Case 3: Flight of Funds (Group 6) Table of Contents
1. Introductio Introduction.... n........ ........ ......... ......... ........ ........ ......... ......... ........ ........ ......... ......... ........ ........ ......... ........... .............. ............... .............. .........2 ..2 2. Issues and Recommenda Recommendations. tions..... ........ ........ ......... ......... ........ ........ ......... ......... ........ ........ ......... ......... ......... ............ .........3 ..3 2.1 Figure Figure out why why MTSB MTSB's 's inve investm stment ent on MTT MTT conclu concluded ded as een een cheated and how it could e cheated............ cheated. ........................ .......................... .......................... ........................3 ...........3 2.2
!here the money money went".. went"...... ......... ......... ........ ........ ......... ......... ........ ........ ............ ............... .............. .............. ..........# ...#
2.3
$ow to sa%egu sa%eguard ard inve investm stment ent to to ma&e ma&e sure sure it is is ro%ita ro%itale le"... "....... ........ .......( ...(
2.) The reso resonsi nsiil ility ity and dut duties ies o% gro grou u accou accounts nts and %inanc %inancee deartment has to e revised...................... revised.................................. ......................... ......................................1* .........................1* 2.+ ,de-ua ,de-uate te and and roe roerr docum documenta entatio tion n has has to e e maint maintain ained ed to to ensure ensure the comleteness o% the documentation............................ documentation....................................................... ...........................12 12 2.#
Relationshi Relationshi etween etween the countries.. countries....... ......... ........ ........ ......... ......... ......... ............ .............. ............13 .....13
3. onclusion..................... onclusion.................................. ......................... ......................... .......................... ........................................1) ...........................1) ). /uestion....................... /uestion.................................... ......................... ......................... .......................... .......................... .............................1# ................1# +. Re%erences...................... Re%erences................................... .......................... .......................... ......................... ......................... .............................2) ................2)
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Case 3: Flight of Funds (Group 6) 1. Intr ntroductio tion
The Turkistan Global Services Sdn Bhd (TGS) oned b! a "ala!sian business#an$ %ato& Sha'ali a#id$ ho had signed a "e#orandu# of nderstanding ith the Turkistan Govern#ent for e*clusive rights to arrange for the travel needs of business individuals along the Turkistan+"ala!sia route, Since %ato& Sha'ali as not in the travel business$ business$ he needed to identif! a partner partner ho could provide the e*pertise, The e*ecutive director of "ala!sian Travel Sdn Bhd ("TSB)$ -ati# .or$ the father of /#ar -ati#$ a board #e#ber in TGS, /#ar approached his father to set up a 0oint venture beteen "TSB and TGS hich na#ed "ala!sian Turkistan Travels Sdn Bhd ("TT), The 0oint venture as structured to represent a 612+12 onership beteen TGS and "TSB, oever$ other than the share contract$ no other docu#entation e*isted to prove that #one! had been invested into the "TT Co#pan!, Co#pan!,
4 ne Chief 5*ecutive /fficer$ "r, dris bin 7unid$ as appointed for the holding co#pan!$ Travel Travel nvest#ent oldings (T) Bhd, 8hile conducting a revie of the T group$ he ca#e upon discrepanc! in the for# of an invest#ent in "TT #ade b! a subsidiar!$ "TSB, dris re9uested the Corporate Finance %epart#ent to sub#it a report detailing hat happened in "TSB on the TGS ro0ect, e also re9uested an e*ternal auditor$ 4goos Bagoos to visit and investigate "TSB, 4t the end$ 4goos 4goos Bagoos reported to dris dris that "TSB had been cheated,
n the case stud!$ e found that there are several issues e*ist, Thus$ e also provide so#e reco##endations in order to solve the situations, %etails ill be e*plained in the folloing pages,
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Case 3: Flight of Funds (Group 6) 2. Issues and Recommendations 2.1 Figure out why MTSB's investment on MTT concluded as een cheated and how it could e cheated.
