Professional Documents
Culture Documents
0 INTRODUCTION
2.0 BACKGROUND OF THE COMPANY
3.0 FINDINGS ON FRAUD CASES
3.1.1 THE FRAUD IN THE COMPANY TRANSMILE GROUP BHD
Transmile Group Bhd which is company controlled by Robert Kuok, sparked of a concern
regarding auditors duties and obligations. Accounting irregularities and fraud were discovered in
the company. They are accused of committing the offence at Bursa Malaysia Securities Bhd in
Bukit Kewangan on 15 February 2007.
The company missed the April 30 deadline for the submission of its audited accounts for 2006
because auditors Deloitte & Touche could not obtain from the management the necessary
supporting documents for certain transactions relating to trade receivables and related sales, and
purchases of property, plant and equipment.
The misleading information was contained in Transmile Groups quarterly report on unaudited
consolidated results for the financial year ending on 31 December 2006. Former independent
directors which is Chin Keem Feung(42 years old) and Shukri Sheikh Abdul Tawab(43 years
old) were charged individually with knowingly authorizing the furnishing of a misleading
statement in relation to the affairs of the express air cargo operator.1
Earlier on, in February 2007, the board had approved an unaudited result that had shown an 80%
increase in revenue, doubled net profit, and trade receivables that had ballooned to RM381
million from RM111 million in 2005. In addition the revenue was overstated by a total of
RM622 million for three consecutive financial years from 2004 to 2006. 2
Another cash outflow of RM341 million was purported property plant and equipment because
there was discovered to be little supporting documentation for that transaction. Company was
said to have made payments totaling RM189 million without supporting payment vouchers and
1 Transmile Shares Extend Fall, SC Vows Swift Action, New Straits Times, 21 June 2007, 35,
2 ijbssnet.com, journals, Vol4 No13 , October2013, 20,
found that items on related-party sales transactions in which the subsidiary owed to the business
more than RM103 million.
3.1.2 THE DETECTION OF FRAUD IN COMPANY TRANSMILE GROUP BHD
3.1.2.1 Process of conducting the fraud investigation
The process of forensic accounting is includes the forensic investigation itself, which refers to
the practical steps that the forensic accountant takes in order to gather evidence relevant to the
alleged fraudulent activity. The investigation is likely to be similar in many ways to an audit of
financial information, in that it will include a planning stage, a period when evidence is gathered,
a review process, and a report to the client. The purpose of the investigation, in the case of an
alleged fraud, would be to discover if a fraud had actually taken place, to identify those involved,
to quantify the monetary amount of the fraud (ie the financial loss suffered by the client), and to
ultimately present findings to the client and potentially to court.
The process of conducting a forensic investigation in Transmile Group Bhd similar to the process
of conducting an audit, but with some additional considerations. The various stages are briefly
described below:
i.
ii.
iii.
been committed. The evidence was accumulated to prove the identity of the fraudster(s),
the mechanics of the fraud scheme, and the amount of financial loss suffered in this case.
The investigating team of Moores Rowland was skilled in collecting evidence that can be
used in a court case was really important. They keeping a clear chain of custody until the
evidence is presented in court. Any evidence is inconclusive or there are gaps in the chain
of custody may be challenged in court, or even become inadmissible. Moores Rowland
was alert to documents being falsified, damaged or destroyed by the Transmile Group
iv.
Sdn Bhd.
Reporting
The Moores Rowland was produce the report containing the findings of the investigation,
including a summary of evidence and a conclusion as to the amount of loss suffered as a
result of the fraud happens. The report was discussed how the fraudster set up the fraud
scheme, and which controls, if any, were circumvented.3
3.1.2.2 The fraud of Transmile Group Bhd was detected through special audit by forensic
auditor
In Transmile Group Bhd case, the loss was not detected by Deloitte & Touche who were the
auditors of the company then it was detected through a special audit by Moores Rowland as
appointed by the company. The Deloitte & Touche dismissed the claim that they failed to detect
the accounting irregularities. Furthermore, they claimed that it is not practicable to expect audit
to represent a 100 per cent check of a companys financial well-being. In May 2007, the new
Board appointed a forensic auditor which is Moores Rowland Risk Management Sdn Bhd to
conduct a special audit of the companys account and its subsidiaries. Some details of Moores
Rowlands interim report were released on May 30, while the findings set out in the final report
were announced on June 16. A special audit carried out by Moores Rowland Risk Management
later found that it had severely overstated revenue and assets going back to 2004 through dubious invoicing.4
The headline item was the revelation that the company had overstated revenue for financial years
2004 to 2006 by RM622mil. This relates to invoices issued to over 20 companies. In connection
with this, Moores Rowland uncovered irregularities in Transmiles trade receivables, cash
receipts, and property, plant and equipment.
