Mini Case Study - A Delima

8/18/2019 Mini Case Study - A Delima

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Encik

Salam were

family

members

of

the Directors. Encik

Zayed

and

Puan Hashimah

were

self-made

business

owners with only secondary school background

and likewise, Puan Balqis

and Encik

Salam.

In

May

2006,lhe

company

had employed Cik

Amy, a

young

Accounting

graduate

as

Finance Executive

responsible

for maintenance of the accountirig and

financial

matters, including the

preparation

of accounts. Prior to CikAmy's

appointment,

Puan

Hashimah

was

responsible for all finance related

matters. Cik Amy

graduated

from a local university

since

April

2006 and had no

working

experience.

In May 2006, the company

had secured a contract worth

RM750,000

to be

implemented over

a

duration

of

six months.

Due to shortage of funds,

the company

had submitted

applications to

Malayan Banking Berhad

and

CIMB

Bank

Berhad for banking

facilities

totaling

RMI

million.

The banks

required the company's

Audited

Financial Statements

for the

last two

years,

and

this

was

when

Encik Zayed realised

that the company

had not

performed

the statutory

audit.

A friend had introduced

to Encik

Zayed an audit

firm and shortly

after,

Aziz

&

Co

(Charlered

Accountant) was engaged to

perform

the audit.

The audit was

targeted to

be

completed

at

the

earliest

possible

to

meet the

bank's

requirement.

Accounting

Systems,

Information

and Records

All

accounting

records

were

maintained using

the

standard

financial software

"MYOB".

The

programme

was

not integrated

fthe

data

was

not

processed

and

generated

automatically

between

several modules

namely Procurement, HR, Accounts

Payables

(AP),

Accounts

Receivables

(AR)

and Cash

Book

(CB)1.

At

every

end of the accounting

period,

information summary

generated

by all

purchases,

accounts

receivables and

payroll

transactions

were updated

and

entered

into

the

general

ledger

(GL)

system.

The

Sales' invoices were

manually

produced

when

orders were received and the

job

was

completed, while

the manual

sales

invoices

were

not

pre-numbered.

One copy of

the

sales

invoices

was attached to the delivery order for the customer

and

the other copy

was used to

update the sales records.

Collections from

the customers

were

received

via cheques

and

cash

and not

all

payments

from

customers

were

received in

fuIl.

Monthly

Statement ofAccounts was

not sent to

customers

on

a

monthly

basis. Instead, it

was done

as and

when the

payment

had been long outstanding.

Likewise,

the

purchase

orders (PO)

were

also

manually

prepared

and

not

pre-numbered.

The

original PO was issued to the

suppliers or senrice

providers

and

a

copy was

retained for

record

and GL system

update.

The

employees

prepared

their timesheets when

they arrived at work and

recorded

the time

they leave

the office, manually. At the

end of every week, the employee

timesheets

were sent

to Puan

Hashimah for approval

and

payment

of

salaries. The company

also

paid

their

general

workers in

cash on

a

weekly basis and

it

was therefore, not unusual

to

withdraw

large

sums of

cash from the local banks

when

needed.

Nlalavsirn ilrstitutr' of ,AicoLrlGnts

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4/10

Audit Findings and Recommendations

The Auditor had difficulties to complete

the audit due to

incomplete information and

records

and

in addition, a

standard

operating

procedure

was

not in

place. The records

were

not organised

and filed accordingly

for

easy

reference. Several

assets

purchased

by

the

company

were

not

recorded and there

were several over-payments

made to Trade Creditors.

They also

found

out that several collections

f,rom Trade

Debtors were

long

outstanding

and several

personal

withdrawals

and expenses were

charged

to the company. On

top of

that, several unrecorded

cash withdrawals

and Cash

and

Bank

balances

were

not reconciled.

The

Auditor noted the

following

findings:

1.

That there was

no Standard

Operating

Procedure

(SOP)

in

place

and

all deci'sions

were

made and

authorised

by

either

Encik Zayed

or Puan

Hashimah.

The Auditors

recommended

that an SOP be

prepared and implemented.

2. That no

reconciliation

was

performed

for

Accounts

Payables,

Accounts Receivables,

Cash

Book

and

Bank balances.

Non-reconciled

payments

and

collections

noted

for

the

period

under

review totalled

RM150,000

for

year

2004

andRM250,000

for

year

2005 respectively.

