Professional Examinations and Past Examination Papers

Past exam papers were a gist of the course when I was studying for my professional examinations. The papers and corresponding examiners’ comments were bound into booklets, which were quite popular. The professional body must have been making roaring business out of them. Besides the possibility of “spotting” the likely examination questions, the papers helped us discern the mind of the examiner, as it were. Furthermore, some of the examiners’ comments made exhilarating reading.

Sign that reads “Exam Room” from a doctors office.

Talking about excitement, here is one such snippet. The question was: “You are the Secretary of a public company. You have been informed that the company is going to go into voluntary liquidation. What steps do you take?” (20 marks). According to the examiner, one candidate submitted the following answer: “I update my CV and start looking for another job”. I would have loved to get 20 marks out of this cute answer!

Still in this fun mood, I wish to thank those college and professional students in Forensic Accounting and related disciplines who have approached me online (and offline) with requests for examination preparations. Besides earning me a little income, the questions have had the effect of keeping me sharp and up-to-date on my professional career. Consequently, any prospective examination candidate in the following areas of my expertise can contact me for advice and assistance:
 Forensic Accounting
 Forensic Audit
 Internal Audit
 Financial and Management Accounting
 Business and Transaction Advisory Services
 Project and General Management
 Company Secretarial/Administration Services
 Due diligence Investigation
 Fraud Investigation, Detection and Prevention programmes

My name is Caleb Mutsumba. You can reach me on:
 Whatsapp: +263712620287 (business) or +263772466540 (personal)
 Email: caleb@5wh.co.zw (business) or calebmutsumba@gmail.com (personal).
 Website: https://5wh.co.zw/

Here is wishing all the best in your exams and please do stay safe, even after COVID-19.
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Why are Mergers & Acquisitions not Succeeding?

Why Do Mergers & Acquisitions Fail?

“Mergers and Acquisitions is a mug’s game”, according to Roger Martin (Martin, R. L. (2016). M&A: The One Thing You Need to get Right. Harvard Business Review, June, p.42-48.) “in which typically 70%-90% of acquisitions are abysmal failures. Why is this so? The answer is surprisingly simple: Companies that focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to give to it.”

I liked Roger’s expose – it is a masterpiece. He cites many examples of failures of major mega-mergers and lays the blame squarely at the door of corporate greed. He says that mergers and acquisitions movers have tended to be more of the ‘what are we going to get from this?’ sort. Of cause, whenever each party to a relationship is solely motivated by a “what’s in it for me” attitude, the chances of the union ever succeeding are next to zero.

Greed and its Cousin

I, however, would want to add another angle to that of corporate greed, something that on closer observation may indeed be related to self-indulgence: It may, in fact, be a cousin. It is called Due Diligence, or rather the lack thereof. We all do some form of due diligence evaluation when we envisage going into a relationship of any kind. We ask ourselves “can I jump into bed with this fellow or with this group?” What we do to answer this sort of question is indeed a due diligence exercise: we scratch our heads; ask friends, we even spend a few sleepless nights ruminating over it. How deep and wide and formally we mull over it will depend on how life impacting the envisaged union is anticipated to be. There are reasons why we may not be inclined to be thorough in our musings. We have already touched on one reason – greed. There is a host of other reasons, such as lust and many such urges. But what is due diligence in a corporate environment?

Here are four takes from businessdictionary.com
1. General: Measure of prudence, responsibility, and diligence that is expected from, and ordinarily exercised by, a reasonable and prudent person under the circumstances.
2. Business: Duty of a firm’s directors and officers to act prudently in evaluating associated risks in all transactions.
3. Investing: Duty of the investor to gather necessary information on actual or potential risks involved in an investment.
4. Negotiating: Duty of each party to confirm each other’s expectations and understandings, and to independently verify the abilities of the other to fulfil the conditions and requirements of the agreement.
In short, it is what a reasonable and prudent person should mull over before going into a relationship or association with another person or group. Here I am using the term “person” in its broad, corporate legal sense to include body corporates. In certain business transactions due diligence is mandated by law; such as the ‘know your customer’ rules in anti-money laundering regulations in banking.

In our bid, therefore, to fare better than the sad statistics and examples that Roger cite in his brilliant article, we are enjoined to delve into our own psychology, our motivation and, throughout the process, ask ourselves whether we are being reasonable and prudent enough. Questioning our own motives may not be as easy as it sounds – it’s easier to spot the devil outside than the one inside. That is why businesspeople, investors and negotiators hire professional due diligence experts to do it for them.

Who are Due Diligence Professionals?

Now, who are these due diligence professionals? The short answer to this lingering question is that they should be professionals knowledgeable and experienced in performing due diligence audits or investigations in the particular field of the target. In the sphere of business, accountants/auditors (including forensic auditors), corporate lawyers and other such corporate practitioners are often the professionals of choice. These experts are required by their professions to be objective in their work and to be not only independent but to be seen to be independent of the party or subject under review. Objectivity and independence are therefore essential requirements for a due diligence investigation. This suggests that the professional will conduct a pre-assignment acceptance due diligence exercise on themselves to ascertain that they meet the strict requirement of independence.
___________________________________________________
Caleb Mutsumba
Forensic Audit Consultant
Mobile / WhatsApp: +263 712 620287 +263 772 466540
Skype: caleb.mutsumba
LinkedIn:- http://zw.linkedin.com/in/calebmutsumba
Blog: – https://5whaudit.wordpress.com/
Twitter:- @Caleb_Mutsumba
Email:- calebmutsumba@gmail.com

Are your Processes Efficient? Find out Today.

Everyone wants to be more efficient, but where to start?

Efficient, scalable processes are the key to growing and maintaining your business but too many people don’t take the time to assess the ones they have in place.

When they outgrow their capabilities, businesses (like national economies) dive into a “hard landing”.

Luckily, Receipt Bank have put together a quick workbook to help you evaluate the key processes at your businesses and find out if they’re really working for you or ensure a “soft landing”.

Take the efficiency diagnositic to:

• Determine the efficiency of your daily processes
• Solve common issues that hold back businesses like yours
• Start building scalable, value-generating processes, ready for growth
• Productively identify and mitigate risks

Download the workbook here.

