Arul Kanda Beating Around the Bush Yet Again

Arul Kanda’s denial doesn’t explain why Deloitte Malaysia has not been able to commence audit on 1Malaysia Development Bhd (1MDB).

Earlier today, I have issued a statement alleging that “1MDB is already more than 2 months past the 31 March financial year end for this year and yet no work has been started at all by the auditors on the holding company. No dates have also been set by the company or by its sole shareholder, Ministry of Finance for the audit to begin.”

Unfortunately, Arul Kanda’s commendably immediate denial misses the point and is an attempted misdirection.

He claimed that “the audit of a major 1MDB subsidiary, Edra Global Energy Bhd, has already commenced and is well under way”.

I asked about the holding company, 1MDB, where all the controversy over its funds, cashflow prblems and alleged misappropriations lie, but Arul tells us that the audit has commenced on its subsidiary.

What’s more, the commencement of audit work for Edra isn’t at all surprising. It is expected because the company is preparing for their initial public offering.

However, what Malaysians want to see is the March 2015 financial statements for “the holding company” which I highlighted in my statement. We want to know about the controversial assets held in various overseas banks. We want to know what is the true debt situation in 1MDB and the extent of the company’s cashflow problems.

All we got from Arul Kanda in his denial was “the board and management of 1MDB met Deloitte as early as February 2015 to discuss commencement of an audit after the financial year-end of 31 March 2015.”

Unfortunately, what we didn’t get from Arul Kanda was, when the audit will actually commence. More worryingly, we would like to ask the President of 1MDB, why is it that since the discussion was more than 3 months ago, the audit for 1MDB has not yet commenced?

Arul Kanda separately highlighted the fact that “1MDB is currently undergoing a thorough review and investigation of its accounts by the National Audit Department.”

Let me state that the fact that the Auditor-General (AG) reviewing the past financial statements of 1MDB does not in any way justify the fact that the statutory audit for 1MDB has not commence. These are two different and independent processes which surely a multi-billion ringgit public-interest company cannot afford to neglect.

In fact, given that there is a parallel on-going AG review, Deloitte should be invited to commence their audit earlier so as to provide the auditors with a longer lead-time to complete the report.

Regardless, the fact remains that the Company’s Act 1965 states very clearly that a companies’ audited report must be lodged with the Commission within 6 months after the financial year end.

Any breach of the Act is serious enough to dictate imprisonment for 5 years or a RM30,000 fine “if any director of a company fails to comply or to take all reasonable steps to secure compliance by the company… has by his own wilful act been the cause of any default by the company thereunder, he shall be guilty of an offence against this Act.”

Let me reiterate our demand for the Prime Minister to direct 1MDB to allow Deloitte to carry out their audit exercise immediately to protect the reputation of the Finance Ministry and to uphold good corporate governance and financial integrity in 1MDB.

Arul Kanda on the other hand, should stop giving excuses and give his assurance to Malaysians that the statutory financial audit for the scandal-ridden 1MDB for the 31 March 2015 financial year-end will be completed by 30 September 2015 as required by the law.

Tony Pua

Read more!

Time is Running Out - Deloitte Audit Delays Arouses Suspicion

Dato’ Seri Najib Razak must explain why 1Malaysia Development Bhd (1MDB) has not instructed Deloitte Malaysia to commence their audit for the financial year ending 31 March 2015.

As disclosed by Public Accounts Committee Chairman, Datuk Nur Jazlan yesterday, Deloitte Malaysia has not been allowed to commence the statutory audit of 1MDB’s financial statement for the year ending 31 March 2015.

The discovery that the audit has yet to commence is highly surprising given that normally the audit work for the company the size of 1MDB would have started as early as 3 to 4 months before the financial year end.

However, 1MDB is already more than 2 months past the 31 March financial year end for this year and yet no work has been started at all by the auditors on the holding company. No dates have also been set by the company or by its sole shareholder, Ministry of Finance for the audit to begin.

Given the size and complexity of the company, it is once again assured that 1MDB will be late for the submission of its financial statements to the Companies Commission. Clause 169(1) of the Companies Act states very clearly that a companies’ audited report must be lodged with the Commission within 6 months after the financial year end.

In fact, under Clause 171(1), the Act dictates imprisonment for 5 years or RM30,000 “if any director of a company fails to comply or to take all reasonable steps to secure compliance by the company… has by his own wilful act been the cause of any default by the company thereunder, he shall be guilty of an offence against this Act.”

