...Table of Contents Introduction……………………………………………………………………………………..1-2 Issues………………………………………………………………………………………………2 The Discovery of Fraud……………………………………………………………………..…..3-4 Corporate Governance of FCB……………………………………………………………………5 Auditor Dilemma……………………………………………………………………….……….5-7 Using the Fraud Triangle Model to analyze the situation in Flat Cargo Berhad……………..…8-9 Who is responsible in the fraud of Flat Cargo Berhad ……………………………………..…10-11 Prevention Measures for Fraud ……………………………………………………………….12-13 Detection Measures for Fraud…………………………………………………………...……14-15 Recommendation…………………………………………………………………….……….16-17 Conclusion…………………………………………………………………………...……….18-19 References………………………………………………………………………………………..19 Introduction The case is related to one company known as Flat Cargo Berhad (FCB), FCB was one of the largest air freight companies in Malaysia which servicing several government linked companies including Freight Malaysia Berhad. FCB is a listed company and was registered as an investment holding company with several subsidiaries. Among its subsidiaries are FC Spare Sdn Bhd, Cargo Management Sdn Bhd, FCB (SPV) Ltd, Cargo Air Services Sdn Bhd and FC Air Ltd. FCB started its operations in 1997 with two aircrafts: a Boeing 737-200F and a Cessna Grand Caravan. FCB’s major shareholder in 1997 had been Bangor Berhad, which was part of a diversified international family owned conglomerate, the Miri Group. On September 2001 the company was listed in Bursa Malaysia. The...
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...statements and hence to clear these problems. In the case of Flat Cargo Berhad (FCB), the auditors have found some inconsistencies in the accounts of FCB. FCB is an air cargo company, which was listed in Bursa Malaysia on 15th September 2001. It was known to be one of the largest airfreight companies in Malaysia. The company was registered as an investment holding company with several subsidiaries, for which their principal activities ranging from air freight services to ground handling services. FCB was the only dedicated Intra-Asian overnight express cargo operator based in Malaysia and had exclusive excess to an international cargo complex at Sultan Abdul Aziz Shah Airport in Subang. Furthermore, as it has successfully secured the landing rights in Asia Pacific regions, FCB was in ideal niche position to serve the international integrators, freight forwarders, and major airlines within Asian region. In 2006, Mr. Chuah, an auditor from Kencana & Associates had noticed some irregularities of accounting records in FCB, which may possibly be another fraud case after Media Com and Blue Vital. These irregularities could be created either intentionally or merely just an accounting error. Hence, auditors from Kencana & Associates had the responsibilities to identity the issues through the company’s information. 2.0 ROOT CAUSE OF PROBLEMS This case attempts to bring out the whole accounting fraud issue at Flat Cargo Berhad (FCB) from an auditor’s perspective. It creates an...
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...Flat Cargo Berhad: An Auditor’s Conundrum Flat Cargo Berhad (FCB) a well-known and one of the largest air freight companies in Malaysia that operate as air cargo carrier. FCB also registered as an investment holding company with several subsidiaries that operate with the same operating principal of the FCB. Their primary operating principal was to provide air freight transportation which includes air charter and leasing. Started their operation in 1997 and became the only dedicated Intra-Asian overnight express cargo based in Malaysia. The company also had access to an international cargo complex at the Sultan Abdul Aziz Shah Airport in Subang. FCB also have secured agreement with well-established companies. FCB had appointed Kenchana & Associates as their external auditor. In 2006 audit team from Kenchana & Associates found several suspicious finding in finalizing their report. It is also said that FCB can remained as the nation’s leading cargo carrier if not because of the scandal. Mr Chuah Mun Soong, head of the audit team from Kenchana & Associate, is the decision maker or protagonist in this case. Been informed by his subordinate, he show some dissatisfaction towards the FCB due to the scandal. He needs to present the financial report to the audit committee of FCB in two weeks. However, the inconsistencies in the account make him feel restless. Dilemma face by Mr Chuah is that the FCB also might be high possibility involved in fraud. Mr Chuah state that his...
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...FLAT CARGO BERHAD: AN AUDITOR’S CONUNDRUM The case portrayed Flat Cargo Berhad (FCB), a public listed company which known as one of the largest air freight companies in Malaysia. FCB was registered as an investment holding company with several subsidiaries where the subsidiaries primarily provides air freight services and aircraft ground handling services. As the only Intra-Asian overnight express cargo operator based in Malaysia, FCB provides air freight transportation involving aircraft charter and leasing. Due to landing rights in Asia Pacific region, FCB has the opportunity to provide express air services to international integrators, freight forwarders and major airlines within the Asian region. Thus, secure its major landing rights throughout countries in Asia. Moreover, FCB also has well-established customers and offers air freight forwarding services to its major shareholder, Cargo Malaysia Berhad and Bangor Berhad. Meanwhile, FCB was engaged with expansion plan to handle large shipments by expending freighter fleet size in order to cater customers demand. In 2005, FCB’s turnover is expected to be higher than year 2004 due to its expansion plan. However, FCB has higher gearing ratio and weak debt servicing ability. Besides, FCB has governance structure which adhered to the Malaysian Code of Corporate Governance in configuring its Board of Directors. Based on the case, Mr. Chuah Mun Soong is identified as a protagonist where he is one of FCB’s audit team from Kencana...
