Not another Forensic!

It would seem that everytime a new chairman or new management is put into a company the first thing that is done is, lets undertake a forensic audit. In the recent past can anyone please count the number of times that forensic audits have been carried out at FELDA/FGV. 

Now before the new Chairman goes off saying, "these bloggers don't know what they are saying etc etc", lets remind ourselves that when entities, especially large ones, operate there are the quarterly reporting, the risk management frameworks, there are both internal and external audits, than there are (most critically) the responsibility on the part of the Board to keep proper books of accounts and to ensure the truth and fairness of these accounts. So when the new broom comes in and immediately says lets have a(nother)forensic audit is he saying the following,

1. That the previous board and management had such flawed policies, procedures and frameworks in place that resulted in quarterly reports that could not be relied upon, a sham. If so than the Board and Management fell foul of the CA 2016 and should be charged for such, why are the regulators keeping quiet?

2. The Internal Auditors would/should have reported to the AC on shortcomings, did the AC not pay attention and not bother about what the Internal Auditors were saying, or was the Internal Audit function so useless, if its the later than its most worrying as I understand that the Head of IA is at another GLC Plantation Group, wonder what internal auditing goes on there.

3.   With regards to the external audits, who are FELDA's external auditors and how long have they been the auditors. Over the last few years the external auditors have introduced in their audit reports key audit matters (KAMs), supposedly matters that keep the auditor awake at night with regards the audit. Have concerns not been raised and highlighted, if they did what action if any was taken, if not what is the Board going to do with regards to  the value that the external auditors provide.

With this wealth of information, including a previous forensic, can someone please explain why the need to flog the dead horse over and over. I am sure the Police and MACC also have their own investigation papers. 

While it may seem the right thing to do, at the end what value do these countless forensic provide, the prize mare has already been abused and the culprit bolted from the barn,  what good is shutting the barn door now! 

Enough of the investigations etc, just get on with it and put things right. The culprits should be reported to the police and hopefully are guest of His Majesty.

STOP THE SANDIWARA, LETs MOVE FORWARD!   

    

Relevance

relevance definition: the degree to which something is related or useful to what is happening or being talked about.

I believe that from time to time one's publicist or media agent ensures that one remains relevant...............because if you are not than you are forgotten. Additionally being relevant in today's world can make you big bucks, some are relevant in main stream media others are on the alternative media like instagram. Hence today we have sisters that are continuously in the news and it would seem their relevance is the body shape with certain parts being larger than the norm, than there is the lady that never smiles or there is that *^%# star that offers to have a relationship with soccer players.  

The subject of relevance got me to ask if it is for this type of reasoning that certain corporate leaders need to be always in the news, they are not really concerned whether they court the right kind or the wrong kind of news, as long as they are in the news!

Since relevance is of concern, i still want to know;

1. That big discount received on the tax, how was that accounted for in the accounts was it treated as income, or was it treated as a creditor and after two years handed over to the authorities under the unclaimed money act.

2. It was reported that there were shenanigans in the sister company's procurement system, a police report was lodged, we are told, what is the status?

3. Is there an update with regards to your travel status, are you welcomed in all countries of asia and are there some countries that would wish you to visit since they are keen to discuss your business dealings.

4. Would it be premature to congratulate you as the de facto MOT, de facto seem to be another term commonly used in the country, seeing that you are currently making statements on transport infrastructures.

Thank you, looking forward to your next ranting, but will appreciate your replies, via mainstream media.    

Of Professional Service Providers and Standards of Conduct

Of recent past the auditing fraternity, especially in the UK, has been under intense scrutiny  particularly with regards to their quality of work and their business conduct. Articles have come out in the broadsheets, in some reports it has been suggested that the Big 4 are willing to share their knowledge infrastructure with the Top Ten, probably to thwart the regulators from acting on their stranglehold over their market space.  

Even at home there are growing concerns over their services and the value that auditors give. Recently we came to know that with regards to the audit report of a much talked about state fund, it was not one but two auditors that had retracted their reports. Of course this begs the question as to whether their audits were of so poor quality that they issued reports without satisfying themselves sufficiently. One audit partner told me that the audit files of at least one of these auditors have been with the profession's institute for investigation and that nothing was moving. 

