Risk Mitigation – When Catastrophe Strikes

In the course of doing business, a company may be affected by an insurable loss, such as a fire, flood, equipment failure or explosion. These incidents, if not handled properly, can result in significant damage to the company’s profit, financial stability and possibly its reputation. It cannot rely solely on its insurance policy to avoid the economic loss that can result from an incident.
The important steps to mitigate the risks of a loss include:

  • Having a formal risk mitigation plan in place.
  • Accounting for the claim with a proper reporting structure.
  • Properly quantifying the claim and being actively involved in managing the relationship with the insurance company.


Risk mitigation plan

At first, be prepared: Have a risk mitigation plan in place that can be put into action immediately upon the occurrence of the incident.
As part of the plan, identify people who will take charge and manage the claim process. Each member of the team would have preset tasks in the event of an incident. The plan should also specify alternative production facilities, suppliers and warehouse space, with the goal being to keep the company operational and minimize losses.

As a next step, carefully review insurance policies and identify all potential issues regarding coverage, valuations, exclusions and endorsements. If the policy is unclear, it should be reviewed with the insurance broker to make sure there is adequate coverage. Once an incident occurs, it will be too late to find out about coverage limitations that jeopardize the company’s ability to recover.
External advisers should be identified in advance to assist during the incident. They may include accountants, lawyers, risk managers, engineers and others. Using external advisers who can help with the claims process will allow the company to focus on its day-to-day operations. They will also allow the company to level the playing field with the insurance company and its representatives who deal with claims on a daily basis.

Also, most insurance policies will cover the costs of professional services needed to assist with the claims process, through the professional fee endorsement portion of the policy. External advisers are knowledgeable with how claims work and can accelerate the process, increase the recovery amount from the insurance company and relieve pressure on the company’s staff.

Accounting for a claim

It is vital to capture all loss-related costs. The company should set up an insurance receivable account on its balance sheet, with sub-accounts to capture all the costs in the correct “buckets” in accordance with the insurance policy. These may include cleanup and debris removal, property repairs, etc.

It is important to have the costs categorized correctly to facilitate the payment of the insurance claim. If the costs incurred from the incident are not allocated to the correct categories, the insurer may not pay for them. For example, costs related to the business interruption portion of the claim, such as loss of sales resulting from downtime, must be accounted for separately from property damage costs. Supporting documents should be included to provide backup for the costs, such as invoices, time sheets, cancelled cheques and correspondence.

Managing the relationship

In quantifying the claim, the company’s methodology should be consistent with its insurance policy. One of the most widely used methods is known as the “three-column approach,” which uses a modified income statement and presents the calculation in three columns. Column one itemizes results the company expected to achieve if not for the incident. Column two is the actual results achieved following the incident. The third column is the difference between the two, or the loss incurred. The company uses this method for its sales, cost of sales and extra expenses.

The company lead representative in charge of the claim should work closely and openly with the insurance company. This is not an adversarial relationship and should not be treated as such. The insurance broker should also be used as a resource to help co-ordinate the loss recovery. It is important to keep the insurer and adjusters advised of any changes that may affect the claim.
If after submitting its claim the company is not happy with the insurer’s settlement offer, it should take steps to explain its position carefully. External experts experienced in dealing with the insurer can be of assistance during this process. Make sure that all the components of the claim have been set out clearly and accurately with adequate supporting documentation.

As mentioned previously, the insurer requires documentation and will not just take your word for it. The company should present its claim in person to the insurer and may request that its broker be in attendance. Do not change the rationale or methodology of the claim once it has been submitted as this will damage the credibility of the claim.
By following the steps detailed in this article, a company can be better prepared to mitigate the losses from a loss incident.

The following article appears in the March 8, 2013 edition of Lawyers Weekly and can be viewed in it’s original form here.


Steven Polisuk is a Chartered Business Valuator, Certified Fraud Examiner and recognized as an expert witness in the Ontario Superior Court of Justice for the quantification of economic damages. For the past twelve years, Steven’s practice has focused exclusively in the areas of valuation, litigation support, personal injury claims and forensic accounting. Steven has published several articles and is well respected in his field as an expert in damage quantification for commercial litigation, insurance claims (including business interruption) and for personal injury matters. 

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Beware of Fraudulent Communications

Occasionally, taxpayers may  receive, either by telephone, mail, or email, a communication that claims to be  from the Canada Revenue Agency (CRA) but is NOT. In all these cases, the communication requests personal  information, such as a social insurance, credit card, bank account, and passport numbers, from the taxpayer. These fraudulent communications are also referred to as scams or phishing.

Invariably, the communication  argues that this personal information is needed so that the taxpayer can receive a refund or benefit payment. Another common  scam refers the person to a Web  site resembling the CRA’s Web site where the person is asked to verify their identity by entering  personal information. Taxpayers should not respond to such fraudulent communications.

To better equip taxpayers to identify  those communications that do not come from the CRA, the following general  guidelines are provided.

The CRA does not do the following:

  • The CRA will not  request  personal information of any kind from a taxpayer by email.
  • The CRA will not  divulge taxpayer information to another person unless formal authorization is  provided by the taxpayer.
  • The CRA will not  leave any personal information on an answering machine.


When in doubt, ask yourself the following:

  • Am I expecting additional money from the CRA?
  • Does this sound too good to be true?
  • Is the requester asking for information I would not  include with my tax return?
  • Is the requester asking for information I know the CRA already has on file for me?
  • How did the requester get my email address?
  • Am I confident I know who is asking for the  information?

