Earlier Welli Multi was in the limelight over SC’s query over the authencity of its trade receivable of Rm113m, recently, the company’s former managing director Ang Sun Beng and former executive director Ang Soon An were charged by the Securities Commission (SC) with four counts of providing misleading financial statements to both the SC and Bursa Malaysia Securities Bhd.

Details:

• Both brothers were released on bail of RM150,000 each with the stipulation that both surrender their international passports to the court. If convicted, each faces a fine of up to RM3 million or a maximum jail term of 10 years, or both.
  The alleged offences were committed in contravention of Section 122B(a)(bb), read together with section 122(1) of the Securities Industry Act 1983 (SIA). The alleged misleading statements relate to Welli Multi’s revenue figures in the audited statements for the year ending Dec 31, 2005 and its quarterly reports for the financial periods ended March 21, June 30 and Sept 30, 2006
• The SC also compounded Welli Multi’s former executive director and chief executive officer Tan Chin Han for RM100,000 for knowingly authorising the furnishing of a misleading statement to Bursa Malaysia on Feb 28 last year. The misleading statements were in relation to Welli Multi’s revenue figures for the three months ended Sept 30, 2006 and are in breach of Section 122B of SIA.
• Since November last year, the SC has been coming down on Welli Multi to rectify and reissue the aforesaid financial statements. The company, which is in the business of processing palm kernel, was also on the SC’s radar due to suspicious receivables.
• Although Welli Multi saw the injection of new blood at the beginning of April, the company has yet to supply Bursa Malaysia with its outstanding financials.
  These comprise quarterly reports for the quarters ended June 30, 2007, Sept 30, 2007 and Dec 31, 2007; audited financial statements for the period ended March 31,2007 and the annual report for the year ended March 31, 2007

Liqua Health Corporation Bhd, a main board-listed company which is primarily involved in the selling of health food products like spirulina using the multi level marketing model/concept has informed Securities Commission that it had appointed chartered accounting firm Baker Tilly Monteiro Heong to conduct an investigative audit of certain transactions disclosed in the company’s fourth-quarter results for the period ended Dec 31, 2007.

Some details:

•  The special audit is to look at a transaction amounting to RM15 million paid by Liqua’s wholly owned subsidiary Liqua Health Marketing (M) Sdn Bhd to an exclusive supplier of health care products. According to the notes to the accounts for the unaudited results for the financial year ended Dec 31, 2007, Liqua stated that the money was paid to the supplier of nine core products who is supposed to deliver the products to its wholly-owned subsidiary, Liqua Health Marketing (M) Sdn Bhd.. However, the scheduled products were not received leading to the cancellation of the orders and Liqua sought repayment of the amount paid. A written confirmation and commitment to repay was given by the supplier. Notwithstanding this commitment from the supplier and pending finalisation of the proposed settlement, Liqua has made a provision for RM8 million in doubtful debts. It is believed that the probe could be to ascertain if Liqua would be required to make additional provisions and who the supplier is.
• Liqua, which posted over RM11 million in net losses on the back of RM41 million revenue for the financial year ended Dec 31, 2007, has seen significant changes to the board last month. It appointed Low Donald Han as chairman in mid-March and also redesignated executive directors Rohaya Hashim and Yeoh Eng Kong to non-executive positions.
• The health food marketing firm had chalked up some RM92.37 million in net losses for the financial year ended Dec 31, 2005 on the back of RM37.76 million revenue. The company booked RM78.46 million of “impairment of goodwill” for the year as stated in its 4Q05 results filing to Bursa.
• Net losses shrank to Rm3.39m during the 2006 financial year, but more than tripled to Rm11.08m during the 2007 financial year, despite an improvement in revenue to Rm41.36m. At the end of FY07, Rm108.67m in accumulated losses.

ALPHABET C:

Compliance audit:

• a review of an organization’s financial records performed to determine whether the organization is following specific procedures, rules, or regulations set by some higher authority
• an audit performed to determine whether an entity that receives financial assistance from the government has complied with specific laws and regulations.

Confidential client information:

• client information that may not be disclosed without the specific consent of the client except under authoritative professional or legal investigation.

Contributory negligence:

• an auditor’s legal defense under which the auditor claims that the client failed to perform certain obligations and that it is the client’s failure to perform those obligations that brought about the claimed damages

Criminal liability for accountants:

• defrauding a person through knowing involvement with false financial statements.

Cycle approach:

• a method of dividing an audit by keeping closely related types of transactions and account balances in the same segment.

