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FALL 2013

It’s Time to Invest p.6 Economic Outlook Breakfast: The current economic trends present both businesses and banks with great opportunity.

President’s Message p.4

A Digital Legacy p.10

Embezzlement and Employee Theft p.14


About Us: Bank of Utah was founded and organized by Frank M. Browning, an Ogden business executive. The Bank officially opened for business on December 1, 1952 with 16 employees and assets of less than $1 million. Today the Bank holds approximately $780 million in assets with approximately 300 employees. The Bank currently has 13 full-service branches along the Wasatch Front, mortgage offices throughout Utah and a corporate and personal trust team in Salt Lake City and Ogden. Bank of Utah offers Personal Banking, Business Banking, Home Lending, Trust Management and Investment Services. Bank of Utah’s products and services offer convenience, efficiency and profitability for your family and your business.

Experience Experience is not only the number of employees who have many years of banking experience, but also the Bank’s emphasis on ongoing education, regular training and employee recognition to keep our team at the top of their game. Bank of Utah strives to discover, understand and use new products, technologies and market trends. These factors all add up to EXPERIENCE.

Service Great service is not readily tangible, it takes work. It takes employees who are responsive, personable, professional and ready to go the extra mile for every customer. Our product line is top-notch, we implement cutting-edge technology and our employees will work hard to serve your needs. Bank of Utah promises to provide its customers the SERVICE they deserve.

Experience. Service. The Bank of Utah tagline combines EXPERIENCE and SERVICE. This is intentional; we are committed to helping you EXPERIENCE SERVICE every time you walk in the door of a branch, visit the website or call on the phone. Whatever your financial needs are, come into Bank of Utah and you will EXPERIENCE SERVICE.

Mission Statement We are a community bank, dedicated to providing quality financial services through friendly, professional employees. We are responsive to our present and prospective customers and a major banking force in the Utah markets we serve. Our products and services meet the needs of our customers in a rapidly changing environment. Three key elements dictate the Bank’s planning, service and product design: safety, efficiency and profitability. The honor, respect, and integrity of our employees, customers, and stockholders are of the highest priority to the Bank. 

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Features:

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4 Positive Signs

6 Economic Outlook Breakfast: It’s Time to Invest The current economic trends present both businesses and banks with great opportunity.

8 Bank of Utah Invites Community to Help Shower Local Charitable Organizations with Baby Items Bank of Utah brances from Logan to St. George recently presented diapers, blankets and other baby gifts to local charities.

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9 They’re Back! No, we aren’t talking about Jeff Goldblum and Bill Pullman in the sequel to the sci-fi thriller Independence Day, although (in case you didn’t hear), Independance Day 2 is set to be released July 3, 2015. We are talking about jumbo loans!

Embezzlement and Employee Theft Embezzlement is a bigger problem for U.S. businesses than you might realize, and it can go on undetected at a small business for a long time.

10 A Digital Legacy: What to Expect, How to Prepare Until things settle down legally, make sure you include your lawyer as you plan your digital estate, just as you would when making other important final plans about your life and legacy.

12 Business Cash Management Services: Luxury or Necessity? Success Insights magazine is published three times each year for our valued clients, friends and prospective clients. The information contained in this publication is intended to provide general information for review and consideration. The contents do not constitute legal or specific financial advice and should not be relied on as such. Success Insights is published for the Bank of Utah by The newsLINK Group, LLC. For further information, please contact The newsLINK Group, LLC at 855-747-4003. ©2013 Bank of Utah. All rights reserved. Content may not be reproduced or reprinted without prior written permission.

Bottom line: if you could increase employee productivity, streamline cash flow, provide convenience to customers or automate payments, what is that worth to you?

18 Planning Your Estate – Ensuring Your Peace of Mind There will always be experienced personnel in the Trust Department to handle the Trust and ensure continuity.

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Positive Signs The second quarter for Bank of Utah resulted in even better performance than the stellar efforts in the first quarter. Some of the significant drivers in the economy during the second quarter and the past twelve months are discussed below:

Jobs – A Positive Sign In June, eighteen months into his “100,000 new jobs in 1,000 days,” Gov. Gary Herbert celebrated the halfway point by reaching 63,600 jobs. We congratulate the governor on this ambitious effort and see it as a sign of continued progress on the job front. The most closely watched economic metrics are unemployment rates, both national and, most noteworthy to most of our customers, the Utah rate. Utah’s nonfarm payroll employment for June grew by an estimated 2.2 percent, adding 28,200 jobs. The seasonally adjusted unemployment rate of 4.7 percent in June compares favorably to the US rate of 7.6 percent. Employment grew by an estimated 2.6 percent in May, adding 32,600 jobs to the economy. April saw 43,100 added jobs for a 3.5 percent increase. This seems to be the legacy of the 2008 recession; that is, a slow recovery. However, many economists consider a 4 – 4.5 percent unemployment rate as “full employment.” We believe this steady, if not spectacular growth will continue through 2013 and carry into 2014.

