the bottom line ...is our regular bulletin featuring news and developments that affect your bottom line. Feinstein has witnessed many dramatic changes in the profession Highlights and the firm, the main one being the advent of computerisation. The firm has established many important divisions, including 1 A tribute to Julius Feinstein financial planning, corporate finance, and internal audit and forensic services. 2 From the Chairman’s desk Feinstein’s management style has always been focused on two 4 Cost cutting - at what price? key factors: professionalism and flexibility. He encourages these values in all who work for him. Not only has flexibility in 5 The work/life balance handling people been an essential part of his success in management, but also the ability to listen with patience. 7 Get a line on...forensic auditing Feinstein was well known for his mentoring skills, and business leaders that include Liberty Life founder and chairman Donald A tribute to Julius Feinstein Gordon, Sage Chairman Louis Shill and former Hudaco chairman Bruce McInnes were articled with the firm. Former Finance Julius Feinstein, one of the giants of the accounting and auditing Minister Derek Keyes also worked for the firm and was in close profession in South Africa, decided to stand down as a partner of contact with Feinstein. the firm at the end of February this year. His time at Grant Thornton Kessel Feinstein spans 67 years, 60 of which have been In 1999 the Hebrew University of Jerusalem acknowledged as a partner. His career began in Johannesburg in early 1935 Feinstein’s philanthropy and professional achievement with the when he joined Benjamin Kessel and Alder Isaacs at the firm of establishment of the Julius Feinstein Chair of Accounting, a tribute Isaacs and Kessel. When he started as an articled clerk earning to Feinstein’s dedication to his profession. four pounds a month, little did his employers know that he was destined to make an enormous contribution to his profession. Feinstein acted as a member of the Special Court For Hearing Income Appeals for a period of five When Kessel became seriously ill in 1952, Feinstein became the years. He was also appointed by de facto senior partner of the firm. He formally became senior former President Nelson partner when Kessel passed away in 1964 and is now considered Mandela as a member of one of the elder statesmen of the Johannesburg business the 1997 Diamond community and father of the Grant Thornton Kessel Feinstein Commission, which was firm. unfortunately aborted owing to the death of “I have never known another job. Leaving the profession never the chairman prior to interested me. Being part of the firm’s growth to about 65 bringing out its final partners, principals and directors in six offices, has given me great report. satisfaction. The firm’s family culture of loyalty, respect, support and concern is unique. This has enabled us to keep staff and retain clients, in many instances now into the third generation. There is something in our culture that enables partners, principals, staff and clients to remain close,” Feinstein says. CIRCULATE TO: Julius Feinstein Please advise us should any of your contact details change. 2 Volume 1. April 2002 From the Chairman’s desk... What’s in store for us in the next 12 months Ernest Mazansky, National Chairman of Grant Thornton Kessel By: Ernest Mazansky, Feinstein, pays tribute to the master: National Chairman - Grant Thornton Kessel Feinstein “JF’s legacy of professional skill, his grooming of South Africa’s finest and best entrepreneurs, of philanthropy and art Every year at this time I prepare an annual message outlining appreciation will always be a part of this firm. His kindness, what is in store for us for the forthcoming year. The first thing I humility, warmth, modesty and friendship have already proven do is read the previous year’s message and I was quite interested indelible to the firm and can never be forgotten. We will strive to see what I stated in my message last year. (see Bottom Line, to do him proud by continuing his philosophy of personal client April 2001) service, excellent professional services skills and sound business advice.” “It’s hard to pinpoint what went wrong and why. Of course, so much that happens in this country’s economy is driven by what happens internationally, and in particular in the USA. And when there are upheavals there, how can we possibly withstand them? But it certainly does not help when business Entrepreneurial spirit is everywhere people, both here and abroad, who seek to see the worst, are given ample ammunition by the debacle in Zimbabwe and the mishandling of the HIV/AIDS crisis.And if that was not enough, our Joe, a city boy, moved to the country and bought a woes were added to by a currency crash against the US dollar, ....” donkey from an old farmer for R100. The farmer It’s uncanny how appropriate that paragraph would be to the agreed to deliver the mule the following day. situation today. All it would need to round off the pessimism would be a reference to the recent performances of our cricket and rugby The next day, the farmer drove up and said, teams! In fact, the two depressing evils in our lives at this point in time could be expressed in terms of the two Cs - cricket and “Sorry, but I have some bad