CASE 1: DELIMA

QUESTION 1:

Were there any abuses of power by the
management and breach of fiduciary
on the part of directors?
FIDUCIARY DUTIES OF DIRECTOR
1. Exercise powers honestly and bona fide for the
benefit of the company
2. Not to place himself/herself in a position where
there is a conflict between his/her duty to the
company and his personal interest or duties of
shares
3. Directors should not make any profit out of the
position as the director


BREACH OF FIDUCIARY
DUTY:
Director acts dishonestly to
the interest of the company.
Most of the powers of
directors are powers in trust
- therefore should be
exercised in the interest of
the company, not in the
interest of the directors or
any section of members.

ANSWER
Yes, there are abuses of power by
management and breach of fiduciary on
part of directors.
There is a conflict between Encik Zayeds
duty to the company and his personal
interest.




1. Personal vehicle expenses for Encik
Zayed and Puan Hashimah totaling
RM50,150 charged to the company during
2005.
2. Tried to negotiate with the Auditor to not
qualify the Financial Statements, failing
which Encik Zayed planned to terminate
the auditors appointment and appoint new
friendly party auditor to negotiate.
QUESTION 2:

Who should be held responsible and
accountable.




Directors - Encik Zayed and Puan Hashimah



Directors of the company, head of the
organization, play the most important role in the
company.
Main role :




1. Establish vision, mission and
policies
2. Set strategy and structure
3. Delegate authority to
management


Together with the directors in
setting objectives and decision
making of the company
Main responsibility is the
effective operation of the
company.
Responsible for
the management and day-to-
day operations of the
corporation.
PERSON IN CHARGE OF FINANCE - PUAN
HASHIMAH (PRIOR TO CIK AMYS
APPOINTMENT )

Ensure proper documentation of any
information and data related to
transactions
Maintain proper records on assets of the
company
Supervise in accounting process regularly

CODE OF ETHICS FOR COMPANY SECRETARY
CCM

At all times strive to assist the company towards proper
objectives within the rule of moral responsibility, efficiency,
and administrative effectiveness
Have clear understanding of the aims and objectives of the
company, and of the powers and restrictions as provided in
the Memorandum and Articles of Association of the company
Disclose to the board of directors or an appropriate public
officer any information within his knowledge that he honestly
believe suggests that a fraud is being or is likely to be
practised by the company or by any of its directors or
employees
Assist and advise the directors to ensure at all times that the
company maintains an effective system of internal control, for
keeping proper registers and accounting records
ANSWER 2
Not only Encik Zayed and Puan
Hashimah as the directors, but all
the top management, employees,
and the Company Secretary of the
company should be responsible
and accountable as well.
Although Encik Zayed and Puan
Hashimah are the directors of the
company, the officers should also
support and give opinion in every
decisions taken by directors.
Employees below the officer level
will have job titles and descriptions
designed to meet the corporate
goals as set by the directors.
Company Secretary at all times
should to assist the company
towards proper objectives

QUESTION 3:

Could the audit be completed
soon without any
qualification?
Could the audit be completed soon without any
qualification?
No, audit cannot be completed without any qualification.
However, Audit can only be completed but the auditor
still need to qualify the financial statement.
Reason
There are several issues that cannot be solved such as:
Several pages of account receivable listing were missing at
the situation where the sum RM250,000 of account
receivable were wrongly entered into another account.
EPF contribution was not provided by the company to the
employees which is breach of accounting standard FRS119
Employee Benefit.
Qualified Audit Report
Can issued when the auditor encountered one of two types of situations which do
not comply with generally accepted accounting principles, however the rest of the
financial statements are fairly presented.

2 Types of Situation:

Single deviation from GAAP this type of qualification occurs when one or
more areas of the financial statements do not conform with GAAP, but do not
affect the rest of the financial statements from being fairly presented when
taken as a whole.
e.g. Breach of FRS119 Employee Benefits EPF is not provided for
employees of DESB.

