TRAVEL, HOSPITALITY AND LEISURE - The Accountant · ACCA – MIA JOINT EVENT 2017 The Malta...

41. THE ECONOMICS OF AGEING AND PENSIONS by Godwin Mifsud

10. IFRS 15 – SOME PRACTICAL ISSUES RELEVANT TO THE TRAVEL, HOSPITALITY AND LEISURE INDUSTRYby David Leone Ganado

58. TAKING TIME OFF WORK FOR INCREASED PRODUCTIVITYby Patrick J. Psaila

Sum

mer 2

017

TRAVEL, HOSPITALITY AND LEISURE

This industry is one of the pillars of the Maltese

economy. This issue includes information

and viewpoints about the topic and more.

NEWSPAPER POST

COVER

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summer 2017 | theaccountant.org.mt p.03

CONTENTS

p.04

PRESIDENT’S ADDRESS

newsp.05

MIA NEWS

p.58TAKING TIME OFF WORK FOR INCREASED PRODUCTIVITY

by Patrick J. Psaila

p.64THE FIRST FEMALE PARALYMPIAN REPRESENTING THE COUNTRY SINCE 1980

by Vladyslava Kravchenko

p.10IFRS 15 – SOME PRACTICAL ISSUES

by David Leone Ganado

p.20VAT AND INCOME TAX ASPECTS IN THE TRAVEL, HOSPITALITY AND LEISURE INDUSTRY

by Paul Giglio

p.34GETTING IT RIGHT – THE COMPANY SECRETARY

by Dr Ann Bugeja, Dr Maria Tabone & Ms Charlotte Attard

p.39FROM MIFID I TO MIFID II – WHAT ARE THE EFFECTS OF CHANGE?

by Sarah Camilleri

TECHNICAL

LIFESTYLE

FEATURES

p.14THE ROLE OF THE INTERNAL AUDITOR IN THE HOSPITALITY INDUSTRY

by Eugenio Privitellip.17

THE HOSPITALITY INDUSTRY – REACHING NEW HEIGHTS by Raphael Aloisio and Glenn Fenech

p.22IT’S WHAT YOU DO, NOT WHAT YOU PROMISE WHICH MATTERS TODAY IN HOSPITALITY

by Louis Naudip.24

FINANCIAL MANAGEMENT: BEST PRACTICES IN THE HOSPITALITY INDUSTRYby Margaret Buhagiar and Michelle Spiteri Bailey

p.28

TOURISM AND THE ENVIRONMENT: THE MISSING LINK by Karl Agius and Prof. Alan Deidun

p.08

TOURISM IN MALTA – FACTS AND FIGURES 2016 by Tania Sultana

p.30

ELECTRONIC MONEY: ANOTHER FORM OF CASH by Christian Gauci

p.38

SECURITISATION OF SHIPPING ASSETS by Dr Nicholas Curmi

p.41

THE ECONOMICS OF AGEING AND PENSIONSby Godwin Mifsud

p.44

THE ROLE AND RESPONSIBILITIES OF THE AUDIT AUTHORITY FOR EU FUNDS IN MALTAby Philip Gafa’

p.50

DISRUPTING THE ACCOUNTANCY PROFESSION by Stathis Gould

p.52

ARE THERE BENEFITS IN ISO9001 FOR ACCOUNTANCY FIRMS? by Francis E. Farrugia

p.62

TRANSFORMATIONAL LEADERSHIPby Dr Natalie Kenely

p.66

SO WHAT? LANGUAGE AND CLARITY IN FINANCIAL WRITINGby Angele Spiteri Paris

p.46

ENTERPRISE RISK MANAGEMENT by Ian Edward Stafrace and Dominic Fisher

p.54

THE IMPORTANCE OF PLANNING THE SUCCESSION OF KEY MANAGEMENT PERSONNEL by Robert Delia

© 2017 KPMG, a Maltese Civil Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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04 Summer 2017 05theaccountant.org.mt

WILLIAM SPITERI BAILEY PRESIDENT’S ADDRESS

PRESIDENT’S ADDRESS MIA NEWS

WILLIAM SPITERI BAILEY

2017 ANNUAL GENERAL MEETINGThe 53rd Annual General Meeting of the Institute was

held on 13 July 2017, at the Tower Training Centre in

Swatar.

The following members were elected for the two year

term 2017 - 2019:

Mr Franco Azzopardi Mr Etienne Borg Cardona Mr Simon Flynn Ms Maria Micallef Mr Franz R. Wirth Mr Noel Mizzi Mr William Spiteri Bailey

They joined the following Council members, whose

terms expires in 2018:

Mr Fabio Axisa Mr Christopher Balzan Mr David Delicata Mr Anthony Doublet Mr Jonathan Dingli Dr Ivan Grixti Mr Stephen Paris

At the first meeting of the new Council, Mr William

Spiteri Bailey was elected as President, Mr Fabio Axisa

as Vice-president, Mr David Delicata as Secretary and

Mr Noel Mizzi as Treasurer

MIA NEWSDear Members,

It is an honour to have been elected and to represent

you as President of the Malta Institute of Accountants.

I must begin by giving special recognition to Franco

Azzopardi for his outstanding work as my predecessor.

Under his supervision the Institute has continued

growing in success and recognition. The accountancy

profession is undergoing considerable change, creating

unprecedented challenges and opportunities. During

my term of office my plan is to ensure that the Institute

responds to the evolving needs of the members,

fostering a culture of innovation.

My intention is to bring the Institute closer to its members

and increase the involvement of the younger members,

in existing and newly set sub-committees. I firmly

believe that the Institute is there for all its members. I

will be working hard to meet with and understand the

needs of the different sectors of accountants within the

Institute. Professional accountants whether in public

practice, in employment or in business have different

responsibilities and require the Institute to respond

differently to their needs. They all play an important role

in contributing to the overall stability and progress of our

local economy. Therefore, discussing and following up

on their concerns and needs will ensure that the quality

of our profession is maintained and the public continues

to have confidence in the professional accountant.

Younger members have the energy and enthusiasm

and their involvement is important if the Institute is to

remain vibrant and representative of the profession.

The Institute needs to continue finding new members

who are keen to volunteer and be involved in the

continued transformation of our profession through the

Institute’s committees. I will work towards increasing

the involvement of the new generation in the various

committees of the Institute. This experience will also

serve as a stepping-stone for them to obtain the right

skills and competencies to become future Council

members and leaders in our profession.

Continuity is fundamental to the Institute, and this is

also possible with the continued involvement of the

more senior members of the Institute. They have made

significant contributions to our profession and have

helped create what the Institute stands for today. Their

experience will be an invaluable source of knowledge,

for the successful completion of ongoing and new

projects.

Increased use of information technology has entirely

changed our society. All the industries and professions,

including our profession are following the same trend.

Technology is radically redefining what we do and

how we do it. The change is driving the evolution of

accounting services from transactional services to value-

added services. It is my intention to ensure that Institute

will be a prime catalyst to ensure that accountants

embrace the new Digital Era confidently.

The Institute already has strong ties with a number of

international professional bodies, including Accountancy

Europe, International Federation of Accountants,

International Accounting Standards Board and European

Financial Reporting Advisory Group, amongst others.

During my term, I will strive to continue strengthening

these ties, as this alliance will give the members of our

Institute a significant advantage in terms of shared ideas

and resources.

Last but not least, I intend to pursue in rebranding the

Institute’s name and terminology, wherein the term

‘Accountant’ is changed to ‘Professional Accountant’.

Becoming a Professional Accountant requires that we

attain the necessary qualifications and experience and

continue to update ourselves by attending a number

of continued professional training hours on an annual

basis. This ensures that we keep ourselves informed of

any changes and updates. A professional accountant

is an expert in the field, with strict adherence to moral

integrity and ethics. I firmly believe that the Institute

should assist its members to ensure that Professional

Accountants are given their due recognition in society.

I look forward to working closely with all of you in order

to attain the above mentioned objectives and more for

the benefit of our Profession, our Institute and You, ‘our

members’.

William Spiteri Bailey


MIA NEWS MIA NEWS

Transparency rules for tax planning intermediaries – 14 September 2017

Risk assessment and audit strategy – 19 September 2017

The fourth AML Directive and the risk based approach – 26 September 2017

Social security benefits – 3 October 2017

Tax and Practical Aspects of Migration of Companies – 5 October 2017

Session 1 Contributory pensions & Session 2 The sustainability of pensions – 12 October 2017

Bond markets and their mechanics – 24 October 2017

VAT and Income Tax laws – Enforcement and Constitutional rights – 21 November 2017

What’s new in employment? 2017 practical developments – 30 November 2017

IFRS 15 and IFRS 16- A new challenge for the construction industry – 7 December 2017

The role of the tax accountant- the most recent developments – 19 December 2017

Access our website for a continuous update of events.

MIA SOCIAL EVENT 2017The MIA Social event held on 6 July 2017 proved to be

a huge success with over 750 registrations received.

The sum of €776 was collected for the Autism Parents

Association and was eventually topped by the Institute

to amount €1,600. The donation was presented to Ms

Sandra Borg, co-founder of the Association, by the

outgoing President, Mr Franco Azzopardi.

ACCA – MIA JOINT EVENT 2017The Malta Institute of Accountants and the Association

of Chartered Certified Accountants organised a joint

event on 24 May 2017, attended by 160 professional

accountants. The event was sub-divided into various

sessions, covering the latest updates in IFRS and

also included a panel discussion addressing ethics in

accounting.

The sessions discussed IFRS 9 Financial Instruments for

the non-financial sector, IFRS 15 Revenue from Contracts

with Customers, IFRS 16 Leases and some other recent

amendments effective for periods beginning on or after

1 January 2017 and beyond. The panel discussion titled

‘Accounting and Ethics: Pressure experienced by the

Professional Accountant’ was addressed by a panel of

practitioners and other experts in the field.

THE TRANSFER OF A FAMILY BUSINESS TO THE NEXT GENERATION - A joint event between the Malta Institute of Accountants, the Chamber Of Commerce and the Malta Employers Association The Malta Institute of Accountants joined forces with

the Chamber of Commerce and the Malta Employers

Association, to hold a conference organised on 16 June

2017 addressing family business succession planning in

a holistic way.

An array of professional speakers, including the

participation of Mr Paul Gisby, manager from

Accountancy Europe, delivered various presentations

on the subject matter focusing on issues which included:

understanding family businesses, the new Family

Business Act, devising a plan for the transfer of a family

business, different modes of transfer, the valuation

exercise, taxation & legal aspects in the transfer of a

family business and the importance of Communication.

08 Summer 2017 theaccountant.org.mt 09

COVER STORYCOVER STORY

TOURISM PERFORMANCE

2016 marked the seventh consecutive year of growth

in inbound tourism, where a new record high was

reached. The number of total inbound tourists to

Malta almost touched the 2 million figure, recording a

significant increase of 10.0%. This achievement is even

more remarkable as it comes on top of the increases

achieved in the previous years.

Within an international context, Malta’s inbound

tourism growth rates in 2016, surpassed those for the

World, which grew by 3.9%, Europe (+2.1%) and the

Southern Mediterranean European region (+1.3%).

This success is mainly attributed to the efforts of the

relevant authorities in securing and expanding air

connectivity, along with the strengthening of brand

Malta in the origin markets overseas.

GEOGRAPHIC MIX

The United Kingdom is the foremost market for Malta

with a share of 28.5%, followed by Italy (16.0%),

Germany (8.0%) and France (7.4%). These markets

have been top source origin markets for Malta for many

years. In 2016, growth was not exclusively achieved in

these long established markets but also from other so-

called ‘secondary’ and ‘emerging’ markets. The strategy

implemented to expand Malta’s connectivity was

successful in tapping markets which up to some years

ago were non-existent for Malta. Buoyant figures are

being attracted from relative newcomer source markets

such as Poland, Spain and Hungary, which in turn are

also exhibiting growth on a year-on-year basis. In fact,

in 2016, Poland ranked the 5th largest source market for

Malta, followed by Spain in 6th position.

SEASONALITY

Tourism as an integral part of global business is highly

dependent on seasonal changes in climatic conditions,

economic activities as well as human behaviour and

society in general. Seasonality in tourism activity is

experienced in almost all countries and destinations in

the world. The most significant aspect of seasonality

is that it involves the concentration of tourist flows

in particular periods of the year. In this regard,

Malta can boast of the fact that it is one of the least

seasonal destinations in the Mediterranean, where the

distribution of the number of tourists throughout the

year is more evenly spread than that of its competitors,

namely Spain, Portugal and Morocco.

Over the recent years, Malta has strengthened its

position as an all-year round destination. Volumes

of inbound tourists which up to a few years ago were

reached in the peak summer months, are nowadays also

being achieved in the off-peak months. Additionally,

the growth rates achieved in the low season months

considerably surpass those achieved in the peak months

of summer.

MOTIVATIONAL SEGMENTS

The diversity of the offer is one of the main aspects

which feeds into achieving a relatively even spread

in the number of tourists throughout the whole year.

Research findings show that most tourists visit Malta to

enjoy the sun along with immersing themselves in its

culture. ‘Sun seekers’ rank second followed by tourists

who come to visit their friends and relatives. The

seasonal pattern of ‘culture vultures’ (travellers whose

motivations are purely driven by culture) together

with ‘business travellers’ (who visit the island for

conferences, incentives or other work-related reasons)

favours the off-peak months. Alternatively, segments

such as scuba diving and TEFL (English language learning

related travel) are still very much skewed towards the

peak months of summer.

OTHER FACTORS INFLUENCING DESTINATION CHOICE

The expansion in air connectivity is making it possible

for Malta to attract tourists from new markets. In this

regard, novelty of destination features as an important

factor in the decision making process for 53.8% of

tourists visiting Malta. On the other hand, 3 out of every

10 tourists visiting Malta are repeat visitors, where their

decision to revisit was attributed to a positive previous

experience. The fact that English is spoken widely in

Malta is important for around 1 in every 3 tourists,

closely followed by price/value for money.

Over the recent years, the film industry in Malta has

increasingly garnered priority and interest. This industry

was further reinforced with the launch of the very first

policy focusing on the film industry which was published

in January 2016, covering the period 2016-2020. The

film industry is another effective vehicle which improves

and boosts Malta’s awareness and positioning as a

tourism destination overseas. MTA research findings

show that around 1.4% of incoming tourists base their

decision to visit Malta on a film shot locally, equivalent

to 190 full plane loads of arriving tourists.

AGE PROFILEOfficial tourism statistics highlight that Malta’s appeal

to a relatively younger age tourist is on the increase. In

2016, the biggest growth rates were registered in the

25-44 age bracket followed by tourists aged 24 years or

younger. A richer and more varied calendar of events

is further safeguarding the islands’ appeal towards a

more dynamic age profile. Moreover, research findings

show that age profiles do vary by origin market, where,

tourists residing in Italy and Spain are relatively younger

than those hailing from the UK and Germany.

MOST INFLUENTIAL COMMUNICATION CHANNELSIn recent years, ‘digital media’ has surpassed

‘recommendation by friends and relatives’ as the top

influential communication channel for tourists during

trip decision making. Nonetheless, the two are deeply

inter-related as nowadays travellers choices are not only

based on experiences of friends and relatives but also on

online reviews. In view of this, reputation management

is key for the tourism industry to ensure that these

remarkable results are maintained. By listening better to

clients we can ensure optimal reputation management

by communicating better, adapting current offer and

introducing new products and services accordingly.

TOURIST’S PERCEPTIONS OF MALTA Destination Malta exceeds the expectations of around

1 out of every 4 tourists visiting Malta. Furthermore it

meets the expectations of the majority. Also, 9 out of

every 10 tourists would recommend Malta to friends

and relatives. Tourists describe Malta as a welcoming

destination, rich in history and culture. The destination

evokes feelings of relaxation, warmth and safety. The

colours associated with Malta by tourists are mainly

blue and yellow.

One may refer to the ‘Tourism in Malta, Facts and Figures 2016’ report for a more detailed numeric

overview, where a digital copy is available on the

MTA’s corporate website (www.mta.com.mt/research).

This MTA’s publication gives a snapshot of global and

local tourism performance for the year. In addition, it

provides a detailed overview of socio-demographic and

behavioural characteristics of tourists visiting the island.

The aim of this user-friendly publication is to facilitate

the understanding of the tourism industry in Malta for

all interested parties, including the tourism trade, public

entities, students, journalists and the population at

large.

TANIA SULTANA HAS BEEN WORKING AT THE MALTA TOURISM AUTHORITY FOR THE PAST NINETEEN YEARS AND IS CURRENTLY "HEAD OF RESEARCH" WITHIN MTA’S RESEARCH UNIT.

TANIA SULTANA

TOURISM IN MALTA – Facts and Figures 2016


TECHNICAL TECHNICAL

Under IFRS 15, revenue is recognised based on the

satisfaction of performance obligations (“PO” or “POs”).

In applying IFRS 15, entities must follow this 5 step

process:

As a result of the introduction of IFRS 15, potentially

significant changes relevant to the industry include, but

are not limited to:

• identifying separate POs in one contract;

• recognising fees received in advance such as the

receipt of membership fees;

• accounting for loyalty programmes;

• determining whether the entity is a principal or an

agent;

• the pricing mechanism especially when price

includes a variable element; and

• the impact on the accounting for breakages.

In this brief article we focus on Step 2, including the

identification of whether an entity is a principal or an

agent.

Under IFRS 15, an entity is required to identify all

POs in a contract; POs are promises to transfer goods

or services to a customer and are similar to what we

know today as ‘elements’ or ‘components’. This is of

particular relevance to operators in the industry since,

for example:

• a hotel may offer accommodation, food and

beverage, and access to the spa, fitness centre,

and pool facilities in a single contract; or

• operators in the industry may offer ‘welcome

packages’ (so-called ‘gifts’) upon signing up to a

service; or

• airlines, hotels or restaurants may offer customer

loyalty programmes.

