Bursa Malaysia Securities Publicly Reprimands Trive Property Group Berhad (Formerly ETI Tech Corporation Berhad) And Fines 6 Of Its Former Directors A Total Of RM80,000

Bursa Malaysia Securities Berhad (635998-W) (Bursa Malaysia Securities) has publicly reprimanded TRIVE PROPERTY GROUP BERHAD (formerly ETI TECH CORPORATION BERHAD) (TRIVE) and 10 former directors for breaches of the Bursa Malaysia Securities Main Market Listing Requirements (Main LR).  In addition, 6 out of the 10 former directors were fined a total of RM80,000.

TRIVE was publicly reprimanded for committing the following breaches of the Main LR:-

1. Paragraph 15.27(1) of the Main LR which requires a listed issuer to establish an internal audit function which is independent of the activities it audits. TRIVE had failed to establish an internal audit function from 1 September 2011 until 8 July 2014;

2. Paragraphs 15.12(1)(e) and (f) of the Main LR which state that a listed issuer must ensure an audit committee review the following and report the same to the board of directors of the listed issuer:

   • the adequacy of the scope, functions, competency and resources of the internal audit function and that it has the necessary authority to carry out its work; and
   • the internal audit program, processes, the results of the internal audit program, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function.

   The Audit Committee of TRIVE had failed to review the adequacy of the internal audit function and internal audit plan and/or report during the 18-month financial period ended 28 February 2013 and up to the appointment of Kloo Point Risk Management Services Sdn. Bhd. on 9 July 2014 (i.e. from 1 September 2011 until 8 July 2014);

3. Paragraphs 2.18(1)(a) and (c) of the Main LR in respect of the representations in the Statement on Risk Management & Internal Control and the Audit Committee Statement contained in TRIVE’s annual report for the 18-month financial period ended 28 February 2013 (AR 2013) submitted to Bursa Securities on 30 August 2013 which were inaccurate and particularly misleading with regard to the internal audit function / activities carried out during the 18-month financial period from 1 September 2011 to 28 February 2013; and

4. Paragraph 15.23 of the Main LR for failing to ensure that the external auditors reviewed the statement on internal control in the AR 2013.

10 directors of TRIVE at the material time were publicly reprimanded and/or imposed with the following fines for committing the breach of paragraphs 2.18(1)(a) and (c) and/or paragraph 16.13(b) of the Main LR for permitting knowingly, or where they had reasonable means of obtaining such knowledge, TRIVE to commit the aforementioned  breaches:-

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

• the specific function and responsibilities of the managing director,  the audit committee as well as the other directors vis-à-vis TRIVE’s compliance and operation of the internal audit function under the Main LR;
• the conduct of the directors; and
• the significance of establishing and maintaining an effective internal audit function by a listed company.

Bursa Securities views the contraventions seriously as the requirement for listed companies to establish and maintain an internal audit function is crucial as it plays an important part in the effective governance and risk and control framework of a listed company.  In particular, internal audit provides an independent and objective assurance service to the board of directors, audit committee and management as to the effectiveness of the company’s governance, risk management and control processes that have been put in place thus enabling / facilitating better supervision and management of the company’s business and operations including compliance of rules and regulations.

BACKGROUND

(I)    PUBLIC REPRIMAND ON TRIVE

Failure to Establish an Internal Audit Function

Based on the facts and circumstances procured during investigation, Bursa Malaysia Securities noted that:-

1. TRIVE’s internal auditor, Finfield Corporate Services Sdn Bhd (Finfield) had after issuance of its final internal audit report dated 9 December 2011 which covered the audit for reporting quarter ended 31 August 2011, terminated its services on 3 August 2012;

2. TRIVE had assigned its internal accountant to handle the internal audit function after the resignation of Finfield until the accountant’s resignation in January 2013;

3. TRIVE had on 29 April 2013 appointed Preston Advisory Sdn Bhd (Preston) as the internal auditor and Preston had subsequently resigned due to outstanding fees;

4. TRIVE had on 9 July 2014 appointed Kloo Point Risk Management Services Sdn Bhd (Kloo Point) as the internal auditor and Kloo Point had after its appointment, prepared the internal audit plan for the financial year ended 31 July 2014 and reviewed the system of internal control covering TRIVE’s business process for the period from 1 January 2014 to 30 June 2014;

