CHC money went one round, says auditor (BT: 22 Jan 2014)

He wondered: was it really an investment in SOF?

[SINGAPORE] City Harvest Church's (CHC) one-time external auditor testified in court yesterday that he believed senior church members roundtripped funds in what was set up to look like a series of genuine investment transactions.

"The money has gone one round," said Sim Guan Seng, referring to a timeline of the transactions prepared in 2009 by one of the accused, Serina Wee (blogger's note: please note that this timeline is prepared by Serina Wee), which was tendered as evidence to the court.

 "Looking at the Excel sheet (the timeline of transactions) leads me to question whether the investments by CHC . . . are really investments in the first place," he said.

Mr Sim is managing partner of local public accounting firm Baker Tilly TFW and was the audit engagement partner for CHC and Xtron Productions, a music production house set up by CHC members from around 2008 to 2011.

He said his understanding of the timeline prepared by Wee, which detailed the movement of funds and entities involved in the investments made by CHC, concurred with the prosecution's allegations of how the money was roundtripped.

The prosecution is seeking to prove that senior CHC members - including its founder and senior pastor, Kong Hee - had dishonestly misappropriated $24 million of the church's building funds to finance the music career of Kong's wife, Sun Ho, and then sought to disguise that with a series of roundtripping transactions.

When asked how he interpreted the timeline, Mr Sim said: "It would appear that CHC had invested in a Special Opportunity Fund (SOF, run by AMAC Capital Partners, a company owned and managed by former CHC board member Chew Eng Han), and AMAC then used that same money to loan it to UA (Ultimate Assets, a company owned by Indonesian businessman and CHC member Wahju Hanafi), and then UA used that same sum of money and loaned it to Firna (The First National Glassware, another of Mr Hanafi's companies), and Firna used that same money to redeem the Firna bonds (issued to CHC)."

As for the next part of the transactions, Mr Sim said: "It would appear that the advanced rental (ARLA) from the church that was paid to Xtron was used by Xtron to invest in Firna bonds; Firna then repaid the loan from UA, and UA used the money to repay the loan from AMAC, and that allowed AMAC to redeem the $11.4 million SOF fund investment to CHC.

"So the money has gone one round," Mr Sim concluded.

"Looking at the (timeline), it leads me to question whether the investment by CHC in the SOF is really an investment in the first place, or (something) to facilitate or to help Firna redeem the bonds that CHC had invested in.

"As for the advanced rental agreement, if it was entered into just to enable the church to advance money to Xtron and then, through that process, enable AMAC to pay back the SOF, then I would say the intention of the ARLA is definitely not what was represented to me," Mr Sim added.

In addition, the auditor pointed out that the net effect of these transactions was that the bonds issued by Xtron to CHC were fully redeemed and CHC's SOF investment was fully repaid.

"Would you have continued to ask (CHC) questions about the SOF investment (and the bonds, in your audit of the subsequent year's accounts)?" Deputy Public Prosecutor Christopher Ong asked Mr Sim yesterday.

"No . . . once they are redeemed, I am no longer concerned with them," Mr Sim said.

The prosecution also focused on the ARLA signed between CHC and Xtron, which involved CHC paying Xtron advanced rental of some $56 million - or $7 million rental per year, for eight years.

Mr Sim said the agreement raised concerns for him during the audit. "That's a big sum of money to pay to a company like Xtron . . . a company which is not considered financially healthy . . . On top of that, the lease Xtron had at that point would be expiring in (two years' time), so in a sense you are paying for a rental commitment, which Xtron did not have the lease to back up. Commercially, it just didn't make sense.

"I have been an accountant for many years. This is the first time I've seen people paying rental in advance for eight years."

He also noted that "there wasn't very much consideration being put in writing (by CHC) as to the reason and the rationale why the church considered this a good arrangement to enter into".

DPP Ong then showed Mr Sim an email - which had been tendered as evidence last year, in an earlier part of this trial - where Wee said the $7 million was "just an arbitrary figure".

Mr Sim said that if he had known of this email before, "it would raise even more concerns on my part as to the real motive behind (CHC) entering such an agreement with Xtron".

He also testified that while the audit team was aware of CHC's $11.4 million investment in the SOF, it took "many rounds of discussion (with CHC, before) it was eventually determined by the church that (the SOF invests in) fixed-income instruments".

The prosecution then showed Mr Sim an email from Chew to CHC finance manager Sharon Tan, which said that, in their upcoming discussion of audit issues with Mr Sim, they should "steer away from the topic of what (the SOF) invests in . . . the $11.4 million outstanding was all to UA, and we don't want that to surface".

Mr Sim said the email would have made him question "why this information is so confidential that it cannot be surfaced".

The hearing continues.