1.0 INTRODUCTION

2.0 BACKGROUND OF THE COMPANY

3.0 FINDINGS ON FRAUD CASES

3.1.1 THE FRAUD IN THE COMPANY TRANSMILE GROUP BHD

Transmile Group Bhd which is company controlled by Robert Kuok, sparked of a concern

regarding auditors’ duties and obligations. Accounting irregularities and fraud were discovered

in the company. They are accused of committing the offence at Bursa Malaysia Securities Bhd in

Bukit Kewangan on 15 February 2007.

The company missed the April 30 deadline for the submission of its audited accounts for 2006

because auditors Deloitte & Touche could not obtain from the management the necessary

supporting documents for certain transactions relating to trade receivables and related sales, and

purchases of property, plant and equipment.

The misleading information was contained in Transmile Group’s quarterly report on unaudited

consolidated results for the financial year ending on 31 December 2006. Former independent

directors which is Chin Keem Feung(42 years old) and Shukri Sheikh Abdul Tawab(43 years

old) were charged individually with knowingly authorizing the furnishing of a misleading

statement in relation to the affairs of the express air cargo operator.1 

Earlier on, in February 2007, the board had approved an unaudited result that had shown an 80%

increase in revenue, doubled net profit, and trade receivables that had ballooned to RM381

million from RM111 million in 2005. In addition the revenue was overstated by a total of

RM622 million for three consecutive financial years from 2004 to 2006. 2

Another cash outflow of RM341 million was “purported property plant and equipment” because

there was discovered to be little supporting documentation for that transaction. Company was

said to have made payments totaling RM189 million without supporting payment vouchers and

found that items on related-party sales transactions in which the subsidiary owed to the business

more than RM103 million.

1 Transmile Shares Extend Fall, SC Vows Swift Action, New Straits Times, 21 June 2007, 35, 2 ijbssnet.com, journals, Vol4 No13 , October2013, 20,

3.1.2 THE DETECTION OF FRAUD IN COMPANY TRANSMILE GROUP BHD

3.1.2.1 Process of conducting the fraud investigation

The process of forensic accounting is includes the ‘forensic investigation’ itself, which refers to

the practical steps that the forensic accountant takes in order to gather evidence relevant to the

alleged fraudulent activity. The investigation is likely to be similar in many ways to an audit of

financial information, in that it will include a planning stage, a period when evidence is gathered,

a review process, and a report to the client. The purpose of the investigation, in the case of an

alleged fraud, would be to discover if a fraud had actually taken place, to identify those involved,

to quantify the monetary amount of the fraud (ie the financial loss suffered by the client), and to

ultimately present findings to the client and potentially to court.

The process of conducting a forensic investigation in Transmile Group Bhd similar to the process

of conducting an audit, but with some additional considerations. The various stages are briefly

described below:

i. Accepting the investigation

Forensic investigations are specialist in nature, and the work requires detailed knowledge

of fraud investigation techniques and the legal framework. Investigators, which is Moores

Rowland have received training in interview and interrogation techniques, and in how to

maintain the safe custody of evidence gathered.

ii. Planning the investigation

The investigating team in Moores Rowland were carefully consider what they have been

asked to achieve and plan their work accordingly. The objectives of their investigation

will include the identifying type of fraud that has been operating in Transmile Group

Berhad, how long it has been operating for and how the fraud has been concealed. The

Moores Rowland also consider the best way to gather evidence such as the use of

computer assisted audit techniques that is very common in fraud investigations.

iii. Gathering evidence

In order to gather detailed evidence, Moores Rowland was understand first the specific

type of fraud that has been carried out by the Transmile Group Bhd and how the fraud

has been committed. The evidence was accumulated to prove the identity of the

fraudster(s), the mechanics of the fraud scheme, and the amount of financial loss suffered

in this case. The investigating team of Moores Rowland was skilled in collecting

evidence that can be used in a court case was really important. They keeping a clear chain

of custody until the evidence is presented in court. Any evidence is inconclusive or there

are gaps in the chain of custody may be challenged in court, or even become

inadmissible. Moores Rowland was alert to documents being falsified, damaged or

destroyed by the Transmile Group Sdn Bhd.

