Be it “Parker Randall” or “Afrizan Tarmili Khairul Azhar”, will new 1MDB auditors act as “independent auditors” in an objective, professional and timely manner?

Scandal-ridden 1MDB has finally appointed new auditors to replace Deloitte Malaysia who resigned since the middle of last year.  Deloitte is the 3rd audit firm which have resigned in 6 years, following Ernst & Young and KPMG.  The new 1MDB chairman, who is also the Treasurer-General, announced that “Parker Randall” appointed to the task two days ago.

A little storm was created as “Parker Randall” in Malaysia is essentially Malaysian audit firm, “Afrizan Tarmili Khairul Azhar” (aftaas) with 4 partners, based in Sri Rampai, Kuala Lumpur.

As the corporate profile downloaded from the firm’s website stated, aftaas is “a member of Parker Randall International” which is an “international association of independent audit and accounting firms”.

As highlighted by Malaysiakini, each member firm of Parker Randall in each country is a separate and independent legal entity. Malaysiakini also pointed out that the 2011 ranking on the largest law and accounting firm networks ranked Parker Randall at 56 among 60.  Parker Randall also did not make the list for accountancy publication Accountancy Age's 'Top 100' survey for 2016.

However, what is ultimately most important for Malaysians isn’t the question of whether it is Parker Randall or Afrizan Tarmili Khairul Azhar carrying out the 1MDB audit.  What is of utmost importance is whether the newly appointed firm will carry out their responsibilities as “independent auditors”, and I emphasize “independent”, in an objective, professional and timely manner.

For a start, this is the perfect opportunity for aftaas to prove that they can do a better job than global giants, KPMG and Deloitte who have failed miserably in their audit of 1MDB by signing off financial statements which were at best misleading, at worst completely fraudulent.

Both KPMG and Deloitte failed to detect even a single dollar of misappropriation from 1MDB in the five financial years ending March 2010 to 2014.  We have since discovered, with confirmation from both Bank Negara Malaysia, the Switzerland Attorney-General as well as the Department of Justice of the United States that at least US$5 billion has been siphoned from 1MDB into private off-shore firms owned by Low Taek Jho, fraudulent entities masquerading as legitimate Abu Dhabi companies as well as dodgy investment funds which acted as money laundering conduits.

The Parliamentary Public Accounts Committee has also similarly provided evidence of the complicity of the 1MDB top management who signed dubious agreements and provided false information to the Board of Directors as well as the regulating agencies.

The previous auditors were so badly and disgracefully duped that Deloitte found it necessary to announce the withdrawal of their recognition of 1MDB’s March 2013 and 2014 audited accounts which they had previously signed off without any qualification.  Deloitte said that the above accounts “should no longer be relied upon”.

Hence, regardless of what the 1MDB directors and management might think, it is important for Parker Randall and/or aftaas to carry out a thorough audit of all the questionable transactions of the past where billions of dollars have been misappropriated.

Therefore, the first task by aftaas is simply to review and restate 1MDB’s 2013 and 2014 financial statements which have been withdrawn by Deloitte.  The Companies Act requires the annual submission of financial statements endorsed by an appointed external auditor to the Registrar of Companies.  It is the statutory requirement for the independent auditor to carry out the above task and Directors who fail to ensure that the above are duly completed in a timely matter may be punishable by up to 5 years’ jail or thirty thousand ringgit.

Following that, with the “right” opening balance determined, then aftaas can proceed to conduct the audit for March 2015 and 2016 which are both already overdue.

If aftaas fails to perform the above review and audit, they can be assured that not only their market reputation will be left in tatters in Malaysia, their international affiliation, Parker Randall – whose credibility 1MDB is banking on – will be similarly disgraced internationally and dragged through the mud.

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Deloitte Malaysia has disowned 1MDB audited accounts for March 2013 and 2014 – will KPMG do the same for the audited accounts it signed off for 2010, 2011 and 2012?

The United States Department of Justice’s (DOJ) explosive exposé has finally resulted of Deloitte Malaysia finally telling 1MDB that they no longer stand by the March 2013 and 2014 financial statements which they signed off on 28 March 2014 and 5 November 2014 respectively.

The DOJ’s account showed that Deloitte has failed to discover in its audit that 1MDB had made more than US$3.5 billion of payments over the course of 2012 t0 2014 to a fraudulent Aabar Investment PJS Limited, incorporated in the British Virgin Islands (BVI).

Deloitte also did not discover anything suspicious in 1MDB Global Investment Limited’s US$1.56 billion investment in several dodgy and obscure investment funds, including the Devonshire Growth, Enterprise Emerging Markets and Cistenique investment funds.  The US DOJ had determined that these funds had acted as conduits in the money laundering scam, including US$681 million which had ended up in the Prime Minister, Dato’ Seri Najib Razak’s personal bank account.

Deloitte was also led to believe that US$1.22 billion was successfully redeemed from 1MDB’s fake investment in the Cayman Islands, when in reality 1MDB was making round-tripping transactions with money from its subsidiary, 1MDB Global Investment Limited.  This was revealed separately by documents exposed by the Sarawak Report.

Deloitte’s gullibility had allowed 1MDB executives and the Najib administration to cite and abuse the international audit firm’s international “reputation” to lend credibility to 1MDB.  They helped mask the multi-billion dollar shenanigans which were taking place in the state-owned enterprise for the past few years.

However, Deloittle was not the only auditor guilty of such negligence.  Equally gullible to 1MDB executives lies and deceit was KPMG who signed off the 1MDB accounts for the years ending March 2010, 2011 and 2012 before they were sacked in December 2013.

In fact, it was KPMG who signed of the March 2010 accounts on 4 October 2010 in less than 3 weeks after they replaced the previous auditors, Ernst & Young, who were sacked for refusing to sign off the accounts.

The March 2010 accounts was crucial because it had involved 1MDB’s first investment of US$1 billion to form the short-lived joint venture with Petrosaudi International Limited.  As we now know for a fact, US$700 million of that investment was embezzled by Jho Low, with complicity by 1MDB top executives.

KPMG had then intentionally and/or negligently failed to report the fact that 1MDB’s sale and conversion of their stake in the Petrosaudi joint venture into a loan took place only 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.

The nullification of the 1MDB’s 2010 audit would also mean that the 2011 and 2012 audits would automatically cease to be valid as well.

The question is, now that the US DOJ has surfaced evidence that the entire Petrosaudi transaction was a fraud for the purposes of money-laundering, will KPMG in form 1MDB and the public that they will no longer stand by the audited accounts like what Deloitte has done?

Or will KPMG decide to grit its teeth and stubbornly stand by the audited accounts which have now proven at best doubtful in the light of the recent developments?

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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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