First of all$ let;s look at the reason h! the invest#ent concluded as been cheated, Several rregularities been found b! the e*ternal auditor, For e*a#ple$ 4goos Bagoos found that there ere onl! four people in the office hich basicall! cover all the basic function of the depart#ents that "TSB should have, This is ver! suspicious as four people are hardl! to cover all the operations even though it as infor#ed that additional staff ould be contacted hen necessar!, Besides that$ relevant docu#ents related to the "TT invest#ent doesn;t found in the "TSB office, t as infor#ed that the directors never en9uired about the docu#ent$ hence the office #anager never #ake an effort to even re9uest for it, n addition to that$ there as no audited accounts had been issued to the shareholders since$ nor an! filing #ade ith the Co#panies Co##ission of "ala!sia (CC"),
.e*t$ e shall look deeper on the ho "TSB could be cheated, Based on our understanding on the case$ e;ve found a linkage of relationship beteen "TSB$ "TT and TGS, %ato; Sha'ali as the oner of Turkistan Global Services(TGS) and also the one ho signed a "o ith the Turkistan Govern#ent for the e*clusive rights to arrange for the travel needs of business individuals along the Turkistan+"ala!sia route, Coincidentl!$
the e*ecutive
director of "TSB at that ti#e$ -ati# .or ho happened to be a board #e#ber in TGS too, Based on the conte*t in the case stud!$ e reali'ed that it as /#ar -ati#$ the son of -ati# .or$ ho #ade the approach to his father to propose to set up a 0oint venture beteen "TSB and TGS hich ill be structured in 12 and 612 onership, t as ver! 9uestionable that h! the person ho approach -ati# .or to set up "TT as his son$ /#ar -ati# but not %ato; Sha'ali$ the one ho initiated to for# a travel business beteen Turkistan and "ala!sia, B! taking this point into our consideration$ it as reasonable for us to suspect that %ato; Sha'ali has spotted the opportunit! to co##it a fraud and #ade a private contact ith /#ar -ati# so that /#ar could convince his father to set up "TT, 8e also suspect that there as an
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Case 3: Flight of Funds (Group 6) #ade an agree#ent ith /#ar -ati# to e#be''le the #one! that invested b! "TSB ith certain percentage of profit sharing beteen = of the#,
n order to #ake it happen$ the 0oint venture #ust be structured in favour of %ato; Sha'ali, ence$ the arrange#ent for the onership of "TT ould be 612 for TGS and 12 for "TSB, This is to #ake sure that TGS beco#e the substantial shareholder in "TT and the oner$ %ato; Sha'ali has the authorit! to #ake the #a0or decision in the co#pan!, This given the# a chance to control and #anipulate the docu#ents and records, %ato; Sha'ali can use this opportunit! to transfer the #one! received fro# "TSB to their on accounts,
Recommendations
/bviousl! the irregularities in the co#pan! ere #ainl! due to the eak internal control s!ste# in the co#pan!, nternal control is defined as a process affected b! an organi'ation;s structure$ ork and authorit! flos$ people and #anage#ent infor#ation s!ste#s$ designed to help the organi'ation acco#plish specific goals or ob0ectives, t pla!s an i#portant role in preventing and detecting fraud and protecting the organi'ation;s resources$ both ph!sical and intangible, n our case$ the "TSB co#pan! is lack of internal control here the control activities did not practice effectivel!, This can be seen b! the scenario here the office #anager never #ade an effort to re9uest for the docu#ents related to the invest#ent$ and this is an e*a#ple of lack of independent check, The orks of the office #anager should be checked b! an independent staff$ ho did not do the ork that being checked, This control is to ensure the reliabilit! of the transaction and the efficienc! of operations, n order to identif! and establish effective controls$ top #anage#ent of "TSB #ust continuall! assess the risk$ #onitor control i#ple#entation$ and #odif! controls as needed, 4 state#ent of responsibilit! for internal control can be signed b! the "TSB Top #anage#ent and include it in their annual report to the stockholders, t helps in gaining a good reputation in the public;s e!es,
Besides that$ it is about the fiduciar! dut! of a director should have in disclosing the share of interest the! have in other co#panies, Generall!$ it;s part of
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Case 3: Flight of Funds (Group 6) directors; fiduciar! duties to avoid situations here their interest #a! possibl! conflict ith that of the co#pan!$ to avoid #aking secret profit and #isappropriate co#pan!;s assets, 4ccording to Co#pan! 4ct section >3> (>)$ director directl! or indirectl!$ interested in a contract or proposed contract ith the co#pan!$ shall declare the nature of his interest at a #eeting of the directors of the co#pan!$ hile in Co#pan! 4ct Section >==4 (>)$ person shall be dee#ed to be connected ith a director if he is a #e#ber of that;s fa#il!$ hich include his or her child, n this case$ -ati# .or has the interest indirectl! in "TSB;s invest#ent in "TT because there;s a connected person ith hi# in the pro0ect$ hich is his son$ /#ar -ati# ho as also the e*ecutive director of "TT, t as -ati# .or ho took the initiative to #ake invest#ent in "TT, Thus$ -ati# .or should have disclose it during the #eeting of directors of "TSB, B! doing so$ liabilit! can be avoided b! obtaining the co#pan!;s consent$ hich necessaril! involves a disclosure of the circu#stances that result in the profit being #ade$ this disclosure of interest is considered as a defence to avoid being held liable for breach of dut!, This disclosure also ensures the other board #e#bers of the co#pan! are aare of the situation,
