FINDING THE RIGHT ANSWER STARTS HERE

Fall 2009 |

PRIORITIZING FOR SUCCESS:

Identifying priorities helps you manage risks and achieve business goals

SAFEGUARD YOUR ACCESS TO CREDIT:

Lenders favour businesses that have done their due diligence

RISK MANAGEMENT

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New standards are ushering in an era in which Enterprise Risk Management (ERM) will

become integral to doing business yet misconceptions about the process abound.

“A lot of people think it’s this huge elephant in a china cabinet,” says Maggie Kiel, ERM and Internal Audit Leader for MNP. “Organizations are hesitant to take a good look at Risk Management because they think it’s going to be a massive, expensive exercise that’s going to take a lot of time.”

But Maggie and Gordon Chan, MNP’s Enterprise Risk Services Leader say nothing could be further from the truth. Every business is exposed to risk and opportunity; there is no reward without taking a certain amount of risk. Identifying, evaluating and managing risk exposure to protect the organization and allow it to take full advantage of opportunities can easily become just part of doing business.

ERM is a comprehensive, holistic approach to reducing the uncertainty of current and future events and seizing new opportunities. It’s a logical and systematic method of establishing the context and identifying, evaluating and managing risks in a way that enables organizations to minimize losses

and maximize gains. To be most effective, risk management should become part of an organization’s culture, embedded in the organization’s philosophy, decision-making and strategic planning processes.

Popular in Australia since 1999, ERM has become increasingly important in North America since scandals like Enron. That scandal led to implementation of legislation in the U.S. and Canada requiring public companies to evaluate internal controls over financial reporting. ERM takes the assessment of financial reporting and fraud risks required by such legislation a few steps further.

“If you truly want to make sure your organization is prepared to deal with the uncertainties that exist in its environment, you need to be aware of all the events that can prevent the organization from achieving its objectives,” says Maggie. For example, companies may need to look at the political and economic situation as well as internal factors such as human resources, information technology and succession planning to fully evaluate risk.

Risk mitigation, however, isn’t about avoiding every threat. “If you do that your organization is not going to be very competitive. You

have to take advantage of opportunities if you want to maximize the value of your organization,” explains Gordon. ERM gives organizations a framework to ensure the appropriate steps are taken to manage risks while taking on opportunities. “After analysis, you might simply accept the risk. Alternatively, you might implement control activities to reduce the risk or find a way to share some of the risk with another party to reduce uncertainty,” says Gordon.

Standard and Poor’s is in the process of including ERM in its credit assessments; those organizations that depend upon Standard and Poor’s rating will be required to integrate ERM into their processes. Additionally, a new best-practice international standard on Risk Management (ISO 31000) is due to be released this year.

ERM is an essential part of good corporate governance and will likely be a necessary component of doing business in the future, bringing significant benefits to those organizations that undertake the process sooner rather than later.

3MPACT > Fall 2009 2

Daryl Ritchie, FCA CEO, Meyers Norris Penny

A w O R d F R O M O U R C E O

Managing your risk, creating business opportunities.Canada’s economy may have went from boom to bust in a matter of months but many businesses continued to see success by taking a hard look at the issues affecting them and adapting with smart business strategies to help them stay competitive and profitable. Regardless of the health of the economy, businesses must remember that they are always exposed to some level of risk. Our fall issue provides valuable tips on how you can identify potential risks to your business and create tailored strategies to minimize their impact, while creating new opportunities.

Here are just a few articles you won’t want to miss:

> Take Control: Manage your risks by tightening your internal controls and setting the right tone at the top.

> Grading the Board: Minimize your risks by effectively evaluating your board of directors.

> Safeguard Your Access to Credit: Lenders favour businesses that have done their due diligence.

we hope you enjoy this issue of MPACT, and look forward to hearing from you. E-mail us with your questions and comments at mpact@mnp.ca.

In this issueFEATURESPriortizing For Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Client Profile: Elaborate Group of Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Safeguard Your Access to Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Grading the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Harmonious Harmonization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Take Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

REGULARSA word from our CEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Published by:

Meyers Norris Penny LLP

300, 622 5th Avenue Sw

Calgary, AB T2P 0M6

P: 1.877.500.0792

Managing Editor:

debra Beck

debra.beck@mnp.ca

250.863.5968

Articles in this publication are

neither official statements of

position, nor should they be

considered technical advice for

individuals or organizations without

consulting an advisor.

mnp.ca

MPACT > Fall 2009 4

Tough decisions are part of doing business, right? After all, no one knows the

effects a particular course of action may have on your business. Should you expand? Should you automate some processes? Is it a risk you need to take or a mistake you can’t afford to make? Who knows.

