Governance Revisit

The Malaysian Institute of Integrity (IIM) has invited selected academics and professionals to a roundtable discussion at the IIM office in Jalan Duta.  Basically the discussion focuses on a recent call by the government on the need for the Companies Commission of Malaysia (CCM) to re-look at the current "Malaysian Code on Corporate Governance - MCCG".  In its present contexts, MCCG is very much capital market-centric, focussing on the governance of public listed companies (PLC).  This role of "monitoring" the governance of PLC has been assumed very well by both the Securities Commission (SC) and Bursa Malaysia.  Meanwhile, it has been commented that the governance of other sectors such as non-listed companies, small and medium industry and non-profit organizations has not reached similar coverage.  Both CCM and IIM have been entrusted to lead the preliminary roundtable discussion with academics and professionals.

ITU-UUM Visit to ARI

The Accounting Research Institute is greatly honoured to receive guests and researchers from  ITU-UUM, a research institute from Universiti Utara Malaysia.  Indeed, ITU-UUM aspires to become a HICoE and the visit was mainly meant to obtain "first-hand" information from ARI; to learn and understand ARI's own evolution from an individual-driven SIG to a HICoE and to visit ARI's facilities.  Whilst at ARI, the group was  given a brief presentation related to ARI's own Journey as a Higher Institution's Centre of Excellence. Then, the researchers were taken to visit the Forensic Science laboratory.  There, the researchers explore the use of various equipment  to validate the authenticity of documents or to detect finger prints as documentory evidence

Research on Possible Misuse of NPOs

Very often, the establishment of Non-Profit Organizations (NPOs) are premised on some very pure and "holy" intentions.  For example, they may be formed to garner financial support for cancer-related research; or they exist to provide material assisstance to some war-torn regions.  Nevertheless, along the way, some individuals who either run or provide support for NPOs may misuse such establishments for personal benefits.  Based on such possible eventualities, the Financial Action Task Force (FATF) has included the assessment of NPO governance as one of its 40 recommendations against money laundering and terrorism financing.  In its recent report on "Money Laundering and Terrorism Financing Risks to Australian Non-Profit Organizations", the Australian Institute of Criminology (AIC) has listed possible multiple ways in which non-profit entities may be misused:

• Misuse of Funding - this may include soliciting funds in the name of legitimate NPOs but disbursed for other than "altruistic means".  Or NPOs may be used in money laundering activity such as tax evasion.
• Misuse of Assets - this is where NPO's assets such as transport and property may be used to transport or house operative, some illegal activities
• Misuse of Name and Status - an NPO may raise funds for a particular cause but have those funds dispensed for some fraudulant activities.
• Misuse of the Notion of the Charitable Status - Here, criminal or terrorist entities may elect to establish a sham NPO, but one which is registered and engages in requisite regulatory requirements.

ARI-ROS Research on NPOs

Following the recommendation made by the Financial Intelligence Unit (FIU) of Bank Negara Malaysia, the Accounting Research Institute (ARI) embarked on a research project on Non-Profit Organizations (NPOs) in Malaysia.  The interest in NPOs resulted from the the APG ( Asia-Pacific Group on Money Laundering) Mutual Evaluation report in 2007.  The report gave Malaysia a "Partial Compliance" rating for its governance of anti-money laundering and counter-financing of terrorism on NPOs.  Specifically, three reasons given for such rating were namely:

• Malaysian NPOs have no ongoing strategy to identify and mitigate anti-money laundering and counter-financing of terrorism (AML/CFT)
• There has been limited outreach program to inform NPOs of the what, why, when, who and how of Money Laundering and Terrorism Financing.
• There has been inadequate information exchange between Malaysia and its international counterparts.

As a result of such feedback from APG, ARI has been working very closely with two important agencies that register and monitor NPOs in Malaysia.  The two agencies are namely the Registrar of Societies (ROS) and the Companies Commission Malaysia (CCM).  In a meeting in Putrajaya and  attended by representatives from FIU/BNM, CCM and ROS, the Accounting Research Institute presented its interim research finding on NPOs registered with the ROS. In essence, ROS has taken several steps and initiatives to monitor and mitigate money laundering and terrorism financing activities.   Efforts are now geared towards improving the governance of NPOs in Malaysia.

