Auditor General's Report 2011 - Synopsis (English)

7/31/2019 Auditor General's Report 2011 - Synopsis (English)

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SYNOPSIS

AUDITOR GENERALS REPORTFOR THE YEAR 2011

ON THE AUDIT OF THE FEDERAL

GOVERNMENTS FINANCIAL STATEMENT,FINANCIAL MANAGEMENT, ACTIVITIES OFTHE FEDERAL MINISTRIES/DEPARTMENTSAND MANAGEMENT OF THE GOVERNMENT

COMPANIES

NATIONAL AUDIT DEPARTMENTMALAYSIA


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CONTENTS


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CONTENTS

PAGE

CONTENTS v

SECTION I

THE FEDERAL GOVERNMENTS FINANCIAL STATEMENT ANDFINANCIAL MANAGEMENT OF THE FEDERALMINISTRIES/DEPARTMENTS

PREFACE 7

Synopsis

PART I - Certification Of The Federal Governments Financial StatementFor The Year Ended 31 December 2011 13

PART II - Financial Management Of The Federal Government 13- Overall Financial Management Performance 13- Financial Management Of The Federal Ministries/Departments 13

POSTSCRIPT 17

SECTION II

ACTIVITIES OF THE FEDERAL MINISTRIES/DEPARTMENTS ANDMANAGEMENT OF THE GOVERNMENT COMPANIES

PREFACE 25

Synopsis

PART I - Implementation Of Activities By The Federal Ministries/Departments 29

PRIME MINISTERS DEPARTMENT

Legal Affairs DivisionMalaysia Department of Insolvency1. Management Of Bankruptcy And Company Winding Up Cases 29

Federal Court Chief Registrars Office2. Maintenance Of The Kuala Lumpur Court Complex 30

Public Private Partnership Unit3. Management Of Tourism Development At Corridor Economic Region 31


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MINISTRY OF TOURISM29. Management Of Providing/Upgrading Tourism Facilities Programme 5530. Upgrading Of Penang Hill Railway Project, Penang 56

MINISTRY OF FEDERAL TERRITORIES AND URBAN WELLBEING

Kuala Lumpur City Hall31. Management Of Integrated Transport Information System Project 57

MINISTRY OF EDUCATION MALAYSIA32. Solar Hybrid System Project For Rural Schools 5833. Management Of Quarters 5934. Procurement Of Equipment For Vocational Subjects At

Technical/Vocational Secondary Schools 6135. Management of Cooked Food Supply To Boarding Schools,

Technical/Vocational Secondary Schools And Government AssistedReligious Schools 61

MINISTRY OF HEALTH MALAYSIA36. Management Of Medical And Non Medical Supplies 6237. Registration, Licensing And Enforcement Activity Of Pharmaceutical

Product 6338. Management Of Hospital Equipment 6439. Construction Project Of The Kluang Hospital, Johor 6540. Linen And Laundry Service Management 6641. Maintenance Services Of Hospital Information System 6742. Management Of Flying Doctor Service Programme In The State Of Sarawak 68

MINISTRY OF HUMAN RESOURCESManpower Department43. Construction Management And Equipment Procurement At Advance

Technology Training Centre 69

MINISTRY OF INFORMATION COMMUNICATION AND CULTURENational Department Of Heritage44. Conservation And Preservation Of Heritage Programme 70

MINISTRY OF WOMEN, FAMILY AND COMMUNITY DEVELOPMENT

Department Of Social Welfare45. Social Assistance Programme 71

MINISTRY OF HIGHER EDUCATION46. Academic Training Scheme For Institution of Higher Education 71

MINISTRY OF DEFENCE47. Married Quarters Facilities For Malaysian Armed Forces 72

National Service Training Department48. Management Of National Service Training Programme 73


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MINISTRY OF HOME AFFAIRS49. Construction And Management Of Johor Ministry Of Home Affairs

Complex 74

Anti-Smuggling Unit

50. Management Of Enforcement Activities 75

Royal Malaysian Police Force51. The Management Of Undeveloped Land 7652. Construction Of The Marine Police Base Lahad Datu, Sabah 76

Department Of Civil Defence, Malaysia53. Management Of Emergency Relief Equipment Procurement 78

PART II - Management Of The Government Companies

54. Institut Terjemahan Dan Buku Malaysia 7855. SIRIM Berhad 7956. Pengurusan Aset Air Berhad 8057. Rangkaian Pengangkutan Integrasi Deras Sdn. Bhd. 8158. UDA Holdings Berhad 8259. Malaysia International Franchise Sdn. Bhd. 8360. Indah Water Konsortium Sdn. Bhd. 83

POSTSCRIPT 87


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SECTION I


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SYNOPSIS


AUDITOR GENERALS REPORT 2011ON THE FEDERAL GOVERNMENTS

FINANCIAL STATEMENT ANDFINANCIAL MANAGEMENT OF

THE FEDERAL MINISTRIES/DEPARTMENTS

NATIONAL AUDIT DEPARTMENT

MALAYSIA


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PREFACE


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PREFACE

1. Articles 106 and 107 of the Federal Constitution and the Audit Act 1957 require the

Auditor General to audit the Federal Governments Financial Statement, financial

management, activities of the Ministries/Departments as well as management of the

Federal Government companies and submit his reports to His Majesty, Seri Paduka

Baginda Yang di-Pertuan Agong and obtain his assent before tabling them in

Parliament. To fulfil these responsibilities, the National Audit Department needs to carry

out 4 types of audit as follows:

1.1. Attestation Audit - to give an opinion as to whether the Federal Governments

Financial Statement for the year concerned shows a true and fair view as well as its

accounting records are maintained properly and kept up to date.

1.2. Compliance Audit - to evaluate whether the financial management of the

Federal Ministries/Departments is in accordance with relevant financial laws and

regulations.

1.3. Performance Audit - to evaluate whether Federal Governments

activities/programmes/projects have been carried out efficiently, economically and

achieved its desired objectives/goals.

1.4. Government Companies Management Audit - to evaluate whether the

Federal Government companies have been managed in a proper manner.

2. My report on the Financial Statement and Financial Management of the Federal

Governments Ministries/Departments for the Year 2011 consists of the following:

Part I : Certification Of The Federal Governments Financial

Statement For The Year Ended 31 December 2011

Part II : Financial Management Of The Federal Government

Part III : National Audit Departments Involvement In

Various Activities Towards Enhancing

Accountability Of Public Financial Management

Part IV : General Matters


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3. Audit on the Federal Governments Financial Statement for the Year 2011

revealed that the Statement as a whole reflected a true and fair view on the financial

position of the Federal Government as at 31 December 2011, its operational income

and cash flow for the year concerned as well as its accounting records were being

maintained properly and kept up to date. As for financial management, audit findingsrevealed that several Ministries and Departments still did not follow financial regulations

fully. Among others, these weaknesses were due to insufficient manpower, lack of

training in financial management, inadequate supervision and lax in monitoring.

4. All the matters reported in this report had been brought to the attention of the

Heads of Department for their confirmation. The National Audit Department also took

several approaches to help the Federal Governments Ministries/Departments to

improve their financial management. Among the approaches that had been taken were

as follows:

4.1. Implementing a rating system based on Accountability Index (AI). Through

this rating system, marks will be given for compliance with financial regulations for 6

main elements. These elements are management control, budgetary control,

receipts control, expenditure control, management of trust funds and deposits as

well as management of assets and stores. The Federal Ministries/Departments

which have been rated as excellent become role models. This will motivate others to

diligently improve and enhance their financial management.

4.2. Treasury Instructions require all Heads of Ministry/Department to ensure thatresponsible officers safeguard public money, stamps or other valuable items in

safety boxes, vaults, cash boxes or other receptacles. They must ensure that

records kept are complete, up to date and periodically checked by senior officers. In

order to ascertain to what extent this has been complied with, the National Audit

Department had also carried out surprise checks in 301 Federal offices throughout

the country.

4.3. The National Audit Department also continued to implement the Adoption

Programme which was introduced in 2003. Under this programme, several

Government offices which had been identified as being weak in financial

management were selected and given advice to assist them in rectifying

weaknesses especially in maintenance of accounting records. In 2011, the National

Audit Department carried out the Adoption Programme in 11 Federal offices across

the country. Generally, financial management at these offices had improved after

being given guidance and training.

