LKIM has prepared the “Accounting Manual for Area Fishermen's Association” in 1982, and distributed it to all PNs in the country. The manual contains the table of accounts with accounting codes, recording and posting of various accounts, books, ledgers and subsidiary ledgers, financial statements, and an arrangement of various project accounts together with recommended formats of vouchers, invoices, bills, receipts, books, records, ledgers and subsidiary ledgers. The manual also indicates flow-charts for selected accounting procedures of various economic projects. Though proper training on accounting have repeatedly been given by LKIM based on the manual, the PN has not fully adopted the accounting system recommended by LKIM. There can be found at every turn disorder, confusion, unjustifiable practices, and errors in the accounting procedures of the PN.
Though the table of accounts recommended by LKIM in its accounting manual is not the most appropriate, nevertheless, there is no evidence that the PN has ever adopted the classification of accounts with their nomenclature (titles) and code numbers indicated in the said table of accounts.
Worse still, the titles of particular accounts have frequently been changed from one year to another, and also new titles of accounts have aften been developed indiscriminately in the PN accounting. A look at the PN financial statements, especially in the items of expenditure, will confirm this.
The fundamental objective of accounting is that the accounts represented in the financial statements portray a true picture of business operations of a concern from one year to the next. Therefore, the items of accounts together with their grouping should be standarized so that the management is able to review and compare figures of any particular item of account over the past years to ascertain whether the business operation is in a healthy condition or not.
It is significant that modern accounting is always based on the systematic double-entry book-keeping regardless of size of a concern, or nature of business. This method was developed to meet three very definite needs; to describe transactions arising from business operations, to place responsibility, and to prevent fraud.
The PN accounting system has many times failed to follow this fundamental method and principles in its book-keeping practices. As already mentioned in the Chapter 4.3., the fish marketing project did not add the amount payable to the LKIM Complex which was recorded in the accounts payable, to the item of commission in the expenditure. This resulted in mis-computation of the net profit for 1986. If the transactions were kept correctly in the books of expenditure corresponded with payables, as the principle of double-entry requires, such serious errors could be avoided.
Another example of a failure of double-entry book-keeping is found in the items of receivables and payables accrued by those internal transactions between various projects of the PN. This is indicated by imbalanced figures recorded in receivables of a particular project and payables of a corrensponding counter-part project, as shown in Appendix XIII.
Another strange accounting transaction was made in the accounts of the ice supply project in 1986 where the project disbursed M$1,500 for a contribution to the general account, but the general account did not record the amount as an income. According to an explanation given by the accounting clerk of the general account, the amount disbursed by the ice supply project was recorded as an income of the Educational Support Fund which is not included in the PN accounts.
Furthermore, the fuel supply project disbursed M$1,500 for a share contribution to the State Fishermen's Association of Kelantan which should have been recorded as an investment; however, the amount was deducted from the PN accounts as an expenditure.
The PN prepares sets of payment vouchers, receipts, sales bills, sales invoices in triplicate of which the first copy is to be handed over to the person concerned and the second and third will be used for book-keeping and auditing as evidence.
An accounting slip providing particular columns for recording the titles of accounts with the code numbers of both debit and credit, particulars explaining the nature of accounting transaction, and the amount, made in triplicate of which the first copy is to be used for posting in the account of the general ledger, the second and third for posting the amount on debit and credit of particular subsidiary ledgers respectively, may ensure a double-entry book-keeping of accounting of the PN. Vouchers, invoices, sales bills and receipts would be attached to the accounting slips as evidence.
Understanding of accounting principles is largely lacking in the PN accounting staff. One particular example indicates that fish marketing recorded negative figures in its cash account for many months in 1986. The fish marketing project borrowed monies from the fuel supply project by exchanging post-dated cheques received from fish dealers. These transactions had neither been recorded in the books nor been approved by the Board of Directors. When payments were made to fishermen, the amount of payments exceeded the balance in the cash account. Because the cash account did not include the amount of unofficial borrowing from the fuel supply project, the figures in the cash account were in consequence negative.
The accounts of the PNs should audited at least once every year as required by the Fishermen's Association Act 1971, under the provision prescribed in Section 25.
The PN prepares drafts of financial statements of various projects and general accounts for auditing, however, the accounting and management staff do not make any correction or adjustment on accounts even when some errors or imbalances in figures are found on the drafts, and expect the auditor to correct or adjust them. Furthermore, the PN does not prepare a draft of financial stataement of the consolidated account, and requests the auditor to settle the consolidated accounts.
Therefore, the management and the Board of Directors cannot ascertain the exact results of operations not only of the various projects but to total operations of the PN until the audit is completed, which usually takes more than 6 months.
For the successful operation of the PN, the fundamental, clear, definite understanding and ascertainment of figures in the financial statements are essential. Without having settled accounts in time, no management can make any decision and/or take any action to improve the operations.
