Tuesday, October 26

Companies must set up system to detect fraud

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KUALA LUMPUR: Companies must set up the necessary systems and processes to enhance their ability to pre-empt and detect frauds, said Securities Commission Malaysia (SC) chairman Tan Sri Zarinah Anwar.Zarinah said laws and regulations alone would not completely insulate investors against poor governance practices or fraud, but it was important that these were kept updated and that regulatory and enforcement agencies had the requisite powers to institute action to protect innocent investors from unscrupulous conduct.

She said although there was a cost involved, it paled in comparison with the damage brought about by the fraud and the cost of investigating these infractions.

“There are enough examples at home and abroad to show that fraud can quickly destroy the reputation of even the best of companies.

“In many cases, fraud has brought about the demise of big and previously reputable companies,” she said in a keynote address at the launch of KPMG Fraud Survey Report 2009 here yesterday.

Zarinah said the crucial role of principal officers and auditors in detecting fraud was reflected in the growing number of whistle-blowers that had provided information to the SC under Section 320 of the Capital Market and Services Act.

“The Act imposes a mandatory duty upon auditors and specific employees of listed corporations to report breaches of securities law and the rules of the stock exchange to the authority,” she said.

She said since the introduction of the whistle-blowing provisions several years ago, the SC has received 40 Section 320 reports mainly from external auditors of listed companies.

Zarinah said some of these reports had led to enforcement action being taken against the perpetrators — often the directors and senior management of the company.

“While we would like to see more come forward, it is encouraging to note an emergent culture of public accountability and integrity,” she said. — Bernama