Apr 21, 2011
NEWS analYSIS
Sino Techfibre's tardy disclosure sparks concern
It is criticised for delay in revealing accounting scam, lack of safeguards in financial housekeeping
By Goh Eng Yeow, Senior Correspondent
CONCERNS have been raised over the manner in which Singapore-listed synthetic leather maker Sino Techfibre handled the discovery of discrepancies in its sales invoices last week.
Market watchers are especially upset that the China-based company had made the announcement right in the thick of the annual report season, as companies are preparing for their annual shareholder meetings.
They believe the firm has been tardy, to say the least, in bringing these matters to light.
Under the listing rules of the Singapore Exchange (SGX), a company must conduct its annual general meeting (AGM) for shareholders within four months of the end of its financial year.
It must also furnish shareholders with a copy of its annual report at least 14 days before the date it fixes for its AGM.
Sino Techfibre, whose financial year ended on Dec 31 last year, should have sent out its annual report by the middle of this month, in order to comply with SGX rules.
If the firm had been facing any difficulties with its audit, it should have applied to the SGX well ahead of the deadline for an extension of time in which to issue its annual report.
Instead, nothing at all was heard from the firm between the release of its unaudited full-year results on Feb 15 and the statement it issued on April 14 flagging the accounting irregularities.
As it turned out, April 14 was only a few days before the deadline for Sino Techfibre to issue its annual report.
Going by the April 14 statement, the company should have been well aware of the problems encountered by its auditors much earlier - long before the deadline to issue its annual report.
In the statement signed by chief executive officer Li Wenheng, Sino Techfibre said one of the sales managers it approached for an explanation of invoice discrepancies had gone missing.
It added that 'towards the end of March and early April, visits to the sales manager's home and telephone calls proved unsuccessful'.
The firm had also made a police report in China to locate the sales manager.
That raises another issue - the checks and balances which should have been in place at Sino Techfibre to stop any accounting scam taking place.
One company director noted that in any company, there should be a segregation of duties when it comes to handling delivery orders, sales invoices and payments.
'In order to take the goods out of the warehouse, a delivery order must be raised when an order has been received from the customer. The delivery is then followed by a sales invoice and then by collection in payment,' he said.
For good housekeeping, these functions should have been handled by different employees, given the risks that might arise if the roles overlap.
Until now, the information available from Sino Techfibre has been rather sketchy.
The company has disclosed only that it had asked Ernst & Young to conduct a 'full and complete verification exercise of all the invoices issued by the company to identify the extent of the discrepancies'.
Sino Techfibre was once a high-flying market darling with a promising future, counting China's People's Liberation Army and Ministry of Public Security among its customers.
In July 2007, it had hit a market value of $1.6 billion nine months after raising $113 million from its initial public offering here.
It is such a pity then, that despite hobnobbing with mainland law enforcers, the company should be embroiled in an accounting scam.
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