Kula Consulting Blog

Now that summer is over and vacations are becoming a faint memory, it’s time to buckle down and finish 2009 strong.  For those out there who have filed two extensions for their 2008 income tax returns, you have about a month to complete and file them.  But that’s personal stuff. 

Here’s what’s ahead on the work calendar.The time period from September first through mid-November usually coincides with preparing next year’s operating plan; working on the annual audit plan; doing audit prep and reviewing bonus plans and computing pension plan contributions.  Lot’s of work to finish in a little less than thirteen weeks from today.  Plus, three month end closes and a quarterly report filing will help fill the work day from now until the end of December.  And, M&A activity is expected to be strong throughout the rest of 2009.  But, this level of work means employment for us accounting types!  Speaking of employment, it’s also time to fill those open positions and get new employees ready for the New Year.

All of us at Kula are busy performing search assignments and are seeing an increase in demand for the technical accounting and tax professionals we recruit and place.  Our biggest deadline for the remainder of 2009 is Friday, November 20^th.  That’s the last day in 2009 our clients can make employment offers and expect the candidate to start work in 2009.  The date could flex to Monday, November 23^rd, but it would be pushing a new employee start date to December 14^th.    A December 14^th start date would give a new employee eleven or twelve days to get up to speed before the year end close begins in January, 2010.  Offers made after Thanksgiving (this year the 26^th and 27^th), usually have a January start date (in 2010 the first work day is January 4^th), due primarily to the impact of year end holidays on work schedules.

The November 20^th deadline means Kula and our clients have about nine weeks left to get offers made and accepted, finish background checks, and have new hires give adequate notice to their current employers in order to fill the remaining open reqs for 2009.  Why is it important to fill open reqs by year end?  Here are three reasons to consider:  Candidates considering a move from a Big 4 firm often want to make a move prior to the start of “busy season” and take themselves off the job market from January through April 15^th; a December start date (or October or November) gives a new employee time to become acclimated to their new job and be more productive at year end close; and, at some companies, unfilled employment reqs at year end are canceled and must be reviewed and re-issued.  Oh, here’s a fourth one:  Annual bonus plans, and most employee benefit plans are triggered by employee start dates.  A 2009 start date helps attract candidates when they know they may earn full bonuses and pension plan matches in 2010.

I’ll leave you with this last thought.  Now that the Great Recession appears to be ending, competition for top flight accounting talent will become more intense than it is right now.  Now is a great time to attract and hire the technical accounting and tax talent needed to meet next year’s challenges.

We just ran across an issue that, I believe, could become a significant source of friction between management and Generation Y (Millennial’s) employees: Using an employer’s electronic equipment for personal business.  When an employer provides a laptop, work station, iPhone, BlackBerry, anything with internet access, or communications ability, are employees at risk for losing their jobs for using these resources for non-work activities?  Is listening to music on a company computer a misuse of company property?  What about checking out Facebook, MySpace, or LinkedIn sites?  How about streaming a movie from NetFlix, texting, Tweeting, IMing during work?  Is it o.k. to check personal email on a company supplied device?  What if people use a company email address for personal communications?  “I’ll bring home a quart of milk and some Twinkies.”  Where is the line drawn on “personal” use?  Plus, in many Silicon Valley firms the concept of work time and life time is very blurred.  If an employer has day care, dry cleaning, volleyball, and massages, is viewing a Facebook page a misuse of company assets? Most Gen X and Y people see these uses as perfectly acceptable, and, if fact, essential elements of their work day.