news. The donkey died.” currency - or maybe the two Rs - rugby and rand! “Well, then, just give me my money back.” It is really easy to find the negative aspects, but the interesting “Can’t do that. I went and spent it already.” thing is that it is not too difficult to find the positive, if only we “OK, then. Just unload the donkey.” think about it for a moment. What is the current dinner party talk about? Unquestionably it’s the rand and the cricket/rugby. Think “What are you going to do with him?” back a few years when the main topic of dinner party conversation “I’m going to raffle him off.” was crime, yet that seems to happen less and less these days. Part “You can’t raffle off a dead donkey!” of the reason is that we have become inured to it, but at the same time I believe that part of the reason is that crime has stabilised. We “Sure I can. Watch me.” all still know those who have been the victims of crime but, let’s face it, it’s happening less and less to people that we know and associate with. A month later the farmer met the city boy and asked, “Whatever happened with that dead donkey ?” And look at how our tourism is booming at the moment. Airline “I raffled him off. I sold 500 hundred tickets at R2 frequencies have been cut internationally since September 11, but flights to South Africa have increased. The fact is that South Africa each and made a profit of nearly R1000.” is now a very attractive tourist destination. Yes, the rand has played “Didn’t anyone complain?” its part, but the flight frequencies and the tourism bookings had picked up before the major crash in November/December, and one “Just the guy who won. So I gave him his R2 back.” of the major reasons is that for international tourists, fearful of Volume 1. April 2002 3 further terrorist attacks, South Africa is regarded as a safe Our economic fundamentals remain in good shape with inflation destination. Surely this must mean something. - despite this recent hiccup - under reasonable control (and hopefully the rand will stabilise to a point where its depreciation The performance of our economy is also heartening. Although, the effect will not be that harsh), the budget deficit is under 2% and international recession began before September 11, the events on we had further tax cuts (which will boost demand). that date exacerbated it. Yet South Africa seems to have been cushioned from its effect and we are having a much softer landing. Despite what has happened to the rand, interest rates may not be Granted, our boom was not as widespread and deep as enjoyed headed for yet a further increase, and government borrowing as a by our trading partners overseas, but neither has percentage of GDP continues to fall meaning that less of the the let down been as harsh. budget goes towards servicing debt and more towards productive uses. All in all, not a bad position to be in. If this is the scenario for the country, it will have positive spin-offs for you, our clients. Yes, things could be looking a lot rosier, but they are also a lot better than we give credit for. I wish you and your families all the best for a healthy, happy and prosperous year. The Five Point Plan Grant Thornton in the United States has released a five point plan to restore public trust in accounting and auditing firms after the Enron debacle, which is summarised below. This five point plan offers the following five recommendations to send a strong message to the global financial community that the accounting profession is serious about the integrity of the audit process and restoring public trust. The five points are: 1. The actions of the management of the major firms must make it clear that nothing is more important than their professional responsibility. 2. Audit committees must do a better job of protecting shareholder interests. 3. The SEC must amend its rules for proxy disclosures of auditors’ fees to require separate disclosure of fees for (1) assurance and advisory services, i.e., those services that meet the definition for assurance services, (2) tax services and (3) all other services. 4. The use of a principles based approach for all standards setting areas is urged: accounting, auditing and Ernest Mazansky independence. In addition, the auditing standards National Chairman and should be expanded to incorporate a forensic Senior Tax Partner approach. 5. Grant Thornton has an excellent auditing methodology and the firm is willing to share its best practices with others. It is assumed that others feel the same about their methodology. 