Prominent economists have warned that Lembaga Tabung Haji's (TH) practice of using management estimates to value RM4.044 billion of its property assets exposes the Islamic pilgrimage fund to substantial financial risk, according to findings highlighted in the recent Royal Commission of Inquiry report. The disclosure, which became public following the RCI's examination of TH's operations between 2014 and 2020, has raised fresh questions about how the institution determines its financial health and capacity to distribute dividends to depositors.
The scale of the valuation discrepancy is striking. Of TH's total RM4.6 billion property asset valuation for 2017, only RM556 million—roughly 12 per cent—was supported by independent professional valuers' reports. The remaining RM4.044 billion rested entirely on figures supplied by TH management themselves, a gap that economists say compromises the credibility of the institution's financial reporting and asset assessment processes.
Prof Emeritus Dr Barjoyai Bardai from Malaysia University of Science and Technology explained that permitting management to estimate asset values creates inherent conflicts of interest. Since management has a direct stake in how the institution's financial position appears to depositors and regulators, there exists a natural incentive towards presenting the most optimistic picture possible. While he stopped short of alleging actual misconduct, he emphasised that internal estimates simply cannot provide the same level of assurance and objectivity that independent professional valuations deliver.
The consequences of inflated asset valuations ripple through TH's operations in consequential ways. When properties and investments are recorded at values higher than what they could realistically be sold for in the marketplace, the institution's Realisable Asset Value (RAV)—the critical metric used to determine dividend distribution capacity—becomes artificially elevated. This can create a dangerous illusion of financial strength, potentially encouraging the board to approve hibah distributions that exceed prudent levels and may not be sustainable over time.
Dr Barjoyai advocated for a fundamental overhaul of TH's valuation methodology. High-value properties should be independently assessed using consistent, market-based approaches that can withstand scrutiny. The RAV calculation itself requires transformation: it must operate under clearly defined standards, undergo independent audit and verification, and be overseen by a specialised committee comprising investment professionals and qualified accountants. Any figures used to justify dividend distributions, he argued, must satisfy basic financial governance principles—they should be conservative rather than optimistic, independently verifiable, and not weighted towards estimates by parties with vested interests in the outcome.
Prof Dr Ahmed Razman Abdul Latiff from Putra Business School extended this analysis by focusing on the responsibilities of TH's board and audit committee. These bodies carry an explicit governance duty to rigorously examine management assumptions and demand substantial supporting evidence before accepting figures for financial reporting purposes. Given that RAV directly determines whether TH complies with Section 22 of the Tabung Haji Act 1995—a requirement that directly affects the rights and interests of millions of depositors—the level of oversight should have been proportionally higher.
Prof Razman also raised pointed questions about the role of TH's previous external auditors. The RCI report indicates that concerns about the institution's financial stability and the propriety of hibah distributions had been flagged in earlier audits, yet apparently did not receive the intensive scrutiny they warranted. This raises the uncomfortable question of whether auditors adequately challenged management's valuation assumptions or accepted them with insufficient questioning. A PricewaterhouseCoopers audit cited in the RCI report confirmed that RAV calculations relied on management estimates and internal company valuations rather than market prices for listed securities or independent property valuations.
The methodology employed by TH management introduced another layer of distortion into financial reporting. Rather than using the asset and liability values that appeared in the institution's official financial statements, management constructed a separate RAV calculation to satisfy the Tabung Haji Act requirements. This created two parallel valuation systems, with the RAV figures invariably showing higher asset values. Significantly, no downward adjustments were made to investments whose market values had plummeted to very low levels, further inflating the apparent asset base.
TH management has attempted to justify this approach by arguing that Section 22 of the Tabung Haji Act 1995 does not explicitly define what constitutes an asset, and therefore the institution possessed discretion in determining valuation methodology. However, this interpretation essentially grants TH management unilateral authority to define its own financial parameters—a position that economists and governance experts find deeply problematic. It represents an extreme extension of management discretion that flies against international standards of institutional transparency and accountability.
The inclusion of RM2.294 billion relating to TH Plantations Berhad within the RAV valuation illustrates how these methodological choices compound. The plantation subsidiary's value was incorporated based on TH management's internal estimates rather than observable market prices or independent assessments. For Malaysian depositors entrusting their life savings to TH, these practises raise fundamental questions about whether they truly understand the financial position of the institution holding their funds.
Prof Razman called for further investigation to determine whether the valuation practices reflected mere governance failures, inadvertent misrepresentation of figures, or deliberately manipulative accounting. This distinction matters enormously for accountability and restoring public confidence. The RCI's public disclosure of these issues on July 29, followed by parliamentary debate on August 11, has placed heightened scrutiny on TH's governance and financial management that was previously absent from public discourse.
The findings resonate beyond TH itself, carrying implications for other Malaysian institutions managing substantial depositor funds or managing assets on behalf of the public. They demonstrate how the absence of robust, independent valuation standards and insufficient boardroom challenge of management assumptions can gradually allow financial reporting to drift away from economic reality. For Malaysian policymakers and regulators, the TH experience offers a cautionary lesson about the importance of institutionalising checks and balances that constrain even well-intentioned management from allowing their judgment to override objective evidence.