Pretty much anyone born after 1980 views electronic devices like I view a toaster - - as an appliance, not a precious resource.  A new Mr. Coffee is a computing device, and no one gets fired by using it to make a cup of coffee, right?  In this always connected world, isn’t keeping in touch with your e-world almost a civil right?  I have a son who texts with his girlfriend when they are in the same room!  Of course, she’s working on her masters thesis, downloading music, making a sandwich, and he’s checking emails and watching a football game, all at the same time.  It’s called multi-tasking.  I don’t know how they do it, but it works for them, and for the 60 million other Millennial’s out there.  Throw in the Gen Xers and there are close to 80 million people who grew up around computers and mass communications devices.  Those iPhones and iPods are an integral part of who they are.  And internet usage, they feel entitled to it.  Their work experience from age five through twenty-one (school time) was all about multi-tasking and communicating.  They did their homework at a computer, listening to music and talking on a cell phone.  This is a normal work mode for this group of workers.  Their parents didn’t (or couldn’t) change this behavior; their schools reinforced it with a “whatever works” attitude.  It has worked well for them.  They stay connected to more people than earlier generations did.  They use technology well.  Can do several tasks at the same time.  So:  “What’s the big deal? I’m getting my work done on time and correctly.” 

I know there is a problem brewing between management and Gen X and Y employees around this issue.  I recently learned about a CPA who was fired for using the employer’s internet access to check out Facebook postings, streaming videos from Netflix, and view Craigslist postings during “company time”.  The company doesn’t have a computer usage policy, and didn’t discuss improper usage during new employee training or orientation.  The CPA’s former employer had no problem with this type of activity.  And, there were no job performance issues found in this situation.  The employee did the job, on time, on budget, and the work was acceptable.  In this young employee’s mind, there shouldn’t have been a problem.  The employer saw this as a gross violation of workplace rules.  I think it’s a shame; the employee is out of a job, the employer needs a new employee, and it could/should have been handled better.  I see “a failure to communicate” here.

What do you think about this issue?  Haven’t some of the “rules” changed?

Someone once told me that I was one of the most optimistic people they had ever met.  Since the person was a banker reviewing my business plan, I’m not sure he meant it as a compliment.  But, I’ll take it as a positive trait!  With that caveat, I would like to announce the following additions to our team.  We are adding resources in order to be prepared for the increase in finance and accounting hiring that I believe is just starting to happen. As you will see, we have added a new service - - retained search - - and three new experienced recruiters to our team.  And, if my belief in a recovery is correct, we plan to add three more recruiters by the end of 2009.  Here are the backgrounds for the three people who recently joined our team.

The Luciani Group

Tom Luciani recently merged his retained search practice, The Luciani Group, with Kula.  I have known Tom for many years and am very proud to have him working with me again.  Tom first recruited me when I worked for Ernst & Ernst (now E&Y), and later taught me the staffing business when we co-founded Management Solutions Inc. in 1987.

The Luciani Group will operate under this brand name, as they have for the past fifteen years, and Tom and his staff will continue to provide high quality retained search services for senior financial management and executive opportunities.  By joining Kula, The Luciani Group will be able to offer contingent search and contract staffing services to their clients.

Maria Burns

Maria joins Kula as a senior recruiter with ten years of recruiting and placement experience.  She is a very hard working, well networked placement professional with a passion for technology.  She has extensive experience with high tech companies, including gaming, social networking, e-commerce, software and telecom firms.  Her placements range from three year technical accounting professionals to V.P. levels. Maria is a proven performer and I very glad to have her on our team.

Dolorez Dumas-Aris

Dolorez has also joined us as a senior recruiter.  She has over nine years experience recruiting technical accounting and tax professionals, with six of those years recruiting for a Big 4 firm in the Bay Area.  Prior to becoming a recruiter, Dolorez had a ten year career in banking, with the Bank of America, with the last two years there on the recruiting team.  Dolorez has worked with hundreds of CPA’s, from financial audit, internal audit to tax professionals, in her career and has developed a great reputation with them for honesty, and follow-through.  Plus, she is one of the easiest people to talk to that I’ve ever met.  Her recruiting focus is San Francisco, the north peninsula and the east bay area.  She has experience placing accounting people with both regular fulltime and contract assignments.

