09 October 2014

Fair market value or not?

Probably the most succinct definition I have ever seen in this matter can be found in the UK's Value Added Tax Act 1994, in which it is declared:

"the open market value of a supply of goods or services shall be taken to be the amount that would fall to be taken as its value ... if the supply were for such consideration in money as would be payable by a person standing in no such relationship with any person as would affect that consideration."

 Therefore, the value must be expressed in money, as determined on an arm's-length basis. In most circumstances that will not be a problem, but watch out for the exceptions:

  • What if the item is being provided in exchange for another good or service, with or without money being paid?
  • What if the item is being supplied being related parties, and is thus not at arm's length?

The first issue is directly relevant to barter and trade-ins, on which the CRA has issued Interpretation Bulletin IT-490 to cover related income tax issues, and GST memorandum GST-300-7 for GST/HST issues. These are definitely worth reviewing, as:

  • assets may need to identified as capital, inventory or otherwise,
  • the transaction could trigger either income or capital gain or loss,
  • the item on one side could be taxable for GST/HST purposes, whereas the other side could be exempt.

These are just the basic questions.

The second issue is even more complex:

  • While certain related parties have been deemed by statute to not operate at arm's length (eg, those related by "blood, marriage or adoption"), there are still circumstances where parties otherwise unrelated are still so closely connected that the courts would consider them not to be at arm's length as well.
  • The exchange of goods and services in such circumstances can never be for nil consideration, except under very restricted circumstances by way of election.
  • S. 69 of the Income Tax Act requires such transactions to be undertaken at fair market value. To enforce this, it has a severe penalty: the party that provides the supply at an undervalue will be deemed to have disposed of it at FMV, while the receiver can only record its cost at the amount it actually paid for it. In that regard, it has been held that a promise to pay the difference cannot be accepted, unless it is in the form of a mortgage or demand note.
  • This consequence can be mitigated in the case of property being transferred by taxpayers to a qualifying Canadian corporation under s. 85, where the consideration must include shares of the corporation. By filing form T2057, both parties are able to fix a value that falls anywhere between FMV and a specified floor value for the property in question, but only if the form is filed within a specified time.
  • Because of multiple cross-border issues that may arise (the most notable of which are transfer pricing and non-resident withholding tax), all non-arm's-length transactions with non-residents must be reported annually to the CRA on form T106.
There are other possibilities, but I have outlined the very basic ones that people in business need to know.

How then to mitigate your exposure to any adverse moves from the CRA? The following should be basic measures:

  • All transactions should be recorded, with ones in the normal course of business being properly invoiced, and extraordinary ones being the subject of a written agreement.
  • You should normally price transactions the same way you would do for your better customers for the same product or service. However, there are transactions that will not occur with outside parties that will need to be addressed.
  • The CRA encourages businesses to enter into an Advance Pricing Agreements to cover issues arising from cross-border transactions with non-resident parties not at arm's length. The underlying concepts for these are sound, and similar work should be undertaken for pricing domestic transactions.
  • For the disposal of property that is not a normal supply of a good or service, such as the transfer of real estate, plant equipment or an entire operation, a proper valuation will be required. That can be an expensive proposition as CBVs do not come cheap.
  • Be sure to record any shares that were issued, and make doubly sure that any debts are properly secured through the appropriate registrations and other formalities.
  • Settle intercompany debts on a regular basis, and do not roll them over into shareholder loans. Failure to do so on cross-border transactions could trigger deemed dividends with related withholding tax obligations.
  • Be sure to get all of this appropriately reviewed by your lawyer and CPA, xxx, especially before it gets past the point of no return.
  • Keep all documentation that occurred at the time of the transaction! Contemporaneous files will always carry greater weight, and the courts always seem to be skeptical of work that is undertaken after the fact.

Once that is done, everything will almost appear to be easy in comparison.

15 September 2014

Dealing with the US? You can run, but you can't hide...

The landscape has changed these last few years in doing business in the States. It used to be taken for granted that, if you kept all your operations stationed in Canada, you never really had to worry about any complications that may arise with respect to US law. There may have been some legal issues, but they could be reasonably managed.

These days, those propositions are not sure things. The United States has been extending its reach, and the various states have been doing likewise in other respects. Here are a few items to take note:

Pre-emptive tax filing with the IRS for foreign corporations

A recent newsletter from BDO summarizes the tax position quite well:
  • A non-resident—whether an individual or corporation—is subject to U.S. federal tax if they have income that is “effectively connected with the conduct of a trade or business within the United States.” The threshold for what constitutes "trade or business" is quite low, as even making sales calls to customers for soliciting orders, or shipping product to the US where title will pass there, will qualify.
  • The Canada-US tax treaty will generally protect such income from being taxed by the IRS if it is not attributable to a "permanent establishment" as defined by that treaty. However, US law requires a foreign corporation to file form 1120-F (US Income Tax Return of a Foreign Corporation), together with form 8833 (Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)), in order to claim such treaty protection. Individuals would need to file form 1040NR (US Nonresident Alien Income Tax Return) or 1040NR-EZ (US Income Tax Return for Certain Nonresident Aliens With No Dependents) plus form 8833 to claim similar protection. If not filed, you will be taxed on your gross income. Penalties and interest will apply if these forms are late-filed, even where you claim protection.
  •  US customers are now required to confirm that you qualify as either a US or foreign person through filing any of forms W-8BEN, W-8ECI, W-8IMY or W-8EXP (depending on your situation). Failure to file could result in a 30% withholding tax on any payments to you, but the appropriate return can be used to claim back improper withholdings.
  • In order to file any of these forms, you will require a Social Security Number or Individual Tax Identification Number or, for corporations, an Employer Identification Number.
  • Reporting obligations generally begin once eligible activity occurs.
The message is quite clear: in order to claim protection, you have to prove your existence. Once the IRS knows you exist, you will then be on their radar.

There are other implications:
  • The various states have even more aggressive rules for determining taxable income, and they are not bound by the tax treaty. Many of them have rules governing taxation of part-year residents (ie, taxing based on the days in the year in which you may have been in the state earning subject income), which does not exist in Canadian provinces. This is an area where you will really need professional help.
  • For Canadian-controlled private corporations, income attributable to foreign sources will not be eligible for the Canadian small business deduction.

Permanent filing requirements for "US persons"

Of course, it could be worse: if you are a US citizen or green card holder, you have to file every year, no matter where you live in the world. Even if you are not, you are still required to file as a resident alien where:
  • you have been in the US for 183 days or more in a given year, or
  • you have been there for at least 31 days that year, and that number, plus 1/3 of such days the year before, and 1/6 of such days the year before that equal 183 or more (but there are exceptions), or
  • you are a nonresident alien spouse of a resident alien who has elected to file jointly.
On the other hand, if you can claim a closer connection to another country, or a tax treaty applies to your circumstances, you may still be able to avoid resident alien status. However, you still need to file the appropriate forms to take advantage of the rules, and filing as a nonresident alien may still be required.

