Earlier this year, 1Malaysia Development Bhd (1MDB) which is Dato’ Seri Najib Razak’s flagship investment arm was severely criticised for being late with their financial statements for March 2013 despite it being due in September the same year. The controversial accounts was finally submitted in April 2014 after a 7 month delay and a questionable move to change its auditors from Ernst & Young to Deloitte Malaysia.
It appears that this much-criticised bad habit still persists in 1MDB because the group and its subsidiaries have yet to submit their financial statements to the Companies Commission for the financial year ending March 2014.
Earlier the Prime Minister had responded to me via a written parliamentary reply that these outstanding accounts which must be submitted by September 2014, 6 months after the closing date, will be submitted before the end of October 2014. It is understood that the 1MDB has obtained a 1-month extension to the submission deadline.
However, as of yesterday, 3rd November, the financial statements of 1MDB and its subsidiaries are no where to be found. This breach of the Companies Act by a company wholly-owned by the Ministry of Finance, with the Finance and Prime Minister, Dato’ Seri Najib Razak as the chairman of the Board of Advisors is shocking and unacceptable.
It shows a complete lack of accountability and good governance especially since the Group has accumulated debts in excess of RM36 billion, of which at least RM15.4 billion is guaranteed or given a “letter of support” by the Federal Government.
The situation is worse for its 2 key subsidiaries, 1MDB Energy (Langat) Sdn Bhd and 1MDB Real Estate Sdn Bhd, where they have failed to even submit their March 2013 accounts. For them, the last available financial statements were March 2012, or a whopping 31 months ago! The two subsidiaries combined had loans amounting to RM8.7 billion as at March 2012.
This is despite the stated ambition by the Group to publicly list its energy subsidiary by the first quarter of next year. How can the group prepare for listing to raise an alleged RM18 billion when it cannot even complete its accounts after more than 2 years? Will prospective investors trust the management or will they be spooked by the complete lack of accountability?
For March 2013, the auditors had to be suddenly changed for the accounts to be finally submitted. The question then is, will it require another auditor change before the accounts for 1MDB to be submitted for March 2014?
There are only 2 possibilities as to why the accounts are delayed. Firstly, the accounts may have been delayed because the auditors are incompetent or negligent. In this case, I will fully support any decision by 1MDB to sack its auditors and replace them with competent ones. However, Deloitte Malaysia is part of the multinational group with the ability to produce accounts for the Top Fortune 500 companies around the world worth hundreds of billions of dollars. Hence it is highly doubtful why Deloitte would be unable to do the same for 1MDB since taking of its accounts at the end of 2012.
Therefore the only remaining possibility for the extended delay in the submission of the accounts is very simply, the auditors refusal to sign off the accounts, especially without the necessary disclaimers, notes and qualifications.
The size of the debts coupled with the lack of transparency and good governance points to an extremely high risk of financial collapse not only in 1MDB, but the entire Malaysian financial system.
It is time for Dato’ Seri Najib to walk the talk on “prudence in financial management”. Otherwise, 1MDB will definite become the monster scandal that will dwarf the RM12.5 billion Port Klang Free Zone fiasco and etch the current Prime Minister as the man responsible in the history books.