Kula now has a total staff of eight people.  Still a boutique firm in size, but big enough to be able to meet our clients’ needs from three year exempt-level staff through senior financial management and executive talent.  We are ready for the upturn!

Does this experience sound familiar?  After two rounds of interviews, the first round with the hiring manager and an H.R. representative and the second round with a prospective colleague, the company brings you back for a “courtesy” interview with a few of the executive staff, or the CEO, or your prospective team.  It’s billed as no big deal, just a get acquainted meeting, sort of an informal thing.  You have a nice meeting with everyone and then you don’t get the job.  What happened?  The “courtesy” interview is what happened.  All interviews are job interviews, they all have an agenda and you didn’t know the agenda.  The major means of evaluating prospective employees are:  1. A close match to the particular job’s requirements, 2. Strong references and “proof” to back-up qualifications and 3. Performance(s) during interviews.  The candidate has some control over the first two items.  A clearly written resume and cover letter will detail skills sets, work experiences and accomplishments, and educational and professional achievements, and will provide a prospective employer with a means to check your fitness for the opening.  Strong references and documented “proof” of skills and accomplishments provide independent back-up to the claims and information provided by the resume and cover letter.  In fact, strong references by someone known to the prospective employer are powerful tools to getting the job.  But, I believe, the most important evaluation tool is the interview process.  I’ve read somewhere (I always seem to remember the info, but not where it came from!), that sixty percent of the hiring decision is made during the first interview, and usually the positive or negative feeling is made in the first few seconds/minutes of the interview.  Of course, this goes both ways.  A candidate makes decisions right away as well.   

Let’s say that you sail through the first and second rounds of the interview and are told: “You are the top candidate for this position, and, as a courtesy, we would like you to come back in to meet X, Y, and Z.”  This is good news and a warning.  The good news is you have almost reached your goal.  The warning is:  “The evaluation process isn’t over!”  In fact the true decision makers, or parties with veto powers, are now being revealed.  Here’s an example:  We had a regional CPA firm client who loved our candidates, but never hired any of them.  The fall-out always came after they had our candidate go to dinner with the rest of the staff.  The staff gave a thumb’s down every time.  After some digging, we found out they had a conflict of interest:  The firm offered a $5000 referral bonus to employees and the staff saw our candidates as competition, plus - - they liked going out to dinner!  Here’s another one:  Recently a client decided not to move forward with an “A+” candidate after two rounds of interviews.  The reason?  While doing a “courtesy” interview with the accounting staff, the candidate detailed how he/she had improved the close process at “ABC” company.  The staff liked the status quo and voted thumb’s down because the candidate might not “value the way things are already done here”.  Now we submit only status quo people with a “Gee, you guys are great!” attitude to this client.

How do you get over these hurdles?  Research and preparation for each round of interviews are the keys to reaching your goal:  A great job offer.  What this means is learning whatever you can about the people you will meet with.  Do you know anyone who knows them?  Do you or a friend know anyone who currently works or recently worked for the company?  Press releases, financials, social networking sites, biographies on the company website, all provide information about the people you will be meeting.  Another key is to ask what the purpose of the interview is, and how the person you are meeting ties into the hiring decision-making process.  Do whatever you can to determine what it is they want to find out about you and how that fits with who you are.  If you are well prepared for each round of interviews, you will be ready to be yourself and present the skills and personal qualities that match well with your perceived needs for the job.  If you have prepared well, you will also be able to connect with all who interview you and gain that crucial 60% positive bump at the beginning of every interview, “courtesy” or not.  By the way, if you are working with a recruiter, they should be doing most of this research with you.

Have you been receiving 15, 20, or even 25 calls a day from recruiters?  Including several from different members of the same recruiting firm?  If you have, I’ll bet you are tired of them and are just about ready to unload on the next recruiter that calls.  Some of you may have already unloaded!  Here’s my take on why this is happening and what you might think about doing to reduce the level of these calls.

