Tax exemption abuse - director sent to jail

In tax Year of Assessment 2005, the government introduced a tax relief scheme to encourage entrepreneurship. Newly incorporated companies would have tax exemption on the first $100,000 of their income for 3 years.


After learning about this scheme, Gan Oh Boon, director of Steel Formation and Rolling Specialists Ltd (SFRS), proceeded to incorporate 6 companies which then entered into service agreements with SFRS. SFRS supposedly paid these 6 companies for non-existent services. However, the 6 companies had no staff. There was therefore fictitious transactions such as payments for commission fees, technical consultancy fees, marketing consultancy fees, engineering consultancy fees and management fees. In doing so, Gan saved $1.62 million when filing his personal tax returns.

As a result of the tax evasion, Gan was jailed for 2 weeks, fined $8,000 and ordered to pay a penalty of nearly $1 million. His company was fined $24,000 and ordered to pay a penalty of also nearly $1 million. Gan was also punished for omitting to state in his tax returns the benefits he received from SFRS such as car instalments and other personal expenses which were paid for by SFRS.

It is arguable that actually no loss was caused to the government - Gan could have used the 6 companies for entering into transactions with customers and therefore obtained the tax exemption. Instead, it appears that SFRS received customer revenue and from this, deducted the amounts allegedly paid to the 6 companies as its expenses.

His tax advisor and auditor, Chng Chor Tong, was also the subject of tax evasion charges. He was sentenced to 6 months years jail for tax evasion in relation to his own sole proprietorship. He was therefore the first practising certified public accountant to be sentenced to jail for tax evasion.

Ren Ci saga comes to a close?

Ren Ci is a leading Singapore charity involved in providing free medical services. Its founder-chief and monk Shi Ming-Yi and his aide, Raymond Yeung, were charged in court with various offences relating to a $50,000 loan to the aide. Shi was charged with criminal breach of trust in relation to the $50,000 as loans to Yeung were not covered by the charity's staff loan scheme as the latter was a Hongkonger who had not received permission to work in Singapore. Further, the charity's staff loan scheme had strict limits based on the employee's salary.

In an attempt to cover up the loan, the abbot and his aide recorded the $50,000 as a loan to the Mandala Buddhist Cultural Centre, a business entity owned by the charity. However, the Centre's books had no record of this. Later, false statements were made to the Commissioner of Charities when the loan was probed. This is another example where the cover-up offences turn a single act of dishonesty into a whole chain of offences.

Both have just been found guilty after a 21-day trial. Because this was not an isolated act of dishonesty and the fact that public monies in the form of charitable donations were misused, it is possible that a stiff sentence would be meted out. Sentencing will be on 11 November 2009.

[legal note - criminal breach of trust occurs when money entrusted with a person is used for unauthorised purposes. Even using such money for less than a day would amount to an offence under the Penal Code, and this is so even if the money is replaced]

True and fair view - what it means

Financial statements are required to show a true and fair view. But what do the words "true and fair view" mean?

There is no definition in the Singapore Companies Act. Neither are the words defined in the United Kingdom's companies legislation. The relevant accounting standards bodies have also not defined these words.

Queen's Counsels Mary Arden and Leonard Hoffman (as he then was) in England (who are senior well respected lawyers) stated that the words require that the accounts will not be true and fair unless the information in them is sufficient both in quantity and quality to satisfy the reasonable expectations of readers to whom the accounts are addressed. Unfortunately, these words do not assist in any meaningful way.

In the English case of Lloyd Cheyham v Littlejohn, the judge stated that compliance with the rules of the relevant accounting standards authority is strong evidence as to the proper standard to be adopted.

This case was referred to in the local case of JSI Shipping (S) Pte Ltd v Teofoongwonglcloong (a firm) [2007] 4 SLR 460; [2007] SGCA 40

(for a discussion of this case from the viewpoint of the law of negligence, please see http://professionalnegligencesg.blogspot.com/2009/04/gaelic-inns-jsi-shipping-2-contributory.html)

True and fair views in the accounts and financial statement

A company's financial statements are required to show a true and fair view. The company's external auditors are also supposed to express an opinion as to whether the accounts do in fact show such a view. If the accounts appear to be in order, then an unqualified opinion is given.

