Despite the many issues which prevented the February newsletter appearing, a number of developments have taken place at Credit Matters.
First, we have a new tag line to better reflect what we do - Credit Matters - Your Cashflow Defence from Cashflow Robbers. We also wrote a blog to explain what our focus was Eliminating Profit Robbers Naturally Increases the Dollars in Your Bank Account.
Our feature Anatomy of a Recession and the Preferential Payment Calculator are now in our Members Area, which is free to join. The reason for this action was that I suspect it is too late for many businesses to adequately protect themselves from the next recession. Of course, "It ain't over till the fat lady sings" as they say. Therefore if you wish to try and take proactive steps to avoid the worst of the recession, which I suggest is essential and may allow your business to survive, you can still access and download a copy of the feature via our free Members Area.
I have deliberately only attached three brochures this month as everybody is distracted by the COVID19 virus, and trying to stay alive physically and commercially. In addition, with the collapse of the share market, the panic buying and the attempts by governments to stop the inevitable, people will be struggling to make sense of it all for some weeks in to the future.
The first brochure is from Barry Urguhart and the second and third are from The Bank Doctor. These brochures are focused on the real world of business and staying sensible as those around you panic.
"I love the smell of napalm in the morning"
Spoken by Lieutenant Colonel Bill Kilgore in the film Apocalypse Now
The thing about fraudsters is that they never let an opportunity pass by to earn a dollar. In their view, there is nothing like a good crisis, or someone looking for love, or a new opportunity like the birth of cryptocurrency, to make money. We have already seen the scams taking advantage of the latest bushfires, just as they did after the Black Saturday bushfires. We have also already seen scams associated with the COVED-19 virus.
Fraud is a fraudsters business, and many are really good at it. At this point in time, the fraudsters are “… loving the smell of their version of napalm in the morning” as lately the opportunities never seem to stop occurring. For fraudsters, making money from all of today’s opportunities has its own unique sensory pleasure.
The truth is frauds and scams work when people are distracted by a lack of family finances and other issues, are gamblers or drug takers desperate for the next fix, or want something so badly, they become susceptible to the fraudsters’ advances.
In business, we see these same situations and can add to the list of factors affecting the business environment when business owners and managers are desperate for sales, cashflow or success. As a result, they may become distracted and compromise on their business disciplines, ethics and common sense. It is not unusual therefore for them to encourage their salespeople and purchasing employees to tell lies, to take shortcuts in processes, all “… for the good of the company!”
There is a well known saying from the field of criminology which says, “People steal in the good times because they can, and steal in the bad times because they need to survive.”
The problem we have today is the perfect storm where fraudsters steal because they can thanks to lax business operations and disenfranchised employees, plus as always, they steal to survive. No wonder fraudsters wake every morning at the moment with their equivalent of “… loving the smell of their version of napalm in the morning.”
It is a thought well worth thinking about as management teams, review their current business operations.
All too often you hear of senior management complaining on the lack of commitment of their employees. When you look at the employment conditions of their employees however, you come to realise that management deserves the employees they have working for them.
When management employs the cheapest quality employee and under dictatorship style rules of employment, they shouldn’t be surprised when the employees are not engaged in the welfare of the business. They just keep their heads down and do what they are told.
Furthermore, in such environments, there are two other situations which discourage employees from doing the right thing and engaging with management. The first is where any suggestions to improve processes are treated with paternal and or discouraging comments. The second is in tough economic times, where these same employees are afraid to leave the business because they may not get another job.
In tough economic times and the new rules of engagement forced on business by legislators and the general community today, the last thing a business needs are disenfranchised or “brain dead” employees.
From another perspective, I haven’t even mentioned the destructive damage that these employees can do if they eventually decide to “turn their brains on at work”. That is a story for another occasion.
Despite all the advances in technology with AI and the use of big data, there are times when you cannot go past the effectiveness of the human “tummy test”. This tummy test is especially valuable when evaluating new applications for credit, reviewing existing accounts, or when interacting with businesspeople.
