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Thursday, 11 February 2016

Tabung Haji- a case of impious conduct?



The dust on the Tabung Haji issue has not settled down. It is still controversial. Some members of the opposition party have accused TH of doing creative accounting.

Utusan Malaysia has accused MP Rafizi Ramli of going after cheap publicity. He has done a detailed analysis on Tabung Haji. He has sent it out on the internet. He has criticized the accounting done by Tabung Haji.

 Tabung Haji has denied it has done creative accounting. Utusan Malaysia joined in the chorus. It says what I have stated about cheap publicity.

Utusan Malaysia also said Rafizi was not sincere. If the MP was sincere, says Utusan, he would have met up with Tabung Haji officials. Then the officials can explain to him. In the case of some PAS leaders, TH did so. After hearing the explanation and shown some of the business projects TH is undertaking, the PAS leaders said they were satisfied.

The proof of Rafizi’s sincerity is in the detailed accounting analysis. We must accept it as being the same as the sincerity shown by PAS people. He showed it by concrete analysis. So people can understand them. PAS shows its sincerity by meeting up Tabung Haji officials.

Some people can be easily assured by a narration based on faith. So, many will accept the PAS way of doing it. Others who also have faith, want their camels outside, to be tied.  While we have faith in the assurances given by God fearing people, we want to be further assured by concrete analysis.  Why not study Rafizi’s analysis with an open heart? All Tabung Haji needs to do, is to respond to Rafizi’s analysis if it is sincere.

This is not an issue about sincerity. The issue is about prudent financial management of an institution that looks out after the real Malay interest. Malays have got billions in the form of savings. Small compared to the money put in by institutional investors but big to individual investors.  They faithfully saved money to perform the 5th pillar of Islam.

But if Tabung Haji makes bad investments or spends money unwisely, then it will have less money to provide quality services. It will have not enough to subsidise pilgrims going to Haj.  Tabung Haji subsidises up to RM9000 per pilgrim. Prudent financial management was the main issue raised by Bank Negara Malaysia.

 Size does matter.
The main issue is the size of reserves which is said to be unable to sustain the size of and profile of risks. Why are reserves regarded as important? We will explain shortly. 
The letter from Bank Negara suggests that Tabung Haji ought to have put more aside as reserves from each year’s profit.

The fact that the levels have gone negative or greatly reduced, implies that Tabung Haji has not done so. This is very risky says Bank Negara.

Reserves are required to meet emergency needs. They are needed to act as buffer for TH in lean years so that at least, TH has enough to cover it overheads and operates for a number of months. It ought to have sufficient money to cover the dividends and bonuses.

So what is the size of reserves?  That is what BNM is asking TH to answer. How much does THG need to run its business a month? RM500 million? How much is needed to operate for 6 months? RM3 billion. How much is the average amount paid as dividends and bonuses? RM3 billion. That would suggest a level of reserves to be around RM6 billion.

This level can sustain 6 months of operations and cover 1 year of bonuses and dividends.

We will look at the 2014 balance sheet. Admittedly this is historical. We would like to look at the 2015 balance sheet. It is not yet published.

From the 2014 figures we can see the amount of reserves. We have set them out in the Table below.

The amount is stated after deducting dividends given. For Tabung Haji as a group, the reserves amount was RM1.149 billion. For Tabung Haji alone, it was negative RM351 million.  

Table 1: 2014 figures for Tabung Haji Group and Tabung Haji.
description
THG
TH
Reserves
1.149
(0.351)
Profits before tax
4.560
2.98
tax
0.257
-
Profit after tax
4.30
2.98
Minority interests
2.514
2.442
Nett Profits
1.790
0.546




Now, let us look at the profit and loss figures. Again, the numbers are from the 2014 accounts. As a group, Tabung Haji made RM4.56 billion in profits. Tabung Haji alone made RM2.98 billion in profits before tax. For the year ending 2014, THG paid RM257.15 million tax while Tabung Haji paid no tax.  After paying taxes, the profit after tax for THG was RM4.305 billion. For Tabung Haji alone, it was RM2.978 billion.

What were the net profits? To arrive at the net figures, we have to deduct minority interests and write downs for shares and other investments. For THG, the fugure was 2.514 billion and for TH it was RM2.442 billion. So the net profits for THG and TH respectively were RM1.790billion and RM546million.

What did THG do in 2014? It made a profit of RM4.3 billion. From this amount they ought to have deducted RM2.514 billion. This means that the net profit was only RM1.79bilion. This is the current year’s profit. This profit must now be added to the amount of distributable reserves which for 2014, was RM202.711 million. That would have made the amount available for dividends and bonus pay-outs as RM2 billion.