4.4. The National Audit Department continued to be involved in the evaluation of

the performance of Premier Grade Officers on financial management as part of their

confirmation exercise. A total of 60 Heads of Department were evaluated from

January to April 2011. These evaluations have indirectly contributed towards the


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enhancement of the financial management as promotion of Heads of Department

would only be considered by the Public Service Department after the National Audit

Department confirmed that corrective actions on the weaknesses raised had been

taken by the officers.

5. I would like to express my thanks to all the officers in the various Federal

Ministries/Departments who have given their full cooperation to my officers during the

audit. I would also like to record my appreciation and thanks to my officers who have

shown total commitment and worked diligently to complete this report.

( TAN SRI DATO SETIA HAJI AMBRIN BIN BUANG )

Auditor General of Malaysia

Putrajaya

12 June 2012


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SYNOPSIS


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SYNOPSIS

PART I - CERTIFICATION OF THE FEDERAL GOVERNMENTS FINANCIALSTATEMENT FOR THE YEAR ENDED 31 DECEMBER 2011

1. The Federal Governments Financial Statement for the year ended 31 December

2011 as a whole reflected a true and fair view of the financial position of the Federal

Government and the accounting records were also properly maintained and kept up-to-

date.

PART II - FINANCIAL MANAGEMENT OF THE FEDERAL GOVERNMENT

Overall Financial Management Performance

2. For the year 2011, the Federal Government received revenue totalling

RM185.42 billion, which was an increase of RM25.77 billion (16.1%) as compared to

RM159.65 billion for the year 2010. This was the highest income in 5 years since 2007.

The Inland Revenue Board of Malaysia alone managed to collect revenue of RM109.61

billion in 2011, which was an increase of 26.7% as compared to RM86.50 billion in

2010. In the meantime, the Royal Malaysian Customs Department had also successfully

collected revenue totalling RM30.38 billion in 2011, which showed an increase of 7.9%

as compared to RM28.15 billion in 2010. In the same year, the Government had

approved allocation of operating expenditure amounting to RM177.98 billion, which was

the highest approved allocation in 5 years. However, the allocation was insufficient to

cover the operating expenses amounting to RM182.59 billion. On 30 May 2012, an

additional allocation was approved by the Parliament to cover the deficit. As for the

development expenditure, Federal Ministries/Departments had spent RM46.42 billion

(93.9%) out of RM49.42 billion of the approved allocation.

Financial Management Of The Federal Ministries And Departments

3. The National Audit Department had audited 25 Federal Ministries and 42

Federal Departments in 2011 in order to ascertain whether their financial management

was in accordance with established laws and financial regulations. Audit findings

revealed that the overall financial performance at Ministries/Departments level for 2011

had improved as compared to 2010 and previous years. In 2011, the performance of 19

Ministries and 21 Departments in their financial management was rated as excellent,

which was an increase of 2 Ministries (11.8%) and 8 Departments (61.5%) as compared

to 17 Ministries and 13 Departments in 2010. On the other hand, 6 Ministries and 20

Departments were rated as good and one Department was rated as average. Besides


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that, the Headquarters and 14 state branches of the Royal Malaysian Police, as well as

14 Malaysian Missions Overseas under the Ministry of Foreign Affairs were also

assessed.

4. As required under the Treasury Instructions, all Controlling Officers/Heads ofDepartment must ensure that the responsible officers safeguard public money, stamps

or other valuable of any kind in safety boxes, vaults, cash boxes or other receptacles.

They must carry out periodic inspections and maintain complete and updated records.

In order to ensure that such duties were carried out by the Controlling Officers/Heads of

Department, the National Audit Department had carried out surprise inspections in 301

Federal Departments/Offices at state and district levels. Audit findings revealed that

there were some instances where public money and other valuable items were not kept

safely, delays in banking-in collections and cash balances in hand differed from records.

The report on the findings had been submitted to the relevant heads of department/statefor further action.

5. Besides conducting mandatory audit as provided under the law, the National

Audit Department also implemented the Adoption Programme and carried out special

evaluation on the financial management performance of Premier Grade Officers in

various Ministries/Departments/Agencies. In 2011, the National Audit Department had

carried out the Adoption Programme at 11 Federal Offices whereas from January 2011

to April 2012, a total of 60 Premier Grade Officers had been evaluated.


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POSTSCRIPT


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POSTSCRIPT

In general, the financial management of Ministries/Departments in 2011 showed a better

performance as compared to 2010. This was evident with 19 Ministries being rated as

excellent in 2011 as compared to 17 Ministries in 2010. The financial management at

the Departments level was also very encouraging with 21 Departments being rated as

excellent as compared to 13 Departments in 2010. However, such performance could

still be further enhanced if the Controlling Officers/Heads of Department not only take

action to rectify the weaknesses as highlighted by Audit but also take preventive actions

to ensure that the same weaknesses do not recur. With regard to this, the followings are

recommended to further strengthen the performance of financial management:

a. Controlling Officers/Heads of Department should conduct a comprehensive

check to determine whether the weaknesses highlighted by Audit also occur in

other areas and thereafter take corrective actions since audits conducted by the

National Audit Department are based on samples and specific scopes.

b. Ministries/Departments should enhance the effectiveness of Internal Audit Units

(UAD). Among others, they should ensure that the UAD staff get sufficient

training and guidance, prepare the annual audit plan so that auditing could be

carried out according to priorities, evaluate objectively and independently notonly on internal controls but also on risk management and organizational

governance, report on significant findings as well as giving recommendations

that give impact to the organization.

c. In order to enable issues highlighted by Audit to be discussed with greater focus,

Audit Committees should be set up in all Ministries in accordance with Treasury

Secretary Generals Directive dated 5 May 2009 requiring corrective and

preventive actions to be taken. The Audit Committee should report the results of

its discussion to the Financial Management and Accounts Committee chaired by

the Controlling Officer.

d. In order to further improve financial management, the involvement of Controlling

Officers/Heads of Department should be increased. They should be involved

hands-on on financial matters.

e. Secretary Generals/Heads of Department should chair every Exit Conference

together with the officers from the National Audit Department so that they could

know Audit issues beforehand and urgently take positive actions apart from

making improvements.


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f. In the implementation of eSPKB, the payment transactions are done at

Responsibility Centres and the supporting documents are kept at the respective

offices. In order to ensure that payment is done properly, supported by sufficient

documents and approved by authorised officers, the Accountant General

Department needs to ensure that its Inspectorate Unit carries out inspection onResponsibility Centres as planned.

g. All Departments policies, instructions and delegation of powers should be done

in written form so that they are more transparent and accountable. The

Departments Client Charter should be reviewed and updated constantly so that

services are delivered as promised.

h. Heads of Department should establish a check and balance system, supervise

closely and conduct surprise checks, conduct periodic assessment on skills and

capabilities of officers and give training to officers who are involved with financialmanagement so as to improve their efficiency. This is to avoid officers who are

less experienced and skilled from using their discretion when making decisions.

i. Records on asset and inventory should always be updated by the

Ministries/Departments in preparation for the Federal Government to move

towards accrual accounting in 2015.

j. Impose surcharge on those who failed to collect revenue/make improper

payment. Surcharge should also be imposed on Heads of Department/Division

for failing to take action against their staff who failed to carry out theirresponsibilities.

National Audit DepartmentMalaysia

Putrajaya12 June 2012


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SECTION II


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SYNOPSIS


ON ACTIVITIES OF THE FEDERAL

MINISTRIES/DEPARTMENTS ANDMANAGEMENT OF THE GOVERNMENT

COMPANIES

NATIONAL AUDIT DEPARTMENTMALAYSIA


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PREFACE


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PREFACE

1. Articles 106 and 107 of the Federal Constitution require the Auditor General to

audit the Federal Governments Financial Statement, financial management, activities

as well as management of Federal Government Companies and submit his reports to

His Majesty, Seri Paduka Baginda Yang di-Pertuan Agong and obtain his assent before

tabling them in Parliament. To fulfil these responsibilities, the National Audit Department

needs to carry out 4 types of audit as follows:

1.1. Attestation Audit - to give an opinion as to whether the Federal

Governments Financial Statement for the year concerned shows a true and fair

view as well as its accounting records are maintained properly and kept up to date.