Blackmail Fraud: What is it?

Immunity from Termination

The one distressing development that we at 5wh are witnessing across many of our client organisations in Zimbabwe is what we have come to call “blackmail fraud”. In this situation, the fraudster – either amateur or professional and mostly in administrative or managerial position – commits acts of transactional or systematic non compliance as part of or adjacent to the fraud scheme.

When the fraud is detected, the fraudster calls attention to the non compliance issue. In many instances, because of the legal doctrine of vicarious liability, the non compliance issues tend to peril the employer more than the employee. In the end, employers are stopped from acting against the offender in a way they would have or what the Code of Conduct stipulates.

Though this is not a new phenomenon, we have seen that, with penalties getting so excessive (take tax penalties, for instance), it seems that even the smaller non-compliance issues give rise to this phenomenon of “non-terminability” or “immunity from termination”.

Where to Now?

Internal Control

An organization is a living entity which changes over time. As a result, the organization’s mission, goals and objectives must be regularly evaluated and periodically revised. Thus, internal control is an ongoing process known as the Internal Control Cycle. After an organization analyzes its goals and objectives to determine its risks, management must analyze these risks and evaluate the policies and procedures in the identified high-risk areas. Part of the management process includes monitoring the progress made toward meeting goals and objectives. Monitoring also helps to ensure the effectiveness of the organization’s internal controls and the effectiveness of the policies and procedures. Periodically, policies and procedures should be revised to mitigate risk and eliminate redundancy. They must also be communicated internally and externally, as necessary.

Everyone in an organization has responsibility for internal control.

Tone at the Top

Management’s attitude, actions, and values set the tone of an organization, influencing the control consciousness of its people. Internal controls are likely to function well if management believes that those controls are important and communicates that view to employees at all levels. If management views internal controls as unrelated to achieving its objectives, or even worse, as an obstacle, this attitude will also be communicated. Employees are aware of the practices followed by upper management including those that circumvent internal controls. Despite policies to the contrary, employees who note that their managers frequently override controls, will also view internal controls as “red tape” to be “cut through” to get the job done. Management can show a positive attitude toward internal control by such actions as complying with their own policies and procedures, discussing internal controls at management and staff meetings, and rewarding employees for following good internal control practices. Although it is important to establish and implement policies and procedures, it is equally important to follow them. In the “immunity from termination” scenario, the Code of Conduct is not only perceived to just another worthless document; it is in effect a hollow manuscript.

Management Ethics, Philosophy & Operating Style

An organization’s culture evolves from the values of its members and the culture, in turn, exerts a strong influence on the actions, decisions, and behaviors of all employees.

An ethical culture requires engaged employees and managers who understand why doing the right thing is important for the organization’s long-term viability; and they have the determination to see that in fact the right thing does get done.

What are some of the key attributes needed for an organization to be fully integrity-based?
• Employees feeling a sense of responsibility and accountability for their actions and for the actions of others.
• Employees freely raising issues and concerns without fear of retaliation.
• Managers modeling the behaviors they demand of others.
• Managers communicating the importance of integrity when making difficult decisions.
• Leadership understanding the pressure points that drive unethical behavior.
• Leadership developing processes to identify and remedy these areas where pressure points occur.
These attributes touch other aspects of the organization that go beyond the fundamental abilities of making a profit and maintaining high levels of quality and productivity: how well the organization adapts to change, or encourages employees to be engaged in decision making, how well the organization creates a collective sense of purpose around shared values. It is this broader set of skills and qualities that create the foundation needed to support an ethical culture. These higher-level behaviors are no longer “nice to haves.” These are the behaviors now demanded for survival in this economic environment of creative destruction.

Management’s philosophy and operating style affect the way the organization is managed. They determine, for example, whether the organization functions informally with verbal instructions or formally with written policies and procedures. They also define whether the organization is conservative or aggressive in its response to risks. In other words, they define the organization’s “risk appetite” or the level of risk that is acceptable to the organization. To be successful, the organization’s internal controls must be aligned with management’s philosophy.

Our summary advice is:

(a) Tone at the top.
(b) Making certain Internal Controls are operating as they should at all times. This calls for an independent monitoring function.

(c) Periodic Fraud Vulnerability Review (also known as Fraud Risk Assessment) which follow the pretence of “prevention is better than cure”. Here experts assist with the process of risk analysis that proceeds from threat assessment to threat evaluation to the selection of countermeasures designed to contain or prevent that risk.

(d) Effective, conclusive investigations where a fraud is suspected or detected.

About 5wh Audit

5wh is a relationship-oriented professional services company that provides the following solutions to business challenges:
Ø Internal Audits
Ø Forensic Audits
Ø Compliance Audits
Ø Due Diligence Investigations
Ø Business Systems Design, Development and Reviews

We work with business owners and leaders who are set on blowing away those constraints blocking their way to success. We also assist our clients isolate hidden economic assets in their business and determine specific projects to optimize and leverage those assets for greater profit and growth.
We know that the only way to turn your potential for success into actual success is to blow away the constraints that block your path.
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© Caleb Mutsumba

DUE DILIGENCE INVESTIGATIONS

DDWhat is Due Diligence?

A “Due Diligence” investigation is a careful and methodical investigation of a company. It is done prior to doing business with the company.

The most common reason for due diligence investigations is corporate acquisitions and mergers – investigating the company being acquired or merged. These also tend to be the most thorough types of due diligence investigations. The buyer or merger partner wants to make sure they know who they are going into bed with.
Partnerings are another time when parties will investigate of each other in conjunction with the negotiations. Here is a list of the different types of partners and partnerings where due diligence investigations are appropriate:
 Strategic Alliances, Joint Ventures, Strategic Partnerships
 Business Partnerships and Alliances, Partnering Agreements, Business Coalitions
 Just In Time Suppliers and Relationships, Sole Source Suppliers, Outsourcing Arrangements, Suppliers and Customers
 Technology and Product Licensing, Joint Development Agreements, Technology Sharing and Cross Licensing Agreements
 Business Partners, Affiliates, Franchisees and Franchisers
 Value Added Remarketers and Resellers, Value Added Dealers, Distribution Relationships

A Little History on the term “Due Diligence”

The term “Due Diligence” first came into common use as a result of the US Securities Act of 1933.
The Act included a defence that could be used by Broker-Dealers when accused of inadequate disclosure to investors of material information with respect to the purchase of securities. As long as they conducted a “Due Diligence” investigation into the issuing company’s equity they were selling, and disclosed their findings to the investor… they would not be held liable for nondisclosure of information that failed to be uncovered in the process of that investigation.

