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Case Overview: One.Tel was the fourth largest telecommunications company in

Australia before its collapse in 2001. The management of One.Tel was able to conceal
signs of financial distress in the company, arguably due to poor corporate governance
in a number of areas, including board composition, board committees, internal control,
audit, and executive remuneration.

Case Analysis Proper:

Point of View: CONSULTANT

Statement of the Problem: How can One.Tel improve on the internal control
policy and corporate governance considering that the company's independence is
jeopardized?

Alternative Courses of Action:

ACAs Brief Description Strengths Weaknesses

I. Restructure the Governance Quicker and more This will take
governance restructuring is the effective decision time since
and enhancement of the making governance
management to ability to perform the Improved restructuring is a
clarify the key roles and communication complex
Boards role and responsibilities of the across the organizational
responsibilities. board. Restructuring organization change.
enables everyone Mandatory The cost would
connected to orientation and probably be high
governance to better education (hiring a
focus on the future, sessions external
strengthen Annual evaluation consultant)
relationships with the of board and This would be
key stakeholders, and committee not effective if
would clearly define members and the motive of
the responsibilities goal setting. the Board is
between the board Increased focus unethical.
and the management. on strategic and
policy issues
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II. Implement a Granting credit in Less bad debts by Less customers

good credit order to win sales is a monitoring of because only
control system. fact of life for many receivables few may meet
businesses, as if the Less written-off the terms and
likelihood that receivables as few conditions set
majority of your credit bad debts are Offer of
customers will fail to recognized. discounts which
pay on time. Setting Faster operating is a reduction to
up a good credit cycle because of sales
control system will liquidity Difficulty to
reduce bad debts and High liquidity have a new and
improve cash flow. because of faster loyal customers
collection.

III. Ensure the fair Strict adherence to There would be There are really
representation specific standards, in no problems no technical
of financial One.Tels perspective, when it comes to measures that
statements and, namely Australian reporting. would gauge
in lieu with this, GAAP and/or IFRS Assurance and independence of
hire should be observed. convenience is mind.
independent The management justified when Limitations are
external must stick with the complied with. imposed by the
auditors. policies stated in the The independent management
standards regarding auditors would itself.
accounting changes possibly uncover Even if the
and estimates and any fraudulent controls are
auditing standards activities that may strictly
regarding independent occur. implemented,
auditing. the
management
might still
interfere.
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CRITERIA TOTAL
FOR
ACAs
DECISION-
MAKING
Cost Viability and Time
Competency
Efficient Effectivity Conserving

I. Restructure
the governance
and
management to 2 3 3 1 9
clarify the
Boards role and
responsibilities.

II. Implement a
good credit 1 2 2 3 8
control system.

III. Ensure
the fair
representation
of financial
statements and, 3 1 1 2 7
in lieu with this,
hire independent
external
auditors.

DECISION MATRIX:
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Conclusion:

One Tel was a group of Australian-based telecommunications companies,

including principally the publicly listed One Tel Ltd. established in 1995 soon after
deregulation of the Australian telecommunications industry, most of which are
currently under external administration by court appointed liquidators.

The companys slogan was Youll tell your friends about One Tel , to draw the
connection between the brand and personal communication. However, telling your
friends about One Tel would not be all about their business, it will be more about
their unbridled growth.

One Tel attempted to create a youth-oriented image to sell their mobile phones
and One Net internet services. It became Australias fourth largest
telecommunications company before collapsing in 2001.

One Tel continuous failures had become a big distress for their management.
They have faced their huge problems with alternative strategies that did not work.
They have made decisions that were responsible enough to lead them to
deteriorations. To be able to still dream that they would be the leading phone
company, they covered their mistakes by covering it up with another leaving them
doomed.

One Tel still assumed that they had a glooming business even having a weak
corporate governance. The board of directors which composed of eight (8) members
which included five (5) non-executive directors, the Finance and Audit Committee,
the Remuneration Committee, and the Corporate Governance Committee were all
comprised of the same two non-executive directors, Rodney Adler and John Greaves
who were closely related with the Chief of Executive Officer, Jodee Rich. Since an
audit committee should fairly present the financial statement of a company, One
Tels breaching and not following the accounting standards, financial statement
could be viewed as ineffectiveness of its audit committee. Also, most of the non-
executive directors of the company was actually have or had the qualifications as
independent directors. Consequently, there was also lack of diversity of opinions in
the Board. Furthermore, responsibilities between the board chairs to their
management and its activities were clearly undefined because of their interchanging
non-presence in an official meeting held by the company. Clearly, One Tels
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corporate governance should have a balance of authority so that they did not
exercise their powers too much in an unfairly way.

Second, having problems with their cash balance, earnings, creditors, and
debtors made the company lose a good credit control system. But because of having
high hopes that they would become the great telecommunications in Australia, One
Tel uses its aggressive marketing by taking unworthy creditors for them just to sign
up with the company. One Tel experienced high default rates but still uses the
relatively high margins on other products to counter its loss-making services. Lastly,
having a poor financial statement, discrepancies in several records of the company,
did not have a real time or even close to real-time information about their
performance and the accuracy and integrity of financial report that did not even get
the highest priority from senior management have resulted of the collapse of the
company.

However, if One Tel made their internal control strong, had a financial recording
quality, audit quality, and effective management, firms performance would be vitally
effective. This case made us realized that we should know each of our
responsibilities and perform appropriately to our designated position; having good
corporate governance would not lead the One Tel to corporate collapse.

Recommendation:

One.Tel had more than two million customers across the world and operations
in eight different countries allowing it to secure a large number of shares in the
global market. It was once a leading telecommunications company in Australia.
However, when the standard of corporate governance is applied to One Tel, it would
appear that many of its practices did not comply with good governance. More
importantly, governance failure exacerbated the conditions why One-Tel collapsed.

As the consultants, we presented the following alternative courses of actions

that are useful for the kind of action needed to be done:

I. There should be division of responsibilities among different authorities to ensure

that there is oversight and review to catch errors as well as to prevent fraud or
theft because doing double duty as One.Tel is exposing may compromise the
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important wall between audit and remuneration, which helps to avoid any
conflict of interest.
II. One. Tel must implement an effective credit policy which includes clearly outlined
procedures and actions which assess the creditworthiness of their customers so
the company can immediately take steps to mitigate risk and minimize losses to
maximize profits.

III. One.Tels management must hire external auditor with independence so that the
audit opinion will not be influenced by any relationship with the client and enable
to assess the reliability of management assertions regarding the fair
representation of financial statements. The external auditors are expected to
give an unbiased and honest professional opinion on the financial statements to
the interested users and in accordance with certain standards like Australian
GAAP and/or IFRS.

We, the consultants, therefore recommend ACA 1 which focuses on a

governance restructuring. The benefit of governance restructuring is an enhanced
ability to perform key roles and responsibilities of the board of directors. The
structure should be aligned with, and support, the systems mission and vision.
Proper segregation of duties and responsibilities among directors and employees is a
preventive in nature so that fraudulent activities such as concealing losses,
collusions, and any conflicts of interest would be avoided. Independence of every
director in a company is a paramount to strengthen relationships with key
stakeholders.

Thus, when it is applied, directors, managers and also employees of One.Tel will
be connected to governance to focus more on the ultimate goal of the company.
Moreover, governance restructuring ensures high-quality due care and customers
satisfaction, protect the financial health of the organization, ensure effective
executive leadership, strengthen relationships with key stakeholders, and perpetuate
effective governance.
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