Shares in doormaker KLW Holdings have sharply declined after an auditor's report accused the firm of several financial and corporate breaches.
The stock fell 11.1 per cent on Wednesday from the previous closing price and dived a further 12.5 per cent yesterday to end at 0.7 cent. It is down 50 per cent for the year.
The report by PricewaterhouseCoopers (PwC), released by KLW on Tuesday night, queried several transactions undertaken by company founder and former managing director Lee Boon Teck relating to early-stage contracts. It also highlighted other issues.
On May 27, KLW announced that Mr Lee, who was then managing director, had entered into three such contracts regarding projects in Bali and China last year without board approval.
These involved KLW paying commitment fees of $16.2 million.
The deals did not materialise by the July 2014 deadline and so the fees were to have been refunded in full. However, KLW has recovered only $9 million of the commitment fees.
The PwC report also pointed out that the $16.2 million fees, which represented a significant investment by KLW, were not brought to the attention of the board for discussion.
It queried why Mr Lee had paid the commitment fees when pertinent information about the projects was not known by the company.
The report also said that several payments made by KLW to Mr Lee may have involved a breach of the Companies Act and Catalist rules.
Group financial controller Jaslin Gaw was also faulted for "signing cheques for the significant commitment fees and payments to Mr Lee without even knowing the reasons for such payments".
"This suggests a major breakdown of internal controls in respect of the investment and payment process of the company," the report said.
The report also noted the company may have breached a Catalist rule by not disclosing that it acquired in April last year a subsidiary company in Vietnam. It did not make an announcement until July 7 this year, it said.
The company had also mis-stated half-year accounts for the period ended Sept 30, 2014, PwC said.
This involved classifying the $16.2 million commitment fees and a $1.95 million payment to Mr Lee as "cash and bank balances" when "in fact these amounts had been paid and were no longer in the company's bank accounts".
The company also made several inaccuracies in announcements on the use of funds from a 2013 rights issue, a 2014 placement issue and a 2014 rights-cum-warrant issue, it said.
KLW announced on June 26 that it had appointed PwC to undertake a special audit related to the signing of the contracts.
Shareholders voted at an extraordinary general meeting on Oct 12 to replace Mr Lee as well as independent directors Teo Hin Guan and Low Hai Lee. The remaining independent director, Mr Ho Pong Chong, resigned that day.