By Mak Yuen Teen
In 2015, SingPost failed to disclose the interest of a director when it announced an acquisition and blamed it on an “administrative oversight”. Other companies soon used the same term, and “administrative oversight” entered the lexicon of listed companies here when explaining away incorrect disclosures.
When incorrect disclosures about past regulatory actions and a petition for winding up were made at the time of the appointment of Low Beng Tin as chairman of Datapulse Technology, the company issued a clarification and cited “inadvertent omissions”. Other companies in which Mr Low was also a director had also made similar incorrect disclosures and they too issued clarifications citing the same reason. It did not take long for other companies to cite “inadvertent omissions” when they had made incorrect disclosures.
On 21 January 2019, Y Ventures, which had listed on Catalist in July 2017, announced that it had discovered material errors in its unaudited results for the six months ended 30 June 2018, which were announced back in August 2018. The company did not call them “material errors” but they were certainly material because the cumulative effect of the errors resulted in the profit and loss position being overstated by about US$1,303,463. The “profit” of US$143,330 announced back in August 2018 has now turned into a loss of US$1,160,133. It disclosed that US$1,453,873 was erroneously recorded as inventories; US$20,453 was erroneously recorded as property, plant and equipment; US$172,238 was erroneously omitted as trade and other receivables; and US$196,869 was erroneously omitted as administrative expenses. Consequential amendments had to be made to the various financial statements and notes to the accounts. Y Ventures blamed the errors on “administrative inadvertences”.
Whether a company chooses to call these errors “administrative oversight”, “inadvertent omission” or “administrative inadvertences” (thankfully, no company has yet to cite “inadvertent fraud”), regulators must ensure that a proper investigation is done and those responsible held accountable.
In the case of Y Ventures, it is interesting that the company announced on 31 August – just 17 days after the incorrect results announcement – that the chief financial officer had resigned “to pursue other career opportunities”. His effective date of resignation was the following day – in other words, he was out in a hurry.
Even though the continuing sponsor, RHT Capital, said that based on its enquiries, there are no other material reasons for his resignation other than as disclosed in the announcement, the regulators must respond in such situations and undertake proper investigations. They should investigate whether the resignation of the CFO is related to the incorrect announcement, for example, whether the CFO was placed under pressure in the preparation of the financial statements or whether he disagreed with the announced results. This may then lead to questions as to whether certain directors or management were aware that the financial statements contained material errors at that time. The errors in the unaudited results may also raise questions about whether there were also material errors in prior audited and unaudited results especially now that the audit committee and the board have said that they have observed “certain inadequacies in the Company’s internal controls which had led to the lapses in the recording of transactions”.
The Y Ventures case also illustrates the need to pay attention to events such as sudden resignations of CFOs especially around results announcements and with little notice (since employment contracts for management positions such as CFO would typically provide for at least a three-month notice period for resignation or termination). In a coming report due out at the end of February, we hope to provide some guidance to public investors on how to spot potholes in listed companies that tell them there may be major problems ahead.
