- Since uncovering fraudulent activities, Phoslock Environmental Technologies (PET) has hit the reset button at its Chinese operations
- An independent audit has found substantial fraud including false accounting, improper tax reporting and potential misappropriation of funds
- A number of recommendations have now been made, which PET’s board will consider in due course
- Phoslock will be required to adjust its accounts and issue new statements to the market for both the 2019 and 2020 financial years
- A number of staff have been fired and a comprehensive review is underway to identify any other malfeasance and support possible legal action
- Phoslock Environmental Technologies shares remain suspended; they last traded for 24.5 cents on September 17
Since uncovering fraudulent activities, Phoslock Environmental Technologies (PET) has hit the reset button at its Chinese operations.
An independent audit has identified fraudulent activity relating to false accounting, falsification of invoices and service contracts, improper tax reporting and potential misappropriation of funds, among others.
A number of recommendations have now been made, which PET’s board will consider in due course.
The company has already taken steps to clean up its China operations, including the resignations of two board members and the firing of several senior and middle management employees, along with extensive reviews into the company’s operations and contracts.
The company has also implemented changes to strengthen PET China’s financial reporting procedures and general risk management framework.
PET is also considering legal action against any individuals and companies involved in the alleged malfeasance to recoup any lost funds.
Phoslock CEO and Managing Director Lachlan McKinnon says the company is actively pursuing the clean-up of its China operations.
“The company is committed to ensuring that all areas of PET operations meet high standards of financial governance, accountability and transparency,” Lachlan said.
“The discovery of these irregularities demands a comprehensive re-set on how we conduct business in China.”Phoslock CEO and Managing Director Lachlan McKinnon
“We are immediately implementing additional processes and reporting requirements in China-and will make the necessary personnel changes there to ensure appropriate standards of compliance are met on a consistent basis,” he continued.
“China represents a valuable and important market for PET and we continue to have confidence in our growth prospects there,” he added.
A comprehensive review of the company’s China operations is underway, including systematic checks of all contracts and contractual arrangements with third parties, including sub-contractors and distributors.
The fraud has been detected across both the 2019 and 2020 financial years, so Phoslock will be required to adjust its accounts and issue new statements to the market.
The CEO maintains Phoslock is stable across the rest of its global operations, and that the China arm will recover once the situation is fully understood.
“[The review] will provide a sound basis for re-evaluating our near and midterm expectations for revenue generation in China,” Lachlan said.
“While we undertake the necessary work to re-establish the business in China on a proper footing, the company will continue its focus on developing its growing opportunities in other parts of the world,” he concluded.
The company still had cash reserves on deposit in Australia of over $34 million at the end of October.
The funds should enable the water treatment company to continue its global growth strategy while it cleans up its own dirty mess in China.
Phoslock Environmental Technologies shares remain suspended; they last traded for 24.5 cents on September 17.