2014 International Conference on Economics, Management and Development
Misappropriation of Assets: Tales of Two Cities
Nafsiah Mohamed, Rozaiha Ab Majid, Rosmawati Haron, Betsy Jomitin, Nor Bahiyah Omar
Abstract – This paper presents the findings of a study comparing the
results of survey on the possibility of assets misappropriation
occurrences between two city councils. Data for this study were
collected from two city councils in Malaysia. The results shown
unethical behaviors are perceived as legal in both city councils.
This study contributes significantly to the literature by presenting
evidence on the likelihood level of misappropriation of assets to occur
in local authorities. The findings from the survey and an interview
revealed that misappropriation of assets were indeed a concern to the
selected local authorities.
As challenges grow, the community in the public sector
somehow has vague impression on the limit of acceptable and
unacceptable behavior [2]. In a study conducted by [3]
misappropriation of assets is indeed a concern in Malaysia’s
local authorities. In the study, the findings have shown an
alarming sign of misappropriation of assets which has been
classified to (highest score):
1.
2.
3.
4.
Keywords – Local Authorities, Misappropriation of assets, Fraud,
City Council
I. INTRODUCTION
Local authorities are administrative offices that govern small
areas in a state. Local authority plays a key role in indigenous
economic growth and implementation of national development
plans and policies of the government [1].Ultimately, the
success of the local authority lies in the hands of its
employees. However, the increasing number of fraud cases
reported had long overdue wake-up call and local authority
really needs to take considerable actions to put its house in
order.
Fraud can occur at various levels of the organization. The
wave of corporate scandals, beginning in 2001- 2002 with
Enron, WorldCom, and others, led to the recognition that
deficiencies too often existed in the governance and internal
control systems of all types of organizations. Reactions to
these deficiencies have resulted to Sarbanes-Oxley, and
internal control audits under Section 404 which has witnessed
to an increase in attention to the issues of governance, internal
control, and fraud detection by auditors, management, and the
broad investment community. While there have been many
high-profile cases in the corporate world, the governmental
and not-for-profit organizations are also not immune from
major fraud.
This research is funded by The Accounting Research Institute (ARI), and
Research Management Institute (RMI) of Universiti Teknologi MARA,
MALAYSIA.
Nafsiah Mohamed is a Professor at the Faculty of Accountancy, Universiti
Teknologi
MARA,
in
Shah
Alam,
Malaysia
(e-mail:
nafsiah793@salam.uitm.edu.my
Rozaiha Abd Majid is with Universiti Teknologi MARA, in Melaka, Malaysia
(e-mail: rozaihamajid@melaka.uitm.edu.my)
Rosmawati Haron is with Universiti Teknologi MARA, in Johor, Malaysia (email: rosma741@johor.uitm.edu.my).
Betsy Jomitin is with Universiti Teknologi MARA, in Sabah,
Malaysia (email: betsy014@sabah.uitm.edu.my)
Nor Bahiyah Omar is with Universiti Teknologi MARA in Perak,
Malaysia (email: norba799@perak.uitm.edu.my)
ISBN: 978-1-61804-217-0
Vehicles; and internet connection
Computer equipment
Stationery
Telephone usage
It is also found that unethical behaviors are common sight
among the employees and some perceived that the activities
are legal. The consequences of this act are the employee’s
personal enrichment and the organization’s losses [4].
Given the critical importance of this issue, this research has
two-fold aims. This paper will examine opinion of employees
on the issue of assets misappropriation and to explore the
opinions of local authority employees on the issues. It is hoped
that the findings are capable to offer certain highlights to the
management of local authorities that such unethical behavior
might survive. As such, appropriate actions can be outlined in
order to curb the problems so that loss in assets and revenues
can be reduced.
II. PREVIOUS STUDIES
Local authorities in Malaysia are given wide powers within
the Local Government Act of 1976 [5] and are generally,
under the exclusive purview of the state government. Its
functions among others are, to plan and develop its area, to
provide basic amenities, collect and manage waste and
garbage. It has the power to collect taxes, to create laws and
rules and to grant licenses and permits for any trade in its area
of jurisdiction. The mission, objectives and functions of local
authority have, in fact, undergone various degrees of reform,
especially under the influences of various, complex changes in
public policies, development strategies and initiatives [6].