Under IFRS 15 an entity accounts for each promised

good or service as a separate PO if the good or service

is distinct; the definition of distinct therefore becomes

critical. A good or service is distinct if both of the

following criteria are met:

• the customer can benefit from the good or service

either on its own or together with other resources

that are readily available to the customer (that is,

the good or service is capable of being distinct);

and

• the entity’s promise to transfer the good or service

to the customer is separately identifiable from

other promises in the contract (that is, the promise

to transfer the good or service is distinct within the

context of the contract).

The identification of POs might result in one of two

possible changes to current practice:

Elements for which revenue is today recognised separately need to be assessed further under IFRS 15; revenue is only recognised separately under the new standard if there exist separate POs. It is important to note that there is a deliberate focus in IFRS 15 on the customer being able to obtain a benefit for there to exist a PO.

Thus, for example, if an operator charges a booking fee, a credit card booking charge, or an administration fee, it will need to assess whether this provides the customer with a distinct PO, i.e. “the customer can benefit from the good or service either on its own”. The fact that the operator may incur administrative costs is not sufficient to conclude that a separate PO exists.

UNBUNDLINGOn the other hand, operators may need to unbundle certain POs that are contained within the same contract, which could be prevalent in memberships or in loyalty programmes.

BUNDLING

IFRS 15 – Some practical issues relevant to the Travel,

Hospitality and Leisure Industry

IFRS 15, Revenue from Contracts with Customers contains principles relating to the measurement of revenue and timing of when it is recognised, and is effective for reporting periods beginning on or after 1 January 2018. The underlying principle is that an entity will recognise revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to. The standard could significantly change how entities recognise revenue, and it also results in a significant increase in the volume of financial statement disclosures.

DAVID LEONE GANADO IS A SENIOR MANAGER IN PWC MALTA'S ACCOUNTING ADVISORY SERVICES. HE HAS, OVER THE PAST DECADE, SPECIALISED IN IFRS.

DAVID LEONE GANADO


TECHNICAL

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INVESTMENT CENTRES A4.indd 1 05/04/2016 15:11

MEMBERSHIPS

Membership fees are common in the industry and IFRS

15 contains specific guidance on how to account for such

fees; operators first need to identify whether separate

POs exist in the contract. Although the upfront fee is

today already viewed as an advance payment for future

goods or services and is recognised as revenue when

the future goods or services are provided (Step 5 of

IFRS 15), unbundling may first be required if customers

also receive distinct goods or services upon signing up,

for example a travel or gym bag. In such a case, the

operator is required to allocate the transaction price to

the different POs (Step 4), and then recognise revenue

in the income statement separately for each PO (Step 5).

LOYALTY PROGRAMMES

Hotels, restaurants, and airlines often offer a loyalty

programme whereby customers would have the option

of redeeming points by getting a discount (of up to

100%) on future purchases of flights, accommodation

or meals. Essentially, the customers would be paying for

part of the future purchases through the consideration

for the original transaction, and therefore a portion of

the transaction price would need to be allocated to the

future purchases. As an example, if a restaurant offers a

10th meal for ‘free’ after previously purchasing 9 meals,

then a portion of the consideration collected for the

first 9 meals is deferred and subsequently recognised as

revenue when control over the separate PO (the 10th

meal) is transferred to the customer.

It follows from the above discussions that operators in

the industry also experience what is referred to in IFRS

15 as breakage. This is where the operator receives

an upfront, non-refundable fee (or it defers part of

the consideration from the initial transaction(s) in a

customer loyalty programme) and the customer does

not exercise the right to access future goods or services

at a discount. Operators will recognise the expected

breakage amount as revenue in proportion to the

rights exercised by the customer, or when the right is

terminated (for example through expiry).

PRINCIPAL VS AGENT

When an arrangement involves two or more unrelated

parties that contribute to providing a specified good

or service to a customer, management will need to

determine whether the entity has promised to provide

the specified good or service itself (as a principal), or

to arrange (as an agent) for those specified goods or

services to be provided by another party. Determining

whether an entity is the principal or an agent is not a

policy choice.

Like IAS 18 before it, IFRS 15 includes indicators that,

although written from the perspective of transfer of

control over POs, are broadly similar to the guidance

in IAS 18. IFRS 15 however adds perhaps the most

obvious indicator that an entity is an agent, namely

that the entity’s consideration is in the form of a

commission. Thus, if a tour operator which sells hotel

accommodation:

• facilitates payment between the hotels and the

customers at prices that are set by the hotels;

• requires payment from customers before orders

are processed and all orders are non-refundable;

• has no further obligations to the customer after

arranging for the accommodation to be provided

to the customer (essentially having acted as an

introducer and a payment collection agent); and

• is entitled to a commission upon booking of

accommodation

the entity would generally be concluded to be an agent

for the hotel, and would only recognise the commission

as income.

This article is not all-inclusive. Operators will therefore

need to carefully assess their revenue streams and the

impact that IFRS 15 will have, including how the 5-step

model might affect current business activities, and how

the other four steps impact revenue recognition.


The above is a quote which I have embraced as my standard working guide ever since I came across it in one of the many books/articles on Internal Auditing. I find that it has a dual meaning and purpose at least in my specific case. It firstly encapsulates the essence and raison d'être of what I do - Internal Audit and secondly it describes as the Italians would aptly say … ‘a pennello’ what the hospitality business is all about.

Let us face it, although the hospitality sector in Malta is undoubtedly one of the pillars of the economy it is also an industry where competition is particularly intense and keeping up with the Joneses is not a simple euphemism… all this in a never-ending bid to attract clients with money... mind you... globally it is not much better.

Symptomatic of the hospitality environment are words such as luxury, good food and all year entertainment. Whilst however, this may well be the all end game, the reality behind these trademark connotations are endless hours of hard work and increasing operational and financial risks.

WHAT MAKES A HOTEL OR A RESTAURANT A GRADE ABOVE THE REST?Is it the quality of food, location, service, room or restaurant décor, staff hospitality or efficiency in dealing with clients’ requirements/complaints whether the latter are on holiday or business? Or is it the overall good experience that the client takes with him/her?

This drives me once again to my guiding quote where the fine balance between a positive or negative experience

can be expressed as the correlation between the money paid and the perceived experience that one expects to receive.

Among the major reasons why hospitality companies are being exposed to high levels of risk and possibly fraud is that the industry’s culture frequently emphasises customer service over internal controls. Hotel or restaurant managers naturally want to spend most of their time meeting and greeting guests rather than authorising purchases, guest refund requests, monitoring check-ins, approving complimentaries, monitoring energy usage or marketing costs, scrutinising payroll costs and the efficient deployment of employees, etc.,

Line employees, supervisors, managers and senior executives are often so narrowly focused and ingrained on getting repeat clients that financial and operational controls inevitably go down the pecking order.

In such an environment, what is the real role of the Internal Auditor - Is it one which should be inward looking and focused solely on the internal environment with emphasis on internal controls and maximisation of returns or should it be outward looking ensuring that the client receives a positive experience through established internal practices that focus on maximising the client experience?

A BALANCED MIX OF BOTHWhile customer service is indeed the ultimate factor determining if a hospitality property sinks or swims, neglecting anti-fraud controls is bound to shrink the bottom line …. no matter how wonderful guests think their visits are.

The challenge to achieve a balance between the quest for premium customer service and the unavoidable necessity to keep hard-earned revenues from flowing out through exploitation of inadequate internal controls and the loss of potential opportunity for growth is sometimes draconian.

THE BIGGEST CHALLENGE – GROWTH! Globally but particularly in Malta hospitality is an industry experiencing both great success and at the same time undergoing tremendous transformation. However, differences in purposes and markets, integrated IT systems and continuously emerging technologies, loyalty programs, challenges associated with increasing concerns over cyber security, terrorism, employment of foreign casual workers, the environment, socio economic concerns, etc., are just a few of the real risks to this industry.

Acquisitive behaviour is driving the need for more shared services and greater integration across systems. Expansion to global markets, demands new ways of approaching operations to address differences in the level and types of products and services.

While this growth is positive, it drives important changes for the way internal audit is conducted. The internal auditor must shift the operational focus, devise and leverage new controls with finite resources and manage risk across a greater number of properties and operators.

By looking beyond processes and controls, the internal auditor can with the holistic knowledge which is garnered through indirect involvement in day to day operational issues [through fieldwork reviews] and direct interaction with management, audit committees and boards play an essential advisory role within the hospitality sector. It can identify enterprise-wide cost efficiencies, provide strategic insights that improve business performance and provide key insights that focus on the risks that matter. This kind of support reaps multiple benefits for the organisation, including enhanced efficiency, and the ability to move more quickly and to take advantage of opportunities.

TECHNOLOGY IS TRANSFORMING THE INDUSTRY ON BOTH SIDES OF THE EQUATIONTechnology is rapidly changing the way business is analysed and conducted. Integration of systems is critical with data which is available in one place, an advantage at all levels, including increased reliance on cloud technologies to merge and streamline reservation systems and other core back-end functions.

Technology is also changing the face of the customer experience and of loyalty programmes. Customers increasingly want more for less and they want it faster - booking.com, Expedia, trivago, etc., are just to mention a few of the game changers. Opportunities abound for the customer to explore what is available and to compare and evaluate not only what is on offer locally but also beyond our shores. These opportunities

EUGENIO PRIVITELLI HAS BEEN WORKING WITH THE CORINTHIA GROUP OF COMPANIES FOR OVER 30 YEARS.

HE WAS A COFOUNDER AND FIRST CHAIRMAN OF THE MALTA FORUM FOR INTERNAL AUDITORS

EUGENIO PRIVITELLI

The Role of the Internal Auditor in the Hospitality Industry

"A man with money met a man with experience – the man with the experience ended up with the money, the man with the money ended up with the experience".

Anonymous

1 RGI (Revenue Generated Index), MPI (Market Penetration Index), ARI (Average Rate Index), RevPar (Revenue per Available Room), ARR (Average Room Rate), RevPAC (Revenue per Available Cover)

require new methods not only for securing transactions but also for tracking and assessing them.

INFORMATION IS CRITICALThe amount of information available is both critical and dangerous with the not so remote possibility of easily losing focus in the ever increasing quagmire of data at the disposal of management. The internal auditor needs data to assess ROI, identify patterns and trends around fraud and help the business react to and predict performance – those in the industry would immediately acknowledge that knowing your RGI, MPI, ARI, RevPar, ARR, RevPAC1, cost-of-sales, stock turnover, average spent per guest etc., are all essential benchmarks.

Analytics play an increasing role in mitigating risk, particularly around loyalty programs. If one has smart systems in place, one can continue to transform processes to manage these risks. It takes a broad IT effort, significant investment and a deep understanding of the business process to achieve this. At the same time this transformation is calling for a natural transformation of the internal auditor.

WHAT IS NEEDED FROM THE INTERNAL AUDITOR TO REALISE THIS TRANSFORMATION?The days when the primary focus was on compliance is over and has opened an incredible opportunity and responsibility for the internal auditor to become a critical partner to the industry, helping operators in the market understand if they are going about addressing the changes they face in the right way. This means not only assessing the effectiveness of control and risk mitigation of revenue leakages at the point of sale (POS) or analysing the efficiency and consistent standard of service of outsourcing arrangements (casual/contracted local/foreign employees – have become a common occurrence in Malta) but also participating proactively in the design of new plans and programs. The internal auditor can provide a measure of reassurance to internal and external stakeholders that

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internal control frameworks are adequately designed and operating effectively by:• Aligning itself with the organisation’s key business

objectives;• Improving audit efficiency and effectiveness, and

streamlining processes to drive cost savings;• Offering broader risk coverage and be proactive

about current and emerging risks;• Enabling cost efficiencies across all functional

areas;• Identifying and employing the right internal and

external skills; and• Creating competitive advantage by contributing

to sustainable business improvements.

WHAT ARE THE PITFALLS?Diversity – The diversity of the complex issues in the hospitality industry right from rate contracting to pricing strategies, market penetration, engineering, marketing, service delivery, security, IT knowledge, etc., are taxing on the internal auditor who is required to keep abreast of the ever-changing developments in these areas if he wants to add value to the organisation.

IT complexity – The complexity of the information systems with different systems used for various processes/departments such as Opera for PMS, Micros for Food & Beverage, Materials Control (MC) for

stores/purchasing, SUN or SAP for financials, etc., In the absence of one Enterprise Resource Planning (ERP) platform, auditing various systems can be complex.

Risk profiling – The uncertainties of risk profiling due to the unpredictability of the industry performance increases the difficulty to plan what risks to audit around with completely new risks emerging which can be far from home than one could imagine.

WHAT ARE THE OPPORTUNITIES? One expects that the hospitality industry will continue to transform itself at incredible speed, in both predictable and unexpected ways, well in the future. The internal auditor has an opportunity to exploit this moment and serve as a dynamic partner to the business. He/she is at a vantage point to act as a strong ally who is already well equipped to support and contribute to innovation and change.

It is vital that the internal auditor provides assurance over systems and controls and gives guidance that is both commercial and adds value. Whilst ways to save costs or increase income and meet regulatory and governance needs is a sine-qua-non, one cannot ignore the fact that especially in the hospitality sector the client is the one with the money and the one who ends up with the experience.

The tourism industry has long been one of the main pillars of the Maltese economy, generating income and employment for thousands of Maltese families. The industry as we know it today has come a long way, breaking new ground and reaching record levels of tourist arrivals and overall industry performance. Over the years, the industry has managed to continue to reinvent itself by growing niche markets such as language travel, diving and conference and incentive travel. The profile of visiting tourists has continued to evolve and become more diverse and less dependent on the traditional core inbound UK, German and Italian markets.

In 1974, the year in which AirMalta was set up, the

Maltese Islands welcomed 272,516 tourists. Last

year, Malta received just under two million tourists.

An impressive result for a country the size of Malta.

Between 2006 and 2016 the number of tourist arrivals

increased by 75%. As a result of shorter average length

of stay tourist guest nights increased to a lesser extent

by 42% to reach just under 15 million guest nights in

2016. Tourist expenditure, increased by more than €724

million during this last decade, with €1.7 billion spent

during 2016.

These results would not have been achieved were it

not for the commitment of all stakeholders involved in

the sector, who despite having their own interests to

safeguard, all worked together in making the tourism

industry a success story for Malta.

A key contributory factor driving these results has

undoubtedly been Malta’s increased connectivity to

the rest of the world and the ease with which tourists

can now travel to Malta. MIA statistics report that the

number of aircraft movements increased by 29% during

the past 10 years. The number of airlines operating to

Malta reached more than 40 in 2016. The increase in the

number of carriers flying to Malta has not only resulted

in a very significant increase in carrying capacity but

has also allowed Ryanair to establish itself as the carrier

bringing in most passengers.

The Hospitality Industry – Reaching New Heights

TOURIST ARRIVALS

GUEST NIGHTS

EXPENDITURE BY TOURIST

1,124,233

10,502,988

€ 984,041,463

1,965,928

14,961,000

€ 1,708,951,000

841,695

4,458,012

€ 724,909,537

75%

42%

74%

RAPHAEL ALOSIO HOLDS THE POST OF FINANCIAL ADVISORY LEADER AT DELOITTE MALTA. HE HAS BEEN IN PRIVATE PRACTICE FOR OVER 30 YEARS AND HAS BEEN WITH DELOITTE SINCE 1987.

RAPHAEL ALOSIO

2006 2016 CHANGE: 16 VS. 06 % CHANGE


18 Summer 2017

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These positive trends are translating into significantly

improved operational performance for hoteliers and all

other sectors which are dependent on the performance

of the tourism sector.

Deloitte Malta has been reporting on the performance

of the hotel sector for more than 25 years. Over the

period, the sector has faced some tough challenges

especially in the wake and aftermath of the global

financial and economic crisis. Profit levels had taken the

brunt of the crisis and for some time the outlook was

bleak. As carrying capacity improved and tourist arrivals

increased, hotel performance began to steadily improve.

2016 was a very strong year for the hotels sector.

Between 2006 and 2016, hotel occupancy rates

increased by more than 12 percentage points while the

average daily rate (ADR) increased from €89 in 2006 to

€141 in 2016 for the 5-star category and from €37 to

€72 in the 4-star category .

Hotels profitability has also improved significantly and

hotels have managed to pull themselves away from the

rather bleak and precarious prospects they were facing

less than 10 years ago. Following a period of recovery,

in the aftermath of the international economic crisis,

hotel profits have improved steadily, more so in recent

years. In 2016, 5-star hotels registered an annual gross

operating profit per available room (GOPAR) of €21,362

TOP 10 AIRLINES Passenger movement 2006 TOP 10 AIRLINES Passenger movement 2016

Air Malta

British Jet

Alitalia

British Airways

Lufthansa

Emirates

Thomson Fly

Thomas Cook Airlines

First Choice Airways

MyTravel Airways

Ryanair

Air Malta

Easyjet

Lufthansa

Wizz Air Hungary

Turkish Airlines

Alitalia

Emirates

British Airways

Vueling Airlines

1,612,926

151,268

147,458

127,078

111,638

54,193

51,115

44,102

38,301

34,503

1,731,881

1,600,408

279,266

230,965

177,420

132,521

111,504

88,329

80,024

73,131

1

2

3

4

5

6

7

8

9

10

1

2

3

4

5

6

7

8

9

10

4-STAR KPI 2006 2016 5-STAR KPI 2006 2016

Occupancy

ADR

RevPAR

Direct costs PAR

Indirect Overheads PAR

Annual GOPAR

GOP margin

Occupancy

ADR

RevPAR

Direct costs PAR

Indirect Overheads PAR

Annual GOPAR

GOP margin

70%

€37

€50

€5

€9

€3,697

20%

63%

€89

€108

€14

€21

€7,615

19%

82%

€72

€86

€9

€11

€13,655

42%

76%

€141

€160

€19

€25

€21,362

36%

while 4-star hotels had an annual GOPAR of €13,655.

