Dealing With Employee Fraud in Asia Business Operations

November 1, 2017 Edward Dever

Conducting business operations in different parts of Asia has its complexities. Managing a large employee base across different countries and cultures is no simple task. Often, senior management are able to spend only limited time in their Asia-based offices and may not be aware of certain issues involving their employees.

One common problem can be employees operating competing businesses. This is particularly problematic in smaller branch offices where employees may be relatively unsupervised. It is impractical to monitor employees at all times so the risk of employee fraud is real.

On one occasion, I had to deal with an employee who was operating a competing business, complete with its own website, from the company's own premises.

The employee was in a position to redirect company business to his own business. He used company negotiated supplier rates for his own business and, from what could be ascertained, was at times billing all his customer costs to the company while retaining all income. Clearly, a very profitable endeavour for the employee, much to the detriment of the company.

In order to flush out the fraud, we made a purchase from the competing business and, over several weeks, asked for more information about the business. As part of our evidence gathering, we were able to obtain a copy of the employee/business owner's passport and details of his connection to the business. With that information in hand, we had sufficient to confront the employee. The employee was then removed and the fraudulent activity ceased.

Combating employee fraud is an ongoing process that needs to be tailored to the business being monitored. It is important to investigate claims of employee fraud promptly and to also implement review strategies to identify incidents of fraud and take appropriate action. Any action against an employee needs to be in accordance with local labour laws, criminal and other civil laws and, therefore, local legal counsel input may be required. Often, the appropriate course is to have the employee resign rather than be terminated to avoid possible complications under local labour laws.

PELEN

November 2017

The content of this publication is intended to provide a general overview on matters which may be of interest. It is not intended to be comprehensive. It does not constitute advice in relation to particular circumstances nor does it constitute the provision of legal services, legal advice or financial product advice.

Business Branding - Getting it Right or Just Wasting Money

October 20, 2017 Edward Dever

A number of years ago, I was staying overnight in Hong Kong for a work conference. The visit coincided with completion of the change of management of the hotel at which we were staying.

At around 2.00am on Sunday morning, the hotel in Kowloon was rebranded from Four Seasons to Intercontinental. We went to sleep in one brand and woke up in another. All public spaces and online and TV branding had been changed. Obviously it wasn't possible at 2.00am to change the in-room stationery; that would be changed on the next day's room service or on guest check out. However, otherwise the rebranding was complete.

Another business for whom I worked had rebranded several years prior to my arrival. It was a somewhat poorly thought through exercise: a company in the same sector, while not a direct competitor, had the same name. What was indeed worse was the manner in which the rebranding had been implemented.

While headline rebranding had been completed, several years later, there were many obvious examples where the old branding was still used, creating customer confusion. Little attention had been paid to drilling down into the business's website, its forms and contracts and its on ground presence to create a single new brand. The mishmash of old and new brands resulted in the business failing to create a cohesive new brand and greater market presence.

Many businesses spend large sums on external consultants to advise on branding. This expenditure is wasted if management fails to properly implement its new branding strategy.

This is particularly the case if the business is based across a number of countries. There is little worse than a customer visiting operations in several countries only to be met with a confusing mix of brands from one country to the next. Management direction on rebranding comes from the top. It is then the responsibility of middle management to ensure the branding changes are implemented across the board.

In a large business, it may be difficult to completely rebrand on first pass and there may be good reasons why this cannot be achieved. That is why it is essential that management continues to seek out branding errors and encourages employees to bring them to their attention.

Of equal importance is ensuring new brands are registered correctly in the various jurisdictions in which the company operates, including the registration of trade or service marks where appropriate. The failure to secure appropriate registrations may be very costly, particularly where a competitor or name squatter decides to cause problems. It may also create concerns or derail a subsequent business disposal where registrations have not been completed.

Businesses which adopt good corporate governance principles, including those that adhere to a policy of 'always ready for sale', implement proper procedures to ensure brands and marks are registered and renewed on a timely basis. Many of these businesses regularly review registrations to see if they are still warranted or can be allowed to lapse. This ensures cost savings where brands are no longer required as the business evolves.

PELEN

October 2017

Thailand - 20 Years After The 1997 Financial Crisis

July 5, 2017 Edward Dever

Sunday July 2, 2017 marked the 20th anniversary of the floating of Thailand’s currency, the baht. This event is widely regarded as triggering the Asian Economic Crisis of 1997 throughout South East Asia engulfing the economies of Thailand, South Korea, Indonesia and the Philippines.

Known as the Tom Yum Gung crisis in Thailand, floating the currency was one of the final acts of a government which had exhausted the country’s foreign currency reserves in an ill-fated attempt to shore up the baht against waves of selling and protect a finance sector riddled with substandard loans.

At its low point in January 1998, the baht slumped to around 56 baht to the US dollar. The banking sector and most major corporations with significant foreign currency borrowings were insolvent. The International Monetary Fund coordinated a bail out which was later criticised for the austerity measures it imposed on the Thai government.