ACFE's Asia Pacific 2012 Report to the Nations on Occupational Fraud and Abuse

The recent 2012 Report to the Nations on Occupational Fraud and Abuse  published by the Association of Certified Fraud Examiners' (ACFE) has some very interesting findings.  Specifically, for its Asia-Pacific region, the following research findings may be of interest to everyone. It is based on data compiled from a study of 338 cases of occupational fraud that occurred throughout the Asia Pacific region between January 2010 and December 2011:

• Survey respondents in the Asia-Pacific region estimate that the typical organization loses five percent of its annual revenue to fraud.
• The median loss caused by the 338 Asia-Pacific cases in our study was $300,000. This was significantly higher than the global median loss of $160,000.
• The frauds in this report lasted a median of 12 months before they were detected.
• Asset misappropriations were the most common type of occupational fraud, occurring in 80 percent of all cases. Financial statement fraud was the most expensive category, causing a median loss of $4.3 million.
• Occupational frauds were much more likely to be detected by a tip than by management review, internal audit, or any other means. Forty-three percent of all cases were detected by a tip of some kind.
• The anti-fraud controls that had the greatest impact on occupational fraud losses were surprise audits and hotlines. Both controls were associated with a loss reduction of more than 40 percent.
• Fraud losses tend to rise with the authority of the perpetrator. Occupational frauds committed by owners/executives caused a median loss of $1 million. Losses caused by managers and employees were $242,000 and $200,000, respectively.
• Seventy-six percent of occupational frauds in the Asia-Pacific region were committed by individuals working in one of five areas: sales, accounting, operations, executive/upper management and purchasing.
• Approximately 85 percent of fraud perpetrators had never been charged with or convicted of a prior criminal offense.

Book Chapter on "Researching Teaching in Higher Education"

Congratulations Prof Dr Rohana Othman, fellow of the Accounting Research Institute, for the publication of her chapter in an Action Research Book titled "Researching Teaching in Higher Education: Our Path to Surrender". The book, published by Pearson Publication is edited by Prof Fatimah Hashim.  It contains twelve chapters of real life experiences of researchers  who demonstrate their passions towards the teaching profession.  Prof Rohana, together with Dr Zainab Mohd Noor, a colleague from the Faculty of Education wrote a chapter titled "Answering the Cry for Help of Undergraduates in Theory-Based Courses".  Basically, the chapter highlights  the students' thought processes in coping with theory-based courses.  The findings noted that lecturers' approach, teamwork skills, preferred learning style and positive thinking are among the positive factors affecting students' learning.  Congratulations......

Book of Reading: Issues in Audit Quality

The Accounting Research Institute (ARI) congratulates our research fellow, Dr Hilwani Harari and her team for the successful recent publication of a research book titled "Issues in Audit Quality: Behavioural and Market Perspectives".  The book which is published by Pearson Publication has more than ten chapters, which are contributed by researchers from different parts of the country.  Audit quality is an area in audit relating to the probability that financial statements contain no material omissions or misstatements.  Certainly an interesting read...

Innovation Awards

The Accounting Research Institute (ARI) congratulates all participants and winners at the recent Research Innovation & Invention Exhibition 2012 at Universiti Putra Malaysia (PRPI 2012).  ARI and the Faculty of Accountancy showcased three research products and received two golds and one silver medals.  Congratulations all.

1. Techproved System - GOLD AWARD
Dr. Intan Salwani Mohamed
Assoc. Prof. Dr Norzaidi Mohd Daud
Prof Dr Normah Omar
Dr Norli Ali

2. Shariah Audit Traits - GOLD AWARD
Assoc. Prof. Dr. Hjh Nawal Kasim
3. My GLCs - SILVER AWARD
Dr. Azmi Abd. Hamid
Prof. Dr. Rozainun Abdul Aziz

Recent Books of Reading

The Accounting Research Institute (ARI) congratulates editors of recently published Books of Reading.  The three books are namely "Government Procurement in Malaysia and Selected Case Studies of Local Authorities" edited by Rashidah Abdul Rahman, Normah Omar & Ibrahim Kamal Abdul Rahman; "Empirical Evidence on Corporate Governance Mechanisms in Malaysia"edited by Behnaz Quigley and Rashidah Abdul Rahman and "Dividend Practices in Malaysia" edited by Wee Shu Hui and Norhayati Mohamed".  All three books contain chapters of various research findings contributed by researchers from different research projects.  ARI also congratulates Associate Professor Dr Zuraidah Mohd Sanusi and Ms Yusarina Md Isa for the publication of their chapter titled "Creative Accounting: Auditors' Roles in the Detection of Financial Fraud" in an international book of reading - Effective Auditing for Corporates edited by Joe Oringel.

