From: Abdhulla Al- Waihabi, Regional Manager – Middle East – Slide
To: William Seaton, Director of Finance
Subject: Press article
Hi William,
I have just had a telephone call from a journalist at Business News to ask for a comment on a story that it plans to run. As you know, we purchased oil wells in the AZ40 field last year in order to bring them back to full production. We got the wells for a good price because the previous owner was struggling to maintain oil pressure and it appeared that the recoverable reserves in that field were close to exhaustion. Our experts worked out a plan to drill a hole and pump water into the well to force more oil to the surface. That is a standard industry technique. Our geologists are the best in the industry and so we are better than most at bringing wells back on stream.
It now appears that we are being blamed for an environmental catastrophe. Our pumping station is only one kilometre from the sea and there are reports of oil coming to the surface along the coast close to where we are operating. We have only just started operations and there are fears that we have ruptured a rock formation with our high pressure pumping.
I have ordered an immediate halt to all pumping activity, but the oil could continue to bubble up for years. The coastal area has some important coral reefs and there are fishermen who depend on shellfish that can be found there.
I told the journalist that she would have to wait for a response from Slide’s Board. Business News is a European newspaper, so any comment from you will carry more weight anyway.
I am sorry to be the bearer of such bad news.
Abdhulla
The Director of Finance, William Seaton, has invited you into his office.
“This will come as a bit of a shock, but the Board has decided that it would be in our best interests to relocate our Head Office from Kayland to the Middle East. We have interests there, including a regional office, already. We know that the oil industry is welcome and there are several governments which are very open to such foreign direct investment from the West.
Nothing has been decided for certain, but there are compelling tax advantages to us relocating. We would also be subject to slightly less restrictive legal requirements. We can retain our listing on the Kayland stock exchange, albeit as a foreign company.
Things are very much under consideration at the moment, so please don’t tell anybody about this conversation.
I want to check that I have thought of everything at the strategic level before we make an irreversible decision to move. I need you to write me a report on the following:
What are the strategic implications of moving our Head Office from Europe to the Middle East?
What are the strategic risks that might arise and how might we deal with them?
I need to have your thoughts soon because the Board is holding a special meeting this afternoon.”
Two weeks have passed since the article about Wodd’s role in tax avoidance was published. Thankfully, the initial reaction was to condemn the celebrities who invest in tax avoidance and little was said about Wodd’s role in facilitating tax-efficient investments.
You have received the following email from Sarah Johns, Marketing Director:
From: Sarah Johns, Marketing Director
To: Senior Finance Manager
Subject: Forestry certification
Hi,
I am told that you would be a good person to talk to concerning the practical implications of a new venture that has been proposed.
I have attached a sales brochure that I downloaded from Tabel’s website. Tabel is a competing forestry company that has similar interests to our own. It has recently launched the certification scheme that it has described in its brochure. It has no competition for this certification in Marland because no other company has sought the qualifications required to offer an accredited Forest Certification Service.
Wodd has the necessary skills to offer a credible Forest Certification Service. Our forestry managers already aim to exceed all of the requirements set out by the global body. We also have a well-resourced internal audit department. I believe that we could transfer either forestry managers or internal auditors to a new external certification department. The transferred staff would complete the training required by the global body and would sit the associated examinations. We could then compete with Tabel’s service.
I need your advice on the following:
Could you explain how you imagine that a typical certification investigation would work and the skills that it would require? That will help us to decide whether to approach forestry managers or internal auditors and will also enable us to describe the work that they would be doing if they agreed to be transferred.
What are the challenges associated with motivating and evaluating the investigators in the certification service and how might we address these?
Sarah
Reference Material:
Daily Gazette
Draft story for comment
The singer, the forester and the tax adviser
Popular singer Barry Crauder is regarded as one of our more financially-aware personalities. He works hard, releasing at least one new album every year and serving as a judge on a popular talent show. He has a reputation for investing this income wisely, choosing to save for his future rather than squandering on the trappings of the show business lifestyle.
