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Mine Sweeper (MS) is a coal mine exploration company. Recently, one of minereserve had a land slide, killing fifty mine workers and injuring ninety of them.Although the cause of the land slide is still being investigated by the authority,negative press reporting has created the perception that MS has generally ignoredsafety measures at the mine reserve, exposing the company’s thousands of workersin different coal mine across the country. An international human right group calledBEWARE has publicly stated they will stage organized protests at each mine,starting in two weeks’ time and until MS agree to improve work site safetyconditions. They also demanded MS to take up insurance cover for each worker tocompensate them in terms of injury or fatality. A formal letter of demand has beenserved and a copy of the letter has been published in major news papers. Anenvironmental protection group Preserve and Protect (PAP) also joined in andclaimed that the company generally ignored sustainability. PAP claimed that MS haspoor environmental practices such that the impact of the business on environmentis not sustainable and the environmental footprint is getting larger. The chief executive is puzzled why there is a concern of sustainable development and thecompany is doing extremely well financially, with huge cash and coal reserves andstrong order books.An emergency board meeting is convened to discuss the issue. Beside directors,management including relevant heads of departments are invited for this particularmeeting. The operations manager Bo Bian reported to the board that safetymeasures are implemented across all mine although they are of inconsistentquality. His justification is the amount of money spent on safety measures willdepend on the potential coal reserve estimated at a particular mine. He believedthis is the most objective criteria to decide on safety measures. The humanresource manager Susie disagreed with this view. In her opinion, safety concernshuman lives and should not be based on financial yard stick. Instead, it should beat least meet international best practices.The result of internal investigation on the land slide was also discussed. Preliminaryinvestigation showed that the land slide was possibly caused by a diversion of flowof an underground river. The diversion could have been caused by the drillingactivities on land right above the river. The risk manager reported that the possiblecause of the land slide identified in this internal report is not one of the risksidentified and recorded in the risk management system. This is because thecompany has never in the past done any coal mine exploration or extract in areaswith underground rivers. The internal audit manager highlighted a memo from asite engineer sent to the operations manager Bo Bian one month before the landslide happened. The memo expressed serious concerns on the presence of anunderground river beneath the exploration site. Recommendations such as detailed
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study of the situation, strengthening the soil condition or relocation of explorationsite were suggested. The memo was sent one month before the land slide occurred.Bo Bian explained that he had in consultation with all other operations managers inother sites and all concurred that the suggested presence of an underground riverand its implications were not proven. No action was taken because preciousresource and time cannot be wasted on unfounded rumour. They believed, at thattime, nothing serious could happen even if there is an underground river. Thecompany was only performing exploration activities and not extraction of coal.The chief accountant May informed the meeting that a provision of $5m has beenincluded in the latest accounts (unaudited – the external audit will commence onemonth later) taking into account potential cleanup costs and compensation becauseof the land slide. Because of this, the results this year most likely will show a net of $4m instead of a profit of $1m.The chairman of the board Alan Madog is particularly unhappy with accusation fromPAP on the alleged poor environmental practice. He believed it is unjustified claimbecause MS has been spending money and resource dedicated to protect theenvironment. The company even has annual external audit on the environmentalmanagement system. The public relations manager Lucy suggested this could bedue to PAP and the general public is not aware of MS’ efforts in environmentalprotection. Lucy suggested transparency and environmental reporting will help tomanage such reputation risk. The chief accountant suggested the company uses fullcost accounting to quantify the environmental costs MS incurred for thisenvironmental reporting purpose. The environmental cost from the accountingsystem will not show the full extent of environmental cost. Everybody in themeeting is confused by May’s statement.The following suggestions were tabled in the meeting:
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An environmental report to be prepared and published
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An audit of the company’s risk management to be conducted
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An independent review of the company’s safety measures by internationalexperts of mine reserve safety to be conducted immediately – the report of the review will be available for the general public and, in particular, forBEWARE to address their concern on safety
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A letter to shareholders from the chairman to be prepared to informshareholders of company’s action to address the concerns of BEWARE, PAPand shareholders’ concern on the financial impact of the land slide.
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ACCA P1
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| Upload Date: | 05/29/2009 |
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thanks alot