outsourcing fiasco

Topics: Internal audit, Auditing, Audit Pages: 19 (3279 words) Published: April 17, 2014
Outsourcing Fiasco

Introduction
Mentara Bhd (previously known as Mentara Sdn Bhd), which started as a family owned business, was incorporated in 1995. The company is involved in distributing a wide range of products including food and beverages, home appliances and garments. The founders of the business were Dato Ir Johan Arshad and his wife Datin Jamilah Karim. Dato Johan was an engineer for one of the largest oil companies in Malaysia before he decided to quit and start on his own. In 1995, he saw the potential for a hypermarket business in Malaysia, as there was very little competition, especially from the local entrepreneurs. Together with his wife, who had worked as a Marketing Executive in one of the international retail stores operating in Malaysia, they formed “Mentara Sdn Bhd”, which was located in Klang. Although the company was formed during the time when many of the companies were hit by the financial crisis 1997/1998, the business was not seriously affected due to less reliance on borrowings and the company’s effective credit facilities with their suppliers. In addition, many of their suppliers were local partners.

By1999, Mentara Bhd had become one of the leading hypermarket chains in Malaysia. Following its tremendous success in expanding its business operation, the company sought to be listed on the Second Board listing on Bursa Malaysia during the year 2000. After listing, the company became known as Mentara Bhd. With the listing status, Mentara Bhd enjoyed the benefits of fund raising and government incentives. By 2005, Mentara Bhd had become one of the top 20 best performance listed companies. Today, the company has a total of eleven branches operating in Peninsular Malaysia, as well as in Sabah and Sarawak. Due to commitments on several big development projects in the Klang Valley, Mentara Bhd relocated its headquarters to Damansara.

Board of Directors
There are seven board members sitting on the company board, which consist of five gentlemen and two ladies. Since the company started as a family business, most of its board members are familyrelated. Dato Johan is the Chief Executive Officer (CEO), while his wife, Datin Jamilah, is the Marketing Director of the company. Together they hold 56% of Mentara Bhd shares. The Chief Financial Officer (CFO) post is held by Dato Johan’s brother, Jalil, who is responsible for overseeing the financial matters. The Chairman of the company is an ex-government servant, Tan Sri Abdullah Musa, who is also Dato Johan’s uncle. Dato’ Murali Maniam, who is a very close friend of Tan Sri Abdullah, and Jill who is the company’s Information Technology (IT) Director also sit on the

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company board. In assisting the board with legal matters, Simon, the legal advisor, was also invited to sit on the board, and he has been with the company for the past ten years.

Prior to 2004, Jalil was entrusted with the sole financial responsibility for the company with limited assistance from other board members. However, in January 2004, Mentara Bhd employed Malini Kaur, as the company’s Accountant. Malini has five years experience as an auditor and graduated from a local university.

Audit Committee
The Audit Committee comprises four members–Jalil and three other directors – none of whom have financial expertise. Datin Jamilah is the Chairman of the audit committee. The Committee only meets once in a year, which is right before the Annual General Meeting (AGM). For that reason, most matters for discussion and review are approved by e-mail circulation.

The Establishment of the Internal Audit function
Mentara Bhd was listed before the requirement for the company to establish an internal audit department was made mandatory. For the first few years after their listing, Mentara Bhd did not have an Internal Audit function. During a meeting with his brother Jalil, in November 2007, Dato Johan voiced his view concerning this matter.

Johan

:

I seriously think that...
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