In a statement today, LTAT said the board had appointed accounting firm Ernst & Young to undertake a position assessment in February 2018 to enhance corporate governance and improve the fiscal health of the Fund and its corporations.
The assessment found that prior to 2019, LTAT had accumulated an investment portfolio with substantial risks and asset quality issues.
There were also certain past transactions that contained potential irregularities and weaknesses in operational, accounting and legal areas.
These irregularities and weaknesses took place under the previous leadership of Lodin Wok Kamaruddin as its chief executive up to Sept 7, 2018.
LTAT chairman, Gen (Rtd) Mohd Zahidi Zainuddin said among key findings were that retained earnings were impacted due to overpayment of dividends, and overstatement of LTAT’s assets between 2015 and 2017.
“LTAT’s five-year asset returns from Financial Year (FY) 2014 to FY2018, after excluding one-off gains, were lower than the declared dividend rates.
“This has resulted in LTAT paying dividends at a higher rate than it could afford,” he said.
To manage the situation, LTAT will develop a reasonable dividend policy that includes determining a minimum rate of return on its investments.
He said LTAT would subsequently establish a strategic asset allocation framework to meet its minimum expected dividend rate.
Zahidi said the failure to impair one of its large investments had resulted in an overstatement of LTAT’s assets between 2015 and 2017.
As a result, an impairment of RM55 million had to be made in its FY2018 results, he added.
He said the financial and technical due diligence exercises were also not properly undertaken by LTAT prior to investing in the above company, and not based on sound investment policies and procedures.
The assessment also found some issues with unsold property assets worth RM45 million, despite having been completed in FY2015.
He said LTAT was looking to expedite the sale of the remaining unsold units and, moving forward, LTAT would carefully consider potential returns and its own expertise in property development.
Other key findings of the position assessment also include heightened risk of over-reliance and liquidity issues since 2014 as well as outstanding dividends from subsidiaries that were not paid in full and are still outstanding up to this date.
Zahidi said LTAT was re-assessing the ability of its subsidiaries to pay dividends, taking into consideration their respective performance and cash position.
He added that the practice of buying unit trusts in order for members to receive special bonus was found to be detrimental to LTAT’s ability to control and actively manage the Fund.
“Neither LTAT nor the members were able to manage their unit trust holdings until the point of retirement.
“Moving forward, LTAT may consider other avenues of investment that will allow it to better fulfil its key objectives,” he said.
LTAT said it was conscious of the fact that its primary role was to generate sustainable dividends for members of the armed forces and the findings of this assessment provided clarity on critical 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,” Zahidi concluded.
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