The final report also singled out CEN Worldwide Sdn Bhd, a major customer of Transmile and
also a 37.5% indirect associated company. Moores Rowland recommended a review of the
billing of sales to CEN and of the trade receivables owing by CEN. A special audit of CEN was
commissioned.5
The Securities Commission (SC) has taken the stance that instances of financial
misreporting in the annual report could be prosecuted as disseminating false or
misleading. From this cases, the board of Transmile approved the unaudited results and
released them to Bursa Malaysia. Transmile applied to Bursa Malaysia to postpone the
release of its audited accounts but the application was rejected. Bursa Malaysias
announcement on that day indicated that Transmile had failed to submit its audited
financial statements as the auditor was still finalizing the financial statements. The
companys external auditor informed the board in writing that it was unable to obtain
relevant supporting documents from management. These documents were required to
verify certain transactions relating to trade receivables and related sales and additions to
property, plant and equipment that would have enabled the auditors to satisfy themselves
ii.
iii.
iv.
www.malaysianbar.org.my/business_news/deloitte_defends_role_in
transmileNew Straits Times. (2007,, June 21). Transmile Shares Extend Fall,
SC Vows Swift.
8 http://www.thesundaily.my/news/560931
In August this year, Silver Bird and its subsidiaries, Stanson Marketing Sdn Bhd and Standard
Confectionery Sdn Bhd, had filed a RM125 million lawsuit against Tan, Ching, former general
manager (accounts and finance) Lai Poh Mei and eight others at the High Court in Kuala
Lumpur. They were sued for alleged breach of fiduciary duties, breach of duty of fidelity and
loyalty, abuse of power, conspiracy to commit fraud and for facilitating misappropriation of
funds. The plaintiffs also sought a declaration that Asia Food Link had made fictitious sales of
sweetened creamers amounting to RM44 million to Stanson Marketing, and as such, was not
entitled to claim the sum from it. The plaintiffs also sought a declaration that the purported
purchase of machinery for a new bread line by Lai from Triremis (M) Sdn Bhd and Triremis Asia
Sdn Bhd for RM25.8 million is fictitious and non-existent.
Asia Food, Triremis (M), Triremis Asia and Bill Davis & Associates Sdn Bhd are also alleged to
have knowingly received payment out of the funds of Silver Bird and its subsidiaries which had
been allegedly misappropriated by Tan, Ching and Lai in breach of duties owed to the three
companies. Tan and Ching had been suspended from the Silver Bird board on Feb 24 pending
investigations into irregularities in the accounts and subsequently removed from the board on
April 30 this year.
million. This is based on the key areas highlighted by the external auditors Crowe Horwath after
Silver Bird audited accounts for the year ended October 31, 2011.
Then PKF has submitted the final report, it is difficult to rule out the possibility that the financial
hole in Silver Bird may be greater than expected. Meanwhile, the director of PKF depending on
the initial assessment of the feasibility study carried out in line with the forensic audit. In
addition, PKF find Silver Bird has sufficient cash flow and receivables to stay afloat. The
company also will be subjected to sensitivity analysis, a kind of stress test, to see how the cash
flow would be affected in certain scenarios.
3.2.3 TYPES OF FRAUD INVOLVES IN THE COMPANY SILVER BIRD GROUP BHD10
Fraud occurring within the Silver Bird Company was a financial statements fraud since they have
used false invoices and delivery orders to deceive a bank employee to move RM67.4 million in
the accounts of three companies, Asia Food Link Sdn Bhd, Violet Bonanza Sdn Bhd and Stanson
Marketing Sdn Bhd. Besides, there was a false statements contained in Silver Birds eight
unaudited quarterly financial accounts for the financial years ended 31 October 2010 and 2011.
