41. THE ECONOMICS OF AGEING AND PENSIONS by Godwin Mifsud
10. IFRS 15 – SOME PRACTICAL ISSUES RELEVANT TO THE TRAVEL, HOSPITALITY AND LEISURE INDUSTRYby David Leone Ganado
58. TAKING TIME OFF WORK FOR INCREASED PRODUCTIVITYby Patrick J. Psaila
Sum
mer 2
017
TRAVEL, HOSPITALITY AND LEISURE
This industry is one of the pillars of the Maltese
economy. This issue includes information
and viewpoints about the topic and more.
NEWSPAPER POST
COVER
Issued quarterly,The Accountant is published by
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The Institute does not necessarily concur with the views expressed in the articles published in this journal. Articles are published without responsibility on the part of the publishers or authors for loss occasioned in any person acting or refraining from action as a result of any view expressed therein. The Accountant can now be accessed from the website at www.theaccountant.org.mt
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summer 2017 | theaccountant.org.mt p.03
CONTENTS
p.04
PRESIDENT’S ADDRESS
newsp.05
MIA NEWS
p.58TAKING TIME OFF WORK FOR INCREASED PRODUCTIVITY
by Patrick J. Psaila
p.64THE FIRST FEMALE PARALYMPIAN REPRESENTING THE COUNTRY SINCE 1980
by Vladyslava Kravchenko
p.10IFRS 15 – SOME PRACTICAL ISSUES
by David Leone Ganado
p.20VAT AND INCOME TAX ASPECTS IN THE TRAVEL, HOSPITALITY AND LEISURE INDUSTRY
by Paul Giglio
p.34GETTING IT RIGHT – THE COMPANY SECRETARY
by Dr Ann Bugeja, Dr Maria Tabone & Ms Charlotte Attard
p.39FROM MIFID I TO MIFID II – WHAT ARE THE EFFECTS OF CHANGE?
by Sarah Camilleri
TECHNICAL
LIFESTYLE
FEATURES
p.14THE ROLE OF THE INTERNAL AUDITOR IN THE HOSPITALITY INDUSTRY
by Eugenio Privitellip.17
THE HOSPITALITY INDUSTRY – REACHING NEW HEIGHTS by Raphael Aloisio and Glenn Fenech
p.22IT’S WHAT YOU DO, NOT WHAT YOU PROMISE WHICH MATTERS TODAY IN HOSPITALITY
by Louis Naudip.24
FINANCIAL MANAGEMENT: BEST PRACTICES IN THE HOSPITALITY INDUSTRYby Margaret Buhagiar and Michelle Spiteri Bailey
p.28
TOURISM AND THE ENVIRONMENT: THE MISSING LINK by Karl Agius and Prof. Alan Deidun
p.08
TOURISM IN MALTA – FACTS AND FIGURES 2016 by Tania Sultana
p.30
ELECTRONIC MONEY: ANOTHER FORM OF CASH by Christian Gauci
p.38
SECURITISATION OF SHIPPING ASSETS by Dr Nicholas Curmi
p.41
THE ECONOMICS OF AGEING AND PENSIONSby Godwin Mifsud
p.44
THE ROLE AND RESPONSIBILITIES OF THE AUDIT AUTHORITY FOR EU FUNDS IN MALTAby Philip Gafa’
p.50
DISRUPTING THE ACCOUNTANCY PROFESSION by Stathis Gould
p.52
ARE THERE BENEFITS IN ISO9001 FOR ACCOUNTANCY FIRMS? by Francis E. Farrugia
p.62
TRANSFORMATIONAL LEADERSHIPby Dr Natalie Kenely
p.66
SO WHAT? LANGUAGE AND CLARITY IN FINANCIAL WRITINGby Angele Spiteri Paris
p.46
ENTERPRISE RISK MANAGEMENT by Ian Edward Stafrace and Dominic Fisher
p.54
THE IMPORTANCE OF PLANNING THE SUCCESSION OF KEY MANAGEMENT PERSONNEL by Robert Delia
© 2017 KPMG, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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04 Summer 2017 05theaccountant.org.mt
WILLIAM SPITERI BAILEY PRESIDENT’S ADDRESS
PRESIDENT’S ADDRESS MIA NEWS
WILLIAM SPITERI BAILEY
2017 ANNUAL GENERAL MEETINGThe 53rd Annual General Meeting of the Institute was
held on 13 July 2017, at the Tower Training Centre in
Swatar.
The following members were elected for the two year
term 2017 - 2019:
Mr Franco Azzopardi Mr Etienne Borg Cardona Mr Simon Flynn Ms Maria Micallef Mr Franz R. Wirth Mr Noel Mizzi Mr William Spiteri Bailey
They joined the following Council members, whose
terms expires in 2018:
Mr Fabio Axisa Mr Christopher Balzan Mr David Delicata Mr Anthony Doublet Mr Jonathan Dingli Dr Ivan Grixti Mr Stephen Paris
At the first meeting of the new Council, Mr William
Spiteri Bailey was elected as President, Mr Fabio Axisa
as Vice-president, Mr David Delicata as Secretary and
Mr Noel Mizzi as Treasurer
MIA NEWSDear Members,
It is an honour to have been elected and to represent
you as President of the Malta Institute of Accountants.
I must begin by giving special recognition to Franco
Azzopardi for his outstanding work as my predecessor.
Under his supervision the Institute has continued
growing in success and recognition. The accountancy
profession is undergoing considerable change, creating
unprecedented challenges and opportunities. During
my term of office my plan is to ensure that the Institute
responds to the evolving needs of the members,
fostering a culture of innovation.
My intention is to bring the Institute closer to its members
and increase the involvement of the younger members,
in existing and newly set sub-committees. I firmly
believe that the Institute is there for all its members. I
will be working hard to meet with and understand the
needs of the different sectors of accountants within the
Institute. Professional accountants whether in public
practice, in employment or in business have different
responsibilities and require the Institute to respond
differently to their needs. They all play an important role
in contributing to the overall stability and progress of our
local economy. Therefore, discussing and following up
on their concerns and needs will ensure that the quality
of our profession is maintained and the public continues
to have confidence in the professional accountant.
Younger members have the energy and enthusiasm
and their involvement is important if the Institute is to
remain vibrant and representative of the profession.
The Institute needs to continue finding new members
who are keen to volunteer and be involved in the
continued transformation of our profession through the
Institute’s committees. I will work towards increasing
the involvement of the new generation in the various
committees of the Institute. This experience will also
serve as a stepping-stone for them to obtain the right
skills and competencies to become future Council
members and leaders in our profession.
Continuity is fundamental to the Institute, and this is
also possible with the continued involvement of the
more senior members of the Institute. They have made
significant contributions to our profession and have
helped create what the Institute stands for today. Their
experience will be an invaluable source of knowledge,
for the successful completion of ongoing and new
projects.
Increased use of information technology has entirely
changed our society. All the industries and professions,
including our profession are following the same trend.
Technology is radically redefining what we do and
how we do it. The change is driving the evolution of
accounting services from transactional services to value-
added services. It is my intention to ensure that Institute
will be a prime catalyst to ensure that accountants
embrace the new Digital Era confidently.
The Institute already has strong ties with a number of
international professional bodies, including Accountancy
Europe, International Federation of Accountants,
International Accounting Standards Board and European
Financial Reporting Advisory Group, amongst others.
During my term, I will strive to continue strengthening
these ties, as this alliance will give the members of our
Institute a significant advantage in terms of shared ideas
and resources.
Last but not least, I intend to pursue in rebranding the
Institute’s name and terminology, wherein the term
‘Accountant’ is changed to ‘Professional Accountant’.
Becoming a Professional Accountant requires that we
attain the necessary qualifications and experience and
continue to update ourselves by attending a number
of continued professional training hours on an annual
basis. This ensures that we keep ourselves informed of
any changes and updates. A professional accountant
is an expert in the field, with strict adherence to moral
integrity and ethics. I firmly believe that the Institute
should assist its members to ensure that Professional
Accountants are given their due recognition in society.
I look forward to working closely with all of you in order
to attain the above mentioned objectives and more for
the benefit of our Profession, our Institute and You, ‘our
members’.
William Spiteri Bailey
06 Summer 2017 07theaccountant.org.mt
MIA NEWS MIA NEWS
Transparency rules for tax planning intermediaries – 14 September 2017
Risk assessment and audit strategy – 19 September 2017
The fourth AML Directive and the risk based approach – 26 September 2017
Social security benefits – 3 October 2017
Tax and Practical Aspects of Migration of Companies – 5 October 2017
Session 1 Contributory pensions & Session 2 The sustainability of pensions – 12 October 2017
Bond markets and their mechanics – 24 October 2017
VAT and Income Tax laws – Enforcement and Constitutional rights – 21 November 2017
What’s new in employment? 2017 practical developments – 30 November 2017
IFRS 15 and IFRS 16- A new challenge for the construction industry – 7 December 2017
The role of the tax accountant- the most recent developments – 19 December 2017
Access our website for a continuous update of events.
MIA SOCIAL EVENT 2017The MIA Social event held on 6 July 2017 proved to be
a huge success with over 750 registrations received.
The sum of €776 was collected for the Autism Parents
Association and was eventually topped by the Institute
to amount €1,600. The donation was presented to Ms
Sandra Borg, co-founder of the Association, by the
outgoing President, Mr Franco Azzopardi.
ACCA – MIA JOINT EVENT 2017The Malta Institute of Accountants and the Association
of Chartered Certified Accountants organised a joint
event on 24 May 2017, attended by 160 professional
accountants. The event was sub-divided into various
sessions, covering the latest updates in IFRS and
also included a panel discussion addressing ethics in
accounting.
The sessions discussed IFRS 9 Financial Instruments for
the non-financial sector, IFRS 15 Revenue from Contracts
with Customers, IFRS 16 Leases and some other recent
amendments effective for periods beginning on or after
1 January 2017 and beyond. The panel discussion titled
‘Accounting and Ethics: Pressure experienced by the
Professional Accountant’ was addressed by a panel of
practitioners and other experts in the field.
THE TRANSFER OF A FAMILY BUSINESS TO THE NEXT GENERATION - A joint event between the Malta Institute of Accountants, the Chamber Of Commerce and the Malta Employers Association The Malta Institute of Accountants joined forces with
the Chamber of Commerce and the Malta Employers
Association, to hold a conference organised on 16 June
2017 addressing family business succession planning in
a holistic way.
An array of professional speakers, including the
participation of Mr Paul Gisby, manager from
Accountancy Europe, delivered various presentations
on the subject matter focusing on issues which included:
understanding family businesses, the new Family
Business Act, devising a plan for the transfer of a family
business, different modes of transfer, the valuation
exercise, taxation & legal aspects in the transfer of a
family business and the importance of Communication.
08 Summer 2017 theaccountant.org.mt 09
COVER STORYCOVER STORY
TOURISM PERFORMANCE
2016 marked the seventh consecutive year of growth
in inbound tourism, where a new record high was
reached. The number of total inbound tourists to
Malta almost touched the 2 million figure, recording a
significant increase of 10.0%. This achievement is even
more remarkable as it comes on top of the increases
achieved in the previous years.
Within an international context, Malta’s inbound
tourism growth rates in 2016, surpassed those for the
World, which grew by 3.9%, Europe (+2.1%) and the
Southern Mediterranean European region (+1.3%).
This success is mainly attributed to the efforts of the
relevant authorities in securing and expanding air
connectivity, along with the strengthening of brand
Malta in the origin markets overseas.
GEOGRAPHIC MIX
The United Kingdom is the foremost market for Malta
with a share of 28.5%, followed by Italy (16.0%),
Germany (8.0%) and France (7.4%). These markets
have been top source origin markets for Malta for many
years. In 2016, growth was not exclusively achieved in
these long established markets but also from other so-
called ‘secondary’ and ‘emerging’ markets. The strategy
implemented to expand Malta’s connectivity was
successful in tapping markets which up to some years
ago were non-existent for Malta. Buoyant figures are
being attracted from relative newcomer source markets
such as Poland, Spain and Hungary, which in turn are
also exhibiting growth on a year-on-year basis. In fact,
in 2016, Poland ranked the 5th largest source market for
Malta, followed by Spain in 6th position.
SEASONALITY
Tourism as an integral part of global business is highly
dependent on seasonal changes in climatic conditions,
economic activities as well as human behaviour and
society in general. Seasonality in tourism activity is
experienced in almost all countries and destinations in
the world. The most significant aspect of seasonality
is that it involves the concentration of tourist flows
in particular periods of the year. In this regard,
Malta can boast of the fact that it is one of the least
seasonal destinations in the Mediterranean, where the
distribution of the number of tourists throughout the
year is more evenly spread than that of its competitors,
namely Spain, Portugal and Morocco.
Over the recent years, Malta has strengthened its
position as an all-year round destination. Volumes
of inbound tourists which up to a few years ago were
reached in the peak summer months, are nowadays also
being achieved in the off-peak months. Additionally,
the growth rates achieved in the low season months
considerably surpass those achieved in the peak months
of summer.
MOTIVATIONAL SEGMENTS
The diversity of the offer is one of the main aspects
which feeds into achieving a relatively even spread
in the number of tourists throughout the whole year.
Research findings show that most tourists visit Malta to
enjoy the sun along with immersing themselves in its
culture. ‘Sun seekers’ rank second followed by tourists
who come to visit their friends and relatives. The
seasonal pattern of ‘culture vultures’ (travellers whose
motivations are purely driven by culture) together
with ‘business travellers’ (who visit the island for
conferences, incentives or other work-related reasons)
favours the off-peak months. Alternatively, segments
such as scuba diving and TEFL (English language learning
related travel) are still very much skewed towards the
peak months of summer.
OTHER FACTORS INFLUENCING DESTINATION CHOICE
The expansion in air connectivity is making it possible
for Malta to attract tourists from new markets. In this
regard, novelty of destination features as an important
factor in the decision making process for 53.8% of
tourists visiting Malta. On the other hand, 3 out of every
10 tourists visiting Malta are repeat visitors, where their
decision to revisit was attributed to a positive previous
experience. The fact that English is spoken widely in
Malta is important for around 1 in every 3 tourists,
closely followed by price/value for money.
Over the recent years, the film industry in Malta has
increasingly garnered priority and interest. This industry
was further reinforced with the launch of the very first
policy focusing on the film industry which was published
in January 2016, covering the period 2016-2020. The
film industry is another effective vehicle which improves
and boosts Malta’s awareness and positioning as a
tourism destination overseas. MTA research findings
show that around 1.4% of incoming tourists base their
decision to visit Malta on a film shot locally, equivalent
to 190 full plane loads of arriving tourists.
AGE PROFILEOfficial tourism statistics highlight that Malta’s appeal
to a relatively younger age tourist is on the increase. In
2016, the biggest growth rates were registered in the
25-44 age bracket followed by tourists aged 24 years or
younger. A richer and more varied calendar of events
is further safeguarding the islands’ appeal towards a
more dynamic age profile. Moreover, research findings
show that age profiles do vary by origin market, where,
tourists residing in Italy and Spain are relatively younger
than those hailing from the UK and Germany.
MOST INFLUENTIAL COMMUNICATION CHANNELSIn recent years, ‘digital media’ has surpassed
‘recommendation by friends and relatives’ as the top
influential communication channel for tourists during
trip decision making. Nonetheless, the two are deeply
inter-related as nowadays travellers choices are not only
based on experiences of friends and relatives but also on
online reviews. In view of this, reputation management
is key for the tourism industry to ensure that these
remarkable results are maintained. By listening better to
clients we can ensure optimal reputation management
by communicating better, adapting current offer and
introducing new products and services accordingly.
TOURIST’S PERCEPTIONS OF MALTA Destination Malta exceeds the expectations of around
1 out of every 4 tourists visiting Malta. Furthermore it
meets the expectations of the majority. Also, 9 out of
every 10 tourists would recommend Malta to friends
and relatives. Tourists describe Malta as a welcoming
destination, rich in history and culture. The destination
evokes feelings of relaxation, warmth and safety. The
colours associated with Malta by tourists are mainly
blue and yellow.
One may refer to the ‘Tourism in Malta, Facts and Figures 2016’ report for a more detailed numeric
overview, where a digital copy is available on the
MTA’s corporate website (www.mta.com.mt/research).
This MTA’s publication gives a snapshot of global and
local tourism performance for the year. In addition, it
provides a detailed overview of socio-demographic and
behavioural characteristics of tourists visiting the island.
The aim of this user-friendly publication is to facilitate
the understanding of the tourism industry in Malta for
all interested parties, including the tourism trade, public
entities, students, journalists and the population at
large.
TANIA SULTANA HAS BEEN WORKING AT THE MALTA TOURISM AUTHORITY FOR THE PAST NINETEEN YEARS AND IS CURRENTLY "HEAD OF RESEARCH" WITHIN MTA’S RESEARCH UNIT.
TANIA SULTANA
TOURISM IN MALTA – Facts and Figures 2016
10 Summer 2017 11theaccountant.org.mt
TECHNICAL TECHNICAL
Under IFRS 15, revenue is recognised based on the
satisfaction of performance obligations (“PO” or “POs”).
In applying IFRS 15, entities must follow this 5 step
process:
As a result of the introduction of IFRS 15, potentially
significant changes relevant to the industry include, but
are not limited to:
• identifying separate POs in one contract;
• recognising fees received in advance such as the
receipt of membership fees;
• accounting for loyalty programmes;
• determining whether the entity is a principal or an
agent;
• the pricing mechanism especially when price
includes a variable element; and
• the impact on the accounting for breakages.
In this brief article we focus on Step 2, including the
identification of whether an entity is a principal or an
agent.
Under IFRS 15, an entity is required to identify all
POs in a contract; POs are promises to transfer goods
or services to a customer and are similar to what we
know today as ‘elements’ or ‘components’. This is of
particular relevance to operators in the industry since,
for example:
• a hotel may offer accommodation, food and
beverage, and access to the spa, fitness centre,
and pool facilities in a single contract; or
• operators in the industry may offer ‘welcome
packages’ (so-called ‘gifts’) upon signing up to a
service; or
• airlines, hotels or restaurants may offer customer
loyalty programmes.
