Misappropriation of Assetin Public Sector

The purpose of the study is to explain why the misappropriation of asset happens in the public sector. Asset misappropriation is where the frauds involved the perpetrator employs trickery or deceit to steal or misuse an organization’s resources. The individuals committing asset misappropriation may be among the employees of an organization, customers or vendors of an organization, or may be the individuals unrelated to the victim organization.

According to the KPMG Malaysia Fraud Survey Report 2009, 66% of the survey respondents believed that fraud is perceived to be a major problem in Malaysia reflecting an increase of 4% from the 2004 survey. From previous reading, fraud happened in developed countries such as States of America which have Enron and WorldCom. Malaysia also has no exception where also has examples of fraud cases such as Transmile, Megan Media and Bank Bumiputra (Gomes, 2010). The latest fraud cases that appeared in headline news are the uncovering of the National Feedlot Corporation (NFCorp) and Port Klang Free Zone (PKFZ).

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PKFZ is having a massive scandal which involves corruption by government officials involving a large amount of RM12. 45 billion according to a report by PriceWaterHouseCoopers (PWC) Advisory Services (Arrests in Malaysian Port Scandal : Malaysia Today Online News, 2009). Besides that, Tuna Port Authority also having a fraud that involves the amount of RM243. 88 million and it is also the case after the PKFZ and the government has to pay for the sake of it (Auditor’s General Report, 2007).

Based on research, percentage of organization reported fraud in previous 12 months are 37% from government and state-owned enterprise, 31% from listed companies, 28% from private sector and 4% from other organizations (Global Economic Crime Survey by PWC, 2011). Asset misappropriation frauds are divided into two categories which are: (1) the theft of cash and (2) the theft of non-cash assets. Misappropriation of assets may occur under different circumstances: (1) before the transaction recorded in the books and records of an organization i. : skimming, (2) assets currently held by the organization i. e larceny or misuse of equipment, inventory, cash, supplies, etc, (3) during the purchasing goods or services i. e expense reimbursement, billing, payroll scheme (A. Chad. , K. Mary-Jo. , & A Steve – Asset Misappropriation Research White Paper for the Institute for Fraud Prevention). 1. 2 Background of Study Fraud will occur in every organization despite of small or large case. Even in daily activities also will involve fraud without noticed with the naked eye.

The number of fraud cases among companies in Malaysia is expected to increase due to current financial crisis, according to the KPMG Fraud Survey Report 2009. The two most common motivations of fraud were greed or lifestyle at 62% and personal finance pressure at 39% (Survey: Corporate fraud in Malaysia expected to increase, 2010). Public sector characterized by government controlled administration namely Federal Government, State Government and Local Government as in the case of Malaysia is a part of the economy that deals with delivery of services to the public (Abd Rauf et al,. 008). The main industries of the government such as infrastructures, provision of education, healthcare, transportation, agricultures and many more that the things that fulfill the needs of the society. 1. 3 Problem Statement Asset misappropriation is a major problem for organizations throughout the world. Global Economic Crime Survey June 2011 conducted by PWC, over two-thirds (69%) of those reporting economic crime suffered asset misappropriation. KPMG Forensic Malaysia, Tan Kim Chuan said about 78% of the respondents anticipated that financial statement fraud would also rise.

According to the report, fraud also continued to be a serious threat within corporate Malaysia with 49% of the companies surveyed experiencing at least one fraud incident. The threat of fraud came mostly from within the organization with internally-perpetrated fraud by management and non-management employees that accounted for 88% of the total reported fraud valued at RM60 million (Survey: Corporate fraud in Malaysia expected to increase, 2010). According to the PwC, the 44% reported in the 2011 survey represents a 57% increase over the 28% reported in the 2009 survey. In

Malaysia, theft or asset misappropriation (cited by 83% of respondents) was the most common type of economic crime reported, followed by bribery and corruption (34%) and accounting fraud (27%). The number of incidences of fraud experienced by the Malaysian respondents has also increased compared to the 2009 survey which is 32% (2009: 11%) of respondents said that they each experienced between 11 to 100 incidences in the past 12 months. 10% (2009: 6%) said that they each experienced between 101 to 1000 incidences of fraud within the same timeframe. Globally, the communications and insurance sectors reported the highest incidence of fraud.

