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Simpson Door Chooses Birmingham for New Facility

Washington State-based Simpson Door Co. has opened a distribution and light manufacturing facility in Ensley. It’s the third location for Simpson Door, which was founded in 1912, and the company plans to use it as a gateway to the Southeastern market.

The 30,000-square-foot facility is the company’s third but its first outside of Washington State. It represents a $35,000 capital investment with three new jobs. The company has 280 total employees.

“The biggest reason for our new facility in Birmingham is logistics,” says Brad Loveless, marketing manager for Simpson. “Having a warehouse in Birmingham logistically allows us to get products to the Southeast more efficiently, quicker and as a better price for customers. Any production facility that is close by logistically helps everyone throughout the channel, from the lumberyard all the way down to the homeowner.”

The Ensley facility opened earlier this year and is already working well for the company.

“We are starting to see success in having the facility in terms of profitability,” says Loveless.

A Look Inside UAB’s New Expansions

The University of Alabama at Birmingham is a fairly young institution, but my how it has grown during its 50 years. Today, the university has nearly 22,000 students, and its buildings spread over more than 100 city blocks in Birmingham, helping to transform the city it calls home.

Some of those new buildings are on the cusp of opening, while others are in the planning stages. Here is a look at the latest facilities and the plans for more.

University Hall, the new College of Arts and Sciences building, will celebrate its grand opening on August 22. Located at the corner of 14th Street South and 10th Avenue, University Hall will house the departments of anthropology, computer science, English, foreign languages and literatures, mathematics, philosophy and social work. Every undergraduate student takes core classes within the College of Arts and Sciences, so the new building will touch each freshman who enters the university. University Hall is also the first Leadership in Energy and Environmental Design (LEED)-certified building on campus.

The new 12,800-square-foot, $3 million ROTC training facility opens formally this fall, though it has been in use since April. Located on Eighth Court South, the facility has three classrooms, nine offices, an auditorium, storm shelter, a cadet lounge/library, women’s and men’s locker rooms, a gym and an engagement skills trainer room for simulated combat.

The former Snoozy’s Bookstore is being made over into UAB’s Honors College, providing additional space for honors students who currently use Spencer Honors House. The renovation, which was approved by the University of Alabama System Board of Trustees in June, will cost $2.69 million and will comprise the entire two-story, 11,000-square-foot structure. The exterior grounds will be leveled and developed into a landscaped courtyard. The renovation will begin in August and is scheduled to be complete in May 2020.

UAB’s newest student housing development, Residence Hall 2020, is currently under construction near the Campus Green and will allow for more than 730 students to join the 2,880 that already live in UAB’s six other residence halls. This project will be the second LEED-certified building on campus when it is completed in fall 2020.

The Board of Trustees has approved the final stage of planning for the new $19.2 million Technology Innovation Center, which will be built at 17th Street South and Ninth Avenue. The 40,000-square-foot building will house the campus internet connectivity and technology infrastructure and also host colocation services to campus, offering power, bandwidth, cooling and physical security for servers used throughout the university. This new building replaces the Rust Computer Center and will host the fastest high-performance research computer in the state and the data highway that connects researchers throughout the University of Alabama System. It will also house an innovative and cost-effective Tesla Powerpack battery system that increases system reliability while reducing the carbon footprint. The groundbreaking on TIC was August 14.

In February, the Board of Trustees gave approval for planning the first phase of the new Science and Engineering Complex, which will house the College of Arts and Sciences departments of biology, physics and chemistry. This new complex, which is proposed for the Education Building’s current location, will support the instructional, research and collaborative needs of these programs.

Laney Leaves Innovation Depot; Search on for New Leader

Devon Laney

After 14 years at the helm of Birmingham’s Innovation Depot, Devon Laney is leaving the organization for a new role in Tulsa, Oklahoma.

COO Molly LaBorde will be interim CEO during the search process.

Innovation Depot ranks as the top business incubator in the Southeast for technology firms with 113 member companies that totaled $176 million in gross sales last year, the agency reports. Among the firms launched at Innovation Depot are Fleetio, Atlas RFID, Pack Health, Director Point, TheraNest and PhishMe.

Thanking Laney for his time at the agency’s helm, board chairman Ray Watts, who is also president of the University of Alabama at Birmingham, credited Laney with leading Innovation Depot “during a time of seismic change in Birmingham’s economic landscape and revival.”

Laney will leave Innovation Depot at the end of August.

New Venture Capital Fund Yields Early Returns

Raymond Harbert

Birmingham, along with the rest of Alabama, continues to make inroads in the nation’s entrepreneurship circles, particularly the high-tech sector.

