Case 3: Flight of Funds (Group 6)

Table of Contents
1. Introduction..................................................................................................2
2. Issues and Recommendations......................................................................3
2.1 Figure out why MTSB's investment on MTT concluded as been
cheated and how it could be cheated..............................................................3
2.2

Where the money went?........................................................................6

2.3

How to safeguard investment to make sure it is profitable?..............8

2.4 The responsibility and duties of group accounts and finance

department has to be revised........................................................................10
2.5 Adequate and proper documentation has to be maintained to ensure
the completeness of the documentation.......................................................12
2.6

Relationship between the countries....................................................13

3. Conclusion...................................................................................................14
4. Question.......................................................................................................16
5. References......................................................................................................24

Case 3: Flight of Funds (Group 6)

1. Introduction
The Turkistan Global Services Sdn Bhd (TGS) owned by a Malaysian businessman,
Dato Shazali Hamid, who had signed a Memorandum of Understanding with the
Turkistan Government for exclusive rights to arrange for the travel needs of business
individuals along the Turkistan-Malaysia route. Since Dato Shazali was not in the
travel business, he needed to identify a partner who could provide the expertise. The
executive director of Malaysian Travel Sdn Bhd (MTSB), Yatim Nor, the father of
Omar Yatim, a board member in TGS. Omar approached his father to set up a joint
venture between MTSB and TGS which named Malaysian Turkistan Travels Sdn Bhd
(MTT). The joint venture was structured to represent a 60%-40% ownership between
TGS and MTSB. However, other than the share contract, no other documentation
existed to prove that money had been invested into the MTT Company.
A new Chief Executive Officer, Mr. Idris bin Junid, was appointed for the
holding company, Travel Investment Holdings (TIH) Bhd. While conducting a review
of the TIH group, he came upon discrepancy in the form of an investment in MTT
made by a subsidiary, MTSB. Idris requested the Corporate Finance Department to
submit a report detailing what happened in MTSB on the TGS Project. He also
requested an external auditor, Agoos Bagoos to visit and investigate MTSB. At the
end, Agoos Bagoos reported to Idris that MTSB had been cheated.
In the case study, we found that there are several issues exist. Thus, we also
provide some recommendations in order to solve the situations. Details will be
explained in the following pages.

Case 3: Flight of Funds (Group 6)

2. Issues and Recommendations
2.1 Figure out why MTSB's investment on MTT concluded as been cheated and
how it could be cheated.
First of all, let's look at the reason why the investment concluded as been cheated.
Several Irregularities been found by the external auditor. For example, Agoos
Bagoos found that there were only four people in the office which basically cover
all the basic function of the departments that MTSB should have. This is very
suspicious as four people are hardly to cover all the operations even though it was
informed that additional staff would be contacted when necessary. Besides that,
relevant documents related to the MTT investment doesn't found in the MTSB
office. It was informed that the directors never enquired about the document,
hence the office manager never make an effort to even request for it. In addition to
that, there was no audited accounts had been issued to the shareholders since, nor
any filing made with the Companies Commission of Malaysia (CCM).
Next, we shall look deeper on the how MTSB could be cheated. Based on
our understanding on the case, we've found a linkage of relationship between
MTSB, MTT and TGS. Dato' Shazali was the owner of Turkistan Global
Services(TGS) and also the one who signed a MoU with the Turkistan
Government for the exclusive rights to arrange for the travel needs of business
individuals along the Turkistan-Malaysia route. Coincidently,

the executive

director of MTSB at that time, Yatim Nor who happened to be a board member in
TGS too. Based on the context in the case study, we realized that it was Omar
Yatim, the son of Yatim Nor, who made the approach to his father to propose to set
up a joint venture between MTSB and TGS which will be structured in 40% and
60% ownership. It was very questionable that why the person who approach
Yatim Nor to set up MTT was his son, Omar Yatim but not Dato' Shazali, the one
who initiated to form a travel business between Turkistan and Malaysia. By taking
this point into our consideration, it was reasonable for us to suspect that Dato'
Shazali has spotted the opportunity to commit a fraud and made a private contact
with Omar Yatim so that Omar could convince his father to set up MTT. We also
suspect that there was an "under the table" deal going on during the private
conversation between Dato' Shazali and Omar Yatim. Dato' Shazali might have