Hence the Ministry of Finance and directors of the company are wilfully flouting the law by refusing to allow Deloitte to commence the audit of the company, which will result in the failure by the company to submit its accounts by the 30 September 2015 due date.

We call upon the Companies Commission not to grant any extension to 1MDB as it did in the past to submit its annual returns because the delays are purely because of 1MDB’s explicit decision delay the audit exercise. In addition, if 1MDB did indeed fail to submit their accounts by the due date, the Directors of the company must face the full weight of the law. There should be no bias or favours granted to the Directors of 1MDB under such circumstances.

We would also call upon the Prime Minister to immediate demand that 1MDB allow Deloitte to carry out their audit exercise immediately to protect the reputation of the Finance Ministry and to uphold good corporate governance and financial integrity in 1MDB.

Surely given the number of times Dato’ Seri Najib Razak has used the good name of Deloitte to justify the financial state of 1MDB as at 31 March 2014, he would welcome the audit to be carried out to prove that 1MDB continues to remain not only a going concern, but a strong company with huge potential as at the financial year end 31 March 2015.


Tony Pua

Read more!

Deloitte Malaysia Must Come Clean to Restore an Already Fading Reputation

Deloitte Malaysia has become the laughing stock of the accounting and financial community with their highly questionable audit of 1Malaysia Development Bhd and their being made the shield by the Malaysian government to defend the company

Deloitte Malaysia’s reputation as an independent and established international auditing firm lies in complete tatters as controversy rages over the financial status of the Ministry of Finance wholly-owned subsidiary, 1Malaysia Development Bhd (1MDB).

Deloitte has taken over the auditing duties of the books of 1MDB after the previous auditors, KPMG quit its role well past the March financial year end of the company in 2013. Since then the firm has signed off the accounts of 1MDB without even an emphasis of matter, not to mention any qualification.

However the Deloitte’s auditing standards have been heavily question over the past 6 months as 1MDB struggled to pay its matured debt obligations and service its interests.

In particular, how is it possible that Deloitte’s audit partner, Ng Yee Hong, was able to get it so wrong by signing off its March 2014 accounts in 5 November 2015 without any qualifications when 1MDB was in all practical terms, insolvent. The Auditors wrote that “the Group’s holding of cash and short-term deposits, together with committed funding facilities and net cash flow from operations, are expected to be sufficient to cover its cash flow needs” (page 144).

However, by the end of the same month of November, 1MDB was forced to repeatedly extend its repayment of a RM2 billion loan which was due. In fact, 1MDB had to beg local billionaire, Tan Sri Ananda Krishnan, who assisted by arranging a private loan from local investors to finally settle the loan in February, mere days before a default event was declared.

Since then, 1MDB had received a emergency bailout fund of RM950 million from the Federal Government to assist in servicing its loans. 1MDB is also forced to sell its prized real estate to local government-linked funds to keep itself afloat. On top of that 1MDB has been negotiating to dispose of all its energy assets which it had purchased at an inflated price in order to raise funds to pare down its debts.

It beggars belief that a firm of Deloitte’s standing was so wrong and negligent over a multi-billion ringgit state-owned firm which has resulted in massive losses for the Malaysian tax-payers.

The international accounting and financial community are also scrutinising Deloitte’s assessment of the firm’s classification of RM13.4 billion of “Level 3” assets. “Level 3 fair value measurements are those derived from valuation techniques… that are not based on observable market data (unobservable inputs).”

While the classification may be technically correct, the question remains if Deloitte has its responsibilities “to maintain professional skepticism throughout the audit” and to identify and assess “the risks of material misstatement due to fraud” as required under the International Standards of Auditing (ISA).

The ISA clearly states, “for significant transactions that are outside the normal course of business for the entity… the auditor shall evaluate whether the business rationale (or the lack thereof) of the transactions suggests that they may have been entered into to engage in fraudulent financial reporting or to conceal misappropriation of assets.”

As a result of failing to perform its duties professionally and independently, the Prime Minister and the 1MDB Board of Directors have been using the Deloitte name as a shield against any misdeeds or malpractice, to defend the distressed 1MDB. Deloitte’s name gets tainted and dragged through the mud, making the firm the butt of jokes in the financial circles.