The city received a major boost last September with the formation of the Alabama Futures Fund, a $25 million early-stage venture capital fund that will fund startup companies based in Alabama or companies that would consider moving to Alabama.

Backers include some of Birmingham’s biggest names — Raymond Harbert, chairman and chief executive officer of Harbert Management Co.; Auburn and NBA basketball great Charles Barkley; Protective Life Insurance Co.; Hoar Construction; G. Ruffner Page Jr., president of McWane Inc., and businessman Benny LaRussa Jr.

“We were fortunate to have several investors commit to the vision Mr. Harbert fostered and raised a total fund of $25 million,” says Matt Hottle, a partner in AFF’s advisory firm Red Hawk Advisory.

Hottle says Harbert had been considering an Alabama-focused, early-stage venture capital fund for a number of years.

“Mr. Harbert believes that in order to create a robust entrepreneurial ecosystem in the state of Alabama, one of the elements needed is a pool of committed capital to invest in and support early-stage companies,” Hottle says.

Several recent studies show high-tech entrepreneurship is moving from areas like Silicon Valley and the North Carolina Triangle to the middle part of the country. Given that trend, Hottle says, “A fundamental tenet of the Alabama Futures Fund is to foster the Alabama entrepreneurial community and to attract early-stage companies to relocate to Alabama by creating a resident pool of capital to invest in our previously underserved market.”

Like any investment firm, AFF’s goal “is to create positive returns for the investors,” Hottle says. “But we are also taking advantage of the opportunity to work collaboratively with other stakeholders in Alabama’s business and entrepreneurial community to promote the entire spectrum of entrepreneurship and economic development. Whether we invest in a company or not, we try to encourage their success by providing access to a network of professional service providers and community business leaders to help with an array of non-financial support — ranging from executive mentoring to assistance with finding office space. The Fund will help promote the state as a supportive and strategic place for startups who can grow and innovate as effectively here as anywhere in the country.”

Hottle says that while the Alabama Futures Fund encourages early-stage investing and the development of startup communities across the state, Birmingham was a natural fit to serve as the base of operations. He points to Harbert’s strong ties to the institutional investor base in Birmingham and the recent success of several local startup companies.

“Maybe more instructive than any assessment that we made regarding the environment for early-stage companies in Alabama is the success that the Alabama Futures Fund has had in recruiting two of our first three portfolio companies to relocate their headquarters to Birmingham,” Hottle says. “We see this as definitive validation of the strength and attractiveness of Alabama’s entrepreneurial ecosystem.”

In just over six months, three firms have announced an investment from AFF and a decision to relocate to Birmingham simultaneously:

  • At the end of June, San Francisco startup Prepaid2Cash Holdings Inc. announced that it had received capital from AFF and was relocating. “We are excited to join the burgeoning tech community in Birmingham,” said Peter Vogt, cofounder and CEO of Prepaid2Cash. “We were blown away by the ample resources and support available to a growing business like ours. This gives us confidence in our ability to scale our company and access new customers and tap regional connections.”
  • In March, Case Status, a company founded in Atlanta to help law firms strengthen relationships with their clients, accepted funding from AFF and announced a move to Birmingham. “We believe the missions of Case Status and the Alabama Futures Fund are very much aligned,” says Case Status CEO and founder Lauren Sturdivant. “From out earliest days, we have focused on building deep, trusted and expansive relationships for the benefit of law firms and their clients. AFF demonstrated their commitment to the same ideals.” Like Vogt of Prepaid2Cash, Sturdivant praised the “Birmingham tech ecosystem,” and says her firm “is excited to be part of it.”
  • Last December, Joonko Inc., which helps employers find a diverse pool of job applicants, announced plans to move its headquarters from San Francisco to Birmingham, after accepting AFF funding. “Expanding our operations in the U.S. is an exciting moment, and we couldn’t find a better place than Birmingham,” says Ilit Rax, founder and CEO of Joonko. “Working alongside the Alabama Futures Fund has been incredible from day one. Their support of the business, willingness to make introductions, and belief in the team, product and mission is not something you find in every investor.”

AFF also has invested in the Alabama-born firm VirtualCare LLC and its direct primary care platform, DoctorWELLington, which provides access to virtual care, telemedicine and primary care physician office visits for a monthly subscription fee, without co-pays, deductibles and other traditional insurance.

Several Southeastern communities have well-organized, early-stage investor communities, says Hottle, citing Atlanta, Austin, Raleigh and Nashville, as well as Chattanooga, Tampa and Charlotte. That investment “has helped those communities not only retain their local startup companies, but also attract startups from around the region, including some with Alabama roots.”