Under IFRS 15 an entity accounts for each promised
good or service as a separate PO if the good or service
is distinct; the definition of distinct therefore becomes
critical. A good or service is distinct if both of the
following criteria are met:
• the customer can benefit from the good or service
either on its own or together with other resources
that are readily available to the customer (that is,
the good or service is capable of being distinct);
and
• the entity’s promise to transfer the good or service
to the customer is separately identifiable from
other promises in the contract (that is, the promise
to transfer the good or service is distinct within the
context of the contract).
The identification of POs might result in one of two
possible changes to current practice:
Elements for which revenue is today recognised separately need to be assessed further under IFRS 15; revenue is only recognised separately under the new standard if there exist separate POs. It is important to note that there is a deliberate focus in IFRS 15 on the customer being able to obtain a benefit for there to exist a PO.
Thus, for example, if an operator charges a booking fee, a credit card booking charge, or an administration fee, it will need to assess whether this provides the customer with a distinct PO, i.e. “the customer can benefit from the good or service either on its own”. The fact that the operator may incur administrative costs is not sufficient to conclude that a separate PO exists.
UNBUNDLINGOn the other hand, operators may need to unbundle certain POs that are contained within the same contract, which could be prevalent in memberships or in loyalty programmes.
BUNDLING
IFRS 15 – Some practical issues relevant to the Travel,
Hospitality and Leisure Industry
IFRS 15, Revenue from Contracts with Customers contains principles relating to the measurement of revenue and timing of when it is recognised, and is effective for reporting periods beginning on or after 1 January 2018. The underlying principle is that an entity will recognise revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to. The standard could significantly change how entities recognise revenue, and it also results in a significant increase in the volume of financial statement disclosures.
DAVID LEONE GANADO IS A SENIOR MANAGER IN PWC MALTA'S ACCOUNTING ADVISORY SERVICES. HE HAS, OVER THE PAST DECADE, SPECIALISED IN IFRS.
DAVID LEONE GANADO
12 Summer 2017 13theaccountant.org.mt
TECHNICAL
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MEMBERSHIPS
Membership fees are common in the industry and IFRS
15 contains specific guidance on how to account for such
fees; operators first need to identify whether separate
POs exist in the contract. Although the upfront fee is
today already viewed as an advance payment for future
goods or services and is recognised as revenue when
the future goods or services are provided (Step 5 of
IFRS 15), unbundling may first be required if customers
also receive distinct goods or services upon signing up,
for example a travel or gym bag. In such a case, the
operator is required to allocate the transaction price to
the different POs (Step 4), and then recognise revenue
in the income statement separately for each PO (Step 5).
LOYALTY PROGRAMMES
Hotels, restaurants, and airlines often offer a loyalty
programme whereby customers would have the option
of redeeming points by getting a discount (of up to
100%) on future purchases of flights, accommodation
or meals. Essentially, the customers would be paying for
part of the future purchases through the consideration
for the original transaction, and therefore a portion of
the transaction price would need to be allocated to the
future purchases. As an example, if a restaurant offers a
10th meal for ‘free’ after previously purchasing 9 meals,
then a portion of the consideration collected for the
first 9 meals is deferred and subsequently recognised as
revenue when control over the separate PO (the 10th
meal) is transferred to the customer.
It follows from the above discussions that operators in
the industry also experience what is referred to in IFRS
15 as breakage. This is where the operator receives
an upfront, non-refundable fee (or it defers part of
the consideration from the initial transaction(s) in a
customer loyalty programme) and the customer does
not exercise the right to access future goods or services
at a discount. Operators will recognise the expected
breakage amount as revenue in proportion to the
rights exercised by the customer, or when the right is
terminated (for example through expiry).
PRINCIPAL VS AGENT
When an arrangement involves two or more unrelated
parties that contribute to providing a specified good
or service to a customer, management will need to
determine whether the entity has promised to provide
the specified good or service itself (as a principal), or
to arrange (as an agent) for those specified goods or
services to be provided by another party. Determining
whether an entity is the principal or an agent is not a
policy choice.
Like IAS 18 before it, IFRS 15 includes indicators that,
although written from the perspective of transfer of
control over POs, are broadly similar to the guidance
in IAS 18. IFRS 15 however adds perhaps the most
obvious indicator that an entity is an agent, namely
that the entity’s consideration is in the form of a
commission. Thus, if a tour operator which sells hotel
accommodation:
• facilitates payment between the hotels and the
customers at prices that are set by the hotels;
• requires payment from customers before orders
are processed and all orders are non-refundable;
• has no further obligations to the customer after
arranging for the accommodation to be provided
to the customer (essentially having acted as an
introducer and a payment collection agent); and
• is entitled to a commission upon booking of
accommodation
the entity would generally be concluded to be an agent
for the hotel, and would only recognise the commission
as income.
This article is not all-inclusive. Operators will therefore
need to carefully assess their revenue streams and the
impact that IFRS 15 will have, including how the 5-step
model might affect current business activities, and how
the other four steps impact revenue recognition.
14 Summer 2017 15theaccountant.org.mt
The above is a quote which I have embraced as my standard working guide ever since I came across it in one of the many books/articles on Internal Auditing. I find that it has a dual meaning and purpose at least in my specific case. It firstly encapsulates the essence and raison d'être of what I do - Internal Audit and secondly it describes as the Italians would aptly say … ‘a pennello’ what the hospitality business is all about.
Let us face it, although the hospitality sector in Malta is undoubtedly one of the pillars of the economy it is also an industry where competition is particularly intense and keeping up with the Joneses is not a simple euphemism… all this in a never-ending bid to attract clients with money... mind you... globally it is not much better.
Symptomatic of the hospitality environment are words such as luxury, good food and all year entertainment. Whilst however, this may well be the all end game, the reality behind these trademark connotations are endless hours of hard work and increasing operational and financial risks.
WHAT MAKES A HOTEL OR A RESTAURANT A GRADE ABOVE THE REST?Is it the quality of food, location, service, room or restaurant décor, staff hospitality or efficiency in dealing with clients’ requirements/complaints whether the latter are on holiday or business? Or is it the overall good experience that the client takes with him/her?
This drives me once again to my guiding quote where the fine balance between a positive or negative experience
can be expressed as the correlation between the money paid and the perceived experience that one expects to receive.
Among the major reasons why hospitality companies are being exposed to high levels of risk and possibly fraud is that the industry’s culture frequently emphasises customer service over internal controls. Hotel or restaurant managers naturally want to spend most of their time meeting and greeting guests rather than authorising purchases, guest refund requests, monitoring check-ins, approving complimentaries, monitoring energy usage or marketing costs, scrutinising payroll costs and the efficient deployment of employees, etc.,
Line employees, supervisors, managers and senior executives are often so narrowly focused and ingrained on getting repeat clients that financial and operational controls inevitably go down the pecking order.
In such an environment, what is the real role of the Internal Auditor - Is it one which should be inward looking and focused solely on the internal environment with emphasis on internal controls and maximisation of returns or should it be outward looking ensuring that the client receives a positive experience through established internal practices that focus on maximising the client experience?
A BALANCED MIX OF BOTHWhile customer service is indeed the ultimate factor determining if a hospitality property sinks or swims, neglecting anti-fraud controls is bound to shrink the bottom line …. no matter how wonderful guests think their visits are.
The challenge to achieve a balance between the quest for premium customer service and the unavoidable necessity to keep hard-earned revenues from flowing out through exploitation of inadequate internal controls and the loss of potential opportunity for growth is sometimes draconian.
THE BIGGEST CHALLENGE – GROWTH! Globally but particularly in Malta hospitality is an industry experiencing both great success and at the same time undergoing tremendous transformation. However, differences in purposes and markets, integrated IT systems and continuously emerging technologies, loyalty programs, challenges associated with increasing concerns over cyber security, terrorism, employment of foreign casual workers, the environment, socio economic concerns, etc., are just a few of the real risks to this industry.
Acquisitive behaviour is driving the need for more shared services and greater integration across systems. Expansion to global markets, demands new ways of approaching operations to address differences in the level and types of products and services.
While this growth is positive, it drives important changes for the way internal audit is conducted. The internal auditor must shift the operational focus, devise and leverage new controls with finite resources and manage risk across a greater number of properties and operators.
By looking beyond processes and controls, the internal auditor can with the holistic knowledge which is garnered through indirect involvement in day to day operational issues [through fieldwork reviews] and direct interaction with management, audit committees and boards play an essential advisory role within the hospitality sector. It can identify enterprise-wide cost efficiencies, provide strategic insights that improve business performance and provide key insights that focus on the risks that matter. This kind of support reaps multiple benefits for the organisation, including enhanced efficiency, and the ability to move more quickly and to take advantage of opportunities.
TECHNOLOGY IS TRANSFORMING THE INDUSTRY ON BOTH SIDES OF THE EQUATIONTechnology is rapidly changing the way business is analysed and conducted. Integration of systems is critical with data which is available in one place, an advantage at all levels, including increased reliance on cloud technologies to merge and streamline reservation systems and other core back-end functions.
Technology is also changing the face of the customer experience and of loyalty programmes. Customers increasingly want more for less and they want it faster - booking.com, Expedia, trivago, etc., are just to mention a few of the game changers. Opportunities abound for the customer to explore what is available and to compare and evaluate not only what is on offer locally but also beyond our shores. These opportunities
EUGENIO PRIVITELLI HAS BEEN WORKING WITH THE CORINTHIA GROUP OF COMPANIES FOR OVER 30 YEARS.
HE WAS A COFOUNDER AND FIRST CHAIRMAN OF THE MALTA FORUM FOR INTERNAL AUDITORS
EUGENIO PRIVITELLI
The Role of the Internal Auditor in the Hospitality Industry
"A man with money met a man with experience – the man with the experience ended up with the money, the man with the money ended up with the experience".
Anonymous
1 RGI (Revenue Generated Index), MPI (Market Penetration Index), ARI (Average Rate Index), RevPar (Revenue per Available Room), ARR (Average Room Rate), RevPAC (Revenue per Available Cover)
require new methods not only for securing transactions but also for tracking and assessing them.
INFORMATION IS CRITICALThe amount of information available is both critical and dangerous with the not so remote possibility of easily losing focus in the ever increasing quagmire of data at the disposal of management. The internal auditor needs data to assess ROI, identify patterns and trends around fraud and help the business react to and predict performance – those in the industry would immediately acknowledge that knowing your RGI, MPI, ARI, RevPar, ARR, RevPAC1, cost-of-sales, stock turnover, average spent per guest etc., are all essential benchmarks.
Analytics play an increasing role in mitigating risk, particularly around loyalty programs. If one has smart systems in place, one can continue to transform processes to manage these risks. It takes a broad IT effort, significant investment and a deep understanding of the business process to achieve this. At the same time this transformation is calling for a natural transformation of the internal auditor.
WHAT IS NEEDED FROM THE INTERNAL AUDITOR TO REALISE THIS TRANSFORMATION?The days when the primary focus was on compliance is over and has opened an incredible opportunity and responsibility for the internal auditor to become a critical partner to the industry, helping operators in the market understand if they are going about addressing the changes they face in the right way. This means not only assessing the effectiveness of control and risk mitigation of revenue leakages at the point of sale (POS) or analysing the efficiency and consistent standard of service of outsourcing arrangements (casual/contracted local/foreign employees – have become a common occurrence in Malta) but also participating proactively in the design of new plans and programs. The internal auditor can provide a measure of reassurance to internal and external stakeholders that
FEATURE: HOSPITALITY FEATURE: HOSPITALITY
16 Summer 2017 17theaccountant.org.mt
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internal control frameworks are adequately designed and operating effectively by:• Aligning itself with the organisation’s key business
objectives;• Improving audit efficiency and effectiveness, and
streamlining processes to drive cost savings;• Offering broader risk coverage and be proactive
about current and emerging risks;• Enabling cost efficiencies across all functional
areas;• Identifying and employing the right internal and
external skills; and• Creating competitive advantage by contributing
to sustainable business improvements.
WHAT ARE THE PITFALLS?Diversity – The diversity of the complex issues in the hospitality industry right from rate contracting to pricing strategies, market penetration, engineering, marketing, service delivery, security, IT knowledge, etc., are taxing on the internal auditor who is required to keep abreast of the ever-changing developments in these areas if he wants to add value to the organisation.
IT complexity – The complexity of the information systems with different systems used for various processes/departments such as Opera for PMS, Micros for Food & Beverage, Materials Control (MC) for
stores/purchasing, SUN or SAP for financials, etc., In the absence of one Enterprise Resource Planning (ERP) platform, auditing various systems can be complex.
Risk profiling – The uncertainties of risk profiling due to the unpredictability of the industry performance increases the difficulty to plan what risks to audit around with completely new risks emerging which can be far from home than one could imagine.
WHAT ARE THE OPPORTUNITIES? One expects that the hospitality industry will continue to transform itself at incredible speed, in both predictable and unexpected ways, well in the future. The internal auditor has an opportunity to exploit this moment and serve as a dynamic partner to the business. He/she is at a vantage point to act as a strong ally who is already well equipped to support and contribute to innovation and change.
It is vital that the internal auditor provides assurance over systems and controls and gives guidance that is both commercial and adds value. Whilst ways to save costs or increase income and meet regulatory and governance needs is a sine-qua-non, one cannot ignore the fact that especially in the hospitality sector the client is the one with the money and the one who ends up with the experience.
The tourism industry has long been one of the main pillars of the Maltese economy, generating income and employment for thousands of Maltese families. The industry as we know it today has come a long way, breaking new ground and reaching record levels of tourist arrivals and overall industry performance. Over the years, the industry has managed to continue to reinvent itself by growing niche markets such as language travel, diving and conference and incentive travel. The profile of visiting tourists has continued to evolve and become more diverse and less dependent on the traditional core inbound UK, German and Italian markets.
In 1974, the year in which AirMalta was set up, the
Maltese Islands welcomed 272,516 tourists. Last
year, Malta received just under two million tourists.
An impressive result for a country the size of Malta.
Between 2006 and 2016 the number of tourist arrivals
increased by 75%. As a result of shorter average length
of stay tourist guest nights increased to a lesser extent
by 42% to reach just under 15 million guest nights in
2016. Tourist expenditure, increased by more than €724
million during this last decade, with €1.7 billion spent
during 2016.
These results would not have been achieved were it
not for the commitment of all stakeholders involved in
the sector, who despite having their own interests to
safeguard, all worked together in making the tourism
industry a success story for Malta.
A key contributory factor driving these results has
undoubtedly been Malta’s increased connectivity to
the rest of the world and the ease with which tourists
can now travel to Malta. MIA statistics report that the
number of aircraft movements increased by 29% during
the past 10 years. The number of airlines operating to
Malta reached more than 40 in 2016. The increase in the
number of carriers flying to Malta has not only resulted
in a very significant increase in carrying capacity but
has also allowed Ryanair to establish itself as the carrier
bringing in most passengers.
The Hospitality Industry – Reaching New Heights
TOURIST ARRIVALS
GUEST NIGHTS
EXPENDITURE BY TOURIST
1,124,233
10,502,988
€ 984,041,463
1,965,928
14,961,000
€ 1,708,951,000
841,695
4,458,012
€ 724,909,537
75%
42%
74%
RAPHAEL ALOSIO HOLDS THE POST OF FINANCIAL ADVISORY LEADER AT DELOITTE MALTA. HE HAS BEEN IN PRIVATE PRACTICE FOR OVER 30 YEARS AND HAS BEEN WITH DELOITTE SINCE 1987.
RAPHAEL ALOSIO
2006 2016 CHANGE: 16 VS. 06 % CHANGE
FEATURE: HOSPITALITY FEATURE: HOSPITALITY
18 Summer 2017
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These positive trends are translating into significantly
improved operational performance for hoteliers and all
other sectors which are dependent on the performance
of the tourism sector.
Deloitte Malta has been reporting on the performance
of the hotel sector for more than 25 years. Over the
period, the sector has faced some tough challenges
especially in the wake and aftermath of the global
financial and economic crisis. Profit levels had taken the
brunt of the crisis and for some time the outlook was
bleak. As carrying capacity improved and tourist arrivals
increased, hotel performance began to steadily improve.
2016 was a very strong year for the hotels sector.
Between 2006 and 2016, hotel occupancy rates
increased by more than 12 percentage points while the
average daily rate (ADR) increased from €89 in 2006 to
€141 in 2016 for the 5-star category and from €37 to
€72 in the 4-star category .
Hotels profitability has also improved significantly and
hotels have managed to pull themselves away from the
rather bleak and precarious prospects they were facing
less than 10 years ago. Following a period of recovery,
in the aftermath of the international economic crisis,
hotel profits have improved steadily, more so in recent
years. In 2016, 5-star hotels registered an annual gross
operating profit per available room (GOPAR) of €21,362
TOP 10 AIRLINES Passenger movement 2006 TOP 10 AIRLINES Passenger movement 2016
Air Malta
British Jet
Alitalia
British Airways
Lufthansa
Emirates
Thomson Fly
Thomas Cook Airlines
First Choice Airways
MyTravel Airways
Ryanair
Air Malta
Easyjet
Lufthansa
Wizz Air Hungary
Turkish Airlines
Alitalia
Emirates
British Airways
Vueling Airlines
1,612,926
151,268
147,458
127,078
111,638
54,193
51,115
44,102
38,301
34,503
1,731,881
1,600,408
279,266
230,965
177,420
132,521
111,504
88,329
80,024
73,131
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
4-STAR KPI 2006 2016 5-STAR KPI 2006 2016
Occupancy
ADR
RevPAR
Direct costs PAR
Indirect Overheads PAR
Annual GOPAR
GOP margin
Occupancy
ADR
RevPAR
Direct costs PAR
Indirect Overheads PAR
Annual GOPAR
GOP margin
70%
€37
€50
€5
€9
€3,697
20%
63%
€89
€108
€14
€21
€7,615
19%
82%
€72
€86
€9
€11
€13,655
42%
76%
€141
€160
€19
€25
€21,362
36%
while 4-star hotels had an annual GOPAR of €13,655.
