Surgeon General identifies workplace

well-being

as a 2023 priority

Do you know what would happen to your company if your CEO suddenly had to resign immediately for personal reasons? Or got seriously ill? Or worse, died? These scenarios, while rare, do happen, and many companies are not prepared. In fact, 45% of US companies do not have a contingency plan for CEO succession, according to a 2020 Harvard Business Review study.  

Do you have a plan for CEO succession? As a business owner, you may have an exit strategy in place for your company, but do you have a plan to bridge the leadership gap for you and each member of your leadership team? Does the plan include the kind of crises listed above? What would you do if your next-in-line left suddenly? 

Whether yours is a family-owned business, a company of equity partners, or a private company with a governing body, here are things to consider when you’re faced with a situation where your CEO has abruptly departed or has decided to step down.  

1. Get a plan in place. First, assess the situation and figure out your priorities. If there is already a plan for these types of circumstances, evaluate how much of it is applicable to this particular circumstance. For example, if the plan is for the stepping down or announced retirement of your CEO, but some other catastrophic event occurs, you may need to adjust key components and focus on immediate messaging rather than future positioning. If there is no plan, assign a small team to create one immediately. 

Make sure management, team leaders, and employees are aware and informed of your progress; this will help keep you organized and streamline communications. Management needs to take the lead and select a point person to document the process. Management also needs to take the lead in demeanor. Model your actions so employees can see the situation is being handled with care. Once a strategy is identified based on your priorities, draft a plan that includes what happens now, in the immediate future, and beyond. Include timetables so people know when decisions will be made.  

2. Communicate clearly, and often. In times of uncertainty, your employees will need as much specific information as you can give them. Knowing when they will hear from you, even if it is “we have nothing new to report” builds trust and keeps them vested and involved. By letting them know what your plan is, when they’ll receive another update, what to tell clients, and even what specifics you can give them (e.g., who will take over which CEO responsibility and for how long), you make them feel that they are important stakeholders, and not just bystanders. Stakeholders are more likely to be strong supporters during and after any transition that needs to take place. 

3. Pull in professional help. Depending on your resources, we recommend bringing in a professional to help you handle the situation at hand. At the very least, call in an objective opinion. You’ll need someone who can help you make decisions when emotions are running high. Bringing someone on board that can help you decipher what you have to work with and what your legal and other obligations may be, help rally your team, deal with the media, and manage emotions can be invaluable during a challenging time. Even if it’s temporary. 

4. Develop a timeline. Figure out how much time you have for the transition. For example, if your CEO is ill and will be stepping down in six months, you have time to update any existing exit strategy or succession plan you have in place. Things to include in the timeline: 

• Who is taking over what responsibilities? 
• How and what will be communicated to your company and stakeholders? 
• How and what will be communicated to the market? 
• How will you bring in the CEO's replacement, while helping the current CEO transition out of the organization? 

If you are in a crisis situation (e.g., your CEO has been suddenly forced out or asked to leave without a public explanation), you won’t have the luxury of time.  

Find out what other arrangements have been made in the past and update them as needed. Work with your PR firm to help with your change management and do the right things for all involved to salvage the company’s reputation. When handled correctly, crises don’t have to have a lasting negative impact on your business.   

5. Manage change effectively. When you’re under the gun to quickly make significant changes at the top, you need to understand how the changes may affect various parts of your company. While instinct may tell you to focus externally, don’t neglect your employees. Be as transparent as you possibly can be, present an action plan, ask for support, and get them involved in keeping the environment positive. Whether you bring in professionals or not, make sure you allow for questions, feedback, and even discord if challenging information is being revealed.  

6. Handle the media. Crisis rule #1 is making it clear who can, and who cannot, speak to the media. Assign a point person for all external inquiries and instruct employees to refer all reporter requests for comment to that point person. You absolutely do not want employees leaking sensitive information to the media. 
 
With your employees on board with the change management action plan, you can now focus on external communications and how you will present what is happening to the media. This is not completely under your control. Technology and social media changed the game in terms of speed and access to information to the public and transparency when it comes to corporate leadership. Present a message to the media quickly that coincides with your values as a company. If you are dealing with a scandal where public trust is involved and your CEO is stepping down, handling this effectively will take tact and most likely a team of professionals to help. 

