Independent; Copperstone University ; Charisma university

Date Written: June 4, 2016 Download this paper

Abstract

The current reflection is about a new roadmap that the American giant, Google, Inc must follow to reenter successfully the Chinese market by using tools like forensic accounting, audit techniques and other relevant initiatives related to better transparency of business transactions. In order to achieve this, the piece develops the history between Google Inc, and China, what went wrong, and other issues related to the breakdown.

On January 25, 2006, the American company Google, Inc. announced that it would provide access to the Internet in China through a new portal named Google.cn. At the same time, Google executives agreed to censor all search results which included content considered objectionable by the Chinese government. With a population of 1.3 billion and a growing economy, China represents an enormously important market for the future of U.S. companies. The number of Internet users in the country has grown substantially over the past few years, and is currently estimated to have reached 111 million regular users. China, in fact, is now ranked as the second largest Internet market in the world. China’s economy has grown consistently over the last 30 years at unprecedented rates, which has made it one of the most sought-after venues for investment by multinational corporations. With this, more Chinese have the means to purchase Internet access and devices. At the same time, Google has grown into one of the largest multinational companies in the world, and entered China in the early part of 21st century seeking to continue its growth. Rather than finding success, Google faced an array of problems. In fact, the Chinese government, however, offers all Internet search providers a difficult choice: either censor results or do not do business in China.

With the introduction of Google.cn, Chinese Internet users could access the same search engine with a speed similar to that of Google.com in the United States. Instead of the Chinese government filtering search results, Google now routes the inquiry through their own servers and removes any officially banned content. Search results are typically returned within only a fraction of a second. Although Chinese users would have previously received the same limited results, Google had no role in the actual censorship of information until the debut of Google.cn.

Keywords: Market, Expansion, Chinese, Google, Growth, communism, Free market, African

Suggested Citation:Kingsly, Professor kelly, Forensic Accounting in Market Expansion: Google and the Chinese Market (June 4, 2016). Available at SSRN: https://ssrn.com/abstract=2790185 or http://dx.doi.org/10.2139/ssrn.2790185

The post Forensic Accounting in Market Expansion: Google and the Chinese Market appeared first on Head of Finance Operations | Liquidity and debt management| Kelly Kingsly.

Independent; Copperstone University ; Charisma university

Date Written: September 14, 2017 Download this paper

Abstract

The global wind of economic integration has now reached the doorstep of accounting profession with intense pressure on nations state to apply unified accounting Standards in government undertakings. This effort could be seen as a centaury reform to the profession. The reform agenda was perceived as way forward towards harmonizing public sector with private sector liked system and principle of financial reporting, which for long experts had been advocating on the believed that both sectors should operate at the same level of efficiency. The need for high quality standards to enhance sound and consistent financial reporting and the fact that the inefficiency and ineffectiveness of public sector extended to a belief that public and private sectors did not have to be managed in fundamentally different ways, fostered a wide-ranging discussion about the harmonization of public sector accounting systems and their convergence towards the private sector financial reporting standards. There is no doubt that applying universal high quality standards can promote efficiency, transparency which in long run may promote public accountability. However, the process of adopting a uniform set of accounting standards, as a part of the international convergence of financial reporting systems, is perceived as a very complex, time consuming and difficult task. The trend of international convergence and harmonization policy of private sector accounting and financial reporting standards has also made the influence on the process of entire public sector reform that has been progressing worldwide.

According to Ball (2006), since accounting is shaped by economic and political factors, harmonization of accounting standards and practices is almost an inevitable consequence of the increasing integration of markets and policies. This has been witnessed by the mandatory adoption of the International Financial Reporting Standards (IFRS) in several countries in the last decade. The International Accounting Standards Board (IASB) is a private organization of international scope established in 1973. It has issued a set of standards to be used when preparing financial statements, namely 41 International Accounting Standards (IAS) and 13 International Financial Reporting Standards (IFRS). The IAS are standards issued by the IASB by 2001 and IFRS are standards issued after that year. Nevertheless, currently, the expression IFRS is commonly used alone to designate this set of rules (IAS and IFRS). This IFRS adoption worldwide is a significant economic transformation and it gave rise to a major line of research. This paper reviews the empirical literature on the effects of IFRS adoption on financial management and economic transformation with the focus on Cameroon. Empirical research allows evaluating the impact of changing standards on the financial reporting quality, as well as the effects of such a change on the capital market (Douala Stock Exchange), it can also contribute to understanding the factors that influence the consequences of change. This knowledge is important for regulators in Cameroon that are preparing to change standards, but also for national regulators that have already done it when considering ways to improve IFRS implementation.

This paper will revisit some cases studies encouraging the implementation of IFRS and IPSAS worldwide and attempt to domesticate the concepts in Cameroon. The first part provides the rationale of IFRS and IPSAS implementation, while the second part gives some international cases studies on IFRS implementation. The last part of the paper gives a roadmap for effective and efficient implementation of IFRS in Cameroon.

Keywords: IPSAS, IFRS, Growth, transformation, governance, nation building

Suggested Citation:Kingsly, Professor kelly, Introduction and Rationale for IPSAS and IFRS Implementation (September 14, 2017). Available at SSRN: https://ssrn.com/abstract=3037109 or http://dx.doi.org/10.2139/ssrn.3037109

The post Introduction and Rationale for IPSAS and IFRS Implementation appeared first on Head of Finance Operations | Liquidity and debt management| Kelly Kingsly.

Independent; Copperstone University ; Charisma university

Date Written: August 5, 2016 Download this paper

Abstract

The concept of strategy has evolved substantially in the past thirty years. Organisations have learned to analyze their immediate competitive environment, define their current position, develop competitive and corporate advantages, and understand weaknesses and threats to sustaining advantage in the face of challenging threats. Different approaches including industrial organization, the resource-based view, dynamic capabilities, and game theory have helped academics and practitioners understand the dynamics of competition and develop recommendations on how organisations should redefine their competitive and corporate strategies, corporate communication included. However, drivers such as globalization, deregulation, or technological change, just to mention a few, are profoundly changing the competitive game. Scholars and practitioners agree that the fastest growing organisations in this new environment appear to have taken advantage of these structural changes to compete “differently” and innovate in their business models. What about the Douala Stock Exchange?

His Excellency Mr. Paul BIYA, President of the Republic, in ordering the creation of a financial market in Cameroon, endowed the financial system, which was until then composed of banks, financial establishments and microfinance institutions, with a modern tool to finance the economy. Thus by rationalising the economic system and putting the country on course to become an emerging nation by 2035.

The ambitions of the Douala Stock Exchange (D.S.X) are: To establish the DSX as an attractive place for savers and to introduce the idea of Stock Market finance into the managerial culture of companies in Cameroon; To make the DSX an essential component of the economy of Cameroon; To make a contribution to the growth and development of Cameroonian companies by allowing them to adopt and implement wider ambitions and achieve more quickly their objectives of development into international markets; To participate in the wider diffusion of a culture of transparency and sound corporate governance; To make a contribution to the dematerialisation of financial assets; To make a contribution to increase awareness of Cameroon on international markets.

The Stock Exchange of Cameroon or the Stock Exchange or the Douala Stock Exchange or the DSX was created by, and is organised in accordance with the provisions of Law N° 99/015 of the 22nd December, 1999. The Stock Exchange of Cameroon shall be sole agent authorised to carry out the trade of stocks, shares, transferable securities and other investment products. The Stock Exchange of Cameroon shall be charged with organising the trade of transferable securities and other investment products registered in any of its departments. To this effect, it shall take upon itself the exclusive rights to regulate: access to the market; admission to quotation; organisation of transactions and the markets; suspension of negotiations; recording and publication of negotiations; conclusion of transactions.

The Stock Exchange shall monitor the legality of the operations carried out by the stockbrokers (Investment Service Providers or PSIs) acting as negotiators – compensators or by any persons acting on their behalf. It shall ensure especially the legality of negotiations during trading sessions. The Stock Exchange undertakes to inform the Financial Markets Commission of any irregularities, disrespect of market regulations, collusion between two or more participants or any other abnormality likely to negatively affect the integrity of the market. The Financial Markets Commission has sole powers to carry out investigations of the Investment Service Providers concerned or any other persons or body that cause, by their behaviour, a risk to be run by the Stock Exchange. This draft of the project aims at positioning the Douala Stock Exchange within the financial market of the CEMAC sub region.

The concept of strategy is well-known in management theory and practice. The key issue that should unite all discussion of strategy is a clear sense of an organization’s objectives and a sense of how it will achieve these objectives. However, the concept of ‘corporate communication strategy’ has received little attention in the public relations (corporate communication) body of knowledge. There is mention of a strategic role for the corporate communication practitioner, but few explanations or descriptions of what corporate communication strategy means in a strategic organisational context. Van Riel (1995:142) is of the opinion that academic knowledge with regard to the strategic management of an organisation’s communication is relatively limited. Although the corporate communication industry acknowledges that strategy should be an integral part of its communication programmes, few practitioners seem to understand the meaning of strategy. There are those who equate strategy with planning. According to this perspective, information is gathered, sifted and analysed, forecasts are made, senior managers reflect upon the work of the planning department and decide what is the best course for the organization. This is a top-down approach to strategy. Others have a less structured view of strategy as being more about the process of management. According to this second perspective, the key strategic issue is to put in place a system of management that will facilitate the capability of the organization to respond to an environment that is essentially unknowable, unpredictable and, therefore, not amenable to a planning approach.

Strategy and the communications world, and particularly the public relation (PR) part of that world, just do not seem to go together. It is certainly unusual to come across a memorable, cogent, sustained, and effective communications strategy. Not a brand strategy. Not a marketing strategy. Not an advertising strategy, a communication strategy (Tibble 1997:356).

After conducting a study on the professional views of corporate communication practitioners in the Netherlands, Van Ruler (1997:263) concluded that practitioners are not able to cope with abstract strategic planning practices. The key problem seems to lie in the application of ‘strategy’ to corporate communication issues. The purpose of this paper is therefore to stimulate debate on the meaning of the concept ‘strategy’ in a corporate communication context, as called for by Tibble (1997:358).

Firstly, as a meta-theoretical framework, the historical ‘shareholder’ and ‘corporate social responsibility/performance’ perspectives on management will be outlined, as well as the more recent ‘stakeholder’ and ‘corporate community’ approaches to strategic management. Secondly, the strategic management literature will be explored to gain insight into the meaning of the concept ‘strategy’. Thirdly, the strategic role of corporate communication and the use/meaning of the term ‘strategy’ within the public relations literature will be described. Fourthly, a conceptualisation and operationalisation of ‘corporate communication strategy’ will be provided.

