I have received a email from a friend who is a practitioner in Corporate Governance, who wishes to share with us his views and comments concerning the Port Klang Free Zone (PKFZ) financial scandal that is dubbed by the opposition as 'the mother of all scandals'. Appended below is the full text of the email.
1. Being a practitioner in Corporate Governance, I have observed that the financial failures that occurred during the past decade were not solely attributable to failures in the audit profession.
They also represents fundamental failures at the very heart of the organization i.e. government/government agencies and/or corporations - failures of the corporate governance structure. The failures in ethical standards and corporate governance continue with new issues every year. Nor were the failures limited to Malaysia. On the contrary, similar failures occurred in major companies located in the United States, France, Italy, U.K., as well as in other parts of the world. Greed simply overwhelmed all parts of the system.
2. In the case of PKFZ, the warning signs were present, but the company's management ignored them, and the auditing profession ( the Audit Report 2004 that was prepared by the Auditor General did highlight the serious irregularities in PKFZ's financial management, but the company management did not assumed the risks, nor did they take appropriate action to remedy/rectify the situation at that point of time) recognized them.
3. There was not much of regulation then to quickly response to financial failures to address the fundamental problems in corporate governance, but allowed it to continue further only to be blown out of proportion in 2009.
4. What happened to the Malaysian Oxley ( MOX ) which was enacted much later after Sarbanes-Oxley Act of 2002 (SOX) due to the Enron fraud of the late 1990's and early 2000's, represents almost everything that was wrong with corporate governance, accounting, financial analysts, banking and the accounting profession.
5. Little is known as to whether or not the Board of Directors (BOD) of PKFZ had enough power, time and resources to provide proper oversight of the management. It is quite apparent that there was no accountability and responsibility on their part in protecting PKFZ interests which were of paramount importance. The BOD were merely appointed to serve their political masters and have not acted in good faith by exercising their fiduciary roles efficiently and effectively as were expected of them. As such, they are to be blamed and rightly punished for their gross oversight for allowing the previous General Manager to singularly make decisions, and went above BOD without questioning the integrity and providing check and balance on the previous management.
6. Again after the event, political governance too fared no better, and they started pointing fingers and as usual chose to remain in denial.
7. I don't know how the PM 1 Malaysia is going to handle this situation, and whether he is in consonance with the 1 Malaysian Concept " Rakyat didahulukan dan Pencapaian diutamakan " or just plain rhetoric. At the end of the day, the rakyat suffers or covered up with the 6 N-KRAs and KPIs.
8. In the final analysis, PKFZ is 'where everything bad came together'. Why did it happened? What were the failures that allowed it to occur?
9. Unfortunately, the obvious answer is that the failures were widespread i.e. Management Accountability, Governance, Accounting, The Financial Analyst Community and many more which I cannot remember.
10. There were too many parties at fault, and we only have to wait and see whether our PM 1 Malaysia has the political will to take whatever action necessary against those found guilty of creating the 'mother of all scandals'.
CRUSADE AGAINST CORRUPTION