1.

0 Case Summary

Transmile Group Berhad (Transmile) is one of the famous corporate scandal cases in
Malaysia and we found some elements of whistleblowing in it. Whistleblower refers to a person
who is exposed to any kind of information or activity that is deemed illegal, unethical or not
correct within an organization and it can be either privately or publicly. The act of BOD of
Transmile to hire a third party to investigate their financial statements as a result of external
auditor didn’t want to sign the accounts and the newly appointed director’s police report
regarding the false statement on their financial statements have the elements of whistleblowing.
The company was hit with an accounting scandal in 2007. It started when the company failing to
adhere to the deadline in submitting its audited annual accounts for the financial year ended 31
December 2006 to Bursa Malaysia for public release. The director also charged by the false
statement about revenue and also the overstated of revenue. Things got worse when the external
auditor declined to approve the annual accounts for lacking of certain supporting documents. This
is because the external auditor did not want to sign the account as he couldn’t get the fundamental
confirmation for the transactions related to trade receivables and the sale and purchase of
property plants and equipment in the company and its subsidies. In this case, the fraud wasn’t
detected by external auditor but through special audit of the company’s account by Moores
Rowland. It was discovered that the revenue was overstated by RM622 million from 2004 to
2006 (Fong, 2007b).
2.0 Case Descriptions

