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Deloitte gives disclaimer of opinion on Tee International's FY2019 financial statements

TEE International's independent external auditor, Deloitte & Touche, has issued a disclaimer of opinion on the engineering group's financial statements for the year ended May 31, 2019 (FY2019).

Deloitte said that it has not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial statements.

It highlighted that during the course of its audit, it noted certain transactions totalling S$3.75 million paid to Tee International's former group chief executive and managing director, Phua Chian Kin, and Oscar Investment, a British Virgin Islands-incorporated company fully owned by Mr Phua. Of this sum, S$3 million remained outstanding as at May 31. Mr Phua was relieved of his role and duties as group chief executive and managing director in September but remained as a director of the company.

He had previously informed Delotte during the course of its audit that the S$3 million advance was to pay for expenses to secure new projects for the group's engineering business. "This is inconsistent from the statement made by (Mr Phua) as disclosed in Note 5(g)(ii) that S$2.5 million of the advance was utilised to repay a loan obtained by Oscar from a third-party lender, and the balance of S$500,000 was utilised by (Mr Phua). "No explanation has been provided for this subsequent change," Deloitte said.

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According to Mr Phua, as disclosed in Note 5(g)(i),  all the shares in Tee Land's subsidiary Tee Resources Sdn Bhd had been pledged in September 2017 as a security to the third-party lender in relation to a US$15 million credit facility to Oscar. The purpose of the credit facility as stated in the loan facility agreement was to enable Oscar to apply for all amounts borrowed to make loans to Tee Resources to fund a project. Tee Land is the listed property arm of Tee International.

Deloitte further noted that it is also disclosed that out of the drawdown of US$10 million by Oscar from the third-party lender, Oscar had advanced some of the loan proceeds to Mr Phua, who in turn advanced S$10 million to Tee Land to finance a development project undertaken by Tee Resources. 

"Although the above matters had been disclosed in Note 5(g) to the current year's financial statements, there were no disclosures relating to this pledge in the prior year's financial statements, and we were not informed until recently of the pledging of shares."  Deloitte added that it had requested from Mr Phua but was unable to obtain additional information and documents of Oscar on the flow and usage of funds arising from the credit facility from the third-party lender to Oscar or him and eventually Tee Land or Tee Resources and vice versa.

While management provided responses to Deloitte's inquiries, the inconsistency in information and explanations provided were not explained. "Noting that the above matters involved the former group chief executive who was a key member of senior management and in a position to influence a) key executive and financial decision-making, as well as b) the reporting of any such decisions, across the wider organisation, we are uncertain without further details, about whether there may be other issues and whether these issues could materially impact the financial statements of the group," said Deloitte.

It added that it was also not able to determine whether there were other instances of management override of controls by Mr Phua affecting the internal control over financial reporting designed to enable the group to prevent and detect unauthorised transations and ensure compliance with laws and regulations.

Moreover, PricewaterhouseCoopers Risk Services' work as external investigator is still ongoing, and the outcome could shed new light that may have an impact on Tee International's financial statements.