The prevalence of serious misconduct in government and
public sector, of which local authority is grouped under, was
56% [7]. This problem can also be observed from public
disclosures of widespread questionable, negative and illegal
acts of public officials [8] and increasing number of
complaints received by Public Complaints Bureau. According
to the bureau website [9], the statistics showed that the number
of complaints received increased from 2941 in 2007 to 4059 in
2008. It seems that until September 2009, 9709 complaints
have been recorded which is twice as many as the total
complaints received in the previous year.
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2014 International Conference on Economics, Management and Development
Unfortunately, the victims most affected by acts of
misconduct and misappropriation were the taxpayers with
most, if not all, of tax imposed on them.
III. RESEARCH METHODOLOGY
We have elected two local authorities in order to fulfill our
research aims. We choose to employ convenience sampling for
the selection of local authority, which we made based on the
descriptive results found by [3] and [10] in their studies. Their
results have shown similar outcomes on misappropriation of
assets regardless of total assets and total employees employed
in local authorities all over Malaysia. This research was
constructed through 2 phases; survey and interview. The
questions relating to the studies were structured in Likert Scale
of 1 (Strongly Disagree) to 5 (Strongly Agree).
IV. ANALYSIS AND FINDINGS
We have distributed a survey to 300 employees; however,
only 62 returned were usable.
Scenarios 1, 2 and 3 addressed the issues of the possibility of
occurrences of misuse of assets through the perspectives of the
respondents. The findings may provide evidence on the
possibility of the occurrence of misappropriation of assets at
the City Council under study.
against the employees. In addition, employees were given
permission by their superior to use official vehicles for
personal use (63%).
On the other hand, the percentage showed by city Council B
is slightly lower as compared to City Council A. 56% of
respondents from City Council B believed that the situation is
a common practice.
B. Scenario 2: A council employee’s daughter used council
computer and printer to complete her coursework. She used
the council papers when printing her coursework
Scenario 2 is regarding a situation that a council employee’s
daughter used council computer and printer to complete her
coursework and she used the council papers when printing her
coursework. 80% of respondents from City Council A
considered it as a common practice whereas only 44% of
respondents of City Council B agreed. Interestingly, 84% of
them agreed that the scenario was against the law but there
was no action taken against the employees.
Table 2: SCENARIO 2: A council employee’s daughter used
council computer and printer to complete her coursework. She
used the council papers when printing her coursework
City
Council A
A. Scenario 1: A council employee used a council vehicle to
transport his/her children to and from schools
This is a common
practice
Result of Scenario 1 presented in Table 1 showed that 63%
of the respondents from City Council A agreed that situation of
an employee used an office vehicle to transport his/her
children to or from schools is a common practice. According
to the respondents, it is a common sight to see an employee
used an official vehicle.
