CIA 4001 Integrated Case Study

Semester 1, Session 2021/2022

Case Study Development : Lembaga Tabung Haji

Corporate Governance

Prepared by : Group TM 7
NAME ID NO.

Charn Yu Chin 17172559/1

Lavanya A/P Chandra Segaran 17117862/1

Lee Ling Rui 17170992/1

Phang Xin Jie 17186424/1

Sarojini A/P Seenivasan Ramasamy Naidu 17059288/1

Tan Jia Jie 17079730/1

Varshini A/P Yogesweran 17098921/1

Instructor: Associate Professor Dr Zarina Zakaria

 Table of Content :

No. Content Page Number

1.0 Introduction & Abstract 1-3

2.0 Background 4-5

3.0 Issues, Solutions and Recommendation

3.1 Issue 1 6-9
3.2 Issue 2 9 - 12
3.3 Issue 3 13 - 16
3.4 Issue 4 16 - 20
3.5 Issue 5 20 - 25

4.0 Conclusion 26

5.0 References 27 - 29

6.0 Appendix 29
1.0 Introduction
Our team intends to study the financial and non-financial issues faced by Lembaga Tabung Haji (LTH)
as an institution which caters to the pilgrimage of Muslims to Mecca. LTH is a statutory organization
formed by the Malaysian government in 1963 and is overseen by the Malaysian Government's Tabung
Haji Act 1995 (Act 535), as well as rules issued by the National Audit Department and the Malaysian
Treasury Department.

The following is a chronology of significant events from 2007 to 2020 pertaining to the issues
discussed that we would like to illustrate:

Year Significant Events

2007 ● Tabung Haji became Silver Bird’s largest shareholder at the end of year as pilgrims’
funds were invested about RM98 million for 90.483 million shares.
● Tabung Haji was one of the major shareholders in Ramunia Holdings in November
2007.

2008 ● Early 2008, LTH ignored a strong market indication of a potential loss on the
investment on Ramunia Holdings.

2012 ● The Silverbird Group is involved in legal suits with its fraudulent financial loophole
of a total RM 297 million.
● LTH made an unlawful dividend payout that exceeded its profits.

2013 ● On 1st of July, Abdul Azeez was appointed as the Chairman of LTH.

2014 ● Silver Birds was delisted from Bursa Malaysia

2015 ● On 7th of May, LTH confirmed that it has purchased a RM188.5 million worth of
land in Tun Razak Exchange (TRX) owned by 1Malaysia Development Bhd
(1MDB) for development of a residential building. On the contrary, Kumpulan
Wang Amanah Pencen (KWAP) paid a much lesser price for the TRX land, roughly
RM2, 300 per sq. ft., which is more than 15% cheaper than what LTH paid.

2017 ● On 9th of December, a media statement published stating that LTH declared

1
 dividends regardless of having liabilities of RM74.4 billion and total assets of
RM70.3 billion that resulted in a deficit.
● On 31st of December, the asset impairment policy of LTH was inconsistent.
● LTH did not recognise their investment properties using the fair value measurement.

2018 ● On 1st of May, LTH Chairman Abdul Azeez resigned.

● LTH sold RM2.551 billion Bank Islam Malaysia Bhd (BIMB) shares.
● On 30th of November, LTH filed two police reports against past management for
misusing the pilgrim fund's finances.
● On 10th of December, LTH sold their underperforming asset worth RM19.9 billion
at book value to a special purpose vehicle (SPV).
● On 11th of December, the Malaysian government issued a critical report on LTH,
showing illegal dividend payouts since 2014, asset shrinkage of almost RM4 billion,
and charges of accounting irregularities to conceal a greater profit
● LTH's exceptional concentration of depositors with large amounts of money placed
was disclosed to the public.

2019 ● On 15th January, the resigned LTH Chairman Abdul Azeez, was arrested by
Malaysian Anti Corruption Commission (MACC).
● Land acquired in TRX was sold to the government as LTH claimed that the land did
not comply with the liquidity framework.
● On 13th of November, as a government backed entity, a total loss of RM 10.3 billion
from LTH’s non-performing assets were transferred to Urusharta Jamaah Sdn Bhd.
● Revenue of LTH from Tabung Haji Hotel and Residence Sdn Bhd (THHR) was
claimed to have fallen about 80% as no dividends were obtained from its
subsidiaries.

2020 ● According to the 2019 Auditor General Report, more than half of the board of
directors at its hospitality subsidiary, THHR, is not an independent member.
● In April, LTH performed the closure of four hotels under THHR.
● In August, there was a delay in presentation of the Annual Report 2018 due to
rehabilitation and restructuring plans implemented by the previous government.

2
 ● On 10th of December the Auditor-General’s (A-G) Report 2019 Series 1 showed
that LTH has not collected outstanding principal repayments and profit charges
amounting to RM65.86 million from its subsidiary companies.

Abstract
In the Islam religion, pilgrimage to Mecca is one of the 5 pillars of Islam . In relation to this, Lembaga
Tabung Haji (LTH) also known as Tabung Haji is an Islamic organization that provides various
services, facilities and care to the Malaysian Hajj Pilgrims. Lembaga Tabung Haji was developed as a
specific Islamic financial institution dedicated to managing hajj funds. Hence, it serves a critical role in
ensuring the institutions' viability. As a result, it is essential to maintain depositors' faith and loyalty to
the institution. The concerns of Tabung Haji that have been addressed throughout these years in
Malaysia are discussed in this case study paper. This research paper has discussed issues on Corporate
Accountability, Inefficient Investment Decisions, Improper and Ineffective subsidiaries management,
Improper Administration and Supervision System and Permissive Creative Accounting Practices by
Tabung Haji. Along with that, this paper proposes solutions from the long and short term perspectives
that Tabung Haji can implement. After analyzing relevant advantages, flaws, and applicable accounting
theories, this paper proposes one precise and feasible recommendation for each of the issues discussed
to address the difficulties.

3
2.0 Background
In 1059, the concept of Tabung Haji was proposed and advocated by Royal Professor Ungku Aziz Bin
Ungku Abdul Hamid, a well-known Malay economist. His proposal was presented to the Malaysian
Government that essentially suggested that the federal government should establish a financial
organization that would help Muslims in our country to save money for hajj pilgrimage services while
also mobilizing revenues for the country's economic growth. The Malaysian government approved the
plan, and on April 1, 1963, the cooperation named "Perbadanan Wang Simpanan Bakal-Bakal Haji"
(PWSBH) was founded and began operations. PWBSH strives to raise awareness among Malaysian
Muslims about the importance of saving early for the hajj pilgrimage service through a
Shariah-compliant organization.

