Among the ordered affirmative actions are the following:
"Within 30 days of this Order, Putnam-Greene shall submit .. an acceptable plan describing the specific actions-that will be taken by the board of directors and management to ensure that each of Putnam-Greene's Electronic Information Systems are year 2000 compliant ("Year 2000 Plan"). At a minimum, the Year 2000 Plan shall comply with the Interagency Statement on Year 2000 Project Management Awareness issued by the Federal Financial Institutions Examination Council on May 5, 1997 (the "FFIEC Year 2000 Statement"), and shall address, consider or include the following:
The communication by Putnam-Green to its personnel, the Subsidiary Banks, any other customers, any third-party information systems service providers, any third-party providers of services that involve embedded microprocessors or telecommunications links, and any other service providers with whom Putnam-Greene conducts business by exchange of information in electronic form, the nature of the Year 2000 problem, as described by the FFIEC Year 2000 Statement and the need for Putnam-Greene, its Subsidiary Banks, any other customers, and its service providers to identify and correct any deficiencies in Putnam-Greene's capability to process correctly all transactions involving dates later than December 31, 1999;
A written risk assessment of all Electronic Information Systems that must be renovated or modified to become Year 2000 compliant, including the identification of all interdependencies between Putnam-Greene's Electronic Information Systems and those of Subsidiary Banks, any other customers, its vendors, and its service providers;
Within 90 days of this Order, Putnam-Greene shall submit to the Reserve Bank an acceptable written disaster recovery plan describing the specific actions that will be taken by the board of directors and management of Putnam-Greene to ensure the prompt resumption of business in the event that any of the organization's Electronic Information Systems fails on or after January 1, 2000;
Within 30 days of this order, Putnam-Greene shall appoint a senior manager who will be responsible for implementing the Year 2000 Plan, and shall submit to the Reserve Bank an acceptable written job description for this position, a resume, and on-going training that will be provided;
Within 60 days of this Order, Putnam-Greene shall secure a fidelity and indemnity blanket bond that includes all coverages of its present bond and also coverage for errors and omissions of Putnam-Greene's data processing service;
The Order of the Federal Reserve is significant not only because it is the first such order relating to the Year 2000 problem, but also because of its breadth. The order mandates an aggressive Year 2000 plan, and provides guidance to other financial institutions regarding the types of actions the Federal Reserve will require when establishing a Year 2000 program. The Putnam--Greene order provides a useful checklist for banks to assure that they are on a workable timetable for successful implementation of a Year 2000 fix. Copies of the order can be obtained by e-mailing Cathy Williams at cwilliams@hrblaw.com.
Senator Bennett Introduces Year 2000 Legislation
Senator Robert F. Bennett (R) Utah, chairman of the Senate Banking Committee has introduced S. 1518, the Computer Remediation and Shareholder Protection Act of 1997, to be cited as the CRASH Protection Act of 1997. The bill seeks to mandate disclosure of specific information regarding Year 2000 efforts for publicly traded companies.
It mandates the SEC to amend regulations promulgated pursuant to Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m) to require each issuer of a security registered under Section 12 of the act to include in each initial offering statement and in each quarterly report filed the following information:
"(1) a description of the progress of the issuer in completing the 5 recognized phases of Year 2000 remediation (i.e., awareness, assessment, renovation, validation, and implementation), by division, department or other appropriate business unit of the issuer;
(2) a summary of costs incurred by the issuer in connection with any remediation effort described in paragraph (1) and an estimate of additional costs that the issuer expects to incur in connection with future remediation efforts;
(3) an estimate of anticipated litigation costs an liability outlays associated with the defense of legal actions against the issuer (or the directors or officers of the issuer) as a result of Year 2000 computer systems problems, including breach of contract, tort, shareholder class action, and product liability actions;
(4) information relating to the existence of any insurance policies of the issuer that cover specific Year 2000 computer system problems, as well as the defense of legal actions against the issuer (and officers and directors of the issuer) in connection with those problems; and
(5) information relating to any contingency plans developed by the issue to ensure continued operation of the essential business functions of the issuer in the event of a Year 2000 computer system problem by the issuer itself or by a vendor, partner, or other affiliate of the issuer.
Senator Bennett's bill accomplished several laudatory objectives, including creating a clear standard mandating disclosure so that investors, lenders, insurers, trading partners, legislators and members of the public can be well informed regarding the Year 2000 risks faced by publicly traded institutions.
