2 mDR senior executives misappropriate S$2.08 million in company funds

MAINBOARD-LISTED mDR Y3D : Y3D 0%announced on Saturday (Dec 18) that it had discovered 2 separate cases of unauthorised use of the group's marketing incentive rebates at its subsidiaries - 3 Mobile Telecom, A-Mobile and Handphoneshop - on Dec 10 and Dec 13.

Two senior executives, one of whom is an executive officer, are persons of interest in the suspected misappropriation and have been immediately suspended when the cases were discovered. Both are not directors of the company.

mDR, an after-market service provider for consumer mobile products, said that the rebates consisted of rebates from the group's principals, which are typically used for marketing or promotional support. As at Saturday, preliminary internal investigations showed that the aggregate amount misappropriated was approximately S$2.08 million.

Instead of using the rebates for promotional activities, both individuals had used the funds for the unauthorised sale of handsets and phone accessories.

The company noted that before the cases were discovered, standard operating procedures (SOPs) were in place to request, verify, approve and acknowledge the receipt of handsets and phone accessories. Still, the senior positions of the individuals involved allowed them to override some of the SOPs.

mDR said that it had made a police report on Dec 15 and has been working with both the Commercial Affairs Department and the police.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

To strengthen the internal controls and procedures of the group regarding the marketing incentive rebates, it has commissioned its in-house internal auditor to identify weaknesses with current controls and provide recommendations. The audit firm will report directly to the Audit and Risk Committee (ARC).

In the interim, the nature and usage of marketing incentive rebates must be identified, and be signed off by both the group chief executive officer (GCEO) and group chief financial officer (GCFO). Reviews of schedules will also be conducted monthly by accountants or the finance manager and the GCFO.

Based on current information available, mDR and the ARC believe that the cases had no direct impact to the group's net asset value (NAV) and thus, no material impact on their unaudited consolidated financial statements for the year ending Dec 31, 2021 as the reduction in inventory due to the cases of misappropriation corresponded with the reduction in accrued marketing incentive rebates.

Additionally, the amount implicated in both cases amounted to approximately 1.41 per cent of the group's NAV, which the company said is not materially significant.

The company also said that there is no direct impact to the group's profit and loss since the marketing incentive rebates are recognised in the balance sheet.

However, the company noted that the group would have been affected by the marketing opportunities lost from the rebates that had been misappropriated, which would have generated goodwill and defrayed some marketing expenses.

The company said that there are no concerns regarding the group's other current assets such as cash reserves and inventory. It has also put in place safeguards such as the daily monitoring of cash balances by the finance division, reporting to the GCFO and a weekly stock count of handsets by the warehouse division.

Shares of mDR will resume trading on Monday (Dec 20), after a suspension was requested on Dec 14.

READ MORE: MDR unit to enter mobile virtual network operator business in July