Over the ten year period between 2006 and 2016,
5-star and 4-star hotels in Malta increased their average
GOPAR by close to three times.
While these results are clearly satisfactory and all
indications point towards sustained growth for the hotel
industry in 2017, the tourism sector remains a cyclical
industry which is highly impacted by both internal and
external factors which may be outside its control.
Malta’s strong tourism performance has not been
exclusive to our islands, as most other competing
European Mediterranean destinations have also
reported strong tourism growth and performance
on the back of the misfortunes of other traditional
competing destinations facing internal unrest. For this
reason our success cannot be taken for granted as it is
only a matter of time before these other destinations
bounce back.
Whilst reported revenues and profits have been steadily
improving, direct costs and indirect overheads have
also increased during this period. In addition, hoteliers
are clearly facing increasing challenges when it comes
to recruitment and most operators are having to
increasingly resort to the employment of non-Maltese
nationals on a less permanent basis.
A closer analysis of the tourist arrivals figures shows
an evident shift from tourist staying in collective
accommodation (hotels, apart-hotels, guest houses
and hostels) towards private accommodation (holiday
furnished premises, host families, use of private
residence, and staying with relatives or friends). This
shift in tourist preference could have an impact on hotel
performance if the growth in tourist numbers begins to
subside. In 2006 the share of tourists opting for private
accommodation represented 30% of the total guest
nights compared to a very significant 41% in 2016.
Unquestionably, Malta should be proud of its
achievements in tourism over the years. Having said
this, the sector cannot afford to rest on the laurels of
these successes and must remain focused and reactive
to issues as they emerge. It is our conviction that if
everyone continues to pull in the same direction the
industry will continue to progress in the months ahead.
GLENN FENECH IS A MANAGER AT DELOITTE MALTA. HE IS AN ECONOMIST BY PROFESSION PROVIDING ECONOMIC ADVISORY SERVICES AND LEADING DELOITTE’S MARKET INTELLIGENCE ARM.
GLENN FENECH
AIRCRAFT MOVEMENT 2006 27,832 % CHANGE: 16 vs. 06 29%AIRCRAFT MOVEMENT 2016 35,800
FEATURE: HOSPITALITY
20 Summer 2017 21theaccountant.org.mt
TECHNICAL
MAZARS: IT’S NOT A FIRST JOB IT’S A FIRST STEP...
YOUR YEARS AT MAZARS YEARS THAT COUNT.
INCOME TAXAt the outset, following amendments made to our
Income Tax Act some years ago, investments in hotels
do qualify as an investment which can attract capital
allowances. This in itself is a fair deduction and attempts
to compensate the hotel owner for the investment made
in the hotel. Moreover, given that investments made to
refurbish a hotel could be substantial, Investment Aid,
limited to an amount of €200,000 is available. Usually
operators of a travel insurance for example, or those
involved in the leisure industry, may not require such
a substantial investment and the Micro invest schemes
granting a pure tax credit of up to €30,000 could also
be availed of.
Recently there has also been certain debate and
discussion that a European Regional Development Fund
(ERDF) grant will be available for investments made
in boutique hotels and Palazzini. Such structures are
currently mushrooming over certain parts of the island
(mainly Valletta) and a grant to assist the investor is most
certainly welcome, and a step in the right direction.
It is also hoped that more tax incentives are designed
to try to generate further investment in certain sectors
of the Hospitality sector which so far have not really
blossomed. These include the typical “agri tourismo”
concept, which is so popular in nearby Sicily and for
which much potential exists in both Malta and Gozo.
Another possible incentive could be to extend the
favourable tax rate available for families acting as host
families, to guest houses and small unclassified hotels.
It is hoped that such a reduced rate of tax on income
would encourage further investment in these structures.
INDIRECT TAXES When it comes to indirect taxes, it is my opinion that
this sector may deserve some better treatment. At the
outset, the sector is indeed plagued by a certain degree
of bureaucracy whereby people who engage in the
provision of accommodation services to tourists do now
have quite a few compliance obligations, particularly:
• obtaining of a license issued by the Malta Tourism
Authority and payment of the applicable fees;
• VAT registration, charging 7% VAT (unless the
person is registered under article 11 of the Maltese
VAT Act as an exempt business) and fulfilling of the
relevant VAT compliance obligations;
• registration for Environmental Contribution
purposes, applying a charge of EUR0.50 per
person over 18 years of age, per bed night (subject
to a maximum of EUR5.00) and fulfilling of the
relevant Environmental Contribution compliance
obligations;
Another point to mention, which this time is positive, is
the fact that this sector does have an advantageous rate
of VAT of 5% which is applicable on the sale of tickets
for admission to museums, concerts, art exhibitions
and theatres. Unfortunately however, through Maltese
case law, a question has been raised as to whether an
audio-visual experience in a Museum constitutes a
supply services which benefits from a reduced rate or
the viewing of a film, which is subject to VAT at the full
rates. The Court had concluded that VAT at the full rate
of 18% should apply in this respect.
Another important and critical VAT consideration in
connection with travel and related services is that
certain jurisdictions may not be applying the TOMS
(Tour Operators’ Margin Scheme) as the VAT Directive
conceived this idea. This has led to situations where
Maltese operators in this industry, when competing
internationally to attract a conference to Malta, for
example, have been in a disadvantageous position
because other Member States have given a more liberal
interpretation on how the TOMS is to be applied.
To sum up, whereas incentives are certainly available in
our tax laws in this sector and whereas the adoption of
a reduced rate of VAT for certain services forming part of
this sector have helped this tourism and entertainment
sector flourish the implementation of new ERDF
schemes and VAT initiatives would be welcome.
PAUL GIGLIO IS A TAXATION AND ASSURANCE PARTNER AT MAZARS MALTA. HE IS ALSO AN ACTIVE MEMBER IN VARIOUS SUB-COMMITTEES OF THE INSTITUTE.
PAUL GIGLIO
The Travel, Hospitality and Leisure Industry constitute a very important economic pillar of the Maltese Industry. Based on official statistics, in 2015 this industry contributed directly to around 14% of Malta’s GDP and when one also includes the wholesale sector to this industry, the contribution to GDP is a staggering 23%. Thus given the importance that this industry has in our economy, it comes as no surprise that there are indeed certain tax benefits, available under Maltese laws to assist and promote such a sector.
VAT and Income tax aspects in the Travel, Hospitality and Leisure Industry
22 Summer 2017 23theaccountant.org.mt
Customer experiences and engagement are today at the very heart of marketing management and, for hospitality businesses, establishing a customer first approach is critically important in differentiating brands. Getting close to the customer is crucial for profitable growth, to build brand strength and brand advocacy. This means that priority setting is determined by the consumer, not by what business thinks is best and “consumer centricity is a journey”.
Don Peppers and Martha Rogers, in Return on Customer, state that customer experience is the single most important factor for business success and "the only value ever created is value that comes from customers — those you have now and will have in the future."
With Digital and Social media, brands are owned by customers and insight into customer behaviour allows propositions to be built that really work for consumers.
To the customer, value is not the same as price, fluctuating and often a matter of perception, but important when there is little differentiation. Points of difference are required to create a competitive edge. Hospitality needs to add value to the proposition so that price is not the key differentiator and hoteliers must create value perceived or real in the mind of the consumer.
Meeting expectations is no longer acceptable such is competition today, as customer value expectations have grown due to rapidly changing technology. Brands need to become “experience providers”.
How does one add value? By providing an unforgettable experience through personalisation, a concept at the very heart of the hospitality industry: the art of making people feel at home. Personalisation and data driven marketing are today two of the top three trends and, personalizing the guest journey, can create a better
experience but starts with truly knowing your guests; each will be different.
Research shows that hospitality and a personalized guest experience are the prime reasons why guests return.
Most hospitality businesses use guest data mainly for simple marketing, largely being driven at the property level and not as much at the brand level. And they’re using it to communicate with guests before their stay from a marketing perspective.
Successful hotels are those that have a policy on managing customer data. There are guests that are looking to be loyal, but won’t be driven by some promise of points and free stays. Loyalty will be driven by exceptional ‘wow’ moments, experiences and hospitality organizations that understand what they’re looking for but only if you have a really solid guest profiles. It takes more than typical hotel brand values like convenience and comfort to elicit loyalty.
With a modular, component-based platform, hoteliers can collect important profile and other data about customers, marry the multiple sources to deliver valuable guest information to them, focus on creating an unforgettable brand and added-value personalized guest experiences, exceeding guest expectations. For hotels, the way the guest feels is always at the centre of the brand experience.
Guests consider their stay experience as excellent when they are convinced that they received more value than they expected. Going the extra mile should be the norm.
Hotels can define a core set of elements that are always in play, but no two guest experiences will be exactly alike, even if they always feel like they’re coming from the same brand.
You can now get to know your key customers, their personal favourites in terms of food, facilities, activity preferences, any special plans for the night/weekend. What did the guest order for meals etc. Details about their birthdays, anniversaries, job title, current employer, etc which are all easily available. Spending time with customers is the most important activity of any manager and, If the guest says something worth remembering for a next visit, then it should be recorded so the next visit can be made better.
Technology and data can help employees who often must use their own initiative to identify what needs to be done when necessary and appropriate. If they wait until they are told, or follow only prescribed actions, they will be both inefficient and ineffective. One can always affect
the outcome positively by being pro-active, anticipating the next best step and acting with a sense of urgency.
THE JOURNEY EXPERIENCEPerfecting customer experiences should be a businesses’ top priority as it provides measurable returns on such investments.
Hospitality businesses have long emphasized individual touch points: moments when customers interact with staff. Most measure customers’ satisfaction with each interaction, involving different parts of the organisation, and it is normal for business to maximise customer satisfaction by perfecting such touch points.
In the Harvard Business Review, Mckinsey identified this as insufficient; maximizing satisfaction at those moments diverts attention from the bigger and more important picture: the customer’s end-to-end (purchasing) experience, the sum of all hospitality interactions a customer has. Their research showed that customers didn’t much care about these singular touch points.
Hospitality businesses operate with a narrower view. Some define it as customer service or service excellence, representing only a fraction of the interactions with customers and that service is only one element of the total experience, resulting in it being unmemorable and undifferentiated. For hospitality brands, the way the guest feels is central to the brand experience provided. You can define a core set of elements that are always in play, but no two guest experiences will be exactly alike, even if they always feel like they’re coming from the same brand.
Mckinsey shows that even with the correct, complete view of customer experience, businesses may lack the proper tools to help them design and manage their total approach. Exceptional hospitality requires that customer journeys are embed into operating models by mapping guest experiences to earn extraordinary brand devotion.
MAPPING THE JOURNEYS To transform the overall customer experience, the hospitality trade needs to create a detailed road map for each service from start to finish, considering the business impact of optimizing the journey a plan of action and resources required.
Management can then identify the customer’s experience with various journeys and decide which ones to prioritize. Mapping will identify current performance and expose departures from the ideal customer experience and their causes; root causes of poor customer experience are internal, often from cross-functional disconnects.
REDESIGNING THE EXPERIENCE Analysing journeys and redesigning service processes get a business only so far. Viewing a journey from start to finish is a powerful learning experience; normally no single group has visibility or accountability for the entire experience, thus unable to recognize shortcomings.
A customer end to end process includes many customer interactions involving complex handoffs between internal groups, creating multiple places where things can go wrong.
Mapping can bring about an operational and cultural shift that engages the organization across functions and from top to bottom which can generate innovation and a focus on continuous improvement. It creates a culture that’s hard to build otherwise and a true competitive advantage goes to those that get it right: modifying the organization and its processes to deliver excellent journeys, changing mind sets at all levels and to sustain initiatives.
To map a brand’s blueprint, one looks at what makes it truly unique at its core—the key brand expressions, guest interactions, perks, and amenities that make a service brand what it is-and cross-reference that with guest expectations, feedback, operational feasibility, and strategic plans of competing in an increasingly crowded and competitive hospitality marketplace.
The resulting “Experience Map,” and its touchpoints, are structured around anticipating needs rather than prescribing formulaic solutions. The map backed by supporting detail, provides vision and guidance of a guest’s chronology of experience, from booking and arrival, to the stay itself, through check-out and departure.
It’s pivotal as a guide for employees in their work, ranging from developing on-property experiences, to interacting with guests. It provides them both clarity of purpose and the space and freedom to execute in their own personal touch.
The Experience Map is a paradigm, not a formula to replicate the same experience with factory-like consistency, but to provide a framework to showcase a unique brand personality.
THE JOURNEY NEVER ENDSIt’s a pursuit that isn’t simply solved once and then forgotten; even the clearest, most thoughtful documentation and training needs continual maintenance. The Map doesn’t tell employees everything to do in every situation; it gives them basic tools and a clear understanding of how they want the customer to feel in each situation.
LOUIS NAUDI IS THE CHARTERED INSTITUTE OF MARKETING AMBASSADOR FOR MALTA & HON. PROFESSOR & FELLOW OF THE CHARTERED INSTITUTE OF MARKETING.
LOUIS NAUDI
IT’S WHAT YOU DO, Not What You Promise Which
Matters Today in Hospitality
“Marketers must harness technology but the fundamental skills are the same in hospitality - understanding customer needs, to innovate in response and deliver in engaging ways.”
FEATURE: HOSPITALITY FEATURE: HOSPITALITY
24 Summer 2017 25theaccountant.org.mt
Q. Most successful hotels, like any other
businesses, rely on fundamental management
principles to enable them to maximize their
property profitably. The keys to financial
success include an annual budget, detailed
financial tracking model, ongoing audits and
reporting structure. Would the same principles
in hotel financial management apply to a hotel
which relates to a chain and to an independent
hotel?
A. Yes – the principles in general are the same and
an independent hotel stands to benefit from having
a similar structure to that of a hotel forming part of a
chain.
The purpose and benefits of budgetary planning and
control process include:
• Establishing financial and organisational objectives
through discussions between hotel owners and
hotel senior managers.
• Communicating objectives and plans.
• Planning and coordinating operations through
discussions between hotel senior and middle
management.
• Participating in the budget process motivates
managers and employees - they get to “own” the
budget.
• Measuring and controlling organizational
performance.
• Evaluating managerial performance which is linked
to a reward structure. This stimulates superior
performance.
It is fundamental that heads of departments are
conversant with budgets and financial information
in general and it is the role of the management team
to train, explain and support heads of departments
in the use of financial information. The finance team
of any hotel should hold monthly meetings with key
departments to analyze profit and loss results and
discuss short term future operational and financial
expectations. The finance department of any hotel, just
like that of any other company, needs to position itself
as a financial consultant to other department heads as
these evaluate fresh models of how to enhance revenue
and/or explore ways to reduce costs.
Q. Revenue management has made its way
from the airline industry into the lodging
sector. The five pillars of revenue management
are (a) segmentation and customer knowledge,
(b) capacity management, (c) forecasting and
overbooking, (d) channel management and
distribution, (e) pricing strategies. Could you
describe to the readers of ‘The Accountant’
how a hotel forming part of a chain, practises
revenue management?
A. Indeed revenue management is one of the key
pillars of our organisation and vital to the success of the
operation. It is all about the basic concept of maximising
demand and a given supply and thus optimising our
yield. In order to do this, the gathering of market
information, historical information and having the right
tools to analyse the business trends are all critical to
help us adopt the right strategies and making the right
decisions in maximising revenues. Being part of a chain
helps us to gain synergy from a Central Reservation
Systems and our loyalty program.
Our international sales offices also focus on low periods
and support the individual hotels. Tapping such a
resource, sharing the right information and proper
forecasting are important elements to ensure that
central marketing campaigns are effective and essential
to drive business home. Revenue management is not
something to be visited once a month but it has to be
practiced in real time, all the time.
In our industry, certainly the 5 star hotels, revenue
management normally falls under the remit of the
revenue department, often headed by the director for
business development. The function is fully embraced
and supported by the general manager. The critical
role of the financial controller is to review, challenge
the numbers, look at the overall picture and give
constructive feedback.
Q. Do independent hotels follow the revenue
management regime?
A. Yes independent hotels also have a revenue
management regime in place. This includes:
(a) segmentation and customer knowledge
• Segmentation by source: individuals, leisure
groups, meetings, incentives, conferencing and
exhibitions (MICE); online, direct.
• Segmentation by country: mainly UK, Germany,
France, Benelux, Scandinavia, Italy.
• Using internet and social media to interact with our
customers, as well as following customer reviews
of our own hotel and competitors’.
(b) capacity management & (c) forecasting and overbooking
It’s a balancing act between lowering rates to secure
business earlier than competitors versus retaining
higher rates with the prospect of achieving superior
room rates, but risking a lower occupancy which might
ultimately result in lower revenues than the previous
option. The stance adopted along this spectrum
depends on the business outlook perceived by the sales
and marketing department and risk appetite of the
management team.
(d) channel management and distribution We endeavour to increase the number of tour operators,
liaise with Destination Management Companies (DMCs)
for meetings, incentives, conferences and exhibitions;
participation in sales trips and travel fairs to establish
direct business connections, investment in technology
to grow the online segment which allows us to set
room rates in the short term depending on the market’s
current supply and demand.
(e) pricing strategiesApart from the seasonality aspect which translates into
higher rates in summer, the vast amount of information
on room rates available on the internet (both ours and
that of our competitors), makes it more difficult to
charge rates which are much different from those of
our competitors or different rates to different operators
based on the perceived affluence of their target market.
Any pricing differences stem from qualitative factors
such as differences in the manner tour operators
package their offers, the hotel’s “augmented services”
-free WIFI, free safe deposit boxes, “free upgrades” to
sea-view rooms, etc. or the discount schemes (loyalty or
early booking discounts) and the commission structure
agreed with the tour operators and DMCs.
