Two shareholders of a business incubator had rented the same property twice during the same period in allegations of rental fraud recently uncovered by the Commission of Audit (CA).
In the latest value-for-money audit report on the use of funds by the Cultural Industry Fund (FIC), the CA discovered a suspected rental manipulation and profiteering practice.
According to the CA, a company rented a property in Macau for the price of MOP4.3 per square foot. It then leased out two floors of the property to a brand incubator and marketing entity subsidized by the FIC for the price of MOP10.34 to MOP11.62 per square foot.
After reviewing business registration records, the CA determined that the two shareholders of the incubator in fact owned 48.15% of shares of the landlord company as well. They were also part of the management of the company.
As such, the CA accused the FIC of “having never handled any related party transactions that saw conflicts of interest.”
Of 15 samples with relatively higher support values, nine projects were found to be flagrant examples of related party transactions, involving a total of more than MOP23 million. In five of the projects, totaling over MOP6 million in expenses, the FIC proceeded to recognize the expenses without verifying whether there were related party transactions.
The FIC had required beneficiary companies to declare any related party transactions in periodic execution reports and final reports.
However, since the aforementioned requirement was waived in July 2017, the auditors of the beneficiary companies’ accounts are no longer obliged to examine related party transactions, while the problems revealed in the audit reports of the accounts usually referred to situations that have already occurred, and most of the financed projects did not reach the minimum amount required for the delivery of these reports.
Regarding the legality of expenses, it was found that until June 2020, 12 of the 16 projects that involved subletting did not have approval from relevant property owners. According to local laws, subletting can only take place with the consent of the majority landlords. The CA uncovered FIC spending of over MOP15 million on illegal subletting.
In overall remarks on the FIC’s practices, the CA pointed out that there were obvious flaws in its subsidization and supervision mechanisms, but the FIC’s management did not rectify them in a timely manner. The lack of records of the execution of relevant mechanisms is also a failing of the FIC’s management, the CA added.