We note only two problems in the current draft legislation. First, we question the wisdom on mandating disclosure of "anticipated" litigation costs associated with liability outlays and defense costs. Asking a company to undertake a crystal ball analysis of anticipated liabilities may create the unintended consequence of providing a road map to potential litigants as to which companies are most at risk of failure. We fear that this provision may provoke, rather than avoid, litigation. We also note that companies will most likely require an opinion from counsel to satisfy this requirement, which will raise serious questions about the privileged status of such an analysis. Finally, we fear that for companies that are understandably squeamish about stating their "anticipated" liabilities, their failure to disclose such liabilities fully may spawn yet more litigation, of the shareholder class action variety.
Second, we are concerned regarding the disclosure relating to insurance that covers "specific Year 2000 computer system problems." The legislation is unclear as to what is meant by insurance that covers "specific", Year 2000 problems. Is this meant to address only Year 2000 policies, such as those being offered by J&H Marsh & McLennan and AIG, or is this meant to address a broader question, relating to whether existing policies cover Year 2000 liabilities? If it is meant to address the latter issue, we are concerned that this legislation may require an opinion letter from coverage counsel which reviews all existing coverages. Such a letter almost certainly would advise that at a minimum precautionary notices be sent to insurers. This potential flood of "notice letters" may require a multitude of insurer investigations, create a barrage of paperwork as insurers issue thousands of letters reserving rights, and otherwise provoke a dispute between insurers and policyholders than may not need to arise.
These relatively minor concerns aside, we believe that Senator Bennett is on the right track, offering needed guidance on the larger question of disclosure in an all too murky atmosphere. We urge passage of a modified bill addressing this important question.
Senator Bennett Calls on President to Create Year 2000 Czar
On 17 November Senator Bennett kept up his Year 2000 offensive by writing to the President to create a Year 2000 office dedicated to helping solve the problem. Senator Bennett wrote:
"The magnitude of this challenge, together with the potentially devastating impact of failure, leads me to conclude that the Year 2000 problem is a national crisis which warrants special government attention. Consequently, I am requesting that you create, within the Executive Office of the president, a temporary office to address this problem by mobilizing resources, securing voluntary compliance, issuing emergency directives, and taking whatever other actions is necessary to ensure the continued timely provision of essential goods and services by the government and the private sector. As you know, past presidents have created special offices to address emergency situations including a deteriorating environment, drug abuse, economic instability, and energy resource management. In some cases, as I would recommend in this situation, the offices were terminated as the crisis abated. In each case, however, the process of creating the offices was initiated by the President of the United States with Congress subsequently ratifying the action."
As of this writing, we are unaware of any response from the Administration. In our testimony before Congress in March of this year, we also recommended formation of a group, modelled on Britain's Task Force 2000, which would be formed to cajole, urge, advocate and otherwise publicize the many problems and the many workable solutions associated with the Year 2000 problem. We urge our readers to support Senator Bennett's proposal and to communicate with the Administration to take action on this sensible approach.
AICPA Year 2000 Task Force Issues Auditing Guidelines for Accountants
On October 31 , 1997 the Year 2000 Task Force of the American Institute of Certified Public Accountants issued its publication, "The Year 2000 Issue - Current Accounting and Auditing Guidance". This new Statement provides useful guidance for auditors and clients alike as it begins to define the accounting industry's view of its role in the Year 2000 problem. The questions regarding the audit are important. An interpretation approved for issuance can be found as an interpretation of AU section 311, Planning and Supervision (AICPA, Professional Standards, vol. 1, AU sec. 9311.38 - .47).
"Question - In an audit of financial statements conducted in accordance with generally accepted auditing standards, what is the auditor's responsibility regarding the Year 2000 issue?
Interpretation - The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Thus, the auditor's responsibility relates to the detection of material misstatements of the financial statements begin audited, whether caused by the Year 2000 Issue or by some other cause.
Management is responsible for the financial statements and, because of the widespread publicity the Year 2000 Issue has received, generally should be aware of the Year 2000 Issue. Management also should have knowledge about he systems used by the entity in operations and in preparation of the financial statements. An auditor does not have a responsibility to detect current or future effects of the Year 2000 issue on operational matters that do not affect the entity's ability to prepare financial statements in accordance with generally accepted accounting principles (or an other comprehensive basis of accounting)."
"The Year 2000 Issue - Current Accounting and Auditing Guidance," Copyright 1997 by American Institute of Certified Public Accountants, Inc. Used with permission.
Several aspects of this statement bear emphasis. First, the auditor has responsibility only to consider whether the current financial statement contains misstatements or omissions. If during the course of a current audit, the auditor determines that there will be a future Year 2000 issue which will render future financial statements problematic, the auditor is not under an obligation to report the problem as long as the current year's financial figures are reported accurately.