In 1969, PWSBH merged with the Pejabat Urusan Tabung Haji (Hajj Affairs Management Office),
which had been in existence in Penang since 1951. PWBSH was then given the name Lembaga Urusan
Tabung Haji (LUTH). The merging of the two organizations is crucial in terms of managing expanding
funds and keeping the hajj procedure constant in all elements, including passports, hajj visas,
transportation, and hotels. On 1 June 1995, as a result of the Tabung Haji Act 1995, LUTH was
renamed as Lembaga Tabung Haji (LTH).

While TH might seem to look like a normal investment institution, this is not the case as it has a
different business model from other various financial institutions. The incorporation's main goal was to
allow Muslims to save for the hajj through Shariah-compliant investments. (Muneeza et al., 2018). TH
has three goals, the first of which is to allow Muslims to save progressively in order to cover the costs
of doing the hajj. To achieve this major goal, TH accumulates money in the form of investments and
wisely invests them. Next, the second goal is to empower Muslims to invest their money in industries,
commerce, and agricultural and real estate, according to Principles of Islam. The third goal is to give
safety, control, and welfare to Muslims while they are doing the hajj through TH's many facilities and
services.

As years pass by complementing with 50 years of experience, LTH has grown tremendously and is
now a huge corporate body in Malaysia. Today, LTH provides a variety of facilities and services,
including savings accounts, transportation, and visas, as well as knowledge and counseling on the hajj
and religious ceremonies, lodging, medical services, and health care.

4
Since its inception, Lembaga Tabung Haji has played an essential role in the management of deposits
and the administration of Muslim hajj in Malaysia. Since its founding, LTH has achieved a high degree
of trust among Malaysians, as seen by its solid capital, annual deposit and profit growth, and effective
hajj management. Due to the sheer amount of yearly hibah as well as subsidy for their hajj expense, it
is indeed a popular choice of saving tool among Muslims in Malaysia.

However, from the past years, Tabung Haji has had a number of financial and managerial challenges
that have tarnished its reputation as one of Malaysia's foremost Islamic financial institutions,
eventually resulting in a loss of public and investors confidence. Upon this, Tabung Haji claimed that
3,954 depositors had withdrawn their accounts due to a loss of trust in the company, and that 3,105
depositors had lost their entitlement to conduct the hajj as a result.

The new leadership of Tabung Haji disclosed the falsification of financial accounts for the year 2017,
primarily on the exaggerated profit and asset position, which led to the declaration of a high hibah
amount, which tarnished the company's reputation. Also, an independent audit was conducted that
revealed that TH was experiencing a worrisome financial situation, prompting TH to undergo a
restructuring process. This circumstance creates several problems, notably about the depositors' trust
and loyalty, as well as Tabung Haji's long-term sustainability.

5
3.0 Issues, Solutions and Recommendation
3.1.1 Issue 1 : Corporate accountability
In 2015, there was a land deal transaction between 1 Malaysia Development Bhd's (1MDB) and
Lembaga Tabung Haji. The purchase of land from 1MDB has been widely discussed by the public in
the media. The issue here is where LTH had acquired a plot of land in the Tun Razak Exchange (TRX)
financial district, owned by 1MDB and the transaction took place at value of RM188.5 million.1 It was
heavily questioned on the suspicious transaction that took place for bailing out the debt-ridden selling
company. Later, it was claimed that the purchase was made to buy the land to build a residential tower
at the planned financial district.2 This transaction had affected LTH as they were involved in high-risk
investment, which would directly jeopardize the savings amount. This had been heavily criticised on
social media after the purchase was done. In 2018, the group managing director and chief executive
officer Datuk Johan Abdullah had claimed that this was a sound investment which could potentially
rise in market value. In 2019, on the turnaround plan made by LTH, it was claimed that the land did not
comply with the new liquidity framework, thus they decided to sell the land back to the government.

The land deal transaction had clearly shown that it was considered as an improper financial decision
made by the LTH as they had sinked them into a high risk investment. Even though it was clearly
explained by the management that this purchase was a commercial decision and matched with the
organization risk appetite3, it appeared that it was not a wise investment decision made by the
management as the land should not have been priced that high. In fact, it was revealed that the tiny plot
of land was just a portion of 70 lot land bought by 1MDB that just cost them around RM194.1 million.4

It became a more alarming issue when the public knew that Kumpulan Wang Amanah Pencen (KWAP)
bought the TRX land at a 15% lower price than the amount LTH acquired at5. This showed that the
management did not act in favour of shareholders.

Other than that, Lembaga Tabung Haji had been found to have illegally declared dividends to the
depositors. It was against the Section 22 of the Tabung Haji Act, where dividends and bonuses can be
1
https://www.astroawani.com/berita-malaysia/auditorgeneral-report-1mdb-be-ready-june-59786
2
https://www.straitstimes.com/business/1mdb-sells-land-plot-for-70m-in-first-asset-sale-to-cut-debts
3
https://www.straitstimes.com/business/1mdb-sells-land-plot-for-70m-in-first-asset-sale-to-cut-debts
4
https://www.malaysiakini.com/news/297822
5
https://www.malaymail.com/news/malaysia/2015/05/11/report-kwap-to-buy-trx-land-from-1mdb-at-lower-cost-th
an-tabung-haji-deal/894367

6
made to depositors only if the assets are more than liabilities of the financial account. However, this
was not the case in Lembaga Tabung Haji yet they paid out dividends. Since 2014, they had been
steadily declaring hibah even when the financial situations did not actually allow it.6

According to a media statement published in 2017, there were liabilities of RM74.4 billion and total
assets of RM70.3 billion, resulting in a deficit, but dividends were declared too. This had led to a
misleading view from the public and depositors’ perspective, as they would have thought that the
financial stability had always been stable and dividends had been constantly declared. However, it was
questioned on how they paid dividends when they actually had higher liabilities. According to a
financial position review by PwC, it was made using depositor’s savings. Beside that, Tabung Haji sold
RM2.551 billion Bank Islam Malaysia Bhd (BIMB) shares in order to achieve a gain of RM553
million. However, it was revealed that this did not actually provide a useful result to LTH as they
repurchased the same shares at a cost of RM2.688 billion. This showed that the management were
trying to falsify the information by giving shareholders an impression that they are generating profit by
RM5.33 million. Furthermore, the sales and repurchase of shares were not disclosed in the financial
report.7

3.1.2 Solutions
Short term solution 1 : Capital investment related decision should be scrutinized
The management should be genuine and be transparent in every transaction made especially on large
capital investment or purchasing decisions. Higher authority is accountable for every financial decision
made by the management to ensure shareholders’ value and interest are being protected. In fact, the
excessive land transaction purchase should be well understood by the public if the transaction
procedures have been made in a transparent and reasonable way.

