1. From the legal perspective would there any abuse of power, and breach of fiduciary?

Yes, there is abuses of power by the management and breach of fiduciary duty of director. A fiduciary is someone who is in control of property in which others have an interest, or is given powers which is exercised on behalf of those who are in a position of dependence. He owes a duty of loyalty and good faith. Section 132 (1) states that A director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office. As a fiduciary, a directors duties are:

a) Duty to exercise power in good faith and in the interest of the company The director occupied a fiduciary position and must therefore exercise their power in good faith and in the interest of the company as a whole. As in this case, the directors of Delima Enterprise are Encik Zayed and Puan Hashimah. Encik Zayed engaged the external Auditor Aziz & Co (Chartered Accountant), to perform statutory audit for the period 2003 to 2006 as Encik Zayed had applied for banking facilities to implement several contracts the company had managed to secure he must send the Audited Financial Statements to the bank at least by September 2006. However, the Auditors expressed their intention to qualify the Financial Statements due to several unresolved issues. So, Encik Zayed try to negotiate with the Auditors to unqualified the report. The Auditors did not agree to unqualify the report and Encik Zayed tried another way by planned to terminate the auditors appointment and appoint a new friendly party auditor. According to the law, the director should not appoint a new friendly party to unqualified the report as Encik Zayed must act in a good faith and bona fide in the interest of his company. b) Duty to avoid conflict of interest Director should not enter into engagement in which there is a possibility that the director personal interest could conflict with those of the company which they were bound to protect. The purpose of the duty is not only to prevent directors from improperly making profit from their position but also to prevent them from putting themselves in a position where it appears that they may act in their own interest. Directors cannot avoid liability by claiming they did not make a profit, their company did not suffer any loss or that the contract was a fair one. According to this case, Encik Zayed should not appoint a new friendly party as these would result in conflict of interest which is to unqualified the report.

c) Duty to act for the proper purpose A director might be acting honestly in what he considers to be the companys interest and yet still be in breach of his fiduciary duty. This will occur if he misapplies the companys asset or if he uses the powers he is delegated for the wrong purpose. If a director misapplies the companys asset, he is considered breach of his duty to the company. It does not matter whether he is acting honestly or what he considered the interest of the companys property. Where in this case, Encik Zayed had withdrawn a companys money for his personal expenses without record the transaction and the amount automatically charged to the company. d) Duty to act with reasonable care, skill and diligence Encik Zayed and Puan Hashimah as the director of the company must attend the training for top management as we know in these case, both of them were only secondary school background and were not familiar with Accounting Standards and the provisions of the Companies Act 196, including their roles and duties as Company Directors. Futhermore, he may delegate his powers and trust to their employees by segregate the duties.

2. Who should be responsible and accountable? a) Director There are two directors in Delima Enterprise which are Encik Zayed and Puan Hashimah. As the key personnel of the company, they must plan how to solve the issue regarding the outstanding matter issued by the Auditors. When refer to this case, the company had maintained a very lean organization and had employed their own family members as employees and some did not have the necessary job experience. In order to improve internal control system, one of the way is they must focus on their employees by commit and invest on necessary training to their employees to produce better outcome. Moreover, as this company had maintained a very lean organization, Encik Zayed must hire more experience and knowledgeable employees to segregate the duties. Encik Zayed and Puan Hashimah must prepare some comprehensive business plan. Thus, it will require the two of them to reconstruct their organization business plan such as prepare standard of operating procedure (SOP) to increase the effectiveness and efficiency in the operating system.
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b) Account Department The problem arise when Puan Hashimah who are the director of the company are also the accountant for account department. She will be responsible and accounted for as she is the first person that had handle the account department from the beginning. Here, it can be seen clearly that they must hire skill employees to fulfill the responsibility as accountant. Once Puan Hashimah has been appointed as director of the company, she cannot be assigned as accountant or CEO of the company. There are many problems regarding accounting department which are Puan Hashimah do not perform her duties properly that result the losses of several pages of the account receivable listing. Puan Hashimah should make proper filing documentation based on book keeping process in order for easy reference in the future. Besides that, Puan Hashimah should pre-numbered the transaction as in this case, sales invoice and purchase orders (PO) were manually recorded without prenumbered. c) Company Secretary Company secretaries are responsible for ensuring that a company complies with standard financial and legal practice and maintains standards of corporate governance. They must have a thorough understanding of the laws that affect their areas of work. They act as a point of communication between the board of directors and company shareholders, reporting in a timely and accurate manner on company procedures and practices. In small businesses such as Delima Enterprise, other duties commonly undertaken by company secretaries may include entering into contractual agreements with suppliers and customers and managing office space and property and dealing with personnel administration. d) Human resource and Administration Manager As in this case, Encik Salam is the Human Resource and Administration Manager. He is responsible regarding the employees issues and administration department. He is responsible to prepare the wages in monthly basis including EPF and Socso. Other than that, he must prepare the budget to provide training and seminar for staff. Besides that he had to re-organize chart by assign more staffs with qualification and experience.