Q. What are your suggestions to financial
managers working within an independent
hotel, in terms of best practices in revenue
management for 2017?
A. In the current business environment where tourism
figures have been increasing year after year for the
past five years, our common goal as hoteliers should
be to keep building on our achievements by nurturing
profitable relationships with our business partners
and engaging in healthy competition through product
development and quality enhancement rather than
undermine the entire industry through aggressive price
competition. This would be more so important for
when there is a dip in the business cyclical which would
increase the pressure to reduce room rates, as these
might then take a number of years to recover.
Financial Management: Best practices in the hospitality industry
FEATURE: HOSPITALITY FEATURE: HOSPITALITY
IAN BONELLO HAS 20 YEARS EXPERIENCE IN HOSPITALITY FINANCIAL MANAGEMENT AND IS CURRENTLY THE FINANCIAL CONTROLLER AT THE DOLMEN RESORT HOTEL.
IAN BONELLO
LORNA CAMILLERI-BONNICI IS THE DIRECTOR OF FINANCE AT THE HILTON MALTA WITH OVER 20 YEARS OF EXPERIENCE WORKING IN THE TRAVEL AND HOSPITALITY INDUSTRIES.
RAY SLADDEN IS THE GROUP FINANCE DIRECTOR AND COMPANY SECRETARY OF TUMAS GROUP
LORNA CAMILLERI-BONNICI
RAY SLADDEN
The technical team of the Malta Institute of Accountants, interviews the Finance Director of Hilton Malta, Ms Lorna Bonnici, Mr Ian Bonello, the Financial Controller of Dolmen Resort Hotel and Mr Ray Sladden, Group Finance Director & Company Secretary of Tumas Group.
26 Summer 2017 27theaccountant.org.mt
proper control and management of our assets within
our direct control. It is one big continuous circle – by
exceeding guest expectations, we will drive our RevPar
results and through proper cost management, we
maximise our owners’ return and hence the return on
Investment….which in turn leads to reinvestment in the
property.
As an independent hotel, forming part of larger group
of companies which has been a pioneer in Malta’s
hospitality industry and has now evolved into a
diversified group with a sterling reputation with its local
and foreign business partners, allows us to pool our
resources to enjoy synergies and economies of scale
in certain areas like purchasing, financing and project
management. This has to be assessed on a holistic
basis, as with any other asset we need to ensure a
satisfactory return as we compete for capital resources
which from an owner’s perspective can alternatively
also be assigned elsewhere. Of course our approach is
for continuous asset renewal & upgrading so as to score
goals and actually make the expected return. This will
enable the shareholders to put more money into these
assets. In all, we need to deliver enterprise value to our
owners essentially by exceeding customer expectations,
thereby maximising revenue while retaining appropriate
cost control.
Q. What is your advice from a financial
manager’s perspective to the hotel industry in
Malta for the near future?
A. Like any other business, in order for a hotel to
thrive, grow and be successful, there needs to be a
solid structure and backbone to sustain the operation.
Having excellent facilities for the end product is key but
without the know how to manage and maximise the
use of these assets, they will fall apart. Investing in the
right people to run the business, working with various
partners such as MTA, Malta Enterprise and Airmalta,
knowing our customers, knowing our market, managing
our revenues, a pro-active credit control function and
perpetual cash-flow management, investing in modern
tools and technology, having well trained team members
(both front and back of house), and having sound
internal control processes to support any operation, is
key to the success of any hotel/business. We definitely
need to be innovative and keen on embracing new
techniques and systems ensuring a total customer
focus. It is ultimately all these factors woven together
that sow the seeds of success.
FEATURE
Q. How can revenue management assist an
independent hotel in times of weaker demand?
A. It is only through revenue management, that any
hotel (whether independent or part of a chain) can
protect and potentially grow its fair market share
and RevPar index (revenue per available room). The
stronger the hotel’s knowledge about the customer,
segmentation, capacity, and competition, the better
equipped a hotel is in making the right decision and thus
maximizing on its yielding potential. In tandem with a
thorough understanding of the hotel’s cost structure,
management would be able to retain an adequate
margin of profit to ensure the sustainability of the
property in challenging times.
Q. Do you agree that pricing strategy is one
of the most important of the previously
mentioned pillars?
A. Indeed, the correct pricing strategy for each market
segmentation is critical. An incorrect pricing strategy
immediately leads to ultimate loss of revenues / RevPar,
and hence, repercussions. However, the negative
effects of incorrect pricing strategies tend to have a
much longer term impact on the business. One must
keep in mind that our product is a perishable one and
its sell-by date is gone immediately the day is over.
Q. What does asset management mean in the
hotel/hospitality industry?
A. Asset management for the hotel industry is maximising
our return from the way we run the business. It is a
systematic approach to manage our assets and identify
business improvement opportunities. The asset itself
ranges from the actual tangible product (the rooms;
restaurants ; meeting rooms ; public areas; recreational
facilities, IT systems), to the service provided by our
frontline employees who are central in ensuring that the
hotels’ guests enjoy a memorable experience.
Q. What type of business model should a hotel
forming part of a chain and an independent
hotel follow on asset management?
A. Due to its various brands a hotel forming part of a
chain has to adapt to various business models – ranging
from owned/ leased properties; managed or franchised.
Following the managed hotel business model requires
that we represent our brand - to fulfil the brand promise
and provide consistency of product and quality through
FEATURE: HOSPITALITY
28 Summer 2017 29theaccountant.org.mt
FEATURE: HOSPITALITY
Tourism has over the years developed into
a major sector of the Maltese Economy.
Most tourism activity has revolved around
conventional Sand, Sun and Sea (3S) tourism
with sandy beaches being highly sought after.
Yet new trends in Europe and across the globe
and the desire to travel green and visit remote
and pristine environments have led to the
development of new niches which are nature
based or nature related.
The link between tourism and the environment is
not new in the Maltese Islands. One would not be
too presumptuous to say that the environment was a
major element that kicked off tourism in Malta. The
latter started to develop in the 1950s at a time when
the island served as a military base. Several from the
United Kingdom (UK) used to visit their relatives on duty
on the island whereas others who served on the islands
used to return with their families. Within villages, local
fishermen marketed tours on board their traditional
boats among such tourists. The excursion to the ‘Blue
Grotto’, nowadays a top listing (number 30 of 356) of
things to do in Malta on Trip Advisor, included visiting
the caves found in the south-eastern part of the island,
an area characterised by several interesting geological
formations which are not easily accessible by land.
Evidently, in the past, the natural environment of the
Maltese Islands, had a lot to offer and was a major
attraction. In fact, as early as in 1969, a country code for
the Maltese Islands was already prepared by the then
Natural History Society of Malta providing tips to visitors
on how to respect wildlife when visiting the country
side.
Unfortunately over the years coastal development
has impacted the environment. This has led to habitat
fragmentation and most sites ideal for environmental
tourists have become restricted to small areas. Yet
according to the Environment and Resources Authority
(ERA), over 28.5% (89.5 km2) of the Maltese islands is
protected due to one designation or another. Included
in this number one finds 13.1% of land area forming part
of the EU wide Natura 2000 network. Over the years the
number of Marine Protected Areas (MPAs) have also
increased considerably and nowadays 29.9% of Maltese
waters (3,487 km2) have been designated as MPAs.
Whereas Ecotourism is not limited to protected areas,
such sites are fundamental for those interested in this
niche. However most of these sites lack management,
enforcement, interpretation and other necessities for
tourism to flourish.
Tourism in Malta has reached almost 2 million in 2016.
The flow of tourists coupled with the high population
density of the Maltese Islands has raised concerns and
discussions on carrying capacity, especially in areas
that are environmentally sensitive. A case in point are
the masses of people visiting Comino and Blue Lagoon
during the summer period, which has led to a carrying
capacity study by ERA.
Ecotourism in Malta faces a number of challenges
including the lack of site management, lack of site
accessibility due to squatters and other illegal activities,
lack of interpretation services which is currently
limited to countryside walks and lack of nature based
packages to mention a few. Apart from development,
other impacts include illegal hunting and trapping,
aquaculture, illegal dumping and pollution of fresh
water due to agricultural activity.
On a positive note the tourist industry per se has also
become more environmentally conscious over the
years. As part of the International Year of Ecotourism
initiatives, in 2002, the national Ecolabel, was introduced
and is now being administered by the Malta Tourism
Authority (MTA). Since then this has been developed
further to reflect global sustainable tourism principles.
This ensures that environmentally aware tourists can
also sleep green in Malta in one of the accredited
hotels or in one of the accredited farmhouses in Gozo.
In recent years, a Life+ project spearheaded by the
Malta Business Bureau (MBB) has incentivised various
hotels and accommodation structures to take necessary
measures to reduce water consumption.
National Tourism Policies published over the past 15
years have increasingly given due importance to the
environment as a key aspect of the tourism product.
Gozo has also been earmarked as an eco-destination. If
due attention has been given to this element in practice,
remains a question to be answered mostly due to lack of
political will.
Other several initiatives have been taken over the
years to complement tourism and the environment.
For instance, through the project PANACEA a MPA
information centre was opened in Dwejra, Gozo to serve
as an interpretation centre on the marine environment
of the area which might be of great interest to divers
and those willing to practice snorkelling. The Majjistral
Nature and History Park has participated in the
Mediterranean Experience of Eco-Tourism (MEET) and
received advice and training on how to offer ecotourism
packages to tourists interested in nature-based
tourism, embracing interpretation and sustainability. An
underwater trail has also been developed in the area,
though this requires maintenance. The environmental
Non-Governmental Organisation Nature Trust opened a
hostel at the Xrobb l-Ghagin Park and provides guided
excursions within the park. A number of other nature
walks have also been developed such as those at Hagar
Qim and Imnajdra. The countryside walks developed
in 2002, in both Malta and Gozo have been revamped
through the ‘Malta goes Rural project’. Such walks have
proved to be very popular with tourists especially due
to the multilingual guidebooks prepared. There has
been an increase in centres including aquaria, zoos and
bird parks, which provide new opportunities for tourists
interested in the environment. Yet these have also
raised ethical concerns among the true nature-based
tourists on the bases of captivity.
A true culture change is the only way forward and what
one hopes for. Should the right incentives be taken the
Maltese Archipelago has the potential to use this as
an opportunity to attract more sustainable tourism,
generate funds to manage environmentally sensitive
and protected areas and also offer new opportunities
including green jobs to the local community.
Malta has a long way yet to go if it truly wants to attract nature-based tourism. Note should be taken of other similar central Mediterranean islands who have promoted this kind of tourism. For instance, the Spiaggia dei Conigli in Lampedusa is under strict management, limiting the number of tourists, umbrellas and activities on the beach in view of the fact that it is a yearly nesting site for the Loggerhead Turtle. Locally, good initiatives have also been taken such as at Golden Bay in Malta and Santa Marija Bay in Comino.
KARL AGIUS IS A SCIENTIST WITH A PASSION FOR TRAVELING. HE IS CURRENTLY STUDYING FOR A PHD DEGREE ON THE ECOTOURISM POTENTIAL IN CENTRAL MEDITERRANEAN ISLANDS WITH THE UNIVERSITY OF MALTA.
PROF. ALAN DEIDUN IS A MARINE BIOLOGIST ENGAGED WITHIN THE DEPARTMENT OF GEOSCIENCES OF THE UNIVERSITY OF MALTA, A FELLOW OF THE ROYAL SOCIETY OF BIOLOGY AND A DIRECTOR OF THE IOI (INTERNATIONAL OCEAN INSTITUTE) TRAINING CENTRE.
KARL AGIUS
PROF. ALAN DEIDUN
Tourism and the environment: the missing link
FEATURE: HOSPITALITY
30 Summer 2017
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For centuries money has played a very
important role in civilised societies, and was
considered a better solution to the bartering
system. It took different forms throughout
ages and an electronic format comes as no
surprise in current times.
Electronic money (eMoney) is issued by financial
institutions having an electronic money licence, thereby
known as Electronic Money Institutions (EMIs). eMoney
is another alternative of making money transfers and/
or payments, due to the fact that they are instant
payments (which is somehow different from traditional
bank payments which commonly use SWIFT and SEPA
to transfer funds). The purpose of the introduction of
eMoney and EMIs was to increase competition and
products offered in the market and enable consumers
to benefit from lower transaction fees. A legal basis
is established in the Electronic Money Directive
(2009/110/EC), and reflected in Maltese Legislation
through the Financial Institutions Act (Cap 376 of the
Laws of Malta) under the Third Schedule.
A particular feature of EMIs is that they cannot offer
credit to their clients thus the value of eMoney is
prepaid by the customer into his/ her account prior
to making the transfer (unlike credit institutions or
financial institutions possessing a payment licence –
known as payment institutions – which can give credit
to their customers). Effectively EMIs change the form of
money (from physical to electronic) to provide a service
to their consumers whereby through electronic making
it is more practical to execute transfers (rather than
through physical cash).
The primary purpose of eMoney is to reduce the
dependency on physical cash. Its characteristic can be
of 2 types: 1 hardware-based products (most commonly
known as prepaid cards) where the individual can use
the card to buy goods / services physically or online,
or 2 software-based which is an innovative solution
useful for both corporates (amongst which are gaming
companies) and individuals as one of their payment
methods to transfer funds instantly without delays. The
latter being discomforts commonly faced when making
bank transfers. Therefore, such systems are considered
to be as fast as cash. A typical system adopted by EMIs
is to operate a closed-loop system, where a transaction’s
output is another’s input, meaning that the outward
transfer of one electronic account is the input of
another, leaving no overall effect on the total client
funds, but a mere transaction in the IT system. Such
accounts cannot be used to make third-party payments
(i.e. outside the closed-loop system).
Funds received by EMIs are to be used solely for
payments. EMIs users do not hold accounts as a means
ELECTRONIC MONEY:
another form of cash
CHRISTIAN GAUCI, FINANCIAL CONTROLLER AT PAPAYA LIMITED
CHRISTIAN GAUCI
FEATURE: ELECTRONIC MONEY
32 Summer 2017 33theaccountant.org.mt
made instantly. Therefore, there would be advantages
of efficiency in money transfers and also lower
transaction fees. In addition, it is a known fact that
the tourism industry employs a number of short-term
employees due to the seasonal nature of the industry.
If employees have an account with the EMI, wages
could be transferred to their account, which they can
thereafter use for other purposes, in a similar way as a
current account held with a bank. This form of payment
is also convenient for restaurants, since if they cater for
a system of mobile payments, they can reduce the risk
of cash fraud as well as efficiency in settling bills.
However, EMIs face challenges as very often their
business is considered a grey-area by the banking
industry which in turn is reluctant to provide services to
EMIs, thus restricting the choice of establishing banking
relationships. This is a very serious concern since despite
authorities recognising the importance of creating
more financial services accessibility, in practice this is
resulting to be difficult. This goes against the previously
mentioned purpose of creating EMIs. Also despite EMIs
being regulated (albeit at a different level to banks) and
obliged to perform due diligence procedures on their
clients and AML/CFT monitoring on transactions.
In current times, this form of money is highly useful as
well as practical, particularly in view of the accelerated
advancement in technology, increased use of portable
devices and greater mobility of people. Users need to
familiarise themselves with this innovative concept
and consider eMoney as another ‘wallet’, though in
electronic format. There needs to be a change in
mentality from one that sees these eMoney as different
from bank accounts to one that sees it as there to
facilitate payments, have other cheaper alternatives
at their disposal and reduce the risk of forfeiture
associated with cash. This is the way forward for both
the payments industry as well as the necessary move
towards a cashless society.
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of savings; in fact, funds transferred to EMIs do not
constitute a deposit. In particular, EMIs are precluded
to pay interest to their clients and also cannot invest and
make a return on client funds. Client funds must always
be kept at call and readily available when they want
to make payment transactions. This is an important
concept for eMoney as it needs to be treated as an
electronic alternative to cash and not as an investment.
It is important to note that the purpose of EMIs is not to
move money out of banks, but to facilitate the payment
process. A characteristic of EMIs is to effect a large
volume of low-value transactions, very often averaging
around €100 per transaction.
EMIs are bound by law to segregate client funds from
company funds. They have the duty to safeguard the
clients’ stored eMoney and keep client funds deposited
with banks. Therefore, given that an EMI would be
sufficiently capitalised, the client funds’ security would
rest on the soundness of the banking industry. In this
respect, if an EMI ceases to operate the clients’ risk
would be relatively low, since the clients’ funds are held
by the respective banks of the EMIs.
EMIs are important as they provide financial services
accessibility to persons who very often face difficulty
in accessing banking services such as immigrants,
freelancers and young individuals who enter the
country for work purposes. They can also offer better
solutions to replace older payment methods such as
the cheque system (including cheque payments made
by Government in paying out social benefits). More
importantly, EMIs use their competitive advantage of
effecting instant payments to help facilitate ecommerce,
a key factor in this industry. As ecommerce evolved, the
payments industry had to evolve accordingly to provide
fast and reliable payment solutions, without which
the ecommerce industry would not have been able to
flourish at such a fast rate.
The positive characteristics of eMoney are particularly
suitable to the travel, hospitality and leisure
industry. It is ideal for settling bills in restaurants,
hotel accommodation, conference fees and sport
activities amongst others. Very often such EMIs offer
their services in different currencies and thus there
wouldn’t be the need to convert money to the payment
settlement currency.
If for example travel agents and hoteliers use the
services of the same EMI, any payment transfers can be
There are benefits for non-direct users of eMoney as well. As the use of eMoney increases in popularity and physical cash usage reduces, funds will become more traceable. Increased transparency in the flow of funds could lead to lower risk of tax evasion which would in turn benefit the society as a whole.