Transmile Group Berhad (Transmile) is an investment holding company, which

principally involved in the provision of airfreight, aircraft engineering and maintenance services.
The organization was established by Gan Boon Aun in November 1993 and was later recorded on
the Bursa Malaysia Securities Berhad on 27 June 1997. Transmile shareholding as at 28 April
2006 showed a mixture of local and foreign shareholders with the largest shareholder being
Trinity Coral Sdn Bhd (19.5%), a company that was part of the diversified international
conglomerate, the Kuok Group. The Kuok Group had earlier in March 2004 bought a 28.5%
stake in Transmile, via Trinity Coral Sdn Bhd, from Gan and Khiudin Mohd for RM282.5mil. In
28 April 2004, Transmile appointed Tun Dr Ling Liong Sik as its independent and non-executive
chairman and the outgoing chairman cum executive director, Gan had been re-designated as
director and chief executive officer (CEO) of the company. Other notable shareholders were Pos
Malaysia Berhad (17.3%), JP Morgan Chase Bank (USA) (4.4%), Employee Provident Fund
(3.9%), GAP Ltd (3.9%), Goldman Sachs International (3.4%) and Gan (2.5%). In 2006, the
company was voted among Asia’s top 200 small–midsize companies by one of the renowned
business publications, Forbes Magazine.
Similarly great were Transmile's customer base which incorporated a portion of the easily
recognized name organizations, for example, DHL Worldwide Express, United Parcel Service
(UPS), Pos Malaysia Berhad, Nationwide Express, Citylink, BaxGlobal and Nippon Express.
Operationally, Transmile had kept up standard flights between Peninsular Malaysia and East
Malaysia, to nations like China, Thailand, India and to some significant urban communities in the
Asia Pacific district. With a wide range network of operations, Transmile reported increasing
revenues and profits since 1998 until 2006. The solid appearing in income and benefit were
followed by its share value which had risen considerably. However, the company was hit with an
accounting scandal in 2007. It started when the company failing to meet the deadline requirement
in submitting its audited annual accounts for the financial year ended 31 December 2006 to Bursa
Malaysia for public release. It was to be submitted within a period not exceeding four months
from the close of the financial year, which was on or before 30 April 2007 as required by the
Listing Requirements of the Exchange.
 It became worse when their external auditor, Deloitte & Touche via a letter to the Board
of Directors (BOD) on 4 May 2007, refused to approve the annual accounts for lacking of certain
supporting documents. This is because the external auditor did not want to sign the account as he
was not able get enough evidence regarding fundamental confirmation for the transactions related
to trade receivables and the sale and purchase of property plants and equipment in the company
and its subsidiary. Prior on, in February 2007, the board had endorsed an unaudited result that
had demonstrated a 80% expansion in revenue, doubled its net benefit, and trade receivables that
had expanded to RM381 million from RM111 million in 2005. A day prior, the review panel
meeting highlighted a few issues in the records; notwithstanding, the issue was not raised amid
the executive gatherings in the followings days, possibly as a result of the impact from
individuals from the review board of trustees as they were the persons engaged in the activities.
In May 2007, the new Board appointed a forensic auditor, Moores Rowland Risk
Management to conduct a special audit of the company’s account and its subsidiaries, which the
issues about its financial statements has been raised by external auditor, Deloitte & Touche. The
auditor found that the revenue was overstated, not only for the financial year 2016 but for three
consecutive financial years from 2004 to 2006 by a total of RM622 million (Fong, 2007b;
Zaimee, 2007). With the overstating figures taken into consideration, Transmile’s profits for the
effected years had reversed to a loss instead.
In addition to that, another cash outflow of RM341 million was “purported property plant
and equipment” because there was discovered to be little supporting documentation for that
transaction (Zaimee, 2007). Furthermore, the company was said to have made payments totaling
RM189 million without supporting payment vouchers (Zaimee, 2007). The special audit into its
subsidiary accounts found items on related-party sales transactions in which that CEN Worldwide
Sdn Bhd a major customer and associate of Transmile owed RM103 million and there were
incidences of under billing or non-billing of CEN’s debts to Transmile. One of the directors of
CEN Worldwide was a nephew of the founder and former director of Transmile. The search also
showed Khiudin Mohd @ Bidin was one of three directors of CEN Worldwide. (Transmile also
listed one Khiudin Mohd @ Bidin as having resigned as a non-independent executive director
and audit committee member.) Other directors of CEN Worldwide are Gan Eu Jin and Mohd
Affendi Mamat @ Muhamad.
 The newly appointed director has lodged a police report regarding the false statement on
revenue, property plant and equipment, and payment to third parties. As a result of that, the
former chief executive officer, former chief financial officer and executive director were charged
by the court for the submission of misleading financial statements. Furthermore, the two former
independent directors as well as audit committee, Chin Keem Feung and Shukri Sheikh Abdul
Tawab were compounded RM500,000 each under the Securities Act for the authorized release of
a misleading financial statement to the stock exchange (the first case in Malaysia to impose a
charge on independent directors and give a signal to the market that independent directors cannot
just endorse everything given to them).
In July 2007, the company announced the winding up of its subsidiaries due to larger
group liabilities and finally the shareholders suffered a loss of their investment from the massive
drop in the company’s share price, which was the highest on 3 January 2007 at RM14.40, to
RM4.64 on 3 July 2007 and below RM0.50 since March 2010 (Oh, 2010). On 24 May 2011, the
company was delisted from the exchange. Furthermore, the shareholder funds decreased from
RM424 million in 2007 to a negative of RM289 million and loss in market capitalization of
RM1.2 billion.

Up to this date, two of its directors, Shukri Sheikh Abdul Tawab and Jimmy Chin Keem
Feung were found guilty by Sessions Court for authorizing the furnishing of a misleading
statement to Bursa Malaysia for Financial Year Ended 31 December 2006 with sentence one year
imprisonment and a fine of RM300,000. While charge for Chief Financial Officer, Lo Chok Ping,
has been withdrew as he paid a compound of RM700,000 and charge for the other directors, Gan
Boon Aun and Khiudin bin Mohd are still pending in the Court of Appeal.
3.0 Discussion

3.1 Whistleblowing Reality in Malaysia

Whistle-blowing action is not a popular way of reporting wrongdoing in organizations

(Ghani, Galbreath, & Evans, 2011). Based on our understanding in the topic that have been learnt
in management ethics course, whistleblowing is morally justified when it is clearly wrong, other
method have failed, it will prevent the wrong and the wrong is serious enough to justify the costs
of whistleblowing. Even though in Malaysia there’s a protection for whistleblower under
Whistleblower Protection Act 2010 (WPA). We believe that the Act is not good enough to
enhance whistleblower to reveal acts of crime or mismanagement in an organization. For
example there are strict rule to follow, such as the disclosure must be reported to an enforcement
agency and information must not be made public by the whistleblower himself.

