Recently, in the press, there was this interesting article on IOI Corp Bhd where Credit Suisse Research said in a note to clients that IOI Corp’s valuation premium was affected on concerns over Yeo How’s departure

“Credit Suisse Research said the “delicate balance” between executive chairman Tan Sri Lee Shin Cheng’s entrepreneurship and Yeo’s good capital management and corporate governance would be affected. It downgraded IOI Corp to underperform from outperform and cut its target price to RM7 from RM10.”

This might not be very surprising, as sometimes bankers and public investors are wary when long serving staff specially Chief Financial Officer who worked in family controlled companies who supposedly help to uphold proper corporate governance and control mechanism suddenly leave their companies. In this case, unfortunately it applied to IOI Corp. 

Some small details:

• Datuk Yeo How, a long serving director has resigned IOI Corp Bhd and IOI Properties Bhd group executive director of finance and corporate affairs to pursue a new career overseas. He is a certified public accountant, was first appointed to the board in 1996. He has been with the IOI Group for the past 24 years. According to IOI one of his principal responsibilities is as chief financial officer. (Yeo also oversees the group’s commodity marketing and palm-based manufacturing business units.)
• Yeo would be leaving the group to pursue a new career. It was learnt Yeo could have accepted a job offer by a Singapore-based plantation group.
• Datuk Yeow Chor, the chairman’s eldest son who has been on the board since 1996 is supposed to replace  Datuk Yeo How.

The Minority Shareholders Watchdog Group (MSWG) had stakes in 232 public-listed companies at the end of August, giving the body with the locus standi to attend shareholders’ meeting to protect minority interest.

MSWG chief executive officer Abdul Wahab Jaafar Sidek said:-

·       the group had taken proactive action by buying shares in certain listed companies so that it could attend the shareholders’ meetings as corporate representatives and participate actively as shareholders.

·       The criteria for the purchase of shares in selected listed companies included firms with issues raised by minority shareholders, companies subject to action by the regulatory authorities as well as those having a wide impact on stakeholders.

·        MSWG would also continue to attend shareholders’ meetings by way of proxies from minority shareholders.

·       The Shareholding Survey 2007, conducted in collaboration with Nottingham University Business School, was due for completion by the end of October. This survey covers all companies listed on Bursa Malaysia on June 30, 1997 and June 30, 2006, with the objective of identifying and comparing the demographic of shareholding, shareholding structures and value of the listed companies before and after the 1997 financial crisis.

·       As for the Company’s Meeting Survey 2007, it was expected to be completed by end-November. The survey, covering top 100 listed companies, is a collaborative effort between MSWG and Universiti Teknologi MARA. 

With the accounting fraud of Rm622million for the past three years still hovering in their mind, the minority shareholders in the AGM of Transmile BHd had voted for not giving a single cent of fee to the directors  for the year ended 31 st December 2006.

Indeed, this is the best news for anyone who hear it However, shockingly, the share price of Transmile has gone up due to so called regained confidence level that accounting fraud might not occur again and Robert Kuok’s further purchase of shareholding in Transmile. Such an irony!

Anyway, if we call this irony can we explain or justify reasons when we often heard news from overseas, pertaining to the hugh payout of golden handshakes/bonus/incentives when their CEO supposedly resign or services being terminated from their companies?

The Securities Commission has charged three former executives of Transmile Bhd with giving misleading financial statements :

• ex-chief financial officer Lo Chok Ping,
• ex-executive director Khiudin Mohd and
• founder Gan Boon Aun, who resigned as chief executive officer in June ’07 when a police report is filed.