FEATURE: ELECTRONIC MONEY
34 Summer 2017
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The purpose of the setting up of a Malta
company may range from cross border trade
to a holding company. This diversification calls
for a sound set up backed with responsible
corporate officers. The Companies Act, Chapter
386 of the laws of Malta, provides for the
corporate officers, and their respective roles
which in turn enable the proper functioning
of a Malta company. Many times the role of
the company secretary is overlooked at, and
treated as merely an administrative officer of
the company. Erstwhile to the enactment of the
Companies Act, there was no obligation upon a
company incorporated under the laws of Malta
to appoint a company secretary albeit this role
being recognised in commercial practice prior
to 1995. Upon the enactment of Chapter 386
of the laws of Malta, the office of a company
secretary became acknowledged in written law
and set as a main officer of every company.
Article 138 of the Companies Act, lists down who may
qualify for the post of a company secretary. As a rule of
thumb, the company secretary must be an individual,
however in the case of an investment company with
variable share capital and/or fixed share capital, the
company secretary may be a body corporate. There
is no provision in the Companies Act that sets an
obligation that the company secretary is a Maltese
resident, however, it is advisable given the office’s duties
and responsibilities.
It is worth noting that a company cannot appoint its sole
director as the company secretary nor can a company
have as its sole director a body corporate whose sole
director is the company secretary of the company. An
exception to this general rule is set for private exempt
companies where a sole director may hold the office of
a company secretary during his directorship.
The first company secretary is appointed by the
shareholders in the first Memorandum and Articles of
Association of the company. The company secretary may
be removed by the directors of the company by virtue
of a board resolution. If the latter resolve to remove
the company secretary from office, a new company
secretary has to be appointed within fourteen days from
the date the previous secretary has been dismissed. In
case of a prolonged vacancy, the board of directors may
authorise one of its members to undertake the duties of
a company secretary ad interim.
The following individuals are disqualified from being
nominated as a company secretary in Malta: individuals
who have been convicted of a crime affecting the
public trust, theft or fraud; individuals, who have been
interdicted, incapacitated; undischarged bankrupts;
minors who are not emancipated or else who are
subject to a disqualification order.
The Companies Act puts the requirement for a
company secretary to have the requisite knowledge
and experience for the carrying out of the functions of
GETTING IT RIGHT
The Company Secretary
GETTING IT RIGHT
DR ANN BUGEJA IS CURRENTLY HEADING THE LEGAL TEAM OF CSB LEGAL, A BOUTIQUE LAW FIRM, AND IS MAINLY INVOLVED IN CORPORATE TRANSACTIONS.
DR ANN BUGEJA
DR MARIA TABONE OBTAINED HER DOCTOR OF LAWS IN 2016 AND IS INVOLVED IN VARIOUS ASPECTS, MAINLY CONTRACT DRAFTING AND EMPLOYMENT LAW.
DR MARIA TABONE
36 Summer 2017
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MS CHARLOTTE ATTARD JOINED CSB GROUP AS A LEGAL TRAINEE IN JANUARY 2017 AND LATER THIS YEAR SHE WILL OBTAIN HER DOCTORATE OF LAWS.
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such post, having said that, the Companies Act does not
set a requirement to be in possession of an academic
or professional qualification in order to hold the post
of a secretary. Nevertheless appointing a professional
as a company secretary, adds value to the corporate
structure.
In accordance with the Companies Act, a company
may have more than one company secretary; however
this does not occur frequently due to the fact that
each company secretary has to fulfil all the requisites
imposed on them under Maltese law. This implies that
in case of two company secretaries, the two are joint
signatories on any obligation set out on such a role.
In the First Schedule of the Companies Act, the legislator
sets a number of duties assigned to a company secretary.
These include:
• Ensuring that proper notice of the meeting and
agenda are circulated within the notice period (as
specified in the articles of association);
• Ensuring that proxy forms and/or appointment of
alternative director forms, if required, are sent to
be received in original by the company or any other
person up to forty-eight hours (or as stipulated in
the Memorandum and Articles of Association)
before the meeting for the appointment to be
effective and to be tabled at the meeting;
• Informing the chairman (of a meeting) whether
a quorum for the meeting is present and ensures
that the meeting proceeds in accordance with the
agenda of the meeting;
• Taking minutes of proceedings of the board and
any general or extraordinary meetings held, which
are then kept in the company’s minute book; and
• Recording any resolutions put to vote.
Moreover, the company secretary shall take care of,
inter alia, any amendments to the Memorandum and
Articles of Association, any changes amongst the officers
and persons who are vested with representation.
Usually, a company secretary would be the person
to file the annual return of the company and also the
one recording any changes effected in the register of
directors and members. It is worth noting that anything
required to be done by a company under the provisions
of the Companies Act shall also be deemed as required
to be done by the officers of the company. Therefore,
the responsibilities of the company secretary may
emanate from the Companies Act as per the board’s and
company’s exigencies. Furthermore, the responsibilities
of a company secretary do not only emanate from the
Companies Act but they may also be delegated by the
company itself.
The company secretary plays a leading role in good
governance by providing support beyond scheduling
meetings, managing the agenda and ensuring the
presentation of information in advance of meetings in
addition to pursuing and managing follow up action
points on matters arising. Thus, the responsibility for
good corporate governance also falls largely within the
remit of the company secretary. The responsibility of
the company secretary is to ensure good governance
throughout the livelihood of the company, from
inception up to the winding-up of the company. At this
stage it is worth noting that upon winding up, a liquidator
is appointed and all the powers of the corporate officers,
including that of the secretary shall cease.
As an officer of a company, a company secretary may
potentially be faced with liability in the course of
exercising his appointment. The Companies Act states
that any provision being in the Memorandum and
Articles of Association of the company or in any contract
exempting an officer of the company from personal
liability arising from negligence, default or breach of
duty shall be void. Having said that, a company may
indemnify any of its officers against any personal liability
when defending proceedings in which judgement is
given in their favour or else in which they are acquitted.
Indeed, the great number of duties outlined above as
incumbent upon a company secretary is indicative of
how vital the role and position of a secretary is.
Regardless of the title of the office, the role of a company secretary is not merely of a secretarial nature. Despite the fact that the company secretary does not take part in the management of the company, nowadays the role of the secretary is associated to that of a special advisor to the board.
38 Summer 2017 39theaccountant.org.mt
FEATURE: MARITIME INDUSTRY TECHNICAL
The shipping sector appears to slowly be emerging from its negative cycle, with Moody’s changing its outlook on the global shipping industry to stable earlier this year, driven primarily by positive developments in the dry bulk and container ship market segments. Still, traditional sources of ship finance that had previously dried up are unlikely to re-emerge in a hurry. Bank lending to the shipping companies has decreased in recent years in response to increased regulatory capital requirements and a more conservative approach to risk.
The capital markets can provide a valuable alternative source of funding but this requires a change in mindset for shipping companies that have to date always relied on their bankers for funding, although this should not be much of an obstacle in practice given that institutional investors typically have many of the same investment or credit criteria as conventional lenders.
Securitisation is typically not considered as an option by ship owners but it should be as it can provide an effective means of raising additional finance (or refinancing existing bank debt) at a time where bank lending has disappeared or has simply become too expensive. Securitisation transactions are undertaken through ‘Special Purpose Vehicles’ (or ‘SPVs’), entities that are set up for the sole purpose of issuing securities to fund the acquisition of particular assets. These assets are segregated within the SPV for the benefit of investors, with the proceeds generated by the assets used to fund the return on the securities issued. It is a valid means of financing wherever cash-producing assets are involved – assets such as ships and charter party (lease) receivables, for example.
SPVs have been present in Maltese legislation in the shipping context for some time in the form of shipping organisations established under the Merchant Shipping (Shipping Organisations – Private Companies) Regulations. Just like securitisation vehicles, shipping organisations must be established with limited objects – essentially the ownership and operation of ships and certain ancillary activities, including the raising of finance (through the issuance of securities or otherwise).
As with any financing, lender security and comfort are essential. Malta’s creditor friendly shipping regime (established principally under the Merchant Shipping Act) was drafted with the protection of the mortgagee (traditionally the financing bank) in mind as the main creditor of the shipping company. It is well known, tried and tested and offers, among other benefits, ease, efficiency and certainty of enforcement by the mortgagee in the event of a default (including a recently
introduced ability to enforce on and dispose of a vessel through a private sale without court intervention) and an automatic stay on insolvency proceedings of the entity pending outcome of enforcement proceedings on the vessel. The vessel owned by the SPV also forms a distinct patrimony within the assets of the entity that is generally available to satisfy only the priority claims of the mortgagee ahead of all other creditors. These benefits can be utilised by any mortgagee (including a security trustee acting on behalf of investors) irrespective of the type of financing provided by that mortgagee.
Malta’s securitisation framework was similarly designed to benefit a securitisation vehicle’s main creditor (i.e. the investor/s in the securities issued by the vehicle), providing legal certainty on all fundamental issues that institutional investors in the capital markets are typically concerned with. Some of the key advantages of using an SPV established under Malta’s Securitisation Act include statutory bankruptcy remoteness from the originator and true sale of the securitisation assets, a first ranking privilege over the securitisation assets in favour of investors, and the ability to vest in the investors (through a security trustee) the exclusive right to commence insolvency proceedings in relation to the SPV.
While the benefits of the Securitisation Act apply to any asset class, it can be coupled with Malta’s shipping framework and established legal precedent in shipping matters to create an extremely attractive structure for securitisations backed by shipping assets, one that was first used in the recent UASC ‘Enhanced Maritime Trust Certificates’ issuance, a transaction which involved the securitisation of ultra-large container vessels and their bareboat charter party receivables and won Marine Money magazine’s structured finance and innovation deal of the year award. Malta was selected from a number of jurisdictions as the domicile for ship-owning SPVs for a very particular reason – each SPV could uniquely be established both as a shipping organisation subject to the Malta’s shipping legislation and as a securitisation vehicle under the Securitisation Act, benefitting from the vast array of creditor friendly provisions of both regimes.
Malta is the only jurisdiction that can provide such a robust financing structure (in terms of legal certainty) for maritime assets and those shipping groups that may be looking towards the capital markets would do well to consider securitisation as a potential option. It is a financing tool that is equally valuable to those with a greater need for immediate funding as it is for those looking to set up a solid funding base and development plan for the longer term.
SECURITISATION OF SHIPPING ASSETS – Alternative Financing for the Maritime Industry
From MiFID I to MiFID II
What are the effects of change?
DR NICHOLAS CURMI IS A SENIOR ASSOCIATE WITHIN GANADO ADVOCATES’ CAPITAL MARKETS PRACTICE. HE IS A MEMBER OF THE MALTA STOCK EXCHANGE’S EXTERNAL ADVISORY BOARD AND IS ADMITTED TO PRACTISE LAW IN MALTA AND NEW YORK.
SARAH CAMILLERI IS A DIRECTOR AT KPMG AND DRIVES THE INVESTMENT SERVICE AND FUNDS’ OFFERING WITHIN THE RISK CONSULTING ADVISORY TEAM.
NICHOLAS CURMI
SARAH CAMILLERIThe second Markets in Financial Instruments
Directive (“MiFID II”, the “Directive”) is fast
approaching as the implementation deadline of
January 2018 is less than 6 months away. Alongside
the Directive, the Markets in Financial Instruments
Regulation (“MiFIR”) has also been issued. Despite
the imminent deadline, the impact to firms, both
those licensed under MIFID I, but also on distributors,
is still unclear in certain respects. Certain issues are
still being clarified, although significant progress is
being made, particularly with ESMA issuing regular
clarifications.
The revision of the legislation sets out a number of
clear objectives, focusing mainly on increased investor
protection, governance requirements, amendments
to remuneration, and strengthened supervision, while
simultaneously increasing the scope of products and
services that fall within the amended regulation. Each
of these will impact licensed firms in different of ways.
Investor Protection, continuously at the top of law-
makers agendas, is targeted directly and indirectly
through a number of the amendments within MiFID II.
Various provisions are included to ensure that licensed
firms have proper procedures in place to ensure that
all relevant information is disclosed to investors. The
relevant details required to be communicated have
increased, and include the full costs to customers for the
provision of the service, broken down into significant
detail. It also requires more in-depth suitability
assessments, while increasing the range of investment
products considered, together with additional pre- and
post- trade information. Where investment advice is
provided, disclosure must be made as to whether such
was provided on an independent basis, with MiFID II
setting out the criteria that constitutes independence,
which have been enhanced from the previous regulation.
The legislation also introduces stricter requirements
in terms of the conduct of business of MiFID firms
specifically for communication, disclosure and
transparency in favour of investors.
The stringent requirements over governance
arrangements is also an enhancement to the protection
of investors as attention has been placed on the
suitability of the management body of investment firms,
both in terms of their competence and experience
for their respective roles, as well as their ability to
commit to these while taking into account any other
appointments. Specific members of management
bodies and those undertaking the licensable activities
of the investment firms will also face stricter controls
in relation to remuneration, both of a variable and fixed
nature. Such controls are being introduced as a measure
to attempt to combat and manage conflicts of interests,
while also looking to align the risk profile of the investors
with that of key employees during the discharge of their
day-to-day duties.
40 Summer 2017 41theaccountant.org.mt
TECHNICAL
Governance matters are being viewed as fundamental
to the proper protection of investors, and increasing
accountability is also catered for within the regulation.
From an operational perspective, investment firms, as
well as previously non-MIFID service providers, such
as certain distributors, will need to assess whether the
inclusion of the additional financial instruments being
brought into the scope by MiFID II will impact their
service offering. The extended provisions now cover
all emission allowances, credit institutions’ structured
deposits, specific packaged retail investment products
(“PRIPs”) and the sale of financial instruments issued
by the investment firm itself. These amendments have
been introduced specifically to cater for those products
which were seen to be falling under the radar under
the previous directive. The definition of non-complex
instruments has also been amended and now excludes,
for example, structured undertakings for the collective
investment of transferable securities (“UCITS”), thus
making the appropriateness assessment mandatory for
investment firms prior to the sale selling any structured
UCITS.
Transaction reporting continues to be associated with
regulatory risk and has been given its due significance
within the updated legislation. Firstly, the legislative
package introduces a new execution venue, i.e.
the Organised Trading Facility (“OTF”). Non-equity
instruments will be captured through OTFs thus
encompassing operator and trading systems which
previously fell outside of the scope of transaction
reporting. The creation of this new venue will see
reportable instruments being traded on Regulated
Markets, OTFs and Multilateral Trading Facilities. On a
separate note, the products which require reporting
under MiFID II extends past the scope of the original
directive, and includes almost all instruments which
are traded on the aforementioned European venues,
including non-EU derivatives which relate to an EU
security. With 65 total data fields, compared with the
24 data fields previously included under the original
directive, the content of the data to be reported now
encompasses detailed data for both buyer and seller
identification. This includes traders and decision
makers, together with additional detailed information
on the traded instruments, and a number of indicators
that would place a trade in a specific context such
as the use of waivers or short selling. MiFID firms
will be required to have in place agreements with
Approved Publication Arrangement (“APA”) firms for the
publication of trade reports which will be submitted.
APAs will require authorisation to be able to discharge
these responsibilities.
Under MiFIR, the onus of the transaction reporting
has shifted onto the counterparty who initiates the
transaction, usually the buy-side investment firms, as
investment firms are responsible for ensuring transaction
reporting information for their firm is accurately
undertaken and properly recorded. Therefore, reliance
can no longer be placed on the executing party, as
adequate oversight by each investment firm must be
undertaken, and continuously monitored.
MIFID II is also seeking to increase transparency to
investors, by ensuring the costs breakdown is provided
to the end-user in its entirety. This will most likely result
in MIFID firms limiting recourse to external research
providers, since either investment services providers
will have to absorb the costs incurred in obtaining
such research themselves, or they will set-up research
accounts on behalf of investors. This means that such
fees will now be shown separately from trade execution
costs.
However, the increased transparency that MIFID II
brings about is not without its problems. The increase
in information may serve to confuse investors who have
previously not been subject to this level of detail, and
may not have the expertise to decipher it. They may also
incur further costs in order to understand the detail that
will need to be provided to them. Additionally, under
the PRIPS regulation, the parameters in relation to the
disclosure of costs are significantly different in some
respects, which may be a further cause for confusion
that could also affect experienced users. Harmonisation
of disclosure has not been achieved within the different
directives, though future revisions will hopefully tackle
this.
The cost of compliance with MIFID II will undoubtedly
increase costs for investment services providers, in terms
of the changes mentioned above. The improvements to
governance, the increased transparency and disclosure
requirements, together with the more onerous
reporting obligations, will no doubt prove challenging,
particularly for the small to medium players, common
to our local market. The challenge going forward is
definitely for these firms to make investors aware
that the changes will benefit them most, and that by
making the investment firms safer, they will be more
attractive to investors, and increase investor safety and
confidence.
POPULATION PROJECTIONS FOR MALTAFocusing on Malta, the issue of population ageing has been on the policy agenda since the mid-nineties, especially in view of its implications for the sustainability of public pensions. When assessing the magnitude and the expected evolution of the demographic ageing, population projections such as those prepared by Eurostat (ESSPOP2015) can serve as a useful benchmark. Indeed, whilst total population in Malta stood at around 440,400 persons as at 1st January 2017, population projections by Eurostat indicate that total population is expected to reach around 521,000 by 2070. Such development reflects gains in life expectancy, fertility and migration. Indeed, by 2070 life expectancy at birth is projected to advance by 8 years for males and 7.4 years for females, with the gender gap narrowing but still favouring females by around 3.8 years. Meanwhile, total fertility rate is projected to rise from 1.45 in 2015 to around 1.75 in 2070 which is below the replacement rate of 2.1 children per female. It is noteworthy, that a key driver of demographic developments in Malta over recent years was certainly migration. Indeed, net migration is projected to average around 2,250 annually over the period 2015-2070. The projected changes in the composition of the Maltese population are illustrated in Figure 1, which illustrates the shifts in the Population Pyramid.
