COMPANY BACKGROUND of Perwaja Steel (Malaysia)

COMPANY BACKGROUND
 Perwaja Steel started in 1982 as a joint venture between the Terengganu State
Government, government-owned Heavy Industries Corporation (HICOM), and Japanese company Nippon
Steel Corporation as Malaysian experienced a shortage of steel in 1970s. (Teng, 2015)
Issue and scandals

 The Company started with a paid capital of 250 million. Ministry Of Finance provided
guarantee for the company to take a huge loan from a Japanese Bank, Japanese Export Bank,
amounting Yen 81.5 million (equivalent to RM 850 million). However, in 1987, Nippon Steel pulled out of
the project. As the company was facing huge losses, the CEO stepped down, and replaced by Mr. Eric
Chia; a close friend of the prime minister at that time. He was brought in to do whatever necessary, and
given full authority. There was additional funding by government amounting nearly 2 billion. Bank
Bumiputra given out RM 860 million, and EPF funding RM 130 million. Eric Chia seems to be performing
well, in turning Perwaja into a money making firm. But that was not the case seen after he resigned in
1995. The debt increased from RM 1 billion to RM 2.49 billion. Soon after its operation started, Perwaja
was said to be facing production problems, and faced huge debts. There were many auditing and review
done on Perwaja accounting and transactions. Most of them were kept confidential, as many politicians
were involved. (Webmaster, 2015)
 By the end of 1995 audited by Price Water House reported accumulated loss of RM
2.985 billion & total liabilities of RM 6.9 billion. The government arrange borrowing from local banks,
foreign banks & government funds amounting RM 464 million. Example Mah Sun Company were
awarded RM 967 million without proper authorization from BOD.RM 107 million also awarded to the same
company but without trace of documents. In July 1999, the ex- minister then Datuk Seri Anwar make
police report alleging the Prime Minister involvement in the Perwaja Scandal. (Webmaster, 2015)
 March Year 2001, Datuk Ahmad Zaki Husin director of ACA announced that finding
transfer of RM 76.4 million to a Swiss Bank Account registered in the British Virgin Islands. However no
legal actions taken against Perwaja until March 2004 when Eric Chia was arrested. (Quek, 2008)
Regulations
1) Find a new responsible management to handle the company with
transparency
 The business management should work together with government officials to establish
regulatory practices that will reduce administrative discretion and will promote transparency that give
efficient outcome. Responsible management will recognize that an effective business is based on every
activity and decision of an organization. The audit committee should be review the performance of
management and must be consist from independent directors .A strong ethical environment also can be
easily created by hiring more ethical and high standard of moral employee including management staffs.
The ethical code should include the integrity and performance of duties with the compliance of the rule of
law. (PHD essay, 2016)
2) Take legal action to resolve the issue without political interference and
refrain from accepting or accepting bribes.
 A detailed investigation should be conducted without the interference of any political

party. Investigations should be transparent and financial reporting should be done with the utmost
honesty. Any breach of the code of conduct should be thoroughly investigated and enforced by law
regardless of their political influence, their position in the country or their previous credentials. (Lumpur,
2000)
3) Effective Internal Control Systems

 A strong internal controls must be implemented by the management. The internal
controls such as authorization of company's procedure and physical control over the company's assets
and records are an important element for strong internal control. The two main type of internal controls
are preventative controls and detective controls .The example of preventative controls are such as
requiring double signatures on cheques and having password protected file. This control will protect and
limit the access to business assets. This can only be done if any need to be corrected .Other controls are
submitting appropriate documents that supporting the transactions as the evident of business transaction
will increase the transparency of the company's financial reporting.(dokumen pub, 2019)
4) Segregations of Duties
 Segregations duties in business is able to reduce the risk of inappropriate actions by

employees. Usually segregation duties is helps to prevent any theft or fraud as it need more than one
people to hide the inappropriate transactions and also ensure a review to catch any mistakes. When the
accounting functions separated for examples recordkeeping, authorization and review functions in the
accounting process is done by different person, this will involve more than one person in the financial
statement preparation process. Eventually, if the fraud to happen, two workers must collude to execute
the crime. (FreeMalaysian, 2020)
5) External Audit Conducted
 Annual financial review should be done by an independent party. Managers commit

accounting fraud when they feel compelled to achieve financial goals in order to receive incentives.
External and independent audits should be performed annually to analyze and review the financial
statements to prevent management from participating in the preparation of the financial statements in an
aggressive manner. The external auditor must be a person free from any other personal or business
relationship while performing the audit services. The accounting officer must be accountable for the
transparency of financial statements.(Lumpur, 2000)

COMPANY BACKGROUND of Perwaja Steel (Malaysia)

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COMPANY BACKGROUND of Perwaja Steel (Malaysia)

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COMPANY BACKGROUND

Issue and scandals

 A detailed investigation should be conducted without the interference of any political

3) Effective Internal Control Systems

 Segregations duties in business is able to reduce the risk of inappropriate actions by

5) External Audit Conducted

 Annual financial review should be done by an independent party. Managers commit

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