Company Risk Avoidance

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Table of Contents

Introduction
Risk Avoidance: Securities Regulation, Accountant Liability and Agency Risks
Risk Avoidance: Product Liability and Sales Contracts
Risk Avoidance: Checks and Letters of Credit
Risk Avoidance: Customer Credit Transactions, Bankruptcy and Insurance
Risk Avoidance: Employee Issues
References

Introduction

In the course of the discussions presented in prior reports the topic of risk avoidance has been discussed with respect to various issues affecting BGP technology. BGP Technology by virtue of its position as a large multi national corporation is faced significant challenges that require improved management to ensure the Company stays afloat.

For example, the increased reliance on the internet and current trends in globalization suggest that BGP is heavily reliant on an efficient supply chain (Reuvid, 2005). Issues such as non payment or late payment can easily bring the business to a standstill and even result in legal tussles. It thus becomes essential that BGP Technology put in lace the relevant structures and mechanisms to ensure business proceeds at a satisfactory pace.

On the other hand whereas risk management is crucial to business, excessive control can be very detrimental to business and may result in losses resulting from foregone opportunities (Seeding & Rose, 2007). As a result of this it is important that the management of BGP

Technology take time and give due consideration to the risks associated with their ventures and develop and appropriate risk avoidance scheme. In this report the discussion presented will attempt to clarify risk avoidance from the perspective of; accountants and company liability, securities regulation, products and sales, payments, transactions and transactions.

Risk Avoidance: Securities Regulation, Accountant Liability and Agency Risks

The world of corporate business was rocked by major financial scandals that led to the creation of the Sarbanes-Oxley act in 2002 (Aras & Crowther, 2010). Among the requirements that listed companies have to abide by in the act include very appropriate risk management strategies. It is for this reason that it has been suggested that compliance to existing regulatory requirements is a good way to avoid risk associated with securities (Aras & Crowther, 2010).

Among the ways that the above factor can be implemented in BGP Technology is through the implementation of flexible and well defined decision making apparatus (Aras & Crowther, 2010). It has been reported that this is crucial for improved risk management within any corporation. It is emerging that conflicting decision making may arise from conflict within the board and high decision making organs of the corporation.

The pressure brought on by the need to maintain profitability further complicates the issue leaving shareholders at the mercy of CEO’s (Aras & Crowther, 2010). For this reason it is deemed necessary to improve the decision making process through incorporation of decision making or support systems.

In addition this it has been observed within several corporations such as BGP Technology that the services of accounting and auditing firms are enlisted to evade taxes and provide other avenues of increasing revenue. In light of increasing litigation it is important that BGP Technology enlist the services of only professional accountants. In line with this it is crucial that there is frequent reporting between the senior administration and the board to ensure any suspect activity is brought to a stop early (Brooks & Dunn, 2007).

Another approach to risk avoidance with respect to securities can be implemented through the use of a department to handle investor relations. Such a department can play an instrumental role in educating both staff and share holders on the importance of changes and measures that can improve sustainability of the corporation (Sanchez & Heene, 2005).

It has been observed in certain cases that the difficulties associated with effective implementation of share holder expectations lies with middle management (Sanchez & Heene, 2005). Through an investor relation department this relationship can be enhanced thus improving or maintaining the credibility record of the company.

A further measure that has been proven useful in avoiding litigation is the introduction of proper accounting systems within the corporation (Rolfe, 2007). Tax evasion is sometimes practiced in corporations and involves falsifying returns and other illegal means of manipulating the tax system to manipulate the tax system (Rolfe, 2007).

Among the measures that have been reported to bring about major reforms include reducing opportunity by increased reporting, increasing the risk of participation through punitive actions and education to change social attitudes towards evasion.

In a corporation it is the norm for the shareholders to elect a board of directors and for this board to run the business. To avoid litigation regarding the board it is important that the by laws state the role of the board and any pre emptive actions that the share holders are entitled (Warda, 2007).

The presence of adequate documentation that specifies the rights and roles of the various parties in the corporation are crucial in dealing with any misunderstanding that may arise either between members and directors or the directors themselves. However, in the absence of such documentation the misunderstanding will be open to interpretation based on the law. It has been suggested that for safety the drafting and preparation of such documents be left to a registered agent (Warda, 2007).