.e*t$ the group co#pan! has to i#ple#ent a closer #onitoring of the perfor#ance subsidiar! co#panies to ensure co#panies are doing ell fro# ti#e to ti#e, /ne of the a! to i#ple#ent such #onitoring function is through internal audit on the co#panies, The group co#pan! can hire an e*ternal auditor or arrange an internal auditor in the group to perfor# an internal audit on the co#panies, t is reco##ended to perfor# several ti#es of internal audit a !ear to keep track of the subsidiar! co#panies; perfor#ance, nternal audit aides the co#pan! b! provide the detail infor#ation$ pointing out the eaknesses$ and provide reasonable reco##endation to overco#e the proble#s and eaknesses,
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Case 3: Flight of Funds (Group 6) 2.2 !here the money went"
The #one! that invested b! "TSB has been cheated, /ther than share contract$ no an! relevant evidence proves the e*istence of the #one!, n this case$ e feel suspicious about the relationship beteen /#ar -ati#$ -ati# .or and %ato Sha'ali, Turkistan Global Services Sdn Bhd (TGS) as oned b! %ato Sha'ali$ he needs to find a partner to provide e*pertise in the travel business, -ati# .or$ the e*ecutive director of "TSB and also a board #e#ber in TGS, is son$ /#ar -ati#$ approached hi# to set up a 0oint venture beteen "TSB and TGS, "ala!sia+Turkistan Travels Sdn Bhd ("TT) as structured b! TGS and "TSB, "TSB has paid r#? per share for >11$111 units to represent its 12 shareholding in "TT, 8e suspect that /#ar -ati#$ -ati# .or and %ato Sha'ali ere intended to cheat the #one! that invested b! "TSB,
Recommendation
4s hat e discussed in above sentence$ e suggest that the first step e should do is to check the bank state#ent of both "TSB and "TT to #ake sure the source of #one! and here the #one! has transferred to, Through bank state#ent e can kno that is there an! fraudster si#pl! takes the investors& #one! for on personal usage, Besides$ e can investigate on the balance of the bank accounts of /#ar -ati#$ -ati# .or$ %ato Sha'ali$ their spouses$ fa#il! #e#bers and persons ho are related ith the#, Through the bank accounts$ e can see hether is there an! suspicious transaction a#ong the#, 5speciall! those bank accounts in overseas countr! for e*a#ple a bank account in the Siss Bank, The reason h! e have to investigate the bank account of persons ho related is because there #ight be a possibilit! hich the! ill transfer the #one! to others; bank account in order to conceal it, The another thing is e should focus on the records of their properties, The! #ight have used the #one! to purchase fi*ed assets like houses and lands, B! doing so$ the! can avoid being trace b! the accountants and the destination of the #one! ould be able to conceal,
.e*t$ e ould reco##end to hire a forensic accountant tea# to perfor# a forensic audit on hat happened ithin "TSB, Forensic 4ccountant is often retained to anal!'e and present co#ple* financial and business issues, /ne of the
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Case 3: Flight of Funds (Group 6) #ethod can be used b! the forensic accountant ould be trace the lifest!le of the three suspects$ %ato; Sha'ali$ /#ar -ati# and -ati# .or$ and anal!'e hether is there a unusual lifest!le beteen the#,
Forensic tea# also can perfor# an
anal!sis on their spending pattern before and after the case happened, Besides that$ forensic tea# can investigating and anal!'ing financial evidence$ such as check on the validit! of the related transaction records of "TSB invest#ent, /ther than that$ the! are also assisting in legal proceeding$ for e*a#ple$ prepare visual aids to support trial evidence, B! the end of the forensic audit$ the forensic accountant ould provide assistance b! giving revie of the actual situation$ suggest possible courses of action and provide assistance ith the recover! of stolen fund b! a! of civil action or cri#inal prosecution,
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Case 3: Flight of Funds (Group 6) 2.3 $ow to sa%eguard investment to ma&e sure it is ro%itale" n this case stud!$ e found that other than share contract$ there are no other
docu#entation e*isted to prove that #one! had been invested into the co#pan! ith understanding that the #one! ould be used specificall! for carr!ing out the proposal, %uring the #eeting$ "r, dris noticed that there had been an invest#ent #ade b! a subsidiar!$ "TSB$ in =116$ hich had shon no #ove#ent since, e told "s Goh to send an officer to investigate the #atter and prepare a report on hat had transpired, n the investigation$ she revieed the docu#entation the! had on "TT and reali'ed that$ other than the annual audited financial report$ there had been no other infor#ation provided b! "TSB, "r, dris outsource the task of investigation to 4goos Bagoos$ a consultant fro# a Big Four accounting fir#, n the visiting of "r, 4goos to "TSB$ he re9uested the officer #anger to sho hi# the relevant docu#ent pertaining to the "TT invest#ent and he had been infor#ed that there had not been an! docu#ent fro# "TT since the beginning, Recommendations0
4s discuss in the previous$ it shon that "TSB has been cheated for the invest#ent in "TT ithout an! docu#entation e*isted to prove that #one! had been invested into the co#pan! other than shares contract, 4s e kno that$ both side should be responsible for the invest#ent through facilitate the establish#ent of prudent invest#ent polic! state#ent hich to place an nvest#ent and @isk 4ssess#ent Co##ittee, This co##ittee of the co#pan! ill provide technical advice on the invest#ent strategies$ assess the perfor#ance of invest#ent #ade and put forard reco##endations on the invest#ent,