We believe that public whistleblowing is probably the most effective way to uncover the
misconduct. If the company is too big and have a good relationship with the government, the
agency may cover up the possible misconduct of the company. The protection under WPA has its
own limitations when it clashed with other laws such as the Official Secrets Act 1972 (OSA) and
the Financial Service Act 2013. The whistleblower can be accused under those laws. The
ambiguous reward system for whistleblower also reduces the desire to reveal the misconduct.

In the case of Transmile, it’s clear that there are some elements of whistleblowing. The
act of BOD of Transmile to hire a third party to investigate their financial statements as a result
of external auditor didn’t want to sign the accounts and the newly appointed director’s police
report regarding the false statement on their financial statements have the elements of
whistleblowing. As the result, the share price drop from the highest on 3 January 2007 at
RM14.40 to RM4.64 in 6 months. The two former directors who also audit committee members
were found guilty. (Hamid, Shafie, Othman, Hussin and Fadzil, 2013)

3.2 Whistleblowing and Organization

If there is a case of misconduct, the whistleblowing is one of the best techniques to

prevent and detect the misconduct. So company must have channels to ensure that they are done
inside the organization. Any reported of fraud in an organization should be reported to
whistleblowing committee or audit committee members. (Mohamed, 2014)

The Audit Committees in the case of Transmile was led by Chin Keem Feung when it was
found with serious accounting issues. Their role of the Audit Committee in assisting the BOD in
carrying out the statutory duties is very important, but it was not in the case of Transmile where
some vital information regarding the financial statements which rose by external auditor, Deloitte
& Touche was not communicated to BODs.

Next, the confidentiality and protection of the informer should be the concern of the
organization to encourage the whistleblower to reveal the misconduct. In the case of transmile, it
was most likely the employees, accountants and the managers who involved direct and indirectly
in the fraud knew about it but choose to remain silent since there is no procedure or policy to
protect them in case of whistleblowing happened .

Lastly, as another channel to report misconduct, the organizations can set up a good
system to manage the complains and problems in an organization. It can be done through a
website or special email address to manage all the complains. It can be run by any responsible
person such as internal audit, audit committee or whistleblowing committee.

3.3 Type of Unethical Action and Moral Responsibility

The guilty parties or those morally responsible on the case and the wrongdoing are listed below :

Name Title Charges Latest Result

Jimmy Chin Independent Security Commission: One Year
Keem Feung director and Section 122B(b)(bb) of the Securities imprisonment
Members of Audit Industry Act 1983 “knowingly and a fine of
Committee authorizing the furnishing of a RM300,000
misleading statement”
Shukri Sheikh Independent Security Commission: Section One Year
Abdul Tawab director and 122B(b)(bb) of the Securities imprisonment
 Members of Audit Industry Act 1983 and a fine of
Committee “knowingly authorizing the RM300,000
furnishing of a misleading statement”

Gan Boon Aun Chief Executive Security Commission: Liable to a fine of

Officer Section 86(b) of the SIA read not less than
together with section 122C(c) RM1mil and a
of the SIA prison term of up
“providing misleading unaudited to 10 years.
consolidated
reports”

Khiudin Mohd Executive Director Security Commission: Liable to a fine of

section 86(b) of the SIA read together not less than
with section 122C(c) RM1mil and a
of the SIA prison term of up
“providing misleading unaudited to 10 years.
consolidated
reports”

Lo Chok Ping Chief Financial Security Commission: Charge withdrew

Officer Section 86(b) of the SIA read against him after
together with section 122C(c) he paid a
of the SIA compound
“providing misleading unaudited of RM700,000
consolidated
reports”
3.4 Injured Parties / Stakeholders

The air cargo operator which once flew high today has shrunk into a company with no
business activity and a few subsidiaries and associates that have long ceased operations and are
dormant. In the case of Transmile scandals, ethical issues that occur in Transmile have affected
the following parties:

1. Stakeholders

The shareholders also adversely affected from the discovery of "accounting fraud" in
Transmile and the stockholders have to endure a huge loss in their investment in Transmile. As
a result of the scandal in Transmile, a meeting was held and the members of the meeting agreed
to dispose of a wholly owned subsidiary, Transmile Air Services (TAS). Overall sales revenue
of RM40 million has been paid to the creditors of the group following the scheme and TAS has
been waived, released and discharged from all claims, guarantees and other obligations as part
of the debt restructuring scheme. The sales proceeds of US$2.74 million (about RM8.81
million) was used to meet outstanding and overdue expenses including legal and other
professional fees.

