Audit report details irregularities, lack of proper governance in LCS project

Evidence of irregularities and lack of proper governance in the littoral combat ship (LCS) programme was gathered as early as 2010, according to a forensic audit report by Alliance IFA (M) Sdn Bhd for Boustead Heavy Industries Corporation Bhd (BHIC).

The declassified report, uploaded to Parliament's official website last night, said 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 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 issued without being first presented to the LCS steering committee (LCSSC) for approval.

It said major decisions were also taken through a directors’ circular resolution without a board meeting convened, which further reduced the transparency and opportunity to discuss in detail and go through certain vital documents before the resolution was approved.

"The board ignored the advice of the ex-chief of navy who raised objections at the board meeting on the selection of DCNS for the design and support contract," it said.

The contract for the supply of six LCS by BNS became a hot issue after it was revealed that the project, scheduled for implementation over a 10-year period from Oct 3, 2013 to Oct 2, 2023, was only 53.29% complete as of May 31, 2019.

Based on a report by the investigating committee on governance, procurement and finance, which was declassified 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 Dec 16, 2011, although 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 of the LCSSC were also found to be lopsided as the members of the committee were to be selected by the managing director of BHIC without consultation with 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 among other members of the committee. As a result, the members became redundant and failed to discharge the function for which they were selected in the LCSSC," it said.

Additionally, one payment of RM23.37 million to a few companies for providing technical evaluation services related to second-generation patrol vessel was found to be for fake services.

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

"One such company belonged to the same person who was also involved in Alizes Marine. All of the money released for Alizes Marine was suspected to be received by a company registered in Labuan," it said.

It also found 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.