ISSUES OF ABUSE OF POWER, LOSSES DURING THE AUDIT OF THE 2017

FINANCIAL STATEMENTS, AND ISSUES OF GOVERNMENT INTERFERENCE

AND POLITICAL APPOINTMENTS (TH)

1.0 INTRODUCTION

Institution Tabung Haji (TH) is a non-bank financial institutions in Malaysia. It

was the first Islamic financial institution established in 1969 (Ismail, 2020).

However, since 2015, TH has been plagued by variety problems. It has

received public attention with the purchase of land owned by 1Malaysia Development

Berhad (1MDB) May 2015. A price 43 times more expensive than 1MDB buying the

same land from the government (C. Malaysia, n.d.). Other than that, various other

issues began to arise. Among them are a warning letter from Bank Negara Malaysia

(BNM). Negative TH reserves, losses in Felda Global Venture (FGV) investments.

Big capital losses due to acute financial problems by TH Heavy Engineering Berhad

(THHE). It is controlled by TH, who owns 30% of the company (The Star 2016).

Institution Tabung Haji (TH) pioneer in the world's best haji management faced

governance issues following government intervention. Starting with the

announcement of the 2018 hibah declaration at 1.25 per cent (Bakar et al., 2020). It

was the lowest since 1995, and under TH, 106 strategic enterprises had their shares

transferred. It sparked debate among the community, especially depositors. The

Auditor-General and independent auditors were appointed to investigate TH's losses.

It was due to equity investments worth up to RM10 billion in 2018. The main reason

is because of the government interference in TH's management. Incompetent

political appointments have resulted in a number of failures that are currently being
reviewed. Corruption, malpractice, allegations, and misbehaviour are among them. It

causes in erroneous decisions and unstable TH commands.

2.0 ISSUES OF GOVERNMENT INTERVENTION AND POLITICAL

APPOINTMENTS IN ADMINISTRATION OF TH

In another development, there are 3 influential people in the administration of

Lembaga Tabung Haji. They are related to their 1MDB company Ismee Ismail, Datuk

Johan Abdullah and Abdul Samad Alias.

 Ismee Ismail is the Chief Executive Officer and Managing Director

of Lembaga Tabung Haji. He is also a Board Member of 1MDB.

 Datuk Johan Abdullah is the Chief Executive Officer and Managing

Director of Lembaga Tabung Haji. He is also the Chairman of a

1MDB subsidiary, Edra Global Energy Sdn Bhd. Edra acquired

power generation assets from Powertek. It formerly known as

Tanjong Energy), Genting Sanyen and Jimah.

 Abdul Samad Alias is the investment panel of Tabung Haji. He is

also one of the Members of the 1MDB Advisory Board. It is chaired

by the Prime Minister of Malaysia, Datuk Seri Najib Tun Razak.

2.1 THE FINANCIAL STATEMENTS FOR THE YEAR 2017 APPOINTED

BY THE AUDIT.
 At 10 December 2018, The news conference of Datuk Seri Dr

Mujahid Yusuf, Minister in the Prime Minister's Department, surprised

us. It regarding the Financial Statements of Lembaga Tabung Haji

(which have been audited) for the Financial Year Ended 31 December

2017. It is said to have a deficit of RM 4.1 billion.(Fuad, 2019)

Minister said that Lembaga Tabung Haji (TH) has been paying

illegal dividends to its depositors since 2014 again. Where since 2014,

TH’s liabilities have exceeded the value of its assets. This makes TH

ineligible to approve any dividends to depositors under the Tabung Haji

Act 1995.

Famous auditing firm Price water house Coopers (PwC) has

audited TH's Financial Statements. It suggested that the Government

embark on a comprehensive TH recovery measure. Among the

measures announced by the Minister is to place TH under Bank Negara

Malaysia (BNM). They need set up a Special Purpose Vehicle (SPV) to

recover RM19.9 billion of TH's assets. It is now below the required

performance.(Rahman et al., 2020)

Many disclosures of the losses suffered by TH and the proposed

method of recovering them. They began to raise some big questions

and anxiety among depositors. It is about the future of their investments

and TH’s new direction.

