Anti-Corruption, Business Ethics and Professional Conduct

Written by: Mohamed Sanih, Gn. Fuvamulah, Maldives

This was my first article for a resort staff newsletter and I hope by sharing, people will find it useful and helpful. I will give a brief introduction into “Anti-Corruption, Business Ethics and Professional Conduct”.

I would like to give you some clues on how to conduct yourself professionally, which adhere to anti-corruption and business ethics in general.

Organization ethical culture need to have an open door and honest policy by always doing the right thing to deliver results.

A successful business relationship whether with work colleagues or with other stakeholders will always depend on honesty and integrity of the individual and which will reflect back on the organization that person is working.

All employees need to have thorough knowledge of the codes and procedures of the company and corporate head office policy, including employee code of ethics and conduct. There should be a continuous commitment to use good judgment and common sense in trying to do the right thing and always work in the best interests of the company.

The term integrity is defined in this article as:

Having the best ethical standards, showing honesty, respect for your fellow colleagues & stakeholders and open communication (not hiding or keeping things secret which can prove detrimental or damaging to the organization).

The best Code of Conduct which I came across was from InterContinental Group, where they ask these simple questions, which if answered properly in your conscience, you will know whether it is something right or wrong?

They are as follows:

Is it Legal?

Is it Ethical?

Is it Safe?

Is it consistent with the Code and IHG’s policies and procedures?

Is it consistent with our Winning Ways?

Would I be comfortable explaining it to my friends and family?

How would I feel if it was made public in the newspapers or online?

Further, workers should not misuse, own or sell anything (including but not limited to information, confidential matters etc.) which is a property or asset of the company.

In short if I were to summarize “what is Anti-Corruption and Business Ethics?’

I would conclude by saying that it is always doing the right thing, by using your common sense and judgment on doing what is right. What you feel and what your conscience tell you to do which is the right thing.

BCG Matrix - Product Life Cycle Theory

By: Mohamed Sanih, Gn. Fuvamulah, Maldives

The BCG Matrix is a famous model developed by the Boston Consulting Group which shows the various stages in a product life cycle in a simple and understandable manner.

The BCG Matrix can be either used to measure a single product or more commonly a group of products in an portfolio which will be in the various stages of the product life cycle. e.g. some maybe a cash cow, while others maybe a problem child or question mark?

The company should decide which products needs to be abandoned, and which ones to pursue depending on various factors such as market penetration, product success, saturation of the market, low growth, cash generating, high expenditure products, research and development etc.

The BCG Matrix has four categories and they are:

1. Question Mark or Problem Child
2. Stars
3. Cash Cows
4. Dogs

• Question Mark or Problem Child

This is normally a product which has a small market share in a fast growing industry. A problem child or question mark (product) will consume a lot of cash & resources in a company (e.g. for market penetration, product awareness, etc.) than it generates. 

Products within this quadrant in the BCG matrix may remain uncertain for a number of years, during which time it may evolve into a Star (high market share / fast growing industry) or Dog (small market share / mature industry).

Most products or businesses start off as problem child and represents the biggest challenges to management. As management need to decide whether to put into the resources and huge cash reserves to make this product a success (Star) or when to put the stop limit or abandon the product before it becomes a Dog.

• Star in the BCG Matrix

The product which we think of when thinking about Stars are telecom products. If we look at any best 5 telecom companies, share of market is high but the company growth rate is much higher. Since, these two factors, there is always high competition and juggle to invest and harvest between telecom companies i.e. invest the money into new products or taking out cash from time to time.

Stars can always be taken over by another company due to high competition which capitalize on the high market growth rate. With a successful strategy a star can become a cash cow in the long term.

Star Strategies can be as follows:

-          Marketing and Sales Promos
-          Advertising
-          And Various other marketing activity

Cash cow will normally already have these strategies due to which it has resulted in the formation of the cash cow. Stars on other hand, due to high competition and high market share, the marketing strategy will of high expense with a lot of marketing activities to maintain market share, so as to gain and retain the respective market share. 

• Cash Cow in the BCG Matrix

They’re the market leaders and exhibit a return which is greater than market growth rate. Thus generating more cash than need to be expensed. The cash from such products should be harvested, extracting the profits and investing little cash as possible.

Cash from cash cows will be used to turn “problem child or question marks” into Stars, to cover admin costs, marketing costs, fund R&D development, debts and pay returns to shareholders.


Cash cows generate stable cash flow and their value is accurately determined by calculating present value of its cash stream using a discounted cash flow analysis.

• Dogs in the BCG Matrix

Dogs are generally has a low market share in a slow growing mature industry. These kind of products generally either barely generate enough cash to maintain their market share in their industry.

Even though of the fact barely getting back original investment money or making a loss it gives the social advantage of giving employments and conceivable cooperative energies that help different specialty units.

From a bookkeeping perspective such a unit is useless, not producing money for the organization. They reduce the company’s return on assets ratio, utilized by numerous financial specialists to judge how well an organization is being overseen. 


Dogs, it is thought, ought to be sold off or generally discontinued in the long term.

The BCG Matrix has two axis one for Market Growth and another for Market Share, as can be seen from the below diagram:

Example of an BCG Matrix slide can be seen below for Nestle:

http://www.valuebasedmanagement.net/methods_bcgmatrix.html

Excellent Video on BCG Matrix:

ACCA P1 Governance, Risk and Ethics: Summary Synonyms for Last Minute Exam Preparation

Corporate Governance Concepts - HAIR DRIFT

Honesty or (Probity): Create a culture of honesty & ethical stance within the organization.

Accountability: Providing comprehensive information to all concerned stakeholders and effective risk management within the organization.

Integrity: Have a high standard of strict moral and ethical values or codes.

Responsibility: Having a clear responsibility for corporate governance decisions and the clarification of individual roles and responsibilities.

Decision Taking: Take clear cut decisions to improve the wealth of an organization.

Reputation: Maintain a culture to develop reputation and moral stance and also to comply with the corporate governance concepts.

Independence: There should not be a conflict of interest between the executive directors and non-executive directors. NED's or non-excutive directors should be fully free and independent to make their decisions within the organization.

Fairness: All stakeholders should be dealt ethically and equal by the organization and should take into account their legitimate interests.

