case study DELIMA

1. INDIVIDUAL WRITEUP
From legal perspective, were there any abuses of power by the management and breach of
fiduciary on the part of directors?
There are abusesof powerbythe management and breach of director’s fiduciary duty in DESB. The
controllingdirectors,EnZayedandPnHashimahtriedtonegotiate withthe Auditortonotqualifythe
Financial Statement. They planned to terminate the auditor’s appointment and appoint a new
“friendly party’’ auditor who can cooperate with them. The directors showed the intention to
commit fraud and they definitely did not act in the best interest of the company. According to
Section 132(1) of Companies Act 1965, a director of a company shall at all time exercise his power
for a proper purpose and in good faith in the best interest of the company. The directors had gone
against the provision in the Companies Act 1965.
Besidesthatthe directorshadalsochargedtheir personal vehicle expenses on the company. There
were alsowithdrawalsof company’smoneywithoutproperdocumentation. Section 132(2)(a) of CA
1965 stated that the director cannot simply use the company’s property or asset. The directors’
action had breached their fiduciary duties stated in the CA 1965.
Theywere alsonot familiarwithAccountingStandardsandthe provisionof the Companies Act 1965,
including their roles and duties as Company Directors. Section 132(1A) of CA 1965 stated that the
director are expected to have knowledge, skill and experience.
In additiontothat,En Zayedand PnHashimahalsowishedto remove the present auditor, Aziz & Co
before the expiration of their term from the office without a proper procedure. Section 172 of CA
1965 stated that only the shareholders can remove the auditor before the expiration of his terms
with the required passing of ordinary resolution at general meeting with special notice of 28 days
given to the auditor.

2. Discuss the importance of segregation of duties. Limit your discussion into three (3) points only.
Delima Enterprise Sdn. Bhd. was a large company due to these reasons; the company had been
awarded with several engineering projects and its cumulative revenue for 2004 and 2005 were
nearlyRM1 millionandRM1.7 millionrespectively.Byreferringthatreasons,we can say that it was
a large company. As a large company, the shareholders are separated from Board of Director and
management.
1. There is no separation or segregations of duties between shareholder and management.
Segregation of duties means assign two or more competent and qualified individuals in a
way that provides reasonable assurance comply with the standards. It means, at any time,
no one personshouldbe inpositionof doingthe primaryfunctionsof authorizing, recording
and taking care the custody of assets. Besides, shareholders and director have two
completely different roles in company. Shareholders are owner of the company while
director manage the company.
From whatwe can see in thiscase,EncikZayedis the shareholder of DESB, in the same time
he act as Managing Director. Meanwhile PuanHashimah is the shareholder of DESB, in the
same time she act as Chief Operating Officer. Before the company hire Cik Amy as Finance
Executive, PuanHashimah was responsible for all finance related matters. There is clearly
stated that they do not have segregation of rights and duties between shareholder and
management.
2. There isno segregationof dutieswhenthe employeesitselfpreparedtheir timesheet when
theyarrivedat workand recordedthe time theyleave the office,manually.The possibilityof
employees will cheat their time in and time out would increase because the record is not
checkedbyanothercolleague.Itsupposeddifferent individuals be assigned to record their
timesheet or the company could apply punch card system to avoid fraud.
3. The company againdoesnotapplythe segregationof dutieswhenatthe endof everyweek,
the employee timesheets were sent to PuanHshimah who is also the shareholder of
company and Chief Operating Officer for approval and payment of salaries. It means that
PuanHashimahhasfourresponsibilities in DESB. Company must assign other officer who is
responsible to manage approval and payment of salaries to avoid any error, confusion,
misplace, misstatement and fraud.
Hence, from the several situations that we have gone through, there are many important of
separationof rightand dutiesbetweenshareholderandmanagement.Firstly, management of large
company has to depend on formal internal control for reliability of records and other information.
Therefore, no one person should sees the transaction through from the beginning to the end on
theirown.Thisisto avoiderror and fraud.Besidesthat,due to size of business, management could
not personally ensure the accuracy,completeness,andvalidityonmostactioncarriedout by them if
there is no segregation of duties.

