Question 1: Were there any abuses of power by the management and breach of

fiduciary on the part of the director?

Abuse of power can be in the form of "official misconduct," which also can be defined as an
unlawful acts which done in an official capacity at the result of affecting the performance of
official duties.
A fiduciary duty can be defined as an obligation to perform someone duties in the best
interest of another party including company. A fiduciarys action must be free of conflicts of
interest and self-dealing.

Encik Zayed also abuses his power by terminate the auditors and appoint another
friendly party auditors without proper procedures. According to Section 172 (4) of
Companies Act 1965, the auditor of a company can only be removed by resolution of the
company (which is agreement of shareholders) at the general meeting with special notice
given to auditor. For example, Encik Zayed terminated the auditor because they refused to
unqualified the audit report on audit of Delima Enterprise Sdn Bhd's financial statement.
Section 132(1) Company Act 1965 read as: A director of a company shall at all times
exercise his powers for a proper purpose and in good faith in the best interest of the
company. That person owes a duty of loyalty and good faith. As a fiduciary, a directors
duties are:

(a) Duty to act for the proper purpose

When a director misapplies the companys asset or when he uses the powers he is delegated
for the wrong intention, it leads to breach of his duties to the company. From this case, Encik
Zayed had withdrawn company money for his personal purpose and do not record the
transaction and the amount was charged to the company.

According to Regal (Hastings) Ltd v Gulliver (1967), where the company had a subsidiary
company which intended to purchase two cinemas. The seller required the buyer to increase
its paid-up capital which unfortunately, the holding company could not afford to raise. The
directors of the holding company came to the rescue and took up the balance. Subsequently,
company also had new shareholders and it took action to recover the profit made by its
former directors.
The court held that a director is accountable for the profit if the information came to him in
his capacity as director, and he used the information and made profit. Regal (Hastings)
showed that it was not material that the company was not able to make use of the corporate
information. Neither was it important that the director had good intention and acted in good
faith.

The intention of charging the personal vehicle expenses which totalling RM50,150 to the
company could be to increase the reported expenses in order to reduce the taxable profit of
company during the tax computation. However, it is something prohibited by the section
39(1)(a) Income tax Act 1967 and should be categorised as non-deductible expense. Despite
the fact that Encik Zayed may want to reduce the tax burden, the purpose of charging the
private expense to company account is not a proper deed anyway. In short, Encik Zayed and
Puan Hashimah have breach their directors duties to act for proper purpose.

(b) Duty to exercise power in good faith and in the interest of the company

In this case, one of the directors of Delima Enterprise is Encik Zayed. He had breach his duty
to exercise power in good faith. Aziz & Co (Chartered Accountant) was assigned to perform
statutory audit and intended to qualify the Financial Statements due to several unresolved
issues. Encik Zayed negotiated with the Auditors not to do so but his request was declined.
So, Encik Zayed was planned to terminate the auditors appointment and appoint a new
friendly party auditor.

Encik Zayed didnt act in a good faith and bona fide in the interest of Delima Enterprise
according Re W& M Roith Ltd (1967). In this common law case, the director owned a
substantial portion of shares in the company. He was terminally ill and wanted to provide for
his wife and thus he entered into a contract with the company to pay a pension to his widow.

The court held that the contract was void as the board of directors did not act in the best
interest of the company but for the widow of the director and hence it was not made in good
faith.

In the case of Delima Enterprise, the possible consequence of getting an unqualified audit
report by any illegal, improper way (friendly auditors) for its questionable financial statement
is serious like being sued by the bank. Encik Zayed has breached the duty to exercise power
in good faith and in the interest of the company.

(c) Duty to act with reasonable care, skill and diligence

Section 132(1A) provides that a director of a company shall exercise reasonable care, skill
and diligence with the knowledge, skill and experience which may reasonably be expected of
a director having the same responsibilities. Accordingly, they are not allowed to undertake the
management of in complete ignorance of everything connected with Accounting Standards,
the Companies Act 1965 without incurring responsibility for the mistakes. Thus, ignorance
aroused from the fact they are have only secondary school background is not a valid excuse
to justify their mistakes. For example, they failed to provide the RM 150,000 of no-
reconciled payments in the Profit & Loss account.