Economic Performance – A Positive Sign As a Utah bank … we’re in good company. The ALEC-Laffer State Economic Rankings support a continued positive outlook for Utah. Utah reached number 3 of 50 in Economic Performance Rank. Employment growth, as described above, was certainly a positive factor in the ranking. In addition, Utah ranked number 6 in State Domestic Product growth.

Economic Outlook – A Positive Sign We hear a lot about Utah doing better than the rest of the country. Here’s some proof. ALEC-Laffer also reports on

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Economic Outlook Rank. In this ranking, Utah is number 1 of 50. This is a forward-looking forecast based on the State’s standing in 15 important State policy variables. Although Utah is seeing the effect of some resource development, it is not driving our economy like the next three states; #2 North Dakota, #3 South Dakota and #4 Wyoming. The Utah rank of #1 is associated with the probability of viable ongoing businesses and the affirmative efforts of State organizations to promote new business.

Utah Business Climate – A Positive Sign The frosting on the Utah economic cake is the recent announcement of CNBC’s rankings for America’s Top States for Business 2013 with Utah’s overall rank of #5. In the category of Access to Capital, Utah ranked #7. Adequate bank funding for business is undeniably a positive for Utah and our Bank is committed to continue to be a part of providing business loans.

Housing – A Positive Sign Housing will always get its share of the news, as it should. With increased employment and new family formation, there is continuing demand for housing, both rental and single family. Where does Utah rank in this upswing in housing? Metrostudy’s quarterly report indicates there were 2,266 homes started during the second quarter. This is a 29 percent increase over the same period 2012 and 40 percent higher than the first quarter of this year. The Bureau of Economic and Business Research, University of Utah (BEBR), predicts overall residential units will increase by 11.5 percent in 2013 and 23.3 percent in 2014. It appears that the Utah housing market is in full recovery mode. Even though mortgage interest rate increases could cool the market some, as long as the rates don’t become punitive, housing demand should continue to drive mortgage demand.


American business, over time, has made more favorable returns than negative. The risks of being out of the game are much larger than being in the game.

Interest Rates – A Positive Sign? Interest rates have played a prominent role in the past twelve-month recovery. But they are only one factor. As important as they are, interest rates are beyond our control. The US economy grew at a 1.8 percent annualized rate in the first quarter this year. A big chunk of this growth was produced by spending on big-ticket consumer goods and home construction, both sensitive to interest rates. At the end of June, we saw what the hint of increased rates did to the stock markets. Will the recent interest rate moves raise worries among both consumers and company owners? We hope not and are encouraged that signs indicate the robust momentum of the past twelve months will continue. We believe that pent-up demand for housing and business growth, coupled with traditionally moderate interest rates, will carry the Bank into 2014. Bottom line ‌ we see many more positive signs for the economy than negative.

Although investment advice is not the purpose of this commentary, I suggest you pay little heed to the active traders and keep your eye on the longer horizon. American business, over time, has made more favorable returns than negative. The risks of being out of the game are much larger than being in the game. If you have questions about investments or retirement planning, I would be pleased to have our wealth management consultants contact you. Thank you again to our shareholders, loyal customers and great employees and management team for making second quarter, 2013, another positive one for Bank of Utah. ď‚ť Sincerely,

Douglas L. DeFries, President

In addition to the contribution of the improving economy, which cannot be overstated, we continue to employ our community bank model of a strong credit culture, focus on Key Results and a commitment to our customers. This timeproven combination of qualities is our brand and allows us to take advantage of an improving economy in our markets.

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Economic Outlook Breakfast: It’s Time to Invest This past April, Bank of Utah invited M r. Robert B. Albertson, the principal and chief strategist for Sandler O’Neill,

an

investment banking firm with offices in cities such as

New York, Boston, and Chicago, to headline the third annual Economic Outlook Breakfast. M r. Albertson,

sector wages and salaries. At the same time, debt service is abnormally low because interest rates have been so consistently low for such an extended period of time that if the situation is not corrected carefully, there will be another set of problems once the rates do begin, inevitably, to rise again. It is clear that what businesses need in addition to the current customer base are new customers who will spend. And since customers in the U.S. are currently less inclined to spend, one way to find those customers is to begin to focus more heavily on U.S. exports.

as part of his presentation, had a

Utah’s owners:

message for business

now is the right time to invest

for

many reasons .