Risk and opportunities for each capital decision which involve a large amount of money has to be
investigated. This responsibility is played by the corporate governance as they oversee the practice and
investment decisions made by the management.

6
https://prod-th-assets.s3.ap-southeast-1.amazonaws.com/pdf/press-release/0/2018-12-10/MEDIA%20STATEM
ENT%20YBM%2010%20DEC%202018.pdf?R52V_UmNC5RKiwn_vhVVX4d8FxbMaEQN=
7
https://www.malaysiakini.com/news/455525

7
Long term solution 1 : Represent proper and credible view of financial statements and financial
position
The legality of dividends payment has been a major concern by the public because it is made known
that LTH has illegally declared and breached Tabung Haji Act 1995. This is a huge concern by
shareholders and based on audit findings, it is due to incorrect financial statements being disclosed,
where asset amounts have been overstated.

Financial statements should properly represent a true and fair view of the financial position of a
corporation to avoid giving false misrepresentation to the general public and even to the management
itself. Non Disclosure of important data such as impaired assets would lead to wrong profit figures
being stated. Strict rules and regulations such as financial reporting standard and tabung haji act should
be reflected in the financial statements. This would prevent any wrong decision made which can go
against the laws and rules. For example, it is necessary to ensure assets are at least equal to liabilities to
pay out dividends.

Long term solution 2 : Restructuring of corporate management and accountability

According to The Edge, it is reported that there is adequate competency in the management and
executives in Tabung Haji. However, there is a need for improvement of board oversight.8 This is
important to improve corporate governance in the corporation. According to ICAEW, this would
further improve and form an effective and prudent management which is the key point for a
corporation's success in the long run.9

Governed by the Tabung Haji Act 1995, the board should regulate and oversee the management in
order to ensure strong governance practices are being conducted in the corporation. This will promote
the action of investing profitability in line with the rules and laws of Islamic. As of now, Tabung Haji
is placed under Bank Negara Malaysia (BNM) which is a good initiative as this is a move in
safeguarding depositors’ interest while improving its financial stability.10 With this, it increases
depositor’s confidence as it is guaranteed by the government and remains safe.

8
https://www.theedgemarkets.com/article/alternative-views-rm82bil-tabung-haji-needs%C2%A0-higher-level-sup
ervision
9
https://www.icaew.com/technical/corporate-governance/principles/principles-articles/does-corporate-governanc
e-matter
10
https://www.malaysiakini.com/news/583624

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3.1.3 Recommendations
We suggest Lembaga Tabung Haji restructure their corporate management and accountability. With its
good reputation of being an islamic financial institution in Malaysia which offers different instruments
to depositors and customers, it is highly important to build a strong governance with trusted
management and accountability, which can in turn boost the public confidence.

However, since the declaration of dividends which go against the Tabung Haji Act, the public lost
confidence as there was a major issue on overstating of profit and asset in financial position. This
mismanagement issue could be avoided if Tabung Haji has good management practice, where the
internal control has been governed well, with regular meetings to exploit potential issues and problems
rising in the future or happening currently in the corporation.

3.2.1 Issue 2: Inefficient Investment Decisions

The second issue is the inefficiency of decision-making for the company’s investments. This is proven
with several examples in which the judgments were made without sufficient due diligence check and
significantly impacted by self-interest threat. In 2007, LTH invested in 90.483 million shares of
Silverbird Group Berhad costing about RM98 million. This is equivalent to 28.81% of control towards
the company, making it a major shareholder. However, Silverbird Group has been constantly reporting
losses since the financial year ended 31 October 2006. 11The Silverbird Group has been involved in
legal suits since 2012 with its fraudulent financial loophole of a total RM 297 million.12 Despite several
indications of the loss of investment by LTHi, the investment was held on until the middle of 201413.
The aggressiveness of the investment decision in 2007 was not supported by a comprehensive analysis
of the potential outlook of the Silverbird group. Even worse, the poor judgment in stopping further loss
of investment proves the lack of professionalism of Lembaga Tabung Haji, along with the culture of
regret avoidance.

Moreover, Lembaga Tabung Haji was one of the major shareholders of Ramunia Holdings Bhd, an oil
and energy company in November 2007. In early 2008, there was a strong market indication of a
potential loss on the investment but was ignored by the group. A reverse takeover (RTO) negotiation

11
https://rafiziramli.com/wp-content/uploads/2016/02/Silverbird-Annual-Report-2007.pdf
12
https://www.mswg.org.my/newsletters/mswg-weekly-newsletter-19-june-2020-english
13
https://www.theedgemarkets.com/article/tabung-haji-lost-nearly-rm100-mil-silverbird-shares-says-rafizi?type=C
orporate

9
between shipping company MISC Berhad and Ramunia was called off due to unsatisfactory due
diligence findings14, leading to a sharp fall of market price to be even lower than its initial public
offering. Prior to the cancellation of RTO, the due diligence has been delayed three times, a strong
indication that Ramunia as an investment is not in good condition. LTH did not take into account the
long-term sustainability of the investment, by pumping in RM275 million for Ramunia’s issuance of
irredeemable convertible preference shares (ICPS) to overcome its financial instability15. Ramunia was
being classified as a PN17 company twice after its going concern was doubted. There are other similar
investment failures by Lembaga Tabung Haji, including AKN Technology Berhad and Perisai
Petroleum Teknologi Bhd which were classified as PN17 companies. The PN17 classification signals
the financial distress faced by the companies, which is significant in alternating investment decisions,
and yet LTH does not seem to be taking any preservative steps as an investor.

Besides, Lembaga Tabung Haji as a government-linked company is reported that its underperformance
would be backed by the government. In 2019, the RM 10.3 billion losses from Lembaga Tabung Haji’s
non-performing assets were transferred to a state-owned company, Urusharta Jamaah Sdn Bhd
(USJB)16. This was done by exchanging assets from LTH which is worth RM9.63 billion for UJSB’s
Sukuk with a market value of RM19.90 billion. Such transfer was executed without any commercial
purpose, but merely as a strategy of restructuring plans to lower the government’s loss, restoring the
financial stability of Lembaga Tabung Haji. The government aid provided is potentially leading to
investment decisions that lack proper considerations, as any loss incurred would not put Lembaga
Tabung Haji in financial and legal consequences.

