KUALA LUMPUR (Nov 1): Rapid Synergy Bhd's external auditor KPMG PLT has issued a qualified opinion on the precision tool-making company’s financial statements for the 18-month period that ended June 30, 2023 (FPE2023), due to insufficient disclosures over a RM4.43 million rental income, a RM2.32 million gain from the disposal of property and deposits paid for acquisition of properties, that were recognised during the financial period.
In an independent auditors report on Wednesday, KPMG said it could not confirm the appropriateness and veracity of Rapid Synergy's RM4.43 million rental income recognised for FPE2023. The rental income is in relation to the renting of two properties to an entity, which was a former subsidiary of the group.
"The rental entity had terminated the rental agreements with the group on April 1, 2023. We note certain rental payments due from the rental entity were made to a law firm that is a related party to the group. The documentary communications/instructions between the group and the related law firm concerning the collection of rentals were lacking," said the auditor.
KPMG also said that it noticed that the rentals were not paid in accordance with the terms of the rental agreements.
"There were instances of significant time lag between the payment amounts purportedly paid by the rental entity to the related law firm and the subsequent remittance of the monies by the related law firm to the group. We were also informed that some of the rentals were not paid by the rental entity, (but) were made by way of personal cheques signed by an individual.
"Management provided us information that revealed another individual was considered as the ultimate beneficiary of the rental entity. It was noted that the second individual had authorised the first individual (being the personal assistant) to pay some of the rentals to the related law firm."
KPMG also said it was "unable to obtain sufficient appropriate evidence" to the gain of RM2.32 million from the disposal of an 80,000 sq ft piece of freehold land by Rapid Synergy's wholly-owned subsidiary Persiaran Eksklusif Sdn Bhd (PESB) for RM4.16 million cash to an entity last year.
On Dec 12, 2022, PESB had entered into a sale and purchase agreement (SPA) to dispose of the piece of land. However, KPMG stated that as of the date of its report dated Oct 31, 2023, the land title has yet to be registered in the name of the purchaser.
The auditor expressed concerns that PESB had deemed the disposal as completed based on the full consideration paid by the purchaser to a law firm that is a related party to the group. Accordingly, PESB recognised a gain of RM2.32 million from the disposal for FPE2023.
"From the documents provided by the related law firm, we were unable to ascertain whether the payment received was actually paid by the purchaser," said KPMG.
In its report, the auditor also flagged material uncertainty over deposits amounting to RM40.34 million paid by Rapid Synergy to the related legal firm for acquisition of properties, comprising leasehold land, service apartments and various types of commercial and residential properties.
"On various dates in April 2023, it was noted that the related legal firm paid RM32.27 million on behalf of the group as deposits for the acquisition of properties. The deposits paid, which are equivalent to 50% of each of the properties acquisition price, were noted to be higher than market norms. Some of the vendors were noted to have a similar principal place of business with the rental entity.
"There were no property agents involved in any of the properties transacted, and there was lack of documentary evidence to indicate that the group conducted appropriate due diligence on the ownership of the properties prior to the signing of the SPAs and offer to purchase letters in April 2023," said KPMG.
It added that at the date of the issuance of the financial statements, no valuation reports have been received and the board of director's approvals for the acquisition of these properties are still pending. "Our opinion is not modified in respect of this matter."
KPMG said its opinion on the financial statements of Rapid Synergy also does not cover the group's annual report for FPE2023.
Trading in Rapid Synergy shares was halted for an hour from 9am on Wednesday, due to the announcement. The counter ended the day 20 sen or 0.75% lower at RM26.60, giving it a market capitalisation of RM2.84 billion.