We already know that the recovery is slower than anyone wanted. In order to prosper as a business owner, however, you can’t just wait for people to start spending again. According to Robert Albertson, the U.S. job base has decreased significantly; a fact that is also supported by data from the U.S. Department of Labor. Employment growth actually flat-lined as early as 2000, a change which appears to be structural, not cyclical. In other words, we shouldn’t expect the job base here in the U.S. to increase soon. Additionally, as the job base has decreased, consumer spending has decelerated as well. According to Alan Greenspan and others at the Federal Reserve Board, people have – unfortunately – prolonged their ability to spend by pulling equity out of their homes, meaning that people are spending more than they make and the spending is well above private

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Why exports? Increasingly, emerging markets have large amounts of discretionary money to spend. As the Federal Reserve has held down interest rates, it has also created global liquidity, and that liquidity is being absorbed by the infrastructure development in these emerging markets. Why shouldn’t some of that money be spent on top-notch U.S. goods? More specifically, Robert B. Albertson reports the following findings:  or commerce and industry, the thing that is increasingly F driving the U.S. economy is its fixed investment recovering. The momentum in commercial lending ref lects this reality. I nterest rates continue to be abnormal. They have distorted the economy and depressed financial margins. Global liquidity enabled the U.S. housing bubble. That liquidity f lood has been ebbing since 2006. Treasury debt is expanding, but foreign demand for U.S. funds is eroding, and U.S. currency will continue to be debased.


For those businesses leaders who have the ability to find the advantages inherent in our current economic climate, Bank of Utah is well-situated to help. And according to Bank of Utah’s second quarter’s report for 2013, Bank of Utah is in an excellent position to take advantage of that opportunity.

The Euro crisis has not helped, and our biggest risk today is from depending too much on foreign buyers for our treasury debt. The statistics make it clear that on a large scale, the U.S. economy has to re-balance itself. Government needs to shrink and fixed investments need to expand. Since U.S. growth will continue to be slow for at least the next three to five years, GDP composition has to shift. The U.S. can’t expect to prosper as a consumer-based society. But by investing in businesses and in manufacturing, and by exporting goods at a significant level, the U.S. can successfully change the game. As a result, businesses should make some investments, particularly with respect to manufacturing development: if you want to get into the export business then you have to have a product or a service to sell, and if it’s a product, then you need a place to make it.

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Where will the money come from for these investments? Business loans from banks. For those businesses leaders who have the ability to find the advantages inherent in our current economic climate, Bank of Utah is well-situated to help. And according to Bank of Utah’s first quarter’s report for 2013, Bank of Utah is in an excellent position to take advantage of that opportunity. It has: Strong earnings Excellent asset quality Healthy capital A strong funding base The current economic trends present both businesses and banks with great opportunity. Business growth has been gaining momentum since the beginning of 2011, as businesses have borrowed money to fund infrastructure for their products and services. 

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Bank of Utah Invites Community to Help Shower Local Charitable Organizations with Baby Items Bank of Utah branches from Logan to St. George recently presented diapers, blankets and other baby gifts to local charities. The presentations were the culmination of the bank’s monthlong “Shower Them With Love” project where branches and mortgage loan offices throughout Utah collected donations of cash, diapers, clothes and other baby items throughout July. The 13 local charities will distribute the baby necessities to families in need in the community. Bank of Utah delivered the donated baby goods to Crossroads Urban Center in Salt Lake City, Catholic Community Services of Northern Utah, Cache Food Pantry in Logan, Bountiful Community Food Pantry, The Family Support Center and the New Hope Crisis Center in Brigham City, Tremonton Food Pantry, Community Action Services and Food Bank in Orem and Hope Pregnancy Center, The Premier Adoption Agency and Dixie Care and Share in St. George.

“We would like to express our gratitude to our customers and the community for being so generous, and to say how pleased we are to be able to present these lovely baby gifts to many of our favorite local charities throughout Utah that serve women and babies in need,” said Douglas L. DeFries, Bank of Utah president. “These charities provide wonderful services to local families who might not be able to afford these nice clothes and blankets, let alone the basic necessities.” 

