AUDITOR GENERAL’S REPORTSERIES 1

ON THE AUDIT OF THE ACTIVITIES OF FEDERAL STATUTORY BODIES AND THE MANAGEMENT

OF SUBSIDIARY COMPANIES

2012

NATIONAL AUDIT DEPARTMENTMALAYSIA

NATIONAL AUDIT DEPARTMENTMALAYSIA

AUDITOR GENERAL’S REPORT 2012

SERIES 1ON THE AUDIT OF THE ACTIVITIES OF FEDERAL

STATUTORY BODIES AND THE MANAGEMENT OF SUBSIDIARY COMPANIES

CONTENT

PREFACEINTRODUCTIONSYNOPSIS

PART IMANAGEMENT OF FEDERAL STATUTORY BODIES ACTIVITIES

1. INTRODUCTION

2. MALAYSIAN AGRICULTURAL RESEARCH AND DEVELOPMENT - Management of Shah Alam National Botanical Garden Project

3. UNIVERSITY MALAYSIA SABAH - Management on the Maintenance Works and Services of the Mechanical and

Electrical Systems

4. UNIVERSITY MALAYSIA KELANTAN - Management on the Construction of the Campus

5. UNIVERSITY UTARA MALAYSIA - Assets Management

6. EMPLOYEES PROVIDENT FUND - Management of Overseas Real Estate Investment

7. RETIREMENT FUND (INCORPORATED) - Management of Equity Investments

8. ACCOUNTANT GENERAL’S DEPARTMENT MALAYSIA - Implementation of the Standard Accounting System For The Government

Agencies At Federal Statutory Bodies

PART IITHE MANAGEMENT OF SUBSIDIARY COMPANIES OF FEDERALSTATUTORY BODIES

9. INTRODUCTION

10. MANAGEMENT OF RISDA BAJA SDN. BERHAD (Subsidiary of the Rubber Industry Smallholders Development Authority)

11. MANAGEMENT OF SMALLHOLDERS DEVELOPMENT CORPORATION SDN. BERHAD (Subsidiary of the Rubber Industry Smallholders Development Authority)

12. MANAGEMENT OF INSTITUTE PROFESSIONAL BAITULMAL SDN. BERHAD (Subsidiary of the Federal Territory Islamic Religious Council)

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CONTENT

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PREFACE

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

Auditor General to audit the financial statements, financial management, the activities of

Ministries/Departments/Agencies as well as management of Federal Government

companies and to submit his Report to His Majesty, Seri Paduka Baginda Yang di-

Pertuan Agong for his Royal assent to table the Report in Parliament. To fulfil these

responsibilities, the National Audit Department has carried out 4 types of audits as

follows:

1.1 Attestation Audits – to give an opinion as to whether the financial statements of

the federal statutory bodies for the year concerned show a true and fair view and its

accounting records have been properly maintained and updated accordingly.

1.2 Financial Management Audits – to evaluate whether the financial management

of the federal statutory bodies is in accordance with relevant financial laws and

regulations.

1.3 Performance Audits – to evaluate whether the activities of the federal statutory

bodies have been implemented efficiently, economically and achieved its desired

objectives.

1.4 Management Audits Of Federal Government Companies – to evaluate

whether the subsidiary companies of the federal statutory bodies have been managed

properly.

2. In line with the Government Transformation Programme 2 (GTP 2.0): Fighting

Corruption National Key Result Area (NKRA), the National Audit Department is required

to implement 4 new initiatives namely tabling of the Auditor General’s Report at every

Parliament session. The objectives of tabling my Report on the Activities of Federal

Statutory Bodies and Management of Subsidiary Companies in each parliament session

are to enable speedier and more efficient process in communicating the information to

the people as well as enabling quick corrective actions to be taken on issues observed

in order to enhance the people’s perception positively. I wish that the Report on the

Activities of Federal Statutory Bodies and Management of Subsidiary Companies Year

2012 for the first Parliament session of 2013 will become the basis to rectify all

weaknesses in the effort to mitigate continuous abuse of power, wastages and

excessive spending as well as to enhance the integrity and accountability for public

money.

PREFACE

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

evaluate whether the activities of federal statutory bodies have been managed

efficiently, economically and in line with its objectives. The Audit consists of various

activities namely management of grants, procurement, construction, maintenance,

management of investment, management of assets and socio-economic enhancement

activities. This Report contains matters observed from the audit carried out on 7

projects/activities.

