Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
WINSHINE SCIENCE COMPANY LIMITED
瀛 晟 科 學 有 限 公 司 *
(Incorporated in Bermuda with limited liability)
(Stock Code: 209)
- RESULTS OF INTERNAL CONTROL REVIEW; AND
- CONTINUED SUSPENSION OF TRADING
This announcement is made by the board (the "Board") of directors (the "Directors") of Winshine Science Company Limited (the "Company", together with its subsidiaries, the "Group") pursuant to Rule 13.09 of The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Stock Exchange") (the "Listing Rules") and the provisions of inside information under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).
References are made to the Company's announcements (i) dated 28 March 2019, 16 April 2019, 19 June 2019, 2 September 2019 and 2 October 2019 in relation to the delay in publication of the annual results and despatch of annual report of the Group for the year ended 31 December 2018 and the trading suspension of the shares of the Company on the Stock Exchange; (ii) dated 6 May 2019, 8 May 2019 and 10 June 2019 in relation to the change of auditors; and (iii) dated 25 June 2019 in relation to the resumption guidance (the "Resumption Guidance") (collectively, the "Announcements"). Unless otherwise defined, terms used in this announcement shall have the same meanings as those defined in the Announcements.
As disclosed in the announcement of the Company dated 19 June 2019, in regards to the audit issues (i) direct confirmation received by the Former Auditors from a debtor of the Group; and (ii) advancement of funds, the Internal Control Adviser was engaged to perform an internal control review of the Company and selected subsidiaries of the Company for the period from 1 January 2019 to 30 April 2019 (the "Internal Control Review"). On 29 October 2019, the Internal Control Adviser issued a report on its findings.
1
SUMMARY OF RESULTS
Set out below is a summary of the internal control deficiencies identified by the Internal Control Adviser during the Internal Control Review, their corresponding recommendations and the corresponding response of the Group.
Internal control | Recommendations by |
No. deficiencies | the Internal Control Adviser |
Group's response
- Integrity and ethical values
- Untimely update and absence of policies and procedures for entity level controls
- Inaccurate and inadequate reporting mechanism for misconduct
The Group should review current policies and guidelines in place to update and align with current organisation structure.
The Group should update the correspondence address for reporting misconduct in the Group's current whistleblowing policy, and set up a dedicated email address for the Group's employees and outsiders to report any misconduct.
The Group has followed this recommendation and implemented the required policies and procedures.
The Group has followed this recommendation and implemented an updated whistleblowing policy.
- Written policies and guidelines of the Company are not accessible to employees in the People's Republic of China ("PRC")
- Some of the contract terms of the Group's employees do not properly protect the Company's interest
- Non-complianceof the staff handbook on the requirement for conflict of interest declaration
The Group should make the Company's policies and guidelines available for all employees to access.
The Group should review the Group's standard employment contracts to include adequate contract terms or create an acknowledge form on the rules set by the Company.
The Group should enforce the external and internal conflicts of interests declaration and reporting requirement as stipulated in the Group's staff handbook.
The Group has followed this recommendation and distributed the internal control manual to new and existing employees in the PRC.
The Group has followed this recommendation and updated its employment contracts.
The Group has followed this recommendation and established an annual declaration of conflict of interest form.
2
Internal control | Recommendations by |
No. deficiencies | the Internal Control Adviser |
- Delegation of authority and responsibility
6. | Incomprehensive job | The Group should establish a formal |
responsibilities and | authority matrix with threshold | |
authority matrix to govern | amount against each category of | |
the review and approval | transactions and defined approval | |
of transactions | requirements, and periodically | |
review the appropriateness of the | ||
authority matrix and assess if | ||
change is required. |
- Receipts and accounts receivable management
7. | Certain written financial | The Group should review current |
policies and procedures | policies and guidelines in place to | |
yet to be established and | update and align with current | |
no regular update on the | practice, and establish the policies | |
policies and procedures | and procedures and circulate to the | |
concerned staff thereafter. |
8. | Customer due diligence | The Group should establish |
and loan approval | formalized policies and procedures | |
procedures need to be | to govern customer due diligence | |
enhanced | process, and establish a mechanism | |
to review and approve loans. |
9. | Customers selection and | The Group should establish |
maintenance can be | formalized policies and procedures | |
enhanced | to govern customer selection and | |
maintenance process, including a | ||
mechanism for customers | ||
evaluation. |
Group's response
The Group has followed this recommendation and established an authorisation and responsibility manual.