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...Overview This case is about the dilemma of an auditor, Mr. Chuah Mun Soong who has found suspicious issues that may lead to fraud upon auditing Flat Cargo Berhad (FCB). He was supposed to report to the audit committee of FCB regarding the audit outcomes. However, Mr. Chuah needed to inform the managing partner of his firm with regards to the findings on the inconsistencies of accounts in FCB. Company Background FCB Cargo Berhad (FCB) was established in 1997 operating primarily as an air cargo carrier. FCB providing freight services to the intra-Asia air market. Its services were not only limited to air freight transportation but also included aircraft charter and leasing. FCB was chaired by Dato’ Ibrahim Samad, a former Director General for the Ministry of Transportation and former President of Malaysia Chamber of Commerce. He was the company’s independent Non-Executive Director. The senior management team consist of Mr. Lim Loon Sim as the Chief Executive Officer, Mr. Ali Bin Ahmad as the Executive Director and Mr. Kim Boon Chok as the Chief Financial Officer. Mr. Ali Bin Ahmad also held the position of FCB’s Audit Committee Chairman. In terms of financial growth, FCB demonstrate a tremendous revenue growth from year 2001 to 2005. It is also recorded a 1.5 times increase in revenue amounting to RM550 million in 2005 compared to 2004 and was projected to increase further by 54% to RM809 million in the following year due to its major capacity expansion in 2005. The increase...
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...existence of the assets with the records. It is a must for every purchase to have invoice or grant to verify the purchase. Besides that, for the purchase involving high value of asset, it must have approval from top level of company which is Board of Director. In case the aircraft is non-functional rundown, it must be disposed in order to eliminate the unnecessary expenses for the company. 2. There are increasing in debtors’ confirmation letters were returned. Reasons: those debtors had changed their mailing addresses. Perhaps the company had a phantom client. So, Mr. Chuah need to confirm the account receivable whether the address is updated or real address. Besides that, the company should be using positive confirmation letters. Besides, the service agreement should be reviewed & obtain the explanation from FCB. For control procedure, the auditor needs to review periodically the account receivable trial balance especially for large and unusual receivable. Another procedure need to be implemented is adoption of allowance for doubtful debts. 3. Non-existence supporting documents involving a large sum of sale transactions which involved small clients. This is considered as potential fraud which will lead to overstatement of sale. Due to that, the company may not be able to collect all those revenues which will...
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...ACT 4197 INTEGRATED CASE STUDY FLAT CARGO BERHAD: AN AUDITORS CONUNDRUM Submit to Prof. Madya Dr Nor Aziah binti Abu Kasim Submit by Ummu Syafiqah binti Yaakob 156756 Lee Liu Kim 157279 Nurhafiza binti Abdul Razak 157458 Tay Yee Joe 159264 Semester 2, 2013/2014 * Table of Contents 1.0 Introduction 1 2.0 Case Overview 2 3.0 Issues Identified in FCB 4 3.1 Material Misstatements in Financial Statements of FCB 4 3.2 Lack of Internal Control 7 3.3 Weaknesses on the Corporate Governance 9 3.4 Ethical Issues of the Top Management and Auditors 11 4.0 Recommended solutions 15 5.0 Conclusion 23 6.0 Appendices 24 Introduction Flat Cargo Berhad (FCB) is an air cargo company, which was listed in Bursa Malaysia on 15th September 2001. It was known to be one of the largest airfreight companies in Malaysia. The company was registered as an investment holding company with several subsidiaries, for which their principal activities ranging from air freight services to ground handling services. FCB was the only dedicated Intra-Asian overnight express cargo operator based in Malaysia and had exclusive excess to an international cargo complex at Sultan Abdul Aziz Shah Airport in Subang. Furthermore, as it has successfully secured the landing rights in Asia Pacific regions, FCB was in ideal niche position to serve the international integrators, freight forwarders, and major airlines within Asian region. However, as highlighted...
