Case

Case Study
Study on
on Fraud
Fraud
and
and Non-Fraud
Non-Fraud
Company
Company
Megan Media Holdings Berhad
VS
Wah Seong Corporation Berhad
 Company background
Megan Media Holdings
Established in early 1994.
started from producing plastic
injection components to a range of
electronics and automotive parts.
ventured into the manufacturing of
3.5" MFD and videotapes under
Memory Tech Sdn Bhd(MTSB), a
subsidiary of MEGAN.
Memory Tech expanded into the
manufacturing of compact disc
recordable (CD-R) and digital versatile
disc-recordable (DVD-R).
Auditor:
Megan Media Holdings Berhad
Wah Seong Corporation Berhad
Wah Seong Corporation
Wah Seong Corporation Berhad (WSC)
is an international oil & gas service
group headquartered in Kuala Lumpur,
Malaysia. It is listed on the Main
Board of the Malaysian Stock
Exchange (Bursa Malaysia) with a
market capitalisation of more than
RM1.5 billion. The Group, which was
originally founded in 1994, has grown
from being a mid-sized Malaysian
enterprise to a major Asian oil & gas
group with the largest part of its
revenue earned overseas.
- KPMG
- Moores Rowland
 Financial Information
Megan Media Holdings Berhad Wah Seong Corporation
ITEMS
2006 2005 2006 2005
(RM’000) (RM’000) (RM’000) (RM’000)
Total assets 1,034,797 904,696 1,416,846 1,348,035

Revenue 1,398,094 1,145,265 1,642,768 1,285,663

Net profit 60,234 65,152 50,210 85,207

after tax
Authorized 500,000,000 100,000,000 2,000,000,000 2,000,000,000
Capital units @ RM1 units @ RM1 Units @ units @
RM0.50 RM0.50
No. of 581 peoples 609 peoples Not available Not available
employee
 SHARE HOLDERS
Megan Media HoldingsBerhad (Top Three)

NO. OF % OF TOTAL
NAME/COMPANY
SHARES SHARES
HDM Nominees (Asing) Sdn. Bhd 10,573,249 5.21
Phillip Securities Pte Ltd For Yeo Wee
Siong
Lembaga Urusan Tabung Haji 10,218,210 5.03
HSBC Nominees (Tempatan) Sdn. Bhd 7,320,750 3.60
Pledged Securities Account For
Mohammed Rashdan bin Mohd Yusof
 COMPOSITIONS BOARD OF DIRECTORS
(MEGAN MEDIA HOLDINGS BERHAD)

BOD
(6 MEMBERS)

INDEPENDENT
INDEPENDENT NON-INDEPENDENT
NON-INDEPENDENT
(2(2MEMBERS)
MEMBERS) (4(4MEMBERS)
MEMBERS)

EXECUTIVE
EXECUTIVE NON-EXECUTIVE
NON-EXECUTIVE EXECUTIVE
EXECUTIVE NON-EXECUTIVE
NON-EXECUTIVE
(NIL) (2 MEMBERS) (4 MEMBERS) (NIL)
(NIL) (2 MEMBERS) (4 MEMBERS) (NIL)
 COMPOSITIONS BOARD OF DIRECTORS
(WAH SEONG CORPORATION BERHAD)

BOD
(8 MEMBERS)

INDEPENDENT NON-INDEPENDENT
NON-INDEPENDENT
INDEPENDENT
(3 MEMBERS) (5(5MEMBERS)
MEMBERS)
(3 MEMBERS)

EXECUTIVE
EXECUTIVE NON-EXECUTIVE
NON-EXECUTIVE EXECUTIVE
EXECUTIVE NON-EXECUTIVE
NON-EXECUTIVE
(NIL) (3 MEMBERS) (2 MEMBERS) (3 MEMBERS)
(NIL) (3 MEMBERS) (2 MEMBERS) (3 MEMBERS)
 AUDIT COMMITTEE

ITEM MEGAN WAH

MEDIA SEONG
Presence of Audit Committee?  
No. of Members 2 4
No. of Members From Independent Director 3 1
No. of Members From Non-Independent 1 1
Director
Chairman/ Member has accounting  
background?
No. of Audit Committee Meeting In 4/4 5/5
2005/2006
 Ratio Analysis
a. Megan Media Holdings Berhad

i. Current Ratio 2005 - 0.84 / 2006 – 2.03

Comment: not liquid in 2005, but too liquid in 2006 shows that not efficient n
managing its asset.

ii. Profit Margin 2005 – 7% / 2006 – 6%

Comment: a slight decrease indicates an increase of cost or less revenue were

generated.

iii. ROA 2005 – 6% / 2006 – 4%

Comment: the company have reduce in capability to generated wealth in each asset
invested.

iv. ROE 2005 – 16% / 2006 – 13%

Comment: a decrease of 3% which reflect the reduction of return on every RM of

equity.
 Ratio Analysis
a. Wah Seong Corporation Berhad

i. Current Ratio 2005 – 1.20 / 2006 – 1.35

Comment: a balanced numder shows an increase reflected the capabilty of the

company in managing it asset to generated wealth.

ii. Profit Margin 2005 – 7% / 2006 – 3%

Comment: a decrease of 3% in profit margin reflected the company are incurring

extra costs and having less income.

iii. ROA 2005 – 6% / 2006 – 4%

Comment: similar with Megan Media the return on each asset used to generate
economic wealth have decreased.

iv. ROE 2005 – 17% / 2006 – 10%

Comment: indicates that the company ability to generate return for the equity
holder have lessen tremoundously.
 SYMPTOMS
Year Before Commit Fraud (2005)

• Current ratio
2005 - 0.84 2006 – 2.03
 SYMPTOMS cont…
Year Commit Fraud (2006)

• Not announced dividend even though company recorded profit

• Capital market respond towards company performance

M A R K E T R E S P O N D T O W A R D S C O M P A N Y P E R FO R M A N C E

14

12

10

1. 3 4
2 1 1. 06 0. 9 6 0. 6 0. 6 6 0. 57 0. 66

0
1st Qt r 2 0 0 5 2 n d Qt r 3 r d Qt r 2 0 0 5 4 t h Qt r 2 0 0 5 1st Qt r 2 0 0 6 2 n d Qt r 3 r d Qt r 2 0 0 6 4 t h Qt r 2 0 0 6
2005 2006
-2

-4
 SYMTOMS cont…

• Sharply increase in account receivable (p59)

2005- 298,912 2006 - 562,760 (+88%)

• Insider trading
- (Chairman disposed 42.31% of his share)
- (Mohammed Rashdan bin Mohd Yusof disposed 34% of his warrant)

• Issuance of Islamic debts instruments (RM329m) – indicate restructuring

process

• Fabricated inventories amount

 SUGGESTIONS
• Dato’ Dr Haji Mohd Adam bin Che Harun as an
executive chairman and non-independent director
should be resigned as a member of audit
committee.
• establish a strong internal audit function and
identify a head of internal audit who reports
directly to the audit committee.
• clearly accepted division of responsibilities at the
head of the company which will ensure a balance
of power and authority.
 SUGGESTION cont…
• Closely examine the substance of a transaction,
especially where it differs from its legal form.
• Familiarize management with common types of
fraud
• Suggestion for auditor- audit procedures need to
be redesigned such that fraud risks can be
identified.
 CONCLUSION
• Its hard to conclude either the company
committing fraud or not if just base on financial
statement
• Symptom company commit fraud probably can be
seen before, during, and after the year fraud
happen.
• The composition of independent director playing
an important role in reducing the likelihood of
financial statement fraud
• The audit committee members should be consist
pure from independent director