Misappropriation of Assetin Public Sector

Topics: Fraud, Crime, Government Pages: 5 (1584 words) Published: August 23, 2013
CHAPTER 1
INTRODUCTION

1.1 Introduction
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). 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.e : 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,. 2008). 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...
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