AFTERmATH
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AFTERmATH
J O U R N A L O F T H E I N S T I T U T E O F C E R T I F I E D P U B L I C A C C O U N TA N T S O F K E N YA LEARN • EXPLORE • SHARE MARCH - APRIL 2016 www.icpak.com Ksh 300 Ushs 9,000 Tshs 5,700 RWF 2,400 SECURITY ANALYSIS FOR THE LAY INVESTOR IP PORTFOLIOS AND FINANCIAL REPORTING WHICH GENERATION DO YOU BELONG TO? Your attitude determines your altitude The aftermath fraud Working with law enforcement agencies, the criminal justice system and moving on ICPAK PREMIER EVENTS 2016 32nd Semina r of Accountants r Chapte l a u n n A r Semina 17th-20th Ma y 2016 Mombasa Venue: Sarova Whitesands H otel ay 2016 M h t 8 6th esburg, Johann frica South A TABLE OF CONTENTS 34 6 GOVERNANCE Challenges facing devolved institutions in kenya MANAGEMENT Succession planning 55 minar Executive Se C-Suite Seminar HEALTH Schizophrenia 30 22nd - 25th 16 December 20 r, a Kuala Lump Malaysia 28th - 30th September 2016 Singapore COVER STORY The aftermath of fraud 66 TRAVEL ter Annual Chap Seminar A city that runs like a swiss watch 5th - 7th 6 October 201 ed London, Unit Kindom uly 2016 6th - 8th J e, Zambia Livingston www.icpak.com al Board Continent ility Accountab Seminar Members of the Council For more information or enquiries please call Tel: +254 (0) 20 2304226, 2304227 Mobile: +254 (0) 727 531006 / 733 856262 / 0721 469796/ 721469169 Email: [email protected] or visit www.icpak.com. For Exhibitions and Sponsorships, please get in touch with CPA Makokha Wanjala on the above lines or email. Chairman FCPA Fernandes Barasa Vice Chairman FCPA Julius Mwatu Chief Executive CPA Dr. Patrick Ngumi (PhD) Council Members FCPA Pius Nduatih CPA Wycliffe Shamiah CPA Geofrey Malombe CPA Obare Nyaega CPA Rose Mwaura CPA Susan Oyatsi Ms. Damaris Kimosop CPA June Kivinda CPA Samuel Okello Head of Publication/Editor Mbugua Njoroge [email protected] Editorial Consultant Angela Mutiso Marketing & Advertising Ideation Marketing [email protected] Tel: +254 719 650 423 Staff Writer Valerie Alusa Design, Layout & Print Colour Print Publication and Circulation ICPAK, CPA Centre, Thika Road P.O. Box 59960-00200 City Square, Nairobi Kenya Tel: +254 20 230 42 26/7 Mob: +254 721 469 796/169, +254 727 531 006, +254 733 856 262 Fax: +254 20 856 22 06, Email: [email protected] The Accountant is published every 2 months by the Institute of Certified Public Accountants of Kenya. Views expressed in the journal do not necessarily reflect those of the institute, authors firms or employers. Reproduction of any article in this journal without permission is prohibited. The editor reserves the right to use, edit or shorten articles for accuracy, space and relevance. MARCH - APRIL 2016 1 EDITORIAL YOUR VIEWS Readers Feedback Corner! WHICH TEACHERS? WRITE YOUR VIEWS OR COMMENTS AND SHARE THEM Email to [email protected] In the November/December ’15 issue of The Accountant, Jim McFie points to the dearth facing Kenyan employers in recruiting staff in the modern work-place. He says surveys reveal interviewees with little or no skills in problem-solving, team working or communication skills. A literal reading of the article would ordinarily point to the teachers in our academic institutions. Academic instructors do not however teach in a vacuum: guided as they are, by diverse curricula among other things to say nothing of our collective social expectations. We require them to impart skills, not necessarily for industry, but that it becomes useful to the learners throughout their lives. The writer, an educationist of repute and of many years in this country, has naturally, sensibilities towards citizens of his domicile. What is evident to some is the fact that we probably have become inured to the status quo and thus do nothing about it. We talk of corruption as a matter of course and stop after ascribing a monetary attribute to it. We institute bodies to run after the assumed the people who receive or give bribes. Anti-corruption authorities hardly diagnose the cause of this giving or receiving. Any speaker of many of our native languages will confess that many speakers to so to emit sound rather than meaning. The same happens in our official and national languages. The latter neither falls under the purview of our institutional teachers nor indeed our anti-corruption agency! We seek for instance good schools for our children without thought what constitutes good schools: parenting, nurture of disciplined childhood and good teachers. Our view has become, good just sprouts! The writer does remind us how his mother would get angry at his use of the phrase “leave alone” instead of the correct ‘let alone’. Who says we could be effective let alone efficient if we are unable to correctly infer meaning ourselves? Our daily newspapers will rarely contain a page free of either spelling, grammatical or syntax error. The very same could be said of our video and audio media! What then must be asked is: which teachers? It then appears to include all of us: starting with the first teachers who happen to be our parents, at our work places, academic, at our religious places and at all organizations in society. It simply does not wash to simply point fingers lamenting how our children cannot express themselves in either our official or national languages. We have to all ‘bell the cat’! My people the Gikuyu have the adage ‘Ngemi ciumaga na mucii’ literally translating into “Charity begins at home.” As I ruminated over Dr. McFie’s article and over the results we celebrate annually: the performance of our children at the end of their primary or secondary education, it occurred to me that some results are withheld on allegations of cheating. I reasoned that pupils at either primary or secondary school would not, on account of their tender years and experience, have the motive to commit the felony of cheating. Their parents and teachers would. It also occurred to me that if one were a thief or robber, he would be most unlikely want to share the information of his profession with anyone- spouse included! If this be so, what would dishonesty in a national examination imbue a child with? Is it possible that our consciences are so blunted that we teach that indolence pays. Common Kiswahili parlance says ‘ukitaka cha mvunguni, sharti uiname’. That we have come far in terms of development, literacy and numeracy needs no gainsaying. What may not be evident is that ‘indolence’ and lack of a culture of merit could drive this nation to self-destruct! Laying fibre optic cables throughout the country to inform within the fastest possible time is all very well. What is not is unintelligible data or that the users of the data are incapable of using it. A people that cannot communicate cannot be taught. An educated populace will prosper a country, produce goods and services for the market place. A country decays if it just consumes; or just builds cities with a view to industrialize, or is unable/unwilling to manufacture simple items. Its vision must remain that: a bad dream. By Lawrence Tykon Maingi via email 2 MARCH - APRIL 2016 Fighting Fraud on multiple fronts! F raud has become a chief concern today; consider this scenario, what would you do if you were to discover a fraud in your organization; and you want to establish the cause of the swindle and how you can recover the lost assets? How do you involve the relevant law enforcement agencies, the criminal justice system and then ‘move on’? What do you need to consider before engaging law enforcement organizations? Forensic investigators or internal auditors may be required to work with law enforcement agencies at some point. Law enforcement agencies could include the local police, Criminal Investigations Department (CID), Ethics and Anti-Corruption Commission (EACC) or Central Bank Investigative units. Law enforcement agencies may not be limited to local agencies but could include outfits from other countries such as the Federal Bureau of Investigation (FBI), the New Scotland Yard among others. This may happen when the matters involved cover more than one jurisdiction or in cases where foreign laws apply. An understanding of how law enforcement agencies operate and their objectives is important for any investigator or auditor. In most cases, law enforcement agencies have a wide experience in handling court proceedings and complex criminal cases, while forensic accountants have the technical skills required to understand technical accounting and financial issues. It is therefore important and advisable that by working together, the objective should be to realize the synergies of the two teams working together. Bank reconciliation statements have traditionally served as an important control tool in detecting anomalies either in the cash book and or the bank statements. Whereas there may exist a number of anomalies in the cash book maintained by the company, there are usually few (or no) anomalies in the bank statement. In the writer’s experience with a number of corporate frauds, bank reconciliations have in most cases been least useful in tracking where fraudulent activity could have started. This author has encountered companies that have had to do with “cooked” bank reconciliation statements for over two years. This period is enough to defraud the company of a significant amount of money without anyone noticing. As an accountant, you may be “perfect” in preparing “perfectly reconciling” bank reconciliation. However, are you aware that those bank statements you have been provided with by your superior or boss could be fictitious? Are you also aware that the bank statement copy you have might be having incorrect outstanding amounts? To make it worse, are you aware that the general ledger entries have hidden reversals which may be for unallocated or unapplied receipts or payments? The fading role of bank reconciliation in fraud prevention and detection is the title of this article; These intriguing topics shape our cover story this time. In Kenya today, there are a number of reports on procurement challenges. Just recently, journalists were questioned over reporting bad procurement challenges in government ministries. In the private sector similar tales are being heard both in social and public media. As a matter of fact, it is not that there is more corruption in Kenya as might be perceived but there is more press freedom as enshrined in the Kenya Constitution 2010. This freedom has led to the emergence of whistle blowers. This has been assisted by the availability of social media which has accelerated the speed of information inter-change. At corporate level, good corporate governance should ensure that timely and accurate disclosures of all material information regarding the corporation are made to the stakeholders. This is information should help investors make reasonable decisions concerning a company where they have invested or intends to invest in. The audited report and information should be in a reasonably understandable format. It should be sufficient to assist a reasonable investor make informed decisions. It needs to include but not limited to information on financial situation, performance, ownership and governance. Disclosure should include material information on company assets, liabilities and other related risks. You will find this feature titled; corporate governance whistle blowers in the governance segment. In the travel section, read about an interesting City. The ancient Swiss city of Zurich, the biggest in the country, as well as the leading financial centre, is nestled at the northern end of the narrow lake of the same name, and is a startling contrast to the chaotic urban environment that African visitors are used to back home. It is a pristine metropolis that runs like a Swiss watch. The people of Switzerland do not wear watches as bracelets, but as essential tools to managing their time. While travel timetables in Kenya could often take honours in the Man Booker Prize for Contemporary Fiction, in Zurich the timetables mean what they say. When you read the Accountant this time, you will realize that it has become more diverse; it has your regular features plus much more. Editor Mbugua Njoroge MARCH - APRIL 2016 3 FINANCIAL REPORTING AND ASSURANCE FINANCIAL REPORTING AND ASSURANCE By Jim McFie, a Fellow of the Institute of Certified Public Accountants of Kenya INTERNATIONAL FINANCIAL REPORTING STANDARD (IFRS) 16: LEASES I FRS 16 Leases was issued on 13 January 2016; it replaces IAS 17 Leases. The new Standard is effective from 1 January 2019: early application is permitted, provided the recently issued revenue Standard, IFRS 15 Revenue from Contracts with Customers is also applied. IFRS 16 requires all leases to be reported on a company’s balance sheet as assets and liabilities. For IASB, the issuance of IFRS 16 Leases, completes a convergence project that resulted in similar conclusions in some areas of lease accounting, but some differences in accounting for lessees. The US Financial Accounting Standards Board’s (FASB’s) leases standard is also complete and is in production, with publication expected in February. Both boards agreed to substantially carry forward the existing accounting requirements for lessors. But for lessees, IASB decided on a single model for all lease recognition, while FASB has decided on a dual model. Under FASB’s model, lessees will account for most existing capital leases as finance leases, recognizing amortisation of the right-of-use asset separately from interest on the lease liability, while most existing operating leases will be accounted for by lessees as operating leases, recognising a single total lease expense. IASB’s model requires lessees to account for all leases as finance leases, with amortisation of the right-of-use asset recognised separately from interest on the lease liability. IFRS 16 defines a lease as a contract 4 MARCH - APRIL 2016 that conveys to the customer, the lessee, the right to use an asset for a period of time in exchange for consideration. A company assesses whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time. The requirements relating to the definition of a lease in IFRS 16 have been changed somewhat from those in IAS 17 in response to feedback received. However, those changes are not expected to affect conclusions about whether contracts contain a lease for the vast majority of contracts: in other words, a lease under IAS 17 is generally expected to be a lease under IFRS 16. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. For lessees, IFRS 16 states that all leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. IFRS 16 eliminates the classification of leases as either operating leases or finance leases for a lessee, asis required by IAS 17. Instead all leases are treated in a similar way to finance leases applying IAS 17: IFRS 16 introduces a single lessee accounting model. Applying that model, a lessee is required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value, for example, a lease of a personal computer; and(b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 does not require a company to recognize assets and liabilities for leases of 12 months or less. Leases are ‘capitalised’ by recognising the present value of the lease payments and showing them either as lease assets (right-of-use assets) or together with property, plant and equipment. If lease payments are made over time, a company also recognises a financial liability representing its obligation to make future lease payments. For companies with material off balance leases, IFRS 16changes the nature of expenses related to those leases – that is, in the books of the lessee. IFRS 16 replaces the typical straight-line operating lease expense for those leases applying IAS 17 with a depreciation charge for lease assets (included within operating costs) and an interest expense on lease liabilities (included within finance costs). This change aligns the lease expense treatment for all leases. Although the depreciation charge is typically even (that is, if the straight line method of depreciation is used), the interest expense reduces over the life of the lease as lease payments are made. This results in a reducing total expense as an individual lease matures. The difference in the expense profile between IFRS 16 and IAS 17 is expected to be insignificant for many companies holding portfolio of leases that start and end in different reporting periods. The changes in accounting required by IFRS 16 do not change the amount of cash transferred between the parties to a lease. Consequently, IFRS 16 will not have any effect on the total amount of cash flows reported. However, IFRS 16is expected to have an effect on the presentation of cash flows related to former off balance sheet leases. IFRS 16 is expected to reduce operating cash outflows, with a corresponding increase in financing cash outflows (as required by paragraph 32 of IAS 7 Statements of Cash Flows) compared to the amounts reported applying IAS 17. This is because, applying IAS 17, companies presented cash outflows on former off balance sheet leases as operating activities: applying IFRS 16, principal repayments on all lease liabilities are included within financing activities. Interest payments can also be included within financing activities, depending on the way the company has chosen to classify this line item. IFRS 16 does not change accounting for services. Although leases and services are often combined in a single contract, amounts related to services are not required to be reported on the balance sheet. IFRS 16is required to be applied only to leases, or lease components of a contract. FASB and the IASB agreed on the key issue of bringing leases onto balance sheets, on the definition of a lease, and how lease liabilities should be measured. The boards initiated the project to improve lease accounting in response to concerns about a lack of transparency about companies’ lease obligations. In 2005, the US Securities and Exchange Commission estimated that US public companies may have had approximately $1.25 trillion of off-balancesheet leases. IASB estimates that listed companies around the world currently have around US$3.3 trillion of lease commitments, that is future payments that have to be made in respect of leases, and that over 85% of those commitments do not appear on companies’ balance sheets. IASB estimates that almost half the listed companies using IFRS or US GAAP will be affected by these lease accounting changes: analysis of some retailers that have gone into liquidation or through a reorganization shows that the value of off balance sheet leases was almost 66 times the value of on balance sheet debt. “These new accounting requirements beginning after 15 December 2018. For private companies, FASB’s standard will take effect for annual periods beginning after 15 December 2019. IASB points out that the biggest change introduced by IFRS 16 is that leases will be brought onto companies’ balance sheets, increasing the visibility of their assets and liabilities. IFRS 16 removes the classification of leases as either operating leases or finance leases, for the lessee the lease customer - treating all leases as finance leases. IASB claims that the benefits of the new standard are that there will be a more faithful representation of a company’s assets and liabilities, there will be increased transparency, there will be improved comparability between companies that lease and companies that borrow to buy assets and the new IFRS removes the need for most investors, credit rating agencies and others to make adjustments to balance sheets - analysis shows that commonpractice adjustments often over-estimate, but sometimes under-estimate, the value of off balance sheet leases. IASB received over 1,700 comment letters on the one Discussion Paper and the two Exposure Drafts that it published during the standard-setting process. IASB indicates that some industry sectors will be more affected by the new Standard than others. Airlines, retailers and travel and leisure companies are expected to be most affected: it was found that future payments of off balance sheet leases in these industries equate to almost 30% on average of the total assets on balance sheets. At the moment, there are also considerable variations between companies within an industry sector: for some airlines, the value of their off balance sheet leases is equivalent to more than 100% of the value of the airline’s total assets. You have plenty of time to adjust to the new thinking of IFRS 16 Leases. These new accounting requirements bring lease accounting into the 21st century, ending the guesswork involved when calculating a company’s often-substantial lease obligations bring lease accounting into the 21st century, ending the guesswork involved when calculating a company’s oftensubstantial lease obligations,” IASB Chairman Hans Hoogervorst said. “The new standard will provide much-needed transparency on companies’ lease assets and liabilities’, meaning that off-balancesheet lease financing is no longer lurking in the shadows. It will also improve comparability between companies that lease and those that borrow to buy.” FASB’s leases standard will take effect for public companies for fiscal years, and interim periods within those fiscal years, MARCH - APRIL 2016 5 MANAGEMENT MANAGEMENT STEP 4: Develop Succession Strategies This phase involves three key steps as listed below; 1) Identifying recruitment strategies (e.g., bonuses) • Realizing development/learning plans (e.g., planned job assignments) • Communication planning • Determining and applying measures of success By Victor S Mutindah, [email protected] Succession Planning S uccession planning is being a systemic approach in meticulously identifying potential successors, developing their strengths and enhancing their leadership skills in order to create a talent pool that ensures continuity of leadership within an enterprise. Moreover Effective succession planning (2005, p. 10), “is perhaps best understood as any effort designed to ensure the continued effective performance of an organization, division, department, or work-group by making provision for the development, replacement, and strategic application of key people over time.” William J. Rothwell, SPHR. This seeks to focus resources on the talent development aspect of a business, hence producing valuable employees, who in return yield the company greater profits. The development process works to tap into individual skills that would benefit the enterprise. This approach towards enterprise development springs from the known-fact that some jobs within the organization are vital for smooth and efficient running of various processes, therefore they cannot be left vacant or handed to employees who are not up to the task. If done well, succession planning which is critical to the success of a business indeed creates a full proof procedure which recognizes, develops and retains leadership talent in the enterprise. 1.2 SUCCESSION PLANNING 6 MARCH - APRIL 2016 PROCESS Factors to consider when performing succession planning initiatives; • Top management is personally involved and is held responsible for the growth of future leaders in the business and senior leaders form a partnership with human resources. • People with leadership competencies are chosen, and are in charge of their own self development during the process. • Succession is associated with strategic ground-work and investment in the future. It addresses challenges such as diversity, recruitment and retention of personnel. • The success of the process is based on long-term needs which the company has, to enable the talent pool to be identified and nurtured early in good time. 1.2.1 EFFECTIVE SUCCESSION PLANNING There are forces at work, elbowing organizations to try out some form of succession planning as part of their talent management strategy. Namely: the aging of the workforce; and a shortfall in the skills possessed by those available for recruitment. Therefore, it is prudent to have a step by step process put in place to ensure these forces don’t end up being a liability to the business. The diagram below is a graphical representation of a six step process for effective succession planning. STEP 1: Link Strategic and Workforce Planning Decisions The first phase of the process involves identifying long-term goals of the enterprise and its vision. This enables future requirements to be analyzed and incorporated into the planning process for necessary products and services. In this step, the organization uses already obtained data to evaluate and make choices for the good of the business. The linking of planning decisions allows for connecting succession planning to the values of the organization, while keeping in mind the needs and interests of top management. STEP 2: Analyze Gaps In this step senior management identifies core competencies relating to the enterprise and corresponds them with their requirements. The supply of required skills is matched with the anticipated demand, both long and short-term, in order to determine where the company stands in terms of filling gaps that may arise. This step enables the leaders to come up with a business plan based on long-term talent needs instead of position replacement which is part of Replacement Planning. Replacement planning assumes that the organization chart will remain unchanged over time. It’s a procedure that mainly picks out “backups” for top-level ranks, as outlined on the chart, and stops there. A replacement chart usually lists about 3 people as “backups” for each toplevel position and describes how prepared, in terms of skills-set and achievements, required of each individual meant to take up the role of the current job incumbent. Succession planning, in contrast, focuses on developing people rather than merely ‘naming’ them as replacements, hence it not only nurtures but also enables enterprises to combat continuity issues within the hierarchy of work. STEP 3: Identify Talent Pools A talent pool is a group of people being “groomed” for more challenging responsibilities concerning a business. Individuals to be placed in talent pools may be surfaced by various means such as; • Asking managers to assess and nominate people within their taskforce. • Another approach is to apply objective assessment methods e.g. a multi-rater fullcircle assessment to identify those who are worth-while to build up for future responsibility. • Analyzing external sources of talent. In most cases, talent pools are filled from bottom up since managers are encouraged, at all levels, to regard talent in any part of the organization as a possible successor for positions immediately above them. • Recruitment and relocation bonuses • Special programs • Up to standard allowances • Room for employee growth • Talent management 2) Establishing retention strategies • Salary increments and holiday bonuses • Quality of work-life balance programs 3) Implementing development/learning strategies • Planned job assignments • Formal development • Coaching and mentoring • Assessment and 360˚ feedback • Action learning projects • Communities of practice • Shadowing STEP 5: Implementing Succession Strategies This phase of succession planning involves: • Implementing recruitment strategies (e.g., recruitment and relocation bonuses) • Putting into action retention strategies • • • • • • • Linking succession planning to HR processes through; Performance management Compensation Recognition Recruitment and retention Workforce planning Implementing strategies for maintaining senior level commitment. STEP 6: Monitor and Evaluate This final step entails tracking the progress of potentials’ from talent pools. It relies on listening to feedback from leaders on the success of internal talent growth of employees, and also analyzing satisfaction surveys from customers, employees themselves, and other stakeholders. Once monitoring and evaluation is complete, management can assess responses and change to suit requirements and needs. MARCH - APRIL 2016 7 MANAGEMENT MANAGEMENT both the employee and the organization, by defining the expectations in terms of roles, responsibilities and accountabilities, required competencies and the expected behaviours. The main goal of performance management is to ensure that the organization as a System and its subsystems work together in an integrated fashion for accomplishing optimum results or outcomes. By Raymond Kiambati, [email protected] Stages of Performance management Performance management is a continuous self-renewing cycle involving Performance agreement, managing performance continuously and reviewing and assessing performance. c)Setting objectives Objectives or goals describe something that has to be accomplished. This is on what the role holder has to achieve. It defines expectations and forms the point of reference for performance reviews. Objectives will be on:• Ongoing role or work objectives – key result areas in a role profile • Target – quantifiable results as output, throughput, income, sales, levels of service delivery, cost reduction • Tasks/projects – set the completion of tasks or projects by a specified date or to achieve an interim result. • Behavioral – These are set out generally in competency frameworks but may also be defined individually under the framework headings. The objectives set should be smart. d)Measuring Performance in achieving objectives It can be the measuring of output or outcomes. Output is the quantifiable results, while outcomes are the qualitative visible effects not necessarily measured in quantifiable terms. Inputs should also be considered in terms of the degree of knowledge and skill attained and behavioral that is demonstrably in line with the standards set out in competency frameworks and statement of core values. A PERFORMANCE MANAGEMENT AND TRAINING ccording to Lockett (1992), performance management aims at developing individuals with the required commitment and competencies for working towards the shared meaningful objectives within an organizational framework. Performance management frameworks are designed with the objective of improving 8 MARCH - APRIL 2016 both individual and organizational performance by identifying performance requirements, providing regular feedback and assisting the employees in their career development. Performance management aims at building a high performance culture for both the individuals and the teams so that they jointly take the responsibility of improving the business processes on a continuous basis and at the same time raise the competence bar by upgrading their own skills within a leadership framework. Its focus is on enabling goal clarity for making people do the right things in the right time. It may be said that the main objective of a performance management system is to achieve the capacity of the employees to the full potential in favour of 1.Performance and Development agreements They form the basis for development, assessment and feedback in the performance management process. It involves: a)Role Profile Sets out role requirements in terms of key result areas and the competencies required both technical and behavioral for effective performance. It provides the basis for agreeing objectives and methods of measuring performance and assessing the levels of competency reached. It incorporates and performance improvement plans that may be necessary and personal development plans. b)Contract or agreements After an analysis of role requirements and the performance review, a contract or agreement emerges. An assessment of past performance leads to an analysis of future requirements. e)Personal Development Planning This provides a learning action plan for which individuals are responsible with the support of their managers and organizations. 2.Managing Performance This involves implementation of agreed performance action plans. It is conducted throughout the year. It requires active support and encouragement of top management who must make it clear that performance management is regarded as a vital means of achieving sustained organization success. 3.Performance monitoring evaluation and review Should be done once or twice a year to form a focal point for the consideration of key performance and development issues. This can be done formally or informally through performance assessments by the managers with their employees. They should discuss any challenges faced by the employee and suggest ways of dealing with each situation. Criteria for assessment • Achievement in relation to objectives • Levels of knowledge and skills possessed and applied • Behavior in the job • The degree to which behavior upholds the core values of the organization • Day to day effectiveness Links between Performance Management and Training 1)Performance management provides the basis for self-development but also ensures support and guidance people need to develop and improve is readily available. 2) Training actually achieves the purpose of helping people perform their work to required standards. 3) Performance Management and training both seek to enhance effectiveness of an employee, the team or the organization. 4) Performance management directs attention to development priorities and help in the determination of training needs according to priorities. Helps to identify training gaps. 5)Performance management challenges people to bring their knowledge and skills to bear to increase their chances of success. 2. ROLE OF PERFORMANCE MANAGEMENT AND TRAINING 1)To enable the employees towards achievement of superior standards of work performance. 2)To help the employees in identifying the knowledge and skills required for performing the job efficiently as this would drive their focus towards performing the right task in the right way. 3)Boosting the performance of the employees by encouraging employee empowerment, motivation and implementation of an effective reward mechanism. 4)Promoting a two-way system of communication between the supervisors and the employees for clarifying expectations about the roles and accountabilities, communicating the functional and organizational goals, providing a regular and a transparent feedback for improving employee performance and continuous coaching. 5)Identifying the barriers to effective performance and resolving those barriers through constant monitoring, coaching MARCH - APRIL 2016 9 MANAGEMENT MANAGEMENT done. Development is not limited to only individuals in your workplace, but also addresses the performance of the team as a whole. All around employee development not only ensures the personal and professional growth of your employees, but also the expansion and improvement of your business. Evaluation of Individual Performance Evaluating and rating the performance of your employees on an individual basis is essential. This gives them a clear picture of where they presently stand, areas that they need to work on and what they are good at. This way, they can focus more on their weaknesses and work to strengthen those areas. You should make it company policy to issue performance reviews while providing your employees with the feedback that they need to perform better at their jobs. Remember - just as it is important to point out your employees’ weaknesses and shortcomings, it is also essential to commend them on their strengths. Rewarding Your Employees and development interventions. 6) Creating a basis for several administrative decisions strategic planning, succession planning, promotions and performance based payment. 7) Promoting personal growth and advancement in the career of the employees by helping them in acquiring the desired knowledge and skills. to the best of their abilities and up to your expectations. Performance management allows you to tap the full potential of your staff. In short, it can be described as a comprehensive process starting from monitoring and developing the desired traits to rating their progress and rewarding them for their achievements. 3. ROLE OF PERFORMANCE MANAGEMENT IN DEVELOPMENT Involve Employees in the Planning Stage Your employees are an integral and indispensable part of running your business smoothly and efficiently. That’s why, keeping in mind the crucial role of your employees, a recent trend known as Performance Management has come into practice. Using performance management, you can ensure that your employees not only fulfill their responsibilities, but do so 10 MARCH - APRIL 2016 The mere making of plans alone will not help you to run your business successfully. You must also focus on the appropriate ways to get business tasks done. One way of doing this efficiently is to involve your employees in the planning process. This will not only boost their morale and confidence, but also help you avoid any communication gaps in the process. Additionally, it will also help in providing them with a clear picture of what you expect from them and what they need to accomplish. Monitoring the Progress of Your Employees Just as revision of business plans is sometimes necessary for the success of your business, measuring the performance of every employee is also important. This ensures that tasks are efficiently completed on time and on or under budget. It also points out to you any shortcomings of either your staff or business plans, and helps you to take the appropriate corrective actions. Ensuring All Around Development of Employees Performance management gives you the tools to instill the desired qualities in your employees in order to get the job Rewarding and appreciating your employees’ efforts ensures that their level of their performance and consequently the performance of your business is not compromised. It ensures optimum productivity, performance and maximum profitability. Rewarding your staff for a job well done not only enhance their performance but also serves as a tool to keep them motivated. Therefore, performance management is an effective system that allows you to achieve the financial goals of your small business. 4. IMPROVING EMPLOYEE PERFORMANCE Everything you ever needed to know about enhancing the productivity of your staff is actually contained in a few simple techniques that are guaranteed to increase the efficiency of your practice. Certainly, some form of training or coaching is needed, but so often this is viewed as a large expense and not an investment which invalidates the overall need. So, below are several easy training tactics that managers can use today, without spending a lot of time or money. 1)Genuinely listen to your team, individually - When was the last time you had a one-on-one conversation with each of your team members? If you do not do this, start now. Find out what their struggles are, areas of concern, and what they enjoy contributing to the team. You will find out more in five minutes from these more intimate conversations than you have in team meetings in the past six months. 2) Plan strategically on expanded roles - Because so many businesses and teams are downsizing, now is the time to think and plan strategically how all of your team members will continue to contribute and in which ways. And if you were paying attention to your one-on-one conversations with each team member, you will discover how each individual member is capable of contributing that perhaps was overlooked before. For example, say you are a Marketing Manager that discovers one of your team members has a public relations background. Because this position was cut due to the recent downsizing of the business, this discovery naturally leads to a potential fill of the void. 3)Get visual, and get hands on Whatever new role your team members are fulfilling be sure to support them in as many ways as possible. Our example in the previous tactic was someone who has experience with a task they are being asked to perform, but what if there isn’t anyone with experience? Well, someone will have to do the work and need guidance from you as the manager. So whatever the task, you as the manager are their greatest lifeline to learn and succeed. And because 80% of learning is done visually, be sure to communicate in ways that people will absorb information more quickly. Use visuals, walk through the process step-bystep, and discuss progress in your one-onone conversations. 4)Motivation - Every staff member is unique; therefore, the motivation to perform better will be different for each person. Identify the motivator for each staff member and provide opportunities that encourage their interest and performance. 5) Setting Goals - Make sure you have a vision for how you want your practice to operate now and in the future. Communicate your vision to staff so that they are directing their energies toward a common goal. They will feel like they are a part of the practice and this will enhance performance. 6) Praise - Take advantage of big and small opportunities to praise your staff for work well done. Your recognition of their performance means a lot and it is important that you acknowledge their efforts. 7)Feedback - Be lavish with praise but selfish with criticisms - but do offer kind words of constructive feedback that makes your staff feel respected and valued. 8)Management - Be available as a resource to your staff. They should feel comfortable to approach you with questions and concerns and not feel as if they are imposing on your time. They should be able to depend upon you for guidance and as a model of what excellent performance is all about. Performance management aims at building a high performance culture for both the individuals and the teams so that they jointly take the responsibility of improving the business processes on a continuous basis and at the same time raise the competence bar by upgrading their own skills within a leadership framework. MARCH - APRIL 2016 11 MANAGEMENT BUSINESS PRACTICE AND DEVELOPMENT By Dominic Ooko, [email protected] By Joseph Kariuki, Audit Partner [email protected] Why your strategy needs an open mind T he basic rule for most organizations nowadays is to put a few top people in a room to brainstorm or find a solution to a problem or develop a product. Usually, the tone has been set at the top and it would take a lot of courage to deliver a contrary verdict on its viability. This approach tragically leads to sloppiness in testing the feasibility of the product or solution on its acceptance and value to the customers. Generally, it’s not easy to predict what’s most valuable to customers in the future, but the cost of groping in the dark maybe suicidal to the organization. This lesson is learned from Roald Amundsen’s book the Last Place on Earth that chronicled his conquest of the South Pole. Twelve days before embarking on the expedition, on Friday, September 8th, 1911, the Norwegians led by Amundsen left Framheim heading south in pursuit of the South Pole. By Monday, less than 40 miles out of the base camp on the Ross Ice Shelf in Antarctica, the thermometer sank to minus 60 degrees. The winds were gusting up to 100 miles per hour and the men had to build Inuit-style igloos to keep 12 MARCH - APRIL 2016 out the storm. The next day, the liquid in the compasses froze solid. The men were completely exhausted, and after 12 continuous hours of merciless struggle against the cold and wind, all the men arrived back safely to their base camp. Five of the sledge dogs had died and most of the men were blistered and frostbitten. The next morning, most of the men agreed that the whole idea of starting so early for the Pole had been a mistake. The retreat had exposed critical weaknesses in their equipment and these were subsequently corrected in readiness for their actual conquest of the South Pole 12 days later, delivering the ultimate defeat of the British team by arriving 34 days earlier on December 14th, 1912. In tragic contrast, the Amundsen expedition team of 19 men all made it to South Pole and returned safely to Norway, while the British team led by Naval captain Robert Falcon Scott lost 5 men out of a team of 65 men including the expedition leader himself ! For no apparent reason, the final British 5 man team arrived in South Pole hauling 14kg of rock samples for geological souvenirs but without food rations for the long way back nearly 300 miles to the nearest food and fuel station. They all perished. Had they had equivalent weight of sea seals they would have survived. This experience from the Last Place on Earth suggests that an entity should be prepared to undertake thorough testing of its product or solution and not be afraid to quit a project albeit in the interim. Richard Dawkin called it the Concorde fallacy where the stakeholders perceive the sunk cost as too expensive to abandon, after the Concorde plane promoted by the British and French governments despite knowledge that it was not economically viable. An entity should readily undertake a self-internal reflection on the viability of a project and not be afraid to quit or pause. It’s a fact that most times there’s no sufficient evidence to deliver the contrary view of quitting and indeed there’s no magic bullet. The proposed solution is that management needs to think differently, a bit more, including considering a temporary setback or retreat. The Writer is a Finance Manager – Communications Authority of Kenya New lease accounting standard brings added transparency to the balance sheet T he new lease accounting standard published on 13 January 2016 by the International Accounting Standards Board (IASB) brings added transparency to the balance sheet, according to KPMG International. The new standard requires companies to bring most leases on-balance sheet, recognising new assets and liabilities. At present, many analysts adjust financial statements to reflect lease transactions that companies hold off-balance sheet. Commenting on the new standard following the release, Kimber Bascom, KPMG’s global IFRS leasing standards leader, said: “All companies that lease major assets for use in their business will see an increase in reported assets and liabilities. This will affect a wide variety of sectors, from airlines that lease aircraft to retailers that lease stores. The larger the lease portfolio, the greater the impact on key reporting metrics.” Companies are currently required to disclose details of their off-balance sheet leases and analysts use this information to adjust published financial statements. Bascom continued: “Current lease accounting requires financial statement users to adjust for off-balance-sheet leases. The key change will be the increase in transparency and comparability. For the first time, analysts will be able to see a company’s own assessment of its lease liabilities, calculated using a prescribed methodology that all companies reporting under IFRS will be required to follow.” The impacts are not limited to the balance sheet. There are also changes in accounting over the life of the lease. In particular, companies will now recognise a front-loaded pattern of expense for most leases, even when they pay constant annual rentals. And the new requirements introduce a stark dividing line between leases and service contracts – the former will be brought on-balance sheet, while service contracts will remain off-balance sheet. The new standard takes effect in January 2019. Before that, companies will need to gather significant additional data about their leases, and make new estimates and calculations that will need to be updated periodically. Brian O’Donovan of KPMG’s International Standards Group commented: “The new requirements are less complex and less costly to apply than the IASB’s earlier proposals. However, there will still be a compliance cost. For some companies, a key challenge will be gathering the required data. For others, more judgemental issues will dominate – for example, identifying which transactions contain leases.” The accounting changes do not affect cash flows directly. However, given the scale of the accounting change, KPMG expects that companies will be keen to understand the size of the lease liabilities arising from transactions they enter into between now and 2019. O’Donovan continued: “No one wants to see accounting drive business behaviours – the tail shouldn’t wag the dog. But if accounting consequences are in the mix when a company is considering a deal, then the mix will change. For example, this standard essentially kills sale-andleaseback as an off-balance-sheet financing proposition.” Some key impacts cannot yet be quantified. O’Donovan continued: “Companies won’t have the full picture until other accounting and regulatory bodies have responded. For example, the new accounting could prompt changes in the tax treatment of leases. And a key question for the financial sector is how the prudential regulators will treat the new assets and liabilities for regulatory capital purposes.” The US Financial Accounting Standards Board (the FASB) will publish a new US GAAP standard on lease accounting shortly. Although the IASB and FASB worked together on lease accounting for years, their final standards feature different lessee accounting models. Bascom concluded: “It’s ironic that the outcome of this long- running convergence project will be divergence in accounting for common lease types. The new IFRS and US GAAP standards will introduce differences in the profile and presentation of annual lease expense where none currently exist, reducing comparability between the two major accounting frameworks.” About KPMG East Africa Our East Africa practice comprises of Kenya, Uganda, Tanzania and Rwanda. KPMG East Africa has 21 partners and over 1000 professional staff. The Nairobi office serves as the regional coordinating office providing the required networking and support to facilitate delivery of services on a timely basis to meet and exceed our clients’ expectations. KPMG East Africa provides services in Eastern Democratic Republic of Congo, South Sudan, Burundi, Somalia as well as Ethiopia MARCH - APRIL 2016 13 BUSINESS PRACTICE AND DEVELOPMENT By Dr. Erick Outa, [email protected] BUSINESS AND ACCOUNTING ETHICS What happens to leaders and what can they do to improve standards of ethical behavior? A story is told based on Oliver Stone’s Wall Street popular movie, which portrays unscrupulous dealings of people involved in securities trading based on non-public information. A corporate raider character, by actor Michael Douglas, in a dramatic scene says, “Greed is good!” The implication is that greed is an acceptable motivation and that business people will do anything to make money, including engage in unethical behavior. In reality, greed is unacceptable, and unethical behavior will destroy a firm’s ability to make money. Although the goal of any firm should be to increase its owners’ wealth, to do so requires the public’s trust. In the long run, that trust depends on ethical business practices. What then is ethics and why does it matter? Ethics business dictionary.com describes ethics as the basic concepts and fundamental principles of decent human conduct. It includes study of universal values such as the essential equality of all men and women, human or natural rights, obedience to the law of land, concern for health and safety and, increasingly, also for the natural environment. A google search says the purpose of ethics in business is to direct business men and women to abide 14 MARCH - APRIL 2016 by a code of conduct that facilitates, public confidence in their products and services. Companies with good ethics attract customers to the firm’s products, thereby boosting sales and profits. In Kenya, the Code of Ethics for Professional Accountants includes the entire IFAC (International Federation of Accountants) code together with specific requirements under Kenyan context.The IFAC code of Ethics establishes ethical requirements for professional accountants. While this code conspicuously appears on the ICPAK website, no research has been undertaken to tell the extent to which it is used and how it has impacted the accounting profession and the general Kenya public. Many ICPAK registered accountants serve in the country in various capacities and sometimes it is worth knowing how they coexist with ethical issues in their environments. Companies with sound ethical standards make employees want to stay with the business, and therefore increase productivity, attract more employees BUSINESS PRACTICE AND DEVELOPMENT wanting to work for the business, reduce recruitment costs and enable the company to get the most talented employees and also attract investors and keep the company’s share price high, thereby protecting the business from takeover. Unethical behavior or a lack of corporate social responsibility, by comparison, may damage a firm’s reputation and make it less appealing to stakeholders. Profits could fall as a result. While adequate research has not been undertaken in Kenya to provide evidence on the relationship between applying ethics and the resultant benefits, the general belief around the world shows that ethical behavior in organizations are quite beneficial. Michael Josephson, a speaker and lecturer on the subject of ethics notes in Chapter 1 of Ethical Issues in the Practice of Accounting, 1992, the “Ten Universal Values” as “honesty, integrity, promise-keeping, fidelity, fairness, caring, respect for others, responsible citizenship, pursuit of excellence, and accountability”. The question is, how practical are these values in the very complex society where we live and how comes there is a perception that they are missing in society? In George Washington’s farewell address to public life, September 17, 1796, he said that the survival of freedom on American soil would have nothing to do with him, and everything to do with the character of its people and the government they would elect. What is it about character of a people to behave ethically and elect ethical leaders?In considering the impact of ethical values on a society, Dr. Katherine and Murphy Smith indicated Chuck Colson’s response, “Societies are tragically vulnerable when the men and women who compose them lack character. A nation or a culture cannot endure for long unless it is under girded by common values such as valor, public-spiritedness, and respect for others and for the law; it cannot stand unless it is populated by people who will act on motives superior to their own immediate interest”. Chuck Colson was described as US President Richard Nixon“dirty tricks” man and an architect of the Watergate scandal. He acted against the advice of his lawyers, by pleading guilty to obstruction of justice, a step that he depicted as “a price I had to pay to complete the shedding of my old life and to be free to live the new”. The Role of Education and Professional Institutions There are bits and pieces of ethics in the education and professional institutions covering ethics and so the question is whether these institutions have a role to play in ethics and if so how comes ethics is so much questioned in our society. Specific responsibilities of the accounting profession are expressed in the various codes of ethics promulgated by professional accounting institutes. In the US, AICPA’s first principle of professional conducts states: “In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.” In Kenya, “Professional Accountants are required to apply the conceptual framework to identify threats to compliance with the principles, evaluate their significance and apply safeguards to eliminate them or reduce them to an acceptable level” according to Erick Kimani who once chaired the disciplinary committee of ICPAK. Dr. Smith’s assertion is that “the main reason for having ethical guidelines is not to provide a cookbook solution to every practice-related problem, but to aid in the decision-making process for situations that involve ethical questions. Business persons will encounter novel situations in their jobs and will need ethical guidelines to handle them effectively”.On a practical basis, for example the Institute of Management Accountants recently established an “ethics hotline” to help members resolve ethical dilemmas. Ethics counselors offer confidential advice, solace, and comfort to management accountants who may have no other place to turn for help. How Do You Measure Success? In Kenya, there are allegations of corruption across the board while the courts have struggled to prove such cases, many times without success, but the question that remains is that some people are richer and powerful than their incomes or status permit. Can we consider rich and unethical people as successful even in the absence of “wrong doing” charges against them? Dr. Smith narrates a popular story of a meeting that may have taken place at the Edgewater Beach Hotel in Chicago in 1923. There is some debate as to whether the meeting in fact occurred, but what is not in question is the actual rise and fall of the men featured in the story, who were nine of the richest men in the world at the time: (1) Charles Schwab, President of the world’s largest independent steel company; (2) Samuel Insull, President of the world’s largest utility company; (3) Howard Hopson, President of the largest gas firm; (4) Arthur Cutten, the greatest wheat speculator; (5) Richard Whitney, President of the New York Stock Exchange; (6) Albert Fall, member of the President’s Cabinet; (7) Leon Frazier, President of the Bank of International Settlements; (8) Jessie Livermore, the greatest speculator in the Stock Market; and (9) Ivar Kreuger, head of the company with the most widely distributed securities in the world. Twenty-five years later, (1) Charles Schwab had died in bankruptcy, having lived on borrowed money for five years before his death. (2) Samuel MARCH - APRIL 2016 15 BUSINESS PRACTICE AND DEVELOPMENT Insull had died virtually penniless after spending some time as a fugitive from justice. (3) Howard Hopson was insane. (4) Arthur Cutten died overseas, broke. (5) Richard Whitney had spent time in Sing-Sing (Sing Sing correctional facility is a maximum security prison operated by the New York State Department of Corrections and Community Supervision). (6) Albert Fall was released from prison so he could die at home. (7) Leon Fraizer, (8) Jessie Livermore, and (9) Ivar Kreuger each died by suicide. Measured by wealth and power these men achieved success, at least temporarily. In a paper by Dr. Outa on the New International Financial Architecture, examples of what happens to leaders when unethical behavior crystalizes in an organization is presented. The CEO of the collapsed WorldCom responsible for the loss of $11 billion was jailed for 25 years while the CEO of Tyco International and his associates were jailed for 8-25 years and were asked to repay $72M$167 M. The Enron CEO was sent to 24 years in prison while his CFO was jailed for 10 years and the treasurer 5 years. A former CEO of Guinness Stout, Ernest Sanders, described as a high flier who flew too high, close to the sun until his wings melted. He was hired with a simple Job description to reverse the falling fortunes of Guinness. One of his actions was to acquire United distillers and he thought it would help if his company’s shares were worth considerably more than those of Distillers. So he and others bought up Guinness shares, artificially ramping up their value.He was charged with false accounting, conspiracy, and theft and jailed for 5 years. A UK department of trade and industry report described him as a man who did “unjustifiable favors for friends and himself ”. Away from the individuals, career loses and disappearance of great brands comes along with situations of ethical failure. In many cases come broken individuals, shattered homes, divorce for the individuals, loss of friends and social networks. The Kenya market is complicated because most unconcluded cases cannot be cited but one of the painful cases has been CMC Motors where great corporate icons found themselves with court rulings and revelations that destroyed many years of hard and genuine work.The most recent case yet to reach the courts is the Imperial 16 MARCH - APRIL 2016 GOVERNANCE goals, helping the unfortunate, paying taxes-all these depend on the individual virtues of courage, loyalty, charity, compassion, civility, and duty. Are you ethical? General Norman Schwarzkopf led the desert storm war to drive Saddam Hussein from Kuwait in 1991. bank where it is suspected that over ksh 38 billion has disappeared from the bank. Of course there are many professionals in these business chains including the Central bank, but the question that still remains unanswered is what are their characters? It appears no one saw anything coming. On a positive note, a very successful listed company in Kenya-Safaricom has been in the news for terminating 58 employees in 2015 and 56 in 2014 for unethical behavior including asset misappropriation, fraudulent expense claims and corruption cases. The company requires its employees to undergo ethical training at least once every year. How does it happen in your organization? Are ethically practices “practicalised?” What can we do as individuals? “If you occupy a position of leadership , your actions profoundly influence those who follow your example”. Considering the many qualities that are necessary for successful leadership, General Norman Schwarzkopf who led the desert storm war to drive Saddam Hussein from Kuwait in 1991 in one of his famous quotes said: “Leadership is a potent combination of strategy and character. But if you must be without one, be without the strategy.”Chuck Colson suggested that other virtues such as keeping the law, respecting human life and property, loving one’s family, fighting to defend national Finally, Dr. Tom Lickona (Character Matters(www.Amazon.com)), suggests 8 questions that can help us make good ethical decisions in many situations: 1. The Golden Rule Test:Would I want people to do this to me? 2. The Truth Test:Does this action represent the whole truth and nothing but the truth? 3. The What-If Everybody-Did-This Test:Would I want everyone to do this (lie, cheat, steal, litter the school, etc.)? Would I want to live in that kind of world? 4. The Parents Test:How would my parents feel if they found out I did this? What advice would they give me if I asked them if I should do it? 5. The Religion Test:If I have religious beliefs, how do they apply to this action? What would a respected member of my religion advise? Are there any religious texts that I could draw on for guidance? 6. The Conscience Test:Does this go against my conscience? Will I feel guilty afterwards? 7.The Consequences Test:Might this action have bad consequences, such as damage to relationships or loss of selfrespect, now or in the future? Might I come to regret doing this? Jailed? 8.The Front Page Test:How would I feel if my action were reported on the front page of my hometown paper? Additional Resources 1. Arthur Andersen & Co., “National Commission Fraudulent Financial Reporting, Summary of Recommendations,” Accounting News Briefs, Vol. 13, No. 2 Supplement, April/ May 1987. 2. Outa, E. (2012),“The New International Financial Architecture: a Comparative Analysis of Lessons and Experiences from Africa”. Presented at Catholic University of Eastern Africa and published by Ad Minister, an International peer reviewed journal of Universidad EAFIT, Columbia, Latin America. http://publicaciones.eaf it.edu.co/index. php/administer/article/view/2506/2556#. VSQFReGH By Nelson Korir, [email protected] REFORMATION OF KENYA’S BUDGETORY PROCESS T he cracks emerging from unreconciled data relating to EURO BOND accountability by National Treasury has provided a window of opportunity for this country to take another look at its budgetary process which is now auditable under Public Audit Law 2015. Those entrusted with budgetary process require support and adequate investment and systems infrastructure from national, county and other agencies to handle trillion spending. We have read about the agitation to have the two senior officials sacked as if there will be immediate solution to the current woes. This is not time to shed blood at the Treasury. The answer lies in investment in people and systems and placing holders of budgetary position in the hands of members of ICPAK from national to counties. This is the starting point in financial control.The payoff is huge and makes sense now that the budget process is auditable under Public Audit law. It is surprising to see treasury officials justifying payments of third parties through third parties circumventing collection of withholding taxes, a key docket of KRA. Nobody talks about it. Even the law was amended to accommodate this fraudulent process to deny KRA its rightful revenue. The answer is dead silence, although the constitution forbids this process. As we consider reforming Kenya’s Budgetary Process, we wish to take cue from former treasury officials who were role models in the financial management of public coffers some of whom are still with us. Nicholas Nganga, the late John Michuki, Harry Mule, Leonard Kibinge and Charles Mbindyo come to people’s minds. Their tenure was supported by financial control systems that were adhered to by all from national to district treasuries. The responsibility to report on compliance or noncompliance was left to the then Controller and Auditor General (CAG). The financial orders were a semblance of the ISA we have today in auditing discipline. Remember we did not have IFAC or ICPAK. These financial orders issued by national treasury were examinable in government training institutions and serve as a window for promotion to the next level. Where are we today? We have a public Finance Management Act that is hardly understood or poorly implemented, amended at will without considering anchors in constitution. First things first. Reform country budgetary system, long overdue to stop those baying for officials’ blood and anger at the treasury corridor. These are my thoughts and I hope they will provide right light fittings and other gears for the nation to thrive. MARCH - APRIL 2016 17 BUSINESS PRACTICE AND DEVELOPMENT BUSINESS PRACTICE AND DEVELOPMENT Emotional conversations should not take place via email. If an emotionally charged email is received, it is best not to respond via email, but to call the sender and discuss the situation offline, regardless of who is copied on the email. In the case of an ongoing audit, it is best not to communicate significant findings via email. The Missing Piece throughout the audit process. Auditing skills and ability are extremely important; however, without a high level of communication, all ability is for naught. It has been said that interpersonal skills are more important than auditing skills in this profession. Internal audit is comparable to the sales group inside an organization, in that, audit must constantly sell its value and role. The need for auditors to constantly sell their value highlights the importance of refined communication skills. Some best practices and key areas of communication include: • The 7 C’s of communication • Professionalism • Miscommunication • Mode of communication • Conflict management • Active listening By CPA Derrick Majani, [email protected] The 7 C’s of Communication Audit Communication C areer progression in any field is dependent on many factors, including skill and experience and, often, being in the right place at the right time. In the audit and risk management profession, there are many high-quality people vying for the same roles. Additionally, the progression of many managers up the proverbial audit ladder is stymied due to one significant distinguishing factor: communication skills. In the audit world, some auditors tend to use fear, uncertainty and doubt as methods of enforcement. When speaking 18 MARCH - APRIL 2016 to non technical oriented team members, it is easy to generate fear, which may inadvertently lead to rumors that can damage the credibility of the auditors and/ or the audit departments. Such negative methods by auditors will not contribute to success in building long-term relationships with auditees. For auditors, the focus is on oral and written communication. To be successful, auditors must establish face-to-face relationships with auditees and develop a level of trust. Furthermore, complete and accurate work papers in addition to compelling audit reports are important Communication, via emails, meetings, phone conversations and instant messaging, for example, is the foundation of all business. The 7 C’s of communication provide a checklist for making sure that all forms of communication, including meetings, emails, conference calls, reports and presentations, are well constructed and clear. The 7 C’s of communication are: 1. Clarity/coherence—this may seem obvious, but clear and coherent communication is not as easy as it seems. Communication should be focused— with no question about the intention or the objective. Irrelevance should be eliminated, and logic must be embraced. 2. Concise—many people are familiar with people who like to use long words and sentences to project intelligence, often producing the opposite effect. The elimination of space killers and a focus on useful words is key. Concise communication keeps audiences engaged and interested. 3. Complete/correct—Communication is a fine art; it is important to paint a complete picture so that all facts and circumstances are understood. Communication should be accurate and honest. It is okay for people to admit that they do not know something—admit it, attempt to find the answer and move forward. 4. Captivating—Communication must be interesting and engaging at all times. Comprehension and listening significantly decrease if people do not see how they are personally involved in the communication. Compelling language that encourages action should be utilized. This commands more attention and better responses. 5. Conversational—An adult’s comprehension tends to decrease significantly (during training) when a speaker talks to the audience rather than with the audience. People must be engaged and feel comfortable enough to speak 6.Courteous—Communications are most effective when they are two-way, not one-way. Communication should be professional, but friendly and approachable. 7. Concrete—One should communicate with specifics and certainty, eliminating as much ambiguity as possible and keeping communications direct and to the point. Professionalism One of the major issues with inter office communication is the separation of personal and professional points of view. Emotion tends to weigh down healthy and straight forward communication and the comprehension of what is being communicated. Communication should be kept at a professional level; personal feelings should not affect communication. It is important to remember that communication should not be taken personally in the workplace. In certain instances, auditees may take audit findings or recommendations personally. For auditors, communication must be kept on a professional level and emotion must be eliminated as much as possible. The auditor should remain focused on the issue and the root of the problem. Miscommunication Miscommunication is the number-one cause of unnecessary conflict. Assumptions can take on a world of their own. People who assume let the assumption take over the conversation and, thus, do not fully comprehend the communication. Auditors must not assume anything, must keep an open mind and must be open to conversations. Many miscommunications are bred from assumptions and are affected by the mode of communication. Auditors should ensure that communications to auditees are clear, and they should avoid miscommunication as much as possible. Mode of Communication The mode of communication can significantly change the tone and meaning of communication. Generation Z3 is well- MARCH - APRIL 2016 19 BUSINESS PRACTICE AND DEVELOPMENT BUSINESS PRACTICE AND DEVELOPMENT Oskar Gröning is a German former SS junior squad leader who was stationed at Auschwitz concentration camp. By CPA Charles Kai Mwangudza, [email protected] THE ACCOUNTANT OF AUSCHWITZ T he Auschwitz trial held in Krakow, Poland was among the trials held after the Second World War to bring to account those who bore responsibility for crime committed during the Holocaust. The following is an excerpt from the jury decision which saw a verdict of 23 death sentences and 17 imprisonments ranging from life sentences to 3 years. “Torturing of prisoners already tormented to the extreme is the evidence of inhuman savagery perpetrated by the defendants who as a result of the trial were sentenced to death. The listed violent crimes committed by named defendants, who all took a smaller or larger part in the mass murder of prisoners also reveal that the accused were involved in acts of killing for pleasure and 20 MARCH - APRIL 2016 not pursuant to orders of their superiors. If it were not for expressed desire to kill, they would have otherwise displayed elements of sympathy for the victims or at least show indifference to their plight but not torture them to death.” April, 2015 saw the commencement of the trail of 93 year old Oskar Groening. Oskar was at the time of the war a 21, year old junior non-commissioned officer of the SS. Oskar is being tried on 300,000 counts of accessory to murder related to Hungarian Jews at Auschwitz in 1944. Interesting for me is not the duration it took to bring him to trial rather it is the fact that Oskar was not a guard, he was a book keeper, in today’s era probably a CPA. Groening was not a violent participant in genocide, he was not one of those who clubbed, beat and shot Jews, all he did was count the money the Nazis stole from the Jews. Groening was indicted under a new line of German legal reasoning that anyone who helped a death camp function can be accused of being an accessory to murder without evidence of participation in a specific crime. What parallels can we draw from the man the German press dubbed the ‘Auschwitz accountant’ with present day members of the institute both in public and private sector? As reports of misappropriation, mismanagement and outright theft continue to gain prominence in the media almost on a daily basis, one must ask the question how many accountants are just like Groening ‘just collecting and tallying money stolen from new camp arrivals and sending it to Berlin’. From the happenings at Kenya Airways and Uchumi in the private sector to NYS and most recently Communications Authority in the Public Sector, how many accountants are efficiently processing illegal payments on account of doing their duties? It is only when accountants are found to have personally benefited or are found to have been negligent is action taken against them. Anthony Smith-Meyer the Editor-inChief, Journal of Business Compliance states the following with regards to the matter of ethics. “Ethical choice only happens when there is a disruption to the balance of values that determine our moral consciousness, introducing an anguish, anxiety, disdain or disgust over a personal choice or an observed situation/behaviour. Ethics only exists when there is a clash of values requiring a rebalancing of choice between what is, or was considered, right or wrong”. The Accountant code of ethics while emphasising on confidentiality, provide circumstances where professional accountants are or may be required to disclose confidential information or when such disclosure is appropriate, “………Where disclosure is required by law such as disclosure to appropriate Public Authorities of infringements of the law that come to light”. The Internal Auditors code of ethics makes similar demands as regards confidentiality, “Internal auditors respect the value and ownership of information they receive and do not disclose information without appropriate authority unless there is a legal or professional obligation to do so. This section of the code should be read together with the Public Finance Management Regulations 2015 which provide for Reporting material breaches and persistent material breaches. “When indications of fraud, material breaches and wasteful expenditure have been identified in a State Organ, or any other national government entity in sections 92 of the Act, the head of the internal audit unit shall immediately notify the Cabinet Secretary”. The Internal Auditing Standards provide further guidance on this matter. Internal Audit Practice Advisory 2440-2 on communicating sensitive information within and outside the chain of command. It provides guidance on possession and communication of such information which include fraud, waste and mismanagement, illegal activities, abuse of power, misconduct that endangers public safety or other wrong doings. There have been recent reports of supermarkets having a variance between display prices and till prices. There is probably a ‘management accountant’ who is responsible for providing sales projections and reporting on variances. You may also have another ‘accountant’ in charge of reconciling store balances and this would include verification of shelf prices. In this modern era of enterprise management systems that include palm held devices for us in stock take it is surprising that it takes public outrage on social media for supermarkets to acknowledge these facts. What of the internal auditor who as part of risk based auditing would be auditing the internal controls regarding change of pricing? What may be even scarier are rumours that some supermarket outlets alter the expiry date of products to continue engaging in their sale to the detriment of the health of unsuspecting Kenyans. The month of June 2015 saw the anti-counterfeiting agency raid a palatial home in Nairobi where fake goods worth millions of shillings were discovered. Again one would seek to ask in this era of bar codes and supplier identification in the enterprise resource planning system, should these goods find their way to our supermarkets, who is responsible for controls with regards to supplier sourcing and auditing controls of the same? What do you do know? Ethical issues face by Charted Accountant, a book published by the Institute of Chartered accountants of Scotland presents an interesting perspective on what it refers to as ‘Guardian’ and ‘Commercial’ perceptions with regards to ethical responsibilities. This perspective broadly refers to the accountants’ dual responsibility to the commercial interest of the institution as well guard the stakeholders by providing a true and fair representation of the financial status of an entity. When faced with a scenario where an entity requires the accountant to falsify quarterly management accounts in order to ensure the company meets it covenant with its financiers, the accountant is faced with the commercial interest of ensuring the company meets its funding conditions to the bank where failure to do so results in dire consequences for the firm’s survival. On the other hand, the ‘Guardians’ role is that the accounts must represent a true and fair representation of the firm’s financial position and performance that would be in the interest of the creditors. Another perspective would be the question whether to falsify accounts in order to maintain an audit client or express a qualified opinion that could lead to winding up of a company and loss of employment for many. Oskar Groening was on the 15th of July 2015 sentenced to serve 4 years in jail, 70 years after the liberation of the Nazi concentration camp. On the first day of his trial, Groening said he felt morally guilty for his work at Auschwitz. To conclude, I believe that appreciating the duality of the role of the accountant in securing the ‘commercial’ interests of the entity as well as the ‘guardian’ role of protecting public interest will provide a useful lens through which ethical dilemmas facing the accountant can be viewed and interpreted. In this modern era of enterprise management systems that include palm held devices for us in stock take it is surprising that it takes public outrage on social media for supermarkets to acknowledge these facts. MARCH - APRIL 2016 21 BUSINESS PRACTICE AND DEVELOPMENT versed in communicating via smartphone and social media (e.g., LinkedIn, Facebook, Twitter); however, the focus on these new modes of communication has decreased Generation Z’s in-person communication skills. There are many different modes of communication, but nothing can replace face-to-face conversation. Emotions and sarcasm are difficult to interpret via email and on smartphones. All employees should be guarded when communicating via smartphone. Technology has enhanced the speed of communication, but it has also decreased the effectiveness of communication. Generation Z relies heavily on text messaging and emails, but many conversations are better conducted in person or over the phone. Email and texting are sometimes used as modes to avoid inperson conversations. Communications that involve back-and forth conversation should be done in person rather than via email. Many employees, especially in younger generations, tend to use the wrong form of communication. Email is overused, and not all conversations are effective via email. Emotional conversations should not take place via email. If an emotionally charged email is received, it is best not to respond via email, but to call the sender and discuss the situation offline, regardless of who is copied on the email. In the case of an ongoing audit, it is best not to communicate significant findings via email. Anything that could be significant or construed as personal should be communicated in person. Conflict Management Confrontation can be a healthy exercise when the parties in conflict are transparent and honest. In most cases, discussions of audit findings will have some form of confrontation. Proper management of this communication can determine the success of an audit. Most people inherently do not like confrontation. The points outlined below can be applied to any type of conflict. Confrontation—due to any conflict, including those within the audit group, between audit and management, or among auditors and auditees—can be optimized by undertaking the following steps: • Personally confront the issue—Lack of transparency breeds distrust. When issues are avoided, assumptions arise. As discussed previously, assumptions can 22 MARCH - APRIL 2016 take on a world of their own. Confronting issues head-on breeds confidence and trust in management. When discussing an audit issue, lay out the facts and be straightforward. • Make the initial statement, then stop talking—When confronting an issue, make an initial statement and then stop talking. This is against human nature; during confrontation, many want to state their case and not stop until they believe they have sufficiently made their case. On the other hand, the other party in the conflict feels that they are being railroaded and belittled. Conflict is healthy when there is two-way communication. Oneway communication will never resolve an issue. After the initial statement is made, give ample opportunity for the other parties to discuss the statement and give their viewpoints. This creates a back-andforth communication that is more effective in resolving a confrontation. • Avoid arguing during the confrontation— No matter what is said during a confrontation, regardless of how personal a statement is, arguing is never valuable or effective. Silence is preferable. • Know the desired resolution prior to the confrontation— Many pointless confrontations occur because the parties do not know before the confrontation what resolution they want. Without a known resolution, confrontation is meaningless and tends to be emotional. The best way to convince auditees that change is necessary is to present the idea as theirs. Via significant dialogue with the auditees, and through showing an understanding of their perspective and ideas, the auditor can lead auditees in the direction of the recommendation. • Focus on the real issue of the confrontation—Many confrontations become emotional when there is a lack of focus on the real issue. It becomes a blame game with a multitude of excuses. If the conversation deteriorates into a blame game, take a break or a deep breath and eliminate blame. Refocus on the primary objectives of resolving the issue and alleviating concerns that the issue will reoccur at a later date. Active Listening Listening is a major part of communication. It takes effort to listen and comprehend. Auditors must be good listeners and must focus on the content and meaning of a conversation. BUSINESS PRACTICE AND DEVELOPMENT When participants lack strong listening skills, audit interviews lose their value. The following points can enable more optimized listening: • Ignore phone calls during a conversation, and abstain from multitasking; ensure that the conversation is the primary focus. Conversations can become relatively meaningless and devalued when combined with multitasking. • Look at the other person, and focus on the words and meanings. Eye contact is important because it breeds trust and confidence. Maintaining eye contact keeps the focus on the conversation at hand. • Avoid interruptions. • Resist jumping to conclusions. It can be difficult not to jump to conclusions. The listener may hear something that takes comprehension away from the remainder of the conversation. Regardless of what is said, keep an open mind and follow up on any concerns when the opportunity arises. • Concentrate on the flow and backand-forth of the conversation rather than focusing on bits of information or past parts of the conversation. Conclusion Communication is key to an organization’s success. In general, audit skills and talents are very important, and not everyone is capable of becoming a good auditor. On the other hand, interpersonal and communication skills are as, or more, important than general audit capabilities. If an auditor cannot effectively communicate a finding or recommendation, the solution will fall on deaf ears. All the internal and IT audit talents in the world are deemed relatively useless when the auditor lacks the ability to effectively communicate the goals and findings of an audit. Auditors who strive to advance into managerial roles need strong communication skills to take the next step. This is the missing piece for many auditors, but it can be achieved with training and effort. Auditors must become optimized communicators, and should not assume that the people with whom they interact are not optimized communicators. The Writer is member of the Youth and Affairs Sub-Committee ICPAK Internal Auditor – Bandari Sacco Msa By Sylvia Nyokabi Karaba, [email protected] Audit Work Papers In Internal Audit Assignments I IA defines internal audit as an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. The IIA attribute standard 2300 on performing the engagement requires internal auditors to identify sufficient, reliable, relevant, and useful information to achieve the engagement’s objectives. This translates to sufficient information being factual, adequate, and convincing so that a prudent, independent person would reach the same conclusions as the auditor. Reliable information is the best attainable information through the use of appropriate engagement techniques. Relevant information supports engagement observations and recommendations and is consistent with the objectives for the engagement. The documentation of work papers therefore becomes a critical part of any audit assignment as they are proof of work done by the auditors. Work papers are the connecting link between the work done and the final report. Audit work paper documentation should provide a permanent and detailed audit trail of the work performed for reference by a third party. For typical audit assignment this starts at planning stage to report issuance and indeed to the point that all the audit issues raised are closed by management. There are many stakeholders who depend on the work done performed by the internal auditors and thus the need to ensure that the work papers done are of high quality. The work papers can be reviewed by third parties who may include the regulators or even investigators in case of investigations. Thus the need to ensure that the work papers are sufficiently detailed and of high quality and any opinions reached can be admissible in a court of law. The main objective of work papers is to document the planning, performance, and review of audit work. Audit documentation provides written support for planning and scoping decisions, testing methodologies and results, and evidence of review and completion of audit program work steps. They document what has been done, why it has been done, and how to re-create what has been done. Auditors should ensure that the work papers; • Show exactly what work was carried out to support the opinion • Include the auditor’s name and date of preparation • Should have evidence of review • Cross referencing to the source should be done as necessary • State a conclusion or opinion • Show significant findings that form the basis of the report • Contain summaries that draw together findings from several test areas • Sufficient for a third party to carry out the same work performed, and once re performed, the same conclusions would be reached • Should be written close to the time of the audit – preferably onsite or shortly thereafter Work papers characteristics To attain the set objectives, the work papers should have certain characteristics which include; • Completeness: work papers should be self standing and self explanatory. Any reader should be able to identify the purpose, work done and the results based on the information provided per single work paper. • Objective: the work papers should not be biased i.e. they should be fact based as the information reviewed should be sufficient and appropriate (relevant and reliable) • Clear and concise: work papers should not be ambiguous and should be written using simple language. They should also be specific on the time period covered say 6 months ( January 2015 to June 2015) • Comprehensive; the work papers should be well detailed in support of the conclusion reached. Indicating the items tested in relation to the total population. Also ensuring nature and extent of exceptions identified is also documented. Any assumptions or inferences made should also be documented for review by the audit reviewers. • Timely: its best to complete the work papers as the fieldwork testing is being completed as required by ISA 230. This helps to enhance the quality of the audit and facilitates the effective review and evaluation of the audit evidence obtained and conclusions reached before the auditor’s report is finalized. MARCH - APRIL 2016 23 FINANCE AND INVESTMENT FINANCE AND INVESTMENT MANAGING TRANSACTION EXPOSURE By CPA William Irari, [email protected] L ong before the 19th century, many countries and regions traded with each other through commodity exchange or what was referred to as barter trade. As the number of transactions increased and traders’ appetite for wider geographical area grew, it became practically impossible to settle trade with delivery of the commodity and soon after, currency became the ultimate unit of exchange. Currency is a globally acceptable means of exchange and being sanctioned by any government, it becomes a legal tender and cannot be refused for settlement of any debt. In order to carry out businesses beyond a country’s border, the relative values of the different currencies must be determined by trading them between nations in foreign exchange markets. These markets are the focus of this study as there are myriad of challenges that face the trading partners since as the case may be, one currency w i l l inevitably be stronger or weaker than the other. Like any other market, the foreign exchange market is exposed to economic factors prevailing in a certain economy where market forces of demand and supply determine to a large extent the rate of exchange (spot or forward rate). A country that imports more than it exports tend to have a depreciating currency and this is inversely true for the country that exports more. A firm that relies on imports for its production stands the risk of incurring further costs due to volatility and fluctuation of its host currency. And what better example to give if not mention about the losses that Kenyan businesses are going through since the beginning of the year as the shilling continues to suffocate under the strengthening green back (US Dollar). By July 31st 2015, the Kenyan shilling had fallen to an all time l o w of KES 102.50/USD representing a whopping 12.5% depreciation against the dollar as it had stood at KES 91/USD at the beginning of the year. Needless to say the increased transaction costs have upset the fortunes of these firms. It is against this backdrop that I try to explore ways on how this transaction exposure can be managed with an emphasis on the multinational companies (MNCs). As mentioned above, a firm doing international business can make use of derivatives to mitigate some of the losses that arise as a result of foreign exchange fluctuations. If the firm decides to hedge part or all its transactions exposure, it can select from the following hedging techniques as explained below: “In some cases the firm may opt not to hedge its exposure to exchange rates movements. The decision as to whether to hedge a portion to a forward contract or to keep it unhedged can be made by comparing the now results of hedging to possible consequences of remaining unhedged. Simply put, it’s all about opportunity costs”. 1 Futures Hedge Currency futures can be used by firms that desire to hedge transactions exposure by; (a) Purchasing currency futures – in order to hedge a payment on future payables in a foreign currency, the firm may purchase a currency futures contract for a currency it will need in the near future, 24 MARCH - APRIL 2016 thus locking the amount of home currency required to make payments. (b)To hedge against receivables, a firm may sell currency future contract it will receive after converting the foreign currency receivable into its own currency thereby insulating itself against fluctuation of receivables. payable or a receivables position. If a firm has excess cash, it can create a short term deposit in the foreign currency that it will need in the future and hence cover itself against any potential currency fluctuations with returns of the deposit. On hedging receivables, if a firm expects receivables from a certain country, it can hedge this position by borrowing the currency now and convert it into its home currency and when the receivables are realized, they’ll be used to pay off the loan. Let me illustrate this; supposing a company resident in Kenya expects to receive Tanzanian TSH. 2. F o r w a r d Hedge Like futures, forwards can be used to lock in the future exchange rate at which a firm can buy or sell a currency. A firm that needs a foreign currency can negotiate between the firm and the commercial bank and specify the currency, the exchange rate and the date of forward transaction. Firms in these cases can negotiate to lock in the currency in a buy/sell depending on the need. In some cases the firm may opt not to hedge its exposure to exchange rates movements. The decision as to whether to hedge a portion to a forward contract or to keep it unhedged can be made by comparing the now results of hedging to possible consequences of remaining unhedged. Simply put, it’s all about opportunity costs. 3.M o n e y Market Hedge A money market hedge involves taking a money market position to cover a futures MARCH - APRIL 2016 25 FINANCE AND INVESTMENT FINANCIAL REPORTING AND ASSURANCE timing of a payment request/disbursement to reflect expectations about future exchange rates movements. Leading is paying earlier than the due dates to take advantage of favorable rates while lagging is delaying settlements until the exchange rates normalize. It’s important to analyze the foreign exchange market keenly for this to succeed as well as accessible to favorable terms with the suppliers. In some cases the firm may opt not to hedge its exposure to exchange rates movements. The decision as to whether to hedge a portion to a forward contract or to keep it unhedged can be made by comparing the now results of hedging to possible consequences of remaining unhedged. Simply put, it’s all about opportunity costs”. 500,000/= in 90 days from now. Instead of the firm borrowing money locally, it can borrow in Tanzania shilling from a Tanzanian Bank and convert the TSH into KES for use. Assuming the annualized rate is 12% or 3% over 90 days the amount of TSH to be borrowed to hedge on future receivable is 500,000/1.03, i.e. TSH 485,437/=. If the firm converts the borrowed TSH.432,437/= to KSH, it can use the receivable to pay the Tanzanian loan in 90 days (i.e, KES 500,000/= which includes the principal plus accrued interest). 