Exit strategies are planning tools. Uncontrollable events occur and we don’t always get to follow our plan as we would have liked. Your organization can still be prepared and know what to do in an emergency situation or sudden crisis.  Executives move out of their roles every day, but how companies respond to these changes is reflective of the strategy in place to handle unexpected situations. Be as prepared as possible. Own your challenges. Stay accountable. 

BerryDunn can help whether you need extra assistance in your office during peak times or interim leadership support during periods of transition. We offer the expertise of a fully staffed accounting department for short-term assignments or long-term engagements―so you can focus on your business. Meet our interim assistance experts.

Read this if your CFO has recently departed, or if you're looking for a replacement.

With the post-Covid labor shortage, “the Great Resignation,” an aging workforce, and ongoing staffing concerns, almost every industry is facing challenges in hiring talented staff. To address these challenges, many organizations are hiring temporary or interim help—even for C-suite positions such as Chief Financial Officers (CFOs).

You may be thinking, “The CFO is a key business partner in advising and collaborating with the CEO and developing a long-term strategy for the organization; why would I hire a contractor to fill this most-important role?” Hiring an interim CFO may be a good option to consider in certain circumstances. Here are three situations where temporary help might be the best solution for your organization.

Your organization has grown

If your company has grown since you created your finance department, or your controller isn’t ready or suited for a promotion, bringing on an interim CFO can be a natural next step in your company’s evolution, without having to make a long-term commitment. It can allow you to take the time and fully understand what you need from the role — and what kind of person is the best fit for your company’s future.

BerryDunn's Kathy Parker, leader of the Boston-based Outsourced Accounting group, has worked with many companies to help them through periods of transition. "As companies grow, many need team members at various skill levels, which requires more money to pay for multiple full-time roles," she shared. "Obtaining interim CFO services allows a company to access different skill levels while paying a fraction of the cost. As the company grows, they can always scale its resources; the beauty of this model is the flexibility."

If your company is looking for greater financial skill or advice to expand into a new market, or turn around an underperforming division, you may want to bring on an outsourced CFO with a specific set of objectives and timeline in mind. You can bring someone on board to develop growth strategies, make course corrections, bring in new financing, and update operational processes, without necessarily needing to keep those skills in the organization once they finish their assignment. Your company benefits from this very specific skill set without the expense of having a talented but expensive resource on your permanent payroll.

Your CFO has resigned

The best-laid succession plans often go astray. If that’s the case when your CFO departs, your organization may need to outsource the CFO function to fill the gap. When your company loses the leader of company-wide financial functions, you may need to find someone who can come in with those skills and get right to work. While they may need guidance and support on specifics to your company, they should be able to adapt quickly and keep financial operations running smoothly. Articulating short-term goals and setting deadlines for naming a new CFO can help lay the foundation for a successful engagement.

You don’t have the budget for a full-time CFO

If your company is the right size to have a part-time CFO, outsourcing CFO functions can be less expensive than bringing on a full-time in-house CFO. Depending on your operational and financial rhythms, you may need the CFO role full-time in parts of the year, and not in others. Initially, an interim CFO can bring a new perspective from a professional who is coming in with fresh eyes and experience outside of your company.

After the immediate need or initial crisis passes, you can review your options. Once the temporary CFO’s agreement expires, you can bring someone new in depending on your needs, or keep the contract CFO in place by extending their assignment.

Considerations for hiring an interim CFO

Making the decision between hiring someone full-time or bringing in temporary contract help can be difficult. Although it oversimplifies the decision a bit, a good rule of thumb is: the more strategic the role will be, the more important it is that you have a long-term person in the job. CFOs can have a wide range of duties, including, but not limited to:

• Financial risk management, including planning and record-keeping
• Management of compliance and regulatory requirements
• Creating and monitoring reliable control systems
• Debt and equity financing
• Financial reporting to the Board of Directors

If the focus is primarily overseeing the financial functions of the organization and/or developing a skilled finance department, you can rely — at least initially — on a CFO for hire.

Regardless of what you choose to do, your decision will have an impact on the financial health of your organization — from avoiding finance department dissatisfaction or turnover to capitalizing on new market opportunities. Getting outside advice or a more objective view may be an important part of making the right choice for your company.

