Special auditor hindered from completing Sino Techfibre probe
Discrepancies at Sino Techfibre remain unresolved as its special auditors have been hindered from completing the probe. Because of this, the audit committee (AC) has recommended, as a preliminary measure, that a valuer be appointed to carry out a valuation of the company’s assets and liabilities.
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Discrepancies in invoices issued by firms, suppliers stay unresolved
By LYNETTE KHOO
22 November 2011
Discrepancies at Sino Techfibre remain unresolved as its special auditors have been hindered from completing the probe. Because of this, the audit committee (AC) has recommended, as a preliminary measure, that a valuer be appointed to carry out a valuation of the company’s assets and liabilities.
The AC said it hopes that a valuation may help reconstruct the company’s accounts which were said to have been lost in a fire.
It will also ‘seek professional advice on a further course of action’.
Special auditor KPMG said in its report dated Nov 21 that it was denied access to five of the six computers used by the company’s employees.
‘We were informed by the company’s management that the said computers contained ‘state secrets’ as a result of the company’s business with government-related entities.
‘We were further told that there would be serious consequences for the company and its directors if they were to divulge any secrets and/or confidential information to us,’ KPMG said in its findings.
The Chinese maker of polyurethane (PU) and microfibre synthetic leather products supplies to the People’s Liberation Army and the Chinese government sector, both accounting for one-third of its total sales.
KPMG said that the local tax bureau had also refused to accede to its request for copies or a summary listing of the China subsidiaries’ sales and purchase invoices.
These hindrances prevented KPMG from completing the entire scope of its engagement.
‘This means that the discrepancies highlighted by the company’s auditors, Ernst & Young LLP, which the company has announced on 14 April 2011, remain unresolved,’ the AC said yesterday.
Trading of shares in Sino Techfibre, which was listed on the Singapore Exchange mainboard in October 2006, has been suspended since April 19 after Ernst & Young found discrepancies in invoices issued by the firm and its suppliers and was unable to verify whether the invoices were genuine.
The company could not locate its key sales manager for an explanation and about a week after the irregularities were flagged, a fire broke out at the company’s office and allegedly destroyed the books and financial records kept inside.
KPMG, which was appointed in May as special auditor, undertook alternative review methods as all journal vouchers and supporting documents were said to have been destroyed in the fire.
It noted that the group’s Chinese entities had made significant pre-payments to suppliers for raw materials, totalling 134.25 million yuan (S$27.5 million) for fiscal 2009, 104.1 million yuan for fiscal 2010 and 85.77 million yuan for the first five months of 2011.
During background checks on Sino Techfibre’s key management and business partners, KPMG learnt that group executive director Li Wenheng was, until 2004, a legal representative of a supplier for the group.
Some discrepancies also showed up in the bank confirmation for bank balances of Sino Techfibre subsidiaries as at end-2009 and end-2010.
A recurring spelling error ‘Particulas’ appeared, with the bank statement for one subsidiary’s account showing a transaction having taken place on March 21, 2010 although the bank statement was for March 2011.
When queried, the company’s management explained that the error was introduced by the bank and produced a revised bank statement with the discrepancy corrected.
‘Although the discrepancies described above led us to question the authenticity of the bank statements issued by the Bank of China, taken as a whole, the evidence did not allow us to conclude that there had been any fabrication of the group’s bank balances,’ KPMG said in its report.