Mark Russell and Dave Barry, both satirists, have complained that life is getting be such a parody of itself, it is hard to make a living satirizing it!  If you read my Friday post about the DISD credit card scandal, wait till you see the article on the front page of the Sunday 1/28/07 edition.

Two principals have been asked to resign and another is being reassigned.Dwain Govan has refused to resign.A third principal is being ‘reassigned.’  He has purchased some $236,300 between January 2004 and June 2006.  What you say, well $10,589.15  for furniture at Haverty’s, not a DISD vendor.  And $22,667.15 at Fry’s, also not a vendor, and this included four flat screen tvs bought with federal grant money.  Mr. Govan believes "he is a fall guy."  Let me be the first to say I don’t think anyone should be tried in the newspaper, but there is quite a bit of circumstantial evidence, none of which is being denied. 

Here is the link to DMN  but it will probably change to something else in a day or two.

Well, I will put the article on reserve  in the library so you can read it yourself, there is more, much more.  But to the issue at hand, DISD has said about 10 employees will face criminal charges, and about 600 could face administrative discipline, which is half of all the folks that were issued cards.

Okay several questions come to mind.

Where are we drawing that famous line in the sand here? At what level of dollar theft, er misuse, er misunderstanding, er, we must have coded the account wrong,  am I
reprimanded
re assigned
asked to resign (how about fired, is that out of fashion these days?)
prosecuted
booted permanently and totally forever and always out of Texas Education?

Okay so  I suggested the last choice.  But last time I checked theft by credit card was just that, the only dollar difference is a misdemeanor or felony. 

Meanwhile were this a final exam question, no this is too far fetched for that…

Where were the internal auditors?
Most of you in the grad class are not accounting majors-well here is the perfect reason to learn a few things about accounting. Suppose you woke up to Sunday morning newspaper story like this  as a Board DISD member or Superintendent  or staff member?  What would you say at the press conference? What should you have done to guard against this happening?  The answer is proper internal control.  But no doubt the Board was under the impression they had some of that, whoops.  So what are the tough questions to ask to make sure internal control is in place.

IN answer to my own question, I went back after making this post amd examined the DISD site and am adding this link to the new District Integrity Office  at DISD.  At present that job shows to be vacant, evidenty a newly created post. And there is an interim Internal Auditor and that dept does show to report to the Board.  I don’t know any further facts and will not comment, however, what do you think of a District Integrity Office? 

Meanwhile

Where were the external auditors?  Is this gang that can’t audit straight still on the job for we taxpayers?  Do either the external or internal auditors have any culpability here?

Well who knows what next week will bring?  Another story in the paper has the Dallas Chamber of Commerce still trying to overcome the image created by the tv series, Dallas, and its crafty central character, J R Ewing.  Sounds like there is still some image work to be done……

DLE

Okay, what’s going to happen?  In the economy for example.  After all, isn’t the point of a college business education to give you the tools to make such judgments?  Consider those whiz kids on page 58 of the B/W 1/22/07 getting six figure salaries to figure that out at Barclays?  Chill, it costs a lot more to just live in dowtown SF than in Dallas….  a whole lot more, trust me…..

What is involved here is Critical Thinking.  Consider these two articles from this same issue of B/W.

About That Short Housing Slump on page 13 declares that housing  corrections average 27 months, and we are only a year into this one,  concluding, this is going to be a slow grinding drain on the economy, reports otherwise are just noise.  the housing sector will fall further, and fall hard

Now turn to p;age 31-Strong Job Markets Dash Hopes for Rate Cuts which says there is more buying power, more resilient consumer demand, indeed broad gains in the labor markets at yearned ran counter to some recent downbeat reports portraying the economy as on the verge of succumbing to the housing recession and softness in manufacturing. The labor strength was powerful evidence that the weakness in those two sectors remains isolated, and is likely to remain so.

You can go to http://www.businessweek.com and click on magazine when the current issue is up, after that they tend to put other aritcles and block you if you don’t subscribe, so no link.

