June 2011

It’s not just for young people as you’re never too old to…

Published on: 29 Jun 2011

Passing exams is for the younger generation surely?

Successfully getting through exams can be tough. Especially the professional exams such as ACCA, CIM and CIMA.

In addition, the older you get the more you have other pressures placed on you. Family and career matters can distract from studying but those of you that think that studying is a younger person’s mission should think again.

Step forward Mr Leo Plass to prove that studying is suitable for people of any age.

Or in fact, rather than “step forward” perhaps it should be “move forward carefully and mind you don’t fall over” as Mr Plass is a sprightly 99 years old.

Now whilst a lot of 99 year old people may be more concerned with other matters rather than obtaining a degree, the inspirational “soon to be 100 years old” Mr Plass has just obtained a degree from Eastern Oregon University in America.

It’s not the first time he’s been at that university though as Mr Plass was previously there during the Great Depression of the 1930s but dropped out back in 1932.

Earlier this month however he was successfully awarded a Degree in General Studies.

Many congratulations to the man and it just goes to show that age shouldn’t be a barrier for study and furthering your education.

Now, if only he can remember where he put his degree certificate…

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Get rid of the Michelin star and you’ll be a better restaurant…

Published on: 27 Jun 2011

Running a successful restaurant is tough.

Whilst a good restaurant can me it look easy, there are a lot of things you need to get exactly right to be successful. Everything from the ingredients, the menu, the chef, the ambiance and the waiting staff have to be just right.

Plus don’t forget that it’s a very competitive industry with new restaurants popping up all the time.

Perhaps one of the best differentiators a restaurant can hope for is to earn the renowned Michelin star. This award it only given to the most elite of restaurants.

As with a lot of businesses that adopt Porter’s generic strategy of differentiation, creating differentiators comes at a cost.

La Lisita restaurant in the French city of Nimes is run by top chef Olivier Douert and received its first Michelin star in 2006. It has however just done something that many people would consider unthinkable.

Namely, they have voluntarily given back their Michelin star and reverted to a “standard” restaurant.

Surely this is commercial suicide?

Giving up the most prestigious award a restaurant can achieve can’t help the restaurant, can it?

In fact though they may well be better off as a result.

The restaurant has given up the star so that they can reduce their costs to a more reasonable level. There are several requirements for having a Michelin star. These include having a minimum ratio of one waiter for every five to six customers compared to a standard restaurant where the ratio is closer to one waiter for every twenty customers.

It was proving difficult for La Lisita to recover these additional costs as higher spending customers weren’t visiting as often as they were before the financial crisis so they decided to drop the star.

They are still planning on serving great food but under a slightly different model.

Could this be the first of many restaurants that obtain the Michelin star to prove that they can but then revert to a different model to make more money?

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Bum Fries? Surely that’s not real…

Published on: 24 Jun 2011

Picture the scene. You’re sat at home and suddenly you get that “eureka moment” where you think of an ingenious way to quickly make yourself nearly £7 million without too much effort.

It’s a great idea but unfortunately it’s completely illegal.

Still, with some cunning deception you may be able to get away with it and live the rest of your life in wealthy comfort.

Fortunately for the honest, hard working people amongst us 39 year old Mr Gregory Roberts wasn’t the brightest criminal out there.

Mr Roberts, who called himself “Lord Roberts”, attempted to obtain various tax refunds totalling £6.8 million. As part of his plan he forged a fake invoice (including fake VAT suffered).

Now, I’m not a tax inspector so I don’t know exactly what they would be looking for in terms of potentially fraudulent fake invoices but the fact that the invoice was for the pretty significant sum of £18 million and also didn’t have a date on it would probably have raised a few alarm bells.

However it was the address on the fake invoice that was particularly interesting.

If any of you have been lucky enough to visit Dumfries in Scotland you’ll know that it’s a lovely picturesque town.

Mr Roberts decided to print his fake, undated invoice with an address in Dumfries and whilst he managed to get the right post code he made the rather splendid typo of Bum Fries instead of Dumfries.

