Fraud can be in many forms/types. However, studies revealed that there are some common characteristics of fraud which are as follows:

• Many people are targeted for a little money with the hope they don’t notice, don’t care, or don’t do anything about it
• A trusted relationship is created
• Promise of legitimacy, authenticity
• Another offer or incentive to participate. There may be an effort to create information confusion – that is, attention is distracted from the scam/fraud by other information, issues, or opportunities
• Pressure is applied – often time pressure – e.g., need to hurry and make a quick decision or take quick action or the opportunity will be lost
• Offers exceptional/extraordinary gain with little or no risk
• There is a cap on the maximum level of participation
• Secrecy

In the event that an auditor has to review and diagnose the going concern difficulties of his/her clients, he/she should at the very least:

• compare the client’s cash flow forecasts with the overdraft or other loan facilities available for up to twelve months from the accounting date
• obtain written confirmation from the board of the holding company (if any) that it intends its subsidiary to continue in business and will not withdraw existing financial supports
• enquire into and obtain written evidence of the steps(if any) the client is taking in order to correct its decline in fortunes.

If the auditor cannot satisfy himself that the client will remain in business in the foreseeable future, then he must consider the validity of the going concern basis and the need to qualify his audit report in appropriate terms

The Securities Commission has charged three former executives of Transmile Bhd with giving misleading financial statements :

• ex-chief financial officer Lo Chok Ping,
• ex-executive director Khiudin Mohd and
• founder Gan Boon Aun, who resigned as chief executive officer in June ’07 when a police report is filed.

Earlier Transmile has also filed an announcement dated 29/6/07 pertaining to its audited financial statements for the financial year ended 31/12/06.The content of the announcement is as follows:

The Company wishes to announce that it had today announced its audited financial results for the financial year ended 31 December 2006. In regards to the above, the Company wishes to the highlight the following: (i) the audited financial statements of the Company for the financial year ended 31 December 2006 have included the adjustments which were highlighted in the announcement dated 16 June 2007 (”Adjustments“), comprising both the adjustments arising from the findings by Moores Rowland Risk Management Sdn Bhd (”MRRM“) and additional adjustments proposed by the Company;

(ii) in addition to the Adjustments, the Company has made other adjustments to the assets in the audited consolidated balance sheet as at 31 December 2006, mainly as set out in Table 1 as attached, largely due to:

(a) impairments required to be carried out to the assets of the group under the Financial Reporting Standards issued by the Malaysian Accounting Standards Board;
(b) reclassifications of assets to property, plant and equipment; and
(c) other consequential adjustments arising therefrom;

(iii) The consolidated loss after taxation of TGB for the financial year ended 31 December 2006 was RM126 million; and

(iv) As a result of the above, the shareholders’ funds of TGB as at 31 December 2006 was RM597 million, comprising share capital of RM264 million and reserves of RM333 million.

Please refer to the announcement made by the Company today for the audited consolidated results of the Company for the financial year ended 31 December 2006.

TABLE 1 

* Difference due to rounding.                

Immediately after Transmile Group’s accounting fraud over fictitious Trade Receivables/billings, another storm is brewing in another public listed company Welli MultiCorporation Bhd as the Malaysian Securities Commission (SC) queried the company over the authenticity of its trade receivables of RM113 million over a total trade receivables of Rm130 million as at 31 st December 2005
 

Append below the announcement by Welli dated 26/6/2007 extracted from Bursa Saham’s website:
 

“On behalf of the Board of Directors, we wish to inform that the Company has on 26 June 2007 received a letter from Securities Commission (“SC”) requiring Welli to withhold the issuance and public release of the Quarterly Reports for the quarters ended 31 December 2006 and 31 March 2007, and the Audited Financial Statements for the period ended 31 March 2007.

In view of the information received by the SC with regard to the authenticity and/or recoverability of trade receivables amounting to RM113million out of a total of RM135million as at 31 December 2005, SC is of the opinion that the same would have an impact on the price/value and market activities of Welli’s securities.

In the interest of ensuring only accurate financial information is disseminated to the investing public, it is therefore necessary for the Company to withhold the issuance and public release of the aforesaid quarterly reports and audited financial statements, until the issue is resolved to the satisfaction of the SC.”
 

Prior to the aforesaid event, we have a chain of other interesting announcements (extracted from Bursa Saham’s website)
 

14/6/2007 Announcement

 – Welli’s Board of Director received requisitions from the shareholders, namely Tan Kim Oh, Yoon Kok Chuan and Ke-Zan Nominees (Tempatan) Sdn Bhd, which represent a total of 10.17% of the equity interest in WELLI for the “Notice of removal of Messrs Deloitte KassimChan as Auditors of WELLI (“Proposed Removal of Auditors); and Notice of nomination for the appointment of Messrs Moore Stephens as new Auditors of  WELLI in place of Messrs Deloitte KassimChan for the financial period ended 31 March 2007”

26/6/07 Announcement

– Notice of Extraordinary General Meeting for  existing external auditor, Deloitte KassimChan be removed as Auditors of the Company with immediate effect and Moore Stephens be appointed as Auditors of the Company in place of Deloitte KassimChan in respect of the financial period ended 31 March 2007 and to hold office until the conclusion of the next Annual General Meeting at a remuneration to be determined by the Directors.

Early 2007 to End May 2007

- a series of changes in membership of boardroom, company secretaries, audit committee, sub-committee

Public announcement dated 28 November 2006 of  Fire in The Building Premises

- “ Welli Multi Corporation Berhad (“the Company”) regrets to inform that a fire broke out in the Administration Department of the Company on 25 November 2006. The estimated loss from the fire is approximately RM200,000.00 (Two Hundred Thousand) only. The cause of the fire is not known at this juncture .

As a result of the fire, the Company will be seeking the approval of the Bursa Malaysia Securities Berhad to defer the release of the quarterly results for the financial period ended 30 September 2006 until such time as the Company is able to compile the financial accounts of the Group.

In the Malaysian Stock Exchange we have so many public listed companies hence the ability  to specifically  query or identify ficititious/authenticity of trade receivables in Welli is a quite a remarkable feat. Any second quess?

a) Transmile Mr Gan Boon Aun Relinquish his post as CEO

• Subsequent to the Transmile’s lodgement of the police report over false statements and documents on fictitious revenues, unsupported/ficititious payment for purchase of fixed assets and payments to third parties, Mr.Gan Boon Aun has resigned as chief executive officer of beleaguered Transmile Group Bhd.as the fallout from the accounting irregularities will now lead to a police investigation.
• Gan, the founder of Transmile, is largely credited for leading Transmile to great heights. He listed Transmile on the second board in 1997. His first attempt to transfer the counter to the main board in 2000 failed when the application was rejected by the Securities Commission. Gan succeeded in his second attempt in 2002. 
• In 2004, Gan sold his stake in Transmile to the Kuok group and approached former Transport Minister Tun Dr Ling Liong Sik to be the group’s chairman.

b) Transmile wants to put its representative in associate company CEN Sdn Bhd and nominate a new representative to the board of CEN Worldwide Sdn Bhd, a wholly owned subsidiary of CEN.

• Transmile said it “will propose to the board of directors of CEN Worldwide that PriceWaterhouse-Coopers be appointed to carry out a special audit on CEN Worldwide.” 
• Major shareholders of CEN are Transmile (37.5%), Pos Malaysia & Services Holdings Bhd (42.5%) and Konsortium Logistik Bhd (20%), according to their latest annual reports. 
• The final report of the special audit on Transmile highlighted that sales to CEN Worldwide since 2004 totalled RM604mil. The company has been making losses since 2004 and it owes Transmile RM103mil.