Furthermore, the investment approval channel of LTH is complex. The investment decision is proposed
by the related departments and requires the approval of the Risk, Audit and Governance division, as
well as the Shariah Advisory division. It was then endorsed by the management committee to the board
committee. If the decisions are deemed profitable, it would then be recommended by the board
committee to the Minister for approval.17 As claimed by the group, these procedures were to ensure the
investment decisions are made with massive deliberations in bringing returns.18 However, such

14
https://www.theedgemarkets.com/article/tabung-haji%E2%80%99s-oil-and-gas-woes
15
https://www.theedgemarkets.com/article/cover-story-investments-plcs-leave-much-be-desired
16
https://www.theedgemarkets.com/article/govt-bear-rm103b-losses-tabung-haji-rescue-plan
17
https://www.tabunghaji.gov.my/en/investment/general-info/investment
18
https://dergipark.org.tr/en/download/article-file/790336

10
extensive procedures required many authorities to be involved, the investment procedures became
inefficient and not transparent as the accountability was diverse. This ultimately resulted in the
investment failures as discussed above, where decisions were made but without proper oversight and
constant monitoring.

3.2.2 Solutions
Short term solution 1: Emphasis on Specialty in Investment Management
Lembaga Tabung Haji should ensure its investment division is equipped with professional knowledge
in executing the appropriate investment decisions. A comprehensive assessment must be done before
accepting an investment, this should include the analysis of both the internal development and external
market conditions relating to the investment.

Also, an extensive investment framework must be established to keep track of the profitability of the
investments. One of the weaknesses as shown by the Lembaga Tabung Haji was the lack of certainty in
stopping the loss on its investments. Red lines must be drawn and strictly followed, as this would avoid
further losses in investing more into the already-loss investments.

Short term solution 2: Restructuring Investment Approval Channel

The investment approval channel of Lembaga Tabung Haji emphasized the hierarchical structures,
involving many parties from top-down in the decision-making process. This has led to the lack of
accountability by the authorities, as they only bear a small portion in affecting the ultimate decision. It
also caused the information on the investment not provided on a timely basis. The channel should be
restructured to be lesser levels, and instead more on horizontal levels, emphasizing accountability and
integration between the parties. For example, integrating the risk management division and shariah
advisory division with the investment management division. This would cultivate the personnel to
automatically consider the risks and shariah requirements even before preparing the proposal of
investment. By putting bigger accountability on the lower levels, it avoids decisions made out of
self-interest.

Moreover, LTH should establish an investment committee acting as the moderator to constantly
monitor the investment decisions made. The emphasis is not merely about initiating an investment, but

11
also the long-term decisions in approving the cease of potential investment failures. With that,
Lembaga Tabung Haji’s risk management would be better in place.

Long term solution: Strategize investment-risk appetite

To ensure the investments were made out of appropriate consideration, the board should play the role
in strategizing its risk appetite in investments. The previously failed investments proved that LTH was
willing to accept high risk in order to achieve the objectives. The board should put emphasis on
implementing the risk management policy, clearly identifying the types of risk the particular
investment would be exposed to. The risk limit structures must also be established in order to set out
thresholds of the risk exposure and be strictly followed. With every intended investment being
examined with the relevant risks, the board would be able to supervise the risk benchmarks of the
investments. The risk appetite of Lembaga Tabung Haji based on the reliable judgments by the board
of directors would ensure an effective investment management strategy. With that, LTH will have a
healthy risk management embedded in its culture in a long run.

3.2.3 Recommendations
The most feasible option for Lembaga Tabung Haji to improve the quality of its investment portfolio is
by emphasizing the application of knowledge in investment management. For instance, the financial
health check of the intended investment company by referring to several notable indications. This
includes the Earnings per Share (EPS), Return on Equity (ROE), Debt ratio, Price-to-earnings (P/E)
ratio, and Dividends yield from the perspective of investors. To ensure the long-term sustainability of
the companies, Lembaga Tabung Haji should also consider financial performance like cash flow,
leverage ratio, and profitability ratio. The external indications that should be considered include the
effectiveness of the management team or any legal litigation the companies are facing. To monitor the
existing investments instance, a KPI can be established to keep track of the profitability of the
companies. The list should include different indicators of its internal financial performance and
external factors such as the PN17 status of the invested company.

By equipping specialty in making investment decisions, this would ultimately ensure the accountability
of the bottom level management by making sound judgments following the main purpose of
investments and adhering to the risks limits as set by the group. This would also ensure proper
handling of funds even without supervision from government parties.

12
3.3.1 Issue 3: Improper and ineffective subsidiaries management
Improper and ineffective subsidiaries management is also one of the main issues in Lembaga Tabung
Haji. Lembaga Tabung Haji has reported having weak internal control over the activities of its
subsidiaries as the Auditor General Report 2019 claimed that more than half of the board of directors
in its subsidiaries under the hospitality sector, Tabung Haji Hotel and Residence Sdn Bhd (THHR), is
not an independent member. In further details, out of four directors, three of them were the officers
who served at Lembaga Tabung Haji19 and there is only one independent director who has no past life
experience in this industry. This is not complying with the practice that stated in MCCG where the
company should consist of at least half of the boards of directors are independent directors who are
free from any relationship and not part of the company that is involved in its operation20. Besides, AG
report series 1 of 2019 also pointed out that the CEO position is left vacant after the termination of the
previous one on 1 May 2018. Due to these vacancies, THHR’s CEO position is being taken over by
Human Resources and Operation senior managers who perform two job responsibilities
simultaneously21. Both of the matters are believed to cause the conflict of interest risk to occur as there
is no separation of duties had been performed by the directors of THHR which could also impact their
ability in making the best decision for the company.

LTH also reported to have poor supervision on its subsidiaries’ activities as there is no action taken by
the risk and audit committee of THHR since its establishment in 2017 such as never performing its role
in the company as well as holding any meetings. The report also pointed out that no internal audit was
performed by them resulting in no inspection being conducted to ensure all the financial management
and procedures are followed. Thus, THHR can be said to be not controlled in a good way as a good
governance of the company will ensure that the internal audit is adopted to ensure that applicable
corrective action can be taken by THHR to manage company’s weaknesses identified from the
auditors’ findings. Consequently, compared to the previous year, it's revenue in THHR is claimed to
fall about 80% to RM 105.86mil for 2018 as no dividends were obtained from TH Travel & Services
Sdn Bhd which is also one of Lembaga Tabung Haji’s subsidiaries22.