Case 3: Flight of Funds (Group 6)

made an agreement with Omar Yatim to embezzle the money that invested by
MTSB with certain percentage of profit sharing between 2 of them.
In order to make it happen, the joint venture must be structured in favour
of Dato' Shazali. Hence, the arrangement for the ownership of MTT would be
60% for TGS and 40% for MTSB. This is to make sure that TGS become the
substantial shareholder in MTT and the owner, Dato' Shazali has the authority to
make the major decision in the company. This given them a chance to control and
manipulate the documents and records. Dato' Shazali can use this opportunity to
transfer the money received from MTSB to their own accounts.
Recommendations
Obviously the irregularities in the company were mainly due to the weak internal
control system in the company. Internal control is defined as a process affected by
an organization's structure, work and authority flows, people and management
information systems, designed to help the organization accomplish specific goals
or objectives. It plays an important role in preventing and detecting fraud and
protecting the organization's resources, both physical and intangible. In our case,
the MTSB company is lack of internal control where the control activities did not
practice effectively. This can be seen by the scenario where the office manager
never made an effort to request for the documents related to the investment, and
this is an example of lack of independent check. The works of the office manager
should be checked by an independent staff, who did not do the work that being
checked. This control is to ensure the reliability of the transaction and the
efficiency of operations. In order to identify and establish effective controls, top
management of MTSB must continually assess the risk, monitor control
implementation, and modify controls as needed. A statement of responsibility for
internal control can be signed by the MTSB Top management and include it in
their annual report to the stockholders. It helps in gaining a good reputation in the
public's eyes.
Besides that, it is about the fiduciary duty of a director should have in
disclosing the share of interest they have in other companies. Generally, it's part of

Case 3: Flight of Funds (Group 6)

directors' fiduciary duties to avoid situations where their interest may possibly
conflict with that of the company, to avoid making secret profit and
misappropriate company's assets. According to Company Act section 131 (1),
director directly or indirectly, interested in a contract or proposed contract with the
company, shall declare the nature of his interest at a meeting of the directors of the
company, while in Company Act Section 122A (1), person shall be deemed to be
connected with a director if he is a member of that's family, which include his or
her child. In this case, Yatim Nor has the interest indirectly in MTSB's investment
in MTT because there's a connected person with him in the project, which is his
son, Omar Yatim who was also the executive director of MTT. It was Yatim Nor
who took the initiative to make investment in MTT. Thus, Yatim Nor should have
disclose it during the meeting of directors of MTSB. By doing so, liability can be
avoided by obtaining the company's consent, which necessarily involves a
disclosure of the circumstances that result in the profit being made, this disclosure
of interest is considered as a defence to avoid being held liable for breach of duty.
This disclosure also ensures the other board members of the company are aware of
the situation.
Next, the group company has to implement a closer monitoring of the
performance subsidiary companies to ensure companies are doing well from time
to time. One of the way to implement such monitoring function is through internal
audit on the companies. The group company can hire an external auditor or
arrange an internal auditor in the group to perform an internal audit on the
companies. It is recommended to perform several times of internal audit a year to
keep track of the subsidiary companies' performance. Internal audit aides the
company by provide the detail information, pointing out the weaknesses, and
provide reasonable recommendation to overcome the problems and weaknesses.

