in that process.

Alternatively, if the seller provides part of the financing for the buyer, but does not continue working past the transition, and then the business does not perform as expected under the new ownership and the new owner does not make the agreed upon payments, then forensic accounting is necessary to establish economic damages and assist the seller in recovery from the situation.

These are only a few of the ways forensic accountants serve entrepreneurs. Owners should consult with their CPAs to seek appropriate advice before any such situations are encountered.

Ibolya Balog is a consultant with Asterion Inc., a firm that provides economic and financial consulting services in the Philadelphia area. Balog, an Allentown resident, is chair of the Pennsylvania Institute of Certified Public Accountants’ Pennsylvania CPA Journal editorial board.