Keywords: Communication, strategy, capital market, stock exchange, policy, infrastructure, development, budget deficit

Suggested Citation: Kingsly, Professor kelly, Moving from Strategy to Corporate Communication (August 5, 2016). Available at SSRN: https://ssrn.com/abstract=2818848 or http://dx.doi.org/10.2139/ssrn.2818848

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International Council for Family Business; ISTG-AC; YENEPAD; Saint Monica University; University of Johannesburg; University of Pretoria; Charisma University

Akepe Enobi

International Institute of Certified Forensic Investigation Professionals Inc. (IICFIP)

Professor Kelly Kingsly

Independent; Copperstone University ; Charisma university

Date Written: November 3, 2015

Abstract

The writing on the wall is an idiom implying that a negative event is easily predictable based on the current situation that we are living. In recent years, many analysts, commentators and even soccer legends were complaining on the way the international governing football body, FIFA, is run. Despite all these cries, FIFA management was reluctant to discuss with third parties how to fix their business. Fortunately, the last three months have seen the scramble of this powerful organisation that many thought that it cannot succumb. Surprisingly, last month, the ethical committee of the world governing football body suspended four of its most powerful members among them, the president SEPP BLATTER replaced by ISSA HAYATOU.

The question that arises is how to fix FIFA?

The current paper is an attempt to bring a contribution to the saga that FIFA is encountering. To achieve this, a literature review on ways and means to fix struggling companies was conducted with the aim of bringing inputs on the FIFA scramble. The findings brought the concept of corporate DNA that is the heart of any organisation. Within FIFA DNA, recent events showed that ethical values are lacking, and that there is a need to instill these values as it always the case in struggling companies. Therefore, to fix the struggling FIFA, it is imperative to instill values into its DNA.

Morgan (1997) defines corporate DNA as the visions, values, and sense of purpose that bind an organization together to enable individuals to understand and absorb the mission and challenge of the whole enterprise. Lindgreen and Swaen (2010) regard it as an organization’s culture and strategy. Baskin (2006) views the corporate DNA as flexible, universally available database of company procedures and structures which develops from the company’s history, and that the organization’s employees behave to satisfy the resultant corporate identity. He also likens the availability of information throughout an organization to the presence of DNA in all of an organism’s cells or units.

However, Shed (2001) asserts that people can evolve their own DNA or their unique mix of thinking style, personality, and preferences. But, to really evolve and change the company’s DNA requires new leaders with different ways of looking at reality, different ways of thinking and different preferences. According to the author, this new blood strengthens the overall company gene pool by adding new mindsets and new personalities. This will certainly lead to conflict; but it will also make the company more adaptive to the changing marketplace.

The paper recommends that a new management is needed at the head of the FIFA organisation, and that the survival of FIFA is impossible with the current leadership. The paper also brings another recommendation by interrogating Neilson, Pasternack and Mendes (2003) who are coming with the concept of the adaptative DNA. According to the researchers, changing a company’s DNA holistically means weaving intelligence, decision-making capabilities, and a collective focus on common goals widely and deeply into the fabric of the organization so that each person and unit is working smartly and working together. Something needed with the world governing football body. The bases of this adaptative DNA according to the authors are the structure, the decision rights, the motivators and the information.

The structure looks at what does the organizational hierarchy look like? How are the lines and boxes in the organization chart connected? It also tries to understand how many layers are in the organisation hierarchy, and how many direct reports does each layer have? The decision rights implied who decides what? How many people are involved in a decision process? Where does one person’s decision-making authority end and another’s begin? As for the motivators, it is concerned with what are the objectives, the incentives, and career alternatives do people have within the organisation? It also deal with how are employees are rewarded, financially and non financially, for what they have achieved? Finally with the information, the organisation must develop metrics that are used to measure employees performance? How are activities coordinated, and how is knowledge transferred? How are expectations and progress communicated? Who knows what? Who needs to know what? How is information transferred from the people who have it to the people who require it? (Neilson et al.; 2003)

To conclude, the paper views an adaptative DNA as a way to revamp FIFA DNA, but not as a panacea to all ills and problems that the world football governing body is facing.

Keywords: Adaptative DNA, FIFA, Ethic

Suggested Citation: Ndedi, Alain Aime and Enobi, Akepe and Kingsly, Professor kelly, Does FIFA Management Failed to See the Sign on the Wall? Contributions to Instill Ethical Values into FIFA DNA (November 3, 2015). Available at SSRN: https://ssrn.com/abstract=2685665

The post Does FIFA Management Failed to See the Sign on the Wall? Contributions to Instill Ethical Values into FIFA DNA appeared first on Head of Finance Operations | Liquidity and debt management| Kelly Kingsly.

Independent; Copperstone University ; Charisma university

Date Written: July 29, 2020 Download this paper

Abstract

Globally, health care has recently known indisputable challenges. Even the strongest nations have seen their supposedly strong health systems crush down. No health organisation has been left un-disrupted with the coming of Covid-19. If even the mighty have fallen what becomes of the weak?

African countries at independence were organized and financed by governments which provided facilities, personnel and other inputs. By the 1980s, however economic downturn and the embrace of international monetary fund loans with stringent conditionality meant that many governments had to cut public spending on infrastructure and services, including healthcare and education. Consequently, many African governments stopped subsidizing public services and began implementing various costs – recovery measures in public services. The cost recovery era witnessed the introduction of OOP (out-of-pocket) for healthcare services, public water supply and consumables in schools. Thus, since the 1980s and 1990s, OOP by individuals and households have accounted for a larger scale of healthcare expenditure in many African countries of sub-Saharan Africa (1). These payments popularly known as user-fees or the ‘cash and carry’ health system in Ghana are known for raising the cost of healthcare, thus making it un-affordable for a large number of the population. In many sub-Saharan countries, governments rank healthcare relatively low among development priorities (2). For this reason, insufficient resources are allocated to healthcare, including drugs; which is often financed OOP (3)

Healthcare statistics in sub-Sahara Africa are generally poor. For example, although the region makes up only 11 per cent, of the world’s population; it accounts for é’ per cent of the global disease burden and commands less than 1 per cent of global expenditure (4). Although the WHP suggests thresholds of OOP for health as a guarantee of adequate financial protection is in the region of 15-20 per cent, residents of many African countries spend more (5). For example, OOP spending on health was between 27 – 37 per cent in Ghana in 2012 about 52 per cent in Kenya, 6405-70 per cent in Nigeria in the 1998 – 2008 period: while in South Africa, the government contributes about 42 per cent of all expenditures on health. The remaining 58 per cent is paid by private sources insurance premiums and OOP.

The United Nations recommends minimum required budgetary allocation to health is 15 per cent, many African countries fall below this minimum in their budgetary allocations. In 2007 more than half of the 53 African countries spent less than $50 per person (as average) on health (6). Of the total expenditure, 30 per cent came from governments, 20 per cent from donors and 50 per cent from private sources of which 71 per cent was paid by patients themselves, the so-called out-of-pocket-payments.

The dire picture of the healthcare system in the world and particularly in sub-Saharan Africa described above, coupled with Africa’s status as a ‘low-income’ region where poverty is a major barrier to accessing healthcare and underscores the need to rethink the health system.

To talk of healthcare systems, we must first consider the elements that make up this system. If the target is having a better health system then the individual elements making up the system must be reviewed. Knowing what it is to be what is has been and what it could be, will be a good step forward.

Keywords: HEALTH CARE, Finance, Public Policy, Global Health Care

Suggested Citation: Kingsly, Professor kelly, The Global State of Health Care System (July 29, 2020). Available at SSRN: https://ssrn.com/abstract=3663356 or http://dx.doi.org/10.2139/ssrn.3663356

The post The Global State of Health Care System appeared first on Head of Finance Operations | Liquidity and debt management| Kelly Kingsly.

Independent; Copperstone University ; Charisma university

Kouam Henri

Independent

Date Written: March 19, 2020 Download this paper

Abstract

When China sneezes the world catches a cold is a statement that is true today more than ever before. The outbreak of the COVID-19 has had far reaching consequences around the world as almost every component of society is greatly affected in one way or the other. The impact transcends through culture, politics, history, economic, health and even the distortion of the historical landscape. If anyone doubted the super power position of China, COVID-19 has given us the opportunity to rethink. Economically, the ban of flights and limited movements in and out of the country has impaired the positive evolution of the financial markets naturally tilting the growth curve towards continues low. Food supplies, medication, importation and most especially commodity prices are on their all-time low. On the health side with extraverted African economies is meting towards short falls, at the central African sub region, rating institutions are projecting a 4.1% drop in consumer goods as import is greatly affected. The United Nations said it now estimates Africa’s GDP rate will fall from 3.2 percent to 1.8 percent this year. In order for Africa to meet its global targets under the UN’s Sustainable Development Goals, economists say Africa must grow at a minimum of 8 percent.

The novel COVID-19 has infected more than 94,800 people in at least 77 countries (see chart), bringing global manufacturing supply chains to a grinding halt and causing a slowdown in key service sectors such as tourism, transport, and recreation. While the virus will cause exports from Cameroon to China and Italy to fall, policymakers must see the negative implications of the virus as a trigger to incentivise higher value-added products such as components for computers and solar panels, consumer products such as cornflakes, packaged salmon, potatoes and cornflower, which are all appropriate for an increasingly climate-centric global consumer.

Keywords: COVID-19, Coronavirus, China, UNESCO, CEMAC, world bank, IMF, finance, market analysis, solutions, African countries, sub-Saharan countries, budget impact

Suggested Citation:Kingsly, Professor kelly and Henri, Kouam, China Sneezes the World Catches a Cold-CEMAC (March 19, 2020). Available at SSRN: https://ssrn.com/abstract=3557298 or http://dx.doi.org/10.2139/ssrn.3557298

The post China Sneezes the World Catches a Cold-CEMAC appeared first on Head of Finance Operations | Liquidity and debt management| Kelly Kingsly.

The process of regional integration is relatively well-advanced in the Central African region for financial operations and banking regulations. However, in other areas it is under-developed due to weak institutional capacity of regional bodies and physical barriers (transportation and communication networks). In addition the customs union is troubled by persistent fraud and smuggling activities. For example, some landlocked countries such as CAR typically only collect one-quarter of the customs duties they are owed because of widespread smuggling that occurs along the porous borders. (GIZ, 2015) There is a gap between the advanced rules for regional integration and the behavior on the ground. The latter continues to encourage the fragmentation of national markets. However banks, insurance and regulatory bodies operate on a regional basis.

