This article first appeared in The Edge Malaysia Weekly on July 8, 2024 - July 14, 2024

THE Public Accounts Committee’s (PAC) inquiry into the affairs of the Human Resources Development Corporation (HRD Corp), particularly its investments and governance structure, has opened a can of worms.

HRD Corp celebrated its 30th anniversary last year. It was formed in 1993 with the noble intention of funding the upskilling of employees on the basis that companies were not spending enough to develop their human capital. In relation to the objective, the government agency began collecting from registered employers a 1% levy on Malaysian employees’ monthly wages across the sectors covered by Pembangunan Sumber Manusia Bhd (PSMB).

Over the years, the collection of the levy expanded into the wider economic sector and consequently, the annual amount collected ballooned. The fear now is that the government agency, which is flush with cash, has become a breeding ground for investments that may not be viable.

This is evident from the PAC’s findings where it says a significant amount of the levy collected has been put into risky investments related to the equity market. It highlighted the put and call options that HRD Corp had entered into in its investments related to equities.

The government agency’s investments went up a significant 66% to RM1.44 billion last year from RM869.7 million in 2022. The fair value of its equity investments stood at RM612.77 million compared with RM352.47 million the year before.

According to the PAC report, HRD Corp’s funds that were invested in these instruments came from unutilised levy.

Unutilised levy is the sum collected from employers who have been deregistered due to cessation of business or the levy has been unutilised for a period of two years. Last year, the unutilised levy amounted to RM31.8 million.

The PAC concluded in the report that the investments were not presented to HRD Corp’s board of directors despite being requested by the directors.

When grilled by the PAC and Auditor-General, Elanjelian Venugopal, a former CEO of the Human Resources Development Fund, admitted that the organisation was not an expert in investment and had lost RM80 million in 2022 because of put and call options.

“The investment team at HRDF is a very, very weak team. In 2022, HRD Corp reportedly lost RM80 million through investing in put and call options. So, it is not quite clear how it works because they didn’t specify [anything]. But they lost money,” he said.

“They are losing money every year, right? The question then becomes [whether] they are capable of doing this kind of investment. Or who is capable there to advise the board to invest in or [enter] riskier ventures?”

Having been with the organisation since 2018, Elanjelian was replaced by Datuk Shahul Hameed Shaik Dawood on April 1, 2020. At about the same time, Datuk Nelson Renganathan was appointed to the board as chairman by Datuk Seri M Saravanan, who became human resource minister in March that year when the Perikatan Nasional administration was in power for 18 months.

Nevertheless, Nelson exited the board after five months and was replaced by Datuk Seri Jamil Salleh on Oct 14. Given that Jamil was the chairman of both the investment panel as well as the board of directors, HRD Corp’s management justified that the investment panel did not need to report its investment activities to the board.

Note that there has also not been a representative from Bank Negara Malaysia on its board of directors, as required by the Act under which HRD Corp was formed, since 2017 or 2018.

Data from the PAC’s report shows that HRD Corp collected a total levy of RM2.13 billion from 89,912 registered employers, which employed 4.59 million employees, in 2023. The amount collected had grown to RM1.809 billion in 2022 from RM475 million in 2020 as more sectors were required to pay the levy under the PSMB Act 2001.

According to the report, HRD Corp’s assets under management stood at RM3.77 billion in 2023 (unaudited), up from RM3.12 billion in 2022 and RM2.268 billion in 2021.

Another matter raised by the PAC was HRD Corp’s involvement in several “dubious property deals”, most notably the purchase of a RM154 million building without the approval of its board.

Elanjelian said the six-storey building in Bangsar South was intended to be the new headquarters of the government agency, according to the PAC report released last Thursday. The move did not happen as it had become a “controversial issue”, he added.

“We had [some] history in 2017, when we purchased the building for RM154 million, right? Then for many years, it was empty. We purchased it with the view of relocating there [Bangsar South]. We were trying to rent it out [but couldn’t] because there was a RM10 million bribe that was involved ... MACC was supposed to take action but stopped when the government [administration then] collapsed,” said Elanjelian.

“But I saw the document because they [the MACC officer] were interviewing me about the RM10 million bribe involved. So, the question is always like why is HRDF buying buildings? Because sometimes it is not necessary and [at] HRDF, we were trying to bring down the number of staff because we wanted to take this fund and put it in fixed deposits, not to invest it,” he added.

The PAC report revealed that HRD Corp had paid a 50% deposit, or RM120 million, for the purchase of Menara Ikhlas in Putrajaya that was worth RM202.5 million in February 2021. However, the transaction was later cancelled more than a year after the deposit was paid.

The deposit paid was more than 50% of the purchase price of the building, which was “somewhat unusual because the deposit that should have been paid is only 10% of the purchase price, the report stated. Further, the contents of the sales and purchase agreement was “a lease to purchase agreement”, it noted.

The PAC also flagged the purchase of a block of a commercial building called Sutera Avenue in Kota Kinabalu for RM16 million, which was not tabled at the board meeting. While the purchase was approved by the company’s investment panel, the board of directors was asked to sign the statement without being given complete information on the property.

In addition, the Auditor-General’s report flagged a suspicious disbursement of training grants, totalling RM51.69 million, by HRD Corp to 3,726 individuals who attended training multiple times under the Gerak Insan Gemilang scheme. Also, 234 participants in the scheme were flagged as suspicious for having identical names and identification numbers.

When contacted by The Edge, HRD Corp did not respond directly to the questions raised concerning the “suspicious grants, investments and irregularities pertaining to property purchases”, but referred to its press statement where it acknowledged the shortcomings highlighted in the reports by the Auditor-General and PAC, and maintained that the levy collected from employers should only be used to train their employees.

It also said that following an audit process for the 2019-2023 period, it has made several improvements, such as cancelling the Skills Passport Project without incurring costs or losses to HRD Corp or the government, and introducing the Strategic Initiative Account, which is segregated from the levy trustee account, for better transparency and efficiency in managing its finances.

The findings on HRD Corp have drawn the attention of Prime Minister Datuk Seri Anwar Ibrahim, who called for priority to be given to management, governance and accountability in the issues raised by the Auditor-General’s report.

After the Ministry of Human Resources submitted a report on the mismanagement issue involving HRD Corp to the Malaysian Anti-Corruption Commission last Friday, the MACC said it would examine all the documents related to the findings in the latest Auditor-General’s report concerning HRD Corp to determine if there had been any element of wrongdoing. 

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