Question 1

Required:
a) An important component of Johan s presentation is the identification of potential
threats to a successful internal audit co-sourcing for the company and how these
threats can be mitigated.
Help Johan identifies and discusses three (3) of the potential threats other than those
mentioned in the conversation above, given the current situation of Mentara Bhd
(described in the case). Your discussion must also include recommendations of how
these threats can be alleviated to maximize the chances of accomplishing a successful
co-sourcing arrangement.
(15 marks)
1. Failure to identify qualified candidates to lead and be members of the in-house
internal audit department
With co-sourcing, the employed internal auditors will be still be
responsible to handle the department s functional core
Without qualified internal auditors, it is nearly impossible to develop an
effective in-house internal audit team
This threat can be mitigated by upgrading existing employee or hiring new
internal auditors
2. Risk of a lack of chemistry among the newly-established in-house internal audit
team members
While qualified auditors are critical to an effective in-house internal audit
team, team chemistry has been suggested to be just as important
Team effectiveness requires team members to work well together
regardless of their abilities
However, team chemistry is potentially one of the most complicated keys
to the success of departments/organizations
Among others, this threat can be minimized through well-defined roles,
responsibilities, and expectations of each internal auditor
3. Failure to identify qualified and experienced external partner for the internal audit
function at a reasonable fee
As described in the case, the company was struggling to find the right
consultant with the right price.
However, this issue can be resolved through a careful and thorough
selection by the company.
4. Discontinued contract
Even if the company is able to hire qualified and experienced external
partner for the co-sourcing arrangement, there might still be continuity issue
later on. Continuity can be an issue if there are frequent changes in the co-
sourced team. One way to minimize the risk of discontinued contract with
the external partner is by signing a medium to long-term contract with them
subject to satisfactory performance.

b) Based on your answers in (a) above, do you think the co-sourcing arrangement will
work for the compan s internal audit department?
Yes, the co-sourcing arrangement will work for the compan s internal audit
department because of the following reasons:
1. The only current employee suitable to be upgraded to lead/join the internal
audit department is Malini. She seems to be a good candidate for the Head of
Internal Audit Department, given her intrinsic knowledge of the firm and her
past experience as an external auditor. The firm will only need to hire a few
new internal auditors to assist Malini. The risk of not being able to hire new
internal auditors is fairly low. With the establishment of this new team, the co-
sourcing may work.
2. The issue of a lack of chemistry among the newly-established in-house internal
audit team members can be resolved over time. Corrective measures can
always be undertaken should the problem persists. Hence, this threat can be
considered manageable.
3. The company had once made a mistake in selecting the external consultant
(for outsourcing its internal audit function). As can be seen from the Board s
meeting, it was clear that they realized about their past mistake and was in the
midst of identifying new consultant. The conversation of the Board s members
in the meeting clearly suggests that they are aware of the criteria required for
the external consultant. With these criteria in mind, it is likely that the company
will not repeat the first mistake. Given a large pool of chartered accountants in
this country, the risk of not being able to identify qualified and experienced
external partner can be deemed low.
(10 marks)
Question 2
Required:

a) The main reason for many hotels to close businesses during the COVID-19 outbreak
is the low occupancy rate due to low demand and cancellation of bookings. For
example, Syeun Hotel mentioned in its retrenchment letter (reported in the second
article above), A sharp decline in demand for hotel accommodation and our other
facilities caused the sales turnover to drop to a significant low where we could not
afford to stretch our financial capabilities .

Similarly, the occupancy rate of Sri Suria Hotel has dropped significantly to as low as
20% since 18 March when the movement control order was ordained. The Board of
Directors is considering giving discounted rates for all of its services to its customers
to boost the occupancy rate. Explain why this is not a good idea and propose three (3)
countering measures the hotel could undertake as immediate remedies with regards
to the COVID-19 crisis.
(10 marks)
The above may seem to be a good idea under normal circumstances. However, during
a movement control order period where ever one s movement is restricted, giving
discounted rates will not help the hotel due to the following reasons:
a. Most customers are forced to stay at home and cancel their travels. Even when
the movement control order is lifted, customers may still be very cautious about
travelling.
b. If every player is offering discounted rates, the industry will suffer as recovery
will be painful and slow just like what happened aftermath the 2008 financial
crisis as a majority of hotels decided to drop their rates.
c. Visibility on the future is currently almost non-existent so for how long is Sri
Suria Hotel going to offer the reduced rates? 6 months? 8 months? 1 year?
Countering measures that Sri Suria Hotel could undertake include the followings:
a. Provide food delivery service from hotels - The key motivation behind this
action is cost-saving, as well as being a way to recover revenue. Since the raw
material cost represents 45%-50% of daily food sales on normal days, food
delivery would at least cover the cost of the existing inventory which would
otherwise perish for nothing.
b. Renew the service procedure through contactless service - "contactless
service" may involve the use of apps, kiosks and robots to attract customers
and yet avoid dealing with people at a high density
c. Negotiate cancellation policy with the online travel agents (OTAs) - negotiate
with the OTAs and let them convince the guests to change request for
cancellation into a request for delaying reservation. Even if only 10% of the
guests accept this suggestion, the hotel will be able to save significant cash
flow.
d. Have affable labour cost-savings measures - it is crucial to slash labour costs
while maintaining motivation among the employees.

b) Discuss five (5) immediate actions that Sri Suria Hotel could undertake to prepare the
hotel to get the ball rolling once more when things are picking up again.
a. Consider all the support possibilities that the government and other official
bodies have at its disposal
b. Talk to its bank(s) and ask them what they can and will do (e.g. renegotiate
loan terms)
c. Talk with suppliers and look at how it can reschedule some payments or how it
can re-arrange its supply when business returns
d. Talk to its employees, and regularly update them on what it is the hotel is doing
and how they could help (they may have solutions or thoughts that could help
the business).
e. See how, in respect of local labour laws, the worktime can be rearranged if and
when business picks up again, as we all anticipate that a slow recovery will
probably be the most realistic scenario
f. Look at costs and think very actively about how to transform fixed costs into
variable costs, especially for the phase where the business will not yet be
stable.

(15 marks)