Capic Hexagon - MCR

Management Control Report
Year Ended 31 December, 2016
BBC PROFESSIONALS PRIME GLOBAL

BBC PROFESSIONALS. 7, McNeil Road, Sabo, Yaba, Lagos
Chartered Accountants G. P. O. Box 3260, Lagos, Nigeria
Tel: +234 (0) 1 8981859, 7945733
Email: bbc@bbccharter.com
Website: www.bbccharter.com
The Managing Director
Capic Hexagon Nigeria Limited 17 March, 2017
8th Floor, C & C Towers
Plot 1684, Sanusi Fafunwa Street
Victorial Island
Lagos
Dear Sir,
MANAGEMENT CONTROL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2016
Having completed the audit of your Company’s financial This report therefore outlines only those weaknesses we
statements for the year ended 31 December, 2016, we hereby bring discovered through the audit tests and should not be taken as
to your attention our observations, comments and having brought to light all the weaknesses that might have
recommendations for your consideration and necessary action. existed in the system of internal control and accounting practice,
which a specific investigation might have uncovered.
Please note that the contents of this report are based on the tests
carried out on the financial statements, the main purpose of which The contents of this report have been brought to the attention of
was to confirm that: Ms Sandra Ogbahor, Messrs Philip Mbulu and Richard
i) proper accounting records were maintained; Akpalikoko in their capacity as the custodians of financial
ii) applicable accounting standard were applied; information for the Company. However, if there are matters
iii) suitable accounting policies were adopted and maintained; raised that require further clarifications; please do not hesitate
iv) judgments and estimates made were reasonable and prudent; to contact us.
v) the going concern basis was used, unless it was inappropriate to We thank the staff and management for their co-operation
presume that the Company would continue in its activities; during the course of the audit.
vi) internal control and accounting procedures which were
instituted were as far as possible reasonable and functional to Yours faithfully,
Capic Hexagon Nigeria Ltd: Management Control Report for the Year Ended 2
31 December, 2016
safeguard the assets, prevent and detect fraud and BBC PROFESSIONALS
irregularities.
Capic Hexagon Nigeria Limited

Management Control Report – 2016
Table of Contents
Sections Description Page number
A Executive Summary 4
B Overview of the last Management Control 8

Report
C Observations and recommendations 11
31 December, 2016
Section A
Executive Summary
31 December, 2016
Section A
Executive summary
31 December, 2016
Summary of issues contained in the MCR
During the cause of the audit of your company’s financial statements for the year ended 31 December, 2016,
we carried out a review of the issues raised in our last Management Control Report, present systems, and
procedures in place and hereby present the summary of our findings below:
 Revisiting the IFC loan agreement to confirm the Pre-completion and Post Completion project period
interest charges.
 Interest and foreign exchange loss on dollar denominated interest bearing loans on alarming rate.
 No updated agreement on the extension of repayment period of Bridge finances
 Increase in the withholding tax receivable from corporate guest is on a high side.
 Problem of Point of Sale (POS) double debiting guests at the point of making payment for services.
 Need for a decisive position and treatment of accumulated 40% Service Charge standing in the
Company’s books as at 31 December, 2016.
 Need to expunge faulty items from the schedule of property, plant and equipment that were included
as part of the Company’s asset by the Fixed Asset Verification/Codification Consultant.
The overview of our last MCR and details of the issues raised in the report and management responses to
our observations are contained in Section B and C of this report respectively.
Section A
Executive summary
31 December, 2016
Issues raised in 2015 Management Control Report, Priority level and those responsible for implementation
or follow up are listed below:
No Issues Priority Responsible Page

