Your Tax & Business Advisor
Y2K - Is it a Problem?

By Raymond S. Kulzick, CPA, DBA
As published in the Pinecrest Tribune. October 12, 1998. 

 

Should I be concerned about the Year 2000 (Y2K) computer problem?

There has been a lot of publicity lately about the Y2K problem. Stories have ranged from an "end of the world" extreme to those that say it's all a big hoax. So, what is it? What effect will it have on individuals and small businesses and what can you do about it?

The Y2K "problem" is a result of the way that dates have traditionally been represented in both computer hardware and software. In order to reduce storage space and speed data entry, the year has generally been indicated as two digits. In other words, 1998 is represented as "98" in date fields. Problems may occur with the year 2000, as some computer hardware and software will interpret the date of "00" as 1900. Other results are also possible. For example, many PCs more than two years old will reset the year to 1980 because the hardware does not recognize the year "00." Almost all PCs being sold today actually still have two-digit-year clocks, but newer computer hardware is able to properly interpret them.

A Y2K problem may exist whenever a system needs to access a date after December 31, 1999. It's already happening in small ways, such as the rejection of some credit cards with expiration dates in 2000 or later. As we draw nearer to 2000, the use of future dates will increase and more systems will be subject to possible failure. Likewise, after 2000 begins, failures of systems can occur at various times when systems look back at dates prior to January 1, 2000. The most dangerous problems, however, will not be systems that fail, but those that continue to run, and unknowingly process data incorrectly. Imagine a system that sends out erroneous bills, computes interest incorrectly, or refuses credit authorizations.

Don't rely on major vendors or government to solve all problems for you. For example, neither Windows 95 nor Windows NT 4 is fully Year 2000 compliant and Microsoft has admitted that it will not be able to make all of their software Year 2000 compliant in time. So, even if you bought all new software in December, 1999, you probably still would have some problems. Social Security, Internal Revenue, and the Defense Department have also admitted that their systems will not be fully fixed by 2000, although they have assured Congress that they do not expect any "major" problems to result.

Most large companies and government agencies have programs under way to reduce the severity of problems that Y2K will cause. A Gartner Group study indicated that 77% of large corporations expect to be ready for the year 2000. However, a recent survey of small companies indicated that less than 20% will even be partially ready. The Small Business Administration has (finally) mounted a PR campaign to make small businesses aware of the Y2K issue.

Awareness is the first step. It does affect everyone, whether you have a computer or not. Everyone is dependent on computer systems in their daily lives. For example, suppose your bank (which does update their systems) cannot process (or is delayed in processing) an incoming wire transfer from your customer in Venezuela because your customer's bank indicates a wrong date or uses an incorrect date format. Because of the pervasiveness of computer systems in American society and the extent to which they are interconnected globally, every business and most individuals will be affected. This could be a minor inconvenience such as you're unable to program your VCR, or your refrigerator no longer defrosts - or a major problem if you can't collect bills, get tax payments accurately credited, or access your bank accounts.

Every small business should test all hardware and assess potential software exposures, both within their own organization and with outsiders. Professional assistance may be appropriate or required. A plan can then be developed to address each vulnerability. Next, logical decisions can be made as to which systems can and should be "fixed." Program upgrades and other types of fixes may be available from vendors and some Year-2000 compliant software is available. Finally, it is highly unlikely that any business will be able to prevent all problems, so contingency plans will be essential to lessen the negative impact. The earlier this process is begun, the more likely the business will be able to face the year 2000 without major problems.

Raymond S. Kulzick is a CPA, and technology and management consultant with offices in Pinecrest at 12177 S. Dixie Highway. If you have questions or suggestions for future columns, please contact him at 305-233-2280 or rkulzick@kulzick.com. More information is also available on the firm's Web site at http://www.kulzick.com/businesspro.

This article provides information of a general nature only and should not be acted upon without seeking appropriate professional advice concerning your specific situation.

Copyright 1998 Raymond S. Kulzick. All rights reserved. 981012.

 

This publication provides business, financial planning, and/or tax information to our clients. All material is for general information only and should not be acted upon without seeking appropriate professional assistance.

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Copyright 1998 Kulzick Associates, PA - Last modified: September 13, 2008