Confirmation:

• the auditor’s receipt of a written or oral response from an independent third party verifying the accuracy of information requested.

Current files:

• all audit files applicable to the year under audit.

Client business risk:

• the risk that the clint will fail to achieve its objectives related to (1) reliability of financial reporting, (2) effectiveness and efficiency of operations and (3) compliance with laws and regulations

Control risk:

• a measure of the auditor’s assessment of the likelihood that misstatements exceedig a tolerable amount in segment will not be prevented or detected by the client’s internal controls.

Chart of accounts:

• a listing of all the entity’s accounts, which classifies transactons into individual balance sheet and income statement accounts

Collusion:

• a cooperative effort among employees to steal assets or misstate records.

Control activities:

• policies and procedures in addition to those included in the other four components of internal control, that help ensure that necessary actions are taken to address risks in the achievement of the entity’s objectivs; they typically include the following five specific control activities: (1) adequate separation of duties, (2) proper Authorization of transactions and activities, (3) adequate documents and records, (4) physical control over assets and records and (5) independent checks on performance.

Control deficiency:

• a deficiency in the design or operation of controls that does not permit company personel to prevent or detect mistatements on a timely basis.

Control environment:

• the actions, policies, and procedures that reflect the overall attitudes of top management, directors and owners of an entity about internal control and its importance to the entity.

Control risk matrix:

• a methodology used to help the auditor assess control risk by matching key internal controls and internal control deficiencies with transaction-related audit objectives

Computed upper exception rate(CUER):

• the upper limit of the probable population exception rate; the highest exception rate in the population at a given ARACR ( acceptable risk of assessing control risk to low)

Cutoff misstatements:

• misstatements that take place as a result of current period transactions being recorded in a subsequent period, or subsequent period transactions being recorded in the current period.

Cutoff tests:

• tests to determine whether transactions recorded a few days before and after the balance sheet date are included in the correct period.

Cost accounting controls:

• controls over physical inventory and the related costs from the point at which raw materials are requisitioned to the point at which the manufactured product is completed and transferred to storage.

Cost accounting records:

• the accounting records concerned with the manufacture and processing of the goods and storing finished goods.

Capital acquisition and repayment cycle:

• the transaction cycle that involves the acquisition of capital resources in the form of interest-bearing debt and owners’ equity and the repayment of the capital.

Cash equivalents:

• excess cash invested in short-term, highly liquid investments such as time deposits, certificates of deposit and money market funds.

Cut-off bank statement:

• a partial-period bank statement and the related cancelled checks, duplicat deposit slips and other documents included in bank statements, mailed by the bank directly to the auditor; the auditor uses it to verify reconciling items on the client’s year-end bank reconciliation.

Committments:

• agreements that the entity will hold to a fixed set of conditions such as the purchase or sale of merchandise at a stated price, at a future date, regardless of what happens to profits or to the economy as a whole.

Completing the engagement checklist:

• a reminder to the auditor of aspects of the audit that may have bee overlooked

Contingent liability:

• a potential future obligation to an outside party for an unknown amount resulting from activities that have already taken place.

Compilation service:

• a non-audit engageent in which the accountant undertakes to present, in the form of financial statements, information that is the representation of management, without undertaking to express any assurance on the statements.

Alphabet A:

Accounting:

•       The recording, classifying, and summarizing of economic events in a logical manner for the purpose of providing financial information for decision making.

 Absense of causal connection:

•       An auditor’s legal defense under which the auditor contends that the damages claimed by the client were not brought about by any act of the auditor.

 Acceptable audit risk:

•       A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued.

 Acceptable risk of assessing control risk too low (ARACR)

•      The risk that the auditor is willing to take of accepting a control as effective or a rate of monetary misstatements as tolerable when the true population exception rate is greater than the tolerable exception rate.

 Acceptable risk of incorrect acceptance (ARIA):

•      The risk that the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance is equal to or greater than tolerable misstatement.

Acceptable risk of incorrect rejection (ARIR):

•      The risk that the auditor is willing to take of rejecting a balance as incorrect when it is not misstated by a material amount.

 Accounts receivable related balance-related audit objectives:

•       One of the major specific audit objectives used by the auditor to decide the appropriate audit evidence for accounts receivable.

Aged trial balance:

•       A listing of the balances in the accounts receivable master file at the balance sheet date broken down according to the amount of time passed between the date of sale and the balance sheet date.

