Sunday, August 15, 2010

Comptrolling function - verifying trust

Queued Soft Loans are repayable based on ability.  It is important to lenders that whim or choice not determine ability, and important that lenders need not request payment to obtain it.  Comptrollers ensure this in addition to preventing corruption of the enterprise.

Comptrollers are 3rd parties appointed when the enterprise becomes a Natural Finance Comptrolled Organization (NFCO).  The comptroller organization is appointed for "life".  The comptroller organization has control over all enterprise financial accounts.  It must sign off with enterprise officers on every major expense.

The comptroller's authority over future projects and expenses is based only on whether they compromise survivability of the enterprise.  He guards over high, potentially preferential, payments, and ensures that new project funding covers a portion of related ongoing expenses (6 months worth for example).  The strictness of the comptrolling function on management depends entirely on the health and success of the enterprise.  Companies in the startup phase, or with higher debts than assets have tight controls.  No revenue means management cash salaries are at their minimum levels, while they rise to their maximum when operational earnings reach 10% (or natural rate if lower) of outstanding soft loan principal.

NFCOs have 2 distinct stages in their lifetimes.  The transition occurs when secured and unsecured QCSL investors gain certainty of payment.  Defined as the point when all investor QCSL holders are projected to be paid in 5 years.  After the transition point, the focus or primary mandate of the comptroller becomes ensuring that purpose-holders (other than management) have their promises fulfilled.  It is possible for the enterprise to slip below the transition point, in which case the primary comptrolling mandate shifts back to investors.  Purpose holders care about total compensation, as compared to cash compensation that concerns investors.

The investor benefit of comptrolling is the superior certainty that enterprise revenue is diverted to repaying them, together with expense control.  Far superior to management employed auditors.  This is in addition to the certainty in priority of payment of natural finance QCSLs.

The management benefits of submitting to comptroller authority are in attracting investors, paying them less due to lower risks, and having a secure attractive currency with which to influence suppliers, project partners, and with which to influence social groups to become purpose-holders.  The manager gains the freedom to found companies without any out of pocket investment, earns comfortable to high salary when corporation is profitable, and gains ultimate freedom after company passes the transition point.

Maximum management cash salary ($100K) at 10% return to investors is justified in that an enterprise achieving such a return is naturally successful regardless of the market forces determining the natural rate for the enterprise.

Chartered public accountants in their audit role of a corporation differ substantially from Comptrollers.  First, the Agent-Principal problem exists with CPAs.  They are hired by management to project a perception of honesty and solvency to outsiders such as shareholders and tax authorities.  They can be fired if they are unwilling to confirm management's desired perceptions.  Bernie Madoff gave the impression he was audited, for example.  GAAP rules allow auditors leeway in interpreting corporate cashflow optimistically for investor perception, and pessimistically for tax authorities. Comptrollers have authority over the corporation that auditors don't.  There is no corporate right to fire them.  Cash-basis accounting determines all decisions.

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