KUALA LUMPUR: Assessment of the position of the Armed Forces Fund (LTAT) Board for the financial years ended December 31, 2017 and December 31, 2018, reveals significant financial irregularities and weaknesses.
In a statement today, LTAT said the board had appointed an accounting firm Ernst & Young to undertake a position assessment in February 2018 to improve the corporate governance and fiscal health of the Fund and its corporations.
The assessment revealed that prior to 2019, LTAT accumulated an investment portfolio with significant risks and asset quality problems.
There have also been some transactions to date that contain potential irregularities and weaknesses in the operating, accounting and legal areas.
These irregularities and weaknesses occurred under the previous leadership of Ladin Wok Kamarudin as its Chief Executive Officer until September 7, 2018.
LTAT President General (RTD) Mohd Zahidi Zainudin said that key findings are that retained earnings are affected as a result of dividend overpayments and excessive collection of LATAT funds between 2015 and 2017.
"LATAT's five-year refund from fiscal year (FY) 2014 to FY2018, after excluding one-off gains, was lower than the declared dividend rate.
"This has resulted in LTAT paying dividends at a higher price than it can afford," he said.
To manage the situation, LTAT will develop a reasonable dividend policy that includes establishing a minimum rate of return on its investment.
He said the LTAT would subsequently establish a strategic framework for allocating funds to meet the minimum expected dividend rate.
Zahidi said the failure to disrupt one of its major investments resulted in a surplus of LTAT assets between 2015 and 2017.
As a result, 55 million yen had to be damaged in its FY2018 results, he added.
He said that financial and technical prudence exercises were also not properly undertaken by LTAT before investing in the above company and were not based on sound investment policies and procedures.
The assessment also revealed that there were problems with unsold assets worth 45 million yen, despite being completed in FY2015.
He said LTAT seeks to accelerate the sale of the remaining unsold units and, moving forward, LTAT will carefully consider potential yields and its own property development expertise.
Other key valuation findings also include increased risk of 2014 overconfidence and liquidity problems, as well as outstanding dividend from subsidiaries that were not fully paid and are still uncertain to this date.
Zahidi said that LTAT is reviewing the ability of its subsidiaries to pay dividends, given their proper performance and cash position.
He added that the practice of buying trusts in units in order for members to receive a special bonus was detrimental to LTAT's ability to control and actively manage the Fund.
"Neither LATA nor its members were able to manage their trust units until retirement.
"Going forward, LTAT may consider other ways of investing that will enable it to better meet its key goals," he said.
The LTAT said it was aware of the fact that its primary role is to generate sustainable dividends for members of the armed forces, and the findings of this assessment have clarified the critical areas that need to be strengthened.
"This will put us in a better position to provide a steady stream of returns for the benefit of our members.
"While this assessment and the actions taken by the new leadership helped put LTAT on a stronger footing, the short and medium term outlook remains challenging," Zahidi concluded.