Over the ten year period between 2006 and 2016,

5-star and 4-star hotels in Malta increased their average

GOPAR by close to three times.

While these results are clearly satisfactory and all

indications point towards sustained growth for the hotel

industry in 2017, the tourism sector remains a cyclical

industry which is highly impacted by both internal and

external factors which may be outside its control.

Malta’s strong tourism performance has not been

exclusive to our islands, as most other competing

European Mediterranean destinations have also

reported strong tourism growth and performance

on the back of the misfortunes of other traditional

competing destinations facing internal unrest. For this

reason our success cannot be taken for granted as it is

only a matter of time before these other destinations

bounce back.

Whilst reported revenues and profits have been steadily

improving, direct costs and indirect overheads have

also increased during this period. In addition, hoteliers

are clearly facing increasing challenges when it comes

to recruitment and most operators are having to

increasingly resort to the employment of non-Maltese

nationals on a less permanent basis.

A closer analysis of the tourist arrivals figures shows

an evident shift from tourist staying in collective

accommodation (hotels, apart-hotels, guest houses

and hostels) towards private accommodation (holiday

furnished premises, host families, use of private

residence, and staying with relatives or friends). This

shift in tourist preference could have an impact on hotel

performance if the growth in tourist numbers begins to

subside. In 2006 the share of tourists opting for private

accommodation represented 30% of the total guest

nights compared to a very significant 41% in 2016.

Unquestionably, Malta should be proud of its

achievements in tourism over the years. Having said

this, the sector cannot afford to rest on the laurels of

these successes and must remain focused and reactive

to issues as they emerge. It is our conviction that if

everyone continues to pull in the same direction the

industry will continue to progress in the months ahead.

GLENN FENECH IS A MANAGER AT DELOITTE MALTA. HE IS AN ECONOMIST BY PROFESSION PROVIDING ECONOMIC ADVISORY SERVICES AND LEADING DELOITTE’S MARKET INTELLIGENCE ARM.

GLENN FENECH

AIRCRAFT MOVEMENT 2006 27,832 % CHANGE: 16 vs. 06 29%AIRCRAFT MOVEMENT 2016 35,800

FEATURE: HOSPITALITY


TECHNICAL

MAZARS: IT’S NOT A FIRST JOB IT’S A FIRST STEP...

YOUR YEARS AT MAZARS YEARS THAT COUNT.

INCOME TAXAt the outset, following amendments made to our

Income Tax Act some years ago, investments in hotels

do qualify as an investment which can attract capital

allowances. This in itself is a fair deduction and attempts

to compensate the hotel owner for the investment made

in the hotel. Moreover, given that investments made to

refurbish a hotel could be substantial, Investment Aid,

limited to an amount of €200,000 is available. Usually

operators of a travel insurance for example, or those

involved in the leisure industry, may not require such

a substantial investment and the Micro invest schemes

granting a pure tax credit of up to €30,000 could also

be availed of.

Recently there has also been certain debate and

discussion that a European Regional Development Fund

(ERDF) grant will be available for investments made

in boutique hotels and Palazzini. Such structures are

currently mushrooming over certain parts of the island

(mainly Valletta) and a grant to assist the investor is most

certainly welcome, and a step in the right direction.

It is also hoped that more tax incentives are designed

to try to generate further investment in certain sectors

of the Hospitality sector which so far have not really

blossomed. These include the typical “agri tourismo”

concept, which is so popular in nearby Sicily and for

which much potential exists in both Malta and Gozo.

Another possible incentive could be to extend the

favourable tax rate available for families acting as host

families, to guest houses and small unclassified hotels.

It is hoped that such a reduced rate of tax on income

would encourage further investment in these structures.

INDIRECT TAXES When it comes to indirect taxes, it is my opinion that

this sector may deserve some better treatment. At the

outset, the sector is indeed plagued by a certain degree

of bureaucracy whereby people who engage in the

provision of accommodation services to tourists do now

have quite a few compliance obligations, particularly:

• obtaining of a license issued by the Malta Tourism

Authority and payment of the applicable fees;

• VAT registration, charging 7% VAT (unless the

person is registered under article 11 of the Maltese

VAT Act as an exempt business) and fulfilling of the

relevant VAT compliance obligations;

• registration for Environmental Contribution

purposes, applying a charge of EUR0.50 per

person over 18 years of age, per bed night (subject

to a maximum of EUR5.00) and fulfilling of the

relevant Environmental Contribution compliance

obligations;

Another point to mention, which this time is positive, is

the fact that this sector does have an advantageous rate

of VAT of 5% which is applicable on the sale of tickets

for admission to museums, concerts, art exhibitions

and theatres. Unfortunately however, through Maltese

case law, a question has been raised as to whether an

audio-visual experience in a Museum constitutes a

supply services which benefits from a reduced rate or

the viewing of a film, which is subject to VAT at the full

rates. The Court had concluded that VAT at the full rate

of 18% should apply in this respect.

Another important and critical VAT consideration in

connection with travel and related services is that

certain jurisdictions may not be applying the TOMS

(Tour Operators’ Margin Scheme) as the VAT Directive

conceived this idea. This has led to situations where

Maltese operators in this industry, when competing

internationally to attract a conference to Malta, for

example, have been in a disadvantageous position

because other Member States have given a more liberal

interpretation on how the TOMS is to be applied.

To sum up, whereas incentives are certainly available in

our tax laws in this sector and whereas the adoption of

a reduced rate of VAT for certain services forming part of

this sector have helped this tourism and entertainment

sector flourish the implementation of new ERDF

schemes and VAT initiatives would be welcome.

PAUL GIGLIO IS A TAXATION AND ASSURANCE PARTNER AT MAZARS MALTA. HE IS ALSO AN ACTIVE MEMBER IN VARIOUS SUB-COMMITTEES OF THE INSTITUTE.

PAUL GIGLIO

The Travel, Hospitality and Leisure Industry constitute a very important economic pillar of the Maltese Industry. Based on official statistics, in 2015 this industry contributed directly to around 14% of Malta’s GDP and when one also includes the wholesale sector to this industry, the contribution to GDP is a staggering 23%. Thus given the importance that this industry has in our economy, it comes as no surprise that there are indeed certain tax benefits, available under Maltese laws to assist and promote such a sector.

VAT and Income tax aspects in the Travel, Hospitality and Leisure Industry


Customer experiences and engagement are today at the very heart of marketing management and, for hospitality businesses, establishing a customer first approach is critically important in differentiating brands. Getting close to the customer is crucial for profitable growth, to build brand strength and brand advocacy. This means that priority setting is determined by the consumer, not by what business thinks is best and “consumer centricity is a journey”.

Don Peppers and Martha Rogers, in Return on Customer, state that customer experience is the single most important factor for business success and "the only value ever created is value that comes from customers — those you have now and will have in the future."

With Digital and Social media, brands are owned by customers and insight into customer behaviour allows propositions to be built that really work for consumers.

To the customer, value is not the same as price, fluctuating and often a matter of perception, but important when there is little differentiation. Points of difference are required to create a competitive edge. Hospitality needs to add value to the proposition so that price is not the key differentiator and hoteliers must create value perceived or real in the mind of the consumer.

Meeting expectations is no longer acceptable such is competition today, as customer value expectations have grown due to rapidly changing technology. Brands need to become “experience providers”.

How does one add value? By providing an unforgettable experience through personalisation, a concept at the very heart of the hospitality industry: the art of making people feel at home. Personalisation and data driven marketing are today two of the top three trends and, personalizing the guest journey, can create a better

experience but starts with truly knowing your guests; each will be different.

Research shows that hospitality and a personalized guest experience are the prime reasons why guests return.

Most hospitality businesses use guest data mainly for simple marketing, largely being driven at the property level and not as much at the brand level. And they’re using it to communicate with guests before their stay from a marketing perspective.

Successful hotels are those that have a policy on managing customer data. There are guests that are looking to be loyal, but won’t be driven by some promise of points and free stays. Loyalty will be driven by exceptional ‘wow’ moments, experiences and hospitality organizations that understand what they’re looking for but only if you have a really solid guest profiles. It takes more than typical hotel brand values like convenience and comfort to elicit loyalty.

With a modular, component-based platform, hoteliers can collect important profile and other data about customers, marry the multiple sources to deliver valuable guest information to them, focus on creating an unforgettable brand and added-value personalized guest experiences, exceeding guest expectations. For hotels, the way the guest feels is always at the centre of the brand experience.

Guests consider their stay experience as excellent when they are convinced that they received more value than they expected. Going the extra mile should be the norm.

Hotels can define a core set of elements that are always in play, but no two guest experiences will be exactly alike, even if they always feel like they’re coming from the same brand.

You can now get to know your key customers, their personal favourites in terms of food, facilities, activity preferences, any special plans for the night/weekend. What did the guest order for meals etc. Details about their birthdays, anniversaries, job title, current employer, etc which are all easily available. Spending time with customers is the most important activity of any manager and, If the guest says something worth remembering for a next visit, then it should be recorded so the next visit can be made better.

Technology and data can help employees who often must use their own initiative to identify what needs to be done when necessary and appropriate. If they wait until they are told, or follow only prescribed actions, they will be both inefficient and ineffective. One can always affect

the outcome positively by being pro-active, anticipating the next best step and acting with a sense of urgency.

THE JOURNEY EXPERIENCEPerfecting customer experiences should be a businesses’ top priority as it provides measurable returns on such investments.

Hospitality businesses have long emphasized individual touch points: moments when customers interact with staff. Most measure customers’ satisfaction with each interaction, involving different parts of the organisation, and it is normal for business to maximise customer satisfaction by perfecting such touch points.

In the Harvard Business Review, Mckinsey identified this as insufficient; maximizing satisfaction at those moments diverts attention from the bigger and more important picture: the customer’s end-to-end (purchasing) experience, the sum of all hospitality interactions a customer has. Their research showed that customers didn’t much care about these singular touch points.

Hospitality businesses operate with a narrower view. Some define it as customer service or service excellence, representing only a fraction of the interactions with customers and that service is only one element of the total experience, resulting in it being unmemorable and undifferentiated. For hospitality brands, the way the guest feels is central to the brand experience provided. You can define a core set of elements that are always in play, but no two guest experiences will be exactly alike, even if they always feel like they’re coming from the same brand.

Mckinsey shows that even with the correct, complete view of customer experience, businesses may lack the proper tools to help them design and manage their total approach. Exceptional hospitality requires that customer journeys are embed into operating models by mapping guest experiences to earn extraordinary brand devotion.

MAPPING THE JOURNEYS To transform the overall customer experience, the hospitality trade needs to create a detailed road map for each service from start to finish, considering the business impact of optimizing the journey a plan of action and resources required.

Management can then identify the customer’s experience with various journeys and decide which ones to prioritize. Mapping will identify current performance and expose departures from the ideal customer experience and their causes; root causes of poor customer experience are internal, often from cross-functional disconnects.

REDESIGNING THE EXPERIENCE Analysing journeys and redesigning service processes get a business only so far. Viewing a journey from start to finish is a powerful learning experience; normally no single group has visibility or accountability for the entire experience, thus unable to recognize shortcomings.

A customer end to end process includes many customer interactions involving complex handoffs between internal groups, creating multiple places where things can go wrong.

Mapping can bring about an operational and cultural shift that engages the organization across functions and from top to bottom which can generate innovation and a focus on continuous improvement. It creates a culture that’s hard to build otherwise and a true competitive advantage goes to those that get it right: modifying the organization and its processes to deliver excellent journeys, changing mind sets at all levels and to sustain initiatives.

To map a brand’s blueprint, one looks at what makes it truly unique at its core—the key brand expressions, guest interactions, perks, and amenities that make a service brand what it is-and cross-reference that with guest expectations, feedback, operational feasibility, and strategic plans of competing in an increasingly crowded and competitive hospitality marketplace.

The resulting “Experience Map,” and its touchpoints, are structured around anticipating needs rather than prescribing formulaic solutions. The map backed by supporting detail, provides vision and guidance of a guest’s chronology of experience, from booking and arrival, to the stay itself, through check-out and departure.

It’s pivotal as a guide for employees in their work, ranging from developing on-property experiences, to interacting with guests. It provides them both clarity of purpose and the space and freedom to execute in their own personal touch.

The Experience Map is a paradigm, not a formula to replicate the same experience with factory-like consistency, but to provide a framework to showcase a unique brand personality.

THE JOURNEY NEVER ENDSIt’s a pursuit that isn’t simply solved once and then forgotten; even the clearest, most thoughtful documentation and training needs continual maintenance. The Map doesn’t tell employees everything to do in every situation; it gives them basic tools and a clear understanding of how they want the customer to feel in each situation.

LOUIS NAUDI IS THE CHARTERED INSTITUTE OF MARKETING AMBASSADOR FOR MALTA & HON. PROFESSOR & FELLOW OF THE CHARTERED INSTITUTE OF MARKETING.

LOUIS NAUDI

IT’S WHAT YOU DO, Not What You Promise Which

Matters Today in Hospitality

“Marketers must harness technology but the fundamental skills are the same in hospitality - understanding customer needs, to innovate in response and deliver in engaging ways.”



Q. Most successful hotels, like any other

businesses, rely on fundamental management

principles to enable them to maximize their

property profitably. The keys to financial

success include an annual budget, detailed

financial tracking model, ongoing audits and

reporting structure. Would the same principles

in hotel financial management apply to a hotel

which relates to a chain and to an independent

hotel?

A. Yes – the principles in general are the same and

an independent hotel stands to benefit from having

a similar structure to that of a hotel forming part of a

chain.

The purpose and benefits of budgetary planning and

control process include:

• Establishing financial and organisational objectives

through discussions between hotel owners and

hotel senior managers.

• Communicating objectives and plans.

• Planning and coordinating operations through

discussions between hotel senior and middle

management.

• Participating in the budget process motivates

managers and employees - they get to “own” the

budget.

• Measuring and controlling organizational

performance.

• Evaluating managerial performance which is linked

to a reward structure. This stimulates superior

performance.

It is fundamental that heads of departments are

conversant with budgets and financial information

in general and it is the role of the management team

to train, explain and support heads of departments

in the use of financial information. The finance team

of any hotel should hold monthly meetings with key

departments to analyze profit and loss results and

discuss short term future operational and financial

expectations. The finance department of any hotel, just

like that of any other company, needs to position itself

as a financial consultant to other department heads as

these evaluate fresh models of how to enhance revenue

and/or explore ways to reduce costs.

Q. Revenue management has made its way

from the airline industry into the lodging

sector. The five pillars of revenue management

are (a) segmentation and customer knowledge,

(b) capacity management, (c) forecasting and

overbooking, (d) channel management and

distribution, (e) pricing strategies. Could you

describe to the readers of ‘The Accountant’

how a hotel forming part of a chain, practises

revenue management?

A. Indeed revenue management is one of the key

pillars of our organisation and vital to the success of the

operation. It is all about the basic concept of maximising

demand and a given supply and thus optimising our

yield. In order to do this, the gathering of market

information, historical information and having the right

tools to analyse the business trends are all critical to

help us adopt the right strategies and making the right

decisions in maximising revenues. Being part of a chain

helps us to gain synergy from a Central Reservation

Systems and our loyalty program.

Our international sales offices also focus on low periods

and support the individual hotels. Tapping such a

resource, sharing the right information and proper

forecasting are important elements to ensure that

central marketing campaigns are effective and essential

to drive business home. Revenue management is not

something to be visited once a month but it has to be

practiced in real time, all the time.

In our industry, certainly the 5 star hotels, revenue

management normally falls under the remit of the

revenue department, often headed by the director for

business development. The function is fully embraced

and supported by the general manager. The critical

role of the financial controller is to review, challenge

the numbers, look at the overall picture and give

constructive feedback.

Q. Do independent hotels follow the revenue

management regime?

A. Yes independent hotels also have a revenue

management regime in place. This includes:

(a) segmentation and customer knowledge

• Segmentation by source: individuals, leisure

groups, meetings, incentives, conferencing and

exhibitions (MICE); online, direct.

• Segmentation by country: mainly UK, Germany,

France, Benelux, Scandinavia, Italy.

• Using internet and social media to interact with our

customers, as well as following customer reviews

of our own hotel and competitors’.

(b) capacity management & (c) forecasting and overbooking

It’s a balancing act between lowering rates to secure

business earlier than competitors versus retaining

higher rates with the prospect of achieving superior

room rates, but risking a lower occupancy which might

ultimately result in lower revenues than the previous

option. The stance adopted along this spectrum

depends on the business outlook perceived by the sales

and marketing department and risk appetite of the

management team.

(d) channel management and distribution We endeavour to increase the number of tour operators,

liaise with Destination Management Companies (DMCs)

for meetings, incentives, conferences and exhibitions;

participation in sales trips and travel fairs to establish

direct business connections, investment in technology

to grow the online segment which allows us to set

room rates in the short term depending on the market’s

current supply and demand.

(e) pricing strategiesApart from the seasonality aspect which translates into

higher rates in summer, the vast amount of information

on room rates available on the internet (both ours and

that of our competitors), makes it more difficult to

charge rates which are much different from those of

our competitors or different rates to different operators

based on the perceived affluence of their target market.

Any pricing differences stem from qualitative factors

such as differences in the manner tour operators

package their offers, the hotel’s “augmented services”

-free WIFI, free safe deposit boxes, “free upgrades” to

sea-view rooms, etc. or the discount schemes (loyalty or

early booking discounts) and the commission structure

agreed with the tour operators and DMCs.

Q. What are your suggestions to financial

managers working within an independent

hotel, in terms of best practices in revenue

management for 2017?

