RISK MANAGEMENT RISK FINANCING MULTIPLE CHOICE PLEASE READ THE QUESTIONS CAREFULLY, RESEARCH AND ANSWER CORRECTLY! 15) SA
Question:
RISK MANAGEMENT
RISK FINANCING
MULTIPLE CHOICE
PLEASE READ THE QUESTIONS CAREFULLY, RESEARCH AND ANSWER CORRECTLY!
15) SA Logistix is a transport company that operates across South Africa. The company has a fleet of specialised vehicles to transport a wide range of products such as fresh foodstuffs, chemicals, and hazardous products.
The company is preparing for the annual insurance review. The Board of SA Logistix has instructed the Chief Financial Officer (CFO) and the Chief Risk Officer (CRO) to determine the appropriate risk financing strategies for the fleet. To determine the risk financing alternatives, the CRO recommended that the maximum probable yearly aggregate loss (MPY) must be calculated for the fleet.
The historical financial data of the fleet is incomplete and certain critical components need to be calculated. Claims inflation forms a significant component of the total claims cost per accident and for that reason it is important to include claims inflation in the data. For the purpose of this exercise, the CRO defined claims inflation as the administration cost and effect of exchange rate fluctuation. The board of Logistix stated in the last annual report that the company adopted a conservative risk appetite. Exchange rates have a significant effect on claims inflation as 40% of claims cost is in foreign currency.
Refer to the table for the annual inflation rate and appropriate exchange rate. The historical information available for the fleet is as follows:
YEAR | ANNUAL INFLATION RATE | ZAR/USD | % OF CLAIMS COST IN FX | NUMBER OF VEHICLES | BUDGETED COST PER VEHICLE | NUMBER OF ACCIDENTS | AVERAGE DAMAGE PER ACCIDENT | CLAIMS ADMIN |
2013 | 4,56% | 11,2 | 40% | 120 | R 1 800 000 | 50 | R 100 000 | R 9 000 |
2014 | 4,89% | 12,5 | 40% | 120 | R 1 900 000 | 60 | R120 000 | |
2015 | 5% | 13,2 | 40% | 120 | R 2 000 000 | 60 | R135 000 | |
2016 | 5,32% | 15,9 | 40% | 150 | R 2 100 000 | 70 | R150 000 | |
2017 | 5,42% | 15,8 | 40% | 150 | R 2 200 000 | 70 | R170 000 | |
2018 | 5,75% | 16,7 | 40% | 150 | R 2 300 000 | 90 | R200 000 | |
2019 | 5,83% | 17,5 | 40% | 150 | R 2 700 000 | 90 | R230 000 | |
2020 | 7,13% | 19,8 | 40% | 150 | R 2 750 000 | 80 | R255 000 | |
2021 | 7,43% | 20,6 | 40% | 150 | R 2 800 000 | 100 | R270 000 | |
2022 | 7,80% | 22,5 | 40% | 150 | R 2 850 000 | 90 | R300 000 |
Question
Determine the claims administration marginal cost per claim for the year 2021 by incorporating the information provided in the table above.
a.
R980
b.
R633
c.
R1 106
d.
R878
16) Umda University is a privately owned education institution operating in four provinces of South Africa. The council of the university held four meetings during the 2023 academic year ending July 2023 where the following were documents were discussed:
(1) Risk Register (5 top risks)
No | Risk | Control | Residual Risk | Responsible Executive Manager |
1 | High rate of failure in all undergraduate degrees, certificates and diplomas | Recruit 500 etutors at R5000 remuneration per month each tutor. | An overall average of 10% failure rate is anticipated | Chief Financial Officer (Chattered Accountant) |
| 2022: 45% average 2023: 40% average | ||||
2 | Increasing outstanding fees per year. | Secure the services of a debt collector at a cost of 5% per each 100 percent collected account. | An average of 50% outstanding fees per year is anticipated | Register of students (PHD Bus Management) |
| 2022: 55% of fees 2023: 60% of fees | ||||
3 | Irregular spending by management per annual budget | No irregular spending is permitted. | Zero tolerance. | Risk, Governance and Assurance Services Officer (PHD Risk Management) |
| 2022: R3 million 2023: R3,5 million | ||||
4 | Staff costs negative variance per annual budget | Freeze vacant posts and not recruit. | Maintain staff costs negative variance of less than R500000 per annum | Human resource Director (PHD Bus Management) |
| 2022: R1,5 million 2023: R2 million | ||||
5 | Decreasing funding from sponsors per annual budget | Increase student fees by 1% to all registered students in the next academic period | 20% of the annual budget could be funded by sponsors. | Vice Chancellor (PHD Bus Management) |
| 2022: 30% 2023: 25% |
Notes:
All risk management reports were timely communicated to both the management and council.