In the December 2006 issues, Garry Shilling predicts that the recession has already begun due to housing slowdowns. Jim Rogers on Neal Cavuto’s show  says this will be a slow year, the government has thrown everything at the economy it can after all.

Someone is right, someone is wrong,  They are all looking at the same stats but arriving at opposite conclusions. 

I learned in the 1980s that technical analysis of markets offers real answers using real data. I will be discussing futures and derivative markets before the intermediate class.  If the grad class is interested I would be delighted to explore these topics starting at say 8:30 AM on Sat morning, no penalty if you can’t get there early.  Seriously, this is a topic not discussed in college, the use of graphical analysis which is what the quants at Barclays are really doing anyway. 

DLE 

I have added my suggested list of movies with ethical themes to the Handout section of WEB CT for your class. An asterik indicates I have a copy of that movie.  Sadly, most video stores either sell older ones or a few may be in the classics section. However, amazon.com to the rescue, all of these are available for ten bucks or so and yes I will buy your copy if it is one I don’t have for future classes, so get busy and find your favorite.

No you are not constrained by this list, certainly my original list has expanded to this one as from student suggestions, Not Without My Daughter was such an addition.

I do ask that you tell me your selection first so that we can avoid having two people do the same film in the same class. 

I will also be posting a list of business books I have, there is the Cedar Valley CC library and the Lancaster Public library both on Dallas Avenue which is just the next exit east on I 20 from Houston School Road. Again, I find that if it is something I want it is easier to just go to amazon.com and buy used for about what I would spend in gasoline and time trying to find a copy.

Dennsi Elam

All

The graduate class has responded well to my request to discuss articles on this Blog.  Indeed, Jordan McClary and Sharell Gallien made 11 and 10 posts respectively.  WEB CT gives me a report on who does what so those of you who have not ‘hit a lick’ yet take note.  My feeling reading the posts is that I have managed with this many posts to appeal to some of your interests. 

It may be that I need to group all three classes together so we are all on the same discussion page so to speak, it may be a bit late to do that but I will see.

Sharell ran across an interesting article about the president of Texas Southern . Seems she, the President not Sharell,  is charged with co opting $650,000 to her own use.  We will be examining the motives and rationalizations of such folks every semester. I have posted the list of movies by the way, so start your DVDs and VCRs as I will soon be assigning times to report to the class. 

Note to the undergrad classes, you can start posting on the discussion site of WEB CT anytime now…..

Dennis Elam

There is a good article on the low end luxury real estate market ($750K-$1M) on page  W 8 of the 1/26/07 WSJ.  It never pays to be late to the party so to speak.

And again in the statistics don’t lie but dept….when I was studying to become a broker in 1972, mutual funds handily indexed the year 1931 as the assumed start point to buy a mutual fund.  That handily indexed the DOW industrials to its all time low at about 44, which was a whopping 300 at the top in 1929. This of course was wildly unrealistic, virtually no one started investing at the bottom of the Great Depression, but the arithmetic of it made the theoretical returns look oh so much higher.  It would be the 1950s before the DOW actually traded over its 1929 high again after all, if they had taken that year as a start it would be obvious that no one would have made any money in a mutual fund for thirty years!

A similar thing is about to happen.  2002 was a melt down year what with 9/11 and the dot.com bust.  This year will eliminate it from the five years average. Five years now spans 2003-2006 eliminating the disaster of 2002.  This will magically transform the five year ‘average
returns.   See the article on page Cn 1/26/07, The Butual Funds Eraser. This is exactly the sort of information I am trying to deliver to you outside the normal textbook and classroom.

DLE

PS can you identify the home pictured at the start of this post?

Yes I spend a good deal of time talking about the troubles of Ford and GM, but right before our eyes, nothing demonstrates Dr. Deming’s 14 points and seven deadly diseases of TQM intertwined with , ahem, accounting difficulties, better than this.

