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Case Overview: One.Tel was the fourth largest telecommunications company in Australia before its collapse in 2001. The management of One.Tel was was able to conceal signs of financial distress in the company, arguably due to poor corporate governance in a number of areas, including board composition, board committees, internal control, audit, and executive remuneration. Case Analysis Proper:
Point of View: O!"#$TA!T View: O!"#$TA!T Statement of the Problem: %ow can One.Tel improve on the internal control policy and corporate governance considering that the company&s independence is 'eopardi(ed) Alternative Courses Courses of Action: ACAs
*. +estructure the governance and manag managem emen entt to clarify t he oard-s role and responsibilities.
Brief Description overnance rest restru ruct ctur urin ing g is the the enha en hanc ncem emen entt of the the ability to perform the /ey roles and respon responsibi sibilit lities ies of the board. board. +estru +estruct cturin uring g enables everyone connected to govern governanc ance e to better better focu focuss on the the futu future re,, strengthen relationship relationshipss with the /ey sta/eholders, and would would clea clearl rly y de defi fine ne the resp respon onsi sib bili ilitie ties betwe etween en the the boar board d and the management.
Strengths
uic/er and more effective effective decision decision ma/ing *mproved communication across th e organi(ation andatory orie rientat ntatio ion n and an d education sessions Annual evaluation of board and committee members a nd goal setting. *ncr *ncrea ease sed d focu focuss on stra strate tegi gicc and policy issues
Weanesses
This will ta/e time since governance restructuring is a complex organi(ational change. The The cost cost would would probably be high hiring a external consultant3 This his would uld be not not effe effect ctiv ive e if the motive of the oard is unethical.
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**. *mplement a ranting credit in good credit order to win sales is a control system. fact of life for many businesses, as if the li/elihood that ma'ority of your credit customers will fail to pay on time. "etting up a good credit control system will reduce bad debts and improve cash flow.
***. 8nsure the fair representation of financial statements and, in lieu with this, hire independent external auditors.
"trict adherence to specific standards, in One.Tel-s perspective, namely Australian AA9 and:or *5+" should be observed. The management must stic/ with the policies stated in the standards regarding accounting changes and estimates and auditing standards regarding independent auditing.
$ess bad debts by monitoring of receivables $ess written4off receivables as few bad debts are recogni(ed. 5aster operating cycle because of li6uidity %igh li6uidity because of faster collection.
There would be no problems when it comes to reporting. Assurance and convenience is 'ustified when complied with. The independent auditors would possibly uncover any fraudulent activities that may occur.
$ess customers because only few may meet the terms and conditions set Offer of discounts which is a reduction to sales 7ifficulty to have a new and loyal customers
There are really no technical measures that would gauge independence of mind. $imitations are imposed by the management itself. 8ven if the controls are strictly implemented, the management might still interfere.
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ACAs
C!"#$!"A %O! D$C"S"O&' (A)"&* ost 8fficient
#O#A+
ompetency
;iability and 8ffectivity
Time onserving
*. +estructure the governance and management to clarify the oard-s role and responsibilities.
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**. *mplement a good credit control system.