The ECCAS was created largely to strengthen the process of regional economic integration and contribute to development in Central Africa. Compared to a number of regional integration efforts in Africa, CEMAC is relatively well developed as a monetary and customs union with a common external tariff (CET), defined criteria for macroeconomic convergence and an institutional structure for surveillance, as well as an institutional and historic base through which structural reforms can take place to achieve these objectives. According to Zafar and Kubota (2003), for Central African countries, regional integration offers many advantages including being the source of enhanced growth and economic efficiency by locking Central African countries into policy reform; providing a framework in which restrictive trade practices can be removed, customs procedures streamlined, macroeconomic policy surveillance increased, and greater fiscal discipline ensured; and an opportunity for the poorer land-locked economies (Chad and the CAR) whose economic survival depends on the coastal countries.   

Financing a transformative development agenda in ECCAS countries members require that available resources be used more effectively and strategically to catalyze additional financing from official and private sectors. To achieve the above, the development of basic infrastructure (roads, bridges, schools, low cost housing, sports facilities, etc.) is indisputably one of the major thrusts of the majority of the sub region countries. ECCAS countries need therefore to step up efforts to finance their own development by improving domestic resource mobilization, including by strengthening tax administration, better harnessing natural resource revenue, and curbing illicit financial flows.

This initiative intends to reviews and proposes active management of the treasury as an instrument to finance the economy of ECCAS member countries like bond financing, institutional investors, Diaspora bonds, pull mechanisms, advance market commitments, resources-for-infrastructure deals, and climate finance. Not all of these options are feasible in the case of ECCAS countries. In fact, the challenge and the objective of ECCAS countries as this initiative will recommend, lies in establishing a supporting sub regional-level policy framework and credible commitment to build sub regional capacity and combat bottom of the pyramid poverty in expanding and utilizing the options that the project aims to recommend and make them available as soon as possible to deal with financial challenges that the region faces.

Fiscal policies within ECCAS countries

In ECCAS countries, fiscal policies are conducted independently by each member country, although there have been instances of regional coordination in taxation policies. The member governments have recognized, however, that a regime which combines a common fixed exchange rate in conjunction with national fiscal policies requires macroeconomic convergence and surveillance. The treaty that specified the legal and institutional arrangements of ECCAS countries created the following bodies:

• Central African Economic Union (Union économique de l’Afrique centrale–UEAC) with an Executive Secretariat based in Bangui, CAR.

• The Central African Monetary Union (Union monétaire de l’Afrique centrale), which specifies the responsibilities of BEAC, and the Central African Banking Commission (COBAC).

The Customs Union is one of the central pillars of ECCAS countries. It has established a CET for trade with third countries, and trade inside the Community has been duty free since 1998. The CET has four rates: 5% (for essential goods); 10% (for raw materials and capital goods); 20% (for intermediate goods); and 30% (for consumer goods). In addition to the average CET of 11.8%, several other temporary and excises taxes and a value-added tax (VAT) are applied, leading to an average taxation level of 32%. 

The Monetary Union plays a key role in the integration process. There is one central bank called the Banque des états d’Afrique Centrale (BEAC), a single currency (CFA Franc [XAF]) and defined criteria for macroeconomic convergence[1]. The BEAC regulates the sector through its regional banking commission, COBAC, which shares responsibility with the national ministries of finance for licensing new banks. There is also a budgetary agreement between the French Treasury (Ministry of Finance) and BEAC with fixed convertibility of the XAF and a ‘droit de regard’ by the European Central Bank (ECB). In theory, through the adoption of a single banking licence, a bank licensed in one ECCAS country should be freely able to operate in the CEMAC region.

The provision of a regulatory framework for the sub-region to ensure a good business climate for private and foreign investment is also already conducted partly at the regional level. The Organisation pour l’harmonisation en Afrique du droit des affaires (OHADA) was established in 1995 with 16 francophone countries signing on to adopt common business laws in the region. OHADA covers the implementation of uniform acts on commercial legislation, company law, bankruptcy law, secured transaction law, debt collection and arbitration. This was intended, among other things, to create a positive business environment for the development of financial services. 

The financial integration includes two regional stock exchanges: BVMAC in Libreville (Gabon) and the Douala Stock Exchange (Cameroon). The main participants are the State, public and semi-public companies and international companies. Oversight is provided by the Commission de surveillance du marché financier d’Afrique centrale (COSUMAF).

Characteristics of the Financial Services Sector in the Central African Region

 The banking sector and financial markets in the Central African region are dominated by foreign banks. The most significant of these are subsidiaries of large French and US banks which have traditionally been active in the coastal countries open to foreign commercial exchange (such as Cameroon and Gabon). Following the economic crisis of the 1980s, these foreign banks contributed to a relatively stable banking system by conforming to COBAC requirements.

According to AfDB (2015), the depth of financial development, an indicator of the extent to which agents are able to use financial markets for savings and investment decisions has a strong link with long-term economic growth in the ECCAS sub region as it enhances firms and businesses’ ability to invest in long-term and risky initiatives. It captures claims on the private sector by deposit taking financial institutions relative to economic activity and hence, reflects the role played by financial intermediaries in channeling savings to private sector investors. Higher domestic credit to the private sector is therefore indicative of the provision of productivity enhancing financial services (King and Levine, 1993). Using this measure, the ECCAS sub region has the shallowest financial depth among the various regions. Deepening the sub region financial sector in the long run partly depends on financial institution’s ability to track repayment history that requires credit registry and information sharing among financial intermediaries. Difficulties in establishing borrowers’ ability and willingness to repay, and lack of legal support for creditor rights limit banks’ lending schemes, which contributes to shallow financial development. In weak legal and institutional environment, the ECCAS financial institutions run the risk of lending to agents with little to no prospects of repayment. (AfDB, 2015)

Furthermore, financial penetration also remains low in the ECCAS sub region. Less than a quarter of sub-regional population has access to a formal bank account. This indicates that (i) there is less financial inclusion particularly in low income communities and (ii) the degree to which private individuals can access financial services is limited. (AfDB, 2015)

REVENUES MOBILISATION WITHIN ECCAS COUNTRIES

Revenue mobilisation has been a core topic on the international agenda since 2007. The coordination and dialogue networks on the         topic have expanded and intensified their work. In general, revenue mobilisation in developing countries has been high on the political agenda since the Monterrey Consensus in 2002.  This section reviews items including; tax collection policies, the accountability of revenues from extractive industries, the establishment of transparent and comprehensive budgeting procedures, the integration of policy-making, planning and budgeting, the enhancement of budgetary oversight and the fight against corruption, and finally the role of parliaments in budgetary oversight.

Tax collection policies

Correspondingly, support to the development of tax systems has intensified to a large extent since then. The G8 Action Plan for Good Financial Governance in Africa also underlined the support of tax policy and tax administration reform. Central African countries were encouraged to make use of regional networks and international knowledge on tax policy and tax administration, particularly in order to        bolster domestic expertise. The enlargement of the tax base cannot be over emphasized .unlike other western economic blocks where the common tax policy is defined, the structure in the central African sub-region is still wanting like in many other sectors .While waiting to open gigantic projects on the reforms and potentials to be used in this sector, the following measures could be put in place;

The Governments of the Central African Sub- region and their partners:

• Adopt fiscal policies that will enable an optimal collection of tax revenues and
• will combat illicit financial flows in order to achieve development;
• Publicize national reports on tax system which could serve as a basis of
• support for national, regional and international campaigns and enhance the
• knowledge and understanding of stake holders on tax issues;
• Support a participative, transparent, and responsible tax reform process;
• Educate citizens on the importance of tax in development;
• Strengthen the capacity of CSOs to monitor tax policies;
• Ratify the African Union convention to fight corruption; ;
• Protect members of CSOs engaged in the campaign for tax justice.

Increasing accountability for revenues from extractive industries

The highest potential for increasing revenues is to be expected from extractive industries (AFDB/ OECD/ UNDP 2014:65). In the case of resource-endowed countries, the success of the Extractive Industries Transparency Initiative (EITI) is really welcome and is an effective and efficient resource mobilization mean. The Resource Governance Index (RGI) measures the quality of governance in the oil, gas, and mining sectors. The enabling environment that rates the broader governance environment with indicators as accountability, government effectiveness, the rule of law, corruption, and democracy must be enhanced.

It is amazing the huge potential that is yet to be tapped from the central African sub-region,From a fiscal stand point, we can build a transparent legal and regulatory framework. This will have the advantage of building the credibility of the states and economic operators without forgetting the international investment community.

Low technical man power to handle this new industry to the Africans.it will be meaningful and beneficial to build technical skills and negotiation capacities that will help achieve equitable negotiation yet flexible fiscal regimes.

Transfer pricing is a tax avoidance tactics that can also bring in lots of revenue if the people are properly trained, this will definitely curb the avoidance scheme in place.Governance challenges is a huge impediment to growth in this industry .venality and racketing has become a way of life.it is true reports always point accusing fingers at the government but the world fails to understand that it take two to tangle. It is essential to build strong institutions which uphold transparency and good governance. The greater majority of the population and citizens can only benefit if there is a deep culture of transparency and accountability. The natural consequence is inclusive growth that will in turn lead to the growth of the economy especially with human development improvement. Jobs will be created, skills will be acquired, and healthcare systems will be developed and improved, gender increase not leaving out Rand D innovation.Economic diversification has the natural repercussion of bringing resources diversification with natural consequences on expanding options for projects and infrastructure development.

Establishing transparent and comprehensive budgeting procedures

Working towards transparent, accountable and reliable        budget management has been at the top of the international development cooperation agenda since the declaration of Rome in 2002, when the concepts of aid harmonization, mutual ownership and alignment with country systems were placed at a high policy         level for the first time–although not yet named so.      When budget is not transparent, accurate and accessible it cannot be properly analyzed. The achievement of this outcome is based on setting up transparent and comprehensive legal norms that are adapted to the present times. Most the existing budgetary procedures were inherited from a colonial past which has outlived its usefulness.

Within the past three years, gender responsive budgeting and result oriented budget is what is being preached at the ECCAS member states .budget performance is the way out for this region if we need diversify our source of liquidity mobilization.

Transparency of performance budgets is one major advantage because taxpayers see results during every budgeting cycle when good programs get funding, whereas bad programs are dropped. Another advantage is quantitative analysis and input from employees that have a vested interest in their departments. Workers and program managers know what budgeting priorities are needed to further the goals of the agency when their performance is examined.