If one is wondering why the AOB has not been involved, again I am told that the AOB had decided that the state fund is not under the sphere of their auditor performance reviews, which I thought strange as performance and standards are performance and standards and the fact that the SC had advocated in their recent MCCG that state and statutory bodies should embrace the MCCG. Furthermore the SC uses the term public interest entities, not plc, so why should not this particular audit not fall under the AOB's purview. 

Concerns therefore about the standards of conduct of these professional service providers are not misplaced. 

Recently the chairman of a big 4 was reported as being made the chairman of the new executive committee of 1MDB and it was reported that this was part of the scope and services. Now if you ask anyone, they would probably scratch their heads and ask how come and probably add "most unusual arrangement, never heard it done before". This begs the question as to how problems will be resolved since the advisory team will be going to one of their own in trying to resolve matters and yet this one of their own must act in the best interest of the company as he is an executive and hence a director! Under any circumstances this is a major conflict of interest. Where would the check and balances that auditors famously like to quote be? 

It reminds me of another instance where similar shenanigans took place, this was at the inception of the AOB. Like all new organisations the AOB needed staff and naturally the profession was tapped. However at the senior level of the AOB, a staff of senior ranking was seconded to the AOB from one of the firms(imagine the laughing emoji here, many of them). Many to this day believe that this was the reason that the firm in question was never hauled up for their non qualification of a glc that lost billions in the middle east. For those interested, the secondee has returned to the mothership and is now a partner earning big money, so who says loss of ethical and moral values does not pay.

Similarly there are those of us waiting for the new BNM Governor to make a statement either endorsing or categorically stating that the professional services firm saying RM7m as a pass through in an account is ok, because if it is, than surely the case against the previous regime for money laundering must be in doubt and it would open up opportunities for another service offering in the financial services industry.

Point: External Auditors must remember that they are people with green pens placing green ticks, they issue reports that are so ring fenced that it is becoming meaningless, they earn a lot of money for this and they should stay satisfied with this opportunity. 

Finally has the MOF and the two SOs thought about this conflict, or have they embraced the philosophy of the previous government: we can also be as arrogant and do as we please, after all we convinced the rakyat to vote us in and as such they will believe us as long as we utter the magic word "1MDB" 

LET'S NOT FORGET THAT PERCEPTION IS 90% OF REALITY.   

The MSW G and Executive Pay.

Executive pay has been the bane of governance for over two  decades. In Malaysia it is not new either and from time to time this becomes a hot issue hitting our front pages.

Two days ago the executive pay of a CEO hit the headlines and for justifiable reasons. The main objectors were institutional investors and the Minority Shareholders Watch Group (MWSG).

Let me be very forthright, my gripe is not with the institutional investors for raising this issue(they have a reason), but more with the MSWG.

As I  said the topic of executive pay is not new, so can the MSWG please provide the following information: 

1. Since their inception how many times have they raised the issue of executive pay on their own, not latching onto the coat tails of others. 

2. Apart from the issue of executive pay, can the MSWG provide instances where they have raised burning issues with regards to governance related matters. I have friends that have labelled the MSWG as a "waste of time" for reasons of their cursory questioning and timidity.

3. Can the MSWG please make a public disclosure on their ownership and funding structure and then provide a list on how many times they raised governance issues in entities that their stakeholders are involved with.

As my friends says, the MSWG is a waste of time, it's like many institutions in Malaysia, nice to have, but when it comes to implementation and enforcement it is a case of hiding under the desk.

PS:

Don't get me wrong, I am all for managing executive pay, but

1. No knee jerk reaction, it must be performance based.

2. Pay international rates even to Malaysians, if need be, if not in future we will continue to complain about the brain drain. 

3. The world has been trying to come to a landing on what is a fair remuneration, but till today cannot do so. Look at the Anglo - Dutch IOC, they made a mistake on the Chairman's remuneration in the early 2000s and the did it again recently. Hence a lot of work and time needs to be put into this area.

4. Finally guys stop attacking the receiver, the culprit are the givers. Its like like when we are caught for a traffic offence, most times its "boleh selesai", its rare that we will accept the summons and pay the fine. After which we complain about our corrupt enforcement agencies.  

In a similar light, why has the Nomination and Remuneration Committee not been taken to task. After all they agreed on the executive package and they were supposedly measuring it and agreeing payment, or was it a case of saving their own seats on the board, so silence was the better route?