In addition to this there should be documentation in place in advance that specifies the procedure to be followed for activities such as increasing the number of shareholders by reducing share value. Such activities are often beneficial to corporations such as BGP Technology with regards to raising capital (Warda, 2007).

However, when such activities are undertaken non procedurally there is the possibility of litigation arising. This issue is best handled by a set of well prepared by laws and the use of an investor relations department that can be used to bring about consensus.

Risk Avoidance: Product Liability and Sales Contracts

BGP Technology is bio technology based business and by virtue of the nature of its business the company requires adequate measures for risk avoidance. Among the measures that may prove useful in this is the inclusion of adequate material in the product packaging on the constituents and other relevant information such as that related to side effects.

The regulations of the FDA require that all such products come with information on the drugs material and other relevant information to avoid the possibility of consumers making legal claims (Pfeifer, 2002). The presence of such information is useful as it can be vital in guiding the consumer on procedures of use and symptoms that may validate discontinuation of using the product.

In addition to the above it is vital that the company establishes a quality control department to inspect and confirm the quality of the products being sent out to the public. It has been observed that a large amount of litigation with regards to products is attributable to poor manufacturing practices (Pfeifer, 2002).

Due to a lack of inspection flawed products end up in the hands of unsuspecting consumers. As a result of the negligence the company finds itself in court facing accusations resulting from neglect. Such law suits can be drastically reduced using a quality control department.

Still on the reduction of litigation from products BGP Technology should consider the use of certificates from regulatory bodies to provide some additional security. Regulatory authorities such as the FDA often require companies to perform a series of tests to ensure the product is fit for use (Pfeifer, 2002).

Upon receiving this certification BGP Technology can freely sell the product without fear of litigation with regards to product quality. BGP Technology will acquire additional insurance by the certification which implies the products safety. Any legal queries based on the product safety can be avoided as it I the role of the regulatory institution to ensure the product meets the established requirements.

However, given that BGP Technology is a multi national company it is likely that its products are on sale in venues in different parts of the world. Owing to this it is very likely that regulatory requirements will vary from one region to the next. Given that BGP Technology gained some product security in one country does not guarantee the same globally.

As a result of this another strategy to avoid risk related to products includes the exclusion of products from countries where the regulatory requirements contradict (Pfeifer, 2002). This approach though is likely to result in loss of revenue related to the product could be a solution to avoid the emergence of product related litigation.

Further BGP Technology may consider the frequent updating and improvement of the production technology and design. In some cases product related litigation has been attributed to poor manufacturing technology or the poor design of the product or packaging (Pfeifer, 2002). Given that it is likely some products produced by BGP Technology fall in the category of high risk products, it may be wise to make frequent changes to design and manufacturing procedure.

This will ensure that BGP Technology is safe from the risk associated with products and offers products that are highly competitive. This action will in addition to improving BGP Technology safety record also improve its position in the market as a company that pays attention to market needs.

As earlier mentioned BGP Technology is a multi national business with branches operating from many locations around the world. This position poses additional complexity for the business as international trade is often facilitated through contracts. A contract is legal document that binds the signatories to the terms stated within.

The persons in charge of drafting such a document must therefore be up to date and knowledgeable on the laws applicable in the region. For this reason it may be a good risk avoidance measure to enlist the services of an agent in the countries where BGP technology intends to do business (Fox, 2009). These contracts can provide BGP Technology a point of relief in the case of any conflicts in business.

This option is especially crucial to BGP Technology given that some agency and distributorship links will need to be developed. The distributor reduces risks associated with products by purchasing and preparing to make sales in his/her country.

However, the terms and conditions specified by the distributor and supplier need to be clearly stated to avoid the likelihood of any legal problems in the future. Such arrangements are often an attractive way of doing business due to possible tax incentives offered (Fox, 2009).

The major pitfall with these arrangements is attributable to the contractual agreement which requires that BGP Technology pay maximum attention to ensure the contracts drafted are suitable. It has been suggested that it is always wise to have the drafted agreement reviewed by an attorney prior to signing.

Still on the issue of risk avoidance and sales contracts it is important that BGP Technology uses agencies in the countries it intends to trade to perform vetting of distributors. Even with the presence of a valid contract it is possible to incur huge losses in international business if adequate precaution is not taken (Fox, 2009).