The scale of the ageing challenge facing Malta can
be better appreciated by looking at the old-age
dependency ratio (OADR). This ratio captures the share
of individuals that are likely to be retired (aged 65+)
as a proportion of those persons that are likely to be
in employment (aged 15-64). Eurostat data shows that
Malta’s OADR stood at around 28.6% in 2016, slightly
below the EU 28 rate of 29.3%. By 2070, the OADR for
Malta is expected to reach 55.9% thus exceeding the
EU 28 rate of 51.2%. These developments are indicative
that Malta faces a significant ageing challenge when
compared to European peers. Conversely, the support
ratio – the number of persons of working age that could
potentially support persons in retirement – is expected
to worsen significantly from around 3.4 persons in 2016
to 1.8 persons by 2070. This picture could actually look
more dire when one considers that not all persons of
working age are actually in employment, even though
not all persons that reach pension age are actually
entitled to a pension.
AGEING AND THE SUSTAINABILITY OF PENSIONSIt is evident that ageing will result in higher expenditure
on public programmes in health, long-term care and
pensions. Pensions, especially those based on a Pay as
You Go (PAYG) schemes are the main sources of income
in retirement for most European countries, including
Malta. Indeed, PAYG public pension schemes are facing
the multiple challenge of ensuring financial sustainability
whilst supporting an adequate income in retirement.
Indeed, consumption smoothing and poverty relief are
key objectives for any pension system. In this regard,
financial sustainability remains paramount in ensuring
that any pension scheme delivers upon its promises.
PAYG pension schemes involve the transfer of resources
from workers to pensioners, consequently this implies
that the declining support ratio owing the demographic
ageing is bound to lead to rising expenditure. This has
negative consequences on the sustainability of public
finances unless matched by rising contributions, capital
resources and productivity. At the same time, ageing is Source: Eurostat
Population ageing and its implications for the sustainability of public programmes and economic prospects has been on the agenda of policy-makers around the world for a considerable period of time. The rising share of older individuals in the total population, is a global fact with important economic and socio-political consequences. From a demographic perspective, population ageing is the result of low fertility rates, continuous gains in life expectancy and migratory trends. Indeed, the United Nations is projecting that by 2050 the number of persons aged 60 and over in the global population is expected to increase from 0.9 billion in 2015 to 2.1 billion in 2050 with Europe being the continent with the highest percentage of older persons.
THE ECONOMICS OF AGEING AND PENSIONS
GODWIN MIFSUD IS AN ECONOMIST AND IS THE DIRECTOR GENERAL AT THE ECONOMIC POLICY DEPARTMENT WITHIN THE MINISTRY FOR FINANCE.
GODWIN MIFSUD
FEATURE: PENSIONS
42 Summer 2017
FEATURE: PENSIONS
also bound to have important effects on the structure of national economies. Indeed, long-term projections by European Commission show that demographic ageing is also likely to result in lower potential GDP growth in light of the effect of ageing on specific components on potential output. This implies that ageing will have a dual adverse impact on the sustainability of public pensions.
PENSIONS REFORM PROCESS IN MALTAAs stated above, the pension reform process in Malta has been ongoing for a number of years. The first major reform since the introduction of the Two-Thirds Pensions in 1979 took place in 2006 when several parametric changes were introduced. The main changes included increases in the pensionable age, the lengthening in the contributory period, changes in the calculation of pensionable age and the introduction of the Guaranteed National Minimum Pension alongside changes in the indexation of pensionable income and pensions. Projections at the time indicated that in under a no-reform policy scenario, pension adequacy was bound to worsen progressively thus giving rise to pressures from the social perspective. Indeed, the 2006 reform addressed both sustainability and adequacy concerns with the overall outcome being that the trajectory of expenditure was reversed.
The second major reform took place in 2016. The adopted measures carefully balanced adequacy and sustainability concerns, taking also into consideration the needs of present retirees. The main measures addressing adequacy included increases in the minimum pension, improved crediting for child rearing and the introduction of crediting for human capital development and measures addressing specific groups such as pensioners in receipt of service pensions and survivors. In terms of sustainability measures, the contributory period was raised from 40 to 41 years for persons born on and after 1 January 1969 with the proviso that it shall be reviewed every five years to ensure that stable proportion is kept between the contribution period and
the time spent in retirement. Furthermore, an incentive
mechanism was introduced, focusing on private sector
employees, whereby individuals who have fulfilled their
contributory requirements can receive permanent
increases in their pensions upon retirement provided
they defer their pension and continue working beyond
the age of 61 years.
Another key plank of Government’s pension policy
relates to the diversification of pension income in
retirement. In this regard, two key developments were
the introduction of tax incentives targeting the take up
of third pillar voluntary pension products which covers
also certain insurance products. Work is also underway
to introduce tax incentives favouring the establishment
and take-up of voluntary occupational pension schemes.
CONCLUSIONThis brief article has focused on the implications
of ageing for the sustainability of PAYG pensions.
Nevertheless, it is evident that independent of the form
in which pensions are organised as funded or PAYG,
ageing raises important sustainability and adequacy
concerns alike. This underscores the importance of
economic growth in supporting pension schemes since
afterall pensions cannot be analysed in isolation but also
in the context of other competing demands for public
expenditure (in the case of PAYG schemes) as well as the
state of the economy. Indeed, it is notable that policies
that focus on raising labour productivity through
investment in infrastructure and human capital and
raising employment play a key role in supporting growth
in output. In the case of Malta, raising employment
through raising participation, especially amongst
females and older workers, postponing retirement and
migration all played a key role in raising employment
in recent years. In this regard, the pension reforms, tax
measures and other supporting active labour market
policies are a step in the right direction in ensuring
that the labour market continues to play a key role as
supporting pillar to pensions sustainability in Malta.
44 Summer 2017 45theaccountant.org.mt
FEATURE: EU FUNDS FEATURE: EU FUNDS
The EU Funds Audits Directorate (EUFAD) within the
Internal Audit and Investigations Department is the
designated Audit Authority (AA) for EU Funds in Malta
in line with Article 123 (4) of the Regulation (EU) No.
1303/2013. The AA is responsible for meeting the audit
obligations of the approved Operational Programmes
being implemented in Malta under the 2014-2020
programming period. The following table, lists the
Operational Programmes (OPs) falling within the EUFADs
remit and their respective budget allocation.
This article will focus on the audit requirements of the
European Structural and Investment Funds (namely
OPI, OPII, SME Initiative, FEAD, EMFF and ETC). The
remaining Operational Programmes will be the subject
of a future article.
EUROPEAN STRUCTURAL AND INVESTMENT FUNDS
(ESIF)
For the 2014-2020 programming period, the AA’s first
task is to prepare an Audit Strategy within eight months
from the approval of the respective OP. The strategy
sets out the audit methodology, the sampling method
for audits on operations and the planning of audits in
The ex-ante checks and verifications carried out during
the implementation of the programming period are
explained in the following paragraphs.
DESIGNATION PROCEDURE
The AA was appointed as the independent audit body
to carry out the designation procedure following the
approval of the OP. Prior to certification, the Managing
and Certifying Authorities need to be designated. The
AA assesses the fulfilment by the authorities of the
criteria relating to the internal control environment,
risk management, management and control activities,
and monitoring. Once the audit fieldwork is finalised,
the report and opinion are forwarded to the EC, where
within 2 months from the receipt of the documents may
make observations.
OPERATIONAL PROGRAMME BUDGET ALLOCATION (€)
OPI – Fostering a competitive and sustainable economy to meet our challenges
OPII – Investing in human capital to create more opportunities and promote the wellbeing of society
SME Initiative (SMI)
Food and/or Basic Material Assistance Operational Programme (FEAD)s
European Maritime and Fisheries Fund (EMFF)
Italia-Malta Programme
Internal Security Fund (ISF)
Asylum, Migration and Integration Fund (AMIF)
Rural Development Programme (RDP)
The European Economic Area Financial Mechanism and Norwegian Financial Mechanism
717,859,686
132,366,810
15,000,000
4,640,777
22,627,422
43,952,171
74,677,704
18,446,877
97,500,000
8,000,000
During Implementation
Ex-Ante
Commission audits and supervision
Acceptance of accounts
Annual accounts and audit opinion
Certification of expenditure
Management verifications, management declaration and annual summary
Designation procedure
Guarantees in programming negotiations and ex-ante conditionalities
relation to the current accounting year and the two
subsequent accounting years. The strategy is updated
annually from 2016 up to the Programme closure. The
audit plan is important since it highlights how the AA
will obtain its assurance to be in a position to issue
an annual opinion on each OP. In turn, the European
Commission (EC) acknowledges receipt of the audit
strategy and provides constructive feedback which is
further discussed during the annual bilateral meeting.
As illustrated in figure 1 below, the assurance process
for the 2014-2020 programming period is split between
ex-ante and ex-post verifications.
Figure 1: Assurance Process for 2014-2020 Programming Period
Following the designation procedure, the Maltese
Certifying Authority may start declaring expenditure
to the EC following first level checks carried out by the
Managing Authority/Intermediate Body. The AA will
then carry out ex-post checks and controls through
system audits and audits of operations.
SYSTEM AUDITS AND AUDITS OF OPERATIONS
The audits (obligatory by Regulation) are carried out on
an on-going basis throughout the programming period
(up to three years following the closure of the OP).
SYSTEM AUDITSSystems audits are carried out in accordance with
paragraph 1 of Article 127 of Regulation (EU) No.
1303/2013 in order to verify the effective functioning of
the management and control systems of the OP. Systems
audits may be carried out on the main implementing
bodies and other horizontal stakeholders, as well
as on cross-cutting issues by undertaking audits on
operations. The overall conclusion on the system audits
carried out provides a basis for determining assurance
levels and for determining the confidence levels for
audits of operations.
AUDITS OF OPERATIONSAudits on operations are carried out on the basis of an
appropriate sample to verify expenditure declarations
to the EC in accordance with paragraph 1 of Article 127
of Regulation (EU) No. 1303/2013. The AA may decide
to audit a complementary sample of operations in order
to guarantee coverage of different types of operations,
beneficiaries and Union priorities.
An audit of operation usually includes:
> Reconciliation between the expenditure claimed and
the supporting documents; and
> Verification of the execution of the operation, the
eligibility of the expenditure, the provision of co-
financing and of compliance with relevant EU and
national legislation, including, where applicable,
public procurement, state aid, equal opportunities
and the environment.
The scope of carrying out such ex-post checks and
control is to ensure that the amounts declared to the
EC are legal and regular. If during checks carried out,
financial irregularities are detected, financial corrections
may be applied accordingly. This in turn, will have a
direct impact on the calculation of the error rate and
on the overall annual audit opinion of the respective OP.
AUDIT OF ACCOUNTS
The AA is to provide reasonable assurance on the truth,
completeness, accuracy and veracity of the amounts
declared. This is done by carrying out tests on the
financial statements of the Certifying Authority to form
an independent opinion as to whether the information
within gives a true and fair view. The audit is to cover
all the aspects stated in Article 137 of EC Regulation
1303/2013, namely the reconciliation of the eligible
expenditure declared, any corrections made after
management verification duly reflected in the accounts,
and transactions supported by relevant documentary
evidence.
While carrying out the audit of accounts, the AA is to
make use of the result of systems audit, conducted at
an earlier stage, to further substantiate grounds before
forming any conclusions on the accounts. Through
the use of the result of audits of operations, the AA
reconciles the total eligible expenditure declared
with the expenditure declared on the application for
payment submitted to the EC and that any irregularities
found have been eliminated from the accounts.
The conclusions drawn from the systems audits,
audits of operations and audit of accounts will then be
reported in the Annual Control Report which is to be
submitted to the EC by 15 February of the following year.
Moreover, from the conclusions derived, the auditor
can then formulate an opinion for the programme and
recommend subsequent action if necessary.
COMMISSION AUDITS AND SUPERVISION
Finally, subsequent to submitting the Annual Control
Report and Annual Opinion, the EC assesses and
scrutinises all the documents provided. It either accepts
the conclusions arrived, or requests further clarifications
or additional work to be carried out by the AA. The EC
may also provide its feedback and recommendations for
the AA to consider implementing in future audits carried
out for the remaining programming period.
The Role and responsibilities of the Audit Authority for EU Funds in Malta
PHILIP GAFA’ IS A CERTIFIED PUBLIC ACCOUNTANT AND CURRENTLY HOLDS THE POSITION OF DIRECTOR (EU FUNDS AUDITS) WITHIN IAID.
PHILIP GAFA’
46 Summer 2017
FEATURE: ENTERPRISE RISK MANAGEMENT
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Whether it’s the amount of due diligence required to
fulfil anti-money laundering obligations or the way
in which audits are planned, nowadays everything
seems to be driven by risk. The local financial regulator
even mandates that banks and many other financial
institutions must have a Risk function. Whilst there
is a growing appreciation of the importance of risk,
those charged with governance often seek meaningful
guidance on the people, tools and techniques which
are needed to help deliver effective risk management
that provides added value across the enterprise beyond
compliance.
What does it take to be a professional risk manager?
As you are reading this, MARM’s educational sub-
committee should be putting the finishing touches to a
document on the core competencies of a professional
risk manager, which is intended to answer this exact
question.
The main body of this document comprises a
description of the key roles of the risk manager, the
required competencies associated with these roles
and the ways in which an individual can demonstrate
these competencies. Before tackling these issues, we
felt it was important to set the scene by tackling a few
common misconceptions.
RISK MANAGEMENT MISCONCEPTIONS
Above the player’s entrance to Wimbledon’s Centre
Court is inscribed a quote from the poet Rudyard
Kipling ‘If you can meet with Triumph and Disaster, and
treat those two impostors just the same’. Interestingly,
neither the origin nor the current usage of the word
‘risk’ is so ambivalent. The word ‘risk’ is derived from
the Arabic word ‘rizq’, also the origin of the Maltese
word ‘risq’, which meant god-given blessings, a very
positive connotation. On the other hand, the way
in which risk is commonly understood today is the
chance of an adverse consequence. Risk as defined
by ISO 31000, a leading risk framework, is ‘the effect
of uncertainty on objectives’. As with the quote from
the tennis stadium, this definition of risk is completely
neutral between potential upsides and downsides. If a
potential missed opportunity has similar characteristics
in terms of impact as a downside hazard, a professional
risk manager should be unbiased between the two.
The ‘Darwin Awards’ have become synonymous
with recognising people engaging in reckless self-
endangerment, with the overall purpose of giving the
rest of us somebody to laugh at. This is where we touch
on another common misunderstanding arising around
the role of the risk manager. Instinctively, people
understand that risk management is something we
are doing all the time, if only to avoid a Darwin Award.
Indeed, we should be managing risk all the time. The
‘Three Lines of Defence’ model, which was proposed
by the Institute of Internal Auditors, but has also been
endorsed by leading risk management bodies, demands
that the primary responsibility for risk management
should reside with front-line operational staff. So
what’s so special about a risk manager? The role of a
professional risk manager in the second line of defence
is to assist in the management of risk across the entire
organisation (and even beyond). This overarching
ENTERPRISE RISK MANAGEMENT
In a complex and fast-moving world, we can expect that the profile of risk management will continue to increase. Ian-Edward Stafrace and Dominic Fisher,
President and Vice President of Malta Association of Risk Management (MARM), raise the curtain on the value that professional risk management can bring to the enterprise as a taster of the upcoming joint
seminar being organised by MARM and MIA.
SENIOR MANAGER IN DELOITTE MALTA’S RISK ADVISORY TEAM AND IS ONE OF THE FIRST HOLDERS OF THE RIMAP® PROFESSIONAL RISK CERTIFICATION.
DOMINIC FISHER
48 Summer 2017 49theaccountant.org.mt
FEATURE TECHNICAL
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Individuals see only information relevant to their jobs.
Do More With Less
Control work�ows and maximize your e�ciency.
High Value
Unlimited users with no increased expense.
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Collaborate easily and e�ciently on Mac, PC, tablet, or mobile phone.
responsibility should be achieved holistically, maintaining
a suitable degree of distance and independence from
any particular department or stakeholder.
THE ROLE OF A RISK MANAGER
A person’s view of a risk management professional is
often coloured, or possibly clouded, by the sector in
which we work. A person holding the title of risk manager
in a bank may have special focus on quantitative risks
such as market and credit risks, whereas a risk manager
in a construction setting is likely to have safety as their
over-riding objective. In putting together our document
we tried to describe the skills required to undertake
professional enterprise risk management within any
type of organisation. Sector specific requirements are
supplementary.
That being said, let’s get down to how in our latest draft
paper we define the roles of the risk manager and the
associated competencies. We started by looking at the
process of risk management itself. ISO 31000 provides
useful guidance in this regard, stipulating what are
known as the 7 Rs of risk management. These are as
follows.
1. Recognition or Identification of Risk
2. Ranking or Evaluation of Risk
3. Responding to Significant Risks
4. Resourcing Controls
5. Reaction Planning
6. Reporting & Monitoring Risk Performance
7. Reviewing The Risk Framework
Drawing inspiration from the categories employed
in a risk reference tool produced by the French Risk
Management Association (AMRAE), we mapped the
above into the following four roles.
1. Defining & Redefining The Risk Framework
2. Risk Assessment, which covers identification and
evaluation
3. Risk Response, which covers items three to five
from the above list &
4. Risk Monitoring and Reporting
To the above roles we added managing risk culture,
as we considered this to be an important aspect of
ensuring effective overall risk management across the
whole of the enterprise.
Once again building on AMRAE’s risk reference tool,
we compiled a list of the tasks and likely associated
requirements with each role. To a greater or lesser
degree a host of soft skills are all needed to be
recognised as a professional risk manager. Further we
found that these soft skills need to be complemented
by a certain level of technical knowledge. How can a risk
manager define a suitable risk framework without an
understanding of some? How can a risk manager help to
determine suitable risk responses without an excellent
understanding of the choices?
These competencies can be demonstrated by way of
qualifications which give credit for both experience and
knowledge. In this regard, we have taken the Federation
of European Risk Management Association’s (FERMA’s)
remap professional risk management certification as
our benchmark, but have recognised the value of other
qualifications and experience.