One major disadvantage to performance budgeting is the relative cost between two divisions. Supplies, workload and office needs may differ from one aspect of the agency to the next, which makes larger budgets more challenging. Some department heads may inflate or bloat their successes to ensure better funding during the next budget cycle. Performance budgets are great for routine programs, but if emergency needs arise there may be hassles to try to get more funding.A performance budget is based upon the output of services versus the input of money to each department. In an ideal situation, government agencies and divisions that have the best results based upon efficiency get funded again for later years.

Integrating policy-making, planning and budgeting

The G8 Action Plan for Good Financial Governance in Africa aimed at improving the integration of policy-making, planning and budgeting. This is measured by the dimension “quality of budgetary and financial management” (QBFM) under the World Bank Group’s CPIA Framework. The budget transparency is undertakes through the Open Budget Index (OBI) that evaluates–through thorough questionnaires–the amount of budget information that is made publicly available, mostly focused on eight key budget documents[2]. To this, there is a need of comprehensive and transparent budgeting procedures that could be gained through theanalyzing PEFA data that includes the comprehensiveness and transparency of public finance management systems, procedures and institutions.

Enhancing budgetary oversight and fighting corruption

Budgetary control and oversight are the founding pillars in the GFG system. Therefore the G8 Action Plan for Good Financial Governance in Africa includes the promotion of supreme audit institutions to assist their respective governments in improving performance and fostering the efficient and effective receipt and use of public resources through increased capacity building measures.          

The role of parliaments in budgetary oversight

Budgets usually are laws, and parliaments are thus the responsible organs in states to legally approve the governmental financial planning. Parliaments can influence the budget cycle. The involvement of parliaments in the budget process informs choices for fiscal policy and ensures executive accountability. The question is usually whether the parliamentarians actually represent the people in some of the autocratic systems that exist within the sub region. Information gathered talks of members of parliament being appointed instead of being elected .the question if therefore is how effective is parliamentary scrutiny in enhancing quality budget expenditures. if we must improve on the quality of our spending, we must go back to the drawing board and understand the rationale behind budgeting .the representatives of the people should be able to define the type of budget that will bring about the development and prosperity that is needed .if the budget is badly drawn, it will definitely not reach the desired objectives. The question I constantly ask myself is to know if a budged voted largly with a 50-70 percent on operations of the state can effectively meet economic transformation and development objectives? The following principles should be upheld by the ECCAS member states in designing their budgets ;

• Comprehensiveness: The budget must cover all the fiscal operations of government,

Encompassing all public expenditure and revenues, to enable full and informed debate of the tradeoffs between different policy options.

• Predictability: Spending agencies should have certainty about their allocations in the medium term to enable them to plan ahead. Stable funding flows support departmental planning and efficient and effective delivery.
• Contestability: No item in the budget should have an automatic claim to funding. All policy and attached funding should be regularly reviewed and evaluated in order to ensure prioritization and optimal performance of spending agencies.
• Transparency: All relevant information required for sound budgetary decision making should be available in an accessible format, and in a timely and systematic fashion. Budget information needs to be accurate, reliable and comprehensive.
• Periodicity: The budget should cover a fixed period of time, typically one year, and the process of compiling the budget should follow a clear and reliable schedule that is agreed upon and published in advance.(Source: World Bank (1998)).

MOBILISATION OF RESSOURCES

The cost of achieving any development goal depends on the efficiency with which the objective is pursued, taking into account the quality of underlying policies and practices. The initiative discusses active management of the treasury as an instrument to finance the economy of ECCAS member countries. According to Mua (2016), they are:

1. Pull mechanisms for development, which involve ex-post economic incentives for innovation to solve a well-defined problem. By linking payments to the actual impact of an innovation, they can lay the foundations for a self-sustaining, competitive market for the relevant product.
2. Resources-for-infrastructure (RfI) financing model aims to overcome limited capital market access and domestic capacity constraints. Under RfI, oil or mineral extraction rights are exchanged for turnkey infrastructure, complementing standard tax and royalty regimes.

1. Diaspora resources (Diaspora bonds and remittance-backed bonds) could be seen as active management of the treasury as an instrument to finance the economy of ECCAS member countries.
2. Linking climate finance and development finance can enhance development impact by allowing the fight against poverty to take climate effects into account and vice versa. Comprehensive a) carbon pricing policies, b) the removal of inefficient fuel subsidies, and c) cap-and-trade schemes are promising options to mobilize larger and higher-return investments.
3. Reallocation of untargeted and inefficient energy subsidies to social safety net programs. Simply increasing public spending is unlikely to lead to better outcomes in countries suffering from poor governance.
4. Harnessing Sustainable Streams of Natural Resource Revenue.Capacity constraints often prevent ECCAS countries from effectively and efficiently obtaining revenues from extractive industries. Investments in natural resources commonly involve high sunk costs for a project that can last decades. Rents can be substantial and represent a large share of the home country’s GDP and government revenue. Natural resource-rich countries like those of ECCAS sub region could improve their capacity to negotiate fair contracts in extractive industries.To help ECCAS countries retain more of its natural resource rents, ECCAS governments must pursue initiatives like the Extractive Industries Transparency Initiative (EITI) that promote greater transparency in revenue flows and contract disclosure.
5. Subsidy Reform. Subsidy reform is one of the main areas in which public resources can be redirected to more effective uses.It is not only important for mobilizing domestic resources but also for getting incentives right. While it is important to remove harmful subsidies, increasing subsidies for activities with positive externalities might be the proper course of action. An extensive body of research has demonstrated that food and fuel subsidies are often poorly targeted and end up disproportionately benefiting the wealthy and middle class. It is important to explore the steps needed to remove harmful subsidies, thereby freeing public resources that can then be directed towards investments with higher social returns. Energy subsidiesparticularly fossil fuel subsidies are costly, and these costs are quantifiable and can be measured. Despite their negative environmental impacts, subsidies artificially increase the incentives for using fossil fuels.
6. Procurement.Beyond increasing value for money, good practices in procurement can bring additional benefits to ECCAS countries, including the development of domestic industries and services; better service delivery, e.g., through sound management of PPP contracts in several sectors (health, education, power distribution, and water and sanitation); and transparency, including through public participation in procurement at the local level through community driven development approaches. In this sub section the project will look at feasible procurement reforms in ECCAS countries to achieve new financing schemes. Reforms may require new legislation, identifying and eliminating antiquated regulations, and intervention throughout the entire project cycle, from design to planning, tendering, contract execution, and completion.
7. Emerging Sources.Given the scarcity of bank lending for infrastructure, the development of non-bank financing for infrastructure is now emerging as the new imperative. International financial markets present a largely untapped pool of capital to finance infrastructure; and institutional investors have the potential to provide an additional source of long term finance. It is important to explore some of these untapped schemes that fit the ECCAS environment and the level of the sub region external debt.
8. Institutional Investors, including Sovereign Wealth Funds.With their growing assets under management and their ability to provide long-term finance, institutional investors, such as pension funds, insurance companies, mutual funds, or sovereign wealth funds (SWF) have potential as pools of non-bank capital for emerging markets infrastructure.
9. Carbon Markets.A market that is created from the trading of carbon emission allowances to encourage or help countries and companies to limit their carbon dioxide (CO2) emissions. This is also known as emissions for carbon trading. Carbon emissions trading is a way of reducing greenhouse gases produced by polluters. A relatively novel instrument to generate climate finance can be found in cap-and-trade schemes, which set a limit to the overall emissions, thereby creating carbon credits (emission allowances). Any surplus carbon credits can be traded at carbon markets, thereby generating a new revenue stream for ECCAS countries. Similarly, project developers can invest in low-emissions projects (so far mainly renewable energy, energy efficiency, waste management, and reforestation) generating carbon-offsets which can be sold at voluntary carbon markets to private consumers and companies who want to reduce their carbon footprint.

This source will envisions two major market-based options that currently exist, the carbon trading over its rival, the carbon tax. In short, carbon trading, sometimes called emissions trading, is a market-based tool to limit GHG. The carbon market trades emissions under cap-and-trade schemes or with credits that pay for or offset GHG reductions. Cap-and-trade schemes are the most popular way to regulate carbon dioxide (CO2) and other emissions. The scheme’s governing body begins by setting a cap on allowable emissions. It then distributes or auctions off emissions allowances that total the cap. Member firms that do not have enough allowances to cover their emissions must either make reductions or buy another firm’s spare credits. Members with extra allowances can sell them or bank them for future use. Cap-and-trade schemes can be either mandatory or voluntary. It must be mentioned that a successful cap-and-trade scheme relies on a strict but feasible cap that decreases emissions over time. If the cap is set too high, an excess of emissions will enter the atmosphere and the scheme will have no effect on the environment. A high cap can also drive down the value of allowances, causing losses in firms that have reduced their emissions and banked credits. If the cap is set too low, allowances are scarce and overpriced.

1. Diaspora Bonds. Diaspora resources via Diaspora bonds and remittance-backed bonds—have the potential to be viewed as active management of the treasury as an instrument to finance the economy of ECCAS member countries that ECCAS sub region want to launch. It is necessary to look the feasibility of ECCAS countries Diaspora bond that could have a greater chance of success if the proceeds were to finance projects which interest overseas migrants,such as housing, schooling, hospitals, and community infrastructure projects that could benefit them and/or their families, or their region in their homeland. It also fits with the concept of delivering results.

CONCLUSION

Regional coordination within the ECCAS sub region can help mitigate spillovers from tax competition, although this requires political commitment and an effective supranational enforcement mechanism, something that is often lacking in the regional economic community. Because, common reporting standards and data collection can be an important first step toward coordination and enhanced transparency. This initiative is an attempt to sketch a blueprint for financing development for the construction of basic infrastructure: roads, bridges, schools, low cost housing, and sports facilitiesin a world with increasingly scarce concessional resources and in an environment where access to long-term financing for development has become more difficult. The challenge for ECCAS countries is to make the sub region more attractive destinations for resource from the private-sector and donors. The sub region can do this by improving the effectiveness with which existing resources are used, enhancing domestic resource mobilization and by making strides to develop and access new sources of financing. This will require a foundation of good polices, supported by the institutional capacity to implement them.

REFERENCES:

Gesellschaft für Internationale Zusammenarbeit (GIZ), (2015), Good Financial Governance in Africa. Report done on June 2015.

Mua, K, K, (2016), What can states do when fiscal revenue cannot finance the economy alone?

available at: https://www.linkedin.com/pulse/what-can-states-do-when-fiscal-revenue-cannot-finance-ph-d. accessed on the 20th January 2017.