Transparency: Organization agents or directors should have an honest and open relationship with all stakeholders in their decision making process. And provide full disclosure of all material matters (whether financial or non-financial) which concern the company and this should be done in a ethical and transparent manner.

Corporate Governance Purposes -PIGCREW

Practice methods - governance provides practice methods to aid those who are managing a company
Investment - governance creates assurance and trust thereby attracting investment
Growth - governance creates conditions for growth of the economy

Control - it is set in place to control excessive behaviour in the organisation
Rules - it creates rules within which the organisation is operated
Employment - it creates employment as well as deals with several employment issues
Wealth - it supports a wealth-creating capitalist system

The role of the Chairman can be defined best by the synonym (RAISE DIP) for the ACCA P1 Paper: Governance, Risk and Ethics.

The best description can be found in Derek Higgs Report and they can be summarized as follows:

R: Run or leadership of the board and effectiveness of the board to set their roles and agenda.

A: Accurate, timely and clear information to the Board of Directors.

I: Information facilitating & contribution of the non-executive directors.

S: Self sufficiency in performing complex and difficult decisions.

E: Effective communication between executive and non-exectuive directors (NEDS) and also with the shareholders.


D: Develop and process the needs of both executive and non-exectuive directors.

I: Induction and training programs for the Board of Directors.

P: Performance evaluation of the Directors.

Role of the Non-Executive Director are as follows: ("CSSR")

Non-Executive Directors should:

C: Contribute and challenge the organizational strategy for it's continued success.

S: Satisfy themselves that the there is adequate internal controls and risk management system in place. And also that the financial information generated by the organization is accurate.

S: Scrutinize management performance and monitor the reporting of performance for meeting agreed goals and objectives.

R: Responsible for the remuneration of Executive Directors and have a major role in contractual and disciplinary measures if necessary to be taken against executive directors. And are primarily involved in removing, appointing senior management and succession planning. Also, hold executive directors to account for their actions and to represent the shareholder interest.


The following quote is taken directly from Derek Higgs Report: 

"The role of the non-executive director is frequently described as having two principal components: monitoring executive activity and contributing to the development of strategy. Both Cadbury and Hampel identified a tension between these two elements.

A number of consultation responses identified the personal attributes required of the effective non-executive director. They are founded on:

• integrity and high ethical standards
• sound judgement;
• the ability and willingness to challenge and probe; and
• strong interpersonal skills."

The role and function of the Audit Committee can be defined best by the synonym (CLARISSA) from the ACCA P1 Paper: Governance, Risk and Ethics:

The below is an summary transcript of each without an broader definition:

(CLARISSA) 

C: Create a an environment of discipline and control

L: Lend accuracy and truthfulness and credibility in the financial statements.

A: Assisting the Finance Head or Chief Financial Officer in providing a forum of communication.

R: Review and check the financial statements for quality control and accuracy.

I: Independent Review & Judgement

S: Strengthen the position of the Internal Auditor within the company and provide support to their concerns and needs and provide such information to the concerned stakeholders in an transparent manner.

S: Strengthen the position of the External Auditor within the company and provide support to their concerns and needs and provide such information to the concerned stakeholders in an transparent manner.

A: Assist in any disputes between the External Auditors and the Board of Directors and provide solution in relation to such matters.

Agency theory - directors act as agents of shareholders

Potential problem - strategy to benefit directors, not shareholders, different attitude to risk (not their investment), short-termism
Goal congruence - incentives to align interests (profit related pay and share option schemes)

Rules or principles-based approaches

Rules - SOX, legally enforced, section 404 ICFR penalises SMEs
Principles - UK Combined Code of CG, comply or explain, SMEs more leeway, not legally compulsory, market benefits or penalties for non-complier

Risk Committee - majority of NEDs, 1 - from AC, 1 - risk expertrole

Assess ICs
Performs risk assessment of key operations
Oversees implementation and effective operation of risk strategy

Nomination committee - majority of NEDsrole

Identify appropriate people to join board
Determine packages and their compositions for prospective EDs

Remuneration committee - majority of NEDsrole

Determine appropriate packages and their compositions for EDs
Cross directorship and cross shareholdership are prohibited

THE TURNBULL CRITERIA TO ASSESS THE NEED FOR INTERNAL AUDIT

CCC PINS

C: Cost-benefit considerations
C: Changes in organisational structure
C: Changes in key risks

P: Problems with internal control systems
I:  Increased number of unexplained or unacceptable events
N: Number of employees
S:  Scale, diversity and complexity of the company’s operations

Turnbull guidance for sound ICs (sound = effective)

Principles of ICs embedded to activities (not stand alone)
Quickly response to risks
Immediate reporting to man-t

Public sector organisations

Hospitals, schools, local government authorities, state-controlled companies, NGOs
Purpose - implement government policy. It cannot be left for profit (eg. loss-making route may be retained to support economic development in a region)
Focus - value for money (EEE)
Agency relationship - man-t as an agent for taxpayers
Problem - strategic objectives hardly to define and monitor their achievements

Charities & voluntary organisations
Accountability relationship - charity - donor - purpose of donation and actual use of it


Risk


Strategic risk

responsible - board
arises from fundamental decisions related to organisation's objectives
Business and Non-business
Business - product and service related (marketing and development, economic risk, technological risk)
Non-business not related to product and service (long-term financing)

UK Cadbury report - matters:
significant acquisition and disposal
investments
capital projects
treasury policies

Managing - if problem is global (raw material supplier uncertainty), - not avoided in short term, - redesign production - reduce or eliminate risk in long-term
Avoid risk - lost business opportunity - competitor may take up these opportunities and boost its business

Operational risk
responsible - risk committee - line managers - employees
arises from internal resources, systems, processes, employees risks
stoppage line - machine failure
key staff leaving - dissatisfied
lost of sales - poor quality

Managing - controls to detect or correct problem - to reduce or eliminate risk

Guide to risks - FROP LIFE

Financial risk
Reputation risk
Operational risk
Product risk

Legal & political risk
Information technology risk
Fraud risk
Entrepreneurial or economic risk

Risk framework - ALARM

Appetite
List (risk register)
Assess (TARA)
Response
Monitor

TARA

High probability * High impact = Avoid
High probability * Low impact = Transfer
Low probability * High impact = Reduce
Low probability * Low impact = Accept