BerryDunn can help whether you need extra assistance in your office during peak times or interim leadership support during periods of transition. We offer the expertise of a fully staffed accounting department for short-term assignments or long-term engagements―so you can focus on your business. Meet our interim assistance experts.

Reading through the 133-page exposure draft for the Proposed Statement on Auditing Standards (SAS) Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, issued back in April 2017, and then comparing it to the final 100+ page standard approved in September 2018, may not sound like a fun way to spend a Sunday morning sipping a coffee (or three), but I disagree.

Lucky for you, I have captured the highlights here. And it really is exciting. Our feedback was incorporated into the final standard both through written comments on the exposure draft and a voice via our firm’s Director of Quality Assurance, who holds a seat on the Auditing Standards Board.

"Limited scope" audits will no longer exist

The debate over the “limited scope” audit has been going on for years. The new standard is designed to help auditors clearly understand their responsibilities in performing an audit, and provide plan sponsors, plan participants, the Department of Labor (DOL), and other interested parties with more information about what auditors do in situations when audits are limited in scope by the plan’s management, which is permitted by DOL reporting and disclosure rules.

Once effective, Audit Committee and Board of Director meetings in which plan financial statements are presented will include more clarity into what an employee benefit plan audit entails, based on revisions to the auditor’s report. I know I would frequently kick off meetings covering the auditor’s report opinion by explaining what a “limited scope” audit was. As a “limited scope” audit will no longer exist, the revised auditor’s report language clearly articulates what the auditor is, and is not, opining on.

When is the new standard effective?

The effective date is “to be determined” as it will be aligned with the new overall auditor’s reporting standard once that is finalized, and the standard does not permit early adoption. So there is still time to educate and prepare all parties involved.

Probably the biggest conversation piece around the water cooler for the new standard is the lingo. The “limited scope” audit language will be going away and now the auditor’s report and all related language will refer to an “ERISA section 103(a)(3)(C)” audit. I know, it’s a mouthful?try and say that one three times fast!

The auditor's report will look much different

The auditor’s report under an ERISA section 103(a)(3)(C) audit will look significantly different from the old “limited scope” auditor’s report, once the standard is effective. There are several illustrative examples of reports included in the standard to refer to. One thing you will immediately notice?the auditor’s report is getting longer and not shorter. Some highlights:

The Opinion section will include two bullets that explicitly state, in basic summarized terms: (1) the certified information agrees to the financial statements, and (2)  the auditor’s opinion on everything else, which the auditor has audited.

Other Matter—Supplemental Schedules Required by ERISA section will include two bullets that explicitly state, in basic summarized terms, (1) the certified information agrees to the financial statements and (2) the auditor’s opinion on everything else, which the auditor has audited in relation to the financial statements. Sound similar to the Opinion section? Well, that’s because it is!).

Other key takeaways

• Auditors will be required to make inquiries of management to gain assurance they performed procedures to determine the certifying institution is qualified for the ERISA section 103(a)(3)(C) audit, as it is management’s responsibility to make that determination.
• Fair value disclosures included within the plan’s financial statements are also included under the certification umbrella and subject to the same audit procedures. As an auditor, if anything comes to our attention that does not meet expectations, we would further assess as necessary.
• The auditor is required to obtain and read a draft Form 5500 prior to issuance of the auditor’s report.

The final standard also removed some highly debated provisions included in the draft proposal as follows:

• There is no report on findings required, but the auditor is required to follow AU-C 250, AU-C 260 and AU-C 265. Should anything arise that warrants communication to those charged with governance, those findings must be communicated in writing. Be sure to grab another coffee and refresh yourself on AU-C 250, AU-C 260 and AU-C 265!
• The new required procedures section for an audit was scrapped and replaced with an Appendix A for recommended audit procedures based on risk assessments. There are some great tools there to look at.
• The required emphasis-of-matter section paragraph section of the auditor’s report was also scrapped.

Questions about the new employee benefit audit standard or employee benefit plan audits

At BerryDunn, we perform over 200 employee benefit plan audits each year. If you have any questions, we would love to help. And we’ll keep the acronyms to a minimum. Please reach out with any questions.