19
https://www.thestar.com.my/news/nation/2020/08/24/a-gs-report-more-than-50-of-tabung-haji-hotel-and-resort-
directors-not-independent
20
https://www.sc.com.my/api/documentms/download.ashx?id=239e5ea1-a258-4db8-a9e2-41c215bdb776
21
https://www.nst.com.my/news/nation/2020/08/619032/ags-report-tabung-haji-hotel-residences-board-has-no-h
ospitality
22
https://www.thestar.com.my/news/nation/2020/08/24/a-gs-report-more-than-50-of-tabung-haji-hotel-and-resort-
directors-not-independent

13
In addition, there is a lack of administration support by Lembaga Tabung Haji especially in overseeing
the operation carried out by the THHR. According to the Malaysian Reserve, Tun Dr Mahathir had
mentioned that TH needed to transfer some of its assets and shares to Urusharta Jamaah Sdn Bhd
(UJSB) as those properties are not bringing any or little benefits to them23. This is because those
non-performing assets or stocks will negatively affect the investment’s returns to Lembaga Tabung
Haji. As a result, to avoid the failed investment, Lembaga Tabung Haji had transferred four hotels of
its assets that were worth the market value of RM 9.63 billion as well as one unlisted company and 29
real estate to UJSB in 201924. Due to this issue, THHR hand wound up the operation of those four
hotels by issuing the notice of termination. This indicates that Lembaga Tabung Haji did not manage
its properties well in THHR in terms of investment planning or review the action taken to ensure that
the return on investment made can benefit them.

3.3.2 Solutions
Short-Term Solution 1 : Conduct Risk Management Process
Risk management allows Lembaga Tabung Haji to manage the unintentional risk that might occur to its
earnings and capital. By conducting this process, Lembaga Tabung Haji could identify the risks that it
might be exposed to in its daily management as well as risk occurred due to any action taken in the
operation such as the conflict of interest risk due to appointing non-independent directors, risk of failed
investment and risk of selecting non-experience directors in the management. Not only that, it also
allowed Lembaga Tabung Haji to examine and evaluate the potential range of those risks to occur as
well as whether it could negatively impact the operation of its company. This process also enables
Lembaga Tabung Haji to take the right action in dealing and treating those risk problems such as
applying segregation of duties in management, ensuring those appointed directors are independent
directors, and delivering adequate training to new and existing employees, especially those who have
no experience in this industry before. Those risks should also be regularly reviewed and monitored in
ensuring that it is transparent to everyone in the event of any changes. For example, if the strategies
made are no longer applicable and could not bring any benefits to the company which also could result
in the risk of bankruptcy, Lembaga Tabung Haji should immediately develop new strategic plans that
give them an advantage. Thus, having a risk management process is essential to maintain their position
in the industry.

23
https://themalaysianreserve.com/2020/02/19/th-should-move-away-from-failed-investments-says-pm/
24
https://www.theborneopost.com/2020/02/19/th-hotel-kk-to-be-under-new-management/

14
Long-Term Solution 1: Have a supervisory review process by a third party
Supervisory review process by third party enables Lembaga Tabung Haji to better build its overall
management processes as well as its subsidiaries operations. Third party who is not mainly involved in
Lembaga Tabung Haji’ s business will ensure that its operation is run smoothly even though any
changes in the management are not directly give an impact to them. As stated in the edge market,
Tabung Haji is placed under the supervision of Bank Negara Malaysia (BNM). Having oversight by
BNM could ensure that the issue of poor governance and management by Lembaga Tabung Haji which
has breached the trust of the public can be resolved. For example, when BNM found that Lembaga
Tabung Haji had more liabilities than assets as a result of inspection made, a warning letter to
strengthen risk management was issued to them25. From the above example, it is believed that a third
party is able to regularly safeguard and evaluate the actions taken by Lembaga Tabung Haji by
conducting risk assessment to the company. Besides, it can also prevent Lembaga Tabung Haji from
carrying out any activities that are high risks or can worsen the company’s financial condition as well
as its performance.

Long-Term Solution 2 : Improve internal audit function and internal control

An effective internal control could reduce risks, boost the compliance of rules and regulations,
encourage efficient operation as well as protect a company’s assets. While an effective internal audit is
able to ensure that the internal control of a company is handled in the most efficient ways. Internal
audit could give Lembaga Tabung Haji an independent assurance in assessing whether the procedures
and policies are being followed, the decision making process is done independently without any
influence as well as any personal interest. Lembaga Tabung Haji should improve its internal control by
encouraging its audit committee in THHR to perform the internal audit. Auditing could be used to
identify any fraud or misstatement in the financial report as well as suggest corrective action to remedy
those frauds that could directly impact THHR’s performance. For example, internal audit is also able
to consult activity that can add value to the company operations and management such as eliminating
the capital investment that includes non-performing assets or non-profitable project investment.

3.3.3 Recommendations
We chose to recommend Lembaga Tabung Haji to improve the internal audit function as well as
internal control. As both internal control and internal audit function play a vital role in solving a poor
25
https://www.theedgemarkets.com/article/tabung-haji-be-under-bnms-purview-starting-january

15
management and governance problem in Lembaga Tabung Haji. If Lembaga Tabung Haji can ensure
that the audit and risk committee in THHR had performed the internal audit in the company, the issues
such as non-independent directors, failed investment, no segregation of duties in management as well
as huge loss that caused by no internal audit process could be avoided. Lembaga Tabung Haji is
suggested to maintain good governance and management in all its subsidiaries by acknowledging
every role and responsibilities of employees within the company and perform additional changes
needed. This is because having subsidiaries with a high reputation in public will directly impact the
strong position of Lembaga Tabung Haji in this industry. At the same time, internal control is essential
in aiding the company to reduce the occurrence of risks and also have an appropriate safeguard to
achieve its objectives. Thus, this solution not only assists Lembaga Tabung Haji in increasing its
management productivity but also enhances its performance in the business which is the consideration
of stakeholders in making their investment decisions.

3.4.1 Issue 4: Improper administration and supervision system.

Corporate governance has become a major source of worry for a large and growing part of the
population. It is based on open and transparent communication among an organization's management,
board of directors, investors, and other parties. As a response, a number of factors must be examined,
including shareholder rights protection, the structure and role of the board of directors, the accuracy of
accounting methods, accountability standards, and the internal control system. In this section, we'll
look at how or why Lembaga Tabung Haji (LTH) had an ineffective administration and supervision
structure in place.
In 2018, news reports highlighted LTH's financial difficulties, which are crucial because they manage
the funds of around 9.3 million Malaysian Muslims. On November 30, 2018, Lembaga Tabung Haji
filed two police reports against previous management for misusing the pilgrim's funds and making
false statements in a business transaction.26 The first report submitted with the Commercial Crime
Investigation Department concerns Yayasan Tabung Haji's (YTH) 2017 programme. YTH was created
in 2016 with the objective of supporting the poor, underprivileged, and in need with humanitarian aid.
In violation of YTH's memorandum and articles of association, monies totaling over RM22 million
were disbursed for activities. The second report concerns three senior officers who had misrepresented
and withheld material information involving the sale of LTH’s 95% stake. According to The Edge,
Tabung Haji's 2012 sale of a 95% share in PT LTH Indo Plantations controlled by its subsidiaries, LTH
26
https://asklegal.my/p/malaysia-tabung-haji-fund-money-hajj-muslims-dividend

16
Indopalms Sdn Bhd and LTH Indo Industries Sdn Bhd. PT Borneo Pacific paid US$910 million for the
95 percent stake. LTH Indo Plantations owns 83,000 hectares of palm oil farms in Indonesia, according
to the portal.27 This misappropriation, misrepresentation, or even withholding of financial information,
particularly by management, demonstrates that the organization lacks sufficient oversight and
preventative measures to ensure strong financial standing and avoid systemic financial system
implications.