1.2. Compliance Audit - to evaluate whether the financial management of the

Federal Ministries/Departments is in accordance with relevant financial laws and

regulations.

1.3. Performance Audit - to evaluate whether Federal Government activities

have been carried out efficiently and economically to achieve its desired

objectives/goals.

1.4. Government Companies Management Audit - to evaluate whether the

Federal Government Companies have been managed in a proper manner.

2. My report on the implementation of activities of the Federal

Ministries/Departments and the management of Government Companies for the year

2011 consists of 3 parts as follows:

Part I : Implementation Of Activities Of The FederalMinistries/Departments

Part II : Management Of Federal Government Companies

Part III : Status Of Follow-Up Actions Which Have Not Been Taken

By The Ministries/Departments/Government CompaniesOn The Recommendations Highlighted In The Auditor

Generals Report For 2009 And 2010

3. Section 6(d) of the Audit Act 1957 requires the Auditor General to carry out audit

to evaluate whether Government activities have been managed efficiently, economically

and in accordance with their stated objectives. The audit encompasses various activities

such as construction, infrastructure, maintenance, asset management, law enforcement,

procurement, revenue management, education, health, agriculture, human capital and

socio-economic upgrading programmes. This report contains observations from the

audit of 58 activities/projects of 28 Federal Ministries/Departments and management of7 Government Companies. Generally, weaknesses observed are such as improper


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payment; work/procurement did not follow specifications; unreasonable delays;

wastage; weaknesses in revenue management and management of Governments

assets. The said weaknesses were due to negligence when complying with

Governments rules/procedure; programmes/projects and scopes/specifications were

not planned and identified properly; work of contractors/vendors/consultants was not

monitored and supervised closely; poor project management skills; decisions on

procurement were made late; information systems of the Departments/Agencies were

incomplete and not updated; outcome/impact of programmes/projects was not given

due attention; shortage of funds for asset maintenance; and insufficient officers to

collect revenue.

4. Apart from that, this report also highlights the financial performance of 47

Government companies for the period 2008 to 2010 based on the analysis done on the

data obtained from their audited financial statements. A total of 23 companies recorded

profit before tax for 3 consecutive years amounting to RM255.834 billion while 9

companies suffered accumulated losses amounting to RM2.446 billion for 3 consecutive

years. However, from the 23 companies which recorded profits, only 10 companies paid

dividend amounting to RM109.364 billion to the Government for 3 consecutive years

while 4 companies only paid dividend in specific years. A total of 20 out of the 25

companies paid tax amounting to RM81.382 billion to the Government for 3 consecutive

years.

5. In order to help the Ministries/Departments/Government Companies to rectify the

weaknesses which were highlighted in the Auditor Generals Report 2009 and 2010, a

total of 547 recommendations were made. Until 30 April 2012, follow up Audit revealed

that appropriate actions had been taken on 241 (96.4%) from 250 recommendationsmade in the 2009 Auditor Generals Report. As for 2010, action had been taken on 220

(74.1%) from the 297 recommendations made. In 2011, a total of 356 recommendations

were made in the Auditor Generals Report to the related

Ministries/Departments/Government Companies for corrective actions or to prevent the

same weaknesses from recurring. The National Audit Department will monitor

continuously to ensure appropriate actions will be taken by the relevant parties and will

report the updated status in the 2012 Auditor Generals Report.

6. I would like to express my thanks to all the officers of the

Ministries/Departments/Government Companies who have given their cooperation to myofficers during the audit. I also wish to express my appreciation and thanks to my

officers who have given their commitment and worked diligently to complete this report.

(TAN SRI DATO SETIA HAJI AMBRIN BIN BUANG )

Auditor General of MalaysiaPutrajaya

25 July 2012


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SYNOPSIS


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SYNOPSIS

PART I - IMPLEMENTATION OF ACTIVITIES BY THE FEDERALMINISTRIES/DEPARTMENTS

PRIME MINISTERS DEPARTMENT

Legal Affairs DivisionMalaysia Department of Insolvency1. Management Of Bankruptcy And Company Winding Up Cases

a. Malaysia Department of Insolvency (MdI) is responsible for the operation,

administration, service, compliance and enforcement of insolvency law in Malaysia.

The number of resolved cases and total revenue collection from insolvency

administration showed a significant increase for the years 2009 to 2011 resulting

from the comprehensive implementation of the Organisational Transformation

Programme since April 2009 by MdI. However, Audit findings revealed that the

management of bankruptcy and company winding up cases at the offices visited

was unsatisfactory and needed further improvement. Among the weaknesses

identified were as follows:

i. process/work flow chart was not updated with rules/instructions/time norms;

ii. delay in taking further action;

iii. insufficient training in insolvency management to enhance skills/competencies of

officers; and

iv. storage/maintenance of files/documents of winding up cases of the company

was not in order.

b. It is recommended that MdI takes the following actions:

i. update the process/work flow chart in accordance with Acts and instructions set

by the Department and set time norms for recording bankruptcy cases into CaseManagement System/preparation of indexes/issuance of First Notification

Letter/issuance of reminder letters on attendance/filing Statement of

Affairs/instalment payments;

ii. conduct site visits to the premises so that the process of property disclosure

could be done immediately;

iii. establish a monitoring system for the issuance of First Notification

Letter/reminder letters on attendance to the bankrupts/directors, filing Statement

of Affairs/instalment payments so that the application of Warrant of Arrest could

be done;


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iv. provide adequate training in order to enhance skills and competencies of

officers/staff who are involved in the management of bankruptcy and company

winding up cases; and

v. keep/organise files and documents relating to company winding up cases

properly and systematically to facilitate reference and monitoring purposes aswell as to ensure the physical safety of documents.

Federal CourtChief Registrars Office2. Maintenance Of The Kuala Lumpur Court Complex

a. The Kuala Lumpur Court Complex (KMKL) was built in February 2007 and started

operation on 3 May 2007. It was necessary for maintenance to be carried out to

maintain, restore and repair building facilities and surroundings. The Federal Court

Chief Registrars Office (PKPMP) was responsible for implementing and supervising

maintenance of the KMKL building. Kemuncak Facilities Management Sdn. Bhd.(KFM) was appointed by the Ministry of Finance through direct negotiation to carry

out the maintenance works. The maintenance agreement was signed on 14

September 2007 for a period of 3 years (1 July 2007 to 30 June 2010) for a contract

sum of RM30.28 million. This agreement was extended for another 2 years (1 July

2010 to 30 June 2012) for a contract sum of RM20.19 million. The scope of

maintenance works carried out at KMKL was for building conservation that was

comprehensive maintenance operation covering works on mechanical, electrical,

civil and structure as well as general works. Audit findings revealed that

maintenance works at KMKL was satisfactory. However, there were weaknesses asfollows:

i. there were some aspects in maintenance works which needed improvement in

order to increase maintenance effectiveness and to ensure that KMKL buildings

were in good condition;

ii. physical performance of maintenance works was unsatisfactory since there were

cracks and leakages in the buildings; and

iii. terms of contract were not clear, for example, value for each type of work was

not in detail and there was no provision of quality measurements, penalties and

Key Performance Indicators (KPIs).

b. It is recommended that PKPMP and responsible parties take the following actions:

i. periodically monitor maintenance works conducted by KFM to ensure good

quality, works done are effective and in accordance with specifications and

maintenance plans;

ii. provide penalty clauses, quality measurement mechanism and KPIs in future

maintenance agreements;

iii. repair cracks immediately before they worsen and ensure that leakages do notrecur;


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iv. request for technical advice from JKR to identify causes of continuous cracks

and leakages;

v. ensure that value of works is prepared in detail to avoid lump sum payments in

future maintenance contracts. This includes payment claims that are more

detailed and clear; andvi. appoint technical officer immediately to monitor verification and certification of

works.