So MSWG, do your job, become relevant or else close shop and save your stakeholders the money!  Governance issues are not politics they are factual and many private investors need someone that they can rely on.  

Corporate Malaysia needs an effective watch dog and you are certainly falling very short! 

Que Sera Sera Minister of Finance

It's now coming to approximately two months that a new government has been formed and is in-charge of the country. It's about 3 or 4 years since we first learned about all the shenanigans and the 1MDB saga. More importantly it's the opposition that brought this all to the fore and fought very hard to make the  rakyat aware and to convince us to vote out the incumbents.  

But seriously, how much longer does the MoF and his two cohorts need to continuously keep referring to 1MDB, come on get on with it, stop being a scratched record.  Pause and remind yourself that if there was no 1MDB than you guys will still be the opposition!

On the issue of LRT3, can the Rt Hon Minister of Finance please stop talking %^*&, there is a difference between cost cutting and cost management. 

Cost cutting takes place when you do away with parts of the item or completely doing away with it. Therefore removing stations etc, changes the build scope and that results in the cost cutting/reduction. Wow  the country needed a MOF and two machais to do that, something a 5th former could do and they are mighty proud of it!

On the other had if they had applied cost management techniques, by looking at the Bills of Materials and renegotiated with the suppliers and squeezed them and found more ingenious ways of being more efficient and effective, than there is reason to feel proud and to shout from the top of the hill!

So MOF, lets stop the continuous 1MDB or many little 1MDB, we know that, clean up the mess or the rakyat may just not vote you back.  Get down to work! 

The AC and Internal Audit Services.

It's CNY, found myself at Open Houses, one of which I was in the midst of Audit Committee members. After the normal blah blah blah, the topic meandered to the new regulations and what was needed to be done. 

It was very comical, I thought, that AC members did not know that their performance needed to be reviewed by the Nominating Committee and that there were those that thought how ironical it was that they would be reviewing themselves, simply because many companies do not have sufficient independent directors to keep the Nominating Committee and Audit Committee membership separate. Oh well, I suppose there will be some creativity, lets wait and see and see what Bursa will do about it.

More interestingly is when the topic of IA quality reviews were discussed I found out that the IIA(M) was peddling this service! I, as with many professional, find this unthinkable, that an institute formed to promote, educate and certify practitioners of a particular profession would themselves be undertaking the very services that they certify. This would be like the Institutes of Chartered Accountants or The Certified Accountants Associations undertaking statutory/external audits! 

To better understand why this Institute was at odds with the norm, I did my Inspector Clouseau stuff and this is what I found out.

1. Yes the IIA(M) undertakes such because the world IIA body does similarly, so its permitted.

2. Does the IIA(M) have a team of professional staff to undertake the engagements? No the rely on a team of contractors.

3. How does the IIA(M) ensure quality, I am told that it is done via its secretriat that has certifiers!

4. I was further told by my informent, "we don't get involved with this becuase it really is a tick the box approach. So much for looking at the qualitative approach, and the SC saying that the MCCG should not be embraced with a tick the box approach! 

I would even place a wager that the Quality Review is based on the Guidance on Internal Audit Function that can be found on BM's website. Personally I thought it was a very poor document and I was totally surprised that BNM, SCM and BM would lend their name to it, this especially so when BNM in the late 90s came out with a GP on IA that was world class.

Finally I wish AC members all the best as under revised rules they will be required to not only approve the Internal Audit Plan but also the IA Program! 

   

Its all about impariment

A large shipping company that is intimately involed with the oil and gas industry recently posted siginificantly lower earnings, the main reason given was that they made higher imparment charges in the fourth quarter.

Now what was missing was whether the impairment was only made in the 4th qtr or whether there were impairment charges made in the 1st, 2nd and 3rd qtrs too. I am told by an ex audit partner friend that impairment needs to be accounted for immediately and its not a year end charge! 

If this be the case, than perhaps,

1. That the Corporate Survillance department of the SC needs to review the accounts and provide assurances that the previous quarterly announcements were not false or misleading(possible painting a rosier picture than it is).

2. I was puzzled by the decision of the Board to declare a dividend. This surprised me because a good part of the announcement related to the bleak situation in the o&g shipping industry citing oversupply etc etc and the challenges relating to o&g. 