ERM model COSO's enterprise risk management 8 components

1 - Internal environment - tune of organisation influencing risk appetite, attitude to risk man-t & ethical values (criticism - external environment ignored)
2 - Objective setting - to support company's mission (consistent with risk appetite)
3 - Event identification - which may affect achievements of objectives. Negative impact - risks, positive impact - opportunities
4 - Risk assessment - probability and impact of risks
5 - Risk response - reduce, accept, transfer, avoid
6 - Control activities - policies & procedures to check effectiveness of risk responses
7- Implementation & communication - data - man-t & staff responsibility
8 - Monitoring - modified if necessary

Ethics

Gray, Owen & Adams - 7 positions on CSR
PRESSSD

Pristine capitalist - shareholders most important
Radical feminist - do not fellow male dominate, soft treatment of female
Expedients - opportunities for business > SR is secondary
Social contract - entity exists till it serves the society
Social ecologist - recognise social & environmental footprint
Socialist - SR is first, good production is second
Deep ecologist - attention to nature, save planet for the future generations

Pristine capitalist:

• underpinning value is shareholder wealth maximisation.
• anything that reduces shareholder wealth (such as acting in a socially responsible way) is theft from shareholders.

Radical feminist:

• society and business should be based on feminine characteristics such as equity, dialogue, compassion and fairness.

Expedients:

• recognise some social responsibility expenditure may be necessary to strategically position an organisation so as to maximise profits.
• this is back to the concept of 'enlightened self-interest'.

Proponents of social contract:

• businesses enjoy a licence to operate granted by society so long as the business acts in an appropriate way.

Social ecologist:

• recognises that a business has a social and environmental footprint and therefore bears responsibility for minimising that footprint.

Socialist:

• actions of business are those of the capitalist class oppressing other classes of people.
• business should be conducted so as to redress imbalances in society.

Deep ecologist:

• humans have no more intrinsic right to exist than any other species.

AAA model
FEN ABCD

Fact
Ethic
Norm

Alternative course
Best course
Consequence
Decision

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tucker's model - 5 questions

Please Look For Red Shoes

Profitable?
Legal?
Fair?
Right?
Sustainable? (or environmental)?

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mendelow framework
influence of stakeholder = Power * Interest

Low power * Low interest = Minimal effort
Low power * Hight interest = Keep informed
High power * Low interest = Keep satisfied
High power * High interest = Key players

Instrumental & normative motivations of stakeholder theory

Instrumental - take into account stakeholders opinion only if they are consistent with other, more important objectives (profit maximisation, gaining market share, etc.)

Normative - Kant's theory based, moral framework, see shareholders as ends in themselves, not to achievements of other ends)

Category of stakeholders - PINK LAVR

Primary / secondary
Internal/ external
Narrow / wide
Known / unknown

Legitimate / unlegitimate
Active / passive
Voluntary / involuntary
Recognised / unrecognised

Approaches to Corporate Social Responsibility (CSR) - PRAD

Proactive - promote interests of stakeholders & stakeholders
Reactive - avoid CSR, try to hide from stakeholders / society
Accommodative - balance the interests of shareholders with other stakeholders
Defensive - rely only on legally established rules to take minimal CSR

Corporate Social Responsibility (CSR) - PELE

Philanthropic - what is desirable?
Ethics - what is right?
Legal - compliance with law
Economy - focus on profitability

Kohlberg's stages of moral development

3 levels (6 stages)

Level 1 - Pre-conventional
1. Obedience & punishment orientation (How to avoid punishment)
2. Self-interest orientation (What's in it for me?)

Level 2 - Conventional
3. Interpersonal accord & conformity (social norms, good boy/girl attitude)
4. Authority & social-order maintaining orientation (Law & order morality)

Level 3. Post-conventional
5. Social contract orientation
6. Universal ethical principles


Pre-Conventional Level:

Stage 01: is generally found in the elementary school level where people behave according to generally accepted norms. Because they are ordered to do so by someone with authority e.g. school teacher or their parents and non-obedience is generally met with punishment.

Stage 02: is where they behave according to their own interests so that they are rewarded. E.g. a parent may encourage a child with potential rewards for good behaviour or grades.

Conventional Level: Generic norm of thinking within our society.

Stage 03: Good boy / girl attitude where the approval others are sought so as to be accepted within the society or culture.

Stage 04: Obedience to law and order as an obligation by an responsible corporate citizen.

Post-Conventional Level: This level of thought or moral attitude are not reached by most individuals within our society as per Kohlberg.

Stage 05: Social Contract is mutual dependence and having an genuine interest in the betterment & welfare of others in general. Have a understanding between moral and legal rights and the recognition that rules should not be followed where it is deemed ethically & morally wrong.

People believe that rules & regulations should exist for their general good and where this is deemed otherwise, under Social Contract obligations they must be broken.

Stage 06: Principle Conscience is where universally accepted ethical principles are followed and this may sometimes not fit the law. Examples of such are: Human Rights, Justice and Equality. Some individuals will be prepared to break the law, in order to defend such principles.


http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Theories%20of%20Corporate%20Social%20Responsibility.aspx

Ethical Theories: Absolutism and Realavitism similar to Deontological and Teleologocal - ACCA P1

PRINCIPLES > ACTIONS > OUTCOMES

Absolutist……………………Relativist
“it’s always wrong to steal”…….. “Robin Hood was Ethical.”
Absolutist and Relativist are two categories of ethical decision making:

Absolutist: Actions are ethical if they follow moral principles of right and wrong (e.g. the 10 commandments). The outcome of the decision is not considered. E.g. the statement, “It’s wrong to steal,” is following an absolutist approach to ethics.

Relativist: The outcome of a decision determines if it is ethical–principles are ignored. E.g “Robin Hood was Ethical–he stole from the rich, and gave to the poor.” No mention of principles, only the outcome–that he helped poor people. This is a relativist approach.

Deontological: This is in the absolutist category–ethics based on an “inner sense of duty” to follow a moral code. (Another absolutist approach would be the “normative” approach towards stakeholders, which also comes up in the exam.)

Teleological is in the relativist category (you could argue these terms are actually synonyms). What is ethical is either (a) what is best for me, or (b) what is best for society. (the instrumental view towards stakeholders is another example of a relativist approach).

