SGX RegCo reviews Universal Resource's special-auditor report for rule breaches

THE Singapore Exchange Regulation (SGX RegCo) is reviewing findings by Moore Stephens, the special auditors of Universal Resource and Services,  concerning irregularities in the cash and bank balances of the company's Chinese subsidiary, Sky Petroleum Technology Development (Tianjin).

In its report, Moore Stephens had highlighted material discrepancies between Sky Tianjin's bank statements based on its records maintained in Singapore, and its bank statements extracted by Moore Stephens from the relevant banks in China.

The auditors' findings indicate that the company and its management had questionable corporate governance practices and poor accounting practices, SGX RegCo said.

Within the company's internal controls, necessary checks and balances to guard against the concentration of power by a single individual also appear to be lacking. This resulted in a failure to ensure the accuracy and veracity of the company's financial records over a significant period.

Consequently, multiple false disclosures may have been made to the investing public under a systemic scheme of deceit perpetrated from within, it added.

For instance, Sky Tianjin's bank statements did not reflect any use of funds as payment for the consideration of three acquisitions it supposedly undertook, going by corporate announcements in 2014 and 2015. Based on the findings, these acquisitions were fictitious and inappropriately accounted for in the group's consolidated financial statements.

The group's consolidated financial statements also did not disclose that Sky Tianjin had pledged 310 million yuan (S$63 million) and 90 million yuan in fixed deposits with Ping An Bank in June 2014 and January 2015 respectively, as security for loans taken by the company's former 46.55-per-cent unit, Wenling Xinghai Ocean Shipping Co.

Furthermore, the group did not have a robust and effective system of internal controls in respect of the custody and application of its common seal, legal representative seals and finance seals.

SGX RegCo said: "The alleged corporate malfeasance, the substantial amounts involved and the period of time over which these suspected wrongdoings occurred and remained undetected - all of these point to possible non-compliance with many parts of our listing rules."

They may even contravene the law, it said. It added that it expects listed issuers to establish proper checks and balances to ensure the veracity of financial records and the factual accuracy of disclosures on SGXNet, as well as to guard against irregularities or fraud.

If necessary, SGX RegCo will take disciplinary action and refer the matter to the relevant authorities, it said.