Question

CK investments (Pty) is a local hand sanitizing production company. The company was
incorporated in 2010.
The company was started by Charles Mujende who is the 100% shareholder. CK is run by the
owner’s brother in law, Lazareth Shilongo CA(NAM), the CEO of the company. Charles started
the company using his pension fund of N$ 200 000.00.
The start-up funds were used to build the production centre in Tsumeb where the sanitisers are
produced. The ingredients used to make the sanitiser include water from a nearby lake, alcohol
and fragrance. CK investments is known to make sanitizers that leave your skin clean, smelling
good and moisturized, they have patented their recipe and production processes. The sanitiser
is packaged in plastic bottles. It is company policy that all spoilage from production be dumped
in the lake to minimise waste management costs.

You are a charted accountant and you went to university with Lazareth, the two of you have
remained good friends since your time at university. Lazareth has asked you to assist the
company with accounting, finance and internal audit functions of the company as they do not
currently have a CFO or CAE. You accepted the job because he has promised you a handsome
service fee that you will be paid in cash at the end of every month, off the books.
The company employs 500 men to produce, package and sell the sanitisers. All the salesmen
are paid on a commission basis only. The company has a list of commercial suppliers whom
they have a three-year sales agreement with. The CEO is output driven and is known to fire
salespersons who do not sell more than N$10 000.00 worth of sanitiser per month. The CEO
and all executives receive annual bonuses based on the profit before tax of the company.
In 2020, the demand for hand sanitisers increased exponentially due to the Corona virus. The
government has put out a tender to local companies to produce hand sanitizers. The tendering
process is highly competitive.
Fortunately, the audit committee chair, who is also the sales executive at CK, Sidney Haufiku is
good friends with the government official who is overseeing the tender process. Sidney has
invited the government official and his family to a nearby lodge for the weekend. All expenses
for this trip were covered by CK investments and expensed in terms S11a of the income tax act.
On the Saturday afternoon Sidney had a drink with the government official to discuss the
tender. Sidney proposed that he could service the tender at a cost of N$3m, half the market
value of sanitizers to save the government money if he could be guaranteed that the tender
would be awarded to CK Investments. The government official agreed that given countries
financial position, they would agree to the N$3m.
On 30 March the board had their first and last board meeting for the year. The audit committee
has not had a meeting and no other committees have been established as yet. At that meeting
Sidney briefed the board on his deal with the government official. Wilhelm Gariseb, is the
production executive and a member of the board, his department has been experiencing a
shortage of pharmaceutical alcohol in 2020. He proposed that to be able to produce at such low
costs, they could use less alcohol and more water to make the sanitizers. The board consisting of Lazareth Shilongo (chair of the board), Sidney Haufiku (audit comm chair) and Wilhelm Gariseb (member of the board), resolved to apply for the tender at a low cost using less alcohol At the same meeting, the board learned that they were required to hire an external auditor.
Lazareth suggested that you be appointed as the auditor as you are already familiar with the
business. The board members agreed, and you were appointed as the auditor.
On 29 May 2020, a newspaper article published that a local company CK Investments had been
selling the government ineffective sanitizer that was not strong enough to cleanse or sanitize
skin. The government has distributed this sanitizer to schools and hospitals. As a result, the
virus was able to easily spread as people would go about day to day activities under the
assumption that they had effectively sanitized their hands.
After a legal inquiry the company was found guilty of several legal violations. As a result, the
company was liquidated, and all 500 employees were left unemployed.

Question 5 (2)
The executive and government official agreed that the company would benefit from the
contract as they would have more income and the government would save costs from the 3m
dollar deal. Which method of ethical evaluation did they use and why?
Question 6 (2)
What kind of economic system is CK investments operating in? Please provide a reason for your
conclusion.

question 7

Assume that CK is the only seller of sanitizer in the country. What kind of competitive
environment do they operate in? Please draw the demand curves for this type of competition.
Question 8 (5)
Would you agree or disagree that CK investments is operating sustainably? Please provide
reasons for your answer.
Question 9 (10)
Identify any ethical concerns you may in terms of the CPC, based on the company description
above.
Question 10 (12)
Please raise any corporate governance concerns you noted in the description above based on
your knowledge of King 3/4. Please state the principle first and then apply it to the scenario
above.