(2) Audit Report (matters needing urgent attention)
a. Debt cost costs increased from 3% to 5% of university income.
b. Non-adherence to accounting policies.
c. All computer assets of the university have exceeded the SARS prescribed depreciation rates and period.
d. Insurance policies of the university have lapsed due to non-payment of premium.
e. Performance information
The university has only achieved 2 out of 6 strategic objectives.
The university teaching and research has been downgraded by a recognised institution from a rank 11 to 26.
Council has not ensured the implementations of recommendations made by both the Internal Audit and Auditors during the last three years.
f. Audit opinion, the university obtained a disqualified opinion from auditors.
(3) Financial Information
Account | 2021 | 2022 | 2023 |
Deficit | R32 million | R40 million | R45 million |
Bank overdraft | R300 000 | R4500 000 | R5200 000 |
Financial reserves | R12 million | R6 million | R2 million |
(4) Council Minutes (approved)
Composition
Council has five non-executive members who receives remuneration. Risk related fees for non-executive members are R25 000 per meeting. The chair of the Council, who is a non-executive member, receives R50 000 per meeting. While the deputy chair, also a non-executive member, receives R45000 per meeting. All other members of council do not receive remuneration. The cost of each meeting, excluding the remuneration of members, is R45000. It is expected that this cost will increase by 5% in the next academic period.
Decisions
Zero increase on meeting fees of Council members in the next academic period.
Increase the number of Council meetings from 4 to 6 per academic year.
Management to apply for government funding even though the Finance Minister announced the blanket 20% budget cut in all social spending.
Management not allowed to make any loans.
Replenish the university financial reserves by contributing 10% of surplus each year for the next ten years.
Question
Which of the following controls of the university may worsen the cashflow position of the university?
a.
recruitment of etutors
b.
No irregular spending
c.
Debt collection
d.
Freezing of vacant posts
17) SA Logistix is a transport company that operates across South Africa. The company has a fleet of specialised vehicles to transport a wide range of products such as fresh foodstuffs, chemicals, and hazardous products.
The company is preparing for the annual insurance review. The Board of SA Logistix has instructed the Chief Financial Officer (CFO) and the Chief Risk Officer (CRO) to determine the appropriate risk financing strategies for the fleet. To determine the risk financing alternatives, the CRO recommended that the maximum probable yearly aggregate loss (MPY) must be calculated for the fleet.
The historical financial data of the fleet is incomplete and certain critical components need to be calculated. Claims inflation forms a significant component of the total claims cost per accident and for that reason it is important to include claims inflation in the data. For the purpose of this exercise, the CRO defined claims inflation as the administration cost and effect of exchange rate fluctuation. The board of Logistix stated in the last annual report that the company adopted a conservative risk appetite. Exchange rates have a significant effect on claims inflation as 40% of claims cost is in foreign currency.