Genius! This man should be a comedy writer and not a fraudster.

“Lord Roberts” was subsequently arrested at his business premises (his one bed-roomed apartment) and admitted two charges of fraud.

He is currently in jail.

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Do you wear cheap chic or luxury clothes?

Published on: 22 Jun 2011

Floods earlier this year caused significant damage to major cotton crops around the world. A knock on effect of this is there is now a shortage of cotton and as a result cotton prices are currently at record highs.

“Cheap Chic” is a business model adopted by various clothing companies where, as the name suggests, clothing is made as cheap as possible but at the same time designed to be fashionable.

We’ve blogged elsewhere about Primark’s techniques for producing cheap clothing and yesterday another leading producer of Cheap Chic released their results.

Hennes & Mauritz, or H&M as they are commonly known, released their latest figures and they weren’t particularly attractive. They showed a 3rd consecutive fall in quarterly profits.

One of the main reasons for the fall in profits was the high price of cotton.

At the cheaper end of the clothing market the cost of material as a proportion of total cost is a lot higher than when compared with luxury brands such as Prada and Burberry where the material proportion is a lot lower. These luxury brands will instead have a higher ratio of other costs such as design, branding and marketing.

Back to H&M though and they have decided not to increase their prices to offset the higher material costs. Instead, they have accepted lower margins.

This contrasts with other clothing companies such as Next who have increased their prices due to higher costs.

70% of H&M is controlled by the founding Persson family so they have the power to maybe take a more long term approach to this issue. They are reportedly accepting lower margins on individual items with the hope of recovering this by increasing their share of the market due to their lower prices.

To me this is an interesting strategic business debate on how to deal with the knock on effects a natural disaster can have on the retail clothing market. Only time will whether H&M have done the right thing in accepting lower margins or whether they should have increased their prices along the same lines as Next.

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Do auditors have friends and can they sing?

Published on: 20 Jun 2011

“I’m an auditor so I really don’t have that many friends”.

This was one of the quotes from Steve Beguhn in the short movie below.

In case you haven’t heard of Steve he works for (or after the performance below it may now be “worked for”) pwc in America.

I’ll keep this blog entry short as the question is whether the Big 4 auditor did well or embarrassed himself during his recent performance on the reality TV show “American Idol”.

I’ll leave it up to you to decide but one thing for sure is that he’s a better singer than I am!

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Would you steal £30m from ING Bank?

Published on: 17 Jun 2011

How much would you try to steal from your employer if you work for ING bank and you’re an accountant?

Hopefully most of you would not try to steal anything from your employer but if you were a lady by the name of Rajina Rita Subramaniam who worked for ING in Sydney, Australia for 20 years then the temptation was just too much.

So what did she steal?

A few pens? Maybe some yellow post-it stickers?

Nope, not even close.

According to press reports in Australia Rajina is about to plead guilty to defrauding ING of an astonishing AUS $45 million (approx. £30 million).

The sharp eyed amongst you will probably guess that she didn’t take if from the petty cash til.

She allegedly siphoned off millions of dollars from the company into a number of private accounts.

Rather than hold on to the stolen money for a rainy day she spent the money on a variety of items including beachside apartments and diamond jewellery (oh, and rather bizarrely some Michael Jackson memorabilia).

Even ignoring the items such as luxury properties she had outside her office, Police allege that she had over 600 pieces of jewellery as well as 200 perfume and make-up items in her office at the ING building where she worked.

Whilst Ms Subramaniam was temporarily one of the wealthiest people in Australia I don’t think she was one of the brightest. Surely it must have been obvious that when a normal bank employee started having the lifestyle of a Saudi Prince there would be certain suspicions raised.

After all, how many of her colleagues also had luxury properties looking over Bondi Beach and wore a Bulgari diamond necklace worth nearly £1 million.

According to prosecutors, the thefts came to light when staff at Bulgari saw that the accountant was paying for luxury items via direct transfers from ING accounts.