4. Generally, the weaknesses observed include improper payments, works/supplies

did not adhere the specifications or of inferior quality, unreasonable delays, wastages

and weaknesses in the management of revenue and assets. These weaknesses were

caused by negligence in complying with Government regulations and procedures; lack

of meticulous planning on projects/activities and in determining the scope and

specifications of tenders; lack of close and effective monitoring on works of

contractors/consultants/suppliers; lack of expertise in the management of projects;

delays in decision making on procurement; agencies’ information system were

incomplete and not updated; low priority given to the outcome/impact on the

projects/activities and insufficient allocations for the maintenance of assets.

5. In addition, subsidiary companies of federal statutory bodies with more than 50%

of the equity structure owned by government are also being audited by the National

Audit Department. The audit was conducted to evaluate whether the management of

activities, corporate governance and financial management have been carried out

effectively, economically and in accordance with its objectives. Analyses were also

carried out on the financial performance of subsidiary companies. Matters observed

from the audit on analysis of financial performance for the financial years 2009 until

2011, management of activities, corporate governance and financial management for

the 3 subsidiary companies were reported in this Report for the first Parliament session

of 2013.

6. All matters to be reported have been brought to the attention of the respective

Chief Executive Officer of the federal statutory bodies and subsidiary companies for

their verification. The feedbacks received were considered when finalising this Report.

In this Auditor General’s Report, a total of 37 recommendations were forwarded to the

respective Chief Executive Officer of the federal statutory bodies for corrective actions

or monitoring to ensure the same weaknesses will not recur. The federal statutory

bodies should exemplify two acronyms namely CTI-PCI which signify Cepat (Fast),

Tepat (Accurate) and Integriti (Integrity) and Productive, Creative and Innovative which

are parallel with the government aspirations in the transformation process to mitigate the

weaknesses in the management of activities and the subsidiary companies as well as

enhancing the quality of works.

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7. I wish to record my thanks to all the officers in the federal statutory bodies and

subsidiary companies who have given their cooperation to my officers during the audit. I

would also wish to express my appreciation and thanks to my officers who have worked

diligently and have given their total commitment to complete this Report.

(TAN SRI DATO’ SETIA HAJI AMBRIN BIN BUANG)

Auditor General Malaysia

Putrajaya

25 March 2013

INTRODUCTION

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1. According to the Statutory Bodies (Accounts and Annual Reports) Act 1980, a Statutory

Body is an association which is incorporated in accordance with federal legislation. A statutory

body is a body corporate or an agency of the Government of Malaysia that is incorporated by its

own incorporation Act for the purpose of the Federal Government but does not include a local

authority or a corporation that is incorporated under the Companies Act 1965.

2. The federal statutory body is established to carry out Government policies through the

implementation of programmes and activities which have been determined in a professional and

effective manner. Every statutory body is subjected to their own incorporation Act or subsidiary

incorporation legislation which sets out the purpose and specific powers of autonomy and it

shall function according to its objectives. However, a Board of Directors should be established

to implement its functions, administration, management and activities. The Board of Directors is

authorised to make decisions on administration and management of federal statutory bodies.

The Board of Directors shall consist of members such as a representative from the Ministry of

Finance, a representative from the Ministry, government officer and corporate members who

have relevant expertise in the statutory body’s activities. The appointment and termination of

board members is under the jurisdiction of the Minister. Each federal statutory body is placed

under a Minister in charge as required by the incorporation legislation or by the Ministerial

Functions Act 1969 (Act 2) amended 1999. The jurisdiction of the federal statutory body

includes the power to borrow, lend, invest, set up a subsidiary company, managing funds and

trust accounts, and implementing programmes and activities subject to its own legislation. A

number of federal statutory bodies are dependent on government grants to carry out their

activities while others finance their operations with their own funds.

3. In terms of financial management, the federal statutory body may have its own financial

regulations, systems and procedures and its own accounting policies which is in accordance

with generally accepted accounting principles. All federal statutory bodies shall prepare financial

statements on an accrual basis for each financial year. According to the Statutory Bodies

INTRODUCTION

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(Accounts and Annual Reports) Act 1980 (Act 240), the federal statutory bodies shall, within six

months after the end of the financial year submit the financial statements to the Auditor General

for audit. The said Act also provides that the audit of the financial statements of the federal

statutory body is subjected to the Audit Act 1957. The federal statutory body shall, in respect of

each financial year and within one month after the receipt of its audited financial statements and

the Auditor General’s Report, submit to the Minister together with a report of its activities. The

Minister shall as soon as possible upon receiving the audited financial statements cause it to be

tabled in Parliament.

