Case study on evidence of corporate fraud

1、 Company profile
The two companies in Malaysia are Transmile group Bhd and Megan media Bhd.
The activities of the two companies have made them labeled as small benefactors in
Malaysia. Transmile group Bhd was incorporated in 1993 and subsequently listed on
the Malaysian stock exchange in June 1997. The main business of this business is air
express and has obtained landing rights in many Asia Pacific countries. The
company's customers include mature freight forwarders, such as DHL Global Express,
United package service, Nippon express and local pos Malaysia Bhd. Other related
business activities operated by its subsidiaries include flight maintenance. Since
Alibaba's largest shareholder is one of China's well-known billionaires and China's
second largest state-owned investment institution, its stock has always been in the
focus of analysts and institutional investors. In 2006, the company was rated as Asia's
top 200 small and medium-sized enterprises by Forbes magazine, a famous business
publication. Megan media Bhd was incorporated in 1994 and listed under the second
board of directors in August 2000. In 2002, it moved to the main board of the
exchange. The main business of the company and its subsidiaries is to manufacture
and sell electronic data storage products, such as magnetic disks, video tapes and
recordable optical discs. The company is the first to gain a national pioneer position
because it is the largest data storage product manufacturer in Malaysia.
2、 Case scenario involved
Transmile group Bhd failed to submit its 2006 annual report to the stock
exchange before the deadline in April 2007, which made the public aware of the
company's "do it yourself" early warning signal. This is because the external auditor
did not want to sign the accounts because he was unable to obtain the necessary
evidence of transactions related to trade receivables and the sale and purchase of the
property, plant and equipment of the company and its subsidiaries.
Transmile's "accounting" behavior shocked the local securities market. The
signal of accounting irregularities became well known in April 2007, when its two
subsidiaries defaulted on payment of rm893.97 million (principal) for all due trade
financing received from local banks.
In July 2007, due to its large liabilities, Transmile group Bhd announced the
liquidation of its subsidiaries. Finally, the shareholders suffered investment losses due
to the sharp decline of the company's share price, which peaked at rm14.40 on
January 3, 2007 and fell to rm4.64 on July 3, 2007, and has been lower than RM0.50
since March 2010 (oh, 2010). On May 24, 2011, the company was delisted from the
exchange. In addition, shareholders' funds decreased from rm424 million in 2007 to a
negative amount of rm289 million and a market value loss of rm1.2 billion.
One year after the exposure of the Transmile case, Megan media Bhd shocked
the local securities market by its "accounting" behavior. The signal of accounting
irregularities became well known in April 2007, when its two subsidiaries defaulted
on payment of rm893.97 million (principal) for all due trade financing received from
local banks. Loss of rm1.27 billion and negative cash flow of rm897 million. As a
result, the company could not survive because of its deteriorating financial situation
and was delisted in April 2008.
3、 Actual impact
First of all, this behavior has seriously damaged the integrity of the accounting
industry. Honesty and trustworthiness is the basic requirement of social morality and
the most basic code of ethics of every citizen. As accountants and accountants who
often deal with money, they should put honesty first and reflect economic activities
truly and objectively.
Secondly, this behavior gives birth to economic crime. It will not only destroy
the market economic order and lead to the mistakes of macro-control and micro
decision-making, but also provide convenience for economic criminal activities, breed
corruption, and even increase social instability factors, and finally disrupt social
economic relations and social and economic order.
Finally, this behavior will attack the confidence of investors, which not only
damages the interests of investors, but also hinders the healthy development of the
securities market.
 4、 Social impact
1. Seriously affect the people's sense of security. With the continuous
development of the information age, while network information brings convenience to
people's lives, it also opens up new ways for many criminals to commit crimes.
Because the network itself is virtual and anonymous, many criminals can carry out
wanton criminal acts, and the scope of criminal acts is becoming larger and larger.
According to the statistics of global network fraud cases, the number of network fraud
cases is increasing significantly every year, The amount of fraud is also increasing
exponentially, which has seriously affected the people's sense of security.
2. The fuse of social contradictions. Once a fraud case occurs, there will be at
least hundreds of dollars, or even hundreds of millions. If it involves the company
fraud, it will involve greater economic losses. In the fraud event, there will be victims
for the perpetrators of fraud. Because the fraud event has not been detected or the
damaged property has not been recovered, the victims often express dissatisfaction
with the public security organ, which has seriously affected the people's satisfaction
with the public security work, Sometimes it even produces negative emotions and
even extreme retaliation, which has become the fuse of social contradictions.
3. Shock wave of traditional reconnaissance. Network fraud cases are new cases,
so network fraud cases break through the temporal and spatial characteristics of
traditional crimes and separate the place of behavior from the result. Therefore, in the
process of detecting fraud cases, public security organs often involve banks and other
departments, and the connection of these departments in real life is not one, so it is
difficult for the investigation methods of public security organs to be smoothly
implemented among various departments.
5、 Financial implications
The impact of this activity is the loss of shareholders' funds and delisting of the
exchange. As far as Enron is concerned, shareholders' funds exceed $11 billion. The
total losses of both companies exceeded RM1 billion. However, at the time of
publication, the legal punishment was only a small part of the total losses suffered by
the enterprise and its shareholders. In the case of Transmile, shareholder funds
decreased to a negative figure of rm289 million in 2007, while directors were only
fined a total of RM1.9 million (KOH, 2010). Therefore, investors and minority
shareholders' supervision organizations hope that regulators will take more thorough
action against them to restore investors' confidence in the stock market (zaimee,
2007).
6、 Preventive measures
1. the company shall understand the business scope of the other party in detail
before negotiating cooperation projects with the other party. If the partner's behavior
in the process of the cooperation project seriously exceeds the business scope
approved by the industrial and commercial registration, the other party's behavior is at
least illegal, which should be paid great attention to and consulted with relevant legal
professionals.
2. Recognize the contents of contract notarization and witness. When signing the
contract, carefully observe the content of the contract and conduct detailed
verification from the external form to the content of the contract.
3. Verify the authenticity of the other party's personnel and units.
4. Pay attention to abnormal behaviors in the process of cooperative transactions.
If criminals come up with a lot of more hidden fraud methods, but in the actual
process, there is not no plan to follow. Then it is necessary for businesses to pay
attention to some abnormal phenomena during cooperation and timely contact the
functional departments of the government and the resource department of the
financial system when necessary.
7、 Results of the survey
The study investigated the "accounting" activities of two companies labeled as
leading to the financial scandal of small Enron in Malaysia. The first warning sign of
these activities is overstated financial performance. The second danger sign is that the
enterprise is unable to repay its creditors. Both cases are caused by the top
management's good work of falsifying financial statements in related party
transactions and earnings management. The results show that the participation of top
management may be due to self indulgence, loopholes in regulatory governance and
lower penalties stipulated by existing laws. We assume that there are four potential
factors why the two companies engage in such activities: 1 The opportunistic
management behavior of the two companies as evidence to cover up the activity by
reporting the profits in the actual profits; 2. Opportunistic behavior of analysts and
investors, because the business involves potential growth business, they should be
cautious about the excessive strong growth of the company; 3. Weaknesses of internal
control system and operation system; 4. The role of regulators in monitoring and
discovery, because regulators should investigate, for example, why companies report
a significant increase in profits in both cases.