4 Volume 1. April 2002 Business advice... Cutting costs - at what price? By David Reuben, The focus on cost-cutting should really take place in the good Partner - Grant Thornton Kessel Feinstein times. Management of a well run operation, with costs being monitored regularly, is less likely to wake up suddenly to the need A farmer, concerned about the rising costs of feeding his horse, hit for an urgent cost-cutting exercise. Management’s simple maxim on the idea of cutting down on the horse’s food intake... should be that anything coming into the business and anything leaving the business must only occur with their consent. This He decided to feed him on alternate days only. The experiment applies right across the board - from telephone calls, efficient worked well because the horse, with decreased food intake, was utilisation of time, obtaining the best price, paying only for the still working as well as before the cost-cutting exercise. The farmer goods received and services authorised, to getting the best out of decided that he could reduce the food intake even more and so, all the resources of the business. The list is endless, but the the horse got to consume hay only twice a week. Everything was mindset is fixed. working quite well until suddenly, the horse simply dropped dead from hunger. The farmer lamented: “Just as my horse was getting Implement and tighten up on controls. Get everyone to used to not eating, he goes and dies on me!” support this initiative. The logic used makes us smile, but the inherent message is: People generally love to give advice - especially when • How far can you cut into the flesh before you strike the it’s not their problem they are giving advice about! bone? Some of the greatest ideas have been formulated • Can you afford to from listening to people’s advice. Therefore, it experiment with cost may be a good idea to ask your employees cutting without and colleagues what they think. What assessing the would they would do in the effects, short circumstances? Besides canvassing and longer their advice, you also put them term? in the picture and if done • Should you sensitively, you may get cut down or their buy-in and re-deploy your support. It also gives resources? you an opportunity to • Are you cutting set standards and costs too late? expectations. Monitoring adherence to these on a regular There is no completely successful cost-cutting basis lessens the need for sudden programme because even in the best and most and drastic actions. well thought out plans, some element or other, which makes the existing business tick, will be When people know what is expected of forgotten. Besides, any change, especially a radical one, them, they are more likely to perform brings trauma and stress. However, what has proven to be a consistently. Don’t tolerate your resources good recipe for planning a cost-cutting exercise is readily operating at less than the optimum you have set for available, accurate and up-to-date information about the business. them. You need all data on financial, sales, operational, labour, administrative and legislative aspects that affect your business. All When you embark on a cost-cutting programme, you need clarity too often, one comes across the situation where draconian steps of thought to assess what you are trying to achieve. are taken to cut costs after the horse has bolted. • What is your objective? Your information must be current. You need to know which • Under the economic circumstances prevailing, is it wise to aspects of your business make it a success. Ensure that you cut costs? have all the reports you deem necessary. • Indiscriminately? Volume 1. April 2002 5 The work / life balance... Developing an Employee Assistance Programme • Should you perhaps look at accepting a lower profitability? From the guest seat: Dr Brad Beira • Should you personally take a drop in earnings? www.destress.co.za • At what level of profitability will the business still be successful? I would like you to read and answer the following questions before I discuss the importance of creating a balance Alongside these considerations is also the power of positive between the amounts of time, energy and effort dedicated to thought. Don’t talk your business down and don’t project your wealth creation as opposed to your family. impending gloom. You need to face reality but do so with the resolve to give the challenge your best shot. Embarking on a cost- • Are you tired? cutting exercise is invariably accompanied by exaggerated and • Do you get headaches? sometimes malicious rumours. The effect of these can, however, • Is it difficult to wake up in the mornings? be softened, by your honesty and optimism. Set achievable and • Do you suffer from sinusitis, post-nasal drip, chest infections, realistic goals. This is a time for firing up enthusiasm. colds and flu? • Can you say that you are feeling physically your best? Should you be looking only at cost-cutting as a means to returning to or maintaining profitability? An economic slowdown is If you have answered yes to more than one of the questions above sometimes a business opportunity. It’s no time for companies to you are most likely suffering from a condition known as hibernate. What are the other avenues? Along with a careful watch “repetitive stress and strain injuries and illnesses”. These over costs or even a tailored cost-cutting programme, what about conditions are the biggest precipitator of lowered productivity and spreading your wings - being a little more flamboyant than you staff turnover in white-collar work environments. would normally be? If there are opportunities out there, why shouldn’t you get a fair slice? Ask for the opportunity to put in a There is a propensity in companies to attempt to retain their staff proposal. Set out with the intention to network. Muster the by offering reward incentives for good behaviour - mostly linked courage and call on your contacts. Brush-up your act. Make sure to elevated productivity levels. I want to present to you a different you have correctly identified the extent of your market or whether