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INTRODUCTION

Delima Enterprise was established in 1981 by Encik Zayed. The directors of the company
are Encik Zayed himself and Puan Hashimah, Encik Zayed’s wife. Delima Enterprise Sdn
Bhd was a company that conducted trading and supplying related products including
manpower supplies to the oil and gas industries. In 2004, the company has incorporated as
Delima Enterprise Sdn Bhd. The mission of the company is to become a leading service
contractor and provide good products and excellent services. Unfortunately, there are
several practices applied in the company was unethical and causes many issues within the
company. In 2006, the company got a contract worth RM 750,000. However, due to shortage
of funds, the company tried to apply for a loan from Malayan Banking Berhad and CIMB
Bank Berhad, where Encik Zayed realised that the company had not performed the statutory
audit for the last two year. On July 2006, Encik Zayed engaged the external Auditor Aziz &
Co to perform the statutory audit.

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PROBLEM ISSUES AND SOLUTIONS

The timesheet is manually prepared by the employees. Paper timesheets system is

easily lead to error because it could be difficult to distinguish time data from employees that
hand write their time. This causes error in transcribing the data. This also translates into
employees not being paid correctly and corrections needing to be done after that. Thus, lead
to frustration on both the employee and payroll admin.

Another issue with manual timesheets is the ability for employees to cheat their work
hour. This happens far more often than is caught. The reason is simple. There is no
verification. They can simply write any kind of work they have done when in reality they are
not.

The company should implement the access control system to obtain an accurate time of
in and out of the employees. The term "access control system" refers to an electronic card
access control system. Access control systems are most commonly used to control entry
into exterior doors of buildings. Access control systems may also be used to control access
into certain areas located within the interior of buildings. The purpose of an access control
system is to provide quick, convenient access to those persons who are authorized, while at
the same time, restricting access to unauthorized people.

Another computerized system that the company can utilize is Superior TimeCost (SPC).
Superior TimeCost is a software where employer can monitor the job done by each
employees efficiently, manage time and expenses toward employees and manage unlimited
clients and users. By utilizing this software, the employees impossibly able to waste their
work hour on unnecessary things like gossiping, messaging and hang out in other
employees tables.

As Cik Amy is a freshly graduated from university, she is still in the stage of learning.
She also has no working experience that can enable her to do her work effectively. The
issue here is that Cik Amy is lack of training in her work area. In the absence of training,
employees become unsure of what’s expected of them and may end up doing their work
tasks inefficiently. Misunderstandings may occur because employees are not clear about the
requirements. With confusion comes frustration, as employees become increasingly
uncertain about their role in the company.

Untrained employees cannot produce high-quality performance. They also lack adequate
knowledge and skills to provide satisfactory customer service. This combination results in

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dissatisfied customers. The company will experience declining revenue if dissatisfied

customers choose competitors who can provide quality products and appropriate service.

Encik Zayed must send Cik Amy for training to improve her knowledge and skills like
attending conferences, seminars, workshops and courses. External training can bring fresh
ideas and energy into the learning process. Mixing with employees from other businesses
can be an opportunity to discover how other businesses operate. A good trainer should
challenge the way your staff think and operate. Training comes in a wide range of forms
such as lectures and conferences where is typically lots of information delivered to a large
audience, with great networking possibilities, seminars and workshops which is giving
people information and letting them practise problem solving.

Next is mentoring. Mentoring usually involves the informal transmission of knowledge

with some face-to-face meetings supported by email and telephone communication. A
mentor is someone they trust and can consult for business advice and guidance to assist
their employee. Encik Zayed can hire a consultant company to provide advices on
accounting work that follow the accounting standard.

Next issue is, the company not segregates the duties equally among the employees
according to their job specification. For example, the Cik Amy has to perform overall work in
the finance division. They should assign a specific task that she should do in the division.
This is to avoid fraud in performing her duties. It also is to avoid overload of work bear by Cik
Amy. The suitable solution for this situation is, Encik Zayed should segregate the duties
among the employees. This is to ensure work perform by his employees are done effective
and efficiently.

