SBL Mock Exam

ACCA Specimen Paper 2 – Rail Co

Suggested Answer By Sir Hasan Dossani

Answer 1A – Agency Relationship, rights and responsibilities (8+2 marks):

Link answer with Exhibit 1
Format:

Briefing Paper
To: Rail Co Trust Board
From: Chairman of NCG Committee
Subject: Agency relationship and Role of NEDs
Date: dd-mm-yy

This briefing paper explains agency relationship for parties involved in

Rail Co and assesses the role and value of NEDs as a public sector
company.

Principal:
▪ Rail Co is a public company funded by the government
▪ Hence principal are tax payers / citizen of Beeland
▪ They expect that the funds are used effectively, efficiently and economically as well as there is
Value for Money (VFM)
Agent:
▪ Ministry of Transport / Rail Co Trust Board
▪ Responsible to give performance targets and hold the board of directors responsible for
effective and efficient use of funds
Sub-agent:
▪ Board of Director
▪ Responsible for strategic direction as well as operational activities

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Answer 1B – Role and Value of NEDs (6+2 marks):
Link answer with Exhibit 1
▪ Current Board of Directors consists of 10 directors, out of which 7 are NEDs
▪ All committees comprise of NEDs
▪ There are 4 committees (SHE, Audit and Risk, Remuneration & Nomination Committees)
Roles:
▪ Strategic: Bring external experience and leadership
▪ Performance: Review the performance of executive directors
▪ Risk: Ensure effective risk management and internal controls
▪ People: Nomination, remuneration and succession planning of directors
Value / advantage:
▪ Independence
▪ Adds confidence to principal
▪ Challenges executive directors

Mention one disadvantage also as the professional marks required Evaluation Skill which covers both
pros and cons
▪ Lack of time (one NED absent from board meeting ) or lack of independence (2 NEDs more than
9 years with Rail co)

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Answer 2A – Review of Passenger survey results and relative performance (12+2 marks):
Link answer with Exhibit 3 and Exhibit 4
Format:

Report
To: Rail Co Trust Board
From: Assistant Auditor NAA
Subject: Passenger Survey and Relative Performance
Date: dd-mm-yy

This report evaluates the passenger survey results and reviews the relative
performance of Rail Co over last three years.

Passenger Survey Result:

▪ Overall satisfaction declined by 3% over last year and short by 6% over 2016 target
o Reason: Overcrowded trains, no online facility, increasingly frustrated

▪ Satisfaction with ticket buying facility declined by 4% over last year and short by 6% over 2016
target
o Reason: Lack of online facility, queening up for half an hour to buy ticket

▪ Helpfulness / attitude of staff increased by 2% over last year and met its 2016 target of 75%

▪ Value for money declined by 6% over last year and short by 8% over 2016 target
o Reason: Prices increased by 10% to cover revenue losses

Relative Performance with Competitors:

▪ Revenue growth much lower than competitors despite growth in passenger numbers by 15%
(ANR 5%, Ceeland 8% & Rail Co: 2.5%)
o Reason: Significant number of passengers travelling without ticket

▪ Operating costs much higher than competitors (ANR 68%, Ceeland 65% & Rail Co: 74%)
o Reason: Inefficiencies, revenue losses

▪ Average ticket price much higher than competitors (ANR $43, Ceeland $40 & Rail Co: $65)
o Reason: Increase in ticket prices to cover for inefficiencies and passengers travelling
without tickets

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 ▪ Lost time injuries much higher than competitors (ANR 355 days, Ceeland 211 days & Rail Co:
481)
o Reason: Lack of training and low staff morale

Answer 2B – Effectiveness of internal controls and CEO failing in his fiduciary duties (8+2 marks):
Link answer with Exhibit 4
Format:

Letter
Assistant Auditor
National Audit Authority
Address 1, Beeland
Chairman
Rail Co Trust Board
Address 2, Beeland

Subject: Internal Controls and CEO Fiduciary Duties

Respected Chairman

I have reviewed the effectiveness of the internal controls at Rail Co and

examined the role of the CEO in relation to his fiduciary duties. Below are my
findings and comments.

Weakness of Internal Controls:

▪ No ticket barriers at 40% of the stations
▪ Lack of online ticket facility
▪ Lack of training leading to high health and safety risk
▪ Staff wages not in line with inflation

CEO failing his fiduciary duties:

▪ He believed that the target for punctuality set by the Board for 2016 was unachievable and
therefore should be ignored. He cannot ignore targets set by the board.
▪ He strongly believed that the majority of the customers did not understand the concept of value
for money and therefore this measure is flawed. He should investigate the reasons rather than
putting the blame on customers.

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 ▪ He did not address the risk of customer fraud, which has been an ongoing concern for last few
years. He disagrees to the installation of ticket barriers as he thinks that the cost would far
outweigh the benefit. It is estimated that Rail Co is losing $ 542m each year due to lack of barriers.
He should first review a formal cost benefit analysis prepared by director finance before making
such claims.

