Poor corporate governance and internal controls within troubled 1MDB led to instances where management action and board decisions were not organised properly, said the Auditor-General in its executive summary of the 1MDB audit report.
In its report, the Auditor-General said that 1MDB’s rationalisation plan, and assuming there are no new loans after Oct 2015, estimated that RM42.26bil was needed to pay the principal and interest that will be due 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.
It said 1MDB needs to set a very large fund to pay off its high commitments that amounted to RM4.88bil in 2016, RM14.74bil in 2023 and RM5.14bil in 2039.
1MDB also needs a minimum of RM1.52bil every year from November 2015 to May 2024 to pay back its loans.
From 2016 to 2023, the borrowing cost that is borne by 1MDB is RM9.08bil. The IMTN (Islamic Medium Term Notes) that was launched in 2009 and set to mature in 2039 will have a coupon rate of RM287.5mil per year.
The commitment of 1MDB to the 1MTN from November 2015 till 2039 amounts to RM11.9bil which is made out of RM5bil in principal and RM6.9bil in interest.
The remaining 1MDB loan is estimated to be RM28.21bil, whereas its assets amounts to RM27.01bil.
The Auditor-General said that part of its land assets will have to be developed to grow its value and to give 1MDB a return in the future.
The report also said that the cash flow analysis between 2010 and 2014 revealed that 1MDB generated only RM1mil in cash. The small amount in cashflow 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 RM42.88bil and received RM39.17bil in cash.
However, the activities that was financed from borrowings did not generate sufficient cashflow 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 was less than satisfactory. In many instances, the management and decisions made by the chief executive officer of 1MDB was done in a disorganised manner. Some of these include:
•From 2009 to 2015, some important investment decisions on investments with high absolute values were made via the resolution of the board of 1MDB without proper discussions or deep analysis.
•A few of these investments were risky in nature, yet the decisions on them were made over a very short period of time. However the chairman of the board of 1MDB had told the Public Accounts Committee (PAC) on Jan 19, 2016 that discussions had been made before the green light was given via a resolution.
• In a few instances, the management of 1MDB had presented information that was not complete nor accurate to the board of 1MDB before an important decision was made, Further to that, they also took action without the approval from the 1MDB board.
• There were also instances where the management of 1MDB gave information that was not accurate or different to interested parties. The management of 1MDB took action that was different or did not follow fully the decisions made by the board and stakeholders for a few investments.
• Lastly, the filing and records for 1MDB was not systematic and not satisfactory.