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For us aviation and manufacturing buffs, today was a landmark day as Boeing delivered its first substantially composite passenger jet (787 Dreamliner) to All Nippon Airways in Tokyo. As a newly minted private pilot in the early 2000’s, I was fascinated with its unique design concepts. As a third-tier supplier to the aviation and defense markets, I was impressed to see how an entire supply base could get excited about a single product release. It has been a roller-coaster ride for Boeing that lasted over a decade. After some years of design, the first order was received in 2004 and the first aircraft delivery was not expected until 2008. Here we are in 2011 to see it. Through a great deal of economic adversity, technical challenges, miles of bureaucratic red tape, cancelled orders, labor strife, and strong industry skepticism, Boeing persevered and marched on with intelligence and courage.

So it goes for many of the rest of us as we look forward to what may be another economic recession on the heels of the last. Are we prepared to enter it with intelligence and courage? For tax savings, have we considered segregation studies of our facilities and assets? Tightening lines of credit will not ease; are we prepared with adequate cash-flow strategies and cash-flow projection tools? Have we screened and cleaned our supplier base - retaining only those who offer the best value and have the sustainability to be there for us down the road? While we have already leaned out our factory floors, have we offered the same support to our administrative and technical support departments?

As today’s landmark delivery for Boeing is really just a new beginning, we might look to our future economic challenges as an opportunity to make some very smart business decisions that pay off well.

While reading a news report on six employees charged with stealing precious metals from Olin Brass near East St. Louis, I was struck by the number of experiences I’ve had with employee theft of materials from factory and warehouse floors. I’ve witnessed employee theft of nickel anodes from electroplating operations, customer-owned product from contract powdercoating operations, cash and food from break-room vending machines, merchandise from a retail store and stainless steel off-fall from fabrication operations. In two plants that I managed, the company was willing to take some very simple and affordable steps to help prevent and detect such theft. I wanted to share some of the tactics we used there, but must admit that they were part of an over-arching risk management program that lent consistency, legitimacy and longevity to our actions.

1. Have a clear and published policy to inspect employees’ otherwise personal spaces such as purses, lunch boxes, tool boxes, desks and gym bags. Have all employees agree ahead of time in writing to such an inspection policy and make sure it is written iron-clad and legally defensible. Exercise the right to inspect with prudence and good judgment.
2. Restrict employee access to the facility through a limited number of doors; and make sure those doors are clear of any trash cans, rubbish piles, or cluttered storage shelves. Watch doors that are left propped open during the day for smoke-breaks and additional ventilation.
3. Secure trash and recycle dumpsters in an area that is away from employee parking and public streets. If possible use a streetlamp and a gate to secure the area during off hours.
4. Control precious material by keeping it stored behind at least one lock, regularly conducting inventory using personnel other than those with daily production access, and know your cost of goods sold. Regularly review inventory reports versus cost of goods sold and investigate any unexpected variance (over or under).
5. Install at least some sort of physical security system that regulates the plant perimeter and includes video surveillance of employee entrances. There are many affordable and simple systems available that may be efficiently installed and maintained.
6. Randomly show up at the employee exits during punch out time to say thank you and let them know you appreciate their hard work; but also do this to add an element of unpredictability to an otherwise common daily event. For the same reason, owners and managers should also spend some time being observed poking around the plant’s nooks and crannies.
7. Set the tone from the top. Business owners, senior executives and managers should be sensitive to how their words and actions set an example for other employees. Taking home a load of scrap skids to burn as firewood may help a dishonest employee rationalize their theft.
8. Consider having a complete security survey and risk analysis conducted on your entire operation which would include physical plant security; but would also include adequacy of insurance coverage, department of labor compliance risks, environmental compliance risks, employee safety risks, data security, emergency response/recovery planning, fraud prevention and many other areas.
   While this list is not exhaustive, these actions proved themselves to be both affordable and effective in reducing the risk of employee theft of precious materials. As reported, Olin Brass lost an estimated $7 million over three years from long-term trusted employees that did not fit any profile of those you might otherwise suspect of employee theft.

According to preliminary data issued by the U.S. Department of Commerce, hot-rolled steel imports in July increased 43% over June levels to 297,157 metric tons. This hot-rolled figure is the highest monthly import total for hot-rolled steel since the pre-recessionary days of November 2006.

Imports of cold-rolled steel also rose 7% to 130,177 metric tons compared to June. On a year-to-date basis, hot-rolled and cold-rolled imports combined are up 22%. While overall steel imports declined 4% in July over June, falling to 2,344,441 metric tons, this import level is up 22% on a year-to-date comparison to 2010.

Steel demand metrics are often used as indicators of confidence held by metalworking manufacturers in short-term future economic conditions. Following a period earlier this year of tightening domestic steel supply, we wonder how well the statistic actually speaks to the true nature how metalworkers view their near-term economic risk. And, we must normalize such demand changes with the marginal strengthening of the U.S. dollar over steel exporting currencies. Confidence surveys continue to underline the lingering uncertainty that plagues this recovery.

The hot-rolled and cold-rolled steel indicators shared good news, but it must be taken carefully and in context.

Tim Musholt is an accountant in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

Yesterday, the Securities and Exchange Commission charged two Florida men, James David Risher and Daniel JosephSebastian, with operating a Ponzi scheme disguised as a purported private equity fund that fraudulently raisedapproximately $22 million from more than 100 investors. The SEC alleges that, among other material false statements, Risher and Sebastian referred to “audited financial statements” when soliciting investors.

Investors should engage in as much due diligence as necessary to have confidence in claims made by their investment advisors. Investors should freely ask to examine financial statements that have been audited by a licensed CPApractice in the state where an investment is registered. And, if the investor is not certain that the CPA audit firm is properly licensed, nearly each state in the union has user-friendly web pages for researching current CPA licenses. This online research capability is true for both CPA individuals and CPA firms. At a minimum, an investor may choose to contact the auditing CPA firm to verify the audit report’s authenticity. In any context, when viewing any financial statements, know if you are examining audited financial statements versus reviewed financial statements. An audit offers far superior assurances.

Tim Musholt is an accountant in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

Many of us who continuously scan the manufacturing landscape anxiously await the monthly Report on Business published by the Institute for Supply Management. The ISM’s manufacturing activity index (PMI) for July 2011 of 50.9% has been received with some alarm, after first quarter activity ran optimistically high at over 60%. Certainly, there is a downturn in activity as the index (tracked since 1948) has corroborating support from similar industry metrics on customer orders, supplier prices and hiring activity.

However, we do keep in mind that July 2011 was the 24th straight month of economic expansion in domestic manufacturing, and that a correction may be timely. The fact that supplier prices and hiring are being adjusted to the changes in manufacturing activity may indicate management’s healthy sensitivity to economic fluctuations. Strong productivity figures and cash reserves are still worthy indicators of our overall industry condition, to be used in concert with these other activity metrics.

We next look to July unemployment figures, set to be released very early in August. While an increase in unemployment is anticipated, the extent to which it supports either a correction or true contraction in manufacturing activity is of great interest.

Tim Musholt is an accountant in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.