It is possible for an individual to migrate to a neighboring country for the purposes of doing business. In such a case a contract will be of little use as the client can easily defraud the company causing major losses. Such poor planning can be the source of litigation by the share holders in light of lack of preparation by the management selected.

In relation to sales there is the issue of fraud which may cause an increase in litigation within BGP Technology. It has been reported that majority of fraud cases, as much s 80% are the work of staff (Turner, 2007).

To prevent the occurrence of these incidents it has been suggested that BGP Technology adhere procedures that can be used to uncover such behavior. Among the procedures that are useful in identification of fraud is the mandatory annual break of at least two weeks for each employee (Turner, 2007).

It has been observed that such ‘away’ periods are useful in discovering any discrepancy in operations and reporting. In addition to this BGP Technology can make efforts to comply with legal requirements ass stipulated in Sarbanes Oxley act. This legislation ensures protection of whistle blowers and thus enables the staff to work together to eradicate impunity.

Another risk avoidance mechanism that may be of use to BGP Technology is the preparation of procedures that can be relied upon to handle massive problems that may require products recall. In such instances a major flaw may be the reason behind the need to have products withdrawn from shelves (Pfeifer, 2002).

This flaw will need to be identified through the quality control department or appropriate mechanisms that gather feedback on products. Such an approach has been successful is several major corporations around the world in avoiding litigation related to products. Despite that fact that such an action involves major financial losses, it must be noted that it is much less than the possible losses that will be incurred in making settlements for the law suits that will result.

Risk Avoidance: Checks and Letters of Credit

In the course of identifying potential sources of risk for BGP Technology it was established that the selection of the correct payment method was important for risk avoidance. For example, the company could allow for payments using checks without adequate security and end up making major losses.

It is very important the connection between suppliers and the various outlets, plants and distributors are well managed to reduce the possibility of incurring losses (Camerineli, 2009). This is best achieved by the selection of an appropriate method of payment and ensuring all potential risks are identified and managed.

In business between countries the most common means of payment is the letter of credit. This is a document that is prepared and negotiated between the bank and BGP Technology. As earlier stated the negotiation may involve a foreign bank and as such a vetted agent may perform the negotiation on behalf of BGP Technology (Camerinelli, 2009). In such a case the agent working on behalf of the Company will lay down the terms such as delivery date, quantity, condition, etc. that must be satisfied before the payment is effected.

The conditions in the letter of credit need to be satisfied for payment to be made. If these are not met BGP Technology is at liberty to cancel making the payment. Another alternative mode of payment is the Banker’s Acceptance to settle all outstanding payments in remote locations.

One shortcoming with this mode of payment is the fact that it does not allow for BGP Technology to state terms that must be satisfied prior to payment. As such it is often considered risky and should be avoided unless no other option is available (Camerinelli, 2009).

Since letters of credit are among the means available to effect payment in international business the discussion will briefly discuss the various types of these letters. This is aimed at assisting in identification of the most suitable since all letters of credit are different. A revolving letter of credit is most often used when there is repeated business activity.

In such an instance BGP Technology will be required to monitor the payment of these letters to build data on the relationship. This type of letter reduces the administrative burden on both the bank and company (Schaffer, 2007). Such letters will suit BGP Technology in paying for raw materials from its suppliers.

A deferred payment letter of credit is similar to the revolving letter except that payment with this letter is held till a specified date. Upon receiving the documents the seller presents them to the bank but receives payment at a later specified date (Schaffer, 2007).

This mode of payment is very suitable for paying for raw materials or other payments that BGP Technology may want to defer due to cash flow issues. There is also the transferable letter of credit which can be passed on based on a written request by the seller. In this case the seller prepares the request in writing and submits it together with the documents for payment to be effected (Schaffer, 2007).

A crucial issue that is of importance for BGP Technology is the letters of credit it uses to transact business should be irrevocable. This ensures that there is minimal risk of non payment for goods or services (Schaffer, 2007). A revocable letter of credit can easily result in disagreement and as such these are best avoided.

Another mode of payment that can be used for international business such as that undertaken by BGP Technology is the check. This is a printed leaf provided by the bank used by the payee to make payment. To avoid risk within BGP Technology it would be prudent to have a procedure such as two individuals confirming the documentation prior to singing company checks.

This is likely to limit the inclination to involvement in fraud by the staff. In addition to this it is also crucial within BGP Technology that a thorough background check is performed on the office bearers who will be handling money. As earlier mentioned fraud is most often the work of staff and as such a good knowledge of the history of members of staff is useful in keeping company monies safe (Turner, 2007).