Birmingham’s existing entrepreneurial element, embodied in Innovation Depot, welcomes the AFF influence.

“Innovation Depot has been focused on building the tech entrepreneurial community for over a decade, and we are incredibly excited about the added momentum of focused capital sources like the Alabama Futures Fund,” says T. Devon Laney, president and CEO. “Being able to attract and support high-growth tech startups is essential to the future of our community and state, and we expect to continue working with partners like the AFF to drive these results moving forward.”

Bill Gerdes is a freelance contributor to Business Alabama. He is based in Hoover.

Altec’s Long Reach Brings Power to the Navajo Nation

Birmingham’s Altec Industries is reaching its long arms west to the Navajo Nation — to households that are among the last to be connected to an electric utility.

Altec, one of Alabama’s largest manufactures, makes hydraulic lift trucks for electric utilities, and it donated a flock of these trucks to the Light Up the Navajo Nation project.

Across Utah, Arizona and New Mexico lays a stretch of 27,000 square feet of breathtaking scenery, snow-capped mountains, canyons, mesas and unique rock formations. Affectionately known as the Navajo Nation, this land is home to approximately 190,000 members of the Navajo Tribe.

Of these members, 15,000 of these homes do not have electricity. This makes up 75 percent of all households in the United States without power. To combat this lack of electric service, the Navajo Tribal Utility Authority (NTUA) commissioned the Light Up the Navajo Nation pilot project.

During this six-week project, 26 line crews from all across the United States worked from April to May installing power lines and bringing electricity to more than 200 Navajo families. By donating their time, equipment and resources, this project was completed at no cost to the Navajo families. Established in 1959, the NTUA is the sole utility provider for the Navajo Nation, offering electric, natural gas, water and wastewater services.

Denise Becenti, Government and Public Affairs Manager for the NTUA, said this project has been life changing for the Navajo Nation.

“We heard from families that told us how thankful and grateful they are to have electricity, refrigeration, to be able to buy a gallon of milk for the first time and put it in the refrigerator without having to worry about whether or not it’s going to spoil in a few days,” Becenti said.

Roger Stash, his wife and three sons are members of the Navajo tribe that have lived without power for many years. Now, thanks to the NTUA and the Light Up the Navajo project, the Stash family can turn on lights in their home for the first time.

“It’s very exciting because we have waited so long for this, my kids are so happy because they get to do their homework in the light now,” Stash said.

Stash continued, thanking the crews that volunteered their time to give their home electricity, “I really appreciate what they are doing, getting power in two days is really quick.”

Becenti said the Navajo community is grateful for all of the resources these utility companies and their crews have donated to the project. She says this initiative has been successful and hopes the project will continue in the future.

“We are truly grateful for the communities that sent their crews here to the Southwest to unknown territories to be a part of a project that these families will remember for years to come,” Becenti said.

DC BLOX to Open Flagship Data Center in Birmingham

DC BLOX is set to cut the proverbial ribbon on the first unit of its flagship technology and innovation campus in Birmingham Thursday, bringing new life to a 27-acre parcel of the former Trinity Steel plant.

The company opened a smaller center in Huntsville last year.

For the past two years, DC BLOX has worked closely with city and county officials and local businesses to develop plans and partnerships for the Birmingham center, said CEO Jeff Uphues. The Thursday event will be “a celebration of this wonderful campus.”

Though the entire project is billed as having the potential for 200,000 square feet and a $785 million investment, the first unit to open is 31,000 square feet. The site includes a data center plus training facilities for technology-related products and services with high-speed internet and cloud services.

“Phase 1 is complete and we have a very brisk demand of customers coming into the facility and are already eyeing that we could be in an expansion mode by the end of this year,” Uphues said by phone Tuesday. The facility is designed to expand in 10,000-square-foot units, and Uphues envisions at least one of those units in progress by the fourth quarter of this year.

DC BLOX doesn’t disclose its customers, says Bill Thomson, vice president of products and marketing, but the mix includes a breadth of companies, managed service providers, local governments and higher education. The firm’s other centers serve clients like Atlanta’s MARTA transit system, Huntsville’s HudsonAlpha Institute for Biotechnology and Mohawk Industries.

“Our core service is space and power for IT equipment. Almost every business has a growing need for that — without having to manage the cost and complexity of a data center,” says Thomson.

“Companies are increasingly using technology to drive business, but they need a place for their expanding computer technology, Thomson says. “In the early phase of a business, you can keep it in a closet,” he added. But as companies grow they need more computer space — and data centers are becoming very specialized facilities, needing to be cooled, secured and have a constant power source. DC BLOX offers a Tier 3 reliability rating, much higher than is typically available.