Public Private Partnership Unit3. Management Of Tourism Development At Corridor Economic Region

a. The Public Private Partnership Unit (UKAS) of the Prime Ministers Department is

the central agency which is responsible for coordinating privatisation projects and

public-private sector collaboration projects that have impact on the economy and is

eligible to receive the Facilitation Fund. Among the UKAS functions are to analyse,plan, supervise, control, facilitate and evaluate the implementation of corridor

development programme. The development of the Corridor Economic Region is one

of the Government initiatives under the Ninth Malaysia Plan to improve the

relationship of all states by reducing the gap between differences in structure and

socio-economy within the regions. The objectives of the Tourism Development

Programme at the Corridor Economic Region were to increase the number of tourist

arrivals by providing world class facilities and to narrow the gaps between the

regions. Audit findings revealed that the overall management of tourism

development at the Corridor Economic Region was satisfactory in terms of strategicplanning for Corridor Authorities (PBK) and studies were carried out before project

implementation. However, there were several weaknesses as follows:

i. Rhinoceros Breeding Project at Lahad Datu, Sabah was completed late with 2

Extensions of Time of 252 days;

ii. low quality in construction works;

iii. performance evaluation was not carried out; and

iv. information on allocation/expenses was not updated.

b. It is recommended that UKAS and PBK take the following actions:

i. monitor rectification works of construction and upgrading projects;

ii. monitor project implementation to ensure success of programme;

iii. emphasize on project achievements by evaluating the outcome so that the

performance of the implementation authority (PBK) could be assessed more

effectively and could assist in future project planning; and

iv. update financial information and project implementation status to ensure

effective monitoring and supervision on the programme.


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MINISTRY OF FINANCE

Housing Loan Management Division4. Management Of Housing Loan

a. In 1971, the Government had established a Housing Loans Fund (KWPP) through

Housing Loans Fund Act 1971 (Act 42) which was managed by Housing LoanManagement Division (HLMD) with the aim of providing housing loan to public

servants. By the end of 2011, KWPP had a balance amounting to RM1.908 billion.

The objective of HLMD was to manage public sector housing loan with

professionalism, integrity and prudence in line with the Governments policy to assist

public servants to have own houses. Audit on HLMDs activity revealed that the

objective had been achieved. However, there were several weaknesses in the

management of housing loan as follows:

i. data on number of borrowers and loan balance could not be verified;

ii. non-compliance with loan application requirements;

iii. delay in remitting payment to developers/lawyers;

iv. arrears in loan repayment; and

v. delay in taking action against loan defaulters and problem in releasing title

documents.

b. It is recommended that HLMD takes the following actions:

i. develop an integrated computer system which could generate accurate report on

housing loan;

ii. ensure that work processes are done properly and establish an effective

monitoring mechanism to ensure borrowers abide by all the loan requirements;

iii. ensure that repayment of the loan is made within the stipulated time frame;

iv. seek legal advice on prolonged cases of arrears in loan repayment; and

v. ensure that all title documents are kept in safe custody and return to the rightful

owner after full settlement of loan.

INLAND REVENUE BOARD OF MALAYSIA5. Management Of Information On Fees And Commissions Recipients

a. The Inland Revenue Board of Malaysia (IRBM) has the power under Section 81,

Income Tax Act (ITA) 1967 to request certain agencies to provide information on

recipients of income from those agencies. The information relates to payments

made to individuals or companies such as payment of commissions to insurance

agents/representatives, distributors/wholesalers/dealers/stockists and remisiers/

brokers and other payment of fees such as royalties to authors/writers, part-time

instructors, suppliers/consultants and others. The Detection Unit Information System

(SMUP) was developed to enable efficient compilation of taxpayers information

where every information providers will be registered to facilitate monitoring. Auditfindings revealed some weaknesses as follows:


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i. information providers did not submit information on the recipients of fees and

commissions;

ii. taxpayers did not declare/under declare amount of fees or commissions received

in the Income Tax Return Form for the year of assessment under review;

iii. taxpayers did not submit Income Tax Return Form although they received feesand commissions income; and

iv. taxpayers were not selected for tax audit.

b. It is recommended that IRBM takes the following actions:

i. make it compulsory for information providers to submit information on the

recipients of fees and commissions within the stipulated time;

ii. prosecute information providers who fail to comply;

iii. ensure that the SMUPwhich has been developedcould be used as a reliable

source of information; andiv. conduct desk audit or field audit on recipients of substantial fees and

commissions who fail to report their correct income to ensure level of tax

compliance.

6. Management On Income Tax Of Property Owners

a. Section 13 of the Real Property Gains Tax Act 1976 requires that every person who

acquires asset to notify such acquisition to the Inland Revenue Board of Malaysia

(IRBM). At IRBM, information on real property ownership captured through stamping

process of the Sales and Purchase Agreement at IRBM Stamping Office is uploaded

to IRBM data warehouse through the Detection Unit Information System (SMUP).

This information will be used by the Detection Unit to detect individuals who do not

have income tax file in order to broaden the tax base. As for information on cars

ownership, it is handled by the Road Transport Department (RTD). Audit findings

revealed some weaknesses as follows:

i. some property owners did not have income tax file;

ii. information was not uploaded into the Enterprise Taxpayer Profile (ETP);

iii. actions were not taken to track down the property owners;iv. selection of cases for tax audit either by field audit or desk audit on property

ownership was not given due attention; and

v. restriction orders from leaving the country were not issued and civil suit actions

were not taken against property owners with tax arrears.

b. To improve the management of income tax on property owners, it is recommended

that IRBM takes the following actions:

i. cooperate with Government/private agencies in the sharing of information in

order to broaden the tax base and strengthen tax collection;

ii. enhance action to identify individuals who evade tax;


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iii. extend the criteria for the selection of cases for tax audit to include property

ownership in order to avoid any incorrect tax returns, loss of revenue and also to

prevent tax evasion; and

iv. issue restriction orders to prevent property owners with tax arrears from leaving

the country and take civil suit actions against them.

7. Management Of Desk Audit Activity At The Non-Resident Branch

a. According to the Malaysian Income Tax Act (ITA) 1967, non-resident individuals are

those who stay less than 182 days in Malaysia in a year, regardless of their

citizenship or nationality. In general, the chargeable income of a non-resident

individual in Malaysia is taxed at the flat rate of 26% with effect from year of

assessment 2010 with no deduction for personal tax reliefs and rebates. Whereas

non-resident companies are companies which carry out business through a

permanent establishment in Malaysia and assessable on income accruing or

deriving from Malaysia. In general, the chargeable income of a non-resident

company in Malaysia is taxed at the flat rate of 25% with effect from year of

assessment 2009. The Non-Resident Branch of the Inland Revenue Board of

Malaysia (IRBM) manages the income tax of non-resident companies and

individuals in Malaysia. Under the Self Assessment System (SAS), tax audit

becomes an essential activity of IRBM to enhance voluntary compliance with the

laws. IRBM carries out two types of tax audit, namely desk audit and field audit.

Audit conducted by National Audit Department on the desk audit activity of the Non-

Resident Branch of IRBM revealed that the overall management of the desk audit

activities was satisfactory where performance had improved from non-achievement

of target in the year 2010 to over-achievement of target in the year 2011. However,

from the implementation aspect of its activities, there were some weaknesses as

follows:

i. delay in the registration of cases;

ii. weaknesses in the management of tax collection resulting in tax arrears of

RM3.36 million within the period of one month to 132 months;

iii. tax increase was not raised/under imposed; and

iv. restriction orders from leaving the country were not issued and civil suit actions

were not taken against taxpayers with tax arrears.


i. enhance monitoring of the management of desk audit activity to ensure that

every cases is registered and settled within the stipulated time period;

ii. enhance the awareness campaign on taxpayers to increase tax compliance;

iii. ensure that tax increase on tax arrears are correctly imposed; and

iv. issue restriction orders to prevent tax payers with tax arrears from leaving thecountry and take civil suit actions against them.