People are naturally resistant to change. Employees facing organizational change that will impact day-to-day operations are no exception, and they can feel threatened or fearful of what that change will bring. Even more challenging are multiyear initiatives where the project’s completion is years away.

How can your agency or organization help employees prepare for change—and stay motivated for an outcome—many years in the making?

Start With the Individual

Organizational change requires individual change. For the change to be successful and lasting, an agency should apply organizational change management strategies that help lead people to your desired outcome.

With any new project or initiative, people need to understand why the project is happening before they support it. Communicate the reasons for the change—and the benefit to the employee (what’s in it for them)—so each individual is more inclined to actively support the project. Clearly communicating the why at the onset of the project can help employees feel vested in, and part of, the change. As Socrates said, “The secret of change is to focus all your energy, not on fighting the old, but building the new.” A clear vision can inspire each employee’s desire for the “new” to succeed.

Shift to Individual Goals

It’s a challenge to maintain your employees’ motivation for an organizational change occurring over the long haul. Below are some suggestions on how to sustain interest and enthusiasm for multi-year projects:

1. Break the project down into smaller, specific milestones. Short-term goals highlight important deadlines and create tangible progress points to reach and celebrate. The master project schedule should be an integration of the organizational change management plan and the project management plan so any resource constraints you identify in the project management plan also become an input when identifying change management resources and activity levels. This integration also highlights the importance of key organizational change management milestones and activities in an effort to ensure they are on a parallel tack as traditional project tasks.
2. Effectively communicate status updates and successes. In large, agency-wide projects, there are often a variety of stakeholders, each with different communication expectations and needs. The methods, content, and frequency of communication will vary accordingly. Develop a communications strategy as part of your organizational change management plan, to identify who will be responsible to send communications, when and how they will be sent, key messages of the communications, and what feedback mechanisms are in place to continue the conversation after initial delivery. For example, the project team needs a different level of detail than the legislature, or the public. Making the content relevant to each stakeholder group is important because it gives each group what they need to know so they don’t drown in a flood of unneeded information.
3. Create buy-in by involving employees. A feeling of ownership naturally results from participation in a project, which helps increase enthusiasm. Often the time to do this is when discussing changes to business processes. Once you determine the mandatory features of the future state, (e.g., financial controls, legal requirements, legislative mandates) consider including stakeholder feedback on decisions more focused on preference. It is important for stakeholders to see their suggestions accepted and implemented, or if not implemented, that there was at least a structured process for thoughtfully considering their feedback, and a business case for why their suggestions didn’t make it into the project.
4. Conduct lessons learned assessments after each major milestone. The purpose of conducting lessons learned activities is to capture what worked and what didn’t. Using surveys or other feedback systems, such as debrief meetings, allows stakeholders to voice their thoughts or concerns. By soliciting feedback after each milestone, leadership can quickly adapt to challenges, address any misunderstandings or concerns, and capitalize on successes.
5. Reinforce how the project meets the goals of the agency or organization. Maintaining enthusiasm and support for a long-term goal takes a constant reminder of the overall organizational goals. It is important for senior leadership to communicate the impact of the project on the agency or organization and to stakeholders and keep the project at the forefront of people’s minds. Project goals may change during the duration of the project, but the project sponsor should continue to be active and visible in communicating the goals and leading the project.

Change is difficult—change that is years in the making is even more challenging. Applying a structured organizational change management process and using these tips can help keep employees energized and help ensure you reach the desired project goals.

As more state and local government workers enter retirement, state and local agencies are becoming more dependent on millennial workers — the largest and most educated generation of workers in American history. But there is a serious gap between supply and demand.

As noted in a 2016 report by the Bureau of Labor Statistics titled 
Household Data Annual Averages 15, only 25.6% of current
government workers are between the ages of 18 and 35.

This trend isn’t necessarily shocking; many millennials choose higher-paying jobs in the private sector over lower-paying jobs in the public sector, especially when the days of a lifelong government career, and generous pensions, are dwindling. But it is a serious labor problem for government agencies — one that requires creative solutions. To entice these new workers, state and local governments need to adopt new recruiting and retaining methods.