The rules concerning corporations are somewhat clearer: if it is formed under the law of any US jurisdiction, it is a US person. If it is formed outside the US, it is a foreign person. There is no residency or control test that would override this. The distinction makes a difference, as a US person is subject to tax on worldwide income, while a foreign corporation could face taxation on what was earned within the US. There are, however, complications that will arise in both scenarios that are too numerous to list here.

Are you employing a "US person"?

This is a serious question, and the IRS has asserted since 1992 that, if you are employing a US citizen or resident alien anywhere in the world, you are actually obliged to deduct US federal income tax from any related pay. This is subject to two important caveats:

  • Such wages are not subject to US federal income tax withholding to the extent that such wages are already subject to the income tax withholding of a foreign country.This effectively means that, under the Canada-US tax treaty, income earned in Canada would be subject to Canadian taxes, but income earned outside Canada may be caught (subject to any treaties the US may have with other jurisdictions).
  • Subject individuals may otherwise be entitled to a foreign earned income exclusion (worth USD 97,900 in 2014), but they must file Form 673 (Statement for Claiming Exemption From Withholding on Foreign Earned Income Eligible for the Exclusions Provided by Section 911) with their employer in order to reduce any applicable source deductions.

If you have any significant dealings with the US, you might need to review your payroll procedures, as the IRS is really becoming serious in enforcing this. Cathay Pacific announced this year that they were starting to make such deductions, which affected 18% of their cockpit crew. This may have something to do with ensuring that they keep their landing rights in the States.

Of course, if you have anyone working on United States soil—no matter what their status—you are obliged to deduct and remit the appropriate amounts to the appropriate jurisdictions. That's perfectly fair—after all, Canada asserts the same rule for anyone working here, whether the workers are residents or nonresidents.

The long arm of US jurisdiction

Taxation is not the only area in which you should be concerned with being caught up with United States jurisdiction. There is significant regulatory and legal exposure for actions you pursue outside their borders:
  • In the 1950s, Eaton's was sued for violating US trademark law under the Lanham Act (Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F. 2d 633 (2d Cir. 1956)). The suit was dismissed, but the court declared that extraterritorial jurisdiction was possible in certain circumstances.
  • In 2011, a Chinese company was barred from exporting its products to the US, because it had ripped off certain trade secrets of an American manufacturer in violation of the Economic Espionage Act of 1996 (Tianrui Group Company Limited LLC v International Trade Commission, 661 F.3d 1322 (Fed. Cir. 2011)).
  • There's also a catch-all provision in the US Criminal Code about making false statements, under which the Feds have been securing many convictions (for which Martha Stewart comes to mind), so be careful in answering any queries arising from investigations being undertaken. This is a separate offence from that relating to filing false returns under taxation laws.
Again, if you employ a "US person":
  • Let's not forget the amazing reach of the International Traffic in Arms Regulations, which regulate any export, re-export and deemed export of arms and technology between "US persons" and "foreign person," no matter where they are in the world. Canadian companies enjoy some relief due to a bilateral agreement, but there are still some very real barriers to be aware of.
  • They are subject to US economic sanctions, which can affect dealings occurring outside the country, especially with respect to funds transfers and transportation of goods.

The upshot

Be very careful, and investigate what you are getting yourself into, when you are dealing with US customers and suppliers, and with the American market in general. It's a different world down there!

09 August 2014

What is a consultant?

It's amazing how many businesspeople do not contemplate the implications of this question. There have been too many times where I have heard some managers say, "If you don't want to be on payroll, why don't you work as a consultant?"

This is wrong on so many levels, as it concentrates on form rather than substance, and it sees the matter as a tax question rather than one of justifiable necessity for the business. We must understand the different types of workplace relationships that exist, and the differences that exist between them:
  • employee (whether full- or part-time),
  • officer,
  • director,
  • agent,
  • partner,
  • independent contractor, and
  • consultant.
Beginning at the end of the list, probably the best definition of what a consultant does can be found in this model clause I've come across. It's from the US, and the wording could be tightened up, but it does convey the general idea:
 It is understood that the purpose of the Consulting is to provide periodic review and advice relevant to certain Company matters, and that neither Consultant nor Company will benefit if Consultant provides inaccurate advice or commentary based on insufficient information. To that end, Company shall provide Consultant, in advance of meetings, with accurate, unbiased and sufficient information for him to review the subject matter thereof, and shall promptly provide further information that Consultant reasonably deems relevant to forming any pertinent conclusions relevant to the matter for discussion. It is expressly understood that Consultant has no fiduciary obligation to Company, but instead a contractual one described by the terms of this Agreement; that Consultant’s role is to provide independent advice uninfluenced by commercial concerns; and that service as a Consultant does not require him to be an advocate for Company or its products in any forum, public or private. Company expressly agrees that under no circumstances will this role be compromised or inaccurately represented.
 In short, a consultant is called upon:
  • to review and advise on specified issues,
  • to expect complete cooperation from the client in obtaining the information needed to accomplish the task,
  • to be independent in his approach, and
  • not to be an advocate for the client.
Notice as well that this type of relationship means that he is not:
  • an employee, as his output is not subject to the client's control.
  • an officer or director, as he does not have the capacity to make decisions that directly affect the client.
  • an agent, as he does not have the capacity to bind the client.
  • a partner, as he does not have the ability to share in any gains or losses from the client's activities.
  • an independent contractor charged with the responsibility to provide a specific deliverable beyond his reports.
Our CMA training provided us with the capacity to assess strategic issues within a broad context, which directly ties in to this area. Our professional training has also included business management experience, so we can also step into more active roles, should our subsequent client engagements call for such moves. I am ready to help provide success in all such aspects.

06 August 2014

We're all in this together now...

After so many decades, the way is clear for Canada's three accounting bodies to merge into one! As usual, Ontario was the last to agree (there's a lot of history behind that, as I have alluded to in previous posts). The various provincial legislatures will be passing the appropriate legislation this fall, once they return after Thanksgiving this October. Quebec, New Brunswick, Saskatchewan and Bermuda have already done so, and British Columbia has taken the interim step of recognizing the new designation (with amalgamation of the bodies to follow). Ontario took a unique route, as I described previously.

The various squabbles that have divided us for so long remind me of what has been said about university academic politics, which are so vicious because the stakes are so small! When pressed to describe what has made each of us so distinct, most of us have had a hard time putting it into words that would be helpful to someone outside the profession. I think the best description was found in a bad joke from the 1980s:
"CGAs do great books, CMAs tell you the truth about what happened, and CAs bend it all to fit generally accepted accounting principles."
That, of course, was said in jest, but it does describe the three basic approaches that figure in accounting education: financial statement preparation, operational analysis and external reporting. All else flows from these three core components.