While no one can predict the future, it turns out that even the toughest decisions, those you mull over for

months or years, can be made a lot easier. The secret is to determine which areas of your business are integral to your success and let those high-priority areas guide your decision-making so you can better manage your risks and achieve your business goals.

THE THINGS THAT MATTER MOST

“Every business owner should be focusing on the things that matter;

the things that will have the biggest positive impact on their business,” explains Brian Drayton, a business advisor in MNP’s Regina office. “What things do they have to get right within their company and their business strategy in order to achieve the outcomes that they desire?”

Those things are called Key Performance Indicators (KPIs) and they can vary from business to business, as well as over time.

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Examples include revenue growth, acquiring new customers, improving overall gross margins and controlling operating costs.

Brian cites the case of a client, Bobcat of Regina Ltd., as an example of the difference prioritizing can make. Owner Dave Barber and his management team knew a change had to be made. They identified a number of options, including expansion, buying out a competitor and selling one of the company’s three divisions. What they had not determined was the best course of action.

Working with the management team, Brian and Lou Beatch, another business advisor in the Regina office helped them gain clarity about their objectives and set clear financial goals. Then, they analyzed the information on the company’s financial statements to get a detailed look at what was really happening inside the business.

“When we isolated all of the costs associated with the recreation division from the rest of the business, it became very obvious that the recreation division was not nearly as profitable as they thought it was,” says Brian.

Several KPIs were identified, but gross margins were the primary problem with the division. The company had to increase sales or prices or find other ways to drive profit from the recreation division to meet its financial goals.

By looking at how the division performed in the past and the effect of that performance on the entire operation through the lens of the KPIs provided the management team with the information they needed to make a decision: sell the recreational division and refocus on the more profitable core industrial part of the operation. The results, says Brian, have been

dramatic and Bobcat of Regina Ltd. hasn’t looked back.

Dave says with MNP’s assistance, they were able to streamline operations and the value of his business went up dramatically.

“We went from a marginal operation to a profitable enterprise during a time of economic growth followed by economic uncertainty by sticking with the plan and focusing on the industrial business.”

KEEPING BUSINESS OwNERS IN CONTROL

“Going through this type of exercise gives business owners and management teams the clarity and information they need to make strategic decisions themselves,” stresses Lou. “We provide them with the facts and the analysis and whatever information they might require to help them make the right decision.”

It’s an important point because making a decision and following through on action steps to achieve your objectives are two entirely different things. When the decision is made internally, there is buy-in from senior management and a greater commitment to make those changes happen.

Brian explains his role another way. “We don’t want to hand you magic bullets because that’s not going to work. If we bring clarity and focus that allows clients to develop a direction and provide them with the information to make a decision, they can move forward.”

But Brian and Lou are well aware that even the best intentions can be forgotten in the hustle and bustle of running a business. Although it only took a couple of months to help Bobcat of Regina establish strategic goals, determine which path would help them meet their goals and develop an

action plan, both advisors met with the management team every month for a year to help them stay on track.

“Once a course of action is chosen and we know the Key Performance Indicators for the company, we set up a system to monitor those indicators. This keeps the client focused and shows them how things are progressing as well as where improvements or changes need to be made along the way,” explains Lou.

For more information on Key Performance Indicators, contact one of MNP’s business advisors, Brian Drayton at 306.530.1581 or Lou Beatch at 306.790.7916 or your local MNP office.

PRIORITIZING FOR SUCCESSIDENTIFYING PRIORITIES HELPS YOU MANAGE RISKS AND ACHIEvE BUSINESS GOALS.

THIS IS NOT YOUR GRANDFATHER’S ACCOUNTING “There was a time when your general practitioner, your chartered accountant, would tell you how you did last year and that was it,” says Brian. “What we now realize is that how your business has performed in the past is key information you can use to strategically create a more profitable future.”

Brian and other MNP business advisors help clients by interpreting the numbers on financial statements and analyzing the relationships between the numbers to predict the impacts certain decisions will have on the economics of the business.