Besides, their duties as directors, and hence the responsibilities for the mistakes were not
limited by delegating the powers to their employees by segregate the duties. In fact, they
should attend the relevant course relating the accounting standards and company law and
tried to have understanding on the issues related with the company. Or else, they should
engage the consultation services from the experts or other institutions to seek advice on these
issues.

Furthermore, Section 132 (2)(a) of the Company Act 1965 imply that the director
should not simply use the companys property or asset. Encik Zayed has abused his power not
only by withdrawing a total amount of RM 180,000 (RM 150,000+ RM30,000) cash from the
company for personal use.
In addition, they also abused their powers as the director of the company by
employing their family members who may not compatible to the job as employees and some
of them did not have any necessary job experiences. For example, Puan Balqis, the operations
manager and Encik Salam, the Administration and Human Resource Manager who hold high
position in the company only hold a secondary school background, are the family members of
directors.

Question 2: Who should be held responsible and accountable?

3.1 Directors - Encik Zayed and Puan Hashimah

The function of Chief Executive Officer is to implement the strategic goals and objectives of
the company and provide the directions and leadership in order to achieve the companys
philosophy, mission, strategy, goals and objectives.

As directors both of them have the duty to understand their role and responsibilities and
perform them in the best interest of the company. They should acquire adequate knowledge in
order to manage the company well and maintain a strong internal control in the company
which help to reduce the human error and misappropriate of assets. The director, when
encounter problems, supposedly has to find out the effective ways to solve the problems
occurs in the company and not covered the problems by negotiate with auditor or terminate
the auditor who did not accepted their ways.

Furthermore, since Encik Zayed and Puan Hashimah do not have relevant knowledge to
handle several tasks such as accounting area, they should segregate the duties to more
experience and knowledgeable employees. In performing accounting matters, Puan Hashimah
should seek for professional advice so as to reduce the occurrence of wrong transactions and
able to file proper documentation. For example, all documents must pre- numbered in order
to ease the audit trails.

In addition, according to Section 45 of Employees Provident Fund Act 1991, the employer
should held responsible to deduct and remit employees' EPF contribution to Employees
Provident Fund which did not done in this case and under provision of Employee Act, the
company should provide training to their employees to ensure them from time to time
compatible to their assigned job.

3.2 Operations Manager- Puan Balqis

As operation manager, Puan Balqis is responsible to ensure the operation of company run
smoothly by implementing a Standard Operating Procedure (SOP) and this SOP shall guide
the employees on performing their tasks and help in reducing the human errors. Furthermore,
she also responsible to prepare project budget and analysis for top management as a form of
report on operation so that top management able to react to significant issues faster.

3.3 Administration and Human Resource Manager- Encik Salam

As human resource manager, Encik Salam is responsible to recruit employees that are
compatible with the job (relevant knowledge and adequate experience). He should also
prepare the budget to provide training to staff if necessary to increase the efficiency and
effective work done. If needed he should also suggest the top management to recruit more
staffs. Nevertheless, he is also responsible to prepare wages properly with deduction of EPF
contribution.
3.4 Finance Executive - Cik Amy

With the knowledge of accounting, Cik Amy should advice top management on the need to
install latest financial software "MYOB" which able to automatically generate the needed
information that required by the management. She shall also involved in the design of
internal control since she knows the process of recording accounting transactions.
Furthermore, she shall cooperate with Puan Hashimah who previously handled the
accounting matters of the company in order to solve the problems occurred due to wrong
transaction and missing documents. She shall in effort provide complete and proper
documentation that required by auditor for the purpose of auditing. For example, rearrange
the documents in correct manner and pre- numbered, confirmed with Puan Hashimah on the
details of transactions that without proper documentation and reversed the wrong entries.

4.0 Question 3: Could the Audit be completed soon without any qualification?

4.1 Definition: Qualified Audit Report

Qualified audit report is issued when limitation of scope take place. This situation tend to be
happen when the auditor concludes that the overall financial statements present a true and fair
view but the scope of the audit has been materially restricted to situations in which the
financial statements are not stated in accordance with approved accounting standards or with
certain provisions of the Companies Act 1965 (Alvin A.A., 2011).

