Flat Cargo Berhad - an Air Cargo Company

Introduction

Flat Cargo Berhad(FCB), an air cargo company that was listed in Bursa Malaysia on the 15th of September 2001 was one of the largest airfreight companies in Malaysia. The company servicing several government linked companies including Freight Malaysia Berhad and other private company like Citylink,Nationwide Express and Nippon Express. It was registered as an investment holding company with several subsidiaries with principal activities ranging from air freight services and ground handling services. One of FCB’s major shareholder in 1997 was Bangor Berhad, which it was part of a diversified international family owned conglomerate, the Miri Group. Within their reputation and have wide range of customer worldwide, the Company absolutely can maintain its financial operation atleast for five consecutive years. However, in this case, Mr Chuah Mun Soong, an auditor from Kencana & Associates have discovered several suspicious and questionable results which is indirectly lead to a delay in finalizing the auditor’s report. Hence, the main problem faced by Mr Chuah believes there might be a high possibility that FCB is involving in fraud. At the same time, identification of problem faced by FCB is needed and solution should be implemented which can give immediate effect in order to avoid devastating FCB reputation as well as allowing FCB remained as the nation’s leading air cargo carrier.

Issue

Uncollectible debts, improper sales transaction, incorrectly recorded debtors’ account and abnormal transaction had caused Air Flat Cargo involved the possibility of fraud in a financial audit engagement.

Problem Identified in Flat Cargo Berhad

In 2006, during a routine financial audit, the auditors identified several suspicious findings in Flat Cargo Berhad that resulted in a delay in finalizing the auditor’s report. It had been thought that Flat Cargo Berhad involving the possibility of fraud in a financial audit programme. Below has shown some of the problem that face by Flat Cargo Berhad.

First and foremost, several debtors’ confirmation letters were returned because the addressees had changed their mailing addresses. The several debtors’ confirmation letters were returned because of wrong mailing address had caused Flat Cargo Berhad could not recognized the revenue since the debts could not be collected. However, due to the rise of high revenue from 2001 till 2005, this can be assumed that FCB has recognized these revenue where there are contingencies associated with the transaction that have not yet been resolved. Once the debtors have not paid the debts to Flat Cargo Berhad, these debts should not be recognized as revenue.

In addition, it had also shows that a large sum of sales transactions was found with no supporting documents. Most of these transactions involved small clients.