4.Currency Option Hedge An option can be defined as a contract between two or more parties where a party to the contract has a right but not an obligation to exercise the contract upon the occurrence of a specified favorable event, otherwise the party exercising the option would just let the contract lapse. The ideal hedge would insulate the firm from adverse exchange rate movements but also at the same time allow the firm to benefit from favorable exchange rate movements. The firm can make use of its receivables and payables as described below: 26 MARCH - APRIL 2016 (i)Hedging receivables with currency put options. If the existing spot rate of the foreign currency is above exercise price, when the firm receives the foreign currency, the firm can sell the currency received at the spot rate and let the option expire. (ii)Hedging payable with currency call option. A currency call option provides the right to buy a specified amount of a particular currency at a specified price (exercise price) within a given period of time. The firms lock in the maximum price and also have the flexibility to the let the option expire and obtain the currency at existing spot rate when the currency is to be payable in settlement. Apart from the four major hedges discussed above to cushion firms from exposure to diverse exchange rates, there are other alternative hedging techniques that a firm can employ. As explained here below, these strategies have more to do with restructuring of the company’s operations; a) Leading and Lagging This technique involves adjusting the b)Cross-hedging This is hedging an open position in one’s currency with a hedge in on another currency that is highly correlated with the first currency. This happens mainly when for some reason, the traditional hedging techniques cannot be applied to the first currency. It becomes more sensible to apply this method if the movements of the two currencies are perfectly negativecorrelated. c) Currency diversification A firm can opt to structure its investing strategy by making use of more than one currency. This may cushion the firm from exposure from fluctuations as compared to the loss it would incur if it only applied a single currency. It is important for the finance manager or CFO to understand that there are many methods on which derivatives can be applied to deal with exchange fluctuations and there is no stereotype prescription which can be applied even to firms in the same industry. Some methods are shortterm while others are more long lasting. An example of a short term technique is the use a triangular arbitrage. Let me explain; supposing a firm wants to purchase dollars to say facilitate imports. Instead of buying dollars directly, it can buy British pounds and then convert them to dollars. This can only work if one can identify discrepancy in the cross-exchange rate between two currencies. In conclusion, it is worth noting that use of derivatives and particular hedges is not a walk in the park. Some of these instruments are very risky if handled without calculated strategies and can ultimately lead to massive losses and as the saying goes, fire is a good servant but a bad master. CPA William is a holder of MBA (finance), CPAK and a member of the Institute of Certified Investment & Financial Analysts (ICIFA) By Seno Namwandi, [email protected] IP PORTFOLIOS AND FINANCIAL REPORTING I ntangibles are taking over financial reports of companies. The knowledge era has brought about a significant change in how assets are reported. This is because companies are now valuing their know-how more than their physical assets or that their physical assets (which are few in number in comparison) are a direct reflection of their expertise, which can be accounted for as an intangible asset. Factories and specialized machinery are treated as tangible assets, which istypical in accounting practice as the standards used are tailored for tangible assets; however, knowledge cannot be treated the same way. For instance, with the emphasis of Research and Development (R&D) in companies, auditors are forced to account for the high resource activity involved on the balance sheets. This poses a problem, as traditionally, resources involved in R&D would be costed to the company as expenditure because in essence, a company spends its human capital, equipmentand time in order to innovate, but this is not an accurate depiction of R&D. In dealing with intangible assets, one has to make an ex ante projection of what the output of R&D could bring into the company. An investment in R&D has the potential to bring in capital gains at a later stage and this should be depicted as such. This is just one example of how accounting standards have had to transform to not only report the current situation but include financial forecasts. This is typical nature of intangible assets and causes a challenge for accounting practices.. Intellectual Property (IP) is an intangible asset that is growing in company operations. IP tends to come in bundles i.e. a company will have an IP mix of trademark(s), copyright, trade secrets and possibly patents depending on the line of business; this generates a portfolio. IP portfolios like others need accurate management to ensure that they are exploited to the full benefit of the company. The management of IP portfolios has Image: WikiLeaks releases the final negotiated text for the TPP (Trans-Pacific Partnership) Intellectual Property Rights Chapter. an influence on the overall valuation of a company because of the nature of IP rights (IPRs). IP is an investment i.e. it requires that financial resources to obtain and this investment varies widely depending on what type of IP protection the company seeks and thereafter the scope of protection (how many countries does the company seek protection in). IP protection has the potential for capital gains in licensing agreements i.e. patents can be licensed out and that acts like a revenue stream for the company. As previously mentioned, R&D can also be placed as a potential revenue stream if the output is taken into consideration. With the introduction of IAS 38 in the countries using the IFRS, it changed the way intangibles are treated on the financial reports. The accounting standards for intangibles have characterised them based on the following criteria: 1.Identifiability 2. Capacity to control the asset especially with respects to a past event. 3. Future economic benefit expected. The management of IP portfolios especially taking care of the renewal fees and ensuring the various revenue streams are duly paid is particularly relevant to future events for the company. This requires that accounting professionals are brought up to speed concerning the nature of intangible assets particularly that of IP and the difference in reporting style.On the African continent, accountants have been confronted with goodwill for the longest time however, companies are now diversifying their intangible assets sources to include IP and human capital; this demands a an understanding of IP and its unique interaction with the company’s resources. The writer is an IP practitioner based in Windhoek Namibia MARCH - APRIL 2016 27 FINANCE AND INVESTMENT FINANCE AND INVESTMENT By CCP. Wasilwa Miriongi, [email protected] Image: Nutrilite Products Inc. Part2 Multi-Level Marketing a Real Business for THE st 21 Century T he first part of this series was in the September/October 2015 issue. Welcome to part two of this interesting Business model. Quoting Professor Mark Yarnell & Rene Reid Yarnell in the their book My first year in Network Marketing “the fascinating thing about Network Marketing is that in most instances survival, i.e staying in existence after others leave the business is precisely what leads to dramatic wealth. Attrition is a considerable factor in our business. Yet we have rarely met who has worked steadily in Network Marketing who doesn’t eventually achieve success. And those individuals who do not achieve success are their own worst enemies, constantly reinventing the wheel and complicating the simplest path to prosperity in the history of capitalism” 28 MARCH - APRIL 2016 The Yarnell’s acknowledge that priorities vary as widely as do people. While some choose Network Marketing as a means to an end (wealth) others just enjoy it for its own merits. History shows that Network Marketing has its roots to the 1940s when the Nutrilite Products Inc. launched the sale of supplement products and ten years later Amway introduced the sale of household products. Over the past 50 years the industry has matured into a legitimate and efficient channel of distribution ideally suited for the next wave about to break in the world of business. With milestones being achieved from 1990s when it leapt from leaps and bounds. If you may have heard of the economic meltdown that hit most of western world as from 2009 where so many people lost their jobs, how do you think they survived? The answer is they took up Network marketing with lots of success. In Kenya it is thanks to about 150 companies that have opened shop and many others are opening shop the latest being space Global that is about to launch a supermarket chain where everything sold therein will generate income to shoppers on a multi-level basis. Network Marketing provides a number of benefits that would surely interest you as a reader! According to the book Hidden Riches there are eight benefits of network marketing these are: • Small amount of risk It obviously involves an amount of risk whenever you make a choice to become an entrepreneur. The risks in this business is losing money, wasting time and not being in profit right away. Look at a traditional business the mere costs of starting up a business is what holds people back from becoming creators of their destiny. The main benefit of a networked business is you take a small risk to get started by raising just a minimum capital by joining the company of your choice. • A huge demand for quality products Whenever you consider which company to get involved in, the following questions should be clear to you;• Would you still consume these products/ services if there were no opportunities to market them? • Do these products bring any benefit to a consumer besides the opportunity to make money? • Would you bring “value” to your customers if they consume these products Every business no doubt needs return customers. It is the huge demand for products supplied that keeps the network growing; hence enabling the distributors to earn beyond their dream This model makes it possible to run a business at low costs compared to any business model where they have to pay overheads like rent and salaries. • Residual/Passive income Now, why Network Marketing? When you look at traditional business they merely deliver products to end consumers via a variety of third parties (Middlemen) such as dealers, wholesalers and retailers, the network marketing business model delivers the products from the manufacturer directly to the end consumers. This passes the full benefits to end consumers besides improving efficiency and feedback communication between the consumer and the manufacturer. Having understood what benefits are enjoyed by a participant in the Network Marketing business, you have also known why the myths that are usually peddled exist then you may need to ask The biggest plus for Network Marketing Model is that it gives one an opportunity to enjoy residual income just like the companies do. Whenever the process of getting a new customer is completed, one enjoys the residual part of that business relationship. In a Network Marketing business, residual income is the key thing, the most attractive aspect. One does not need to make a direct sale every day, but continuously earn from the sales done by their down lines. • Unlimited income potential In this model, there is no ceiling as to how much one can generate. In the normal corporate jobs, the big limitation is that regardless of how hard one works for these companies his income is tied to the market value/standard for someone with their level of skills and qualifications. Once one has undergone the training to become a marketer, he can market anything he chooses and generate the income he desires. • The power of Leverage Since a network marketing business is a people’s business, business of appointments, business of helping consumers find what they need and helping others create their own business. The reward is pegged on leveraging on the efforts of those one helped to create their own incomes. This develops a collective mindset that promotes win-win relationships. It is certainly not so in the other forms of employment and business models. • The attainable freedom No doubt it is not just the money, but the fulfillment of a lifestyle that makes network marketing affiliate program the best business to get in and ones passion is what makes it happen, yourself what are the secrets of Network Marketing? Of course leadership plays a key role for success in this business but to answer this question well I have followed one network marketing Guru Randy Gage and these are the secrets:• Lead a large group of people to constantly do a few simple actions over a sustained period of time. You will definitely need a large critical mass for this business to be sustainable • Have these people perform only a few actions and to keep these actions simple enough that everyone in the large group can duplicate • This has to happen over a sustained period of time. This will happen if you adapt a two to five year plan This networking business survives on the key principle of duplicity otherwise it is not different from any other conventional business such that whatever you do the people you recruit or your success lines must replicate even better. One quote we have always been asked by our trainers in this program is “If you went away for some time say one year, would you still earn what you have been earning and even more?” if the answer is yes! Then you are on your way to success in network marketing. Network Marketing doesn’t happen in grandiose ways: it occurs one by one as you touch lives of other people. Because of its exponential growth of the industry, before one knows it will have transformed the spirits of hundreds of millions of people. You will surely need to learn and engage in it part; Part iii follows in the next issue! The writer works at Space Global (Formerly DIPEK) Distributor • No employees to hire A Network Marketing program is a business of people independently working together. Without any employee, it is possible to build a business right from home or wherever convenient. • Low operating costs MARCH - APRIL 2016 29 COVER STORY COVER STORY The aftermath fraud By: CPA David Mathuva and Kennedy Waituika, CFE and law enforcement agencies may not want to share all the relevant information. S h a r i n g information on investigation m a n d a t e s may prevent duplicity of roles. Time constraints Drawing from experience, law e n f o rc e m e n t a g e n c i e s seem to have unlimited time to investigate a case. For example, in Kenya, once the CID present suspects in court, they may request a number of months to complete investigations. This sometimes affects the work of forensic investigators who work with definite timetables. Access to information Introduction You have just unearthed that “major” fraud in your organization. You now want to establish the underlying causeof the fraud and how you can recover the lost assets. Question is:how do you involve the relevant law enforcement agencies, the criminal justice system and then ‘move on’? What do you need to consider before engaging the law enforcement agencies? Forensic investigators or internal auditors may be required to work with law enforcement agencies at some point of their career. Law enforcement agencies could include the following: The local police, Criminal Investigations Department (CID), Ethics and Anti-Corruption Commission (EACC) or Central Bank Investigative units. Law enforcement agencies may not be limited to local 30 MARCH - APRIL 2016 agencies but could include agencies from other countries such as the Federal Bureau of Investigation (FBI), the New Scotland Yard among others. This may happen when the matters involved cover more than one jurisdiction or in cases where foreign laws apply. For example if a listed American company is involved in bribery or corruption allegations in Kenya, an investigator could end up dealing with the Kenya police, the EACC, the Securities and Exchange commission investigators and the FBI, just to mention but a few. An understanding of how law enforcement agencies operate and their objectives is important for any investigator or auditor. In most cases, law enforcement agencies have wide experience in handling court proceedings and complex criminal cases, while forensic accountants have the technical skills required to understand technical accounting and financial issues. It is therefore important and advisable that by working together, the objective should be to realize the synergies of the two teams working together. Understanding roles, mandates and objectives of law enforcement agencies Working with law enforcement agencies requires an understanding of the roles, mandates and objectives of the parties involved. Ideally, law enforcement agencies and investigators should complement each other. Differences may arise due to the following: Different mandates Investigators may have a narrower mandate Each team of investigators or law enforcement agencies may have access to privileged information that the other should not access due tosome reasons. Understanding this is important for court purposes. For example, if investigators are reviewing loss of funds and want to trace proceeds, they may have difficulties obtaining the bank accounts of the suspect, however, these can be obtained easily by law enforcement agencies. If the information is shared with investigators, they may be able to use it in drafting their reports, as they cannot prove thatthey obtained the information legally. Sharing of documents It is important to maintain chain of custody.This is to avoid loss of evidence pertinent to the investigation. Maintaining a chain of custody ensures that the investigator can “tell” the story based on evidence and not rumours or hearsay. The use of confessions Be careful not to use confessions obtained by law enforcement agencies as part of the report. Working culture It is important to appreciate the different working cultures of the different groups and their reporting hierarchy. Public sector working culture is fundamentally different form private sector. Benefits of working with law enforcement agencies Some of the benefits of working with the law enforcement agencies include: • They have access to resources not available to the public – e.g. Bank accounts, phone records, mobile money, etc.; • They can go to high risk areas since they are armed and well trained to operate in hostile environments which are adversarial in nature; • They can easily get a court order to search the suspects residence and other relevant places with a view to obtaining additional evidence or for recovery purposes; • They apply a street-smart approach. Law enforcement officers apply a streetsmartapproach, which adds value to the investigation. Law enforcers may also be in a position to cover a wider jurisdiction. Points to bear in mind when working with law enforcement agencies While working has its benefits, it is important to bear in mind the following: • Law enforcement agencies will only be interested in certain aspects of an investigation report. They will not read the entire forensic investigation or audit report. Therefore, ensure that the report is not prone to misinterpretation and most importantly, let the report be factual. Remember that once the case goes to court, you have to share any investigation or audit report with the defendant(s); • In certain jurisdictions, law enforcement agencies are susceptible to bribery or other forms of misconduct, which may have farreaching implications on the success of criminal or civil proceedings. Points to note when presenting evidence in court Once investigations are concluded and court proceedings commence, the following tips may be useful during the court process: • Document the source of evidence. Make sure you get the evidence through the right channels. Otherwise,it won’t be admissible in court; • Scan the evidence and preserve the originals in evidence bags to avoid contamination; • Index the evidence to allow easy reference and retrieval; • In case of signatures, always state that you are not a handwriting expert when alleging a suspect signed the document. Obtain a copy of signature from the human resource file and get the suspect’s colleagues to attest that the signature is his or hers. This adds weight to your claim; • Where possible, try to schedule an interview with the suspect obtain explanations regarding the suspicious transactions. This is useful in illustrating that you are objective and independent as an investigator; • Ensure that all the minutes and/ or consultation notes are signed by the interviewees and those present during the interview (as witnesses); • Be aware of the strong and weak points in your report. That is, know or understand your report by heart; • Explain the technical issues in a language that the judges understand and avoid jargon; • Remember, when testifying, your credibility is on the line, be factual as much as possible. In most cases, you will be a witness of fact and not an expert witness. Unless the judge prompts you to provide your opinion, the evidence you present should be factual and supported by evidence. Concluding remarks Working with Law enforcement agencies can enrich an investigation if the two teams understand that they bring different skill sets and/or resources. As noted above, there are a number of aspects to consider in ensuring a successful working relationship, which will result to a conviction and/or possible recovery stolen assets. David Mathuva is a Lecturer at Strathmore Business School. He can be reached at [email protected] Kennedy Waituika is a Forensic and Internal Audit Consultant based in Nairobi. He can be reached at [email protected] MARCH - APRIL 2016 31 COVER STORY COVER STORY By CPA David Mathuva, ACFE, [email protected] The fading role of bank reconciliation in fraud prevention and detection Introduction Bank reconciliation statements have traditionally served as an important control tool in detecting anomalies either in the cash book and or the bank statements. Whereas there may exist a number of anomalies in the cash book maintained by the company, there are usually few (or no) anomalies in the bank statement. In my experience with a number of corporate frauds, bank reconciliations have in most cases been least useful in tracking where fraudulent activity could have started. I have encountered companies that have had to do with “cooked” bank reconciliation statements for over two years, that is, 24 months! This period is enough to defraud the company a significant amount of money without anyone noticing. As an accountant, you may be “perfect” in preparing a “perfectly reconciling” bank reconciliation. However, are you aware that those bank statements you have been provided with by your superior or boss could be fictitious? Are you also aware that the bank statement copy you have might be having incorrect outstanding amounts? To make it worse, are you aware that the general ledger entries have hidden reversals which may be for unallocated or unapplied receipts or payments? And to sum it up, do you know that a carefully crafted scheme may have been put designed, thanks to collusion, to cover up everything such that you, the bank reconciler, are the only one without this knowledge? These are some of pertinent issues that any accountant in any organization should be aware of and address 32 MARCH - APRIL 2016 when preparing or reviewing any bank reconciliations. However, from experience, this has not always been the case. There has been some laxity in preparing and even reviewing bank reconciliations. Fraud antics in bank reconciliation statements Traditionally, the bank reconciliation is used as a control tool in most organizations. The aim of the reconciliation is to primarily confirm that ledger balances correspond with bank balances. Any causes of the difference needs to be addressed during the bank reconciliation process. In this article, I discuss two antics that may be used to conceal irregularities in the bank reconciliation process. Collusion This is where the cashbook accountant, who prepares bank reconciliation, colludes with other staff members to beat controls around the cash book function. This may involve falsifying cash book entries through reversal of some entries. For instance, if there was a debit in the cash book, making a counter-reversal either wholly or partially to reduce the debit entry to nil. Alternatively, the scheme could be perpetrated through a reversal of a credit entry in the cash book, wither fully or partially. Some of these reversals or improper postings could be made in complex accounts such as control, posting master, unapplied receipts or suspense accounts. Collusion comes in handy when the employee making postings in the general ledger needs to get a fraudulent payment or receipt approved. Through collusion, funds that were never paid into the bank account may end up being confirmed as though they were actually received and recorded in the accounting system. Interestingly, the ledger and bank balances reconcile perfectly without these entries being highlighted! Falsifying bank statements and providing incorrect bank balances This whereby the person who is authorized or has access to bank statements, either from the bank itself or from the online banking platform uses software converters. Through the software, the fraudster is able to convert bank statements into editable soft copy, mainly in Excel format. In this way, the fraudster is able to manipulate entries in bank statements by deleting and/or inserting entries to cover up any fraudulent withdrawals from the bank. Dealing with bank reconciliation fraud Below are some tips for dealing with bank reconciliation fraud. be a junior member of staff. Next, a detailed cash book to bank statement (do not overlook the petty cash float) reconciliation may be prepared. This may seem tedious but it saves a lot since you are assured of the authenticity of all the entries in the cashbook and petty cash before performing the bank reconciliation. Surprise bank reconciliations This involves performing surprise bank reconciliations (on a sample basis) through special audits (just like surprise stock counts!). This could take the form of an agreed upon procedure with the client which will be guided by the requirements in ISRS 4400: Engagements to Perform Agreed-Upon Procedures Regarding Financial Information. Cash book audits As an alternative to surprise bank reconciliations, calling for surprise cashbook audits from independent auditors (preferably not your external auditor) because you risk calling for just another “external audit”, yet this is not the objective. Special audits Invite special audits to check on the authenticity of bank reconciliations. I have encountered companies who have had to do with wrong bank reconciliations for the last 24 months! This amounts to wasted efforts and payment for services not rendered. Job rotation can help although it may not work if there is collusion among the staff being rotated. It is advisable to rotate but do not retain for long. Use of forensic technology tools Technological innovations, particularly the use of information technology has created a more complex environment that requires increasing awareness and special skills to cope with fraudulent activities. Using complex software such as Caseware IDEA tool, it is now possible to: • Perform GAP Analysis to identify and inconsistencies in transactions being processed. • Checking for duplicate entries in payments. The IDEA tool does check for duplicate transactions in a way no other data analytic software or tool can ever do. This helps in identifying cases where fraudsters commit a payment scheme fraud by making multiple payments on a valid invoice. • Performing Benford’s test on transactional data: Benford’s Law is a powerful tool in detecting fraud since is allows fraud examiners to test numbers against recognized norms. By so doing, one is able to identify patterns in transactional data and trace it to establish its authenticity. IDEA has that functionality to automatically detect fraud in transactional data on the first, second, third and fourth digits seamlessly. I recommend that corporations subject their transactional data occasionally to detect possible anomalies from time to timesay quarterly. This helps in reducing the magnitude of the fraud, if any is occurring. Conclusion As fraudulent schemes become more complex and more concealed, the IDEA Caseware tool is one sure way of identifying and following up on fraudulent transactions, which could be voluminous and difficult to trace one-on-one. Remember, with fraud running at endemic levels, using advanced technology helps match the complexity of fraud in today’s environment. Technology helps to prevent and detect fraud and can provide positive impact on the corporation’s operating performance and profitability by curtailing the effects of fraud early. Job rotation Preliminary reconciliations The first tip would be to perform a “bank statement to bank statement reconciliation”. This practice involves ad hoc reconciliation of bank statements provided by your superior to those obtained directly from the bank (if possible, without your superior’s knowledge). How you will do this, you may need more help from higher authority especially since you may MARCH - APRIL 2016 33 GOVERNANCE ORU took part in the II Devolution Conference, the national meeting of the 47 counties in Kenya, where the current situation of the Devolution initiated in 2013 was dealt with. By CPA Joseph Zachary Abuta, [email protected] CHALLENGES FACING DEVOLVED INSTITUTIONS IN KENYA Inadequate/Misused Financial Resources Poor Service delivery 1.Low HR Capacity 2.Poor community links Low development Political wrangles/ wars Low Satisfaction 1.Bureaucracy 2.Weak/poor Mgt styles K enyan Counties were created to provide a wide variety of devolved services after the enactment of a new Constitution in 2010. Most of them replaced the local authorities which had been mandated to do this. These 34 MARCH - APRIL 2016 services include the provision of water, sewerage and drainage facilities, housing, street lighting, fire-fighting services, markets, estate roads, basic educational, and public health among others. Many local authorities (LAs) were however, unable to efficiently provide these services to the citizens living within their jurisdiction. This had been attributed to a number of factors, including, inadequate financial resources, lack of trained human resource, political interference and bureaucracy. The fulfillment of these functions by the new outfits, now called County Governments would mainly depend on efficient governance on one hand and the adequacy of financial resources at their disposal on the other hand. Kenyan Counties were created to provide a wide variety of devolved services after the enactment of a new Constitution in 2010. Most of them replaced the local authorities which had been mandated to do this. These services include the provision of water, sewerage and drainage facilities, housing, street lighting, firefighting services, markets, estate roads, basic educational, and public health among others. Many local authorities (LAs) were however, unable to efficiently provide these services to the citizens living within their jurisdiction. This had been attributed to a number of factors, including, inadequate financial resources, lack of trained human resource, political interference and bureaucracy, The fulfillment of these functions by the new outfits ,now called County Governments would mainly depend on efficient governance on one hand and the adequacy of financial resources at their disposal on the other hand. Services such as education, health, and social services are delivered at the local level and affect the average common citizen and therefore directly impact on the performance towards achieving the National goals. Stronger accountability and increased oversight provides a better institutional framework for effective delivery of such public services (Most researchers and writers on local governments suggest that African nations inherited systems of modern governance from their former colonial masters. Prior to this period, the indigenous communities had their own systems of governance. In Kenya, the most significant development prior to independence was the establishment of Local Native Councils (LNC’s) in 1924. The LNCs provided basic services such as cattle dips, rural roads, and public health. The Local Government Act was promulgated in 1963 by the Government. Since then Local Authorities ( LAs) have added useful component of governance in Kenya. Their significance has been summed up in the presumption that local people have a superior capacity to understand and conduct their own affairs since they know the locality well and are likely to understand its needs better than others. This is because each locality has its own unique economic, social and physical features and dynamics. These special features and dynamics must be given a local touch through the creation of local structures. Consequently, Kenya has been reforming its systems of governance for enhanced devolution. This is a new concept in Kenya which may definitely take time to implement with such challenges including insufficient local revenue generation and funding from the central government.. The main aim of such reforms has been to strengthen the capacity of Local Authorities (LAs) to deliver services to its residents. The previous weak financial base of many LAs have now been considerably strengthened as a result of the huge transfers made by the National Government to under the provisions in the new Constitution, 2010. However, real and lasting improvements will occur if/when Counties fully involve their residents in decision about how resources are generated and used, and are accountable as guided by the Public Finance Management Act (PFM)As witnessed in the last three years of their existence, many of these devolved institutions are not able to adequately serve their mandate due to various factors; inadequate financial resources, inadequate human resource, politics and bureaucracy,. resulting in inability to enhance public accountability, poor governance, and unsatisfactory management of resources for efficient service delivery. Issues of finance management at county levels consist essentially of two fundamental aspects, namely, the raising of adequate revenue and the expenditure of the revenue received/raised. What distinguishes government public finance from that of the private sector is the fact that local government focuses at supporting and maintaining public goods and services but lacks both adequate resources and the power to raise sufficient revenues to carry out these functions... Therefore local government must acquire sufficient own funds and rely less on external sources. MARCH - APRIL 2016 35 GOVERNANCE INFORMATION TECHNOLOGY By Ritah Munyiva, [email protected] This is because local government funding and service needs are inherently bound together and are influenced by economic, social, demographic and technological trends. Public service delivery involves a complex combination of public and private delivery alternatives. Devolved governments such as Counties can therefore create PPP corporations as a more flexible form of market engagement They can use the market in a dynamic framework and contract out and back in as done in Europe and Portugal in particular, some years back with significant growth in municipal corporations which are styled function entities whose revenues derive from user fees (not taxes) and which have independent corporate status. The other major factor that often hampers effective performance of County Governments and related