Besides that, qualified audit report also will be issued when the auditor disagrees with the
accounting treatment or disclosure of matter in financial statement. Then, this disagreement
will cause tension develop between auditors and management especially when high levels of
professional judgement are required. However, this would not affect the financial statement
from being fairly presented when taken as a whole (Mutalib, 2013).

4.2 Argument on Audit Completion without qualification

In this case, the audit could not be completed without any qualification since Encik Zayed
and Puan Hashimah did not want to accept the findings of auditors. Which, the audit could be
completed but with a qualified audit report due to several unresolved issues such as
RM250,000 from the Accounts Receivables Summary Report was wrongly enter into General
Ledger, and several pages of Accounts Receivables listing were missing. Then, EPF
contribution for contract workers were not deducted and remitted to EPF has violated post
employment benefit in MFRS 119 (Mutalib, 2013).

Encik Zayed and Puan Hashimah should understand the consequences if they terminate the
auditor, they may not able to receive audit report on time as required by the bank which is on
September 2006. Furthermore, if they choose a more "friendly" parties for auditing, the
quality of the audit report may be questioned which may lead to failure in applying bank
facilities from Malayan Banking Berhad and CIMB Bank Berhad.

On the other hand, the audit could be completed without any qualification if Encik Zayed and
Puan Hashimah give full collaboration to auditor and attend to the outstanding matters
objectively (coursehero).

As the Company Directors of Delima Enterprise Sdn Bhd, Encik Zayed and Puan Hashimah
must provide accurate information and answer all questions without bias to assist audit
process runs smoothly. Besides, they must ensure all document, records, evidence, and
information are provided and organized accordingly especially pre-numbered it for easy
reference and audit trail (coursehero).

Moreover, the reconstruction and reconciliation accounts that have been wrongly recorded
must be done. As director, they cannot fully rely on auditor because according to section 167
of the Companies Act 1965; every company and directors and managers must keep such
accounting and other records that would enable profit and loss accounts and balance sheet to
be prepare in true and fair from time to time (K&C, 1998).

The time needed to complete the audit process will expand if director unable to do his part.
From the case, Puan Hashimah (previously who handle the account records) should assist Cik
Amy to facilitate the audit completion by reconcile insignificant matter in accounting record
and reconstruct cash and bank balances; along with identify and make appropriate
adjustments for any human error in recording and any missing information in company
transaction.

Furthermore, Puan Hashimah must engage qualified employees with working experience to
do reconciliation and reconstruction account because Cik Amy as a new Finance Executive
unable fully responsible to do all the reconciliation and reconstruction account since she is a
fresh graduate with no working experience (coursehero)
5.0 Question 4: What should be done to improve the leadership and management of
Delima Enterprise Sdn Bhd?
Issues Solutions
Lack of competency can be seen from Thus, HR department should revise the recruitment
the case that head of department is policy and introduce competent employees, provide
leaded by unqualified staff like Puan job manual or description for all position that they
Balqis and Encik Salam. The action of offered, and practices selection process to boost
Encik Zayed that appointed his employees become more productive and
relatives Puan Balqis as Operation proficiency.
Manager and Encik Salam as
Administration and Human Resource
Manager may cause mismanagement
and improper administration

Inadequate job training can see from
the case that Encik Zayed was not
willing to commit and invest on
necessary training to enhance
knowledge of employees.
No budget planning was prepared by
Delima Enterprise Sdn Bhd.
Organizational chart was very lean,
roles and responsibilities of managers
were not clearly stated which caused
lack of control in management.
Encik Zayed and Puan Hashimah
were not familiar with Accounting
Standards and the provisions of the
Companies Act 1965, including their
roles and duties as Company
Directors.
Encik Zayed should spend more on training to
equip employees with proper knowledge practice
training such as e-training, monitoring programmes
and seminar, and job rotation so that Cik Amy
would not face difficulties to handle her job as
Finance Executive (Delima Case Study, 2016).
Encik Zayed can prepare simple budget planning
and can improve from time to time. Budget can be
used to compare the budgeted costs and actual
costs to see any variance which can help managers
to make efficient decision making.
The organizational chart should be drawn with
distinct functional department and all the positions
and functions should be clarified. It should be
properly drawn with distinct functional
departments to show distinct job description for
each department and several important positions
should be added to ensure effective and efficient
control.
Audit committee can be establish in Delima
Enterprise Sdn Bhd because audit committees able
to provide strong oversight on financial reporting
and internal controls. For example, Delima
Enterprise Sdn Bhd can upholding the integrity of
financial reporting by establish audit committee.
Besides that, Encik Zayed and Puan Hashimah
need to go for training to equip themselves with
expected knowledge, skills and experience as
stated in Section 132(1A) of CA 1965. For
example, through training both of them able to