4. As at the end of year 2012, a total of 124 federal statutory bodies were established to

perform such functions as stated in its incorporation.

SYNOPSIS

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PART I

- MANAGEMENT OF FEDERAL STATUTORY BODIES ACTIVITIES

1.0 INTRODUCTION

In addition to attestation audit, the National Audit Department is required under Section 6 of

the Audit Act 1957 to audit federal statutory bodies’ activities to ascertain that they were

implemented efficiently, effectively and prudently in line with prescribed objectives. In the

year 2012, a total of 7 activities were selected for audit and to be tabled in the first

Parliament session of 2013. The findings from these audits were discussed with the

respective management of the federal statutory bodies upon the completion of the audit. The

Chief Executive Officers of the federal statutory bodies and their respective Ministries were

also informed of the matters to be reported for their confirmations. The feedbacks from the

federal statutory bodies were incorporated in this Report.

2. MALAYSIAN AGRICULTURAL RESEARCH AND DEVELOPMENT INSTITUTE

- Management of Shah Alam National Botanical Garden Project

a. The Malaysian Agricultural Research And Development Institute (MARDI) was

established on 28 October 1969 under the Malaysian Agricultural Research And

Development Institute Act 1969 and incorporated in year 1971. It is regulated by

the Ministry of Agriculture and Agro-Based Industry (MOA). The development of

Shah Alam National Botanical Garden (TBNSA) consists of 3 phases and covers

an area of 817 hectares. Phase 1 was initiated in 2006 through the design and

build method whereas Phase 2 and 3 are still in the planning stage. The

development of Phase 1 includes the Phase 1A Project with the visitor centre

and the database centre; Phase 1B Project consists of the ticketing bridge, guard

house and pavilion; the 1Malaysia Park and the Tenaga Nasional Berhad

Substation. The allocation for the TBNSA development is RM161 million and

MARDI is the implementing agency. By the year 2012, MARDI has received a

total allocation of RM21.45 million under the Ninth Malaysia Plan (9th MP) and

the Tenth Malaysia Plan (10th MP). A total of RM11.97 million was spent for the

project development such as interim payments to contractors and consultants.

SYNOPSIS

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b. An Audit carried out between October and December 2012 found the overall

performance of TBNSA Phase 1 Project was not properly managed. Three out of

the 4 projects under Phase 1 namely Phase 1A, Phase 1B and 1Malaysia Park

were listed as sick projects. Among the weaknesses were as follows:

i. Contractors failed to complete the construction within the stipulated period;

ii. The extension of time (EOT) granted exceeded the stipulated time to

complete the project in the contract;

iii. Construction works did not adhere to the specifications and of inferior quality;

iv. Insufficient financial allocations;

v. There was no planning approval from the Local Authority for the construction

of the project;

vi. The agreement on the right to use and rent the land was not signed;

vii. The selection of contractors did not comply with the said criteria;

viii. Differences in work progress reported by MARDI and the contractors were

noted; and

ix. The monitoring of the project was ineffective.

c. Audit recommended that the Ministry of Agriculture and Agro-Based Industry

(MOA) and MARDI should take the following actions:

i. MARDI should obtain the planning approval from the Local Authority to

ensure the continuity of the Phase 2 and 3 Projects.

ii. MOA and the Selangor State Government should discuss on modes to hasten

the process with regards to the agreement on the right to use and the rental

rate on the land in the interest of all parties.

iii. MARDI should comply with all Government regulations in managing the

development of TBNSA.

iv. MOA and MARDI should take immediate actions to terminate the contract and

appoint another contractor when the contractor failed to perform and works

are behind schedule for more than 20% or 2 months in line with government

regulations.

v. MARDI should closely monitor the project to ensure specifications and quality

of work are adhered and completed within the stipulated period.