“No one is throwing anything away anymore,” says Uphues. Instead, they need storage for financial data, health care records, videos and much more. “We have the computers where they can store data and have a secure backup copy of that.”

It’s part of the company strategy to “bring reliable data centers to markets that haven’t had them,” says Thomson. “Both Huntsville and Birmingham were in need of the kind of facilities we build.” The firm anticipates expanding those two before going into new markets, but Uphues has recently visited Montgomery, Mobile and Auburn, with an eye to beginning services there.

DC BLOX has half a dozen full-time employees in Birmingham now with plans for 20 in the near future, plus another six currently on the security team. Between the workforce involved with cybersecurity in Birmingham and that involved in space and defense technology in Huntsville, there’s been no problem finding qualified employees, says Uphues.

The Key to EBSCO’s Success

EBSCO leaders work to grow the company organically. CFO Eric Essary (left) and Board Chairman Bryson Stephens (right) encourage business unit leaders to be, in Stephens’ words, “seekers and hunters” — conversant with their marketplaces, aware of their competition and “on the lookout for potential acquisition targets.” Photo by Art Meripol

In an age when some of the most iconic American companies are no longer around, EBSCO Industries Inc., at age 75, is proving it has staying power.

EBSCO Industries’ founder, Elton Stephens, started out selling magazine subscriptions to pay for college during the Depression. After realizing he had a knack for sales, he soon organized a sales team. Then in 1944, he incorporated the business, and over the next several years, EBSCO grew, becoming one of the largest subscription services in the world, serving schools and universities, libraries and the military.

Today, the family-owned company is a model of endurance and business fundamentals. It is one of the largest privately held companies in Alabama and is no.166 on Forbes Magazine’s listing of America’s top 200 private companies for 2018. It is a conglomerate of diverse businesses operating as one company — a juggling act requiring steady performance. The performance comes from more than 5,000 employees worldwide, including 1,600 in Alabama, producing $2.8 billion in revenues.

EBSCO has experienced much organic growth but also growth through acquiring middle-level companies from industries ranging from research databases and promotional products to fishing and hunting supplies.

“We like to see, above anything else, organic growth,” says Stephens’ grandson and EBSCO Chairman of the Board Bryson Stephens. “We like to see internal, entrepreneurial initiatives within our businesses, where we are expanding our product lines or our geographic markets.”

One of the earliest examples of EBSCO’s organic growth is the birth of Vulcan Industries, which today makes store fixtures and custom retail signs, Stephens says.

In 1946, Elton Stephens and wife, Alys, launched Metal Fabricators and Finishes — which later became Vulcan Industries — to make and sell their own magazine display stands.

CEO David Walker

EBSCO Industries acquired numerous companies over the years since then, such as the National Publications Co. in 1967 and furniture maker H. Wilson Co. in 1977. But in 2001 it launched its own private equity arm, EBSCO Capital, and hired David Walker — EBSCO Industries’ current chief executive officer — as manager.

“The addition of the mergers and acquisitions’ role and team gave our businesses the resource needed to complement their organic growth with acquisition growth,” says Walker. “I was very fortunate to be the first quarterback of the EBSCO Capital team, which provided me an opportunity to work across our portfolio of businesses to develop and execute acquisition strategies.”

Walker says EBSCO Capital also developed a network of relationships with investment bankers, business brokers, lawyers, accountants and other professional service providers in the “deal community” to generate the deal flow needed to make investments in new platform businesses.

Currently, EBSCO Capital has $300 million in equity capital and several investment “platforms” for which it acquires companies. The platforms include EBSCO Information Services, which provides research databases, e-journals and e-books to libraries, universities, medical institutions and corporations.

Another platform, EBSCO Health, sells medical journals, e-books and databases to clinicians, while platform PRADCO Outdoor Brands has companies that manufacture fishing lures and several types of hunting supplies. Earlier this year, PRADCO acquired Whitetail Institute, a Pintlala firm credited for creating the food plot industry.

“We really want our business unit leaders to be seekers and hunters,” says Stephens. “We want them to know their marketplaces, and we want them to be active and communicating and engaging with the markets in which they sell, including their competitors. And we want them to be on the lookout for potential acquisition targets.”

This spring, another platform, called Luxor, which produces workspace solutions, closed a deal to purchase KwikBoost, a company that makes mobile device charging stations and other products. Meanwhile, the platform Imagen includes companies that make promotional products; while the All Current platform resells electrical components.

EBSCO acquired the S.S. Nesbitt insurance agency in 2001. But in February, EBSCO renamed the risk consulting and insurance division the Valent Group.