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8. Management On Tax Audit Activity For Individuals With Business Income

a. The Inland Revenue Board of Malaysia (IRBM) implemented the Self-Assessment

System (SAS) for individuals with business income with effect from year 2004. The

purpose of implementing this system is to encourage taxpayers to declare and pay

tax voluntarily. In order to confirm the accuracy of income tax declared by

individuals with business income through SAS, IRBM conducted tax audit activity

through Field Audit and Desk Audit to trace the level of taxpayers compliance with

tax rules and inculcate continuous voluntary compliance in taxpayers. Audit

conducted by National Audit Department revealed that 12 (70.6%) out of 17

branches managed to achieve/exceed their Key Performance Indicators(KPI) target

of files set on audit activity of individuals with business income. However, the KPI

achievement of Field Audit Officers need to be improved since only one branch had

all its Field Audit Officers achieving KPI for the years 2010 and 2011. As for 5 other

branches, Field Audit Officers only managed to achieve the KPI either for year 2010

or 2011. Audit conducted by National Audit Department on the management of tax

audit activity revealed several weaknesses as follows:

i. 1,244 (7.3%) of 17,085 individuals audited have their cases closed without audit

findings because there was no evidence of tax evasion even though their cases

were selected by the risk analysis methodology;

ii. 1,073 (57.3%) of 1,873 individual files checked at 17 IRBM branches showed

that additional tax raised and penalties imposed amounted to RM33.24 million

were resolved late between 6 to 941 days;iii. additional taxes raised as a result from field audit findings as well as estimated

assessment amounted to RM1.21 million were not issued to 36 taxpayers; and

iv. increase in tax was not imposed on cases of tax arrears and failure to comply

with tax instalment payment scheme resulting in loss of revenue to the

Government.


i. benchmark against the standards set in neighbouring countries to determine the

percentage of individuals with business income that need to be carried out field

audit and to set an appropriate percentage as yearly target;

ii. determine the number of Field Audit Officer post that is needed in line with the

increase in target on field audit activity;

iii. ensure the accuracy of taxpayers information so that the selection of field audit

cases based on the risk analysis methodology is correctly done;

iv. propose to the Department of Statistics Malaysia from time to time on the type of

business/service which needs to be given specific business code to ensure that

the business code is complete and updated. The Malaysian Income Tax Act

1967 should provide a section that allows penalty to be imposed on taxpayers

who do not fill in their business code or who fill in incorrect business code;


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v. Notice Of Additional Tax Assessment should be issued immediately for cases

completed which have been approved by senior officer to ensure prompt

collection of tax; and

vi. enhance the capability of the computer system such as ensuring the existing

Self-Assessment System to automatically generate estimated assessment andalso tax increase on tax arrears and failure to comply with tax instalment

payment scheme.

ROYAL MALAYSIAN CUSTOMS DEPARTMENT

9. Management Of Import Duties Assessment

a. Through laws and regulations, the Royal Malaysian Customs Department (RMCD) is

responsible for the collection of indirect taxes such as import/export/excise duties,

sales/service tax and also levy imposed on commercial and industrial transactions

carried out in Malaysia. In order to carry out such responsibilities, RMCD had also

issued Customs Standing Orders, Departmental General Orders and State Work

Procedures detailing the work process of assessment of import duties. Overall, Audit

conducted from May to October 2011 revealed that the management of import

duties assessment was satisfactory where the customs declaration forms had been

properly processed and duties were correctly collected. In 2011, RMCD collected

import duties amounting to RM8.704 billion, an increase of RM2.739 billion as

compared to RM5.965 billion in 2007. This represented the highest revenue

collected for the last 5 years. However, there were some weaknesses in the

management of import duties assessment as follows:

i. forwarding agents could still hand over customs declaration forms (K1 forms)

from one custom process to the next;

ii. out of 19 container scanners procured from 2001 to September 2010, three had

been written off and only 6 from the remaining 16 could produce a clear image;

iii. verification on K1 forms was not carried out by 3 State Customs Offices and

there were delays in reconciling import manifest;

iv. shortage of officers in the Post Clearance Audit Branch; and

v. poor performance on the collection of under-collected duties/taxes by PostClearance Audit Branch and the Verification and Profiling Branch.

b. It is recommended that RMCD takes the following actions:

i. ensure that all registered K1 forms are only handled by Customs officers and

supervise/monitor as well as taking action against Customs Stations that still

allow forwarding agents to personally hand over K1 forms from one custom

process to the next;

ii. ensure that all scanners could function properly and consider the acquisition of

new scanners for all Customs Stations that process the imports of critical goods;


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iii. ensure reconciliation of import manifest are carried out within the stipulated

period to properly control all imported goods; and

iv. strengthen the Post Clearance Audit Branch and improve the performance on

the collection of under-collected duties/taxes.

10. Management Of Quarters

a. The Royal Malaysian Customs Department (RMCD) had provided housing facilities

for its staff according to officers grades as spelt out in General Orders (Chapter E).

From 2009 to 2011, RMCD had spent a total of RM43.56 million for the maintenance

of quarters. Audit findings revealed that housing facilities provided for 58.3% of

RMCD employees did not achieve its objectives where 2,000 (31.6%) from 6,320

departmental quarters were not occupied as at December 2011. Among them were

33 units that had not been occupied since its completion in 2000. In addition, there

were weaknesses in the management of quarters as follows:

i. no action was taken against officers who vacate quarters and left them in a

mess;

ii. damaged quarters were not repaired or preventive maintenance not done as

there was no specific allocation provided; and

iii. weak enforcement in collection of rental arrears and no monitoring on the State

Housing Committee to ensure that meetings were held according to schedule

and matters discussed were reported.


i. ensure that the occupants of quarters comply with General Orders (Chapter E)

and the quarters are always in good condition;

ii. implement the operation and maintenance of assets as stipulated in the

Government Total Asset Management Manual. In addition, establish a

scheduled maintenance plan that includes preventive and corrective

maintenance of all quarters as required by General Circular No. 2 of 1995.

Adequate allocation for maintenance of quarters should be applied to the

Treasury;

iii. take prompt action to collect rental arrears to ensure that Government revenue is

collected effectively; and

iv. ensure that all State Housing Committees meet and report on a regular basis.

11. Procurement Of Working Tools For Enforcement Activities

a. To address the problem of smuggling, the Enforcement Division of the Royal

Malaysian Customs Department (RMCD) is responsible for the planning and

carrying out of enforcement operations such as roadblocks, patrolling the sea/land,

raids and surveillance at major ports and border entry points. From 2009 to 2011,


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the Enforcement Division seized goods valued at RM1.371 billion with unpaid taxes

and duties amounting to RM1.318 billion. Operations and patrols conducted by the

Enforcement Division involved the usage of equipment such as weapons and

ammunition, drug sniffer dogs and other working tools. For the purpose of procuring

such equipment, the Government had approved a development expenditureallocation of RM20.20 million under the Ninth Malaysia Plan. Audit findings revealed

that procurement of working tools for enforcement activities was not carried out

satisfactorily as it was not managed efficiently, economically and properly. Among

the weaknesses identified were as follows:

i. incidents of improper payment such as procurement through operating

expenditure for RM9.94 million worth of working tools without the approval of the

Controlling Officer and procurement of working tools valued at RM2.25 million

without adequate allocation which resulted in payment through Treasury

Instruction 59;

ii. receiving officers could not confirm the specifications and quality of working tools

received as relevant information (such as brand, model and specification) was

not stated in the catalogue, invoice or Local Purchase Order;

iii. improper registration of assets and as a consequence a total of 21 units of

working tools valued at RM109,700 could not be detected; and

iv. working tools valued at RM4.44 million were not utilised optimally.


i. establish a special committee to investigate cases of improper payment;

ii. ensure that all Local Orders and invoices from supplier come with detailed

information such as type, brand, model and specification of working tools to

facilitate the Receiving Officer in confirming the actual quality and specification

of equipment received. A special team should also be established to investigate

the procurement of working tools under the Ninth Malaysia Plan and to ensure

that the type, brand, model and specification of equipment received and paid for

were based on stipulated quality and specification. A report on the investigation

should then be submitted to the Secretary General of the Ministry of Finance and

the National Audit Department;

iii. ensure that all assets are registered properly and if assets are distributed to

State Customs Offices, the relevant registration cards (KEW.PA-2/KEW.PA-3)

must be sent together;

iv. ensure that the usage of working tools is properly recorded in KEW.PA-6 and

take proactive actions to ensure that all working tools are fully utilized, and

v. carry out immediate physical examination of all working tools and submit initial

reports for cases of loss of working tools.