At Bank of Utah, NO is not always a bad thing. NO mortgage insurance (one loan to 90% LTV, $750,000 limit) i ve Rece

$

up to

0 a 2n,y0ou0r Jumbo lo o

NMLS# 422914

8

,000n

NO problem with personal vacation homes, or condos NO issues with 1-4 unit investment property NO sweat combining 1st and 2nd mortgages

801-409-5000


Eric DeFries AVP, Consumer Finance Manager

They’re Back! No, we aren’t talking about Jeff Goldblum and Bill Pullman in the sequel to the sci-fi thriller Independence Day, although (in case you didn’t hear), Independence Day 2 is set to be released July 3, 2015 . We are talking about jumbo loans! A jumbo loan is a loan that exceeds the conforming loan limits. The conforming loan limit for a single family residence in Utah is $417,000 and in some higher-cost areas can be as high at $600,300. What is the significance of the limit? It means that mortgage loans with loan amounts above $417,000 are not eligible for sale to Fannie Mae or Freddie Mac. Fannie and Freddie have been around for many years and have been instrumental in providing liquidity to the marketplace for mortgage loans. Before the recent economic downturn, private investors were actively involved in providing liquidity to the mortgage market. During the downturn itself, however, Fannie and Freddie were government sponsored entities (GSEs) and continued to operate even when alternative liquidity for mortgage loans was nonexistent. What’s the good news? Private money has flowed back into the market and private investors are now investing in mortgage loans again! In fact, over the past couple months there have even been entities that have issued mortgagebacked securities that are not backed by the GSEs. Bank of Utah originated jumbo mortgage loans through the downturn, but the requirements for down payment and credit were very conservative. With A Publication for Our Valued Business Clients and Prospective Clients

the increased liquidity in the marketplace and the ability of nongovernment entities to make markets in private-label, mortgage-backed securities, underwriting standards have loosened. This is good news to borrowers who are looking for jumbo financing options. A jumbo loan may still have slightly higher credit standards than a conforming loan; most programs require a 20 percent down payment, while some are available with as little as 10 percent down. Loan terms exist from 10 to 30 years fixed, as well as adjustable rate mortgage (ARM) loans. A great product for Bank of Utah customers has been a 10/1 Jumbo ARM. This product has a fixed period for ten years and then becomes a variable rate loan tied to the one-year treasury. Did you know that historically the life of a mortgage loan is less than ten years? Customers have been able to take advantage of 30-year amortization and a fixed rated for 10 years at rates significantly lower than a 30-year, fixed-rate jumbo loan. An alternative to jumbo financing is a 1st and 2nd combo loan. In this structure customers can take advantage of a conforming 1st lien mortgage up to $417,000, which is typically a lower fixed rate than a jumbo loan, and a 2nd lien mortgage, typically a variable rate, for the remainder of the amount needed for financing. Different advantages exist in every scenario, depending on the customer’s specific needs. Bank of Utah is committed to mortgage lending and will work to provide custom solutions for our customers. We are excited about the housing recovery and will continue to support our customers with an array of mortgage alternatives. 

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David Guzy, SVP, Senior Trust Officer

A Digital Legacy: What to Expect, How to Prepare Everyone

knows it ’s a good idea to have a will; in

this modern digital age, though, it has also become increasingly necessary to have a plan for managing your online life after you ’ve passed.

That’s

why estate

planning has expanded in ways no one could have foreseen even a few years ago.

The

broad categories include:

• Social media •

• •

websites such as Facebook and Twitter O nline accounts and passwords for retail stores, banks, and credit cards. O nline photos and videos Blogs

There are times when you can manage without a lawyer. This isn’t one of them. You aren’t going to be able to go to the Internet, a bookstore, or the library to figure things out well enough to make do; the legal ramifications are just beginning to get sorted, and from a legal point of view, the next few years are bound to change many things we take for granted. As a society, we are covering new legal ground, and as a result, you need someone to help you who has the training and developed instincts to keep your digital legacy safe. Planning is particularly important because it isn’t like there is a one-size-fits-all solution. Every company has its own concerns

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about privacy and its own rules for handling information. Since the whole idea is to make it possible for someone you trust to tie up loose ends, that means giving someone Power of Attorney for managing assets. In some cases, though, you may need to appoint a Digital Executor whose duties are tied specifically to deleting or distributing online assets. Ideally you will select someone who has the chops to handle both traditional estate planning and a digital estate.

A Little Background Everyone knows that the Internet has changed everything having to do with information. As always, however, laws are slow to catch up. These matters are generally decided on the basis of individual company policies, and not by a set of statelevel or federal-level guidelines. What the U.S. needs, but does not yet have, is a unified approach for handling digital information after the death of its rightful owner. As of February 2012, only a handful of states had laws to govern digital asset management: Connecticut, Idaho, Indiana, Oklahoma, and Rhode Island. That doesn’t mean the laws are current. The 2005 Digital Assets Law in Connecticut, for example, is now eight years old and it doesn’t deal with online bank accounts, blogs, social media websites, or accounts for sharing photos. You can’t assume that a company’s policies are going to be what the information’s owner would have wanted, or that matters will be settled in a timely way. Yahoo was taken to court in 2005 because it refused to give login and password information to the family of a Marine who had been stationed in Iraq when he died. The court mandated release of the information, which is good, but that means the family had to go to court in the first place. How many families can afford to fight that kind of fight? A lawyer can help avoid the legal fights when you are no longer around to have a voice.