Aggressive Staffing Firm Management:

The primary reason for the level of calls is the recession and the recruiting firm’s approach to making it through tough times.  When the economy sucks, companies take action to reduce expense and struggle through the down period.  One of the first areas to cut is contract and temporary services; followed by hiring freezes; mandatory shutdowns; and lay-offs.  Oh, and of course, shutting down the use of third party recruiters - - staffing firms.  All staffing firms are hit by recessions.  Big executive search firms, temp agencies, specialized staffing firms and even boutique firms, like Kula, take a revenue hit.  During this recession our industry has taken a 40% to 50% hit.  That’s almost jump out the window bad.  To counter lower sales, staffing firm management steps up sales efforts.

Nervous Recruiters Following Orders:

What do staffing firms do to counter the downturn?  They try to take market share from competing firms by lowering prices and making more sales calls than their competition.  This is right out of the recruiting management handbook:  If you have been making 50 sales calls a day, go to 100 or 150 calls a day.  And, by the way, the quaint idea about building relationships by proving your value goes out the window.  I know that several firms in the bay area have instructed their recruiters to call anyone and everyone and don’t worry about someone else in the firm calling them.  Coverage is King; worry about relationships later.  Recruiters hate this management policy.  But, they are measured daily on the number of calls made, connections, leads and orders written.  If they don’t “hit the numbers” they are gone.  So, if there are 200 to 300 accounting and finance recruiters in the bay area and each needs to make 100 sales calls a day, that’s about 125,000 calls a week.  If you have ever worked in accounting, or can spell it, you will be called multiple times by recruiters.  It doesn’t matter if you just told them last week that you have no openings, you will be called today and tomorrow to see if anything has changed.  The good news:  the recession has bottomed out and the calls will decrease when openings increase.  But feel free to unload on the “management” of the firms for wasting your time by calling you day after day.  Good recruiters hate bugging people and making calls just to make calls.  Here’s my direct number:  408-717-4282.  Please call and let me have it, if my recruiters are wasting your time.

Job Opening Postings:

Posting job openings on Craigslist, job boards, social networking sites, and your company’s website is the equivalent of chumming for fish.  You will be guaranteed a ton of calls from recruiters.  Probably more recruiter calls than candidates responding to those postings!  The older the posting the more calls you will get.  Old postings tell recruiters that your internal resources (referrals, in-house recruiters, and H.R. folks) have not been able to produce great candidates for you.  In the current market, H.R. is busy saving money by doing all recruiting “in-house”.  Since unemployment is high, the thinking is that it should be easy to find people for your openings.  But, in the finance and accounting area, there is still a shortage of qualified, talented people.  We make too few CPA’s in California to meet the demand.  Plus, many of us do not seek new employment in down times.  We just soldier on and work through the down times.  Plus, how many of the in-house recruiters know anything about accounting and finance?  How big is your piece of their workload?  If H.R. has ten openings for I.T., ten for engineering, and fifteen sales people, how much time will they spend recruiting for your reporting or tax person?  They have metrics too.

We recently spoke with a finance V.P. who has been looking for a tax manager for five months using internal resources (H.R.) and hasn’t seen even one resume.  In the meantime, one of the Big 4 firms is billing $500 an hour to get the work done.  That’s about five times the burdened rate for a regular fulltime tax manager.  Saving that $30,000 search fee works out to be about 75 hours of Big 4 consulting fees.  Paying a third party fee would have already saved this company about $150,000 versus outsourcing the tax manager job for the past five months. Since almost all recruiting firms have discounted their fees (the other way to take away market share), it might only cost $20,000 to have the opening filled in sixty days, versus still being open after five months.  I’m just sayin’.

