Introduction

Organisation Background

Figure 1: Lembaga Tabung Haji’s Logo

Since 1963, the Malaysian pilgrim fund board, Lembaga Tabung Haji (TH), has
developed the most modern and profitable pilgrimage administration in the world. Since
1980, the fund has been managed. TH's diverse investment portfolio is designed to cover the
rising costs of hajj operations while continuing to subsidise the cost of hajj for Malaysian
pilgrims. TH has about nine million depositors and 125 branches with 10,000 touch-points
nationwide [ CITATION Cor21 \l 17417 ] . Under the auspices of the Malaysian Consulate, TH
also has an office in Jeddah, Kingdom of Saudi Arabia. Figure 2 shows number of depositors
are increasing from 2014 to 2018

Figure 2: Number of Depositors

VISION

The pillar of the ummah’s economic success; excellence in hajj management.

MISSION

 To strengthen the ummah’s economy

 To remain active in seeking strategic investments locally and globally to ensure
sustainable growth
 To manage and enrich depositors’ funds
 To continuously provide excellent services
 To facilitate and assist pilgrims in achieving mabrur hajj
 To provide competitive, halal and toyyiban returns

CORE VALUES
 Professionalism
 Teamwork
 Committed
 Caring, friendly and compassionate
 Innovative

SERVICES IN LEMBAGA TABUNG HAJI

1) Syariah- Compliant Savings

Tabung Haji offers Malaysian Muslims Syariah-compliant savings products. In general,
savings in TH are made for the purpose of performing Hajj. TH continues to transform and
improve its services in order to make saving easier for depositors. Saving in TH is simple and
government-guaranteed. The concept of saving in TH is based on Wadi'ah Yad Dhamanah. It
is a savings concept in which depositors save their money and TH, as the custodian, agrees to
keep it safe. There is no cap on cash savings and the maximum withdrawal amount is
RM10,000. Withdrawals of more than RM10,000 can be made by cheque or telegraphic
transfer at the TH State and Headquarters. Tabung Haji provide convenient for depositors by
opening counters in all TH offices and branches nationwide. Apart from TH counters and
Urban Transformation Centre (UTC), depositors can also perform their TH transaction at
strategic partner; Bank Islam, Bank Rakyat, Maybank Islamic and CIMB Islamic counters,
ATM and online banking. Most of the operations have been computerized to facilitate
administrative, Hajj, investments and accounts affairs.

2) Hajj Management
Hajj passports are issued to Malaysian citizens and permanent residents only. Hajj
visas to be issued by the Royal Saudi Embassy in Kuala Lumpur are arranged for by TH on
behalf of pilgrims. For medical aspect, all necessary medical examinations and inoculations
against certain diseases like cholera, meningitis and influenza are arranged by TH at local
hospitals and health centres. If necessary, the intended pilgrims are also given treatment and
even warded before the “certificate of fitness to perform the Hajj” is issued.

3) Subsidiaries Company
TH involved in Halal Food industry through TH Global Services Sdn Bhd (THGS), a wholly
owned subsidiary of THHR. THGS core activities include the preparation and distribution of
halal and toyyib food products. It envisions to become one of the key players in the halal food
industry. THGS plays its role in ensuring the best practices are observe and applied in
fulfilling the customers’ demands and is confident that halal and toyyiban food will become a
staple need in the global food industry. TH also involved in the travel and tours services
sector through TH Travel and services Sdn. Bhd, a wholly-owned subsidiary of THHR, TH
Travel & Services Sd. Bhd. THTS provides a complete travel and tours services especially
for Muslim. THTS services include hajj & umrah packages, tours packages, hajj charter
services, flight chartering, ticket purchases, halal catering and logistic services. With more
than 30 years’ experience, THTS offers various services through its wide network of
domestic and international satellite offices, with the promise of “Confidence, Convenience
and Comfort”. TH’s involvement in Information Technology (IT) is through its subsidiary,
Theta Edge Berhad (Theta Edge). Theta Edge offers various services to fulfilling demands
and expectations of customers through its products namely the Total Hospital Information
System (THIS), Energy Management System, Integrated Building Management System,
Defence and Security Solutions, and Integrated Logistic Support System. Currently, Theta
Edge is emphasizing on telecommunication services and green energy segments as these two
fields are showing sustainable growth which are
aligned with the nation’s dynamic development. TH provides support services for Oil & Gas
industry through its investment through a joint venture company with Alam Maritime
Resources Berhad; TH-Alam Holdings (L) Inc (TH Alam). In 2002, THHE has been listed on
the Main Board of Bursa Malaysia on January 2005 and since then has been strengthening its
position through a rebranding effort in June 2012.MIts activities are focused towards heavy
industrial engineering, specializing in offshore iron structure fabrication and other offshore
oil and gas engineering services in Malaysia. TH Alam provides Anchor Handling &
Tugboats Services (AHTS) to support its marine transportation services. In 2013, TH Alam
has increased its fleet by two additional AHTS equipped with Dynamic Positioning (DP2)
and 150 tonnes
bollard pull capacity, to four existing AHTS with DP1 and 60 tonnes bollard pull capacity.
This
addition has strengthened its position as a service provider of choice for marine support
operations.
Lembaga Tabung Haji (LTH) now has over 50 years of experience in savings, Hajj
services, and investment. As the country's sole Hajj organisation, TH works to strengthen the
Malaysian Muslim economy by utilising available funds and resources. Furthermore, TH
strives to provide outstanding and satisfactory hajj facilities to Malaysian pilgrims, and its
consistent accomplishments have earned it worldwide recognition as a role model for
innovative hajj leadership.
Ethical Issue: Bribery (Corruption)