3. UNIVERSITY MALAYSIA SABAH

- Management on the Maintenance Works and Services of the Mechanical

and Electrical Systems

a. University Malaysia Sabah (UMS) privatised its maintenance works and services

of the mechanical and electrical systems in 2006. The Ministry of Finance

awarded the contract to Asli Jati Engineering Sdn. Berhad (contractor) through

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direct negotiations on 6 October 2006 to provide operational and maintenance

services to the UMS Mechanical and Electrical Systems. These include infra at

the UMS main campus in Kota Kinabalu and Labuan International Campus which

were executed through 2 contracts listed below:

i. Operational and Maintenance Services of the Mechanical and Electrical

Systems at the buildings of Phase 1A and Phase 1B as well as Infra valued at

RM43.29 million for a period of 36 months effective from 1 August 2007 to 31

July 2010.

ii. Maintenance Works and Services of the Mechanical and Electrical Systems at

the Buildings of Phase 2A and the Labuan International Campus. The Phase

2 contract amounted to RM37.80 million for a period of 36 months effective

from 1 March 2010 to 28 February 2013. This contract was awarded by the

Ministry of Finance on 17 June 2009 through direct negotiations with option to

extend up to 24 months.

b. An Audit carried out between October and December 2012 revealed that the

mechanical and electrical maintenance on UMS assets was not well managed.

Among the weaknesses were as follows:

i. Overpayment and improper payments to the contractor amounted to RM6.66

million;

ii. There were discrepancies in the number of assets for maintenance as follows:

The number of assets as stated in the Bill of Quantities (BQ) of the contract

differed from the actual number of assets located at the site; and

The number of assets as stated in the Planned Preventive Maintenance

schedule differed from the BQ in the contract.

iii. The Computerised Maintenance Management System which records all

maintenance works and generates reports to evaluate the performance of the

contractor was not fully utilised by UMS as assets details were not updated

and differed from other records;

iv. The Building Automation System (BAS) which was developed to monitor and

control the mechanical and electrical facilities was not fully functional because

the software could not be activated; and

v. The preliminary items handed over to UMS could not be located.

c. Audit recommended that UMS should undertake the following actions:

i. UMS should review the terms and conditions of the contracts to ensure the

interests of the Government are protected. All contracts must be reviewed by

the Legal Officer to ensure that the terms and conditions of the contract are in

order and comply with laws and regulations.

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ii. UMS should review all improper and unverified payments made and claim

from the contractor any overpayment made. UMS should take disciplinary

actions or surcharge any officer found to be negligent.

iii. UMS should ensure the Computerised Maintenance Management System

and the BAS function properly to coordinate all works on assets maintenance

especially on the mechanical and electrical maintenance.

iv. UMS should maintain the Operational and Maintenance Manuals and As Built

Drawings in an orderly and systematic manner for references and monitoring

purposes.

v. UMS should monitor and supervise the work progress of contractors regularly

to ensure work performance adhere to the specifications in the contract. Any

non-compliance work should be promptly rectified.

4. UNIVERSITY MALAYSIA KELANTAN

- Management on the Construction of the Campus

a. The University Malaysia Kelantan (UMK) Campus was constructed on a 779

acres of land in Bachok and 250 acres in Jeli. The Faculty of Creative

Technology and Heritage and the Faculty of Entrepreneurship and Business will

be stationed in Bachok Campus while the Faculty of Agro Industry and Natural

Resources will be stationed in Jeli Campus. The campus is being developed in 2

phases with Phase 1 comprising of 3 faculties, a hostel with 800 student capacity

and administrative facilities. Under the Ninth Malaysia Plan (9th MP), the Ministry

of Higher Education (MoHE) has approved RM165.70 million for the construction

of UMK Campus Phase 1. The construction of the Bachok Campus consists of 2

packages with a total allocation of RM100 million i.e. Package 1 (Earth Works

and Infrastructure) and Package 2 (Building Works) while the allocation of

RM41.40 million is for the Jeli Campus building and RM24.30 million for the

hostel. MoHE as the owner of the project has appointed the Higher Education

Branch of Public Works Department (PWD) to implement this project and the

Kelantan State PWD director as the Superintending Officer.

b. An Audit carried out between September and December 2012 found the

management of this project was unsatisfactory. Among the weaknesses in the

construction of UMK Campus were as follows:

i. Delays in completing the construction between 176 to 445 days;

ii. Delays in applying for the extension of time by the contractor and delays in

approving them by the Kelantan State PWD;

iii. Variations of works carried out prior to the approval;

iv. Construction works did not meet the specifications, of inferior quality and

there were unfeasible specifications;

v. The roof of the Bachok Campus collapsed 3 times due to structural failure;

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vi. The hostels’ facilities were inadequate to accommodate the number of

students; and

vii. The monitoring of the project was ineffective.

c. Audit recommended that UMK and PWD should take the following actions:

i. PWD should conduct a thorough inspection to ensure all defects are

repaired immediately by the contractor before the Defects Liability Period

expires. Continuous monitoring is necessary to ensure that the rectification

works are of good quality.

ii. PWD must take prompt actions on construction works which were

unfeasible and did not meet the required specifications to ensure the

safety and comfort of users as well as achieving the objectives.

iii. PWD should conduct a thorough study on the design and the installation of

the roof structure to prevent the recurrence in order to safeguard the users.

iv. UMK should ensure that all the hostels and other facilities are adequate for

students and staff which are essential in creating a conducive learning

environment.

