Breaching a sacred trust
I WAS appalled to read the latest revelations concerning Tabung Haji.
It is inconceivable that a fund which collects deposits from would-be pilgrims, and is charged with investing those funds for their benefit, should be the subject of accusations about improper dividend and bonus payouts because its liabilities exceed its assets. The RM4.1bil deficit is alarming.
It is equally inconceivable that the former Tabung Haji management is alleged to have presided over irresponsible asset sales which have proven uncollectable and did not exercise legal rights to cancel the sales.
This same management is accused of manipulation of financial accounts to engineer phoney profits used to back the illegal dividend payments via dubious share sales and buy-back schemes. It is alleged the management also adjusted its threshold for loss provisions, by raising the level for impairment from 70% to 90% in 2017, resulting in a reduction of approximately RM1bil in losses recognised – a classic “red flag” missed by directors.
How did this happen?
There seems to have been an almost total lack of oversight. The Tabung Haji Act 1995 charges the minister responsible for “pil- grimage control” with the duties of appointing board members and the CEO, receiving reports from the fund and approving dividends.
He is even empowered to give directions to the fund. These significant responsibilities fall upon a Minister in the Prime Minister’s Department.
This is a structure open to abuse. It makes the management of public savings subject to political whims and directives, without public scrutiny and accountability. It fails to deliver the fiduciary awareness and responsibility rightly expected of a board with a duty of trust to act prudently and only for the benefit of the fund’s depositors and beneficiaries.
Telling questions
A series of telling questions:
> Were board members selected because of their competence, professional qualifications and experience in overseeing a large and complex investment portfolio?
> Was the CEO similarly qualified?
> Did the board question management on the prudence of the larger financial transactions of the fund and insist on independent risk assessments?
> Did board members know the provisions of the Tabung Haji Act regarding dividend payments or question the propriety of such payments?
> Was the board aware of the accounting manipulations, and did they ask for independent professional advice or validation of the accounting reports?
> Did the board question management’s remuneration packages in the face of such poor financial performance?
> Did the board receive instructions from the minister concerning accounting matters and dividends?
A decade ago, Bank Negara confronted a potential financial crisis brought on by the excesses of banks and financial institutions in the developed world. They insisted that directors of financial institutions properly understood the meaning of good corporate governance and that they be trained and fully aware of their fiduciary duties and responsibilities. A crisis was avoided.
Now Bank Negara is to assume oversight of Tabung Haji and the special vehicle which will assume the job of managing and recovering the fund’s impaired and underperforming assets. No doubt, Bank Negara will introduce the governance disciplines and rigor so evidently missing, but this feels like closing the stable doors after the horse has bolted.
All society is let down by the abject failings in governance at Tabung Haji, especially the pilgrims. They deserve better.
Transparency
We must learn to create institutions which are structured to be transparent, subject to public scrutiny and parliamentary oversight. Some suggestions for the future include:
> Nominating a board of independent, qualified directors at the outset, whose appointment is reviewed and confirmed by a parliamentary committee.
> Mandating term limits for all directors, and a shorter sitting limit for the chair, who should be selected by the board from amongst the directors.
> Insisting governance structures are put in place, especially audit, risk and nominating committees.
> Allowing the nominating committee to identify new directors when their terms expire, along with a professional CEO according to transparent written criteria, with final appointment subject to parliamentary committee confirmation.
> Having the CEO report direct to the board and NOT to a government minister or senior civil servant.
> Ensuring performance is reported annually by the board to the parliamentary committee and is published in the print and electronic media and is accessible to all stakeholders and beneficiaries.
> Ensuring financial reporting standards are applied, backed by the appointment of independent professional auditors.
Our major institutions are designed to serve society over many years. They have long term objectives to follow. They should not be subject to the vagaries of politics and, certainly, not to ministerial directives and short-term political expediency.
The failings at Tabung Haji bring shame on us all.