Recommendation:

Here’s my recommendation for eliminating unwanted recruiter calls:  If H.R. wants to try to fill the opening first, great.  Give them a few weeks to produce viable candidates, and, if they don’t perform, insist they use a recruiting firm to help fill the position. And, take down those “stale” job postings. Then check with your managers to find a few recruiting firms that are experts in your area of need.   Good recruiters are used to competing with in-house H.R. and one or two other firms.  We even thrive when we have a couple of other firms to compete against.  But, believe me; no recruiting firm does much targeted recruiting when a client uses four, five, or six firms. More is less productive for clients.  Give us H.R., plus one or two other firms to compete against and we will work our tails off for you, and, while the recession lasts, at a discounted fee.

Final Comments:

I think the recession is just about over.  We have seen our orders increase, and are seeing a sense of urgency to hire that wasn’t there a few months ago.  I’m predicting that hiring will begin to increase in the second half of 2009, and will be back to “normal” by mid-2010.  To be positioned to help our current and future clients meet their hiring needs, Kula has added several new recruiters to our team.  Many of our new folks joined us from competing firms to return to a client-focused, long-term relationship building style.  I cannot promise that we will not be calling you, but I do promise that you will not receive a bunch of calls from us, or from several of us.  We are committed to respecting your time; keeping our word; performing above expectations; and providing our services at an exceptional value.

 I’m old enough to remember Al Franken on Saturday Night Live. Heck, I’m old enough to remember George Carlin when he was a teenaged comedian!  I used to love Al’s “Deep Thoughts” segment and his ending affirmation that he was “smart enough”, “nice enough” and, dog gone it, “people like me”-enough that I’m doing this blog in his honor.  Now, here are my deep thoughts prior to going on vacation for a few days.

REAL ESTATE:

Real estate professionals are saying both of the following statements:

       - To potential buyers: Now’s the time to buy since both prices and mortgage rates are low.

      - To potential sellers: Now’s the time to sell because foreclosures are going to soar causing prices to fall even more.

Are both of these statements correct?  Or, just sales hype?  My real estate friends tell me they are both true statements.  I just hope my home sells for a high price and my next home goes for a low price!

BAILOUTS:

The financial news tells us that banks are lending again.  Have any of your small business owner friends been out looking for a loan?  Did they get one from a bank? Or even the time of day or a toaster?  Didn’t think so.  But the banks are making money and loaning it out:  to refinance mortgages, not help fund small businesses!

And, don’t get me started on SBA loans.  SBA loans are great for people who package them, know all the right forms and documents to fill out.  Plus, these loans seem to be o.k. for commercial real estate and capital equipment purposes.  But not so good for working capital or expansion funding for service businesses - - the backbone of our economy.  Tony Soprano is less complicated and charges less than a bank or SBA lender.  I thought the bank bailouts were designed to improve financial liquidity.  Evidently that’s delayed, just like the stimulus money.

REAL BAILOUTS:

Speaking of stimulus’s (sorry Gov. Sanford, not talking about you), where’s the bailout money for the State of California and our local governments?  What good does it do to bailout Wall Street and the automakers and then let the world’s sixth largest economy go bankrupt?  What are we, Iceland?  We are talking $50 billion here to bailout California and our local governments.  That’s less than half what AIG got, and it will be put to better use.  I will also bet that our citizens will see a more direct benefit from a California bailout than GM, Chrysler or AIG.  I’ll also bet that California would sign a note with lots of strings attached.  Things like a re-do of our revenue gathering system, getting rid of the two-thirds vote needed to pass a budget, and, maybe, reducing the headcount at our prisons. Investing in California and every other State (except Texas, they make enough off the Dallas Cowboys) is great for America! 

A BLATANT PITCH FOR BUSINESS:

Right now is a great time to hire contract accounting help.  When every company other than Google went into a fetal position last October, the market for contract/temporary/project accounting services took a major hit.  Heck, even Google let contract people go.  The people who lost their assignments were doing valuable work, essential work.  Whose been doing their work since October?  The remaining regular, fulltime accounting staff has had to pick up the slack by working lots of overtime, or, the work is just piling up.

