Declassification of 1MDB Audit Report: Opening a Can of Worms

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Classified ‘secret’ on Jan 22, 2016, the 1MDB audit report was made available to the public yesterday, revealing many wrongdoings.

  • RM42.26 billion needed to settle 1MDB loans up to May 2039
  • Relied heavily on debt to survive
  • Generated only RM1 million in cash between 2010 and 2014 
  • 1MDB management gave incomplete or inaccurate information to 1MDB board
  • Officials acted without approval of board
  • Overall poor corporate governance and internal controls

In its report, the Auditor-General said that 1MDB’s rationalisation plan, and assuming there are no new loans after Oct 2015, estimated that RM42.26 billion was needed to pay the principal and interest maturing between November 2015 up to May 2039.

Those failures were among a litany of issues pointed out by the Auditor-General in its report dated May 15, 2018.

1MDB would need a huge amount of money to undertake its payment commitment of RM4.88 billion in 2016, RM14.74 billion in 2023, and RM5.14 billion in 2039.

1MDB would also require at least RM1.52 billion per year from November 2015 to May 2024 to settle its loans.

As of Oct 31, 2015, the balance of 1MDB Group’s loan or investment principal was RM55 billion, compared to its asset of RM58.6 billion.

A sum of RM20.31 billion of the loans and financing had received federal government guarantees and assistance.

The report also said that the cash flow analysis between 2010 and 2014 revealed that 1MDB generated only RM1 million in cash. The small amount of cash flow showed the instability of the company because it needed to borrow to pay for its activities.

From between 2010 and 2014, 1MDB obtained 17 loans with a nominal value of RM42.88 billion and received RM39.17 billion in cash.

However, the activities that were financed from borrowings did not generate sufficient cash flow to pay back those loans.

In the Auditor-General’s findings, the department concluded that the overall corporate best practices and controls within the 1MDB group were less than satisfactory. In many instances, the management and decisions made by the chief executive officer of 1MDB were done in a disorganised manner.

Some of these include:

  • Between 2009 and 2015, several decisions involving high-value investments were made through 1MDB board resolutions without detailed discussion or evaluation, the report said.
  • Several high-risk investments were made in a very short time, and the 1MDB management went against the board’s and the shareholders’ wishes in some instances, it said.
  • There were also instances where the 1MDB management gave inaccurate or different information to interested parties.
  • Lastly, the filing and records for 1MDB was not systematic and not satisfactory.

Last night, Auditor-General Tan Sri Madinah Mohamad declassified the Auditor-General’s report on 1MDB prepared by her predecessor Tan Sri Ambrin Buang, who had asked the previous Barisan Nasional administration to classify the report on his audit of the firm under the Official Secrets Act.

Former prime minister Datuk Seri Najib Razak had ordered Ambrin to perform the audit during the early days of the 1MDB scandal.

Ambrin initially said his report would only be classified for the duration of the PAC’s inquiry into 1MDB, but the document was kept a secret even after the parliamentary watchdog tabled its own report in Dewan Rakyat.

Meanwhile, the Council of Eminent Persons will be meeting Tan Sri Dr Mohd Irwan Serigar in his capacity as Chairman of 1Malaysia Development Bhd (1MDB) for a briefing today.

Irwan has been placed in the Public Service Department from yesterday with his contract as Treasury Secretary-General prematurely ending on June 14. He is also not permitted to perform any task relating to the Ministry of Finance (MoF).