HEALTHCARE | Staff Reporter, Singapore

KPMG struggles to spot regulatory breaches at IHH Healthcare Berhad

A previous probe about the firm saw inter-corporate deposits and ties with Fortis’ former major shareholders.

IHH Healthcare Berhad revealed that its company's external auditors, KPMG, have said that they cannot determine if there are any regulatory non-compliances and additional adjustments or disclosures which may be needed for the audit report, as a result of further findings from ongoing investigations at Fortis Healthcare, according to a filing with the Singapore Exchange (SGX).

IHH Healthcare acquired Fortis Healthcare and its subsidiaries in November 2018. Prior to the acquisition, an investigation report by an independent external legal firm was submitted to the former Fortis board, relating to systematic lapse and override of internal controls.

Also read: IHH Healthcare offers Fortis buyout at $796m

Significant findings, amongst others, highlighted the placement of inter-corporate deposits and existence of possible related parties connected with former controlling shareholders of Fortis. KPMG said these may require "appropriate reassessment" by Fortis Group on the claims from, or transactions with, such parties.

In addition, it revealed that there are ongoing investigations by the Securities and Exchange Board of India (SEBI) and the Serious Fraud Investigation Office, Ministry of Corporate Affairs of India. In October 2018, SEBI issued interim orders which said that certain transactions were structured by some entities which appeared fictitious and fraudulent in nature, resulting in diversion of funds by former controlling shareholders of Fortis.

KPMG said in its independent auditors' report that due to the ongoing process of the various inquiries/investigations, the external auditors of Fortis are unable to determine if there are any regulatory non-compliances and additional adjustments or disclosures which may be necessary as a result of further findings of the ongoing or future regulatory/internal investigations and the consequential impact, if any, on the consolidated financial statements of Fortis.

"Any consequential adjustments may be recorded either as adjustments to the assets acquired, and liabilities assumed in the acquisition which will have an impact on the provisional goodwill recognised by the group on acquisition of Fortis under the purchase price allocation exercise, or as post-acquisition adjustments to be recognised in the financial statements of the group in the period the adjustments are known."

That being said, KPMG highlighted that the accompanying financial statements give a true and fair view of the financial position of the group and of the company as at 31 December 2018, and of their financial performances and their cash flows for the year.

With respect to the findings by the external legal firm, the Fortis Board has implemented specific improvement projects to strengthen the process and control environment, including review and revision of operational and financial authority levels, greater oversight by Fortis Board, review and improve financial reporting processes, more robust secretarial documentation in regard to compliance to regulatory requirements and improving systems design and control enhancement.

According to KPMG’s report, Fortis Board continues to evaluate other areas to strengthen processes and build a robust governance framework, and has initiated an enquiry of the management of certain entities in the Fortis Group that were impacted in respect of the matters investigated by the external legal firm.

Following SEBI’s interim orders, Fortis Group has also taken steps to recover dues from the former controlling shareholders of Fortis and various other entities. These include initiating civil actions against the entities demanding recovery of the outstanding amounts together with interest and to secure repayment of the outstanding amounts on the assets of these entities. 

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