Limitation of scope this type of qualification occurs when the auditor could
not audit one or more areas of the financial statements, and although they
could not be verified, the rest of the financial statements were audited and they
conform GAAP.
e.g. Several pages of account receivable listing were missing - auditor not
being able to observe and test on the amount RM250,000
Qualified Audit Report v.s Loan Application
Tendency of bank to reject the loan is high.
5Cs Creditworthiness concept always being practicing by bank.
Character Integrity / a borrowers reputation
Capacity companys borrowing history
Capital Net worth
Collateral Assets to secure the debt
Conditions Of the borrower and the overall economy
Audited Financial Statement is not the only source of information used by
bank.
Other information:
Credit history
Performance history
Assets of the company (Collateral)
Guarantee. (The bank will normally require the directors to personally
guarantee the loan)
Cash Projection Statement
Financial forecast
Presentation to the bank
Other Sources of Financial Support
Collateral - secured loan
Equipment leasing sell the asset and lease
back for company uses.
Asset-based loan use inventory or
receivable to get financial support.
Private loan guaranteed
Loan from family
Loan from other peer-company/financial
institution other than bank


Other solution..
Negotiate with the contractor payment
made periodically
Negotiate with the bank to change the loan
size, maturity period of the loan, interest rate.
QUESTION 4:

What should be done
to improve leadership
and management of
DESB?

Problems Arise, Impact and Improvement
PROBLEM AND IMPACT IMPROVEMENT
1 Improper documentation
and transaction records

Sales invoice and purchase
order are prepared manually
and not pre numbered
The MYOB programmed
was
not integrated.
Several pages of the
Account
Receivables listing is
missing.

Impact Time consuming
- Fraud



Documents should be properly pre-
numbered
Update to the latest accounting
software
(MYOB)
Ensure documents be kept properly.
Problems Arise, Impact and Improvement
2 Manual records on employees
attendance

The employees prepare their own
attendance without any supervision.


Impact Fraud
- Work inefficiency

Appoint supervisor to monitor
employees attendance.
should be reviewed by the
authorities at every month.
Use time clock
machine@thumbprint
Use punch card
3 No Standard Operating Procedure
(SOP)

All decisions are authorised by En
Zayed
and Pn Hashimah
No reconciliation was performed for
each accounts.
Withdrawals are made from the co
without proper documentation

Impact Misuse of power
- Give difficulty in preparing
financial statement

Each department should
implement
SOP.
Ensure compliance to SOP in
every
decision making and
documenting.
Expenses should be authorised by
at
least two persons.
Personal expense cant be
charged as
companys expense.
Segregation of duties between
persons who approve & stamping
the
documents.

Problems Arise, Impact and Improvement
4

Directors do not familiar with their
roles and duties

En Zayed and Pn Hashimah tried to
negotiate with auditor to not
qualify the Financial Statements.

Impact - Difficult to last long in this
business - incompetence



Director should refer to Company
Secretary for every decision making
Director should update their
knowledge - training
5 Problem in Human Resource
department

The EPF contribution is not
deducted and remitted to EPF
Hire unqualified and inexperience
employees.

Impact - Employees unable to
perform their work well
due to lack of knowledge.
- Give bad reputation.


Pay salaries in monthly basis
including
EPF and SOCSO
Provide training for existing
employees
Should hire qualified employees
Implement SOP during employees
recruitment

Problems Arise, Impact and Improvement
7. Lack of training
Inadequate job training

The companys secretary is in
the opinion that Cik Amy is a
fresh graduate from a local
university with no relevant
working experience to handle
her job description effectively
as a Finance Executive.
A simple thing as accounting
treatment was unable to be
solved by Cik Amy.


Impact Difficult the solve
the
task regarding her
job.



Cik Amy should be send for further
training by the companys top
management to further enhanced her
understanding in relation to her job
description and competency to perform
her job.
The management should enrol her to a
short course designated to improve work
efficiency and effectiveness in any local
institutions such as UiTM, Sunway
University and others.
Problems Arise, Impact and Improvement
6 No vision and objectives

The company only has mission


Impact Difficult to achieve
the
goal/target
- The employees has
no
direction in
performing
their work




Must state clearly the vision and
objectives
of the company.
Should inform the vision and objectives
to
the employees so that they are clear
with
the job they perform.
The Mission, Vision and Objective of the Company must be clearly
stated.
Informed to employees so that they know the Companys goal.
Delima should implement standard operating procedure (SOP).
Delima should improve their internal control by provide the segregations
of duties
to ensure the management works efficiently and effectively. It also may
avoid
mishandling and reduce the mistake as well.
As a Director, three (3) elements of Fiduciary duties to be comply :-
i) Duty of loyalty
ii) Duty of Care
iii) Duty of Disclosure