n this case as a beginning$ "TSB should conduct a co#prehensive revie of "TT in order to deter#ine hich units co#e into non+public infor#ation, Beside$ "TSB should also take note of the #anner in hich e#plo!ees fro# related entities interact ith one another in order to identif! areas here the potential to i#properl! share non+public infor#ation #a! e*ist, "eanhile$ "TSB should retain an independent consultant such as establish an nvest#ent and @isk 4ssess#ent Co##ittee to conduct a revie of "TT policies and procedures ith respect to safeguarding the invest#ent although it ill be ti#e+ consu#ing and costl!, t ill be better for prevention than cure, n additional to
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Case 3: Flight of Funds (Group 6) revieing policies and procedures to safeguard of invest#ent in "TT$ "TSB should also revie its training process to ensure that not onl! e#plo!ees aare of the relevant policies$ but also for the top #anage#ent to clearl! understanding their role in i#ple#enting and enforcing the policies and procedures of invest#ent in "TT, This is to ensure that the directors of "TSB understand about their responsibilit!,
Besides$ e also suggest that "TSB should produce a S8/T anal!sis in order to ensure the invest#ent in "TT is safe, S8/T 4nal!sis #ostl! helps in strategic planning hich as a source of infor#ation$ builds organi'ation&s strengths$ reverse its eaknesses and overco#e organi'ation&s threats, 4t the sa#e ti#e$ S8/T 4nal!sis also helps in identif!ing core co#petencies of the fir#$ setting of ob0ectives for strategic planning, 8ith i#ple#entation of S8/T 4nal!sis before invest#ent in "TT$ it helps "TSB in knoing past$ present and future b! using past and current data$ future plans can be check out,
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Case 3: Flight of Funds (Group 6) 2.) The resonsiility and duties o% grou accounts and %inance deartment has to e revised. ssues that can be dran here is the ineffectiveness faced b! the accounting and
financial depart#ent of the co#pan!,
"TSB Co#pan! cannot provides the
co#plete infor#ation and supporting docu#ents in support of transactions carried out during the accounting period, Besides that$ there is a lack of segregation of duties in the finance and accounting depart#ent of the co#pan!$ hich all #e#bers of the group are onl! responsible for the basic accounting services of the T group,
4ccording to a state#ent on
accounting services for the hole TG"C group<$ it indicates the co#pan! is not concerns about the role of each depart#ent, t is shon that the co#pan! has all the ten #e#bers to do the basic #aintenance of the general ledger$ accounting pa!able$ account receivable and pa!roll,
Recommendations0
5ach depart#ent should kno and be clear about their respective roles, This is ver! i#portant because it ill facilitate the business and it enables the co#pan! to achieve the ob0ectives set b! their top #anage#ent, n this case$ group financial and accounting depart#ent should be divided into to divisions$ one is accounting division and another is finance division, The dut! and responsibilities of both divisions #ust be stated clearl!, This is to avoid an! #isunderstand or double lap of ork later on, First e start it off ith the role of accounting division, t is #ainl! on covering back the hole accounting services of T, The end+product of accounting services is co#posed of financial declaration such as balance sheet$ inco#e state#ent and cash flo, So$ the accounting division needs to ensure all the infor#ation are valid$ reliable$ and 0ustified,
.e*t$ it is about the finance division of the group, Since it is a ne division hence the 0ob responsibilities of the division #ust be stated clearl!, The #ain role of the finance division is to anal!'e the infor#ation related to invest#ent and the effects of individual decisions$ then find the opti#al ele#ent to contribute in achieving the ob0ectives of the co#pan!, For e*a#ple$ ne invest#ent opportunities available in the current #arket$ finance division can propose it to the top #anage#ent to #ake a ne invest#ent b! taking advantage of the 10
Case 3: Flight of Funds (Group 6) opportunities in the current #arket, t as crucial for the organi'ation to have the updated and anal!'ed infor#ation fro# the finance division for decision #aking process,
4nother role of the finance division is to use the infor#ation provided b! the account division to perfor# a financial anal!sis and ensure the co#pan! is in a stable situation, /ther than that$ the finance division should also focuses on the entries and issues of cash flo, For e*a#ple the division #ust ensure that there are enough funds available to #eet the da! to da! pa!#ent, /ne of their responsibilities is to keep the co#pan!&s solvenc! b! anal!'ing and planning the cash flos necessar! for pa!ing the obligations such as pa!#ent bills$ ages$ salar! and purchasing the assets needs b! the co#pan! to reach its ob0ective, n addition to that$ the finance division ill be orking closel! ith the #anagers in order to prepare the organi'ation&s budgets and forecasts$ and to report back on the progress against these throughout the !ear,
4ccounts and finance depart#ent needs to divide the #e#bers of each division e9uall! to facilitate the duties assigned to each #e#ber, B! assigning different tasks to the #e#bers$ the! are able to perfor# their orks #ore effectivel! and efficient, Top #anage#ent should also pla!s an i#portant role to ensure the each depart#ent carr! out their tasks in accordance ith their duties and responsibilities, The group accounting and finance depart#ent has to be #onitored to ensure that the docu#ents and records are properl! kept and recorded in the s!ste#,