“As it relates to new platform acquisitions,” says Walker, “we look for businesses that fit well with our natural ownership advantage, which we define as including our long-term investment philosophy and our desire to make significant follow-on investments in the businesses that we acquire.”

“One of the benefits of being a moderately diversified conglomerate is that we own a portfolio of assets, and those assets serve different roles within the portfolio in terms of their cash contribution and investment and growth potential,” Walker says.

Eric Essary, EBSCO Industries’ chief financial officer, added that “Typically, when we’re buying a business for one of our existing companies, we’re looking for a solid track record and reputation, and we’re looking for a good, solid strategic fit with what our existing business is doing.”

“On the new platform front,” says Essary, “we’re looking for companies that are of a certain size. Typically, from a revenue standpoint, we want those companies to have anywhere from $10 million in revenue to a couple hundred million in revenue.”

EBSCO Capital not only favors companies that offer products or services that are likely to be around for several decades, they also consider the strength of a company’s existing management team.

“We look for a management team that’s humble, driven and growth-oriented in their approach,” says Essary, “and wants to come with their business into our family of companies, a management team that has integrity, a long track record of success in whatever business they’re in, and third, we’re looking for a management team that has a good cultural fit with EBSCO and an appreciation for our permanent, capital approach.”

As a result, Essary says that even when EBSCO Capital owns more than 50 percent of a business, it strives to resist micro managing the company or its management teams.

EBSCO Capital, in fact, markets itself as the alternative to private equity, Essary says.

“We view ourselves as permanent capital,” says Essary, “meaning that when we buy a company, we plan on owning that company for the long term. Whereas a private equity firm is very different. For them to generate returns for their stakeholders, they have to sell a company within a three- to five-year period.

“Because of that,” says Essary, “we have aggressive but rational, long-term growth and returns expectations. We don’t get too upset about economic cycles or short-term investments that have long-term payoffs.”

This year, EBSCO announced plans to expand its portfolio again with a new platform called BiSo Collective, a company based in downtown Birmingham. Under the leadership of former Daxko CEO Dave Gray, BiSo Collective will acquire B2B, Software-as-a-Service (SaaS) companies and help grow and scale those businesses.

“We wanted to be in the SaaS space,” says Stephens. “We feel like it has good growth characteristics. It’s a great example of an area where we’ve developed a conviction around an investment theme, SaaS, and partnered with a great leader, Dave Gray.”

Meanwhile, EBSCO continues on its quest to find new companies to acquire.

“We’re looking for companies that are solving problems that have existed in the past and will exist in the future,” says Walker, “because we feel like these are durable businesses in durable markets serving durable customers.”

Gail Allyn Short and Art Meripol are freelance contributors to Business Alabama. Both are based in Birmingham.

When Do You Call in the Fraud Team?

Every company needs a fraud response plan, says Kelly Todd, managing member and the member in charge of forensic investigations at Forensic Strategic Solutions LLC, of Birmingham.

“Occupation fraud” — committed against a company by its own officers, directors or employees — “is likely the largest and most prevalent threat,” according to a 2018 report compiled by the Association of Certified Fraud Examiners.

The ACFE also reports these statistics for U.S. fraud cases:

• Average loss — $100,000
• Median duration before detection — 16 months
• Corruption — 30 percent of total cases
• Means of detection — a tip, 37 percent of the time

Nonetheless, the percentage of cases referred for prosecution has dropped 16 percent in 10 years, most commonly because the victim organization feared bad publicity.

Accounting shenanigans that prop up securities was the biggest fraud category, reaching historic highs in 2018.

Kelly Todd (right), who leads the investigation team at Forensic Strategic Solutions, reviews files with forensic analyst and investigative accountant Erica Hale. Photo by Art Meripol

According to corpgov.law.harvard.edu, in 2018, “Securities class action filings involving accounting allegations remained at uncharacteristically high levels as the trend of core filings against larger defendant firms continued.

“There were 143 securities class actions involving accounting allegations (accounting case filings) during 2018, nearly 86 percent more than the historical average.”

The report also stated, “The number of accounting cases containing an allegation and announcement of internal control weaknesses exceeded the historical average for the sixth consecutive year.”

Given all of this, the accounting industry, specifically the auditing sector, is looking for ways to reform the auditing process, where independence from the company being audited and ethical conduct is paramount.

Clive Viegas Bennett, CEO of MGI Worldwide, writes in Accountancy Age, “The huge independence edifice is built on quicksand because the auditors are paid directly by the companies they audit.”

A prime example of the issues facing the auditing world is the case involving accounting firm PricewaterhouseCoopers, the Federal Insurance Deposit Corp. and what used to be Alabama’s third largest bank, Colonial.

