The Kroll Survey report(conducted by risk consulting company, Krol Inc) draws on a survey by the Economist Intelligence Unit of 900 senior executives worldwide, and examines the problem of corporate fraud, both for business in general and within particular industries. In the report, it revealed that:·        35% of the respondents in Asia believed that fraud was more prevalent.Four out of five companies have suffered from corporate fraud in the past three years, and particularly widespread is the theft of physical assets or stock, 

·   The widespread and more prevalent fraud is due to the more reliant on information technology, increased globalisation and greater interconnectedness. Earlies such information theft, various information technology (IT) crimes, and false reporting by asset managers were rarely seen 25 years ago;

·         Employee fraud remained a key concern in Singapore, as evident in the cases involving Asia Pacific Brewery’s finance manager Chia Teck Leng, and Singapore Airlines’ Teo Cheng Kiat.

·         Concern over fraud was highest in emerging markets, of which 49% of respondents saw fraud as having increased in India and 42% in China.

·         The average cost due to fraud to large global companies with annual revenues of more than US$5 billion (RM17.5 billion) was more than US$20 million, with about one in 10 losing more than US$100 million.

·         11% of Asia correspondents had lost US$100,000 in fraud, while 8% had lost more than a US$1 million.

·         Regional variations with intellectual property theft and counterfeiting were closely linked to countries rather than regions.

·         Among firms operating in China, 38% of respondents have experienced such fraud in the past three years. This figure for Singapore and Malaysia is only 15% and 9% respectively, well below the global average of 19%,;

·        More than 30% of global respondents believed that IT complexity had increased their exposure to fraud.

·        High staff turnover was rated the most frequent cause of increased exposure to fraud, followed by complex IT arrangements, entry into new markets and increased collaboration between companies.

·         In Asia, 40% of respondents said staff turnover had increased their company’s exposure to fraud and 25% cited weak internal controls,

·        The proportion of companies that had recently suffered from fraud in the Middle East and Africa was by far the highest.

·        60% of respondents in India and China saw themselves as vulnerable to bribery and corruption.

·        Emerging markets showed the lowest adoption of counter measures, with Latin America respondents showing the lowest level of adoption of due diligence on partners, clients and vendors.

FTEC Resources Bhd’s managing director Kenneth Vun Yun Liun has resigned from the company following the Securities Commission’s action in initiating a civil suit against him demanding the restitution of RM2.5 million to the company.

FTEC told Bursa Securities that Vun, 33, had tendered his resignation as managing director of the company. Vun is a major shareholder of FTEC, with 32.27% stake comprising a direct interest of 50.99 million shares and an indirect interest of 3.89 million shares.

Earlier, the SC alleged that Vun had utilised the RM2.5 million, which was part of the proceeds in an initial public offering (IPO) raised by FTEC in 2003, for his own benefit and personal use. Vun’s misconduct was uncovered following its investigation into the utilisation of the public issue proceeds by the company.

The SC also asked that Vun be restrained from directly or indirectly managing funds of FTEC Group in the absence of proper controls being put in place by the said companies including but not limited to external supervision by the SC and that he caused FTEC to properly disclose in its audited report for the next financial year, the manner in which the sum of RM2.496 million had been utilised.

FTEC develops, manufactures and distributes computer hardware and software, information technology (IT) systems and digital surveillance security systems. It was listed on the Mesdaq Market on Dec 19, 2003.

“The Securities Commission (SC) has filed a landmark suit on Sept 26 to compel FTEC Resources Bhd (FRB) managing director and shareholder Kenneth Vun @ Vun Yun Liun to restitute RM2.5mil to the company.”

Details:

·         The sum of R2.5mil represented part of proceeds raised by FRB in an initial public offering in 2003;

·         The commission’s investigation into the utilisation of the public issue proceeds had uncovered that Vun had utilised a portion of the proceeds for his own benefit and personal use;

·         Vun’s personal utilisation of the proceeds had not been reflected in the FRB Groups’ unaudited quarterly financial statements for the first quarter ending on 31 March, 2004 released to Bursa Malaysia Securities Bhd;

·         The utilisation of proceeds was not in compliance with the conditions set by the SC in the listing approval of FRB.

Incidentally, the aforesaid action against Kenneth Vun is one of the numerous civil enforcement action undertaken by the SC recently against directors of public listed companies for corporate governance misdeeds.

Other civil actions by the SC include:

·         the disgorgement of companies’ ill-gotten gains and the freezing of assets to prevent them from being diverted. One such notable case is the Ayer Molek Rubber Company Berhad, where the SC had obtained an injunction to safeguard the RM20mil of the company’s monies to prevent the company and its solicitors from disposing or dealing with the said monies representing the company’s sale proceeds of several pieces of land in 2006 and 2007.

·         More recently, in the Swisscash Internet Investment scam where the SC had obtained a worldwide Mareva injunction to prevent the disposal of assets by the defendants and the SC had also secured a court order to direct one of the defendants, Amir Hassan, to transfer RM35mil of Swisscash monies held in bank accounts overseas back to Malaysia.

With the accounting fraud of Rm622million for the past three years still hovering in their mind, the minority shareholders in the AGM of Transmile BHd had voted for not giving a single cent of fee to the directors  for the year ended 31 st December 2006.

Indeed, this is the best news for anyone who hear it However, shockingly, the share price of Transmile has gone up due to so called regained confidence level that accounting fraud might not occur again and Robert Kuok’s further purchase of shareholding in Transmile. Such an irony!

Anyway, if we call this irony can we explain or justify reasons when we often heard news from overseas, pertaining to the hugh payout of golden handshakes/bonus/incentives when their CEO supposedly resign or services being terminated from their companies?

Many of the times, external auditors are unable to detect corporate fraud as they are more focus towards financial audit. It has nothing to do with the competency level.

Forensic accounting work entails a different set of skills and experience besides the usual accounting skill whereas the financial audit is more to express an opinion on whether there are any major misstatements of company accounts based on generally accepted accounting principles and auditing standards. For obvious reason,corporate fraud is always a deliberate ploy or action by an individual and/or group to deceive an organisation for personal or collective gains. 

In Forensic/Fraud Audit, the forensic accountants specifically look for evidence of fraud and the process and procedures are different compared with financial audit. It entailed many aspects and the work scope was beyond what auditors have to doFor example, the forensic accountant would run a battery of tests on the company’s accounts including:

• physical examination and investigation of its operations such as debtors and stock levels,
•  investigate in detail from accounting irregularities,
• tests on system applications,
• variances in debtors and stock levels,
• invoices and even visit customers and suppliers if necessary. 
• Other intangibles like body language were also things that need to be observed and assessed.

In fact there are no quick and fast rules to fraud detection. The forensic accountant will do whatever is necessary to detect fraud, be it through investigations of systems, billings, stock and people working for the company. It is very much like a private detective Hence, normally the detection of fraud in any organisation or company is left to the experts as investigation goes beyond normal professional accounting work scope which are external parties who specialize in fraud detection/forensic audits.  To those forensic accountants, some of the indicators of fraud or common red flags includes the following:

·         rapid growth of the company versus industry growth,

·         abnormal profits in contrast with general economic performance,

·         unusual variances in stock and debt levels,

·         financial ratios, and

·         movement of funds.