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Case 3: Flight of Funds (Group 6) 2.+ ,de-uate and roer documentation has to e maintained to ensure the comleteness o% the documentation. n this case$ hen 4goos Bagoos arrived in "TSB on behalf of T$ the office
#anager of "TSB infor#ed 4goos that there had not been an! relevant docu#ents pertaining to the "TT invest#ent fro# "TT since the beginning, Since -ati# .or$ the director of "TSB had never en9uired an! docu#ent and no effort to contact "TT as ever #ade, The office #anager as onl! provided three docu#ents to 4goos, First docu#ent is a pro0ect paper that briefl! described the "e#orandu# of nderstanding ("o) beteen "TSB and TGS$ the "TT business #odel and the financial i#plications, Second docu#ent is "TT&s pro0ected financials and the third docu#ent is the #inutes of #eetings here the Board approved the invest#ent, Recommendations0 /ne of the #ost funda#ental financial practices for an! organi'ation is keeping
books and records, t is vitall! i#portant for protecting the organi'ation;s assets$ and for #anaging and reporting on its financial activities,
8ithout ade9uate
books and records$ #ost organi'ations ould be unable to survive for long, So$ it is essential for the "TSB to follo established bookkeeping and accounting practices such as source docu#ents$ books of original entr!$ general ledger$ reports$ bank state#ents$ and bank reconciliation although the invest#ent as involved relationship transactions, n addition$ as an account clerk of "TSB should kno about keeping the books and records of all transaction are needed even the director had never en9uired, 4de9uate and proper docu#entation is a controls designed to ensure ade9uate recordkeeping include the creation of invoices and other docu#ents that are eas! to use and sufficientl! infor#ativeA the use of pre+nu#bered$ consecutive docu#entsA and the ti#el! preparation of docu#ents, t also allos a 9uicker retrieval of docu#ents and infor#ation fro# files, t can help the interest group to detect the suspicious fraud earlier , Besides$ it also helps "TSB to evaluate the profitable ele#ent in the invest#ent of "TT through the relevant docu#ents,
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Case 3: Flight of Funds (Group 6) 2.# Relationshi etween the countries @elationship beteen the countries can be fragile so#eti#es, Based on our case$
there as a "e#orandu# of nderstanding ("o) signed b! %ato; Sha'ali ith the Turkistan Govern#ent for e*clusive rights to arrange for the travel needs of business individuals along the Turkistan+"ala!sia route, n con0unction ith this "o$ "ala!sia+Turkistan Travels Sdn Bhd("TT) as for#ed to pro#ote the travel activities beteen these to countries, oever$ it turned out to beco#e a failure as the "TSB;s invest#ent on "TT has 0udged b! the e*ternal auditor as been cheated, This has raised up an issue here this failure of invest#ent could brings har# to the relationship beteen our countr! and Turkistan govern#ent, The! #ight think our people do not appreciate about the "e#orandu# and the! 0ust take advantage of this "o to cheat on the invest#ent, Fro# Turkistan Govern#ent&s perspective$ the! #ight the! #ight think that our people are not intended to pro#ote the travel activities at all$ this could leads to da#age of our countr!&s reputation and eventuall! it could bring don the hole travel activities beteen Turkistan and "ala!sia,
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Case 3: Flight of Funds (Group 6) 3. onclusion
Fro# the case stud! e studied$ e can i#agine that the i#pacts for the rongdoings b! the e#plo!ee could be costl!, t could even ruin the relationship beteen one countr! and another, Thus$ e should anal!'e and find out h! this kind of case ould happens, This can be done b! anal!'e the reason of it and figure out here the #one! ent,
oever$ for the long ter# prospect$ e reali'ed that a good business practice in an organi'ation is hat it needs to avoid such case fro# happening, There are #an! things need to be done in order to have a good business practice in an organi'ation, n related to the invest#ent of the co#pan!$ ho to safeguard an invest#ent has beco#e the priorit! in deter#ining on hich invest#ent should be #ade, 5stablish#ent of an nvest#ent and @isk 4ssess#ent Co##ittee provides technical advice on the invest#ent strategies$ assess the perfor#ance of invest#ent #ade and put forard reco##endations on the invest#ent, Co#prehensive revie of the invest#ent has to be done in order to deter#ine hich units co#e into non+public infor#ation, erfor# a S8/T anal!sis on the invest#ent could ensure the invest#ent is safe and has potential outco#e b! identif!ing the strength$ eakness$ opportunit! and threat of it,
nternal control is one of the crucial ele#ents to ensure the organi'ation to free fro# an! fraud and the operation runs effectivel! and efficientl!, For e*a#ple$ segregation of duties could ensure the group account and financial depart#ent runs effectivel! and ithout an! astage of hu#an resources, 4de9uate and proper docu#entation #itigates the chances of fraud happens in the organi'ation,
Besides that$ the responsibilities of a director in the organi'ation has to be clearl! stated and to be folloed in accordance to the Co#panies 4ct, 4 director is re9uired to disclosure their
interest of holdings in other co#panies directl! or
indirectl!, This is to avoid an! possible conflict of interest and also served as a defence to avoid being held liable for breach of dut!,
nternal audit is another i#portant ele#ent for a organi'ation to operate their business effectivel! and efficientl!, t also allos the group co#pan! to closel!