The entire Broker-Dealer community quickly institutionalized as a standard practice, the conducting of due diligence investigations of any stock offerings in which they involved themselves. While the term “Due Diligence” was originally limited to public offerings of equity investments, over time it has come to be associated with any investigation of a company or business partner, including individuals.

Pre-Acquisition Due Diligence

How Much is a Company Worth?

Valuing a business is not an exact science. The valuation process often involves comparing several different approaches and selecting either the best method, or a combination of methods, based on the analyst’s knowledge and experience. Generally, there are several different methodologies that practitioners use to value businesses. These are:
1. Asset-based valuation;
2. Comparable transactions analysis;
3. Comparable public company method; and
4. Discounted cash flow.
In applying these methodologies to determine the value of a business, one or more of the following factors are generally reviewed and analyzed:
1. The nature of the business and its operating history;
2. The industry and economic outlook;
3. The book value and financial condition of the company;
4. The company’s earnings and dividend paying capacity;
5. The value of the company’s intangible assets;
6. Market prices of public companies engaged in similar lines of business; and
7. Transaction prices of other companies engaged in similar lines of business.
Item #5, “Intangible Assets”, can be a huge point of contention between buyers and sellers, especially in areas such as SALES.

Cat laughterHow much is the company REALLY worth?

The valuation methodologies and factors outlined above are based primarily on historical performance information and assumptions concerning subjective value-adders. Remember, Sales is the LIFE BLOOD of every company. Many factors involving Sales can add (or detract) tremendously to the value of a business:
• What is the True Value of the SALES PIPELINE?
• What is the True Value of the existing Customer Base?
• How good is the organization’s existing Sales Force?
• How good is the Sales Management?
• Are the Salespeople truly capable of carrying out the strategies?
• Can you TRUST the Projections?
The Executive Summary and Management Overview offers a buyer comprehensive data and provide the information necessary to more accurately access the value of a company’s Forecast, Team, Pipeline and associated Sales Assets.

Post-Acquisition Due Diligence

Once you’ve consummated a transaction, you face a whole new set of challenges. The due diligence you will have done, however careful, however thorough, looked only at observable factors.

Your decisions, from this point on, have to be made with an in-depth understanding of the operating dynamics of the company. These are the organizational and interpersonal issues you can’t examine from the outside.
This activity is known as post-acquisition due diligence. Post-acquisition due diligence is as important as the pre-acquisition due diligence. If you don’t get it right, you can get the deal done, but fail to achieve the true objective… generating new post-acquisition corporate value.

This applies not only to acquisitions, but to mergers and large scale joint ventures as well.

Using Common Sense

Too much due diligence can kill the transaction, particularly on small deals. It’s not practical to investigate every possible avenue of consideration. For most transactions, to do so would be too costly and too time consuming.
Pruning the possible lines of investigation and inquiry should be done in a conscious and informed manner – not at random. That is the art of Due Diligence investigation.

We, as practitioners, do have in place checklists and menus of items from which we can choose what we want to investigate and what we will overlook. In most instances, one will investigate only a portion of the possible items the checklists highlight – some briefly and others in depth.

In general, if you are getting a great deal, good pricing, and favorable terms… you will want to move quickly and lightly. On the other hand, if you are doing a highly leveraged deal and are paying top dollar, you’ll have little or no room for error. You require a very complete due diligence, or don’t do the deal at all. When there is no room for error you tolerate no room for error.

For instance, in the process of an investigation, you may find a large number of relevant agreements that you will want to read. In the imperfect world we live in, that may be impractical – you may have to pick and choose which ones you read, which you skim, and which you pass over. How much you invest in this activity depends on how much room for error you have. It may not make sense to invest $75,000 of Due Diligence effort into a $150,000 deal, but for a $15,000,000 deal the calculus is far different.

Develop a Due Diligence Strategy

Before starting your Due Diligence investigation, develop a due diligence strategy. Consider the following factors:
• What’s important to you? What isn’t?
• Which problems will be costly? Which ones will be minor?
• What drives profits – products, technology, sales staff, contracts?
• Where are you most likely to find problems? Where are you unlikely to find problems?
• What is the type of transaction are you expecting? How large or small is the transaction? How complex? What will the investigation cost in time and in money?
• What is the risk to you if the unexpected causes the transaction to go bad?
• How much time do you have? What do you have to lose by delay? What do they have to lose? How badly do you need the deal? How badly do they?
• After the transaction is closed will you have something the other party needs or wants? Can you use this to secure warranties on the due diligence items? Can you put money into an escrow to secure warranties?

Lawyers, Accountants and Due Diligence

You can rely on lawyers and accountants to read agreements and turn numbers into stories.

Of course, you also need someone who understands the particular business and industry – an industry expert. That person will know what to look for, where to probe, and what questions to ask.

Still, no matter how thorough your checklists are, they can’t be sufficiently complete to deal with the unique issues of companies in unique industries. For example if you are doing something in an industry with special peculiarities such as telecommunications or oil, general-purpose checklists will need to be supplemented. This is where your industry expert, his industry savvy and personal contacts will be invaluable.

You will never be able to conduct a complete due diligence investigation. In most transactions you will have to exercise business judgment to assess risk versus reward – with imperfect information. This is where a practical understanding of the industry will be of great help. Knowing how to cut to the chase… knowing beforehand where the skeletons are likely to be buried, and which questions will surface areas of weakness. There is just no substitute for industry specific experience.