Second, the auditing profession will consciously place as much Year 2000 responsibility as possible on management. It will utilize engagement letters, direct communications with the audit committee and other devices to clearly define the scope of their responsibilities. Such letters much be carefully scrutinized to assure that it is clear what the role of the auditor will be.
Third, with respect to future problems that may be uncovered during the course of an audit, it is conceivable that an issue of whether the entity is a going concern may arise. The Audit Issues Task Force of the AICPA's Auditing Standards Board is developing guidance on Application of Auditing Standards (SAS) No. 59, The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern. Issuance of this guidance is expected by June 1998.
Management must be aware of the roles played by auditing professionals and understand that an unqualified audit may not be an indication that the entity is free from Year 2000 problems. As the Year 2000 approaches, however, the audit community will face deeper challenges as financial statements may begin to exhibit misstatements or emissions. The degree of inquiry required of an auditor and the extent of a potential qualification promise to provide vexing and difficult issues for the audit profession.
Review of "Year 2000 Problem, Strategies and Solutions from the Fortune 100" by Leon Kappelman
Anyone looking for a comprehensive treatment of just about every aspect imaginable of the Year 2000 problem should pick up a copy of Year 2000 Problem, Strategies and Solutions from the Fortune 100. This informative book was put together by Leon Kappelman, the co-chair of the Society for Information Management's Year 2000 Working Group. Mr. Kappelman assembled 53 authors, 10 editors and 5 sponsors to address the myriad of issues that Year 2000 failures present. Some of the authors are the Year 2000 project managers of major organizations, while others are prominent consultants or attorneys who have studied the project in depth. The result is a collection of thoughtful essays and technical reports which are an invaluable resource for anyone facing the millennium bug.
The book is organized in three sections, each of which deals which a different aspect of Year 2000 issues. Part One, entitled "What is the Year 2000 Problem? A Call to Arms," contains 6 articles by various Year 2000 experts addressing the historical causes and potential impacts of the problem. Particularly informative is Capers Jones' article which discusses the global economic impact of the Year 2000 problems. Mr. Jones' piece talks about the root causes of the Year 2000 situation, the potential hazards and benefits (yes, there will be some), and also dispels some of the current myths and hype that are swirling in the Year 2000 arena. The article provides tables estimating the aggregate global impact of Year 2000 repair costs. The numbers are both staggering and sobering.
Part Two of the book contains numerous articles that answer the question: How do you solve the problem? These articles address such practical subjects as how to gain executive support for your Year 2000 project and how to treat your programmers. Several articles deal with the tools and techniques that are being used to correct noncompliant code. This section also includes interesting perspectives on the legal and risk management aspects of the Year 2000 problem - subjects that no Year 2000 project manager can afford to ignore.
The third part of the book contains a goldmine of facts and empirical evidence on the Year 2000 state of the world. This section includes the fascinating and frightening results of a comprehensive study which was conducted by the Society for Information Management Year 2000 Working Group to determine and track the progress of Year 2000 projects, and to determine which approaches seem to be working best. Also included in this section is data on the size of the Year 2000 problem by enterprise, by economic sector and industry, by city, by country and on a worldwide basis. Perhaps the most valuable portion of the book is a Year 2000 resource directory, which is a yellow pages to assist those wishing to learn more about the Year 2000 problem, its potential impacts, what is being done about it, and how to solve it. The directory lists publications conferences, websites, user groups, tool vendors, consultants, and service providers.
In sum, Year 2000 Problem, Strategies and Solutions From the Fortune 100 is one of the most focused, practical and current treatments of the Year 2000 problem to date. It is a "must read" for every Year 2000 project manager.
Note: Vito Peraino, Chair of the Hancock Rothert & Bunshoft LLP Year 2000 Working Group, is a contributing author to the book. Mr. Peraino's article is entitled, "Corporate Directors' Liability and the Year 2000 Problem."
Year 2000 Conferences
Year 2000 Computer Crisis: The Litigation Summit
January 22-23, 1998 Dallas, Texas
Presented by Fulcrum Information Systems. To receive more information call 800-869-4302.
Performing an Audit of the Year 2000 Project Two Day Technical Audit Seminar for Auditors & Control Professionals
February 23-24, 1998 Cancun, Mexico
March 23-24, 1998 Marina Del Rey, CA
April 27-28, 1998 Washington, D.C.
June 8-9, 1998 St. Louis, MO
July 20-21, 1998 Minneapolis, MN
August 17-18, 1998 Denver, CO
Presented by Audit Serve, Inc. For more information, refer to
SPG Conferences
March 18-20, 1998 New York, NY
April 20-22, 1998 Orlando, FL
June 29-July 1, 1998 Chicago, IL
September 23-25, 1998 San Francisco, CA
October 1998 (TBA) Dallas, TX
November 9-11, 1998 Boston, MA
Presented by Software Productivity Group (SPG). For more information, refer to
Year 2000 TIC (Testing, Implementation, Certification) & Beyond Two Day Technical Seminar for Y2K Date Conversion & Project Office Professionals
March 26-27, 1998 Marina Del Rey, CA
April 30-May 1, 1998 Washington, D.C.
