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1.

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.

Accepting the investigation


Forensic investigations are specialist in nature, and the work requires detailed knowledge
of fraud investigation techniques and the legal framework. Investigators, which is Moores
Rowland have received training in interview and interrogation techniques, and in how to

ii.

maintain the safe custody of evidence gathered.


Planning the investigation
The investigating team in Moores Rowland were carefully consider what they have been
asked to achieve and plan their work accordingly. The objectives of their investigation
will include the identifying type of fraud that has been operating in Transmile Group
Berhad, how long it has been operating for and how the fraud has been concealed. The
Moores Rowland also consider the best way to gather evidence such as the use of

iii.

computer assisted audit techniques that is very common in fraud investigations.


Gathering evidence
In order to gather detailed evidence, Moores Rowland was understand first the specific
type of fraud that has been carried out by the Transmile Group Bhd and how the fraud has

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

3 accaglobal.com, articles, forensic-accounting


4 malaysianbar.org.my, business_news, Deloitte defends role in Transmile

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

3.1.3 TYPES OF FRAUD INVOLVES IN THE COMPANY TRANSMILE GROUP BHD


In Transmile Group Bhd, the fraud that occur is categorized as the financial statements fraud
which is related in the management fraud. Financial statements fraud are sometimes prepared in
ways that intentionally misstate the financial position and performance of an organization. In this
case, the Transmile Group Bhd with intention to do the misleading information for their financial
statement.
The type of financial statements fraud that had been conducted by the Transmile Group Bhd is
revenues and documentary fraud. They do the fraud of financial statement by overstated the
revenue amounted of RM622 million for three consecutive financial years from 2004 to 2006.
Besides the company also do the documentary symptoms fraud which is the balances or
transaction that lack supporting documents. For example in this case the cash outflow amounting
of RM341 million was purported property plant and equipment was discovered to be little
supporting documentation for that transaction. Other than that, the company was said to have
made payments totaling RM189 million without supporting payment vouchers and this clearly
shows that the company conducting the fraud for understatements of liability.

5 thestar.com.my,Story, file2F2010, 2F6, 2F19, 2Fbusiness, 2F6289756

3.1.4 FACTORS OF THE FRAUD HAPPENED IN THE COMPANY TRANSMILE


GROUP BHD
There are some potential factors for why the Transmile Group Bhd engaged in the activities of
fraud. Firstly is because the opportunistic managerial behavior in the company as evidence to
cover up the activity by reporting a higher profit than the actual one so the Transmile Group Bhd
want their company looks good to others so that they able to sustain in the market.
Besides the opportunistic actions by the analyst and investor also be the factors because the
business was involved in a growth potential business and they should be cautious of overly
strong growth in companies. So from here the company tend to make the fraud to ensure that
their financial always in good condition. In this case the Transmile Group Bhd doing the fraud by
misleading statement.
Furthermore, the weakness in the internal control systems and operational systems as well cause
the fraud is easily to conduct. For this case, the auditor unable to obtain the necessary evidence
for the transactions related to trade receivables and the sale and purchase of property plants and
equipment in the company and its subsidiary. The company was said to have made payments
totaling RM189 million without supporting payment vouchers.
Lastly is because the lack of role of monitoring and detecting by the regulators in the Transmile
Group Bhd because the regulator should investigate what that happens in their financial
performances of the company. For example in Transmile Group Bhd need to identify why there
was a significant increase in the companies reported earnings.
3.1.5 RESULT FROM THE CASE OF COMPANY TRANSMILE GROUP BHD
3.1.5.1 Criminal prosecutions
i.

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.

on the fairness or validity of those transactions.


The newly appointed director has lodged a police report regarding the false statement on
revenue, property plant and equipment, and payment to third parties. As a result of that,
the former CEO, the founder, and the ED were charged by the court for the submission of

iii.

misleading financial statements.


28 October 2011, the two former independent directors as well as audit committee
members were found guilty under section 122B(b)(bb) of the Securities Industry Act
1983 the for the authorized release of a misleading financial statement to the stock
exchange to Bursa Malaysia. They are Chin Keem Feung, 42, and Shukri Sheikh Abdul
Tawab, 43, were charged individually with knowingly authorising the furnishing of a
misleading statement in relation to the affairs of the express air cargo operator. They are
accused of committing the offence at Bursa Malaysia Securities Bhd in Bukit Kewangan
on 15 Feb 2007. According to the charge, the misleading information was contained in
Transmile Groups quarterly report on unaudited consolidated results for the financial
year ending on Dec 31 last year. The offence is punishable with a maximum fine of
RM3mil or imprisonment of up to 10 years or both upon conviction. Securities
Commission prosecuting officer Rezy Izwan Ramly proposed a bail of RM500,000 on

iv.

condition that both accused surrender their passports to the court.6


An offer to compound was made to the non-executive directors who did not pay it.
Criminal prosecutions were only commenced when they failed to accept the offer and pay
the monetary penalty.

www.malaysianbar.org.my/business_news/deloitte_defends_role_in
transmileNew Straits Times. (2007,, June 21). Transmile Shares Extend Fall,
SC Vows Swift.