 Accounts payable master file:

•       A computer file for maintaining a record for each vendor of individual acquisitions, cash disbursements, acquisition returns and allowances, and vendor balances.

 Accounts payable trial balance:

•       A listing of the amount owed to each vendor at a point in time; prepared directly from the accounts payable master file.

 Acquisition and payment cycle:

•      The transaction cycle that includes the acquisition of and payment for goods and services from suppliers outside the organization.

 Accrued liabilities:

•      Estimated unpaid obligations for services or benefits that have been received prior to the balance sheet date; common accrued liabilities include accrued commissions, accrued income taxes, accrued payroll and accrued rent.

 Allocation of the preliminary judgement about materiality:

•      The process of assigning to each balance sheet account the misstatement amount to be considered material for that account based on the auditor’s preliminary judgement.

 Adverse opinion:

•       A report issued when the auditor is of the opinion that the financial statement are so materially misstated or misleading as a whole that they do not present fairly the entity’s financial position or the results of its operations and cash flow in conformity with approved accounting standards

 Analytical procedures:

•      Use of comparisons and relationships to assess whether account balances or other data appear reasonable.

 Application controls:

•       Controls related to a specific use of IT, such as inputting, processing and outputting of sales or cash receipts.

 Application service providers (ASPs):

•       A third-party entity that managers and supplies software applications or software-related services to customers through the internet.

 Appropriateness of evidence:

•      The degree to which evidence can be considered believable or worthy of trust; evidence is appropriate when it is obtained  (1) from a relevant source (2) from an independent provider (3) from a client with effective internal controls (4) from the auditor’s direct knowledge (5) from qualified providers such as law firms and banks (6) from objective sources and (7) in a timely manner.

 Attribute:

• The characteristic being tested for in the population

 Attributes sampling:

•       A statistical, probabilistic method of sample evaluation that results in an estimate of the proportion of items in a population containing a characteristic or attribute of interest.

 Assessment of control risk:

•       A measure of the auditor’s expectation that internal controls will neither prevent material misstatements from occurring nor detect and correct them if they have occurred; control risk is assessed for each transaction-related audit objective in a cycle or class of transaction.

 Assessment inquiry:

• Inquiry to corroborate or contradict prior information obtained.

 Assurance services:

•       Independent professional services that improve the quality of information for decision makers.

 Attestation  service:

•       A type of assurance service in which the Chartered Accountant firm issues a report about the reliability of an assertion that is the responsibility of another party.

 Auditing around the computer:

•       Auditing without relying on and testing controls embedded in computer application programs, which is acceptable when the auditor has access to source documents in a readable form that can be reconciled to detailed listings of output or when sufficient non-automated controls exist.

 Audit assurance:

•       A complement to acceptable audit risk; an acceptable audit risk of 1% is the same as audit assurance of 99%; also called overall assurance and level of assurance

 Audit Committee:

•       Required to be established by listing rules for every listed company. The function is to implement and support the oversight function of the Board of directors. One of its many functions is to assist auditors to remain independent of management.The listing requirements also set out the minimum functions of the audit committee.

 Audit documentation:

•       The principal record of auditing procedure applied, evidence obtained, and conclusions reached by the auditor in the engagement.

 Audit failure:

•       A situation in which the auditor issues an erroneous audit opinion as the result of an underlying failure to comply with the requirements of auditing standards.

 Audit procedure:

• Detailed instruction for the collection of a type of audit evidence.

 Audit program:

•       List of audit procedures for an audit area or an entire audit; the audit program always includes audit procedures and may also include sample sizes, items to select and timing of the tests.

Audit risk:

•      The risk that the auditor will conclude that the financial statements are fairly stated and an unqualified opinion can therefore be issued when, in fact they are materially misstated.

Audit risk model:

•       A formal model reflecting the relationships between acceptable audit risk (AAR), inherent risk(IR), control risk (CR), and planned detection risk (PDR); PDR=AAR/(IR X CR)

  Audit sampling:

•       Testing less than 100% of a population for the purpose of making inferences about that population

  Audit of historical financial statements:

•       A form of attestation service in which the auditor issues a written report stating whether the financial statements are in material conformity with approved accounting standards

  Audit report:

• The communication of audit findings to users

  Auditing:

• The accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria

Asia Pacific Breweries (8/10/2007) announced in a statement that two of the four banks namely Mizuho Corporate Bank and Sumitomo Mitsui Banking Corporation have withdraw their claims pertaining to the commercial fraud case of its ex-finance manager Mr Chia Teck Leng. There is no discussion or settlement reached with the two banks.