Next issue is vision and mission of the company. Delima Enterprise Sdn. Bhd. has only
short term goal that is not clear. Moreover, the vision and mission of the company are also
not clear. Unclear vision and mission will result the company unable to achieve its goal and
the company might not be able to survive in the long run. So, Delima Enterprise Sdn. Bhd.
must set a clear vision and mission. It is to make every people that are takes part in the
company easy to understand the company objective in short term and long term. It’s also
must be inform to the employees so they will know the company goal and will together strive
to achieve it.

Next issue is regarding the lack of control in corporate governance. The issue was
involving the relationship with the internal environment. First, Cik Amy, a fresh graduate was
not given proper training by the company as the company not willing to invest on it. It’s very

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important for company to conduct training as it is essential to the achievements of a

business. Moreover, it’s also make employee to be more loyal to company as the company
put the best effort to shape the employee and lastly it can improve the growth and
performance of the company. For example, Cik Amy was given task to handle over all
financial matters of the company as she only graduate from university and not have any
working experience.

Second, personal expenses cannot be charged as company expenses. Here directors

make personal expenses under the company’s money and this done without proper
documentation. Should directors at least prepare documents for anything they used for their
personal so that later they can pay back to the company. As per case study, withdrawals
from the company totaling RM12,500 found without proper documentation. Besides,
personal vehicle expenses by En. Zayed and Puan Hashimah amount to RM50,150 was
charged to the company. Other than that, the company did not provide EPF contribution for
their workers. It is must for company to provide such fund as it stated in employment act
1991. Here under the section mention that ‘’all employers and employees are required to
contribute to the fund at the 11% and 12% respectively of the employee’s monthly wages’’.

Next issue is about fiduciary duties of directors. Firstly, duty to act bona fide in the best
interests of the company. This is the basic duty that directors must hold. It mean a director
at all times ensure that his actions are always in line with well-being of the company. This lay
on section 132(1) of Companies Act 1965. Here as we can see that the directors no act in
the best interest of the company and not maintain separate legal entity principle. For
example, the relationship between En.Zayed and Puan Hashimah can be identify unsecured
to the company as they are husband and wife, thus there is no practice of independent view
in make decisions for the whole management. Second, duty to disclose all material matters.
This duty can avoid potential conflict of interest. This duty to disclose stipulate under Section
131 of Companies Act 1965. In this case, the directors no disclose all information to the
management thus at the end it turn to be conflict within the department. For example, there
are several withdrawals from the company amounting to RM12,500 were made by directors
without any further disclose to the company. Third, duty to avoid conflict of interest. Duty of
avoid conflict of interest can described as one profits by one’s position as a directors at the
company’s expenses. For instance, in Delima case, the use of accounting software for the
company is not intregated thus, some data may not access or seen by other department and
as a result this can arise to conflict as some employees may took advantage.

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Next issue is there is no standard operating procedure in the company. For example,
there is no authorization needed for an important transaction and a withdrawal of money also
is done without proper documentation. This problem will cause unexpected thing will happen
such as fraud and theft. This will result Delima Enterprise Sdn. Bhd. will suffer loses. The
solution is the company should implement the standard operating procedures as a guideline
for the employees in the company to follow. This can increase the effectiveness and
efficiency of the company operation since the employees’ task is performed was based on
stated procedures.

Next issue is creditworthiness of the Delima Enterprise Sdn. Bhd. The company should
take into consideration the five key element of borrower should have in order to obtain credit.
Firstly is “Character”. Delima Enterprise Sdn. Bhd. should have integrity in term of presenting
of financial statements. Secondly is “Capacity”. This means the company must be able to
pay its obligation in the future. Thirdly is “Capital”. Capital is related to net worth which
means value of the company. Fourthly is “Collateral”. The company must have enough
assets to secure the debts. Finally is “Condition”. The condition of the company and
economy should be stable in order to obtain credit.

When the auditor tried to perform the audit process for the companies, they are facing
several difficulties to complete the audit session. This is due to the incomplete records and
documentations of the transactions incurred within the company. There are several assets
bought by the company were not recorded. This can lead to bad occurrences such as
overpayment to the trade creditors. Delima Enterprise Sdn Bhd must record every
purchased asset, by both manually and computerised. For example, acquisitions transaction
file is a computer-generated file that includes all acquisition transactions processed by the
accounting system for a period such as weekly, monthly or yearly. The file also contains all
information for each transaction such as vendor name, date, amount, account classification
and description. Failure to record the acquisition of assets received directly affects the
balance in account payable and may result in an overstatement of net income and owners’
equity. As we know, the relationship between assets, liabilities and shareholders’ equity in
the balance sheet is where the total of all assets always equals the sum of the liabilities and
shareholders’ equity sections. At general level, whenever there is a recordable transaction,
the choices for recording it all involve keeping the accounting equation in balance.

