SINGAPORE (May 18): A special audit released earlier today has shown that internal controls at Universal Resource and Services Limited had failed, leading to discrepancies in its financial records over a significant period. 

Coupled with multiple false disclosure to the investment public, a “systematic scheme of deceit” might have been “perpetrated within,” said SGX RegCo, referring to findings of the audit undertaken by Stephen Moore LLP.

Universal Resource and Services, known as Sky China Petroleum Services until a name change in April 2013, has been suspended from trading since Feb 2017 and the special audit commissioned.

It is but part of a long list of S-chips that are in either in business trouble, or had flouted some form of corporate governance practices or another, leaving plenty of work for auditors and lawyers asked to see what can be salvaged, while aggrieved minority shareholders stay further away from this sector of stocks.

The special audit was called to review the irregularities in the cash and bank balances of the company’s China subsidiary in China, SKY Petroleum Technology Development (Tianjin) Co (SKY Tianjin).

The auditor notes that its investigation had been hampered in some ways. For one, it was unable to contact former CEO Liu Qing Zeng (seen here in a 2009 picture), who was purportedly behind a series of deals made by the company. Liu stepped down back in April 27 2015.

Neither was Stephen Moore LLP able to contact two key former finance personnel based in China, Li Xiaoyun and Guo Zengsheng, because of their “sudden disappearance” in Feb 2017, upon commencement of the audit.

Among other findings, Moore Stephens LLP found material discrepancies between SKY Tianjin’s bank statements based on its records maintained in Singapore, and its bank statements extracted by Moore Stephens LLP from the relevant banks in the PRC. 

For example, SKY Tianjin’s bank statements did not reflect the use of funds to pay for three acquisitions undertaken by SKY Tianjin, as announced by the company on June 20 2014, Jan 12 2015 and Aug 31 2015.

“Based on these findings, these acquisitions were fictitious and inappropriately accounted for in the group’s consolidated financial statements,” said SGX RegCo.

Also, Universal Resource and Services did not disclose that SKY Tianjin had pledged RMB310 million and RMB90 million of fixed deposits with Ping An Bank – Dagang Branch in June 2014 and January 2015 respectively. 

The pledges were meant for use as security for loans taken by the company’s former 46.55% indirectly-owned subsidiary, Wenling Xinghai Ocean Shipping Co.

SGX RegCo notes that the company did not have a robust and effective system of internal controls in respect of the custody and application of its common seal, legal representative seals and finance seals.

“The special audit report suggests several potentially serious breaches of our Listing Rules, and perhaps even the law,” said SGX RegCo, adding that it will be reviewing the special audit “very carefully” and if need be, refer the matter to the relevant authorities.