institutions is ineffective resource mobilization and poor management of financial resources. This may due poor planning,, limited strategic financial management skills and corruption resulting in extravagant and unbudgeted expenditure.. Public financial management entails effective management of the collection and expenditure of funds. of financial resources. The strategic importance of the development of human resource capacity, for example was raised at the African leadership forum held in1990 in Nigeria.. Lack of necessary skills was seen as a priority to be included in every development activity in Africa because of its implication for management and good governance The World Bank noted that” the Africa’s future is in its people .and must solve its current human development crisis if it is to claim the 21st century. Africa’s future economic growth will depend less on its natural resources, which are getting depleted fast and are subjected to long run price decline and more on its human skills and its ability to accelerate a demographic transition” (World Bank 2000). This is truly the case in most of our Counties and other devolved institutions in Kenya and needs to be addressed through building capacity of county officials and staff for effective administration and management. Political wrangles in many counties do affect service delivery and development Conclusions County Assemblies and County executive continue fighting over funds and projects. They are not simply bureaucratic edifies; they are also elected directly by the citizenship, and party-politics plays an important role in municipal governance. Councilors are elected to represent the citizenship. As political scientists will testify, “Representation” is a complex and often difficult activity. Several consequences flow from this basic fact of municipalities as polities. Bureaucracy practices do affect service delivery by devolved entities According to change experts in South Africa, many municipalities in that nation have experienced serious difficulties in adjusting to the “new demarcation and the new requirements of 1990” These difficulties are because various role players (particularly at national level) are directing diverse, and often contradiction, mandate and requirement at municipal governments, at a time when municipalities are still reeling from the consequences of restructuring Same scenario is being witnessed in Kenya as many County Governors are at war with National Government officers and this affects service delivery to the citizens at the County. Lack of, or inadequate, finance available to counties lead to poor services delivery, lack or minimal development projects, widespread unemployment and low living standards by residents. These often account for many cases of disaffection by residents with county governments. One solution is to expand the revenue base through for instance, identification of untapped revenue sources, realistic budgeting processes and the installation of efficient revenue collection and management systems .Another is to curb excessive/unbudgeted spending/wastage, theft/and corrupt practices rampant in most counties as shown in a recent research finding shown below. Table1.Finance factor vs Service Delivery in a select County Factor Count Corruption and theft of funds//resources Lack adequate funds to meet County obligations Misuse of resources, positions, overstaffing, facilities, general etc Inability to collect high user charges, levies and taxes Delays and strict conditions by National government Poor planning, budgeting and coordination Inability to mobilize potential revenue sources Total count/ per cent REFERENCES 1. Kenya Public Finance Management Act 2012-Part IV 2. The County Government Act 3. Reforming Local Authorities for Better Service Delivery in Developing Countries 4. Factors affecting Service Delivery in Local Authorities in 36 MARCH - APRIL 2016 552 462 430 151 190 353 262 2400 % 23.0 19.0 18.0 6.0 8.0 15.0 11.0 100.0 Ranking 1 2 3 7 6 4 5 Important social media platforms and their use T owards the end of the 20th century, a whole new form of communication was gripping the world as the World Wide Web was taking shape. The use of e-mail and instant messaging of was the talk as it made it easy to communicate globally. With endless numbers of web sites to navigate, one might have thought the world had reached the top of the technological mountain. Then came the beginnings of web 2.0 whose ability to design a website included the ability for users to interact with other users or change the content. It was the beginning of the social media wave which today has made it easier to interact, connect, promote and market our goods or services. From fan favorites such as Instagram and Facebook to newcomers like Google+, here is a look at most commonly used social media platforms that help users of all nature to stay relevant in business not to mention take advantage of as channels of communicating. Kenya- J Z ABUTA 5. Increasing Revenue Streams: & Innovations BY EThekwini Municipality, Natal,S.A 1.Facebook: Mark Zuckerberg, the founder of Facebook has continued to make it easy for billions of people to find and connect with family and friends floating around…even those you last spoke to centuries ago. Every other day, users are still clicking the ‘be friends with/ follow buttons’. Although Facebook is mainly centered on sharing photos, links, and quick thoughts of a personal nature, individuals can also show their support to brands or organizations by becoming fans. The writer is a Public Finance Advisor 2.WhatsApp: With more than 700 million users worldwide, this platform social media experts rank it just below Facebook. This simple, send text-style message has made it easy to communicate and seems to replace the mobile phone’s short message service (SMS). 3.Twitter: Apparently social media experts pass it as the simplest of all social media platforms. For those who think they could write a whole story using this platform, this is the wrong one as messages here are limited to 140 characters or less. Well, the 140 words are exclusive of posting a link, sharing an image or even trade thoughts with your favorite celebrity or influencer. Twitter’s interface is easy to learn and use, and setting up a new profile only takes minutes. set up. 6.Tumblr: This platform is different from many others in that it essentially hosts microblogs for its users. Individuals and companies, in turn, can fill their blogs with multimedia such as images and short video clips. The fast-paced nature of Tumblr makes it ideal for memes and other forms of fun or viral content. 7.Pinterest: This platform has made a huge impact on social media in the last few years. It has proved popular among women and the do-it-yourself crowd, it lets users share pictures, creative thoughts, or (especially) before-and-after pictures of projects that others can pin, save, or duplicate. 4.LinkedIn: This is probably the only mainstream social media site that’s actually geared towards business, LinkedIn is to cyberspace what networking groups once were to local business communities. It’s great for meeting customers, getting in touch with vendors, recruiting new employees, and keeping up with the latest in business or industry news. If it matters to your company or career, you can probably do it on LinkedIn. 8.YouTube: As a video sharing service, YouTube has become so popular that its catalog of billions and billions of videos has become known as “the world’s secondlargest search engine” in some circles. The site boasts of everything from first-person product reviews to promotional clips and “how-two” instruction on virtually any topic or discipline. Users have the ability to share, rate, and comment on what they see. 5.Google+: This platform combines the best of Facebook and Twitter into one site – and backing it by the power of the world’s largest search engine, Google giving users a social site that has a little something for everyone. You can add new content, highlight topics with hashtags, and even separate contacts into circles. A G+ profile only takes a few minutes to get 9.Instagram: Looking for a quick, convenient connection between the camera feature on your smart phone and all your social profiles, then Instagram is the answer. This platform allows users to share via Twitter, Facebook, and the Instagram website, choosing from a variety of photo filters and invite friends to comment on the photos or ideas. MARCH - APRIL 2016 37 ECONOMY ECONOMY By CPA Charles Okeyo Owuor, [email protected] SECURITY ANALYSIS FOR THE LAY INVESTOR “Whether Eurobond or common stock” A n investment is the current commitment of money or other resources in the expectation of reaping future benefits. For example an individual might purchase shares of stock anticipating that the future proceeds from the shares will justify both the time that her money is tied up as well as the risk of investment. In the selection of investments, we must address our minds to the following two questions:i) What are the primary tests of safety of a corporate bond or preferred stock? ii) What are the chief factors influencing the valuation of a common stock? Execution of investment is done through securities markets which play an important role in facilitating the deployment of capital resources to their most productive uses. But for markets to effectively serve this purpose there must be an acceptable level of transparency that allows investors to make well-informed decisions. Why do Individuals invest? i)They invest to earn a return from savings due to their deferred consumption. ii)They want a rate of return that compensates them for the time, the expected rate of inflation, and the uncertainty of the return. How does security differ from a bond? Bond refers to an official document given by any institution to show that you have lent them money that they will pay back to you at a particular interest rate. Security refers to a legal representation of the right to receive prospective future benefits under stated conditions. Security may include; Treasury Bills, Eurobond, long term Government bonds, corporate bonds and common stocks. For purposes of this paper, the above types of securities are described as hereunder:Treasury bills: Treasuries are fixed-income instruments used by any government in raising money by selling the bills, notes or bonds to the public. Investors buy the bills at a discount from the stated maturity value. At the bill’s maturity, the holder receives from the government a payment equal to the face value of the bill. Specifically, bills mature in one year or less, notes in over one to 10 years and bonds in more than 10 years from time of issue. Eurobond: Eurobond is an International bond denominated in a currency other than that of the country in which it is issued. For example, a dollar-denominated bond sold in Britain would be called a Eurodollar bond. Similarly, investors might speak of Euro-yen bonds, Yen-denominated bonds sold outside Japan or Euro shilling (Kenya) bonds, shilling-dominated bonds sold outside Kenya. Because the European currency is called the euro, the term Eurobond may be confusing. It is best to think of them simply as international bonds. In contrast to bonds that is issued in foreign countries but in the currency of the investor. For example, a Yankee bond is a dollar-dominated bond sold in the United States by a non-US issuer. Corporate bonds: Corporate bonds are fixed-income securities issued by industrial corporations, public utility corporations or railroads or private firms to raise funds to invest in plant equipment or working capital. These bonds are similar in structure to treasury issues – they typically pay semi annual coupons over their lives and return the face value to the bond holder at maturity. They differ most importantly from Treasury bonds in degree of risk. Default risk is a real consideration in the purchase of corporate bonds. Common stocks: Common stocks also known as equity securities or equities, represents ownership shares in a corporation. Owners of the common stock of a firm share in the company’s successes 38 MARCH - APRIL 2016 and problems. Each share of common stock entitles its owners to one vote or any matters of corporate governance that are put to a vote at corporation’s annual meeting and to a share in the financial benefits of ownership. Common stock represents a commitment on the part of a corporation to pay periodically whatsoever its board of directors deems appropriate as a cash dividend. Although the amount of cash dividends to be paid during the next year is subject to some uncertainty, it is generally relatively easy to accurately predict. However, the amount for which a stock can be bought or sold varies considerably, making the annual return difficult to accurately predict. What Security Analysis The investment process describes how an investor should go about making decisions with regards to what marketable securities to invest in, how extensive the investment should be, and when the investment should be made. A five step procedure for making these decisions forms the basis of the investment process:i) Set investment policy ii) Perform security analysis iii)Construct a portfolio iv)Revise the portfolio v)Evaluate the performance of the portfolio It would be useful to think of security analysis as limiting itself pretty much to the examination and evaluation of stocks and bonds, whereas financial analysis would comprise that work, plus the determination of investment policy (portfolio selection), plus a substantial amount of general economic analysis. The security analyst deals with the past, the present and the future of any given security issue, • he describes the business, • he summarizes its operating results and financial position. • he sets forth its strong and weak points, its possibilities and risks • he estimates its future earning power under various assumptions, ‘or as a best gress.’ • he makes elaborate comparisons of various companies or of the same company at various times. • Finally, he expresses an opinion as to the safety of the issue, if it is a bond or investment-grade preferred stock, or as to its attractiveness as a purchase, if it is a common stock. The security analyst develops and applies standards of safety by which we can conclude whether a given bond or preferred stock may be termed sound enough to justify purchase for investment. These standards relate primarily to past average earnings, but they are concerned also with capital structure, working capital, asset values, and other matters. Bond Analysis The most dependable and hence the most respectable branch of security analysis concerns itself with the safety or quality of bond issues and investment-grade preferred stocks. The key criterion used for corporate bonds is the number of times that total interest charges have been covered by available earnings for some years in the past. In the case of preferred stocks, it is the number of times that bond interest and preferred dividends combined have been covered. Let us consider the following factors in the analysis of bond. a) Size of the Enterprise There is a minimum standard in terms of volume of business for a corporationvarying as between industrial utilities and rail roads. b) Stock/Equity ratio This is the ratio of the market price of the stock issue to the total face amount of the debt, or the debt plus preferred stock. This factor includes the market’s appraisal of the future prospects of the enterprise. c) Property value The asset values, as shown on the balance sheet or as appraised were considered the main security and protection for a bond issue. Experience has shown that in most cases safety resides in the earning power, and if this is deficient the assets lose most of their reputed value. Asset values, however retain importance as a separate test of ample security for bonds and preferred stocks in three enterprise groups; public utilities (because rates may depend largely on the property investment), real estate concerns and investment companies. Common-Stock Analysis The ideal form of common-stock analysis leads to a valuation of the issue which can be compared with the current price to determine whether or not the security is an attractive purchase. This valuation, in turns, would ordinarily be found by estimating the average earnings over a period of years in the future and then multiplying that MARCH - APRIL 2016 39 ECONOMY ECONOMY Shark Tank investors in an American reality television series where budding entrepreneurs get the chance to bring their dreams to fruition estimate by an appropriate “capitalization factor (the total value of a company’s shares)” Pricing the future From the foregoing, we must address our minds to a question on how to put a price on the future which question midwifes to the following questions:i) Which factor determines how much you should be willing to pay for a stock? ii)What makes one company worth 10 times earnings and another worth 20 times? iii)How can you be reasonably sure that you are not overpaying for an apparently rosy future that turns out to be a murky nightmare? To respond to the above questions, we need to look at the consideration that enters into the divergent multipliers in the security analysis, namely: • The company’s “general long term prospects” • The quality of its management. • Its financial strength and capital structure. • Its dividend record and its current dividend rate The Long term prospects No one really knows anything about what will happen in the distant future, to find out company’s prospects, you need to comb through the financial statements, gather evidence so as to answer these two overriding questions:• What makes this company grow? 40 MARCH - APRIL 2016 • Where do (and where will) its profit come from In the course of addressing these (above) questions you must take into account the following problems or red flags:a) The company is a “serial acquirer.” An average of more than two or three acquisitions a year is a sign of potential trouble. For example, if the company buys the stock of other business than invest in its own you should take the hint and look elsewhere too. Check the company’s track record as an acquirer. Watch out for corporate bulimics- firms that wolf down big acquisitions only to end up vomiting them back out. b)The company is an OPM (Other People’s Money) addict This is whereby a company borrows debt or sells stock to raise boatloads of other people’s money. These fact infusions of OPM are labeled “cash from financing activities” on the statement of cash flows in the annual report. These ‘cash from financing activities: can make a sick company appear to be growing even it’s under underlying businesses are not generating enough cash. To determine whether a company is an OPM addict read the “statement of cash flows” in the financial statements. This page breaks down the company’s cash inflows and outflows into “operating activities,” “Investing activities,” and “financing activities.” If cash from operating activities is consistently negative, while cash from financing activities is consistently positive, the company has a habit of craving more cash than its own business can produce and you should not join the “enablers” of that habitual abuse. c) The company is a Johnny-One note This is whereby a company is relying on one customer (or a handful) for most of its revenues. d)The company has a wide “moat” or competitive advantage. Like castles, some companies can easily be stormed by marauding competitors, while others are almost impregnable. The following forces can widen a company’s moat; i. A unique intangible asset (think of Coca-Cola, whose secret formula for flavoured syrup has no real value but maintains a priceless hold on consumers) ii. A monopoly or near monopoly on the market. iii.Economies of scale, or the ability to supply huge amounts of goods or services cheaply (consider Gillette, which churns out razor blades by the billion) iv.A resistance to substitution (most businesses have no alternative to electricity, so utility companies are unlikely to be supplanted anytime soon). e) The company is a marathoner, not a sprinter. By looking back at the income statements you can see whether revenues and net earnings have grown smoothly and steadily over the previous 10 years. For example, the fastest growing companies tend to overheat and flame out. If earnings are growing at a long term rate of 10% pretax (or 6% to 7% after tax), that may be sustainable. But the 15% growth hurdle that many companies set for themselves is delusional. And an even higher rate or a sudden burst of growth in one or two years – is all but certain to fade, just like an inexperienced marathoner who tries to run the whole race as if it were a 100 meter dash. f ) The company sows and reaps No matter how good its products or how powerful its brands, a company must spend some money to develop new business. While research and development spending is not a source of growth today, it may well be tomorrow – particularly if a firm has a proven record of rejuvenating its business with new ideas and equipments. In the long run, a company that spends nothing on R&D is at least as vulnerable as one that spends too much. The quality and conduct of management A company’s executives should say what they will do, then do what they said. Check their past annual reports to see what forecast the managers made and if they fulfilled them or fell short. Manager should forthright admit their failures and take responsibility for them, rather than blaming all purpose ‘scapegoats’ like ‘the economy’, ‘uncertainty’, or ‘weak demand’. Note to check whether the tone and substance of the chairman’s letter stay constant, or fluctuate with the latest facts on the security market (Nairobi Security Exchange) (pay special attention to boom years). The following questions may help you determine whether the people who run the company will act in the interest of the people who own the company. • Are they looking out for number one A firm that pays its CEO over Kshs. 100million in a year had better have a very good reason. Otherwise, this suggests that the firm is run by the managers, for the managers. • If a firm re-prices (or ‘re-issues or “exchanges”) its stock options for insiders, stay away. Any established company that re-prices options – as dozen of high tech firms have – is a disgrace. And any investor who buys stock in such a company is a sheep begging to be sheared. Repeated big sales are a bright red flag. A manager cannot legitimately be your partner if he keeps selling while you are buying. • Are they managers or promoters? Executives should spend most of their time managing their company in private, not promoting it to the investing public. Ask whether the company’s accounting practices are designed to make its financial results transparent or opaque. If ‘non recurring’ charges keep recurring, ‘extraordinary’ items crop up so often that they seem ordinarily, acronyms like EBIT take priority over net income, or ‘proforma’ earnings are used to cloak actual losses, you may be looking at a firm that has not yet learned how to put its shareholders long term interest first. Financial strength and capital structure The most basic possible definition of a good business is this: - it generates more cash than it consumes. Good managers keep finding ways of putting that cash to productive use. In the long run, companies that meet this definition are virtually certain to grow in value, not matter what the stock market does. Embark on reading and or studying the statement of cash flows in the company’s annual report. Check whether cash from operations has grown steadily throughout the past 10 years. “If you owned 100% of a business, how much cash would you have in your pocket at the end of the year?” Finally, look at the company’s capital structure. Check the balance sheet and see how much debt (including preferred stock) the company has; in general, long term debt should be under 50% of the total capital. In the notes to the financial statements, determine whether the longterm debt is fixed rate (with constant interest payment) or variable (with payment that fluctuates which could become costly if interest rates rise). A substantial amount of anecdotal evidence, in fact, suggests that Managers who talk about “enhancing shareholder value” seldom do. In investing as with life in general, ultimate victory usually goes to the doers, not to the talkers. The writer is ICPAK Vice Chairman Central Rift MARCH - APRIL 2016 41 WORK PLACE WORK PLACE By Kellen Kiambati, [email protected] APPLICATION OF PRODUCT LIFE CYCLE MODEL The main objective here for the pioneer is market expansion by stimulating primary demand, i.e., demand for the product category. For example, Apple has taken upon itself to market its innovative personal MP3 player. Sony did likewise with its personal stereo, the Walkman, in the late 1970s. The marketing objective at this stage is, therefore, to create product awareness and encourage trial. Apple 2015 Many will be familiar with this timeless model which not only describes the stages in the sales pattern of a product or product category, but also offers some strategic directions for each stage. This model is concerned with the sales pattern & strategic directions for each stage of a product’s life cycle. It is important to differentiate between a product’s life cycle (home loans), a product category’s life cycle (variable, fixed, no-frill) and a brand’s life cycle (Westpac, St. George’s, BankWest, ANZ). With matured markets, the life cycle model, for strategic planning, is appropriate at the product category level where one normally finds different categories/variants at different stages of the cycle. 2.0 APPLICATION OF THE MODEL The model can be used for analysis as well as for strategy formulation. We shall 42 MARCH - APRIL 2016 When the new product is first commercialised, it enters the introduction stage of the life cycle. This stage is characterised by a slow sales growth and profits are usually negative because of the high costs of marketing associated with the introduction. Many buyers are unaware of the product and sales are limited to a category of buyers known as innovators. These buyers tend to be more affluent, venturesome and from upper social classes. Mobile phone innovators include company chief executives, sales representative, and tradespersons. These adopt the product for business use while others may buy it as a status symbol. Regardless, these buyers will be influential. There usually is no or little competition at this stage. Primary Objectives Apple 1998 1.0 INTRODUCTION 3.0 INTRODUCTION STAGE Characteristics examine the former first. The PLC concept attempts to provide managers with an understanding of the characteristics of each stage of the life cycle and, therefore, can be used to predict future sales and profit patterns. Underlying the PLC concept is the theory of diffusion of innovation, which identifies categories of buyers (adopters) of the innovation. By understanding these buyers, marketers can plan for the appropriate target market strategies. The early buyers of a new product are called innovators. The numbers are very small because the new product has to prove itself. If the product is satisfactory, it will attract the next category of buyers, early adopters. Later, mainstream buyers, early and late majority, will start adopting the product. Over time, the market becomes saturated and sales come mainly from product replacements. Eventually, sales decline as new products appear and the original product becomes obsolete. This phenomenon gives rise to the distinct S-shaped pattern of a typical product life cycle. The PLC concept provides a framework for developing marketing strategies in each stage of the product life cycle. Bear in mind that these strategies are appropriate for market leaders whose behaviour parallel the industry. Lesser competitors may need different strategies to compete. In some ways, the PLC model can be used as a forecasting or predictive tool. It can enable marketers to forecast the market characteristics of subsequent stages as well as predict the strategies of the leading competitors. This, of course, assumes that the life cycle exhibits the traditional pattern. Later, we will realise that many life cycle patterns are more than traditional, and the stages are of varying duration. In the following section, we shall examine the use of the PLC model both as an analytical tool and as a planning tool. These will be divided into characteristics, objectives, and strategies for each stage of the PLC. the early adopters. The innovators, as opinion leaders, serve to “legitimise” the innovation through product use and social interactions. The arrival of major competitors and their combined marketing strategies fuel sales growth and industry profit rises. These events necessitate different marketing objectives. Primary Objectives Facing competition, perhaps for the first time, the pioneering company and other leaders will need to maximise their market shares by emphasising selective demand, i.e., demand for a particular brand. Here, the brand’s product features and performance are stressed by extensive promotion to both the trade and customers. Stability of market shares of mainstream brands is a characteristic of the next stage, maturity. Therefore, the size of the market share gained in the growth stage will tend to persist in the maturity stage, the longest and most competitive stage of the life cycle. A brand with a small share at the end of the growth stage will find it hard to sur vive i n the next phase. Strategic Emphases The competing brands are priced to penetrate the now mainstream market, both to secure intensive distribution and build customer preference. The target market is broader in demographic terms and the product range, therefore, has to be expanded to cater to the diverse needs of the market. The companies that enter at this stage of the PLC are often large and formidable competitors with similar access to the core/basic technology. Technological advancement is pursued vigorously for product superiority. This leads to improvements to a product’s form and function, i.e., the physical attributes of a product that can be evaluated objectively. Examples include frost-free refrigerators, digital mobile phones, ABS brakes and stereo video cassette recorders. 5.0 MATURITY STAGE Characteristics This is, perhaps, the most important turning point of a market. Strategic Emphases With innovators as the target market, the pioneering company would emphasise customer education/ trial through advertising and sales promotion; and “push” for trade acceptance (distribution support). The product design and function are usually very basic because of the new technology involved. Price is often cost-based and tends to be very high reflecting the “newness” of the innovation and its associated R&D and marketing costs. Potential competitors, meanwhile, monitor the market closely for signs of customer acceptance. 4.0 GROWTH STAGE Characteristics This stage is characterised by rapidly rising sales as the product receives wide acceptance amongst Steve Jobs - American information technology entrepreneur and inventor MARCH - APRIL 2016 43 WORK PLACE Its potential indefinite duration, together with its dynamism, makes this stage the most difficult to predict or plan for. Consider the digital camera market. In the early days, they were targeted as a computer multi-media accessory and as a status symbol. Today, they are marketed as a replacement of the conventional film-camera for anyone and everyone. Is the market now still growing or reaching maturity? Technically, a product matures when the market has been saturated and further sales are mainly from replacements. In other words, most potential customers already have one. Who are these potential customers? Some indicators of maturity may be helpful to analyse the market: Sales growth and market saturation — maturity is evident when sales growth declines because the number of potential first-time buyers is decreasing. The market is said to be saturated, or fully penetrated, and sales level is maintained mainly because of replacement purchases. Lower prices and profitability — oversupply and intense competition force prices to fall resulting in lower industry profitability. Technological maturity and product parity — the core technology used has matured and this leads to WORK PLACE mainstream brands all having similar product form and functions. There are very little physical differences among the competing products’ key features. Products are usually differentiated on brand name, image and perceived quality, i.e., subjective dimensions. Buyer knowledge — over time, buyers gain experience in the use and evaluation of the product. They may eventually accept the reality of product parity and will buy on price or convenience (economic-driven buyers) or simply on brand name (statusdriven). Primary Objectives The main objective for most competitors is market share protection. Because the industry does not recognise the notion of a given market share starting point for each competitor, any marketing strategies can be construed as either offensive or defensive. In a sense, market share protection is a misnomer. An aggressive competitor can claim that it is merely rebuilding lost market share (on the defence) where, in fact, it could had lost share previously by letting its guard down. Also, pro-competitive legislation may prevent businesses from having too high a market share especially through corporate takeovers. These quasi-monopolists or functional monopolists will always be under the scrutiny of the Trade Practices Commission because of their ability to control the market. Strategic Emphasis For the reasons mentioned above, it would be difficult to generalise marketing strategies especially for the early maturity stage. The marketing mix strategies adopted in the growth stage tend to persist in the early maturity stage but with greater intensity. However, product strategies would usually involve multi-branding and an increased number of product variants/ models to appeal to an even broader market. The intention is to revitalise or prolong the maturity stage through product quality improvements, functional improvements, or style/design improvements. Recall that this stage can last indefinitely. Strategies in the late maturity/decline stages will be presented in the next section. 