SC raps, fines Deloitte RM2.2m over Bandar Malaysia RM2.4b sukuk

Artist impression of Bandar Malaysia

KUALA LUMPUR: The Securities Commission Malaysia (SC) has reprimanded and imposed penalties on Deloitte PLT (Deloitte) for four breaches related to the RM2.4bil Sukuk Murabahah Programme issued by Bandar Malaysia Sdn Bhd (BMSB) in 2014.

Deloitte was the statutory auditor for BMSB and 1MDB Real Estate Sdn Bhd (1MDB RE) for their financial years ended 31 March 2015 to 2016. 

This is the first time action has been taken against an auditing company over 1MDB.

Below is part of the statement issued by the regulator:

Deloitte was the statutory auditor for BMSB and 1MDB Real Estate Sdn Bhd (1MDB RE) for their financial years ended 31 March 2015 to 2016. 

1MDB RE, now known as TRX City Sdn Bhd, was one of the third party security providers of the Sukuk Murabahah Progamme and the immediate holding company of BMSB. 

1Malaysia Development Berhad (1MDB) is the holding company of 1MDB RE and BMSB.

Deloitte was found to have committed two breaches under Section 276(3)(b) of the Capital Markets and Services Act 2007 (CMSA) for failure to immediately report to the SC irregularities which may have a material effect on the ability of BMSB to fulfil its obligations in repaying sukukholders any amount under the Sukuk Murabahah Programme. 

The SC finds the breaches committed by Deloitte serious in nature, as it has failed to discharge its statutory obligations despite having included the following in BMSB’s and 1MDB RE’s Audited Financial Statements (AFS):

* An Audit Qualification in its Independent Auditors’ Report for 1MDB RE for the AFS for the financial year ended 31 March 2015 (AFS 2015) and 31 March 2016 (AFS 2016); 

* An Emphasis of Matter in its Independent Auditors’ Report for BMSB’s AFS 2015 and AFS 2016; and 

* An Emphasis of Matter in its Independent Auditors’ Report for 1MDB RE’s AFS 2015 and AFS 2016. 

The Audit Qualification in Deloitte’s Independent Auditors’ Report for 1MDB RE for AFS 2015 and AFS 2016 states that Deloitte was unable to obtain sufficient appropriate audit evidence to determine whether the advances to 1MDB from, among others, the proceeds of the Sukuk Murabahah Progamme could be recovered.

The Emphasis of Matter in Deloitte’s Independent Auditors’ Report for 1MDB RE for AFS 2015 and AFS 2016 as well as BMSB’s AFS 2015 and AFS 2016 states that 1MDB is under investigation by several authorities. 

Deloitte further highlighted in its report for 1MDB RE’s AFS 2015 and AFS 2016 that “the ongoing investigations of 1MDB indicate the existence of material uncertainty which may cast significant doubt about the Group’s and the Company’s ability to continue as a going concern”.

The SC imposed a total fine of RM2 million for the above breaches, the maximum fine provided under Section 354(3)(b) of the CMSA.

On the remaining two breaches under Section 276(1) of the CMSA, Deloitte was fined a total of RM200,000 for its failure to send a copy of BMSB’s AFS 2015 and 2016 to MTrustee Berhad, within seven days after furnishing the AFS 2015 and 2016 to BMSB.