“Basing your major decisions on what’s really going on in your business makes it much harder to make the wrong decision,” says Brian.

MPACT > Fall 2009 6 7

I t’s no coincidence that Grande Prairie, certainly not the largest city in Alberta, boasts the largest

independently owned Rona franchise in western Canada and the largest home building company in the north. Both enterprises are part of John and Jas Nagra’s operation, the Elaborate Group of Companies, a homegrown success story and a testament to the old adage that it’s not what you know, it’s who you know.

John, President and CEO of the Elaborate Group and Jas, Vice President, have put plenty of their own know-how into building a multi-million dollar group of companies from dust in just 20 years and continue to do so. They’ve also made a point of surrounding themselves with people, both internally and as advisors, who possess the right knowledge so they can concentrate on what they do best.

“I try not to invent too many wheels for myself,” laughs John. “I take a lot of advice; I have a lot of consultations before I make decisions and I believe in delegating.”

That attitude is exactly what allowed him to jump into the construction business in 1989, a business he readily admits he knew nothing about.

“My lack of experience didn’t bother me a bit. I hired the right people,” he says.

An employee of Proctor and Gamble for many years, John had always dreamed of entrepreneurship and decided to give construction a try. The Nagras began building one high-end, luxury home at a time. The next few years, says John, were a trial and error learning experience until 1994, when Elaborate Homes became a registered builder. The company has been growing ever since.

Today, Elaborate Homes and the company’s land division, Elaborate Developments, have annual sales of $50 million and about a quarter of the market share in the city. They’ve built over 1000 homes in the Grande Prairie region and now average about 150 homes each year. Over the last 10 years, the company has added to its product line and now offers entry- and mid-level houses as well as luxury homes.

Elaborate Developments, founded in 2000, focuses on developing complete residential communities. So far, they’ve completed a 52-home gated community as well as a commercial building and three sub-divisions in Grande Prairie.

But John, who believes in strategic planning and setting goals for the company, had a vision that included becoming a large retail anchor, a move that would allow the company to feed its housing division while simultaneously serving the community. In 2007, he began the lengthy process of opening a Rona franchise.

“I was on the golf course with a management consultant up from Edmonton for a forestry event,” remembers Dave Urness, an MNP business advisor in Grande Prairie. The phone rang when they were on the ninth green. “John needed us in 20 minutes because he was talking to the Rona guys.”

Having worked with John and Jas for 12 years, Dave knew responsiveness is key. He has assisted them with a wide range of accounting services including restructuring their operation and introducing them to MNP’s diverse expertise. Dave knew that once John took on the Rona project, there was no going back. “He’s not scared to take a project on and if he takes it on, he gets it done,” says Dave.

But no one could have predicted the challenges the Nagras would face as they worked to make their dream a reality. Obtaining a franchise is a lengthy process. MNP initially helped the Elaborate Group meet the many criteria required by the Rona franchise agreement. Once Rona agreed, financing had to be obtained.

“We did many different projections and budgets to make sure it would work and to prove it,” says Tom Minogue, a business advisor in MNP’s Grande Prairie office. Uncertainty about the right size of store for the market meant new numbers had to be produced for each set of criteria.

But as MNP worked to secure financing, the economy took a nosedive. Banks tightened their parameters; credit was hard to get. The situation was unexpected and unnerving.

“It was very stressful,” says John. “The world was falling apart and banks were just getting tougher and tougher to deal with.”

The store was also bigger than originally planned and required more land. In a shaky economic environment, the original bank backed out.

“It was challenging,” says John. “But I’m very mentally strong. You’re not going to stop this guy. I say, ‘If you don’t do it, somebody else will be doing it shortly.’ And we put it together.”

With the help of MNP, the Elaborate Group secured millions of dollars in capital and operations financing. Rona is open for business and doing well.

The Rona franchise is the last step in a 15-year plan but not, says John, the end of the Elaborate Group of Companies growth. This is just the beginning. The privately owned company is on target to become a $100-million operation in 2010 and plans are in place to grow by another $50 to $100 million shortly thereafter.

But it will remain a family operation. John and Jas are bringing son Sonny and daughter Jasmine into the business and plan to eventually transfer ownership. Sonny is construction manager at the company and Jasmine will join the retail division after graduating university.