It’s not clear from the reports whether Ms Subramaniam wore a Michael Jackson diamond studded single glove to meetings in the office.

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Please complete the following: this hotel is great for…

Published on: 15 Jun 2011

If you run a hotel and everything is going well the last thing you want the public to think about is that you’re about to go out of business.

The Ballymascanlon Hotel in Dundalk, Ireland is by all accounts a very nice hotel with a lot of advance bookings. In brief, it’s a nice hotel situated in a nice location and doing rather well.

Unfortunately though things appear to have gone wrong for them through no fault of their own.

They have reportedly had tearful telephone calls from brides-to-be who have booked the hotel for their wedding reception.

And the cause of the tearful phone calls?

Well, apparently the Google autocomplete suggestion (as seen in the screenshot below) suggests rather ominously “ballymascanlon hotel receivership”.

Under UK law, when a company enters receivership it means that an administrative receiver has been appointed by for example a bank that has lent the company some money and as a result has a charge over all or most of the company’s assets.

The receiver’s objective is to act in the interests of the holder of the charge (i.e. the bank that lent the money).

If a receiver is appointed it means that the company is struggling to stay afloat and the bank wants to make sure that it gets its money back ASAP before the company goes out of business.

Back to Ballymascanlon Hotel though and the autocomplete implication that it is heading towards receivership is far from good news for them. After all, if you’re planning your dream wedding day you would think twice about booking somewhere that may go out of business.

There is reportedly no evidence at all of this particular hotel being threatened with actual receivership.

The hotel is now pursuing legal action against Google in connection with the receivership autocomplete suggestion.

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Is it acceptable for a client to hold your audit files hostage?

Published on: 06 Jun 2011

It seems that Deloitte has had a spot of bother in dealing with one of its Chinese clients.

When they initially won the audit for Longtop they were no doubt very pleased.

Longtop Financial Technologies Ltd., to give it its full name, is a Hong Kong-based maker of financial software. In 2007 it raised $210 million in a US IPO underwritten by Goldman Sachs and Deutsche Bank.

Things haven’t been going too well recently though. Their share price has plunged by 56% since last November reducing the company’s market value by more than $1 billion.

They have also just lost their auditors as Deloitte has just resigned.

Auditor resignations aren’t that unusual but in Deloitte’s resignation letter that was submitted to the U.S. Securities and Exchange Commission there are a few items which to put them in non technical language, sound “extremely dodgy”.

The full resignation letter submitted to the SEC can be found here but some extracts of the letter showing the highlights (or lowlights) of some items that Deloitte identified at Longtop are as follows (note that the bold emphasis on certain words was made by us):

[Start of extract from  resignation letter]

As part of the process for auditing the Company’s financial statements for the year ended 31 March 2011, we determined that, in regard to bank confirmations, it was appropriate to perform follow up visits to certain banks. These audit steps were recently performed and identified a number of very serious defects including: statements by bank staff that their bank had no record of certain transactions; confirmation replies previously received were said to be false; significant differences in deposit balances reported by the bank staff compared with the amounts identified in previously received confirmations (and in the books and records of the Group); and significant bank borrowings reported by bank staff not identified in previously received confirmations (and not recorded in the books and records of the Group).

In the light of this, a formal second round of bank confirmation was initiated on 17 May. Within hours however, as a result of intervention by the Company’s officials including the Chief Operating Officer, the confirmation process was stopped amid serious and troubling new developments including: calls to banks by the Company asserting that Deloitte was not their auditor; seizure by the Company’s staff of second round bank confirmation documentation on bank premises; threats to stop our staff leaving the Company premises unless they allowed the Company to retain our audit files then on the premises; and then seizure by the Company of certain of our working papers.

In that connection, we must insist that you promptly return our documents.

[End of extract of resignation letter]

I have to say that my initial observations are that Deloitte did the right thing in resigning!

Longtop however have released a press release in connection with the resignation and included the statement that they have “initiated a search for a new auditor.”