Earlier Transmile has also filed an announcement dated 29/6/07 pertaining to its audited financial statements for the financial year ended 31/12/06.The content of the announcement is as follows:

The Company wishes to announce that it had today announced its audited financial results for the financial year ended 31 December 2006. In regards to the above, the Company wishes to the highlight the following: (i) the audited financial statements of the Company for the financial year ended 31 December 2006 have included the adjustments which were highlighted in the announcement dated 16 June 2007 (”Adjustments“), comprising both the adjustments arising from the findings by Moores Rowland Risk Management Sdn Bhd (”MRRM“) and additional adjustments proposed by the Company;

(ii) in addition to the Adjustments, the Company has made other adjustments to the assets in the audited consolidated balance sheet as at 31 December 2006, mainly as set out in Table 1 as attached, largely due to:

(a) impairments required to be carried out to the assets of the group under the Financial Reporting Standards issued by the Malaysian Accounting Standards Board;
(b) reclassifications of assets to property, plant and equipment; and
(c) other consequential adjustments arising therefrom;

(iii) The consolidated loss after taxation of TGB for the financial year ended 31 December 2006 was RM126 million; and

(iv) As a result of the above, the shareholders’ funds of TGB as at 31 December 2006 was RM597 million, comprising share capital of RM264 million and reserves of RM333 million.

Please refer to the announcement made by the Company today for the audited consolidated results of the Company for the financial year ended 31 December 2006.

TABLE 1 

* Difference due to rounding.                

Immediately after Transmile Group’s accounting fraud over fictitious Trade Receivables/billings, another storm is brewing in another public listed company Welli MultiCorporation Bhd as the Malaysian Securities Commission (SC) queried the company over the authenticity of its trade receivables of RM113 million over a total trade receivables of Rm130 million as at 31 st December 2005
 

Append below the announcement by Welli dated 26/6/2007 extracted from Bursa Saham’s website:
 

“On behalf of the Board of Directors, we wish to inform that the Company has on 26 June 2007 received a letter from Securities Commission (“SC”) requiring Welli to withhold the issuance and public release of the Quarterly Reports for the quarters ended 31 December 2006 and 31 March 2007, and the Audited Financial Statements for the period ended 31 March 2007.

In view of the information received by the SC with regard to the authenticity and/or recoverability of trade receivables amounting to RM113million out of a total of RM135million as at 31 December 2005, SC is of the opinion that the same would have an impact on the price/value and market activities of Welli’s securities.

In the interest of ensuring only accurate financial information is disseminated to the investing public, it is therefore necessary for the Company to withhold the issuance and public release of the aforesaid quarterly reports and audited financial statements, until the issue is resolved to the satisfaction of the SC.”
 

Prior to the aforesaid event, we have a chain of other interesting announcements (extracted from Bursa Saham’s website)
 

14/6/2007 Announcement

 – Welli’s Board of Director received requisitions from the shareholders, namely Tan Kim Oh, Yoon Kok Chuan and Ke-Zan Nominees (Tempatan) Sdn Bhd, which represent a total of 10.17% of the equity interest in WELLI for the “Notice of removal of Messrs Deloitte KassimChan as Auditors of WELLI (“Proposed Removal of Auditors); and Notice of nomination for the appointment of Messrs Moore Stephens as new Auditors of  WELLI in place of Messrs Deloitte KassimChan for the financial period ended 31 March 2007”

26/6/07 Announcement

– Notice of Extraordinary General Meeting for  existing external auditor, Deloitte KassimChan be removed as Auditors of the Company with immediate effect and Moore Stephens be appointed as Auditors of the Company in place of Deloitte KassimChan in respect of the financial period ended 31 March 2007 and to hold office until the conclusion of the next Annual General Meeting at a remuneration to be determined by the Directors.

Early 2007 to End May 2007

- a series of changes in membership of boardroom, company secretaries, audit committee, sub-committee

Public announcement dated 28 November 2006 of  Fire in The Building Premises

- “ Welli Multi Corporation Berhad (“the Company”) regrets to inform that a fire broke out in the Administration Department of the Company on 25 November 2006. The estimated loss from the fire is approximately RM200,000.00 (Two Hundred Thousand) only. The cause of the fire is not known at this juncture .

As a result of the fire, the Company will be seeking the approval of the Bursa Malaysia Securities Berhad to defer the release of the quarterly results for the financial period ended 30 September 2006 until such time as the Company is able to compile the financial accounts of the Group.