You can explore these concepts more deeply by looking at Kant and other theorists. But for P1, it’s more important that you can dissect the case study and explain which of the characters is taking the absolutist approach, and which is taking the relativist approach, and why.

Copy Extracted & Retrieved from: 

http://opentuition.com/topic/ethical-theories-2/

Kohlberg's Three Levels of Moral Development

Lawrence Kohlberg was an Harvard University professor, and is famous for his work on the theory of moral development, which became popular via his research work during his time in Harvard Moral Education Center.

Kohlberg said that most people progressed with their sense of moral reasoning in relation to ethical behaviour through three stages or levels.

These three stages can be further broken down into six identifiable levels, but mostly generalized as three stages.

This article will be useful for students studying the ACCA P1 Paper: Governance, Risk and Ethics.

Kohlberg's classification can be outlined in the following manner:

Pre-Conventional Level:

Stage 01: is generally found in the elementary school level where people behave according to generally accepted norms. Because they are ordered to do so by someone with authority e.g. school teacher or their parents and non-obedience is generally met with punishment.

Stage 02: is where they behave according to their own interests so that they are rewarded. E.g. a parent may encourage a child with potential rewards for good behaviour or grades.

Conventional Level: Generic norm of thinking within our society.

Stage 03: Good boy / girl attitude where the approval others are sought so as to be accepted within the society or culture.

Stage 04: Obedience to law and order as an obligation by an responsible corporate citizen.

Post-Conventional Level: This level of thought or moral attitude are not reached by most individuals within our society as per Kohlberg.

Stage 05: Social Contract is mutual dependence and having an genuine interest in the betterment & welfare of others in general. Have a understanding between moral and legal rights and the recognition that rules should not be followed where it is deemed ethically & morally wrong.

People believe that rules & regulations should exist for their general good and where this is deemed otherwise, under Social Contract obligations they must be broken.


Stage 06: Principle Conscience is where universally accepted ethical principles are followed and this may sometimes not fit the law. Examples of such are: Human Rights, Justice and Equality. Some individuals will be prepared to break the law, in order to defend such principles.


I have shown some examples below for better clarification and understanding:

Sources:

https://explorable.com/theory-of-moral-development

https://en.wikipedia.org/wiki/Lawrence_Kohlberg's_stages_of_moral_development

http://www.simplypsychology.org/kohlberg.html

https://www.csudh.edu/dearhabermas/kohlberg01bk.htm

References

Bee, H. L. (1994). Lifespan development. HarperCollins College Publishers.

Colby, A., Kohlberg, L., Gibbs, J., & Lieberman, M. (1983). A longitudinal study of moral judgment. Monographs of the Society for Research in Child Development, 48 (1-2, Serial No. 200). Chicago: University of Chicago Press.

Gilligan, C. (1977). In a different voice: Women's conceptions of self and of morality. Harvard Educational Review, 47(4), 481-517.

Kohlberg, L. (1958). The Development of Modes of Thinking and Choices in Years 10 to 16. Ph. D. Dissertation, University of Chicago.

Kohlberg, L. (1984). The Psychology of Moral Development: The Nature and Validity of Moral Stages (Essays on Moral Development, Volume 2). Harper & Row

Piaget, J. (1932). The moral judgment of the child. London: Kegan Paul, Trench, Trubner & Co.

Rest, J. R. (1979). Development in judging moral issues. University of Minnesota Press.

Rosen, B. (1980). Moral dilemmas and their treatment. In, Moral development, moral education, and Kohlberg. B. Munsey (Ed). (1980), pp. 232-263. Birmingham, Alabama: Religious Education Press.

Strategic Risk Management within an Organization

By: Mohamed Sanih, Gn. Fuvamulah, Maldives

What is Risk Management?

Organization should be able to identify and mitigate risks prior to their occurrence and have a strategy in place to deal with most possible scenarios or outcomes, where the probability of such risk occurring is high or medium.

Improper or poor handling of a major risk incident within an organization could ultimately result in it's failure or demise.

This article will be useful for students studying the ACCA P1 Paper: Governance, Risk and Ethics.


Various Definitions of Risk Management exist and i am going to highlight a few which i came across during my research:

Risk can be defined as: 

• Hazards / Safeguards (Hazards over safeguards or controls in place within the organization)

• Likelihood / Consequence (Likelihood of its occurrence Vs. the consequence of such an incident happening)

• From Wikipedia: Risk is any particular type of hazard (H), which is equal to probability (P) multiplied by it's consequence (C) of occurring. (H)= (P)*(C)

• Risk= Uncertainity*Consequence. Risk can be also defined as the potential uncertainity of something occurring and the subsequent consequence of such hazard. 

Best tool to measure risk management within an organization is the Risk Matrix:

Let's define some the terms mentioned above:

Likelihood of Occurrence: is the probability of such an incident occurring within the organization.

Negligible: means we can either ignore it or the incident is very minor and not of material value.

Marginal: means, several minor injuries or loss to the company and is not very material.

Critical: means: death of an employee or worker with a major loss or public or media backlash to the organization.

Catastrophic: is when the company will file for bankruptcy or there is several deaths of employees and the recovery process from such an incident is unlikely and will result in the ultimate demise of the company.

Now the question arise:

How do we mitigate such risk? Or 

Minimize / Reduce such risk within an organization?

The best approach is the TARA model, where we can either Transfer, Avoid, Reduce or finally Accept such risk by the company.

TARA can be best described as:

T: Transfer the risk if:    High probability * Low impact 

A: Avoid the risk if:       High probability * High impact

R: Reduce the risk if:    Low probability * High impact

A: Accept the risk if:    Low probability * Low impact

Transfer of Risk: occurs when an company wants to wholly or partly transfer the risk to another party e.g. third party and so that in the event of an adverse consequence the organizational doesn't suffer a loss or damage. And the third party bears the loss or damage.

      Example: of an transfer of a risk by the company is by taking out an insurance policy for protection against possible losses.

This is an company strategy where the risk is shared, and this can also be done via the use of joint-ventures or franchises where the business risk is shared or transferred.

Avoidance of Risk: A company can choose to avoid an risk by not investing in an risky venture or business proposal or area completely or in the case of non-profit organizations the activities they undertake.