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12. Management Of Seized And Forfeited Goods

a. The Customs Act 1967 empowers Customs officers to seize any goods suspected to

have contravened the Customs Act. Goods seized will be kept in Enforcement

Stores under the custody of Customs officers. Whereas forfeited goods comprise all

kinds of items seized and forfeited to the Government. The Enforcement Divisionseized goods ranging from high-risk commodities such as cigarettes, liquor, vehicles

and textiles. From 2009 to 2011, the Division seized goods valued at RM1.365

billion involving unpaid taxes and duties amounting to RM1.316 billion. Audit

conducted at the Headquarters of the Enforcement Division and 5 states (Malacca,

Pahang, Perak, Perlis and Federal Territory of Kuala Lumpur) revealed the following

weaknesses:

i. in general, the management of seized and forfeited goods had achieved the

objectives set. Proceeds from the sale of forfeited vehicles and goods had

increased by 388.9% from RM3.15 million in 2009 to RM15.40 million in 2011;

ii. inefficient disposition of investigation cases;

iii. weaknesses in maintenance of registers/records, cleanliness and safety of

stores; and

iv. ineffective enforcement and monitoring.


i. set a time frame for the disposition of investigation papers, especially for cases

involving arrests by taking into account the complexity of such cases;ii. set a specific time for long outstanding investigation papers to be completed so

that the relevant seized goods could be immediately disposed of;

iii. ensure that the Register of Goods Seized and Monthly Statement on

Confiscation of Goods are maintained in accordance with the regulations;

iv. ensure that the stores and goods/vehicle seized are clean and well maintained

to retain the quality of seized goods/vehicles; and

v. ensure that equipment for the security systems (CCTV) are placed in a more

suitable location so that they can function effectively.

MINISTRY OF AGRICULTURE AND AGRO-BASED INDUSTRY13. Management Of Parliamentary Area Agriculture Project

a. Two out of 4 components under the Parliamentary Area Agriculture Project are

Small-scale Parliamentary Area Project (PKPP) and Agriculture Project of

Parliamentary Area Agriculture Development Committee (MPPP). Each

parliamentary constituency was allocated a sum of RM100,000 per annum to

implement each component of the project. The objectives of PKPP were to involve

members of parliament in planning and monitoring the implementation of small-scale

agriculture project and to aid target group specifically farmers, livestock breeders

and fishermen in improving their income. Whereas the objectives of MPPP


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establishment were to obtain ideas through forum, identify arising problems,

promote opportunities and facilities of agriculture projects. Audit conducted on these

2 components revealed that the project had been implemented as planned.

However, there were several weaknesses in the implementation as follows:

i. the effectiveness of the project could not be determined due to incomplete

project records maintained by the Ministry of Agriculture And Agro-based

Industry (Ministry);

ii. one of the objectives of this programme which is to help target groups in

improving their income has not been fully achieved;

iii. a total of RM11.39 million (35.5%) out of RM32.09 million allocated for four

states from 2009 to 2011 was not yet spent by the implementing agency;

iv. there was no clear and comprehensive guideline;

v. unsatisfactory infrastructure/supplies;

vi. underutilised project/equipment; and

vii. ineffective monitoring system.

b. It is recommended that the responsible parties take the following actions:

i. the Ministry/implementing agency should assess the outcome and impact of the

project/programme;

ii. the Ministry should improve the existing guideline so that it is more

comprehensive;

iii. the implementing agency should ensure that this programme benefits the targetgroup and is fully utilised by the aid recipients to avoid wastage of Governments

spending; and

iv. the Ministry should conduct periodic monitoring on the projects to ensure that

they are implemented according to specifications and of quality.

14. Management Of Rice Subsidies To BERNAS And Private Manufacturers

a. The Rice Subsidy Programme of 15% broken rice which was implemented since 1

September 2008 was to ensure a controlled supply and price of the said rice to the

low income group. The objectives of the programme are to supply Super Tempatan

ST15% rice (Peninsular Malaysia) and S15% rice (Sabah and Sarawak) to meet

rising consumer demand, maintain controlled subsidised rice price at RM1.65 to

RM1.80 per kg by zone and cover losses incurred by subsidised rice manufacturers.

The programme started with Phase I and continued to Phase II until now. Audit

findings revealed that the objectives of the programme were not fully achieved

where there was no proper mechanism to ensure that the target group benefited

from this programme. Besides that, there were several weaknesses as follows:

i. targeted group/consumer in Peninsular Malaysia was not attainable;

ii. insufficient allocation to pay subsidy claims;


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iii. unclear and incomprehensive guideline;

iv. delay in signing the contract between the Ministry of Agriculture and Agro-based

Industry (Ministry) and BERNAS and there were also contracts signed after the

contracts had expired; and

v. insufficient officers to monitor the programme.

b. It is recommended that the Ministry takes the following actions:

i. re-evaluate the Rice Subsidy Programme based on its existing objectives;

ii. assess the needs to collaborate with the Department of Social Welfare to ensure

the effectiveness of distribution of subsidised rice to the poor;

iii. sign agreement with BERNAS and wholesalers immediately. The Ministry should

also clearly outline the responsibilities and actions to be taken against

wholesalers who breach the agreement; and

iv. the Ministry should provide a clear and comprehensive guideline to ensure that

the programme achieves its objectives.

15. Management Of The Seaweed Industry Development

a. The seaweed industry in Malaysia has started since 1978 in Sabah and currently

active in the district of Semporna, Kunak, Lahad Datu, Banggi, Kudat and Tawau.

The sea water in these areas is suitable for seaweed cultivation. The seaweed

industry is listed in the Entry Point Project (EPP) 3 under the National Key Economic

Areas (NKEAs) to enhance profit of Small and Medium Enterprises (SMEs) by

emphasising on modernisation, big-scale production and increase in productivity

through latest technologies as well as more efficient methods. The objectives of the

Seaweed Industry Development are to produce seaweed for upstream and

downstream industry which is led by private sectors, reduce dependency on

imported seaweed and improve quality as well as controlling the seaweed price.

Under the Ninth Malaysia Plan, the Government has approved RM7.20 million to

develop the seaweed project including procurement of equipment as well as building

and upgrading of platforms. Meanwhile, under the Tenth Malaysia Plan, a total of

RM46.07 million has been approved under the Economic Transformation

Programme (ETP) for mini estate development, research programme, apprentice

manufacturing plant and operational expenses. Audit findings revealed that the

Department/NKEAs targeted increase in the production of dried seaweed from 2009

to 2011 had been achieved. However, the mini estate project under NKEA was still

underdeveloped. Besides that, there were several weaknesses in the project

management as follows:

i. most of the allocation for seaweed development was not yet spent;

ii. construction of seaweed processing/drying platforms was unsatisfactory; and

iii. equipment supplied were underutilised/damaged.


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b. It is recommended that the Ministry of Agriculture and Agro-Based

Industry/Department takes the following actions:

i. improve work progress of the implementing agency so that the desired

output/outcome could be achieved;ii. ensure that projects are carefully planned by taking into account user needs so

that projects could be completed as scheduled;

iii. ensure that the contractor rectifies all defects immediately;

iv. distribute the remaining boats/sampan to the operators as soon as possible to

avoid wastage; and

v. conduct impact assessment study to ensure sustainable outcome.