In the Malaysian Stock Exchange we have so many public listed companies hence the ability  to specifically  query or identify ficititious/authenticity of trade receivables in Welli is a quite a remarkable feat. Any second quess?

a) Transmile Mr Gan Boon Aun Relinquish his post as CEO

• Subsequent to the Transmile’s lodgement of the police report over false statements and documents on fictitious revenues, unsupported/ficititious payment for purchase of fixed assets and payments to third parties, Mr.Gan Boon Aun has resigned as chief executive officer of beleaguered Transmile Group Bhd.as the fallout from the accounting irregularities will now lead to a police investigation.
• Gan, the founder of Transmile, is largely credited for leading Transmile to great heights. He listed Transmile on the second board in 1997. His first attempt to transfer the counter to the main board in 2000 failed when the application was rejected by the Securities Commission. Gan succeeded in his second attempt in 2002. 
• In 2004, Gan sold his stake in Transmile to the Kuok group and approached former Transport Minister Tun Dr Ling Liong Sik to be the group’s chairman.

b) Transmile wants to put its representative in associate company CEN Sdn Bhd and nominate a new representative to the board of CEN Worldwide Sdn Bhd, a wholly owned subsidiary of CEN.

• Transmile said it “will propose to the board of directors of CEN Worldwide that PriceWaterhouse-Coopers be appointed to carry out a special audit on CEN Worldwide.” 
• Major shareholders of CEN are Transmile (37.5%), Pos Malaysia & Services Holdings Bhd (42.5%) and Konsortium Logistik Bhd (20%), according to their latest annual reports. 
• The final report of the special audit on Transmile highlighted that sales to CEN Worldwide since 2004 totalled RM604mil. The company has been making losses since 2004 and it owes Transmile RM103mil. 

The saga of the fraud/financial irregularities has not ended as the final report by Moores Rowland Risk Management Sdn.Bhd (MRRM) has been completed and submitted by the submitting merchant bank, CIMB Investment Bank Berhad on 16/6/2007 on behalf of Transmile Group.
To simply sum it up, the report seems to indicate a massive cover up of
“ overstatement of fictitious revenues and attempting to cover up the trade receivables by “ concocting” the repayment vide
 
(a)     transferring part of trade receivables to fixed assets ( being purchase of fixed assets)
(b)     made as if the trade receivables have paid the Transmile but in reality the monies are actually from the Transmile itself. “ and
“to a small extent overstating the valuation of investment in related companies where due to impairment should be written down to its actual value.”
Read on the actual details extracted directly and completely from Bursa Saham’s website :

Contents:
On 30 May 2007, the Company announced the findings of the special audit by Moores Rowland Risk Management Sdn Bhd (“MRRM“) as set out in the interim report issued on 25 May 2007. On 14 June 2007, MRRM released the final report on the special audit (“Final Report“), a copy of which was submitted to the Securities Commission on the same day.

In line with the objective of the Board of Directors of Company (“Board“) to be transparent in respect of the findings by MRRM, the Board wishes to announce the findings of MRRM as set out in the Final Report.

1. FINDINGS OF SPECIAL AUDIT

(a) Overstatement of revenue
As announced on 30 May 2007, in the interim report MRRM reported that:

• In the financial year ended 31 December 2006, invoices were issued and recorded for purported services to 20 companies totalling RM333 million and representing 30% of the consolidated revenue for the financial year ended 31 December 2006 as stated in the unaudited consolidated results announced on 15 February 2007; and

• In the financial year ended 31 December 2005, invoices were issued and recorded for purported services to 19 companies totalling RM197 million and representing 36% of the audited consolidated revenue of the Company for the financial year ended 31 December 2005.

MRRM extended its audit to the financial year ended 31 December 2004, where revenue has been recorded for purported services to the same companies mentioned above (“Identified Companies“) totalling RM95 million, representing 27% of the audited consolidated revenue of the Company for the financial year ended 31 December 2004, for which there was an absence of documentation for MRRM to carry out further tests.