Business risk is unavoidable in joint ventures or franchises however, as mentioned above they can be avoided only by not investing in an risky venture or business proposal or area.

Reduction of Risk: Risk can be reduced in three possible ways which is by:

• Risk Minimization: Organizational controls implemented to reduce risks but this will not prevent them from happening. However, this will reduce the risk of impact.

• Risk Pooling: Pooling of risks is to combine the business risk from various transactions and some make a loss and some make a profit. Although they are treated as part of the same portfolio of risks and overall risks or loss or profit is measured. A typical example can be a stock market portfolio or various company shares traded on a stock exchange, where some make a loss but others may make a profit but the overall portfolio makes a profit or gain for the organization and by the combining the risks of the portfolio or pooling of risks the potential loss for the company is reduced.

• Reduce the Financial Risk: Techniques such as hedging can be used to avoid a future loss or risk for the organization. Example: In negotiating a long term contract with a client we can have a fixed price in order to avoid market volatility and eliminate or reduce the price risk with reasonable price variation clauses for the benefit of the other party.

• Forward exchange contracts and fixed price contracts for transactions which occur in the future are commonly use for the purchase or sale of business currency transaction one for another.

Acceptance of Risk: The last option is to simply acceptance of such risk and the possibility of it occurring. The organization should have a proper plan and strategy in place for dealing with such risks.

Acceptance of risk occur when the damage to company is minimal or is negligible and can be ignored or accepted. This can be best evaluated via the risk matrix shown above.

Examples of Acceptance of Risk are:

Employee being absent to work, there is an always an risk of an employee being absent to work or not coming to work. This is an risk which the company has to accept and have a tolerable level against.

Another example can be a change in weather or if it rains or snows, there is always a risk of change in weather, according to monsoons and seasons, unless the business cannot operate when the weather is bad, the risk is normally not insured against. 

Creating an Risk Management Strategy & Map

It is critical and vital to an organization that they have adequate and appropriate internal controls and a proper risk management strategy in place, which ensures the long term success of the company.

A company should always consider the following Macro Risk Factors, best analyzed through an PESTEL analysis, when considering company risk management strategy:

The company should also consider the Risk Factors within their Industry and this can be best analyzed through Porter's five forces:

The company should also consider the Risk Factors within the company and this can be best analyzed through SWOT Analysis:

Organization Risk Map:

This can be useful way to determine the risk factors and areas within an organization, below is another example of an TARA Map:

TARA: Transfer, Avoid, Reduce or Accept risk by the company:

Sources:

http://smallbusiness.chron.com/business-risk-measurement-methods-68122.html
https://www.mindtools.com/pages/article/newPPM_78.htm
http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Risk%20management.aspx
https://en.wikipedia.org/wiki/Risk_matrix
http://www.hkarms.org/web_resources/20101116_risk_matrix_hkieb_print.pdf
http://www.brighthubpm.com/risk-management/88566-tool-for-assessing-project-risk/

Role of the Non-Executive Director in an organization - Higgs Report (ACCA P1 Paper: Governance, Risk and Ethics)

By: Mohamed Sanih, Gn. Fuvamulah, Maldives

What is the role of the Non-Executive Director in an organization?

A non-executive directors is a member of the board of directors and who is not involved in the day to day running or operations of the company and are not part of the executive member team of the organization.

However, they are involved in overall strategic planning, policy making of the company with the same legal obligations, responsibilities and liabilities if an incident should occur as is the case with the executive directors.

Non executive should be seen and should operate independently and in some countries are called independent directors and they mainly operate in an advisory capacity and are not full time employees of the company.

Students studying the ACCA P1 Paper: Governance, Risk and Ethics, will find the below useful in their revision studies.

For easy remembrance once again i am going to use a synonym which can be as the following:

"CSSR"

Role of the Non-Executive Director are as follows:

Non-Executive Directors should:

C: Contribute and challenge the organizational strategy for it's continued success.

S: Satisfy themselves that the there is adequate internal controls and risk management system in place. And also that the financial information generated by the organization is accurate.

S: Scrutinize management performance and monitor the reporting of performance for meeting agreed goals and objectives.

R: Responsible for the remuneration of Executive Directors and have a major role in contractual and disciplinary measures if necessary to be taken against executive directors. And are primarily involved in removing, appointing senior management and succession planning. Also, hold executive directors to account for their actions and to represent the shareholder interest.


The following quote is taken directly from Derek Higgs Report: 

"The role of the non-executive director is frequently described as having two principal components: monitoring executive activity and contributing to the development of strategy. Both Cadbury and Hampel identified a tension between these two elements.

A number of consultation responses identified the personal attributes required of the effective non-executive director. They are founded on:

• integrity and high ethical standards
• sound judgement;
• the ability and willingness to challenge and probe; and
• strong interpersonal skills."

Source:

http://www.ecgi.org/codes/documents/higgsreport.pdf

Please, note of the below: 

In April 2002 Derek Higgs was appointed to lead an independent review of the role and effectiveness of non-executive directors. Derek Higgs published his report on 20th January 2003. The FRC published good practice suggestions from the report in June 2006; this guidance has since been withdrawn and replaced by the FRC Guidance on Board Effectiveness.

http://www.icaew.com/en/library/subject-gateways/corporate-governance/codes-and-reports/higgs-report

Sources on Corporate Governance:

https://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance/UK-Corporate-Governance-Code.aspx

https://en.wikipedia.org/wiki/Corporate_governance

http://guides.library.harvard.edu/c.php?g=309897&p=2070088

http://ec.europa.eu/justice/civil/company-law/corporate-governance/index_en.htm

http://www.oecd.org/corporate/principles-corporate-governance.htm

https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act

http://www.cimaglobal.com/Documents/ImportedDocuments/NEDSmakingcorpgovwork_techguide_2003.pdf

https://www.icas.com/__data/assets/pdf_file/0014/2417/Non-Executive-Directors-Roles-and-Responsibilities-in-a-Private-Company-ICAS.pdf

Role of the Chairman in an Organization - Derek Higgs Report

By: Mohamed Sanih, Gn. Fuvamulah, Maldives

What is the Role of the Chairman in an Organization?

There should be a clear division of control between both executive and non-executive directors at the board level. And no particular set of individuals should dominate or exercise power over the other group.