5. UNIVERSITY UTARA MALAYSIA

- Assets Management

a. University Utara Malaysia (UUM) Campus was built at a cost of RM580 million

with hostel facilities equipped with furniture and fittings for the students. UUM

rents furniture for all its 10 Student Residential Halls (DPP) to accommodate

20,000 students. From 2010 to 2012, the Ministry of Higher Education has

allocated RM31.65 million for procurement, maintenance of equipment and

rental of furniture. Assets management in UUM is undertaken by the Assets and

Procurement Unit of the Treasury Department, the Development and

Maintenance Department, the Computer Centre and the Responsibility Centre.

b. An audit carried out between October and November 2012 found several

weaknesses in the assets management and furniture rented by UUM. Among

the weaknesses were as follows:

i. Weaknesses in the management on the furniture rented for the DPP;

ii. Assets and inventories worth RM920,871 were not recorded in IFAS

System;

iii. Procurement of assets was not properly planned resulting in equipment

purchased but not utilised;

iv. Delays in assets maintenance has resulted in assets not being utilised

optimally, reducing the life span of assets, requiring additional storage

space for assets and incurring higher repair costs;

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v. Assets not properly located resulted in problems managing the equipment,

unsafe condition and endanger the safety of users;

vi. Weaknesses in the record keeping have increased the risks of losses and

misappropriation of assets;

vii. Delays in resolving loss and write off cases have caused disciplinary

actions or surcharge on officers to be deferred; and

viii. Delays in disposing assets had resulted in additional storage space

required, impairment of assets and not obtaining the best returns upon

disposal.

c. Audit recommended that UUM should take the following actions:

i. UUM should plan the procurement of assets prudently to optimise

usage and avoid wastage.

ii. UUM should monitor all its assets effectively to ensure that the assets

supplied meet the specifications, in good condition and according to the

agreements.

iii. UUM should carry out physical checks on all assets to ensure its existence

and usability.

iv. UUM should abide all regulations on disposal, loss and write-off

procedures of assets and inventory. Records of asset should be updated

and complete.

6. EMPLOYEES PROVIDENT FUND

- Management of Overseas Real Estate Investment

a. The Employees Provident Fund (EPF) was established under the Employees

Provident Fund Ordinance in 1951 as a retirement scheme and regulated by the

Ministry of Finance. On 1 June 1991, the Ordinance was amended and replaced

with the Employees Provident Fund Act 1991 (Act 452). Section 26 (2) (e) allows

EPF to invest outside Malaysia with the written permission from the Minister of

Finance. Therefore, EPF has chosen the real estate investment as a component

of its annual strategic asset allocation in order to optimise returns for the purpose

of annual dividend payments. EPF has invested abroad namely in the United

Kingdom through its subsidiary Global KWASA (Jersey) Limited, in Australia

through CIMB Trust Capital Australia Office Fund No. 1 (AOF1) and Goodman

Industrial Trust and in Singapore through a joint venture with Guocoland

Singapore Pte. Limited.

b. An Audit carried out between July and September 2012 found the management

of the EPF’s real estate investment in the UK was properly managed. Details on

the management of the property real estate investment are as follows:

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i. The overall performance of the EPF’s investment for the year 2012

amounted to RM526.75 billion of which RM12.75 billion consist of

investment in a real estate and infrastructure;

ii. The investment of real estate and infrastructure has increased by RM2.94

billion from RM9.81 billion in 2011 to RM12.75 billion in 2012;

iii. EPF recorded a gross income of RM31.02 billion in 2012 compared with

RM27.23 billion in 2011 and RM24.06 billion in 2010;

iv. EPF received returns from real estate investments amounted RM596

million in 2012, an achievement of 16 % above targetted revenue of

RM515 million.

c. Overall, the management of real estate investment in the United Kingdom is

good, recorded profitable returns and achieved its objectives. The real estate

investment in 2012 has increased to RM12.75 billion from RM9.81 billion in 2011.

Investment income has increased by RM286.03 million or 92.4 % from RM309.60

million in 2011 to RM595.63 million in 2012.

