Case study

Chicken Run

Encik Selamat, a Certified Public Accountant (CPA), had been the General Manager of Excel Poultry & Meat Sdn Bhd (EPM), a subsidiary of PCK Holding, since 2005. The set up was a small and medium sized enterprise (SME) located in Kluang, Johor. Encik Selamat was transferred from another subsidiary of the same group, which dealt in the business of transportation. He was initially reluctant to accept the current position due to his lack of expertise in poultry and the meat industry. He changed his mind afterwards as he considered the job as a promotion that would add to his basket of skills and expertise. With this prospect in mind and on the premise that the new position would be a challenge in his career, unhesitatingly, he began his function as the General Manager (GM). The career track had been smooth until the closing of the year 2008 when the company has presently helmed faced operational crises. The “chicken-run” saga pictured a case that was familiar with respect of management of small and medium sized industry, at the infant stage when there was a lack of focus on the important considerations for proper running of business operations.

The Company’s Operations

With an initial capital of RM3.6 million and starting with 20 employees, EPM now had more than 200 employees within the organization and started positioning itself amongst the top 5 chicken suppliers, in the mid-tier producers in the country. The company was able to maintain its operations and started to make profits in the poultry and meat industry since the demand for chicken remained buoyant.

In retrospect, early 2000 saw giant superstores mushrooming throughout the country, with brand names like Giant, Tesco, Macro, Carrefour and the like. Encik Selamat was excited about the prospects of applying his marketing skills acquired in his former job. Together with his management team, he established good promotional strategies and closely managed all functional units. Demand from the superstores continued and was spread to institutional retailing, a different market segment like hospitals, hotels as well as university colleges. After a two-year term on board the company, his contract was renewed with an increase in salary and perquisites. This was when Encik Selamat thought that it was time to be actively involved in social and community work that in turn benefit the company. He started to delegate some of the functions which he has closely monitored over the years, to talented and trusted young “star staff”, while he focused on the expansion strategy. One of such persons was Encik Kassim who was trusted to

manage the finances of the company and also part of EPM’s marketing think tank. Being a qualified accountant, he had had a good exposure in one of the big four.

The development of the company in late 2008 had puzzled 困 惑 Encik Selamat. He was especially concerned to note a report, which indicated that the operating cash was systematically running low. He was also especially worried on the severity of the matter, in

which the company had to in in order to meet its operating obligations. This may in turn increase its financial obligations in terms of interest payments. He later faced pressure from the company’s Board of Directors requesting a meeting be convened and demanded for explanations on the root cause of the problems. In the meantime, Credit Controller Ms Choy discovered from the aging analysis of customers that the credit limit of Cold Gold Sdn Bhd, one of its major customers had gone into its level and yet the marketing department continued to supply products to the company. This exacerbated the existing operating loss faced by the company. “Of course, the major culprit is the exorbitant price of chicken feed. Then again, this is an entirely separate issue’, she thought.

Upon investigations, the marketing department informed her that they had followed the instruction from Encik Selamat. The matter was later brought to the immediate attention of Encik Selamat. During the discussion, Ms Choy was informed that he was equally concerned and had promised that he “will look into it”.

The following day, Encik Selamat had a meeting with one of the executive directors of Cold Gold Sdn Bhd, Encik Azmad, who was his best friends during college days. He had asked for Cold Gold Sdn Bhd to possibly pay part of the payment, if not full settlement of the overdue account. “You are one of our big accounts and I personally benefited from the deal. I really appreciate that. I am pretty sure that you are aware that the account has been outstanding for a substantial period of time and the amount is relatively significant. Things would be difficult if the BOD asked me to proceed with legal suits. Of course, we don’t want that to happen, right? I really treasure our comradeship and I trust you to look into it.” These were among the conversations that transpired between this former college mates.

In the meantime, while having her lunch with Puan Azura (Accounts Executive), Ms Choy told her concerns about Cold Gold Sdn Bhd accounts. Since it was almost towards the closing of the financial year, Puan Azura considered that it was timely to send reminders to customers with outstanding balances in respect of their accounts. This, she thought was important and Puan Azura needed to keep the books in order prior to the auditors’ visit the following month. Ms Choy

supported her action since she was also concerned on possible irregularities in the accounts. Puan Azura also received a report from Encik Kassim on performance analysis of the Company for the past 3 years. The abstract of the accounts is shown below:

Particular/Year	2006 (RM million)	2007 (RM million)	2008 (RM million)
Revenue	54.70	55.01	74.90
Cost of Sales	51.70	54.10	74.09
Operating profit/(loss)	3.00	0.91	0.81
Expenses	0.80	1.10	1.60
Net profit/(Loss)	2.20	(0.19)	(0.79)
Trade Receivables	12.70	16.20	26.0
Stock	3.10	1.50	2.60
Trade Creditor	18.50	30.00	45.0

A few weeks later, Puan Azura prepared and submitted a report to Ms Choy based on the debtors’ responses. The report comforted Ms Choy as her concern for possible irregularities in the accounts was unfounded. However, this was short-lived. Mr Siva, one of the retails customer with a small account came by the office. He approached her, complaining that the figures on the statement of accounts sent to him were incorrect. He continued by saying that he had no outstanding balance in his account as cash payments had been made to Encik Munir (one of the former staff at the finance department). Ms Choy was confused with the entire scenario, especially after seeing confirmation letters that had come back with figures that did not tie up with balances in the accounts. Ms Choy approached one of the company directors and highlighted the fiasco, only to discover about the “deal” between Encik Selamat with one of the Cold Gold Sdn Bhd’s directors. The director was reluctant to take any action against Encik Selamat, since he was very “well-connected” and had good reputation at the previous company.

It was also made known that both Encik Selamat and Encik Azman were ambitious and influential public figures in the local community. A revelation of such problems could reduce their opportunity to become the community representatives in the local city council they were vying for at that time. These, coupled with Encik Selamat’s strong connections with board members at the parent company; and the fact that Encik Munir had not disclosed the receipts of payments from customers, although last thing she needed was her relationship the GM to turn sour or worse still to involve the media. While driving home from office one evening, Ms Choy took a deep sigh. The office debacles were winding her mind. In the midst of all these, a big questions mark popped up, “What else can go wrong?”

can you answer this questions

The problems faced by EPMSB in terms of:
a) Financial
b) Leadership
c) Internal control
d) Corporate Affairs