Overview and Summary:

Citiraya was founded by Mr Ng Teck Lee and his brother Raymond Ng in 1988 and engaged in recycling electronics waste. Subsequently, it went public in July 2002 and expanded its presence in 11 countries.

Raymond Ng sold his stake to Ng Teck Lee and left in April 2004. In early 2005, the corruption scandal broke-out, when Taiwan police raided the premises of some firms there which bought the goods from Ng.

Citiraya was subsequently placed under judicial management and rescued by a bailout plan. It was renamed and now operates as Centillion Environment and Recycling.

The authorities there were apparently alerted when scrapped chips that belonged to one of Citiraya’s US-based clients surfaced in Taiwan when the items should have been crushed and recycled in Singapore.

Computer chips meant to be scrapped were diverted for sale overseas and the level of precious metal extracted from waste was falsely declared.

Citiraya notched up 1,554 suspect transactions in 2004, with about $161 million in fake sales created between 2003 and 2005.

With the help of his brother Teck Boon, he swiped some 62 containers of electronic scrap between 2003 and 2004 and had them shipped to buyers in Hong Kong and Taiwan.

The scam was allegedly masterminded by Ng Teck Lee who involved in briberies amounting to almost $1.82 million being given to Citiraya employees and the staff of its clients.

He placed the profits into two Hong Kong accounts and used them to buy shares, property and make other purchases.

Issues Arising:

• Ng Teck Lee fled with US$51m (S$72 m), made from selling used computer chips which Citiraya should have destroyed while 11 people including his third brother, Ng Teck Boon, Citiraya’s former assistant GM, have been convicted and jailed for 8 years for various charges
• Mr Tan Liang Chye, a Director of Alvertex Pte Ltd, conspiring with Ng Teck Lee and several others in falsifying the accounts of the 2 private companies, which included the issue and receipt of false documents involving Citiraya. He was also charged with one count of assisting in concealing stolen properties, mostly electronics scrap
• Breach of fiduciary duties as the CEO / director by committing fraud against the company
• Corruption offences by the management and staff of the Company and clients of the Company
• Client’s Director’s fraud in:

1. falsifying accounts included the issue and receipt of false documents involving Citiraya; and
2. assisting in concealing stolen properties, mostly electronics scrap; and

• Generally weak corporate governance within the company.

Considerations by Auditors:

~ Objectivity applied by auditors in evaluating evidence?
eg: could the auditors have performed further work to verify the existence of sales and any related party transactions at arm’s length?

~ Reliance on management representation?
eg: could the auditors have assessed the integrity of top management for fraud and paid more attention to the 3rd party sales/debtors confirmation and reconciliation, bank reconciliation statement and performed additional audit procedures than solely relying on management representation?

~ Professional Competence and Due Care?
eg: could the auditors have performed more work, e.g., adopt an attitude of professional scepticism and be more alert to the possibility of fraud?

~ In this case, human issue is a greater challenge for auditors than a system weakness issue where fraud and intentional mis-statement of financial results committed by human are the greatest challenge to detect. It is always defended as “Auditors are Watchdogs, not bloodhounds”