Internal Control
Issues
1. There was no segregation of
duties in Delima Enterprise
Sdn Bhd. From the case, Encik
Zayed does not segregate
management duties equally in
accordance to their skills and
experience. For example, Cik
Amy assigned numerous of
workloads that not match to her
skills, and Puan Hashimah
responsible for approval and
payment of salaries.
2. The employees prepared their
timesheets without
supervision.
3. Documents were not properly
pre-numbered, recorded and
documented. From the case
show that sales invoices and
purchase order were manually
prepared and not pre-
numbered. Then, auditor found
that the records were not
organized and filed
accordingly.
4. Employees prepared their Manually prepared timesheet by employees were
timesheet manually.
update on the law, regulations and accounting
standards which had caused poor corporate
governance.
Solutions
Delima Enterprise Sdn Bhd must implement
segregation of duties to prevent various intentional
and unintentional misstatements. For example,
Encik Zayed should equally segregate Cik Amy
workloads to other employees according to relevant
job descriptions such as account payables and
receivables can be performed by different
personnel.
Besides, Encik Zayed should assign different
employees to different position so that issue of
Puan Hashimah can be prevent, at the same time
can prevent task redundancy, negligence, fraud,
inefficiency, power abuse and work delay to occur
within company.
The management should review the adequacy of
internal controls and assign supervisor to manage
the timesheets for the employees, thus can prevent
any loss and fictitious attendance of employees.
Documents such as sales invoice and purchase
order should be properly pre-numbered by using
sequential code, block code, group code, and
mnemonic code to prevent failure to bill or record
sales and the occurrence of duplicate billings and
recordings (Hall, 2016).
traditional method which normally not accurate and
will be wrongly calculate and paid over (Hall,
2016). So, management can use punch card; assess
card, time clock machine or thumbprint to
supervise time in and out of employees.
5. Monthly Statement of
Accounts was not sent to
customers on a monthly
basisonly being prepared and
send to customer when the
payment had been long
outstanding. This will lead to
increase in the amount of bad
debts and unrecorded amount
of receivables.
6. There was no Standard
Operating Procedure (SOP) in
place and all decisions were
made and authorized by either
Encik Zayed or Puan
Hashimah.
The statement is a detailed report of the contents of
an account. Statement of account sent to customer
in order to show billings to and payments from the
customer during a specific time period, resulting in
an ending balance
Sending monthly statement also a useful control
because it encourages customers to respond if the
balance is incorrectly stated and help to collect debt
in timely manner. So, statement of account should
be always be updated and prepare periodically to
prevent any fraud or error.
Delima Enterprise Sdn Bhd should implement
proper Standard Operating Procedure (SOP) to
increase efficiency and consistence in performing
task so that internal control issues such as
withdrawal of companys money, and decision and
authorization made by directors that are without
proper documentation can be avoided.
Encik Zayed can introduce extensive set of
Standard operating procedures (SOPs) because
SOP are step-by-step instructions that act as
guidelines for employee work processes to
achieve goals without deviation and provide
details of information for controls for auditor to
monitor transaction and asset movement.
 The Proposed Organisation Chart

Encik Zayed &

Puan Hashimah

Executive
Director

Chief Operating
Officer (New
position)

Finance Puan Balqis Encik Salam

Manager
Operation HR & Admin
(New
manager manager

Cik Amy Project Clerical

supervisor Assistant
Finance

Clerical Clerical
Assistant Assistant