Refer to the table for the annual inflation rate and appropriate exchange rate. The historical information available for the fleet is as follows:
YEAR | ANNUAL INFLATION RATE | ZAR/USD | % OF CLAIMS COST IN FX | NUMBER OF VEHICLES | BUDGETED COST PER VEHICLE | NUMBER OF ACCIDENTS | AVERAGE DAMAGE PER ACCIDENT | CLAIMS ADMIN |
2013 | 4,56% | 11,2 | 40% | 120 | R 1 800 000 | 50 | R 100 000 | R 9 000 |
2014 | 4,89% | 12,5 | 40% | 120 | R 1 900 000 | 60 | R120 000 | |
2015 | 5% | 13,2 | 40% | 120 | R 2 000 000 | 60 | R135 000 | |
2016 | 5,32% | 15,9 | 40% | 150 | R 2 100 000 | 70 | R150 000 | |
2017 | 5,42% | 15,8 | 40% | 150 | R 2 200 000 | 70 | R170 000 | |
2018 | 5,75% | 16,7 | 40% | 150 | R 2 300 000 | 90 | R200 000 | |
2019 | 5,83% | 17,5 | 40% | 150 | R 2 700 000 | 90 | R230 000 | |
2020 | 7,13% | 19,8 | 40% | 150 | R 2 750 000 | 80 | R255 000 | |
2021 | 7,43% | 20,6 | 40% | 150 | R 2 800 000 | 100 | R270 000 | |
2022 | 7,80% | 22,5 | 40% | 150 | R 2 850 000 | 90 | R300 000 |
Question Calculate the claims administration cost per claim for the year 2022 by incorporating the information provided in the table above.
a.
R10 439
b.
R15 281
c.
R14 175
d.R9 440
18) Tenor refers to ...
a.
the option to issue the contingent capital has a limited duration and only gives a right to issue a perpetual claim
b.
the exercise style refers to the timing of the potential conversion into paid-in capital. The right to exercise may be restricted to a few specific dates, the expiry date or any time during the life of the option.
c.
the inclusion in the specified terms of the facility
d.
contingent capital gives the enterprise the right to issue paid-in debt, equity, or hybrid capital, which can be regarded as the underlying asset of the option.
19) Umda University is a privately owned education institution operating in four provinces of South Africa. The council of the university held four meetings during the 2023 academic year ending July 2023, where the following documents were discussed:
(1) Risk register (5 top risks)
No | Risk | Control | Residual risk | Responsible executive manager |
1 | High rate of failure in all undergraduate degrees, certificates and diplomas | Recruit 500 e-tutors at R5000 remuneration per month per tutor. | An overall average of 10% failure rate is anticipated | Chief Financial Officer (chartered accountant) |
| 2022: 45% average 2023: 40% average | ||||
2 | Increasing outstanding fees per year | Secure the services of a debt collector at a cost of 5% per each 100% collected account. | An average of 50% outstanding fees per year is anticipated. | Registrar of students (PhD Business Management) |
| 2022: 55% of fees 2023: 60% of fees | ||||
3 | Irregular spending by management per annual budget | No irregular spending is permitted. | Zero tolerance | Risk, governance and assurance services officer (PhD Risk Management) |
| 2022: R3 million 2023: R3,5 million | ||||
4 | Staff costs negative variance per annual budget | Freeze vacant posts and do not recruit. | Maintain staff negative cost variance of less than R500000 per annum | Human resource director (PhD Business Management) |
| 2022: R1,5 million 2023: R2 million | ||||
5 | Decreasing funding from sponsors per annual budget | Increase student fees by 1% for all registered students in the next academic period. | 20% of the annual budget could be funded by sponsors. | Vice-Chancellor (PhD Business Management) |
| 2022: 30% 2023: 25% |
Notes:
All risk management reports were timely communicated to both the management and council.
(2) Audit report (matters needing urgent attention)
a. Debt costs increased from 3% to 5% of university income.
b. Non-adherence to accounting policies.
c. All computer assets of the university have exceeded the SARS-prescribed depreciation rates and period.
d. Insurance policies of the university have lapsed due to non-payment of premium.
(3) Financial information
Account | 2021 | 2022 | 2023 |
Deficit | R32 million | R40 million | R45 million |
Bank overdraft | R300 000 | R4500 000 | R5200 000 |
Financial reserves | R12 million | R6 million | R2 million |
e. Performance information
The university has only achieved 2 out of 6 strategic objectives.
A recognised institution has downgraded the university teaching and research from a ranking of 11 to 26.
Council has not ensured the implementations of recommendations made by both the Internal Audit and Auditors during the last three years.
f. Audit opinion: the university obtained a disqualified opinion from auditors.