Recruiting Methods

While money matters to millennials, they also want to live a life of adventure, try new things, embrace trailblazing technology, pursue meaningful goals, and gain a sense of both personal and civic accomplishment. In short, these new workers have values that differ from previous generations. You can help entice them by:

• Highlighting your state and local agency’s mission and greater purpose. Many millennials want to affect change and find careers consistent with their values. Include information in your job descriptions about the positive environmental and social impact your agency makes.

• Updating your technology. Millennials have grown up with technology (literally at their fingertips), can adapt to change as no other generation before them, and often strive to remain on the “cutting edge.” By updating your agency’s technology, you will not only improve your organization and benefit the public you serve, but also have a better chance of recruiting the best and brightest millennials.

• Providing them with a work-life balance. Life outside of work is just as important to millennials as their careers. They don’t plan to wait for retirement to finally pursue their interests, so providing them with a level of flexibility is key to recruitment. Consider offering flexible workdays, remote working capabilities, extended parental leave, sabbatical opportunities, and “mental health days.” The more flexibility state and local agencies provide, the more incentive there is for millennials.

Retaining Methods

Recruiting millennials for government jobs is challenging enough, and retaining them can prove even harder, as job hopping is standard practice for many members of this generation. Nevertheless, there are certain methods your agency can adopt to prevent millennial turnover. We suggest:

• Investing in employee development and training. Training and creating opportunities for promotion and career advancement are motivating incentives to millennials. Professional development excites millennials and investing in them will pay off for the agency — and the employees will be more engaged and likely to stay.

• Showing employees they are valued. Recognition is the biggest motivator besides money — millennials want acknowledgement for the good work that they do. Communicate achievements and provide awards to recipients in front of their peers. This not only gives them credit, but also motivates others. Continuing to communicate to your employees how their work supports their values reminds them they made the right decision in joining the public sector in the first place.

Make Your Move

Millennials are worthy of your attention! To compete with the private sector — to recruit and retain them — your government agency has to take an innovative approach to capitalize on this ever-growing demographic. If your state or local agency needs help refreshing your technology, reviewing current policies and procedures, or taking a fresh look at your processes, contact BerryDunn. We would love to talk about your commitment to your future!

You may also be interested in: CFOs for Hire; How to Attract and Retain Workers in a Seller's Market

When last we blogged about the Financial Accounting Standards Board’s (FASB) new “current expected credit losses” (CECL) model for estimating an allowance for loan and lease losses (ALLL), we reviewed the process for developing reasonable and supportable forecasts for use in establishing the ALLL. Once you develop those forecasts, how does that information translate into amounts to set aside for loan losses?

A portion of the ALLL will continue to be based on specifically identified loans you’re concerned about. For those loans, you will continue to establish a specific component of the ALLL based on your estimate of the loss ultimately expected on the loans.

The tricky part, of course, is estimating an ALLL for the other 99% of the loan portfolio. This is where the forecasts come in. The new rules do not prescribe a particular methodology, and banking regulators have indicated community banks will likely be able to continue with their current approach, adjusted to use appropriate inputs in a manner that complies with the CECL model. One of the biggest challenges is the expectation in CECL that the ALLL will be estimated using the institution’s historical information, to the extent available and relevant.

Following is just one of many ways  you can approach it. I’ve also included a link at the end of this article to an example illustrating this approach.

Step One: Historical Loss Factors

1. First, for a given subset of the loan portfolio (e.g., the residential loan pool), you might first break down the portfolio by the number of years remaining until expected payoff (via maturity or refinancing). This is important because, on average, a loan with seven years remaining until expected payoff will have a higher level of remaining lifetime losses than a loan with one year remaining. It therefore generally wouldn’t be appropriate to use the same loss factor for both loans.
    
2. Next, decide on a set of drivers that tend to correlate with loan losses over time. FASB has indicated it doesn’t expect highly mathematical correlation models will be necessary, especially for community banks. Instead, select factors in your bank’s experience indicative of future losses. These may include:
   • External factors, such as GDP growth, unemployment rates, and housing prices
   • Internal factors such as delinquency rates, classified asset ratios, and the percentage of loans in the portfolio for which certain policy exceptions (e.g., loan-to-value ratio or minimum credit score) were granted
      
3. Once you select this set of drivers, find an historical loss period — a period of years corresponding to the estimated remaining life of the portfolio in question — where the historical drivers best approximate those you’re expecting in the future, based on your forecasts. For that historical loss period, determine the lifetime remaining loss rates of the loans outstanding at the beginning of that period, broken down by the number of years remaining until payoff. (This may require significant data mining, especially if that historical loss period was quite a few years ago.
    