The organization structure of Delima Enterprise Sdn Bhd was maintained in a lean
behaviour. The company only comprises with a basic functional positions where both
directors Encik Zayed and Puan Hashimah were also acts as chief executive officer and

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chief operating officer. Where else the company only has other several employees including
Encik Salam as human resources & administration manager, Puan Balqis as operations
manager, Cik Amy as a finance executive, a clerical assistant, a project supervisor and a
project team. It was not a problem if the company maintained its lean organization. However,
each of the workers must understand their job scope. So, they can clarified their job function
clearly. In practises, before the company appointed Cik Amy as a new finance executive,
Puan Hashimah, who was the chief operating officer, was responsible for all finance matters
eventough she did not have any academic qualification or experience in the finance field.

Next issue in Delima Enterprise Sdn. Bhd. is accounting system is not integrated. That
mean, the account between divisions in the company was not link to each others. For
example, the account of account payable division and human resource division are not
linked. An accounting system that is not integrated will result to misstatement of account
and take a longer time in order to prepare the financial statement. Delima Enterprise Sdn.
Bhd. needs to update the overall account by combining all the division account into general
ledger system at the end of the accounting period. The solutions for this issue, Delima
Enterprise Sdn Bhd need to purchase new accounting software that already integrated or
buy a server to integrated current accounting software. By doing this, misstatement in
preparing the financial statement can be reduced. Furthermore, time in preparing the
financial statement also can be reduced.

Next issue is there is a problem in human resource division in Delima Enterprise Sdn.
Bhd. such as they pay wages weekly and has no any employee benefits. Other than that,
Delima Enterprise Sdn. Bhd. also hired unqualified and inexperience staff. This will result the
task that perform by the employees are not effective and efficient. Moreover, Delima
Enterprise Sdn. Bhd. has insufficient number of employees to coup current business
operation. The solution is the company should pay wages monthly together with employee’s
benefits such as EPF and SOCSO. This is to save more time and the process of paying
those salaries to be more efficient. The company also must hired staffs that have
qualification and related experience that meet the job specification. The company also can
provide training to staff in order to improve their knowledge and skill.

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An appropriate organizational structure.

ENCIK ZAYED PUAN HASHIMAH

(DIRECTOR) (DIRECTOR)

VACANT
(SECRETARY)

VACANT
(CHIEF EXECUTIVE OFFICER)

ENCIK SALAM PUAN BALQIS VACANT

(ADMIN & HR MANAGER) (OPERATING MANAGER) (FINANCE MANAGER)

VACANT VACANT CIK AMY

(HR EXECUTIVE) (OPERATING EXECUTIVE) (FINANCE EXECUTIVE)

VACANT VACANT VACANT

(CLERK) (PROJECT SUPERVISOR) (CLERK)

PROJECT TEAM

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Question 1
Were there any abuses of power by the management and breach of fiduciary on the
part of the directors?

 Fiduciary duty is someone who has a duty to act in the best interest of another party.
 He has the power to control of property, which is owned by another party.
 Section 132(1) of the CA 1965
Stated that the directors must at all time act honestly in the exercise and discharge of
the duties of their office.
 Company Act 1965
 Section 132(2) of the CA 1965
Stated that fiduciary duties regarding the use of confidential information. As a
fiduciary, a director’s duties are to act honestly and in a good faith, duty of care,
obedience and loyalty, avoid conflict of interest, and duty to exercise their powers for
their proper purpose.
 Yes, there is abuses of power by the management and breach of fiduciary duty of
director.
 Encik Zayed and Puan Hashimah only have secondary school background and were
not familiar with the accounting standard and provision of the Companies Act 1965.
 This cause no standard operating procedure was not in place, several assets
purchased were not recorded and there is no cash and bank balance reconciliation.
 Abuse power by using company’s fund for personal expenses.
 The director’s personal vehicle expenses were charge to the company.
 Thus the director have breach their fiduciary duties.
 Encik Zayed and Puan Hashimah tried to negotiate with the auditor not to qualify the
financial statements.
 If the auditors refuse to do so, he will terminate the auditor and appoint a new
“friendly party” auditor.
 This shows that Encik Zayed has misuse his power for improper purpose to get the
funds from bank.
 Therefore, Encik Zayed has breach his fiduciary duties.

