KPMG says previous audits invalid in latest Malaysia 1MBD development

29 June 2018 Authored by Consultancy.asia

In the latest 1MBD development, one-time auditor KPMG has informed the scandal-hit Malaysian state-fund that its previous audits are invalid.

In the latest development in the wide-reaching 1MBD scandal which has engulfed Malaysia over the past several years, the Big Four firm KPMG – just one the state-owned fund’s previous top-tier auditors – has informed the fund’s investigating body that its previous audits are not a ‘true and fair’ assessment due to the withholding of relevant documents during its time as auditor.

In a letter to the strategic development company from earlier this month, KPMG has said its financial statements for the financial years ending March 2010, 2011 and 2012 are not an accurate reflection of the company, advising 1MDB that it should “immediately take all necessary steps to prevent any further or future reliance” on the reports during that time.

The news follows the public release of previously protected files by the newly elected Prime Minister Mahathir Mohamad in his effort to recoup $4.5 billion and bring any misappropriation to account. The revived investigation has most recently seen nearly $275 million in cash and valuables seized from the deposed former leader Najib Razak, including a vast trove of jewelry, handbags watches and sunglasses.

1MDB said; “According to KPMG, they reached the above decision after going through the recently declassified auditor general’s report on 1MDB and other relevant documents that were withheld from them by the previous management,” with KPMG informing the state-owned fund that it “would have materially impacted the financial statements and the relevant audit reports” had the documents been previously disclosed.KPMG says previous audits invalid in latest Malaysia 1MBD developmentThe auditor-general’s files, which had been classified under the government’s Official Secrets Act since 2016, are said to highlight possible transaction irregularities but also note that the state auditors were hampered in their findings by limited access to 1MDB computers, notebooks and servers. Further, the fund hadn’t submitted management accounts for the financial year ending 2015 or bank statements from foreign financial institutions.

The affair hasn’t been kind to the world’s biggest professional services and strategy consulting firms. The Boston Consulting Group and McKinsey & Company both served as advisors to 1MBD predecessor the Terengganu Investment Authority (TIA), caught up in the numerous money-laundering probes now underway across the globe, while each of the Big Four firms have now had some involvement with 1MDB – the latest being PwC, appointed to undertake a review by the government last month as the last of the quartet without the taint of previous association.

Although it should be noted that none of the fund’s previous auditors have been accused of any wrongdoing. The fund’s original big-name auditor, Ernst & Young, during the fund’s TIA guise in 2009, was dismissed the following year prior to filing over a difference in opinion regarding its valuation of investments. Next up was KPMG – likewise dismissed over a conflict concerning investment valuations. KPMG was followed by Deloitte the same day of KPMG’s termination.

Deloitte in turn stepped down in 2016 in the wake of the US Department of Justice filing suit against 1MBD in to relation to the siphoning of what is now alleged to be $4.5 billion in assets. Deloitte, like KPMG, has also since said that its reports from 2013-2014 cannot be relied upon – due to relevant information not being available during that period. Parker Randall, which bills itself as a Big Four alternative, has since stepped in as auditor for 1MDB.

KPMG Malaysia has noted in a statement that it "has, and continues to, fully cooperate with all relevant authorities investigating matters associated with 1MDB. Given the ongoing investigations by the authorities, it would not be appropriate for us to comment further.”

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