KPMG tells firm not to trust audits

KPMG, the audit firm for 1MDB, told the company not to rely on its reports over three years as they did not show “true and fair” assessments of the troubled state fund’s finances.

KPMG retracted the audit reports for financial years ended March 2010, 2011 and 2012, as it did not have access to relevant documents that Malaysia’s new government has since declassified, 1MDB said yesterday.

The withheld information would have “materially impacted” the assessments had it been made available to the auditor, KPMG said in a June 8 letter to the fund.

Prime Minister Mahathir Mohamad is seeking to recoup $4.5-billion of funds potentially lost through 1MDB as he seeks to uncover the extent of wrongdoing at the fund, whose full name is 1Malaysia Development Bhd.

A week after sweeping into power, he ordered the auditor-general to publicly release a report that was protected by the Official Secrets Act since 2016, and revived an investigation that has led to former premier Najib Razak and his wife being questioned by the Malaysian AntiCorruption Commission.

In his first statement to the media since taking the role, Finance Minister Lim Guan Eng said he was shocked to find that some ministry documents linked to 1MDB were labelled as “red files” and weren’t accessible by state auditors. While the declassified auditor-general report highlights possible anomalies in some 1MDB transactions, it cautions that the audit team also had limited access that significantly affected their findings.

1MDB did not submit management accounts for the year ended March 2015 and bank statements from foreign financial institutions.

The audit team could not access computers, notebooks and servers at 1MDB for the purpose of cross-checking and analysing its findings.

The quality of KPMG’s work in the UK was criticised by the country’s accounting regulator. In an unprecedented assessment, the Financial Reporting Council said auditors at the firm don’t challenge management enough, aren’t sufficiently sceptical and are inconsistent in their execution of audits. KPMG is also subject of an inquiry in SA that is expected to be finalised this week, into its work on the SA Revenue Service “rogue unit” report, which it has withdrawn; and the audit firm’s work for the Gupta family.