Case 3: Flight of Funds (Group 6)

2.2 Where the money went?
The money that invested by MTSB has been cheated. Other than share contract,
no any relevant evidence proves the existence of the money. In this case, we feel
suspicious about the relationship between Omar Yatim, Yatim Nor and Dato
Shazali. Turkistan Global Services Sdn Bhd (TGS) was owned by Dato Shazali,
he needs to find a partner to provide expertise in the travel business. Yatim Nor,
the executive director of MTSB and also a board member in TGS. His son, Omar
Yatim, approached him to set up a joint venture between MTSB and TGS.
Malaysia-Turkistan Travels Sdn Bhd (MTT) was structured by TGS and MTSB.
MTSB has paid rm8 per share for 100,000 units to represent its 40% shareholding
in MTT. We suspect that Omar Yatim, Yatim Nor and Dato Shazali were intended
to cheat the money that invested by MTSB.
Recommendation
As what we discussed in above sentence, we suggest that the first step we should
do is to check the bank statement of both MTSB and MTT to make sure the source
of money and where the money has transferred to. Through bank statement we can
know that is there any fraudster simply takes the investors money for own
personal usage. Besides, we can investigate on the balance of the bank accounts of
Omar Yatim, Yatim Nor, Dato Shazali, their spouses, family members and persons
who are related with them. Through the bank accounts, we can see whether is
there any suspicious transaction among them. Especially those bank accounts in
overseas country for example a bank account in the Swiss Bank. The reason why
we have to investigate the bank account of persons who related is because there
might be a possibility which they will transfer the money to others' bank account
in order to conceal it. The another thing is we should focus on the records of their
properties. They might have used the money to purchase fixed assets like houses
and lands. By doing so, they can avoid being trace by the accountants and the
destination of the money would be able to conceal.
Next, we would recommend to hire a forensic accountant team to perform a
forensic audit on what happened within MTSB. Forensic Accountant is often
retained to analyze and present complex financial and business issues. One of the
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Case 3: Flight of Funds (Group 6)

method can be used by the forensic accountant would be trace the lifestyle of the
three suspects, Dato' Shazali, Omar Yatim and Yatim Nor, and analyze whether is
there a unusual lifestyle between them.

Forensic team also can perform an

analysis on their spending pattern before and after the case happened. Besides
that, forensic team can investigating and analyzing financial evidence, such as
check on the validity of the related transaction records of MTSB investment.
Other than that, they are also assisting in legal proceeding, for example, prepare
visual aids to support trial evidence. By the end of the forensic audit, the forensic
accountant would provide assistance by giving review of the actual situation,
suggest possible courses of action and provide assistance with the recovery of
stolen fund by way of civil action or criminal prosecution.

Case 3: Flight of Funds (Group 6)

2.3 How to safeguard investment to make sure it is profitable?
In this case study, we found that other than share contract, there are no other
documentation existed to prove that money had been invested into the company
with understanding that the money would be used specifically for carrying out the
proposal. During the meeting, Mr. Idris noticed that there had been an investment
made by a subsidiary, MTSB, in 2006, which had shown no movement since. He
told Ms Goh to send an officer to investigate the matter and prepare a report on
what had transpired. In the investigation, she reviewed the documentation they
had on MTT and realized that, other than the annual audited financial report, there
had been no other information provided by MTSB. Mr. Idris outsource the task of
investigation to Agoos Bagoos, a consultant from a Big Four accounting firm. In
the visiting of Mr. Agoos to MTSB, he requested the officer manger to show him
the relevant document pertaining to the MTT investment and he had been
informed that there had not been any document from MTT since the beginning.
Recommendations:
As discuss in the previous, it shown that MTSB has been cheated for the
investment in MTT without any documentation existed to prove that money had
been invested into the company other than shares contract. As we know that, both
side should be responsible for the investment through facilitate the establishment
of prudent investment policy statement which to place an Investment and Risk
Assessment Committee. This committee of the company will provide technical
advice on the investment strategies, assess the performance of investment made
and put forward recommendations on the investment.
In this case as a beginning, MTSB should conduct a comprehensive review
of MTT in order to determine which units come into non-public information.
Beside, MTSB should also take note of the manner in which employees from
related entities interact with one another in order to identify areas where the
potential to improperly share non-public information may exist. Meanwhile,
MTSB should retain an independent consultant such as establish an Investment
and Risk Assessment Committee to conduct a review of MTT policies and
procedures with respect to safeguarding the investment although it will be timeconsuming and costly. It will be better for prevention than cure. In additional to
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Case 3: Flight of Funds (Group 6)