In addition, in the Final Report, MRRM highlighted that the amount of revenue misstatement of RM197 million for the financial year ended 31 December 2005 is reduced by approximately RM3 million to RM194 million.

(b) Settlement of trade receivables
MRRM has reported that the amounts owing by the Identified Companies to TGB and its subsidiaries (“TGB Group“) arising from these invoices were recorded under trade receivables and were subsequently reduced primarily in the following manner:

(i) Property, plant and equipment
Transfer from trade receivables as additions to property, plant and equipment pursuant to, amongst others, purported purchases of property, plant and equipment paid on behalf of the TGB Group, by the Identified Companies as follows (“PPE Additions“):

Further investigation into the PPE Additions revealed that the suppliers’ invoices relating to the payments purportedly made on behalf of TGB Group by the Identified Companies appear to have been fabricated and/or the PPE Additions are not substantiated with documentation. Therefore there appears to be no basis for the addition of RM341 million to the property, plant and equipment of the TGB Group.
(ii) Cash receipts
Receipt of monies from the Identified Companies (“Cash Receipts“) as
follows:

In respect of the Cash Receipts, MRRM reported that the monies were paid into TGB Group’s bank account maintained with a specific Kuala Lumpur bank branch (“Identified Bank Branch“), out of the accounts of the Identified Companies maintained with the same Identified Bank Branch.

In 2006, whilst the TGB Group has received RM49 million from the Identified Companies, MRRM further noted that in October, November and December 2006, TGB Group made 92 payments totalling RM55 million to the Identified Companies and 6 other companies, from TGB’s account maintained with the Identified Bank Branch to the accounts of the Identified Companies and 6 other companies maintained with the Identified Bank Branch. These payments by TGB Group of RM55 million do not appear to be supported by payment vouchers.

After the reduction in the trade receivables as set out in (i) and (ii) above, the amount owing by the Identified Companies as at 31 December 2006 following the additional findings of MRRM is RM234 million, inclusive of other sundry adjustments.

(c) Cash Receipts in 2007
In respect of the trade receivables outstanding as at 31 December 2006, between February 2007 and 30 April 2007, the Identified Companies paid the TGB Group RM174 million. Of this amount, RM163 million can be traced as payments to TGB Group’s bank account maintained with the Identified Bank Branch.

However, MRRM also noted that between March and April 2007, there were payments by TGB Group totaling RM134 million to 1 company (which is one of the 6 other companies mentioned in (b)(ii) above). The payments by TGB Group to the aforesaid company were made to a bank account maintained with the Identified Bank Branch. The above payments by TGB Group of RM134 million do not appear to be supported by payment vouchers.

2. FOLLOW UP ACTIONS
MRRM in its report dated 14 June 2007, highlighted that the Board should consider the possibility of under-billing or non-billing of genuine sales to other customers, including a major customer, namely CEN Worldwide Sdn Bhd (“CEN“), a 37.5% indirect associated company of the Company. The total sales to CEN in 2004, 2005 and 2006 were RM604 million.

MRRM further recommended a review covering trade receivables with major customers, particularly, CEN, which has been loss-making and has negative shareholders’ funds as at 31 December 2004, 2005 and 2006. The audited shareholders’ funds of CEN as at 31 December 2005, were in deficit, RM22.5 million. As at 31 December 2005, CEN has net current liabilities of RM34 million. As at 31 December 2006, the amount owing by CEN to the TGB Group was RM91 million. Nonetheless, as at 14 June 2007, TGB has received payments in respect of the amount owing by CEN to TGB Group amounting to RM81 million. As a result of the additional invoices issued to CEN after 31 December 2006, the amount owing by CEN to the TGB Group as at 14 June 2007 is RM103 million.

Based on the above, the Board has on 15 June 2007 resolved to propose a special audit to be carried out on its associated company, CEN Sdn Bhd and its subisidiaries (which includes CEN), subject to the approval of the shareholders of CEN Sdn Bhd.

3. IMPLICATIONS TO FINANCIAL STATEMENTS

(a) Balance sheet
The findings indicate that the consolidated net assets of TGB Group are likely to be adjusted downwards as a consequence of the misstatements in revenue, subject to the completion of the statutory audit for the financial year ended 31 December 2006.