Zafar, Ali and Keiko Kubota, (2003), Regional Integration in Central Africa: Key Issues. Africa Working Paper Series No. 52. The World Bank. June.

[1] In March 1993 the ECCAS countries set up a special committee on multilateral surveillance (Conseil de convergence) to ensure fiscal discipline and to promote macroeconomic convergence. The establishment of this Committee was the first step toward a full-fledged multilateral surveillance framework. On a quarterly basis, the Committee conducts regional surveillance which includes a review of the following four fiscal indicators or “criteria for convergence”: basic budget balance to be zero or positive and the annual rate of inflation to be below 3%;

[2] http://siteresources.worldbank.org/EXTLICUS/Resources/511777-1269623894864/HarmonizedlistoffragilestatesFY14.pdf

The post Active Treasury Management of the state: Instrument for financing the economy (Economic Community of Central African States) appeared first on Head of Finance Operations | Liquidity and debt management| Kelly Kingsly.

This project however intends to reviews and proposes to the Ministry of Finance a range of existing and potential innovative financing sources and tools like bond financing, institutional investors, Diaspora bonds, pull mechanisms, advance market commitments, resources-for-infrastructure deals, and climate finance. Not all of these options are feasible in the case of Cameroon. In fact, the challenge and the objective of the Cameroonian government, as this project will recommend, lies in establishing a supporting country-level policy framework and credible commitment to build domestic capacity and combat bottom of the pyramid poverty in expanding and utilizing the options that the project aims to recommend and make them available as soon as possible to deal with financial challenges that the country faces.

INNOVATIVE SOURCES OF FINANCE

The cost of achieving any development goal depends on the efficiency with which the objective is pursued, taking into account the quality of underlying policies and practices. The project discusses a number of these alternative sources that are needed to complement existing sources of income that Cameroon is utilizing

1. Pull mechanisms for development, which involve ex-post economic incentives for innovation to solve a well-defined problem. By linking payments to the actual impact of an innovation, they can lay the foundations for a self-sustaining, competitive market for the relevant product.
2. Resources-for-infrastructure (RfI) financing model aims to overcome limited capital market access and domestic capacity constraints. Under RfI, oil or mineral extraction rights are exchanged for turnkey infrastructure, complementing standard tax and royalty regimes.
3. Diaspora resources (Diaspora bonds and remittance-backed bonds) could help finance infrastructure projects.

Linking climate finance and development finance can enhance development impact by allowing the fight against poverty to take climate effects into account and vice versa. Comprehensive a) carbon pricing policies, b) the removal of inefficient fuel subsidies, and c) cap-and-trade schemes are promising options to mobilize larger and higher-return investments.

1. Reallocation of untargeted and inefficient energy subsidies to social safety net programs. Simply increasing public spending is unlikely to lead to better outcomes in countries suffering from poor governance.
2. Harnessing Sustainable Streams of Natural Resource Revenue. Capacity constraints often prevent countries like Cameroon from effectively and efficiently obtaining revenues from extractive industries. Investments in natural resources commonly involve high sunk costs for a project that can last decades. Rents can be substantial and represent a large share of the home country’s GDP and government revenue. Natural resource-rich countries like Cameroon could improve their capacity to negotiate fair contracts in extractive industries. To help Cameroon retain more of its natural resource rents, the government of Cameroon must pursue initiatives like the Extractive Industries Transparency Initiative (EITI) that promote greater transparency in revenue flows and contract disclosure.
3. Subsidy Reform. Subsidy reform is one of the main areas in which public resources can be redirected to more effective uses. It is not only important for mobilizing domestic resources but also for getting incentives right. While it is important to remove harmful subsidies, increasing subsidies for activities with positive externalities might be the proper course of action. An extensive body of research has demonstrated that food and fuel subsidies are often poorly targeted and end up disproportionately benefiting the wealthy and middle class.

The project will explore the steps needed to remove harmful subsidies, thereby freeing public resources that can then be directed towards investments with higher social returns. Energy subsidies particularly fossil fuel subsidies are costly, and these costs are quantifiable and can be measured. Despite their negative environmental impacts, subsidies artificially increase the incentives for using fossil fuels.

1. Procurement. Beyond increasing value for money, good practices in procurement can bring additional benefits to Cameroon, including the development of domestic industries and services; better service delivery, e.g., through sound management of PPP contracts in several sectors (health, education, power distribution, and water and sanitation); and transparency, including through public participation in procurement at the local level through community driven development approaches.

In this sub section the project will look at feasible procurement reforms in Cameroon to achieve new financing schemes. Reforms may require new legislation, identifying and eliminating antiquated regulations, and intervention throughout the entire project cycle, from design to planning, tendering, contract execution, and completion.

1. Emerging Sources. Given the scarcity of bank lending for infrastructure, the development of non-bank financing for infrastructure is now emerging as the new imperative. International financial markets present a largely untapped pool of capital to finance infrastructure; and institutional investors have the potential to provide an additional source of long term finance.

The project will explore some of these untapped schemes that fit the Cameroonian environment and the level of the country external debt.

Institutional Investors, including Sovereign Wealth Funds. With their growing assets under management and their ability to provide long-term finance, institutional investors, such as pension funds, insurance companies, mutual funds, or sovereign wealth funds (SWF) have potential as pools of non-bank capital for emerging markets infrastructure.

1. Carbon Markets. A market that is created from the trading of carbon emission allowances to encourage or help countries and companies to limit their carbon dioxide (CO2) emissions. This is also known as emissions for carbon trading. Carbon emissions trading is a way of reducing greenhouse gases produced by polluters. A relatively novel instrument to generate climate finance can be found in cap-and-trade schemes, which set a limit to the overall emissions, thereby creating carbon credits (emission allowances). Any surplus carbon credits can be traded at carbon markets, thereby generating a new revenue stream for Cameroon. Similarly, project developers can invest in low-emissions projects (so far mainly renewable energy, energy efficiency, waste management, and reforestation) generating carbon-offsets which can be sold at voluntary carbon markets to private consumers and companies who want to reduce their carbon footprint.

The reflection will envisions two major market-based options that currently exist, the carbon trading over its rival, the carbon tax. In short, carbon trading, sometimes called emissions trading, is a market-based tool to limit GHG. The carbon market trades emissions under cap-and-trade schemes or with credits that pay for or offset GHG reductions. Cap-and-trade schemes are the most popular way to regulate carbon dioxide (CO2) and other emissions. The scheme’s governing body begins by setting a cap on allowable emissions. It then distributes or auctions off emissions allowances that total the cap. Member firms that do not have enough allowances to cover their emissions must either make reductions or buy another firm’s spare credits. Members with extra allowances can sell them or bank them for future use. Cap-and-trade schemes can be either mandatory or voluntary.

It must be mentioned that a successful cap-and-trade scheme relies on a strict but feasible cap that decreases emissions over time. If the cap is set too high, an excess of emissions will enter the atmosphere and the scheme will have no effect on the environment. A high cap can also drive down the value of allowances, causing losses in firms that have reduced their emissions and banked credits. If the cap is set too low, allowances are scarce and overpriced.

1. Diaspora Bonds. Diaspora resources via Diaspora bonds and remittance-backed bonds—have the potential to finance projects such as railways, roads, power plants, and educational institutions that the country want to launch.

The project will look the feasibility of a Cameroonian Diaspora bond that could have a greater chance of success if the proceeds were to finance projects which interest overseas migrants, such as housing, schooling, hospitals, and community infrastructure projects that could benefit them and/or their families, or their region in their homeland. It also fits with the concept of delivering results.

CONCLUSION

This reflection will attempt to sketch a blueprint for financing development for the construction of basic infrastructure: roads, bridges, schools, low cost housing, and sports facilities in a world with increasingly scarce concessional resources and in an environment where access to long-term financing for development has become more difficult. The challenge for Cameroon is to make the country more attractive destinations for resource from the private-sector and donors. The country can do this by improving the effectiveness with which existing resources are used, enhancing domestic resource mobilization and by making strides to develop and access new sources of financing that the current project intends. This will require a foundation of good polices, supported by the institutional capacity to implement them.

The post What can states do when fiscal revenue cannot finance the economy alone? appeared first on Head of Finance Operations | Liquidity and debt management| Kelly Kingsly.

Red Flags
Opportunity Red Flags
Fraud Conducted By Employees against the Organization
• Familiarity with operations (including cover-up capabilities and in a position of trust)
• Close association with suppliers and other key people
• Rapid turnover of key employees either by quitting or firing
• No mandatory vacations, periodic rotations, or transfers of key employees
• Inadequate personnel-screening policies when hiring new employees to fill positions of trust
• Operating on a crisis basis
• Unrealistic productivity measurements
• Poor compensation practices

Fraud Conducted By Individuals On Behalf Of The Organization
• Related party transactions – less than arm’s length bargaining
• A complex business structure – often unnecessarily complex business structures are created to hide fraudulent activity and money laundering.
• No effective internal auditing function
• An organization that uses several different auditing firms or changes auditors often
• An organization that is reluctant to give auditors needed data
• An organization that uses several different legal firms or changes legal counsel often
• An organization that uses an unusually large number of different banks, none of which can see the entire picture
• Continuous problems with various regulatory agencies
• Large year-end and/or unusual transactions or adjusting entries to accounting records
• An inadequate internal control system or no enforcement of the existing internal controls
• Unduly liberal accounting practices
• Poor accounting records and inadequate staffing in the accounting department
• An organization that inadequately discloses questionable or unusual accounting practices

Some circumstances that might contribute to fraud include:
• Weak internal control environment
• Management does not emphasize the role of strong internal controls
• Management does not prosecute or punish identified embezzlers
• Management does not have a clear position about conflicts of interest
• Highly placed executives are less than prudent or restrained on expenditures for travel and entertainment, furnishings of offices, gifts to visitors and directors, etc.
• Internal auditing does not have authority to investigate certain executive activities involving heavy personal expenditures
• Accounting policies and procedures are on the lax or loose side
SITUATIONAL PRESSURE RED FLAGS
Fraud Committed By Employees Against The Organization
• Significant observed changes from past behavior patterns
• High personal debts or financial losses
• Inadequate income for lifestyle
• Extensive stock market or other speculation behavior
• Excessive gambling
• Undue family, organization, or community expectations
• Excessive use of alcohol or drugs
• Perceived inequities in the organization
• Resentment of superiors and frustration with job
• Peer group pressures
• Undue desire for self-enrichment and personal gain
• Emotional trauma in home life or work life