Somehow I’m not convinced that the other top auditing companies will be rushing out to win Longtop as a client.

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Surely this should be the Next face of the future?

Published on: 03 Jun 2011

If you visit the website of clothing retailer Next you will see some stunningly good-looking male and female models.

Next is a very successful company. They are part of the FTSE 100 index which means they are one of the 100 largest quoted companies in the UK. Their latest annual results show revenues of nearly £3.5 billion.

They clearly know what they are doing when it comes to marketing and branding.

Or do they?

They have just launched their “Make me the Next model 2011” competition whereby people who think they have the looks to become a top Next model can put themselves forward.

The public then vote for who they think is the best looking and the winner will be featured in Next advertising as well as get a contract with Storm modelling agency.

The screenshot to the left shows the current voting and whilst I’m not an expert on all things fashion I do think that the person who currently holds the top spot is a worthy leader.

Roland, from Belfast, is currently heading up the votes by a considerable margin and surely would make a perfect Next model?

We blogged recently about Henkel’s crowd sourcing campaign being hijacked so is this another example of a campaign being hijacked?

Next are a switched on company and if you dig deep into the terms and conditions of their 2011 model competition you find the following:

“The 250 Finalists will be judged by a panel of judges including representatives from Next and Storm who will pick the 50 who they feel best fit the Next brand and who will make it through to the Grand Final on Saturday 30th July.

The 50 Grand Finalists will be judged by the same panel and 2 winners will be announced at the event on 30th July 2011.”

In other words, Next have sensibly said that they will choose the winning models from the 250 entries with the most votes.

I still think that Roland would make a great Next model though.

Whatever happens this has been a great bit of marketing for Next. At the time of writing Roland’s picture on the voting page has been “liked” 42,000 times on Facebook and he has had nearly 5,000 tweets on Twitter.

Their website has also no doubt seen a surge of visits.

Now, if there were only another 249 Roland characters out there that entered the competition it would make the final very interesting.

Good luck Roland!

 

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Would you criticise me if I spent ALL of YOUR bonus on alcohol?

Published on: 01 Jun 2011

One of the ways that governments around the world have tried to kick start the economy during the recent recession has been through the reduction of interest rates.

10 years ago the Bank of England base rate was 11.38%.

Today, the current rate is 0.5%.

If individuals have variable rate loans or mortgages on their home and the interest rate falls, their interest payments will also fall.

As a result these people will have more money in their bank account and in theory this additional money should make them feel more relaxed about buying goods. If these additional goods are purchased then the economy is stimulated.

Lower interest rates may also encourage individuals and organisations to take out new loans. This money can then in turn be used to buy products which again should stimulate the economy.

Now, whilst low interest rates are good for people that are borrowing money, they are not so good for people who are investing money and looking to receive interest on the cash they’ve invested.

Certain parts of the population are more reliant on interest received as part of their income than others. Pensioners for example, who are no longer working can be hit particularly hard as they often rely on interest income.

I’ve just had a quick look at the internet bank Egg.

Egg was established in 1998 and 4 years ago was bought by Citigroup (Citi). It’s one of the top internet banks around and offers good interest rates when compared to some of their competitors.

But what sort of interest rate do you get?

The Egg site today includes the following text:

“Egg Savings Account – watch your money GROW.

Get 0.60% gross pa/AER variable and watch your savings grow.

Includes a fixed 12 month introductory bonus rate of 0.10% gross pa/AER from the date your account is opened on balances from £1 to £1 million.”

The accountant in me likes to play with figures so let’s just think about this for a moment.

If you open an account with Egg with a £1,000 deposit, after the first year you’ll receive a bonus of £1.

Yes, a whole £1.

My favourite drink is London Pride beer and a pint will set me back £3.50.

Just think, in one year’s time if I invested £1,000 in the Egg savings account I could blow the bonus on just over a quarter of a pint of beer.

Then again, I couldn’t actually buy a quarter of a pint as I’d have to pay tax on the £1 bonus received…

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