You can’t say these matters don’t affect ordinary people who may not be in the position of owning a business. Everyone has experienced the push for paperless accounts

Another example, having to do with timeliness and, again, involving Yahoo, came up when Karin Prangley, an estate planning lawyer in Chicago, tried to act on her father’s behalf after he had a stroke at age 62. In particular, she needed access to business records contained in her father’s email account. She was fortunate, in that she was qualified to take the matter to court to get access, but even with her expertise, she wasn’t able to get the courts to move fast enough. The company went out of business because of the inevitable delay. In her case, the delay was only one month, but one month was enough. You can’t say these matters don’t affect ordinary people who may not be in the position of owning a business. Everyone has experienced the push for paperless accounts. It’s cheaper for companies not to mail you statements, so they push to get your permission. But if you were to die or be incapacitated, how would anyone know what was in your records if all the paper has gone away?

Advance Preparation The most significant way a lawyer can help you is to make some advance preparations. For example, there are companies where their business is storing online account names, passwords, and directives for how you want to handle these assets after you are incapacitated or die. But how do you know which ones are reputable? Are they going to go out of business next week, or merge with some other company? Two companies that specialize in data storage (for the living as well as the dead) are LegacyLocker.com and Securesafe.com. Another issue to consider is exactly how much personal information you want to give a company that stores information, like passwords and account numbers. Do you really want to go to an online website and enter all kinds of

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information about yourself ? Although these companies might play a real part in your plans for your digital legacy, it’s still a good idea to have a legal guide. Facebook, which is breaking considerable new ground over the issue of privacy, requires special handling and may represent another time for legal counsel. When people sign up for Facebook, the last thing on their mind is what will happen to their account when they die. But for 5 million people who died after setting up their Facebook account, their families have been left to deal with a problem. Unless someone lets Facebook know that a person has died, the Facebook page is still going to be there. That means a person’s friends and family will continue to see a profile picture on their own pages, and Facebook will also continue suggesting friends. A lawyer can help by providing backup when friends or family contact Facebook with proof of a death, such as a link to an obituary. A page can either be removed or converted to a memorial page. It won’t have any status updates or group affiliations, but existing friends can continue to look at the profile and post comments. What friends and family currently cannot do is get a password from Facebook that would allow them to access private messages, but here again, a lawyer’s advice and possible intervention might be key. Although life is definitely more complicated than it used to be because of social media and the Internet, the same issues exist that have always existed. You want to provide comfort and closure to the people who are most important in your life. Until things settle down legally, make sure you include your lawyer as you plan your digital estate, just as you would when making other important final plans about your life and legacy. 

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Ashley Massey VP, Treasury Management Relationship Manager

Business Cash Management Services: Luxury or Necessity? It’s Friday

morning .

Brad,

your controller , gets his

morning beverage, rolls up to his desk , opens his laptop and starts payroll

and the mail comes .

In the pile are client checks you’ve been waiting for (for weeks), and you’d like to get them in the bank now so you can pay rent. So you send Brad to the bank to deposit checks and to the post office to mail the rent check. He waits in line at the bank, then at the post office, then files into a convenient store for another beverage — he’ll need it to power through payroll — and he waits in line again. Returning to the office at least an hour later, Brad restarts payroll. Employees, eager to get their paychecks before the banks close, start popping into Brad’s office: those checks ready yet? Got plans for the weekend? How’s Betsy? Around 4 p.m., Brad finally wraps up payroll and begins digging for financial records, which are due to the accountant on Monday for tax filing. He’s disappointed about having to stay late on a Friday night. His only consolation: overtime pay. If this was your business, I’d ask, why haven’t you automated your cash management yet? And your response would likely be this: it costs too much.