Figure 2: Investigation papers and arrests, Malaysia, 2018 and 2019

The number of investigation papers opened by the Malaysian Anti-Corruption

Commission (MACC) increased by 24.7% in 2019 to 1,039 cases, up from 833 in 2018 (refer
figure 2) [ CITATION DEP20 \l 1033 ]. In 2019, the number of investigation papers for all types
of offences will increase. Other offences and accepting bribes increased by 48.1 percent and
40.1%, respectively, in 2019 compared to 2018. During the same period, the number of
arrests made by the MACC increased by 23.2 per cent. This increase was contributed by
giving bribery (79.0%) and false claim (35.8%). On the contrary, arrests for misuse position
and other offences declined. The World Bank had declared in December 2013 that, in the
developing world, corruption is the number one public enemy since Malaysia has been
swayed by the endless corruption scandals from the upper classes to the subordinates, in
public as well as private sectors [ CITATION Muh20 \l 17417 ] . As a country that is moving
towards being a developed country in 2025, the Malaysian Government has been working
hard to overcome corruption through various plans and initiatives.

Corruption is a broad term for workplace misconduct. Corruption is defined as an

illegal and dishonest way for people in positions of power to engage in unethical and illegal
activities [ CITATION Bri21 \l 17417 ] . Bribery is one type of corruption in the business world.
So, while bribery is always corruption, not all forms of corruption are bribery. Furthermore,
corruption can occur at the highest levels of government and in top management companies.
It can also occur at the local level, where someone has the ability to influence decision-
making. Corruption can also be linked to other criminal activities such as tax evasion, money
laundering, and serious organised crime.
Corruption in business can be classified into four types, as listed below [ CITATION Bri21 \l
17417 ]:

 Bribery: accepting items in exchange for preferential treatment;

 Fraud: dishonest and illegal activities committed by individuals or businesses in order
to provide an advantageous financial outcome to those individuals or businesses;
 Embezzlement: Taking the goods or funds of the company for personal gain is
referred to as embezzlement.
 Kickbacks: A kickback is a type of bribe paid to a person of influence within an
organisation in exchange for the person paying the bribe obtaining some kind of
benefit from the organisation. Kickbacks are commonly paid by companies seeking
profitable contracts or contracts with favourable terms. In exchange for their
assistance, a portion of the contract's benefit is paid (or "kicked back") to a decision
maker within the organisation granting the contract. The contracting organisation is
unaware of the payment to its official.

Bribery is classified into two types: Passive bribery occurs when someone requests,
receives, or accepts a bribe, whereas active bribery occurs when someone offers, promises, or
gives a bribe. In general, there are four main parties in any business-related bribery
transaction: the briber, the bribed person, and their respective organisations [ CITATION
OEC13 \l 17417 ]. Last but not least, ethics can be defined as a concern with what is right and
wrong behaviour. It discusses what is good and bad, moral duty and obligation, moral
principles and values. Good ethical practises foster trust between businesses and their
customers, which improves the organization's reputation in the eyes of the public. An
interview with the internal audit manager of Lembaga Tabung Haji is conducted to gain a
better understanding of the corruption issue.
 FINDINGS OF THE INTERVIEW
Malaysia was shocked in November 2018 when TH announced its financial position with
significant audit findings, primarily on undisclosed impaired assets, overstated asset amount,
and net profit position, which resulted in illegal dividend payment in violation of the Tabung
Haji Act 1995 [ CITATION Rah20 \l 1033 ]. Following that, it was reported that the Lembaga
Tabung Haji (TH) lodged a report at the Dang Wangi police station on 16 January 2019 in
connection with the 2017 financial accounts, and how representations by key executives
resulted in the declaration of hibah against the Tabung Haji Act 1995 [ CITATION Lem19 \l
17417 ]. TH identified two executive working papers presented to the Board of Directors of
TH (The Board) at two Special Board Meetings on February 6 and 9, 2018.