reviewing policies and procedures to safeguard of investment in MTT, MTSB
should also review its training process to ensure that not only employees aware of
the relevant policies, but also for the top management to clearly understanding
their role in implementing and enforcing the policies and procedures of
investment in MTT. This is to ensure that the directors of MTSB understand
about their responsibility.
Besides, we also suggest that MTSB should produce a SWOT analysis in
order to ensure the investment in MTT is safe. SWOT Analysis mostly helps in
strategic planning which as a source of information, builds organizations
strengths, reverse its weaknesses and overcome organizations threats. At the same
time, SWOT Analysis also helps in identifying core competencies of the firm,
setting of objectives for strategic planning. With implementation of SWOT
Analysis before investment in MTT, it helps MTSB in knowing past, present and
future by using past and current data, future plans can be check out.

Case 3: Flight of Funds (Group 6)

2.4 The responsibility and duties of group accounts and finance department has
to be revised.
Issues that can be drawn here is the ineffectiveness faced by the accounting and
financial department of the company.

MTSB Company cannot provides the

complete information and supporting documents 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 department of the company, which all
members of the group are only responsible for the basic accounting services of the
TIH group. According to a statement on "the team was busy providing the
accounting services for the whole TGMC group", it indicates the company is not
concerns about the role of each department. It is shown that the company has all
the ten members to do the basic maintenance of the general ledger, accounting
payable, account receivable and payroll.
Recommendations:
Each department should know and be clear about their respective roles. This is
very important because it will facilitate the business and it enables the company to
achieve the objectives set by their top management. In this case, group financial
and accounting department should be divided into two divisions, one is accounting
division and another is finance division. The duty and responsibilities of both
divisions must be stated clearly. This is to avoid any misunderstand or double lap
of work later on. First we start it off with the role of accounting division. It is
mainly on covering back the whole accounting services of TIH. The end-product
of accounting services is composed of financial declaration such as balance sheet,
income statement and cash flow. So, the accounting division needs to ensure all
the information are valid, reliable, and justified.
Next, it is about the finance division of the group. Since it is a new division
hence the job responsibilities of the division must be stated clearly. The main role
of the finance division is to analyze the information related to investment and the
effects of individual decisions, then find the optimal element to contribute in
achieving the objectives of the company. For example, new investment
opportunities available in the current market, finance division can propose it to the
top management to make a new investment by taking advantage of the
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Case 3: Flight of Funds (Group 6)

opportunities in the current market. It was crucial for the organization to have the
updated and analyzed information from the finance division for decision making
process.
Another role of the finance division is to use the information provided by the
account division to perform a financial analysis and ensure the company is in a
stable situation. Other than that, the finance division should also focuses on the
entries and issues of cash flow. For example the division must ensure that there
are enough funds available to meet the day to day payment. One of their
responsibilities is to keep the companys solvency by analyzing and planning the
cash flows necessary for paying the obligations such as payment bills, wages,
salary and purchasing the assets needs by the company to reach its objective. In
addition to that, the finance division will be working closely with the managers in
order to prepare the organizations budgets and forecasts, and to report back on the
progress against these throughout the year.
Accounts and finance department needs to divide the members of each
division equally to facilitate the duties assigned to each member. By assigning
different tasks to the members, they are able to perform their works more
effectively and efficient. Top management should also plays an important role to
ensure the each department carry out their tasks in accordance with their duties
and responsibilities. The group accounting and finance department has to be
monitored to ensure that the documents and records are properly kept and
recorded in the system.

