Kuala lumpur: The impairment policy of Lembaga Tabung Haji (TH) underwent two alterations within a single day for the financial year 2017, shifting from 70 percent to 85 percent before settling at 90 percent. This adjustment was made to inflate the year's profits and facilitate the payment of profit distributions, as detailed in the Royal Commission of Inquiry (RCI) Report.
According to BERNAMA News Agency, Minister in the Prime Minister's Department (Religious Affairs) Dr. Zulkifli Hasan revealed that these policy changes were implemented twice in the same year. This resulted in TH's financial reporting failing to accurately depict its actual financial status. The alterations were made to project a profit for that year, contrary to the actual financial condition, and were sanctioned by the minister responsible at that time.
Dr. Zulkifli explained that the RCI discovered the impairment of assets, as mandated by the Financial Reporting Standards (FRS), including FRS 139, was not executed in line with generally accepted accounting principles. During a ministerial briefing session on the RCI Report on TH, he highlighted that the impairment was applied only when the market value of a share investment, originally worth RM1,000, dropped to RM100.
He further elaborated that, realistically, if the investment had been liquidated in the market then, TH would have only recovered RM100, not the RM1,000 reflected in the financial statements. Additionally, TH's profit distribution calculation method was altered from the average monthly deposit balance to the average annual lowest balance in 2017.
However, following unfavorable feedback from depositors, TH opted to revise its impairment policy twice, enabling a profit increase for 2017. This led to an additional grant of RM600 million being distributed based on the monthly lowest balance method at a rate of 4.50 percent plus 1.75 percent, as previously announced.
Dr. Zulkifli stated that, according to a witness' Statutory Declaration, the RCI concluded that the then-chief financial officer explained the policy change was intended to align profit distributions with depositor expectations. This was not to ensure asset valuations reflected fair value, as stipulated by accounting standards.
The RCI asserted that this action contravened the Statutory Bodies (Accounts and Annual Reports) Act 1980 [Act 240], which mandates the application of generally accepted and consistent accounting principles. Additionally, the RCI found that if the Malaysian Financial Reporting Standards (MFRS) had been strictly adhered to, TH should have reported a net loss of RM1.4 billion for 2017, contrasting with the declared profit of RM3.4 billion.
Moreover, the RCI highlighted that TH's profit distribution payments from 2014 to 2017, based on realisable asset value (RAV), were inconsistent with Section 22 of the Tabung Haji Act 1995 (Act 535), as RAV calculations do not adhere to generally accepted accounting standards. The findings indicated that the use of RAV began in 2014 when TH's liabilities surpassed its assets, allowing profit distributions despite unmet conditions.
The 211-page RCI report, made public on July 29, contains numerous findings related to managerial and operational weaknesses within the institution from 2014 to 2020. The report also includes 25 recommendations for improvement, 75 percent of which had been executed by TH as of July 30.
The government announced the RCI's establishment in 2021, followed by the appointment of RCI members on January 20, 2022. The RCI report was subsequently presented to the King on August 30, 2022.