Rampant Fraudulent Activities Can Destroy Company's Hard-earned Wealth, Says Author, Ex-chartered Accountant

By Mikhail Raj Abdullah

KUALA LUMPUR, Jan 8 (Bernama) -- A former chartered accountant with extensive service in the private sector has warned that the hard-earned wealth of a company can be destroyed by rampant fraudulent activities committed by sheer dishonest people.

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Panirselvam Ayadurai said that people in higher positions and power usually use their authority to mislead others in the organisation into accepting unauthorised transactions and using the outgoing cash flows for their own financial benefit.

“Shareholders lose out if these unethical practices are not rooted out of the company’s system,” Panirselvam, who was also a lecturer at a private university, told Bernama after the launch of his book entitled “Essentials of Financial Accounting” here today.

The 428-page accounting book was written together with his daughter Gayatri Panirselvam.

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Instances of further corporate fraud include buying assets that do not exist in physical substance but on paper, and they are treated falsely as company assets.

A car, for example, whose registration might not be in the company’s name but held in the person’s trust without proper authority, he said.

Citing the massive financial scandals that befell Enron and WorldCom in the United States (US) and similar scandals in Malaysia, he said ethics in financial accounting is paramount to protecting shareholders’ wealth and enhancing share value.

Therefore, it is important that financial accounting is done free of any undue adverse influence, as the transactions and events are based on actual and verifiable documentary evidence.

He said corporate frauds were committed by humans who were possessed by unchecked greed and lacked moral conscience, resorting to falsifying transactions that did not take place or existing unauthenticated documents to represent business transactions on paper but not in substance.

Enron was an energy trading company and the seventh largest company in the US, which filed for bankruptcy in 2001 after being embroiled in the biggest scandal in the history of American finance while telecommunications company WorldCom was also involved in one of the largest accounting scandals.

Back home, the IMDB scandal was Malaysia’s biggest financial scandal, involving losses amounting to billions of ringgit.

Panirselvam said it was not the systems and internal controls that were in question but corporate figures and those lacking conscience and professional integrity who committed such fraudulent activities so that they could gain financially using their position of advantage. 

In this context, he stressed a company’s reporting of its finances and other non-related issues might be jeopardised if influenced by unethical practices, adding that any reliance on such tainted corporate reports could have serious consequences for the company, its products and services and the future viability of its business.

He also cautioned that these days, computer systems could be subject to easy access for stealing information and using such information to gain financial advantage by using a company’s assets and tools.

As such, internal audits have a serious duty to ensure that all critical risk areas in the organisation are subject to audit checks as frequently as possible, said Panirselvam, adding that authorisation and policy limits on transactions should be reviewed on a regular basis.

Touching on the accounting book, he said the financial reporting of private entities or small and medium enterprises in Malaysia is given a special emphasis.

The book provides an essential study text for any accounting student, reflects the current trend in financial accounting practice in Malaysia and enables aspiring students to gain a better understanding of the world of business.

-- BERNAMA