I made the post Making a Change a Tough Job before I read the article about GM Ford in the Friday 1/26/07 front page article.  Please read this article.  Title Big Three face new obstacles in restructuring, it details that all the cost cutting and muscling both suppliers and dealers is over.  Suppliers are in bankruptcy or are just saying no, dealers now have multiple dealerships, often with better selling Asian vehicles, and worse, GM Ford et al continue to sell valuable assets to bring in cash to shore up falling market share in hopes that sometime soon they will have a hit on their hands.

Worse, Ford is suffering an outflow of management talent, well, would you stay if  say KIA offered you a job?  So Ford is considering offering bonuses to get mgt ‘talent’ to stay.  Well, remember the story about the new North American marketing chief spending $200K to fly back and forth to his home in  FL, needless to say this is not sitting well with unions that are being asked to make sacrifices. 

I will be asking you to make presentations this semester.  This article makes an excellent use of charts on page A 8.  Take a look at Ford negative cash flow  versus debt assumed to bring in cash.  This is the worst of all worlds-the debt equity ratio rises while NOI is negative!  Now GM is considering selling Allison heavy duty transmission unit.  Ford has hocked its plants.  GM has sold 50% of GMAC.  How long does one mortgage what is left to save a sinking ship?

I thought the most interesting question was posed at the very end of the article.  The WSJ asks, ahem, do auto makers’ financial problems affect your decision on what car to buy?  Now there is a good question.  If eventually buyers begin to doubt the longevity of the auto maker, will Ford be here to service my F 150, the end is pretty well sealed. 

Again, Deming makes the point that long term strategy is just that and brings long term results.  This re shuffling of the balance sheet can buy some time, but product saves the day.  Jerry Flint suggest GM will be a 20% market share company, and he has criticized Ford for lacking a real plan. 

As I said yesterday, failing to make radical change in the face of radical market shifts can eventually be fatal.  Since WW II, Packard, Studebaker, American Motors are companies that failed or were sold. GM has now shuttered Oldsmobile and thinks Buick, Pontiac, Hummer and Saab are all weak.  Ford tinkers with closing Mercury and Lincoln has little to sell.  Ironically Foose in Farmers Market is doing well making a 40 year old GM and Ford product.  Gee if only GM and Ford could get back to the future……

Well even among sad stories there are winning stories, check out the story in the saturday morning DMN about Classic Chevy in Grapevine, the number one volume chevy dealer in America.  The story says they have the largest inventory, about 1700 and sold about 4300 last year.  That’s an incredibly slow inventory turnover, but the article says it brings more lucrative repair and maintenance and trade in business.  You can check them out at Classic Chevy   The article mentions a more laid back customer friendly attitude that has attracted customers and execs from other dealerships gobbled up by large chains. See, there’s Dr. Deming again, put the customer first….

DLE

The headline in the Friday Jan 26 2007 detail how Gloria Orapello rang up  $383,788 in personal charges on her DISD charge card.  The theft by credit card occurred over  a period of 27 months.  Apparently half of the 1,200 employees are guilty of some level of theft by credit card.  Now this raises several questions. 

Clearly no adequate system of internal control was in place at the time the cards were issued.  Why not? Where were the internal and external auditors?

Clearly no one had any oversight over these employees, even the simple expedient of limiting the card to $500 would have helped.

Ms. Orapello says she "greatly regrets her conduct in every way," according to her lawyer.  No doubt she regrets getting caught but what are we to do with Ms. Orapello now?  What is justice?  Perhaps we should call on Prof Senderson in Criminal Justice, what was this woman thinking would happen?

Ethics requires a framework of reference.  What standards are violated?  Who are the stakeholders?  What are the consequences?  Under different theories of ethics, justice, rights, etc. what harm is done and to who?  She could face ten years in jail and $250,000 in fines, DISD has apparently paid the charges. So we throw her in jail, if so how would she pay the fine?  Do we need a new sort of justice for such a crime, how should she pay for her crime?  And what do we do with the others?

Now, what is the collateral damage?  Is there further damage? Suppose DISD floats a bond issue, should we trust them to safely spend the money?  For that matter can they be trusted to even spend the current level of property taxes?  What does this say about the general level of regard for ‘education professionals?