In Bangkok, one of the Mercedes-Benz dealers initiated what became known as the “Market for the Formerly Rich”. Buyers sifted through an array of luxury cars, jewellery and other boom time badges of opulence, heavily discounted to raise cash for those who had lost jobs or money on stock market investments.

A number of banks and over fifty finance companies were closed or merged with other institutions. Sales of loan portfolios and other bank assets were organised. Lehman Brothers, which itself collapsed in 2008, was heavily involved in this asset sell off.

Twenty years on, it may come as a surprise to learn that a number of the main banks and major conglomerates are still controlled by the same pre-1997 family groups. The ability to retain control in the face of extreme financial adversity is due to two main factors: the debtor-friendly legal system in Thailand and the tenacity and negotiation skills of these families and their executives.

In 1997, there was no formal rehabilitation procedure for companies. A rehabilitation amendment was added to the Bankruptcy Act in 1998. At the time, bankruptcy was considered an option in only a few rare cases. Insolvency was determined by a company’s historical balance sheet rather than the more realistic liquidity test. Restructurings were often completed outside the court process although, for a time, the Bank of Thailand assisted in coordinating meetings of companies and their creditors.

Companies often took an extremely hostile approach to restructuring with a number of debt standstill arrangements taking over a year to negotiate. Thai executives believed lengthy delays would allow negotiations to be finalised in a more favourable exchange rate climate. In many cases, they were correct.

In the years following restructuring, many Thai companies have taken a more conservative approach to debt, particularly unhedged foreign currency debt. They have also expanded beyond Thailand with investments in neighbouring countries and further afield in places such as Australia. Part of the rationale for this diversification would be the lacklustre Thai economy, particularly in the past ten years or so as Thailand has struggled under political uncertainty and military rule.

Should the events of 1997 be revisited, it is doubtful that creditors would fare any better. While the rehabilitation law remains in place, debtors would once again have the upper hand in any negotiations. Directors of companies in Thailand are generally not personally liable if a company trades while insolvent. So there is no incentive for companies to use the rehabilitation procedure. Tossing a set of the factory keys across the desk to your creditors, particularly foreign creditors, and asking them to take over the business would remain a highly effective means of retaining control and negotiating a favourable outcome.

In these circumstances, the restructuring era adage that, in practice, equity in Thailand ranks somewhere above unsecured debt and often above secured debt is likely to hold true once again.

PELEN

July 2017

Accounts Receivable - The Importance of Knowing Your Client

December 28, 2016 Edward Dever

In the ordinary course of business, it is often inevitable that there will be a need to recover outstanding accounts receivable.

It is therefore important to implement strategies across the business which minimise the risk of recovery action being needed and maximise the prospects of success when recovery action becomes necessary.

Effective accounts receivable management starts with the first contact with a client. Every business needs to know their clients. Far too often, sales people sign up new accounts without obtaining the correct client information.

Is the new client a registered business name or a company? Is it registered correctly in the relevant jurisdiction? Has the new client provided sufficient information so you can determine if they are insolvent? Have they signed a contract? Are new client procedures being followed? Are these procedures adequate or out of date?

Obtaining the correct information at the commencement of a business relationship will help management determine whether the business should take on the client and the credit terms which should apply to them. It will also make recovery action far simpler should that become necessary in the future.

Even if the client information is correct at the time the business relationship commences, it should be periodically updated. Clients change address and change key management and credit employees. By adopting an appropriate periodic review, businesses can ensure they have the correct client information should recovery action become necessary.

Many of the problems associated with the recovery of accounts receivable can be traced back to the initial contracting or the failure to keep client information up to date.

Extra time spent getting the correct client details and a contract correctly signed can pave the way to easier enforcement of amounts owed and less wriggle room for debtors to evade payment.

PELEN

December 2016

Accounts Receivable - PDF Version

Smoke Alarms - Regime Change for Qld Rental Properties

December 21, 2016 Edward Dever

What Landlords Need To Know

From 1 January 2017, new rules for smoke alarms come into force in Queensland.

Landlords need to be aware of these changes. There are two key dates for smoke alarm upgrades – 1 January 2017 and 1 January 2022.

For existing dwellings, when replacing smoke alarms after 1 January 2017, photoelectric smoke alarms must be used. The existing requirements for testing smoke alarms prior to the commencement of a tenancy or any tenancy renewal remain.

More detailed rules apply from 1 January 2022. For any new or renewed tenancy, interconnected smoke alarms must be installed in each bedroom and hallway. Smoke alarms must be photoelectric, less than ten years old and not also contain an ionisation sensor. Smoke alarms must be hardwired or powered by a non-removable ten year battery.

Separate rules apply from 1 January 2017 to new dwellings and where dwellings are substantially renovated. Among other things, smoke alarms must be hardwired to the mains power supply with a secondary power source such as a battery.

A dwelling is considered to be substantially renovated if the building work is carried out under a building development approval for alterations to an existing building and the alterations (and any other approved or completed structural alterations in the past three years) represent more than half of the volume of the existing building.

Landlords of Queensland properties should audit their smoke alarms to ensure they remain up to date and comply with the new requirements.

Further details on the smoke alarm changes can be found here – QFES – Smoke Alarms.

PELEN

December 2016