By Alya Natasha Azhar
KUALA LUMPUR, Aug 15 (Bernama) -- The Royal Commission of Inquiry (RCI) report on Lembaga Tabung Haji (TH) calls for systemic reforms and sustained discipline in internal processes.
Professor at the Faculty of Economics and Management, Universiti Kebangsaan Malaysia (UKM), Prof Datuk Dr Norman Mohd Saleh, said the check-and-balance mechanisms within the haj fund management institution must be strengthened to challenge and scrutinise every high-risk decision before it affects depositors’ interests.
He said risk warnings from the Audit Committee (AC) and Risk Management Committee (RMC) must be mandatorily integrated into the Board of Directors’ (BOD) decision-making process to safeguard the funds of Muslims.
“In the existing standard operating procedures (SOPs), risk warnings often merely serve as advice that can be disregarded. The system needs to give greater authority to the RMC to influence strategic and investment decisions, thereby preventing management override practices.
“Additionally, TH should be subject to a specific external agency supervisory framework, namely Bank Negara Malaysia (BNM), for assessing liquidity risk and capital adequacy in the management of investment funds,” he said when contacted by Bernama.
On the appointment aspect, he said the selection process through the Nomination and Remuneration Committee (NRC) must be based on transparent and integrity-driven merit guidelines, free from executive influence or political pressure.
He said the move was important as TH is not a publicly listed company that has an annual general meeting (AGM) as an accountability mechanism to report to and answer stakeholders.
He opined that the existing regulatory mechanism should shift from being reactive to a more proactive early-prevention approach to detect weaknesses before they require large-scale corrective action.
“Given that day-to-day oversight involves the relevant agencies and ministries, effective assessment would certainly require a combination of specialised technical expertise in managing high-value financial and investment risks.
“Therefore, the management and BOD must shoulder joint responsibility more strictly for every decision made,” he said.
Meanwhile, Associate Professor Dr Mohd Hafizuddin Syah Bangaan Abdullah, a lecturer in Finance and Risk Management at the UKM Faculty of Economics and Management, said risk management should be implemented proactively before any major investment decision or transaction is finalised.
He said that the institution should establish clear investment tolerance limits (risk appetite), provide an independent risk opinion, conduct stress testing and prepare a documented exit strategy before approving an investment.
“For high-impact decisions, a red-flag escalation mechanism should be established. If risk limits are breached, an independent assessment identifies a material gap, or there is a conflict of interest, the decision should automatically be brought before the BOD and should not be approved through the normal process,” he said.
He also stressed the need to separate the RMC from the AC for complex institutions such as TH, as the risk function focuses on risk foresight, while the audit function is more focused on compliance.
To avoid conflicts of interest, he supported the RCI’s recommendation that active politicians not be appointed as chairpersons or board members of TH and its subsidiaries, in addition to tightening appointment criteria based on a clear skills matrix.
He said the BOD should regularly monitor three key indicators, namely audited financial position, the quality of reporting under the Malaysian Financial Reporting Standards (MFRS), and disclosures of Related Party Transactions (RPT).
“Management remuneration should also be linked to long-term performance adjusted for risk, including establishing a clawback mechanism if incentives are awarded based on inaccurate or unsustainable information,” he said.
The RCI report on TH, made public on July 29, documented various weaknesses in the institution’s management and governance between 2014 and 2020, and put forward 25 recommendations for improvement.
Subsequently, a special sitting of the Dewan Rakyat was held to allow the report to be tabled and debated by Members of Parliament.
-- BERNAMA