3.1.5.2 Impact Financial Statement Fraud


Financial statement fraud causes huge losses to a company. The impact of financial statement
fraud involves economic and non-economic losses. Other than losses of millions in profit,
financial statement fraud also increases the insurance cost and the loss of efficiency that results
from the firing and hiring of employees.
Financial statement fraud also impacts upon the accounting and auditing professions resulting in
a public lack of trust and loss of integrity of the accounting profession. The consequences of
financial statement fraud are very severe. Other than decreasing shareholder value, it also has a
severe effect upon other factors. Financial statement fraud might cause a company to become
bankrupt, to suffer a decline in stock value and be delisted from the stock exchange.7

3.2.1 THE FRAUD IN THE COMPANY SILVER BIRD GROUP BHD8


The fraud of this company was occurs as the charging of two former directors of Silver Bird
Group Bhd, who were slapped with 134 counts of cheating a bank of RM67.4 million, is just the
latest in a string of legal action against them. Former group managing director Datuk Jackson
Tan Han Kook, 58, and executive director Ching Siew Cheong, 50, on Friday claimed trial in the
sessions court to cheating Malayan Banking Berhad. They were accused of colluding to use
false invoices and delivery orders to cheat the bank's officers into transferring RM67.4 million
into the accounts of three companies Asian Food Link Sdn Bhd, Violet Bonanza Sdn Bhd and
Stanson Marketing Sdn Bhd. The invoices and delivery orders were allegedly made out to
Stanson Marketing Sdn Bhd and Koperasi Permodalan Felda Quality. Stanson Marketing is a
subsidiary of Silver Bird Group Bhd. They are alleged to have committed the offences between
Oct 3, 2011 and Feb 24 this year, at Malayan Banking Berhad, on the 8th floor of Menara Hup
Seng at Jalan P. Ramlee.

7Sulaiman, A. N. (2008). Financial misreporting and securities fraud.

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.

3.2.2 THE DETECTION OF FRAUD IN COMPANY SILVER BIRD GROUP BHD9


Preliminary findings by an accounting firm was called in to review the affairs of Silver Bird
Group Bhd shows that the bakers and confectionery remained as a going concern, which means
there is no reason to believe that the business will cease any time soon.
PKF Advisory Sdn Bhd, a company that was appointed on 26 February to conduct a forensic
audit after a Silver Bird alleged financial irregularities have been detected, requiring at least
three months completing the task. Only then can the financial position of listed companies a real
discovery. In an announcement to Bursa Malaysia on Feb 29, Silver Bird said he faced a
maximum exposure due to the alleged irregularities could amount to approximately RM111.5
9
http://www.mia.org.my/new/downloads/circularsandresources/resource/newspaper/2
012/03/week01.pdf

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

3.2.3.2 Bread and Supplementary Products


Certain sales of bread and auxiliary products have been found to not be supported by any
physical items or documents, and therefore, can be considered to exist for increasing sales
figures and may serve as a conduit for the funds needed for working capital to be brought back
into the SBGB.
3.2.3.3 Sweetened Creamer
Purchase of sweet creamer including sales that are not supported by any physical delivery of
goods to the premises of BGB group, but appears to have contracted with back to back sale to
companies that are suspected in connection with financial irregularities BGB Group. These
companies include those that may have served as a front for the transaction without the
knowledge of the company.
3.2.3.4 Multi-com Sales
Deviations in respect of Multi-com sales are related to credit sales when the business is basically
on a cash basis. In addition, a variety of credit sales made in the management accounts appear to
have been replaced by two other relatively large debtor for the purposes of the audit.
3.2.3.5 Property, Plant and Equipment
Irregularities related mainly to the lack of supporting evidence for the purchase and installation
of transmission or certain things, even though payment may have been made for the alleged
purchase. In some cases, even if the supplier invoice is not available for vision. Therefore, the
transaction is recorded only appear as the entry in the accounting ledgers and that cannot be
supported further. Other transactions appear to have been created for the purposes of the audit
because there is no code for transaction accounts and no proof of delivery or payment has been
made in the management accounts. 6) KPF Quality Foods Sdn Bhd ("KPFQ"). Although it is
claimed by KPFQ that many sales were made to Stanson Marketing Sdn Bhd ("LR"), a
subsidiary of BGB, the transaction could not be verified because the records of these transactions
in the accounting records or information transmission SMSB in SMSB. However, PKF said there
was no record of the payment made by SMSB to KPFQ.