3.0 POLITICAL AND ADMINISTRATIVE ACTIONS TO ADDRESS TH ISSUES

3.1 POLICE REPORT AGAINST THE SUPREME OFFICER OF TH

On November 30, 2018, new TH management has already

lodged two police reports. It against several former key office bearers in

TH, including former TH Chairman, Datuk Seri Abdul Azeez Abdul

Rahim, former TH Chief Executive Officer, Tan Sri Ismee Ismail and

several other senior TH management officers.

One a police report alleging that Yayasan Tabung Haji was

abused for political reasons. Another police report has been filed on

suspicions of deception and material information avoidance. It involving

the sale of TH shares in 2012 of 95 per cent in PT TH Indo Plantations.

It held by 2 of its subsidiaries TH Indopalms Sdn Bhd (THI) and TH Indo

Industries Sdn Bhd (THII) to PT Borneo Pacific (PT Borneo) for US $

910 million (RM3.7 billion).

4.0 MANAGEMENT AND OPERATIONAL IMPROVEMENT OF TH - PROPOSAL

4.1 PLACING TH UNDER BANK NEGARA MALAYSIA (BNM)

The Ministry of Finance informed that the regulation of Tabung

Haji (TH) is under Bank Negara Malaysia (BNM). It is a temporary

solution that will not change the original nature of the institution. It

especially in relation to the management of pilgrims. The institution will

 continue to perform the functions of Lembaga Tabung Haji. It is as

stipulated in the Tabung Haji Act 1995 (Act 535)(Ali & Ghani, 2019).

Apart from that, Hajj management matters still remain under the

responsibility of the Minister in the Prime Minister's Department

(Religious Affairs). From the point of view of TH, the Board of Directors

and its management body still have the main responsibility. Especially

in determining the direction of the institution. Others are in charge of

the pilgrimage's management and operation.

5.0 EFFECTS OF COOPERATION BETWEEN POLITICS AND ADMINISTRATION

ON LEMBAGA TABUNG HAJI (TH)

Results placing Tabung Haji (TH) under the regulation of Bank Negara

Malaysia (BNM). It aims of improving the overall management and operations

of TH. This is to secure depositors' interests and strengthen TH's financial

situation. It is carrying out its mission in accordance with the best governance

principles. The United Nations Convention Against Corruption has established

a set of standards (UNCAC). TH is also a systemically important financial

institution. It was intimately connected to the country's financial system. It

operates on a vast scale (in terms of deposit and investment size) as follows:

Many need to do enhance the long-term sustainability of TH. More

formal regulatory arrangement under BNM will place TH as a prescribed

Islamic financial institution under Section 223 of the Islamic Financial Services

Act 2013 [Act 759] (B. N. Malaysia, 2013).

BNM's monitoring and regulation is a crucial part of the effort. Empower

TH to play a stronger role in the country's financial ecosystem as an Islamic

institution. It is oriented toward establishing TH as a world-class, long-term

Government-Linked Investment Company. Regulation on TH Focuses on

Deposit Taking, Risk Management, Corporate Governance and Transparency.

The suggested regulatory framework for TH by BNM will be adjusted. It

is based on the business model's characteristics and hazards. Specifically, "fit-

for-purpose regulation" differs from that of other financial institutions.

Supervision by BNM is necessary. It establish a check and balance aspect

ruling by the Cabinet Special Committee on Anti-Corruption. BNM will focus its

regulatory role on deposit-taking activities, risk management, corporate

governance and transparency.

A similar check and balance approach has been implemented in capital

markets and other industries. For example, Permodalan Nasional Berhad

(PNB). It is regulated by the Securities Commission Malaysia (SC). It does not

prevent or restrict PNB from carrying out its original mandate. In the national

development agenda, especially to prosper the bumiputera economy. Thus,

the check and balance approach is not a new thing. It long been implemented

in the context of national development governance.