As an allegedly reputable international audit and accounting firm, it must come clean and protect its image of auditor independence and compliance with ethical standards in discharging their professional responsibilities. As it remains the auditor for 1MDB for the financial year ending March 2015, Deloitte must now leave no stone unturned for its audit of the company and restate the previous year accounts where appropriate in order to present the true picture of the financial state of the RM42 billion indebted company.



Tony Pua

Read more!

Delloite, 1MDB's (not so) Invisible Shield

Dato’ Seri Najib Razak needs to stop using Deloitte auditors like an invisible shield which will be able to deflect all bullets and start giving some real answers.

The Prime Minister, Dato’ Seri Najib Razak has been touring the country to defend his flagship investment baby, 1Malaysia Development Bhd (1MDB) in the light of heavy criticisms pouring in against the company and his leadership in managing the company.

While Dato’ Seri Najib Razak, who is also the Finance Minister, pleaded for the critics to wait for the investigation reports by the Auditor-General before judging 1MDB, he himself have no qualms to immediately absolve 1MDB from any wrong-doings, embezzlement and misappropriations.

Last Saturday, he had the nerve to tell UMNO Selangor members in Klang that "the [1MDB] RM42 billion is not lost. There, the 70 acres TRX and 500 acres Bandar Malaysia lands." That argument is ridiculous because 1MDB only paid RM1.86 billion for these pieces of land.

Yesterday, he tried to convince the UMNO former lawmakers’ club, Mubarak, that RM42 billion could not have disappeared “because the accounts were audited by Deloitte. Auditors will not sign if even RM1 million is missing. Now it is said that RM42 billion has vanished. How can it vanish? It hasn't vanished, there are assets, there are liabilities."

This argument takes the same line as the one taken by the 1MDB Board of Directors where they stressed last week “that 1MDB accounts are audited by an international audit firm, Deloitte”. It said that Deloitte signed off 1MDB’s 2013 and 2014 accounts without qualification.

For the well-informed, the attempt to use Deloitte as a shield is clearly misleading and disingenuous.

Firstly, Deloitte could very well have abetted or assisted 1MDB in producing their “unqualified” accounts. Such complicity would not be the first as we have seen how the world’s largest auditing firm, Arthur Andersen collapsed overnight over their role in the multi-billion dollar Enron financial scandal in the United States.

Deloitte has at the very least been negligent because 1MDB failed to produce the necessary funds to repay a RM2 billion loan at the end of November 2014, despite the auditors signing off the accounts in the first week of the same month. Surely a firm with facing such imminent going concern crisis should never have had their accounts signed off without even an “emphasis of matter”.

Alternatively, the management of 1MDB could very well have misled Deloitte. For example, it was recently exposed by The Sarawak Report that 1MDB’s bank statements in BSI Bank, Singapore were purportedly forged and circulated by the top management of 1MDB to secure loans from lending banks.

Secondly, while Deloitte did sign off the 1MDB accounts for March 2013 and 2014, it did not mean that there were no questionable elements highlighted in the financial statements.

While the balance sheet of 1MDB in 2014 would show that it has RM51.4 billion of assets which is more than its RM50.0 billion of liabilities, the Auditors classified 26% of these assets or RM13.4 billion as “Level 3” assets. “Level 3” assets are where “fair value measurements are those derived from valuation techniques that include inputs… that are not based on observable market data (unobservable inputs).”

In other words, the Auditors have put on record that they are unable to vouch for the veracity and accuracy of these numbers which were supplied by the 1MDB management. Therefore even a mere 20% shortfall in the above “Level 3” asset valuation would trigger a severe liquidity crisis by 1MDB, as we witness today.

The RM13.4 billion “Level 3” assets doesn’t even include another questionable US$1.4 billion (RM5 billon) pledged to Aabar Investment PJS as collateral for the guarantee provided by the latter’s parent, International Petroleum Investment Corporation (IPIC).

If 1MDB is as healthy as Dato’ Seri Najib Razak insists it is, then there would have been no need for the company to beg local billionaire, Tan Sri Ananda Krishnan to arrange for a RM2 billion loan to assist 1MDB to repay its matured debt. There would also not have been a need for the Cabinet to approve an emergency RM950 million “standby credit facility” for 1MDB to service its outsized loans.

Therefore, the Prime Minister must stop misleading the people of Malaysia with half-truths and lies by claiming that being audited by Deloitte is proof that 1MDB is in the pink of health. While the UMNO brethen may not know any better, such attempts to absolve 1MDB and himself from the monster scandal only serve to worsen his credibility and reputation in the financial community.