Level
1. Interest charges on IFC loan High Board of Directors 12
2. High interest and foreign exchange on dollar High Board of Directors 14
denominated interest bearing loans
3. Extension of repayment period on Bridge Finance High Board of Directors 16
4. Increase in withholding tax receivables High Management 18
5. Un-allocated deposits in the Company’s account High Management 22
6. Accumulated 40% service charge Medium Board of Directors 24
7. Improvement to the hotel’s Automated Teller Medium Management 26
Machine(ATM)
8. Store layout Medium Management 27
9. Sale of items disposed during the year Medium Management 29
Section A
Executive summary
Definition of priorities and comments used in the MCR
31 December, 2016
High
A finding of fundamental significance or financial Materiality to the Company. The weakness that
has or is likely to have a significant impact upon the achievement of key system, function or
process objectives. It requires immediate attention of the Management.
Medium
A finding of moderate significance or financial Materiality to the Company. Control weakness
that may have an impact on the achievement of the key system, function or process objectives.
Requires prompt attention by the management.
Low
Finding of lesser significance to the Company and may not require management immediate
attention. Weakness that does not impact upon the achievement of key system, function or
process objectives; however implementation of the recommendation would improve overall
control.
31 December, 2016
Section B
Overview of Previous
Management Control Report
31 December, 2016
Section B
Overview of Previous Management Control Report
31 December, 2016
Previous MCR Issues Priority Responsible
Medium Board of Directors
31 December, 2016
Observations Management’s response
The management implemented most of our observations in
the last Management Control Report with the exception of the
non obtainment of withholding tax receipts from corporate
guests. This had been a major concern to the management.
Travel agents’ commission are still grossly outstanding, this
was largely due to scarcity of foreign currency witnessed in the
country during the financial year.
It is worthy of note that the core issues raised in the last

Management Control Report were addressed as follows:
 Construction defects, though could not be completely

corrected but was managed;
 High capacity alternative generator has been acquired
and installed;
 The Conference Hall is in full operation as a result of
public awareness created by the Company;
 Fixed Assets Verification and codification has been
carried out with all the assets of the Company well
tagged;
 The revolving door at the reception is now functioning;

and
 Non functioning items of property, plant and equipment
have been expunged and written-off from the books as
advised.
31 December, 2016
Recommendations
The Company should endeavor to implement all subsequent
recommendations stated in the auditors’ Management Control
Report without any delay.
Section C
31 December, 2016
2016 Observations and recommendations
Section C
Number 1 Priori ty Responsible

Interest charges on IFC loan High Board of Directors
31 December, 2016
Observation Management’s response
Our review of the interest payments on the loan granted by the

International Finance Corporation (IFC) to part-finance the
construction of the hotel on 14th May, 2010 which is expected to
be fully repaid on 15th December, 2019 revealed an interest rate
between the range of 8% to 10%, though inclusive of Default
Rate Interest for the suspension of the interest payment for a
certain period due to cash flow position of the Company.
In view of the above, we hereby draw your attention to the

Investment Agreement – 28300 Dated 14 May, 2010
which specified the following:
Pre-completion project period Interest: This shall be at

8% per annum plus six (6) months US dollar London Inter
Bank Offer Rate (LIBOR);
Post-completion project period Interest: This shall be 7%

per annum plus six (6) months US dollar London Inter Bank
Offer Rate (LIBOR).
The above extract of the Investment agreement revealed that

the Pre-completion project period interest rate was 8% while
Post-completion project period interest rate was agreed at 7%.
Moreover, we are not aware of any reconciliation to confirm the

31 December, 2016
loan status as at 31 December, 2016 to ascertain the interest
charged by International Finance Corporation and other
related charges on the loan.
Implication
 Lack of reconciliation and close monitoring of interest
charges may result avoidable disagreements in the future.
Recommendations
 Management is advised to revisit the Investment
Agreement between Capic Hexagon Nigeria Limited and
International Finance Corporation to ascertain the Post-
completion project period interest charges.
 A reconciliation exercise, if not in place, should be carried