As of December 5, 2018, Tabung Haji is expected to have only 80 cents for every RM1 owed to
them.28 This means that if every depositor demanded their money back from Tabung Haji, they would
receive only 80 cents for every RM1 they invested, losing 20% of their money. Due to the fact that
Bank Negara Malaysia (BNM) did not have regulatory power over Tabung Haji at the time, their
warning went mostly disregarded. This clearly demonstrated that LTH lacked effective risk
management to conduct a routine check to determine the organization's assets and liabilities. This is
because the company's assets were worth less than its liabilities at the time, and despite the fact that it
wasn't profitable, LTH continued to pay dividends.

Aside from that, the lack of an administration and supervision system in LTH was evident when the
presentation of Lembaga Tabung Haji's (LTH) 2018 annual report and financial statements was
delayed.29 They claimed that this was owing to the former government's rehabilitation and restructuring
programme. It is known that within one year following the end of the financial year, all statutory
entities must table their annual reports before Parliament. The audit process by the National Audit
Department took a long time because the pilgrimage fund was a sophisticated topic that had never been
done before, thus the presentation of the 2018 annual report and financial statements could not be
suggested as the Parliament session closed on December 19.30

Furthermore, in December 2020, in a report, the organization's administration and supervision were
questioned when the Auditor - General's (A-G) Report 2019 Series 1 revealed that Lembaga Tabung

27
https://www.theedgemarkets.com/article/tabung-haji-lodges-police-reports-against-former-chairman-ceos-and-
senior-management
28
https://www.theedgemarkets.com/article/spv-buy-underperforming-tabung-haji-assets
29
https://www.freemalaysiatoday.com/category/nation/2020/08/25/tabung-haji-explains-delay-of-2018-annual-rep
ort/
30
https://www.freemalaysiatoday.com/category/nation/2020/08/25/tabung-haji-explains-delay-of-2018-annual-rep
ort/

17
Haji (LTH) owed its subsidiary firms RM65.86 million in unpaid principal repayments and profit
charges. LTH also failed to collect a penalty of RM161,822 that should have been issued on the
subsidiary firms for late principal repayment of loans totaling RM449.65 million, according to the
report.31

3.4.2 Solutions
Short-Term Solution 1 : Competency as the basis of recruitment
In general, any personnel must have professional and institutional knowledge, as well as the technical
and operational competencies required for the role, in order to operate effectively. In the context of
boards, which are the final decision makers for most institutions, directors' competencies are very
important. In the case of Tabung Haji, an Islamic institution dedicated to the wellbeing of Malaysian
Hajj pilgrims, the organization is supposed to be administered by financial and religious experts with
the necessary qualifications.

According to the Malaysian Anti-Corruption Commission, the former chairman of Tabung Haji has yet
to be cleared of corruption and money laundering allegations (MACC), which were first published in
2018.32 In the meantime, Tabung Haji has recruited a new chairperson, who is a former official of the
Securities Commission Malaysia. In 2001, he even worked for national carrier Malaysian Airline
System Bhd as a chartered accountant.33

From the information presented above, it is clear that when selecting a board of directors for an
organization, special attention must be paid. They play a significant role in the administration and
supervision of the organization as a whole, and as a result, it must be trustworthy to the general public,
or depositors in particular.

Short-Term Solution 2: enforce the terms of the loan repayment agreements.

Loan agreements, in their most basic form, are legally binding contracts between two or more parties
that formalize the loan process. A loan contract's major function is to set out what the parties are
agreeing to, what their responsibilities are, and how long the arrangement will endure. Because of the

31
https://malaysia.news.yahoo.com/govt-2019-audit-shows-lembaga-081011390.html
32
https://www.nst.com.my/news/crime-courts/2021/09/725180/ex-tabung-haji-chairman-yet-be-cleared-corruption
-money-laundering
33
https://themalaysianreserve.com/2018/07/16/tabung-haji-gets-new-chair-ceo/

18
loan repayment problem in TH, it is recommended that the terms of the loan repayment agreements be
enforced in order to reclaim any outstanding arrears.

Tabung Haji must collect the complete principle amount as well as all outstanding profit charges until
August 31, 2020, and guarantee that all efforts to recover loan repayments are made on schedule. It
should also assess its monitoring method for loan repayments that have already been made. This is to
ensure that the operational interests of Tabung Haji are not affected and the subsidiary companies are
fully responsible in ensuring that the loans provided have been repaid in accordance with the
agreement.34

Long-Term Solution 1: Formulate a comprehensive reserve policy.

In general, an allocation of gains or other surpluses to increase the liquid resources of a business
organization, rather than to satisfy any responsibility, contingency, or obligation of the business, is
referred to as a reserve. An organization cannot build reserves in anticipation of losses; nevertheless,
reserves can be used in the event of a loss.

Tabung Haji's reserve levels were reported to be in the negative in 2016, and the bank will be unable to
pay dividends to its 8.8 million depositors this year if it does not take action, according to Bank Negara
Malaysia.35 The depleting reserves was due to the practice of paying out of higher dividends than it
could afford since 2012 as mentioned previously. To avoid negative consequences such as a financial
impact on the government because Tabung Haji's deposits were fully guaranteed by the government, a
negative impact on Tabung Haji's role in assisting Muslims conducting their haj, a significant reduction
in the value of its assets, and a greater risk to the country's financial and economic system, it is critical
that Tabung Haji construct a comprehensive reserve policy.

Furthermore, Tabung Haji's deposits were heavily concentrated among a small number of contributors,
with just 5% owning 75% of the total.36 This put the pilgrims' fund at risk of a large-scale withdrawal
of funds if contributors lost faith in it. Tabung Haji could overcome all of this by establishing a
comprehensive reserve programme.

34
https://malaysia.news.yahoo.com/govt-2019-audit-shows-lembaga-081011390.html
35
https://www.theedgemarkets.com/article/tabung-haji-reserves-red-warns-bank-negara
36
https://www.theedgemarkets.com/article/tabung-haji-reserves-red-warns-bank-negara

19
3.4.3 Recommendations
We recommend that TH focuses on competency as a basis for recruitment, primarily for the board of
directors, in this area. This is because the company should be led by a capable, working board in order
to ensure the corporation's long-term success and to maintain its competitiveness and profitability in
accordance with its organizational goals and the long-term best interests of its users.

