a delima case study

Introduction
The case of “A Delima” is all about the family business which at first known as Delima Enterprise. The business growth very well so the enterprise then was being incorporated as Delima Enterprise Sdn Bhd. The directors are husband and wife, Encik Zayed and Puan Hashimah and they are also the main shareholders which involved in the company’s management. It 2006, the company got a contract worth RM750, 000. They are having shortage of fund and decided to make an application for loan. It is required for them to submit the Audited Financial Statements for the last two years. Encik Zayed decided to perform a statutory audit for his company by having an external Auditor Aziz & Co (Chartered Accountant) as to perform the audit work from 2003 until 2006. It such a difficult experience for Encik Zayed & Pn Hashimah as it was their first time learned an audit experience. Due to some of the irregularities, the Auditors expressed their intention to qualify the company’s Financial Statements. But, both husband and wife put their effort in negotiating with the Auditor as not to qualify their company’s Financial Statement. In addition, Encik Zayed intend to terminate the auditor if the auditor cannot fulfilled the requirements and wanted to appoint a new ‘friendly party’ auditor. Delima Enterprise Sdn Bhd had employed their own family members as it employees and some of them did not have job experiences and only fresh graduate. Other than that, the directors also not learn much on the Accounting Standards and the provisions of the Companies Act 1965 including their roles and duties as the directors of the company. Encik Zayed had also applied for banking facilities as to work on several contracts that have been offered to the company. In order for Encik Zayed obtain the banking facilities; he had to submit the Audited Financial Statements to the bank as earliest as possible. Encik Zayed had appointed Cik Amy as a Finance Executive, who was only a fresh graduate. He had also given some tasks to Cik Amy which is to provide necessary documentations to the Auditors.
First issue: From the legal perspective, were there any abuses of power by the management and breach of fiduciary on the part of directors?
Abuse of power defined as improper use of authority by someone who has that authority because he or she holds a public office. It means that someone had misuse their power for taking advantage on others and gain personal benefit. A fiduciary duty is an obligation to act in the best interest of another party. The Board of Directors is confronting the issue on how they able to comply with the fiduciary duty to shareholders and other beneficiaries.
Referring to this case, there is abuses of power and breach of fiduciary on can be look at the part of the directors. The directors had breach their fiduciary duty to act in a good faith in the best interest of the company as a whole. Acting in a good faith covers the integrity and honesty of the directors in performing their duty and responsibility. In this case, Encik Zayed and Puan Hashimah had breach their fiduciary duties because they are considered not act in a good faith in the best interest of the company. The directors tried to persuade the Auditor not to qualify their Financial Statements so that later on they can proceed with the application for the bank facilities. There’s also an intimidation by directors to terminate the Auditor for his refusal to precede an audited Financial Statements. Other than that, the directors also need to act within the power given. However, the directors had also breach their duty to act within the power given and use the asset for proper purpose. It is their responsibility to ensure that all company’s assets are being used in proper manner. However, the material amount worth RM50, 150 which is actually personal expenses but has been treated as company expenses.
In addition, the management had also abuse their power in other ways. According to this case, the directors did not disclose any material amount such as the application for bank’s loan with other shareholders and company members. Shareholders have their own right to know about what’s going on with the company especially getting a project that will give them benefit and also making decision on that matter. Furthermore, the removal of Auditors cannot be easily done. Dismissal of auditor requires several procedures that must be follows. The Auditor also has their rights to defend themselves by making written representation.
Second issue: Who should be held responsible and accountable for an effective leadership and management of DESB?
Based on this case, if we look into the overall story of this case, it can be clearly seen that En.Zayed and Pn.Hashimah are held responsible and accountable to all of issues arises in Delima Enterprise Sdn Bhd. Their position as a shareholders and also directors itself become a factor that contribute to the issues of effective leadership and management of that company. Being directors mean they are carrying a huge duty and responsibility. As a director they should acknowledge about all of the procedures and any requirement that should be comply with as they had turn into a company or being Sdn Bhd. A director need to aware and keep updates regarding all legal requirements that must be fulfilled even though they are newly incorporated as a company. In this case, the earlier business practice which is enterprise cannot be a reason for Encik Zayed and Puan Hashimah not to comply with legal requirement. It is a duty for them to get knowledge and full understanding about the rules and obligation that they need comply with.
Besides, another issue is about hiring family members, Puan Balqis and Encik Salam as managers of the company. There is close relationship between them which can affect the decision regarding business matter and also lead to involve in conflict of interest. The effectiveness of the company’s operation depends on the personnel itself. All members will have their own responsibility so that they need to perform and deliver their responsibility to meet the standard of performance. The appointment of company’s personnel must consider the qualification and experience. In this case, the appointment of Cik Amy which is the fresh graduate and do not have any working experience need to be think twice because it can create lots of problem later on. It can be said that the competency of managers, employee, auditor or other key personnel of the company is very crucial. Human capital is the valuable resources that cannot be take for granted.