iv. Reporting

The Moores Rowland was produce the report containing the findings of the investigation,

including a summary of evidence and a conclusion as to the amount of loss suffered as a

result of the fraud happens. The report was discussed how the fraudster set up the fraud

scheme, and which controls, if any, were circumvented.3

3.1.2.2 The fraud of Transmile Group Bhd was detected through special audit by forensic

auditor

In Transmile Group Bhd case, the loss was not detected by Deloitte & Touche who were the

auditors of the company then it was detected through a special audit by Moores Rowland as

appointed by the company. The Deloitte & Touche dismissed the claim that they failed to detect

the accounting irregularities. Furthermore, they claimed that it is not practicable to expect audit

to represent a 100 per cent check of a company’s financial well-being. In May 2007, the new

Board appointed a forensic auditor which is Moores Rowland Risk Management Sdn Bhd to

conduct a special audit of the company’s account and its subsidiaries. Some details of Moores

Rowland’s interim report were released on May 30, while the findings set out in the final report

were announced on June 16. A special audit carried out by Moores Rowland Risk Management

later found that it had severely overstated revenue and assets going back to 2004 through du-

bious invoicing.4

The headline item was the revelation that the company had overstated revenue for financial years

2004 to 2006 by RM622mil. This relates to invoices issued to over 20 companies. In connection

3 accaglobal.com, articles, forensic-accounting4 malaysianbar.org.my, business_news, Deloitte defends role in Transmile

with this, Moores Rowland uncovered irregularities in Transmile’s trade receivables, cash

receipts, and property, plant and equipment.

The final report also singled out CEN Worldwide Sdn Bhd, a major customer of Transmile and

also a 37.5% indirect associated company. Moores Rowland recommended a review of the

billing of sales to CEN and of the trade receivables owing by CEN. A special audit of CEN was

commissioned.5

3.1.3 TYPES OF FRAUD INVOLVES IN THE COMPANY TRANSMILE GROUP BHD

In Transmile Group Bhd, the fraud that occur is categorized as the financial statements fraud

which is related in the management fraud. Financial statements fraud are sometimes prepared in

ways that intentionally misstate the financial position and performance of an organization. In this

case, the Transmile Group Bhd with intention to do the misleading information for their financial

statement.

The type of financial statements fraud that had been conducted by the Transmile Group Bhd is

revenues and documentary fraud. They do the fraud of financial statement by overstated the

revenue amounted of RM622 million for three consecutive financial years from 2004 to 2006.

Besides the company also do the documentary symptoms fraud which is the balances or

transaction that lack supporting documents. For example in this case the cash outflow amounting

of RM341 million was “purported property plant and equipment’’ was discovered to be little

supporting documentation for that transaction. Other than that, the company was said to have

made payments totaling RM189 million without supporting payment vouchers and this clearly

shows that the company conducting the fraud for understatements of liability.

3.1.4 FACTORS OF THE FRAUD HAPPENED IN THE COMPANY TRANSMILE

GROUP BHD

5 thestar.com.my,Story, file2F2010, 2F6, 2F19, 2Fbusiness, 2F6289756

There are some potential factors for why the Transmile Group Bhd engaged in the activities of

fraud. Firstly is because the opportunistic managerial behavior in the company as evidence to

cover up the activity by reporting a higher profit than the actual one so the Transmile Group Bhd

want their company looks good to others so that they able to sustain in the market.

Besides the opportunistic actions by the analyst and investor also be the factors because the

business was involved in a growth potential business and they should be cautious of overly

strong growth in companies. So from here the company tend to make the fraud to ensure that

their financial always in good condition. In this case the Transmile Group Bhd doing the fraud

by misleading statement.

Furthermore, the weakness in the internal control systems and operational systems as well cause

the fraud is easily to conduct. For this case, the auditor unable to obtain the necessary evidence

for the transactions related to trade receivables and the sale and purchase of property plants and

equipment in the company and its subsidiary. The company was said to have made payments

totaling RM189 million without supporting payment vouchers.

Lastly is because the lack of role of monitoring and detecting by the regulators in the Transmile

Group Bhd because the regulator should investigate what that happens in their financial

performances of the company. For example in Transmile Group Bhd need to identify why there

was a significant increase in the companies’ reported earnings.