The Board should always make certain that it has the right combination of competence and expertise
for the company's industry/sector. This would make the board more comprehensive in terms of
knowledge and skills. Aside from that, the Board should appoint a Corporate Secretary who is distinct
from the Compliance Officer, is not a member of the Board of Directors, and attends yearly corporate
governance training. For instance, this initiative would be critical because a secretary who is not a
member of the board would not pose a self-interest threat to administration, and it is highly expected
for a more honest work which would avoid all of the financial information misuse, misrepresentation,
and even withholding that occurs in Tabung Haji.

Additionally, it is critical to have a board led by a competent and qualified chairperson who can
properly carry out their responsibilities. More suggestions would be to supervise the formulation and
approval of the organization's business objectives and strategy, as well as the monitoring of their
implementation, in order to ensure the organization's long-term viability and strength. To use Tabung
Haji as an example, the business implementation monitoring procedure is required when it is
discovered that Tabung Haji has been paying out bigger dividends than it can afford since 2012.

As a result, it is apparent that having competent board members would not only protect LTH against
misconduct but will also make their job easier. Furthermore, all of the concerns described above in
reference to the poor administration and supervision in LTH might be prevented by having professional
and well-trained members and board members especially.

3.5.1 Issue 5: Permissive Creative Accounting Practices

The next issue with Lembaga Tabung Haji is permissive creative accounting practices to hide losses
from 2014 till 2017. The management of Tabung Haji gives permission to change the threshold of
impairment for available-for-sale equity instruments even though they know that it is against the

20
financial reporting standards of Malaysia. The purpose of doing so is to enable Tabung Haji to have
sufficient profits to distribute bonuses.

According to FRS 139, LTH is supposed to assess whether there are indications of impairment to the
financial asset at the year end. If there is, the recoverable amount needs to be calculated and the
impairment loss will be recognised in the financial statement.37 One of the examples of indication
stated in FRS 139 is “a significant or prolonged decline in the fair value of an investment in an equity
instrument below its cost is also objective evidence of impairment.”38 However, FRS 139 doesn't give a
clear definition of the word “significant or prolonged” and if subject to judgment of preparers, it might
cause confusion and incomparable financial asset impairment. Hence, the Financial Reporting
Standards Implementation Committee (FRSIC) has provided a guidance under FRSIC 14 which states
that decline in fair value below 20% of the original cost or decline in fair value below original cost
persistently for 9 to 12 months is considered a significant or prolonged decline.39 So LTH should
recognise impairment loss once the value dropped below the threshold of 20%, which is the market
practice for similar investments. However, TH’s policies regarding impairment of investment in
available-for-sale equity instruments is not consistent with the market practice and other financial
institutions.

Before 2017, LTH defined significant or prolonged decline at a threshold of 70% which is significantly
higher than market practices. Later on in 2017, LTH changed its threshold twice from 70% to 85% and
again to 90%.40 Please refer to the table below for comparison.

Impairment threshold

Market practices Tabung Haji

- Decline 20% from original cost - Decline 70% / 85% / 90% from original
Or cost
Or
- Decline from original cost that persist for
9 to 12 months - Decline from original cost that persist for
more than 24 months

37
https://assets.kpmg/content/dam/kpmg/pdf/2016/03/frs139-guide.pdf
38
https://www.masb.org.my/pdf.php?pdf=FRS139_Jan10.pdf&file_path=pdf
39
https://www.mia.org.my/v2/downloads/frsic/consensus/2011/MIA_FRSIC_Consensus_14_2011.pdf
40
https://www.malaysiakini.com/news/455691

21
This creative accounting practice enables LTH to reduce its impairment loss in the financial statement
and it brings a huge impact. According to an independent review by PwC, there was RM4,258 million
in impairment losses in equities41, while LTH only recorded part of it.

Threshold policy for significant decline in value Impairment loss recorded (million)
of investment

70% RM 1,313

85% RM 171

90% RM 1

The manipulation of accounting is further proven by the amount of impairment loss in quoted shares
stated in notes to the financial statement of TH from 2014 till 2017. In 2013, the impairment losses
were RM 394 million. Starting from 2014, the impairment loss range from RM 0 to RM 51 million.42

3.5.2 Solutions
Short term solution 1 : Competent Audit Committee
An effective audit committee plays a vital role in determining audit scope, planning internal audit,
ensuring internal controls perform as intended and monitoring financial reporting and compliance. The
inappropriate selection of the audit committee of LTH contributes to the creative accounting practices
in the company.

In 2016 before the scandal of LTH regarding creative accounting was revealed, the audit committee of
LTH consisted of 3 members, which are Tan Sri Othman Mahmood (Chairman of the Audit
Committee), Tan Sri Dr. Mohd Irwan Serigar Abdullah and Datuk Rosni Sohar43, which carry huge
duties and responsibilities in LTH. However, the audit committee does not have the competency and
professional skepticism in performing their responsibilities. For example, none of the audit committee
is considered a financial expert with accounting or audit qualifications and education background.
Hence, in order to have a competent audit committee, LTH can select a Certified Public Accountant
(CPA) as the chairman of the audit committee. A CPA is required to have extensive education,

41
https://www.malaysiakini.com/news/455691
42
https://www.tabunghaji.gov.my/en/corporate/corporate-information/th-annual-report
43
https://www.tabunghaji.gov.my/en/corporate/corporate-information/th-annual-report

22
examinations, working experience and must adhere to the code of professional conduct and code of
ethics. This will ensure that the audit committees of LTH have the necessary knowledge, due diligence
and questioning mind to lead the internal audit department and communicate with external auditors.

Short term solution 2 :Independent Review Of Asset And Liability

Independent review is not an audit, and it will not replace the role of Auditor General in obtaining
sufficient and appropriate audit evidence, understanding internal controls and assessing material
misstatement. Unlike audits performed by the Auditor General that provide reasonable assurance
regarding the financial statement of LTH. An independent review by the professional accounting firms
provides limited assurance to the balance of asset and liability of LTH at the year end. Which gives
extra guarantees to the trustworthiness of LTH’s financial position. Independent review is
recommended to be conducted annually until there is evidence that LTH has successfully recovered
from losses, has ability in balancing their asset and liability and at the same time generating
distributable profits.