We still have a lot to do to educate others as to what we are truly capable of. Job descriptions that call for a professional designation with knowledge of QuickBooks (as I have seen on numerous occasions) are definitely off the mark. QuickBooks, as well as Simply Accounting, can be performed by someone with a high school course in bookkeeping, while someone with a professional designation would be called upon to review the work. However, the ability to review is subject to any public accounting licensing restrictions that may be in effect in that jurisdiction.

In a similar vein, I have also seen job positions that call for a degree and designation in order to hold a Financial Analyst role. FA positions are a great training ground while you are studying for your designation, but a severe underuse of capabilities upon graduation.

Quite frankly, those with professional designations have been trained to hold management positions within the organization. Private companies whose owners ignore that fact will be severely constraining their capabilities. Public companies are more aware, but the smaller ones still need to be given the message.

Let's see what the future holds. Bring it on.

31 July 2014

A contemporary tale about hiring in Canada

Ever since the onset of the Great Recession, the Canadian job market has seen some interesting shifts:
  • People are more reluctant to move around, which has really caused significant constraints for those few who are working, or those who are out of work, who are looking for new opportunities. In Finance, the only significant churn I'm seeing is among Financial Analysts and entry-level Controller positions.
  • In a connected matter, there appears to be very little internal transfer or cross-training to speak of in many organizations. There are, on the other hand, still too many examples of exits due to restructuring. That does little to help morale for those who are left.
  • While accountants have never been the most social of people, many professional networks have vanished with the closure of many companies in Ontario's manufacturing heartland. The various professional accounting bodies have done little to help those in need—especially those with longer work experience who have been put to pasture—and I don't think the forthcoming merger in connection with the new CPA designation will help one bit. There have been too many instances I've heard about where professional accountants have been out of work for three years or more!
  • Recruiters are doing less head-hunting and more order-taking, while still demanding fees of 20%-30% of base salary. I've observed that, even when they ask for references at the beginning, they're never checked until a prospective employer has taken the bait and made an offer. That's quite a difference from the days when a candidate would have never been taken on until at least two members in the recruiter's network had given positive comments about the person in advance. I know of many current situations in which recommendations to a recruiter have resulted in no action taken, even if just a courtesy call.
This has really affected someone of my acquaintance, who got her CMA three years ago to top up her MBA. Her employer during her time in the CMA Strategic Leadership Programme refused to fully reimburse her tuition fees (which were quite considerable), even though others in the same large organization got 100% funding. Despite the CMA claims that management opportunities awaited their graduates, the only ones that employers were looking for were in the FA area. She accepted a position in another large organization, but she soon learnt that there were no opportunities for movement, and her position was in a pay grade that was too low for her abilities to be properly noticed. Sadly, she was unable to survive one of their subsequent (almost quarterly) restructurings.

Her work with recruiters here proved fruitless, for the reasons I've given above. Interestingly, one of her friends in the US passed her name on to one of the larger corporations down there, to which she e-mailed her résumé. Here's what happened next:
  1. She was called by one of their internal recruiters and told that they expected her to fly down to New York City for two back-to-back interviews the following week, to be followed the next day by two back-to-back telephone interviews which she conducted back home in Toronto.
  2. All her travel expenses were fully refunded for the trip, and the hotel room was billed directly to the company.
  3. She was offered the job a week later, which she decided to accept. The first day of employment is expected to be immediately after Labour Day.
  4. They then e-mailed her instructions for accessing their "onboarding" website, where many data fields had already been populated from scanning her résumé. She had to fill in the remaining required fields, in order to initiate their processes relating to applying to US Customs and Immigration to get her TN status set up in order to work there, as well as for the dossier for her employment background check. This also included scans of other pertinent paperwork, including her previous visa history in the US in connection with her studies and subsequent employment there, before she decided to come up here several years ago.
  5. There were several follow-up e-mails for further scans of documentation in order to complete the requirements of their checklists. This includes written consent in order for the background check to commence.
Note the huge contrast:
  • It appears that US employers are looking for talent, they are willing to look far afield for it, and they find it cheaper to do that work in-house. I've been finding too many Canadian employers only want to look around the corner, and then try to campaign for TFWs.
  • They are conscientious enough to do their due diligence beforehand, as well as getting the paperwork properly arranged to get the selected candidate onboard before the work starts. There are too many places up here that don't undertake that very simple step, preferring to tie up their new hires with boring paperwork during their first few days on the job.
There are some risks:
  • She will be working in a State where employment at will is the norm. That is a lack of job security that does not exist up here.
  • The employer has a reputation for expecting their staff to put in very long hours.
  • If the job does not work out, TN status is employer-specific, and thus not portable to another employer.
Will it turn out well? Let's wait and find out.

25 July 2014

Some thoughts on what IT should provide

As I have been responsible for managing IT infrastructure, architecture and software development for several organizations, I try to keep up with the latest developments. That can be a daunting task! Here are some ideas for consideration:
  • At a minimum, network security will require firewalls within your system, between what is available just within the organization as opposed to that which may be publicly available.
  • Multiple servers will be needed to provide different capabilities. Thanks to virtualization, this does not necessarily mean a different box for each server.
  • Laptops and tablets may be de rigueur, but regular PCs and thin clients have their place as well within the office. As well, don't forget the useful data that comes from scanners and mobile devices. Tailor the architecture according to what is really needed, as opposed to what the latest fads may be or what users may be campaigning for.
  • In a similar vein, not everyone needs their own personal printer, black-and-white printing is preferable to colour, and not everything needs to be printed in hard copy. In the first two cases, managed print services should be actively employed; in the last, crystallizing output in PDF format for storage in document management systems should be a preferred choice for any office (as opposed to saving everything on local hard drives), as well as providing version control.
  • Use open source software whenever you can. While Microsoft, SAP and Oracle are excellent, keep an open mind: databases such as MySQL, PostgreSQL and Firebird are also great, LibreOffice is a wonderful office suite, and OpenBravo and Adempiere (among others) work well for ERP.
  • Collaboration is always to be preferred, and blogs and wikis can convey information far more effectively in that regard. Embedding files and images within your posts can convey a message more powerfully as well.
  • The following is probably the minimum number of servers I can see for any size organization these days: ERP, accounting, email, fax, printer, document management, web, blog, and wiki. Bug reporting and data warehouse servers are probably desirable as well. It's preferable to design how these will all interrelate with each other at the very beginning, in order to ensure that it will remain scaleable with some degree of ease.

22 July 2014

It's good to cooperate with the government, but be careful!

