THE electronics component distributor NEL Group said on Monday that Ernst & Young Risk Advisory Services will examine a series of questionable transactions.

NEL is embroiled in alleged 'round-tripping' transactions with Advance Modules, Long Gain Technology and Diviner Technology Corp.

These usually involves false invoices to give the appearance of greater sales and higher revenues.

The suspicions arose when KPMG, which was appointed special auditor to Advance Modules, reported that the firm's sales figure of US$14.4 million (S$21.2 million) was fabricated to meet an internal profit target for the 2005 financial year.

Long Gain had allegedly sold quantities of dies to NEL, which in turn resold them to Diviner.

As well, Diviner was said to have sold certain machinery to Advance Modules while Long Gain had reportedly made certain purchases from Advance Modules.

In these complex 'round-tripping' transactions, NEL paid Long Gain for the dies and Long Gain disbursed funds to Advance Modules to pay for certain purchases.

NEL Group said on Dec 5 that it was finalising the appointment of another accounting firm to replace KPMG to examine the allegations.

The firm said on Monday that Ernst & Young will conduct a special review to determine whether the purchase of dies from Long Gain by NEL and its subsidiaries, and the sale of the dies to Diviner had any substance.

It will also look into whether NEL and its units made a profit or loss from the die transactions, and whether the accounting treatment used complied with Singapore regulations.

Ernst & Young would also investigate if there was a prior arrangement made with Advance Modules, Long Gain and Diviner in relation to the die transactions.

Trading in Advance Modules shares has been suspended. NEL's shares were untraded on Monday. They last traded on Nov 27 at four cents.