Besides, since independent review involves less detailed work, it's less expensive and therefore cost
effective for LTH to implement. Procedures in independent review will include applying analytical
procedures, ratio analysis, inquiries of management and investigation of large amount accounting
transactions at the year end. So, LTH should have an independent review as it not only helps the
company in showing the credibility of their asset and liability, it also regain depositors trust in LTH to
manage their savings, hajj payment and investments.

Long term solution : Eliminate Profit Maximization Culture

From the government’s investigation, it's obvious that LTH’s aimed at high risk activities to earn or
boost profit, for example stock trading, property transaction and creative accounting. However,
sometimes LTH failed to make accurate forecasts and this wrong choice reduced the profit that LTH
intended to increase. Besides, the profit maximization culture of LTH damages the company’s financial
well being, depositors confidence and long term developments of the company. Therefore, LTH is
suggested to change its culture of hitting profit targets to a culture that prioritises transparency and
diversity.

23
Transparency in information both internally and externally is vital, since it communicates
management‘s core value, goals and expectations to the employees and the shareholders. In LTH, the
management tries hard to keep the liquidity issue as a secret and it leads to anxiety and insecurity in
employees. Instead, LTH should be honest and reveal the crisis faced by the company. Then the
management should take their role in motivating and connecting employees together to overcome the
crisis. Besides, information about significant facts (absent of equity instrument impairment) need to be
disclosed to the investors, as this would influence their investment decision.

Moving on to the next suggested culture, diversity. LTH’s management and board of directors mostly
have experience working in government linked companies or state owned enterprises. A more diverse
education background, skills, perspectives and ideas in top management contributes to better
innovation, increases creativity and enhances accuracy of decision making. Hence, LTH is
recommended to hire human talent from private sectors that experienced the highly competitive market
and have a different strategic insight. It would definitely help in improving the quality of decision and
profitability of LTH. Lastly, changes in culture are challenging to be achieved in the short term, hence
management have to consistently provide their support and do proper planning in implementing
changes.

3.5.3 Recommendations
The combination of Select Competent Audit Committee and Eliminate Profit Maximization Culture
will be recommended, because prevention is better than cure. These 2 solutions, if implemented
effectively, not only solve the creative accounting issue, but also improve workflows and guide the
decision-making process of Tabung Haji. To accomplish the first solution, the board of directors should
appoint independent members that are not related to the top management personnel of Tabung Haji.
Besides, another requirement of selecting an audit committee is, at least one person in the audit
committee needs to be a financial expert that is supported by recent and relevant qualifications and
experiences. Referring to an article published by ICAEW, the board of LTH can refer to these traits in
searching for a suitable audit committee, for example intellectual curiosity and professional scepticism,
courage to challenge management decisions, excellent team builder, good listening skills, etc. With the
oversight of the audit committee in LTH, non-compliance of financial reporting standards can be
eliminated from its root cause. Moving on to strategies in developing a transparent and diverse culture,
the management can start with recruiting employees that fit in and recognise the importance of these

24
cultures. Next, LTH need to communicate the new values to their employees together with the
expected behavior, so that employees understand their role. In addition, it's vital that management
themselves serve as a role model and guidance for the employees in changing and improving Tabung
Haji. To summaries, 2 solutions which are Select Competent Audit Committee and Eliminate Profit
Maximization Culture are recommended to prevent and solve creative accounting practices in LTH.

25
4.0 Conclusion
The case study above has highlighted several issues that lead to Tabung Haji’s corporate governance
failure. In order to achieve good corporate governance, there are a few major characteristics that should
be complied with. The characteristics are transparency, accountability, effectiveness and efficiency,
fairness, independence and discipline. However, Tabung Haji has failed to comply with all of the
characteristics to create effective corporate governance. The first issue is the breach of corporate
accountability by involving in suspicious transactions and declaring dividends illegally. The Board of
Directors did not carry their role in directing the company. They failed to be responsible for the
governance of their companies. The next issue was the improper decisions by the directors that led
them to be involved in high-risk investments. Tabung Haji also has some issues with ineffective
management and inefficient supervision. In addition, Tabung Haji did not comply with existing
accounting standards for the impairment of their equity instruments. All of the issues have indicated
the ineffectiveness of Tabung Haji’s corporate governance. The bad corporate governance of Tabung
Haji has made the public cast doubt on the company's operation and income.

Effective corporate governance is essential as it balances the interest of the company's stakeholders
such as customers, investors, employees and more. The company’s board of directors also plays an
important role in maintaining good corporate governance. However, in the Tabung Haji case the board
of directors did not focus on influencing corporate governance. They failed to set appropriate
directions for the company and did not monitor the work of management for them to achieve the
company’s goal. Corporate governance helps to improve decision-making skills by management at all
levels. The top-level management, board of directors, make decisions wisely without any ulterior
motives and also monitor the mid-level management to take appropriate work-related decisions to
achieve the company's objectives. Many other benefits can be reached with good corporate governance
such as stronger internal control of the company, encouraging positive behaviour of employers and
employees, better strategic planning, and lastly building a good reputation and legacy of the company.
Therefore, it can be said that effective corporate governance always guarantees the success of the
company in both the short term and the long term.

26
5.0 References
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Markets.
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Aziz, A. (2018, July 16). Tabung Haji gets a new chair, CEO. The Malaysian Reserve.
https://themalaysianreserve.com/2018/07/16/tabung-haji-gets-new-chair-ceo/
Baig, U. (2016). Hajj Management in Pakistan in the Light of Experience of Tabung Haji of Malaysia.
International Journal of Islamic Economics and Finance Studies, 2(2), 13–39.
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Barrock, J. (2016, October 25). Tabung Haji’s oil and gas woes. The Edge Markets.
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Free Malaysia Today. (2020, August 25). Tabung Haji explains delay of 2018 annual report.
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018-annual-report/
ICAEW. (September 2018). 9 Traits of an effective Audit Committee Retrieved from
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mittee-articles/9-traits-of-an-effective-audit-committee
Jayamanogaran, T. (2020, December 10). Govt’s 2019 audit shows Lembaga Tabung Haji failed to
collect outstanding principal repayments, profit charges of RM65.86m from subsidiaries. Yahoo
News. https://malaysia.news.yahoo.com/govt-2019-audit-shows-lembaga-081011390.html
Kamarulzaman, N. Z. (2019, November 15). Govt to bear RM10.3b losses in Tabung Haji rescue plan.
The Edge Markets.
https://www.theedgemarkets.com/article/govt-bear-rm103b-losses-tabung-haji-rescue-plan
KPMG. (2005). The KPMG Guide: FRS 139, Financial Instruments : Recognition and Measurement
Retrieved from
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Lim, J. S. (2020, July 15). Tabung Haji is in trouble. What happens to the savings of 9 million Malaysian
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6.0 Appendix
3.2 Investment Approval Channel

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