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The Auditors are here!

It's that time of year again - the Auditors are here! If you aren't involved with a public company, or a private company that produces audited financial statements, you probably think auditors are people who come from the IRS randomly to make sure you are paying your fair share of keeping the country running. Different kind of auditor. The kind I'm talking about work for big and little accounting companies and they are generally either people just getting into the world of accounting or they are career auditors.  Company's like mine pay them to come in and review the books.

Most companies don't get their financials audited unless they have to, but many years ago I decided that my company would "act like the company we want to become" so we paid to have our financials audited. A misconception is that the auditors are going through the financials with a fine-toothed comb looking for fraud. You'd think that, but no, they are really there just to see if a company is keeping its books in accordance with GAAP (Generally Accepted Accounting Principles) and an ever-increasing library of regulations, guidelines and opinion letters.

I've got probably ten years of experience now with audited financials, and every year I look forward to the "Reps and Warrants" letter to see what new surprises have been tossed in. Given what we pay for this service, you'd think they would be "Representing" and "Warranting" to me, but again no, this is a letter that I'm given to sign by the auditors on behalf of my company. In the early days, it was one or two pages and basically said, "I've given you access to everything you asked for, and as far as I know, we're all doing the best we can to accurately record and report financial transactions, and I'm not aware of anyone trying to steal from the company or cook the books." Ultimately I understood it to mean, "if anything is wrong here, I'm the guy that's ultimately responsible." Clearly not all CEOs see it the same way given some of the bad behavior we've seen, and as a result of these crook's bad behavior, the accounting profession has reacted by creating more, and more, and more rules and regulations.

The problem is, this avalanche of rules and regulations just gives the bad guys more cover to hide behind and makes it even harder for an investor to wade through the volume of reports (I'm talking about public companies now) to figure out what is really going on with their money. I recently read, "The Death of Common Sense: How Law is Suffocating America" written by Philip K. Howard, and except for the frustration I felt, I really got a lot out of the book. To sum it up - more laws and more rules will not make the world or your business a better place. Bad people will always find a way around the bureaucracy and good people will just be frustrated by it and less productive.

My latest Reps and Warrants letter is eight pages long and contains some really interesting paragraphs. I've picked three, just so you get a feel for the tone of the letter. The auditors ask me to warrant that:

All derivative instruments and any embedded derivative instruments that require bifurcation, in accordance with FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities . . .
 
and that . . .

Significant estimates and material concentrations known to management that are required to be disclosed in accordance with the AICPA's Statement of Position 94­6, Disclosure of Certain Significant Risks and Uncertainties.
 
And let's not forget . . .

Violations or possible violations of laws or regulations (including the failure to file reports required by regulatory bodies (e.g., EPA, OCC, FDIC, DOL, Medicare, U.S. Customs Service, HIPAA, IRS, Dept. of Commerce, state and municipal taxing authorities) when the effects of failing to file could be material to the financial statements) whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency.
 
I don't know what a derivative instrument is, except that I think some people got in trouble with them. I wouldn't know where to begin to bifurcate a derivative. While I'm not positive about the AICPA's Statement of Position 946, I also have admit to not being familiar with their positions 1 through 945, and if I would have to guess, there are probably a few more after Position 946 that I may need to review.

The last paragraph that I've submitted for your review is really the catch-all. I think I'm being asked to warrant that any violations, or possible violations of all laws and regulations, including but not limited to those of the EPA, OCC, FDIC, DOL, Medicare, U.S. Customs Service, HIPAA, IRS, Department of Commerce and state municipal taxing authorities, will not effect our financials in a material way. If I read it right, they don't care if there have been violations, they just want to know if the violations will effect our financials in a material way. (For the record, the answer is No.)

I'm not picking on my auditors, or any auditors for that matter because they aren't the ones making up all the new regulations. At their heart, I think they are trying to do a good thing by holding people accountable to a high standard, it's just that I'm not convinced (and neither are they) that much of this is really making companies more transparent. It's really just making it harder for the good people to comply and easier for the bad people to claim they actually did comply or that they misunderstood the rules.

In the end, nothing has really changed for me. If something is wrong, I should have known about it and I'm going to be held accountable for it.  What can we do to keep the world from becoming a quagmire of ineffective laws, regulations and rules?  Don't assume that a new regulation will fix a problem.  Work to fix the problem.  Don't enact a new rule and say, "there, problem solved" because you only get credit if the problem is actually solved.  Focus energy on good people who will do their damnedest to make the right decision, because it is the right decision, and don't tie their hands with bureaucracy that the bad people will just walk right through without a second thought.

TechStars taking applications

If you are an entrepreneur and you read my blog, but not Brad Feld's blog - please go subscribe to his blog right now.  Wait - before you go - you should also check out the TechStars website too as time is running out to apply for this year.

Here's the deal with TechStars.  You have a great idea, and maybe even the business is up and running, but you don't really have the connections to people who can help you get to the next step.  Whether that's raising money, hiring people, negotiating deals - TechStars knows somebody who can and will help you.  According to Brad's latest blog about TechStars, eight of the ten TechStar companies from last year are either profitable or have received funding beyond TechStar's initial investment.

While TechStars is a for-profit venture, the mentors are volunteers.  You can't buy the kind of talent that is available to help you get going.  If you are an entrepreneur looking for a little bit of seed money and a lot of experienced help, check out www.techstars.org.

Colorado Weather

You've got to love Colorado - it's sunny and 65 degrees (18c) outside now, and it feels even warmer.  The weather service just issued a snow advisory for the area tonight for blowing snow and accumulations of 3 to 7 inches by tomorrow afternoon, with winds of 30 mph and gusting higher still.