Here is a (somewhat extreme, but it does happen) scenario:
  • The board of directors has had a dust-up, and everyone resigns.
  • The CRA (or another regulatory agency) sends a letter inquiring about a certain matter.
  • Even though you may never have been a director, you inform the agency that you will be dealing with it.
Not so fast! That simple, friendly act could get you into a lot of trouble down the road.

Canadian corporations statutes have certain provisions defining who a "director" can be. S. 109 of the Canada Business Corporations Act, for example, states it this way:
(4) If all of the directors have resigned or have been removed without replacement, a person who manages or supervises the management of the business and affairs of the corporation is deemed to be a director for the purposes of this Act.
(5) Subsection (4) does not apply to

(a) an officer who manages the business or affairs of the corporation under the direction or control of a shareholder or other person;
(b) a lawyer, notary, accountant or other professional who participates in the management of the corporation solely for the purpose of providing professional services; or
c) a trustee in bankruptcy, receiver, receiver-manager, sequestrator or secured creditor who participates in the management of the corporation or exercises control over its property solely for the purpose of the realization of security or the administration of a bankrupt’s estate, in the case of a trustee in bankruptcy.
To put it succinctly, "a person who manages or supervises the management of the business and affairs" would be held to be a de facto director of the corporation. In Bremner v. Canada, 2009 FCA 14, the husband of an ex-director advised the CRA to forward any correspondence concerning a company to his attention. That was enough to attract a notice of assessment under s. 323 of the Excise Tax Act for liability of unpaid taxes! While the husband had once been a director, but had resigned some time before, this definition could catch someone who has never held such a position.

S. 227.1 of the Income Tax Act attracts similar liability, and various other federal and provincial statutes contain onerous provisions for directors of companies that fail to honour their liabilities. This must be seriously addressed in setting up governance policies for any organization, and it definitely requires help from your legal counsel.

21 July 2014

If you want to secure a government contract, have a clean record!

It's always useful to scan the various articles that law firms publish on the web, in order to keep yourself up to date on developments. Even though I'm not a lawyer (and have never played one on TV!), it helps to have a working knowledge of the law, in order to help manage risks better for any company or client I may be working for.

McCarthy Tétrault have just published a good one (available here) about what it takes to keep your nose clean if you are trying to get a contact, standing offer or supply arrangement from Ottawa. Specifically, you must be in a position to certify that neither your company, its affiliates, nor any of the directors or owners concerned, have been convicted or discharged in the past ten years of any of the following specified "integrity offences" (which include similar offences in foreign jurisdictions):
  • paragraph 80(1)(d) (false entry, certificate or return), subsection 80(2) (fraud against Her Majesty) or section 154.01 (fraud against Her Majesty) of the Financial Administration Act
  • section 121 (fraud against the government and contractor subscribing to election fund), section 124 (selling or purchasing office), section 380 (fraud against Her Majesty or section 418 (selling defective stores to Her Majesty) , section 119 (bribery of judicial officers, etc.), section 120 (bribery of officers), section 346 (extortion), sections 366 to 368 (forgery and other offences resembling forgery), section 382 (fraudulent manipulation of stock exchange transactions), section 382.1 (prohibited insider trading), section 397 (falsification of books and documents), section 422 (criminal breach of contract), section 426 (secret commissions), section 462.31 (laundering of proceeds of crime) or sections 467.11 to 467.13 (participation in activities of criminal organization) of the Criminal Code
  • section 45 (conspiracies, agreements or arrangements between competitors), section 46 (foreign directives), section 47 (bid rigging), section 49 (agreements or arrangements with federal financial institutions), section 52 (false or misleading representation), section 53 (deceptive notice of winning a prize) of the Competition Act
  • section 239 (false or deceptive statements) of the Income Tax Act
  • section 327 (false or deceptive statements) of the Excise Tax Act
  • section 3 (bribing of a foreign public official), section 4 (accounting), or section 5 (offence committed outside Canada) of the Corruption of Foreign Public Officials Act; or 
  • section 5 (trafficking in substance), section 6 (importing and exporting), or section 7 (production of substance) of the Controlled Drugs and Substances Act.
There are further points to consider:
  • All directors and owners must furnish a Consent to a Criminal Record Verification, and may also be called to supply fingerprints and proof of identity.
  • During the term of the agreement, any changes to directors and owners must be notified, together with any related Consents.
  • Subcontractors must also be required to comply with the above requirements.
  • After the ten-year period, control mechanisms must be in place to ensure continuing compliance.
  • There can be no "end runs", such as assigning contracts without government consent to other parties, even arising from a reorganization. The courts have been quite strict on this.
In addition, if you are bidding for a public tender in Quebec, you will need to comply with the Act Respecting Contracting by Public Bodies. Among notable provisions in that Act:
  • The Conseil du Trésor maintains a list of enterprises that are ineligible to obtain government contracts.
  • Enterprises that are bidding for contracts in excess of a specified value must first obtain an authorization from the Autorité des marchés financiers.
  • The list of offences under Schedule 1 applies to enterprises, plus their directors and any shareholder that holds more than 50% or more of the voting rights, and the Autorité will not issue an authorization if any of them has been convicted of any of the offences within the last five years.
Therefore, any corporate group should have, as part of its governance policy, procedures in place to ensure that no part of the group, nor any controlling shareholders or officers, is offside on any of these requirements. I would personally also check to see if there were any civil or administrative proceedings, or complaints or resignations, that may have arisen in any of these matters, such as is done for anyone that is dealing with securities. The extra cost involved would be minimal, in order to ensure an ethical environment.

17 July 2014

After this week's Ontario budget

Here are the combined marginal tax rates for Ontario for a single working person, after taking into account the changes announced on Monday. For this presentation, I am taking all taxes, reductions and surtaxes into account, including CPP/EI and the dreaded Ontario Health Premium. However, the Working Income Tax Benefit and Ontario Tax Credits are not taken into account - that is an exercise for another day. As you can see, the rates jump around a fair bit. The effective thresholds for when Federal and Ontario tax kick in are different from the base amounts that are normally publicized, as the effects derived from the CPP/EI inclusion in nonrefundable tax credits must also be taken into account.

Tableau's presentation is a bit complex. Here is the summarized version on an Excel chart, showing the total marginal tax rates on a logarithmic scale. Unfortunately, Excel does not allow this on a more granular level:

It's also unfortunate that the Ontario Health Premium is structured the way it is, with 6% and 25% marginal spikes occurring over a short scale before flattening out. Surely a better way could have been formulated! I also take issue with the Ontario Tax Reduction and Surtax: it would be very easy to integrate them into the personal amount and the various tax brackets. That, however, would add visibility to the present structure, and that is something the present crowd at Queen's Park has tried very hard to avoid.

09 July 2014

Another Tableau dashboard example

This one focuses on the secondary schools in Simcoe County:
I've incorporated more useful ratings analysis, together with some tools for focusing on more pertinent drilling down. Enjoy.