The response from the staffing industry is to lower prices.  Free market system at work!  Prices are so low right now that “it gets me a headache” just thinking about it.  How low have they gone?  35% to 45% lower than the first half of 2008 prices.  Even my wife would buy at these prices.  So, call me and start getting the workload reduced, projects back on track and let some of your staff take a full weekend off for a change!  Do it today!  But wait, there’s more:  You get a two day guarantee and a reduced conversion fee schedule if you order today!  (Or tomorrow, or next week, but that’s it!)

I’m off to Disneyland.  For a romantic vacation with my wife.  It’s a milestone anniversary trip to the scene of our first date.  A twelve hour first date.  And she still married me.  Who knew?

Does it sometimes feel that you are always in the close cycle?  Either month, quarter, or year end close?  We believe that must be the case as we hear the following everyday:  “I can’t talk now, I’m in close.”  This is usually said in a hurried, almost whispered voice.  Closing is stressful; we know - - - that’s why we here at Kula left accounting for recruiting!  But, with this economy, it’s a toss-up on the stress meter whether accounting or recruiting is more stressful.  At least accountants still get paid (even if at a “frozen” rate) while recruiters survive on commissions only!But enough doom and gloom.  2009 has been tough for everyone and especially for accounting organizations.  Most companies have done all they can to control and reduce costs, including layoffs, hiring and wage freezes, and reducing or eliminating bonuses or benefits.  But, even in tough times, the accounting work needs to be done and done on time.  Accounting departments have been meeting their reporting deadlines with fewer resources by just gutting it out and working whatever hours are needed to get the job done. But is that the right tact to take for an indefinite period of time?

When you’re forced to think of how you and your teams’ actual work life is experienced during these stressful times, and we know that you’d rather not think about that at all, and only do think about it when forced to, the images are not pretty. You’ll hear about their “real experience” when someone quits and tells you why in their exit interview; when you hear of someone’s family crises that can’t be dealt with because they can’t get away from work, when you’re forced to intervene in overly stressed employee disagreements, or when you hear from your spouse or kids about what you’ve missed or about issues that could have been worked out if only you had been there. This is part of the territory finance and accounting groups have to accept, but not without limits which is the way it is playing out in this cost conscious recessionary culture.

Imagine, if you will, how much of a difference having one additional talented person added to your group in a critical area might do to change you and your teams’ daily experience of work. Not to mention how much less likely it would be that things could blow up, or that key people might leave, etc. The potential benefit of hiring one good but reasonably priced contract employee can make a huge difference in the way your team experiences work and views management’s willingness to try to make a difference for them. Think about running this idea up the flagpole as it makes the same kind of good financial sense as the right insurance policy.

We are starting to see and hear brighter, more positive comments about the economy.  First quarter earnings reports were, for the most part, better than expected, and Q 2 and 2009 outlooks are more encouraging than expected.  Perhaps wage and hiring freezes will start to thaw in the next few months, and accounting departments will be able to reduce the amount of time their staff is on the job.  You may even be able to watch the NBA playoffs live rather than by tivo!

Here’s Kula’s good news for the remainder of 2009:  We have a good supply of bright, talented contract employees available now to help reduce your group’s workload during the close, or to fill-in for the open slots in your accounting organization.  Here’s the best part:  Contract accounting rates are now 30% to 40% lower than 2007 and 2008 rates.  This means experienced SEC reporting help is available at $80 to $90 an hour versus the $120 to $150 an hour last year.  Give your staff a Memorial Day or Q 2 closing present - - bring on some contract accounting help to relieve some of stress of closing.