Council minutes (approved)
Composition
Council has five non-executive members who receive remuneration. Risk-related fees for non-executive members are R25 000 per meeting. The chair of the Council, who is a non-executive member, receives R50 000 per meeting, while the deputy chair, also a non-executive member, receives R45000 per meeting. All other members of Council do not receive remuneration. The cost of each meeting, excluding the remuneration of members, is R45000. It is expected that this cost will increase by 5% in the next academic period.
Decisions
Zero increase on meeting fees of Council members in the next academic period.
Increase the number of Council meetings from 4 to 6 per academic year.
Management to apply for government funding even though the Minister of Finance announced a blanket 20% budget cut in all social spending.
Management is not allowed to make any loans.
Replenish the university financial reserves by contributing 10% of surplus each year for the next ten years.
Question
Calculate the maximum marginal cost of the decision of Council to increase their meetings from 4 to 6 per annum
a.
R869 000,00
b.
R434 500,00
c.
R94 500,00
d.
R340 000,00
20) Umda University is a privately owned education institution operating in four provinces of South Africa. The council of the university held four meetings during the 2023 academic year ending July 2023, where the following documents were discussed:
(1) Risk register (5 top risks)
No | Risk | Control | Residual risk | Responsible executive manager |
1 | High rate of failure in all undergraduate degrees, certificates and diplomas | Recruit 500 e-tutors at R5000 remuneration per month per tutor. | An overall average of 10% failure rate is anticipated | Chief Financial Officer (chartered accountant) |
| 2022: 45% average 2023: 40% average | ||||
2 | Increasing outstanding fees per year | Secure the services of a debt collector at a cost of 5% per each 100% collected account. | An average of 50% outstanding fees per year is anticipated. | Registrar of students (PhD Business Management) |
| 2022: 55% of fees 2023: 60% of fees | ||||
3 | Irregular spending by management per annual budget | No irregular spending is permitted. | Zero tolerance | Risk, governance and assurance services officer (PhD Risk Management) |
| 2022: R3 million 2023: R3,5 million | ||||
4 | Staff costs negative variance per annual budget | Freeze vacant posts and do not recruit. | Maintain staff negative cost variance of less than R500000 per annum | Human resource director (PhD Business Management) |
| 2022: R1,5 million 2023: R2 million | ||||
5 | Decreasing funding from sponsors per annual budget | Increase student fees by 1% for all registered students in the next academic period. | 20% of the annual budget could be funded by sponsors. | Vice-Chancellor (PhD Business Management) |
| 2022: 30% 2023: 25% |
Notes:
All risk management reports were timely communicated to both the management and council.
(2) Audit report (matters needing urgent attention)
a. Debt costs increased from 3% to 5% of university income.
b. Non-adherence to accounting policies.
c. All computer assets of the university have exceeded the SARS-prescribed depreciation rates and period.
d. Insurance policies of the university have lapsed due to non-payment of premium.
(3) Financial information
Account | 2021 | 2022 | 2023 |
Deficit | R32 million | R40 million | R45 million |
Bank overdraft | R300 000 | R4500 000 | R5200 000 |
Financial reserves | R12 million | R6 million | R2 million |
e. Performance information
The university has only achieved 2 out of 6 strategic objectives.
A recognised institution has downgraded the university teaching and research from a ranking of 11 to 26.
Council has not ensured the implementations of recommendations made by both the Internal Audit and Auditors during the last three years.
f. Audit opinion: the university obtained a disqualified opinion from auditors.
Council minutes (approved)
Composition
Council has five non-executive members who receive remuneration. Risk-related fees for non-executive members are R25 000 per meeting. The chair of the Council, who is a non-executive member, receives R50 000 per meeting, while the deputy chair, also a non-executive member, receives R45000 per meeting. All other members of Council do not receive remuneration. The cost of each meeting, excluding the remuneration of members, is R45000. It is expected that this cost will increase by 5% in the next academic period.
Decisions
Zero increase on meeting fees of Council members in the next academic period.
