Introduction

Mr Idris Bin Junid was appointed as new Chief Executive Officer in the holding company,
Travel Investment Holding Bhd (TIH). One of TIHs subsidiary is Malaysian Travel Sdn. Bhd.
(MTSB). MTSB had invest in MTT as joint venture holding 40% equities with Turkistan Global
Services Sdn. Bhd. (TGS) holding another 60%. The director of MTSB, Yatim Nor who is the
father of board member in TGS, Omar Yatim, had signed the agreement to form MTT. The
external auditor appointed by TIH has discovered several irregularities in MTT. MTTs paid up
capital increasing from RM2 to RM 250000. MTSB is paid RM8 per share for 100000 units to
acquire 40% shareholding in MTT. No audited account had been issued to the shareholders since
no any filing made with Companies Commission of Malaysia (CCM).

Issue 1: Misconception between joint venture and associate company
Joint venture is a contractual arrangement whereby two or more parties undertake an economic
activity that is subject to joint control. Joint control is the contractually agreed sharing of control
over an economic activity, and exists only when the strategic financial and operating decisions
relating to the activity require the unanimous consent of the parties sharing control (the
venturers).Every venturers will have the right to veto any significant decisions even they own
less than 50% of share.

An associate company is a company in which another company owns a significant portion of
voting shares. An owner does not consolidate the associate's financial statements unless the share
owned is more than 50%.

In fact, Malaysian Turkistan Travels Sdn Bhd is a joint venture company but the office manager
had been instructed to inform the auditors that MTT was an associate company accounted for
using the equity method and the amount invested from a group point of view was immaterial for
consolidation.


Recommendation
The office manager should be investigated to find out the person who was instructing him to do
so. For the next audit, Malaysian Turkistan Travels Sdn Bhd should be record a joint venture
company in the consolidated financial statements.


Issue 2: The lack of control on Malaysian Travel Sdn Bhds subsidiaries (MTT)
There is no documentations and information of MTSB and its subsidiary (MTT). There are only
three members in the internal audit department and they are responsible for the internal control
for the whole TIH group.

Recommendation
Increase the number of members in the internal audit department to increase the efficiency of
their work. Also, imposed the auditor MIA-by law to ensure the transparency of their job. Travel
Investment Holding Berhad should force all their subsidiaries and sub-subsidiaries to submit
their report annually or quarterly. A proper documentation is required to trace back all the
previous record when an investigation is conducted in future.



Issue 3: Fraud occur in Malaysian Turkistan Travels Sdn Bhd
MTT was initially set up by Omar Yatim, a board member of TGS and Yatim nor, executive
director of MTSB. Both of them are father and son. Investment made by the investor amounting
RM800,000 is unclear. MTSB have invest the money amounted RM 800,000 to buy the 100,000
shares which is 40% of the total share. But the payment in MTT is not available and also not
registered at CCM. The paid up capital is RM250,000 instead of RM2,000,000. This indicate
some fraud activity might occur in the joint venture company. Furthermore, MTSB might fall
into trouble as MTT is an illegal organization since it is not registered under Company
Commission of Malaysia. They might be charged of conducting illegal business.


Recommendation
They can investigate the business that is conducted by MTSB by taking a report from their
previous sub-contractor. Moreover, they should investigate Omar Yatim and Yatim nor to
understand more about the operation MTT. It is important to recognize the person who is in
charge of the company to root cause paid up capital issue. If there is evidence that can prove the
existence of fraud, they should report to the authority so that further action can be taken.

Conclusion
In conclusion, the case have shown the importance of documentation and record keeping. By
having a proper documentation, any fraudulent in management can be traced easily. This can
help a company to maintain its reputation.



Bibliography

A comprehensive guide:joint ventures January 2013 Ernst&young
PutraBusinessSchool. (2013). Accounting For Decision Making. McGrawHill Education.