slant on offering work/life balance opportunities in the workplace in fact you should be in another market altogether. What has been while remaining financially competitive. There is a way to make your recipe for success to date? A client recently closed his firm’s these programmes performance based and profit generating while elegant and high cost showroom and relocated back to the factory. maintaining the self-motivating focus directed towards educational That certainly cut the costs, but the shabbiness of the factory upliftment of any individual. We offer these programs as a way of dampened sales. developing loyalty within a company. Three companies in similar industries will differentiate themselves from their competitors by Focus on all fronts. Explore opportunities for expanding the perks and opportunities they offer their key staff. This is an your revenues. intellectual investment that traditionally has been very difficult to qualify. As a consequence, soft skills development and training An interesting thought to employ in a cost-cutting exercise is has become a lower priority strategic development tool. whether, despite the cut in costs, you are still able to maintain a level of quality and service both in and outside the business. For These initiatives are grouped into the drawer labelled ‘global example, can you get better or the same staff-related benefits at a competitiveness’ in the folder titled ‘BEST practices’. What are the lower cost to the business? Can you re-deploy resources to achieve obstacles to developing, implementing and promoting a a better result? Will it be feasible to offer real rewards for achieving programme of this nature? There are several reasons not to embark certain milestones? Will your suppliers be prepared to support you on these types of initiatives. Most of these reasons are linked to by granting longer or more favourable terms or prices? Have you the burden associated with financial contributions and time lost to asked your customer what will persuade him to bring more the company. The real reason for hesitation is participation, staff business your way? penetration and sustainability. Do your maximum. While your assets are sweating, make It is a sad reality that the burden of keeping people healthy and sure you are squeezing every last drop of initiative out of happy does not fall on the individual. This is the key to the yourself. success of the medical profession. People would rather pay for 6 Volume 1. April 2002 advice from a medical practitioner than spontaneously alter their Every job profile should include ongoing high levels of health as lifestyles. a critical competency where the onus is on the employee to maintain this level. This situation would place a new emphasis on Here are four stepping-stones to developing a work/life balance the term ‘Wellness at Work’. Do you have this simple cost-saving that is mutually beneficial to the organisation, your family and performance management tool in place? If not, you can only yourself. The first relates to the labour-related Acts that govern suggest to people that they should be endeavour to be healthy at employment. Any organisation employing more that 20 people is work. This is where steps two; three and four come into play. legislatively obliged to have a health and safety policy outlining the manner in which health, safety and environmental Step two is learning how to manage time as a stress management management issues are addressed. This policy should form part of tool. We have all learned to plan, delegate, organise and control an ‘employment equity strategic plan’ focused on facilitating a our environments in an attempt to time-manage with greater cost-contained work environment that can remain resilient to efficiency. We also know it does not work. Learn how long a medical inflation. The Occupational Health and Safety Act places minute is by closing your eyes for one minute of every hour. This the onus of the responsibility of creating a safe, equitable work will not be a positive exercise if you are driving or speaking to a environment, free from personal risk, on the shoulders of the client at the time. Most people feel the 60 seconds are up after employer. only 30 to 45 seconds. Practising the length of a minute will provide you with up to 50% more time based on your anxiety We forget to read further to where the same Act places an equal response to the perceived passage of time. responsibility on every employee to maintain and sustain his/her own levels of health so as to perform the functions that they The third step relates to the biggest cause of depression: back have been employed to perform to the best of their ability. pain. Stiffness of your neck or shoulder muscles can precipitate headaches - even migraine headaches. Up to eight percent of all This is the newness of the employee assistance programme headaches fall into a category referred to as cervicogenic approach that failed during the ‘managed care’ initiatives of the headaches (coming from the neck). Because of our increased past. utilisation of computers, telephones, cell phones and longer working hours we suffer from increased neck and shoulder muscle tension. While at work, you should try to stretch four to five times a day. This may sound unfeasible but it is less time