Windows Server 2008

On Friday we went live at Gold Systems with Windows Server 2008.  I don't mean it's running in a lab, I mean it went into our production environment.  I knew something was up when I saw that "this is so cool" look on Ned's face, so I stopped in his office to see what he was working on.  He said the install went better than any server deployment he's ever done, and he's been around the block a few times, on lots of different platforms.  He's taken our beautiful server room with hundreds of blinking lights and virtuallized so much hardware that we now have more iron in storage than we do in racks.  Windows Server 2008 is just going to make it that much easier for us to consolidate and simplify our infrastructure, and the virtualization means that we can put up new servers for developers very, very quickly.

We'll probably always have an environment that includes all sorts of different servers and operating systems, because that's the environment our customers have, but in our own production environment we just knocked out two more BSD boxes, with only one left in service.  I can't say I understand all the technical details, and why Ned is so excited about Hyper-V, so here's a link I found that explains how Windows Server 2008, virtualization and Hyper-V come together.

On Saturday I got an email from Ned saying, "Server 2008 Rocks! This is by far the best Server OS I've ever used!"  With all the grief that Microsoft has got over Vista (more on that in a future post) it's nice to see that it looks like they've nailed it with Windows Server 2008.  I had suggested to Ned that he should do a guest blog post on this, because he's so proud of the improvements he's made in our infrastructure, but I think he's got his eye on another server to virtualize, and he'd rather do that than write about it.

Help Wanted and getting things done

This post on "getting things done" is brought to you by Gold Systems, a Unified Communications software company in Boulder, Colorado.  If you are a Unified Communications Specialist, a Telecom Engineer, a sales professional or a software Engineer and you think you just might want to consider a career change, check out the job postings at http://www.goldsys.com/index.php?load=content&page_id=28  Doesn't matter too much where you live - you'd be welcome to join us in sunny Boulder, Colorado, but we have people all over the U.S. if you happen to like where you currently live.

Now back to the blog - I've had a task on my task list to write the three sentences above for about a week.  Once I sat down to do it, it took me about five minutes.   And that reminds me of a blog post I've been meaning to write.

A few years ago Jeff Bezos, the founder of Amazon.com, came to CU Boulder to talk about his experience as an entrepreneur.  It was a great thrill to hear him speak and to talk to him for a minute after his presentation.  One story he told was how in the very early days of Amazon.com they (him included) would box up books to ship out to customers. The orders started pouring in and they found they were spending a lot of time on their knees on a hard concrete floor boxing up books.

Jeff said that he'd finally had enough, and he told someone that he was going to the local home improvement store to buy knee pads like the kind carpenters often wear.  The other person said, "Jeff, why don't we just buy tables instead?"  He told the story I think to illustrate how easy it is to get so busy that you get so focused on the task at hand that you can't think about the real problem and the best way to solve it.

I see this all the time, and it is an easy trap to fall into.  A good entrepreneur friend of mine doesn't have time to investigate buying a high-quality spam filter, so he spends time every day or two going through the spam to make sure nothing important is getting trapped by his low-quality spam filter.  It's like buying kneepads instead of a table.

I figured out a long time ago that as an entrepreneur, there would always be more for me to do than there was time to do it.  The first five years or so I stressed out about it all the time, thinking that I needed to work longer hours to get everything done.  I needed to get everything done, I thought.  I tended to work on the least important, most urgent tasks but then my friend Jim Lejeal pointed out that the CEO's job is to work on the most important tasks that only the CEO can do, and that the really important tasks are usually not perceived as urgent at all.  It's normal to have more than we can do, and I think it's good because if I have a lot of options for how to spend my time, I can try to choose the very best use of my time.  (It's a goal - I don't always spend my time on the most important thing - I'm human and I still spend time on silly stuff at times.  It helps keep me sane.)

I created a category on my task list as "The ONE Most Important Thing" just to remind me to think about the one really important thing each day that I can do to move the company forward.

So here's the tie-in back to my original help wanted post.  I was so busy, I didn't take five minutes to do something that will ultimately make me and other people at my company less busy.   Now I've done it and I can check it off my task list.  What have you not taken time to do, that if you'd just do it, would ultimately save you a lot of time and make your business or your life better?

$30 billion to be spent on US network security

The front page of the InformationWeek website is all about the breaking story about Microsoft's bid to buy Yahoo!  That's interesting, but it wasn't the first story that caught my eye this morning, so I'll talk about this other little article that I read about this morning and let everyone else spin in circles about Microsoft and Yahoo!

According to George Hulme, who writes the InformationWeek Security Blog, the U.S. Federal government is planning on spending $6 billion on network security next year and up to $30 billion over the next seven years.  I'll have to admit, I have a hard time wrapping my head around just how much $30 billion is.  I guess one answer is, "Less than Microsoft plans to spend on buying Yahoo!"  From that perspective, having the federal government spend less than that over seven years seems like a good thing.  I'm sure we need good network security for our government.

But here's where a little perspective is helpful.  According to the article, "last year Infonetics Research estimated the entire worldwide network security appliance and software market to have reached $5 billion in 2007."

So we (it is our money after all) are going to spend more on networks security in one year than the worldwide market for network security appliances and software?

One final quote from the article.  "Unfortunately, the White House is being tight-lipped about the plan, citing that to explain the plan publicly would jeopardize security."

Wow.  Even if there is a big chunk of money allocated for speech-recognition enabled password reset products, that seems like an awful lot of money to me.  It makes Yahoo! seem like a bargain.

You can read the article here.