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Case 3: Flight of Funds (Group 6)

2.5 Adequate and proper documentation has to be maintained to ensure the
completeness of the documentation.
In this case, when Agoos Bagoos arrived in MTSB on behalf of TIH, the office
manager of MTSB informed Agoos that there had not been any relevant
documents pertaining to the MTT investment from MTT since the beginning.
Since Yatim Nor, the director of MTSB had never enquired any document and no
effort to contact MTT was ever made. The office manager was only provided three
documents to Agoos. First document is a project paper that briefly described the
Memorandum of Understanding (MoU) between MTSB and TGS, the MTT
business model and the financial implications. Second document is MTTs
projected financials and the third document is the minutes of meetings where the
Board approved the investment.
Recommendations:
One of the most fundamental financial practices for any organization is keeping
books and records. It is vitally important for protecting the organization's assets,
and for managing and reporting on its financial activities. Without adequate
books and records, most organizations would be unable to survive for long. So, it
is essential for the MTSB to follow established bookkeeping and accounting
practices such as source documents, books of original entry, general ledger,
reports, bank statements, and bank reconciliation although the investment was
involved relationship transactions. In addition, as an account clerk of MTSB
should know about keeping the books and records of all transaction are needed
even the director had never enquired.
Adequate and proper documentation is a controls designed to ensure adequate
recordkeeping include the creation of invoices and other documents that are easy
to use and sufficiently informative; the use of pre-numbered, consecutive
documents; and the timely preparation of documents. It also allows a quicker
retrieval of documents and information from files. It can help the interest group to
detect the suspicious fraud earlier. Besides, it also helps MTSB to evaluate the
profitable element in the investment of MTT through the relevant documents.

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Case 3: Flight of Funds (Group 6)

2.6 Relationship between the countries
Relationship between the countries can be fragile sometimes. Based on our case,
there was a Memorandum of Understanding (MoU) signed by Dato' Shazali with
the Turkistan Government for exclusive rights to arrange for the travel needs of
business individuals along the Turkistan-Malaysia route. In conjunction with this
MoU, Malaysia-Turkistan Travels Sdn Bhd(MTT) was formed to promote the
travel activities between these two countries. However, it turned out to become a
failure as the MTSB's investment on MTT has judged by the external auditor as
been cheated.
This has raised up an issue where this failure of investment could brings harm
to the relationship between our country and Turkistan government. They might
think our people do not appreciate about the Memorandum and they just take
advantage of this MoU to cheat on the investment. From Turkistan Governments
perspective, they might they might think that our people are not intended to
promote the travel activities at all, this could leads to damage of our countrys
reputation and eventually it could bring down the whole travel activities between
Turkistan and Malaysia.

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Case 3: Flight of Funds (Group 6)

3. Conclusion
From the case study we studied, we can imagine that the impacts for the wrongdoings
by the employee could be costly. It could even ruin the relationship between one
country and another. Thus, we should analyze and find out why this kind of case
would happens. This can be done by analyze the reason of it and figure out where the
money went.
However, for the long term prospect, we realized that a good business practice
in an organization is what it needs to avoid such case from happening. There are many
things need to be done in order to have a good business practice in an organization. In
related to the investment of the company, how to safeguard an investment has become
the priority in determining on which investment should be made. Establishment of an
Investment and Risk Assessment Committee provides technical advice on the
investment strategies, assess the performance of investment made and put forward
recommendations on the investment. Comprehensive review of the investment has to
be done in order to determine which units come into non-public information. Perform
a SWOT analysis on the investment could ensure the investment is safe and has
potential outcome by identifying the strength, weakness, opportunity and threat of it.
Internal control is one of the crucial elements to ensure the organization to free
from any fraud and the operation runs effectively and efficiently. For example,
segregation of duties could ensure the group account and financial department runs
effectively and without any wastage of human resources. Adequate and proper
documentation mitigates the chances of fraud happens in the organization.
Besides that, the responsibilities of a director in the organization has to be
clearly stated and to be followed in accordance to the Companies Act. A director is
required to disclosure their

interest of holdings in other companies directly or

indirectly. This is to avoid any possible conflict of interest and also served as a
defence to avoid being held liable for breach of duty.
Internal audit is another important element for a organization to operate their
business effectively and efficiently. It also allows the group company to closely
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Case 3: Flight of Funds (Group 6)

monitor the performance of their subsidiaries. In addition to that, it aides the company
by provide reasonable recommendation to overcome the problems and weaknesses
they facing.
As a conclusion for this case study, this kind of case has to be avoided no
matter what. Although there is no guarantee that it wouldn't happen again in the
future, but prevention is always better than cure. Thus, a organization with a strong
internal control system, clear directors' responsibilities stated, and internal audit
performed is what it needs for a organization to overcome such problem.