APBS is confident that the Company has a good defence and has instructed its lawyers, Drew & Napier LLC, to continue to vigorously defend the claims by the remaining two banks which are Skandinaviska Enskilda Banken AB (”SEB“) and Bayersiche Hypo-und Vereinsbank Aktiengesellschaft ( “HVB”).

For those who are unfamiliar with this case, append below some details:

About the Company

• Asia Pacific Breweries is a public listed company in Singapore. It is a joint venture between Fraser & Neave group and Heineken. APB produces the Singapore’s popular Tiger Beer.

About the fraud

• Chia Teck Leng, a former finance manager at the brewery, conned the banks into giving him credit facilities by using forged signatures in the name of the brewery, and used the money to gamble at casinos.
• (a) Chia used forged certified extracts of board resolutions to cheat several banks over a period of four years, between February 1999 to March 2003 With the forgery, he managed to extend for himself credit and loan facilities in the name of APB, with him as the sole signatory.
• (b) Chia also forged signatures of top APB executives, like its chief executive Koh Poh Tiong, and then-Fraser and Neave’s managing director, Tan Yam Pin. Fraser and Neave owns 37.9 % of APB.

About the Accused

• Chia was an accountancy graduate who began his career at the, now-defunct accounting and consultancy firm, Arthur Andersen. He moved on, attaining several top positions in various companies including the post of assistant vice-president at the United Overseas Bank, a mergers-and-acquisitions manager at Jack Chia-MPH and a financial controller at Swire Pacific Offshore Services.

• He joined Asia Pacific Breweries (APB) on 20 January 1999 as its finance manager. APB is considered one of the region’s largest breweries with sales of $372.7 million and an after-tax profit of $38.6 million in 2001. The job required him to travel and paid him a tidy salary of between $200,000 and $300,000 a year.
• Chia(aged 44) lived with his wife, a teacher, and their two teenage sons in a St Francis Lodge condominium, off Serangoon Road.
• Chia had been a habitual gambler since 1994. By the time he joined APB in 1999, he was heavily indebted.
   

Accused Of

• Chia was arrested on 2 September 2003 by the Commercial Affairs Department.
• He was first charged in court on 4 September, on two counts, one of cheating and one of forgery involving S$3 million.He was first accused of cheating a Scandinavian bank, Skandinaviska Enskilda Banken (SEB) in February 1999 of giving him $3 million in credit. As investigations continued, more charges were levelled against him.By 11 September 2003, he faced eight new charges. He was accused of cheating four banks into giving him a total credit of about S$113 million; one Scandinavian bank, two Japanese banks, and one German bank. On 17 September 2003, 18 more charges were added on. These included new charges of money withdrawals from banks, such as US$25 million from SEB, and US$10 million from Sakura Bank. On 24 September, he was charged with four more counts of forgery. This time of opening a schedule of fixed deposit with Citibank, and transferring legitimate funds from APB’s OCBC bank account to the fictitious Citibank account.Chia faced 32 charges by the end of September.On 5 December 2003, 14 new charges were added to the existing 32, bringing the total number of charges against Chia to 46.
• In summary the 46 charges comprised 14 charges of forgery and 18 of cheating four foreign banks of about S$117 million, four charges of criminal breach of trust of S$53 million, two of money-laundering, and eight of abetting his girlfriend, Li Jin, to use a forged passport.

With these 46 charges facing Chia, he was ordered to stand trial in the High Court on 26 March 2004 in what is considered the biggest case of financial fraud in the history of Singapore.

Judgement

• On 2 April 2004, Chia was convicted by the High Court after pleading guilty to six charges of forgery and eight charges of cheating. Another 32 charges were considered during sentencing. High Court Judge Tay Yong Kwang sentenced him to 42 years in jail, the longest jail term ever given out for a commercial crime.
• In all, Chia had swindled the banks of more than S$117 million, losing S$62 million in casinos around the world. Only S$34.8 million has so far been recovered.
• In this sentence, Judge Tay( who have also presided in the other commercial fraud case by SIA’s employee, Teo Cheng Kiat) emphasised that bankers are eager to forge business relationships, and not be the unwitting victims of forgery.

(PS: previously, the worst commercial fraud case was held by Singapore Airlines’ employee Teo Cheng Kiat, who embezzled S$35 million from the airline for over 13 years. He was convicted in 2000 and jailed for 24 years for the crime.)