• Mon
  • Dec 22, 2014
  • Updated: 2:01am

Lai See

PUBLISHED : Friday, 15 July, 2011, 12:00am
UPDATED : Friday, 15 July, 2011, 12:00am

When even the smell of fraud gets too strong for the auditors

The various frauds and stock market suspensions that have occurred recently among mainland firms listed in Hong Kong and the US, have tended to focus attention on the auditors. They have been criticised for not detecting fraud sooner and have, in some cases, been sued by investors. However, another troubling aspect of these frauds has been the apparent complicity in the scams by the mainland banks.

Xiamen-based financial software specialist Longtop Financial Technologies was suspended after various allegations by analysts and the eventual resignation by Deloitte Touche Tohmatsu, which audited the firm's accounts for six years.

The letter Deloitte sent to Longtop was extraordinary, even by recent standards. Parts of this have already appeared in the media but the following excerpt bears revisiting:

'As part of the process for auditing the Company's financial statements for the year ended 31 March 2011, we determined that, in regard to bank confirmations, it was appropriate to perform follow-up visits to certain banks.

'These audit steps were recently performed and identified a number of very serious defects including: statements by bank staff that their bank had no record of certain transactions; confirmation replies previously received were said to be false; significant differences in deposit balances reported by the bank staff compared with the amounts identified in previously received confirmations [as well as in the books and records of the Group]; and significant bank borrowings reported by bank staff not identified in previously received confirmations [and not recorded in the books and records of the Group]. In light of this, a formal second round of bank confirmation was initiated on 17 May. Within hours however - as a result of intervention by the Company's officials including the Chief Operating Officer - the confirmation process was stopped amid serious and troubling new developments including: calls to banks by the Company asserting that Deloitte was not their auditor; seizure by the Company's staff of second-round bank confirmation documentation on bank premises; threats to stop our staff leaving the Company premises unless they allowed the Company to retain our audit files then on the premises; and then seizure by the Company of certain of our working papers.'

If the banks cannot be trusted, this takes the difficulties of auditing and due diligence to a new level.

Where's the love?

The Hong Kong Securities and Futures Professionals Association (HKSFA) is the smallest of Hong Kong's seven broking associations, but it is the noisiest, the most aggressive and the most resistant to change.

Of late, it staged a protest outside the stock exchange and handed a long letter listing their objections to Charles Li Xiaojia, the exchange's chief executive.

HKSFA opposes shortening the lunch hour and the proposed extension of trading hours. It also objects to trading futures at night, as members do not believe the volumes would make it worthwhile. They also oppose the reintroduction of the closing auction system, saying it would enable bigger players to manipulate the market.

Nevertheless, they were all smiles when they gave Li their letter. Li was also smiling - through gritted teeth we suspect - as he accepted it.

Li said he would read it but that the changes would remain. No doubt he will be hearing from them again.

Leaders of the pack

We always knew Chief Executive, Donald Tsang Kam-yuen, was pretty well paid. To put this in a global context, however, here is how other leaders' salaries compare, according to The Richest website. There appears to be little rhyme or reason attached to salary levels. They seem to have little relevance to the size of the economy or to salary levels within their countries.

The highest paid is Singapore's Lee Hsien Loong with US$2.9 million (HK$22.6 million). Our own Donald Tsang follows with US$541,353 (HK$4.2 million); Kenyan Prime Minister Raila Odinga gets US$427,886; US President Barack Obama earns less than Odinga, with US$400,000; Canadian Prime Minister Stephen Harper receives US$296,400; Mary McAleese, Ireland's president, earns US$287,900; Julia Gillard, prime minister of Australia, gets US$286,752; and Angela Merkel, Germany's chancellor, receives US$283,608.

Facing a legal quagmire

Those guys over at Las Vegas Sands are a litigious crowd. The company and Sands China are being jointly sued by the Hong Kong-listed company's former chief executive, Steven Jacobs, who is seeking severance pay and stock options worth over US$10 million.

Also, a driver and nine security agents of casino chief Sheldon Adelson's elite personal security force, are suing the firm, claiming they were not paid overtime as required by federal law.The driver, Kwame Luangisa, said he was owed more than US$100,000 in unpaid overtime, while the security agents said they were required to work for more than 150 hours a week. Lawyers for Sands China denied the charges. Luangisa claimed he resigned in March, 'following a particularly abusive tirade by Adelson'.

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