Increase the number of Council meetings from 4 to 6 per academic year.
Management to apply for government funding even though the Minister of Finance announced a blanket 20% budget cut in all social spending.
Management is not allowed to make any loans.
Replenish the university financial reserves by contributing 10% of surplus each year for the next ten years.
Question
... should present the risk register to the university council.
a.
Vice Principal
b.
Chief Financial Officer
c.
Registrar of students
d.
Risk, Governance and Assurance Services Officer
21) Umda University is a privately owned education institution operating in four provinces of South Africa. The council of the university held four meetings during the 2023 academic year ending July 2023, where the following documents were discussed:
(1) Risk register (5 top risks)
No | Risk | Control | Residual risk | Responsible executive manager |
1 | High rate of failure in all undergraduate degrees, certificates and diplomas | Recruit 500 e-tutors at R5000 remuneration per month per tutor. | An overall average of 10% failure rate is anticipated | Chief Financial Officer (chartered accountant) |
| 2022: 45% average 2023: 40% average | ||||
2 | Increasing outstanding fees per year | Secure the services of a debt collector at a cost of 5% per each 100% collected account. | An average of 50% outstanding fees per year is anticipated. | Registrar of students (PhD Business Management) |
| 2022: 55% of fees 2023: 60% of fees | ||||
3 | Irregular spending by management per annual budget | No irregular spending is permitted. | Zero tolerance | Risk, governance and assurance services officer (PhD Risk Management) |
| 2022: R3 million 2023: R3,5 million | ||||
4 | Staff costs negative variance per annual budget | Freeze vacant posts and do not recruit. | Maintain staff negative cost variance of less than R500000 per annum | Human resource director (PhD Business Management) |
| 2022: R1,5 million 2023: R2 million | ||||
5 | Decreasing funding from sponsors per annual budget | Increase student fees by 1% for all registered students in the next academic period. | 20% of the annual budget could be funded by sponsors. | Vice-Chancellor (PhD Business Management) |
| 2022: 30% 2023: 25% |
Notes:
All risk management reports were timely communicated to both the management and council.
(2) Audit report (matters needing urgent attention)
a. Debt costs increased from 3% to 5% of university income.
b. Non-adherence to accounting policies.
c. All computer assets of the university have exceeded the SARS-prescribed depreciation rates and period.
d. Insurance policies of the university have lapsed due to non-payment of premium.
(3) Financial information
Account | 2021 | 2022 | 2023 |
Deficit | R32 million | R40 million | R45 million |
Bank overdraft | R300 000 | R4500 000 | R5200 000 |
Financial reserves | R12 million | R6 million | R2 million |
e. Performance information
The university has only achieved 2 out of 6 strategic objectives.
A recognised institution has downgraded the university teaching and research from a ranking of 11 to 26.
Council has not ensured the implementations of recommendations made by both the Internal Audit and Auditors during the last three years.
f. Audit opinion: the university obtained a disqualified opinion from auditors.
Council minutes (approved)
Composition
Council has five non-executive members who receive remuneration. Risk-related fees for non-executive members are R25 000 per meeting. The chair of the Council, who is a non-executive member, receives R50 000 per meeting, while the deputy chair, also a non-executive member, receives R45000 per meeting. All other members of Council do not receive remuneration. The cost of each meeting, excluding the remuneration of members, is R45000. It is expected that this cost will increase by 5% in the next academic period.
Decisions
Zero increase on meeting fees of Council members in the next academic period.
Increase the number of Council meetings from 4 to 6 per academic year.
Management to apply for government funding even though the Minister of Finance announced a blanket 20% budget cut in all social spending.
Management is not allowed to make any loans.
Replenish the university financial reserves by contributing 10% of surplus each year for the next ten years.
