Flat Cargo

Introduction

Flat Cargo Berhad (FCB) was one of the largest air freight companies in Malaysia. It was a listed company operating primarily as an air cargo carrier. It was registered as an investment holding company with several subsidiaries. The principal activities of FCB subsidiaries included air freight services and aircraft ground handling services. In this case, several suspicious issues that indicate the possibility of fraud are found and some recommendation are suggested.

Issue 1:

Several debtors’ confirmation letters were returned because the addressees had changed their mailing addresses.

From the Flat Cargo case, we identified the company is lack of ability to collect revenue from credit sales. The customer maybe fully intends to pay but they can’t receive confirmation letters. This situation will lead to the company has not actually collected the revenue. No revenue was actually earned, and nothing valuable was added to the asset accounts receivable as a result of this transaction. If this event were recorded as an increase in revenue, and income for the period and owner’s equity at the end of the period also would be overstated.

When a company earns revenue, the fact that the customer will never pay the bill is, of course, not known; otherwise, the revenue would not have been collected. Even at the end of the accounting period, the company may not know specifically which of its accounts receivable will never be collected.

Recommendation

First and foremost, the company should always update the debtors’ mailing addresses to prevent failure to collect their debt and then send the confirmation letters again. This is because it might affect negatively on its financial figure on next few years. Flat Cargo also needs to regulate its agreement with the debtors more firmly so that in case they were avoiding paying the debt may take legal action. In case of the company really cannot collect the debts from its debtors, there is a way bad debts...