Professional Documents
Culture Documents
1Malaysia Development Berhad, or 1MDB, was founded in 2009 just four months after Najib
Razakbecame Prime Minister of Malaysia. Ensnared in the scandal, he later lost reelection and was
charged with abuse of power and criminal breach of trust in relation to SRC International, a former
1MDB unit. Najib pleaded not guilty charges and has consistently denied any wrongdoing in relation
to 1MDB.The fund was originally set up to finance infrastructure and other economy-linked deals in
Malaysia.But the fund veered into lavish spending, producing films such as “The Wolf of Wall Street”
and buying casinos, champagne and “Dustheads,” a painting by US artist Jean-Michel BasquiatAn
estimated $4.5 billion was misappropriated from 1MDB by high-level officials and their associates
between 2009 and 2014, the US Department of Justice has alleged. Razak has consistently denied
wrongdoing. The scandal spreads across a number of companies and financial institutions with eye-
watering sums involvedIn 2012, officials from 1MDB met with Goldman Sachs in Hong Kong to
discuss a bond deal which would eventually lead to mega fees for the bank (and now, potentially,
mega fines). Goldman raised $6.5 billion for the fund. Malaysia’s government said it will seek “well in
excess” of the $2.7 billion it says was misappropriated, as well as the $600 million Goldman earned
in feesBetween 2012 and 2013, Goldman arranged three bonds worth $6.5 billion for 1MDB with
fees totalling $593 million, or 9% of the total, higher than the average fees paid on such deals,
according to critics.Malaysian prosecutors say that Goldman Sachs made untrue statements and
omitted key facts in offering circulars for the bonds it sold for Malaysian state fund 1MDb
The 1Malaysia Development Berhad scandal or 1MDB scandal is an ongoing political scandal
occurring in Malaysia. In 2015, Malaysia's then-Prime Minister Najib Razak was accused of
channelling over RM 2.67 billion (≈ US$700 million) from 1Malaysia Development Berhad (1MDB), a
government-run strategic development company, to his personal bank accounts.[1] The event
triggered widespread criticism among Malaysians, with many calling for Najib Razak's resignation –
including Dr. Mahathir Mohamad, one of Najib's predecessors as Prime Minister, who eventually
defeated Najib to return to power after the 2018 general election.
According to the records held by the companies commission, the company "has no business address
and no appointed auditor and according to its publicly filed accounts, 1MDB has nearly RM 42 billion
(US$11.73 billion) in debt. Some of this debt resulted from a $3 billion state-guaranteed 2013 bond
issue led by Goldman Sachs, who is believed to have made as much as $300 million in fees from that
deal alone, although it disputes this figure.[4] Conference of Rulers in Malaysia has called for the
investigations by the government to be completed as soon as possible, saying that the issue is
causing a crisis of confidence in Malaysia.
1Malaysia Development Berhad (1MDB), the Malaysian sovereign wealth fund described by then-
U.S. Attorney General Jeff Sessions in December 2017, as “kleptocracy at its worst,” started off as a
“Malaysian strategic development company,” according to its website, which has since been shut
down. At the very core of the 1MDB scandal was the “less than satisfactory corporate governance
and internal controls,” as reported by the former Malaysian Auditor General Ambrin Buang in the
1MDB audit report.
Interview
Where:
Depending on results, it could be established if a company is subject, more or less, to insolvency risk
and then to bankruptcy risk, or not. When zscore is above 2.99, the company is in a “safe zone”;
rather, when the result is under 1.81, the company is in a “distress zone”, that is considered as a
dangerous area. Finally, when z-score gives a value between 2.99 and 1.81 that is a grey zone where
results are not certain, and they should be vetted with more analysis.
Beneish’s M-score
M-score model, along with Altman’s z-score and Benford’s law, is a valid tool in fraud
detection. This mathematical method, consists in eight variables that identify financial fraud
events or the tendency of a company to manipulate accounting data. The variables are
represented by actual data contained inside the balance sheet, and once put together they
prove the earning management rate.
The M-score variables are: SGI (Sales Growth Index), GMI (Gross Margin Index), AQI
(Assets Quality Index), DSRI (Days' Sales in Receivables Index), SGAI (Sales, General &
Administrative Expenses Index), DEPI (Depreciation Index), LVGI (Leverage Index) and
TATA (Total Accrual to Total Assets). Once the financial indicators are calculated, the next
step is using them inside the linear regression:
M-SCORE = -4.84 + 0.92 DSRI + 0.528 GMI + 0.404 AQI + 0.892 SGI + 0.115 DEPI –
0.172 SGAI + 4.679 =TATA – 0.327 LVGI
For values under -2.22, the company do not have manipulated accounting data; whereas,
when the m-score is over -2.22 it highlights that, likely, the company could have used earning
management practices. Beneish’s indicator is very useful to identify who manipulated data
and the areas where they operated earning management policies. Therefore, statistical
methods such as Benford’s law, Altman’s z-score and Beneish’s Mscore revealed themselves
to be useful and valid inside the process of fraud detection of 1MBD. Professional figures
involved in fraud detection, use other tools beyond the analytical ones.
The term “whistleblowing” has been coined by Ralph Nader in the 1970s during his
investigative activities. The whistleblower existed, in the corporate world, long before Nader
give him the name, however, more negative terms were used, for example, “snitch” or
“informant”. Cambridge Dictionary defines whistleblower as “a person who tells someone in
authority about something illegal that is happening, especially in a government department or
a company”. Furthermore, usually in most circumstances, the Hermanson capability plays a
fundamental role in the fraud, because it allows the fraudster the opportunity to commit fraud
without the risk of getting caught. Among the elements that characterise most capability, we
have intelligence, ego, top position inside a company, ability to lie and to manage stress.
Fraud triangle
The last method used to detect accounting fraud, and fraud in general, is the fraud triangle.
Fraud triangle theory has been hypothesized for the first time by Cressey (1953), and then it
has been resumed by Albrecht (1984). This theory sees fraud as a combination of three
elements: opportunity, pressure, and rationalizati on.
The first component is pressure. Even though we are not all predisposed to commit crimes,
once we face a need or the right pressure (financial, environmental or personal) we could be
able to perpetrate a fraud. Along with pressure, there is an opportunity, linked with personal
capabilities, and rationalization too, that is the most important because it allows the fraudster
to blame the system or someone else for his actions. With the use of the fraud triangle inside
the process of detection, it is possible to identify those red flags that, once put together, could
show fraudulent behaviours
Fraud analytics
Sampling
Sampling is mandatory for certain processes of fraud detection. Sampling will be
more effective where there a lot of data population involved.
Repetitive or Continuous Analysis
Repetitive or Competitive Analysis means creating and setting up scripts to run
against big volume of data to identify the frauds as they occur over a period of time.
Run the script every day to go through all the transactions and get periodic
notification regarding the frauds. This method can help in improving the overall
efficiency and consistency of fraud detection processes.
Analytics Techniques
Analytic techniques help you to find out frauds that are not normal
Calculate Statistical parameters to find out values that exceed averages of standard
deviation. Look at high and low values and find out the anomalies there. Such
anomalies are often the indicators of fraud
Fraud Detection Predictive Analytics for big data
Predictive analytics uses text analytics and sentiment analysis to look at big data for
fraud detection. Predictive analysis has been widely used by a lot of organizations as
it helps in proactively detecting frauds. In the beginning Predictive analysis was used
to analyze statistical information stored in the structured databases but now it is
extended to the big data realm.
1. Accounting anomalies
2. Internal control weaknesses
3. Analytical anomalies
4. Extravagant lifestyle
5. Unusual behavior
6. Tips and complaints