Você está na página 1de 12

Table of Content



Part I: Executive Summary

Part II: Statement of the Problem

Part III: Causes of the problem

Part IV: Decision Criteria and Alternative Solution

Part V: Alternative Solution, Implementation and Justification



Part I: Executive Summary

Flat Cargo Berhad (FCB) is an air cargo company that was listed in Bursa Malaysia since 15
September 2001 and it was one of the largest airfreight companies in Malaysia. However, in
this case, the auditor from Kencana & Associates which is Mr. Chuah Mun Soong has
discovered several suspicious and questionable results which is indirectly lead to a delay in
finalizing the auditors report. Hence, the main problem faced by Mr. Chuah is he was
believed there might be a high possibility that FCB is involving in fraud. So, the problem in
FCB should be identified and the solution also should be implemented. This can give
immediate effect in order to avoid devastating FCB reputation as well as allowing FCB
remained as the nations leading air cargo carrier. The problem that rose in the case is about
the accounting fraud, weak in the corporate governance and incompetence of auditors. The
accounting fraud was being spotted based on the fraudulent of company transactions. For the
weak corporate governance, Board of Director FCB does not have a balance of executive
directors and non-executive directors as mentioned in MCCG.
For the recommended plan of action, we have suggested that FCB need to strengthen
their internal controls. They need to strengthen their internal control by establishing
segregation of duties policies. This is important to avoid fraud from occur. Other than that,
FCB need to strengthen their internal audit committee. This is because they are the one of the
components of internal control. The internal audit committee is the one that can help the
company to give a fair view on the figure in financial statement.

Part II: Statement of the Problems

1) Choosing between SAP and ACCPA to upgrade ATLAMs accounting system.

The main issues that occur in this case is about choosing the new system that can be
implemented by ATLAM which is SAP or ACCPA to upgrade their accounting system.
ATLAM need to consider about the implementation cost, facilities and expertise to make the
decision. They also need to consider the time of the system take to be implemented. The
implementation of SAP will create many challenges, risks and higher cost said by Zulkifli
and Lim in the article.

2) Termination of Lim
In the case of SAP for ATLAM, Lim was having conflict on opinion with Zulkifli when
discussing the matter of SAP system in ATLAM. Lim was disagreed to implement the SAP
system in ATLAM because he know there is extreme factors will faced such as low of fund,
lack of expertise, and short of facilities. He relies on his experience in ATLAM then suggests
that need to use ACCPAC system rather than SAP system.
These contribute to the conflict when Zulkifli was very unsatisfied with Lims behaviour and
intended to kick him out of the project team. Kamal advise him that the critical ideas of Lim
is good for organization since he was very experienced in such related industry. He, advised
Zulkifli to reconsider on the termination of Lim.

Issues 3: Resistance to Change

This resistance to change issue refers to developing a new accounting system with the
PETRA group-wide SAP system. Zulkifli as Finance Manger concern that whether ATLAMs
employee would be ready to embrace the new system. We found that there are several reasons
the ATLAM is resistance to change at that time. Most reasons are their lack of information
about SAP system and also lack of knowledge about this system. This is, creating the
misunderstanding between Lim and Zulkifli. Lim understanding is SAP system is only
suitable for manufacturing industry and this system was costly compared to ACCPAC.
In other hands, ATLAM is resistance to change because they are facing the lack of resource to
implement SAP system which are need a lots of funds, equipments, spaces, and intelligence
resources. The project team members were complaint they are not enough Personal
Computers in the departments to make this practical to them. Then they do not even have the
space available to house the system, some of the employee in ATLAM have never used a
Personal Computer before and lack of the knowledge about information technology.
Furthermore, employees are also fear of loss power when change the system in ATLAM
operation. For information, ATLAM is a PETRA subsidiary and has to link its system to
PETRAs to match with their group reporting structure. Due to this reason, ATLAMs
employees are fear of loss of the power to control the system operating and their old job also
will be separately divided to each others. They are worried that may change their role and

Part III: Causes of the Problems

The problems have been occurred because of several causes. The first causes can be
related to fraud triangle. There are three stages in fraud triangle which are pressure,
opportunity and rationalization. In this case, the company had been pressured to sustain as
industry leader in Malaysia air cargo carrier and maintain reputation FCB under the crisis of
increase in oil prices. The air cargo industry is described as highly competitive with low
profit margin. Therefore, to maintain themselves as one of the largest air freight companies in
Malaysia, the company make some adjustment to the financial report to make them to
maintain the increment of profit. For the second stages of fraud triangles which are
opportunities, fraud also can happen when the company giving the opportunities to the
worker to behave unethically by having poor internal control and structure.
The independence of audit committee can affect the financial report. As we can see
one of the members of audit committee previously is the chairman of audit committee and
currently in the year 2006 act as member of audit committee. He held a large number of
shares which amounted to 30,550,000, take up the position of the top management team, and
employee share option scheme committee. With the previous and current position held by Ali
Bin Ahmad, he had the ability to influence the other audit committee so it can lead fraudulent
act and the financial report are being influence and bias. The last stage is rationalization.
Rationalization is the behaviours are justified and explained in a rational or logical way to
avoid the true explanation. The fraudster justifies his fraudulent act by achieving the earning
expectation and maintaining Flat Cargo Berhadas a reputable company. He thinks that his
action is rational because to maintain their company without considering whether the action
is legal or illegal.

The second cause is the chairman had failed to play his role in assessing the
effectiveness of board especially the audit committees. Since the board of the company is not
effectiveness, it also had led to some other problem such as problem in practicing MCCG in
their company. The composition of the board of director was in not adherence to the MCCG.
It had breach the MCCG by having non-independence director more than independence
director and by having an executive director as audit committee. Ali Bin Ahmad is not able to
be part of Audit Committee because he is non-independence executive directors. In MCCG
stated that all the members in Audit Committee should be non-executive director.
The last cause of the problem is about the external auditors which lack professional
scepticism and convinced that reputable company will less likely to commit fraudulent.
Kencana & Associates served as Flat Cargo Berhads auditor in current year and few years
ago. The fraud is not starting with occur on the year 2006. It had already occur in few years
ago but undetectable. The fraud that undetectable by the external auditor had given the
opportunities to the fraudsters to continue exploits the companys resources. The auditors are
negligent in doing audit process and fail in detect material misstatement. So, the auditor can
be sued for negligence if they breach a duty of care towards a third party who consequently
suffers some form of loss (Finley, 2015). It showed that the auditors are not competent in
their work or they want to maintain their audit firms reputation by issuing unqualified report.

Part IV: Decision Criteria and Alternative Solutions

The decision criteria to solve the problem of accounting frauds are cost and future economic
benefit. When doing the decision, it needs to weight and compare on the cost benefit analysis.
If the cost is more than the benefit, the solution cant be recommended. The solution which
had the lower cost and the higher future economic benefit will be the priority solution.
Next, the decision criteria for weak in corporate governance problem are the effectiveness
and efficiency of the board and compliance with the rules and regulation. The solution to the
weak corporate governance must be able to improve the independence, effectiveness and
efficiency of the board members.
Lastly, the decision criteria for incompetence of auditors problem will be the independence,
trustworthiness, knowledge, skill, integrity of the auditor. The external auditor will need to
have few qualities such as objectivity, integrity, independence, and scepticism so that he or
she is competence to carry out the audit work.
In this part, we will discuss about the solution for each problems that occur in Flat Cargo
Berhad case.
1. Problem of accounting fraud
Firstly, to prevent the accounting frauds, Flat Cargo Berhad (FCB) have to develop a
positive work environment like create a culture of morality, integrity and openness in their
company. FCB may establish an open-door policy that allow lower level employee to easily
communicate with top management especially regarding the matters involving fraud. It is
also known as whistle-blowing channel. For example employees can make a complaint
regarding inappropriate behavior committed by their manager or supervisor to their senior
manager. Open-door policy also can motivate their workers because involving employees in

the process of addressing any fraud within the company. However, open-door policy also has
disadvantages such as can disrupt and delay the work flow system and supervisors also
cannot practice their problem solving skills. This method is not costly but it will give bad
implication to the efficiency of work flow in future.
Secondly, FCB can strengthen their internal control. One of the things that can be
made by FCB to strengthen their internal control is by establishing segregation of duty
policies. Segregation of duties has two purposes. Firstly, it ensures that there is oversight and
review to catch errors and secondly, it helps to prevent fraud or theft because it requires two
people to make a fraud or to hide a transaction. In segregation of duties policies, there are 3
duties that have to be separated or have to be conduct by different employee which is duty of
having custody of assets, duty of being able to authorize the use of assets and duty of
recordkeeping of assets. This method is costly because company has to hire more workers but
it will give good implication in the long term.