06 July 2014

Better visualizations with Tableau Public

Spreadsheet-generated charts can be useful, but there too many times where better types of visualization are required. Fortunately, there are many options out there, but I find Tableau to be an excellent choice. Tableau Public is a great way to train yourself on its many possibilities.

Let's take some public data to analyze:

  • Rankings of all secondary schools in my home region (Halton),
  • that can be segregated by size of school enrolment and type of school board,
  • mapped out geographically on a map,
  • with identified trends for outcomes, as determined by the Fraser Institute, for 2014.

Here is a small demonstration of what can be done:

I leave it to you to investigate this more, and be amazed at what options are available.

05 July 2014

Is it time to exit Microsoft Office?

When I was over in China last March, I missed the big news that Microsoft would no longer support Office 2003 after 8 April 2014. As this version had been widely installed in most offices, and is still found in 28% of workplaces, the question is whether to migrate to newer versions or explore possible alternatives.

There is really only one reason to hang on to Office: Excel. There is a lot of development that has gone into add-ons that can really enhance its analysis capabilities, especially in the areas of:
  • Monte Carlo simulation (either with hefty price tags with Oracle's Crystal Ball, or free with SimulAr, but others exist as well),
  • heavy-duty mathematical analysis with R through RExcel, and
  • visual presentation (such as through Fabrice Rimlinger's Sparklines for Excel).
If your work requires ease of use through integration of applications such as these, then you will need to upgrade. However, most users do not require the power of extensions such as these. In that case, there are quite reasonable (as in free) stable alternatives that work quite well that can import and export from Office formats.

Check out Apache OpenOffice and LibreOffice. While functionally the same,the latter currently has a slight edge with respect to import/export filters and a wider selection of extensions to enhance its capabilities, as well as a development roadmap that is slightly ahead of Apache's. They are both worth exploring, and many large organizations have already undertaken migration in that direction. There are also ways to use the analytical tools I have mentioned above as separate steps in the workflow (as opposed to full integration), but I have not been able to find a suitable sparkline alternative for this platform.

Try it. I'm sure you will be pleasantly surprised.

30 June 2014

A history of Canadian accounting - the CA version

When anyone watches The Agenda weeknights on TV Ontario, it's nice to know that CPA Ontario is one of its main supporters. However, when they state that they've been leaders since 1879, the claim needs some explaining. In reality, accountants in Canada started to organize themselves only in November 1879, with the ones in Montreal beating those in Toronto by two weeks! The Montreal group then proceeded to procure an Act of the Quebec Legislature to form themselves into a professional body and to be conferred with the designation of "Chartered Accountant."

The Toronto group got off to a rockier start. Their original name was the Institute of Accountants and Adjusters of Ontario, and their campaign to receive similar sanction was rebuffed by the Ontario Legislature, which did not want to confer any type of exclusive professional status. They decided to deal with this in a political fashion by recruiting Samuel Bickerton Harman, a former Mayor of Toronto, to become its President, and it reorganized itself to become the Institute of Accountants of Ontario. Their inaugural meeting in May 1882 was a superb example of publicity. The Dictionary of Canadian Biography summarizes what happened next:

"In the space of a year he revamped the council to make it politically important, enlarged and to some extent inflated the membership, stage-managed a public meeting of Toronto’s business élite that demanded incorporation, lobbied Toronto’s MPPs and the appropriate cabinet ministers, and retained the best legal talent."

The Institute of Chartered Accountants of Ontario was officially recognized by statute in 1883.

The history becomes somewhat colourful for the rest of the 19th Century.In 1902, the Parliament of Canada passed a private Act incorporating the Dominion Association of Chartered Accountants, the predecessor of today's Canadian Institute of Chartered Accountants. It appears that a fair number of Ontario CAs jumped over from the ICAO to join in with what was originally an AAM initiative, as noted in a letter from 1905:

 "The Institute of Accountants in Ontario headquarters at Toronto has made the mistake in allowing bookkeepers and in fact clerks of almost any description enter their association. The consequence is the standing of their association is not what it should be. Their president, I believe is a secretary of a brewing company, and it was for these reasons that their best accountants left their association and were instrumental in the organization of the Dominion Association of Chartered Accountants, which like our Montreal association is composed solely of bona fide practicing accountants." 
 The ICAO did not take this lying down. It attempted to stack DACA elections through a proxy fight, but that was overruled. In 1908, it pushed through legislation in Ontario to reserve the CA title for its own members, but that was disallowed—twice—by Ottawa as being contrary to DACA's Federal Act. The showdown was called off after mediation had taken place, and the CA designation was reserved in 1911, with effect from December 1909.

That, in a nutshell, is how it began. I have not mentioned what happened in the other provinces, but the whole history is much more colourful than what has been admitted in the recent past!

27 June 2014

Road to the CPA: the CMA route

Now that Ontario has secured three-way agreement for the Chartered Professional Accountant designation to go ahead, maybe it's time to reflect on the history of the various legacy designations that led to it. I'm afraid the story is rather incomplete: the history of the Canadian accounting profession is rather opaque, with few scholars having investigated it, the few published histories that do exist are of the corporate variety, and many source materials are still relatively unavailable on the Web.

Let's start with the designation of which I am most familiar: mine. The Society of Management Accountants of Canada (touting itself these days as CMA Canada), has actually been around since 1920:

It's interesting to see that it started out being sponsored by the CICA's predecessor, the Dominion Association of Chartered Accountants, and the first mention of its existence appeared in the Canadian Chartered Accountant in 1920:

Of special importance is who was qualified to join the Society, as expressed in By-Law 1:
 "Any person resident in Canada, being a member in good standing of any public body of accountants incorporated under the authority of the Legislature of any Province of Canada, and any other person, resident in Canada, being of the full age of twenty-one years, and certified by his employer or two other reputable persons to be occupied in an accounting capacity, may, upon application to the Board, be admitted a member of the Society."
Now that is something I never knew: chartered accountants were our first members, and they occupied all the positions of the first Board. It has been mentioned elsewhere that, in reality, this was a move by the CAs to occupy the field of cost accounting before the CGAs had a chance to step in.

Although incorporated in May 1920, the inaugural meeting did not occur until mid-September that year:

The Society started holding examinations for those studying cost accounting in 1927, but it was not until 1941 that it started to confer the designation "Registered Industrial and Cost Accountant" (or "RIA"), and that only after provincial societies were formed in Ontario and Quebec:

The designation was not consistently applied across the country. In Alberta, for example, it was "Registered Industrial Accountant" as early as 1944. Ontario would not follow until 1967:

The designation later became "Certified Management Accountant" (or "CMA") , to reflect our broader role. In Ontario, approval was received in 1981 for this, but implementation was withheld until all other provinces came on board, which was not until July 1985.

Fast forward to today: consolidation occurred in Quebec in May 2012, New Brunswick will see it happen at the beginning of September, and Saskatchewan has enabling legislation ready to be proclaimed once the organizational bylaws are ready to be brought into effect. It appears that consolidation of the various professional accounting bodies in  the rest of the provinces will come about this fall. However, from our point of view, CMAs are returning to the fold.

13 June 2014

A first look at the Ontario 2014 results

It will be a while before the detailed votes by riding are published, but here is how the province-wide vote turned out:

It's plain to see that it turned out to be a Conservative rout. Theirs was the only party to lose in percentage of support, with all the others rising in turn.

This is only a first view. There were some strong regional differences going on, and the NDP was the only party to both gain and lose seats. In addition, the Liberals have now become the "hole in the doughnut", holding almost all their seats in the GTA, with the only significant outliers being Thunder Bay, the lower Ottawa Valley and the Kitchener/Brantford/Dundas triangle. The NDP are strong in Windsor, London, Hamilton/Niagara and the North, but they lost seats in Toronto. Now that requires some explanation!

A more detail regional breakdown is required to make sense of what is going on. Elections Ontario is relatively slow in releasing results, but they will be worth further examination.

12 June 2014

Some thoughts on improving human capital

It's good to see that organizations of all sizes are having problems coping with tight budgets, skills shortages, morale issues and the like. This report from the US Government Accountability Office discusses these, plus others, and makes some very astute recommendations. Although many might point out that the large sizes of the organizations involved would make a difference, I would say the issues are the same, and arise in organizations of all sizes:

  • the fragmented way in which personnel policies and initiatives are informed and executed in ways that are not aligned with overall strategy;
  • the inadequate use of enterprise solutions to address shared challenges; and
  • the need for more agile talent management.
There are some great ideas that can be taken from what is discussed here.

11 June 2014

The Ontario election - what happened in 2011

The big day is tomorrow. Let's consider what went down the last time around. Being of an analytical frame of mind, I am naturally interested  in how the numbers played out.

I came across a rather interesting spreadsheet a while back from a British source, which allocates vote splits in a multi-party setting from one election to the next. When applied to the 2011 election, this is basically what happened:

The big winner then was the NDP, gaining by six points with about equal shares of the swing coming from the Liberals and the Greens.The Tories also gained as well with a gain of almost four points, with a similar pickup from Greens and Grits. That is what created the Liberal minority we have been going through these last three years.

How will the current situation translate into votes and seats? I will publish a similar analysis for Thursday's result, once all the votes are in.

03 June 2014

Everything you know is wrong

April was a good month for the accounting profession here in Ontario, from my point of view. Us CMAs became entitled to be called Chartered Professional Accountants together with our fellow CAs. If the vote with our fellow CGAs goes according to plan, our CGA colleagues will be on board next month as well. We will all be entitled to call ourselves CPAs. Or will we?

The structure is certainly intricate. CMAs have, and CGAs will, become associate members of the Institute of Chartered Accountants of Ontario, which has also adopted the business name "Chartered Professional Accountants of Ontario". The ICAO has jealously guarded the CPA designation since their great merger with the Certified Public Accountants Association of Ontario back in 1962. The CPAAO had its own separate governing Act:

They chose to keep that enabling legislation separate, instead of amalgamating the two organizations, by declaring the members of each body to also become members of the other. The Institute still continues to issue regulations specifying the circumstances in which such initials may be displayed, including CPA designations obtained in other jurisdictions.

However, they forgot to get their lawyers to keep tab as to what had been happening over the years. Back in 1990, when the Province issued the Revised Statutes of Ontario, 1990, the final volume contained various schedules detailing repeals, disposition, and the status of various unconsolidated provisions. The last one, Schedule C, is unique, in that it had never been attempted before. Within that Schedule, The Certified Public Accountants Act, R.S.O. 1937, c. 236, was noted as still being in force:

That would have important consequences in 2006. In that year, the Legislation Act, 2006, was enacted by the Legislative Assembly as Schedule F to the Access to Justice Act, 2006:

The crucial provision to note in that schedule was s. 98(3), which declared:

"Every Act listed in Schedule C (Table of Unconsolidated and Unrepealed Acts) to the Revised Statutes of Ontario, 1990, as set out in volume 12 of the Revised Statutes of Ontario, 1990, other than the Acts listed in Column 1 of the Table to this section, is repealed if it has not previously been repealed."

The attached Table did not include the 1937 Act. It was deemed to be repealed on on 25 July 2007. The Province used to have a table online to show that, but it has since been removed

This effectively means that "Certified Public Accountant", and, more importantly, "CPA", were no longer protected professional designations under Ontario law.

 In 2010, when the legislation relating to all three professional accounting bodies in Ontario was updated, the Chartered Accountants Act, 2010 came into force, including s. 27, which specified the prohibitions on what designations or related abbreviations were not allowed to non-members of the ICAO.

But does this reinstate the prohibition on using "CPA", or more importantly, "Chartered Professional Accountant"? I think not, as our CGA brethren found out last year when going to the Ontario Superior Court of Justice to attempt to prohibit "CGMA" from being used:

The key paragraphs from this judgment:
[40] The letter “M” in CGMA would, in my view, qualify as an abbreviation. This is because M is the short form for the word Management. The definition of “combination” suggests each of the objects of the prohibition and “other words and abbreviations” are unified, unbreakable elements. Consequently, CGA is an element and the abbreviation “M” is an element. Thus, the following combinations of these two elements are, in my view, prohibited: “MCGA”, “CGAM”, “C.G.A.M.”, and “M.C.G.A.”.

 [41] CGMA is not clearly prohibited because the meaning of “combination” does not imply the “M” element can be inserted into the middle of the “CGA” element.
That makes ICAO's position for "CPA" somewhat awkward, to say the least. Could it be argued that inserting "Professional" in the middle of "Chartered Accountant" is of nil effect as well?

I note that "CPA" and "Chartered Professional Accountant" have been registered as official marks under federal trademark legislation, so the Institute is not without some protection. However, the whole issue will need to be addressed, once the consolidating legislation makes its way through the Legislature after next week's election.

08 May 2014

All the factors you need to know

I'm halfway through reading 1914-1918, a very fascinating history about the First World War, and also the first time I have ever read a comprehensive account about the efforts and issues facing each country on both sides. It's also much more complicated than we were ever led to believe in school or in the media.

In what can be fairly described as the first "total war", the factors that had to be considered by everyone involved included:
  • aims
  • doctrine
  • planning
  • alliances
  • politics
  • diplomacy
  • strategy
  • tactics
  • operations
  • environment (ie, topography, weather and time of day)
  • manpower
  • matériel
  • technology
  • production
  • logistics
  • intelligence
  • morale
  • propaganda
  • financing
  • funding
I'm sure I've captured everything, and it was crucial that in a total effort such as this, all had to be taken into account and properly executed in order to assure victory. The fact that there were so many failures along the way helps to make this book an excellent text for assessing why. It also gives you pause to think how this can be applied to other ventures that are of less than life-and-death importance.

