Auditor says guarantees raise issues, doubts over bond investment (BT: 21 Jan 2014)

[SINGAPORE] The prosecution yesterday tried to cast more doubt on the veracity of the multi-million-dollar bond transactions entered into by City Harvest Church (CHC) to show that these were nothing more than "shams".

Its witness, Baker Tilly TFW managing partner Sim Guan Seng, who audited the church's accounts, said that documents shown to him for the first time yesterday - which included correspondence between senior CHC members - raised a lot of "doubts" and "issues".

Mr Sim was the audit engagement partner for CHC from October 2008, and that of Xtron Productions from January 2008. Xtron is a production house and artiste management company that managed the church's Crossover Project - CHC's way of evangelising though pop music - and Sun Ho's music career.

The Baker managing partner was shown a personal guarantee signed by Indonesian businessman and CHC member Wahju Hanafi, dated Aug 15, 2007, in which he personally indemnified Xtron against all losses it was to suffer for the Crossover Project.

Mr Sim was then shown another personal guarantee, signed that same day, by CHC founder and senior pastor Kong Hee, CHC deputy senior pastor Tan Ye Peng, Xtron director and CHC member Koh Siow Ngea and former CHC board member Chew Eng Han, who runs AMAC Capital Partners, the church's fund and investment manager. This guarantee, in turn, indemnified Mr Hanafi for any losses he might incur as a result of his indemnity.

Mr Sim, who testified that he had not seen or known of these documents before, was asked how knowledge of them would have affected his audit of CHC and Xtron - specifically, with regard to a $13 million bond issue Xtron made to CHC in 2007, which was to help fund expenses incurred by Xtron for the Crossover Project and Ms Ho's first English music albums.

He replied that if he had known of these guarantees, they would have raised "a lot of issues".
"I would want to know why the four (senior CHC members) are guaranteeing something that has to do with Xtron. Why are they giving a guarantee? Does it mean that there is more to the bond than it seems?" Mr Sim said.

"I would really ask why they need to do this. If it is really an investment, which they think is good, then why are they giving a guarantee? And why are they not disclosing that guarantee?"

Mr Sim also questioned Chew's part in the guarantee, since the latter's AMAC Capital Partners had brought about the bond issue in the first place. "Why is he (Chew) giving a guarantee in the first place if he is recommending the investment in his capacity as fund manager?

"There are basically a lot of doubts in my mind as to the whole transaction."

Deputy Public Prosecutor Christopher Ong then asked: "Mr Sim, what if I told you that these guarantees were actually only prepared in 2010 and backdated to 2007?"

Mr Sim replied: "I'm puzzled by the purpose of this guarantee being prepared in 2010 and backdated to 2007. I can't answer this question."

DPP Ong then showed Mr Sim several emails between CHC's senior members, where they expressed concern about showing a link between Xtron and CHC in the entities' accounts. One was an email from CHC former finance manager Serina Wee to Tan in June 2009, expressing her concern that Mr Sim might "say that CHC is running Xtron". Another was an email from Chew to Wee and Tan in July 2008, which said "we don't want them (the auditors) to think we control Xtron".

When asked if knowledge of such correspondence would have affected his audit, Mr Sim said: "Definitely, it raises more questions. If this email shows that there is some relationship not disclosed to us, maybe more questions would be raised on the actual transaction (bond issue) itself - is there something more to it than what is represented to us?

"Is it really a financial investment? What is the motive behind subscribing to the bonds? And, in fact, a lot of the other representations they have made to us, concerning Xtron, would have to be reviewed and re-evaluated altogether."

He added: "If the emails seem to indicate that they don't want us as auditors to know certain things, then the natural question to ask is: why are they hiding this from us?

"They don't want to show a link. It means they are trying to hide something."

The prosecution is seeking to prove that the bond transactions were shams that formed part of an elaborate round-tripping scheme - undertaken by Kong, Tan, Chew, Wee, CHC board member John Lam and CHC finance manager Sharon Tan - to disguise their attempts to channel the church's building funds into Ms Ho's music career.

The hearing continues.