Sino Techfibre

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Business Times - 25 Apr 2011

Fire at Sino Techfibre factory destroys records

Blaze in Shandong facility may further obscure ongoing probe into its books

By WINSTON CHAI

A FIRE at the China factory of mainboard-listed Sino Techfibre could further obscure an ongoing probe into its books as key financial records have reportedly been destroyed in the incident.

According to a statement released by the firm late Friday night, a fire had broken out at the administrative premises within its primary production facility at Longkou City in Shandong province in the early morning of April 20.

While the blaze did not cause any deaths or injuries, the financial records that were kept in the affected office have been destroyed, Sino Techfibre revealed.

'The company has reported the incident to the local police, and the latter has commenced the necessary investigations,' it said.

'The cause of the fire and actual extent of the damage are currently still unknown, pending the completion of the police investigations into the fire and issuance of their report,' it added.

The incident happened a week after the firm was red-flagged by external auditors Ernst & Young (E&Y) for accounting irregularities, adding to recent scandals surrounding the bookkeeping practices of several other China-linked companies.

Specifically, E&Y uncovered some discrepancies in the invoices issued by the firm and its suppliers.

Sino Techfibre said that it could not locate the sales manager who is at centre of this controversy, and has since lodged a local police report.

As E&Y did not obtain a satisfactory explanation on the issue, it could not complete and issue the audit report on Sino Techfibre.

In an update last Friday, the Chinese maker of polyurethane (PU) and microfibre synthetic leather products also announced that it has appointed an interim chairman and CEO following E&Y's findings.

Sino Techfibre's existing CEO Li Wenheng has been 're-designated as an executive director' until further notice, the firm said.

Independent director Tay Wee Kwang has taken over as Sino Techfibre's interim chief while Lee Wing Hang, another independent director, has been appointed as its interim chairman.

As part of his responsibilities, Mr Tay will oversee the independent investigations into the company's audit issues as well as review the investigation report on last week's fire. He will also take over the company seals of Sino Techfibre and all its subsidiaries.

Sino Techfibre is currently finalising the appointment of E&Y for an expanded audit.

In anticipation of this move, Sino Techfibre said that it has been 'making the necessary preparatory work in respect of the relevant books and financial records of the company' prior to last Wednesday's blaze.

The counter has been suspended from trading since April 19.

This is just downright blatant.

[Jon-san]

Agreed! Too coincidental... Records conveniently destroyed by fire... Geez... Ths cloak-and-daggers business is really getting out of hand. I wonder if the former CEO has aything to do with it. Is this a ploy to protect hmself? Hmmm...

[wsreader]

may be the company will change its name to Sino Tech-fire

[LionFlyer]

Sound like a plot straight from Taiwanese TV series 爱!

[karlmarx]

something similar happened to berlian laju as well. the release of their results are now delayed.

i wonder why the markets didn't seem to react to it at all.

[Musicwhiz]

So what's the use of a special audit when no information is provided at all?

The Straits Times
Nov 22, 2011
Sino Techfibre audit draws a blank
KPMG meets resistance from firm's employees and China bureaucrats

By Jonathan Kwok

A SPECIAL audit of Sino Techfibre has come to nought after its employees in China refused to cooperate with auditor KPMG, citing 'state secrets'.

The local Chinese tax bureau also refused to supply vital information to KPMG about the firm, whose shares have been suspended from trade since April. 'As a result, KPMG was not able to complete their entire scope of engagement,' said a statement released yesterday by Sino Techfibre's audit committee.

Sino Techfibre's shares were suspended after its auditor Ernst & Young (E&Y) found discrepancies in invoices issued by the firm and its suppliers. E&Y was unable to verify whether the invoices were genuine.

About a week later, a fire broke out at the company's premises in Shandong province, allegedly destroying the company's books and financial records.

The firm added yesterday: 'The discrepancies highlighted by the company's auditors, Ernst & Young, which the company has announced on April 14, 2011, remain unresolved.'

The audit committee has decided for now to recommend the appointment of a firm of valuers, which will carry out a valuation of the company's assets and liabilities to ascertain its current value.

'The audit committee also hopes that a valuation may help reconstruct the company's accounts which were lost in the fire,' added the statement. 'The audit committee will also seek professional advice on a further course of action.'

While the firm in September said it has taken several steps to safeguard its assets, the special audit that was supposed to shed light on its financial discrepancies came to nought.

KPMG's visits to the firm's plants in China faced obstacles.