Please read the complete article, we will discuss this in class and examine it further in auditing this next fall.

DLE

Here is a great story about Managerial Accounting.  MCD and TGT have done well at squeezing more money out of exisitng stores, WMT has not, here is how McDonald’s is using 13,000+ restaurants to make more money from existing locations.

The trick is to use your location and add value during times that you are not now selling meals.  The Egg McMuffin made breakfast a fast food item. So by opening 24 hours MCD is able to attract the 24/7 crowd that works different hours.  A longer than usual story and a great managerial read.  This is what every chain store wants to do but few achieve.

CLE

I just read another insightful column by Jerry Flint about  GM’s market share loss.
Please click and read the column. Mr. Flint does an admirable job of using statistics that anyone can understand, look at the waterfall decline in market share.  What was the GM Board thinking?  Yet the Board did not take action to remedy the situation.  As Mr. Flint says, nothing is going to change until the market share stops going down.

I was a Federal Bankruptcy Trustee for five years.  I observed the same thing.  People thought that small changes would make everything right again-it won’t.  It is like Jimmy Carter wearing a sweater in the White House amidst the second oil embargo.  One can see the same thing in the worst of all situations, volunteer boards.  Volunteers never have a stake in the opeartion, if it fails their lives are unaffected. This cannot be tolerated. Yet Presidents line Boards with folks friendly to them to make sure just such opposition does not emerge.   Much the same can be said of the GM board.  As market share declined, they continued to earn Director Fees and no doubt met in the poshest of places. 

Another example would be the current plight of the Republican party.  Republican attack dog Ann Coulter observed that Republicans lost about the average number of seats in this last sixth years Presidency election.  True Ann, but they also lost control of the House, Senate, a majority of governorships, and hundreds of state house seats.  In short, a tidal wave turn occurred, not just a loss of 30 some odd House and 6 Seante seats.  I am not trying to get us off on politics but  this perfectly illustrates how one can either use the same statistics to do little or nothing, or sound the alarm for change.  Back to autos, I suspect Jerry Flint is right, that both Ford and GM will end up permanently smaller.  Ford wil probably end up as a light truck manufacturer the way things are going.

I started this post with the movie poster from Conan the Barbarian.  A movie star in what used to be striclty B movie territory, muscle men battling in an imaginary landscape, has become the most successful turn around politician on the scene.  After a rout that defeated all his ballot initiatives and being given up for dead, Arnold fired staff, hired new ones,  did a 180 on his strategy, and left his Dem opponent wondering what happened.  Contrast this with Bush who waited until after the election to remove Rumsfeld-in fact he did so the next day after denying he would. Even Chuck Schumer stated that if Bush had done that three months earlier, the election might have been totally different.

Bottom line-whether it is Ford, GM, or the White House, big developments call for big changes.  Gradualism will take you the way of Packard and Studebaker, not Toyota or BMW. Yet rare is the individual who in the face of declining fortunes who is willing to stand up and make radical change.  We will be visiting other examples here on the blog of such action, think Lech Walesa in Poland.

DLE

:Here is a piece of PR fluff-Existing Home Sales Plummet.  This article notes that home sales suffered their worst drop since 1989. Indeed the Chief Economist for National Association of Realtors NAR admits that 40% of the market in 2005 were speculators buying and hoping to re sell for a profit.  Indeed, there is even a television show named Flip or something that features such speculation. When such speculation reaches mainstream tv, you know it is a sign of a top.  Then in the same breath the economist concludes, my emphasis, that that speculators had now left the market .  What he really means is that housing sales slowed because the investors could not sell the ones they had purchased.  indeed, look a bit deeper and he notes that even in 2006 the prices of homes sold managed to rise 1.1%.  Now there is a bit of statistics don’t lie but liars are always quoting statistics.’  What about the houses that did not sell, what did their prices do? The answer of course is that there is now a huge overhang of houses on the market that cannot be sold at the prices they were bought, much less for more.

All of which is to say, it pays to read statistics very carefully.