Monday 11 January 2010

Directors Need to be Concern About Risk of Fraud

When 49% of companies in Malaysia which were surveyed by KMPG experience at least one incidence of fraud, directors who are ultimately responsible for the good governance of companies should take the risk seriously.

The Head of KPMG Forensic Malaysia, Tan Kim Chuan said the threat of fraud came mostly from within the organisation.

"The theft of physical assets appeared to be a popular category of fraud perpetrated among non-management level employees and external parties. Management level employees were more prone to committing the theft of funds (outgoing)," Tan highlighted.

Companies must set up the necessary systems and processes to enhance their ability to pre-empt and detect frauds, said Securities Commission Malaysia (SC) chairman Tan Sri Zarinah Anwar.

Zarinah said laws and regulations alone would not completely insulate investors against poor governance practices or fraud, but it was important that these were kept updated and that regulatory and enforcement agencies had the requisite powers to institute action to protect innocent investors from unscrupulous conduct.

A natural consequences arising from fraud would be fraudulent financial reporting as the culprits would try to cover their acts by ensuring the financial statements indicate a different picture. Unless directors ensure a rigorous fraud detection process to be in place, the effect to the reputation of the company would be severe when the fraud is later discovered and the fact that no serious attempt to prevent and detect fraud is known to the public.

Having programmes which promote integrity and good governance among the people in the organisation is one of the ways to combat this issue. Furthermore, the directors and senior management should lead by example in demonstrating conducts and behaviours which are exemplary and re-in force the values of the organisation.

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