A. In the current business environment where tourism

figures have been increasing year after year for the

past five years, our common goal as hoteliers should

be to keep building on our achievements by nurturing

profitable relationships with our business partners

and engaging in healthy competition through product

development and quality enhancement rather than

undermine the entire industry through aggressive price

competition. This would be more so important for

when there is a dip in the business cyclical which would

increase the pressure to reduce room rates, as these

might then take a number of years to recover.

Financial Management: Best practices in the hospitality industry


IAN BONELLO HAS 20 YEARS EXPERIENCE IN HOSPITALITY FINANCIAL MANAGEMENT AND IS CURRENTLY THE FINANCIAL CONTROLLER AT THE DOLMEN RESORT HOTEL.

IAN BONELLO

LORNA CAMILLERI-BONNICI IS THE DIRECTOR OF FINANCE AT THE HILTON MALTA WITH OVER 20 YEARS OF EXPERIENCE WORKING IN THE TRAVEL AND HOSPITALITY INDUSTRIES.

RAY SLADDEN IS THE GROUP FINANCE DIRECTOR AND COMPANY SECRETARY OF TUMAS GROUP

LORNA CAMILLERI-BONNICI

RAY SLADDEN

The technical team of the Malta Institute of Accountants, interviews the Finance Director of Hilton Malta, Ms Lorna Bonnici, Mr Ian Bonello, the Financial Controller of Dolmen Resort Hotel and Mr Ray Sladden, Group Finance Director & Company Secretary of Tumas Group.


proper control and management of our assets within

our direct control. It is one big continuous circle – by

exceeding guest expectations, we will drive our RevPar

results and through proper cost management, we

maximise our owners’ return and hence the return on

Investment….which in turn leads to reinvestment in the

property.

As an independent hotel, forming part of larger group

of companies which has been a pioneer in Malta’s

hospitality industry and has now evolved into a

diversified group with a sterling reputation with its local

and foreign business partners, allows us to pool our

resources to enjoy synergies and economies of scale

in certain areas like purchasing, financing and project

management. This has to be assessed on a holistic

basis, as with any other asset we need to ensure a

satisfactory return as we compete for capital resources

which from an owner’s perspective can alternatively

also be assigned elsewhere. Of course our approach is

for continuous asset renewal & upgrading so as to score

goals and actually make the expected return. This will

enable the shareholders to put more money into these

assets. In all, we need to deliver enterprise value to our

owners essentially by exceeding customer expectations,

thereby maximising revenue while retaining appropriate

cost control.

Q. What is your advice from a financial

manager’s perspective to the hotel industry in

Malta for the near future?

A. Like any other business, in order for a hotel to

thrive, grow and be successful, there needs to be a

solid structure and backbone to sustain the operation.

Having excellent facilities for the end product is key but

without the know how to manage and maximise the

use of these assets, they will fall apart. Investing in the

right people to run the business, working with various

partners such as MTA, Malta Enterprise and Airmalta,

knowing our customers, knowing our market, managing

our revenues, a pro-active credit control function and

perpetual cash-flow management, investing in modern

tools and technology, having well trained team members

(both front and back of house), and having sound

internal control processes to support any operation, is

key to the success of any hotel/business. We definitely

need to be innovative and keen on embracing new

techniques and systems ensuring a total customer

focus. It is ultimately all these factors woven together

that sow the seeds of success.

FEATURE

Q. How can revenue management assist an

independent hotel in times of weaker demand?

A. It is only through revenue management, that any

hotel (whether independent or part of a chain) can

protect and potentially grow its fair market share

and RevPar index (revenue per available room). The

stronger the hotel’s knowledge about the customer,

segmentation, capacity, and competition, the better

equipped a hotel is in making the right decision and thus

maximizing on its yielding potential. In tandem with a

thorough understanding of the hotel’s cost structure,

management would be able to retain an adequate

margin of profit to ensure the sustainability of the

property in challenging times.

Q. Do you agree that pricing strategy is one

of the most important of the previously

mentioned pillars?

A. Indeed, the correct pricing strategy for each market

segmentation is critical. An incorrect pricing strategy

immediately leads to ultimate loss of revenues / RevPar,

and hence, repercussions. However, the negative

effects of incorrect pricing strategies tend to have a

much longer term impact on the business. One must

keep in mind that our product is a perishable one and

its sell-by date is gone immediately the day is over.

Q. What does asset management mean in the

hotel/hospitality industry?

A. Asset management for the hotel industry is maximising

our return from the way we run the business. It is a

systematic approach to manage our assets and identify

business improvement opportunities. The asset itself

ranges from the actual tangible product (the rooms;

restaurants ; meeting rooms ; public areas; recreational

facilities, IT systems), to the service provided by our

frontline employees who are central in ensuring that the

hotels’ guests enjoy a memorable experience.

Q. What type of business model should a hotel

forming part of a chain and an independent

hotel follow on asset management?

A. Due to its various brands a hotel forming part of a

chain has to adapt to various business models – ranging

from owned/ leased properties; managed or franchised.

Following the managed hotel business model requires

that we represent our brand - to fulfil the brand promise

and provide consistency of product and quality through




Tourism has over the years developed into

a major sector of the Maltese Economy.

Most tourism activity has revolved around

conventional Sand, Sun and Sea (3S) tourism

with sandy beaches being highly sought after.

Yet new trends in Europe and across the globe

and the desire to travel green and visit remote

and pristine environments have led to the

development of new niches which are nature

based or nature related.

The link between tourism and the environment is

not new in the Maltese Islands. One would not be

too presumptuous to say that the environment was a

major element that kicked off tourism in Malta. The

latter started to develop in the 1950s at a time when

the island served as a military base. Several from the

United Kingdom (UK) used to visit their relatives on duty

on the island whereas others who served on the islands

used to return with their families. Within villages, local

fishermen marketed tours on board their traditional

boats among such tourists. The excursion to the ‘Blue

Grotto’, nowadays a top listing (number 30 of 356) of

things to do in Malta on Trip Advisor, included visiting

the caves found in the south-eastern part of the island,

an area characterised by several interesting geological

formations which are not easily accessible by land.

Evidently, in the past, the natural environment of the

Maltese Islands, had a lot to offer and was a major

attraction. In fact, as early as in 1969, a country code for

the Maltese Islands was already prepared by the then

Natural History Society of Malta providing tips to visitors

on how to respect wildlife when visiting the country

side.

Unfortunately over the years coastal development

has impacted the environment. This has led to habitat

fragmentation and most sites ideal for environmental

tourists have become restricted to small areas. Yet

according to the Environment and Resources Authority

(ERA), over 28.5% (89.5 km2) of the Maltese islands is

protected due to one designation or another. Included

in this number one finds 13.1% of land area forming part

of the EU wide Natura 2000 network. Over the years the

number of Marine Protected Areas (MPAs) have also

increased considerably and nowadays 29.9% of Maltese

waters (3,487 km2) have been designated as MPAs.

Whereas Ecotourism is not limited to protected areas,

such sites are fundamental for those interested in this

niche. However most of these sites lack management,

enforcement, interpretation and other necessities for

tourism to flourish.

Tourism in Malta has reached almost 2 million in 2016.

The flow of tourists coupled with the high population

density of the Maltese Islands has raised concerns and

discussions on carrying capacity, especially in areas

that are environmentally sensitive. A case in point are

the masses of people visiting Comino and Blue Lagoon

during the summer period, which has led to a carrying

capacity study by ERA.

Ecotourism in Malta faces a number of challenges

including the lack of site management, lack of site

accessibility due to squatters and other illegal activities,

lack of interpretation services which is currently

limited to countryside walks and lack of nature based

packages to mention a few. Apart from development,

other impacts include illegal hunting and trapping,

aquaculture, illegal dumping and pollution of fresh

water due to agricultural activity.

On a positive note the tourist industry per se has also

become more environmentally conscious over the

years. As part of the International Year of Ecotourism

initiatives, in 2002, the national Ecolabel, was introduced

and is now being administered by the Malta Tourism

Authority (MTA). Since then this has been developed

further to reflect global sustainable tourism principles.

This ensures that environmentally aware tourists can

also sleep green in Malta in one of the accredited

hotels or in one of the accredited farmhouses in Gozo.

In recent years, a Life+ project spearheaded by the

Malta Business Bureau (MBB) has incentivised various

hotels and accommodation structures to take necessary

measures to reduce water consumption.

National Tourism Policies published over the past 15

years have increasingly given due importance to the

environment as a key aspect of the tourism product.

Gozo has also been earmarked as an eco-destination. If

due attention has been given to this element in practice,

remains a question to be answered mostly due to lack of

political will.

Other several initiatives have been taken over the

years to complement tourism and the environment.

For instance, through the project PANACEA a MPA

information centre was opened in Dwejra, Gozo to serve

as an interpretation centre on the marine environment

of the area which might be of great interest to divers

and those willing to practice snorkelling. The Majjistral

Nature and History Park has participated in the

Mediterranean Experience of Eco-Tourism (MEET) and

received advice and training on how to offer ecotourism

packages to tourists interested in nature-based

tourism, embracing interpretation and sustainability. An

underwater trail has also been developed in the area,

though this requires maintenance. The environmental

Non-Governmental Organisation Nature Trust opened a

hostel at the Xrobb l-Ghagin Park and provides guided

excursions within the park. A number of other nature

walks have also been developed such as those at Hagar

Qim and Imnajdra. The countryside walks developed

in 2002, in both Malta and Gozo have been revamped

through the ‘Malta goes Rural project’. Such walks have

proved to be very popular with tourists especially due

to the multilingual guidebooks prepared. There has

been an increase in centres including aquaria, zoos and

bird parks, which provide new opportunities for tourists

interested in the environment. Yet these have also

raised ethical concerns among the true nature-based

tourists on the bases of captivity.

A true culture change is the only way forward and what

one hopes for. Should the right incentives be taken the

Maltese Archipelago has the potential to use this as

an opportunity to attract more sustainable tourism,

generate funds to manage environmentally sensitive

and protected areas and also offer new opportunities

including green jobs to the local community.

Malta has a long way yet to go if it truly wants to attract nature-based tourism. Note should be taken of other similar central Mediterranean islands who have promoted this kind of tourism. For instance, the Spiaggia dei Conigli in Lampedusa is under strict management, limiting the number of tourists, umbrellas and activities on the beach in view of the fact that it is a yearly nesting site for the Loggerhead Turtle. Locally, good initiatives have also been taken such as at Golden Bay in Malta and Santa Marija Bay in Comino.

KARL AGIUS IS A SCIENTIST WITH A PASSION FOR TRAVELING. HE IS CURRENTLY STUDYING FOR A PHD DEGREE ON THE ECOTOURISM POTENTIAL IN CENTRAL MEDITERRANEAN ISLANDS WITH THE UNIVERSITY OF MALTA.

PROF. ALAN DEIDUN IS A MARINE BIOLOGIST ENGAGED WITHIN THE DEPARTMENT OF GEOSCIENCES OF THE UNIVERSITY OF MALTA, A FELLOW OF THE ROYAL SOCIETY OF BIOLOGY AND A DIRECTOR OF THE IOI (INTERNATIONAL OCEAN INSTITUTE) TRAINING CENTRE.

KARL AGIUS

PROF. ALAN DEIDUN

Tourism and the environment: the missing link


30 Summer 2017

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For centuries money has played a very

important role in civilised societies, and was

considered a better solution to the bartering

system. It took different forms throughout

ages and an electronic format comes as no

surprise in current times.

Electronic money (eMoney) is issued by financial

institutions having an electronic money licence, thereby

known as Electronic Money Institutions (EMIs). eMoney

is another alternative of making money transfers and/

or payments, due to the fact that they are instant

payments (which is somehow different from traditional

bank payments which commonly use SWIFT and SEPA

to transfer funds). The purpose of the introduction of

eMoney and EMIs was to increase competition and

products offered in the market and enable consumers

to benefit from lower transaction fees. A legal basis

is established in the Electronic Money Directive

(2009/110/EC), and reflected in Maltese Legislation

through the Financial Institutions Act (Cap 376 of the

Laws of Malta) under the Third Schedule.

A particular feature of EMIs is that they cannot offer

credit to their clients thus the value of eMoney is

prepaid by the customer into his/ her account prior

to making the transfer (unlike credit institutions or

financial institutions possessing a payment licence –

known as payment institutions – which can give credit

to their customers). Effectively EMIs change the form of

money (from physical to electronic) to provide a service

to their consumers whereby through electronic making

it is more practical to execute transfers (rather than

through physical cash).

The primary purpose of eMoney is to reduce the

dependency on physical cash. Its characteristic can be

of 2 types: 1 hardware-based products (most commonly

known as prepaid cards) where the individual can use

the card to buy goods / services physically or online,

or 2 software-based which is an innovative solution

useful for both corporates (amongst which are gaming

companies) and individuals as one of their payment

methods to transfer funds instantly without delays. The

latter being discomforts commonly faced when making

bank transfers. Therefore, such systems are considered

to be as fast as cash. A typical system adopted by EMIs

is to operate a closed-loop system, where a transaction’s

output is another’s input, meaning that the outward

transfer of one electronic account is the input of

another, leaving no overall effect on the total client

funds, but a mere transaction in the IT system. Such

accounts cannot be used to make third-party payments

(i.e. outside the closed-loop system).

Funds received by EMIs are to be used solely for

payments. EMIs users do not hold accounts as a means

ELECTRONIC MONEY:

another form of cash

CHRISTIAN GAUCI, FINANCIAL CONTROLLER AT PAPAYA LIMITED

CHRISTIAN GAUCI

FEATURE: ELECTRONIC MONEY


made instantly. Therefore, there would be advantages

of efficiency in money transfers and also lower

transaction fees. In addition, it is a known fact that

the tourism industry employs a number of short-term

employees due to the seasonal nature of the industry.

If employees have an account with the EMI, wages

could be transferred to their account, which they can

thereafter use for other purposes, in a similar way as a

current account held with a bank. This form of payment

is also convenient for restaurants, since if they cater for

a system of mobile payments, they can reduce the risk

of cash fraud as well as efficiency in settling bills.

However, EMIs face challenges as very often their

business is considered a grey-area by the banking

industry which in turn is reluctant to provide services to

EMIs, thus restricting the choice of establishing banking

relationships. This is a very serious concern since despite

authorities recognising the importance of creating

more financial services accessibility, in practice this is

resulting to be difficult. This goes against the previously

mentioned purpose of creating EMIs. Also despite EMIs

being regulated (albeit at a different level to banks) and

obliged to perform due diligence procedures on their

clients and AML/CFT monitoring on transactions.

In current times, this form of money is highly useful as

well as practical, particularly in view of the accelerated

advancement in technology, increased use of portable

devices and greater mobility of people. Users need to

familiarise themselves with this innovative concept

and consider eMoney as another ‘wallet’, though in

electronic format. There needs to be a change in

mentality from one that sees these eMoney as different

from bank accounts to one that sees it as there to

facilitate payments, have other cheaper alternatives

at their disposal and reduce the risk of forfeiture

associated with cash. This is the way forward for both

the payments industry as well as the necessary move

towards a cashless society.

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of savings; in fact, funds transferred to EMIs do not

constitute a deposit. In particular, EMIs are precluded

to pay interest to their clients and also cannot invest and

make a return on client funds. Client funds must always

be kept at call and readily available when they want

to make payment transactions. This is an important

concept for eMoney as it needs to be treated as an

electronic alternative to cash and not as an investment.

It is important to note that the purpose of EMIs is not to

move money out of banks, but to facilitate the payment

process. A characteristic of EMIs is to effect a large

volume of low-value transactions, very often averaging

around €100 per transaction.

EMIs are bound by law to segregate client funds from

company funds. They have the duty to safeguard the

clients’ stored eMoney and keep client funds deposited

with banks. Therefore, given that an EMI would be

sufficiently capitalised, the client funds’ security would

rest on the soundness of the banking industry. In this

respect, if an EMI ceases to operate the clients’ risk

would be relatively low, since the clients’ funds are held

by the respective banks of the EMIs.

EMIs are important as they provide financial services

accessibility to persons who very often face difficulty

in accessing banking services such as immigrants,

freelancers and young individuals who enter the

country for work purposes. They can also offer better

solutions to replace older payment methods such as

the cheque system (including cheque payments made

by Government in paying out social benefits). More

importantly, EMIs use their competitive advantage of

effecting instant payments to help facilitate ecommerce,

a key factor in this industry. As ecommerce evolved, the

payments industry had to evolve accordingly to provide

fast and reliable payment solutions, without which

the ecommerce industry would not have been able to

flourish at such a fast rate.

The positive characteristics of eMoney are particularly

suitable to the travel, hospitality and leisure

industry. It is ideal for settling bills in restaurants,

hotel accommodation, conference fees and sport

activities amongst others. Very often such EMIs offer

their services in different currencies and thus there

wouldn’t be the need to convert money to the payment

settlement currency.

If for example travel agents and hoteliers use the

services of the same EMI, any payment transfers can be

There are benefits for non-direct users of eMoney as well. As the use of eMoney increases in popularity and physical cash usage reduces, funds will become more traceable. Increased transparency in the flow of funds could lead to lower risk of tax evasion which would in turn benefit the society as a whole.

FEATURE: ELECTRONIC MONEY

34 Summer 2017

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The purpose of the setting up of a Malta

company may range from cross border trade

to a holding company. This diversification calls

for a sound set up backed with responsible

corporate officers. The Companies Act, Chapter

386 of the laws of Malta, provides for the

corporate officers, and their respective roles

which in turn enable the proper functioning

of a Malta company. Many times the role of

the company secretary is overlooked at, and

treated as merely an administrative officer of

the company. Erstwhile to the enactment of the

Companies Act, there was no obligation upon a

company incorporated under the laws of Malta

to appoint a company secretary albeit this role

being recognised in commercial practice prior

to 1995. Upon the enactment of Chapter 386

of the laws of Malta, the office of a company

secretary became acknowledged in written law

and set as a main officer of every company.