3. Suggest with explanations five areas where segregation of duties can be implemented in Delima
Enterprise.
Firstly, the company must implement segregation of duties. EncikZayed should assign different
employees to different position so that each task would be carried out by different individuals.
1. Fixed assets
In custody of assets the employees responsible for purchases or disposals of fixed assets
shouldnothave an access to recordtransactionsinthe fixed asset ledger. The useful life of
the fixedasset(i.e.the life overwhichassetisdepreciated) should be determined based on
generallyacceptedaccountingprinciples and entered in the system by a finance employee
responsible formaintainingthe fixedassetledger.Fixedassetdisposalsshouldbe made after
reviewandauthorizationfrom a supervisory-level employee. Periodical physical counts of
assets should be conducted by employees without record-keeping or authorization
responsibilities,suchasa finance departmentoran outside inventoryservice.Adjustmentto
the fixedassetsystem should be reviewed and approved by a supervisory-level employee
whois notinvolvedinthe physical countof the fixedandmaintenance of fixedassetsystem.
The reconciliationof the general ledgerfixedassetbalance tothe fixed asset system should
be completed by someone who does not maintain the fixed asset system. Account
reconciliationsshouldbe reviewedandapprovedbysomeone otherthanthe preparerof the
reconciliation.
2. Record keeping
While forrecordkeeping,the employee whoisresponsible forthe receiptof cashshouldnot
have access to record or authorize transactions in the accounts receivable ledger and
customer accounts. In addition, the person receiving the cash or preparing the deposit
should not be responsible for recording cash transactions or preparing the preparing the
bankreconciliation. The employeepreparingshouldnotbe responsiblefor cash transactions
inthe accountreceivable ledgerandcustomeraccounts.Inaddition,the bank reconciliation
should be prepared by an employee who is not involved in cash receipt or cash
disbursement activities. The Adjustments and write-offs to customer accounts should be
reviewed and approved by an employee who does not have responsibility for recording
these transactions. In addition, this employee should not be responsible for preparing the
reconciliation of the accounts receivable subsidiary ledger to the general ledger accounts
receivable subsidiary ledger to the general ledger account balance. The preparer of bank
reconciliationsshouldnothave the responsibilityforrecordingcashreceiptor disbursement
transactions. In addition, bank reconciliations should be reviewed and approved by an
employeeotherthan preparer. As a best practice, the reviewer should be in a supervisory-
level position.
3. Computerize system
As forautomation or computerised system, there should be segregation between systems
developmentandoperations,operationsanddatacontrol,and data base administrationand
system development. The employee responsible for designing and implementing
information system cannot be the same person as the person responsible for testing the
system, conducting system audits, or monitoring and reporting on systems. Secondly, the
management should provide necessary training to all the employees so that they could be
more efficientinperformingtheirjobs.The directorstoomustequipthemselveswith all the
necessary knowledge and skills to lead the company. En Zayed should spend more on

4. training to equip the employees with proper knowledge. The management too must hire
people thathave goodacademicqualifications&relevant experiences. The qualifications of
the candidates must be emphasized so that they can carry out their tasks well. Cik Amy
should be send for further training to enhanced her understanding in relation to her job
description and competency to perform her job. The management should enrol her to a
short course designated to improve work efficiency and effectiveness in any local
institutions.
4. Standard of Procedure
Besides that, the company should create and implement Standard Operating Procedure
(SOP) forall transactionsrelatedtoeach department in the company.The purpose of SOP is
to ensure that the processing of financial documents is consistent and to describe the
procedure of processingof financial documents. This SOP applies to the whole department
processes. It is the responsibilities of the manager of each department to ensure that the
procedure is being applied to his/her own department. For example on the authorization
part, each department should nominate at least two senior as their Authorized Contact
Officials.Anyimportantdocumentrequiresverificationfromboth authorization and both or
one of them is not signed, it shall not be entertained.
5. Timesheets
The employeespreparedtheirtimesheetsbytheirownwithout any manager authorization.
PuanHasimah approved and made payment of the salaries. Supervision should be done in
regular basis. Finance manager should prepare worksheet to verify the performance of
finance department staff independently. Supervisor must be hired to evaluate the time in
and time out or the performance of DESB employees. They must not prepare their own
timesheet anymore.They may as well use a punch card system.