While mom and dad have no plans to retire any time soon, they have started the succession planning process. “Kim Drever, our MNP tax specialist, says now is the time to do it because the company is growing so fast. She’s assisting us with succession planning as well as a tax strategy,” explains John.

As this family operation continues to grow, John expects MNP to remain a part of it.

“MNP will continue to be with us for the long-term,” he says. “On a major project, they’re a huge asset and now that they’ve gone nationwide, we look forward to being able to access an even broader range of expertise.”

FOUR HEADS ARE BETTER THAN ONEAT THE ELABORATE GROUP OF COMPANIES, SMART GROwTH AND BIG ACHIEvEMENTS HAPPEN

wHEN PEOPLE wITH DIFFERENT SKILLS wORK TOGETHER TO GET THE jOB DONE.

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9MPACT > Fall 2009 8

While lenders say they are open for business, accessing credit continues to be an issue for many companies with more stringent requirements and smaller amounts being lent. To access credit in today’s market requires greater preparation.

“We’re not out of the woods but we’ve seen more liquidity in the credit system. Borrowers are able to access credit more easily than in the fall of 2008, when it was virtually impossible,” says Charles Addison, Senior Vice President and Director of MNP Corporate Finance in MNP’s Vancouver office.

When the recession hit, lenders were reluctant to put their money into companies because they didn’t know if those companies would survive. Instability also meant lenders couldn’t assess the level of risk as well and couldn’t determine the right price to charge.

The federal government is playing a role in stability, introducing what Doug Bedard, Senior Vice President and Director for MNP Corporate Finance in Calgary, calls an “extraordinary financing framework” to help companies access capital.

“Both Economic Development Canada and Business Development Canada have a mandate to help companies get capital. There are also opportunities for major banks to participate in the credit enhancements being offered through these programs.” Doug also concedes that these kinds of measures lead him to believe that the credit markets will continue to improve.

Interestingly, those with cash to lend say they can’t find anyone to take it. “There’s a bit of a dichotomy,” observes Shawn Mevel, Vice President

and Director in MNP’s Edmonton office. “It stems from the fact that they’re looking to lend on a tighter scale and borrowers aren’t ready to accept that.”

For example, banks that once offered a loan-to-value of 70 per cent have cut back to 65 per cent; borrowers see this as evidence that the banks aren’t lending. “But in fact they are. The truth is that we’re all going to have to adjust to those lower loan-to-value numbers because the lenders get to make the rules,” explains Shawn.

For now, borrowers require more equity when approaching lenders. Unfortunately, they won’t be able to count on second-tier sources as they might have in the past. Banks want to know you have the cash flow to service debt. With secondary lenders also tightening due diligence requirements, some mezzanine financers now ask to see alternative cash flow where they might not have in the past.

Complicating matters, subordinate and mezzanine lenders now see lower-risk opportunities—deals that once would have been snapped up by banks, but now don’t meet their stricter requirements.

Those wanting to borrow need to look at their operations through the lender’s eyes. “Take a look at what the business is doing today and do an internal review. Basically, do your own risk assessment,” says Doug. He says that by stress testing your operation, you can see what you can do to improve your operation today, making it more appealing to lenders in the future. For more information, contact one of our corporate finance leaders, Charles Addison at 604.637.1551, Doug Bedard at 403.536.5609 or Shawn Mevel at 780.969.1493 or your local MNP office.

Tips to help you get the financing you need.

Go in prepared. Every lender is going to do protracted

due diligence. Successful borrowers

document all their information and

demonstrate how their business is

different from others.

Talk to lenders you know first. Relationships matter.

”Our clients routinely leverage off

of our relationships with financial

institutions because the institutions

know us as well,” Charles explains.

Approach more lenders. Find the lender that understands

your industry best. Shawn routinely

approaches 10 to 15 sources of credit

today in contrast to the four or five he

would have talked to in the past.

Don’t ask them take your word for it. You need to show that your

management skills have delivered

results and you’re a good credit risk.

A comprehensive business plan, tight

budget and accurate forecasts will go

a long way toward winning approval.