Article 138 of the Companies Act, lists down who may

qualify for the post of a company secretary. As a rule of

thumb, the company secretary must be an individual,

however in the case of an investment company with

variable share capital and/or fixed share capital, the

company secretary may be a body corporate. There

is no provision in the Companies Act that sets an

obligation that the company secretary is a Maltese

resident, however, it is advisable given the office’s duties

and responsibilities.

It is worth noting that a company cannot appoint its sole

director as the company secretary nor can a company

have as its sole director a body corporate whose sole

director is the company secretary of the company. An

exception to this general rule is set for private exempt

companies where a sole director may hold the office of

a company secretary during his directorship.

The first company secretary is appointed by the

shareholders in the first Memorandum and Articles of

Association of the company. The company secretary may

be removed by the directors of the company by virtue

of a board resolution. If the latter resolve to remove

the company secretary from office, a new company

secretary has to be appointed within fourteen days from

the date the previous secretary has been dismissed. In

case of a prolonged vacancy, the board of directors may

authorise one of its members to undertake the duties of

a company secretary ad interim.

The following individuals are disqualified from being

nominated as a company secretary in Malta: individuals

who have been convicted of a crime affecting the

public trust, theft or fraud; individuals, who have been

interdicted, incapacitated; undischarged bankrupts;

minors who are not emancipated or else who are

subject to a disqualification order.

The Companies Act puts the requirement for a

company secretary to have the requisite knowledge

and experience for the carrying out of the functions of

GETTING IT RIGHT

The Company Secretary

GETTING IT RIGHT

DR ANN BUGEJA IS CURRENTLY HEADING THE LEGAL TEAM OF CSB LEGAL, A BOUTIQUE LAW FIRM, AND IS MAINLY INVOLVED IN CORPORATE TRANSACTIONS.

DR ANN BUGEJA

DR MARIA TABONE OBTAINED HER DOCTOR OF LAWS IN 2016 AND IS INVOLVED IN VARIOUS ASPECTS, MAINLY CONTRACT DRAFTING AND EMPLOYMENT LAW.

DR MARIA TABONE

36 Summer 2017

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such post, having said that, the Companies Act does not

set a requirement to be in possession of an academic

or professional qualification in order to hold the post

of a secretary. Nevertheless appointing a professional

as a company secretary, adds value to the corporate

structure.

In accordance with the Companies Act, a company

may have more than one company secretary; however

this does not occur frequently due to the fact that

each company secretary has to fulfil all the requisites

imposed on them under Maltese law. This implies that

in case of two company secretaries, the two are joint

signatories on any obligation set out on such a role.

In the First Schedule of the Companies Act, the legislator

sets a number of duties assigned to a company secretary.

These include:

• Ensuring that proper notice of the meeting and

agenda are circulated within the notice period (as

specified in the articles of association);

• Ensuring that proxy forms and/or appointment of

alternative director forms, if required, are sent to

be received in original by the company or any other

person up to forty-eight hours (or as stipulated in

the Memorandum and Articles of Association)

before the meeting for the appointment to be

effective and to be tabled at the meeting;

• Informing the chairman (of a meeting) whether

a quorum for the meeting is present and ensures

that the meeting proceeds in accordance with the

agenda of the meeting;

• Taking minutes of proceedings of the board and

any general or extraordinary meetings held, which

are then kept in the company’s minute book; and

• Recording any resolutions put to vote.

Moreover, the company secretary shall take care of,

inter alia, any amendments to the Memorandum and

Articles of Association, any changes amongst the officers

and persons who are vested with representation.

Usually, a company secretary would be the person

to file the annual return of the company and also the

one recording any changes effected in the register of

directors and members. It is worth noting that anything

required to be done by a company under the provisions

of the Companies Act shall also be deemed as required

to be done by the officers of the company. Therefore,

the responsibilities of the company secretary may

emanate from the Companies Act as per the board’s and

company’s exigencies. Furthermore, the responsibilities

of a company secretary do not only emanate from the

Companies Act but they may also be delegated by the

company itself.

The company secretary plays a leading role in good

governance by providing support beyond scheduling

meetings, managing the agenda and ensuring the

presentation of information in advance of meetings in

addition to pursuing and managing follow up action

points on matters arising. Thus, the responsibility for

good corporate governance also falls largely within the

remit of the company secretary. The responsibility of

the company secretary is to ensure good governance

throughout the livelihood of the company, from

inception up to the winding-up of the company. At this

stage it is worth noting that upon winding up, a liquidator

is appointed and all the powers of the corporate officers,

including that of the secretary shall cease.

As an officer of a company, a company secretary may

potentially be faced with liability in the course of

exercising his appointment. The Companies Act states

that any provision being in the Memorandum and

Articles of Association of the company or in any contract

exempting an officer of the company from personal

liability arising from negligence, default or breach of

duty shall be void. Having said that, a company may

indemnify any of its officers against any personal liability

when defending proceedings in which judgement is

given in their favour or else in which they are acquitted.

Indeed, the great number of duties outlined above as

incumbent upon a company secretary is indicative of

how vital the role and position of a secretary is.

Regardless of the title of the office, the role of a company secretary is not merely of a secretarial nature. Despite the fact that the company secretary does not take part in the management of the company, nowadays the role of the secretary is associated to that of a special advisor to the board.


FEATURE: MARITIME INDUSTRY TECHNICAL

The shipping sector appears to slowly be emerging from its negative cycle, with Moody’s changing its outlook on the global shipping industry to stable earlier this year, driven primarily by positive developments in the dry bulk and container ship market segments. Still, traditional sources of ship finance that had previously dried up are unlikely to re-emerge in a hurry. Bank lending to the shipping companies has decreased in recent years in response to increased regulatory capital requirements and a more conservative approach to risk.

The capital markets can provide a valuable alternative source of funding but this requires a change in mindset for shipping companies that have to date always relied on their bankers for funding, although this should not be much of an obstacle in practice given that institutional investors typically have many of the same investment or credit criteria as conventional lenders.

Securitisation is typically not considered as an option by ship owners but it should be as it can provide an effective means of raising additional finance (or refinancing existing bank debt) at a time where bank lending has disappeared or has simply become too expensive. Securitisation transactions are undertaken through ‘Special Purpose Vehicles’ (or ‘SPVs’), entities that are set up for the sole purpose of issuing securities to fund the acquisition of particular assets. These assets are segregated within the SPV for the benefit of investors, with the proceeds generated by the assets used to fund the return on the securities issued. It is a valid means of financing wherever cash-producing assets are involved – assets such as ships and charter party (lease) receivables, for example.

SPVs have been present in Maltese legislation in the shipping context for some time in the form of shipping organisations established under the Merchant Shipping (Shipping Organisations – Private Companies) Regulations. Just like securitisation vehicles, shipping organisations must be established with limited objects – essentially the ownership and operation of ships and certain ancillary activities, including the raising of finance (through the issuance of securities or otherwise).

As with any financing, lender security and comfort are essential. Malta’s creditor friendly shipping regime (established principally under the Merchant Shipping Act) was drafted with the protection of the mortgagee (traditionally the financing bank) in mind as the main creditor of the shipping company. It is well known, tried and tested and offers, among other benefits, ease, efficiency and certainty of enforcement by the mortgagee in the event of a default (including a recently

introduced ability to enforce on and dispose of a vessel through a private sale without court intervention) and an automatic stay on insolvency proceedings of the entity pending outcome of enforcement proceedings on the vessel. The vessel owned by the SPV also forms a distinct patrimony within the assets of the entity that is generally available to satisfy only the priority claims of the mortgagee ahead of all other creditors. These benefits can be utilised by any mortgagee (including a security trustee acting on behalf of investors) irrespective of the type of financing provided by that mortgagee.

Malta’s securitisation framework was similarly designed to benefit a securitisation vehicle’s main creditor (i.e. the investor/s in the securities issued by the vehicle), providing legal certainty on all fundamental issues that institutional investors in the capital markets are typically concerned with. Some of the key advantages of using an SPV established under Malta’s Securitisation Act include statutory bankruptcy remoteness from the originator and true sale of the securitisation assets, a first ranking privilege over the securitisation assets in favour of investors, and the ability to vest in the investors (through a security trustee) the exclusive right to commence insolvency proceedings in relation to the SPV.

While the benefits of the Securitisation Act apply to any asset class, it can be coupled with Malta’s shipping framework and established legal precedent in shipping matters to create an extremely attractive structure for securitisations backed by shipping assets, one that was first used in the recent UASC ‘Enhanced Maritime Trust Certificates’ issuance, a transaction which involved the securitisation of ultra-large container vessels and their bareboat charter party receivables and won Marine Money magazine’s structured finance and innovation deal of the year award. Malta was selected from a number of jurisdictions as the domicile for ship-owning SPVs for a very particular reason – each SPV could uniquely be established both as a shipping organisation subject to the Malta’s shipping legislation and as a securitisation vehicle under the Securitisation Act, benefitting from the vast array of creditor friendly provisions of both regimes.

Malta is the only jurisdiction that can provide such a robust financing structure (in terms of legal certainty) for maritime assets and those shipping groups that may be looking towards the capital markets would do well to consider securitisation as a potential option. It is a financing tool that is equally valuable to those with a greater need for immediate funding as it is for those looking to set up a solid funding base and development plan for the longer term.

SECURITISATION OF SHIPPING ASSETS – Alternative Financing for the Maritime Industry

From MiFID I to MiFID II

What are the effects of change?

DR NICHOLAS CURMI IS A SENIOR ASSOCIATE WITHIN GANADO ADVOCATES’ CAPITAL MARKETS PRACTICE. HE IS A MEMBER OF THE MALTA STOCK EXCHANGE’S EXTERNAL ADVISORY BOARD AND IS ADMITTED TO PRACTISE LAW IN MALTA AND NEW YORK.

SARAH CAMILLERI IS A DIRECTOR AT KPMG AND DRIVES THE INVESTMENT SERVICE AND FUNDS’ OFFERING WITHIN THE RISK CONSULTING ADVISORY TEAM.

NICHOLAS CURMI

SARAH CAMILLERIThe second Markets in Financial Instruments

Directive (“MiFID II”, the “Directive”) is fast

approaching as the implementation deadline of

January 2018 is less than 6 months away. Alongside

the Directive, the Markets in Financial Instruments

Regulation (“MiFIR”) has also been issued. Despite

the imminent deadline, the impact to firms, both

those licensed under MIFID I, but also on distributors,

is still unclear in certain respects. Certain issues are

still being clarified, although significant progress is

being made, particularly with ESMA issuing regular

clarifications.

The revision of the legislation sets out a number of

clear objectives, focusing mainly on increased investor

protection, governance requirements, amendments

to remuneration, and strengthened supervision, while

simultaneously increasing the scope of products and

services that fall within the amended regulation. Each

of these will impact licensed firms in different of ways.

Investor Protection, continuously at the top of law-

makers agendas, is targeted directly and indirectly

through a number of the amendments within MiFID II.

Various provisions are included to ensure that licensed

firms have proper procedures in place to ensure that

all relevant information is disclosed to investors. The

relevant details required to be communicated have

increased, and include the full costs to customers for the

provision of the service, broken down into significant

detail. It also requires more in-depth suitability

assessments, while increasing the range of investment

products considered, together with additional pre- and

post- trade information. Where investment advice is

provided, disclosure must be made as to whether such

was provided on an independent basis, with MiFID II

setting out the criteria that constitutes independence,

which have been enhanced from the previous regulation.

The legislation also introduces stricter requirements

in terms of the conduct of business of MiFID firms

specifically for communication, disclosure and

transparency in favour of investors.

The stringent requirements over governance

arrangements is also an enhancement to the protection

of investors as attention has been placed on the

suitability of the management body of investment firms,

both in terms of their competence and experience

for their respective roles, as well as their ability to

commit to these while taking into account any other

appointments. Specific members of management

bodies and those undertaking the licensable activities

of the investment firms will also face stricter controls

in relation to remuneration, both of a variable and fixed

nature. Such controls are being introduced as a measure

to attempt to combat and manage conflicts of interests,

while also looking to align the risk profile of the investors

with that of key employees during the discharge of their

day-to-day duties.


TECHNICAL

Governance matters are being viewed as fundamental

to the proper protection of investors, and increasing

accountability is also catered for within the regulation.

From an operational perspective, investment firms, as

well as previously non-MIFID service providers, such

as certain distributors, will need to assess whether the

inclusion of the additional financial instruments being

brought into the scope by MiFID II will impact their

service offering. The extended provisions now cover

all emission allowances, credit institutions’ structured

deposits, specific packaged retail investment products

(“PRIPs”) and the sale of financial instruments issued

by the investment firm itself. These amendments have

been introduced specifically to cater for those products

which were seen to be falling under the radar under

the previous directive. The definition of non-complex

instruments has also been amended and now excludes,

for example, structured undertakings for the collective

investment of transferable securities (“UCITS”), thus

making the appropriateness assessment mandatory for

investment firms prior to the sale selling any structured

UCITS.

Transaction reporting continues to be associated with

regulatory risk and has been given its due significance

within the updated legislation. Firstly, the legislative

package introduces a new execution venue, i.e.

the Organised Trading Facility (“OTF”). Non-equity

instruments will be captured through OTFs thus

encompassing operator and trading systems which

previously fell outside of the scope of transaction

reporting. The creation of this new venue will see

reportable instruments being traded on Regulated

Markets, OTFs and Multilateral Trading Facilities. On a

separate note, the products which require reporting

under MiFID II extends past the scope of the original

directive, and includes almost all instruments which

are traded on the aforementioned European venues,

including non-EU derivatives which relate to an EU

security. With 65 total data fields, compared with the

24 data fields previously included under the original

directive, the content of the data to be reported now

encompasses detailed data for both buyer and seller

identification. This includes traders and decision

makers, together with additional detailed information

on the traded instruments, and a number of indicators

that would place a trade in a specific context such

as the use of waivers or short selling. MiFID firms

will be required to have in place agreements with

Approved Publication Arrangement (“APA”) firms for the

publication of trade reports which will be submitted.

APAs will require authorisation to be able to discharge

these responsibilities.

Under MiFIR, the onus of the transaction reporting

has shifted onto the counterparty who initiates the

transaction, usually the buy-side investment firms, as

investment firms are responsible for ensuring transaction

reporting information for their firm is accurately

undertaken and properly recorded. Therefore, reliance

can no longer be placed on the executing party, as

adequate oversight by each investment firm must be

undertaken, and continuously monitored.

MIFID II is also seeking to increase transparency to

investors, by ensuring the costs breakdown is provided

to the end-user in its entirety. This will most likely result

in MIFID firms limiting recourse to external research

providers, since either investment services providers

will have to absorb the costs incurred in obtaining

such research themselves, or they will set-up research

accounts on behalf of investors. This means that such

fees will now be shown separately from trade execution

costs.

However, the increased transparency that MIFID II

brings about is not without its problems. The increase

in information may serve to confuse investors who have

previously not been subject to this level of detail, and

may not have the expertise to decipher it. They may also

incur further costs in order to understand the detail that

will need to be provided to them. Additionally, under

the PRIPS regulation, the parameters in relation to the

disclosure of costs are significantly different in some

respects, which may be a further cause for confusion

that could also affect experienced users. Harmonisation

of disclosure has not been achieved within the different

directives, though future revisions will hopefully tackle

this.

The cost of compliance with MIFID II will undoubtedly

increase costs for investment services providers, in terms

of the changes mentioned above. The improvements to

governance, the increased transparency and disclosure

requirements, together with the more onerous

reporting obligations, will no doubt prove challenging,

particularly for the small to medium players, common

to our local market. The challenge going forward is

definitely for these firms to make investors aware

that the changes will benefit them most, and that by

making the investment firms safer, they will be more

attractive to investors, and increase investor safety and

confidence.

POPULATION PROJECTIONS FOR MALTAFocusing on Malta, the issue of population ageing has been on the policy agenda since the mid-nineties, especially in view of its implications for the sustainability of public pensions. When assessing the magnitude and the expected evolution of the demographic ageing, population projections such as those prepared by Eurostat (ESSPOP2015) can serve as a useful benchmark. Indeed, whilst total population in Malta stood at around 440,400 persons as at 1st January 2017, population projections by Eurostat indicate that total population is expected to reach around 521,000 by 2070. Such development reflects gains in life expectancy, fertility and migration. Indeed, by 2070 life expectancy at birth is projected to advance by 8 years for males and 7.4 years for females, with the gender gap narrowing but still favouring females by around 3.8 years. Meanwhile, total fertility rate is projected to rise from 1.45 in 2015 to around 1.75 in 2070 which is below the replacement rate of 2.1 children per female. It is noteworthy, that a key driver of demographic developments in Malta over recent years was certainly migration. Indeed, net migration is projected to average around 2,250 annually over the period 2015-2070. The projected changes in the composition of the Maltese population are illustrated in Figure 1, which illustrates the shifts in the Population Pyramid.

The scale of the ageing challenge facing Malta can

be better appreciated by looking at the old-age

dependency ratio (OADR). This ratio captures the share

of individuals that are likely to be retired (aged 65+)

as a proportion of those persons that are likely to be

in employment (aged 15-64). Eurostat data shows that

Malta’s OADR stood at around 28.6% in 2016, slightly

below the EU 28 rate of 29.3%. By 2070, the OADR for

Malta is expected to reach 55.9% thus exceeding the

EU 28 rate of 51.2%. These developments are indicative

that Malta faces a significant ageing challenge when

compared to European peers. Conversely, the support

ratio – the number of persons of working age that could

potentially support persons in retirement – is expected

to worsen significantly from around 3.4 persons in 2016

to 1.8 persons by 2070. This picture could actually look

more dire when one considers that not all persons of

working age are actually in employment, even though

not all persons that reach pension age are actually

entitled to a pension.