2. Problem of weak in Corporate Governance

Firstly to solve this problem, FCB have to restructure their corporate governance
which is board of directors and audit committee. To structure the best corporate governance
FCB must follow MCCG. According to MCCG 2007, the board of director must be balanced
between executive directors and non-executive directors. Since FCB executive directors and
non-executive directors are unbalance, so FCB have to restructure their board of directors by
removing 2 non-executive directors and appoint another 2 executive directors so that no
individual or a small group can dominate the boards decision.

MCCG also requires at least 3 members of audit committee, a majority of whom are
independent and all members of the committee should be non-executive director. Based on
the case, one of the members audit committee is non-independent executive director which is
Ali bin Ahmad, so FCB have to replace him with another independent non-executive director
from qualified individuals that can give full commitment to the committee.
In MCCG 2012, the board need to comprise a majority of independent directors so
that the board member can enhance their independency. To fulfil the MCCG 2012, the board
of directors will need to resign some of the non-independence director and appointing some
new independence director.
Secondly, the board need to regularly access the effectiveness and contributions of
audit committee. The audit committee should maintain the communication with the
companys chief financial officer (CFO) and external auditors. They have the authority to
investigate any suspicious accounting practices or transaction. Board need to ensure that audit
committees carry out their work properly as if they playing their role such as oversight of
financial reporting and monitoring the accounting policies, the possibility of fraud risk can be
3. Problem of incompetence of auditors
To solve the problem of incompetence of auditors, Audit Committees have to conduct
annual assessment and periodic comprehensive review on external auditor. This can enhance
the quality of audit works because auditor will be more proactive in doing their job if they
know that the company is evaluating their performance. By doing this annual assessment,
audit committee can identify potential areas where the external audit firm can improve,
identify potential areas where your audit committee can improve oversight and reach a final

conclusion on whether the auditor should be reappointed or the audit should be put out for
Besides, FCB also have to strengthen their internal audit because external auditors are
relied on internal audit works. So to get a better quality of audit work, internal auditors and
external auditors have to give full cooperation to each other to produce competence auditors.

Part V: Recommended Solution, Implementation and Justification

The recommended solution to the FCB is to strengthen their internal controls by
establishing segregation of duties policies. Sufficient segregation of duties is very important
involving custody, authorization and control of source documents and records to avoid fraud
from occur. For example, one person cannot control all duties in respect of initiate a
transaction, approve a transaction and complete the transaction without a proper sign off
processes and differing levels of management approval. If one person control all this duties,
that person can easily make fraud for her/his own interest or third parties interest. Hence,
FCB have to segregate those 3 duties which are custody, authorization and control of source
documents and records to different workers that have integrity and honesty to do those duties.
Besides that, FCB also can strengthen their internal audit to strengthen their internal
control because internal audit also is one of the components of internal control. By
strengthening FCBs internal audit, it will automatically strengthen the internal control and
help to prevent the problem of accounting fraud and problem of incompetence of auditors.


Albrecht W. S., Albrecht C. O., Albrecht C. C., and Zimbelman M. F. (2014) Fraud
Examination. United states of America
Cendrowski, H., & Martin, J. (2015). The Fraud Triangle. Harry/Handbook The Handbook of
Fraud Deterrence, 41-46. doi:10.1002/9781119202165.ch5
Chartered Institute of Internal Auditors 2015. Retrieved October 6, 2016, from What is
internal audit?: https://www.iia.org.uk/about-us/what-is-internal-audit/
Corporate Governance | Securities Commission Malaysia. Retrieved October 5, 2016, from

Finley, S. (2015, August 18). ACCA. Retrieved October 2016, 6, from Auditor liability: fair