Other Reasons for Due Diligence Investigations

Earlier I mentioned acquisitions, mergers and partnerings as major reasons for due diligence. These aren’t the only uses for Due Diligence investigations. Here are more:

1. Selling your company.

  • You want to know the financial status of the buyer. Also what is the buyer’s history of acquisitions? The buyer’s past behavior is the best indicator of how the buyer will conduct itself with you and your company.
  • Will you be accepting debt from the buyer? Will you be taking shares in the seller? If so you’re really an investor. You’re investing in the buyer. You need to know what you’re investing in.
  • You may conduct a due diligence check-up on yourself. It’ll prompt you to areas of inquiry. Prepare well and you’ll increase your control of the buyer’s due diligence investigation.
  • Well, before putting your homestead up for sale you should spruce it up and give it a new coat of paint. An introspective review will help identify the areas of your company you need to primp.

2. Taking charge of a turnaround company.

  • One of the first things to do when taking charge of a company to turn it around is collect information. The checklist is perfect for that.

3. Investing in a private company.

  • Before investing in a private company you need to ask a lot of good probing questions. The checklist will help prompt you for those questions.

Interviews with Insiders

Brace up for one on one sessions with a variety of insiders.

The insiders are the ones who really know what is what. They often know more about the company than does the CEO, especially about those little details that can come back and bite you where it hurts the most. Pay special attention to those insiders with the longest history with the company. Don’t overlook the assistants of these insiders either.

Here is where to look for these people:

 Members of Senior Corporate Management and Department Heads.

o The Chief Financial Officer, the Controller, the Treasurer.
o The Top Human Resources Officer
o R&D and Engineering Management.
o Sales & Marketing Management

 Members of Corporate Planning and Development Department
 Operational Departments
 Internal Legal Department
 Internal Audit Department
 Outside auditors
 Outside legal counsel
 Current consultants (business, technical, other)

Typically you will not be permitted access to most of these people until after the transaction is announced, or even until after it is closed. The smaller the company, the more likely this is to be a problem.

But you will usually get early access to the CFO. Here is a trick you can use – one that we use.

When meeting with the CEO get permission to take the CFO along for an informal lunch. Then as you are leaving, with the three of you together, ask the CEO to direct the CFO to give full and complete answers to your questions. That gives the CFO cover to be open and forthright with you.

Then your job is to convince the CFO, that
(a) the deal will close and he will soon be reporting to you,
(b) you will hold in confidence anything he tells you (assure him you will find a way to discover it yourself without blame going to him), and
(c) that he doesn’t want you to discover unpleasant surprises after the transaction closes.

Ask him how to conduct your due diligence. You can learn a lot from him. It’s the CFO’s chance to ingratiate himself or herself to the new owner.

Depending on the circumstances, you may be able to use this trick with other key insiders. You most likely will only be able to use it once though!

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EagleWe at 5wh Audit have the expertise to assist with Due Diligence Investigations.

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© Caleb Mutsumba

Introduction to Fraud and Forensic Audit in Zimbabwe

Introduction to Fraud and Forensic Audit

1 Background

Fraud has always been a major business constraint in Zimbabwe. With the introduction of the multi-currency regime, the problem of fraud has gone beyond what was just a business challenge. Foreigners can now look into Zimbabwe for the much coveted US Dollar.

At 5wh we offer a series of services across the fraud control spectrum – from fraud prevention and detection, through to investigation, evidence collection and litigation support.

2 Definition

The Oxford Dictionary defines “Forensic” simply as, “Of or used in law courts.” Eagle

Forensic auditing is a blend of traditional accounting, auditing, and financial detective work. The emphasis is on the quality of work, as it has to satisfy the exacting demands of the law courts.

3 Investigate first – then act

This is the logical thing to do and in Zimbabwe this is what the law (Labour Relations Act [Chapter 28:01]) requires. If you suspect that your organisation is the target of financial crime you will need fast professional support to help you take action.

©Caleb Mutsumba

Is consulting for you?

Is consulting for you?

Here’s a phrase:

“Consultants take your watch and tell you what time it is”

Not the best of images aye?  However, the consultancy industry has not only survived despite some of these negative stereotypes – it has seriously prospered and more than that, it continues to attract the best talent across the globe!

Without any doubt, the consulting arena can offer a superb long term career but be warned, it can also ask for a significant investment of time and energy. Whilst this is not always the case, if you are considering a consulting career, here are a few things to be mindful of:

1. Travel.

Depending on which sector or discipline you are involved in, it is likely that you will travel all the time, and no, it’s not glamorous.  It can however be fun and there’s a certain amount of self-discovery that occurs when you’re eating alone in some random bar or restaurant in a town you’ve never heard of let alone visited, but do be prepared that your Monday –Thursday that can sometimes take you away from home.

You’ll find ways to make it interesting and fun, though. Frequent flyer status and Platinum status at various hotel groups? Don’t mind if I do!

2. Flexibility!

This is possibly one of the core skills/requirements of a successful consultant.

Consulting can be a great way to gain expertise in all kinds of areas—but it also means that you have to constantly adapt and be as flexible as possible with your aptitude, time, and work style.

3. The elevator pitch is a tool you will come to rely on!!

Consulting is all about making connections and this is why we built TheConsultantHub.com!  When we talk about connections we mean connections not only in terms of the actual work, but more importantly, with people. Developing solid business networks, both internally at the firm and externally at your clients is crucial.  On client sites you are constantly convincing (and proving) to new people that you are and would be a valuable asset to a project.

Because you will be working on teams with people you may not know, you must be able to show clients a united front to ensure that their projects will be executed seamlessly.  If you run into a CEO or Board Director in the elevator and s/he casually asks how your team’s recommendations are coming along, you’ll want to make sure you can calmly summarize things the same way your teammate did!

Effective communication is an absolute must in the career of a consultant.

Interested in a consulting role?
TheConsultantHub.com is a membership network of consultants/consultancy companies who are able to be searched and approached for free by firms directly.

 

Source:  TheConsultantHub.com

What It Feels Like To Be a Professional Services Buyer

What Goes on in the Mind of the  Professional Services Buyer

 

  1. I’m feeling insecure.  I’m not sure I know how to detect which of the finalists is the genius, and which is just good. I’ve exhausted my abilities to make technical distinctions.

 

  1. I’m feeling threatened. This is my area of responsibility, and even though intellectually I know I need outside expertise, emotionally it’s not comfortable to put my affairs in the hands of others.

 

  1. I’m taking a personal risk. By putting my affairs in the hands of someone else, I risk losing control.

 

  1. I’m impatient. I didn’t call in someone at the first sign of symptoms (or opportunity). I’ve been thinking about this for a while.

 

  1. I’m worried. By the very fact of suggesting improvements or changes, these people going to be implying that I haven’t been doing it right up till now. Are these people going to be on my side?

 

  1. I’m exposed. Whoever I hire, I’m going to have to reveal some proprietary secrets, not all of which are flattering. I will have to undress.

 

  1. I’m feeling ignorant, and don’t like the feeling. I don’t know if I’ve got a simple problem or a complex one. I’m not sure I can trust them to be honest about that: it’s in their interest to convince me its complex.

 

  1. I’m skeptical. I’ve been burned before by these kinds of people. You get a lot of promises: How do I know whose promise I should buy?

 

  1. I’m concerned that they either can’t or won’t take the time to understand what makes my situation special. They’ll try to sell me what they’ve got rather than what I need.

 

  1. I’m suspicious. Will they be those typical professionals who are hard to get hold of, who are patronizing, who leave you out of the loop, who befuddle you with jargon, who don’t explain what they’re doing or why, who …, who …., who …? In short, will these people deal with me in the way I want to be dealt with?

 

Source: David H. Maister, Managing the Professional Service Firm, 1993

Tools for Accountants and their Small Business Clients


SERVE EXISTING CLIENTS FASTER AND CHEAPER

in partnership with accountingWEB and receipt bank

Ok so you’re not looking to change much of what you do in your
practice, but you probably realize there are better ways to use your
time, deal with client questions, and stay efficient overall. This
guide will offer you eight very key ways that you can do all of the
above without breaking the bank.

Accountants, if nothing else, are realists; just because you can do
something, doesn’t necessarily mean that you want to. You are
the ones that ask your children, “If everyone at your school ran off
of a cliff, would you do it also?” You also teach them to have the
personal confidence and to stand up and be their own person.
In the same right, you’ve heard the benefits of working in the
cloud, being online in general and having real time information.
But you know this not helpful to every client. For example, a retired
teacher who collects Social Security and receives a defined
benefit pension plan may not need the cloud or have an interest in
using websites to work with finances.

In fact, some industries, like construction, custom manufacturing,
and heavy manufacturing still do not have adequate web-based
solutions to help them with the most difficult accounting problems
– cost buildup and accounting for manufactured items, or
job costing for construction projects. Sure, there are workarounds
(and some hosted versions of mid-range solutions), but not everyone
can get their needs met with web-based tools.

Even so, as mentioned above, there are things you know you could
do better. Even if you’re not interested in making changes to your
business model for future success in real time reporting, there are
many ways you and your clients can embrace web-based technologies
without changing your firm’s internal processes.

It can’t be stressed enough that you need to use technology to
help you practice accounting or bookkeeping, and finally get out
of the business of practicing data entry. Both you and your clients
probably hate entering all of those transactions into a spreadsheet
every year and you both dread the discussions that ensue. You
don’t really want to enter the data for the client (and feel like you
can’t bill enough for doing it), and your client doesn’t really want
to pay the bill for you doing that work at $150+ per hour.
There is a third way – let technology do the grunt work instead of
one of you. Some tools for you and your clients with shoebox accounting
systems to consider include:

Cloud-based accounting products
help micro-businesses (those
with five or fewer employees, and sales less than $1 million) by
automatically downloading their transactions from banks and
credit card companies. Companies in this space include Fresh-
Books, QuickBooks Online, Sage One, Wave Accounting, and Xero
(as well as many others). Some of the leaders in this space are
starting to use predictive analytics to automatically classify expenses
to general ledger accounts, and many firms are counseling
clients who bring in a shoebox of paper to get a cloud accounting
product to handle the data entry, get ready to overpay for the firm
to do the data entry, or get ready to find a new accounting professional.
It doesn’t make sense for a practitioner to work 3,000
hours a year, including 1,500 hours of low rate data entry – it’s a
burnout job, and simply isn’t worth it.

Tools which serve as billing and receivables management tools

to micro businesses like FreshBooks, Harvest, and Wave Accounting
can help the self-employed get their invoices out so they can
improve their cash flow. Wave is a free, ad-supported tool for
doing this, and Freshbooks will even print your invoice on paper,
stuff it in an envelope, and mail it to your customer for a couple of
dollars. These tools also work well on mobile devices like smartphones
and tablets so that you can take advantage of short periods
anywhere (e.g. early morning time at Starbucks or a few minutes
waiting for a sales call) to bill your customers.

Online lenders like Kabbage, Fundera, Sage Payments, Intuit,
and Lending Club make it possible for small businesses to borrow
working capital, and some of them will do some of the underwriting
based on data in the cloud-based accounting applications.

Merchant services companies have also gone through a significant
change over the last decade, with anyone now able to accept
credit cards through services including Square, Intuit GoPayment,
Sage Payments, Wave Payments, FreshBooks, PayPal, and Stripe.
Most of these companies no longer require the formal underwriting,
the monthly minimum activity charges, or the high rates of
the past. Some of these providers have rates as low as 1.6%, plus
$0.35 per transaction, with a relatively low minimum monthly
fee, and others have no monthly minimum fee and a rate as
low as 2.9% of sales. There’s likely no small business today that
shouldn’t offer their customers who are overdue on their receivables
the option of paying on a credit card.

Organizing and scanning your client’s source documents is a
drag, and many services now will let you scan batches of documents
for a single client and let technology do the organization
for you. Solutions in this space include CCH ProSystem fx Scan,
Copanion GruntWorx, SurePrep 1040 Scan, or Thomson Reuters
UltraTax Source Document Processing.

Mobile receipt capture applications
are getting better, and services
like Tallie, ReceiptBank, and Wave Receipts convert the
camera on your smartphone or tablet into a document capture
device which can perform tasks like attaching receipts to the
transactions in your client’s cloud solutions. When combined
with automated recognition of data on these receipts, these tools
can simplify your client’s processes by letting them capture the
transaction at the time it occurs instead of worrying about losing a
small slip of paper (or carrying it around for two months).