13 April 2014

How to solve the "Canadian Productivity Puzzle"

Consider this. Canada has a very attractive investment climate:
  • the cost of capital is quite low
  • inflation is also at low levels
  • even at current exchange rates, the Canadian dollar is still at a much stronger level than a decade before, thus making imports of needed capital goods so much cheaper
  • the current Conservative government has worked to decrease levels of corporate taxation
  • depreciation allowances on new equipment are among the most generous in the world
  • incentives for spending on research and development are also attractive
  • free trade agreements are in place with many of our large trading partners, and more are in the pipeline
But why is our productivity lagging?
  • it has hardly changed at all from the early 1970s
  •  there is strong evidence that Canadian businesses do not adopt best business practices with the enthusiasm shown by their foreign counterparts
  • even when they do invest, they do not even get 80% of the consequential rise in productivity that similar US firms achieve
There are various reasons for why this is happening, as noted in a 2010 report from TD Bank:
  •  many Canadian industries are shielded from the effects of competition that outsiders face
  • there is a reluctance to invest in levels of education demanded of employees by their foreign counterparts
  • there is similar reluctance to select available talent brought in by recent immigrants
  • incentives appear to be concentrated on the type of inputs, as opposed to desired outcomes (the Small Business Deduction is a good example of this, as it discourages business from expanding to a more desirable size to take advantage of economies of scale)
  • there is little effort to develop and protect intellectual property rights that may arise from R&D that has been undertaken
  • we must not ignore the excessively risk-averse attitudes Canadian business leaders have historically exhibited
When expressed like this, the solutions would appear to be obvious, but the last factor (in my personal experience) is the most destructive. I have helped to turn several enterprises around through improving how they achieved things, only to see such improvements reversed through subsequent changes in management that wanted to return things to circumstances they were more comfortable with (usually to disastrous results). Nevertheless, the outcomes that are necessary for Canadian business to thrive must still be actively sought, and such efforts are, to not surprise, easy to achieve. As always, I am ready to help.

11 April 2014

Jim Flaherty, the man that saved the world

Jim Flaherty 2007

At first glance, the title appears to be somewhat over the top, but consider the reaction when Jim Flaherty's death was announced yesterday:
Now that is high praise.Although a social conservative, he was also a master of political economy. He helped Canada to avoid the massive aftershocks of 2008's Great Recession, raised consumer confidence, and brought about some compassion as well, by:
  • making massive investments in infrastructure, ,as well as shoring up GM's and Chrysler's Canadian operations (through huge bumps in deficit spending),
  • eliminating the hollowing-out of tax revenues through the abuse of income trusts,
  • implementing a two-point reduction in the GST,
  • tightening borrowing requirements for household mortgages,
  • selecting, in a brilliant move, Mark Carney to head the Bank of Canada (which later led to his being poached by the Bank of England),
  • giving investors greater flexibility through the introduction of Tax-Free Savings Accounts, and
  • introducing the Registered Disability Savings Plan for helping the more vulnerable members of society.
 As a result, Canada has weathered the last few years relatively better than most other countries, and Ottawa is one year away from returning to balanced budgets.

There are missed opportunities to note:
  • his initiative to introduce a national securities regulator was shot down for constitutional reasons, but he still kept working on setting up an alternative that would work (for which we should stayed tuned),
  • the recession resulted in a massive hollowing-out of Canada's manufacturing capacity and an over-dependence on resource industries, which is not a long-term recipe for economic stability (but that is a failure of corporate Canada, and not of government policy),
But I digress. He will be truly missed.

17 February 2014

The proper way to report headcount

It never ceases to amaze me how a simple operation like reporting how many people work for you can be so routinely manipulated:

  • if a layoff occurs on the last day of a reporting period, many managers will disclaim responsibility for the people who actually worked during the period, saying that their effective headcount is the people who remain.
  • other managers may farm out significant roles to agency workers or outside consultants, and not report such activity.
  • others who are on leave of absence are ignored until their return to work.
  • conversely, there are other managers who report the positions they are responsible for, whether or not they are actually filled, and whether or not one person is filling more than one position!
These areas (among others) contribute to unreliability in reporting and unpredictability in forecasting future needs. I would like to summarize some current best practice (of which a more precise summary is given here), in the hope that it will help to improve what has been a rather messy situation.

What to report?

Managers must be held responsible for all activity that arises from the areas under their control, and there are several critical areas that need to be covered:
  • staff who are on payroll (segregated into full-time, temporary/casual, and part-time)
  • non-staff payroll (segregated into contingent labour and consultants)
  • actual vs full-time equivalent (FTE) headcount
  • internships
  • workers on paid leave
  • workers on unpaid leave
  • workers who are on short-term or long-term disability, who are expected to return to work
  • sickness and absence costs
  • hours worked
  • overtime hours
  • vacancies at the end of the reporting period
  • training costs
This is a much broader definition than what is given by Statistics Canada for its reporting, but it more properly reflects reality.

Definition of "headcount" - payroll employees

Segregate between:
  • Permanent employees: those with contracts without expiry dates or on fixed-term contracts lasting more than 12 months
  • Temporary/casual: those, excluding agency workers, with fixed-term contracts of 12 months or less, or are employed on a casual basis
  • Part-time: those who work less than an organization's normal weekly hours

  • Agency workers, when paid directly from payroll
  • Those temporarily absent but still on the payroll (ie, on maternity leave)
  • Seconded employees, where the organization is paying 50% or more of the related payroll cost
  • Workers who only work part of the year, where they are being paid at the reporting date
  • All those on paid leave
  • Agency and other workers not paid directly from the payroll
  • Seconded employees, where the organization is paying less than half the related payroll cost
  • Self-employed workers
  • Voluntary workers
  • Former employees only receiving a pension
  • Directors who do not receive a salary
  • Workers who only work part of the year, where they are not being paid at the reporting date
  • All those on career breaks
  • All those on unpaid leave

Definition of "headcount" - non-payroll workforce

Segregate between:
  • Contingent labour: workers engaged to cover business-as-usual or service delivery activities within an organization (whether agency workers, interim managers or more comprehensive outsourcing arrangements)
  • Consultants: those providing management with objective advice relating to strategy, structure, management or operations of an organization, in pursuit of its purposes and objectives.

Counting workers

Headcount relates to the number of workers paid by or for the organization.