Fraud Committed By Management On Behalf Of The Organization
• Unfavorable economic conditions within the industry
• Pressure tactics by contractors or grantees to allow questionable costs
• Dependence on one or two products, customers, or transactions
• Obsolescence – the product, the service – the need for an organization no longer existing.
• High debt
• Substantial growth beyond the industry norm. Rapid expansion through new business or product lines often leads to control issues and chaotic management.
• Reduced ability to acquire credit or restrictive loan agreements
• Financial difficulties such as frequent cash flow shortages, declining sales and/or profits, loss of market share, costs and expenses rising higher and faster than sales and revenues
• Difficulty in collecting receivables – high bad debt expenses and aged receivables 90 days or greater, depending on industry.
• Significant tax adjustments
• Urgent need for favorable earnings to support high price of stock or to meet earnings forecast – trying to meet investor expectations
• Need to gloss over a temporarily bad situation in order to maintain management position and prestige
• Significant litigation, especially between stockholders and management o Unmarketable collateral o Significant reduction in sales backlogs (indicates future sales have declined) Possibility of license being revoked or imperiled, especially if it is necessary for the continuation of business
• Pressure to merge
• Sizable inventory increase without comparable sales increases
• Consistently late reports
• Managers who regularly assume subordinates duties
• Noncompliance with corporate directives and procedures
• Payments to trade creditors supported by copies instead of originals
• Commissions not in line with increased sales Unable to verify the existence of vendors, subcontractors

Personal Characteristic Red Flags

Warning Signals Should Go Off When Employees Evidence Characteristics Such As:
• Rationalization of contradictory behavior
• Lack of a strong code of personal ethics
• A strong desire to beat the system
• A criminal or questionable background
• A poor credit rating and financial status
• Highly materialistic and self-centered
• Are often eccentric in the way they display their wealth or spend their money
• Are reckless or careless with facts and often twist facts to fit their agenda
• Often they may appear to be hard working, almost compulsive, but most of their time at work is spent scheming and designing short cuts to get ahead or beat the competition.
• May demonstrate hostility toward people who oppose their views
• Feel exempt from accountability and controls because of their station or position
• Tendency to override internal controls with impunity and argue forcefully for less formality in controls

With internal offenders, research has shown that about 2/3 of crime is attributable to employees, while 1/3 is attributable to managers and executives. However, the median loss in employee cases was about 14 times less than when a manager/executive was involved. Frauds typically involve a trust element to make them work, and with internal offenders, the research bore out that the longer an employee has been with an organization, the higher the loss tended to be. This is attributed to the fact that most employees gain more responsibility and trust the longer they are with an organization.

Indicators Of Possible Fraudulent Activities
Transactions that are different or unusual (without explanation) or suspicious as to:
• Time (of day, week, month, year, or season)
• Frequency (too many, too few)
• Places (too far, too near, and too “Far out”)
• Amount (too high, too low, too consistent, too alike, too different)
• Parties or personalities (related parties, oddball personalities, strange and estranged relationships between parties, i.e., management performing clerical functions).

Discrepancies in Accounting Records
• Account balances that are significantly over or understated
• Transactions not recorded in a complete or timely manner or improperly recorded as to amount, accounting period, classification, or organization policy
• Unsupported or unauthorized records, balances, or transactions
• Last minute client adjustments that significantly affect financial results (particularly those increasing income presented after submission of the proposed audit adjustments)
• Excessive number of adjusting entries, and repetitive use of adjusting entries for no apparent purpose.

Conflicting or Missing Evidential Matter
• Suspicious or missing documents
• Unexplained items on reconciliations
• No original documents available – only photocopied documents
• Inconsistent, vague or implausible responses arising from inquiries or analytical procedures
• Unusual discrepancies between the client’s records and confirmation replies
• Missing inventory or physical assets
• Excessive voids or credits
• Shifting of costs from one category or cost account to another
• Common names or addresses of payees or customers – inability to verify the existence of vendors/subcontractors
• Alterations on documents (e.g. back dating, white-out)
• Duplications (e.g., duplicate payments)
• Questionable handwriting on documents

Unusual Relationships
• Appearance of a conflict of interest
• Less than arms length bargaining
• Related party transactions
• Denied access to records or facilities
• Denied access to certain employees, customers, vendors, or others from whom program managers may seek to obtain information from
• Undue time pressures imposed by management to resolve complex or contentious issues
• Unusual delays in providing requested information
• Tips or complaints about fraud, including whistleblowers inside the organization.

Other Concerns
• Significant internal control weaknesses or prior year internal control weaknesses not corrected
• Unexplained increases in costs or claims
• Suspicious, unexpected or unusual trends or shifts in activity.
• Unusual transactions (e.g., for activities outside the normal line of business)
• Changes in accounting principles or the methods of applying them that enhances reported income
• Departure of key financial or operating personnel
• Specific instances of management’s conduct that raise serious concerns as to their integrity

 Characteristics Of Top-Management Fraud 

Top Management Defrauders
a) Tend to have highly material personal values.
b) Success to them means financial success, not professional recognition.
c) Tend to treat people as objects, not individuals and often as objects for exploitation.
d) Are highly self-centered.
e) Are often eccentric in the way they display their wealth or spend their money.
f) They tend to be conspicuous consumers and often boast of the things they have acquired, the friends they have in high office, and all the fine places they have visited.
g) Speak about their cunning achievements and winnings more than their losses.
h) Appear to be reckless or careless with facts and often enlarge on them.
i) Appear to be hard working, almost compulsive, but most of their time at work is spent scheming and designing short cuts to get ahead or beat the competition.
j) May gamble or drink a great deal.
k) Buy expensive gifts for their families usually to compensate for spending so little time with them.
l) Are hostile to people who oppose their views.
m) They feel exempt from accountability and controls because of their station or position.
n) Create a great deal of turnover among their subordinates and often set off one subordinate against the other.
o) Play favorites among subordinates, but the relationship can cool very quickly because a subordinate often falls from grace after one mistake, even an insignificant one.
p) Manage by crisis more often than by objectives.
q) Tend to drift with the times and have no long-range plans, tend to override internal controls with impunity and argue forcefully for less formality in controls.
r) Demand absolute loyalty from subordinates, but they themselves are loyal only to their own self-interests.
s) Have few real friends within their own industry or company.
t) Their competitors and colleagues often dislike them.
Interpreting Potential Red Flags
It is not, of course, as easy as it sounds to identify and interpret potential red flags. First, flags is a bit of a misnomer and creates a false impression of plainly visible warning signs. While this is true of some frauds, it is important to remember that fraud is fundamentally a crime of deception and deceit. Calling to mind a mental picture of a scarcely visible red thread waving in the wind is more accurate than picturing a bold red flag. Some of the difficulties inherent in identifying and interpreting potential red flags are summarized in the following:
i. Fraud risk factors are not the same as evidence of fraud. Risk factors are not evidence of fraud. To the extent that risk factors are evidence of anything, they point to an environment or situation in which there is an increased risk that material misstatement due to fraud might occur either generally or in a specific functional or geographic sector of the entity’s operations.
Individuals may be motivated by the prospect of bonuses and other incentives to manipulate results to their advantage and in a manner that may amount to fraud. Several high-profile instances of financial statement fraud have been motivated in part by bonus and incentive arrangements. As an example, a chairman and CEO was accused of earning substantial bonuses and profiting on the sale of shares in the company on the basis of fraudulent financial reporting that misrepresented the company’s results. This does not mean, of course, that the presence of bonus and other incentive schemes is prima facie evidence of fraudulent financial reporting, but it may be considered in the overall risk assessment.
Another example of a fraud risk factor is the so-called dominant CEO. Even absent a dominant CEO, similar risks can emerge whenever corporate governance is weak—for example, when power is concentrated in the hands of senior management without an effective counterbalance from the board. No one would seriously suggest, however, that the existence of a CEO with a forceful personality and a strong sense of mission is indicative of fraud. It is simply a risk factor.
ii. Fraud risk factors may indicate the existence of risks other than fraud. Many risk factors are not exclusively indicative of fraud risk. They may also suggest a heightened risk of material misstatements due to human or process error. For example, deficiencies in internal controls may be regarded as fraud risk factors, but they also pose the risk that errors may occur and go undetected without any intent to commit fraud. Sometimes, weak internal controls simply fail to limit or identify accounting or reporting mistakes. The auditor should not discount either possibility without reasonable grounds for doing so.
iii. Fraud risk factors can be ambiguous. Many fraud risk factors are susceptible to both innocent and sinister interpretations. The fact that a company has a complex structure with a large number of overseas subsidiaries and significant intra company trading may indicate an increased fraud risk, or it may simply be a legitimate characteristic of that business. On one hand, that a ledger clerk drives a car he appears to be unable to afford may indicate a risk that he has misappropriated company assets. On the other hand, he and his wife may have a two-income household that allows them certain luxuries. The focus must be on fact-finding and critical assessment of cumulative evidence.
iv. There is no linear relationship between the number of fraud risk factors and the level of fraud risk. It may be that, in general, the more risk factors the auditor identifies in a client, the greater the overall risk of fraud. But even a few risk factors in key areas may be grounds for concern. A simplistic attempt to quantify fraud risk by a count of risk factors is misguided. The objective is not to estimate how likely it is that a material misstatement due to fraud will occur but, rather, to identify where and in what manner that might happen.
v. Fraud risk factors are of limited significance in isolation. In general, individual risk factors are of limited significance in isolation. Rather, they need to be considered as a whole. The point about the dominant CEO factor, for example, is that it may actually contain a number of separate risk factors that when looked at together, create a risk situation: a bullying CEO, lack of counterweight among other senior executives, and apparent absence of an effective audit committee, supervisory board, or similar corporate governance function. The auditor attempts to interpret evidence of potential risk factors within the wider context of other observations about the company, its management, and the business environment in which it operates. Nonetheless, the identification of an anomaly or loose thread can lead to the identification of multiple risk factors and control weaknesses or actual instances of financial statement fraud or misappropriation of assets. The auditor considers whether one particular risk factor may, in fact, be linked to one or more other factors.
vi. Some fraud risk factors are very difficult to observe. Certain fraud risk factors are essentially states of mind or related to an individual’s private life or personal financial affairs. They may be impossible to observe directly. The auditor might nonetheless become aware of indirect signs that relevant states of mind or privatelife factors may exist. All of these issues increase the challenge faced by the auditor in trying to identify indications of the existence of fraud risk within the substantial body of information available from the audit process. SAS 99 distinguishes between risk factors relevant to the risk of material misstatement due to fraudulent financial reporting and those relevant to the risk of material misstatement arising out of the misappropriation of assets. In practice, as the standard acknowledges, many risk factors are potentially common to both kinds of misstatement. Risk factors related to weaknesses in control or supervision may, for example, be equally applicable to either type of fraud.