Table 1:
SCENARIO 1: An employee used an office
vehicle to transport his/her children to and from schools
This is a
common
practice
My colleagues
are doing the
same thing
I think that is
not against the
law
My superior
has given me
the permission
Agree
Neutral
Disagree
Agree
Neutral
Disagree
Agree
Neutral
Disagree
Agree
Neutral
Disagree
City
Council A
%
63
23
13
53
27
20
0
20
80
10
20
70
My colleagues are
doing the same
thing
I think that is not
against the law
My superior has
given me the
permission
%
80
3
16
90
3
6
3
20
77
0
33
66
C. Scenario 3: A professional council officer conducted
private consultancies utilizing council office equipment and
materials
City
Council B
%
56
22
22
59
19
22
3
10
87
3
31
66
This is a common
practice
My colleagues are
doing the same
thing
I think that is not
against the law
Another question on whether the respondents had come
across seeing their colleagues doing the same thing, 53%
respondents agreed. Interestingly, 80% of them agreed that the
scenario was against the law but there was no action taken
ISBN: 978-1-61804-217-0
Agree
Neutral
Disagree
Agree
Neutral
Disagree
Agree
Neutral
Disagree
Agree
Neutral
Disagree
City
Council
B
%
44
22
34
50
22
28
6
10
84
3
44
53
189
My superior has
given me the
permission
Agree
Neutral
Disagree
Agree
Neutral
Disagree
Agree
Neutral
Disagree
Agree
Neutral
Disagree
City
Council A
%
70
23
7
53
33
13
0
23
77
3
33
63
City
Council B
%
31
13
56
34
9
56
0
16
84
3
25
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2014 International Conference on Economics, Management and Development
Table 3: SCENARIO 3: A professional council officer
conducted private consultancies utilizing council office
equipment and materials
From Table 2, it can be seen that most of the respondents of
City Council A believed that a situation that a professional
council officer conducted private consultancies utilizing
council office equipment and materials is a common sight at
their workplace. However, only 31% of respondents of City
Council B have the same opinion.
Based on the analysis of the findings from the three scenarios
above, majority of the respondents agreed that the scenarios
were common sights at both local authorities. They also agreed
that they had seen their colleagues doing that. These results
seem to be consistent with the results from [11], where 74 %
of respondents agreed that they had personally observed or had
first-hand knowledge of wrongdoings within their
organization. The analysis of all these three scenarios showed
that even though the respondents were aware that the scenarios
were against the law, they would still do it if they were given
permission by their superior.
This analysis provides evidences of the possibility of
seriousness of the issue of misappropriation of assets in a City
Council. This may be due to a lot of factors, among others,
were opportunity to misappropriate the assets, ineffective
internal control system, lack of awareness and level of fraud
education among the officers. Remarkably, there were
respondents who thought that the cases were not against the
law especially in Scenario 1 and 2.
In order to find more evidences on this issue, the survey also
inquires on respondent opinions toward the possibility of
misappropriation of assets in the future. This could indicate
current situation of misappropriation of assets, the
appropriateness of existing internal controls and the action to
be taken to remedy the situation.
Chart 1:
City Council A: The likelihood
misappropriation of assets occurring in the future
Most L ikely to
Occur
27%
Very L ikely to
Occur
57%
Chart 2:
City Council B: The likelihood of misappropriation of
assets occurring in the future
Respondents of City Council B also considered there is high
possibility of misappropriation of assets occurring in the future
with more than 85% agreed. A total of 65% of the respondents
of City Council A believed that misappropriation of assets
would very likely to occur in the future, most likely (28%) and
not sure (7%). Not even 1% of them believed that the council
would not be facing the problem in the future.
of
A total of 65% of the respondents of City Council A believed
that misappropriation of assets would very likely to occur in
the future, most likely (28%) and not sure (7%). Not even 1%
of them believed that the council would not be facing the
problem in the future.
ISBN: 978-1-61804-217-0
Not Very L ikely Not S ure
16%
to Occur
0%
V. CONCLUSION
There is sufficient room to debate whether these two city
councils faced problems of assets misappropriation by their
employees. Based on the analysis, it can be concluded that
there is a likelihood of the occurrences of misappropriation of
assets in both local authorities; City Council A and B. Most of
the employees of the City Council understood the seriousness
of the acts of misappropriation of assets; however they were
still doing it. The findings of the research can be an indicator
of the level of the seriousness of misappropriation of assets of
these local authorities as a whole.
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2014 International Conference on Economics, Management and Development
ACKNOWLEDGMENT
A thank you to the management of Accounting, Business and
Economy Research Center (ABERC) of Universiti Teknologi
MARA, JOHOR, Research Management Institute (RMI) and
Accounting Research Institute (ARI) for their believe and
continuous support.
Rozaiha Ab Majid is currently a lecturer at Universiti
Teknologi MARA Melaka City Campus, Malaysia. She
obtained her first degree in accounting and master in
forensic accounting and financial criminology from
Universiti Teknologi MARA, Shah Alam, Malaysia.
