PETALING JAYA: Poor accounting practices in Lembaga Tabung Haji (TH) led to it recording a RM3.4bil profit when it should have reported a RM1.4bil loss in 2017, according to the Royal Commission of Inquiry (RCI) report into TH.
The RCI said TH's actual financial position was considerably weaker than previously reported in 2017 as its findings determined that TH had been operating with an asset-liability deficit since 2014.
It said the poor accounting practices include TH failing to recognise impairment losses on investments in its subsidiaries, associated companies and fixed-income instruments.
The Commission also said TH’s weak financial position was also caused by other factors such as failing to comply with financial reporting standard (FRS) 140 standards related to decline of fair value for property investments.
Other factors also involved TH distributing profits (hibah) without taking into account its impairment losses in 2017 as well as recording dividend income from its subsidiaries even though the dividends were not paid.
It said its findings also supported the findings of an independent financial review by PriceWaterhouseCoopers (PwC) on TH’s financial position for 2014 to 2017.
“If Malaysian Financial Reporting Standards (MFRS) standards were fully applied, TH should have recorded a net loss of RM1.4bil, compared to a profit of RM3.4bil in its 2017 Financial Statement.
“But based on PwC’s Financial Review report, if TH followed FRS accounting standards, LTH should have recorded accumulated losses of RM4.7bil as of Dec 31, 2017,” the RCI said in its report Wednesday (July 29).
The Commision said this was also worsened by TH’s high hibah payments between 2014 and 2017 that exceeded TH’s financial capability, causing its reserves to shrink.
It said this encouraged an increased number of depositors seeking high returns which pressured management to maintain attractive hibah rates despite it depleting the reserves.
Due to this, it said TH had to take excessive investment risks compared to what was appropriate with more of its investments leaning towards market volatile equities.
The RCI said TH also resorted to what it describes as “Creative Accounting Practices” when determining compliance to Tabung Haji Act 1995 for declaring high hibah distributions.
It said this involved TH management using the Realisable Asset Value (RAV) approach which inflated asset values higher compared to the values stated in TH’s audited financial statements.
“As a result, no adjustments were made to investments whose values had declined compared to their original investment value.
“TH management argued that the Act did not have a clear definition of the term "assets", giving management the right to determine how the asset values were calculated,” the Commision added.