The majority of payments made in the US between corporations are through checks (Schaffer, 2007). This position suggests that there should be adequate monitoring within BGP Technology to avoid incurring losses associated with checks. However, their use is slowly beginning to decline due to the availability of alternative means of payment.

Among the problems associated with checks include mailing costs, increased employees to verify checks, etc. For this reason BGP Technology may also benefit from attempting the other alternative payment methods.

Risk Avoidance: Customer Credit Transactions, Bankruptcy and Insurance

In addition to the above mentioned measures it is also necessary for BGP Technology to make provisions for credit transactions. For example with the current trends of doing business on the internet many payments are being made using credit cards. The use of credit cards for payments poses a risk for the company due to the increased credit card related fraud common on the internet.

To avert this tendency it has been suggested that BGP Technology utilize a third party to handle credit card payments (Straub, Goodman & Baskerville, 2008). The use of a third party ensures that the customer data is handled in a more efficient manner and that any liability that may arise owing to the customer data can be avoided.

BGP Technology can also take further steps that may be useful in ensuring it des not fall victim to the risks associated with bankruptcy and credit sales.

One important suggestion is the performance of background checks. A background check is useful in identifying the client credit worthiness (Verma, 2008). To achieve this BGP Technology can enlist the services of an external third party to provide impartial results. In addition to client background checks it has been established that staff background checks are also useful in risk avoidance.

Another approach that is commonly used the purchase of a relevant insurance policy. An insurance policy guarantees the policy holder reimbursement in the event of the risk insured against. However, BGP Technology is also required by any insuring company to provide additional internal controls to prevent the occurrence of the incident (Gitman & McDaniel, 2007). For example, the company must show records that it does keep track of goods while in transit for it to collect payment for goods lost in transit.

However, there are risks that can not be insured against owing to their speculative nature, e.g. losses incurred in the stock market (Gitman & McDaniel, 2007). For such risks it is essential that BGP Technology establish other suitable frameworks to avoid possible risks. This means that despite the added insurance that provides there must be other risk avoidance procedures in place throughout the organization.

Risk Avoidance: Employee Issues

As earlier mentioned in the report many fraud instances can be traced to the staff f the organization (Turner, 2007). This position arises because of their involvement with the business and knowledge of the procedures. This is likely to cause opportunities for making some money and as such poses a risk to the company.

In this regard BGP Technology should thus undertake proper background checks on its staff especially those who handle money. In addition to this it has been suggested that staff should be given a minimum two weeks break from work during which any discrepancy can be unearthed (Turner, 2007).

In addition to this it is crucial that BGP Technology takes time to draft suitable contracts for the staff employed (Falcone, 2002). An employee contract is document that describes the roles which the employee will be required to play upon being hired by the company. If such a document is absent or obscure it is likely to be a source of litigation especially from employees who feel they have been dismissed unfairly.

Also of importance with regard to employees is the question of remuneration (Falcone, 2002). It is important that BGP Technology takes time to adjust its remuneration rates to reflect the current position in the market. Given that an employee takes up a role with an organization in exchange for pay this issue is among the most common causes of litigation between employees and their employers.

Another method that has been identified in reducing risk associated with employees is the use of frequent performance review agreements (Falcone, 2002). This type of an agreement is prepared by the company and stipulates required targets and goals the employee is expected to satisfy. In the event that this is implemented within BGP Technology it is very likely that any litigation resulting from dismissal will drastically be reduced (Falcone, 2002).

However, given that employees are a very vital resource in any organization it is important that BGP Technology provide adequate incentive to the workforce. An example of incentive that has been seen to reduce the risks associated with litigation from employees is the provision of adequate medical cover and retirement benefits. The provision of suitable terms of service though an indirect strategy has been seen as a very suitable means of reducing litigation associated with employees (Falcone, 2002).

This is most likely due to the fact that an employee is a part of an organization and the stronger the bond between the two the less likely any friction will arise. Though there are several issues related to risk avoidance that have been left out of this report, it is hoped that those tackled are suitable in the reduction of litigation risks within the BGP Technology Company.

References

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Gitman, L. J., & McDaniel, C. (2007). The Future of Business: The Essentials. Mason, OH: Thomson Higher Education.

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