ICFCTF 2012

For the second year running, the Accounting Research Institute (ARI) is greatly honoured for being invited to jointly organise the International Conference on Financial Crime and Terrorism Financing (ICFCTF 2012).  This year, the main organiser and host of the event is Asian Institute of Finance (AIF).  The event is fully supported by Bank Negara Malaysia.  Themed "Compliance Challenges & Effectiveness: The Next Level", ICFCTF 2012 will be held at the Shangri La Hotel, Kuala Lumpur on 24 - 25 September 2012.  Among the highlights of this year's conference will include the following: (i)  Insights into the challenges in Measuring Effectiveness of an AML/CFT regime, (ii) Exposure to new Terrorism Financing Red Flags and Cyber Crime trends, (iii)  Knowledge on how Corporates are used as a vehicle for money laundering, (iv) Access to AML success stories – detection, investigation and successful conviction and (v) Updates on challenges in implementing the new FATF recommendations

ARI-IBFIM i-CSR Project

Researchers from the Asia-Pacific Centre of Sustainability (APCeS) of the Accounting Research Institute - ARI and the Islamic Banking and Finance Institute Malaysia (IBFIM) met up today to discuss on possible research collaboration to develop an Islamic Corporate Social Responsibility Reporting (i-CSR).  Essentially, i-CSR is part of a comprehensive dimension of the Islamic Corporate Governance & Accountability (i-CGA) Framework for financial institution.  Both i-CSR and i-CGA are ARI-funded research projects which aim to strengthen the Islamic Finance industry in Malaysia and globally.  Both parties have agreed in principle to work together in the development of i-CGA and i-CSR.  They have also agreed to organise a one-day seminar to discuss the research framework and research instrument sometime in October 2012. Participants of the seminar will include practitioners, shariah advisors, regulators and researchers.

Publication Workshops

The university's Institute of Leadership & Quality Management (iLQAM) recently organized two publication workshops in two state campuses - UiTM Perak on 16th July and UiTM Perlis on 19th July 2012.  Professor Dr Normah Omar, Director of the Accounting Research Institute was tasked to conduct the workshops.  As a pre-requisite, participants had to bring at least one draft article which they would have to submit by the end of the workshop. Basically, the workshops were attended mostly by relatively junior researchers.  The two-fold objectives of the publication workshops were firstly to expose or familiarize the researchers to journals that are indexed by ISI Thomson, SCOPUS and Excellence Research of Australia (ERA).  Once the participants were familiar with the journals and their respective requirements, the second objective was to get them to submit their article to their selected journal via the online submission mode.  During the workshops, participants had to identify at least five indexed journals in their respective fields. Then, they had to identify one journal to which they plan to submit their articles. A total of fifty participants attended the workshops at the two state campuses.  At the end of the workshops, several papers were successfully submitted to various indexed journals.

Groom Big Program

The Accounting Research Institute (ARI) were indeed honoured to be chosen by the Malaysia Productivity Corporation (MPC) to train selected companies (and their respective officers) who have been identified as candidates for the Groom Big program.  "Groom Big" Program is a joint-initiative of MITI and MPC.  The program aims to nurture aspiring and potential SME companies towards the export market.  ARI has been entrusted to train eight "Groom Big" companies namely- PSB Decoration, RuffnTuff, PATCO, MITTI Cable, Matrix Cable, Innopeak, Shamawar and Brimal Stampress  in two modules.  Module 1 - Financial Accounting was conducted on 16 & 17 June 2012 and Module 2 - Managerial Accounting on 17 & 18 July.  On the second day of each module, participants made case study presentations of their own companies.

FATF 40 New Recommendations

One of the organizations that have been set up to undertake functions for the development and promotion of national and international policies to combat money laundering and terrorism financing is the Financial Action Task Force.  Effective February 2012, the Financial Action Task Force (FATF) has introduced the "New 40 Recommendations" (incorporating FATF's earlier 40 Recommendations and 9 Special Recommendations) that member countries must comply with.  In essence, the five key changes have included the following:
(i)  The inclusion of tax crimes as predicate offences for money laundering; (ii) The extension of obligations on financial institutions (FIs) to conduct enhanced due deligence on a risk basis to politically exposed persons (PEPs); (iii) The introduction of more rigorous requirements in relation to the information which must accompany wire transfers; (iv) The requirement for countries to establish mechanisms to record basic company information and to enable FIs, competent authorities and others to determine beneficial ownership and conduct appropriate Customer Due Deligence (CDD) and (v) The introduction of a new step-by-step process for the identification of beneficial ownership and control of companies as part of CDD measures. - source FATF

