You are Irene Mwamba, head of Investigation department of Financial Intelligence Authority (FIA). You have just received a request from the Chief Executive Officer (CEO) to conduct preliminary investigation of fraud taking place in Akakulubelwa Group of companies. The following information is also provided. Akakulubelwa Group is a wholly Zambian owned business, the largest manufacturer in Zambia and among the largest in Sub Saharan Africa. Since its establishment in 1995, the company has established an extensive portfolio of high quality brands and products. Akakulubelwa Group is comprised of Akakulubelwa itself and four standalone subsidiary businesses each focusing on, and specializing in, a specific sub segment, category industry. Over the history, their activities have diversified extensively and now encompasses a number of categories and sectors from detergents, soaps, candy, snacks, cereals, seasoning, biscuits and beverages to mining and steel production. Since its inception, the group has been vigorous in providing different products portfolio and until recently, the Group is embarking on introducing a series of new washing products onto the market. However, the CEO, Edson Kambole, is concerned as he is suspecting fraud taking place in the organisation. The following have been his concerns. The company did not conduct proper background check when employing the Chief Financial Officer of the company Mr. Clive Mwinga. Apparently, Mr. Mwinga changed his lifestyle abruptly after being employed in Akakulubelwa Group by spending more than his paycheck could allow him. Further, Mr. Mwinga has a history of debts in their previous organizations as a result, he continuously engaged in gambling as a way of getting quick cash to meet some of his obligations. He has also contributed in the Finance and Accounts Department not working effectively. He has conveyed with two junior members of his department, contributing to missing accounting documents and processing multiple payments for the organisation. His behaviour has led to many complaining about him including the major customer, XTM limited. An extract of the financial statement has been provided below, Draft 2020 Actual 2019 K'000 K'000 Summary statement of profit or loss Revenue 15,000 11,560 Cost of sales (10,203) (10,474) Gross profit 4, 797 1,086 Administrative expenses (4,313) (779) Interest payable and similar charges (634) (185) Net (loss) profit (150) 122 Summary statement of financial position Non-current assets 5,178 4,670 Current assets Inventory (parts and consumables) 51 350 Receivables 2,975 2,369 3,026 2, 719 Current liabilities Bank loan 250 – Overdraft 1,245 913 Trade payables 1,513 1,245 Lease obligations 207 – Other payables 203 149 3,418 2,307 Long term liabilities Bank loan 750 1,000 Lease obligations 473 – 1,223 1,000 Net assets 3,607 3,793 

Required: 

Explain the red flags highlighted above. Note: make use of the information in the extract of financial statement.

Answer rating: 100% (QA)

The first red flag is that the company did not conduct a proper background check when employing the ... View the full answer