Answer 1

5. METHOD OF ETHICAL EVALUATION USED

A. FROM THE COMPANY'S SIDE - RESPONSIBILITY TOWARDS THE EMPLOYEES , THE GOING CONCERN PRINCIPLE AND THE RESPONSIBILITIES TOWARDS SUPPLY CHAIN MANAGEMENT

COMPANY CAN APPLIED FOLLOWING CRITERIAS WHICH LEADS AS THE TENDER MAY HAVE BENEFITED THE COMPANY SO AS TO REMAIN A MARKET LEADER WHICH IN TURN WOULD FULFILL THEIR RESPONSIBILITIES TOWARDS THE EMPLOYEES AND THE SUPPLY CHAIN MANAGEMENT AS IT WOULD LEAD TO CREATION OF GREAT SUPPLY CHAIN OF NETWORK TO MARKET THE PRODUCTS.

B. FROM THE GOVERNMENT'S SIDE - DUE TO SAVING ON THE COST OF GOODS PURCHASED FOR PUBLIC HEALTH AND WELFARE , GOVERNMENT AGENTS EVALUATED THE ANGLE OF SAVING EXPENSE MONEY WHICH CAN BE USED ON OTHER PUBLIC BENEFIT POLICIES

6. THE CK INVESTMENT OPERATED UNDER A MARKET ECONOMIC SYSTEM

WERE FIRMS AND HOUSEHOLDS SELF-INTEREST TO DETERMINE HOW RESOURCES GET ALLOCATED, WHAT PRODUCTS GET PRODUCED AND WHO BUYS THE PRODUCTS. THIS IS JUST OPPOSITE TO HOW A COMMAND ECONOMY WORKS, WHERE THE CENTRAL GOVERNMENT GETS TO KEEP THE PROFITS

IN THIS FORM OF ECONOMY, THERE IS A DISTINCTION BETWEEN THE GOVERNMENT AND THE MARKET. AS IN THE ABOVE CASE THERE WAS NOTHING FROM THE PART OF GOVERNMENT ON HOW THE PRODUCTS LIKE SANITIZER TO BE PRODUCED FOR PUBLIC HEALTH AND WHAT SHOULD BE THE COMPONENTS OR HOW SHOULD THESE BE PRODUCED

7. THIS TYPE OF MARKET IS CALLED MONOPOLY MARKET

IN THIS CASE, THE ENTIR MARKET IS STRUCTUR AND CONTROLLED BY A SINGLE VENDOR, SELLING A SPECIFIC GOOD. HERE THERE IS NO COMPETITION FACED BY THE SELLER.

THERE IS 4 TYPES OF MONOPOLY:-

A.  NATURAL MONOPOLY- COSTS ARE REDUCED BY HAVING A SINGLE SUPPLIER

B) GEOGRAPHIC MONOPOLY- ITS CONCENTRATED IN A SMALL TOWN, DUE TO ITS LOCATION NO OTHER BUSINESS OFFERS COMPETITION

C) GOVERNMENT MONOPOLY. GOVERNMENT OWNED AND OPERATED BUSINESS

D) TECHNOLOGICAL MONOPOLY.

DEMAND CURVE FOR THIS TYPE OF COMPETITION

8. NO , CK INVESTMENST WAS NOT OPERATING SUSTAINABLY AS THE EMPLOYEES ANNUAL BONUS WAS PAID FROM PROFIT BEFORE TAX , AND THEY WERE NOT HAVING A FIXED SLARY SYTEM ALSO.

9. Ethical Concerns regarding CPC:

a. "The CEO is outputdriven and is known to fire sales people who don't sell sanitiser in excess of N$10 000,00 a month." - Toxic workplace culture

b. A newspaper article published on 29 May 2020 indicating that a local CK Investments company had sold the government ineffective sanitizer that was not good enough to purify or sanitise the skin. This was provided to schools and hospitals by the government. The virus was therefore able to spread quickly, as people go about daily activities, supposing they have sanitised their hands effectively.- Transmission of diseases and in worst case scenarios end of life

c. The sanitizer is wrapped in plastic bottles - Pollution

d. Business policy seeks to reduce the costs of waste disposal by throwing all spoilage from manufacturing into the lake. - Water pollution

10. There was absence of the following principles of corporate governance:

a. Recognition of the stakeholders' legitimate interests.

b. Promoting better results

c. Risk recognition and management

d. Encouraging responsible and ethical decision making