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Case 3: Flight of Funds (Group 6)

4. Question
4.1 Imagine you were a director of MTSB in 2006, what would be the steps you
would have taken to fulfil your fiduciary duties as a director?
Answer:
If we were a director of MSTB in 2006, we must act bona fide in the interest of
the company and must not exercise powers for any collateral purpose. Besides
that, as a director, we must not place ourselves in a position which there is a
conflict between our duty to the company and our personal interests specially the
financial interests. According Section 131(1) of company act 1965, every director
of a company who is directly or indirectly, interested in a contract or proposed
contract with the company shall as soon as practicable after the relevant facts have
come to his knowledge, declare the nature of his interest at a meeting of the
directors of the company. In order to fulfill director fiduciary duties, we must not
make any secret profit out of the position. As mention in Section 131 (5) of
company act 1965, every director of a company whether directly or indirectly
duties or interests might be created in conflict with his duties or interests as
director shall declare at a meeting of the directors to the extent of the conflict. In
the case study, we found that the executive director of MSTB, Yatim Nor, the
father of Omar Yatim, a board member in TGS. Omar approached his father to set
up joint venture between MTSB and TGS. There is not any related evidence to
show that Mr. Omar had declared the nature of his personal interest with person
connected in TGS immediately at the meeting of directors.

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4.2 What are the steps you would have taken to safeguard MTSBs investment?
Answer:
First, I will focus on internal control within MTSB. MTSB has responsibility for
the system of internal controls. A risk management framework with the objective
of setting clear guidelines should be established in relation to the levels of risk
acceptable to the Company. The system of internal controls is designed to meet
the companys needs and the risks to which it is exposed. This system not only
covers financial controls but risk management, operational and compliance
controls. However effective a system is, it can only provide reasonable, not
absolute, assurance against material misstatement, loss or irregularities. It should
be further noted that such a system is designed to manage, more willing than
eliminate, the risks of failure to achieve its business objectives.
An investment strategy should be established and approved by the MTSB and
reviewed to take into economic condition. The strategy should include the
investment objectives and goals, the types and composition, for the investment.
The investment strategy should also differentiate the investment and trading
purposes. A guideline in the investment strategy is to achieve profitable returns
while at the same time, managing risks within the investment portfolio. The level
of the risk inherent in investment depends on whether the investment is held on
long term or short term and the complexity of the investment. Management should
create complete policies and procedures for investment operations. Investment
strategy should take into the objectives and goals for each type of investment.

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4.3 Assuming, you are the executive from the holding company sent to write a
postmortem audit on MTSBs investment in MTT. What would be your
strategy to conduct the audit?
Answer:
Normally the post mortem audit will be conducted by the internal auditor of the
company. In this case, I will perform an audit on the internal control procedures
first. Firstly, their internal control system will be examined and make sure the
system is running effectively. Otherwise, we have to find the weaknesses in the
system and make corrective action about it. Secondly, make sure the personnel in
the organization clear and understand about their duty, role and responsibilities in
the organization. This is to ensure an effective internal control system in the
company. Test of control could be performed to ensure the control system is well
maintained and understandable.
Besides that, I will perform an audit to figure out how the management
safeguard the investment before the final decision to invest in certain project or
company. For example, what's the technique would be used to make sure the
investment has potential outcome and reasonably profitable. For instance, SWOT
analysis can be used to safeguard an investment. Strength, weakness, opportunity
and threat of an investment must be identified and analyzed. This enables the
company has better understanding about the investment and would be able to
predict the potential outcome of the project.
Lastly, I will examine on the decision making process of MTSB company.
We have to know about the whole process of decision making to ensure the
transparency of the process. The process of decision making must be involved by
all the key personnel and top management of the company to make sure the staffs
are clear about what's going on in the company and contribute their idea to the
decision making process. This is to ensure the transparency of the decision
making process.

