Sias 'seriously concerned' over Sakae audit disputes, calls for internal reporting to AC

THE Securities Investors Association (Singapore) or Sias has asked Sakae Holdings' internal audit function to be performed by independent professional service providers reporting directly to the audit committee (AC).

In a press statement on Monday, Sias highlighted that this was among the recommendations by KPMG Services, Deloitte and its appointed external consultant.

It however noted that not all the recommendations - in the areas of payments processing, internal accounting control, employee retention and training, and new business and new projects - have been implemented by Sakae.

To recap, the Singapore Exchange Regulation (SGX RegCo) on May 12 flagged erroneous accounting entries and internal control weaknesses which arose from KPMG's independent review of the company.

The independent review was conducted due to the disclaimer of opinion issued by Sakae's statutory auditor Deloitte & Touche for the company's FY2019 accounts.

Issues of concern included 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 unreconciled differences arising from the intragroup balance amounting to S$1.5 million.

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While no impropriety was found in reviews of the above matters, Sias in its latest statement said it deemed the lack of internal controls "a worry, despite the majority of the differences (barring an exception of S$178,665) in the intragroup balance had been reconciled and the necessary audit adjustments made for FY2020".

Saying it was "seriously concerned" about the erroneous accounting entries and internal control weaknesses in Sakae, Sias also noted that the company had employed four different internal auditors over the last seven years.

"SIAS, for some time now, has called for all listed companies to have an internal audit function that reports to the AC. This is also a requirement under the SGX Listing Rules and in the Singapore Code of Corporate Governance. We agree with SGX RegCo, and urge Sakae to implement all of the internal control recommendations highlighted in the reports," wrote Sias founding president and chief executive David Gerald in the statement.

Adding that "corporate governance and transparency is "not an end state but a journey", he emphasised a need for companies to evolve and improve internal control with changes in the business environment, with Covid-19 as an example, in order to mitigate risks.

"A full-time internal auditor is the eyes and ears of the shareholders in the company," Mr Gerald said.

"Further, Sakae should respond to the concerns raised by SIAS on its 2020 annual report, which had highlighted other concerns relating to corporate governance, financials, and strategy, as well as those from SGX RegCo."