3.1.5 RESULT FROM THE CASE OF COMPANY TRANSMILE GROUP BHD

3.1.5.1 Criminal prosecutions

i. The Securities Commission (SC) has taken the stance that instances of financial

misreporting in the annual report could be prosecuted as disseminating false or

misleading. From this cases, the board of Transmile approved the unaudited results and

released them to Bursa Malaysia. Transmile applied to Bursa Malaysia to postpone the

release of its audited accounts but the application was rejected. Bursa Malaysia’s

announcement on that day indicated that Transmile had failed to submit its audited

financial statements as the auditor was still finalizing the financial statements. The

company’s external auditor informed the board in writing that it was unable to obtain

relevant supporting documents from management. These documents were required to

verify certain transactions relating to trade receivables and related sales and additions to

property, plant and equipment that would have enabled the auditors to satisfy themselves

on the fairness or validity of those transactions.

ii. The newly appointed director has lodged a police report regarding the false statement on

revenue, property plant and equipment, and payment to third parties. As a result of that,

the former CEO, the founder, and the ED were charged by the court for the submission of

misleading financial statements.

iii. 28 October 2011, the two former independent directors as well as audit committee

members were found guilty under section 122B(b)(bb) of the Securities Industry Act

1983 the for the authorized release of a misleading financial statement to the stock

exchange to Bursa Malaysia. They are Chin Keem Feung, 42, and Shukri Sheikh Abdul

Tawab, 43, were charged individually with “knowingly authorising the furnishing of a

misleading statement” in relation to the affairs of the express air cargo operator. They are

accused of committing the offence at Bursa Malaysia Securities Bhd in Bukit Kewangan

on 15 Feb 2007. According to the charge, the misleading information was contained in

Transmile Group’s quarterly report on unaudited consolidated results for the financial

year ending on Dec 31 last year. The offence is punishable with a maximum fine of

RM3mil or imprisonment of up to 10 years or both upon conviction. Securities

Commission prosecuting officer Rezy Izwan Ramly proposed a bail of RM500,000 on

condition that both accused surrender their passports to the court.6

iv. An offer to compound was made to the non-executive directors who did not pay it.

Criminal prosecutions were only commenced when they failed to accept the offer and pay

the monetary penalty.

3.1.5.2 Impact Financial Statement Fraud

6 www.malaysianbar.org.my/business_news/deloitte_defends_role_in transmileNew Straits Times. (2007,, June 21). Transmile Shares Extend Fall, SC Vows Swift.

Financial statement fraud causes huge losses to a company. The impact of financial statement

fraud involves economic and non-economic losses. Other than losses of millions in profit,

financial statement fraud also increases the insurance cost and the loss of efficiency that results

from the firing and hiring of employees.

Financial statement fraud also impacts upon the accounting and auditing professions resulting in

a public lack of trust and loss of integrity of the accounting profession. The consequences of

financial statement fraud are very severe. Other than decreasing shareholder value, it also has a

severe effect upon other factors. Financial statement fraud might cause a company to become

bankrupt, to suffer a decline in stock value and be delisted from the stock exchange.7

3.2.1 THE FRAUD IN THE COMPANY SILVER BIRD GROUP BHD8

The fraud of this company was occurs as the charging of two former directors of Silver Bird

Group Bhd, who were slapped with 134 counts of cheating a bank of RM67.4 million, is just the

latest in a string of legal action against them. Former group managing director Datuk Jackson

Tan Han Kook, 58, and executive director Ching Siew Cheong, 50, on Friday claimed trial in the

session’s court to cheating Malayan Banking Berhad. They were accused of colluding to use

false invoices and delivery orders to cheat the bank's officers into transferring RM67.4 million

into the accounts of three companies – Asian Food Link Sdn Bhd, Violet Bonanza Sdn Bhd and

Stanson Marketing Sdn Bhd. The invoices and delivery orders were allegedly made out to

Stanson Marketing Sdn Bhd and Koperasi Permodalan Felda Quality. Stanson Marketing is a

subsidiary of Silver Bird Group Bhd. They are alleged to have committed the offences between

Oct 3, 2011 and Feb 24 this year, at Malayan Banking Berhad, on the 8th floor of Menara Hup

Seng at Jalan P. Ramlee.

In August this year, Silver Bird and its subsidiaries, Stanson Marketing Sdn Bhd and Standard

Confectionery Sdn Bhd, had filed a RM125 million lawsuit against Tan, Ching, former general

manager (accounts and finance) Lai Poh Mei and eight others at the High Court in Kuala

7 Sulaiman, A. N. (2008). Financial misreporting and securities fraud.

8 http://www.thesundaily.my/news/560931

Lumpur. They were sued for alleged breach of fiduciary duties, breach of duty of fidelity and

loyalty, abuse of power, conspiracy to commit fraud and for facilitating misappropriation of

funds. The plaintiffs also sought a declaration that Asia Food Link had made fictitious sales of

sweetened creamers amounting to RM44 million to Stanson Marketing, and as such, was not

entitled to claim the sum from it. The plaintiffs also sought a declaration that the purported

purchase of machinery for a new bread line by Lai from Triremis (M) Sdn Bhd and Triremis

Asia Sdn Bhd for RM25.8 million is fictitious and non-existent.

