Auditor General questions valuation of assets of state-owned enterprises

The Auditor General’s Office has questioned the valuation of assets of the Thilafushi Corporation Ltd (TCL) and State Electricity Company (STELCO) in audit reports of the state-owned enterprises for 2013.

The TCL audit report released last week explained that the Finance Ministry transferred land and buildings on Thilafushi Industrial Island to the corporation at a value of MVR12 billion (US$778 million).

“The consideration for such transfer had been made by the issue of 150,000,000 equity shares of MVR10 each issued at a premium of MVR74.13 to Ministry of Finance and Treasury,” the report stated.

Following valuation of the island and property therein by a professionally qualified party “on the basis of capitalised lease rentals to perpetuity,” the leased land was valued at MVR5,725 (US$371) per square foot.

Additionally, “land pending reclamation and lease at the time” was valued at MVR1,200 per square foot, “the reasonableness of which cannot be readily established.”

The report noted that the transaction took place between TCL and the Finance Ministry, “its sole shareholder.”

Moreover, in the “absence of a valuation adopting alternative approaches in the context that this is the first purchase of land transaction at Thilafushi,” the Auditor General’s Office was “unable to conclude whether the rates per square foot derived above are reasonable.”

The report stated that auditors were “unable to satisfy ourselves whether the land and buildings thereon and share premium shown in the balance at MVR12,618, 789,042 and MVR11,118,789,042 [US$713 million] respectively are fairly stated.”

Work in progress

The report also noted that MVR33 million (US$2 million) was paid to Heavy Load Maldives for land reclamation, which was stated in the balance sheet as capital work in progress.

However, in 2011, the company incurred a further MVR23 million (US$1.4 million) for the project, increasing the total capital work-in-progress amount to MVR61 million (US$3.9 million).

Auditors found that the MVR23 million had been “capitalised by transferring the amount from capital work-in-progress to land towards the industrial zone reclamation,” while the remaining amount had not been capitalised.

“In the absence of evidences supporting the work done for the remaining amount of MVR38,889,767, we are unable to conclude whether the company has received value for the amount paid and therefore whether the capital work-in-progress has been fairly stated,” the report concluded.

In January 2013, local media reported that TCL incurred MVR650 million (US$42 million) worth of losses as a result of Heavy Load not reclaiming the agreed 152 hectares of land within the granted six month period.

As a result of the issues flagged in the report, the audit office was “unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion,” and subsequently did not express an opinion on TCL’s financial statement.

STELCO and MPL

In the audit report of STELCO for 2013, the audit office noted that while the company’s financial statements gave “a true and fair view” of its financial position, performance and cash flow as of December 31, 2013, Auditor General Niyaz Ibrahim qualified his opinion due to questions over the valuation of assets.

The report explained that the government-owned company’s property, plant and equipment were revalued by an external valuer during 2011.

“Accordingly, the assets having net book value of MVR434,455,893 [US$28 million] as at 31 December 2011 were revalued for MVR847,932,997 [US$54 million] and a revaluation surplus of MVR413,477,104 was recognised in the books of account,” the report revealed.

However, it added, assets worth MVR26 million (US$1.6 million) were excluded from the revaluation report and “the company accounted these assets at their respective net book values based on historical cost,” which was in violation of international accounting standards.

Consequently, “in the absence of valuation of these assets,” auditors were unable to conclude that MVR15 million (US$972,762) included in the property, plant and equipment of MVR1.5 billion (US97 million) as well as a revaluation reserve of MVR314 million (US$20 million) in the balance sheet was “fairly stated.”

Meanwhile, the audit report of the Maldives Ports Ltd (MPL) for 2013 noted that the company was owed MVR13 million (US$8 million) from the dissolved Maldives National Shipping Ltd, which was a receivable that has been “outstanding for more than four years and therefore, doubtful of recovery.”

As a result, the report noted, auditors were unable to conclude “whether the amount shown under related party receivables in the statement of financial position is recoverable and [whether] the results for the year and receivables were are fairly stated.”

Auditors also found that MVR24 million (US$1.5 million) was “incurred on the construction of a tug boat for harbour operations.”

However, the construction had been discontinued since 2010 “due to a dispute with the constructor,” auditors found.

“Further, we were not allowed to access the premises of the tug boat. Hence, we are unable to satisfy ourselves regarding the physical existence and recoverability of the asset,” the report stated.

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