Do You Know When You Need a Belt and Suspenders?

Know when you need a belt and suspenders.

Even well run companies can run into snags with checks and balances.

Recently a 500 person company that is very well run found itself in the unusual position of potentially being in default on provisions of its 401(k) plan.

Here’s what happened. Several current employees had not made payments on loans they had taken from the 401(k) plan for several years.  As is the norm, the repayment was set up as a payroll deduction.  Somewhere along the way the payroll deduction stopped. There is no documentation of why or who authorized it.  Once the facts came to light the plan was in violation of several plan and legal provisions that could have jeopardized the plan’s exempt status.

When the employees made an inquiry of people in the accounting department (not HR or payroll) the person they spoke with said, “Well if it stopped, the loan must be paid in full.”

For two fiscal years the plan administration service provider never flagged this as an issue.

The situation came to light when the company decided ( for unrelated reasons) to put the plan’s admin services contract out to bid, and one of the new vendors noticed this discrepancy in their review.

So the moral of the story is check and re-check.

  • Know the Importance of checks and balances for your critical processes, especially when fiduciary responsibilities are involved.
  • Staff should be trained to be helpful, but must know that they should not answer questions outside of their expertise.  Employee training should include keeping an eye and ear out for when a co-worker asks an unusual question and knowing when to pass this along to your manager.

Your Project & Practice Management System Can Help Manage Project Risk.

Professional Liability Insurance company data indicates there is strong evidence that keeping projects on budget and on time and reduces client claims.

Budget & scheduling problems trigger 12% to 14% of Architecture & MEP claims.

Total claim costs include deductibles and claim settlements as well as management time dealing with claims related issues.  Hours managing claims has increased by 200% in the last several years.

Every dollar of claim costs requires $10 of revenue to replace the lost profit.

Steps to improve your risk management for your firm:

  • Build your project plans by phase and task
  • Give each phase a Fee and a Cost Budget
  • Update the percentage of completion (actual work completed) by task at least weekly
  • Update the cost to complete continuously
  • Calculate Earned Value Analysis(EVA) on all project with a schedule of two weeks or longer

What is Earned Value Analysis (EVA)?

EV Analysis can help identify projects that are falling behind schedule with the potential to overrun budgets, even though the planned vs. actual expenditures comparison looks like the project is tracking well.

In the traditional analysis comparing actual dollar spending versus budget, many projects appear to be performing well until they reach the last 10% to 15% of the project life.  Often it is too late to take corrective action to get the project budget and the schedule back on track to prevent a negative event.

EVA compares how much of the work is actually complete vs. how much money has been spent to date against the project budget and work plan.  When displayed as a graph, there are three lines: Plan, Actual and Earned Value.

The state of the art Project & Accounting systems available today have an EVA tool built in.

Does yours?  If not, WinterView Group can help you explore your options.