July 23-24, 1998 Minneapolis, MN
Presented by Audit Serve, Inc. For more information, refer to Click Contact Link
DCI Conferences
February 11-13, 1998 Phoenix, AZ
June 23-25, 1998 Boston, MA
October 13-15, 1998 Orlando, FL
November 3-5, 1998 Chicago, IL
Presented by DCI. For more information, refer to Click Contact Link
Professional Notes
Speaking Engagements
Vito C. Peraino is scheduled to speak at the following speaking engagements:
Health Care Association of Southern California
January 15, 1998 Los Angeles, CA
Fulcrum's Year 2000 Litigation Summit
January 22-23, 1998 Dallas, TX
National Professional Communication Co., Inc. (NPCC)
February 2, 1998 Orlando, FL
Professional Liability Institute's Year 2000 Conference on Understanding, Preventing & Litigating Year 2000 Issues: What Every Lawyer Needs to Know
February 9, 1998 New York, NY
Government Technology Conference
February 13, 1998 Austin, TX
Government Technology Conference
February 19, 1998 Sacramento, CA
Deborah A. Pitts is scheduled to speak at the following speaking engagement:
Fulcrum's Year 2000 Litigation Summit
January 22-23, 1998 Dallas, TX
Devin F. O'Brien is scheduled to speak at the following speaking engagement:
DCI's Issues and Answers Conference and Exposition
February 12, 1998 Phoenix, AZ
Projected Year 2000 Problem Costs
This partial list is intended to provide an updated tally of published Year 2000 budgets. If you are aware of a published budget, please e-mail Cathy Williams at cwilliams@hrblaw.com and include the published reference. For a complete listing of Year 2000 projected costs, please refer to the Hancock Year 2000 page at Click Contact Link
American Airlines $100M Congressional Press Release 11/10/97
Assurance Generalesde France SA $14M The News & Observer 12/5/97
AT&T $500M Texas Lawyer 11/10/97
Atlanta, Georgia $2M The Atlanta Journal 11/9/97
Australia $10B Newsbytes 12/2/97
Calgary Health Leaders $100M Calgary Herald 12/7/97
Calgary Regional Health Authority $20M Calgary Herald 12/5/97
Canada $12B The Ottawa Citizen 12/9/97
Chicago, Illinois $15M Chicago Tribune 10/16/97
Common Wealth Bank of Australia $100M AAP Newsfeed 11/16/97
Dayton Hudson $14M Supermarket News 10/27/97
DHL Worldwide Express$25M Computergram International 12/1/97
DeKalb County, Georgia $700K The Atlanta Journal 11/9/97
FDIC $24M Federal Document
Clearing House Congressional Testimony 11/4/97
Fulton County, California $12MThe Atlanta Journal 11/9/97
GTE $150M Congressional Press Release 11/10/97
Hartford Hospital,
Hartford, CT $2M Business First-Louisville 10/6/97
Lake County, IL $4M Chicago Tribune 10/9/97
MCI $150M Texas Lawyer 11/10/97
Memphis Light,
Gas & Water $2M The Commercial Appeal 11/7/97
Picker International
Inc. $31M Crain's Cleveland Business 10/6/97
Sabre $40M The Dallas Morning News 10/16/97
Standard Systems Group
$20M The Montgomery Air Force
Advertiser 11/15/97
State of Nebraska $31M The New Straits Times
Press (Malaysia) Berhad 11/6/97
State of New York $50M The Buffalo News 11/20/97
State of Pennsylvania$40M Pittsburg Post-Gazette 10/29/97
State of Utah $40M Congressional Press Release 11/10/97
Telestra Corp. $500M AAP Newsfeed 11/6/97
U.S. Congressional Banking Industry $7.2B Federal News Service11/4/97
USSA $75M Congressional Press Release 11/10/97
Vancouver $11M The Vancouver Sun 11/15/97
Hancock Rothert & Bunshoft has formed a Year 2000 Team to assist companies with related legal problems. If you would like more information on Hancock's Year 2000 Team, or on the firm in general, please contact: Vito C. Peraino on Tel: 213-623-7777 or E-mail: Click Contact Link or visit the Hancock Rothert & Bunshoft website at Click Contact Link
Visit the Year 2000 website at Click Contact Link
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