Third issue: Could the Audit be completed soon without any qualification? From the financial perspective, discuss and recommend objectively the most appropriate solution for DESB financial management and operations.
When any business had upgraded to become Sdn Bhd, automatically that company was obliged to prepare the annual financial statement for audit purposes. All companies that established under the Companies Act 1965 are compulsory to prepare the statutory audit. Regarding that matter, all company need to appoint external auditor which the auditor then will give their best opinion in the audit reports. Auditor’s report is very important because the audited financial statements will be disseminates by the users and also for tax purposes. Sometimes, people tend to manipulate the figure in the financial statement to reduce the amount of tax payable. According to this case, The Companies Act 1965 had govern all company to prepare the Audited Financial Statements, so by hook or by crook Delima Enterprise Sdn Bhd must have the Audited Financial Statements since it was first incorporated which is on year 2006. In addition, the company wanted to apply for banking facilities and it is required to provide the Audited Financial Statements for at least two years.
Based on the issues arise, whether the audit can be completed soon without any qualification or not, I will say no at first because there are so many unresolved issues and problem being highlighted during the audit progress. If the auditors come with unqualified audit report, it seems like the auditors had breach their fiduciary duties. However, when look into another perspective, the Audit still can be completed soon without any qualification if the standards have been complied. The unresolved issues and problem need to be addressed. The Auditor will give their best opinions on how to resolve the problems. Some of the transaction which considered having material amount has been wrongly recorded. And there was also a personal expenses being treated as company’s expenses. The new Finance Executive, Cik Amy had made reconciliation but it is not a proper and incomplete adjustment. The reconciliation should be done as that can maintain their account balances.
As regarding the financial perspective, hiring Cik Amy as Finance Executive is the right way to manage the financial matters of Delima Enterprise Sdn Bhd. However, Cik Amy need to be sent for training because she is a fresh graduate and have no working experience. She was not exposed with the real accounting practice and because of that, she cannot provide with the correct financial statements to the auditors. Besides, the financial statement that needs to be prepared by Cik Amy was from 2006, so we can assume that the old documents already missing. Supposedly, there should be a proper recording for transaction and it needs to be supervised frequently to ensure a complete record has been maintained. All relevant documents that were used to support the transaction also need to be maintained and filed in a proper way. It will ensure the smoothness of the audit process and it will also easier to make the documents available at all time it is required. It is necessary to make a copy of the supporting documents as a cautious step to avoid from any lost of documents.
Fourth issue: What should be done to improve the leadership and management of DESB? Constructively suggest new organisation structure and draft the applicable standard operating procedure for the company to operate effectively.
In this case it can be clearly seen that the company need to improve their leadership and management skills to ensure that they are able to survive in a long term. Previously the company only have a very lean organisation with a basic functional position but it seems to be a failure one. So, the positions in the organisation need to be restructured again and reform a new organisation structure for the company. A right position will be given to the right person according to their qualifications and also experiences.
As we have noticed that training is important especially for the beginners before get involved in the real world. Knowledge is very important nowadays but practical training and experience is the valuable things for every person. It will become the added value and differentiate us with others. Knowledge and practice is complementing each other in order to become an expert on that field. Since Cik Amy was a fresh graduate and have no experience at all, it is the right time for her to attend any seminars and training to get an overview about the preparation of financial statements which in the line with the Financial Reporting Standard. Training also applicable for the management staffs because it will enable them to get full understanding about their work field and also responsibility thus it will increase their performance in future. For both director’s, Encik Zayed and Puan Hashimah, they were also need to attend the training which they can learn the responsibility of becoming a directors of the company. The standards also need to be set early so that all people inside the organisation get a clear understanding on how they will perform their responsibility thus achieving those standards. To operate effectively, the company shall develop the Standard Operating Procedure which becomes guidance in managing the company’s operation. These are some of the standard that could be applied:
No Problem Reccomendation
1 Accounting Records All supporting document must have a copy, filed and kept in a proper place.
All invoice must be pre-numbered to identify any invoice that is not recorded
2 Account Department Hired senior employees that have enough experience and skills to perform their responsibility.
Hired account assistant that can assist in the preparation of the financial statements and other financial matters. Cik Ayu can be appointed as account assistant because she need to be guided from an expert.
Using latest accounting software to record transactions such as UBS or MYOB to be more efficient.
3 Segregation of duties The person who already involved in recording sales cannot be part of recording payments received.
If the records are computerised different person is needed
Salary slip and time sheet should be prepared by HR and Admin Manager.
Limit the right of other managers to the access of accounting record because it will give a possibility to them to misuse it for personal matters.
4 Authorization Proper authorization should be made different person. For instance, the person needs to get an approval from director before make any withdrawal.
New Organisation Structure of DESB

