PM NAJIB'S SON PARTNER IN AUDITORS DELOITTE - DEFINITE CONFLICT OF INTEREST AT 1MDB!

by china doll wall, donplaypuks® intrepid correspondent for audit affairs

The Opposition and Tony Pua have finally woken up to this worrisome connection between 1MDB, its current auditors Deloitte and PM Najib's son, Nizar Najib. CLICK HERE for details of partners in Deloitte Malaysia and my discovery of it much earlier HERE - scroll down to the comments section.

But first let's recap. Deloitte is 1MD's 3rd auditor! It replaced KPMG which in turn replaced Ernst & Young. They both resigned following unsatisfactory answers from 1MDB's Chairman of Advisers PM Najib, Chairman Lodin Wok, successive CEO's Ismee, Sharola and Hazeman and Finance Directors, to serious audit and accounting queries. 

Now, PM Najib, the Ministry of Finance (MoF), 1MDB and Deloitte will all claim that there is no conflict of interest in Deloitte's appointment as 1MDB's auditors since:

1. Nizar Najib, while being a partner is not the audit partner. He is a partner in the financila advisory services section.

2. There is the 'China Wall' or perhaps 'Bamboo Curtain', meaning that strict confidentially is maintained and the audit side of Deloitte does not communicate or disclose its work and findings to the non-audit side. Its right hand will not know or influence what the left hand is up to.

But, we all know what oils the wheels of government, big business, commerce and audits in the real world, especially with 100% government owned companies with RM51 billion in assets and RM49 billion in liabilities that are on the verge of collapse and requiring government bailout and re-structuring! More so, with 100% government owned businesses that have insufficient income to service debt interest and retire RM46 billion of bonds & bank loans - RM42 billion in bonds/bank loans and RM 4 billion in derivative debts (Mongolian coal-mine, unknown Indonesia venture) - over and above which is another RM3 billion in trade and other creditors!!

When they have to rely on billions of ringgit in government handouts, bailouts and sovereign guarantees, and selling their crown jewels - prime land gifted to it at way below market value - then we all know that the writing is on the wall. 

We should all by now be aware that in the 21st century, we cannot rely completely on signed audit reports as to the financial soundness of a company. The collapse of Enron, Tyco and Global crossings, all audited by one of the Big 4 is clear proof that the game has changed. The crooks and thieves are always 5 steps ahead of the law. In Malaysia we are not short of such scandals e.g. Transmile, Ocean Food, Renong, MAS etc.

No doubt, the auditors are not there to detect frauds and corruption; that is the job of a company's internal auditors and management (Chairman and Board of Directors). But, certain basic tests should be done to unearth the possibility of fraud and ascertain the true health of a company. And if the auditors were lulled into a false sense of security by the fact that the PM was involved knee-deep in 1MDB, and that his son was a partner in their firm, then the fault lies entirely with Deloitte. At the every least, their antenna should have been up, given that EY and KPMG had resigned, and they had qualified the accounts with extensive notes.

Yes, auditors are not, by law, required to perform the job of bloodhounds. Equally, they should not be cowed into being poodles and lapdogs, and sign blindly or be seduced by mega-bucks audit fees.

There is no doubt that the MoF, 1MDB and Deloitte should have publicly disclosed the clear conflict of interest situation. If 1MDB and Deloitte had any sense, they would not have had anything to do with each other vis-a-vis audit. No matter what, now there will be serious public perception that 1MDB's audited accounts are not worth the paper they are printed on.

As an analogy, a person is not given a clean bill of health merely  because a blood test reveals nothing out of the ordinary. By the same reckoning, 1MDB is not safe merely because, on paper, its assets exceed its liabilities. As an external auditor, I would be very worried that land has been revalued to reflect an inflated balance sheet and RM3.6 billion in paper profits, while ignoring cash operating losses of RM3.5 billion. I would be extremely nervous with a a mangement that does not write down declines in the market value of dubious "investments", especially unsecured ones. I would be concerned about a management that doggedly does not provide the public clear answers to the details of RM20-27 billion in investments and cash.

To me, it's clear that the advisers and management of 1MDB shoud be sacked immediately. They should be replaced by receivers appointed by an all-parties select committee of Parliament. The receivers should commission a new audit by a totally new firm of recognised auditors. Only then can we get a clear picture of the true state of affairs at 1MDB. 

Otherwise, we will continue to be fed hazy, conflicting and misleading information by a Prime Minister and his administration who have been caught engaging in 'terminological inexactitudeness' on more than one occasion and on more than one issue, especially since 2009.

As for the conflcit of interest debacle, Deloitte should understand the greater duty it owes the Rakyat, resign forthwith and withdraw its 2014 audit certificate to 1MDB, no matter how embarrassing it may be to their name and reputation. Let PM Najib and Chairman Lodin Wok and new CEO KArul Kanda handle the hot potato at 1MDB.

Donplaypuks® with fake china walls and bamboo curtains and audit, man!