The Group has followed this recommendation and implemented additional internal policies and procedures including but not limited to the processing and recording of receipts, selection of customers, contract management and execution, and price setting and discounts approval.
The Group has followed this recommendation and implemented additional policies and procedures to govern customer due diligence process and loan approval procedures.
The Group has followed this recommendation and enhanced the relevant customers selection and maintenance procedures.
3
Internal control | Recommendations by | |
No. deficiencies | the Internal Control Adviser | Group's response |
10. Price setting of rent and approval processes can be enhanced
The Group should establish formalized policies and procedures to govern price setting of rent and approval process, including a mechanism to review and approve price, and retain price setting and approval documentation.
The Group has followed this recommendation and implemented additional policy to govern the price setting of rent and its approval process.
11. Mechanism of loan | The Group should establish separate |
disbursement to third | bank accounts for its subsidiaries |
parties is inconsistent | for the disbursement of loans to |
with the underlying | third parties. |
facility letter |
- Cash and treasury management
The Group has followed this recommendation and shall continuously fully comply with the requirements.
12. The Group's internal control manual does not properly address certain areas of cash and treasury management
The Group should enhance its internal control manual and relevant written policies and procedures to better govern the concerned areas, and circulate the policies and procedures to the concerned staff thereafter.
The Group has followed this recommendation and implemented additional policy to better address the cash and treasury management.
13. Lack of segregation of | The Group should establish a |
duties over online banking | mechanism to review and approve |
transactions | its online banking transactions. |
The Group has followed this recommendation and changed the authorized signatories of several of its bank accounts.
4
Internal control | Recommendations by |
No. deficiencies | the Internal Control Adviser |
Group's response
14. Absence of independent approval of fund transfers and lack of segregation of duties over internet bank transactions
The Group should set up policies and procedures on fund transfer for investment activities, approve and support fund transfers with the Board's approval, establish a mechanism to review and approve the online banking transaction, and request the banks to set additional personnel to authorise the proper online banking transactions.
The Group has followed this recommendation and implemented policies that govern the approval process of fund transfers.
15. Transaction limit set for online banking transaction can be enhanced
The Group should set the upper limit for online banking transaction to a justifiable amount or set the authorisation matrix when additional bank authorisation is required for transaction over certain amount.
The Group has followed this recommendation and is in the process of setting the limit for online banking transaction authorisation to decrease the risk of misappropriation of the funds of the Group.
16. | Fund transferred without | The Group should set up guidelines |
proper supporting | on short-term fund transfer, and | |
documents | prepare the supporting documents | |
for short-term fund transfer with | ||
independent approval from the | ||
Board. | ||
17. | Improper segregation of | The financial stamp and legal |
duties on seal | representative's stamp should be | |
management | kept by different personnel. |
The Group has followed this recommendation and implemented internal policies that govern short-term fund transfers.
The Group has followed this recommendation and shall continuously fully comply with the requirements.
5
Internal control | Recommendations by | |
No. deficiencies | the Internal Control Adviser | Group's response |
- Absence of payment requisition form for payment approval
- Bank transaction was not timely recorded
The Group should prepare and | The Group has followed |
approve the payment requisition | this recommendation and |
form for payment approval. | shall continuously fully |
Unauthorised payment should be | comply with the |
reported to the Company for | requirements. |
investigation. | |
The Group should record the | The Group has followed |
accounting transactions in a timely | this recommendation and |
manner. | shall continuously fully |
comply with the | |
requirements. |
20. | Inadequate control over | The Group should conduct cash | The Group has followed |
cash management | counts on a regular basis as required | this recommendation and | |
by the Group's internal control | shall continuously fully | ||
manual with proper retention of | comply with the | ||
cash count record, establish the | requirements. | ||
relevant review mechanism to | |||
determine that the usage of cash is | |||
supported by adequate justification | |||
and approved by the appropriate | |||
authority, and establish the relevant | |||
mechanism to follow up with the | |||
return of cash advance. | |||
21. | Bank reconciliations | The Group should conduct and | The Group has followed |
process should be | review the bank reconciliations | this recommendation and | |
enhanced | process as required by the Group's | shall continuously fully | |
internal control manual and any | comply with the | ||
difference noted should be | requirements. | ||
investigated timely. Written review | |||
records on bank reconciliations | |||
should also be retained. |
6
Internal control | Recommendations by | |
No. deficiencies | the Internal Control Adviser | Group's response |
22. Absence in cash flow | The Group should prepare and |
forecast | review cash flow forecast timely to |
ensure that there is sufficient cash | |
flow to support the daily business | |
operation, and assign personnel to | |
check on unauthorised bank | |
transaction on bank statement which | |
is different from the cash flow | |
forecast and report to the | |
Company's senior management | |
timely. |
The Group has followed this recommendation and will prepare cash flow forecast timely.