out at intervals to confirm the closing balance of the loan
at a particular period.
Section C
Number 2 Priority Responsible
High interest and foreign exchange on dollar High Board of Directors
Denominated interest bearing loans
31 December, 2016
Observations Management’s response
It is pertinent to note that the accumulated interest to date and
the foreign exchange loss on the Company’s Bridge finance and
Shareholders loans as at 31 December, 2016 is on a very high
side and indeed alarming. The situation has eroded the profit
for the year, thereby resulting to a heavy loss. Below is the
summary of the above scenario:
Detail Amount
=N=
Profit before finance costs 72,761,588
Less:
Interest on Shareholders loans (476,430,730)
Exchange loss on Shareholders loans (599,049,672)
Interest on Bridge Finance (355,158,920)
Exchange loss on Bridge Finance (408,804,263)
Interest on IFC Loan (142,331,391)
Exchange loss on IFC Loan (387,098,217)
Loss After Finance charges (2,296,111,605)
Implication
The above interests and foreign exchange losses on bridge
finance and Shareholders loans will negatively affect the
Company’s cash flows when it crystallizes, while that of IFC
loan had crystallized during the financial year resulting to cash
31 December, 2016
Recommendation
Management is advised, if possible, to consider the option of

restructuring the Shareholders and Bridge Finance loans
considering the impact of the skyrocketing of foreign exchange
rate witnessed in the financial year under review.
Section C

Extension of repayment period of Bridge High Board of Directors
Finance
31 December, 2016
Our review of repayment agreement of the respective bridge
finance at each tranche revealed that the loan repayment ought
to have commenced before or during the financial year. Below
are the repayment agreement for the respective loans:
Bridge Finance 1: This was granted on 12 July, 2012 with
original expected repayment date of July, 2013. An extension
of repayment period was agreed in 2013 with a change in terms
of agreement. This resulted to a new expected repayment date
of 11th July, 2016 or immediate repayment of the loan once the
Company secures longer term finance from third party lenders
which ever comes earlier. No subsequent agreement thereafter
knowing full well that the repayment period had elapsed in the
financial year and the loan is yet to be repaid.
Bridge Finance 2: This was granted on 20th November, 2012
with original expected repayment date of March, 2013. The
date had passed, the loan is yet to be repaid and no further
Agreement was made available to us during the audit exercise
with respect to agreeing a new repayment date.
Bridge Finance 3: This was granted on 11 th June, 2012 with

expected repayment date of 11 th June, 2013. The repayment
date had expired and no new date has been agreed.
There were no updated agreements rescheduling the

anticipated expected date of repayments of the above loans.
31 December, 2016
Recommendations
Management should endeavour to update the expected

repayment period of the non-performing loans extending them
to realistic future period considering the trend of operations of
the hotel. To this end, an updated agreement between the
Company and the lender will be required.
Section C
Increase in Withholding tax receivables High Management and Board
Of Directors
31 December, 2016
Observation
Management’s response
We observed that the withholding tax receivables representing
the withholding tax credit notes for all withholding taxes
deducted on the Company’s invoices had increased in the
financial year compared to the previous year. Large portion of
the withholding tax credit notes had not been received by the
hotel as at the time of the audit exercise. However, our enquiry
revealed that concerted efforts were being made of the Finance
controller and the General Manager to obtain the withholding
tax credit notes from its customers.
The withholding tax receivables were due from the following
customers:
Name Amount
=N=
i. Institute of Chartered Account of Nig. - 71,745.76
ii. University of Benin - 506,352.00
iii. Benin Electric Distribution Company - 618,638.85
iv. ELAND Oil & Gas Nig. Ltd - 8,141.65
v. Multichoice Nigeria Limited - 102,544.52
vi. Nigeria petroleum Development Company - 2,805,268.40
Total - 4,112,691.18
The above withholding tax receivables balances still form part

