Short position

Government and venture capital 

MALAYSIA has a history of its government seeking to support its local technology and innovation efforts by providing venture capital (VC) money.

This week, the Securities Commission called upon VC management companies to apply for the RM1bil fund committed by major institutional investors, as announced in Budget 2018.

The RM1bil is said to be provided by large government-linked investment funds such as the Employees Provident Fund and the Retirement Fund Inc to venture capitalists on a matching basis.

The Malaysian government has a history of providing VC money to boost the innovative companies in taking root. But the question is, how effective has it been? Billions of ringgit have been spent on VC funding of local companies, mostly tech start-ups since the 1990s. The Multimedia Super Corridor had a venture fund called MSC Ventures. Malaysia also had and still has the Malaysian Technology Development Fund. There are various other government grants targeted at the same area. Then there is Malaysia Venture Capital Management Bhd or Mavcap, a Finance Ministry-owned VC company, which has invested about RM1bil in 130 technology companies since it was set up in 2001.

The question is, how effective have all these investments been? Perhaps, an extensive study should be done to establish how effective these efforts have been.

There is a school of thought that only private money should go into VC, as that kind of money comes with very strict conditions, meaning that only the best of ideas and entrepreneurs get funded and even then, tight targets are set for the investee to hit. The flip side is that private VC tends to bypass Malaysia. So, the thinking is that without government funding, young start-ups will not be able to be nurtured. And we would then not see a company like Grab leave Malaysia’s shores.

But what then explains great tech companies that come from markets where there is hardly any government VC? Consider the case of Go-Jek in Indonesia. How did it become a global tech name without government VC funding, while Malaysia is still struggling to produce such a big tech firm? Perhaps, there is more to the story than just providing funding.

Auditors step up 

AUDITED accounts are the best way to gauge companies’ health.

That is why public-listed companies have to have all their accounts audited. And this is also why the auditors looking at public companies’ books are held up to high standards. The Securities Commission’s Audit Oversight Board ensures that this is the case. It keeps a close tab on the standards of the auditors and punishes those that fall below that. Perhaps, this is why we see more cases of auditors stepping up action on public-listed companies.

This week alone two cases emerged. Auditors Grant Thornton Malaysia expressed a disclaimer of opinion on Sumatec Resources Bhd’s audited financial statements for the financial year ended Dec 31, 2017 (FY17). Grant Thornton said it was unable to obtain sufficient audit evidence on the appropriateness of its going concern assumption on Sumatec.

On the same day, the trading in the shares of engineering and construction outfit Zelan Bhd was halted for an hour after its external auditors expressed concerns about the company’s future. The company said its external auditors, PricewaterhouseCoopers PLT (PwC), had issued a statement – “Material uncertainty related to the going concern of the group and the company” in respect of the company’s financial statements for FY17. The auditors pointed out that the group and the company had incurred a net loss after taxation of RM74.3mil and RM2.2mil, respectively, for FY17 and, as of that date, the group and the company’s liabilities exceeded their assets by RM269.5mil and RM47.4mil, respectively.

PwC said that those events and conditions, along with other matters, indicate that a material uncertainty exists that may cast significant doubt on the ability of the group and the company to continue as going concerns. Zelan said it “will continue to undertake measures to manage and strengthen the group’s cash flow position.”

Auditors ought to keep up their vigilant stance so as to ensure that the investing public is not misled.

Losing trust? 

AUSTRALIA’S biggest bank, The Commonwealth Bank (CBA), admitted this week that it has lost the financial records of more than 20 million customers in what the country’s Prime Minister called an “extraordinary blunder”.

At over 20 million customers, that’s almost all of the country’s population of 25 million.

The incident happened when magnetic tapes were lost by the bank’s subcontractor Fuji Xerox during the decommissioning of one of CBA’s data centres.

Customers were not notified of this incident where data lost included that of customer names, addresses, account numbers and transaction information.

According to the bank, a decision was made not to alert customers presumably so as not to cause alarm.

Whether this was a good decision or not is relative.

Such news is not new. Neither is it rare. In fact, such an incident has also happened in Malaysia. And not too long ago.

In such instances, who is really to be blamed?

More importantly, how can these occurrences be stopped? Are more measures needed to be put in place?

Customers these days are not only concerned about things like passwords to accounts being compromised.

To quote tech website CNET: “In an era when identity theft is a growing threat and personal information is sold on the dark web as a valuable commodity, a data breach of this size is deeply concerning for customers.” It was referring to the CBA case.

“Criminals can build a detailed profile of a person with information like a name and address and a PIN isn’t needed to do serious damage,” it added.

In essence, customers need to be able to trust companies they give their information to. They need to know that when they pass on their personal data to the firms, it will not be compromised.

This cannot be stressed on enough. What more when the company is a financial institution.