Its report said the management and legal representatives of the China entities refused to allow it access to five of the six computers used by the firm's employees.

'We were told that the computers allegedly contained details of transactions between the Chinese entities and certain (Chinese) government-related entities.

'Therefore, if the Chinese entities disclosed the information to us or allowed us access to the computers, they would potentially be in breach of China's state secret laws. In the circumstances, the company was not prepared to authorise our access to the computers.'

According to the company's description on the Singapore Exchange website, Sino Techfibre supplies material to Chinese government departments such as the Chinese People's Armed Police Force and the People's Liberation Army.

Through the company, KPMG also asked the local tax bureau for copies or a summary listing of the China subsidiaries' sales and purchase invoices. But the Longkou Local Taxation Bureau refused to accede to the request.

KPMG said it had to use alternative methods on many matters because all relevant documents had allegedly been destroyed in the fire. These alternative procedures, which are not as reliable as original accounting review procedures, showed minor discrepancies or no disagreements in some aspects of the company's accounts.

There were some discrepancies in the firm's bank statements supposedly issued by the Bank of China, leading KPMG to question the authenticity of the bank statements. But it added that, 'taken as a whole, the evidence did not allow us to conclude that there had been any fabrication of the group's bank balances'.

KPMG also investigated some prepayments made to Sino Techfibre's suppliers, but was unable to verify if the suppliers had in fact been paid.

jonkwok@sph.com.sg

[d.o.g.]

all relevant documents had allegedly been destroyed in the fire.

How convenient. But years ago it would have been clear that something was fishy given their super-high margins on commodity-like products. Oh well. Investors get another expensive reminder on the value of doing their homework. As the saying goes, if you think education is expensive, try ignorance...

[wsreader]

".....the management and legal representatives of the China entities refused to allow it access to five of the six computers used by the firm's employees......"

The report did not mention whether any CSI done on the only computer accessible to the special auditors, for example, any presence of fabricated invoice templates. If that computer is brand new, it also tell us something about the company.

[Musicwhiz]

Business Times - 08 Mar 2012

Sino Techfibre lists steps taken to protect assets

Queried on audit disclaimer, it says it'll work to resume share trading

By LYNETTE KHOO

SINO Techfibre has taken several steps to safeguard its assets since discrepancies were uncovered by its auditors and is now working towards resuming trading of its shares.

'The company intends to prepare a detailed work plan on the processes for the resumption of trading of the company to be submitted together with the application,' it said yesterday in response to queries from the Singapore Exchange (SGX).

Queries from SGX were prompted by an audit disclaimer on Sino Techfibre's financial statements for the year ended Dec 31, 2010.

Citing a list of measures undertaken to strengthen controls on its cash, the troubled S-chip said an escrow account has been opened with Agricultural Bank of China to receive all incoming funds for the daily operations of its subsidiaries and to make outgoing payments.

Any payments exceeding 50,000 yuan (S$9,900) has to be authorised and approved by executive director Li Wenheng, while any payment exceeding 10 million yuan requires the approval of the board.

The company's seal, which is required to authorise any transfers from the escrow account, is in the control of the audit committee and in physical possession of the interim CEO.

Sino Techfibre has appointed its independent director (ID) Tay Wee Kwang as the interim CEO and Lee Wing Hang, another ID, as the interim chairman.

'The management has also lodged a police report in the PRC to seek the assistance of the police to locate one of the sales managers who had gone missing,' Sino Techfibre said. 'To-date this sales manager has not been located.'

Sino Techfibre's shares have been suspended since April last year after its auditor Ernst & Young (E&Y) found discrepancies in invoices issued by the group and its suppliers and could not verify whether the invoices were genuine.

About a week later, a fire broke out at the company's premises in Shandong province, allegedly destroying the company's books and financial records.

KPMG auditors were hindered from completing the special audit as they were denied access to information by the company on the premise of protecting 'state secrets'. The China-based maker of polyurethane and microfibre synthetic leather products supplies to the People's Liberation Army and the Chinese government sector, which both accounted for one-third of its total sales.

The impasse prompted the group's audit committee to appoint Stone Forest Corporate Advisory Pte Ltd to conduct a business valuation for the group.

According to minutes of the annual general meeting held last month, the group has cash-at-hand of about 100 million yuan while its short-term bank borrowing is about 140 million yuan.

Taking a question from a shareholder, a representative from E&Y explained that the discrepancies were found from sampling checks, so the extent of discrepancies was not known.