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Friday, 14 November 2008
‘Dodgy’ deals at Advance Modules
Tech firm Advance Modules Group (AMG) made a series of dodgy multimillion-dollar transactions to create the appearance that it was profitable, according to a special audit out yesterday.
Tech firm Advance Modules Group (AMG) made a series of dodgy multimillion-dollar transactions to create the appearance that it was profitable, according to a special audit out yesterday.
A forensics team from KPMG said AMG had entered into a series of ‘round-tripping’ transactions to generate an illusion of cash as it was under pressure to report a profit for the 2005 financial year.
The report was instigated by the Singapore Exchange (SGX) in April when it directed AMG, a Malaysian firm listed here, to appoint special auditors. One area of concern was a US$12.1 million (S$18.3 million) purchase of machinery and equipment.
KPMG said the questionable deals began with a US$14.4 million sale of memory modules to a Hong Kong-incorporated firm called Long Gain Technology.
The deal, recorded in the final week of the financial year, accounted for 41 per cent of the group’s total revenue for the 12 months to Dec 31, 2005.
AMG’s auditors at the time, Deloitte & Touche, said they were ‘unable to satisfy themselves’ as to the validity of the Long Gain sales.
KPMG found that the sales ‘are not legitimate transactions’ and were likely done to achieve two objectives.
One was to attain a profit target of RM17 million (S$7 million) for the year and the other was to dispose of its substantial inventory of integrated circuits. This inventory was facing devaluation and further write-downs.
AMG had stated in preparation for its SGX listing that it would reach profit of RM17 million for the year, KPMG noted.
The firm came under pressure to show evidence of the cash from the Long Gain sales and made futile attempts to get letters of credit from various parties. It paid fees of at least US$531,000 for these letters, which turned out to be fictitious.
When this gambit failed, it entered into a series of ‘round-tripping’ transactions to create an illusion of cash being received to settle the Long Gain sales.
The approach involved buying new machinery at an inflated price from a Taiwan-incorporated firm, Diviner. So once payment from the Long Gain sale came in, it could be disbursed as payment for the new machines.
The machinery was worth about US$3 million but was recorded as being bought for US$17 million, said KPMG.
The transactions were done through a friendly party, which provided the temporary cash. This was returned with profits through payments for the purported purchases.
KPMG said it conducted forensic investigations of AMG’s hard disks and servers. It found that the firm had also created fictitious documents to conceal the underlying substance of the invalid transactions in its books.
AMG’s chairman and independent director, Mr Michael Tang, said in a statement to the SGX yesterday that the board has appointed an independent committee to ‘review and consider all matters arising’ from KPMG’s report.
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‘Dodgy’ deals at Advance Modules
By Jessica Cheam
14 November 2008
Tech firm Advance Modules Group (AMG) made a series of dodgy multimillion-dollar transactions to create the appearance that it was profitable, according to a special audit out yesterday.
A forensics team from KPMG said AMG had entered into a series of ‘round-tripping’ transactions to generate an illusion of cash as it was under pressure to report a profit for the 2005 financial year.
The report was instigated by the Singapore Exchange (SGX) in April when it directed AMG, a Malaysian firm listed here, to appoint special auditors. One area of concern was a US$12.1 million (S$18.3 million) purchase of machinery and equipment.
KPMG said the questionable deals began with a US$14.4 million sale of memory modules to a Hong Kong-incorporated firm called Long Gain Technology.
The deal, recorded in the final week of the financial year, accounted for 41 per cent of the group’s total revenue for the 12 months to Dec 31, 2005.
AMG’s auditors at the time, Deloitte & Touche, said they were ‘unable to satisfy themselves’ as to the validity of the Long Gain sales.
KPMG found that the sales ‘are not legitimate transactions’ and were likely done to achieve two objectives.
One was to attain a profit target of RM17 million (S$7 million) for the year and the other was to dispose of its substantial inventory of integrated circuits. This inventory was facing devaluation and further write-downs.
AMG had stated in preparation for its SGX listing that it would reach profit of RM17 million for the year, KPMG noted.
The firm came under pressure to show evidence of the cash from the Long Gain sales and made futile attempts to get letters of credit from various parties. It paid fees of at least US$531,000 for these letters, which turned out to be fictitious.
When this gambit failed, it entered into a series of ‘round-tripping’ transactions to create an illusion of cash being received to settle the Long Gain sales.
The approach involved buying new machinery at an inflated price from a Taiwan-incorporated firm, Diviner. So once payment from the Long Gain sale came in, it could be disbursed as payment for the new machines.
The machinery was worth about US$3 million but was recorded as being bought for US$17 million, said KPMG.
The transactions were done through a friendly party, which provided the temporary cash. This was returned with profits through payments for the purported purchases.
KPMG said it conducted forensic investigations of AMG’s hard disks and servers. It found that the firm had also created fictitious documents to conceal the underlying substance of the invalid transactions in its books.
AMG’s chairman and independent director, Mr Michael Tang, said in a statement to the SGX yesterday that the board has appointed an independent committee to ‘review and consider all matters arising’ from KPMG’s report.
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