Boston Community Bank

University Degree Business and Administrative studies

Boston Community Bank: BPM Assurance Services

Introduction

The paper Boston Community Bank: BPM Assurance Services defines assurance services, describes various assurance services performed by CPAs, defines business performance measurement assurance service, gives an overview of the strategic objectives of Boston Community Bank, does a SWOT analysis for Boston Community Bank, mentions the executive performance measures of Boston Community Bank and provides future recommendations about the functioning of the Bank.

Assurance Services

Assurance services are a class of services provided by certified public accountants (CPA’s) in public practice. The American Institute of Certified Public Accountants (AICPA) Special Committee on Assurance Services defines assurance services as "independent professional services that improve the quality of information, or its context, for decision-makers."(Elliott & Pallais, 1997, p.56-63). Decision makers are the users of the information and immediate beneficiaries of the assurance service. The decision makers could be internal to an entity, such as the board of directors or employees, or external to an entity, such as trading partners, s or customers. (Elliott & Pallais, 1997, p.56-63). The main goal of an assurance service is to improve the “quality of information” (Elliott & Pallais, 1997, p.56-63) so that the decision makers can make more informed, and presumably better, decisions.

Information in an assurance service can be financial or nonfinancial, historical or future-looking, discrete data or information about systems, “internal or external to the decision maker”. (Elliott & Pallais, 1997, p.47-51). The information's context relates to how the data is presented. An assurance service improves the information or the context by providing assurance about the data’s reliability, by increasing the data’s relevance, or by making the data easier to use and understand. (Elliott & Pallais, 1997, p.47-51).

The CPA’s skill-set for assurance services goes beyond using traditional services, such as measurement, analysis, testing, and reporting and instead draws on the CPA's experience, expertise, customer-focused mind-set and judgment, , thus, categorizing assurance service as a professional service.. (Elliott & Pallais, 1997, p.47-51). The CPA’s, however, need to identify the customer’s needs and deliver assurance services accordingly. The assurance services identified by the AICPA Special Committee are the following: (CPAvision.org)

Risk Assessment, which evaluates whether an entity's profile of business risk is comprehensive and ensures that appropriate risk-management systems are in place. (CPAvision.org).
Business Performance Measurement, which evaluates the “effectiveness and efficiency” (CPAvision.org) of an entity's performance measurement system for assessing the degree to which an entity's objectives are achieved and for comparing performance versus competitors.(CPAvision.org).
Information Systems Reliability, which ensures that the system (financial and non-financial) provides reliable operating information.(CPAvision.org).
Electronic Commerce, which takes into account all the risks involved with a company’s electronic activity and makes the customers aware of possible security threats.(CPAvision.org).
Health Care Performance Measurement, which evaluates the relevance and reliability of an entity's performance measurement system for assessing the degree to which an entity's objectives are achieved and for comparing performance versus competitors.(CPAvision.org).
Eldercare Plus, which provides assurance in a “professional, independent and objective manner” () to the family members of the elderly person about the quality of care being provided by various care givers.(CPAvision.org).

The infrastructure for ongoing development of new assurance services is in place and working. The AICPA is investigating numerous other areas in which assurance services are being provided by CPA firms to establish a formalized system of evaluation and reporting based on specified criteria. Of the above mentioned assurance services, Business Performance Measurement Assurance Service is discussed in more detail next.

Business Performance Measurement Assurance Services

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Business Performance Measurement Assurance Services

Business Performance Measurement is primarily concerned with measuring the efficiency and effectiveness of actions, aggregating and standardizing information, and setting appropriate targets. (Kellen, 2003). The development of performance measures plays an important role in formulating and clarifying plans and strategies and setting targets for employees, project teams and business units. A business performance measurement system should ensure that a limited and manageable number of measures are chosen and that the measures are balanced in terms of financial and non-financial measures; objective and subjective measures; leading and lagging indicators (input, process and output measures), and trade-offs between measures. (Kellen, 2003).

The most popular performance measurement framework is Kaplan and Norton’s Balanced Scorecard. (Balanced Scorecard Institute, 2007). Financial, customer, internal business and learning & growth are the perspectives of a Balanced Scorecard. A well balanced performance measurement system will help to: (Kellen, 2003)

develop, discuss and formulate the company’s strategy;
communicate the strategy throughout the organization;
define objectives and specify targets for business units, project teams and employees;
motivate and monitor employees and managers and guide their actions;
inform employees, managers and shareholders on the efficiency and effectiveness of past actions and strategies and the likelihood of success for future actions.

