Sakae Holdings to improve internal control processes following review of auditor's disclaimer

ERRONEOUS accounting entries and internal control weaknesses was uncovered following reviews of restaurant operator Sakae Holdings' auditing practices, according to a regulatory announcement by the Singapore Exchange Regulation (SGX RegCo).

The company's independent auditor, Deloitte & Touche, had said it could not obtain appropriate audit evidence and certain information related to the loss of control of Sakae's subsidiary Cocosa Export; the existence of gross receivables from Cocosa Export and its non-controlling shareholder amounting to S$5.4 million and S$1.3 million respectively and the unreconciled differences arising from the intragroup balance amounting to S$1.5 million.

Sakae had appointed KPMG Services to conduct an independent audit on the company's investment in Cocosa Export. Meanwhile, Deloitte was engaged to perform an agreed upon procedure in relation to the reconciliation of the intragroup differences identified in the auditor's report of the company and its subsidiaries for the year ended June 30, 2019.

In reports issued on Wednesday, KPMG disclosed that it did not note any impropriety in receivables from both Cocosa Export and its non-controlling shareholder. However, errors were noted in the accounting records which might have been attributable to the high staff turnover in Sakae's finance department.

Deloitte had reviewed and reconciled majority of the differences in the intragroup balance (with the exception of S$178,665) and the necessary audit adjustments for FY2020. The differences in the intragroup balance were mainly due to lack of review of journal entries; no procedures to perform monthly inter-company reconciliation and no procedures on the use of suspense or contra accounts.

Sakae said in regulatory update on Wednesday that the audtiors' reports indicate no sign of "fraudulent or dishonest impropriety" but the group acknowledged that internal control processes can be further improved.

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Sakae said that it had already appointed an external consultant in April 2019 to review its internal control policies. The board has since approved of the amended policies.

Revised policies include that of its payments processing policy. The policy has been amended to address situations where if the second group of authorised signatories are not present to process urgent transactions, a request for written approval (via email) should be sent to the relevant authorised signatory.

In addition, the firm will implement a new internal accounting control policy that consolidates and documents the company's internal accounting policies and procedures.

It will also formally document staff retention practices such as periodic review by management of the staff work scope and competency, staff remuneration packages, health benefits and insurance plans.

Finally, it has introduced new business and new projects policies, which require the management to consider the experience and expertise required when executing new businesses or projects. The management will also be required to implement internal controls to ensure that the company's interests are protected.

"To ensure accountability and adherence to the above implemented policies, the processes stated in the policies will be included in the scope of the internal audit function to be performed by independent professional service providers reporting directly to the audit committee," said Sakae.

"The company will continue to strengthen its work processes and policies to improve its internal control environment," it said.

Shares of Sakae last traded on April 6 at 14.4 Singapore cents.