LENDERS FAvOUR BUSINESSES THAT HAvE DONE THEIR DUE DILIGENCE

Safeguard your acceSS

to credit

9

MPACT > Fall 2009 10 11

S itting on a board of directors today is a different job than it was 10 or 20 years ago. Big

corporate scandals like Enron and the financial market failures that led to the recession have the public and stakeholders of not-for-profits, crowns, government agencies and other large corporations placing higher demands on their board of directors.

Not surprisingly, boards are feeling the pressure. “There is some nervousness around directorship and certainly boards are being held more accountable,” says Judy Murphy, Strategy and Governance Practice Leader based in MNP’s Winnipeg office. “Boards are asking what they are supposed to do and whether or not they are doing it well.”

Corporate governance as defined by Sir Adrian Cadbury is the system by which organizations are directed and controlled.

“In a very broad sense, this comes down to providing insight and oversight,” says Judy. Each individual director brings insight based on his or her own business experiences and knowledge, while the board as a whole oversees the management of the organization.

When the board is using a strong corporate governance model based on best practices, organizations are stronger. Effective boards reduce the organization’s risk and liability exposure, increase stakeholder confidence and help the organization achieve peak performance. “When we do a corporate governance review, we evaluate the board’s performance in three areas: accountability, stewardship and effectiveness,” says Judy. MNP compares

the board’s policies and processes against best practices to determine how well they are performing and if changes need to be made. When gaps are identified, MNP works with the client to create new policies that will address those gaps and offer orientation and education to board members.

Risk management is attracting greater attention. While it is the responsibility of most boards, it is an area where gaps can easily occur. “Risk management is a part of stewardship and is much more in the forefront than it was a number of years ago,” Judy explains. “This means that the board now has to become a little more involved in strategic planning so they understand the balance between risks and the opportunities that have been considered by management.”

While creating and implementing a risk management plan remains the task of management, the board is charged with ensuring a risk management plan exists and that all material risks to the company have been identified. “They need to have the knowledge and insight to ask the tough questions,” says Judy.

In terms of effectiveness, the board of directors is responsible for ensuring its own effectiveness as well as that of the chief executive officer. Boards are responsible for evaluating their own performance annually and ensuring they are, in fact, adding value.

Determining the core competencies required of individual board members and how to evaluate those competencies is, says Judy, more important today, than in the past – requiring more work up front.

Accountability and stewardship functions need to be taken very seriously. Strong boards promote ethical behaviour, safeguard the integrity of financial statements, respect the rights and needs of stakeholders and ensure timely, balance disclosure. They also take the time to ensure that the responsibilities of the board, its committees and the chief executive officer are clearly defined and followed. Although MNP uses the same model to evaluate many different organizations, the actual steps each board of directors will take differs from organization to organization.

“Every board has to make sure they address their accountability, stewardship and effectiveness responsibilities, regardless of their legal structure,” says Judy. “However, one size does not fit all and the way in which they do that varies depending on the corporate culture.”

Judy offers not-for-profits as an example. Some are large with a senior management structure so there is less reliance on volunteers while others are small, with more committee involvement in operations. How they handle any particular area of responsibility will differ. “But that doesn’t let anyone off the hook for carrying out their governance functions,” Judy says.

For more information on managing your risk through effective corporate governance, contact judy Murphy, Strategy and Governance Practice Leader at 204.336.6225 or your local MNP office.

MINIMIZE YOUR RISKS BY EFFECTIVELY EVALUATING YOUR BOARD OF DIRECTORS

GRADING ThE BOARD

“IN TERMS OF EFFECTIVENESS, ThE BOARD OF DIRECTORS IS RESpONSIBLE FOR ENSURING ITS OwN EFFECTIVENESS AS wELL AS ThAT

OF ThE ChIEF ExECUTIVE OFFICER.”

“That’s where things get tricky,” says Kal Ruprai, Partner, Commodity Tax in MNP’s Toronto office. “The GST is transaction driven, so every single time you have a transaction you have to decide whether you charge 13 per cent or five per cent. If you charge too much, then your client or customer is unhappy with you. But if you don’t charge enough, the CRA will assess you under audit and charge interest.”

Another issue is that it is proposed that a full input tax credit can’t be claimed on the provincial component on certain purchases. These include the expected items, such as meals and entertainment, but also things like electricity not used in manufacturing, automobiles weighing less than 3000 kilograms and the fuel for those vehicles. Again, it’s easy to make a mistake and mistakes can add up quickly.