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Cash management, or treasury management, services are not cost-efficient for every business; however, they are for most businesses, and certainly would be for the business in the scenario above. By switching to remote check deposit, automatic rent payments, and paperless payroll and recordkeeping, Brad could have stayed in the office and had enough time to get his mission-critical tasks done. As for the cost, cash management products often cost less than expected, especially if your financial institution offers an “a la carte” option where you pay only for the products you need. A small dentist’s office that accepts a high volume of checks could sign up for a single product like remote deposit, which would cut out bank trips and get money in the account faster. The owner of a storage unit company, instead of waiting for checks to arrive, could use ACH debit to auto-debit customers’ checking accounts or credit cards on the first of every month. In some cases, you might only pay per transaction, further ensuring that you only pay for what you need. Could you benefit from one or more cash management products? Here are a few questions to consider: D o you have bills that are due regularly, such as rental payments, vendor payments or annual dues? D o you take checks in instances where you could be using credit cards or automatic payments? Would receiving instant payments help you bridge cash f low gaps? A re you located far away from a bank branch, or is your business open past 5 p.m.? D o you have large deposits you might not want to send with a runner? D o you write a lot of checks and worry about check fraud? D o you have residual funds and/or a line of credit? Could you benefit from sending wires online?

• • • • • • • •


If you answered yes to any of these, it’s worth getting pricing information from a few financial institutions and doing a cost-benefit analysis. When doing so, consider the cost of employee time — would having the ability to handle payments electronically and keep employees in-house save money? You might pay $25 per month for remote deposit, versus $25 a week to send an employee to the bank. Consider also any savings from reducing the use of laser-printing, paper and postage, or savings from using an automatic account sweep to pay down a line of credit faster or move money into an interest-earning account sooner. Finally, look at security: could you prevent fraud with tighter monitoring of account and check activity?

For most business owners, automated and digitized services become an essential part of cash handling. Bottom line: if you could increase employee productivity, streamline cash f low, provide convenience to customers or automate payments, what is that worth to you?  Ashley Massey is a treasury management relationship manager with Bank of Utah, Utah’s community bank since 1952. As part of its six-person local treasury management team, Ashley provides one-on-one support to Utah business owners who want a banking relationship that’s more than an 800-number. Having an in-house team means that the Bank of Utah officer assigned to an account can meet with a business owner, get to know the business, make educated recommendations and train employees on how to use cash management products. To find out if you could save money by streamlining business cash management, contact us for a consultation at 801924-3623 or treasurymanagement@bankofutah.com.

a owningan be c businesrscus a ci to learn more

call us today 801.409.5155

ps o o h h g throu id a p t e g to

t o t a l t r a n s a c t 3 e a s y w ay s t h at pay yo u r w e b s i t e

over the phone

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in person

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Craig Roper, SVP, Chief Deposit Officer

Embezzlement and Employee Theft Embezzlement is a bigger problem for U.S. businesses than you might realize, and it can go on undetected at a small business for a long time. Small businesses are particularly vulnerable for a number of reasons:

make it easier for criminals to succeed in robbing a business, and harder for the business to stop them. Small businesses don’t have the same resources as larger businesses when it comes to the latest tools for Internet security. In addition, state and federal laws have not yet caught up with this rapidly changing area.

According to Christopher T. Marquet, the author of a 2011 report on embezzlement, 2010 was a bad year because there was a 17 percent increase in embezzlement crime when compared to the year before. Marquet International, Ltd. is a business located in Boston, Massachusetts that was founded at the beginning of 2006 and specializes in investigations. The company publishes an annual embezzlement report that focuses on new cases where approximately $100,000 or more has been embezzled.

• • •

and accounting responsibilities were the most likely to embezzle funds; they accounted for two-thirds of the cases. Women were more likely to embezzle than men. Again, they were the instigator in two-thirds of the cases. Most embezzlement schemes went on for 4.5 years before anyone noticed that the money was gone, and shouldn’t have been. A lmost 20 percent of the businesses that were victimized were financial ones.

You should also know the following: Employees who embezzle are acting alone 84 percent of the time. O nce the money is gone, chances are good you won’t be able to recover it. Specifically, 60 to 80 percent of all businesses that are embezzled never recover any money.

• •

Prevention Is the Best Remedy The Scope of the Problem

• Embezzlement is a crime of •

opportunity. It can’t occur anywhere that doesn’t have money. That makes any small business a natural target. People increasingly expect online access to businesses through the Internet, opening the door to cybercrime. In turn, sophisticated new methods for stealing money

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The results of the study were published in January 2011 and reported on www.cashf lowaccounting.com. The study analyzed 485 specific cases and offered the following conclusions: The average loss was almost $1 million. Most of the embezzlers took the money by either forging checks or writing unauthorized checks. People whose jobs included finance

• •

Ruth S. Crane, President of Auditors Inc., has a rule about embezzlement called the 10-10-80 rule: ten percent of the people who work for you will never steal; ten percent will always steal; and 80 percent will only steal under specific circumstances. Of course, as an employer, you can be careful who you hire. You may choose to have civil, criminal, and credit


