The Delima case about En. Zayed and Pn.Hashimah set up the company Delima Enterprise Sdn Bhd in 1981 without experience and high education just until SMP certificate. En.Zayed an Pn.Hashimah is the shareholder and also the Chief Executive Officer (CEO) of the company.
Then, the other personnel were Pn.Balqis as the Operation Manager and En.Salam as the Human Resources and administration Manager. Pn.Balqis and En.
Salam was family member of director. They had employed Cik Amy as Finance Executive for maintenance of accounting and financial matter, including the preparation of account. Cik amy is fresh graduated from local university and also had no working experience.
During incorporation of the company, En.Zayed had applied for banking facilities to implement several contracts the company had managed to secure. En.
Zayed had assigned the task to Cik Amy, the Finance Executive who was newly appointed by the company to analyses and provide the auditor with necessary classification and documentation.During the Director En.Zayed and Pn.Hashimah want make the loan costing about 1 million have some problem arise like the company don’t have any audit report because they never performed the statutory Audit. The company prepared the audited financial statement for the last two year before to meet the bank. This because, they should follow the rules and procedure to make the loan for contract.
After that case, En.Zayed and Pn.Hashimah find the auditor to make and completed the audit financial statement of the company. The Delima Sdn Bhd makes the audit financial statement under Aziz & Co firm. The unqualified audit report of the company is important to make sure their company is liable to get the loan, that mean to avoid from to lie and problem.Then, there are many problems faced by the auditors related to the internal control of the company. During the period of auditing process, the auditors find out and recommended are as follow .
First, several over payments were made during the year 2004 to the Trade Creditors totaling RM50,000. The auditor recommended that the company advise the respective Trade Creditors and request for Credit Notes. When the auditor finish and complete audited report but it is qualified report because have many document not complete and not clear. For example, the Delima company documents are not properly pre-numbered, recorded and documented, sales invoice are manually produces and not pre-numbered, monthly statement of account not periodically prepare they only prepare and send to customer when payment had been long outstanding.Besides that, Lack of authorisation of business transaction which no Standard Operating Procedure (SOP) in place and all decisions were made and authorized by either Encik Zayed or Puan Hashimah.
All decision were made and authorised by either En. Zayed or Pn. Hashimah and personal vehicle expenses were charged to company.
The several assets purchased by the company were not recorded. It will increase the risk of fraud and inconsistency in performing task and give the auditor hard time to keep track of the transaction and movement of asset. The auditor recommended that an SOP be prepared and implemented.There also no reconciliation was performed for Accounts Payables, Accounts Receivables, Cash Book and Bank balances. Non-reconcile payments and collections noted for the period under review totaled RM150,000 for year 2004 and RM250,000 for year 2005 respectively. The auditor recommended that the amount be provided in the Profit & Loss Accounts.
Several over payments were made during the year 2004 to the Trade Creditors totaling RM50,000. The auditor recommended that the company advise the respective Trade Creditors and request for Credit Notes. Then, Encik Zayed does not exercise his duties properly as to segregate management duties equally among the employees of the company that he may think fits to perform such duties. Segregation of duties is important in a company’s 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 is 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 Amy’s workloads to other personnel according to the relevant job descriptions. For example, Account Payables and Receivables should be assigned to different personnel.The audit report can be classified as qualified opinion report due to several unresolved issues. If the auditor audited the rest of the financial statements and is reasonably sure that they confirm with Generally Accepted Accounting Principles (GAAP), then the auditor simply states that the financial statements are fairly presented, with the exception of the issues which could not be audited.The first issue, Were there any abuses of power by the management and breach of fiduciary on the part of the directors? Shareholders and directors are the main person included in a company.
They got their own power and responsibility toward the company and they also have completely different roles in a company. The shareholders are also known as the members of the company, which are the owner of the company while the directors are officers of the company. The directors are responsible for managing the company and making decisions in the best interest of the company as to its operation ona day to day basis, for the benefit of the shareholders. As directors, it is necessary to them for understanding the provision provided in Companies Act (CA) 1965, especially the director’s duties and responsibilities towards the company.
In most jurisdictions, directors primarily owe strict duties of good faith and duty of care to safeguard the interest of the company and the members. For example, in Section 132(1), it requires a director at all time exercise his power for a proper purpose and in good faith in the best interest of the company. These duties are called as Fiduciary Duties of Directors. Another provision provided in Section 132(2) also part of fiduciary duties of directors, where each and every director must avoid themselves from any conflicts of interest. Conflict of interest happen when director involve in using information and exploiting the company’s property, director use position to make secret profit, taking the corporate opportunities that suppose to be belong to the company or competing with the company. The situation where the director, Encik Zayed and Puan Hashimah had bought their personal vehicles expenses amounting to RM 50,150 and charging it to the company’s account can be classified as violated to their fiduciary duties as directors because there are involving themselves in the conflict of interest. Their personal drawings for vehicles is for their own benefit and definitely not done in the best interest of the company. This act is also can be the misused of the position as the director, when their using their directors position to charge personal expenses in the company’s account.
It is a example of abusing of power by the management of Delima Enterprise Sdn. Bhd.Next issue, Who should be held responsible and accountable according to the Delima Enterprise Sdn. Bhd. current situation?According to the problems faced in Delima Enterprise Sdn. Bhd., most of the problems happen due to the management lack of internal control. Subject to the articles, it provided that the directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company.
In other words, the directors have the power to deal with any particular matter including systems implemented for the management such as internal control systems of the company. En Zayed and Puan Hashimah are the shareholders and controlling directors of DelimaEnterprise Sdn Bhd, both should be held responsible and accountable to all the problems matters because they are the owner of the business. A company is belongs to the shareholder. As they both are shareholder of the company, therefore they were directly will be responsible for any problem arise due to wrong act of them, who abusing their power as directors. Besides of that reason, they also accountable to their wrong act because Section 131B(2) provided that the Board of Director (BOD) has all the power necessary for managing, directing and supervising the management of the business and affair of the company which subject to Companies Act, MOA and AOA.
However, En Zayed and Pn Hashimah acted to abuse of power as director and shareholder of the company for their own advantages when they withdrawals some money from the co. totaling RM12500 without proper documentation. As a conclusion, Encik Zayed try make negotiate with auditor to make the unqualified audit report, but the auditor have own their integrity and duty to make the audit. So in this case the all company document transaction must be recording with details, rightly and filing in safety place. Then, In order to improve the leadership of the management, firstly, it is important to the directors understand their duties, responsibilities as well as their power toward the company.
All types of incorporated companies need to enhance corporate governance and the owners of the business must have deep understanding in this matter. The examples are about the matters regarding powers of the registrar of the company, the power of the management and administration of the company and the power of the officers of the company and as well the important of accounting and auditing of the company. It is also necessary to the leader of the company to know the provision related to them that provided in Companies Act 1965 and Accounting Standard. Therefore the leaders will be always acts for the best interest of the company.