Managing the Transition It is imperative to set your systems up as soon as possible and ensure they are correct.

“It’s all systems driven,” Kal says. “So if your system is set up incorrectly, then even if you have small dollar value sales or purchases, but you’ve got many transactions, the error really multiplies. The key is to analyze it and make sure you get it set up properly the first time.”

The government will be providing transition rules in the late summer or fall of 2009 and those rules may be complex.

EDITOR NOTE: B.C. Announces PST and GST Harmonization At press time, Premier Gordon Campbell announced that B.C. will also harmonize its PST with the GST effective July 1, 2010, the same date as Ontario’s harmonization. We will provide more details on B.C. PST harmonization in future communications.

> Corporate tax in OntariO

what’s Happening? If you have a permanent establishment in Ontario, you probably already know you’ll be filing one corporate tax return this year instead of the usual two. In 2006, the federal government and the Ontario government agreed to let the federal government administer Ontario’s Corporate Tax on behalf of the province.

That agreement substantially takes effect this year; for any fiscal years ending in 2009 and going forward, businesses file one return with the federal government.

“The idea is to streamline things and make it easier for business,” says Stella Gasparro, Regional Tax Leader for MNP in Toronto. “The

13MPACT > Fall 2009 12

What you need to know to successfully manage tax changes in Ontario

Harmonious Harmonization

The Ontario and Canadian governments are teaming up to

make it easier for companies doing business in that province

to manage sales tax and corporate tax through two new

tax harmonization programs. While harmonization has its

benefits, there are some risks to be aware of.

> SaleS tax in OntariO

what’s Happening? As of July 1, 2010, the federal government will be administering Ontario’s provincial sales tax along with the GST. This means that all sales of goods and services in that province will now be taxed a 13 per cent harmonized sales tax (HST).

Sales tax harmonization makes sense for most businesses. All companies currently absorb some PST as a cost, but can claim back all GST as input tax credits. Consequently, the Ontario PST increases the cost of doing business putting companies at a disadvantage on the national and global playing fields.

Under the harmonized structure, consumers in Ontario will pay more since some items, such as utilities for example, are currently exempt from Ontario PST. However, since the costs for businesses will decrease it is believed that the savings will be passed on to consumers in the form of lower prices.

The Issues If a business located inside or outside of Ontario sells goods, harmonized sales tax is relatively straightforward and easy to apply. Any goods delivered in Ontario will be taxed at a rate of 13 per cent instead of five per cent.

But Ontario’s PST didn’t apply on most services, specifically intangibles such as trademarks or real property, making the new rules difficult

to interpret for some businesses. For example, if a company enters into a national services contract

to perform services in all Canadian provinces, what rate applies?

RESEARch ANd dEvElopMENT coMpANIES IN oNTARIo: TAKE NOTEIf your company conducts Scientific Research and Experimental Development (SR&ED) in Ontario, you need to be aware of unique provisions under the corporate tax harmonization program that can help you defer payment of transitional tax owing beyond the five year period. In addition, a new non-refundable four and a half per cent Ontario tax credit was introduced to replace the prior Ontario deduction for the federal investment tax credit related to Ontario SR&ED. Talk to your tax advisor about these provisions and a plan to help you take full advantage of those credits before it’s too late.

corporate tax return will now be like the personal tax return in that you file with the federal government and include your provincial schedules” (except in Quebec where a separate personal return is filed).

The Issues Ontario businesses should be aware that future audits will be conducted by the federal government for both federal and provincial purposes. While this won’t be an issue in most cases, having two audits, as was done in the past when Ontario conducted its own, left room for different points of view during assessment. In addition, payments, appeals and collections will be administered by the federal authorities for Ontario.

There may also be tax liabilities due to the harmonization. “Ontario had to somehow simplify its tax system to match the federal model,” says Stella. “Ontario agreed to assess tax on a uniform taxable income figure and to adjust Ontario tax attributes to the existing federal amounts.”

What does that mean? Take tax depreciation as an example. It’s possible you may have written off an asset differently for federal purposes than for Ontario purposes. “To the extent that they’re different, the new legislation requires that you use the federal balance for Ontario purposes, making them the same,” says Stella. “An adjustment is created and that adjustment could be a tax credit, meaning the government will allow you a credit against taxes otherwise owing, or a tax debit in that you owe the government.” Tax debits can arise even if a company has losses in the year meaning you could owe the government in a year where you lost money. Transitional debits and credits are generally spread over a five year transition period.