of the trade receivables for the financial year. This should have
been reclassified to Withholding tax receivable ledger head
awaiting credit notes. The Finance Controller explained that it
is the policy of Marriott to retain the withholding tax element
of an invoice in the trade receivable until the withholding tax
31 December, 2016
Recommendations
 Management is advised to take a decisive position on the
status of the withholding tax receivables especially those
that had been outstanding from inception to date.
 The clients should further be notified of the Company’s
Pioneer Status, hence the need for them to suspend the
deduction of withholding tax for the pioneer period which
will elapsed on 31 December, 2017.
 Management is advised to intensify efforts in obtaining

the outstanding withholding tax credit notes from its
customers considering the fact that inability to obtain the
credit notes will amount to loss of fund to the Company.
 We advise that the portion of withholding tax claimed to
have been obtained without evidence of withholding tax
credit notes, but only evidence of deductions and
remittance to tax authority should be expunged from the
balance available to be use to offset the tax liability of the
Company subsequently.
31 December, 2016
Section C

Un-allocated deposits in Company’s book High Management
31 December, 2016
We noticed a balance of N2,582,628.76 representing total
value of credits into the Company’s account from different
revenue heads of which detailed analysis had not been received
from Unified Payment as at 31 December, 2016.
Inclusive of the above balance are items of Credit Card Bank
payments not in the Company’s records and Guest debited
twice. The credit card Bank payments that were not in the
Company’s book represent items credited into the bank account
but cannot be traced to the Company’s books while ‘Guest
Debited Twice’ arose during Point Of Sale (POS) transactions.
Our enquiry revealed that the bank advised that the affected
guests should first lodge their complaints before reversal could
be effected.
Implications
 The operations of the POS transactions should be
checked to avoid double debiting guests settling bills with
their Cards. Though the hotel does not have control over
this but can be minimized by complaining to the POS
provider Bank.
 Accumulation of Credit Card bank payments in the
records of Unified Payment which cannot be traced to the
records of the hotel may result to maintaining unrealistic
balances in the book.
31 December, 2016
Recommendations
 Management is advised to follow up with guests affected
by double debit through their details in the hotel’s record.
Although it may be impossible to get the details of walk-
in guests. It is a form of encouragement to the affected
guests to patronize the hotel subsequently.
 A decisive position should be taken by the management
on the credits to the Company’s Bank account but not in
the records.
Section C

Accumulated 40% service charge Medium Board of Directors
31 December, 2016
We observed that 40% of the service charge (staff tips) on guest
had been accumulated from inception to date resulting to a
book balance of N75,136,514.42 as at 31 December, 2016.
60% portion of the service charge was shared on monthly basis
between the staff based on the agreed formula, while 40%
being the company’s share is still standing in the books as
payable.
Our enquiry revealed that the accumulated amount is awaiting

Board’s decision on how it should be treated.
Implication
Accumulating the undistributed portion of the service charge in
the books will increase the liability position of the Company.
31 December, 2016
Recommendations
 Management is advised to come up with a decisive
position on the treatment of the accumulated service
charge in the book.
 The 40% portion could be released to income at each

point if it is not meant to be distributed.
 Our review of the records revealed a ledger head termed

‘Provision for Refurbishment’ being provision for the
hotel’s refurbishment after a specified number of years in
line with the requirement of the hospitality industry. The
40% undistributed portion of the service charge can be
channel towards this purpose.
31 December, 2016
Section C
Improvement to the Hotel Automated Teller Medium Management
Machine.
Observation
We noticed that the Skye Bank Plc’s Automated Teller Machine Management’s response
(ATM) situated in the hotel reception was out of service during
our audit exercise. Our enquiry revealed that the Bank was
around to fix the machine after being notified by the
management. However, the machine stops dispensing cash few
hours after being put in order.
Implications
 Guest that needed immediate cash may be stranded due
to out of service of the machine. This is a form of
inconvenience to the affected guests.
 The off and on of the Automated Teller machine does not
befit the standard of the hotel.
31 December, 2016
Recommendations
 Management is advised to follow up with Skye Bank Plc
to fix the Automated Teller Machine to enhance its
reliability in cash dispensing.
 The option of an Alternative Automated teller Machine
from another bank should be considered by the
management to serve as an option to the guest whenever
the other machine is out of service.
Section C