7. RETIREMENT FUND (INCORPORATED)

- Management of Equity Investments

a. The Retirement Fund (Incorporated) [KWAP] investments consist of Quoted and

Unquoted Shares, Malaysian Government Securities, Private Debt Securities,

Quasi Bonds, External Fund Managers, Participation in Private Equity Funds,

Loans, Investments in Subsidiaries and Associate, as well as Money Market

Instruments. By the end of 2012, KWAP’s total investments stood at RM86.75

billion or 97.8 % from KWAP’s total fund of RM88.73 billion. KWAP manages its

investments in equity portfolio internally through its own Equity Department and

externally through external fund managers. For the year ended 31 December

2012, KWAP’s total investments in equity stood at RM30.15 billion with a realised

equity investment income of RM3.14 billion giving a return on investments of 11.3

% for the year.

b. An audit carried out between June and September 2012 found the management

of equity investments was good and has achieved its objectives. However, there

were several weaknesses observed as follows:

i. KWAP suffered losses from its investment in TIME dotCom (TdC) shares

due to no dividend yield, unrealised losses of RM302.10 million and

realised losses on the disposal of TdC shares amounting to RM209.55

million;

ii A total of 3 quoted shares counters which has been removed from KWAP

Universe of Securities were still in the list of active trading counters in the

Integrated Fund Investment Management System; and

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iii. Working papers and minutes of meetings of the Investment Committee

were not properly maintained and updated.

c. Audit recommended that KWAP should take the following actions:

i. KWAP Investment Panel should ensure that investments in equities are

done in companies which are viable, able to provide dividends and have

potential capital gains.

ii. KWAP Investment Management Division should update, maintain and

ensure investment records are more organised.

8. ACCOUNTANT GENERAL’S DEPARTMENT MALAYSIA

- Implementation of the Standard Accounting System For The Government

Agencies At Federal Statutory Bodies

a. The Accountant General's (AG) Department of Malaysia has financed the

implementation of the Standard Accounting System ForT he Government

Agencies (SAGA) Phase 1 in 2005 for 12 federal statutory bodies costing

RM10.75 million. AG Department also appointed a consultant to assist in the

implementation of SAGA at a cost of RM5.88 million. Besides Phase 1, the SAGA

Project was extended to Phase 2 in 2008 involving 10 federal statutory bodies at

a cost of RM12.11 million. The SAGA Project Phase 3 costing RM2.50 million

was implemented in 2007 covering 15 federal statutory bodies. Phase 3 involves

upgrading the SAGA version 6.0, 6.4, 7.0 and 7.2 to 7.4 in order to ensure

continuity and consistency for all SAGA users. In 2009, SAGA Project entered

into Phase 4 involving 7 federal statutory bodies at a cost of RM6.89 million and

version 8.0 was developed with the Report Writer and Branch Accounting

module. In 2010, Phase 5 which is the final phase funded by the AG Department

costing RM5.61 million was developed and implemented by three vendors.

b. An Audit carried out in October 2012 revealed that the overall performance on the

management of SAGA was not satisfactory. Among the weaknesses were as

follows:

i. Performance on the implementation of SAGA was not satisfactory;

ii. Annual maintenance cost of the SAGA was high between RM114,100 to

RM439,460;

iii. Development of the SAGA Project at federal statutory bodies was delayed

between 1 to 27 months;

iv. The signing of the SAGA Project Agreement was delayed between 1 to 18

months; and

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v. Submission of source code by Century Software (M) Sdn. Berhad to AG

Department was delayed between 7 to 71 months.

c. Audit recommended the following actions to improve the performance of the

SAGA so as to achieve its set objectives:

i. Effective monitoring should be carried out continuously at federal statutory

bodies to ensure optimal use of the SAGA and to resolve all related

problems by the vendor within the specified time.

ii. The AG Department should implement quality assurance procedures to

ensure that the upgraded version of SAGA is impeccable. This issue was

also reported in the Auditor General's Report Year 2008.

iii. Continuous improvement of the SAGA and vendor’s commitment is

required to ensure continuity in the usage of this system by federal

statutory bodies.

iv. To review the maintenance costs on SAGA as the charges are high for the

federal statutory bodies.

v. To ensure all agreements are signed promptly and to possess the source

code in the interest of the Government and the federal statutory bodies.