Asia Food, Triremis (M), Triremis Asia and Bill Davis & Associates Sdn Bhd are also alleged to

have knowingly received payment out of the funds of Silver Bird and its subsidiaries which had

been allegedly misappropriated by Tan, Ching and Lai in breach of duties owed to the three

companies. Tan and Ching had been suspended from the Silver Bird board on Feb 24 pending

investigations into irregularities in the accounts and subsequently removed from the board on

April 30 this year.

3.2.2 THE DETECTION OF FRAUD IN COMPANY SILVER BIRD GROUP BHD9

Preliminary findings by an accounting firm was called in to review the affairs of Silver Bird

Group Bhd shows that the bakers and confectionery remained as a going concern, which means

there is no reason to believe that the business will cease any time soon.

PKF Advisory Sdn Bhd, a company that was appointed on 26 February to conduct a forensic

audit after a Silver Bird alleged financial irregularities have been detected, requiring at least

three months completing the task. Only then can the financial position of listed companies a real

discovery. In an announcement to Bursa Malaysia on Feb 29, Silver Bird said he faced a

maximum exposure due to the alleged irregularities could amount to approximately RM111.5

million. This is based on the key areas highlighted by the external auditors Crowe Horwath after

Silver Bird audited accounts for the year ended October 31, 2011.

9 http://www.mia.org.my/new/downloads/circularsandresources/resource/newspaper/2012/03/week01.pdf

Then PKF has submitted the final report, it is difficult to rule out the possibility that the financial

hole in Silver Bird may be greater than expected. Meanwhile, the director of PKF depending on

the initial assessment of the feasibility study carried out in line with the forensic audit. In

addition, PKF find Silver Bird has sufficient cash flow and receivables to stay afloat. The

company also will be subjected to sensitivity analysis, a kind of stress test, to see how the cash

flow would be affected in certain scenarios.

3.2.3 TYPES OF FRAUD INVOLVES IN THE COMPANY SILVER BIRD GROUP

BHD10

Fraud occurring within the Silver Bird Company was a financial statements fraud since they have

used false invoices and delivery orders to deceive a bank employee to move RM67.4 million in

the accounts of three companies, Asia Food Link Sdn Bhd, Violet Bonanza Sdn Bhd and Stanson

Marketing Sdn Bhd. Besides, there was a false statements contained in Silver Bird’s eight

unaudited quarterly financial accounts for the financial years ended 31 October 2010 and 2011.

Forensic report was commissioned by SBGB in February 2012, following allegations, among

others, irregularities in the accounts of the Company which has been brought to the attention of

the Board of Directors when Crowe Horwath, the auditors expressed concerns about the legality

of certain transactions and the recording for which the auditor was unable to say obtain relevant

evidence that supports and satisfactory explanation of the Company's management before.

According to the forensic report, the main areas of financial irregularities surrounding the SBGB

and its subsidiaries and related companies ("SBGB Group") can be seen as below:

3.2.3.1 Trade Receivables

Trade Groups SBGB was said to have entered the incorrect accounting entries which can create a

false audit trail, and include transfers between banks disguised as payments from the debtor.

3.2.3.2 Bread and Supplementary Products

10 http://www.investlah.com/forum/index.php?topic=44083.0

Certain sales of bread and auxiliary products have been found to not be supported by any

physical items or documents, and therefore, can be considered to exist for increasing sales

figures and may serve as a conduit for the funds needed for working capital to be brought back

into the SBGB.

3.2.3.3 Sweetened Creamer

Purchase of sweet creamer including sales that are not supported by any physical delivery of

goods to the premises of BGB group, but appears to have contracted with back to back sale to

companies that are suspected in connection with financial irregularities BGB Group. These

companies include those that may have served as a front for the transaction without the

knowledge of the company.

3.2.3.4 Multi-com Sales

Deviations in respect of Multi-com sales are related to credit sales when the business is basically

on a cash basis. In addition, a variety of credit sales made in the management accounts appear to

have been replaced by two other relatively large debtor for the purposes of the audit.