Earlier this year, PricewaterhouseCoopers announced that it has settled with the FDIC for $335 million over its audits of Colonial Bank, which failed during a financial crisis. The suit was related to professional negligence claims brought by the FDIC against PwC coming out of the firm’s audit of Colonial. The FDIC sought to hold PwC liable for not detecting fraud during audits of Colonial Bank, and a federal judge said the accounting giant had not designed its audits to detect fraud. An Alabama federal district court had earlier awarded damages of $625 million to the FDIC.

“I consider auditor independence to be a misnomer,” says Todd DeZoort, professor of accounting in the Culverhouse College of Commerce and the University of Alabama’s Durr-Fillauer Chair in Business Ethics. “While some auditors should be careful to manage their financial and relational dependencies on a client, I believe auditor independence is impossible in our current system. My research indicates that stakeholders are interested in auditor reliability, which flows from auditor integrity, expertise, independence and pursuit of objectivity.”

DeZoort says a quality audit “should help a client clean up financial reporting and internal control problems that, if unaddressed, can be catastrophic to a company. The audit function is there to serve the public interest and protect very vulnerable stakeholders in a very complicated and high risk reporting environment.”

DeZoort teaches a seven-step fraud risk management model that includes fraud risk governance, fraud risk assessment, prevention, investigation, reporting, mediation and, last but not least, detection, which is where Todd and her troops come in.

Todd DeZoort, accounting professor at the University of Alabama, says “The audit function is there to serve the public interest and protect very vulnerable stakeholders in a very complicated and high risk reporting environment.”

Forensic accounting, according to DeZoort, is more focused on risk assessment and investigation, while fraud prevention is the responsibility of management and internal auditing.

In her work as a forensic accountant and fraud examiner, Todd works closely with defense and plaintiff attorneys, audit committees, corporate boards and government inspector generals. Her experience in litigation consulting includes services in civil proceedings, including the calculation of economic damages in a broad range of personal and corporate disputes. Todd has testified as an expert witness in federal and state courts.

“I think one of the things that is important to keep in mind,” Todd says, “is while, yes, every company should have a fraud response plan, there really is a dividing line between companies based on their size and what they are capable of from a resource standpoint. You are going to tend to see response plans and protective detection and that sort of thing in a much larger company, because they have the resources to do it.”

Todd points out that fraud is not something that happens every day. “It is not a normal occurrence in a business.”

And while much of today’s corporate fraud may be linked to technology, technology is “having a huge and growing impact on auditing and fraud examination,” says DeZoort. “For example, we are seeing a surge in the use of artificial intelligence in both auditing and fraud examination, allowing advanced data analytics involving 100 percent of transactions rather than just traditional random samples.

“We see anti-fraud professionals conducting more advanced quantitative and qualitative data analytics with technology, including data mining, digital analysis and linguistic text analysis.”

“When we go in, or a business suspects that there is a problem, one of the first things we want to do generally is ask for mirror images of the computers,” Todd says. “So if the business doesn’t realize, or hasn’t thought through how they are going to respond to the event, how they handle the evidence, or potentially the event, they may not even recognize what could potentially be evidence, that if handled improperly, by the wrong people or just handled improperly in general, could render that potential evidence useless in a court of law.”

She says handling electronic information, handling employees and suspects can be tricky for a company if there is no plan. “And a lot of times when there is no one suspected, they may have no idea who may be involved. And so it is just thinking through those initial steps in how to deal with something that a business is not accustomed to dealing with on a daily basis,” Todd says.

Todd says her firm has been using data analytics or data mining for 20 years. “Now, artificial intelligence is really changing the landscape as far as the ability to proactively look for fraud, or just patterns of wrongdoing. I think it is going to change the accounting profession. What it is not going to do, though, is once the patterns are identified, it is not going to be able to go and investigate the fraud, and it is not going to be able to develop the evidence and interviews. While it may change the initial detection, it is not going to change the investigative part of it.”

Todd says it is important to separate prevention and detection from investigation. “Detection could happen internally in a company. But from our standpoint, because we are outside, we are typically called in when a company believes it has a problem, or they may have detected something, but they don’t have the resources to actually investigate and develop the evidence to take it to law enforcement.

“Fraud, for us, is really about looking for the footprint of the beast. Fraud leaves a pattern, leaves trends in the data, or in the financial statements or in any various financial reports. And so what we are doing, we are going in and, based on what the company may believe has happened, we work under what is known as the fraud theory approach. We form a hypothesis based on what we believe may have happened, and then we test that hypothesis through document review, collection of electronic evidence, accounting transactions, that sort of thing, and then interviewing. And we generally go from the general to the specific. As we are making our way through our investigation, we start with the big picture, and follow that trail to more specific information and eventually work our way into some kind of solution, depending on what the client is looking for. If it is looking for a confession from the suspect, then the specific is going into seeking a confession through an interview.”