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Case 3: Flight of Funds (Group 6) #onitor the perfor#ance of their subsidiaries, n addition to that$ it aides the co#pan! b! provide reasonable reco##endation to overco#e the proble#s and eaknesses the! facing,
4s a conclusion for this case stud!$ this kind of case has to be avoided no #atter hat, 4lthough there is no guarantee that it ouldn;t happen again in the future$ but prevention is ala!s better than cure, Thus$ a organi'ation ith a strong internal control s!ste#$ clear directors; responsibilities stated$ and internal audit perfor#ed is hat it needs for a organi'ation to overco#e such proble#,
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Case 3: Flight of Funds (Group 6) ). /uestion ).1 Imagine you were a director o% MTSB in 2**# what would e the stes you would have ta&en to %ul%il your %iduciary duties as a director"
,nswer0
f e ere a director of "STB in =116$ e #ust act bona fide in the interest of the co#pan! and #ust not e*ercise poers for an! collateral purpose, Besides that$ as a director$ e #ust not place ourselves in a position hich there is a conflict beteen our dut! to the co#pan! and our personal interests speciall! the financial interests, 4ccording Section >3>(>) of co#pan! act >6$ ever! director of a co#pan! ho is directl! or indirectl!$ interested in a contract or proposed contract ith the co#pan! shall as soon as practicable after the relevant facts have co#e to his knoledge$ declare the nature of his interest at a #eeting of the directors of the co#pan!, n order to fulfill director fiduciar! duties$ e #ust not #ake an! secret profit out of the position, 4s #ention in Section >3> () of co#pan! act >6$ ever! director of a co#pan! hether directl! or indirectl! duties or interests #ight be created in conflict ith his duties or interests as director shall declare at a #eeting of the directors to the e*tent of the conflict, n the case stud!$ e found that the e*ecutive director of "STB$ -ati# .or$ the father of /#ar -ati#$ a board #e#ber in TGS, /#ar approached his father to set up 0oint venture beteen "TSB and TGS, There is not an! related evidence to sho that "r, /#ar had declared the nature of his personal interest ith person connected in TGS i##ediatel! at the #eeting of directors,
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Case 3: Flight of Funds (Group 6) ).2 !hat are the stes you would have ta&en to sa%eguard MTSBs investment" ,nswer0
First$ ill focus on internal control ithin "TSB, "TSB has responsibilit! for the s!ste# of internal controls, 4 risk #anage#ent fra#eork ith the ob0ective of setting clear guidelines should be established in relation to the levels of risk acceptable to the Co#pan!, The s!ste# of internal controls is designed to #eet the co#pan!&s needs and the risks to hich it is e*posed, This s!ste# not onl! covers financial controls but risk #anage#ent$ operational and co#pliance controls, oever effective a s!ste# is$ it can onl! provide reasonable$ not absolute$ assurance against #aterial #isstate#ent$ loss or irregularities, t should be further noted that such a s!ste# is designed to #anage$ #ore illing than eli#inate$ the risks of failure to achieve its business ob0ectives,
4n invest#ent strateg! should be established and approved b! the "TSB and revieed to take into econo#ic condition, The strateg! should include the invest#ent ob0ectives and goals$ the t!pes and co#position$ for the invest#ent, The invest#ent strateg! should also differentiate the invest#ent and trading purposes, 4 guideline in the invest#ent strateg! is to achieve profitable returns hile at the sa#e ti#e$ #anaging risks ithin the invest#ent portfolio, The level of the risk inherent in invest#ent depends on hether the invest#ent is held on long ter# or short ter# and the co#ple*it! of the invest#ent, "anage#ent should create co#plete policies and procedures for invest#ent operations, nvest#ent strateg! should take into the ob0ectives and goals for each t!pe of invest#ent,
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Case 3: Flight of Funds (Group 6) ).3 ,ssuming you are the eecutive %rom the holding comany sent to write a ost‐mortem audit on MTSBs investment in MTT. !hat would e your strategy to conduct the audit"
,nswer0
.or#all! the post #orte# audit ill be conducted b! the internal auditor of the co#pan!, n this case$ ill perfor# an audit on the internal control procedures first, Firstl!$ their internal control s!ste# ill be e*a#ined and #ake sure the s!ste# is running effectivel!, /therise$ e have to find the eaknesses in the s!ste# and #ake corrective action about it, Secondl!$ #ake sure the personnel in the organi'ation clear and understand about their dut!$ role and responsibilities in the organi'ation, This is to ensure an effective internal control s!ste# in the co#pan!, Test of control could be perfor#ed to ensure the control s!ste# is ell #aintained and understandable,
Besides that$ ill perfor# an audit to figure out ho the #anage#ent safeguard the invest#ent before the final decision to invest in certain pro0ect or co#pan!, For e*a#ple$ hat;s the techni9ue ould be used to #ake sure the invest#ent has potential outco#e and reasonabl! profitable, For instance$ S8/T anal!sis can be used to safeguard an invest#ent, Strength$ eakness$ opportunit! and threat of an invest#ent #ust be identified and anal!'ed, This enables the co#pan! has better understanding about the invest#ent and ould be able to predict the potential outco#e of the pro0ect,
Dastl!$ ill e*a#ine on the decision #aking process of "TSB co#pan!, 8e have to kno about the hole process of decision #aking to ensure the transparenc! of the process, The process of decision #aking #ust be involved b! all the ke! personnel and top #anage#ent of the co#pan! to #ake sure the staffs are clear about hat;s going on in the co#pan! and contribute their idea to the decision #aking process, This is to ensure the transparenc! of the decision #aking process,
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Case 3: Flight of Funds (Group 6) ).) ,ssuming you are an eternal auditor sent to audit MTSB. !hat would e your strategy to conduct the audit"
,nswer0
