SIGNIFICANT financial irregularities and weaknesses have been discovered by an investigative audit into the Armed Forces Fund Board (LTAT).

The audit, undertaken by Messrs Ernst & Young, covered the period between December 31, 2017 and December 31, 2018.

This was when LTAT was under the leadership of Lodin Wok Kamaruddin, who stepped down as its CEO in September last year.

According to the audit, there were seven key findings determined as a result of the financial irregularities and weaknesses, which included overpayment of dividends, overstatement of LTAT’s assets and failure to undertake proper due diligence.

LTAT chairman Gen (Rtd) Mohd Zahidi Zainuddin said among the key findings were retained earnings was impacted due to overpayment of dividend and overstatement of LTAT’s assets between 2015 and 2017.

“LTAT’s five-year asset returns from financial years 2014 to 2018 after excluding one-off gains were lower than the declared dividend rates,” said LTAT chairman Gen (Rtd) Mohd Zahidi Zainuddin.

“This has resulted in LTAT paying dividends at a higher rate than it could afford.

The fund aims to manage the situation by developing a reasonable dividend policy, which includes determining a minimum rate of return on its investments.

LTAT would ensure the establishment of a strategic asset allocation framework to meet its minimum expected dividend rate, Zahidi added.

He said the failure to impair one of its large investments had resulted in an overstatement of LTAT’s asset between 2015 and 2017.

That resulted in a RM55 milion impairment in its 2018 financial year results, he added.

The audit also highlighted some issues with unsold property assets worth RM45 million, despite having been completed in 2015.

According to Zahidi, LTAT aims to expedite the sale of the remaining unsold units, adding that the fund would from now on carefully consider potential returns.

Other key findings of the assessment include heightened risk of overreliance and liquidity issues from 2014, and outstanding dividend from subsidiaries that were not paid in full and are still outstanding up to today.

Zahidi said LTAT understands that its primary role is to generate sustainable dividends for its members and the findings of the audit gave clarity on areas that need to be strengthened.

“This will subsequently place 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 management have facilitated in placing LTAT on a stronger footing, the short and medium-term outlook remains challenging,” he said. – September 26, 2019.