One day it might be possible for technology to be of a standard that equates to the human “tummy test” but that is in the far distant future for two main reasons. The first is the amount of data required to bring technology to this standard and second, the cost. As we regularly see today, protecting a business’s cash resources is still often well down the list of priorities for any in management. Management’s usual focus is on the cheapest possible upfront costs and not on effectiveness.
Even when the technology is perfected to a satisfactory level, the data input by people can be manipulated to achieve desired outcomes.
We also know from reviews of earlier technology; a system could modify criteria to achieve different results than intended. On review of bad debts by at least one of Australia’s major banks in the 1990s, found their systems had modified lending criteria which had in turn, resulted in a higher level of bad debts. In addition, from the earliest development of AI technology, a number of projects have had to be shut down because the technology took over the human instructions. This ability for machines to take over human control has also been depicted in several movies to date.
At the end of the day, technology can reach a decision on whether to lend or not very quickly. In the meantime, it will take a human to understand the nuances of every application where “things” don’t look right. However, your human reviewer will need to be employed under the right terms of employment, including the authority to make perceived adverse decisions and for those decisions to be respected.
Is the spelling sanitizer or sanitiser?
The main time I tend to use hand sanitiser, or is that hand sanitizer, is when I’m on a cruise before I eat. I’ve also used it when visiting people in a hospital, or in an aged care facility. It makes sense.
However, now with COVID-19, all that has changed and now it becomes part of your regular routine.
The question then is, is the Australian spelling with the ‘s’ or the ‘z’?
A check of Google for sites ending in .au for the words sanitiser and sanitizer, returns 1.19 million results for the ‘s’ spelling and 464,000 for the ‘z’ spelling. A check of the Australian Oxford Dictionary and the Macquarie Dictionary for the words sanitise and sanitize gives us sanitise with the ‘s’ as the primary spelling and sanitize with the ‘z’ as the secondary spelling.
In Australia the preferred spelling uses the ‘s’ for the word sanitiser and its various forms.
Updates courtesy of www.asic.gov.au
18 February 2020
Mr Glenn Arthur Hawes of Denham, WA has been convicted for making false and misleading statements in documents lodged with ASIC.
Mr Hawes is a former director of Allison (Aust) Pty Ltd ACN 056 940 437 (Allison), a business involved in marine services.
In June 2015, Mr Hawes lodged a document with ASIC to voluntarily deregister Allison. The Court found that Mr Hawes falsely stated in the document that Allison had no outstanding liabilities when, at the time he lodged the document with ASIC, Allison owed one of its creditors more than $540,000. The Court found that Mr Hawes made a false statement in the document as he was personally aware that Allison had an unpaid debt at the time he lodged the form.
Mr Hawes appeared in the Perth Magistrates Court on 13 February 2020 and was convicted and fined $1,000.
As a consequence of the conviction, Mr Hawes is automatically disqualified from managing corporations until 12 February 2025.
19 February 2020
ASIC has disqualified Ms Nicola Fay Mills of Kenthurst, New South Wales from managing corporations for one and a half years.
Ms Mills was a director of five failed companies, namely:
•Happy Tribe Pty Ltd (ACN 159 171 098);
•Sushi Blue Holdings Pty Ltd (ACN 169 753 208);
•Go Sushi (Corporate) Pty Ltd (ACN 106 006 919);
•Go Pacific Retail Pty Ltd (ACN 106 440 199); and
•Sushi Tribe Pty Ltd Pty Ltd (ACN 105 738 010).
The companies were involved in franchising and the retail food industry.
In making its decision, ASIC found that:
•The companies under Ms Mills’ management were wound up with significant debts;
•In relation to Go Sushi (Corporate) Pty Ltd, those debts stemmed from Ms Mills’ management failures; and
•In relation to the other four companies, the debts stemmed from a further failure to undertake proper due diligence.
In making its decision to disqualify Ms Mills, ASIC relied on supplementary reports lodged by Steven Gladman of Hall Chadwick who was the Liquidator of Go Sushi (Corporate) Pty Ltd, Gavin Morton of Morton’s Solvency Accountants who was the Liquidator of Happy Tribe Pty Ltd and Timothy Clifton of Clifton Hall who was the Liquidator of Sushi Blue Holdings Pty Ltd. ASIC assisted the Liquidators of Go Sushi (Corporate) Pty Ltd and Happy Tribe Pty Ltd to prepare their supplementary reports by providing funding from the Assetless Administration Fund.