3.2.3.5 Property, Plant and Equipment

Irregularities related mainly to the lack of supporting evidence for the purchase and installation

of transmission or certain things, even though payment may have been made for the alleged

purchase. In some cases, even if the supplier invoice is not available for vision. Therefore, the

transaction is recorded only appear as the entry in the accounting ledgers and that cannot be

supported further. Other transactions appear to have been created for the purposes of the audit

because there is no code for transaction accounts and no proof of delivery or payment has been

made in the management accounts. 6) KPF Quality Foods Sdn Bhd ("KPFQ"). Although it is

claimed by KPFQ that many sales were made to Stanson Marketing Sdn Bhd ("LR"), a

subsidiary of BGB, the transaction could not be verified because the records of these transactions

in the accounting records or information transmission SMSB in SMSB. However, PKF said there

was no record of the payment made by SMSB to KPFQ.

3.2.3.6 BK Fleet Management Sdn Bhd (“BKFM”)

Certain trucks used by SMSB registered in the name of SMSB and subject to agreement with the

service that allows BKFM to get trucks to the nominal amount at the end of the period of service.

In addition, there is evidence that some trucks have been paid by SMSB through hire purchase

and the expiration of the initial service agreement, the term of the agreement for this truck has

been refurbished to a net service fee is higher, with the same options for BKFM to buy trucks for

a nominal amount at the end of the agreement.

3.2.3.7 Inventories

There is a lack of documentary evidence for certain motor spare parts, plus approximately

(RM986500) of spare parts that cannot be verified by documentary and physical evidence.

Bank Reconciliations

The bank reconciling items are numerous, including those arising from unrecorded receipts and

payments.

3.2.3.8 Bankers’ Acceptances

Numerous sales transactions have been made without any physical goods for what appears to be

for the purposes of refinancing and rising of bankers’ acceptances.

3.2.3.9 Common Party Relationships

Among the main activities of the companies customers and suppliers with regular party

relationships do not include transactions undertaken by the Group SBGB. In addition, the

quantum of their transactions with the Group SBGB does not seem reasonable when compared

with the figures stated in the financial reports of companies, respectively.

3.2.3.10 Destruction of Books and Records

When financial irregularities coming to light, has uncovered documentary evidence been

destroyed, as evidenced deletion of computer files and physical damage to the hard drive of the

computer. The Board will seek advice from the legal advisor of the Company for further action

to be taken.

3.2.4 FACTORS OF FRAUD HAPPENED IN THE COMPANY SILVER BIRD GROUP

BHD

There are some factors that would lead Silver Bird Bhd Company to commit a fraud. Firsly, it is

related to the opportunity where the director of this company was using his higher position to

commit a fraud. For example, he could use false invoices and delivery orders to cheat the bank's

officers into transferring RM67.4 million into the accounts of three companies such as Asian

Food Link Sdn Bhd, Violet Bonanza Sdn Bhd and Stanson Marketing Sdn Bhd.

It is impossible for someone who is nobody or lower position to do this kind of fraud. Only a

person with a power or authority would have an ability to commit a fraud.

Secondly, Silver Bird Company also suffering a financial troubles since the director said that

Silver Bird Group Bhd expects to break even operationally in about six months and he added that

one of his subsidiary which is bread and confectionary maker by market share was in the midst

of creating a new line of bread products to be unveiled soon, and is even looking at expanding in

Singapore, a market he said had not been managed well previously. Besides that, the loss-making

baked goods manufacturer has been mired in controversy after it failed to deliver its annual

audited accounts for 2011.

Lastly, ethical factor where ethics are the back bone of every industry looking to survive in the

business world. A customer would eventually lose interest in a company if they decided to

promote bad customer service or poor quality products. Based on Silver Bird Group Bhd case, it

indicate that the director itself is not an ethical person as he could has intention to do a fraud in

order to fulfill his wishes.

3.2.5 RESULT FROM THE CASE OF COMPANY SILVER BIRD BHD11

11 http://www.themalaysianinsider.com/business/article/two-former-silver-bird-directors-charged-with-giving-false-statement-to-bur

This case is still in progress on court. If the two directors found guilty they will be imposed

action under Section 369(b) (B) of the Capital Markets and Services Act 2007, Tan and Ching

will be liable to imprisonment of up to 10 years and whipping, and a fine not exceeding 3 million

upon conviction.

Before this, prosecuting officer from the Securities Commission, offered bail of RM500,000 with

two guarantor for all charges against the accused as the offences were serious and involved

public interest and confidence of investors. Both of them requested for bail to be reduced. The

lawyer who represent Tan, requested for bail to be reduced as his client also faced 134 counts of

cheating at another Sessions Court and has paid RM800,000 while his passport was also

surrendered to the court. The other director lawyer Ching, also asked for a lower bail on the basis

that his client was also charged with Tan for the cheating. The Judge set bail for both accused at

RM250, 000 each, with an additional requirement that their passports be surrendered to the court.

