Financial irregularities, weaknesses found at LTAT

PETALING JAYA: The Armed Forces Fund Board’s (LTAT) accounting firm Messrs Ernst & Young has unearthed financial irregularities and weaknesses for the financial years ended Dec 31, 2017 and 2018.

The board’s chairman Tan Sri Dr Mohd Zahidi Zainuddin said the assessment was in line with LTAT’s commitment to enhance corporate governance and improve fiscal health of the fund and its corporations.

“This allowed us to determine the gaps in LTAT’s operations and move forward to strengthen the fund further for the benefit of serving members and retired members of the Armed Forces,” he said in a statement.

In the assessment, Ernst & Young found that the fund’s five-year asset returns from financial year 2014 (FY14) to FY18 (after excluding one-off gains) were lower than the declared dividend rates, which resulted in LTAT paying dividends at a higher rate than it could afford.

To manage this situation, LTAT will develop a reasonable dividend policy, which includes determining a minimum rate of return on its investments, as well as a strategic asset allocation framework to meet its minimum expected dividend rate.

Between 2015 and 2017, LTAT overstated its assets due to failure to impair one of its large investments when recoverability of the fund was uncertain after the seller, who guaranteed the buyback of shares, was declared bankrupt in Malaysia in 2015.

As a result, an impairment of RM55 million needs to be made in its FY18 results, according to the findings.

Furthermore, the accounting firm found that financial and technical due diligence was not properly undertaken in the investment as it was not based on sound investment policies and procedures.

The assessment also found some issues with unsold property assets worth RM45 million, relating to 88 condominium units that remained unsold as at December 2018, despite having been completed in FY15.

To remedy this, the fund is looking to expedite the sale of the remaining unsold units.

Moving forward, LTAT said it will carefully consider potential returns and its own expertise in property development.

The assessment found there was a significant selling of profitable shares and increase in LTAT’s shareholdings of Boustead Holdings Berhad (BHB) and its quoted subsidiaries, which resulted in overconcentration in a handful of companies under BHB group’s stable.

In FY18, LTAT’s exposure to BHB group increased almost 50% to RM3.1 billion from RM2.1 billion previously. To this end, LTAT will undertake a strategic asset allocation initiative.

The assessment also highlighted high dividends declared for FY17 by a number of subsidiaries were not paid in full and are still outstanding up to this date.

Meanwhile, the practice of buying unit trusts in order for members to receive special bonus was found to be detrimental to LTAT’s ability to control and actively manage the fund.

LTAT said these irregularities and weaknesses took place under the previous leadership of Tan Sri Lodin Wok Kamaruddin up to Sept 7, 2018.

source https://www.thesundaily.my/business/financial-irregularities-weaknesses-found-at-ltat-DD1410072