Ability-to-Pay Analysis Services
EPA uses its computer software known as "ABEL" to ...
EPA uses its computer software known as 'ABEL' to screen defendants' claims that they cannot afford to pay penalties. ABEL is a convenient tool for analyzing three to five years of a corporation's federal tax return data. It produces two types of outputs: (1) a financial profile based on commonly-used financial ratios that indicate the liquidity, solvency, tendency toward bankruptcy, and the general financial health of the firm; and (2) a probability-based forecast of the firm's likely future cash flows, which can be used to assess the likelihood of the entity's ability to pay fines, cleanup costs, and other types of incremental environmental expenditures.
EPA's MUNIPAY and INDIPAY models perform similar functions, respectively, for municipalities and individuals, including both sole proprietorships and partnerships.
In Beyond ABEL: Ability to Pay Guidance (1993), EPA stated, 'When an ABEL run produces a positive result, [EPA] staff can be certain that the entity is able to pay. A negative or ambiguous result, however, does not necessarily indicate that the entity is unable to pay. ABEL may produce a negative result when, in fact, funds are available.'
For example, the company may be able to pare its expenses and generate additional cash flow, sell off non-essential assets, either assume more debt or refinance debt owed to affiliated parties, reduce the salaries of its officers, or draw upon the financial resources of a parent or affiliated company to pay penalties. Beyond ABEL draws attention to key information in the alleged violator's tax returns and financial statements, and provides step-by-step instructions on how to investigate those issues.
As noted in Beyond ABEL, 'A final ability to pay assessment will require the user's judgment about the entity's financial capability and the degree of hardship that should be imposed on the violator. Such judgments are by their nature subjective, and will most likely be reached through discussion within the litigation team and enforcement staff.'
To be most effective when an entity has a real ability-to-pay problem, counsel needs to understand the use and limitations of ABEL, MUNIPAY, and INDIPAY, and to dispute as justified relevant input assumptions.
A major shortcoming of all three of EPA's ability-to-pay models is the assumption that past cash flows provide a reliable basis for projecting future cash flows and, thus, a correct basis for assessing ability-to-pay. In reality, a firm, municipality, or individual's current and/or future financial situation may be so different from those of the recent past that the modeling results are highly misleading and lead to incorrect conclusions. In such circumstances, it is particularly important to explain to EPA staff members the reasons the modeling results are not reliable and to provide a more accurate basis for assessing ability-to-pay.
Mr. Fuhrman has calculated many corporations' ability-to-pay for civil penalties and injunctive relief. These clients have included over 30 medium-size and small businesses.
Customer reviews
No reviews were found for Ability-to-Pay Analysis Services. Be the first to review!