AML/CFT Research Retreat

Researchers from the Anti Money Laundering and Counter Financing of Terrorism (AML/CFT) research cluster recently organized a three-day research retreat in Putrajaya.  Basically the two aims of the retreat were (i) to update the group on research progress & to resolve research issues (ii) to come out with at least two concept papers from their research projects.  Research update have included among others, discussions on Financial Action Task Force (FATF) "40 + 9 Recommendations", "New 40 Recommendations" and "Asia-Pacific Group Mutual Evaluation Report on Malaysia".  Currently, the research cluster reviews ML/CFT initiatives and program in financial institutions, and other reporting institutions such as the Royal Malaysia Custom (RMC), Tabung Haji, the Government's Auditor General Office.  The Accounting Research Institute (ARI) has recently appointed two visiting professors from Australia to facilitate the cluster members with the research projects. The retreat was facilitated by Cluster head, Associate Professor  Dr Pok Wee Ching.

Benford Law to Detect Irregularities

Another useful tool that can be used to detect financial irregularities is the Benford Law technique.  Essentially,  Benford's Law provides a data analysis method that can help alert forensic accountants to possible errors, potential fraud, manipulative biases, costly processing inefficiencies or other irregularities. Premised on its statistical-based principle of number frequency, it has been suggested that the law could be used to detect possible fraud in lists of socio-economic data.  Based on the plausible assumption that people who make up figures tend to distribute their digits fairly uniformly, a simple comparison of first-digit frequency distribution from the data with the expected distribution according to Benford's law ought to show up any anomalous results.  Following this idea, Benford's law could be used in forensic accounting investigation and auditing as an indicator of accounting and expenses fraud. In practice, applications of Benford's law for fraud detection routinely use more than the first digit.  The Law posits that the use of the number "1" as a first digit is about 30%; number "2" about 16%; number "3" about 12%... and number "9" about 5%.  Any abnormality constitutes possible financial shenenigans 

'Beneish Model' to Detect Earnings Manipulation

Very often, one of the most challenging tasks in any financial fraud investigation is to identify the right investigative tool.  One tool that can be used in financial fraud investigation is the Beneish Model. Beneish Model is a mathematical model that uses financial ratios and eight variables to identify whether a company has manipulated its earnings. The variables are constructed from the data in the company's financial statements and, once calculated, create an M-Score to describe the degree to which the earnings have been manipulated. The eight variables are:

1. DSRI - Days' sales in receivable index
2. GMI - Gross margin index
3. AQI - Asset quality index
4. SGI - Sales growth index
5. DEPI - Depreciation index
6. SGAI - Sales and general and administrative expenses index
7. LVGI - Leverage index
8. TATA - Total accruals to total assets

Once calculated, the eight variables are combined together to achieve an M-Score for the company. An M-Score of less than -2.22 suggests that the company will not be a manipulator. An M-Score of greater than -2.22 signals that the company is likely to be a manipulator.  As such, an investigation can be proceeded against such company.

Methadone Maintenance Theraphy (MMT) Project

Researchers comprising Prof Dr Normah Omar from the Accounting Research Institute (ARI)of Universiti Teknologi MARA; Prof Rusli Ismail, Dr Nasir, Dr Wan Nazirah & Ms Ina from the Institute of Molecular Medicine (INFORMM)of Universiti Sains Malaysia met up with two prison officers (Hj Darussalam and Mr Mohd Umbaik) at the Prison Headquarters, in Kajang today.

Basically the main aim of the meeting was to discuss possible research collaboration involving Methadone Maintenance Theraphy (MMT)between the two HICoEs and the Prison Departnment. Currently, an on-going research titled "Cost-Effectiveness of Harm Reduction in HIV/AIDS Using MMT" compares MMT treatment at private hospitals, government hospitals and NGO Clinics at SAHABAT. Hence, MMT at prisons constitutes another useful comparison. Within the prison setting, at least three prisons at Penor, Jelebu and Seremban are currently dedicated for treatment of drug users. The prison department welcomes such university-prison research collaboration. We certainly look forward for such joint works.