Symptoms of Fraud
A person’s lifestyle may change, a document may be missing, a general ledger may be out of balance, someone may act suspiciously, a change in an analytical relationship may not make sense, or someone may provide a tip that fraud is occurring. Unlike videos in robbery or bodies in a murder, however, these factors are only symptoms rather than conclusive proof of fraud. There may be other explanations for the existence of these symptoms. Lifestyle changes may have occurred because of inherited money. Documents may have been legitimately lost. The general ledger may be out of balance because of an unintentional accounting error. Suspicious actions may be caused by family dissension or personal problems. Unexplained analytical relationships may be the result of unrecognized changes in underlying economic factors. A tip may be motivated by an envious or disgruntled employee’s grudge or by someone outside the company desiring to settle a score.

To detect fraud, managers, auditors, employees, and examiners must recognize these fraud indicators or symptoms (sometimes called red flags) and investigate whether the symptoms resulted from actual fraud or were caused by other factors. Unfortunately, many fraud symptoms go unnoticed, and even symptoms that are recognized are often not vigorously pursued. Many frauds could be detected earlier if fraud symptoms were investigated.

Symptoms of fraud can be separated into six groups: (1) accounting anomalies, (2) internal control weaknesses, (3) analytical anomalies, (4) extravagant lifestyle, (5) unusual behavior, and (6) tips and complaints. In this section, we briefly discuss these six types of symptoms.

1. ACCOUNTING ANOMALIES
Common accounting anomaly fraud symptoms involve problems with source documents, faulty journal entries, and inaccuracies in ledgers. We discuss each of them in the following section.

Irregularities in Source Documents
Common fraud symptoms involving source documents (either electronic or paper)—such as cheques, sales invoices, purchase orders, purchase requisitions, and receiving reports—include the following:
• Missing documents
• Stale items on bank reconciliations
• Excessive voids or credits
• Common names or addresses of payees or customers
• Increased past-due accounts
• Increased reconciling items
• Alterations on documents
• Duplicate payments
• Second endorsements on checks
• Document sequences that do not make sense
• Questionable handwriting on documents
• Photocopied documents

Faulty Journal Entries
Accounting is a language, just as English and Japanese are languages. For example, consider the following journal entry:
Legal Expense …………………………………….5,000
Cash …………………………………….5,000

In the English language, this entry says, “An attorney was paid $5,000 in cash.” In the language of accounting, this entry says, “Debit Legal Expense; credit Cash.” A person who speaks both accounting and English will realize that these statements say exactly the same thing.
The problem with the language of accounting is that it can be manipulated to tell a lie, just as can English or Japanese or any other language. For example, with the above entry, how do you know that an attorney was actually paid $5,000? Instead, maybe an employee embezzled $5,000 in cash and attempted to conceal the fraud by labeling the theft as a legal expense. Smart embezzlers sometimes conceal their actions in exactly this way, realizing that the fraudulent legal expense will be closed to Retained Earnings at the end of the accounting period, making the audit trail difficult to follow. And, if the fraudulent employer routinely pays large amounts of legal expenses, this small fraud could easily go unnoticed. To understand whether journal entries represent truth or are fictitious, one must learn to recognize journal entry fraud symptoms.

An embezzler usually steals assets, such as cash or inventory. (No one steals liabilities!) To conceal the theft, the embezzler must find a way to decrease either the liabilities or the equities of the victim organization. Otherwise, the accounting records will not balance, and the embezzler will be quickly detected. Smart embezzlers understand that decreasing liabilities is not a good concealment method. In reducing payables, amounts owed are eliminated from the books. This manipulation of the accounting records will be recognized when vendors do not receive payments for amounts owed to them. When the liability becomes delinquent, they will notify the company. Subsequent investigation will usually reveal the fraud.

Smart embezzlers also realize that most equity accounts should not be altered. The owners’ equity balance is decreased by the payment of dividends and expenses and is increased by sales of stock and by revenues. Embezzlers rarely conceal their frauds by manipulating either dividends or stock accounts because these accounts have relatively few transactions and alterations can be quickly noticed. In addition, transactions involving stocks or dividends usually require board of director approval, go through a transfer agent, and are monitored closely.

Thus, income statement accounts such as revenues and expenses remain as possible accounts for decreasing the right side of the accounting equation and making the accounting records balance when stealing an asset. Balancing the equation by manipulating revenues would require that individual revenue accounts be reduced. However, since revenues rarely decrease (except through adjusting entries at the end of an accounting period), a decrease in a revenue account would draw attention. Therefore, embezzlers who manipulate accounting records to conceal their frauds usually attempt to balance the accounting equation by increasing expenses. Increasing expenses decreases net income, which decreases retained earnings and owners’ equity, thus leaving the accounting equation in balance, as illustrated in Figure below.


Recording an expense to conceal fraud involves making a fictitious journal entry. Fraud examiners must be able to recognize signals that a journal entry may have been manufactured to conceal a fraud. Manipulating expense accounts also has the advantage that expenses are closed or brought to zero balances at year-end, thus obscuring the audit trail. The following are common journal entry fraud symptoms:
• Journal entries without documentary support
• Unexplained adjustments to receivables, payables, revenues, or expenses
• Journal entries that do not balance
• Journal entries made by individuals who would not normally make such entries
• Journal entries made near the end of an accounting period.

Inaccuracies in Ledgers
The definition of a ledger is “a book of accounts.” In other words, all transactions related to specific accounts, such as cash or inventory, are summarized in the ledger. The accuracy of account balances in the ledger is often proved by ensuring that the total of all asset accounts equals the total of all liability and equity accounts or, if revenues and expenses have not yet been closed out, that the total of all debit balances equals the total of all credit balances. Many frauds involve manipulating receivables from customers or payables to vendors. Most companies have master (control) receivable and payable accounts, the total of which should equal the sum of all the individual customer and vendor account balances. Two common fraud symptoms relating to ledgers are as follows:
1. A ledger that does not balance; that is, the total of all debit balances does not equal the total of all credit balances.
2. Master (control) account balances that do not equal the sum of the individual customer or vendor balances.

The first symptom is indicative of a fraud in which cover-up in the accounting records is incomplete. For example, a perpetrator may embezzle inventory (an asset) but not reflect the reduction of inventory in the accounting records. In this case, the actual inventory balance, as determined by a physical count, is lower than the recorded amount of inventory, and the ledger does not balance. Another example of a ledger out of balance is the theft of cash accompanied by the failure to record an expense. In this case, total assets would be less than total liabilities plus owners’ equity.

The second ledger symptom is indicative of manipulation of an individual customer’s or vendor’s balance without altering the master receivable or payable account in the ledger.
In this case, the sum of the individual customer or vendor balances does not agree with the master account balance.

2. Internal Control Weaknesses
Fraud occurs when perceived pressure, perceived opportunity, and rationalization combine. Many individuals and organizations have pressures. Everyone rationalizes. When internal controls are absent or overridden, the risk of fraud is great. Internal control is comprised of the control environment, the accounting system, and control procedures.
Common internal control fraud symptoms include the following:
• Lack of segregation of duties
• Lack of physical safeguards
• Lack of independent checks
• Lack of proper authorization
• Lack of proper documents and records
• Overriding of existing controls
• Inadequate accounting system

3. Analytical Fraud Symptoms
Analytical fraud symptoms are procedures or relationships that are unusual or too unrealistic to be believable. They include transactions or events that happen at odd times or places; that are performed by or involve people who would not normally participate; or that include odd procedures, policies, or practices. They also include transactions and amounts that are too large or too small, that are performed or occur too often or too rarely, that are too high or too low, or that result in too much or too little of something. Basically, analytical symptoms represent anything out of the ordinary.

They are the unexpected. Common examples of analytical symptoms include the following:
• Unexplained inventory shortages or adjustments
• Deviations from specifications
• Increased scrap
• Excess purchases
• Too many debit or credit memos
• Significant increases or decreases in account balances, ratios, or relationships
• Physical abnormalities
• Cash shortages or overages
• Excessive late charges
• Unreasonable expenses or reimbursements
• Excessive turnover of executives
• Strange financial statement relationships, such as:
_ Increased revenues with decreased inventory
_ Increased revenues with decreased receivables
_ Increased revenues with decreased cash flows
_ Increased inventory with decreased payables
_ Increased volume with increased cost per unit
_ Increased volume with decreased scrap
_ Increased inventory with decreased warehousing costs

4. Extravagant Lifestyles
Most people who commit fraud are under financial pressure. Sometimes the pressures are real; sometimes they merely represent greed. Once perpetrators meet their financial needs, they usually continue to steal, using the embezzled funds to improve their lifestyles.

Often, they buy new cars. They sometimes buy other expensive toys, take vacations, remodel their homes or move into more expensive houses, buy expensive jewelry or clothes, or just start spending more money on food and other day-to-day living expenses. Very few perpetrators save what they steal. Indeed, most immediately spend everything they steal. As they become more and more confident in their fraud schemes, they steal and spend larger amounts. Soon they are living lifestyles far beyond what they can afford. To illustrate how people’s lifestyles change when they embezzle, consider the following two examples.

John Kate embezzled nearly $3 million from her employer. She and her husband worked together to perfect the scheme over a period of seven years. Because they knew they might someday get caught, they explicitly decided not to have children. With their stolen funds, they purchased a new, expensive home (supposedly worth $500,000) and five luxury cars—a Maserati, a Rolls-Royce, a Jeep Cherokee, and two Audis. They filled their home with expensive artwork and glass collections. They bought a boat and several expensive computers, and they paid cash to have their yard extensively landscaped. They frequently invited Kate’s coworkers to parties at their home and served expensive foods, including lobster flown in from the east coast. Yet none of the employees noticed the change in lifestyle. They did not note, for example, that Kate drove a different car to work every day of the week and that all her cars were extremely expensive.

In the second case, Randy stole over $600,000 from his friend’s small company, for which he worked. The business constantly had cash flow problems, but Randy drove a Porsche, bought a cabin in the mountains, and took expensive vacations. At one point, he even loaned his friend $16,000 to keep the business going. Never once did the owner question where the money was coming from, even though Randy was being paid less than $25,000 per year.