She has taught financial accounting, public sector
accounting and performance evaluation courses at
graduate level. Her research interests include misappropriation of assets,
fraud investigation and money laundering.
REFERENCES
[1] Ahmad Sarji, A. H., and Mahmud, T. (1993). Upholding
The Integrity Of Malaysian Civil Service. Pelanduk
Publications (M) Sdn Bhd.
[2] Pricewaterhousecoopers, 2010. Fraud in the Public Sector,
Global Economic Crime Survey, PwC Public Sector Research
Center Publication
[3] Ab Majid. R. (April, 2010). An Exploratory Study on The
Possibility of Misappropriation of Asset Occurring in A Local
Authority: A Case of Shah Alam City Council. Dissertation.
Universiti Teknologi MARA
Rosmawati Haron is an accounting lecturer specialising
in Financial Reporting at the Universiti Teknologi
MARA, Johor, Malaysia. Her career as a lecturer began
in 2008 after being exposed in local automotive
industries for 12 years. Rosmawati has developed an
exceptional background in cost management accounting
and cost reduction activities based on excellent team
work and an ability to make the best possible use of her
personal network. Based on her immerse working
experience, she was appointed as the Coordinator for Industrial Training
Program for accounting undergraduate students since 2009. At present,
Rosmawati has developed a keen sense in Financial Criminology and Forensic
Accounting in Public Sector. She is a fellow of the Accounting, Business and
Economy Research Center (ABERC) in Universiti Teknologi MARA, Johor
and is an active member for Accounting Research Insitute (ARI).
[4] L. Stewart, (2007). “Managing Government Employees:
how to motivate your people, deal with difficult issues and
achieve tangible results”, Amacom, New York, pp 11-19.
[5] Local Government Act (1976), Date access: 1.8.2009
[6] The Newstraits Times Online; Date access 8.8.2009
[7] KPMG, Profile of a Fraudster Survey 2008.
[8] Local Government Act (1976), Date access: 1.8.2009
[9]
Public
Complaints
Bureau
http://www.pcb.gov.my/. Date access 1.8.2009
website.
[10] Jomitin, B. (2011). Asset Misappropriation in A Local
Authority: Factors Associating Occurrence and PreventionDetection Mechanism. Dissertation. Universiti Teknologi
MARA
[11] KPMG Forensic’s 2008–2009 Integrity Survey.
Nafsiah Mohamed is a professor at the Faculty of
Accountancy in university Teknologi MARA, Shah
Alam. Her area of expertise is public sector accounting
and had participated in many international and national
conferences on the subject area. She is also a member of
the Government Accounting Standards Advisory
Committee (GASAC) and head of Public Sector
Accounting for Accounting Research Institute (ARI)
ISBN: 978-1-61804-217-0
191
Betsy Jomitin is an accounting lecturer currently
attached with the Faculty of Accountancy, University
Teknologi MARA, Sabah, Malaysia. She joined the
academic field in 2007 after 10 years working as an
external auditor with an international audit firm based in
Kota Kinabalu, Sabah. She is a member of the
Malaysian Institute of Accountants, CA (M) since 2000.
Her academic qualifications include a Bachelor Degree
(Hons) in Accountancy and Master in Accountancy,
both obtained from Universiti Teknologi MARA. Financial Criminology and
Forensic Accounting in Public Sector is her area of interest when it comes to
research.
Nor Bahiyah Omar serves University Teknologi Mara
Perak Campus as a lecturer. She read a major in
Accounting and earned a Bachelor of Commerce from
the University of Tasmania, Australia. She has a
Masters in Accounting from UiTM. Prior to the
academia, she was attached to a reputable financial
institution. She has progressed more than 13 years of
experience in international banking industries. A
member of World Bank’s Berne Union, she was
involved in developing more than 10 financial instruments products widely
used in Malaysia. With a backdrop of vast international banking attachments
and government to government arrangements, her keen of interest in Forensic
Accounting comes naturally.