KUALA LUMPUR, July 30 — Lembaga Tabung Haji (TH) should have posted a net loss of RM1.4 billion in the 2017 financial year, instead of the RM3.4 billion profit reported in its financial statements, according to the findings of the Royal Commission of Inquiry (RCI).
The RCI report published last night found that had the Malaysian Financial Reporting Standards (MFRS) been fully applied for the 2017 financial year, TH would have recorded a net loss, indicating that the institution’s financial position was already critical at the time.
The report stated that the findings confirmed several matters highlighted by PricewaterhouseCoopers (PwC) in its financial review of TH’s position from 2014 to 2017, including the existence of a deficit between assets and liabilities since 2014.
According to the report, PwC found that TH had not carried out impairment assessments on investments in associated companies, investments and financing extended to subsidiaries, as well as fixed income instruments, while also failing to comply with the FRS 140 standard relating to the decline in the fair value of property investments.
The report highlighted several factors that contributed to TH’s financial crisis, including high hibah payments, accounting practices, the Auditor-General’s lack of firmness, the addition of TH’s vision as a pillar of the ummah’s economy, and rising Haj Financial Assistance (HAFIS) liabilities.
Meanwhile, the RCI said the Islamic pilgrimage fund should not have declared a 4.50 per cent annual profit distribution (hibah) and a 1.75 per cent haj hibah, totalling RM2.75 billion, for the 2017 financial year.
The commission said TH's aggressive approach to paying high hibah from 2014 to 2017 beyond its financial capacity was among the factors that contributed to the fund's financial crisis.
The RCI also found that TH's management had engaged in creative accounting practices to enable the declaration of the high hibah.
It said TH's financial statements from 2014 to 2017 received unqualified audit opinions despite the 2017 audit report containing an "emphasis of matter".
On the audit of TH's 2017 financial statements, the RCI said the National Audit Department should not have issued an unqualified audit opinion because the matter highlighted under the "emphasis of matter" should have been classified as a non-compliance issue.
The commission said the Auditor-General had taken into account matters beyond the audit scope in the findings on TH's 2017 financial statements, reflecting a lack of firmness by the National Audit Department in auditing the statutory body's accounts.
The RCI also said the National Audit Department failed to raise concerns over TH's high hibah payments between 2014 and 2017.
According to the report, the generous hibah payments made before 2018 depleted TH's reserves.
"These high hibah payments attracted depositors seeking higher returns. In meeting those expectations, TH drifted from the objectives for which it was established.
"This exposed TH to the risk of large-scale withdrawals, or a bank run, if the hibah declared was considered too low," the report said.
The RCI said this risk materialised in 2019 after TH announced a hibah of 1.25 per cent, which led to a contraction in deposits.
"TH's deposits declined from about RM73 billion before the hibah announcement to RM69 billion by the end of 2019. TH was fortunate that the withdrawals, and their impact, were smaller than feared," it said.
The commission said the National Audit Department should have raised objections to TH's declaration of hibah that exceeded its financial capacity.