We hope that the document will be of use for employers,
regulators and those wishing to build a career in risk
management.
UPCOMING EVENT
On the morning of Thursday 28th September, MARM will be co-hosting an event together with Malta Institute of Accountants focused on Enterprise
Risk Management. This event will bring together experts to expand on this
subject with a special focus on topics likely to be of interest to accountants, whether they are in industry or in the
profession. See you there!
ATLAS GROUP’S CHIEF RISK OFFICER AND RISK MANAGER OF MERILL SICAV PLC. HE HOLDS AN MSC RISK MANAGEMENT FROM BIRMINGHAM CITY UNIVERSITY AND IS A CERTIFIED FELLOW OF THE UK INSTITUTE OF RISK MANAGEMENT.
IAN-EDWARD STAFRACE
FEATURE: ENTERPRISE RISK MANAGEMENT
50 Summer 2017 51theaccountant.org.mt
The accountancy profession faces significant opportunities and risks from digital disruption and rapidly evolving technology.
An accountancy profession in a world of full transparency
of transactions and inbuilt validation will become a
very different profession. It is changing the focus of
auditors as well as accountants in business. Ultimately,
digital disruption will impact the nature of demand and
expectations on what an accountant is and does.
Technology news is ubiquitous. Much of it places
developments in a negative light. The history of the
profession has been to adapt, leverage, and utilize
technology for the benefit of business, government, and
society. The disappearance of comptometer operators
in the 20th century stands as an example—new more
value creating roles emerged.
Although one side of the technology coin represents
risk, the other represents opportunity. But exploiting
opportunities requires knowledge and understanding of
the digital world.
The digital world is rapidly developing, and it is only the
beginning of the journey. Many finance professionals
have not heard of or fully appreciated emerging
technology, such as blockchain. The effects of a
digitalized and connected world is not just on processes
but on business models.
The experience and insights of the IFAC Professional Accountants in Business (PAIB) Committee deepen
the understanding of how technology impacts the
finance function and implications for the profession. In
conjunction with its recent meeting in New York, the
PAIB Committee continued its explorations with David
Powell, Global Brand Manager at IBM Cognitive Process
Services and President of Association of Chartered Accountants in the US (ACAUS).
This was a great opportunity for a joint IFAC and ACAUS
evening event, which brought together more than 120
professional accountants, including PAIB Committee
members, to engage a broad audience on technology and
the accountancy profession. The panel of accountants
debated how disruptive technology in its various forms
is rapidly gaining momentum and evolving the activities
and career paths of professional accountants in public
practice and the private and public sector.
Sanjay Rughani, CEO for Standard Chartered Bank,
Tanzania, and Deputy Chair of the PAIB Committee,
moderated and opened by noting how accountancy
is radically changing, driven by disruptive technology
and changing practices. In order to remain relevant,
accountants will need to keep pace and embrace the
changing dynamics linked to disruptive technology. The
future profile of the profession will include key shifts.
Panelists also shared their own perspectives on
technology’s opportunities and risks.
• David Powell highlighted real-world impacts
of blockchain, cognitive business, big data,
analytics on finance and accountancy; and the
future profile of the profession. Huge volumes
of structured and unstructured data provide
significant opportunities to create deeper insights.
This enables finance functions to provide these
insights and better support decisions at lower
cost. In practice, cognitive business is evolving
quickly and penetrating finance and accountancy
through cognitive forecasting, which allows more
data points and evidence from longer periods.
Organizations need to assess where they are on
their own maturity path to being ready to exploit
cognitive computing and cognitive business.
• Natasha Holbeck, Partner with Deloitte in its
Financial Services Audit Practice & Vice-President of
ACAUS, shared how Deloitte embraces technology
to not only effectively and efficiently execute
audits but add additional value to companies
by providing analytics and insights. Technology
allows Deloitte to anticipate client needs and value
considerations, for example, by providing greater
insights on industry trends and organizational risks,
and providing access to data to improve operations
and performance. Ensuring business leaders
understand the value their organizations generate
from audit insights is a significant development for
Deloitte’s audit practice.
• Stuart Chaplin, Vice President Finance – Risk
Management for Shell Trading & Supply and a
member of the IFAC PAIB Committee, talked
about how technology is disrupting finance and
accounting in Shell. Having started the journey of
implementing Robotic Process Automation, and
applying it to various repetitive processes in shared
services, the value proposition of business process
outsourcing needs to shift from labor arbitrage
to delivering innovation and insight. Increased
application of robotics provides an opportunity
for finance staff to spend more time on higher
value added activities. Development and support
to “high-grade” finance skills may be required to
adapt to a future where robotics is more prevalent.
• Stephen Ibbotson, Head of the Finance &
Management Faculty, Institute of Chartered
Accountants of England and Wales (ICAEW) and
a Technical Advisor on the IFAC PAIB Committee,
highlighted how emerging trends are impacting
ICAEW members. ICAEW proactively supports its
members to be “life-long learners” to keep in pace
with change and take charge of the innovation and
changing dynamics around them. From an institute
perspective, the blend of skills and competencies
required by professional accountants is evolving
quickly, and the types of services provided by
accountants is developing apace. For example,
there is an increasing trend for part-time virtual
finance directors providing higher value services
to various smaller enterprises that do not have full
time finance and accounting expertise on staff.
Charles Tilley, Chair of the IFAC PAIB Committee, issued
a wakeup call to close the meeting: while the profession
has embraced technology, the pace of change is
accelerating, and it will have a profound impact. A child
born today will end up being a very different kind of
professional accountant.
Technology and the changing role of finance and
accounting functions and the skills and competence
needed by finance professionals to remain relevant
now and in the future is firmly on the PAIB Committee
agenda. Its insights will help the profession act quickly
to ensure the future relevance of members.
A summary of digital disruption and technology trends
impacting finance and accounting is available at https://www.
ifac.org/news-events/2017-05/technology-trends-impacting-
finance-function-and-profession-overview
This article originally appeared on the IFAC Global Knowledge
Gateway: www.ifac.org/Gateway. Visit the Gateway to
find additional content on a variety of topics related to the
accountancy profession.
Pictured: David Powell, Global Brand Manager, IBM Cognitive Process Services and President, ACAUS & Natasha Holbeck, Partner, Deloitte Financial Services Audit Practice and Vice-President, ACAUS
DISRUPTING THE ACCOUNTANCY
PROFESSION
STATHIS GOULD, DEPUTY DIRECTOR, PAIB & KNOWLEDGE LEAD, IFAC
STATHIS GOULD
Accountancy will be cloud based.Accountancy will harness the power of big data.Accountancy will integrate non-traditional financial information.Accountancy will be more efficient and mobile.Accountants’ roles are and will continue to change radically.
FEATURE: TECHNOLOGY FEATURE: TECHNOLOGY
53theaccountant.org.mt52 Summer 201752
Accountancy firms like other organizations are continually seeking to improve the quality of their service to clients. In any approach to quality, there is a wide range of options available. One of these is the internationally renowned Quality Management System (QMS) standard better known as ISO 9001. More than one million businesses have implemented ISO 9001, which is why ISO 9001 is the global standard for managing quality. Entities can also consider other options such as Six Sigma albeit at a later stage.
ISO 9001 QMS is a systematic and process driven
approach to managing day to day activities. It is designed
to support the organization in ensuring that it meets the
needs of its clients, whilst delivering a consistent level of
quality and satisfaction.
This system has been proven to make business owners
and managers feel more in control and ensure that
everyone within the organisation is clear about what
they do, whilst having the ability and authority to
resolve problems quickly and effectively.
Accountancy firms are in an easier position to implement
the standard than other sectors as international
recognized professional accounting standards have
been prepared to establish consistency and standardise
accounting practices. The basic principle of ISO 9001 is
that you state what is to be done and consistently do it
and look for improvements.
The standard was first published in 1987, since then it
has gone through four revisions, the latest one in 2015.
The standard sets out the requirements for a QMS
based around the following principles:
• Client focus – attracting and retaining the
confidence of clients is key.
• Leadership – everyone in the business must
understand what you’re trying to achieve.
• Engagement of people – competent and engaged
people at all levels are essential.
• Process approach – to achieve more consistent
results you need to understand how your processes
work together as a whole.
• Improvement – all successful businesses focus on
continual improvement.
• Evidence-based decision making – basing your
business decisions on an analysis of the facts is
more likely to lead to the correct decision.
• Relationship management – identifying your most
valuable business relationships and having a plan
to manage them will contribute to your success.
One of the key changes in the 2015 revision of ISO 9001
is the requirement to establish a systematic approach
to risk, rather than treating it as a single component of
a QMS. This is of utmost importance to accountancy
firms.
In previous editions of ISO 9001, a clause on preventive
action was separated from the whole. Now risk is
considered and included throughout the standard.
By taking a risk-based approach, an organization
becomes proactive rather than purely reactive,
preventing or reducing undesired effects and promoting
continual improvement. Preventive action is automatic
when a management system is risk-based.
The Clauses of the 2015 version of ISO 9001 are:
1. Scope - defines how far the QMS extends within
the organization
2. Normative References – any supporting
documents ie standards etc.
3. Terms and definitions – refers to the terms and
definitions given in ISO 9000:2015
4. Context of organization – refers to the business
environment
5. Leadership – ability to motivate groups of people
towards a common goal. Management should be
the driving force behind the QMS.
6. Planning – actions to address risks and
opportunities
7. Support – availability of resources needed for the
implementation and maintenance of the QMS.
8. Operation – will be dependent on the
organization’s activities, legal obligations and
significant operational control.
9. Performance evaluation – monitoring,
measurement, analysis and evaluation of the QMS
in place.
10. Improvement – determine and select opportunities
Are there benefitsin ISO 9001 for Accountancy Firms?
ING. FRANCIS E. FARRUGIA IS SPECIALISED IN QUALITY ENGINEERING, MANAGEMENT AND CONTROL AND HAS BEEN ACTIVE AS AN ISO QMS CONSULTANT FOR MORE THAN 20 YEARS. HE IS PRESENTLY THE MANAGING DIRECTOR OF ENTERPRISE SOLUTION AND A SENIOR VISITING LECTURER AT THE UNIVERSITY OF MALTA.
ING. FRANCIS E. FARRUGIA
FEATURE: ISO 9001
for improvement and implement any necessary
actions to meet client requirements and enhance
client satisfaction.
IMPLEMENTING ISO 9001The main consideration after recognising that ISO 9001
is beneficial to your organization is to get started in
implementing the standard. A word of advice at this
stage is not to consider becoming certified if this is
not being imposed on your organization as is the case
with many manufacturing organizations. Gaining a
certification is enticing, but it should not be the ultimate
scope of using the standard. Organizations who view
gaining certification as the reason for using the ISO
9001 are missing a great opportunity for improvement.
As frequently stated, ISO 9001 is a journey, not a
destination.
If you sincerely start implementing ISO 9001 as business
improvement tool, then gaining certification sometime
down the line, if you choose to do so, should be a simple
step.
A common misconception about the ISO 9001 standard
is that it is a document nightmare. Actually, there are
very limited document requirements in the 2015
version of the standard. This was not the case with
previous versions. The emphasis is now on documented
information or records in any format and media. Also, ISO
9001 does not replace quality control documents such as
ISQC 1 and ISA 220, these documents complement the
QMS being implemented. In fact a quality system will be
most effective for accountancy firms when the system
also complies with other professional and requirements
built into it, as this ensures that the ‘service product’
conforms with specified requirements.
The first step in the implementation process is to
identify an individual within the organization who will
champion the process. It is important that if you have
not contracted an external consultant the assigned
individual should be sent to an ISO 9001 orientation
training course if this is his/ her first experience.
Management exercising its leadership role shall then
draw out the Quality Policy, and the objectives to meet
this policy.
The next step would be to define and determine the
core processes of the organization; in the case of an
accountancy firm these should be very clear. In my
experience accountancy firms already have most of the
requirements of the standard in place.
Gap Analysis follows suit. This is an important exercise
which identifies the gaps between the existing system
in place and the requirements of the standard. This
exercise helps to bridge gaps in the system, identifies
any additional resources or documented information
required. This is where I advise that an external
consultant should be hired to carry out the exercise.
Once this stage is reached, and the gaps identified
addressed, then the implementation phase is achieved,
but this is not the end of the journey. The organization has
to continue looking for opportunities for improvement,
through regular auditing of the system, employees’ and
clients’ feedback amongst others.
BUSINESS BENEFITS
Implementing the ISO 9001 standard can prove a
tremendous boon to business in many ways from
improving equity to perfecting overall business
structure by helping streamline management. An
improved business ethic will encourage confidence and
productivity in staff in the knowledge that they have
a clear and well thought-out process to follow. Better
utilisation of available time achieved through improved
resource management.
In Malta, accountancy firms and similar professional
services providers (of all sizes) are not only competing
for market share but also for the human resources.
Working in an environment where one feels that he is
an asset to the organization as required by the standard
can be advantageous to attract new employees. Most
importantly, it improves the client/supplier relationship
by responding proactively to client demands and
feedback.
Finally, an ISO 9001 implementation can be achieved by
any organization of any size, in any given sector, which is
looking to increase and enhance business productivity,
ethics and performance. If you consider that the most
important person in your business is your client then
you should seriously consider implementing ISO 9001.
FEATURE: ISO 9001
54 Summer 2017
FEATURE: SUCCESSION PLANNING
Succession planning has been defined as the process
by which organisations ensure that employees are
recruited and/or developed to fill each key role within
the organisation. The key part of this definition is the
latter part, whereby people are identified to cover for
each key or fundamental role within the organisation.
For this reason, succession planning is a crucial part of
the human resources strategy that is often overlooked
by local standards.
But what does succession planning really involve? Is
it just a headhunting or people development exercise
carried out as a contingency plan? Is it a process that
organisations should adopt as a best practice? Similar
to various key resources within an organisation, the
real value of a succession planning exercise can be
measured when this is actually needed. Succession
planning involves preparing the organisation for the
inevitable day when key personnel will no longer form
part of the organisation. This situation is not applicable
solely for retirement, but more importantly in the face
of resignations from key personnel.
One unforgettable experience that I had was a local
organisation that urgently needed a succession plan
operating as a local electricity utility provider, when a
particular engineer had reached the legal retirement
age, and due to the fact that he was the sole person
that had the necessary skills to produce spare parts for
a specific electricity generation equipment that was still
in use. His retirement would have meant the automatic
shutdown of such equipment. Although the equipment
in question was being phased out, the crucial lesson
learnt was that identifying key positions and making
sure that there is more than one person that can carry
out such duties holds true for every position, particularly
in leadership positions.
Although a succession plan should be implemented
for each key position, one of the most crucial areas
within the organisation is management. Organisations
have the inherent need to ensure that they have
the adequate management resources to lead the
organisation at all times, take the necessary decisions
and instil an adequate culture within the organisation.
One may actually argue on this point further and state
that management actually has an obligation towards it’s’
stakeholders to ensure that an appropriate succession
plan has been implemented for all managerial personnel.
But what does succession planning really focus on? The
secret of an effective succession planning programme is
ROBERT DELIA IS A HUMAN RESOURCES SPECIALIST WITH OVER 20 YEARS WORKING EXPERIENCE, HE CURRENTLY WORKS AS THE HUMAN RESOURCES ASSISTANT DIRECTOR WITHIN EY, AND LEADS EY’S TALENT TEAM.
ROBERT DELIA
The Importance of Planning the Succession of Key Management Personnel
FEATURE
56 Summer 2017
Cybercrime can only be fought by combining technology and business acumen with uniquely human insights.
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Is the answer to cybercrime more technology, or more people?
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one - identify your key activities and make sure you have
more than one option that will still enable the activity
to be carried out as planned. Over the years we have
seen a lot of thriving organisations with a healthy future
fail simply because an adequate succession plan for
management personnel was not in place. Examples of
such a practice has been repeatedly noticed in the case
of family businesses, whereby in the majority of cases
failure to have planned beforehand for the necessary
development and handover to younger generations
has led to such organisations losing business and
eventually closing down. It is also important to note
that such situations have not been prevalent within
any specific industry but is a widespread phenomenon
that has taken place across all local industries. An
example of an organisation that suffered this fate was
a local organisation that had sole representation of a
particular brand in Malta. This successful organisation
thrived through the effective business management
and development by the four founding brothers of this
business. However, there was inadequate preparation
and development for the next generation of the family
to take over, with the unfortunate consequences
that not only was the brand taken over by another
organisation here in Malta, but this particular family-
owned organisation eventually also ceased to exist.
The main reasons leading to this situation were not
the lack of business intelligence of the family members
concerned, but more so the lack of preparation and
proper understanding of the business that the younger
generation of the business failed to acquire.
Succession planning integrates human resource
planning with business planning, marrying the two so
that all key activities are carried out no matter what
happens. Planning for business continuity and the
protection of immovable assets are given priority, so
must the necessary human resource plans ensuring
key activities continue to operate be given their due
importance. Such a necessity is particularly evident
at management level, where all major decisions are
taken and implemented, and failure to have an active
succession plan could have significant adverse effects
upon an organisation’s long-term sustainability.
International experience has proven that the five main
business reasons why it pays an organisation to invest in
a suitable succession plan are the following:
• Continuity of operations; in finance we negotiate
an overdraft facility, and in I.T. we plan towards
data redundancy: similarly in people management
we need to consider the cost(s) of not being able to
carry out these key activities.
• Financial and business loss; the inability to
proceed in a specific course of action could lead
the organisation to losing out on an opportunity, or
incurring penalties for non-completion. Succession
planning is thus not just about the person
carrying out the specific role, but it is more about
maintaining business effectiveness.
• Human capital loss; having a succession plan
already in motion means that process or activity
owners would not only be identified, but any areas
where there could be a potential loss of human
knowledge would also be identified a priori - that
is, before such potential losses actually materialise.
• Competitive edge; being already within the market
means that an organisation has both a presence
and a market following: being certain that the
organisation would be able to keep its’ competitive
edge and improve on this is vital in today’s global
environment. An effective succession planning
framework ensures the organisation’s competitive
edge is retained as all valuable knowledge gained is
retained within the organisation.