Check scanning
(electronic capture and presentment of checks)
has been allowed for many years, but many banks and credit
unions are now letting users take pictures of checks with mobile
apps and then electronically deposit the check by submitting the
picture to the bank. While it’s nice to visit with your banker when
you need to borrow some money, do you really want to stand in
line on a Friday afternoon to make a deposit if it’s not really necessary?

Document gathering services like FileThis Fetch and Hubdoc
download receipts, statements, and other items from thousands
of websites (banks, credit card companies, brokerages, utilities,
cell phone companies, even Amazon) and store the documents
online for you for a low monthly fee. If you want your documents
to automatically be filed in folders online for you without having
to do anything, look into these solutions.

So even if you don’t want to use the cloud for everything, it’s fine,
you don’t really need to. But don’t overlook these tools as a way
to help you practice accounting instead of spending most of your
time entering data. Your clients pay you to solve their problems
and if you can get the work done with less pain (and less expense),
why wouldn’t you at least try some of the products readily available
today?

ABOUT THE CONTRIBUTORS

www.accountingweb.com

AccountingWEB is a community of accountants across the United States who
come together for professionally written articles on all technical subjects as well
as advice on advancing their careers and running their firms more effectively and
profitably. AccountingWEB Forums provide our members with an important sense
of inclusion, a connection with a bigger “club” through which they feel affinity
with fellow users.

www.receipt-bank.com

Receipt Bank’s aim is to remove the burden that bills, receipts
and invoices place on businesses. Working with bookkeepers,
accountants and businesses directly, Receipt Bank has developed its software and
service to make the gathering, storage and processing of bills, receipts and invoices
as easy and as cost effective as possible. Receipt Bank extracts the key information
from your bills, receipts and invoices, removing the need for manual data entry.
Receipt Bank can then publish the data to your accounting software or it can be
downloaded as a spreadsheet or used to create expense reports.

Caleb Mutsumba

My company, Five WH Corporate Services (Pvt) Limited (“5wh”), is a relationship-oriented professional services firm that provides the following solutions to business constraints:

 Internal Audits
 Forensic Audits
 Compliance Audits
 Fraud Investigations
 Due Diligence Investigations
 Design, Development and Review of Business Processes and Internal Controls

I am a Registered Public Accountant and Certified Fraud Examiner with experience in what my company specializes in.

The Africa Capacity Report ACR 2015: Capacity Imperatives for Domestic Resource Mobilization in Africa

The Africa Capacity Report ACR 2015: Capacity Imperatives for Domestic Resource Mobilization in Africa.

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The Africa Capacity Report (ACR) 2015 sends a very clear message: with official development assistance to Africa diminishing, the continent will have to rely more on mobilizing domestic resources if it is to implement its development agenda.

The ACR 2015 shows that this is possible, with a good number of African countries providing practical success stories based on strategies and initiatives that can easily be adapted to other countries. However, the capacity gaps to generate savings and taxes from domestic resources and allocate them to economically and socially productive activities remain glaring.

Overview

Each year since 2011, the African Capacity Building Foundation (ACBF) has produced the Africa Capacity Report (ACR). The objectives of the ACR are to measure and examine capacity in relation to the development agenda in African countries by focusing on the key determinants and components of capacity for development. ACBF defines capacity as the individual, organizational, and societal ability to set goals for development and to achieve them.

As in previous ACRs, the first chapter is devoted primarily to Africa’s capacity development landscape. It focuses on the Africa Capacity Indicators and the Africa Capacity Index (ACI). The ACI is a composite index calculated from four clusters covering the policy environment, implementation processes, development results, and capacity development outcomes. Results for this year indicate a good policy environment and good implementation processes for most African countries, although countries are not doing as well on development results. Notably, capacity development outcomes have deteriorated and remain the most pressing issue. Performance on the thematic indices is generally encouraging and particularly strong on gender equality and social inclusion.

This year’s annual theme of key importance to Africa’s development agenda focuses on the capacity development challenges in domestic resource mobilization. ACR 2015 surveys the state of and trends in domestic resource mobilization and illicit financial flows across the continent, and it identifies capacity gaps and requirements for countries to mobilize more resources domestically and reduce illicit financial flows abroad.

A team of in-country data experts conducted a quantitative survey in 45 African countries through a questionnaire, complemented by a qualitative survey in 14 countries selected by the ACBF for case studies according to the following criteria: tax effort performance, size of the economy, linguistic line, and geographic coverage. Drawing on the findings of these country studies, ACR 2015 provides key capacity building messages and policy recommendations.

The capacity dimensions of domestic resource mobilization are crucial today if African countries want to meet the ambitious Sustainable Development Goals and the goals of Agenda 2063. The Report of the High-Level Panel of Eminent Persons on the Post-2015 Development Agenda made it clear that domestic resource mobilization is a necessity and that a new global partnership is needed to fight illicit financial flows. Concerns have already been raised that the Third International Conference on Financing for Development – held in Addis Ababa, Ethiopia, on July 13-16, 2015 – did not deliver much in additional financial resources for the Sustainable Development Goals, implying that most financing must come from domestic sources.

To the extent that aid and other flows from external sources will not be sufficient, domestic resource mobilization will be critical for achieving the Sustainable Development Goals and the African Union’s vision of “An integrated, prosperous and peaceful Africa, driven by its own citizens and representing a dynamic force in the global arena”.

ACR 2015 complements the ACBF’s capacity building initiatives on the continent. Since its inception, the ACBF has created think tanks and policy units to support the formulation and implementation of strategic national policies. The overall aim is to ensure economic prosperity, political stability, and social justice for all citizens, through efficient use of resources. The ACBF has also created training programs such as the Economic Policy Management Program to improve economic analysis, public administration, and research capabilities and to deepen the financial sector. In addition, the ACBF has worked with partners such the International Monetary Fund to support deepening of the banking and financial sector.

Highlights of the Africa Capacity Indicators 2015

Results are generally satisfactory. The ACI values range from 20.7 (Central African Republic; CAR) to 70.8 (Cabo Verde).

No countries are at the Very Low or Very High extremes of capacity. Eight countries are in the High bracket, and no countries are in the Very Low bracket. More effort will be required for countries to move into the Very High bracket (ACI values of 80 and above).