Some companies are concerned that they will lose access to Ontario credits. They shouldn’t worry. Credits such as the Ontario Innovation Tax Credit for Research and Development and the Apprenticeship Training Tax Credit offered by the province, remain in place.

Managing the Transition Most businesses planned for corporate tax harmonization last year. If you haven’t, now is the time to explore possible tax liabilities or tax credits and find out how to manage them with your advisor.

To get more information on tax harmonization, call Stella Gasparro at 416.260.3515 or Kal Ruprai at 416.596.1711 or your local MNP office.

MPACT > Fall 2009 14

payroll payments made to terminated employees and writing off unreconciled receivable balances.

How to Develop the Right Tone at the Top

“Establishing a control-conscious environment that supports ethical values and business processes is necessary,” says Etienne Poulin, a risk advisor in MNP’s Enterprise Risk Services group in Calgary. Leaders need to promote internal control and accountability through their own behaviours, communicating that policies and procedures must be followed and that fraud or unethical acts will not be tolerated. It’s also up to your most senior people to ensure employees understand that internal controls are part of their job and that

circumventing or avoiding internal controls is not an option.

Here’s how you can achieve an effective ethical tone at the top:

Implement a Code of Conduct

Include your organization’s mission, a statement from the CEO and/or board of directors, organizational values and principles, ethical and conduct guidelines, guidance on practices and examples of ethical and unethical behaviour.

Implement an effective communication plan for the code to all stakeholders and employees.

Provide education and training on the code to all employees.

Implement an annual process to confirm personnel’s understanding and compliance with the code.

Develop and Implement a whistleblower Program

Communicate the objective and the mechanism of the program to all personnel

(e.g., website and posters in public areas) to raise awareness.

Administer the program independently from management by using an independent third party.

develop a process to report incidents to senior leadership.

Improve Hiring Practices

Perform background checks on individuals considered for employment and for promotion to positions of trust.

Expand employee screening process to include credit checks for positions of trust and substance abuse checks for high-risk and safety-sensitive positions.

Define Organizational Structure

define organizational structure to clearly establish key areas of responsibility and authority and reporting lines.

define roles and responsibilities of personnel—including internal control responsibilities—in job descriptions and hold staff accountable through the performance evaluation process.

Implement Formal Policies and Procedures

develop formal policies and procedures for operational and financial reporting processes that are aligned with your strategic goals.

Provide adequate education and training to enable personnel to effectively carry out their responsibilities.

Monitor and strictly enforce compliance with policies and procedures.

For more information on how to develop the right tone at the top and manage your risks contact Gordon Chan at 403.537.8429 or Etienne Poulin at 403.536.5536 or your local MNP office.

15

Manage your risks by setting

the right tone at the top.

How your senior management team views internal controls can have a significant effect on

your organization.

“If senior management doesn’t buy in to the concept of internal controls, if internal controls aren’t viewed as important at that level, any policy or procedure put in place is not going to be effective,” says Gordon Chan, Enterprise Risk Services Leader for MNP in Calgary.

Gordon explains that this is one of the reasons why the Canadian Securities Administrators require, with National Instrument 52-109, CEOs and CFOs of public issuers to personally certify that they have evaluated the effectiveness of the issuer’s Internal

Control over Financial Reporting (ICFR). “They require that officers be accountable for the implementation and operating effectiveness of internal controls,” he says. It just makes good business sense for all companies to implement effective ICFR as they can reduce risk of operational errors and the risk of fraud while simultaneously improving the quality of financial reporting.

It’s easy to see the importance of internal controls when one person at the top of an organization is able to defraud investors of billions and it all comes down to tone at the top: the attitude senior management takes to internal controls. The root cause of corporate scandals such as Enron and worldcom is that these organizations did not have effective tone at the top.

On a smaller but still damaging level, organizations with weak control environments typically have a high occurrence of internal control failures resulting in errors that will cost you financially and can also negatively affect your company’s reputation. Example situations include paying invoices twice,

Take Control:

MPACT is published two times a year by Meyers Norris Penny. It provides information that is necessarily general in nature. For guidance on your individual situation, we recommend you consult your MNP professional.

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