KUALA LUMPUR: AirAsia X Bhd said its auditors have discovered 24 payments totalling RM7.01 million made to a service provider that are now established to be fictitious.

The long-haul discount arm of AirAsia Bhd said the payments were authorised by a person in a management position within the company, but did not name the person. It added that the board of directors could not make any announcement earlier as it did not have sufficient evidence to substantiate the allegations and to assess with certainty the financial and operational impact on the company.

Following the discovery of irregularities, AirAsia X lodged a police report, adding that it had sought legal advice on the possible courses of action the company can take to recover the losses.

“[We have also] reviewed the current internal control process to ensure that similar transactions will not recur,” it said in a filing with Bursa Malaysia yesterday.

AirAsia X recapped that the irregular dealings between the company and a certain service provider were first discovered in the course of its statutory audit for the financial year ended Dec 31, 2014 (FY14).

“[Our] internal and external auditors discovered that certain payments were made to a service provider between 2010 and 2014 for services which are now established to be fictitious,” it said.

Following discovery of the irregularities, AirAsia X appointed PwC Consulting Services Sdn Bhd (PwCCS) to carry out a forensics audit, and instructed management to ensure the availability of all relevant documents and/or key personnel for PwCCS’ review and interview where applicable.

“The findings of the forensics audit established that the irregularities were confined to a sum of RM7.01 million,” said AirAsia X.

“The board is of the opinion that the amount involved in the irregularities does not have any material, financial or operational impact on the company,” it added.

During the period between 2010 and 2014, AirAsia X was helmed by Azran Osman-Rani, currently chief executive officer (CEO) of iflix Malaysia and the chief operating officer of iflix Group.

When contacted by digitaledge DAILY yesterday, Azran declined to comment on whether he was aware of the said dealings between the company and a certain service provider during the time he was CEO of AirAsia X.

“I cannot comment because I have just been made aware that the case has been filed in court,” he said.

Azran departed AirAsia X after the company posted its fourth consecutive quarterly loss since its listing on the stock exchange in June 2013.

The company’s share price has been on the decline since its initial public offering (IPO), falling 87.2% from its IPO price of RM1.25 to 16 sen yesterday.

AirAsia X (fundamental: 0.2; valuation: 0.9) shares closed up 6.67% yesterday, with a market capitalisation of RM663.7 million.

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This article first appeared in digitaledge Daily, on August 28, 2015.