Tony Pua

Read more!

1MDB Board Tells Malaysians to be Patient!

The Board of Directors of 1MDB has no moral right to tell Malaysians “to be patient” as they have failed in their fiduciary duties to protect the interest of the Malaysian tax-payers.

Finally after the Chairman of the 2nd largest bank in Malaysia, Dato’ Seri Nazir Razak told the Board of Directors and Management of 1MDB to resign if they could not get their act together, we got a response from the Board. Two days ago, Dato’ Seri Nazir Razak said:

It is your basic responsibility. There is a complete mistrust in your financial situation. You have to responsibly deal with that. But instead you sit there and wait for the AG. To me that is irresponsible. If you do that then it is better for you to step down and let someone else come in and take over.

The Board of Directors responded yesterday that they “would like to stress that 1MDB accounts are audited by an international audit firm, Deloitte”. It said that Deloitte signed off 1MDB’s 2013 and 2014 accounts without qualification and similarly KPMG signed off the 2010, 2011 and 2012 accounts with no qualification.

All the management, Board of Directors and the Prime Minister, Dato’ Seri Najib Razak has done to date is to hide behind the fact that “1MDB accounts are audited by an international audit firm, Deloitte”. They have stubbornly refused to entertain specific criticisms arising from the damaging exposés by opposition leaders, whistleblowers and the media.

If the Board of Directors have not been negligent, or worse, complicit with the embezzlement and mismanagement of 1MDB, why haven’t they responded to the accusations which were supported by evidence that out of US$1 billion which was meant for the 1MDB Petrosaudi joint venture, US$700 million was siphoned by Good Star Limited, a company controlled by Jho Low in 2009?

Worse, after the above transaction, 1MDB continued to funnel money to Good Star Limited under the guise of providing loans to Petrosaudi International. Good Star Limited siphoned an additional US$490 million between 2010 and 2011 out of US$830 million of loans granted to Petrosaudi.

The Board have obstinately refused to answer if the alleged US$1.1 billion “parked” in BSI Bank Singapore, which was the balance redeemed from 1MDB’s mysterious Caymans investment is held in actual cash, or unvalued paper assets. This is despite evidence published that BSI Bank Singapore has denied the authenticity of a statement provided by 1MDB President, Arul Kanda Kandasamy.

Even today, the Management and Board has refused to provide clarity if 1MDB will be able to repay its US$975 million loan as demanded by its lenders led by Deutsche Bank.

None of the above crucial and urgent questions require a full “audit” by the Auditor-General (AG) to answer. The Board has the responsibility to reassure the Malaysian tax-payers and financial markets with facts and evidence that all the above are either untrue or perhaps justified.

Instead, the entire country is upset and the markets are in a panic because it is plain to us that 1MDB is already an insolvent company which is unable to service its debts. If the so reputable “international” Deloitte signed off the 1MDB accounts on 5 November 2014 without any qualifications, then why is it that 1MDB is unable to repay a RM2 billion loan due at the end of November 2014? Why did 1MDB have to resort to begging for a loan arranged by local billionaire, Tan Sri Ananda Krishnan?

If 1MDB is indeed so healthy as audited by the very reputable “international” Deloitte, why is it that it needed the Cabinet to approve an emergency RM950 million in February to help 1MDB repay interest due on its RM42 billion loans?

If all the above critical allegations and exposes are untrue, why is it that 1MDB is trying to quickly dispose of all its land which it acquired at bargain basement prices to government-linked funds like Lembaga Tabung Haji and Kumpulan Wang Amanah Persaraan (KWAP) at sky-high prices? Why is it unable to carry out its initial public offering (IPO) for its energy subsidiaries?

Therefore, the 1MDB Board of Directors have no moral right to demand Malaysians to be patient if it can’t even be responsible and transparent in its dubious transactions and activities.

It is laughable that the Board even threatened to sue its detractors. It claimed that it “takes malicious and slanderous allegations seriously and reserves the right to undertake legal action.” Why wait until today to take legal action when the most damaging allegations have been circulating in the public sphere for nearly a year already?

While the Prime Minister has already sued me over the 1MDB issue, I would welcome the 1MDB Board of Directors to throw their hat into the ring. Go ahead and take legal action against Dato’ Seri Nazir Razak and myself. Since we could not get the Board to talk in public, the least we could do is to get them to answer from the witness box and let Malaysians be the judge of their culpability.

Tony Pua

Read more!