And how much did Tabung Haji pay out as dividends in 2015? They paid RM3.2 billion. Which means, the pay-outs exceeded the level of distributable reserves and current profits by RM1.2 billion.

If TH uses the same principle for 2016, then there is cause for worry. The golf loving minister announced the current year’s profit of RM3.5 billion. Not all can be ploughed back into reserves. It has not set aside for minority interests such as losses in the share market and reduced asset values. If these are deducted for and the balance added to the distributable reserves, the amount paid out may also exceed what is prudently sanctioned.

The net profit is therefore not RM3.53 billion as the minister ignorantly announced. Not all the reserves can be taken out. Only the distributable reserves as TH correctly said. If the dividend and bonus payouts exceed the payable amount, then THG‘s reserves may remain greatly reduced or even negative. Then the worry expressed by Bank Negara remains. TH remains recalcitrant. 
The BNM letter also warned of the possibility of TH running to the government to help it out? Did it? 

13 comments:

FIKRY HARITH Hashim 11 February 2016 at 13:26  

Dato' Sak,
Kalau you tulis dalam bahasa Tamil mungkin Lembaga Hitam yang jaga tabung Haji akan faham.....
The factnis that the institution is run by unquaified officials, appointed by corrupt and incompetent Prime Minister with single purpose.....ONLY TO PLUNDER TH RESOURCES as they did to Pension Fund and LTAT.

· 康華 · 11 February 2016 at 16:13  

who are the th's minority interest?

David Tan 11 February 2016 at 17:36  

Dato' I am a retired chartered accountant and have looked into this TH controversy. It requires some technical knowledge to lawfully explain the TH reserve situation. I will try to explain, here goes:
Malaysia is required to adopt FRS 139 which contains rules for the classification and subsequent accounting treatment of financial assets. Of relevance here is that if management of the org. classifies the financial assets as "available for sale" (sekuriti sedia untuk dijual in TH's balance sheet) unrealised losses (RM2.45 billion) are charged to reserves and not to the current year's profit. TH has complied with the FRS 139 provision.
Notice that the effect of this treatment is that it allows the org to pay a higher dividend then it should. The Malaysian Companies Act is not sufficient to prohibit this as its provision on dividend is woefully outdated with the changes in accounting stds.

So we have a situation where TH can pay high dividends as the auditor general has given it a clean report. My question is would a public accounting firm independent of the prime minister do so? There is always room for moving financial assets from one treatment to another. Like if the asset has material unrelaised losses - classify it as available for sale. This is short termism aided by some creative accounting.

A short term remedy is whether BNM approval is needed for this bonus since it appears to contravene TH's principle that you can pay a bonus from -ve reserves. Using smart people wrongly seems to be a problem in our greedy society today.

A loger term remedy is that we must make sure that dividends are paid only if it does not jeopardise the future of the org (a solvency test). The Msian CA needs to be amended by this is under Appandi?



Unknown 11 February 2016 at 17:49  

Your tabulation on minority interest is not right. What you have written "minority interest" for the TH group (2,514) and for TH (2,442) was infact total other comprehensive incomes which were in negative. The minority interest for TH group was 311,251. There was no minority interest for TH.

I have prepared the analysis for TH (only) from 2009 to 2014. And now I will write the explanation on the numbers that I have calculated. If you want my analysis I can send you a copy. Just give me you email.

What Rafizi wrote I am afraid not really accurate. Please do not write something that do not reflect the truth.

Anonymous,  11 February 2016 at 22:51  

hope a second hand car salesman understand reserves n minority interest

Anonymous,  12 February 2016 at 00:33  

"After hearing the explanation and shown some of the business projects TH is undertaking, the PAS leaders said they were satisfied."

I sincerely hope that the PAS leaders are fully aware that while physical inspection of business projects do help determine the authenticity and viability of the investments, it MUST be corroborated by DETAILED legal and financial due diligence.

Legal due diligence by suitably qualified lawyers (not half-past 6 lawyers who could not read legal documents, especially English ones) will help to determine what legal right Tabung Haji has over these business projects. BUSINESS FRAUD 101 : It is a common fraud tactic to show physical business projects that legally belong to someone else to investors. The entire site visit can be staged managed to include hired actors / actresses and rented props. This has happened in many global fraud cases, not just on TV and movies.

Financial due diligence by accounting and finance specialist with incorruptible integrity will help to determine whether or not Tabung Haji's monies are well spent on these business projects. BUSINESS FRAUD 101 : There are many ways to fudge the numbers to make the business projects look profitable and the numbers have been "certified by auditors". CAVEAT: Auditors, even from the international big-4 accounting firms, are NOT trained to carry out such financial due diligence. There are accounting and finance specialist who are trained to do so. They do not carry out an audit of the financials of the business projects. They carry out a financial analysis ... the techniques and approach are totally different!