The total amount collectively owed to the ATO and the unsecured creditors of the five failed companies was in excess of $5.1 million.
Ms Mills is disqualified from managing corporations until 11 August 2021.
24 February 2020
Mr Michael Ming Jinn Ho, 32, of Lilyfield, New South Wales, today appeared in the Downing Centre Local Court and has pleaded guilty to insider trading and communicating inside information.
Mr Ho has pleaded guilty to:
•five counts of insider trading contrary to sections 1043A(1) and 1311(1) of the Corporations Act 2001 (Cth); and
•one count of communicating inside information contrary to section 1043A(2) and 1311(1) of the Corporations Act 2001 (Cth).
The charges relate to Mr Ho’s purchase and sale of Big Un Limited (Big Un) shares and options between 18 July 2016 and 10 February 2018. Mr Ho and the associates he procured invested a total of approximately $1.6m in Big Un securities over this period.
Mr Ho has cooperated with ASIC’s investigation. He has made a formal statement admitting to the offences he has been charged with and the facts concerning them.
10 March 2020
Earlier today, the High Court of Australia published its reasons for judgment allowing ASIC’s appeal from the Supreme Court of Queensland on the question of whether Michael Christodoulou King, the former CEO and executive director of MFS Ltd (also known as Octaviar Ltd), was an “officer” as defined in s 9 of the Corporations Act 2001 (Cth) of MFS Investment Management Pty Ltd (MFSIM).
At the relevant time, MFS Ltd was the parent company of the MFS Group of companies (MFS Group). MFSIM was a subsidiary in the MFS Group and acted as a responsible entity for several registered managed investment schemes, the largest of which was the Premium Income Fund (PIF).
The court unanimously held that Mr King was an “officer” as defined by s 9(b)(ii) of the Act because the provision is not limited to those who hold or occupy a named office in a corporation or a recognised position with rights and duties attached to it. The factual findings of the primary judge that Mr King acted as the “overall boss of the MFS Group” and assumed “overall responsibility for MFSIM” were sufficient to establish that Mr King had the capacity to affect significantly the financial standing of MFSIM.
ASIC Commissioner John Price said, ‘ASIC notes today's High Court decision, which sends a clear signal to anyone running a company – in name or in effect – that they should be responsible and held accountable for their actions.’
‘It provides clear guidance on who is an "officer" of a corporation and establishes that the duties and responsibilities to a company, its creditors and shareholders under the Act will apply to individuals who have the capacity to significantly affect the financial standing of a company,’ Commissioner Price said.
theBankDoctor offers free banking and finance advice to help small business owners get the best business banking set-up.
23 February 2020
Borrowing from a non-bank lender costs more than borrowing from a bank and to be clear, it should cost more because non-bank lenders have higher cost of funds, they take more risk and very often they don’t take hard assets as security which means if the borrower fails, they usually face a 100 per cent write off. The problem is small business owners have little sense of how much more it might cost.
The banks offer the same products with much the same interest rates but rates offered by non-bank lenders vary enormously from around 10 per cent to as high as 50 per cent and even beyond. Many SMEs would be surprised if they knew just how much they were actually paying and this can be way more than they need to.
The lack of transparency in non-bank SME lending needs to be addressed if non-bank lenders are to provide the funding support which has not been forthcoming from the banks. Judo Bank, the challenger bank taking on the big banks in this SME space, says the SME lending gap is $90b.
So why aren’t non-bank lenders more transparent about their rates? Here are two possible explanations:
01 March 2020
On 23 September 2019, AUSTRAC ordered the appointment of an external auditor to examine ongoing concerns regarding PayPal Australia’s compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (the AML/CTF Act).
These concerns relate to PayPal Australia’s compliance with its International Funds Transfer Instruction reporting obligations.
On 27 February 2020, AUSTRAC granted an extension to the appointment of the external auditor until 31 August 2020 following a request from PayPal.