Belo are the strategies that ill appl! to conduct the audit, First$ ill identif! reason for audit, /btain the sufficient and appropriate evidence for circu#stances$ industr!$ personnel and etc, 5valuate acceptable audit risk, Then ill started to obtain understanding ith client, Before starting an audit$ e should investigate the background of co#pan! to deter#ine its acceptabilit!, nderstand client&s financial stabilit! and previous conflicts on reports, The ne*t step is staff the engage#ent, 4s a staff$ #ust be appropriate and knoledgeable about the client;s industr! and also #ust be assigned to the engage#ent, Then$ should understand client&s industr! and e*ternal environ#ent, Client&s industr! have to understand clearl! before perfor# an audit, 8e should identif! the e*ternal environ#ent ithin the co#pan!, Further#ore$ understand clients operation$ strategies$ and perfor#ance are also an i#portant step, Client&s dail! operation$ strategies and perfor#ance are a guideline or ke! for us to perfor# the audit clearl! and sufficientl!, have to assess client business risk, 4uditor uses knoledge gained fro# the strategic understanding of the client business and industr! to assess client business risk$ the risk that client ill fail to achieve its ob0ectives, .e*t$ evaluate #anage#ent controls affecting business risk, "anage#ent controls #ight cause a risk to an organi'ation, #ust assess risk of #aterial #isstate#ent, For e*a#ple$ identif! risks of #isstate#ent using infor#ation obtained fro# perfor#ing risk assess#ent procedures and considering the characteristics of the accounts and disclosures in the financial state#ents,
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Case 3: Flight of Funds (Group 6) ).+ ,ssuming you are the Idris 45 o% the holding comany. 6ou have received the investigative audit reort. 7ecide what you should do net.
,nswer0
B! assu#ing ;# the dris$ the C5/ of the holding co#pan!, /nce have received the investigative audit report fro# 4goos$ the ver! first thing
ould do is
da#age control$ or at least sho people that ;# doing da#age control on this #atter, This is to #ini#i'e the da#age of this case to our group co#pan!;s reputation and to retain the confidence of the stakeholders, Tell the# e;re doing ell and this #atter ill be corrected, %a#age control such as strengthening the internal control s!ste# of the subsidiar! co#pan!$ "TSB and #an! #ore,
Secondl!$ internal control s!ste# of "TSB is obviousl! eak and needed to be altered and strengthen, rinciples such as segregation of duties$ proper authori'ation$ ade9uate docu#ents and records have to be applied in the co#pan!, For e*a#ple$ #ake sure ever! transaction is valid$ has been recorded properl! and ith evidence to support the transaction, 5ver!one in the organi'ation is clear about their position$ roles and responsibilities to avoid an! further conflicts,
Dastl!$ internal audit #ust be perfor#ed to ensure the effectiveness and efficienc! of the operation in the co#pan!, The group co#pan! can appoint an e*ternal part! or arrange an internal auditor in the group to perfor# an internal audit on "TSB co#pan!, Several ti#es a !ear of internal audit can be perfor#ed to ensure the operation is running effective and up to date, @eco##endations b! the internal auditor have to be taken into the consideration of refor#ing the internal control s!ste#, This is to #ake sure the co#pan! is running in co#pliance ith the Code of Corporate Governance too,
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Case 3: Flight of Funds (Group 6) ).# In the case it was stated that 8The team was usy roviding the accounting services %or the whole T9M grou.: ;sually 8accounting services8 covers only the asic maintenance o% the general ledger accounts ayale accounts receivale and ayroll. This -uote suggests that imortant %inance and accounting %unctions may e overloo&ed or not oerating satis%actorily. 7iscuss how a 9rou Finance 7ivision could e organised so that the issues in the case are handled roerly and in a timely manner.
,nswer0
@egarding the issues in this case$ the group finance division can separate the duties into to depart#ent$ such as finance depart#ent and accounts depart#ent, So$ the all of #e#bers should kno the roles and responsibilit! for their depart#ent,
The roles of the finance depart#ent are the! are needed to be
responsible for all the da! to da! transactional accounting for business, The! needed to collect and kept all docu#ents in the proper file because at the ended of the !ear$ finance depart#ent need to give all docu#ent to accounts depart#ent for recording in the s!ste# or bookkeeping,
For #anage#ent of the organi'ation&s cash flo and ensuring there are enough funds available to #eet the da! to da! pa!#ent, The finance depart#ent has to control the cash flo because the finance depart#ent is responsible for the pa!#ent bills$ ages and salar! to e#plo!ee, The finance depart#ent is also responsible to advising and sourcing long ter# financing, Financing #a! be obtained through bank or private lender debt or in applicable fir#s$ share issues to private investors, f the co#pan! is read! to target angel investors or venture capitalists the finance depart#ent ill be ke! in preparing the docu#ent re9uired for these presentations and #a! ork ith outside consultants on a co#pan! valuation,
For finance depart#ent ill ork ith #anage#ent to prepare the organi'ation&s budget and forecasts and to report back on the progress against these throughout the !ear, Fro# that$ finance depart#ent can provide infor#ation to assist #anager in #aking ke! strateg! decision$ such as #arket or pro0ect to
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Case 3: Flight of Funds (Group 6) pursue or pa!back period for large capital purchase, 8hile for the account depart#ent responsibilit! is to bringing sound infor#ation that can generate to the #anage#ent&s decision #aking process, The accounting depart#ent also needs to ensure all the infor#ation are valid$ reliable and 0ustified, The effectiveness of the accounting can be affecting the capabilit! of the organi'ation to perfor# ell in the international,
B! separating each #e#ber of the task it can be to pla! their respective roles in accordance ith the responsibilities assigned to each depart#ent,
Top
#anage#ent should also pla! an i#portant role to ensure the each depart#ent carr!ing out their tasks properl! and efficientl!,
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Case 3: Flight of Funds (Group 6) ).< 9ood cororate governance is a hallmar& o% well=run comanies. Suggest the governance ractices in the comany that could have heled avoid the rolems sur%acing in the case.