The Auditor

recommended

that the amount

be

provided in the

Profit & Loss

Accounts.

3.

That several over

payments were

made

during

the

year

20041o

the Trade

Creditors

totaling

RM50,000.

The

Auditor

recommended

that the Company

advise the

respective

Trade

Creditors

and request

for

Credit Notes.

4. That the

Cash and

Bank balances

in Cash

Book

were

overstated

by

RM70,000

(RM40,000

for

year

2004 and

RM30,000

for

year

2005) compared

to the Bank

Statements.

The

Auditor

recommended

that the amount be

reconciled

or

written-off

to

Profit &

Loss Accounts.

5. That the balances

of the detail

Accounts Receivables

for

year

2004 were understated

by

RM40,000 compared

to the

Accounts Receivables General

Ledger

in total.

6.

That no individual

project

budget

and analysis were

prepared.

T.Thatpersonal vehicle

expenses

for Encik

Zayed

and Puan

Hashimah totaling

RM50,150

were

charged to the company

during

the

year

2005.

8.

That

several

withdrawals

from the company

totaling RMl2,500 were

made

from

the

company without

proper

documentation.

Based on the analysis

by Cik Amy. the

following were noted:

1. That the

RM150,000

recorded as Accounts Payables was actually

Cash

Advances made

by Encik

Zayed

to

the companies

during theyear 2004.

2. That the

sum

RM250,000 from the

Accounts Receivables Summary

Report

for

year

2005

was wrongly

entered into the General

Ledger and no one

had reviewed

the record.

Several

pages

of

the Accounts Receivables

listing went missing

and thus, the

listing of

the

individual

accounts

receivable balances was

not

a

continuous

list, distorted

at several

points

and the

individual Account

Receivables balances did

not

add up

to the total of

the

l\4alrysiM

lnilillxc oiAccouulillls


5/10

report.

3. That the overpayment of

Trade

Creditors

totaling RM50,000 in

year

2004

was

due to

human error as a result

of lack of control.

4. That

the

receipts

of

RM70,000,

which was

recorded twice

in

the General Ledger

and

RM40,000,

were

related to Trade

Receivables Accounts for

year

2005 and the RM30,000

was related to Cash

Advance from Encik Zayed

in

year

2004.

5.

That the EPF contribution

for

contract

workers were

not

deducted

and

remitted to

EPF.

6.

That

there

were no comprehensive business

plan

and budget

prepared.

7. ThatEncik

Zayedwas not willing

to commit and

invest on necessary

training

to enhance

the knowledge of

the employees so

that they could

be more effective

and efficient

in

performing their

jobs.

Cik Amy was very

concerned with

the situation

and had

tried

her best

to facilitate the

audit

completion. She

admired the

leadership and the struggle

demonskated

by

Encik Zayed

and

Puan

Hashimah, but

she

thought

that was not enough.

Were

there any abuses

of

power

by

the

management and

breach

of

fiduciary

on the

part

of

the

directors?

Who

should be held

responsible and accountable? Could

the Audit be completed

soon

without any

qualification?

What should be done

to improve the leadership

and management

of Delima

Enterprise

Sdn

Bhd?

Discluimer:

This

case

presents

the actual

family-business

dilemma

and

identities

have been changed to

protect

family

privacy.

The author

b

opinions do not necessarily

reflect the views of the Malaysian

Institute

of

Accountants and this case

wqs written

for

academic

purpose

only

and the author disclaims any legal

responsibilities.

N:lalayilan lrstitute of,AccorBllants

fJ

l;:ii

&

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,'f:


6/10

AppendixA

De\\ma

Bnterprise

Sdn

Bhil

\Jnaudited'lria\

Ba\ance

as

at 31 May

2004 to

31

May

2005

afl

i.ll

DASCRIPTION

20$4

RM

2005

RM

DR CR

DR

CR

Fixed Assets

133,818

98.244

Trade receivables

8r7,192

520.632

Other

debtors, deposits

&

prepa\,ments

28.617

181,906

Cash & bank

balances

3

58,825 267.147

Auditors'fees

8.000

Secretarial

fees

t,500

1,500

Deoreciation

22Jso

14,7 37

Directors'

emoluments 49,925

42,188

Salarieg

67,025

4s.ooo

Rental ofoffice

35,925 21,833

Office

expenses

15,000

10.000

Motor

vehicle exDenses

25.000

15,000

Bank

charses

5 R?5

5,670

Trade

payables

847,929 482.457

Cost of Sales

t,326,410

627.93s

Sales

1,700.525

897.050

Other

payables,

accruals

&

provisions

66.223

70 715

Provision for

Depreeiation

(FA)