Personally, I will stick with Rafizi. The numbers do not lie, unless they are fake in the first place, in which case, the auditors would be in deep, deep trouble.

Adi Azuan 12 February 2016 at 03:05  

Dato, can you imagine Tabung Haji has the gall to ignore 2 warning letters from Bank Negara - one in Dec 2014 and another one recently on December 23 2015 - to quickly come up with its reserve management policy as they are in the negative thus under Section 22 of the Act does not allow it to pay dividends? If everyone can ignore Bank Negara orders then what is the point of having Bank Negara?

The problem with Tabung Haji is that it appointed an ex-car salesman to be the Executive Chairman - his only achievement is he dropped a Proton Saga by parachute on the North Pole... but why did we drop a Proton Saga on the North Pole? Why do we always do stupid things like that to shame ourselves in this world? That Malays can drop a car on the North Pole.... hey America dropped a moon mobile on the moon on July 21, 1969 when Apollo 11 landed there! Now that is science!

How the heck can we accept someone with a dubious MBA from Preston University in the first place?

Adi Azuan 12 February 2016 at 03:08  

Dalam tahun 2008 Tabung Haji telah mula membeli saham-saham syarikat tersenarai Silver Bird Group Berhad. Kononnya Tabung Haji mahu melancar bisnes makanan konfektioneri halal gunakan jenama TAHA dan telah menceburi syarikat Silver Bird Group Berhad ini kerana syarikat ini mengeluarkan jenama roti HIGH 5 yang kedua popular di Malaysia pada masa itu.

Tabung Haji telah mula membeli saham-saham Silver Bird Group dari masa harga sesaham berharga RM0.55 sehingga saham itu meningkat ke harga RM1.05 sesaham, satu kelonjatan yang amat besar iaitu lebih dua kali ganda.

Akhirnya Tabung Haji telah Berjaya mendapat saham sebanyak 29.96% yang telah di targetnya. Tetapai ia telah belanja hamper RM150 juta utk menejar saham syarikat kilang roti ini.

4 tahun kemudian projek makanan dan roti Halal jenama TAHA tidak langsung bermula walaupun Tabung Haji mempunyai seorang pegawai kanannya sebagai ahli lembaga pengarah. Tabung Haji juga ada seorang pegawai projek yang senior di pejabat Silver Bird dan diberi pejabat yang besar dan sebuah Honda Accord utk kegunaannya.

Pada Februari 2012, tiba-tiba juruodit Silver Bird telah melapurkan kepada Komisyen Sekuriti (Securities Commission) dan juga Registrar of Companies yang ia tidak mahu luluskan penyata kewangan Silver Bird tahun 2013...

Harga saham Silver Bird Group terus jatuh terjunam di pasaran bursa saham hinggalah menjadi RM0.08 sesaham.

Tiga director syarikat iaitu Dato Jackson Tan, Derec Ching dan Lai Poh Mei telah dilaporkan kepada polis dan Registrar of Companies.

Tabung Haji yang telah mengumpul 300 juta saham bernilai RM330 juta tiba-tiba dapati nilai sahamnya sekarang hanya RM24 juta!

Adakah pihak berkuasa pedulikan kerugian yang dialami olih Tabung Haji? Sebaliknya CEO Tabung Haji dianugerahkan bonus RM700,000 untuk tahum 2013.

Adi Azuan 12 February 2016 at 03:12  


How can the Board of Directores at Tabung Haji approve bonuses and incentives worth millions each year to managers who has lost hubdreds of millions of pilgtim's savings through careless investments in Ramunia Holdings, Silver Bird Group Berhad and many more oil palm plantation companies including investing in palm oil land in Sumatera and Kalimantan?

Anonymous,  12 February 2016 at 06:23  

In the Year of the Monkey, every
sizable sum of the public's money continues to be
raided --- EPF, KWAP, Tabung Haji.
What is next? Even SOCSO?

Phua Kai Lit

Anonymous,  12 February 2016 at 16:34  

I can imagine the sins of their office bearers if Tabung Haji were to get into financial trouble.

From the looks of it, there is already a big hole in their finances as they are now forced to let go their prime London property just to boost their realised profits and generate cash flow.

If Tabung Haji Falls, UMNO, the thieving party will fall with them.

Anonymous,  12 February 2016 at 23:23  

The LEMBAGA HITAM was a second-hand car dealer then turned politician after conning the Malay voters. The GOLF-LOVING minister knows nothing about finance. These are the people in the team. God save the country and God please help us kick out crooks who are destroying the country.

Anonymous,  14 February 2016 at 15:48  

YOU DON'T REASON WITH HARD CORE CRIMINALS.

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