The Executive Working Papers were prepared by Datuk Rozaida Omar, Group Chief
Financial Officer (Group CFO) and supported by Datuk Seri Johan Abdullah (DS
Johan), the then Group Managing Director and Chief Executive reported that “The Executive
Working Papers contain statements and representations which led to incorrect figures being
reflected in the said financial statements which were accepted by the Board.”. They also said
“On the basis of the said financial statements, the Board of Directors of TH, made a
recommendation to the Minister responsible, who then approved the declaration of
distributable hibah for financial year 2017 of Hibah Tahunan of 4.5% and Hibah Haji of
1.75% in contravention of section 22 of the Tabung Haji Act 1995.”(Refer figure 3).
 Figure 3: Depositor's Hibah Rate (%)

The audited financial statements of Theory for the fiscal year ended 31 December
2017 (“Audited Financial Statements 2017”) were signed off on 3 April 2018 by the then
Chairman, Datuk Seri Panglima Abdul Azeez Abdul Rahim, and DS Johan on behalf of the
TH Board, as well as Datuk Rozaida as the principal officer primarily responsible for the
financial management and accounting records of Theory. According to the audit report, TH
failed to recognise significant declines in the value of its investments, causing its financial
statements for the fiscal year ended 2017 to be overstated. The RM3.41 billion profit for FYE
2017 did not include the RM4.26 billion impairment loss on available-for-sale (AFS) equity
investments, the RM7 million impairment loss on AFS debt security instruments, and the
RM4.85 billion in other adjustments. With the impaired amount, the fund should have made
RM1.43 billion in losses in 2017 rather than the RM3.41 billion profit reported in its 2017
annual report. As a result, the retained earnings position of RM162 million reported in 2017
has been impacted, and TH shall have recorded an accumulated loss of RM4.68 billion as of
31 December 2017. Furthermore, it was discovered that the setting of TH's asset impairment
policy was inconsistent, with changes made every year, particularly during FYE 2017, when
the policy was modified twice. In 2017, the threshold for determining whether there is an
impairment was raised twice, from 70% to 85% and then to 90%. According to PWC, this has
resulted in deferred impairment losses, allowing TH to make a certain level of distribution to
depositors in 2017. In addition, a PWC investigation discovered that the asset and liability
positions were incorrectly reported in the 2017 financial statements. According to the
findings, TH had total assets of RM70.3 billion against liabilities of RM74.4 billion at the end
of 2017, resulting in an RM4.1 billion shortfall. This is significantly different from the
reported figures for assets of RM70.3 billion versus liabilities of RM888 million. According
to the restated figures, every ringgit of TH's liabilities is supported by only 94.4 cents of
assets. It should be noted that the Central Bank of Malaysia reported that the assets-to-
liabilities ratio had widened from an estimated 98 cents to RM1 at the end of 2015.

The aforementioned issues were not reported in the financial statement for fiscal year
2017, resulting in incorrect figures being reflected in the financial statement, resulting in the
declaration of annual hibah of 4.5 percent and hajj hibah of 1.75 percent. As a result, the
dividend paid to depositors was calculated using overstated figures from the fiscal year 2017.
The hibah declaration violates Section 22 of the Tabung Haji Act 1995, which states that
hibah can only be declared and paid if the assets exceed the liabilities. This has raised
questions about the legality of the 2017 dividend payment and the source of payment for the
said dividends. The misrepresented financial statements, which include overstated assets and
profit levels, asset quality issues, dividend and subsidy payment, have put TH in a precarious
position where corrective action is required to save the organisation. A recovery plan was
immediately implemented to restore its financial position, which included the formation of a
new special purpose vehicle company, Urus dana Jamaah Sdn Bhd, which took over the
impaired assets of TH. Furthermore, TH is currently reviewing its asset allocation, with the
goal of reducing the components of high-risk assets in the form of equity to lower risk assets
in the form of fixed income, which is more appropriate with its objective. With its current
financial performance, TH may face difficulties in maintaining consistent high hibah
payments as in previous years, as well as subsidy payment for depositors' hajj costs. Both
high hibah and subsidy are TH's strengths that depositors frequently anticipate, even though
TH is not obligated to provide both to depositors in the first place. The depositors'
expectations for this high hibah payment show that they had forgotten that the true purpose of
their savings was to perform Hajj rather than to invest in an investment instrument that
guarantees high annual returns. The widespread use of social media exacerbates the situation
by disseminating news that does not accurately reflect TH's position. TH's financial
problems, which may result in an inability to continue high hibah and subsidy, combined with
the abuse of social media in spreading inaccurate information about TH, may affect
depositors' trust in TH, which is the primary factor that maintains depositors' loyalty against
financial institutions. Concerned about the survival of TH as an Islamic financial institution
vital to Malaysian Muslims, this study is being conducted to develop a conceptual framework
to examine the relationship between depositors' trust and them. With the restructuring plan,
TH has been able to improve its financial position by having more assets than liabilities. It
should be noted, however, that the restructuring exercise includes the subscription of RM10.0
billion sukuk issued by the SPV (Urusharta Jamaah Sdn Bhd) with a 5% yield and a 7-year
tenure, as well as RM9.9 billion RCPS. As a result, TH will only receive payment from the
SPV when the sukuk is redeemed after 7 years, in 2025. Furthermore, TH must ensure that its
asset relocation is successful in order to avoid another asset impairment that will have an
impact on its net asset position and profitability.
 Analysis