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4.4 Assuming, you are an external auditor sent to audit MTSB. What would be
your strategy to conduct the audit?
Answer:
Below are the strategies that I will apply to conduct the audit. First, I will identify
reason for audit. Obtain the sufficient and appropriate evidence for circumstances,
industry, personnel and etc. Evaluate acceptable audit risk. Then I will started to
obtain understanding with client. Before starting an audit, we should investigate
the background of company to determine its acceptability. Understand clients
financial stability and previous conflicts on reports. The next step is staff the
engagement. As a staff, must be appropriate and knowledgeable about the client's
industry and also must be assigned to the engagement. Then, I should understand
clients industry and external environment. Clients industry have to understand
clearly before perform an audit. We should identify the external environment
within the company. Furthermore, understand clients operation, strategies, and
performance are also an important step. Clients daily operation, strategies and
performance are a guideline or key for us to perform the audit clearly and
sufficiently. I have to assess client business risk. Auditor uses knowledge gained
from the strategic understanding of the client business and industry to assess client
business risk, the risk that client will fail to achieve its objectives. Next, evaluate
management controls affecting business risk. Management controls might cause a
risk to an organization. I must assess risk of material misstatement. For example,
identify risks of misstatement using information obtained from performing risk
assessment procedures and considering the characteristics of the accounts and
disclosures in the financial statements.

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Case 3: Flight of Funds (Group 6)

4.5 Assuming, you are the Idris, CEO of the holding company. You have received
the investigative audit report. Decide what you should do next.
Answer:
By assuming I'm the Idris, the CEO of the holding company. Once I have received
the investigative audit report from Agoos, the very first thing I would do is
damage control, or at least show people that I'm doing damage control on this
matter. This is to minimize the damage of this case to our group company's
reputation and to retain the confidence of the stakeholders. Tell them we're doing
well and this matter will be corrected. Damage control such as strengthening the
internal control system of the subsidiary company, MTSB and many more.
Secondly, internal control system of MTSB is obviously weak and needed
to be altered and strengthen. Principles such as segregation of duties, proper
authorization, adequate documents and records have to be applied in the company.
For example, make sure every transaction is valid, has been recorded properly
and with evidence to support the transaction. Everyone in the organization is clear
about their position, roles and responsibilities to avoid any further conflicts.
Lastly, internal audit must be performed to ensure the effectiveness and
efficiency of the operation in the company. The group company can appoint an
external party or arrange an internal auditor in the group to perform an internal
audit on MTSB company. Several times a year of internal audit can be performed
to ensure the operation is running effective and up to date. Recommendations by
the internal auditor have to be taken into the consideration of reforming the
internal control system. This is to make sure the company is running in
compliance with the Code of Corporate Governance too.

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Case 3: Flight of Funds (Group 6)

4.6 In the case, it was stated that "The team was busy providing the accounting
services for the whole TGMC group. Usually, "accounting services" covers
only the basic maintenance of the general ledger, accounts payable, accounts
receivable and payroll. This quote suggests that important finance and
accounting functions may be overlooked or not operating satisfactorily.
Discuss how a Group Finance Division could be organised so that the issues
in the case are handled properly and in a timely manner.
Answer:
Regarding the issues in this case, the group finance division can separate the
duties into two department, such as finance department and accounts department.
So, the all of members should know the roles and responsibility for their
department.