Store layout High Board of Directors
31 December, 2016
The warehouse that housed the company’s stock items had
been improved upon. The stock items were properly laid out
and arranged. This arrangement made the items easily
identifiable and countable during the stock taking exercise.
However, some of the Container stores and Roof top store that
housed the spare furniture and fittings and damaged items
needed to be improved upon, as the items in the store were not
properly arranged.
Implication
If stock items were not well arranged, stock-taking exercises

could be difficult.
31 December, 2016
Recommendations
 Management should endeavour to provide sufficient
space for storage of damage items awaiting disposal. This
is necessary in order to enhance smooth stock-taking
exercise in the respective store section.
 All unrelated materials in the respective container store

should be evacuated. The officer in charge of the stores
should arrange to evacuate all the damaged/non-
functioning items in order to create space for needed
items.
31 December, 2016
Sale of items written-off during the year High Management
31 December, 2016
Some items of property, plant and equipment and operating
equipment were written-off during the financial year. However,
our system review of the hotel’s operation revealed that majority
of these items was still in the hotel’s premises.
Furthermore, some damaged and non-functioning items wek2re

stored in the container and rooftop stores. The following,
amongst others, were some of the items:
 Damaged Dinning chairs

 Unused mattresses
 Damaged tables
 Damaged Trolley
 Damaged clothes hangers
 Damaged laminated floors
 Damaged Swimming pool umbrellas
 Damaged Bedside lamps
 Damaged Reception chair
 Faulty Gym machine
 Damaged Chandeliers
 Damaged pressing irons, etc.
Implications
 Substantial space which should have been used for the

31 December, 2016
Recommendations
 The management is advised to sell off the damaged and
non-functioning items at agreed prices to available buyers
in order to decongest the stores of the items.
 Alternatively, the management may consider the option of

repairing the faulty items for a reuse if practicable.
31 December, 2016

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Management Control Report

Year Ended 31 December, 2016

BBC PROFESSIONALS PRIME GLOBAL

MANAGEMENT CONTROL REPORT FOR THE YEAR ENDED 31 DECEMBER, 2016

Capic Hexagon Nigeria Limited

Sections Description Page number

B Overview of the last Management Control 8

C Observations and recommendations 11

No Issues Priority Responsible Page

Definition of priorities and comments used in the MCR

It is worthy of note that the core issues raised in the last

 Construction defects, though could not be completely

 The revolving door at the reception is now functioning;

Number 1 Priori ty Responsible

Our review of the interest payments on the loan granted by the

In view of the above, we hereby draw your attention to the

Pre-completion project period Interest: This shall be at

Post-completion project period Interest: This shall be 7%

The above extract of the Investment agreement revealed that

Moreover, we are not aware of any reconciliation to confirm the

 A reconciliation exercise, if not in place, should be carried

Loss After Finance charges (2,296,111,605)

Management is advised, if possible, to consider the option of

Number 3 Priority Responsible

Bridge Finance 3: This was granted on 11 th June, 2012 with

There were no updated agreements rescheduling the

Management should endeavour to update the expected

The above withholding tax receivables balances still form part

 Management is advised to intensify efforts in obtaining

Number 5 Priority Responsible

Number 6 Priority Responsible

Our enquiry revealed that the accumulated amount is awaiting

 The 40% portion could be released to income at each

 Our review of the records revealed a ledger head termed

Number 8 Priority Responsible

If stock items were not well arranged, stock-taking exercises

 All unrelated materials in the respective container store

Furthermore, some damaged and non-functioning items wek2re

 Damaged Dinning chairs

 Substantial space which should have been used for the

 Alternatively, the management may consider the option of

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