Todd says there is often an “aha” moment in the investigation — when  investigators are following one path “and all of a sudden something unleashes, and we are ‘Oh my gosh, you are not going to believe this. It is this person as opposed to that person.’”

Todd says a high percentage of fraud cases settle out of court or in guilty pleas. Forensic accountants are sometimes called the “detectives of the accounting world,” and Todd says there are some key things to look for when questioning people involved in suspected company fraud.

“Forever, people thought it was about body language,” Todd says, “and while body language is important, it is only one of many ways to tell if someone is being deceptive with you. The more things that are happening across various channels if you will, speech, a tone of voice and the jittery body language, the more of those that are happening at one time, the more likely it is that the person is being deceptive. The key is to be able to identify their baseline, what is normal for that person.”

Todd says, “If you think fraud is not going to happen, you are wrong because it is, but when it does, do not take matters into your own hands, and be certain to put together a team of experts that know what they are doing.”

Bill Gerdes and Art Meripol are freelance contributors to Business Alabama. Gerdes is based in Hoover and Meripol in Birmingham.

How ServisFirst Keeps Scoring

Top management at ServisFirst, from left, CEO Tom Broughton, COO Clarence Pouncey and CFO Bud Foshee. Photo by Cary Norton

Since it opened 14 years ago, Birmingham-based ServisFirst Bancshares has remained focused on its initial game plan to keep things simple — and the numbers say that’s working.

For the fifth year in a row, ServisFirst has been honored as a Raymond James Cup winner, which recognizes the nation’s best community banks. ServisFirst ranked fourth overall of 258 banks considered for the award in 2018 and was the only bank in the Southeast chosen.

The Raymond James award was based on various profitability, operational efficiency and balance sheet metrics. Banks eligible for the award included all exchange-traded domestic banks, excluding mutual holding companies and potential acquisition targets, with assets between $500 million and $10 billion. ServisFirst’s assets stood at $8.3 billion at the end of March this year.

ServisFirst doesn’t concern itself with everything, but it’s obsessed with fostering strong customer relationships and a disciplined approach to controlling costs and pricing loans.

“We try to do just core banking,” says ServisFirst Chief Financial Officer Bud Foshee. “We make loans and take in deposits, and our board has been really good at keeping us on that path.”

ServisFirst has not taken on the risks associated with having a wealth management unit, a trust department or a capital markets group. And it has opted not to offer other services provided by some banks, such as insurance. Says Foshee: “We have insurance companies as customers; why would we want to compete with them?”

To reduce costs, ServisFirst outsources as much of its work as possible, including its core systems, all audits and asset liability management. Such services can be handled by outside vendors instead of higher-overhead employees. Since it was founded, ServisFirst has always stressed the use of technology — such as remote capture of deposits — to keep overhead low, according to Foshee.

“There are some things we do and some things we don’t,” says ServisFirst CEO Tom Broughton. “You just have to know what’s in your wheelhouse. You can’t be everything to everybody, and we don’t try to be. We try to concentrate on and be good at a few things.”

Measurements that Raymond James used to choose its Community Bank Cup winners were efficiency ratio, return on average assets, return on average tangible common equity, 5-year core deposit percentage, net interest margin and nonperforming assets to loans, and real estate owned.

All of those measurements are related to — and support — each other. In the Raymond James analysis, ServisFirst scored exceptionally high in efficiency ratio, return on average assets and return on average tangible common equity. But what, exactly, does that mean when it comes to the company’s operation?

The efficiency ratio is a valuable measurement because it shows how much money it takes for a bank to create a dollar of revenue. “It takes ServisFirst about 35 cents to create $1 in revenue, with a lot of banks above 50 cents, some are above 60 cents,” says Clarence Pouncey, chief operating officer at ServisFirst. “So, we’re about 35 percent on our efficiency ratio, which shows we’re very efficient with the capital we’ve been entrusted with.”

The bank’s return on average assets for 2018 was 1.88 percent, well above the 1.33 percent return other commercial banks reported last year, according to the Federal Deposit Insurance Corp. Return on assets is a key measurement because it shows how well a bank uses its assets to generate income.

The return on average tangible common equity at ServisFirst was 20.96 percent last year, almost double that of other commercial banks, according to the FDIC. Return on equity shows shareholders the return on their investments. Also, a higher return on equity is a sign that a bank is increasing its ability to generate profit without needing as much capital.