The roles of the finance department are they are needed to be

responsible for all the day to day transactional accounting for business. They
needed to collect and kept all documents in the proper file because at the ended of
the year, finance department need to give all document to accounts department for
recording in the system or bookkeeping.
For management of the organizations cash flow and ensuring there are
enough funds available to meet the day to day payment. The finance department
has to control the cash flow because the finance department is responsible for the
payment bills, wages and salary to employee. The finance department is also
responsible to advising and sourcing long term financing. Financing may be
obtained through bank or private lender debt or in applicable firms, share issues to
private investors. If the company is ready to target angel investors or venture
capitalists the finance department will be key in preparing the document required
for these presentations and may work with outside consultants on a company
valuation.
For finance department will work with management to prepare the
organizations budget and forecasts and to report back on the progress against
these throughout the year. From that, finance department can provide information
to assist manager in making key strategy decision, such as market or project to
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Case 3: Flight of Funds (Group 6)

pursue or payback period for large capital purchase. While for the account
department responsibility is to bringing sound information that can generate to the
managements decision making process. The accounting department also needs to
ensure all the information are valid, reliable and justified. The effectiveness of the
accounting can be affecting the capability of the organization to perform well in
the international.
By separating each member of the task it can be to play their respective
roles in accordance with the responsibilities assigned to each department.

Top

management should also play an important role to ensure the each department
carrying out their tasks properly and efficiently.

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Case 3: Flight of Funds (Group 6)

4.7 Good corporate governance is a hallmark of well-run companies. Suggest the
governance practices in the company that could have helped avoid the
problems surfacing in the case.
Answer:
The corporate governance should create a culture of honesty and high ethics in the
company. For example, based on the case, we found that staff morale had been
low in the MTSB, with the company being short of funds and the staff not being
paid their salaries on time and their bonuses since 2007. So, creating a positive
workplace environment can help that wrongdoing occurs less frequently when
employees have positive feelings about an entity. This also can improve morale of
staff. Without a positive workplace environment there are more opportunities for
poor employee morale, which can provide incentives for and affect an employees
attitude about committing fraud against a company.
Next, the corporate governance should evaluating Anti-Fraud Processes
and Control. It means the corporate governance need to identifying and measuring
fraud risks. Corporate governance has primary responsibility for establishing and
monitoring all aspects of the entitys fraud risk assessment and prevention
activities.
To effectively prevent or deter fraud, an entity should have an appropriate
oversight function in place. Oversight can take many forms and can be performed
by many within and outside the entity. For example, management is responsible
for overseeing the activities carried out by employees, and typically does so by
implementing and monitoring processes and controls such as those discussed
previously. Other example is the audit committee should evaluate managements
identification of fraud risks and implementation of anti-fraud measures. Besides,
an effective internal audit team can be extremely helpful in performing aspects of
the oversight function. Their knowledge about the entity may enable them to
identify indicators that suggest fraud has been committed. They also have the
opportunity to evaluate fraud risks and controls and to recommend action to
mitigate risks and improve controls.
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Case 3: Flight of Funds (Group 6)

5. References
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12,

2012,

from

http://www.aicpa.org/Publications/InternalControl/Pages/InternalControl.aspx
(n.d.). Retrieved October 12, 2012, from http://en.wikipedia.org/wiki/internal
audit
(n.d.). Retrieved October 12, 2012, from http://en.wikipedia.org/wiki/internal
control
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12,

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from

http://www.mia.org.my/handbook/guide/IAG/IAG.html
Alina Teodora Ciuhureani, Nicolea Baltes, Liana Brezai. (n.d.). The Financial
Management's Role in modern organizations.Interferences and differences
between the management of the accounting activity and the financial
management. 595-600.
Company Act 1965 (Act 125), Regulations, Rules ans Order. (2009). Petaling Jaya:
International Law Book Services.
Harper, W. (2009). Maintaining Adequate Books and Records.
Lane, J. (2011). Recent regulatory actions focused on policies and procedures
designed to safeguard material,non-public information. Investment Compliance ,
44-47.
Papandrea, D. (n.d.). CollegeSurfing. Retrieved October 15, 2012, from Forensic
Accountant: Duties & Job Market: www.collegesurfing.com
Rahemtulla, K. (2010, October 12). Investment U turning principles into profits.
Retrieved October 13, 2012, from Three ways to safeguard your investment
portfolio: http://www.investment.com

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Case 3: Flight of Funds (Group 6)

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