A DELIMA

1. Were there any abuses of power by the management and breach of fiduciary on the
part of the directors?
For this matter the answer is yes, there is an abuses of power by the management and
breach of fiduciary duty of the director which refers to Encik Zayed and Puan Hashimah.
Director’s fiduciary obligations are to exercise their powers under the company’s
constitutions for proper purpose and to avoid conflict of interest. According to
Companies Act 1965 Section 132(1) as to the duty and liability of officers, a director of a
company shall at all times exercise his powers for a proper purpose and in good faith in
the best interest of the company. As a fiduciary, a director’s duties are:

i. Duty to exercise of power in good faith and in the interest of the company
In this case, the controlling directors, Encik Zayed and Puan Hashimah tried to
negotiate with their external auditors Aziz & Co (Chartered Accountant) to not
qualify the financial statement due to several unresolved issues but failed. They
planned to terminate the auditor’s appointment and appoint a new ‘friendly party’
auditor who can cooperate with them. The directors showed the intention to
commit fraud and they absolutely did not act in the best interest of the company.
ii. Duty to act for the proper purpose
From this case, Encik Zayed and Puan Hashimah had wrong intention to use
company money for a personal purpose. Personal vehicle expenses were charged
to the company and several withdrawals of company’s money were made without
proper documentation. It breaches of their duties to the company. The amount
cannot be recorded under company expenses and must declare to their personal
withdrawn.
iii. Duty to act with reasonable care, skill and diligence
Due to this case, as a director’s of the company, Encik Zayed and Puan Hashimah
should attend a training for top management because both of them only has
secondary school background and zero knowledge about business. They need to
learn and familiar with the Accounting Standard and the provision of the
Companies Act 1965 to make sure their staff have been segregate their duties
accordingly and enhance understanding relation the job scope.

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2. Who should be held responsible and accountable?

When a person conduct or joint a business, all of them should take a responsibility and
accountable to the company. It refers to all the stakeholders of Delima Enterprise which
is the directors, top management and the employees. The most important is where the top
management have to select the best employees with their special skills and expertise in
order to make sure company will perform the very well and able to sustain in the market.
i. Directors
Both of director, Encik Zayed and Puan Hashimah should be responsible in
solving their issue regarding the outstanding matter issued by auditors. Besides, as
a directors they should prepare themselves with a lot of knowledge on how to
manage their company such as the provision of Companies Act and Accounting
Standards. They should know their roles and duties plus have enough skill and
expertise to develop a good strategy and structure in the company. Plus, both of
them have to reconstruct their organizational business plan such as prepare the
standard of operating procedure (SOP) to make sure their operating systems can
increase effectively and efficiently.
ii. Account Department
The truly is the owner of the company should not be the person who make an
account for the company because this will lead to commit a fraud. From this case,
Puan Hashimah who is the director of the company is also the accountant of
Delima Enterprise who has lack of knowledge about accounting standard. During
her era, there were many problem arise due to wrong transaction and missing
some document. Besides, they also hired Cik Amy, a young Accounting graduate
who did not have working experience as Finance Executive. She was responsible
for maintenance of the accounting and financial matters of the company. They
should hire a real accountant that have a greater understanding regarding
accounting world and able to handle the account of the company. Then, in order
to keep the company follow the rules and regulation, they must able to kept such
accounting or others records as will sufficiently explain the transactions and
financial position , so that they will easy find and refer in future.

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iii. Human Resources Manager

As shown at the organizational chart, Encik Salam as a Human Resources and
Administrative Manager responsible to prepare a salary on monthly basis
including the SOCSO and EPF for employees in order to fulfill the requirement in
Employment Act 1955. Then, a part of his job is to prepare a budget to provide
training and seminar for their staff. It was a crucial for him to organize the event
because he has no knowledge about recruitment process and not able to manage
the preparation of budget with their minimal education background. The top
management should employ candidates with suitable qualification and working
experience. Then, the management should invest on necessary training such as
call an external party to conduct a seminar for their employee to enhance
knowledge of the employment.
iv. Operational Manager
Puan Balqis as an Operational Manager who responsible to implement Standard
of Operating Procedure. This standards help employees work more effective and
efficiently where they may refers to the SOP systems to make sure their works
done compliance with the accounting standard. Puan Balqis must be able to work
beyond of their skill and should advise the top management to purchase new
software that can simplify the recording of the business transactions such as UBS
Accounting Software.

