Date: May 17, 2021
Highlights concerns in its review of Sakae 2020 annual report
SIAS is seriously concerned about the erroneous accounting entries and internal control weaknesses in Sakae Holdings. The recent announcement by SGX Regco dated 12 May 2021, calls for Sakae Holdings Limited (Sakae) to adopt and improve its internal control processes, following an independent review from KPMG Services Pte. Ltd. (KPMG). This independent review was conducted due to the disclaimer of opinion issued by Sakae’s statutory auditor, Deloitte & Touche LLP (Deloitte) for the company’s FY2019 accounts, as it had not been provided with sufficient audit evidence to evaluate, among others, the following matters:
- loss of control over the company’s subsidiary, Cocosa Export S.A (Cocosa Export);
- the existence of the gross receivables due from Cocosa Export and its non-controlling shareholder amounting to S$5.412 million and S$1.34 million respectively and its recoverability;
- the unreconciled differences arising from the intragroup balance amounting to S$1.54 million.
The review conducted by KPMG highlighted erroneous accounting entries and internal control weaknesses. While investors can take comfort in that no impropriety was found in this review, the lack of internal controls is a worry, despite the majority of the differences (barring an exception of S$178,665) in the intragroup balance had been reconciled and the necessary audit adjustments made for FY2020. Both these matters were acknowledged by Sakae and Sakae has been enhancing its internal control policies since 2019 – taking into account recommendations from KPMG, Deloitte and its appointed external consultant – in the areas of payments processing, internal accounting control, employee retention and training, and new business and new projects.
However, not all the recommendations from the report have been implemented. The recommendation also calls for the internal audit function to be performed by independent professional service providers reporting directly to the Audit Committee (AC). SIAS, for some time now, has called for all listed companies to have an internal audit function that reports to the AC. This is also a requirement under the SGX Listing Rules and in the Singapore Code of Corporate Governance. We agree with SGX Regco, and urge Sakae to implement all of the internal control recommendations highlighted in the reports. SIAS notes that Sakae has employed 4 different internal auditors over the last 7 years.
SIAS advocates good corporate governance practices and high levels of transparency among our listed companies, including Sakae in the interest of all shareholders. However, corporate governance and transparency is not an end state but a journey and companies need to evolve and improve internal control with changes in the business environment, for example Covid-19, so as to mitigate risks. A full-time internal auditor is the eyes and ears of the shareholders in the company.
Further, Sakae should respond to the concerns raised by SIAS on its 2020 annual report, which had highlighted other concerns relating to corporate governance, financials, and strategy, as well as those from SGX Regco.
Founder, President & CEO