Question
Self-protection needs to be enhanced because of ...
i. lapsed insurance policies.
ii. depleted financial reserves.
iii. poor financial performance
iv. increasing overdraft
a.
i and iii
b.
i,ii, iii and iv
c.
i and iv
d.
i and ii
22) Umda University is a privately owned education institution operating in four provinces of South Africa. The council of the university held four meetings during the 2023 academic year ending July 2023, where the following documents were discussed:
(1) Risk register (5 top risks)
No | Risk | Control | Residual risk | Responsible executive manager |
1 | High rate of failure in all undergraduate degrees, certificates and diplomas | Recruit 500 e-tutors at R5000 remuneration per month per tutor. | An overall average of 10% failure rate is anticipated | Chief Financial Officer (chartered accountant) |
| 2022: 45% average 2023: 40% average | ||||
2 | Increasing outstanding fees per year | Secure the services of a debt collector at a cost of 5% per each 100% collected account. | An average of 50% outstanding fees per year is anticipated. | Registrar of students (PhD Business Management) |
| 2022: 55% of fees 2023: 60% of fees | ||||
3 | Irregular spending by management per annual budget | No irregular spending is permitted. | Zero tolerance | Risk, governance and assurance services officer (PhD Risk Management) |
| 2022: R3 million 2023: R3,5 million | ||||
4 | Staff costs negative variance per annual budget | Freeze vacant posts and do not recruit. | Maintain staff negative cost variance of less than R500000 per annum | Human resource director (PhD Business Management) |
| 2022: R1,5 million 2023: R2 million | ||||
5 | Decreasing funding from sponsors per annual budget | Increase student fees by 1% for all registered students in the next academic period. | 20% of the annual budget could be funded by sponsors. | Vice-Chancellor (PhD Business Management) |
| 2022: 30% 2023: 25% |
Notes:
All risk management reports were timely communicated to both the management and council.
(2) Audit report (matters needing urgent attention)
a. Debt costs increased from 3% to 5% of university income.
b. Non-adherence to accounting policies.
c. All computer assets of the university have exceeded the SARS-prescribed depreciation rates and period.
d. Insurance policies of the university have lapsed due to non-payment of premium.
(3) Financial information
Account | 2021 | 2022 | 2023 |
Deficit | R32 million | R40 million | R45 million |
Bank overdraft | R300 000 | R4500 000 | R5200 000 |
Financial reserves | R12 million | R6 million | R2 million |
e. Performance information
The university has only achieved 2 out of 6 strategic objectives.
A recognised institution has downgraded the university teaching and research from a ranking of 11 to 26.
Council has not ensured the implementations of recommendations made by both the Internal Audit and Auditors during the last three years.
f. Audit opinion: the university obtained a disqualified opinion from auditors.
Council minutes (approved)
Composition
Council has five non-executive members who receive remuneration. Risk-related fees for non-executive members are R25 000 per meeting. The chair of the Council, who is a non-executive member, receives R50 000 per meeting, while the deputy chair, also a non-executive member, receives R45000 per meeting. All other members of Council do not receive remuneration. The cost of each meeting, excluding the remuneration of members, is R45000. It is expected that this cost will increase by 5% in the next academic period.
Decisions
Zero increase on meeting fees of Council members in the next academic period.
Increase the number of Council meetings from 4 to 6 per academic year.
Management to apply for government funding even though the Minister of Finance announced a blanket 20% budget cut in all social spending.
Management is not allowed to make any loans.
Replenish the university financial reserves by contributing 10% of surplus each year for the next ten years.
Question
Lapsed insurance policies result in ...
a.
higher risk retention
b.
lesser self-funding
c.
lesser- capital location
d.
higher risk transfer
23) ABC (Pty)Ltd is an SME furniture retailing business. On the 1st of January 2022, the premises were subject to a serious fire which destroyed the building, all contents and stock. Despite an effort to find alternative temporary premises, nothing suitable could be located before expiry of the maximum indemnity period (MIP). The insured are tenants in the building and only insure Contents, Stock and BI under their policy. There is a cessation of rent clause within the lease with the landlord. The policy is subject to average. BI insurance is provided as follows:
Gross Profit sum insured R200,000
Maximum Indemnity Period 12 months
Uninsured Working Expenses as stated in the policy are:
Purchases, net of stock movement
Delivery charges
Bad debts
The company continued to pay staff during the interruption period and all other costs remained the same.