Sometimes, no, most times I wonder whether good corporate governace is a myth and whether its just spoken of to say "WE ALSO HAVE IT"

       

A case for the Securities Commission

Over the past month we have been informed that in two of the pure play entities not all is as rosy as it is made out to be.

1. We have been advised that all is not well at the Battersea Power Project, that it requires an injection of aproximately RM8b.

2. Recently we have come to read reports that not all is well with the plantation investment in West Africa.

I tried to locate the prospectus, but till now I have not been able to, simply to see is these risks or other information relating to these were highlighted, after all under the disclosure based regime its all about,

• Governance
• Disclosure
• Diligence.

My simple mind suggest to me that if these material inormation were made know than the market would have talked about it or worse the opposition bloggers would have had a field day. So I am going out on a limb and conclude, rightly or not, that such information was not highlighted.

Now if that be the case should the SCM not take action against the promoters and the IBs for witholding material information in the prospectus. 

I cannot honestly say that I expect any answers because those that are privileged are never taken to task and those that are nobodys are normally the ones paying the price to make up the KPIs!     

So we are expected to believe!

All day long friends and the curious have been messaging me with regards to the Battersea Power Redevelopment Project, that the EPF and PNB are buying into the next phase, or so we are expected to believe!

My response to all was the same,

1. Is not PNB the major shareholder of Sime Darby and SP Setia, hence are they not buying what they already own save for the minority.

2. Is the EPF not an original consortium partner?

3. If 1 and 2 are correct than would there not be questions asked with regards to the ethical and moral persuasions to this deal. Have directors of companies not been charged for criminal breach of trust for these types of deals.

4. Now one of the issues that was mentioned for cost escalation were the fact that the four chimmenys need rebuilding and the asbestos issue. For such an old property and taking into consideration that the power station had to be maintained and its age, was not a technical due diligence underaken? What happened to the smart people in Sime and SP Setia, did they not know what they were buying?

5. Who are the lead managers and have they been updating the board?

6. If 5 above is a yes was this information disclosed when Sime was being restructed, if not would not the parties to the restructing have committed an offence under the CMSA?

I can understand that PNB has alot of face saving to do and therefore had to sell what effectively is a bale out disguised as a purchase, but what is the EPF doing, bailing out itself? 

To me its yet again nothing more than another example of incompetency. Maybe we have a long way to go to being a developed nation!

Who is Accountable?

We all read that The Group wanted to do a group restructuring that involved merging their engineering and their energy vehicles into their holding company. The result was that the engineering company, mired with all sorts of problems voted yes, whilst the energy company which is the healthier of the two said no. 

In corporate exercises of this nature there are a host of advisors, from financial reporting accountants to the independent advisors that vet the data, drawn up the various documentation for submission to the regulators and finally present them to the shareholders to be voted on. 

The curiousity is why were the shareholders of the energy entity, only armed with information presented  to them, astute enough to reject the proposal, was it as the actual the offical line suggest, that oil prices were moving north and as such they did not want the deal, or was it simply that the shareholders thought that they were not willing to use their money to bail out the non performing engineering company, lets not forget that the auditors of the enginerring company issued their last report with a "going concern" reservation, the engineering company has issues with their contracts both locally and abroad, etc, etc.

To me this is a classic case for a governance case study,

1. Did the directors of the energy company discharge their duties and reponsibilities as required by law and in the best interest of the comapny on which they sit?

2. Did all the advisors similarly fulfill their responsibilities as professionals, or were they naive enough to believe if the offer was attractive enough shareholders were bodoh enough to approve the scheme.

3. Did the regulators do their own due d and question the deal in depth. The talk was that all that was happening was using good money to try and cover a sink hole. Are our regulators not pandai enough?

4. What was the single largest shareholder doing, why did they let it happen, were they just interested in letting things go by, its not our problem approach. Since becoming the single largest shareholder they don't seem to have done anything, the same management team that was the cause of the problems are still there. Says much about this corporate shareholder and their perceived reputation for good management.

5. The MSWG too chooses to remain silent. This is a case for them to defend the minorities, who else is there? 

On the surface it seems that from the directors to the advisors to the regulators have questions to answer, but I suppose silence will prevail and nothing happens!

So much for the regulators, the exchange and all those that actually want is to believe that cg in Malaysia is improving!