While all reporting must include continuity schedules that detail all activity affecting headcounts from opening to closing amounts (ie, hires, exits, going to and returning from leave, and so on), this must be compared to the full-time equivalents for the work actually performed during the reporting period. There are certain critical points to consider:
  • Exclude overtime hours from FTE calculations
  • Include the contracted working hours for each employee that worked during the reporting period, whether working, temporarily absent or on paid leave during that time
  • Divide by the standard working hours of the organization
For the non-payroll workforce, hours must be gathered for all activity worked , in order to perform similar calculations. The related agreements and invoices rendered must note this information.

Other areas to consider

There are other areas that may be required, or may otherwise prove useful for reporting or forecasting purposes:
  • diversity of the workforce
  • workforce by age
  • workforce by seniority

Method of reporting

The type of reporting really needs to be configured to the needs of the organization, but the above data must all be presented in it in a logical way. I prefer continuity schedules to prove movements from beginning to end, and from one bucket to another (ie, change of status from one category to another, going to and returning from paid or unpaid leave). Care is required in designing these reports, or the presentation of the data may otherwise prove cumbersome and difficult to understand. Many examples can be found in web searches, especially in the education sector.

10 February 2014

Painless wire-transfer instructions

For many business users, composing wire-transfer instructions for transmitting funds to Canadian banks can be rather frustrating, because the banks themselves do not present the syntax in a way that can be converted to the internationally recognized SWIFT MT103 format. The templates I have seen do not even allow for fillable formats for on-screen entry and validation before printing and forwarding, let along ease of use for on-screen data entry such as is used in other countries. Here are some pointers that I have gathered which may be of use.

Scenario: transmission of CAD funds to a Canadian bank (details of beneficiary)

BankCanadian Imperial Bank of Commerce (010) (SWIFT CIBCCATT)
Transit (branch)aaaaa
Account numberxx-xxxxx
Branch address123 ANYWHERE ST
Beneficiary name and addressJOHN Q. DOE
Remittance informationEither description or reference - in this case, assume payment reference is 123456789
Responsibility for wire chargesBeneficiary (BEN)/Sender (OUR)/Shared (SHA) - in this case, assume BEN

The key fields will be laid out as follows:

Field tagField nameFormat to be entered
:57AAccount with institutionSWIFT BIC: CIBCCATT
:70Remittance information123456789
:71ADetails of chargesBEN

There are some possible variations:
  • If the beneficiary has obtained his own SWIFT Business Entity Identifier, use tag :59A and enter the account number and BEI only.
  • The beneficiary's bank may require the insertion of the branch's address as well, in which case use tag :57D
 I hope this clarifies matters for some users.

03 February 2014

Tracking systems to make your work easier

Bugzilla Lifecycle color-aqua

One of the impacts of implementing ISO 9000 systems has been the necessity to be able to track issues from initiation to resolution, and changes to company documentation. There are too many instances, which I am familiar with, of organizations attempting to set these up from scratch. Such developments often have fuzzy goals, expenditures that seem to be out of control, inordinate wastes of time, and a failure rate that is all too high. And that's before updating and maintenance!

The above chart shows a bug lifecycle chart as implemented in Bugzilla, a rather good issue-tracking application that is really open-source software. It has great reviews, is very flexible, and is worth checking out.
Revision controlled project visualization-2010-24-02
For tracking of document changes, Subversion is a great open-source revision control application as well, which can be integrated with many other applications as well for tracking company documents, software documentation, and the like. 

30 January 2014

Global Trade Management: do you need it?

Storck Harbour scene

Cross-border transactions require massive attention to detail. The following all contribute to this:
  • product codes for purchased items need to be matched with the country of origin and be property identified under the Harmonized System
  • product codes for manufactured items need to be analyzed to determine whether tariff shifts have taken place under applicable rules of origin
  • trade parties (ie, customers, suppliers, carriers, customs brokers, freight forwarders and third-party logistics providers) need to prove compliance with applicable requirements, such as end use and end user for products, necessary registrations and certifications, and security-related information
  • appropriate security arrangements (such as the US Customs-Trade Partnership Against Terrorism and the Canadian Partners in Protection) need to be in place in order to receive preferential clearance treatment through the various customs authorities
  • economic sanctions, import/export/re-export controls and licensing requirements will require review to ensure that designated goods do not get shipped either to prohibited countries or for prohibited purposes, or to (or through) prohibited trade parties
  • free trade agreements will require certificates of origin to be on file to prove that shipped goods qualify for preferential treatment
  • duties, taxes and fees have to be properly matched to applicable product codes in line with the above
  • accounting for activity that occurs in duty-free zones
  • the matching of transactions with applicable letters of credit (where they are used)
  • full documentation of the above, and how they have been applied to specific transactions, will need to be kept on file for future audit by the appropriate authorities
 This is a very daunting list, and many organizations still tend to still treat this as a manual operation, and that can be cumbersome. With most organizations operating ERP these days (and shame on those who still don't), it is a valid question as to whether that can be extended to handle the above through what is referred to as a Global Trade Management platform.

This is a decision that cannot be taken lightly. It is estimated that the software cost for such a move will be between 0.25-1 million dollars or more, and implementation costs will be 2-3 times that amount. The following vendors are currently promoting their own particular solutions:

If you are a reasonably complex enterprise operating in two or more countries or having extensive cross-border supplier and customer networks, these may be worth investigating. As always, be aware that most IT projects do fail for lack of proper cost-benefit analysis, lack of buy-in (a huge consideration in Canada), or improper training (a huge failing here as well).

27 January 2014

Just how good is FOSS getting?

Microsoft, Apple, Adobe and the like do create excellent software, but the license fees that are required can be prohibitive for organizations of any scale. Fortunately, this last decade has seen significant developments in the FOSS (Free and Open Source Software) alternative.


For example, take the city of Munich in Germany. Rather than remain hostage to the Microsoft régime, it chose to go the Linux route, and has completed the migration of 15,000 of its 18,000 workstations to its own LiMux platform. It took ten years, but it appears to be worth it. Most of the documentation at their site is in German, but there is a lot to learn about what they did to standardize their development of documents and forms which can be seen here.

On a smaller scale, any organization can benefit from the software that is available now:
  • For a standard office suite, check out OpenOffice or LibreOffice. They use the Open Document Format, but can import and export from Microsoft formats as well, and also export to PDF.
  • For those that need to use a good desktop publishing application, Scribus is excellent and it exports to PDF as well. If you need the more extensive capabilities provided by LaTeX, give LyX a try.
  • Mozilla Thunderbird is a great e-mail client, which is easily customizable.
  • For those who work with graphics, GIMP and Inkscape are excellent choices, for raster and vector formats respectively.
  • There is too much about Linux that can be summarized easily, but note that many server installations depend on one distribution or another, as opposed to Microsoft or one of the other proprietary vendors. The good people in IT are quite familiar with this.
I have only scratched the surface. This is a field that is worth checking out further.