Examples You will find examples of a fraudulent letter, emails, and online refund forms on the CRA’s Web site. As per telephone calls, the CRA will occasionally leave messages for taxpayers on their answering machines. In these cases, a callback number will be provided along with a request to have the taxpayer’s SIN available upon callback. However, it is important to note that not all telephone messages purporting to be from the CRA are genuine. Should taxpayers wish to verify the authenticity of a CRA telephone number, they should contact the CRA directly by using the numbers on our Telephone numbers page.  For business-related calls, contact 1-800-959-5525 and for individual concerns, contact 1-800-959-8281.

If you have responded to a fraudulent communication and have become a victim of fraud, please contact the Royal Canadian Mounted Police’s Canadian Anti-Fraud Centre by email at info@antifraudcentre.ca or call 1-888-495-8501.

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Partnership Year-Ends – Tax Changes

W hat are the tax implications of a member of a corporate partnership having a fiscal yearend different from that of the partnership? The latest federal budget provides a new answer to that question. Previously, partnerships owned by corporations could defer taxes on their income. They did this by setting the year-end of the partnership on a date after the year-end of the corporate partners. For example, if a corporate partner had a March 31 year-end, the partnership could have an April 30 year-end in order to defer the partners’ income taxes on 11 months of income from the partnership. The budget proposals of March 22, 2011 will do away with this deferral opportunity.

Henceforth, each corporate partner will be required to include in its current fiscal year its share of the partnership income calculated on the deferred portion of the partnership’s fiscal year. This period is referred to as the “stub period.”

There will surely be some fine-tuning of the calculations but generally this new rule applies to all corporate partners, other than professional corporations,
that have year-ends of March 23, 2011, or later. “Some clients were concerned about the additional tax burden of having to include additional income in
their fiscal years ended March 31,” says Tax Partner Sunita Arora.

“The government has made a transitional reserve available to permit the stub-period income to be brought into income over five years, using a graduated formula.”

Furthermore, the Canada Revenue Agency has stated that they will also apply similar rules to members of joint ventures and co-tenancies. At this point, these
details have not been released.


Donations of Flow-Through Shares

Registered charities may receive fewer donations when proposed changes introduced in the March 22, 2011 federal budget come into effect. These proposals, which are now in draft legislation, aim to reduce the tax benefits of donating publicly traded flow-through shares to registered charities. “The budget proposes that only the capital gain in excess of the original cost of the flow-through share will be exempt from tax,” explains Senior Tax Partner Jeff Nightingale. “This is a significant change since an added benefit of donating flow-through shares will no longer be available to taxpayers. When this draft legislation becomes law, the change will take effect for any shares purchased after March 11, 2011.

“Under the existing rules, the tax cost of the shares is reduced to nil by virtue of the flow-through of deductions and credits. If the shares are donated, the resulting capital gain, which is equal to the value of the shares, is not taxed. The proposed change will tax the portion of the share cost that was written off when purchased, thereby significantly increasing the after-tax cost of the donation.” If you need further information, please contact your Lipton adviser.


Using Social Media in Your Business

Social media is acknowledged by most business owners today, yet there is still confusion over how it should be used. According to Systems Administrator Bryan Walderman, the question is not if, but how you should use social media as a marketing tool. “Social media is here to stay, and it’s too large a market to ignore. The sheer number of people using these sites is staggering – it’s been said that all Facebook users together would constitute the third most populated country in the world.” Of the hundreds of sites available, the most popular are Facebook, LinkedIn, YouTube and Twitter. Each site has its own demographics, cutting across all ages and groups, enabling business owners to target specific markets. Best of all, these sites are free.  Where do you start in creating a social media presence?

Bryan offers this advice:

  • Identify the site.
    “Do your research. The type of business determines the media channel used. Tap the know-how of younger members of your staff or family.”
  • Create a policy.
    “Obtain legal advice. The policy outlines the conditions of use and comprises human resources, information technology, legal and marketing principles. One aspect should cover employee use of social media during work hours.”
  • Maintain your page.
    “Maintain your presence by updating your page regularly so it remains relevant to your target market.”
  • Consider security.
    “Social media sites are password protected and encrypted. However, if you want 100 per cent security, these sites may not be for you.”
    For more information, please contact your Liptonadviser.

Professional Profile – Jeffrey Nightingale, BComm, MBA, CA, TEP

Senior Tax Partner Jeff Nightingale values the same things at Lipton LLP today as he did when he joined the firm 25 years ago. “We are a true partnership. Even
with all the changes in business and technology, our core values have remained the same. We share ideas freel and collaborate as a team to deliver the best solutions for our clients.” As taxation has evolved over the years, Lipton’s tax team has also grown significantly under Jeff ’s leadership, keeping pace with the complex changes in estate planning, tax planning and compliance. The team now consists of a second tax partner and two tax professionals, including two U.S. CPAs.

A graduate of the University of Windsor, Jeff obtained his MBA from Babson College in Wellesley, Massachusetts. He was recently appointed to the Ontario Institute of Chartered Accountants Appeals Committee, which conducts appeals of decisions made or sanctions imposed on Chartered Accountants by the Discipline Committee. Jeff is also on the Budget and Finance Committee and Audit Committee of Temple Sinai Congregation, having previously served as its treasurer.
With Jeff and wife Sherri’s three children now young adults, he plans to even further increase his time and involvement at Lipton. He explains, “We pride ourselves on serving clients with an entrepreneurial bent, which in turn means that the partners and staff must always be leading edge.”