Monday, July 18, 2016

What has happened to the complaint filed with the Malaysian Institute of Accountants against KPMG and Deloitte which were filed more than a year ago?

I have filed complaints against the auditors of 1Malaysia Development Bhd (1MDB) against KPMG and Deloitte Malaysia, their partners Ahmad Nasri Abdul Wahab and Ng Yee Hong, in March and June 2015 respectively with the Malaysian Institute of Accountants (MIA).

I had alleged that both firms intentionally and/or negligently failed to conduct sufficient and necessary due diligence and audit of 1MDB which have resulted in the filing of fraudulent 1MDB annual financial statements.

My complaint against KPMG was for its failure to take into consideration the material disclosures of the transactions which took place in 1MDB’s then US$1 billion investment to form an aborted joint venture with Petrosaudi International Limited in 2009-2010.

Of the above sum, Bank Negara Malaysia (BNM) has confirmed to the Public Accounts Committee (PAC) that US$700 million was siphoned to an unrelated company, Good Star Limited whose ultimate beneficiary was Low Taek Jho, or more popularly known as Jho Low.

In fact, KPMG performed the arguably record-breaking feat of signing off the March 2010 financial audit within 3 weeks after being appointed in September 2010, after the original auditors Ernst & Young (EY) were sacked. EY had refused to sign off 1MDB’s financial statement due to irregularities in the transactions with Petrosaudi.

Most crucially, KPMG also intentionally and/or negligently failed report the fact that 1MDB’s sale of its shares in the joint venture with Petrosaudi and their conversion into a loan took place after the March 2010 financial year.  As a result, 1MDB was able to report artificially inflated profits and failed to disclose the key transactions which were highly dubious within 1MDB Petrosaudi Limited.

Deloitte Malaysia had taken over from KPMG after the latter was sacked by 1MDB in December 2013.  KPMG had refused to sign off the March 2013 accounts because it was unable to verify the authenticity of 1MDB’s US$2.318 billion investment in a dodgy investment fund parked in Cayman Islands.

I had accused Deloitte Malaysia of intentionally and/or negligently failing to conduct sufficient and necessary due diligence and audit of the cash flow and liquidity risk 1MDB.   Deloitte endorsed 1MDB as a going concern on 5 November 2014, after which 1MDB immediately failed to repay a RM2 billion loan at the end of November 2014.

This was because Deloitte Malaysia has failed to perform a thorough authentication and verification of 1MDB’s investment in the Cayman Islands, which turned out to be fraudulent.  Of the US$2.318 billion investment, US$1.15 billion has "disappeared" into the now exposed fake Aabar Investment PJS Limited which was incorporated in the British Virgin Islands.

The balance of US$940 million was supposedly kept in BSI Bank, Singapore.  However, the sum appears to have disappeared altogether after the Singapore authorities shut down the bank for facilitating money laundering.

In addition, Deloitte Malaysia has failed in its audit of 1MDB’s financial statements for March 2013 and 2014 when it failed to properly expense the stock options which 1MDB had granted to Aabar.  The failure to account for the stock options granted, worth at least US$993 million (RM4 billion) meant 1MDB reported over reported profits of RM778 million in 2013 and under reported loss of only RM669 million in 2014.

As of today, 1MDB has yet to file its accounts for March 2015 while Deloitte remains their auditors.

It is now 16 and 14 months since I’ve filed the respective complaints with the MIA.  The MIA is the statutory body established the Accountants Act, 1967 to regulate and develop the accountancy profession in Malaysia.

However, I have not heard from MIA in more than a year.  No action seems to have taken place.  Investigations, if any, appears not to have achieve any outcomes.

I call upon the MIA Council led by its President, Dato Mohd Faiz Mohd Azmi to explain the snail’s pace of dealing with the above complaints, despite their severity and scale, as well as the involvement of high profile public interest.
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