3.2.3.6 BK Fleet Management Sdn Bhd (BKFM)


Certain trucks used by SMSB registered in the name of SMSB and subject to agreement with the
service that allows BKFM to get trucks to the nominal amount at the end of the period of service.
In addition, there is evidence that some trucks have been paid by SMSB through hire purchase
and the expiration of the initial service agreement, the term of the agreement for this truck has
been refurbished to a net service fee is higher, with the same options for BKFM to buy trucks for
a nominal amount at the end of the agreement.

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.

3.2.4 FACTORS OF FRAUD HAPPENED IN THE COMPANY SILVER BIRD GROUP


BHD
There are some factors that would lead Silver Bird Bhd Company to commit a fraud. Firsly, it is
related to the opportunity where the director of this company was using his higher position to
commit a fraud. For example, he could use false invoices and delivery orders to cheat the bank's
officers into transferring RM67.4 million into the accounts of three companies such as Asian
Food Link Sdn Bhd, Violet Bonanza Sdn Bhd and Stanson Marketing Sdn Bhd.
It is impossible for someone who is nobody or lower position to do this kind of fraud. Only a
person with a power or authority would have an ability to commit a fraud.
Secondly, Silver Bird Company also suffering a financial troubles since the director said that
Silver Bird Group Bhd expects to break even operationally in about six months and he added that
one of his subsidiary which is bread and confectionary maker by market share was in the midst
of creating a new line of bread products to be unveiled soon, and is even looking at expanding in
Singapore, a market he said had not been managed well previously. Besides that, the loss-making
baked goods manufacturer has been mired in controversy after it failed to deliver its annual
audited accounts for 2011.
Lastly, ethical factor where ethics are the back bone of every industry looking to survive in the
business world. A customer would eventually lose interest in a company if they decided to
promote bad customer service or poor quality products. Based on Silver Bird Group Bhd case, it
indicate that the director itself is not an ethical person as he could has intention to do a fraud in
order to fulfill his wishes.

3.2.5 RESULT FROM THE CASE OF COMPANY SILVER BIRD BHD11


This case is still in progress on court. If the two directors found guilty they will be imposed
action under Section 369(b) (B) of the Capital Markets and Services Act 2007, Tan and Ching
will be liable to imprisonment of up to 10 years and whipping, and a fine not exceeding 3 million
upon conviction.
Before this, prosecuting officer from the Securities Commission, offered bail of RM500,000 with
two guarantor for all charges against the accused as the offences were serious and involved
public interest and confidence of investors. Both of them requested for bail to be reduced. The
lawyer who represent Tan, requested for bail to be reduced as his client also faced 134 counts of
cheating at another Sessions Court and has paid RM800,000 while his passport was also
surrendered to the court. The other director lawyer Ching, also asked for a lower bail on the basis
that his client was also charged with Tan for the cheating. The Judge set bail for both accused at
RM250, 000 each, with an additional requirement that their passports be surrendered to the court.
Both of them paid the bail.12
3.4 EFFECT ON THE FINANCIAL STATEMENTS FRAUD HAPPENED
Financial Statements fraud give highly impact to many aspect in the company and their
environment. Firstly it gives the harmful effect to the company because it will undermines the
quality and integrity of the financial reporting process. Besides it also can jeopardizes the
integrity and objectivity of the accounting profession especially auditors and auditing firms. For
an example in the case of Transmile Group Berhad we can see that auditors Deloitte & Touche
with the negligent unable to detect the fraud that have been made by the Transmile Group
Berhad.

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

3.3 THE PREVENTION OF THE FRAUD IN THE BOTH COMPANY13


There are several steps in how to prevent financial statement fraud. Firstly, the companies need
to educate their management on the three indicators of fraud. According to the Association of
Certified Fraud Examiners, financial statement fraud involves the intentional publishing of false
information in any portion of a financial statement. To help prevent fraudulent activities,
management must implement internal controls, or structure, and know what situations to look
for. Individuals commit fraud when under situational or financial pressure, when the opportunity
to commit fraud is present and when the perpetrator easily rationalizes the fraudulent activity.
Secondly, do the segregate accounting functions. One of the main factors of an effective internal
control system is segregation of duties. Management helps to prevent fraud by reducing the
incentives of fraud. One incentive, the opportunity to commit fraud, is reduced when accounting
functions are separated. The act of segregating duties separates the recordkeeping, authorization
and review functions in the accounting process. To segregate duties, involve more than one

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

independent party examine financial statements on an annual basis. Engaging an auditor to


perform a financial statement review or audit deters employees from knowingly presenting
incorrect financial statements.

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