6.0 DECLINE STAGE Characteristics This stage is characterised by declining sales and profits. However, the contributing factors need to be identified and analysed so that the business can decide on the best course of action. It is important to note that we are not concerned here with the decline stage of a brand’s life cycle. A brand may decline due to poor marketing, etc. Rather, we are concerned with the fate of the product category’s decline such as those evident in the case of dial-up internet connections, floppy disks, CD players, CRT TV sets, etc. These products and others have declined because of obsolescence. There are even products or models with planned obsolescence, being replaced with new models. Products become obsolete because of substitutes and forward-planning companies are usually prepared for with these product substitutes. Buyers of these products are known as laggards. They tend to be older, more conservative and from lower socioeconomic backgrounds. Their numbers are usually very small. Competition is less intense as some players are quick to exit the market (industry shake-out). Primary Objective Since many businesses may have a sizeable infrastructure investment in the product, e.g., plant and machinery, a quick exit may not be the best solution. The more usual move is to reduce expenditure and milk (harvest) the product. Therefore, the primary objective is to maximise cash or profit generation as quickly as possible. Another option is to maintain in, and dominate, the market when others are 44 MARCH - APRIL 2016 The competing brands are priced to penetrate the now mainstream market, both to secure intensive distribution and build customer preference. The target market is broader in demographic terms and the product range, therefore, has to be expanded to cater to the diverse needs of the market. exiting—“a big fish in a small pond”. There are also situations where a business can attempt to revitalise the market to create growth. Strategic Emphasis Some options are available at this stage. Exiting the market involves either selling the business (divestment) or liquidating existing assets such as plant and equipment. Sometimes there could be ready overseas buyers for outdated equipment especially for third world or developing countries. This should be seen as a last resort especially when milking or harvesting is not feasible. Harvesting attempts to milk the business of all available profits or cash. This is usually possible when there is still a loyal, but small, group of buyers (laggards) to maintain sufficient sales to generate profits. All marketing and overhead expenses are kept at a bare minimum in order to manage profitability and cash flow. The marketing of typewriters is a classic example. If exit barriers exist, the business may be motivated to continue businessas-usual. This suggests allowing enough investment to maintain the business and sending a message to the competitors of its determination. An industry shakeout, typical at this stage, will allow the surviving businesses to reap additional market share and profits from the industry. Of course, depending on the nature of the decline stage, this strategy may not be durable. Finally, a more positive strategy would be to revitalise the market. This can be achieved by creating new uses for the product (Teflon in paints), targeting new markets (baby shampoo for adults) and product modifications/variants (breakfast cereal redeveloped and repackaged as snack bars). 7.0 CRITIQUE OF THE MODEL The model is not without its critics. The major criticisms of the concept can be summarised as follows: External versus internal impact on the life cycle The model assumes that the pattern of a product or brand’s life cycle is influenced by the chosen strategies (internal) of the business. There is enough empirical evidence to suggest that many companies fail miserably in meeting forecast sales. We can only conclude that environmental forces (external) can play an important role in shaping the sales pattern of the product or brand. Consider this. An unexpected turn in the environment may, in the short term, cause the sales of a product to decline. Adhering to the PLC concept a manager may misread it as the decline stage of the product’s life cycle and act accordingly. Marketing support gets withdrawn and this will surely kill off the product. This creates a self-fulfilling prophecy that the brand is at the end of its life. It is, therefore, not clear how much influence a firm’s strategy has on the life cycle. One way of resolving this argument is to consider whether pattern follows strategy or strategy follows pattern. The former assumes that the chosen strategy is the primary influence on the life cycle pattern. This is typical of proactive companies, which attempt to prolong both the growth and maturity stages through some of the aggressive marketing strategies discussed earlier. Lesser competitors tend to be more reactive by accepting the pattern as given. They have lesser control over environmental and competitive forces. They respond by adopting strategies appropriate for each stage. In this case, strategy follows pattern. Other PLC patterns Not all products or brands exhibit the traditional S-shaped pattern. Styles are common in clothing, home design and passenger cars. A style such as blue jeans may last for decades, going in and out of vogue. Fads come as quickly as they decline. They have a steep introduction stage followed by a rapid decline and are found in toys and paraphernalia associated with hit movies. Scalloped or staircase life cycles exhibit a series of upward growth-maturity stages. This occurs when new applications of the product are found, as in nylon, Teflon, and ScotchGuard. Varying duration So far it is not surprising to learn that life cycles do not have a fixed pattern and that the duration of each stage varies. Also, it is not always evident when the turning point (from one stage to the next) occurs. Only a sales history can provide the evidence. By then, it may be too late for strategy development. Within a product category life cycle, the product form and brand life cycles can exhibit contrasting patterns. Brands tend to have the shortest life cycle with the exception of “classics” such as Levi’s, Colgate, Coca-cola, Hill’s hoist, Speedo, etc. Product forms are prone to style patterns. Moreover, there may be no clear delineation among product forms, which could result in a strategic planning nightmare. For example, should pre-brush mouth rinses be separate from traditional mouthwashes for analysis and strategy formulation? Should product forms of passenger cars be based on price range, engine capacity (1.5 litres), body style (sedans), or body types (sports)? Despite these limitations, the PLC model remains one of the most widely used (and misused or abused) strategic tools. The concept is simple and many of its limitations can be minimised or totally avoided through proper market definition, understanding of key environmental forces, and careful dealing of exceptions. After all, there is no known model that can predict the dynamic and erratic marketing environment. MARCH - APRIL 2016 45 OPINION OPINION By Okana Ouma, [email protected] The Multinational Experience W orking for a multinational company (MNC) can either be an overwhelming experience or a once in a lifetime and to be savored lifetime trip depending on your mindset. With many foreign countries having had set shop in 46 MARCH - APRIL 2016 the country, it is not a farfetched thought to expect that more and more Kenyans will find themselves working as MNC employees at one point in their working lives. So, what is to be expected in a MNC environment? The most important thing is to keep an open mind, always. Rid your mind off all the ethnic stereotypes you may be holding onto because in this environment, you are simply your country’s ambassador. Nobody cares about your surname nor will they connote it to anything other than it just being your name as opposed to if you were in a different environment. Your colleagues will care more for your actual work proficiency more than any other prowess that is alluded to your tribe. The multicultural environment will bring the world into the palms of your hand, and quite literally so. Without having your passport stamped and paying exorbitant plane tickets you will on a daily basis interact with different nationalities depending on your organization’s diversity depth. Some companies span across countries of a region say the Americas, Schengen, Sub Saharan Africa or even East Africa. There are the other companies which span which operate across continents having a presence in all corners of the globe. It is not uncommon for example to find that you are in country, while reporting to a French boss and having team members from different countries. It is imperative in this context to have an international demeanor so as to cohesively work with your team. Your working experience at an MNC can definitely double up as a learning experience as well since you can take this chance to learn from your diverse colleagues a thing or two about their cultures. Most of us heard about the Egyptian revolution some years back and the famous Tahrir square in the country where these protests were being held. Working for a MNC presents you with the golden opportunity to get more facts of this historical event from your Egyptian counterpart. So you have heard that in America they bleach their tripe? Isn’t this your moment to confirm this with your country manager who just happens to be American over tea break? In the same breathe, you will dispel / confirm various different notions that most of your colleagues will be having about your country. As stated at the beginning of the article – you are your country’s Ambassador. You might be the only person from your country that many of your international colleagues may interact with closely. So that team mate of yours sitting in the Russia office and asking you how many lions you have in your backyard is an opportunity for you to educate him, and humorously so. Sometimes you will find that some of your colleagues have traversed across many different countries in the course of working for the company. They are encyclopedias of knowledge for the different countries they have been to and are more often than not only too willing to share their cultural experiences. All you have to do is ask. Your experience in a MNC environment will most probably transcend across religious boundaries. If you have never bothered to understand any other religion other than yours maybe due to lack of opportunity then this is it. Carpe diem. Chances are you will find yourself on a daily level interaction with a blend of colleagues professing and practicing a different religion from yours. Have you always seen foods marked as ‘Halal’ and wondered exactly what that meant? Have a chat with your Muslim colleagues and beat the ignorance. You will be surprised just how much you can learn without having to take any additional religious classes outside of your requisite education. If you have always been curious about Buddhism, keep the banter up with your colleagues and you just might find one or two in your midst. Generally, people abhor ignorance especially because it makes people close minded and hold wrong perceptions of people different from them. Thus you will find that many people are only too willing to share with others the facts pertaining to their religions, cultures, lifestyles if only to dispel ignorance. If you have ever hoped to be multilingual then working for a MNC is the perfect environment to bring this dream to fruition; or at least close. It’s not unusual to find most foreigners bending over backwards to at least learn the local equivalent of greetings, salutations and gratitude expressions. However, it is in very rare occasions that the locals will reciprocate this gesture by trying to learn their guest’s dialect as well.It is only when most of us become foreigners in an environment that isn’t our usual one that we actually bother to learn a word or two of a language different from ours. It doesn’t have to be that way though. If you’re in a multi-cultural environment, it doesn’t cost you a dime to pick a word or two from the different nationalities crossing your path often. In fact, if you have already taken some lessons for a foreign language, you can get free practice by talking to a colleague who speaks it as a first language. Many may look at the chance to work for an MNC as an opportunity to enjoy the perks that may come with this position. However, there are numerous other benefits of working for an MNC that will not necessarily be spelt out in your employment contract. You need to take the initiative once you are in there to grab the opportunity presented to you by the universe.An opportunity to learn about different cultures, languages, cuisines, histories and anything else you can think of that’s outside your defined familiar environment. You get to define your syllabus and be a teacher as well to universal students. So next time you get that call to work for that newly set up MNC in town and are pondering if you should take the leap, go on. And enjoy the ride while at it. MARCH - APRIL 2016 47 PUBLIC POLICY PUBLIC POLICY CPA Martin KetienyaCheruiyot, [email protected] Closing the gaps in iTax T he Kenya Revenue Authority had its foot heavy on the accelerator this year towards enhancing tax collection through its revolutionary rollout out of the iTax system. Taxpayers were on their toes to beat the 30th June 48 MARCH - APRIL 2016 deadline of filing returns and the usually snaking line at the KRA headquarters at Times Towers was noticeably shorter this time. The advent of iTax has made it a lot easier to file returns, register for a personal identification number (PIN) and obtain a tax compliance certificate. What’s more? The system automatically notifies taxpayers amounts owed to the taxman including interests and penalties accruing owing to delays in settling tax dues. Perhaps this is the magic elixir that would spur the economy to the next level.With better intelligence, tax compliance auditors at KRA might just turn the tables to rake in more than anticipated. The 2015/2016 revenue target of KES 1.25 trillion is an ambitious target indeed. The taxman is looking to seal all revenue collection loopholes ranging from netting all taxpayers in its tax base to mitigating fraud at collection points. There are ongoingconsiderations into taxing the informal or ‘jua kali’ sector including thetaxation of the ‘mitumba’, the second hand clothing industry .Among the anticipated milestones will be the review of the Income Tax Act in 2016 and the split of the Kenya Revenue Authority into two semi-autonomous but inter-dependent agencies namely; the Inland Revenue Agency (IRA) and the Customs and Border Protection Agency (CBPA). The National Treasury, in its Budget Policy statements for the 2015/2016 period reported that In 2015, the National Treasury will commence the process of making the agencies operational, including developing a framework for entrenching competency and integrity into the two organizations. The iTax system, however, was not without its weaknesses. A myriad challenged faced the taxpayer when filing returns. The fact that KRA held numerous training sessions to train taxpayers countrywide way before the deadlines was beyond laudable. An acute slowdown in online processing of returns a few days to the deadline was another challenge. This was occasioned bya last minute rush by taxpayers who, despite having between January and June to file their returns, chose to do so three days to the closing date. This warranted an extension by KRA to accommodate laggards. The real elephant in the room is a loophole in tax legislation entrenched in the Income tax Act.The Income Tax Act of 2012 does not provide for restriction of personal relief for employment incomes earned for less than 12 months of a calendar year. It only provided for restrictions when an individual arrives in Kenya with the intention of being resident after the beginning of the year and death or permanent departure from Kenya before the year end at KES 1162 per month. Tax payers filled an excel workbook that captured expected and actual tax deducted among other details of income. The end result of this computation was either a tax due or refund due figure. A problem came when a taxpayer earned an income for a part of the year and iTax awards personal The real elephant in the room is a loophole in tax legislation entrenched in the Income tax Act. relief for the 12 months. The return form captured annual rather than monthly income and a taxpayer could not indicate the number of months in employment. This is an undoing of iTax that was not present in the previous online system. Let’s use an example of an employee who worked and earned a salary for 7 months between June and December for a gross salary of KES 30,000. Assuming that this particular employee had an allowable deduction of KES 200monthly (or KES 1,400 annually) for pension and has no other income apart from the salary. Thiswould translate to an annual taxable income of KES 208,600 and an annual tax deductible of KES 25,191 using the annual graduated scale rates of tax. This is how the calculation would look like in the computation of net tax by the iTax return form; An employee, when filing the return would rely on a P9A form provided by the employer. Note that the P9A form will show a total personal relief of KES 8,134 since it will only contain summative data for months worked and paid for. The P9A form would have the following information: The difference in net taxes between the two assessments of KES 3,908 (KES 197,353193,445) would then appear as a tax refund in the tax return because iTax has awarded a full year’s personal relief while the employee has prorated it to months in employment and secondly because computation of gross taxes annually and monthly gave different results.iTax notified individuals who indicated taxes due on their returns and not who indicated nil (matched taxed payable to tax paid) to pay up what they owed including interest and penalties (Note that the payment of self-assessment income tax was due by April). Those who indicated a negative figure (refund) were prompted on validation of the computation to provide bank account details to facilitate the refunds. The real challenge is that taxpayers might actually be refunded, not from overpaid taxes, but from unduly awarded personal reliefs. It would amount to a payout emanating from an incentive which might be against the cannon of economy. This cannon recommendsthat the cost of collection tax should be the minimum possible both to thegovernment and the taxpayer.This is against a backdrop of delayed Value Added Tax Refunds by KRA amounting to KES 19.2 billion as at the end of 2013. The national treasury resorted to converting these claims to government bonds due to inability to allocate funds to the exercise in 2014. Perhaps what KRA should do is first, review section 29 of the Income Tax Act then structure the return form(sheet F-employment income) to list individual months as form P9A does so that both the taxman and the taxpayer read from the same script. Otherwise, it would be a serious oversight that would leave a gaping hole in revenue collection.Secondly KRA shouldrun a similar campaign in April to notify taxpayers of the self-assessment income tax payment deadline of April so that taxpayers do not mistake the June 30th deadline for payment of taxes. All in all, a state cannotrun a democracy well without taxation and a taxation system cannot berun well without democracy. Quoting Oliver Wendell Holmes, “Taxes are what we pay for civilized society.” MARCH - APRIL 2016 49 INSPIRATION INSPIRATION By Angela Mutiso, [email protected] A GOOD POSTURE BOOSTS PRODUCTIVITY POWER POSING When our words fail to convey adequately all that we feel and would like to express, non-verbal communication or body language takes place. J. Maurus When comedian Charlie Chaplin was starring those many years ago, his movies were mainly silent. For that reason, anyone would watch them and follow them. Today, a number of those movies are classics that many people still find incredibly thrilling. Moreover, most machines that make work easier for us today had not been invented consequently, workers got used to using their hands and even feet to physically perform most tasks at the factory. In one popular scene, Charlie Chaplin is seen endlessly mimicking what he had been doing at his work place during the day; the message he was conveying by doing this, was that, that kind of work made one’s body spontaneously make such movements even when not at work. The reason for this anecdote is that we are discussing posture; which is a non verbal communication. This kind of communication can be powerful. Posture is a kind of body language. Posture refers to the way you move your body while sitting or standing; it can convey a message, 50 MARCH - APRIL 2016 communicate your mood, and reveal your position on a situation more accurately than you can imagine. But more than anything, it has both health and (work) productivity benefits. A good posture makes you happier, livelier, and more successful. You must therefore be aware of your posture at all times. High and low power Uprightpose.com explains that one Amy Cuddy famously reported that in ‘Power Posing.’ open, expansive postures reflect high power while narrow, closed postures reflect low power. These poses not only display power, but can actually produce it. People with high power poses have increased feelings of dominance, risktaking, and power as well as reduced anxiety. It further explains that: Good posture is critical to reducing back and neck pain. The Cleveland Clinic notes that people who suffer from back pain experience positive changes when they improve their posture. Being upright does wonders for your appearance. You look taller, slimmer and more successful when you sit and stand tall. It is imperative to making a good first impression. Slumped participants are unsure of themselves while those with a better posture feel and appear confident. Good posture also helps you to lose weight. Chiropractor James Emmett explains that this is because by carrying yourself better, you are “taking tension off the whole body and everything starts to flow better.” By sitting upright we extend the mid back, which leads to a neutral spine that allows the pelvis to position itself in a way that the core muscles can activate better. Keeping an upright posture also helps open up the airways and ensure proper breathing. This allows more oxygen to flow through the cardiopulmonary system. The blood is then able to carry sufficient oxygen to the whole body and ensure that your nervous system, organs and other tissues function effectively. Also, a study conducted by Indiana University focused on how words and memories are linked to posture and found that babies’ learning ability are in fact affected by their posture. Being upright improved their ability to map new experiences and remember things. Upright pose explains that Erik Peper carried out a range of experiments to test how posture affects energy level and the ability to generate positive and negative thoughts. He found that participants who were upright and dynamic felt more energetic, happier and positive. By contrast, those who slouched reported feeling sad, lonely and isolated. It also helps to reduce your stress it notes that stress not only causes poor posture, but also actually perpetuates it! A recent study compared different seated postures to evaluate how each affected emotions in the face of stress. Results found that adopting an upright posture when stressed can maintain self-esteem, reduce negative mood, and increase positive mood compared to a slumped posture. Therefore, sitting upright might be a simple strategy to help build resilience to stress. Sitting upright makes you more alert, concentrated, and productive. In conclusion, uprightpose.com says; Good posture, keeps your body properly aligned, helps keep your spine straight, energizes you, reduces possibilities of back ache and gives you an attractive appearance. Many people are embracing it As we have noted, a good posture makes you breathe better therefore boosts your health, makes you concentrate better, enhances your self esteem, and makes you appealing and assertive. You can be more productive if you have enough oxygen because our brains need 20 percent of oxygen to work well. This in turn will enable us to think better and be more effective as we perform our duties. You should have a comfortable chair to work with if you spend most of your time working on a computer or writing. When reading, watching television or working, always maintain a good posture. Use a good pillow always; good cushions on your chair are helpful. Body massage especially for your back and neck and exercises are all good for your posture. Yoga is preferable because it keeps your airways open. If you work on your computer a lot, give your eyes an occasional break, also stand up and stretch every half hour and try to keep your breasts and shoulders broad. In most cases, drooping shoulders could represent unhappiness, discouragement, apprehension, despair or fatigue. So having and maintaining an upright posture touches almost every aspect of our lives, from our appearance, our health and our productivity; practice it. But a good posture does not just imply standing or sitting in an upright position, it means attitude, bearing, position and stance. Non verbal communication Body language is a very broad subject. In his book; the art of communicating effectively, J. Maurus the prolific author says psychologists have found that our communication is 85 percent nonverbal. That is, we communicate a good 30 percent through symbols; clothes, hairstyle, cosmetics, jewelry, gifts; and most importantly a good 55 per cent through actions of the body; gestures, facial expression, a hug, eye contact, tics. He notes that body language is more impressive than words. An adequate knowledge of nonverbal behavior will enhance our ability to understand more fully what transpires during interaction. Therefore, knowledge of body language is of utmost importance, for the communication may be saying one thing and non-verbally telling you something else. The whole idea of communication is to get your ideas and feelings across to others clearly and simply. You should learn the meaning of the expressions you make and can make and how they can be interpreted by your target audience. And as you go on practicing, you will discover that each day your verbal ‘vocabular’ will grow. This will augment your interests in life and many doors will open for you. In fact, when you understand non-verbal communication, you will discover that you can communicate very well with people who do not understand your language and with animals as well. Being quiet and by yourself at times enables you to communicate with your inner self, to be in touch with yourself, and to silently listen to what your body is telling you; for instance, are you sick, are you happy? Is your heartbeat fine? If you have expressions you can use, but fail to do so, those expressions will be of no use. But if you choose to use them, as you should, you will have unlimited means to express yourself; you can use them to show love, gratitude, pain, disgruntlement, joy and even acceptance among many more. Maurus quotes Jacquelyn B. Carr who says in her book communicating and relating that: we need practice and suggestions about communicating acceptance. We can learn for example, that praising and reassuring can be as threatening as criticism. The mother who says ‘good boy’ implies that her son is good as long as he behaves the way she wants him to behave. Accepting communication simply says: “I am listening.” I understand.” “I am interested.” “Tell me more about it.” “I am here with you.” He writes simply about how to develop your body language; the saying ‘men lie with their lips, but not with their bodies,’ means that the ear is the organ for receiving the verbal communication, and the eye for receiving the non-verbal or body language. He explains that Reuel L. Howe says, “Listening, then, is done with both the eye and the ear. The function of the eye and the ear is to programme our communications, to furnish the data to which our responses are to make a reply.” In developing body language, this same author says we begin by broadening our listening to include the signals of body behavior and studying its meaning in ourselves and others. Finally, you can use your eyes and hands to ask about something non-verbally. When you want something to be done for you for example; remember the golden rule that it is a great piece of skill to know how to guide your luck even while waiting for it. And it can well be done non-verbally. Cartoons excite children who cannot even talk well because of their non-verbal language. Additionally, postures are used here to great advantage, so children begin to understand how to react to situations, and to express themselves to their family without having to explain themselves (this is debatable of course) Just looking at a picture for instance, can enable you to know through their poses, the mood of those captured on the photograph. Remember when using body language, to do things that are socially acceptable.Things can go terribly wrong for you if you use it badly. Basically, remember the importance of etiquette in communications; let good taste and elegance be your by word. Good posture, believe it not, can lead to financial success and personal happiness; attributes which to some degree, everyone has or can develop. MARCH - APRIL 2016 51 SOCIETY SOCIETY By Bernard Ouya, [email protected] F YOUR ATTITUDE DETERMINES YOUR ALTITUDE or quite some time now, I have been thinking and asking myself this question “Why are some people more successful than others?” This is a mind intriguing question that we all have pondered at a certain time in our life. I think/am of the opinion that it all lies in our attitude. In the words of Denis Waitley, an American inspirational speaker and writer, “Your attitude is either the lock on or key to the door to your success!” Success starts in the mind, when we envisage what we anticipate to happen, then we strategize how we would like to accomplish it, then we get down to action and make it happen. That moment when we build in our minds what we desire, it still remains as a dream. People have different magnitudes of dreams depending on how they view their ability to achieve them. It calls for self-confidence, positive attitude and a bigger vision. Positive attitude is the engine that drives the urge to dream and look at a wish or anticipation as a reality. Napoleon Hill once said that, “whatever your mind can conceive and believe, the mind can achieve regardless of how many times you may have failed in the past.” Every advance in our lives begins with some idea of some kind, and since we have unlimited idea generation ability, we are our only limits. Successful people are very creative. 