SS Steel fails to authenticate large transactions

An external auditor has found massive irregularities in the latest annual report of SS Steel and said the listed MS billet and MS rod manufacturer lacked evidence against its reported sales, purchases, and payments for its capital work.

MABS and J Partners also said in their qualified opinion that the company deducted tax at source on dividends but did not pay it to the government.

Also, the auditor did not get the authenticity of Tk17.93 crore of payments against the company's reported capital work in progress.

In its report, the company did not mention any intercompany transaction, but the auditor said, its provided documents to show that it had paid Tk97.31 lakh expenditures for Saleh Steel, a subsidiary of the listed firm.

Also, the company did not make any payment to the workers' funds out of its disclosed profits.

On Monday, the qualified opinion and emphasis of matters of the auditor were published on stock exchanges' websites.

Soaring revenue and profits

In 2020, SS Steel acquired 99% shares of Saleh Steel for Tk24.75 crore and later entered into the process of investing a further Tk134 crore for its capacity enhancement.  

SS Steel's silo revenue increased to Tk419.68 crore in 2020-21, which was Tk369.7 a year ago.

Its consolidated revenue that includes the subsidiary's figures shot to Tk638.57 in the 2020-21 fiscal year.

The company's consolidated net profit soared to Tk70.44 crore in fiscal 2020-21 from the previous year's Tk43.62 crore.

From the auditor's note   

As per the labour act, every company shall pay 5% of its net profit to the workers' participation fund, welfare fund and Bangladesh workers' welfare foundation fund, not later than nine months from the close of that year, during such year in the ratio of 80:10:10.

The SS Steel auditor said, "The company neither paid any amount to the employees nor did it contribute any fund to the Bangladesh workers' welfare foundation fund."

The auditor observed that Tk30.86 lakh expenditure was mentioned on the letterhead of the company without any source documents, Tk1.06 crore entries in the bank statement was backed by no supporting documents and Tk17.93 crore was reported as capital work in progress, but could not confirm the authenticity of the source against payments.

The company has deducted source tax of Tk33.25 lakh on dividends but it was not paid to the government treasury, and Tk23.88 crore deferred tax could not be confirmed due to the non-availability of details of the tax base, said the auditor.

Auditor said the company did not follow standard procedures or documents generated for sales as well as purchases and only tax documents were evident against the sales.

No orders from dealers, invoices, delivery notes were found to have existed against the reported sales of Tk419.68 crore," according to the auditor.

While for the purchase, only material receipt reports, weight reports, cash memos and monthly VAT returns including the monthly purchase figure were evident, with no invoice value or unit rate.

"No orders to dealers, invoices, delivery notes were found to have been in existence against the reported purchase of Tk305.99 crore," said the auditor.

Company blames pandemic

SS Steel Company Secretary Md Mostafizur Rahman claimed, "Our company made all the transactions properly and the lack of some documentary evidence was mainly because of the pandemic."

"Our factories and corporate offices are situated in different locations and we could not accumulate so many documents on time during the external audit," he said. 

Besides, many transactions took place based on online communication, he added. 

About the intercompany transactions, he said, the team of Saleh Steel, a subsidiary of the listed company – works at the same corporate office and there had been some temporary transactions with them that were closed sooner.   

He also claimed that the dividend tax deducted at the source will be paid to the government.