The bulk of countries have Medium capacity. Of the 45 countries surveyed, most (73.3 percent) fall within the Medium bracket, 17.8 percent are in the High bracket, and 8.9 percent are in the Low bracket.

Analysis by cluster indicates a pattern that has not changed significantly from year to year, an indication that countries are stagnating in those clusters. As in previous ACRs (2011-14), the policy environment cluster remains the strongest and capacity development outcomes, the weakest.

On the policy environment – underpinned by broad participation and good governance – most countries are ranked High or Very High. Even if excellent, these results are not as good as in 2014, when 91 percent of countries were in the Very High category. Processes for implementation are also impressive, with 87 percent of countries in the High or Very High brackets.

Only 6.7 percent of countries are ranked Very High on development results, while 13 percent are ranked Low or Very Low.

Capacity development outcomes are even worse: 91 percent of countries are in the Low or Very Low brackets.

Overall capacity scores improved from 49.9 in 2014 to 52.0 in 2015. Only 8.9 percent of countries are now in the Low bracket, down from 13.6 percent in 2014. Countries with High capacity have seen an improvement in the average of their scores, and a higher percentage of countries are now in the Medium capacity bracket.

Achievements on the four thematic indices (policy choices for capacity development, development cooperation effectiveness related to capacity development, gender equality and social inclusion, and partnering for capacity development) are encouraging overall. More than half the countries are in the High or Very High category on each of the four. The best performance by far is on the gender equality and social inclusion index, where all countries are at least in the Medium category.

More resources for capacity development initiatives are required so that countries can improve their capacity development outcomes, an area that remains very weak. The ACBF can thus make an important difference by funding and providing technical assistance for specific capacity building projects and programs to meet the needs of African member countries and nonstate actors.

Challenges in mobilizing domestic resources and curbing illicit financial flows

Discussions for the post-2015 agenda have set high expectations for domestic resource mobilization as a self-sustaining development finance strategy. A focus on domestic resource mobilization and illicit financial flows in the African context is required for several reasons. For a start, mobilizing domestic resources allows countries to reduce their dependency on foreign aid. Examples of successful cases of development in other low-income (developing) regions reveal that high domestic savings is necessary for high investment and growth. Further, an extensive literature documents the positive link between taxation and state building through creating a social contract between the state and citizens.

Domestic resource mobilization refers to generating savings and taxes from domestic resources – and allocating them to economically and socially productive activities – rather than using external sources of financing, such as foreign direct investment, loans, grants, or remittances. Even if domestic resource mobilization does not include remittances, the ACR 2015 focuses on them as well; empirical and anecdotal evidence shows they can have a strong impact once they reach receiving countries. Illicit financial flows – resource flows that are “illegally earned, transferred or used” – are also discussed because they are a huge loss of domestic resources for Africa. According to the most recent data (for 2012), such flows from Africa were higher than remittance inflows ($82.5 billion versus $51.4 billion – chapter 2), and several countries are now losing large amounts to those flows relative to the tax revenues they collect.

The state of domestic resource mobilization and illicit financial flows in Africa

When compared with other developing regions – East Asia and Pacific, Latin America and the Caribbean, and South Asia – Sub-Saharan Africa has the lowest savings rate. And it has been trending downward Similar trends can be observed for investment and per capita growth rates, which to a large extent explain the persistence of absolute poverty in Sub-Saharan Africa. When North African countries are included in the mix, only Algeria has a very high savings rate. Overall, Africa’s savings rate is lower than those of East Asia and Pacific and of South Asia.

The average tax-to-GDP ratio in Africa has crossed 20 percent of regional GDP in recent years, far higher than in South Asia but still lower than in Latin America and slightly lower than in East Asia. Tax revenues have surged in the last decade, from $123.1 billion in 2002 to $508.3 billion in 2013. But these numbers may not reflect the situation across the continent since the resource-rich countries skew the regional average and most African countries have tax-to-GDP ratios below the regional average.

The increase in tax revenues has been driven by resource rents and by direct and indirect taxes; in countries such as Chad, Equatorial Guinea, and Nigeria, resource rents dominate the tax mix. The increase in resource rents has caused a split between countries mobilizing high tax revenues thanks to natural resources and others making efforts but unable to mobilize revenues because of a shallow tax base. Results of a computed average tax effort index—the ratio of actual tax collection and taxable capacity – for 1996-2013 confirm this: 27 of 47 countries have low tax effort indices, and several of them are resource rich. Even if they had increased their tax revenues from direct and indirect taxes, it is quite possible that the availability of resource rents would still have distorted the incentive for more efforts. Further, the tax composition (in percentage terms) has continuously shifted from trade taxes because of trade liberalization. Tax performance metrics (such as the ratio of the budget of the tax authority and revenue collected by the authority) indicate that Africa has a very expensive and inefficient tax collection system.

Overall, several African countries have room for improvement – whether in savings and investment rates, tax-to-GDP ratios, the tax mix, tax effort, the disincentive effects of revenue from natural resources, tax performance indicators, or the nature and reach of financial systems. Too few countries are paying attention to the expenditure side – to whether taxation is leading to efficient service delivery. A credible fiscal pact between citizens and the state can work only if citizens can see their tax dollars being used effectively.

Remittances to Africa amounted to $64 billion in 2014, or 14.8 percent of global inflows to developing countries (according to World Bank data). These are low set against other regions such as East Asia and Pacific ($122 billion or 28.3 percent of global inflows) and South Asia ($116 billion or 26.9 percent). Remittance inflows to Africa are now higher than official development assistance flows, even if not much higher than in other regions. However, more work needs to be done to ensure that remittances are not simply used for consumption; they should constitute investable resources with the potential to serve longer-term development needs. Equally important is to ensure a competitive market for remittance flows to reduce the high transaction costs of money transfers.

But the most important challenge for most African countries is to curb illicit financial flows. Such flows stem from factors such as weak institutions and governance, lack of regulation and information, and external borrowing. The African continent lost $60.3 billion to illicit financial flows on average over 2003-12 (calculated from Kar and Spanjers 2014), whereas average official development assistance for the period was $56 billion (OECD-DAC International Development Statistics online databases).