AUSTRAC has granted the extension taking into consideration the scope of the audit, the size and complexity of PayPal Australia's business operations and the overlap with PayPal's international operations. The extension will allow PayPal Australia and the external auditor to fully examine their compliance with the AML/CTF Act.
11 February 2020
Victorian public sector agencies need to be more aware of corruption risks associated with the unauthorised release or access to information, according to a research report released today by the state's anti-corruption agency, IBAC.
IBAC's report, Unauthorised access and disclosure of information held by the Victorian public sector, analyses key risks associated with unauthorised access and disclosure of information by Victorian public sector employees and explains how the misuse of information or material by public officers may be corrupt conduct.
IBAC Commissioner, the Honourable Robert Redlich QC said helping public sector agencies to build their corruption resistance is an important focus of IBAC.
"IBAC's research reports help the public sector understand corruption risks and provide information on how to improve systems, processes and controls to prevent corruption."
"The public sector holds vast amounts of personal information, much of it sensitive, including citizen's financial data, health records and contact details along with political and economic information. It is vital that this information is properly secured and managed."
"The case studies contained in this report demonstrate how protected information is misused for corrupt purposes."
01 March 2020
The second round of the Independent Broad-based Anti-Corruption Commission's (IBAC) public hearings into allegations of serious corrupt conduct in relation to planning and property development decisions at the Casey City Council resumes today.
These public hearings, which are part of IBAC's Operation Sandon investigation, will continue to hear evidence from witnesses involved in Casey City Council matters. IBAC will also more broadly examine the adequacy of Victoria's current systems and controls for safeguarding the integrity of the state's planning processes.
IBAC has also contacted a range of other Victorian councils who have planned or started audits of planning decisions, as a result of Operation Sandon, requesting advice on these audit processes and their findings.
"As part of these examinations, IBAC will consider strategic issues and systemic corruption vulnerabilities identified through the investigation. In the final week of public hearings, IBAC will take evidence from a number of expert witnesses with specialist knowledge in planning, campaign donations, lobbying, and integrity standards at local and state government levels," IBAC Commissioner, The Honourable Robert Redlich QC said.
"This phase of the examinations will also consider potential opportunities to strengthen related policies, systems and practices to prevent future corruption risk," Commissioner Redlich said.
For the first time, IBAC will publicly stream the hearings to make them more accessible to all Victorians, with streaming expected to commence during the first week of the hearings.
"Our public hearings are often at capacity and public interest in this matter is high. Video streaming will help interested community members, including local council employees, follow the proceedings," Commissioner Redlich said.
27 February 2020
The ACCC has decided to grant authorisation to the Mortgage and Finance Association Australia (MFAA), for two years until 21 March 2022, to allow it to continue administer its disciplinary rules, which enforce the MFAA’s Code of Practice.
The Code of Practice establishes standards of conduct and behaviour for MFAA members — the majority of which are mortgage and finance brokers, loan writers, lenders and loan aggregators — as well as mechanisms for suspending or expelling members.
Changes to the disciplinary rules since they were most recently authorised in 2014 for a five year period include strengthening MFAA members’ rights to appeal suspension and expulsion decisions and the power of the MFAA’s tribunal in respect of enforcing the disciplinary rules.
MFAA sought authorisation for a shorter period of two years, due to expected reforms to the mortgage and finance industry following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. MFAA has stated that it will approach the ACCC as necessary to accommodate any relevant regulatory or legislative reforms into its disciplinary rules.
02 March 2020
The ACCC has made an initial assessment proposing to reject Humane Farm Animal Care’s application to register a certification trade mark (CTM application no.1914662). The mark consists of a rectangle bearing the words ‘CERTIFIED HUMANE’ above an image of rolling hills. Applying the mark is intended to certify that meat, poultry, egg and dairy products bearing the mark have complied with Humane Farm Animal Care’s animal care standards for raising, handling and processing a wide variety of livestock and poultry.
Broadly, the ACCC is concerned that Humane Farm Animal Care’s animal care standards are inconsistent with what a reasonable consumer in Australia would expect regarding the humane treatment of animals. There is also a high degree of uncertainty regarding the eligibility and requirements for the CTM’s use by livestock producers in the Australian context.