Eleven percent!  Did I read the EDD press release correctly?  The unemployment rate in the heart of the Silicon Valley is currently eleven percent.  In March, 2008, four months into the recession (that we officially learned about in late August, 2008), the rate was five-point-three percent (5.3%).  We have doubled the unemployment rate in one year.  Are we done yet?  But, hey, 11% is still better than the 13% rate in Santa Cruz County, where Kula is headquartered.  Watsonville is over 24% unemployed.  I’m glad our clients are mainly in the Silicon Valley!  I have worked in this area for over 35 years and have not experienced anything like this.  The dot com bust was the supposed to have been the worst one, but, this time seems worse to me.  Is it just me? Kula Consulting is very focused on the technical accounting and tax professionals segment of the employment market.  This segment is normally thought to be one characterized by low-unemployment, high demand, in fact, shortage of talent.  That’s one of the main reasons we specialize in this segment.  To be successful, we need to directly source, recruit and evaluate people who do not have time to post their resumes on job boards or check job postings.  We listen to want they want and go try to find them their next great job.  We also help this same segment (SEC reporting, international accounting, revenue reporting, compliance and tax professionals) market their skills when they choose to work as contract or temporary professionals.  We have built a nice, boutique business with this market approach.  Even though the unemployment rate for our segment of the workforce is still low, and demand for their services is still higher than the rest of the job market, our business and all of our competitors’ business is down from last year. Companies are not able to get approvals for bringing on even part-time contract help to get the critical work done. And, it’s hard to justify a placement fee for a star talent when the CFO is telling everyone else to save money. Just work harder and longer seems to be the strategy to get through this downturn.  If that’s what it takes to make it, then I guess I understand it.

But, here’s a lesson I’ve learned from going through five previous economic downturns:  When the job market turns the employee turnover rate increases.  There is a lot of pent-up demand to change jobs that is released when the economy moves up.  All of the overtime, salary freezes, promotion freezes and extra stress (plus, some of the “survivor guilt” of making it through the lay-offs) fuels the need to seek new employment opportunities. To just start fresh.  When the market does turn upwards (2012?), there will be 50% less placement firms and many fewer internal recruiting resources available to find and evaluate the talent Silicon Valley companies will need.  It’s sort of a “pay me then situation”, since very few firms are “paying us now”.   Firms can mitigate this forecast by listening to their remaining employees and by bringing on at least part-time contract and temporary help to keep the work day to a reasonable level.  There are some real bargains available; just call me and I’ll share them with you.

Last week’s posting ended with this question: “What does a poorly run financial institution have to do to get a qualified opinion from its auditors?”  Evidently I’m not the only person asking this question.A small army of lawyers is asking or planning to ask Big 4 bigwigs the same question - in court.  In fact there is speculation (see: http://www.accountingweb.com/cgi-bin/item.cgi?id=106124) that the Big 4 may not survive massive lawsuits that are either pending or will soon be filed concerning the collapse of many of our financial giants.

According to the U.S. Treasury’s Advisory Committee of the Auditing Profession, the Big 4, between them, have 27 outstanding litigation proceedings with damage exposure above $1 billion. Seven of these lawsuits exceed $10 billion!

These figures were compiled prior to September’s meltdown of our financial system. Think about this:  E&Y audited Lehman Brothers; PWC audited AIG AND Northern Rock. KPMG audited Fannie Mae. Lawsuits anyone?

Back in the dark ages when I was a Big 8 auditor, my firm, Ernst & Ernst (AC and DC), stressed the position of trust and independence we held in the financial community.  I know I took my audit responsibilities quite seriously, and always felt that we represented the shareholders of the companies we audited, not the management team.

It was our firm’s duty to let the board know about control weaknesses, inefficient operations and areas that could be improved. We presented “Management Letters” to the board, as well as providing an opinion on the financials.

When I was an internal audit director for a publicly traded firm, I believed I still worked for the shareholders and not the CFO.  My boss felt otherwise, so that job didn’t work out very well!  Of course he was known at the time as “Chef J___,” and I should have known better.  That company was later snapped up at a bargain price (sorry shareholders) because of how it was “managed,” but none of the executive team suffered because of their behavior. The external audit was a joke.

