Contingency Planning-Ronalds LLP


Lessons from the Corona Virus Pandemic.

To say there is uncertainty in the business world is an understatement. The corona virus crisis may go down as one of the most disruptive healthcare crisis in a distant memory. We have to agree it is not business as normal. Though bleak, we can peep and in a near-distant future, it will be back to business. Prudence requires planning for the aftermath. This is not the first and certainly not the last such occurrence. Humanity has experienced many of these plagues and after it is done and dusted, people pick up their hoes and get back to business. But then, what do we learn?

From the turn of events, learning from the previous epidemics like Ebola and SARS, most of the governments and corporations were not prepared to face a disruption of such a scale. The anticipation of such an epidemic to get out of hand was not there leaving China to struggle with it alone for several months. It is a unique situation of unplanned occurrences since the dynamics involve factors above any one country or corporation. Whereas one could have internal controls and measures most of the business disruptions may occur due to disruption of the supply chain and the market where the demand for the products decreases temporarily.

This is a clarion call to have more robust interconnected international contingency plans not only for governments but for corporations too. A need to have the necessary structures in place and work on the preparedness to curb such emergencies. Soon businesses will resume, we shall be liable to pay bills, staff salaries will be due, rent, utilities, and other administrative expenses. But the question is “How do we go about it?

COVID-19 has disrupted businesses globally and may plunge most Small and Medium Enterprises into unforeseen uncertainties and difficulties to return to normalcy after the crisis. This could be attributed to a lack of contingency planning. 

What is Contingency Planning

Contingency planning is an alternative course of action also known as “plan B” used by organizations to respond to disasters, crisis and other events that may crop up unexpectedly. This serves as a shock absorber to cushion from the consequences associated with such risks. There is no one ideal contingent plan for all businesses. However, this is tailor-made depending on the uniqueness of an organization. In a business set up, we call it a Business Continuity Plan (BCP).

Why do we need a Business Continuity Plan (BCP)?

  1. To minimize downtime so that the organization will pick up and continue with its operation as soon as possible.
  2. To protect important items like data, inventory and other assets that keep the business running.
  3. To give a sense of confidence that the business will continue to operate in the foreseeable future despite any disruption.
  4. Backup the business by having off-campus facilities where your business can be moved to continue operations irrespective of any damage or limited access you may experience.
  5. To give peace of mind that even if disaster strikes, the business does not become static and take longer to recover.
For most SMEs, it may be costly to establish Business Continuity Committees to take full charge of the processes. The committee may need facilitation which may increase operational costs but, in most cases, the associated costs may not be comparable to some of the unexpected risks and uncertainties

How to go about it

  1. Develop a formal policy to provide the authority and guidance necessary to develop an effective contingency plan.
  2. Carry out your Business Impact Analysis (BIA) to identify the critical components that support the business.
  3. Identify precautionary controls to reduce the effects of system disruptions 
  4. Design contingency strategies to ensure the system is recovered quickly and effectively after a disruption.
  5. These develop detailed guidance and procedures for reinstating a damaged system that should be unique to the system’s security impact level and recovery requirements.
  6. Test, train and perform mock exercises to validate recovery capabilities. Training prepares the employees in charge of competent activation in the event of a disaster. Mock exercises help to identify planning gaps and combined activities to continually improve plan effectiveness and overall organization preparedness.
  7. Maintenance and Sustenance through regular checks on validity. The plan should be a living document that is updated regularly to remain current with system developments and organizational changes.

Other measures that we may need in place include,

  1. Emergency response mechanism
  2. Security control systems.
  3. Incidence reporting structures.
  4. Proper communication channels.
  5. Clean desk policies

What about Tax planning?

Our president, Uhuru Kenyatta in his press briefing dated 25th March 2020 announced various tax reliefs and mentioned on tax refunds effective from the 1st April 2020 as follows,
  1. 100% tax relief for people earning less than Ksh.24000.
  2. Reduction in tax rates.
    1. PAYE to 25%,
    2. corporation tax to 25%,
    3. Turnover tax to 1%,
    4. VAT to 14%.
  3. Processing of tax refunds.
However, is this enough for our businesses? Given that the economy is likely to cripple down globally and more seriously in our country, as business people we need to find better ways of handling our tax liability. With the current situation, businesses may be faced with the following challenges.
  1. Failure to meet tax filing timelines.
  2. Incorrect records may be used in calculating tax liabilities due to the nature of the work environment (working from home).
  3. Closure of businesses yet liable to pay taxes like PAYE.
  4. Wrong Tax Computations.
  5. Late tax payments.
This exposes businesses to tax penalties, fines and interest payables on uncleared tax liabilities. This gives a big reason why we need tax planning and especially during the current crisis. Consequently, and in the short term, we may need to consider the following tax planning solutions: 
  1. Tax-loss harvesting by using the previous years’ losses if any to offset the current year’s tax liability.
  2. Applying for existing tax refunds.
  3. Filing tax returns in time.
  4. Making online tax payments and other payment options like Mobile money transfers.
  5. Opting to recruit interns to benefit from the tax relief for every 10 interns.
  6. Checking and rechecking our tax computations before submission.

Audit and Accounting Firm in Kenya

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