About Boston Community Bank

First established in 1888, Boston Community Bank is a fast growing $200 million state chartered community bank located in Massachusetts with four full service branches. The mutual bank has no shareholders and is entirely operated for the benefit of the bank’s customers. In 1996, Bank’s management decided to become a full service community bank from a traditional thrift institution. Boston community bank already had been facing hardships like shrinking margins, limited growth opportunities, aging customer base and predatory pricing from other competitors. In order to face these challenges, bank’s management decided to diversify the source of revenue to offer wide array of financial services like access to mutual funds, alternative investment products and full array of lending products. Boston community bank set up strategic objectives for the upcoming years and by 1999 has four full service branches to offer its services. On June 25, 1999 Bank’s Executive members met with Assurance Services partner in order to evaluate the banks strategic objectives and performance measures that are used at the bank. Assurance services client service team obtained 1999’s Strategic plan, budget and Executive bonus performance measures from the management. The break down for the strategic objectives of Boston community bank follows next.

Strategic Objectives of Boston Community Bank

Business development and Career development are the two most important goals that the bank has to achieve. Below is the list of activities to achieve these two goals:

To create a brand name for the bank that represents the geographic area in which the bank serves.
Become a full service community bank from a mutual bank.
Increase presence in the market by adding more full service branch and increase percentage of commercial loans.
Diversify the Bank’s sources of revenues and assets to compete the service industry.
Increase cross-selling opportunities within existing customers.
Increase wide array of financial services that includes access to mutual funds, alternative investment products and a full array of lending products to small business.
Remain financially sound, keep strong management team and strengthen resources.
Maintain high level of asset quality and a low level of interest rate risk.
Commitment to become pre-eminent, strong customer service through community involvement and striving for the highest levels of profitability and asset quality.
Increase personal relationship with commercial business customer.
Attract small business customer and offer them services like small business loan, accounts receivable loan, cash management services, third party relationship for leasing, 401 k, mortgage banking and other asset management and internet banking.
Grow commercial loan portfolio to forty percent by year end
Long term objective to have commercial loan portfolio account to 50% of total loans.
Growth in demand deposits by 20% and market accounts by 13%.
Decrease non-interest expense by 13%.
Assess employee skill and offer sales training to employees.
Project Bank’s staffing needs for the next three years
Motivate small business customer by offering experienced officer, competitive product, convenient distribution, effective coordination.

SWOT Analysis for Boston Community Bank

The Assurance Services client service team provided the bank management team a SWOT analysis to evaluate the existing strategic objectives of the bank. The analysis is pretty consistent with the existing objectives and reflects present strength and opportunities and also projects weakness and threats that the bank needs work on.

Strengths

Boston community Bank has a large customer base and a strong management team that is very knowledgeable of the industry. The bank maintains a strong capital and asset quality by increasing commercial loan from none to 40% and also sets objectives to grow in demand deposits by 20%, money market account by 13% and decrease non interest expense by 13%. Regularity performance is strong and bank felt the urgencies of evaluating banks strategic objectives and career development for the staff. To further leverage the strength of Boston Community Bank, an external situation analysis can be added that will (Wikipedia.org, n.d.) execute at an internal and external level to identify all opportunities and threats of the new strategy. The several factors to assess in the external situation analysis are the markets (customers), competition, technology, supplier markets, labor markets, the economy, and the regulatory environment.

Weaknesses

In order to address the weaknesses of untrained staff, lack of knowledge of customer profiles and insufficient customer service, Boston Community Bank’s management decided to assess employee skill, provided sales training and projects bank’s staffing need for the next three years. As described earlier, an external situation analysis will help to address the issues of bank’s lack of marketing resources and lack of technological resources. Weaknesses like overall profitability and operation inefficiencies, Aging customer base and growth of overall market share can be addressed by bank’s existing objectives like increase presence in the market, diversify existing resources, increase cross-selling opportunities and increase services to the small business.

Opportunities

Opportunities are difficult to identify and addressing weakness perfectly sometimes harvest the opportunities. Existing strategic plan already address the opportunities like cross-selling existing customers, growth of commercial business, promotion of new products and growth of loan portfolio. According to Assurance Services opportunities required to harvest are like increased presence by means of ATMs, identify market niche, marketing towards customers of large margin banks, potential of internet banking and sale of insurance products. Continuing education for the bank director can be advised, since “being a member of a bank or holding company board is a dynamic, not a static, position. The financial services industry, particularly the community banking sector, is changing on a daily basis” (Gerrish, 2002). More knowledge in the banking industry will help the members identify and harvest the opportunities in a regularly changing market place.