AGEING AND THE SUSTAINABILITY OF PENSIONSIt is evident that ageing will result in higher expenditure

on public programmes in health, long-term care and

pensions. Pensions, especially those based on a Pay as

You Go (PAYG) schemes are the main sources of income

in retirement for most European countries, including

Malta. Indeed, PAYG public pension schemes are facing

the multiple challenge of ensuring financial sustainability

whilst supporting an adequate income in retirement.

Indeed, consumption smoothing and poverty relief are

key objectives for any pension system. In this regard,

financial sustainability remains paramount in ensuring

that any pension scheme delivers upon its promises.

PAYG pension schemes involve the transfer of resources

from workers to pensioners, consequently this implies

that the declining support ratio owing the demographic

ageing is bound to lead to rising expenditure. This has

negative consequences on the sustainability of public

finances unless matched by rising contributions, capital

resources and productivity. At the same time, ageing is Source: Eurostat

Population ageing and its implications for the sustainability of public programmes and economic prospects has been on the agenda of policy-makers around the world for a considerable period of time. The rising share of older individuals in the total population, is a global fact with important economic and socio-political consequences. From a demographic perspective, population ageing is the result of low fertility rates, continuous gains in life expectancy and migratory trends. Indeed, the United Nations is projecting that by 2050 the number of persons aged 60 and over in the global population is expected to increase from 0.9 billion in 2015 to 2.1 billion in 2050 with Europe being the continent with the highest percentage of older persons.

THE ECONOMICS OF AGEING AND PENSIONS

GODWIN MIFSUD IS AN ECONOMIST AND IS THE DIRECTOR GENERAL AT THE ECONOMIC POLICY DEPARTMENT WITHIN THE MINISTRY FOR FINANCE.

GODWIN MIFSUD

FEATURE: PENSIONS

42 Summer 2017

FEATURE: PENSIONS

also bound to have important effects on the structure of national economies. Indeed, long-term projections by European Commission show that demographic ageing is also likely to result in lower potential GDP growth in light of the effect of ageing on specific components on potential output. This implies that ageing will have a dual adverse impact on the sustainability of public pensions.

PENSIONS REFORM PROCESS IN MALTAAs stated above, the pension reform process in Malta has been ongoing for a number of years. The first major reform since the introduction of the Two-Thirds Pensions in 1979 took place in 2006 when several parametric changes were introduced. The main changes included increases in the pensionable age, the lengthening in the contributory period, changes in the calculation of pensionable age and the introduction of the Guaranteed National Minimum Pension alongside changes in the indexation of pensionable income and pensions. Projections at the time indicated that in under a no-reform policy scenario, pension adequacy was bound to worsen progressively thus giving rise to pressures from the social perspective. Indeed, the 2006 reform addressed both sustainability and adequacy concerns with the overall outcome being that the trajectory of expenditure was reversed.

The second major reform took place in 2016. The adopted measures carefully balanced adequacy and sustainability concerns, taking also into consideration the needs of present retirees. The main measures addressing adequacy included increases in the minimum pension, improved crediting for child rearing and the introduction of crediting for human capital development and measures addressing specific groups such as pensioners in receipt of service pensions and survivors. In terms of sustainability measures, the contributory period was raised from 40 to 41 years for persons born on and after 1 January 1969 with the proviso that it shall be reviewed every five years to ensure that stable proportion is kept between the contribution period and

the time spent in retirement. Furthermore, an incentive

mechanism was introduced, focusing on private sector

employees, whereby individuals who have fulfilled their

contributory requirements can receive permanent

increases in their pensions upon retirement provided

they defer their pension and continue working beyond

the age of 61 years.

Another key plank of Government’s pension policy

relates to the diversification of pension income in

retirement. In this regard, two key developments were

the introduction of tax incentives targeting the take up

of third pillar voluntary pension products which covers

also certain insurance products. Work is also underway

to introduce tax incentives favouring the establishment

and take-up of voluntary occupational pension schemes.

CONCLUSIONThis brief article has focused on the implications

of ageing for the sustainability of PAYG pensions.

Nevertheless, it is evident that independent of the form

in which pensions are organised as funded or PAYG,

ageing raises important sustainability and adequacy

concerns alike. This underscores the importance of

economic growth in supporting pension schemes since

afterall pensions cannot be analysed in isolation but also

in the context of other competing demands for public

expenditure (in the case of PAYG schemes) as well as the

state of the economy. Indeed, it is notable that policies

that focus on raising labour productivity through

investment in infrastructure and human capital and

raising employment play a key role in supporting growth

in output. In the case of Malta, raising employment

through raising participation, especially amongst

females and older workers, postponing retirement and

migration all played a key role in raising employment

in recent years. In this regard, the pension reforms, tax

measures and other supporting active labour market

policies are a step in the right direction in ensuring

that the labour market continues to play a key role as

supporting pillar to pensions sustainability in Malta.


FEATURE: EU FUNDS FEATURE: EU FUNDS

The EU Funds Audits Directorate (EUFAD) within the

Internal Audit and Investigations Department is the

designated Audit Authority (AA) for EU Funds in Malta

in line with Article 123 (4) of the Regulation (EU) No.

1303/2013. The AA is responsible for meeting the audit

obligations of the approved Operational Programmes

being implemented in Malta under the 2014-2020

programming period. The following table, lists the

Operational Programmes (OPs) falling within the EUFADs

remit and their respective budget allocation.

This article will focus on the audit requirements of the

European Structural and Investment Funds (namely

OPI, OPII, SME Initiative, FEAD, EMFF and ETC). The

remaining Operational Programmes will be the subject

of a future article.

EUROPEAN STRUCTURAL AND INVESTMENT FUNDS

(ESIF)

For the 2014-2020 programming period, the AA’s first

task is to prepare an Audit Strategy within eight months

from the approval of the respective OP. The strategy

sets out the audit methodology, the sampling method

for audits on operations and the planning of audits in

The ex-ante checks and verifications carried out during

the implementation of the programming period are

explained in the following paragraphs.

DESIGNATION PROCEDURE

The AA was appointed as the independent audit body

to carry out the designation procedure following the

approval of the OP. Prior to certification, the Managing

and Certifying Authorities need to be designated. The

AA assesses the fulfilment by the authorities of the

criteria relating to the internal control environment,

risk management, management and control activities,

and monitoring. Once the audit fieldwork is finalised,

the report and opinion are forwarded to the EC, where

within 2 months from the receipt of the documents may

make observations.

OPERATIONAL PROGRAMME BUDGET ALLOCATION (€)

OPI – Fostering a competitive and sustainable economy to meet our challenges

OPII – Investing in human capital to create more opportunities and promote the wellbeing of society

SME Initiative (SMI)

Food and/or Basic Material Assistance Operational Programme (FEAD)s

European Maritime and Fisheries Fund (EMFF)

Italia-Malta Programme

Internal Security Fund (ISF)

Asylum, Migration and Integration Fund (AMIF)

Rural Development Programme (RDP)

The European Economic Area Financial Mechanism and Norwegian Financial Mechanism

717,859,686

132,366,810

15,000,000

4,640,777

22,627,422

43,952,171

74,677,704

18,446,877

97,500,000

8,000,000

During Implementation

Ex-Ante

Commission audits and supervision

Acceptance of accounts

Annual accounts and audit opinion

Certification of expenditure

Management verifications, management declaration and annual summary

Designation procedure

Guarantees in programming negotiations and ex-ante conditionalities

relation to the current accounting year and the two

subsequent accounting years. The strategy is updated

annually from 2016 up to the Programme closure. The

audit plan is important since it highlights how the AA

will obtain its assurance to be in a position to issue

an annual opinion on each OP. In turn, the European

Commission (EC) acknowledges receipt of the audit

strategy and provides constructive feedback which is

further discussed during the annual bilateral meeting.

As illustrated in figure 1 below, the assurance process

for the 2014-2020 programming period is split between

ex-ante and ex-post verifications.

Figure 1: Assurance Process for 2014-2020 Programming Period

Following the designation procedure, the Maltese

Certifying Authority may start declaring expenditure

to the EC following first level checks carried out by the

Managing Authority/Intermediate Body. The AA will

then carry out ex-post checks and controls through

system audits and audits of operations.

SYSTEM AUDITS AND AUDITS OF OPERATIONS

The audits (obligatory by Regulation) are carried out on

an on-going basis throughout the programming period

(up to three years following the closure of the OP).

SYSTEM AUDITSSystems audits are carried out in accordance with

paragraph 1 of Article 127 of Regulation (EU) No.

1303/2013 in order to verify the effective functioning of

the management and control systems of the OP. Systems

audits may be carried out on the main implementing

bodies and other horizontal stakeholders, as well

as on cross-cutting issues by undertaking audits on

operations. The overall conclusion on the system audits

carried out provides a basis for determining assurance

levels and for determining the confidence levels for

audits of operations.

AUDITS OF OPERATIONSAudits on operations are carried out on the basis of an

appropriate sample to verify expenditure declarations

to the EC in accordance with paragraph 1 of Article 127

of Regulation (EU) No. 1303/2013. The AA may decide

to audit a complementary sample of operations in order

to guarantee coverage of different types of operations,

beneficiaries and Union priorities.

An audit of operation usually includes:

> Reconciliation between the expenditure claimed and

the supporting documents; and

> Verification of the execution of the operation, the

eligibility of the expenditure, the provision of co-

financing and of compliance with relevant EU and

national legislation, including, where applicable,

public procurement, state aid, equal opportunities

and the environment.

The scope of carrying out such ex-post checks and

control is to ensure that the amounts declared to the

EC are legal and regular. If during checks carried out,

financial irregularities are detected, financial corrections

may be applied accordingly. This in turn, will have a

direct impact on the calculation of the error rate and

on the overall annual audit opinion of the respective OP.

AUDIT OF ACCOUNTS

The AA is to provide reasonable assurance on the truth,

completeness, accuracy and veracity of the amounts

declared. This is done by carrying out tests on the

financial statements of the Certifying Authority to form

an independent opinion as to whether the information

within gives a true and fair view. The audit is to cover

all the aspects stated in Article 137 of EC Regulation

1303/2013, namely the reconciliation of the eligible

expenditure declared, any corrections made after

management verification duly reflected in the accounts,

and transactions supported by relevant documentary

evidence.

While carrying out the audit of accounts, the AA is to

make use of the result of systems audit, conducted at

an earlier stage, to further substantiate grounds before

forming any conclusions on the accounts. Through

the use of the result of audits of operations, the AA

reconciles the total eligible expenditure declared

with the expenditure declared on the application for

payment submitted to the EC and that any irregularities

found have been eliminated from the accounts.

The conclusions drawn from the systems audits,

audits of operations and audit of accounts will then be

reported in the Annual Control Report which is to be

submitted to the EC by 15 February of the following year.

Moreover, from the conclusions derived, the auditor

can then formulate an opinion for the programme and

recommend subsequent action if necessary.

COMMISSION AUDITS AND SUPERVISION

Finally, subsequent to submitting the Annual Control

Report and Annual Opinion, the EC assesses and

scrutinises all the documents provided. It either accepts

the conclusions arrived, or requests further clarifications

or additional work to be carried out by the AA. The EC

may also provide its feedback and recommendations for

the AA to consider implementing in future audits carried

out for the remaining programming period.

The Role and responsibilities of the Audit Authority for EU Funds in Malta

PHILIP GAFA’ IS A CERTIFIED PUBLIC ACCOUNTANT AND CURRENTLY HOLDS THE POSITION OF DIRECTOR (EU FUNDS AUDITS) WITHIN IAID.

PHILIP GAFA’

46 Summer 2017

FEATURE: ENTERPRISE RISK MANAGEMENT

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Whether it’s the amount of due diligence required to

fulfil anti-money laundering obligations or the way

in which audits are planned, nowadays everything

seems to be driven by risk. The local financial regulator

even mandates that banks and many other financial

institutions must have a Risk function. Whilst there

is a growing appreciation of the importance of risk,

those charged with governance often seek meaningful

guidance on the people, tools and techniques which

are needed to help deliver effective risk management

that provides added value across the enterprise beyond

compliance.

What does it take to be a professional risk manager?

As you are reading this, MARM’s educational sub-

committee should be putting the finishing touches to a

document on the core competencies of a professional

risk manager, which is intended to answer this exact

question.

The main body of this document comprises a

description of the key roles of the risk manager, the

required competencies associated with these roles

and the ways in which an individual can demonstrate

these competencies. Before tackling these issues, we

felt it was important to set the scene by tackling a few

common misconceptions.

RISK MANAGEMENT MISCONCEPTIONS

Above the player’s entrance to Wimbledon’s Centre

Court is inscribed a quote from the poet Rudyard

Kipling ‘If you can meet with Triumph and Disaster, and

treat those two impostors just the same’. Interestingly,

neither the origin nor the current usage of the word

‘risk’ is so ambivalent. The word ‘risk’ is derived from

the Arabic word ‘rizq’, also the origin of the Maltese

word ‘risq’, which meant god-given blessings, a very

positive connotation. On the other hand, the way

in which risk is commonly understood today is the

chance of an adverse consequence. Risk as defined

by ISO 31000, a leading risk framework, is ‘the effect

of uncertainty on objectives’. As with the quote from

the tennis stadium, this definition of risk is completely

neutral between potential upsides and downsides. If a

potential missed opportunity has similar characteristics

in terms of impact as a downside hazard, a professional

risk manager should be unbiased between the two.

The ‘Darwin Awards’ have become synonymous

with recognising people engaging in reckless self-

endangerment, with the overall purpose of giving the

rest of us somebody to laugh at. This is where we touch

on another common misunderstanding arising around

the role of the risk manager. Instinctively, people

understand that risk management is something we

are doing all the time, if only to avoid a Darwin Award.

Indeed, we should be managing risk all the time. The

‘Three Lines of Defence’ model, which was proposed

by the Institute of Internal Auditors, but has also been

endorsed by leading risk management bodies, demands

that the primary responsibility for risk management

should reside with front-line operational staff. So

what’s so special about a risk manager? The role of a

professional risk manager in the second line of defence

is to assist in the management of risk across the entire

organisation (and even beyond). This overarching

ENTERPRISE RISK MANAGEMENT

In a complex and fast-moving world, we can expect that the profile of risk management will continue to increase. Ian-Edward Stafrace and Dominic Fisher,

President and Vice President of Malta Association of Risk Management (MARM), raise the curtain on the value that professional risk management can bring to the enterprise as a taster of the upcoming joint

seminar being organised by MARM and MIA.

SENIOR MANAGER IN DELOITTE MALTA’S RISK ADVISORY TEAM AND IS ONE OF THE FIRST HOLDERS OF THE RIMAP® PROFESSIONAL RISK CERTIFICATION.

DOMINIC FISHER


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Collaborate easily and e�ciently on Mac, PC, tablet, or mobile phone.

responsibility should be achieved holistically, maintaining

a suitable degree of distance and independence from

any particular department or stakeholder.

THE ROLE OF A RISK MANAGER

A person’s view of a risk management professional is

often coloured, or possibly clouded, by the sector in

which we work. A person holding the title of risk manager

in a bank may have special focus on quantitative risks

such as market and credit risks, whereas a risk manager

in a construction setting is likely to have safety as their

over-riding objective. In putting together our document

we tried to describe the skills required to undertake

professional enterprise risk management within any

type of organisation. Sector specific requirements are

supplementary.

That being said, let’s get down to how in our latest draft

paper we define the roles of the risk manager and the

associated competencies. We started by looking at the

process of risk management itself. ISO 31000 provides

useful guidance in this regard, stipulating what are

known as the 7 Rs of risk management. These are as

follows.

1. Recognition or Identification of Risk

2. Ranking or Evaluation of Risk

3. Responding to Significant Risks

4. Resourcing Controls

5. Reaction Planning

6. Reporting & Monitoring Risk Performance

7. Reviewing The Risk Framework

Drawing inspiration from the categories employed

in a risk reference tool produced by the French Risk

Management Association (AMRAE), we mapped the

above into the following four roles.

1. Defining & Redefining The Risk Framework

2. Risk Assessment, which covers identification and

evaluation

3. Risk Response, which covers items three to five

from the above list &

4. Risk Monitoring and Reporting

To the above roles we added managing risk culture,

as we considered this to be an important aspect of

ensuring effective overall risk management across the

whole of the enterprise.

Once again building on AMRAE’s risk reference tool,

we compiled a list of the tasks and likely associated

requirements with each role. To a greater or lesser

degree a host of soft skills are all needed to be

recognised as a professional risk manager. Further we

found that these soft skills need to be complemented

by a certain level of technical knowledge. How can a risk

manager define a suitable risk framework without an

understanding of some? How can a risk manager help to

determine suitable risk responses without an excellent

understanding of the choices?

These competencies can be demonstrated by way of

qualifications which give credit for both experience and

knowledge. In this regard, we have taken the Federation

of European Risk Management Association’s (FERMA’s)

remap professional risk management certification as

our benchmark, but have recognised the value of other

qualifications and experience.

We hope that the document will be of use for employers,

regulators and those wishing to build a career in risk

management.

UPCOMING EVENT

On the morning of Thursday 28th September, MARM will be co-hosting an event together with Malta Institute of Accountants focused on Enterprise

Risk Management. This event will bring together experts to expand on this

subject with a special focus on topics likely to be of interest to accountants, whether they are in industry or in the

profession. See you there!

ATLAS GROUP’S CHIEF RISK OFFICER AND RISK MANAGER OF MERILL SICAV PLC. HE HOLDS AN MSC RISK MANAGEMENT FROM BIRMINGHAM CITY UNIVERSITY AND IS A CERTIFIED FELLOW OF THE UK INSTITUTE OF RISK MANAGEMENT.