Turnover for the years before the fire was as follows:
2019 R959,591
2020 R1,165,775
2021 R1,088,819
Financial details for the year ending 31 December 2021:
Sales | R1,088,819 | |
Finance commission | ||
Income from concession | ||
Turnover | R1,088,819 | |
Opening stock | R21,367 | |
Production wages | R71,494 | |
Purchases | R608,323 | |
Closing stock | -R22,646 | |
Cost of sales | R678,538 | |
Gross profit | R410,281 | |
Wages and salaries | R126,368 | |
Rent | R44,068 | |
Rates | R73,678 | |
Delivery charges | R36,422 | |
Utilities | R8,507 | |
Cleaning | R372 | |
Waste disposal | R779 | |
Repairs and maintenance | R2,912 | |
Communication | R2,481 | |
Advertising | R37,198 | |
Bad debts | R2,500 | |
Credit card charges | R548 | |
Depreciation | R1,015 | |
Total overheads | R336,848 | |
Net profit | R73,433 |
Question
Calculate the net loss before average for 2021
a.
R169551
b.
R71 862
c.
R244068
d.
R413596
24) Umda University is a privately owned education institution operating in four provinces of South Africa. The council of the university held four meetings during the 2023 academic year ending July 2023, where the following documents were discussed:
(1) Risk register (5 top risks)
No | Risk | Control | Residual risk | Responsible executive manager |
1 | High rate of failure in all undergraduate degrees, certificates and diplomas | Recruit 500 e-tutors at R5000 remuneration per month per tutor. | An overall average of 10% failure rate is anticipated | Chief Financial Officer (chartered accountant) |
| 2022: 45% average 2023: 40% average | ||||
2 | Increasing outstanding fees per year | Secure the services of a debt collector at a cost of 5% per each 100% collected account. | An average of 50% outstanding fees per year is anticipated. | Registrar of students (PhD Business Management) |
| 2022: 55% of fees 2023: 60% of fees | ||||
3 | Irregular spending by management per annual budget | No irregular spending is permitted. | Zero tolerance | Risk, governance and assurance services officer (PhD Risk Management) |
| 2022: R3 million 2023: R3,5 million | ||||
4 | Staff costs negative variance per annual budget | Freeze vacant posts and do not recruit. | Maintain staff negative cost variance of less than R500000 per annum | Human resource director (PhD Business Management) |
| 2022: R1,5 million 2023: R2 million | ||||
5 | Decreasing funding from sponsors per annual budget | Increase student fees by 1% for all registered students in the next academic period. | 20% of the annual budget could be funded by sponsors. | Vice-Chancellor (PhD Business Management) |
| 2022: 30% 2023: 25% |
Notes:
All risk management reports were timely communicated to both the management and council.
(2) Audit report (matters needing urgent attention)
a. Debt costs increased from 3% to 5% of university income.
b. Non-adherence to accounting policies.
c. All computer assets of the university have exceeded the SARS-prescribed depreciation rates and period.
d. Insurance policies of the university have lapsed due to non-payment of premium.
(3) Financial information
Account | 2021 | 2022 | 2023 |
Deficit | R32 million | R40 million | R45 million |
Bank overdraft | R300 000 | R4500 000 | R5200 000 |
Financial reserves | R12 million | R6 million | R2 million |
e. Performance information
The university has only achieved 2 out of 6 strategic objectives.
A recognised institution has downgraded the university teaching and research from a ranking of 11 to 26.
Council has not ensured the implementations of recommendations made by both the Internal Audit and Auditors during the last three years.
f. Audit opinion: the university obtained a disqualified opinion from auditors.
Council minutes (approved)
Composition
Council has five non-executive members who receive remuneration. Risk-related fees for non-executive members are R25 000 per meeting. The chair of the Council, who is a non-executive member, receives R50 000 per meeting, while the deputy chair, also a non-executive member, receives R45000 per meeting. All other members of Council do not receive remuneration. The cost of each meeting, excluding the remuneration of members, is R45000. It is expected that this cost will increase by 5% in the next academic period.