,nswer0
The corporate governance should create a culture of honest! and high ethics in the co#pan!, For e*a#ple$ based on the case$ e found that staff #orale had been lo in the "TSB$ ith the co#pan! being short of funds and the staff not being paid their salaries on ti#e and their bonuses since =11E, So$ creating a positive orkplace environ#ent can help that rongdoing occurs less fre9uentl! hen e#plo!ees have positive feelings about an entit!, This also can i#prove #orale of staff, 8ithout a positive orkplace environ#ent there are #ore opportunities for poor e#plo!ee #orale$ hich can provide incentives for and affect an e#plo!ee&s attitude about co##itting fraud against a co#pan!,
.e*t$ the corporate governance should evaluating 4nti+Fraud rocesses and Control, t #eans the corporate governance need to identif!ing and #easuring fraud risks, Corporate governance has pri#ar! responsibilit! for establishing and #onitoring all aspects of the entit!&s fraud risk assess#ent and prevention activities,
To effectivel! prevent or deter fraud$ an entit! should have an appropriate oversight function in place, /versight can take #an! for#s and can be perfor#ed b! #an! ithin and outside the entit!, For e*a#ple$ #anage#ent is responsible for overseeing the activities carried out b! e#plo!ees$ and t!picall! does so b! i#ple#enting and #onitoring processes and controls such as those discussed previousl!, /ther e*a#ple is the audit co##ittee should evaluate #anage#ent&s identification of fraud risks and i#ple#entation of anti+fraud #easures, Besides$ an effective internal audit tea# can be e*tre#el! helpful in perfor#ing aspects of the oversight function, Their knoledge about the entit! #a! enable the# to identif! indicators that suggest fraud has been co##itted, The! also have the opportunit! to evaluate fraud risks and controls and to reco##end action to #itigate risks and i#prove controls,
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Case 3: Flight of Funds (Group 6) +. Re%erences (n.d.). Retrieved October 12, 2012, from http!!""".co#o.or$!re#o%rce#.htm (n.d.).
Retrieved
October 12, 2012, from
http!!""".c&i'#note#.com!#t%d
$%ide!ntern*& +ontro&.topicrtic&e&d-21081,*rtic&e&d-21006.htm& (n.d.).
Retrieved
October
12,
2012,
from
http!!""".*icp*.or$!%b&ic*tion#!ntern*&+ontro&!*$e#!ntern*&+ontro&.*#p/ (n.d.). Retrieved October 12, 2012, from http!!en."iipedi*.or$!"ii!intern*& *%dit (n.d.). Retrieved October 12, 2012, from http!!en."iipedi*.or$!"ii!intern*& contro& (n.d.).
Retrieved
October
12,
2012,
from
http!!""".mi*.or$.m!h*ndboo!$%ide!!.htm& &in* eodor* +i%h%re*ni, ico&e* *&te#, i*n* re*i. (n.d.). he in*nci*& *n*$ement# Ro&e in modern or$*ni*tion#.nterference# *nd di'erence# bet"een the m*n*$ement of the *cco%ntin$ *ctivit *nd the :n*nci*& m*n*$ement. 595-600. Company Act 1965 (Act 125), Regulations, Rules ans Order. (2009). et*&in$ ;** ntern*tion*& *" oo . (2009). *int*inin$ de?%*te oo# *nd Record#. *ne, ;. (2011). Recent re$%&*tor *ction# foc%#ed on po&icie# *nd proced%re# de#i$ned to #*fe$%*rd m*teri*&,non-p%b&ic inform*tion. Inestment Compliance , 44-47. *p*ndre*, @. (n.d.). College!ur"ng. Retrieved October 15, 2012, from oren#ic cco%nt*nt @%tie# A ;ob *ret """.co&&e$e#%r:n$.com R*hemt%&&*, B. (2010, October 12). Inestment # turning principles into pro"ts. Retrieved October 13, 2012, from hree "*# to #*fe$%*rd o%r inve#tment portfo&io http!!""".inve#tment.com
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Case 3: Flight of Funds (Group 6)
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