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MIA ICS Case Writing Group Case Study No. 3

WHY DONT WE SELL THE CLUB?
By
Hur Tze Huan
CA(M), FCMA(UK), CFP, MBA(UKM), Cert. Trainer
The Club
Releks Golf & Country Club (the Club) was one of the few members clubs in Malaysia. Its 4,000 plus
members not only enjoyed golfing and other recreational activities of the Club, they were also each a part
owner of the Clubs assets, including the land. The Clubs 36-hole course sat on 300 acres of prime land
surrounded by residential and shop-office properties. In addition, the Club had accumulated a cash
reserve of RM10 million over the years. This was placed in fixed deposits at several local banks.
The organization structure of the Club was just like any other club or association. The President, Vice
President, Honorary Secretary, Honorary Treasurer and 8 committee members made up the decision-
making inner circle, called the General Committee (the GC). The GC was the equivalent to the board of
directors of a company. The biannually elected GC members served on honorary basis.
The Club operated on an annual budget of over RM10 million. The operation of the Club was complex.
It employed a work force of more than hundred persons to run the day-to-day activities. The work force
was headed by the General Manager (GM). Under him there were 11 functional departmental managers or
executives. The departments were finance, food and beverages (F&B), golf operation, course
maintenance, membership, administration & human resources, support service, marketing, house-keeping,
safety & health, and sports & recreation. A GC member was assigned to monitor, supervise and advise on
one functional department, but generally left the routine day-to-day matters to the salaried staff. (Please
refer to Appendix D Organisation Chart for deatails.)
Income
The clubs main source of income was from member subscription at RM105 per month. Members did not
pay green fees. Outsiders were allowed to play on Monday through Friday only, by paying RM80 per
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round of golf game (18 holes). Another steady source of income was from the rental of buggies, which
members or non-members hired one at the same rate of RM50 per round of golf game. While the Golfers
Terrace served food and drinks to members and non-members alike, non-members were charged 10 %
more. The Club had been looking out for a good tenant for its Eagle Court Restaurant for some time. The
auditorium (or hall) was being rented out for functions such as wedding, birthday or corporate annual
general meeting (AGM) and extraordinary general meeting (EGM). Members enjoyed free use of the
recreational facilities, such as swimming pool, tennis court and gym, while non-members paid RM10 per
entry for the same privilege. The driving range was tendered out at a rate of RM4000 per month
The Finance Subcommittee
Every member of the GC supervised a functional department. The member in turn would seek out several
active members to form a subcommittee. This was intended to make the GC member function objectively
in the management of the club, by consultation and consensus. He would be more professional and
transparent in carrying out his role as the policy implementer, and the coordinator and supervisor of the
department under his purview. The subcommittee members were active or retired professionals from
many fields.
Mr. Lee Sam Tat (M. Lee) was the current Honorary Treasurer. His duty included co-signing the cheques
with the President or the GM, monitoring the income and expenditure, preparing of the budget and
undertaking budgetary control. Last, but not the least of his duty included chairing of the Finance
Subcommittee.
Mr. Lee took his roles very seriously both as Honorary Treasurer and as chairman of the Finance
Subcommittee. He had 7 members in his Finance Subcommittee: two accountants, an auditor, a stock
broker, an ex-banker, an operational manager and a businessman. The GM (Mr. Zainal Ibrahim) and the
Finance Manager (Ms Lau Mei) were permanent members. The Finance Manager also served as secretary
for all the meetings of the Subcommittee.
The Task
It was early October, a time to prepare for next years budget. Mr. Lee, in his capacity as the Honorary
Treasurer and Finance Subcommittee chairman, was asked to coordinate the budgetary process. He was a
firm believer of zero-based and activity-based budgetary processes. Weeks ago he had asked all the
functional managers and executives to submit detailed budget for their respective departments. He then
asked the Finance Manager to summarize all the incomes and expenditures. This served as the first draft
of the budget. The President and the GC had studied the draft budget. They commented that the budget
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for the following year had a big gap between the operating income and operating expenditure. They also
found out that the Club had been suffering from an operating loss for many years. They were wondering
why all the previous GCs and management did not do anything about balancing the operation budget.
They therefore requested Mr. Lee to look into the matter, and entrusted him to come up with a balance
operation budget for the coming year, with the help of his Finance Subcommittee.
The Members of the Finance Subcommittee
The Chairman Mr. Lee; the elected Honorary Treasurer of the Club; recently retired finance director of
a multinational; keen golfer.
Mr. Lam Yong Peng (Mr. Lam) A volunteered Financial Subcommittee member (FSC Member);
recently retired after years of working abroad as chief financial officer of multinationals; played golf to
keep fit.
Mr. Nadarajah Pilleh (Mr. Nada) FSC Member; currently the financial controller of a major trading
company; a golf enthusiast; represented the Club in inter-club tournaments.
Mr. Chong Sin An (Mr. Chong) FSC Member; operated his own audit firm and partnered with his son; a
golf enthusiast; active in senior golfer groups.