31,481

l4,l3l

Share

caoitals 500,000

500.000

Retained

Pro fitl(Lo ss)

t

13,187

Current

year

Profit/(Loss)

t43.t65

1 13,1 87

Control total

?.895.812

2,895,812

1.964.979

t,964,919

i\4ainvsiar

h5titr(c

ol

Acsluntants


7/10

.4

:.H

Appendix B

:E

;et

Delima Enterprise

Sdn

Bhd

Unaudited

Balance

Sheets

as

at 31

May 2004 to 31May 2005

d

td

F-

2004:'

.,fttr [,,..

:'2005

l

'RM.

'

FIXED

ASSETS

CURRENT

ASSETS

Trade

receivables

Other debtors, deposits

and

prepayments

Cash

and bank balances

LESS: CT]RRENT

LIABILITIES

Trade payables

Other

payables,

accruals &

provisions

96,331

817,192

398,1 56

358.825

83,507

520,632

295,093

267.147

t,574,r73

969,685

847,929

66"223

482,457

70^735

914.152

553,192

NET CURRENT

ASSETS/(NET CURRENT

LIABILITIES)

660.021 416.493

FINANCED BY

SHARE CAPITAL

ACCUMULATED

PROFIT(LOSS)

CARRIED FORWARD

iT56;35?

dl3'18?

s00,000

) \6 75',)

500,000

1 13,187

'7561352

613.187

h{alx},sia 1 Irstiture

of

Accounlant$


8/10

Appendix

C

Delima

Enterprise

Sdn Bhd

Unaudited

Profit

&

Loss

Statements

for

the

period

31 May

2004

to

31

May

2005

@

ki

*

cfi

,X{X}4,1

.,,&FJ

,

.i2&05

:RM.

TURNOVER

t,700,s2s

897,050

PROFIT(LOSS)

FOR

THE

YEAR

143,165

t13,187

Aft er

charging/(crediting)

:

Auditors'fees

Secretarial fees

Depreciation

Directors'

emoluments

Salaries

Rental

ofoffice

Office

expenses

Bank

charges

8,000

1,500

22,750

46,92s

6'.7,025

15

q?5

15,000

s,825

1,500

14,737

42,188

45,000

27,833

10,000

5,670

ACCUMULATED

PROFIT(LOSSES)

256,352

I 13,187

\lr.a].ian

rnsr.rur

.,

Aj\nunt

r''r.


9/10

Appendix D

Delima Bnterprise

Sdn

Bhd

Unaudited Cash

Flow

Statements

for the

period

31

May 2004

to

31

May 2005

u)

iEl

*

,J

F*

SOT]RCES

OF

FUNDS

Profit for

the

year

Adjustment for

items

not involving

the

movement

of funds:

Depreciation

OTHER

SOURCES OF FUNDS

Proceeds

from

disposal of

fixed assets

APPLICATION OF FUND

Purchased of fixed

assets

Increased in

paid-up

capital

R.EPRESENTED

BY:

TNCREASED(DECREASED) IN WORKING

CAPITAL

Receivables

Payables

Movement

in net liquid funds:

Cash

and

bank balances

t43,t65

22,750

1

13,1

87

74,737

165.915

127.924

(35,574)

(98,244)

s00,000

-r130;341

'.

5tr9'68t'

399,623

(360,960)

815,725

(553;192)

38.663

262.533

91,6',78

26'7,t47

.-130341:.

529;68Or.

N{aiaysian Inslil$e

of

Acciunlants


10/10

AppendixE

Delima

Enterprise Sdn

Bhd Organisational

Chart

as of

3L

May

2005

a{

id

i""

Encik

Zayed

Chief

Executive

Officer

Puan Hashimah

Chief

Operating

Officer

Puan

Balqis

Operations

Manager

Cik

Amy

Finance

Executive

Encik Salam

Human

Resource

&

Administration

Manager

Vacant

Project Supervisor

Project

Team

(On

contract basis

based

on

project

requirements)

ffi

"*'or''on

'nstii te

0i

Accouttans

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Mini Case Study - A Delima