23 February 2020
This issue continues to be the Australian Consumer Law issue most commonly affecting small businesses, and accounts for over a third of small business reports made to the ACCC, according to the latest Small Business in Focus Report, published today.
“We are concerned about the increase in reports from small businesses about false and misleading conduct, and remind businesses they must ensure their representations to both consumers and business counterparts are accurate and honest,” ACCC Deputy Chair Mick Keogh said.
“The ACCC will take action when we become aware of misleading and deceptive conduct, especially when that conduct has the potential to result in widespread harm.”
“A recent example was our investigation into concerns that Coles Group may not have fully passed on to Norco a milk price rise, as it claimed it would in its marketing materials. As a result of ACCC action, Coles committed to paying Norco dairy farmers around $5.25 million,” Mr Keogh said.
Franchisors not acting in good faith towards franchisees continues to be the most commonly reported conduct under the Franchising Code. Another common issue was inadequate disclosure, which accounted for 14 per cent of franchising reports, and was a key issue of the ACCC’s targeted compliance checks in the café, take away and restaurant sector in 2019.
“We are continuing our work to educate franchisees that franchising, like other businesses, involves risks and to remind franchisors of their obligations,” Mr Keogh said.
“We’ve developed resources including a guide to help franchisees understand their disclosure document, and a guide for franchisors about what a disclosure document should look like.”
The ACCC frequently hears concerns being expressed by small businesses that are subject to onerous contract agreements with large businesses. We are continuing to take enforcement action on these issues, and recently, Uber Eats committed to changing its contracts with restaurants following an investigation by the ACCC which raised concerns that certain contract terms may be unfair.
The ACCC continues to advocate for changes to business-to-business unfair contract term laws including the inclusion of penalties for non-compliance.
“This work highlights the importance of our enforcement and compliance activities to benefit small businesses more broadly,” Mr Keogh said.
The ACCC will also be working closely with farmers and processors to educate them about their rights and obligations under the new Dairy Code of Conduct, which came into effect in January this year.
“Our dairy inquiry concluded that a mandatory code was the best way to address systemic industry problems such as imbalanced bargaining power between processors and farmers, so we are pleased to see that this has become reality,” Mr Keogh said.
The Small Business in Focus report is published twice yearly and provides a summary of the ACCC’s work and activities in the small business, franchising, and agriculture sectors.
The ACCC has also published a range of resources to support small businesses, which are available on our website.
27 February 2020
Concerns about manufacturer warranties and the servicing and repair of agricultural machinery are the focus of an ACCC discussion paper released today, along with an online survey seeking farmers’ feedback about their experiences.
Agricultural machinery: After-sales markets identifies a number of initial concerns relating to competition and fair trading issues, which the ACCC is seeking more information about.
“Agricultural machinery costs a lot to purchase and maintain. We are concerned by a number of issues surrounding the sale and servicing of agricultural machinery and want to better understand the extent of these,” ACCC Deputy Chair Mick Keogh said.
“A number of barriers, including warranty clauses, may be preventing farmers from using an independent business to repair or service their equipment. We hear that this can result in delays at critical times.”
The Australian Consumer Law provides certain rights when a consumer good breaks or fails to perform as expected.
However, these protections generally don’t apply to agricultural machinery and a purchaser’s recourse for faults is usually limited to the manufacturer’s warranty or paying for the repairs themselves.
“Manufacturers have significant discretion as to what warranty protections are offered and how they apply, and we’re concerned that farmers may not be aware of these limitations,” Mr Keogh said.
Additionally, most modern agricultural machinery has extensive data collection capabilities, but manufacturer policies on data ownership and management may raise privacy and competition issues.
“Production data becomes more valuable to a farmer the more they accumulate it, so the lack of any clear rights to this data may create a barrier to switching between brands of machinery,” Mr Keogh said.
“We want to hear about farmers’ experiences when purchasing and obtaining repairs to agricultural machinery, and encourage them to contribute to our survey,” Mr Keogh said.
The survey is open until 5 April 2020. Interested parties can also make submissions via the ACCC consultation hub until 5 April 2020.