The Chairman should provide leadership to the board and there should be a clear cut division of responsibilities & duties between the CEO and the chairman.

The UK Corporate Governance Code, recommends that a clear division should be established between the position of the Chief Executive Officer (CEO) and the Chairman.

Chairman is the person charged with providing leadership to the Board and utilize the talents contributed by the Board members.

Best corporate governance practices suggests that the chairman should be an non-executive independent director and also should not be the CEO of the organization.

Chairman lends a balance to the Board by being it's independent head while the CEO is often the person to be involved directly in the operations & execution plans of the company.

An independent chairman is very important to the successful implementation of good corporate governance practices at the board of directors level.

To be an successful independent chairman international corporate governance practices states that the chairman should not have worked previously as the CEO of the organization.


The role of the Chairman can be defined best by the synonym (RAISE DIP) for the ACCA P1 Paper: Governance, Risk and Ethics.

The best description can be found in Derek Higgs Report and they can be summarized as follows:

R: Run or leadership of the board and effectiveness of the board to set their roles and agenda.

A: Accurate, timely and clear information to the Board of Directors.

I: Information facilitating & contribution of the non-executive directors.

S: Self sufficiency in performing complex and difficult decisions.

E: Effective communication between executive and non-exectuive directors (NEDS) and also with the shareholders.


D: Develop and process the needs of both executive and non-exectuive directors.

I: Induction and training programs for the Board of Directors.

P: Performance evaluation of the Directors.

I am keeping this article short as this will be the first in a series to come in the future.

Source:

http://www.ecgi.org/codes/documents/higgsreport.pdf

Please, note of the below: 

In April 2002 Derek Higgs was appointed to lead an independent review of the role and effectiveness of non-executive directors. Derek Higgs published his report on 20th January 2003. The FRC published good practice suggestions from the report in June 2006; this guidance has since been withdrawn and replaced by the FRC Guidance on Board Effectiveness.

http://www.icaew.com/en/library/subject-gateways/corporate-governance/codes-and-reports/higgs-report

Sources on Corporate Governance:

https://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance/UK-Corporate-Governance-Code.aspx

https://en.wikipedia.org/wiki/Corporate_governance

http://guides.library.harvard.edu/c.php?g=309897&p=2070088

http://ec.europa.eu/justice/civil/company-law/corporate-governance/index_en.htm

http://www.oecd.org/corporate/principles-corporate-governance.htm


https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act

https://www2.deloitte.com/content/dam/Deloitte/za/Documents/governance-risk-compliance/ZA_TheRoleOfTheChairmanAsWellAsValueOfANonExecutiveChairman_04042014.pdf

Audit Committee - Role and function within an organization

By: Mohamed Sanih, Gn.Fuvamulah, Maldives 

Dear Readers,

What is the role and function of the Audit Committee within an organization?

The role and function of the Audit Committee can be defined best by the synonym (CLARISSA) from the ACCA P1 Paper: Governance, Risk and Ethics:

The below is an summary transcript of each without an broader definition:

(CLARISSA) 

C: Create a an environment of discipline and control

L: Lend accuracy and truthfulness and credibility in the financial statements.

A: Assisting the Finance Head or Chief Financial Officer in providing a forum of communication.

R: Review and check the financial statements for quality control and accuracy.

I: Independent Review & Judgement

S: Strengthen the position of the Internal Auditor within the company and provide support to their concerns and needs and provide such information to the concerned stakeholders in an transparent manner.

S: Strengthen the position of the External Auditor within the company and provide support to their concerns and needs and provide such information to the concerned stakeholders in an transparent manner.

A: Assist in any disputes between the External Auditors and the Board of Directors and provide solution in relation to such matters.



I am keeping this article short as this will be the first in a series to come in the future.


Sources on Corporate Governance:

https://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance/UK-Corporate-Governance-Code.aspx

https://en.wikipedia.org/wiki/Corporate_governance

http://guides.library.harvard.edu/c.php?g=309897&p=2070088

http://ec.europa.eu/justice/civil/company-law/corporate-governance/index_en.htm

http://www.oecd.org/corporate/principles-corporate-governance.htm

https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act

What is Corporate Governance and the Key Concepts in Corporate Governance?

By: Mohamed Sanih, Gn. Fuvamulah, Maldives

Dear Readers,

Corporate governance is a systematic way in which most companies are controlled and directed for the interests of all stakeholders and the ultimate the owners of the company, the shareholders.

What are the Key Concepts in Corporate Governance?

The key concepts in corporate governance can be defined best by the synonym (HAIR DRIFT) from the ACCA P1 Paper: Governance, Risk and Ethics

Honesty or (Probity): Create a culture of honesty & ethical stance within the organization.

Accountability: Providing comprehensive information to all concerned stakeholders and effective risk management within the organization.

Integrity: Have a high standard of strict moral and ethical values or codes.

Responsibility: Having a clear responsibility for corporate governance decisions and the clarification of individual roles and responsibilities.

Decision Taking: Take clear cut decisions to improve the wealth of an organization.

Reputation: Maintain a culture to develop reputation and moral stance and also to comply with the corporate governance concepts.

Independence: There should not be a conflict of interest between the executive directors and non-executive directors. NED's or non-excutive directors should be fully free and independent to make their decisions within the organization.

Fairness: All stakeholders should be dealt ethically and equal by the organization and should take into account their legitimate interests.

Transparency: Organization agents or directors should have an honest and open relationship with all stakeholders in their decision making process. And provide full disclosure of all material matters (whether financial or non-financial) which concern the company and this should be done in a ethical and transparent manner.

I am keeping this article short as this will be the first in a series to come in the future.

Sources on Corporate Governance:

https://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance/UK-Corporate-Governance-Code.aspx

https://en.wikipedia.org/wiki/Corporate_governance

http://guides.library.harvard.edu/c.php?g=309897&p=2070088

http://ec.europa.eu/justice/civil/company-law/corporate-governance/index_en.htm

http://www.oecd.org/corporate/principles-corporate-governance.htm

https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act

What is the Role of the Cost Controller within the Maldives Hotel or Resort Sector?

By: Mohamed Sanih, Gn. Fuvamulah, Maldives

Dear Readers,

The role or function of the Cost Controller is quite complex and sometimes requires a varying degree of flexibility of active and passive roles of duties & functions within the resort.