If the accounts do not show a true and fair view, the auditors are supposed to render an adverse opinion. This is used where the auditors are reasonably sure that the accounts are incorrect. Where the information and documents available are insufficient for the auditors to ascertain whether the accounts are correct or incorrect, then the auditors are required to express an disclaimer opinion.

To protect the auditors from defamation lawsuits in relation to such opinions, section 208 of the Companies Act provides them with qualified privilege. This means that unless there is malice or some improper motive of the auditors in making incorrect statements, the auditors will win any defamation lawsuits against them.

The Informatics affair 2

Continued from previous post.


Some of Infomatics' top executives were charged in court with the creative accounting practices used by IGSPL (Informatics Group Singapore Pte Ltd). They were Wong Tai and Ong Boon Kheng.

Wong Tai, Chairman and non-executive director of IHL Ltd, was charged under the Securities and Futures Act with 2 charges of making false statements by misstating the company's profits in 2 quarterly income statements by by $4.18 million and $0.84 million. He pleaded guilty to 2 charges, with 2 others to be taken into consideration.

The District Court considering facts that he was a first time offender and was not personally involved in the
preparation of the financial statements fined him $120,000 on each of the charges.

Ong Boon Kheng, Chief Executive Officer of Informatics at the relevant time, claimed trial. He was charged with 4 counts, 3 of which related to false accounting in the first, second and third quarters 2003 financial statements of the company while the 4th related to a statement made to the Singapore Exchange, SGX.

Tan Cheng Han, specialist district judge (and also Dean of the Faculty of Law, National University of Singapore) sentenced him to a total fine of $445,000.

Ong was also ordered to pay prosecution costs of $45,400 for the 28 day trial.

The sentences were upheld by High Court judge Tay Yong Kwang on appeal.

The above convictions are probably sufficient to disqualify the above 2 directors from acting as directors under the Companies Act.

The Informatics affair 1

Informatics Holdings Ltd is a listed company which is one of the largest education providers in Singapore. One of its subsidiaries is Informatics Groups Singapore Pte Ltd (IGSPL). False accounting issues in relation to IGSPL's 2003 financial statements involved approved in principle revenue (AIP revenue) and international student recruitment revenue (ISRR).

AIP revenue involved student fees from local students. IGSPL has standing arrangements with financial institutions to provide loans to students for to finance their studies. It is not totally clear but it appears that the students only signed up with the school on the basis that their student fees would be paid through loans arranged by the school. The school here recogised revenue from student fees when the student was registered, rather than when approval for the student loans were obtained.

ISRR is revenue from foreign students studying in Singapore. Under Singapore law, each such student can only commence his studies after approval from the government body, Immigration and Checkpoints Authority (ICA). However, IGSPL recognised the revenue from these students even before approval had been obtained fro ICA. This was based on its past experience that

The above 2 accouting procedures adopted by IGSPL contradict the accounting principle that revenue from services should only be recognised when the service has been rendered to the customer.

JEL Corporation - charges laid

The Business Times in January 2008 reported that the fraud investigation arm of major audit firm KPMG, KPMG Forensics, had found creative accounting in listed company JEL Corporation's accounts for Financial Year 2006 and the first half of Financial Year 2007. The creative accounting resulted in overstatements of profits of $11.84 million. Among some of the tricks used were the creation of fake invoices and accounting documents. These were designed to show transactions with other companies when such transactions were fake.

For details, please refer to http://137.132.179.30/Portals/0/images/CGFRC/docs/CG_News_Feb_2008.pdf.

As of today, 28 May 2009, latest news is that several persons have been charged in court in relation to the above accounting. Ng Soon Heng, the financial controller and JEL's ex-CEO and chairman Eric Tan Boon Yong, ex-deputy CEO and CFO Wee Teck Han and ex-COO Eric Leow Hock Leong were those charged. It is unclear what offences they were charged with but likely offences would be under the Companies Act, and since JEL is also listed, there are also possible offences under the Securitites and Futures Act.