• Business goodwill; as employees are recognised
as an organisation’s greatest asset, retention
and effective use of people’s knowledge and
capabilities directly affect business goodwill.
Succession planning also leads to recognising and
giving value to these capabilities as a source of
service differentiation, adding business value and
hence goodwill to the organisation. In the case of
management, more often than not the goodwill
being generated by these employees is vital for the
organisation’s growth.
In today’s global marketplace, business knowledge
and connections have become a strong source of
competitive advantage. The knowledge generated by
employees is an invaluable resource that no organisation
would want to part with; more so if such knowledge is
able to generate continued incremental wealth for the
organisation, as is the case with management personnel.
Hence an effective succession planning framework for
management personnel is vital for maintaining business
continuity, ensuring the organisation’s effective use of
available human capital for continued success.
FEATURE: SUCCESSION PLANNING
58 Summer 2017
LIFESTYLE
PATRICK PSAILA IS THE DIRECTOR OF PSYPOTENTIAL (MALTA). HE IS A REGISTERED PSYCHOLOGIST AND TRAINING CONSULTANT, AND A LICENSED MASTER PRACTITIONER OF NEURO LINGUISTIC PROGRAMMING.
PATRICK J. PSAILA
Your future depends on what
you do today
We believe in the continuous development and offer learning and training opportunities throughout
your career at KSi Malta, which is why we constantly invest in our team.
Visit www.ksimalta.com/careersto view our latest vacancies
KSi Malta is one of the leading audit/accountancy, tax and advisory firms in Malta with a team of highly qualified and competent members of staff. We offer a one-stop shop solution for business affiliates who expect nothing less than
top quality financial information and assistance.
KSi MaltaTel: +356 2122 6176 Email: [email protected]: www.ksimalta.com
Villa Gauci, Mdina Road, Balzan, BZN 9031Malta, Europe
It has become common for professionals to complain
that they have not taken a proper holiday in a long time,
sometimes even years. This has become a growing and
worrying trend where people give up their breaks from
work in order to cope with the increasing demands of
their jobs. While hard work and dedication are virtues
to be admired, taking time off work on a regular basis
is essential for wellbeing, physical and psychological
health, productivity and preventing burnout.
Researcher and author Shawn Achor, concluded that
“the greatest competitive advantage in the modern
economy is a positive and engaged brain. For our brain
to be truly engaged and work at its best it needs regular
breaks”. Scientists have proven that that taking time
away from work can lead to a decrease in cluttered grey
matter function. Our brain needs time to quiet down
and reorganize itself especially when our job consists of
a fast-paced work style, complex problem solving, heavy
demands and tight deadlines.
However, the research offers us some general
recommendations. We need to take regular short
breaks during our working day, at least one day off
during the week, the occasional short two-day break
during the year and at least one long vacation of ten
to fifteen days once a year. These breaks are important
in their own way. While short breaks are useful to keep
us going and preventing us from burning out, longer
breaks are real opportunities to wind down and really
create a healthy disconnection from work where we can
truly relax and “recreate” ourselves. Being away from
work for stretches of time of one or two weeks allows
us to gain a fresh perspective and look at our work more
objectively within the context of our life in general. This
is not easy to do when we are immersed in the daily
incessant and relentless demands of our job.
It can be especially hard to achieve when we regard
our work as a career and mission rather than just a job.
This happens because of our high personal involvement
and investment in our work and because we carry it
out with a deep sense of commitment. As a result we
may find it difficult to detach and disconnect from our
professional role even if it is for just a couple of weeks
a year. I like to call this the “Indispensability Trap”. This
is a particularly dangerous mindset that can eventually
lead to burnout. It is therefore important to integrate
TAKE TIME OFF WORK FOR INCREASED PRODUCTIVITY
The Importance of regular rest, relaxation and leisure
for maximising performance and wellbeing.
So what is the ideal time-off pattern that one should adopt in order to maximize productivity and promote personal wellbeing? To begin with we must recognize that there is no ideal formula. Each of us has different needs and varied circumstances that determine the amount of rest and leisure we require.
60 Summer 2017
mini, short, medium and long breaks during our working
life to make sure that we maintain a sense of health and
balance in the longer term.
Moreover, breaks need to be part of our overall work-
life balance that is more than just taking time off work.
It includes a holistic perspective that integrates our
physical, mental, emotional and spiritual wellbeing. In
the long term this approach to life is what enables us
to reach our full potential and maximize our talents,
productivity and performance.
So what recommendations could you follow in order to
get the highest benefit from your vacation time? The
following are some research-based tips for maximizing
the positive impact of your holidays.
1. Detox digitally – try to limit to an absolute minimum
the level of technology you engage in during your
vacation. The constant bombardment of messages
and demands on your attention from social media,
e-mails, text messages, phone calls, etc. puts a toll
on your mental wellbeing. If you have to respond
to e-mails or other messages during your vacation,
allocate a specific time during the day to attend to
them and then try to switch yourself off. Make sure
you activate a good “out of office” responder that
covers you for urgent matters on your e-mail so
you can put your mind at rest.
2. Do not take your work on vacation! - As much as
possible avoid taking your work with you on your
holidays. Many professionals find this very hard to
accomplish. However if you truly want to unwind
and relax you need to disconnect mentally from
your work and not just physically. This can be hard
to achieve and having your work with you does
not help. While your body may be on holiday your
mind may be still whizzing away thinking of work.
3. Choose vacations that help you to really relax – Many people opt for activity packed, fast paced
hectic holidays where they practically mirror their
normal lifestyle. The idea of a relaxing holiday
is to allow your mind to slow down, unwind and
declutter. Try not to pack every moment of the day
with activity. Create the space to be able to “take
your time” and absorb the experience whether it is
having breakfast, exploring a new area or enjoying
a view.
4. Create a post-vacation buffer zone – Many people
complain about the barrage of e-mails they find
lurking in their inbox when they return from their
holidays. One way of avoiding this overwhelming
feeling is to ease into work by allocating a “buffer
day”. This means that you dedicate your first day
back at work to sort out e-mails. No meetings,
phone calls or responding to client or colleague
requests. If necessary, shorten your vacation by a
day and dedicate that day for a gentle re-entry to
work rather than hitting the ground running.
In conclusion, time off work on a regular basis should
be taken seriously and not regarded as a luxury. When
integrated with a balanced lifestyle it will make us more
productive, creative and efficient in our work. It also
makes us happier and healthier individuals.
LIFESTYLE
62 Summer 2017
FEATURE: LEADERSHIP
The term leadership often conjures different
meanings to different people around the world,
and different things in different situations. It is
also sometimes looked at as a grand term that
is the concern of great business leaders only.
Yet leadership is something that many of us in
different circumstances within our workplace
have been doing or will at some point find
ourselves doing.
If you are in a leadership position, I suggest you take a
moment to reflect on the style of leadership you adopt
most generally.
Are you an autocratic leader – do you keep most of
the authority to yourself? Do you tend not to delegate
much? Do you tend to keep information to yourself? Do
you find yourself telling employees what to do?
Are you a democratic leader – taking the views of
everyone into account? Do you have and use excellent
communication skills? Do you allow employees to take
initiative? Do you stand back from micro managing and
allow employees to take reasonable responsibility?
Are you a paternalistic leader – believing you know what
is best for every member of your team? Do you tend
to treat your staff like a family and find yourself telling
employees what to do?
Are you a laissez-faire leader – hardly interfering at all,
but hardly providing direction to your employees?
LEADERS OPERATE AT THREE LEVELS
At the Strategic level, leadership is about setting
direction and building an inspiring vision. It is about
mapping out where you want to go as an organisation
and being able to get your people there.
From my research on the subject of transformational
leadership as well as my training experiences with
different organisations, the most effective leaders are
those who are capable of creating an inspiring vision of
the future. They provide direction, set priorities, and
present an attractive and convincing depiction of where
they want their organisation to be in the future. They
innovate successfully and are proactive problem solvers.
At the Tactical level, they are concerned with how an
organisation is going to achieve its goals, because
having a vision alone is not enough. I have found the
most effective leaders to be able to motivate and inspire
the people they lead. They are skillful in getting their
people on board and engaged, keeping their own
and their people’s enthusiasm alive, and valuing their
people’s unique contribution in this journey.
At the Operational level, they are part of the team.
In fact, transformational leaders manage their vision
properly. Whether they do it themselves or whether
they have a team of dedicated managers, they remain
on top of things to see that the vision is delivered
successfully. They also manage change effectively,
keeping checks and giving individual consideration for
their people’s wellbeing.
Transformational leaders keep their employees engaged
by developing an incontestable team spirit, by training
and coaching them and by creating an organisational
climate that keeps their employees there and ensures
continued success.
LEADERSHIP CHARACTERISTICS
I have often asked participants in training programmes
to describe characteristics of the best leaders they’ve
worked for. Inevitably, the list of characteristics always
includes: someone to learn from, fair, truthful, caring,
TRANSFORMATIONAL LEADERSHIP
DR NATALIE KENELY IS HEAD OF THE DEPARTMENT OF SOCIAL POLICY AND SOCIAL WORK WITHIN THE FACULTY FOR SOCIAL WELLBEING AT THE UNIVERSITY OF MALTA.
DR NATALIE KENELY
64 Summer 2017 65theaccountant.org.mt
LIFESTYLEFEATURE: LEADERSHIP
able to give praise, good at listening, leads by example,
motivational, realistic, trusting, prepared to fight your
cause, and principled/committed. I also ask participants
for a list of characteristics of bad managers. And
this tends to include: unmotivated, taking praise for
themselves, not enthusiastic, unapproachable, not
caring, inconsistent, and interfering,
One characteristic that I have seen shared by really good
leaders is that they find the right balance between being
concerned for the task and being concerned for the
person. These leaders ensure that tasks are carried out
and goals are reached while safeguarding the wellbeing
of the team members.
ETHICAL LEADERSHIPI cannot emphasise enough the point that
transformational leaders operate from a healthy,
positive and constructive value-base. The need for good
leaders to be ethical in their leadership is embedded
within the definitions of transformational leadership. In
fact, research has become increasingly interested in the
ethics of leadership and authentic leadership.
Brown and Trevino in an article for Leadership Quarterly
(2006, p.595-616), “Ethical Leadership: A review and
future direction”, argue that ethical leadership is defined
in terms of: the moral character of the leader (moral
person); and, leader behaviour aimed at encouraging
the ethical behaviour of followers (moral manager).
Ethical leaders are altruistic, make ethical decisions,
act as a role model to others and have the personal
characteristic of honesty, integrity and trustworthiness.
Without this value base, the characteristics of
transformational leadership could become twisted
and exploited. Idealised Influence could become
manipulation; Inspirational Motivation could be
misused leading to dependence and disempowerment;
Intellectual Stimulation could become an oppression
of independent thought and creativity through the
provision of a “line” to be followed; Individualised
Consideration could be abused turning followers into a
means to an end. Self-interested, weak willed, egoistical
and opportunistic leaders risk becoming unethical in
their behaviour, putting authentic leadership on the line.
Transformational leaders “walk the talk”; they lead by
example, and practice what they preach. This helps
their employees trust them and gives leaders the
determination they need to push their people forward
with excitement and inspiration.
I was born in Ukraine and moved to Malta with my
family when I was 9. While growing up, I was introduced
to various sports and competed at junior regional and
national championships in rhythmic gymnastics in
Ukraine. I was injured at the age of 17 when a metal
scaffolding collapsed on a crowd at a public event in
Malta in 2008.
Despite the injury, I was still determined to lead an
active, independent and healthy life. I was in and out of
hospital for the first four years after my injury, but I still
successfully completed sixth form with my classmates
and started studying ACCA. I also wanted to get back to
sport, and watching the Paralympic Games in London
in 2012 helped me find my way back. The Paralympic
movement helped me realise that many of our
limitations are self-imposed and our will is much more
powerful than any adversity.
I joined the Malta National Paralympic team in 2013,
while continuing my studies and working. Locally, many
athletes have to combine their day job, studies and
pursue their sporting dreams. I have been extremely
lucky to find support from my colleagues and partners at
PwC Malta, who provided me with the flexibility needed
in order to achieve my goals. This culture of flexibility
at PwC has allowed me to progress academically,
professionally and on a personal level. I also received
support from the SportMalta Flexi-training scheme.
Nonetheless, the journey to Rio was a huge challenge,
which entailed endless commitment and self-discipline.
Becoming the first ever female swimmer and the first
female athlete since 1980 to represent Malta at the
Paralympic Games and also qualifying as a certified
Chartered Accountant in the same year was a big
reward for me.
Sport helps us develop emotional maturity, mental
resilience and gain confidence in our abilities. Sport
teaches us many important life skills: what it takes to be
part of a team, how to compete fairly and also how to
win and lose with dignity. Inevitably, all of these lessons
are transposed into our personal and professional lives
at work.
During the past two years, I also had a great opportunity
to work with the European Paralympic Committee as
a Youth Ambassador and raise awareness about para-
sport in our community, encouraging greater grassroots
participation and inspiring youths to continue training
at an elite level. Last year I was part of the #BeActive
2016 campaign, led by SportMalta, as a National Sport
Ambassador. Involvement in these projects motivated
me and a group of Maltese athletes to set up “Malta
Youth Athletes Network” - a non-governmental, voluntary
organisation which works towards representing the
interests of member athletes and designs projects that
can contribute to the development of sport in Malta.
This year turned out to be very special for me, as I was
selected as the winner of the Queen’s Young Leaders
Award for my commitment to raising awareness about
adapted sport. The award was presented by Her
Majesty the Queen at a ceremony in London in June,
where recognition was given to 60 young people aged
between 18 and 29 from around the Commonwealth
who are working hard to drive change within their
communities. It was a privilege for me to be among the
selected winners, who are leading projects and tackling
global issues which include education, climate change,
gender-equality, mental health and disability equality,
amongst others. We received unique mentoring and
training through the Leading Change course, which was
developed by the University of Cambridge’s Institute for
Continuing Education specifically for this programme.
It was an unforgettable experience to me, though the
award itself belongs to every single individual and
organisation that supports my initiatives and to whom
I will always be grateful.
The first female Paralympian representing the country since 1980
Vladyslava speaks about her experience as the first female Paralympian representing the country since 1980, as well as studying and working as an
accountant.
Every single experience that I’ve had as an athlete, whether rewarding or disappointing, has enriched my life. Now, as a Paralympian, I wish to encourage our younger generation to find their passion and to support them in realising their potential in sport.
VLADYSLAVA KRAVCHENKO, 26 YEARS. FIRST FEMALE ATHLETE SINCE 1980 AND FIRST FEMALE SWIMMER TO REPRESENT MALTA AT THE PARALYMPIC GAMES. ACCOUNTANT AT PWC MALTA.
VLADYSLAVA KRAVCHENKO
66 Summer 2017
FEATURE: LANGUAGE
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2017
“Will my grandmother understand this?” this
was a valuable lesson taught to me by the editor
at a financial magazine, my first job in financial
journalism eleven years ago. The publication had
a sophisticated audience of large institutional
investors and finance professionals yet the focus
on simple straight forward language was key in
everything we wrote.
Renowned author George Orwell says a scrupulous
writer should ask himself: What am I trying to say? What
words will express it? What fresh image will make it
clearer? Could I put it more shortly? Have I said anything
that is avoidably ugly?
The general public, including finance professionals, are
barraged by news, information and data so when writing
to engage, making articles relatable and easy to read
should take precedence. Too often the complexity of the
subject matter creeps into our writing and we lose focus
of what a story should really do – show the reader what
it is about rather than pedantically take them through
every minute detail.
In my role as a financial journalist and now as a research
writer and consultant, my writing needs to be clear
and concise. My words act as a filter for the complex
concepts within the financial services industry, whittled
down into something people are going to want to pick
up and read.
Fund managers and institutional investors, the
audiences and clients I deal with, often get caught up
in technical jargon, losing sight of the bigger picture and
the message they are trying to put across. The aim of
someone in the writing profession within the financial
sector should be to absorb the information given by
these highly intelligent people and bring the story to life
with clarity.
When focusing on being straightforward, a writer can
run the risk of being simplistic. A writer or a journalist
should not patronise their audience but provide a well-
rounded picture of what they are trying to express.
The skill of a journalist is to understand the subject
matter as well as the individuals they are interviewing
or writing about. A writer should be able to sift through
large amounts of detailed and sometimes technical
information to draw out the big picture, highlighting the
most important and news worthy elements.
Another question a journalist or writer should ask
themselves is: “so what?” If something is worth writing
about, there has to be a greater purpose, otherwise the
audience will not care. I can explain further by drawing
upon a personal experience when working with a large
asset management firm in London.
A property fund had bucked the market, which in my
view and experience was newsworthy – this happened
during a time when property was under fire, just before
the financial crisis broke in September 2008. However,
I entered into a battle of wills with the press relations
officer at the time. She thought the new fund manager’s
name should have led the press release while I knew we
should lead on the fund’s performance.
This represented the dilemma between stroking the
fund manager’s ego or issuing a press release which
would get press coverage. Editors of magazines,
especially the trade press, tend to shy away from stories
which make an individual the ‘star’ rather choosing to
showcase stories which address broader industry issues.
In the end, my journalistic experience won out and the
press release ran with the fund performance as the
lead. As a result, it got covered by a number of trade
magazines.
So in addition to clarity of language, when writing in
finance, people need to always keep the bigger picture
in mind if they want to engage their readers. Something
that might be ‘big news’ within the microcosm of
a company will probably not matter to most of the
broader readership.
SO WHAT?
ANGELE SPITERI PARIS STARTED WORKING IN FINANCIAL SERVICES AS A JOURNALIST IN LONDON. SHE IS NOW A RESEARCH WRITER AND CONSULTANT WITH COREDATA RESEARCH.
ANGELE SPITERI PARIS
Language and Clarity in Financial Writing