Summary

• We have recently attended two conference calls with Serba Dinamik Holdings Bhd (Serba Dinamik) pertaining to the statutory audit raised by external auditors (KPMG). The audit issues are in relation to the company’s sales transactions, trade receivables and payables, as well as material on site balances.

• For now, Serba Dinamik has swiftly reverted to queries of the external auditors on 6th May 2021 by provided the necessary information including contact details of the relevant parties as requested by the external auditors to satisfy their extended procedures requirements, provided all outstanding audit information as requested by the external auditors and constantly attempt to engage with the external auditors to resolve matters on hand.

• We came away feeling neutral for the time being, pending the aforementioned matters to be resolved. Several issues raised by KPMG include;

• Certain customers’ confirmation relating to sales transactions, trade receivables and material on site balances amounting to RM3.51bn. KPMG had sent out confirmations on the aforesaid balance where only one reply out of 12 customers was received by KPMG. In response to the queries, Serba Dinamik had subsequently sent a second confirmation to the remaining 11 customers with the same amount as to the first confirmation to the relevant debtors of which all have replied. By May 2021, majority of the said trade receivables amount have been collected.

• Certain transactions on purchases and trade payables balances on local suppliers amounting to RM481.0m. On that context, two local suppliers were incorporated on the same day and four local suppliers were found to have the same registered address as the two local suppliers above. Meanwhile, five out of the six suppliers were noted to have paid-up capital of RM100,000 each whereby each supplier is owned by an individual shareholder despite having transactions which ranges between RM60.0-96.0m. In response to the queries, Serba Dinamik notes that the aforesaid suppliers are assessed and recommended by supply change management under the Vendor Development Program (VDP). Companies that were appointed as the group’s vendors do not require to have huge share capital as a condition to assign and fresh vendors will also be considered, through VDP.

• While KPMG notes the same address of local suppliers, Serba Dinamik has informed that the registered address belongs to the company secretary’s office and these companies are using the same secretarial services. Serba Dinamik has made arrangement on further interviews with the 2 local suppliers to meet up with KPMG, but KPMG has yet to take any further action.

• Further information relating to customer and supplier in Bahrain with total sales transactions and trade receivable balances amounting to USD125.0m. KPMG reported that the office address cannot be located on physical site for the supplier and customer, whereby fax contact number of the customer as indicated in the official website is registered under one of the group’s employee but using ‘Truecaller’ application. In respond to the claim, Serba Dinamik noted that KPMG has sighted the wrong address and accordingly management had on 6th May 2021 provided KPMG with the right address. At the same time, Serba Dinamik had provided KPMG with the official telecommunication bill from the provider, which belongs to the company. We also note that changes of certain address to home address is mainly due to the Covid-19 pandemic whereby work-from-home measures were in place to ensure social distancing are in practice and business sustainability is in place.

Source: Mplus Research - 31 May 2021