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3. Could the Audit be completed soon without any qualification?

Auditor’s report is important for every company when reporting financial information to
the users. In this case, the bank required the audited financial statement from the company
to process the banking facilities application. The audit could be completed soon if the
company could give full cooperation with the auditor which is Aziz & Co (Chartered
Accountant). Puan Hashimah as Chief Operating Officer and Cik Amy as Finance
Executive are responsible to provide all the details and any supporting document requested
by the auditors. If they have a proper documentation it will be easier for them to provide
the document requested by the auditor. They need to cooperate with the auditor and find
the relevant solution to make the audit process going well. They are several transaction
which are wrongly recorded based on the audit findings. So, it is necessary to do the
reconciliation and do an appropriate adjustments to the account. The incomplete
information and record shows there is no standard operating procedure was implemented
by the company and also not follow the accounting standard and practices.

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4. What should be done to improve the leadership and management of Delima

Enterprise Sdn Bhd?

i. Management
Encik Zayed as the Managing Director of Delima Enterprise Sdn Bhd cannot hold the
position as Chief Executive Officer (CEO). He should appoint new CEO which is
responsible for the decision making and implement the company’s goal. Encik Zayed and
Puan Hashimah also appointed Encik Salam and Puan Balqis which are their family
members of Encik Zayed and have zero basic educational requirement as managers in the
company. Besides, Cik Amy is a newly appointed as Finance Executive which is fresh
graduated with no relevant working experience. Encik Salam as Human Resource and
Administrative Manager should hire employees with experience and knowledgeable which
are able to take the responsibility in order to increase the level of effectiveness and
efficiency of the company. Apart from that, the company should provide necessary training
to all the employees. They can appoint an external party to conduct a seminar for their staff
to make sure all staff have knowledge about accounting standard and new policies about
the business due to their employee has no knowledge about that. The company also need
to improve by stating a clear job description of each position in the company and
competency to perform their job to prevent redundancy and breach of fiduciary
responsibilities.
ii. Authorization
The decisions in the company are made and authorized by Encik Zayed or Puan Hashimah
which cause a lack of authorization in the business transaction. There is no Standard
Operating Procedure (SOP) provided in the company. This can lead to manipulation and
abuses of power by the directors. This also can lead to a poor decision making which will
affect the company as a whole. Besides, lack of authorization in the company can be seen
when personal vehicle expenses of the director is charged to the company. The personal
expenses should not be charged in the company’s expenses. The director must comply with
the regulation by not include the expenses in the company’s account. The authorization
should be approve and stamping with different person which is in compliance with the
SOP.

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iii. Accounting System

MYOB Software used in Delima Enterprise Sdn. Bhd. is not integrated. The software can
disrupt or complicate the operation and management of Delima Enterprise Sdn. Bhd. The
sales invoices were manually produced and not pre-numbered. Monthly statement of
account not periodically prepare but only prepare and send to the customer when the
payment had been long outstanding. The company should periodically prepare and update
the control accounts which they can monitor every transaction occur to avoid any error or
fraud. The company should use the latest and relevant accounting software to record all
transaction in the company such as UBS and SAP.
iv. Timesheet
The employees manually prepared their timesheet. They get the approval and payment and
salaries from Puan Hashimah in weekly basis. This will give a greater opportunity to the
employee to commit fraud by manipulate the timesheet for their own benefit. For the
solution, the company can use punch card or thumbprint to ensure a proper and valid
confirmation of employee’s attendance. Apart from that, the company should hire another
employee which is should be the responsible of Human Resource Department as in
supervisor to monitor the attendance and timesheet of the employees.
v. Legislation
In this case, there are an intention to commit fraud when Encik Zayed and Puan
Hashimah tried to negotiate with the auditor, Aziz & Co to not qualify the Financial
Statements. When have no cooperation with the auditor, they try to the termination of the
auditor's appointment and thus wish to appoint a new "friendly party" without any proper
documentation before the expiration of the agreed period. Those actions reflect the
personality of not acting in the best interest of the company and definitely contra from the
Companies Act 1965 under Section 132 (1), a director of a company shall at all-time
exercise his power for a proper purpose and in good faith in the best interest of the
company. Besides, Encik Zayed also not alert with Section 172 of Companies Act 1965
which stated that only the shareholders can remove the auditor before the expiration of
his terms with the required passing of the ordinary resolution at the general meeting with
special notice of 28 days given to the auditor.