ServisFirst also graded extremely high on its 5-year average core deposits, which indicates a stable source of funds from a pool of loyal customers in the geographic areas it serves. The compounded annual growth rate on deposits for the five years ending last December was 18 percent, with total deposits standing at $6.9 billion at that time.

Of the measurements used in the Raymond James analysis, Foshee believes ServisFirst concentrates the most on achieving a healthy net interest margin. Having a good net interest margin requires a never-ending quest to make rates on deposits attractive enough to gain and keep customers while pricing loans high enough to create profitable margins.

Doing those things and staying competitive is easier said than done, but ServisFirst has managed to stay well ahead of the curve. The bank grew its gross loans from 2013 to 2018 at a compounded annual rate of 18 percent, and it ended last year with a net interest margin of 3.75 percent. That easily beats the 3.45 percent posted by other commercial banks last year, according to the FDIC.

ServisFirst has been able to increase its loans without sacrificing loan quality. That’s the main reason that the bank’s percentage of nonperforming assets to loans and real estate owned at the end of March was only 0.49 percent, well below that of most other banks.

“Since day one, we’ve always grown but when you do that, you’ve got to have controls in place, especially when it comes to loans,” Foshee says. “We have a very disciplined risk management platform.”

Solid loans are nice, but they must be complemented by controlling rates on deposits. “Right now, loan rates are not going up, so you’ve got to look at a way to control deposit costs,” Foshee says. “At our annual directors’ retreat in May, one of the things we discussed in our management meeting was how to control deposit costs going forward.

“If the Federal Reserve cuts rates, we’re going to have to tell our clients we’re cutting their (deposit) rates, and that’s not easy. Other banks will have to do that, too, but it’s still not a conversation you look forward to having with clients.”

Foshee and Broughton have been with ServisFirst since it started, and Pouncey joined the company a year later. Although recent interviews with them were to be based on numbers and ratios, each of them quickly segued to talking about ServisFirst customers.

“All of our bankers are customer focused,” says Broughton. “It’s just our kind of thing. Some people would call us a cult bank because we are a bit of a cult. Eighty percent of our customers come from referrals by satisfied customers. We don’t do any marketing to speak of and practically zero advertising. All we have to do is take care of our customers, and we’ll keep going. A lot of bankers spend time in meetings. We’re the exact opposite. We like spending time with clients.”

ServisFirst now has 10 regions stretching from Nashville to Charleston to Tampa. The company’s net income almost tripled between 2013 and 2018, from $52.3 million to $137 million last year. That, Broughton says, is largely because each of the bank’s regional CEOs has the same mindset regarding customers.

In considering leadership teams for regional locations, “If we talk with someone and they have a warm-chair concept, they’re not going to work with us,” Broughton says. “The main reason we won’t work with someone is if they don’t like getting out and meeting with customers.”

Charlie Ingram and Cary Norton are freelance contributors to Business Alabama. Both are based in Birmingham.

Autocar Launches Severe-duty Trash Hauler

Some might call it beautiful: Autocar’s new DC-64R, “R” for “Refuse,” offers a newly designed cab that fits any size of driver and a host of other features.

Alabama’s automotive industry puts out some sleek, stylish cars and SUVs at its various assembly plants. One automotive assembly plant that opened its million-square-foot, $120 million plant in Birmingham just over a year ago heads in a little different direction.

Autocar recently announced it would start building the DC-64R, a new severe-duty truck designed specifically for refuse applications, starting later this summer.

The company, founded in 1897, built the first U.S. truck in 1899. Its newest model was developed with insight, data and guidance from waste haulers around the country, according to Autocar President James Johnston.

“We could not have engineered a truck this good without all their feedback that resulted in innumerable improvements,” Johnston says. “We’re grateful for their help and proud to bring to this market a truck that is honestly customer-built.”

Among its features, the 64R offers a completely new cab that maximizes productivity by putting all its controls within easy reach of any size driver. The cab structure is built from a combination of steel, judiciously chosen aluminum components, and corner castings to withstand years of refuse abuse.

It has a completely upgraded electrical system meant to resist the worst conditions the refuse industry can throw at it. Autocar also says it’s also the first truck to feature ultra-high-strength 160,000 PSI steel frame rails, 24 percent stronger and lighter than the rails on other trucks on the market, eliminating the need for frame liners in nearly all refuse applications.

On the tech side, the new model has one-touch diagnostics, telling the operator or technician of any fault that has occurred and showing how to fix it.

The 64R also will be the first of Autocar’s lines to sport the recently announced company bowtie logo, reborn on its 100th birthday. Autocar builds its trucks in Birmingham and Hagerstown, Indiana.

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