IAN-EDWARD STAFRACE

FEATURE: ENTERPRISE RISK MANAGEMENT


The accountancy profession faces significant opportunities and risks from digital disruption and rapidly evolving technology.

An accountancy profession in a world of full transparency

of transactions and inbuilt validation will become a

very different profession. It is changing the focus of

auditors as well as accountants in business. Ultimately,

digital disruption will impact the nature of demand and

expectations on what an accountant is and does.

Technology news is ubiquitous. Much of it places

developments in a negative light. The history of the

profession has been to adapt, leverage, and utilize

technology for the benefit of business, government, and

society. The disappearance of comptometer operators

in the 20th century stands as an example—new more

value creating roles emerged.

Although one side of the technology coin represents

risk, the other represents opportunity. But exploiting

opportunities requires knowledge and understanding of

the digital world.

The digital world is rapidly developing, and it is only the

beginning of the journey. Many finance professionals

have not heard of or fully appreciated emerging

technology, such as blockchain. The effects of a

digitalized and connected world is not just on processes

but on business models.

The experience and insights of the IFAC Professional Accountants in Business (PAIB) Committee deepen

the understanding of how technology impacts the

finance function and implications for the profession. In

conjunction with its recent meeting in New York, the

PAIB Committee continued its explorations with David

Powell, Global Brand Manager at IBM Cognitive Process

Services and President of Association of Chartered Accountants in the US (ACAUS).

This was a great opportunity for a joint IFAC and ACAUS

evening event, which brought together more than 120

professional accountants, including PAIB Committee

members, to engage a broad audience on technology and

the accountancy profession. The panel of accountants

debated how disruptive technology in its various forms

is rapidly gaining momentum and evolving the activities

and career paths of professional accountants in public

practice and the private and public sector.

Sanjay Rughani, CEO for Standard Chartered Bank,

Tanzania, and Deputy Chair of the PAIB Committee,

moderated and opened by noting how accountancy

is radically changing, driven by disruptive technology

and changing practices. In order to remain relevant,

accountants will need to keep pace and embrace the

changing dynamics linked to disruptive technology. The

future profile of the profession will include key shifts.

Panelists also shared their own perspectives on

technology’s opportunities and risks.

• David Powell highlighted real-world impacts

of blockchain, cognitive business, big data,

analytics on finance and accountancy; and the

future profile of the profession. Huge volumes

of structured and unstructured data provide

significant opportunities to create deeper insights.

This enables finance functions to provide these

insights and better support decisions at lower

cost. In practice, cognitive business is evolving

quickly and penetrating finance and accountancy

through cognitive forecasting, which allows more

data points and evidence from longer periods.

Organizations need to assess where they are on

their own maturity path to being ready to exploit

cognitive computing and cognitive business.

• Natasha Holbeck, Partner with Deloitte in its

Financial Services Audit Practice & Vice-President of

ACAUS, shared how Deloitte embraces technology

to not only effectively and efficiently execute

audits but add additional value to companies

by providing analytics and insights. Technology

allows Deloitte to anticipate client needs and value

considerations, for example, by providing greater

insights on industry trends and organizational risks,

and providing access to data to improve operations

and performance. Ensuring business leaders

understand the value their organizations generate

from audit insights is a significant development for

Deloitte’s audit practice.

• Stuart Chaplin, Vice President Finance – Risk

Management for Shell Trading & Supply and a

member of the IFAC PAIB Committee, talked

about how technology is disrupting finance and

accounting in Shell. Having started the journey of

implementing Robotic Process Automation, and

applying it to various repetitive processes in shared

services, the value proposition of business process

outsourcing needs to shift from labor arbitrage

to delivering innovation and insight. Increased

application of robotics provides an opportunity

for finance staff to spend more time on higher

value added activities. Development and support

to “high-grade” finance skills may be required to

adapt to a future where robotics is more prevalent.

• Stephen Ibbotson, Head of the Finance &

Management Faculty, Institute of Chartered

Accountants of England and Wales (ICAEW) and

a Technical Advisor on the IFAC PAIB Committee,

highlighted how emerging trends are impacting

ICAEW members. ICAEW proactively supports its

members to be “life-long learners” to keep in pace

with change and take charge of the innovation and

changing dynamics around them. From an institute

perspective, the blend of skills and competencies

required by professional accountants is evolving

quickly, and the types of services provided by

accountants is developing apace. For example,

there is an increasing trend for part-time virtual

finance directors providing higher value services

to various smaller enterprises that do not have full

time finance and accounting expertise on staff.

Charles Tilley, Chair of the IFAC PAIB Committee, issued

a wakeup call to close the meeting: while the profession

has embraced technology, the pace of change is

accelerating, and it will have a profound impact. A child

born today will end up being a very different kind of

professional accountant.

Technology and the changing role of finance and

accounting functions and the skills and competence

needed by finance professionals to remain relevant

now and in the future is firmly on the PAIB Committee

agenda. Its insights will help the profession act quickly

to ensure the future relevance of members.

A summary of digital disruption and technology trends

impacting finance and accounting is available at https://www.

ifac.org/news-events/2017-05/technology-trends-impacting-

finance-function-and-profession-overview

This article originally appeared on the IFAC Global Knowledge

Gateway: www.ifac.org/Gateway. Visit the Gateway to

find additional content on a variety of topics related to the

accountancy profession.

Pictured: David Powell, Global Brand Manager, IBM Cognitive Process Services and President, ACAUS & Natasha Holbeck, Partner, Deloitte Financial Services Audit Practice and Vice-President, ACAUS

DISRUPTING THE ACCOUNTANCY

PROFESSION

STATHIS GOULD, DEPUTY DIRECTOR, PAIB & KNOWLEDGE LEAD, IFAC

STATHIS GOULD

Accountancy will be cloud based.Accountancy will harness the power of big data.Accountancy will integrate non-traditional financial information.Accountancy will be more efficient and mobile.Accountants’ roles are and will continue to change radically.

FEATURE: TECHNOLOGY FEATURE: TECHNOLOGY

53theaccountant.org.mt52 Summer 201752

Accountancy firms like other organizations are continually seeking to improve the quality of their service to clients. In any approach to quality, there is a wide range of options available. One of these is the internationally renowned Quality Management System (QMS) standard better known as ISO 9001. More than one million businesses have implemented ISO 9001, which is why ISO 9001 is the global standard for managing quality. Entities can also consider other options such as Six Sigma albeit at a later stage.

ISO 9001 QMS is a systematic and process driven

approach to managing day to day activities. It is designed

to support the organization in ensuring that it meets the

needs of its clients, whilst delivering a consistent level of

quality and satisfaction.

This system has been proven to make business owners

and managers feel more in control and ensure that

everyone within the organisation is clear about what

they do, whilst having the ability and authority to

resolve problems quickly and effectively.

Accountancy firms are in an easier position to implement

the standard than other sectors as international

recognized professional accounting standards have

been prepared to establish consistency and standardise

accounting practices. The basic principle of ISO 9001 is

that you state what is to be done and consistently do it

and look for improvements.

The standard was first published in 1987, since then it

has gone through four revisions, the latest one in 2015.

The standard sets out the requirements for a QMS

based around the following principles:

• Client focus – attracting and retaining the

confidence of clients is key.

• Leadership – everyone in the business must

understand what you’re trying to achieve.

• Engagement of people – competent and engaged

people at all levels are essential.

• Process approach – to achieve more consistent

results you need to understand how your processes

work together as a whole.

• Improvement – all successful businesses focus on

continual improvement.

• Evidence-based decision making – basing your

business decisions on an analysis of the facts is

more likely to lead to the correct decision.

• Relationship management – identifying your most

valuable business relationships and having a plan

to manage them will contribute to your success.

One of the key changes in the 2015 revision of ISO 9001

is the requirement to establish a systematic approach

to risk, rather than treating it as a single component of

a QMS. This is of utmost importance to accountancy

firms.

In previous editions of ISO 9001, a clause on preventive

action was separated from the whole. Now risk is

considered and included throughout the standard.

By taking a risk-based approach, an organization

becomes proactive rather than purely reactive,

preventing or reducing undesired effects and promoting

continual improvement. Preventive action is automatic

when a management system is risk-based.

The Clauses of the 2015 version of ISO 9001 are:

1. Scope - defines how far the QMS extends within

the organization

2. Normative References – any supporting

documents ie standards etc.

3. Terms and definitions – refers to the terms and

definitions given in ISO 9000:2015

4. Context of organization – refers to the business

environment

5. Leadership – ability to motivate groups of people

towards a common goal. Management should be

the driving force behind the QMS.

6. Planning – actions to address risks and

opportunities

7. Support – availability of resources needed for the

implementation and maintenance of the QMS.

8. Operation – will be dependent on the

organization’s activities, legal obligations and

significant operational control.

9. Performance evaluation – monitoring,

measurement, analysis and evaluation of the QMS

in place.

10. Improvement – determine and select opportunities

Are there benefitsin ISO 9001 for Accountancy Firms?

ING. FRANCIS E. FARRUGIA IS SPECIALISED IN QUALITY ENGINEERING, MANAGEMENT AND CONTROL AND HAS BEEN ACTIVE AS AN ISO QMS CONSULTANT FOR MORE THAN 20 YEARS. HE IS PRESENTLY THE MANAGING DIRECTOR OF ENTERPRISE SOLUTION AND A SENIOR VISITING LECTURER AT THE UNIVERSITY OF MALTA.

ING. FRANCIS E. FARRUGIA

FEATURE: ISO 9001

for improvement and implement any necessary

actions to meet client requirements and enhance

client satisfaction.

IMPLEMENTING ISO 9001The main consideration after recognising that ISO 9001

is beneficial to your organization is to get started in

implementing the standard. A word of advice at this

stage is not to consider becoming certified if this is

not being imposed on your organization as is the case

with many manufacturing organizations. Gaining a

certification is enticing, but it should not be the ultimate

scope of using the standard. Organizations who view

gaining certification as the reason for using the ISO

9001 are missing a great opportunity for improvement.

As frequently stated, ISO 9001 is a journey, not a

destination.

If you sincerely start implementing ISO 9001 as business

improvement tool, then gaining certification sometime

down the line, if you choose to do so, should be a simple

step.

A common misconception about the ISO 9001 standard

is that it is a document nightmare. Actually, there are

very limited document requirements in the 2015

version of the standard. This was not the case with

previous versions. The emphasis is now on documented

information or records in any format and media. Also, ISO

9001 does not replace quality control documents such as

ISQC 1 and ISA 220, these documents complement the

QMS being implemented. In fact a quality system will be

most effective for accountancy firms when the system

also complies with other professional and requirements

built into it, as this ensures that the ‘service product’

conforms with specified requirements.

The first step in the implementation process is to

identify an individual within the organization who will

champion the process. It is important that if you have

not contracted an external consultant the assigned

individual should be sent to an ISO 9001 orientation

training course if this is his/ her first experience.

Management exercising its leadership role shall then

draw out the Quality Policy, and the objectives to meet

this policy.

The next step would be to define and determine the

core processes of the organization; in the case of an

accountancy firm these should be very clear. In my

experience accountancy firms already have most of the

requirements of the standard in place.

Gap Analysis follows suit. This is an important exercise

which identifies the gaps between the existing system

in place and the requirements of the standard. This

exercise helps to bridge gaps in the system, identifies

any additional resources or documented information

required. This is where I advise that an external

consultant should be hired to carry out the exercise.

Once this stage is reached, and the gaps identified

addressed, then the implementation phase is achieved,

but this is not the end of the journey. The organization has

to continue looking for opportunities for improvement,

through regular auditing of the system, employees’ and

clients’ feedback amongst others.

BUSINESS BENEFITS

Implementing the ISO 9001 standard can prove a

tremendous boon to business in many ways from

improving equity to perfecting overall business

structure by helping streamline management. An

improved business ethic will encourage confidence and

productivity in staff in the knowledge that they have

a clear and well thought-out process to follow. Better

utilisation of available time achieved through improved

resource management.

In Malta, accountancy firms and similar professional

services providers (of all sizes) are not only competing

for market share but also for the human resources.

Working in an environment where one feels that he is

an asset to the organization as required by the standard

can be advantageous to attract new employees. Most

importantly, it improves the client/supplier relationship

by responding proactively to client demands and

feedback.

Finally, an ISO 9001 implementation can be achieved by

any organization of any size, in any given sector, which is

looking to increase and enhance business productivity,

ethics and performance. If you consider that the most

important person in your business is your client then

you should seriously consider implementing ISO 9001.

FEATURE: ISO 9001

54 Summer 2017

FEATURE: SUCCESSION PLANNING

Succession planning has been defined as the process

by which organisations ensure that employees are

recruited and/or developed to fill each key role within

the organisation. The key part of this definition is the

latter part, whereby people are identified to cover for

each key or fundamental role within the organisation.

For this reason, succession planning is a crucial part of

the human resources strategy that is often overlooked

by local standards.

But what does succession planning really involve? Is

it just a headhunting or people development exercise

carried out as a contingency plan? Is it a process that

organisations should adopt as a best practice? Similar

to various key resources within an organisation, the

real value of a succession planning exercise can be

measured when this is actually needed. Succession

planning involves preparing the organisation for the

inevitable day when key personnel will no longer form

part of the organisation. This situation is not applicable

solely for retirement, but more importantly in the face

of resignations from key personnel.

One unforgettable experience that I had was a local

organisation that urgently needed a succession plan

operating as a local electricity utility provider, when a

particular engineer had reached the legal retirement

age, and due to the fact that he was the sole person

that had the necessary skills to produce spare parts for

a specific electricity generation equipment that was still

in use. His retirement would have meant the automatic

shutdown of such equipment. Although the equipment

in question was being phased out, the crucial lesson

learnt was that identifying key positions and making

sure that there is more than one person that can carry

out such duties holds true for every position, particularly

in leadership positions.

Although a succession plan should be implemented

for each key position, one of the most crucial areas

within the organisation is management. Organisations

have the inherent need to ensure that they have

the adequate management resources to lead the

organisation at all times, take the necessary decisions

and instil an adequate culture within the organisation.

One may actually argue on this point further and state

that management actually has an obligation towards it’s’

stakeholders to ensure that an appropriate succession

plan has been implemented for all managerial personnel.

But what does succession planning really focus on? The

secret of an effective succession planning programme is

ROBERT DELIA IS A HUMAN RESOURCES SPECIALIST WITH OVER 20 YEARS WORKING EXPERIENCE, HE CURRENTLY WORKS AS THE HUMAN RESOURCES ASSISTANT DIRECTOR WITHIN EY, AND LEADS EY’S TALENT TEAM.

ROBERT DELIA

The Importance of Planning the Succession of Key Management Personnel

FEATURE

56 Summer 2017

Cybercrime can only be fought by combining technology and business acumen with uniquely human insights.

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one - identify your key activities and make sure you have

more than one option that will still enable the activity

to be carried out as planned. Over the years we have

seen a lot of thriving organisations with a healthy future

fail simply because an adequate succession plan for

management personnel was not in place. Examples of

such a practice has been repeatedly noticed in the case

of family businesses, whereby in the majority of cases

failure to have planned beforehand for the necessary

development and handover to younger generations

has led to such organisations losing business and

eventually closing down. It is also important to note

that such situations have not been prevalent within

any specific industry but is a widespread phenomenon

that has taken place across all local industries. An

example of an organisation that suffered this fate was

a local organisation that had sole representation of a

particular brand in Malta. This successful organisation

thrived through the effective business management

and development by the four founding brothers of this

business. However, there was inadequate preparation

and development for the next generation of the family

to take over, with the unfortunate consequences

that not only was the brand taken over by another

organisation here in Malta, but this particular family-

owned organisation eventually also ceased to exist.

The main reasons leading to this situation were not

the lack of business intelligence of the family members

concerned, but more so the lack of preparation and

proper understanding of the business that the younger

generation of the business failed to acquire.

Succession planning integrates human resource

planning with business planning, marrying the two so

that all key activities are carried out no matter what

happens. Planning for business continuity and the

protection of immovable assets are given priority, so

must the necessary human resource plans ensuring

key activities continue to operate be given their due

importance. Such a necessity is particularly evident

at management level, where all major decisions are

taken and implemented, and failure to have an active

succession plan could have significant adverse effects

upon an organisation’s long-term sustainability.

International experience has proven that the five main

business reasons why it pays an organisation to invest in

a suitable succession plan are the following:

• Continuity of operations; in finance we negotiate

an overdraft facility, and in I.T. we plan towards

data redundancy: similarly in people management

we need to consider the cost(s) of not being able to

carry out these key activities.

• Financial and business loss; the inability to

proceed in a specific course of action could lead

the organisation to losing out on an opportunity, or

incurring penalties for non-completion. Succession

planning is thus not just about the person

carrying out the specific role, but it is more about

maintaining business effectiveness.

• Human capital loss; having a succession plan

already in motion means that process or activity

owners would not only be identified, but any areas

where there could be a potential loss of human

knowledge would also be identified a priori - that

is, before such potential losses actually materialise.

• Competitive edge; being already within the market

means that an organisation has both a presence

and a market following: being certain that the

organisation would be able to keep its’ competitive

edge and improve on this is vital in today’s global

environment. An effective succession planning

framework ensures the organisation’s competitive

edge is retained as all valuable knowledge gained is

retained within the organisation.

• Business goodwill; as employees are recognised

as an organisation’s greatest asset, retention

and effective use of people’s knowledge and

capabilities directly affect business goodwill.

Succession planning also leads to recognising and

giving value to these capabilities as a source of

service differentiation, adding business value and

hence goodwill to the organisation. In the case of

management, more often than not the goodwill

being generated by these employees is vital for the

organisation’s growth.