4. Apply those loss rates to the breakdown derived in (a) above, by years remaining until maturity.

   Step Two: Adjustments to Historical Loss Rates

   The CECL model requires we adjust historical loss factors for conditions that may not be adequately captured by the historical loss period analysis we’ve just described. Let’s say a particular geographical subset of your market area is significantly affected by the economic fortunes of a large employer in that area.  Based on economic trends or recent developments, you might expect that employer to have a particularly bright – or dim – future over the forecast period; accordingly, you forecast loans to borrowers in that area will have losses that differ significantly from the rest of the portfolio.

   The approach for these loans is the same as in the previous step. However:

   These loans would be segregated from the remainder of the portfolio, which would be subject to the general approach in step one. As you think through this approach, there are myriad variations and many decisions to make, such as:

   Our intent in describing this methodology is to help your CECL implementation team start the dialogue in terms of converting theoretical concepts in the CECL model to actual loans and historical experience.

   To facilitate that discussion, we’ve included a very simple example here that illustrates the steps described above. Analyzing an entire loan portfolio under the CECL model is an exponentially more complex process, but the concepts are the same — forecasting future conditions, and establishing an ALLL based on the bank’s (or, when necessary, peers’) lifetime loan loss experience under similar historical conditions.

   Given the amount of number crunching and analysis necessary, and the potentially significant increase in the ALLL that may result from a lifetime-of-loan loss model, it’s safe to say the time to start is now! If you have any questions about CECL implementation, please contact Tracy Harding or Rob Smalley.

   Other resources
   For more information on CECL, check out our other blogs:

   CECL: Where to Start
   CECL: Bank and Branch Acquisitions
   CECL: Reasonable and Supportable

   To sign up to receive notification of our next CECL update, click here.

   • In substep (c), you would focus on forecasted conditions (such as unemployment rate and changes in real estate values) in the geographical area in which the significant employer is located.
   • You would then select an historical loss period that had actual conditions for that area that best correspond to those you’ve just forecasted.
   • In substep (d), you would determine the lifetime remaining loss rates of loans outstanding at the beginning of that period.
   • In substep (e), you would apply those rates to loans in that geographic area.
   • How to break down the portfolio
   • Which conditions to analyze
   • How to analyze the conditions for correlation with historical loss periods
   • Which resulting loss factors to apply to which loans

Recently, federal banking regulators released an interagency financial institution letter on CECL, in the form of a Q&A. Read it here. While there weren’t a lot of new insights into expectations examiners may have upon adoption, here is what we gleaned, and what you need to know, from the letter.

ALLL Documentation: More is better

Your management will be required to develop reasonable and supportable forecasts to determine an appropriate estimate for their allowance for loan and lease losses (ALLL). Institutions have always worked under the rule that accounting estimates need to be supported by evidence. Everyone knows both examiners and auditors LOVE documentation, but how much is necessary to prove whether the new CECL estimate is reasonable and supportable? The best answer I can give you is “more”.

And regardless of the exact model institutions develop, there will be significantly more decision points required with CECL than with the incurred loss model. At each point, both your management and your auditors will need to ask, “Why this path vs. another?” Defining those decision points and developing a process for documenting the path taken while also exploring alternatives is essential to build a model that estimates losses under both the letter and the spirit of the new rules. This is especially true when developing forecasts. We know you are not fortune tellers. Neither are we.

The challenge will be to document the sources used for forecasts, making the connections between that information and its effect on your loss data as clear as possible, so the model bases the loss estimate on your institution’s historical experience under conditions similar to those you’re forecasting, to the extent possible.

Software may make this easier… or harder.               

The leading allowance software applications allow for virtually instantaneous switching between different models, permitting users to test various assumptions in a painless environment. These applications feature collection points that enable users to document the basis for their decisions that become part of the final ALLL package. Take care to try and ensure that the support collected matches the decisions made and assumptions used.