Mr. David Hwang (Mr. David) FSC Member; a stock broker by profession; just joined the Club but a
very keen golfer.
Mr. Howard Hamelman (Mr. Howard) FSC Member; an expatriate banker worked all his life in
Malaysia and opted to retire here with his wife; the couple played golf as an exercise and recreation.
Mr. Hashim Ahmed (Mr. Hashim) FSC Member; the operation manager of a property development
company; a keen golfer; played in the Clubs team.
Mr. Tan Chee Ming (Mr. Tan) FSC Member; a businessman from the information technology (IT)
sector; a golf enthusiast; played golf every weekend.
The Finance Subcommittee Meeting
The Chairman: The time is now 8:30pm. I call the meeting to order. As you can see, I have invited the
department heads and the GM to join in to-nights meeting. They will contribute valuable inputs
for the success of this meeting. But, first I would like to draw your attention to the agenda which
was circulated a week ago.
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(The chairman read off the items on the agenda)
Welcome ladies and gentlemen. I must thank all of you for your effort to show up after a hectic
day of work. Especially commendable are those who come all the way from your office or home
in the middle of a rain. I trust most of you had enjoyed your complimentary dinner. For the few
who just arrived, please go ahead and order your dinner and have it served right here. You may
then enjoy your dinner while the meeting is in progress. Tonights meeting will last for two
hours, and I intend to adjourn the meeting at 10:30pm sharp. I hope to dispose off the first 4
items on the agenda within half an hour, so that we can concentrate on deliberating the issue of
balancing the operating budget, within the remaining one and a half hour. Is this agreeable with
everyone?
(All attending stated in agreement)
Good, then we will proceed. The minutes of the last Finance Subcommittee meeting were also
circulated a week ago through e-mail. I trust you all have read it at your own leisure time. Now
do I have any amendment or correction?
(Some pointed out some typographical or spelling mistakes. Others indicated the matters that were
discussed, but found missing or wrongly noted down.)
Ms Lau Mei, please take note of the corrections and amendments that were brought up. Now I will
sign the minutes of the last Finance Subcommittee meeting as correct, with all the discrepancies and
amendments duly noted. The next agenda will be matters arising out of the minutes.
(The Chairman went through the minutes item by item and called upon the respective persons
responsible to update on any progress made since last months meeting. Among others, the IT Executive
reported on the progress of upgrading the accounting software to a newer version, and the Finance
Manager reported on the updating of the machinery parts inventory).

We shall now review the provisional or unaudited income and expenditure for the month of
September. The Finance Manager has kindly prepared this document, with a comparison to the
September budget, item by item, together with the variances calculated as well. It is indeed a very
comprehensive document, and my compliments to the Finance Manager for her good work. This
document was circulated together with the notice of meeting. I believe you have all read through
it. Now may I invite comments on the provisional income and expenditure for the month of
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September. I am sure the Finance Manager, the GM and the department heads present here this
evening will be happy to answer any query arising.
(The Chairman and some members questioned about the items with large negative variance. The
Finance Manager, the GM and department heads gave the possible reasons for those variances. The
Chairman then gave instruction to the managers/executives responsible on the necessary remedial
actions or rectification. He wanted these persons to report on the actions taken in the next monthly
meeting.)
OK, now we have gone through agenda 1 4 in good time. We will now concentrate on the
main task for this evening, to see if we can come up with a balance operating budget for the Club
next year.
Ladies and gentlemen, please bear with me while I do some explanations. You have with you
documents marked Appendix A, B and C. Appendix A is the first draft of the budgeted income
and expenditure for next year. This will be the main reference document for tonights discussion.
Appendix B is an example of how the budget figures in Appendix A are derived from. In this
particular example I am referring to the F&B department. In Appendix A, it shows F&B budget
figure: Income at RM3,256,883 whereas cost of sales is at RM1,628,442. Other expenditure of
sale stands at RM1,476,180. You can verify how these figures are derived in appendix B.
Appendix C similarly explains how figures in Appendix B are calculated. For Example, in
Appendix B it shows the manpower costs for F&B is RM1,177,721. So Appendix C (i) & (ii)
explain how this figure is calculated.
So ladies and Gentlemen, please take a few minutes to familiarize yourselves with the first draft
of the budget, I mean the budgeted income and expenditure, and try to see how it was being built
up.
Mr. Nada: Mr. Chairman, do you mean for every item listed in the budget, there are two appendices
much like Appendix B & C, to show how the item is being built up?
The Chairman: Yes, I do. I am showing how the F&B arrived at its figures in the draft budget, as an
example. The other departments have similar calculations in their file. These calculations can be
called up if the necessity arises. For those members who are not accountants, this method is called
zero-based budgeting. Many thanks to the members of the staff from all departments. They had
spent hours preparing this first draft of the budget, juggling in between their busy daily work,
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under the supervision of the managers or executives, and with the help of the Finance Manager
and the GM.
Mr. Lam: How come we members of the Finance Subcommittee were not involved in preparing the first
draft of the budget?