This is not an finance job where you simply sit in your seat and work on figures, this job requires you to be both physically active and needs regular spot checks, inspections and control of the total resort inventory process.

The Cost Controller is an divisional head within the finance department, and in most scenarios reports directly to the resort Director of Finance.

He is also the head of all Stores personnel and Head Storekeeper or in some resorts the Material Controller will report directly to the Cost Controller.

He has the power to question the Executive Chef or F&B Director / Manager in the resort in relation to the wastage of company resources or the controlling of costs for F&B meals, F&B drinks, spoilage and  breakages etc.

Ultimately, he will prepare a Daily, Weekly and Monthly F&B Cost Reports for both Staff and Guest and will question the Executive Chef or F&B Manager if the actual F&B costs exceed the resort budgeted figures.

The Cost Controller is also responsible for undertaking spot check inventory, monthly inventory, reconciliation of monthly inventory balances with co-ordination and support of the finance & stores personnel.

He is also responsible to co-ordinate with the Housekeeping Department and Stewarding personnel to ensure all linen, crockery, cutlery stocks are properly accounted, recorded and verified to ensure they are done in accordance to company policies and procedures.

He also needs to check the fish supplies delivered to the resort in co-ordination with the Executive Chef to make sure spoilage or non-standard fish stocks are not purchased by the resort and that such purchases are done in accordance to accepted company policy.

The Cost Controller, will also visit the Supply Dhoni on delivery days with co-ordination with the resort purchasing personnel and make sure of the following:

1) Meat stocks are kept under the proper temperature, (If temperature is not working, co-ordinate with engineering dept. technician to fix such issues)
2) Veggies & Fruits are kept under the proper temperature.
3) Other stocks delivered to the resort in the supply dhoni are in proper condition.
4) Supply is unloaded and delivered to the resort stores properly under accepted policies and procedures.
5) Receiving Officer from Stores does his task properly.
6) Chief Storekeeper is also present to check & unload the supply dhoni process.

The Cost Controller is also responsible to make sure to control two types of inventory, one the is the operational inventory, which is the F&B stocks and the other is the:

1) Stocks used by Housekeeping, example: Linen & Housekeeping Inventory;
2) Stocks used by Resort Spa, e.g. Spa Ointments, Creams & Lotions etc.
3) Stocks used by Stewarding, e.g. Crockery, Cutlery etc.

The latter such as Linen and Crockery Cutlery inventory is not taken on a monthly process, but mostly on a quarterly basis or 6 month basis based on the resort policies & procedures. However, he is responsible to do the monthly reconciliation for these stocks on a monthly basis regardless of whether the physical count is taken on a qaurterly basis.

The reconciliation process for F&B Stocks normally involves:

Scenario 01

Opening Inventory Balance:      1,000
+ Purchases During the Month: 1,500
- Consumption During the Month: (400)
- Spoilage during the Month: (100)
Should be Closing Balance: 2,000

Physical Count for the Month should be equal to 2,000 or need to check, question the storekeeper and or reconcile to the 2,000 and find out the reason for such discrepancies or variances.

Strict action should be taken for any misuse for F&B stocks and reports should be made to the Director of Finance for proper action and follow up.

In theory, this seems very easy and sounds and looks easy but in reality it is an total different picture, since the resort is operating 24/7 and purchases is happening daily and supply stocks seems to arrive on a daily or weekly or bi-weekly basis. So when you do the month end inventory process, you have to be careful not to mix up these factors and have a proper cut-off time factor.

Example:

If we take the above scenario 01:

What if we receive an supply dhoni stocks on the last day of the month or 02 days before month end, what do we do then?

Do we consider this in the current month end balance or do we take it to the next month end balance?

How will this affect the physcial stock count? When is my cut-off date? How will this affect or complicate the inventory process?

When do the receiving officer stop updates the system or carry forward such balance to next month? When is the cut-off time?

The physcial stock count will always change considering the daily purchases and supply dhoni deliveries which happens on a weekly or bi-weekly basis depending on the resort location and distance.

Therefore, it is very important to have a proper cut-off, time schedule and co-ordination for the month end inventory process.


The reconciliation process for Linen and Crockery, Cutlery Stocks normally involves:

Scenario 02

Opening Inventory Balance:      1,000
+ Purchases During the Month: 1,500
- Breakages during the Month: (500)
Should be Closing Balance: 2,000

Physical Count for the Month should be equal to 2,000 or need to check, question the storekeeper and or reconcile to the 2,000 and find out the reason for such discrepancies or variances.

Strict action should be taken for any misuse of Linen and Crockery, Cutlery Stocks and reports should be made to the Director of Finance for proper action and follow up.

All spoilage and breakage reports should be prepared in accordance to hotel policies & procedures and should be duly signed & approved.

Below is an Generic Overview list of the Duties & Responsibilites of the Cost Controller within the Maldives Resort Industry:

1. Look after the day to day operations of Cost Control and Main Stores.
2. Prepare monthly food and beverage cost control reports and other journals related to food & beverage and other expenses. 
3. Regular and frequent spot checks of the outlets. 
4. Observation during supply days, such as weekly supply and check the necessary spoilage reports prepared by storekeeper. 
5. Comparison of the market list against the stock on hand of the items in the stock. 
6. Verify all processes relevant to the receiving and issuing procedures in respect of all main store stock items. 
7. Make price comparison report for all the items purchased.
8. Prepare necessary SOP’s for cost control, stores and purchasing function, where necessary and required, upon approval by FC. 
9. Organize and attend all outlet and stores inventories & check it against the system reports.
10. Prepare any reports, which are requested by the Executive Chef and F&B Manager.
11. Supervision of all the work and duties of the cost controller assistant and storekeepers / assistants.
12. Monitor slow moving and non-moving items and send out such reports to all concerned departments. 
13. Create the necessary reports, which is relating to Cost Control function. 
14. Check daily receiving report against invoice and purchase order and ensure the invoices for the month are posted in the same day without delay. 
15. Ensure all inter/outlet department transfers are done properly in the inventory management system. 
16. Prepare costing for the recipes and menus done by the Executive Chef and F&B Director / Manager. 
17. Account for all spoilages and make sure they are properly accounted and recorded. 
18. Get the details and Analyze all officer checks, ENT check or get this report from the income or night auditor and post such details to relevant cost accounts 
19. Prepare month end Journals for Food, Beverage and Other Costs 
20. Physically present and supervised the receiving of all items from supply jetty to the stores
21. Monitors and analyses monthly operating results against budget and informs the Senior Accountant or Financial Controller of any anomalies. 
22. Assists the Financial Controller in the preparation of financial outlooks and forecasts.
23. Plans, organizes and implements accounting operations and objectives; coordinates and integrates all activities toward achievement of established goals and objectives.
24. Supervises, trains and evaluates accounting professionals, and entry level accounting and support staff. 