PART II

- THE MANAGEMENT OF SUBSIDIARY COMPANIES OF FEDERAL STATUTORY

BODIES

9. INTRODUCTION

The Audit Order (Accounts of Companies) 2009 was gazetted on 17 December 2009 to

enable the Auditor General to conduct audits on subsidiary companies and sub-subsidiary

companies of federal statutory bodies. Three subsidiary companies were selected for audit

and to be tabled in the first Parliament session of 2013.

10. MANAGEMENT OF RISDA BAJA SDN. BERHAD

(Subsidiary of the Rubber Industry Smallholders Development Authority)

a. RISDA Baja Sdn. Berhad (RBSB) is responsible to produce and supply

compound fertilizers to smallholders participating in the Replanting Programmes

and programmes to increase rubber productivity. In line with its responsibility,

RBSB collaborated with the National Fertilizer Consortium to obtain supplies of

quality raw materials from global producers to produce compound fertilizers. The

raw materials will then be processed according to formulas determined by RISDA

at the lowest cost.

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b. An audit carried out in June 2012 revealed that the financial performance and

financial management as well as the corporate governance of RBSB were good.

However, the management of activities of RBSB was satisfactory. Among the

weaknesses were as follows:

i. The scope of responsibilities of those involved was not clearly defined in

the agreement between RBSB and RISDA. Penalty for non-compliance

was not imposed;

ii. Bags of fertilizers were damaged due to mishandling at the factory and

also due to physical condition of the vehicles (lorries). This is due to the

lack in monitoring the collection and delivery processes of fertilizers;

iii. There was no control over the delivery of fertilizers to RISDA/RISDA

owned companies. As such, there were delays in RBSB submitting their

reimbursements to RISDA/RISDA owned companies as all delivery notes

are required to be submitted together with the reimbursements.

c. Audit recommended that RISDA and RBSB should take the following actions:

i. RISDA and RBSB should ensure the agreement clearly define the scope of

responsibilities of all involved and also impose penalty on any non-

compliance.

ii. RBSB should monitor the collection and delivery of fertilizers to reduce

damages onto the fertilizer bags.

iii. RBSB should discuss with RISDA and RISDA Fleet to resolve the delays in

receiving delivery notes.

11. MANAGEMENT OF SMALLHOLDERS DEVELOPMENT CORPORATION SDN.

BERHAD

(Subsidiary of the Rubber Industry Smallholders Development Authority)

a. Smallholders Development Corporation Sdn. Berhad (SHDC) was incorporated

on 22 April 1978 as a Rubber Industry Smallholders Development Authority

(RISDA) fully-owned company with an authorised and paid-up capital of RM10

million. SHDC’s activities involve security services, management and consultancy

services, rental, general trading and transportation.

b. An audit conducted between July and August 2012 revealed that the financial

performance and financial management as well as corporate governance of

SHDC were good. SHDC recorded an increase in profit of RM0.18 million in 2011

totalling RM0.72 million as compared to RM0.54 million in 2010. However, the

management of the security services as well as the management and

consultancy services was satisfactory. Among the weaknesses were as follows:

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i. Only 2 out of the 5 types of security services stated in the Strategic Plan of

2009 to 2013 were implemented as at August 2012;

ii. The management on the security services did not comply with the rules

and regulations such as the perquisites on appointments, security vetting

and training;

iii. Procedures on procurement with regards to award of project and

appointment of contractor were not complied; and

iv. The project did not achieve its set objectives as the contractor failed to

comply with the terms of the agreement.

c. Audit recommended that SHDC should take the following actions:

i. SHDC should focus and strengthen on the static and patrol services and

provide security services to all premises and farms belonging to RISDA

and its subsidiaries.

ii. SHDC should strengthen the security services and comply with the

circulars from the Ministry of Home Affairs.

iii. SHDC should review its business strategy to ensure more profitable and

skilled activities are carried out.

iv. SHDC should conduct due diligence on contractors appointed for a project.

12. MANAGEMENT OF INSTITUT PROFESIONAL BAITULMAL SDN. BERHAD

(Subsidiary of Federal Territory Islamic Religious Council)

a. Institut Profesional Baitulmal Sdn. Berhad (IPB) was established on 23 April 1992

under the Companies Act 1965 with 70% equity held by the Wilayah Persekutuan

Islamic Religious Council (MAIWP) and 30% by Wilayah Persekutuan

Foundation. The authorized and paid up capital is RM5 million. IPB is a private

educational institution offering professional courses such as the London Chamber

of Commerce and Industry International Qualifications (LCCIIQ), Certified

Accounting Technician (CAT) and Certified Tax Institute of Malaysia (CTIM). In

addition to this, IPB also conducts joint programmes with University of

Technology Mara (UiTM) and Open University.

