Flat Cargo Berhad Essay

Air Cargo Industry is a highly competitive with low lucre margin industry operated by 85 operators within Malaysia and the Asia Pacific region. Flat Cargo Berhad (FCB) was one of them with several subsidiaries related to this industry. FCB was recognized as one of the biggest stock freight companies in Malaysia. With the flourishing of e- blood line and secured agreements with well-established companies (i.e UPS, Nationwide Expressway, Citylink, Nippon Express etc), the boom of Flat Cargo Berhad was obvious. Even it was expected, FCB would have likely remained as the nations principal air cargo carrier if the scandal has not appeared. Things have started to get out of shape for FCB when the external auditor Kencana & Associates came across several suspicious findings that whitethorn suggest taradiddle. So we as consultant/advisor have noted down the paradox and came up with the attainable solutions in order to handle much(prenominal) suspicious circumstances.Problem 1The audi tors were un fit to verify the aircrafts considered to have been purchased by FCB in 2005. The audit team found a non-functional rundown aircraft barely value RM231 million in the hangar.FCB claimed to have purchase aircrafts in 2005, but there were no documentation found to support the claims of FCB that the get ever took place which implied that fraud might have took place.As shown on the fleet information above, (Appendix B) there were two Boeing 727 and five Mcdonnell Douglas MD-11F (which later was no longer used for freight purposes) purchased by FCB in 2005 that were in Active status, but when inspected by the audit team, found Mior, Asif, Stephanie, Rohannaonly a rundown non-functional aircraft in the hangar which suggested inconsistency in the claim made by FCB.root 1The audit department could take some measures to verify the claim made by FCB regarding the purchase of the aircrafts by1) Referring to the aircraft manufacturers regarding receipts, purchasing documents, in voices , contracts2) Checking any related internal documents about the aircraft activities like schedules and activities of aircrafts i.e. engineering department for maintenance of aircraft.3) Verify with the staffs of the company i.e. pi grants, engineers regarding the aircrafts claimed to be purchased4) Checking on leasing companies if there were any business activities from FCB (which would suggest obvious fraud since FCB claimed to have purchase the aircrafts)5) Verify the registration and licensing of the aircraft at the Department of Civil Aviation Malaysia (DCAM)And if this aircraft was actually purchased as claimed, the management should advertise these solutions to avoid future confusions 1) Update bookkeeping regularly ( proceedings on purchases, sales, receipts and payments by an individual or organisation)Problem 2Several debtors confirmation garner were returned because the addressees had changed their mailing addressesDue to this issue it will have a major touch on on accounts receivable thus to cash flow. However this will drop dead to further problem as follows 1) No exact debtor figure available for reference2) Possibility of bad debt3) Weak debt servicing ability by companyMior, Asif, Stephanie, RohannaSolution 2Some measures could be taken by auditor to solve this issue by 1) Investigate the identity of the debtor or organization from reliable sources (Suruhanjaya Syarikat Malaysia (SSM) for organisations, Jabatan Perdaftaran Negara (JPN) for individuals)2) Find supporting documents of debt to rule out chances of fraud The management team could take these measures to avoid this problem by 1) Create an streamlined system for debt servicing 2) Create a system of verifying theclaim of debtors to make sure fraud does not take place3) Create a database for debtors and keep an updated portfolio on them for future use and reference4) Create a department in the organization that deals solely with debt servicing (provided that they have a lot of debtors)Problem 3A large sum of sales transactions was found with no supporting documents. Most of these transactions involved small clients.This problem will mostly affect the revenue. In addition, it could lead to1) poor book-keeping process2) manipulation on the revenue figure (RM 550 million)3) manipulation of the shareholders interest in terms of dividend declared4) balancing the closing process for the year of 2005 manually5) complication on debt collection therefore the possibility of bad debt in futureSolution 3As far as we are concerned, the auditor can request the engineering department to provide the document on clients who are development their courier services and counter-check it with the Custom Department to verify the figure. We assume every activity must be reported to theMior, Asif, Stephanie, Rohanna.DCAM. Therefore, from the backward process, the auditor would be able to verify the turnover figure.Problem 4A loan received from a Hong Kong based company was fou nd to be incorrectly recorded in the debtors accountThis issue will have the major influence on liabilities. It has violated the matching principle. The following problems can be determined due to these mistakes.1) The impact on liabilities of the FCB will be fall downd whereas assets increase due to the error on figure entry process2) The financial cost (interest expense) will decrease resulting increase ofprofit forwards taxSolution 4Counter-check and verify the Loan agreement between the FCB and Hong Kong based company. After verifying, the auditors will correct the double entry according to accounting standard by MASB.Problem 5Several abnormal transactions involving the purchase of aircrafts by FCB and offsetting the debtors accounts were found in FCBs books Following abnormal transaction is strictly against the process of accounting system. It violates many principle of accounting system i.e. principle of non-compensation, principles of sincerity and principles of consistenc y*. Abnormal transactions could lead to multiplier faults in the financial statement like1) Overstated/Understated assetsUsage of cash or credit was not determined the right wayCutting down the overall debtor amount2) Fail to determine bad debt3) Fail to determine the true figure of debtorsSolution 5Actions that could be taken by auditors1) Reconciliation of book keeping related to purchases of abnormal transactions2) Cross proof each and every documents related to purchases and debtor3) If possible ensure debtors confirmation letterActions that could be taken by management1) Not to mix up purchases with debtors2) Debtors can be offset upon receiving money or against bad debtConclusionIn conclusion, these issues above could be avoided provided that delegation and segregation of duties were made to ensure accountability in bookkeeping and minimisation to fraud. The company could in addition hire an internal auditor to regularly inspect the financial condition and activities of the company. Accountability and counter-checking between one another is also crucial to minimize mistakes and deceit. It is such a shame that a company with such great Mior, Asif, Stephanie, Rohannapotential (to be the leading cargo company in Malaysia) should suffer a mint such as this due to trivial avoidable mistakes and fraud. It is best that PLCs to work towards transparency within the company so that mistakes/problems could be detected and solved before it gets out of hand.ReferencesReady Ratios. Generally Accepted Accounting Principles (GAAP), Availablehttp//www.readyratios.com/reference/accounting/generally_accepted_accounting_ principles_gaap.html.Last accessed 4th Feb 2014