consuming than leaving the office for a medical consultation and it is certainly less damaging to productivity than a headache. Lastly, begin to greet the people with whom you work. It has always come as a surprise to me how few people smile at each other and greet each other in the work place. Taking the time to be polite and cheerful slowly transforms a working environment into a place in which people wish to co-exist. Taking a coffee (or tea) break, from left to right: Paidamoyo Mbanje, Bhasker Patel, Mandi Fleiser and Clifford Amoils. Volume 1. April 2002 7 Get a line on... Forensic auditing: A pioneering new direction for traditional auditing and accounting firms. By: Advocate Dion Hucker, Management Assurance Services the person(s) responsible and determining liability for criminal, civil or Grant Thornton Kessel Feinstein, Eastern Cape internal disciplinary proceedings. Ultimately, this should be the end result of a true forensic investigation: the client should know how they Being a member of the legal profession and fairly recently assimilated have been defrauded, who was responsible and have properly into the private professional consulting services environment, I am still obtained, admissible evidence to prosecute or dismiss the guilty trying to come to terms with standard industry jargon. Similarly, party and to recover their losses, if possible. “legalese” phrases tend to sow discord and consternation among mainstream accounting practitioners, so I will try and avoid any such The adoption of a multi-disciplinary, wholistic approach towards client terminology here. service is vital in our present business climate. The long-established divisions between professions and services offered are blurring, as The sudden call for forensic or investigative components to be added more and more clients want to go to one source for their business to traditional accounting and audit services is a result of many factors. needs. The National Director of Public Prosecutions, Mr B Ngcuka, said during a fraud prevention conference in 2000 that a crime threat Frequently, audit trainees, partners and managers are responsible for analysis conducted the previous year had indicated the biggest threat ensuring that clients comply with G.A.A.P and various other statutory to South Africa’s economic viability and stability was organised provisions, and that their systems and procedures are not open to commercial crime. abuse. However, they are not versed in the law of evidence, criminal law or the law of delict which makes the process of interpretation of On a more basic level, I also noticed a marked increase in fraud, theft, any irregularities found, and the extrapolation thereof to determine corruption and other so-called “white collar” crimes while employed liability, difficult. This is where the combination of legal and audit by the prosecuting authorities in the Eastern Cape. While the economy expertise becomes vital in servicing the needs of the client. is languishing, unfortunately, the growth in this “industry” is experiencing a marked upward trend. Theft or fraud committed by employees of business entities is a common scenario encountered by auditors. This is by no means The proliferation of investigating bodies such as the Special the only manner in which fraud or corruption is perpetrated, Investigation Unit (formerly the Heath Commission), the Auditor- but certainly the most prevalent. Generals’ Special Investigation component as well as several firms concentrating on the provision of forensic services, is also a clear Figures made available by the Association of Certified Fraud indication that commercial crime is on the increase. Unlike high profile Examiners, based on studies carried out in the United States, reveal crimes such as murder, robbery and rape, which seem to take up most that fraud and abuse is typically perpetrated by males with tertiary of the media’s attention and are overloading the resources of our education. The statistics revealed that 58% of reported fraud and abuse already embattled police force and the criminal justice system, cases were perpetrated by employees as opposed to 30% by commercial crimes are generally harder to detect. They are frequently management and 12 % by businesses’ owners. The statistics quoted by not brought to court for fear of the negative publicity it brings to the the Association also revealed that companies with 100 or fewer “victim” organisation and they carry the stigma of being difficult cases employees were the most vulnerable to fraud and abuse. to litigate on. Experience has shown in South Africa that a large proportion of fraud The marriage of audit and legal functions is long overdue in this is perpetrated by persons in positions of trust (usually in book- regard. Many fraud cases are brought to the attention of the authorities keeping/administrative positions) - with access to the funds or assets by whistle blowers. Frequently, the investigation of these complaints (stock etc.) of smaller to medium sized business entities. These involves obtaining the financial statements of the victim organisation persons are often ineffectually supervised. The use of extra cash after which it becomes clear that the auditors have alluded to or receipt books, false invoices, altered bank reconciliations, inflated