As crises and pandemics occur, appropriate preparedness and a proactive response can help your business navigate challenging times.
The recent outbreak of novel coronavirus (COVID-19) has introduced new challenges to the business environment which call for a measured, practical and informed approach from leaders.
The subjects below will help you understand your business’ exposure to disruption caused by COVID-19, and could help you position your business to be more resilient.
We know that some organisations are trying to operate with pandemic response arrangements that are too general for the specific impacts of COVID-19. To ensure your business can continue with minimal disruption to operations, you should consider identifying critical business processes and key relationships such as staff and third party suppliers that may be affected.
Some of the issues you may be currently facing include:
Preparing your business to respond to the current challenges can feel overwhelming. To assist you further, KPMG has developed the resources below to support your organisation’s response to crises.
With the increasing use of remote technology and employees working from home, it is important that cyber security is given due consideration in your contingency planning. Cyber criminals may take advantage of global uncertainty and disruption with additional phishing, online scams and malware that are delivered when users access COVID-19 heat maps and access links on social media.
Immediate steps we recommend you take are:
Read KPMG's guidelines for CIOs and CISOs to help organisations to function as pandemic containment measures are implemented – COVID-19: What the CIO and CISO can do to help.
The COVID-19 pandemic demonstrates the unprecedented levels of global connectivity we work and live with; and how seemingly unrelated issues (e.g. the resilience of businesses, dependence on supply chains, and normal social interactions) can be simultaneously severely compromised.
Inadequate responses to this event can stem from a lack of appreciation for the interconnected and interdependent nature of risk – which can no longer be analysed through historical data or managed as singular events.
During this time, we encourage you to assess both traditional measures of risk severity and likelihood – but also risk interconnectedness (risks that link together) and velocity (expected speed with which risks will affect operations).
As the potential impacts of COVID-19 continue to evolve, various accounting estimates, which depend on future forecasts, could be impacted. Examples on specific areas that may be impacted include; carrying value of goodwill, onerous contract provisions, net realisable value of inventory, deferred tax assets, cash flow hedge accounting and the measurement of expected credit losses.
If your business is impacted, we encourage you to monitor the situation and maintain close communication with key stakeholders. Changes in circumstances may require additional or enhanced disclosures in financial reports.
Read more in our latest edition of Reporting News – COVID-19 edition.
Overseas, we are seeing signs that organised crime has been quick to respond to COVID-19 disruption, mounting large scale orchestrated campaigns to defraud banking customers, with a particular target on the elderly and vulnerable.
History tells us that sudden corrections to the economy can result in a period of increased fraud. The 1987 share market crash and the 2007-2008 GFC both resulted in increased levels of fraud reporting. Everybody is looking to the right (and to COVID-19) while fraud is happening on the left. Maintaining a balance between monitoring this risk and responding to the many other implications of COVID-19 will be challenging and opens the opportunity for blind or weak spots in business processes.
We encourage you to anticipate this risk and include it in your response plans. To assist you further, KPMG has developed the resource below to support your organisation’s response.
It is vital that businesses understand the detail of their cash flows and what levers are available to preserve liquidity. When modelling scenarios, take a dispassionate approach, think laterally and allow cash headroom for contingencies.
Tactics to maximise cash include daily management and monitoring throughout the business, accelerating cash collection and reducing or deferring costs.
Businesses should create action plans tailored to address the impacts of each potential scenario. This involves communication with stakeholders where it’s important to give them confidence that your plans are well considered and robust. This is of particular importance in discussions with lenders if you are seeking increases/extensions of facilities, repayment holidays or covenant waivers.
When taking actions to address short-term challenges, it is also important to maintain a medium-to-longer term perspective so that businesses are well positioned to prosper when the recovery arrives.
Please refer to our resources below for further analysis and insights.
Over the last few weeks organisations will have activated Business Continuity Plans and COVID-19 Crisis Management Teams. Typically, these temporary teams are set up for a few weeks, however based on what we have seen in the rest of the world we know that these teams need to be in place for many months.
Organisations need to think about developing more permanent teams to support the business, and having the program and project management disciplines to support remote working arrangements, illness etc. embedded into the overall governance ecosystem as the recovery happens.
In parallel, new initiatives to respond to the changes in the organisation paradigm will be developed that organisations need to mobilise and which will take effort to establish.
The COVID-19 pandemic has resulted in both business leaders and owners having to mobilise quickly and make decisions for the short-term, with implications for the long-term that we might not fully understand yet. As global supply chains, the financial markets and the workings of day-to-day businesses are disrupted, many business owners are focusing on resilience measures, ensuring risks are anticipated and managed for both employees and clients.
With this in mind, we have identified the following areas for businesses to focus on when responding to this event: people, liquidity, accessing assistance, business continuity, strategy, risk, supply chain and communications with bank and stakeholders. Read more in our article below.
To understand the implications and opportunities presented by the Government’s Economic Response Package, see our latest commentary (as at 25 March).
Communications during a crisis must be timely and efficient. Messages to key stakeholders should convey ability, humanity and integrity to ensure confidence and understanding regarding the organisations' actions and responses.
A crisis management plan needs to be supported by a clear and comprehensive communications plan and a core element of these plans is that both the communications and the strategy are presented from a people-first and empathetic perspective.
Proactively keeping stakeholders engaged and aware of a changing situation will assist an organisation to effectively navigate new and developing challenges.
Managing the supply chain in a crisis is a key aspect of ensuring business continuity – regardless of whether a business is open or closed. This can ensure each organisation best manages its commitments to staff, customers and suppliers going in, throughout, and coming out of this difficult time.
This could involve:
Due to current restrictions on travel, a number of employees who are currently in New Zealand may exceed their visa thresholds. Where a visa holder is working for an extended period in or outside New Zealand, there are personal and corporate tax implications to consider. Immigration New Zealand is dealing with this on a case by case basis and accordingly it is important to speak with your immigration advisor to address these issues.
Likewise, employees who originally intended to be in New Zealand within the relevant thresholds for tax purposes may inadvertently breach their dates. It is important to ensure that the appropriate planning is in place to manage the associated tax implications.
The safety of your people is a priority. Once that is secured, from an employee mobility perspective, thoughts need to turn to managing costs to protect the business.
This will involve planning for, and addressing the implications of, the business and the individuals impacted across: