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Tuesday January 12, 2010

Survey: Corporate fraud in M'sia expected to increase

Survey finds 78% of respondents anticipate financial statement fraud to also rise KUALA LUMPUR: The number of fraud cases among corporate companies in Malaysia is expected to increase due to the current financial crisis, according to the KPMG Fraud Survey Report 2009. KPMG Forensic Malaysia head Tan Kim Chuan said about 78% of the respondents anticipated that financial statement fraud would also rise. In a time of fragile economic conditions, managers and employees face even tougher challenges than before in the form of personal, financial and workplace pressures coupled with fears and uncertainty. These pressures can build on individuals that could prompt them to commit fraud, he told reporters after the launching and briefing of the report by Securities Commission (SC) chairman Tan Sri Zarinah Anwar.

The two most common motivations of fraud were greed or lifestyle at 62% and personal finance pressure at 39%. According to the report, fraud also continued to be a serious threat within corporate Malaysia with 49% of the companies surveyed experiencing at least one fraud incident. About 42% that reported fraud were involved in the manufacturing, construction and engineering and consumer products sectors.

Other key findings of the report included that 47% of the respondents that had experienced fraud in their organisations disclosed that the total losses suffered during the survey period (January 2006 to December 2008) totalled RM63.95mil while the remaining respondents were unsure of the amount. The threat of fraud came mostly from within the organisation with internally-perpetrated fraud by management and non-management employees that accounted for 88% of the total reported fraud valued at RM60mil. The cost of fraud could be far more than was what reported as not all disclosed information on the number of fraud incidents and/or value of fraud detected, Tan said. The report was based on questionnaires sent to all companies listed on Bursa Malaysia and a selection of Malaysias top 1,000 ranked companies. About 15% responded to the survey which was normal relative to KMPGs regional benchmark of about 11% to 20%. Zarinah said the findings of the survey were very telling as the survey showed that there was a relatively high degree of awareness and concern about fraud. On the other hand, it also shows that fraud is very often the product of both poor governance and a deficient corporate culture, she said in her keynote address. Zarinah said amendments to the securities laws that were passed by Parliament late last year would bring about two very critical regulatory developments in the SCs continuing efforts to improve the quality and governance of public-listed companies (PLCs). First is the establishment of the Audit Oversight Board under the auspices of the SC that will provide independent oversight over those who audit public-interest entities. The second is the introduction of two new sections (317A and 320A) in the CMSA (Capital Market & Services Act 2007) that will enable the SC to pursue enforcement action against directors and officers of PLCs for causing wrongful loss to the PLC, she said. Action can also now be taken against directors and officers of PLCs who influence any person who prepares or audits the financial statements or a PLC causing the financial statement to be false or misleading. It was also interesting to note that 75% of companies that experienced fraud had an annual turnover exceeding RM50mil, she said, adding that this revealed that even relatively established companies faced significant challenges that tested the robustness of their internal control systems and the limits of their corporate conscience.