This article maybe further expanded later, but this is an overview and some of the decisions which i faced and had to undergo while working as a Cost Controller, in a reputable resort within the Maldives resort sector.

Your comments and feedback is always welcome. I will include your insight as well, if this will further enrich the job, role and scope of this function.


Many Thanks & Regards,
Mohamed Sanih, Gn. Fuvamulah

Role of the Income Auditor or Revenue Controller within the Maldives hospitality or resort sector?

By: Mohamed Sanih, Gn. Fuvamulah, Maldives

Dear Readers,

This is my first article on the linkedin platform and i would appreciate your feed back and comments on the role of this position within the Maldives hotel / resort sector.

I felt there isn't much written about this position so i took it upon by self to shed some light on to this matter.

The Income Auditor is responsible for: 

To audit and verify all revenue transactions, record them and prepare daily and monthly sales and other reports for management according to hotel policies and procedures.

The normal scope of work performed is quite analytical and sometimes mechanical in nature.

Further, some hotels in the Maldives, the position of night auditor, day auditor, income auditor and sometimes even accounts receivable functions is combined depending on the resort size, number of rooms, average guest occupancy and resort star status.

The normal scope and work performed includes but is not limited to:

Audit all revenue transactions for techniques consistency, and methods used to meet hotel's standards and local policies and procedures. Examine all the transactions for accuracy and ensure the trials tally.

This involves but not necessarily exhaustive: 

i. Audit all outlet reports and tally them with Opera for accuracy. Check that genuine discounts are given.

ii. Control and reconcile the daily sales in the outlets.

iii. Audit F&B and all other hotel revenue generated and ensure the accuracy.

iv. Audit the credit card transactions for accuracy. Ensure the POS details summary reports agree with Opera.

v. Check the authenticity of all FO paid outs/rebates and outlet rebates and verify for accuracy.

vi. Controls together with Credit Supervisor on daily basis PM and permanent folios.

vii. Audit all administrative PM folios and lost interface posting charges. Analyze and transfer them to respective accounts/folios.

viii. Perform month end closing and ensure that the trial balance agree with general ledger.

ix. Prepares daily and monthly revenue reports for the management.

x. Reconcile third party revenue with Opera & Micros and do their final settlements (including those for Dive Center & Gift Shop).

xi. Finalize the monthly staff PM deductions for each month (including those for third parties like dive instructors)

xii. Check the Daily Bicycle Rental revenue posted by FO into Opera and report any discrepancy.

xiii. Check the Daily Excursion Revenue posted by FO into Opera and identify & report any discrepancies to immediate superiors for corrective action.

xiv. Train Front Office Reception staff in relation to Opera postings, accounting or system related issues, No Show Procedure, etc.

xv. Prepare the Month End Tips Reports for all outlets.

xvi. Check the Bed Tax Report and any non-updating communicate with Front Office for updating and send the final report to Asst. Dir. of Finance / Dir. of Finance.

xvii. Prepare any report or work requested by Dir. of Finance.

xviii. Check the accuracy of all revenue figures; identify and obtain explanations from respective personnel for reason for variances.

xix. Check the Spa Soft report and Opera revenue figures match up on a daily basis.

Additional duties, includes ensuring that: 

i. The trial balance should tally with that of Opera

ii. The Night Auditor figures should tally with the Daily Revenue Report & Opera Trial Balance.

iii. Micros Revenue Reports should tally with the Daily Revenue Report & Opera Trial Balance.

iv. Make physical spot check in all outlets.

v. Submit daily rebates, paid outs and any other PM Master folios, reports to Director of Finance for review and approval.

vi. Maintain proper filing and record retention and is familiar with Income Audit policies and procedures.

vii. Be familiar completely with hotel systems P.M.S., P.O.S. ( Opera, Micros, Sun System)

viii. Check Micros and Opera reports for accuracy and unusual transactions. Verify and audit all adjustments and corrections.

ix. Carry out any other accounting work assigned by Director of Finance.

x. Be familiar with hotel Income audit Finance policies.

Further Responsibilities Include: 

i. Responsibilities include analyzing the night audit work for accuracy and completeness, verifying allowances and miscellaneous postings for proper authorization and coding and preparing the daily revenue report.

ii. Responsible for all daily income of the Hotel;

iii. On a daily basis, verify that the daily-created Opera night audit spool files are working

iv. Correctly and closely audit the trial balance. Verify that there are no control sums for Guest Ledger, City Ledger and Deposit Ledger. Report any discrepancies to the Director of Finance and investigate the differences.

v. Sort and file all back up received in the night audit files from night receptionist. Liase closely, with night auditor and review night audit work daily for accuracy.

vi. Work closely with Front Office (FO) and Food & Beverage (F&B) to ensure postings are accurate and any discrepancies are resolved in a timely manner.

vii. Create, review and save a daily Gross Revenue Report (GRR) for management by 09:35 AM.

viii. Review all rebates and allowances and ensure they are properly authorized and to report all deviations from prevailing policies and procedures;

ix. Verification of Revenue from Rooms, Food and Beverage and other Operational Departments and rectify any discrepancies;

x. Ensure timely preparation and distribution of daily revenue report;

xi. Verification of all Food and Beverage discounted / complimentary checks are justified, properly recorded into POS system.

The above work scope and job description is based on my previous work experience working in the Maldives hospitality sector and the actual work performed may vary from hotel to hotel or resort to resort and the functions may even be further broken down between the Income Auditor / Day Auditor or Night Auditor functions.

I hope i was able to shed some light and provide some insight into the role of the Income Auditor or Revenue Controller within the Maldives hospitality or resort sector.