SINGAPORE - Forensic accountants from RSM Corporate Advisory have found potential breaches of various Singapore laws at Trek 2000 International and the involvement of current and former senior company officers, including current chairman and chief executive Henn Tan.
Among other things, RSM raised issues involving possible round-tripping transactions, fabrication and alteration of transaction documents, as well as possible fraudulent and erroneous claims under the Productivity and Innovation Credit (PIC) tax scheme.
RSM found that certain sales to two companies, T-Data Systems and S-Com Solutions (Hong Kong), were not properly justified, and round-tripping transactions caused overstatements of revenue, costs of sales and profits.
Computer servers that were obtained for free were also sold to T-Data for US$400,000, and in turn sold to a subsidiary of Trek 2000 at the same price, and claims were made under the PIC scheme for the purchase of the servers.
Chairman Mr Tan, Gurcharan Singh (former CFO), Poo Teng Pin (former group director of R&D) and Foo Kok Wah (president of operations, sales and customised solutions division) were involved, RSM said in an exchange filing late on Monday night (April 23).
RSM also found "serious doubt" on the authenticity of more than US$10 million of sales to certain entities that either shared an address with Trek's office in Hong Kong or may simply not exist. Mr Poo, Hengky Gunawan (manager in the purchasing department) and Mr Singh's names were found on documents related to those transactions, and Mr Tan and Mr Foo are related to the source of those sales.
In addition, crucial facts relating to a US$3.2 million sale of UM1G chips to Indian sign manufacturer Colite Technology could not be established as no one appears to have knowledge or was able to provide the details, RSM said. These include the actual composition of the UM1G chips, how and when the UM1G chips were delivered to Colite, and whether the goods were even delivered at all.
Bank advices amounting to US$250,000 and US$2.4 million received respectively from Mr Tan and S-Com HK were also digitally altered by Mr Hengky at Mr Singh's instructions, with strong indications that alterations were performed to deceive and mislead the auditors, RSM said. Emily Chin (sales coordinator of Trek Technology HK Co) and Shew Paul Waie (head of R&D) were also involved in this transaction with Colite.
RSM's review also found that the company did not exercise sufficient diligence and care in the recording of its inventory of embedded secured digital devices, causing the stock quantity and value to be inaccurately reflected in its books.
Separately, sums totalling S$523,600 and US$18,387 were paid to Mr Tan and T-Data for four purported purchases from Key Asic. Former CEO of Key Asic, JP Peng confirmed receipt of the sums. However, RSM obtained confirmation from Key Asic that it did not have records of these four invoices and did not issue them.
According to RSM, Mr Tan and Mr Singh produced "new but questionable evidence" that were inconsistent and contradictory. Claims under the PIC scheme and allowable deductions for R&D expenses had been made based on the four purported purchases.
Furthermore, invoices and credit notes to a major supplier of the group were digitally fabricated, RSM found. These alterations of accounting entries were carried out "for the purpose of recording or increasing the group's income, manipulating the classification of purchases and recording fictitious intangible assets".
RSM's review disclosed that the supplier's invoices were inflated between 1.75 and 5 per cent. There was also an instance where the percentage was a staggering 44.55 per cent. RSM found 141 invoices between 2011 and 2015 from the supplier to Trek Singapore, with the total amount inflated standing at US$5.5 million before GST. As a result, the group could have overclaimed GST input tax either by receiving higher GST refunds or making less GST payments than they should, RSM said.
Lastly, RSM noted that 19 patents relating to FluCard, a wireless SD card used primarily with digital cameras, were registered under T-Data's ownership. RSM's view is that these patents should be registered under Trek 2000 International as there had been no contribution from T-Data as the patent owner. Mr Tan and Mr Singh were involved parties in this case.
On Feb 25, 2016, Trek 2000 International's directors announced that it had through the company's audit committee (AC), discovered certain interested person transactions (IPTs) entered into by the firm with T-Data Systems (S) from Nov 27, 2007 to March 26, 2014. Following this, the AC appointed TSMP Law Corporation on Apr 4, 2016 to conduct an independent inquiry.
On Apr 26, 2016, the firm said that it was informed by its auditors Ernst & Young LLP that a report has been submitted to the Accounting and Corporate Regulatory Authority (Acra) on matters that had come to their attention in the course of auditing the group's financial statements for the year ended Dec 31, 2015.
Subsequently, the company received a notice from the Commercial Affairs Department of the Singapore Police Force on May 25, 2016 that it was conducting an investigation into certain transactions undertaken by the firm.
In June 2016, Trek announced that TSMP had presented its preliminary findings to the AC and highlighted that a full review on the group's IPTs would require analysis from a forensic financial perspective. The AC accepted this recommendation and RSM Corporate Advisory was appointed on June 8, 2016 to conduct an inquiry. Among other things, the report focused on the group's suspicious transactions announced by the company from May 2016 to September 2017. The findings were released ahead of Trek's annual general meeting (AGM) on Tuesday.
At the company's AGM, one shareholder who declined to be named, told The Business Times that she had bought shares at 24 Singapore cents recently because of the dividends, and because she had heard that the company was doing well. She had not heard of the news until she was at the AGM, and was surprised.
"Maybe I'll cry on the bus later," she said, half in jest.
Separately, lead independent director Khor Peng Soon told BT after the AGM that the board will discuss the report.
At 9am on Tuesday, Trek 2000 International requested a trading halt of its shares. The counter last traded 2.17 per cent lower to close at 22.5 Singapore cents on Monday.