Fraud against governments or state owned enterprises rose by 24% since 2009. According to the statistics compiled by the Commercial Crimes Investigation Department (CCID), the number of white-collar crime cases investigated by the police in 2003 was 11,714 cases and it involved approximately RM579 million, and in 2004 the number of cases declined to 9,899 but the amount of losses rose to about RM836 million (Lim, 2005). For the year 2008, the amount of losses recorded a slight increase of about RM846 million, but the number of cases climbed significantly to 17,311 (“White-Collar Crimes,” 2009). On taking over the helm of the government, Prime “Minister Datuk Seri Abdullah Badawi has emphasized several social concerns, especially regarding corruption and the need to develop a national integrity plan and the formation of a public ethics institute. As we press ahead for greater economic development, the nation must also improve its ethics and social value systems. We cannot leave such matters aside if we are to move forward as a nation. There is no reason for us to compromise on our values and ethics while pursuing profits.

They should be a part and parcel of our social value system, culture and upbringing” (Business Ethics Institute of Malaysia, 2003). From the statistic, asset misappropriations were widely happen and all industries have to face it no matter what happen. Internal control is the most important key in order to overcome this problem. If lack in internal control that mean the management weak in their supervision. The key aspects of a good system of internal control are good segregation of duties, appropriate authorization of transactions and accurate records that are regularly compared with assets minimize the opportunity employee fraud.

Good control is the important key element in restoring public’s confidence in the public sector, including the local authority (Macauly and Lawton, 2006). When management promotes ethical awareness at the workplace and deals with instances of fraud and misconduct quickly and directly, employees will know that misappropriation of corporate assets is not tolerated and will be encouraged to report instances of suspected fraudulent conduct (Edward P. Perdue & Christina K. McDonald, Dickinson Wright PLLC, 2010). 1. 4 Research Question

The first question is seeking the employee’s opinion about the misappropriation of assets. Currently the questions are based on the research and reading. Below are the questions: 1) What the employee’s opinion on the misappropriation of assets occurs in public sector? 2) How the effectiveness of the control procedures to counter this problem in public sector? 1. 5 Research Objective Accordingly with motivation of the study, the objectives of the study are as follows: 1) To identify the causes and effects or asset misappropriation. 3) To determine the effectiveness of preventive and detection in the public sector. . 6 Organization of the Study This study is divided into five chapters. Chapter one provides the research background, problem statement, research objectives and the significant of the study. Chapter two outlines the importance of public sector, definition of fraud, misappropriation of assets, fraud circumstances, misappropriation of assets circumstances, and internal control system. This chapter also presents the relevant literature review of prior researchers which highlights the issue of asset misappropriation and the framework of this issue.

Chapter three discusses on the research methodology that is employed in obtaining the data collection using primary data which is questionnaire and interview. Chapter four reports the empirical result and discusses the finding of the study. Finally, chapter five provides the conclusions, limitations to the study and some suggestions for future research. 1. 7 Contribution of Study The significance of this study is giving of survey questionnaire directed to the employees, to obtain first-hand knowledge from the real environment where asset misappropriation would likely to occur.

Employees in public sector as respondents should be viewed as either the perpetrators or whistleblowers. The results obtained will serve as an indicator whether the organization has possibility involve the asset misappropriation. The main issues we want to see the prevention and detection of asset misappropriation. Getting information such as types of misappropriation that may have risk to occur; main causes and factors influencing the fraud to occur can contribute to the problem in curbing or managing the risk of asset misappropriation in an organization.