Whether you use software or not there is a common set of essential controls to help ensure your ALLL calculation is supported. They are:

• Documented review and recalculation of the ALLL estimate by a qualified individual(s) independent of the preparation of the calculation
• Control over reports and spreadsheets that include data that feed into the overall calculation
• Documentation supporting qualitative factors, including reasonableness of the resulting reserve amounts
• Controls over loan ratings if they are a factor in your model
• Controls over the timeliness of charge-offs

In the process of implementing the new CECL guidance it can be easy to focus all of your effort on the details of creating models, collecting data and getting to a reasonable number. Based on the regulators’ new Q&A document, you’ll also want to spend some time making sure the ALLL number is supportable.  

Next time, we’ll look at a lesser known section of the CECL guidance that could have a significantly negative impact on the size of the ALLL and capital as a result: off-balance-sheet credit exposures.

Electronic accessibility in every aspect of modern life has increased ten-fold, but government — and courts in particular — has been slow to follow.

History Lesson
The idea that criminal court proceedings are accessible by the public is a pillar of our justice system, rooted in the First Amendment. This public right to unrestricted access in criminal and civil court proceedings has been interpreted by many states to extend to court documents and court records (as long as not otherwise protected).

Traditionally, public access to court proceedings and records has been limited to those taking place in the courthouse, between the hours of 8:00 am and 4:00 pm. In most every other aspect of our lives, we have 24/7 access to everything from live streaming of our home security systems, to ordering our groceries or dinner from our mobile devices — while traveling at 30,000 feet! Government — and courts in particular — has been slow to follow in the rush to 24/7 electronic accessibility.

Part of the rationale behind the hesitation to jump on the electronic bandwagon, are the ethical issues surrounding unlimited electronic public access. So while the First Amendment provides for public access to information, conversely the Fourteenth Amendment interprets the definition of “liberty” to include a right to privacy. Deciding between these two semmingly contradictory rights becomes a challenge for courts when determining what form of electronic access is appropriate for court documents.

The pros
Unlimited electronic access to publicly available documents:

• Serve a variety of public interests while eliminating the need to travel to the courthouse to research and copy documents.
• Acts both as a deterrent to violating laws and as protection to those whose rights have been violated.
• Tends to instill fairness, transparency, and equality of court proceedings.
• Protects the community and allows the media to report on matters of public interest in a more convenient, timely, and streamlined manner.

The cons
While there are compelling reasons to provide electronic public access, they don’t take into account the potential for it to be used inappropriately. Risks include:

• Increased chance of identity theft, leading to loss of property, finances, and credit
• Exposure to sensitive information that may be harmful to all those involved
• Negative impact on privacy
• Deter public interest lawsuits for fear of overexposure
• Mistakes or abuse of legal process can have far-reaching implications on individuals

What can states do?
Allowing unlimited remote electronic access to court documents could compromise the privacy rights and concerns of individuals and increase the risk of harm to those participating in court proceedings. This issue demands the full attention of the courts nationwide, but not with an “all-or-nothing” approach.

Many states struggle with striking this balance. To mitigate some of the potentially damning effects, states have taken different approaches. The National Center for State Courts (NCSC) has brought attention to the issues on several occasions. In 2002, the NCSC and the State Justice Institute funded the project, “Developing a Model Written Policy Governing Access to Court Records” and more recently the NCSC has published the “Privacy/Public Access to Court Records Resource Guide”.

Some states have redacted confidential information from electronic documents and some have limited what information or categories are available on the internet, only posting some combination of the following:

• Appellate decisions
• Final judgments, orders, and decrees
• Basic information of the litigant or party to the case
• Calendars and case docket lists

Our recommendation
States must agree upon the amount of access they will provide electronically. To tackle this, each state should:

• Consider forming an access committee(s) to determine what guidelines are needed to balance the free access rights of the public with the privacy rights of individuals
• Policy decisions should be publicly posted to the judiciary, legislators, and the public at large; and
• Should be regularly revisited to ensure an appropriate balance is continually achieved

Interested in learning how your state can address this or similar issues? Reach out to BerryDunn's justice and public safety experts and we can discuss the particular issue facing your state and the best practices for approaching it.