Threats

To attack the threats like bank and non-bank competition can be done through existing business development strategy and threats like operation inefficiency, turnover of staff and staff’s ability to adapt change will be solved through career development strategy. Threat like lack of appeal to younger, affluent potential customer requires strong marketing plan and internet banking. For internet banking, it is advised that a risk assessment analysis should be in place.

Executive Performance Measures

The executive performance measures used at the Boston community bank include; net income, deposit growth, loan growth, non-performing asset ratio, overdue ratio and non-interest expenses. A lagging indicator is an economic indicator that follows an alteration in the economic cycle, reflecting what has already happened in the overall economy. This indicator confirms long-term trends but does not predict them (Reuters financial glossary). On the other hand, a leading indicator is one in which measures economic factors that alter ahead of changes in the overall economic cycle and are also used to signal future events. (Reuters financial glossary).

These performance measures at Boston community bank can be classified as leading indicators as their percentage weights are used to predict these top executives’ bonuses. The breakdown of the executive performance bonuses emphasize how important these performance measures are within the bank as the success of the company determines how much extra compensation these executives receive. These executives need to work hard to increase the net income and assets within the bank and also to limit the amount of debt as this provides an incentive for them to increase their bonuses.

The overall idea of the bank’s strategy and mission is to become the leader in their industry through profitability and excellent customer service for their primary market. All of these executive performance measures relate to the profitability and asset quality of the bank, however, none of these measure customer service which include customer relationships and community involvement, which is a significant goal in the company’s mission statement.

Recommendation

Boston community bank’s main goal is to increase their market share. Since the internet has revolutionized the way business has been done, the bank’s first step would be to introduce online banking. This would attract a modern, youthful market and would definitely be easier and more convenient for their customers to use and hence; increase the positive word of mouth in the North Shore community. Employees would have to be trained and properly educated as they would have to fully understand the online system in order to completely assist their customers.

In terms of the bank’s performance measurement system, performance is only measured based on financial criteria. In the banking industry, this is definitely a vital part of performance evaluation; however, Boston community bank specifically wants to build strong relationships with their customers through customer service and community involvement as this would encourage loyalty among their customers. The bank could give their customers performance surveys to fill out with their mailed statement every month or have a link to the survey on the bank’s website. This would be much better to use than telephone surveys as many customers don’t have the time to take part in the telephone interview and may become very annoyed and frustrated with the bank.

Another important performance measure for the bank is the output of their employees. The bank has to ensure that their employees are treating the customers well and doing their best to open as many accounts as they could. They should have an assigned quota for the month and receive a bonus if the quota is met and this could also be used to measure how well they are performing. This would provide an incentive for the employees and allow them to develop and move up in the rankings.

Conclusion

The paper Boston Community Bank: BPM Assurance Services defined assurance services, described various assurance services performed by CPAs, defined business performance measurement assurance service, gave an overview of the strategic objectives of Boston Community Bank, did a SWOT analysis for Boston Community Bank, mentioned the executive performance measures of Boston Community Bank and provided future recommendations about the functioning of the Bank.

Reference List

Balanced Scorecard Institute. (2007). What is the balanced scorecard?. Retrieved April 15, 2008, from

CPAvision.org. (2000). Assurance services: Finding new opportunities in a changing marketplace. Retrieved April 15, 2008, from

Elliott, R.K., Pallais, D.M. (1997). Are you ready for new assurance services? Journal of Accountancy, 183(6), 47-51. Retrieved April 15, 2008, from ABI/INFORM Global database. (Document ID: 12331586).

Elliott, R.K., Pallais, D.M. (1997). First: Know your market. Journal of Accountancy, 184(1), 56-63. Retrieved April 15, 2008, from ABI/INFORM Global database. (Document ID: 13028389).

Kellen, V. (2003, February). Business performance measurement: At the crossroads of strategy, decision-making, learning and information visualization. Retrieved April 15, 2008, from

Wikipedia.org (n.d.). Strategic planning. Retrieved April 19, 2008, from

Gerrish, J.C. (2002, April/May). Ten Commandments for community bank directors. Western Independent Bankers. Retrieved April 19, 2008, from

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