Air-freight firm Transmile Group Berhad hit the business news headline for the wrong reason in 2007. The share price suffered turbulence when it was revealed that auditors of Deloitte & Touche were unable to substantiate the accounts of year 2006. The fraud was discovered after a special audit conducted by Moores Rowland Risk Management Sdn. Bhd. , stating that the company has been overstating its revenue between the periods of 2005-2007 to reduce the net loss shown in its financial statements and total overstatement being RM 530 million.
Transmile had recorded revenues which were actually companies that were set up by its former CEO Gan Boon Aun. Share price plummeted from its RM14. 40 high to just RM0. 37 as of 2nd of September, wiping out RM 1. 2 billion gains of the last two years in its market capitalisation. The company is now classified as a PN-17 status company, given to companies that are under financial distress. The current board of directors has now filed a writ of summons and statement of claim in the Kuala Lumpur High Court against its former CEO. Next to the Transmile fiasco is the government funded regional industrial park called Port Klang Free Zone (PKFZ).
Initially, the project was to be modelled after the successful Dubai-based Jebel Ali Free Zone (Jafza) which offered extensive manufacturing and distribution facilities. The scandal began when the project had cost overruns of up to RM3. 5 billion and the land where the PKFZ is built on was bought over from another private company owned by a politician at an exorbitant amount. Jafza was responsible to manage PKFZ pulled out, citing “strategic purposes” as a reason, but following after, a local daily newspaper soon uncovered that Jafza pulled out due to red tape, political interference and many other reasons.
The Malaysian Government then engaged the services of PriceWaterhouseCoopers to conduct an independent audit on PKFZ and its findings led to the arrest of Datin Paduka O. C. Phang, former Port Klang Authority general manager and several other politicians by the Malaysian Anti-Corruption Commission. As seen in two cases above, corporate scandals have managed to delude its way around many watchful eyes, mainly due to existence of agency conflict whereby insufficient actions were taken to ensure transparent reporting.
In Transmile’s scandal it is obvious that there is manipulation of related party transactions by former CEO Gan Boon Aun and clearly involved conflict of interest intended to be concealed by falsifying records. Related party transactions refer to the expropriation of the company’s assets by controlling shareholders or insiders resulting in impact on corporate governance and minority shareholders, whereby the company receives less net benefit from a related party transaction than could have been obtained from a transaction with an unrelated similitude.
On the other hand, PKFZ similarly involved related party transactions and asset shifting, leading to personal gains and political pressure. Jafza’s initial transactions and then pulling out was a series of actions evidently pertain the existence of motives against the interest of the company. The poor financial management by directors vitally contributed to the leeway for fraud, as management should strongly reinforce company regulations on reporting transparency. Distinctive lack of corporate governance resulted in these occurrence of fraud.
Due to the absence of such, there are lack of rules and processes or laws by which the company should have abided as to assure veracious operation, regulation and control of business. Weak corporate governance allowed unmonitored transactions leading to personal gains at the expense of the company’s interest, along with unenforced proper disclosure of conflict of interest. The absence of good corporate governance allows the tolerance of corporate abuses hence possibility of fraud to occur should be effaced by imposition of laws and regulations to enforce corporate governance.
Courtney from Study Moose
Hi there, would you like to get such a paper? How about receiving a customized one? Check it out https://goo.gl/3TYhaX