September Parliament should adopt a motion to reject the EPF 2002 Annual Report to demand dialogue and not monologue and  greater EPF  accountability,  transparency and good corporate governance

Media Statement
y Lim Kit Siang

(Petaling JayaSaturday): In the Employees Provident Fund’s  first “Statement on Corporate Governance” in its 2002 Annual Report, it said:

“As a Statutory Body, the EPF is required to submit its accounts to be audited by the Auditor-General’s Office every year. Its audited accounts are then tabled at the Parliament for adoption. The Board has taken appropriate steps to present a clear and balanced assessment of the EPF’s consolidated financial position through the annual financial statements in the Annual Report.  The Board also ensures that the accounting records disclose with reasonable accuracy the financial position of the organization to give a true and fair view of the state of affairs of EPF at the end of the financial year based on applicable accounting standards.”

Parliament, when it reconvenes in September should discharge its responsibility to protect the best interests of the 10.3 million EPF contributors by adopting a motion to . reject the EPF 2002 Annual Report to demand greater accountability,  transparency and good corporate governance and to register the desire of the 10.3 million EPF contributors for a dialogue and not monologue on the EPF’s stewardship of their RM200 billion EPF funds. 

There are many reasons to justify an unprecedented Parliamentary motion to reject the 2002 EPF Annual Report. 

Parliament and the nation are firstly  entitled to a satisfactory explanation for the most improper, irregular, and “fishy” circumstances in  the recent tabling of the EPF 2002 Annual Report in both Houses of Parliament. 

Although  the Dewan Rakyat Order Paper on June 25, 2003 listed  the EPF 2002 Annual Report as one of the “statute papers” presented on that day, Members of Parliament never received copies of the report either on that day or the next day, the last day  of the June meeting of Dewan Rakyat.  They only got it by Pos Laju some two weeks later! 

The failure to physically table the EPF 2002 Annual Report in the Dewan Rakyat on June 25, 2003 could not be the result of an oversight, or the report would have been distributed  to MPs on the last day of the Dewan Rakyat meeting on June 26. 

That there was something very strange, unusual and even “fishy” about the so-called “tabling” of the EPF 2002 Report in Parliament was reinforced  by the failure to table it on the first day of the  meeting of  the Dewan Negara which met after the Dewan Rakyat, from July 1 to 8, 2003.  It was tabled in the Dewan Negara only on  the last sitting on July 8.

One gets the impression that the whole object of the “fishy” circumstances in the tabling of the EPF 2002 Annual Report in both Houses Parliament was to avoid parliamentary and media attention, accountability  and debate while complying with the requirement of having it tabled in Parliament.

But the strongest reason for a parliamentary rejection of the EPF 2002 Annual Report is its  failure to give full,  proper and acceptable  explanations for  EPF  declaring the lowest dividend in 40 years at 4.25 per cent for last year.

As stated by the EPF Chairman Tan Sri Abdul Halim bin Ali in the Annual Report, in terms of asset size, the EPF ranks 28th in the world and 7th in Asia.  Compared to the biggest pension fund in the world, the Californian Public Employees Pension Fund (Calpers) which has USD143.9 billion worth of assets, the EPF has USD54.5 billion which is one-third the size of Calpers.

Instead of claiming that “The success of accumulating such a huge fund is indeed an achievement”, Halim should have explained  why EPF is not prepared to comply with the most basic principles of good governance as making public the full list of equities for whose “paper losses” EPF had to make provision for RM2.14 billion last year, without which the EPF could have declared a 5.43 per cent dividend for last year.

In the five years from 1998 to 2002, EPF declared an astronomical total provision of over  RM5 billion, which could have been used to declare higher dividends for the EPF every year for the past five years.  The provisions for “paper losses” for equities, which became  “real losses” for the EPF contributors in the past five years were:

1998   -           RM  453 million
1999               RM   618 million
2000               RM   754 million
2001               RM1,141 million
2002               RM2,142 million

Just like its full-page EPF advertorial in all the language print media on Monday, the EPF  claim in its 2002 Annual Report that  it has “always maintained a high level of transparency” could not withstand public scrutiny as it had refused to  answer a whole array of queries, such as the following:

  • why  EPF had to set aside RM2.14 billion for “paper losses” in equity last year  which could have  been used to declare a higher EPF dividend of at least 5.43 per cent instead of 4.25 per cent;
  • why EPF had to write off over RM5 billion  for “paper losses” in equity and doubtful debts in the five years from 1998 to 2002, and is still sitting  on over RM10 – RM14  billion “paper losses” in equity  which  will force the further reduction of the EPF dividend in the coming years;
  • why EPF had failed to keep its administrative costs low and under firm control to ensure reasonable returns for the EPF contributors, as illustrated by the annual operating costs of EPF shooting  up 80 per cent from RM194 million in 1998 to RM350 million in 2001, when the EPF dividend had plunged by over 26 per cent from 6.8 per cent to 5 per cent for this period – and now to an even lower 4.25 per cent for last year; and
  • why the doubling of EPF  administrative costs have not been accompanied by  greater efficiency, better performance  or improved  quality of service.

It is clear that the EPF 2002 Annual Report made an attempt to respond to the last two points, which I had raised at the DAP forum on “Lowest Dividend in 40 years – what is the future of EPF” in Kuala Lumpur on 28th April 2002 to which the EPF Chairman was invited but which he declined to participate.

The EPF Chief Executive Officer, Datuk Azlan Zainol  adverted to both these points in his “Review of Operation” in the EPF 2002 Annual Report.

Firstly, he claimed that the  cost rationalistion of the operations of the EPF last year had resulted in cost savings of RM20 million – i.e. RM330 million or 3.11 per cent of the income compared to RM350 million or 3.63 per cent of the previous year.

This is not a satisfactory explanation to my original query as to why the annual operating costs of EPF shot up 80 per cent from RM194 million in 1998 to RM350 million in 2001, when the EPF dividend had plunged by over 26 per cent from 6.8 per cent to 5 per cent for this period, as illustrated by the following data:

Year                Dividend Rate          Operating Expenditure

1998                              6.70                      194.8 million
                              6.84                      245.9 million
                              6.00                      252.3 million
                              5.00                      349.7 million
                              4.25                      330.2 million

On improved EPF quality of service, I had at the April 28 forum drawn attention to the 2001 EPF Report promise to EPF contributors that they would be able to check their account balance online from the EPF website latest by the end of last year, which had not been fulfilled.

This promise was repeated by Azlan in the 2002 Annual Report who said that the interactive EPF website for EPF members to check their account balance, current contributions paid by their employers, withdrawal application status, etc. would be launched by the middle of 2003 – which is another deadline missed!

MPs, regardless of political party, should unite to reject the EPF 2002 Annual Report in September Parliament to send a clear and unmistakable message that the 10.3 million EPF contributors want a dialogue and not a monologue and greater  EPF accountability, transparency and good governance.


* Lim Kit Siang, DAP National Chairman