e) Operations Manager Puan Balqis as the operation manager is responsible to implement Standard of Operating Procedure in order to increase effectiveness and consistency while performing task. So, the employees can work more efficiently because they can refer to SOP to perform their duties without wasting their time. 3. (i) What are the task should be handle by them, should they implement rules and regulations? Yes, they should implement rules and regulations. a) Improve knowledge and skill In this case, Encik Zayed and Puan Hashimah were not familiar with Accounting Standards and the provisions of the Companies Act 1965, including their roles and duties as a Company Directors. The company had also employed some employees without working experience. Furthermore, Cik Amy who are a fresh accounting graduates has been appointed as Finance Executive and had no working experience. Encik Zayed and Puan Hashimah should attend a seminar or talk organized by legal authority such as MIA or CCM. Cik Amy should be send for further training by the companys top management to enhanced her understanding in relation to her job description and competency to perform her job. The management should guide her to a short course designated to improve work efficiency and effectiveness in any local institutions such as UiTM. b) Segregation of duties As we can see, Encik Zayed who is the director of the company and also the Chief Executive Officer (CEO) did not segregate his duties and other employees. Segregation of duties is important in a companys management as to avoid any task redundancy, fraud, negligence, power abuse, inefficiency and work delay. Moreover, it is to ensure the management works efficiently and effectively. Cik Amy has been assigned to numerous workloads and some of the works are not within her job description as a Finance Executive. Encik Zayed should segregate Cik Amys workloads to other personnel according to the relevant job descriptions. For example, Encik Zayed should hire senior executive for finance department to guide and teach Cik Amy about working procedure.

c) Properly filing documented and pre-numbered According to the case, the data was not processed and generated automatically between several modules. Most of transactions such as Sales invoices and purchase order are manually updates without pre-numbered. This would results in difficulty to audit process. Besides that, Monthly Statement of Accounts was not sent to customers. In order to solve these issues, all documents need to organized properly, pre-numbered, recorded & documented such as purchase order should be properly pre-numbered.On top of that, the management has recommended to use the latest edition of standard financial software for example UBS and they must periodically prepare & update control accounts to avoid misstatements. d) Prepare Standard of Operating Procedure (SOP) Many organization that has their own SOP, had been success in term of their operating system. The task given to employees can be finished quickly and the job performance has been improved. In this case, several assets purchased by the company were not recorded and there were several personal withdrawals and expenses were charged to the company. Encik Zayed must overcome these problems by prepare and implement SOP. It will indicate compliance in the entity requirements and can be used to train other employees. ii) Could the audit be completed soon without any qualification? Yes. The director must give full cooperation and work together with the auditor to reduce the time taken to audit. Besides that, they must give true information to the auditor. Management and administration are responsible to provide all the details. As in this case, Puan Hashimah who are responsible for account department, must work very hard with Cik Amy for the purpose to identify human error, reconcile and written off, identify unrecorded information and organized and filed records. The unsolved issues, which is the auditor did not recommend the solutions, the amount will be charged to the statement of comprehensive income.

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

1. The Chief Executive Officer (CEO) should be recruit as Encik Zayed has been appointed as director of this company. Once he has been a director, he cannot be the CEO. 2. Finance manager should be recruit to guide Cik Amy, a fresh accounting graduates about working procedures as the finance manager has more knowledge and more experience towards finance cost. 3. Project supervisor has to be recruit as to help Puan Balqis to operate the system in the company with high expertise in order to increase the level of effectiveness and efficiency of the company.

Standard of Operating Procedure (SOP) Standard of Operating Procedure is the manual lists that list all the tasks that are essential for the business success, how to do these tasks, and who is responsible for the tasks. Problem Authorization & Approval Solution Limitation Authorization was by manager and approval by BOD Limit the amounts that may be authorized Should be done by different person Cheque All incoming cheque should be recorded in a log book (cheque pre-list) and be recorded by receptioneries. The cheque pre-list should be compared with the bank deposit slips to ensure all cheque receive were deposited into the bank. Payment Voucher It should be authorised by the payment authorised signatory. This can ensure that there will be no misuse of cheque for personal advantages. Segregation of duties Sales invoice and purchase order should be prenumbered for easy reference in the future. Prepare account payable, account receivable, cash and bank reconciliation. Used the latest software to record the data such as USB for easily update the system. Hire internal auditor to maintain adequacy of financial reporting. Time sheet and salary should be done by Human Resources manager. The record keeping function should be carefully divided. For example, the person who in charge in the record should not be the same person to record the payments. The person who have access to cash should not handle accounting records.

Accounting records

Problem Inventory access

Solution The company should verify the quantity and quality of inventory orders received immediately upon delivery. The access to the inventory should be limit and control to safeguard the inventory on hand. To ensure the inventory is sufficient, the company need to perform a physical inventory count on a predetermined frequency and submits it the treasurer. For the unsold inventory, the person returning the inventory should control personnel where they should count, document, and sign for the items returned. The administration and human resource department are responsible to recruit new position in order to delegate the duties. To assist senior such as Puan Balqis in the operating system in order to maintain the effectiveness and efficiency.

Organization Chart