5. Notwithstanding paragraph (a) – (d) above, there was in fact no internal audit function / activities carried out for the 18-month financial period ended 28 February 2013 and up to the appointment of Kloo Point on 9 July 2014. There was also no evidence of any internal audit activities including any engagement / discussion / deliberation with / before / by the Audit Committee and reporting / recommendation by the Audit Committee to the Board of Directors on any internal audit plan and/or internal audit report during this period; and

6. The mere existence of Finfield as the internal auditor (from 1 September 2011 until 3 August 2012), appointment of Preston (on 29 April 2013) and assignment of the internal accountant to take on the internal audit function, without more / in the absence of any activities did not fulfil / would not satisfy the requirement under paragraph 15.27(1) of the Main LR for the company to establish an internal audit function. In addition, TRIVE had also failed to ensure that its Audit Committee discharged its responsibility under paragraphs 15.12(1)(e) and (f) of the Main LR whereby the Audit Committee is required to review and report to the Board of Directors, amongst others, the adequacy and competency of the internal audit function as well as review the internal audit program and processes.

Misstatements in respect of Internal Audit Function in the Annual Report

Further, TRIVE had reported the following statements in the AR 2013 which were issued on 30 August 2013:-

(a)           In the Statement on Risk Management & Internal Control (page 27):-

• The Audit Committee evaluates the effectiveness of internal auditor in relation to their defined responsibilities. The independent internal audit function is outsourced to an independent professional firm which carries out the internal audit reviews based on the internal audit plans approved by the Audit Committee. The internal audit plans are designed using a risk-based approach identified by the management. The results of the audits are presented to the Audit Committee at their meetings. Follow-up reviews are also carried out (to) assess the status of implementation of management action plans, which are based on the internal audit recommendations. The results of these follow-up reviews are also highlighted to the Audit Committee.
• There were non-major internal control weaknesses identified that would require disclosure in the Group’s financial statements. The external auditors had reviewed this Statement in accordance with Recommended Practice Guide 5 issued by the Malaysian Institute of Accountants; and

(b)          In the Audit Committee Statement (Page 30)

• The activities carried out by the Committee during the financial period ended 28 February 2013 in the discharge of its duties and responsibilities includes the review and approval of the internal audit plan and internal audit reports; and
• The company had outsourced its internal audit function to an independent professional internal audit service provider firm to carry out the internal audit function of the Group in order to assist the Audit Committee in discharging its duties and responsibilities. The internal auditors’ role also assists the Board in accomplishing the Company’s business objectives by establishing and maintaining a systematic, discipline approach to evaluate and improve the effectiveness of risk management framework and internal control systems.

The above statements were clearly inaccurate and particularly misleading with regard to the internal audit function / activities carried out during the 18-month financial period from 1 September 2011 to 28 February 2013 in view of the facts and circumstances at paragraph (a)-(f) above.  TRIVE had also failed to comply with paragraph 15.23 of the Main LR where it failed to ensure that the external auditors reviewed the Statement on Internal Control in the AR 2013.

(II)     PUBLIC REPRIMAND AND A TOTAL FINES OF RM80,000 IMPOSED ON THE FORMER DIRECTORS

All the directors were or should have been aware of the state of affairs of the internal audit function and activities of TRIVE.  However, the directors had failed to demonstrate reasonable steps / efforts taken to ensure that TRIVE complied with paragraphs 15.12(1)(e) & (f) and 15.27(1) of the Main LR including undertook due enquiry on / questioned the status of the internal audit function as well as other proactive steps towards addressing the non-compliance of the requirement for an internal audit function during the relevant period.  The directors had also failed to supervise / monitor / follow-up on the progress and actions taken vis-à-vis addressing and rectifying the issue including the replacement / appointment of an internal auditor expeditiously.

The allegations of TRIVE’s financial difficulties / shortage of funds / resources cannot absolve the obligations of TRIVE and the directors to ensure compliance with paragraphs 15.12 and 15.27 of the Main LR particularly as the directors had failed to demonstrate reasonable steps / effort taken to ensure that the Company complied with paragraphs 15.12(1)(e) & (f) and 15.27(1) of the Main LR.

In addition, 5 directors i.e. Lee Kah Kheng, Nordin Bin Mohamad Desa, Dato’ Chang Lik Sean, Brig Gen (B) Datuk Muhamad Yasin bin Yahya and Woo Kok Boon had breached paragraph 2.18(1)(a) and (c) of the Main LR for approving the Statement on Risk Management & Internal Control and the Audit Committee Statement contained in the AR 2013 with regard to the internal audit function / activities which were inaccurate and misleading.