Forensic report was commissioned by SBGB in February 2012, following allegations, among
others, irregularities in the accounts of the Company which has been brought to the attention of
the Board of Directors when Crowe Horwath, the auditors expressed concerns about the legality
of certain transactions and the recording for which the auditor was unable to say obtain relevant
evidence that supports and satisfactory explanation of the Company's management before.
According to the forensic report, the main areas of financial irregularities surrounding the SBGB
and its subsidiaries and related companies ("SBGB Group") can be seen as below:
3.2.3.1Trade Receivables
Trade Groups SBGB was said to have entered the incorrect accounting entries which can create a
false audit trail, and include transfers between banks disguised as payments from the debtor.
10 http://www.investlah.com/forum/index.php?topic=44083.0
3.2.3.7 Inventories
There is a lack of documentary evidence for certain motor spare parts, plus approximately
(RM986500) of spare parts that cannot be verified by documentary and physical evidence.
Bank Reconciliations
The bank reconciling items are numerous, including those arising from unrecorded receipts and
payments.
3.2.3.8 Bankers Acceptances
Numerous sales transactions have been made without any physical goods for what appears to be
for the purposes of refinancing and rising of bankers acceptances.
3.2.3.9 Common Party Relationships
Among the main activities of the companies customers and suppliers with regular party
relationships do not include transactions undertaken by the Group SBGB. In addition, the
quantum of their transactions with the Group SBGB does not seem reasonable when compared
with the figures stated in the financial reports of companies, respectively.
3.2.3.10 Destruction of Books and Records
When financial irregularities coming to light, has uncovered documentary evidence been
destroyed, as evidenced deletion of computer files and physical damage to the hard drive of the
computer. The Board will seek advice from the legal advisor of the Company for further action to
be taken.
11 http://www.themalaysianinsider.com/business/article/two-former-silver-birddirectors-charged-with-giving-false-statement-to-bur
12 https://www.bursawave.com/stock-search/stock/silver-bird-group-bhd-2813/
Secondly, the financial statements fraud would lead to the bad economics market. This is because
this kind of fraud will diminishes the confidence of capital markets and market participants in the
reliability of financial information so indirectly it makes the capital market less efficient.
Next, this fraud also makes the adversely affects a nation's growth and prosperity.
The company yg involved tu will sue and boleh lumpuhkn aktiviti die so dia akan
mmbuatkn xmaju dan xlgsung buat ekonomi negara menurun. It causes bankruptcy
or economic losses by the company engaged in the fraud.. It may result in
litigation losses;
It causes destructions to the normal operations and performance of the alleged
companies
In other side, this fraud would lead to the.. It destroys the careers of individuals
involved in the fraud
13 http://smallbusiness.chron.com/prevent-financial-statement-fraud-3789.html
person in the financial statement preparation process. Therefore, or fraud to occur two employees
must collude to perpetrate the crime.
Thirdly, establish a strong control environment. A strong control environment, otherwise known
as a strong tone at the top, involves enlisting management to demonstrate ethical behavior. The
Associate of Certified Fraud Examiners (ACFE) notes that whatever tone management sets will
have a trickle-down effect on employees of the company. A strong tone is developed by
establishing and complying with a written set of policies. The policies must be concise and
include consequences when procedures are disobeyed. In addition, according to the ACFEs
Fraud Examiners Manual, one of the easiest ways to establish a strong moral tone for an
organization is to hire morally sound employees.
There are four control frameworks suggested as a mechanism to control financial statement
fraud, namely, code of ethics, code of conduct, policies and procedures, and whistle blowing
mechanism. The control framework should be understandable by the whole organization while
the whistle blowing mechanism should be independent in terms of practice so that any fraud or
misconduct in the company will be reported by the employees.
Next is, the relation to effective governance practice which is the top management would provide
high integrity throughout the organization. Therefore, every company should have a very strong
tone at the top in order to create a good culture in the company. As identified by all respondents,
the role of independent directors is vital. The control system will be more effective by having
more involvement by the independent directors. The independent directors should be more
involved in the financial statement discussion before the issuance of the financial statement. With
regard to the organizations controls as a whole, the control framework should be designed and
implemented across the company.
Lastly, initiate annual examinations of financial statements by an outside party. In many cases,
management is the party committing fraud. Management may feel pressure to meet financial
goals for the company or may receive incentives if certain goals are met. To help prevent
management from engaging in overly aggressive adjustments to the financial statements, have an