LTAT DISCOVERS IRREGULARITIES

Overpayment of dividend and lack of proper due diligence among issues found

THE Armed Forces Fund Board (LTAT) has discovered several irregularities in past transactions and weaknesses in operational, accounting and legal areas.

Following an assessment by accounting firm Messrs Ernst & Young in February, it was found that retained earnings were impacted due to overpayment of dividend.

There was also an overstatement of LTAT’s assets between 2015 and 2017, as well as due diligence not properly undertaken and issues over unsold property assets.

The findings also revealed the heightened risk of over-reliance and liquidity issues since 2014 as well as outstanding dividends from subsidiaries that were not paid in full and still outstanding up to this date.

The assessment was for the financial years ended Dec 31, 2017 and Dec 31, 2018.

LTAT chairman General Tan Sri Dr Mohd Zahidi Zainuddin said in a statement yesterday LTAT accumulated an investment portfolio with substantial risks and asset quality issues.

“The findings of this assessment provide clarity on critical areas that need to be strengthened. This will subsequently place us in a better position to provide a steady stream of returns for the benefit of our members.”

Zahidi said the actions taken by the new management had placed LTAT on a stronger footing, but the short- and medium-term outlook remained challenging.

The statement also said LTAT’s five-year asset returns (financial years 2014 to 2018) were lower than the declared dividend rates. This had resulted in LTAT paying dividend at a higher rate than it could afford.

On the overstatement of assets, LTAT said this was due to failure to impair one of its large investments.

LTAT also said financial and technical due diligence exercises were not properly undertaken prior to investing.

“It was not based on sound investment policies.”

The assessment also found some issues with unsold property assets worth RM45 million in relation to 88 condominium units that remained unsold in December last year.

“LTAT is looking to expedite the sale of the remaining units.”

It discovered that there was significant selling of profitable shares and increase in its shareholding of Boustead Holdings Bhd and its subsidiaries (BHB Group). This has resulted in overconcentration in a handful of companies in BHB’s stable.

“LTAT’s exposure to BHB increased almost 50 per cent to RM3.1 billion from RM2.1 billion while the number of related shares increased by more than 83 per cent to 1.525 billion shares last year from 833 million shares in 2014.

“To this end, LTAT will undertake a strategic asset allocation initiative,” it said.

It also said 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.