Encik Zayed & Pn Hashimah
-Executive Directors

New Recruitment
-Chief Operating Officer

Encik Salam
-HR & Admin Manager

Pn Balqis
-Operations Manager

New Recruitment
(Vacant)
-Senior Finance Executive

New Recruitment (?)
-Project Supervisor

Cik Amy
-Finance Executive

Clerical
-Assistant

Project Team
-Based on contract’s period

Clerical
-Assistant

6.0Conclusion
In conclusion, Delima Enterprise Sdn Bhd have a big potential to be one of the great Oil and Gas Company if all the employees keep cooperate in order to resolve all the issues and problem addressed in Delima Enterprise Sdn. Bhd. The appointment of the staff is very lean because it is based on family members relationship without considering the qualification and experience needed to carry out the duties. The abuses of power by the management can be seen when it was found that they were also charging their personal expenses to the company. It is vital for them to use and carry out their authority wisely as a company’s director to ensure the well being and success of the DESB in a long term.
Encik Zayed also seems like breaches his fiduciary duty by trying to make fraud when negotiate with the auditor as not to qualify their financial statement even there are many irregularities. The auditor is bound with their responsibility to give a true and fair view for the clients audited financial statement. Encik Zayed had planned to appoint a friendlier party auditor to replaced the present one since the present auditor cannot comply with the requirements. According to Company Act 1965, this is considered breach of law since it is not an act for the best interest of the company as a whole. Thus, Encik Zayed must not act in this way because it will compromise the law and credibility of the company.
It is clearly stated in the Malaysian Companies Act 1965 (Act) which under Malaysian corporate law framework regarding the duties and responsibilities of the company directors in Malaysia. Under the Act, company directors must be held responsible for the management of their companies and have a fiduciary duty to act in the best interest of their company. Regarding that matter, all people inside the company hold a big responsibility to improve the leadership. Encik Zayed and Puan Hashimah should play their role by acknowledging themselves with the director’s duties. Apart from that, they should hire people with good experience and qualification to do the work in the company. Other options are to send them for seminars and trainings as to improve their competency and skills to accomplish their duty.
When we look into the accounting system of the company, they are having lack of managements in accounting system. Thus, the responsible party which is the directors should implement new software which is more reliable and integrated such as UBS Accounting system. The most essential thing that they must implement in restructuring and reorganizing of their company is by establishing a Standard Operating Procedure (SOP) in their company. The existence of SOP will ensure a good internal control and the operation administration and management, of the company as a whole. The management also can hire an expertise in managing the system of the company so that the accounting data can be rely on for future and audit purposes