- Absence of review evidence on monthly financial statements and vouchers
- Bank accounts' authorised signatures are not updated timely
The Group should retain written review evidence on financial statements and accounting vouchers.
The Group should change the bank accounts' authorised signatories on a timely basis or close the bank accounts no longer in use in due course.
The Group has followed this recommendation and shall continuously fully comply with the requirements.
The Group has followed this recommendation and is in the process of communicating with certain banks to change the authorised signatories of its bank accounts.
- Procurement and expense management
25. Policies and procedures to govern procurement and expense management need to be enhanced
The Group should review and assess if the current policies and guidelines in place need to align with the current practice, and assess if the Group needs to establish additional policies and procedures.
The Group has followed this recommendation and implemented the required policies and procedures.
26. Lack of supplier selection | The Group should establish supplier |
and evaluation mechanism | selection and periodic evaluation |
including quotation | mechanism including quotation |
requirement | requirement, and retain written |
review evidence on supplier | |
selection and quotation evaluation. |
The Group has followed this recommendation and implemented the recommended supplier selection and periodic evaluation mechanism.
7
Internal control
No. deficiencies
- Self-reviewof directors' expenses and lack of supporting documents for directors' expense reimbursements
- No mechanism to arrange for independent review of service agreement or procurement contracts
- Absence of payment application forms
- Process on financial budget can be enhanced
Recommendations by
the Internal Control Adviser
The Group should request applicant to provide sufficient supporting documents and justification for expense reimbursements, and request for independent review on payment processing.
The Company should request its subsidiaries to submit service agreement to the Company for review and approval, and retain the relevant review evidence.
The Group should retain written review evidence on payment application forms.
The Group should enhance the policies and procedures stipulated in the Group's internal control manual regarding budgeting, and retain written review evidence on the Group's financial budget.
Group's response
The Group has followed this recommendation and shall continuously fully comply with the requirements.
The Group has followed this recommendation and implemented the required policies and procedures.
The Group has followed this recommendation and shall continuously fully comply with the requirements.
The Group has followed this recommendation and enhanced the concerned policies and procedures.
31. Cash disbursement | The Group should enhance the |
procedure should be | relevant cash disbursement |
enhanced | procedure by requiring the recipient |
to sign on the relevant payment | |
vouchers or cash disbursement | |
sheets and retain the written | |
evidence. |
The Group has followed this recommendation and enhanced the concerned procedures.
8
A follow-up review has been conducted by the Internal Control Adviser, the Group has implemented enhanced internal control measures to remedy all major internal control deficiencies identified by the Internal Control Adviser, except for item 24 as described above as more time is needed for the bank to proceed with their administrative procedures. The Special Investigation Committee will ensure that the Group implements the recommendations to the fullest extent possible.
Having considered the results of the Internal Control Review, the Board believe that should the remedial measures as recommended by Internal Control Adviser be fully implemented, (i) the internal control system of the Company will be sufficient to meet its obligation under the Listing Rules and (ii) the Company's proposed actions are sufficient and adequate to address all the major deficiencies identified in the Internal Control Review.
CONTINUED SUSPENSION OF TRADING
At the request of the Company, trading in the shares of the Company on the Stock Exchange has been suspended since 9:00 a.m. on 1 April 2019 and will remain suspended until further notice pending fulfilment of the Resumption Guidance.
Shareholders and potential investors of the Company are advised to exercise caution when dealing in the shares of the Company.
By Order of the Board
Winshine Science Company Limited
Zhao Deyong
Chairman
Hong Kong, 30 October 2019
As at the date of this announcement, the Board comprises three Executive Directors, namely Mr. Zhao Deyong (Chairman), Mr. Liu Michael Xiao Ming (Chief Executive Officer) and Mr. Luo Lianjun; one Non-executive Director, namely Mr. Lin Shaopeng; and three Independent Non-executive Directors, namely Mr. Kwok Kim Hung Eddie, Mr. Ng Wai Hung and Ms. Shi Xiaolei.
- For identification purpose only
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Winshine Science Co. Ltd. published this content on 31 October 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 October 2019 22:51:05 UTC