Crauder’s popularity was severely damaged when it emerged that he pays little or no tax on the investment income derived from his portfolio of investments. That is because he has used one of the few remaining tax loopholes, namely investment in forestry. He owns significant areas of forestry in the far North of Marland. We estimate his earnings from those investments to exceed M$800,000 every year and yet he has not paid a single Cent in tax on that income since he first invested in forestry ten years ago. In contrast, a typical fan who earns the national average wage of M$28,000 every year will pay approximately M$7,000 in tax.
So, could we all invest in forestry? Well, not unless we can afford it. I posed as a wealthy business entrepreneur and approached several leading tax advisers. Most were interested in helping me to invest a seven figure sum to avoid tax, but warned that saving tax could be expensive in terms of fees and commissions.
Four firms recommended forestry as the ideal investment. All recommended Wodd, with whom all four claimed to conduct "significant business". They said that a typical client would give Wodd a bank draft and leave the purchase and subsequent management to Wodd in return for a fee. Most clients had never even seen the forests that they own and none ever need to make a management decision concerning the growth or sale of timber.
Sadly, investing in forestry is a rich person’s pursuit. I was warned that companies such as Wodd are unlikely to entertain a potential client whose initial investment does not run into the tens of millions of M$.
Please address any response to Sonia Jones, care of the Daily Gazette news desk, as quickly as possible.
A week later, Romuald Marek stops by your workspace and hands you a document.
The Board minute extract from Romuald can be viewed by clicking the Reference Material button above.
Reference Material
Board minutes extract: proposal to profit from ongoing strength of NS
Anna Obalowu Sole, Chief Operating Officer, reported that the strong NS was helping generate revenues from fuel sales. Discussion followed as to whether the strong N$ was likely to persist and whether a strong N$ benefits Arrfield overall.
Markus Jokela. Chief Executive Officer, stated that the Board should develop contingency plans that could be implemented if it seemed likely that the strong N$ would persist. In particular. Arrfield need not renew the contracts that permit aviation fuel suppliers to operate from its airports. Arrfield would then be free to create its own fuel sale business, buying fuel in bulk to replenish the storage tanks at each of its airports in Norland and then selling it directly to airlines He stated that this would almost certainly enhance Arrfield's share price
Romuald Marek reminded the Board that four of Arrfield's six airports are located in Norland and that those airports charge for aeronautical and non-aeronautical services in N$.
A month later, you receive the following email:
Reference Material:
From: Hesham El-Sayed. Independent Non-executive
Director
To: Romuald Marek. Chief Finance Officer
Subject: Collapse of fuel supplier
Hi Romuald
I am writing to give you some advance notice of an internal audit investigation that has been commissioned by the Audit Committee
Just over a year ago. Planejoos, a newly formed company, approached the management team at Airfield's Capital City International (CCI) airport and offered to take over refueling operations at Starport Planejoos offered a higher percentage of revenue than the existing supplier was paying CCI's management team agreed and appointed Planejoos rather than renew the existing supplier's contract.
CCI was unable to conduct the usual background and credit checks on Planejoos for two reasons. Firstly, Planejoos was a new company and so did not have an extensive credit history that could be checked Secondly CCI was under time pressure to reach a decision on whether to renew the existing supplier's contract or allow it to expire
CCI's management team claimed that it had acted quickly in order to benefit from the additional revenue that could be earned from dealing with Planejoos The management team was acting on the basis that it had an ethical duty to maximise the wealth of Airfield's shareholders and that maximising revenues from fuel sales through this agreement with Planejoos was consistent with that ethical duty.
Unfortunately, as a new company. Planejoos struggled to obtain trade credit and the high demand for fuel put the company's cash flows under extreme pressure Receipts from sales lagged behind payments for inventory Planejoos has now collapsed, leaving a large trade receivable that CCI will have to write off as uncollectable CCI had permitted this receivable to accumulate rather
than pressing for payment and so putting Planejoos under further pressure.
Fortunately, the previous fuel supplier was prepared to return to CCI.
Kind regards