Though all financial statements must come under the scrutiny of the external auditor as required by the Act, unaudited detailed financial statements which are correct and honest, must be presented to management in good time.
Financial statements are of the greatest value when obtained over successive periods of time and so present comparative data at periodic intervals.
The PN has in recent years presented its current financial statements in comparison with that of the preceeding year. Taking into account that the preparation of these statements has always been made by the external auditor, this means, the management can only make comparative studies on the results of operations and financial conditions many months after the closing of accounts of a particular year. There is, however, no sign of such studies ever being attempted.
The Board of Directors of the PN has presented the anticipated budget and planning of operations for a coming year to the general meetings, but no comparative analysis of current financial results with figures in the budget has ever been carried out by the management.
LKIM requires all PNs to prepre and submit a monthly report of operations of every economic project which should be reviewed at a monthly meeting held in every LKIM State Office.
The format of the monthly report has not been standardized, and changes in the format have often been made that no comparative studies could be made from month to month, and in addition, figures of some item have been reported intermittently. Moreover, no report has ever been made on the integrated operations (consolidated account) of all activities.
Mention must be made here that the monthly reports of the PN projects for previous months have not been frequently presented at the meeting and the reporting has often been made verbally. Furthermore, a general manager of a PN does not sometimes attend the monthly meeting because of leave. Moreover, no comparative study has ever been made on each monthly results of operations with those of the corresponding previous period.
The fundamental importance of understanding the delicate shades in the monthly reports as well as in the annual financial statements of the PN must be emphasized. If the results of operations represented in the monthly reports or the annual financial statements are out of line in any important aspect, then intelligent operation and consistent, sound operational and financial policies are essential to bring affairs to a healthy condition over the months and years. No monthly report or annual financial statement will recover its health by itself, the management staff must guide the operations of PN consciously.
As mentioned earlier, the accounts of the PNs must be audited by LKIM or by the authorized external auditor appointed by the Registrar of Fishermen's Associations in accordance with the provision stipulated in the Fishermen's Associations Act 1971.
The accounts of the Tumpat Area Fishermen's Association have been audited by the external auditor for many years. The process of auditing has always taken more than 6 months after the drafts of financial statement of various economic activities and the general account together with relevant ledgers and supporting documents have been sent to the auditor by the PN. For example, the auditor's reports for the PN accounts for the year ended 31 December, 1984 were submitted to the Registrar as well as to the Board of Directors of the Tumpat PN on 5 August 1985, excluding the accounts for the repair shop project and the cockle project. And the report of the auditor for all accounts for the year ended 31 December, 1985 was presented to the Registrar and Board of Directors of the Tumpat PN on 26 April, 1987 together with the audit reports of the repair shop accounts and cockle accounts for the year 1984.
The auditor, in his reports, once pointed out unbalanced figures on the items of receivables and payables of several projects between which sales were made or loans were extended, and recommended that the PN adjust these figures, but there can still be found more unbalanced figures in items of receivables and payables other than those pointed out by the auditor.
The auditor also stated that figures presented in the item of inventory could not be ascertained since the auditor did not attend the physical stock check carried out by the PN at the end of each fiscal year. There must, however, be some way of ascertaining the volume and value of inventory even after closing books for the year, as the auditor is an expert on accounting.
He also commented, in his report, that all items of accounts listed in the financial statements were enumerated in the order recommended by LKIM in its accounting manual to show clearly the true picture of the financial situation of the PN, however, there can be found many improper titles of account in the PN financial statements which are not listed in the recommended table of accounts in the LKIM manual for PNs, and furthermore, the arrangement of item of account is inconsistent from one year to another.
One of the most serious unjustifiable adjustment was made in the auditor's report for 1985 whereby the balance of all accounts except cash and inventory of the Geting retail shop project which closed operations during 1985, was excluded from the consolidated accounts of the year. The balances of cash and inventory were transferred to the Tumpat retail shop project, but fixed assets, receivables, payables, launching grant, reserves and accumulated profits/losses carried forward by the Geting retail shop operations disappeared from the financial statements of the PN.
A similar situation must have occurred for another project, i.e. the Dalam Rhu retail shop project whose operation had been closed many years ago and the repair shop project in Geting which was planned to be implemented with the launching grant of M$35,000 given by LKIM but its launching was suspended in 1980. No accounts of these projects carried forward are included in the current consolidated accounts of the PN.
The auditor should recemmend that the PN establish a liquidated account to transfer all balances of accounts carried forward from suspended projects, figures of which should also be included in the current consolidated accounts, and encourage management staff to settle those accounts in receivables and payables listed in the liquidated account, so as to make clear the responsibility of management staff on those accounts.
Furthermore, no comment or recommendation was observed in the auditor's report with regard to the management and operation of the PN activities. If the Registrar requests the external auditors to examine only the accounting procedures of PNs, LKIM should provide internal auditors from its staff to offer more precise and frequent extension services not only on accounting procedure but also on management of operations.