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Question 2
Who should be held responsible for effective leadership & management?

 Sarbanes Oxley 2002

Top management is responsible to prepare to the financial statements according to
the accounting standards (applicable to all companies no matter public listed or
private limited companies)

1. Two Controlling Director

Encik Zayed &Puan Hashimah

They should be held responsible and accountable for the issue regarding the outstanding
matter issued by the auditors, such as lack of internal control, no budget prepared, no
standard operating procedure. Encik Zayed and Puan Hashimah must prepare standard
of operating procedure (SOP), improve internal control system and invest on necessary
training to their employees to increase the effectiveness and efficiency in the operating
system.

2. Accounting personnel

Puan Hashimah and Cik Amy

Puan Hashimah should be accountable of her actions, which include the missing of
several pages of the account receivable listing, documents are not pre-numbered and
classification of cash advance transaction into account payables account. They must hire
experienced employees to fulfil the responsibility as accountant and to give training to
Cik Amy.

3. Human Resource and Administration Manager

Encik Salam
Encik Salam should be held responsible for allowing employees to prepare their own
timesheet manually, no EPF contribution made by the company and no training provided
to the employees. He must prepare punch card or employee ID cards so that they cannot
manipulate the time record. Provide training and seminar for staff and he should hire
more staffs with necessary qualification and experience.

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4. Operations Manager

Puan Balqis
She should be held responsible as there is no standard operating procedure for
operations in the company. She should implement standard of operating procedure in
order to increase the effectiveness and consistency of the company’s operation.

Question 3

Could the Audit be completed soon without any qualification?

The audit cannot be completed without any qualification before September because
the company has serious issues regarding accounting record. There are many corrections
that have to be made before a proper audit can be done. Besides, the accountant that
should help the auditor does not competence in her work as an Executive Finance.

Moreover, there is a dispute between the Encik Zayed and the audit team about the
qualification of Financial Statement. The decision by Encik Zayed to change the auditor
services to a new “friendly party” shows that he is not familiar with legal regulation. This
issue cannot be resolve in short period of time.

Question 4

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

Enterprise Sdn Bhd?

First is regarding the authorization issue, for instance there is no authorization in the
process of purchasing goods. Supposedly the company should check the inventory before
make an order and the purchase order must be approved by top management as well as
supplier.

Besides that the issue of segregation of duties was also arise. Encik Zayed did not
segregate the duties well among the employees. For example, Cik Amy has to perform
overall work in finance division. Encik Zayed should segregate the duties of its employees.
He should be more specific in Cik Amy’s task such if she was has control over account
payables, other staff should control over account receivables.

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The account record also does not have proper and incomplete documentation. The
document are not properly pre-numbered, recorded and documented. As we can see the
Delima Enterprise Sdn. Bhd. manually produce its sales invoice and were not pre-numbered.
This case was similar with purchase order. The company should prepare the invoice and
purchase order in computerize system, so that they can easily trace the required transaction.

Regarding the issue of access control, the company should limit employees to
access the company’s assets and document. For example, specific employees should be
assigned to access inventories while others can’t. This will prevent from manipulation of
company’s assets and to avoid theft.

Lastly, in order for DESB to operate effectively, the company should have
independent verification. For example, the company should have specific person to
authorized transaction. For certain documentation, there should be second person to verify
the transaction.

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SUMMARY

Both directors, Encik Zayed and Puan Hashimah should have a better understanding
about their roles and duties as the company auditor. It was not wrong if the company want to
maintain a lean organization but as long as every basic position holds by the qualified
employee. From a audit perspective, Encik Zayed and Puan Hashimah should have known
that it is compulsory for every registered company to perform a statutory audit every year.

DELIMA ENTERPRISE SDN BHD