Evidently many of the Big 4 have been performing “joke” audits on Wall Street. We will find out if the same holds true for Main Street soon enough.  I’m predicting a boom time from litigation-support accounting services for the next 10 years.  I have no prediction regarding the viability of the Big 4 or the for profit business of auditing public companies.

I promise to not publish on Kula’s website any further rants about the non-performance of the Big 4 during the past nine years. I promise to only publish career-related articles from now on!  But, here’s some career advice for those planning to become Big 4 partners:  Don’t take on any liability. Ask to be promoted to Principal and receive substantial big cash bonuses. Becoming a partner is just too risky.

Does anyone remember the old banking maxim: “If you owe the bank a little bit, the bank owns you — but, if you owe the bank a lot, you own the bank?”

Looks like this is a truism, because “We the People” now own the banks, and the insurance companies, and the investment banks, too. What a week! Up until a few days ago, we thought the $85 billion bail-out of AIG was news.

Now the US taxpayer is the investor of last resort for ALL bad loans in America (the world?). Plus, I love the serious deliberation and fact checking and Congressional hearings that dig deep into the reasons for our alleged imminent financial collapse. Not! (As my kids used to say.)

I’m stunned that we had less than two weeks to come up with a solution to a financial mess that, we were told by our government up until September 14th, was under control.

Don’t panic, and the market will work things out… Either our government is clueless or deliberately deceiving the public. Plus, did you know that we are still not in the middle of a recession? Unemployment in California is currently 7.7%; we have a 50-year inventory or homes for sale, stock market values are down 20% from a year ago and, it seems, only Google and Oracle are making money.

But, we are not yet in a recession. Seems to me the $700 billion bail-out is short about $1 trillion, or two.

Why don’t we ever see the bubbles coming? We have had housing booms, stock market booms and Ponzi scheme booms many times in the past, but don’t seem to learn from them.

I remember most of these booms and the resulting busts very well. During the Dot Com days, many recruiters took stock in lieu of cash for placement fees (my old firm made a million bucks on one deal that way), and there were 1000 CFO openings in the Valley in the late 1990s.

I vividly recall meeting with a new Internet start-up CEO (20 years old with blue hair), who told me he needed a CFO who would be able to find a good office lease in a building that was “dog friendly,” and help him move the company out of his Mom’s garage.

He had raised $20 million for some crazy idea, but it was an Internet idea. The money was gone in a year and so was the blue hair. Not that there is anything wrong with blue hair. My mother has blue hair, and it’s very attractive.

I bought a rental house in mid-2003 in Santa Cruz to rent to a family member. When I applied for a mortgage on the property, I didn’t have to present any financial information, not even a tax return or a bank statement to get the loan. Two years later I put the home on the market and received five offers the first day on the listing. We had three subsequent increased offers. I couldn’t believe the price being offered for a 1300 square foot house with disclosed things that needed fixing. I felt bad, but took the highest offer — for a 67% gain on the purchase price in two years. The buyer put zero cash down! Insane! But, that may be what has happened in every segment of our financial system.

No rules, no oversight, and insanity. What were we thinking, and are we thinking yet?

As I write this the final deal on the $700 billion bail out of our financial institutions has not been completed or announced. Therefore I don’t know if it’s a good deal for the USA or not. I don’t even know if we need to do anything. It’s very hard to trust that our government even knows what the real problems are, let alone that it might actually know how to solve them.

I do know that I’m very upset that everything our government does is in a crisis mode. I try not to run my small business that way, and don’t know any of my clients that run their businesses that way. Don’t even get me started on how the State of California is run!

My question to anyone who actually reads this rant is: Shouldn’t the accounting profession be taking a share of the blame for the lack of real transparency and usefulness of financial information? At least in the reporting and accounting of banks and other financial institutions? What does a poorly run financial institution need to do to get a qualified opinion from its auditors?

Let me know what YOU think!