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...Flat Cargo Berhad Presented by: ABDUL RAHMAN BIN YAACOB AFIFAH BINTI HALIM MAZIAH BINTI MOKHTAR MOHAMMAD AZWAN BIN BASHIRUN MOHD ZUBAIR BIN NOR AZMAN AC088467 AC088398 AC088445 AC088323 AC086470 Presented to: SIR AZWAN ABD RASHID NABILAH BINTI SAAD AC088349 INTEGRATED CASE STUDY ACSB 413 INTRODUCTION Company Background 1997 Started operations with 2 aircraft - Boeing 737-200F - Cessna Grand Caravan Operating Primarily -Air cargo carrier Principal activities of FCB Subsidiaries -Air Freight Service and Aircraft Ground handling service 15 September 2001 -Obtained listing in Bursa Malaysia Auditor -Kenyans & Associates In 2001 to 2004 -the have a fast growing at intra- Asian air express market -demand for express transportation Services increased. -give best delivering quality services and satisfying customer demand. FCB Wholly Owned Subsidiaries Cargo management Sdn Bhd Fc Spare Sdn Bhd FCB Wholly Owned Subsidiaries FC Air Ltd FCB (SPV) Ltd Cargo Air Service Sdn Bhd FCB secured agreements with well-established companies Up to 2005 Bax Global United Parcel Service (UPS) Express Worldwide Nippon Express CityLink Nationwide Express Top Management Team Dato’ Ibrahim Samad • Chairman • Independent non-executive director • Former of Directors General for Ministry of Transportation • As a Malaysia chamber of commerce’s former president Mr Lim Loon Sim • Chief Executive Officer (CEO) • Founder for FCB • Board...
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...I. Executive Summary Flat Cargo Berhad (FCB) is a listed company that provides air cargo carrying services within the Asian region. The company owns five fully owned subsidiaries and the major shareholders of this company is Bangor Berhad. The company’s external auditor is Kencana & Associates where the audit team is led by Mr Chuah Mun Soong. On 5th February 2006, Mr Chuah has been informed by his team that there are some inconsistencies in the accounts of FCB. Therefore he has decided to do his own investigation on the company to determine is there any fraud involved before he can report the situation the managing partner of Kencana & Associates, Mr Keong Chee Wah. II. Statement of the Problem One of the issues faced by the company is the inconsistencies in the company’s accounts where they were unable to verify the aircraft that they claim have purchased in the year 2005. The auditor also found a non-functional aircraft in the hangar that does not worth much. It can be said the cause of this problem would the weakness in assets management or internal control system as well as the weakness in the accounting department where the management of the company is able to make false claims. The second issue faced is poor debt management where a lot of debt confirmation letters that were sent was returned due to the changes in debtors addresses. This can be only explained by the company’s weakness in keeping proper records of their debtors as well as their ability...
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...Classification of inland transport network……………………………………………………………. 9 * Road network………………………………………………………………………………………….. 9 * Railway network…………………………………………………………………………………….. 10 * Inland waterways……………………………………………………………………………………. 11 * Classification and types of inland transport vehicle……………………………………………...11 * Inland transport operator……………………………………………………………………………………..15 * CVO………………………………………………………………………………………………………….15 * Classification of different types of cargo……………………………………………………………….16 * Inland transport * Limited to the land, or to inland routes; within the seashore boundary; not passing on, or over, the sea; as, inland transportation, commerce, navigation, etc. * Confined to a country or state; domestic; not foreign; as, an inland bill of exchange * Consists of road network, railway network and inland water ways, within the land; more or less remote from the ocean or from open water; interior; as, an inland town. * Inland cargo transport modes 1. Road freight A road is an identifiable route of travel, usually surfaced with gravel, asphalt or concrete, and supporting land passage by foot or by a number of vehicles. In Great Britain the road network is extensive, with over 200,000 miles of pathed roadway. The network is almost universal in that virtually every house, farm, factory, shop and places of entertainment have access to a road. Automobiles offer high flexibility, but are deemed with high energy and...
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...INTRODUCTION Flat Cargo Berhad (FCB) was one of the largest air freight companies in Malaysia, FCB was a listed company operating primarily as an air carrier. Its core business was to provide air freight transportation, which included aircraft charter and leasing. Kencana & Associates served as its auditors. In 2006, during a routine financial audit, the auditors identified several suspicious findings that resulted in a delay in finalizing the auditor’s report. These are the issues found from FCB’s working paper for 2005; the auditors were unable to verify the aircrafts claimed to have been purchased by FCB in 2005. The audit team found a non-functional rundown aircraft barely worth RM231 million in a hangar. Next issue was, several debtors’ confirmation letters were returned because the addressees had changed their mailing addresses, besides that a large sum of sales transactions was found with no supporting documents. Most of these transactions involved small clients. Next issue found was a loan received from a Hong Kong based company was found to be incorrectly recorded in the debtors’ account. Other issues were found are several abnormal transactions involving the purchase of aircrafts by FCB and offsetting the debtor’s accounts were found in FCB’s books. Based on the audit working paper of FCB in 2005, auditor found some disagreements with management account which may lead to fraud. They were unable to verify the aircrafts which was claimed to have been bought by...