b. An audit carried out between February and March 2012 revealed that IPB's

financial performance for the financial years 2007 until 2011, financial

management and corporate governance were good. However, the management

of the courses was satisfactory. Among the weaknesses were as follows:

i. Baitulmal scholarships totaling RM1 million were not distributed to students

and yet to be returned to MAIWP; and

12

ii. Pre-LCCI courses held in preparation for the LCCIIQ course did not

achieve the stated objectives.

c. Audit recommended that IPB and MAIWP should take the following actions:

i. IPB should ensure that all MAIWP Baitulmal scholarships not distributed to

the students be returned to MAIWP and to submit periodical reports on

scholarship distribution. In addition to this, MAIWP should draw up

guidelines on grant and scholarship distribution to ensure that the

management of scholarship is carried out properly.

ii. IPB should review the Pre-LCCI programme as to whether it should be

continued or replaced with other appropriate courses taking into

consideration the student's academic level. This is to prevent wastage of

funds and human resources.

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1. Overall, the performance audits on 7 projects and activities showed that the

planning of the projects and activities by the federal statutory bodies were good.

However, in terms of their implementation, there were several weaknesses that need to

be immediately addressed to ensure the implementation of each project or activity is

carried out in an efficient, economical and effective manner so as to achieve the stated

objectives. Some agencies have taken corrective actions after being highlighted by the

audit. Nevertheless, continuous corrective actions should be taken. As audit is

performed based on sampling and on limited scope, a check and balance system

should be established by the Chief Executive Officer to ensure a thorough examination

is carried out. This is to determine all projects and activities with similar weaknesses are

highlighted and corrective actions and improvement are taken. This will ensure all

agencies implement their projects and activities in a timely manner and obtain value for

money.

2. The Chief Executive Officers of the federal statutory bodies should monitor the

financial performance and management of activities of the subsidiaries to warrant good

corporate governance and ensure global competitiveness.

3. In addition to complying legal requirements, I hope this Report will provide lessons

learnt to prevent recurrance of the weaknesses, strengtening improvement efforts and

enhancing accountability and integrity. Eventually, it will contribute towards the

achievement of the National Transformation Programme to fulfill the slogan of

“People First, Performance Now” and conformed to the needs, interests and

aspirations of all Malaysians.

NATIONAL AUDIT DEPARTMENT

Putrajaya

25 March 2013

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JABATAN AUDIT NEGARA MALAYSIANo. 15, Aras 1-5, Persiaran Perdana, Presint 2

Pusat Pentadbiran Kerajaan Persekutuan62518 Putrajaya

www.audit.gov.my

AUDITOR GENERAL'S REPORT 2012 SERIES 1 ON THE AUDIT OF THE ACTIVITIES OF FEDERAL STATUTORY BODIES AND THE MANAGEMENTCONTENTPREFACEINTRODUCTIONSYNOPSISPART I: MANAGEMENT OF FEDERAL STATUTORY BODIES ACTIVITIES1.INTRODUCTION2.MALAYSIAN AGRICULTURAL RESEARCH AND DEVELOPMENT INSTITUTE- Management of Shah Alam National Botanical Garden Project3.UNIVERSITY MALAYSIA SABAH- Management on the Maintenance Works and Services of the Mechanical and Electrical Systems4.UNIVERSITY MALAYSIA KELANTAN-Management on the Construction of the Campus5.UNIVERSITY UTARA MALAYSIA- Assets Management6.EMPLOYEES PROVIDENT FUND- Management of Overseas Real Estate Investment7.RETIREMENT FUND (INCORPORATED)-Management of Equity Investments8.ACCOUNTANT GENERAL’S DEPARTMENT MALAYSIA- Implementation of the Standard Accounting System For The Government Agencies At Federal Statutory Bodies

PART II : THE MANAGEMENT OF SUBSIDIARY COMPANIES OF FEDERAL STATUTORY BODIES9.INTRODUCTION10.MANAGEMENT OF RISDA BAJA SDN. BERHAD-Subsidiary of the Rubber Industry Smallholders Development Authority11.MANAGEMENT OF SMALLHOLDERS DEVELOPMENT CORPORATION SDN. BERHAD-Subsidiary of the Rubber Industry Smallholders Development Authority12.MANAGEMENT OF INSTITUT PROFESIONAL BAITULMAL SDN. BERHAD-Subsidiary of Federal Territory Islamic Religious Council

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