The ACCC will analyse information collected from submissions and the survey and will use this to determine its next steps.
09 March 2020
Australians under 25 lost over $5 million to scams in 2019 and reports made from this age group are increasing faster than older generations.
In 2019, around 12,000 (7.15 per cent) reports made to Scamwatch were from people under the age of 25, an increase of 11 per cent compared to 2018 figures. Reports from this age group increased by 10 percentage points more than any other age group.
“Scammers don’t discriminate based on age and the wide range of scams reported by this age group is concerning,” ACCC Deputy Chair Delia Rickard said.
“Young people may think they are tech savvy, but scammers are adapting and we expect to see more scams on newer platforms such as Snapchat and TikTok.”
Facebook and Instagram were the most common platforms for reports and losses by those under 25, with typical scams on these platforms involving fake online stores or the sale of fake tickets to events.
Online shopping scams were the most common scams, making up more than 14 per cent of reports and almost 12 per cent of losses among people under 25.
“Almost half of the losses to people under 25 occurred through bank transfer but you should also be wary of sellers asking for payment through unusual payment methods such as gift cards or bitcoin,” Ms Rickard said.
“Always try to purchase tickets from authorised sellers and be aware that many links sourced through social media will not be legitimate.”
Additionally, scammers are using social media platforms and email as forums for sextortion scams, where they threaten to share intimate images or footage of you online, unless you give in to their demands.
“In many cases if you receive a sextortion threat from a stranger claiming they have compromising images or video footage of you, these images don’t actually exist, so delete the message. If you are concerned, you can contact the e-Safety Commissioner,” Ms Rickard said.
Scammers can also target children who play online video games, such as Fortnite, by offering unlocked achievements or special items in exchange for money or gift card codes without ever transferring the item.
“By targeting children, scammers could obtain personal and banking information from the individual’s parents,” Ms Rickard said.
“We encourage parents and guardians to ensure children do not share personal or banking details online, and if they think a scammer has gained access to their personal information contact their financial institution as soon as possible.”
“You should also contact the platform on which you were scammed and inform them of the circumstances surrounding the scam,” Ms Rickard said.
People can also report a scam to the ACCC through Scamwatch, which offers further information on where to get help, and how to protect yourself from scams.
10 March 2020
B.A.R Group Pty Ltd (BAR Group) has paid a penalty of $12,600 after the ACCC issued an infringement notice for allegedly misleading consumers about the running power of a portable generator.
In September 2019, BAR Group advertised on its website that its 123 G8100-HELT portable generator was capable of achieving a running power of 6 kW.
The ACCC alleges that BAR Group’s representation was false or misleading, in breach of the Australian Consumer Law.
“We were concerned that the generator was only capable of achieving a running power of 6 kW for a short time and not continuously for several hours,” ACCC Commissioner Sarah Court said.
“Businesses must ensure that they do not overstate the performance features of goods or services that they are selling.”
A Black Swan Event can be defined as an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, their severe impact, and the practice of explaining widespread failure to predict them as simple folly in hindsight.
There is considerable discussion at the moment which describes the current COVID-19 virus as a black swan event because it is not a common event. It was unexpected and it is already having a severe impact on many industries and countries around the world.
If the COVID-19 virus is indeed a black swan event, we must then also consider whether it is “… the straw that broke the camel’s back” event, which leads to a full global and local recession.
After all, if buying and selling cannot take place as normal, then it is reasonable to expect a recession will occur. Interest reductions or debt payment moratoriums, the strategies of Central Banks, plus cash from governments, can mitigate the worst effects of a recession. Regretfully, no amount of support however can cover for all the losses incurred because people cannot work, buy, or service their debts.
Credit Matters is a financial risk management resource centre for the Australian business community. If you are in business, Credit Matters is your ideal source of financial risk management solutions.
Credit Matters is continuing to grow and provide marketing and knowledge about financial risks to the Australia business community.
Futhermore, we invite marketing and knowledge ideas from our readers and contributors on how we can assist our respective firms grow. If you have any ideas, please contact me at firstname.lastname@example.org.
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