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...1.0 Case Summary Flat Cargo Berhad (“FCB”) was one of the largest air freight companies in Malaysia. FCB was registered as an investment holding company with several subsidiaries and the principal activities included air freight services and aircraft ground handling services. FCB’s wholly-owned subsidiaries included FC Spare Sdn Bhd, Cargo Management Sdn Bhd, FCB (SPV), Cargo Air Services Sdn Bhd and FC Air Ltd. FCB started operations in 1997 and had been an overnight air express transport service for Freight Malaysia Berhad to Singapore. Flat Cargo Group obtained listing in Bursa Malaysia on 15 September 2001. Between years 2001 to 2004, FCB’s expanded due to the fast growing intra-Asian air express market. With an array of landing rights in the Asia Pacific region, FCB was in the idea niche position to offer express air services to international integrators, freight forwarders and major airlines within the Asian region. It managed to secure major landing rights in various countries in Asia including China, Japan, Thailand, Singapore, India, Indonesia, Taiwan, Sri Lanka, Philippines, Korea, Myanmar and Cambodia. Up to 2005, FCB secured agreements with well-established companies such as Worldwide Express, United Parcel Services (UPS), Nationwide Express, Citylink, Bax Global and Nippon Express. The composition of the Board of Directors was in adherence to the Malaysian Code of Corporate Governance. The chairman of FCB was Dato’ Ibrahim Samad who was also an independent...
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...Impact of unstable Economic on Transportation Like many economic activities that are intensive in infrastructures, the transport sector is an important component of the economy impacting on development and the welfare of populations. When transport systems are efficient, they provide economic and social opportunities and benefits that result in positive multipliers effects such as better accessibility to markets, employment and additional investments. When transport systems are deficient in terms of capacity or reliability, and the unstable economy hey can have an economic cost such as reduced or missed opportunities. Transport also carries an important social and environmental load, which cannot be neglected. Thus, from a general standpoint the unstable economic impacts on transportation can be direct and indirect: • Direct impacts related to accessibility change where the unstable economy is disabling larger markets to save time and costs. • Indirect impacts related to the economic multiplier effects where the price of commodities, goods or services drop and/or their variety increases. Mobility is one of the most fundamental and important characteristics of economic activity as it satisfies the basic need of going from one location to the other, a need shared by passengers, freight and information. All economies and regions do not share the same level of mobility as most are in a different stage in their mobility transition. Economies that possess greater mobility are often...
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...RECOMMENDATIONS Membership of audit committee According to the Malaysian Code of Corporate Governance, to ensure that no one individual group dominates the board’s decision making, there should be an equal number of executive and non-executive directors (inclusive of independent non-executive directors) in the Board of Directors. However, based on the hierarchy of the Board of Directors in Flat Cargo Berhad, there are more executive directors than non-executive directors. It is unhealthy scenario as non-executive directors’ views might not be taken into consideration in the company’s important decision making process as they have the minority say. On the other hand the Code for an audit committee states that there should at least be 3 members of whom the majority of them should be independent and all members should be non-executive directors. Although the audit committee of Flat Cargo Berhad reveals that the majority of the committee consist of independent directors but they are all not non-executive member. Therefore, Mr. Ali Bin Ahmad is not a suitable candidate of the committee. We should understand the roles of Executive and Non-Executive Directors. As we know, Executive Directors are the internal member of the company who are involve in decision making of the management team and daily operation. Non-Executive Directors are the outside director who may hold or may not hold a share in the company and they may be hired due to their expertise and...
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...UPS and FedEx Air Hubs: Comparing Louisville and Memphis Cargo Hub Operations by Alex Cosmas and Bastien Martini The economies of scale afforded to passenger airlines by the use of a hub-and-spoke model are also enjoyed, sometimes to an even greater extent, by cargo carriers. The world’s two largest integrated carriers, UPS and FedEx, run their central air hubs in Louisville (SDF) and Memphis (MEM), respectively. We present a case study of the air hub operations at SDF and MEM. The land-side and air-side operations are contrasted between SDF and MEM, and generalizations are drawn regarding issues prevalent to cargo versus passenger hubs. I. Air Cargo in History The beginning of the last century saw the dawn of flight. Since the Wright brothers’ first flight, the transfer of goods through air mail and air freight has grown tremendously. The first cargo flight ever took place between Dayton and Columbus, Ohio in November 1910, when a department store shipped a bolt of silk. Even though the shipment was of small size, the flight stayed in the records because it was achieved in less time than possible by train. Some time elapsed before the first commercial cargo airline was created. In the 1920s passenger carriers created entities to carry freight, but it remained a very low fraction of their business. In fact, the first all-cargo airline was created after World War II, but bankruptcies and accidents in the early 1950s made most of the carriers quit the business...
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