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8nsure the fair representation of financial statements and, in lieu with this, hire independent external auditors. D$C"S"O& (A#!"2:
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Conclusion: One Tel was a group of Australian4based telecommunications companies, including principally the publicly listed One Tel $td. established in 1<<= soon after deregulation of the Australian telecommunications industry, most of which are currently under external administration by court appointed li6uidators. The company-s slogan was >?ou-ll tell your friends about One Tel ,@ to draw the connection between the brand and personal communication. %owever, telling your friends about One Tel would not be all about their business, it will be more about their unbridled growth. One Tel attempted to create a youth4oriented image to sell their mobile phones and One !et internet services. *t became Australia-s fourth largest telecommunications company before collapsing in 2001. One Tel continuous failures had become a big distress for their management. They have faced their huge problems with alternative strategies that did not wor/. They have made decisions that were responsible enough to lead them to deteriorations. To be able to still dream that they would be the leading phone company, they covered their mista/es by covering it up with another leaving them doomed. One Tel still assumed that they had a glooming business even having a wea/ corporate governance. The board of directors which composed of eight 3 members which included five =3 non4executive directors, the 5inance and Audit ommittee, the +emuneration ommittee, and the orporate overnance ommittee were all comprised of the same two non4executive directors, +odney Adler and Bohn reaves who were closely related with the hief of 8xecutive Officer, Bodee +ich. "ince an audit committee should fairly present the financial statement of a company, One Tel-s breaching and not following the accounting standards, financial statement could be viewed as ineffectiveness of its audit committee. Also, most of the non4 executive directors of the company was actually have or had the 6ualifications as independent directors. onse6uently, there was also lac/ of diversity of opinions in the oard. 5urthermore, responsibilities between the board chairs to their management and its activities were clearly undefined because of their interchanging non4presence in an official meeting held by the company. learly, One Tel-s
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corporate governance should have a balance of authority so that they did not exercise their powers too much in an unfairly way. "econd, having problems with their cash balance, earnings, creditors, and debtors made the company lose a good credit control system. ut because of having high hopes that they would become the great telecommunications in Australia, One Tel uses its aggressive mar/eting by ta/ing unworthy creditors for them 'ust to sign up with the company. One Tel experienced high default rates but still uses the relatively high margins on other products to counter its loss4ma/ing services. $astly, having a poor financial statement, discrepancies in several records of the company, did not have a real time or even close to real4time information about their performance and the accuracy and integrity of financial report that did not even get the highest priority from senior management have resulted of the collapse of the company. %owever, if One Tel made their internal control strong, had a financial recording 6uality, audit 6uality, and effective management, firm-s performance would be vitally effective. This case made us reali(ed that we should /now each of our responsibilities and perform appropriately to our designated positionC having good corporate governance would not lead the One Tel to corporate collapse.
!ecommen3ation: One.Tel had more than two million customers across the world and operations in eight different countries allowing it to secure a large number of shares in the global mar/et. *t was once a leading telecommunications company in Australia. %owever, when the standard of corporate governance is applied to One Tel, it would appear that many of its practices did not comply with good governance. ore importantly, governance failure exacerbated the conditions why One4Tel collapsed. As the consultants, we presented the following alternative courses of actions that are useful for the /ind of action needed to be doneD *.
There should be division of responsibilities among different authorities to ensure that there is oversight and review to catch errors as well as to prevent fraud or theft because doing double duty as One.Tel is exposing may compromise the
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important wall between audit and remuneration, which helps to avoid any conflict of interest. One. Tel must implement an effective credit policy which includes clearly outlined procedures and actions which assess the creditworthiness of their customers so the company can immediately ta/e steps to mitigate ris/ and minimi(e losses to maximi(e profits. One.Tel-s management must hire external auditor with independence so that the audit opinion will not be influenced by any relationship with the client and enable to assess the reliability of management assertions regarding the fair representation of financial statements. The external auditors are expected to give an unbiased and honest professional opinion on the financial statements to the interested users and in accordance with certain standards li/e Australian AA9 and:or *5+".
Ee, the consultants, therefore recommend AA 1 which focuses on a governance restructuring. The benefit of governance restructuring is an enhanced ability to perform /ey roles and responsibilities of the board of directors. The structure should be aligned with, and support, the system-s mission and vision. 9roper segregation of duties and responsibilities among directors and employees is a preventive in nature so that fraudulent activities such as concealing losses, collusions, and any conflicts of interest would be avoided. *ndependence of every director in a company is a paramount to strengthen relationships with /ey sta/eholders. Thus, when it is applied, directors, managers and also employees of One.Tel will be connected to governance to focus more on the ultimate goal of the company. oreover, governance restructuring ensures high46uality due care and customers satisfaction, protect the financial health of the organi(ation, ensure effective executive leadership, strengthen relationships with /ey sta/eholders, and perpetuate effective governance.
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