For the purposes of illustration, following the proposed adjustments set out in the Final Report, and a provision of RM11 million in respect of the amount owing by CEN, the unaudited consolidated retained earnings as announced on 15 February 2007 of RM268 million will be adjusted downwards by approximately RM628 million resulting in accumulated losses of RM360 million. It should be noted that, the above proposed adjustments have not incorporated the tax effects of the adjustments and possible further provisioning that may be required in respect of the receivables from CEN.
Additionally, the Company proposes to make provision of RM21 million in respect of impairment of its investment in Cyber Generation Sdn Bhd, a 37.8% associated company and property, plant and equipment. With the provision, the consolidated retained earnings as announced on 15 February 2007 will be further reduced by RM21 million, thereby increasing the accumulated losses to RM381 million. It should be noted that this adjustment has not incorporated the tax effects of the adjustments.

Following from the above, the assets of the company will be adjusted downwards with the adjustments primarily in property, plant and equipment, investment in associated company and trade receivables. The illustration of the proforma effects of adjustments to the unaudited property, plant and equipment, investment in associated company and trade receivables balances as at 31 December 2006 are as set out below:

Note:

(1) Comprising RM234 million from the misstatements in revenue and RM11 million from the amount owing by CEN to the TGB Group.
(b) Income statement
For the purpose of illustration, based on the above findings, on the assumption that TGB makes full provisions relating to, amongst others, the revenue recorded in respect of the Identified Companies and incidental adjustments and impairments to certain of its assets, the consolidated profit before taxation of the Company will be reduced as follows:
(i) For the financial year ended 31 December 2006, the unaudited consolidated profit before taxation of the Company will be reduced by RM347 million, from a profit before taxation of RM207 million to a loss before taxation of RM140 million.
On the basis of a provision of RM11 million in respect of the amount owing by CEN and the RM21 million in respect of impairment of its investment in Cyber Generation Sdn Bhd and property, plant and equipment, the unaudited consolidated profit before taxation of the Company will be further reduced by RM32 million to a loss before taxation of RM172 million. It should be noted that, the above proposed adjustments have not incorporated the effects of the possible further provisioning that may be required in respect of the receivables from CEN.
(ii) For the financial year ended 31 December 2005 the audited consolidated profit before taxation of the Company will be reduced by RM187 million, from a profit before taxation of RM120 million to a loss before taxation of RM67 million.
(iii) For the financial year ended 31 December 2004, the audited consolidated profit before taxation of the Company will be reduced by RM79 million, from a profit before taxation of RM87 million to a profit before taxation of RM8 million.
The above illustration of the impact to profit is subject to changes that may arise from the on-going statutory audit for the financial year ended 31 December 2006.

4. STATUTORY AUDIT FOR FINANCIAL YEAR ENDED 31 DECEMBER 2006
The Final Report has provided for material adjustments for the finalisation of the financial statements for the year ended 31 December 2006. The Board is hopeful, given the circumstances, that the financial statements for the financial year ended 31 December 2006 will be issued shortly with no further material adjustments, save and except for a further review for possible further doubtful debts in respect of the amount owing by CEN.

Recently there are much news about the financial irregularities in the public listed Air cargo operator Transmile Group Bhd. This is startling as the major shareholders are Robert Kuok Group and Khazanah. The chairman of Transmile is none other than the ex transport Minister Ling Liong Sik.
The Board of Director informed that Moores Rowland Risk Management Sdn.Bhd  who was appointed by the Board to lead a special audit concluded in its first interim report on May 25:

• Transmile may have overstated its profits for the year 2005 and 2006. Instead of a profit, there should be a recorded a pre-tax loss of RM126 million in 2006 and RM77 million for year 2005.
• Transmile’s group overstated some RM333 million in revenue for the financial year ended December 31 2006, and RM197 million for the year ended December 31 2005.
• The final numbers on profit before tax are subject to changes because the special audit and the statutory audit for the financial year ended December 31 2006 were ongoing. It also does not take into account tax implications.
• The said RM333 million overstatement for financial year 2006 came from invoices that were issued and recorded for services to 20 companies.
• Based on the unaudited consolidated financial statement as at December 31 2006, the trade receivables from the 20 companies totalled RM236 million.
• Of the 20 companies, 18 were those identified by Messrs. Deloitte & Touche, the auditors that spotted the irregularities, while Moores Rowland spotted another two.
• For financial year 2005, Moores Rowland found that invoices were issued to 19 companies for purported services. The names of the companies were not revealed in the report.
• The report also did not shed any light on the circumstances of the overstatement.

Incidentally prior to the above, in early May 07, the external auditor Deloitte & Touche wrote to the Transmile’s management informing them that:

• they were unable to obtain supporting documents from the management to satisfy it as to the fairness of the trade receivables and related sales to 18 companies.
• they were unable to obtain satisfactory supporting documents for purchases of property, plant and equipment which amount was correspondingly credited to the unpaid balance owing by the 18 companies identified by Deloitte & Touche.

Reported in the Star that Transmile spokesman said the company has no plans to hold a press conference following yesterday’s announcement.
Prior to this announcement, Transmile has been severely criticized by public investors for its inapt handling of the case whether in terms of:

• its response to the case eg by immediately holding a press conference after it raised concerns over the reliability of its unaudited results for the year ended December 31 2006.
• Transmile has also not yet come out with a statement on who is responsible for this oversight.
• Transmile’s four-day-long suspension of trading of its securities which will cause further anxiety among shareholders

All in all, Transmile’s inaction or delay to response quickly to the public reflected very  poor investor relations which the capital market cannot afford to tolerate. It also shows that the company’s directors are afraid to face the public and have something to hide

In the Chairman’s report of MP Technology Resources Bhd dated 4th May 2007 for the year ended Nov 30 2006, its executive chairman Mat Hassan Esa highlighted that there are previous mismanagements which resulted in a much greater group loss.

Group losses for the year were RM142.99mil, up from losses of RM30.3mil in the previous year. The board subsequently decided to make necessary adjustments which included large provision for accounts receivables and write off of investment account which are non-existent to the accounts. This therefore resulted in a deficit in its adjusted shareholders’ equity on a consolidated basis amounting to RM58.92million. The company is categorised as an affected listed issuer pursuant to Practice Note No 17/2005 (PN17) of the listing requirements of Bursa Securities.

Mat Hassan also stated the board had taken steps to regularise the operations of the group by appointing professional advisers for a restructuring exercise. He had lodged several police reports on the financial irregularities.

The Minority Shareholder Watchdog Group (MSWG) CEO Abdul Wahab Jaafar Sidek has called on MP Technology Resources Bhd (MPTech) shareholders to voice their concerns over the company’s alleged mismanagement, ability to be on a going concern(auditors report ) and company yet to finalize or submit a plan to resolve the company’s PN17 status at its AGM tomorrow.

Earlier article on the charging of Datuk Chee Kok Wing, Shamsul Khalid Ismail and Mah Soon Chai.

Reported in The Star that another director, Tan Teck Hong @ Chern Teck Foong, 40, of NasionCom also claimed trial yesterday to abetting Datuk Chee Kok Wing in authorising the making of statements in a NasionCom document required by Section 167(1) of the Companies Act for profit and loss accounts and balance sheets, while knowing them to be false Those documents comprised sales invoices, bank deposit slips, dealer agreements and debtor ledgers.   Tan was represented by Walter Pereira while prosecuting officer A. Narainasami represented the Companies Commission. Sessions Court judge Akhtar Tahir set Tan’s bail at RM50,000 and ordered Tan to surrender his travel documents.  

The judge also fixed Nov 21-23 for trial where his case would be jointly heard with Chee, former NasionCom Holdings executive director Shamsul Khalid Ismail and Mah Soon Chai, the general manager of Express Top Up Sdn Bhd – a NasionCom subsidiary.   Tan posted bail.