16 Permanent Food Production Park Programme

a. The Permanent Food Production Park (TKPM) Programme was introduced in 2000

to improve the internal food production sector. TKPM was also a strategy developed

under the Third National Agriculture Policy to transform agriculture sector by

encouraging big-scaled agriculture project, commercialisation and high technology

by the entrepreneur and private sector. As at 2011, 55 TKPM which covered

7,631.90 hectares were established with 964 participants. Production output by end

of 2011 had reached 58,504 metric tonne worth RM63.5 million. The objectives of

the programme were to establish permanent food production zone, produce food

production entrepreneurs, increase participation of entrepreneurs and private sector

in food production, enhance sustainability and quality of national food productionand improve net income of participants/farmers to at least RM3,000 a month. In

order to achieve the objectives, the Ministry of Agriculture and Agro-based Industry

(Ministry) had planned a few strategies such as development based on zoning

approach, cluster food industry and market driven as well as establishing food chain

in crop industry. Audit findings revealed the following weaknesses:

i. gazette and title of the TKPM land were not yet finalised;

ii. improper management of participant agreements;

iii. project implementation was not according to plan;

iv. unsatisfactory utilisation of facilities by participants;

v. targeted income for participants was not fully achieved; and

vi. improper records management.

b. It is recommended that the responsible parties take the following actions:

i. the Ministry should periodically and continuously evaluate the output and

outcome of the TKPM;

ii. monitor the production performance in a more effective manner;

iii. the Ministry and State Government should take immediate action to finalise the

status and title of land to ensure smooth planting activities by participants;


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iv. agreement between the Government and participants should be duly signed and

the Ministry should monitor compliance of terms and conditions of the

agreement;

v. the Ministry should ensure that the appointed anchor company duly signed an

agreement with the Government and complies with its terms and conditions to

ensure TKPM programme objectives could be achieved effectively; and

vi. the Ministry should ensure that project implementation is in accordance with the

business plan and monitor its implementation so that the participants

performances are in line with the objectives and targets of TKPM programme.

MINISTRY OF RURAL AND REGIONAL DEVELOPMENT17. Agropolitan Project Under Rural Quantum Leap Programme

a. The Rural Quantum Leap Programme was an integrated and comprehensive

programme under the Ninth Malaysia Plan and its implementation continued underthe Tenth Malaysia Plan. The objectives of this programme were to eliminate rural

poverty through increment of income and to bring them out from the poverty threshold

as well as to accelerate development of less developed, isolated and abandoned

areas. In order to achieve these objectives, the Ministry of Rural and Regional

Development (Ministry) had implemented the Agropolitan Project with three main

components. Eleven Agropolitan Projects had been implemented targeting a total of

4,445 participants who were below the poverty threshold. An allocation of

RM289.35 million under the Ninth and Tenth Malaysia Plans was given to FELCRA

Berhad, Rubber Industry Smallholder Development Authority (RISDA) and Kedah

Regional Development Authority (KEDA) which were appointed by the Ministry as the

implementing/paying agencies. Audit findings revealed that management of the

Agropolitan Project was satisfactory. However, there were some weaknesses as

follows:

i. development allocation had been disbursed to the implementing agencies

without taking into account the progress of the projects;

ii. projects implemented under the economic component were not

viable/sustainable;

iii. late preparation of guidelines for projects implementation;iv. agreements between the participants and implementing agencies were yet to be

signed; and

v. development of the physical components of the project was

unsatisfactory/problematic.

b. It is recommended that the Ministry takes the following actions:

i. ensure that development allocations are disbursed to implementing/paying

agencies based on the progress of project and ensure that the initial target is

achieved with the expenditure incurred;


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ii. review the implementation of economic component projects to ascertain whether

it is viable, resilient and able to generate revenue as planned so that its aims to

pay dividend to the participants could be achieved. In this regard, each

participant should be identified and selected before any economic component

project is implemented;iii. ensure that the agreement between the Government and participants is

finalised/signed to safeguard the interests of each party involved with the project.

Hence, conditions stipulated in the agreement could be taken against

participants who do not comply with the terms of participation;

iv. ensure that infrastructures/facilities provided are maintained and fully utilised

according to its objectives; and

v. prepare short/long term plans for maintenance of Agropolitan Projects

settlement areas and provide the areas with modern and quality facilities to

improve the well-being of participants.

18. Construction And Upgrading Of Rural Road Projects In Sarawak

a. The construction and upgrading of rural road projects were approved during the

Ninth Malaysia Plan and from 2010, the projects were continued under the National

Key Result Area (NKRA) in order to speed up the construction of more rural roads to

meet the needs of the rural community. From 2006 to 2010, the Ministry Of Rural

And Regional Development approved an allocation of RM1.727 billion for the

implementation of 175 road projects. Out of the 175 projects, 146 projects costingRM1.104 billion were implemented by the Public Works Department Sarawak and

the remaining 29 projects costing RM622.84 million were implemented by the

Drainage and Irrigation Department Sarawak. The actual expenditure for these road

projects as at 31 December 2011 amounted to RM1.024 billion. Audit findings

revealed that in general, the construction and upgrading of rural roads projects in

Sarawak were not satisfactory. The following were several weaknesses being

observed:

i. projects implementation performance was rather unsatisfactory because 38

projects (37.6%) costing RM178.94 million out of 101 completed projects

amounting to RM437.57 million were delayed in completion ranging from 15 to

242 days from the original schedule;

ii. 13 projects (17.6%) out of 74 projects costing RM229.27 million under

construction were behind schedule by more than 20%;

iii. construction and upgrading of roads did not follow contract specifications; and

iv. customer feedback results indicate that road users were not satisfied with the

quality, safety and comfortability aspects of the roads.


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b. It is recommended that the responsible authorities take the following actions:

i. the Ministry of Rural and Regional Development should ensure that road

construction and upgrading projects are properly planned to avoid unnecessary

disruption;

ii. the implementing agencies should have holistic planning for road constructionand upgrading projects to include all aspects of road construction to achieve

value for money and positive outcome (impact) to users;

iii. the implementing agencies should ensure that road construction and upgrading

projects strictly follow specifications, standard and quality of works as stipulated

in the contract agreements so as to provide comfortability to road users and to

rectify poorly built roads; and

iv. the implementing agencies and consultants should strictly supervise and monitor

the implementation and construction process to ensure that the quality control is

in place until the Certificate Of Practical Completion (CPC) is issued.

MINISTRY OF NATURAL RESOURCES AND ENVIRONMENT

Department Of Irrigation And Drainage Malaysia19. Management Of Dam Operations

a. Dams have various functions and needs such as providing flood mitigation, water

irrigation to agricultural areas, raw water supply, power generation and sediment

retention. A completed dam structure requires the operation, maintenance,

monitoring and inspection to be properly conducted in accordance with proceduresset by the Dam Manual. As at 31 December 2011, there were 16 dams which were

completed between 1906 to 2004 and operating under the purview of the

Department of Irrigation and Drainage (DID) in Peninsular Malaysia. Dams are

classified based on the level of potential hazards which they face in the event of

dam failure. Under the Ninth Malaysia Plan, a total of RM34.41 million was spent on

surveillance and rehabilitation activities of the dam whereas no budget was

approved for the first Rolling Plan under the Tenth Malaysia Plan. Audit findings

revealed that as a whole the management of the dam was satisfactory where

monitoring and minor maintenance works had been performed accordingly,submission of instrumentation data and the Periodic Safety Inspection Report were

carried out according to the stipulated time. However, there were some weaknesses

in the management of the dam operations, maintenance and monitoring as follows:

i. delay in updating the Operations and Maintenance Manual;

ii. absence of Standard Operating Procedure for handling of equipment/hydraulic

components and the existing Emergency Action Plan was not comprehensive;

iii. emergency training had not been implemented;

iv. water surface of reservoirs and flood regulating outlets were not maintained,

routine maintenance was not carried out according to the stipulated period,


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reservoir pool areas and catchment areas of the dam had been encroached,

monitoring of sediment had not been implemented since 2000;

v. instrumentation at the dam could not be detected, 46.4% instrumentation at the

visited dam were damaged and not repaired;

vi. gazetting of the land and the conversion of land titles for the acquired reservedlands were not fully made, and

vii. absence of a regulatory body to monitor and control the management of dam

operations of all dams.

b. It is recommended that the responsible parties take the following remedial actions:

i. the Government should provide sufficient financial and human resources to

ensure proper operation of dams;

ii. the Ministry of Natural Resources and Environment should establish

policies/procedures relating to the responsibilities and roles of DID at the

headquarters and the State in matters relating to the operation, maintenance

and monitoring of the dams;

iii. the Government should review the eligibility criteria of security guards and

consider to place armed security personnel to control the dam operation areas

and the dam catchment areas;

iv. DID should ensure that monitoring and supervisions are carried out more

effectively to overcome the problem of encroachment on the land of DID and

quickly resolve problems related to the impaired instrumentations;

v. DID should promote public awareness programmes through electronic and mass

media about the implications of encroachment activities in reservoir pool areas

and catchment areas of the dams;

vi. the Ministry should update information on land ownership and also coordinates

matters related to gazetting of land and land ownership;

vii. the Government should assess the needs to establish a dam regulatory body to

ensure that all dams are managed efficiently and effectively to ensure the

integrity of the dams; and

viii. the Government should hold discussions with the State Government, State DID

and water supply companies to provide some budgets for maintenance and

rehabilitation of the dams.