Of course, as an employer, you can be careful who you hire. You may choose to have civil, criminal, and credit checks performed; some businesses also have their employees bonded. But these steps only tell you what someone has done in the past.

checks performed; some businesses also have their employees bonded. But these steps only tell you what someone has done in the past. Credit checks are particularly helpful because people who are dealing with financial problems are more likely to commit fraud than someone on a firm financial footing. If one or more employees handle money, it is entirely reasonable to make sure you are not tempting any of them to solve financial problems through a little creative embezzlement. You aren’t going to be able to stop people from embezzling, but you can at least reduce the likelihood of it happening by not hiring the ten percent who would always steal and discouraging the 80 percent who

would only steal under particular circumstances. The best idea is to minimize opportunity. Embezzlement is an opportunistic crime. People are less likely to steal if they think they’ll be caught. Eliminate the opportunity, and you have probably eliminated the crime.

Minimizing Opportunity The key to minimizing opportunity is making sure that one person does not have too much power or access to company funds. What are the right steps to take in order to prevent embezzlement from occurring? H ave bank statements and credit card bills sent directly to your home, and look at them closely every month. Ask questions about anything that

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looks wrong to you or that you don’t understand. You can set things up so that customers can deposit their payments directly at the bank. That way, the bank is partnering with you to protect you. B anks can set up “Positive Pay” for you. The bank won’t cash a check unless the check is on a list compiled by you, either by the day or by the week. Financial statements are not designed to detect fraud, they are only meant to detect material misstatements. Much of what is stolen may not even be on the books. Don’t expect accounting to help you do something it was never designed to do.

Embezzlement | continued on page 16

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Someone who is embezzling is going to act as though everything is fine, but you might notice a recurring pattern that feels wrong. Maybe it is.

Embezzlement | continued from page 15

• Embezzlers work where they have access

to money, and they often tend to be in positions of responsibility and trust. Segregate responsibilities and apply internal controls. Accounting duties should be split between at least two people. You can also set things up so different people in different job categories are double-checking each other. Use “direct deposit” of paychecks into employees’ bank accounts and segregate duties, if possible, with approval of payroll made by someone other than the input person. Listen to employees. When fraud is detected, after all, it is usually because other employees have noticed something. Pay attention. The typical embezzler is not someone you would expect to be an embezzler at all. Look closer at people who need money and like to spend it. Look for irregularities. It’s hard to keep everything straight when you are deceiving people, so embezzlers do tend to make mistakes that, in hind sight, are clear indicators of a problem. C ontinue to talk about the company’s values and ethics with everyone who works for you. Let them know where you stand on the subject, and make sure that

What should you be looking for?

• Look for employees who seem like

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you stand on firm, public, ethical ground. Do your best to hire honest people, and model that same honesty yourself. I f you have to act, be quick about it.

candidates for embezzling. Debt, disgruntlement, divorce, and drugs can motivate an otherwise-honest employee into an embezzler. If a spouse loses a job, for example, or you know an employee has to pay a lot of medical bills, you should pay attention to that. Gambling, lavish spending, entitlement, long hours, territorial behavior, and no vacations are other warning signs. Don’t give anyone who has these warning signs with opportunities that could be too much for them. S omeone who is embezzling is going to act as though everything is fine, but you might notice a recurring pattern that feels wrong. Maybe it is.

People are most likely to embezzle when their ethics are sketchy, they’ve rationalized what they are doing, and they have an opportunity to get away with it. Do your best to hire ethical people and shut down opportunity, and you will have done most of what you need to do. 


A Bank of Utah Client Discusses Embezzlement Q: You experienced one of your trusted employees embezzling from you. A: I did. It was a few years back, and it was my controller/bookkeeper. I trusted her completely; she was like family. Q: How did you learn about the theft? A: She actually confessed. We had a routine IRS compliance audit coming up, and she knew she would be caught. She called me and told me she had something important to tell me, and of course what she had to say was completely surreal. I had no idea that she was stealing. Q: How much did she steal? A: A lot. It apparently started with $500.00. She got away with it, and continued to steal. Over the course of four years, she stole enough that she could have put me out of business. She ultimately admitted to about 20 percent of what she actually stole. Her comment to the police was that it “got to be so easy.”