Both of them paid the bail.12

3.4 EFFECT ON THE FINANCIAL STATEMENTS FRAUD HAPPENED

Financial Statements fraud give highly impact to many aspect in the company and their

environment. Firstly it gives the harmful effect to the company because it will undermines the

quality and integrity of the financial reporting process. Besides it also can jeopardizes the

integrity and objectivity of the accounting profession especially auditors and auditing firms. For

an example in the case of Transmile Group Berhad we can see that auditors Deloitte & Touche

with the negligent unable to detect the fraud that have been made by the Transmile Group

Berhad.

Secondly, the financial statements fraud would lead to the bad economics market. This is

because this kind of fraud will diminishes the confidence of capital markets and market

participants in the reliability of financial information so indirectly it makes the capital market less

efficient.

12 https://www.bursawave.com/stock-search/stock/silver-bird-group-bhd-2813/

Next, this fraud also makes the adversely affects a nation's growth and prosperity. The company yg

involved tu will sue and boleh lumpuhkn aktiviti die so dia akan mmbuatkn xmaju dan xlgsung buat

ekonomi negara menurun. It causes bankruptcy or economic losses by the company engaged in the

fraud.. • It may result in litigation losses;

It causes destructions to the normal operations and performance of the alleged companies

In other side, this fraud would lead to the.. It destroys the careers of individuals involved in the fraud

3.3 THE PREVENTION OF THE FRAUD IN THE BOTH COMPANY13

There are several steps in how to prevent financial statement fraud. Firstly, the companies need

to educate their management on the three indicators of fraud. According to the Association of

Certified Fraud Examiners, financial statement fraud involves the intentional publishing of false

information in any portion of a financial statement. To help prevent fraudulent activities,

management must implement internal controls, or structure, and know what situations to look

for. Individuals commit fraud when under situational or financial pressure, when the opportunity

to commit fraud is present and when the perpetrator easily rationalizes the fraudulent activity.

Secondly, do the segregate accounting functions. One of the main factors of an effective internal

control system is segregation of duties. Management helps to prevent fraud by reducing the

incentives of fraud. One incentive, the opportunity to commit fraud, is reduced when accounting

functions are separated. The act of segregating duties separates the recordkeeping, authorization

and review functions in the accounting process. To segregate duties, involve more than one

person in the financial statement preparation process. Therefore, or fraud to occur two employees

must collude to perpetrate the crime.

Thirdly, establish a strong control environment. A strong control environment, otherwise known

as a strong tone at the top, involves enlisting management to demonstrate ethical behavior. The

Associate of Certified Fraud Examiners (ACFE) notes that whatever tone management sets will

have a trickle-down effect on employees of the company. A strong tone is developed by

13 http://smallbusiness.chron.com/prevent-financial-statement-fraud-3789.html

establishing and complying with a written set of policies. The policies must be concise and

include consequences when procedures are disobeyed. In addition, according to the ACFE’s

Fraud Examiners Manual, one of the easiest ways to establish a strong moral tone for an

organization is to hire morally sound employees.

There are four control frameworks suggested as a mechanism to control financial statement

fraud, namely, code of ethics, code of conduct, policies and procedures, and whistle blowing

mechanism. The control framework should be understandable by the whole organization while

the whistle blowing mechanism should be independent in terms of practice so that any fraud or

misconduct in the company will be reported by the employees.

Next is, the relation to effective governance practice which is the top management would provide

high integrity throughout the organization. Therefore, every company should have a very strong

tone at the top in order to create a good culture in the company. As identified by all respondents,

the role of independent directors is vital. The control system will be more effective by having

more involvement by the independent directors. The independent directors should be more

involved in the financial statement discussion before the issuance of the financial statement.

With regard to the organization’s controls as a whole, the control framework should be designed

and implemented across the company.

Lastly, initiate annual examinations of financial statements by an outside party. In many cases,

management is the party committing fraud. Management may feel pressure to meet financial

goals for the company or may receive incentives if certain goals are met. To help prevent

management from engaging in overly aggressive adjustments to the financial statements, have an

independent party examine financial statements on an annual basis. Engaging an auditor to

perform a financial statement review or audit deters employees from knowingly presenting

incorrect financial statements.