Department Of Irrigation And Drainage Malaysia20. Management Of Urban Drainage Project

a. Urban drainage system is implemented by the Department of Irrigation and Drainage

Malaysia (DID) through 2 methods which are conventional system (rapid disposal)

and storm water management system which addresses environmental impact.

Under the Ninth Malaysian Plan, the Federal Government spent a total of RM130.79

million on urban drainage projects throughout the country. Audit findings revealed


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that the projects in few locations were able to achieve the objectives set for storm

water management problems such as reducing flood (quantity control) and

controlling the water from contamination (quality control). However, there were some

locations having problem in controlling the water quantity and quality. Among the

weaknesses identified were as follows:

i. some drainage components which were installed/constructed such as detention

ponds, conveyance as well as rubbish and sediment control components were

not functioning as intended because flooding still occurred at the project sites;

ii. quality of water was contaminated;

iii. some components were not utilised and left obsolete;

iv. insufficient capacity of the detention ponds;

v. some modified/replaced components were not suitable to be used;

vi. conveyance could not make the water flow properly and some components

which had been paid were not used; and

vii. Master Plan which had been prepared was not fully beneficial.

b. It is recommended that the responsible parties take remedial actions as follows:

i. DID should plan and ensure that the Master Plan is prepared based on the

priority of critical locations and projects are implemented based on the Master

Plan;

ii. DID should take immediate actions to identify the maintenance requirements of

each urban drainage project which has been built. Information such as type ofmaintenance, frequency of maintenance, maintenance costs, required labour

and the implications if maintenance work is not carried accordingly should be

provided in order to serve as a guide to the DID/local authority;

iii. the Ministry of Finance should provide adequate maintenance budget to ensure

that each Government project could be fully utilised by the target group for a

justified period of time;

iv. the Ministry and DID should prepare integrated policies relating to the

management of drainage operations which include jurisdiction and

responsibilities of parties in terms of operation and maintenance of drainage,

type of costs to be incurred and required manpower;

v. the Ministry and DID should adopt the Blue Ocean Strategy by establishing a

coordination committee between the Government and other responsible

agencies to discuss problems related to the management of the drainage

operations and should supervise and monitor the projects effectively; and

vi. DID should plan carefully in determining the projects costs in order to ensure

that all critical components of the project are taken into account.


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MINISTRY OF INTERNATIONAL TRADE AND INDUSTRY21. Student Entrepreneurship Programme

a. The National Entrepreneurship Institute (NEI) is an agency under the Ministry of

International Trade and Industry (MITI) which is responsible for implementing

Student Entrepreneurship Programme (SME). The main objective of the programmeis to provide exposure and generate interest in entrepreneurship among university

students. Students are given exposure to business opportunities, preparation of

business plans and business foundation. To date, a total of 19 Public Institutions of

Higher Learning (IPTA) and a Private Institute of Higher Learning (IPTS) have been

involved in this programme. Programmes under the SME consist of Basic Student

Entrepreneurship Student Course, Student Mall, Student in Free Enterprise and

Graduate Entrepreneurship Scheme. Audit findings revealed that the objectives of

this programme in term of efforts to cultivate entrepreneurship among university

students have been achieved. However, there were some weaknesses in the

implementation of the programme as follows:

i. targets set in terms of number of series of Basic Student Entrepreneurship

Course were not fully achieved in 2009 and 2010;

ii. performance of the development of construction/acquisition of Student Mall kiosk

was unsatisfactory because the university took a long time between 1 to 4 years

to start construction/acquisition after receiving funds from NEI;

iii. as for the Graduate Entrepreneurship Scheme, the percentage of participants

who applied for and was approved financing from Student Entrepreneurship

Fund was low which was at only 26.3%; andiv. there were some weaknesses in the management of the programme as

conditions/terms of reference of the programme were not fully complied with;

allocations were not fully utilised and accounts/records were not properly

maintained.

b. It is recommended that MITI and NEI take the following actions:

i. plan carefully and identify the real needs before allocation of funds is made.

Allocation should be given in stages according to the needs/development of

programmes;ii. perform continuous monitoring to ensure that allocations given to universities are

fully spent in order to achieve the objectives of the programme; and

iii. create a comprehensive and constantly updated database of programme

participants to evaluate the effectiveness of the programme and facilitate

monitoring.

MINISTRY OF WORKS22. The Construction Of Sultan Yahya Petra Second Bridge, Kota Bahru, Kelantan

a. Sultan Yahya Petra Bridge is a major link between Kota Bahru Town and Tumpat.The economic and social activities of Tumpat and part of Pasir Panjang is very much


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dependent on the bridge which was constructed in 1967 with a design capacity of

only 11 tonnes. A new second bridge had been approved under the Ninth Malaysian

Plan as an alternative to reduce traffic congestion as well as to provide safety and

comfort to users. Public Works Department (PWD) was the implementing agency of

this project. Konsortium I.S Resources Sdn. Bhd. RIS Capital Sdn. Bhd. wasappointed through direct negotiation to implement and complete the project in 30

months from 18 June 2007 to 17 December 2009 at a cost of RM143 million.

However, this project had been re-assigned to Aneka Prestij Sdn. Bhd. in March

2010 to complete the remaining works after approval by PWD. As at 31 December

2011, the work progress was only 76.5%. Overall, the construction of this project

was not satisfactory due to weaknessess in the project planning and

implementation. Among the weaknesses identified were as follows:

i. failure to complete the works on schedule where 4 Certificates of Delay And

Extension of Time totalling 891 days had been approved until 30 August 2012;

ii. current value of contract was expected to increase to RM177.76 million

representing a total increase of RM34.76 million (24.3%) from the original

contract value of RM143 million;

iii. problems with the design of bore pile system took 2 years to be resolved which

contributed significantly to the delay of the project and increase in cost;

iv. works at the river side could not be completed on schedule due to the delay of

construction of the temporary bridge; and

v. appointment of an inexperienced contractor.

b. It is recommended that the Ministry of Works/PWD take the following actions:

i. ensure that the problems arising at work site are immediately resolved so that

works could be implemented according to schedule;

ii. improve coordination between Local Authority, utility providers and other

agencies involved so that problems at work site could be resolved immediately

and effectively;

iii. ensure that problems on design of bore pile system are resolved immediately to

avoid any delay in construction works;

iv. appoint a lead consultant to ensure better implementation of the project; and

v. PWD should ensure that the contractor build the temporary bridge on schedule

as works at the river side is the most critical component of this project.

23. Management Of The Registration Of Contractors By The Contractor ServiceCentre

a. The Contractor Service Centre (PKK) was established on 30 June 1981. It was then

known as the Contractor Service Coordination Centre (PUSAKABUMI) and was

placed under the Implementation and Coordination Unit of the Prime Ministers

Department. Effective from 1 January 1987, it was renamed as Contractor Service


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Centre (PKK) in line with the expansion of its functions and authority. In April 2009,

PKK was placed under the Ministry of Works. As at 30 June 2011, the number of

contractors registered with PKK stood at 44,630, which consisted of 41,006 civil

works contractors and 3,624 electrical contractors. The roles and responsibilities of

PKK include being a registration centre for contractors at Federal and State level,awarding Bumiputera status to qualified contractors, being a reference centre for

contractors and providing advisory services to Bumiputera contractors in

implementing contracts. This is limited to contracts for services at Government

departments/agencies that do not have such advisory services. Audit findings

revealed that the management of the registration of contractors was not satisfactory

due to the following weaknesses:

i. Client Charter was not achieved;

ii. fees charged and the registration

Auditor General's Report 2011 - Synopsis (English)

Documents

Transcript of Auditor General's Report 2011 - Synopsis (English)