Decisions
Zero increase on meeting fees of Council members in the next academic period.
Increase the number of Council meetings from 4 to 6 per academic year.
Management to apply for government funding even though the Minister of Finance announced a blanket 20% budget cut in all social spending.
Management is not allowed to make any loans.
Replenish the university financial reserves by contributing 10% of surplus each year for the next ten years.
Question
Which of the following risk areas has incorrect level of human resource responsibility?
a.
High rate of failure
b.
Increasing outstanding fees
c.
Irregular spending
d.
Staff costs negative variance
25) Umda University is a privately owned education institution operating in four provinces of South Africa. The council of the university held four meetings during the 2023 academic year ending July 2023, where the following documents were discussed:
(1) Risk register (5 top risks)
No | Risk | Control | Residual risk | Responsible executive manager |
1 | High rate of failure in all undergraduate degrees, certificates and diplomas | Recruit 500 e-tutors at R5000 remuneration per month per tutor. | An overall average of 10% failure rate is anticipated | Chief Financial Officer (chartered accountant) |
| 2022: 45% average 2023: 40% average | ||||
2 | Increasing outstanding fees per year | Secure the services of a debt collector at a cost of 5% per each 100% collected account. | An average of 50% outstanding fees per year is anticipated. | Registrar of students (PhD Business Management) |
| 2022: 55% of fees 2023: 60% of fees | ||||
3 | Irregular spending by management per annual budget | No irregular spending is permitted. | Zero tolerance | Risk, governance and assurance services officer (PhD Risk Management) |
| 2022: R3 million 2023: R3,5 million | ||||
4 | Staff costs negative variance per annual budget | Freeze vacant posts and do not recruit. | Maintain staff negative cost variance of less than R500000 per annum | Human resource director (PhD Business Management) |
| 2022: R1,5 million 2023: R2 million | ||||
5 | Decreasing funding from sponsors per annual budget | Increase student fees by 1% for all registered students in the next academic period. | 20% of the annual budget could be funded by sponsors. | Vice-Chancellor (PhD Business Management) |
| 2022: 30% 2023: 25% |
Notes:
All risk management reports were timely communicated to both the management and council.
(2) Audit report (matters needing urgent attention)
a. Debt costs increased from 3% to 5% of university income.
b. Non-adherence to accounting policies.
c. All computer assets of the university have exceeded the SARS-prescribed depreciation rates and period.
d. Insurance policies of the university have lapsed due to non-payment of premium.
(3) Financial information
Account | 2021 | 2022 | 2023 |
Deficit | R32 million | R40 million | R45 million |
Bank overdraft | R300 000 | R4500 000 | R5200 000 |
Financial reserves | R12 million | R6 million | R2 million |
e. Performance information
The university has only achieved 2 out of 6 strategic objectives.
A recognised institution has downgraded the university teaching and research from a ranking of 11 to 26.
Council has not ensured the implementations of recommendations made by both the Internal Audit and Auditors during the last three years.
f. Audit opinion: the university obtained a disqualified opinion from auditors.
Council minutes (approved)
Composition
Council has five non-executive members who receive remuneration. Risk-related fees for non-executive members are R25 000 per meeting. The chair of the Council, who is a non-executive member, receives R50 000 per meeting, while the deputy chair, also a non-executive member, receives R45000 per meeting. All other members of Council do not receive remuneration. The cost of each meeting, excluding the remuneration of members, is R45000. It is expected that this cost will increase by 5% in the next academic period.
Decisions
Zero increase on meeting fees of Council members in the next academic period.
Increase the number of Council meetings from 4 to 6 per academic year.
Management to apply for government funding even though the Minister of Finance announced a blanket 20% budget cut in all social spending.
Management is not allowed to make any loans.
Replenish the university financial reserves by contributing 10% of surplus each year for the next ten years.
Question
Which of the following controls are preventative?
a.
Freezing of vacant posts
b.
No irregular spending
c.
recruitment of etutors
d.
Debt collection
PLEASE READ THE QUESTIONS CAREFULLY, RESEARCH AND ANSWER CORRECTLY!
Expert Answer:
