KUALA LUMPUR: The impairment policy of Lembaga Tabung Haji (TH) was changed from 70 per cent to 85 per cent and then 90 per cent within one day for financial year 2017, thus allowing the year's profits to be increased for the payment of profit distributions, according to the Royal Commission of Inquiry (RCI) Report.
Minister in the Prime Minister's Department (Religious Affairs) Dr Zulkifli Hasan said the change in the impairment policy was made twice in the same year, causing TH's financial reporting to not reflect its true position.
He said the change was made to enable TH to show a profit in that year when it should have shown a loss, and was also approved by the minister in charge at the time.
"The RCI found that the impairment of assets as required by the Financial Reporting Standards (FRS), including FRS 139, was not made in accordance with generally accepted accounting principles," he said at the ministerial briefing session on the RCI Report on TH and the efforts and actions taken to restore the institution's financial position at the Dewan Rakyat’s Special Sitting today.
For example, Zulkifli said that for an original share investment of RM1,000, the impairment was only made when the market value of the shares fell to RM100.
"In reality, if the investment had been sold in the market at that time, TH would only have been able to collect RM100, not RM1,000 as stated in the financial statements.
"TH's profit distribution calculation method was also changed from the average monthly deposit balance to the average annual lowest balance in 2017," he said.
However, after receiving negative reactions from depositors, TH decided to change its impairment policy twice so that 2017 profits could be increased, thus allowing an additional grant of RM600 million to be distributed based on the monthly lowest balance method again at a rate of 4.50 per cent + 1.75 per cent as announced previously.
Zulkifli said that based on the witness' Statutory Declaration, the RCI found that the then chief financial officer stated that the change in impairment policy was made to enable TH to distribute profits in line with depositor expectations and not to ensure that asset valuations reflected fair value as required by accounting standards.
"The RCI is of the view that the action is not in line with the requirements of the Statutory Bodies (Accounts and Annual Reports) Act 1980 [Act 240], which requires the application of generally accepted and consistent accounting principles.
At the same time, the RCI found that if the Malaysian Financial Reporting Standards (MFRS) were fully applied, TH should have recorded a net loss of RM1.4 billion for 2017 compared to the reported profit of RM3.4 billion," he added.
The RCI also believes that TH's profit distribution payment from 2014 to 2017 which was based on realisable asset value (RAV) is not in line with Section 22 of the Tabung Haji Act 1995 (Act 535), as the calculation of RAV is not a calculation that complies with generally accepted accounting standards.
According to the findings, the use of RAV to meet the value of assets began in 2014 when TH's liabilities exceeded assets, to enable the payment of profit distributions to be made even though the conditions set were not met.
On July 29, the 211-page RCI report was made public, containing various findings related to weaknesses in the management and operations of the institution for the period 2014 to 2020.
The RCI report also submitted 25 recommendations for improvement actions, 75 per cent of which had been implemented by TH as of July 30.
The government announced the establishment of the RCI in 2021, followed by the appointment of RCI members on Jan 20, 2022, which saw the RCI report then presented to the King on Aug 30, 2022. - Bernama
