Bursa Malaysia Securities Publicly Reprimands Borneo Aqua Harvest Berhad And Fines 4 Of Its Directors A Total Of Rm40,000

Bursa Malaysia Securities Berhad (635998-W) (Bursa Malaysia Securities) has publicly reprimanded BORNEO AQUA HARVEST BERHAD (BAHVEST or the Company) and 9 directors for breaches of the Bursa Malaysia Securities ACE Market Listing Requirements (ACE LR). In addition, 4 directors of BAHVEST were fined a total of RM40,000.

BAHVEST was publicly reprimanded for breaching:-

(1) Rule 15.27(1) of the ACE LR for failing to establish an internal audit function which was independent of the activities it audits since April 2010 until December 2012; and

(2) Rules 2.18(1)(a) and (c) of the ACE LR in respect of the Company’s representations in its annual report for the financial year ended (FYE) 31 March 2011 (AR 2011) submitted to Bursa Malaysia Securities on 29 July 2011 and annual report for the FYE 31 March 2012 (AR 2012) submitted to Bursa Malaysia Securities on 6 August 2012 which were inaccurate and particularly misleading vis-à-vis the existence of an internal audit function and/or internal audit activities carried out during the FYE 31 March 2011 and 31 March 2012.

The directors of BAHVEST were found to have breached Rules 2.18(1)(a) and (c) and/or Rule 16.13(b) of the ACE LR in respect of the above breaches.

The penalties imposed on the directors are as follows:-

Bursa Malaysia Securities views the contraventions seriously as the requirement for listed companies to establish an internal audit function is important to ensure an independent and regular review and/or appraisal of the effectiveness of the risk management, internal control and governance processes within the listed company.

BACKGROUND

The engagement of KPMG as the internal auditors of BAHVEST had expired in March 2010 and BAHVEST had failed to establish an internal audit function thereafter (from April 2010) until December 2012.

Notwithstanding the above, BAHVEST had in:-

(a)  The AR 2011 represented that:-

1. The Company had engaged KPMG as the internal auditors of the Company since June 2007 (Statement of Internal Control-page 17); and
2. The Audit Committee had during the financial year under review ensured the outsourced internal audit function had adequate resources, consisting of people who were adequately skilled (Audit Committee Report-page 16); and

(b)  The AR 2012 represented that:-

1. The Company had engaged KPMG as the internal auditors of the Company in June 2007 (Statement of Internal Control-page 18);
2. The Group outsourced its internal audit function to an independent professional service to conduct an independent review of the Group’s system of internal control. The firm appointed was independent of the activities carried out by them and also the external auditor. The internal audit activities were reviewed on the implementation of the internal and external recommendations and the outsourced internal audit function had adequate resources, consisting people who were adequately skilled (Audit Committee Report-page 17); and
3. The Audit Committee had during the financial year under review (Audit Committee Report-page 17):-

• reviewed with the outsourced internal auditors the annual internal audit plan, the scope of work and fees and thereafter recommended to the Board for approval;
• reviewed the status report and updates and recommendations for corrective action plans submitted by the outsourced internal auditor and received regular updates of the implementation by the Group; and
• reviewed with outsourced internal auditors on issues affecting the operations of the Group as well as the necessary remedial actions and thereafter reported the same to the Board.

The Company’s representations in the AR 2011 and AR 2012 above were inaccurate and particularly misleading as to the existence of an internal audit function and/or internal audit activities carried out during the FYE 31 March 2011 and 31 March 2012.

The directors have breached Rule 16.13(b) of the ACE LR and/or Rules 2.18(1)(a) and (c) of the ACE LR for permitting knowingly or where they had reasonable means of obtaining such knowledge, the Company to commit the breaches above and failing to ensure that the statements as to the existence of an internal audit function and/or internal audit activities carried out during the FYE 31 March 2011 and 31 March 2012 which were included in the Audit Committee Report and Statement of Internal Control of the AR 2011 and AR 2012 respectively were accurate and not misleading.

The finding of breach and imposition of the above penalties on BAHVEST and its directors were made pursuant to Rule 16.19 of the ACE LR upon completion of due process and after taking into consideration all the facts and circumstances of the matter including the following:-

• the conduct of the directors who through their conduct had failed to undertake proper review and placed complete/blind reliance on the management to ensure the accuracy of the statements incorporated in the annual reports (eg. the Audit Committee Report and the Statement of Internal Control); and
• the specific function and responsibilities of the managing director and the audit committee vis-à-vis BAHVEST particularly in respect of its compliance and operation of the internal audit function under the ACE LR.