52 Sir Richard Charles Nicholas Branson is an English businessman and investor. MARCH - APRIL 2016 They constantly seek opportunities and brainstorm on better, faster, cheaper and easier ways of providing a service or producing a product.Their desires are driven by some strong passion which is unstoppable. Successful people can only always see possibilities in any avenues of endeavor, where other people only see bottlenecks and impossibilities, they see opportunities where other people see threats. It’s all about training the mind to be positive.When the Wright Brothers (Wilbor and Orville) dreamt of flying, they could only see possibilities, they tried it, and today we have the aeroplane, courtesy of the two brothers who dared their dream! When we dream, we can only visualize how and what we wish for can look like. To bring forth this into reality requires well-thought and formulated plan and strategy. Successful people draw up clear road-maps to their destination, they plan well how they would like to achieve those goals. They have the attitude of goal setting and execution. Successful people normally know exactly what they want, they have targets to achieve, they pellucidly plan their way there and courageously pursue it. They adhere to their tracks, not veering off. This is an attitude they have developed overtime. All successful people “think on paper”. Putting down thoughts in writing, gives it a chance to germinate, you also get to gather more ideas. After doing the whole architecture of what you want to achieve then you get down to execute it according to the plan. Execution is the most critical stage in the achievement of a desired goal. Successful people know this and they take a keener interest here. Discipline, accuracy, to details, good time management and constant flow of communication are prerequisite characteristics at this stage. The instincts and knowledge of riskreturn trade off is key to any investor or successful person. It’s a choice that helps to distinguish successful people from the others. Many a times we are called upon to decide on an investment opportunity which is either very risky or less risky. Less risky investments are more conservative in nature, and tend to bear low returns. The reverse is true for risky investments. But the questions is, which one is viable? We wouldn’t wish to invest in low return investments, would we? Whilst we wouldn’t wish to put our resources and time either in high risky investments, right? A balance strike of both risk and return is called for, it begs for some instincts, knowledge or unique attitude. Attitude of wit and being able to make hard decisions, of wits like Richard Branson.The success story of Richard Branson, the founder and architect of The Virgin Atlantic Airways is too familiar to all and sundry. A man who from scratch sculptured the Virgin Brand The strength of a man is measured not by where he stands in the times of comfort but where he stands in times of hardship and adversities Martin Luther King through his risk-taking instincts and flamboyant personality of negotiations. Out of all odds and against sound advice took a bold step in investing in the very risky Virgin Atlantic Airways, a business venture which to date is admired by many and depicts a typical success story. It cannot go without saying that successful people have inculcated in them the attitude of persistence and perseverence. The “two Ps”are critical for any successful person. “The strength of a man is measured not by where he stands in the times of comfort but where he stands in times of hardship and adversities”, in the words of Martin Luther King Junior. Success normally comes with myriads of challenges, which does not need a faint heart. Even the sages once said that a faint heart never won a fair lady.You need to wear the helmet of the “two Ps” trudge on despite the challenges faced a long the way. It takes positive thinking, strong heart, passion and discipline in whatever you do to succeed. The one thing that I am most certain about successful people, the great local and global business leaders, is that they never stop to learn! They learn from others as well besides their own past experiences. They know too well the importance of making contacts and networking. They establish a network circle around them, with their peers in the industry, including their competitors, in the political arena, their clients and the government.They know none is so great enough to have all the knowledge and the experience, even a specialist in a particular field needs to consult. The attitude of learning from others, sharing ideas and exchanging advice is key to any prospective successful person, regardless of path of endeavour. Unfortunately some people have misconstrued consultation to mean “a lack of knowledge”. That thinking is misleading! No one is all knowing, except God, that’s why we consult. The habit of benchmarking with best practices and standard settings is a common phenomenon with successful people. It helps them to gauge by how much they have veered off the main track and what corrective measures needs to be done early enough. It also helps them to rank themselves with the best, and determine their position.Successful people have the habit of doing all the right little things repeatedly. Attitude determines to a great extent how far we go with our advances in life because from it we develop an idea, conceptualize them, make choices and action on our plans. And this is a whole process not an event that needs other cooperant factors, the ones mentioned not all inclusive. As Donald Trump puts it in his book, “How to Get Rich”, the buck does not just stop but starts with us. MARCH - APRIL 2016 53 HEALTH SCHIZO By Dominic Ooko, [email protected] Splitting of mental functions H as anyone ever told you s/he is hearing voices which you never hear? Such a person may well be suffering from schizophrenia. Schizophrenia means a splitting of mental functions reflecting the presentation of the illness. It is a mental disorder often characterized by atypical social behavior and inability to recognize what is real. It has also been described as a persistent, severe, and disabling mental illness which affects men and women equally. Genetics and early environment, and psychological and social processes, appear to be important contributory factors. Common signs include false beliefs, unclear or confused thinking, auditory hallucinations, reduced social engagement and emotional expression; sufferers of this ailment also lack motivation. A doctor usually seeks to know reported experiences of a person and observes behavior to aid diagnosis. Some recreational and prescription drugs appear to cause or worsen symptoms. The word schizophrenia—which translates roughly as “splitting of the mind” and comes from the Greek schizein “to split”) and phren- ( “mind”) was coined by Eugen Bleuler in 1908 and was intended to describe the separation of function between personality, thinking, memory and perception. American and British interpretations of Beuler led to the claim that he described its main symptoms as 4 A’s: flattened Affect, Autism, impaired Association of ideas and Ambivalence. Bleuler realized that the illness was not a dementia, as some of his patients improved rather than deteriorated, and thus proposed the term schizophrenia instead. Treatment was revolutionized in the mid-1950s with the development and introduction of chlorpmazine (Wikepedia). Patients suffering from this ailment need a lot of support, understanding and empathy from friends, associates and family. They can be very difficult to live with to and to cope with. With schizophrenia, the person’s inner world and behavior change notably. Behavior changes might include; 54 MARCH - APRIL 2016 HEALTH PHRENIA Social withdrawal, Agitation or anxiety, Depersonalization (intense anxiety and a feeling of being unreal), they can also suffer from lack of appetite, bad hygiene, beliefs completely not based on reality, hearing things with are not actually present and a sense of being controlled by outside forces. They need to feel valuable and loved and should be allowed to do things that relax them, that make them happy and not stressed. A person with schizophrenia may not have any outward appearance of being ill. In other cases, the illness may be more apparent, causing bizarre behaviors. They try to do things they believe stop bad forces from entering their brains, and it is hard to dissuade them when they are convinced about some strange behavior they have. Therefore if it is something you can live with, it is better to adjust what you can about it and live with what you cannot change. People with schizophrenia differ widely in their attitude as they grapple with an ailment beyond their control. In active stages, they may say things that do not make sense or react with uncontrolled anger or violence to a perceived threat. People with schizophrenia may also experience strange stages of the illness where they seem to have a bland personality, to appear immobile and lack emotion (also called a flat affect). These extremes may vary. Their behavior may or may not be predictable. To really understand schizophrenia, the concept of clusters of symptoms is often used. Therefore people with schizophrenia can experience a warning sign that may be grouped under the following categories: paranoid type; delusions or auditory hallucinations are present, but thought disorder, disorganized behavior, or affective flattening are not. Delusions are persecutory and/or grandiose, but in addition to these, other themes such as jealousy, religiosity, or somatization may also be present. Disorganized type; where thought disorder and flat affect are present together. Catatonic type; here, the subject may be almost immobile or exhibit agitated, purposeless movement. Symptoms can include catatonic stupor and waxy flexibility; Un-differentiated type; Psychotic symptoms are present but the criteria for paranoid, disorganized, or catatonic types have not MARCH - APRIL 2016 55 HEALTH been met. Residual type; where positive symptoms are present at a low intensity only. There is also Post-schizophrenic depression: A depressive episode arising in the aftermath of a schizophrenic illness where some low-level schizophrenic symptoms may still be present. Then there is simple schizophrenia which is Insidious and progressive development of prominent negative symptoms with no history of psychotic episodes. (Wikipedia) People suffering from schizophrenia may feel like they are hearing voices, can be very suspicious and imagine someone is constantly watching them. They may be unable to feel pleasure and can appear to be lazy. They can find it hard to understand their surrounding and can be easily depressed and suicidal. They may also find it difficult to have and keep close relationships and may seem cold and aloof. They do suffer hallucinations: and may have strong sensations of objects or events that are real only to him or her. These may be in the form of things that they believe strongly that they see, hear, smell, taste, or touch. It’s usually like their minds are playing tricks on them. They at times appear to be out of touch with reality. They may even ‘see’ shadows and think they are seeing real people. Their disorganized behavior may disrupt normal activities, such as showering, dressing, and preparing meals. Schizophrenia is also prevalent in people with disabilities. What causes schizophrenia? In Wikipedia we find information that a combination of genetic and environmental factors plays a role in the development of schizophrenia. People with a family history of schizophrenia who have a transient psychosis have a 20–40% chance of being diagnosed one year later. Genetically, the greatest risk for developing schizophrenia is having a first degree relative with the disease If one parent is affected the risk is about 13% and if both are affected the risk is nearly 50%. Environmental factors associated with the development of schizophrenia include the living environment, drug use and prenatal stressors. Parenting style seems to have no major effect, although people with supportive parents do better than those with critical or hostile parents. Childhood trauma, death of a parent, and being bullied or abused increase the risk of psychosis .Living in an urban environment during childhood or as an adult has 56 MARCH - APRIL 2016 consistently been found to increase the risk of schizophrenia by a factor of two, even after taking into account drug use, ethnic group and size of social group. Other factors that play an important role include social isolation and immigration related to social adversity, racial discrimination, family dysfunction, unemployment, and poor housing conditions. About half of those with schizophrenia use drugs or alcohol excessively. Alcohol abuse can also lead to it as can cannibas. Some facts about schizophrenia • Symptoms of schizophrenia in children and younger teenagers are less common since this form is not as common as adult-onset schizophrenia. Children with this illness tend to have a more chronic course of symptoms, more cognitive (thinking) problems, more negative symptoms, and more severe social challenges than people with adult-onset schizophrenia. • Schizophrenia and other mental health disorders have fairly strict criteria for diagnosis. Time of onset as well as length and characteristics of symptoms are all factors in establishing a diagnosis. The active symptoms of schizophrenia must be present at least six months, or only one month if treated. • Statistics about how many people are diagnosed with this disorder vary. However, it affects about 1% of the population. More than 2 million Americans suffer from schizophrenia at any given time, and 100,000 200,000 people are newly diagnosed every year. Fifty percent of people in hospital psychiatric care have schizophrenia. • Schizophrenia is usually diagnosed in people 17-35 years of age. • The onset of the illness appears to be earlier in men (in the late teens or early twenties) than in women (who tend to be affected in the 20s to early 30s). • Many of those affected are disabled. • They may not be able to hold down jobs or even perform tasks as simple as conversations. Some may be so incapacitated that they are unable to do activities most people take for granted. • Many are homeless. • Some recover enough to live a life relatively free from assistance. • Schizophrenia can affect anyone • John Nash, an American mathematician and joint winner of 1994 Nobel Prize for Economics had schizophrenia. His life was the subject of the 2001 Academy Awardwinning film ‘A Beautiful Mind’. So as we can see, it is not all gloom and doom for those suffering from schizophrenia. There have been several success stories. Moreover, the impact of the disease on individuals varies from one person to another and severity is not always associated with every case. If you are living with a schizophrenic, it would help if for you were to take time to understand the patient well, know his/her dark moods and what kind of treatment they should get. Understand what agitates them most and try to avoid such situations. Create as happy an environment for them as you possibly can and you will find many reasons to be happy rather than stressed when they share your life. Service Charter Health Tips • Try to avoid refined carbohydrates. forms, That means sugar in all and all ar particularly white sug ing it. It tain con foods and drinks all and r floo ite wh also means ated aer id Avo it. h wit de ma foods ed soft drinks, fruit flavour fruit squashes and all bottled n Joice Jea and nt Gra ris drinks…Do d is foo sh • Natural unprocessed fre lth. the basis of good hea good • It is important to eat a ryday. eve ts rien nut variety of g cancer pin kee for d goo is oil • Fish cer can at bay and retarding growth cancer. • Garlic irritates existing s stress les er und are s ive cut • Exe d to rne because they have lea delegate. it can give • Having yoghurt or a fru in the your brain a big boost late ling fee are afternoon, when you tired. alcohol • Smoking and excessive can lead to bone loss. ed • Try millet flakes with slic akfast. bre for k bananas and mil carrot and ot tro bee • Mix grated n pour the , ery cel h wit er eth tog add , over some sour cream al). tion (op ing son pepper for sea The Service Charter defines ICPAK’s service standards and provides information of nature of service, the person responsible, applicable fee if any and the expectation from stakeholders and customers. Please visit www.icpak.com for more information MEMORABLE QUOTES TID BITS “Mr. President, since you can’t run again “If I get any sleep on Christmas Eve it’ll Shopkeeper Monica Mwathethe; saying for another term,” “Is there any way that be good! George will be bouncing around that the cost of many vegetables is getting we as a group can talk the first lady into like a rabbit. So that will be two children, too high. running?” one who suddenly appreciates Christmas, “No!” “Let me tell you, there are three which could be quite challenging. But I’m “The design will be in line with the culture looking forward to it”. of the dominant Mjikenda community. From the attire, one will be able to tell things that are certain in life: Death, Taxes. And Michelle is not running for Prince William speaking, just before president; that I can tell you.” Christmas- Yahoo news ones origin.” Kilifi Governor Amason Kingi; announcing “We found the old video from our wedding, “It is very important that as a business that his county is designing an official and we’ve been married 23 years now…I we really ensure that we continue to be county attire. looked like a teenage; Michelle, she looks relevant to consumers and customers,” identical!” Nathan Kalumbu, President Coca-Cola ‘As to the first cause of the Universe, in Eurasia & Africa Group. Across the the context of expansion, that is left for The lighthearted exchange got some continent; Coke has about 3,000 small the reader to insert, but our picture is roaring laughs from the crowd at distribution centers. This information incomplete without Him.’” “Divine will McKinley Senior High School, as the explains the secret of Coca-cola’s success; constituting Nature from nothingness.” president (Obama) continued saying out of over 100 drinks that Coca-Cola British theorist, Edward Milne, wrote a that while he has certainly aged in his produces in Africa, many are tailored to mathematical treatise on relativity which past seven years as president; his wife’s local taste. The approach in each city may concluded by saying the above. appearance hasn’t changed. differ, but the company’s strategy is the same everywhere: a Coke product should ”Although he called himself an agnostic, The question had been asked by a town- always be within reach. Source: New Jastrow was compelled by the evidence to hall attendee. (Yahoo news) Africa Business News admit, “Now we see how the astronomical World Bank predicts a tough year for Africa The development lender forecasts a perfect storm as a slowdown in BRICS, the largest emerging market, meets with lower commodity prices, decreasing growth in international trade and financial market volatilities. The last time all the countries in this bloc slowed down at the same time was during the 2009 recession. The bank forecasts that global growth will this year only recover to 2.9% after falling short of expectations in 2015 to only come in 2.4%. With Africa increasingly integrated to world markets, these are the 10 highlights of the report linked to the continent’s prospects this year. Source: Mail & Guardian Africa Senegalese will decide on presidency age The news that Senegalese will vote in referendum in April to peg the age of presidential candidates at age 75 has been a topic of discussion for sometime since it was proposed. This proposal is reported to be in a constitutional reform proposal submitted by President Macky Sall to the country’s lawmakers in January. President Sall said the changes are meant to strengthen the rights of the citizens and state institutions. Can this little black box solve Africa’s connectivity problems? Kenyan start-up BRCK has secured $3 million in funding for an invention that hopes to change the face of internet connectivity across Africa. Founded in 2013, the tech innovators are the brains behind a tough-as-nails modem designed for harsh environments with limited connection and power. What makes the BRCK noteworthy is that it can hop between Ethernet, Wi-Fi and 3G or 4G networks, and it has eight hours of battery to keep going during blackouts. Source: CNN evidence leads to a biblical view of the “To defeat the culture of fatalism, “I wanted to create a commercial platform origin of the world.” “Science is unable to Kenya must do the following key things. for artists based here to provide increased tell us what or who caused the universe to First, restore dignity to the teacher the opportunities so they don’t feel they have begin. But some believe it clearly points to foundation of any civilization. Second, to move abroad to pursue their careers.” a Creator. “ rethink the entire education system. Whose values are we teaching? Third, re-think With his opening of Gallery 1957, what’s African. Fourth, make ethics the Ghanaian businessman, Marwan Zakhem, cornerstone of Kenya’s renaissance. Fifth, aims to put Accra on the map as hotbed re-engineer Kenya as a nation not a for contemporary art. The gallery will collection of tribes. Sixth, punish without open its doors on March 6, Ghana’s pity corruption, tribalism, and impunity. Independence Day, with an inaugural Finally, create an economy of opportunity, exhibition of work by the emerging artist not opportunism. These must be individual Serge Attukwei Clottey. Source: Artnet and collective national obligations. “ “We used to buy four or three tomatoes for sh20 but now we have to fork out Makau Mutua a columnist in the sh10 for only one; Onions too have become standard under the heading; let’s reshape pricey, with one going for sh10, compared our society and not be tied down by to the earlier average of sh20 for three.” Johannesburg tipped to be the biggest city in Africa in 2030 Research conducted by Oxford Economics shows future trends and market opportunities in the world’s largest 750 cities, and forecasts what the global urban landscape could look like in 2030. The report takes into account population size, age and income per capita, and includes South Africa’s two biggest cities, Johannesburg, and Cape Town. In Africa, Johannesburg will be the biggest city in terms of GDP, contributing $196 billion, followed by Cairo ($168 billion), Luanda ($138 billion), Lagos ($76 billion), and Cape Town ($73 billion). In terms of population in Africa, Lagos in Nigeria will have as 25 million people in 2030, followed by Kinshasa (16.7 million), Cairo (14.1 million), Luanda (9.8 million), and Dar es Salaam (9.4 million). Source: Business Tech Will your job still be around in Africa In 2020? Industry observers believe that we are on the cusp of a Fourth Industrial Revolution. A report from the World Economic Forum estimates that 65 percent of children entering primary school today will ultimately end up working in completely new job types that don’t yet exist. The jobs most at risk are concentrated in routine white collar office functions, such as office and administrative roles – expected to account for two-thirds of job losses. Source: Mail & Guardian Africa culture. 58 MARCH - APRIL 2016 MARCH - APRIL 2016 59 BOOK REVIEW Reviewed by Angela Mutiso, [email protected] Title: Getting Things Done: The Art of Stress-Free Productivity Author: David Allen Category: Business Publisher: Penguin T he author, veteran coach and management consultant David Allen says in this captivating book that in today’s world, yesterday’s methods just don’t work. He shares modern methods for stress-free performance that he has introduced to thousands of people. Allen’s argument is this: our productivity is directly proportional to our ability to relax. Only when our minds are clear and our thoughts are organized can we achieve effective productivity and unleash our creative potential. In “Getting Things Done,” (GTD) Allen shows how to: Apply the “do it, delegate it, defer it, drop it” rule to get your in-box to empty; Reassess goals and stay focused in changing situations; Plan projects as well as get them unstuck; Overcome feelings of confusion, anxiety, and being overwhelmed; Feel fine about what you’re not doing. This book can transform the way you work, showing you how to pick up the pace without wearing yourself down. Since it was first published, David Allen’s Getting Things Done has become one of the most influential business titles of its era, and the book on personal organization (Google Books). The GTD style is based on the idea of moving planned tasks and projects out of the mind by recording them externally and then breaking them into actionable work items. This allows one to focus attention on taking action on tasks, instead of on recalling them. Mental blocks we encounter are caused by insufficient 60 MARCH - APRIL 2016 ‘front-end’ planning. This means thinking in advance, generating a series of actions which can later be undertaken without further planning. Time management, as we all know defines our work and plans our days, this book presents a timemanagement method that you will find quite useful. Allen is a renowned productivity consultant; he first demonstrates stress reduction from the method with a certain exercise, centered on something that has entered your life that has an unclear outcome or where the next action is not defined. (Allen calls these sources of stress “open loops,” “incompletes,” or “stuff.”) Pick an “incomplete”: What most annoys, distracts, or interests you? Write down a description of the successful outcome in one sentence. What is your definition of “done”? Write down the next action to move toward the desired outcome; Notice how you feel after the exercise compared to before it. The system in GTD requires you have within easy reach an inbox, a trash can, a filing system for reference material, several lists, and a calendar. These tools can be physical or electronic as appropriate (e.g. physical in tray or email inbox). As “stuff ” enters your life. The GTD workflow consists of five stages: capture, clarify, organize, reflect, and engage. Empty your inbox or inboxes daily or at least weekly (“in” to empty). Don’t use your inbox as a “to do” list. Don’t put clarified items back into the inbox. Emptying your inbox doesn’t mean finishing everything. It just means applying the “capture, clarify, organize” steps to all your “stuff.” Allen recommends reflection from six levels or “horizons-current actions; current projects; areas of responsibility; 1–2 year goals; 3–5 year goals; Life. Unlike some theories, which focus on top down goal-setting, GTD works in the opposite direction. Allen argues that it is often difficult for individuals to focus on big picture goals if they cannot sufficiently control the dayto-day tasks that they frequently must face. By developing and using the trusted system that deals with day-to-day inputs, an individual can free up mental space to begin moving up to the next level. He recommends scheduling a weekly review, reflecting on the different levels. The perspective gained from these reviews should drive one’s priorities at the project level. Priorities at the project level in turn determine the priority of the individual tasks and commitments gathered during the workflow process. During a weekly review, determine the context for the tasks and put each task on its appropriate list. An example of grouping together similar tasks would be making a list of outstanding telephone calls, or the tasks/errands to perform while out shopping. Context lists can be defined by the set of tools available or by the presence of individuals or groups for whom one has items to discuss or present. About the author: David Allen is president of The David Allen Company and has more than twenty years experience as a consultant and executive coach for such organizations as Microsoft, the Ford Foundation, L.L.Bean, and the World Bank. His work has been featured in Fast Company, Fortune, Atlantic Monthly, O, and many other publications. ICPAK UNIVERSITY Scholarship HELP OTHERS REACH THEIR PEAK! The Institute of Certified Public Accountants of Kenya (ICPAK) will award merit based scholarships that would enable bright young students from financially disadvantaged families to pursue their dreams. ICPAK plans to sponsor 3 scholars every year to enjoy a full 4-year university education in the field of Accounting and Finance. Appeal: You can support the Scholarship Fund by making a donation or adopting a scholar. To donate or adopt a scholar please log on to our website www.icpak.com STAR OF THE MONTH STAR OF THE MONTH Interviewed by Angela Mutiso, [email protected] Star: CPA Joshua Kamwere Wanjiku DOING MY BEST T he accounting profession has evolved tremendously and today calls for accountants to play a more prominent role in the management of the organizations they work for. CPA Joshua Kamwere Wanjiku 31 is the Finance Manager of Crown Healthcare Limited. With ten years working experience in finance he has a lot to offer this profession. He has also over the years discovered that the demand for the various skills accountants offer companies has risen tremendously. Looking at his Curriculum Vitae, you can be excused for thinking that CPA Kamwere has worked for much longer than this. You also discern as soon as you start speaking to him that he derives a lot of pleasure from his work. In addition and by his own admission, he is a highly motivated person, ambitious, and committed to excellence. He believes it is these qualities that have propelled him to the top and enabled him to develop a great CV within the first decade of his working life. First Job: Finance Officer with Industrial Development Bank SACCO in 2006. His job entailed marketing, book keeping, credit appraisal and liquidity management and financial reporting. Academic Qualifications Masters in Business Administration (Strategic Management Option) University of Nairobi 62 MARCH - APRIL 2016 Bachelor of Commerce (Accounting Option)-First Class Honors-Catholic University of Eastern Africa (CUEA) C.P.A. (K) - Rware College of Accounts Other Courses • 2015 East Africa Regional Leaders Conference, Kigali-Rwanda • 2014 Annual Leaders Conference • Corporate Governance Training • Accountant’s Annual Seminar • Budgeting Formulation, Implementation, Monitoring Management and Control • Credit Administration and Debt Management • Tax Compliance, planning and Management • Consolidation Workshop • Financial Reporting Workshop • Inaugural Tax Forum • Fire Training and Safety • Customer care efficiency and effectiveness • 10th Internal Auditors Conference Professional membership • ICPAK- Member in good standing • Institute of Internal Auditors-Member in good standing • Chairman- ICPAK Youth & Students Affairs Committee: From August 2015 to date • Member- ICPAK Members Services Committee: From August 2015 to date • Member- IIA Kenya Nomination Committee: From March 2014 to date • Member- ICPAK Finance & Strategy Committee: From August 2013-July 2015 Work Experience • September 2015 to date • Consulting Finance Manager • Industry: Health Care (Medical Equipment & Consumables Distributor) • Crown HealthCare Ltd (with operations in Kenya, Rwanda, Uganda, Tanzania and Nigeria) Responsibilities and Experience Management Accounting; • Managing of day to day accounting processes • Reconciling monthly activities and generating end-year reports • Approval of invoices and purchase orders • Debt collection from customers within the credit period • Ensuring compliance with statutory financial and administrative requirements; • Interpretation of financial reports and ensuring that monthly financial results are produced accurately and timely • Designing and implementing internal control procedures and production of reports on all financial transactions • Preparing daily bank reconciliations • Product costing and advising on the recommend product-selling price • Preparation of Final Accounts; • Preparation of accounts in accordance with the IFRS • Computation monthly and annual tax obligations Budgeting • • • Preparing the budget Ensuring propriety and regularity of expenditure within budget Ensuring that appropriate accounting procedures are followed • Providing advisory support to all cost centers on the performance of their vote heads and general accounting matters Treasury/Cash flow Management: • • • • • • • Advising the Group COO on weekly cash position Preparing weekly, monthly and quarterly cash flow projections Coordination of final audit in accordance with International Financial Reporting standards; Liaising with the Board in the selection of the auditors Being the lead contact person during the audit period Responding to any audit queries and management letter in consultation withthe Group COO Any other role that may be allocated by the Group Managing Director Achievements • Successfully implemented system change over from manual to Quick books ERP for one of the subsidiaries in Kenya August 2014 to August 2015 Atom Group; Group Finance Manager Industry: Business Consultancy, Financial Services and Retail Sectors Achievements • Timely and accurate financial reporting Conducted Forensic audit of USD 100,000 August 2011 to August 2014 • • Tescom Group of Companies (with operations in Kenya, Rwanda, Uganda, South Sudan and Zambia) Group Finance Industry: Telecommunication and Real Estate Sectors and Administration Manager Responsibilities and experience • Head of finance, administration, procurement and human resource functions • Reporting to the Group Managing Director • Strategic Management Achievements • Development of procurement manual, • • Financial Management policy and human resource policies; Reduction of cost by 30% within my first year of employment Member of OSHA, Events and procurement committee March 2010 to July 2011 • Kimisitu Sacco Limited • Head of Internal Audit • Industry: Finance and Banking