SS Steel's auditor flags understated VAT liabilities, unverified inventory, capital work

A fiscal year goes by, and SS Steel's external auditor raises a new set of red flags regarding the publicly-traded company's financial figures disclosed in its annual report. 

According to the auditor's opinion published in the company's latest annual report for fiscal 2021-22 as well as on the Dhaka Stock Exchange (DSE) website, the company made fewer provisions against its value-added tax (VAT) liability against sales.

The company did not pay the sum deducted to contribute to the workers' profit participation fund (WPPF). It also did not comply with the regulations regarding converting investors' money into share capital in time, according to Ashraf Uddin & Co Chartered Accountants.

Also, the external auditor could not fully authenticate the company's disclosed inventory and capital work in progress due to poor documentation.

VAT liability understated by at least Tk10 crore

SS Steel and its subsidiaries' consolidated VAT liabilities would be Tk2,000 more against sales of each tonne of steel products as it set aside less as VAT provisions from fiscal 2021-22 revenue, according to the auditor's objection.

Over the fiscal year, the company sold more than 50,000 tonnes of steel products, according to sources.

That means, the company understated its VAT liabilities by at least Tk10 crore for fiscal 2021-22.

SS Steel Company Secretary Md Mostafizur Rahman said it did not make VAT provision against the cut pieces and wastage sold locally and the auditor might have counted the sales while assessing VAT liabilities.

The auditor also said the company showed a closing balance of Tk12.9 crore in its WPPF at the year end. But, "it was not supported by a separate bank account" as required by the law.

That means the amount was not given to the fund, and the company secretary said it was under processing and would be paid soon.

The company also violated the Financial Reporting Council (FRC) notification by not converting Tk53.8 crore of share money deposit into share capital within six months of the amount deposited, said the latest auditor.

In a bid to prevent faking paid-up capital, the FRC asked firms to maintain separate bank accounts for share money deposits and convert them into share capital within a stipulated time.

Rahman, however, claimed the company was waiting to accomplish all the documentation work and then apply to the securities regulator for the said conversion relating to the acquisition of a subsidiary.

Even bigger figures unauthenticated in FY21

In the previous fiscal year, auditor MABS and J Partners informed the users of the company's financial statement that due to a lack of documents, SS Steel's gigantic sales, procurement and payment figures totalling over Tk700 crore remained unauthenticated.

"The opening balance of inventory is not free from material misstatement," said the new auditor Ashraf Uddin & Co adding that the previous auditor did not attain inventory count due to the pandemic situation.

"We find no alternative means to ensure the inventory closing value and quantity held."

The absence of appropriate supporting evidence, schedules and sequential documents restricted audit workings, the auditor added.

Md Mostafizur Rahman also claimed that the company satisfied the new auditor regarding the previous year's lack of documentation against sales, purchase, payments.