KUALA LUMPUR: Lembaga Tabung Haji (TH) entered into high-risk investments, which resulted in billions in losses, because it faced pressure to declare high dividends.
Also identified were breaches of accounting standards and financial reporting that did not reflect the actual position of the board.
These were among the issues flagged by the Royal Commission of Inquiry (RCI) into the institution, Minister in the Prime Minister’s Department (Religious Affairs) Dr Zulkifli Hasan said.
He said the RCI report identified 14 problematic investments.
Among them were Putrajaya Perdana, Al-Rawda, PT TH Indo Plantations, Trurich and FGV, which involved the interests of certain parties.
“For example, in 2015, 2016 and 2017, TH leased four hotels in Mecca and Madinah and paid approximately RM1.55bil upfront to Al-Rawda for leases ranging from 10 to 18 years. This was an unusual and highly ‘abnormal’ transaction,” he said.
Al-Rawda was appointed as the operator of all four hotels and in exchange, TH was given promissory notes personally guaranteed by the owner of Al-Rawda.
“Since March 2019, Al-Rawda has failed to pay the rental income, and TH initiated enforcement proceedings in Saudi Arabia.
“Arbitration proceedings commenced by Al-Rawda against TH were ultimately resolved through a final award dated April 16, 2023 in favour of TH. Al-Rawda was ordered to pay SAR899mil (RM982mil)
The RCI flagged the listing of FGV Holdings, which although raised RM10bil during its initial public offering (IPO), had resulted in loses amounting to more than RM1bil for TH when its share prices plunged.
Investments related to 1Malaysia Development Bhd (1MDB), including its link to Putrajaya Perdana and the purchase of land in TRX when the CEO of Tabung Haji was also sitting on the board of 1MDB, were also flagged.
Zulkifli said the RCI found that profit distributions made before 2018 did not reflect TH’s actual financial position and were inconsistent with the requirements of the Tabung Haji Act, which requires assets to exceed liabilities.
He added the RCI found that financial statements were manipulated through creative accounting, breaches of Malaysian Financial Reporting Standards (MFRS), and repeated changes to impairment policies.
He said the impairment was only recognised when the market value of the assets fell by 70% from the original investment cost.
“This was subsequently changed to 85% and then to 90% within a single day during the 2017 financial year.
“For example, for an original share investment of RM1,000, impairment would only be recognised when the market value of the shares fell to RM100.
“In reality, if the investment had been sold in the market at that point, TH would have recovered only RM100 rather than RM1,000 as stated in the financial statements,” he said.
This, he said, allowed TH to show a profit for that year when it should have shown a loss, adding that this was also approved by the minister in charge at the time.
Asset values were also presented using the Realisable Asset Value method outside the audited financial statements, despite the method not complying with accounting standards, so that it would appear that TH’s assets exceeded their liabilities. All of which was confirmed in an audit report in 2018.
The RCI also highlighted financial reporting practices, whereby certain losses were not properly recognised in the income statement and balance sheet, resulting in “falsified profits”.
He said that had TH applied the MFRS standards, it would have recorded a net loss of RM1.4bil instead of a profit of RM3.4bil for 2017.
