Case Study: Delima Enterprise

Delima Enterprise was founded in 1981 by Encik Zayed. It had conducted trading and supplying related products including manpower supplies to the oil and gas industries. Subsequently in 2004, due to encouraging business growth the enterprise was incorporated as Delima Enterprise Sdn Bhd. The two principal shareholders and controlling directors were Encik Zayed and Puan Hashimah (husband and wife). The company activities had expanded into provision of engineering services as part of their business diversification and expansion plans. The company corporate mission was to become a leading service contractor and provide quality products and excellent services.

Since 2006, the company had been awarded with several engineering projects and its cumulative revenue for 2004 and 2005 were nearly RM1.0 million and RM1.7 million respectively. The company had maintained a very lean organisation with basic functional positions, with Encik Zayed as the Managing Director and his wife Puan Hashimah as the Chief Operating Officer. The other personnel were Puan Balqis, the Operations Manager and Encik Salam, the Administration and Human Resource Manager. Both Puan Balqis and Encik Salam were family members of the Directors. Encik Zayed and Puan Hashimah were self made business owners with only secondary school background and likewise, Puan Balqis and Encik Salam.

In May 2006, the company had employed Cik Amy, a young Accounting graduate as Finance Executive responsible for maintenance of the accounting and financial matters, including the preparation of accounts. Prior to Cik Amys appointment, Puan Hashimah was responsible for all finance related matters. Cik Amy graduated from a local university since April 2006 and had no working experiences.

In May 2006, the company had secured a contract worth RM750,000 to be implemented over a duration of six months. Due to shortage of funds, the company had submitted applications to Malayan Banking Berhad and CIMB Bank Berhad for banking facilities totaling RM1 million. The banks required the companys past two years Audited Financial Statements and this was when Encik Zayed realised that the company had not performed the statutory audit. A friend had introduced to Encik Zayed an audit firm and shortly after, Aziz & Co (Chartered Accountant) was engaged to perform the audit. The audit was targeted to be completed at the earliest possible to meet the banks requirement.

All accounting records were maintained using the standard financial software MYOB. The programme was not integrated [the data was not processed and generated automatically) between several modules namely Procurement, HR, Accounts Payables (AP), Accounts Receivables (AR) and Cash Book (CB)]. At every end of accounting period, information summary generated by all purchases, accounts receivables and payroll transactions were updated and entered into the general ledger (GL) system.

The Sales invoices were manually produced when orders were received and the job was completed, while the manual sales invoices were not pre-numbered. One copy of the sales invoices was attached to the delivery order for the customer and the other copy was used to update the sales records.

Collections from the customers were received via cheques and cash and not all payments from customers were received in full. Monthly Statement of Accounts was not sent to customers on a monthly basis. Instead, it was done as and when the payment had been long outstanding.

Likewise, the purchase orders (PO) were also manually prepared and not pre-numbered. The original PO was issued to the suppliers or services providers and a copy was retained for record and GL system update.

The employees prepared their timesheets when they arrived at work and recorded the time they leave the office, manually. At the end of every week, the employee timesheets were sent to Ms Fatima for approval and payment of salaries. The company also paid their general workers in cash on a weekly basis. It was therefore not unusual to withdraw large sums of cash from the local banks when needed.

Required:

1. As an auditor, you need to discuss FIVE (5) audit findings from Delima Enterprise case.

(20 marks)

2. From the above analysis, suggest THREE (3) recommendations to improve the problems.

(15 marks)

3. Explain TWO (2) importance of documentation.

(5 marks)