or identified several problem areas which indicated the possibility of false journal transactions and the misuse of business credit cards are fraud or abuse a long time before the alleged offences were actually more common forms of fraud encountered locally. Ineffective stock reported. These indications were not identified or acted upon as control measures also provide an avenue of opportunity for the potential risks of fraud or theft at the time. average South African fraudster. Many victims of fraud rely heavily on their auditors to be the Do any of these situations or scenarios sound familiar? Many of watchdogs of their businesses. While auditing procedures often our clients are small to medium-sized businesses, which are highlight irregularities, weaknesses in systems and similar issues, they exposed to the most risk of fraud and deserve to enjoy the do not, and are not intended to, take the next step, which is identifying benefit of wholistic Management Assurance Service. You are always welcome to contact us... Cape Town 4th Floor, Alexander Forbes Building, 14 Long Street, Cape Town 8001 The chat line... PO Box 1550, Cape Town 8000 Tel: (021) 418-3162 Fax: (021) 425-1276 email@example.com Durban Durban Office launches new Financial Planning 3rd Floor, Fedsure House, 320 Smith Street venture Durban 4001 The Durban Office of Grant Thornton Kessel Feinstein launched its PO Box 752, Durban 4000 Financial Planning and Employee Benefits venture in February this Tel: (031) 304-2411 Fax: (031) 304-1937 year, based on a successful formula created within the Grant Thornton firstname.lastname@example.org Kessel Feinstein Johannesburg office some nine years ago. East London The Johannesburg initiative has become one of the most highly rated and fastest growing operations of its kind in the country. Among its 26 Vincent Rd, Vincent 5247 strengths are an innovative array of investment solutions which are not PO Box 313, East London 5200 dependent upon off-the-shelf retail products. Tel: (043) 726-9898 Fax: (043) 726-9899 email@example.com Says Stephen Perling, managing partner of Grant Thornton Kessel Feinstein Durban, “We plan to take advantage of the depth of Johannesburg experience acquired by the Johannesburg team and their standing in 137 Daisy Street, cnr Grayston Drive, Sandown 2196 the industry and build on this to create our own brand in Durban.” Eric Private Bag X28, Benmore 2010 Jones, who has 11 years of experience in the industry, will head the Tel: (011) 322-4500 Fax: (011) 322-4545 Durban venture. firstname.lastname@example.org Congratulations Port Elizabeth Jenny Hall, Director of Financial Planning in Cape Town, has been 165 Cape Road, Port Elizabeth 6001 elected as Chairperson of Luasa (Life Underwriters Association South PO Box 35133, Newton Park, 6055 Africa) for the Western Cape Region. Luasa is the professional body for Tel: (041) 373-4200 Fax: (041) 373-4201 intermediaries and the only body in South Africa which can access email@example.com million dollar Round Table, which is the international recognition of top achievers. Pretoria 121 Boshoff Street, New Muckleneuk 0181 Frank Timmins, Partner in charge of the Johannesburg office, has PO Box 1470, Pretoria 0001 been appointed Chairman of the Public Accountants and Auditors Tel: (012) 346-1430 Board Practice Review Committee. He has accepted this appointment Fax: (012) 346-2502 or (012) 346-4191 for a period of one year. firstname.lastname@example.org Pamela Grayman, National Marketing Principal, has been appointed for a 2-year term as the chairman of the IMM Financial Services Special Interest Group. Association with Ukhozi Administrators (Pty) Ltd New Appointments Rudi Scholtz, B Com (Hons), CA (SA) has been appointed as the Editorial Panel: partner in charge of the Port Elizabeth office. He joined the firm in Ernest Mazansky, national chairman; Pamela Grayman, national marketing principal; Clifford 2001, after leaving BOE Bank where he consulted as a member of the Amoils, partner in charge of audit, Johannesburg; Frank Timmins, professional standards corporate turnaround team. Rudi has worked with both private and partner; Angela Graham, corporate communications executive. listed companies. He currently provides consulting, audit and Disclaimer accounting services to clients. The Bottom Line is published as a service to our clients and other interested parties. It is intended to provide practical and technical information which is of use to you in your business. Please be advised that the information contained herein is for general guidance only. Any reader Norman Minnaar, B Com, H.Dip.Acc., CA (SA) has been appointed intending to base a decision on information contained in this publication is advised to consult a as an audit partner in the East London office. He joined the firm in Grant Thornton Kessel Feinstein partner before proceeding. 1998, after working for a transport corporation. During his career, Norman has built up substantial experience consulting to the Eastern Cape Provincial Government Departments. He has a wide range of auditing and accounting experience as well as commercial experience. Rudi Scholtz Auditors, Accountants & Business Advisers South African member of Grant Thornton Visit our website on www.gt.co.za Norman Minnaar We take your business personally.