The Chairman: Thank you Mr. Lam. You are right. We should all get involved. However, considering
all honourable members are having a busy schedule of your own, I have asked GM and the
Finance Manager to lead the members of the staff to prepare this first draft of the budget. In fact
we are looking forward to you and others as well, to contribute ideas on improving this budget,
this evening and in many more meeting to come. Can I proceed now, ladies and gentlemen?
(Silence)
The Chairman: Good. Can we refer to the budget once more? Please look at Appendix A again. If you
read down to the bottom lines, you will notice we have a huge operation loss of about RM1.3
million. The President and the GC considered this an unsatisfactory state of affairs. What is more
worrisome is the fact that the Club had been operating on a loss for a number of years. We have
employed a staff of over a hundred persons, with a budget spending in excess RM 13 million. We
should be efficient enough at least to break even in our operation. This evening I have called upon
the GM, the Finance Manager and all departmental managers/ executives to be here overtime,
but they are not paid overtime though (laughter). Together we hope to find ways to increase the
income for the two major profit centres, the golf operation and F & B, and cut down the
expenditure of all departments, wherever possible.
Mr. David: Mr. Chairman, you seem to imply that we have been operating on losses for many years.
How on earth then the Club can sustain itself over these years?
The Chairman: Good question. Welcome aboard, Mr. David. I understand you are a new member to
both the Club and this Subcommittee. How did we survive all these years? As a matter of fact, we
have been lucky. We were relying on non-operational income such as transfer fees, sales of
terminated memberships and interest income to cover the deficit and sustain the Club.
Mr. Tan: To us, income is income, operational or non operational. If the club can sustain itself one
way or another, so be it. Why should we sweat ourselves over it?
The Chairman: Good thinking. I am sure the GM and members of the staff appreciate your comments
(laughter).Mr. Tan, let us look at the issue from a different perspective. All clubs and societies
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should match their expenditure with the income, by nature of being not-for-profit organisations.
Otherwise they would eventually be wound up and will then fail to serve their members
purposes. We have been lucky enough to have the non-operational incomes to sustain our Club
and to serve our members. What will happen if the non-operational incomes dry up? That is why
we are here tonight, to see that the Club can sustain itself forever, for members to enjoy a game of
golf and other recreations.
Mr. Hashim: Mr. Chairman, I have another interesting proposal that will end our troubles once and for
all (laughter). Seriously, ours is a members club. We own the Club. So the Club should operate
very much like a limited company. The objective of the Club should be to increase the
membership value. According to one calculation, if we sell the Club, consisting mainly of the
prime land we are sitting on, and divide the proceeds among the 4,000 plus members, each
member should get around RM100,000. This is in contrast with the current market value of our
membership at RM15,000. There will be a six folds increase in membership value if we sell off
the Club, land and everything else. Does everyone see this is a good idea?
The Chairman: Excellent idea. I have heard of this proposal before. There were members of the Club
throwing around the same idea. However, what you have proposed is too big an issue. Definitely
this subcommittee meeting is not the forum to discuss such a major issue. Why dont you write up
a proposal paper, with all the supporting figures? I will see if I can invite you to the next GC
meeting to present you proposal.
Mr. Howard: I disagree with the idea. Our Club is registered under the Society Act, and limited
companies are registered under the Company Act, We should not confuse the mission, goal and
objective of a club with those of a company.
Mr. Chong: Mr. Chairman, I dont like the idea of selling the Club. It was the wishes of the founding
members and the first patron of this Club to provide a place for members to enjoy a game of golf
and other recreations, and not for the profit of the members. Moreover, it is written in the Club
Constitution that disposal of major assets such as land requires the consent of 75% of the entire
membership of 4000 plus, not just the majority present in an AGM or EGM. If the..
The Chairman: Please, ladies and gentlemen. Pardon me for cutting short of the discussion of an issue
not on the agenda. We have better go back to our original intention to find a balance budget, or
else I cannot keep my promise to end the meeting at 10:30pm. I have heard that the wives of
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some honourable members will not let them into house after 11:30pm (laughter). So, shall we get
back to the issue of a balance budget?
(Pause)
Good. First I will invite the F&B Manager, to be followed by Golf Operation Manger and other
departmental heads, to present their view on increasing revenue and/or reducing expenditure for
the next financial year.

Note on Names: All names mentioned in the case are fictitious. If any of them resembles with one in real
life, it is purely coincidental.
Note on Golf Clubs: There are more than 200 golf clubs in Malaysia as at 2012. In term of ownership,
golf clubs in Malaysia fall into three broad categories:
(1) Propriety clubs These clubs are owned and managed by private companies, usually property
developers, in conjunction with a resort-type housing project. The mission, goal and objective
of this type of clubs emphasize on environmental beautification and profit seeking. The
membership, subscription and green fees charged are much more expensive.
(2) Government clubs These clubs are built on Government land, on a fixed-term lease. These
clubs are meant for the recreation of Government employees. These clubs are also open to the
public, but they have to pay higher membership fees and more expensive subscription or
green fees. The Government clubs have to operate on a balance budget because they have
limited sources of income.
(3) Members clubs An example of these clubs is as described in the above case.