Declassified LCS audit: Evidence of irregularities, lack of proper governance as early as 2010

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Despite various red flags raised, no corrective measures were taken either by the management or the chairman of the Board of BHIC to stop the abuse of power.

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The evidence of irregularities and lack of proper governance in the Littoral Combat Ship (LCS) programme were gathered as early as 2010, according to a forensic audit report by Alliance IFA (M) Sdn Bhd for Boustead Heavy Industries Corporation Berhad (BHIC).

The declassified report, uploaded to Parliament’s official website tonight, noted that the evidence confirmed that vendors were already determined even before the issuance of the Letter of Award (LOA) by the government in favour of Boustead Naval Shipyard Sdn Bhd (BNS).

The report also found out that the terms of most LOAs and Variation Orders were more favourable to a company named Contraves Advanced Devices Sdn Bhd, with most LOAs to the company being issued without first presented to the LCS Steering Committee (LCSSC) for its approval.

It said major decisions were also taken through Directors’ Circular Resolution without convening a board meeting which further reduced the transparency and opportunity to discuss in detail and to go through certain vital documents before approving the resolution.

“The board ignored the advice of the ex-Chief of Navy who raised objections at the board meeting on the selection of DCNS for design and support contract.”

The contract for the supply of six LCS by Boustead Naval Shipyard Sdn Bhd (BNS) became a hot issue after it was revealed that the project, scheduled for implementation in a 10-year period from October 3, 2013 to October 2, 2023, was only 53.29 percent completed as at May 31, 2019.

Based on a report, by the Investigating Committee on Governance, Procurement and Finance, which was declassified on last Wednesday, a total of RM5.94 billion had been paid by the Defence Ministry to BNS for the project so far.

The LOA was awarded to BNS on December 16, 2011, on which the final contract was only signed on July 17, 2014, approximately two and a half years after the signing of the LOA at a contract price of RM9 billion.

According to the IFA, the Terms of Reference (TOR) of the LCSSC were also found lopsided as the members of the committee were to be selected by the managing director of BHIC without the consultation of the Board of Directors, where the MD would be the chairman.

“This provided the MD with absolute control and resulted in a lack of independence amongst other members of the committee. As a result, the members became redundant and failed to discharge their function for which they were selected in the LCSSC,” it said.

Other than that, one payment of RM23.37 million involving a few companies for providing technical evaluation services related to Second Generation Patrol Vessel (SGPV) was found to be fake services.

“Invoices for such non-existing services were used as a mode to siphon out the funds, as these companies had provided false addresses on their invoices and the payment was diverted elsewhere.

“One of such companies belonged to the same person who was also involved in Alizes Marine.

The entire money released for Alizes Marine was suspected to be received by a company registered in Labuan,” it said.

It also found out that despite various red flags raised by ex-officers and associates of the company about the irregularities in the execution of the LCS Programme, no corrective measures were taken either by the management or the chairman of the Board of BHIC to stop the abuse of power.