Answer 3A – Suitability of Shortlisted Candidates (8+2 marks):

Link answer with Exhibit 5
Format:

Report
To: Chair, NCG
From: Chairperson of Adhoc Committee by NCG
Subject: Shortlisted candidates for CEO position
Date: dd-mm-yy

This report evaluates the shortlisted candidates for the CEO position and
recommend the most suitable candidate.

Candidate A:
▪ CEO of largest train service in Jayland since 2009
▪ Rail industry experience of 7 years
▪ CEO experience of 16 years
▪ Maintaining close relationship with external bodies, staff, media, customers and public which
currently is a weak area in Rail Co

Candidate B:
▪ CEO of world’s third aviation engine manufacturer in Ceeland since 2007
▪ Rail industry experience of 3 years (as Finance Director)
▪ CEO experience of 9 years
▪ Focused on performance against KPIs, which currently is a weak area in Rail Co

Recommendation:
Candidate A is more suitable as he is more experienced as CEO (16 year experience) and has more
comprehensive understanding of the rail industry (CEO of largest rail services in Jayland for 7 years).

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Answer 3B – Contribution to Talent Management (6+2 marks):

Slide 1: Talent Management Issues

• High turnover
• Low staff morale
• Salaries not aligned with inflation

Supporting notes:
Explain the above points in paragraph form

Slide 2: Contribution by CEO to Talent Management

• Create right culture and working environment
• HR policies and procedures
• Fair remuneration
• Training and development

Supporting notes:
Explain the above points in paragraph form

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Answer 4A – Analysis of Fraud Spreadsheet (8+2 marks):
Link answer with Exhibit 6
Format:

Report
To: Chair, Audit & Risk Committee
From: Internal Auditor
Subject: Analysis of Fraud Spreadsheet
Date: dd-mm-yy

This report analysis the fraud spreadsheet prepared by the Finance Controller,
including the assumptions and explaining the implications.

Analysis:
▪ In Region 1, there are 10 stations out of which 4 stations do not have ticket barriers (40%)
▪ It is quite clear that the stations not having ticket barriers have significantly higher amount of
fraud % (ranging from 7.54% - 9.78%) as compared to stations having ticket barriers ( ranging
from 1.10% - 1.63%)
▪ The preventable annual fraud for Region 1 works out to be $ 27.1m
▪ If this is extrapolated to 20 regions, the preventable annual fraud works out to be $ 542.6m for
Rail Co as a whole

Questions Regarding Assumptions:

What is the basis and validity of the following assumptions:
▪ Estimated % railway users per town and spend per ticket
▪ Assumed average % of unpreventable fraud 1.28%
▪ It is assumed that all regions of Beeland are of similar size and structure to Region 1, which is
quite unlikely

Impact:
This spreadsheet shows that Rail Co lost significant amount of revenue in 2016 ($542.6m) by not installing
ticket barriers at all its stations. This amount represents 13% of the actual revenue received for 2016.
Rail Co management should urgently initiate a high priority project to tighten controls over the risk of
customer frauds.

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Answer 4B – Suitable measures to reduce the fraud (8+2 marks):
▪ Install ticket barriers at all the stations
▪ Increase number of ticket checkers on the train
▪ Increase ticket counters at stations to reduce queuing time
▪ Introduce online ticket option to facilitate customers
▪ Increase fine or penalty in case any passenger found without ticket

Answer 5A – How online ticketing can benefit in CRM (8+2 marks):

▪ CRM helps in building one-to-one relationship with customers using internet technologies
o Customer Acquisition (e.g. email database, e-marketing, etc.)
o Customer Retention (e.g. order placing / tracking, reminders, auto payment, etc.)

▪ 4 areas where CRM can add value:

o Sales management (order placing / tracking, reminders, auto payment)
o Service (notifications, train schedules, complaints, FAQs)
o Marketing (e marketing, promotions, individualization)
o Analysis (Big Data, intelligence)

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Answer 5B – Project Initiation Document (PID) for online ticketing (8+2 marks):

Scope & Objective To implement online ticketing system in order to increase revenue and
customer satisfaction
Cost Benefit Analysis Detailed CBA to be undertaken
Costs:
Hardware upgrade, website development, infrastructure, cyber
security, salaries, maintenance, license costs, etc.

Benefits:
Increase in revenue
Project Sponsor IT Director Rail Co - Tomas Kline
Project Manager From Project and Infrastructure Dept, Rail Co
Project Team Outsourced to external developers
Key Stakeholders • Passengers
• Board of Directors
• Rail Co Trust Board
Duration 12 months
Risks • System / technical issues
• Time overrun
• Cost overrun
• Internet related risks (cyber, outage, hacking, virus, etc.)
Constraint • Human resource
• Funding
Governance / Reporting Board of Directors / Project Steering Group
Monitoring Monthly progress report and tracking

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