What are the impacts of the problem?

Bribes at work have a number of consequences, including a tarnished reputation:
businesses with poor anti-bribery and corruption compliance attract less business.
Commercial organisations will be wary of doing business with you. Financial repercussions:
The government has the authority to levy an unlimited fine for bribery and corruption
offences. This can have a significant financial impact. A tarnished reputation can result in
both fines and lost business. Employee morale suffers as a result of bribery or having a
workforce that is aware of what is going on. As a result, workplace productivity suffers.
When combined with fines and a tarnished reputation, it can be a death blow to any business.
Furthermore, workplace corruption has become a barrier to the quality and efficiency with
which organisations deliver services. In short, corruption has a negative impact on employee
performance and, ultimately, the organization's profit. Corruption at the highest levels of an
organization's management has a direct impact on the organization's progress and results in
massive losses. TH's financial problems caused a slew of issues for the institutions. Despite
the fact that the institution is intended for hajj fund savings and is not required to pay a high
rate of return to depositors, in practise it is traditionally known for a high rate of return in the
form of hibah and a significant amount of subsidy on hajj cost that enables Muslims to
perform hajj. As a result, depositors eagerly await the announcement of the yearly hibah.
However, given TH's current situation, which is still in recovery, it may be difficult for TH to
continue its high hibah and subsidy tradition to depositors. This scenario has been widely
disseminated on social media, with many inaccuracies about TH. This situation may
undermine public trust in TH, jeopardising their loyalty to TH. As a result, the TH
mismanagement issue is likely to affect public trust and confidence in the organisation,
which, in the worst-case scenario of loss of trust, may result in massive deposit withdrawals
and a "bank run" [CITATION Placeholder1 \l 17417 ].
What are the roots of cause of the problem?
According to a study conducted by Zaleha Othman, Rohami Shafie, and Fathilatul
Zakimi Abdul Hamid (2014), there are three reasons why people commit bribery or
corruption: power, opportunity, and moral values. First root of bribery is power. The term
"power" refers to "people in privileged positions who can do whatever they want." Most of
the time, power corrupts people. Data insight also revealed that power, when combined with
opportunity, would lead to individuals committing corrupt acts. Further investigation reveals
that some people in positions of power in Malaysia abuse their positions. They use their
positions to commit corrupt acts because they have the opportunity. For example, on 10 April
2019, the fund suffered billions of dollars in losses due to account manipulation and
falsification, including the use of LTH funds for political purposes. Then, power is
inextricably linked with opportunity.. In Malaysia, the opportunity to be involved in
corruption is most prevalent in the government sector. Procurement of projects related to the
government sector is a common source of opportunity. According to the informants, political
power is one factor that creates opportunities for corrupt behaviour. Finally, a lack of moral
values is another reason why people commit corrupt acts. Moral impurity is defined as a lack
of moral values in the discovery. The themes identified as linked to moral impurity are a lack
of integrity, selfishness, greed, and temptation, as well as a lack of principles and religion.
Last but not least, these three factors were discovered to be associated with corrupt acts.
Individuals do not gain confidence simply because they have the opportunity to do so, but
when they have the authority to do so, the amount and frequency of corruption increases due
to their high confidence in carrying out the act. A statement to support our interpretation of
this attestation is that authorised power, in particular, creates opportunities for individuals to
commit corrupt acts because the person in power has access to the system and the right
people, and thus can easily manipulate the situation.
 Recommendation
The misrepresented financial statements, which include overstated assets and profit
levels, asset quality issues, dividend and subsidy payment, have put TH in a precarious
position where corrective action is required to save the organisation [ CITATION Rah20 \l 1033 ].
TH's new management team has been developing and releasing its recovery plan in order to
restore the company's financial position. Aside from that, the Lembaga Tabung Haji has
taken a number of steps to reestablish public trust in TH. One of them was to place TH under
the jurisdiction of the Central Bank of Malaysia. Uruharta Jamaah Sdn Bhd was also formed
as an SPV to purchase the impaired investment of TH in order to bring the company's
financial statements back on track. Furthermore, the government's guarantee on deposits