Strategies and initiatives for domestic resource mobilization

All 14 countries in the cases examined by the ACBF have, in one way or another, implemented policies to mobilize more resources domestically, especially since the Monterrey Consensus in 2002. Many countries have put in place initiatives to optimize tax revenues and reduce inefficiencies such as tax exemptions. To deal with illicit financial flows, measures have been introduced, for example, to prohibit the use of transfer pricing to evade taxes and to train staff to conduct forensic audits. Several African governments have liberalized their financial sectors and focused on product innovation and financial inclusion.

Some examples of strategies and initiatives for domestic resource mobilization include integrating revenue collection agencies in one coherent institution; introducing a value-added tax (as in Ghana and Togo); optimizing revenue collection from the mining sector; introducing presumptive taxes on informal activities by using indirect methods (as in Zambia); introducing a housing savings scheme and issuing diaspora bonds (as Ethiopia); and adopting mobile banking (as with M-PESA in Kenya).

Challenges

· Several parts of the African Union’s Agenda 2063 refer to Africa’s need both to become self-reliant and finance its own development and to recognize the importance of accountable states and institutions at all levels. In its call to action, Agenda 2063 explicitly mentions strengthening domestic resource mobilization, building continental capital markets and financial institutions, and reversing illicit financial flows from the continent. However, the financing of Agenda 2063 has hardly been examined, even though it is known that more resources must be mobilized domestically to reduce external dependence and that in some countries the sources of revenue must be diversified. (Much of the same could be said about the post-2015 agenda and the recently concluded Financing for Development Conference). The question remains: Who will finance the Sustainable Development Goals and how?

· To the extent that the bulk of financing will come from domestic sources, African countries must without doubt enhance domestic resource mobilization and curtail illicit financial flows. A raft of factors related to capacity building (human, technical, legal, regulatory, and financial) still prevent African countries from mobilizing more resources domestically and from fighting illicit flows.

· On the tax side, investing in the capacity of revenue authorities must be part of a broader fiscal reform agenda that includes simplifying and rationalizing tax systems (for example, reducing tax exemptions and dealing with corruption within tax administrations). The computed tax effort indices for African countries show that several countries, including resource-rich ones, are not making enough effort to collect taxes.

· More and better trained staff must be hired by the revenue authorities and retained with the right financial incentives, and they must be allowed to do their work without political interference. More needs to be done to build the capacity of revenue authorities to engage with taxpayers and foster a culture where taxation is seen as contributing to essential services. This means that governments need to be transparent and efficient on expenditures.

· Donors are potentially important in building tax capacity and enhancing domestic resource mobilization – including training staff, investing in infrastructure, and helping set up tax registries – but they allocate only a very small share of aid to these areas.

· The problem of illicit financial flows requires international cooperation and a global solution, but many African countries simply lack the capacity to deal with them. None of the countries surveyed showed evidence of successfully combating such flows. Substantial effort and political will are still required at the domestic level.

Key takeaways

· The African continent has made much progress in increasing tax revenues, but a number of countries lag behind. Compared with other regions of the world, tax collection systems in Africa remain expensive and inefficient. Several countries need to hire more and better trained staff members, who must be retained through financial and nonfinancial career-advancement incentives.

· The expenditure side is as important as the revenue side, if not more so. That is, citizens must be aware of what services they are getting in return for their tax contributions, and this means that governments must be transparent about program expenditures and must invest in awareness and education campaigns on taxation.

· Diverted public funds and wasteful government spending are serious problems in many African countries, reflecting poor governance, public administration, and institutions, with major imperatives for building capacity to mobilize domestic resources.

· Far more effort and political will are required to address illicit financial flows. This again entails hiring better trained staff with specialized skills and ensuring the cooperation of the local, regional, and international organizations responsible for tackling such flows.

· Building capacity for domestic resource mobilization is not merely about increasing tax revenue or savings. It also encompasses promoting good democratic governance, financial inclusiveness, and social justice – and creating the conditions and incentives for productive investments. The type of tax systems and funds for administrative procedures and the choice of financial models must be adapted to the characteristics of African economies and their production structures. The time is now ripe for African countries to go beyond traditional domestic resource mobilization – which is about increasing revenues and (public and private) savings – and to emphasize broad-based resource mobilization, in a holistic, transformational approach that considers national systems of innovation, imitative learning, and special harnessing of human capital.

· More investments are required in financial inclusion and product innovation, and human resources must be mobilized for the innovations needed for broad-based domestic resource mobilization.

· It is necessary to build institutional and human capacity for scaling up domestic resource mobilization. The capacity of institutions in the resource mobilization chain must be reinforced. And rules and regulations must be in place to ensure sound public financial management so that domestic resources promote inclusive and sustainable development.

· It is important to enact legal system reforms aimed at law reform, especially where the laws are inadequate or poorly functioning. Countries need to undertake reforms in the areas of taxation, banking, and capital markets. They need to maintain flexible yet effective laws and regulations to access nontraditional sources of finance and curb illicit financial flows. And they need to further develop tax reforms that will ensure tax harmonization and a move away from tax exemptions, concessions, and holidays.

· Along with the required rules, regulations, and human capacities must be the capacity of key continental, regional, and national institutions to improve domestic resource mobilization. These include the African Union Commission and its organs (especially those that deal with legal, audit, tax, and parliament related issues). They also include such specialized institutions as the ACBF, the African Development Bank, the African Tax Administration Forum, the Collaborative Africa Budget Reform Initiative, and the UN Economic Commission for Africa. And they include regional economic communities, especially the African Union-recognized groups that will play a great role at the regional level in the domestic resource mobilization chain. At the core, however, are national tax administration and revenue authorities.

· There is a need to foster visionary leadership, to change mindsets, and to address other soft capacities. A key element for successful domestic resource mobilization starts with effective, visionary, committed, and accountable leadership that sets the right tone at the top. Positive social norms, values, and practices conducive to domestic resource mobilization are needed, but the ability and willingness to learn from experience is equally important.

ACBF Virtual Library on Capacity Development http://elibrary.acbfpact.org

http://www.acbf-pact.org