2. Employee

After an investigation conducted, the party authorities found Transmile’s scandal cases
have collusion between some groups of workers who are responsible for the organization and
with suppliers who are outside from the organization. This leads to the good name of another
employees who were not involved also affected, while some of them did not know anything
regarding the fraud and weren’t directly involved in this scandal case.

3. Stock Market

Capital stock markets were also affected by this scandal, which led to sudden fall in the
value of shares in Transmile. The shares in Transmile had reached RM14.40 prices in early
year 2007, but after this scandal cases were exposed. In general, we see it worn a surprise for
everyone, especially for investors and when the current value of shares fell to RM4.64 in 6
months. Looking at the case of this scandal is a huge issue, the stock continues to fall Transmile
up to RM0.50 per share in March 2010. The decline in prices has led to eliminate large market
capitalization and delisted from market exchange.

4. Deloitte & Touche

Deloitte & Touche is the external auditor who audited the Transmile Group Bhd. Deloitte
& Touche who has enjoyed a long-term relationship with Transmile, stretching more than a
decade. The long-standing relationship could however to a certain extent pose the familiarities
threats. Familiarity, could negatively affect auditors’ independence of mind and therefore their
auditing quality. Since scandal case exposed, it also affected Deloitte & Touche’s reputation
and could be issues of possible conflict of interests and independence of auditors. It could raise
the public doubt to the credibility of the auditing profession and affects the public’s confidence
in auditors’ duties.

5. Government

The Transmile scandal has tarnished the credibility of Malaysia in corporate governance
and transparency in Malaysia. Scandal case like Transmile could affect reputation of the
government in order to promote corporate accountability and integrity, which encourage the
practice of ethical values higher through the implementation of the National Integrity Plan.
4.0 Conclusion

There are many factor that lead to the fraud in the Transmile case. One of the main factors
are the managerial behavior that wants to make the company appear to be good in term of
performance, which lead to the activity of reporting a higher profit than the actual amount. Beside
that, the lacks of internal control system to prevent and detect the misconduct also lead to the
fraud to occur without notice. Another factor is lack of monitoring and detecting by the BOD
themselves. Transmile should identify why there are a significant increase in the profit.

Whistleblowing has influenced many changes within the business and industry practices.
Before the Whistleblower Protection Act 2010 (DPA) has been introduced, whistleblowing
retaliation against anyone who would provide information of corruption within a business was
quite common. DPA is one of the Malaysian laws introduced to combat corruption and unethical
doings. It is important by encouraging and facilitating disclosures of improper conduct in the
public and private sector, to protect persons making those disclosures from detrimental action, to
provide for the matter disclosed to be investigated and dealt with and to provide for the remedies
connected therewith.

Whistleblowing has many impacts and effects on a business including loss of credibility,
a decline in customers which results in a decline financially for the business. Whistleblowing can
cause a business to lose future business endeavors. Whistleblower needs a clear sign of support
from the organization. Therefore, companies should give strong support to them by continuously
monitor the whistleblower’s welfare, encourage the whistleblower to report any retaliation
against him or her as well as ensure their job security. By doing so, the whistleblower will feel
they are being protected and supported.

It is important for corporate to use whistleblowing as a tool to detect fraud in the company
even though there might be a side effect of the fraud being exposed, as it is for the protection of
the shareholders and the company itself in long term developments and growths.
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(4)The Star Business, ‘Transmile report singles out CEN Worldwide’, June 19, 2007.
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(5)Business Times, ‘Transmile audit shows losses in 2005, 2006’, June 20 2007.
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ml

(6)The Chief Executive Officer and the Chief Financial Officer of Transmile were charged in the
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(7)Business Times, ‘Transmile may report Q3 loss: Aseambankers’, October 8, 2007.

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