Sectors Responsibilities and Experience: • Head of Internal Audit department • Reporting to the Board of Directors Achievements • Starting up the internal audit department • Preparation of internal audit charter, annual audit plans, internal audit manual and risk management policy • Initiated the use of bulk filing system • Increased compliance and effectiveness of the Sacco operations and procedures. • Preparation of Kimisitu Sacco Strategic Plan 2011-2015 February 2010 • Makeni/Mutua Certified Public Accountants (K) • Audit Manager • Industry: Consultancy and Audit Achievements • Increasing the firm’s portfolio • Promoting competency, integrity and professionalism in the firm He also worked for Industrial development bank Sacco Ltd as a Finance and Operations Manager and as a Finance Officer. During his time here, his responsibilities included: Overall in charge of the Sacco operations; Reporting to the Board of Directors; Preparation of Payments and receipts and Statutory returns; Preparation of Management accounts, budgets, cash flow projections and Financial statements; Preparation and Reconciliation of various accounts e.g. Shares, deposits and Loans, Bank Reconciliation; Debt collection; Payroll processing and Loans processing. He also worked at the Postal Corporation of Kenya: Industrial Attachment (Finance & Accounts Department). In the Sacco sector for example, when he joined Kimisitu, it was a great MARCH - APRIL 2016 63 STAR OF THE MONTH moment; because laws requiring Saccos to have internal audit functions had just been passed. And he was in charge of creating and operationalising the internal audit function; he had to come up with an internal audit manual as well as an internal audit chart. And to ensure that there was value for money on the transaction of the sacco. This was one of the greatest highlights of his job. Below are excerpts from the interview What made you become an accountant? INSTITUTE NEWS afford, to make me succeed. Now my inspiration comes from my wife and children. They always called me professor when I was doing my Masters and that has pretty much helped me to pursue that line. I have now decided I must become a professor. What do you want to tell the young accountants? To follow the ICPAK credo; credible, professional and accountable; If they can live up to these ideals, we can go very far as a country. When I was in class four, our head teacher in our afternoon home science lesson told us that the reason why the price of a bread had increased drastically from Kes 10 to about Kes 15 was because of corruption; it was just about the time the Goldenberg scandal was a major topic. She also pointed out that in every theft like this one, there is an accountant involved. I felt if the price of bread could move up as quickly as that, I could become an accountant and help solve such problems. Hobbies? What has been the most challenging part of your job? Is the accounting profession headed in the right direction? To clean up books of one of our subsidiaries, updating books which had been operating for two years with incomplete records; I worked with various departmental staff to be able to compile the data. I was given three months to do the job but was able to complete it in two months. Happiest moments? When I do something and my bosses appreciate. If I am able to add value, I am happy. Who inspires you? I can divide this into three categories; I was quite fond of my late grandfather Samuel Kanyari, who always had valuable advice for me. I remember when I just started working, I went to see him; when he noticed that my shoes were very well polished, he told me that if I was able to polish my shoes and maintain the shine, then I could be able to maintain anything I want in this world. He kept encouraging us to work hard, and always topped up our savings. The second is my loving mother. Before I got married, she always encouraged me to do my best in everything I undertook. She also gave me all the support she could 64 MARCH - APRIL 2016 I spend 80% of my free time with my family either indoors or outdoors. I also like mentoring as a way of showing my appreciation for what I have gained. I am the Treasurer at Kimisiti Sacco. I am also Vice Chair of the board of management of Maragima Secondary School. I loved playing golf when I had time, but since I started working on Saturdays, I hardly get time to play, but I hope to play again some day. Definitely Yes! I would like to see a large number of young people taking up various leadership roles at ICPAK. As young accountants, we need to involve ourselves much more than we are currently doing. Youth currently form a big membership at ICPAK - over 40% is youth. However, when you check their involvement, you realize that very few are actually showing such interest. What changes would you like to see at ICPAK? ICPAK needs to communicate more to members. It does so much but members are not even aware and more so on advocacy. Yet as an outsider you can’t see effort. They also need to engage the private sector stakeholders like KEPSA and KAM as opposed to skewed engagement with government. They should involve the private sector so that more CPAs are engaged by the private sector. At the moment even the highest office is complaining about corruption in the private sector. I feel that if ICPAK approached the government and explained to them that by employing members of ICPAK, they will be able to check this, and find an entry point, which will then help the government to detect malpractices in the private sector, corruption would be much reduced. ICPAK MEMBERS CARD CPAs in Kenya. It will bear members’ information hence it will also be an access card to ICPAK organised events and trainings. What are your hopes for the accounting profession in Kenya? 1. We need to make our members satisfied because they are the people who recruit and market the profession. 2. Review of the Accountants Act needs to be hastened. This will enable us to address emerging issues in the profession which are quite a number; they include student membership, we need to review penalties which are too lenient at the moment; we should have a variety of practicing licenses; e.g. tax consultants, financial management and assurance among others, we can also have associate members who are not CPAs. 3.The public sector accountant is disadvantaged if you compare with other professions such as advocates/doctors who enjoy non-practicing allowances. 4. Continuous strengthening of ICPAK Branches 5. More and more advocacy by ICPAK What is the hope you can give to young accountants and students as the Chairman of ICPAK Youth and Students Affairs Committee? The committee is one of the youngest at ICPAK and we are working with my team members to ensure we deliver results to our constituent, Let me highlight a few of many activities that the committee is undertaking: 1. Profiling of young accountants to enable us understand their needs, we expect this exercise to complete by Q3 of 2016 2. Availing opportunities for internship/ attachments, and in this regard we expect Council to approve Internship and Mentorship Policy in Q2 of 2016 3. Engaging students pursuing business courses through their associations in their respective colleges and universities 4. We are also currently running a pilot programme of 100 trainee accountants where we have identified mentors/ trainers for them under a framework called TAPEF (Trainee Accountants Practical Experience Framework). We intend with Council approval to make this programme a lifetime project from July 2016. On 11.12.2015 at the Chairman’s Ball, ICPAK in partnership with National Bank unveiled the ICPAK members’ VISA Card. The co-brand relationship means that ICPAK will issue its members with FREE members VISA cards in 2016. The membership card will be a prestigious identification card exclusively issued to ICPAK registered In order to add value to ICPAK members, National Bank as a partner bank have embedded a VISA payment wallet into the member ID cards. This will enable members to pay for their membership fees and training fees remotely via the internet or at ICPAK offices using their ICPAK cards. The wallet will also be used to grant ICPAK members card loans hence members who would like to borrow and pay for their membership and training fees will be able to get an easy credit line from the bank and pay back in easy instalments. Spend on the card is not limited to ICPAK payments, members will be able to use the card at their favourite stores, any other merchant outlet in Kenya and across the world and earn regular rebates, pre-negotiated discounts and reward points. For more information please contact [email protected] AWARD OF HONORARY FELLOWSHIP OF ICPAK - HCPA In recognition of the outstanding support to the accounting profession and the Institute of Certified Public Accountants of Kenya, the Institute conferred the First Honorary Fellowship of the Institute of Certified Public Accountants of Kenya to H.E. Mwai Kibaki, C.G.H., the 3rd President of the Republic of Kenya, on 11th December, 2015. H.E. Mwai Kibaki, C.G.H., the 3rd President of the Republic of Kenya, has walked with the Institute of Certified Accountants of Kenya (ICPAK) from its conception to inception and into maturity. • In October 1970, as the Minister of Finance, H.E. Mwai Kibaki, set up a committee to see into the establishment of the registration of accountants and to come up with an Institute that would regulate professional activities of accountants. • In 1978 H.E Mwai Kibaki, then the Finance Minister, sponsored a bill in Parliament that created the Institute of Certified Public Accountant of Kenya (ICPAK) through the Accountant Act 531 of 1978. • On November 17, 1978 H.E. Mwai Kibaki (by then Vice President) presided over the Inauguration of ICPAK at KICC. • In 1978, during the inauguration ceremony, H.E. Mwai Kibaki gave a cheque of Ksh.120,000 to the Institute to meet its initial set up costs. • In 2007, President Kibaki graced the ICPAK’s 15th Economic Symposium. • In 2008, as President of the Republic of Kenya H.E Mwai Kibaki signed the bill that reviewed the Accountants Act 531 and replaced it with the Accountants Act No. 15 of 2008. • In August 2010, H.E. inaugurated the current National Constitution whose Chapter 6 reserved leadership of key public offices for appropriate professionals, namely, The Auditor General, The Controller of Budget. • In 2011,H.E.graced the opening ceremony of the 1st Africa Congress of Accountants hosted by the Institute – a continental event that was inaugurated in Kenya under the aegis of Pan African Federation of Accountants and rotationally hosted by member Institutes across Africa. MARCH - APRIL 2016 65 TRAVEL TRAVEL By Clive Mutiso, [email protected] A CITY THAT RUNS LIKE A SWISS WATCH T he ancient Swiss city of Zurich, the biggest in the country, as well as the leading financial centre, is nestled at the northern end of the narrow lake of the same name, and is a startling contrast to the chaotic urban environment that African visitors are used to back home. It is a pristine metropolis that runs like a Swiss watch. The people of Switzerland do not wear watches as bracelets, but as essential tools to managing their time. While travel timetables in Kenya could often take honours in the Man Booker Prize for Contemporary Fiction, in Zurich the timetables mean what they say. It is possible to plan a journey to the city and all the way through it using airline, train, and tram timetables that are timed to the minute. The schedules are published, and can be relied on. Departure intervals vary from every 10 to every fifteen minutes, depending on the time of the day, but the airport to the Central Railway Station (Hauptbanhof ) takes exactly 11 minutes. From the Hauptbanhof, there are scheduled tram services to every part of the city, which run exactly on time, and the tram is the ideal way of getting around the city. Buy your prepaid tram travel card before you board the tram, and swipe it on the way your destination, because there 66 MARCH - APRIL 2016 are regular checks along the way that travellers have paid their fare. Even the Presidents of Switzerland, an office which is held for a year at a time, usually take the trains and trams to travel to work, or move around the country on official duties. There are no motorcades, no bodyguards, no fanfare, and no vast public expenditure on VIP treatment. Before leaving the Hauptbanhof, it is well worth taking a quick tour of the extensive ShopVille shopping centre that is an integral part of the station complex, open for extended hours 365 days a year, and offering a range of shops, restaurants, takeaways, pharmacies and mini-supermarkets. The prices, in Swiss Francs, might seem high at first, but the visitor soon gets used to the fact that the Swiss Franc is strong and steadily getting stronger, and that prices are pretty uniform wherever you go, irrespective of the type of outlet where you go exploring. There are not many bargains to be had – the Swiss shopping experience is about quality, not rock bottom prices, which is why the Swiss brand has spawned up market shopping centres as far apart as London and Kuala Lumpur. Rents, wages, and other costs are high i n Switzerland, and these factors are reflected in the prices of even soft drinks and snacks at street outlets, so a full meal in a hotel or restaurant can be much better value than a snatched meal on the run. Feel free to ask advice or directions from Swiss strangers on the street. The country has four official languages – French, German, Italian, and the unique Romansch tongue, and most Swiss are fluent in them all, as well as English, which many of them speak more grammatically than the English themselves. The Swiss are proud of their country, and are happy to guide visitors on where to go and what to see. Wherever you stay in Zurich, whether it is the one of the magnificent five-star properties like the baroque Dolder Grand Hotel, or the distinctive, artistic, Widder Hotel, in the city centre, or a two-star or three-star establishment in the same vicinity, you can count on standards of service and value for money that have made Zurich a prime tourist destination for more than a century. A visitor is spoiled for choice in the three-star category, and can expect to pay between $200 and $350 a night for a double room with breakfast, depending on the season. Most visitors to Zurich combine a business trip to one of the discreet private banking houses with shopping for luxury goods, of which there is an almost limitless array in the shops and boutiques around the city centre. Every major Swiss brand of watch is available in almost infinite variety, with most brands having showrooms of their own, with their full range on display. The ageless beauty of the hand-crafted timepieces – and the exclusive prices – will take your breath away. But you can get a real Swiss watch, for a fraction of the price of one of the traditional prestige brands, if you opt for a plastic-cased Swatch – the quality fashion accessory that can be had for just a few Dollars. There is a comprehensive collection on offer at the Swatch Shop on the Bahnhofstrasse, just down the road from the Central Train Station. Almost any part of the city is a great vantage point from which to view the lake, and almost any part of the lake is a great place from to view the city with its mountain backdrop of the snowcapped Alps. There are all sorts of lake trips to choose from, all boarded from the dock on the city centre end of the lake. You can choose from short round trips, point-to-point trips across the lake, dance boats, a breakfast boat, a brunch boat, a barbeque boat, a cheese fondue boat, a Chinese fondue boat, or a party boat. Eating and drinking are an important part of the Zurich experience. That is one of the reasons why no visit to Zurich is complete without at least one meal at the Restaurant zumKropf, in the heart of the city, which has been renowned for its traditional Bavarian-Swiss cuisine since the 19th Century. Restaurant zumKropf effortlessly re-creates the ambience of a Bavarian beer hall, and the restaurant offers filling specialties and classics that are especially welcome when there is a chill wind sweeping across Lake Zurich or plunging down from the surrounding Alps. In keeping with modern tastes, there is a light menu, but it is not really a place for dainty nouvelle cuisine – it is where you go when you are hungry and are looking for a filling feast. You will not find nyama choma, but who would want it when there is the option of Choucroutegarnie, the spectacular meat meal imported from the Alsace border region of France? The dish comprises a bit of pickled cabbage, from which it takes its name, but the sauerkraut is usually buried under a pile of artisan sausages, pickled meats and roasted cuts. If eaten regularly, it is especially recommended for gout or heart attacks – not curing them, but causing them. Crusty Bürli bread rolls, with lashings of fresh butter, are served throughout the meal on every table. Specialties of the house are boiled beef, legendary sliced veal Zurich style with Rösti hashed brown potatoes, or Pork shank with potato salad. If you love meat, Restaurant zumKropf is just the place for you – veal, or pork, sausages and homemade liver dumpling soup are served and the portions are meant for serious eating, not sampling. The wine list is well suited to the hearty, homestyle cooking and offers high-class wines at reasonable prices, also available by the glass. With its fascinating wall paintings, unique ambiance, and wide selection of food and drinks, the place invites you for a relaxing visit, or a daily feast. And how about the nightlife in this modern city? A big seller in the tourist shops is the classic postcard “Zurich By Night.” It has those words, in neon colours, and nothing else at all, on a pitch black background. As the sun goes down, time runs down, and the stolid Calvinistic burgers of Zurich are tucked up in their beds. While there is plenty to do and see during the day, the main activity at night is sleeping to plan an early start the next morning. MARCH - APRIL 2016 67 ACCOUNTABLE RECIPES ACCOUNTANTS Puzzle Overnight Mango & s t a O t u n o c o C On the go s p u c t s a f k a e r B By CPA Derrick Majani Break the ICE! 1 Overnight Mango and Coconut Oats Serves 1 • 1/2 cup Rolled Oats • 2 Tbsp Desiccated Coconut • 1 Tbsp Brown Sugar • 1 cup Natural Yoghurt • 1/2cup Mango, Cubed Method • Mix the Oat, Desiccated coconut and sugar into a snack box. • Add the yoghurt and mango cubes and mix well. • Drizzle honey over, seal and refrigerate overnight. • Serve with fresh fruit. 68 MARCH - APRIL 2016 By Sharon Gatonye, [email protected], The Black &White Kitchen Interesting fact,’’ The first breakfast meal consisted of Oats , boiled over a fire. Oats come in all types from rolled, instant and oat bran. Rolled oats that have been dehusked and crushed lightly, the least-processed form on our shelves therefore preserving more fiber. It is under appreciated grain but dull not at all. Forget the usual oats mush, made over a stove in a pot boiling for an hour or so. A quick mix and refrigerated overnight. Full breakfast in your hand. Bake and save in the fridge for when you do not have time to prepare Breakfast. Breakfast cups Makes 8 • 8 slices of Brown Bread • 2 Tbsp(30ml) butter • 2 slices of Ham, cubed • 2 tomatoes, cubed • 1 green pepper, cubed • 1 red onion, wedges • 3 eggs • 100ml milk • Salt and pepper Method • Preheat oven to 180°C and prep your muffin tray. • Cut crusts off bread slices and discard. • Roll bread slightly thinner using a rolling pin or wine bottle. • Spread butter and shape into rough squares. • Place a square into each cup of the 8-cup muffin tray, butte-side down. • Divide the ham, tomatoes, green peppers and Red onion among the cups. • Whisk eggs, milk together and season with salt and pepper. • Divide egg mixture among the cups. • Bake for 30-35 minutes until set and golden. 24 26 30 12 20 9 With everyday hustle and bustle, rushing out of bed then into the shower and out the door. Room to put together a meal especial breakfast is the last thing on your mind. As breakfast is the most important meal of the day. A simple yet satisfying spread to start a fresh and keep you fuelled through the day. 13. 2 Across 17 3 11 5 6 8 14 18 27 31 28 1. Professional organization that regulates the activities of all Certified Public Accountants 5. Important certification for Accountants 7. Penalize for an offence 9. _____ files; they don’t provide full accounting of user activity. 10. Joint initiative award of the Institute of Certified Public Accountants of Kenya (ICPAK) to strengthen financial markets and attract investment, business entities would have to make disclosure of their activities to enable a wide range of stakeholders use such information in making economic decisions. 11. Love and respect deeply 13. Throw forcefully in a specified direction; 14. Review financial statement of an organization 16. Put food in the mouth and chew and swallow Across 17. Present time at the moment 18. Set of accounting standards adopted for use by Public sector entities 20. All in place 21. Key executive, for short 22. Oval object laid by a female bird 26. To transfer file 28. First Honorary Fellowship of the Institute of Certified Public Accountants 30. Internet phone, acquired by Microsoft 31. Opposite of female 32. Assume a horizontal position 19 22 29 32 1. 2. 3. 4. 6. Down 10 15 21 4 16 25 7 23 Terrorist group making cyber threats A person registered as an accountant under the provisions of section 24 of Accountants Act Reflecting the latest information and practices, 3 words Data It’s on the plus side of the ledger. Down 8. Experimental program 12. Current chairman of the Institute 15. An amount of space between two things or people 19. Institute legal proceeding against 23. Reduce something or grind 24. Actuary’s concern 25. A color intermediate between green and violet 27. Point or direct 29. Whole entity of a particular group Find your answers in the next issue MARCH - APRIL 2016 69 PEN OFF PEN OFF By Jim McFie, a Fellow of the Institute of Certified Public Accountants of Kenya WHICH GENERATION DO YOU BELONG TO? T he Americans love putting people into pigeon holes. Recently, I watched a video about the US National Security Agency (NSA), situated in Fort Meade, forty kilometres from Washington DC. The narrator of the documentary refers constantly to the “adversary” – whoever that may be. It is clear from the documentary that the NSA knows exactly what happened to the Malaysian airliner MH370; it is strange that the US, which is so liberal in giving out “assistance” all over the world, does not inform us of what happened to MH370. But that is another interesting line of enquiry. World War II ended in Europe on 8 May 1945, called Victory in Europe Day, or V-E Day, after Gen. Alfred Jodlof the German High Command signed the unconditional surrender of all German forces. Adolf Hitler had committed suicide in a bunker fifteen metres below the Chancellery in Berlin on 30 April 1945. V-J Day, the day the war ended in Japan, did not occur until 14 August 1945, after two atomic bombs had been dropped on Japan earlier in the month of August. Almost exactly nine months after World War II ended, “the cry of the baby was heard across the land,” as historian Landon Jones described the scene in the US. More babies were born in 1946 than ever before: 3.4 million, 20 percent more than in 1945. This was the beginning of the so-called “baby boom.” In 1947, another 3.8 million babies were born; 3.9 million were born in 1952; and more than 70 MARCH - APRIL 2016 4 million were born every year from 1954 until 1964, when the boom finally tapered off. By then, there were 76.4 million “baby boomers” in the US. They made up almost 40 percent of the nation’s population. They were, and still are, classified as the “baby boomers”. Some people introduce a further division of the “baby boomers” into “Boomers I”, born in 1946 to 1954 inclusive, and “Boomers II” or “Generation Jones”, those born between 1955 and 1965 inclusive: the argument for the distinction between the two groups is that life experiences were completely different; attitudes, behaviour and society were vastly different. The first “Boomer” segment was bounded by the Kennedy and Martin Luther King assassinations, the Civil Rights movements and the Vietnam War. “Boomers I” were in or protested the War. “Boomers II” or the “Jones Generation” missed, or were too young, to witness all these events. “Boomers I” had good economic opportunities and were largely optimistic about the potential for the US and their own lives. Generation “Boomers II” lost much of its trust in government and the optimistic views Boomers I had. Economic struggles, including the oil embargo of 1979, reinforced a sense of “I’m out for me” and narcissism and a focus on self-help and skepticism over media and institutions became representative of attitudes of this cohort. “Generation X” came next: they were born between 1966 and 1976. They are sometimes referred to as the “lost” generation, exposed to plenty of daycare and divorce. This is the cohort with the lowest voting participation rate of any generation. Newsweek described them as “the generation that dropped out without ever turning on the news or tuning in to the social issues around them.” They have high levels of skepticism, a “what’s in it for me” attitude (just like “leaders” in Kenya) and a reputation for some of the worst music to ever gain popularity. “Generation X” is possibly the best educated generation with 29% obtaining a bachelor’s degree or higher (6% higher than the previous cohort) – many people, including many in the US, think that everyone in the US goes to university – you can see that this is not the case. “Generation X”, with that education and growing maturity, form families with a higher level of caution and pragmatism than their parents demonstrated. Concerns run high over avoiding broken homes, over children growing up without a parent around and over financial planning. Next comes “Generation Y”, the “Echo Boomers” or the “Millennials”. They were born between 1977 and 1994: there are seventy one million Americans in this cohort, the largest since the “Baby Boomers”: the high number of members of “Generation Y” is because of the large number of “Boomer” parents. “Generation Y” members are known as incredibly sophisticated, technology wise, immune to most traditional marketing and sales pitches...as they not only grew up with it all, they have seen it all and been exposed to it all since early childhood. They are “Generation Z”, or “iGen” or “Post-Millennials”, are the cohort of people born after the “Millennials”. The generation is generally defined with birth years ranging from the mid-or-late 1990s to the 2010s. A significant aspect of this generation is its widespread usage of the internet from a young age. much more racially and ethnically diverse and they are much more segmented as an audience aided by the rapid expansion in cable TV channels, satellite radio, the Internet, e-zines, and so on. They are less brand loyal and the speed of the Internet has led the cohort to be similarly flexible and changing in its fashion, style consciousness and where and how it is communicated with. They were often raised in a dual income or a single parent family. They have been more involved in family purchases...everything from groceries to new cars. One in nine “Gen Yers” has a credit card co-signed by a parent. “Generation Z”, or “iGen” or “PostMillennials”, are the cohort of people born after the “Millennials”. The generation is generally defined with birth years ranging from the mid-or-late 1990s to the 2010s. A significant aspect of this generation is its widespread usage of the internet from a young age. Members of “Generation Z” are typically thought of as being comfortable with technology and interacting on social media websites accounts for a significant portion of their socializing. Members of “Generation Z” have been affected by growing up through the so called September 11 terrorist attacks and the 2008 Great Recession, with some commentators suggesting that these events have given the cohort a feeling of unsettlement and insecurity. One commentator has described “Generation Z” as “innovative, entrepreneurial, and highly conscious of their futures and the challenges they face”. Now the first wave of “Generation Z” is leaving university. “Generation Z” would like a job: the newest section of the workforce – a recent subject of media curiosity and marketing consternation – constitutes about one-quarter of the US population, according to census data. With them come the new habits of a digitally networked, post-recession world. It is enough to make a hiring manager reconsider interview questions. Internships are a big thing in the US – especially in politics: I recommend you watch a film called “Hillary” on You Tube to give you an insight into the phenomenon and an idea of what to expect from the next President of the US. Will the hiring process remain the same or will a new set of questions have to be asked? Pundits have made a few suggestions: (i)“What can we do for you?” Given that they are roughly 20 years old and younger, “Generation Z” may appear first for internships. They are looking for new skills (92%), work experience (81%), and personal connections (72%), according to a global online survey by Millennial Branding and Randstad in 2014. (ii)“Do you work well alone?” The new workforce may be team players. About 84% of university students prefer to work collaboratively, rather than autonomously, according, a human resources consulting firm, and Enact us, a leadership-focused not-for-profit. (iii) “How are you with people?” “Generation Z” may be glued to five screens, but they still have real-life skills. Only 15% of older teenagers prefer to interact with friends via social media, according to a 2014 survey by Northeastern University. About half of 16- to 20-year-olds like to hear from MARCH - APRIL 2016 71 PEN OFF COMPLEX TO LET Available for letting: • BANKING HALLS • OFFICES • RESTAURANTS managers face to face, Millennial Branding and Randstad found last year. Similarly, Robert Half reported that 71% of a slightly older demographic preferred face-to-face communication. (iv) “What are your sources?” “Generation Z” relies on the internet for research. Google, Wikipedia, and social media sites topped the list in 2012, according to a Pew Research Center survey. About one-quarter are online “constantly,” Pew found separately. Only 25% said students were “very likely” to use major news organizations, and books fared even worse. In focus groups, those teachers reported an increasingly blurred line between “formal” and “informal” writing styles. 72 MARCH - APRIL 2016 (v)“What kind of experience do you have?” “Generation Z” may have a hole in its Curriculum Vitae: summer jobs are getting quite rare for teenagers in the US. The 16-to-19-year-old employment rate was only 31% in the summer of 2014, down more than 10 percentage points from 2004, according to federal data interpreted by Pew. Some applicants have replaced that work with internships and community service. (vi) “Where do you see yourself in 40 years?” About 77% of Generation Z respondents think they will have to work harder than past generations, according to Robert Half. They expect to work for four companies, on average, and only 17% think they will retire by 60. Some people state that a child born today is a member of “Generation Z”. Now that we have run out of letters of the alphabet, maybe the next generation will be called “Generation AA”, just like the number plates of cars in Kenya. A number of youngsters in Kenya are definitely similar in their habits, likes and behaviour to their American counterparts: whether they are ready to work harder than past generations is a difficult question to answer: current employees have to lead by example: one Kenyan “Generation Y” accountant told me, when he took up his present job, that he could work harder and produce output much more effectively than any “Generation Zers”: I wish the same could be said of all the current members of ICPAK. Structure • Eleven storey office tower. • Basement parking facilities. • Adequate washrooms with a povision for executive washrooms & superbly fitted kitchen facilities on each floor. • High-speed service lifts. • Spacious lift/staircase lobbies. • Office suites available in flexible sizes. • Generous floor heights allowing for suspended ceilings, facilitating the installation of air conditioning if required Please contact Lloyd Masika Property Agents and Valuers Tel: 0722 481 504, 0733 597 050 FCPA Wycliffe Oparanya, Kakamega Governor CPA Philip Kinisu, Chairman of the Ethics and Anti-Corruption Commission FCPA Dr. Martin Luke Oduor-Otieno. ICPAK Chairman (1997-1999) FCPA Michael Waweru, Former KRA Commissioner General FCPA Billow Kerrow, Senator, Mandera County FCPA Mrs. Agnes Odhiambo, Controller of Budget ICPAK walked with them in their careers. Don’t walk alone! Take advantage and save up to 50% on membership registration before 31st May 2016. Contact us on +254 20 230 42 26/7, [email protected] or log on to www.icpak.com BECOME AN ICPAK MEMBER