In today’s global marketplace, business knowledge

and connections have become a strong source of

competitive advantage. The knowledge generated by

employees is an invaluable resource that no organisation

would want to part with; more so if such knowledge is

able to generate continued incremental wealth for the

organisation, as is the case with management personnel.

Hence an effective succession planning framework for

management personnel is vital for maintaining business

continuity, ensuring the organisation’s effective use of

available human capital for continued success.

FEATURE: SUCCESSION PLANNING

58 Summer 2017

LIFESTYLE

PATRICK PSAILA IS THE DIRECTOR OF PSYPOTENTIAL (MALTA). HE IS A REGISTERED PSYCHOLOGIST AND TRAINING CONSULTANT, AND A LICENSED MASTER PRACTITIONER OF NEURO LINGUISTIC PROGRAMMING.

PATRICK J. PSAILA

Your future depends on what

you do today

We believe in the continuous development and offer learning and training opportunities throughout

your career at KSi Malta, which is why we constantly invest in our team.

Visit www.ksimalta.com/careersto view our latest vacancies

KSi Malta is one of the leading audit/accountancy, tax and advisory firms in Malta with a team of highly qualified and competent members of staff. We offer a one-stop shop solution for business affiliates who expect nothing less than

top quality financial information and assistance.

KSi MaltaTel: +356 2122 6176 Email: [email protected]: www.ksimalta.com

Villa Gauci, Mdina Road, Balzan, BZN 9031Malta, Europe

It has become common for professionals to complain

that they have not taken a proper holiday in a long time,

sometimes even years. This has become a growing and

worrying trend where people give up their breaks from

work in order to cope with the increasing demands of

their jobs. While hard work and dedication are virtues

to be admired, taking time off work on a regular basis

is essential for wellbeing, physical and psychological

health, productivity and preventing burnout.

Researcher and author Shawn Achor, concluded that

“the greatest competitive advantage in the modern

economy is a positive and engaged brain. For our brain

to be truly engaged and work at its best it needs regular

breaks”. Scientists have proven that that taking time

away from work can lead to a decrease in cluttered grey

matter function. Our brain needs time to quiet down

and reorganize itself especially when our job consists of

a fast-paced work style, complex problem solving, heavy

demands and tight deadlines.

However, the research offers us some general

recommendations. We need to take regular short

breaks during our working day, at least one day off

during the week, the occasional short two-day break

during the year and at least one long vacation of ten

to fifteen days once a year. These breaks are important

in their own way. While short breaks are useful to keep

us going and preventing us from burning out, longer

breaks are real opportunities to wind down and really

create a healthy disconnection from work where we can

truly relax and “recreate” ourselves. Being away from

work for stretches of time of one or two weeks allows

us to gain a fresh perspective and look at our work more

objectively within the context of our life in general. This

is not easy to do when we are immersed in the daily

incessant and relentless demands of our job.

It can be especially hard to achieve when we regard

our work as a career and mission rather than just a job.

This happens because of our high personal involvement

and investment in our work and because we carry it

out with a deep sense of commitment. As a result we

may find it difficult to detach and disconnect from our

professional role even if it is for just a couple of weeks

a year. I like to call this the “Indispensability Trap”. This

is a particularly dangerous mindset that can eventually

lead to burnout. It is therefore important to integrate

TAKE TIME OFF WORK FOR INCREASED PRODUCTIVITY

The Importance of regular rest, relaxation and leisure

for maximising performance and wellbeing.

So what is the ideal time-off pattern that one should adopt in order to maximize productivity and promote personal wellbeing? To begin with we must recognize that there is no ideal formula. Each of us has different needs and varied circumstances that determine the amount of rest and leisure we require.

60 Summer 2017

mini, short, medium and long breaks during our working

life to make sure that we maintain a sense of health and

balance in the longer term.

Moreover, breaks need to be part of our overall work-

life balance that is more than just taking time off work.

It includes a holistic perspective that integrates our

physical, mental, emotional and spiritual wellbeing. In

the long term this approach to life is what enables us

to reach our full potential and maximize our talents,

productivity and performance.

So what recommendations could you follow in order to

get the highest benefit from your vacation time? The

following are some research-based tips for maximizing

the positive impact of your holidays.

1. Detox digitally – try to limit to an absolute minimum

the level of technology you engage in during your

vacation. The constant bombardment of messages

and demands on your attention from social media,

e-mails, text messages, phone calls, etc. puts a toll

on your mental wellbeing. If you have to respond

to e-mails or other messages during your vacation,

allocate a specific time during the day to attend to

them and then try to switch yourself off. Make sure

you activate a good “out of office” responder that

covers you for urgent matters on your e-mail so

you can put your mind at rest.

2. Do not take your work on vacation! - As much as

possible avoid taking your work with you on your

holidays. Many professionals find this very hard to

accomplish. However if you truly want to unwind

and relax you need to disconnect mentally from

your work and not just physically. This can be hard

to achieve and having your work with you does

not help. While your body may be on holiday your

mind may be still whizzing away thinking of work.

3. Choose vacations that help you to really relax – Many people opt for activity packed, fast paced

hectic holidays where they practically mirror their

normal lifestyle. The idea of a relaxing holiday

is to allow your mind to slow down, unwind and

declutter. Try not to pack every moment of the day

with activity. Create the space to be able to “take

your time” and absorb the experience whether it is

having breakfast, exploring a new area or enjoying

a view.

4. Create a post-vacation buffer zone – Many people

complain about the barrage of e-mails they find

lurking in their inbox when they return from their

holidays. One way of avoiding this overwhelming

feeling is to ease into work by allocating a “buffer

day”. This means that you dedicate your first day

back at work to sort out e-mails. No meetings,

phone calls or responding to client or colleague

requests. If necessary, shorten your vacation by a

day and dedicate that day for a gentle re-entry to

work rather than hitting the ground running.

In conclusion, time off work on a regular basis should

be taken seriously and not regarded as a luxury. When

integrated with a balanced lifestyle it will make us more

productive, creative and efficient in our work. It also

makes us happier and healthier individuals.

LIFESTYLE

62 Summer 2017

FEATURE: LEADERSHIP

The term leadership often conjures different

meanings to different people around the world,

and different things in different situations. It is

also sometimes looked at as a grand term that

is the concern of great business leaders only.

Yet leadership is something that many of us in

different circumstances within our workplace

have been doing or will at some point find

ourselves doing.

If you are in a leadership position, I suggest you take a

moment to reflect on the style of leadership you adopt

most generally.

Are you an autocratic leader – do you keep most of

the authority to yourself? Do you tend not to delegate

much? Do you tend to keep information to yourself? Do

you find yourself telling employees what to do?

Are you a democratic leader – taking the views of

everyone into account? Do you have and use excellent

communication skills? Do you allow employees to take

initiative? Do you stand back from micro managing and

allow employees to take reasonable responsibility?

Are you a paternalistic leader – believing you know what

is best for every member of your team? Do you tend

to treat your staff like a family and find yourself telling

employees what to do?

Are you a laissez-faire leader – hardly interfering at all,

but hardly providing direction to your employees?

LEADERS OPERATE AT THREE LEVELS

At the Strategic level, leadership is about setting

direction and building an inspiring vision. It is about

mapping out where you want to go as an organisation

and being able to get your people there.

From my research on the subject of transformational

leadership as well as my training experiences with

different organisations, the most effective leaders are

those who are capable of creating an inspiring vision of

the future. They provide direction, set priorities, and

present an attractive and convincing depiction of where

they want their organisation to be in the future. They

innovate successfully and are proactive problem solvers.

At the Tactical level, they are concerned with how an

organisation is going to achieve its goals, because

having a vision alone is not enough. I have found the

most effective leaders to be able to motivate and inspire

the people they lead. They are skillful in getting their

people on board and engaged, keeping their own

and their people’s enthusiasm alive, and valuing their

people’s unique contribution in this journey.

At the Operational level, they are part of the team.

In fact, transformational leaders manage their vision

properly. Whether they do it themselves or whether

they have a team of dedicated managers, they remain

on top of things to see that the vision is delivered

successfully. They also manage change effectively,

keeping checks and giving individual consideration for

their people’s wellbeing.

Transformational leaders keep their employees engaged

by developing an incontestable team spirit, by training

and coaching them and by creating an organisational

climate that keeps their employees there and ensures

continued success.

LEADERSHIP CHARACTERISTICS

I have often asked participants in training programmes

to describe characteristics of the best leaders they’ve

worked for. Inevitably, the list of characteristics always

includes: someone to learn from, fair, truthful, caring,

TRANSFORMATIONAL LEADERSHIP

DR NATALIE KENELY IS HEAD OF THE DEPARTMENT OF SOCIAL POLICY AND SOCIAL WORK WITHIN THE FACULTY FOR SOCIAL WELLBEING AT THE UNIVERSITY OF MALTA.

DR NATALIE KENELY


LIFESTYLEFEATURE: LEADERSHIP

able to give praise, good at listening, leads by example,

motivational, realistic, trusting, prepared to fight your

cause, and principled/committed. I also ask participants

for a list of characteristics of bad managers. And

this tends to include: unmotivated, taking praise for

themselves, not enthusiastic, unapproachable, not

caring, inconsistent, and interfering,

One characteristic that I have seen shared by really good

leaders is that they find the right balance between being

concerned for the task and being concerned for the

person. These leaders ensure that tasks are carried out

and goals are reached while safeguarding the wellbeing

of the team members.

ETHICAL LEADERSHIPI cannot emphasise enough the point that

transformational leaders operate from a healthy,

positive and constructive value-base. The need for good

leaders to be ethical in their leadership is embedded

within the definitions of transformational leadership. In

fact, research has become increasingly interested in the

ethics of leadership and authentic leadership.

Brown and Trevino in an article for Leadership Quarterly

(2006, p.595-616), “Ethical Leadership: A review and

future direction”, argue that ethical leadership is defined

in terms of: the moral character of the leader (moral

person); and, leader behaviour aimed at encouraging

the ethical behaviour of followers (moral manager).

Ethical leaders are altruistic, make ethical decisions,

act as a role model to others and have the personal

characteristic of honesty, integrity and trustworthiness.

Without this value base, the characteristics of

transformational leadership could become twisted

and exploited. Idealised Influence could become

manipulation; Inspirational Motivation could be

misused leading to dependence and disempowerment;

Intellectual Stimulation could become an oppression

of independent thought and creativity through the

provision of a “line” to be followed; Individualised

Consideration could be abused turning followers into a

means to an end. Self-interested, weak willed, egoistical

and opportunistic leaders risk becoming unethical in

their behaviour, putting authentic leadership on the line.

Transformational leaders “walk the talk”; they lead by

example, and practice what they preach. This helps

their employees trust them and gives leaders the

determination they need to push their people forward

with excitement and inspiration.

I was born in Ukraine and moved to Malta with my

family when I was 9. While growing up, I was introduced

to various sports and competed at junior regional and

national championships in rhythmic gymnastics in

Ukraine. I was injured at the age of 17 when a metal

scaffolding collapsed on a crowd at a public event in

Malta in 2008.

Despite the injury, I was still determined to lead an

active, independent and healthy life. I was in and out of

hospital for the first four years after my injury, but I still

successfully completed sixth form with my classmates

and started studying ACCA. I also wanted to get back to

sport, and watching the Paralympic Games in London

in 2012 helped me find my way back. The Paralympic

movement helped me realise that many of our

limitations are self-imposed and our will is much more

powerful than any adversity.

I joined the Malta National Paralympic team in 2013,

while continuing my studies and working. Locally, many

athletes have to combine their day job, studies and

pursue their sporting dreams. I have been extremely

lucky to find support from my colleagues and partners at

PwC Malta, who provided me with the flexibility needed

in order to achieve my goals. This culture of flexibility

at PwC has allowed me to progress academically,

professionally and on a personal level. I also received

support from the SportMalta Flexi-training scheme.

Nonetheless, the journey to Rio was a huge challenge,

which entailed endless commitment and self-discipline.

Becoming the first ever female swimmer and the first

female athlete since 1980 to represent Malta at the

Paralympic Games and also qualifying as a certified

Chartered Accountant in the same year was a big

reward for me.

Sport helps us develop emotional maturity, mental

resilience and gain confidence in our abilities. Sport

teaches us many important life skills: what it takes to be

part of a team, how to compete fairly and also how to

win and lose with dignity. Inevitably, all of these lessons

are transposed into our personal and professional lives

at work.

During the past two years, I also had a great opportunity

to work with the European Paralympic Committee as

a Youth Ambassador and raise awareness about para-

sport in our community, encouraging greater grassroots

participation and inspiring youths to continue training

at an elite level. Last year I was part of the #BeActive

2016 campaign, led by SportMalta, as a National Sport

Ambassador. Involvement in these projects motivated

me and a group of Maltese athletes to set up “Malta

Youth Athletes Network” - a non-governmental, voluntary

organisation which works towards representing the

interests of member athletes and designs projects that

can contribute to the development of sport in Malta.

This year turned out to be very special for me, as I was

selected as the winner of the Queen’s Young Leaders

Award for my commitment to raising awareness about

adapted sport. The award was presented by Her

Majesty the Queen at a ceremony in London in June,

where recognition was given to 60 young people aged

between 18 and 29 from around the Commonwealth

who are working hard to drive change within their

communities. It was a privilege for me to be among the

selected winners, who are leading projects and tackling

global issues which include education, climate change,

gender-equality, mental health and disability equality,

amongst others. We received unique mentoring and

training through the Leading Change course, which was

developed by the University of Cambridge’s Institute for

Continuing Education specifically for this programme.

It was an unforgettable experience to me, though the

award itself belongs to every single individual and

organisation that supports my initiatives and to whom

I will always be grateful.

The first female Paralympian representing the country since 1980

Vladyslava speaks about her experience as the first female Paralympian representing the country since 1980, as well as studying and working as an

accountant.

Every single experience that I’ve had as an athlete, whether rewarding or disappointing, has enriched my life. Now, as a Paralympian, I wish to encourage our younger generation to find their passion and to support them in realising their potential in sport.

VLADYSLAVA KRAVCHENKO, 26 YEARS. FIRST FEMALE ATHLETE SINCE 1980 AND FIRST FEMALE SWIMMER TO REPRESENT MALTA AT THE PARALYMPIC GAMES. ACCOUNTANT AT PWC MALTA.

VLADYSLAVA KRAVCHENKO

66 Summer 2017

FEATURE: LANGUAGE

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© 2017. For information, contact Deloitte Malta.

No one knows exactly what the future will be. But, one certainty is tomorrow will be very different than today. New business models challenge traditional tax concepts. Robotics, artificial intelligence and analytics increasingly complement and spur human insight, while automation frees valuable time. It can be challenging to rationalize all of this occurring at the same time. Deloitte anticipates the future and helps you map change in real time.

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Deloitte Malta awarded ‘Malta Tax Firm of the Year’

2017

“Will my grandmother understand this?” this

was a valuable lesson taught to me by the editor

at a financial magazine, my first job in financial

journalism eleven years ago. The publication had

a sophisticated audience of large institutional

investors and finance professionals yet the focus

on simple straight forward language was key in

everything we wrote.

Renowned author George Orwell says a scrupulous

writer should ask himself: What am I trying to say? What

words will express it? What fresh image will make it

clearer? Could I put it more shortly? Have I said anything

that is avoidably ugly?

The general public, including finance professionals, are

barraged by news, information and data so when writing

to engage, making articles relatable and easy to read

should take precedence. Too often the complexity of the

subject matter creeps into our writing and we lose focus

of what a story should really do – show the reader what

it is about rather than pedantically take them through

every minute detail.

In my role as a financial journalist and now as a research

writer and consultant, my writing needs to be clear

and concise. My words act as a filter for the complex

concepts within the financial services industry, whittled

down into something people are going to want to pick

up and read.

Fund managers and institutional investors, the

audiences and clients I deal with, often get caught up

in technical jargon, losing sight of the bigger picture and

the message they are trying to put across. The aim of

someone in the writing profession within the financial

sector should be to absorb the information given by

these highly intelligent people and bring the story to life

with clarity.

When focusing on being straightforward, a writer can

run the risk of being simplistic. A writer or a journalist

should not patronise their audience but provide a well-

rounded picture of what they are trying to express.

The skill of a journalist is to understand the subject

matter as well as the individuals they are interviewing

or writing about. A writer should be able to sift through

large amounts of detailed and sometimes technical

information to draw out the big picture, highlighting the

most important and news worthy elements.

Another question a journalist or writer should ask

themselves is: “so what?” If something is worth writing

about, there has to be a greater purpose, otherwise the

audience will not care. I can explain further by drawing

upon a personal experience when working with a large

asset management firm in London.

A property fund had bucked the market, which in my

view and experience was newsworthy – this happened

during a time when property was under fire, just before

the financial crisis broke in September 2008. However,

I entered into a battle of wills with the press relations

officer at the time. She thought the new fund manager’s

name should have led the press release while I knew we

should lead on the fund’s performance.

This represented the dilemma between stroking the

fund manager’s ego or issuing a press release which

would get press coverage. Editors of magazines,

especially the trade press, tend to shy away from stories

which make an individual the ‘star’ rather choosing to

showcase stories which address broader industry issues.

In the end, my journalistic experience won out and the

press release ran with the fund performance as the

lead. As a result, it got covered by a number of trade

magazines.

So in addition to clarity of language, when writing in

finance, people need to always keep the bigger picture

in mind if they want to engage their readers. Something

that might be ‘big news’ within the microcosm of

a company will probably not matter to most of the

broader readership.

SO WHAT?

ANGELE SPITERI PARIS STARTED WORKING IN FINANCIAL SERVICES AS A JOURNALIST IN LONDON. SHE IS NOW A RESEARCH WRITER AND CONSULTANT WITH COREDATA RESEARCH.

ANGELE SPITERI PARIS

Language and Clarity in Financial Writing

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