Q: Your comment about the police indicates that she was arrested and was prosecuted? A: Yes, she was arrested. She served four years in prison, of a one to 15 year sentence. She cooperated fully with police, which is why she only had to serve four years. Her husband actually benefited from her theft, so he was also prosecuted and served a four year sentence as well. Q: You mentioned that this was a learning experience for you. How? A: Absolutely! First and foremost, the embezzlement started at a time when I was going through some personal problems and wasn’t paying as much attention to my business as I should have been. Suffice it to say that as a small business owner, nothing is as important as paying attention. In hindsight, there were small signs along the way. She never took a vacation from doing our books, even when she was out on maternity leave. I was never comfortable with her husband, whom I now credit with forcing his wife and my employee into stealing to support

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his drug habit. After this happened, we of course put processes into place to prevent something like this from happening again. Today I am a wiser business owner. It was a hard lesson, but some good came out of it. Q: You mentioned that your bank – Bank of Utah – stepped up and helped you through this. How? A: Once I found out what had happened, I knew I needed to act fast. I approached the Bank, let them know what had happened and asked them for a loan. It was a sevenyear note, which I paid back early, by the way. But, at the time, I was concerned to say the least, especially as my business had suffered such a big financial loss. I will never forget what my banker told me the day that we closed on the loan, when I expressed concern about the situation: “We’re a people bank. We know you, and you will recover from this.” 

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Lisa Mariano, VP, Trust Officer

Planning Your Estate – Ensuring Your Peace of Mind Even

if your overall net

worth is less than million

($10

$5

million for

married couples), there

Controlling Healthcare Decisions

are still plenty of good

Utah Advance Healthcare Directive (your “Directive”) – this document allows you to name an Agent to make medical decisions on your behalf in the event that you are incapacitated and unable to communicate your wishes. The document further conveys information to medical providers about your desires with regard to treatment and prolonging your life.

reasons to address the issue of estate planning, some of which are as follows:

• Assurance that your

• • • •

financial and healthcare decisions will be made according to your wishes, in the event that you cannot communicate them yourself. A bility to name a guardian for yourself and/or your children in the event that you become incapacitated or pass away. C ontrol over distribution of assets. A ssurance that your estate is managed according to your wishes. D ecreased potential for conf lict among loved ones upon your passing.

Controlling Financial Decisions Durable Power of Attorney with Springing Powers – this document allows you to choose someone you trust (your “Agent”) to act on your behalf with regard to financial decisions, in the event that you become incapacitated. The term “Durable” means the power lasts beyond your incapacity, which is when you will need your Agent to act on your behalf. The term “Springing Power” means that your

18

Agent only has the power if you become incapacitated; the Agent cannot act on your behalf if you are still competent.

HIPAA privacy rules may limit medical providers as to the amount of medical information they can release to third parties about you. They may also be limited as to the direction they may take from third parties with regard to your treatment. Your Directive authorizes medical providers to work with your Agent to ensure you receive medical care according to your wishes.

Control after Death Your Last Will and Testament (your “Will”) and your Personal Trust allow you to specify how you would like your assets to be distributed after you pass away and to whom the assets will pass. You may also name a Legal Guardian to take care of your minor children, rather than leaving this decision up to the Court. By putting your wishes in writing, you can save time and prevent or limit conflict between loved ones. Often times, contention between loved ones arises when beneficiaries disagree over the children, personal property or other assets.


You should choose your Executor carefully. Naming a loved one as an Executor can be problematic because the process is timeconsuming and can also put that person is a difficult position if the beneficiaries don’t get along well. An independent Corporate Executor, such as Bank of Utah, is a good option because our staff is experienced and objective, and our actions are overseen by both internal auditors and government agencies.

Control over Disposition of Assets Some people plan their estates by titling assets jointly with the person/people they ultimately want to receive the property upon their death. This technique can leave you vulnerable because the joint owner has immediate control over at least a portion of the assets and may choose to sell or encumber them. Another concern is that the assets may become subject to creditor claims if the joint owner gets sued, divorced or enters into bankruptcy. The best way to ensure that your assets are distributed the way you would like is to specify your wishes in either your Will or

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your Trust. If you create a Trust, you can choose to have the assets distributed over a period of time, rather than allowing beneficiaries to receive everything all at once. This is especially helpful if you have young children. Under the law, a child is eligible to receive inherited property in full at the age of 18. More likely than not, assets distributed to an 18-year-old would be dissipated quickly. By creating a Trust, you can name a Trustee to act as the gatekeeper to determine whether a distribution is appropriate. You specify in your Trust Agreement how liberal or restrictive the Trustee should be and the Trustee carries out your wishes. Again, an independent Corporate Trustee, such as Bank of Utah, is a good option for the reasons outlined above. Another benefit is that a Corporate Trustee doesn’t have a limited lifespan, health problems and personal problems to interfere with the administration of the Trust. There will always be experienced personnel in the Trust Department to handle the Trust and ensure continuity. 

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