Embezzlers are people who take shortcuts to appear successful. Very few crooks, at least those who are caught, save embezzled money. The same motivation for stealing seems to also compel them to seek immediate gratification. People who can delay gratification and spending are much less likely to possess the motivation to be dishonest.
Lifestyle changes are often the easiest of all symptoms to detect. They are often very helpful in detecting fraud against organizations by employees and others but not as helpful in detecting fraud on behalf of a corporation, such as management fraud. If managers, coworkers, and others pay attention, they notice embezzlers living lifestyles that their incomes do not support. While lifestyle symptoms provide only circumstantial evidence of fraud, such evidence is easy to corroborate.

5. Unusual Behaviors
Research in psychology reveals that when a person (especially a first-time fraud perpetrator) commits a crime, he or she becomes engulfed by emotions of fear and guilt.
These emotions express themselves as stress. The individual often exhibits unusual and recognizable behavior patterns to cope with the stress, as shown in Figure below. No particular behavior signals fraud; rather, changes in behavior are signals. People who are normally nice may become intimidating and belligerent. People who are normally belligerent may suddenly become nice.

Even perpetrators recognize their behavioral changes. A woman who stole over $400,000 said, “I had to be giving off signals. I could not look anyone in the eye.” A man who embezzled over $150,000 said, “Sometimes I would be so wound up I would work 12 or 14 hours a day, often standing up. Other times I would be so despondent I could not get off the couch for over a week at a time.”

6. Tips and Complaints
Auditors are often criticized for not detecting more frauds. Yet, because of the nature of fraud, auditors are often in the worst position to detect its occurrence. As we covered previously, the factors that lead to fraud are depicted in the fraud triangle. These factors consist of pressure, opportunity, and rationalization. As you may recall, the elements of fraud can be illustrated as shown in Figure below.



The theft act involves the actual taking of cash, inventory, information, or other assets. Theft can occur manually, by computer, or by telephone. Concealment involves the steps taken by the perpetrator to hide the fraud from others. Concealment can involve altering financial records, miscounting cash or inventory, or destroying evidence. Conversion involves selling stolen assets or transferring them into cash and then spending the cash. If the asset taken is cash, conversion means merely spending the stolen funds. As we have noted previously, virtually all perpetrators spend their stolen funds.

Fraud can be detected in all three elements. First, in the theft act, someone can witness the perpetrator taking cash or other assets. Second, in concealment, altered records or miscounts of cash or inventory can be recognized. Third, in conversion, the lifestyle changes that perpetrators almost inevitably make when they convert their embezzled funds are visible.

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Initially, Brexit would fundamentally change contractual trade agreements between Europe and Africa. Nevertheless, the British government will proceed pragmatically and uphold existing contracts within the framework of the Cotonou Agreement, as the UK’s trade deals with Africa are essentially the EU’s trade deals with Africa. As the UK exits the European Union, all of those deals will have to be renegotiated. It’s likely, though, that the UK will simply keep the same trade deals with its African partners for the foreseeable future. However, developmental cooperation will have to be restructured.

The EU is Africa’s most important donor in the area, and Britain – due to its colonial past – contributes much of its aid. The UK has pledged 0.7% of its Gross National Income (GNI) to development aid. Now, while it probably won’t go back on that promise, if the UK goes into recession and the UK GNI falls, that reduces the amount of money for aid in real terms. More than this, the UK was one of the biggest supporters of EU aid programs in Africa, both politically and financially. While the UK will most likely continue to honor its own aid commitments, a changing attitude to aid could evolve within a UK-less European Union. The same principle applies to the EU’s Common Agricultural Policy (CAP). What about foreign direct investment (FDI)?

For 2014, the total FDI flows from the UK to African economies were only about 16% of total flows to the continent. In terms of the stock of FDI, a measure of the total value of investments in Africa, the UK’s portion was only 8% in 2014 (both estimates obtained from combining ONS and UNCTAD data). Because the UK mostly invests in mining, quarrying and financial services, and mostly in South Africa; sectors that are hardly the type to drive self-sustaining and job-creating growth on the continent.

The impact of BR-EXIT on Cameroon treasury bonds

With the BR-EXIT, will the mortgage repayments of Cameroon EURO-BONDS will be higher or lower?

The main question to be asked here is the BR-EXIT vote can result in a spike in risk aversion and a notable selloff of Cameroon EURO-BONDS? The BR-EXIT may result in rising yields and widening credit spreads, which are the yield differentials between corporate bonds and Treasuries’ of similar maturities. It is important to note that, yields on dollar bonds across the continent have risen steadily after the BR-EXIT vote. Today (9 August 2016), there is good news coming from Standard & Poor’s. The latest Standard & Poor’s credit rating for Cameroon stands at B with stable outlook. Moody’s credit rating for Cameroon was last set at B2 with stable outlook. Fitch’s credit rating for Cameroon was last reported at B with stable outlook.

 Therefore, despite a challenging economic backdrop dominated by recent falling international commodity prices, lower demand from China and the prospects of the Fed eventually hiking rates, Euro-bond issuance by Cameroon is well on track and continued. However, with the long term consequences of the BR-EXIT, existing Euro-bonds are widely shielded by their fixed coupon structure and long maturities, which mean that most principal repayments are still years away. Cameroon Euro-bonds issuance’s need to continue.

 Although the external environment is likely to remain challenging for frontier markets with European Union countries, it is important for the Cameroonian government to continue issuing Euro-bonds, albeit order books that might be smaller and yields higher. Unfortunately, because the ongoing drop in commodity prices reduces fiscal and external revenues in Cameroon, in order to mitigate sharp compression in fiscal spending and imports that would damage growth, borrowing must be increased. Therefore new emissions of EURO-BONDS are needed! As the national debt markets being small and illiquid, part of these borrowing needs will be financed through Euro-bonds.

 With the BR-EXIT, the Euro-bond issuance is likely to change the composition of Cameroon external debt. Despite the recent increase in international issuance, bonds still account for only a small fraction of Cameroon’s external debt. Most of Cameroon’s external debt still takes the form of multilateral or bilateral official debt. Given the current market turmoil after the BR-EXIT, and weakening currencies, foreign appetite for Cameroon assets is likely to remain muted and corporate Euro-bond issuance rare in the short term in the Republic of Ireland (pro European), as many investors are looking currently for Russians Euro-bonds.

 UK impact on Africa’s development

The biggest impact of the Br-exit on Africa would be the end of British outwardness; the country’s concern with and responsiveness to global development issues, which, from an African development perspective, reached its peak in 2005 during the UK presidency and the undertakings during the G-8 Summit in Gleneagles in 2005. During the G8 Summit, the gathered leaders agreed to double aid to Africa and eliminate outstanding debts of the poorest countries. Indeed, one of the major successes of the G-8 UK presidency was the agreement to provide debt relief to the poorest African countries. The G-8 countries agreed to increase aid to developing countries by $50 billion a year by 2010 with at least half of this commitment going to Africa. Other commitments included increased support for African peacekeeping forces and additional investment in education and the fight against HIV/AIDS, malaria, tuberculosis, and other diseases.

 Analysts agreed that, the Br-exit could lead to a retrenchment from outwardness with possible negative implications on the UK’s development initiatives. At a time when the process for IDA18 replenishment is underway, the Brexit is not good news for aid recipients, in which many African countries including Cameroon. Let’s have a closer look at the impact of the Brexit on bilateral development assistance.

 What analysts said

What can be done in Cameroon in order to be proactive vis-à-vis future directions that the UK intends to follow with the BR-EXIT? Let us just highlight what analysts said. Kevin Watkins, a Brooking nonresident senior fellow and executive director of the Overseas Development Institute (ODI), an international development think tank based in London, highlights the consequences of the BR-EXIT on the development assistance. He said that while a Br-exit would deprive the EDF of British resources for development assistance, Watkins argues that the direct disbursement of aid, set to replace the UK.’s contribution to the fund, from the UK to recipient countries will have a more narrow geographical reach than aid funneled through the EDF. According to him, Aid through EU institutions is just one part of the package. Collectively, the EU’s 28 member states spent some 56 billion euros in 2014, or 0.4 percent of their GNI. In terms of quality standards for transparency, efficiency and institutional development, the EU is roughly on a par with the U.K.

 Recent efforts to improve coordination have seen joint planning by EU donors in 40 countries, a move that could greatly enhance efficiency. In fact, despite the size of the aid budget and the strong mandate on poverty reduction enshrined in the Lisbon Treaty, the EU still punches well below its weight class on development assistance. Major economies such as Germany and France have failed to match the U.K.’s achievement of the 0.7 percent aid-to-GNI target. To make matters worse, the share of EU aid going to sub-Saharan Africa and the least developed countries has been shrinking from an inadequate base.

 Barclays thinks the UK is on the “cusp of recession,” Credit Suisse predicts that a recession will cost Britain 500,000 jobs, and Morgan Stanley says a recession is coming, though it was unsure of the specific details. Barclays identifies seven key reasons SSA growth is at risk from Br-exit. Take a look below:

1. Br-exit could harm global demand for goods, particularly hitting African economies that are focused on the export of raw materials. This would lead to “slower growth and wider current account deficits,” Barclays argues.
2. Weaker global demand could also, Barclays says, because key commodity prices to fall, further undermining the African economy, which relies heavily on exporting minerals, ores, and other commodities. The possible exception would most likely be gold, which has been boosted by market uncertainty since the referendum. Two of the world’s 10 biggest gold-producing nations are in sub-Saharan Africa.
3. Tourism will dwindle. A key area of economic prosperity for African nations is tourism, particularly through safaris and other nature tours. The basic argument here is simple — if Brits and other Europeans are suffering through economic hardship, an African holiday will be far less affordable.
4. Fewer African workers will be able to work in developed nations, which will reduce the amount of money sent back to SSA countries. As Barclays puts it, there will be fewer “economic opportunities for African migrants to the UK and Europe, and hence less workers’ remittances to home countries.”
5. If things get really bad, aid from UK and European governments could start to dry up, robbing SSA countries of vital funding for infrastructure projects and other economically beneficial plans.
6. Br-exit is causing heightened uncertainty and, in some respects, increased risk aversion. These factors are likely to increase financing costs and shrink capital inflows into sub-Saharan Africa.
7. Earnings on sub-Saharan investments into Europe and the UK will be lower. That is likely to have the biggest impact on sub-Saharan Africa’s most developed nation, South Africa, which has substantial investments in Europe.

 The way forward

African countries needs a proactive approach to deal with the BR-EXIT.

FIRST. Develop a national task-force to discuss BR-EXIT implications of UK financial contributions on national projects.

SECOND. Develop linkages with CEMAC countries to propose them the way forward regarding BR-EXIT

THIRD. Same approach with commonwealth countries that are part of the Cotonou Agreement. 

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