The shortfall in AEM’s inventories was found to have been due to human error in transactions with the group’s ERP system. The mistake was made when the group was migrating production to its facility in Penang from Singapore. The investigation to date has found no evidence of fraud, illegal activity, or physical loss of inventory.
The errors include the incorrect closing of AEM’s full system build production orders during the transfer of the production order to its Penang facility. Production orders within the ERP system that were partially produced prior to the transfer were also incorrectly closed and no quantities were modified to reflect the actual number of modules and sub-assemblies produced. Finally, the errors were due to mistakes in the data entered that resulted in incorrect amounts recorded for goods received. All three errors resulted in excess inventory and profits within the system.
The value and profit before tax adjustments that were estimated to be around $18 million to $25 million will be adjusted down in AEM’s results for the 4QFY2023 ended Dec 31, 2023.
In its earlier announcement, AEM had indicated the shortfall to be between 5 and 7% of its inventory level as at Sept 30 2023.
AEM says it is investigating and addressing the weaknesses in the processes, controls, and systems that are attributed to the excess inventory issue.
The group will be working with its internal and independent external auditors and consultants to finalise its year-end adjustments. It will also review and revise its processes and controls. The processes will enable the group to be able to “clearly delineate changes to systems and processes to prevent a recurrence of the inventory issue” when it reports its results for the FY2023 by no later than Feb 28.
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“The board and the management take the shortfall in inventory issue very seriously. A full independent review is being launched to ensure that robust controls, processes, and systems are in place, and staff are appropriately trained,” says AEM in its Jan 22 statement.
Shares in AEM closed 5 cents lower or 1.72% down at $2.85 on Jan 22.
