New developments in Xian Leng, as reported in a rather damaging article in The Edge of this week. The heading is "RM 90m accounting issue in Xian Leng", which is much more than previously estimated, "when it rains, it pours".
The following official announcement was made yesterday:
Reference is made to the article under the title “RM90 million accounting issue in Xian Leng” as appeared in page 18 of The Edge Malaysia dated 2 April 2012. The Board of Directors of XIANLNG wishes to announce that the investigation has yet to be completed and save as previously disclosed in our announcements, no authority has been given to any party for the disclosure of any information pertaining to the investigation. This announcement is dated 2 April 2012.
Looks like the report was leaked to the journalist of The Edge, but the contents are not denied. If the article of The Edge is indeed true, then things look pretty bleak for Xian Leng.
"A draft report by PricewaterhouseCoopers Advisory Services Sdn Bhd on ornamental fish breeder Xian Leng Holdings Bhd alleges that the company cannot account for as much as RM 90.7 million in funds utilised as capital expenditure between 2005 and 2008."
"According to the report, the board of directors was aware of a sum of RM 90.7 million allegedly spent on building large ponds, but it did not give its consent for the expenditure."
This sounds strange, they were aware of it, but didn't give its consent. Then why did they not raise the alarm? The amount of RM 91 million is huge.
"The accounts of Xian Leng Trading do not sufficiently explain the transactions with the four contractors as the cheques were not drawn in their favour. Instead they were drawn in favour of parties connected to the four contractors or to "cash" while the corresponding vouchers were made out to the four contractors". The cheques were allegedely made to a money changer, a company substantially controlled by an individual who was also a director of Xian Leng. The director resigned in August 2008". The director apparently could not account for the RM 37.7 million of the cash paid to the money changer. It is also worth noting that transactions with the money changer, which is a related-party transaction, had not been disclosed to the stock exchange and shareholders."
If this is true, then there are some serious issues regarding internal audit etc in the company. Large cash payments, payments to money changers, Related Party Transactions, all alarm bells should have been ringing. Why did it take so long before action was taken?
The alleged director involved must have been Chua Bah Bee @ Chua Chong Seng, a non-independent executive director and an accountant, since he is the only one who resigned in August 2008. He sold millions of his shares just before he resigned at age 63.
The auditors of Xian Leng are Ernst & Young.