remains the primary source of public trust in TH. For me, the most important step toward
prevention is raising anti-corruption awareness among government officials and the general
public; fighting corruption would be futile without public participation. Anti-corruption
education includes anti-corruption education in schools, colleges, and universities. The anti-
corruption campaign for the general public can be carried out through news organisations, as
well as print and broadcast media. Furthermore, anti-corruption education includes seminars
for government officials. Following that, revise anti-bribery and anti-corruption policies.
There is a No Gifts Policy in TH, which aims to prevent conflicts or conflicts of interest in
any dealings with TH. This Policy specifies that TH staff does not accept or offer gifts to
third parties. It is critical that all employees understand what is and isn't acceptable in terms
of gifts, hospitality, donations, sponsorship, and political contributions. As a result, ensure
that your employees understand your company's bribery and corruption policies and
expectations. They must understand what is and is not acceptable in terms of gifts,
hospitality, donations, sponsorship, and political contributions. To maintain awareness, you
must provide bribery training on a regular basis. Furthermore, anti-bribery laws apply to all
third-party agents, intermediaries, consultants, and associates, as well as anyone else who
represents you or acts on your company's behalf. According to the law, you are responsible
for thoroughly checking and verifying these parties. This entails putting in place adequate
systems and controls to ensure that third-party vendors are who they claim to be, have the
necessary credentials, and have been approved at the senior management level. Because LTH
had a problem with misusing their company's funds, they should have Managed Care
Contracts as a funding source. For example, they can work with Transparency International
Malaysia (TI-M) to manage their company account in addition to the TH manager.
Transparency International Malaysia is an independent, non-governmental, and apolitical
organisation dedicated to fighting corruption. The Malaysian Society for Transparency and
Integrity was founded in 1998 and registered with the Registrar of Societies Malaysia as the
Malaysian Society for Transparency and Integrity. It is the accredited National Chapter of the
Berlin-based Transparency International. TH should work with TI-M because Transparency
International- Malaysia (TI-M) has been involved with the issue of misusing Tabung Haji
funds and takes the issue seriously because the Malaysian Haji Pilgrims Fund Board's
primary function is to promote Muslim savings for the pilgrimage to Mecca. This
demonstrated that (TI-M) takes every matter seriously, especially if there is any corruption in
a particular company. This was followed by their mission, which is to eradicate corruption
and promote Transparency, Integrity, and Accountability in society. Corruptness, by the way,
for them is when there is an involvement with the abuse of entrusted power for personal gain.
Because Transparency International Malaysia is not affiliated with any political party, every
move made by a specific company will be secure. All of TH's problems can be solved
without involving too many politicians in the company. Furthermore, Transparency
International Malaysia will assist in giving victims a voice and witnesses to the corruption
that has occurred, as well as assisting the company in working toward a world free of
corruption. For example, if the problem that TH was experiencing is not true, they can assist
in resolving it. To summarise, by collaborating with TI-M, Transparency International-
Malaysia (TIM) can make a point of engaging public authorities as well as civil society in the
fight against corruption, and strives to ensure that governance reforms are implemented
effectively in both private and public institutions. Last but not least, Lembaga Tabung Haji
will be able to get back on track without causing any major problems.
 Conclusion
To summarise, corruption is a monster that, if not dealt with, will bring many
organisations to their knees. Employees should practise good work ethics and work with
determination and hard work. Since 2011 was Malaysia's worst year in terms of CPI, the
government has begun to develop and implement new initiatives to effectively combat
corruption in Malaysia. However, despite these numerous initiatives and strategies, we
continue to face the same issues because there is less evidence on the effectiveness of anti-
corruption initiatives. While the government has made progress in addressing corruption, it
can and must do more. Everyone, from political leaders to members of the community, is a
stakeholder in the fight against corruption because it affects everyone. Only by involving
everyone in the fight against corruption will Malaysia be able to put an end to this cancer. We
must eliminate the silent killer before it slowly destroys our nation.
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