In the context of shariah, BNM has a BNM Shariah Advisory Council. It

is composed of shariah scholars and individuals who are knowledgeable and

experienced. They are also well-known on a global scale. The government

would continue to guarantee and defend Tabung Haji depositors' savings. TH

is proposed as a prescribed Islamic financial institution. The Government will

continue to guarantee the savings of depositors. TH depositors continue enjoy

current Government guarantee (status quo) as provided Tabung Haji Act 1995

[Act 535]. This approach is similar to BNM-regulated BSN. The government

intends to absolutely guarantee depositors' savings. Shariah compliance is

required for all TH investing activities. The appraisal of investments must be

carried out in a thorough and transparent manner. Other fund institutions

follow the same policy. With the formation of an Investment Panel made up of

a diverse group of people. They have experience and knowledge in finance

and investment. This measure aims to ensure investments made are orderly

and guided. TH's risk appetite, as well as to ensure the payment of hibah is

made. It is in accordance with the stipulations under the provisions of Section

22 (3) of Act 535. MOF will work closely with the Honorable Minister in the

Prime Minister's Department (Affairs Religion). Its purpose is to ensure that

the depositors' absolute rights and interests are not affected. It will be fine.
6.0 CONCLUSION

Key positions in the GLC cannot be turned into political gifts. The

Chairman's job is not to be a monitor but a catalyst for the GLC's performance. To

be a positive catalyst, the people need to be selected correctly. Credibility,

experience, qualifications, integrity, and a proven track record are all important

factors. Being an MP does not mean they have the professional qualifications.

Especially to lead a GLC or government agency. Here we would like to state that

political leaders should not be appointed to chair business entities such as GLCs.

Politicians are better off holding political positions. Leave corporate positions to

professionals and technocrats. The main principles of politics and business do not

mix are well known. They become the SOP in any mature democracy. History has

shown that when politics and business are mixed, business ruining.

The management history of GLCs and statutory bodies in Malaysia is now good.

Technocrats and professionals of caliber are invited to lead the companies. We

remember Tan Sri Abdul Aziz Rahman's excellent record. He leading MAS to

become one of the leading Airlines in the region. Similarly, the story of PETRONAS

led by Tan Sri Azizan and Tan Sri Hasan Merican. It was driven to become a

Fortune 500 company. Other examples are such as FELDA, Sime Darby, CIMB,

Maybank and etc.

The purpose of GLCs and statutory bodies established is to:

1. Focus the business scope of the company under the leadership of

professional and competent independent management.

2. Bring the company not only a champion domestically but regionally

and even globally.

3. Contribute country's economic growth. Provide high quality

employment opportunities to Malaysians.

4. Provide world quality services in their respective fields.

5. To be a positive catalyst for bumiputera participation in business and

industry.

During the previous rule, many APs were appointed as GLC Chairmen. For

example FGV, Tabung Haji, FELCRA, MARA and others. As a result, these GLCs

suffered huge losses. They had to be bailed out by the government. Worse, some

of the appointed chairmen among these politicians are facing some charges.

Breach of trust and malpractice in court.

The government needs to learn from past experiences. When leaders fail to hold

trust, the people lose confidence and change direction. Therefore, GLCs need to

return to the role of trust bodies for Malays and Malaysians.

We need to be aware that many appointed politicians lack basic qualifications.

They do not follow the rules of corporate governance and transparency. They don't
even understand the basic difference between executive and non-executive

positions. Investigations have uncovered abuse of power. Numerous mega

corruption that nearly paralyzed the companies.

At the same time, we emphasize that appointed professionals and technocrats

must demonstrate high integrity. Understand that the agency's function is to

provide services and contributions to the people. It isn't just about management.

The appointed GLC leaders and chairmen must not only be competent. They must

be able to play a role in national development. Use the role of GLCs in strategic

and future sectors. They ensure profits on a beautiful "balance sheet". They are

able to develop local industries and supply chains. More participation of

Bumiputera SMEs. In short, they must be competent and nation-minded.

We call on all GLC reform initiatives towards better and dynamic governance. It is

to continue to be implemented for the future country and generations.

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