LCS scandal: Cover-up attempts were made, says audit report

PETALING JAYA: There were several attempts to conceal irregularities in the littoral combat ships (LCS) controversy, according to the declassified forensic audit report.

It said the first sign of a cover-up appeared in the shareholders agreement, where Contraves Advanced Dynamics (CAD) had all vested powers, even though BHIC Defence Technologies Sdn Bhd (BHICDT) was the majority shareholder.

The report noted that provisions in the shareholders agreement was drafted in such a manner that Boustead Heavy Industries Corporation (BHIC) could not get access to any information in relation to procurement on behalf of Boustead Naval Shipyard (BHS), financial matters and utilisation of generated funds or banking information.

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“Numerous variation orders (VOs) were issued without following SOPs and without examining in detail its validity by the designated team (technical, commercial and procurement team),” the report read.

The report had spoken about a suspicious incident where an unknown individual had taken away official laptops by the former programme director of the LCS project.

“Taking away the official laptop provided to the ex-programme director while leaving the office was most suspicious,” the report said.

However, the identity of the individual could not be ascertained due to redacted paragraphs in the report, which was declassified on Monday (Aug 22).

The report also noted that there were incidents where electronic evidence and documents were destroyed, further indication of a cover-up.

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“The lack of cooperation and hesitation to come forward by a few of the subordinates might be further indication of an attempted cover-up,” the report read.

It also said CAD and its wholly-owned subsidiary Contraves Electrodynamics Sdn Bhd (CED) were involved as intermediaries to compromise transparency.

It said the terms of most of the letters of award (LOAs) and VOs issued to CAD and CED were favourable to them and not in the best interests of BHIC and BNS.

“The involvement of a few companies for providing technical evaluation services related to second generation patrol vessels (SGPV) and to provide false addresses and different bank accounts is the sign of suppression of the identity of the beneficiary for the diverted fund,” the report read.

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It also noted anomalies in the approval of transactions, and authorisation for the payment and instructions to the bank for the release of funds, as these were made using a different address for the company without approval from the procurement team and technical committee.

“It is important to note that the board of directors had neither approved such consultant’s engagement nor authorised anyone to negotiate the fee charged by such a provider of consulting services,” it said.

The report also said clauses of LOAs were poorly drafted and their scope was vague and weak.

“The terms of most of the LOAs and VOs were not in the best interest of the company and were most favourable to CAD and CED, thus limiting the exposure of the perpetrators,” it added.

According to the report, despite various red flags raised by former officers, associates, the chief integrity officer, and a special group internal audit report that highlighted irregularities and wrongdoings, no corrective measures were taken by the management or the chairman of the board.

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“Such failure to stop the abuse of power was a clear act of cover-up by the then MD and his immediate subordinates,” the report read.

It also noted multiple important positions in the LCS project were left vacant, despite it being crucial to support its management.

“This (vacancies) appeared purposeful so that fewer people were involved and less (of a) paper trail was created,” the report read.

The forensic audit was conducted on BHIC by Alliance IFA(M) Sdn Bhd and it was declassified on orders of the Cabinet.

BHIC had said it handed over the report to the PAC on Monday.

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